IN THE SUPREME COURT OF INDIA
Civil Appeal No. 8542 of 2009
Decided On: 29.12.2015
Appellants: LIC of India
Vs.
Respondent: Insure Policy Plus Services Pvt. Ltd. and Ors.
Hon'ble Judges/Coram:
Vikramajit Sen and Shiva Kirti Singh, JJ.
Case Note:
Insurance - Assignment of lapse insurance policy - Section 38 Insurance Act, 1938; The Insurance Laws (Amendment) Act, 2015 - First Respondent dealt in assignment of life insurance policies - Also traded lapsed policies - Insurance policies required registration in Appellant's books - Registration of lapsed policies was declined by Appellant - Relied on two Circulars issued by it - Cited public policy considerations - Respondents succeeded in petition before High Court - Life insurance policies were not social security - Other jurisdictions allowed trade and assignment of lapsed policies - Appellant's Circulars were illegal - Were contrary to Section 38 of the Act - Whether insurance policies are freely tradable and assignable
Facts
First Respondent is a company engaged in the business of accepting and dealing in assignment of life insurance policies issued by Appellant. First Respondent acquired life insurance policies from policy holders by paying them consideration. Assigned policy was registered and recorded in Appellant's books, subsequently being assigned to a third party for consideration. Upon registration in the books of the Appellant, it could then be further assigned. In January 2003, several branches of Appellant refused to accept notices of assignment lodged by First Respondent. A Circular was issued on 22.10.2003 introducing measures concerning the practice of buying lapsed insurance policies, allowing third-parties to make windfall gains by wagering such contracts. Appellant also stated in a letter to the First Respondent that assignments in favour of companies who are only trading in insurances would not be permissible. On 2.3.2005 Appellant issued another Circular reiterating the contents of previous circular, and laying down a procedure for "uniform implementation by all the offices of the Corporation".
First Respondent petitioned High Court seeking a declaration that insurance policies issued by Appellant are freely tradable and assignable in accordance with the provisions of the Act and Circulars dated 22.10.2003 and 2.3.2005 were illegal. High Court allowed the petition, making the following observations: life insurance policies were personal, movable property of the policy holder, and can be said to be an actionable claim within the meaning of Section 3 of the Transfer of Property Act; consequent to private entry into business of life insurance it could not be contended that life insurance was a measure of social security; law in the United States of America was though there has to be an insurable interest at inception when policy is taken out, subsequently there was no requirement of insurable interest at the time of transfer or assignment. Circulars dated 22.10.2003 and 2.3.2005 were held illegal, and insurance policies were determined to be transferable and assignable. Hence, the present appeal.
Held, dismissing the appeal
1.From unamended Section 38(1) of the Act it emerged that on transfer or assignment of a policy and on requisite procedure being complied with, assignee alone has an absolute interest in the policy. Insurer was bound by provisions of Section 38 of the Act, which was mandatory and substantive, to accept such a transfer or endorsement. Section 38 was thus clearly mandatory and substantive. Pursuant to Amendment Act,2015, Section 38 allows insurer the discretion to decide whether or not to accept a transfer or assignment of an insurance policy. Amendment Act, 2015 is neither declaratory nor clarificatory; if it was intended to be retrospective, it would have stated explicitly. Instead, Section 38(9) protects rights and remedies of assignees that arose prior to commencement of the Amendment Act, 2015.[11] and[13]
2.In cases of fraud, assignment could be challenged on that ground even after being recorded; alternatively, it could refuse to recognize revival, which it could within its contractual rights. However, it is not open to Appellants to charter a course different to one postulated in the Act by means of its own Circulars. It was inappropriate for Appellant to attempt import of public policy principles, which are imprecise and difficult to define into contractually defined matters. It is Appellant that drafted the insurance policy and was well-positioned to include clauses making it specifically impermissible to assign policies. In the absence of any such covenant, the Appellant cannot claim that such transfers or assignments violate public policy. Contrarily, the general global practice is to permit assignments of insurance policies.[12],[14] and[15]
Civil Appeal No. 8542 of 2009
Decided On: 29.12.2015
Appellants: LIC of India
Vs.
Respondent: Insure Policy Plus Services Pvt. Ltd. and Ors.
Hon'ble Judges/Coram:
Vikramajit Sen and Shiva Kirti Singh, JJ.
Case Note:
Insurance - Assignment of lapse insurance policy - Section 38 Insurance Act, 1938; The Insurance Laws (Amendment) Act, 2015 - First Respondent dealt in assignment of life insurance policies - Also traded lapsed policies - Insurance policies required registration in Appellant's books - Registration of lapsed policies was declined by Appellant - Relied on two Circulars issued by it - Cited public policy considerations - Respondents succeeded in petition before High Court - Life insurance policies were not social security - Other jurisdictions allowed trade and assignment of lapsed policies - Appellant's Circulars were illegal - Were contrary to Section 38 of the Act - Whether insurance policies are freely tradable and assignable
Facts
First Respondent is a company engaged in the business of accepting and dealing in assignment of life insurance policies issued by Appellant. First Respondent acquired life insurance policies from policy holders by paying them consideration. Assigned policy was registered and recorded in Appellant's books, subsequently being assigned to a third party for consideration. Upon registration in the books of the Appellant, it could then be further assigned. In January 2003, several branches of Appellant refused to accept notices of assignment lodged by First Respondent. A Circular was issued on 22.10.2003 introducing measures concerning the practice of buying lapsed insurance policies, allowing third-parties to make windfall gains by wagering such contracts. Appellant also stated in a letter to the First Respondent that assignments in favour of companies who are only trading in insurances would not be permissible. On 2.3.2005 Appellant issued another Circular reiterating the contents of previous circular, and laying down a procedure for "uniform implementation by all the offices of the Corporation".
First Respondent petitioned High Court seeking a declaration that insurance policies issued by Appellant are freely tradable and assignable in accordance with the provisions of the Act and Circulars dated 22.10.2003 and 2.3.2005 were illegal. High Court allowed the petition, making the following observations: life insurance policies were personal, movable property of the policy holder, and can be said to be an actionable claim within the meaning of Section 3 of the Transfer of Property Act; consequent to private entry into business of life insurance it could not be contended that life insurance was a measure of social security; law in the United States of America was though there has to be an insurable interest at inception when policy is taken out, subsequently there was no requirement of insurable interest at the time of transfer or assignment. Circulars dated 22.10.2003 and 2.3.2005 were held illegal, and insurance policies were determined to be transferable and assignable. Hence, the present appeal.
Held, dismissing the appeal
1.From unamended Section 38(1) of the Act it emerged that on transfer or assignment of a policy and on requisite procedure being complied with, assignee alone has an absolute interest in the policy. Insurer was bound by provisions of Section 38 of the Act, which was mandatory and substantive, to accept such a transfer or endorsement. Section 38 was thus clearly mandatory and substantive. Pursuant to Amendment Act,2015, Section 38 allows insurer the discretion to decide whether or not to accept a transfer or assignment of an insurance policy. Amendment Act, 2015 is neither declaratory nor clarificatory; if it was intended to be retrospective, it would have stated explicitly. Instead, Section 38(9) protects rights and remedies of assignees that arose prior to commencement of the Amendment Act, 2015.[11] and[13]
2.In cases of fraud, assignment could be challenged on that ground even after being recorded; alternatively, it could refuse to recognize revival, which it could within its contractual rights. However, it is not open to Appellants to charter a course different to one postulated in the Act by means of its own Circulars. It was inappropriate for Appellant to attempt import of public policy principles, which are imprecise and difficult to define into contractually defined matters. It is Appellant that drafted the insurance policy and was well-positioned to include clauses making it specifically impermissible to assign policies. In the absence of any such covenant, the Appellant cannot claim that such transfers or assignments violate public policy. Contrarily, the general global practice is to permit assignments of insurance policies.[12],[14] and[15]
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