Apex Court clarified that the insurance policies issued by LIC (Appellant) are transferable and assignable in accordance with the provisions of the Insurance Act, 1938 and in terms of the contract of life insurance.The Apex Court held that the 2015 amendment to Section 38 of the Insurance Act is prospective in nature and the intention of the Legislature is clear in incorporating sub-section (9) which protects rights and remedies of assignees that arose prior to the commencement of the Amendment Act provided that they comply with the requirements laid out in Section 38 are valid.
Bombay High Court in the impugned judgment under challenge before the Apex Court clarified that the insurance policies issued by LIC (Appellant) are transferable and assignable in accordance with the provisions of the Insurance Act, 1938 and in terms of the contract of life insurance.
The Respondent Company engaged in the business of accepting and dealing in assignment of life insurance policies issued by LIC, as part of its business acquire life insurance policies from policy holders by paying them consideration. The assigned policy is registered and recorded in the books of LIC, and is then further assigned to a third party for consideration. Upon registration in the books of LIC, it could then be further assigned.
LIC during the relevant period through its several branches refused to accept notices of assignment lodged by the Respondent Company. LIC also issued a circular stressing on the need of LIC policies as measures of social security and accordingly discouraging the practice of assignments as trading business.
A writ was accordingly filed by the Respondent Company seeking a Declaration that the insurance policies issued by LIC are freely tradable and assignable in accordance with the provisions of the Insurance Act, 1938 and that the relevant LIC Circulars and its actions of refusing to register the assignment of life insurance policies as illegal, null and void.
High Court allowed the petition holding that life insurance policies are the 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. It was further held that once the insured transfers or assigns the policy in favour of the assignee, the assignment is complete between them. The insurer clearly then has no choice or option in law but to accept the transfer or assignment, provided the procedure laid down by Section 38 is followed. The High Court had held that Section 38 is a substantive and not a procedural provision, which makes it clear that the Legislature did not treat life insurance as a security for protection of the widow or children of the life assured, but as a form of investment and self-compelled saving.
Question, thus before the Supreme Court was to determine as to whether insurance policies are freely tradable and assignable?
Section 38 as it stood prior to amendment clarifies that on transfer or assignment of a policy and on the requisite procedure being complied with, the assignee alone has an absolute interest in the policy. The insurer was bound by the provisions of Section 38 to accept such a transfer or endorsement. The only limitations placed on transferring a policy were in terms of the procedure laid out in Section 38, and subject to the terms of policy itself. The Section left no scope for the insurer to dispute the right to transfer or assign the policy and it was thus mandatory and substantive.
The 2015 amendment gives LIC a discretion as to whether or not to accept an assignment provided its decision is predicated on the transfer or assignment being (a) mala fide or (b) contrary to the interest of the policy holder or (c) against public interest or (d) only for trading in the policy. The question before the Apex Court was limited i.e. to decide on position of law as it stood prior to the 2015 statutory amendment.
On the effectiveness of amended provision, it was held that the language of Section 38 cannot be interpreted to mean that this is what Section 38 had meant all along, as had the Legislature intended to amend Section 38 retrospectively, it would have said so explicitly. Instead, sub-section (9) has been incorporated, which protects rights and remedies of assignees that arose prior to the commencement of the Amendment Act.
Parliament thus clearly intended to allow all previous assignments and transfers provided that they complied with the requirements laid out in Section 38 and once the provision is clear it was held as not necessary to discuss/ determine whether insurance policies partake of the nature of social security, or whether the transfer of such policies tantamount to wagering contracts. Circulars were held to be ulra vires to the statute and appeal was accordingly dismissed.
[LIC of India vs. Insure Policy Plus Services Pvt. Ltd. & Ors.]
Civil Appeal No. 8542 of 2009