2007 Supreme(Bom) 407
IN THE HIGH COURT OF JUDICA TORE AT BOMBAY
F.I. REBELLO & ANOOP V. MOHTA, JJ.
Insure Policy Plus Services (India) Pvt. Ltd. & Anr.- Petitioners
Versus
The Life Insurance Corporation of India & Anr.- Respondent
Writ Petition No.2159 of 2004
Decided on 22nd March, 2007.
Advocates appeared
Mr. NAVROZ SEERVAI, Sr. Counsel with Mr. FERDOZ POONIWALA with Mr. S. H.
MERCHANT and Mr. BHAVIN GADA and Ms. MANIK JOSHI i1b. M. & M. Legal Venture, for the Petitioners.
Mr. RAFIQUE A. DADA, Sr. Counsel with Ms. SNEHAL PARANJAPE and Mr. J. P. KAPADIA and Ms. SNEHA PHENE and Mr. O. MOHANDAS i/b. Little & Co., for Respondent No.1. Mr. M. G. BARVE, for Respondent No.2.
Mr. S. V. Krishna Mohan, Joint Director (Legal), IRDA Hyderabad, present.
Headnote:Insurance Act, 1938 - Section 38 - Scope of - Substantive - Not procedural - Assignment or transfer of policy - Becomes binding on insurer recording fact of such transfer or assignment - On transfer or assignment, assignee alone has absolute interest in same - Entitled to benefits. - The Insurance Act, therefore, treats an assignee as the policy holder if the policy is assigned once and for all. Court is, therefore, of the considered opinion that once the insured transfers or assigns the policy in favour of the assignee the assignment is complete between them. The provisions of the section leave no doubt that the insurer has no choice but to accept the transfer or assignment as the case may be if the procedure required by Section 38 has been followed, but subject to the terms of the policy. There is no hesitation in holding that Section 38 is substantive and not procedural. The position in law, therefore, would be that the interest in the policy earlier held by the assignor is transferred to the assignee with all benefits attached thereto. The assignment becomes binding on the insurer recording the fact of such transfer or assignment. The submission, therefore, advanced on behalf of the respondent No. 1 herein that Section 38 is merely procedural is devoid of merit.
Once the policy has been transfer- red to the assignee it is the assignee who becomes the policy holder. Such policy holder would be bound by the terms of the policy including the effect of the death of an insured. If such assignee seeks to claim benefit inspite of the death of the original insured, in Court’s opinion, to that extent, the assignee would only be entitled to the benefits as on the day of the death of the original insured when the policy becomes payable in terms of the contract.
Insurance Act, 1938 - Sections 38 and 113(2) - L.I.C. Act, 1956, Section 43(1) - Insurance policy - Conversion of - Surrender value acquired by policy - Would not lapse - To be kept alive to extent of paid up sum insured - Includes revisionary benefits - Such a policy not be eligible to participate in profits
Declared distributable after conversion as paid up policy. - It is irrelevant, whether on account of Court’s interpretation the policy becomes a mere fixed deposit. The assignee on the death of the original insured may be entitled to windfall gains is immaterial. The assignee is the policy holder. The respondent No. 1 is bound to follow the terms of the policy. A party like the petitioner would be in the business only in the event its profits are ensured. The private operators in the business of Life Insurance as pointed out at the time of argument accept such assignments. It is only respondent No. 1 which is refusing to accept assignments in favour of companies like the petitioners.
F. I. REBELLO, J.:- The 1st Petitioner, a Company registered under the Companies Act, is engaged inter alia in the business of assignment of life insurance policies issued by the 1st respondent. The 2nd petitioner is the Director and shareholder of 1st petitioner. The 1st respondent is the statutory corporation established under Section 3 of the Life Insurance Corporation Act, 1956 which hereinafter shall be referred to as the Life Insurance Act. The respondent No.2 is the statutory authority established under Section 3 of the Insurance Regulatory & Development Authority Act, 1999 which hereinafter shall be referred to as IRDA. According to the petitioners, their business involves acquiring life insurance policies from the policy holders by paying value consideration to the policy holder. An Insurance policy would be assigned by the policy holder to the 1st petitioner in lieu of valid consideration. The assignment will be registered and recorded in the books of the 1st respondent. The 1st petitioner would further assign the said insurance policy to a third party for consideration. The said further assignment would again be registered and reflected in the books of the 1st respondent. This business of assignment of life insurance policy is important and essential characteristics of the life an insurance contracts. A life insurance policy is the personal movable property of the policy holder. The assignment of policies has led to the business of acquisition of life insurance policies the world over and has been prevalent including in India for a considerable period of time. In U.K. the current size of the business is estimated to be 2 billion sterling pounds (approximately Rs.15,000 crores). The size of U.S. Market is estimated at 134 billion dollars. European market has an exclusive Endowment Fund of over 300 million pounds. The 1st petitioner understood that such business was legally permissible in India, by virtue of the provisions of Section 38 of the Insurance Act. Before commencing business the 1st petitioner had discussed with the 1st respondent who confirmed that the business of assignment of insurance policies was legally permissible in India. The first petitioner before incorporation was a partnership firm carrying on business in the name of Policy Plus International. The 1 st petitioner was incorporated in April, 2003 for carrying on the said business and has spent a sum of Rs.358.90 lakhs. The 1st petitioner has also spent Rs.183.14 lakhs on software development, marketing and administrative functions. The 1st respondent during the said period of 3 years, recorded the assignment of life insurance policies which were assigned to the 1st petitioner or assigned by the 1st petitioner in favour of some other person, without any demur or objection. Sometime in January/ February, 2003 several branches of the 1st respondent in the Nasik Division, refused to accept notices of assignments lodged by the 1st petitioner. The 1st petitioner addressed' various communications to officers of respondent No.1, complaining about this refusal by the Nasik Division to accept the notices of assignments lodged by the 1st petitioner. Pursuant to this correspondence the Regional Manager(Marketing) of the 1st respondent addressed letters to the Senior Divisional Manager of the Nasik Division and quoted from the opinion of their legal department, which had opined that the assignment of life insurance policy was permissible under Section 38 of the Insurance Act, 1938. Inspite of this the Nasik Division refused to accept the notices of assignment. On 22nd October, 2003 the 1st respondent issued a Circular, directing that the assignment in favour of companies trading in insurance policy should be declined. In one of the letters addressed to the 1st petitioner, it was· stated that the assignment was not permissible in favour of the companies who were only trading in insurance business.
2. Apart from the provisions of Section 38 of the Insurance Act,
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