Dravya Finance Pvt. Ltd. vs Life Insurance Corporation of India

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2010 Supreme(Bom) 719

2010(4) ALL MR 688
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
F. I. REBELLO & J. H. BHATIA, J.
Dravya Finance Pvt. Ltd. & Anr. –Appellants
Vs.
Life Insurance Corporation of India & Anr. – Respondents
Writ Petition No.1579 of 2007
Decided on : 19th May, 2010.

Advocates Appeared:
Mr. N.H. SEERVAI, Senior Counsel, with Mr. SHARAN JAGTIANI, & Mr. DHAVALKENI i/b. M & M Legal Ventures. Advocates for the Petitioner.
Ms. SNEHAL PARANJPE with Mr. O. MOHANDAS & Mr. INDER TIWANA i/b. M/s. Little & Co., Advocates for the Respondent No.1.

Headnote:Life Insurance Corporation Act, 1956 - Section 6 - Insurance Act, 1938, Section 38 - Constitution of India, Articles 19(1)(g) and 300-A - Assignment of Life Insurance policies - Imposition of charge of Rs. 250/- per assignment by LIC respondent-1 - Challenged by petitioner - Contentions, circular of respondent-1 for changes ultra vires Section 38 of Act 1938 - Respondent-1 not empowered to issue circular - Circular ultra vires Article 14 of Constitution - Held - Impugned circular violative of both Insurance Act as also LIC Act - Charge imposed without authority of law - Demand of service charge in contravention of petitioner’s fundamental right to carry on trade and business - Violative of Article 19(1)(g) of Constitution - Infringes also Article 300-A of Constitution - Impugned circular illegal and unconstitutional - Petition allowed. - It would, thus, be clear that there must be a specific provision conferred by the Act on the delegate to levy a fee. Court do not find that the power to make rules under the LIC Act as also the Insurance Act, 1938 is conferred on the respondent-Corporation. Under the LIC Act, the power to make rules is conferred on the Central Government while the power to make regulations is conferred on the Corporation with the previous approval of the Central Government. The power to charge fee is specifically conferred on the Central Government by making rules. Under the Insurance Act, the power to make rules is conferred on the Central Government and under Section 114-A, the power to make regulations is conferred on the authority. "Authority" has been defined to mean "the Insurance Regulatory and Development Authority" established under sub-section (1) of Section 3 of the Insurance Regulatory and Development Authority Act. The impugned circular therefore, issued by the Corporation is neither based on the provisions of the LIC Act nor the Insurance Act. As consistently observed by the Supreme Court, it is not possible to read the concept of incidental and ancillary power in the matter of exercise of fiscal power. There is no scope of implied authority for imposition of a fee. The fee must be authorised by the statute and the exercise of the power must be governed by sufficient guidelines. In the instant case, we do not find that the impugned circular has been issued pursuant to the express power conferred on the Corporation. Court have already explained Section 6 of the Insurance Act. In that context, the impugned circular would clearly be violative of both the provisions of the Insurance Act as also the LIC Act. The service charge/fee is ultra vires both the above mentioned Acts.
Once a service charge/fee is imposed without the authority of law, it affects the petitioners/right to carry on business under Article 19(1)(g) of the Constitution of India. It may be possible to contend that the respondents are entitled to defray expenses required to meet the cost of the service to be rendered, but such recovery could be made only if it was authorised by law. Court are, therefore, of the opinion that the service charge/fee is not authorised bylaw. The demand is in contravention of the petitioners’ fundamental right to carry on trade and business and therefore violative of Article 19(1)(g) of the Constitution of India. Consequently, as the demand is without authority of law, it infringes also Article 300(A) of the Constitution of India.
In view of the aforesaid discussion, as Court have found that the impugned circular charges a service charge/fee, without there being a power to charge a fee, the impugned circular on that count has to be held illegal and unconstitutional as it violates Articles 19(1)(g) and 300-A and to that extent, the petition has to be allowed.

JUDGMENT :

J.H. BHATIA, J.:- The petitioners have challenged Circular No.Mktg/CRM/558/23 dated 24.4.2006 which came into force with effect from 1.5.2007 (the impugned Circular). Petitioner No.1 is a Non-Banking Finance Company of which the petitioner No.2 is a Director. The petitioner No.1 is engaged in the business of advancing loans against the assignment of life insurance policies. According to the petitioners, the respondent No.1 - Life Insurance Corporation of India (LIC) by earlier two Circulars dated 22.12.2003 and 2.3.2005, had sought to prohibit the transfer of life insurance policies. The said circulars were challenged by the petitioner No.1 in Writ Petition No.3282 of 2004. Similar challenge was also posed in Writ Petition No.2159 of 2004 (Insure Policy Plus Services Ltd. Vs. Life Insurance Corporation). The said petition, which was similar to the earlier petition of the petitioner, was allowed by this Court by the Judgment and Order dated 22.3.2007 and the said Circulars were declared to be illegal and null and void. Though the said Judgment has been challenged by the respondent No.1 before the Supreme Court by Special Leave Petitions, no stay has been granted to the effect of the order of this Court. In this background, the respondent No.1 implemented the impugned Circular dated 24.4.2006 with effect from May, 2007 and imposed a charge of Rs.250/- per assignment in favour of "Finance Organizations". The petitioners are affected by the same. According to the petitioner, the effect of the impugned Circular is to make the assignment of life insurance policies in favour of Finance Organizations, such as the petitioner No: 1, so onerous that it operates to severely restrict, If not prohibit, such legal and valid assignments in favour of the petitioner No.1.

2. According to the petitioners, the impugned Circular is liable to be struck down on the following grounds:

(i) It is ultra vires Section 38 of the Insurance Act. 1938; (ii) it is generally without authority of law as the respondent has no power to issue the same; (iii) it is in violation of Article 265 of the Constitution of India as it levies a tax or fee without the authority of law; (iv) it is ultra vires Article 14 of the Constitution of India as it is ex facie discriminatory and violates the principle of equality; (v) it is ultra vires Article 14 of the Constitution of India as it is arbitrary, unreasonable and suffers from non-application of mind; (vi) it is ultra vires Article 19(1)(g) of the Constitution of India as in its effect and operation it is an unlawful restriction of petitioner No.1's right to carry on business (vii) it is ultra vires Article 300-A of the Constitution of India as it deprives petitioner No.1 of its property without the authority of law.

3. The respondent No.1, On the other hand, justified the said Circular. It is denied that the purpose of the said Circular was to restrict or prohibit the business of the petitioners and to restrict the transfer or assignment of the policies in favour of the Financial Institutions like the petitioner No.1. It is also denied that it is a kind of tax or fee amounting to tax imposed without any authority of law. It is contended that the respondent No.1 has 19 crore policy holders whose policies are required to be serviced frequently. As per the data collected, from only 11 Divisions of the Western Zone comprising of the States of Maharahtra and Gujarat, the respondent No.1 was required to record assignments in respect of about 77,000 transfers of policies in the year 2005-2006 alone. None of the policy holders have protested or raised any challenge to the said administrative charge of Rs.250/-. However, the petitioners, who are in business of trading in life insurance policies, are seeking to raise baseless and vexatious challenge to the said administrative charge. It is contended that the respondent no. 1 is duty-bound by the LIC Act to distribute the surplus arising from the life insurance business carr

Click Here to Read the rest of this document

2010 Supreme(Bom) 719

2010(4) ALL MR 688IN THE HIGH COURT OF JUDICATURE AT BOMBAYF. I. REBELLO & J. H. BHATIA, J.Dravya Finance Pvt. Ltd. & Anr. –Appellants Vs.Life Insurance Corporation of India & Anr. – Respondents Writ Petition No.1579 of 2007Decided on : 19th May, 2010.

Cases Referred (13)

2010(4) ALL MR 688
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
F. I. REBELLO & J. H. BHATIA, J.
Dravya Finance Pvt. Ltd. & Anr. –Appellants
Vs.
Life Insurance Corporation of India & Anr. – Respondents
Writ Petition No.1579 of 2007
Decided on : 19th May, 2010.