TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 1782
X X X X Extracts X X X X
X X X X Extracts X X X X
....signment of life insurance policies issued by the Appellant. The Second Respondent is the Director and shareholder of the First Respondent. The Third Respondent is a statutory authority established Under Section 3 of the Insurance Regulatory & Development Authority Act, 1999, and is hereinafter referred to as IRDA. The business of the First Respondent is to acquire life insurance policies from policy holders by paying them consideration. The assigned policy is registered and recorded in the books of the Appellant, and is then further assigned to a third party for consideration. Upon registration in the books of the Appellant, it could then be further assigned. 3. In January 2003, several branches of the Appellant refused to accept notices of assignment lodged by the First Respondent. A Circular was issued on 22.10.2003, the content of which is reproduced below for facility of reference: There have been reports in the Press recently of the existence of firms that are in the business of buying of Insurance policies which are lapsed after acquiring paid-up value, from the original policyholders by paying them an attractive sum over and above the surrender value. The firm then becom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iform implementation by all the offices of the Corporation". A portion of this Circular is reproduced, as it lays down the rationale behind the refusal to register these policies: Life Insurance Policies, in general, are a measure of social security for the family members of the life assured and in the absence of adequate savings or securities, these Policies are often the only financial security available to the family members of the deceased life assured. The Government of India has guaranteed the Sum Assured with Bonus in all LIC Policies Under Section 37 of the Life Insurance Corporation Act, 1956 to ensure the availability of financial security to the family of the deceased. In this connection, the Hon'ble Supreme Court of India in Life Insurance Corporation of India v. Consumer Education and Research Centre (reported in AIR 1995 SC 1811) has ruled that the LIC discharges important Constitutional functions and the Policies issued by it are a measure of social security for the family of the life assured. Between April 2002 to July 2003, our Offices at various places received several Policies for registration of assignments in favour of some entities. Newspaper article....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assignment of life insurance policies in favour of the First Respondent are illegal, null and void. 6. The High Court, vide its impugned order, allowed the writ petition. It noted 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. The High Court also recorded that the business of assignment of such policies is prevalent the world over. While noting that this Court in LIC of India v. Consumer Education and Research Centre (1995) 5 SCC 482 has held that insurance is a social security measure, as was also reflected in the Statement of Objects and Reasons of the Life Insurance Corporation Act, 1956 (LIC Act), the High Court held that consequent to private entry into the business of life insurance it is no longer possible to contend that life insurance remained a measure of social security. It then went on to discuss the decision of the Supreme Court of the United States of America in Basil P. Warnoc v. George Davis 104 US 771, wherein it was held that "...in all cases there must be reasonable ground, founded upon the relations of the parties t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gnee would also remain bound by this covenant. However, in the absence of any such contractual term the Appellant cannot unilaterally vary the terms of the contract under the guise of a policy decision, thereby endeavouring to disallow transfers that are legally valid Under Section 38. As Section 38 is mandatory, it is not open to the Appellant to issue any policy decision that is contrary to it. The Circulars dated 22.10.2003 and 2.3.2005 were found to be illegal and it was held that insurance policies are transferable and assignable. 7. The question for us to decide is whether insurance policies are freely tradable and assignable. To this end, it would be apposite to reproduce Section 38 of the Insurance Act as it stood prior to its amendment in 2015: 38. Assignment and transfer of insurance policies.--(1) A transfer or assignment of a policy of life insurance, whether with or without consideration may be made only by an endorsement upon the policy itself or by a separate instrument, signed in either case by the transferor or by the assignor, his duly authorised agent and attested by at least one witness, specifically setting forth the fact of transfer or assignment. (2) The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the consent of the transferor or assignor or making him a party to such proceedings. (6) Any rights and remedies of an assignee or transferee of a policy of life insurance under an assignment or transfer effected prior to the commencement of this Act shall not be affected by the provisions of this section. (7) Notwithstanding any law or custom having the force of law to the contrary, an assignment in favour of a person made with the condition that it shall be inoperative or that the interest shall pass to some other person on the happening of a specified event during the lifetime of the person whose life is insured, and an assignment in favour of the survivor or survivors of a number of persons, shall be valid. This section has subsequently been amended by The Insurance Laws (Amendment) Act, 2015, and Section 38(2) now reads thus: (2) The insurer may accept the transfer or assignment, or decline to act upon any endorsement made Under Sub-section (1), where it has sufficient reason to believe that such transfer or assignment is not bona fide or is not in the interest of the policyholder or in public interest or is for the purpose of trading of insurance policy. This, alo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assignee will not know if the insured has died, and trading in the policy may continue even after he has. Furthermore, allowing parties in the position of the First Respondent to revive a lapsed policy would amount to wagering. Regarding the prevailing law in other jurisdictions, it has been submitted that the law in the U.S. is not based on Grigsby, as the U.S. legal system it is a federal one. Even if Grigsby were taken as the prevailing interpretation of the law, it does not state that all assignments must be accepted regardless that they are in bad faith. The fact that the Government provides tax deductions Under Section 80C of the Income Tax Act, 1961, that Life Insurance is not liable to be attached and sold in execution of a decree Under Section 60 of the Code of Civil Procedure, and that Life Insurance is guaranteed by the Central Government Under Section 37 of the LIC Act indicates that it is a measure of social security, so the power to refuse 'bad faith' assignments should be allowed on the grounds of public policy. Finally, it has been argued once again that Section 38 is merely procedural, and the substantive law is to be found and extrapolated from Common Law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tten acknowledgment of the receipt of such notice. Sub-section (5) mandated the insurer to recognise the transferee or assignee named in the notice as the only person entitled to the benefit under the policy and such person would be subject to all liabilities and equities. Sub-section (6) and (7) provided for some other contingencies with which we are not immediately concerned. 11. It is thus clear 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. Section 38 was thus clearly mandatory and substantive. The erstwhile Section 39(4) also deserves reproduction in this vein, as it further indicated the mandatory character of Section 38. It reads thus: (4) A transfer or assignment of a policy made in accordance with Section 38 shall automatically....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther insurance policies partake of the nature of social security, or whether the transfer of such policies tantamount to wagering contracts. 14. In our considered opinion it is not open to the Appellants to charter a course which is different to the postulation in the Insurance Act, by means of its own Circulars. We need not go beyond mentioning the decision of this Court in Avinder Singh v. State of Punjab (1979) 1 SCC 137 wherein it has been held that the Legislature cannot efface itself by delegating its plenary powers unless the delegate functions strictly under its supervision. If the delegate is allowed to function independently it would tantamount to "usurpation of legislative power itself." This view came to be reiterated to decades later in Agricultural Market Committee v. Shalimar Chemical Works Ltd. (1997) 5 SCC 516. This Court held that "....... Power to make subsidiary legislation may be entrusted by the legislature to another body of its choice but the legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates". The position that obtains today is diametrically opposite inasmuch ....