Case: Lic Of India Vs. Insure Policy Plus Services Pvt.Ltd.&amp;Ors

2. The First Respondent is a company which is engaged, inter alia, in the business of accepting and dealing in assignment 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 ofhave 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 becomes the assignee and is entitled to all the rights of the policy be it maturity claim/death claim, etc.The above practice if it becomes prevalent would not only undermine the real purpose of life insurance but also allow third parties to make windfall gains by such wagering contracts. Therefore, it is felt necessary to introduce measures to safeguard the principles of life insurance and the larger interest of our policyholders.* If any Agent/employee is found to be involved in assisting such Companies in respect of data acquisition of lapsed policies for revival and subsequent assignment, strict action may be initiated against him.* The Branch Offices would have to be more vigilant in case of revival of policies that have been lapsed for longer duration say over 3 years. In such cases, strict control on non-acceptance of third party cheques, strict adherence to medical requirements, quality of medical examination etc. would be required. Wherever it is clear that a TIP company is involved, the revival may be outrightly rejected.* If there are a number of assignments in the same Branch Office/Divisional Office in favour of the same Financial Company, the nature of the business of the Company may be investigated.* If the Branch Office already has information that the nature of business interest of the Financial Company is trading in insurance policies only, the assignments in favour of such a Company may be declined.* Such policyholders may be educated through a specially designed communication on the implications of. This may be done to safeguard the interest of those who may become innocent victims of third parties indulging in thisBranches may be instructed to start sending the data on absolute assignment to the controlling Divisions cause-wise to keep a vigil on trading of policies.4. The 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. The various complaints by the First Respondent elicited a response by IRDA dated 3.3.3004, in which it opined that the Appellant should register the assignments. The Appellant, however, refused to do so, and instead issued another Circular dated 2.3.2005 reiterating the contents of the previous circular, and laying down a procedure forimplementation by all the offices of theA 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, theSupreme Court of India in Life Insurance Corporation of India Vs. 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 articles also appeared in September 2003 about some Companies carrying on trading in insurance Policies. The Corporation had to take urgent notice of such a remarkable spurt in the registration of assignments in respect of such Policies and the Corporation then noticed that these Policies were being purchased and traded in like saleable securities of a stock market. It was also noticed by the Corporation that the only purpose for which such assignment was being obtained, was with a view to trading in them by further selling them, which could continue indefinitely without reference to the life assured.The Corporation had noticed that this process of trading, without any reference to the life assured, is in the nature of speculation and weighing in as much as none of the subsequent assignees would have either the means or the inclination to find out whether the life assured was still alive. This, in turn, would means that even if the life assured died a premature death, the Policies would continue in circulation by means of such trading until its date of maturity and the Corporation would then have to pay the final/ultimate assignee, the entire maturity amount/value instead of the family members of the life assured, benefiting there under and despite the fact that the death may have occurred several years prior thereto.Such trading in thePolicies offends the very essence of the Life insurance contract and leaves the family of the life assured totally unprotected in the event of death of the life assured. Hence, in order to prevent such speculation and wagering which causes harm to millions of families all over India, the Corporation has taken a policy decision to refuse the registration of assignments which are in the nature of trading. For this purpose, the Corporation has evolved a procedure to identify such transactions so as to preserve and protect the interests of genuine policyholders of the Corporation, and to leave untouched the genuine assignments by the life assured.5. The First and Second Respondent before us filed a writ petition before the High Court seeking a Declaration that the insurance policies issued by the Appellant are freely tradable and assignable in accordance with the provisions of the Insurance Act, 1938, and that the Circulars dated 22.10.2003 and 2.3.2005 and the actions of the Appellant in refusing to register the 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 vs. Consumer Education & 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 vs George Davis 104 US 771, wherein it was held thatall cases there must be reasonable ground, founded upon the relations of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such problems have a tendency to create a desire for the event. They are, therefore, independently of any statute on the subject condemned as being against publicThis decision came up for consideration before the U.S. Supreme Court in Grigsby vs Russell 222 US 149. Grigsby did not agree with Warnoc, finding instead that life insurance is a form of investment and savings, and to deny the right to sell it would diminish its value. It was held that the rule of public policy that forbids the taking out of insurance by one on the life of another in which he has no insurable interest does not apply to the assignment by the insured of a valid policy to one not having an insurable interest. In the impugned Judgment, the High Court noted that the law in the U.S.A. after Grigsby is that though there has to be an insurable interest at the inception when the policy is taken out, subsequent thereto there is no requirement of insurable interest at the time of transfer or assignment. The argument raised by the First and Second Respondent was that Section 38 of the Insurance Act is a substantive right, whereas the Appellant contended that it is merely procedural. On an examination of the Section and the manner in which it operates, it was held that once the insured transfers or assigns the policy in favour of the assignee, the assignment is complete between them. The insurer clearly 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 therefore held that Section 38 is a substantive and not a procedural provision. Section 38 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. It is therefore desirable to impart to it all the common characteristics of property. The Appellant is the only player in the market which is refusing to accept such assignments. It was held that if the terms of the contract between the Appellant and the insured barred assignment, the assignee 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 transferrable and assignable.

Reasoning:
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 toof legislative powerThis view came to be reiterated to decades later in Agricultural Market Committee v. Shalimar Chemical Works Ltd. (1997) 5 SCC 516. This Court held thatPower 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 theThe position that obtains today is diametrically opposite inasmuch as the statute permitted, at the relevant time, the assignment and/or transfer of life insurance policies, but the delegate, through its Circulars, has attempted to nullify that provision of law. We conclude, therefore, that the circulars are ultra vires the Statute and must therefore be made ineffectual.15. We also think that it is not appropriate to import the principles of public policy, which are always imprecise, difficult to define, and akin to an unruly horse, into contractual matters. The contra proferentem rule is extremely relevant inasmuch as it is the Appellant who has drafted the insurance policy and was therefore well-positioned to include clauses making it specifically impermissible to assign policies. In the absence of any such covenant, the Appellant cannot be heard to say that such transfers or assignments violate public policy. In any event, as we have seen above, the general global practice is to permit assignments of insurance policies.16. It is for these manifold reasons and in view of the analysis of the law prior to as well as post the amendments carried out in the Insurance Act that we find the Appeal to be devoid of merits. The impugned Judgment is well -reasoned and takes within its sweep all the relevant documents raised.