Supreme Court Rules Against Life Insurance Corporation's Levy of Service Charge for Policy Assignment

In a significant judgment, the Supreme Court of India ruled against the Life Insurance Corporation of India (LIC) in a case challenging the legality of levying a service charge for recording the assignment of life insurance policies. The case, titled *Life Insurance Corporation of India v. Dravya Finance Pvt. Ltd. & Ors.*, centered on the contentious issue of whether LIC had the authority to impose a registration charge of Rs. 250 per assignment.

The court, led by Justice Abhay S. Oka, scrutinized various aspects of the case, including statutory provisions, constitutional implications, and regulatory authority. The judgment firmly concluded that LIC's practice of levying the service charge was unconstitutional and without legal basis.

In a key observation, the court stated, "The question is whether the appellant-insurer is lawfully entitled to levy a service charge of Rs. 250 for a transaction of assignment of a life insurance policy." The court emphasized that neither the statutory provisions nor the contract of the policy provided any authorization for such a charge. Moreover, regulations issued by the Insurance Regulatory and Development Authority of India expressly prohibited additional fees for recording assignments.

The judgment reaffirms the principle that fees or charges must have a legitimate legal basis, especially in the context of insurance policies that impact the financial interests of policyholders. The court's decision highlights the importance of adherence to statutory provisions and regulatory guidelines in the financial services sector.

The case had seen LIC attempting to defend its fee imposition as a necessary part of a business transaction, but the court rejected this argument. Consequently, the appeal was dismissed, affirming the High Court's decision that the service charge levied by LIC for policy assignments was unconstitutional.

This verdict serves as a significant precedent, underscoring the need for financial institutions to ensure compliance with legal and regulatory frameworks when implementing fees or charges related to financial products.

Date of Decision: September 6, 2023

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

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