2010 (5) TMI 397 - HC - Companies Law

Circular No. Mktg/CRM/558/23, dated 24-4-2006 which came into force with effect from 1-5-2007 challenged Held that - It is material to note that while the assignment is charged, re-assignment is not charged with such service charges because by re-assignment, original policyholder will be entitled to all the benefits of the insurance policy and will also be entitled to share in the profits or surplus of the respondent No. 1. Therefore, in our considered opinion, not only there has been intelligible differentia, but also there is a rational relationship with the object to be achieved by the impugned Circula. 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 300A and to that extent, the petition has to be allowed. On behalf of the respondents, the learned counsel prays for stay. Considering that we have held that the fee is ultra vires the Act, it is not possible to grant stay. Hence, the stay is rejected.

Summary

Issues Involved:
1. Ultra vires Section 38 of the Insurance Act, 1938.
2. Authority of law for issuing the Circular.
3. Violation of Article 265 of the Constitution of India.
4. Violation of Article 14 of the Constitution of India.
5. Violation of Article 19(1)(g) of the Constitution of India.
6. Violation of Article 300A of the Constitution of India.

Detailed Analysis:

1. Ultra vires Section 38 of the Insurance Act, 1938:
The petitioners argued that the impugned Circular is ultra vires Section 38 of the Insurance Act, 1938, which provides the procedure for assignment and transfer of insurance policies. The section mandates that upon receipt of notice of assignment, the insurer must record the assignment and issue an acknowledgment for a fee not exceeding one rupee. The Court noted that Section 38(4) mandates the insurer to record the transfer or assignment and issue an acknowledgment for a nominal fee. Therefore, the imposition of a Rs. 250 charge by the Circular was not supported by Section 38.

2. Authority of law for issuing the Circular:
The petitioners contended that the respondent lacked the authority to issue the Circular, as neither the LIC Act nor the Insurance Act conferred such power. The Court observed that Section 48(2)(k) of the LIC Act empowers the Central Government to make rules for charging fees, and Section 49 allows the Corporation to make regulations with the previous approval of the Central Government. The Court concluded that the impugned Circular was not issued under any express statutory power and was therefore ultra vires.

3. Violation of Article 265 of the Constitution of India:
The petitioners argued that the Circular violated Article 265, which states that no tax shall be levied or collected except by the authority of law. The Court examined the nature of the Rs. 250 charge and concluded that it was in the nature of a tax or administrative charge rather than a fee for a specific service. Since it was not authorized by law, it violated Article 265.

4. Violation of Article 14 of the Constitution of India:
The petitioners claimed that the Circular was discriminatory and violated the principle of equality enshrined in Article 14. The Court noted that the Circular exempted assignments in favor of family members, LIC of India, LIC Housing Finance Ltd., and Government bodies, while charging other financial institutions. The Court found that there was an intelligible differentia and a rational relationship between the classification and the object sought to be achieved. Therefore, the Circular did not violate Article 14.

5. Violation of Article 19(1)(g) of the Constitution of India:
The petitioners argued that the Circular imposed an unlawful restriction on their right to carry on business, as guaranteed by Article 19(1)(g). The Court held that since the charge was not authorized by law, it constituted an unreasonable restriction on the petitioners' right to conduct their business. Therefore, it violated Article 19(1)(g).

6. Violation of Article 300A of the Constitution of India:
The petitioners contended that the Circular deprived them of their property without the authority of law, violating Article 300A. The Court agreed, stating that the unauthorized charge amounted to deprivation of property without legal sanction, thus infringing Article 300A.

Conclusion:
The Court held that the impugned Circular, which imposed a Rs. 250 charge for the assignment of life insurance policies, was illegal and unconstitutional. It violated Articles 19(1)(g) and 300A of the Constitution of India and was ultra vires the LIC Act and the Insurance Act. The Circular was struck down, and the rule was made absolute. No stay was granted, and there was no order as to costs.