2015 (12) TMI 1782 - SC - Indian Laws

Refusal to register the assignment of life insurance policies in favor of the First Respondent - Declaration sought that the insurance policies issued by the Appellant are freely tradable and assignable in accordance with the provisions of the Insurance Act, 1938 - whether insurance policies are freely tradable and assignable? - Section 38 of the Insurance Act. Held 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. The Appellant has argued that Section 38 could result in scenarios where it was bound to accept fraudulent policies since it had not been bestowed with discretionary powers - Held that - There is no content in this contention, for the reason that in cases of fraud, the assignment could be challenged on that ground even after being recorded. The Parliament intended to allow all previous assignments and transfers provided that they complied with the requirements laid out in Section 38. In the face of this clear legislative intent, no other interpretation of Section 38 is possible. It is accordingly not incumbent to discuss whether insurance policies partake of the nature of social security, or whether the transfer of such policies tantamount to wagering contracts. 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. Appeal dismissed - decided against appellant.

Issues Involved:
1. Transferability and assignability of life insurance policies under the Insurance Act, 1938.
2. Legality of the Appellant's circulars dated 22.10.2003 and 2.3.2005.
3. Interpretation of Section 38 of the Insurance Act, 1938 (pre and post-amendment).
4. The role of public policy in the assignment of life insurance policies.

Detailed Analysis:

1. Transferability and Assignability of Life Insurance Policies:
The High Court clarified that insurance policies issued by the Appellant are "transferable and assignable in accordance with the provisions of the Insurance Act, 1938 and in terms of the contract of life insurance." The First Respondent, engaged in the business of acquiring life insurance policies, faced refusal from the Appellant to accept notices of assignment. The Appellant issued circulars to prevent assignments perceived as speculative or wagering, arguing that such practices undermine the purpose of life insurance and harm policyholders.

2. Legality of the Appellant's Circulars:
The High Court found the Appellant's circulars dated 22.10.2003 and 2.3.2005, which aimed to prevent assignments perceived as speculative, to be illegal. The circulars were deemed ultra vires the Insurance Act as they attempted to nullify the statutory provisions allowing assignment and transfer of policies. The Court emphasized that the Appellant cannot unilaterally vary the terms of the contract under the guise of a policy decision.

3. Interpretation of Section 38 of the Insurance Act:
The High Court and the Supreme Court both examined Section 38 of the Insurance Act, 1938, as it stood prior to its amendment in 2015. The courts held that Section 38 is substantive and mandatory, leaving no scope for the insurer to dispute the right to transfer or assign the policy once the procedure laid down by the section is followed. The amendment to Section 38 by the Insurance Laws (Amendment) Act, 2015, introduced discretion for insurers to accept or decline assignments based on specific grounds. However, this discretion does not apply retrospectively to assignments made before the amendment.

4. Role of Public Policy:
The Appellant argued that allowing assignments could lead to speculative practices and wagering contracts, which are against public policy. However, the courts held that public policy considerations cannot override clear statutory provisions. The courts also noted that the general global practice permits assignments of insurance policies, and the Appellant, as the drafter of the insurance policy, could have included clauses to specifically prohibit assignments if it intended to do so.

Conclusion:
The Supreme Court upheld the High Court's judgment, stating that the Appellant's circulars were ultra vires the Insurance Act and that insurance policies are transferable and assignable in accordance with the statutory provisions. The appeal was dismissed, affirming that Section 38 of the Insurance Act, 1938, as it stood prior to the 2015 amendment, mandated the acceptance of assignments by insurers, provided the procedural requirements were met. The courts emphasized that public policy considerations cannot be used to nullify statutory rights and that the Appellant's circulars attempting to prevent assignments were illegal.

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