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TMI Blog2010 (5) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... the stay is rejected. - WRIT PETITION NO. 1579 OF 2007 - - - Dated:- 19-5-2010 - F.I. REBELLO AND J.H. BHATIA, JJ. N.H. Seervai, Sharan Jagtiani and Dhaval Kenia for the Petitioner. Ms. Snehal Paranjpe, O. Mohandas and Inder Tiwana for the Respondent. JUDGMENT J.H. Bhatia, J. - The petitioners have challenged Circular No. Mktg/CRM/558/23, dated 24-4-2006 which came into force with effect from 1-5-2007 (the impugned Circular). Petitioner No. 1 is a Non-Banking Finance Company of which the petitioner No. 2 is a Director. The petitioner No. 1 is engaged in the business of advancing loans against the assignment of life insurance policies. According to the petitioners, the respondent No. 1 - Life Insurance Corporation of India (LIC) by earlier two Circulars, dated 22-12-2003 and 2-3-2005, had sought to prohibit the transfer of life insurance policies. The said Circulars were challenged by the petitioner No. 1 in Writ Petition No. 3282 of 2004. Similar challenge was also posed in Writ Petition No. 2159 of 2004 ( Insure Policy Plus Services Ltd. v. Life Insurance Corporation ). The said petition, which was similar to the earlier petition of the petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yholders whose policies are required to be serviced frequently. As per the data collected, from only 11 Divisions of the Western Zone comprising of the States of Maharahtra and Gujarat, the respondent No. 1 was required to record assignments in respect of about 77,000 transfers of policies in the year 2005-06 alone. None of the policyholders have protested or raised any challenge to the said administrative charge of Rs. 250. However, the petitioners, who are in business of trading in life insurance policies, are seeking to raise baseless and vexatious challenge to the said administrative charge. It is contended that the respondent No. 1 is duty-bound by the LIC Act to distribute the surplus arising from the life insurance business carried on by it in the proportion of 95 per cent to its policyholders and 5 per cent to the Central Government. After the Manual No. 6 for Policy Servicing Department of the LIC dealing assignment was published on 31-12-1990, considerable advances have been made in the field of information and technology and some of these benefits have been passed on by the respondent No. 1 to its policyholders. Considerable financial cost and investment has been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solute/Conditional Assignment in favour of a family member for natural love and affection, the first assignment should be registered free and all further assignments should be charged. 2.Assignments in favour of LIC of India and LIC Housing Finance Limited are free of cost. 3.Assignment in favour of Government Bodies is free but assignment in favour of other Public Sector Entities, including Banks, co-operatives, Finance Organisations, etc., are to be charged. 4.DSOP Fund policies are assigned at the proposal stage itself. 5.Assignment is charged, but reassignment is not be charged. 6.After reassignment, the policyholder is required to give fresh nomination. Such nomination consequent to assignment/reassignment should be registered free of cost. 7.More than one policy is to be assigned, then Rs. 250 will be charged per policy even if all the policies are on a single life and are assigned to a single assignee at a time. The provisions of this Circular will come into effect from 1st May, 2006, all Offices under your jurisdiction be advised suitably." 6. The learned Senior Counsel for the petitioners contended that although the respondent No. 1 is a statutory Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledgement of the receipt of such notice; and any such acknowledgement shall be conclusive evidence against the insurer that he has duly received the notice to which such acknowledgement relates. (5) Subject to the terms and conditions of the transfer or assignment, the insurer shall, from the date of receipt of the notice referred to in sub-section (2), recognize the transferee or assignee named in the notice as the only person entitled to benefit under the policy, and such person shall be subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings. (6) and (7) ****** 8. Section 38(2) provides that for the transfer and assignment to be complete as against the insurer the endorsement or instrument or a certified copy of either have to be delivered to the insurer. Section 38(4) mandates that if the insurer receives the notice as prescribed in section 38(2), the insurer is bound to record the fact of such transfer or assign-ment. The only aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Statute itself mandates that the insurer recognizes 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. The latter part of this sub-section makes it clear that once the notice is served and the company recognizes the transfer or assignment, it is the transferee or assignee who can institute any proceedings, without obtaining the consent of the transferor or assignor or making him a party to the proceedings. Sub-section (6) provides for some other contingencies. Section 39(4) is further indicative of the mandatory character of section 38 when it provides that transfer or assignment of policy made in accordance with section 38 shall automatically cancel the nomination. . . . We are, therefore, of the considered opinion that once the insured transfers or assigns the policy in favour of the assignee the assignment is complete between them. The provisions of the section leave no doubt that the insurer has no choice but to accept the transfer or assignment as the case may be if the procedure required by section 38 has been followed, subject to the terms of the poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for acknowledging Notices. Assignments and Reassignments are registered and notices thereof acknowledged by the Corporation free of charge. No charge is, therefore, required to be paid to the Corporation in this behalf and if any amount is paid by a Policyholder as fee for registration, etc., of an Assignment/Reassignment, the same should be refunded to him less remittance charges." 11. The learned Senior Counsel for the petitioners further contended that section 114 of the Insurance Act empowers the Central Government to make rules in respect of certain matters and section 114A of the Insurance Act empowers the Insurance Regulatory and Development Authority to make regulations. Such rules and regulations have to be notified in the Official Gazette. These powers are not vested in the respondent No. 1. The learned counsel also contended that under section 48 of the LIC Act, the Central Government is empowered to make rules. Sub-section ( k ) of section 48 expressly empowers the Central Government to make rules with respect to "the fees payable under the Act and the manner in which they are to be collected". The learned counsel contended that the Central Government has not exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re has the power, to levy fees, which is co-extensive with its powers to legislate with respect to substantive matters and it may levy a fee with reference to the services that would be rendered by the State under such law. The State may also delegate such a power to a local authority. When a levy or an imposition is questioned, the Court has to inquire into its real nature inasmuch as though an imposition is labelled as a fee, in reality it may not be a fee but a tax, and vice versa . The question to be determined is whether the power to levy the tax or fee is conferred on that authority and if it falls beyond, to declare it ultra vires ." In Jindal Stainless Ltd. v. State of Haryana [2006] 7 SCC 241 1. observed thus: "26. In Jindal Stainless Ltd. v. State of Haryana a Constitution Bench of this Court stated : (SCC p. 267, paras 40-41) 40. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 265, but also Article 300A as the fee/taxpayer is deprived of the property to that extent. In the present case, it is not the claim of the respondent No. 1 that the Central Government has imposed any tax or that the respondent No. l has been empowered to impose a fee in the nature of tax. In fact, according to the respondent No. 1, it is not a tax but only a fee for the services rendered. However, at different places, they used different words like "service charges", "fee for services" and even "administrative charge". 15. The learned counsel for the petitioners vehemently contended that the fee cannot be levied just to recover the administrative charges and he finds support for this contention from A.P. Paper Mills Ltd. v. Government of Andhra Pradesh [2000] 8 SCC 167. This judgment is also approved by the Supreme Court in M. Chandru s case ( supra ). In Gupta Modern Breweries v. State of J K [2007] 6 SCC 317, the Supreme Court considered the earlier authorities, including Indian Mica Micanite Industries v. State of Bihar [1971] 2 SCC 236 and CCE v. Chhata Sugar Co. Ltd. [2004] 3 SCC 466. In Indian Mica Mercantile Industries case ( supra ), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in terms of clause (28) of Article 366 of the Constitution is wide in nature. The said definition may be for the purpose of the Constitution; but it must be borne in mind that the legislative competence conferred upon the State Legislature or Parliament to impose tax or fee having been enumerated in different entries in the three lists contained in the Seventh Schedule of the Constitution of India, the same meaning of the expression tax unless the context otherwise requires, should be assigned. 20. Having regard to the fact that different legislative entries have been made providing for imposition of tax and fee separately, indisputably, the said expressions do not carry the same meaning. Thus, a distinction between a tax and fee exists and the same while interpreting a statute has to be borne in mind. 21. A distinction must furthermore be borne in mind as regards the sovereign power of the State as understood in India and the doctrine of police power as prevailing in the United States of America. In some jurisdictions a distinction may exist between a police power and a power to tax but as in the Constitution of India, the word tax is defined, it has to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Insurance Act, the respondent No. 1 is bound to register the assignments of the policy if all other conditions are specified. By the impugned Circular, a fee or charge of Rs. 250 per assignment in favour of the banks and financial institutions has been imposed. That requires the petitioners to pay the said charges for registration of assignment of any policy. The petitioners seek to challenge the constitutional legal and validity of the impugned Circular on various grounds under articles 14, 19(1)( g ), 365 and 300A. The constitutional and legal validity of the Circular could not be challenged before the authority under the Insurance Regulatory and Development Authority Act. In view of this, it cannot be said that alternative efficacious remedy is available to the petitioners. Assuming such a remedy is available, still the extraordinary jurisdiction of the High Court under Article 226 of the Constitution to issue any such writ or order cannot be taken away. When alternative efficacious alternative remedy is available, this Court may refrain from exercising extraordinary jurisdiction but to refrain from exercising jurisdiction under Article 226 is different from saying that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequent high costs of administration in servicing the voluminous assignments of policies, especially in respect of persons like the petitioners, who are doing lucrative business in life insurance policies issued by the 1st respondent and, therefore, in public interest the 1st respondent is justified in levying a nominal service fee of Rs. 250 per assignment. 20. It is true that section 38 of the Insurance Act makes provision for imposition of fee of rupee one for acknowledgement of notice of assignment. It is an admitted fact that under Para 23 of the Manual No. 6 issued on 31-12-1990, it was provided that assignments and re-assignments are registered and notices thereof acknowledged free of charge and, therefore, no charge is required to be paid to the Corporation in this behalf. However, according to the respondent No. 1, for the reasons given above, vital changes have taken place since the year 1990 when the said Manual was issued. Besides this, during the last few years, tremendous pressure of work has increased due to the large number of requests for assignment and it is mainly because some financial institutions and banks are in the trade of the insurance policies. Nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s emanates from the constitutional provisions contained in Article 298 of the Constitution of India. The coal companies, therefore, were under a constitutional obligation to fix a reasonable price. They must differentiate themselves from the private sectors which thrive only on a profit motive. As public sector undertakings, the coal companies, thus, would have a duty to fix the price of an essential commodity in such a manner so as to subserve the common good. Although the provisions of section 3(2)( c ) of the Essential Commodities Act are not attracted in relation to coal in view of the deregulation of price by the Central Government under the 2000 Order, the reasonable attributes for the purpose of fixing the price of coal should be borne in mind. 93. While fixing such price, ordinarily the State acts in the same manner as a public utility would conduct itself in this regard. This Court in ONGC v. Assn. of Natural Gas Consuming Industries of Gujarat opined that the price fixed should be the minimum possible as the customer or consumer must have the commodity for his survival and cannot afford more than the minimum. Therein this Court further noticed : (SCC p. 430, para 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on its undertakings it shall act on business principles is to emphasize the objects set out in section 3 for which a Road Transport Corporation is established and to prescribe the manner in which the general duty of the Corporation set out in section 18 is to be performed. It is now firmly established by decisions of this Court in the Surat Art Silk Cloth Manufacturers Association case and the Bar Council of the activity - whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity." 23. In Kerala State Electricity Board v. S.N. Govinda Prabhu Bros. [1986] 4 SCC 198, Supreme Court observed thus : "5. Now, a State Electricity Board created under the provisions of the Electricity Supply Act is an instrumentality of the State subject to the same constitutional and public law limitations as are applicable to the Government including the principle of law which inhibits arbitrary action by the Government. ( See Rohtas Industries v. Bihar State Electricity Board ). It is a publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will reduce the surplus or profit to be shared by the policyholders and the Central Government. There is no justification that the ordinary policyholders should be required to bear the burden of such additional expenditure put on the respondent No. 1 because of the trade in insurance policies by certain financial institutions like the petitioners. 25. It is vehemently contended on behalf of the petitioners that no data has been placed before this Court about the actual expenditure incurred by the respondent No. 1 on the registration of such assignment and, therefore, no co-relation between the charges imposed by the impugned Circular and the services rendered is not established. This contention is strongly refuted by the learned counsel for respondent No. 1. 26. In Sri Krishna Das v. Town Area Committee [1990] 3 SCC 645, the Supreme Court observed as follows : "24. We have seen that a fee is a payment levied by an authority in respect of services performed by it for the benefit of the payer, while a tax is payable for the common benefits conferred by the authority on all taxpayers. A fee is a payment made for some special benefit enjoyed by the payer and the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making requests for registration of assignment and, therefore, it is neither a tax nor general administrative expenditure in running the offices of the respondent No. 1. 30. The learned counsel for the petitioners contended that the respondent No. 1 is not clear whether they are claiming a charge or a fee or service fee or service charges or administrative charges because these different terms have been used in the affidavits and the written submissions on behalf of the respondent No. 1. It is true that different terms have been used at different places, however, merely because of the use of different words, the contention of the respondent No. 1 cannot be thrown away. To appreciate the stand of the respondent No. 1, it will be appropriate to look to the language of the impugned Circular itself. The opening para of the impugned Circular reads as follows : "At present, assignment of policies is being registered without any charges. However, the cost of the transaction of assignment/re-assignment of a policy is considerable. Therefore, it has now been decided to levy service charges of Rs. 250 per transaction for effecting assignment under a policy provided:" From this, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the question as under : "The question to be determined is whether the power to levy the tax or fee is conferred on that authority and if it falls beyond, to declare it ultra vires ?" The Court then noted that the power of the State under the Constitution to levy a fee is not identical with its power to levy a tax. The power to levy fees is co-extensive with the power to legislate with respect to substantive matters and it may levy a fee with reference to the services that will be rendered by the State under such law. The State may delegate such a power to a local authority. 34. From Sharadkumar Jayantikumar Pasawalla s case ( supra ), we may refer the following extracts from paras 7 and 8 which read as under : "7. After giving our anxious consideration to the contentions raised by Mr. Goswami, it appears to us that in a fiscal matter it will not be proper to hold that even in the absence of express provision, a delegated authority can impose tax or fee. In our view, such power of imposition of tax and/or fee by delegated authority must be very specific and there is no scope of implied authority for imposition of such tax or fee. It appears to us that the delegat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuant to the express power conferred on the Corporation. We have already explained section 6 of the Insurance Act. In that context, the impugned Circular would clearly be violative of both the provisions of the Insurance Act as also the LIC Act. The service charge/fee is ultra vires both the above-mentioned Acts. 37. Once a service charge/fee is imposed without the authority of law, it affects the petitioners /right to carry on business under article 19(1)( g ) of the Constitution of India. It may be possible to contend that the respondents are entitled to defray expenses required to meet the cost of the service to be rendered, but such recovery could be made only if it was authorised by law. We are, therefore, of the opinion that the service charge/fee is not authorised by law. The demand is in contravention of the petitioners fundamental right to carry on trade and business and, therefore, violative of article 19(1)( g ) of the Constitution of India. Consequently, as the demand is without authority of law, it infringes also article 300A of the Constitution of India. 38. The impugned Circular is also challenged on the ground of violation of the principles of equality e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssignment is to be registered free of charges. However, if in respect of a policy, there are frequent assignments, may be within the family members, for second and subsequent assignments, the respondent No. 1 shall impose charges as per the Circular. LIC Housing Finance Ltd. is only a subsidiary and sister concern of the LIC of India. If the policies taken from the LIC are assigned in favour of LIC itself or in favour of its subsidiary or sister concern, i.e., LIC Housing Finance Ltd., practically the beneficiary of the same is the LIC itself and, therefore, it cannot claim service charges from itself. The Government bodies are also exempted because the Government itself is a stakeholder in the surplus and profits of the respondent No. 1. Other public sector entities including banks, co-operatives or financial organizations or non-banking financial organizations like the petitioners have no stake in running business of the respondent No. 1 or in its profits or surplus. They are just like other customers. Therefore, they may form homogeneous group among themselves, but they do not form homogeneous group along with the LIC of India or LIC Housing Finance Ltd. or the other Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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