Life Insurance Corporation of India (LIC), the market leader in insurance sector, cannot charge any fee for transfer or assignment of its policies, the Bombay High Court has held.
The court conceded that transfer of policy (such as its sale, or assignment as a security for a loan) is a cumbersome process and puts burden on LIC's resources and manpower, as it has to be registered.
However, the division bench of Justices F I Rebello and J H Bhatia held that under the LIC Act, or even the Insurance Act, the company has no power to charge such fees.
Earlier, LIC had banned the transfer of insurance policies, but it was challenged, and High Court had in its 2007 decision held that sale of policies was permissible.
Present controversy arose after LIC issued a circular (which came into effect in May 2007) whereby it began to charge a fee of Rs 250 on every transfer of policy.
It was challenged by city-based Dravya Finance Pvt Ltd, a 'non-Banking Finance company' engaged in the business of advancing loans against the assignment of life insurance policies. It contended that the imposition of the fee was illegal.
The division bench upheld its contention, after observing that only the central government had the power to impose such a fee with respect to a policy, and not the LIC.