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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1579 OF 2007
1. Dravya Finance Pvt.Ltd. )
(formerly knwn as Bachraj Finance )
Pvt.Ltd.) a Company registered )
under the Companies Act, 1956 )
and having its registered office at )
175, Patni House, 26th Road, )
TPS III Bandra (West), )
Mumbai - 400 050. )
2. Hasmukh Rawal of Mumbai,
ig )
Indian inhabitant, a Director and )
Shareholder of Dravya Finance )
Pvt.Ltd. Having his office at 175, )
Patni House, 26th Road, TPS III )
Bandra (West), Mumbai 400 050. ).. Petitioners
Versus
1. Life Insurance Corporation of India, )
a statutory Corporation established )
under the Life Insurance Corporation )
Act, 1956 through its Chairman )
having its registered office at )
Yogakshema,Jeevan Bima Marg, )
Mumbai - 400 021. )
2. Insurance Regulatory Development )
Authority, a statutory authority )
established under the Insurance )
Regulatory & Development Authority)
Act, 1999, having its office at )
rd
Parishram Bhavan, 3 Floor, )
Basheer Bagh, Hyderabad - 500 004. )..Respondents
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Mr. N.H.Seervai, Senior Counsel, with Mr. Sharan Jagtiani, & Mr. Dhaval Kenia
i/b. M & M Legal Ventures,Advocates, for the petitioner.
Ms. Snehal Paranjpe with Mr. O. Mohandas & Mr. Inder Tiwana i/b. M/s. Little
& Co.,Advocates, for the respondent No.1.
CORAM: F.I.REBELLO & J.H.BHATIA, J.
JUDGMENT RESERVED ON: 12.3.2010.
JUDGMENT PRONOUNCED ON: 19-05.2010.
JUDGMENT: (PER J.H.BHATIA,J.)
1. 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 challenage 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, was allowed by this Court by the Judgment and Order dated
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22.3.2007 and the said Circulars were declared to be illegal and null and void.
Though the said Judgment has been challenged by the respondent No.1 before the
Supreme Court by Special Leave Petitions, no stay has been granted to the effect
of the order of this Court. In this background, the respondent No.1 implemented
the impugned Circular dated 24.4.2006 with effect from May, 2007 and imposed a
charge of Rs.250/- per assignment in favour of “Finance Organizations”. The
petitioners are affected by the same. According to the petitioner, the effect of the
impugned Circular is to make the assignment of life insurance policies in favour
of Finance Organizations, such as the petitioner No.1, so onerous that it operates
to severely restrict, if not prohibit, such legal and valid assignments in favour of
the petitioner No.1.
2. According to the petitioners, the impugned Circular is liable to be
struck down on the following grounds :-
(i) It is ultra vires Section 38 of the Insurance Act, 1938;
(ii) it is generally without authority of law as the respondent has no
power to issue the same; (iii) it is in violation of Article 265 of the
Constitution of India as it levies a tax or fee without the authority of
law; (iv) it is ultra vires Article 14 of the Constitution of India as
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4it is ex facie discriminatory and violates the principle of equality;
(v) it is ultra vires Article 14 of the Constitution of India as it is
arbitrary, unreasonable and suffers from non-application of mind;
(vi) it is ultra vires Article 19(1)(g) of the Constitution of India as
in its effect and operation it is an unlawful restriction of petitioner
No.1’s right to carry on business; (vii) it is ultra vires Article 300A
of the Constitution of India as it deprives petitioner No.1 of its
property without the authority of law.
3. The respondent No.1, on the other hand, justified the said
Circular. It is denied that the purpose of the said Circular was to restrict
or prohibit the business of the petitioners and to restrict the transfer or
assignment of the policies in favour of the Financial Institutions like the
petitioner No.1. It is also denied that it is a kind of tax or fee amounting
to tax imposed without any authority of law. It is contended that the
respondent No.1 has 19 crore policy holders 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 2005-2006 alone.
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None of the policy holders 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% to its policy holders and 5% 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
policy holders. Considerable financial cost and investment has been made
in computerization of its Systems, installing a Fire Wall for prevention of
hacking, training its employees to operate the same, to check whether all
the essential conditions for assignment have been fulfilled, whether valid
notices have been given,whether stamp duty has been paid and whether
there are any other claims on the policy. Due to the huge increase in
assignment of policies in the last few years, the whole system and the staff
of the respondent No.1 have come under severe stress. In view of the
cumbersome administrative processes and tremendous manpower
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involved and consequent high cost of administration in servicing the
voluminous assignments of policies, especially of the Financial
Institutions like the petitioner who are doing lucrative business of
assignments of life insurance policies, in the public interest, the
respondent No.1 has levied the nominal service fee of Rs.250/- per
assignment. It is contended that under the provisions of Section 6 of the
LIC Act, 1956, a general duty has been cast on the respondent No.1 to
carry on life insurance business so as to secure that life insurance
business is developed to the best advantage of the community and the law
also enjoins respondent no.1 to act as far as may be on business principles.
The respondent No.1 has acted on business principles in the matter of levy
of administrative charges or the service charges as per the impugned
Circular dated 24.4.2006. It is denied that by the impugned Circular, any
restriction or any unreasonable restriction has been imposed on the
business of the petitioners or that they are being deprived of their
property. It is also denied that there has been any violation of the
principles of equality before the law under Article 14 of the Constitution
because the assignment in favour of the Government or its departments,
in favour of LIC Housing Finance Limited and in favour of DSOP funds
policies are exempted from payment of such service charges.
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4. Heard the learned Counsel for the parties.
5. 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:
1. In case of Absolute/Conditional Assignment in
favour of a family member for natural love and affection, the
first assignment should be registered free and all furtherassignments 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 re-assignment is not
be charged.
6. After re-assignment, the policy holder is required
to give fresh nomination. Such nomination consequent to
assignment/re-assignment 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::: Downloaded on – 09/06/2013 15:57:41 :::
8a single life and are assigned to a single assignee at a time.
The provisions of this Circular will come into effect from
st
1 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 Corporation established under the Life
Insurance Corporation Act, 1956, the business of life insurance carried on by the
respondent No.1 is regulated by the provisions of the Insurance Act. The LIC Act
deals with the establishment of the respondent no.1 as a statutory body and
regulates the functioning of the respondent No.1 as a company, as opposed to
regulating the business of life insurance, which is governed by the Insurance Act.
Section 43 of the LIC Act makes the provisions of Section 38 of the Insurance
Act expressly applicable to the respondent No.1.
7. Section 38 of the Insurance Act provides for the assignment and
transfer of Insurance policies. It reads as follows :-
“Assignment and transfer of Insurance policies
(1) A transfer or assignment of a policy of life insurance,
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whether with or without consideration, maybe made only by
an endorsement upon the policy itself or by a separate
instrument, signed in either case by the transferor or by the
assignor or his duly authorized agent and attested by at least
one witness, specifically setting forth the fact of transfer or
assignment.
(2) The transfer or assignment shall be complete and
effectual upon the execution of such endorsement or
instrument duly attested but except where the transfer or
assignment is in favour of the insurer shall not be operative
as against an insurer and shall not confer upon the
transferee or assignee, or his legal representative, and right
to sue for the amount of such policy or the moneys secured
thereby until a notice in writing of the transfer or assignment
and either the said endorsement or instrument itself or a
copy thereof certified to be correct by both transferor and
transferee or their duly authorized agents have been
delivered to the insurer:
Provided that where the insurer maintains one or more
places of business in India, such notice shall be delivered
only at the place in India mentioned in the policy for the
purpose or at his principal place of business in India.
(3) ….
(4) Upon the receipt of the notice referred to in sub-
section (2), the insurer shall record the fact of such transfer
or assignment together with the date thereof and the name of
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the transferee or the assignee and shall, on the request of the
person by whom the notice was given, or of the transferee or
assignee, on payment of a fee not exceeding one rupee, grant
a written acknowledgment of the receipt of such notice; and
any such acknowledgment shall be conclusive evidence
against the insurer that he has duly received the notice to
which such acknowledgment 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) ….
(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
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record the fact of such transfer or assignment. The only authority to levy a fee by
the insurer under this section is if the insurer issues a written acknowledgment for
the receipt of a notice for recording the assignment or transfer of the policy. Even
in this circumstance, by statutory mandate, the fee cannot exceed one rupee.
9. Section 39(4) of the Insurance Act provides that a transfer or
assignment of a policy made in accordance with section 38 shall automatically
cancel a nomination. Thus, it is very clear that a transfer or assignment of policy
if made after following the due procedure laid down in Section 38, is the mandate
of the law. In Insure Policy Plus Services Ltd. v. Life Insurance Corporation (Writ
Petition No.2159 of 2004, the Division Bench of this Court, after considering the
rival arguments of the parties, observed as follows in paras 16 and 20:-
“16. We shall now examine the various sub-sections of
Section 38. Section 38(1) unequivocally provides the procedure bywhich assignment of a policy of life insurance can be done. The
contract of insurance issued by the insurer is a contract between the
insured and the insurance company. Sub-section (2), then sets out,
that once a transfer or assignment is made in the manner prescribed
by Section 38(1), the transfer or assignment is complete andeffectual on the execution of the endorsement or by a separate
instrument. However, such transfer or assignment is not binding as
against the insurer until and unless intimation in writing of the
transfer or assignment in the prescribed manner, has been delivered
n the insurer. Sub-section (3) determines the priority of claims, on
the insurance Policy by operation of law. Therefore, if the insured
had effected the transfer or assignment and had given notice to the::: Downloaded on – 09/06/2013 15:57:41 :::
12insurer, that would be determinative as to who is entitled to the
moneys payable under the policy of insurance. Once the notice is
received, by virtue of Sub-section (4), the insurer is bound to recordthe fact of transfer or assignment together with the date thereof and
the name of the transferee and the assignee and on request, grant awritten acknowledgment of the receipt of such notice which will be
conclusive evidence that the insurer had received the notice. The
only limitation evidenced by the said Section to transfer are the
terms and conditions of the transfer and necessarily the terms ofpolicy itself. By virtue of sub-section (5) 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 isserved 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 forsome 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 thepolicy in favour of the assignee the assignment is complete between
them. The provisions of the Section leave no doubt that the insurerhas no choice but to accept the transfer or assignment as the case
may be if the procedure required by Section 38 ha been followed,
subject to the terms of the policy. We have no hesitation in holdingthat Section 38 is substantive and not procedural. The position in
law, therefore would be that the interest int he policy earlier held by
the assignor is transferred to the assignee with all benefits attached
thereto. The assignment becomes binding on the insurer recording
the fact of such transfer or assignment. The submission, therefore,advanced on behalf of the respondent NO.1 herein that Section 38 is
merely procedural is devoid of merit…..”
“20… It is not open to respondent no.1 to impose on the
insured terms and conditions not provided in the contract or not
permissible under the provisions of the Insurance Act, Section 30A
of the Insurance Act makes it mandatory for the Corporation to::: Downloaded on – 09/06/2013 15:57:41 :::
13carry on its business in terms of the Insurance Act. The effect of the
policy would be clearly contrary to Section 38(4) of the Insurance
Act. As we have held the Section to be mandatory, once the insuredcomplies with the requirement of Section 38(2), the respondent No.1
is bound in terms of Section 38(5) to recognise the transferee orassignees named in the notice by operation of law. It is not open to
the respondent No.1 to issue any policy decisions or directions
which are contrary to Section 38. The Circulars to the extent that
they seek not to register the policies even if they comply with therequirement of Section 38, would be contrary to the mandatory
provisions of Section 38(4) of the Insurance Act and consequently
the Circulars would have to be struck down.”
10. The learned Senior Counsel for the petitioners vehemently contended
that as observed by this Court in Insure Policy Plus Services Ltd., it is not open to
the respondent N.1 to issue policy decisions or directions which are contrary to
Section 38. The learned Counsel vehemently contended that Section 38 only
provides for imposition of fee of rupee one for the purpose of acknowledgment of
receipt of notice on transfer or assignment of a policy, but Section 38 does not
provide for charging of any fee for the purpose of registration of transfer or
assignment of a policy. It is contended that even para 23 of the LIC Manual
issued on 31.12.1990 makes it clear that no fee could be charged for registration of
assignment or re-assignment. Para 23 reads as follows :-
“No fee to be charged for Registering
Assignment/Reassignment and for acknowledging Notices.
Assignments and Reassignments are registered and notices thereof
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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 exercised its rule-making
power to levy a fee or charge on registration of assignments. It is further
contended that Section 49 of the LIC Act confers power to make
regulations on the respondent No.1 with previous approval of the Central
Government and such regulations are to be notified. However such
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regulations cannot be inconsistent with the provisions of the LIC Act.
There is no dispute that the impugned Circular is not issued under the
regulation-making power under Section 49.
12. The learned Senior Counsel for the petitioners vehemently
contended that no tax or a fee in the nature of tax can be imposed without
any authority of law in view of Article 265 of the Constitution of India.
This contention is supported by several authorities.
13. In M.Chandru vs. Member-Secretary, Chennai
Metropolitan Development Authority and Anr. (2009) 4 SCC 72,
Their Lordships considered several earlier authorities with reference to
the tax, fee and administrative charges. In paras 25 and 26, Their
Lordships observed as follows :-
25. In Krishna Das v. Town Area Committee, Chirgaon
this Court observed: (SCC p.652, paras 22-24)“22. A fee is paid for performing a
function. A fee is not ordinarily considered to be
a tax. If the fee is merely to compensate an
authority for services performed or as
compensation for the services rendered, it can::: Downloaded on – 09/06/2013 15:57:41 :::
16hardly be called a tax. However, if the object of
the fee is to provide general revenue of theauthority rather than to compensate it, and the
amount of the fee has no relation to the value ofthe services, the fee will amount to a tax. In the
words of Cooley, `A charge fixed by statute for theservice to be performed by an officer, where the
charge has no relation to the value of the services
performed and where the amount collectedeventually finds its way into the treasury of the
branch of the Government whose officer orofficers collect the charge is not a fee but a tax.’
23. Under the Indian Constitution the State
Government’s power to levy a tax is not identical
with that of its power to levy a fee. While thepowers to levy taxes is conferred on the State
Legislatures by the various entries in List II, in itthere is Entry 66 relating to fees, empowering the
State Government to levy fees `in respect of any ofthe matters in this list, but not including fees
taken in any court’. The result is that each State
Legislature has the power, to levy fees, which isco-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
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17authority. When a levy or an imposition is
questioned, the court has to inquire into its realnature inasmuch as though an imposition is
labelled as a fee, in reality it may not be a fee buta tax, and vice versa. The question to be
determined is whether the power to levy the tax orfee 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 observed thus:
“26. In Jindal Stainless Ltd. (2) v. State of Harayana 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 andeven if such identification is there, it is not capable of
direct measurement. In the case of a tax, a particular
advantage, if it exists at all, is incidental to the State’saction. It is assessed on certain elements of business,
such as, manufacture, purchase, sale, consumption, use,
capital, etc. but its payment is not a condition
precedent. It is not a term or condition of a licence. A::: Downloaded on – 09/06/2013 15:57:41 :::
18fee is generally a term of a licence. A tax is a payment
where the special benefit, if any, is converted intocommon burden.”
41. On the other hand, a fee is based on the
`principle of equivalence’. This principle is theconverse of the `principle of ability’ to pay. In the case
of a fee or compensatory tax, the `principle of
equivalence’ applies. The basis of a fee or acompensatory tax is the same. The main basis of a fee
or a compensatory tax is the quantifiable andmeasurable benefit. In the case of a tax, even if there is
any benefit, the same is incidental to the government
action and even if such benefit results from the
government action, the same is not measurable. Underthe principle of equivalence, as applicable to a fee or a
compensatory tax, there is an indication of aquantifiable data, namely, a benefit which is
measurable”.
These authorities were reiterated by Their Lordships in M.Chandru.
Thus it is now settled position of law that when the fee is paid for
performing a functions or rendering a particular service, it is not to
be considered as a tax, but if the object of the fee is to provide
general revenue of the authority rather than to compensate it, and the
amount of the fee has no co-relation to the value of the services, fee
shall amount to a tax. Therefore, to find out whether a particular
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fee is charged as a fee for the service rendered or it is in the nature
of tax, the Court has to see if there is any co-relation between the
fee and the service rendered.
14. In Ahmedabad Urban Development Authority Vs.
Sharadkumar Jayantikumar Pasawalla & Ors. (1992) 3 SCC 285, it
was held that it is settled position that without the authority of law, no tax
can be imposed and the fee, which is in the nature of tax, also cannot be
levied and collected without the authority of law. Article 300A of the
Constitution clearly lays down that no person shall be deprived of his
property save by authority of law. If the fee in the nature of tax is levied
without authority of law, that will violate not only Article 265, but also
Article 300A as the fee /tax-payer 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.1
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”.
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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. vs. Govt.
of Andhra Pradesh 2000 (8) SCC 167. This judgment is also approved
by the Supreme Court in M. Chandru. In Gupta Modern Breweries vs.
State of J & K and others (2007) 6 SCC 317, the Supreme Court
considered the earlier authorities, including Indian Mica Micanite
Industries vs. State of Bihar (1971) 2 SCC 236 and CCE vs. Chhata
Sugar Co. Ltd. (2004) 3 SCC 466. In Indian Mica Mercantile
Industries it was held that where the State is rendering no service to the
consumer and is merely protecting its own rights and that when the State
is in a position to place material before the Court to show what services
had been rendered by it to the appellant and other similar licences, the
costs or at any rate probable cost that may be said to have been incurred
for rendering this service and the amount realised as fees, it has failed to
do so, the levy appears to be tax and not fee. In Chhata Sugar Co.Ltd.,
it was held that administrative charges under the U.P. Act is a tax and not a
fee. After referring to all the authorities, the Supreme Court in Gupta
Modern Breweries, observed in para 28 as follows :-
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“28. It is, thus, clear from the aforesaid decisions that
imposition of administrative services (sic charges) is a tax and not
a fee. Such imposition without backing of statutes is unreasonable
and unfair.”
16. We may also consider some of the observations in Calcutta
Municipal Corpn. & Ors. vs. Shrey Mercantile (P) Ltd. & Ors. (2005) 4
SCC 245, which noted that the difference between “a fee” and “a tax” is on
account of the source of power. Though the expression “:police power” is
not mentioned in the Constitution, it could be relied upon as a concept to
bring out the difference between “a fee” and “a tax” The power to tax must
be distinguished from an exercise of the police power. The “police power” s
different from the “taxing power” in its essential principles. The power to
regulate,control and prohibit with the main object of giving some special
benefit to a specific class or group of persons is in the exercise of police
power and the charge levied on the class to defray the costs of providing
benefit to such a class is “a fee”.
. The Court then quoted with approval several paragraphs from
CCE v. Chhata Sugar Co. Ltd. (2004) 3 SCC 466, some of which are being
reproduced :
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“17. These well-settled principles have
been reiterated by this Court in the case of CCE v.
Chhata Sugar Co. Ltd. in which it has been held (SCC
pp.483-86, paras 18-3)
18. The Constitution of India postulates
either a tax or a fee. However, the use of the expression
`tax’ or `fee’ in a statute is not decisive; as on a proper
construction thereof and having regard to its scope and
purport, `fee’ may also be held to be a tax.
19. The definition of `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
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23
be interpreted accordingly.
22. The expression `regulatory fee’ is not
defined. Fee, therefore, may be held to be a tax if a
service is rendered. While imposing a regulatory fee,
although the element of quid pro quo, as understood in
common parlance, may not exist but it is trite that
regulatory fee may be in effect and substance a tax. (See
Corpn. Of Calcutta v. Liberty Ciema).”
17. In view of this legal position, if the amount of Rs.250/- charged by
the respondent No.1 for registration of every assignment of a policy is in the
nature of administrative charges for general services being rendered by the LIC to
its policy holders or assignees, it would amount to tax. Similarly, if it is a fee,
which has no co-relation with the service being rendered to the particular
customer, it will also amount to a tax and cannot be charged without the authority
of law. However, if it is a fee in the nature of charges for the services rendered to
the particular customer and is not for recovery of general administrative expenses
of the LIC, it may be treated as a fee or service charges. Therefore, the question
arises as to whether the amount being charged by the respondent No.1 is a fee in
the nature of service charges or it is in the nature of recovery of administrative
expenses akin to tax.
18. Before dealing with the main question the objection of the respondent
No.1 to tenability of the petition may be dealt with. It is contended on behalf of
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24
the respondent No.1 that alternative and efficacious remedy is available to the
petitioners before the authority under the Insurance Regulatory and Development
Authority Act, 1999. Besides this, no bill was served on the petitioners in respect
of the said amount and therefore, no cause of action has arisen. It may be noted
that earlier the respondent no.1 had issued circulars refusing registration of the
assignments in favour of the Financial Institutions like the petitioners, but those
circulars have been set aside in the earlier litigation in Insure Policy Plus
Services Ltd. Though that judgment has been assailed before the Supreme Court
by filing Special Leave Petition, it is still pending and no stay has been granted
except that certain restrictions were imposed on the petitioners pending the
Special Leave Petition. It is already noted that in view of the provisions of
Section 38 and 39(4) of 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,
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25
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 has no jurisdiction. Therefore, we are not satisfied with the contention that the
Writ Petition is not tenable.
19. The respondent No.1 has tried to justify the imposition of the charge
of Rs.250/- by giving some data. It is contended that there are about 19 crore
policy holders with the respondent No.1 and the respondent No.1 is required to
provide services to such policy holders frequently. With a network of 2048
branches all over India, large number of requests to record and register
assignments are made. For the whole of India, the data reveals that in the
Western Zone comprising the States of Maharahtra & Gujarat, only the respondent
No.1 was required to record the assignments in respect of about 77,000 policies in
one financial year i.e. 2005-06 alone. The total charges distributed amongst the
2048 branches worked out to Rs.9399.41 per branch which is a moderate figure. It
is also pointed out that the cumbersome administrative processes involves, inter
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26
alia, scrutiny, verification,confirmation of the factum of the assignment by the
existing policy holders in favour of the purported assignees, carrying out
verification of the signatures of the existing policy holders after discarding
fraudulent and illegible signatures or those which do not tally with the records of
the 1st Respondent as maintained in its systems, then sending requisite notices to
the existing policy holders for confirmation of said assignment in terms of the said
assignment document, after receipt thereof from its registered policy holder
confirming their assignment in favour of the assignee. The 1st Respondent is then
required to once again enter the names of the new assignees in its books/registers,
after effecting deletion of the previous policy holders, and entering their respective
names, addresses and signatures and value thereof in computer systems which is
accessible all over India, and such information is protected and guarded by the 1st
Respondent to prevent any hacking into the policy docket available electronically,
for which purposes the 1st Respondent has invested massive sums of money
towards protection and maintaining effective fire walls, and constantly monitoring
the same in the interest of about 19 crore policy holders all over India. It is further
contended that in view of the cumbersome administrative processes and
tremendous manpower involved and the 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
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27
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 acknowledgment 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. Naturally, such financial institutions purchase
the policies at the discounted price from the original policy holders and then get
the policies assigned or transferred to them to gain huge profits in future. It
cannot be forgotten that during the last few years, due to the globalisation and
liberal economic policies, fast financial development has taken place in the
country resulting in the higher salaries of the staff, high cost of stationery,
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28
computers and network systems. The cost of correspondence by post or the
courier has also substantially increased. As the workload has increased due to
large number of requests for registration of assignments, the respondent No.1 will
be compelled to have extra work force and staff to meet the requirements.
21. Section 6 of the LIC Act provides for functions of the Life Insurance
Corporation of India. Sub-section (3) provides that in the discharge of any of its
functions, the Corporation shall act, so far as may be, on business principles.
Therefore, it is submitted on behalf of the respondents that the respondents have
powers to act and in fact have acted on the business principles in the matter of
levying such charges as per the impugned Circular. The learned Counsel for the
Respondent contended that when the functions of the Corporation are to be
performed on business principles, naturally, the Corporation is entitled to make
reasonable profit for the benefit of the policy holders and the Corporation cannot
be run on the no profit no loss basis nor it can be expected to run on losses. In
support of this contention, the learned Counsel for the respondents placed reliance
upon Ashoka Smokeless Coal India (P) Ltd. v. Union of India, (2007) 2 SCC
640, wherein the Supreme Court observed as follows :-
“92. “Business” is a word of wide import. It, in the context
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29
of application of a statute governing a monopoly concern and also
with an essential commodity, would indisputably stand on a different
footing from other business concern or a private person. The
Central Government as also the coal companies having regard to the
provisions of the Nationalization Ats must be visualised not as profit-
earning concerns but as an extended arm of a welfare State. They
are expected to harmonise the business potential of a country to
benefit the common man. The power of the Central Government to
carry on trade or business activities 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 vie
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: (SC C p. 430, para 34)
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30
“34. In another article on `The Public Sector in India’, quoted in
Issues in Public Enterprise by Shri K.R. Gupta, Dr. Rao is quoted as
saying (at p.84):
“… the pricing policy should be such as to
promote the growth of national income and the rate ofthis growth… public enterprises must make profits and
the larger the share of public enterprises in all
enterprises, the greater is their need for making profits.
Profits constitute the surplus available for savings and
investment on the one hand and contribution to nationalsocial welfare programme on the other; and if public
enterprises do not make profits the national surplus
available for stepping up the rate of investment and the
increase of social welfare will suffer a correspondingreduction; …. Hence the need for giving up the
irrational belief that public enterprise should, bydefinition, be run on a non-profit basis'”
22. Again in CIT vs. A.P.State Road Transport Corpn., (1986)
2 SCC 391, the Supreme Court observed as follows :-
“10. The submission founded upon Section 22 is based
upon a misunderstanding of what that section provides. A Road
Transport Corporation cannot be expected or be required to run at a
loss. It is not established for the purpose of subsidizing the public in::: Downloaded on – 09/06/2013 15:57:41 :::
31matters of transportation of passengers and goods. The objects for
establishing a Road Transport Corporation are those set out inSection 3 of the RTC Act which we have already reproduced above.
Section 18 shows that it is the duty of a Road Transport Corporation
to provide, secure and promote the provision of an efficient,
adequate, economical and properly co-ordinated system of road
transport services in the State. No activity can be carried on
efficiently, properly, adequately or economically unless it is carried
on on business principles. If an activity is carried on on business
principles, it would usually result in profit, but as pointed out by this
Court in the Surat Art Silk Cloth Manufacturers’ Association case, it
is not possible so to carry on a charitable activity that the
expenditure balances the income and there is no resultant profit, for
to achieve this would not only be difficult of practical realiazatin but
would reflect unsound principles of management. Section 22,
therefore, does when t states that it shall be the general principle of
a Road Transport Corporation that in carrying 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.”
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32
23. In Kerala State Electricity Board v. S.N. Govinda Prabhu
and 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 aninstrumentality of the State subject to the same constitutional
and public law limitations as are applicable to the
government including the principle of law which inhibitsarbitrary action by the government. (See Rohtas Industries v.
Bihar State Electricity Board).
ig It is a public utility
monopoly undertaking which may not be driven by pureprofit motive – not that profit is to be shunned but that
service and not profit should inform its actions. It is not the
function of the Board to so manage its affairs as to earn themaximum profit; even as a private corporate body may be
inspired to earn huge profits with a view to paying largedividends to its shareholders”.
In view of this settled legal position, it is clear that the respondent LIC is
expected to manage its affairs on sound economic and business principles
which are as essential to public service undertakings as to the commercial
ventures.
24. Section 28 of the LIC Act reads as follows :-
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33
“28. Surplus from life insurance business how to be
utilized – If as a result of any investigation undertaken by theCorporation under section 26 any surplus emerges, ninety-five per
cent of such surplus or such higher percentage thereof as the CentralGovernment may approve shall be allocated to or reserved for the
life insurance policy-holders of the Corporation and after meetingthe liabilities of the Corporation, if any, which may arise under
section 9, the remainder shall be paid to the Central Government or,
if that Government so directs, be utilized for such purposes and insuch manner as that Government may determine.”
From this, it has been submitted that it is clear that if after meeting all the
expenses, there emerges surplus i.e. the profit, at least 95% on such surplus shall
be allocated to or reserved for the policy holders and after meeting all the
liabilities of the Corporation, if any, remainder shall be paid to the Central
Government or it may be utilised for such other purposes as may be determined
by the Central Government. The ordinary policy holders are not affected by the
impugned circular because of love and affection or because of certain family
reasons a policy is required to be assigned. The huge burden of registration of
assignments have been noticed during the last few years because of the trade in
the insurance policies by certain non-banking financial institutions as well as
banks and naturally, such trade is taken up for their own profit. If no charges are
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34
taken for the services to be rendered to them, in respect of the registration of
assignments, the burden will have to be borne by all the policy holders because
that additional expenditure will reduce the surplus or profit to be shared by the
policy holders and the Central Government. There is no justification that the
ordinary policy holders 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 vs. Town Area Committee, Chirgaon (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::: Downloaded on – 09/06/2013 15:57:41 :::
35payment made for some special benefit enjoyed by the payer
and the payment is proportional to such benefit. Moneyraised by fee is appropriated for the performance of the
service and does not merge in the general revenue. Where,however, the service is indistinguishable from the public
services and forms part of the latter it is necessary to inquirewhat is the primary object of the levy and the essential
purpose which it is intended to achieve. While there is no
quid pro quo between a taxpayer and the authority in case ofa tax, there is a necessary co-relation between fee collected
and the service intended to be rendered. Of course the quidpro quo need not be understood in mathematical equivalence
but only in a fair correspondence between the two. A broad
co-relationship is all that is necessary.”
27. In Mumbai Agricultual Produce Market Committee v.
Hindustan Lever Ltd. this Court observed (SCC p.579, para 14)
14. The quantum for recovery, however, need not be based on
mathematical exactitude as such cost is levied having regard to the
liability of all the licensees or a section of them. It would, however,
require some calculation.”
28. From this , it is clear that while co-relation between the fee
collected and the services to be rendered has to be established, the co-
relation need not be understood in the since of mathematical equivalence.
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36
Only a broad co-relation is necessary. This observation was quoted with
approval by the Supreme Court in M.Chandra (supra).
29. In the present case, the respondent no.1 has given sufficient
data to show that there has been tremendous increase in the load of work
because of huge number of requests by the financial institutions for
registration of assignment of policies. Naturally, this must add to the
expenses on the stationery, computer systems, correspondence, etc.
Naturally, it also requires additional staff to meet the requirements. It
may not be possible for the insurance company to specifically point out
how much expenditure has been made to record a particular assignment
and it is not possible to have mathematical equivalence in the expenditure
on individual case and the amount being charged by the insurance
company for this purpose. Therefore, in our considered opinion, data and
the material placed before us by the respondent is sufficient to show that
what is being charged is only a service charge or a fee for the service
being rendered to the persons 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
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37
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 ofassignment / 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 is clear that the cost of transaction of assignment of policies
has considerably increased and therefore the Corporation has decided to
levy service charges. As noted by the Supreme Court in Sri Krishna Das
v. Town Area Committee (supra) and M. Chandru (supra) a fee is
paid for performing a function and fee is not ordinarily considered to be a
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38
tax. If the fee is levied merely to compensate an authority for the
services rendered, it cannot be called a tax . Taking into consideration the
legal position and the explanation given by the respondent No.1 for
levying service charges, we have no doubt that by the impugned Circular,
the respondent No.1 has levied service charge or a fee for the services to
be rendered to the person requesting for registration of assignment and
therefore the said charges cannot be treated as tax.
31.
We may first deal with the contention as raised on behalf of the
respondents that considering Section 6 of the LIC Act, they have to run the
Corporation on business principles and the power to charge the amount flows from
that power. We have noted the Judgments and referred to them. Section 6, at the
highest, if read in its proper perspective, would confer on the Corporation a
power to price their products. It is not a power to charge a tax or a fee or any
other charge. The argument therefore advanced on behalf of the respondents that
the validity of the service charge can be supported by Section 6(3) has to be
rejected.
32. Having arrived at a conclusion that what is being charged is a service
charge or a fee, the next question that we have to answer is whether the recovery
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39
of service charge/fee under the circular is supported by any provision of law,
either primary or subordinate. For that purpose, let us consider the law on the
subject. Section 48(2)(k) of the LIC Act confers power on the Central
Government to make rules for charging fees payable under the Act and the
manner in which they are to be collected. Similarly, Section 49 of the LIC Act
gives power to make regulations. Under the Insurance Act, 1938, there is power
conferred on the Central Government to make rules and Section 114-A gives
power to make regulations.
With that background, we may now address the issue which is; can
the respondents by the impugned circular, levy a service charge/fee ?
33. In Sri Krishna Das vs. Town Area Committee, Cirgaon (supra),
the Supreme Court posed 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
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40
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 Ahmedabad Urban Development Authority vs.
Sharadkumar J.Pasawalla & Ors. (supra), we may refer the following
extracts from paras 7 & 8 which read as under :-
“7. After giving our anxious consideration to
the contentions raised by Mr. Goswami, it appears to usthat 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 ofimplied authority for imposition of such tax or fee. It
appears to us that the delegated authority must actstrictly within the parameters of the authority delegated
to it under Act and it will not be proper to bring the
theory of implied intent or the concept of incidental andancillary power in the matter of exercise of fiscal
power.”
“8…..It has been consistently held by this Court
that whenever there is compulsory exaction of anymoney, there should be specific provision for the same
and there is no room for intendment. Nothing is to be
read and nothing is to be implied and one should look
fairly to the language used.”
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41
35. In Gupta Modern Breweries vs. State of J & K (supra), the
Supreme Court observed as under :-
“It is now well settled principle of law that
the regulatory powers are generally to be widely
construed. However, empowering the State
Government to impose taxes, fees or duties and
such demands must be authorised by the Statute and
must contain sufficient guidelines.”
36. It would, thus, be clear that there must be a specific provision
conferred by the Act on the delegate to levy a fee. We do not find that the
power to make rules under the LIC Act as also the Insurance Act, 1938 is
conferred on the Respondent-Corporation. Under the LIC Act, the power to
make rules is conferred on the Central Government while the power to make
regulations is conferred on the Corporation with the previous approval of the
Central Government. The power to charge fee is specifically conferred on
the Central Government by making rules. Under the Insurance Act, the
power to make rules is conferred on the Central Government and under
Section 114-A, the power to make regulations is conferred on the authority.
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42
“Authority” has been defined to mean “the Insurance Regulatory and
Development Authority” established under sub-section (1) of Section 3 of the
Insurance Regulatory and Development authority Act. The impugned
circular therefore issued by the Corporation is neither based on the
provisions of the LIC Act nor the Insurance Act. As consistently observed by
the Supreme Court, it is not possible to read the concept of incidental and
ancillary power in the matter of exercise of fiscal power. There is no scope
of implied authority for imposition of a fee. The fee must be authorised by
the statute and the exercise of the power must be governed by sufficient
guidelines. In the instant case, we do not find that the impugned circular has
been issued pursuant 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 abovementioned 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
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43
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 300(A) of the
Constitution of India.
38.
The impugned Circular is also challenged on the ground of
violation of the principles of equality enshrined in Article 14 of the
Constitution. It is contended that while the assignment in favour of
family members,LIC of India & LIC Housing Finance Ltd. and in favour
of the Government bodies, are exempt from payment of such service
charges, the assignments in favour of other public sector entities,
including banks, co-operatives, financial organizations are to be charged.
It is contended that non-banking financial institutions like the petitioners,
banks, public sector entities form a homogeneous group with the LIC of
India, LIC Housing Finance Ltd. and the Government bodies and
therefore, there can be no justification to make a difference between them.
It is contended that the classification and differential apparent from the
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44
circular renders it unconstitutional. It is contended that it makes an
artificial classification of what is essentially one homogeneous class,
which is not permissible under the law. In support of this contention, the
learned Counsel placed reliance upon State of Rajasthan v. Mukan
Chand & Ors. AIR 1964 SC 1633 wherein the Constitution Bench of the
Supreme Court discussed the principles of Article 14 of the Constitution
and observed as follows :-
“…. It is now well settled that in order to pass the test of
permissible classification, two conditions must be fulfilled, namely,(1) that the classification must be founded on an intelligible
differentiation which distinguishes persons or things that are to be
put together from others left out of the group, and (2) that thedifferentia must have a rational relationship to the object sought to
be achieved by the statute in question…”
39. The learned Counsel for the respondents pointed out that not
only there is an intelligible differentia, but there is also rational
relationship to the object sought to be achieved by the impugned Circular.
One of the main functions of the respondent No.1 is to provide insurance
service to its policy holders and as noted in Section 28 of the LIC Act. At
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45
least 95% of the surplus or profit has to b e allocated or to be reserved for
allocation to the policy holders and the balance may be allocated to the
Central Government or may be utilized as per the directions of the Central
Government. The exemption given to the family members is for
assignment in favour of a family member for natural love and affection
and therefore only the first assignment 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 stake holder 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
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46
among themselves, but they do not form homogeneous group along with
the LIC of India or LIC Housing Finance Ltd. or the other Government
bodies or the family members of the policy holders. Therefore, there
appears intelligible differentia and the object was to recover the service
charges from the banks and other financial institutions, who put huge
burden on the respondent No.1 by making large number of requests for
assignments. These are the profit-making commercial entities and they
earn profit from the trade in the insurance policies. Therefore, the object
of recovery of the service charges from them would be achieved if the
service charges are imposed and collected from them. At the same time,
for the valid reasons, the circular seeks to exempt the first assignment
between the family members and the assignments in favour of LIC of
India and LIC Housing Finance Ltd. or the Government bodies. 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
policy holder 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 circular.
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40. In view of the aforesaid discussion, as we have found that 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 Article 19(1)(g) and 300-A and to that extent,
the Petition has to be allowed.
Rule made absolute as above. In the circumstances of the
case, there shall be no order as to costs.
(J.H.BHATIA,J.) (F.I.REBELLO,J.)
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41. 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.
(J.H.BHATIA,J.) (F.I.REBELLO,J.)
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