Fees on assignment of insurance policy illegal: High Court

In a recent decision the Bombay High Court has declared the fees of Rs. 250/- collected by the Life Insurance Corporation of India on assignment of insurance policies in favour of finance companies to be illegal being ultra vires their powers. The High Court quashed the Circular in terms of which the fees was being collected being of the view that there was no power vested in LIC, in terms of the LIC Act or otherwise, to collected fees of such nature and thus there was no legal justification for collection of such fees which was being charged under the garb of 'service charges'.

Holding such, the High Court inter alia observed as under;

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 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 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 delegated authority must act strictly 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 and ancillary 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 any money, 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.”

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. “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 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.

 Have a look at the decision.