TMI Blog2015 (12) TMI 1782X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Appellant has argued that Section 38 could result in scenarios where it was bound to accept fraudulent policies since it had not been bestowed with discretionary powers - Held that:- There is no content in this contention, for the reason that in cases of fraud, the assignment could be challenged on that ground even after being recorded. The Parliament intended to allow all previous assignments and transfers provided that they complied with the requirements laid out in Section 38. In the face of this clear legislative intent, no other interpretation of Section 38 is possible. It is accordingly not incumbent to discuss whether insurance policies partake of the nature of social security, or whether the transfer of such policies tantamount to wagering contracts. It is not appropriate to import the principles of public policy, which are always imprecise, difficult to define, and akin to an unruly horse, into contractual matters. The contra proferentem rule is extremely relevant inasmuch as it is the Appellant who has drafted the insurance policy and was therefore well-positioned to include clauses making it specifically impermissible to assign policies. In the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The firm then becomes the assignee and is entitled to all the rights of the policy be it maturity claim/death claim, etc. The above practice if it becomes prevalent would not only undermine the real purpose of life insurance but also allow third parties to make windfall gains by such wagering contracts. Therefore, it is felt necessary to introduce measures to safeguard the principles of life insurance and the larger interest of our policyholders. If any Agent/employee is found to be involved in assisting such Companies in respect of data acquisition of lapsed policies for revival and subsequent assignment, strict action may be initiated against him. The Branch Offices would have to be more vigilant in case of revival of policies that have been lapsed for longer duration say over 3 years. In such cases, strict control on non-acceptance of third party cheques, strict adherence to medical requirements, quality of medical examination etc. would be required. Wherever it is clear that a TIP company is involved, the revival may be outrightly rejected. If there are a number of assignments in the same Branch Office/Divisional Office in favour of the same Financial Company, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles also appeared in September 2003 about some Companies carrying on trading in insurance Policies. The Corporation had to take urgent notice of such a remarkable spurt in the registration of assignments in respect of such Policies and the Corporation then noticed that these Policies were being purchased and traded in like saleable securities of a stock market. It was also noticed by the Corporation that the only purpose for which such assignment was being obtained, was with a view to trading in them by further selling them, which could continue indefinitely without reference to the life assured. The Corporation had noticed that this process of trading, without any reference to the life assured, is in the nature of speculation and weighing in as much as none of the subsequent assignees would have either the means or the inclination to find out whether the life assured was still alive. This, in turn, would means that even if the life assured died a premature death, the Policies would continue in circulation by means of such trading until its date of maturity and the Corporation would then have to pay the final/ultimate assignee, the entire maturity amount/value instead of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such problems have a tendency to create a desire for the event. They are, therefore, independently of any statute on the subject condemned as being against public policy. This decision came up for consideration before the U.S. Supreme Court in Grigsby v. Russell 222 US 149. Grigsby did not agree with Warnoc, finding instead that life insurance is a form of investment and savings, and to deny the right to sell it would diminish its value. It was held that the rule of public policy that forbids the taking out of insurance by one on the life of another in which he has no insurable interest does not apply to the assignment by the insured of a valid policy to one not having an insurable interest. In the impugned Judgment, the High Court noted that the law in the U.S.A. after Grigsby is that though there has to be an insurable interest at the inception when the policy is taken out, subsequent thereto the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. (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 authorised 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) The date on which the notice referred to in Sub-section (2) is delivered to the insurer shall regulate the priority of all claims under a transfer or assignment as between persons interested in the policy; and where there is more than one instrument of transfer or assignment the priority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance policy. This, along with the other changes introduced in the Section, indicates that the law as it currently stands gives the Appellant a discretion as to whether or not to accept an assignment provided its decision is predicated on the transfer or assignment being (a) mala fide or (b) contrary to the interest of the policy holder or (c) against public interest or (d) only for trading in the policy. The question before us, however, is limited to the law as it stood prior to this statutory amendment. 8. The Appellant has contended that only certain first assignments, in which the policy is a pledge or collateral for a loan, would be acceptable. Based on an undertaking to this effect, we have disposed of Civil Appeal No. 8543 of 2009 which was being heard along with this Civil Appeal. The Order dated 10.12.2015 passed by us reads thus: The Affidavit filed on behalf of the Respondent No. 1 is taken on record. Learned Senior Counsel appearing for the Appellant also submits that the Undertakings may be accepted by the Court. The Undertakings furnished in the said Affidavit are accepted by the Court. The affiant is cautioned that if any of the Undertakings are breached, apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and extrapolated from Common Law. 9. The First and Second Respondent, on the other hand, have contended that Section 38 recognises all assignments that comply with the requirements stated therein. Insurance is intrinsically a matter of contract, and the Appellant cannot, by way of a Circular, amend a contract and interfere with contractual rights and obligations. An insurable interest is a precondition or essential element at the time of taking out the scheme but not thereafter, including at the point of any reassignment. Section 38 is substantive, not procedural, so there is no reason to advert to common law, as the Insurance Act was passed well after the two American Supreme Court decisions alluded to above. Sub-section (9) of the post-amendment Section 38 was relied upon, which reads as follows: (9) Any rights and remedies of an assignee or transferee of a policy of life insurance under an assignment or transfer effected prior to the commencement of the Insurance Law (Amendment) Act, 2015 shall not be affected by the provisions of this section. Thus this Sub-section protects the existing rights of the First Respondent. Even in the absence of this Sub-section, Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with Section 38 shall automatically cancel a nomination: Provided that the assignment, of a policy to the insurer who bears the risk on the policy at the time of the assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of the nominee only to the extent of the insurer's interest in the policy. 12. The Appellant has argued that Section 38 could result in scenarios where it was bound to accept fraudulent policies since it had not been bestowed with discretionary powers. We do not find any content in this contention, for the reason that in cases of fraud, the assignment could be challenged on that ground even after being recorded. Furthermore, when the Appellant encountered a fraud inter alia in reviving lapsed policies, such as in cases of reviving the policy of an insured who is already deceased, it could refuse to recognize the revival, which it is well within its rights to do as a contractual clause to this effect forms part of the policy. 13. The amendment to the Insurance Act by the Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btains today is diametrically opposite inasmuch as the statute permitted, at the relevant time, the assignment and/or transfer of life insurance policies, but the delegate, through its Circulars, has attempted to nullify that provision of law. We conclude, therefore, that the circulars are ultra vires the Statute and must therefore be made ineffectual. 15. We also think that it is not appropriate to import the principles of public policy, which are always imprecise, difficult to define, and akin to an unruly horse, into contractual matters. The contra proferentem rule is extremely relevant inasmuch as it is the Appellant who has drafted the insurance policy and was therefore well-positioned to include clauses making it specifically impermissible to assign policies. In the absence of any such covenant, the Appellant cannot be heard to say that such transfers or assignments violate public policy. In any event, as we have seen above, the general global practice is to permit assignments of insurance policies. 16. It is for these manifold reasons and in view of the analysis of the law prior to as well as post the amendments carried out in the Insurance Act that we find the Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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