Bombay HC refuses to stay on proposed IPO by LIC, to decide whether policy holders entitled to dividend from “surplus” fund

The HC was hearing a plea seeking to quash amendments made to The Life Insurance Corporation Act, 1956 by way of the Finance Act, 2021. The petitioners also sought an ad-interim relief to stay the Draft Red Herring Prospectus (DRHP) filed by the LIC for the issuance of shares in a public issue to investors.

The court said that while it did not find a sufficiently strong prima facie case for ad-interim relief at this stage, the same is not final determination of any of the issues which will be dealt with in June, this year. It also directed the respondents to file an affidavit in reply to the plea, if they wanted to, by June 9 and asked the petitioners to file rejoinder to the same, if any, by June 16.

The Securities and Exchange Board of India (SEBI) had last month approved the initial public offer of LIC, paving the way for the government to launch the issue through which it plans to raise around Rs 60,000 crore.

A division bench of Justice Gautam S Patel and Justice Madhav J Jamdar passed an order in plea by three LIC policyholders Charudatt Pawar, Manohar Sonawane and Prakash Desale from Nashik.

Senior advocate Pradeep Sancheti representing petitioners stated that the Finance Bill could have never been passed as “Money Bill” under Article 110 of the Constitution. He added that the impugned Finance Act, 2021, with amendments to the LIC Act, deprives all the LIC policyholders of their “property” and same was not with the authority of law and was unconstitutional.

Sancheti added that every LIC policyholder held property in “surplus” in the life insurance business as per the law, which says that 90 per cent or more of such surplus as approved by the Central government would be “allocated to or reserved for life insurance policyholders”.

He said that such allocation or reservation immediately gives every policyholder an estate in the surplus of the LIC and it being limited to 90 percent makes no difference.

However, Additional Solicitor General N Venkataraman, representing the Central government and the LIC opposed the plea and said that it was justified to be a Money Bill, as it affects inflows and potential outflows from the Consolidated Fund of India. He further argued that there was no binding contract the policyholders had with assurance to “property” rights. He added that the sum assured as per contract of insurance does not become part of “surplus,” though it is a part of LIC Fund. He also referred to Madras HC verdict which had rejected a similar challenge and opposed prayer for interim relief.

After perusing submissions the bench held that it was not inclined to grant ad-interim relief. It observed, “We are not entirely satisfied that persons like the petitioners can be said to have an enforceable estate in the surplus of the LIC fund. This is a matter that will require much deeper consideration. In other words, we do not see how this class of persons can say that the surplus or any part of the LIC fund is their “property” within the meaning of Article 300-A of the Constitution of India. It may be one thing to say that a person has an entitlement to receive a dividend or a bonus or some form of payment. That might conceptually be very different from saying that the person has an in specie interest in the fund itself.”