LIC’s Liability on Interest Payments: Supreme Court Clarifies Key Date

The case of Dravya Finance Pvt. Ltd. & Anr. vs. S.K. Roy & Ors. revolves around a crucial question regarding the date from which interest should be calculated and paid by the Life Insurance Corporation (LIC) to the petitioners. Initially treated as a contempt petition, the Supreme Court later converted it into a limited review petition to determine the appropriate date for interest calculation.

Background of the Case

Dravya Finance Pvt. Ltd., a non-banking finance company, engaged in lending money against collateral security, including life insurance policies assigned by borrowers. LIC had issued two circulars in 2003 and 2005 restricting the assignment of insurance policies to prevent trading in them. These circulars were challenged before the Bombay High Court in 2004, and the High Court quashed them in 2007. However, no interest was awarded to the petitioners at that stage.

Appeal Before the Supreme Court

LIC challenged the Bombay High Court’s decision in the Supreme Court through Special Leave Petitions (SLPs). During the pendency of Civil Appeal No. 8543 of 2009, the Supreme Court’s interim order prevented the petitioners from filing death or maturity claims, allowing only temporary registration of assignments. The final order, dated December 10, 2015, disposed of the appeal based on undertakings from the parties, making provisional registrations permanent and recalling interim orders.

The Dispute Over Interest Calculation

Following the final order, a dispute arose regarding the date from which LIC should calculate and pay interest at the prevailing bank rate. The petitioners contended that, as per statutory regulations, interest should be payable 30 days after the policy maturity or the insured’s death. On the other hand, LIC, represented by the Attorney General, argued that since the High Court did not grant interest and the petitioners had not appealed, interest should only be calculated from April 4, 2008, when the Supreme Court passed its interim order.

Supreme Court’s Decision

The Supreme Court observed that the omission in its 2015 order regarding the date for interest calculation needed correction. The Court ruled:

• LIC will be liable to pay interest at the prevailing bank rate (without penal interest) from 30 days after the policy’s maturity or the insured’s death, or from April 4, 2008, whichever is later.
• The Court declined LIC’s plea to reduce the bank rate to the savings bank rate, reasoning that the petitioners were deprived of their money due to the interim order.

Final Order and Compliance

With this clarification, the review petition was disposed of, and LIC was directed to discharge its liabilities promptly. The judgment balanced the equities between the parties while ensuring the petitioners received their rightful dues without further delay.

The decision reaffirms the importance of timely settlement of claims and the responsibility of insurers to adhere to legal obligations in interest payments.

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