SC stays Allahabad HC order on scrutinizing SBI Life policies

New Delhi: The Supreme Court has stayed a ruling by the Allahabad high court that directed the insurance regulator to scrutinize every policy sold by SBI Life Insurance Co. Ltd, and order the company to discontinue its policies and wind up its business if it detects any regulatory breaches.

Ordering the stay on 11 July, temporarily suspending the execution of the high court ruling, a bench of justices Ranjan Gogoi and M.Y. Eqbal issued notices in the case, said Anuradha Dutt, a lawyer for SBI Life.

The Insurance Regulatory and Development Authority (Irda), State Bank of India and the central government are proforma respondents in the case. A proforma respondent is a party that has an interest in a case, although not directly involved in the dispute.

The Allahabad high court ruling of 29 May had come in response to a writ petition filed by an SBI Life customer, Virendra Pal Kapoor, 72.

Kapoor claimed he had invested ₹ 50,000 in 2007 in the insurer’s Unit Plus II–Single, a unit-linked insurance product (Ulip) with an option of a limited term of five years, for a sum assured or insurance cover of ₹ 3,12,500 (625% of the investment), with a choice of investment in a growth fund. But on maturity, he was paid a mere ₹ 248.

This instance prompted the court “...to issue a direction to the Irda to critically examine each and every policy of SBI Life. If it (Irda) finds that the SBI Life, which has suffered penalties in the past for its defaults, has acted in breach of its guidelines it would be appropriate for it to direct SBI Life to discontinue its policies and to wind up its business,” the court said.

The court held that the central government “will do well to ensure that the investors are not cheated in a manner, as in the present case, in which the entire investment of the senior citizen has been lost on the pretext of the policy being in tune with Irda guidelines”.

SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas Cardif, with an authorized capital of ₹ 2,000 crore and a paid-up capital of ₹ 1,000 crore. SBI owns 74% of the total capital and BNP Paribas Cardif the remaining 26%

During fiscal year 2014, SBI Life garnered a first-year premium of ₹ 5,067.03 crore—the highest among 23 private insurers in India.

The court found that the policy in question was sold to Kapoor by an agent on behalf of SBI Life, on the basis of certain terms that did not have Irda’s approval.

Kapoor claimed he had been hoodwinked into buying the Ulip and hadn’t been briefed about the charges that it entailed or the implications of investing in it as a senior citizen. The high court called the insurance contract an “arbitrary, illegal and void document”.

SBI Life then filed a special leave petition in the apex court against the court ruling. The petition contended that a writ petition shouldn’t have been filed against it in the first place because it’s not an arm of the government. A writ petition can only be filed against the ‘state’ as defined in Article 12 of the Constitution, the insurer argued.

“State Bank of India has been created by State Bank of India Act 1955 and hence it is a statutory body. Any company created by a statutory corporation, having more than 50% share, is a ‘State’ within the meaning of Article 12 of the Constitution of India,” said Dhruv Kumar, a lawyer and insurance activist who represented Kapoor in the Allahabad high court.

The high court had ordered SBI Life to return the original amount of ₹ 50,000 to the petitioner within a month.

SBI Life has already paid ₹ 50,000 to Kapoor as per the high court order, according to lawyers for the insurance company and Kumar.