B.A. LL.B. (Five Years) Sem 8 Insurance Law 2017 Dec Question Paper with Solutions

For full marks, cover: the stages of the history: (1) risk sharing before modern insurance; (2) the first companies (the Oriental Life Insurance Company, Calcutta, 1818; the Bombay Mutual Life Assurance Society, 1870, the first to insure Indian lives at ordinary rates); (3) the swadeshi growth of Indian offices and the failures; (4) regulation: the Indian Life Assurance Companies Act, 1912, the Indian Insurance Companies Act, 1928, the Insurance Act, 1938 and the 1950 amendment; (5) nationalisation: the Ordinance of 19 January 1956, the Life Insurance Corporation Act, 1956 (in force 1 July 1956), the Corporation created on 1 September 1956, its exclusive privilege (section 30), the Government guarantee (section 37), its public duty (section 6; Consumer Education and Research Centre), and the constitutional limit on nationalisation (R.C. Cooper); (6) the reopening: the Malhotra Committee (1994), the IRDA Act, 1999 and section 30A, foreign holding from 26 to 100 per cent; (7) the reform of the policy law in 2015 (section 45 after Mithoolal Nayak; section 39 after Sarbati Devi); (8) LIC's shares under the Finance Act, 2021; a timeline and an evaluation.

3. Growth and failure

During the swadeshi years Indian companies multiplied, and by the 1930s there were well over a hundred Indian offices. Many were small, under-capitalised and badly run. Some lent their funds to the companies of their own directors. When such offices collapsed, families who had paid premiums for years got nothing. Each wave of failures led to a stronger law.

4. Regulation: 1912 to 1950

1. The Indian Life Assurance Companies Act, 1912 was the first statute of general application. It required life offices to make deposits and to have their liabilities valued by an actuary.
2. The Indian Insurance Companies Act, 1928 required insurers to file statistical returns with the Government.
3. The Insurance Act, 1938 was the first comprehensive statute and is still the principal Act. It brought registration, minimum capital, a separate life fund, prescribed investments, actuarial valuation and control of agents and commission, under a Controller of Insurance.
4. The 1950 amendment confined insurance business mainly to public companies and co-operative societies (section 2C).

2. A Government guarantee. The sums assured by all its policies, with bonuses, are guaranteed in cash by the Central Government (section 37).
3. A public duty. It must develop life insurance "to the best advantage of the community", acting so far as may be on business principles (section 6).

The public duty is enforceable. In Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, the Corporation's cheapest policy was offered only to persons in Government or reputed private employment. The Supreme Court struck down that condition as arbitrary. As a State insurer, the Corporation must frame its terms consistently with the objects for which it was created.

Nationalisation also had limits. In Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, the nationalisation of fourteen banks in 1969 was struck down because it impaired shareholders' rights and the compensation was not just. That judgment is the constitutional background against which the 1956 and 1972 nationalisations are assessed.

6. The reopening: 1994 to 2026

1. Section 45. Under the old section 45, a policy more than two years old could be questioned for a misstatement only on strict proof. In Mithoolal Nayak v. Life Insurance Corporation of India, AIR 1962 SC 814, the assured had hidden a serious illness and answered the health questions falsely. The Supreme Court upheld the repudiation, applying a three-part test: materiality, fraud and the assured's knowledge. Since 2015, no life policy can be called in question on any ground after three years.
2. Section 39. In Sarbati Devi v. Usha Devi, (1984) 1 SCC 424, a nominated wife was held a mere receiver of the policy money for the heirs. Since 2015, a parent, spouse or child nominee is beneficially entitled (section 39(7)).

8. The Corporation as a listed company

The Finance Act, 2021 gave the Corporation an authorised share capital of twenty-five thousand crore rupees (section 5 of the 1956 Act). It may now issue shares to the public. The Central Government must hold at least 51 per cent at all times. For five years after the first issue to others, it must hold at least 75 per cent. The Corporation remains a statutory body, but now with company-style governance.

Evaluation

Each stage answered the failure of the one before it. Regulation answered the collapse of weak offices, nationalisation answered the limits of regulation, and liberalisation answered the limits of a monopoly in reaching every household. Today a public Corporation guaranteed by the State competes with private insurers under one regulator. The Corporation's public duty, enforced by the courts, keeps the original purpose of 1956 alive.

Conclusion. Life insurance in India grew from European companies in the nineteenth century to Indian offices that too often failed. That led to regulation in 1912 and 1938. Then came nationalisation in 1956 under a guaranteed Corporation with a public duty (sections 6, 30, 37; Consumer Education and Research Centre). The IRDA Act, 1999 ended the monopoly (section 30A) and reopened the market under a regulator. The law of the policy was reformed in 2015 (Mithoolal Nayak; Sarbati Devi). Foreign holding rose to 100 per cent in 2026, and the Corporation itself now has public shareholders.