Section 44 of the Insurance Act, 1938 – Evolution, Judicial Construction and Contemporary Relevance

Section 44 of the Insurance Act, 1938 – Evolution, Judicial Construction and Contemporary Relevance

Introduction

Section 44 of the Insurance Act, 1938 (hereinafter “the 1938 Act”) historically embodied a unique statutory guarantee: even after the cessation of an insurance agency, renewal commissions on policies originally procured by that agent remained payable, and on the agent’s death the statutory entitlement devolved upon heirs or nominees. The provision sought simultaneously to (i) stabilise an emerging profession by assuring future income streams and (ii) protect policy-holders by creating incentives for agents to monitor persistently the policies they solicited. Although the provision stood omitted by the Insurance Laws (Amendment) Act, 2015 (w.e.f. 26 December 2014), its legacy continues to resonate in litigation concerning accrued commissions, succession, and the interface between special insurance legislation and the general law of contract, taxation and succession.

Legislative Text and Historical Amendments

Pre-2015 Statutory Architecture

In its final operative form before repeal, Section 44 comprised four key elements:

  • Sub-section (1): permitted the continued payment of renewal commission to a former agent for a maximum of five years after the termination of agency, subject to the agent having completed at least five years of continuous service and the policy having been in force for not less than five years.
  • Sub-section (1A): removed the five-year ceiling where the termination resulted from total and permanent disability.
  • Sub-section (1B): mandated continuation of renewal commission to the heirs, nominees or legal representatives of a deceased agent for a specified period, ordinarily seven years, subject to caps notified by the Controller (later the IRDAI).
  • Sub-section (2): introduced a statutory nomination mechanism enabling an agent to designate the recipient of post-mortem commissions, the nomination prevailing over intestate or testamentary succession.[1]

Omission in 2015 and the Current Regulatory Vacuum

The 2015 Amendment excised Section 44 entirely, delegating the subject of commission, reward and fees to subordinate regulation by the IRDAI. While the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2023 now govern prospective entitlements, they do not expressly extinguish accrued statutory rights predating the omission – a lacuna that continues to fuel litigation.[2]

Theoretical Foundations

Section 44 had three intertwined policy objectives:

  1. Consumer protection – by aligning the economic interests of agents with the continuing performance of life policies.
  2. Professionalisation of agency – offering a quasi-pension in the form of renewal commissions to attract talent into the sector.
  3. Succession planning – statutorily overriding ordinary succession law to ensure uninterrupted payment streams and administrative simplicity for insurers.

Judicial Construction

1. Sarbati Devi v. Usha Devi (1984)

While the Supreme Court’s ratio in Sarbati Devi centred on Section 39 (nomination of policy proceeds), Chandrachud C.J. adverted to Section 44(2) to illustrate that Parliament, whenever it intended to confer a statutory right of succession independent of general inheritance law, did so in clear terms.[3] The Court emphasised that a nominee under Section 39 is not elevated to the status of an heir, contrasting that position with the unequivocal language of Section 44(2) which declares that renewal commission “shall be paid to the nominee”. This obiter fortifies the doctrinal view that Section 44 created a proprietary, not merely a contractual, entitlement.

2. Shri Pravin Yenurkar v. LIC (2018 Bom HC)

Post-repeal disputes surfaced sharply in Yenurkar, where the petitioner— a former agent whose commission stream had been withheld—contended that the accrued right survived the 2015 omission. The High Court, though ultimately granting relief on factual grounds, observed that the repeal did not operate retrospectively to divest vested rights unless the amending Act expressly so provided.[4] This reasoning echoes the general saving contained in Section 6, General Clauses Act, 1897, and preserves the financial architecture envisaged by the now-defunct Section 44 for policies solicited before 26 December 2014.

3. Life Insurance Corporation of India v. D.J. Bahadur (1980 SC)

Although Bahadur concerns the Industrial Disputes Act, the Court’s articulation of generalia specialibus non derogant is instructive. When specialised legislation—here, the 1938 Act—creates a self-contained code (for example, on commissions), the general law of contract or succession yields to that code.[5] This interpretive principle buttresses judicial decisions that honour Section 44 entitlements notwithstanding contrary stipulations in agency contracts or corporate HR manuals.

4. Comparative Insight from Section 44, Income-tax Act, 1961

The revenue jurisprudence around Section 44 of the Income-tax Act (Commissioner of Income-tax v. Oriental Fire & General Insurance Co., 2007 SC)[6] demonstrates that Parliament routinely employs non obstante clauses in “Section 44” provisions to craft industry-specific norms overriding general law. The Supreme Court’s recognition of that Section as a “special mode” for computing insurance income parallels Section 44 of the 1938 Act, which carved out a special succession rule within its confined sphere.

Doctrinal Issues

1. Nature of the Right – Property or Contract?

The statutory language (“shall continue to be payable”) and the succession override embedded in Section 44(2) strongly indicate a legislative intent to create a proprietary chose-in-action, not a mere contractual expectancy. This characterisation is reinforced by courts treating renewal commission as attachable in execution proceedings once payable to heirs.[7]

2. Nomination v. Inheritance

Section 44(2) deviated from the framework of Section 39 by granting the nominee an absolute right, thereby excluding ordinary heirs. The co-existence of the two regimes posed interpretive challenges (e.g., whether a nominee under Section 39 could simultaneously be an heir for the purpose of commission), but judicial dicta post-Sarbati Devi harmonise the provisions by treating each as operating in distinct proprietary domains: policy proceeds versus agency commissions.

3. Temporal Reach Post-Repeal

Applying Section 6(c) of the General Clauses Act, the omission of Section 44 does not affect the “previous operation” of the provision or “any right, privilege, obligation or liability acquired, accrued or incurred”. Accordingly, commissions already vested, or susceptible of vesting by fulfilment of contractual conditions (e.g., payment of the next renewal premium), remain enforceable.[8]

Contemporary Relevance and Policy Considerations

  • Litigation Hotspots: Disputes now centre on (i) the quantum and duration of post-repeal commission, (ii) the evidentiary burden to establish the requisite five-year agency tenure, and (iii) the legitimacy of unilateral cessation by insurers citing internal circulars.
  • Regulatory Vacuum: The IRDAI regulations are silent on heirs’ entitlements, potentially exposing dependants of deceased agents to income shocks and undermining long-term agency incentives.
  • Comparative Models: Common-law jurisdictions like the United Kingdom allow run-off commissions contractually but not statutorily. India’s former statutory model ensured uniformity; its removal signals greater reliance on bargaining power and industry-wide codes.
  • Need for Transitional Guidelines: Absent explicit savings, insurers risk inconsistent practices, inviting consumer and labour-law challenges that clog judicial dockets.

Conclusion

Section 44 of the Insurance Act, 1938 represented a deliberate legislative intervention to anchor the economics of life-insurance intermediation in India. Its repeal does not erase accrued rights; nor does it diminish the doctrinal clarity the Supreme Court forged in cases such as Sarbati Devi and Bahadur concerning the primacy of special statutory codes. Future policy should reckon with the welfare rationale that underpinned the erstwhile provision while crafting a transparent, regulated successor regime under the IRDAI.

Footnotes

  1. Text of Section 44(2) (pre-2015): “The commission payable to an insurance agent shall, after his death, continue to be payable to his heirs, or, where a nominee has been appointed, to such nominee.”
  2. Shri Pravin S/o Bhaskarrao Yenurkar v. LIC, 2018 (3) Mh.L.J. 534 (Bom HC).
  3. Sarbati Devi (Smt) v. Usha Devi (Smt), (1984) 1 SCC 424.
  4. ibid. (Bom HC).
  5. Life Insurance Corporation of India v. D.J. Bahadur, (1981) 1 SCC 315.
  6. Commissioner of Income-tax v. Oriental Fire & General Insurance Co., (2007) 7 SCC – extract relied upon in the Reference Materials.
  7. See, for example, New India Assurance Co. Ltd. v. Pessumal Dhanamal Aswani, AIR 1964 SC 1736.
  8. General Clauses Act, 1897, s. 6(c); applied in Yenurkar, supra.