During the hearing of a petition from the Life Insurance Corporation of India (LIC), a bench headed by Justices H S Kapadia said, “ We have to see whether it is within the purview of the RBI guidelines.”

Directing the respondent, Insure Policy Plus Services (India) Pvt Ltd, to submit its balance-sheets for the last two years, the court said, “No interim order.”.

LIC advocate P S Patwaria opposed the practice by private firms, saying that LIC policies are taken by clients for security purposes and not for trading them for money in India.

“The company also acquires policies which have lapsed and where the policy holders have lost interest in the said policy. The policy holder loses all the benefits under the policy including the death benefit. The assignment recorded is only for the financial value of the policy and the status of the policy whether live or lapsed has no relevance as no other benefits accrue to the new assignee,” said the affidavit filed by Ketan Mehta, the director of the company.

The job is carried out by a registered company and it is legal. “The company acquires only endowment and money back policies issued by LIC. The said policies constitute 80 per cent of its business. These policies are purely in the nature of investment as policy holder is entitled for bonus as an investment return on policy,” said the affidavit in reply to the petition of LIC, which opposed trading or mortgaging of its policies sold to policy holders.

In March 2007, the Mumbai High Court had ruled in the favour of policy trading and allowing private players to trade policies in secondary market. The HC had said that the LIC has to honour claims made by lenders, that is, banks, non-banking finance companies and financial institutions, if an LIC policyholder defaults in repaying the loan to the lender.