The Supreme Court of India, has declined to allow the retrospective effect to the 2022 amendment to Section 80DD of the Income Tax Act, which relates to policies such as the LIC ‘Jeevan Adhaar’. The amendment, introduced via the Finance Act 2022, allows for the benefit of annuity or lump sum payments to persons with disabilities not only upon the death of the policyholder but also upon the policyholder attaining the age of 60 years.
The case, Ravi Agrawal vs Union of India & Another, revolved around a petition filed under Article 32 of the Constitution as a Public Interest Litigation ( PIL ), seeking the retrospective application of the 2022 amendment to pre-2014 policies.
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The petitioner argued that making the amendment applicable to older policies would benefit a large number of subscribers and their disabled dependents. However, the Supreme Court rejected the plea for retrospective application, citing that it would go against the fundamental purpose of the insurance contracts.
The Court noted that the original intent of the LIC ‘Jeevan Adhaar’ policy, introduced with privileges under Section 80DD of the Income Tax Act, was to provide financial security to dependents with disabilities after the death of the policyholder.
The Two-Judge Supreme Court Bench pointed out that allowing subscribers to discontinue the policy upon reaching 60 years of age, rather than upon their death, would defeat the very objective of the policy—ensuring the welfare of disabled dependents post the policyholder’s demise.
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During the hearing, the petitioner’s counsel referenced a prior Supreme Court ruling from January 2019, which had raised concerns about the lack of options for policyholders to access benefits upon reaching 60 years. In response, Parliament had amended Section 80DD in 2022, but the amendment was made applicable prospectively from April 1, 2023.
The petitioner argued for the retrospective application of this amendment to policies issued prior to 2014, which had since been discontinued.
The respondents, represented by senior counsel, argued that the terms of the insurance contracts could not be altered retrospectively. They contended that doing so would disrupt the existing financial arrangements and commercial terms under which these policies were issued. The Court agreed, ruling that the retrospective application of the amendment would undermine the contractual terms and go against the interests of persons with disabilities.
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The Supreme Court Bench noted that, “The whole objective of the Jeevan Adhar Policy is to benefit disabled individuals by providing provisions made by the subscriber after their demise. The concern and apprehension of a caregiver or subscriber regarding a disabled family member or any other person for whom the policy is taken, post the demise of the caregiver, is of utmost importance. It is precisely with this concern that a caregiver or subscriber would opt for such a policy, ensuring that a disabled person is not left unsupported after their passing. If this is the purpose of the policy, we believe the subscriber or caregiver should not be given the liberty to discontinue the policy upon reaching 60 years of age. Doing so would go against the very intent of the policy and would not serve the best interests of the beneficiary, namely, the disabled person.”
In its decision, the Supreme Court Bench of Justice B V Nagarathna and Justice Nongmeikapam Kotiswar Singh stated that the provision for annuity or lump sum payment upon the death of the policyholder is fundamental to the structure of the policy. Any change to this, especially one applied retroactively, would violate the contract’s terms and the intended protection for the disabled dependent.
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The Court also noted that insurance contracts, such as those under the LIC ‘Jeevan Adhaar’ scheme, have certain commercial and legal conditions that cannot be modified after the fact. The retrospective application of the amendment would disrupt these terms, creating complications for both policyholders and insurance providers.
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