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PETITIONER: LIFE INSURANCE CORPORATION OF INDIA

       Vs.

RESPONDENT: CROWN LIFE INSURANCE CO.

DATE OF JUDGMENT: 26/03/1965

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. MUDHOLKAR, J.R. SIKRI, S.M.

CITATION:  1965 AIR 1985            1965 SCR  (3) 474

ACT: Life Insurance Corporation Act (31 of 1956), First Schedule. Part  B, Para 4, cl. (d) and Insurance Act (4 of  1938),  s. 10(2)-"Life Insurance fund".  Meaning of.

HEADNOTE: Under s. 10(2) of the Insurance Act, 1938, where an  insurer carries on the business of life insurance, all receipts  due in  respect of such business shall be carried to and form  a separate  fund called the life insurance fund.   Section  11 (c) provides for keeping a revenue account in Form D of  the Third  Schedule,  which applies to life  insurance  business also.  This account, on the receipt side, has mainly  income from premiums and out of investments from life fund and,  on -he  expenditure side, all expenses and bad debts  connected with  the life business.  A balance is struck  after  taking into account the balance of the fund at the beginning of the year  and after making some adjustments and  transfers,  and the "life insurance fund" is arrived at. Form 1 of the Fourth Schedule to the Insurance Act, provides for  determining  the  surplus  or  deficit,  which  is  the difference between the net liability in business  determined by  actuarial  valuation of policies in force and  the  Life Insurance  Fund.   If there is a surplus, s.  49(1)  of  the Insurance Act provides, that 712 1/2 % of the surplus  shall be  allocated to shareholders, and the balance shall  remain in  the  fund  for policy holders.  When  transfer  of  life insurance business from the life insurance companies to  the Life Insurance Corporation took place, a provision had to be made for carrying out the effect of s.49(1). That  provision was  made  in  Cl. (d) of para. 4 of Part  B  of  the  First Schedule  to  the  Life  Insurance  Corporation  Act,  1956, according  to  which,  where there is surplus  in  the  life insurance  fund, as a result of the actuarial  valuation  of policy  liabilities under Cl. (b) of the same Para. 4, 96  % of such surplus shall be shown as a liability, that is,  96% of that surplus shall go to the Corporation in order to meet the  liabilities, and to that extent the compensation to  be paid  to  the insurance company would be  reduced.   Part  B applies  to those insurers, who, having a surplus in Form  1 have not allocated the whole or any part of such surplus  to

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policy Holders, and also provides, how compensation is to be paid to companies who had no surplus as disclosed in Form T. In the latter case, that is, if there was a deficit in  Form 1, there could be no allocation to the policy holders  under s.49(1)  of  the  Insurance  Act,  and  there  would  be  no liability under Cl. (d). On the taking over of the business of the respondent, a life insurance company incorporated in Canada, by the appellants, under  the  Life Insurance Corporation Act,  the  respondent claimed Rs. 27 lacs and odd as compensation.  The respondent contended  that the words "life insurance fund" in  Cl.  (d) referred to above had the same meaning as those words in the Insurance Act, and since there was deficit in its working as shown  by Form 1. no amount was to be deducted as  liability under Cl. (d).  The appellant was prepared to Day only Rs. 1 lac  and odd, on the basis that, the words  "life  insurance fund" in Cl. (d)  meant  the difference between the total assets and  the liabilities 475 under Cls. (a) and (c) and since there was a surplus of  Rs. 27 lacs ’And odd, a sum of Rs. 26 lacs and odd, forming, 96% of  it,  was to be debited towards the  liabilities  of  the respondent. The Insurance Tribunal accepted the respondent’s  contention and awarded the compensation claimed by it. In  its appeal to this Court, the appellant contended  that: (i) the words "life insurance fund" under the Insurance  Act have more than one meaning under that Act, and therefore  it was  not  possible  to  give the  meaning,  claimed  by  the respondent, to those words in Cl. (d) under the  Corporation Act,  and  (ii) even if those words have  only  one  meaning under the Insurance Act, they have a different meaning under the Cl. (d). HELD:     (i) A combined reading of ss. 10(2), 11 and 13  of the Insurance Act and Form D of the Third Schedule and  Form 1  of the Fourth Schedule to the Insurance Act, shows,  that the  words  "life insurance fund", "surplus"  and  "deficit" have  only the definite meaning set out above, as  contended by the respondent. [480B-C] The  contention, that the words "life insurance  fund"  have different meanings in ss. 56(2) and 58(3), and in regulation 7 of Part 1 of the First Schedule to the Insurance Act,  has no force, because when the marginal note of s. 56(2)  refers to surplus assets of life insurance fund it means in reality the surplus to be found in Form 1 and the same applies to s. 58(3);  and as regards regulation 7, the plural is  used  in the words "life insurance funds" merely due to exigencies of grammar. [46OF: 481D-E F-G] It cannot be said that because s. 27(1) of the Insurance Act lays  down that an insurer is required to keep certain  sums invested  to  meet his liabilities  mentioned  therein,  the entire  assets  of the insurer are security for  the  policy holders  and  not  merely the  life  insurance  fund.   This section only provides that when life insurance fund shows  a deficit in Form 1 it would be the duty of the insurer to see that  he has further assets to cover the deficit,  and  that these assets are always kept invested in accordance with the Insurance  Act;  but the section does not provide  that  the assets brought in to cover the deficit would become part  of the  life insurance fund.  It is only such moneys which  are included  in the revenue account, Form D, and which are  not of  a  capital nature that form part of the  life  insurance fund.   Since,  in  the instant case  the  business  of  the respondent  in India had admittedly shown a deficit in  Form

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1,  and the funds brought in by the respondent from  outside to cover the deficit were never put in the revenue  account, they were never made part of the life insurance fund, though they  remained  vested in a trustee under s.  27(6)  of  the Insurance Act. [48-2B-G] (ii) The Tribunal was right in its conclusion that the words "life  insurance fund" as used in Cl. (d) of  the  aforesaid fourth paragraph have the same meaning as that given to them in s. 10(2) of the Insurance Act read with s. 11 and Form  D of the Third Schedule to the Insurance Act. [483H] When  Cl.  (d) speaks of the life insurance  fund  being  in surplus that surplus has to be determined in accordance with Form 1 subject to certain modifications indicated in Part  B of the Corporation Act.  The context. therefore, instead  of showing  that there is any other meaning of the words  "life insurance  fund" in Cl. (d), shows that they have  the  same meaning in that clause as in Form J. [485D, E] Section  35(1) and (2) of the Corporation Act also point  to the  same  conclusion. because, these provisions  show  that where  the legislature intended to refer to all  the  assets and  liabilities  it said so in terms and did  not  use  the words "life insurance fund", Besides, if these 476 words  were  given  the  meaning  for  which  the  appellant contended, there would be an inconsistency between Cl.,  (d) and  s. 35, in that, the insurer would get away with a  much larger  amount  if  he applied for  repatriation  of  excess assets  under s. 35, and would get a much smaller amount  if he did not choose to apply under the section, a result which the  legislature  could not have  intended.   Moreover,  the share capital of an insurance company cannot obviously  form ptrt  of the life insurance fund; but on the  interpretation urged  on  behalf of the appellant, even 96% -of  the  share capital may be lost to an insurance company, as part of  the life insurance fund in conceivable,, circumstances, [486A-C, F; 487G].

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 999 of 1964. Appeal by special leave from the order dated March 25,  1954 of  the  Life Insurance Tribunal, Bombay in Case No.  27  of 1962. C.   K.  Daphtary, Attorney-General, S. J. Banaji,  Atiqutor Rehman and K. L. Hathi, for the appellant. N.   A. Palkhivala, S. J. Sorabjee, J. B. Dadachanji, 0.  C. Mathur and Ravinder Narain, for the respondent. The Judgment of the Court was delivered by Wanchoo  J. The only question that arises for  determination in  this appeal by special leave from the order of the  Life Insurance  Tribunal,  Bombay, is the interpretation  of  the words "life insurance fund" as used in paragraph 4 of Part B of the First Schedule to the Life Insurance Corporation Act, No.  31 of 1956, (hereinafter referred to as the Act).   The question   arose   in  connection  with   the   payment   of compensation  to  the respondent, the Crown  Life  Insurance Company, which is incorporated in Canada, by the  appellant, the  Life Insurance Corporation of India on the taking  over of the business of the respondent by the appellant under the Act.   The respondent claimed Rs. 27,86,658 as  compensation while the appellant was prepared to pay Rs. 1, 1 1,466.  The respondent  claimed  that  as its life  insurance  fund  was always in deficit before the Act came into force, there  was no liability on it under cl.(d) of paragraph 4 of Part B  of

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the  First Schedule to the Act.  The appellant on the  other hand claimed that under that cl. (d), there was a surplus of Rs.  27,86,658  and  therefore under cl. (d) a  sum  of  Rs. 26,75,192  was to be debited towards the liabilities of  the respondent.   That  is  how the  appellant  arrived  at  the compensation of Rs. 1,11,466. The  appellant claimed that the words "life insurance  fund" in cl. (d) meant the difference between the total assets and the liabilities under cls. (a) and (c) of the said paragraph 4. The respondent on the other hand contended that the words "life  insurance  fund" in cl. (d) had the same  meaning  as those  words  had  under the Insurance Act, No.  4  of  1938 (hereinafter  referred  to  as  the  Insurance  Act).    The respondent  therefore  claimed that as there  was  always  a deficit  in  its working as shown by form 1  of  the  Fourth Schedule to the Insurance Act, no amount was to be  deducted as  liability under cl. (d) of the said paragraph 4.  It  is this  difference in the meaning assigned to the words  "life insurance fund" by the parties 477 that  is responsible for the large difference in the  amount claimed by the respondent and offered by the appellant. The Insurance Tribunal has accepted the contention put  for- ward on behalf of the respondent and has held that the words "life  insurance  fund" in cl. (d) of the said  paragraph  4 have  the  same meaning as in the Insurance  Act,  and  that there  is only one meaning of these words in  the  Insurance Act.  It has rejected the contention raised on behalf of the appellant and has in consequence awarded compensation at Rs. 27,86,658.   Aggrieved  by  this order,  the  appellant  got special  leave from this Court; and that is how  the  matter has come up before us. The sole question that falls for determination therefore de- pends  on  the interpretation of the words  "life  insurance fund" and for that purpose we shall have to consider certain provisions  of the Insurance Act as well as of the Act.   We may at the outset refer to S. 2 (10) of the Act, which is as follows: -- "    In this Act, unless context otherwise require- (10) all  other  words and expression used  herein  but  not defined  and  defined in the Insurance Act  shall  have  the meanings respectively assigned to them in that Act." It  is not in dispute that the words "life  insurance  fund" appear  In  the Insurance Act though not in  the  definition section thereof.  Section 2 (10) of the Act however does not refer  only to the definitions in the definition section  of the Insurance Act; it lays down generally that any words and expressions used in the Act and defined in the Insurance Act shall  have the meanings assigned to them in  the  Insurance Act  (and that means anywhere in the Insurance  Act)  unless the  context otherwise requires.  We have therefore to  turn to  the Insurance Act first to find out the meaning  of  the words "life insurance fund" as given therein and then to see whether  the  context  of cl. (d) of the  said  paragraph  4 requires  otherwise.  If we come to the conclusion  that  it does not require otherwise, the words "life insurance  fund" in  cl.  (d)  of the said paragraph 4  will  have  the  same meaning as in the Insurance Act. Let  us therefore turn to the Insurance Act to see what  the words  "life  insurance fund" mean under that Act.   It  has been  urged  in the first place on behalf of  the  appellant that the words "life insurance fund" under the Insurance Act have  not one meaning only and therefore it is not  possible to give that meaning to these words in cl. (d) with which we are  concerned.   In the alternative it is  urged  that  the

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context  requires  that even if the  words  "lift  insurance fund"  have only one meaning under the Insurance  Act,  they have a different meaning under cl. (d). We have therefore to find out what the words "life insurance fund" mean under the Insurance Act and whether they have the same  meaning throughout the Act.  We have  already  pointed out  that  the  words "life insurance fund"  have  not  been defined in s. 2 (N)4SCI-4 478 of the insurance Act, which is the definition section.   But there is no doubt that in s. 10 of the Insurance Act,  these words  have been given a specific meaning to which we  shall now  refer.  The Insurance Act was concerned not  only  with life insurance business but also with insurance business  of other kinds, namely, marine, fire and miscellaneous.  It was open  to  an insurance company to carry on either  the  life insurance  business  only or life insurance  business  along with insurance business of other kinds also.  Therefore,  S. 10(1)  of the InsUrance Act provided that where  an  insurer carried  on business of more than one kind, he was boUnd  to keep  a  separate account of all receipts  and  payments  in respect  of  each  kind of business.   Section  10(2)  dealt specifically  with life insurance and we therefore read  the relevant part of that sub-section:-               "Where the insurer carries on the business  of               life insurance, all receipts due in respect of               such  business shall be carried to  and  shall               form  a  separate fund to be called  the  life               insurance fund the assets of which shall......               be  kept distinct and separate from all  other               assets of the insurer and the deposit made  by               the  insurer  in  respect  of  life  insurance               business  shall  be deemed to be part  of  the               assets   of  such  fund  and   every   insurer               sHall......   furnish  to  the  Controller   a               statement showing in detail such assets as  at               the   close  of  every  calendar   year   duly               certified  by  an  auditor  or  by  a   person               qualified  to  audit  under  the  law  of  the               insurer’s country";               There  are three provisos to this  section  to               which  it is unnecessary for our  purposes  to               refer.   Sub-section  (3)  of s.  10  is  also               material and runs as follow: -                 "The   life  insurance  fund  shall  be   as               absolutely  the security of the  life  policy-               holders  as though it belonged to  an  insurer               carrying  on  no other business  s  than  life               insurance business and shall not be liable for               any   contracts  of  the  insurer  for   which               it,would not have been liable had the business               of   the  insurer  been  only  that  of   life               insurance and shall not be applied directly or               indirectly  for any purposes other than  those               of the life insurance business of the insurer.               " Section  II (c) then provides for keeping a revenue  account in form D of the Third Schedule in respect of each insurance business for which separate account was required to be  kept under  s.  10(1).   Regulation  1 of Part  1  of  the  Third Schedule  provides  that  form D as set out in  Part  11  is appropriate for life insurance business.  A perusal of  form D shows what items have to be entered on the ,receipts  side of  the  form  and these items are: premiums  of  an  kinds,

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consideration  for annuities, interest, dividends and  rents (obviously   from  assets  of  the  life  insurance   fund); regulation fees and other income.  It is thus clear that the revenue  account on the receipt side mainly has income  from premiums and income arising 479 out  of ’Investments from life fund and this forms the  main basis  of the life insurance fund.  On the expenditure  side of  form  D there is provision for  claims  under  policies, annuities, surrenders, bonuses in cash, bonuses in reduction of  premiums,  expenses of management (i.e.  salaries  etc., travelling  expenses, directors’ fees, auditors’  fees,  and charges  for advertisements, printing and stationary,  other expenses  of management, rents for offence belonging to  and occupied  by the insurer, rent of other offices kept by  the insurer),  bad  debts and other expenditure.   Thereafter  a balance has to be struck and this balance is the balance  of the  life insurance fund.  This balance is arrived at  after taking into account the balance of the fund at the beginning of  the  year and after making adjustments with  respect  to profit  and loss and transfers from  appropriation  account. It is this balance which goes into the balance sheet form  A provided in the First Schedule of the Insurance Act as  life insurance  fund  and includes as provided in  s.  10(2)  the deposit  made  by the insurer in respect of  life  insurance business.  There is no doubt therefore that the words  "life insurance fund" under the Insurance Act have got the meaning assigned to it under s. 10(2) read with s. 11 and form D  of the Third Schedule.  It is equally clear that all the assets of an insurance company doing life insurance business do not form  part of the life insurance fund, for example,  if  the insurance company has got share capital that is not part  of the life insurance fund even though the deposit required  by law  to be made for life insurance business is part  of  the fund.   So far therefore as s. 10(2), s. 1 1 and form D  are concerned, life insurance fund has a definite meaning. The working of a life insurance company is in some  respects different from that of ordinary companies inasmuch as it  is not open to a life insurance company to distribute dividends unless  there is surplus computed under the  Insurance  Act. This  surplus  is  determined thus: First of  all  the  life insurance fund as disclosed by revenue account in form D  is found  out.  Then the valuation of the policies in force  as on a certain date is determined by actuarial valuation which has  to be made at least once in three years under s.  13(1) of  the Insurance Act.  After valuation of the  policies  of different  kinds they are grouped under different heads  and their  summary is set out in form H of the Fourth  Schedule. Form  1  of the said Schedule provides for  determining  the surplus or deficit.  This form is known as valuation balance sheet  and the surplus or deficit is the difference  between net  liability in business as shown in form H and  the  life insurance  fund  as shown in balance sheet form  A.  Surplus will  only result if the balance of life insurance  fund  is greater  than the net liability under form H. Where  however the  balance  of life insurance fund is less  than  the  net liability  under form H, there will be a deficiency and  not surplus.   Section 49(1) of the insurance Act then  provides that  no amount of the life insurance fund will be  used  to pay  any dividend to share-holders or any bonus  to  policy- holders  or  for  making  any  payment  in  service  of  any debenture,  unless the valuation balance sheet in form 1  of the Fourth Schedule 480 shows  a  surplus.  It is further provided that out  of  the

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surplus only 71 per centum shall be allocated to or reserved for shareholders with the consequence that the balance of 92 1/2  per  centum  of the surplus remains  in  the  fund  for policyholders or may be allocated as bonus to policyholders. The  life  insurance  find  as defined in  s.  10(2)  is  an absolute  security of the life policy-holders and cannot  be used in any manner except in accordance with the  provisions to  which  we have already referred.  Thus the  words  "life insurance fund" have a definite meaning under the  Insurance Act  under  s.  10(2), read with s. 1 1 and form  D  of  the Insurance Act and the words "surplus" and "deficiency"  have also special meaning appearing from a combined reading of s. 13 of the Insurance Act and form H and form 1 of the  Fourth Schedule. The next question is whether the words "life insurance fund" have any other meaning under the Insurance Act.  These words appear  in  a number of provisions of that Act.  It  is  not necessary however to refer to all of those provisions for it is  not in dispute that in most of the provisions the  words have  the  meaning assigned to them under s.  10(2)  of  the Insurance Act.  But three provisions have been  specifically brought to our notice where it is said that the words have a different  meaning.   The first is s. 56  which  deals  with winding-up  of  insurance  companies.   In  sub-section  (2) thereof  reference  is  made  to  surplus  of  assets   over liabilities and how such surplus which is called prima facie surplus  in  the sub-section is to be dealt with.   It  will however be seen that the sub-section does not use the  words "life  insurance fund" when speaking of prima facie  surplus which   is  the  difference  between  all  assets  and   all liabilities.  But it is urged that the marginal note to  the section  which  is in these words  "application  of  surplus assets of life insurance fund in liquidation or  insolvency" shows that for the purpose of this section, the words  "life insurance  fund"  as used in the marginal note  may  have  a different  meaning.  We are however of opinion that this  is not  so.   Sub-section  (2) after speaking  of  prima  facie surplus,  which  is  equal  to  total  assets  minus   total liabilities,  provides how the prima facie surplus is to  be dealt   within  winding-up  proceedings.   The   sub-section provides that this prima facie surplus would be divided into two parts and one part would be in proportion to the profits of the insurer allocated to policy-holders.  This part  will naturally be determined with respect to form 1 of the Fourth Schedule which deals with life insurance fund and surplus or deficiency.   The sub-section thus provides that out of  the prima  facie  surplus a certain amount will be  deducted  in proportion  to the profit allocated to  the  policy-holders, and   remaining  will  be  the  amount  which  may   go   to shareholders  in  winding-up.   Therefore as  we  read  sub- section  (2)  we find that it deals with entire  assets  and these   entire  assets  will  certainly  include  the   life insurance fund.  The marginal note indicates how out of  the prima facie surplus indicated in sub-section (2) the surplus in  the life insurance fund as arrived at in form  shall  be used.  The argument that the words "life insurance fund" in 481 s.   56(2)  has a different meaning therefore has  no  force for  two reasons.  In the first place the section  does  not use the words "life insurance fund" and in the second  place when  the  marginal note refers to surplus  assets  of  life insurance  fund it means in reality the surplus to be  found in  form 1, for the prima facie surplus will  include  that. We  cannot  therefore  accept the contention  that  for  the purposes of s. 56(2) the words "life insurance fund" have  a

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different meaning in view of the marginal note of s. 56. The  next  section  to  which  reference  is  made  in  this connection  is s. 58(3).  Section 58 deals with schemes  for partial  winding-up of insurance companies, i.e.  winding-up of one kind of business while another kind of business  goes on.  Section 58(3) provides that the, provisions of this Act relating  to valuation of liabilities of the in-,  surer  in liquidation and insolvency and to the application of surplus assets  of  the  life  insurance  fund  in  liquidation   or insolvency shall apply to the winding-up of any part of  the affairs  of the company.  It is argued that the words  "life insurance fund" here are used in a different sense-.  We are of  opinion that this is not so.  Sub-section (3) of  s.  58 has to be read along with s. 56 and in particular with  Sub- s.  (2) thereof and as we have already indicated  the  words "life, insurance fund" in the marginal note of s. 56 have no different meaning from that to be found in s. 10(2) the same applies to the use of the words "life insurance fund" in  s. 58(3) mutates mutandis. Lastly  reference was made to regulation 7 of Part 1 of  the First  Schedule,  which provides for a certificate  that  no part  of  the  assets of the life insurance  fund  has  been directly  or  indirectly  applied in  contravention  of  the provisions of the Insurance Act relating to the  application and  investment of life insurance funds.  It is  urged  that the  use of the plural suggests that a different meaning  is to be given to the words "life insurance fund" here.  We are unable to agree with this contention either.  The use of the words "life insurance funds" in plural is merely due to  the exigencies  of grammar in this provision and does  not  mean that  the words have a meaning different from that  assigned to  them in s. 10(2) to which we have already referred.   We must  therefore  reject  the contention  on  behalf  of  the appellant  that  the words "life insurance  fund"  have  any meaning other than that assigned to them in s. 10(2) of  the Insurance Act so far as that Act is concerned. Reference  is  then made to s. 27(1) of  the  Insurance  Act which  requires that every insurer shall invest and  at  all times  keep invested assets equivalent to not less than  the sum  of  the amount of his liabilities to  holders  of  life insurance policies in India on account of matured claims and the  amount  required to meet the liability on  policies  of life  insurance  maturing for payment in  India  subject  to certain  deductions.  It is urged that this  provision  lays down  that  an  insurer is required  to  keep  certain  sums invested to meet his liabilities mentioned therein and  this shows that the entire assets of the insurer are security for the policy-holders.  It is true that this provision requires an insurer to keep certain assets invested and those 482 have to be equal to his liabilities on policies matured  and policies   yet  to  mature.   This  provision  is  for   the protection  of the policyholders’ interest.  It has  however in our opinion nothing to do with the life insurance fund as such.   What  in  fact it provides is  that  when  the  life insurance fund shows a deficit in form  it would be the duty of  the insurer to see that he has further assets  to  cover the deficit, and that these assets are always kept  invested in  accordance with the Insurance Act; but the section  does not provide that the assets brought in to cover the  deficit would become part of the life insurance fund.  It is not  in dispute  that there is no other provision in  the  Insurance Act which requires that whenever. the life insurance fund is in  deficit  the insurer must put sufficient money  in  that fund  itself to ’cover the deficit.  It is true that form  D

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of  the Third Schedule includes an item "other  income"  but that does not mean that any sum kept invested by an  insurer for  the purposes of s. 27(1) in order to cover the  deficit in the life insurance fund becomes part of that fund.   Note (e)  which  appertains to "other income" of  the  said  form makes it clear that all the amounts received by the  insurer directly or indirectly whether from his head office or  from any  other  source  outside  ’India  shall  also  be   shown separately  in  the  revenue account  except  such  sums  as properly  appertain to the capital account.  Therefore  sums invested  for purposes of s. 27(1) of the Insurance  Act  do not  necessarily form part of the life insurance fund.It  is only such moneys which are included in form D and which  are not  of capital nature that form part of the life  insurance fund.   In  the present case it is not in dispute  that  the business  of  the respondent 1 in India always had  shown  a deficit in form . It is also not in dispute that in order to meet  that deficit as required by s, 27(1),  the  respondent took  advantage of s. 27(6) which provides that  the  assets required  by this section to be held invested by an  insurer incorporated  or  domiciled outside India shall  subject  to certain  exceptions  be held in India and  all  such  assets shall be held in trust for the discharge ’of the liabilities of the nature referred to in sub-s. (1) and shall be  vested in  trustees resident in India and approved by  the  Central Government  and  the  instrument of trust  under  this  sub- section  shall be executed by the insurer with the  approval of  the  Central Government and shall define the  manner  in which  alone the subject-matter of the trust shall be  dealt with.   Such  an  instrument of trust was  executed  by  the respondent  and the State Bank of India was the  trustee  of the  fund  required to be kept under s. 27(1) read  with  s. 27(6).   But that in our opinion did not make the  whole  of this  trust fund part of the life insurance fund as  defined in  s.  10(2).  The money required to cover the  deficit  in form I could only become part of the life insurance fund  if that was included in the revenue account form D and in  such a case there would then be    no  deficit left in  the  life insurance fund.  It is not ill dispute  that  in  this  case funds brought in by the respondent from outside   to   cover the  deficit were never put in the revenue account and  were never made part of the life insurance fund, though 483 they  remained vested in the trustee for the purpose  of  s. 27(1) read with s. 27(6).  The appellant’s contention always was  that  the  case  of  the  respondent,  for  purpose  of compensation, was covered by part B of the First Schedule to the  Act and not by its Part A, and this was  because  there was  a  deficit  in  form  I  submitted  by  the  respondent throughout  its working.  It appears that in spite  of  this deficit  in  the  Indian  working  of  the  respondent,  the respondent used to pay bonuses to its policy-holders out  of its  global  surplus and these payments were made  in  cash. Even  so the appellant insisted-and rightly-that as  form  I showed  deficit at the relevant time the respondent was  not entitled to take advantage of Part A. of the First  Schedule to   the  Act  for  purposes  of  compensation.    In   such circumstances  it  seems strange when admittedly  there  was always  a deficit in form I submitted by the  respondent  in connection  with its.  Indian. business that  the  appellant should now say for the purpose of compensation that there is a  surplus disclosed by the business of the  respondent,  96 per centum of which would go to the appellant under cl.  (d) of the aforesaid 4th paragraph, We are. therefore of opinion that the appellant cannot take advantage of s. 27(1) and ask

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us  to  hold that all the funds which  are  mentioned  in.s. 27(1)  to be kept invested are part of the  life  insurance- fund.    Part  B  applies  to.’  two  kinds   of   insurance companies--viz.,  those which had deficits and  those  which had surplus but had not distributed it at the relevant time. It  is the latter class of companies that cl. (d) is  really meant  to  cover.   As we have already. said  s.  27(1)  has nothing to do with the life insurance fund and is meant only as a safety device for policyholders, particularly in  cases where  there  is deficit in the life  insurance  fund.:  But where  such deficit is made up for the purpose of s.  27(1), the  extra amount so invested by the insurer to make up  the deficit  does  not  automatically become part  of  the  life insurance fund unless it is put through the revenue  account form D. That was admittedly never done in this case and form I  always  showed a deficit in the case of  the  respondent. Section 27(1) therefore does not help the appellant, for  it is  not in dispute that an insurer is not bound to  make  up the  deficit  by putting money in the  life  insurance  fund though  he is bound to keep assets invested to make  up  the deficit;  but  such  assets may be  kept  outside  the  life insurance fund. Now  we come to the last question whether there is  anything in  the Act which requires that we should give  a  different meaning to the words "life insurance fund" in cl. (d) of the aforesaid  4th  paragraph.  We have already referred  to  s. 2(10)  of the Act which lays down that all other  words  and expressions  used in the Act but not defined and defined  in the  Insurance  Act  shall have  the  meanings  respectively assigned  to them in that Act.  Prima facie, therefore,  the words "life insurance fund" used in cl. (d) of the aforesaid 4th paragraph have the same meaning as in the Insurance Act, and the question is whether the context of the Act  requires that we should give a different meaning to these words.   We are of opinion 484 that  there  is  nothing in the context  of  the  Act  which requires  that a different meaning should be given to  these words.  If anything, the Act shows that these words have the same meaning in cl. (d) of the aforesaid 4th paragraph as in the Insurance Act. In the first place we have to see what is the reason for the provision  in  cl. (d) of the aforesaid 4th  paragraph.   We have  no doubt that the provision in cl. (d) is  related  to the  provision  in s. 49(1) of the Insurance Act.   We  have already  referred to that section and it requires that  921% of  the  surplus  in form I shall be kept  for  the  policy- holders.  Where therefore there is surplus in form 1,  921/2 per  centum  thereof is meant for the  policy-holders  under this  provision.  Secondly when transfer of  life  insurance business  from  the  life insurance companies  to  the  Life Insurance Corporation took place a provision had to be  made to  carry out the effect of s. 49(1) in connection with  the transfer.   That  provision is to be found in cl.  (d).   It lays  down  that  where  there is  a  surplus  in  the  life insurance  fund  as a result of the actuarial  valuation  of policy  liabilities  made  under cl. (b)  of  the  aforesaid paragraph 4, 96 per centum of such surplus shall be shown as a  liability.  This means that just as under s.  49(1),  921 per  centum  of  the surplus in form I  was  meant  for  the policy-holders so in the case of transfer, 96 per centum  or that  surplus shall go to the Life Insurance Corporation  in order to meet the liabilities arising under s. 49(1) of  the Insurance  Act  for  past surplus and  to  that  extent  the compensation to be paid to the insurance company from  which

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the  Life  Insurance Corporation was  taking  over  business would  have to be reduced.  This was with reference  to  the past  and could not be with reference to the future, for  so far  as  the  future  was  concerned,  the  Life   Insurance Corporation  alone  was  responsible.  But if  there  was  a deficit  in form I of the insurance company which was  being taken over by the Life Insurance Corporation there could  be no  allocation to the policy-holders under s. 49(1)  of  the Insurance Act and there would be no liability for the  past. So there would be no liability for the past under cl. (d) on the insurer whose business was being taken over by the  Life Insurance Corporation.  In the present case admittedly there was  no surplus in form I in the case of the respondent  and therefore  there  would be no liability  on  the  respondent under  cl. (d) of the aforesaid 4th paragraph.  This in  our opinion is the rationale behind the provision in cl. (d) and as there was always a deficit in connection with the working of  the  respondent,  there could be  no  liability  on  the respondent under cl. (d). But  apart from this rationale behind cl. (d) we  find  that the  language  of Part A and Part B of  the  First  Schedule relating  to  principles for determining  compensation  also leads   to  the  same  inference.   Part  A  provides   that compensation  to  be  given to an  insurer  having  a  share capital  on  which  dividend or bonus  is  payable  who  has allocated  as bonus to policy-holders the whole or any  part of  the  surplus as disclosed in the abstracts  prepared  in accordance  with  Part  11 of the  Fourth  Schedule  to  the Insurance Act in 485 respect of the last actuarial investigation relating to  his controlled  business  as at a date earlier than  January  1, 1955  shall be computed under that part.  Clearly  therefore this  provision in Part A refers to surplus to be  found  by looking at form of the Fourth Schedule to the Insurance Act. Part  B  of  the First Schedule to the Act  then  speaks  of compensation  to  be  given to an  insurer  having  a  share capital  on which dividend or bonus is payable but  who  has not  made any such allocation as is referred to in  Part  A. This  immediately brings in the opening words of Part A  and shows that Part B applies also to those insurers who  having a surplus in form I have not allocated the whole or any part of such surplus to policyholders.  The surplus in form I  is arrived at as already indicated when the life insurance fund is  larger  than the liabilities on the  policies  still  to mature.  Clearly, Part B provides how compensation is to  be paid to companies who had no surplus as disclosed in form  1 of  the Fourth Schedule to the Insurance Act or who if  they had  any  surplus  in that form had made  no  allocation  to policy-holders.  Therefore when cl. (d) of the aforesaid 4th paragraph speaks of the life insurance fund being in surplus that surplus has to be determined in accordance with form  1 of  the  Fourth  Schedule to the Insurance  Act  subject  to modifications indicated in Part B in the matter of valuation under  form H and not in the  manner suggested on behalf  of the appellant.  The word "surplus" in cl. (d) cannot have  a meaning  different from what it has in the opening words  of Part B which come therein from Part A. The context therefore instead  of showing that there is any other meaning  of  the words "life insurance fund" in cl. (d) shows that they  have the  same meaning in that clause as in form 1 of the  Fourth Schedule to the Insurance Act. Another  reason which points to the same  conclusion,namely, that  the  words "life insurance fund" in cl. (d)  have  the same  meaning  as in form 1 of the Fourth  Schedule  to  the

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Insurance  Act,  is to be found in s. 35(1) and (2)  of  the Act.  Section 35(1) permits a foreign insurer to  repatriate certain  assets.   It  says  that  an  insurer  incorporated outside  India  may,  before  the  appointed  day,  make  an application to the Central Government stating that among the assets  appertaining  to  the  controlled  business  of  the insurer  there are assets brought into India by him for  the purpose of building up his life insurance business in  India which  should not be transferred to and vested in  the  Life Insurance  Corporation.  On receipt of such an  application, the  Central  Government has to determine the value  of  the assets  of  the  insurer  appertaining  to  his   controlled business  in  existence on December 31, 1955  in  accordance with  the provisions contained in paragraph 3 of Part  B  of the First Schedule to the Act and deduct therefrom the total amount of the liabilities of the insurer appertaining to his controlled  business  as on December 31,  1955  computed  in accordance  with  the  provisions contained  in  the  Second Schedule to the Act; and if there is any excess, the Central Government  may direct that such assets equivalent in  value to the excess shall not be transferred to or vested in 486 the  Life Insurance Corporation.  It is obvious  from  these provisions  that where the legislature intended to refer  to all  the assets and liabilities it said so in terms and  did not  use  the words "life insurance fund".  The use  of  the words "life insurance fund" in cl. (d) of the aforesaid  4th paragraph  therefore  must  have  the  special  significance assigned  to these words in the Insurance Act and cannot  be equated  to  the  difference between the  total  assets  and liabilities  apart from liabilities towards policies yet  to mature. Besides we are of opinion that if the words "life  insurance fund"  in cl. (d) are to be given the meaning for which  the appellant is contending there will be a clear  inconsistency between cl. (d) and it. 35 of the Act.  Section 35 permits a foreign  insurer  to  take away what may  be  called  excess assets  but  a  foreign  insurer is not  bound  to  make  an application  under  s.  35.   Now  take  the  case  of   the respondent.   It is not in dispute that the  respondent  has taken away excess assets with the permission of the  Central Government under s. 35, to the tune of about rupees  fifteen or sixteen lakhs.  But if the respondent had not, chosen  to make  the application under s. 35, all Ms assets would  have to be considered under Part B relating to compensation.   If that  Was  so, according to the contention  put  forward  on behalf of the appellant as to the meaning of the words "life insurance fund", the total compensation under Part B of  the First  Schedule  to ’which the respondent  would  have  been entitled,  would  be  Rs. 1.74,408. This means  that  as  by making  an application the respondent was able to take  away Rs.  15,73,540  under  s. 35(2) he  would  further  get  Rs. 1,11,466 as compensation under Part B of the First  Schedule to the Act.  But if he had not made the-application under s. 35,  he  would only get Rs. 1,74,408 in all.   There  is  no doubt  that the legislature could not have intended  such  a result, namely, that the insurer should get away with a much larger  amount  if he applies under s. 35 and should  get  a much smaller amount if he does not choose to apply under  s. 35.   On the other hand, if we accept the contention of  the respondent  as to the meaning of the words "’life  insurance fund"  it  would  make no  difference  to  the  compensation whether  the  insurer applies under s. 35 or not.   We  must hold  that the legislature intended that in either  case  an insurer would get the same amount whether it comes to him as

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compensation in one sum or comes to him as compensation plus repatriation of excess assets.  If the words "life insurance fund" are interpreted to mean what the respondent says,  the result  would  be this.  If it applies for  repatriation  it would get Rs. 15,73,540 as repatriation of excess assets and Rs.  27,86,658  as  compensation under  Part  B:  total  Rs. 43,60,198.  If it does not apply for repatriation and if cl. (d)  has the meaning urged on behalf of the respondent,  its total  compensation would come to the same  figure,  namely, Rs.  43,60,198.   This clearly shows  that  the  legislature intended  the words "life insurance fund" to mean what  they meant  in  s. 10(2) for that would give in our  opinion  the same result whether an insurer applied under s. 35 or not. 487 We have already said that cl. (d) provides for past  surplus in  form  1, the responsibility for which passes on  to  the Life  Insurance  Corporation  when it takes  over  the  life business of an insurer.  So far as the future is  concerned, cl. (b) of the aforesaid 4th paragraph provides for a higher valuation for with-profits policies with the result that the liability  which the insurer whose business is  being  taken over  has to bear with respect to with-profits  policies  is higher.   The appellant apparently claimed an  amount  under cl.  (d)  on the ground that at future valuation  the  bonus payable to the policy-holders would be reduced.  Now cl. (d) in  our  opinion provides for cases where  there  have  been surpluses in the past while the provision for the future  in respect  of profit policies is to be found in cl. (b).   The appellant  therefore cannot lay claim to anything under  cl. (d) unless there were surpluses in the past in form 1 of the Fourth  Schedule to the Insurance Act.  The contention  that the  appellant is likely to suffer if the meaning  contended for by the respondent is given to the words "life  insurance fund", particularly with respect to with-profit policies has in  the  circumstances  no force, for  there  is  already  a weightage in favour of calculating liability for with-profit policies  under cl. (b) of the 4th. paragraph of Part  B  of the First Schedule to the Act. Lastly  there  will be another curious result if  the  words "life  insurance  fund"  in cl. (d)  is  given  the  meaning contended for on behalf of the appellant.  Take the case  of an Indian company which has shares but which has always been showing  deficit  in form 1 of the Fourth  Schedule  to  the Insurance Act.  If its life insurance fund for the  purposes of  cl.  (d) is calculated in the manner  contended  for  on behalf  of the appellant the result would be that the  share capital  of such a company would also come into  the  assets and  if as a result of the share capital going  into  assets the  deficit  in  form  is converted  into  surplus  such  a company  would  in  conceivable circumstances  lose  96  per centum  of its share capital as if it was part of  the  life insurance fund.  It is obvious that the share capital of  an insurance  company  cannot be a part of the  life  insurance fund;  but  on  the interpretation urged on  behalf  of  the appellant  even 96 % of the share capital may be lost to  an insurance company, whose business is being taken over by the Life  Insurance  Corporation if the  words  "life  insurance fund" are given the wide meaning for which the appellant  is contending.   We have therefore no doubt that  the  tribunal was  right in its conclusion that the words "life  insurance fund" as used in cl. (d) of the aforesaid 4th paragraph have the  same meaning as that given to them in s. 10(2)  of  the Insurance  Act  read  with s. 1 1 and form D  of  the  Third Schedule to the Insurance Act.  In this view of the  matter, the appeal must fail.

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We   therefore  dismiss  the  appeal  with  costs   to   the respondent.   The respondent will be at liberty to  withdraw the money deposited in this Court towards compensation. Appeal dismissed. 488