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PETITIONER: LIFE INSURANCE CORPORATION OF INDIA

       Vs.

RESPONDENT: KOTA RAMABRAHMAM AND ORS.

DATE OF JUDGMENT22/04/1977

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. BEG, M. HAMEEDULLAH (CJ) KAILASAM, P.S.

CITATION:  1977 AIR 1704            1977 SCR  (3) 683  1977 SCC  (3)  33  CITATOR INFO :  RF         1988 SC 151  (14)

ACT:         Life Insurance Corporation Act, 1956--S. 9(1)--Madras  Agri-         culturists  Relief  Act, 1938 scaled down certain  debts  of         agriculturists--Act saved debts due to a Corporation  formed         under special Indian Law--Loans given by Insurance Companies         to  agriculturists--If could be deemed to have been  entered         into  by  the  Corporation after it took  over  business  of         Insurance Companies.

HEADNOTE:         The  respondents, who were agriculturists, took  loans  from         two  insurance companies in 1950 and 1952.  In suits for the         recovery of the debts, filed by the Life Insurance  Corpora-         tion  after it had taken over the insurance  companies,  the         respondents claimed that the debts should be scaled down  in         accordance  with s. 4(e) of the Madras Agriculturists Relief         Act, 1938.  Section 4(e) kept certain debts and  liabilities         of agriculturists out of the reach of the Act, including any         debt  due  to any Corporation formed in  pursuance  of   any         "Special   Indian Law".  The Corporation’s  contention  that         the debts would not be affected  by s. 4(e) was rejected  by         the  trial court as well as the High Court which  held  that         because of the genesis of the debts, s. 4(e) was attracted.         On appeal to this Court it was contended that s. 9(1) of the         Life Insurance Corporation Act created a legal fiction  that         contracts to which an insurer was a party shall be deemed to         have  been entered into or issued in favour of the  Corpora-         tion  and  that being so, the debts in  question  should  be         taken  as  due to the Corporation from  the  be$inning  and,         therefore, outside s. 4(e) of the 1938-Act.         Dismissing the appeals,         HELD:  Section 9(1) of the Life Insurance  Corporation  Act,         1956 does not create any legal fiction.  It seeks to provide         that the contracts and other instruments subsisting  immedi-         ately  before the vesting may be enforced and acted upon  by         the  Corporation after vesting.  Under s. 9(2)  any  pending         proceeding on the appointed day by or against an insurer may         be  continued by or against the Corporation.   Section  7(1)         provides that all the assets and liabilities of the insurers

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       relating to their life insurance business vest in the Corpo-         ration.   Under s. 7(2) the liabilities include  obligations         of   whatever  kind  existing  on  the appointed  day.   The         debts due to the insurers in these two cases were liable  to         be  scaled  down in accordance with the  provisions  of  the         1938-Act which was a liability or obligation appertaining to         the debts on the appointed day,  that is, September 1, 1956.         This  liability or obligation annexed to the debts  must  be         held to have been transferred to and vested in the  Corpora-         tion  along with the assets of the insurers under s.  7  and         the  Corporation  in  seeking to recover  the  debts  cannot         ignore  the  obligations of the insurers in respect  of  the         transactions. [685 G; 686 A]

JUDGMENT:             CIVIL  APPELLATE JURISDICTION : C.A. Nos. 1959  &   1960         of 1970.             (Appeals  by Special Leave from the Judgment  and  Order         dated  the  10-10-1969 of the Andhra Pradesh High  Court  in         L.P.A.  No. 165/67 and A.S. No. 233/67 respectively).             A.  K.  Somnath Iyer, K.L. Hathi, P.C. Kapoor,  for  the         appellant in both the appeals.             G. Venkatarama Sastry, B. Parthasarthi, for  respondents         in  CA 1959/70.         684                 A. Subba Rao, for respondents in CA 1969/70.             The Judgment of the Court was delivered by             GUPTA,  J.--These are two appeals by the Life  Insurance         Corporation of India (hereinafter referred to as the  Corpo-         ration) with special leave obtained from this Court  against         a common Judgment  of the Andhra Pradesh High Court  dispos-         ing  of two appeals preferred by the Corporation.   The  ap-         peals before the High Court arose out  of  two suits  insti-         tuted by the Corporation.  For the question that arises  for         determination,  which  we will presently state,  it  is  not         necessary to set out the facts in any great detail.  One  of         the suits was brought in 1961 for recovery of a sum of about         Rs.  17,000/-, after giving credit to the payments  made  by         the defendants, due on a mortgage executed by the defendants         in 1950 in favour of the Andhra Insurance  Company of  Masu-         lipatnam.  The other suit was filed in 1962 for recovery  of         about Rs. 45,555/- also due on a mortgage which was executed         in  1952  by the defendants of this suit in  favour  of  the         Nagpur Pioneer Insurance Company Ltd., Bombay.  Thus in both         cases  the loans were incurred long before  the  Corporation         was established on September  1, 1956  under the Life Insur-         ance  Corporation Act, 1956.  In both Suits  the  mortgagors         claimed  that the debt should be scaled down  in  accordance         with the provisions of the Madras Agriculturists Relief  Act         (Madras  Act  IV of 1938) (hereinafter referred  to  as  the         Madras  Act).   It is not disputed in either case  that  the         mortgagors are agriculturists.  The trial court upheld their         claim,  sealed down the debts and decreed the suits  accord-         ingly.  The High Court on appeal affirmed the decision.  The         claim was resisted by the Corporation relying on the  provi-         sions  of section 4 (e) of the Madras Act which is  as  fol-         lows:                             "4.  Nothing  in this Act  shall  affect                       debts  and   liabilities of  an  agriculturist                       falling under the following heads:                       X                   X                   X                             (e) any liability in respect of any  sum                       due to  any co-operative Society, including  a

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                     land mortgage bank, registered or deemed to be                       registered   under  the  Madras   Co-operative                       Societies  Act, 1932 or any debt due  to   any                       Corporation  formed in pursuance of an Act  of                       Parliament  (of the United Kingdom) or of  any                       special Indian Law or Royal Charter or Letters                       Patent."         The question arising for decision in the appeals is whether,         in respect of the debts sought to be recovered, the applica-         tion  of  the Madras Act is barred by section 4(e)  of  that         Act.             Section  4  of the Madras Act keeps  certain  debts  and         liabilities  out of the reach of the Act including any  debt         due to  any  corporation formed in pursuance of "any special         Indian  law".   There  is no dispute  that  the  Corporation         established  under the Life Insurance Corporation Act,  1956         is  a corporation as contemplated in section  4(e).  It   is         contended  on  behalf  of the appellant that  the  debts  in         question  in these cases would not therefore be affected  by         anything contained  in  the         685         Madras Act.  This contention was not accepted either by  the         trial  court or the High Court who held that the debts  were         due  originally not to the corporation but to  the  insurers         whose life insurance business was taken over by the corpora-         tion, and because of the genesis of the debts, section  4(e)         of the Madras Act was not attracted.             It  will be necessary at this stage to refer to  certain         provisions of the Life Insurance Corporation Act, 1956.   It         is an Act "to provide for the nationalisation of life insur-         ance business in India by transferring all such business  to         a  corporation established for the  purpose  and to  provide         for the regulation and control of the business of the corpo-         ration  and  for matters connected therewith  or  incidental         thereto". Sub-section (1 ) of section 7 of the Act  provides         that  on  the appointed day all the assets  and  liabilities         appertaining to the life insurance business of all  insurers         shall  be  transferred  to and vested  in  the  corporation.         ’Appointed day’ has been defined in section 2(1) as the date         on which the corporation is established, which is  September         1,   1956. Sub-section (2) of section 7 states  inter  alia,         that the liabilities  mentioned in sub-section (1) "shall be         deemed to include all debts, liabilities and obligations  of         whatever  kind" existing on the appointed clay and  relating         to  the life insurance business of the insurer.   Section  9         describes  the  general effect of vesting of  the  insurers’         business in the corporation.  Sub-section (1) of the section         states that unless otherwise expressly provided by the  Act,         all  contracts, agreements and other instruments  subsisting         immediately  before the appointed day to which  the  insurer         whose  business  has vested was a party or  which   are   in         favour of such insurer shall "be of as full force and effect         against or in favour of the corporation, as the case may be,         and  may be enforced or acted upon as fully and  effectually         as  if, instead of the insurer, the corporation had  been  a         party thereto or as if they had been entered into or  issued         in  favour  of the corporation".  Sub-section  (2)  of  this         section  says that if on the appointed day any suit,  appeal         or  other  legal  proceeding was pending by  or  against  an         insurer relating to his life insurance business, it will not         be prejudicially affected by reason  of the transfer to  the         Corporation  of the business of the insurer but may be  con-         firmed by or against the corporation.             Mr.  Somnath Iyer appearing for the appellants  in  both         the  appeals  contends  that sub-section (1)  of  section  9

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       creates a legal fiction that the contracts or instruments to         which  the insurer was a party shall be deemed to have  been         entered  into or issued in favour of the corporation.   That         being  so,  the argument proceeds, the debts   in   question         should  be taken as due to the corporation from  the  begin-         ning,  and,  therefore, outside the scope and ambit  of  the         Madras  Act in view of section 4(e) of that Act.  We do  not         however think that sub-section (1) of section 9 creates  any         legal  fiction  of  that  kind.  This  subsection  seeks  to         provide that the contracts and other instruments  subsisting         immediately  before  the vesting may be enforced  and  acted         upon  by the Corporation after vesting.  This is made  clear         by sub-section (2) of section 9 which states that any  pend-         ing   proceeding   on  the appointed day by  or  against  an         insurer  may  be continued by or  against  the  corporation.         Under sub-section (1) of section 7 all  the  assets         686         and  liabilities  of  the insurers relating  to  their  life         insurance  business vest In the corporation on the appointed         date.   Sub-section  (2)  of section 7 states that  the  li-         abilities  include obligations of whatever kind existing  on         the  appointed day.  The debts due to the insurers in  these         two  cases were liable to be scaled down in accordance  with         the  provisions of the Madras Act which was a  liability  or         obligation  appertaining to the debts on September 1,  1956,         the appointed day.  This liability or obligation annexed  to         the  debts  must  be held to have been  transferred  to  and         vested  in  the  corporation along with the  assets  of  the         insurers under section 7 of the Act, and the corporation  in         seeking  to  recover the mortgage dues  cannot  ignore   the         obligations   of   the insurers in respect of  the  transac-         tions.  In our opinion the view taken by the High Court  was         therefore correct.         The  appeals  are  accordingly dismissed  with  costs.   One         hearing fee.         P.B.R.                                Appeals dismissed.         687