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PETITIONER: LIFE INSURANCE CORPORATION OF INDIA

       Vs.

RESPONDENT: RAJMATA SAHEB CHOWHANJI & ORS.

DATE OF JUDGMENT02/08/1978

BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA SHINGAL, P.N. KOSHAL, A.D.

CITATION:  1978 AIR 1447            1979 SCR  (1)  11  1979 SCC  (3) 244

ACT:      Life Insurance Corporation Act, 1956 Section 7(2)-Scope of vis-a-vis obligation to restitute the benefit under s. 65 of the Contract Act.

HEADNOTE:      The plaintiff-respondent filed a suit for recovery of a sum of  Rs. 2  lakhs invested  by him  in  the  Adarsh  Bima Company, which  was taken  over by the appellant, (defendant no. 3)  herein, on the basis that the managing,, director of the  Adarsh   Bima   Company   by   practising   fraud   and misrepresentation on  the plaintiff that the plaintiff would be entitled  to an assured dividend of 4%, that too contrary to the  statute of  the company induced him to part with the said sum  by purchasing  200 shares  of Rs.  100/- each. The suit was  contested by  the appellant  mainly on  the ground that after  the appellant  took over the Adarsh Bima Company he was  not liable  for any  act of  the company  which  was ultra-vires of  the statutes of the company. The trial Court passed a  decree in  favour of  the respondents and the High Court affirmed it by dismissing the appeal by the appellant.      In appeal  by certificate,  the appellant contended (a) that  on  the  finding  that  fraud  was  committed  on  the plaintiff and  the act  of the managing director being ultra vires of  the statutes of the company, the company would not be liable  although the  managing director may be personally liable; and (b) assuming that the company was liable, but in view of  the provisions  of s.  7(2) of  the Life  Insurance Corporation Act,  1956, the liability of the appellant would extend only  to  matters  appertaining  to,  the  controlled business as defined in the Act.      Dismissing the appeal the Court. ^      HELD :  (1) The  words of s. 7(2) of the Life Insurance Corporation Act  are of the widest amplitude and the section includes all  debts, liabilities,  obligations  of  whatever kind  then  existing  and  appertaining  to  the  controlled business of  the insurer. There can be no doubt that but the time when  the appellant  took over the Adarsh Bima Company. the obligation  to restitute  the benefit  received  by  the company  from  the  plaintiff  had  been  fastened  and  the

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appellant was  legally bound  to  return  the  same  to  the plaintiff under  section 65  of the Contract Act, in view of the findings of the Courts below that the contract was void. [15G-H, 16A-I]      (2) The  question as  to whether or not the transaction was ultra  vires of  the statutes  of the company was wholly irrelevant because  that was the reason why the contract was void and  not a  ground for exempting the appellant from its liability to pay. [16A]      (3) The  words "of  whatever kind"  in s. 7(2) are wide enough to  take within  its sweep  all kinds of transactions entered  into   by  the  predecessor  company.  The  present transaction was undoubtedly entered into by the Predecessor 12 company which  had received  the sum of Rs. 2 lakhs from the plaintiff and  had issued  share slips  and  the  appellant, therefore, cannot  escape his  liability even under S. 7(2). [16 A-C]      (4) As the plaintiff will be entitled to restitution of the benefits  under section  65 of  the Contract Act, he can get only  the amount  which he  had paid  to  the  appellant company and  not any  interest upto  the date  of the  suit. [16C]      [However the  Court awarded interest at six percent per annum from  the date  of the  suit, to  the date  of payment under S. 34 of the C.P.C.]      (5) The contention that on the finding that a fraud was committed on  the plaintiff  and the  act  of  the  managing director being  ultra vires  of the statutes of the company, the company  would  not  be  liable  although  the  managing director may  be  personally  liable  is  wrong.  There  was absolutely no  pleading by  the defendants  that the  monies were received  by the  managing director  personally and  in fact the same did not go to the coffers of the company. From the issue  of the  share scrips to the plaintiff, it must be presumed  that  the  money  was  received  by  the  company. Moreover this  question not  having being  raised before any Courts below  and also  being a  question of  fact cannot be gone into. [13C, E, F, 14D-E]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2371 of 1968.      From the  Judgment and Decree dated 20th April, 1967 of the Madhya Pradesh High Court in First Appeal No. l of 1960.      S. N.  Kacker, Sol.  Genl. K. L. Hathi, Rajiv Datta and P. C. Kapur, for the Appellant.      L. N. Sinha, H. K. Puri, Vivek Seth, P. P. Singh and M. C. Dhingra for Respondents Nos. 1-4.      The Judgment of the Court was delivered by      FAZAL ALI,  J. This  appeal by  certificate is directed against the  judgment of  the High  Court of  Madhya Pradesh dated 20th  April 1, 1967 affirming the decree passed by the Additional District  Judge Indore  decreeing the plaintiff’s suit.      The facts  of the  case are detailed in the judgment of the High  Court and that of the District Judge and it is not necessary for us to repeat the same all over again.      Briefly,  the   present  action   was  brought  by  the plaintiff for  recovery of a sum of Rs. 2,00,000 invested by the plaintiff in the Adarsh Bima Company being defendant No. 1 and the predecessor of the appellant, who is defendant No. 3 (Life  Insurance Corporation  of India).  The  action  was

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brought on  the basis  that the  Managing  Director  of  the Adarsh   Bima    Company    by    practising    fraud    and misrepresentation on  the plaintiff induced him to part with a sum  of Rs. 2,00,000 by purchasing 200 shares of Rs. 100/- each. The courts 13 below have  recorded clear  findings of  fact that the fraud alleged by  the plaintiff  has been  clearly proved and that the plaintiff  had parted  with a  sum of  Rs.  2,00,000  by investing the same in purchase of 2000 shares as a result of which the  shares scrips  were handed  over to the plaintiff and he  was assured  of a  dividend of  4%. it has also been found as  a fact  that such a resolution was contrary to the statute of the company.      The  suit   was  contested  by  the  appellant  who  is defendant No.  3 in  the courts  below mainly  on the ground that after  the appellant took over the Adarsh Bima Company, he was not liable for any act of the company which was ultra vires the statutes of the company.      In  support   of  the   appeal  the  Solicitor  General submitted two  points before  us. In  the first place it was contended that  on the finding that a fraud was committed on the plaintiff  and the  act of  the Managing  Director being ultra vires  of the  statutes of  the company,  the  company would not  be liable  although the  Managing Director may be personally liable.  Secondly, it  was argued  that  assuming that the company was liable but in view of the provisions of section 7(2)  of the  Life Insurance  Corporation Act,  1956 (hereinafter called the Act), the liability of the appellant would extend  only to matters appertaining to the controlled business as defined in the Act.      As regards  the first  contention we find absolutely no substance in  the same.  There was absolutely no pleading by the defendants that the monies were received by the Managing Director personally  and that  the same  did not  go to  the coffers of  the company.  On the  other hand,  the plaintiff clearly pleaded  in paragraphs  3 (b), 8 (a) and 8(b) of the plaint that  the money  was paid  to defendant No. 1 company which after  receiving the amount issued share scrips to the plaintiff. The relevant portions of the aforesaid statements may be extracted thus:-           "3 (b) Relying upon the said guarantee and promise           given by  the defendant  No. 2  on  the  Company’s           behalf Plaintiff  No. 1 on 11th June, 1947 gave at           Jhabua  to   Defendant  No.   1  Company   through           Defendant No.  2, Government  of India  3  percent           Loan Bonds of 1953-55 of the value of Rs. 1,00,000           duly  endorsed   in  favour  of  Defendant  No.  1           company.......  The  company  addressed  a  letter           acknowledging receipt  of the application for 1000           shares and  the full  consideration  of  the  said           shares at the rate of Rs. 100 per share and agreed           to allot the said 1000 shares to plaintiff No. 4". 14           "8(a)   .........................    ......    The           plaintiffs submit  that the transaction of selling           the said  2000 shares  of defendant  No. 1 Company           and registering the same as aforesaid in the names           of plaintiffs  No. 2  to 4  with  a  guarantee  of           minimum return  is ultra vires the defendant No. 1           Company and is found to be void and inoperative in           law.           8(b) The  said 2000  shares  of  defendant  No.  1      Company are  as aforesaid applied for and registered in      the names  of plaintiffs  No. 2  to 4.  At all material

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    times when  the said shares were registered in the name      of plaintiffs  No. 2  to 4,  the plaintiffs  No. 2 to 4      were minors. The plaintiffs submit that the transaction      of issuing  the said 2000 shares to plaintiffs No. 2 to      4 who  were then  minors and registering them as share-      holders in  the Register  of defendant No. 1 Company is      void in law". Thus, the plaintiff has clearly alleged that the monies were paid to  the defendant  company  and  not  to  the  Managing Director personally. If the share scrips were issued, to the plaintiff then  it must  be  presumed  that  the  money  was received by  the company.  This fact  has not been denied by the defendant-appellant.  In these circumstances, therefore, it is  absolutely clear  that there  is nothing to show that the money  was paid  to the Managing Director personally and not to the company. Moreover, this is essentially a question of fact  and it  does not  appear to have been raised before any of  the courts  below. For these reasons, therefore, the first contention  put forward  by the  Solicitor General  is hereby over-ruled.      Coming to  the next  contention  the  same  undoubtedly merits serious  consideration. Before however examining this contention the following admitted facts may be stated thus:           1.   That the  Bima Company  was doing  merely the      business of life insurance and no other;           2.   That on  the coming into force of the Act the      entire  interest   of  the   Company  vested   in   the      Government: Section 7(2) of the Act runs thus:-           "7 (2)  The assets  appertaining to the controlled           business of  an insurer shall be deemed to include           all rights  and  powers, and all property, whether           movable  and   immovable,  appertaining   to   his           controlled  business,  including,  in  particular,           cash   balances,   reserve   funds,   investments,           deposits 15           and all  other interest  and rights  in or arising           out of  such property  as may be in the possession           of  the  insurer  and  all  books  of  account  or           documents relating  to the  controlled business of           the insurer;  and liabilities  shall be  deemed to           include all  debts, liabilities and obligations of           whatever kind  then existing  and appertaining  to           the controlled business of the insurer.           Explanation: The  expression ’assets  appertaining      to the controlled business of an insurer’           (a) in  relation to  a composite insurer, includes      that part  of the  paid-up capital  of the  insurer  or      assets representing  such part  which has  or have been      allocated to  the controlled business of the insurer in      accordance with the rules made in this behalf;           (b) in  relation to a Government, means the amount      lying to  the credit  of that business on the appointed      day". D      It is  contended by  the  Solicitor  General  that  the appellant was  liable to  discharge only  those  liabilities which pertained  to the  controlled business of the insurer. Sub-clause (3)  of section  2 of the Act defines ’controlled business’ thus:-           "controlled business" means-      (i) in  the case of any insurer specified in sub-clause      (a) (ii)  or sub-clause  (b) of clause (9) of section 2      of the  Insurance Act  and, carrying  on life insurance      business .... "

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As we  have already  pointed out that defendant No. 1 Adarsh Bima Company  was carrying on the business of life insurance only. Thus  the moment  the Act  was passed, the business of the Adarsh  Bima Company  vested in  the  Corporation.  Pari passu this  contention it  was submitted  that under section 7(2) of  the Act  the liability  of the  appellant would not extend not  to any  acts which are fraudulent or ultra vires of the  statutes of  the company. We are, however, unable to agree with this contention. The words of section 7(2) of the Act appear  to be  of the  widest amplitude  and the section includes all  debts, liabilities,  obligations  of  whatever kind  then  existing  and  appertaining  to  the  controlled business of  the insurer.  There can be no doubt that at the time when  the appellant  took over  the Adarsh Bima Company the obligation  to restitute  the benefit  received  by  the company  from  the  plaintiff  had  been  fastened  and  the appellant was  legally bound  to  return  the  same  to  the plaintiff under section 65 of the Contract 16 Act in  view of  the finding  of fact recorded by the Courts below that the contract was void. The question as to whether or not  the transaction  was ultra  vires of the statutes of the company  was wholly  irrelevant  because  that  was  the reason why  the contract  was void  and  not  a  ground  for exempting the appellant from its liability to pay. The words "of whatever  kind" are  wide enough,  to take  within their sweep  all   kinds  of  transactions  entered  into  by  the predecessor company. The present transaction was undoubtedly entered into  by the  predecessor company which had received the sum  of Rs.  2,00,000 from  the plaintiff and had issued share scrips.  In these  circumstances, therefore, we do not see how  the defendant  No. 3  can escape his liability even under section 7(2) of the Act. As however the plaintiff will be entitled  to restitution of the benefits under section 65 of the  Act, he can only get the amount which he had paid to the appellant company and not any interest thereon up to the date of  the suit.  For these reasons, we are of the opinion that the  judgment of the High Court is correct and does not require any interference except a slight modification in the form of the decree.      We,  therefore,  direct  that  the  plaintiff  will  be entitled to  the decree of Rs. 2,00,000 passed by the courts below but  not to  the interest of Rs. 47,000 claimed by him and to  that extent  the  decree  is  hereby  modified.  The plaintiff will  however be  entitled to  interest at six per cent per  annum from the date of the suit to the date of the payment. With this modification the appeal is dismissed, but in the circumstances without any order as to costs. S.R.                                       Appeal dismissed. 17