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PETITIONER: LIFE INSURANCE CORPORATION OF INDIA

       Vs.

RESPONDENT: S.   V. OAK AND ANOTHER

DATE OF JUDGMENT: 29/09/1964

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. DAYAL, RAGHUBAR MUDHOLKAR, J.R.

CITATION:  1965 AIR  975            1965 SCR  (1) 403

ACT: Life  Insurance Corporation Act (31 of 1956), ss. 9 and  28- Scope of-"Surplus", meaning of.

HEADNOTE: The  respondents  had  made  deposits  with  a  mutual  life assurance company.  The Controller of Insurance had directed that  the  deposits should be repaid from  future  valuation surpluses and the respondents agreed to this.  The insurance company,  while  it  worked, had  not  shown  any  valuation surplus  as a result of actuarial investigations  under  the Insurance Act, 1938.  In fact the Company was insolvent from the  point  of view of the Insurance Act when it  was  taken over  by the Life Insurance Corporation.  When the  business of the Company merged in the business of the Corporation, it became indistinguishable after- 1st September 1956, the date when the Life Insurance Corporation Act (XXXI of 1956)  came into  force.   The  working of the  Corporation.  showed  an enormous  valuation surplus and the respondent claimed  that as the condition on which their deposits were held had  been fulfilled,  the  Corporation  was  bound  to  return   their deposits with interest.  The Corporation resisted the demand and the matter was referred to the Life Insurance  Tribunal. The  Tribunal held that the contracts immediately  prior  to the date of vesting were not subsisting or effective because they  could not be enforced, there being no surplus  of  the stated  kind.  Against that decision the depositors filed  a petition under Arts. 226 and 227 of the Constitution in  the High Court, and the High Court reversed the decision of  the Tribunal.  The Corporation appealed to the Supreme Court. HELD : The appeal should be di..;missed. [412D]. (i)  It  was  wrong to contend that as the  company  had  no surplus  on 1st September 1956. its  contingent  liabilities ceased  to  exist.  The contracts subsisted as long  as  the Company  worked  but the payments were  postponed  till  the condition about actuarial surplus was fulfilled.  Under s. 9 of  the  Life  Insurance Corporation  Act  the   contractual liability  of  the Company became that  of  the  Corporation there  being no express provision the Act negativing it  and

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as  the Corporation had actuarial surplus  the amounts  were payable from that surplus. [410C-F] (ii) When ss. 9 and 28 of the Life Insurance Corporation Act are  does not put any bar in the way of the  Corporation  in the  fulfilment of its obligations under s. 9.  The  surplus under  s.  28  is  that  which  results  from  an  actuarial investigation under the Insurance.Act. It is to be  disposed of  by  allocating not less than 95% of it  for  the  policy holders  of  the Corporation.  The balance  of  the  surplus "may"  be utilized for such purposes and in such  manner  as the  Central  Government "may"  determine.   The  Government while  making directions is,expected to have regard  to  the liabilities of the Corporation under s. 9 of the Act.  As in the  instant  case  there was no special  direction  of  the Central Government, the surplus was available for payment of deposits. [411E-H; 412C]. 404

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 443 of 1962. Appeal  from the judgment and order dated July 29, 1960,  of the  Bombay High Court in Special Civil Application No.  279 of 1960. M.   C. Setalvad, S. T. Desai, S. N. Andley, Rameshwar  Nath and P. L. Vohra, for the appellant. K.   V.  Joshi, S. S. Khanduja, S. K. Manohanda  and  Ganpat Rai, for the respondents. G.   S.  Pathak,  I.  C. Diwaanji, J. B.  Dadachanji  O.  C. Mathur aand Ravinder Narain, for respondent No. 1. K.   Rajendra   Chaudhuri,   and  K.   R.   Chaudhuri,   for Interveners Nos. 2. S.   V.  Gupte, Additional Solicitor--General, and B. R.  G. K. Achar, for the Attorney-General for India. The Judgment of the Court was delivered by. Hidayatullah J. This is an appeal by certificate against the judgment of the High Court of Bombay dated July 29, 1960  in a  petition under Articles 226 and 227 of  the  Constitution reversing  the  decision  of the  Life  Insurance  Tribunal, Nagpur dated December 30, 1959.  The proceedings arose  from the   taking  over  of  the  controlled  business   of   the Continental Mutual Assurance Company Ltd., Poona by the Life Insurance  Corporation under the Life Insurance  Corporation Act, 1956 (31 of 1956).  The Insurance Company was a  mutual Company and thus had no share capital.  It received deposits from  Directors and other persons and the respondents V.  V. Oak  and  S.  V. Oak bad made five  deposits  totaling-  Rs. 7,408.81P.  in  the last weeks of December  1950  and  1951. These  deposits carried interest at 4-1/2% per  annum.   The Insurance  Company was incorporated in 1946 and  carried  on only life insurance business.  As required by the  Insurance Act, 1938 (4 of 1938), it caused actuarial investigation and valuation  to  be  made at intervals as  laid  down  in  the Insurance  Act.  The first valuation was of the business  as on December 31, 1950 and it showed a loss of Rs. 72,924  and its  balance-sheet showed some assets totaling  Rs.  11,216, which  were  perhaps  not realizable.   The  certificate  of registration of the Insurance Company was cancelled in  1952 and  the Controller of Insurance threatened to wind  up  the Insurance  Company  if the insolvency was not  removed.   In July  1952,  all  the Directors of.  the  Insurance  Company addressed a letter to the Controller guaranteeing to make 405 good the deficit before the end of October of that year  and

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assured  the Controller that the depositors had given  their consent not to press for the return of their deposits  until the  deficit was removed.  The Controller then  revived  the certificate  of  registration  but as the  deficit  was  not removed before the end of October, 1952 the Chairman of  the Insurance  Company  informed the Controller  that  immovable property  of the value of Rs. 49,000 from the  deposits  was being  purchased  and  the deposits would  not  be  returned except  from surplus assets.  The Controller then  told  the Insurance  Company  that the deposits should  be  paid  from future valuation surpluses and not from surplus assets.  The Insurance  Company  agreed  to  this  and  the   depositors, including  the  respondents, gave undertakings to  the  same effect.   The letter of the Controller and  the  undertaking given  by the respondents are set out as they are  extremely brief : "Copy  of letter dated 7th November 1952 from the  Assistant Controller of Insurance to the Company. With reference to your letter dated the 29th October,  1952, on  the  above subject, I have to say that the  deposits  or loans obtained by the Company to cover its insolvency are to be repaid only out of the future valuation surpluses and not out of surplus assets.  This may kindly be noted. Copy of letter dated 29th November 1952, from V. V. Oak, the 1st Respondent to the Company. I hereby give my consent to keep the amount of my deposit of Rs. 7,408-0-0 (Rupees Seven thousand four hundred and  eight only), with the company and that the same is repayable  only out of adequate surplus along with interest thereon, as from the date of the last valuation, and that these amounts  will be allowed to be kept with you till such adequate surplus is shown.   The amount of interest payable for the  intervening period  will  be paid out of valuation surplus  and  to  the extent  of  7  1/2 % of  such  surplus,  with  retrospective effect.                                       Yours faithfully,                                        Sd./- V. V. Oak." 406 This   undertaking  was given by V. V. Oak on behalf of  his son S.    V. Oak also. The  affairs of the Insurance Company did not  improve.   In fact,  they  took  a  turn for  the  worse.   The  actuarial valuation as on December 31, 1954 disclosed a deficit of Rs. 89,923  and  before the next actuarial  valuation  the  Life Insurance Corporation Act came into operation.  Even  before that   under  the  Life  Insurance  (Emergency   Provisions) Ordinance, 1956 (which was followed by Act 9 of 1956 of  the same  name), the business of the Insurance Company had  been taken  over by the Government of India on January 19,  1956. On  the passing of the Life Insurance Corporation  Act,  the ’controlled business’ of all insurers vested on September 1, 1956  in  the Life Insurance Corporation.   Under  the  Life Insurance  Corporation Act ’controlled business’ means  life insurance business and in the case of an insurer carrying on only  life  insurance  business,  all  his  business.    The Insurance  Company  was  of this  description  and  all  its business,   therefore,   vested  in   the   Life   Insurance Corporation  under  s. 7 of the Life  Insurance  Corporation Act.   Section  9  of the  Life  Insurance  Corporation  Act provided  for  certain effects of this vesting.   The  first sub-section of that section is material for our purposes and may be reproduced here "9. General effect of vesting of controlled business. (1)  Unless  otherwise expressly provided by or  under  this act,  all  contracts, agreements and  other  instruments  of

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whatever  nature  subsisting or  having  affect  immediately before  the  appointed  day and to which  an  insurer  whose controlled  business has been transferred to and  vested  in the  Corporation is a party or which are in favour  of  such insurer  shall  insofar a.-, they relate to  the  controlled business  of  the  insurer 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." (2)..............................................." The  effect of this provision was to substitute the name  of the  Corporation  in place of the Insurance Company  in  the contracts  of  deposit of the respondents and  the  deposits continued  to  be  of  full force  and  effect  against  the Corporation and the contract were 407 liable to be enforced or acted upon as fully and effectively as if the Corporation itself was the original party to these contracts.   As the Act operated on and after the  appointed day the operation of S. 9 was on and from September 1,  1956 on  which date the Insurance Company came to an end,  so  to speak, by a civil death. The  Insurance Company while it worked had not shown  valua- tion  surplus  as a result of the  actuarial  investigations under  the Insurance Act.  There is no reason to think  that if  an actuarial investigation was made as on  September  1, 1956 or even December 31, 1956 it would have shown a surplus of  this kind.  Indeed, it would have shown a huge  deficit. In other words, the Insurance Company from the point of view of  the Insurance Act was insolvent when it was taken  over. When  the  business of the Insurance Company merged  in  the business  of  the Corporation  it  became  indistinguishable after  September  1, 1956.  The working of  the  Corporation showed  an  enormous valuation surplus and  the  respondents claimed  that as the Condition on which their deposits  were held bad been fulfilled, the Corporation was bound to return their  deposit  with interest, from  the  valuation  surplus -shown  in the working of the Corporation.  The  Corporation resisted this demand and hence this litigation. The  respondents after serving a notice under s. 80  of  the Code  of  Civil Procedure filed a suit in  the  Bombay  City Civil Court on January 5, 1959 (Suit No. 149 of 1959).  That suit,   we  are,  informed  is  still  pending.   ’Me   Life Insurance-Corporation,  on the other hand, filed a  petition on  October  5,  1959 before the  Life  Insurance  Tribunal, Nagpur  praying for a declaration that the respondents  were not entitled to the repayment of their deposits, and for  an order  or  injunction  restraining  the  ’respondents   from proceeding  further  in the suit in the  Bombay  City  Civil Court.,  Bombay.  The Tribunal, by its Order dated  December 30, 1959 (Case No. 31/XII of 1959), held that the amount was not  repayable.  The main reason given by the  Tribunal  was that the contracts immediately prior to the date of  vesting were  not subsisting or effective because they could not  be enforced,  there  being  no  surplus  of  the  stated  kind. According  to the Tribunal, it would have been otherwise  if the  Insurance Company had earned a surplus before the  date of vesting and the deposits only remained to be returned  to the  depositors.   The Tribunal also rejected a  claim  made under  s.  65  of  the Indian  Contract  Act.   Earlier  the Tribunal  had  sent an injunction to the Bombay  City  Civil Court, Bombay and in its final order the Tribunal held  that as  they had disallowed the claim, the suit to  recover  the

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deposits did not lie. 408 Against the decision of the Tribunal the depositors filed  a petition  under  Articles 226 and 227  of  the  Constitution (Special  Civil  Application No. 279 of 1960)  in  the  High Court  of Bombay.  The petition was disposed of on July  29, 1960 by the order of the High Court, now under appeal.   The High  Court  reversed  the decision of  the  Tribunal.   The Divisional  Bench  held  that  the  intention  of  the  Life Insurance  Corporation Act was to take over  the  controlled business as it was, of an insurer and to realise all  assets and to pay all liabilities arising from contracts related to the  controlled  business.   The High Court  held  that  the Tribunal  was in error in holding that the liability of  the Insurance Company had come to an end immediately before  the date  of vesting inasmuch as there was no valuation  surplus on the date of vesting.  The High Court further held that if the contracts were given full force and effect, as  required by  s.  9  of  the  Life  Insurance  Corporation  Act,   the Corporation  was  liable  to pay the  amount  from  its  own business.   The  High Court pointed out that  there  was  no provision  in  the  Life Insurance  Corporation  Act,  which militated against the clear words of s. 9, and overruled the plea  of the Corporation that the amount could not  be  paid because  under s. 28 of the Life Insurance  Corporation  Act the  surplus  of the Life Insurance Corporation  was  to  be applied  in  a  manner -which left no room  for  payment  of liabilities  of  this  kind.  The  learned  Judges  did  not interpret  the word "surplus" in that section  as  valuation surplus  but  only as the balance left after  deducting  all liabilities even including contingent liabilities.  The High Court,  therefore,  ordered  a  remit of  the  case  to  the Tribunal for decision in the light of its conclusions. In this appeal Mr. Setalvad for the Corporation pointed  out that  the  undertaking  of  the  respondents  was  that  the deposits  were to be repaid from "adequate surplus" but  not until  such  adequate valuation surplus was  available.   He contended   that  the  word  "surplus"  in  the  letter   of undertaking meant valuation surplus and not surplus  assets. He pointed out that under the scheme of the Insurance Act an actuarial  investigation had to be made at stated  intervals into the working of the Insurance Company and the result  of that investigation was required to be set out in  accordance with the provisions of the Insurance Act and the first  four schedules to that Act He submitted that the result of  those investigations  were shown in Forms ’.A,’ to ’I’,  the  last being  the  valuation balance sheet which compared  the  net liability  under  business  as  shown  in  the  summary  and valuation of policies with the balance of the Life Insurance Fund  as shown in the Balance Sheet to find out the  surplus or the deficiency, as the case may be, 409 He contended that the word "surplus" had a technical meaning and not the ordinary meaning accepted by the High Court  and that  this  was also pointed out by the  Controller  in  his Memorandum of November 7, 1952 which we have quoted earlier. He  contended,  therefore,  that  the  contracts  were   not enforceable  because  there  was  no  such  surplus  of  the Insurance  Company and the amount was payable only from  the valuation surplus of the Insurance Company.   Alternatively, he  contended that if the deposits must be repaid  from  the valuation  surplus  of  the Corporation s. 28  of  the  Life Insurance  Corporation Act made the payment impossible.   He accordingly submitted that the decision of the Tribunal  was right.

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In reply, Mr. K. V. Joshi for the respondents and Mr. G.  S. Pathak,  who appeared for the interveners .(Chandra  Banghir and  Others)  contended  that s. 9  of  the  Life  Insurance Corporation  Act  was  explicit in its  terms  and  that  no express provision from the Act was pointed out to  over-ride s.  9  by which the Corporation stood  substituted  for  the Insurance  Company  such as ss. 14, 15 and 36  of  the  Life Insurance  Corporation Act.  They contended that s.  28,  on which  reliance  was  placed  did not  lead  to  the  result suggested  by  Mr.  Setalvad and if it did, s.  28  must  be declared ultra vires the Constitution under Articles 19  and 31  because  it deprived the respondents of  their  property without   compensation.   Mr.  S.  V.  Gupte,  the   learned Solicitor-General, who appeared on behalf of the  Government of  India,  contended  that s. 28 was not  ultra  vires  the Constitution and be interpreted s. 29 in the same way as Mr. Pathak. Under  the  Insurance  Act an  actuarial  valuation  of  the business of an insurance company doing life business had  to be  undertaken  at stated intervals and the  result  of  the actuarial  investigation had to be incorporated in a  number of  Forms  (A to 1) in accordance with the  regulations  set down in the first four Schedules.  Form A was Balance  Sheet of  the  Company’s  business.   It  showed  the  assets  and liabilities  of  the Company in India.  Form  B  showed  the Account  of Profit and Loss.  Form D then  incorporated  the results  of  the working of the Insurance Company  over  the investigation period taking into account the results of  the Balance  Sheet and the Profit and Loss Account  and  setting out  the  balance of the Insurance Fund at the  end  of  the investigation  period.   This  Fund was the  cover  for  the insurance   liability   under  the   policies   worked   out actuarially.    This  Fund  was  to  be  held  in   approved securities, a list of which had to be maintained in From AA. The value of these securities represented the state, of  the Fund.  A Consolidated 410 Revenue  Account  was drawn up in Form G in  which  all  the items  of  the  working of a company figured  and  the  Life Insurance Fund was finally determined.  Form H was a summary of  the actuarial valuation of all the policies and the  net liability arising under them.  These two items, namely,  the net  liability  under business as shown in  the  summary  of valuation of policies and the balance of Life Insurance Fund as  shown in the Balance Sheet were then compared in Form  I to  find out whether there was a surplus available  or  not. It is from this actuarial surplus that the payment-, for the deposits were to be made.  This position is admitted on  all hands.  It is wrong to contend that as the Insurance Company had  no  surplus  in  its hand on  September  1,  1956,  its contingent  liabilities ceased to exist on that  date.   The contracts subsisted as long as the Insurance Company  worked but  the  payments were postponed till the  condition  about actuarial  surplus was fulfilled.  That it was a  contingent liability on September 1, 1956 did not make it any the  less a liability of the Insurance Company on the date of vesting. Under  s.  9 of the Life Insurance Corporation  Act  this  r liability  became  the  liability  of  the  Life   Insurance Corporation  and under the clear terms of that section  this liability  was to be of full force and effect  unless  there was some express provision in the Life Insurance Corporation Act which negatived it.  Sections 14, 15 and 36 of the  Life Insurance  Corporation  Act  illustrate  express  provisions which  have  been  made in  relation  to  certain  contracts contemplated under s. 9. No similar provision was brought to

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our notice relative to the present purpose and none  exists. The contracts were, therefore, binding upon the  Corporation as  on  the  Insurance  Company and,  in  fact,  as  if  the Corporation  itself  had  undertaken  the  liability.    The contracts  being thus enforceable, the money had to be  paid provided there was an actuarial surplus.  Since the business of the Insurance Company merged in that of the  Corporation, no  separate  valuation  of  its  business  was  done.   The Corporation  as a person substituted, did business, and  had actuarial  surplus  and the amounts were thus  payable  from that actuarial surplus. The  argument  that s. 28 precluded the  discharge  of  this liability and must be regarded either expressly or impliedly to  bar recovery may now be considered.  In fact,  that  was the only argument which was pressed upon us on behalf of the Corporation  by  Mr.  Setalvad.   Section  26  of  the  Life Insurance Corporation Act provides as follows:-               "26.   Actuarial valuations.  The  Corporation               shall, once at least in every two years. cause               an investigation to               411               be  made  by  actuaries  into  the   financial               condition of the business of the  Corporation,               including  a valuation of the  liabilities  of               the Corporation, and submit the report of  the               actuaries to the Central Government."               Section 28 then lays down the following method               of the utilization of the surplus :               "28.   Surplus  how to be utilised.  If  as  a               result of any investigation undertaken by  the               Corporation  under  section  26  any   surplus               emerges,  not  less than 95 per cent  of  such               surplus shall be allocated to or reserved  for               the policy-holders of the Corporation and  the               remainder  may be utilised for  such  purposes               and in such manner as the Central  Government.               may determine." It  was  contended by Mr. Setalvad that the  word  "surplus" here  has the same meaning as the surplus in s. 26  and  the High  Court was in error in giving it an  extended  meaning. We  accept this argument.  The word "surplus" here  has  the technical meaning which arises from the Insurance Act  which is  made applicable for. purposes of valuation by s. 43  of- the  Life Insurance Corporation Act read  with  Notification No. G.S.R. 734 dated August 23, 1958.  That meaning is  also apparent  from s. 26 of the Life Insurance  Corporation  Act quoted  above.   Indeed,  the two  sections  are  intimately connected. Under  s.  28 the surplus which results  from  an  actuarial investigation  is to be disposed of by allocating  not  less than  95%  of  the surplus for  the  policy-holders  of  the Corporation.  The Corporation has its own fund to which  all receipts  must be credited and from which all payments  must be made (s. 24). 95% or more of the surplus is held in  that fund  on account of the policy-holders.  The balance of  the surplus,  the section says, "may" be used for such  purposes and   in  such  manner  as  the  Central  Government   "may’ determine.   We  were told at the hearing that there  is  no special direction of the Central Government disposing of the entire  balance.  If this is the case the surplus  would  be available  for  payment of deposits  contingent  upon  there being  surplus.   We  were,  however,  told  that  the  Life Insurance Corporation hands over its balance to the  Central Government.  The learned Solicitor General pointed out  that under  the Act this could not be done and we entirely  agree

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with  him.   Even  if  handed over  the  money  would  still continue to belong to the Corporation.  The Government while making  directions  is  expected  to  have  regard  to   the liabilities  of the Corporation under s. 9 of the Act.   The learned  Solicitor  General naturally  apprehended  that  if Government made orders 412 for  utilising  the  entire amount leaving  no  balance  for meeting the obligations under s. 9 of the Act, s. - 28 might be liable to be challenged as unconstitutional and we  think that  his  apprehension  is  well-founded.   That   question cannot, however, arise because we agree with him that  there is  nothing  peremptory in the latter part of  s.  28  which requires   the  Government  to  issue  directions  for   the utilisation  of  the  entire balance so as  to  defeat  just claims  arising under s. 9 of the Act.  Indeed, s. 9  is  so compulsive in its wording that s. 28 which is discretionary, at least so far as the Central Government is concerned,  may be  taken to be controlled by the former.  The two  sections must  be  read  harmoniously  and it  could  not  have  been intended  that  s. 28 was to be used to negative what  s.  9 provided  so explicitly.  We think that on  this  harmonious construction we must hold that s. 28 does not put any bar in the  way  of  the  Corporation  in  the  fulfilment  of  its obligations  arising under s. 9. To this  interpretation  we readily  incline  because,  as pointed out  above,  to  hold otherwise would render s. 28 in its latter part ultra  vires the  Constitution  as it would amount to taking away  by,  a side  wind  property  of  other  persons.   On  the   whole, therefore,  we agree with the conclusions of the High  Court though  for very different reasons.  The appeal,  therefore, fails and is dismissed with costs. Appeal dismissed. L2Sup.  Court/64 GIPF. 413