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PETITIONER: NATIONAL INSURANCE CO.  LTD.

       Vs.

RESPONDENT: LIFE INSURANCE CORPORATION OF INDIA

DATE OF JUDGMENT: 04/03/1963

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. GAJENDRAGADKAR, P.B. SHAH, J.C.

CITATION:  1963 AIR 1911            1964 SCR  (2) 182

ACT: Life    Insurance--Construction    of     Statute--Composite insurer--"Controlled business"-Meaning and scope of--If  in- cludes  capital  redemption  business  and  annuity  certain business--Life Insurance Corporation Act, 1956 (31 of  1956) ss. 2, 7.

HEADNOTE: The  appellant  company was admittedly a  composite  insurer because  it  carried  on  general  insurance--  business  in addition to the business which fell within the definition of controlled  business.   The  company also  carried  on  both capital  redemption  business and annuity  certain  business which  it compendiously called capital obligation  business. By  the  operation  of  s.  7  (1)  of  the  Life  Insurance Corporation  Act,  1956,  all  the  assets  and  liabilities Appertaining  to the "controlled business" of  all  insurers were  transferred  to,  and vested  in  the  Life  Insurance Corporation from the ’appointed day’.  In pursuance of  this provision the Life Insurance Corporation took over the  life insurance  business  the appellant company.   Dispute  arose between  the parties as to what part of the business of  the appellant company vests in the Corporation and what are  the assets of the business.  The appellant company contended  183 that  on a proper interpretation of the relevant  provisions of  the Life Insurance Corporation Act,  1956,  particularly the  explanation to the definition of "controlled  business" the  capital  obligation  business  of  the  company   which included  capital  redemption business and  annuity  certain business, did not vest in the Corporation.  The  Corporation on the other hand claimed that this business also vested  in the  Corporation.   This dispute was referred  to  the  Life Insurance  Corporation  Tribunal, Nagpur, and  the  Tribunal decided  in  favour  of  the  Corporation  and  the  company appealed to this Court with special leave. It  was contended in the appeal that the force of  the  word "only"  in  the  Explanation to s. 2 (3) of  the  Act  which defines  "controlled  business"  is that  where  an  insurer carries on life business and capital redemption business but no  other kind of business and or annuity  certain  business

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but  no other kind of business then the controlled  business can  be  said to include in addition to  Life  business  the capital  redemption business or annuity certain business  or both,  but  where an insurer carries on  Life  business  and general business, life, fire and marine insurance etc.,  the capital redemption" business or the annuity certain business or  both cannot be included in the controlled business.   It was   further  contended’  that  the  expression   "business appertaining to his life insurance business" in sub-cls. (i) and (ii) of s. 2 (3) should also be given the same meaning. Held,  that  on  an  interpretation of  s.  2  (3)  and  the Explanation thereto the capital redemption business and  the annuity certain business must be included in the  expression "controlled  business"  even  in the  case  of  a  composite insurer like the appellant company.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 134 of 1961. Appeal  by special leave from the judgment and  order  dated December  30,  1959 and May 17, 1960 of the  Life  Insurance Tribunal, Nagpur in Case No. 33/Xll of 1959. G.   S.  Pathak,  Datta  and  B.  P.  Maheshwari,  for   the appellant. H.   N. Sanyal, Additional Solicitor-General of India, M. C. Setalvad, and K. L. Hathi, for the respondent. 184 1963.  March 4. The judgment of the Court was delivered by HIDAYATULLAH J.-This appeal arises out of two orders of  the Life Insurance Corporation Tribunal, Nagpur, dated  December 30, 1959, and May 17, 1960.  The National Insurance Co. Ltd. is the appellant and the Life Insurance Corporation of India the respondent. The  Life Insurance Corporation Act, 1956, (31 of 1956)  was passed to provide for the nationalisation of life  insurance business  in  India by transferring all such business  to  a Corporation to be established for the purpose and to provide for   regulation  and  control  of  the  business  of   that Corporation   and   for  matters  connected   therewith   or incidental thereto.  The Life Insurance Corporation is  that Corporation.   It took over the life insurance  business  of the National Insurance Co. Ltd., among other companies,  and the  two  broad questions on which the present  dispute  has arisen  are  : what part of the business  of  the  appellant Company vests in the Corporation and what are the assets  of that business ? The  Life  Insurance  Corporation  Act  provided  that   the Corporation would be established with effect from such  date as the Central Government by a notification in the  official Gazette  might appoint.  September 1, 1956, was notified  as that  date.  The Act defined the expression "appointed  day" as  the date on which the Corporation was to be  established and September 1, 1956, also became the "appointed date"  for the  purposes  of the Act.  Section 7 (1) of  the  Act  then enjoined   that  on  the  appointed  day  there   shall   be transferred to and vested in the Corporation all the  assets and  liabilities appertaining to the "’controlled  business" of  all insurers.  Prior to the Act an Ordinance was  passed by  the President (Ordinance No. 1 of 1956) and a  Custodian appointed thereunder had already taken over  185 management  of such business of the insurers as was to  vest later  in  the  Corporation as  the  "Controlled  business". Under  sub-s.  (2)  of S. 7 the  assets  of  the  controlled

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business  included all rights and powers and  all  property, whether  movable or immovable, including in particular  cash balances,  reserve  funds,  investments,  deposits  and  all interests  and rights in and arising out of such  properties as may be in the possession of the insurer and all books  of accounts  and documents relating to the controlled  business of  the  insurer.   Similarly, liabilities  were  deemed  to include  all debts, liabilities and obligations of  whatever kind  then  existing  and  appertaining  to  the  controlled business of the insurer.  An Explanation to S. 7 reads : "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     : x      x      x      X" The expression "Composite insurer" was defined to mean : "An  insurer carrying on in addition to controlled  business any other kind of insurance business." "Controlled business", in so far as relevant to our purpose, was defined as follows :- 2 (3)  "controlled business" means- (i)  in the case of any insurer specified in sub-clause  (a) (ii) or 186 sub-clause  (b) or clause (9) of section 2 of the  Insurance Act and carrying on life insurance business- (a)  all  his business, if he carries on no other  class  of insurance business; (b)  all  the  business appertaining to his  life  insurance business,  if  he carries on any other  class  of  insurance business also; x     x     x     x     x Explanation.-An  insurer  is said to carry on  no  class  of insurance  business other than life insurance business,  if, in  addition to life insurance business, he carries on  only capital  redemption business or annuity certain business  or both; and the expression "business appertaining to his  life insurance  business"  in subclauses (i) and  (ii)  shall  be construed accordingly; x            x         x           xi) The  appellant  Company was admittedly a  composite  insurer because it carried on general insurance business in addition to  the  businesses  which fell  within  the  definition  of "controlled business".  Admittedly also the Company  carried on  both  capital redemption business  and  annuity  certain business which it called compendiously in its books, Capital Obligation Business.  On the appointed day the ,,’controlled business"  of the Company vested by operation of law in  the Corporation   together  with  all  assets  and   liabilities appertaining to that business.  The Company contends that on a proper interpretation 187 of the above provisions particularly the explanation to  the definition of "’controlled business", the Capital Obligation Business  of the Company, which included capital  redemption business  and annuity certain business, did not vest in  the Corporation.  The Corporation on the other hand claims  that this  business also vested in the Corporation and hence  the dispute  which was referred to the Tribunal.   The  Tribunal decided  in  favour of the Corporation and the  Company  has filed this appeal with the special leave of this Court. Mr.   G.  S.  Pathak  argues  that  the  words  "only"   and

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"accordingly"  in  the said explanation must  receive  their proper meaning.  According to him the word (,only" indicates that the capital redemption business and the annuity certain business or both vest as part of the controlled business  if and  only if no other kind of insurance business is  carried on  by the  insurer.  According to Mr. Pathak the  force  of the  word "only" is that where an insurer carries on    life business and capital redemption business     and or ’annuity certain  business  but no’ other kind of business  then  the controlled  business can be said to include in  addition  to life  business  the capital redemption business  or  annuity certain  business or both; but where an insurer  carries  on life  business  and -general business like  fire  or  marine insurance  etc.  the  capital  redemption  business  or  the annuity  certain  business, or both, (as the  case  may  be) cannot  be included in the controlled business.  He  further contends  that the expression "business appertaining to  his life  insurance business" in subclauses (i) and (ii) of  the definition of "controlled business" must also be given  this meaning.  In our opinion this argument cannot be accepted. The  definition  of "controlled business"  contemplates  two kinds  of insurers-(i) insurers who carry on  life  business only, and (ii) insurers who carry on 188 composite  business, that is to say certain  other  business which  does  not ex facie come within  controlled  business. Under  sub-clause  (a) of s. 2 (3) (i)  controlled  business covers the entire life business of an insurer if he  carries on no other class of insurance business and under sub-clause (b)  all  the business appertaining to  his  life  insurance business  is  included if he is a  composite  insurer.   The controlled  business in either case is intended  to  embrace all  the business concerning life insurance.  In  the  first case  it means the whole of the business of the insurer  and in  the  second case the part which comes  within  the  life business but no other.  The explanation, that is annexed  to the  definition, then shows what comes within life  business and the explanation is designed to serve the purposes of (a) and   (b)  to  sub-clause  (i)  of  the   definition.    The explanation first seeks to explain who can be said to  carry on "no class of insurance business other than life insurance business"  and  says that such would be an  insurer  who  in addition to life business carries on only capital redemption business  or  annuity certain business or both.   ’The  word "’only"  shows that with the life business go the two  named businesses  but  no other.  An insurer who carries  on  life business  and in addition only the one or the other  of  the two named businesses or both is to be regarded still as  one carrying on no business other than life insurance  business. The  explanation  next says that  the  expression  "business appertaining  to his life insurance business" which  occurs- in   (b)  should  be  construed  "accordingly".   The   word "’accordingly" clearly means "in a similar manner". We  are  concerned here with a composite  insurer  and  sub- clause  (b)  says that the "controlled business" in  such  a case  would  include all business which appertains  to  life insurance business but no other business and the explanation says  that  the expression "business  appertaining  to  life insurance business" should be construed as in the first part of the explanation 189 This means that included in the life insurance business of a composite  insurer  are those businesses which go  with  the life business in the first part of the explanation, that  is to  say,  capital redemption business  and  annuity  certain

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business  or  both.  Both the grammar and the sense  of  the matter lead to the same result.  Indeed the argument of  the learned counsel to be valid must shift the word "only"  from the  place it occupies to the end of the first part  of  the explanation  so  as to control the entire sentence  and  not only  a part of it.  This cannot be done.  In  our  opinion, the  capital  redemption business and  the  annuity  certain business  must  be included in  the  expression  "controlled business  even in the case of a composite insurer  like  the appellant Company.  The first part of the contention of  the Company therefore fails. The  dispute  with  regard  to the  assets  of  the  Capital Obligation  Business (which term includes both  the  capital redemption business and the annuity certain business) arises in  the following circumstances.  The Company  maintained  a fund called the "Capital Obligation Fund" which amounted  to Rs. 12,80,882-8-9 on August 31, 1956.  On the  establishment of the Corporation the Company made over to the  Corporation all  the  policies relating to this Fund and  the  liability relating  to  these policies as they stood on  December  31, 1955, was Rs. 12,88,727.  Tim Company was, therefore,  asked to hand over either cash or investments of an equal value. On  the  eve  of the transfer of assets,  the  Company  made changes in its investments relative to the life business and general  business.   These  investments  included   approved investments  under s. 27 A of the Insurance Act and  others. What the Company did was to transfer certain unapproved 190 investments  at their book value to its  Capital  Obligation Business  and  made  them  over  to  the  Corporation.   The Corporation declined to receive them.  It asked the  Company to give stocks and shares of the appropriate market value or allow  the Corporation to select stocks and shares from  the investments.  The Company contended that the Corporation was not   entitled  to  "pick  and  choose"  from  the   various investments.   The Company had already transferred  all  the gilt-edged  investments  from  the  life  and  the   Capital Obligation Fund to the general business leaving  investments (which  were not approved) of the book value  sufficient  to cover  Rs.  12,87,000  odd  which  represented  the  Capital Obligation  Business.  These investments were rated at  half their book value by the Corporation. The  Tribunal  reversed  the  entries  in  respect  of   the investments relating to sundry funds.  It is contended  that the  Tribunal reversed only a few of the book entries  which had been made on the eve of vesting but not all and did  not restore the status quo existing on December 31, 1955.  It is also contended that the Corporation should not be allowed to pick and choose from the investments.  The point about  fr., picking  and choosing" and that about reversing the  entries lose all force in view of the fact that before the  Tribunal the  Company  conceded  that the Corporation  may  pick  any investments of the value of Rs. 12,80,890 which  represented the Capital Obligation Business.  In view of this concession the points now sought to be pressed cannot arise.  There  is no  force  in this appeal.  It fails and is  dismissed  with costs. Appeal dismissed.  191