National Insurance Co. Ltd. v. Life Insurance Corporation of India

·

/mur~1 C':• Lti.

v. HIDAY AT ULLAH J .-This appeal arises out Life lt»urui<t c.,.

J•rtiti•" •! ltciio of two orders of the Life Insurance Corporation

Tribunal, Nagpur. dated December 30, HJM), 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, lfl51i, (31 of 19.~6) was passed to provide for the nation· alisation of life insurance business in India by trans· ferring all such business to a Corporation to be established for the purpose and to orovide for regula-tion 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 th~ life insurance business of the National Insurance Co. I.tel., among other companies, and the two broad questions on which the present dispute has arisen arc : what part of the busi· ness of the appellant Company vests in the Corpora· tion and what are the assccs of that business ?

The Life Insurance Corporation Act providec1. that the Corporation would be established with effect from such date as the Central Government bv a notification in the Official Gazette might app~int. September 1, I !JiiG, was notified as that dare. The Act defined the expression "appointed day" as the date on which the Corporation was to be established and September I, I (};)(i, also became the "appointed date" for the purposes of the Act. Section 7 (I) of the Act then enjoined that on the appointed day there shall be transferred to and vested in the Corporation all che assets and liabilitirs appertaininr, to the "controlled business'' of all in· surers. Prior to the Act an Ordinance was passed bv the Preside!~! (Ordinance :-.lo. I of Hl5!i) and a Custo'- dian appointed thereunder had already taken over management of such business of the insurers 1963 as was to vest later in the Corporation as the "Con-National lnsur4nc1 trolled business". Under sub-s. (2) of S. 7 the as-Co., Ltd. sets of the controlled business included all rights and v. Life Insurance Co1· powers and all property, whether movable or im · poration of India movable, including in particular cash balances, re-lfidayatuYah /, serve 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 o! the imurer. Similarly, liabilities were deemed to include all debts, liabilities and obliga-tions of whatever kind then existing and apper-taining 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 insnrer, includes that part of the paid-up capital of the insurer or assets representing such part which has or have been allocat-ed ta. the controlled business of the insurer in accordance with the rules made in this behalf:

x x x x"

The express10n "Composite insurer" was defined to mean:

"An insurer carrying on in addition to con-trolled business any other kind of insurance business."

"Controlled business", in so far as relevant to our

purpose, was defined as follows :- '"' (") ,, "controlled business" means-

~ (i) in the case of any insurer speci-fied in sub-clause (a) (ii) or

1953 sub·clausc (b) or clause {9) of sec- }.'oJiD,,ol buuran .. ·-: tion 2 of the Insurance Act and

Co .• Ltd. carrying on life insurance busi-

v. ness-I.if, /11JtJra11ce CM· porafio1f ef lntiia (a) all his business, if he carries /Mo.Jalu/lah J. 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 apper-taining to his life insurance b11siness" in sub. clauses (i) and (ii) shall be construed accor· dingly;

x x x x" 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 busine>S which it called compendiously ~n its books, Capital Obligation Business. On the appointed day the "controlled business" of the Company vested by opera· tion of law in the Corporation together with all assets and liabilities appertaining to that business. The Company contends that on a proper interpretation 2 s.c.k. sbiikEME cot.JR.T REP6kts is~ of the above· provisions particularly the explana-1963 tion to the definition of "controlled business", the Capital Obligation Business of the Company, which .\'"a.tirm.a.l Jns1J.r.11t1.c.e Co., Ltd. included capital redemption business and annuity v. certain business, did not vest in the Corporation. Life lnsuranc.e C'?t,- flHalion of I'lf.ditJ. The Corporation on the other hand claims that this business also vested in the Corporation and hence Hid•yatuil.h J. 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 ''accordingly" in the said explanation must recei-ve 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 busi-ness 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 sub-clauses (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" contem-plates two kinds of insurers-(i) insurers who carry on life business only, and (ii) insurers who carry on

1963 composite business, that is to say certain other busi-National [,uu,•nrt ness which docs not ex facie come within controlled

Co., •• 1.td. business. Under sub-clause (a) of s. 2 (3) (i) cont-Lif1 /nsuranct·Cor· rolled business covers the entire life business of an p.ratkm of lnrlia insurer if he carries on no other class of insurance Jlidayatullah /, business and undn 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 aII 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 th~ explanation is designed to serve the purposes of (a) and (b) to sub-clause (i) of the definition. The explanation first seeks to ex-plain who can be said to carry on "no class of insu-rance 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 "accorrlingly". 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 apper-tains to life insura11ce 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. ' . ,. ' ,. "

2 S.C.R. SUPREME COURT REPORTS 189

This means that included in the life insurance 1963 b•1siness of a composite insurer are those businesses NtJtional lnsur1111c.e which go with the life business in the first part of Go., Ltd. the explanation, that is to say, capital redemption v. Lif~ Insurance Cor· business and annuity certain business or both. Both poration of lnJia the grammar and the sense of the matter lead to the Hii•yatulloh J, 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 circums· tances. 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 relat-ing to this Fund and the liability relating to these policies as they stood on December 31, 1955, was Rs. 12,88, 727. The 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 in· vestments included approved investments under s. 27 A of the Insurance Act and others. What the Company did was to transfer certain unapproved

1963 investments at their book value to its Capital Obli-N•tiimal buM{O'l't gation Business and made them over to the Cor-

Co., •• ltJ. poration. The Corporation declined to receive Lift btsut•rr.:e C,or-them. 1t asked the Company to give stocks and por,ziow. of India shares of the appropriat<" market value or allow the fnd•)atullah J, 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 transfrrred all the _gilt-cdEjed 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. I 2,Si,0(~) odd which represented the Capital Obligation Business. These investments were rated at half their book value by the Corporation.

The Tribunal reversed the entries i11 respect of the investments relating to sundry fonds. It is contrndcd 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 .•tatus quo existing on December :H, I!J55. It is also cuntende.d that the Corporation should not be allowed to pick and choose from the investments. The point about "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 Obli-gation Business. In view of this concession the points now ~ough~ to be pressed ca~not ar~se .. T~ere is no force 111 tlus appeal. It fails and 1s <l1sm1ssecl with coses.