# ~A TI ON AL INSURANCE CO. LTD., CALCUTT A v. LIFE INSURANCE CORPORATION OF INDIA

- **Citation:** [1963] Supp. 2 S.C.R. 971
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** S. K. Das, J. L. Kapur, A. K. Sarkar, M. Hidayatullah, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-ti-on-al-insurance-co-ltd-calcutt-a-v-life-insurance-corporation-of-india-2872
- **Pages:** 25

## Headnote

Life Insurance-Nationalisation-Business
vesting
in
"Life Insurance Corporation-Determination of compensationPrinciple-Life Insurance Corporation Act, 1956 (31of1956),
.•. 16, Sek. l-Life Insurance Corporation Rules, WM, r. 18.
The appellant company carried on life insurance business
in addition to other insurance business. On the passing of tbe
Life Insurance Corporation Act, 1956, which was intnded to
n~tionalise all life Insurance business, its 'controlled business'
stood vested in the Life . Insurance Corporation of India on and
. from September I, 1956, the appointed day.
The dispute
-\Jetween the parties related to the compensation payable to the
appellant by the Corporation on such vesting. Admittedly two
actuarial investigations were made in the case. One valuation
period covered years 1946-1950 and the other from 1951 to
1953. The Corporation determined Rs. 19,39,669 as compen-
~ation for the controlled business in accordance with s. 16 read
with the First Schedule of the Act and after obtaining the
approval of the Central Government wrote to the Company on
February 14, 1957, claiming Rs. 6,00,000 under r. 18 of the
Life Insurance Corporation Rules 1956, as assets appertaining
t,o the controlled business, and offered to pay the balance of
Rs. 13,39,669 in full satisfaction of the claim. The Company
-
claimed Rs. 27,99,275 a< compensation and asked for the payment of the admitted amount without prejudice to the claim
of either side. The Corporation refused to pay except in full
satisfaction of the claim. · On the Company's request the dispute \Vas referred to the Life Insurance Tribunal Nagpur,
·(
II.Zd, that under s: 16(2) of the Act the Corporation
-could only make the offer ancl pay the money in full satisfaction of the claim for compensation and its action in rejecting
the demand of the appellant for the admitted amount, even
though without prejudice to the claims of the parties, was
wholly justified. Such compensation was to be determined on
the principles laid down in para.
I of Part A of the First
1962
Dtctm6tr, J J.
1962
National lnsuranc3
Co. Ltd., C•lc11tla
v.
Life buurance
Corpn. of India
972 SUPREME COURT REPORTS [1963] SUPP.
Schedule to the Act and as worked out in Formula D specified
in the judgment.
.,-
The word "aliocated" in Part A and para. I of the said
Schedule must be read in relation to the years that follow the
actuary's report and not in relation to the period for which the
actuary made investigation.
Paragraph I c,f the Schedule, properly construed, pres-
-
crihcs a definite system of calculation of the compensation
which is meant to give the share holders an equivalent of their
annual profits capitalised at 20 years purchase. The intention
is to get a true average spread over a number of years. Ex-_
planation I (a) shows that the intention is to base the calcula- •
tion upon a wide view of the Company's business.
The share referred to in para. 1 comes out of the profits
which accrue to the company during the period of investigation
and the allocation must also be taken to be for the period
during which the profits arise. To connect the profits with a
future period is to make the scheme unworkable since the
insurance business is based upon the actuarial assessments of
the position of the company.
The tribunal was, therefore, right in holding that the
two surpluses in the case were rcla.ted to the five years and
three years respectively covered by the actuarial investigations
and they must be deemed to have been allooated for the same
period.
1"he v.-ords "annual" and "average,, must he given their
full meaning. The word "annual0
shows that the average
must be- one reckoned by the year and "average" is reached by.
dividing the aggregate of several quantities by the number of,
quantities.
In finding "the·,_annual averag~" the amounts of
the surpluses as di•cl~sed in,the investigations,piust be,aggregated and the result divided by the total number o(years.
Othe1\vlse there \vou14 be an-- average o

## Text

_Characters 0–39,756 of 48,901. This is a partial read: ask again with offset=39756 for what follows._

2 S.C.R.
SUPREME COURT REPORTS
971
~A
TI ON AL INSURANCE CO. LTD., CALCUTT A
v.
LIFE INSURANCE CORPORATION OF INDIA
~
(S. K. DAS, J. L. KAPUR, A. K. SARKAR,
M. HIDAYATULLAH and RAGHUBAR DAYAL, JJ.)
Life Insurance-Nationalisation-Business
vesting
in
"Life Insurance Corporation-Determination of compensationPrinciple-Life Insurance Corporation Act, 1956 (31of1956),
.•. 16, Sek. l-Life Insurance Corporation Rules, WM, r. 18.
The appellant company carried on life insurance business
in addition to other insurance business. On the passing of tbe
Life Insurance Corporation Act, 1956, which was intnded to
n~tionalise all life Insurance business, its 'controlled business'
stood vested in the Life . Insurance Corporation of India on and
. from September I, 1956, the appointed day.
The dispute
-\Jetween the parties related to the compensation payable to the
appellant by the Corporation on such vesting. Admittedly two
actuarial investigations were made in the case. One valuation
period covered years 1946-1950 and the other from 1951 to
1953. The Corporation determined Rs. 19,39,669 as compen-
~ation for the controlled business in accordance with s. 16 read
with the First Schedule of the Act and after obtaining the
approval of the Central Government wrote to the Company on
February 14, 1957, claiming Rs. 6,00,000 under r. 18 of the
Life Insurance Corporation Rules 1956, as assets appertaining
t,o the controlled business, and offered to pay the balance of
Rs. 13,39,669 in full satisfaction of the claim. The Company
-
claimed Rs. 27,99,275 a< compensation and asked for the payment of the admitted amount without prejudice to the claim
of either side. The Corporation refused to pay except in full
satisfaction of the claim. · On the Company's request the dispute \Vas referred to the Life Insurance Tribunal Nagpur,
·(
II.Zd, that under s: 16(2) of the Act the Corporation
-could only make the offer ancl pay the money in full satisfaction of the claim for compensation and its action in rejecting
the demand of the appellant for the admitted amount, even
though without prejudice to the claims of the parties, was
wholly justified. Such compensation was to be determined on
the principles laid down in para.
I of Part A of the First
1962
Dtctm6tr, J J.
1962
National lnsuranc3
Co. Ltd., C•lc11tla
v.
Life buurance
Corpn. of India
972 SUPREME COURT REPORTS [1963] SUPP.
Schedule to the Act and as worked out in Formula D specified
in the judgment.
.,-
The word "aliocated" in Part A and para. I of the said
Schedule must be read in relation to the years that follow the
actuary's report and not in relation to the period for which the
actuary made investigation.
Paragraph I c,f the Schedule, properly construed, pres-
-
crihcs a definite system of calculation of the compensation
which is meant to give the share holders an equivalent of their
annual profits capitalised at 20 years purchase. The intention
is to get a true average spread over a number of years. Ex-_
planation I (a) shows that the intention is to base the calcula- •
tion upon a wide view of the Company's business.
The share referred to in para. 1 comes out of the profits
which accrue to the company during the period of investigation
and the allocation must also be taken to be for the period
during which the profits arise. To connect the profits with a
future period is to make the scheme unworkable since the
insurance business is based upon the actuarial assessments of
the position of the company.
The tribunal was, therefore, right in holding that the
two surpluses in the case were rcla.ted to the five years and
three years respectively covered by the actuarial investigations
and they must be deemed to have been allooated for the same
period.
1"he v.-ords "annual" and "average,, must he given their
full meaning. The word "annual0
shows that the average
must be- one reckoned by the year and "average" is reached by.
dividing the aggregate of several quantities by the number of,
quantities.
In finding "the·,_annual averag~" the amounts of
the surpluses as di•cl~sed in,the investigations,piust be,aggregated and the result divided by the total number o(years.
Othe1\vlse there \vou14 be an-- average or two averages w~ich
would not be ·an Hannual average".
,
The order of the Tribunal awarding Rs. 24,91,139 a~
compertsation as ,also its direction allowing the respondent to,c_
set off' of Rs. 6,00,000 therefore was correct and 'Ilust be,
upheld.
The appellant was eniitled to intere3t on the balance at
4%,per annum,
,
2 S.C.R.
SUPREME COURT REPORTS
973
~
Birc/1 v. Joy, (1852) III H.L.C. 565-10 E.R. 222,
·Swift & Ca. v. Board of Tta4e, [1925] A.C. 520, Pludyet v.
--
Cocker, (1805) 33 ER. 10, International Railway Uumpuny v.
Niagara Park• Commission, [1941] A.C. 328, Sati1uler Singh v.
Ainrao Singh, (1961] 3 S.C;R. ti76 and lnglewoacl Pulp rrnd
PttjJBT Ootnpany Ltd. v. Brunswiek Electric l'oloer C
1011irnission,
[1928] A.C. 492, discussed.
CcvrL APPELLATE JomsnwnoN : Civil Appeals
Nos. 551 and 552 of 1960.
.
Appeals by special leave from the judgment
~and order dated December 12, 1957, of the Life
Insurance Tribunal, Nagpur in Case No. \J/XVI-A
of 1957.
M. G. Setulvad, Attorney-General jor Indw,
A. V. Viswanatha Sastri, S. N. Andley, Ramesh.war
Nath and P. L. Vohra, for the appellant (in C. A.
No. 551/60) and the respondent (in C. A. No. 552/60).
S. T. Desai, 8. J. Banaji and K. L. Hathi,
for the appellant (in C. A. No. 552/6U) and the respondent (in C. A. No. 551/60).
1962. December, 11.
The Judgment· of the
Court was delivered by
1962
Natio11.1l .rnsuranu
Co, Ltd., Calcutta
v.
l.ife lnsaronce
C'orpn. of India
HIDAYATULLAH, ].-This is an appeal against
Hidayatul/ah, J •
. the order of the Life Insurance Tribunal, Nagpur,
dated December 12, 1952, by which a dispute about
compensation payable to the N atioual Insurance
Company by the Life Insurance Corporation on the
taking over of the life business of the former was
decided.
The National Insurance Company i~ the
appellant and the Life Insurance Corporation is the
_ !respondent. Another appeal was filed by the Life
Insurance Corporation against the same order but
was not pressed at the hearing.
The National Insurance Company carried on
life insurance business in ad di ti on to other insurance
1962
}/Cional Insur1nre
Co. Ltd., <.'ah1ilt,1
'.
Lijt /11sur1.1.nce
Corpn. ef India
Hiday•tullah, J.
974 SUPREME COURT REPORTS [1963] SUPP.
business and was what the Life Insurance Corpora·
tion Act, 1956 (31of1956), describes as a "compositr
i;;surcr." The Life Insurance Corporation Act was
passed in 1956 to nationalise the life insurance business of all insurers by transferring all such business
to a Corporation established for the purpose.
This
Corporation is the well-known Life Insurance Corporation. Under the Act a distinction was made between -
'controlled business' and
other insurance business
carried on by Insurance Companies. 'Controlled
business' meant life insurance business and on and
from a date to be fixed by notification in the Official'
Gazette called the 'appointed day' all the assets and
liabilities of appertaining to t l1e controlled business of
all insurers were transferred to and vested in the
Corporation.
This date was
September l, 1956.
The National Insurance Company was a composite
insurer and its life business therefore stood transferred
to and vested in the Life Insurance Corporation from
the appointed day.
Under s. 16 of the Life
lnsu-~
ranee Corporation Act, the National Insurance Com·
pany was entitled to receive compensation from the
Life Insurance Corporation in accordance with the
principles contained in the Fi1st Schedule to that
Act.
To these principles we shall make a detailed
reference presently.
As the National
Insurance
Company was carrying on a composite business it
was necessary to separate the 'assets appertaining to
the controlled' business' from those appertaining tu
its other business under s. 10 read withs. 7 of the
Corporation Act.
These assets were defined in and
Explanation added to s. 7 ( 2) as follows :-
"The expression "assets appertaining to the
controlled business of an insurer"-
t
·~~
(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
2 s.c.R.
SUPREME COURT REPORTS
975
business of the insurer in accordance with the
rules made in this behalf;
(b) in relation to a Government, means
the amount lyiag to the credit of that business
on the appointed day."
Sections 7 and 10 (2) conferred on the Central
Government special rule-making powers and inter
alia for the allocation of the paid-up capital or assets
representing such paid-up capital, as the case may
be, between the controlled business of the insurer and
any other business.
In pursuance of these provisions
ands. 48 of the Act the Life Insurance Corporation
Rules, 1956, were framed by the Central Government
and Rule 18 provided for allocation of the paid-up
capital of a composite insurer. We need not quote
Rule 18 providing for the method of allocation of
capital of a composite insurer because it was provided there that the paid-up capital allocable to the
controlled business shall not, m any case, exceed a
sum of Rs. 6,00,000 and the maximum amount
applied to the National Insurance Company and was
payable by it to the Life Insurance Corporation.
The Life Insurance Corporation determined
Rs. 19,:39,669 as compensation for the controlled
business vested in the Corporation in accordance with
s. 16 read with the First Schedule of the Life Insu·
ranee Corporation Act, 1956.
After obtaining the
approval of the Central Government, by a letter
dated February 14, 1957, sent to the Company, the
Corporation pointed out that the National Insurance
Company was required to pay Rs. 6,00,000 under
Ruic
18 of the
Life
Insurance Corporation
Rules,
1956,
as assets
appertaining to
the
controlled business
and
offered the balance of
Rs. 13,39,li69 in full satisfaction of the claim.
The National Insurance Company asked for the
calculation sheets and they were supplied by the
1962
Nalion•l rnsuWJCI
Co. Lti., Calcutta
••
Lif• l111UTam:1
Carpn.oflw
Hidqyatul/alr, /,
. i962
N1•litJnal !11sura11(e
Co. Ltd., Calc11u i
"'v:
Life .Jusutonce
C:orpn. of InJfrt
llidqyotullalii J.
·976 SUPREME COURT REPORTS [1963] SUPP.
Life Insurance Corporation. The National Insurance Company did not accept the compensation
offered to it and requested that the dispute be referred to the Life Insurance Tribunal for decision but
asked that the admitted amount might be paid to it
without prPjudicc to the claim of 'either side. On
May 1, HJ57, the Life Insurance Corporation replied
regretting' its inability to pay the admitted amount
except in . full satisfaction of the claim as required
by law. A request for reconsideration of the matter
made by the National Insurance Company' by a
letter dated May 9, 1957, in which a sum
of
Rs. 27,!J!l,275 was claimed as comperisatiori was turned duwn by the Life Insurance Corporation and the
dispute therefore stood referred to' the Tribunal.
In making the reference to the' Life
Insurance Tribunal
the Life Insurance
Cdrporation forwarded the entire con'espondence and · the
calculation' shceti!
together with other docu~ents
on which the calculation sheets were based. · Before
the Tribunal, the Company claimed a ' sum of
Rs. 43,29.i'iO as compensation due to it. ·The· Company also gave its calculation sheets. In addition the
Company claimed interest at six per cent; per annum
from the appointed day (September 1, 1956) or at
least from the date the compensation wrongly determined was.offered to the Comp.any, namely, Febfoary
14, HJ57.
Earlier, in the letters to which reference has alrdady been made the National Insurance 'Co'
mpany had demurred to the deduction of Rs. 6,00,000
from the , :~mount of . coillpe!ls'atio.n, offered · to it;
Its ,case be(orc. the Tribunal was that under the law;
as it stood,' the Corporation ·was bOund 'to offer the
entire conipei1sation withoutnfaking a deduction on
this accouri t .an.d the claim ~f the Corporation for the
assets appchaining to the cohtrcilled b'usiness of the
Company s'.hould ~c separati:l~. enforced ..
'fhe ~iffcrence between' the Company arid the
Corporaticii) in th~ matter cif ca!Culation arose· because the 'parties put different interpretations upon
'
'
-
. ;
'.
:_ > ' -j
'·.
'.
.::-
1'
;
'
.
-
'
'
'~ _.- '' - --,
the·' provisions·. of the First Schedule to the Life Insut(\nce .Cofp6r'atiori' Act.· That' Schedule' is 'made
under. s. f6. of the' Life Insurance Corporation Act;
which reads :~
.
. .
.
"16, ,(l)}y'here the colltrolled busin~ss .of a~
insurer has b~en transferred to ·and vested in
. tlie Cbr'pofatiori under this Act, co~p;¢nsaW:)D
shall be given. by the Corporation fo that irisu-
:·rer fa accordarice''withthe principles contained
in'the First'Schcdiile.
(2) Tile 'amount .Of the · compensation to
be· giveri' iii'accordarice with the 'aforesaid princi pies· shil.111' 'be determined .by the•Corporation
in the· fir's! ill stance, arid if the arriount so
determiried•is 'approved by the Central Governmerit if'IShall be' offered to the insurer in full
satisfactihn qf the comperisaticin payable tb him
under this' Act, and if;on:the other hand, the
amount so offered is riot acceptable 'to the insurer he m:aywithin such time as may be prescri-
· · · hed for the purpose.have the·matter referred to
the TribunaLfor decision."
-{( ' -
,, .We have already •stated that the Corporation
had:·offered co'mpens;ition as approved. by the Central
Gov'erriment afteri:deducting. ·Rs. 6,0Q,000,
under
Rule 18 :arid this"dffer was·made in foll satisfaction
of 'the compen§ation.·· payable to the Company as
required ·by sub·.s.• {2).
The Company refused to
accept .the .. offer· ·hut asked to be paid the•admitted
amounL ·This the ,Corporation . declined. We are
ofrthe • opinionAhatr the demand -0f the Company for
the admitt.ed· :.amomit. even though .without prejudice
to the contentions of the parties, was rightly. rejected
by the Corporation, as, 1mder sub·s. (2) of s. 16, the
Corp!'ration co11lc1 ,~mly ma.ke.the offer.and pay the
mohey'in f1ill"sati~faction cif the claim for compensation. Sub-s. (I) of s. 16 refers to 'the 'principles
Notirmil Innironu
1
Co. Ltd., -,Calcutta
, .,--_, v~
lif1 ltisuremri
Corpn. of India
--'~
1162
Nlltional lnsuranc1
Co. Ltd., Calcutta
••
Life lnsnranu
Ca,pn, of India
Hiiqyatrdl.A, J.
978 SUPREME COURT REPORTS [1963] SUPP.
contained in the First Schedule. That Schedule is
divided into three parts which are marked A, B and
C. ' It was admitted before us that part A alone
applied and that part contains principles in two paragraphs called 'Paragraph l' and 'Paragraph 2' aud
that Paragraph is to be applied to a particular case
which is more advantageous to the insurer. Here
Paragraph , 1 is applicable. The relevant portions
may now be read :-
"The compensation to be given by the
Corporation to an insurer having a share capital
on which dividend or bonus is payable, who
has allocated as bonus to policy-holders the
whole or any part of the surplus as disclosed in
the abstracts prepared in accordance with Part
II of the Fourth Schedule to the Insurance Act
in respect of the last actuarial investigation
relating to his controlled business as at a date
earlier than the 1st day of January, · 1955,
shall be computed in accordance with the provisions contained in paragraph 1 or paragraph
2 whichever is more advantageous to the insurer.
Paragraph 1.-Twenty times the annual
average of the share of the surplus allocated to
share-holders as disclosed in the abstracts aforesaid in respect of the relevant actuarial investigations multiplied by a figure which represents
the proportion that the average business in force
during the calender years 1950 to 1955 bears to
the average business in force during the calender years comprised in the period between the
date as at which the actuarial investigation immediately preceding the earliest of the relevant
actuarial investigations was made and the date
at which the last of such investigation was
made.
(Paragraph 2.
Omitted)
Explanation l.~For the purposes of paragraph 1,
•
t, -.
I
•.
•
2 s.c.R.
SUPREME COURT REPOR1S
979
(a) "relevant ·actuarial
investigations"
means such minimum number of latest actuarial
investigations as at dates earlier than the Ist
day of January, 1955 (not being less than two
in any case), as would leave the period intervening between the date as at which the actuarial
investigation immediately preceding the first
of such investigations was made and the date
as at which the last of such investigations was
made, to be not less than four years;
(b) "Average business in force" means the
average of total sum assured by the_ insurer
(including any bonus) in respect of his contro--
lled business as on the 31st day of December of
each of the relevant calender years.
Explanation 2.--For the purpose of para·
graph 1, . where -an insurer has_ allocated to
share-holders more than 5 per cent. of any
surplus as is referred to therein, the insurer
shall be deemed to have allocated only 5 per
cent. of the surplus and where an insurer has not
allocated any such surplus to share-holders or
has allocated to share-holders less than 31 per
cent. of any such surplus, the insurer shall be
deemed to have allocated 31 per cent. of the
surplus.
To understand these provisions we have firnt to
see certain provisions of the Insurance Act, 1938
(4 of 1938). That Act was passed to consolidate and
amend the law relating to the business of insurance.
Under s. 13 of the Insurance Act every insurer including a company carrying on life business was
required, in _respect of the life insurance business
transacted, once at least in every five years to cause
an ·investigation to be made by an actuary intc:i -the
financial condition· of the life insurance business
/96:/
National lnsuran&I
Co. Ltd., Calrutu
v.
Lij6 Insuranc1
Corpn. qf Indi• _
Hia'!Yatulld, J.
. including a valuation of the liabilities in respect -
•
!962
Naliorial Jnsuranu
·Co. Ltl., ·Calcutta
,; _.;;
v.
Life Insurance
Corpn. of India
~
·''
Hiidy.tullah, J,
980 sUPREME COURT REPORTS [1963] SUPP.
thereto and was further required to cause an abstract
of the report of such actuary to be made in accordance with Parts I and II of the Fourth Schedule to
the Insurance Act. The period of five years in s. 13
was altered to three years by the Insurance (Amendment) Act. I 950 ( 4 7 of 1950) with effect from
June I, 1950. Fourth Schedule was divided into two
parts.
First part contained Regulations and the
second part laid down the requirements applicable to
the abstract in respect of life insurance business
which had to be prepared at these investigations.
Regulation
(1) laid down that all abstracts and
statements must be so arranged that the numbers
and letters of thef aragraphs correspond with those of
the paragraphs o Part II of that Schedule. Jn other
words, the abstracts and statements prepared by the
actuary were required to follow the same scheme
and to supply the particulars in the same order as
stated in Part II. Part II prescribed a number of
tabular statements which were required to be annexed
to every abstract prepared in accordance with Part II.
Among them were (i)
a Consolidated Revenue
Account in form G for the inter-valuation period,
and, (ii) a Valuation Balance-Sheet in the Form I.
'Inter-valuation period' was defined to mean :-
"as respects any valuation, the period to the
valuation date of that valuation from the valuation date of the last preceding valuation
in
connection
with
which
an
abstract
was prepared under this Act or under the enactments repealed by this Act, or, in a case where
no such valuation has been made in respect of
the class of business in question from the date
on which the insurers began to carry on that
class of business;"
In plain language it meant a period between two
valuation dates. The minimum period was fixed at
first as five years and after June 1, 1950, as three
years.
In our case, the first valuation covered a
-
2 S.C.R.
SUPREME GOUR T REPORTS
981
period of five years and the second a 'period of three
years and the only 'intervaluation period'· was 'the
period of three years which was between the two
valuation dates.
·
The abstract was required to show the valua'
tion date and the general principles and full details
of the methods adopted in valuation of each of the
various classes of Insurance and annuities. In addition the abstract was, required to show the other
matters which the . actuary had taken into account
in preparing the actuarial estimates. Then followed
paragraph No .. 8.in which was required to be shown
the total amo1111t 0£ profits . arising during the intervaluation peri()d . including profits paid away and
sums transferred to the. reserve fund or other accounts
during the)a~t' period and the amount brought forward frqm the, preceding valuation and the allocation
of such p~ofits ,,under different headings.
Among
these were the amounts allocated as bonus to the·
policy holders~ and as . dividend among the shareholders including amounts which had· already pasied
through . th,e
,.~.c;co.unts during the. inter-valuation
period which.were to be shown separately.
. Section 49 (1) then provided inter alia that no
insurer includipg. a company, who carried on business
of life insuran.ce 'shall, for the purpose of declaring or
payil)g any.di'V,idend.to share:holders or any bonus to
policy-holders, u,tilize directly or indirectly any por·
tjon of the life insurance fund or of ,the fund of such
other class or.r sub-class of insurance business as the
case may be, exC:ept a surplus shown in the valuation
balance-sheet in Form I as set forth in the Fourth
Schedule s.ui;>~it~ed .to the , Controller as part of t~e
abstract referred to. m s. 15. as a resul.t .of an actuarial
valhatioii of'tlie assets ·and. liabilities of the insurer.
Sub:section, (2) ,d · s. 49 . then laid down that for the.
purpose of s.ub·s. (1), the actual amo.unt of income·
tax deducted' ai source during the period following
1962
.NatiOniJt 1nmrah¢1
Co. Ltd., . C11lcut1«
v;"
_, "\
1Lif1 lnsuionti
Corpn. of· lniia
. -··-· __ ,
Hidayatullah, J.
1961
N•tionol Insurance
Co. Ltd., Calcutta
y,
Life /ruuranct
C.,pn. of Indio
Jlidayotulloh, J.
982 SUPREME COURT REPORTS (1963] SUPP.
the date as at which the last preceding valuation was
made and prcctding the date as at which the valuation in question was made might be added to such
surplus after deducting an estimated amount for
income·tax on such surplus, such addition and deduction being sho;-.n in paragraph 8 (1) of the abstract
prepared
in
accordance
with
Part II of the
4th Schedule to the Act.
One or the disputes between the parties arose
over the surplus to be taken mto account in calculating the compensation. This dispute was whether it
should be the net surplus as shown in Form I annexed
to the abstract or should include the income-tax and
interim bonus as shown in the abstracts. The Company claimed that it should include interim bonus
already paid and income-tax deducted at source less
the prov'sion for income-tax on the surplus as stated
in the abstracts while the Corporation claimed that
these additions should not be made. The figures for
the two actuarial investigations were therefore these:
Rs. 41,44,68!i
(1945-50)
and
Rs.
70,21,280
( 1951-53) according to the Corporation based on
Form I Part II 4th Schedule and Rs. 56,36,815
(1946-50} and Rs. 87,03,650 (1!:151-53) according to
the Company based on tbe abstracts with the aforesaid additions. The Tribunal accepted the larger
figures for the two periods and the appeal of the
Corporation was filed to question this part of the
decision.
This controversy need not be decided
because the Corporation did not press its appeal
before us and the basic figures are thus Rs. 56,36,815
(1946-50) and Rs. 87,03,650 (1951-53).
Before we enter into a discussion of the terms of
>-
the First Schedule of the Life Insurance Corporation
••~
Act, 1956, laying down the principles for determination of compensation we shall summarise in the form
of a formula what is admittedly the purport of these
-,
-
2 s.c.R.
SUPREME ,COURT REPORTS
983
principles applicable to this case.
This formula is:-
Anoual average of
the surplus deemed
Average busiCo~pento be allocated to
ness in force
satlon
the share holders
during 1950-55
payable. =20x as disclosed in the x
abstracts.
Average busi·
ness in force
during 1946-53
Two matters arising from these provisions may
be disposed of as there is no dispute about them.
Firstly. there is no dispute about the multiple 20.
Secondly, there is no dispute that the result was to be
multiplied by a figure which represented the proportion the average business in force during the calender
years 1950-1955 bore to the average business in force
during the calender years comprised in the period
between the date as at which the actuarial investiga·
tion immediately preceding the earliest of the relevant
investigations was made and the date at which the
last of such investigations was made (here the
years 1946-53). This factor is 138970857 and was admittedly the result of dividing Rs. 55,84,073 (average
business in force during 1950-55) by Rs. 40,18,64,885
(average business in force during 1946-53). The only
dispute in the case is with regard to the annual
average of the surplus deemed to be allocated to the
shareholders as disclosed in the abstracts in respect of
the relevant actuarial investigation.
Admittedly two investigations were made in
the present case. One valuation period covered five
calender. years 1946-1950 and the other three calender
years 1951-1953.
In the two investigation periods
the total surplus was respectively Rs. 56,36,815
(1946-50} and Rs. 87,03,650 (1951-53). The surplus
allocated to the
share-holders was Rs. 4,08,4f6
(1946-50) and Rs. 6,40,504 (1951-53).
This was in
1962
N111ionnl lnsartmu
Co. Lttl., Caleutt1.1
v.
Lif• I tuuranu
Corpn. qf In&
Hidayatullu, J.
1962
.National Insurance
Co. 'Ltd., · Calcutla
v.
Lif• Inmranc1
CMpn: ef Inlia
HiJay11iullah, J.
984 SUPREMECOURT REPORTS [1963JSUPP.
excess. of,the five per cent. as. laid down in.explana·.
tion 2 to Paragraph I to the First Schedule of the
Life Insurance Corporation . Act already quoted.
Reducing- this surplus allocated to· the share-holders
to five per cent.
We get for the years 1946-!iO the
sum ofR~. 2,81,8.l-l and for the years 10.51-53 the
sum of Rs. 4)15,182 .. We may now again stale the
formula with these figures and the factor introduced
in the appropriate places to show the area of controversy left.
Annual average of
Compen-··
Rs. 2,81,841 (1946-.'iO)
sation -"20 x and Rs. 4,35, 182 (l!.l.51- x 1.38970357
payable. '
53) allocated to the
share· holders.
Nqw the dispute between the parties is (a) what
it the period .. in which the allocation to the shareholders can be said to be. made and (b) what is meant.
by 'annual average.'
In regard to (a) the company
claims tha.t the surplus must be taken to be allocated
to the perjod in which the surplus must have been
handed out to the share·holders and that can only .be
the period following the investigations.
In this case
the first investigation covered a period of live calender
years from 19!6 to 1950 (both inclusive), and the
valuation date was Decemb.er 31, HJ50.
The second
investigation covered a period of three calender years
from 195L.to 195:1 (both inclusive) and the valuation
date was December 31, 1953.
The Company· contends that the allocation of Rs. 2,81,841 took place
in the triennium between the two valuation dates and
similarly the allocation of Rs. 4,35, 182 took ·place in
the two complete calender years (HJ5! to 1955).following December, 31, 1953. before the controlled'. business was :taken over by thr; Corporation·on September I, 1956.
The Corporation contcndq
that the surplus
must be taken to have been allocated in' the years for
-
I
ii
I
...
.
r
1<'.:
""~ '
-
...
-
2 S.C.R.
SUPREME COURT REPORTS
985
which the investigation was made. In other words,
the sum of Rs. 2,81,841, must be deemed to be allocated in the five years for which the first investigation
was made (calender years 194G-50) and the sum of
Rs. 4,35,182 must be deemed to have been alh.·ated
in the three years for which the second investigation
was made (calender years 1951-53).
Then comes the next part of the dispute which
is over the meaning of the words 'annual average'.
Both sides claim to calculate the average on different
principles. The Corporation adds the two surpluses
deemed to be allocated to the share-holders and
divides the result by eight years, that is to say, the
sum total of the two investigation periods of five
years and three years. The Company on the other
hand has four alternative modes of calculation. Two
such modes are based on the basis of allocation to
3 and 2 years as stated by the company and two on
the basis of the allocation to 5 and a years as stated
by the Corporation.
These calculations· lead to the
following different results :-
FORMULA A
(based on annual average calculated as suggested by
the Company of the two sums allocated as suggested
by the Company).
20 (2:~!,
8+1 + 4
, 35,!_~x ! ) x 1.38910857
il years
2 years
=Rs. 43,29,470
FORMULA B
(based on annual average calculated as suggested by
the Corporation of the two sums allocated as suggested by thr Company).
'>O (~-~l,841+1~~~,18~)
~
3 years
2 years
x 1.38970857
=Rs. 39,85,812
1962
National lns11ranc1
Co. Ltd., (,'ri/cult1
...
Life Insu,,ance
Corpn. of India
Hidayatutlah, J,
1962
National lnsll'ft1.n"t
Co. Ltd., Calculta
••
Lif1 l'flSUTf ,,,.,
Co•po. of India
Hi®yatullali, J.
986 SUPREME COURT REPORTS (1963) SUPP.
FORMULA C
(based on annual average calculated as suggested by
the Company of the two sums allocated as suggested
by the Corporation).
,..-...
20 (2,81,841 + 4,35,182
l ) x 1.38970857
5 years
3 years x
=Rs. 27,99,276
FORMULAD
(based on annual average calculated as suggested by
the Corporation of the two sums allocated as suggested by the Corporation).
20 (2,61,841 + 4,35,182) x 1.3890875
5 years
a years
=Rs. 24,91,123
Formula D was adopted by the Corporation
but as the basic figures were lower the resulting
amount was Rs. 19,39,669. The Tribunal also
approved formula D but as the basic figures were
increased by the Tribunal, the amount awarded was
Rs. 24,91,123. The question is which of the formulae
must be applied. This depends upon :-
.
(1) How is the annual average in paragraph I of
•
the First Schedule to the Life Insurance Corporation Act to be calculated ?
-
(a) Is the surplus allocated in the years for
which the investigation is made or in the
years that follow till the next valuation
,.
date?
'"---
(b) Is the annual average the average of the
total amount divided ·by the number of
2 s.c.R. SUPREME COURT REPORTS
987
years involved in the two .investigations,
(formula D) ?
or
(c) Is the annual average the average of the
average of each period taken separately ?
The Tribunal in reaching its conclusion observ·
ed that "paragraph I does not provide for taking two
averages but only one average for the entire period
of account." It rejected formulae A and C above as
~ they involved an average of an average. The
Tribunal then followed its own decision in an earlier
case and held that the Paragraph I of the Schedule
did not warrant the construction sought to be placed
by the Company. The Tribunal had observed there as
follows:-
•
"The paragraph does not refer to the years
during which the amount of dividend in the
abstract is actually paid to the share-holders.
It refers to the surplus allocated to shareholders
as disclosed in the abstract and requires annual
average to be taken of the share of such surplus.
Therefore, on a plain reading of this paragraph
the annual average has to be taken of the share
of surplus allocated as shown in the abstract,
or in view of Explanation 2, deeIJled to be
allocated to share-holders on calculations now
made."
It is contended by the Company that the deci·
sion of the Tribunal is not correct. In support of
the construction which the Company seeks to place
upon Paragraph I it is argued that the word is "allo·
cation" and a. sum cannot be allocated till ·it. is
known. Further it is said the allocation can only
be made after the ·share-holders get a right to divi·
dend which would be after the report of the actuary;
It is, therefore, contended that since the sum was
1962
Nali0111Jl lnnat»M
Co. Ltd.. C.Zct1tta
••
1.if1 1.,.,_,
Cmpn. ef Iodia
Hi<4Jalldlali, J.
1962
National /n.surance
Co. Ltd., Calcuttll
v.
I.ife Insurance
Corpn. of lr1dia
Hiduyatullah, J.
988 SUPREME COURT REPORTS [1963] SUPP.
not known during the period for which the investigation was made and the share-holders had no right
till after the ascertainment of the profits by an
actuary, the word "allocation" can only be read in
relation to the years that follow the actuary's report
and not in relation to the period for which the
actuary makes the investigation. It is also argued
that the lan~uage of the paragraph does not bear
the construction which the Tribunal has placed
upon it.
The learned Attorney General, however, admits
~
that the comtruction which he seeb to place may
fo ii at lc;;st in the last of the two periods in those
cases whrre the last valuation date is within a few
months of September l, 1956. If th~ valuation date
in the present case had been December 31, l!l55,
there should have been no complete year for which
the allocation could be said to have been made and
the calculation on the basis suggested by the Company
would have been impossible.
Again, if instead of
the last valuation on December 31, 1953, it had been
made on December 31, 1954, the whole of the profits
would then be deemed to have been allocated to one
year instead of two. It is clear enough that the
Paragraph could not be intended to prescribe an
uncertain system of calculation
but
something
definite.
The compensation was meant to give to
--
the shareholders an equivalent of their annual profits
capitalised at 20 years purchase and to reflect the •
advance or fall in the business by multiplying the
result with the factor.
The intention therefore is to
get a trne average spread over a number of years so
that compensation may not be related to any exceptional year or years-whether in favour of the
insurer or against him.
It is intended that it should
~·
be based upon what represents the average business
"'~
done by a company over a number of years. This
intention is quite evident from the Explanations which
have been added to the paragraph. Explanation l (a}
2 S.C.R.
SUPREME COURT REPORTS
989
shows that there should be not less than two <.1ctuarial
investigations and they should cover a period of not
less than four years. This shows that the intention
was to base the calculation upon a wide view of a
company's business.
Now, 'allocation' means the allocation as made
in the abstracts. Part A says that the compensation
to be given by the Corporation to an insurer having
a share capital on which dividend or bonus is payable
and who has allocated as bonus to policy-holders the
whole or any part of surplus as disclosed in the
abstracts, shall be computed in accordance with the
provisions cop.tained in one of the two paragraphs
that follow. The words of the Schedule to be emphasised are "has allocated as bonus to policy holders the
whole or any part of the surplus as disclosed in the
abstracts." The abstracts are nothing but a summary
, of the investigations over a particular period and the
allocation of lonus and dividends must also be for
the same period.
The abstracts contain no reference
to any future period and in fact there are no words
in the abstracts which show that the allocation must
be for the years that follow. In paragraph I the
words are "the share of the surplus allocated in
respect of the relative actuarial investigations."
These words refer to the abstracts and the share of
the surplus stated therein. Since that share comes
out of the profits which accrue to the Company
during the period of investigation the allocation
must also be taken to be for the period during which
the profits arise. The argument of the learned
Attorney General that the allocation can only be
when the amount is known and also when the right
: accrues to the share-holders because the profits have
~ to be found first is not acceptable to us because life
insurance business is carried on with periodic actuarial investigations which shows how much profits
have been made and that depends on what the
existing liability of the Company is in relation to its
I
1962
Nation.t Insurance
Co. Lid., Calcutta
v.
Lif1 Insurance
Corp.. ef India
Hidoymullalo, J.
1361
N'atiOMI fnntr_,
Go. Lid., Calcutto
v.
Lif1 /nsutON:I
Corpn. of India
Hida.Ydtvl/411, J.
990 SUPREME COURT REPORTS[I963]SUPP.
reserves and other likely income. It is the result of --
these investigations which entitles the policy-holders
as well as the share-holders to share in the profits
whether by way of bonus or dividend but the share
is in respect of the years for which the investigations
were made. Profit can only be found after the
receipts of a particular period have been found and
_.
compared with the payments that have been made
during the same period and the liabilities existing on
the date on which the actuarial investigation is made,
are found out, and the reserves which have to be _
..
kept to make good these liabilities are ascertained.
To connect the profits with a future period is to make
the scheme unworkable because
insurance business
is based upon the actuarial assessments of the position
of the company. Nothing much turns upon the use
of the singular in "share" and "surplus" and it
cannot be said that ther, indicate that the twJ
"shares" and "surpluses ' cannot be aggregated. ,
Indeed even after aggregation the words "share" and
"surplus" will still continue to be applicable. In
our judgment, the Tribunal was right in holding that
the surpluses were related to the five years and three
years respectively covered by the two actuarial
investigations in this case and must be deemed to have
been allocated for the same period.
The next question is how is the average to be
found. Here the words are "annual average". The ,
word "annual" must be given its full meaning. By
the word "annual" is meant something which is
reckoned by the year. The addition of the word
"averages" shows that what is to be found is an average reckoned by the year. If the two periods were to
be viewed separately and an annual average is found
out for each of the periods there would be two annual ~
averages and they would almost always be different.
When an average of these periods is taken there is
no longer an "annual average". The result can
only be described as the average of two annual
averages.
The Tribunal was right when it said that
-
'
•
2 S.C.R.
SUPREME COURT REPORTS
991
the law contemplates one average and not the average
of two averages. Giving the word "annual" its
full meaning it is obvious that that system must be
adopted which will lead to a result which can be
described both as "annual" and as an "average''.
That can only be when the amount of the surplus as
disclosed in the two investigations is aggregated and
the result is divided by the total number of years.
One finds an average by dividing the aggregate of
several quantities by the number of quantities. In
this case one can only get the "annual average"
by aggregating the surplus related to at least two
actuarial investigations covering a period of more
than four years and by dividing the result and by the
number of years involved.