# DAMJI V ALJI SHAH AND ANOTHER v. LIFE INSURANCE CORPORATION OF INDIA & ORS

- **Citation:** [1965] 3 S.C.R. 665
- **Court:** Supreme Court of India
- **Decided:** 1965-04-08
- **Bench:** P. B. Gajendragadkar, M. Hidayatullah, Raghubar Dayal, V." Ramaswami. Jj
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/damji-v-alji-shah-and-another-v-life-insurance-corporation-of-india-ors-3447
- **Pages:** 14

## Headnote

Life Insurance Corporation Act, 1956, ss. 15 .and 44(a)-Indian
Companies Act, 1956, ss. 446(1 )-Application by Life Insurance Corporation under s. 15 of L.I.C. Act-Defendant company ordered to be
wound.up by court--..:Permission of High Court under s. 446(1). of
Companies Act whether necessary for proceeding with application
under s. 15.
Indian Insurance Act, 1938 s. )(}-Transfer of Funds from Life
Insurance Fund to General Department of composiite 1nsurer-Per1nissibility.
The appellants were directors of an insurance company which
was a composite insurer i.e. Qne carrying on other classes of ~1fe
insurance business besides life insurance. Under s. 10(1) of the Indian
Life Insurance Act, 1938, a composite insurer had to keep sepa~ate
accounts in respect of the different classes of business, and its receipts
in respect of life insurance business had to &:o into a fund called
the Life Insurance Fund which could be appl!ed only for the purposes of the Life Insurance business and had always. to be sufficient
to meet the net .liabilities of the Life Insurance busmess. By resolution dated December 18, 1948, a sum of Rs. 1,10,000 was transferred
from the General Department of the company to the Life Department to be added to the Life Fund; if this had not been done the
said fund would have shown a deficit in the actuarial valuation
report dated July' 18, 1949. In the profit appropriation account of
the company for the latter year a sum of Rs. 60,000 out of the above
sum was written off so that the sum advanced was reduced to
Rs. 50,000. A further sum of Rs. 32,000 was again similarly transferred from the General to the Life Department by resolution passed
in August 1953 with retrospective effect from December 31, 1952,
in order to strengthen the position of the Life Fund which again
would have shown a deficit if this had not been done. The advances
thus made on both occasions were according to the relevant resolutions repayable only out of the 'valuation surplus', if any, in the
life department. On January 8, 1956, the Board of Directors of the
company transferred a sum of Rs. 82,000 from the Life Department
to the General Department. by way of repayment of the above loans.
On January 19, 1956, by Ordinance No. 1 of 1956 the management
of the life insurance business of all insurers in the country passed
to the Central Government. On September 1, 1956, the Life Insurance Corporation of India came into being under the Life Insurance
Corporation Act, 1956, and the assets and liabilities of the life insurance business carried on by all insurers became ·.,rested in it. The
corporation filed an application under s. 15 of the said Act before
the Tribunal constitμted under the Act allegin!i' that transfer of
Rs. 82,000 from the Life Department to the General Department of
the aforesaid company was without consideration and not for any
665
SUPREME COURT REPORT8
[!96fi] 3 s.c.R.
necessity of the life insurance business and prayed for a decree A
against appellants and the company jointly and severally for the
said amount. The Tribunal overruled the defendants' objections as
to its jurisdiction and granted a decree to the Corporation as
prayed. The company did not appeal but the appellants came to this
Court by special leave.
The following COI\tentions were raised on behalf of the appelB
!ants; (1) The tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the
leave of the High Court in .view of s. 446 of the Companies Act, 1956,
the Company having been ordered to be wound up the High Court
on November 9, 1959; (2) In view of s. 44(a) of the L.I.C. Act noi..;
of the provisions of the Act applied to the company and therefore
the Tribunal could not proceed on the application of the CorPoraC
tion subsequent to the company being: wound-up; (3) The transfer of
Rs. 82,000 from the Life Fund to the General Department of the
company was for corisic\eration and was necessary for the life insuran

## Text

A
DAMJI V ALJI SHAH AND ANOTHER
V.
LIFE INSURANCE CORPORATION OF INDIA & ORS.
B
April 8, 1965.
D
E
F
.B
[P. B. GAJENDRAGADKAR, C. J., M. HIDAYATULLAH,
RAGHUBAR DAYAL AND V." RAMASWAMI. JJ.J
Life Insurance Corporation Act, 1956, ss. 15 .and 44(a)-Indian
Companies Act, 1956, ss. 446(1 )-Application by Life Insurance Corporation under s. 15 of L.I.C. Act-Defendant company ordered to be
wound.up by court--..:Permission of High Court under s. 446(1). of
Companies Act whether necessary for proceeding with application
under s. 15.
Indian Insurance Act, 1938 s. )(}-Transfer of Funds from Life
Insurance Fund to General Department of composiite 1nsurer-Per1nissibility.
The appellants were directors of an insurance company which
was a composite insurer i.e. Qne carrying on other classes of ~1fe
insurance business besides life insurance. Under s. 10(1) of the Indian
Life Insurance Act, 1938, a composite insurer had to keep sepa~ate
accounts in respect of the different classes of business, and its receipts
in respect of life insurance business had to &:o into a fund called
the Life Insurance Fund which could be appl!ed only for the purposes of the Life Insurance business and had always. to be sufficient
to meet the net .liabilities of the Life Insurance busmess. By resolution dated December 18, 1948, a sum of Rs. 1,10,000 was transferred
from the General Department of the company to the Life Department to be added to the Life Fund; if this had not been done the
said fund would have shown a deficit in the actuarial valuation
report dated July' 18, 1949. In the profit appropriation account of
the company for the latter year a sum of Rs. 60,000 out of the above
sum was written off so that the sum advanced was reduced to
Rs. 50,000. A further sum of Rs. 32,000 was again similarly transferred from the General to the Life Department by resolution passed
in August 1953 with retrospective effect from December 31, 1952,
in order to strengthen the position of the Life Fund which again
would have shown a deficit if this had not been done. The advances
thus made on both occasions were according to the relevant resolutions repayable only out of the 'valuation surplus', if any, in the
life department. On January 8, 1956, the Board of Directors of the
company transferred a sum of Rs. 82,000 from the Life Department
to the General Department. by way of repayment of the above loans.
On January 19, 1956, by Ordinance No. 1 of 1956 the management
of the life insurance business of all insurers in the country passed
to the Central Government. On September 1, 1956, the Life Insurance Corporation of India came into being under the Life Insurance
Corporation Act, 1956, and the assets and liabilities of the life insurance business carried on by all insurers became ·.,rested in it. The
corporation filed an application under s. 15 of the said Act before
the Tribunal constitμted under the Act allegin!i' that transfer of
Rs. 82,000 from the Life Department to the General Department of
the aforesaid company was without consideration and not for any
665
SUPREME COURT REPORT8
[!96fi] 3 s.c.R.
necessity of the life insurance business and prayed for a decree A
against appellants and the company jointly and severally for the
said amount. The Tribunal overruled the defendants' objections as
to its jurisdiction and granted a decree to the Corporation as
prayed. The company did not appeal but the appellants came to this
Court by special leave.
The following COI\tentions were raised on behalf of the appelB
!ants; (1) The tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the
leave of the High Court in .view of s. 446 of the Companies Act, 1956,
the Company having been ordered to be wound up the High Court
on November 9, 1959; (2) In view of s. 44(a) of the L.I.C. Act noi..;
of the provisions of the Act applied to the company and therefore
the Tribunal could not proceed on the application of the CorPoraC
tion subsequent to the company being: wound-up; (3) The transfer of
Rs. 82,000 from the Life Fund to the General Department of the
company was for corisic\eration and was necessary for the life insurance business.
HELD: (i) The provisions of s. 446 of the Companie.> Act did not
affect the proceedings before the Tribunal.
It is in view of the exclusive jurisdiction conferred upon the
company court in sub-s. (2) of s. 446 of the Companies Act to
entertain and dispose of any suit or proceeding by or against a company which is being wound•up that provision has been made in subD
s. (1) of that section that no suit or proceeding shall be filed, or if
pending, proceeded with against such a company without permission
having been taken from the Court. In view of the provision in s. 41
E
of the L.LC. Act the company court has no jurisdiction to try
matters which a Tribunal under the Companies Act is empowered to
entertain and decide. It could not be disputed that the Tribunal
was empowered to try the Corporation's application under s. 15 and
the Company Court tiherefore had no jurisdiction to entertain or
decide it. It must follow that the consequential provision of sub-s. (1)
of s. 446 would not operate on the proceedings before the Tribunal.
[673E-GJ
F
Further, the provisions of the Special Act i.e. the L.I.C. Act will
over-ride the provisions of the general Act viz. the Companies Act
which is an Act relating( to companies in general. [673H]
(ii) The company could not take advantage of the provisions of
s. 44(a) of the L.I.C. Act. [674D-EJ
Section 44(a) provides that the provisions of the Act will not
apply to an insurer whose business is being wound-up under orders
of court. But the question of the applicability of the Act to a particular insurer is to be considered in relation to facts existing at the
time when the Ac~ came into force i.e. July l, 1956 or on the appointG
ed day, i.e. September I. 1956, when the assets and liabilities of the
contr.olled insurer of the company stood transferred and vested in H
the Corporation. The company was not being wound-up under orders
of Court on the above dates. The L.I.C. Act and therefore s. 41 thereof
did apply to the company. It could not cease to apply merely because
subsequently the company was ordered to be wound-up. [673H-674B]
Section >M(a) was not applicable to the company for the further
reason that when it was ordered to be wound-up in 1959 it was not
an 'insurer' within the meaning of that word in. s. 2(6) since it was
not carryine on life insurance business on that date. the said busi-
- '
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6G7
'appoin~~d
ness having be~D. ',taken over
day·. [674C-D] .
-----~---~-~ -----
(iii) The Tribunal rightly passed a decree in favour of the Corporation.
1
No question of lending money by. one department of the· com·
pan;· to the other can ordinarily be contemplated. The assets of the .
cmnpany really constitute one entity ev~n though the company maintains separate accounts with respect to its various insurance businesses. From. the facts it was clear that the amounts of Rs. 1,10.000
and Rs. 32,000 had been transferred from the General Department
to the Life Fund to meet the deficit in the Life Fund which was
likely to occur on both occasions. The circumstances showed that the·
sum of Rs. 82,000 was transferred back to the General Department
in a hurry in anticipation of some law depriving the \.'.'ompany of
-·its life insurance business. It was moreover a condition of the alleged
'loans'
that they would be repaid only when there was a 'valuation surplus' in the Life Fund. There was no such surplus in theLi1~ Fund at the time when the sum .was transferred from it to-·
the General Department. [674G]
668
SUPREME COURT REPORTS
[1965] 3 s.c.:a.
The facts of the case briefly are these. 'Fhe company was a
A
composite irtsurer, i.e., an insurer who carried on, in. addition to
lite insurance business, other classes of insurarlce business. The
LIC Act came into force on July. I. 1956 and the Corporation was
established on September 1, 19§6 which was the "appointed day'
~cording to s. 2([) of that Act. On that day. in view of s. 7, all
tne' assets and liabilities appertaining tG the life insurance business Ir
(called the controlled business, vide s. 2(3)) of the Company stood
transferred to and vested in the Corporation. It was found· that
certain amounts which had been transferred from the' Life Insurance Fund in the books of the company to the General Department had not been transferred in accordance with the provisions
C
of the Insurance Act 1938 (Act 4 of 1938) \\lhich governed the
company and shoμld have continued to be included in the assets
appertaining to the controlled business of th!' company. It was
, therefore tl)at an application under s. 15 of the.LTC Act was made
by the Corporation to the Tribunal.
•
We may now state how this amount of Rs. 82.000/- happened
D
to be transferred from· the Life Insurance Fund (or fhe Life Fundl
cf the company to its General Department. The .company had .to
'keep separate accounts pf all receipts" 'and payments in respect
of each class of insurance business, in v!ew of s. "10(1) of the Insurance Act. It had to maintain a Life Fund in connection with its
life insurance business in view of s:'-10.QJ. Sub-s. (2) provided thal
E·
where an insurer carried on business of life insurance, all receipts
due in respect, of such business be carried to and would form a
separate fund called the Life Insurance Fund and its assets be/
kepl distinct and separate from all other assets of the insurer and
deposits made by the insurer in respect of life insurance business.
Sub-s.- (3) of· s. 10 pi:ovided that the life insurance fund would be
as absolutely t,he security of the life policy holders as though it
belonged to an insurer carrying on no other.business than life insurance business and" that it should not be ·applied directly or in-
. directly for any purpose other than
those of the life insurance
business of the insurer. The amount in this fund had to be sufficient
to meet the net liabiiitie's in regard to the life insurance policies
issued by the· company. If it was not so maintained. the company
stood the chance of being barred from carrying on life insurance
business.
F
G·
By resolution dated December 18. 1948, Rs. Ll0.000/- were
H
transferred from the General Department to the Life Department
as advance to the- Life -Department Revenue Account for being
added to the· Lify Fund. subject to the condition that the Life
Dcrartment would· not be liable kl pay any interest thereon and
th~t no repayment of the Jc.an would be made except out of the
valuation surplus of the Life Department. The· first actuarial valuation report of the company for the year 1944--.-48, dated July 18,
/
....,~...,...--
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DAMJI VALJI 'V, L.I.C. (Dayal, J,)
669
1949, showed that the net liability of the company was Rs, 6,55,718 ~
and that the amount in the Life Fund was Rs. 6,57,4501and therefore the fund showed a surplus of Rs. 1,732/- over the
net liabilities. If the sum of Rs. 1,10,000/- had not been transferred to the Life Department Revenue Account prior to Dece~
ber 31, 1948, this valuation report would have shown the net hab1lity exceeding the amount in the life fund by about a . lakh of
rupees,
It is clear that the amount ~as, so transferr~d m ord.er
to avoid the consequences of the net hab1httes exceedmg the Life
Fund.
The Profit & Loss Appropriation Account for the year 1949
shows that Rs. 60,000 /- out of this amount of Rs. l, 10,000 /- was
written off as the company had made profits. Rs, 32,000 I- were
again similarly transferred to the Life Fund from the General
Department with retrospective effect from December 31, 1952 in
order to strengthen the position of the Life Fund,
The second actuarial valuation report for the period 1949--
52, dated September 9, 1953, showed that the policy liability
amounted to Rs,
15,36,068, that the Life Fund stood at
Rs, 15,35,890/- and that thus the Life Fund exce~ded the net liabi•
lity by Rs. 2,822 /-. There was thus a surplus as Rs, 32,000 /- had
been transferred to strengthen the Life Fund, with retrospective
effect in view of the resolution dated August 20, 1953 whicb
r~ads:
"Resolved that a lean of Rs, 32,000 /- (thirty two thousand only) bearing no interest be hereby given to Life
Department by General Department with retrospective
effect as on 3 lst December 1952, the repayment of which
shall be made only out of the future Valuation Surplus
or surpluses of the Life Department or it may be written off from the future profits of the General Department
This will have effect in the accounts of the Company for
the year ended 31st December 1952,"
It is to be noted that this resolution itself said that the amount
would be repaid only out of the future Valuation Surplus or surpluses of the Life Departtnent or might be written off from the
future profits of the General Department
It was this amount of Rs. 82,000/-
(Rs. 50,000/-
plus
Rs. 32,000/-) which, by a resolution dated January 6, 1956 was
transferred to the General Department from the Life Fund, The
resolution reads: -
"Resolved that a loan of Rs. 82,000 /- (eighty two thousand only) advanced to Life Depaxtment ~ Revei;me Ac-'
count by General Department be and is hereby repaid to
General Department and the balance of Rs, 60,000 /-
670
BUl'REMK COURT REPOll'fS
[1965] 3 s.c.11.
due to Gen-era! Department by Life Department Revenue
A
Account be and is hereby kept in reserve for future and
hence no adjustment in regard to Rs. 60,000/- will be
made for the present."
This resolution was confirmed by the Board· of Directors at its
meeting dated February 6, 1956.
B
We may now refer to the changes in law with respect to life
insurance business in 1956 and an anticipation of which probahly
led to the resolution of January 6, 1956. On January 19, 1956, the
Life Insurance (Emergency Provisions) Ordinance, 1?56 (Ord. No.- I
of 1956) was promulgated by the President. It came into force
C
from that day which was called the 'appointed day'. Section 3(1)
provided that the management of the 'controlled business' of all
insurers would vest in the Central Government on and from· the
appointed day. 'Controlled business', according to cl. (2) of s. 2,
meant all the business appertaining to the life insurance business,
if the insurer carried on any other class of insurance business also. D
Clause (b) of sub-s. (3) prohibited the incurring of any expenditure
by the insurer without the previous approval of the person specified by the Central Government in that behalf, from the assets
appertaining to the controlled business otherwise than for the purpJse of making routine payments etc., specified in that clause. E
: hose- purposes do not include the repayment of an advance made
from the General Department to . the Life Fund or to the Life
Department Revenue Account. Clause (c) of sub-s. (3) further prohibited the insurer, without the previous approval of the authorised
person, to transfer or otherwise dispose of any such assets appertaining. to the controlled business oi create any charge or hypotheF
cation, lien or other encumbrance thereon. It would therefore
appear that possibly the Board of Dir.ectors were not right in
confirming the resolution of January 6, 1959 after the Ordinance
had come into force. However, that is not the point raised in these
proceedings.
We have already referred to the coming into force of the LIC G
Act on July l. 1956 and of the transfer and vesting in the Corporation of al! the assets and the liabilities pertaining to the life
insurance business in view of s. 7 of that Act. Section 15 provides
that ihe Corporation may appcy for relief to the Tribunal in respect of a transaction which is made by the insurer whose controlled B
business had been transferred to and vested in the Corporation
under the Act at any time within 5 years before January 19, 1956
and by which the composite insurer has transferred any property
from his life department to his general department without consideration or for an inadequate consideration and the transfer was
not reasonably necessary for the purpose of the conttalled 1'usiness
of the insurer or was made with an unreasonable lack of prudence
A
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DAMJI VAI,JI v. L.I.C. (Dayal, J.)
671
on the part of the. insurer regar<l being had in either case to. the
circumstances at the time. The Corporation, in such proceedmgs,
had to make all parties to the transaction parties· to the application.
Sub-s. (2) of s. 15 empowered the Tribunalto make such order
against any of the parties to the application as ~t thought just
having regard to the extent to which those parties we'.e respectively responsible for the transactio~ or benefite? from 1t and all
the circumstances of the case. Section 16 provided for the payment of compensation to the insurer whose controlled business
had been transferred to and vested in the Corporation under the
Act. Section 17 provided for the constitution of Tribunals which
were empowered by sub-s. (4) to regulate their own procedure and
decide all matters within their competence. Section 41 provided
that no civil Court would have jurisdiction to entertain or adjudicate upon any matter which a Tribunal was empowered to decide
or determine under the Act. Section 44 inter a/ia provided that
nothing contained in the Act would apply in relation to any
insurer whose business was being voluntarily wound-up or was
being wound-up under orders of the Court.
The Cc>rporation, by its application under s. 15. contended
that the transfer ofRs. 82,000/- from the·Life Fund to the General
E
Department under the resolution of January 6, 195,, was iilegal,
being contrary to and in contravention of the insurance Act and as
such was inoperative, bad in law and not binding on the petitioner.
It was further contended that the said transfer was without consideration and was not reasonably necessary for the purpose
of the controlled business of the company and I or was made witb
F unreasonable lack of prudence on the part of the company, regard
being had to the circumstances at the time. It was therefore toot
it prayed inter alia for a decree against the respondents for a sum
of Rs. 82,000 /- with interest. It impleaded the company as respondent No. 9, the appellants in C.A. 676 of 1962 as respondents
Nos. 1 and 4 and the appellant in C.A. 677 of 1962 as respondent
G No. 2. Ghanshyamdas and Damji Valji were also parties to the
resolution dated February 7. 1956. Other directors who were
parties to the resolution of January 6 were also impleaded.
The aforesaid three d:rectors, the appellants before us, contested the claim. of the Corporation and justified the transfer of
H
Rs. 82,000 /- to the General Department from the Life Fund on
the ground that the amount had been lent by the General Department to the Life Department and had been paid back to the
General Department by transfer from the Life Fund v.:hen the Lifo
Fund showed surplus, according to the report of the Actuary dated
July 25, 1955. It was also contended before the Tribunal that the
petition coald not be proceeded with without the leave of the
Bombay High Court in view of s. 446 of the Indian Companie'
672
SUPREME COUR'f !\~PORTS
11965) 3 S.C.R.
Act and that the petition was also not maintainable by reason of A
s. 44 of the LIC Act. Several other grounds were also taken before
the Tribunal. We are not now concerned with them.
The Tribunal held that the amounts of Rs. 1,10,000/- and
Rs. 30,000 /- were not advanced to the Life Department as Joans
and that the transfer of Rs. 82,000/- was not out of the valuation B
surplus and that therefore the transfer of this amount could not be
said to be for consideration a.nd necessa.ry or reasonabl,y necessary for the purpose of the controlled business of the company or
even a prudent transaction having regard to the interest of the life
policy holders. It held that no leave of the Bombay High Court
was necessary for proceeding with the petition and that the petiC
tion was maintainable and that s. 44 of the LIC Act did not bDr
the applicability of the provisions of the Act to the respondent
company. It therefore decreed the suit and ordered the company
and the directors, respondents I to 4, to pay to the Corporation
jointly and severally a sum of Rs. 82,000 /- together with interest D
thereon at 6 per cent per annum from September I, 1956 till full
paymeni. It is against this decree that C.A. 676 of 1962 has been
filed, by special leave, by Damji Valji Shah and Jayantilal Hirjibhai
Chawda and C.A. 677 of 1962 by Ghanshyamdas. This judgment
will govern both these appeals.
The points raisd by learned counsel for the appellants are:
(i) The Tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the leave
E
of the High Court in view of s. 446 of the Companies Act, 1956,
the company having been ·ordered to be wound-up by the High
Court on November 9, 1959, (ii) In view of s. 44(a) of the LIC
Act none of the provisions of the Act applied to the company and F
therefore the Tribunal could not proceed on the application of the
Corporation subsequent to the company being wcund-up. (iii) The
transfer of Rs. 82,000 /- from the Life Fund to the General Department of the company was for consideration and was necessary for
the life insurance business.
The fourth point sought to be urged was that the provisions
of s. J5(J)(f) of the LIC Act were ultra vires as they· contravened
the provisions of Arts. 14 and 19 of the Constitution. This contention was .not raised before the Tribunal during the arguments and
was therefore considered by it to have been abandoned. We did
G
not therefore allow it to be raised before us.
H
Sub-s. (I) of s. 446 of the Companies Act provides that when
a winding-up order has been made or the Official Liquid1tor has
been appointed as Provisional Liquidator. no suit or other legal
proceeding shall be commenced or, if pending at the date of the
winding-up order, shall be proceeded with against the ccmpany
except by leave of the Court and subject to such terms as the
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l>AMJ! VAT.JI t'. 1 .. 1.c. (Day.d, J.)
6i3
Court may impose. Sub·s. (2) provides. inter alia, that the Court
which is winding-up the company shall, notwithstanding anything
contained in any law for the time being in force, have jurisdiction
to entertain or dispose of any suit or proceeding and any claim
made by or against the company. Sub-s. (3) provides that any suit
or prcceeding by or against the company which is pending in any
Court other than that in which the winding-up is proceeding may,
not·withstanding anything contained in any other law for the time
being in force. be transferred to and disposed of by that Court. The
question is whether these provisions would affect the proceedings
of I he Tribunal.
In this connection, reference may be made to s. 41 of the
LIC Act which provides that no civil Court shall have jurisdiction to
entertain or adjudicate upon any matter which a Tribunal is
empowered to decide or determine under that Act. It is not dis·
puted that the Tribunal had jurisdiction to entertain the application of the Corporation and.adjudicate on the matters raised thereby. The Tribunal is given the exclusive jurisdiction over this
matter.
It is in view of the exclusive jurisdiction ~hich sub-s. (2) of
s. 446 of the Companies Act confers on the company Court to
entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in sub-s. (]) has been imposed on the commencement of
the procee:lings or proceeding with such' proceedings against a
company after a winding-up order has been made. In view of s. 41
of the UC Act the company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed
that the Tribunal has jurisJiction under the Act to entertain and
decide matters raised in the petition filed by the Corporation
under s. 15 of the ·uc Act. It must follow that the consequential
provision of sub-s. (]) of s. 446 of the Companies Act will not
operate on the .proceedings which be pending before the Tribunal
G
or which .may be sought to be commenced before it.
Further, the provisions of the special Act i e _ the LIC Act,
will over-ride the provisions of the general Act viz., the Companies
Act which is an Act relating to companies in general.
11
It is however conten:led for the appellants that in view of
s. 44(a) of the LIC Act, s. 41 will not apply to the company whose
business was being woun1:up under orders of Court and that therefore the provisions of s. 446 of the Companies Act will affect the
procedings before the Tribunal. The contention is not sound. The
question of the applicability of the Act to a particular insurer is
to be considered in relation to facts existing when the Act came
jnto force. In view of s. 44 of the LIC Act it will not apply to
674
SUPREME COC:RT ll>'PORTS
(1965] 3 S.C.R,
an insurer whose business· is being wound-up under orders of C<1un
A.
at the time when .. that Act came into force in 1956 or on the
'appointed day' i.e., September I, 1956. when the assets and li<•bilities pertaining to the controlled business cf the company stood
transferred and vested in the CorpDration. The company was l'Ol
being wound-up under orders of the Court on July I, 1956 when
the Act came into force or on the appointed day mentioned earlier.
B.
The Act did apply to the c0mpany.
It cannot cease lo
apply merely because subsequently the company was ordered to
be wound-up.
The word 'insurer' is defined in cl. 161 of s. 2 of the UC Act
and means an insurer as defined in the Insurance Act who carries a
on life insurance business in India and includes the Government
and a provident society as defined in s. 65 of the Insurance Act.
On November 9, 1959, when the company was ordered to be woundup it was not an 'insurer' within the meaning of the definition as
the company did not carry on life insurance business in India en &
that date. Its life insurance busine.,s had been taken over by the
Corporation on the appointed day and it ceased to carry on that
business thereafter. It follows therefore that the company was not
an insurer on November 9, 1959 und cannot lil"ke advantage of
the provisions of cl. (a) of s. 44 oi the UC Act.
We are therefore of opinion that the Tribunal had jurisdiction to continue the proceedings after November 9, 1959 when the
company was ordered to be wound-up and that the provisions of
s. 446, Companies Act, or s. 44(al. LIC Act, do not in any "'ay
affect its jurisdiction to continue the proceedings.
We now come to the third point raised for the appellants. We
agree with the Tribunal that the amounts of Rs. 1.10.000/- .tnd
B
F
Rs. 32,000 /- w,ere not lent to the Life Department as such by the
General Department. No question of lending money by one depmment of the company to the other can be ordinarily contemplated.
The assets of the company really constitute one entity, even though G
the company maintains separate accounts with respect to
its various insurance business. It carried on other types of insuran_ce business also. We have already shown how the provisions of
the Insurance Act require the company to keep a separate account
for the life insurance business and to have a separate fund known
as the Life Insurance Fund and to which were to be credited all
H
receipts due in respect of the life business and the amount deposited
by the insurer in respect of life insurance business. Such a deposit
is to be made in view of s. 7(1) of the Insurance Act. This requires
the insurer to deposit and keep deposited with the Reserve Bank
of India for and on behalf of the Central Government either in
cash or in approved securities or partly in cash and partly in
approved securities the sums specified in the various clauses iq
VAi.Ji !'.
L.l,C. (Day l, ,/.)
67fi.
A regard to the different types of life insurance businosses. Oause
(a) requ~"s a ,\erosit of Rs. 2,00,000/- where the business done <>r
to b~ done is life insurance onl:y. Clause· (e) requires a deposit of
Rs. 3,00,000/- where the business done or to be done is life insurance and any one of the three classes mentioned in clauses (bl to (d).
B
e
ll<rnse (e) further provides that out of the deposit of Rs. 3,00,000 /-,
Rs. 2.00,000 /- shall be the deposit for life insurance business.
Section 7 lays down a statutory amount which the insurer has to
deposit. It does not however restrict the insurer to deposit a
larger amount in respect of life insurance business. Section 8\1)
places certain restrictions about the use to be made of the depo>its
under s. 7. Section 8(2) hew.ever deals with any deposit and- provides that where a deposit is made in respect of life in~urancc
business, the deposit made in respect thereof shall m~t be available
for the discharge of any liability of the insurer other than liabilities arising out of policies of life insurance issued by the ins11rcr.
D
This means that when an insurer puts certain money in the funds
pertaining to the life insurance business and especially to a life
insurance fund. such an amount can;be used only fer the discharge·
E
F
G
of liabilities of the insurer arising out of life insurance policies
issued by him.
The amounts of Rs. 1,10,000/- and Rs. 32.000/- would thug
amount to deposits made by tre company in. respect of life insur-
<rnce business in order to augment the life funj. This can be done
either to bring the funds tc an amount exceeding the expected net
lia bi\itics on the poiicies or merelv to augment that fund. It makes
no difference to the company how it distributed its funds so long
as its statutory liabilities. were ~atisfied.
·
The very con'..luct of the company with respect to
lhc~.e
amounts belies the alleged nature of the transfers of these amcunts
to (he Life Department. The sum of Rs._ 60,000 /- out ,,f
Rs. 1.10,000/- was written off in 1949. A loan of such an amount
is not usually writlen off, No special reason is assiQneci for writing oil the loan. The resolution ·about the transfer of Rs. 32,000,'-
;c,elf speaks of· the possibility o{ the amount being written off. A
le11der does not think in this wav at the time he advances a loan.
It is clear that.the amount was re31\y being transferred to the Life
Fund through the Life Department Revenue Acc;Junt as otherwise
the Life Fund on the actuarial valuation would have stood at a
H figure
much
below
the
amourit
of
the
net
liabilities
on the policies as calculated in Form H, Schedule Four to the
lnsurnnce Act, which is a Form giving summary and valuation of
the policies. cf the company as at the date of the valuation. Form I
is for the valuation balance-sheet of the company at the corresponding date and requires in one column the net liability under
business as shown in the summary and valuation of policies and·
in the other column the balance of life insurance fund as shown
~76
SUPRRMF. COURT REPORT·-,
[l 965]
~. s.c.n.
in the balance sheet, and also provides for noting the eventual posi· A
tion about the Life Fund being in surplus or fo deficiency 'as compared to the net liability. Wheri the amount was not lent as a loan,
no question of its repayment as such could have arisen in 1956.
of·course whenever the Life Fund showed an actuarial valuati0n
surplus' th~t surplus or part of it could be transferred to t]]e General
Department according to the desire of the management.
B
The amount of Rs. 82,000 /. was not transferred as a result
of the actuarial valuation as contemplated by _the· various resolu·
tions which authorised the transfer of the amount from the General
Department to the Life Department Revenue Account. It was
definitely provided in those resolutions that no repayment of the C
amount would be inade except out. of valuation surpluses of the Life
Department.
The expression 'valuation surplus" has a .technical meaning
·under the Act.
D
. Section 13(]) of the Insurance'. Act provides that e<very insurer
carrying on life insurance business shall, ii) respect cf the life insur·
·ance business transacted in lndia.-cause once at least in every three
ylf.irs an investigation to be macie-b¥ an ectuary into the financial
condition of the life insurance business c•rried on by him, includ· E
ing the valuation of pis liabilities in respect thereto. An abstract
of the report of the actuary is to be made in accordance with 'the
·regulations contained in Part r cf the Fourth SchMule and in conJormity with the· requirements of Part II of that Schedule. Section. -
~-
13(2) provides that the provisions of sub-s. (]) regirding the m,aking
of an ab;tract shall <i;pply whenever at any other time an investiga·
F
lion into the financial conditicn of the insurer. is made with a 'view
to the distribution of profits or an iqvestigation is made of which
the res~i:t, are m<1de public. The abstract is to be certified on behalf
of the insurer to the effect 1hat fulJ anj effective particulars of
every' policy under which there is a liability either actual or contingent have been furnishej to ·the actuary for the purpose of invesG
ligation.
Section 15 requires the submission of the aforesaid abstract
to the Controller within the specified period. Part II of the Fourth
Schedule requires that° every extract prepared in eccordance with
the requirements of that part of the Schedule win have the stateH
ment of a consolidated revenue. a.ccount in' Ferm G, a sumrnarv
an:! valuation in Form H. a valuation balance sheet in Form I and
a statement in Farm DDD rs set forth in Part IT of the Third Sche·
dule annexed to it. The valuation balance sheet in Form I requires
the,noting of a surplus: if any, of the balence of the life insurance
fund as compared tc the- net •liability ·in tire business as shown in
the sum111ary and valu"ation of policies. It is the surplus noted in this
-
__ ___..__
A
B
c
D
E
F
DAM.JI VAi.Ji v. L.I.C. (Duy;!, J.)
677
Form I which is really the valuation surplus. It was out of such surplus that the company resolved that the advances of Rs. l,I0,000/-
and Rs. 32,000 /- could be paid to the General Department by the
Life Department. No such actuarial valuation was made by the
actuary prior to the transfer of Rs. 82,000/- to the General Fund
by the resolution dated January 6, 1956.
Reliance in this connection is placed on behalf of the appellants on the letter of the actuary dated July 25, 1955. The actuarY'
states:
"On the above basis, the valuation shows a policy liability of Rs. 20,20,421.
The Life
Insurance Fund is
Rs. 21,32,455. Thus there is a surplus of Rs. 1.12.033.
The surplus includes Rs. 53,300 being the amount of appreciation on investments taken into account by you in
the past two years.
Thus the net working surplus is Rs. 58,733/-.
The cost of Bonus at the rate of Rs. JO/- per thousand
is approximately Rs. 48,000 /-.
Thus the surplus is sufficient to enable a bonus declaration at the above rate even after excluding the appreciation
amount or setting it a part as an additional reserve for
future use.
Conclusion: The result is satisfactory. Cont" nuing the
same method of working as you have followed. the statutory valuation ·as on 31-12-55 will surely enable you to
declare a higher bonus."
firstly, it does not appear th3t the actuary had really conducted
an investigation and submitted the valuation report as required
by s. 13, of the Insurance Act. There is nothing on the record to
show that any ubstract in Form I, Fourth Schedule, was prepared
and submitted to the Controller. Further. the letter shows that the
G net working surplus was only Rs. 58,733/- as the ostensible surplus
of Rs. 1,12,033 /- included Rs. 53,300 /- by which certain invest·
ments of the company had appreciated in that period. 'When the
net working surplus was much less than Rs. 82,000/- which were
transferred from the Life Department to the General Department,
the transfer of Rs. 82,000/- cannot be said to have been in accord-
:H ance with the terms on which the alleged Joan was made to the
Life Department from the General Department. When the Life
Department had not Rs. 82,000 /- with itself, there could not have
been any necessity to pay that amount to the General Department.
In fact, the alleged loan could be paid only when there would
have been a valuation surplus in the accounts of the Life Department but this does not mean that the Life Department was bound
to pay back the amount. the moment it had any valuation surplus.
678
SUPRE~IE COURT REPOJtTS
[196rtj 3 s.c.R.
Its liability to pay the alleged loan could arise only when there
was a valuation surplus. Its paying the amount actually would:
depend upon the circumstances prevailing at the time.
A
Jn the circumstances, we cannot resist the conclusion thar
the Directors passed a resolution for the transfer of this amount
on January 6, 1956 in anticipation of some law depriving the ccmB
pany of its life insurance business. It may be that it was a close
secret that an Ordinance would te issued on January 19. But all
the same, possibly, persons in the insurance world could have
had an inkling of the trend of events.
The content of the resolution passed en January 6, indicates g
that the directors had no clear idea at the time as to how much
t-he Life Department. according to them, owed to the General
Department.
The resolution speaks not only of the transfer of
Rs. 82,000 /- to the General Depa.rtment but also refers to t.hei
bafance of Rs. 60,000 /- due to the General Department by the Lifo
Department Revenue Account. The amount had been written off D
·in 1950 and could not have tl1ereafter been considered to be a loan
advanced to the Life Department Revenue Account from the General Department. It seems that the resolution was passed in some
hurry and the Directors could not definitely decide as to how any
further amount upto Rs. 60.000 /- could be taken back te the
General Department from the Life Department Revenue Account. E
Any way, such a resolution of the Directors indicates that any
entries with respect to the alleged loans were made for the purpose of accounting and the necessities of the business. Money in
the Life Fund had to be augmented in 1948 and 1952 in order to
make the Life Fund ~xceed the net liabilities of !he company on
account of the life insurance policies.
'
F
We are therefore of opinion that the Tribunal took a correct
view about the nature of the transfer of Rs. 1,10,000/- in 1948 and
Rs. 32,000 /- in 1952 to the Life Insurance Fund and rightly held
that the transfer of Rs. 82,000 /- to the General Department by'
resolution dated Januarv 6, 1956, was not in ac~ordance with the
G
i;rovisions of the rn,urance Act and that con,equently that amount
continued to form part of the assets of the· life insurance
business of the comoany upto September !, 1956 and that as such
vested in the Corporation which could recover it from the company
and the directors responsible for the transfer of the amount to the
General Department.
H
The appeals therefore fail and are dismissed with costs, one
hearing fee.
Appeals dismissetl-
•