# LIFE INSURANCE CORPORATION OF INDIA v. CROWN CO

- **Citation:** [1965] 3 S.C.R. 474
- **Court:** Supreme Court of India
- **Decided:** 1965-03-26
- **Case number:** Civil Appeal No. 999 of 1964
- **Bench:** K. N. Wanchoo, J. R. MuDHOLKAR, S. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/life-insurance-corporation-of-india-v-crown-co-3508
- **Pages:** 14

## Headnote

Life Insurance Corporation Act (31 of 1956), First Schedule, Pa.rt
B, Para 4, cl. (d) and Insurance Act (4 of 1938), s. 10(2)-"Life insnrB
ance fund". Meaning of.
Under s. 10(2) of the Insurance Act, 1938, where an
carries
on the business of life insurance, all receipts due in respect of su.ch
business shall be carried to and form a separate fund called the life
insurance fund. Section 11 ( c) provides for keeping a revenue account
in Form D of the Third Schedule, which applies to life insurance
business also. This account, on the receipt side, has rnainly income
C
from premiums and out of investments from life fund and, on the
expenditure side, all expenses and bad debts connected with the life
business. A balance is struck after taking into account the balance of
the fund at the beginning of the year and after making some adjuotrnents and transfers, and the "life insurance fund". is arrived at.
Form I of the Fourth Schedule to the Insurance Act, provides for
determining the surplus or deficit, which is the difference between
D
the net liability in business determined by actuarial valuation of
policies in force and the Life Insurance Fund,. If there is a surplus,
s. 49(1) of the Insurance Act provides, that 7!% of the surplus shall
be allocated to shareholders. and the balance shall remain in the
fund for policv holders. When transfer of life insurance business from
the life insurance companies to the Life Insurance Corporation took
place, a provision had to be made for carrying out the effect of s.49(1).
E
That provision was made in Cl. (d) of para. 4· of Part B of the First
Schedule to the Life Insurance Corporation Act, 1956, according to
which, where there is surplus in the life insurance fund, as a result
of the actuarial valuation of policy liabilities under Cl. (b) of the
same para. 4, 96% of such surplus shall be shown as a liability, that
is, 96% of that surplus shall go to the Corporation in order to meet
the liabilities, and to that extent the compensation to be paid to the
F'
insurance company would he reduced. Part B applies to those insurers,
who, having a surolus in Form 1 have not allocated the whole or any
part of such sUrpl.us to policy holders, an<l also provides, how comnensation is to be paid to companies who had no surplus as disclosed
in Form I. In the latter case, that is, if there was a deficit in Form T,.
there could be no allocation to the policv holders under s.49(1) of the
Insurance Act, and there would be no liability under Cl. (d).
Ci
On the taking over of 1 he business of the respondent, a life insu·
ranee company incorporated in Canada, by the appellants, under the
Life Insurance Corporation Act, the respondent claimed Rs. 27 lacs and
odd as compensation. The respondent contended that the words "life
insurance fund" in Cl. (d) referred to above had the same meaning'
as those words in the Insurance Act, and since there was deficit in its
working as shown by Form I. no amount was to be deducted as liab!-
H
lity under Cl. (d). The appellant was prepared to pay only Rs. 1 lac
and odd, on the basis that, the words "life insurance fund" in Cl.
( d) meant the difference between the total assets and the liabilities
474
A
B
c
D
E
•
F
G
H
L. I. c. v. CROWN INSURANCE (!f.anchoo, J.)
475
under Cls. (a) and (c) ancl since there was a surplus of Rs. 27 lacs
and odd, a sum of Rs. 26 lacs and odd, forming, 96';{ of it, was to be
clebited towards the liabilities of the respondent.
The Insurance Tribunal accepted the respondent's contention and
awarded the compensation claimed by it.
In its appeal to this Court, the appellant contended that: (i) the
words "life insurance fund" under the Insurance Act have more
than one meaning under that Act, and therefore it was not pcssible
to give the meaning, claimed by the respondent, to those words in
Cl. (d) under the Corporation Act, and (ii) even if those words have
only one meaning under the Insurance Act, they have a different
meaning under the Cl. (d).
HELD: (i) A

## Text

_Characters 0–39,922 of 45,687. This is a partial read: ask again with offset=39922 for what follows._

LIFE INSURANCE CORPORATION OF INDIA
A
v.
CROWN
CO.
March 26, 1965
[K. N. WANCHOO, J. R. MuDHOLKAR AND S. M. SIKRI, JJ.J
Life Insurance Corporation Act (31 of 1956), First Schedule, Pa.rt
B, Para 4, cl. (d) and Insurance Act (4 of 1938), s. 10(2)-"Life insnrB
ance fund". Meaning of.
Under s. 10(2) of the Insurance Act, 1938, where an
carries
on the business of life insurance, all receipts due in respect of su.ch
business shall be carried to and form a separate fund called the life
insurance fund. Section 11 ( c) provides for keeping a revenue account
in Form D of the Third Schedule, which applies to life insurance
business also. This account, on the receipt side, has rnainly income
C
from premiums and out of investments from life fund and, on the
expenditure side, all expenses and bad debts connected with the life
business. A balance is struck after taking into account the balance of
the fund at the beginning of the year and after making some adjuotrnents and transfers, and the "life insurance fund". is arrived at.
Form I of the Fourth Schedule to the Insurance Act, provides for
determining the surplus or deficit, which is the difference between
D
the net liability in business determined by actuarial valuation of
policies in force and the Life Insurance Fund,. If there is a surplus,
s. 49(1) of the Insurance Act provides, that 7!% of the surplus shall
be allocated to shareholders. and the balance shall remain in the
fund for policv holders. When transfer of life insurance business from
the life insurance companies to the Life Insurance Corporation took
place, a provision had to be made for carrying out the effect of s.49(1).
E
That provision was made in Cl. (d) of para. 4· of Part B of the First
Schedule to the Life Insurance Corporation Act, 1956, according to
which, where there is surplus in the life insurance fund, as a result
of the actuarial valuation of policy liabilities under Cl. (b) of the
same para. 4, 96% of such surplus shall be shown as a liability, that
is, 96% of that surplus shall go to the Corporation in order to meet
the liabilities, and to that extent the compensation to be paid to the
F'
insurance company would he reduced. Part B applies to those insurers,
who, having a surolus in Form 1 have not allocated the whole or any
part of such sUrpl.us to policy holders, an<l also provides, how comnensation is to be paid to companies who had no surplus as disclosed
in Form I. In the latter case, that is, if there was a deficit in Form T,.
there could be no allocation to the policv holders under s.49(1) of the
Insurance Act, and there would be no liability under Cl. (d).
Ci
On the taking over of 1 he business of the respondent, a life insu·
ranee company incorporated in Canada, by the appellants, under the
Life Insurance Corporation Act, the respondent claimed Rs. 27 lacs and
odd as compensation. The respondent contended that the words "life
insurance fund" in Cl. (d) referred to above had the same meaning'
as those words in the Insurance Act, and since there was deficit in its
working as shown by Form I. no amount was to be deducted as liab!-
H
lity under Cl. (d). The appellant was prepared to pay only Rs. 1 lac
and odd, on the basis that, the words "life insurance fund" in Cl.
( d) meant the difference between the total assets and the liabilities
474
A
B
c
D
E
•
F
G
H
L. I. c. v. CROWN INSURANCE (!f.anchoo, J.)
475
under Cls. (a) and (c) ancl since there was a surplus of Rs. 27 lacs
and odd, a sum of Rs. 26 lacs and odd, forming, 96';{ of it, was to be
clebited towards the liabilities of the respondent.
The Insurance Tribunal accepted the respondent's contention and
awarded the compensation claimed by it.
In its appeal to this Court, the appellant contended that: (i) the
words "life insurance fund" under the Insurance Act have more
than one meaning under that Act, and therefore it was not pcssible
to give the meaning, claimed by the respondent, to those words in
Cl. (d) under the Corporation Act, and (ii) even if those words have
only one meaning under the Insurance Act, they have a different
meaning under the Cl. (d).
HELD: (i) A combined reading of ss. 10(2), 11 and 13 of the Insu:ance Act and Form D cf the Third Schedule and Form I of the
Fourth Schedule to the Insurance Act, shows, that the words "life
insurance fund", ''surplus" and "dEficit'' have only the definite meaning set out above, as contended by the respondent. [ 480B-Cl
The contention, that the words ''life insurance fund" have different meanings in ss. 56(2) and 58(3), and in regulation 7 of Part I of
the First Schedule to the Insurance Act, has no force, because when
th 0 marginal note of s. 56(2) refers to surplus assets of life insurance
fund it means in reality the surplus to be found in Form I and the
same applies to s 58 (3): and as regards regulation 7, the plural is used
in the words ''life insurance funds'' merely due to exigencies of
gramma.
r460F: 481D-E F-G]
It cannot be said that because s. 27(1) of the Insurance Act lays
down that an insurer is required to keep certain sums invested to
m-:·et his liabilities mention:d therein, the entire assets of the insurer
are security for the policy holders and not merely the life insurance
fund. This section only provides that when life insurance fund shows
a deficit in Form I it w.ould be the duty of the insurer to see that he
has further assets to cover the deficit, and that these assets are always
kept invested in accordance with the Insurance Act; but ths section
does not provide tpat the assets brought in to cover the deficit would
become part of the life insurance fund. It is only such moneys which
are included in the revenue account, Form D, and which are not of a
capital nature that form part of the life insurance fund. Since, in the
instant c3se the business of the respondent in India had admittedlv
shown a deficit in Form I, and the funds brought in by the respondent
from outside to cover the deficit were never put in the revenue account, they were never made part of the life insurance fund, though
thev remained vested in a trustee under s. 27 (6) of the Insurance Act.
[482B-G]
(ii) The Tribunal was right in its conclusion that the words "life
insurance fund" as used in Cl. (d_) of the aforesaid fourth paragraph
have the same meamng as that given to them in s. 10(2) of the Insurance Act read with s. 11 and Form D of the Third Schedule to the
Insurance Act. [483H]
When Cl. ( d) speaks of the life insurance fund being in surplus
that sur!'lus has to be de.termmed m accord11nce with Form I subject
to eertam mod1ficat10ns md1cated m Part B of the Corporation Act.
The cont
0 xt. therefore, mstead of showing that there is any other
of the words "lif_e insurance fund" in Cl. (d), shows that they
have the same meamng m that clause as in Form I. .[ 485D, El
Section 35(1) and (2) of the Corporation Act also point to the
same_ conclusion. because, these provisions show that where the legislature in.tended to refer to all
_Bssets and liabilities it said so in terms
and did not use the words hfe msurance fund''. Resides, if these
476
SUPREME COURT REPORTS
(1965) 3 S.C.R.
words were given the meaning for which the appellant. contended, A
there would be an inconsistency between Cl. ( d) and s. 35, m th.at, the
insurer would get away with a much larger amount if he app!Ied for
repatriation of excess assets under s. 35, and would &et a much smaller
amount if he did not choose to apply under the sect10n, a result which
the legislature could not have intended. Moreover, the share capital
of an insurance company cannot obviously form ptrt of the Me msurance fund; but on the interpretation urged on behalf of the appellant, even 96% of the share capital may be lost to an insurance company, as part of the life insurrnce fund in conce'vable circumstances.
[486A-C, F; 487G].
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 999 of 1964.
Appeal by special leave from the order dated March 25, 1964
of the Life Insurance Tr;bunal, Bombay in Case No. 27 of 1962.
C. K. Daphtary, Attorney-General, S. !. Banaji, Atiquor
Rehman and K. L. Hathi, for the appellant.
N. A. Palkhivala, S. !. Sorabjee, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for the respondent.
B
c
The. Judgment of the Court was delivered by
D
Wanchoo J. The only question that arises for determination in
this appeal by special leave from the order of the Life Insurance
Tribunal, Bombay, is the interpretation of the words "life insurance
fund" as used in paragraph 4 of Part B of the First Schedule to the
Life Insurance Corporation Act, No. 31 of 1956, (hereinafter referred to as the Act). The question arose in connection with the payE
ment of compensation to the respondent, the Crown Life Insurance
Company, which is incorporated in Canada,' by the appellant, the
Life Insurance Corporation of India on the taking over of the business of the respondent by the appellant under the Act. The respandent claimed Rs. 27,86,658 as compensation while the appellant
was prepared to pay Rs. 1,11,466. The respondent claimed that as
F
its life insurance fund was always in deficit before the Act came
into force, there was no liability on it under cl.(d) of paragraph 4 of
Part B of the First Schedule to the Act. The appellant on the other
hand claimed that under that cl. (d), there was a surplus of
Rs. 27,86,658 and therefore under cl. (d) a sum of Rs. 26,75,192
was to be debited towards the liabil'ties of the respondent. That is
G
how the appellant arrived at the compensation of Rs. l,11,466.
The appellant claimed that the words "life insurance fund" in
cl. (d:) meant the difference between the total assets and ·the liabilities under els. (a) and (c) of the said paragraph 4. The respondent
on the other hand contended that the words "life insurance fund"
in cl. (d) had the same meaning as those words had under the Insurance Act, No. 4 of 1938 (hereinafter referred to as the Insurance
Act). The respondent therefore claimed that as there was always a
deficit in its working as shown by form I of the Fourth Schedule
to the Insurance Act, no amount was to be deducted as liability
under cl. (d) of the said paragraph 4. It is this difference in the
meaning assigned to the words "life insurance fund" by the parties
H
I
A
B
c
D
L. I. c. v. CROWN INSURANCFJ (Wanchoo, J.)
H7
that is responsible for the large difference in the amount claimed by
the respondent and offered by the appellant.
The Insurance Tribunal has accepted the contention put forward on behalf of the respondent and has held that the words "life
insurance fund" in cl. (d) of the said paragraph 4 have the same
meaning as in the Insurance Act, and that there
only one meaning of these words in the Insurance Act. It has rejected the contention raised on behalf of the appellant and has in consequence award•
ed compensation at Rs. 27,86,658. Aggrieved by this order, the
appellant got special leave from this Court; and that is how the
matter has come up before us.
The sole question that falls for determination therefore depends on the interpretation of the words "life insurance fund" and
for that purpose we shall have to consider certain provisions of the
Insurance Act as well as of the Act. We may at the outset refer to
s. 2 (10) of the Act, which is as follows: -
"In this Act, unless context otherwise require--
(10) all other words and expression used herein but not
defined and defined in the Insurance Act shall have the
meanings respectively assigned to them in that Act."
It is .not in dispute that the words "life insmance fund" appear in
the Insurance Act though not in the definition section thereof. Sec·
E
tion 2 (I 0) of the Act however does not refer only to the definitions
in the definition section of the Insurance Act; it lays down generally that any words and expressions used in the Act and defined
in the Insurance Act shall have the meanings assigned to them in
the Insurance Act (and that means anywhere in the Insurance Act)
unless the context otherwise requires. We have therefore to turn to
F
the Insurance Act first to find out the meaning of .the words "life
insurance fund" as given therein and then to see whether the context of cl. (d) of the said paragraph 4 requires otherwise. If we come
to the conclusion that it does not require otherwise, the words "life
insurance .fund" in cl. (d) of the said paragraph 4 will have the
same meaning as in •he Insurance Act.
G
Let us therefore turn to the Insurance Act to see what the
words "life insurance fund" mean under that Act. It has been urged
in the first place on behalf of the appellant that the words "life
insurance fund" un.de.r the Insu;ance
have not one meaning
only and therefore 1t 1s not possible to give that meaning to these
H
words in cl. (d) with which we are concerned. In the alternative it
is urged that the context requires that even if the words "lift insurance fund" have only one meaning under the fosurance Act
they have a different meaning under cl. (d).
'
We have therefore to find out what the· words "life insurance
fund" mean under the Insurance Act and whether they have the
same meaning throughout the Act. We have already pointed out
that the words "life insurance fund" have not been defined in s. z
L/P(N)l8Cf-4
478
SUPREME COURT REPORTS
[1965) 3 8.C,B.
of the Insurance Act, which is the definition section. But there is no · A
doubt that in s. 10 of the Insurance Act, these words have been
given a specific meaning to which we shall now refer. The Insurance
Act was
not only with life insurance business but also
with insurance business of other kinds, namely, marine, fire and
miscellaneous. It was open to an insurance company to carry on
either the life insurance business only or life insurance business
B
along with insurance business of other kinds also. Therefore,
s. IC(]) of the Insurance Act provided that where an insurer carried on business of more than one kind, he was bound to keep a
weparate account of-all receipts and payments in respect cf each kind
of business. Section 10(2) dealt specifically with life insurance and
we therefore read the relevant part of that .sub-section: -
c
"Where the insurer carries on the business of life insurance, all receipts due in respect of such business shall be
carried to and shall form a separate fund to be called the
life insurance fund the assets of which shall ...... be kept
distinct and separate from all 0th.er assets of the insurer
and the deposit made by the insurer in respect 0f life insurance business shall be deemed to be part of the assets of
such fund and every insurer shall ...... furnish to the Controller a statement showing in detail such assets as at the
close of every calendar year duly certified by an auditor or
by a person qualified to audit under the law of the insurer's
country'"
There are three provisos to this section to which it is unnecessary
for our purposes to refer. Sub-section (3) of s. I 0 is also material
and runs as follow:-
"The life insurance fund shall be as absolutely the
security of the life policy-holders as though it belonged to
an insurer carrying on no other business than life insurance
business and shall not be liable for any contracts of the
insurer for which it would not have been liable had the
business of the insurer been only that of life insurance· and
shall not be applied directly or indirectly for any purposes
other than those of the life insurance business of the insurer."
Section 11 (c) then provides for keeping a revenue account in form
D of the Third Schedule in respect of each insurance business for
which separate account was required to be kept under s. 10(1).
Regulation I of Part I of the Third Schedule provides that form D
as set out in Part II is appropriate for life insurance business. A
perusal of form D shows what items have to be entered on the
receipts side of the form and these items are: premiums of all
kinds, consideration for· annuities, interest, dividends and rents
(obviously from assets of the life insur!ince fund); regulation fees
and other income. It is thus clear that the revenue account on the
receipt side mainly has income from premiums and income arising
D
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r
H
B
c
D
II
G
B
L. I. c. v. CROWN INSURANCE (Wanchoo, J.)
479
out of investments from life fund and this forms the main basis of
the life insurance fund. On the expenditure side of form D there
is provision for claims under pol'cies, annuities, surrenders, bonuses
in cash, bonuses in reduction of premiums, expenses of. management (i.e. salaries etc., travelling expenses, directors' fees, auditors'
fees, and charges for advertisements, printing and stat'onery, other
expenses of management, rents for office belonging to and occupied
by the insurer, rent of other offices kept by the insurer), bad debu
and other expenditure. Thereafter a balance has to be struck and
this balance is the balance of the life insurance fund. This balance
is arrived at after taking into account the balance of the fund at the
beginning of the year and after making adjustments with respect to
profit and loss and transfers from appropriation account. It is this
balance which goes into the balance skeet form A provided in the
First Schedule of the Insurance Act as life insurance fund and in·
eludes as provided in s. 10(2) the deposit made by the insurer in
respect of life insurance business. There is no doubt therefore that
the words "life insurance fund" under the Insurance Act have got
the meaning assigned to it under s. I 0(2) read with s. 11 and form
D of the Th!rd Schedule. I.t is equally clear that all the assets of an
insurance company doing life insurance business do not form part
of the life insurance fund. for example, if the insurance company
has got share capital that is not part of the life insurance fund even
though the deposit required by law to be made for life insurance
business is part of the fund. So far therefore as s. 10(2), s. 11 and
form D are concerned, life insurance fund has a definite meaning.
The working of a life insurance company is in some respects
different from that of ordinary companies inasmuch as it is not opeD
to a life insurance company to distribute dividends unless there is
surplus computed under the Insurance Act. This surplus is determined thus: First of all the life insurance fund as disclosed by revenue
account in form D is found out. Then the valuation of the policies
in force as on a certain date is determined by actuarial valuation
which has to be made at least once in three years under s. 13(1) of
the Insurance Act. After valuation of the policies of different kinds
they_ are grouped under different heads and their summary is set
flut m form H. of the Fourth Schedule. Form I of the said Schedule
provides. for determining the surplus or deficit. This form is known
as valuation balance sheet and the surplus or deficit is the differ·
e_nce. between net liability in business as shown in form H and the
hfe
fund as shown in
sheet form A. Surplus will
only _res_u_lt if the balance of hfe msurance fund is greater than the
net hab1hty
form H. Where however the balance of life insurance
1s less than the net liability under form H, there will
be a deficiency and not surplus. Section 49(1) of the Insurance Act
then provides that no amount of the life insurance fund wiH be
used to pay any div;dend to share-holders or any bonus to policyholrlers or for making any payment in service of anv debenture unles'
valuation balance sheet in form I of the Fourth Schedule
480
SUPREME COURT
(1965] 3 s.c.n.
shows a surplus. It is further provided that out of the surplus only
A
Ti per centum shall be allocated to or reserved for shareholders
with the consequence that the balance of 921 per centum of the
surplus remains in the fund for policyholders or may be allocated
as bonus to policyholders. The life insurance fund as defined in
'· l0(2) is an absolute security of the life policy-holders and cannot be used in any manner except in accordance with the
B
provisions to which we have already referred, Thus the words
"life insurance fund" have a definite meaning under the Insurance
Act under s. 10(2), read with s: 11 and form D of the Insurance
Act and the words "surplus" and "deficiency" have also special
meaning appearing from a combined reading of s. 13 of the
·Insurance Act and form H and form I of the Fourth Schedule.
· C
The next question is whether the words "life insurance fund"
have any other meaning under the Insurance Act. These words
appear in a number of provisions of that Act. It is not necessary
however to refer to all of tl1ose provisions for it is not in dispute
that in most of the provisions the words have the meaning assigned
D
to them under s. 10(2) of the Insurance Act. But three provisions
have been specifically brought to our notice where it is said that
the words have a different meaning. The first is s. 56 which deals
with winding-up of insurance companies. In sub-section (2) thereof
reference is made to surplus of assets over liabilities and how such
surplus which is called prima facie
in the sub-section is to
E
be dealt with. It will however be seen that the sub-section does not
use the words "life insurance fund" when speaking of prima facie
surplus which is the difference between all assets and all liabilities.
But it is urged that the marginal note to the section which is in these
words "application of surplus assets of life insurance fund in liquidation or insolvency" shows that for the purpose of this sect;on,
F
the words "life insurance fund" as used in the marginal note may
have a different meaning. We are however of opinion that this is
not so. Sub-section (2) after speaking of prima facie surplus, which
is equa I to total assets minus total liabilities, provides how the
prima facie surplus is to be dealt within winding-up proceedings.
The SJJb-section provides that this prima facie surplus would be
G
divided into two parts and one part would be in proportion to the
profits of the insurer allocated to policy-holders. This part will naturally be determined with respect to form I of the Fourth Schedule
which deals with life insurance fund and surplus or deficiency. The
sub-section thus provides that out of the prima fade surplus a certain amount will be deducted in proportion to the profit allocated
B
to the policy-holders, and remaining will be the amount ·which may
go to shareholders in winding-up. Therefore as we read sub-section
(2) we find that it deals with entire assets and these entire assets
will certainly include the life insurance fund. The marginal note
indicates how out of the prima facie
indicated in sub-section
(2) the surplus in the life insurance furid as arrived at in (orm I shall
be used. The argument that the words "life insurance fund" in
A
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D
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G
H
L. I. c. v. CROWN INSURANCE (JV an{;hoo, J.)
481
56(2) has a different meaning therefore has no force for two
reas:rns. In the first place the section does not use the words "life
insurance fund" and in the second place when the marginal note
refers to surplus assets of life insurance fund it means in reality the
surplus to be found: in form I, for the prima facie surplus will include that. We cannot therefore accept the contention that for the
purposes of s. 56(2) the words "life insurance fund" have a different meaning in view of the marginal note of s. 56.
The next section to which reference is made in this connection
is s. 58(3). Section 58 deals with schemes for partial winding-up of
insurance companies, i.e. winding-up of one kind of business while
another kind of business goes on. Section 58(3) provides that the
provisions of this Act relating to valuation of liabilities of the insurer in liquidation and insolvency and to the application of surplus assets of the life insurance fund in liquidation or insolvency
shall apply to the winding-up of any part of the affairs of the company. It is argued that the words "life insurance fund" here are used
in a different sense. We are of opinion that this is not so. Sub-section
(3) of s. 58 has to be read along with s. 56 and in particular with
sub-s. 12) thereof and as we have already indicated the words "life
insurance fund" iri the marginal note of s. 56 have no different
meaning from that to be found in s. 10(2) the same applies to the
use of the words "life insurance fund" in .s. 58(3) mutatis mutandis.
Lastly reference was made to regulation 7 of Part I of the First
Schedule, which provides for a certificate that no part of the assets
of the life insurance fund has been directly or indirectly applied in
contravention of the provisions of the Insurance Act relating to the
application and investment of life insurance funds. It is urged that
the use of the plural suggests that a different meaning is to be given
to the words "life insurance fund" here. We are unable to agree
with this contention either, The use of the words "life insurance
funds" in plural is merely due to the exigencies of grammar in this
provision and does not mean that the words have a meaning different from that assigned to them in s. l 0(2) to which we have already
referred. We must therefore reject the contention on behalf of the
appellant that the words "life insurance fund" have any meaning
other than that assigned to them in s. l 0(2) of the Insurance Act so
far as that Act is concerned.
Reference is then made to s. 27(1) of the Insurance Act which
requires that every insurer shall invest and at all times keep invested assets equivafent to not less than the sum of the amount of
his
to holders of life insurance policies in India on account
of matured claims and the amount required to meet the liabilitv on
policies of life insurance maturing for payment in India subjeet to
certain deductiom;. It is urged that this provision lays down that an
insurer is required to keep certain sums invested to meet his liabilities mentioned therein and this shows that the entire assets of the
insurer are security for the policy-holllers. It is true that this provision requires an insurer to keep certain assets invested and those
482
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[1965] 3 S.C.R.
have to be equal to his liabilities on policies matured and policies
A.
yet to mature. This provision is for the protection of the policyholders' interest. It has however in our opinion nothing to do with
the life insurance fund as such. What in fact it provides is that when
the life insurance fund shows a deficit in form I it would be the
duty of the insurer to see that he has further assets to cover the deficit, and that these assets are always kept invested in accordance
B.
with the Insurance Act; but the section does not provide that the
assets brought in to cover the deficit would become part of the life
insurance fund. It is not in dispute that there is no other provision
in the Insurance Act which requires that whenever the life insurance
fund is in deficit the insurer must put sufficient money in that fund
itself to cover the deficit. It is true that form D of the Third Scb.ec
dule includes an item "other income" but that does not mean that
any sum kept invested by an insurer for the purposes of s. 27(1)
in order to cover the deficit in the life insurance fund becomes part
of that fund. Note (e) which appertains to "other income" of the
1aid form D makes it clear that all the amounts received by the
insurer directly or indirectly whether from his head office or from
D
any other source outside India shall also be shown separately in
the revenue account except such sums as properly appertain to the
capital account. Therefore sums invested for purposes of s. 27(1) of
the Insurance Act do not necessarily form part of tl)e life insurance
fund. It is only such moneys which are included in form D and
which are not of capital nature that form part of the life insurance
E
fund. In the present case it is not in dispute that the business of the
respondent in India always had shown a deficit in form I. It is also
not in dispute that in order to meet that deficit as required by
s. 27(1), the respondent took advantage of s. 27(6) which provides that the assets required by this section to be held invested
by an insurer incorporated or domiciled outside India shall
F
subject to 'certain exceptions be held in India and all such assets
shall be held in trust for the discharge 'of the liabilities of the
nature referred to in sub-s. (!) and shall be vested in trustees
resident in India and approved by the Central Government and
the instrument of trust under this sub-section shall be executed by
the insurer with the approval of the Central Government and shall . G
define the manner in which alone the subject-matter of the trust
shall be dealt with. Such an instrument of trust was executed by
the respondent and the State Bank of India was the trustee of the
fund required to be kept under s. 27(1) read with s. 27(6).
But
that in our opinion did not make the whole of this trust fund
part of the life insurance fund as defined in s. 10(2). The money
H
required to cover the deficit in form I could only become part
of che life insurance fund if that was included in the
revenue account form D and in such a case there would
then be no deficit left in the life insurance fund. It is not iti
dispute that in this case funds brought in by the respondent from
outside to cover the deficit were never put in the revenue account
and were never made part of the life insurance fund, though
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483
they remained vestd in
the
trustee
for
the
purpose of.
s. 27(1) read withs. 27(6).
The appellant's contention always was
that the case of the respondent, for purpose of compensation, was
covered by part B of the First Schedule to the Act and not by its
Part A, and this was because there was a deficit in form I submitted
by the respondent
throughout its working. It appears that in
spite of this deficit in the Indian working of the respondent, the
respondent used to pay bonuses to its policy-holders out of its
global surplus and these payments were made in cash. Even so
the appellant insisted-and rightly-that as form I showed deficit
at the relevant time the respondent was not entitled to take advantage of Part A of the First Schedule to the Act for purposes of
compensation. In such circumstances it seems strange when admittedly there was always a deficit in form I submitted by the respondent in connection with its Indian business that the appellant
should now say for the purpose of compensation that there is a
surplus disclosed by the business of the respondent. 96 per centum
of which would go to the appellant under cl. (d) of the aforesaid
'4th paragraph. We are therefore of opinion that the appellant
cannot take advantage of s. 27(1) and ask us to hold that all the
funds which are mentioned in s. 27(1) to be kept invested are part
of the life insurance fund. Part B applies to two kinds of insurance companies-viz.. those which had deficits and those which
had surplus but had not distributed it at the relevant time. It is
the latter class of companies that cl. (d) is really meant to cover.
As we have already said s. 27(1) has nothing to do with the life
insurance fund and is meant only as a safety device for policyholders, particularly in cases where there is deficit in the life insurance fund.
But where such deficit is made up for the purpose of
s. 27(1), the extra amount so invested by the insurer to make up
the deficit does not automatically become part of the life insurance
fund unless it is put through the revenue account form D. That
was admittedly never done in this case and form I always showed
a deficit in the case of the respondent.
Section 27(1) therefore
does not help the appellant, for it is not in dispute that an insurer
is not bound to make up the deficit by putting money in the life
iasurance fund though he is bound to keeo assets invested to make
up the deficit; but such assets may be kept"outside the life insurance
fund.
Now we come to the last question whether there is anything
in the Act which requires that we should give a different meaning
to the words "life insurance fund" in cl. (d) of the aforesaid 4th
paragraph.
We have already referred to s. 2(10) of the Act which
lays down that all other words and expressions used in the A:ct but
not defined and defined in the Insurance Act shall have the meanings respectively assigned to them in that Act. Prima facie, therefore, the words "life insurance fund" used in cl. (d) of the aforesaid
4th paragraph have the same meaning as in the Insurance Act, and
the question is whether the context of the Act requires that we
should give a different meaning to these words. We are of opinion
48{
SUPREME COURT REPORTS
(1965] 3 S.C.R•
that !here is nothing in the context of the Act which requires that
a different meaning should be given to these words. If anything,
the Act shows that these words have the same meaning in cl. (d)
of the aforesaid 4th paragraph as in the Insurance Act.
In the first place we have to see what is the reason for the
provision in cl .. (d) of the aforesaid 4th paragraph. We have no
doubt that the provision in cl. (d) is related to the provision in
s. 49(1) of the Insurance Act. We have already referred to that
section and it requires that 92! % of the surplus in form I shall
be kept for the policy-holders.
Where therefore there is surplus in
form I. 92! per centum thereof is meant for the policy-holders
under this provision. Secondly when transfer of life insurance
business from the life insurance companies to the Life Insurance
Corporation took place a provision had to be made to carry out
the effect of s. 49(1) in connection with the transfer. That provi-.
sion is to be found in cl. (d).
It lays down that where there i! a
surplus in the life insurance fund as a result of the actuarial
valuation of policy liabilities made under cl. (b) of the aforesaid
paragraph 4, 96 per centum of such surplus shall be shown as a
liability. This means that just as under s. 49(1), 92! per centum
of the surplus in form I was meant for the policy-holders so in the
case of transfer, 96 per centum or that surplus shall go to the
Life Insurance Corpora, ti on in order to meet . the liabilities arising
under s. 49 (!) of the Insurance Act for past surplus and to that
extent the compensation to be paid to the insurance company from
which the Life Insurance Corporation was taking over business
would have to be reduced. This was with reference to the past
and could not be with reference to the future, for so far as the
future was concerned, the Life Insurance Corporation alone was
responsible.
But if there was a deficit in form I of the insurance
company which was being taken over by the Life Insurance Corporation there could be no allocation to the policy-holders under
s. 49(1) of the Insurance Act and there would be no liability for
the past. So there would be no liability for the past under cl. (d)
on the insurer whose business was being taken over by the Life
Insurance Corporation. In the present case admittedly there was
no surplus in form I in the case of the respondent and therefore
' there would be no liability on the respondent under cl. (d) of the
aforesaid 4th paragraph. This in our opinion is the rationale
behind the provision in cl. (d) and as there was always a deficit in
connection with the working of the respondent, there could be no
liability on the respondent under cl. (d).
But apart from this rationale behind cl. (d) we find that the
language of Part A and Part B of the First Schedule relating to
principles for determining compensation also leads to the same
inference. Part A provides that compensation to be given to an
insurer having a share capital on which dividend or bonus is payable who has allocated as bonm1 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
A
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L. r. c.
CROWN INSURANCE (Wanchoo, J.)
485
respect of the last actuarial investigation relating to his controlled
business as at a date earlier than January l, 1955 shall be computed
under that part. Clearly therefore this provision in Part A refers
to surplus to be found by looking at fonn I of the Fourth Schedule
to the Insurance Act. Part B of the First Schedule to the Act then
speaks of compensation to be given to an insurer having a share
capital on which dividend or bonus is payable but who has not
made any such allocation as is referred to in Part A. This immediately brings in the opening words of Part A and shows that Part
B applies also to those insurers who having a surplus in form I
have not allocated the whole or any part of such surplus to policyholders. The surplus in form I is arrived at as already indicated
when the life insurance fund is larger than the liabilities on the
policies still to mature. Clearly, Part B provides how compensation is to be paid to companies who had no surplus as disclosed
in form I of the Fourth Schedule to the Insurance Act or who if
they had any surplus in that form had made no allocation to
policy-holders. Therefore when cl. (d) of the aforesaid 4th paragraph speaks of the life insurance fund being in surplus that surplus has to be determined in accordance with form I of the Fourth
Schedule to the Insurance Act subject to modifications indicated in
Part B in the matter of valuation under form H and not in the
manner suggested on behalf of the appellant. The word "surplus"
in cl. (d) cannot have a meaning different from what it has in the
opening words of Part B which come therein from Part A. The
context therefore instead of showing that there is any other meaning of the words "life insurance fund" in cl. (d) shows that they
have the same meaning in that clause as in form I of the Fourth
Schedule to the Insurance Act.
Another reason which points to the same conclusion, namely,
that the words "life insurance fund" in cl. (d) have the same meaning as in form I of the Fourth Schedule to the Insurance Act, is
to be found in s. 35(1) and (2) of the Act. Section 35(1) permits a
foreign insurer to repatriate certain assets. It says that an insurer
incorporated outside India may, before the appointed day, make
an application to the Central Government stating that among the
assets appertaining to the controlled business of the insurer there
are assets brought into India by him for the purpose of building up
his life insurance business in India which should not be transferred
to and vested in the Life Insurance Corporation. On receipt of
such an application, the Central Government has to determine the
value of the assets of the insurer appertaining to his controlled
business in existence on December 31, 1955 in accordance with
the provisions contained in paragraph 3 of Part B of the First
Schedule to the Act and deduct therefrom the total amount of the
liabilities of the insurer appertaining to his controlled business as
on December 31, 1955 computed in accordance with the provisions
contained in the Second Schedule to the Act; and if there is any
excess, the Central Government may direct that such assets equivalent in valne to the excess shall not be transferred to or vested in
i86
SUPREME Cj)URT .RRPORTS
(1965] 3 8.C.R,
the Life Insurance Corporation. It is obvious from these proviA
sions that where the legislature intended to refer to all the assets
and liabilities it said so in terms and did not use the words "life
insurance fund".
The use of the words "life insurance fund" in
cl. (d) of the aforesaid 4th paragraph therehre must have the
special significance assigned to these words in <he Insurance Act
and cannot be equated to the difference between the total assets
B
and liabilities apart from liabilities towards policies yet to mature.
Besides we are of opinion that if the words "life insurance fund"
in cl.