# LIFE INSURANCE CORPORATION OF INDIA v. RAJMATA SAHEB CHOWHANJI & ORS

- **Citation:** [1979] 1 S.C.R. 11
- **Court:** Supreme Court of India
- **Decided:** 1978-08-02
- **Bench:** S. Murtaza Fazal Ali, P. N. Shinghal, A. D. KosHAL
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/life-insurance-corporation-of-india-v-rajmata-saheb-chowhanji-ors-7565
- **Pages:** 6

## Headnote

Life Insurance Corporation Act, 1956 Section 7(2)-Scope of vis-a-vis
obligation to restitute the benefit under s. 65 of the Contract Act.
The plaintiff-~espondenl.-filed a- ~uit-for recovery of a sum of Rs.
2 lakhs
invested by_,,him in the Adarsh Bima Company, which was taken over by the
,appeltan4 (defendant no. 3) herein, on the basis that the managing director of
the Adarsh Bima Company by practising fraud and misrepresentation on the
plaintiff that the plain.tiff would be entitled to an assured dividend of 4% that
too contrary to the statute of the company induced him to part with the said
sum by purchasing 200 shares of Rs. 100/- each.-' The suit was contested by
the appellant mainly on the ground that after the appellant took over the
Adarsh Bima Company he v.·as not liable for any act of the company v.·hich
was ultra-vires of the sl2.tutes of the company. The trial Court passed a decree
i.'1 favour of the respondents. and the High Court affirrr.ed it by di:iniissing the
appeal by the appellant.
Jn appeal. by certificate, the appellant contended (a) _that on the findinz; that
a fraud was committed on the plaintiff and the act of the managing director
being ultra vires of the statutes of the company, the company \Vould
not be
liable although the managing director may be personaIIy liable; and (b) assuming that the company was liable, but in view of the provisions of s. 7 ('.!) of the
Life Insurance Corporation Act, 1956, the liability of the
appellant
\Vould
extend only to matters appertaining to th~ controlled business as defined in the
Act.
Dismissing the appeal the Court,
HELD-: (1) The words of s. 7(2) of the Life Insurance Corporation Act
are of the widest amplitude and the ·section includes all debts, liabilities, obligations of whatever kind then existing and appertaining to the controlled business
of_ the insurer. There can be no doubt that at the time when
the appellant
took over the Adarsh Bima Company, the obligation to restitute the
benefit
received by the company from the plaintiff had been fastened and the appellant
was legally bound to return the same to the plaintiff under section 65 of the
Contract Act,. in ··.rie-n· of the findings of the Courts below that the contract was
yoid. .[15G·H, J6A-I)
(2) ·The question as to whether or not the transaction was 11/rra vires of the
statutes of the company was wholly irrelevant because that v.'a.s the reason why
_),
the contract was void and not a ground for exempting the appellant from its
liability to pay. [16AI
(3) The \\'Ords "of whatever kind .. in s. 7(2) are wide enough to take
":ithin "its sweep all kinds of transactions entered into by the predecessor com-
;pany. The ,present transaction was undoubtedly entCred into by the predecessor
A
B
c
D
E
F
G
H
12
SUPREME COURT REPORTS
[1979] l S.C.R.
company which had received the sum of Rs. 2 lakhs from the plaintiff and had
A
issued share slips and the appellant, therefore, cannot escape his liability even
under S. 7(2).
[16 A·CJ
•
( 4) As the plaintiff will be entitled to restitution of the
benefits
under
section 65 of the Contract Act, he can get only the amount which he had paid
to the appellant company .'lnd not any interest upto the date of the ruit. [16C']
B
[However the Court awarded interest at six percent per annum from
:he
c
date of the, suit, to the date of payment under S. 34 of the C.P .C.]
(5) The contention that on the finding that a fraud was con1roitted on the
plaintiff and the1 act of the managing director being ultra vires of the statutes of
the company, the company would not be liable although the managing director
may be personally liable is wrong.
There was absolutely no pleading by the
defendants that the n1onies were received by the 1 managiilg director per~onally
and in fact the same did not go to the coffers of the company. From the, issue
of the share scrips to the plaintiff, it must be presumed that the money
'!h'as
received by the company.
Moreover this question not having
being raise

## Text

-~
I
.......
'
11
LIFE INSURANCE CORPORATION OF INDIA
v.
RAJMATA SAHEB CHOWHANJI & ORS.
August 2, 1978
[S. MURTAZA FAZAL ALI, P. N. SHINGHAL AND A. D. KosHAL, JJ.]
Life Insurance Corporation Act, 1956 Section 7(2)-Scope of vis-a-vis
obligation to restitute the benefit under s. 65 of the Contract Act.
The plaintiff-~espondenl.-filed a- ~uit-for recovery of a sum of Rs.
2 lakhs
invested by_,,him in the Adarsh Bima Company, which was taken over by the
,appeltan4 (defendant no. 3) herein, on the basis that the managing director of
the Adarsh Bima Company by practising fraud and misrepresentation on the
plaintiff that the plain.tiff would be entitled to an assured dividend of 4% that
too contrary to the statute of the company induced him to part with the said
sum by purchasing 200 shares of Rs. 100/- each.-' The suit was contested by
the appellant mainly on the ground that after the appellant took over the
Adarsh Bima Company he v.·as not liable for any act of the company v.·hich
was ultra-vires of the sl2.tutes of the company. The trial Court passed a decree
i.'1 favour of the respondents. and the High Court affirrr.ed it by di:iniissing the
appeal by the appellant.
Jn appeal. by certificate, the appellant contended (a) _that on the findinz; that
a fraud was committed on the plaintiff and the act of the managing director
being ultra vires of the statutes of the company, the company \Vould
not be
liable although the managing director may be personaIIy liable; and (b) assuming that the company was liable, but in view of the provisions of s. 7 ('.!) of the
Life Insurance Corporation Act, 1956, the liability of the
appellant
\Vould
extend only to matters appertaining to th~ controlled business as defined in the
Act.
Dismissing the appeal the Court,
HELD-: (1) The words of s. 7(2) of the Life Insurance Corporation Act
are of the widest amplitude and the ·section includes all debts, liabilities, obligations of whatever kind then existing and appertaining to the controlled business
of_ the insurer. There can be no doubt that at the time when
the appellant
took over the Adarsh Bima Company, the obligation to restitute the
benefit
received by the company from the plaintiff had been fastened and the appellant
was legally bound to return the same to the plaintiff under section 65 of the
Contract Act,. in ··.rie-n· of the findings of the Courts below that the contract was
yoid. .[15G·H, J6A-I)
(2) ·The question as to whether or not the transaction was 11/rra vires of the
statutes of the company was wholly irrelevant because that v.'a.s the reason why
_),
the contract was void and not a ground for exempting the appellant from its
liability to pay. [16AI
(3) The \\'Ords "of whatever kind .. in s. 7(2) are wide enough to take
":ithin "its sweep all kinds of transactions entered into by the predecessor com-
;pany. The ,present transaction was undoubtedly entCred into by the predecessor
A
B
c
D
E
F
G
H
12
SUPREME COURT REPORTS
[1979] l S.C.R.
company which had received the sum of Rs. 2 lakhs from the plaintiff and had
A
issued share slips and the appellant, therefore, cannot escape his liability even
under S. 7(2).
[16 A·CJ
•
( 4) As the plaintiff will be entitled to restitution of the
benefits
under
section 65 of the Contract Act, he can get only the amount which he had paid
to the appellant company .'lnd not any interest upto the date of the ruit. [16C']
B
[However the Court awarded interest at six percent per annum from
:he
c
date of the, suit, to the date of payment under S. 34 of the C.P .C.]
(5) The contention that on the finding that a fraud was con1roitted on the
plaintiff and the1 act of the managing director being ultra vires of the statutes of
the company, the company would not be liable although the managing director
may be personally liable is wrong.
There was absolutely no pleading by the
defendants that the n1onies were received by the 1 managiilg director per~onally
and in fact the same did not go to the coffers of the company. From the, issue
of the share scrips to the plaintiff, it must be presumed that the money
'!h'as
received by the company.
Moreover this question not having
being raised
before any Courts below and also being a question of fact C«annot be gone into.
[l3C, E, F, 14D·E]
D
CJv1L APPELLATE JurusDICTION: Civil Appeal No. 237 l of 1968.
E
F
G
From the Judgment and Decree dated 20th April, 1967 of foe
Madhya Pradesh High Court in First Appeal Na .. 1 of 1960.
S. N. Kacker, Sol. Genl.
K. L. Hathi, Rajiv Datta and
P. C.
Kapur, for the Appellant.
L. N. Sinha, H. K. Puri, Vivek Seth, P. P. Singh and
M.
C.
Dhingra for Respondents Nos. 1-4.
The Judgment of the Court was delivered by
f AZAL Au, J. This appeal by certificate is directed against
the
judgment of the High Court of Madhya Pradesh dated 20th April,
1967 affirming the decree passed by the Additional District Judge ..
Indore decreeing the plaintijfs suit.
The facts of the case are detailed in the judgment of the High
Court and that of the District Judge and it is not necessary for us to
repeat the same all over again.
.,.._ -
•
Briefly, the present action was brought by the plaintiff for
recovery of a sum of Rs. 2,00,000 invested by· the plaintiff in
the
Adarsh Bima Company being defendant No. 1 and the predecessor
of the appellant, who is defendant No. 3 (Life Insurance Corporation
'-
of India).
The action was brought on the basis that the Managing
H
Director of the Adarsh Bima Company by practising fraud and misrepresentation on the plaintiff induced him to part with a sum of
Rs. 2,00,000 by purchasing 2000 shares of Rs. 100/- each. The courts
..
..
I
•
L.I.C. V. CHOWHANJI (Fazal Ali J.)
13
below have recorded clear findings of fact that the fraud alleged by
the plaintiff has been clearly proved and that the plaintiff had parted
with a mm of Rs. 2,00,000 by investing the same in purchase of
2000 shares as a result of which the shares scrips were handed over
to the plaintiff and he was assured of a dividend of 4%. It has also
been found as a fact that such a resolution was contrary to the statute
of the company.
The suit was contested by the appellant who is defendant No. 3
in the courts below mainly on the ground that after the appellant took
over the Adarsh ~ma Company, he was not liable for any act of the
company which was ultra vires the statutes o~ the company.
In support of the appeal the Solicitor General submitted two points
before us. In the first place it was contended that on the finding that
a fraud was committed on the plaintiff and the act of the Managing
Director being ultra vires of the statutes of the company, the company
would not be liable although the Managing Director may be personA
B
c
ally liable.
Secondly, it was argued that assuming that the company
D
was liable but in view of the provisions of section 7(2) o! the Life
Insurance Corporation Act, 1956 (hereinafter called the Act), the
liability of the appellant would extend only to matters appertaining to
the controlled business as defined in the Act.
As 1 cgards the first contention we find absolutely no substance in
the same.
There was absolutely no pleading by the defendants that
the monies were received by the Managing Director persona\ly and
that the same did not go to the coffers of the company. On the other
hand, the plaintiff clearly pleaded in paragraphs 3 (b), 8 (a)
and
8(b)
of
the plaint that the money was paid to defendant No. 1
company which after receiving the amount issued share scrips to the
plaintiff.
The relevant portions of the aforesaid statements may be
extracted thus :-
" J (b) Relying upon the said
guarantee and
promise
given by the defendant No. 2 on the Company's behalf
E
F
Plaintiff No. 1 on 1 lth June, 1947 gave at Jhabua to DeG
fcndant No. 1 Company through Defendant No. 2, Government of India 3 percent Loan Bonds of 1953-55 of the
value of Rs. 1,00,000 duly endorsed in favour of Defendant No.
1 company ............................. .
The company addressed a letter acknowledging receipt of the
application for 1000 shares and the full consideration of the
H
said •hares at the rate of Rs. 100 per share and agreed to
allot the said 1000 shares to plaintiff No. 4".
14
A
B
c
SUPREME COURT REPORTS
[1979] 1 S.C.R.
"S(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....
The plaintiffs submit that the transaction of selling the said
2000 shares of defendant No. 1 Company and registering
the same as aforesaid in the names of plaintiffs No. 2 to 4
with a guarantee of minimum return is
ultra
vires
the
defendant No. 1 Company and is found to be void and inoperative in law.
8(b) The said 2000 shares of defendant.No. 1 Company
are as aforesaid applied for and registered in the names of
plaintiffs No. 2 to 4. At all material times when the said
shares were registered in the name of plaintifft No. 2 to 4,
the plaintiffs No. 2 to 4 were minors.
The plaintiffs submit that the transaction of issuing the said 2000 shares to
plaintiffs No. 2 to 4 who were then minors and registering
them as share-holders in the Register of defendant No. 1
Company is void in law".
D
Thus, the plaintiff has clearly alleged that the monies were paid to
the defendant company and not to the Managing Director personally.
If the share scrips were issued, to the plaintiff then it must be presumed that the money was received by the company. This fact has
not been denied by the defendant-appellant. In these circumstances,
therefore, it is absolutely clear that there is nothing to show that I.he
E
money was paid to the Managing Director personally and not to the
company.
Moreover,
this
is
essentially
a question of
fact
and it docs not appear to have been raised before any of the courts
below. For these reasons, therefore, the first contention put forward
by the Solicitor General is hereby over-ruled.
F
Coming to the next contention the
same
undoubtedly
merits
G
H
serious consideration.
Before however examining this contention the
following admitted facts may be stated thus :
1. That the Bima Company was doing merely the busincso
of life insurance and no other;
2. That on the coming into force of the Act the entire
interest of the Company vested in the Government :
Section 7 (2) of the Act runs thus :-
"7 (2) The assets appertaining to the controlled business
of an insurer shall be deemed to include all rights and
powers, and all property, whether movable and immovable,
appertaining to his controlled business, including, in particular, cash balances, reserve funds, investments,
deposits
•
.·~
,
·~
.,
.A
L.I.C. v. CHOWHANJI (Fazal Ali J.)
and all other interest and rights in or arising out or such
property as· may be in the possession of the insurer and an
books of account or documents relating to the controlled
business of the insurer; and liabilities shall be deemed
to
include all debts, liabilities and obligations
of
whatever
kind then existing and appertaining to the controlled business of the insurer.
Explanation : Tue expression 'assets appertaining to the
controlled business of an insurer'
(a) in relation to a composite insurer, includes that part
of the paid-up capital of the insurer or assets representing
such part which has or have been allocated to the controlled
business of the insurer in accordance with the rules made i11
this behalf;
(b) in relation to a Government, means the amount lying
to th" credit of that business on the appointed day".
15
It is contended by the Solicitor General that the appellant was
liable to thscharge only those liabilities which pertained to the controlled business of the insurer.
Sub-clause (3) of section 2 of the
Act defines 'controlled business' thus :-
"controlled business" means-
(i) m the case of any insurer
specified
in
sub-clause
(a) (ii) or sub-clause (b) of clause (9) of section 2 of
the Iusurance Act and carrying on life
insurance
business . ... ,,
A
B·
c
D
E
As we have already pointed out that defendant No. 1 Adarsh Bima
F
Company was carrying on the business of life insurance only.
Thus
the moment the Act was passed, the business of the Adarsh Bima Company vested in the Corporation.
Pari passu this contention
it was
submitted that under section 7(2) of the Act the liability of the appellant would not extend not to any acts which are fraudulent or ultra vlres
of the statutes of the company.
We are, however, unable to agree
G
with this contention.
The words of section 7(2) of the Act appear
to be of the widest amplitude and the section includes all debts. liabilities, obligations of whatever kind then existing and appertaining
to the controlled business of the insurer. There can be no doubt that
at the time when the appellant took over the Adarsh Bima Company
the obligation to restitute the benefit received by ihe company from
H
the plaintiff had been fastened and the appellant was legally bound
to return the same to the plaintiff under section 65 of the Contract
!l
<:
D
16
SUPREME COURT REPORTS
[!979] l S.C.R.
Act in view of the finding of fact recorded by the Courts below that
the contract was void.
The question as to whether or not the transaction was ultra vires of the statutes of the company was wholly irrelevant because that was the reason why the contract was void and not
a ground for exempting the appellant from its liability to pay.
The
words "of whatever kind" are wide enough to take within their sweep
all kinds of transactions entered into· by the predecessor company.
The present transaction was undoubtedly entered into by the predecessor company which had received the sum of Rs. 2,00,000 from
the. plaintiff and had issued share scrips. In these
circumstances,
therefore, we do not see how th" defendant No. 3 can escape bis
liability even under section 7 (2) of the Act.
As however the. plaintiff will be entiHed to restitution of the benefits under section 65 of
the Act, he can only get the amount which be had paid to the appellant
company and not any interest thereon np to the date of the suit. For
these reasons, we are of the opinion that the judgment of the High
Court is correct and does not require any interference except a slight
modification in the form of the decree.
We, therefore, direct that the plaintiff will be entitled to the decree
of Rs. 2,00,000 passed by the courts below but not to the interest of
Rs. 4 7,000 claimed by him and to that extent the decree is hereby
modified. The plaintiff will however be entitled to interest at six per
cent per annum from the date of the suit to the date of the payment.
E
W% this modification the appeal is dismissed, but in the circumstances
without any order as to costs.
S.R.
Appeal dismissed.
•