# NEPTUNE ASSURANCE CO. LTD. & ORS v. UNION OF INDIA & ANR

- **Citation:** [1973] 2 S.C.R. 940
- **Court:** Supreme Court of India
- **Decided:** 1970-09-17
- **Bench:** S. M. S!Kri, A. N. Ray, D. G. Palekar, M. H. Beg, S. N. DwIVEDY
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/neptune-assurance-co-ltd-ors-v-union-of-india-anr-5926
- **Pages:** 29

## Headnote

General Insurance (Emergency
Provisions) Act 1971 s. l5(a}-'lnsurer' whose business is voluntarily 'lround up or is wound up under order
of Court exemHed from operation of Act-Voh<nt,1/'y
winding
up of
business 1vhether includes cessatio11 of busines,j-'/I, :urer' and insurance
company, whether distinct-Sections 2(e) and
15(a) of Act whether
violative of Art. 14, Constitution of India.
Tho first petitioner was a public limited company incorporated under
the Indian Companies Act. The second and Jiird petitionei·s were share·
holders and directors of the first petitioner. Up to the end of March, 1971
the petitioner company was registered under the Indian Insurance Act,
1938. The registration authorised it to carry on the busine~ of general
insurance comprising fire ~nd miscellaneous insurance. On September 17,
1970 its Board of Directors resolved that it would cease to underwrite
any insurance business as from the close of business on Septem~r 30,
1970. On that very date it informed the Controller of Insurance of the
resolution and returned its certificate
of registration for the year 1970
to the Controller of Insurance. After the close of business on September
30, 1970 it stopped doing any kind o'f general insurance business.. On
October 3. 1970 the Controller of Insurance returned the Registration
C'zrtifi~te to it with the remark that there was no provision in the Insurance Act for return of certificate. The Controller advised it not to
apply for renewal of certificate for the year 1971. On Febuary 2, 1971
the lfoard of Directors of the company passed a resolution cancelling all
policies with effect from March 10/12, 1971 ~ftcr giving due notice to
the policy-holders.
Another resolution was
passed terminating all re·
insurance treaties, both inward and outward, with effect from December
31. 1971. The company refunded to the policy-holders a sum of Rs. 48.000
on cancellation of their policies. The uncollected refund amount ~me to
Rs. 2013.98, On Febuary 16. 1971 the Controller of Insurance cancelled
the registration of the company .with dfect from April 5, •.971
under
section 3(4) (f) of the Insurance Act. The company reduced its staff.from
the month of September 1970.
By
the end of Februarv 1971 the total
staff cbnsisted of one officer. one clerk, one typist and one peon. ' Tn
respect of some of the policies cancelled cases were pending in court.
The Union of India, the first respondent, appointed a Custodian over
the undertaking of ·the company under s. 4 of the Gcccral Jnsuranc'
(Emergency Provisions) Ordinance I 971 on May 13, 1971. The said
Ordinance was· eventually re-enacted as General Insurance (Emerg'ocy
Provisions) Act. 1971. The Union of India issued also certain directions
on May 13, 1971 to regulaie the management of the undert9king by
the Custodian. The company filed petitions under article 32 of the Con·
situation claiming that the Act of 1971 was not applicable to it because
it was aa insurer whose business was being voluntarily wound
up
in
terms of section 15(a) of the Act and therefore
it could not be taken
over by the Central Government under s .. 3 of the Act. It was contended
that the words "whose business is being voluntarily wound up" in
sec~
tion 15(a) also meant "whose business is being voluntarily brought to
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NEPTuNE ASSURANCE CO, v. UNION
941
a close or final settlement". The company also challenged the constitutionality of part of section 2(e) as also of section 15(a) of the Act,.
under Art. 14 of the Constitution of Inoia.
Held: per majority (Palekar, Beg and Dwivedi, JJ.)
(i) The appellant company could not get the benefit of s. !5(e) ami
was subject to the provisions of s. 3 of the Act which pro;ides for the
take over of insurance companies. [966 HJ
Section 2C of the Insurance Act has limited the denotation of the
\vnrd 'insurer' from the date of the commencemeni: of the Insurance
(Amendment) Act 1950. Section 2C(l) provides that "no person shall,.
atter the commenceme

## Text

_Characters 0–39,930 of 84,418. This is a partial read: ask again with offset=39930 for what follows._

940
NEPTUNE ASSURANCE CO. LTD. & ORS.
v.
UN!ON OF INDIA & ANR.
November IO, 1972 ·
[S. M. S!KRI, C.J., A. N. RAY, D. G. PALEKAR, M. H. BEG AND
S. N. DwIVEDY, JJ.]
General Insurance (Emergency
Provisions) Act 1971 s. l5(a}-'lnsurer' whose business is voluntarily 'lround up or is wound up under order
of Court exemHed from operation of Act-Voh<nt,1/'y
winding
up of
business 1vhether includes cessatio11 of busines,j-'/I, :urer' and insurance
company, whether distinct-Sections 2(e) and
15(a) of Act whether
violative of Art. 14, Constitution of India.
Tho first petitioner was a public limited company incorporated under
the Indian Companies Act. The second and Jiird petitionei·s were share·
holders and directors of the first petitioner. Up to the end of March, 1971
the petitioner company was registered under the Indian Insurance Act,
1938. The registration authorised it to carry on the busine~ of general
insurance comprising fire ~nd miscellaneous insurance. On September 17,
1970 its Board of Directors resolved that it would cease to underwrite
any insurance business as from the close of business on Septem~r 30,
1970. On that very date it informed the Controller of Insurance of the
resolution and returned its certificate
of registration for the year 1970
to the Controller of Insurance. After the close of business on September
30, 1970 it stopped doing any kind o'f general insurance business.. On
October 3. 1970 the Controller of Insurance returned the Registration
C'zrtifi~te to it with the remark that there was no provision in the Insurance Act for return of certificate. The Controller advised it not to
apply for renewal of certificate for the year 1971. On Febuary 2, 1971
the lfoard of Directors of the company passed a resolution cancelling all
policies with effect from March 10/12, 1971 ~ftcr giving due notice to
the policy-holders.
Another resolution was
passed terminating all re·
insurance treaties, both inward and outward, with effect from December
31. 1971. The company refunded to the policy-holders a sum of Rs. 48.000
on cancellation of their policies. The uncollected refund amount ~me to
Rs. 2013.98, On Febuary 16. 1971 the Controller of Insurance cancelled
the registration of the company .with dfect from April 5, •.971
under
section 3(4) (f) of the Insurance Act. The company reduced its staff.from
the month of September 1970.
By
the end of Februarv 1971 the total
staff cbnsisted of one officer. one clerk, one typist and one peon. ' Tn
respect of some of the policies cancelled cases were pending in court.
The Union of India, the first respondent, appointed a Custodian over
the undertaking of ·the company under s. 4 of the Gcccral Jnsuranc'
(Emergency Provisions) Ordinance I 971 on May 13, 1971. The said
Ordinance was· eventually re-enacted as General Insurance (Emerg'ocy
Provisions) Act. 1971. The Union of India issued also certain directions
on May 13, 1971 to regulaie the management of the undert9king by
the Custodian. The company filed petitions under article 32 of the Con·
situation claiming that the Act of 1971 was not applicable to it because
it was aa insurer whose business was being voluntarily wound
up
in
terms of section 15(a) of the Act and therefore
it could not be taken
over by the Central Government under s .. 3 of the Act. It was contended
that the words "whose business is being voluntarily wound up" in
sec~
tion 15(a) also meant "whose business is being voluntarily brought to
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NEPTuNE ASSURANCE CO, v. UNION
941
a close or final settlement". The company also challenged the constitutionality of part of section 2(e) as also of section 15(a) of the Act,.
under Art. 14 of the Constitution of Inoia.
Held: per majority (Palekar, Beg and Dwivedi, JJ.)
(i) The appellant company could not get the benefit of s. !5(e) ami
was subject to the provisions of s. 3 of the Act which pro;ides for the
take over of insurance companies. [966 HJ
Section 2C of the Insurance Act has limited the denotation of the
\vnrd 'insurer' from the date of the commencemeni: of the Insurance
(Amendment) Act 1950. Section 2C(l) provides that "no person shall,.
atter the commencement of the Insuranee (Amendment) Act 1950 begin,
to carry on any any class of business in India and no insure~ carrying on any
class of insurance business in India shall, after the expiry of one year
from such commencement, continue to carry on any such business unless
he is :1 public company 1ncorporated in or out of India ot a society re·
gistered under ~ny law relating to Co-operative Societies
Act,
1972.
In the result at the commencement
of the Ordinance
and the Act,.
·Insurer' includecl a public company either in<\irporate~. under the Companies Act or under a foreign Company Jaw and a Cooperative Society.
Although according to the proviso to s. 2C( 1) the Central Government may
hv a Gazette notification exempt from the operation of s. 2C(l) any per··
son or insurer for the purpose of carrying on general insurance business
for not more than three years at a time, no such notification was shown to
have been in fact issued. Cooperative Societies are under the various State
laws relating to Cooperative Societies wound up by an order of the Regis·
trar of Cooperative Societies. Therefore the word insurer in s. 15(a) of
the Act includes only two classes of persons : (a) public limited co1npany
incorporated under the Companies Act; (b) a public company incorporated
under a foreign company law. [960 H; 961 BCRF]
The twin expressions "being voluntarily wound up" and "being wound
up by a court" have acquired a crystallised meaning in the Company and.
'Insurer' included a public company either incorporated under the Com·
panies Act and the Insurance Act. In the Companies Act the expression
"voluntary winding up" means a winding up by a special resolution of
the company to that effect. Section 54 of the Insurance Act provides its
011·~ procedure for the winding up of aP. insurance company. According
t_o 1t. an insurance company shall not be wound up voluntarily "except
tor the purpose of effecting a1na1gamation or reconstruction of a company o~. the g'.ound that by reason of· its liability it cannot continue its
husmess . Parliament will be.
presumed to
know that the expression
··voluntmy windin~ up" and "winding up by the Court" have acquired a·
tcchmcal meanmg m our Company and Issurance jurisprudence [961 H·
962 A·DJ
'
Sections 433(c}, 560, 583(4.) (a) & 584 of the Companies Act and'
sections 2E. 3(5D), 53 of the Insurance Act make a clear distinction
holwecn .the. cessation of business of.a company and its voluntary winding
up or wmdmg up by an order of the court. Parliament will be presumed
!O be aware of the distinctions between the cessation of business by an
rnsurance public company and its voluotary winding up or winding up by
an order of the Court. There is nothing unequivocal in s IS(a) of tr.e·
;\ct to show that P~rliament intend,,d to depart from the t~hnical mea~
[Z~3 o~'.~jse cxpresS1ons and to bid good-bye to the aforesaid distinction.
The appellant companv did not claim that it was being wourd up·
under s. 54 or s. '\8 of th
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e nsurance
ct. It could not voluntarily be-
942
SUPREME COURT REPORTS
[1973] 2 S.C.R.
\vound up otherwise than in accordance with s. 54 of the Jnsurancc Act. Jt
was accordingly difficult to comprehend the argument that the cessation
of business by the appellant company means volunt.iry winding up
of
its business.
This kind of voluntary \\'inding up of business is unknown
to the Insurance Act. [964 E]
The winding up of a foreign company by an order of the Court in
India really means the wipding up of its business in lndia. The word
'business' is not therefore redundant in s.15 (a).
Jf Parliament really
meant that the first limb of s. 15(e) shouJd.aJso apply to as insurer who
is in the process of closing its business ·j1 should have expressed the first
limb in some such manner as any insurer "whose business is being closed''
or "is being wound up''.
The constructio'n put for,vard by the
appel·
!ant company assigns little significance. to the word "voluntarily"
and
makes it n •urplusagc. [965 E·F]
Regina v. Bocml of Trade. i 1965] .I Q.B. 603 !ind Rajah of Viziana-
-~rum v. Of]icltll Receiv"·· Vidanagaram. [1962] Supp. J S.C.R. 344, re·
forrcd to.
·
Sections 15(b) and 2(e) of the Act both refer to an insurance company which has ceased to do business for a certain period. Section 15(a)
should be construed· in the setting of~. 15(h) and 2(c)~ So construed,
it is difficult to believe that P-arliamcnt has not used the expression "whose
business is being volu11tarily wound up" in the tcch'lical sense. [966 DJ
One of the professed objects of the Act is "to protect the interest
of the policy-holders pendinμ nationali-;ation of the general
insurance
business''.
The
interpretation !-.Uggestcd by the aP.pellant company \vould
def cur th al object.
As5un1ing that ~. 1 S la) h sn'>ccptihle o·f two mcunings-the \\'itlcr and the narrov.cr (tJi.~ technical). the one which fructifies
the sai<l legislative object should be preferred. [966 F-Gl
(ii) The chall~nge to sc.:ti-:>ns 2(e) and 15(a) of the Act based on
Article 14 of the <;onstitution must fail...,f968 E]
When the registr<1tion of <1 con1p-nny has remained wholly cancelled for
six months fron1 the appointed day. the Controller may ;;1pply to the Court
for its winding up under s. 3(5D).
As soon as the judicial process is ~ct
in motion. the company com.:s under th~ car.trot of
the
Court.
The
Court's control \\'ill protect those policy holders who have got unsatisfied
claims agr:in?-.t the co1nr:1n~
On the other hand th: company
whose
registration has remained '"holly c;;tnccllcd for less than six months
can
revive itself.
It cannot b.~ ,.·vund up by the Court at the instance of the
Controller.
The claim-; of rhe policy-holders agl.linst such a company will
remain unprotected.
'fh1...· tukcovcr of. the undertaking of the, company
under the Act improves, hy rca~on of the Government's management, the
prosp:cts of their cl:iims suti~faction.
It is also calculated to protect all
interests by applying after the takeover, if that course is deem.-cd necessary. to revive the business of the company. Section 2(e) is therefore not
Uiscriminatory.
For the sr.me reasons s. 15(a) ~Jso is not discriminatory.
f96R B·E)
[As the attnck based on Art. 14 did not succeed. the Court found it
unnecessary rO deal wi.th the respondents' contention based on Art. 31A(b)
(d) of the Constitution.]
Per Sikri C.J. and Ray, J. (dissenting).
On the !-anguagc of section 15 (a) the con1pnny in the present case was
rin insurer -.vhose business \Vas being voluntarily wcund up.
Ther.cfore the
Ordinti.ncc a11d the Act did not apply to the petitioner company.
[955 G]
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NEPTUNE ASSURANCE CO. V. UNION
943
1t is important to notice that the Act uses the word 'insurer' and not
the words 'insurance company'.
The Insurance Act has throughout the
Act used the words 'ir.surer' as well as 'insurance company'.
The appropriate section in each instance will indicate as to why the Act uses the
word 'insurer' in one section and the words 'insurance company' in the
other. An insurer under the definition of the. Insurance Act is of wider
amplitude than an in~ur~nce company. It is an indiyidual or any unincorporated body of md1v1duals or a body corporate mcorporated und~r
the Jaw of a foreign country.
From section 2C of the Insurance Act 1t
follows that an insurer as an individual may be allowed by the Government
to carry on general insurani.:e business undzr the Government exemption.
[948 DE & 949 C]
The Legislature knows the distinction between voluntary winding up
of an insurance company or winding up of it by a Court and an insurer
whose business is being voluntarily wound up or is wound up by Court.
Full effect is to be given to the words used in a legislative measure. The
words which arc not found ig the present legislative measure cannot be
substituted by words which are used in other statutes.
That would be
defeating the purpose of the Act.
The word 'insurer' cannot be read in
place ot msurance company. [952 G-H]
The provisions in the Insurance Act relating to voluntary winding up
and partial winding up of insurance companies indicate the
difference
between the concepts of voluntary winding up under the Insurance Act
and the Indian Companies Act and the business of an insurance company
being voluntarily wound up. A voluntary winding up under the Insurance
Act occurs for the purpose of effecting a reconstruction or amalgamation
or on the ground that a company cannot continue its business because it
cannot meet its liabilities. None of these
contingencies is the same as
voluntarily winding up business. A partial Winding up of an insurance
company is winding up of a particular type of business. That company
does not cease to do business. Nor is the C'Ompany voluntarily wound up
in such a case. [953 D·E]
In :he pre1ent case the company resolved to wind up its business. The
company discontinued to do insurance business. The company canc.elled
all outstanding policies in the month of February, 1971. The company had
not undertaken any new business after 30 September, I970. (953 HJ
Afte: 30 S~ptember 197~ the company had taken steps to wind up
voluntarily all insurance business.
The company informed the Controller
?f its .<lecis.ion to ~top doing insurance business. The company returned
its ~eg1Strat1on certificate. All t~se features lead to the inescapable concluS1on that the business of the msurer was being voluotarily wound up
Therefore the provisions contained in sectio11 15(a) will apply to th~
company whose business is being voluntarily wound up. (954 A·B]
. (ii) In the Ban.k Nationalisation case this Court said that the Court
will n?l, c'O.nc~ntratmg merely upo.n the technical objection of the action,
deny itself 1u11sd1ctton to grant relief to the share holders when the rights
of the shareholders as well as of the company are impaired
The loc
standi of the petitioners could not be challenged. [957 C-0) ·
u.r
R. C. Cooper v. Union of India, (1970] 3 S.C.R. 530, referred to.
ORIGINAL JuR1SDICTION :
Writ Petition No. 425 of 1971.
P~tition under article 32 of the Constitution of India for the
enforcement of fundamental rights.
944
SUPREME COURT REPORTS
[1973] 2 S.C.R.
B. Divan and 1. N. Shroff, for the petitioners.
V. M. Tarkunde, G. Das and B. D. Sharma, for respondent
No. 1.
·
.
M. C. Setalvad, P. C. Bhartari,
J. B. Dadachanji,
O. C.
Mathur and Ravinder Narain, for respondent No. 2.
The Judgment of D. G. Palekar, M. H. Beg and S. N. Dwivedi,
JJ. was delivered by Dwivedi, J. The dissenting Opinion of S. M.
Sik~i, C. J. and A. N. Ray, J. was given by Ray, J.
RAY, J. This writ petition challenges the application of the
General Insurance (Emergency Provisions) Ordinance 1971, the
General Insurance (Emergency Provisions) Act 1971 as well as
the General Insurance (Emergency Provisions) Amendment Act
1972 to the petitioner company. The petitioners are three in number, viz., the company and two Directors and shareholders.
The petitioners asked for a declaration that the order dated 13
May 1971 made in exercise of powers conferred by section 4(1) of
the General Insurance (Emergency Provisions) Ordinance 1971
and the directions dated 13 May 1971 given by virtue of powers
conferred by section 4(3) of the General Insurance (Emergency
Provisions) Ordinance 1971 are illegal.
The paid up capital of the Neptune Assurance Company referred to as the company is Rs. 10,00,000. The petitioner Jalan is
a Director of the company. He holds 16, 725 ordinary shares of the
face value of Rs. 20 each. The petitioner Goenka is a Director of
the company. He holds 2,000 ordinary shares of the face valu~ of
Rs. 20 each.
The company carried on business as general insurers consisting of fire and miscellaneous insurance business. In the month of
September 1970 about 2343 insurance policies of the company
were in force. On 17 September 1970 the Board of Directors of
the company resolved that the company would cease to underwrite
any insurance business as from the close of business hours on 30
September 1970. On 30 September 1-970 the company wrote to
the Controller of Insurance about the decision of the company to
cease to do business as on the close of business on 30 September
1970. The company returned its registration certificate for the
current year to the Controller of Insurance. After close of business
on 30 September 1970 the company stopped doing all insurance
business.
On 3 October 1970 the Controller of Insurance returned to the
company its registration certificate. The Controller pointed out
that there was no provision for return of certificate. The Controller advised the company not to apply for renewal of registration
certificates for the year 1971.
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NEPTUNE ASSURANCE CO. v, UNION (Ray, J.)
945
In the month of October 1970 there was an agreement between the comrany and the New Grert Insuranc.: Company of
India Ltd. referred to as the New Great in respect of an intended
transfer of the entire business of the company to the New Great.
The agreement provided inter alia ihc following features. Before
transfer of the entire general insurance busint".ss by the company
it wiil obtain the consent of the shareholders at
the
general
meeting far transfer of the general insurance business t'} the New
Great. The company shall prepare a detailed list of all the
claims received from policies issued by the company and which
claims are outstanding and/or pending on 30 September 1970
and give the same to· the New Great with all particulars.
On 20 October 1970 notice was given that an extra-ordinary
general meeting of the company would be held on 17 November
1970. The extraordinary general meeting was inter alia to transact
the business of the proposal for transfer of the company's insurance
-business and also of the liabilities in respect of claims relating to
the insurance business to the New Great upon the terms recorded
in the agreement dated 15 October 1970. The second business to
be transacted at the said extraordinary general meeting was to
reso:tve that pursuant to section
149 (2A) of the Companies
Act 1956 the company would do business as set out in clause III,
sub-clauses ( 8) and (9) of the Memorandum of Association of the
Company except Banking business. The company thought of investment and finance business. As required by section 173 of the
Companies Act the company gave an explanato~y statement of the
extraordinary general meeting.
In the month of October 1970 ci:cular letters were issued to
all policy holders about the company ceasing to underwrite new
insurance business with effect from I October 1970. The company
sent to all policy holders letters to express their confirmation of the
arrangement for takiDg over the liabilities by the New Great. On
17 November 1970 there was an extraordinary general meeting
of the company. The resolutions which had been notified were
passed. It may be stated here that about 50 policy holders
demanded cancellation of policies on receipt of circular letters.
About 1,389 policy holders did not send any reply. The company
advised that they would not be completely discharged from their
lia~ilities unless and until all policy holders agreed to transfer
policies to the other insurance company or desired cancellation.
On 2 February 1971 there was a resolution of t·he Board of
Directors of the company cancelling the agreement dated 15
October 1970 entered into with the New Great. There was a
second resolution cancelling al! policies as from 10/12 March
l ~71 after giving due notice to all policy holders. There was a
third resolution to terminate all re-insurance treaties both inward
9 4 fi
SUPREME COURT REPORTS
(1973] 2 S.C.R.
and outward from 31 December 1970. Jhe company and the New
Great by mutμal consent cancelled the agreement dated 15 October
1970. In the month of February 197 l the company issued circular
letters to all policy holders effecting cancellation of all policies
under relevant clause in each policy. The company refunded to
policy holders the sum of Rs.
48,000 on cancellation of the
policies. The uncollected refund amounts to Rs. 2013.98.
On 16 February l 971 the Controller of Insurance
affected
cancellation of the registration of the company with effect from
5 April 1971 under section 3(4)(F) of the Insurance Act, 1938.
On 22 February 1971 the company gave letters to Indian
Guarantee and General Insurance Co. and M/s India Re-Insurance Corporation Ltd. cancelling all re-insurance treaties with
effect from 31 December 1970.
,
The company alleged that it ceased to do all new insurance
business from the close of business from 30 September, 1970. The .
company refunded to policy holders premia excepting a
small
sum of Rs. 2,000 which was not collected. The company reduced
its staff from the month of September 1970. By the month of
February 1971 the total staff of the company was reduced to one
officer, one clerk, one typist and one peon drawing total emoluments of Rs. 1854.20 per month as contrasted with salary bill of
Rs. 7179.10 per month prior to the month of September 1970.
On these allegations the company said that its business was being
voluntarily wound up since 30 Septemher 1970.
On 13 May 197 l the General Insurance (Emergency Provisions) Ordinance 197 l referred to as the Ordinance was promulgated. On 13 May, 1971 an order under section 4(1) of the Ordinance was made by the Central Government appointing resppndent No. 2 as the custodian of the company. On the same day
directions were given by the Central Government
under
the
Ordinance in regard to the manugement of the undertaking of the
company.
On 17 June 1971 the General Insurance (Emergency Provisions) Act 1971 referred to as the Act was enacted. The Act
replaced the Ordinance. The Act was retrospectively brought into
force with effect from I '.I May 1971. The Ordinance as well as the
Act contain similar provisions.
The purpose of the aforesaid legislative measures was to provide for the taking over in the public interest of the management
of general insurance business pending nationalisation of such busiA
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ness. By general insurance business is meant under the Act fire.-
H
marine or miscellaneous insurance business, whether carried on
singly or in combination with one or more of them, but does not
include capital redemption business and annuity businees.
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NEPTUNE ASSURANCE CO. V. UNION (Ray, J.)
947
insurer under the Act means an insurer as defined in the Insurance
Act 1938 referred to as.the Insurance Act who cafoes on general
insurance business in India, and includes an insurer whose registration under the Insurance Act has not remained wholly carn::elled for a period of six months inunediately before the appointed
day. Undertaking is defined by lhe Act to mean in relation to an
insurer incorporated outside India, the undertaking of that insurer
in India.
Section 3 of the Act statei. that as from the appointed day
which is l 3 May, 1971 the management of the undertakings of all
insurers shall vest in the Central Government. It is further provided that pending the appointment of a custodian the persons in
charge of the management of the undertaking shall be in charge
of the management for and on behalf of the Central Governmenl.
An insurer is forbidden without the previous approval of the
person specified by the Central Government in this behalf to mak~
any payment or grant any loan otherwise than in accordance with
the normal practice observed by him in respect of such matters
immediately before the appointed day. There is similar prohibition
to incur any expenditure from the assets appertaining to the undertaking, to transfer or otherwise dispose of any such assets, to invest
in any manner any moneys for.ming part of such assets, to acquire
any immova\lle property out of any moneys forming part of such
assets to enter into contract of service or agency. Every insurer is
also required to deliver tn the persons specified by the Central
Government various documents, namely, minutes book, current
cheque books, registration books containing particulars relating
to investments, loans, advances, promissory notes and certificates.
Section 4 of the Act is the other important provision. Under
that section the Central Government is empowered to appoint a
custodian for the management of the company. The Central Government is also empowered to issue directions to the custodian as
to his powers and duties in relation to the management of
the
company.
The Act provides for payment of compensation. The Act places
a bar against winding up of a company the management of which
is vested in the Central Government. After the appointed day the
Controller of Insurance shall not issue any new
certificate
of
insurance lo any person.
The crucial provisions are section 15(a) of the Act. It is en-
~cted that nothing contained in this Act shall apply to (a)
any
msurer whose business is being voluntarily wound up or is being
wound 11p by Court.
. ~he petitioners strongly rely on section 15(a) of the Act. The
petitioners allege that the business of the company was being
9-L52 !Sup.Cl/73
SUPREME COURT REPORTS
[1973) 2 s.c.R.
voiuntarily wound up at all material times within the meaning of
the Ordinance and the Act. Therefore the petitioners contend that
the company is not .viihin the mischief of those legislatlve
measures.
The Government contention is that section 15 (a) of the Act
applies only to an insurance company which is being voluntarily
wound up and is being wound up by Court. It is emphasized that
when an insurance company or an insurer ceases to carry on any
particular kind of business it is not being voluntarily wound 'Up.
Voluntary winding up-or winding up by Court is said by the
Government to mean only winding up within the meaning of the
Indian Companies AJ:t and the Insurance Act. The meaning of
the words "an insurer whose business is voluntarily wound up
or is wound up by Court" is, according to the Government, an
insurance company which is bein11: voluntarily wound up or wound
up by CQur~.
At the threshold it is important to notice that the Act u~es the
word 'insur~r· and not the words "insurance company". The Insurance Act has throug~o!Jt the Act used the words "insurer" as well
as "insurance company". The appropriate section in each instance
will indicate as to why the Act uses the word "insurer" in one
section and the words "insurance company" in the other. An insurance company under the Insurance A~t means any insurer being
a company, association or partnership which may be wound up
under the Indian Compenies Act or to which the Indian Partnership Act applies. A partnership to which the Indian Partnership
Act Applies is not a company within the meaning of the Indian
Companies Act. The Insurance Act has yet inclu<led a partnership
within the meaning of an insurance company. An insurer, on the
0ther hand, under section 2 clause (9) of the Insurarice Act means
(a) any individual or un-incorporated body of individuals or body
corporate, incorporated under the law of any country other than
India carrying on business not being a person specified in subclause (c) of clause (9) of section 2, (b) any body corporate incorporated under any law for the time being in force in India and ( c)
any person who in India has a standing contract with underwriters
who are members of the Society of Llyod's whereby such person is
authorised within the terms of such contract to issue protection
notes, cover notes, or other documents granting insurance cover
on behalf of underwriters. Therefore an insurer under the definition of .the Insurance Act is of wider amplitude than an insurance company, it is an individual or any unincorporated body of
individuals or a body corporate incorporated under the Jaw of
a foreign country is an insurer.
Section ZC of the Insurance Act which ~ame into effect in
1950 enacted that after the commencement of the Insurance
(Amendment) Act 1950 which brought that section into existence
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NEPTUNE ASSURANCE CO. l', UNION (Ray, /.)
949
no person after the expiry of one year from the commencement of
the Amendment Act s.!!all continue to carry on business unless he
is (a) a public company, or (b) a society registered under the Cooperative Societies Act, or (c) a body corporate incorporated under
the law of any country outside India. Therefore after 1950 :.n
individual will not be allowed to carry on business as an insurer.
There is however a proviso to section 2C of the 1950 Amendment
that .the Central Governn:ient may by notification in the Official
Gazette, exempt from the operation of section 20 any person or
iim;rer for the purpose of carrying on the business of granting
superannuation allowances and annuities as mentioned in section
2 (ii)(c) of the ,6,.ct or for the purpose of carrying on any general
insurance business. It is also provided th.at an insurer carrying on
general insurance business will not be entitled to such notification
being issued having effect for more than three years at any one
time. It, therefore, follows that an insurer as an individual may be
allowed by the Government to carry on general insurance business
under the Government exemption.
The various kinds of insurance business are fire
insurance
business, general inslJrance business,
life insurance
busine~s .
. marine insurance business and miscellaneous insurance business
defined in clauses (6A), (6B), (II) (13A) and (13B) of section
2 of the Insurance Act. General insurance business means fire.
marine or miscellaneous insurance business whether carried
O)l
singly or in combination with one or more of them.
'Section
3 of the Insurance Act speaks of registration of the
persons carrying on insurance business.
Se~tion 3 ( 4) of
the
Insurance Act speaks of cancellation of the registration of an
insurer.
Section 3(5C) of the Insurance Act states that where
the registration is cancelled the Controller may at his discretion
revive the registration. The instances where registration may be
revived are also specified. If the- registratio.i is cancelled on thl'
ground that the insurer is in liquidation the registration cannot bl'
rev!ved. It i~ noticeable. th,at t~e Insurance Act .speaks iif liquidal!on of an msurer.
L1qu1dat10n here means wmding up of an
ins?ra~c.e company.
Liqu~dation in the first place does nor apply
to md1v~duals or P,artnersh1ps, and secondly liquidation is not thl'
same thmg as ceasmg to carry on business. Under section 3 (50)
wh~re the ~egistration is cancelled the Controller may after the
expiry of stx months from the date on which
the
cancellation
took effect. aP,ply t? the Court to wind up the insurance companv
unles.s the reg1strat1on has been revived under sub-section (SC). -
!he Insurance Act in sections 53 to 60 speaks of winding up.
~cl!on 53 states that the Court may order the winding up of an
msurance .company. Section 54 speaks of the voluntary windin~
up of an msurance company. Section 55 deals with valuation ~f
950
SUPREME COURT REPORTS
(1973] 2 S.C.R.
liabilities in the winding up of an insurance company.
Section
56 deals with application of sl'rplus assets of life insurance fund
in liquidation of insurance company or insolvency of insurer.
Liquidation is spoken of companies. Insolvency is spoken of
insurers.
The distinction between an insurer and an insurance
company is apparent to emphasise the. difference between winding up and insolvency.
Section 57 relates to winding up of
secondary companies.
That section defines secondary company
to be an insurance company whose insurance business or any
part of the insurance business has been transferred under
an
arrangement to a principal company. If the principal company
is wound up by or under the supervision of the Court the Court
shall order the secondary cc;mpany to be wound up in conjunction with the principal company.
Section 58 deals with partial winding up of imurance companies.
Partial winding up happens when the affairs of an insurance company in respect of any class of business should be
wound up but any other class of business should continue to be
carried on by the company or transferred to another insurer.
A
scheme for partial winding up is to be submitted to Court for
confirmation. A scheme shall provide for allocation and distribution of the assets and liabilities of the company. A scheme is
to contain provisions for altering the memorandum of the company with respect to its objects giving effect to the scheme when
the company carries on another class of business. There may be
winding up of the company when under the scheme it is propo_sed to transfer the business to another insurer. The provision
relating to the valuation of liabilities of insurers in liquidation
and insolvency and to the application of surplus assets of the life
insurance fund in liquidation are to apply to the winding up of
any part of the affairs of the company in
case of any partial
winding up.
An order of the Court confirming a scheme under
this Section whereby the memorandum is altered as to its objects
shall as respect the alteration have effect as if it were an order
confirmed under section 12 of the Indian Companies Act 1913
and the provisions of sections 15 and 16 of that Act shall apply
accordingly.
Section 59 speaks of return of deposits in the case of winding
up of an insurance company other than in a case to which section
58 applies. Section 60 states that on the winding up of an insurance company, the persons appearing by the books be entitled
to or interested in the policies granted by the company are to be
given notice of policy values.
Section 61 states that where an
insurance company is in liquidation the Court may make an
order reducing the amount of the insurance contracts of the
company.
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NEPTUNE ASSURANCE CO. V. UNION (Ray, J.)
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The first noticeable feature is that sections 53, 5:4 and 58 of
the Insurance Act which deal with winding up by Court, volu1.1tary
winding up and partial winding up respectively speak only Qf
insurance company.
There are some sections which speak of
insolvency of any other insurer. These sections are 55, 56 and
61 of the Insurance Act which deal respectively with valuation
of liabilities, application of surplus assets of life insurance fund
and powers of the Court to reduce contracts of insurance. In•
solvency of other insurer will refer to
Co-9petative Societies,
inc!ividuals and companies which are incorporated outside India.
Under the Insurance Act these are not insurance companies. A
foreign company which is in voluntary liquidation or is being
wound up by Court will be an insurer within the meaning of the
197 l Act and will also be described as an insurer who is insolvent.
These sections indicate the distinction between an illsurance company and an insurer.
The second important matter to be noticed in all
the sections relating to wi[lding up i~ the Insurance Act is that voluntary winding up and partial winding up of insurance companies
is not the same as under the Indian Companies Act. A voluntary
winding up under the Insurance Act is impermissible except for
the purpose of effecting an amalgamation or a reconstruction of
the company or on the ground that by reason of its liabilities it
1 cannot continue its business. The provisions of the Indian Companies Act do not apply to such voluntary'winding up of an insurance company.
Under the Indian Companies Act 1956
a
company may be voluntarily wound up if the compaQy passes
special resolution that the company be wound up voluntarily.
The special provisions of the Insurance Act regarding voluntary
windin6 up rule out the application of the provisions of the
J ndial! Companies
Act.
Amalgamation
and
Reconstruction
under the Indian Companies Act are a different matter.
Under
section 394 of the Indian Companies Act a transferer company
on Amalgamation may be dissolved without any winding up.
Again under section 392 of the Indian Companies Act 1956 the
Court at the time of sanctioning a compromise· of an arrangement may make an order winding up the company. It will be
treated as winding up by Court. These provisions indicate that
voluntary winding up of co!fipanies under the fndian Companies
Act and the voluntary winding up of insurance companies under
the Insurance Act are not the same.
Next comes :he partial winding· up of Insurance companies.
The~e is .no. such provision in the Indian
Companies Act.
A
partial wmdmg up under the Insurance Act is
treated as
an
alteration of a memorandum of the company. A partial winding
up under the Insurance Act will in relation to that part which is
952
SUPREME COURT REPORTS
[1973] 2 S.C.R,
wound up attract the provisions of the Insurance Act regarding
valuation of liabilities and application of surplus assets in liquidatioli or insolvency.
The Government relied on sections 53; 54 and 5.8 of the
Insurance Act in supp<>rt of the contention that the winding up
or a voluntary winding up will mean only voluntary winding up
or w~ding ·UP.. of the company and will never mean the voluntary
cesser of doing any kind of insurance business by a company. It
is said that if a business can be said to be voluntarily wound up
without a voluntary winding up of the company the sections will
be robbed .of their full effect.
Reliance was also placed by the
Government on section 2D of the Insurance Act which state-;
that ·every insurer shall be subject to all the provisions of the
Act in relation to any class of insurance business so long as his
liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for.
The Government leaned
on this sec.lion to emphasize that if a company ceasing to do any
busin~ss could be said to be one whose business was being voluntarily wound up it could not again be said to be subject to the
provisions of the Act on the ground that the liabilities remain
unsatisfied.
The Insurance Act speaks of winding up of insurance companies. . The legislature has yet in the General Insurnace (Emergency Provisions) Ordinance .I 971 and the General
Insurance
(Emergency Provisions) Act 1971 not spoken of an insurance
comp~ny being voluntarily wound up or wound up by
Court.
On the contrary, the legislative measures in the present case have
used the words "an insurer" whose business is voluntarily wound
up or is being wound up. by a Court. In this context, it may be
state_d that when the Life Insurance (Emergency Provisions) Act
1956 came into existence both the Life Insurance (Emergency
Provisions) Ordinance 1956 am! its successor the Life Insurance
(Emergency Provisions) Act 1956 used identical
words
that
"nothing in the Ordinance or in the Act shall apply to any insurer whose business is voluntarily wound up or is wound
up
under order of Court". The legislature knows the distinction
between voluntary winding up of an insurance company or winding up of it by a Court and an insurer whose business is, being
voluntarily wound up or is wound up by Court. Full effect is to
be given to the words used in a legislative measure. The words
which are not found in the present legislative measures cannot
be substituted by words which are used in other statutes. That
would be defeating the entire purpose, of the Act. The word
"insurer" cannot be read in place of insurance com9any.
An insurer is not for all purposes the same as an insurance
company.
An individual is an insurer.
A co-operative society
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NEPTUNE ASSURANCE CO. v. UNION (Ray, J.)
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is an insurer.
A con}pany incorporated in a foreign country and
carrying on business in India is
an
insurer. A
co-operative
society is not wound up under the Indian Companies Act.