# THE GENERAL ASSURANCE SOCIETY LTD v. THE LIFE INSURANCE COR_PORATION OF

- **Citation:** [1964] 5 S.C.R. 125
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Case number:** Civil Appeal No. 568 of 1961
- **Bench:** P.B. Gajendragadkar, K. SUBBA RAo, K.N. Wanchoo, J.C. Shah, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-general-assurance-society-ltd-v-the-life-insurance-cor-poration-of-2965
- **Pages:** 23

## Headnote

Life Insurance Corporation Act, 1956 (31 of 1956), s. 7(1). If
amounts representing dividends declared fall within
"assets and
liabilities" of controlled
business--Compensation and paid up
capital allocable for controlled business-Tribunals Jurisdiction to
set off-Life Insurance Corporation Rules, 1956, r. 12A (iv) and (vi)-
Insurance Act, 1938 (4 of 1938)-Whether precludes challenge of
certified balance sheets-Interest on compensation.
On the enactment of the Life Insurance Corporation Act,
providing for the nationalisation of life insurance business, the
1963
October 18
126
SUPREME COURT REPORTS
[1964]
1963
controlled business i.e., the life insurance business of the appellant,
a composite insurer, vested in the respondent-corporation. ThereThe General As- after disputes arose between the appellant and the respondent
surance Society in the matter of .ascertainment of the compensation payable to
L d
the appellant and m respect of mc1dental and consequential matters
t ·
thereto. The respondent offered to pay the appellant towards
v.
compensation a certain amount after setting off the amount due
The Life
to it from the appellant in respect of part of the paid up capital
Insurance
of the controlled business and assets representing that part. The
Corporation of appellant refused to accept this offer in toto. The dispute was
India.
referred to the Tribunal. The Tribunal ascertained the compensation payable to the appellant and set off against that amount the
bala.nce of the amount due from the appellant towards the allocable
paid up capital. Relying upon the books of account of the appellant to find out whether the unpaid dividends of any share holder
·of the appellant was the liability of one department or the other,
the Tribunal held that the entire liability for the unclaimed dividends
and assets appertained to the controlled business, and therefore,
statutorily vested in the respondent. The Tribunal held that
it had no jurisdiction to award interest on the amount of compensation. On appeal by special leave, it was contended (i) that the
Tribunal had no jurisdiction to decide on the question of the capital
allocable to the controlled business as there was no dispute thereto
between the parties and the said question was not referred to it;
(ii) the liabihty of the appellant for the unclaimed dividends and
assets equivalent to the liability were not transferred to and vested
in the respondent under s. 7(1) of the Act, and (iii) that the appellant would be entitled to interest on the amount of compensation
payable to it and the Tribnnal had jurisdiction to award the same.
Held: The dispute between the parties related not only
to compensation, but to the set off also, that the dispute was referred to the Tribunal, and the Tribunal had jurisdiction to decide
that dispute. A combined reading of els. (iv) and (vi) of r. 12A
of the Rules under the Act makes it abundantly clear that a claim
for set off is certainly covered by the wide phraseology of cl. (iv)
of r. 12A.
The calculations under r. 18(1) show that there is an integral
connection between the compensation payable to the insurer
and the amount representing the capital allocable to the controlled
business transferred to the respondent. As these figures cannot be
dissociated, the respondent made a composite offer. The Act
contemplates the setting off one against the other.
National Insurance Co. v Life Insurance Corporation of India
[1964] 2 S.C.R. 182, followed.
(ii) The definition of assets and liability of a controlled business
in sub-s. (2) of s. 7 of the Act is certainly comprehensive enough
to take in unclaimed dividends and corresponding assets.
Sub-sections (!) and (2) of s. 7 of the Act provides that the
assests and liabilities to be transferred must belong to the controlled
'·
-
l
•
5 S.C.R.
SUPREME COURT REPORTS
127
business of the insurer. The antithesis is not between the company
and its business but between the controlled business and other
1963
business of the in

## Text

_Characters 0–39,993 of 49,548. This is a partial read: ask again with offset=39993 for what follows._

-
5 S.C.R.
SUPREME COURT REPORTS
125
commence from the first day of April 1954. It is
1963
clear therefore that his tenancy was by the calendar
month. It commenced on the first day of the month
Raj Kishore
and expired on the last day of the month. This
Tewari
period of monthly tenancy was in no way affected
v.
by the provisions of sub-s. (2) of s. 13 whose effect Govinda Ram
was simply this that the sub-tenant instead of being
Bhansa/i
sub-tenant of the tenant who had been ejected, got
-
a direct connection with the landlord and became Raghubar Dayal
his tenant-in-chief or, as the Act describes, tenant in
J.
the first degree. The statutory provision just brought
about a change in the landlord of the sub-tenant. The
proprietor-landlord took the place of the tenantin-chief from whom the sub-tenant had secured the
tenancy.
We are therefore of opinion that the High Court
was right in rejecting the contention of the appellant
with respect to the invalidity of the notice for ejectment dated March 19, 1957. The result is that the
appeal fails and is dismissed with costs.
Appeal dismissed.
THE GENERAL ASSURANCE SOCIETY LTD.
v.
THE LIFE INSURANCE COR_PORATION OF
INDIA
(P.B. GAJENDRAGADKAR, K. SUBBA RAo, K.N.
WANCHOO, J.C. SHAH AND RAGHUBAR DAYAL JJ.)
Life Insurance Corporation Act, 1956 (31 of 1956), s. 7(1). If
amounts representing dividends declared fall within
"assets and
liabilities" of controlled
business--Compensation and paid up
capital allocable for controlled business-Tribunals Jurisdiction to
set off-Life Insurance Corporation Rules, 1956, r. 12A (iv) and (vi)-
Insurance Act, 1938 (4 of 1938)-Whether precludes challenge of
certified balance sheets-Interest on compensation.
On the enactment of the Life Insurance Corporation Act,
providing for the nationalisation of life insurance business, the
1963
October 18
126
SUPREME COURT REPORTS
[1964]
1963
controlled business i.e., the life insurance business of the appellant,
a composite insurer, vested in the respondent-corporation. ThereThe General As- after disputes arose between the appellant and the respondent
surance Society in the matter of .ascertainment of the compensation payable to
L d
the appellant and m respect of mc1dental and consequential matters
t ·
thereto. The respondent offered to pay the appellant towards
v.
compensation a certain amount after setting off the amount due
The Life
to it from the appellant in respect of part of the paid up capital
Insurance
of the controlled business and assets representing that part. The
Corporation of appellant refused to accept this offer in toto. The dispute was
India.
referred to the Tribunal. The Tribunal ascertained the compensation payable to the appellant and set off against that amount the
bala.nce of the amount due from the appellant towards the allocable
paid up capital. Relying upon the books of account of the appellant to find out whether the unpaid dividends of any share holder
·of the appellant was the liability of one department or the other,
the Tribunal held that the entire liability for the unclaimed dividends
and assets appertained to the controlled business, and therefore,
statutorily vested in the respondent. The Tribunal held that
it had no jurisdiction to award interest on the amount of compensation. On appeal by special leave, it was contended (i) that the
Tribunal had no jurisdiction to decide on the question of the capital
allocable to the controlled business as there was no dispute thereto
between the parties and the said question was not referred to it;
(ii) the liabihty of the appellant for the unclaimed dividends and
assets equivalent to the liability were not transferred to and vested
in the respondent under s. 7(1) of the Act, and (iii) that the appellant would be entitled to interest on the amount of compensation
payable to it and the Tribnnal had jurisdiction to award the same.
Held: The dispute between the parties related not only
to compensation, but to the set off also, that the dispute was referred to the Tribunal, and the Tribunal had jurisdiction to decide
that dispute. A combined reading of els. (iv) and (vi) of r. 12A
of the Rules under the Act makes it abundantly clear that a claim
for set off is certainly covered by the wide phraseology of cl. (iv)
of r. 12A.
The calculations under r. 18(1) show that there is an integral
connection between the compensation payable to the insurer
and the amount representing the capital allocable to the controlled
business transferred to the respondent. As these figures cannot be
dissociated, the respondent made a composite offer. The Act
contemplates the setting off one against the other.
National Insurance Co. v Life Insurance Corporation of India
[1964] 2 S.C.R. 182, followed.
(ii) The definition of assets and liability of a controlled business
in sub-s. (2) of s. 7 of the Act is certainly comprehensive enough
to take in unclaimed dividends and corresponding assets.
Sub-sections (!) and (2) of s. 7 of the Act provides that the
assests and liabilities to be transferred must belong to the controlled
'·
-
l
•
5 S.C.R.
SUPREME COURT REPORTS
127
business of the insurer. The antithesis is not between the company
and its business but between the controlled business and other
1963
business of the insurer. All the rights and liabilities pertaining to The General Asthe controlled business are transferred to the Corporation.
surance Society
(iii) When a company declared a dividend on its shares,
Ltd.
a debt immediately becomes payable to each shareholder in respect of his share of the dividend for which he can sue at Jaw and
the declaration does not make the company a trustee of the dividend
for the shareholder.
In re Severn and Wye Severn Bridge Railway Co. (1898) 1
Ch. D. 559, applied.
(iv) The provisions of the Insurance Act, 1938 do not, expressly
or by necessary implication, exclude the jurisdiction of the Courts
and Tribunals from going into the correctness of the balancesheet certified by the Controller. For the purpose of the Insurance
Act it would be accepted as torrect. There is no provision in
the Life Insurance Corporation Act making the contents of the
balance sheet final for the purpose of transfer to and vesting
in the Corporation the assets and liabilities of the insurer. It
certainly affords valuable evidence in an enquiry before the Tribunal;
but the contents of the balance-sheet can be proved to be wrong.
(v) The circumstances of the case do not justify this Court
in exercise of the extraordinary jurisdiction under Art. 136 of
the Constitution to permit the appellant to raise the plea of apportionment of the unclaimed dividends for the first time here and
to remand the matter to the Tribunal for apportionment of the
dividends and the corresponding assets.
(vi) In view of the decision of this Court in the National
Insurance Co. Ltd. v. Life Insurance Corporation of India, the appellant will be entitled to interest at the rate of 4 % on the amount
of compensation.
National Insurance Co. Ltd. v. Life Insurance Corporation of
India [1964] 2 S.C.R. 182, followed.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
568 of 1961.
Appeal by special leave from the order dated
February 17, 1958, of the Life Insurance Tribunal
at Nagpur in Case No. 17/XVI-A of 1957.
M.C. Setalvad, S.N. Andley, Rameshwar Nath
and P.L. Vohra for the appellant.
v.
The Life
Insurance
Corporation of
India.
C.K. Daphtary, Attorney General for India, S.T.
Desai, S.J. Banaji and KL. Hathi, for the respondent.
October 18, 1963. The Judgment of the Court was
delivered by
128
SUPREME COURT REPORTS
[1964]
1963
SUBBA RAO J.-This Appeal by special leave is
-
directed against the order of the Life Insurance TribuThe General As- nal, hereinafter called the "Tribunal", determining
surance Society the dispute that was referred to it under s.16 of the
Ltd.
Life Insurance Corporation Act, 1956 (31 of 1956),
v.
hereinafter called the Act.
The Life
Insurance
The appellant is a company duly incorporated
Corporation of under the Indian Companies Act, 1882, and the InIndia
surance Act, 1938. Prior to December 1957, its
registered office was at Ajmer, but now it is in Calcutta.
Subba Rao J. It was a composite insurer carrying on life insurance
and general insurance business. The Act was passed
to provide for the nationalization of life insurance
business in India by transferring all such business to
a Corporation established for the purpose. The
Act came into force on July l, 1956. On September
l, 1956, under s. 3 of the Act the Central Government
established a Corporation called the Life Insurance
Corporation of India, hereinafter called the Corporation, which is the respondent in this appeal. Under
s. 7 of the Act on the appointed day, which was September 1, 1956, all the assets and liabilities appertaining
to the controlled business of all insurers were statutorily transferred to and vested in the Corporation.
Accordingly, the controlled business of the appellant
as defined under the Act, i.e., all the business pertaining
to its life insurance business, was transferred to and
vested in the Corporation. Thereafter disputes arose
between the appellant and the respondent in the matter
of ascertainment of the compensation payable to
the appellant and in respect of incidental and consequential matters thereto. By a letter dated May
21, 1957, the respondent offered to pay to the appellant towards compensation certain amount after setting off the amount due to it from the appellant in
respect of part of the paid-up capital of the controlled
business and assets representing that part. By letter
dated August 9, 1957, the appellant refused to accept
the said offer in toto. On August 20,
1957, the
respondent wrote a letter to the appellant informing
it that as its offer was not accepted by the appellant
-
'
••
5 S.C.R.
SUPREME COURT REPORTS
129
it had referred the dispute to the Tribunal. In due
1963
course, both the parties, i.e., the appellant and the
respondent, appeared before the Tribunal and filed The General Astheir respective statements; and the Tribunal framed surance Society
as many as 8 issues. Issues Nos. 5, 6A, 7A and
Ltd.
7B which are relevant to the present enquiry read thus:
v.
Issue 5. Whether the petitioner (appellant herein)
The Life
is entitled to the sum of Rs. 12,36,415 or in the
Insurance
alternative to Rs. 6,60,369 or in the further alter- Corporation of
native to Rs. 5,95,764 as worked out respectively
India.
in annexures A to C to the Statement of Claim.
Issue 6(A ). Whether the petitioner is entitled
Su/Jba Rao 1·
to the unpaid dividends attributable and pertaining to the General Insurance Business of the
petitioner as claimed in paragraph 6 of the Statement of Claim.
Issue 7(A). Whether the Tribunal has jurisdiction to grant interest on the amount of compensation.
Issue 7(B). If so at what rate and for which
period.
On issue 5 the Tribunal calculated the amount
payable by the respondent to the appellant on the
following lines: Amount payable towards compensation to the appellant was Rs. 5,95,764 ; out of the
allocable paid-up capital of Rs. 2,79,683, the respondent had already received assets equivalent to Rs.
1,35,919; the balance receivable under thathead was,
therefore, Rs. 1,43,764; out of the sum of Rs. 5,95,764
payable to the petitioner-appellant, the respondent
was entitled to deduct Rs. 1,43, 764; and the balance
payable by the respondent to the appellant was
Rs. 4,52,000. Briefly stated what the Tribunal did
was that it ascertained the compensation payable
to the appellant and set off against that amount
the balance of the amout due to it from the appellant
towards the allocable paid-up capital.
On Issue 6(A) it held that the appellant showed
the un-paid dividends in the balance-sheets as the
liability of the life department, that it always regarded
1 SCl/64-9
130
SUPREME COURT REPORTS
[1964]
1963
it as a liability appertaining to the life department
and that as it was impossible to allocate the unpaid
The General As- dividends of any shareholder to the several businesses
surance Society carried on by the insurer, it would rely upon the books
Ltd.
of accounts of the insurer to find out whether it was
v.
the liability of one department or the other. On
The Life
that reasoning it held that the entire liability for the
Insurance
unclaimed dividends and assets equivalent to that
Corporation of liability appertained to the controlled business and,
Ind/a.
therefore, statutorily vested in the respondent-Corporation.
Subba RaoJ.
On issues 7(A) and 7tB) the Tribunal held that
it had no jurisdiction to award interest on the amount
of compensation. On the basis of the said findings
the respondent was directed to pay to the appellant
within two weeks a sum of Rs. 4,52,000 less any sum
that might have been paid by the respondent to the
appellant by way of admitted compensation. Hence
the appeal.
Mr. Setalvad, learned counsel appearing for the
~ppellant, raised before us the following three points:
(I) the Tribunal had no jurisdiction to decide on the
question of the capital allocable to the controlled
business as there was no dispute thereto between the
parties and the said question was, therefore, not
referred to it; (2) the liability of the appellant-Company
for unclaimed dividends and assets equivalent to
that liability were not transferred to and vested
in the Corporation under s.7(1) of the Act; and
(3) the appellant would be entitled to interest on
the amount of compensation payable to it and the
Tribunal had jurisdiction to award the same.
On the first question the learned counsel took us
through the correspondence that passed between
the parties and the pleadings before the Tribunal,
and contended that the said correspondence, pleadings,
and the issues disclosed that there was no dispute
between the parties in respect of the capital allocable
to the controlled business and, therefore, the Tribunal
went wrong in deducting under that head a higher
l
-
' f-,-
l
'
5 S.C.R.
SUPREME COURT REPORTS
131
amount than was agreed upon between the parties.
1963
As the answer to this argument mainly depends upon
the said correspondence and the pleadings, we shall The General As.
briefly scrutinise them. On May 21, 1957, the res- surance Society
pondent offered to the appellant to pay a sum of
Ltd.
Rs. 3,30,023 in full satisfaction of the compensation
v.
payable to the appellant for the acquisition of its
The Life
controlled business under the Act, and to set off
Insurance
against the said sum an amount of Rs. 1,71,365, Corporation of
being the part of the paid-up capital of the appellantIndia.
Company and assets representing such part, which
had been allocated to the controlled business of Subba Rao J.
the appellant-Company in accordance with r.18 of
the Life Insurance Corporation Rules, 1956, made
under the Act. The letter concluded thus:
"As the aforesaid assets have not yet been
transferred to the Corporation the said amount of
Rs. 1,71,365 will be set off against, and form
a deduction from, the amount of compensation
payable to your Company."
The offer was couched in clear and unambiguous
terms. It was a composite offer. The letter could
not be construed to contain two different matters,
one an offer of compensation and the other a demand
for payment of the amount due to the respondent
in respect of the paid-up capital allocable to the
controlled business. On the other hand, in express
terms the offer was for payment of compensation
after setting off the amount due to the respondent.
On August 9, 1957, the appellant wrote a letter in
reply to the respondent's. Therein an attempt was
made to split up the offer. The appellant stated that
the amount of compensation offered in the Jetter, namely, the sum of Rs. 3,30,023 was not acceptable to it.
In regard to the amount of qapital allocated by the
Company to the controlled business, it stated that the
assets worth Rs. 1,35,919 had already been transferred
to the respondent and that having regard to the amount
claimed by the respondent under that head, only
a sum of Rs. 35.446 remained to be transferred to
the Corporation by it. It asked that the said amount
132
SUPREME COURT REPORTS
[1964)
1963
might be deducted from the amount of compensation that might be ordered and decreed to be
The General As-paid to it by the Tribunal. It would be seen from
surance Society this letter that the appellant accepted a part of the
Ltd.
offer and rejected the rest.
On August 20, 1957,
v. .
the respondent replied to the appellant that as its
The Life
offer was not accepted, it had sent the necessarv
lnsura:ice
paper to the Tribunal. On August 22, 1957, th~
Corporation °! appellant received a notice from the Tribunal. The
India.
preamble to that notice read :
Subba Rao J.
"Whereas you have not accepted the amount
determined by the Corporation and offered in
full settlement of the compensation to you under
the Act and whereas you have requested the Corporation to have the matter referred to the
Tribunal for decision and whereas the Corporation has so referred the matter."
This clearly shows that the dispute before the
Tribunal arose as the appellant did not accept the
amount determined by the Corporation and offered
in full settlement of the compensation payable to
the appellant under the Act. It does not indicate
that the accepted part of the offer was considered to
be a closed matter between the parties and the disputed part only was put in issue. On September
13, 1957, the appellant wrote a letter to the respondent requesting it to pay the amount of compensation offered by it subject to adjustment on the basis
of the decision to be given by the Tribunal. It also
requested the respondent to "supply to it a copy of
the calculation sheet to show how the amount of
compensation offered by it had been arrived at. On
the same day, the respondent sent a copy of the said
calculation sheet, which clearly showed not only
the amount of compensation payable but also the
amount of paid-up capital allocable to the controlled business deductable therefrom. On September
17, 1957, the respondent made it clear to the appellant
that if the appellant agreed to accept the amount
offered by it in full satisfaction of the compensation
payable to the appellant under the Act, the r~spondent
-
•
5 S.C.R.
SUPREME COURT REPORTS
133
could make payment of the said amount to it. Jt
1963
is, therefore, clear that the dispute between the parties
-
related to the composite offer made by the respondent The General ~s
i.e., the compensation payable as well as the set off surance Society
of the amount due to the respondent calculated under
Ltd.
r. 16 of the Rules made under the Act.
v.
That this was the dispute is also apparent from
the pleadings before the Tribunal.
On October 10,
1957, the appellant filed a statement before the Tribunal and in para 4 thereof, the contents of the letter
written by the respondent on May 21, 1957 were
extracted. How the appellant understood the scope
of the offer is clear from the following extract from
the said paragraph:
"By and under the said letter the Defendant
inter alia stated that part of the paid up capital
of the
Claimant, and
assets
representing
such part, which had been allocated to the controlled business of the Claimant in accordance
with Rule 18 of the Life Insurance Corporation
Rules, 1956, amounted to Rs. 1,71,365 and that
as the aforesaid assets had not till then been transferred to the Defendant, the said amount of Rs.
I, 71,365 would be set off against, and form a
deduction from the amount of compensation
payable to the Claimant."
The appellant, therefore, understood the offer
as a composite one. In para 5 thereof, the appellant gave the contents of its reply.
On November
7, 1957, the respondent filed a statement before the
Tribunal and in para. 3 thereof it reiterated its offer
of compensation of Rs. 3,30,023 with a claim for
set off on a calculation made in accordance with r .18
of the Rules. Throughout the correspondence and
in the pleadings the respondent was consistently
standing by the composite offer. It did not, either expressly or by necessary implication, accept the attempt
made by the appellant to split up the said offer. When
one party makes a composite offer, each part thereof
being dependent on the other, the other party cannot
by accepting a part of the offer compel the other
The Life
Insurance
Corporation of
India.
Subba RaoJ.
1963
17te General Assurance Society
Ltd.
v.
The Life
Insurance
Corporation of
India.
Subba Rao J.
134
SUPREME COURT REPORTS
[1964]
to confine its dispute only to that part not accepted,
unless the party offering the composite offer agrees
to that course. In this case not only there was no
such agreement between the parties, but the respondent
was throughout insisting upon the acceptance by
the appellant of the entire offer in full settlement
of the appellant's claim against the respondent.
Reliance is placed upon the circumstance that
there was no specific issue framed by the Tribunal
in respect of the paid-up capital allocable to the controlled business of the appellant. But the pleadings
clearly pinpoint the dispute between the parties in
respect of the set off. As we will indicate later in our
judgment, the calculation of the amount due towards
paid-up capital allocable to the controlled business
depends on a basic factor that goes into the calculation of the amount due towards compensation.
It was presumably found not necessary to frame a
specific issue in respect thereof, for if that factor was
settled one way or other, the amount due under
the said head was only a matter of calculation and could
certainly be taken into consideration in awarding
the set off under the general issue, issue 8.
Further, it does not appear from the order of the
Tribunal that this question was raised before it. Indeed,
it appears that both the parties proceeded on the
basis that the calculation of the amount due towards
compensation and that due towards paid-up capital
allocable to the controlled business were linked together and that by calculating the said two figures
on the same basis one should be deducted from the
other. If the question raised before us had been
raised before the Tribunal, one would expect the
Tribunal to deal with that matter. On the other
hand, para 19 of the order shows that the appella~t
did not dispute the manner of the set off on the basis
of the amount of compensation ascertained by the
Tribunal.
Mr Setalvad contended that under s. 16(1) of
the Act, read with Part A of the First Schedule, com-
-
,
.J
.,
5 S.C.R.
SUPREME COURT REPORTS
135
pensation should be computed in accordance with
1963
the provisions contained in para 1 or para 2 and
paid to the insurer on the basis of the computation The General A.I·
which was more advantageous to him and that for surance Society
the purpose of calculating the compensation payable
Ltd.
in accordance with para 1 the amount representing
v.
the paid-up capital allocable to the controlled busiThe Life
ness had no relevance. He illustrated his argument
Insurance
by taking us through the alternative calculations Corporation of
made by the Tribunal and pointing out that while in
India.
the calculations made in terms of para 2 of Part A
of the First Schedule the paid-up capital allocable
Subba Rao J.
to the centrolled business went jnto the calculations,
in the calculations made in accordance with para 1
that item was not taken into consideration at all.
Though prim.i facie this argument appears to be plausible, a deeper scrutiny of the figures indicates that
there is an integral connection between the compensation and the amount representing the paid-up
capital allocable to the controlled business.
Under r. 18(1) of the Rules, in respect of a Part
A insurer like the appellant, the paid-up capital allocable to the controlled business shall be that proportion
of the total paid-up capital of the insurer which the
annual average of the profits from the controlled business during the period covered by the relevant actuarial
investigation bears to the total of the annual average
of profits plus two times the annual average of the
profits from other business during that period. The
factor will be,
·
Annual average of surplus
Total of annual average of surplus
PLUS two times the annual average
of profits from non-life business.
or shortly stated,
L
L+2 non·L
1963
The General Assurance Society
Ltd.
v.
136
SUPREME COURT REPORTS
On that basis the factor will be,
Rs. 15,512.6
Rs. 90,523.8 (i.e. 15,512.6+ 75,011.2)
=0.17136488
[1964]
The Life
Rs. 15,512.6 being the annual average of surplus from
Insurance
the controlled business,
as
determined
bv the
Corporation of Corporation, and Rs. 75,011.2 being twice the annual
India.
average of profits from non-life business.
It is
·
not disputed that the paid-up capital of the Com-
. Subba Rao J. pany was Rs. 10,00,000. ff the factor was applied,
the capital allocable to the controlled
business
would be, 0.17136488 xRs. 10,00,000=Rs. 1,71,365.
The compensation to be given by the Corporation
to the insurer to whom Part A of the First Schedule
to the Act applies-it is conceded that the said Part
applies to the appellant-is 20 times the annual average
of the share of the surplus allotted to the shareholders
of the appellant. On the basis that Rs. 15,512.6
was the annual average of the surplus allotted to
the shareholders of. the appellant, the Corporation
ascertained the amount of compensation at a sum
of Rs. 3,30,023 and offered the same to the appellant.
It will be seen from the aforesaid calculations
that there is an integral connection between the compensation payable to the insurer and the amount
representing the capital allocable to the controlled
business transferred to the Corporation. The common
factor for both the amounts is the annual average
of the surplus allotted to the shareholders. The
same surplus must be the basis for calculating both
the figures.
Obviously two different figures cannot
be given for the same surplus. If two different figures
are given for· the same surplus, not only one of the
calculations must be wrong, but also grave injustice
would be done to one of the parties. As the two
figures cannot be disassociated, the respondent made
a composite offer.
What happened before the Tribunal is this:
the appellant in annexure C to the Statement of
f
,
i
5 S.C.R.
SUPREME COURT REPORTS
137
Claim claimed that the annual average of the surplus
1963
deemed to be allocated to the share-holders was
Rs. 29,125.2; the respondent stated that it was only The Genera/ AsRs. 15,512.6: and the Tribunal came to the con- surance Society
clusion that the said annual average of the surplus
Ltd.
was Rs. 29,125.2. The result was that the calculations
v.
made by the Corporation under the said two heads
The Life
were upset.
On that basis, applying the same forInsurance
mula the compensation was raised to a sum of Corporation of
Rs. 2,79,683.18. The Tribunal, therefore, rightly set off
India.
the said figures one against the other and held that
the balance, after making other admitted deducSubba Rao 1·
tions, was payable to the appellant.
The above discussion clearly establishes the reason
why a composite offer was made and why the dispute
in respect of the said offer could not be split up into
two parts. Both the amounts are payable. under the
provisions of the Act.
Calculation of both depends
upon the same "surplus". It is, therefore, reasonable
to hold that the Act contemplates the setting off
one against the other.
Rule 12A of the Rules confers ample jurisdiction on the Tribunal to effectuate the said intention
of the Legislature. The material part of r. I 2A
reads:
"The Tribunal may exercise jurisdiction in the
whole of India and shall have power to decide
or determine all or any of the following matters,
namely:-
(iv) all claims for compensation payable under
the Act to insurers whose controlled business has
been transferred to and vested in the Corporation;
and all matters connected with the determination,
payment and distribution of such compensation.
(vi) such supplemental, incidental or consequential matters which the Tribunal may deem it expedient or necessary to decide or determine for the
196j
The General Assuranc~ Society
Ltd.
138
SUPREME COURT REPORTS
(1964]
purpose of securing that the jurisdiction vested in
it under the Act and in respect of matters referred
to above is fully and effectively exercised.
A combined reading of els. (iv) and (vi) of r.12A
of the Rules makes it abundantly clear that a claim
Th vLif<
for set off of the nature that we are now considering
e ' •
is certainly covered by the wide phraseology of cl.
lnsura~ce
(vi) of the said rule. This rule, it is said, was introCor:,~:zon of duced afte~ the decis!on 0!1 the dispute in t_he instant
n
·
case was given. Be it as it may, the matenal clauses
Suliba Rao J. of the rule only recognize the pre-existing principles
inherent in the relevant dispute under the provisions
of the Act.
This Court in National Insurance Co. v. Life
Insurance Corporation of India (1) held that the claim
for set off was within the jurisdiction of the Tribunal.
Hidayatullah J., speaking for the Court, observed
at p. 1178:
"No doubt, the Act says that the Corporation
shall pay the compensation due to the Company
but in another part it also says that the Company
shall pay in lieu of the assets appertaining to
the controlled business a sum of Rs. 6,00,000.
These two provisions of law must be read together and in our opinion the Corporation was
entitled to a set-off in respect of the amount
due to it and the Tribunal was perfectly right
when it ordered such a set off."
We, therefore, hold that the dispute between
the parties related not only to the compensation,
but to the set··off also, that that dispute was referred
to the Tribunal and that the Tribunal had jurisdiction ·
to decide that dispute. The Tribunal in para 19
of its order rightly set off the amounts due from the
one to the other and held that the balance of
Rs. 4,52,000 was only due to the appellant towards
compensation.
The next question relates to the outstanding
dividends or assets equivalent thereto taken posses-
(i)[f 964] 2 S.C.R. 182.
'
,.
;
f
.a'
5 S.C.R.
SUPREME COURT REPORTS
139
. \'
sion of by the Corporation. Some material facts
1963
may be stated. The paid-up capital of the Company
-
was Rs. 10,00,000 divided into 40,000 shares of The General As·
Rs. 25 each fully paid. On September 28, 1953, surance Society
the appellant declared a dividend of 4 % amoun·
Ltd.
ting to a sum of Rs. 40,000; again on September 29,
v.
1954, it declared a dividend of 4 % amonunting to
The Life
a sum of Rs. 40,000; and again in the year 1955
Insuranc~
it declared a dividend of 6 % amounting to Rs. 60,000. Corporation of
In regard to the said amounts so declared certain
India.
payments were made to some of the shareholders
and the balance of tne outstanding dividends as
Subba Rao l.
on December 31, 1955, was Rs. 89,680. The balance·
sheets of the Company showed the unpaid dividends
as the liability of the life department. Though
the amounts representing the said dividends are not
specifically shown in the assets, it cannot be disputed
that the said amounts must have been included in
the assets or cash shown in the balance-sheets. The
result was that the entire liability for the unclaimed
dividends and assets equal to that liability were
taken over by the respondent. The Tribunal relying
on the books of account, the balance-sheets and
other documents of the Company held that the liabi·
lity was only that of the life insurance business.
Mr. Setalvad, learned counsel for the appellant,
contended that under s. 7(1) of the Act only the assets
and liabilities appertaining to the controlled business
of an insurer shall be transferred to and vested in
the Corporation and that the dividends declared
and the assets equivalent to the said liability were
assets and liabilities of the Company and not those
'appertaining to the controlled business and, therefore, they did not vest in the Corporation. Section
7(1) of the Act reads:
"On the appointed day there shall be transferred
to and vested in the Corporation all the assets
and liabilities appertaining to the controlled
business of all insurers."
·
An attempt is made to separate the Company's
assets and liabilities from the assets and liabilities
140
SUPREME COURT REPORTS
[1964]
,.111
1963
of the controlled business, and an argument is advanced
that on a declaration of dividends the said dividends
The General As-and the assets corresponding thereto cease to appersurance Society tain to the business but belong to the Company.
Ltd.
The question, therefore, is whether the dividends
v.
declared and the amounts in the hands of the Company
The Life
representing them appertain to the controlled busiJnsurance
ness of the insurer. Before we answer this question
Corporation of it will be convenient to know precisely the legal
.India.
effect of a declaration of a dividend of a company.
In Palmer's Company Law, 20th Edn., the legal
Suhba Rao J. position is stated thus, at p. 625:
"Where a dividend is declared and becomes
payable, it is a debt-in England, as will be
explained in the following section, a speciality
debt-and each shareholder is entitled to sue the
Company for his proportion. Until the dividend
is declared and payable, the shareholder has
no right to sue."
fn re Savern and Wye and Severn Bridge Railway
Co.(1 ), Romer l
observed thus:
"Tn the first place, they contend that the company was in the position of a trustee for them of
these dividends.
In my judgment, this was not so.
The declaration that the dividend was payable did
not make the company a trustee of it for the
shareholders."
The learned Judge said at p. 564 thus:
"The dividends in question were declared and
became payable more than twenty years before the
present claims were made, and constituted debts
due to the shareholders for which they could
have sued at law, as was pointed out by Lindley
L.J. in the passage in his treatise on Company
Law (p. 437), which was cited in the argument
before me."
This decision is an authority for the view that
when a company declares a dividend on its shares,
a debt immediately becomes payable to each shareholder in respect of his share of the dividend for which
(lJ [1896] 1 Ch. D. 559, 565.
t
5 S.C.R.
SUPREME COURT REPORTS
141
he can sue at law and the declaration does not make
1963
the company a trustee of the dividend for the shareholder. Indeed, this legal position is not disputed. The General As·
If so, the shareholders in the present case were only surance Society
in the position of creditors in respect of the dividends
ltd.
declared in their favour and the amounts representing
v.
the dividends continued to be a part of the assets
The Life
of the Company; and indeed the balance-sheets filed
Insurance
in the present case show that no particular amounts Corporation of
had been earmarked for payment of dividends. To
India.
put it differently, the amount equivalent to the dividends
declared continued to be a part of the assets of the ComSubba Rao J.
pany and the dividends continued to be its debts.
The said assets were part of the general assets of the
Company and the said liabilities were part of the general liabilities of the Company. There cannot be
any difference in law, in the matter of ownership
of the assets, between a part of the assets equivalent
to the dividends declared and the rest of the assets.
With this background let us scrutinize the provisions of s. 7(1) of the Act.
Under that sub-section,
on the appointed day there shall be transferred to
and vested in the Corporation all the assets and liabilities appertaining to the controlled business of all
insurers. The first question is whether the dividends
declared and the amounts representing the said dividends fell outside the expression "assets and liabilities" of the controlled business.
Tt is said that
though they are part of the assets and liabilities of
the Company, they do not appertain to the controlled
busin~ss .. ~?e word
"appertain" in its ordinary
meamng 1s
belong to, be appropriate to relate to".
The assets and !~abilities must, therefore', belong to
the controlled busmess of the insurer. That is no doubt
a limitation or qualification imposed or made on
"assets and liabilities". As the section is providing
for. the transfer of as~ets and liabilities of a Company
wh1~h may have busmesses oilier than life insurance
busmess, it ha_s b_e~C?me necessary to say that the said
assets and hab1ht1es . are those that pertain only
to the controlled busmess.
The antithesis is not
142
SUPREME COURT REPORTS
[1964]
1963
between the Company and its business but between the
controlled business and the other businesses of the
The General As-insurer. That this is so is clear from the exhaustive
1urance Society enumeration of the categories of property in sub-s.(2)
Ltd.
of s. 7 of the Act constituting assets appertaining to
v.
the controlled business. Sub-s. (2) of s. 7 embodies
The Life
an inclusive definition and in a sense it enlarges the
Insurance
meaning of the word "assets". The enumerated cateCorporation of gories of assets include both movable and immovable
India.
properties and "all other interests and rights in or
arising out of such property as may be in the possesSubba Rao J. sion of the insurer." Liabilities shall be deemed
to include all debts and obligations of whatever
kind existing at the time of the statutory transfer.
All the said rights and liabilities pertaining to the
controlled business are transferred on the appointed
day to the Corporation. The said enumeration does
not leave any margin for allot ent of any assets
to the Company as distinguished from its controlled
business. To illustrate, take the case of a company
doing only the life insurance business. How is it
possible to hold that the declared dividends and the
assets representing the said dividends are those of the
company unconnected with the business? That may
be so ifthe declared dividends are held in trust bv the
Company for a shareholder. But, as we have pointed
out, the settled law on the point does not countenance
any such concept of trust.
The shareholders can
only realise their dividends from the assets of the
business, for they include the amounts representing
the dividends. In any view, the definition of assets
and liabilities of a controlled business in sub-s.(2)
of s. 7 of the Act is certainly comprehensive enough
to take in the said declared dividends and the corresponding assets.
We cannot, therefore, accept this
argument.
Even so, it is contended that, the appellant being
a composite insurer, the dividends declared and the
assets equivalent to that liability appertained not
only to the life business but also to the general business of the insurer and, therefore, under s. 7(1) of
\
J
..
•
5 S.C.R.
SUPREME COURT REPORTS
, 143
the Act only such part of the said assets and dividends
1963
allocable to the controlled business shall be transferred
to the Corporation, but the Tribunal wrongly held The General A.1that the entire dividends and the assets representing surance Society
the same were transferred to the Corporation. To
Ltd.
appreciate this argument, some of the relevant prov.
visions may be noticed. We have already noticed
The Life
s. 7 (1) of the Act whereunder all the assets and liaIn11urance
bilities appertaining to the controlled business of Corporation of
the insurer shall be transferred to an vested in the
India.
Corporation. Explanation (a) to s. 7 of the Act
reads:
Subba Rao J.
"The expression "assets appertaining to the
controlled business of an insurer" 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 in this behalf."
A further clarification is found in s.