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Damji Valji Shah and anr. Vs. Life Insurance Corporation of India and ors. - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1966SC135; [1965]35CompCas755(SC); [1965]3SCR665
ActsLife Insurance Corporation Act, 1956 - Sections 2, 2(1), 2(3), 3(1), 7, 8(1), 8(2), 15, 15(1), 15(2), 16, 17, 41 and 44; Insurance Act, 1938 - Sections 7, 7(1), 10(1), 10(2), 10(3), 13, 13(1), 13(2) and 65; Indian Companies Act - Sections 446, 446(1) and 446(2); Life Insurance (Emergency Provisions) Ordinance, 1956; Constitution of India - Articles 14 and 19
AppellantDamji Valji Shah and anr.
RespondentLife Insurance Corporation of India and ors.
Excerpt:
insurance - validity of resolution - sections 2, 3(1), 7, 8, 15, 16, 17, 41 and 44 of life insurance corporation act, 1956 and sections 7, 10, 13, and 65 of insurance act, 1938 - company was composite insurer - corporation established just after coming into force of act of 1956 - in pursuance of section 7 of new act all assets and liabilities stood transferred to corporation - by a resolution certain sum transferred to general department as repayment from life department on account of loan tendered by general department to strengthen life fund - resolution confirmed by board of directors of company - corporation by its application under section 15 of new act challenged validity of resolution - tribunal decided in favour of corporation - company by special leave approached supreme court.....raghubar dayal, j.1. these appeals, by special leave, are against the decree of the lifeinsurance tribunal, nagpur, in proceedings on an application by the lifeinsurance corporation of india (hereinafter called the corporation) under s. 15of the life insurance corporation act, 1956 (act xxxi of 1956), shortly termedas the lic act, for ordering the vishwabharti insurance company, bombay, damjivalji shah and jayantilal hirjibhai chawda, appellants in the c.a. 676 .1962, hanshyamdas, appellant in c.a. 677 of 1962, the afore-mentioned individualsbeing directors of the vishwabharti insurance company, and another director, topay to the corporation jointly and severally the sum of rs. 82,000/- togetherwith interest there at 6% per annum form september 1, 1956, till full payment.the decree.....
Judgment:

Raghubar Dayal, J.

1. These appeals, by special leave, are against the decree of the LifeInsurance Tribunal, Nagpur, in proceedings on an application by the LifeInsurance Corporation of India (hereinafter called the Corporation) under s. 15of the Life Insurance Corporation Act, 1956 (Act XXXI of 1956), shortly termedas the LIC Act, for ordering the Vishwabharti Insurance Company, Bombay, DamjiValji Shah and Jayantilal Hirjibhai Chawda, appellants in the C.A. 676 .1962, hanshyamdas, appellant in C.A. 677 of 1962, the afore-mentioned individualsbeing directors of the Vishwabharti Insurance Company, and another director, topay to the Corporation jointly and severally the sum of Rs. 82,000/- togetherwith interest there at 6% per annum form September 1, 1956, till full payment.The decree ordered the company to pany to pay a further sum, but we are notconcerned with that part of the decree as the company has not appealed againstit.

2. The facts of the case briefly are these. The company was a compositeinsurer, i.e., an insurer who carried on, in addition to life insurancebusiness, other classes of insurance business. The LIC Act came into force onJuly 1, 1956 and the Corporation was established on September 1, 1956 which wasthe 'appointed day' according to s. 2(1) of that Act. On that day, inview of s. 7, all the assets and liabilities appertaining to the life insurancebusiness (called the controlled business, vide s. 2(3)) of the Company stoodtransferred to and vested in the Corporation. It was found that certain amountswhich had been transferred from the Life Insurance Fund in the books of thecompany to the General Department had not been transferred in accordance withthe provisions of the Insurance Act, 1938 (Act 4 of 1938) which governed thecompany and should have continued to be included in the assets appertaining tothe controlled business of the company. It was therefore that an applicationunder s. 15 of the LIC Act was made by the Corporation to the Tribunal.

3. We may now state how this amount of Rs. 82,000/- happened to betransferred from the Life Insurance Fund (or the Life Fund) of the company toits General Department. The company had to keep separate accounts of allreceipts and payments in respect of each class of insurance business, in viewof s. 10(1) of the Insurance Act. It had to maintain a Life Fund in connectionwith its life insurance business in view of s. 10(2). Sub-s. (2) provided thatwhere an insurer carried on business of life insurance, all receipts due inrespect of such business be carried to and would form a separate fund calledthe Life Insurance Fund and its assets be kept distinct and separate from allother assets of the insurer and deposits made by the insurer in respect of lifeinsurance business. Sub-s. (3) of s. 10 provided that the life insurance fundwould be as absolutely the security of the life policy holders as though itbelonged to an insurer carrying on no other business than life insurancebusiness and that it should not be applied directly or indirectly for anypurpose other than those of the life insurance business of the insurer. Theamount in this fund had to be sufficient to meet the net liabilities in regardto the life insurance policies issued by the company. If it was not somaintained, the company stood the chance of being barred from carrying on lifeinsurance business.

4. By resolution dated December 18, 1948, Rs. 1,10,000/- were transferredfrom the General Department to the Life Department as advance to the LifeDepartment Revenue Account for being added to the Life Fund, subject to thecondition that the Life Department would not be liable to pay any interestthereon and that no repayment of the loan would be made except out of thevaluation surplus of the Life Department. The first actuarial valuation reportof the company for the year 1944 - 48, dated July 18, 1949, showed that the netliability of the company was Rs. 6,55,718/- and that the amount in the LifeFund was Rs. 6,57,450/- and therefore the fund showed a surplus of Rs. 1,732/-over the net liabilities. If the sum of Rs. 1,10,000/- had not been transferredto the Life Department Revenue Account prior to December 31, 1948, thisvaluation report would have shown the net liability exceeding the amount in thelife fund by about a lakh of rupees. It is clear that the amount was sotransferred in order to avoid the consequences of the net liabilities exceedingthe Life Fund.

5. The Profit & Loss Appropriation Account for the year 1949 shows thatRs. 60,000/- out of this amount of Rs. 1,10,000/- was written off as thecompany had made profits. Rs. 32,000/- were again similarly transferred to theLife Fund from the General Department with retrospective effect from December31, 1952 in order to strengthen the position of the Life Fund.

6. The second actuarial valuation report for the period 1949 - 52, datedSeptember 9, 1953, showed that the policy liability amounted to Rs. 15,33,068/-that the Life Fund stood at Rs. 15,35,890/- and that thus the Life Fundexceeded the net liability by Rs. 2,822/-. There was thus a surplus as Rs.32,000/- had been transferred to strengthen the Life Fund, with retrospectiveeffect in view of the resolution dated August 20, 1953 which reads :

'Resolved that a loan of Rs. 32,000/- (thirty twothousand only) bearing no interest be hereby given to Life Department byGeneral Department with retrospective effect as on 31st December 1952, therepayment of which shall be made only out of the future Valuation Surplus orsurpluses of the Life Department or it may be written off from the futureprofits of the General Department. This will have effect in the accounts of theCompany for the year ended 31st December, 1952.'

7. It is to be noted that this resolution itself said that the amount wouldbe repaid only out of the future Valuation Surplus or surpluses of the LifeDepartment or might be written off from the future profits of the GeneralDepartment.

8. It was this amount of Rs. 82,000/- (Rs. 50,000/- plus Rs. 32,000/-)which, by a resolution dated January 6, 1956 was transferred to the GeneralDepartment from the Life Fund. The resolution reads :-

'Resolved that a loan of Rs. 82,000/- (eighty twothousand only) advanced to Life Department Revenue Account by GeneralDepartment be and is hereby repaid to General Department and the balance of Rs.60,000/- due to General Department by Life Department Revenue Account be and ishereby kept in reserve for future and hence no adjustment in regard to Rs.60,000/- will be made for the present.'

9. This resolution was confirmed by the Board of Directors at its meetingdated February 6, 1956.

10. We may now refer to the changes in law with respect of life insurancebusiness in 1956 and an anticipation of which probably led to the resolution ofJanuary 6, 1956. On January 19, 1956, the Life Insurance (Emergency Provisions)Ordinance, 1956 (Ord. No. I of 1956) was promulgated by the President. It cameinto force from that day which was called them 'appointed day'. Section 3(1) provided that the management of the 'controlled business' of all insurers wouldvest in the Central Government on and from the appointed day. 'Controlledbusiness', according to clause(2) of s. 2, meant all the business appertainingto the life insurance business, if the insurer carried on any other class ofinsurance business also. Clause (b) of sub-s. (3) prohibited the incurring ofany expenditure by the insurer without the previous approval of the personspecified by the Central Government in that behalf, from the assetsappertaining to the controlled business otherwise than for the purpose ofmaking routine payments etc., specified in that clause. Those purposes do notinclude the repayment of an advance made from the General Department to theLife Fund or to the Life Department Revenue Account. Clause (c) of sub-s. (3)further prohibited the insurer, without the previous approval of the authorisedperson, to transfer or otherwise dispose of any such assets appertaining to thecontrolled business or create any charge or hypothecation, lien or other encumbrancethereon. It would therefore appear that possibly the Board of Directors werenot right in confirming the resolution of January 6, 1959 after the Ordinancehad come into force. However, that is not the point raised in theseproceedings.

11. We have already referred to the coming into force of the LIC Act on July1, 1956 and of the transfer and vesting in the Corporation of all the assetsand the liabilities pertaining to the life insurance business in view of s. 7of that Act. Section 15 provides that the Corporation may apply for relief tothe Tribunal in respect of a transaction which is made by the insurer whosecontrolled business had been transferred to and vested in the Corporation underthe Act at any time within 5 years before January 19, 1956 and by which thecomposite insurer has transferred any property from his life department to hisgeneral department without consideration or for an inadequate consideration andthe transfer was not reasonably necessary for the purpose of the controlled businessof the insurer or was made with an unreasonable lack of prudence on the part ofthe insurer regard being had in either case to the circumstances at the time.The Corporation, in such proceedings, had to make all parties to thetransaction parties to the application.

12. Sub-s. (2) of s. 15 empowered the Tribunal to make such order againstany of the parties to the application as it thought just having regard to theextent to which those parties were respectively responsible for the transactionor benefited from it and all the circumstances of the case. Section 16 providedfor the payment of compensation to the insurer whose controlled business hadbeen transferred to and vested in the Corporation under the Act. Section 17provided for the constitution of Tribunals which were empowered by sub-s. (4)to regulate their own procedure and decide all matters within their competence.Section 41 provided that no civil Court would have jurisdiction to entertain oradjudicate upon any matter which a Tribunal was empowered to decide ordetermine under the Act. Section 44 inter alia provided that nothing containedin the Act would apply in relation to any insurer whose business was beingvoluntarily wound-up or was being wound-up under orders of the Court.

13. The Corporation, by its application under s. 15, contended that thetransfer of Rs. 82,000/- from the Life Fund to the General Department under theresolution of January 6, 1956, was illegal, being contrary to and incontravention of the insurance Act and as such was inoperative, bad in law andnot binding on the petitioner. It was further contended that the said transferwas without consideration and was not reasonably necessary for the purpose ofthe controlled business of the company and/or was made with unreasonable lackof prudence on the part of the company, regard being had to the circumstancesat the time. It was therefore that it prayed inter alia for a decree againstthe respondents for a sum of Rs. 82,000/- with interest. It impleaded thecompany as respondent No. 9, the appellants in C.A. 676 of 1962 as respondentsNos. 1 and 4 and the appellant in C.A. No. 677 of 1962 as respondent No. 2.Ghanshyamdas and Damji Valji were also parties to the resolution dated February7, 1956. Other directors who were parties to the resolution of January 6 werealso impleaded.

14. The aforesaid three directors, the appellants before us, contested theclaim of the Corporation and justified the transfer of Rs. 82,000/- to theGeneral Department from the Life Fund on the ground that the amount had beenlent by the General Department to the Life Department and had been paid back tothe General Department by transfer from the Life Fund when the Life Fund showedsurplus, according to the report of the Actuary dated July 25, 1955. It wasalso contended before the Tribunal that the petition could not be proceededwith without the leave of the Bombay High Court in view of s. 446 of the IndianCompanies Act and that the petition was also not maintainable by reason of s.44 of the LIC Act. Several other grounds were also taken before the Tribunal.We are not now concerned with them.

15. The Tribunal held that the amounts of Rs. 1,10,000/- and Rs. 32,000/-were not advanced to the Life Department as loans and that the transfer of Rs.82,000/- was not out of the valuation surplus and that therefore the transferof this amount could not be said to be for consideration and necessary orreasonably necessary for the purpose of the controlled business of the companyor even a prudent transaction having regard to the interest of the life policyholders. It held that no leave of the Bombay High Court was necessary forproceeding with the petition and that the petition was maintainable and that s.44 of the LIC Act did not bar the applicability of the provisions of the Act tothe respondent company. It therefore decreed the suit and ordered the companyand the directors, respondents 1 to 4, to pay to the Corporation jointly andseverally a sum of Rs. 82,000/- together with interest thereon at 6 per centper annum from September 1, 1956 till full payment. It is against this decreethat C.A. 676.1962 has been filed, by special leave, by Damji Valji Shah andJayantilal Hirjibhai Chawda and C.A. 677.1962 by Ghanshyamdas. This judgmentwill govern both these appeals.

16. The points raised by learned counsel for the appellants are : (i) TheTribunal had no jurisdiction to proceed with the proceedings on the petitionpresented by the Corporation without the leave of the High Court in view of s.446 of the Companies Act, 1956, the company having been ordered to be wound-upby the High Court on November 9, 1956, (ii) In view of s. 44(a) of the LIC Actnone of the provisions of the Act applied to the company and therefore theTribunal could not proceed on the application of the Corporation subsequent tothe company being would-up. (iii) The transfer of Rs. 82,000/- from the LifeFund to the General Department of the company was for consideration and wasnecessary for the life insurance business.

17. The fourth point sought to be urged was that the provisions of s.15(1)(f) of the LIC Act were ultra vires as they contravened the provisions ofArts. 14 and 19 of the Constitution. This contention was not raised before theTribunal during the arguments and was therefore considered by it to have beenabondoned. We did not therefore allow it to be raised before us.

18. Sub-s. (1) of s. 446 of the Companies Act provides that when awinding-up order has been made or the Official Liquidator has been appointed asProvisional Liquidator, no suit or other legal proceeding shall be commencedor, if pending at the date of the winding-up order, shall be proceeded withagainst the company except by leave of the Court and subject to such terms asthe Court may impose. Sub-s. (2) provides, inter alia, that the Court which iswinding-up the company shall, notwithstanding anything contained in any law forthe time being in force, have jurisdiction to entertain or dispose of any suitor proceeding and any claim made by or against the company. Sub-s. (3) providesthat any suit or proceeding by or against the company which is pending in anyCourt other than that in which the winding-up is proceeding may,not-withstanding anything contained in any other law for the time being inforce, be transferred to and disposed of by that Court. The question is whetherthese provisions would affect the proceedings of the Tribunal.

19. In this connection, reference may be made to s. 41 of the LIC Act whichprovides that no civil Court shall have jurisdiction to entertain or adjudicateupon any matter which a Tribunal is empowered to decide or determine under thatAct. It is not disputed that the Tribunal had jurisdiction to entertain theapplication of the Corporation and adjudicate on the matters raised thereby.The Tribunal is given the exclusive jurisdiction over this matter.

20. It is in view of the exclusive jurisdiction which sub-s. (2) of s. 446of the Companies Act confers on the company Court to entertain or dispose ofany suit or proceeding by or against a company or any claim made by or againstit that the restriction referred to in sub-s. (1) has been imposed on thecommencement of the proceedings or proceeding with such proceedings against acompany after a winding-up order has been made. In view of s. 41 of the LIC Actthe company Court has no jurisdiction to entertain and adjudicate upon anymatter which the Tribunal is empowered to decide or determine under that Act.It is not disputed that the Tribunal has jurisdiction under the Act toentertain and decide matters raised in the petition filed by the Corporationunder s. 15 of the LIC Act. It must follow that the consequential provisions ofsub-s. (1) of s. 446 of the Companies Act will not operate on the proceedingswhich be pending before the Tribunal or which may be sought to be commencedbefore it.

21. Further, the provisions of the special Act i.e., the LIC Act, willover-ride the provisions of the general Act, viz., the Companies Act which isan Act relating to companies in general.

22. It is however contended for the appellants that in view of s. 44(a) ofthe LIC Act, s. 41 will not apply to the company whose business was beingwound-up under orders of Court and that therefore the provisions of s. 446 ofthe Companies Act will affect the proceedings before the Tribunal. Thecontention is not sound. The question of the applicability of the Act to aparticular insurer is to be considered in relation to facts existing when theAct came into force. In view of s. 44 of the LIC Act it will not apply to aninsurer whose business is being would-up under orders of Court at the time whenthat Act came into force in 1956 or on the 'appointed day', i.e., September 1,1956, when the assets and liabilities pertaining to the controlled business ofthe company stood transferred and vested in the Corporation. The company wasnot being wound-up under orders of the Court on July 1, 1956 when the Act cameinto force or on the appointed day mentioned earlier. The Act did apply to thecompany. It cannot cease to apply merely because subsequently the company wasordered to be wound-up.

23. The word 'insurer' is defined in clause(6) of s. 2 of the LIC Act andmeans an insurer as defined in the Insurance Act who carries on life insurancebusiness in India and includes the Government and a provident society asdefined in s. 65 of the Insurance Act. On November 9, 1959, when the companywas ordered to be wound-up it was not an 'insurer' within the meaning of thedefinition as the company did not carry on life insurance business in India onthat date. Its life insurance business had been taken over by the Corporationon the appointed day and it ceased to carry on that business thereafter. Itfollows therefore that the company was not an insurer on November 9, 1959, andcannot take advantage of the provisions of clause(a) of s. 44 of the LIC Act.

24. We are therefore of opinion that the Tribunal had jurisdiction tocontinue the proceedings after November 9, 1959 when the company was ordered tobe wound-up and that the provisions of s. 446, Companies Act, or s. 44(a). LICAct, do not in any way affect its jurisdiction to continue the proceedings.

25. We now come to the third point raised for the appellants. We agree withthe Tribunal that the amounts of Rs. 1,10,000/- and Rs. 32,000/- were not lentto the Life Department as such by the General Department. No question oflending money by one department of the company to the other can be ordinarilycontemplated. The assets of the company really constitute one entity, eventhough the company maintains separate accounts with respect to its variousinsurance business. It carried on other types of insurance business also. Wehave already shown how the provisions of the Insurance Act require the companyto keep a separate account for the life insurance business and to have aseparate fund known as the Life Insurance Fund and to which were to be creditedall receipts due in respect of the life business and the amount deposited bythe insurer in respect of life insurance business. Such a deposit is to be madein view of s. 7(1) of the Insurance Act. This requires the insurer to depositand keep deposited with the Reserve Bank of India for and on behalf of theCentral Government either in cash or in approved securities or partly in cashand partly in approved securities the sums specified in the various clauses inregard to the different types of life insurance businesses. Clause (a) requiresa deposit of Rs. 20,000/- where the business done or to be done is lifeinsurance only. Clause (e) requires a deposit of Rs. 3,00,000/- where thebusiness done or to be done is life insurance and any one of the three classesmentioned in clauses (b) to (d). Clause (e) further provides that out of thedeposit of Rs. 3,00,000/-, Rs. 2,00,000/- shall be the deposit for lifeinsurance business. Section 7 lays down a statutory amount which the insurerhas to deposit. It does not however restrict the insurer to deposit a largeramount in respect of life insurance business. Section 8(1) places certainrestrictions about the use to be made of the deposits under s. 7. Section 8(2)however deals with any deposit and provides that where a deposit is made inrespect of life insurance business, the deposit made in respect thereof shallnot be available for the discharge of any liability of the insurer other thanliabilities arising out of policies of life insurance issued by the insurer.This means that when an insurer puts certain money in the funds pertaining tothe life insurance business and especially to a life insurance fund, such anamount can be used only for the discharge of liabilities of the insurer arisingout of life insurance policies issued by him.

26. The amounts of Rs. 1,10,000/- and Rs. 32,000/- would thus amount todeposits made by the company in respect of life insurance business in order toaugment the life fund. This can be done either to bring the funds to an amountexceeding the expected net liabilities on the policies or merely to augmentthat fund. It makes no difference to the company how it distributed its fundsso long as its statutory liabilities were satisfied.

27. The very conduct of the company with respect of these amounts belies thealleged nature of the transfers of these amounts to the Life Department. Thesum of Rs. 60,000/- out of Rs. 1,10,000/- was written off in 1949. A loan ofsuch an amount is not usually written off. No special reason is assigned forwriting off the loan. The resolution about the transfer of Rs. 32,000/- itselfspeaks of the possibility of the amount being written off. A lender does notthink it this way at time the advances a loan. It is clear that the amount wasreally being transferred to the Life Fund through the Life Department RevenueAccount as otherwise the Life Fund on the actuarial valuation would have stoodat a figure much below the amount of the net liabilities on the policies as calculatedin Form H, Schedule Four to the Insurance Act, which is a Form giving summaryand valuation of the policies of the company as at the date of the valuation.Form I is for the valuation balance-sheet of the company at the correspondingdate and requires in one column the net liability under business as shown inthe summary and valuation of polices and in the other column the balance oflife insurance fund as shown in the balance sheet, and also provides for notingthe eventual position about the Life Fund being in surplus or in deficiency ascompared to the net liability. When the amount was not lent as a loan, noquestion of its repayment as such could have arisen in 1956. Of course,whenever the Life Fund showed an actuarial valuation surplus that surplus orpart of it could be transferred to the General Department according to thedesire of the management.

28. The amount of Rs. 82,000/- was not transferred as a result of theactuarial valuation as contemplated by the various resolutions which authorisedthe transfer of the amount from the General Department to the Life DepartmentRevenue Account. It was definitely provided in those resolutions that norepayment of the amount would be made except out of valuation surpluses of theLife Department.

29. The expression 'valuation surplus' has a technical meaning under theAct.

30. Section 13(1) of the Insurance Act provides that every insurer carryingon life insurance business shall, in respect of the life insurance businesstransacted in India, cause once at least in every three years an investigationto be made by an actuary into the financial condition of the life insurancebusiness carried on by him, including the valuation of his liabilities inrespect thereto. An abstract of the report of the actuary is to made inaccordance with the regulations contained in Part I of the Fourth Schedule andin conformity with the requirements of Part II of that Schedule. Section 13(2)provides that the provisions of sub-s. (1) regarding the making of an abstractshall apply whenever at any other time an investigation into the financialcondition of the insurer is made with a view to the distribution of profits oran investigation is made of which the results are made public. The abstract isto be certified on behalf of the insurer to the effect that full and effectiveparticulars of every policy under which there is a liability either actual orcontingent have been furnished to the actuary for the purpose of investigation.

31. Section 15 requires the submission of the aforesaid abstract to theController within the specified period. Part II of the Fourth Schedule requiresthat every extract prepared in accordance with the requirements of that part ofthe Schedule will have the statement of a consolidated revenue account in FormG, a summary and valuation in Form H, a valuation balance sheet in Form I and astatement in Form DDD as set forth in Part II of the third Schedule annexed toit. The valuation balance sheet in Form I requires the noting of a surplus, ifany, of the balance of the life insurance fund as compared to the net liabilityin the business as shown in the summary and valuation of policies. It is thesurplus noted in this Form I which is really the valuation surplus. It was outof such surplus that the company resolved that the advance of Rs. 1,10,000/-and Rs. 32,000/- could be paid to the General Department by the LifeDepartment. No such actuarial valuation was made by the actuary prior to thetransfer of Rs. 82,000/- to the General Fund by the resolution dated January 6,1956.

32. Reliance in this connection is placed on behalf of the appellants on theletter of the actuary dated July 25, 1955. The accuracy states :

'On the above basis, thevaluation shows a policy liability of Rs. 20,20,421. The Life Insurance Fund isRs. 21,32,455. Thus there is a surplus of Rs. 1,12,033. The surplus includesRs. 53,300 being the amount of appreciation on investments taken into accountby you in the past two years.

Thus the net working surplus isRs. 58,733/-.

The cost of Bonus at the rate ofRs. 10/- per thousand is approximately Rs. 48,000/-.

Thus the surplus is sufficient toenable to bonus declaration at the above rate even after excluding theappreciation amount or setting it apart as an additional reserve for futureuse.

Conclusion : The result issatisfactory. Continuing the same method of working as you have followed, thestatutory valuation as on 31-12-55 will surely enable you to declare a higherbonus.'

33. Firstly, it does not appear that the actuary had really conducted aninvestigation and submitted the valuation report as required by s. 13, of theInsurance Act. There is nothing on the record to show that any abstract in FormI, Fourth Schedule, was prepared and submitted to the Controller. Further, theletter shows that the net working surplus was only Rs. 58,733/- as theostensible surplus of Rs. 1,12,033/- included Rs. 53,300/- by which certaininvestments of the company had appreciated in that period. When the net workingsurplus was much less than Rs. 82,000/- which were transferred from the LifeDepartment to the General Department, the transfer of Rs. 82,000/- cannot besaid to have been in accordance with the terms on which the alleged loan wasmade to the Life Department from the General Department. When the LifeDepartment had not Rs. 82,000/- with itself, there could not have been anynecessity to pay that amount to the General Department. In fact, the allegedloan could be paid only when there would have been a valuation surplus in the accountsof the Life Department but this does not mean that the Life Department wasbound to pay back the amount the moment it had any valuation surplus. Itsliability to pay the alleged loan could arise only when there was a valuationsurplus. Its paying the amount actually would depend upon the circumstancesprevailing at the time.

34. In the circumstances, we cannot resist the conclusion that the Directorspassed a resolution for the transfer of this amount on January 6, 1956 inanticipation of some law depriving the company of its life insurance business.It may be that it was a close secret that an Ordinance would be issued onJanuary 19. But all the same, possibly, persons in the insurance world couldhave had an inkling of the trend of events.

35. The content of the resolution passed on January 6, indicates that thedirectors had no clear idea at the times as to how much the Life Department,according to them, owed to the General Department. The resolution speaks notonly of the transfer of Rs. 82,000/- to the General Department but also refersto the balance of Rs. 60,000/- due to the General Department by the LifeDepartment Revenue Account. The amount had been written off in 1950 and couldnot have thereafter been considered to be a loan advanced to the LifeDepartment Revenue Account from the General Department. It seems that theresolution was passed in some hurry and the Directors could not definitelydecide as to how any further amount upto Rs. 60,000/- could be taken back tothe General Department from the Life Department Revenue Account. Any way, sucha resolution of the Directors indicates that any entries with respect to thealleged loans were made for the purpose of accounting and the necessities ofthe business. Money in the Life Fund had to be augmented in 1948 and 1952 inorder to make the Life Fund exceed the net liabilities of the company onaccount of the life insurance policies.

36. We are therefore of opinion that the Tribunal took a correct view aboutthe nature of the transfer of Rs. 1,10,000/- in 1948 and Rs. 32,000/- in 1952to the Life Insurance Fund and rightly held that the transfer of Rs. 82,000/-to the General Department by resolution dated January 6, 1956, was not inaccordance with the provisions of the Insurance Act and that consequently thatamount continued to form part of the assets of the life insurance business ofthe company upto September 1, 1956 and that as such vested in the Corporationwhich could recover it from the company and the directors responsible for the transferof the amount to the General Department.

37. The appeals therefore fail and are dismissed with costs, one hearingfee.

38. Appeals dismissed.


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