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Unique Motors and General Insurance Co. Vs. S.K. Vaiyapuri and ors. - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petn. No. 35 of 1967
Judge
Reported inAIR1970Delhi90; [1970]40CompCas1025(Delhi); 6(1970)DLT52
ActsInsurance Act, 1938 - Sections 3(3), 3(4), 3(5), 64-M(3), 110, 114 and 114(3); Insurance Rules, 1939 - Rule 17-H; Constitution of India - Article 14
AppellantUnique Motors and General Insurance Co.
RespondentS.K. Vaiyapuri and ors.
Appellant Advocate S.S. Ahuja, Adv
Respondent Advocate B.R.L. Iyengar, Adv. and ; B.N. Kirpal, Adv. for Attorney-General of India and the Controller of Insura
Excerpt:
a) it was ruled that rule 17-h of the insurance rules, 1939 did not conferred the power of cancellation of registration of insurer independently of section 3(4) (f) and the right of appeal against cancellation was not taken away b) it was ruled that the cancellation of registration in pursuance of section 64-m of the insurance act, 1938 could be revived in a suitable case c) it was ruled that section 64-m (3) of the insurance act, 1938 and rule 17-h of the insurance rules are not vocative of article 14 of the constitution of india - section 13: [altamas kabir & cyriac joseph,jj] custody of child - welfare of child vis--vis comity of courts - the minor girl child of 3 1/2 years was brought to india by her mother. the minor girl was a citizen of u.k. being born in u.k. her parents had..........detail in the reference to the division bench. it may, however, be mentioned that unique motor and general insurance company limited, bombay (hereinafter referred to as the petitioner-company), is a public limited company registered and incorporated under the indian companies act, 1913, and was carrying on the business of general insurance and more particularly of motor insurance. on november 6, 1942, the petitioner-company was registered in respect of miscellaneous insurance business under section 3(6) of the insurance act, 1938 (act iv of 1938), called hereafter as the act.3. the controller of insurance, simla, by an order, dated april 17, 1964, cancelled the certificate of registrationof the petitioner-company. the order purported to have been passed under sub-section (3) of section.....
Judgment:

Jagjit Singh, J.

1. The following questions have been referred to the Full Bench by a Division bench of this Court:-

'1. Whether Rule 17-H confers power on the Controller of Insurance to cancel the registration of an insurer independently of Section 3(4)(f) of the Act? If so, whether Rule 17-H is ultra virus of Section 110(a) of the Act?

2. Whether Section 64-M(3) of the Act read with Rule 17-H is ultra virus of Article 14 of the Constitution as conferring unbridled, arbitrary and discriminatory powers on the Controller of Insurance?'

2. The facts of the case are given in detail in the reference to the Division bench. It may, however, be mentioned that Unique Motor and General Insurance Company Limited, Bombay (hereinafter referred to as the Petitioner-company), is a public limited Company registered and incorporated under the Indian Companies Act, 1913, and was carrying on the business of general insurance and more particularly of motor insurance. On November 6, 1942, the petitioner-company was registered in respect of miscellaneous Insurance business under Section 3(6) of the Insurance Act, 1938 (Act Iv of 1938), called hereafter as the Act.

3. The Controller of Insurance, Simla, by an order, dated April 17, 1964, cancelled the certificate of registrationof the petitioner-company. The order purported to have been passed under sub-section (3) of Section 64-M of the Act read with Rule 17-H of the Insurance Rules, 1939 (to be referred to for facility of reference as the Rules) and was in the following terms:-

'I have the honour to say that your Company has disregarded two warnings given to it under sub-section (2) of Section 64-M of the Insurance Act, 1938.

2. I, thereforee, in pursuance of sub-section (3) of Section 64-M of the said Act read with Rule 17-H of the Insurance Rules, 1939, hereby cancel the certificate of registration bearing the number 339/2 dated the 6th November 1942 in respect of miscellaneous insurance business granted to your company under Section 3 of the said Act and the cancellation will take effect on the 27th April, 1964.'

4. Under provisions of Section 64-M(2) three warnings were administered to the petitioner-company, for contravention of Section 40-C of the Act, with respect to the expenses of management in miscellaneous insurance business during the years 1957, 1958 and 1959 (vide letters dated 10-12-1959, 22-12-1959 and 11-1-1962 respectively). It was after these warnings had been given that the certificate of registration of the petitioner-company was cancelled.

5. The petitioner-company filed an appeal against the order cancelling its certificate of registration to the High Court of Bombay. On November 23, 1964 R. M. Kantawala, J., dismissed the appeal after holding that Section 110 of the Act, which deals with appeals, does not provide forany appeal from an order made under Section 64-M of the Act read with Rule 17-H of the Rules. The petitioner-company then filed a petition for issuing a writ of certiorari for quashing the order of the Controller, dated April 17, 1964. It was during hearing of that petition that the abovementioned questions were formulated and referred to the Full Bench.

6. At this stage some of the provisions of the Act may be noticed briefly. Sub-section (1) of Section 3 of the Act provides for registration of insurance. Sub-section (2) of that Sction mentions the documents which are required to accompany every application for registration. Sub-section (6) authorises the Controller on being satisfied that the application has fulfillled all the requirements of the section and subject to compliance of certain other provisions to register the insurer and grant him a certificate of registration. Sub-section (3) of the same section empowers the Controller to withhold registration or cancel a registration alreay made if in a country where any insurer has his principal place of business or domicile Indian nationals are debarred from carrying on the business of insurance or where any receiprocal condition imposed on such insurer is not satisfied.

7. Under sub-section (4) of Section 3 of the Act it is obligatory on the Controller to cancel the registration of an insurer either wholly or in so far as it relates to a particular class of insurance business in the case of the insurer falls under any clause of clauses (a) to (ee) thereof. Where, however, the case of an insurer falls under any clause of cluases (f) to (h) of that sub-section cancellation of registration is discretionary. Under clause (f) the Controller may cancel the registration of an insurer if the insurer makes default in complying with, or acts in contravention of, any requirement of the Act or of any rule or order made there under. Sub-section (5-C) enables the Controller at his discretion to revive the Registration cancelled under clause (a) clause (aa), clause (e), clause (f), clause (g) or clause (h) of sub-section (4).

8. Sections 40-A, 40-B and 40-C and Part II-A, containing Sections 64-A to 64-T, were inserted in the Act by the Insurance Amendment Act, 1950 (Act Xlvii of 1950). These sections were inserted to provide for the control of overall expenses of all insurers through the medium of statutory association of insurers and the Executive Committee of the Life Insurance Counciland the General Insurance Council.

9. Sub-section (1) of Section 40-C of the Act places limitation on expenses of management in general insurance business. It, inter alia, provides that after December 31, 1949, no insurer shall, in respect of any class of general insurance business transacted by him in India, spend in any calendar year as expenses of management including commission or remuneration for procuring business an amount in excess of the prescribed limit. There is, however, a proviso to this sub-section which is to the effect tht where an insurer has spent as such expenses in any eyar an amount in excess of the amount permissible under this sub-section he shall not be deemed tohave contravened the provisions of the section, if the excess amount so spent is within such limits as may be fixed in respect of the year by the Controller after consultation with the Executive Committee of the General Insurance Council by which the actual expenses incurred may exceed the expenses permissible under the sub-section.

10. Section 64-M of the Act provides for giving of advice by the Executive Committee of the General Insurance Council to the Controller in the matter of fixing, under the proviso to sub-section (1) of Section 40-C, the limits by which the actual expenses of management incurred by an insurer, carrying on general insurance business, in respect of such business in the preceding year, may exceed the limits prescribed by that sub-section. It also provides for administering of warnings to an insurer guilty of contravention of the provisions with respect to the expenses of management and for the Controller taking such action against an insurer disregarding two warnings as may be prescribed. The section reads:-

'64-M (1). It shall be the duty of the Executive Committee of the General Insurance Council to meet at least once before the 31st day of March every year to advise the Controller in fixing under the provisio to sub-section (1) of the Section 40-C the limits by which the actual expenses of management incurred by an insurer carrying on general insurance business in respect of such business in the preceding year may exceed the limits prescribed under that sub-section, and in fixing any such limits the Controller shall have due regard to the conditions obtaining in general insurance business in the preceding year, and he may fix different limits for different groups of insurers.

(2) Where an insurer is guilty of contravening the provisions of Section 40-C with respect to the expenses of management the Controller may, after giving the insurer and opportunity of being heard, administer a warning to the insurer.

(3) Where in any case two warnings given to an insurer under sub-section (2) have been disregarded by him, the Controller may take such action against the insurer as may be prescribed.'

11. The expression 'prescribed' has been defined in Section 2(14) of the Act to mean as prescribed by rules made under Section 114. Section 114 gives power to the Central Government to make rules to carry out the purposes of the Act, including any matter which is to be or may be prescribed.

12. Rule 17-H of the Rules, made under Section 114 of the Act, prescribes the action that may be taken by the Controller under sub-section (3) of Section 64-M. The rule is as follows:-

'17-H (1) In pursuance of sub-section (3) of Section 64-M of the Act the Controller may:-

(a) Cancel the registration of the insurer under the Act and

(b) Request the Executive Committee of the General Insurance Cuncil to consider practical steps for the reconstruction of the insurer concerned or for transferring its business to some other insurer.

(2) when such a request as is referred to in the preceding sub-rule is received by the Executive Committee of the General Insurance Council, it shall meet not later than one mojnth of the recept of such request to consider the request and within seven days of such meeting shall communicate its decision to the Controller.

(3) The Controller may, after considering the recommendations of the Executive Committee in this behalf apply to the Court for winding up of the insurer concerned if he thinks fit.'

13. The Act also contains provisions in Section 110, regarding apepal against an order under Section 3 refusing to register or cancelling the registration of an insurer.

14. Shri S.S. Ahuja, learned counsel for the petitioner-company, was at first inclined to take the stand that Section 64-M(3) of the Act read with R. 17-H of the Rules does not confer any independent power on the Controller of cancelling the registration of an insurer, who has disregarded two warnings given to him, and that the cancellation of the registration of an insurer in such a case has to be considered to have been made under Section 3(4)(f) of the Act. This hline of reasoning was, however, abandoned when it was realised that the judgment of the Bombay High Court, to which reference has been made earlier, was inter partes. Shri Ahuja, thereforee, on the assumption that the view taken by the learned Judge of the Bombay High Court was correct, contended that clause (a) of Rule 17-H of the Rules confers power on the Controller independelty of Section 3(4)(f) to cancel the registration of an insurer in pursuance of sub-section (3) of Section 64-M and the rule to that extent is ultra virus of Section 110(a) as there is no right to appeal against such cancellation of the registration of an insurer. It was further urged that Section 64-M(3) read with Rule 17-H is ultra virus of Article 14 of the Constitution as these provisions confer unbridled, arbitrary and discriminatory power on the Controller to either proceed under these more prejudicial provisions or to take action under Section 3(4)(f) of the Act. Reliance was placed on the case of Northern India Caterers (Private) Ltd., v. State of Punjab, : [1967]3SCR399 .

15. Shri B. R.L. Iyengar, who appeared for the Controller of Insurance and the Attorney General of India, submitted that Section 64-M of the Act read with Rule 17-H of the Rules forms a separate scheme which is only applicable to that class of insurers who have been extravagant in the matter of expenses of management and have also disregarded two warnings given to them by the Controller. According to the learned counsel action against such an insurer can only be taken under Section 64-M(3) read with Rule 17-H and as such there is no question of the Controller having arbitrary discretion either to proceed under those provisions or to take action under Section 3(4)(f). It was urged that the Legislature has intentionally withheld the right of appeal from this class of insurers as under the proviso to Section 40-C the Controller has to fix for each year, after considering the advice of the Executive Committee of the General Insurance Council and having regard to the conditions obtaining in general insurance business in the preceding year, the limits within which the expenses of management may exceed the prescribed limits. Eight representatives of the members of the Insurance Association of India also being members of the Executive Committee of the General Insurance Council. It was stated the advice tendered by the said Committee is based on the actual needs and difficulties of insurers carrying on general insurance business. As action for cancellation of the registration is only taken after two warnings have been disregarded, it was conended the insurer concerned can have, under the circumstances, no grievance that right of appeal has been denied to him.

16. In clause (a) of Rule 17-H of the Rules the words used are 'cancel the registration of the insurer under the Act'. It is true that the rule is somewhat unhappily worded and possibly a construction can be put on it that in pursuance of sub-section (3) of Section 64-M of the Act the Controller may cancel the registration of the insurer granted under the Act. The other interpretation would be that the registration of an insurer may be cancellede by the Controller under the provisions of the Act relating to cancellation of registration. The learned Judge of the Bombay High Court, on the appeal of the petitioner-company, had adopted the first interpretation.

17. The only provisions in the Act relating to cancellation of registration are to be found in sub-sections (3) and (4) of Section 3. Sub-sections (1) and (6) of that section provide for the registration. In sub-section (3) of Section 3 the expression used is 'cancel a registration already made' while in sub-section (4) the registration which can be cancelled is not described as 'the registration of the insurer under the Act', but merely as 'registration of an insurer'. Sub-section (5) of Section 3 requires that when the Controller withholds or cancels any 'registration under sub-section (3) or clause (a), clause (aa), clause (e), clause (ee), clause (f), clause (g) or clause (h) of sub-section (4)', a notice in writing shall be given to the insurer of his decision, and the decision shall take effect on such date as may be specified in that behalf in the notice, such date being not less than one month nor more than two months from tdate of the receipt of the notice in the ordinary course of transmission. The registration referred to is not granted under sub-section (3) or the clauses mentioned after the words 'under sub-section (3)', but those clauses have reference to the provisions under which registration is cancelled. It appears that in Rule 17-H the same form of construction was used and the words 'under the Act' do not qualify the expression 'registration of the insurer', but go with the word 'cancel'. The rule, thereforee, does not confer an independent power of cancellation on the Controller. Besides prescribing for certain other matters it seems to provide that the registration of the insurer may be cancelled under the Act, which in the context should mean the provisions of Section 3(4)(f) of the Act.

18. It is not possible to accept the contention that the intendment of the Legislature was to treat extravagant insurers carrying on general insurance business, in the matter of cancellation of their registration, differently from the other insurers by depriving them of the right ofappeal. Against warnings to be given by the Controller under Section 64-M(3) of the act no appeal is provided. It cannot, thereforee, be said that as action for cancellation of the registration is taken only after two warnings have been disregarded the right to appeal shouldby necessary implication be deemed to have been taken away. The right of appeal to a Court of law is a most valuable right and deprivation of that right is not to be lightly assumed. If the intention was to take away that right in the case of insurers whose registration is cancelled after their disregard of two warnings by the Controller some specific provisions would have been made. No such provision was made and there are no provisions in the Act which may by necessary implication lead to any such inference.

19. Another submission of Shri Iyengar was that if cancellation of registration by the Controller in pursuance of Section 64-M(3) of the Act read with R. 17-H of the Rules was intended to fall under Section 3(4)(f) then all the provisinos of section 3, including sub-section (5-C) relating to reviving of registration within six months from the date on which the cancellation took effect, shouldhave applied to such cancellation of the registration. Elaborating his argument the learned counsel urged that as the excess in expenses of management would already have taken place it would not be possible for the past years and, thereforee, the provisions for reviving the registration cannot ever apply to an insurer whose registration has been cancelled under Section 64-M(3) read with R. 17-H. The contention, however, has no force. In many cases of revival of registration covered by sub-section (5-C) of Section 3 it is not possible to undo the past default. The directions to be complied with by the insurer in connection with revival of the registration may be, thereforee, for the future. There is no reason why registration of an insurer cancelled in pursuance of Section 64-M(3) of the Act may not in a suitable case be revived at the discretion of the Controller.

20. It, thereforee, appears that R. 17-H of the Rules does not confer on the Controller of Insurance the power to cancel the registration of an insurer independently of Section 3(4)(f) of the Act. The correct interpretation of clause (a) of that rule seems to be that the certificate of registration granted to an insurer may be cancelled by the Controller in pursuance of sub-section (3) of Section 64-M under the Act, from which it follows that cancellation of the registration of the insurer is to be effected under provisions relating to cancellation of registration as embodied in the Act.

21. As cancellation of the registration in pursuance of Section 64-M(3) read with Rule 17-H cannot bemade independently of Section 3(4)(f) it cannot be said that the Act provides two separate and independent procedures for cancellation of registration and that one of the procedures is more prejudicial than the other. The question of any discrimination or arbitratory discretion on the part of the Controller does not arise.

22. The questions referred to the Full Bench are, thereforee, answered as follows:-

(1) First part: No.

Second Part: The question does not arise

(2) No.

23. The case shallnow be laid before a Division Bench for being disposed of in the light of the above answers.

I.D. Dua, C.J.

24. I have read the judgment prepared by my learned brother Jagjit Singh, J. And I agree with him. I would, however, add a few words on one aspect. Rule 17-H of the Insurance Rules framed under Section 114 of the Insurance Act by the Central Govenment deals with the action to be taken against Extravagant General Insurers. These Rules were required by Section 114 to be made for carrying out the purposes of the Act. Sub-section (3) of this section is designed to retain legislative control over the rules to be so framed. This seems to be inspired by the recognition of the doctrine of separation of power contained in our Constitution, the problem of delegation of powers being to an extent a refinement of the broader doctrine of separation of powers. The constant increase of social and economic regultion has necessitated as inevitable, for practical reasons, delegation of rule-making power, provided, either the broad guide-lines are stated within which the rule is to be made and is to operate, or legislative control is retained by the Parliament over the rule-making power. This sub-section is an illustration of the latter course of retention of legislative control.

According to it, every rule made under Section 114 is to be laid, as soon as may be, before the Legislature, while it is in session, for the period prescribed therein. If the Legislature agrees in making a modification in the rule, or if it agrees that the rule should not be made, the rule is thereafer to have effect only in such modified form or will have no effect, as the case may be. This provision thus clearly suggests that the Legislature has been given an opportunity of scrutinising the rules made under Section 114 of the Act and it may be assumed that in the case in hand, the opportunity was utilised as intended. Rule 17-H which mush, thereforee, be deemed to have the implied sanction of the legislature after it was made, derserves to be read as a part of the Act itself. Considerations which weigh in construing a rule made by the executive wing of the Government, pursuant to validly delegated power, but which has not been laid before the legislature, as envisaged in Section 114 of the Act, may not apply with full rigour to a rule which has been so laid and which may, thereforee, appropriately be deemed to have the approval of the Legislature itself. A rule of this type being a part of the statute, has to be construed along with the other provisions of the statute and every effort should be made to fit it in with the general statutory scheme which is discernible from the Act read as a whole. The language used in Rule 17-H may be capable of two meanings, but if reasonably permissible, the Court should adopt the one which would render it valid rather than invalid. The Court may more readily be inclined to assume - if necessary - a mistake in drafting rather than to impute to the Legislature an intention to place on the statute book or approve under Section 114(3) an invalid or unconstitutional provision. From this point of view, the impugned rule must be so read as to make it lawful, constitutional and consistent with the smooth working of the system which the statute purports to regulate, and there does not seem to be any insumountable obstacle in so reading it.

25. Article 14 of the Constitution also does not postulate an absolute equality of men before the law. The view taken by my learned brother Jagjit Singh, J., of the statutory provisions would obviously exclude the challenge on the ground of inequiality as well.

H.R. Khanna, J.

26. I agree.

27. Order accordingly.


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