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Vanguard Fire and General Insurance Co. Ltd., Madras Vs. Fraser and Ross, Chartered Accountants, Madras and anr. - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 922 of 1957
Judge
Reported inAIR1959Mad181; (1958)2MLJ449
ActsInsurance Act, 1988 - Sections 2(9), 2D and 33
AppellantVanguard Fire and General Insurance Co. Ltd., Madras
RespondentFraser and Ross, Chartered Accountants, Madras and anr.
Appellant AdvocateG.R. Jagadisan and ;T.S. Srinivasan, Advs.
Respondent AdvocateC.S. Padhmanabhan, Adv. for King and Partridge and ;Government Pleader
Disposition Writ petition dismissed
Excerpt:
.....- investigation - sections 2 (9), 2d and 33 of insurance act, 1988 - petitioner carried on insurance business - registration certificates cancelled on failure to renew certificates - on receipt of complaint government passed orders to investigate affairs of company - petitioner sought issue of writ of prohibition on order passed by government - section 33 give enough power to central government at any time by order in writing to direct controller to investigate into affairs of insurer and report to them - petition dismissed. - - the directors were also instructed not to apply for renewal of the licences which the company held, when those licences terminated in the usual course, on 10-12-1956 the company wrote to the controller of insurance, government of india, informing him..........company applied for and obtained certificates of registration for carrying on various classes of insurance business. on 15-10-1956 there was an extraordinary general meeting of the shareholders of the company at which four resolutions were passed. by the first it was resolved; 'that the company do forthwith cease to carry on business as insurers in respect of fire, motor, marine, and accident and other general insurance business.' the second resolution required the directors 'to stop the carrying on the business of insurers in all the branches of the said business and not to issue any policy of insurance; cover notes or other contract or insurance from and after this date.' the third resolution required the board of directors to 'carry on the business of money-lending as a loan.....
Judgment:
ORDER

Balakrishna Ayyar, J.

1. This is a petition by the Vanguard Fire and General Insurance Co., Ltd. for the issue of a writ of prohibitions to restrain the first respondent from carrying on any investigation into the affairs of the company in pursuance of an order made under Section 33 of the Insurance Act by the Central Government.

2. The relevant facts are these; The petitioner company was incorporated on 25-9-1941 and came under the purview of the Insurance Act of 1938. The company applied for and obtained certificates of registration for carrying on various classes of insurance business. On 15-10-1956 there was an Extraordinary General Meeting of the shareholders of the company at which four resolutions were passed.

By the first it was resolved;

'that the company do forthwith cease to carry on business as insurers in respect of fire, motor, marine, and accident and other general insurance business.' The second resolution required the Directors

'to stop the carrying on the business of insurers in all the branches of the said business and not to issue any policy of insurance; cover notes or other contract or insurance from and after this date.'

The third resolution required the Board of Directors to

'carry on the business of money-lending as a loan company and also to do investment business.' The fourth resolution authorised and instructed the Directors to notify the Controller of Insurance that the company had with effect from the date ceased to carry on the business of insurers. The Directors were also instructed not to apply for renewal of the licences which the company held, when those licences terminated in the usual course,

On 10-12-1956 the company wrote to the Controller of Insurance, Government of India, informing him that by reason of the resolutions that had been passed at the Extraordinary General Meeting of the company held on 15-10-1956 'we cannot apply to you for the renewal of registration under Sub-section (2) of Section 3-A of the Insurance Act, 1938, and We are, therefore, not applying to you For the renewal of registration which please note'.

On 14-5-1957, the Controller of Insurance wrote to the company stating that as the company had failed to obtain renewal of its certificates of registration, the previous certificates had been cancelled with effect from 1-7-1957. The cancellation was also notified in the Gazette of India.

3. In October 1956, and subsequently the Government of India received complaints against the company. On 17-7-1957 the Government of India passed an order directing the Controller of Insurance to investigate the affairs of this company and to submit a report. The Controller of Insurance appointed Messrs. Fraser and Ross, the first respondent in this petition, to be auditors to assisthim in the investigation of the affairs of the company.

Thereupon the company on 9-10-1957 wrote to the Controller of Insurance drawing his attention to the resolutions that had been passed and pointing out,

'We submit that the action taken by you purporting to be under Section 33 of the Insurance Act ot 1938 upon a direction from the Central Government in this behalf is without jurisdiction and not warranted by provisions of the Act.' The Controller wrote back overruling this objection raised by the company. In consequence the company has come to this court and asked for the issue of a writ of prohibition.

4. Mr. Jagadisa Aiyar. the learned counsel for the petitioner argued: The only provision in the Act which enables the Central Government to issue an order of the kind now complained of is to be found in Section 33 of the Act. The first sub-section of that section runs as follows:

'The Central Government may, at any time, by order in writing direct the Controller or any other person specified in the order to investigate the affairs of any insurer and to report to the Central Government on any investigation made by him,' The word 'insurer' occurring in this sub-section is defined -- so far as that definition is here relevant -- in Section 2(9) paragraph (b) in these terms:

'any body corporate (not being a person specified in Sub-clause (c) of this clause) carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India; or stands to any such body corporate in the relation of a subsidiary company within, the meaning of the Indian Companies Act, 1913, as defined by Sub-section (2) of Section 2 of that Act.' To come within the terms of this definition the body corporate must be actually carrying on the business of insurance. It is not sufficient if it had carried the business of insurance in the past; if it has ceased to carry on the business of insurance it would not be an 'insurer' within the meaning of this definition; consequently it will be outside the scope of Section 33 which cannot therefore be applied to its affairs.

5. Dealing with Section 2D of the Act, Mr. Jagadisa Aiyar explained that it would not apply to a case like the present where a company has closed down every one of its various lines of insurance business. Section 2D enacts:

'Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for.'

Commenting on this section Mr. Jagadisa Aiyar explained: A company may be carrying on several lines of insurance business, fire, marine, accident and so on. What Section 2D says is that merely because it has closed down one line or department of insurance the company will not cease to be an 'insurer' and will not cease to be subject to the liabilities imposed on it in respect of the other departments which it continues to carry on.

It may even be that one can properly say that so long as it carries on any line of insurance business, it is an 'insurer' and in consequence subject to the provisions of the Act even in respect of the branch or branches which it has shub down. Granting all that the position is that once a company had shut down all its branches of insurance business, it would cease to be an 'insurer' and so an investigation cannot be ordered under Section 33 of the Act in respect of its affairs.

The word 'insurer' in Section 2D must be read as a person who is actually carrying on the business of insurance. Mr. Jagadisa Aiyar further pointed out that in this particular case the certificate of registration that had been issued to the company were cancelled with effect from 1-7-1957: and he argued that though it may be that such cancellation does not absolve the company from the obligations, if any, arising out of the policies it had issued in the past, it is entirely precluded from doing any further insurance business. That is another reason why Section 33 cannot he utilised for directing an investigation into its affairs.

6. It had ceased to do insurance business, it had also lost the right to do any insurance business it therefore ceased to be an 'insurer' within the meaning of Section 33 of the Act.

7. I am unable to accept this line of reasoning. The word 'insurer' is used in the Act to in-elude,

(a) persons actually carrying on insurance business;

(b) persons about to commence insurance business; and

(c) persons who have stopped insurance business but against whom claims or liabilities might | be outstanding.

Take Section 7 to begin with. That requires every 'insurer' who docs not fall under Section 2(9)(c), to deposit and keep deposited with the Reserve Bank of India various amounts of money. Clause (a) of Sub-section (1) runs:

'Where the business done or to be done is life insurance only, two hundred thousand rupees.' Eight other similar clauses follow. In every one of these clauses the expression used is 'where the business done or to be done.' Now the use of the expression 'to he dons' in relation to the word 'insurer' is obviously intended to include a person who is about to commence the business. Then, there is Section 9 which provides for situations 'where an insurer has ceased to carry on in India any class of insurance business.' If therefore in this section the word 'insurer' means a person who is actually carrying the business of insurance, then that section would be self-contradictory and stand stultified. Further down we have got Section 55; the first sub-section of which begins,

'In the winding up of an insurance company or in the insolvency of any other insurer the value of the assets and the liabilities of the insurer shall be ascertained ..........'

in the manner subsequently provided for. It is obvious that after insolvency supervenes the business cannot he carried on and so the word 'insurer' in this section must mean a person who has ceased to carry on business. The moaning of the word 'insurer' in Section 56 is also the same.

8. As regards the contention of Mr. Jagadisa Aiyar based on the cancellation of the certificates of registration, it would be enough to observe that it would logically lead to a situation where a person can profit by his own wrongful acts. A certificate of registration may be cancelled for failure to comply with one or other of the various requirements of the statute.

A person who wants to avoid an investigation has only to do something or omit to do something which, by reason of the provisions of the Act, would lead to the cancellation of the certificate of registration. Thereafter if Mr. Jagadisa Aiyar was right it would he possible for him to say that since the registration has been cancelled there can be no investigation into his affairs.

9. I now come to Section 33. Under Clause (b) of Sub-clause (4) of that section the Central Government may direct the Controller to cancel the registration of the insurer, which means that from that time the 'insurer' cannot any on the business of insurance. Then there is Clause (c) which provides that the Central Government may direct the Controller to apply to the Court for the winding up of the insurer, if a company, whether the registration of the insurer has been cancelled under Clause (b) or not.'

10. If the argument of Mr. Jagadisa Aiyar were right we shall reach this position. The moment the registration is cancelled the company would cease to be 'insurer.' And if it ceases to be an 'insurer' the Controller cannot proceed to direct an investigation of its affairs. None the less this clause provides that notwithstanding the cancellation of the registration, the Central Government may direct the Controller to apply to the court for the winding up of the insurer any his company. In other words, even in Sub-section (4) the word 'insurer' is used to comprehend companies which have ceased to carry on the business of insurance. The only clean alternative would be the assumption that the legislature has contradicted itself in the same clause.

11. I agree with Mr. Jagdisa Aiyar that in theAct an attempt has been made for certain purposesto maintain a distinction between the various linesof businesses which an insurer may be carrying on.But from that it does not follow that the otherparts of his contentions are sound. It seems to bethat Section 2D was deliberately inserted to provide forla contingency of the kind that has arisen in thiscase.

It could only have been intended to prevent a person or company which has been carrying on the business of insurance from escaping the liabilities and duties imposed upon it by the Act by the simple device of stopping its insurance business. Mr. Jagadisa Aiyar argued that if Section 33 was intended to apply to situations where an insurer had ceased to carry on the business of insurance, then the legislature would have added the phrase 'notwithstanding that the insurer has ceased to carry on the business' at some appropriate place in that section.

It seems to me that what the legislature has done is this: Instead of using this phrase in numerous places in the Act, it inserted Section 2D so that it could be made plain that for all purposes of the Act a person who had been carrying on the business or insurance would continue to be subject to the liabilities and obligations imposed by the Act 'so long as his liabilities in India in respect of the business of that class remain unsatisfied or not otherwise provided for.'

12. Mr. Jagadisa Aiyar further argued: Even if it be that Section 2D applies to an insurer who has ceased to transact business, it must appear that his liabilities in India in respect of the business he had teen carrying on remain unsatisfied or unprovided for. In. the order they made under Section 33 of the Act the Central Government do not say that the liabilities of the petitioner company remain unsatisfied or unprovided for and till they record such a finding tlicy cannot issue an order under S, 33. On this argument certain comments may be made.

In the first place, it is clear that certain claims are still pending against the company. Even in the reply affidavit of the petitioner it is admitted that one Mrs. Sarla Devi, Delhi, has obtained a decree for Rs. 50,000, against the company and that an appeal from decree is pending in the Punjab High Court. In respect of another item, item 10 in Annexure B to the reply affidavit of the petitioner, the remarks made are; 'Repudiated on the ground that the driver was acquitted in the criminal case.'

Apart from others these 'are sufficient to show that certain claims are Still pending against the company. I express no opinion whatever in respect of any of the allegations that may have been made against the company by the persons who petitioned the Government of India. Secondly it is no doubt true that the order which the Government of India made under Section 33 does not make any reference to the liabilities of the company as subsisting.

But then I can see nothing in Section 33 which requires the Government of India to record any finding in that regard, That section does not say that the Government of India must be satisfied, that any claims are outstanding. It does not even say that the Government of India must have received complaints. That section gives power to the Central Government 'at any time by order in writing' to direct the Controller or any other person they may specify to investigate the affairs of the insurer and report to them.

Finally it will be realised that if the argument of Mr. Jagadisa Aiyar werte pressed to its logical end an impasse will result. The Government cannot order an investigation unless it appears that there are liabilities which remain unsatisfied or unprovided for. But then this cannot be satisfactorily ascertained except after an enquiry. We thus move round in a vicious circle. We cannot have an inquiry because there is no finding; we cannot have a finding because there can be no enquiry. A line of reasoning that produces such a result cannot be accepted.

13. I would repeat one point I made earlier.If the contentions of Mr. Jagadisa Aiyar were right,;a company whose affairs are being conducted in a'fraudulent or dishonest manner, I am not expressing any opinion on the merits of the allegationsmade against this company -- would be able toavert an enquiry by the very simple device of passing a resolution suspending all its business. Thatis not a device I am willing to countenance. In theresult, this writ petition is dismissed With costs.Advocate's fee Rs. 250/-.


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