K.L. Roy, J.
1. This is a suit by the plaintiff firm against the Life Insurance Corporation of India for arrears of remuneration or in the alternative for damages in respect of an agreement Between the plaintiff firm and Aryya Insurance Company Limited. The case for the plaintiff is that on or about the 1st June. 1954 Aryya Insurance Company Limited appointed the plaintiff firm as its special representative for the purpose of introducing persons willing to act as insurance agents of the company. It was further agreed that on the acceptance by the company and appointment of any such persons as its agents the plaintiff guaranteed that insurance business worth at least Rupees five lacs annually would be procured by such agents yielding a premium collection of about Rs. 20,000/-, and in consideration thereof the plaintiff firm would be entitled to an allowance of Rs. 200/- per month and in addition a flat rate of commission of 65 per cent on the first year's premium collection including agency commission and special agent's commission. It is further claimed that pursuant to the said agreement the plaintiff firm acted as such special representative of the insurance company till January, 1956 and was duly paid its remuneration and commission by the insurance company. The Life Insurance (Emergency Provisions) Ordinance. 1956 was promulgated in January, 1956 and in pursuance thereof a Custodian was appointed in respect of the company's life insurance business and the management of such business vested in the said Custodian. The' Custodian wrongfully and illegally denied the validity of the said agreement between the plaintiff and the said insurance company and stopped payment of any further remuneration or commission apreed upon by the insurance company. Thereafter on coming into effect of the Life Insurance Corporation Act (XXX of 1956) on and from the 1st September, 1956 the Corporation also refused to recognise the agreement entered into between the plaintiff firm and the insurance company and rejected the plaintiff firm's claim for remuneration and commission. In the premises, the plaintiff claims Rs. 36,500/- as damages in respect of the monthly remuneration up to August, 1957 and commission as provided for in the said agreement or in the alternative damages for Rs. 48,000/- on the basis of monthly allowance of Rs. 200/- for 20 years.
2. The defence of the Corporation in the written statement is, inter alia, that the alleged agreement of the 1st June, 1954 between the plaintiff firm and Arvya Insurance Company Limited was void, inoperative and invalid in law being in violation of the provisions of the Insurance Act, 1938, and as the plaintiff was never employed as Chief Agent, Special Agent, Principal Agent or an Insurance Agent of the said Insurance Company it was not entitled to payment of any remuneration under the aforesaid agreement.
3. The correspondence contained in the brief of documents in this suit was admitted in evidence without formal proof by consent of learned counsel for the parties and the brief is marked Ex. A. It would be necessary to set out the purported agreement between the plaintiff firm and Aryya Insurance Company Limited dated the 1st June 1954 in some detail. The said agreement provided that the Insurance Company did thereby appoint the plaintiff firm as its special representative on inter alia the following terms and conditions, namely:--
(1) Designation -- Special Representative.
(2) Date of effect -- 1st June, 1954.
(3) Power -- To introduce ordinary licensed agents, special agents and organisers on the company's usual terms.
(4) Guarantee -- 5 lacs worth of paid for business within a year yielding premium collection of Rs. 20,000/'- approximately in due course after completion of which there would be no guarantee of business so long as the total business of 5 lacs remains in force.
(5) Remuneration -- That the plaintiff firm would be entitled to an allowance of Rs. 200/- per month in addition to a flat rate of commission of 65 per cent on the first year's premium collection including agency commission and special agent's commission.
(6) That if the business was found to be unsatisfactory the payment made should be subject to necessary modification with mutual consent after periodical review of the business done by the plaintiff firm from time to time.
(7) That the plaintiff firm would observe the following terms and conditions:--
(a) It would be primarily responsible for the conduct of all the field workers under its organisation with respect to Quality and quantity and the review of business to be made from time to time.
(b) The plaintiff firm would try to secure the initial deposit from the party in advance along with the proposal before the proponent could be introduced to the examining doctor. If the proposal was not completed by payment, no medical fees would be payable by the company.
(c) That the plaintiff firm would strictly carry out all the instructions issued by the company for its guidance from time to time.
(d) That the plaintiff firm would not directly or indirectly represent any other life office and shall not divulge any of the business secrets of the company.
4. There is a letter dated July 6. 1955 from the Agency Manager of Arvya Insurance Company Limited recording the company's satisfaction with the work done by the plaintiff firm for thp year 1954-55. The next letter is dated February 9, 1956 and is from the plaintiff firm to the Custodian claiming the amount of Rs. 200/- per month under the aforesaid agreement with the insurance company. In reply the Custodian by his letter datedMarch 23, 1956 required whether the plaintiff was an employee or an agent of the insurance company, and if an employee whether it was employed in a clerical or subordinate capacity. The letter further pointed out that under Section 31-A of the Insurance Act no commission was payable to any person by way of remuneration except to one of the categories of agents mentioned in that section. Similarly, Section 40 of the said Act also prohibited such payment. As the plaintiff firm was neither an employee nor an agent of the insurance company any remuneration Daid would be illegal and as such the Custodian refused to entertain the claim of the plaintiff firm. In reply to the aforesaid letter the plaintiff firm wrote on April 5, 1956 that it was neither an agent nor an employee in any clerical or subordinate capacity of the insurance company but was appointed as special representative on certain specific terms and conditions. There was,, therefore, no question of taking out any licence under the Insurance Act. The letter proceeded to point out that neither Section 31-A nor Section 40 of the Insurance Act was applicable to the case of the plaintiff and requested the Custodian to consider the plaintiff's claim and issue orders for payment. There are further correspondence between the Custodian and the plaintiff firm each reiterating the position it had already taken up and finally, on May 17, 1956 the Solicitor for the plaintiff firm wrote to the Custodian stating the plaintiff's case and contending that as the said remuneration was not by way of commission, bonus or a share in valuation surplus but was payable to the plaintiff as special representative for its business organisation and expenses it was not hit by any of the provisions of the Insurance Act. The letter concluded with a demand for payment of the monthly allowance for 4 months. Further correspondence was carried on between the Life Insurance Corporation and the Solicitor for the plaintiff each reiterating the position taken up previously and ultimately this suit was filed on the 5th September, 1957.
5. The issues that were raised and settled are as follows:--
1. Is the agreement recorded in the letter dated June 1, 1954 set out in annexure 'A' to the plaint lawful, valid and binding on the defendant Corporation?
2. If issue No. 1 is answered in the affirmative, should there be a decree in terms of prayer (f) of the plaint?
3. To what relief, if any, is the plaintiff entitled?
Though, as Mr. Dutt the learned counsel for the plaintiff pointed out, in view of the issues raised oral evidence was not very material, one Dilip Kumar Mukherjee, a partner of the plaintiff firm, gave evidence on its behalf. He proved the letter of appointment from Aryya Insurance Company dated the lot June, 1954 containing the terms of the agreement between the plaintiff firm and the insurance company. He stated that the plaintiff firm acted in terms of the said agreement and received its remuneration and commission for the first year from the insurance company. But thereafter on and from January, 1956 no such remuneration or commission was paid as the company's controlled business had been taken over by the Custodian under the Ordinance and the Custodian refused to recognize the right of the plaintiff firm to any payment under the aforesaid agreement. The witness also stated that in this suit the plaintiff was claiming damages at the rate of Rs. 200/- for the whole year 1956 and up to August. 1957 and the anticipated commission that would have been earned on the plaintiff introducing agents to procure work of about ten lakhs of rupees. In the alternative the plaintiff claimed damages of Rs. 48,000/- on the basis of the monthly allowance for twenty years as the appointment was 'almost of a permanent nature.' The witness explained that the plaintiff firm never procured any business directly and its modus operand! was to introduce men to the company who were willing to act as agents for the company if approved by the company. After the agent was appointed by the company, the company used to arrange for licence for such agents. The plaintiff simply introduced these persons to the company. At first the witness said that the plaintiff firm was constituted after June 1954 but on being reminded by the Court that the purported agreement was on 1st June, 1954 he amended his evidence by saying that possibly the plaintiff firm had been constituted earlier and without consulting the records he could not say when it was actually constituted. He also admitted that after January 1956 the plaintiff firm had done no business whatsoever though the room at 77-B Harish Mukherjee Road which was rented for its business originally still continued to be in its possession. In cross-examination the witness stated that the plaintiff firm was neither a special agent nor a chief agent or a principal agent or an Insurance agent of the Aryya Insurance Company Ltd. (qq. 126-129) but was only its special representative for the purpose of procuring persons to be appointed by the company as its insurance agents.
6. Before I discuss the arguments advanced in this case it would be necessary to set out the relevant provisions of the Insurance Act and the Life Insurance Corporation Act. The definition section, S. 2 of the first Act defines inter alia a chief agent, an insurance agent, a principal agent and a special agent as follows:
'Section 2(5-A): 'Chief agent' means a person who not being a salaried employee of an insurer, in consideration of any commission-- (i) performs any administrative and organising functions for the insurer and (ii) procures Life Insurance business for the insurer by employing or causing to be employed insurance agents on behalf of the insurer.
Section 2(10): 'Insurance Agent' means an insurance agent licensed under Section 42 who receives or agrees to receive payment by way of commission or other remuneration in consideration of its soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.
Section 10(15): 'Principal Agent' means a person who, not being a salaried employee of an insurer, in consideration of any commission-- (i) performs any administrative and organizing functions for the insurer and (ii) procures general insurance business whether wholly or in part by employing or causing to be employed insurance agents on behalf of the insurer. The other relevant provisions of the Act are as follows:--
Section 31-A(i): Notwithstanding anything to the contrary contained in the Indian Companies Act, 1956 or in the Articles of Association of the insurer, or in any contract or agreement, no insurer shall after the expiry of one year from the commencement of the Insurance (Amendment) Act, 1950 * * *
X X X X
(b) be directed or managed by or employ as manager or as officer or in any capacity any person whose remuneration or any part thereof takes the form of commission or bonus or a share in the valuation surplus in respect of the life insurance business of the insurer * *
Section 40(1): No person shall, after the expiry of six months from the commencement of this Act, pay or contract to payany remuneration or reward whether byway of commission or otherwise for soliciting or procuring insurance business inIndia to any person except an insuranceagent or a principal, chief or specialagent ******
7. Ss. 42-B and 42-C lay down the regulations for the employment of principal agents, chief agents and special agents. It is provided that every contract between the insurer carrying on life insurance business and a chief agent or a special agent or between a chief agent and a special agent shall be in writing in terms contained in Parts B and C of the Sixth Schedule to the Act.
8. The other relevant prevision to be referred to is Section 36 of the Life Insurance Corporation Act (Act 31 of 1956) which provides that notwithstanding anything contained in the Insurance Act or in any ether law for the time being in forceevery contract appertaining to control business subsisting immediately before the appointed day (1st September, 1956) (a) between an insurer and its chief agent or between an insurer and its special agent, or (b) between the chief agent of an insurer and a special agent, shall as from the appointed day, cease to have effect and any rights accruing to the chief agent or the special agent under any such contract shall terminate on that day. Then there is a proviso providing for compensation by the Corporation to such agents on the termination of their appointment.
9. Mr. B. C. Dutt, the learned counsel for the plaintiff firm, submitted that the remuneration provided for in the agreement of June 1, 1954 was for payment to the plaintiff as special representative for introducing agents to the insurance company. The plaintiff was neither an insurance agent, chief agent or principal agent, and according to the learned counsel the aforesaid agreement imposed no obligation on the plaintiff to procure any business; its function being only to introduce ordinary and special agents or organisers. The learned counsel pointed out that under Section 2(a)(iii) of the Insurance Act an insurer could employ a representative or maintain a place of business in India with the object of obtaining insurance business. As pointed out to Mr. Dutt by the Court, this provision obviously applies to foreign insurance companies and has no application to the case of Indian insurance companies. Mr. Dutt, however, drew inspiration from the aforesaid provision for his argument that apart from employing chief, ordinary, special and insurance agents an insurer was at liberty to engage special organisers for facilitating the carrying on of its business. Mr, Dutt, then advanced a somewhat strange argument. He submitted that Section 40(1) of the Insurance Act, even if it applied to this case, did not operate to make the agreement itself illegal or void because the Act itself provides for the consequence of a breach of the provisions of that section. As learned counsel himself pointed out, Section 102 of the Act did not provide for any penalty for the breach of the observance of the conditions in Section 40(1) and there was no other provision in the Act providing for non-compliance with Section 40. As Section 40 itself prohibits the insurer from making any payment of remuneration except to person mentioned therein, I do not see the point in Mr. Dutt's argument that the said section did not make the agreement illegal or void. If the insurer could not act in terms of the agreement obviously it could not be given effect to. Mr. Dutt submitted that in any event the agreement should be interpreted in a liberal manner and for that proposition he relied on a decision of the Punjab High Court reported in AIR 1961 Punj 233. But that was a case of interpretation of a contract of insurance and has no application to the facts of the present case. Mr. Dutt also submitted that in case of any doubt the construction favouring the plaintiff should be adopted because the contract was contained in a letter written by the insurance company. I am again at a loss to appreciate this argument of Mr. Dutt. Mr. Dutt pointed out that under the Life Insurance Emergency Provision Ordinance (1 of 1956) only the right of management was taken away from the insurer in respect of the controlled business for the purpose of meeting the routine day to day expenditures to be incurred by the insurer. Mr. Dutt referred me to Section 7 of the Life Insurance Corporation Act and pointed out that as from the appointed day, i.e., 1st September, 1956, all the assets and liabilities of the insurer appertaining to the controlled business vested in the Corporation and such liabilities were deemed to include all debts, liabilities and obligations of whatever kind then, existing and appertaining to the controlled business of the insurer and submitted that the liability which the Corporation took over from the insurer included the liability under the agreement in this suit Mr. Dutt pointed out that Section 52-C of the Insurance Act specifically gave the Administrator appointed under that Act the power to cancel or vary any contract or agreement entered into by the insurer where the Administrator was satisfied that such a contract or agreement was prejudicial to the interest of the policy-holders and that similar power of cancellation had not been conferred on the Corporation under the Life Insurance Corporation Act. It was accordingly submitted that as the agreement would have been binding on the insurer and as the Life Insurance Corporation had not been given any power to terminate such agreements, the refusal of the Corporation to pay the plaintiff in terms of the said agreement was not according to law. Mr. Dutt submitted further that even if the Court came to the opinion that Section 40(1) of the Insurance Act applied to this case and the payment of the commission was barred the plaintiff was stilt entitled to the payment of Rs. 200/- per month as allowance and for damages from being prevented from earning the remuneration by carrying out the terms of the agreement. It was further submitted that as the agreement was an obligation binding on the Insurance Company and as such was also an obligation imposed on the Corporation, the Corporation was not entitled to challenge the existence or validity of such an agreement. Mr. Dutt referred me to certain passages from A.K. Bhattacharjee's Commentaries on the Insurance Act, 1954 Edn. at p. 222 where the learned author quotes certain passages from the 'Insurance World', of August 1939 to the following effect:--
'From the wording of Section 40(1) it will appear that soliciting or procuring of insurance business may be a function of employer of agents also, for that section permits payment of remuneration for soliciting or procuring insurance business in India; (2) on an insurance agent or a person acting on behalf of an insurer who for the purpose of insurance business employs insurance agents.
So, when soliciting or procuring of insurance itself is recognized as a function of an employer of agents and at the same time the law makes it specifically compulsory for insurance agents only to take out licences it will not be unreasonable to conclude that an employer of agents is not required by the letter of the law to take out a licence for the purpose of soliciting personal business. If this interpretation stands, an employer of agents will be excluded also from the operation of Section 40(1) for the limitation clause does not apply to an employer of agents at all.' I am afraid, I am unable to accept the above proposition. As pointed out by Mr. Sen the wording of Section 40(1) is quite clear and it prohibits the payment of any remuneration or reward to any person, whether by way of commission or otherwise.
10. Mr. Sen, the learned Counsel for the defendant Corporation, was equally precise and brief in his reply. His main contention was that the agreement of June 1, 1954 was not a valid and lawful agreement and was as such not binding on the defendant Corporation. When the agreement was entered into with Aryya Insurance Company Limited it was not and could not be a valid agreement as it was hit by the provisions of Section 40(1) and Section 31-A(1)(b) of the Insurance Act. The first of these sections prohibits payment of any remuneration by way of commission or otherwise for soliciting or procuring insurance business in India to any person except to an insurance agent or a principal, chief or special agent. Such prohibition is applicable except in the case of the four categories of persons mentioned in the section, and the plaintiff's case clearly is that it was neither an insurance agent nor a principal agent nor a chief agent nor a special agent of the insurance company. This position is made quite clear in the correspondence and also in the evidence of the plaintiff's witness, Mukherji, in QQ. 126 to 129. Mr. Sen also referred to the terms of the said agreement and particularly to clause 4 which provides for a guarantee, Clause 5 which provides for remuneration, clause 7 which provides that the appointment would be subject to modification if the business procured by the plaintiff is found to be unsatisfactory, and clause 8 which requires the plaintiff to fulfil thequota of business. The conditions to be observed by the plaintiff are contained in Clause 9 and the various sub-clauses of that clause make it quite clear that it was the plaintiff's organisation which would be responsible for the field workers under it, which would secure the initial deposits from the parties and which would also strictly carry out the instructions issued by the insurance company from time to time. Paragraph 3 of the agreement also prohibits the plaintiff from collecting premium or pledging the credit of the insurance company or in any way vary the terms of the contract of insurance. Mr. Sen submitted that these clauses clearly showed that the duties of the plaintiff firm under the said agreement was to procure agents and field workers for the purpose of acquiring business for the insurance company for which the plaintiff was also made responsible and for collecting premium thereof and for these services rendered the plaintiff firm would be remunerated by way of a sum of Rs. 200/- per month and a commission of 65 per cent on the amount of premium received in the first year providing the business secured was not less than rupees ten lacs. If the payments under the agreement to be made by Aryya Insurance Company Limited to the plaintiff firm were payments by way of remuneration or reward for procuring insurance business, then such payments were prohibited under Section 40(1) as the plaintiff firm was admittedly not one of the categories of persons exempted from the operation of that section. Mr. Sen next pointed out that under the provisions of Section 31-A(1)(b) no contract or agreement could be entered into by an insurance company after 1950 employing in any capacity any person whose remuneration or any part thereof takes the form of commission in respect of the life insurance business of the insurer. Under the proviso to the aforesaid section the prohibition does not apply to the payment of commission to a Principal Agent or an Insurance Agent in respect of any insurance business procured by or through him. These two sections in Mr. Sen's submission prohibited the Aryya Insurance Co. Ltd. from making any payments to the plaintiff firm in accordance with the agreement of June 1, 1954 and as such, such an agreement could not have been a liability within the meaning of Section 7 of the Life Insurance Corporation Act as contended for by Mr. Dutt. Mr. Sen further pointed out that apart from the admission of the plaintiff's witness the correspondence disclosed clearly shows that this point was specifically raised by the Custodian and the plaintiff's solicitor had categorically denied that the plaintiff firm was either an Insurance Agent or a Principal Agent or any of the other agents mentioned in Section 40, Sub-section (1) of the Insurance Act. As the plaintiff firm is not claiming to be an agent of the Aryya Insurance Co. Ltd. under any of the provisions of Sections 2(5-A), 2(10), 2(15) and 2(17), it is not necessary to consider the provisions of the aforesaid sections. Mr. Sen, however, pointed out that in most of these definitions salaried employees are not to be included within the designation of an agent of the insurer, Mr. Sen also referred to the provisions in the Sixth Schedule to the Insurance Act to show how payments to such agents are to be made under the Act. Finally, Mr. Sen referred to Section 31-A(4) of the Insurance Act for the proposition that no person has any right either in contract or otherwise to compensation for any loss incurred by reason of the operation of any of the provisions of that Act. Mr. Sen submitted that as under the provisions of the Insurance Act the payment of the remuneration under the agreement dated June 1, 1954 was prohibited the plaintiff firm could not have any cause of action in damages against the Corporation which was the successor to the insurer. Mr. Sen finally submitted that the evidence given by a partner of the plaintiff firm shows that the suit is speculative and that no demands had been made on Aryya Insurance Co. Ltd. which was in existence at the time the suit was filed and it was admitted that neither were any enquiries made nor any legal advice sought in respect thereof. Mr. Sen finally submitted that Issue No. 1 should be answered against the plaintiff and the suit should be dismissed.
11. I agree with and accept the submissions made by Mr. Sen. It is quite clear that under the agreement dated June 1, 1954 the plaintiff firm was being employed by the insurance company for the purpose of procuring business through the employment of agents or field workers and the plaintiff was required to procure business to the extent of Rs. 10,00,000/- for the first year. Further, under the agreement the plaintiff was made responsible for the conduct of all the field workers under its organisation and was directed to secure the deposits from the parties in advance along with the proposal. The plaintiff firm also undertook not to represent any other life insurance company nor to divulge any of the business secrets of the company. These terms leave no doubt in my mind that the plaintiff firm was being employed by the insurance company for the purpose of securing business whatever designation might have been used for such employment. As any payment of remuneration to any person employed for securing business except the persons of the four categories mentioned in the section is prohibited under Section 40(1) of the life Insurance Act, the Insurance Company was prohibited by the provisions of the Act from making any payment to the plaintiff firm in terms of the said agreement and as there was no legal liability on the insurance company no such liability could be binding on the defendant Corporation. For the above reasons the Issue No. 1 must be answered in the negative and against the plaintiff. In this view it is not necessary to answer Issues Nos. 2 and 3. The suit is accordingly dismissed with costs.