National Insurance Co. Ltd,, Calcutta
Vs. Life Insurance Corporation of India  INSC 357 (11 December 1962)
CITATION: 1963 AIR 1171 1963 SCR Supl. (2)
CITATOR INFO :
R 1964 SC 892 (16) F 1987 SC2177 (2)
vesting in Life lnsurance Corporation-Determination of compensationPrinciple-Life
Insurance Corporation Act, 1956 (31 of 1956), s. 16, Such I-Life Insurance
Corporation Rules,1956, r.
The appellant company carried on life
insurance business in addition to other insurance business. On the passing of
the Life Insurance Corporation Act, 1956, which was intended to nationalise all
life Insurance business, its 'controlled business' stood vested in the Life
Insurance Corporation of India on and from September 1, 1956, the appointed
day. The dispute between the parties related to the compensation payable to the
appellant by the Corporation on such vesting.
Admittedly two actuarial investigations were
made in the case. One valuation period covered years 1946-1950 and the other
from 1931 to 1953. The Corporation determined Rs. 19,39,669 as compensation for
the controlled business in accordance with s. 16 read with the First Schedule
of the Act and after obtaining the approval of the Central Government wrote to
the Company on February 14, 1937, claiming Rs. 6,00,000 under r. I 8 of the
Life Insurance Corporation Rules 1956, as assets appertaining to the controlled
business, and offered to pay the balance of Rs. 13,39,669 in full satisfaction
of the claim. The Company claimed Rs. 27,99,275 as compensation and asked for
the payment of the admitted amount without prejudice to the claim of either
side. The Corporation refused to pay except in full satisfaction of the claim.
On the Company's request the dispute was referred to the Life Insurance
Had, that under s. 16(2) of the Act the
Corporation could only make the offer and pay the money in full satisfaction of
the claim for compensation and its action in rejecting the demand of the
appellant for the admitted amount, even though without prejudice to the claims
of the parties, was wholly justified. Such compensation was to be determined on
the principles laid down in para. I of Part A of the First 972 Schedule to the
Act and as worked out in Formula D specified in the judgment.
The word "allocated" in Part A and
para. I of the said Schedule must be read in relation to the years that follow
the actuary's report and not in relation to the period for which the actuary
Paragraph I of the Schedule, properly
construed, prescribes a definite system of calculation of the compensation
which is meant to give the share holders an equivalent of their annual profits
capitalised at 20 years purchase. The intention is to get a true average spread
over a number of years. Explanation I (a) shows that the intention is to base
the calculation upon a wide view of the Company's business.
The share referred to in para. I comes out of
the profits which-accrue to the company during the period of investigation and
the allocation must also be taken to be for the period during which the profits
arise. To connect the profits with a future period is to make the scheme
unworkable since the insurance business is based upon the actuarial assessments
of the position of the company.
The tribunal was, therefore, right in holding
that the two surpluses in the case were related to the five years and three
years respectively covered by the actuarial investigations and they must be
deemed to have been allocated for the same period.
The words "annual" and
"average" must he given their full meaning. The word
"annual" shows that the average must be one reckoned by the year and
"average" is reached by dividing the aggregate of several quantities
by the number of quantities. In finding "the annual average" the
amounts of the surpluses as disclosed in the investigations must be aggregated
and the result divided by the total number of years. Otherwise there would be
an average or two averages which would not be an "annual average".
The order of the Tribunal awarding Rs. 24,91,139
as compensation as also its direction allowing the respondent to set off of Rs.
6,00,000 therefore was correct and must be upheld.
The appellant was entitled to interest on the
balance at 4% per annum, 973 Birch v. Joy, (1852) III H.L.C. 565-10 E.R. 222,
Swift & Co.
v. Board' of Trade,  A.C. 520, Fludyer
v. Cocker, (1805) 33 E,R. 10, International Railway Company v. Niagara Parks
Commission,  A.C. 328, Satinder Singh v. Amrao Singh,  3 S.C.R. 676
and Inglewood Pulp and Paper Company Ltd. v. Brunswick Electric Power
Commission,  A.C. 492, discussed.
CIVIL APPELLATE.JURISDICTION : Civil Appeals
Nos. 551 and 552 of 1960.
Appeals by special leave from the Judgment
and order dated December 12, 1957, of the Life Insurance Tribunal, Nagpur in
Case No. 9/XVI-A of 1957.
M. C. Setalvad, Attorney-General for India,
A. V. Viswanatha Sastri, S. N. Andley, Rameeshwar Nath and P. L. Vohra, -for
the appllant (in C. A. No. 551160) and the respondent (in C A. No. 552/60).
S. T. Desai, S. J. Banaji and K. L. Hathi for
the appellant (in C. A. No. 552160) and the respondent (in C. A.
1962. December, 11. The judgment of the Court
was delivered by HIDAYATULLAH, J.-This is an appeal against the order of the
Life Insurance Tribunal, Nagpur, dated December 12, 1952, by which a dispute
about compensation payable to the National Insurance Company by the Life
Insurance Corporation on the taking over of the life business of the former was
The National Insurance Company is the
appellant and the Life Insurance Corporation is the respondent. Another appeal
was filed by the Life Insurance Corporation against the same order but was not
pressed at the hearing.
The National Insurance Company carried on
life insurance business in addition to other insurance Co.
974 business and was what the Life Insurance
Corporation Act, 1956 (31 of 1956), describes as a "composite
insurer." The Life Insurance Corporation Act was passed in 1956 to
nationalise the life insurance business of all insurers by transfer-ring all
such business to a Corporation established for the purpose. This Corporation is
the well-known Life Insurance Corporation. Under the Act a distinction was made
between controlled business' and other insurance business carried on by
Insurance Companies. 'Controlled business' meant life insurance business from a
date to be fixed by notification in Gazette called the "appointed day' all
the and on and the Official assets and liabilities of appertaining to the
controlled business of all insurers were transferred to and vested in the
Corporation. This date was September 1, 1956.
The NationalInsurance Company was a composite
insurer and its life business therefore stood transferred to and vested in the
Life Insurance Corporation from the appointed day. Under s. 16 of the Life
Insurance Corporation Act, the National Insurance Company was entitled to
receive compensation from the Life Insurance Corporation in accordance with the
principles contained in the First Schedule to that Act. To these principles we
shall make a detailed reference presently. As the National Insurance Company
was carrying on a composite business it was necessary to separate the 'assets
appertaining to the controlled' business' from those a pertaining to its other
business under s. 10 read with s. 7 of -the Corporation Act.
These assets were defined in and Explanation
added to s. 7 (2) as follows :"The expression "assets appertaining to
the controlled business of an insurer"(a) in relation to a composite
insurer includes that part of the paid-up capital of the insurer or assets
representing such part which has or have been allocated to the controlled 975
business of the insurer in accordance with the rules made in this behalf, (b)
in relation to a Government, means the amount lying to the credit of that
business on the appointed day." Sections 7 and 10 (2) conferred on the
Central Government special rule-making powers and inter alia for the allocation
of the Daid-up capital or assets representing such paid-up capital, as the case
may be between the controlled business of the insurer and any other business. In
pursuance of these provisions and s. 48 of the Act the Life Insurance
Corporation Rules, 1956, were framed by the Central Government and Rule 18
provided for allocation of the paid-up capital of a composite insurer.
We need not quote Rule 18 providing for the
method of allocation of capital of a composite insurer because it was provided
there that the paid-up capital allocable to the controlled business shall not,
in any case, exceed a sum of Rs. 6,00,000 and the maximum amount applied to the
National Insurance Company and was payable by it to the Life Insurance
The Life Insurance Corporation determined Rs.
19,39,669 as compensation for the controlled business vested in the Corporation
in accordance with s. 16 read with the First Schedule of the Life Insurance
Corporation Act, 1956. After obtaining the approval of the Central Government,
by a letter dated February 14, 1957, sent to the Company, the Corporation
pointed out that the National insurance Company was required to pay Rs. 6,00,000
under Rule' 18 of the Life insurance Corporation Rules., 1956, as assets
appertaining to the controlled business and offered the balance of Rs. 13,39,669
in full satisfaction of the claim. The National Insurance Company asked for the
calculation sheets and they were supplied by the 976 Life Insurance
Corporation. The National Insurance Company did not accept the Compensation
offered to it and requested that the dispute be referred to the Life Insurance
Tribunal for decision but asked that the admitted amount might be paid to it
without prejudice to the claim of either side. On May 1, 1957, the Life
Insurance Corporation replied regretting its inability to pay the admitted
amount except in full satisfaction of the claim as required by law. A request
for reconsideration of the matter made by the National Insurance Company by a
letter dated May 9, 1957, in which -a sum of Rs. 27,99,275 was claimed as
compensation was turned down by the Life Insurance Corporation and, the dispute
therefore stood referred to the Tribunal.
In making the reference to the Life Insurance
Tribunal the Life Insurance Corporation forwarded the entire correspondence and
the calculation sheets together with other documents on which the calculation
sheets were based.
Before the Tribunal, the Company claimed a
sum of Rs. 43,29,470 as compensation due to it. The Company also gave its
calculation sheets. In addition the Company claimed interest at six per cent. per
annum from the appointed day (September I., 1956) or at least from the date the
compensation wrongly determined was offered to the Company, namely, February
14, 1957. Earlier, in the letters to which reference has already been made the
National Insurance Company had demurred to the deduction of Rs. 6,00,000 from
the amount of compensation offered to it. Its case before the Tribunal was that
under the law, as it stood, the Corporation was bound to offer the entire
compensation without making a deduction on this account and the claim of the
Corporation for the assets appertaining to the controlled business of the
Company should be separately enforced.
The difference between the Company and the
Corporation in the matter of calculation arose because the parties put
different interpretations upon 977 the provisions of the First Schedule to the Life
Insurance Corporation Act. That Schedule is made under s. 16 of the. Life
Insurance Corporation Act, which reads :"16. (1) Where the controlled
business of an insurer has been transferred to and vested in the Corporation
under this Act, compensation shall be given by the Corporation to that insurer
in accordance with the principles contained in the First Schedule.
(2) The amount of the compensation to be
given in accordance with the aforesaid principles shall be determined by the
Corporation in the first instance, and if the amount so determined is approved
by the Central Government it shall be offered to the insurer in full
satisfaction of the compensation payable to him under this Act, and if, on the
other hand, the amount so offered is not acceptable to the insurer he may
within such time as may be prescribed for the purpose have the matter refer-red
to the Tribunal for decision." We have already stated that the Corporation
had offered compensation as approved by the Central Government after deducting
Rs. 6,00,000, under Rule 18 and this offer was made in full satisfaction of the
compensation payable to the Company as required by sub-s. (2). The Company
refused to accept the offer but asked to be paid the admitted amount.
This the Corporation declined. We are .of the
opinion that the demand of the Company for the admitted amount even though
without prejudice to the contentions of the parties, was rightly rejected by
the Corporation, as, under sub-s. (2) of s. 16. the Corporation could only make
the offer and pay the money in full satisfaction of the claim for compensation.
Sub-s. (1) of s. 16 refers to the principles 978 contained in the First
Schedule. That Schedule is divided into three parts which are marked A, B and
C. It was admitted before us that part A alone applied and that part contains
principles in two paragraphs called 'Paragraph 1, Paragraph 2and that Paragraph
is to be applied to a particular case which is more advantageous to the
insurer. Here Paragraph 1 is applicable. The relevant portions may now be read.
"The compensation to be given by the
Corporation to an insurer having a share capital on -which dividend or bonus is
payable, who has allocated as bonus to policy-holders the whole or any part of
the surplus as disclosed in the abstracts prepared in accordance with Part II
of the Fourth Schedule to the Insurance Act in respect of the last actuarial
investigation relating to his controlled business as at a date earlier than the
1st day of January, 1955, shall be computed in accordance with the provisions
contained in paragraph 1 or paragraph 2 whichever is more advantageous to the
Paragraph 1.--Twenty times the annual average
of the share of the surplus allocated to shareholders as disclosed in the
abstracts aforesaid in respect of the relevant actuarial investigations
multiplied by a figure which represents the proportion that the average
business in force during the calendar years 1950 to 1955 bears to the average
business in force during the calendar years comprised in the period between the
date as at which the actuarial investigation immediately preceding the earliest
of the relevant actuarial investigations was made and the date at which the
last of such investigation was made.
(Paragraph 2. Omitted) Explanation 1--For the
purposes of paragraph I 979 (a) ""relevant actuarial
investigations" means such minimum number of latest actuarial
investigations as at dates earlier than the 1st day of January, 1955 (not being
less than two in any case), as would leave the period intervening between the
date as at which the actuarial investigation immediately preceding the first of
such investigations was made and the date as at which the last of such
investigations was made, to be not less than four years;
(b) "'Average business in force"
means the average of total sum assured by the insurer (including any bonus) in
respect of his controlled business as on the 31st day of December of each of
the relevant calendar years.
Explanation 2.--For the purpose of paragraph
1, where an insurer has allocated to share-holders more than 5 per cent.
of any surplus as is referred to therein, the
insurer shall be deemed to have allocated only 5 per cent. of the surplus and
where an insurer has not allocated any such surplus to share-holders or has
allocated to share-holders less than 31/2 per cent. Of any such surplus, the
insurer shall be deemed to have allocated 3-1/2 percent. of the surplus.
To understand these provisions we have first
to see certain provisions of the Insurance: Act, 1938 (4 of 1938). That Act was
passed to consolidate and amend the law relating to the business of insurance. Under
s. 13 of the Insurance Act every insurer including a company carrying on life
business was required, in respect of the life insurance business transacted,
once at least in every five years to cause an investigation to be made by an
actuary into the financial -condition of the life insurance business including
a valuation of the liabilities in respect 980 thereto and was further required
to cause an abstract of the report of such actuary to be made in accordance
with Parts I and II of the Fourth Schedule to the Insurance Act. The period of
five years in s. 13 was altered to three years by the Insurance (Amendment)
Act. 1950. (47 of 1950) with effect from June 1, 1950. Fourth Schedule was
divided into two parts. First part contained Regulations and the second part
laid down the requirements applicable to the abstract in respect of life
insurance business which had to be prepared at these investigations. Regulation
(1) laid down that all abstracts and statements must be so arranged that the
numbers and letters of the paragraphs correspond with those of the paragraphs
of Part II of that Schedule. In other words, the abstracts and statements
prepared by the actuary were required to follow the same scheme and to supply
the particulars in the same order as stated in Part II. Part II prescribed a
number of tabular statements which were required to be annexed to every
abstract prepared in accordance with Part II. Among them were (i) a
Consolidated Revenue Account in form G for the inter-valuation period, and,
(ii) a Valuation Balance-Sheet in the Form I. 'Inter valuation period' was
defined to mean :teas respects any valuation, the period to the valuation date
of that valuation from the valuation date of the last preceding valuation in
connection with which an abstract was prepared under this Act or under the
enactments repealed by this Act, or, in a case where no such valuation has been
made in respect of the class of business in question from the date on which the
insurers began to carry on that class of business; " In plain language it
meant a period between two valuation dates. The minimum period was fixed at
first as five years and after June 1, 1950, as three years. In our case, the
first valuation covered a 981 period of five years and the second a period of
three years and the only 'inter-valuation period' was the period of three years
which was between the two valuation dates.
The abstract was required to show the
valuation date and the general principles and full details of the methods
adopted in valuation of each of the various classes of Insurance and annuities.
In addition the abstract was required to show the other matters which the
actuary had taken into account in preparing the actuarial estimates. Then
followed paragraph, No. 8 in which was required to be shown the total amount of
profits arising' during the inter-valuation period including ' profits paid
away and sums transferred to the reserve fund or other accounts during the last
period and the amount brought forward from the preceding valuation and the
allocation of such profits under different headings.
Among these were the amounts allocated as
bonus to the policy holders and . as dividend among the shareholders including
amounts which had already passed through the accounts during the
inter-valuation period which were to be shown separately.
Section 49 (1) then provided inter alia that
no insurer including a company, who carried on business of life insurance
shall, for the purpose of declaring or paying any dividend to share-holders or
any bonus to policy-holders, utilize directly or indirectly any portion of the
life insurance fund or of the fund of such other class or subclass of insurance
business as the case may be, except a surplus shown in the valuation
balance-sheet in Form I as set forth in the Fourth Schedule submitted to the
Controller as part of the abstract referred to in s. 15 as a result of an
actuarial valuation of the assets and liabilities of the insurer. Sub-section
(2) of s. 49 then laid down that for the purpose of sub-s. (1), the actual
amount of income-tax deducted at source during the period following 982 the
date as at which the last preceding valuation was made 'and ding the date as at
which the valuation in question was made might be added to such surplus after
deducting an estimated amount for income-tax on such surplus, such addition and
deduction being shown in paragraph 8 (1) of the abstract prepared in accordance
with Part II of the 4th Schedule to the Act.
One of the disputes between the parties arose
over the surplus to be taken into account in calculating the compensation. This
dispute was whether it should be the net surplus as shown in Form I annexed to
the abstract or should include the income-tax and interim bonus as shown in the
abstracts. The Company claimed that it should include interim bonus already
paid and income-tax deducted at source less the provision for income-tax on the
surplus as stated in the abstracts while the Corporation claimed that these
additions should not be made. The figures for the two actuarial investigations
were therefore these: Rs. 41,44,686 (1945-50) and Rs. 70,21,280 (1951-53)
according to the Corporation based on Form I Part 11 4th Schedule and Rs.
56,36,815 (1946-50) and Rs. 87,03,650
(1951-53) according to the Company based on the abstracts with the aforesaid
additions. The Tribunal accepted the larger figures for the two periods and the
appeal of the Corporation was filed to question this part of the decision. This
controversy need not be decided because the Corporation did not press its
appeal before us and the basic figures are thus Rs. 56,36,815 (1946-50) and Rs.
Before we enter into a discussion of the
terms of the First Schedule of the Life Insurance Corporation Act, 1956, laying
down the principles for determination of compensation we shall summarise in the
form of a formula what is admittedly the purport of these 983 principles
applicable to this case. This formula is Annual average of the surplus deemed
Average business Compensation to be allocated to in force the share holders
during 1950-55 payable. =20x as disclosed in the x abstracts. Average business
in force during 1946-53 Two matters arising from these provisions may be
disposed of as there is no dispute about them. Firstly. there is no dispute about
the multiple 20. Secondly, there is no dispute that the result was to be
multiplied by a figure which represented the proportion the average business in
force during the calendar yeas 1950-1955 bore to the average business in force
during the calendar years comprised in the period between the date as at which
the actuarial investigation immediately preceding the earliest of the relevant
investigations was made and the date at which the last of such investigations
was made (here the years 1946-53). This factor is 138970857 and was admittedly
the result of dividing Rs. 55,84,073 (average business in force during 1950-55)
by Rs. 40,18,64,885 (average business in force during 1946-53). The only
dispute in the case is with regard to the annual average of the surplus deemed
to be allocated to the shareholders as disclosed in the abstracts in respect of
the relevant actuarial investigation.
Admittedly two investigations were made in
the present case.
One valuation period covered five calendar
years 1946-1950 and the other three calendar years 1951-1953. In the two
investigation periods the total surplus was respectively 'Rs. 56,36,815
(1946-50) and Rs. 87,03,650 -(1951-53). The surplus allocated to the
shareholders was Rs. 4,08,456 (1946-50) and Rs. 6,40,504 (1951-53). This was in
excess of the five per cent. as laid down in explanation 2 to -Paragraph I to
the First Schedule of the Life Insurance Corporation Act already quoted. Reducing
this surplus allocated to the share-holders to five per cent. We get for the
years 1946-50 the sum of Rs. 2,8,1,841 and for the years 1951-53 the. sum of
Rs. 4,35,182. We may now again state the formula with these figures and the
factor introduced in the appropriate places to show the area of controversy
left. Annual average of Compensation Rs. 2,81,841 (1946-50) =20 x and Rs. 4,35,182
(1951x 1.38970857 payable. 53) allocated to the share-holders.
Now the dispute between the parties is (a)
what it the period in which the allocation to the shareholders can be said to
be made and (b) what is meant by "annual average.' In regard to (a) the
company claims that the surplus must be taken to be allocated to the period in
which the surplus must have been handed out to the share-holders' and that can
only be the period following the investigations. In this case the first
investigation covered a period of five calender years from 1946 to 1950 (both
inclusive), and the valuation date was December 31, 1950. The second
investigation covered a period of three calender years from 1951 to 1953 (both
inclusive) and the valuation date was December 31, 1953. The Company contends
that the allocation of Rs. 2,81,841 took place in the triennium between the two
valuation dates and similarly the allocation of Rs, 4,35,182 took place in the
two complete calender years (1954 to 1955) following December, 31, 1953, before
the controlled business was taken over by the Corporation on September 1, 1956.
The Corporation contends that the surplus
must be taken to have been allocated in the years for 985 which the
investigation was made. In other words, the sum of Rs. 2,81,841, must be deemed
to be allocated in the five years for which the first investigation was made
(calender years 1946-50) and the sum of Rs. 4,35,182 must be deemed to have
been allocated in the three years for which the second investigation was made
(calender years 1951-53).
Then comes the next part of the dispute which
is over the meaning of the words 'annual average'. Both sides claim to
calculate the average on different principles. The Corporation adds the two
surpluses deemed to be allocated to the share-holders and divides the result by
eight years, that is to say, the sum total of the two investigation periods of
five and three years. The Company on the other has four alternative modes of
calculation. Two such modes are based on the basis of allocation to 3 and 2
years as stated by the company and two on the basis of the allocation to 5 and
3 years as stated by the Corporation. These calculations lead to the following
different results :FORMULA A (based on annual average calculated as suggested
by the Company of the two sums allocated as suggested by the Company).
20 ( 2,81,841+ 4,35,182 x 1/2 ) x 1.389708,57
3 years 2 years ==Rs. 43,29,470 FORMULA B (based on annual-average calculated
as suggested by the Corporation of the two sums allocated as suggested by the
20 12,81,841 + 4,35,182) x 1.38970857 years
years =Rs. 39,85,812 986 FORMULA C (based on annual average calculated as
suggested by a the Company of the two sums allocated as suggested by the
( 81.841 20 + '35,182 x 1.38970857 5 years 3
years =Rs. 27,99,276 FORMULA D (based on annual average calculated as suggested
by the Corporation of the two sums allocated as suggested by the Corporation).
/2,61,841 4,35,18220 5 years + ) x 1.3890875
3 years =Rs. 24,91,123 Formula D was adopted by the Corporation but as the
basic figures were lower the resulting amount was Rs. 19,39,669.
The Tribunal also Approved formula D but as
the basic figures were increased by the Tribunal, the amount awarded was Rs. 24,91,123.
The question is which of the formulae must be applied. This depends upon :(1) How
is the annual average in paragraph I of the First Schedule to the Life
Insurance Corporation Act to be calculated ? (a) Is the surplus allocated in
the years for which the investigation is made or in the years that follow till
the next valuation date ? (b) Is the annual average the average of the total
amount divided by the number of 087 years involved in the two investigations,
(formula D) ? or (c) Is the annual average the average of the average of each
period taken separately ? The Tribunal in reaching its conclusion observed that
",,paragraph I does not provide for taking two averages but only one
average for the entire period of account." It rejected formulae A and C
above as they involved an average of an average. The Tribunal then followed its
own decision in an earlier case and held that the Paragraph I of the Schedule
did not warrant the construction sought to be placed by the Company. The
Tribunal had observed there as follows :"The paragraph does not refer to
the years during which the amount of dividend in the abstract is actually paid
to the share-holders. It refers to the surplus allocated to shareholders as
disclosed in the abstract and requires annual average to be taken of the share
of -such surplus.
Therefore, on a plain reading of this
paragraph the annual average has to be taken of the share of surplus allocated
as shown in the abstract, or in view of Explanation 2, deemed to be allocated to
share-holders on calculations now made." It is contended by the Company
that the decision of the Tribunal is not correct. In support of the
construction which the Company seeks to place upon Paragraph I it is argued
that the word is "'allocation" and a sum cannot be allocated till it
is known. Further it is said the allocation can only be made after the
share-holders get a right to dividend which would be after the report of the
actuary. It is, therefore, contended that since the sum was 988 not known during
the period for which the investigation was made and the share-holders had no
right till after the ascertainment of the profits by an actuary, the word
"allocation" can only be read in relation to the years that follow
the actuary's report and not in relation to the period for which the actuary
makes the investigation. It is also argued that the language of the paragraph
does not bear the construction which the Tribunal has placed upon it.
The learned Attorney General, however, admits
that the construction which he seeks to place may fail at least in the last of
the two periods in those cases where the last valuation date is within a few
months of September 1, 1956.
If the valuation date in the present case had
been December 31, 1955, there should have been no complete year for which the
allocation could be said to have been made and the calculation on the basis
suggested by the Company would have been impossible. Again, if instead of the
last valuation on December 31, 1953, it had been made on December 31, 1954, the
whole of the profits would then be deemed to have been allocated to one year
instead of two. It is clear enough that the Paragraph could not be intended to
prescribe an uncertain system of calculation but something definite. The
compensation was meant to give to the shareholders an equivalent of their
annual profits capitalised at 20 years purchase and to reflect the advance or
fall in the business by multiplying the result with the factor. The intention
therefore is to get a true average spread over a number of years so that
compensation may not be related to any exceptional year or years-whether in
favourer of the insurer or against him. It is intended that it should be based
upon what represents the average business done by a company a number of years. This
intention is quite evident from the Explanations which have been added to the
Explanation I (a) 989 shows that there should
be not less than two actuarial investigations and they should cover a period of
not less than four years. This shows that the intention was to base the
calculation upon a wide view of a company's business.
Now, 'allocation' means the allocation as
made in the abstracts. Part A says that the compensation to be given by the
Corporation to an insurer having a share capital on which dividend or bonus is
payable and who has allocated as bonus to policy-holders the whole or any part
of surplus as disclosed in the abstracts, shall be computed in accordance with
the provisions contained in one of the two paragraphs that follow. The words of
the Schedule to be emphasised are "has allocated as bonus to policy
holders the whole or any part of the surplus as disclosed in the abstracts. "
The abstracts are nothing but a summary of the investigations over a particular
period and the allocation of bonus and dividends must also be for the same
period. The abstracts contain no reference to any future period and in fact
there are no words in the abstracts which show that the allocation must be for
the years that follow. In paragraph I the words are "the share of the
surplus allocated in respect of the relative actuarial investigations."
These words refer to the abstracts and the share of the surplus stated therein.
Since that share comes out of the profits
which accrue to the Company during the period of investigation the allocation
must also be taken to be for the period during which the profits arise. The
argument of the learned Attorney General that the allocation can only be when
the amount is known and also when the right accrues to the share-holders
because the profits have to be found first is not acceptable to us because life
insurance business is carried on with periodic actuarial investigations which
shows how much profits have been made and that depends on what the existing
liability of the Company is in relation to its 990 reserves and other likely
income. It is the result of these investigations which entitles the
policy-holders as well as the share-holders to share in the profits whether by
way of bonus or dividend but the share is in respect of the years for which the
investigations were made. Profit can only be found after the receipts of a
particular period have been found and compared with the payments that have been
made during the same period and the liabilities existing on the date on which
the actuarial investigation is made, are found out, and the reserves which have
to be kept to make good these liabilities are ascertained. To connect the
profits with a future period is to make the scheme unworkable because insurance
business is based upon the actuarial assessments of the position of the
company. Nothing much turns upon the use of the singular in "share"
and "'surplus" and it cannot be said that they indicate that the two
""shares" and "surpluses" cannot be aggregated. Indeed
even after aggregation the words ""share" and ,',surplus"
will still continue to be applicable. In' our judgment, the Tribunal was right in
holding that the surpluses were related to the five years and three years
respectively covered by the two actuarial investigations in this case and must
be deemed to have been allocated for the same period.
The next question is how is the average to be
found. Here the words are "annual average . The word "annual"
must be given its full meaning. By the word "'annual" is meant
something which is reckoned by the year. The addition of the word
"averages 5 " shows' that what is to be found is an average reckoned
by the year. If the two periods were to be viewed separately and an annual
average is found out for each of the periods there would be two annual averages
and they would almost always be different. When an average of these periods is
taken there is no longer an "annual average". The result can only be
described as the average of two annual averages. The Tribunal was right when it
said that 991 the law contemplates one average and not the average of two
averages. Giving the word "'annual" its full meaning it is obvious
that that system must be adopted which will lead to a result which can be
described both as "annual" and as an ""average". That
can only be when the amount of the surplus as disclosed 'in the two
investigations is aggregated and the result is divided by the total number of
years. One finds an average by dividing the aggregate of several quantities by
the number of quantities. In this case one can only get the "annual
average" by aggregating the surplus related to at least two actuarial
investigations covering a period of more than four years and by dividing the
result and by the number of years involved. In our judgment formula D alone was
applicable to the facts of this case and as that formula has been applied the
result reached by the Tribunal was correct.
It remains to consider the other two
questions which have been debated before us and they are whether in making the
offer the Corporation was entitled to make a deduction on account of the assets
of the controlled business which were of the value of Rs. 6,00,000. The
Tribunal has also ordered the Corporation to pay the amount of compensation,
less Rs. 6,00,000 due to the Corporation. Apart from any other consideration,
it seems to us somewhat anomalous that the Company should demand that the whole
of the compensation should be paid to it and the Corporation be left to its own
devices to recover this admitted sum due to it. In a case of this type the
Corporation was entitled to say: "You have our Rs. 6,00,000. You pay
yourself that amount and here is the balance": Such an attitude is so
,just that it is impossible to hold that the Tribunal ought to have reached any
other conclusion except this. No doubt, the Act says that the Corporation shall
pay the compensation due to the Company but in another part it also says that
the Company shall pay in lieu of the assets of pertaining to the controlled 992
business a sum of Rs. 6,00,000. These two provisions of law must be read
together and in our opinion the Corporation was entitled to a set-off in
respect of the amount due to it and the Tribunal was perfectly right when it
ordered such a set off.
The last question is whether interest was
payable. The Tribunal held that it had no jurisdiction to award interest
because there is no provision in the Act. It followed its own decision in the
order passed in an earlier case and declined to grant interest. During the
arguments before I us the Corporation agreed that interest is awardable and the
dispute only centred round the rate of interest, the amount on which it is
payable and the date from which is should be given. There is no doubt that the Life
Insurance Corporation Act and the Rules do not contain any express provisions
for grant of interest. The Company relied on cases of purchases of immovable
property where interest is awarded as a general rule of equity .if the
purchaser enters into possession without having paid the purchase-money to the
seller. The reason of the rule was stated a long time ago by Lord St. Leonards
L.C. Birch v. Joy (1) as follows.
"'The parties change characters, the
property remains at law just where it was., the purchaser has the money in his
pocket, and the seller still has the estate vested in him;
but they exchange characters in a Court of
Equity, the seller becomes the owner of the money and the purchaser becomes the
owner of the estate".
On entering possession the purchaser becomes
entitled to the rents but if he has not paid the price, interest in equity Ls
deemed payable by him on the purchase price which belongs to the seller. This
principle was applied by the House of Lords in cases of compulsory purchases. In
Swift & Co. v. Board of Trade (2) Viscount Cave' L.C. gave the-reason that
the practice rests upon the principle that the (1) (1852) III H.L.C. 565 10
(2) (1925) A.C. 520.
993 taking of possession is an implied
agreement to pay interest which was stated by Sir William Grant M. EL. in
Fludyer v. Cooker('). This' principle was further extended by the Privy Council
to the compulsory taking over of a business as a going concern in International
Railway Company v. Niagara Parks Commission(2).
In this Court also the principle was applied
to the East Punjab Requisition of Immovable Property Act (Temporary Powers Act)
(Pun. 48 of 1948) replaced by the Punjab Requisition and Acquisition of
Immovable Property Act (Pun. 11 of 1953) : vide Satinder Singh v. Amrao
Singh(3). Under that Act though compensation was payable there was no provision
for the payment of interest. This Court approved the decision of the Privy
Council in Inglewood Pulp and Paper Company Ltd, v. Brunswick Electric Power
Commission(4). Where the judicial Committee had observed" But for all
that, the owner is derived of his property in this case as much as in the other
and the rule has long been accepted in the interpretation of statutes that they
are not to be held to deprive individuals of property without compensation
unless the intention to do so is made quite clear. The right to receive interest
takes the place of the right to retain possession and is within the rule".
This Court observed as follows "It would
thus be noticed that the claim for interest proceeds on the assumption that
when the owner of immovable property possession of it he is entitled to claim
interest on place of the right to retain possession".
The learned counsel for the Corporation did
not give any reply to the argument detailed above and agreed to pay interest. In
this view of the (1) (1805) 33 E.R. 10.
(3)  3 S.C.R. 676, 64.
(2) (1944) A.C. 328.
(4) [192-9] A.C. 492.
994 matter it is not necessary to express an
opinion whether interest can be demanded by the company. We have only to
determine the rate and the amount on which and the date from which interest
should run. In the present case compensation was payable in full satisfaction
only of all claims. The Corporation offered compensation as determined by it in
full satisfaction and refused to pay it unless the Company gave a discharge to
the Corporation from all liabilities and claims. This amount was found to be
incorrect and insufficient and the refusal of the Company to receive it was
justified. We have held already that the Corporation could not pay the admitted
sum tentatively even though without prejudice to the rights of the parties. The
offer was made on February 14, 1957. 'In view of the fact that some time must
elapse before the compensation is worked out it would, we think be fair to
award interest from February 14 1957, which was the date when the dispute was
referred to the Tribunal. We think interest in this case should be calculated
at four per cent. simple. That is the usual rate which is awarded by courts in
such circumstances. The compensation has been found to be Rs.24,9],133 under
formula D which we have held was the correct formula to apply The Corporation
was entitled to set-off Rs. 6,00,000 representing the assets of the controlled
Interest on the balance (Rs. 18,91,133) will
be payable at four per cent per annum simple from February 14, 1957, till
October 31, 1957., when Rs-5,51,464 were withheld and the balance was paid to
the Company. Interest on Rs' 5,51,464 at four per cent. shall be payable from
November I,1957, till December 26 , 1957. There shall be no interest payable on
Rs. 6,00,000 as claimed by the appellant.
In the result this appeal fails except for
the grant of interest. It, is dismissed except for interest granted by us. The
Company, shall, bear its own costs and pay that of the Corporation. The appeal
995 of the Corporation is dismissed with costs. There will be a night to
set-off the costs in the two appeals.
C. A. No. 551 of 1960 dismissed except for
interest. C. A. No. 552 of 1960 dismissed.