The General Assurance Society Ltd. Vs.
The Life Insurance Corporation of India [1963] INSC 207 (18 October 1963)
18/10/1963 SUBBARAO, K.
SUBBARAO, K.
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
SHAH, J.C.
DAYAL, RAGHUBAR
CITATION: 1964 AIR 892 1964 SCR (5) 125
ACT:
Life Insurance Corporation Act, 1956 (31 of
1956), s. 7(1). If amounts representing dividends declared fall within
"assets and liabilities" of controlled business--Compensation and
paid up capital allocable for controlled business--Tribunals Jurisdiction to
set off--Life Insurance Corporation Rules, 1956, r. 12A (iv) and (vi)-
Insurance Act, 1938 (4 of 1938)--Whether precludes challenge of certified
balance sheets--Interest on compensation.
HEADNOTE:
On the enactment of the Life Insurance
Corporation Act, providing for the nationalisation of life insurance business.
the 126 controlled business i.e., the life insurance business of the appellant,
a composite insurer, vested in the respondent- corporation. Thereafter disputes
arose between the appellant and the respondent in the matter of ascertainment
of the compensation payable to the appellant and in respect of incidental and
consequential matters thereto. The respondent offered to pay the appellant
towards compensation a certain amount after setting off the amount due to it
from the appellant in respect of part of the paid up capital of the controlled
business and assets representing that part.
The appellant refused to accept this offer in
to. The dispute was referred to the Tribunal. The Tribunal ascertained the
compensation payable to the appellant and set off against that amount the
balance of the amount due from the appellant towards the allocable paid up
capital.
Relying upon the books of account of the
appellant to find out whether the unpaid dividends of any share holder of the
appellant was the liability of one department or the other, the Tribunal held
that the entire liability for the unclaimed dividends and assets appertained to
the controlled business, and therefore, statutorily vested in the respondent.
The Tribunal held that it had no jurisdiction to award interest on the amount
of compensation. On appeal by special leave, it was contended (i)that the
Tribunal had no jurisdiction to decide on the question of the capital allocable
to the controlled business as there was no dispute thereto between the parties
and the said question was not referred to it; (ii) the liability of the
appellant for the unclaimed dividends and assets equivalent to the liability
were not transferred to and vested in the respondent under s. 7(1) of the Act,
and (iii) that the appellant would be entitled to interest on the amount of
compensation payable to it and the Tribunal had jurisdiction to award the same.
Held: The dispute between the parties related
not only to compensation, but to the set off also, that the dispute was
referred to the Tribunal, and the Tribunal had jurisdiction to decide that
dispute. A combined reading of cls. (iv) and (vi) of r. 12A of the Rules under
the Act makes it abundantly clear that a claim for set off is certainly covered
by the wide phraseology of cl. (iv) of r. 12A.
The calculations under r. 18(1) show that
there is an integral connection between the compensation payable to the insurer
and the amount representing the capital allocable to the controlled business
transferred to the respondent. As these figures cannot be dissociated, the
respondent made a composite offer. The Act contemplates the setting off one
against the other.
National Insurance Co. v Life Insurance
Corporation of India [1964] 2 S.C.R. 182, followed.
(ii) The definition of assets and liability
of a controlled business in sub-s. (2) of s. 7 of the Act is certainly
comprehensive enough to take in unclaimed dividends and corresponding assets.
Sub-sections (1) and (2) of s. 7 of the Act
provides that the assists and liabilities to be transferred must belong to the
controlled 127 business of the insurer. The antithesis is not between the company
and its business but between the controlled business and other business of the
insurer. All the rights and liabilities pertaining to the controlled business
are transferred to the Corporation.
(iii) When a company declared a dividend on
its shares, a debt immediately becomes payable to each shareholder in respect
of his share of the dividend 'for which he can sue at law and the declaration
does not make the company a trustee of the dividend for the shareholder.
In re Seven and Wye Severn Bridge Railway Co.
(1898) 1 Ch. D. 559, applied.
(iv) The provisions of the Insurance Act,
1938 do not, expressly or by necessary implication, exclude the jurisdiction of
the Courts and Tribunals from going into the correctness of the balance-sheet
certified by the Controller. For the purpose of the Insurance Act it would be
accepted as correct. There is no provision in the Life Insurance Corporation
Act making the contents of the balance sheet final for the purpose of transfer
to and vesting in the Corporation the assets and liabilities of the insurer.
It certainly affords valuable evidence in an
enquiry before the Tribunal; but the contents of the balance-sheet can be
proved to be wrong.
(v) The circumstances of the ease do not
justify this Court exercise of the extraordinary jurisdiction under Art.
136 of the Constitution to permit the
appellant to raise the plea of apportionment of the unclaimed dividends for the
first time here and to remand the matter to the Tribunal for apportionment of the
dividends and the corresponding assets.
(vi) In view of the decision of this Court in
the National Insurance Co. Ltd. v. Life Insurance Corporation of India, the
appellant will be entitled to interest at the rate of 4% on the amount of
compensation.
National Insurance Co. Ltd. v. Life Insurance
Corporation of India [1964] 2 S.C.R. 182, followed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 568 of 1961.
Appeal by special leave from the order dated
February 17, 1958, of the Life Insurance Tribunal at Nagpur in Case No.
17/XVI-A of 1957.
M.C. Setalvad, S.N. Andley, Rameshwar Nath
and P.L. Vohra for the appellant.
C.K. Daphtary, Attorney General for India,
S.T. Desai, S.J. Banaji and K.L. Hathi, for the respondent.
October 18, 1963. The Judgment of the Court
was delivered by 128 SUBBA RAO J.--This Appeal by special leave is directed
against the order of the Life Insurance Tribunal, hereinafter called the
"Tribunal", determining the dispute that was referred to it under
s.16 of the Life Insurance Corporation Act, 1956 (31 of 1956), hereinafter
called the Act.
The appellant is a company duly incorporated
under the Indian Companies Act, 1882, and the Insurance Act, 1938.
Prior to December 1957, its registered office
was at Ajmer, but now it is in Calcutta. It was a composite insurer carrying on
life insurance and general insurance business.
The Act was passed to provide for the
nationalization of life insurance business in India by transferring all such
business to a Corporation established for the purpose. The Act came into force
on July 1, 1956. On September 1, 1956, under s. 3 of the Act the Central
Government established a Corporation called the Life Insurance Corporation of
India, hereinafter called the Corporation, which is the respondent in this
appeal. Under s. 7 of the Act on the appointed day, which was September 1,
1956, all the assets and liabilities appertaining to the controlled business of
all insurers were statutorily transferred to and vested in the Corporation.
Accordingly, the controlled business of the
appellant as defined under the Act, i.e., all the business pertaining to its
life insurance business, was transferred to and vested in the Corporation.
Thereafter disputes arose between the appellant and the respondent in the
matter of ascertainment of the compensation payable to the appellant and in
respect of incidental and consequential matters thereto. By a letter dated May
21, 1957, the respondent offered to pay to the appellant towards compensation
certain amount after setting off the amount due to it from the appellant in
respect of part of the paid-up capital of the controlled business and assets
representing that part. By letter dated August 9, 1957, the appellant refused
to accept the said offer in to. On August 20, 1957, the respondent wrote a
letter to the appellant informing it that as its offer was not accepted by the
appellant 129 it had referred the dispute to the Tribunal. In due course, both
the parties, i.e., the appellant and the respondent, appeared before the
Tribunal and filed their respective statements; and the Tribunal framed as many
as 8 issues.
Issues Nos. 5, 6A, 7A and 7B which are
relevant to the present enquiry read thus:
Issue 5. Whether the petitioner (appellant
herein) is entitled to the sum of Rs. 12,36,415 or in the alternative to Rs. 6,60,369
or in the further alternative to Rs. 5,95,764 as worked out respectively in
annexures A to C to the Statement of Claim.
Issue 6(A). Whether the petitioner is
entitled to the unpaid dividends attributable and pertaining to the General
Insurance Business of the petitioner as claimed in paragraph 6 of the Statement
of Claim.
Issue 7(A). Whether the Tribunal has
jurisdiction to grant interest on the amount of compensation.
Issue 7(B). If so at what rate and for which
period.
On issue 5 the Tribunal calculated the amount
payable by the respondent to the appellant on the following lines:
Amount payable towards compensation to the
appellant was Rs. 5,95,764; out of the allocable paid-up capital of Rs. 9_,79,683,
the respondent had already received assets equivalent to Rs. 1,35,919; the
balance receivable under that head was, therefore, Rs. 1,43,764; out of the sum
of Rs. 5,95,764 payable to the petitioner-appellant, the respondent was
entitled to deduct Rs. 1,43,764; and the balance payable by the respondent to
the appellant was Rs. 4,52,000. Briefly stated what the Tribunal did was that
it ascertained the compensation payable to the appellant and set off against
that amount the balance of the amour due to it from the appellant towards the
allocable paid-up capital.
On Issue 6(A) it held that the appellant
showed the unpaid dividends in the balance-sheets as the liability of the life
department, that it always regarded 1SC1/64--9 130 it as a liability
appertaining to the life department and that as it was impossible to allocate
the unpaid dividends of any shareholder to the several businesses carried on by
the insurer, it would rely upon the books of accounts of the insurer to find
out whether it was the liability of one department or the other. On that
reasoning it held that the entire liability for the unclaimed dividends and
assets equivalent to that liability appertained to the controlled business and,
therefore, statutorily vested in the respondent-Corporation.
On issues 7(A) and 7(B) the Tribunal held
that it had no jurisdiction to award interest on the amount of compensation. On
the basis of the said findings the respondent was directed to pay to the
appellant within two weeks a sum of Rs. 4,52,000 less any sum that might have
been paid by the respondent to the appellant by way of admitted compensation.
Hence the appeal.
Mr. Setalvad, learned counsel appearing for
the appellant, raised before us the following three points: (1) the Tribunal
had no jurisdiction to decide on the question of the capital allocable to the
controlled business as there was no dispute thereto between the parties and the
said question was, therefore, not referred to it; (2) the liability of the
appellant-Company for unclaimed dividends and assets equivalent to that
liability were not transferred to and vested in the Corporation under s.7(1) of
the Act: and (3) the appellant would be entitled to interest on the amount of
compensation payable to it and the Tribunal had jurisdiction to award the same.
On the first question the learned counsel
took us through the correspondence that passed between the parties and the
pleadings before the Tribunal, and contended that the said correspondence,
pleadings, and the issues disclosed that there was no dispute between the
parties in respect of the capital allocable to the controlled business and,
therefore, the Tribunal went wrong in deducting under that head a higher 131
amount than was agreed upon between the parties. As the answer to this argument
mainly depends upon the said correspondence and the pleadings, we shall briefly
scrutinise them. On May 21, 1957, the respondent offered to the appellant to
pay a sum of Rs. 3,30,023 in full satisfaction of the compensation payable to
the appellant for the acquisition of its controlled business under the Act, and
to set off' against the said sum an amount of Rs.
1,71,365,1 being the part of the paid-up
capital of the appellant-Company and assets representing such part, which had
been allocated to the controlled business of the appellant-Company in
accordance with r.18 of the Life Insurance Corporation Rules, 1956, made under
the Act. The letter concluded thus:
"As the aforesaid assets have not yet
been transferred to the Corporation the said amount of Rs. 1,71,365 will be set
off against, and form a deduction from, the amount of compensation payable to
your Company." The offer was couched in clear and unambiguous terms.
It was a composite offer. The letter could
not be construed to contain two different matters, one an offer of compensation
and the other a demand for payment of the amount due to the respondent in
respect of the paid-up capital allocable to the controlled business. On the
other hand, in express terms the offer was for payment of compensation after
setting off the amount due to the respondent. On August 9, 1957, the appellant
wrote a letter in reply to the respondent's. Therein an attempt was made to
split up the offer. The appellant stated that the amount of compensation
offered in the letter, namely, the sum of Rs. 3,30,023 was not acceptable to
it. In regard to the amount of capital allocated by the Company to the
controlled business, it stated that the assets worth Rs. 1,35,919 had already
been transferred to the respondent and that having regard to the amount claimed
by the respondent under that head, only a sum of Rs. 35,446 remained to be
transferred to the Corporation by it. It asked that the said amount 132 might be
deducted from the amount of compensation that might be ordered and decreed to
be 'paid to it by the Tribunal.
It would be seen from this letter that the
appellant accepted a part of the offer and rejected the rest. On August 20,
1957, the respondent replied to the appellant that as its offer was not
accepted, it had sent the necessary paper to the Tribunal. On August 22, 1957,
the appellant received a notice from the Tribunal. The preamble to that notice
read:
"Whereas you have not accepted the
amount determined by the Corporation and offered in full settlement of the
compensation to you under the Act and whereas you have requested the
Corporation to have the matter referred to the Tribunal for decision and
whereas the Corporation has so referred the matter." This clearly shows
that the dispute before the Tribunal arose as the appellant did not accept the
amount determined by the Corporation and offered in full settlement of the
compensation payable to the appellant under the Act. It does not indicate that
the accepted part of the offer was considered to be a closed matter between the
parties and the disputed part only was put in issue. On September 13, 1957, the
appellant wrote a letter to the respondent requesting it to pay the amount of
compensation offered by it subject to adjustment on the basis of the decision
to be given by the Tribunal. It also requested the respondent to supply to it a
copy of the calculation sheet to show how the amount of compensation offered by
it had been arrived at. On the same day, the respondent sent a copy of the said
calculation sheet, which clearly showed not only the amount of compensation
payable but also the amount of paid-up capital allocable to the controlled
business deductible there from.
On September 17, 1957, the respondent made it
clear to the appellant that if the appellant agreed to accept the amount
offered by it in full satisfaction of the compensation payable to the appellant
under the Act, the respondent 133 could make payment of the said amount to it.
It is, therefore, clear that the dispute between the parties related to the
composite offer made by the respondent i.e., the compensation payable as well
as the set off of the amount due to the respondent calculated under r. 16 of
the Rules made under the Act.
That this was the dispute is also apparent
from the pleadings before the Tribunal. On October 10, 1957, the appellant
filed a statement before the Tribunal and in para 4 thereof, the contents of
the letter written by the respondent on May 21, 1957 were extracted. How the
appellant understood the scope of the offer is clear from the following extract
from the said paragraph:
"By and under the said letter the
Defendant inter alia stated that part of the paid up capital of the Claimant,
and assets representing such part, which had been allocated to the controlled
business of the Claimant in accordance with Rule 18 of the Life Insurance
Corporation Rules, 1956, amounted to Rs. 1,71,365 and that as the aforesaid
assets had not till then been transferred to the Defendant, the said amount of
Rs. 1,71,365 would be set off against, and form a deduction from the amount of
compensation payable to the Claimant." The appellant, therefore,
understood the offer as a composite one. In para 5 thereof, the appellant gave
the contents of its reply. On November 7, 1957, the respondent filed a
statement before the Tribunal and in para.. 3 thereof it reiterated its offer
of compensation of Rs.
3,30,023 with a claim for set off on a
calculation made in accordance with r.18 of the Rules. Throughout the
correspondence and in the pleadings the respondent was consistently standing by
the composite offer. It did not, either expressly or by necessary implication,
accept the attempt made by the appellant to split up the said offer.
When one party makes a composite offer, each
part thereof being dependent on the other, the other party cannot by accepting
a part of the offer compel the other 134 to confine its dispute only to that
part not accepted, unless the party offering the composite offer agrees to that
course. In this case not only there was no such agreement between the parties,
but the respondent was throughout insisting upon the acceptance by the
appellant of the entire offer in full settlement of the appellant's claim
against the respondent.
Reliance is placed upon the circumstance that
there was no specific issue framed by the Tribunal in respect of the paid-up
capital allocable to the controlled business of the appellant. But the
pleadings clearly pinpoint the dispute between the parties in respect of the
set off. As we will indicate later in our judgment, the calculation of the
amount due towards paid-up capital allocable to the controlled business depends
on a basic factor that goes into the calculation of the amount due towards
compensation. It was presumably found not necessary to frame a specific issue
in respect thereof, for if that factor was settled one way or other, the amount
due under the said head was only a matter of calculation and could certainly be
taken into consideration in awarding the set off under the general issue, 8.
Further, it does not appear from the order of
the Tribunal that this question was raised before it. Indeed, it appears that
both the parties proceeded on the basis that the calculation of the amount due
towards compensation and that due towards paid-up capital allocable to the
controlled business were linked together and that by calculating the said two
figures on the same basis one should be deducted from the other. If the
question raised before us had been raised before the Tribunal, one would expect
the Tribunal to deal with that matter. On the other hand, para 19 of the order
shows that the appellant did not dispute the manner of the set off on the basis
of the amount of compensation ascertained by the Tribunal.
Mr Setalvad contended that under s. 16(1)of
the Act, read with Part A of the First Schedule, com- 135 pensation should be
computed in accordance with the provisions contained in para 1 or para 2 and
paid to the insurer on the basis of the computation which was more advantageous
to him and that for the purpose of calculating the compensation payable in
accordance with para 1 the amount representing the paid-up capital allocable to
the controlled business had no relevance. He illustrated his argument by taking
us through the alternative calculations made by the Tribunal and pointing out
that while in the calculations made in terms of para 2 of Part A of the First
Schedule the paid-up capital allocable to the controlled business went into the
calculations, in the calculations made in accordance with para 1 that item was
not taken into consideration at all. Though prima facie this argument appears
to be plausible, a deeper scrutiny of the figures indicates that there is an
integral connection between the compensation and the amount representing the
paid-up capital allocable to the controlled business.
Under r. 18(1) of the Rules, in respect of a
Part A insurer like the appellant, the paid-up capital allocable to the
controlled business shall be that proportion of the total paid-up capital of
the insurer which the annual average of the profits from the controlled
business during the period covered by the relevant actuarial investigation
bears to the total of the annual average of profits plus two times the annual
average of the profits from other business during that period. The factor will
be, Annual average of surplus ------------------------------------------- Total
of annual average of surplus PLUS two times the annual average of profits from
non-life business.
or shortly stated, L -------------- L+2 non-L
136 On that basis the factor will be, Rs. 15,512.6
---------------------------------------- Rs. 90,523.8 (i.e. 15,512.6+75,011.2)
=0.17136488 Rs. 15,512.6 being the annual average of surplus from the
controlled business, as determined by the Corporation, and Rs. 75,011.2 being
twice the annual average of profits from non-life business. It is not disputed
that the paid-up capital of the Company was Rs. 10,00,000. If the factor was
applied, the capital allocable to the controlled business would be, 0.17136488
Rs. 10,00,000 Rs. 1,71,365. The compensation to be given by the Corporation to
the insurer to whom Part A of the First Schedule to the Act applies--it is
conceded that the said Part applies to the appellant--is 20 times the annual
average of the share of the surplus allotted to the shareholders of the
appellant. On the basis that Rs. 15,512.6 was the annual average of the surplus
allotted to the shareholders of the appellant, the Corporation ascertained the
amount of compensation at a sum of Rs. 3,30,023 and offered the same to the
appellant.
It will be seen from the aforesaid
calculations that there is an integral connection between the compensation
payable to the insurer and the amount representing the capital allocable to the
controlled business transferred to the Corporation. The common factor for both
the amounts is the annual average of the surplus allotted to the shareholders.
The same surplus must be the basis for calculating both the figures. Obviously
two different figures cannot be given for the same surplus. If two different
figures are given for the same surplus, not only one of the calculations must
be wrong, but also grave injustice would be done to one of the parties. As the
two figures cannot be disassociated, the respondent made a composite offer.
What happened before the Tribunal is this:
the appellant in annexure C to the Statement of 137 Claim claimed that the
annual average of the surplus deemed to be allocated to the share-holders was
Rs. 29,125.2; the respondent stated that it was only Rs. 15,512.6: and the
Tribunal came to the conclusion that the said annual average of the surplus was
Rs. 29,125.2. The result was that the calculations made by the Corporation
under the said two heads were upset. On that basis, applying the same formula
the compensation was raised to a sum of Rs. 2,79,683.18.
The Tribunal, therefore, rightly set off the
said figures one against the other and held that the balance, after making
other admitted deductions, was payable to the appellant.
The above discussion clearly establishes the
reason why a composite offer was made and why the dispute in respect of the
said offer could not be split up into two parts. Both the amounts are payable
under the provisions of the Act.
Calculation of both depends upon the same
"surplus". It is, therefore, reasonable to hold that the Act
contemplates the setting off one against the other.
Rule 12A of the Rules confers ample
jurisdiction on the Tribunal to effectuate the said intention of the
Legislature. The material part of r.12A reads:
"The Tribunal may exercise jurisdiction
in the whole of India and shall have power to decide or determine all or any of
the following matters, namely :-- (iv) all claims for compensation payable
under the Act to insurers whose controlled business has been transferred to and
vested in the Corporation; and all matters connected with the determination,
payment and distribution of such compensation.
(vi) such supplemental, incidental or
consequential matters which the Tribunal may deem it' expedient or necessary to
decide or determine for the 138 purpose of securing that the jurisdiction
vested in it under the Act and in respect of matters referred to above is fully
and effectively exercised.
A combined reading of cls. (iv) and (vi) of
r. 12A of the Rules makes it abundantly clear that a claim for set off of the
nature that we are now considering is certainly covered by the wide phraseology
of cl. (vi) of the said rule. This rule, it is said, was introduced after the
decision on the dispute in the instant case was given. Be it as it may, the
material clauses of the rule only recognize the pre-existing principles
inherent in the relevant dispute under the provisions of the Act.
This Court in National Insurance Co. v. Life
Insurance Corporation of India (1) held that the claim for set off was within
the jurisdiction of the Tribunal. Hidayatullah J., speaking for the Court,
observed at p. 1178:
"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 appertaining to
the controlled 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." We, therefore, hold that the dispute between the
parties related not only to the compensation, but to the set-off also, that
dispute was referred to the Tribunal and that the Tribunal had jurisdiction to
decide that dispute.
The Tribunal in para 19 of its order rightly
set off the amounts due from the one to the other and held that the balance of
Rs. 4,52,000 was only due to the appellant towards compensation.
The next question relates to the outstanding
dividends or assets equivalent thereto taken posies (1) [1964] 2 S.C.R. 182.
139 of by the Corporation. Some material
facts may be stated. The paid-up capital of the Company was Rs. 10,00,000
divided into 40,000 shares of Rs. 25 each fully paid. On September 28, 1953,
the appellant declared a dividend of 4% amounting to a sum of Rs. 40,000; again
on September 29, 1954, it declared a dividend of 4% amounting to a sum of Rs.
40,000; and again in the year 1955 it declared a dividend of 6 % amounting to
Rs. 60,000. In regard to the said amounts so declared certain payments were
made to some of the shareholders and the balance of the outstanding dividends as
on December 31, 1955, was Rs. 89,680. The balance-sheets of the Company showed
the unpaid dividends as the liability of the life department. Though the
amounts representing the said dividends are not specifically shown in the
assets, it cannot be disputed that the said amounts must have been included in
the assets or cash shown in the balance-sheets. The result was that the entire
liability for the unclaimed dividends and assets equal to that liability were
taken over by the respondent.
The Tribunal relying on the books of account,
the balance- sheets and other documents of the Company held that the liability
was only that of the life insurance business.
Mr. Setalvad, learned counsel for the
appellant, contended that under s. 7(1) of the Act only the assets and
liabilities appertaining to the controlled business of an insurer shall be
transferred to and vested in the Corporation and that the dividends declared
and the assets equivalent to the said liability were assets and liabilities of
the Company and not those appertaining to the controlled business and,
therefore, they did not vest in the Corporation. Section 7(1) of the Act reads:
"On the appointed day there shall be
transferred to and vested in the Corporation all the assets and liabilities
appertaining to the controlled business of all insurers." An attempt is
made to separate the Company's assets and liabilities from the assets and
liabilities 140 of the controlled business, and an argument is advanced that on
a declaration of dividends the said dividends and the assets corresponding
thereto cease to appertain to the business but belong to the Company. The
question, therefore, is whether the dividends declared and the amounts in the
hands of the Company representing them appertain to the controlled business of
the insurer. Before we answer this question it will be convenient to know
precisely the legal effect of a declaration of a dividend of a company. In
Palmer's Company Law, 20th Edn., the legal position is stated thus, at p. 625:
"Where a dividend is declared and
becomes payable, it is a debt--in England, as will be explained in the
following section, a specialty debt--and each shareholder is entitled to sue
the Company for his proportion. Until the dividend is declared and payable, the
shareholder has no right to sue." In re Savern and Wye and Severn Bridge
Railway Co.(1), Romer J. observed thus:
"In the first place, they contend that
the company was in the position of a trustee for them of these dividends. In my
judgment, this was not so. The declaration that the dividend was payable did
not make the company a trustee of it for the shareholders.
" The learned Judge said at p. 564 thus:
"The dividends in question were declared
and became payable more than twenty years before the present claims were made,
and constituted debts due to the shareholders for which they could have sued at
law, as was pointed out by Lindley L.J. in the passage in his treatise on
Company Law (p. 437), which was cited in the argument before me." This
decision is an authority for the view that when a company declares a dividend
on its shares, a debt immediately becomes payable to each shareholder in
respect of his share of the dividend for which (1) [1896] 1 Ch. D. 559, 565.
141 he can sue at law and the declaration does
not make the company a trustee of the dividend for the shareholder.
Indeed, this legal position is not disputed.
If so, the shareholders in the present case were only in the position of
creditors in respect of the dividends declared in their favour and the amounts
representing the dividends continued to be a part of the assets of the Company;
and indeed the balance-sheets filed in the present case show that no particular
amounts had been earmarked for payment of dividends. To put it differently, the
amount equivalent to the dividends declared continued to be a part of the
assets of the Company and the dividends continued to be its debts.
The said assets were part of the general
assets of the Company and the said liabilities were part of the general liabilities
of the Company. There cannot be any difference in law, in the matter of
ownership of the assets, between a part of the assets equivalent to the
dividends declared and the rest of the assets.
With this background let us scrutinize the
provisions of s. 7(1) of the Act. Under that sub-section, on the appointed day
there shall be transferred to and vested in the Corporation all the assets and
liabilities appertaining to the controlled business of all insurers. The first
question is whether the dividends declared and the amounts representing the
said dividends fell outside the expression "assets and liabilities"
of the controlled business. It is said that though they are part of the assets
and liabilities of the Company, they do not appertain to the controlled
business. The word "appertain" in its ordinary meaning is
"belong to, be appropriate to, relate to". The assets and liabilities
must, therefore, belong to the controlled business of the insurer. That is no
doubt a limitation or qualification imposed or made on "assets and
liabilities".
As the section is providing for the transfer
of assets and liabilities of a Company which may have businesses other than
life insurance business, it has become necessary to say that the said assets
and liabilities are those that pertain only to the controlled business. The
antithesis is not 142 between the Company and its business but between the
controlled business and the other businesses of the insurer.
That this is so is clear from the exhaustive
enumeration of the categories of property in sub-s.(2) of s. 7 of the Act
constituting assets appertaining to the controlled business.
Sub-s. (2) of s. 7 embodies an inclusive
definition and in a sense it enlarges the meaning of the word
"assets". The enumerated categories of assets include both movable
and immovable properties and "all other interests and rights in or arising
out of such property as may be in the possession of the insurer."
Liabilities shall be deemed to include all debts and obligations of whatever
kind existing at the time of the statutory transfer. All the said rights and
liabilities pertaining to the controlled business are transferred on the
appointed day to the Corporation. The said enumeration does not leave any
margin for allotment of any assets to the Company as distinguished from its
controlled business. To illustrate, take the case of a company doing only the
life insurance business. How is it possible to hold that the declared dividends
and the assets representing the said dividends are those of the company
unconnected with the business ? That may be so if the declared dividends are
held in trust by the Company for a shareholder. But, as we have pointed out,
the settled law on the point does not countenance any such concept of trust.
The shareholders can only realise their
dividends from the assets of the business, for they include the amounts
representing the dividends. In any view, the definition of assets and
liabilities of a controlled business in sub-s.(2) of s. 7 of the Act is
certainly comprehensive enough to take in the said declared dividends and the
corresponding assets.
We cannot, therefore, accept this argument.
Even so, it is contended that, the appellant
being a composite insurer, the dividends declared and the assets equivalent to
that liability appertained not only to the life business but also to the
general business of the insurer and, therefore, under s. 7(1) of 143 the Act
only such part of the said assets and dividends allocable to the controlled
business shall be transferred to the Corporation, but the Tribunal wrongly held
that the entire dividends and the assets representing, the same were
transferred to the Corporation. To appreciate this argument, some of the
relevant provisions may be noticed.
We have already noticed s. 7 (1) of the Act
where under all the assets and liabilities appertaining to the controlled
business of, the insurer shall be transferred to an vested in the Corporation.
Explanation (a) to s. 7 of the Act reads:
"The expression "assets
appertaining to the controlled business of an insurer" 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 business of the insurer in accordance with the rules made in this
behalf." A further clarification is found in s. 10 of the Act, which
reads:
(1) "For the removal of doubts it is
hereby declared that in any case where an insurer whose controlled business has
been transferred to and vested in the Corporation under the Act is a composite
insurer, the provisions of the preceding sections shall only apply to the
extent to which any property appertains to his controlled business and to
rights and powers acquired, and to debts, liabilities and obligations incurred
and to contracts, agreements and other instruments made by the insurer for the
purposes of his controlled business and to legal proceedings relating to those
purposes, and the provisions of those sections shall be construed
accordingly." (2). The Central Government may. by rules made in this
behalf, provide-- (b) for the allocation of the paid-up capital or assets
representing such paid-up capital, 144 as the case may be, between the
controlled business of the insurer and any other business;
(c) for the apportionment and the making of
financial adjustments with respect to any debts, liabilities or obligations
incurred by any such insurer partly for the purposes of his controlled business
and partly for other purchases and for any necessary variation of mortgages and
encumbrances relating to such debts. liabilities or obligations." Rule 18
of the Rules provides for the method of allocation of the paid-up capital of
the composite insurer.
These provisions make it clear that in the
case of a composite insurer only such part of the assets and liabilities
allocable to the controlled business shall be transferred to and vested in the
Corporation. As the dividends declared and the assets representing the said
dividends appertain to the composite business, there is force in the argument
of the learned counsel that only a part of such assets and liabilities
referable to the controlled business could be transferred to and vested in the
Corporation, and that the rest should be left with the insurer. This argument
is sought to be met by the learned Attorney General by contending: that the
appellant showed the said assets and liabilities as part of the life insurance
business in the balance-sheets duly approved by the Controller under the
Insurance Act, 1938 (Act No. 4 of 1938) and, therefore, it is precluded from
questioning the correctness of the said balance-sheets. This contention takes
us to the consideration of the Insurance Act, 1938.
Sections 10(1)and 11 of the said Act provide
for separations of accounts and funds, and maintaining of account and
balance-sheets for different businesses in the insurance line. Under s. 10(1),
an insurer shall keep a separate account of all receipts and payments in
respect of each class of insurance business mentioned' therein; and under cl.
(2) thereof, if he carried on the business of life 145 insurance, all receipts
due in respect of such business shall be carried to and shall form a separate
fund, the assets of which shall, after the expiry of six months, be kept
distinct and separate from all other assets of the insurer. Section 11 of the Insurance
Act enjoins every insurer in respect of insurance business transacted by him to
prepare with reference to every year in accordance with the regulation
contained in Part I of the First Schedule a balance-sheet in the forms set
forth in Part II of that Schedule. Form A has two columns, one under the
heading "Life Annuity Business" and the other under the heading
"Other classes of business". Under s. 15(1) of the Insurance Act, the
audited accounts and statements referred to in s. 11 or s. 13 (5) and the
abstract and statement referred to in s. 13 shall be furnished as returns to
the Controller within the time prescribed there under. Under s. 21 of the said
Act, if it appears to the Controller that any return furnished to him under the
provisions of the Insurance Act is inaccurate or defective in any respect, he
may get the necessary information from the insurer and decline to accept the
same unless the inaccuracy has been corrected and the deficiency has been
supplied before the time prescribed. Under sub-s. (2) of s. 21 of the said Act,
the Court may, on the application of an insurer and after hearing the
Controller, cancel any order made by the Controller or may direct the
acceptance of any return which the Controller has declined to accept, if the
insurer satisfied the Court that the action of the Controller was in the
circumstances unreasonable. Section 22 of the said Act confers power on the
Controller to order revaluation.
Section 23 thereof says that every return
furnished to the Controller, which has been certified by the Controller to be a
return so furnished, shall be deemed to be a return so furnished and under
sub-s. (2) thereof every document, purporting to be certified by the Controller
to be a copy of a return so furnished, shall be deemed to be a copy of that
return and shall be received in evidence as if it were the original return,
unless some variation between 18CI/64--10 146 it and the original return is
proved. The first question is whether under the provisions of the Insurance Act
the contents of a certified balance-sheet of an insurer are binding on the
insurer in a Collateral proceeding. The provisions of the Insurance Act do not
say that the correctness of the balance-sheet certified by the Controller is
conclusive for all purposes or that it could not be questioned in a collateral
proceeding. For the purpose of the Insurance Act it would be accepted as
correct. The said Act does not, expressly or by necessary implication, exclude
the jurisdiction of courts and tribunals from going into the correctness of the
said balance-sheets. There is also no provision in the Life Insurance
Corporation Act making the contents of the said balance-sheets final for the
purpose of transfer to and vesting in the Corporation the assets and
liabilities of the insurer. It certainly affords valuable evidence in an
enquiry before the Tribunal; but the contents of the balance-sheets can be
proved to be wrong.
Mr. Setalvad argued that for the purpose of
convenience of disbursement of dividends, the entire amount is shown as
appertaining to the life insurance business, as the head office in Ajmer was
only dealing with life insurance business and making the disbursements. Be it
as it may, it is obvious in this case that the dividends declared appertained
to the composite business and only a part of them appertained to the controlled
business. The relevant entries in the certified balance-sheets are, therefore,
not correct. If so, it follows that under s. 7(1) of the Life Insurance
Corporation Act on the appointed day only such part of the said dividends and
the corresponding assets appertaining to the controlled business were
transferred to and vested in the Corporation.
The next question is how to apportion the
said assets and liabilities between the Corporation and the Company.
Before the Tribunal the appellant did not ask
for apportionment of the dividends but wanted a transfer of the entire
liability to it with the assets 147 corresponding to' the liability undertaking
to reimburse the respondent for any claim of the shareholders against it.
In the petition for special leave the
appellant did not specifically ask for apportionment of the dividends between
the Corporation and the Company. Even at the time of arguments Mr. Setalvad
sought to sustain the claim of the appellant on a construction of s. 7 of the
Act, namely, that the said assets and liabilities only appertained to the
Company, though at a later stage he pressed for apportionment as an alternative
argument. The main contention we have rejected. Even if the apportionment was
made, the allocable assets and liabilities would cancel each other, for both
the Corporation and the Company would be liable to pay the entire amounts so
allotted to the shareholders. But there may be a practical advantage to one or
other of the parties in so far as a shareholder or shareholders may not care to
claim the dividends payable to him or them. In the circumstances, we do not
think we are justified in exercise of the extraordinary jurisdiction under Art.
136 of the Constitution to permit the appellant to raise the plea for the first
time before us and to remand the matter to the Tribunal for apportionment of
the dividends and the corresponding assets. We, therefore, cannot accede to the
request of Mr. Setalvad for this indulgence at this very late stage of the
matter.
The last point relates to the payment of
interest. Both the parties agreed that in view of the decision of this Court in
the National Insurance Co. Ltd. v. Life Insurance Corporation of India(1), the
appellant will be entitled to interest at 4% on the sum of Rs. 4,52,000 from
May 24, 1957, to the date of payment.
In the result, subject to the said
modification, the appeal is dismissed with proportionate costs.
Appeal dismissed with modification.
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