Life Insurance Corporation of India Vs.
Crown Life Insurance Co [1965] INSC 83 (26 March 1965)
26/03/1965 WANCHOO, K.N.
WANCHOO, K.N.
MUDHOLKAR, J.R.
SIKRI, S.M.
CITATION: 1965 AIR 1985 1965 SCR (3) 474
ACT:
Life Insurance Corporation Act (31 of 1956),
First Schedule.
Part B, Para 4, cl. (d) and Insurance Act (4
of 1938), s. 10(2)-"Life Insurance fund". Meaning of.
HEADNOTE:
Under s. 10(2) of the Insurance Act, 1938,
where an insurer carries on the business of life insurance, all receipts due in
respect of such business shall be carried to and form a separate fund called
the life insurance fund. Section 11 (c) provides for keeping a revenue account
in Form D of the Third Schedule, which applies to life insurance business also.
This account, on the receipt side, has mainly income from premiums and out of
investments from life fund and, on -he expenditure side, all expenses and bad
debts connected with the life business. A balance is struck after taking into
account the balance of the fund at the beginning of the year and after making
some adjustments and transfers, and the "life insurance fund" is
arrived at.
Form 1 of the Fourth Schedule to the Insurance
Act, provides for determining the surplus or deficit, which is the difference
between the net liability in business determined by actuarial valuation of
policies in force and the Life Insurance Fund. If there is a surplus, s. 49(1)
of the Insurance Act provides, that 712 1/2 % of the surplus shall be allocated
to shareholders, and the balance shall remain in the fund for policy holders.
When transfer of life insurance business from the life insurance companies to
the Life Insurance Corporation took place, a provision had to be made for
carrying out the effect of s.49(1). That provision was made in Cl. (d) of para.
4 of Part B of the First Schedule to the Life Insurance Corporation Act, 1956,
according to which, where there is surplus in the life insurance fund, as a
result of the actuarial valuation of policy liabilities under Cl. (b) of the
same Para. 4, 96 % of such surplus shall be shown as a liability, that is, 96%
of that surplus shall go to the Corporation in order to meet the liabilities,
and to that extent the compensation to be paid to the insurance company would
be reduced. Part B applies to those insurers, who, having a surplus in Form 1
have not allocated the whole or any part of such surplus to policy Holders, and
also provides, how compensation is to be paid to companies who had no surplus
as disclosed in Form T.
In the latter case, that is, if there was a
deficit in Form 1, there could be no allocation to the policy holders under
s.49(1) of the Insurance Act, and there would be no liability under Cl. (d).
On the taking over of the business of the
respondent, a life insurance company incorporated in Canada, by the appellants,
under the Life Insurance Corporation Act, the respondent claimed Rs. 27 lacs
and odd as compensation. The respondent contended that the words "life
insurance fund" in Cl. (d) referred to above had the same meaning as those
words in the Insurance Act, and since there was deficit in its working as shown
by Form 1. no amount was to be deducted as liability under Cl. (d). The
appellant was prepared to Day only Rs. 1 lac and odd, on the basis that, the
words "life insurance fund" in Cl.
(d) meant the difference between the total
assets and the liabilities 475 under Cls. (a) and (c) and since there was a
surplus of Rs.
27 lacs 'And odd, a sum of Rs. 26 lacs and
odd, forming, 96% of it, was to be debited towards the liabilities of the
respondent.
The Insurance Tribunal accepted the
respondent's contention and awarded the compensation claimed by it.
In its appeal to this Court, the appellant
contended that:
(i) the words "life insurance fund"
under the Insurance Act have more than one meaning under that Act, and
therefore it was not possible to give the meaning, claimed by the respondent,
to those words in Cl. (d) under the Corporation Act, and (ii) even if those
words have only one meaning under the Insurance Act, they have a different
meaning under the Cl. (d).
HELD: (i) A combined reading of ss. 10(2), 11
and 13 of the Insurance Act and Form D of the Third Schedule and Form 1 of the
Fourth Schedule to the Insurance Act, shows, that the words "life
insurance fund", "surplus" and "deficit" have only the
definite meaning set out above, as contended by the respondent. [480B-C] The
contention, that the words "life insurance fund" have different
meanings in ss. 56(2) and 58(3), and in regulation 7 of Part 1 of the First
Schedule to the Insurance Act, has no force, because when the marginal note of
s. 56(2) refers to surplus assets of life insurance fund it means in reality
the surplus to be found in Form 1 and the same applies to s. 58(3); and as
regards regulation 7, the plural is used in the words "life insurance
funds" merely due to exigencies of grammar. [46OF: 481D-E F-G] It cannot
be said that because s. 27(1) of the Insurance Act lays down that an insurer is
required to keep certain sums invested to meet his liabilities mentioned
therein, the entire assets of the insurer are security for the policy holders
and not merely the life insurance fund. This section only provides that when
life insurance fund shows a deficit in Form 1 it would be the duty of the
insurer to see that he has further assets to cover the deficit, and that these
assets are always kept invested in accordance with the Insurance Act; but the
section does not provide that the assets brought in to cover the deficit would
become part of the life insurance fund. It is only such moneys which are
included in the revenue account, Form D, and which are not of a capital nature
that form part of the life insurance fund. Since, in the instant case the
business of the respondent in India had admittedly shown a deficit in Form 1,
and the funds brought in by the respondent from outside to cover the deficit
were never put in the revenue account, they were never made part of the life
insurance fund, though they remained vested in a trustee under s. 27(6) of the
Insurance Act. [48-2B-G] (ii) The Tribunal was right in its conclusion that the
words "life insurance fund" as used in Cl. (d) of the aforesaid
fourth paragraph have the same meaning as that given to them in s. 10(2) of the
Insurance Act read with s. 11 and Form D of the Third Schedule to the Insurance
Act. [483H] When Cl. (d) speaks of the life insurance fund being in surplus
that surplus has to be determined in accordance with Form 1 subject to certain
modifications indicated in Part B of the Corporation Act. The context.
therefore, instead of showing that there is any other meaning of the words "life
insurance fund" in Cl. (d), shows that they have the same meaning in that
clause as in Form J. [485D, E] Section 35(1) and (2) of the Corporation Act
also point to the same conclusion. because, these provisions show that where
the legislature intended to refer to all the assets and liabilities it said so
in terms and did not use the words "life insurance fund", Besides, if
these 476 words were given the meaning for which the appellant contended, there
would be an inconsistency between Cl., (d) and s. 35, in that, the insurer
would get away with a much larger amount if he applied for repatriation of
excess assets under s. 35, and would get a much smaller amount if he did not
choose to apply under the section, a result which the legislature could not
have intended. Moreover, the share capital of an insurance company cannot
obviously form ptrt of the life insurance fund; but on the interpretation urged
on behalf of the appellant, even 96% -of the share capital may be lost to an
insurance company, as part of the life insurance fund in conceivable,,
circumstances, [486A-C, F; 487G].
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 999 of 1964.
Appeal by special leave from the order dated
March 25, 1954 of the Life Insurance Tribunal, Bombay in Case No. 27 of 1962.
C. K. Daphtary, Attorney-General, S. J.
Banaji, Atiqutor Rehman and K. L. Hathi, for the appellant.
N. A. Palkhivala, S. J. Sorabjee, J. B.
Dadachanji, 0. C.
Mathur and Ravinder Narain, for the
respondent.
The Judgment of the Court was delivered by
Wanchoo J. The only question that arises for determination in this appeal by
special leave from the order of the Life Insurance Tribunal, Bombay, is the
interpretation of the words "life insurance fund" as used in
paragraph 4 of Part B of the First Schedule to the Life Insurance Corporation
Act, No. 31 of 1956, (hereinafter referred to as the Act). The question arose
in connection with the payment of compensation to the respondent, the Crown
Life Insurance Company, which is incorporated in Canada, by the appellant, the
Life Insurance Corporation of India on the taking over of the business of the
respondent by the appellant under the Act. The respondent claimed Rs. 27,86,658
as compensation while the appellant was prepared to pay Rs. 1, 1 1,466. The
respondent claimed that as its life insurance fund was always in deficit before
the Act came into force, there was no liability on it under cl.(d) of paragraph
4 of Part B of the First Schedule to the Act. The appellant on the other hand
claimed that under that cl. (d), there was a surplus of Rs. 27,86,658 and
therefore under cl. (d) a sum of Rs. 26,75,192 was to be debited towards the
liabilities of the respondent. That is how the appellant arrived at the
compensation of Rs. 1,11,466.
The appellant claimed that the words
"life insurance fund" in cl. (d) meant the difference between the
total assets and the liabilities under cls. (a) and (c) of the said paragraph
4. The respondent on the other hand contended
that the words "life insurance fund" in cl. (d) had the same meaning
as those words had under the Insurance Act, No. 4 of 1938 (hereinafter referred
to as the Insurance Act). The respondent therefore claimed that as there was
always a deficit in its working as shown by form 1 of the Fourth Schedule to
the Insurance Act, no amount was to be deducted as liability under cl. (d) of
the said paragraph 4. It is this difference in the meaning assigned to the
words "life insurance fund" by the parties 477 that is responsible
for the large difference in the amount claimed by the respondent and offered by
the appellant.
The Insurance Tribunal has accepted the
contention put forward on behalf of the respondent and has held that the words
"life insurance fund" in cl. (d) of the said paragraph 4 have the same
meaning as in the Insurance Act, and that there is only one meaning of these
words in the Insurance Act. It has
rejected the contention raised on behalf of the appellant and has in
consequence awarded compensation at Rs.
27,86,658. Aggrieved by this order, the
appellant got special leave from this Court; and that is how the matter has
come up before us.
The sole question that falls for
determination therefore depends on the interpretation of the words "life
insurance fund" and for that purpose we shall have to consider certain
provisions of the Insurance Act as well as of the Act. We may at the outset
refer to S. 2 (10) of the Act, which is as follows: -" In this Act, unless
context otherwise require(10) all other words and expression used herein but
not defined and defined in the Insurance Act shall have the meanings
respectively assigned to them in that Act." It is not in dispute that the
words "life insurance fund" appear In the Insurance Act though not in
the definition section thereof. Section 2 (10) of the Act however does not
refer only to the definitions in the definition section of the Insurance Act;
it lays down generally that any words and expressions used in the Act and
defined in the Insurance Act shall have the meanings assigned to them in the
Insurance Act (and that means anywhere in the Insurance Act) unless the context
otherwise requires. We have therefore to turn to the Insurance Act first to
find out the meaning of the words "life insurance fund" as given
therein and then to see whether the context of cl. (d) of the said paragraph 4
requires otherwise. If we come to the conclusion that it does not require
otherwise, the words "life insurance fund" in cl. (d) of the said
paragraph 4 will have the same meaning as in the Insurance Act.
Let us therefore turn to the Insurance Act to
see what the words "life insurance fund" mean under that Act. It has
been urged in the first place on behalf of the appellant that the words
"life insurance fund" under the Insurance Act have not one meaning
only and therefore it is not possible to give that meaning to these words in
cl. (d) with which we are concerned. In the alternative it is urged that the
context requires that even if the words "lift insurance fund" have
only one meaning under the Insurance Act, they have a different meaning under
cl. (d).
We have therefore to find out what the words
"life insurance fund" mean under the Insurance Act and whether they
have the same meaning throughout the Act. We have already pointed out that the
words "life insurance fund" have not been defined in s. 2 (N)4SCI-4
478 of the insurance Act, which is the definition section. But there is no
doubt that in s. 10 of the Insurance Act, these words have been given a
specific meaning to which we shall now refer. The Insurance Act was concerned
not only with life insurance business but also with insurance business of other
kinds, namely, marine, fire and miscellaneous. It was open to an insurance
company to carry on either the life insurance business only or life insurance
business along with insurance business of other kinds also. Therefore, S. 10(1)
of the Insurance Act provided that where an insurer carried on business of more
than one kind, he was bound to keep a separate account of all receipts and
payments in respect of each kind of business. Section 10(2) dealt specifically
with life insurance and we therefore read the relevant part of that
sub-section:"Where the insurer carries on the business of life insurance,
all receipts due in respect of such business shall be carried to and shall form
a separate fund to be called the life insurance fund the assets of which
shall......
be kept distinct and separate from all other
assets of the insurer and the deposit made by the insurer in respect of life
insurance business shall be deemed to be part of the assets of such fund and
every insurer sHall...... furnish to the Controller a statement showing in
detail such assets as at the close of every calendar year duly certified by an
auditor or by a person qualified to audit under the law of the insurer's country";
There are three provisos to this section to
which it is unnecessary for our purposes to refer. Sub-section (3) of s. 10 is
also material and runs as follow: "The life insurance fund shall be as
absolutely the security of the life policyholders as though it belonged to an
insurer carrying on no other business s than life insurance business and shall
not be liable for any contracts of the insurer for which it,would not have been
liable had the business of the insurer been only that of life insurance and
shall not be applied directly or indirectly for any purposes other than those
of the life insurance business of the insurer.
" Section II (c) then provides for
keeping a revenue account in form D of the Third Schedule in respect of each
insurance business for which separate account was required to be kept under s.
10(1). Regulation 1 of Part 1 of the Third Schedule provides that form D as set
out in Part 11 is appropriate for life insurance business. A perusal of form D
shows what items have to be entered on the ,receipts side of the form and these
items are: premiums of an kinds, consideration for annuities, interest,
dividends and rents (obviously from assets of the life insurance fund);
regulation fees and other income. It is thus
clear that the revenue account on the receipt side mainly has income from
premiums and income arising 479 out of 'Investments from life fund and this
forms the main basis of the life insurance fund. On the expenditure side of
form D there is provision for claims under policies, annuities, surrenders,
bonuses in cash, bonuses in reduction of premiums, expenses of management (i.e.
salaries etc., travelling expenses, directors' fees, auditors' fees, and
charges for advertisements, printing and stationary, other expenses of
management, rents for offence belonging to and occupied by the insurer, rent of
other offices kept by the insurer), bad debts and other expenditure. Thereafter
a balance has to be struck and this balance is the balance of the life
insurance fund. This balance is arrived at after taking into account the
balance of the fund at the beginning of the year and after making adjustments
with respect to profit and loss and transfers from appropriation account.
It is this balance which goes into the
balance sheet form A provided in the First Schedule of the Insurance Act as
life insurance fund and includes as provided in s. 10(2) the deposit made by
the insurer in respect of life insurance business. There is no doubt therefore
that the words "life insurance fund" under the Insurance Act have got
the meaning assigned to it under s. 10(2) read with s. 11 and form D of the
Third Schedule. It is equally clear that all the assets of an insurance company
doing life insurance business do not form part of the life insurance fund, for
example, if the insurance company has got share capital that is not part of the
life insurance fund even though the deposit required by law to be made for life
insurance business is part of the fund. So far therefore as s. 10(2), s. 1 1
and form D are concerned, life insurance fund has a definite meaning.
The working of a life insurance company is in
some respects different from that of ordinary companies inasmuch as it is not
open to a life insurance company to distribute dividends unless there is
surplus computed under the Insurance Act.
This surplus is determined thus: First of all
the life insurance fund as disclosed by revenue account in form D is found out.
Then the valuation of the policies in force as on a certain date is determined
by actuarial valuation which has to be made at least once in three years under
s. 13(1) of the Insurance Act. After valuation of the policies of different
kinds they are grouped under different heads and their summary is set out in
form H of the Fourth Schedule.
Form 1 of the said Schedule provides for
determining the surplus or deficit. This form is known as valuation balance
sheet and the surplus or deficit is the difference between net liability in
business as shown in form H and the life insurance fund as shown in balance
sheet form A. Surplus will only result if the balance of life insurance fund is
greater than the net liability under form H. Where however the balance of life
insurance fund is less than the net liability under form H, there will be a
deficiency and not surplus. Section 49(1) of the insurance Act then provides
that no amount of the life insurance fund will be used to pay any dividend to
share-holders or any bonus to policyholders or for making any payment in
service of any debenture, unless the valuation balance sheet in form 1 of the
Fourth Schedule 480 shows a surplus. It is further provided that out of the
surplus only 71 per centum shall be allocated to or reserved for shareholders
with the consequence that the balance of 92 1/2 per centum of the surplus
remains in the fund for policyholders or may be allocated as bonus to
policyholders.
The life insurance find as defined in s.
10(2) is an absolute security of the life policy-holders and cannot be used in
any manner except in accordance with the provisions to which we have already
referred. Thus the words "life insurance fund" have a definite
meaning under the Insurance Act under s. 10(2), read with s. 1 1 and form D of
the Insurance Act and the words "surplus" and "deficiency"
have also special meaning appearing from a combined reading of s. 13 of the Insurance
Act and form H and form 1 of the Fourth Schedule.
The next question is whether the words
"life insurance fund" have any other meaning under the Insurance Act.
These words appear in a number of provisions of that Act. It is not necessary
however to refer to all of those provisions for it is not in dispute that in
most of the provisions the words have the meaning assigned to them under s.
10(2) of the Insurance Act. But three provisions have been specifically brought
to our notice where it is said that the words have a different meaning. The
first is s. 56 which deals with winding-up of insurance companies. In
sub-section (2) thereof reference is made to surplus of assets over liabilities
and how such surplus which is called prima facie surplus in the sub-section is
to be dealt with. It will however be seen that the sub-section does not use the
words "life insurance fund" when speaking of prima facie surplus
which is the difference between all assets and all liabilities. But it is urged
that the marginal note to the section which is in these words "application
of surplus assets of life insurance fund in liquidation or insolvency"
shows that for the purpose of this section, the words "life insurance
fund" as used in the marginal note may have a different meaning. We are
however of opinion that this is not so. Sub-section (2) after speaking of prima
facie surplus, which is equal to total assets minus total liabilities, provides
how the prima facie surplus is to be dealt within winding-up proceedings. The
sub-section provides that this prima facie surplus would be divided into two
parts and one part would be in proportion to the profits of the insurer
allocated to policy-holders. This part will naturally be determined with
respect to form 1 of the Fourth Schedule which deals with life insurance fund
and surplus or deficiency. The sub-section thus provides that out of the prima
facie surplus a certain amount will be deducted in proportion to the profit
allocated to the policy-holders, and remaining will be the amount which may go
to shareholders in winding-up. Therefore as we read subsection (2) we find that
it deals with entire assets and these entire assets will certainly include the
life insurance fund. The marginal note indicates how out of the prima facie
surplus indicated in sub-section (2) the surplus in the life insurance fund as
arrived at in form shall be used. The argument that the words "life
insurance fund" in 481 s. 56(2) has a different meaning therefore has no
force for two reasons. In the first place the section does not use the words
"life insurance fund" and in the second place when the marginal note
refers to surplus assets of life insurance fund it means in reality the surplus
to be found in form 1, for the prima facie surplus will include that.
We cannot therefore accept the contention
that for the purposes of s. 56(2) the words "life insurance fund"
have a different meaning in view of the marginal note of s. 56.
The next section to which reference is made
in this connection is s. 58(3). Section 58 deals with schemes for partial
winding-up of insurance companies, i.e. winding-up of one kind of business
while another kind of business goes on. Section 58(3) provides that the,
provisions of this Act relating to valuation of liabilities of the in-, surer
in liquidation and insolvency and to the application of surplus assets of the
life insurance fund in liquidation or insolvency shall apply to the winding-up
of any part of the affairs of the company. It is argued that the words
"life insurance fund" here are used in a different sense-. We are of
opinion that this is not so. Sub-section (3) of s. 58 has to be read along with
s. 56 and in particular with Subs. (2) thereof and as we have already indicated
the words "life, insurance fund" in the marginal note of s. 56 have
no different meaning from that to be found in s. 10(2) the same applies to the
use of the words "life insurance fund" in s.
58(3) mutates mutandis.
Lastly reference was made to regulation 7 of Part
1 of the First Schedule, which provides for a certificate that no part of the
assets of the life insurance fund has been directly or indirectly applied in
contravention of the provisions of the Insurance Act relating to the
application and investment of life insurance funds. It is urged that the use of
the plural suggests that a different meaning is to be given to the words
"life insurance fund" here. We are unable to agree with this
contention either. The use of the words "life insurance funds" in
plural is merely due to the exigencies of grammar in this provision and does
not mean that the words have a meaning different from that assigned to them in
s. 10(2) to which we have already referred. We must therefore reject the contention
on behalf of the appellant that the words "life insurance fund" have
any meaning other than that assigned to them in s. 10(2) of the Insurance Act
so far as that Act is concerned.
Reference is then made to s. 27(1) of the Insurance
Act which requires that every insurer shall invest and at all times keep
invested assets equivalent to not less than the sum of the amount of his
liabilities to holders of life insurance policies in India on account of
matured claims and the amount required to meet the liability on policies of
life insurance maturing for payment in India subject to certain deductions. It
is urged that this provision lays down that an insurer is required to keep
certain sums invested to meet his liabilities mentioned therein and this shows
that the entire assets of the insurer are security for the policy-holders. It
is true that this provision requires an insurer to keep certain assets invested
and those 482 have to be equal to his liabilities on policies matured and
policies yet to mature. This provision is for the protection of the
policyholders' interest. It has however in our opinion nothing to do with the
life insurance fund as such. What in fact it provides is that when the life
insurance fund shows a deficit in form it would be the duty of the insurer to
see that he has further assets to cover the deficit, and that these assets are
always kept invested in accordance with the Insurance Act; but the section does
not provide that the assets brought in to cover the deficit would become part
of the life insurance fund. It is not in dispute that there is no other
provision in the Insurance Act which requires that whenever. the life insurance
fund is in deficit the insurer must put sufficient money in that fund itself to
'cover the deficit. It is true that form D of the Third Schedule includes an
item "other income" but that does not mean that any sum kept invested
by an insurer for the purposes of s. 27(1) in order to cover the deficit in the
life insurance fund becomes part of that fund. Note (e) which appertains to
"other income" of the said form makes it clear that all the amounts
received by the insurer directly or indirectly whether from his head office or
from any other source outside 'India shall also be shown separately in the
revenue account except such sums as properly appertain to the capital account.
Therefore sums invested for purposes of s. 27(1) of the Insurance Act do not
necessarily form part of the life insurance fund It is only such moneys which
are included in form D and which are not of capital nature that form part of
the life insurance fund. In the present case it is not in dispute that the
business of the respondent 1 in India always had shown a deficit in form . It
is also not in dispute that in order to meet that deficit as required by s,
27(1), the respondent took advantage of s. 27(6) which provides that the assets
required by this section to be held invested by an insurer incorporated or
domiciled outside India shall subject to certain exceptions be held in India
and all such assets shall be held in trust for the discharge 'of the
liabilities of the nature referred to in sub-s. (1) and shall be vested in
trustees resident in India and approved by the Central Government and the
instrument of trust under this subsection shall be executed by the insurer with
the approval of the Central Government and shall define the manner in which
alone the subject-matter of the trust shall be dealt with. Such an instrument
of trust was executed by the respondent and the State Bank of India was the
trustee of the fund required to be kept under s. 27(1) read with s.
27(6). But that in our opinion did not make
the whole of this trust fund part of the life insurance fund as defined in s.
10(2). The money required to cover the deficit in form I could only become part
of the life insurance fund if that was included in the revenue account form D
and in such a case there would then be no deficit left in the life insurance
fund. It is not ill dispute that in this case funds brought in by the
respondent from outside to cover the deficit were never put in the revenue
account and were never made part of the life insurance fund, though 483 they
remained vested in the trustee for the purpose of s.
27(1) read with s. 27(6). The appellant's
contention always was that the case of the respondent, for purpose of
compensation, was covered by part B of the First Schedule to the Act and not by
its Part A, and this was because there was a deficit in form I submitted by the
respondent throughout its working. It appears that in spite of this deficit in
the Indian working of the respondent, the respondent used to pay bonuses to its
policy-holders out of its global surplus and these payments were made in cash.
Even so the appellant insisted-and
rightly-that as form I showed deficit at the relevant time the respondent was
not entitled to take advantage of Part A. of the First Schedule to the Act for
purposes of compensation. In such circumstances it seems strange when
admittedly there was always a deficit in form I submitted by the respondent in
connection with its. Indian. business that the appellant should now say for the
purpose of compensation that there is a surplus disclosed by the business of
the respondent, 96 per centum of which would go to the appellant under cl. (d)
of the aforesaid 4th paragraph, We are. therefore of opinion that the appellant
cannot take advantage of s. 27(1) and ask us to hold that all the funds which
are mentioned in.s. 27(1) to be kept invested are part of the life insurance fund.
Part B applies to.' two kinds of insurance companies--viz., those which had
deficits and those which had surplus but had not distributed it at the relevant
time.
It is the latter class of companies that cl.
(d) is really meant to cover. As we have already. said s. 27(1) has nothing to
do with the life insurance fund and is meant only as a safety device for
policyholders, particularly in cases where there is deficit in the life
insurance fund.: But where such deficit is made up for the purpose of s. 27(1),
the extra amount so invested by the insurer to make up the deficit does not
automatically become part of the life insurance fund unless it is put through
the revenue account form D. That was admittedly never done in this case and
form I always showed a deficit in the case of the respondent.
Section 27(1) therefore does not help the
appellant, for it is not in dispute that an insurer is not bound to make up the
deficit by putting money in the life insurance fund though he is bound to keep
assets invested to make up the deficit; but such assets may be kept outside the
life insurance fund.
Now we come to the last question whether
there is anything in the Act which requires that we should give a different
meaning to the words "life insurance fund" in cl. (d) of the
aforesaid 4th paragraph. We have already referred to s. 2(10) of the Act which
lays down that all other words and expressions used in the Act but not defined
and defined in the Insurance Act shall have the meanings respectively assigned
to them in that Act. Prima facie, therefore, the words "life insurance
fund" used in cl. (d) of the aforesaid 4th paragraph have the same meaning
as in the Insurance Act, and the question is whether the context of the Act
requires that we should give a different meaning to these words. We are of
opinion 484 that there is nothing in the context of the Act which requires that
a different meaning should be given to these words. If anything, the Act shows
that these words have the same meaning in cl. (d) of the aforesaid 4th
paragraph as in the Insurance Act.
In the first place we have to see what is the
reason for the provision in cl. (d) of the aforesaid 4th paragraph. We have no
doubt that the provision in cl. (d) is related to the provision in s. 49(1) of
the Insurance Act. We have already referred to that section and it requires
that 921% of the surplus in form I shall be kept for the policyholders. Where
therefore there is surplus in form 1, 921/2 per centum thereof is meant for the
policy-holders under this provision. Secondly when transfer of life insurance
business from the life insurance companies to the Life Insurance Corporation
took place a provision had to be made to carry out the effect of s. 49(1) in
connection with the transfer. That provision is to be found in cl. (d). It lays
down that where there is a surplus in the life insurance fund as a result of
the actuarial valuation of policy liabilities made under cl. (b) of the
aforesaid paragraph 4, 96 per centum of such surplus shall be shown as a
liability. This means that just as under s. 49(1), 921 per centum of the
surplus in form I was meant for the policy-holders so in the case of transfer,
96 per centum or that surplus shall go to the Life Insurance Corporation in
order to meet the liabilities arising under s. 49(1) of the Insurance Act for
past surplus and to that extent the compensation to be paid to the insurance
company from which the Life Insurance Corporation was taking over business
would have to be reduced. This was with reference to the past and could not be
with reference to the future, for so far as the future was concerned, the Life
Insurance Corporation alone was responsible. But if there was a deficit in form
I of the insurance company which was being taken over by the Life Insurance
Corporation there could be no allocation to the policy-holders under s. 49(1)
of the Insurance Act and there would be no liability for the past.
So there would be no liability for the past
under cl. (d) on the insurer whose business was being taken over by the Life
Insurance Corporation. In the present case admittedly there was no surplus in
form I in the case of the respondent and therefore there would be no liability
on the respondent under cl. (d) of the aforesaid 4th paragraph. This in our
opinion is the rationale behind the provision in cl. (d) and as there was
always a deficit in connection with the working of the respondent, there could
be no liability on the respondent under cl. (d).
But apart from this rationale behind cl. (d)
we find that the language of Part A and Part B of the First Schedule relating
to principles for determining compensation also leads to the same inference.
Part A provides that compensation to be given 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 11 of the Fourth Schedule to the Insurance
Act in 485 respect of the last actuarial investigation relating to his
controlled business as at a date earlier than January 1, 1955 shall be computed
under that part. Clearly therefore this provision in Part A refers to surplus
to be found by looking at form of the Fourth Schedule to the Insurance Act.
Part B of the First Schedule to the Act then
speaks of compensation to be given to an insurer having a share capital on
which dividend or bonus is payable but who has not made any such allocation as
is referred to in Part A.
This immediately brings in the opening words
of Part A and shows that Part B applies also to those insurers who having a
surplus in form I have not allocated the whole or any part of such surplus to
policyholders. The surplus in form I is arrived at as already indicated when
the life insurance fund is larger than the liabilities on the policies still to
mature. Clearly, Part B provides how compensation is to be paid to companies
who had no surplus as disclosed in form 1 of the Fourth Schedule to the Insurance
Act or who if they had any surplus in that form had made no allocation to
policy-holders. Therefore when cl. (d) of the aforesaid 4th paragraph speaks of
the life insurance fund being in surplus that surplus has to be determined in
accordance with form 1 of the Fourth Schedule to the Insurance Act subject to
modifications indicated in Part B in the matter of valuation under form H and
not in the manner suggested on behalf of the appellant. The word
"surplus" in cl. (d) cannot have a meaning different from what it has
in the opening words of Part B which come therein from Part A. The context
therefore instead of showing that there is any other meaning of the words
"life insurance fund" in cl. (d) shows that they have the same
meaning in that clause as in form 1 of the Fourth Schedule to the Insurance Act.
Another reason which points to the same
conclusion namely, that the words "life insurance fund" in cl. (d)
have the same meaning as in form 1 of the Fourth Schedule to the Insurance Act,
is to be found in s. 35(1) and (2) of the Act. Section 35(1) permits a foreign
insurer to repatriate certain assets. It says that an insurer incorporated
outside India may, before the appointed day, make an application to the Central
Government stating that among the assets appertaining to the controlled
business of the insurer there are assets brought into India by him for the
purpose of building up his life insurance business in India which should not be
transferred to and vested in the Life Insurance Corporation. On receipt of such
an application, the Central Government has to determine the value of the assets
of the insurer appertaining to his controlled business in existence on December
31, 1955 in accordance with the provisions contained in paragraph 3 of Part B
of the First Schedule to the Act and deduct there from the total amount of the
liabilities of the insurer appertaining to his controlled business as on
December 31, 1955 computed in accordance with the provisions contained in the
Second Schedule to the Act; and if there is any excess, the Central Government
may direct that such assets equivalent in value to the excess shall not be
transferred to or vested in 486 the Life Insurance Corporation. It is obvious
from these provisions that where the legislature intended to refer to all the
assets and liabilities it said so in terms and did not use the words "life
insurance fund". The use of the words "life insurance fund" in
cl. (d) of the aforesaid 4th paragraph therefore must have the special
significance assigned to these words in the Insurance Act and cannot be equated
to the difference between the total assets and liabilities apart from
liabilities towards policies yet to mature.
Besides we are of opinion that if the words
"life insurance fund" in cl. (d) are to be given the meaning for
which the appellant is contending there will be a clear inconsistency between
cl. (d) and it. 35 of the Act. Section 35 permits a foreign insurer to take
away what may be called excess assets but a foreign insurer is not bound to
make an application under s. 35. Now take the case of the respondent. It is not
in dispute that the respondent has taken away excess assets with the permission
of the Central Government under s. 35, to the tune of about rupees fifteen or
sixteen lakhs. But if the respondent had not, chosen to make the application
under s. 35, all Ms assets would have to be considered under Part B relating to
compensation. If that Was so, according to the contention put forward on behalf
of the appellant as to the meaning of the words "life insurance
fund", the total compensation under Part B of the First Schedule to 'which
the respondent would have been entitled, would be Rs. 1.74,408. This means that
as by making an application the respondent was able to take away Rs. 15,73,540
under s. 35(2) he would further get Rs. 1,11,466 as compensation under Part B
of the First Schedule to the Act. But if he had not made the-application under
s.
35, he would only get Rs. 1,74,408 in all.
There is no doubt that the legislature could not have intended such a result,
namely, that the insurer should get away with a much larger amount if he
applies under s. 35 and should get a much smaller amount if he does not choose
to apply under s. 35. On the other hand, if we accept the contention of the
respondent as to the meaning of the words "'life insurance fund" it
would make no difference to the compensation whether the insurer applies under
s. 35 or not. We must hold that the legislature intended that in either case an
insurer would get the same amount whether it comes to him as compensation in
one sum or comes to him as compensation plus repatriation of excess assets. If
the words "life insurance fund" are interpreted to mean what the respondent
says, the result would be this. If it applies for repatriation it would get Rs.
15,73,540 as repatriation of excess assets and Rs. 27,86,658 as compensation
under Part B: total Rs. 43,60,198. If it does not apply for repatriation and if
cl. (d) has the meaning urged on behalf of the respondent, its total
compensation would come to the same figure, namely, Rs. 43,60,198. This clearly
shows that the legislature intended the words "life insurance fund"
to mean what they meant in s. 10(2) for that would give in our opinion the same
result whether an insurer applied under s. 35 or not.
487 We have already said that cl. (d)
provides for past surplus in form 1, the responsibility for which passes on to
the Life Insurance Corporation when it takes over the life business of an
insurer. So far as the future is concerned, cl. (b) of the aforesaid 4th
paragraph provides for a higher valuation for with-profits policies with the
result that the liability which the insurer whose business is being taken over has
to bear with respect to with-profits policies is higher. The appellant
apparently claimed an amount under cl. (d) on the ground that at future
valuation the bonus payable to the policy-holders would be reduced. Now cl. (d)
in our opinion provides for cases where there have been surpluses in the past
while the provision for the future in respect of profit policies is to be found
in cl. (b). The appellant therefore cannot lay claim to anything under cl. (d)
unless there were surpluses in the past in form 1 of the Fourth Schedule to the
Insurance Act. The contention that the appellant is likely to suffer if the
meaning contended for by the respondent is given to the words "life
insurance fund", particularly with respect to with-profit policies has in
the circumstances no force, for there is already a weightage in favour of
calculating liability for with-profit policies under cl. (b) of the 4th.
paragraph of Part B of the First Schedule to the Act.
Lastly there will be another curious result
if the words "life insurance fund" in cl. (d) is given the meaning
contended for on behalf of the appellant. Take the case of an Indian company
which has shares but which has always been showing deficit in form 1 of the
Fourth Schedule to the Insurance Act. If its life insurance fund for the
purposes of cl. (d) is calculated in the manner contended for on behalf of the
appellant the result would be that the share capital of such a company would
also come into the assets and if as a result of the share capital going into
assets the deficit in form is converted into surplus such a company would in
conceivable circumstances lose 96 per centum of its share capital as if it was
part of the life insurance fund. It is obvious that the share capital of an
insurance company cannot be a part of the life insurance fund; but on the
interpretation urged on behalf of the appellant even 96 % of the share capital
may be lost to an insurance company, whose business is being taken over by the
Life Insurance Corporation if the words "life insurance fund" are
given the wide meaning for which the appellant is contending. We have therefore
no doubt that the tribunal was right in its conclusion that the words
"life insurance fund" as used in cl. (d) of the aforesaid 4th
paragraph have the same meaning as that given to them in s. 10(2) of the Insurance
Act read with s. 1 1 and form D of the Third Schedule to the Insurance Act. In
this view of the matter, the appeal must fail.
We therefore dismiss the appeal with costs to
the respondent. The respondent will be at liberty to withdraw the money
deposited in this Court towards compensation.
Appeal dismissed.
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