Life Insurance Corporation of India Vs.
Kota Ramabrahmam & Ors [1977] INSC 128 (22 April 1977)
GUPTA, A.C.
GUPTA, A.C.
BEG, M. HAMEEDULLAH (CJ) KAILASAM, P.S.
CITATION: 1977 AIR 1704 1977 SCR (3) 683 1977
SCC (3) 33
CITATOR INFO:
RF 1988 SC 151 (14)
ACT:
Life Insurance Corporation Act, 1956--S.
9(1)--Madras Agriculturists Relief Act, 1938 scaled down certain debts of
agriculturists--Act saved debts due to a Corporation formed under special
Indian Law--Loans given by Insurance Companies to agriculturists--If could be
deemed to have been entered into by the Corporation after it took over business
of Insurance Companies.
HEADNOTE:
The respondents, who were agriculturists,
took loans from two insurance companies in 1950 and 1952. In suits for the recovery
of the debts, filed by the Life Insurance Corporation after it had taken over
the insurance companies, the respondents claimed that the debts should be
scaled down in accordance with s. 4(e) of the Madras Agriculturists Relief Act,
1938. Section 4(e) kept certain debts and liabilities of agriculturists out of
the reach of the Act, including any debt due to any Corporation formed in
pursuance of any "Special Indian Law". The Corporation's contention
that the debts would not be affected by s. 4(e) was rejected by the trial court
as well as the High Court which held that because of the genesis of the debts,
s. 4(e) was attracted.
On appeal to this Court it was contended that
s. 9(1) of the Life Insurance Corporation Act created a legal fiction that contracts
to which an insurer was a party shall be deemed to have been entered into or
issued in favour of the Corporation and that being so, the debts in question
should be taken as due to the Corporation from the beginning and, therefore,
outside s. 4(e) of the 1938-Act.
Dismissing the appeals,
HELD: Section 9(1) of the Life Insurance
Corporation Act, 1956 does not create any legal fiction. It seeks to provide
that the contracts and other instruments subsisting immediately before the
vesting may be enforced and acted upon by the Corporation after vesting. Under
s. 9(2) any pending proceeding on the appointed day by or against an insurer
may be continued by or against the Corporation. Section 7(1) provides that all
the assets and liabilities of the insurers relating to their life insurance
business vest in the Corporation. Under s. 7(2) the liabilities include obligations
of whatever kind existing on the appointed day. The debts due to the insurers
in these two cases were liable to be scaled down in accordance with the
provisions of the 1938-Act which was a liability or obligation appertaining to
the debts on the appointed day, that is, September 1, 1956.
This liability or obligation annexed to the
debts must be held to have been transferred to and vested in the Corporation
along with the assets of the insurers under s. 7 and the Corporation in seeking
to recover the debts cannot ignore the obligations of the insurers in respect
of the transactions. [685 G; 686 A]
CIVIL APPELLATE JURISDICTION : C.A. Nos. 1959
& 1960 of 1970.
(Appeals by Special Leave from the Judgment
and Order dated the 10-10-1969 of the Andhra Pradesh High Court in L.P.A. No.
165/67 and A.S. No. 233/67 respectively).
A. K. Somnath Iyer, K.L. Hathi, P.C. Kapoor,
for the appellant in both the appeals.
G. Venkatarama Sastry, B. Parthasarthi, for
respondents in CA 1959/70.
684 A. Subba Rao, for respondents in CA
1969/70.
The Judgment of the Court was delivered by
GUPTA, J.--These are two appeals by the Life Insurance Corporation of India
(hereinafter referred to as the Corporation) with special leave obtained from
this Court against a common Judgment of the Andhra Pradesh High Court disposing
of two appeals preferred by the Corporation. The appeals before the High Court
arose out of two suits instituted by the Corporation. For the question that
arises for determination, which we will presently state, it is not necessary to
set out the facts in any great detail. One of the suits was brought in 1961 for
recovery of a sum of about Rs. 17,000/-, after giving credit to the payments
made by the defendants, due on a mortgage executed by the defendants in 1950 in
favour of the Andhra Insurance Company of Masulipatnam. The other suit was
filed in 1962 for recovery of about Rs. 45,555/also due on a mortgage which was
executed in 1952 by the defendants of this suit in favour of the Nagpur Pioneer
Insurance Company Ltd., Bombay. Thus in both cases the loans were incurred long
before the Corporation was established on September 1, 1956 under the Life
Insurance Corporation Act, 1956. In both Suits the mortgagors claimed that the
debt should be scaled down in accordance with the provisions of the Madras
Agriculturists Relief Act (Madras Act IV of 1938) (hereinafter referred to as
the Madras Act). It is not disputed in either case that the mortgagors are
agriculturists. The trial court upheld their claim, sealed down the debts and
decreed the suits accordingly. The High Court on appeal affirmed the decision.
The claim was resisted by the Corporation relying on the provisions of section
4 (e) of the Madras Act which is as follows:
"4. Nothing in this Act shall affect
debts and liabilities of an agriculturist falling under the following heads:
X X X (e) any liability in respect of any sum
due to any co-operative Society, including a land mortgage bank, registered or
deemed to be registered under the Madras Co-operative Societies Act, 1932 or
any debt due to any Corporation formed in pursuance of an Act of Parliament (of
the United Kingdom) or of any special Indian Law or Royal Charter or Letters
Patent." The question arising for decision in the appeals is whether, in
respect of the debts sought to be recovered, the application of the Madras Act
is barred by section 4(e) of that Act.
Section 4 of the Madras Act keeps certain
debts and liabilities out of the reach of the Act including any debt due to any
corporation formed in pursuance of "any special Indian law". There is
no dispute that the Corporation established under the Life Insurance
Corporation Act, 1956 is a corporation as contemplated in section 4(e). It is
contended on behalf of the appellant that the debts in question in these cases
would not therefore be affected by anything contained in the 685 Madras Act.
This contention was not accepted either by the trial court or the High Court
who held that the debts were due originally not to the corporation but to the
insurers whose life insurance business was taken over by the corporation, and
because of the genesis of the debts, section 4(e) of the Madras Act was not
attracted.
It will be necessary at this stage to refer
to certain provisions of the Life Insurance Corporation Act, 1956. It is an Act
"to provide for the nationalisation of life insurance business in India by
transferring all such business to a corporation established for the purpose and
to provide for the regulation and control of the business of the corporation
and for matters connected therewith or incidental thereto". Sub-section (1
) of section 7 of the Act provides that on the appointed day all the assets and
liabilities appertaining to the life insurance business of all insurers shall
be transferred to and vested in the corporation.
'Appointed day' has been defined in section
2(1) as the date on which the corporation is established, which is September 1,
1956. Sub-section (2) of section 7 states inter alia, that the liabilities
mentioned in sub-section (1) "shall be deemed to include all debts,
liabilities and obligations of whatever kind" existing on the appointed
clay and relating to the life insurance business of the insurer. Section 9
describes the general effect of vesting of the insurers' business in the
corporation. Sub-section (1) of the section states that unless otherwise expressly
provided by the Act, all contracts, agreements and other instruments subsisting
immediately before the appointed day to which the insurer whose business has
vested was a party or which are in favour of such insurer shall "be of as
full force and effect against or in favour of the corporation, as the case may
be, and may be enforced or acted upon as fully and effectually as if, instead
of the insurer, the corporation had been a party thereto or as if they had been
entered into or issued in favour of the corporation". Sub-section (2) of
this section says that if on the appointed day any suit, appeal or other legal
proceeding was pending by or against an insurer relating to his life insurance
business, it will not be prejudicially affected by reason of the transfer to
the Corporation of the business of the insurer but may be confirmed by or
against the corporation.
Mr. Somnath Iyer appearing for the appellants
in both the appeals contends that sub-section (1) of section 9 creates a legal
fiction that the contracts or instruments to which the insurer was a party
shall be deemed to have been entered into or issued in favour of the
corporation. That being so, the argument proceeds, the debts in question should
be taken as due to the corporation from the beginning, and, therefore, outside
the scope and ambit of the Madras Act in view of section 4(e) of that Act. We
do not however think that sub-section (1) of section 9 creates any legal
fiction of that kind. This subsection seeks to provide that the contracts and
other instruments subsisting immediately before the vesting may be enforced and
acted upon by the Corporation after vesting. This is made clear by sub-section
(2) of section 9 which states that any pending proceeding on the appointed day
by or against an insurer may be continued by or against the corporation.
Under sub-section (1) of section 7 all the
assets 686 and liabilities of the insurers relating to their life insurance
business vest In the corporation on the appointed date. Sub-section (2) of
section 7 states that the liabilities include obligations of whatever kind
existing on the appointed day. The debts due to the insurers in these two cases
were liable to be scaled down in accordance with the provisions of the Madras
Act which was a liability or obligation appertaining to the debts on September 1, 1956, the appointed day. This liability or obligation annexed to the debts
must be held to have been transferred to and vested in the corporation along
with the assets of the insurers under section 7 of the Act, and the corporation
in seeking to recover the mortgage dues cannot ignore the obligations of the
insurers in respect of the transactions. In our opinion the view taken by the
High Court was therefore correct.
The appeals are accordingly dismissed with
costs. One hearing fee.
P.B.R. Appeals dismissed.
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