NATIONAL INSURANCE CO. LTD. versus LIFE INSURANCE CORPORATION OF INDIA

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is2 SUPREME cotJRt RtPoit'fs [1964] voL.

1963

Lallr.itttltli Chi11no

l,'trlai

1't11),:tzla v. IM.kiruldl L11k.thmmno

Shah J,

his interest in the property devised iu his favour under the will or V cnkata Konda Reddy so as to In the blend it with the joint family property. absence of any such evidence, the High Court was, in our judgment, right in holding that Lakshmama was entitled to a fourth share in the property devised under the will or Vcnkata Konda Reddy.

•

The appeal therefore

fails and

is dismissed

with costs.

Appwl tli.~111·iBscd.

1963

Ma"il 4

:'l:AfIONAL INSURANCE CO. LTD.

LIFE INSURANCE CORPORATION OF INDIA

(P. B. GA.JENDRAGADKAR, M. HwAYA'ITLLAll and J. c. SHAii JJ.)

Liff'.

ln,lfurance-Co1i..~tructiutt uf

1':flalutc--C'u11ipu~itr. inJurer-"Cvnlrolltd businP.1A"-Mcaniny and SCUjic -;f-If in clude.~ capilnl reckmptian ln~1°ntlfS 1Lntl annility cR.,ia£n husintss Life In.•urance Corporation Act, 1956 (31 of J'J.)G) ss. ~. 7.

••

;:

iil.Ginitt1:J 1

~fhc appellant company was co1npositc insurer because it r.arricd on general in5· .. r~nc<e. bu1iness in addition to the busineS> which fell within the definitio~ or con trolled business. The company also carried 011 both capital redemption businCS! and annuity ccr1ain busin~ss which it compendiously called capital obligation businc.•s. By the opera tion of s. 7 (I) of the Life fnsnrance Corporation Act, 1956, all the a~cts and the "-.~ontrollcd liabilities appertainirr~ to business" of all insnrers were transferrcrl. to 1 and ''~tcd in the Life lnsura1lcc Corporation front In pursuance of this provision the I.ife Insurance Corporation took over the life insurance Uusincss 1 ! the appellant company. Dispute arose between the parties as to \VJ.at pOlrt or 1hc business of the appellant cornpany vests in the Corpc.ration and what are the assets of the business. The appellant comp•ny r.ontended

the 'appointed day'.

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2 s.C.R.

SUPREME COURT REPORTS

is3

that on a proper interpretation of the relevant provisions of the Life Insurance Corporation Act, 1956, particularly the explanation to the definition of "controlled businc.)'i" the capital obligation business of the cornpany vvbich included capital redemption business and annuity certain business, did not vest in the Corporation. The Corporation on the other hand claimed that this business also vested in the Corporation. This dispute was referred to the Life Insurance Corporation ~fribunal, Nagpur, and the Tribunal decided favour of the Corporation in and the company appealed to this Court with special leave.

1963

Nationtl brsuronce Cn., Lti .. •• Life Insurance Cor· ft6T4l'iotr. tJj /Mia

It was contended in the appeal that the force of the word "only" in the Explanation to s. 2 (3) of the Act which defines "controlled business" is that where an insurer carries on life business and capital redemption business but no other kind of business and or annuity certain business but no other kind of business then the controlled busineos can be said to include in addition to Life business the capital redemption business or annuity certain 'business or both, but \\'here an insurer carries on Life business and general business, life, fire and marine insurance etc., the capital redemption business or the annuity certain business or both cannot be in I uded in the controlled business. the expression "business appertaining to his insurance business" in sub-els. (i) and (ii) of s. 2 (3) should also be given the same meaning.

It was further contended

that

life

Held,

that on an interpretation of s. 2 (3) and the Explanation thereto the capital redemption business and tke annuity certain business must be included in the expression "controlled business" even in the case of a composite insurer like the appellant company,

CIVIL APPELL.i'.l'E JURISDICTION : Civil Appeal

No. 134 of 1961.

Appeal by special leave from the jud~ment aad order dated December 30, 1959 and May 17, 1960 of the Life Insurance Tribunal, Nagpur in Case No. 33/Xll of 1959.

G. S. Pathak, Datta and B. P. Maheshwari,

for the appellant.

H. N. Sanyal, Additional Solicitor-General of India, ill.. C. Set,alvad, and K. L. Hathi, for the respondent.

.......

1913

Ncti•tl /mur~1 C':• Lti. v. Life lt»urui<t c.,. J•rtiti•" •! ltciio

184 SUPREME COURT REPORTS [1964) VOL.

I U63. March 4. The Judgment of the Court was

delivered by

·

HIDAY AT ULLAH J .-This appeal arises out Insurance Corporation of two orders of the Life Tribunal, Nagpur. dated December 30, HJM), and May 17, 1960. The National Insurance Co. Ltd. is the appellant and the Life Insurance Corporation of India the respondent.

The Life

Insurance Corporation Act,

lfl51i, (31 of 19.~6) was passed to provide for the nation· alisation of life insurance business in India by trans· ferring all such business to a Corporation to be established for the purpose and to orovide for regula tion and control of the business of that Corporation therewith or incidental and for matters connected thereto. The Life that Insurance Corporation is It took over th~ life insurance business Corporation. of the National Insurance Co. I.tel., among other companies, and the two broad questions on which the present dispute has arisen arc : what part of the busi· ness of the appellant Company vests in the Corpora· tion and what are the assccs of that business ?

The Life Insurance Corporation Act providec1. that the Corporation would be established with effect from such date as the Central Government bv a notification in the Official Gazette might app~int. I !JiiG, was notified as that dare. The September 1, Act defined the expression "appointed day" as the date on which the Corporation was to be established and the September also became I (};)(i, the purposes of the Act. "appointed date" Section 7 (I) of the Act then enjoined that on the appointed day there shall be transferred to and vested in the Corporation all che assets and liabilitirs the "controlled business'' of all in· appertaininr, to surers. Prior to the Act an Ordinance was passed bv the Preside!~! (Ordinance :-.lo. I of Hl5!i) and a Custo' dian appointed thereunder had already taken over

I, for

1963

National

lnsur4nc1

Co., Ltd. v. Life Insurance Co1· poration of India

lfidayatuYah /,

-

-

2S.C.R.

SUPREME COURT REPORTS

185

such business of the

insurers management of as was to vest later in the Corporation as the "Con trolled business". Under sub-s. (2) of S. 7 the as sets of the controlled business included all rights and powers and all property, whether movable or im · movable, including in particular cash balances, re serve funds, investments, deposits and all interests and rights in and arising out of such properties as may be in the possession of the insurer and all books of accounts and documents relating to the controlled business o! the imurer. Similarly, liabilities were deemed to include all debts, liabilities and obliga tions of whatever kind then existing and apper taining to the controlled business of the insurer. An Explanation to S. 7 reads :

"assets "Explanation.--The appertaining to the controlled business of an insurer"-

expression

(a)

the

insurer or

in relation to a composite insnrer, includes that part of the paid-up capital of representing such part which has or have been allocat ed ta. the controlled business of the insurer in accordance with the rules made in this behalf:

assets

x

x

x

x"

The express10n "Composite insurer" was defined to mean:

"An insurer carrying on in addition to con trolled business any other kind of insurance business."

"Controlled business", in so far as relevant to our

purpose, was defined as follows :- ~ ,, '"' (")

"controlled business" means-

(i)

in the case of any insurer speci (ii) or fied

in sub-clause (a)

1953

}.'oJiD,,ol buuran .. ·-: Co .• Ltd. v. I.if, /11JtJra11ce CM· porafio1f ef lntiia

/Mo.Jalu/lah J.

l86 SUPREME COURT REPORTS [1964)VOL.

sub·clausc (b) or clause {9) of sec tion 2 of the Insurance Act and carrying on life insurance busi ness-

(a) all his business, if he carries on no other class of insurance business;

(b) all the business appertaining to his life insurance business, if he carries on any other class of insurance business also;

x

x

x

x

x

Explanation.-An insurer is said to carry on no class of insurance business other than life insurance business, if, in addition to life insurance business, he carries on only capital redemption business or annuity certain business or both; and the expression "business apper taining to his life insurance b11siness" in sub. clauses (i) and (ii) shall be construed accor· dingly;

x

x

x

x"

The appellant Company was admittedly a composite insurer because it carried on general insurance business in addition to the businesses which fell within the definition of "controlled business". Admittedly also the Company carried on both capital redemption business and annuity certain busine>S which it called compendiously ~n its books, Capital Obligation Business. On the appointed day the "controlled business" of the Company vested by opera· tion of law in the Corporation together with all assets and liabilities appertaining to that business. The Company contends that on a proper interpretation

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2 s.c.k. sbiikEME cot.JR.T REP6kts

is~

of the above· provisions particularly the explana tion to the definition of "controlled business", the Capital Obligation Business of the Company, which included capital redemption business and annuity certain business, did not vest in the Corporation. The Corporation on the other hand claims that this business also vested in the Corporation and hence the dispute which was referred to the Tribunal. The Tribunal decided in favour of the Corporation and the Company has filed this appeal with the special leave of this Court.

1963

.\'"a.tirm.a.l Jns1J.r.11t1.c.e Co., Ltd. v. Life lnsuranc.e C'?t, flHalion of I'lf.ditJ.

Hid•yatuil.h J.

the

that where an

to Mr. Pathak is life business and capital

Mr. G. S. Pathak argues that the words "only" and ''accordingly" in the said explanation must recei ve their proper meaning. According to him the word "only" indicates that the capital redemption business and the annuity certain business or both vest as part of the controlled business if and only if no other kind of insurance business is carried on by the force insurer. According insurer of the word "only" carries on redemption business and or annuity certain business but no other kind of business then the controlled business can be said to include in addition to life business the capital redemption business or annuity certain busi ness or both; but where an insurer carries on life business and general business like fire or marine insurance etc. the capital redemption business or the annuity certain business, or both, (as the case may be) cannot be included in the controlled business. He further contends that the expression "business appertaining to his life insurance business" in sub clauses (i) and (ii) of the definition of "controlled business" must also be given this meaning. In our opinion this argument cannot be accepted.

The definition of "controlled business" contem plates two kinds of insurers-(i) insurers who carry on life business only, and (ii) insurers who carry on

1963

National [,uu,•nrt Co., 1.td. •• Lif1 /nsuranct·Cor· p.ratkm of lnrlia

Jlidayatullah /,

-

188

SUPREME COURT REPORTS [1964] VOL.

composite business, that is to say certain other busi ness which docs not ex facie come within controlled business. Under sub-clause (a) of s. 2 (3) (i) cont rolled business covers the entire life business of an insurer if he carries on no other class of insurance business and undn sub-clause (b) all the business appertaining to his life insurance business is included if he is a composite insurer. The controlled business in either case is intended to embrace aII the business concerning life insurance. , In the first case it means the whole of the business of the insurer and in the second case the part which comes within the life business but no other. The explanation, that is annexed to the definition, then shows what comes within life business and th~ explanation is designed to serve the purposes of (a) and (b) to sub-clause (i) of the definition. The explanation first seeks to ex plain who can be said to carry on "no class of insu rance business other than life insurance business" and says that such would be an insurer who in addition to life business carries on only capital redemption business or annuity certain business or both. The word "only" shows that with the life business go the two named businesses but no other. An insurer who carries on life business and in addition only the one or the other of the two named businesses or both is to be regarded still as one carrying on no business other than life insurance business. The explanation next says that the expression "business appertaining to his life insurance business" which occurs in (b) should be construed "accorrlingly". The word "accordingly" clearly means "in a similar manner".

We are concerned here with a composite insurer and sub-clause (b) says that the "controlled business" in such a case would include all business which apper tains to life insura11ce business but no other business and the explanation says that the expression "business appertaining insurance business" should be construed as in the first part of the explanation.

life

to

1963

NtJtional lnsur1111c.e Go., Ltd. v. Lif~ Insurance Cor· poration of lnJia

Hii•yatulloh J,

2 S.C.R.

SUPREME COURT REPORTS

'

.

,.

'

,.

"

189

Indeed

that included in the life

insurance This means b•1siness of a composite insurer are those businesses which go with the life business in the first part of the explanation, that is to say, capital redemption business and annuity certain business or both. Both the grammar and the sense of the matter lead to the same result. the argument of the learned counsel to be valid must shift the word "only" from the place it occupies to the end of the first part of the explanation so as to control the entire sentence and not only a part of it. This cannot be done. In our opinion, the capital· redemption business and the annuity certain business must be included in the expression "controlled business" even in the case of a composite insurer like the appellant Company. The first part of the contention of the Company therefore fails.

The dispute with regard to the assets of the (which term includes Capital Obligation Business both the capital redemption business and the annuity certain business) arises in the following circums· tances. The Company maintained a fund called the "Capital Obligation Fund" which amounted to Rs. 12,80 ,882-8·9 on August 31, 1956. On the establishment of the Corporation the Company made over to the Corporation all the policies relat ing to this Fund and the liability relating to these policies as they stood on December 31, 1955, was Rs. 12,88, 727. The Company was, therefore, asked to hand over either cash or investments of an equal value.

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On

the eve of the transfer of assets,

the Company made changes in its investments relative to the life business and general business. These in· vestments approved investments under s. 27 A of the Insurance Act and others. What the Company did was to transfer certain unapproved

included

1963

N•tiimal buM{O'l't Co., ltJ. •• Lift btsut•rr.:e C,or por,ziow. of India

fnd•)atullah J,

•

190 SUPREME COURT REPORTS (1964] VOL.

to

the Company

investments at their book value to its Capital Obli gation Business and made them over to the Cor poration. The Corporation declined receive them. 1t asked to give stocks and shares of the appropriat<" market value or allow the to select stocks and shares from the Corporation investments. The Company contended the Corporation was not entitled to "pick and choose" investments. The Company had the various from already transfrrred all investments from the life and the Capital Obligation Fund to the general business leaving investments (which were not approved) of the book value sufficient to cover Rs. I 2,Si,0(~) odd which represented the Capital Obligation Business. These investments were rated at half their book value by the Corporation.

the _gilt-cdEjed

that

The Tribunal reversed the entries i11 respect It is of the investments relating to sundry fonds. contrndcd that the Tribunal reversed only a few of the book entries which had been made on the eve of vesting but not all and did not restore the .•tatus quo It is also cuntende.d existing on December :H, I!J55. that the Corporation should not be allowed to pick and choose from the investments. The point about "picking and choosing'' and that about reversing the entries lose all force in view of the fact that before the Tribunal the Company conceded that the Corporation may pick any investments of the·value of Rs. 12,80,890 which represented the Capital Obli gation Business. the points now ~ough~ to be pressed ca~not ar~se .. T~ere It fails and 1s <l1sm1ssecl is no force with coses.

In view of this concession

tlus appeal.

111