Full Judgment Text
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PETITIONER:
THE TROPICAL INSURANCE CO. LTD. & OTHERS
Vs.
RESPONDENT:
THE UNION OF INDIA & ANOTHER(and connected petition.)
DATE OF JUDGMENT:
22/09/1955
BENCH:
IMAM, SYED JAFFER
BENCH:
IMAM, SYED JAFFER
AIYAR, N. CHANDRASEKHARA
DAS, SUDHI RANJAN
BHAGWATI, NATWARLAL H.
AIYYAR, T.L. VENKATARAMA
CITATION:
1955 AIR 789 1955 SCR (5) 517
ACT:
Insurance-Insurer doing life insurance business along
with general insurance business-Power of Central Government
to appoint Administrator-Such power, if confined exclusively
to life insurance business-Grounds not taken in petition
under Art. 32, if can be urged at the hearing-Insurance Act
(IV of 1938), s. 52-A-Constitution of India, Art. 32.
518
HEADNOTE:
The petitioners, two Insurance Companies, carrying on
business both in life insurance and general insurance,
questioned the validity of notifications issued against them
under s. 52-A of the Insurance Act for appointment of
Administrators to take over management of their affairs on
the ground, inter alia, that s. 52-A was exclusively
restricted to life insurance business and the Government had
no power to take oyer management of general insurance busi-
ness.
Held, that the Insurance Act of 1938 no doubt makes a
distinction between life insurance business and general
insurance business, but its main concern is to protect life
insurance policy-holders. Although s. 52-A of the Act has
no application to an insurer who carries on business in
general insurance alone, it undoubtedly applies to an
insurer who combines both and gives the Central Government
the power, on the report of the Controller, to appoint an
Administrator to take over the management of the entire
business of the insurer including general insurance business
when such insurer is found to act in a manner prejudicial to
the interests of the life policy-holders.
That grounds not specifically taken in petitions under Art.
32 cannot be urged at the time of the hearing.
JUDGMENT:
ORIGINAL JURISDICTION: Petitions Nos. 186 & 195 of 1954.
Under Article 32 of the Constitution of India for the
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enforcement of Fundamental Rights.
S.C. Isaacs, (Mohan Behari Lal and P. K. Ghosh, with him)
for the petitioners in both petitions.
M. C. Setalvad, Attorney-General of India (Porus
A.Mehta and P. G. Gokhale, with him) for the respondents.
1955. September 22. The Judgment of the Court was
delivered by
IMAM J.-These petitions under article 32 of the Constitution
of India question the validity of the notifications issued
under section 52-A of the Insurance Act of 1938 (hereinafter
referred to as the Act) and the appointment of an
Administrator. In the case of the Tropical Insurance
Company Ltd. an Administrator was appointed, under
notification dated the 14th of July, 1951 and in the case of
the Jupiter General Insurance Company Ltd. another
Administrator was appointed under notification dated the
10th of July,
519
1951. These two insurance companies do insurance business
of life insurance and general insurance. Admittedly
previous to the appointment of the Administrators the
Controller issued notices under section 52-A to the
petitioners and the Finance Ministry of the Central
Government sent letters to them pointing out the allegations
in the report of the Controller to which they replied.
The learned Counsel for the petitioners has candidly
stated that he could not raise any constitutional point
after the fourth amendment to the Constitution of India. He
assumed; therefore, that the provisions of sections 52-A to
52-G of the Act were constitutional but he urged that the
notifications under section 52-A and the taking over of the
management of the affairs of the companies were invalid
inasmuch as they were in excess of the powers conferred by
section 52-A of the Act and that the notifications
appointing the Administrators do not fix the period of
management as required by law. He further urged that the
provisions of the section 52-B of the Act had not been
complied with and in consequence the management by the
Administrator had been excessively prolonged and thus had
become unlawful. There has, therefore, been a violation of
the fundamental rights of the petitioners. Finally it was
urged that there was no authority either under the
provisions of the Act or of any other law by which the
Government was empowered to take over management of the
affairs of the company with respect to its general insurance
business. The power of the Government under section 52-A
was restricted exclusively to life insurance business.
As to the first two contentions, they were urged in
Petitions Nos. 94 of 1954 and 183 of 1954, but were not
allowed to be put forward by this Court as these questions
had not been specifically raised in the petitions under
article 32 of the Constitution and they were accordingly
dismissed. The position is similar in this respect so far
as the present applications are concerned and consequently
it must be held that the petitioners cannot be allowed now
to urge grounds which they had not taken in their petitions.
66
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There remains, however, to consider the last contention
urged on behalf of the petitioners. It was pointed out by
Mr. Isaacs that the petitioners are insurance companies
doing both life insurance business and general insurance
business. He contends that a section 52-A of the Act, on a
true interpretation of its provisions, applies only to the
life insurance business carried on by an insurer and not to
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the general insurance business done by him. The
Administrator appointed under section 52-A of the Act could
therefore take over management only of the life insurance
business done by the insurer. The notifications authorising
him to take over the management of the insurance business of
the insurer including his general insurance business were
thus beyond the powers conferred on Government under section
52-A of the Act and such taking over of the management of
the general insurance business of the petitioners by the
Administrator was, therefore, without lawful authority.
In view of the submission made by the learned Counsel, it
is necessary to set out the relevant provisions of the
section 52-A. Sub-section (1) of that section states:-
"If at any time the Controller has reason to believe that
an insurer carrying on life insurance business is acting in
a manner likely to be prejudicial to the interests of
holders of life insurance policies, he may, after giving
such opportunity to the insurer to be heard as he thinks
fit, make a report thereon to the Central Government".
Sub-section (2) states:-
"The Central Government, if it is of opinion after
considering the report that it is necessary or proper to do
so, may appoint an Administrator to manage the affairs of
the insurer under the direction and control of the
Controller".
Sub-section (4) states:-
"The management of the business of the insurer shall as on
and after the date of appointment of the Administrator vest
in such Administrator, but except with the leave of the
Controller, the Administrator shall not issue any further
policies"
521
Section 52-B of the Act is concerned with the powers and
duties of the Administrator. Under this section, the
Administrator shall conduct the management of the business
of the insurer with the greatest economy’ compatible with
efficiency and shall, as soon as may be possible, file with
the Controller a report stating what specified courses under
the section should be taken which would be most advantageous
to the general interest of the holders of life policies.
One of the courses specified is the winding up of the
business of the insurer. Section 52-D of the Act is
concerned with termination of the appointment of the
Administrator. Section 53 of the Act is concerned with the
winding up by the Court and it enables the Controller to
apply to the Court for winding up of an insurance company on
certain grounds, one of them being that the continuance of
the company would be prejudicial to the interests of the
policy-holders.
Mr. Isaacs urged that the Act made a clear distinction
between life insurance business and general insurance
business of an insurer. He referred to various sections of
the Act with reference to Registration, Separation of
Accounts and Funds and Balance-Sheets. It was also pointed
out by him that the Act defines "general insurance business"
and "life insurance business" and these two kinds of
businesses are quite distinct. There could be little doubt
that the Act does regard "life insurance business" as
something distinct from "general insurance business". It
seems to us, however, that while keeping this distinction in
mind, we have to give to the words used in section 52-A(1)
their ordinary and natural meaning. "Insurer" has been
defined in section 2 of the Act. The definition speaks of
an insurer carrying on an insurance business. This business
may be either a life insurance business or a general
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insurance business or both. Under section 7 of the Act
deposits have to be made by every insurer other than an
insurer specified in sub-clause (c) of clause (9) of section
2. The section specifies the amount of deposit to be made
where the business done is life insurance only. Similarly
it specifies the deposit to be made in the case of business
522
done which comes within the description of general insurance
business only. It also contemplates a combination of life
insurance business and general insurance business and
specifies the deposit to be made in such event. It is clear
that section 52-A(1) does not apply to an insurer doing only
general insurance business. The question for decision is
does it apply to him when he ’also does along with such
business insurance business? Section 52_A(1) speaks of "an
insurer carrying on life insurance business". It does not
speak of "only life insurance business". It is permissible
for an insurer to combine in his insurance business both
life and general insurance business. If he acts in a manner
which is likely to be prejudicial to the interests of the
holders of the life insurance policies with him, he makes
himself amenable to the provisions of the section 52-A of
the Act and the Controller is authorised to make a report to
the Central Government. The Central Government, after con-
sidering the report, may appoint an Administrator to manage
"the affairs" of the insurer and the management of "the
business" of the insurer shall vest in the Administrator.
The words "the affairs" and "the business" of the insurer
are wide enough to empower the Central Government to take
over the management of the entire business of the insurer
including his general insurance business.To hold
otherwise would be to give an unnaturalmeaning to the words
used in section 52-A of the Act.In the present case the
insurers are public limitedcompanies and it is difficult
to conceive that the Act intended to vest in the
Administrator the management of only the life insurance
business while the insurers would be free to manage the
general insurance business, because under section 52-B the
Administrator may suggest to the Controller for the winding
up of the company after managing its insurance business
economically and efficiently. Under section 53 a Court may
order a winding up of an insurance company if on an appli-
cation by the Controller, it is satisfied that the con-
tinuance of the company is prejudicial to the interests of
the policy-holders. The winding up of the com-
523
pany would be concerned with its entire insurance business-
,including life and general insurance business, because
there could be no partial winding up of a company. It is
not difficult to imagine that the affairs of the company
with reference to its general insurance business may be in
such a hopeless state that winding up may be the only course
to be taken to protect the interests of the life policy-
holders. When the provisions of the Act are closely
examined, it will be noticed that its main policy has been
to safeguard the interests of life policy-holders, who are
deeply affected by the manner in which the insurance
business of an insurer is carried on. We have no difficulty
in interpreting section 52-A(1) to mean that where an
insurer is carrying on insurance business of various kinds
which includes life insurance business, he becomes amenable
to the provisions of section 52-A if he is acting in a
manner prejudicial to the interests of the holders of life
policies and he would have to suffer the consequences
following the report made by the Controller and the
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appointment of an Administrator by the Government. The
provisions in the Act making a distinction between life
insurance business and general insurance business, the
keeping of separate accounts and balance-sheets have been
enacted for the safeguard of the holders of life insurance
policies and they provide an over-all picture of the
business done by the insurer showing the exact state of
affairs concerning the life insurance business of the
insurer. These provisions cannot and do not affect the
provisions of of section 52-A of the Act.
These petitions are accordingly dismissed with costs to be
paid by Petitioners 2, 3 and 4 in Petition No. 186 of 1954
and Petitioners 2 and 3 in Petition No. 195 of 1954.
524