Full Judgment Text
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PETITIONER:
THE GENERAL ASSURANCE SOCIETY LTD.
Vs.
RESPONDENT:
THE LIFE INSURANCE CORPORATION OF INDIA
DATE OF JUDGMENT:
18/10/1963
BENCH:
SUBBARAO, K.
BENCH:
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
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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 toto. 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
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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
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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.
JUDGMENT:
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
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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 toto. 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
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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.
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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 res-pondent 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
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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."
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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 therefrom.
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
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to confine its dispute only to that part not accepted,
unless the party offering the composite offer agrees to that
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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
-------------------------------------------
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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
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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.
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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
sion 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
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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
speciality 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
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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.
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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
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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
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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
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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,
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as the case may be, between the controlled
business of the insurer and any other
business;
(c) for the apportionment and the making of
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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
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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 thereunder. 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.
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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
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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.
(1) [1964] 2 S.C.R. 182
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