Full Judgment Text
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PETITIONER:
LIFE INSURANCE CORPORATION OF INDIA
Vs.
RESPONDENT:
CROWN LIFE INSURANCE CO.
DATE OF JUDGMENT:
26/03/1965
BENCH:
WANCHOO, K.N.
BENCH:
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
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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
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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].
JUDGMENT:
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
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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 for-
ward 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 de-
pends 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
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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 policy-
holders 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,
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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 policy-
holders 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
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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 sub-
section (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
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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 Sub-
s. (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
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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 sub-
section 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
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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 policy-
holders. 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
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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
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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 therefrom 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
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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.
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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.
488