Case: The General Assurance Society Ltd Vs. The Life Insurance Corporation Of India

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 in accurate 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-sec. (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. 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-sec. (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 it and 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 as 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.22. Mr. Setalvad argued that fort he 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.23. 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 corresponding to the liability undertaking to reimburse the respondent for any claim of the share-holders 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 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 his indulgence at this very late stage of the matter.24. The last point relates to the payment of interest. Both the parties agreed that in view of the decision of this Court in AIR 1963 SC 1171 the appellant will be entitled to interest at 4 per cent on the sum of Rs. 4,52,000/- from May 24 1957, to the date of payment.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 respondents. 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/- have 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 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 papers to the Tribunal. On August 22, 1957, the appellant received a notice from the Tribunal. The preamble to that noticeyou have not accepted the amount determined by the Corporation and offered in full settlement of the compensation payable 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 theclearly 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 of 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 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. 18 of the Rules made under the Act.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, issue 8.9. 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 theIt 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 share holders. 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.13. What happened before the Tribunal is this: the appellant in annexure C to the Statement of 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 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.14.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 thecombined reading of clauses (iv)and (vi) of Rule 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, in the material clauses of the rule only recognize the pre-existing principles inherent in the relevant dispute under the provisions of thedecision 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 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 a particular amount 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 themay 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-sec. (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 thisprovisions 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 as 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 beit 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 thethe Tribunal the appellant did not ask for apportionment of the dividends but wanted a transfer of the entire liability to it with the assets corresponding to the liability undertaking to reimburse the respondent for any claim of the share-holders 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 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 his indulgence at this very late stage of the matter.24. The last point relates to the payment of interest. Both the parties agreed that in view of the decision of this Court in AIR 1963 SC 1171   the appellant will be entitled to interest at 4 per cent on the sum of Rs. 4,52,000/- from May 24 1957, to the date of payment.