Case: Life Insurance Corporation Of India Vs. S. V. Oak And Another

It is wrong to contend that as the Insurance Company had no surplus in its hand on September 1, 1956, its contingent liabilities ceased to exist on that date. The contracts subsisted as long as the Insurance Company worked but the payments were postponed till the condition about actuarial surplus was fulfilled. That it was a contingent liability on September 1, 1956 did not make it anytheless a liability of the Insurance Company on the date of vesting. Under S.9 of the Life Insurance Corporation Act this liability became the liability of the Life Insurance Corporation and under the clear terms of that section this liability was to be of full force and effect unless there was some express provision in the Life Insurance Corporation Act which negatived it. Sections 14, 15 and 36 of the Life Insurance Corporation Act illustrate express provisions which have been made in relation to certain contracts contemplated under S.9. No similar provision was brought to our notice relative to the present purpose and none exists. The contracts were, therefore, binding upon the Corporation as on the Insurance Company and, in fact, as if the Corporation itself had undertaken the liability. The contracts being thus enforceable, the money had to be paid provided there was an actuarial surplus. Since the business of the Insurance Company merged in that of the Corporation no separate valuation of its business was done. The Corporation as a person substituted, did business, and had actuarial surplus and the amounts were thus payable from that actuarial surplus.10. The argument that S. 28 precluded the discharge of this liability and must be regarded either expressly or impliedly to bar recovery may now be considered. In fact, that was the only argument which was pressed upon us on behalf of the Corporation by Mr. Setalvad. Section 26 of the Life Insurance Corporation Act provides as follows:"26. Actuarial valuations.The Corporation shall, once at least in every two years, cause an investigation to be made by actuaries into the financial condition of the business of the Corporation, including a valuation of the liabilities of the Corporation, and submit the report of the actuaries to the Central Government."11. Section 28 then lays down the following method of the utilization of the surplus :"28. Surplus how to be utilised.If as a result of any investigation undertaken by the Corporation under Section 26 any surplus emerges, not less than 95 per cent of such surplus shall be allocated to or reserved for the policy holders of the Corporation and the remainder may be utilised for such purposes and in such manner as the Central Government may determine."12. It was contended by Mr. Setalvad that the word "surplus" here has the same meaning as the surplus in S. 26 and the High Court was in error in giving it an extended meaning. We accept this argument. The word "surplus here has the technical meaning which arises from the Insurance Act which is made applicable for purposes of valuation by S.43 of the Life Insurance Corporation Act read with Notification No. GSR 734 dated August 23, 1958. That meaning is also apparent from S. 26 of the Life Insurance Corporation Act quoted above. Indeed, the two sections are intimately connected.13. Under S. 28 the surplus which results from an actuarial investigation is to be disposed of by allocating not less than 95% of the surplus for the policy-holders of the Corporation. The Corporation has its own fund to which all receipts must be credited and from which all payments must be made (S. 24). 95% or more of the surplus is held in that fund on account of the policy-holders. The balance of the surplus, the section says, "may" be utilised for such purposes and in such manner as the Central Government "may" determine. We were told at the hearing that there is no special direction or the Central Government disposing of the entire balance. If this is the case the surplus would be available for payment of deposits contingent upon there being surplus. We were, however, told that the Life Insurance Corporation hands over its balance to the Central Government. The learned Solicitor General pointed out that under the Act this could not be done and we entirely agree with him. Even if handed over the money would still continue to belong to the Corporation. The Government while making directions is expected to have regard to the liabilities of the Corporation under S. 9 of the Act. The learned Solicitor General naturally apprehended that if Government made orders for utilising the entire amount leaving no balance for meeting the obligations under S. 9 of the Act, S. 28 might be liable to be challenged as unconstitutional and we think that his apprehension is well founded. That question cannot, however, arise because we agree with him that there is nothing peremptory in the latter part of S. 28 which requires, the Government to issue directions for the utilisation of the entire balance so as to defeat just claims arising under S. 9 of the Act. Indeed, S. 9 is so compulsive in its wording that S. 28 which is discretionary, at least so far as the Central Government is concerned, may be taken to be controlled by the former. The two sections must be read harmoniously and it could not have been intended that S. 28 was to be used to negative what S. 9 provided so explicitly. We think that on this harmonious constructions we must hold that S. 28 does not put any bar in the way of the Corporation in the fulfilment of its obligations arising under S.9. To this interpretation we readily incline because, as pointed out above, to hold otherwise would render S. 28 in its latter part ultra vires the Constitution as it would amount to taking away by a side wind property of other persons. On the whole, therefore, we agree with the conclusions of the High Court though for very different reasons.

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

Explanation:
0[ds]9. Under the Insurance Act an actuarial valuation of the business of an insurance company doing life business had to be undertaken at stated intervals and the result of the actuarial investigation had to be incorporated in a number of Forms (A to I) in accordance with the regulations set down in the first four Schedules. Form A was Balance Sheet of the companys business. It showed the assets and liabilities of the company in India. Form B showed the Account of Profit and Loss. Form D then incorporated the results of the working of the Insurance Company over the investigation period taking into account the results of the Balance Sheet and the Profit and Loss account and setting out the balance of the Insurance Fund at the end of the investigation period. This Fund was the cover for the insurance liability under the policies worked out actuarially. This Fund was to be held in approved securities, a list of which had to be maintained in Form AA. The value of these securities represented the State of the Fund. A consolidated Revenue Account was drawn up in Form G in which all the items of the working of a company figured and the Life Insurance Fund was finally determined. Form H was a summary of the actuarial valuation of all the policies and the net liability arising under them. These two items, namely, the net liability under business as shown in the summary of valuation of policies and the balance of Life Insurance Fund as shown in the Balance Sheet were then compared in Form I to find out whether there was a surplus available or not. It is from this actuarial surplus that the payments for the deposits were to be made. This position is admitted on all hands. It is wrong to contend that as the Insurance Company had no surplus in its hand on September 1, 1956, its contingent liabilities ceased to exist on that date. The contracts subsisted as long as the Insurance Company worked but the payments were postponed till the condition about actuarial surplus was fulfilled. That it was a contingent liability on September 1, 1956 did not make it anytheless a liability of the Insurance Company on the date of vesting. Under S.9 of the Life Insurance Corporation Act this liability became the liability of the Life Insurance Corporation and under the clear terms of that section this liability was to be of full force and effect unless there was some express provision in the Life Insurance Corporation Act which negatived it. Sections 14, 15 and 36 of the Life Insurance Corporation Act illustrate express provisions which have been made in relation to certain contracts contemplated under S.9. No similar provision was brought to our notice relative to the present purpose and none exists. The contracts were, therefore, binding upon the Corporation as on the Insurance Company and, in fact, as if the Corporation itself had undertaken the liability. The contracts being thus enforceable, the money had to be paid provided there was an actuarial surplus. Since the business of the Insurance Company merged in that of the Corporation no separate valuation of its business was done. The Corporation as a person substituted, did business, and had actuarial surplus and the amounts were thus payable from that actuarialaccept this argument. The word "surplus here has the technical meaning which arises from the Insurance Act which is made applicable for purposes of valuation by S.43 of the Life Insurance Corporation Act read with Notification No. GSR 734 dated August 23, 1958. That meaning is also apparent from S. 26 of the Life Insurance Corporation Act quoted above. Indeed, the two sections are intimately connected.Under S. 28 the surplus which results from an actuarial investigation is to be disposed of by allocating not less than 95% of the surplus for the policy-holders of the Corporation. The Corporation has its own fund to which all receipts must be credited and from which all payments must be made (S. 24). 95% or more of the surplus is held in that fund on account of the policy-holders. The balance of the surplus, the section says, "may" be utilised for such purposes and in such manner as the Central Government "may" determine. We were told at the hearing that there is no special direction or the Central Government disposing of the entire balance. If this is the case the surplus would be available for payment of deposits contingent upon there being surplus. We were, however, told that the Life Insurance Corporation hands over its balance to the Central Government. The learned Solicitor General pointed out that under the Act this could not be done and we entirely agree with him. Even if handed over the money would still continue to belong to the Corporation. The Government while making directions is expected to have regard to the liabilities of the Corporation under S. 9 of the Act. The learned Solicitor General naturally apprehended that if Government made orders for utilising the entire amount leaving no balance for meeting the obligations under S. 9 of the Act, S. 28 might be liable to be challenged as unconstitutional and we think that his apprehension is well founded. That question cannot, however, arise because we agree with him that there is nothing peremptory in the latter part of S. 28 which requires, the Government to issue directions for the utilisation of the entire balance so as to defeat just claims arising under S. 9 of the Act. Indeed, S. 9 is so compulsive in its wording that S. 28 which is discretionary, at least so far as the Central Government is concerned, may be taken to be controlled by the former. The two sections must be read harmoniously and it could not have been intended that S. 28 was to be used to negative what S. 9 provided so explicitly. We think that on this harmonious constructions we must hold that S. 28 does not put any bar in the way of the Corporation in the fulfilment of its obligations arising under S.9. To this interpretation we readily incline because, as pointed out above, to hold otherwise would render S. 28 in its latter part ultra vires the Constitution as it would amount to taking away by a side wind property of other persons. On the whole, therefore, we agree with the conclusions of the High Court though for very different reasons.