Case: Damji Valji Shah And Another Vs. Life Insurance Corporation Of India &amp; Ors

effective particulars of every policy under which there is a liability either actual or contingent have been furnished to the actuary for the purpose of investigation.29. Section 15 requires the submission of the aforesaid abstract to the Controller within the specified period. Part II of the Fourth Schedule requires that every extract prepared in accordance with the requirements of that part of the Schedule will have the statement of a consolidated revenue account in Form G. a summary and valuation in Form H, a valuation balance sheet in Form 1 and a statement in Form DDD as set forth in Part II of the Third Schedule annexed to it. The valuation balance sheet in Form I requires the noting of a surplus, if any, of the balance of the life insurance fund as compared to the net liability in the business as shown in the summary and valuation of policies. It is the surplus noted in this Form I which is really the valuation surplus. It was not out of such surplus that the company resolved that the advance of Rs.1,10,000 and Rs.32,000 could be paid to the General Department by the Life Department. No such actuarial valuation was made by the actuary prior to the transfer of Rs.82,000 to the General Fund by the resolution, dated January 6, 1956.30. Reliance in this connection is placed on behalf of the appellants on the letter of the actuary, dated July 25, 1955. The actuary states."On the above basis the valuation shows a policy liability of Rs.20,20,421. The Life Insurancer Fund is Rs.21,32,455. Thus there is surplus of Rs.1,12,033. The surplus includes Rs.53,300 being the amount of appreciation on investments taken into account by you in the past two years.Thus the net working surplus is Rs. 58,733.The post of Bonus at the rate of Rs. 10 per thousand is approximately Rs. 18,000.Thus the surplus is sufficient to enable a bonus declaration at the above rate even after excluding the appreciation amount or setting it apart as an additional reserve for future use.Conclusion: The result is satisfactory. Continuing the same method of working as you have followed the statutory valuation as on 31st December, 55 will surely enable you to declare a higher bonus".Firstly, it does not appear that the actuary had really conducted an investigation and submitted the valuation report as required by S. 13 of the Insurance Act. There is nothing on the record to show that any abstract in Form I, Fourth Schedule was prepared and submitted to the Controller. Further, the letter shows that the net working surplus was only Rs. 58,733 as the ostensible surplus of Rs.1,12,033 included Rs.53,300 by which certain investments of the company had appreciated in that period. When the net working surplus was much less than Rs. 82,000 which were transferred from the Life Department to the General Department, the transfer of Rs.82,000 cannot be said to have been in accordance with the terms on which the alleged loan was made to the Life Department from the General Department. When the Life Department had not Rs.82,000 with itself, there could not have been any necessity to pay that amount to the General Department. In fact, the alleged loan could be paid only when there would have been a valuation surplus in the accounts of the Life Department but this does not mean that the Life Department was bound to pay back the amount the moment it had any valuation surplus. its liability to pay the alleged loan could arise only when there was a valuation surplus. Its paying the amount actually would depend upon the circumstances prevailing at the time.31. In the circumstances, we cannot resist the conclusion that the Directors passed a resolution for the transfer of this amount on January 6, 1956 in anticipation of some law depriving the company of its life insurance business. It may be that it was a close secret that an Ordinance would be issued on January 19. But all the same, possibly persons in the insurance world could have had an inkling of the trend of events.32. The content of the resolution passed on January 6, indicates that the directors had no clear idea at the time as to how much the Life Department, according to them owed to the General Department. The resolution speaks not only of the transfer of Rs. 82,000 to the General Department but also refers to the balance of Rs.60,000 due to the General Department by the Life Department Revenue Account. The amount had been written off in 1950 and could not have thereafter been considered to be a loan advanced to the Life Department Revenue Account from the General Department. It seems that the resolution was passed in some hurry and the Directors could not definitely decide as to how any further amount upto Rs.60,000 could be taken back to the General Department from the Life Department Revenue Account. Any way, such a resolution of the Directors indicates that any entries with respect to the alleged loans were made for the purpose of accounting and the necessities of the business. Money in the Life Fund had to be augmented in 1948 and 1952 in order to make the Life Fund exceed the net liabilities of the Company on account of the life insurance policies.33. We are, however, of opinion that the Tribunal took a correct view about the nature of the transfer of Rs. 1,10,000 in 1948 and Rs. 32,000 in 1952 to the Life Insurance Fund and rightly held that the transfer of Rs. 82,000 to the General Department by resolution dated January 6, 1956, was not in accordance with the provisions of the Insurance Act and that consequently that amount continued to form part of the assets of the life insurance business of the company upto September 1, 1956 and that as such vested in the Corporation which could recover it from the company and the directors responsible for the transfer of the amount in the General Department.

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

Explanation:
0[ds]22. We are, therefore, of opinion that the Tribunal had jurisdiction to continue the proceedings after November 9, 1959 when the company was ordered to be wound up and that the provisions of S. 446. Companies Act, or S. 11 (a), L. I. C. Act, do not in any way affect its jurisdiction to continue the proceedings.23. We now come to the third point raised for the appellants. We agree with the Tribunal that the amount of Rs. 1,10,000 and Rs. 32,000 were not lent to the Life Department as such by the General Department. No question of lending money by one department of the company to the other can be ordinarily contemplated. The assets of the company really constitute one entity, even though the company maintains separate accounts with respect to its various insurance businesses. It carried on other types of insurance business also. We have already shown how the provisions of the Insurance Act require the company to keep a separate account for the insurance business and to have a separate fund known as the Life Insurance Fund and to which were to be credited all receipts due in respect of the life business and the amount deposited by the insurer in respect of life insurance business. Such a deposit is to be made in view of S. 7 (1) of the Insurance Act. This requires the insurer to deposit and keep deposited with the Reserve Bank of India for and on behalf of the Central Government either in each or in approved securities or partly in cash and partly in approved securities the sums specified in the various clauses in regard to the different types of life insurance businesses. Clause (a) requires a deposit of Rs.2,00,000 where the business done or to be done is life insurance only. Clause (e) requires a deposit of Rs.3,00,000 where the business done or to be done is life insurance and any one of the three-classes of business mentioned in Cls. (b) to (d). Clause (e) further provides that out of the deposit o Rs.3,00,000, Rs.2,00,000 shall be the deposit for life insurance business. Section 7 lays down a statutory amount which the insurer has to deposit. It does not, however, restrict the insurer to deposit a larger amount in respect of life insurance business. Section 8 (1) places certain restrictions about the use to be made of the deposits under S. 7. Section 8 (2), however, deals with any deposit and provides that where a deposit is made in respect of life insurance business, the deposit made in respect thereof shall not be available for the discharge of any liability of the insurer other than liabilities arising out of policies of life insurance issued by the insurer. This means that when an insurer puts certain money in the funds pertaining to the life insurance business and especially to a life insurance fund, such an amount can be used only for the discharge of liabilities of the insurer arising out of life insurance policies issued by him.In the circumstances, we cannot resist the conclusion that the Directors passed a resolution for the transfer of this amount on January 6, 1956 in anticipation of some law depriving the company of its life insurance business. It may be that it was a close secret that an Ordinance would be issued on January 19. But all the same, possibly persons in the insurance world could have had an inkling of the trend of events.32. The content of the resolution passed on January 6, indicates that the directors had no clear idea at the time as to how much the Life Department, according to them owed to the General Department. The resolution speaks not only of the transfer of Rs. 82,000 to the General Department but also refers to the balance of Rs.60,000 due to the General Department by the Life Department Revenue Account. The amount had been written off in 1950 and could not have thereafter been considered to be a loan advanced to the Life Department Revenue Account from the General Department. It seems that the resolution was passed in some hurry and the Directors could not definitely decide as to how any further amount upto Rs.60,000 could be taken back to the General Department from the Life Department Revenue Account. Any way, such a resolution of the Directors indicates that any entries with respect to the alleged loans were made for the purpose of accounting and the necessities of the business. Money in the Life Fund had to be augmented in 1948 and 1952 in order to make the Life Fund exceed the net liabilities of the Company on account of the life insurance policies.33. We are, however, of opinion that the Tribunal took a correct view about the nature of the transfer of Rs. 1,10,000 in 1948 and Rs. 32,000 in 1952 to the Life Insurance Fund and rightly held that the transfer of Rs. 82,000 to the General Department by resolution dated January 6, 1956, was not in accordance with the provisions of the Insurance Act and that consequently that amount continued to form part of the assets of the life insurance business of the company upto September 1, 1956 and that as such vested in the Corporation which could recover it from the company and the directors responsible for the transfer of the amount in the Generalcontention was not raised before the Tribunal during the arguments and was therefore considered by it to have been abandoned. We did not therefore allow it to be raised before us.The word insurer is defined in Cl. (6) of S. 2 of the L.I.C. Act and means an insurer as defined in the Insurance Act who carries on life insurance business in India and includes the Government and a provident society as defined in S. 65 of the Insurance Act. On November 9, 1959, when the company was ordered to be wound up it was not an insurer within the meaning of the definition as the company did not carry on life insurance business in India on that date. Its life insurance business had been taken over by the Corporation on the appointed day and it ceased to carry on that business thereafter. It follows, therefore, that the company was not an insurer on November 9, 1959 and cannot take advantage of the provisions of Cl. (a) of S. 44 of the L. I. C.it does not appear that the actuary had really conducted an investigation and submitted the valuation report as required by S. 13 of the Insurance Act. There is nothing on the record to show that any abstract in Form I, Fourth Schedule was prepared and submitted to the Controller. Further, the letter shows that the net working surplus was only Rs. 58,733 as the ostensible surplus of Rs.1,12,033 included Rs.53,300 by which certain investments of the company had appreciated in that period. When the net working surplus was much less than Rs. 82,000 which were transferred from the Life Department to the General Department, the transfer of Rs.82,000 cannot be said to have been in accordance with the terms on which the alleged loan was made to the Life Department from the General Department. When the Life Department had not Rs.82,000 with itself, there could not have been any necessity to pay that amount to the General Department. In fact, the alleged loan could be paid only when there would have been a valuation surplus in the accounts of the Life Department but this does not mean that the Life Department was bound to pay back the amount the moment it had any valuation surplus. its liability to pay the alleged loan could arise only when there was a valuation surplus. Its paying the amount actually would depend upon the circumstances prevailing at the time.