Case: Life Insurance Corporation Of India Vs. Crown Life Insurance Co

1. 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. 1,11,466. 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 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.      2. 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 I 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 that is responsible for the large difference in the amount claimed by the respondent and offered by the appellant.      3. The Insurance Tribunal has accepted the contention put forward 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.

Reasoning: 13. 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 92 1/2 per cent of the surous in form I shill be kept for the policy-holders. Where therefore there is surplus in form 1, 92 1/2 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 clause (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), 92 1/2 per centum of the surplus in form I was meant for the policy-holders so in the case of transfer, 96 per centum of 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 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)14. But apart from this rational 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 II of the Fourth Schedule to the Insurance Act in 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 I 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 I of the Fourth Schedule to the Insurance Act or who if they had any surplus in that form had made no allocation to policyholders. 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 I 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 o the appellant. The word "surplus" in cl.(d) cannot have a meaning different from what is 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 wards "life it insurance fund" in cl. (d) shows that they have the same meaning in that clause as in form I of the Fourth Schedule to the Insurance Act15. 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 of the Fourth Schedule to the 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 of Part B of the First Schedule to the Act and deduct there from 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 the Life Insurance Corporation. It is obvious from these provisions that where the legislature intend 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 different between the total assets and liabilities apart from liabilities towards policies yet to mature16. 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 S. 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 his 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 compensation in one sum or comes to him as 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 not17. We have already said that cl.(d) provides for past surplus in form I, 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 polities with the result that the liability which the insurer whose business is being taken over has to bear with respect to with profit 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 provisions for the future in respect of profit policies is to be found in cl. (b). The appellant therefore cannot be claim to anything under cl. (d) unless there were surplus in the past in form I 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 Act18. 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 I 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 I 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 per cent, 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. 11 and form D of the Third Schedule to the Insurance Act. In this view of the matter, the appeal must fail.