Case: National Insurance Co. Ltd,, Calcutta Vs. Life Insurance Corporation Of India

2. The National Insurance Company carried on life insurance business in addition to other insurance business and was what the Life Insurance Corporation Act 1956 (31 of 1956) describes as a "composite insurer". The Life Insurance Corporation Act was passed in 1956 to nationalise the life insurance business of all insurers by transferring all such business to a Corporation established for the purpose. This Corporation is the well-known Life Insurance Corporation. Under the Act a distinction was made between controlled business and other insurance business carried on by Insurance Companies. Controlled business meant life insurance business and on and from a date to be fixed by notification in the Official Gazette called the appointed day all the assets and liabilities appertaining to the controlled business of all insurers were transferred to and vested in the Corporation. This date was September 1, 1956. The National Insurance Company was composite insurer and its life business therefore stood transferred to and vested in the Life Insurance Corporation from the appointed day. Under S. 16 of the Life Insurance Corporation Act, the National Insurance Company was entitled to receive compensation from the Life Insurance Corporation in accordance with the principles contained in the first Schedule to that Act. To these principles we shall make a detailed reference presently. As the National Insurance Company was carrying on a composite business it was necessary to separate the assets appertaining to the controlled business from those appertaining to its other business under S. 10 read with S.7 of the Corporation Act. These assets were defined in an Explanation added to S. 7 (2) as follows :"The expression "assets appertaining to the controlled business of an insurer" -(a) in relation to a composite insurer includes that part of the paid up capital of the insurer or assets representing such part which has or have been allocated to the controlled business of the insurer in accordance with the rules made in this behalf;(b) in relation to a Government, means the amount lying to the credit of that business on the appointed day."3. Sections 7 and 10 (2) conferred on the Central Government special rule-making powers and inter alia for the allocation of the paid-up capital or assets representing such paid-up capital, as the case may be, between the controlled business of the insurer and any other business. In pursuance of these provisions and S. 48 of the Act the Life Insurance Corporation Rules 1956 were framed by the Central Government and Rule 18 provided for allocation of the paid-up capital of a composite insurer. We need not quote Rule 18 providing for the method of allocation of capital of a composite insurer because it was provided there that the paid-up capital allocable to the controlled business shall not, in any case, exceed a sum of Rs. 6,00,000/and the maximum amount applied to the National Insurance Company and was payable by it to the Life Insurance Corporation4. The Life Insurance Corporation determined Rs. 19,39,669/- as compensation for the controlled business vested in the Corporation in accordance with S. 16 read with the First Schedule ofthe Life Insurance Corporation Act,1956.After obtaining the approval of the Central Government, by a letter dated February 14, 1957, sent to the Company, the Corporation pointed out that the National Insurance Company was required to pay Rs. 60,000/- under Rule 18 of the Life Insurance Corporation Rules, 1956, assets appertaining to the controlled business and offered the balance of Rs. 13,39,669/- in full satisfaction of the claim. The National Insurance Company asked for the calculation sheets and they were supplied by the Life Insurance Corporation. The National Insurance Company did not accept the compensation offered to it and requested that the dispute be referred to the Life Insurance Tribunal for decision but asked that the admitted amount might be paid to it without prejudice to the claim of either side. On May 1, 1957, the Life Insurance Corporation replied regretting its inability to pay the admitted amount except in full satisfaction of the claim as required by law. A request for reconsideration of the matter made by the National Insurance Company by a letter dated May 9, 1957, in which a sum of Rs. 27,99,275/was claimed as compensation was turned down by the Life Insurance Corporation and the dispute therefore stood referred to the Tribunal5. In making the reference to the Life Insurance Tribunal the Life Insurance Corporation forwarded the entire correspondence and the calculation sheets together with other documents on which the calculation sheets were based. Before the Tribunal, the Company claimed a sum of Rs. 43,29,470/- as compensation due to it. The Company also gave its calculation sheets. In addition the Company claimed interest at six per cent per annum from the appointed day (September 1, 1956) or at least from the date the compensation wrongly determined was offered to the Company, namely, February, 14, 1957. Earlier, in the letters to which reference has already been made, the National Insurance Company had demurred to the deduction of Rs. 6,00,000/- from the amount of compensation offered to it. Its case before the Tribunal was that under the law, as it stood the Corporation was bound to offer the entire compensation without making a deduction on this account and the claim of the Corporation for the assets appertaining to the controlled business of the Company should be separately enforced6. The difference between the Company and the Corporation in the matter of calculation arose because the parties put different interpretations upon the provisions of the First Schedule to the Life Insurance Corporation Act. That schedule is made under S. 16 ofthe Life Insurance Corporation Act,which reads:"16. (1) Where the controlled business of an insurer has been transferred to and vested in the Corporation under this Act, compensation shall be given by the Corporation to that insurer in accordance with the principles contained in the First Schedule(2) The amount of the compensation to be seven in accordance with the aforesaid principles shall be determined by the Corporation in the first instance, and if the amount so determined is approved by the Central Government it shall be offered to the insurer in full satisfaction of the compensation payable to him under this Act, and if, on the other hand, the amount so offered is not acceptable to the insurer he may within such time as may be prescribed for the purpose have the matter referred to the Tribunal for decision."

Reasoning:
22. Now allocation means the allocation as made in the abstracts.Part A says that the compensation to be given by the Corporation to an insurer having a share capital on which dividend or bonus is payable and who has allocated as bonus to policy-holders the whole or any part of the surplus as disclosed in the abstracts, shall be computed in accordance with the provisions contained in one of the two paragraphs that follow. The words of the Schedule to be emphasised are "has allocated as bonus to policy holders the whole or any part of the surplus as disclosed in the abstracts." The abstracts are nothing but a summary of the investigations over a particular period and the allocation of bonus and dividends must also be for the same period. The abstracts contain no reference to any future period and in fact there are no words in the abstracts which show that the allocation must be for the years that follow. In Paragraph I the words are "the share of the surplus allocated in respect of the relative actuarial investigations". These words refer to the abstracts and the share of the surplus stated therein. Since that share comes out of the profits. which accrue to the Company during the period of investigation the allocation must also be taken to be for the period during which the profits ariseThe argument of the learned Attorney General that the allocation can only be when the amount is known and also when the right accrues to the share-holders because the profits have to be found first is not acceptable to us because life insurance business is carried on with periodic actuarial investigations which show how much profits have been made and that depends on what the existing liability of the Company is in relation to its reserves and other likely income. It is the result of these investigations which entitles policy-holders as well as the share-holders to share in profits whether by way of bonus or dividend but the share is in respect of the years for which the investigations were made. Profit can only be found after the receipts of a particular period have been found and compared with the payments that have been made during the same period and the liabilities existing on the date on which the actuarial investigation is made, are found out, and the reserves which have to be kept to make good these liabilities are ascertained. To connect the profits with a future period is to make the scheme unworkable because insurance business is based upon the actuarial assessments of the position of the company. Nothing much turns upon the use of the singular in share" and "surplus" and it cannot be said that they indicate that the two "shares" and "surpluses" cannot be aggregated. Indeed even after aggregation the words "share" and "surplus" will still continue to be applicable. In our judgment, the Tribunal was right in holding that the surpluses were related to the five years and three years respectively covered by the two actuarial investigations in this case and must be deemed to have been allocated for the same periodThe word "annual" must be given its full meaning. By the word "annual" is meant something which is reckoned by the year. The addition of the word "average shows that what is to be found is an average reckoned by the year. If the two periods were to be viewed separately and an annual average is found out for each of the periods there would be two annual averages and they would almost always be different. When an average of these periods is taken there is no longer an "annual average". The result can only be described as the average of two annual averages. The Tribunal was right when it said that the law contemplates one average and not the average of two averages. Giving the word annual its full meaning it is obvious that that system must be adopted which will lead to a result which can be described both as "annual" and as an "average". That can only be when the amount of the surplus as disclosed in the two investigations is aggregated and is divided by the total number of years. One finds an average by dividing the aggregate of several quantities by the number of quantities. In this case one can only get the "annual average" by aggregating the surplus related to at least two actuarial investigations covering a period of more than four years and by dividing the result by the number of years involved. In our judgment formula D alone was applicable to the facts of this case and as that formula has been applied the result reached by the Tribunal was correctThe Tribunal has also ordered the Corporation to pay the amount of compensation less Rs. 6,00,000 due to the Corporation. Apart from any other consideration, it seems to us somewhat anomalous that the Company should demand that the whole of the compensation should be paid to it and the Corporation be left to its own devices to recover this admitted sum due to it. In a case of this type the Corporation was entitled to say: "You have our Rs 6,00,000/-. You pay yourself that amount and here is the balance." Such an attitude is so just that it is impossible to hold that the Tribunal ought to have reached any other conclusion except this.No doubt, the Act says that the Corporation shall pay the compensation due to the Company but in another part it also says that the Company shall pay in lieu of the assets appertaining to the controlled business a sum of Rs. 6,00,000. These two provisions of law must be read together and in our opinion the Corporation was entitled to a set-off in respect of the amount due to it and the Tribunal was perfectly right when it ordered such a set-offThe Corporation offered compensation as determined by it in full satisfaction and refused to pay it unless the Company gave a discharge to the Corporation from all liabilities and claims. This amount was found to be incorrect and insufficient and the refusal of the Company to receive it was justified. We have held already that the Corporation could not pay the admitted sum tentatively even though without prejudice to the rights of the parties. The offer was made on February 14, 1957. In view of the fact that some time must elapse before the compensation is worked out it would, we think, be fair to award interest from February, 14, 1957, which was the date when the dispute was referred to the Tribunal. We think interest in this case should be calculated at four per cent simple. That is the usual rate which is awarded by courts in such circumstances. The compensation has been found to be Rs. 24,91,133 under formula D which we have held was the correct formula to apply. The Corporation was entitled to set off Rs. 6,00,000 representing the assets of the controlled business. Interest on the balance (Rs. 18,91,133) will be payable at four per cent per annum simple from February 14,1957, till October 31, 1957, when Rs. 5,51,464 were withheld and the balance was paid to the Company. Interest on Rs. 5,51,164 at four per cent shall be payable from November 1,1957, till December 26, 1957. There shall be no interest on Rs. 6,00,000 as claimed by the appellant.