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

2. The appellant is a company duly incorporated under the Indian Companies Act, 1882, and the Insurance Act, 1938. Prior to December 1957, its registered office was at Ajmer, but now it is in Calcutta. It was a composite insurer carrying on life insurance and general insurance business. The Act was passed to provide for the nationalization of life insurance business in India by transferring all such business to a Corporation established for the purpose. The Act came into force on July 1, 1956. On September 1, 1956, under S. 3 of the Act the Central Government established a Corporation called the Life Insurance Corporation of India, hereinafter called the Corporation, which is the respondent in this appeal. Under S. 7 of the Act on the appointed day, which was September 1, 1956 all the assets and liabilities appertaining to the controlled business of all insurers were statutorily transferred to and vested in the Corporation Accordingly, the controlled business of the appellant as defined under the Act, i. e., all the business pertaining to its life insurance business was transferred to and vested in the Corporation. Thereafter disputes arose between the appellant and the respondent in the matter of ascertainment of the compensation payable to the appellant and in respect of incidental and consequential maters thereto. By a letter dated May 21, 1957, the respondent offered to pay to the appellant towards compensation certain amount after setting off the amount due to it from the appellant in respect of part of the paid-up capital of the controlled business and assets representing that part. By letter dated August 9, 1957, the appellant refused to accept the said offer in toto. On August 20, 1957, the respondent wrote a letter to the appellant informing it that as its offer was not accepted by the appellant it had referred the dispute to the Tribunal. In due course both the parties, i.e., the appellant and the respondent, appeared before the Tribunal and filed their respective statements; and the Tribunal framed as many as 8issue 5 the Tribunal calculated the amount payable by the respondent to the appellant on the following lines: Amount payable towards compensation to the appellant was Rs. 5,95,764/- out of the allocable paid up capital of Rs. 2,79,683/- the respondent had already received assets equivalent to Rs. 1,35,919/-; the balance receivable under that head was, therefore, Rs. 1,43,764/- out of the sum of Rs. 5,95,764/- payable to the petitioner-appellant, the respondent was entitled to deduct Rs. 1,43,764/- and the balance payable by the respondent to the appellant was Rs. 4,52,000/-. Briefly stated what the Tribunal did was that it ascertained the compensation payable to the appellant and set off against that amount the balance of the amount due to it from the appellant towards the allocable paid-up capital.3. On issue 6(A) it held that the appellant showed the un-paid dividends in the balance-sheets as the liability of the life department, that it always regarded it as a liability appertaining to the life department and that as it was impossible to allocate the unpaid dividends of any shareholder to the several business carried on by the insurer, it would rely upon the books of accounts of the insurer to find out whether it was the liability of one department or the other. On that reasoning it held that the entire liability of the unclaimed dividends and assets equivalent to that liability appertained to the controlled business and therefore, statutorily vested in the respondent Corporation.4. On issues 7(A) and 7 (B) the Tribunal held that it had no jurisdiction to award interest on the amount of compensation. On the basis of the said findings the respondent was directed to pay to the appellant within two weeks a sum of Rs. 4,52,000/- less any sum that might have been paid by the respondent to the appellant by way of admitted compensation. Hence thematerial facts may be stated. The paid-up capital of the company was Rs. 10,00,000/- divided into 40,000 shares of Rs. 25/- each fully paid. On September 28, 1953, the appellant declared a dividend of 4 per cent amounting to a sum of Rs. 40,000/-; again on September 29, 1954, it declared a dividend of 4 percent amounting to a sum of Rs. 40,000/- and against in the year 1955 it declared a dividend of 6 per cent amounting to Rs. 60,000/-. In regard to the said amounts so declared certain payments were made to some of the share holders and the balance of the outstanding dividends as on December, 31, 1955, was Rs. 89,680/-. The balance-sheets of the company showed the unpaid dividends as the liability of the life department. Though the amounts representing the said dividends are not specifically shown in the assets, it cannot be disputed that the said amounts must have been included in the assets or cash shown in the balance-sheets. The result was that the entire liability for the unclaimed dividends and assets equal to that liability was taken over by the respondent. The Tribunal relying on the books of account, the balance-sheets and other documents of the Company held that the liability was only that of the life insurancebusiness.11.Under R. 18(1) of the Rules, in respect of a Part A insurer like the appellant, the paid-up capital allocable to the controlled business shall be that proportion of the total paid-up capital of the insurer which the annual average of the profits from the controlled business during the period covered by the relevant actuarial investigation bears to the total of the annual average of profits plus two times the annual average of the profits from other business during that period.The factor will beAnnual average of surplusTotal of annual average of surplus PLUStwo times the annual average of profit fromnon-life business.or shortly stated,LL+2 non-LOn that basis the factor will be,Rs. 15,512.6Rs. 90,523.8 (i.e. 15,512.6+75,011.2)= 0.17136488Rs. 15,512.6 being the annual average of surplus from the controlled business, as determined by the Corporation, and Rs. 75,011.2 being twice the annual average of profits from non-life business. It is not disputed that the paid-up capital of the Company was Rs. 10,00,000/-. If the factor was applied, the capital allocable to the controlled business would be, 0.17136488 x Rs. 10,00,000/- : Rs. 1,71,365/-.The compensation to be given by the Corporation to the insurer to whom Part A of the First Schedule to the Act applies - it is conceded that the said Part applies to the appellant-is 20 times the annual average of the share of the surplus allotted to the share holders of the appellant. On the basis that Rs. 15,512.6 was the annual average of the surplus allotted to the shareholders of the appellant, the Corporation ascertained the amount of compensation at a sum of Rs. 3,30,023 and offered the same of theMay 21, 1957, the respondent offered to the appellant to pay a sum of Rs. 3,30,023/- in full satisfaction of the compensation payable to the appellant for the acquisition of its controlled business under the Act, and to set off against the said sum an amount of Rs. 1,71,365 being the part of the paid-up capital of the appellant-Company and asses representing such par, which had been allocated to the controlled business of the appellant-Company in accordance with Rs. 18 of the Life Insurance Corporation Rules, 1956 made under the Act. The letter concludedthe aforesaid assets have not yet been transferred to the Corporation the said amount of Rs. 1,71,365/- will be set off against, and form a deduction from, the amount of compensation payable to your Company."

Reasoning: 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.