Case: Life Insurance Corporation Of India Vs. Kota Ramabrahmam And Ors

These are two appeals by the Life Insurance Corporation of India (hereinafter referred to as the Corporation) with special leave obtained from this Court against a common Judgment of the Andhra Pradesh High Court disposing of two appeals preferred by the Corporation. The appeals before the High Court arose out of two suits instituted by the Corporation. For the question that arises for determination, which we will presently state, it is not necessary to set out the facts in any great detail. One of the suits was brought in 1961 for recovery of a sum of about Rs. 17, 000/-, after giving credit to the payments made by the defendants, due on a mortgage executed by the defendants in 1950 in favour of the Andhra Insurance Company of Masulipatnam. The other suit was filed in 1962 for recovery of about Rs. 45, 555/- also due on a mortgage which was executed in 1952 by the defendants of this suit in favour of the Nagpur Pioneer Insurance Company Ltd., Bombay. Thus in both cases the loans were incurred long before the Corporation was established on September 1, 1956 underthe Life Insurance Corporation Act, 1956. In both Suits the mortgagors claimed that the debt should be scaled down in accordance with the provisions of the Madras Agriculturists Relief Act (Madras Act IV of 1938) (hereinafter referred to as the Madras Act). It is not disputed in either case that the mortgagors are agriculturists. The trial court upheld their claim, sealed down the debts and decreed the suits accordingly. The High Court on appeal affirmed the decision. The claim was resisted by the Corporation relying on the provisions of section 4 (e) of the Madras Act which is asNothing in this Act shall affect debts and liabilities of an agriculturist falling under the following heads:X X X(e) any liability in respect of any sum due to any co-operative Society, including a land mortgage bank, registered or deemed to be registered under the Madras Co-operative Societies Act, 1932 or any debt due to any Corporation formed in pursuance of an Act of Parliament (of the United Kingdom) or of any special Indian Law or Royal Charter or Letters Patent."

Court's reasoning:
It will be necessary at this stage to refer to certain provisions ofthe Life Insurance Corporation Act, 1956. It is an Act "to provide for the nationalisation of life insurance business in India by transferring all such business to a corporation established for the purpose and to provide for the regulation and control of the business of the corporation and for matters connected therewith or incidental thereto". Sub-section (1 ) of section 7 of the Act provides that on the appointed day all the assets and liabilities appertaining to the life insurance business of all insurers shall be transferred to and vested in the corporation. Appointed day has been defined in section 2(1) as the date on which the corporation is established, which is September 1, 1956. Sub-section (2) of section 7 states inter alia, that the liabilities mentioned in sub-section (1) "shall be deemed to include all debts, liabilities and obligations of whatever kind" existing on the appointed clay and relating to the life insurance business of the insurer. Section 9 describes the general effect of vesting of the insurers business in the corporation. Sub-section (1) of the section states that unless otherwise expressly provided by the Act, all contracts, agreements and other instruments subsisting immediately before the appointed day to which the insurer whose business has vested was a party or which are in favour of such insurer shall "be of as full force and effect against or in favour of the corporation, as the case may be, and may be enforced or acted upon as fully and effectually as if, instead of the insurer, the corporation had been a party thereto or as if they had been entered into or issued in favour of the corporation". Sub-section (2) of this section says that if on the appointed day any suit, appeal or other legal proceeding was pending by or against an insurer relating to his life insurance business, it will not be prejudicially affected by reason of the transfer to the Corporation of the business of the insurer but may be con- firmed by or against the corporation.Mr. Somnath Iyer appearing for the appellants in both the appeals contends that sub-section (1) of section 9 creates a legal fiction that the contracts or instruments to which the insurer was a party shall be deemed to have been entered into or issued in favour of the corporation. That being so, the argument proceeds, the debts in question should be taken as due to the corporation from the beginning, and, therefore, outside the scope and ambit of the Madras Act in view of section 4(e) of that Act. We do not however think that sub-section (1) of section 9 creates any legal fiction of that kind. This subsection seeks to provide that the contracts and other instruments subsisting immediately before the vesting may be enforced and acted upon by the Corporation after vesting. This is made clear by sub-section (2) of section 9 which states that any pending proceeding on the appointed day by or against an insurer may be continued by or against the corporation. Under sub-section (1) of section 7 all the assets and liabilities of the insurers relating to their life insurance business vest In the corporation on the appointed date. Sub-section (2) of section 7 states that the liabilities include obligations of whatever kind existing on the appointed day. The debts due to the insurers in these two cases were liable to be scaled down in accordance with the provisions of the Madras Act which was a liability or obligation appertaining to the debts on September 1, 1956, the appointed day. This liability or obligation annexed to the debts must be held to have been transferred to and vested in the corporation along with the assets of the insurers under section 7 of the Act, and the corporation in seeking to recover the mortgage dues cannot ignore the obligations of the insurers in respect of the transactions.