Case: Life Insurnce Corporation Of India Vs. Vishwanath Verma

3. The Jabalpur Municipal Corporation formulated a scheme for the benefit of its employees known as Nagar Nigam Karamchari Parivarik Kalyan Yojna. That scheme provided, in the event of death of an employee while in service, a sum of Rs. 10, 000 or Rs. 5000 payable to the dependants, depending upon the rate of monthly contribution. If the monthly contribution was Rs. 10 the amount payable was Rs. 10, 000 and where the monthly contribution was Rs. 5 the amount payable was Rs. 5000. The scheme was also known as Family Benefit Fund Scheme. It was implemented with effect fromby effecting appropriate monthly deductions from the salaries of the employees. The payment of specified amount in terms of the scheme was also made to the retiring employees as also to the dependants of the employees who died while in service4. While the scheme was in operation the question arose as to the validity of the scheme. The Government of Madhya Pradesh examined that question from the perspective whether the said scheme was violative of the provisions of the Life Insurance Corporation Act, 1956 (hereinafter referred to as the Act) or the Insurance Act, 1938. By its order datedthe Government of Madhya Pradesh directed the suspension of the scheme as administered by the Jabalpur Municipal Corporation. However, by order datedthe Government directed till further orders appropriate deductions may be continued from the employees salary. By a Resolution datedthe Municipal Corporation, Jabalpur in order to provide higher benefits to the employees increased the contribution from Rs. 5 to Rs. 10 and from Rs. 10 to Rs. 20. The matter was considered in detail. By order datedthe Government of Madhya Pradesh directed the Jabalpur Municipal Corporation to stop the scheme forthwith. The Municipal Corporation was also advised that on receipt of confirmation of withdrawal of scheme opinion could be obtained from the Central Government. Thereafter the matter was considered by the Controller of Insurance who by his letter datedadvised the Secretary, Local Government Department, Government of Madhya Pradesh to the following effect"No.11/81Government of IndiaMinistry of FinanceDepartment of Economic AffairsInsurance DivisionNirvachan Sadan, Ashok RoadNew Delhi. 23rd March, 1981ToThe SecretaryLocal Government DepartmentGovernment of Madhya PradeshSubject : Municipal Corporation Employees Family Benefit SchemeSirI am directed to refer to this Ministrys letter of even number datedon the above subject in response to your letter No. 684/XVIII/1/80 datedand to say that in terms of Section 30 of the Life Insurance Corporation Act, 1968, the Life Insurance Corporation of India has the exclusive privilege of carrying on life insurance business except to the extent otherwise expressly provided in the Act. An exception is made in the case of compulsory life insurance schemes for employees of Government, vide Section 44(f) of the Act reproduced below44. Nothing contained in this Act shall apply in relation to(f) any scheme in existence on the appointed day or any scheme framed after the appointed day with the approval of the Central Government whereby, in consideration of certain compulsory deductions made by Government from the salaries of its employees as part of the conditions of service, the payment of money is assured by Government on the death of the employee concerned or on the happening of any contingency dependent on his life.This exception is not available to other employers such as local bodiesYours faithfully, sd/For Controller of Insurance." *The said order was challenged by an employee of the Municipal Corporation, Jabalpur (the first respondent) and the Jabalpur Corporation Karamchari Sangh (the second respondent) in Miscellaneous. Petition No. 69 of 1981. The Division Bench of the High Court under the impugned judgment allowed the writ petition principally on two grounds1. The scheme run by the employees of the Municipal Corporation will not fall within the ambit of Life Insurance Business and, therefore, Section 20 of the Act will not apply2. The State Government has no jurisdiction to suspend or cancel the scheme which does not fall within the ambit of Section 421 of the Madhya Pradesh Municipal Corporation Act, 19565. In questioning the correctness of this judgment Mr. Harish Salve, learned counsel appearing for the appellant urges the following6. Section 30 of the Act confers exclusive privilege on theto carry on business of life insurance in India. The sums assured by all policies issued by theincluding bonuses declared in respect thereof in terms of Section 37 of the Act are guaranteed as to payment in cash by the Central Government. The term "Life Insurance Business" is defined under Section 2(11) of the Act. The definition contained therein is merely illustrative and not exhaustive. On a reading of Sections 2(3), 30 and 44(f) it would be clear that on the establishment of Life Insurance Corporation of India all life insurance business which was then carried on by the Central Government or the State Governments was to come to an end. Of course, the compulsory schemes of Central Government or the State Governments which were in existence at the time of establishment of Life Insurance Corporation of India were allowed to continue. Similar schemes could in future, be framed with the approval of the Central Government. Insofar as the family benefits scheme has the attributes or the essential ingredients of life insurance business, the High Court went wrong in putting a narrow interpretation on life insurance business. In fact, the word business has a wider meaning7. The scheme run by the Employees Union is also against the interest of the employees themselves because the payment is not guaranteed either by the Municipal Corporation or by the State Government. The exemption under Section 44(f) is not applicable because this is a scheme run by the Corporation not the State Government.

Court's reasoning:
It is clear the life insurance business in the country was run by a large number of private insurance companies. They were not managing the affairs honestly. As a result, the savings of a large number of policyholders were neither safe nor secure. It was in this background, with a view to provide security to policyholders and insurers the savings were employed inactivities and the life insurance business was nationalised in 1956 by establishing the Life Insurance Corporation of India16. As the Statement of Objects and Reasons clearly points out all the contracts for assurance executed by the Corporation are guaranteed by the Central Government. That is also evident from Section 37 of the Act. If, therefore, under Section 30 Life Insurance Corporation is to have the exclusive privilege of carrying on life insurance business in India, certainly it will be illegal on the part of the Jabalpur Municipal Corporation to run the said scheme. Unfortunately, the High Court has taken a narrow view as to the scope of life insurance. The High Court failed to note that there is a large variation of life insurance contracts built up by a combination in various ways of contracts. There may be insurance contracts providing for the payment of premium in the event of death or again there may be endowment contracts providing for payment in the event of survival of the assured for a particular term. Therefore, life insurance has a wide concept in modern days. Life insurance is designated by various names according to the nature of the terms and conditions of the different forms of contracts or policies. They may be(i) Endowment insurance, i. e., a contract to pay a fixed sum to insured if he survives for a specified period, or, if he dies within such period, to some other person nominated or indicated. Under this head includes childs endowment or deferred life insurance. Considerable difficulties have arisen with regard to the latter type of insurance as normally a person has no insurable interest in the life of his child and such a policy would, therefore, be illegal but when the policy is in the form now commonly current, the proposer will be regarded as holding the policy in trust for theWe are unable to support the finding of the High Court. This scheme run by the Jabalpur Municipal Corporation is against the interest of the employees themselves since the payments under the scheme, whether on retirement or death, are not guaranteed either by the Jabalpur Municipal Corporation or by the Madhya Pradesh State Government19. Section 44 makes Life Insurance Corporation Act inapplicable in certain cases. Clause (f) of the said section will also not come to the rescue of the Jabalpur Municipal Corporation.The scheme may be similar to the one run by the Government of Madhya Pradesh but what requires to be carefully noted, is the scheme of the State Government will be eligible to exemption under Section 44(f) of the Act. Such an exemption is not available to the scheme of the Jabalpur MunicipalThe High Court is of the view that the scheme does not fall within the ambit of the above section. No question of municipal funds arises in this case as the scheme is wholly run on contributions made by the employees and not on the funds of the Jabalpur Municipal Corporation. Therefore, the State Government has no jurisdiction to cancel the Resolution23. A careful reading of(1) of Section 421 shows that if the doing an act which is not in conformity with law, certainly it could prohibit the doing of such an act. We have already found that the scheme is in violation of the Life Insurance Corporation Act, particularly Section 30. Therefore, the State Government is well empowered to invoke the power under Section 421. The exercise of such a power cannot be found fault with