Hindustan Ideal Insurance Co. Ltd vs Life Insurance Corporation of India

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 82 of 1960

Decision Date: 12 April 1962

Coram: A.K. Sarkar, J.R. Mudholkar, Subba Rao

In the matter titled Hindustan Ideal Insurance Co. Ltd. versus Life Insurance Corporation of India, the Supreme Court delivered its judgment on 12 April 1962. The opinion was authored by Justice A.K. Sarkar, with Justices J.R. Mudholkar and Subbarao also forming the bench. The petitioner, Hindustan Ideal Insurance Co. Ltd., challenged the respondent, Life Insurance Corporation of India. The case is reported in 1963 AIR 1083 and in the 1963 Supplement to the Supreme Court Reports at page 56. The statutory provisions in issue were those contained in the Life Insurance Corporation Act, 1956 (31 of 1956), particularly sections 16(2) and 48(2)(f), as well as the Life Insurance Corporation Rules, 1956, rule 12 and its sub‑rules (i), (ii) and (iii). The headnote of the reported decision summarized the dispute as follows: The business of the insurer, originally Andhra Insurance Company Ltd., had been vested in the Life Insurance Corporation of India, thereby giving the corporation a right to compensation under section 16 of the Act. The corporation made an offer of compensation and asserted certain deductions. The insurer raised several objections and, on 6 August 1957, applied to the Tribunal that had been constituted on 25 May 1937 for a re‑assessment of the compensation and also requested a three‑month extension of time for making that application. On 21 September 1937, the insurer filed a further statement detailing its claim. The corporation responded with a written statement. The Tribunal concluded that the claim was barred by time according to rule 12 of the Rules made under the Act and dismissed the application. It also held that, under section 16(2) of the Act, the insurer did not have a direct right to approach the Tribunal for the amount of compensation; instead, it could only move the corporation to refer the dispute to the Tribunal, and the insurer had not shown sufficient cause to justify an extension of time for making such a reference. After the Tribunal’s decision, the insurer obtained special leave to appeal, subsequently amalgamated with Hindustan Ideal Insurance Co. Ltd., and the latter substituted itself as appellant in place of the original insurer.

The Supreme Court, speaking for the majority (Justices Subbarao and Mudholkar), held that while subsection (1) of section 48 confers a power on the Central Government, subsection (2) of section 16 imposes a duty upon that Government, making it obligatory for the Central Government to prescribe the period within which an insurer must move the corporation to refer a claim to the Tribunal. The Court emphasized that whenever law requires a period to be prescribed for performing an act, that period must be clearly specified with reference to the particular purpose intended. The specific purpose mentioned in subsection (2) of section 16 is to have the matter referred to the Tribunal for a decision. Accordingly, the act of making the reference rests with the corporation, not with the insurer, which can only request the corporation to make the reference. Therefore, a definite time limit must be prescribed to enable the insurer to move the corporation, and merely implying a period would not satisfy the requirement of subsection (2) of section 16. The Court concluded that the rule 12, read in isolation, does not provide a clear time limit for the insurer to move the corporation, and consequently, the Tribunal’s finding of a time‑barred claim could not stand. The decision thus clarified that no limitation arises until the Central Government prescribes the requisite period, and the insurer may move the corporation under section 16(2) after such a period is duly prescribed.

The Court explained that a reference to the Tribunal does not involve prescribing a period within which the insurer must move the corporation to make that reference. To prescribe a time by implication would not satisfy the requirements of sub‑section (2) of section 16. The Court referred to the earlier decision in West Durby Union v. Metropolitan Life Assurance Co. [1897] A. C. 647. While framing rule 12, the authority that made the rules failed to appreciate that sub‑section (2) of section 16 envisions a reference to be made by the corporation, not by the insurer. Consequently, the proceedings that were taken before the Tribunal were fundamentally misconceived. Because the statute requires that a specific period be prescribed for an insurer to move the corporation to obtain a reference, and such a period had not been fixed, no question of limitation could arise. The appellant remained free to move the corporation under section 16(2) once the required period was prescribed. The insurer argued that the claim could not be barred by time and that the case was suitable for an extension of time under the proviso to rule 12. The Court held that rule 12, read in isolation, does not clearly indicate whether it applies to the corporation, the insurer, a chief agent, or a special agent. Therefore, it is permissible to examine the proviso to determine the scope of the main rule, and doing so does not contravene any established rule of construction.

The Court, speaking through Justice Sarkar, held that the insurer had no authority to approach the Tribunal directly, and the proceedings it initiated before the Tribunal were entirely misconceived, leaving the Tribunal without power to grant any relief to the insurer. Because the insurer lacked the right to move the Tribunal, the issue of extending time for such a move did not arise. Even if an application for an extension of time were considered competent under the proviso to rule 12, the appellant would still not be entitled to relief, as there was no merit‑based justification to interfere with the Tribunal’s order refusing the extension. Since the proceedings were incompetent from the outset, an inquiry into whether they were filed out of time was irrelevant, and it was unnecessary for the Court to express any view on the proper interpretation of rule 12. The Court therefore concluded that, given the procedural infirmity, it could not grant any relief and consequently dismissed the appeal. The judgment concerned Civil Appeal No. 82 of 1960, filed by special leave against the order of the Life Insurance Tribunal, Nagpur, dated 17 February 1958, with counsel appearing for both parties, and the judgment was delivered on 12 April 1962.

Hindustan Ideal Insurance Company Limited, hereinafter referred to as the insurer, carried on the business of life insurance as well as other types of insurance. On 1 September 1956 the life‑insurance business of the insurer was transferred to and vested in the Life Insurance Corporation of India pursuant to the provisions of the Life Insurance Corporation Act, 1956. Consequently, the insurer became entitled to receive compensation from the Corporation in accordance with section 16 of that Act. On 19 February 1957 the Corporation, having determined the amount of compensation payable and having obtained the approval of the Central Government, made an offer of the compensation to the insurer as mandated by section 16. In the letter effecting the offer the Corporation set out certain deductions that it claimed were justified. The insurer disputed several of those deductions; however, the details of those disputes were not material to the issues raised in the present appeal and therefore were not reproduced. On 6 August 1957 the insurer filed an application before the Tribunal, which had been constituted on 25 May 1957, seeking an order for re‑assessment of the compensation amount. In the same application the insurer also prayed that, if necessary, the Tribunal might extend the time allowed for making the application by three months from the date of its constitution. On 21 September 1957 the insurer filed a further statement in the Tribunal setting out the particulars of its claim. The Corporation responded by filing its written statement in answer to the insurer’s claim. The Tribunal delivered its judgment on 17 February 1958. It held that, under section 16 of the Act, an insurer did not have a direct right to approach the Tribunal to resolve any dispute with the Corporation concerning the compensation amount; rather, the insurer was required to request the Corporation to refer the dispute to the Tribunal, a step which the insurer had not taken. The Tribunal further held that the insurer had not shown any sufficient cause why the time for making a reference to the Tribunal should be extended, and it observed that the claim for compensation was barred by time. Accordingly, the Tribunal dismissed the insurer’s application.

Following the Tribunal’s judgment, the insurer obtained special leave from this Court to appeal the decision and proceeded to present the appeal. After the leave was granted, the insurer merged with another company, Hindustan Ideal Insurance Company Limited, and the latter company was substituted as the appellant in place of the original insurer. Section 16 of the Life Insurance Corporation Act, 1956, reads as follows: “(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 given 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.”

In this case the Court examined the language of subsection (2) of section 16 of the Act, which provides that an insurer who does not accept the amount offered by the Corporation may, within a time prescribed for that purpose, have the matter referred to the Tribunal for decision. The Court observed that it is clear from the wording of that subsection that only the Corporation is authorized to refer a dispute to the Tribunal. An insurer does not possess a statutory right to approach the Tribunal directly. The intended procedure is that the insurer must first move the Corporation, and then the Corporation, acting as the designated authority under the Act, must refer the insurer’s dispute to the Tribunal. This interpretation follows logically from the phrase “he may … have the matter referred to the Tribunal,” even though the subsection does not explicitly mention the Corporation; the overall scheme of the Act makes it evident that the reference must be made through the Corporation. Accordingly, the Court agreed with the view expressed by Justice Mudholkar that the insurer’s right to approach the Tribunal is subordinate to the Corporation’s role.

The Court noted that, in the present matter, the insurer bypassed the Corporation and directly filed an application before the Tribunal. Because the insurer lacked any statutory authority to do so, the proceedings initiated by it were fundamentally defective. As a result, the Tribunal was powerless to grant any relief to the insurer, and any such relief would have been invalid. Consequently, the Court held that it could not grant any relief to the insurer or to its successor‑in‑interest, the appellant, since the underlying proceedings were incompetent from the outset. The insurer had also sought an extension of time from the Tribunal to enable it to make the application. However, because the insurer did not have the right to move the Tribunal in the first place, the question of extending time never arose.

The Court then turned to Rule 12 of the Rules framed under the Act, which prescribes a three‑month period, counted from the date the compensation was offered, within which a reference to the Tribunal may be made for determination of the compensation payable. In the present case the insurer failed to make any reference within that three‑month window. Rule 12 contains a proviso allowing the Tribunal to admit a belated reference if the person making it can satisfy the Tribunal that there was sufficient cause for the delay. The Court considered the insurer’s contention that it was entitled to move the Tribunal directly under that proviso and that it had indeed done so. The Court concluded that the Tribunal was correct in finding that the insurer had not shown any sufficient cause for failing to make the reference within the prescribed period, and therefore the Tribunal was right to reject the insurer’s application for an extension of time.

The Court observed that even if the application seeking an extension of time were accepted as valid under the proviso, the appellant would still lack any right to relief because there was no justification to disturb the Tribunal’s order. Consequently, the appeal had to fail on its own merits. The Court further stated that it was not required to consider any issue of limitation in the present matter because the proceeding itself was deemed incompetent. An examination of whether the time limit had been observed was therefore irrelevant. Accordingly, the Court found it unnecessary to express any view on the construction of Rule 12 of the Rules made under the Act. The final outcome was that the appeal was dismissed. Regarding costs, the Court held that the Corporation had never before the Tribunal alleged that the proceeding was incompetent, nor had it raised such a point in its statement of case on appeal; therefore, the Corporation was not entitled to any costs.

The appellant, the Andhra Insurance Company Limited, was a composite insurer engaged in life, fire and general insurance business. Under section 7(1) of the Life Insurance Corporation Act, 1956, all of the Company’s assets and liabilities related to its life insurance operations were transferred to and vested in the Life Insurance Corporation on 1 September 1956. Pursuant to section 16(1) of the same Act, the Company was entitled to receive compensation from the Corporation, the amount of which was to be determined in accordance with the principles set out in the First Schedule to the Act. On 14 February 1957, the Corporation sent a letter to the Company stating that, after calculation and approval by the Central Government, the compensation payable under section 16(1) amounted to Rs 6,14,636. The Corporation offered this sum to the Company as full settlement of the compensation due. The letter further explained that the portion of the Company’s paid‑up capital and the assets representing that portion, which had been allocated to the life business under section 18 of the Life Insurance Corporation Rules, 1956, totalled Rs 3,76,117. Because those assets had not been transferred to the Corporation, the amount of Rs 3,76,117 was to be set off against and deducted from the compensation payable. Subsequent correspondence between the parties revealed that while the Company accepted the compensation calculation, it disputed the valuation of the assets that were to be transferred to the Corporation and objected to the deduction of Rs 3,76,117. Ultimately, on 6 August 1957, the Company filed a petition of appeal.

In this case, the insurer filed an appeal before the Life Insurance Tribunal in Nagpur, a body created by the Central Government under section 17(1) of the Act. On 21 September 1957 the insurer submitted its statement of claim to the Tribunal. The corporation opposed the claim on a number of grounds. The Tribunal listed twenty‑seven issues but rendered findings only on the first three and ultimately dismissed the claim. The Court noted that only issue 3 was relevant to the dismissal, because it concerned whether the claim was barred by limitation. The corporation’s written statement did not expressly raise a plea of limitation, yet the Tribunal’s order stated that the insurer had failed to lodge a claim within three months of 14 February 1957, the date on which the corporation offered compensation, and therefore the claim was barred by rule 12 of the Rules made under the Act. The Tribunal further observed that the insurer was required, under section 16(2), to move the corporation to refer the matter to the Tribunal; the insurer did not do so, gave no explanation for this failure, and instead filed its claim directly with the Tribunal on 12 August 1957. Consequently, no excuse for delay under the proviso to rule 12 was found. Dissatisfied with the Tribunal’s decision, the insurer sought special leave to appeal to this Court under article 136 of the Constitution, and leave was granted on 18 August 1958. After the grant of leave, the insurer was merged with Hindustan Ideal Insurance Co. Ltd under a scheme approved by the High Court of Andhra Pradesh, and the letter was substituted as appellant by order of this Court dated 14 April 1959. Counsel for the appellant argued that because the Tribunal itself was not appointed before the three‑month period prescribed in rule 12 had expired, the claim could not be considered time‑barred, since limitation would only begin to run when the Tribunal was constituted. Alternatively, counsel submitted that the proviso to rule 12 warranted an extension of time. Counsel for the corporation maintained that, pursuant to sub‑section 2 of section 16, an insurer such as the appellant was not authorised to present a claim directly before the Tribunal; the law required the insurer to move the corporation to make a reference, and this had to be done within three months, after which the corporation was obligated to refer the matter to the Tribunal within the period prescribed by rule 12. Because this procedural step was not followed, the Tribunal’s proceedings were deemed incompetent.

The Court observed that the statutory procedure required the Corporation to make a reference to the Tribunal within the three‑month period prescribed by rule 12. Because this step had not been taken, the proceedings that were initiated before the Tribunal were deemed incompetent. Sub‑section 2 of section 16 reads: “The amount of the compensation to be given in accordance with the aforesaid principles shall be determined by the Corporation in 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.” A plain reading of this provision shows that the reference to the Tribunal must be made not by the insurer but by the Corporation. Although the statute does not expressly name the Corporation in that clause, the surrounding context makes it clear that the Corporation is the appropriate referent. The provision further states that the insurer may have the matter referred to the Tribunal “within such time as may be prescribed for the purpose.” The word “prescribed” is understood to mean prescribed by Rules. Consequently, the Central Government is required to issue a rule that fixes the period within which the insurer must move the Corporation to seek a reference. The counsel for the Corporation, however, argued that this interpretation was incorrect. He contended that the provision must be read together with section 48(2)(f) of the Act, which empowers the Central Government to make rules. According to his submission, clause (f) enables the Central Government to prescribe the limitation period for referring a matter to the Tribunal, not the period within which the insurer must approach the Corporation. He further asserted that the insurer’s requirement to move the Corporation expires with the expiry of the period that the Corporation itself has to make a reference. The Court rejected this contention, holding that the plain language of sub‑section 2 of section 16 obligates the Central Government to prescribe the period within which the insurer must approach the Corporation for a reference. While clause (f) does not directly address this timing, the broader powers conferred by sub‑section 1 of section 48 are sufficient to allow the Central Government to prescribe such a period.

The Court continued that the language of sub‑section 2 of section 16 makes it unequivocal that the Central Government must prescribe the time frame for the insurer to move the Corporation to refer a claim to the Tribunal. Although clause (f) of section 48(2) does not speak of prescribing time for this particular purpose, the extensive authority granted by sub‑section 1 of section 48 enables the Central Government to make any rule necessary to give effect to the provisions of the Act. Under that subsection, the Central Government may frame rules to carry out the purposes of the legislation, and one of those purposes is to determine the time limit within which an insurer must cause the Corporation to make a reference to the Tribunal. Therefore, the duty imposed on the Central Government by section 16(2) is to exercise its rule‑making power under section 48(1) to fix the required period. The Court concluded that the existing rule, rule 12, which fixes a three‑month period for the Corporation to refer a matter to the Tribunal, satisfies the statutory requirement and that no additional time‑limit for the insurer’s request to the Corporation is needed beyond what is prescribed by the rule.

The Court explained that the purpose of the Act includes prescribing the period within which an insurer must move the Corporation to obtain a reference to the Tribunal. While subsection 1 of section 48 confers a rule‑making power on the Central Government, subsection 2 of section 16 imposes a duty on the Central Government to prescribe that period; consequently, the Central Government is obliged to exercise the power under section 48(1) to make a rule for this purpose. Counsel for the petitioner then argued that the rule actually framed by the Central Government, namely rule 12, must be deemed sufficient for the intended purpose. The rule reads as follows: “Reference to Tribunal – The time within which a reference may be made to the Tribunal in respect of the determination of compensation payable under the Act shall be as follows, namely: (i) in the case of an insurer to whom compensation is payable under Part A or Part B or Part C of the First Schedule to the Act, within three months from the date on which the compensation determined by the Corporation is offered to the insurer; (ii) in the case of an insurer to whom compensation is payable under Part B of the First Schedule to the Act, within six months from the date on which the compensation determined by the Corporation is offered to the insurer; (iii) in the case of compensation payable to a Chief agent or special agent under the proviso to section 36 of the Act, within three months from the date on which the compensation determined by the Corporation is offered to the chief agent or special agent, as the case may be: Provided that any such reference may be admitted by the Tribunal after the period of limitation prescribed therefor under this rule, if the person making the reference satisfies the Tribunal that he had sufficient cause for not making the reference within the said period.” According to counsel, sub‑rule (1) requires the Corporation to make a reference within three months, and therefore the insurer must move the Corporation before that period expires; thus, by framing this rule the Central Government has complied not only with clause (f) of subsection 2 of section 48 but also with subsection 2 of section 16. The Court found this argument difficult to accept for two reasons. The first reason is that when the law demands a period to be prescribed for performing an act, that period must be clearly stated with a specific reference to the purpose of the act. The purpose mentioned in subsection 2 of section 16 is “to have the matter referred to the Tribunal for decision.” The act of making the reference lies with the Corporation, not with the insurer, who can only move the Corporation to obtain the reference. Hence, the time that must be prescribed is the time for the insurer to move the Corporation, not the time for the Corporation to make the reference. Consequently, prescribing a period for making a reference does not satisfy the requirement of prescribing a period for moving the Corporation to make that reference, and the rule therefore does not fulfil the statutory duty imposed by subsection 2 of section 16.

In this part of the decision the Court examined the distinction between an act that must be performed by the insurer and an act that must be performed by the Corporation. The Court observed that prescribing a period for making a reference to the Tribunal does not, by itself, prescribe a period for the insurer to move the Corporation to make that reference. The Court noted that it could be possible, if a period were prescribed for the insurer to move the Corporation, to require the insurer to act before the expiry of that period. However, the Court held that such an implied prescription would not satisfy the language of subsection 2 of section 16, because when a period is prescribed for a particular act, the person who is required to perform that act is permitted to do so even on the very last day of the period. Accepting the counsel’s construction would therefore mean that the insurer could move the Corporation on the day the three‑month period ends and still be within the time prescribed by Rule 12. The Court then asked how the Corporation could, on that same day, also make the reference to the Tribunal, which the rule requires. This difficulty led the Court to reject the counsel’s view that the insurer’s action of moving the Corporation satisfied the time limitation for the reference itself.

The Court next turned to the proviso to Rule 12, which authorises the Tribunal to accept a reference after the prescribed limitation period if the “person making the reference” explains why the reference was not made earlier. The Court pointed out that the wording of the proviso shows that the reference contemplated by Rule 12 is to be made by the insurer, not by the Corporation. While the rule without the proviso might be read as applying to a reference made by the Corporation, the presence of the proviso indicates that the rule was intended to govern a reference made by another party, such as the insurer, a chief agent, or a special agent who is also entitled to compensation under the proviso to section 36. The counsel advanced a novel argument that the opening words of Rule 12 could apply to the Corporation, whereas sub‑rules (i), (ii) and (iii) would apply only to the Corporation and the proviso only to an insurer, chief agent or special agent. The counsel argued that this reading avoided a lacuna in the rules and prevented the proviso from being redundant. The Court, however, rejected this construction because the alleged lacuna—namely, the failure to prescribe the time within which the insurer must move the Corporation for making a reference—remains even if the counsel’s interpretation is accepted. Moreover, the language of the sub‑rules does not support an interpretation that limits them solely to the Corporation. Consequently, the Court found that the counsel’s attempt to preserve the scope of the main provision by reading the proviso in a limited way was not permissible.

The Court observed that the gap concerning the time limit for making a reference would remain even if the interpretation proposed by counsel were accepted. It further noted that, based on the wording of the sub‑rules, those provisions could not be read as applying solely to the Corporation. Counsel argued that construing the proviso so that the substantive provisions of rule twelve were limited to an insurer or a chief agent, and not to the Corporation, would unduly restrict the reach of the primary enactment, which the Court held to be impermissible. The Court agreed that when the main provision is clear, its effect cannot be curtailed by the proviso; however, where the main provision is ambiguous, the proviso—being more than surplusage—may be examined to determine the meaning and scope of the principal rule. In doing so, the Court affirmed that such examination would not contravene any established rule of construction. The Court referred to the authority in West Derby Union v. Metropolitan Life Assurance Co. (1897) A.C. 641, 652, wherein Lord Watson acknowledged that an intelligible proviso can illuminate the ambiguous import of statutory language, and Lord Herschell recognized that a proviso may guide the selection between two possible constructions or clarify the scope of a doubtful enactment.

Applying this principle, the Court found that rule twelve, when read in isolation, does not clearly indicate whether it addresses the Corporation or a special agent. Accordingly, it is permissible to consult the proviso to ascertain the rule’s true scope. The Court reiterated that, on a proper construction, the proviso does not apply to the Corporation. Reading rule twelve together with its proviso therefore does not breach any well‑accepted rule of construction, and leads to the conclusion that rule twelve applies only to an insurer, a chief agent, or a special agent, and not to the Corporation. Moreover, the Court pointed out that if the proviso were limited to references made solely by the Corporation, it would become meaningless. For example, if an insurer moved the Corporation after the three‑month period to make a reference, the Corporation would only be obliged to make the reference if the insurer acted within the prescribed time, as required by subsection 2 of section 16. In such a situation, there would be no basis for the insurer to approach the Tribunal for condonation of delay. Although counsel suggested that the Corporation could be compelled by mandamus to make the reference, the Court indicated that this view would not be supported under the statutory scheme.

The short answer was that, because there was no duty on the Corporation to make a reference after the expiry of the period prescribed by Rule 12, no writ of mandamus could be issued against it. Another reason for rejecting the learned counsel’s contention was that the proviso spoke of the person making the reference satisfying the Tribunal that he had sufficient cause for not making the reference, and that satisfaction had to be given within the same period. Since the insurer was not the person who made the reference, the Court could not accept that the insurer was permitted to satisfy the Tribunal as to the sufficiency of cause for condoning the delay in making the reference. Counsel for the respondent, Mr Desai, suggested that the words “if the person making the reference satisfies the Tribunal …” should be read as if they said “if the person at whose instance the reference is made satisfies the Tribunal …”. The Court held that such an approach would amount to rewriting the provision, which it was not authorised to do. It appeared to the Court that, when Rule 12 was framed, the rule‑making authority had overlooked the fact that subsection 2 of Section 16 contemplated a reference not by the insurer but by the Corporation. The learned counsel urged that an interpretation should be placed on the rule so as not to leave a serious lacuna in the operation of the Act. While the Court appreciated that contention, it found no way to escape the result. The proceedings before the Tribunal were misconceived because the only way they could be initiated was by a reference made by the Corporation, and no such reference had been made. No question of limitation arose, because the period within which an insurer must move the Corporation to make a reference had not yet been prescribed, as required by subsection 2 of Section 16. The Court observed that the appellant would be free to move the Corporation under Section 16(2) after such period is prescribed. Consequently, the Court quashed all the proceedings before the Tribunal and, in view of the particular circumstances, made no order as to costs. The appeal was dismissed.