The General Assurance Society Ltd vs The Life Insurance Corporation Of India

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

Court: supreme-court

Case Number: Civil Appeal No. 568 of 1961

Decision Date: 18 October 1963

Coram: P.B. Gajendragadkar, K.N. Wanchoo, J.C. Shah, Raghubar Dayal, Subba Rao

The case was styled The General Assurance Society Ltd versus The Life Insurance Corporation of India and was decided on 18 October 1963 by the Supreme Court of India. The judgment was authored by a bench consisting of P. B. Gajendragadkar, K. N. Wanchoo, J. C. Shah and Raghubar Dayal. The petitioner was The General Assurance Society Ltd and the respondent was The Life Insurance Corporation of India. The date of the judgment was recorded as 18/10/1963, and the bench was also identified as Subbarao, K. in the court records. The citation of the decision appeared as 1964 AIR 892 and 1964 S. C. R. (5) 125. The statutory provision primarily concerned was section 7(1) of the Life Insurance Corporation Act, 1956 (31 of 1956). The issues noted in the headnote included whether amounts representing declared dividends fell within the “assets and liabilities” of the controlled business, the determination of compensation and the paid‑up capital allocable to the controlled business, the tribunal’s jurisdiction to order a set‑off, the applicability of Life Insurance Corporation Rules 1956 rule 12A clauses (iv) and (vi), the relevance of the Insurance Act 1938 (4 of 1938), whether a certified balance sheet could be challenged, and the question of interest on compensation.

When the Life Insurance Corporation Act was enacted, it provided for the nationalisation of the life‑insurance business. Consequently, the life‑insurance business of the petitioner, which was a composite insurer, became the “controlled business” vested in the respondent corporation. After the vesting, disputes arose between the two parties concerning the calculation of the compensation that was payable to the petitioner and regarding incidental and consequential matters that flowed from that calculation. The respondent offered to pay a specified sum to the petitioner as compensation, proposing to set off from that amount the sum that the petitioner owed to the respondent in respect of a portion of the paid‑up capital of the controlled business and the assets representing that portion. The petitioner rejected the respondent’s offer in its entirety. The matter was then referred to the Tribunal. The Tribunal determined the amount of compensation due to the petitioner and, in accordance with the offer, set off against that amount the balance of the sum that the petitioner owed for the allocable paid‑up capital. By examining the petitioner’s books of account, the Tribunal sought to ascertain whether any unpaid dividends of shareholders of the petitioner were the liability of the controlled business or of another department. The Tribunal concluded that the entire liability for the unclaimed dividends and the corresponding assets belonged to the controlled business and therefore, by operation of statute, were vested in the respondent. The Tribunal further held that it lacked jurisdiction to award interest on the compensation amount. On special‑leave appeal, the petitioner contended that (i) the Tribunal had no authority to decide the question of capital allocable to the controlled business because there was no dispute as to that question and it had not been referred to the Tribunal; (ii) the liability of the petitioner for the unclaimed dividends and the equivalent assets had not been transferred to and vested in the respondent under section 7(1) of the Act; and (iii) the petitioner was entitled to interest on the compensation payable and that the Tribunal possessed jurisdiction to award such interest. The Court held that the dispute between the parties concerned not only the compensation but also the set‑off, and that the Tribunal had jurisdiction to decide that combined dispute.

The dispute was referred to the Tribunal, and the Tribunal possessed jurisdiction to decide that dispute. A combined reading of clauses (iv) and (vi) of Rule 12A of the Rules made under the Act makes it abundantly clear that a claim for set‑off is certainly covered by the wide phraseology of clause (iv) of Rule 12A. The calculations prescribed under Rule 18(1) demonstrate an integral connection between the compensation payable to the insurer and the amount representing the capital allocable to the controlled business that was transferred to the respondent. Because these figures cannot be dissociated, the respondent made a composite offer, and the Act contemplates setting one off against the other. The Court followed National Insurance Co. v Life Insurance Corporation of India [1964] 2 S.C.R. 182. The definition of assets and liability of a controlled business in sub‑section (2) of section 7 of the Act is sufficiently comprehensive to include unclaimed dividends and the corresponding assets. Sub‑sections (1) and (2) of section 7 of the Act provide that the assists and liabilities to be transferred must belong to the controlled 127 business of the insurer. The antithesis therefore is not between the company and its business but between the controlled business and the other business of the insurer, and all rights and liabilities pertaining to the controlled business are transferred to the Corporation. 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. The Court applied In re Seven and Wye Severn Bridge Railway Co. (1898) 1 Ch. D. 559. The provisions of the Insurance Act 1938 do not, expressly or by necessary implication, exclude the jurisdiction of the courts and tribunals from examining the correctness of the balance‑sheet certified by the Controller; for the purpose of the Insurance Act it would be accepted as correct. There is no provision in the Life Insurance Corporation Act that makes the contents of the balance‑sheet final for the purpose of transfer to and vesting in the Corporation of the insurer’s assets and liabilities. While the balance‑sheet may furnish valuable evidence in an enquiry before the Tribunal, its contents can still be proved to be wrong. The circumstances of the case do not justify the Court exercising its extraordinary jurisdiction under Article 136 of the Constitution to permit the appellant to raise for the first time the plea of apportionment of the unclaimed dividends and to remand the matter to the Tribunal for such apportionment of the dividends and the corresponding assets. In view of the decision of this Court in National Insurance Co. Ltd. v Life Insurance Corporation of India, the appellant will be entitled to interest at the rate of four per cent on the amount of compensation, following National Insurance Co. Ltd. v Life Insurance Corporation of India [1964] 2 S.C.R. 182.

The Court recorded that the present civil appeal, numbered 568 of 1961, was entertained under special leave against an order dated 17 February 1958 issued by the Life Insurance Tribunal at Nagpur in case number 17/XVI‑A of 1957. The judgment was delivered on 18 October 1963 by Justice Subba Rao. Counsel for the appellant included representatives of the appellant company, while counsel for the respondent comprised the Attorney General for India and other appointed advocates.

The appellant is a company that had been incorporated under the Indian Companies Act of 1882 and the Insurance Act of 1938. Until December 1957 the company’s registered office was situated in Ajmer, after which it relocated to Calcutta. The company operated as a composite insurer, conducting both life insurance and general insurance businesses. The Life Insurance Corporation Act of 1956, cited as Act 31 of 1956, was enacted to nationalise the life insurance sector in India by transferring all such business to a newly created corporation. The Act became operative on 1 July 1956.

Subsequently, on 1 September 1956, the Central Government, pursuant to section 3 of the Act, established the Life Insurance Corporation of India, hereinafter referred to as the Corporation, which is the respondent in the present appeal. Section 7 of the Act stipulated that on the appointed day, also 1 September 1956, the assets and liabilities relating to the controlled business of every insurer were to be statutorily transferred to and vested in the Corporation. Accordingly, the appellant’s controlled business, defined under the Act as its entire life‑insurance business, was transferred to and vested in the Corporation.

Following the statutory transfer, disputes emerged between the appellant and the Corporation concerning the determination of compensation payable to the appellant and other incidental and consequential matters. On 21 May 1957, the Corporation sent a letter offering to pay the appellant a sum as compensation, proposing to set off this amount against the sum owed by the appellant for a portion of the paid‑up capital of the controlled business and the assets representing that portion. The appellant rejected the offer in its entirety by a letter dated 9 August 1957. On 20 August 1957, the Corporation informed the appellant, through a further letter, that because the offer had not been accepted, the matter had been referred to the Life Insurance Tribunal.

Both parties subsequently appeared before the Tribunal and filed their respective statements. The Tribunal framed eight issues for determination. Of those, issues numbered 5, 6A, 7A and 7B were identified as relevant to the present appeal. Issue 5 posed the question whether the appellant was entitled to a sum of Rs 12,36,415, or alternatively to Rs 6,60,369.

The Tribunal identified four principal questions for determination. Issue 5 asked whether the petitioner was entitled to the sum of Rs 12,36,415, or in the alternative Rs 6,60,369, or further alternatively Rs 5,95,764 as set out respectively in annexures A to C to the Statement of Claim. Issue 6(A) concerned whether the petitioner could claim the unpaid dividends that were attributable to and pertained to its General Insurance Business as narrated in paragraph 6 of the Statement of Claim. Issue 7(A) required a decision on whether the Tribunal possessed jurisdiction to award interest on the amount of compensation, and Issue 7(B) sought to determine the rate and the period for such interest, should it be permissible. On Issue 5 the Tribunal computed the compensation payable by the respondent to the appellant as follows: the amount due as compensation was Rs 5,95,764; from the allocable paid‑up capital of Rs 9,79,683 the respondent had already received assets equivalent to Rs 1,35,919; consequently the balance receivable under that head was Rs 1,43,764; the respondent was therefore entitled to deduct this Rs 1,43,764 from the Rs 5,95,764 owed, leaving a balance of Rs 4,52,000 to be paid by the respondent to the appellant. In brief, the Tribunal ascertained the compensation amount and set off against it the balance of the amount due to it from the appellant with respect to the allocable paid‑up capital. On Issue 6(A) the Tribunal observed that the appellant had shown the unpaid dividends in the balance‑sheets as a liability of the life department and had always regarded it as a liability of that department. Because it was impossible to apportion the unpaid dividends of any shareholder to the various businesses carried on by the insurer, the Tribunal relied upon the insurer’s books of accounts to determine whether the liability fell on one department or another. On that basis it held that the entire liability for the unclaimed dividends and the assets equivalent to that liability belonged to the controlled business and were therefore statutorily vested in the respondent‑Corporation. On Issues 7(A) and 7(B) the Tribunal concluded that it had no jurisdiction to award interest on the compensation amount. Accordingly, the respondent was directed to pay the appellant, within two weeks, the sum of Rs 4,52,000, less any amount that might already have been paid by the respondent to the appellant as admitted compensation.

Mr Setalvad, counsel for the appellant, raised three points before the Court. First, he contended that the Tribunal lacked jurisdiction to decide the question of the capital allocable to the controlled business because there was no dispute between the parties on that point and therefore the question had not been referred to the Tribunal. Second, he argued that the liability of the appellant‑Company for unclaimed dividends and the assets equivalent to that liability were not transferred to, nor vested in, the Corporation under section 7(1) of the Act. Third, he submitted that the appellant was entitled to interest on the compensation amount payable to it and that the Tribunal possessed jurisdiction to award such interest. These contentions formed the basis of the appeal.

The learned counsel for the appellant first guided the Court through the exchange of letters that had taken place between the parties and the pleadings filed before the Tribunal. He asserted that the correspondence, the pleadings, and the issues raised demonstrated that the parties had no dispute concerning the amount of capital that could be allocated to the controlled business, and that consequently the Tribunal erred in deducting a larger sum than the parties had agreed upon under that head. Since the answer to this contention depended principally on the contents of the letters and the pleadings, the Court decided to examine those documents briefly but carefully. On 21 May 1957, the respondent sent a letter to the appellant offering to pay the sum of Rs 3,30,023 as full satisfaction of the compensation owed to the appellant for the acquisition of its controlled business under the Act. The same letter proposed to set off against that amount Rs 1,71,365, which represented the portion of the appellant‑Company’s paid‑up capital and the assets representing that portion that had been allocated to the controlled business in accordance with rule 18 of the Life Insurance Corporation Rules, 1956, made under the Act. The letter concluded with the statement that, because the aforesaid assets had not yet been transferred to the Corporation, the amount of Rs 1,71,365 would be set off and would form a deduction from the compensation payable to the appellant’s company. The offer was expressed in clear and unambiguous terms and was a single composite proposal. It could not be interpreted as containing two separate 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. Rather, the offer expressly indicated that compensation would be paid after the respondent’s claim on the capital allocation was set off against it.

Subsequently, on 9 August 1957, the appellant replied with a letter that attempted to split the respondent’s offer. In that letter, the appellant declared that the compensation amount of Rs 3,30,023 mentioned in the respondent’s proposal was not acceptable to it. Regarding the capital allocated to the controlled business, the appellant stated that assets worth Rs 1,35,919 had already been transferred to the respondent and that, taking into account the amount claimed by the respondent under that head, only Rs 35,446 remained to be transferred by the appellant to the Corporation. The appellant further requested that this remaining amount be deducted from any compensation that might be ordered and decreed by the Tribunal to be paid to it. The contents of this letter clearly showed that the appellant accepted a portion of the respondent’s offer while rejecting the remainder. On 20 August 1957, the respondent replied, indicating that because its offer had not been accepted, it had forwarded the necessary papers to the Tribunal. Two days later, on 22 August 1957, the appellant received a notice from the Tribunal. The preamble of that notice began with the words: “Whereas you …”, signalling that the matter before the Tribunal arose from the appellant’s failure to accept the amount determined by the Corporation and offered in full settlement of the compensation payable under the Act. This chain of correspondence established the factual basis for the dispute that the Tribunal was called upon to resolve.

In the notice issued by the Tribunal, the introductory paragraph read that the appellant had not accepted the amount that the Corporation had determined and offered as full settlement of the compensation due under the Act, that the appellant had asked the Corporation to refer the matter to the Tribunal for a decision, and that the Corporation had indeed made that referral. This wording made clear that the matter before the Tribunal arose because the appellant refused to accept the amount fixed by the Corporation as a complete settlement of the compensation liability under the Act. The notice did not suggest that any portion of the offer that the appellant might have accepted was to be treated as a matter already resolved between the parties, leaving only the contested portion for adjudication.

On 13 September 1957, the appellant addressed a letter to the respondent. In that letter the appellant asked the respondent to pay the compensation amount that had been offered, subject to any adjustment that the Tribunal might order in its decision. The appellant also asked the respondent to provide a copy of the calculation sheet that showed the basis on which the offered compensation figure had been computed. On the same day the respondent replied by forwarding the requested calculation sheet. The sheet disclosed not only the total compensation amount that the respondent considered payable, but also the portion of the paid‑up capital that had been allocated to the controlled business and that could be deducted from the compensation.

Four days later, on 17 September 1957, the respondent wrote to the appellant stating that if the appellant agreed to accept the amount that the respondent had offered as full satisfaction of the compensation due under the Act, then the respondent would be prepared to make payment of that amount. This correspondence showed that the dispute between the parties concerned the entire composite offer made by the respondent – that is, both the compensation liability and the set‑off of the amount claimable by the respondent pursuant to rule 16 of the Rules framed under the Act.

The composite nature of the dispute was also reflected in the pleadings filed before the Tribunal. On 10 October 1957, the appellant filed its statement. In paragraph 4 of that statement the appellant reproduced the substance of a letter that the respondent had sent on 21 May 1957. The reproduced passage demonstrated how the appellant understood the offer. It read that, according to the respondent’s letter, a part of the claimant’s paid‑up capital and the assets representing that part had been allocated to the claimant’s controlled business under rule 18 of the Life Insurance Corporation Rules, 1956, amounting to Rs 1,71,365. Because those assets had not yet been transferred to the respondent, the respondent said that the sum of Rs 1,71,365 would be set off and deducted from the compensation payable to the claimant. From this excerpt it was evident that the appellant regarded the respondent’s communication as a single, composite offer that combined the compensation amount with a set‑off of the capital allocation.

In paragraph 5 of the same statement the appellant set out its reply to the respondent’s offer. Subsequently, on 7 November 1957, the respondent filed its own statement before the Tribunal, thereby continuing the discussion of the composite offer and rejecting any attempt by the appellant to separate the offer into distinct parts.

In this case the respondent submitted a statement before the Tribunal. In paragraph three of that statement it reiterated its offer of compensation of Rs 3,30,023 together with a claim for set‑off calculated in accordance with rule 18 of the Rules. Throughout the correspondence and the pleadings the respondent consistently maintained that its offer was a composite one, meaning that the compensation component and the set‑off component were interdependent. The respondent neither expressly accepted nor by necessary implication acquiesced in the appellant’s attempt to separate the offer into distinct parts. When a party makes a composite offer, each part being dependent on the other, the other party cannot, by accepting only a part, force the offering party to limit the dispute to the unaccepted portion. Such a limitation is permissible only if the offering party expressly agrees to it. In the present matter there was no agreement to that effect, and the respondent continuously insisted that the appellant accept the entire offer as full settlement of the appellant’s claim. The respondent’s reliance on the fact that the Tribunal had not framed a specific issue concerning the paid‑up capital allocable to the controlled business of the appellant does not alter this position. The pleadings clearly identified the dispute as revolving around the set‑off, and the calculation of the amount due for the paid‑up capital depends on a basic factor that also determines the compensation amount. It appears that the Tribunal did not consider it necessary to frame a separate issue, because once that underlying factor is resolved, the amount concerning the paid‑up capital becomes a matter of arithmetic. That arithmetic can be taken into account when awarding the set‑off under the general issue. Moreover, the Tribunal’s order shows no indication that this question was raised before it. Both parties proceeded on the assumption that the compensation amount and the paid‑up capital amount were linked and should be calculated on the same basis, with one deducted from the other. Had the issue been raised before the Tribunal, the Tribunal would have been expected to address it. Paragraph nineteen of the order further indicates that the appellant did not dispute the method of set‑off based on the compensation amount determined by the Tribunal, and counsel for the appellant, Mr Setalvad, contended that under section 16(1) of the Act, read with Part A of the First Schedule, compensation should be computed according to either paragraph 1 or paragraph 2. He further argued that the insurer should receive the computation more advantageous to him, and that for the purpose of calculating compensation under paragraph 1, the amount representing the

In his argument, the appellant maintained that the amount of paid‑up capital allocable to the controlled business was irrelevant to the computation of compensation. He supported this claim by showing how the Tribunal had performed two alternative calculations. He pointed out that when the Tribunal applied paragraph 2 of Part A of the First Schedule, the paid‑up capital allocable to the controlled business was included in the computation, whereas when the Tribunal used paragraph 1 of the same schedule, that same element was omitted. Although at first sight this line of reasoning might appear reasonable, a closer examination of the figures reveals that the compensation and the paid‑up capital allocable to the controlled business are inextricably linked. Rule 18(1) of the Rules provides that, for a Part A insurer such as the appellant, the paid‑up capital allocable to the controlled business equals the proportion of the insurer’s total paid‑up capital that corresponds to the ratio of the annual average surplus from the controlled business to the sum of that annual average surplus plus twice the annual average surplus from the insurer’s other (non‑life) business. In other words, the factor is calculated as Annual average of surplus ÷ (Annual average of surplus + 2 × Annual average of non‑life surplus), which may be expressed symbolically as L ÷ (L + 2 × non‑L). Applying the numerical values supplied by the Corporation, the factor becomes 15,512.6 ÷ (15,512.6 + 75,011.2) = 0.17136488, where 15,512.6 represents the annual average surplus attributable to the controlled business and 75,011.2 represents twice the annual average surplus from the non‑life business. The total paid‑up capital of the company is not contested and stands at Rs 10,00,000. Multiplying this amount by the factor of 0.17136488 yields a paid‑up capital allocable to the controlled business of approximately Rs 1,71,365. The compensation payable by the Corporation to a Part A insurer, which in this case is the appellant, is prescribed as twenty times the annual average surplus allotted to the appellant’s shareholders. Using the same surplus figure of Rs 15,512.6, the Corporation arrived at a compensation sum of Rs 3,30,023, which it subsequently offered to the appellant. From these calculations it becomes evident that the compensation figure and the capital allocable to the controlled business share a common basis—the annual average surplus. Because the same surplus underlies both calculations, the two resulting amounts cannot diverge. If two different values were produced from the identical surplus, it would indicate an error in at least one of the computations and would cause serious injustice to one of the parties.

In the proceedings before the Tribunal, the respondent presented a single, combined offer because the two monetary figures involved could not be separated. The appellant, in annexure C to the Statement of Claim, asserted that the annual average of the surplus that should be allocated to the shareholders amounted to Rs 29,125.2. By contrast, the respondent contended that this average was only Rs 15,512.6. After examining the evidence, the Tribunal concluded that the correct annual average of the surplus was Rs 29,125.2. This determination disrupted the calculations that the Corporation had previously made under the two separate heads. Applying the same formula with the higher surplus figure, the Tribunal increased the compensation to Rs 2,79,683.18. Consequently, the Tribunal correctly set off the two amounts against each other and, after deducting other admitted amounts, held that the remaining balance was payable to the appellant. The discussion above clarifies why a composite offer was necessary and why the dispute concerning that offer could not be divided into two independent parts. Both amounts arise under the provisions of the Act, and the calculation of each depends on the same “surplus.” Accordingly, it is reasonable to conclude that the Act envisages setting one amount off against the other.

Rule 12A of the Rules provides the Tribunal with ample jurisdiction to give effect to the legislative intention. The relevant portion of Rule 12A states: “The Tribunal may exercise jurisdiction in the whole of India and shall have power to decide or determine all or any of the following matters, namely:— (iv) all claims for compensation payable under the Act to insurers whose controlled business has been transferred to and vested in the Corporation; and all matters connected with the determination, payment and distribution of such compensation; (vi) such supplemental, incidental or consequential matters which the Tribunal may deem expedient or necessary to decide or determine for the purpose of securing that the jurisdiction vested in it under the Act and in respect of matters referred to above is fully and effectively exercised.” A combined reading of clauses (iv) and (vi) makes it clear that a claim for set‑off of the kind presently considered falls within the wide language of clause (vi). Although it is argued that this rule was introduced after the decision in the present dispute, the material provisions merely codify principles that were already inherent in the dispute under the Act. The Supreme Court, in National Insurance Co. v. Life Insurance Corporation of India, held that a claim for set‑off lies within the Tribunal’s jurisdiction. Speaking for the Court, Justice Hidayatullah observed at page 1178 that “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 …”

The Court observed that the two statutory provisions required a joint construction, and that, on that basis, the Corporation was entitled to a set‑off of Rs 6,00,000 in lieu of the assets belonging to the controlled business. Accordingly, the Court held that the Corporation had a right to set‑off the amount due to it, and that the Tribunal had correctly exercised its jurisdiction by ordering such a set‑off. The Court therefore concluded that the dispute between the parties did not concern solely the compensation claim but also the right of set‑off, and that the Tribunal had duly been authorised to decide both aspects. In paragraph 19 of its order, the Tribunal had properly set off the sums owed by each party to the other and had determined that the remaining balance of Rs 4,52,000 was the amount still payable by the appellant as compensation. The Court affirmed this finding and proceeded to consider the next matter, namely the outstanding dividends or assets equivalent thereto that had been taken over by the Corporation.

The Court then recited several material facts concerning the dividend declarations of the appellant. The Company’s paid‑up capital was Rs 10,00,000, divided into 40,000 shares of Rs 25 each, fully paid. On 28 September 1953 the appellant declared a dividend of four per cent, amounting to Rs 40,000; on 29 September 1954 it declared another dividend of four per cent, also amounting to Rs 40,000; and in the year 1955 it declared a dividend of six per cent, amounting to Rs 60,000. Certain payments were made to some shareholders, and the balance of outstanding dividends as at 31 December 1955 stood at Rs 89,680. The Company’s balance‑sheets recorded the unpaid dividends as a liability of the life department. Although the amounts representing those dividends were not shown as separate assets, the Court noted that they must have been included in the cash or other assets reflected in the balance‑sheets. Consequently, the entire liability for the unclaimed dividends, together with assets of equal value, were taken over by the respondent. Relying on the books of account, balance‑sheets and other documents, the Tribunal held that the liability pertained only to the life insurance business. Counsel for the appellant argued that, under section 7(1) of the Act, only assets and liabilities “appertaining to the controlled business of an insurer” were to be transferred to and vested in the Corporation. The appellant contended that the declared dividends and the assets equivalent to those liabilities were assets and liabilities of the Company itself, not of the controlled business, and therefore should not vest in the Corporation. Section 7(1) of the Act states: “On the appointed day there shall be transferred to and vested in the Corporation all the assets and liabilities appertaining to the controlled business of all insurers.” The appellant sought to separate the Company’s general assets and liabilities from those of the controlled business and advanced the argument that, upon declaration of a dividend, the dividend and the corresponding assets ceased to belong to the business and became property of the Company.

In order to resolve whether the dividends that had been declared and the corresponding assets remained part of the insurer’s controlled business, the Court first examined the precise legal effect of a dividend declaration. The Court referred to Palmer’s Company Law, twentieth edition, page 625, which states that when a dividend is declared and becomes payable it creates a debt of the company, and each shareholder acquires the right to sue the company for his proportionate share. Until such a declaration is made and the dividend is payable, the shareholder possesses no enforceable right. The Court also cited the decision in re Savern and Wye and Severn Bridge Railway Co. [1896] 1 Ch. D. 559, 565, where Romer J. observed that the company does not become a trustee of the dividends once they are declared payable. He explained that the dividends, having been declared and rendered payable more than twenty years before the present claims, constituted debts owed to shareholders, a point emphasized by Lindley L.J. in his treatise on Company Law, page 437. This authority establishes that a declaration of dividend instantly creates a legal debt to each shareholder, which the shareholder may enforce at law, and that the company does not assume a fiduciary trustee role over those dividends. Accepting this well‑settled position, the Court concluded that the shareholders in the present matter were merely creditors with respect to the dividends declared in their favour, and that the amounts representing those dividends continued to form part of the company’s assets. The balance‑sheets submitted in the case demonstrated that no specific sums had been set aside for dividend payment; consequently, the dividend equivalents remained embedded in the general asset pool, while the dividends themselves persisted as general liabilities of the company. Accordingly, there is no legal distinction between the portion of assets equal to the declared dividends and the remainder of the company’s assets with respect to ownership. With this understanding, the Court proceeded to examine section 7(1) of the Act, focusing on whether the declared dividends and their equivalent amounts fall within the expression “assets and liabilities” that pertain to the insurer’s controlled business.

Section 7(1) of the Act provides that, on the appointed day, every asset and liability that appertains to the controlled business of all insurers shall be transferred to and vested in the Corporation. The first issue considered was whether the dividends that had been declared and the amounts representing those dividends fell outside the expression “assets and liabilities” of the controlled business. It was argued that, although the dividends formed part of the company’s assets and liabilities, they did not appertain to the controlled business. The term “appertain” in ordinary language means to belong to, to be appropriate to, or to relate to. Consequently, for an asset or liability to be transferred it must belong to the controlled business of the insurer. This creates a limitation on the phrase “assets and liabilities”. Because the statute contemplates the transfer of assets and liabilities of a company that may carry on businesses other than life‑insurance, it is necessary to restrict the transfer to those assets and liabilities that pertain solely to the controlled business. The distinction therefore is not between the company and its business as a whole, but between the controlled business and the other businesses that the insurer may operate.

Sub‑section (2) of section 7 supplies an exhaustive list of the categories of property that constitute assets appertaining to the controlled business, thereby giving an inclusive meaning to the word “assets”. The listed categories cover both movable and immovable property and “all other interests and rights in or arising out of such property” that are in the insurer’s possession. Liabilities are defined to include all debts and obligations of any kind existing at the time of the statutory transfer. All of these rights and liabilities that relate to the controlled business are to be transferred on the appointed day to the Corporation. The enumeration leaves no room for separating any assets from the controlled business and assigning them to the company apart from its business. To illustrate, consider a company that undertakes only life‑insurance business; it is impossible to hold that declared dividends and the assets representing those dividends are unrelated to the business. Such a view could arise only if the declared dividends were held in trust for a shareholder, but settled law does not recognize such a trust concept. Shareholders can realise their dividends solely from the business assets, which include the amounts representing the dividends. Accordingly, the definition of assets and liabilities in sub‑section (2) is sufficiently comprehensive to encompass the declared dividends and the corresponding assets. The Court therefore could not accept the argument that the dividends fell outside the scope of “assets and liabilities” of the controlled business. Even so, it was contended that, because the appellant was a composite insurer, the dividends and the equivalent assets…

In this case, the appellant argued that the liability for the dividends and the assets representing those dividends related not only to the life‑insurance portion of its business but also to the general‑insurance portion, and therefore, under section 7(1) of the Act, only the portion of those assets and dividends that could be allocated to the controlled business should have been transferred to the Corporation. The appellant further contended that the Tribunal had erred by concluding that the entire amount of the declared dividends and the assets representing them had been transferred to the Corporation. To evaluate this contention, it is necessary to examine the relevant statutory provisions. Section 7(1) of the Act provides that all assets and liabilities belonging to the controlled business of an insurer are to be transferred to a property vested in the Corporation. Explanation (a) to section 7 clarifies that, in the case of a composite insurer, the term “assets appertaining to the controlled business of an insurer” includes that part of the insurer’s paid‑up capital or assets representing such part which has been allocated to the controlled business in accordance with the rules made for that purpose. Section 10 of the Act further explains that, when a composite insurer’s controlled business is transferred and vested in the Corporation, the provisions of the preceding sections apply only to the extent that any property, rights, powers, debts, liabilities, obligations, contracts, agreements, other instruments and legal proceedings pertain to the controlled business. Section 10 also empowers the Central Government, by appropriate rules, to (b) allocate the paid‑up capital or assets representing such capital between the controlled business and any other business, and (c) apportion and adjust any debts, liabilities or obligations that have been incurred partly for the controlled business and partly for other purposes, including necessary variations of mortgages and encumbrances relating to those debts or obligations. Rule 18 of the Rules prescribes the method for allocating the paid‑up capital of a composite insurer. These statutory provisions make it clear that, for a composite insurer, only that portion of the assets and liabilities that can be assigned to the controlled business is to be transferred to and vested in the Corporation. Because the declared dividends and the assets representing those dividends arise from the composite business as a whole, the argument presented by counsel for the appellant—that only the part of those assets and liabilities referable to the controlled business should be transferred, while the remainder should remain with the insurer—has a basis in the wording of the Act and the accompanying rules.

In response to the argument that only a portion of the insurer’s assets and liabilities should be transferred, the Attorney General asserted that the appellant had presented those assets and liabilities as belonging to the life insurance business in balance‑sheets that had been duly approved by the Controller under the Insurance Act, 1938 (Act No. 4 of 1938). The Attorney General contended that, because the balance‑sheets had received the Controller’s approval, the appellant was consequently barred from challenging their accuracy. The Court therefore turned to the provisions of the Insurance Act, 1938 for guidance. Sections 10(1) and 11 of that Act required insurers to keep separate accounts and funds for the different classes of insurance business they carried on, and to maintain distinct balance‑sheets for each line of business. Under section 10(1), an insurer was obliged to keep a separate account of all receipts and payments for each class of insurance business mentioned in the provision. Clause (2) of the same section further mandated that, if the insurer conducted life‑insurance business, all receipts due in respect of that business must be placed in a separate fund, the assets of which, after a period of six months, had to be kept distinct and separate from the insurer’s other assets. Section 11 required every insurer to prepare, for each year, a balance‑sheet in the forms prescribed in Part II of the First Schedule, in accordance with the regulations of Part I of that Schedule. Form A, the prescribed format, contained two columns, one headed “Life Annuity Business” and the other headed “Other classes of business”.

Section 15(1) of the Insurance Act further required that the audited accounts and statements referred to in section 11 or in section 13(5), together with the abstract and statement mentioned in section 13, be furnished to the Controller as returns within the time prescribed. Section 21 provided that, if the Controller found any return filed under the Act to be inaccurate or defective in any respect, he could seek the necessary information from the insurer and decline to accept the return unless the inaccuracy was corrected and the deficiency remedied within the prescribed time. Under subsection (2) of section 21, the Court was empowered, upon an insurer’s application and after hearing the Controller, to cancel any order made by the Controller or to direct the acceptance of a return that the Controller had refused, provided the insurer satisfied the Court that the Controller’s action was unreasonable in the circumstances. Section 22 conferred on the Controller the power to order a revaluation of assets. Section 23 stated that any return certified by the Controller as having been duly furnished would be deemed to be a return so furnished, and subsection (2) of that section provided that any document purporting to be a copy of a return certified by the Controller would be treated as a copy of that return for evidentiary purposes.

In this part of the judgment the Court explained that a document certified by the Controller as a copy of a return is to be treated as if it were the original return for evidentiary purposes, unless a party can prove a discrepancy between the certified copy and the original return. The Court then addressed the first issue, namely whether the contents of a balance‑sheet that has been certified by the Controller under the Insurance Act bind the insurer in a collateral proceeding. The Court observed that the provisions of the Insurance Act do not state that the certified balance‑sheet is conclusive for every purpose nor that it cannot be challenged in a collateral proceeding. For the purposes of the Insurance Act the balance‑sheet is presumed to be correct, but the Act does not, either expressly or by necessary implication, remove the jurisdiction of courts or tribunals to examine the accuracy of such balance‑sheets. The Court further noted that the Life Insurance Corporation Act contains no provision that renders the certified balance‑sheet final for the purpose of transferring and vesting the insurer’s assets and liabilities in the Corporation. The certified balance‑sheet therefore provides valuable evidence before the Tribunal, yet it may still be shown to be inaccurate.

The Court then considered the argument advanced by counsel for the petitioner that, for the sake of convenience in dividend distribution, the entire dividend amount was shown as belonging to the life‑insurance business because the head office at Ajmer dealt only with that business and made the payments. The Court found that, in the facts of this case, the declared dividends related to the composite business as a whole and only a portion of them related to the controlled business. Consequently, the entries in the certified balance‑sheet were not correct. Applying section 7(1) of the Life Insurance Corporation Act, the Court held that on the appointed day only the portion of the dividends and the corresponding assets that pertained to the controlled business were transferred to and vested in the Corporation.

The next issue concerned the manner in which the assets and liabilities should be apportioned between the Corporation and the Company. The Court observed that before the Tribunal the appellant had not sought an apportionment of the dividends; instead, it demanded a transfer of the entire liability together with the assets necessary to reimburse the respondent for any shareholder claims. The petition for special leave likewise did not specifically request apportionment of the dividends between the two entities. Although during arguments counsel for the appellant attempted to sustain the claim on a construction of section 7 that the assets and liabilities belonged solely to the Company, he later advanced apportionment as an alternative argument. The Court rejected the main contention. Even assuming an apportionment were made, the Court explained, the allocated assets and liabilities would offset each other because both the Corporation and the Company would each be liable to pay the full amounts allotted to the shareholders. But there

In this case the Court observed that apportioning the dividends might give a practical advantage to either party because a shareholder or shareholders could choose not to claim the dividends that are payable to them. The Court further held that it was not justified to invoke the extraordinary jurisdiction granted by Article 136 of the Constitution in order to allow the appellant to raise for the first time before the Court the plea of dividend apportionment and to remit the matter back to the Tribunal for such apportionment of dividends and the related assets. Accordingly the Court declined to grant the request made by counsel for the appellant for this indulgence at such a late stage of the proceedings. The Court then turned to the issue of interest on the sum claimed. Both parties agreed that, in accordance with the Court’s earlier decision in National Insurance Co. Ltd. v. Life Insurance Corporation of India, the appellant would be entitled to interest calculated at four per cent per annum on the amount of Rs 4,52,000 from 24 May 1957 until the date of actual payment. After making this modification, the Court ordered that the appeal be dismissed and that the costs be awarded in proportion to the parties’ positions. The final order therefore dismissed the appeal with modification, with costs awarded proportionately. (1) [1964] 2 S.C.R. 182