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NATIONAL INSURANCE CO. LTD,, CALCUTTA Vs. LIFE INSURANCE CORPORATION OF INDIA

Posted on 24 June 2009 by jyoti

Title

NATIONAL INSURANCE CO. LTD,, CALCUTTA Vs. LIFE INSURANCE CORPORATION OF INDIA



Coram

DAS, S.K., KAPUR, J.L., SARKAR, A.K., HIDAYATULLAH, M., DAYAL, RAGHUBAR



Act

Life Insurance Corporation Act



Subject

Life Insurance- Nationatisation-Business vesting in Life
lnsurance Corporation-Determination of compensation-
Principle-Life Insurance Corporation Act, 1956 (31 of 1956),
s. 16, Such I-Life Insurance Corporation Rules,1956, r.
18.





Citation

1963 AIR 1171, 1963( 2 )Suppl.SCR 971, , ,



Head Notes

The appellant company carried on life insurance business in
addition to other insurance business. On the passing of the
Life Insurance Corporation Act, 1956, which was intended to
nationalise all life Insurance business, its 'controlled
business' stood vested in the Life Insurance Corporation of
India on and from September 1, 1956, the appointed day. The
dispute between the parties related to the compensation
payable to the appellant by the Corporation on such vesting.
Admittedly two actuarial investigations were made in the
case. One valuation period covered years 1946-1950 and the
other from 1931 to 1953. The Corporation determined Rs.
19,39,669 as compensation for the controlled business in
accordance with s. 16 read with the First Schedule of the
Act and after obtaining the approval of the Central
Government wrote to the Company on February 14, 1937,
claiming Rs. 6,00,000 under r. I 8 of the Life Insurance
Corporation Rules 1956, as assets appertaining to the
controlled business, and offered to pay the balance of Rs.
13,39,669 in full satisfaction of the claim. The Company
claimed Rs. 27,99,275 as compensation and asked for the pay-
ment of the admitted amount without prejudice to the claim
of either side. The Corporation refused to pay except in
full satisfaction of the claim. On the Company's request
the dispute was referred to the Life Insurance Tribunal
Nagpur.
Had, that under s. 16(2) of the Act the Corporation could
only make the offer and pay the money in full satisfaction
of the claim for compensation and its action in rejecting
the demand of the appellant for the admitted amount, even
though without prejudice to the claims of the parties, was
wholly justified. Such compensation was to be determined on
the principles laid down in para. I of Part A of the First
Schedule to the Act and as worked out in Formula D specified
in the judgment.
The word "allocated" in Part A and para. I of the said
Schedule must be read in relation to the years that follow
the actuary's report and not in relation to the period for
which the actuary made investigation.
Paragraph I of the Schedule, properly construed, prescribes
a definite system of calculation of the compensation which
is meant to give the share holders an equivalent of their
annual profits capitalised at 20 years purchase. The
intention is to get a true average spread over a number of
years. Explanation I (a) shows that the intention is to
base the calcula. tion upon a wide view of the Company's
business.
The share referred to in para. I comes out of the profits
which-accrue to the company during the period of
investigation and the allocation must also be taken to be
for the period during which the profits arise. To connect
the profits with a future period is to make the scheme
unworkable since the insurance business is based upon the
actuarial assessments of the position of the company.
The tribunal was, therefore, right in holding that the two
surpluses in the case were related to the five years and
three years respectively covered by the actuarial
investigations and they must be deemed to have been
allocated for the same period.
The words "annual" and "average" must he given their full
meaning. The word "annual" shows that the average must be
one reckoned by the year and "average" is reached by
dividing the aggregate of several quantities by the number
of quantities. In finding "the annual average" the amounts
of the surpluses as disclosed in the investigations must be
aggregated and the result divided by the total number of
years. Otherwise there would be an average or two averages
which would not be an "annual average".
The order of the Tribunal awarding Rs. 24,91,139 as
compensation as also its direction allowing the respondent
to set off of Rs. 6,00,000 therefore was correct and must be
upheld.
The appellant was entitled to interest on the balance at 4%
per annum,
Birch v. Joy, (1852) III H.L.C. 565-10 E.R. 222, Swift & Co.
v. Board' of Trade, [1925] A.C. 520, Fludyer v. Cocker,
(1805) 33 E,R. 10, International Railway Company v. Niagara
Parks Commission, [1944] A.C. 328, Satinder Singh v. Amrao
Singh, [1961] 3 S.C.R. 676 and Inglewood Pulp and Paper
Company Ltd. v. Brunswick Electric Power Commission, [1928]
A.C. 492, discussed.



Judgment Made On

12/11/1962

JUDGMENT:
CIVIL APPELLATE.JURISDICTION : Civil Appeals Nos. 551 and
552 of 1960.
Appeals by special leave from the Judgment and order dated
December 12, 1957, of the Life Insurance Tribunal, Nagpur in
Case No. 9/XVI-A of 1957.
M. C. Setalvad, Attorney-General for India,
A. V. Viswanatha Sastri, S. N. Andley, Rameeshwar Nath and
P. L. Vohra, -for the appllant (in C. A. No. 551160) and the
respondent (in C A. No. 552/60).
S. T. Desai, S. J. Banaji and K. L. Hathi for the
appellant (in C. A. No. 552160) and the respondent (in C. A.
No. 551/60).
1962. December, 11. The judgment of the Court was
delivered by
HIDAYATULLAH, J.-This is an appeal against the order of the
Life Insurance Tribunal, Nagpur, dated December 12, 1952, by
which a dispute about compensation payable to the National
Insurance Company by the Life Insurance Corporation on the
taking over of the life business of the former was decided.
The National Insurance Company is the appellant and the Life
Insurance Corporation is the respondent. Another appeal was
filed by the Life Insurance Corporation against the same
order but was not pressed at the hearing.
The National Insurance Company carried on life insurance
business in addition to other insurance
Co.
974
business and was what the Life Insurance Corporation Act,
1956 (31 of 1956), describes as a "composite insurer." The
Life Insurance Corporation Act was passed in 1956 to
nationalise the life insurance business of all insurers by
transfer-ring all such business to a Corporation established
for the purpose. This Corporation is the well-known Life
Insurance Corporation. Under the Act a distinction was made
between controlled business' and other insurance business
carried on by Insurance Companies. 'Controlled business'
meant life insurance business from a date to be fixed by
notification in Gazette called the "appointed day' all the
and on and
the Official
assets and
liabilities of appertaining to the controlled business of
all insurers were transferred to and vested in the
Corporation. This date was September 1, 1956.
The NationalInsurance Company was a composite
insurer and itslife business therefore stood transferred
to and vested in the Life Insurance Corporation from the
appointed day. Under s. 16 of the Life Insurance
Corporation Act, the National Insurance Company was entitled
to receive compensation from the Life Insurance Corporation
in accordance with the principles contained in the First
Schedule to that Act. To these principles we shall make a
detailed reference presently. As the National Insurance
Company was carrying on a composite business it was
necessary to separate the 'assets appertaining to the
controlled' business' from those a pertaining to its other
business under s. 10 read withs. 7 of -the Corporation Act.
These assets were defined in and Explanation added to s. 7
(2) as follows :-
"The expression "assets appertaining to the controlled
business of an insurer"-
(a) in relation to a composite insurer includes that part
of the paid-up capital of the insurer or assets representing
such part which has or have been allocated to the controlled
975
business of the insurer in accordance with the rules made in
this behalf,
(b) in relation to a Government, means the amount lying to
the credit of that business on the appointed day."
Sections 7 and 10 (2) conferred on the Central Government
special rule-making powers and inter alia for the allocation
of the Daid-up capital or assets
representing such paid-up capital, as the case may be
between the controlled business of the insurer and any other
business. In pursuance of these provisions and s. 48 of the
Act the Life Insurance Corporation Rules, 1956, were framed
by the Central Government and Rule 18 provided for
allocation of the paid-up capital of a composite insurer.
We need not quote Rule 18 providing for the method of
allocation of capital of a composite insurer because it was
provided there that the paid-up capital allocable to the
controlled business shall not, in any case, exceed a sum of
Rs. 6,00,000 and the maximum amount applied to the National
Insurance Company and was payable by it to the Life
Insurance Corporation.
The Life Insurance Corporation determined Rs. 19,39,669 as
compensation for the controlled business vested in the
Corporation in accordance with s. 16 read with the First
Schedule of the Life Insurance Corporation Act, 1956. After
obtaining the approval of the Central Government, by a
letter dated February 14, 1957, sent to the Company, the
Corporation pointed out that the National insurance Company
was required to pay Rs. 6,00,000 under Rule' 18 of the Life
insurance Corporation Rules., 1956, as assets appertaining
to the controlled business and offered the balance of Rs.
13,39,669 in full satisfaction of the claim. The National
Insurance Company asked for the calculation sheets and they
were supplied by the
976
Life Insurance Corporation. The National Insurance Company
did not accept the Compensation
offered to it and requested that the dispute be refer-
red to the Life Insurance Tribunal for decision but
asked that the admitted amount might be paid to it
without prejudice to the claim of either side. On
May 1, 1957, the Life Insurance Corporation replied
regretting its inability to pay the admitted amount except
in full satisfaction of the claim as required by law. A
request for reconsideration of the matter made by the
National Insurance Company by a letter dated May 9, 1957, in
which -a sum of Rs. 27,99,275 was claimed as compensation
was turned down by the Life Insurance Corporation and,the
dispute therefore stood referred to the Tribunal.
In making the reference to the Life Insurance Tribunal the
Life Insurance Corporation forwarded the entire
correspondence and the calculation sheets together with
other documents on which the calculation sheets were based.
Before the Tribunal, the Company claimed a sum of Rs.
43,29,470 as compensation due to it. The Company also gave
its calculation sheets. In addition the Company claimed
interest at six per cent. per annum from the appointed day
(September I., 1956) or at least from the date the
compensation wrongly determined was offered to the Company,
namely, February 14, 1957. Earlier, in the letters to which
reference has already been made the National Insurance Co-
mpany had demurred to the deduction of Rs. 6,00,000 from the
amount of compensation offered to it. Its case before the
Tribunal was that under the law, as it stood, the
Corporation was bound to offer theentire compensation
without making a deduction on this account and the claim of
the Corporation for the assets appertaining to the
controlled business of the Company should be separately
enforced.
The difference between the Company and the Corporation in
the matter of calculation arose because the parties put
different interpretaions upon
977
the provisions of the First Schedule to the Life Insurance
Corporation Act. That Schedule is made under s. 16 of the.
Life Insurance Corporation Act, which reads :-
"16. (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 refer-red to the Tribunal for
decision."
We have already stated that the Corporation had offered
compensation as approved by the Central Government after
deducting Rs. 6,00,000, under Rule 18 and this offer was
made in full satisfaction of the compensation payable to the
Company as required by sub-s. (2). The Company refused to
accept the offer but asked to be paid the admitted amount.
This the Corporation declined. We are .of the opinion that
the demand of the Company for the admitted amount even
though without prejudice to the contentions of the parties,
was rightly rejected by the Corporation, as, under sub-s.
(2) of s. 16. the Corporation could only make the offer and
pay the money in full satisfaction of the claim for compen-
sation. Sub-s. (1) of s. 16 refers to the principles
978
contained in the First Schedule. That Schedule is divided
into three parts which are marked A, B and C. It was
admitted before us that part A alone applied and that part
contains principles in two par-
agraphs called 'Paragraph 1, Paragraph 2and
that Paragraph is to be applied to a particular case which
is more advantageous to the insurer. Here Paragraph 1 is
applicable. The relevant portions
may now be read.
"The compensation to be given by the Corporation to an
insurer having a share capital on -which dividend or bonus
is payable, who has allocated as bonus to policy-holdersw
the whole or any part of the surplus as disclosed in the
abstracts prepared in accordance with Part II of the Fourth
Schedule to the Insurance Act in respect of the last
actuarial investigation relating to his controlled business
as at a date earlier than the 1st day of January, 1955,
shall be computed in accordance with the provisions
contained in paragraph 1 or paragraph 2 whichever is more
advantageous to the insurer.
Paragraph 1.--Twenty times the annual average of the share
of the surplus allocated to shareholders as disclosed in the
abstracts aforesaid in respect of the relevant actuarial
investigations multiplied by a figure which represents the
proportion that the average business in force during the
calender years 1950 to 1955 bears to the average business in
force during the calender years comprised in the period
between the date as at which the actuarial investigation im-
mediately preceding the earliest of the relevant actuarial
investigations was made and the date at which the last of
such investigation was made.
(Paragraph 2. Omitted)
Explanation 1--For the purposes of paragraph I
979
(a) ""relevant actuarial investigations" means such minimum
number of latest actuarial investigations as at dates
earlier than the 1st day of January, 1955 (not being less
than two in any case), as would leave the period intervening
between the date as at which the actuarial investigation
immediately preceding the first of such investigations was
made and the date as at which the last of such
investigations was
made, to be not less than four years;
(b) "'Average business in force" means the
average of total sum assured by the insurer
(including any bonus) in respect of his controlled business
as on the 31st day of December of each of the relevant
calender years.
Explanation 2.--For the purpose of paragraph 1, where an
insurer has allocated to share-holders more than 5 per cent.
of any surplus as is referred to therein, the insurer shall
be deemed to have allocated only 5 per cent. of the surplus
and where an insurer has not allocated any such surplus to
share-holders or has allocated to share-holders less than 3-
1/2 per cent. of any such surplus, the insurer shall be
deemed to have allocated 3-1/2 percent. of the surplus.
To understand these provisions we have first to see certain
provisions of the Insurance: Act, 1938 (4 of 1938). That
Act was passed to consolidate and amend the law relating to
the business of insurance. Under s. 13 of the Insurance Act
every insurer including a company carrying on life business
was required, in respect of the life insurance business
transacted, once at least in every five years to cause an
investigation to be made by an actuary into the financial
-condition of the life insurance business including a
valuation of the liabilities in respect
980
thereto and was further required to cause an abstract of the
report of such actuary to be made in accordance with Parts I
and II of the Fourth Schedule to the Insurance Act. The
period of five years in s. 13 was altered to three years by
the Insurance (Amendment) Act. 1950. (47 of 1950) with
effect from June 1, 1950. Fourth Schedule was divided into
two parts. First part contained Regulations and the second
part laid down the requirements applicable to the abstract
in respect of life insurance business which had to be
prepared at these investigations. Regulation (1) laid down
that all abstracts and statements must be so arranged that
the numbers and letters of the paragraphs correspond with
those of the paragraphs of Part II of that Schedule. In
other words, the abstracts and statements prepared by the
actuary were required to follow the same scheme and to
supply the particulars in the same order as stated in Part
II. Part II prescribed a number of tabular statements which
were required to be annexed to every abstract prepared in
accordance with Part II. Among them were (i) a Consolidated
Revenue Account in form G for the inter-valuation period,
and, (ii) a Valuation Bala'nce-Sheet in the Form I. 'Inter-
valuation period' was defined to mean :-
teas respects any valuation, the period to the valuation
date of that valuation from the valuation date of the last
preceding valuation in connection with which an abstract was
prepared under this Act or under the enactments repealed by
this Act, or, in a case where no such valuation has been
made in respect of the class of business in question from
the date on which the insurers began to carry on that class
of business; "
In plain language it meant a period between two valuation
dates. The minimum period was fixed at first as five years
and after June 1, 1950, as three years. In our case, the
first valuation covered a
981
period of five years and the second a period of three years
and the only 'intervaluation period' was the period of three
years which was between the two valuation dates.
The abstract was required to show the valuation date and the
general principles and full details of the methods adopted
in valuation of each of the various classes of Insurance and
annuities. In addition the abstract was required to show
the other matters which the actuary had taken into account
in preparing the actuarial estimates. Then followed
paragraph, No. 8 in which was required to be shown the total
amount of profits arising' during the intervaluation period
including ' profits paid away and sums transferred to the
reserve fund or other accounts during the last period and
the amount brought forward from the preceding valuation and
the allocation of such profits under different headings.
Among these were the amounts allocated as bonus to the
policy holders and . as dividend among the shareholders
including amounts which had already passed through the
accounts during the inter-valuation period which were to be
shown separately.
Section 49 (1) then provided inter alia that no insurer
including a company, who carried on business of life
insurance shall, for the purpose of declaring or paying any
dividend to share-holders or any bonus to policy-holders,
utilize directly or indirectly any portion of the life
insurance fund or of the fund of such other class or sub-
class of insurance business as the case may be, except a
surplus shown in the valuation balance-sheet in Form I as
set forth in the Fourth Schedule submitted to the Controller
as part of the abstract referred to in s. 15 as a result of
an actuarial valuation of the assets and liabilities of the
insurer. Sub-section (2) of s. 49 then laid down that for
the purpose of sub-s. (1), the actual amount of incometax
deducted at source during the period following
982
the date as at which the last preceding valuation was
made 'and ding the date as at which the valua-
tion in question was made might be added to such surplus
after deducting an estimated amount for
income-tax on such surplus, such addition and deduction
being shown in paragraph 8 (1) of the abstract prepared in
accordance with Part II of the 4th Schedule to the Act.
One of the disputes between the parties arose over the
surplus to be taken into account in calculating the
compensation. This dispute was whether it should be the net
surplus as shown in Form I annexed to the abstract or should
include the income-tax and interim bonus as shown in the
abstracts. The Company claimed that it should include
interim bonus already paid and income-tax deducted at source
less the provision for income-tax on the surplus as stated
in the abstracts while the Corporation claimed that these
additions should not be made. The figures for the two
actuarial investigations were therefore these: Rs. 41,44,686
(1945-50) and Rs. 70,21,280 (1951-53) according to the
Corporation based on Form I Part 11 4th Schedule and Rs.
56,36,815 (1946-50) and Rs. 87,03,650 (1951-53) according to
the Company based on the abstracts with the aforesaid
additions. The Tribunal accepted the larger figures for the
two periods and the appeal of the Corporation was filed to
question this part of the decision. This controversy need
not be decided because the Corporation did not press its
appeal before us and the basic figures are thus Rs.
56,36,815 (1946-50) and Rs. 87,03,650 (1951-53).
Before we enter into a discussion of the terms of the First
Schedule of the Life Insurance Corporation Act, 1956, laying
down the principles for determination of compensation we
shall summarise in the form of a formula what is admittedly
the purport of these
983
principles applicable to this case. This formula is-
Annual average of
the surplus deemed Average busi-
Compen- to be allocatedto ness in force
sation the share holders during 1950-55
payable. =20x as disclosed in the x
abstracts. Average busi-
ness in force
during 1946-53
Two matters arising from these provisions may be disposed of
as there is no dispute about them. Firstly. there is no
dispute about the multiple 20. Secondly, there is no
dispute that the result was to be multiplied by a figure
which represented the proportion the average business in
force during the calender yeas 1950-1955 bore to the average
business in force during the calender years comprised in the
period between the date as at which the actuarial investiga-
tion immediately preceding the earliest of the relevant
investigations was made and the date at which the last of
such investigations was made (here the years 1946-53). This
factor is 138970857 and was admittedly the result of
dividing Rs. 55,84,073 (average business in force during
1950-55) by Rs. 40,18,64,885 (average business in force
during 1946-53). The only dispute in the case is with
regard to the annual average of the surplus deemed to be
allocated to the shareholders as disclosed in the abstracts
in respect of the relevant actuarial investigation.
Admittedly two investigations were made in the present case.
One valuation period covered five calender years 1946-1950
and the other three calender years 1951-1953. In the two
investigation periods the total surplus was respectively
'Rs. 56,36,815 (1946-50) and Rs. 87,03,650 -(1951-53). The
surplus allocated to the shareholders was Rs. 4,08,456
(1946-50) and Rs. 6,40,504 (1951-53). This was in
excess of the five per cent. as laid down in explanation 2
to -Paragraph I to the First Schedule of the Life Insurance
Corporation Act already quoted. Reducing this surplus
allocated to the share-holders to five per cent. We get for
the years 1946-50 the sum of Rs. 2,8,1,841 and for the years
1951-53 the. sum of Rs. 4,35,182. We may now again state
the formula with these figures and the factor introduced in
the appropriate places to show the area of contro-
versy left. Annual average of
Compen- Rs. 2,81,841 (1946-50)
sation =20 x and Rs. 4,35,182 (1951- x 1.38970857
payable. 53) allocated to the share-holders.
Now the dispute between the parties is (a) what it the
period in which the allocation to the shareholders can be
said to be made and (b) what is meant by "annual average.'
In regard to (a) the company claims that the surplus must be
taken to be allocated to the period in which the surplus
must have been handed out to the share-holders' and that can
only be the period following the investigations. In this
case the first investigation covered a period of five
calender years from 1946 to 1950 (both inclusive), and the
valuation date was December 31, 1950. The second
investigation covered a period of three calender years from
1951 to 1953 (both inclusive) and the valuation date was
December 31, 1953. The Company contends that the allocation
of Rs. 2,81,841 took place in the triennium between the two
valuation dates and similarly the allocation of Rs, 4,35,182
took place in the two complete calender years (1954 to 1955)
following December, 31, 1953, before the controlled business
was taken over by the Corporation on September 1, 1956.
The Corporation contends that the surplus must be taken to
have been allocated in the years for
985
which the investigation was made. In other words, the sum
of Rs. 2,81,841, must be deemed to be allocated in the five
years for which the first investigation was made (calender
years 1946-50) and the sum of Rs. 4,35,182 must be deemed to
have been allocated in the three years for which the second
investigation was made (calender years 1951-53).
Then comes the next part of the dispute which is over the
meaning of the words 'annual average'. Both sides claim to
calculate the average on different principles. The
Corporation adds the two surpluses deemed to be allocated to
the share-holders and divides the result by eight years,
that is to say, the sum total of the two investigation
periods of five and three years. The Company on the other
has four alternative modes of calculation. Two such modes
are based on the basis of allocation to 3 and 2 years as
stated by the company and two on the basis of the allocation
to 5 and 3 years as stated by the Corporation. These
calculations lead to the following different results :-
FORMULA A
(based on annual average calculated as suggested by the
Company of the two sums allocated as suggested by the
Company).
20 ( 2,81,841+ 4,35,182 x 1/2 ) x 1.389708,57 3 years 2
years
==Rs. 43,29,470
FORMULA B
(based on annual-average calculated as suggested by the
Corporation of the two sums allocated as suggested by the
Company).
20 12,81,841 + 4,35,182) x 1.38970857
years years
=Rs. 39,85,812
986
FORMULA C
(based on annual average calculated as suggested by a the
Company of the two sums allocated as suggested by the
Corporation).
( 81.841
20 + '35,182 x 1.38970857 5 years 3 years -
=Rs. 27,99,276
FORMULA D
(based on annual average calculated as suggested by the
Corporation of the two sums allocated as suggested by the
Corporation).
/2,61,841 4,35,18220 5 years + ) x 1.3890875
3 years
=Rs. 24,91,123
Formula D was adopted by the Corporation but as the basic
figures were lower the resulting amount was Rs. 19,39,669.
The Tribunal also Approved formula D but as the basic
figures were increased by the Tribunal, the amount awarded
was Rs. 24,91,123. The question is which of the formulae
must be applied. This depends upon :-
(1) - How is the annual average in paragraph I of
the First Schedule to the Life Insurance Corporation Act to
be calculated ?
(a) Is the surplus allocated in the years for which the
investigation is made or in the years that follow till the
next valuation date ?
(b) Is the annual average the average of the total amount
divided by the number of
087
years involved in the two investigations, (formula D) ?
or
(c) Is the annual average the average of the average of
each period taken separately ?
The Tribunal in reaching its conclusion observed that
",,paragraph I does not provide for taking two averages but
only one average for the entire period of account." It
rejected formulae A and C above as they involved an average
of an average. The Tribunal then followed its own decision
in an earlier case and held that the Paragraph I of the
Schedule did not warrant the constrution sought to be placed
by the Company. The Tribunal had observed there as follows
:-
"The paragraph does not refer to the years during which the
amount of dividend in the abstract is actually paid to the
share-holders. It refers to the surplus allocated to
shareholders as disclosed in the abstract and requires
annual average to be taken of the share of -such surplus.
Therefore, on a plain reading of this paragraph the annual
average has to be taken of the share of surplus allocated as
shown in the abstract, or in view of Explanation 2, deemed
to be allocated to share-holders on calculations now made."
It is contended by the Company that the decision of the
Tribunal is not correct. In support of the construction
which the Company seeks to place upon Paragraph I it is
argued that the word is "'allocation" and a sum cannot be
allocated till it is known. Further it is said tbe
allocation can only be made after the share-holders get a
right to dividend which would be after the report of the
actuary. It is, therefore, contended that since the sum was
988
not known during the period for which the investigation was
made and the share-holders had no right till after the
ascertainment of the profits by an actuary, the word
"allocation" can only be read in relation to the years that
follow the actuary's report and not in relation to the
period for which the actuary makes the investigation. It is
also argued that the language of the paragraph does not bear
the construction which the Tribunal has placed upon it.
The learned Attorney General, however, admits that the
construction which he seeks to place may fail at least in
the last of the two periods in those cases where the last
valuation date is within a few months of September 1, 1956.
If the valuation date in the present case had been December
31, 1955, there should have been no complete year for which
the allocation could be said to have been made and the
calculation on the basis suggested by the Company would have
been impossible. Again, if instead of the last valuation on
December 31, 1953, it had been made on December 31, 1954,
the whole of the profits would then be deemed to have been
allocated to one year instead of two. It is clear enough
that the Paragraph could not be intended to prescribe an
uncertain system of calculation but something definite. The
compensation was meant to give to the shareholders an
equivalent of their annual profits capitalised at 20 years
purchase and to reflect the advance or fall in the business
by multiplying the result with the factor. The intention
therefore is to get a true average spread over a number of
years so that compensation may not be related to any excep-
tional year or years-whether in favour of the insurer or
against him. It is intended that it should be based upon
what represents the average business done by a company er a
number of years. This intention is quite evident from the
Explanations which have been added to the paragraph.
Explanation I (a)
989
shows that there should be not less than two actuarial
investigations and they should cover a period of not less
than four years. This shows that the intention was to base
the calculation upon a wide view of a company's business.
Now, 'allocation' means the allocation as made in the
abstracts. Part A says that the compensation to be given by
the Corporation to an insurer having a share capital on
which dividend or bonus is payable and who has allocated as
bonus to policy-holders the whole or any part of surplus as
disclosed in the abstracts, shall be computed in accordance
with the provisions contained in one of the two paragraphs
that follow. The words of the Schedule to be emphasised are
"has allocated as bonus to policy holders the whole or any
part of the surplus as disclosed in the abstracts. " The
abstracts are nothing but a summary of the investigations
over a particular period and the allocation of bonus and
dividends must also be for the same period. The abstracts
contain no reference to any future period and in fact there
are no words in the abstracts which show that the allocation
must be for the years that follow. In paragraph I the words
are "the share of the surplus allocated in respect of the
relative actuarial investigations." These words refer to the
abstracts and the share of the surplus stated therein.
Since that share comes out of the profits which accrue to
the Company during the period of investigation the
allocation must also be taken to be for the period during
which the profits arise. The argument of the learned
Attorney General that the allocation can only be when the
amount is known and also when the right accrues to the
share-holders because the profits have to be found first is
not acceptable to us because life insurance business is
carried on with periodic actuarial investigations which
shows how much profits have been made and that depends on
what the existing liability of the Company is in relation to
its
990
reserves and other likely income. It is the result of these
investigations which entitles the policy-holders as well as
the share-holders to share in the profits whether by way of
bonus or dividend but the share is in respect of the years
for which the investigations were made. Profit can only be
found after the receipts of a particular period have been
found and compared with the payments that have been made
during the same period and the liabilities existing on the
date on which the actuarial investigation is made, are found
out, and the reserves which have to be kept to make good
these liabilities are ascertained. To connect the profits
with a future period is to make the scheme unworkable
because insurance business is based upon the actuarial
assessments of the position of the company. Nothing much
turns upon the use of the singular in "share" and "'surplus"
and it cannot be said that they indicate that the two
""shares" and "surpluses" cannot be aggregated. Indeed even
after aggregation the words ""share" and ,',surplus" will
still continue to be applicable. In' our judgment, the
Tribunal was right inholding that the surpluses were related
to the five years and three years respectively covered by
the two actuarial investigations in this case and must be
deemed to have been allocated for the same period.
The next question is how is the average to be found. Here
the words are "annual average . The word "annual" must be
given its full meaning. By the word "'annual" is meant
something which is reckoned by the year. The addition of
the word "averages 5 " shows' that what is to be found is an
average reckoned by the year. If the two periods were to be
viewed separately and an annual average is found out for
each of the periods there would be two annual averages and
they would almost always be different. When an average of
these periods is taken there is no longer an "annual
average". The result can only be described as the average
of two annual averages. The Tribunal was right when it said
that
991
the law contemplates one average and not the average of two
averages. Giving the word "'annual" its full meaning it is
obvious that that system must be adopted which will lead to
a result which can be described both as "annual" and as an
""average". That can only be when the amount of the surplus
as disclosed 'in the two investigations is aggregated and
the result is divided by the total number of years. One
finds an average by dividing the aggregate of several
quantities by the number of quantities. In this case one
can only get the "annual average" by aggregating the surplus
related to at least two actuarial investigations covering a
period of more than four years and by dividing the result
and by the number of years involved. In our judgment
formula D alone was applicable to the facts of this case and
as that formula has been applied the result reached by the
Tribunal was correct.
It remains to consider the other two questions which have
been debated before us and they are whether in making the
offer the Corporation was entitled to make a deduction on
account of the assets of the controlled business which were
of the value of Rs. 6,00,000. The Tribunal has also ordered
the Corporation to pay the amount of compensation, less Rs.
6,00,000 due to the Corporation. Apart from any other
consideration, it seems to us somewhat anomalous that the
Company should demand that the whole of the compensation
should be paid to it and the Corporation be left to its own
devices to recover this admitted sum due to it. In a case
of this type the Corporation was entitled to say: "You have
our Rs. 6,00,000. You pay yourself that amount and here is
the balance": Such an attitude is so ,just that it is
impossible to hold that the Tribunal ought to have reached
any other conclusion except this. 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 lieu of the assets of pertaining to the
controlled
992
business a sum of Rs. 6,00,000. These two provisions of law
must be read together and in our opinion the Corporation was
entitled to a set-off in respect of the amount due to it and
the Tribunal was perfectly right when it ordered such a set-
off.
The last question is whether interest was payable. The
Tribunal held that it had no jurisdiction to award interest
because there is no provision in the Act. It followed its
own decision in the order passed in an earlier case and
declined to grant interest. During the arguments before I
us the Corporation agreed that interest is awardable and the
dispute only centred round the rate of interest, the amount
on which it is payable and the date from which is should be
given. There is no doubt that the Life Insurance
Corporation Act and the Rules do not contain any express
provisions for grant of interest. The Company relied on
cases of purchases of immovable property where interest is
awarded as a general rule of equity .if the purchaser enters
into possession without having paid the purchase-money to
the seller. The reason of the rule was stated a long time
ago by Lord St. Leonards L.C. Birch v. Joy (1) as follows.
"'The parties change characters, the property remains at law
just where it was., the purchaser has the money in his
pocket, and the seller still has the estate vested in him;
but they exchange characters in a Court of Equity, the
seller becomes the owner of the money and the purchaser
becomes the owner of the estate".
On entering possession the purchaser becomes entitled to the
rents but if he has not paid the price, interest in equity
Ls deemed payable by him on the purchase price which belongs
to the seller. This principle was applied by the House of
Lords in cases of compulsory purchases. In Swift & Co. v.
Board of Trade (2) Viscount Cave' L.C. gave the-reason that
the practice rests upon the principle that the
(1) (1852) III H.L.C. 565 10 E.R. 222.
(2) (1925) A.C. 520.
993
taking of possession is an implied agreement to pay interest
which was stated by Sir William Grant M. EL. in Fludyer v.
Cooker('). This' principle was further extended by the
Privy Council to the compulsory taking over of a business as
a going concern in International Railway Company v. Niagara
Parks Commission(2).
In this Court also the principle was applied to the East
Punjab Requisition of Immovable Property Act (Temporary
Powers Act) (Pun. 48 of 1948) replaced by the Punjab
Requisition and Acquisition of Immovable Property Act (Pun.
11 of 1953) : vide Satinder Singh v. Amrao Singh(3). Under
that Act though compensation was payable there was no
provision for the payment of interest. This Court approved
the decision of the Privy Council in Inglewood Pulp and
Paper Company Ltd, v. Brunswick Electric Power
Commission(4). Where the judicial Committee had observed-
"But for all that, the owner is derived of his property in
this case as much as in the other and the rule has long been
accepted in the interpretation of statutes that they are not
to be held to deprive individuals of property without
compensation unless the intention to do so is made quite
clear. The right to receive interest takes the place of the
right to retain possession and is within the rule".
This Court observed as follows
"It would thus be noticed that the claim for interest
proceeds on the assumption that when the owner of immovable
property possession of it he is entitled to claim interest
on place of the right to retain possession".
The learned counsel for the Corporation did not give any
reply to the argument detailed above and agreed to pay
interest. In this view of the
(1) (1805) 33 E.R. 10.
(3) [1961] 3 S.C.R. 676, 64.
(2) (1944) A.C. 328.
(4) [192-9] A.C. 492.
994
matter it is not necessary to express an opinion whether
interest can be demanded by the company. We have only to
determine the rate and the amount on which and the date from
which interest should run. In the present case compensation
was payable in full satisfaction only of all claims. The
Corporation offered compensation as determined by it in full
satisfaction and refused to pay it unless the Company gave a
discharge to the Corporation from all liabilities and
claims. This amount was found to be incorrect and
insufficient and the refusal of the Company to receive it
was justified. We have held already that the Corporation
could not pay the admitted sum tentatively even though
without prejudice to the rights of the parties. The offer
was made on February 14, 1957. 'In view of the fact that
some time must elapse bcfore the compensation is worked out
it would, we think be fair to award interest from February
14 1957, which was the date when the dispute was referred to
the Tribunal. We think interest in this case should be
calculated at four per cent. simple. That is the usual rate
which is awarded by courts in such circumstances. The
compensation has been found to be Rs.- 24,9],133 under
formula D which we have held was the correct formula to
apply- The Corporation was entitled to set-off Rs. 6,00,000
representing the assets of the controlled business.
Interest on the balance (Rs. 18,91,133) will be payable at
four per cent per annum simple from February 14, 1957, till
October 31, 1957., when Rs-5,51,464 were withheld and the
balance was paid to the Company. Interest on Rs' 5,51,464
at four per cent. shall be payable from November I,- 1957,
till December 26 , 1957. There shall be no interest payable
on Rs. 6,00,000 as claimed by the appellant.
In the result this appeal fails except for the grant of
interest. It, is dismissed except for interest granted by
us. The Company, shall, bear its own costs and pay that of
the Corporation. The appeal
995
of the Corporation is dismissed with costs. There will be a
night to set-off the costs in the two appeals.
C. A. No. 551 of 1960 dismissed except for inte-
rest. C. A. No. 552 of 1960 dismissed.





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