1964 (9) TMI 65 - SC - Indian Laws

Summary

Issues Involved:
1. Validity of the contracts of deposit after the vesting of the insurance company's business in the Life Insurance Corporation (LIC).
2. Interpretation of the term "surplus" in the context of repayment of deposits.
3. Applicability and effect of Section 9 of the Life Insurance Corporation Act, 1956.
4. Applicability and effect of Section 28 of the Life Insurance Corporation Act, 1956.
5. Constitutionality of Section 28 if it precludes repayment of deposits.

Detailed Analysis:

1. Validity of the Contracts of Deposit after Vesting:
The primary issue was whether the contracts of deposit between the respondents and the insurance company remained valid and enforceable after the business of the insurance company vested in the LIC under the Life Insurance Corporation Act, 1956. The High Court held that the intention of the Act was to take over the controlled business as it was, including all liabilities arising from contracts related to the controlled business. Section 9 of the Act explicitly provided that all contracts, agreements, and other instruments subsisting immediately before the appointed day would continue to be of full force and effect against or in favor of the LIC. Therefore, the contracts of deposit were valid and enforceable against the LIC.

2. Interpretation of the Term "Surplus":
The term "surplus" was crucial in determining whether the deposits were repayable. The respondents argued that the deposits were to be repaid from the "adequate surplus" of the LIC, which they interpreted as the valuation surplus. The High Court agreed with this interpretation, stating that the word "surplus" in the undertaking given by the respondents meant valuation surplus and not surplus assets. This interpretation was consistent with the technical meaning of the term as used in the Insurance Act and the Life Insurance Corporation Act.

3. Applicability and Effect of Section 9:
Section 9 of the Life Insurance Corporation Act, 1956, was a key provision that ensured the continuity of the contracts of deposit. The section stated that all contracts, agreements, and other instruments subsisting immediately before the appointed day would continue to be of full force and effect against or in favor of the LIC. The High Court held that this section made the LIC liable for the deposits, as it stood substituted for the insurance company in the contracts. The contracts were enforceable, and the deposits were to be repaid from the actuarial surplus of the LIC.

4. Applicability and Effect of Section 28:
Section 28 of the Life Insurance Corporation Act, 1956, dealt with the utilization of the surplus. It provided that not less than 95% of the surplus resulting from an actuarial investigation would be allocated to or reserved for the policyholders, and the remainder could be utilized for purposes determined by the Central Government. The High Court interpreted this section harmoniously with Section 9, stating that Section 28 did not preclude the discharge of liabilities arising under Section 9. The surplus available after allocation to policyholders could be used to repay the deposits.

5. Constitutionality of Section 28:
The respondents argued that if Section 28 precluded the repayment of deposits, it would be unconstitutional under Articles 19 and 31 of the Constitution, as it would deprive them of their property without compensation. The Court did not need to decide on the constitutionality of Section 28, as it held that the section did not bar the repayment of deposits. The harmonious interpretation of Sections 9 and 28 ensured that the LIC could fulfill its obligations to repay the deposits from the surplus.

Conclusion:
The Supreme Court upheld the High Court's decision, agreeing that the contracts of deposit were valid and enforceable against the LIC, and the deposits were repayable from the actuarial surplus of the LIC. The appeal was dismissed with costs.