1962 (12) TMI 94 - SC - Indian Laws

Summary

Issues Involved:
1. Calculation of compensation payable to the National Insurance Company by the Life Insurance Corporation.
2. Determination of the surplus allocated to shareholders.
3. Interpretation of "annual average" in the First Schedule of the Life Insurance Corporation Act.
4. Right to set-off the amount of Rs. 6,00,000 by the Life Insurance Corporation.
5. Entitlement to interest on the compensation amount.

Issue-wise Detailed Analysis:

1. Calculation of Compensation Payable to the National Insurance Company by the Life Insurance Corporation:
The primary issue was the calculation of compensation payable to the National Insurance Company (NIC) by the Life Insurance Corporation (LIC) upon the nationalization of life insurance business. The NIC was a composite insurer, and its life business was transferred to and vested in the LIC from the appointed day, September 1, 1956. Under Section 16 of the Life Insurance Corporation Act, 1956, the NIC was entitled to compensation in accordance with the principles in the First Schedule of the Act. The LIC initially determined Rs. 19,39,669 as compensation and deducted Rs. 6,00,000 under Rule 18 of the Life Insurance Corporation Rules, 1956, offering the balance of Rs. 13,39,669. The NIC disputed this calculation, claiming Rs. 43,29,470 as compensation before the Life Insurance Tribunal.

2. Determination of the Surplus Allocated to Shareholders:
A significant dispute arose over the surplus to be taken into account for calculating the compensation. The NIC argued that the surplus should include interim bonuses already paid and income-tax deducted at source, while the LIC contended these additions should not be made. The Tribunal accepted the NIC's larger figures for the two actuarial investigations, resulting in basic figures of Rs. 56,36,815 (1946-50) and Rs. 87,03,650 (1951-53). The Tribunal's acceptance of the larger figures led to an award of Rs. 24,91,123, which was not contested further by the LIC.

3. Interpretation of "Annual Average" in the First Schedule of the Life Insurance Corporation Act:
The core issue was the interpretation of "annual average" in Paragraph 1 of the First Schedule. The NIC contended that the surplus should be allocated to the years following the actuarial investigations, while the LIC argued it should be allocated to the years for which the investigation was made. The Tribunal held that the surplus was related to the years covered by the actuarial investigations (1946-50 and 1951-53) and must be deemed allocated for the same period. The Tribunal and the Supreme Court both concluded that the "annual average" should be calculated by aggregating the surplus from the two investigations and dividing by the total number of years involved, supporting the LIC's formula D.

4. Right to Set-Off the Amount of Rs. 6,00,000 by the Life Insurance Corporation:
The NIC argued that the entire compensation should be paid without deduction, and the LIC should separately enforce its claim for Rs. 6,00,000. The Tribunal allowed the LIC to set-off Rs. 6,00,000 against the compensation, and the Supreme Court upheld this decision. The Court found it just and logical for the LIC to deduct Rs. 6,00,000 from the compensation, as it represented the assets of the controlled business.

5. Entitlement to Interest on the Compensation Amount:
The Tribunal initially held it had no jurisdiction to award interest, but during the Supreme Court proceedings, the LIC agreed to pay interest. The Supreme Court awarded interest at four percent per annum simple from February 14, 1957, on the balance compensation amount of Rs. 18,91,133 (after deducting Rs. 6,00,000). Interest was payable until October 31, 1957, when part of the amount was withheld, and on the withheld amount until December 26, 1957. No interest was payable on the Rs. 6,00,000 claimed by the NIC.

Conclusion:
The Supreme Court dismissed the NIC's appeal except for the grant of interest and upheld the Tribunal's decision regarding the calculation of compensation and the set-off of Rs. 6,00,000. The LIC's appeal was also dismissed with costs. The NIC was ordered to bear its own costs and pay the LIC's costs, with a right to set-off the costs in the two appeals.