TMI Blog1972 (11) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... nance 1971 are illegal. The paid up capital of the Neptune Assurance Company referred to as the company is ₹ 10,00,000. The petitioner Jalan is .a Director of the company. He holds 16,725 ordinary shares of the face value of ₹ 20 each. The petitioner Goenka is a Director of the company. He holds 2,000 ordinary shares of the face value of ₹ 20 each. The company carried on business as general insurers consist- ing of fire and miscellaneous insurance business. In the month of September 1970 about 2343 insurance policies of the company were in force. On 17 September 1970 the Board of Directors of the company resolved that the company would cease to underwrite any insurance business as from the close of business hours on 30 September 1970. On 30 September 1970 the company wrote to the Controller of Insurance about the decision of the company to ,cease to do business as on the close of business on 30 September 1970. The company returned its registration certificate for the ,current year to the Controller of Insurance. After close of business on 30 September 1970 the company stopped doing all insurance business. On 3 October 1970 the Controller of Insurance returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y holders demanded cancellation of policies on receipt of circular letters. About 1,389 policy holders did not send any reply. The company advised that they would not be completely discharged from their liabilities unless and until all policy holders agreed to transfer policies to the other insurance company or desired cancellation. On 2 February 1971 there was a resolution of the Board of Directors of the company canceling the agreement dated 15 October 1970 entered into with the New Great. There was a second resolution canceling all policies as from 10/12 March 1971 after giving due notice to all policy holders. There was a third resolution to terminate all re-insurance treaties both inward and outward from 31 December 1970. The company and the New Great by mutual consent cancelled the agreement dated 15 October 1970. In the month of February 1971 the company issued circular letters to all policy holders effecting cancellation of all policies under relevant clause in each policy. The company refunded to policy holders the sum of ₹ 48,000 on cancellation of the policies. The uncollected refund amounts to ₹ 2013.98. On 16 February 1971 the Controller of Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insurance Act has not remained wholly cancelled for a period of six months immediately before the appointed day. Undertaking is defined by the Act to mean in relation to an insurer incorporated outside India, the undertaking of that insurer in India. Section 3 of the Act states that as from the appointed day which is 13 May, 1971 the management of the undertakings of all insurers shall vest in the Central Government. It is further provided that pending the appointment of a custodian the persons in charge of the management of the undertaking shall be in charge, of the management for and on behalf of the Central Government. An insurer is forbidden without the previous approval of the person specified by the Central Government in this behalf to make any payment or grant any loan otherwise than in accordance with the normal practice observed by him in respect of such matters immediately before the appointed day. There is similar prohibition to incur any expenditure from the assets appertaining to the undertaking, to transfer or otherwise dispose of any such assets, to invest in any manner any money forming part of such assets, to acquire any immovable property out of any moneys for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as insurance company . The appropriate section in each instance will indicate as to why the Act uses the word insurer in one section and the words insurance company in the other. An insurance company under the Insurance Act means any insurer being a company, association or partnership which may be wound up .under the Indian Companies Act or to which the Indian Partnership Act applies. A partnership to which the Indian Partnership Act Applies is not a company within the meaning of the Indian Companies Act. The insurance Act has yet included a partnership within the meaning of an insurance company. An insurer, on the other hand, under section 2 clause (9) of the Insurance Act means (a) any individual or unincorporated body of individuals or body corporate, incorporated under the law of any country other than India carrying on business not being a person specified in subclause (c) of clause (9) of section 2, (b) any body corporate incorporated under any law for the time being in force in India and (c) any person who in India has a standing contract with underwriters who are members of the Society of Llyod's whereby such person is authorised within the terms of such cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cancelled the Controller may at his discretion revive the registration. The instances where registration may' be revived are also specified. If the registration is cancelled on the ground that the insurer is in liquidation the registration cannot be revived. It is noticeable, that the Insurance Act speaks of liquidation of an insurer. Liquidation here means winding up of an insurance company. Liquidation in the first place does not apply to individuals or partnerships, and secondly liquidation is not the same thing as ceasing to carry on business. Under section 3 (5D) where the registration is cancelled the Controller may after the expiry of six months from the date on which the cancellation took effect, apply to the Court to wind up the insurance company unless the registration has been revived under sub-section (5C). The Insurance Act in sections 53 to 60 speaks of winding up. Section 53 states that the Court may order the winding up of an insurance company. Section 54 speaks of the voluntary winding up of an insurance company. Section 55 deals with valuation of liabilities in the winding up of an insurance company. Section 56 deals with application of surplus assets of lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cies granted by the company are to be given notice of policy values. Section 61 states that where an insurance company is in liquidation the Court may make an order reducing the amount of the insurance contracts of the company. The first noticeable feature is that sections 53, 54 and 58 of the Insurance Act which deal with winding up by Court, voluntary winding up and partial winding up respectively speak only of insurance company. There are some sections which speak of insolvency of any other insurer. These sections are 55, 56 and 61 of the Insurance Act which deal respectively with valuation of liabilities, application of surplus assets of life insurance fund and powers of the Court to reduce contracts of insurance. Insolvency of other insurer will refer to Co-operative Societies, individuals and companies which are incorporated outside India. Under the Insurance Act these are not insurance companies. A foreign company which is in voluntary liquidation or is being wound. up by Court will be an insurer within the meani ng of the 1971 Act and will also be described as an insurer who is insolvent. These sections indicate the distinction between an insurance company and an insurer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their full effect. Reliance was also placed by the Government on section 2D of the Insurance Act which states that every insurer shall be subject to all the provisions of the Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for. The Government leaned on this section to emphasize that if a company ceasing to do any business could be said to be one whose business was being voluntarily wound up it could not again be said to be subject to the provisions of the Act on the (,round that the liabilities remain unsatisfied. The Insurance Act speaks of winding up of insurance com- panies. The legislature has yet in the General Insurance (Emergency Provisions) Ordinance 1971 and the General Insurance (,Emergency Provisions) Act 1971 not spoken of an insurance company being voluntarily wound up or wound up by Court. On the contrary, the legislative measures in the present case have used the words an insurer whose business is voluntarily wound up or is being wound up by a Court. In this context, it may be stated that when the Life Insurance (Emergency Provisions) Act 1 956 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue its business because it cannot meet its liabilities. None of these contingencies is the came as voluntarily winding up business. A partial winding up of an insurance company, is winding up of a particular type of business. That company does not cease to do business. Nor is the conical voluntarily wound up in such a case. The deliberate choice of words in the Ordinance and the Act of 1971 in the present case indicates that the legislature did not by the crucial words in section 15(a) mean voluntary winding Lip of insurance companies. The legislature meant also insurers who are not necessarily insurance companies. The concept of voluntarily winding up business is more akin to individuals another persons winding up business than to companies being ,voluntarily wound up under the provisions of the Insurance Act. The voluntary winding up under th e Insurance Act is applicable not only to reconstruction or to amalgamation but to a company being unable to continue business because of liabilities. The idea of business being voluntarily wound up is quite a different matter. In the present case, the company resolved to wind up its business. The company discontinued to do insurance busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller to investigate the affairs of the company. The company challenged the legality of the order on the ground that the Government had no jurisdiction to pass an order. The contention of the company was that section 33 spoke of an order of investigation by the Central Government of the affairs of an insurer who, as defined in section 2(9), is one who is actually carrying on the business of insurance. Section 2D of the Insurance Act was contended to be applicable to cases where an insurer was carrying on (1) [1960] 3 S.C.R. 857. different classes of business' and had closed some of them but not all of them. Section 2D was also. said by the company to be not applicable as the company's liabilities did not remain unsatisfied. This Court held that section 33 of the Insurance Act refers not only to a person who is carrying on the business of insurance but also to one who has substantially closed it. Section 2D was also held to be applicable to cases where an insurer who was carrying on different classes of business but closed all of them. Section 2D was also held to apply to make provision for liabilities of the company over and above the deposit. The words in section 33 are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management of the property is protected. It cannot be said in the present case that the management was taken over for a limited period nor was it said on behalf of the Government that Article 31A(1)(b) applied. On behalf of the Government it was said that Article 31A(1) (d) applied because the legislative measures in the present case modified the rights of the managing agents. It was also said on behalf of the petitioners that Article 14 was offended. In view of our conclusion that the Ordinance and the Act do not apply to the petitioner-company it is not necessary to express any opinion on the two contentions based on those two Articles. The Government contended that the petitioner company could not invoke fundamental rights. Apart from the company the other petitioners are two shareholder and Directors. In R. C. Cooper v. Union of India(1) which is referred to as the Bank Nationalisation case the petitioner fulfilled three capacities. He was a shareholder, a Director and a holder of deposit of current account in the Bank. The locus stand of the petitioner was challenged in the Bank Nationalisation case (supra) on the (,round that no fundamental right of the petitioner was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A mandamus will also go requiring the respondents to forbear from acting on and giving effect to the two orders. Parties will pay and bear their own costs. DWIVEDI, J.-There are three petitioners in this petition under article 32 of the Constitution: (1) The Neptune Assurance Company Ltd. (2) Sanwar Prashad Jain and (3) Krishna Murari. 'The first petitioner is a public company incorporated under the Indian Companies Act. The second and third petitioners are shareholders and Directors of the first petitioner (hereinafter called the Neptune Assurance). The Union of India, the first respondent, appointed a custodian over the undertaking of the Neptune Assurance under s. 4 of the General Insurance (Emergency Provisions) Ordinance, 1971 on May 13, 1971. The said Ordinance was eventually reenacted as General Insurance (Emergency Provisions) Act, 1971 (hereinafter called the Act). The Custodian appointed under the Ordinance is continuing to manage the undertaking by virtue of s. 4 of the Act. The Union of India also issued certain directions on May 13 1971. Those directions regulate the management of the undertaking of the Neptune Assurance by the Custodian. The petitioners challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demanded cancellation of the policies. About 1389 policy-holders did not send any reply. It appears that the Neptune Assurance was advised that it would not be' completely discharged from its liabilities unless and until all the policy-holders had agreed to the transfer of its business and liabilities to the New Great Insurance Company of India Ltd. So on February 2, 1971, the Board of Directors of the Neptune Assurance cancelled the agreement with the New Great Insurance 'Company of India Ltd. The Board of Directors also passed a resolution cancelling all policies with effect from March 10/ 12, 1971 after giving due notice to the policy-holders. Another resolution was passed terminating all re-insurance treaties, both inward and outward, with effect from December 31, 1971. As the agreement was cancelled, it did not have any effect. In February, 1971 the Neptune Assurance issued circular letters to all policy-holders cancelling the policies in accordance with the cancellation clause in each policy. The Neptune Assurance refunded to policy-holders a sum of ₹ 48000 on cancellation of their policies. The uncollected refund amount comes to ₹ 2013.98. On Febru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luntarily brought to a close or to a final settlement . The true meaning of cl. (a) of S. 15 is to be determined in the light of its language, scheme and setting. Language and setting : The, last word in cl. (a) is 'Court'. This word is not defined in the Ordinance and the Act. But S. 2(1) of the Act provides that the words and expressions used in the Act but not defined and defined in the Insurance Act have the meaning assigned to them in that Act. Section 2(6) of the Insurance Act defines the word 'Court' as the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction. The word insurer in clause (a) of S. 15 is defined in S. 2(e) of the Act. For our present purposes it is sufficient to say that it means an insurer as defined in the Insurance Act, who carries on general insurance business in India. Section 2(9) of the Insurance Act defines insurer as (-a) any individual or unincorporated body of individuals or body corporate incorporated under the law of any country other than India, carrying on insurance business in India, or having his or its principal place of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to cooperative societies. It appears from those laws that a cooperative society can neither be voluntarily wound up nor wound up by a Court. It is wound up by an order of the Registrar of Co-operative Societies. It is significant to notice that the cessation of business by a co-operative society is one of the grounds for its being wound up by an order of the Registrar. So various State law dealing with co-operative societies make a distinction between the cessation of,' business by a co-operative society and its winding up by an order of the Registrar. When a co-operative, society has cessed to do business, it cannot be said that it is voluntarily wound up. To sum up, the word 'insurer' in s. 15 (a) of the Act includes only two classes of persons : (a) a public company incorporated under the Companies Act; and (2) a public company incorporated under a foreign Company law. The next important word in s. 15(a) is business . It is not disputed that it means the entire business of an insurer. It Will follow from this discussion that cl. (a) s. 15 may be paraphrased in this manner; Any public company incorporated under the Companies Act or under a foreign company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated outside India and which has been carrying on business in India ceases to carry on business in India , it may be wound up as an unregistered company. Section 2E of the Insurance Act provides that where an in- surer as defined in paragraph (i) and (ii) of sub-cl. (a) of cl. 9 of s. 2 in relation to any class of insurance business has ceased before the commencement of that Act to enter into any new contracts of that class of business, the Insurance Act shall not apply to him. According to s. 3 (5D) where the registration of an insurance public. company stands cancelled for more than six months from the date of its cancellation, the Controller of Insurance may apply to the Court for an order to wind it up. The re- 96 3 gistration may be cancelled inter alia, on the ground that the insurance public company has not applied for the renewal of its registration. When the repstration is cancelled, the company is forbidden from entering into any new contracts of insurance. So when an insurance company has ceased to do the business of insurance for more than six months from the date of the cancellation of its registration, it may be wound up by an order of the Court at the, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company incorporated in and out of India and none else. Accordingly, in the second 10-L52lSup.Cl/73 limb the expression whose business is being wound up by the Court must be construed to mean the winding up of an insurance public company by an order of the Court. This should settle the meaning of the word wound up?' in the first limb also. The phrase voluntarily wound up in the first limb would me-an the voluntary winding up of an insurance public company in accordance with s. 54 of the Insurance Act. A company is a creature of statute. Its birth, progress, and extinction are all controlled by the statute. As the Neptune' Assurance is carrying on the business of General insurance, it is controlled by the Insurance Act read with the Companies Act. Section 54 of the Insurance Act provides for the voluntary winding up of an insurance company. According to it, an insurance company may be voluntarily wound up only in three circumstances. Those circumstances are ( 1 ) amalgamation, (2) reconstruction of the company; or (3) the inability to carry on business on account of its liabilities. Section 58(1) of , the Insurance Act provides for the winding up of only a class of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rries on business in countries other than the country in which it is incorporated, the courts of those countries too should be able to conduct winding up proceedings of its business in their respective countries. Such winding up of the business........ is really an ancillary winding up of the main company. (emphasis added). It appears from these observations that the winding up of a foreign company by an order of the Court in India really means the winding up of its business in India. Having regard to the foregoing consideration we are of opinion that the word business is not redundant in S. 15 (a). On the other hand, the charge of redundancy may really be made against the construction suggested by the Neptune Assurance. That construction makes the word voluntarily redundant in the first limb. If Parliament had really intended that the first limb should apply also to an insurer who is in the process of closing its business, it should have expressed the first limb in some such manner as any insurer whose business is being closed or is being wound up. The construction put forwarded by the Neptune Assurance assigns little significance to the word voluntarily and makes it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany which has of its own accord ceased to do business before the, commencement of the Act, it would have inserted in the Act a clear provision like s. 15(b) or s. 2(e). Now the deliberate insertion of s. 15(b) and S. 2(e) necessarily implies that Parliament did not intend to exclude an insurance public company which has merely ceased to do business of its own accord. Scheme :-One of the professed objects of the Act is to protect the interest of the policy-holders pending nationalisation of the general insurance business. The interpretation suggested by the Neptune Assurance would defeat that legislative object. Assuming that s. 15(a) is susceptible of two meanings-the wider and the narrower (the technical), the one which fructifies the said legislative object should be preferred. This preference is the Act. Section 15 carves out an exception to section 3. It excludes certain insurance public companies and some other institutions from the operation of the Act. Ordinarily an exception is strictly construed. So the technical meaning of the' expression whose business is being voluntarily wound up should be-preferable to the wider meaning of that expression. In the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of the Controller under s. 3 (5D) of the Insurance Act. An insurance company whose registration under the Insurance Act has remained wholly cancelled for less than six months from the appointed day is in a state of suspended animation. It can revive itself. The Controller cannot make an application to the Court for its winding up. The temporal differential as to the cancellation of registration between the two classes of companies determines the liability of one of them to be wound up under s. 3 (5D). This is a meaningful and intelligible differentia. It is not arbitrary, whimsical or illusory. The differentia has got rational relation to one of the objects of the Act. According to the preamble, the protection of the interests of the policy holders is an object of the Act. The differentia is calculated to accomplish this legislative object. Where the registration of a company has remained wholly cancelled for six months from the appointed day, the Controller may apply to the Court for its winding up under s. 3 (5D). As soon as the judicial process is set in motion, the company comes under the control of the Court. A liquidator will be appointed to wind up its affairs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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