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Life Insurance Corporation of India Versus Vishwanath Verma

1994 (9) TMI 354 - SUPREME COURT

Civil Appeal No. 6493 of 1994 - Dated:- 30-9-1994 - S. MOHAN AND G.N. RAY JJ. JUDGMENT: The Judgment of the Court was delivered by MOHAN, J. Leave granted. The Jabalpur Municipal Corporation formulated a scheme for the benefit of its employees known as Nagar Nigam Karamachari Privarik Kalyan Yojna. That scheme provided, in the event of death of an employee while in service a sum of ₹ 10.000 or ₹ 5,000 payable to the dependents, depending upon the rate of monthly contribution. If the .....

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vice. While the scheme was in operation the question arose as to the validity of the scheme. The Government of Madhya Pradesh examined that question from the perspective whether the said scheme was violative of the provisions of the Life Insurance Corporation Act, 1956 (hereinafter referred to as the Act) or the Insurance Act, 1938. By its order dated 31.3.77 the Government of Madhya Pradesh directed the suspension of the scheme as administered by the Jabalpur Municipal Corporation. However, by .....

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forthwith. The Municipal Corporation was also advised that on receipt of confirmation of withdrawal of scheme opinion could be obtained from the Central Government: Thereafter the matter was considered by the Controller of Insurance who by his letter dated 23rd March, 1981 advised the Secretary, Local Govt. Department, Government of Madhya Pradesh to the following effect : "No. 81(1)- Ins. 11/81 Government of India, Ministry of Finance, Department of Economic Affairs, Insurance Division, N .....

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of India has the exclusive Privilege of carrying on life insurance business except to the extent otherwise expressly provided in the Act. An exception is made in the case of compulsory life insurance schemes for employees of Government, vide Section 44(f) of the Act reproduced below : "44. Nothing contained in this Act shall apply in relation to - (f) any scheme in existence on the appointed day or say scheme framed after the appointed day with the approval of the Central Government whereb .....

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on, Jabalpur (the first respondent) and the Jabalpur Corporation Karamchari Sangh (the second respondent) in Misc. Petition No. 69 of 1981. The Division Bench of the High Court under the impugned judgment allowed the writ petition principally on two grounds : 1. The Scheme run by the employees of the Municipal Corporation win not fall within the ambit of Life Insurance Business and, therefore, Section 20 of the Act will not apply. 2. The State Government has no jurisdiction to suspend or cancel .....

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s of section 37 of the Act are guaranteed as to payment in cash by the Central Government. The term "Life Insurance Business" is defined under Section 2(11) of the Act. The definition contained therein is merely illustrative and not exhaustive. On a reading of Sections 2(3), 30 and 44(f) it would be clear that on the establishment of Life Insurance Corporation of India all life insurance business which was then carried on by the Central Government or the State Governments was to come t .....

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s. In fact, the word "business" has a wider meaning. The scheme run by the Employees' Union is also against the interest of the employees themselves because the payment is not guaranteed either by the Municipal Corporation or by the State Government. The exemption under Section 44(f) is not applicable because this is a scheme run by Corporation not the State Government. On the interpretation of Section 421 of the Madhya Pradesh Municipal Corporation Act, 1956 again the High Court h .....

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t be held, there is no violation of Section 30. In such a case the exemption under Section 44(f) does not arise. No exception could be taken to the impugned judgment. In any event, the Government will have no power to cancel the same under Section 421 of the Madhya Pradesh Municipal Corporation Act, 1956. The State Government has no jurisdiction to pass the impugned order stopping the scheme. Rightly, the High Court has set aside the same. In view of the above argument we will first decide the m .....

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nd shall be deemed to include. (a) the granting of disability and double or triple indemnity accident benefits, if so provided in the contract of insurance, (b) the granting of annuities upon human life; and (c) the granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependants of such persons." Life insurance is a pr .....

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assured. This Court had occasion to deal with the scope of Section 2(11). In General Family Pension Fund v. Commissioner of Income-tax, West Bengal, AIR (1955) SC 50 it was held (no doubt as a concession): "The business of a company consisting exclusively in granting terminable pensions or annuities dependent on human life in favour of the subscribers or their nominees is insurance business as defined in S. 2(11) of the Insurance Act." Again, in Chandulal Harjivandas v. Commissioner of .....

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13) 6 Tax. Cas. 293 that for the purpose of the statutory provisions relating to relief in respect of life insurance premiums for purposes of income-tax, a contract by which a sum is payable on the death of the assured within a specified period and a larger sum if he is alive at the end of the period must be held to be an insurance on life. There is no definition of life insurance' in the Act but there is such a definition given in S.2 (11) of the Insurance Act, 1938 (Act 4 of 1938) which re .....

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59 at page 964 this Court observed thus: "The definition of 'life insurance business' as given in S. 2(11) of our Insurance Act, 1938 clearly includes, by a deeming provision, the business of granting of annuities upon human life within the expression life insurance business." In this case, the scheme run by the Jabalpur Municipal Corporation for the benefit of its employees, clearly states as follows: 'The purpose of establishing the aforesaid Fund is to provide financial .....

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er the rules benefit will not be payable to the married daughter under any circumstances. (Emphasis supplied) Therefore, we find no escape for the Jabalpur Municipal Corporation. If that be so, it is a clear case of life insurance. The High Court is not right in holding as follows: "Admittedly the scheme is not any kind of business as no benefits derived from the scheme go to anyone except the contributors. It is also not disputed that the employees of the Corporation make a voluntary contr .....

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n the question is whether Section 30 of the Life Insurance Corporation Act, 1956 is attracted. The said Section reads as follows : "Corporation to have the exclusive privilege of carrying on life insurance business. - Except to the extent otherwise expressly provided in this Act, on and from the appointed day the Corporation shall have the exclusive privilege of carrying on life insurance business in India; and on and from the said day any certificate of registration under the Insurance Act .....

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s clear the life insurance business in the country was run by a large number of private insurance. They were not managing the affairs honestly. As a result, savings of a large number of policy holder were neither safe nor secure. It was in this background, with a view to provide security to policy holders and insurers the savings were employed in nation building activities and the life insurance business was nationalised in 1956 by establishing the Life Corporation of India. As the Statement of .....

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cope of life insurance. The High Court failed to note that there is a large variation of life insurance contracts built up by a combination in various ways of contracts. There maybe insurance contracts providing for the payment of premier in the event of death or again there may be endowment contracts providing for payment in the event of survival of the assured for a particular term. Therefore, life insurance has a wide concept in modern days. Life insurance is designated by various names accor .....

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est in the life of his child and such a policy would, therefore, be illegal but when the policy is in the form now commonly current, the proposer will be regarded as holding the policy in trust for the child. (ii) Limited-payment insurance, i.e., a form of life insurance which contemplates payment of premiums by insured for a specified period or until his death with such period and for payment by insurer on the death of the insured. The difference between the endowment insurance and the limited- .....

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. It may be of two kinds : (a) where premium is paid as a single payment and the money becomes payable at a time stipulated or at death if it occurs earlier; (b) where the original policy is converted into a paid-up policy, because of a default in the payment of premiums it means insurance reduced to an amount corresponding to the premiums paid, so that no further premiums are required to be paid. (v) Term insurance, i.e., insurance for a term of year only, or unit insured shall arrive at a cert .....

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f one year only, with provisions for renewal for successive years. (vi) Advance insurance, i.e. insurance providing for the payment to insured of a lump sum immediately for consideration of his agreeing to make certain periodical payments to insurer for a specified period or for the life of insured if his life should terminate before the end of that period. Examples of this kind of insurance may be found in contracts to furnish funds for the building of a house, to be repaid by monthly or quarte .....

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hich mention may be made of- (1) limited payment life insurance; (2) endowment insurance; (3) joint-life insurance; (4) multi-purpose insurance; (5) children's deferred insurance; (6) two-year temporary insurance; (7) whole life-insurance; (8) double endowment insurance; (9) triple benefit insurance; (10) anticipated endowment insurance; (11) convertible whole life insurance ; (12) special whole life insurance ; (13) annuity insurance including single premium to immediate or deferred annuity .....

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. Section 44 makes Life Insurance Corporation Act inapplicable in certain cases. Clause (f) of the said Section will not also come to the rescue of the Jabalpur Municipal Corporation. That is evident from the following: "(f) any scheme in existence on the appointed day or any Scheme framed after the appointed day with the approval of the Central Government whereby in consideration of certain compulsory deductions made by the Government from the salaries of employees as part of the condition .....

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eme of the Jabalpur Municipal Corporation. What remains now to be considered is whether the State Government could exercise its jurisdiction under Section 421 of the Madhya Pradesh Municipal Corporation Act, 1956. That Section runs as follows: "Powers of Government to suspend any resolution or order. (1) If the Government is of opinion that the execution of any resolution or order of the Corporation or of any other authority or officer subordinate thereto or the doing of any act which is ab .....

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