Life Insurance Corporation of India v. Rajmata Saheb Chowhanji & Ors.

f AZAL Au, J. This appeal by certificate is directed against the judgment of the High Court of Madhya Pradesh dated 20th April, 1967 affirming the decree passed by the Additional District Judge .. Indore decreeing the plaintijfs suit. The facts of the case are detailed in the judgment of the High Court and that of the District Judge and it is not necessary for us to repeat the same all over again. .,.._ - Briefly, the present action was brought by the plaintiff for re­ covery of a sum of Rs. 2,00,000 invested by· the plaintiff in the Adarsh Bima Company being defendant No. 1 and the predecessor of the appellant, who is defendant No. 3 (Life Insurance Corporation '- of India). The action was brought on the basis that the Managing H Director of the Adarsh Bima Company by practising fraud and mis­ representation on the plaintiff induced him to part with a sum of Rs. 2,00,000 by purchasing 2000 shares of Rs. 100/- each. The courts .. .. I L.I.C. V. CHOWHANJI (Fazal Ali J.) 13 below have recorded clear findings of fact that the fraud alleged by the plaintiff has been clearly proved and that the plaintiff had parted with a mm of Rs. 2,00,000 by investing the same in purchase of 2000 shares as a result of which the shares scrips were handed over to the plaintiff and he was assured of a dividend of 4%. It has also been found as a fact that such a resolution was contrary to the statute of the company. The suit was contested by the appellant who is defendant No. 3 in the courts below mainly on the ground that after the appellant took over the Adarsh ~ma Company, he was not liable for any act of the company which was ultra vires the statutes o~ the company. In support of the appeal the Solicitor General submitted two points before us. In the first place it was contended that on the finding that a fraud was committed on the plaintiff and the act of the Managing Director being ultra vires of the statutes of the company, the company would not be liable although the Managing Director may be person- ally liable. Secondly, it was argued that assuming that the company D was liable but in view of the provisions of section 7(2) o! the Life Insurance Corporation Act, 1956 (hereinafter called the Act), the liability of the appellant would extend only to matters appertaining to the controlled business as defined in the Act. As 1 cgards the first contention we find absolutely no substance in the same. There was absolutely no pleading by the defendants that the monies were received by the Managing Director persona\ly and that the same did not go to the coffers of the company. On the other hand, the plaintiff clearly pleaded in paragraphs 3 (b), 8 (a) and 8(b) of the plaint that the money was paid to defendant No. 1 company which after receiving the amount issued share scrips to the plaintiff. The relevant portions of the aforesaid statements may be extracted thus :- " J (b) Relying upon the said guarantee and promise given by the defendant No. 2 on the Company's behalf Plaintiff No. 1 on 1 lth June, 1947 gave at Jhabua to De- G fcndant No. 1 Company through Defendant No. 2, Govern- ment of India 3 percent Loan Bonds of 1953-55 of the value of Rs. 1,00,000 duly endorsed in favour of Defen- dant No. 1 company ............................. . The company addressed a letter acknowledging receipt of the application for 1000 shares and the full consideration of the H said •hares at the rate of Rs. 100 per share and agreed to allot the said 1000 shares to plaintiff No. 4". 14 "S(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... The plaintiffs submit that the transaction of selling the said 2000 shares of defendant No. 1 Company and registering the same as aforesaid in the names of plaintiffs No. 2 to 4 with a guarantee of minimum return is ultra vires the defendant No. 1 Company and is found to be void and in­ operative in law. 8(b) The said 2000 shares of defendant.No. 1 Company are as aforesaid applied for and registered in the names of plaintiffs No. 2 to 4. At all material times when the said shares were registered in the name of plaintifft No. 2 to 4, the plaintiffs No. 2 to 4 were minors. The plaintiffs sub­ mit that the transaction of issuing the said 2000 shares to plaintiffs No. 2 to 4 who were then minors and registering them as share-holders in the Register of defendant No. 1 Company is void in law". D Thus, the plaintiff has clearly alleged that the monies were paid to the defendant company and not to the Managing Director personally. If the share scrips were issued, to the plaintiff then it must be pre­ sumed that the money was received by the company. This fact has not been denied by the defendant-appellant. In these circumstances, therefore, it is absolutely clear that there is nothing to show that I.he E money was paid to the Managing Director personally and not to the company. Moreover, this is essentially a question of fact and it docs not appear to have been raised before any of the courts below. For these reasons, therefore, the first contention put forward by the Solicitor General is hereby over-ruled. F Coming to the next contention the same undoubtedly merits serious consideration. Before however examining this contention the following admitted facts may be stated thus : 1. That the Bima Company was doing merely the busincso of life insurance and no other; 2. That on the coming into force of the Act the entire interest of the Company vested in the Government : Section 7 (2) of the Act runs thus :- "7 (2) The assets appertaining to the controlled business of an insurer shall be deemed to include all rights and powers, and all property, whether movable and immovable, appertaining to his controlled business, including, in parti­ cular, cash balances, reserve funds, investments, deposits .·~ , ·~ ., .A L.I.C. v. CHOWHANJI (Fazal Ali J.) and all other interest and rights in or arising out or such property as· may be in the possession of the insurer and an books of account or documents relating to the controlled business of the insurer; and liabilities shall be deemed to include all debts, liabilities and obligations of whatever kind then existing and appertaining to the controlled busi­ ness of the insurer. Explanation : Tue 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 business of the insurer in accordance with the rules made i11 this behalf; (b) in relation to a Government, means the amount lying to th" credit of that business on the appointed day". 15 It is contended by the Solicitor General that the appellant was liable to thscharge only those liabilities which pertained to the con­ trolled business of the insurer. Sub-clause (3) of section 2 of the Act defines 'controlled business' thus :- "controlled business" means- (i) m the case of any insurer specified in sub-clause (a) (ii) or sub-clause (b) of clause (9) of section 2 of the Iusurance Act and carrying on life insurance busi­ ness . ... ,, B· As we have already pointed out that defendant No. 1 Adarsh Bima F Company was carrying on the business of life insurance only. Thus the moment the Act was passed, the business of the Adarsh Bima Com­ pany vested in the Corporation. Pari passu this contention it was submitted that under section 7(2) of the Act the liability of the appel- lant would not extend not to any acts which are fraudulent or ultra vlres of the statutes of the company. We are, however, unable to agree G with this contention. The words of section 7(2) of the Act appear to be of the widest amplitude and the section includes all debts. lia­ bilities, obligations of whatever kind then existing and appertaining to the controlled business of the insurer. There can be no doubt that at the time when the appellant took over the Adarsh Bima Company the obligation to restitute the benefit received by ihe company from H the plaintiff had been fastened and the appellant was legally bound to return the same to the plaintiff under section 65 of the Contract !l <: 16 SUPREME COURT REPORTS [!979] l S.C.R. Act in view of the finding of fact recorded by the Courts below that the contract was void. The question as to whether or not the tran­ saction was ultra vires of the statutes of the company was wholly irre­ levant because that was the reason why the contract was void and not a ground for exempting the appellant from its liability to pay. The words "of whatever kind" are wide enough to take within their sweep all kinds of transactions entered into· by the predecessor company. The present transaction was undoubtedly entered into by the prede­ cessor company which had received the sum of Rs. 2,00,000 from the. plaintiff and had issued share scrips. In these circumstances, therefore, we do not see how th" defendant No. 3 can escape bis liability even under section 7 (2) of the Act. As however the. plain­ tiff will be entiHed to restitution of the benefits under section 65 of the Act, he can only get the amount which be had paid to the appellant company and not any interest thereon np to the date of the suit. For these reasons, we are of the opinion that the judgment of the High Court is correct and does not require any interference except a slight modification in the form of the decree. We, therefore, direct that the plaintiff will be entitled to the decree of Rs. 2,00,000 passed by the courts below but not to the interest of Rs. 4 7,000 claimed by him and to that extent the decree is hereby modified. The plaintiff will however be entitled to interest at six per cent per annum from the date of the suit to the date of the payment. E W% this modification the appeal is dismissed, but in the circumstances without any order as to costs. S.R. Appeal dismissed.