PETITIONER:
LIFE INSURANCE CORPORATION OF INDIA
Vs.
RESPONDENT:
KOTA RAMABRAHMAM AND ORS.
DATE OF JUDGMENT22/04/1977
BENCH:
GUPTA, A.C.
BEG, M. HAMEEDULLAH (CJ)
KAILASAM, P.S.
CITATION:
1977 AIR 1704 1977 SCR (3) 683
1977 SCC (3) 33
ACT
Life Insurance Corporation Act, 1956--S. 9(1)--Madras Agri-
culturists Relief Act, 1938 scaled down certain debts of
agriculturists--Act saved debts due to a Corporation formed
under special Indian Law--Loans given by Insurance Companies
to agriculturists--If could be deemed to have been entered
into by the Corporation after it took over business of
Insurance Companies.
HEADNOTE
The respondents, who were agriculturists, took loans from
two insurance companies in 1950 and 1952. In suits for the
recovery of the debts, filed by the Life Insurance Corpora-
tion after it had taken over the insurance companies, the
respondents claimed that the debts should be scaled down in
accordance with s. 4(e) of the Madras Agriculturists Relief
Act, 1938. Section 4(e) kept certain debts and liabilities
of agriculturists out of the reach of the Act, including any
debt due to any Corporation formed in pursuance of any
"Special Indian Law". The Corporation’s contention that
the debts would not be affected by s. 4(e) was rejected by
the trial court as well as the High Court which held that
because of the genesis of the debts, s. 4(e) was attracted.
On appeal to this Court it was contended that s. 9(1) of the
Life Insurance Corporation Act created a legal fiction that
contracts to which an insurer was a party shall be deemed to
have been entered into or issued in favour of the Corpora-
tion and that being so, the debts in question should be
taken as due to the Corporation from the be$inning and,
therefore, outside s. 4(e) of the 1938-Act.
Dismissing the appeals,
HELD: Section 9(1) of the Life Insurance Corporation Act,
1956 does not create any legal fiction. It seeks to provide
that the contracts and other instruments subsisting immedi-
ately before the vesting may be enforced and acted upon by
the Corporation after vesting. Under s. 9(2) any pending
proceeding on the appointed day by or against an insurer may
be continued by or against the Corporation. Section 7(1)
provides that all the assets and liabilities of the insurers
relating to their life insurance business vest in the Corpo-
ration. Under s. 7(2) the liabilities include obligations
of whatever kind existing on the appointed day. The
debts due to the insurers in these two cases were liable to
be scaled down in accordance with the provisions of the
1938-Act which was a liability or obligation appertaining to
the debts on the appointed day, that is, September 1, 1956.
This liability or obligation annexed to the debts must be
held to have been transferred to and vested in the Corpora-
tion along with the assets of the insurers under s. 7 and
the Corporation in seeking to recover the debts cannot
ignore the obligations of the insurers in respect of the
transactions. [685 G; 686 A]
JUDGMENT
CIVIL APPELLATE JURISDICTION : C.A. Nos. 1959 & 1960
of 1970.
(Appeals by Special Leave from the Judgment and Order
dated the 10-10-1969 of the Andhra Pradesh High Court in
L.P.A. No. 165/67 and A.S. No. 233/67 respectively).
A. K. Somnath Iyer, K.L. Hathi, P.C. Kapoor, for the
appellant in both the appeals.
G. Venkatarama Sastry, B. Parthasarthi, for respondents
in CA 1959/70.
684
A. Subba Rao, for respondents in CA 1969/70.
The Judgment of the Court was delivered by
GUPTA, J.--These are two appeals by the Life Insurance
Corporation of India (hereinafter referred to as the Corpo-
ration) with special leave obtained from this Court against
a common Judgment of the Andhra Pradesh High Court dispos-
ing of two appeals preferred by the Corporation. The ap-
peals before the High Court arose out of two suits insti-
tuted by the Corporation. For the question that arises for
determination, which we will presently state, it is not
necessary to set out the facts in any great detail. One of
the suits was brought in 1961 for recovery of a sum of about
Rs. 17,000/-, after giving credit to the payments made by
the defendants, due on a mortgage executed by the defendants
in 1950 in favour of the Andhra Insurance Company of Masu-
lipatnam. The other suit was filed in 1962 for recovery of
about Rs. 45,555/- also due on a mortgage which was executed
in 1952 by the defendants of this suit in favour of the
Nagpur Pioneer Insurance Company Ltd., Bombay. Thus in both
cases the loans were incurred long before the Corporation
was established on September 1, 1956 under the Life Insur-
ance Corporation Act, 1956. In both Suits the mortgagors
claimed that the debt should be scaled down in accordance
with the provisions of the Madras Agriculturists Relief Act
(Madras Act IV of 1938) (hereinafter referred to as the
Madras Act). It is not disputed in either case that the
mortgagors are agriculturists. The trial court upheld their
claim, sealed down the debts and decreed the suits accord-
ingly. The High Court on appeal affirmed the decision. The
claim was resisted by the Corporation relying on the provi-
sions of section 4 (e) of the Madras Act which is as fol-
lows:
"4. Nothing in this Act shall affect
debts and liabilities of an agriculturist
falling under the following heads:
X X X
(e) any liability in respect of any sum
due to any co-operative Society, including a
land mortgage bank, registered or deemed to be
registered under the Madras Co-operative
Societies Act, 1932 or any debt due to any
Corporation formed in pursuance of an Act of
Parliament (of the United Kingdom) or of any
special Indian Law or Royal Charter or Letters
Patent."
The question arising for decision in the appeals is whether,
in respect of the debts sought to be recovered, the applica-
tion of the Madras Act is barred by section 4(e) of that
Act.
Section 4 of the Madras Act keeps certain debts and
liabilities out of the reach of the Act including any debt
due to any corporation formed in pursuance of "any special
Indian law". There is no dispute that the Corporation
established under the Life Insurance Corporation Act, 1956
is a corporation as contemplated in section 4(e). It is
contended on behalf of the appellant that the debts in
question in these cases would not therefore be affected by
anything contained in the
685
Madras Act. This contention was not accepted either by the
trial court or the High Court who held that the debts were
due originally not to the corporation but to the insurers
whose life insurance business was taken over by the corpora-
tion, and because of the genesis of the debts, section 4(e)
of the Madras Act was not attracted.
It will be necessary at this stage to refer to certain
provisions of the Life Insurance Corporation Act, 1956. It
is an Act "to provide for the nationalisation of life insur-
ance business in India by transferring all such business to
a corporation established for the purpose and to provide
for the regulation and control of the business of the corpo-
ration and for matters connected therewith or incidental
thereto". Sub-section (1 ) of section 7 of the Act provides
that on the appointed day all the assets and liabilities
appertaining to the life insurance business of all insurers
shall be transferred to and vested in the corporation.
’Appointed day’ has been defined in section 2(1) as the date
on which the corporation is established, which is September
1, 1956. Sub-section (2) of section 7 states inter alia,
that the liabilities mentioned in sub-section (1) "shall be
deemed to include all debts, liabilities and obligations of
whatever kind" existing on the appointed clay and relating
to the life insurance business of the insurer. Section 9
describes the general effect of vesting of the insurers’
business in the corporation. Sub-section (1) of the section
states that unless otherwise expressly provided by the Act,
all contracts, agreements and other instruments subsisting
immediately before the appointed day to which the insurer
whose business has vested was a party or which are in
favour of such insurer shall "be of as full force and effect
against or in favour of the corporation, as the case may be,
and may be enforced or acted upon as fully and effectually
as if, instead of the insurer, the corporation had been a
party thereto or as if they had been entered into or issued
in favour of the corporation". Sub-section (2) of this
section says that if on the appointed day any suit, appeal
or other legal proceeding was pending by or against an
insurer relating to his life insurance business, it will not
be prejudicially affected by reason of the transfer to the
Corporation of the business of the insurer but may be con-
firmed by or against the corporation.
Mr. Somnath Iyer appearing for the appellants in both
the appeals contends that sub-section (1) of section 9
creates a legal fiction that the contracts or instruments to
which the insurer was a party shall be deemed to have been
entered into or issued in favour of the corporation. That
being so, the argument proceeds, the debts in question
should be taken as due to the corporation from the begin-
ning, and, therefore, outside the scope and ambit of the
Madras Act in view of section 4(e) of that Act. We do not
however think that sub-section (1) of section 9 creates any
legal fiction of that kind. This subsection seeks to
provide that the contracts and other instruments subsisting
immediately before the vesting may be enforced and acted
upon by the Corporation after vesting. This is made clear
by sub-section (2) of section 9 which states that any pend-
ing proceeding on the appointed day by or against an
insurer may be continued by or against the corporation.
Under sub-section (1) of section 7 all the assets
686
and liabilities of the insurers relating to their life
insurance business vest In the corporation on the appointed
date. Sub-section (2) of section 7 states that the li-
abilities include obligations of whatever kind existing on
the appointed day. The debts due to the insurers in these
two cases were liable to be scaled down in accordance with
the provisions of the Madras Act which was a liability or
obligation appertaining to the debts on September 1, 1956,
the appointed day. This liability or obligation annexed to
the debts must be held to have been transferred to and
vested in the corporation along with the assets of the
insurers under section 7 of the Act, and the corporation in
seeking to recover the mortgage dues cannot ignore the
obligations of the insurers in respect of the transac-
tions. In our opinion the view taken by the High Court was
therefore correct.
The appeals are accordingly dismissed with costs. One
hearing fee.
P.B.R. Appeals dismissed.
687