LIFE INSURANCE CORPORATION OF INDIA versus KOTA RAMABRAHMAM AND ORS.

LJFE INSURANCE CORPORATION OF !NOIA

KOTA RAMABRAHMAM AND ORS.

April 22, 1977

(M. H. BEG, C.J., A. C. GUPTA AND P. S. KAILASAM, JJJ

Life Insurance Corporation Act, 1956-S. 9(1)-Madras Agriculturi'sts Relief Act, 1938 scaled down certain debts of agriculturists-Act saved debts due to Corporation formed under special Indian Law-Loans given by Inswance Com-panies to agriculturists-If could be deemed tC# have been entered into by the Corporation after it took ol'er business of l11surance Con1panies.

The respDndents, who were agriculturists, took loans fron1 two insurance companies 1n 1950 and 1952. In suits for the recovery of the debts, filed by the Life Insurance Corporation 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 cer-tain 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 arpeal to this Court it was contended thats. 9(1) of the Life Insurance Corporation Act created legal fiction that contracts to which an insurer was party shall be deemed to have been entered into or issued in favour of the Cor· poration and that being so, the debt<; in question should be taken as due to the Corporation from the beginning and, therefore, outsides. 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 instru· ments subsisting immediately 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 1ife insurance business vest in the Corporation. Under s. 7(2) the liabilities include obligations of whatever kind existing on the appointed day. The debl'i due to the insurers in these two cases were liable to be scaled down in accordance \vith the provisions of the 1938·Act which was 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 Corporation 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 Al

CIVIL APPELLATE JURISDICTION : c. A. Noo. 1959 & 1970 .

1960 of

(Appeals by Special Leave from the Judgment and Order dated the 10-10-1969 of the Andhra Pradesh High Court in LP.A. No. 165/67 and A.S. No. 233/67 respectively).

A. K. Somnath Iyer, K. L. Hat/ii, P. C. Kapoor, for the appellant in both the appeals.

G. Vmkatnrama Sastrr, B. Partlwsarthi. for respondents in CA 1959/70.

A. Subba Rao, for respondents in CA 1969/70.

• The Judgment of the Court was delivered by

. GUPTA'. J .-Th~se are two appeals by the Life Insurance Corpora-tion of India (hereinafter referred to as the Corporation) with special leave obtained from this Court against common Judgment of the Andhra Pradesh High Court disposing of two appeals preferred by the Corporation. The appeals before the High Court arose out of two suits instituted by the Corporation. For the question that arises !or determination, which we will presently state, it is not necessary to 5et out the facts in any great detail. One of the suits was brought in I% I for recovery of sum of about Rs. 17,000/-, after giving credit to the payments made by the defendants, due on mqrtgage executed by the defendants in 1950 in favour of the Andhra Insurance Company ot Masulipatnam. The other suit was filed in 1962 for recovery of about Rs. 45,555/- also due on mortgage which was executed in 1952 by the defendants of this suit in favour of the N~r Pioneer Insurance Company Ltd., Bombay. Thus in both cases the loans were incurred long before the Corporation was established on September l, 19~6 under the Life Insurance Corporation Act, 1956. In both suits tlrc 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 1s not disputed in either case that the mortgagors are agriculturists. The trial court upheld their claim, scaled down the debts and deerced the suits accordingly. The High Conrt on appeal affirmed the decision. The claim was resisted by the Corporation relying on the provisions of section 4 ( e) of the Madras Act which is as follows :

"4. Nothing in this Act shall affect debts and . liabilities of an agriculturist falling under the following heads :

( e) any liability in respect of any suin due to any co-F operative Society, including land mortgage bank, registered or deemed to be registered under the Madras Co-operat!ve Societies Act, 1932 or any debt due ~o any Corpora~1on formed in pursuance of an Act of Parliament (of the Uruted Kingdom) or of any special Indian Law or Royal Charter or Letters Patent."

The question arising for decision in the appeals is whether, in resp.::cl of the debts sought to be recovered, the application 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 corpo!atlon formed in pursuance of "any special Indian law". There is no d1sp_ute that the Corporation established under the Li!e Jnsu.rance Corporatmn Act 1956 is corporation as contemplated m section 4(e). It is cO'ltended on behalf of the appellant that the debts in question in these cases would not therefore be affected by anything contained in the

Madras Act. This contention was not accepted either by the tnal 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 corporation 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 ot !he Life Insurance Corporation Act, 1956. It is an Act "to provide for the nationalisation of life insuran~ business in India by transferring all such business to corporation established for the purpose and to provide for the regulation and control of the business of the cor-poration 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 busi-ness of all insurers shall be transferred to and vei>ted in the corpora-tion. 'Appointed day' has been defined in section 2(1) as the date on which the corporation is established, which is September 1, 1950 . Sub-section (2) of section 7 states inter alia, that the liabilities men-tioned in sub-section ( 1) "sha;l be deemed to include all debts, liabili-ties and obligations of whatever kind" existing on the appointed day and relating to the life insurance business of the insurer. Section Y describes the general effect of vesting of the insurers' business in the corporation. Sub-section ( 1) of the section states that unless other-wise expressly provided by the Act, all contracts, agreements and other instruments subsisting immediately before the appointed day to which the insurer whose business has vei>!ed was party or which are m favour of such insurer shall "be of as ru:1 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 party thereto or as if they had been entered into or itssued 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 continued 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 legal fiction that the contracts or instruments to which the insurer was party shall be deemed to have been entered into or issued in favour of the corpora-tion. That being so, the argument proceeds, the debts in question should be taken as due to the corporation from the beginning, and, therefore, outside the scope and ambit of the Madras Act in view ol 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 sub-section seeks to provide that the contracts and other instruments sub-sisting 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 pending proceeding on the appointed day by or against an insurer may be continued by or against the corporation. Under sub"Section (l) of section 7 all the assets

and liabilities of the insurers relatini: to their life insurance business • vest in the corporation on the appomted date. Sub-section (2) ot section 7 states that the liabilities include obligations of whatever kin<l existing on the appointed day. The debts due to the insurers in thes~ two cases were liable to be scaled down in accordance with the pro-visions of the Madras Act which was liability or obligation apper-taining to the debts on September 1, ~Q56. 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 ot 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 transactions. In our opinion the view taken by the High Court was therefore correct. The appeals arc accordingly dismissed with costs. One hearing fee.

Appeals dis111issed.