1965 (4) TMI 105 - SC - Companies Law

Appeals Dismissed, Tribunal Upholds Decree for Payment.

DAMJI VALIJ SHAH Versus LIC. OF INDIA

DAMJI VALIJ SHAH Versus LIC. OF INDIA - 1966 AIR 135, 1965 (3) SCR 665, [1965] 35 Comp. Cas. 755 (SC) Issues Involved:1. Jurisdiction of the Tribunal without the leave of the High Court under Section 446 of the Companies Act.2. Applicability of Section 44(a) of the LIC Act to the company being wound-up.3. Legality and necessity of the transfer of Rs. 82,000 from the Life Fund to the General Department.Detailed Analysis:1. Jurisdiction of the Tribunal without the leave of the High Court under Section 446 of the Companies Act:The Tribunal had jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the leave of the High Court. Section 446 of the Companies Act, 1956, stipulates that no suit or legal proceeding shall be commenced or proceeded with against the company without the leave of the Court once a winding-up order has been made. However, Section 41 of the LIC Act provides that no civil Court shall have jurisdiction to entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under the Act. The Tribunal is given exclusive jurisdiction over matters under the LIC Act, thus overriding the general provisions of the Companies Act. The Tribunal's jurisdiction was not affected by the winding-up order of November 9, 1959, as the LIC Act's special provisions supersede the general provisions of the Companies Act.2. Applicability of Section 44(a) of the LIC Act to the company being wound-up:Section 44(a) of the LIC Act states that the Act does not apply to any insurer whose business is being wound-up under orders of the Court. However, this applicability is to be considered in relation to the facts existing when the Act came into force. The company was not being wound-up under orders of the Court on July 1, 1956, when the LIC Act came into force, nor on the appointed day, September 1, 1956. Therefore, the Act did apply to the company at that time. The company cannot cease to be governed by the Act merely because it was ordered to be wound-up subsequently. On November 9, 1959, when the company was ordered to be wound-up, it was not an 'insurer' within the meaning of the LIC Act as it did not carry on life insurance business in India on that date. The company was not an insurer and cannot take advantage of the provisions of Section 44(a) of the LIC Act.3. Legality and necessity of the transfer of Rs. 82,000 from the Life Fund to the General Department:The Tribunal held that the amounts of Rs. 1,10,000 and Rs. 32,000 were not advanced to the Life Department as loans and that the transfer of Rs. 82,000 was not out of the valuation surplus. The transfer was not for consideration and was not necessary or reasonably necessary for the purpose of the controlled business of the company. The amounts were transferred to the Life Fund to meet statutory liabilities and to show a surplus in the actuarial valuation. The sums were not lent as loans but were transferred to augment the Life Fund. The repayment of these amounts was to be made only out of valuation surpluses, which have a technical meaning under the Insurance Act. No actuarial valuation was made prior to the transfer of Rs. 82,000. The Directors passed the resolution for the transfer in anticipation of legislation affecting the company's life insurance business. The Tribunal correctly held that the transfer was not in accordance with the provisions of the Insurance Act and that the amount continued to form part of the assets of the life insurance business, which vested in the Corporation on September 1, 1956. The Corporation could recover the amount from the company and the directors responsible for the transfer.Conclusion:The appeals were dismissed with costs, and the Tribunal's decree ordering the company and the directors to pay Rs. 82,000 with interest to the Corporation was upheld. The Tribunal had jurisdiction to proceed without the High Court's leave, and the provisions of the LIC Act applied to the company despite its subsequent winding-up. The transfer of Rs. 82,000 was not legally justified and remained part of the life insurance business assets.