~A TI ON AL INSURANCE CO. LTD., CALCUTT A versus LIFE INSURANCE CORPORATION OF INDIA

Citation: [1963] SUPP. 2 S.C.R. 971 · Decided: 11-12-1962 · Supreme Court of India · Bench: S.K. DAS · Disposal: Directions issued
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Judgment (excerpt)

2 S.C.R. 
SUPREME COURT REPORTS 
971 
~A 
TI ON AL INSURANCE CO. LTD., CALCUTT A 
v. 
LIFE INSURANCE CORPORATION OF INDIA 
~ 
(S. K. DAS, J. L. KAPUR, A. K. SARKAR, 
M. HIDAYATULLAH and RAGHUBAR DAYAL, JJ.) 
Life Insurance-Nationalisation-Business 
vesting 
in 
"Life Insurance Corporation-Determination of compensation-
Principle-Life Insurance Corporation Act, 1956 (31of1956), 
.•. 16, Sek. l-Life Insurance Corporation Rules, WM, r. 18. 
The appellant company carried on life insurance business 
in addition to other insurance business. On the passing of tbe 
Life Insurance Corporation Act, 1956, which was intnded to 
n~tionalise all life Insurance business, its 'controlled business' 
stood vested in the Life . Insurance Corporation of India on and 
. from September I, 1956, the appointed day. 
The dispute 
-\Jetween the parties related to the compensation payable to the 
appellant by the Corporation on such vesting. Admittedly two 
actuarial investigations were made in the case. One valuation 
period covered years 1946-1950 and the other from 1951 to 
1953. The Corporation determined Rs. 19,39,669 as compen-
~ation for the controlled business in accordance with s. 16 read 
with the First Schedule of the Act and after obtaining the 
approval of the Central Government wrote to the Company on 
February 14, 1957, claiming Rs. 6,00,000 under r. 18 of the 
Life Insurance Corporation Rules 1956, as assets appertaining 
t,o the controlled business, and offered to pay the balance of 
Rs. 13,39,669 in full satisfaction of the claim. The Company 
-
claimed Rs. 27,99,275 a< compensation and asked for the pay-
ment of the admitted amount without prejudice to the claim 
of either side. The Corporation refused to pay except in full 
satisfaction of the claim. · On the Company's request the dis-
pute \Vas referred to the Life Insurance Tribunal Nagpur, 
·( 
II.Zd, that under s: 16(2) of the Act the Corporation 
-could only make the offer ancl pay the money in full satisfac-
tion of the claim for compensation and its action in rejecting 
the demand of the appellant for the admitted amount, even 
though without prejudice to the claims of the parties, was 
wholly justified. Such compensation was to be determined on 
the principles laid down in para. 
I of Part A of the First 
1962 
Dtctm6tr, J J. 
1962 
National lnsuranc3 
Co. Ltd., C•lc11tla 
v. 
Life buurance 
Corpn. of India 
972 SUPREME COURT REPORTS [1963] SUPP. 
Schedule to the Act and as worked out in Formula D specified 
in the judgment. 
.,-
The word "aliocated" in Part A and para. I of the said 
Schedule must be read in relation to the years that follow the 
actuary's report and not in relation to the period for which the 
actuary made investigation. 
Paragraph I c,f the Schedule, properly construed, pres-
-
crihcs a definite system of calculation of the compensation 
which is meant to give the share holders an equivalent of their 
annual profits capitalised at 20 years purchase. The intention 
is to get a true average spread over a number of years. Ex-_ 
planation I (a) shows that the intention is to base the calcula- • 
tion upon a wide view of the Company's business. 
The share referred to in para. 1 comes out of the profits 
which accrue to the company during the period of investigation 
and the allocation must also be taken to be for the period 
during which the profits arise. To connect the profits with a 
future period is to make the scheme unworkable since the 
insurance business is based upon the actuarial assessments of 
the position of the company. 
The tribunal was, therefore, right in holding that the 
two surpluses in the case were rcla.ted to the five years and 
three years respectively covered by the actuarial investigations 
and they must be deemed to have been allooated for the same 
period. 
1"he v.-ords "annual" and "average,, must he given their 
full meaning. The word "annual0 
shows that the average 
must be- one reckoned by the year and "average" is reached by. 
dividing the aggregate of several quantities by the number of, 
quantities. 
In finding "the·,_annual averag~" the amounts of 
the surpluses as di•cl~sed in,the investigations,piust be,aggre-
gated and the result divided by the total number o(years. 
Othe1\vlse there \vou14 be an-- average or two averages w~ich 
would not be ·an Hannual average". 
, 
The order of the Tribunal awarding Rs. 24,91,139 a~ 
compertsation as ,also its direction allowing the respondent to,c_ 
set off' of Rs. 6,00,000 t
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