DR. A. LAKSHMANASWAMI MUDALIAR AND OTHERS versus LIFE INSURANCE CORPORATION

Citation: [1963] SUPP. 2 S.C.R. 887 · Decided: 11-12-1962 · Supreme Court of India · Bench: BHUVNESHWAR PRASAD SINHA · Disposal: Dismissed
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Judgment (excerpt)

2 S.C.R. 
SUPREME COURT REPORTS 
887 
DR. A. LAKSHMANASWAMI MUDALIAR 
AND OTHERS 
v. 
LIFE INSURANCE CORPORATION 
OF INDIA AND ANOTHER 
(B. P. SINHA C.J., P. B. GAJENDRAGADKAR, 
K. N. W ANCHoo, K. C. DAS GuPTA and 
J. C. SHAH, JJ.) 
ln•uranu Uompany-Donation by Directors-If ultra 
vi~•-Shareholdera' Dividend Account-Proprietary riuAt; if in 
•hareholdera -
Memorandum of ABBocialion -
Comtrnclion-
Liahility of Directors-Life Insurance Corporation Acl, 1956 
(31of1956), a. 15. 
OnJuly 15, 1955, at an Extraordinary General Meeting 
of the shareholder. of the United India Life Assurance Com· 
pany Ltd., a resolution was passed, among other matter. 
sanctioning a donation of Rs. 2 lakhs from out of the Share-
holders' Dividend Account to a Trust proposed to be formed 
with the object inter alia of promoting technical or business 
knowledge, including knowledge in insurance. 
On July l, 1956, the Life Insurance Corporation Act 
came into force b)' the provhions of which on the appointed 
day all the assets and liabilities appertaining to the controlled 
business of an insurer vested in the Life Insurance Corporation. 
Bys. 15(1-)(a) of the Life Insurance Corporation Act power 
was given to the Corporation to apply 
to the Tribunal 
for relief in respect of payments made by the insurers, during 
the five years preceding the date of vesting, not reasonably 
necessary for the purpose of the controlled business. 
The 
Corporation applied to the Tribunal for l'elief in respect of the 
payments of Rs. 2 lakhs hy the Company to the appdlants on 
the ground that the safrl payment was uu,a v:re. the powers of 
the company and was not reasonably neces.=;ary for the purpose 
of the controlled business. The Tribunal ordered the appell-
ants to restore the sum of Rs. 2 lakhs to the Corporation. On 
appeal by special leave. 
Held, that the Sharc!iolders' Dividend Account provided 
for by the articles did not confer any proprietary interest on 
1962 
D1ttmblr, JJ. 
Dr. A. LV.slunana~ 
swami ~\tuJaliar . 
v.,. 
Life Insuranc1 
CorJn. of India 
SSS . ;SUPREME COURT REPORTS (1963] SUPP. 
the shareholders, though if· was charged for the purpose of 
paying dividends to the shareholders and that the mere 
description of the dividend account as the exclusive property 
of the shareholders did not thereby create a 
proprietary 
interest in the shareholders. The right to dividend depends 
upon the recommendation . to be made by· the Directors with-
out which the shareholders acquire no right to the fund or any 
part thereof. 
· 
: 
Bacha F. Guzdar v. Commissioner of Income-taz, Bombay, 
[1955] 1 S.C.R. 876, refeired to. 
·Held, further, that the meeting in· which the re•olution · 
was passed wa• a meeting of the Company and it could not be 
contended that it was a meeting of the shareholders in their 
individual capacity. 
Ileld, further, that the resolution of the company and 
the acceptance by the appellants of the amount did not 
constitute a contract there being no con'.iideration to support it. 
Held, further, that the object of the company viz. to "in-
vest and deal with funds and assets of the company upon silch 
securities or investments'' could not authorise the making of 
the donation and such a power which was not expressly pro-
vided fo~ by the memorandum could not be found by reference 
to the general clause of the Memorandum giving power to do 
incidental things •. 
Egyptian Salt&: Soda Company v. Port Said Salt Associa-
tion, (1931) A. C. 677 and Ashbury Railway Carriages and Iron 
Company v. Riche, (1875) L. R. 7. H. L. 653, referred to. 
Ileld, further, that the resort to the Articles of Association 
for the purpose Or construing the Memorandum was permissible 
only on matters regarding \vhich the ~femorandum was silent 
or ambiguous. 
· Angoatura Bittera &: Company Ltd. v. Kerr, [1933] A.C. 
550, referred to. 
Held, further, that the making of donations to the Trust 
which may or may not provide indirect or remote benefits to 
-
the business of insurance \Vas not lvithin the po,ver of the 
company. 
Tomkinson v. South Eastern Railwa11, (1387) 35 Ch, D, 
675, referred to. 
-
' 
...., 
2 S.C.R. 
SUPREME COURT REPORTS 
889 
Held, also, that the action of the Company being ultra 
vires, it created no legal effect and could not be ratifit•d even 
if all the shareholders agreed and payments made pursuant to 
such action created no rights in the appellants and they were 
rightly directed under s. 15 of the Life Insurance Corporation 
Ac
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