Vanguard Fire And General Insurance Company Ltd. v. Messrs. Fraser & Ross, Chartered Accountants

(Delivered by the Chief Justice).

This is an appeal against the judgment of Balakrishna Aiyar J. dismissing a petition filed by the appellant (W.P No. 922 of 1957) under Art. 226 of the Constitution in the following circumstances. The appellant, the Vanguard Fire and General Insurance Co., Ltd., was incorporated in Madras on 25th September 1941, under the Indian Companies Act, 1913. The object inter alia of the said company was to carry on fire, motor, marine, accident and other general insurance businesses. It is common ground that the company was bound by the provisions of the Insurance Act, 1938. In accordance with the requirements of that Act, the company applied for and obtained certificate of registration for carrying on the aforesaid classes of insurance business. The necessary deposit to be made under S. 7 of that Act was also made. At an extraordinary general meeting of the shareholders of the company held on 15th October 1956, the following resolutions were passed:

“Resolved that the company do forthwith cease to carry on the business as insurers in respect of fire, motor, marine and accident and other general insurance businesses.

Resolved that the Board of Directors of the company be and are hereby instructed to stop the carrying on the business of insurers in all the branches of the said business and not to issue any policy of insurance, cover-notes or other contracts of insurance from and after this date.

Resolved that the Board of Directors be and are hereby instructed than the company shall hereafter carry on the business of money lending as a loan company and also to do investment business.

Resolved that the Directors be and are hereby authorised and instructed to notify the Controller of Insurance and that this company has with effect from this date ceased to carry on the business of insurance and on the expiry of the present licence of insurers, not to apply for renewal thereof.”

The company informed the Controller of Insurance by its letter dated 10th, December, 1956 of the resolution ceasing to carry on the business of insurance and intimated that it could not therefore apply for renewal of registration. On 14th May, 1957 the Controller of Insurance gave notice to the company that as the company had failed to have its registration renewed for the year 1957, the Certificates of Registration bearing Nos. 380 and 380/2 dated 14th March, 1944 and 23rd August, 1944 respectively granted to the company under S. 3 of the Insurance Act were cancelled with effect from 1st July, 1957 under Sub-S. (4) of that section. The notification of cancellation of registration of the company was also published in the Government of India Gazette dated 22nd July, 1957. On 17th July, 1957 the Government of India, Ministry of Finance, passed the following order:

“In exercise of the powers conferred by Sub-S. (1) of S. 33 of the Insurance Act, 1938 (IV of 1938), the Central Government hereby directs the Controller of Insurance to investigate the affairs of the Vanguard Insurance Company Ltd. and the Vanguard Fire and General Insurance Company Ltd., Madras, and to report to the Central Government on the investigation made by him.”

Forwarding a copy of this order, the Controller of Insurance intimated to the appellant company that he had appointed Messrs. Fraser and Ross, Madras, as the auditors to assist him in the investigation and demanded a deposit of a sum of Rs. 2,500 provisionally in respect of the fees of the auditors and called upon the company to give the auditors all information and facilities they may require for the investigation. Acknowledging this letter the company replied to the Controller of Insurance submitting that the action taken by the Controller purporting to be under S. 33 of the Insurance Act upon a direction from the Central Government was without jurisdiction and not warranted by the provisions of the Act, because the company was not an insurer within the meaning of the Act, having ceased to carry on the business of insurance in accordance with the resolution dated 15th October, 1956. The answer of the Controller to this objection was as follows:

“With reference to your letter dated the 9th October, 1957, on the above subject, I have to invite a reference to the provisions of S. 20 of the Insurance Act, 1938, and to say that even though the registration of the company for transacting fire, marine and miscellaneous classes of insurance business stands cancelled and the company has stopped transactions now insurance business, it is subject to all the provisions of the Act as long as the liabilities in respect of the existing business are not fully satisfied or otherwise provided for. In the circumstances the company should comply with the requirements of this department's letter of even number dated the 17th September, 1957, without any further loss of time.”

Thereupon the appellant company filed the writ petition out of which this appeal arises praying that this Court may issue a writ of prohibition or any other appropriate writ, direction or order to forbear Messrs. Fraser and Ross from carrying on any investigation against the Company purporting to be under S. 33 of the Insurance Act under order of the Controller of Insurance. The main ground on which the writ was sought was that the appellant was not an insurer within the meaning of the Act from the moment it ceased to carry on insurance business in pursuance of the resolution passed at the Extraordinary General Meeting dated 15th October 1956 mentioned above. Balakrishna Aiyar, J., held that the appellant company must be deemed to be an insurer within the meaning of the Act and dismissed the writ petition. Hence this appeal.

Before dealing with the contentions and arguments put forward before us, it will be useful to refer to the provisions of the Insurance Act, which have a material bearing on the questions which arise in this appeal.

Section 2 (9) defines inter alia “insurer” as

“any body corporate (not being a person specified in Sub-Cl. (c) of this clause) carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in the States; or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913, as defined by Sub-S. (2) of S. 2 of that Act. ……..”

Section 2-D which was inserted by the Insurance (Amendment) Act, 1939 runs thus:

“Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in the States in respect of business of that class remain unsatisfied or not otherwise provided for.”

Of the grounds on which the Controller can cancel registration of an insurer either wholly or in so far as it relates to a particular class of insurance business it is sufficient to refer to one of them, namely, S. 3(4)(f):

“if the insurer makes default in complying with, or acts in contravention of any requirement of this Act or of any rule or order made thereunder. ……..“

Section 3 (5-B) declares the effect of cancellation of registration thus:

“When a registration is cancelled the insurer shall not, after the cancellation has taken effect, enter into any new contracts of insurance, but all rights and liabilities in respect of contracts of insurance entered into by him before such cancellation takes effect shall, subject to the provisions of Sub-S. (5-D) continue as if the cancellation had not taken place.”

Where the registration of an insurance company is cancelled under Sub-S. (4) of S. 3, the Controller may, after the expiry of six months from the date on which the cancellation took effect, apply to the Court for an order to wind up the insurance company, or wind up the affairs of the company in respect of a class of insurance business, unless the registration of the insurance company has been revived under Sub-S. (5-C) or an application for winding up the company has been already presented to the Court: S. 3(5-D). S. 7 provides for the deposit in cash, or in approved securities estimated at the market value of the securities, on the day of the deposit, or in both, with the Reserve Bank of India, of amounts specified of or each class of insurance business. Any deposit made under S. 7 will be deemed to be part of the assets of the insurer, but it shall not be available for the discharge of any liability of the insurer other than the liabilities arising out of policies of insurance issued by the insurer so long as any such liabilities remain undischarged. Nor shall it be liable to attachment in execution of any decree except a decree obtained by a policy holder of the insurer in respect of a debt due upon a policy, which debt the policy holder has failed to realise in any other way: S. 8(1). Where an insurer has ceased to carry on any class of insurance business in respect of which a deposit has been made under S. 7 and his liabilities in respect of business of that class have been satisfied or otherwise provided for, the Court may, on the application of the insurer, order the return to the insurer of so much of the deposit as does not relate to the classes of insurance, if any, which he continues to carry on [S. 9(1)]. S. 10(1) of the Act requires the insurer carrying on business of more than one class of insurance to keep a separate account of all receipts and payments in respect of each such class of insurance business. S. 33 of the Act, the application of which is the main point in controversy, in so far as it is material for the disposal of this appeal, runs as follows:

Section 33(1): The Central Government may at any time, by order in writing, direct the Controller or any other person specified in the order to investigate the affairs of any insurer and to report to the Central Government on any investigation made by him.

Provided that the Controller or the other person may, wherever necessary, employ an auditor or actuary or both for the purpose of assisting him in any investigation under this section.

(2) It shall be the duty of every manager, managing director or other officer of the insurer to produce before the person directed to make the investigation under Sub-S. (1) all such books of account, register, and other documents in his custody or power and to furnish him with any statements and information relating to the affairs of the insurer as the said person may require of him within such time as the said person may specify.

(4) On receipt of any report under Sub-S. (1), the Central Government may, after giving such opportunity to the insurer to make a representation in connection with the report, as, in the opinion of the Central Government, seems reasonable, by order in writing, (a) require the insurer to take such action in respect of any matter arising out of the report as the Central Government may think fit, or

(b) direct the Controller to cancel the registration of the insurer; or

(c) direct the Controller to apply to the Court for the winding up of the insurer, if a company, whether the registration of the insurer has been cancelled under Cl. (b) or not.

(5) No order made under this section other than an order made under Cl. (b) of Sub-S. (4) shall be capable of being called in question in any Court.”

The contention of Mr. Jagadisa Aiyar learned Counsel for the appellant company, is that an order under S. 33 of the Act can be passed only in respect of the affairs of an insurer, and the appellant is not an insurer because on the date of the order of the Government the company was not carrying on the business of insurance. Not only had the company resolved on 15th October 1956 not to do any further insurance business, its registration had also been cancelled by the Controller with effect from 1st July 1957. He relied on the provisions of S. 3(5-B) that when a registration is cancelled the insurer shall not after the cancellation has taken effect enter into any new contracts of insurance. The mere fact that there may be outstanding liabilities in respect of policies issued before the cancellation would not in law amount to carrying on of business. In support of his contention he cited certain decisions under the Income-tax Act, namely, the Liquidators of Pursa Ltd. v. Commissioner of Income-tax (1), Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax(2) and Estate of Lata Shankar Sah v. Commissioner of Income-tax (3). He pressed upon us the following observations in the last mentioned case at p. 509:

“Counsel for the Department has further urged that in as much as out standings of the money lending business were realised by the executors, they should be taken to have carried on the business of money lending too. It is, however, conceded by him that beyond realising the out standings debts, nothing further was done by the executors and no new loans were advanced. In these circumstances, we do not consider that it can be reasonably argued that in merely collecting the outstanding dues, any business of money lending was being carried on by the executors.”

We do not think that the above observations and the decisions cited offer us much assistance. The phrase “carry on business” occurs in several enactments and has to be construed according to the context in which it is used and the general tenor of the enactment in which it occurs. It may be construed in one way for the purpose of S. 20 of the Civil Procedure Code and in a different way for purpose of income-tax. Equally unhelpful are the decisions cited by the learned Government Pleader to support his contention that so long as there are liabilities still remaining, there would be a carrying on of business—Smith v. Anderson (4), and Central India Mining Co. v. Societe Coloniale, Anverscise (5), The following observations of Bankes L.J at page 767 is Central India Mining Co. v. Societe Colonials Anverscise .

“But it must also be true that the appellants had made such arrangements as were necessary to enable the collection of debts and the discharge of liabilities to go on,”

must be taken along with the circumstances in that case, that there was an intention to continue the business as soon as it was possible. In our opinion the question must be decided on the meaning given to insurance business in the Act itself. S. 2 (6-A) defines fire insurance business as the business of effecting contracts of insurance against loss by or incidental to fire and Cl. (11) defines life insurance business as the business of effecting contracts of insurance upon human life, and miscellaneous insurance business is defined as the business of effecting contracts of insurance which is not principally or wholly of any kind or kinds included in previous clauses. The Act therefore means by insurance business, effecting contracts of insurance. When the definition of “insurer” in S. 2(9)(b) refers to any body corporate carrying on the business of insurance, the implication is that the body corporate is effecting contracts of insurance. Admittedly once there has been a cancellation of registration, the company cannot effect any new contracts of insurance. We cannot, therefore, agree with the learned Government Pleader that a company can be deemed to be carrying on business within the meaning of that expression in S. 2(9) of the Act even after there has been a cancellation of registration. We may add that the Government and the Controller never appear to have taken up the position that the appellant company was carrying on business after its registration had been cancelled because there were certain liabilities outstanding.

It now remains to consider the scope of S. 2-D. The contention of Mr. Jagadisa Aiyar was that the word “insurer” in that section should be construed strictly according to the definition of “insurer” in S. 2(9), with the result that no body could be deemed to be an insurer even for the purpose of S. 2-D after the body had ceased to carry on new business. He would limit the application of S. 2-D to the particular case where a corporate body was originally carrying on insurance business of several classes but subsequently it ceased to carry on one or more of such classes of insurance business, though continuing to carry on other classes of business. In such a case the body could be described as carrying on insurance business though the body had ceased to carry on business of a particular kind, because it was continuing to carry on insurance business of other kinds. We are unable to agree with this contention. Undoubtedly when a term is defined in an enactment, wherever that term occurs, the definition would ordinarily apply; but there is a well-known canon of construction that in certain circumstances when a strict adherence to the rule would lead to an anomaly or repugnance, the rule would apply only when there is nothing repugnant to it in the context. S. 2 of the Act, which is the definition section, opens with the words “Unless there is anything repugnant in the subject or context.” Blackburn, J., said in R. v. Ramsgata :

“It is, I apprehend, in accordance with the general rule of construction that you are not only to look at the words, but you are to look at the context, the collocation and the object of such words relating to such matter, and interpret the meaning according to what would appear to be meaning intended to be conveyed by the use of the words under the circumstances.”

Craies draws from this rule the following inference:

“It follows from the rule thus variously stated that all statutory definitions or abbreviations must be read subject to the qualification, variously expressed, in the definition clauses which create them, such as: ‘unless the context otherwise requires’; or ‘unless a contrary intention appears‘: or ‘if not inconsistent with the context or subject-matter.”

(Craies on Statute law, 5th Edn.)

The word “insurer” occurs in several sections of the Act but it is obvious that in every place where it is used it would be anomalous to import the definition contained in S. 2(9)(b) in its entirety. For instance S. 9(1) of the Act which provides for the refund of the deposit made under S. 7 says,

“Where an insurer has ceased to carry on in the States, any class of insurance business in respect of which a deposit as been made under S. 7. ……..”

If we import the definition of “insurer” as it is, there would be a contradiction in terms. A body which has ceased to carry on a business cannot be a body carrying on the business. S. 55(1) provides that in the winding up of an insurance company or in the insolvency of any other insurer, the value of the assets and liabilities of the insurer shall be ascertained. In such a contingency there can be no question of any body carrying on insurance business. Nevertheless the word used is “insurer” (vide also S. 56.)

In our opinion, the term insurer in S. 2-D must in certain circumstances be also understood as a body corporate which had been carrying on insurance business. In this connection we may refer to the provisions of S. 3 (5-B) under which even though registration is cancelled, still in respect of the contracts of insurance entered into before the cancellation the rights and liabilities continue as if the cancellation had not taken place. Notionally the insurer would be deemed to be carrying on business for the specific purpose. In the same way, S. 2-D provides that the person who has been doing any class of insurance business but has ceased to do that class of business would nevertheless be subject to all the provisions of the Act so long as his liabilities in respect of that particular business remain unsatisfied, or not otherwise provided for.

Mr. Jagadisa Aiyar made an attempt to get out of S. 2-D by contending that it cannot be said that the liabilities of the appellant, are not otherwise provided for, when there was the deposit made by it under S. 7. He, however, had to concede that there was nothing to show that a definite provision had been made for the discharge of particular liabilities remaining unsatisfied, any by constituting a fund or otherwise. He also contended that it is only when the Government is convinced that the liabilities remain unsatisfied or not otherwise provided for that the appellant can be deemed to come within the scope of S. 2-D, and there was no finding by the Government to that effect on record. We are unable to agree with this contention. There is sufficient material from which it is clear that all liabilities in respect of the business which was being carried on have not been satisfied or otherwise provided for.

Mr. Jagadisa Aiyar next urged that even after investigation and on receipt of the report on such investigation, all that the Central Government could do was one of three things specified in Cls. (a), (b) and (c) in S. 33(4) of the Act. As the registration had been cancelled, it would be unnecessary to invoke Cl. (b). Under S. 3 (5-D) when the registration is cancelled, the Controller may, after the expiry of six months from the date on which the cancellation took effect, apply to the Court for an order to wind up the insurance company. So it was not necessary to rely upon Cl. (c). So far as Cl. (a) was concerned, there could be no direction because there was no insurer, as the business' had ceased to be carried on. So his argument ran. It is true that Cl. (b) need not be invoked because the registration had been cancelled; but the Central Government could take action under Cls. (a) and (c). No doubt, under S. 3(5-D) the Controller himself may apply for winding up; but this provision is not inconsistent with the provision which enables the Government to direct the Controller to make an application for winding up if they think that it would be desirable to do so on a perusal of the report on the investigation. As we have already held that the word insurer need not always mean a body carrying on insurance business and may include a body which had been carrying on, business, it would be open to the Central Government under Cl. (a) to require the insurer to take such action as they may think fit in respect of any matter arising out of the report.

We, therefore, hold, agreeing with Balakrishna Aiyar, J. that the order passed by the Central Government under S. 33 of the Act was valid though it was passed after the cancellation of registration. The appeal fails and is dismissed with costs.

Advocate's fee, Rs. 150/-.

V.C.S