Judgment

RAGHUBAR DAYAL, J.: These appeals, by special leave, are against the decree of the Life Insurance Tribunal, Nagpur, in proceedings on an application by the Life Insurance Corporation of India (hereinafter called the Corporation) under S. 15 of the Life Insurance Corporation Act, 1956 (Act XXXI of 1956), shortly termed as the LIC Act, for ordering the Vishwabharti Insurance Company, Bombay, Damji Valji Shah and Jayantilal Hirijibhai Chawda, appellants in C. A. 676 of 1962, Ghanshyamdas, appellant in C. A. 677 of 1962, the afore-mentioned individuals being directors of the Vishwabharti Insurance Company, and another director, to pay to the Corporation jointly and severally the sum of Rs.82,000 together with interest thereon at 6 per cent per annum from September 1, 1956, till full payment. The decree ordered the company to pay a further sum, but we are not concerned with that part of the decree as the company has not appealed against it.

2. The facts of the case briefly are these. The company was a composite insurer i.e., an insurer who carried on, in addition to life insurance business, other classes of insurance business. The LIC Act came into force on July 1, 1956 and the Corporation was established on September 1, 1956 which was the appointed day according to S. 2(1) of that Act. On that day, in view of S. 7, all the assets and liabilities appertaining to the life insurance business [called the controlled business vide S. 2(3)] of the company stood transferred to and vested in the Corporation. It was found that certain amounts which had been transferred from the Life Insurance Fund in the books of the company to the General Department had not been transferred in accordance with the provisions of the Insurance Act, 1938 (Act IV of 1938) which governed the company and should have continued to be included in the assets appertaining to the controlled business of the company. It was therefore that an application under S. 15 of the LIC Act was made by the Corporation to the Tribunal.

3. We may now state how this amount of Rs.82,000 happened to be transferred from the Life Insurance Fund (or the Life Fund) of the company to its General Department. The company had to keep separate accounts of all receipts and payments in respect of each class of insurance business, in view of S. 10 (1) of the Insurance Act. It had to maintain a Life Fund in connection with its life insurance business in view of S. 10(2). Sub-s. (2) provided that where an insurer carried on business of life insurance, all receipts due in respect of such business be carried to and would form a separate fund called the Life Insurance Fund and its assets be kept distinct and separate from all other assets of the insurer and deposits made by the insurer in respect of life insurance business. Sub-s. (3) of S. 10 provided that the life insurance fund would be as absolutely the security of the life policy holders as though it belonged to an insurer carrying on no other business than life insurance business and that it should not be applied directly or indirectly for any purpose other than those of the life insurance business of the insurer. The amount in this fund had to be sufficient to meet the net liabilities in regard to the life insurance policies issued by the company. If it was not so maintained, the company stood the chance of being barred from carrying on life insurance business.

4. By resolution dated December 18, 1948, Rs. 1,10,000 were transferred from the General Department to the Life Department as advance to the Life Department Revenue Account for being added to the Life Fund, subject to the condition that the Life Department would not be liable to pay any interest thereon and that no repayment of the loan would be made except out of the valuation surplus of the Life Department. The first actuarial valuation report of the company for the year 1944-48, dated July 18, 1949, showed that the net liability of the company was Rs.6,55,718 and that the amoun