S. Mohan, J. -- 1. Leave granted.

2. Life Insurance Corporation of India is the appellant.

3. The Jabalpur Municipal Corporation formulated a scheme for the benefit of its employees known as Nagar Nigam Karamchari Parivarik Kalyan Yojna. That scheme provided, in the event of death of an employee while in service, a sum of Rs. 10,000/- or Rs. 5,000/- payable to the dependents, depending upon the rate of monthly contribution. If the monthly contribution was Rs. 10/- the amount payable was Rs. 10,000/- and where the monthly contribution was Rs. 5/- the amount payable was Rs. 5,000/-. It was implemented with effect from 1.6.75 by effecting appropriate monthly deductions from the salaries of the employee. The payment of specified amount in terms of the scheme was also made to the retiring employees as also to the dependents of the employees who died while in service.

4. While the scheme was in operation the question arose as to the validity of the scheme. The Government of Madhya Pradesh examined that question from the perspective whether the said scheme was violative of the provisions of the Life Insurance Corporation Act, 1956 (hereinafter referred to as the Act) or the Insurance Act, 1938. By its order dated 31.3.77 the Government of Madhya Pradesh directed the suspension of the scheme as administered by the Jabalpur Municipal Corporation. However, by order dated 15.2.78 the Government directed till further order appropriate deductions may be continued from the employees' salary. By a Resolution dated 18.8.80 the Municipal Corporation, Jabalpur in order to provide higher benefits to the employees increased the contribution from Rs. 5/- to Rs. 10/- and from Rs. 10/- to Rs. 20/-. The matter was considered in detail. By order dated 16.12.80 the Government of Madhya Pradesh directed the Jabalpur Municipal Corporation to stop the scheme forthwith. The Municipal Corporation was also advised that on receipt of confirmation of withdrawal of scheme opinion could be obtained from the Central Government. Thereafter the matter was considered by the Controller of Insurance who by his letter dated 23rd March, 1981 advised the Secretary, Local Govt. Department, Government of Madhya Pradesh to the following effect:

"No. 81(1)-Ins. 11/81

Government of India,

Ministry of Finance,

Department of Economic Affairs,

Insurance Division,

Nirvachan Sadan, Ashok Road,

New Delhi, the 23rd March, 1981.

To

The Secretary,

Local Govt. Department

Govt. of Madhya Pradesh.

Subject :-- Municipal Corporation Employees' Family Benefit Scheme.

Sir, I am directed to refer to this Ministry's letter of even number dated 3rd March, 1981 on the above subject in response to your letter No. 684/XVIII/1/80 dated 7th February, 1981 and to say that in terms of section 30 of the Life Insurance Corporation Act, 1968, the Life Insurance Corporation of India has the exclusive privilege Of carrying on life insurance business except to the extent otherwise expressly provided in the Act. An exception is made in the case of compulsory life insurance schemes for employees of Government, vide section 44 (f) of the Act reproduced below

"44. Nothing contained in this Act shall apply in relation to –

(f) any scheme in existence on the appointed day or any scheme framed after the appointed day with the approval of the Central Government whereby, in consideration of certain compulsory deductions made by Government from the salaries of its employees as part of the conditions of service, the payment of money is assured by Government on the death of the employee concerned or on the happening of any contingency dependent on his life."

This exception is not available to other employers such as local bodies.

Yours faithfully,

sd/

For Controller of Insurance."

5. The said order was challenged by an employee of the Municipal Corporation, Jabalpur (the first respondent) and the Jabalpur Corporation Karamchari Sangh (the second respondent) in Misc. Petition No. 69 of 1981. The Division Bench of the High Court under th