judgement:
vil Appeals Nos. 676 and 677 of 1962.
Appeals by special leave from the judgment and order dated February 2,7.
1960 of the Life Insurance Tribunal, Nagpur in Case No. 30 / XII of 1959.
O.P. Malhotra, Hamendra K. Shah, .1.
B. Dadachanji, O.C. Mathur and Ravinder Narain, for the appellants (in C.A. No. 767/ 62).
H.M. Thakar, S.N. Andley, Rameshwar Nath and P.L. Vohra, for the appellant (in C.A. No. 677/62).
C.K. Daphtary, Attorney General, D.P. Mehta and K.L. Hathi, for respondent No. 1 (in both the appeals).
The Judgment of the Court was delivered by 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 section 15 of the (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 the C.A. 676 of 1962, Ghanshyamdas, appellant in C.A. 677 of 1962, the aforementioned 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 there at 6 % 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.
(D)5SCI 4 668 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 section 2(1) of that Act.
On that day.
in view of section 7.
all the assets and liabilities appertaining to the life insurance business (called the controlled business, vide section 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 (Act 4 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 section 15 of the LIC Act was made by the Corporation to the Tribunal.
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 m respect of each class of insurance business.
in view of section 10(1) of the lnsurance Act.
It had to maintain d Life Fund in connection with its life insurance business in view of section 10(2).
Sub section
(2) provided that where an insurer carried on business of life insurance.
all receipts due in respect of such business be curried to and would form a separate fund called the Life insurance Fund and its assets be kept distinct and separate from all other assets c, If the insurer and deposits made by the insurer in respect of life insurance business.
Sub section
(3) of section 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.
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 lcan 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 18 669 1949, showed that the net liability of the company was Rs. 6,55,7 18/and that the amount in the Life Fund was Rs. 6,57,450/and therefore the fund showed a surplus of Rs. 1,732/ over the net liabilities.
If the sum of Rs. 1,10,000/ had not been transferred to the Life Department Revenue Account prior to December 31, 1948, this valuation report would have shown the net liability exceeding the amount in the life fund by about a lakh of rupees.
It is clear that the amount was so transferred in order to avoid the consequences of the net liabilities exceeding the Life Fund.
The Profit & Loss Appropriation Account for the year 1949 shows that Rs. 60,000/ out of this amount of Rs. 1,10,000/ was written off as the company had made profits.
Rs. 32,000/ were again similarly transferred to the Life Fund from the General Department with retrospective effect from December 31, 1952 in order to strengthen the position of the Life Fund.
The second actuarial valuation report for the period 1949 52, dated September 9, 1953, showed that the policy liability amounted to Rs. 15,3,3,068, that the Life Fund stood at Rs. 15,35,890/ and that thus the Life Fund exceeded the net liability by Rs. 2,822/ .
There was thus a surplus as Rs. 32,000/ had been transferred to strengthen the Life Fund, with retrospective effect in view of the resolution dated August 20, 1953 which reads.
"Resolved that a loan of Rs. 32,000/ (thirty two thousand only) bearing no interest be hereby given to Life Department by General Department with retrospective effect as on 31st December 1952, the repayment of which shall be made only out of the future Valuation Surplus or surpluses of the Life Department or it may be written off from the future profits of the General Department.
This will have effect in the accounts of the Company for the year ended 31 st December 1952.
" It is to be noted that this resolution itself said that the amount would be repaid only out of the future Valuation Surplus or pluses of the Life Department or might be written off from the future profits of the General Department.
It was this amount of Rs. 82,000/ (Rs. 50,000, ' plus Rs. 32,000/ ) which, by a resolution dated January 6.
1956 was transferred to the General Department from the Life Fund.
The resolution reads: "Resolved that a loan of Rs. 82,000/ (eighty two thousand only) advanced to Life Department Revenue Account by General Department be and is hereby repaid to Genera1 Department and the balance of Rs. 60,000/ 670 due to General Department by Life Department Revenue Account be and is hereby kept in reserve for future and hence no adjustment in regard to Rs. 60,000/ will be made for the present." This resolution was confirmed by the Board of Directors at its meeting dated February 6, 1956.
We may now refer to the changes in law with respect to life insurance business in 1956 and an anticipation of which probably led to the resolution of January 6, 1956.
On January 19, 1956, the Life Insurance (Emergency Provisions) Ordinance, 1956 (Ord.
No. 1 of 1956) was promulgated by the President.
It came into force from that day which was called the 'appointed day '.
Section 3(1) provided that the management of the 'controlled business ' of a11 insurers would vest in the Central Government on and from the appointed day. 'Controlled business ', according to cl.
(2) of section 2, meant all the business appertaining to the life insurance business, if the insurer carried on any other class of insurance business also.
Clause (b) of sub section
(3) prohibited the incurring of any expenditure by the insurer without the previous approval of the person specified by the Central Government in that behalf, from the assets appertaining to the controlled business otherwise than for the purpose of making routine payments etc.
, specified in that clause.
Those purposes do not include the repayment of an advance made from the General Department to the Life Fund or to the Life Department Revenue Account.
Clause (c) of sub section
(3) further prohibited the insurer, without the previous approval of the authorised person, to transfer or otherwise dispose of any such assets appertaining to the controlled business or create any charge or hypothecation, lien or other encumbrance thereon.
It would therefore appear that possibly the Board of Directors were not right in confirming the resolution of January 6, 1959 after the Ordinance had come into force.
However, that is not the point raised in these proceedings.
We have already referred to the coming into force of the LIC Act an July 1, 1956 and of the transfer and vesting in the Corporation of all the assets and the liabilities pertaining to the life insurance business in view of section 7 of that Act.
Section 15 provides that the Corporation may apply for relief to the Tribunal in respect of a transaction which is made by the insurer whose controlled business had been transferred to and vested in the Corporation under the Act at any time within 5 years before January 19, 1956 and by which the composite insurer has transferred any property from his life department to his general department without consideration or for an inadequate consideration and the transfer was not reasonably necessary for the purpose of the controlled business of the insurer or was made with an unreasonable lack of prudence 671 on the part of the insurer regard being had in either case to the circumstances at the time.
The Corporation, in such proceedings, had to make all parties to the transaction parties to the application.
Sub section
(2) of section 15 empowered the Tribunal to make such order against any of the parties to the application as it thought just having regard to the extent to which those parties were respectively responsible for the transaction or benefited from it and all the circumstances of the case.
Section 16 provided for the payment of compensation to the insurer whose Controlled business had been transferred to and vested in the Corporation under the Act.
Section 17 provided for the constitution of Tribunals which were empowered by sub section
(4) to regulate their own procedure and decide all matters within their competence.
Section 41 provided that no civil Court would have jurisdiction to entertain or adjudicate upon any matter which a Tribunal was empowered to decide or determine under the Act.
Section 44 inter alia provided that nothing contained in the Act would apply in relation to any insurer whose business was being voluntarily wound up or was being wound up under orders of the Court.
The Corporation, by its application under section 15, contended that the transfer of Rs. 82,000/ from the Life Fund to the General Department under the resolution of January 6, 1956, was illegal.
being contrary to and in contravention of the insurance Act and as such was inoperative, bad in law and not binding on the petitioner.
It was further contended that the said transfer was without consideration and was not reasonably necessary for the purpose of the controlled business of the company and/or was made with unreasonable lack of prudence on the part of the company, regard being had to the circumstances at the time.
It was therefore that it prayed inter alia for a decree against the respondents for a sum of Rs. 82,000/ with interest.
It impleaded the company as respondent No. 9, the appellants in C.A. 676 of 1962 as respondents Nos. 1 and 4 and the appellant in C.A. 677 of 1962 as respondent No. 2.
Ghanshyamdas and Damji Valji were also parties to the resolution dated February 7. 1956.
Other directors who were parties to the resolution of January 6 were also impleaded.
The aforesaid three directors, the appellants before us, contested the claim of the Corporation and justified the transfer of Rs. 82,000/ to the General Department from the Life Fund on the ground that the amount had been lent by the General Department to the Life Department and had been paid back to the General Department by transfer from the Life Fund when the LifE Fund showed surplus, according to the report of the Actuary dated July 25, 1955.
It was also contended before the Tribunal that the petition could not be proceeded with without the leave of the Bombay High Court in view of section 446 of the Indian Companies 672 Act and that the petition was also not maintainable by reason of section 44 of the LIC Act.
Several other grounds were also taken before the Tribunal.
We are not now concerned with them.
The Tribunal held that the amounts of Rs. 1,10,000/ and Rs. 30,000/ were not advanced to the Life Department as loans and that the transfer of Rs. 82.000/ was not out of the valuation surplus and that therefore the transfer of this amount could not be said to be for consideration and necessary or reasonably necessary for the purpose of the controlled business of the company or even a prudent transaction having regard to the interest of the life policy holders.
It held that no leave of the Bombay High Court was necessary for proceeding with the petition and that the petition was maintainable and that section 44 of the LIC Act did not bar the applicability of the provisions of the Act to the respondent company.
It therefore decreed the suit and ordered the company and the directors, respondents 1 to 4, to pay to.
the Corporation jointly and severally a sum of Rs. 82,000/ together with interest thereon at 6 per cent per annum from September 1, 1956 till full payment.
It is against this decree that C.A. 676 of 1962 has been filed, by special leave, by Damji Valji Shah and Jayantilal Hirjibhai Chawda and C.A. 677 of 1962 by Ghanshyamdas.
This judgment will govern both these appeals.
The points raised by learned counsel for the appellants are: (i) The Tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the leave of the High Court in view of section 446 of the , the company having been ordered to be wound up by the High Court on November 9, 1959, (ii) In view of section 44(a) of the LIC Act none of the provisions of the Act applied to the company and therefore the Tribunal could not proceed on the application of the Corporation subsequent to the company being wound up.
(iii) The transfer of Rs. 82,000/ from the Life Fund to the General Department of the company was for consideration and was necessary for the life insurance business.
The fourth point sought to be urged was that the provisions of section 15(1)(f) of the LIC Act were ultra rites as they contravened the provisions of articles 14 and 19 of the Constitution.
This contention was not raised before the Tribunal during the arguments and was therefore considered by it to have been abandoned.
We did not therefore allow it to be raised before us.
Sub section
(1) of section 446 of the provides that when a winding up order has been made or the Official Liquidator has been appointed as Provisional Liquidator.
no suit or other legal proceeding shall be commenced or, if pending at the date of the winding up order, shall be proceeded with against the company except by leave of the Court and subject to such terms as the 673 Court may impose.
Sub section
(2) provides.
inter alia, that the Court which is winding up the company shall, notwithstanding anything contained in any law for the time being in force, have jurisdiction to entertain or dispose of any suit or proceeding and any claim made by or against the company.
Sub section
(3) provides that any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up is proceeding may, not withstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.
The question is whether these provisions would affect the proceedings of the Tribunal.
In this connection, reference may be made to section 41 of the LIC Act which provides that no civil Court shall have jurisdiction to ' entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under that Act.
It is not disputed that the Tribunal had jurisdiction to entertain the application of the Corporation and adjudicate on the matters raised thereby.
The Tribunal is given the exclusive jurisdiction over this matter.
It is in view of the exclusive jurisdiction which sub section
(2) of section 446 of the confers on the company Court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in sub section
(1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a 'company after a winding up order has been made.
In view of section 41 of the LIC Act the company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act.
It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the LIC Act.
It must follow that the consequential provision of sub section
(1) of section 446 of the will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced before it.
Further, the provisions of the special Act i.e, the LIC Act, will over ride the provisions of the general Act viz., the which is an Act relating to companies in general.
It is however contended for the appellants that in view of section 44(a) of the LIC Act, section 41 will not apply to the company whose business was being wound up under orders of Court and that therefore the provisions of section 446 of the will affect the proceedings before the Tribunal.
The contention is not sound.
The question of the applicablity of the Act to a particular insurer is to be considered in relation to facts existing when the Act came into force.
In view of section 44 of the LIC Act it will not apply to 674 an insurer whose business is being wound up under orders of Court at the time when that Act came into force in 1956 or on the 'appointed day ' i.e., September 1, 1956.
when the assets and liabilities pertaining to the controlled business of the company stood transferred and vested in the Corporation.
The company was not being wound up under orders of the Court on July 1, 1956 when the Act came into force or on the appointed day mentioned earlier.
The Act did apply to the company.
It cannot cease to apply merely because subsequently the company was ordered to be wound up.
The word 'insurer ' is defined in cl.
(6) of section 2 of the LIC Act and means an insurer as defined in the who carries on life insurance business in India and includes the Government and a provident society as defined in section 65 of the .
On November 9, 1959, when the company was ordered to be wound up it was not an 'insurer ' within the meaning of the definition as the company did not carry on life insurance business in India on that date.
Its life insurance business had been taken over by the Corporation on the appointed day and it ceased to carry on that business thereafter.
It follows therefore that the company was not an insurer on November 9. 1959 and cannot take advantage of the provisions of cl.
(a) of section 44 of the LIC Act.
We are therefore of opinion that the Tribunal had jurisdiction to continue the proceedings after November 9, 1959 when the company was ordered to be wound up and that the provisions of section 446, , or section 44(a), LIC Act, do not in any way affect its jurisdiction to continue the proceedings.
We now come to the third point raised for the appellants.
We agree with the Tribunal that the amounts of Rs. 1.10,000/ and Rs. 32,000/ were not lent to the Life Department as such by the General Department.
No question of lending money by one department of the company to the other can be ordinarily contemplated.
The assets of the company really constitute one entity, even though the company maintains separate accounts with respect to its various insurance business.
It carried on other types of insurance business also.
We have already shown how the provisions of the require the company to keep a separate account for the life insurance business and to have a separate fund known as the Life Insurance Fund and to which were to be creditedreceipts due in respect of the life business and the amount deposited by the insurer in respect of life insurance business.
Such a deposit is to be made in view of section 7(1) of the .
This requires ' the insurer to deposit and keep deposited with the Reserve Bank of India for and on behalf of the Central Government either in cash or in approved securities or partly in cash and partly in approved securities the sums specified in the various clauses in 675 regard to the different types of life insurance businesses.
Clause (a) requires a deposit of Rs. 2,00,000/ where the business done or to be done is life insurance only.
Clause (e) requires a deposit of Rs. 3,00,000 / where the business done or to be done is life insurance and any one of the three el.
asses mentioned in clauses (b) to (d).
Clause (e) further provides that out of the deposit of Rs. 3,00,000/ , Rs, 2.00,000/ ' shall be the deposit for 'life insurance business.
Section 7 lays down a statutory amount which the insurer has to deposit.
It does not however restrict the insurer to deposit a larger amount in respect of life insurance business.
Sectionplaces certain restrictions about the use to be made of the deposits under section 7.
Section 8(2) hewever deals with any deposit and provides that where a deposit is made in respect of life insurance business, the deposit made in respect thereof shall not be available for the discharge of any liability of the insurer other than liabilities arising out of policies of life insurance issued by the insurer.
This means that when an insurer puts certain money in the funds pertaining to the life insurance business and especially to a life insurance fund.
such an amount can be used only for the discharge of liabilities of the insurer arising out of life insurance policies issued by him.
The amounts of Rs. 1,10,000/ and Rs. 32,000/ would thus amount to deposits made by the company in respect of life insurance business in order to augment the life fund.
This can be done either to bring the funds to an amount exceeding the expected net liabilities on the policies or merely to augment that fund.
It makes no difference to the company how it distributed its funds so long as its statutory liabilities were satisfied.
The very conduct of the company with respect to these amounts belies the alleged nature of the transfers of these amounts to the Life Department.
The sum of Rs. 60,000/ out of Rs. 1.10,000/ was written off in 1949.
A loan of such an amount is not usually written off.
No special reason is assigned for writ ing off the loan.
The resolution about the transfer of Rs. 32,000, 'itself speaks of the possibility of the amount being written off.
A lender does not think in this way at the time he advances a loan.
It is clear that the amount was really being transferred to the Life Fund through the Life Department Revenue Account as otherwise the Life Fund on the actuarial valuation would have stood at a figure much below the amount of the net liabilities on the policies as calculated in Form H, Schedule Four to the , which is a Form giving summary and valuation of the policies of the company as at the date of the valuation.
Form I is for the valuation balance sheet of the company at the corresponding date and requires in one column the net liability under business as shown in the summary and valuation of policies and in the other column the balance of life insurance fund as shown 676 in the balance sheet, and also provides for noting the eventual position about the Life Fund being in surplus or in deficiency as compared to the net liability.
When the amount was not lent as a loan, no question of its repayment as such could have arisen in 1956.
of course, whenever the Life Fund showed an actuarial valuation surplus that surplus or part of it could be transferred to the General Department according to the desire of the management.
The amount of Rs. 82,000/ was not transferred as a result of the actuarial valuation as contemplated by the various resolutions which authorised the transfer of the amount from the General Department to the Life Department Revenue Account.
It was definitely provided in those resolutions that no repayment of the amount would be made except out of valuation surpluses of the Life Department.
The expression 'valuation surplus ' has a technical meaning under the Act.
Section 13(1) of the provides that every insurer carrying 0n life insurance business shall.
in respect of the life insurance business transacted in India.
cause once at least in every three years an investigation to be made by an actuary into the financial condition of the life insurance business carried on by him, including the valuation of his liabilities in respect thereto.
An abstract of the report of the actuary is to be made in accordance with the regulations contained in of the Fourth Schedule and in conformity with the requirements of of that Schedule.
Section 13(2) provides that the provisions of sub section
(1) regarding the making of an abstract shall apply whenever at any other time an investigation into the financial condition of the insurer is made with a view to the distribution of profits or an investigation is made of which the results are made public.
The abstract is to be certified on behalf of the insurer to the effect that full and effective particulars of every policy under which there is a liability either actual or contingent have been furnished to the actuary for the purpose of investigation.
Section 15 requires the submission of the aforesaid abstract to the Controller within the specified period.
of the Fourth Schedule requires that every extract prepared in accordance with the requirements of that part of the Schedule will have the statement of a consolidated revenue account in Form G, a summary and valuation in Form H. a valuation balance sheet in Form I and a statement in Form DDD as set forth in Part H of/he Third Schedule annexed to it.
The valuation balance sheet in Form I requires the noting of a surplus, if any, of the balance of the life insurance fund as compared to the net liability in the business as shown in the summary and valuation of policies.
It is the surplus no, led in this 677 Form 1 which is really the valuation surplus.
It was out of such surplus that the company resolved that the advances of Rs. 1,10,000/and Rs. 32,000/ could be paid to the General Department by the Life Department.
No such actuarial valuation was made by the actuary prior to the transfer of Rs. 82,000/ to the General Fund by the resolution dated January 6, 1956.
Reliance in this connection is placed on behalf of the appellants on the letter of the actuary dated July 25, 1955.
The actuary states: "On the above basis, the valuation shows a policy liability of Rs. 20,20,421.
The Life Insurance Fund is Rs. 21,32,455.
Thus there is a surplus of Rs. 1.12.033.
The surplus includes Rs. 53,300 being the amount of appreciation on investments taken into account by you in the past two years.
Thus the net working surplus is Rs. 58,733/ .
The cost of Bonus at the rate of Rs. 10/ per thousand is approximately Rs. 48,000/ .
Thus the surplus is sufficient to enable a bonus declaration at the above rate even after excluding the appreciation amount or setting it apart as an additional reserve for future use.
Conclusion: The result is satisfactory.
Continuing the same method of working as you have followed.
the statutory valuation as on 31 12 55 will surely enable you to declare a higher bonus.
" Firstly, it does net appear that the actuary had really conducted an investigation and submitted the valuation report as required by section 13, of the .
There is nothing on the record to show that any abstract in Form I, Fourth Schedule, was prepared and submitted to the Controller.
Further.
the letter shows that the net working surplus was only Rs. 58,733/ as the ostensible surplus of Rs. 1,12,033/ included Rs. 53,300/ by which certain investments of the company had appreciated in that period.
When the net working surplus was much less than Rs. 82,000/ which were transferred from the Life Department to the General Department, the transfer of Rs. 82,000/ cannot be said to have been in accordance with the terms on which the alleged loan was made to the Life Department from the General Department.
When the Life Department had not Rs. 82,000/ with itself, there could not have been any necessity to pay that amount to the General Department.
In fact, the alleged loan could be paid only when there would have been a valuation surplus in the accounts of the lfie Department but this does not mean that the Life Department was bound to pay back the amount the moment it had any valuation surplus.
678 Its liability to pay the alleged loan could arise only when there was a valuation surplus.
Its paying the amount actually would depend upon the circumstances prevailing at the time.
In the circumstances, we cannot resist the conclusion that the Directors passed a resolution for the transfer of this amount January 6, 1956 in anticipation of some law depriving the company of its life insurance business.
It may be that it was a close secret that an Ordinance would be issued on January 19.
But all the same, possibly.
persons in the insurance world could have had an inkling of the trend of events.
The content of the resolution passed on January 6, indicates that the directors had no clear idea at the time as to how much the Life Department, according to them, owed to the General Department.
The resolution speaks not only of the transfer of Rs. 82,000/ to the General Department but also refers to the balance of Rs. 60,000/ due to the General Department by the Life Department Revenue Account.
The amount had been written off in 1950 and could not have thereafter been considered to be a loan advanced to the Life Department Revenue Account from the General Department.
It seems that the resolution was passed in some hurry and the Directors couId not definitely decide as to how any further amount upto Rs. 60,000/ could be taken back to the GeneraI Department from the Life Department Revenue Account.
Any way, such a resolution of the Directors indicates that any entries with respect to the alleged loans were made for the purpose of accounting and the necessities of the business.
Money in the Life Fund had to be augmented in 1948 and 1952 in order to make the Life Fund exceed the net liabilities of the company on account of the life insurance policies.
We are therefore of opinion that the Tribunal took a correct view about the nature of the transfer of Rs. 1,10,000/ in 1948 and Rs. 32,000/ in 1952 to the Life Insurance Fund and rightly held that the transfer of Rs. 82,000/ to the General Department by ' resolution dated January 6, 1956, was not in accordance with the provisions of the and that consequently that amount continued to form part of the assets of the life insurance business of the company upto September 1, 1956 and that as such vested in the Corporation which could recover it from the company and the directors responsible for the transfer of the amount to the General Department.
The appeals therefore fail and are dismissed with costs, one hearing fee.
Appeals dismissed.

summary/full:
Indian section 10 Transfer of Funds from Life Insurance Fund to General Department of composite insurer Permissibility.
The appellants were directors of an insurance company which was a composite insurer i.e. one carrying on other classes of life insurance business besides life insurance.
Under section 10(1) of the Indian Life , a composite insurer had to keep separate accounts in respect of the different classes of business, and its receipts in respect of life insurance business had to go into a fund called the Life Insurance Fund which could be applied only for the put the Life Insurance business and had always to be sufficient to meet the net liabilities of the Life Insurance business.
By resolution dated December 18, 1948, a sum of Rs. 1,10,000 was transferred from the General Department of the company to the Life Department to be added to the Life Fund; if this had not been done the said fund would have shown a deficit in the actuarial valuation report dated July 18, 1949.
In the profit appropriation account of the company for the latter year a sum of Rs. 60,000 out of the above sum was written off so that the sum advanced was reduced to Rs. 50,000.
A further sum of Rs. 32,000 was again similarly transferred from the General to the Life Department by resolution passed in August 1953.
with retrospective effect from December 31, 1952, in order to strengthen the position of the Life Fund which again would have shown a deficit if this had not been done.
The advances thus made on both occasions were according to the relevant resolutions repayable only out of the 'valuation surplus ', if any, ' in the life department.
On January 8, 1956, the Board of Directors of the company transferred a sum of Rs. 82,000 from the Life Department to the General Department.
by way of repayment of the above loans.
On January 19, 1956, by Ordinance No. 1 of 1956 the management of the life insurance business of all insurers in the country passed to the Central Government.
On September 1.
1956, the Life Insurance Corporation of India came into being under the , and the assets and liabilities of the life insurance business carried on by all insurers became vested in it.
The corporation filed an application under section 15 of the said Act before the Tribunal constituted under the Act alleging that transfer of Rs. 82,000 from the Life Department to the General Department of the aforesaid company was without consideration and not for any 665 666 necessity of the life insurance business and prayed for a decree against appellants and the company jointly and severally for the said amount.
The Tribunal overruled the defendants ' objections as to its jurisdiction and granted a decree to the Corporation as prayed.
The company did not appeal but the appellants came to this Court by special leave.
The following contentions were raised on behalf of the appellants; (1) The tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Corporation without the leave of the High Court in view of section 446 of the , the Company having been ordered to be wound up the High Court on November 9, 1959; (2) In view of section 44(a) of the L.I.C. Act none of the provisions of the Act applied to the company and therefore the Tribunal could not proceed on the application of the Corporation subsequent to the company being wound up; (3) The transfer of Rs. 82,000 from the Life Fund to the General Department of the company was for consideration and was necessary for the life insurance business.
HELD: (i) The provisions of section 446 of the did not affect the proceedings before the Tribunal.
It is in view of the exclusive jurisdiction conferred upon the company court in sub section
(2) of section 446 of the to entertain and dispose of any suit or proceeding by or against a company which is being wound up that provision has been made in subs.
(1) of that section that no suit or proceeding shall be filed, or if pending, proceeded with against such a company without permission having been taken from the Court.
In view of the provision in section 41 of the L.I.C. Act the company court has no jurisdiction to try matters which a Tribunal under the is empowered to entertain and decide.
It could not be disputed that the Tribunal was empowered to try the Corporation 's application under section 15 and the Company Court therefore had no jurisdiction to entertain or decide it.
It must follow that the consequential provision of sub section
(1) of section 446 would not operate on the proceedings before the Tribunal.
[673E G] Further, the provisions of the Special Act i.e. the L.I.C. Act will over ride the provisions of the general Act viz. the which is an Act relating to companies in general.
[673H] (ii) The company could not take advantage of the provisions of section 44(a) of the L.I.C. Act.
[674D E] Section 44(a) provides that the provisions of the Act will not apply to an insurer whose business is being wound up under orders of court.
But the question of the applicability of the Act to a particular insurer is to be considered in relation to facts existing at the time when the Act came into force i.e. July 1, 1956 or on the appointed day, i.e. September 1, 1956, when the assets and liabilities of the controlled insurer of the company stood transferred and vested in the Corporation.
The company was not being wound up under orders of Court on the above dates.
The L.I.C. Act and therefore section 41 thereof did apply to the company.
It could not cease to apply merely because subsequently the company was ordered to be wound up.
[673H 674B] Section 44(a) was not applicable to the company for the further reason that when it was ordered to be wound up in 1959 it was not an 'insurer ' within the meaning of that word in section 2(6) since it was not carrying on life insurance business on that date.
the said busi 667 ness having been taken over by the Corporation on the 'appointed day ' [674C D] (iii) The Tribunal rightly passed a decree in favour of the Corporation.
No question of lending money by one department of the company to the other can ordinarily be contemplated.
The assets of the company really constitute one entity even though the company maintains separate accounts with respect to its various insurance businesses.
From the facts it was clear that the amounts of Rs. 1,10,000 and Rs. 32,000 had been transferred from the General Department to the Life Fund to meet the deficit in the Life Fund which was likely to occur on both occasions.
The circumstances showed that the sum of Its. 82,000 was transferred back to the General Department in a hurry in anticipation of some law depriving the company of its life insurance business.
It was moreover a condition of the alleged 'loans ' that they would be repaid only when there.
was a 'valuation surplus ' in the Life Fund.
There was no such surplus in the Life Fund at the time when the sum was transferred from it the General Department.
[674G]


judgement:
Appeal No. 310 of 1964.
Appeal by special leave from the judgment and order dated December 1 '3, 1961 of the Calcutta High Court in Income tax Reference No. 74 of 1956.
N.D. Karkhanis, Gopal Singh and R.N. Sachthey, for the appellant.
A.V. Viswanatha Sastrt, section Murthy and B, P. Maheshwari, for the respondent.
The Judgment of the Court was delivered by Sikri, J.
This is an appeal by special leave directed the judgment of the High Court at Calcutta in a reference under 612 section 66 of the Income Tax Act.
The four questions referred to the High Court by the Income Tax Appellate Tribunal are: "(1) Whether on the facts and circumstances of this case the Income tax Officer, Central Circle XIV, Calcutta, was competent to file the appeal before the Tribunal against the order of the Appellate Assistant Commissioner of Income Tax, Range A. Calcutta? (2) Whether on the facts and circumstances of this case the sum of Rs. 2,50,000 represented the surplus on the sale of lands which was the stock in trade of the assessee company or was the value of goodwill alleged to have been transferred? (3) Whether on the facts and circumstances of this case by the sale of the whole business concern it could be held that there was taxable profit in the sum of Rs. 2.50,000? (4) Whether on the facts and circumstances of this case and in view of the findings of the Tribunal that the entire share capital of the vendee company (excepting seven ordinary shares) was taken over by the vendor firm in lieu of the sale price of the business as a whole, there was any profit in the amount of Rs. 2,50,000 the same being taxable under the Indian Income Tax Act? The relevant facts and circumstances are these.
The respondent, M/s Mugneeram Bangur & Co. (Land Department) Calcutta (hereinafter referred to as the vendors) were a firm carrying on the business of land development in Calcutta.
By an agreement dated July 7, 1948, the partners of the firm agreed to sell all the business of the said firm to the Amalgamated Development Limited, here in after called the vendee, which company was promoted by the partners of the firm.
The relevant paragraphs of the said agreement are as follows: "And Whereas the Vendors have agreed to sell and the company has agreed to purchase all the said business on the basis hereinafter set out.
Now it is hereby agreed and declared between the parties as follows: 1.
The Vendors do hereby agree to sell and the company both hereby agree to purchase All That the said business with effect from the eighth day of July One thousand nine hundred and forty eight.
Together with the goodwill of the said business And all stock in trade, fixtures.
tools, implements.
furniture, fittings and all other articles and things belonging to the said business or in any way used in the same including the benefit and advantages of all contracts.
613 2.
The purchase price shall be Rupees thirty four lakhs ninty nine thousand and three hundred paid and satisfied by the Company allotting to the Vendors or their nominees seventeen thousand five hundred Redeemable Preference shares of Rupees one hundred each and seventeen thousand four hundred and ninetythree Ordinary s hares of Rupees one hundred each in the capital of the Company which will be accepted by the Vendors in full satisfaction of the said purchase price.
The Company shall undertake and discharge all debts and liabilities of the Vendors including development expenses such as opening out roads, laying out drains and sanitary arrangements providing electricity in the areas and providing a School in Tolly gunge for education of Children for which the Vendors have given an undertaking to the Tollygunge Municipality and also the liability of the Vendors in respect of the deposits made with them by various intending purchasers of lands but excluding the liabilities of the Vendors for Income tax, Super tax or any other tax or duty on income or revenue in respect of the profits of the business".
The sum of Rs. 34,99,300 was arrived at in the Schedule thus: (In rupees) 1.
Laud . . 12,68,628 7 7 2.
Goodwill .
. . . 2,50,000 0 0 3.
Motor Car & Lorries . . 25,866 8 6 4.
Furniture, Fixture etc . . . 5,244 5 6 5.
Mortgage secured . . 71,62,367 6 0 6.
Deposits for purchase of land . . 53,500 0 0 7.
Advance paid to pleaders solicitors, contractors ' staff and other outstanding . . 1,83,622 3 6 8.
Cash in Bank . . 71,800 1 8 36,21,029 0 9 Less liabilities . 1,21,729 0 9 34,99,300 0 0 614 The consideration of Rs. 34,99,300 was paid by allotment of 17,500 Redeemable Preference shares of Rs. 100 each and 17,493 Ordinary shares of Rs. 100 each, the allotment being to the vendors partners or their nominees.
Thus the vendors received shares of the face value of Rs. 34,99,300 for the assets transferred to the company.
The Income Tax Officer held that the sum of Rs. 2,50,000 was actually charged by the vendors as a lump sum amount of profits on sale of valuable stock in trade and not goodwill as alleged.
The Appellate Assistant Commissioner, on appeal, held that the said sum of Rs. 2,50,000 was the value of the goodwill.
He further held that since the transfer was a transfer of business as a going concern, the profit was the capital gain and therefore not liable to tax.
Relying on Doughty vs Commissioner of Taxes,(1) he held that as "the transfer is a transfer of all assets of the firm to a company the transfer is a capital sales".
The Income Tax Officer filed an appeal before the Appellate Tribunal.
The Appellate Tribunal held that although the sale was the sale of a business as a going concern, the value of the stock could be traced, and, therefore, the profits arising out of the sale was taxable income.
Regarding the goodwill, the Tribunal observed: "We do not think that there was much value of the goodwill of the business that was transferred.
Mugneeram Bangur & Co. was a firm constituting of several partners and Mugneeram Bangur & Co. Land Department was a separate firm consisting of the same partners with.
however.
different shares in the firm Mugneerarn Bangur & Co. were also carrying on business in lands and buildings along with its activities in other businesses.
Our attention was drawn by the Department Representative to the fact that in the case of transfer of lands and buildings of the assessee firm the conveyances were as a rule executed in the name of Mugneeram Bangur & Co. The assessee 's learned Counsel did not object to this fact.
We are therefore accepting it as correct.
If so, there was nothing in the name of Mugneerarm Bangur & Co. Land Department.
The conversion of the said firm into a Company in an entirely different name would also indicate that not much of importance was attached to the name of Mugneeram Bangur & Co. Land Department.
In the circumstances.
in our opinion, the price paid by the purchase Core Dany was not on the consideration of the goodwill of the [1927] A.C. 327.
615 vendors but upon taking over the entire going concern and paying the consideration not in money but by allotment of shares.
In such circumstances, the surplus was out of the sale of the business as a whole, including the stock in trade of the assessee firm.
Since the other assets transferred had definite value which would not increase in value by the process of transfer, the only value that could increase was the value of the stock in hand, that being the land in the present case.
In our opinion, therefore, the amount of Rs. 2,50,000 was really the excess value of the lands sold along with the other assets".
But the Tribunal dismissed the appeal on the ground that although the vendors were a different entity from the vendee, the first being a partnership and the second being a limited company, the transaction was mere adjustment of the business position of the partners.
It further observed that the Income Tax Department was not entitled to take mere book keeping entries as the evidence of any profit in the matter.
The High Court first answered question No. 4, thus: "There was no profit in the transaction by which the entire stock in trade and the business of the firm were transferred to the limited company.
Again the fact that two outsiders were brought in as directors with seven shares allotted to them out of 39,300 shares ' makes no difference.
In Sir Homi Mehta 's case 400 shares out of 6,000 shares were allotted to Sir Homi Mehta 's sons.
Nor again can I see any difference in principle between the case of conversion of business into a private limited company and one in which it is converted into a public limited company if in the latter company outsiders are not allotted any sizeable proportion of the shares issued".
The High Court felt that this answer was enough to dispose of the matter, but as questions 2 and 3 had been referred, they answered them.
Regarding question No. 2, the High Court held that "as the assets of the firm transferred to the company have been itemised and as there can be no question of variation of the figures given in items 3 to 8 in the agreement for sale, it must be held that Rs. 2,50,000 shown as the value of the goodwill must be represented by surplus on the sale of lands which was the stock in trade of the assessee company".
Regarding question No. 3, the High Court held that even if the value of the stock in trade taken over by the assessee was greater than the figure shown therefore in the agreement for sale in view of the answer to question 4, there was no profit which could be taxed.
616 We may mention that it is not necessary to deal with question No. 1 because it was given up before the High Court.
Mr. Karkhanis, learned counsel for the appellant.
urges that the Doughty 's case(1) was wrongly decided in one respect and that the 'vendors and the vendee being different entities.
it is not permissible to tear the corporate veil to see whether the partners of the vendors were the same persons as the shareholders of the vendee.
He says that if the veil is not torn, then there was a sale by the vendors to the vendee and profits arose out of the sale.
Learned counsel for the respondent, Mr. Viswanatha Sastri, says that if the third question is answered in his favour, it would not be necessary to deal with the other questions.
As we are inclined to answer the third question in the favour of the vendors, it is not necessary to deal with the other questions and the arguments addressed in respect of them.
The Appellate Tribunal held in this case that the sale was a sale of business as a going concern.
This is also apparent from clause 1 of the agreement set out above.
If this is so Doughty 's case(1) applies.
The facts in Doughty 's case may be conveniently taken from the headnote in that case.
"In 1920, two partners carrying on business in New Zealand as general merchants and drapers sold the partnership business to a limited company in which they became the only shareholders.
The sale was of the entire assets, including goodwill, the consideration being fully paid shares, and an agreement by the company to discharge all the liabilities.
The nominal value of the shares being more than the sum to the credit of the capital account of the partnership.
in its last balance sheet, a new balance sheet was prepared showing a larger value for the stock in trade.
The Commissioner of Taxes treated the increase in value so shown as a profit on the sale of the stock in trade, and assessed the appellant upon it for income tax under the Land and Income Tax Act, 1916, of New Zealand,.
which imposes the tax on all profits or gains derived from any business".
The Privy Council decided the case in favour of the appellant on two grounds, the first being that "if the transaction is to be treated as a sale, there was no separate sale of the stock.
and no valuation of the stock as an item forming part of the aggregate which was sold".
In connection with this ground, Lord Phillimore observed that "income tax being a tax upon income, it is well established that the sale of a whole concern which can be shown to be a sale at a profit as compared with the price given for the business, or at which it stands in the books does not give rise to as profit taxable to income tax".
He further observed that "where.
however, the business consists, as in the present case, entirely in buying and selling, it is more difficult to distinguish between an ordinary and a realization sale the 617 object in either case being to dispose of goods at a higher price than that given for them, and thus to make a profit out of the business.
The fact that large blocks of stock are sold does not render the profit obtained anything different in kind from the profit obtained by a series of gradual and smaller saks.
This might even be the case if the whole stock was sold out in one sale.
Even in the case of a realization sale, if there were an item which could be traced as representing the stock sold, the profit obtained by that sale, though made m conjunction with a sale of the whole concern, might conceivably be treated as taxable income".
Lord Phillimore concluded with the following observations: "If a business be one of purely buying and selling.
like the present, a profit made by the sale of the whole of the stock, if it stood by itself, might well be assessable to income tax; but their view of the facts (if it be open to them to consider the facts) is the same as that of Stout C.J. that is, that this was a slump transaction".
This Court.
in Commissioner of Income tax, Kerala vs West Coast Chemicals and Industries Ltd.(1) understood the Doughty 's case(2) thus: "This case shows that where a slump price is paid and no portion is attributable to the stock in trade, it may not be possible to hold that there is a profit other than what results from the appreciation of capital.
The essence of the matter, however, is not that an extra amount has been gained by the selling out or the exchange but whether it can fairly be said that there was a trading from which alone profits can arise in business".
It follows from the above that once it is accepted that there was a slump transaction in this case.
that the business was sold as a going concern.
the only question that remains is whether any portion of the slump price is attributable to the stock in trade the learned counsel for the appellant relies on two grounds to support the contention that there is profit attributable to the sale of land which was stock in trade of the vendors.
He says first that in the schedule to the agreement the value of land and the value of goodwill and other items is specified.
He says that although the amount of Rs. 2,50,000 was shown as price of goodwill, it was really excess value of the land sold along with other assets.
Secondly.
he says, relying on the passage already cited above from Doghty 's case(" ') that the vendors ' business was a business of purely buying and selling land.
In our opinion.
on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and selling land.
In (1) (2) [1927] A.C. 327.
618 this case the vendors were engaged in buying land, developing it and then selling it.
The agreement itself shows that the vendors had already incurred debts and liabilities for development expenses such as opening out roads, laying out drains and, sanitary arrangements, providing electricity and providing for a school.
It seems to us that in the case of a concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale.
The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold.
there is no evidence that any attempt was made to evaluate the land on the date of sale.
As the vendors were transferring the concern to a company, constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale.
What was put in the schedule was the cost price, as it stood in the books of the vendors.
Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody 's case that this represented the market value of the land.
In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land.
If this is so, it is clear from the decision of this Court in Commissioner of Income tax, Kerala vs 14lest Coast Chemicals and Industries Ltd.(1) and Doughty 's case(2) that no part of the slump price is taxable.
We, therefore, answer question No. 3 in the negative.
As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4.
The appeal is accordingly dismissed with costs.
Appeal dismissed.
(1) 46 I.T.R.135.
(2) [1927] A.C. 327.

dataset_name: IN-Abs

summary/full:
The business of the assessee firm, carrying on land development business was sold as a going concern to a company promoted by the assessee s partners.
The purchase price included sums for the value of land, goodwill, etc.
The amount shown as the value of the goodwill v:as sought to be assessed to income tax on the grounds (i) that the assessee 's business was purely one of buying and selling land and (ii) the amount was profit attributable to the sale of land which was the stock in trade of the assessee.
In appeal to this Court.
HELD: On the facts of this case it could not be said that the assessees were carrying on the business of purely buying and selling land.
They were engaged in buying land, developing it and then selling it.
The sale was the sale of the whole concern and no part of the slump price was attributable to the cost of the land.
If that was so, no part of it was taxable.
[617H 618A, E] Commissioner of Income tax, Kerala vs West Coast Chemical and Industries Ltd. and Doughty vs Commissioner of Taxes (1927) A.C. 327, applied.
In the case of a concern carrying on the business of buying land, developing it and the selling it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale.
The mere fact that in the schedule the price of land was stated did not lead to the conclusion that part of the slump price was necessarily attributable to the land sold.
There was no evidence that any attempt was made to evaluate the land on the date of sale.
As the assessees were transferring the concern to a company.
constituted by the assessees themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale.
[618B D]


judgement:
Appeal No. 123 of 1952.
Appeal against the Judgment and Order, dated the 22nd March, 1951, of the High Court of Judicature at Calcutta (Harries C.J. and Banerjee J.) , in Reference No. 2 of 1951 in Civil Rules Nos. 20 and 21 of 1950.
December 11.
The Judgment of the Court was delivered by PATANJALI SASTRI C.J.
This is an appeal from a judgment, of the High Court of Judicature at Calcutta declaring certain provisions of the West Bengal Land Development and Planning Act, 1948, (hereinafter referred to as the "impugned Act ") unconstitutional and void.
The impugned Act was passed on October 1, 1948, primarily for the settlement of immigrants who had migrated into the Province of West Bengal due to communal disturbances in East Bengal,and it 560 provides for the acquisition and development of land for public purposes ' including the purpose aforesaid.
A registered Society called the West Bengal Settlement Kanungoe Co operative Credit Society Ltd., respondent No. 4 herein, was authorised to undertake a development scheme, and the Government of the State of West Bengal, the appellant herein, acquired and made over certain lands to the society for purposes of the development scheme on payment of the estimated cost of the acquisition.
On July 28, 1950, the respondents I to 3, the owners of the lands thus acquired, instituted a suit in the Court of the Subordinate Judge, 11 Court at Alipore, District 24 Parganas, against the society for a declaration that the impugned Act was void as contravening the Constitution and that all the proceedings taken thereunder for the acquisition aforesaid were also void, and of no effect and for other consequential reliefs.
The State of West Bengal was subsequently impleaded as a defendant.
As the suit involved questions of interpretation of the Constitution respondents 1 to 3 also moved the High Court under article 228 of the Constitution to withdraw the suit and determine the constitutional question.
The suit was accordingly transferred to the High Court and the matter was heard by a Division Bench (Trevor Harries C.J. and Banerjee J.) who, by their final judgment, held that the impugned Act as a whole was not .unconstitutional or void save as regards two of the provisions contained in section 8 which, so far as it is material here, runs as follows: "A declaration under section 6 shall be conclusive evidence that the land in respect of which the declaration is made is needed for a public purpose and, after making, such declaration, the Provincial Government may acquire the land and thereupon the provisions of the Land Acquisition Act, 1894, (hereinafter in this section referred to as%, the said Act), shall, so far as may be, apply: Provided that (b) in determining the amount of compensation to be awarded for land acquired in pursuance of this 561 Act the market value referred to in clause first of sub section (1) of section 23 of the said Act shall be deemed to be the market value of the land on the date of publication of the notification under sub section (1) of section 4 for the notified area in which the land is included subject to the following condition, that is to say if such market value exceeds by any amount the market value of the land on the 3 1 st day of December, 1946, on the assumption that the land had been at that date in the state in which it in fact was on the date of publication of the said notification, the amount of such excess shall not be taken into consideration.
" The provision making the declaration of the Government conclusive as to the public nature of the purpose of the acquisition and the limitation of the amount of compensation so as not to exceed the market value of the land on December 31, 1946, were declared ultra vires the Constitution and void.
The Attorney General, appearing for the appellant, rightly conceded that inasmuch as article 31(2) made the existence of a public purpose a necessary condition of acquisition the existence of such a purpose as a fact must be established objectively and the provision in section 8 relating to the conclusiveness of the declaration of Government as to the nature of the purpose of the acquisition must be held unconstitutional but he contended that the provision was saved by article 31(5)of the Constitution which provides: "Nothing in clause (2) shall affect (a) the provisions of any existing _ law other than a law to which the provisions of clause (6) apply, or. . . " Clause (6) reads thus: "Any law of the State enacted not more than eighteen months before the commencement of this Constitution may within three months from such commencement be submitted to the President for his certification; and, thereupon, if the President public notification so certifies, it shall not be called question in any court on the ground that it contract the provisions of clause (2) of this article, 562.
contravened the provisions of sub section (2) of section 299 of the Government of India Act, 1935.
" It was argued that the impugned Act having been passed within 18 months before the commencement of the Constitution and not having been submitted to the President for his certification, it was a law to which the provisions of clause (6) did not apply and, therefore, as an existing law, the impugned Act was not affected by clause (2) of that article.
The argument is manifestly unsound.
Article 31(6) is intended to save a State law enacted within 18 months before the commencement of the Constitution provided the same was certified by the President while, article 31(5) saves all existing laws passed more than 18 months before the commencement of the Constitution.
Reading the two clauses together, the intention is clear that an existing law passed within 18 months before January 26, 1950, is not to be saved unless it was submitted to the President within three months from such date for his certification and was certified by him.
The argument, if accepted, would reduce article 31(6) to ameaningless redundancy.
The only serious controversy in the appeal centred round the constitutionality of the " condition " in proviso (b) to section 8 limiting the compensation payable so as not to exceed the market value of the land on December 31, 1946.
The Attorney General, while conceding that the word " compensation " taken by itself must mean a full and fair money equivalent, urged that, in the context of article 31(2) read with entry No. 42 of List III of the Seventh Schedule, the term was not used in any rigid sense importing equivalence in value but had reference to what the legisla ture might think was a proper indemnity for the loss sustained by the owner.
Article 31(2) provides: No property, movable or immovable, including any interest in, or in any company owning, any commercial or industrial undertaking, shall be taken sesion of or acquired for public purposes under law authorising the taking of such possession acquisition, unless the law provides for 563 compensation for the property taken possession of or acquired and either fixes the amount of the compensation, or specifies the principles on which, and the manner in which, the compensation is to be determined and given.
and entry 42 of List III reads thus Principles on which compensation for property acquired or requisitioned for the purposes of the Union or of a State or for any other public purpose is to be determined, and the form and the manner in which such compensation is to be given.
It is argued that the term " compensation " in entry 42 could not mean full cash equivalent, for then, the power conferred on the legislature to lay down the principles on which compensation is to be determined and the form and the manner in which such compensation is to be given would be rendered nugatory.
On the other hand, the entry showed that the compensation to be "given " was only " such compensation " as was determined on the principles.
laid down by the law enacted in exercise of the power, and, as the concluding words used in article 31(2) are substantially the same as in the entry, the Constitution, it was claimed, left scope for legislative discretion in determining the measure of the indemnity.
We are unable to agree with this view.
While it is true that the, legislature is given the discretionary power of laying down the principles which should govern the determination of the amount to be given to the owner for the property appropriated, such principles must ensure that what is determined as payable must be compensation, that is, a just equivalent of what the owner has been deprived of.
Within the limits of this basic requirement of full indemnification of the expropriated owner, the Constitution allows free play to the legislative judgment as to what principles should guide the determination of the amount payable.
Whether such principles take into account all the elements which make up the true value of the property appropriated and exclude matters which are 74 564 to be neglected, is a justiciable issue to be adjudicated by the court.
This, indeed, was not disputed.
Reference was made to certain Australian cases where the opinion was expressed that the terms of compulsory acquisition of property were matters of legislative policy and judgment.
The decisions largely turned on the absence of any constitutional prohibition in regard to deprivation of private property without compensation as in the Fifth Amendment of the American Constitution and on the use of the words " just terms " instead of " compensation " in section 51 (xxxi) of the Commonwealth Constitution which conferred power on the Parliament to make laws with respect to " the acquisition of property on just terms from any State or person. . " (cf.
Grace Brothers Pty. Ltd. vs The Commonwealth(1).
Those decisions, therefore, are of no assistance to the appellant here.
Turning now to the provisions relating to compensation under the impugned Act, it will be seen that the latter part of the proviso to section 8 limits the amount of compensation so as not to exceed the market value of the land on December 31, 1946, no matter when the land is acquired.
Considering that the impugned Act is a permanent enactment and lands may be acquired under it many years after it came in.
to force, the fixing of the market value on December 31,1946, as the ceiling on compensat I ion, without reference to the value of the land at the time of the acquisition is arbitrary and cannot be regarded as due compliance in letter and spirit with the requirement of article 31 (2).
The fixing of an anterior date for the ascertainment of value may not, in certain circumstances, be a violation of the constitutional requirement as, for instance, when the proposed scheme of acquisition becomes known before it is launched and prices rise sharply in anticipation of the benefits to be derived under it, but the fixing of an anterior date, which might have no relation to the value of the land when it is acquired, may be, many years later, cannot but be regarded as arbitrary.
The learned Judges (1) ; 565 below observe that it is common knowledge that since the end of the war land, particularly around Calcutta, has increased enormously in value and might still further increase very considerably in value when the pace of industrialisation increases.
Any principle for determining compensation which denies to the owner this increment in value cannot result in the ascertainment of the true equivalent of the land appropriated.
We accordingly hold that the latter part of proviso (b) to section 8 of the impugned Act which fixes the market value on December 31, 1946, as the maximum compensation for lands acquired under it offends against the provisions of article 31 (2) and is unconstitutional and void.
The appeal is dismissed with costs.
Appeal dismissed.
Agent for respondents Nos. 1, 2 and 3: section C. Banerjee.
Agent for the intervener: G. H. Rajadhyaksha.

summary/full:
The West Bengal Land Development and Planning Act, 1948, passed primarily for the settlement of immigrants who had migrated into West Bengal due to communal disturbances in East Bengal provides for the acquisition and development of land for public purposes including the purpose aforesaid: Held, that the provisions of section 8 of the West Bengal Act XXI of 1948 making the declaration of the Government.
conclusive as to the public nature of the purpose of the acquisition and the limitation of the amount of compensation so as not to exceed the market value of the land on December 31, 1946, are ultra vires the Constitution and void 559 (i)inasmuch as article 31(2) of the Constitution made the existence of a public purpose a necessary condition of acquisition, the existence of such a purpose as a fact must be established objectively ; (ii)that in view of the fact that the impugned Act is a permanent enactment and lands may be acquired under it many years after it came into force, the fixing of the market value on December 31, 1946, as the coiling on compensation without reference to the value of the land at the time of acquisition, is arbitrary and cannot be regarded as due compliance in letter and spirit with the requirements of article 31(2) (iii)the Act is not saved by article 31(5) from the operation of article 31(2) as it was not certified by the President as provided for by article 31(6).
Held, further, that while entry No. 42 of List III of the Seventh Schedule confers on the legislature the discretionary power of laying down the principles which should govern the determination of the amount to be given to the owner of the property appropriated, article 31(2) requires that such principles must ensure that what is determined as payable must be "compensation", that is, a just equivalent of what the owner has been deprived of.
Whether such principles take into account all the elements which make up the true value of the property appropriated and exclude matters which are to be neglected is a justiciable issue to be adjudicated by the Court.