OFFICIAL LIQUIDATORKARACHI MUTUAL ASSURANCE CO LTD Vs. L B SUJANBRANCH MANAGERLIFE INSURANCE CORPORATION OF

JUDGEMENT

(1.) The Official Liquidator has preferred this appeal against the decision of Sharma J. dated 27-11-1957, sitting single, dismissing his application under Section 106 of the Insurance Act (Act No. IV of 1938).

(2.) The Karachi Mutual Assurance Company Ltd. is a Life Insurance Company originally incorporated and registered with the Registrar of Joint Stock Companies at Karachi in 1945. In March, 1946, the Company secured registration certificate from the Controller of Insurance in order to carry on its business in life insurance. Soon after the partition of India, on account of which Karachi fell in West Pakistan, the Company had to transfer its Head Office to Ajmer in November, 1947. In 1949 it appears that the Company being in sore need of funds in order to make deposit of Government security as required under Section 98 of the Insurance Act, borrowed a loan of Rs. 10,000/- from the Rehabilitation Finance Administration of the Government, and the money was advanced to the Insurance Company under the provisions of the Rehabilitation Finance Administration Act, 1948 (Act No. XII of 1948). On obtaining the loan, the Directors of the Company deposited the amount in the Reserve Bank of India under Section 98(2) of the Insurance Act. Later, however, it appears that they were unable to make the required deposit under Section 98, and the Controller of Insurance on 31-3-1951, cancelled the registration certificate issued by him to the Company. The result was that the Company was unable to carry on its life insurance business thereafter. The Company, therefore, went into liquidation. On an application filed by the Controller, an order for winding up of the Company was passed by the District Judge of Ajmer on 16-4-1955, and Shri J.B. Hingorani, line appellant, was appointed Official Liquidator. The loan of Rs. 10,000/-, which had been obtained by the Directors of the Company had to be paid back by the Official Liquidator out of the money deposited under Section 98(2) of the Insurance Act with the Reserve Bank of India. This was done with the concurrence of the Court. The Official Liquidator then presented this application under Section 106 of the Insurance Act praying that the Directors of the Company should be directed to make good the amount. He submits that it was due to their conduct that the assets of the Company had been proportionately diminished, and the loan had been taken in violation of the provisions of Section 8 of the Insurance Act. The case substantially made out in the petition is that the Board of Directors being fully aware that no charge could be created by them on the assets of the Company as such have diminished the Insurance Fund of the Company to the detriment of the policy holders, and are, therefore, personally liable to reimburse the Company to the sum of Rs. 10,000/-. He presented the application after obtaining sanction of the Attorney General of India, and then on integration of the State of Ajmer with Rajas than, of the Advocate General of Rajasthan.

(3.) Respondents Nos. 1 and 2, the Directors, have resisted the claim of the Official Liquidator. They admitted that the Company was a Mutual Assurance Company, of which they were Directors, but they alleged that since 9-1-1951, they had ceased to be Directors of the Company. They submitted that the amount in question had been borrowed in order to enable them to make the necessary deposit under Section 98 of the Insurance Act. which amount they could not deposit without taking such a loan, as the Company had suffered financial set back due to the partition of India. They pleaded that it became necessary for them to obtain the loan from the Rehabilitation Finance Administration, as they needed money for making the deposit with the Reserve Bank of India in order to carry on the business of life insurance. They further pleaded that they had not created any charge in contravention of any provision of the Insurance Act so as to diminish wrongfully the assets of the Company; but that it was by operation of S, 13 of the Rehabilitation Finance Administration Act itself that a charge had been created in respect of the loan advanced by the Government.