1961 (12) TMI 43 - SC - Companies Law

Validity of an order made under section 36 of the Insurance Act 1938 sanctioning the transfer of its life insurance business by one insurance company to another questioned Held that - The transfer in this case is an exercise of this power and hence within the objects of the company. An exercise by a company of a power given by its memorandum cannot amount to an alteration of the memorandum at all. In the present case the thing has been done under express statutory power. No question here arises of a corporate power. Further there is not here a distribution of the assets of the transferor company after its undertaking had been transferred. Hence we have here no winding up really. It was after such approval that the transfer had been sanctioned under section 36 of the Insurance Act and may be though we do not have this on the record the transfer was effected by proper documents executed between the companies. An agreement only to transfer the undertaking by the directors clearly does not violate section 86H for it is merely tentative subject to final approval by the company in general meeting. In the present case the defect if any arose from a statutory provision itself of which the shareholders must be deemed to have had knowledge. It is not possible to take the view that a transfer cannot be sanctioned under section 36 if the result of that is to denude the transferor company of all its assets out of which an agent can be paid his commission. In the present case he actually heard the policy-holders. Therefore it does not seem to us that it can be contended with substance that sections 35 and 36 of the Insurance Act are not pari materia with the sections of the Companies Acts to which we have earlier referred. The last point of Mr. Sinha must also fail. Appeal dismissed.

2018 (3) TMI 645 - HC

Issues Involved:
1. Validity of the transfer of life insurance business under section 36 of the Insurance Act, 1938.
2. Alleged violation of sections 10 and 12 of the Companies Act, 1913.
3. Whether the transfer amounted to a virtual winding up of the transferor company.
4. Directors' authority to transfer the company's undertaking under section 86H of the Companies Act.
5. Alleged reduction of share capital without compliance with section 55 of the Companies Act.
6. Alleged infringement of rights under section 44 of the Insurance Act.
7. Alleged discrimination under article 14 of the Constitution.
8. Compliance with sections 35 and 36 of the Insurance Act.

Issue-wise Detailed Analysis:

1. Validity of the transfer of life insurance business under section 36 of the Insurance Act, 1938:
The appellants challenged the order sanctioning the transfer of life insurance business by one insurance company to another under section 36 of the Insurance Act, 1938. The transfer involved the India Equitable Insurance Company Ltd. (transferor) and Arya Insurance Company Ltd. (transferee). The Supreme Court upheld the High Court's dismissal of the petition challenging the transfer.

2. Alleged violation of sections 10 and 12 of the Companies Act, 1913:
The appellants argued that the transfer violated sections 10 and 12 of the Companies Act, 1913, as it amounted to an alteration of the transferor company's memorandum without following the prescribed procedure. The Court found that the transfer was an exercise of the power given by clause 3(27) of the memorandum, which authorized the sale of the undertaking. Therefore, it did not constitute an unauthorized alteration of the memorandum.

3. Whether the transfer amounted to a virtual winding up of the transferor company:
The appellants contended that the transfer resulted in a virtual winding up of the transferor company, which could only be effected under the Companies Act. The Court held that the transfer was done under the specific provisions of the Insurance Act, which override the Companies Act in this context. Hence, there was no virtual winding up as alleged.

4. Directors' authority to transfer the company's undertaking under section 86H of the Companies Act:
The appellants argued that the directors had no power to transfer the undertaking without the consent of the company in a general meeting, as required by section 86H of the Companies Act. The Court found that the agreement to transfer was approved by the shareholders in a general meeting by an 82% majority. Therefore, the directors' actions were valid and did not violate section 86H.

5. Alleged reduction of share capital without compliance with section 55 of the Companies Act:
The appellants claimed that the transfer resulted in a reduction of share capital, which could only be effected under section 55 of the Companies Act. The Court held that the loss of assets did not constitute a reduction of share capital under the Companies Act. Therefore, the contention was deemed wholly misconceived.

6. Alleged infringement of rights under section 44 of the Insurance Act:
The appellants argued that the transfer violated their rights under section 44 of the Insurance Act, which grants insurance agents certain rights to receive commissions. The Court found that the transfer did not affect the agents' rights, as the right to receive commissions remained intact. The inability to realize the amount due was not a violation of section 44.

7. Alleged discrimination under article 14 of the Constitution:
The appellants contended that the transfer discriminated against the policyholders of the transferor company, as other insolvent insurance companies were not subjected to similar transfers. The Court held that no discrimination occurred, as the transfer was sanctioned with the assent of the shareholders and after hearing the policyholders. Section 36 of the Insurance Act applied equally to all insurance companies.

8. Compliance with sections 35 and 36 of the Insurance Act:
The appellants argued that the terms of sections 35 and 36 of the Insurance Act were not complied with, as the scheme was modified after notice under section 35(3) was issued. The Court assumed that the Controller could only sanction the scheme of which notice was given. However, the modifications were pursuant to the terms approved by the shareholders, making it the scheme of which notice was given. The Court found that the practice of modifying schemes with shareholder approval was consistent with precedents under the Companies Act.

Conclusion:
The Supreme Court dismissed the appeal with costs, holding that the transfer was valid and complied with the relevant provisions of the Insurance Act and the Companies Act. The appellants' contentions were found to be without merit.

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