Compensation for the Nationalised Insurers

Section 17(2) allows a Tribunal to choose one or more persons possessing special knowledge of any matter relating to a case under inquiry to assist it in determining a question.

Section 17(3) gives every Tribunal the powers of a civil court under the Code of Civil Procedure, 1908 in respect of the matters the sub section lists, which are the ordinary powers of summoning witnesses, requiring discovery and receiving evidence.

A judicial chairman with two others, expert assessors, and civil court powers: the design is of a specialised valuation court rather than of an administrative panel, and it is what makes the exclusion of the civil courts defensible.

Exclusive jurisdiction and enforcement: sections 41 and 42

Section 41 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 this Act.

Section 42 provides that any decision of a Tribunal may be enforced in any civil court within the local limits of whose jurisdiction the person against whom it is to be enforced actually and voluntarily resides, or carries on business, or personally works for gain, or owns any property, as if it were a decree passed by that court.

The two sections together are the standard Indian pattern for a statutory tribunal. The civil court cannot decide the question, but it must lend its machinery to enforce the answer.

The criminal sanction: section 40

Section 40 provides that if any person wilfully withholds or fails to deliver to the Corporation as required by section 13 any property, books, documents or other papers in his possession, or unlawfully retains possession of any property of an insurer transferred to the Corporation, or wilfully applies any such property to purposes other than those expressed in or authorised by the Act, he shall, on the complaint of the Corporation, be punishable with imprisonment which may extend to one year, or with fine which may extend to one thousand rupees, or with both.

Two features are examinable. The offence is not cognisable at the instance of anybody: it requires the complaint of the Corporation. And the fine of one thousand rupees, unamended since 1956, is a good illustration of a penalty that has been left behind by time; the deterrent now is the imprisonment and the reputational consequence, not the money.

The constitutional limit: what a later case decided

Facts. Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, decided on 10 February 1970. The Government nationalised fourteen major private banks by an Ordinance of 19 July 1969, replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. Cooper, a director of one bank and a shareholder in others, challenged the acquisition.

Held. The Act was struck down. It impaired the shareholders' rights under Article 19(1)(g) and Article 31, and the compensation provided was not just: the Act specified the assets to be valued and excluded some of them, so that what was given was not compensation for what was taken.

Why it matters here. It is the case that marks the limit of the nationalisation power and it is the natural comparison in any question about the insurance nationalisations. The technique used in 1956 and 1972, of legislating principles of valuation in a Schedule, is exactly the technique the Court examined in 1970, and the lesson it drew was that principles which systematically undervalue what is taken are not principles of compensation at all.

A worked example

Godavari Life's controlled business vests in the Corporation on 1 July 1956.

Stage one. The Corporation applies the First Schedule principles and determines the compensation at forty two lakh rupees.

Stage two. The Central Government approves that figure, and it is offered to Godavari in full satisfaction of the compensation payable under the Act.

Stage three. Godavari's board considers the figure too low, principally because the Schedule's treatment of the goodwill of its agency network gives it nothing. Within the prescribed time it has the matter referred to a Tribunal under section 16(2).

The Tribunal. Constituted under section 17 with a former High Court judge as Chairman and two other members, it chooses an actuary to assist it under section 17(2), exercises the civil court powers in section 17(3) to summon Godavari's actuary and to require discovery of the valuation working papers, and determines the compensation.

Godavari then tries to sue in the district court on the same question. Section 41 bars it: no civil court has jurisdiction to entertain or adjudicate on a matter the Tribunal is empowered to decide.

The Tribunal awards fifty six lakh rupees and the Corporation delays paying. Section 42 lets Godavari enforce the decision in any civil court within whose jurisdiction the Corporation carries on business, as if it were a decree of that court.

And a former director keeps the minute books. Section 40 makes that an offence, on the complaint of the Corporation, punishable with imprisonment up to one year or a fine up to one thousand rupees or both, and section 13 required him to deliver them forthwith.

What it does NOT mean

It does not mean the compensation was negotiated. It was determined by the Corporation on statutory principles, approved by the Government and offered in full satisfaction.

It does not mean the insurer had no remedy. It had a reference to a Tribunal chaired by a judge with civil court powers.

It does not mean the civil courts were excluded altogether. Section 41 excludes them only from matters the Tribunal is empowered to decide, and section 42 requires them to enforce its decisions.

And it does not mean the compensation principles were beyond challenge. Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, shows that a scheme of valuation that does not compensate for what is taken can be struck down.

Quick revision

Section 16(1): compensation given by the Corporation in accordance with the principles in the First Schedule. Section 16(2): determined by the Corporation, approved by the Central Government, offered in full satisfaction, and if not acceptable referred to a Tribunal within the prescribed time.

Section 17: one or more Tribunals of three members, one of whom is or has been a High Court judge or has been a Supreme Court judge and is Chairman; power to choose expert assessors; the powers of a civil court under the Code of Civil Procedure, 1908.

Section 41: no civil court has jurisdiction over a matter the Tribunal is empowered to decide. Section 42: a Tribunal's decision is enforceable in a civil court as if it were that court's decree.

Section 40: wilfully withholding property or documents, unlawfully retaining possession, or applying such property to unauthorised purposes is punishable on the complaint of the Corporation with imprisonment up to one year or fine up to one thousand rupees or both.

The constitutional comparison: Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, striking down the bank nationalisation Act because it impaired Article 19(1)(g) and Article 31 and the compensation was not just.

Test yourself

1. How was the compensation for a nationalised life insurer fixed? By the Corporation in the first instance, in accordance with the principles in the First Schedule, approved by the Central Government and offered in full satisfaction: section 16.

2. What could an insurer do if the offer was unacceptable? Have the matter referred, within the prescribed time, to a Tribunal constituted under section 17 for decision.

3. How is a Tribunal under section 17 composed? Three members appointed by the Central Government, one of whom is or has been a Judge of a High Court, or has been a Judge of the Supreme Court, as Chairman.

4. Can a civil court decide a compensation dispute under the Act? No. Section 41 excludes its jurisdiction over any matter a Tribunal is empowered to decide, though section 42 requires it to enforce the Tribunal's decision as if it were its own decree.

5. What is the penalty for withholding property from the Corporation? On the complaint of the Corporation, imprisonment up to one year or a fine up to one thousand rupees or both: section 40.

6. What limit did the Supreme Court place on the nationalisation power? In Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248, it struck down the bank nationalisation Act as impairing Article 19(1)(g) and Article 31 and because the compensation provided was not just.