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The Insurance Act, 1938

( ACT NO. IV Of 1938 )

Power of Court to order restoration of property of insurer or compensation in certain cases
106. (1) If, on the application of the Chief Controller or an Administrator appointed under section 52A or an insurer or any policy-holder or any member of an insurance company or the liquidator of an insurance company (in the event of the insurance company being in liquidation), the Court is satisfied-
 
 
 
 
(a) that any insurer (including in any case where the insurer is an insurance company any person who has taken part in the promotion or formation of the insurance company or any past or present director, managing agent,
 
 
manager, secretary or liquidator) or any officer, employee or agent of the insurer,-
 
 
 
 
(i) has misapplied or retained or become liable or become accountable for any money or property of the insurer; or
 
 
 
 
(ii) has been guilty of any misfeasance or breach of trust in relation to the insurer; or
 
 
 
 
(b) that any person, whether he is or has been in any way connected with the affairs of the insurer or not, is in wrongful possession of any money or property of the insurer or having any such money or property in his possession wrongfully withholds it or has converted it to any use other than that of the insurer, or
 
 
 
 
(c) that by reason of any contravention of the provisions of this Act, the amount of the life insurance fund has been diminished;
 
 
 
 
the Court may examine any such insurer, director, managing agent, manager, secretary or liquidator or any other officer, employee or agent of the insurer or such other person, as the case may be, and may compel him to contribute such sums to the assets of the insurer by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks fit, or to pay such sum as may be found due from him in respect of any money or property of the insurer for which he is liable or accountable or to restore any money or property of the insurer or any part thereof, as the case may be; and where the amount of the life insurance fund has been diminished by reason of any contravention of the provisions of this Act, the Court shall have power to assess the sum by which the amount of the fund has been diminished and to order the person guilty of such contravention to contribute to the fund the whole or any part of that sum by way of compensation; and in any of the aforesaid cases the Court shall have power to order interest to be paid at such rate and from such time as the Court may deem fit.
 
 
 
 
(2) Without prejudice to the provisions contained in sub-section (1) or sub-section (3), where it is proved that any money or property of an insurer has disappeared or has been lost, the Court shall presume that every person in charge of, or
 
 
having a disposing power over, such money or property at the relevant time (whether a director, manager, principal officer or any other officer) has become accountable for such money or property within the meaning of sub-clause (i) of clause (a) of sub-section (1), and the provisions of that sub-section shall apply accordingly, unless such person proves that the money or property has been utilised or disposed of in the ordinary course of the business of the insurer and for the purpose of that business or that he took all reasonable steps to prevent the disappearance or loss of such money or property or otherwise satisfactorily accounts for such disappearance or loss.
 
 
 
 
(3) Where the insurer is an insurance company and any of the acts referred to in clauses (a), (b) and (c) of sub-section (1) has been committed by any person, every person who was at the relevant time a director, managing agent, manager, liquidator, secretary or other officer of the insurance company shall, for the purposes of that sub-section be deemed to be liable for that act in the same manner and to the same extent as the person who has committed the act, unless he proves that act was committed without his consent or connivance and was not facilitated by any neglect or omission on his part.
 
 
 
 
(4) Where at any stage of the proceedings against any person under this section (hereinafter referred to as the delinquent), the Court is satisfied by affidavit or otherwise-
 
 
 
 
(a) that a prima facie case has been made out against the delinquent; and
 
 
 
 
(b) that it is just and proper so to do in the interests of the policy-holders of an insurer or of the members of an insurance company, the Court may direct the attachment of-
 
 
 
 
(i) any property of the insurer in the possession of the delinquent;
 
 
 
 
(ii) any property of the delinquent which belongs to him or is deemed to belong to him within the meaning of sub-section (5);
 
 
(iii) any property transferred by the delinquent within two years before the commencement of the proceedings under sub-section (1) or during the pendency of such proceedings, if the Court is satisfied by affidavit or otherwise that the transfer was otherwise than in good faith and for consideration.
 
 
 
 
(5) For the purposes of sub-section (4), the following classes of property shall be deemed to belong to a delinquent:-
 
 
 
 
(a) any property standing in the name of any person which by reason of the person being connected with the delinquent, whether by way of relationship or otherwise, or on account of any other relevant circumstances appears to belong to the delinquent;
 
 
 
 
(b) the property of a private company in respect of the affairs of which the delinquent, by himself or through his nominees, relatives, partners or persons interested in any shares of the company is able to exercise or is entitled to acquire control, whether direct or indirect.
 
 
 
 
Explanation.- For the purposes of this section a person shall be deemed to be a nominee of a delinquent, if, whether directly or indirectly, he possesses on behalf of the delinquent, or may be required to exercise on the direction or on behalf of the delinquent, any right or power which is of such a nature as to enable the delinquent to exercise or to entitle the delinquent to acquire control over the company's affairs.
 
 
 
 
(6) Any claim to any property attached under this section or any objection to such attachment shall be made by an application to the Court and it shall be for the claimant or objector to adduce evidence to show that the property is not liable to attachment under this section, and the Court shall proceed to investigate the claim or objection in a summary manner.
 
 
 
 
(7) When disposing of an application under sub-section (1), the Court shall, after giving all persons who appear to it to be interested in any property attached under this section an opportunity of being heard, make such order as it thinks fit respecting the disposal of any such property for the purpose of effectually enforcing any liability under this section, and all such persons shall be deemed to be parties to the proceedings under this section.
 
 
(8) In any proceedings under this section the Court shall have full powers and exclusive jurisdiction to decide all questions of any nature whatsoever arising thereunder and in particular, with respect to any property attached under this section, and no other Court shall have jurisdiction to decide any such question in any suit or other legal proceeding.
 
 
 
 
(9) In making any order with respect to the disposal of the property of any private company referred to in clause (b) of sub-section (5), the Court shall have due regard to the interests of all persons interested in such property other than the delinquent and persons referred to in that clause.
 
 
 
 
(10) This section shall apply notwithstanding that the act is one for which the person concerned may be criminally liable.
 
 
 
 
(11) In proceedings under this section the Court shall have all the powers which a Court has under section 237 of the Companies Act, 1913.
 
 
 
 
(12) This section shall apply in respect of a provident society as defined in Part III as it applies in respect of an insurer.
 
 
 
 
(13) The Court entitled to exercise jurisdiction under this section shall be the High Court Division 1[* * *] and any proceedings under this section pending immediately before the commencement of the Insurance (Amendment) Ordinance, 1960, in any Court other than the High Court Division shall, on such commencement, stand transferred to the High Court Division.
 
 
 
 
(14) The 2[Supreme Court] may make rules providing for-
 
 
 
 
(a) the manner in which enquiries and proceedings may be held under this section;
 
 
(b) any other matter for which provision has to be made for enabling the High Court Division effectively exercise its jurisdiction under this section.

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