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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 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 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 Insurance Act, 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 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.

Section 13(1) of the Insurance Act 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 Part I of the Fourth Schedule and in conformity with the requirements of Part II of that Schedule. Section 13(2) provides that the provisions of sub-s. (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. Part II 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 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/-.