Report No. 190

Final recommendation of the Law Commission in relation to deletions

2.1.3 The responses received to the changes proposed by the Law Commission of India as set out in Appendix-I to the Consultation Paper have been more or less in acceptance of those suggestions. Law Commission has carefully examined the responses and suggestions received and is recommending several modifications to those definitions. The complete final list of changed definitions as recommended by the Law Commission of India is set out in a separate table and appended to this Report as Appendix-II. The said recommendations cover amendments to the following sections of the Act:

(i) Section 2(9.- Definition of Insurer, to include Insurance Co-operative Society and Indian Insurance Company;

(ii) Section 2.- Prohibition of transaction of insurance business by certain persons, the amendment to make clear that no insurer can begin to carry on any class of insurance business unless it is an Indian Insurance Company or an insurance co-operative society;

(iii) Section .- Minimum limits for annuities and other benefits, to be specified by Regulations from time to time;

(iv) Section 6A(1.- Issuance of preference shares by insurers, to require prior permission of IRDA in accordance with IRDA's Regulations;

(v) Section 6A(10.- Power of Central Government to issue directions in regard to capital structure and voting rights, to be now exercised by IRDA;

(vi) Section 6.- Securing compliance with requirements relating to capital structure, power to issue directions to be entrusted to IRDA; subsection (4) to be omitted;

(vii) Section 6.- Conversion of company limited by shares into company limited by guarantee, approval to conversion to be given by IRDA; in sub-section (5) the words 'Indian Companies Act' to be replaced by 'Companies Act';

(viii) Section 7(1.- Deposits, amendment to reflect the requirement of first time insurers depositing Rs.10 lakhs along with their application and powers of Central Government to be exercised by IRDA in consultation with Central Government; sub-section (9A) and (9B) to be amended to require power in the matter of sale of securities/ investment of deposits held by insurer to be exercised by RBI in consultation with IRDA;

(ix) Section .- Refund of deposits, IRDA to be empowered to pass orders for refund where insurer ceases to carry on business;

(x) Section 1.- Separation of accounts and funds; proviso to sub-section (1) requires modification; sub-section (2) to be modified to reflect the position that life insurers cannot carry on non-life business;

(xi) Section 1.- Accounts and balance sheet; sub-section (2) to be amended to reflect bar on partnership firms and permitting cooperative societies to carry on insurance business;

(xii) Section 1.- Audit; replacement of reference to Companies Act, 1913 by the Companies Act, 1956;

(xiii) Section 1.- Actuarial Report; sub-section (4) to be amended in view of Regulations framed by IRDA;

(xiv) Section 1.- Submission of Returns; simplified version recommended;

(xv) Section 1.- Returns by insurers outside India; in sub-section (2)(b) deletion of reference to third schedule and replacement by 'Regulations';

(xvi) Section 2.- Statement of investment of assets; details to be left to Regulations framed by IRDA;

(xvii) Section 28.- Return of investments; details to be left to Regulations framed by IRDA;

(xviii) Section 2.- Prohibition of Loans; sub-section (3) to be applicable to general insurance business;

(xix) Section 3.- Assets of insurer; reference to partners to be deleted and replaced by insurance cooperative society;

(xx) Section 31.- Payment of excessive remuneration; limit of Rs.5,000 to be analysed;

(xxi) Section 32.- Prohibition of common officers; employment of full time managing director to be unconditional and details to be left to the Regulations;

(xxii) 32B & 32.- Social and rural sector; amendments to require insurers to contribute to develop both sectors and IRDA to be empowered to revise the obligation through Regulations;

(xxiii) Section 3.- Amalgamation; amendment to indicate that no option to amalgamate under the Companies Act should be given without compliance with the requirements of the Insurance Act, 1938;

(xxiv) Section 37.- Power of authority to prepare scheme of amalgamation; details to be specified in the Regulations;

(xxv) Section 4.- Payment of Commission; sub-section (2) to indicate that amounts payable be specified in Regulations; sub-section (2A) to indicate that commission on renewal premium to be paid to only one agent who assisted in effecting a revival of the policy which stood lapsed due to non payment of the premium; Authority to frame Regulations;

(xxvi) Section 40.- Limitation of the expenditure on Commission; to be specified in Regulations of IRDA;

(xxvii) Section 40B & .- Limitation on expenses on management; terms to be amended to reflect present trends of business;

(xxviii) Section 4.- Prohibition of rebates; penalty for contravention to be analysed;

(xxix) Section 4.- Register of insurance agents; to include electronic form as well;

(xxx) Section 4.- Heritable Commission; clause (c) of sub-section (1) be amended to the effect that after lapse of five years from the date he ceases to be an agent, a person can solicit or procure business for another insurer;

(xxxi) Section 48.- Agents not to be directors; to extent to general insurance business;

(xxxii) Section 5.- Notice of options; the words 'unless these are set forth in the policy' to be omitted;

(xxxiii) Section 5.- Supply of copies of proposals; fee to be specified in Regulations;

(xxxiv) Section 52B.- Powers of Administration; appeal to IRDA instead of 'Central Government';

(xxxv) Section 52.- Termination of appointment of administrator; powers to vest with IRDA;

(xxxvi) Section 52.- Finality of decision appointing administrator; powers to vest with IRDA;

(xxxvii) Section 5.- Winding up by court; reference to Companies Act, 1913 to be replaced by 'Companies Act, 1956';

(xxxviii) Section 5.- Partial winding up by court; reference to Companies Act, 1913 to be replaced by 'Companies Act, 1956';

(xxxix) Section 64U.- Power to remove difficulties; power to vest with IRDA.

2.1.4 It may be mentioned here that a larger number of amendments had been proposed in the Consultation Paper. For the reasons explained in Chapter X infra, the proposals in relation to Investments (Sections 27, 27A, 27B and 27C), restriction on dividends and bonuses (s.49), the Tariff Advisory Committee (Sections 64UA, 64UB, 64UE, 64UJ, 64UK and 64UL), valuation of assets (s.64V), solvency margin (s.64VA) and restriction on opening new place of business (s.64VC) have not been finalised and no recommendations are being made in regard to these provisions. As regards, the provisions relating to assignment and transfer of policies (s.38), nomination (s.39) and repudiation (s.45), these are separately dealt with later in this Report.

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