Report No. 190

Chapter III

Merger of Provisions of Irda Act, 1999 with The Insurance Act, 1938

3.1.1 This topic, it will be seen, is the third item of the seven topics set out in para 1.7.2, infra.

3.1.2 In the Consultation Paper, the Law Commission had suggested that there was no justification for continuing to have a separate legislation concerning the IRDA and that there was a need to merge the provisions of the IRDA Act, 1999 with the Insurance Act, 1938 in order to "to bring about an integrated approach to the task of formulating a legislative regime that can encompass the key facets of the functioning of the Regulatory Authority even while strengthening the regulatory regime". The rationale behind the above suggestion was explained thus:

"With the IRDA exercising many of the key functions assigned to it under the Insurance Act, 1938, there is no justification for continuing to have a separate legislation concerning the constitution and functions of the IRDA. Moreover, at the time the IRDA Act was being prepared, the task of a comprehensive revision of the Insurance Act, 1938 was felt necessary but was not undertaken due to paucity of time. Now, with the experience of the functioning of the IRDA and several rounds of discussion with key insurance personnel, a comprehensive revision of the Insurance Act, 1938 appears possible."

Accordingly, the Consultation Paper made detailed proposals for merger of the provisions of the IRDA Act, 1999 with the Insurance Act, 1938.

3.1.3 In view of the responses received endorsing the recommendations made by the Law Commission in this regard, the proposals for merger of the provisions of the IRDA Act, 1999 with the Insurance Act, 1938 are hereby finalised and set out in a 25tabular form in Appendix-IV to this Report. Accordingly, it is recommended that the following provisions of the IRDA Act, 1999, viz., section 2 (Definitions), Chapter II dealing with establishment and incidental matters of authority (Sections 3-12); Chapter IV dealing with duties, powers and functions of the authority (s.14);
Chapter V dealing with grants by Central Government, IRDA fund, accounts and audit (Sections 15- 17); Chapter VI dealing with powers of Central Government (Sections 1.- 23 & 25); section 24 providing the central government with power to make Rules; s..26 empowering Authority to make Regulations; s..27 requiring laying of Rules and Regulations before Parliament and section 28 (not barring application of other laws) be merged with the provisions of the Insurance Act, 1938 as indicated in Appendix IV to this Report.

Powers and functions of IRDA

3.1.4 As regards the powers and functions of the IRDA, the Consultation Paper dealt with the proposal for change in the law in two parts. The first related to the powers of the IRDA to grant, refuse, cancel, suspend or renew registration. There have been several responses received in regard to the suggestion concerning registration and renewal. According to FICCI, when there are sufficient powers with the IRDA to cancel registration "it makes little sense to require insurers to apply for renewal of registration".

The Punjab State Law Commission suggests that there should be no change in these provisions or even reduction of the renewal fee. Cholamandalam General Insurance has suggested that the registration for life and general insurance business may be kept valid for a period of three years. Birla Sunlife Insurance welcomes the suggestions but is opposed to insisting upon all requirements of a fresh registration being met at the stage of renewal of registration. The LIC of India also has made a suggestion on the same lines. They suggest that section 3A (5) may continue in its present form. The National Insurance Academy, Pune agrees with the suggestion that the registration may be kept valid for three years but that the fees be paid annually.

Final recommendations in relation to IRDA's powers of grant, refusal etc. of registration

3.1.5 After considering these responses, the Law Commission is of the view that the specific changes proposed in the Consultation Paper in regard to the IRDA's powers in relation to grant, refuse, cancel, suspend or renew registration be finalised and the final recommendations in this regard are set out in Appendix-V to this Report. The sections of the Insurance Act, 1938 which are required to be accordingly amended are section 3, section 3(2)(f), section 3(2A), section 94A(2) (second proviso), section 3(2C), section 3(3), section 3(4), section 3A, section 3A(2), section 3A(3), section 3A(4) and section 3A(5).

Final recommendation on IRDA's powers of revaluation, investigation etc.

3.1.6 The second part of these proposals concerned the powers of the IRDA in relation to revaluation of the affairs of the insurer, investigation, search and seizure, appointment and removal of managerial persons. The Commission has considered the responses received to the proposals and the final recommendations are set out in Appendix-VI to this Report. These recommendations to cover amendments to the following sections of the Insurance Act, 1938: section 33(1), section 33 (4), section 33(8), section 34B (4), section 34C, section 34E, section 34G, section 34H, section 35(1), section 35(3), section 36, section 37A(2), section 37A(4), section 42 (1), section 42(2), section 42(3), section 42(4), section 42(5), section 42(6), section 42(7), section 42D, section 42D (1) proviso (a), section 42D(8) & (9), section 64UM, section 64UM (1A) section 44, section 47A and section 53.

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