Report No. 190

Final recommendation of the Law Commission in regard to penalties and other provisions

8.1.2 The final recommendation of the Law Commission in regard to the other proposals in the Consultation Paper concerning penalties and certain other provisions are as under:

(i) The amount of penalties prescribed in sections 102-105C be enhanced so that it is of a deterrent nature. A minimum penalty be indicated in each of these provisions.

(ii) The penalties will be adjudicated and levied after an enquiry by the Adjudicating/ Investigating Officer to be appointed by the IRDA as indicated in para 4.3.8 above. The provisions will be accordingly amended to indicate this position.

(iii) In relation to section 53 (2) (b) which deals with the grounds on which the IRDA can apply for winding up by the court, since clauses (i), (ii) and (iii) of sub-section (2) are the very grounds on which the IRDA can cancel the registration of an insurance company under section 3 (4), these clauses may be omitted. However, clause (iv) may be retained. In sub-section (1) of section 53, reference to Companies Act, 1913 be substituted by Companies Act, 1956.

(iv) In relation to section 54 concerning voluntary winding up, the provision be amended to the effect that an insurance company should not be wound up except on the ground that by reason of its liabilities it cannot continue its business.

(v) In relation to section 58 concerning the scheme for partial winding up in subsections (3) and (4), reference to the Companies Act, 1913 may be substituted by the Companies Act 1956. In sub-section (4), the words 's.12 of the Indian Companies Act, 1913' be substituted by 's.15 of the Companies Act, 1956' and the words 'Sections 15 and 16' be replaced by 's.17'.

(vi) In relation to sections 52A to 52G which deal with the management by an administrator, the provisions be amended to provide that if the IRDA after giving an opportunity to the insurer and after taking into consideration the interest of policy holders, is of the opinion that it is necessary and proper to appoint an administrator to manage the affairs of the insurer carrying on life insurance business, the IRDA may, by an order, do so. The administrator shall receive such remuneration as the IRDA may direct. The IRDA may appoint some other person as an administrator if the one appointed earlier is not able to manage the affairs of the insurer. Subsections (1), (2) and (3) of section 52A be amended to give effect to the aforesaid recommendations.

(vii) Section 52A be amended to provide for the period for which an administrator will initially be appointed. It may be appropriate if the limit in this regard is provided in the statute subject to the proposed provisions of section 52D. Since section 52BB (9) which vests in the administrator powers of the civil court, section 52A be amended to indicate that the administrator so appointed should be qualified and competent to exercise such powers.

(viii) Section 52BB (2) be amended to provide that the appeal against the order of the Administrator will lie to the IRDA.

(ix) Section 52D dealing with termination of appointment of administrator be amended to confer the power of cancellation of the order of appointment on the IRDA.

(x) The punishment by way of fine for withholding documents of property from the Administrator under section 52F be enhanced to Rs.5,000/-.

(xi) The protection of action taken in good faith, as provided for in section 52G, be extended to the officers of the IRDA.

(xii) In light of the above amendments, section 52E be amended to substitute the word "Central Government" with 'IRDA'.

(xiii) Section 52H to 52N be deleted in view of the changed policy whereby private players have been permitted to carry on insurance business.

(xiv) The words and digits "or section 98" occurring in section 59 relating to return of deposits, be omitted.

(xv) In view of the express provision that no insurer other than an Indian insurance company shall begin to carry on any class of insurance business in India, the provisions relating to external companies, sections 62 to 64, be repealed.

(xvi) Section 64UL be amended to substitute the word "Central Government" by "IRDA".

(xvii) Section 113 (1) relating to acquisition of surrender values be amended to indicate that the IRDA may from time to time notify the minimum amount of the paid up value and annuity.

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