Report No. 190

Chapter X

Summary of Recommendations

10.1.1 To summarise the recommendations in this Report,

(i) 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 sections 2 (9), 2C, 4, 6A(1), 6A(10), 6B, 6C, 7(1), 9, 10, 11, 12, 13, 15, 16, 28, 28A, 29, 31, 31B, 32A, 32B, 32C, 35, 37A, 40, 40A, 40B, 40C, 43, 44, 48A, 50, 51, 52BB, 52D, 52E, 53, 58 and 64UL of the Insurance Act, 1938 [para 2.1.3]

(ii) 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 [para 2.1.4]

(iii) Provisions that are set out in a separate table at Appendix-III to this Report be deleted from the Act. The said recommendations cover deletions in section 2(12), section 2(13), section 2(16), section 2(17), section 2B(1), section 2C, section 3(5), section 3(4)(a), section 3(4)(ee), section 3(5), section 4, section 5(2) & (3) first and second proviso, section 6A(1) proviso, section 7(7), section 7(9B), section 10(1), section 10(2), section 10(2A), section 11(1A), section 12, section 13(1), section 13(3), section 13(4), section 13(6), section 14, section 15, section 15(2), section 15(3), section 16, section 22, section 27(2)(a), (b) and (6), section 27A, section 27B, section 28(4), section 29, section 31B, section 32, section 33(7), section 35(1), section 35(3), section 40, section 40A, section 44(1)-Explanation, section 48, section 49, section 48A, section 52, section 52H to 52N, section 53, section 59, section 62 to 64, section 64UB (3) and (4), section 64UD, section 64UF 94to UI, section 64UJ (2) to (6), section 64UM, section 64VA, section 65 to 94, section 95 to 101 and section 114 (f) [para 2.1.5]

(iv) 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; section 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 [para 3.1.3]

(v) The final recommendations in relation to the changes be made in the provisions concerning the powers and functions of the Insurance Regulatory Development Authority (IRDA) 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) [para 3.1.5]

(vi) The final recommendations concerning 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 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 [para 3.1.6]

(vii) There is one development that has taken place in the recent past which requires to be noticed. It was reported in the January 2004 issue of the IRDA Journal that the Central Government had set up an Appellate Authority to review the rulings of the IRDA. According to the IRDA Journal, the notification issued by the Central Government has set up both a single and a division bench of the Appellate Authority and the Joint Secretary, Ministry of Finance, will constitute the single bench and while on the division bench he would be joined by another Joint Secretary of the Ministry of Law.

The Law Commission is constrained to observe that whatever may be the compulsions of the Government to constitute such an Appellate Tribunal, the said arrangement is far from satisfactory in terms of having an independent and impartial adjudicatory appellate body. [para 4.2.9]

(viii) The final recommendations of the Law Commission in regard to the grievance redressal mechanism are as under:

(a) Adjudicating Officers/ Investigating Officers be appointed by the IRDA to adjudicate/ investigate violations with the Act, Rules and Regulations by insurers, insurance intermediaries and insurance agents and levy penalties as provided in the Act. Any person aggrieved by the decision of the Adjudicating/ Investigating Officers can appeal to the Insurance Appellate Tribunal (IAT).

(b) Every insurance company will set up an in-house grievance redressal mechanism under the overall supervision of the IRDA. It will be incumbent for every person seeking to file a claim before the Grievance Redressal Authority (GRA) to first approach the inhouse mechanism. Where the decision of the in-house mechanism is not satisfactory to the claimant or where no decision is given within the period of 60 days from the date of making such claim to the in-house mechanism, it will be open to the claimant to approach the GRA within a period of 60 days from the date of receipt of the decision of the in-house mechanism and of the expiry of 60 days after the making of the claim whichever is later.

(c) The Grievance Redressal Authority (GRA) will replace the present system of having Ombudsmen under the 1998 Rules at the major metropolises. The GRA will be a statutory authority exercising statutory functions. The GRA will not exercise any jurisdiction in relation to the levy of fines and penalties in relation to offences under the Act.

(d) The jurisdiction of the GRA will be to hear:

(I) Disputes between the insured and the insurer that pertain to personal lines of insurance on the following matters:

i. any partial or total repudiation of claims by an insurer;

ii. any dispute in regard to premium paid or payable in terms of the policy;

iii. any dispute on the legal construction of the policies in so far as such disputes relate to claims;

iv. delay in settlement of claims;

v. non-issue of any insurance document to customers after receipt of premium; and

vi. any other complaint against an insurer.

(II) Disputes between Insurer and the Intermediaries;

(III) Insurer and Insurer; and

(IV) Disputes between the assignees of a policy as to priority of assignment.

(e) The GRAs should be dispersed as geographically widely as possible. For instance, there could be GRAs in each of the major cities in the country. This is necessary given the large number of policyholders at present and the prospect of this growing in the future. There could be more than one GRA in a State depending on the number of cases in that State.

(f) The powers and jurisdiction of the GRAs would include all the powers and functions of the civil court and would involve adjudication of issues of fact and law.

(g) In addition to the above, it could be provided that all pending disputes arising under the Insurance Act, 1938 before the consumer fora would be transferred to the GRAs for disposal in accordance with the provisions of the Insurance Act, 1938. To this extent an amendment may have to be made in the Consumer Protection Act, 1986 to provide that disputes arising under the Insurance Act, 1938 will not be entertained under the Consumer Protection Act, 1986.

(h) There will be a clause expressly excluding the jurisdiction of civil courts and other tribunal/ fora in regard to such matters that form the subject matter of the jurisdiction of the GRA. Every claimant before the GRA will be required to make an express declaration that no similar claim has been made before any other fora or tribunal and further that he has availed the in-house mechanism of the insurer as indicated in para (ii) above.

(i) With a view to encouraging alternate dispute resolution (ADR) by way of mediation or conciliation, it may be provided that a claimant may have the choice to opt for mediation or conciliation, in which case the GRA will refer the dispute for mediation or conciliation by a person or body agreed upon, or were there is no agreement, by a person or body nominated by the GRA from a panel prepared by it. Further, the GRA may itself refer the pending dispute before it to an ADR process at any stage of the proceedings, with the consent of the parties.

(j) The decision of the GRA, or the final decision on appeal, will be enforceable by the GRA which pass the initial order and for that purpose the GRA will exercise all the powers of a civil court.

(k) The GRA should be a multi-member body comprising of one judicial member who will be the President and two technical members. The President and Members of the GRA will hold office till the age of 65 years. The President of the GRA should be a retired Judicial Officer not below the rank of a senior Civil Judge or a lawyer with not less than 20 years of experience nominated in consultation with the Chief Justice of the High Court.

(l) As regards, appointment of technical members to the GRA is concerned, consultation with the Chief Justice of the High Court is not necessary. A panel of names of persons of not less than 15 years experience in the insurance industry can be prepared by the Central Government and sent to a Selection Committee comprising the members of the Insurance Councils constituted under section 64C of the Act. The said Selection Committee will recommend the names from among the panel of technical members to be appointed to the GRA. The Central Government will make rules in relation to the salaries and allowances and other terms and conditions of service of the President and Members of the GRA.

(m) The GRA will formulate rules of procedure to cover matters relating to filing of claims, completion of pleadings, evidence on affidavits or otherwise, passing of awards and furnishing copies. These rules of procedure will also deal with matters relating to enforcement of the decisions of the GRA as finally determined in appeals therefrom.

(n) The President or Members of GRA shall not be removed from office except by an order made by the President on ground of proved misbehaviour or incapacity after enquiry made by a Judge of the High Court in which such President or Member has been informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges. The Central Government will make rules to regulate the procedure for the investigation of misbehaviour or incapacity of the President and Members of the GRA

(o) An appeal will lie from the decision of the GRA to an Insurance Appellate Tribunal (IAT). the jurisdiction of which will extend to hearing:

(I) Appeals from the GRA;

(II) Appeals against the orders passed by the Adjudicating/ Investigating Officers appointed by the IRDA;

(III) Appeal against any order passed by the IRDA. With the constitution of the IAT, the appellate authority constituted by a notification of the Central Government (as noticed in para 4.2.9 infra) will have to be wound up and the appeals pending before it will stand automatically transferred to the IAT;

(IV) Making of interim orders, conditional or otherwise, in relation to the above matters.

(p) The IAT should be a multi-member body of a judicial member as President and two technical members. The IAT should be presided over by a retired High Court Judge nominated in consultation with the Chief Justice of India. A certain degree of transparency should be induced in the process of selection of such members. The appointments of technical members to the IAT should also be done in consultation with the Chief Justice of India.

For this purpose, a panel of names of persons of not less than 20 years experience in the insurance industry should be sent by the Insurance Councils (constituted under section 64C of the Act) to the Chief Justice of India. The names of technical members will be chosen with the concurrence of the Chief Justice of India. The Central Government will make rules in relation to the salaries and allowances and other terms and conditions of service of the President and Members of the IAT.

(q) The President and Members of the IAT will hold office till the age of 68 years. The removal of the President and the Members of the IAT for proven misbehaviour or incapacity will be upon enquiry by a Judge of the Supreme Court of India in which such President or Member has been informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges. The Central Government will make rules to regulate the procedure for the investigation of misbehaviour or incapacity of the President and Members of the IAT.

(r) The Principal Bench of the Insurance Appellate Tribunal (IAT) should be in New Delhi. It is preferable that there is one IAT in each State. However, there can be one IAT for one or more States as may be decided by the Central Government, or by agreement between State Governments on the pattern of section 4(3) of the Administrative Tribunals Act, 1985.

(s) The IAT will formulate rules of procedure to cover matters relating to filing of appeals, completion of pleadings, making of orders both interim and final and furnishing copies.

(t) The expenditure for the constitution of the GRAs and the IATs and their maintenance must be borne by the Central Government in as much as they are to adjudicate disputes arising under a central statute.

(u) There will be a further statutory appeal to the Supreme Court from the decision of the IAT. The appeal will have to be filed within 60 days of the decision of the IAT.

(v) There should be an adjudication fee levied in respect of a claim before the GRA and an appeal before the IAT. However, any individual policyholder, may upon showing sufficient cause, be exempt by the GRA or the IAT, as the case may be, from paying such adjudication fee. [para 4.3.8]

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