Control over Management, and the Administrator

Section 32A(2) lets the Authority exempt two or more such entities, for a period, to an extent and on conditions specified by the regulations, for the purpose of facilitating an amalgamation or a transfer of business. Section 32A(3) disapplies the prohibition to a director nominated by the Central Government.

The purpose of section 32A is the avoidance of conflicts. A person on the boards of two competing insurers, or of an insurer and the bank that lends to it, is in a position no code of conduct can rescue.

Approving appointments: section 34A

Section 34A(1)(a) provides that no amendment of any provision relating to the appointment, re-appointment, termination of appointment or remuneration of a managing or whole time director, or of a manager or chief executive officer by whatever name called, whether contained in the memorandum or articles, in an agreement, or in a resolution of the insurer in general meeting or of its board, shall have effect unless approved by the Authority.

Section 34A(1)(b) provides that no appointment, re-appointment or termination of appointment of such a person shall have effect unless made with the previous approval of the Authority.

So the Authority controls the top of an Indian insurer both ways. It approves who comes in, and it approves who goes out, which matters because removing an inconvenient chief executive is one way a board escapes supervision.

Removing managerial persons: section 34B

Section 34B(1) provides that where the Authority is satisfied that it is necessary to do so in the public interest, or for preventing the affairs of an insurer being conducted in a manner detrimental to the interests of the policyholders, or for securing the proper management of any insurer, it may, for reasons to be recorded in writing, by order remove from office, with effect from a date specified in the order, any director or the chief executive officer of the insurer.

Section 34B(2) requires that no such order be made unless the person concerned has been given a reasonable opportunity of making a representation against the proposed order.

Its proviso allows immediate action. If in the Authority's opinion any delay would be detrimental to the interests of the insurer or its policyholders, it may, at the time of giving that opportunity or afterwards, direct that pending consideration of the representation the director or chief executive officer shall not act.

Appointing additional directors: section 34C

Section 34C(1) provides that if the Authority is of opinion that it is necessary in the public interest, or in the interest of an insurer or its policyholders, it may from time to time, by order in writing and in consultation with the Central Government, appoint one or more persons to hold office as additional directors of the insurer.

A proviso caps the number. The additional directors so appointed shall not at any time exceed five, or one third of the maximum strength fixed for the board by the articles, whichever is less.

Section 34C(2) provides that such a person holds office during the pleasure of the Authority and, subject to that, for a period not exceeding three years, extendable by further periods not exceeding three years at a time; and that he shall not incur any obligation or liability by reason only of his being a director or of anything done in good faith in that capacity.

Section 34D provides that any appointment or removal under section 34B or 34C has effect notwithstanding anything to the contrary in the Companies Act, 2013, any other law in force, any contract or any other instrument.

Further powers, reinsurance and search: sections 34E, 34F and 34H

Section 34E(a) empowers the Authority to caution or prohibit insurers generally, or any insurer in particular, against entering into a particular transaction or class of transactions, and generally to give advice.

Section 34E(b) empowers it, where satisfied that it is necessary in the public interest, in the interest of the insurer, or to prevent the affairs of the insurer being conducted detrimentally to the insurer or its policyholders, by order in writing on specified terms, to require the insurer to call a meeting of its directors to consider a matter arising out of its affairs, and to depute one or more of its officers to watch the proceedings of the board or any committee.

Section 34F(1) empowers the Authority, where it is of opinion that the terms or conditions of a reinsurance treaty or contract are not favourable to the insurer or are detrimental to the public interest, to require the insurer, at the next renewal, to make specified modifications or not to renew; and provides that failure to comply is deemed to be a failure to comply with the Act.

Section 34F(2) empowers it, where it has reason to believe that an insurer is entering or likely to enter into such treaties, to direct that it shall not do so unless a copy has been furnished in advance and the terms approved.

Section 34H(1) gives the Chairperson of the Authority a power of search and seizure where, in consequence of information in his possession, he has reason to believe that a person required to produce books, accounts or documents under section 33(3) has failed to do so; or that a person to whom such a requisition has been or might be issued would not produce them; or, since 2015, that a contravention of the Act or of the Insurance Regulatory and Development Authority Act, 1999 has been or is likely to be committed by an insurer or intermediary.

The Administrator: sections 52A to 52G

Section 52A(1) provides that if at any time the Authority has reason to believe that an insurer carrying on insurance business is acting in a manner likely to be prejudicial to the interest of its policyholders, it may, for reasons to be recorded in writing and after giving the insurer an opportunity of being heard, by order in writing supersede the board of directors or other management or governing or executive committee, and appoint an Administrator to manage the affairs of the insurer under the direction and control of the Authority, for a period not exceeding one year.

Section 52B(1) requires the Administrator to conduct the management of the business with the greatest economy compatible with efficiency, and as soon as possible to file with the Authority a report stating which of four courses is most advantageous to the general interests of the holders of life insurance policies: the transfer of the business to another insurer; the carrying on of the business by the insurer, whether with the policies continued for the original sum insured with attaching bonuses or for reduced amounts; the winding up of the insurer; or such other course as he considers advisable.

Section 52BB gives the Administrator powers in respect of property liable to attachment.

Section 52C empowers the Administrator, at any time during his appointment and after giving the persons concerned an opportunity of being heard, to cancel or vary, unconditionally or on conditions, any contract or agreement other than a policy between the insurer and any other person which he is satisfied is prejudicial to the interest of holders of life insurance policies.

That last section is the sharpest power in the Act. It lets a person appointed by the regulator unwind a concluded contract, which no ordinary insolvency office holder can do, and it is confined by the words "other than a policy" so that the policyholders' own contracts are safe.

Section 52D provides that if at any time it appears to the Authority that the purpose of the order has been fulfilled, or that for any reason it is undesirable that it should remain in force, it may cancel the order, whereupon the Administrator is divested of the management, which again vests, unless the Authority otherwise directs, in the person in whom it was vested immediately before the appointment, or in another person appointed by the insurer.

Section 52E makes the decision appointing an Administrator final.

Section 52F provides that if any director or officer of the insurer, or any other person, fails to deliver to the Administrator any books of account, registers or other documents in his custody relating to the business, or retains any property of the insurer, he is liable to a penalty of ten thousand rupees for each day during which the failure continues, or ten lakh rupees, whichever is less.

Section 52G(1) protects the Administrator: no suit, prosecution or other legal proceeding shall lie against him for anything done or intended to be done in good faith under sections 52A, 52B, 52BB or 52C. Section 52G(2) protects the Authority against any suit or legal proceeding for damage caused or likely to be caused by anything done or intended to be done in good faith under sections 52A, 52B or 52D.

A worked example

Konkan Life's chief executive is also a director of a bank that has lent it money, and the board proposes to pay him a bonus calculated as a share of the valuation surplus.

Section 32A(1) forbids the dual office, because a director or officer of an insurer may not be a director or officer of a banking company. Section 31A(1) forbids the remuneration, because no person in the management may be paid in the form of commission, bonus or a share in the valuation surplus.

The board resolves to amend the articles to permit the bonus. Section 34A(1)(a) makes the amendment ineffective unless approved by the Authority, and a resolution about the remuneration of a chief executive is squarely within it.

The Authority is not satisfied with the board's response. Under section 34B it may, after giving him an opportunity to make a representation, remove the chief executive by order recording reasons; and if delay would be detrimental it may direct meanwhile that he shall not act. Under section 34C it may appoint up to five additional directors, or one third of the maximum board strength, whichever is less, in consultation with the Central Government. Section 34D makes both effective notwithstanding the Companies Act, the articles and his service contract.

The position worsens. Under section 52A the Authority, after a hearing and recording reasons, supersedes the board and appoints an Administrator for a period not exceeding one year. He reports under section 52B which of the four courses is most advantageous to the life policyholders, and under section 52C cancels a management services agreement with a firm connected to the former chief executive, which is a contract and not a policy.

A former director refuses to hand over the minute books. Section 52F makes him liable to a penalty of ten thousand rupees a day, capped at ten lakh rupees.

What it does NOT mean

It does not mean the Authority may remove a director without a hearing. Section 34B(2) requires a reasonable opportunity of representation; only the interim direction not to act may precede it.

It does not mean an Administrator may be appointed indefinitely. Section 52A(1) fixes a period not exceeding one year, and section 52D lets the Authority end it sooner.

It does not mean the Administrator can rewrite the policies. Section 52C is expressly confined to a contract or agreement "other than a policy".

And it does not mean the additional directors run the company. Section 34C caps them at five or one third of the maximum board strength, whichever is less.

Quick revision

Section 31A: an insurer may not be directed or managed by a company or firm, nor employ anyone whose remuneration is in the form of commission, bonus or a share in the valuation surplus, from one year after 5 February 2026. Section 31B: remuneration capped by regulations. Section 32A: no common director or officer with another insurer of the same class, a banking company or an investment company; exemptions for amalgamation; not applicable to a Central Government nominee.

Section 34A: the Authority's previous approval for the appointment, re-appointment, termination or remuneration of a managing or whole time director, manager or chief executive officer, and for any amendment relating to them.

Section 34B: removal of a director or chief executive officer, on reasons recorded, in the public interest, to prevent affairs detrimental to policyholders, or to secure proper management, after a reasonable opportunity of representation, with an interim direction available.

Section 34C: additional directors, in consultation with the Central Government, capped at five or one third of the maximum board strength, whichever is less, holding office during the Authority's pleasure for up to three years at a time.

Section 34D: sections 34B and 34C override the Companies Act, 2013, any other law, any contract and any instrument.

Section 34E: caution or prohibit transactions; require a board meeting; depute officers to watch proceedings. Section 34F: modify or refuse renewal of an unfavourable reinsurance treaty, and require prior approval of future ones. Section 34H: search and seizure by the Chairperson.

Sections 52A to 52G: supersede the board and appoint an Administrator for up to one year; his report on four courses; cancellation of any contract other than a policy; termination of the appointment; penalty of Rs. 10,000 a day up to Rs. 10 lakh for withholding documents; and protection for acts done in good faith.

Test yourself

1. How may a manager of an insurer not be paid, and why? Not in the form of commission, bonus or a share in the valuation surplus: section 31A(1). A manager paid out of the surplus has an interest in the liabilities being valued low.

2. Whose appointment needs the Authority's previous approval? A managing or whole time director, a manager, or a chief executive officer by whatever name called, and their re-appointment or the termination of their appointment, together with any amendment relating to those matters: section 34A.

3. On what grounds may the Authority remove a director, and what procedure applies? In the public interest, to prevent the affairs being conducted detrimentally to policyholders, or to secure proper management, for reasons recorded in writing, after a reasonable opportunity of representation; with power meanwhile to direct that he shall not act if delay would be detrimental: section 34B.

4. How many additional directors may the Authority appoint? Not more than five, or one third of the maximum strength fixed for the board by the articles, whichever is less, appointed in consultation with the Central Government: the proviso to section 34C(1).

5. When may an Administrator be appointed, and for how long? Where the Authority has reason to believe the insurer is acting in a manner likely to be prejudicial to the interest of its policyholders, after a hearing and on reasons recorded, for a period not exceeding one year: section 52A(1).

6. What must the Administrator report on? Which of four courses is most advantageous to the general interests of holders of life insurance policies: transfer of the business to another insurer; carrying it on, with policies continued at the original or reduced sums; winding up; or any other course he considers advisable: section 52B(1).

7. What is the penalty for withholding documents from an Administrator? Ten thousand rupees for each day the failure continues, or ten lakh rupees, whichever is less: section 52F.