Penalties, Adjudication and Appeal

Section 105, wrongfully obtaining or withholding property, of the insurer.

Section 105B, the rural and social sector and motor obligations. If an insurer fails to comply with section 32B, section 32C and section 32D, he is liable to a penalty not exceeding twenty five crore rupees.

Section 105BA, inserted in 2026, unregistered intermediaries. A person who acts as an insurance intermediary without being registered under section 42D is liable to a penalty of not less than one lakh and up to ten lakh rupees; and a person who appoints an unregistered person as an insurance intermediary, or transacts insurance business in India through such a person, is liable to not less than ten lakh and up to one crore rupees. Sub section (2) extends it to every director, manager, secretary or other officer of a company, and every partner of a firm, knowingly a party to the contravention, at not less than one lakh and up to ten lakh rupees.

Section 105A, offences by companies. Where an offence under the Act has been committed by a company, every person who at the time was in charge of, and responsible to, the company for the conduct of its business, as well as the company, is deemed guilty and liable to be proceeded against and punished. A proviso exonerates a person who proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent it. Sub section (2) makes a director, manager, secretary or other officer guilty where the offence was committed with his consent or connivance, or is attributable to any neglect on his part.

Adjudication: sections 105C, 105D and 105E

Section 105C(1) provides that for the purpose of adjudication under section 2CB(2), section 34B(4), section 40(3), section 41(2), section 42(4) and (5), section 52F, section 105B and section 105BA, the Authority shall appoint an adjudicating officer, who holds an inquiry in the prescribed manner after giving the person a reasonable opportunity of being heard.

Section 105D fixes what the adjudicating officer weighs. While recommending the quantum of penalty under section 105C, and while imposing it, the Authority shall have due regard to:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

(b) the amount of loss caused to the policyholders as a result of the default; and

(c) the repetitive nature of the default.

Section 105E, inserted in 2026, is wider and applies to every penalty under either Act. While determining the penalty to be imposed under this Act, the Act of 1999, or the rules or regulations, the Authority shall have regard to:

(a) the nature, gravity and duration of the default;

(b) the repetitive nature of the default;

(c) the disproportionate gain or unfair advantage, wherever quantifiable;

(d) the loss caused to the policyholders; and

(e) the action taken by the person to mitigate the effects and consequences of the default, and the timeliness and effectiveness of that action,

together with the further factors the section lists.

Clause (e) is the new one and it changes behaviour. An insurer that discovers its own default, reports it and compensates the policyholders has a statutory ground for a lower penalty, which is the whole design of modern financial regulation.

Section 110HA provides that any penalty imposed by the Authority under the Act shall be recoverable as an arrear of land revenue, so no separate suit is needed to enforce it.

The court's residual role: sections 106 to 109

Section 106(1) empowers the Court, on the application of the Authority, an Administrator appointed under section 52A, an insurer, a policyholder, a member of an insurance company, or the liquidator, to order the restoration of property of the insurer or compensation, where it is satisfied of the matters the section lists against an insurer, a promoter, a past or present director, manager, secretary, liquidator, officer, employee or agent.

Section 106A requires that where an application is made to the Court for an order to which the section applies, the Court shall, unless the Authority has itself applied or been made a party, send it a copy of the application with intimation of the date of hearing and give it an opportunity of being heard.

Section 108 empowers the Court, in any civil or criminal proceeding, where it appears that a person is or may be liable for negligence, default, breach of duty or breach of trust, but that he acted honestly and reasonably and ought fairly to be excused having regard to all the circumstances, to relieve him wholly or partly from his liability on such terms as it thinks fit.

Section 109 provides that no court shall take cognizance of any offence punishable under this Act or the rules or regulations, save on a complaint made by an officer of the Authority or by a person authorised by it. So even where an offence survives, the Authority controls the prosecution.

Appeal: sections 110 to 110D

Section 110(1) provides that any person aggrieved by an order of the Authority made on or after the commencement of the Insurance Laws (Amendment) Act, 2015, or under this Act or the rules or regulations; or by an order made by the Authority by way of adjudication, may prefer an appeal to the Securities Appellate Tribunal having jurisdiction in the matter.

Section 110(2) requires the appeal to be filed within forty five days from the date on which a copy of the order is received, in the prescribed form and with the prescribed fee. A proviso allows the Tribunal to entertain an appeal after that period if satisfied that there was sufficient cause for the delay.

Section 110(3) requires the Tribunal, after giving the parties an opportunity of being heard, to pass such orders as it thinks fit, confirming, modifying or setting aside the order appealed against.

Section 110A deals with the delegation of the powers and duties of the Chairperson of the Tribunal, section 110B with the signature of documents, and section 110C with the power to call for information.

Section 110D bars a class of claim, and it is worth knowing. No person shall have any right, whether in contract or otherwise, to any compensation for any loss incurred by reason of the operation of section 34, 34A, 34E or 37A, or by reason of the compliance by an insurer with any order or direction given under the Act. A director removed under section 34B, or an insurer that lost money complying with a direction, has no claim for it.

Section 110F applies the provisions to State Governments, and section 111 deals with the service of notices.

The enforcement route in order

A worked example

Konkan General fails to file its quarterly returns for eight months and breaches its solvency margin for two quarters.

Section 102 covers both. Failure to furnish a return and failure to maintain the solvency margin each attract a penalty up to one lakh rupees for each day the failure continues, subject to a maximum of ten crore rupees. Eight months of daily default would exceed the cap, so the cap decides the figure.

The Authority appoints an adjudicating officer under section 105C, who holds an inquiry after giving Konkan a reasonable opportunity of being heard.

In fixing the amount he applies section 105E. The nature, gravity and duration of the default are all serious. It is not repetitive. There is no quantifiable disproportionate gain. The loss to policyholders is a risk rather than an actual loss. And Konkan reported the solvency breach itself, submitted a financial plan under section 64VA(4) and raised capital within four months, which is the mitigation clause (e) requires him to weigh.

Konkan appeals under section 110 to the Securities Appellate Tribunal, within forty five days of receiving the order, and the Tribunal may confirm, modify or set it aside.

If the penalty stands and is not paid, section 110HA makes it recoverable as an arrear of land revenue.

Now change the facts. Suppose Konkan was never registered at all. Section 103 applies instead: a penalty not exceeding twenty five crore rupees and imprisonment which may extend to ten years, and by section 109 no court may take cognizance except on a complaint by an officer of the Authority or a person it has authorised.

And suppose its managing director says he knew nothing of the unfiled returns. Section 105A(1) deems the person in charge of and responsible for the conduct of the business guilty, but its proviso exonerates him if he proves the offence was committed without his knowledge or that he exercised all due diligence to prevent it.

What it does NOT mean

It does not mean the Act has no offences left. Section 103 retains imprisonment up to ten years, and section 109 controls who may prosecute.

It does not mean the adjudicating officer fixes the penalty at large. Sections 105D and 105E prescribe the factors, and an order that ignores them is appealable.

It does not mean an appeal suspends the order. Section 110 gives an appeal; a stay is a matter for the Tribunal.

And it does not mean a person harmed by a direction can sue. Section 110D bars any claim for compensation for loss caused by the operation of sections 34, 34A, 34E or 37A, or by compliance with an order or direction under the Act.

Quick revision

Section 102: failure to furnish documents, to comply with directions, to maintain the solvency margin, or to comply with directions on insurance treaties: up to Rs. 1 lakh a day, maximum Rs. 10 crore.

Section 103: carrying on insurance business without registration: penalty up to Rs. 25 crore and imprisonment up to ten years.

Section 104: contravening section 27 or 27E: up to Rs. 25 crore. Section 105B: failing sections 32B, 32C and 32D: up to Rs. 25 crore. Section 105BA, from 2026: acting as an unregistered intermediary, Rs. 1 lakh to Rs. 10 lakh; appointing or transacting through one, Rs. 10 lakh to Rs. 1 crore.

Section 105A: the person in charge of and responsible for the business, and the company, are deemed guilty, subject to the no knowledge and due diligence defence; and any officer with whose consent, connivance or neglect the offence was committed.

Section 105C: adjudication by an adjudicating officer appointed by the Authority. Section 105D: disproportionate gain, loss to policyholders, repetitive nature. Section 105E, from 2026: nature, gravity and duration; repetition; disproportionate gain; loss to policyholders; and mitigation and its timeliness.

Section 108: the Court may relieve a person who acted honestly and reasonably. Section 109: cognizance only on a complaint by an officer of the Authority or a person it authorises.

Section 110: appeal to the Securities Appellate Tribunal within forty five days, extendable for sufficient cause. Section 110D: no compensation for loss caused by sections 34, 34A, 34E or 37A or by compliance with a direction. Section 110HA: a penalty is recoverable as an arrear of land revenue.

Test yourself

1. What is the penalty for failing to maintain the solvency margin? Up to one lakh rupees for each day the failure continues, subject to a maximum of ten crore rupees: section 102.

2. Which section still carries imprisonment, and for what? Section 103, for carrying on insurance business without a certificate of registration under section 3: a penalty not exceeding twenty five crore rupees and imprisonment which may extend to ten years.

3. Name the factors an adjudicating officer must weigh under section 105E. The nature, gravity and duration of the default; its repetitive nature; any quantifiable disproportionate gain or unfair advantage; the loss caused to policyholders; and the action taken to mitigate the effects, with its timeliness and effectiveness.

4. Where does an appeal from an order of the Authority lie, and within what time? To the Securities Appellate Tribunal within forty five days of receiving a copy of the order, extendable for sufficient cause: section 110.

5. How is an unpaid penalty recovered? As an arrear of land revenue: section 110HA.

6. A director says he knew nothing of the company's default. Is that a defence? Under the proviso to section 105A(1), yes, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent it. But section 105A(2) still catches an officer with whose consent or connivance, or by whose neglect, the offence was committed.

7. Can a director removed under section 34B claim compensation? No. Section 110D bars any right, in contract or otherwise, to compensation for loss incurred by reason of the operation of section 34, 34A, 34E or 37A, or by reason of compliance with an order or direction under the Act.