The Authority’s Money, and Its Accountability
Chapter Forty-Eight
Syllabus topic 3, "Indian Insurance Law – General"
Pages 254 to 259 of 745
In one line
The Authority funds itself from the industry's fees, is audited by the Comptroller and Auditor General, must obey the Central Government on questions of policy, and can be superseded altogether.
In the wording a student can write in an exam: sections 15 and 16 provide for grants and for the Insurance Regulatory and Development Authority Fund into which all grants, fees and charges are credited; section 16A, inserted in 2026, constitutes a Policyholders' Education and Protection Fund into which penalties are credited; section 17 requires accounts audited by the Comptroller and Auditor General and laid before both Houses of Parliament; and sections 18 and 19 subject the Authority to the Central Government's policy directions and to supersession.
Why the money matters to independence
Because a regulator paid out of the Budget can be starved. The Malhotra Committee's recommendation was that the Authority be funded from the industry it regulates rather than from an annual appropriation, and sections 15 and 16 deliver that: grants are permissive, fees are the substance.
And because a regulator that keeps its penalties has an incentive to impose them. Section 16A, inserted in 2026, answers that by directing the penalties away from the Authority's own Fund into a separate Policyholders' Education and Protection Fund.
The two funds: sections 15, 16 and 16A
Section 15 provides that the Central Government may, after due appropriation made by Parliament by law, make to the Authority grants of such sums as it thinks fit for being utilised for the purposes of the Act. The word is "may", so a grant is not an entitlement.
Section 16(1) constitutes a fund called the Insurance Regulatory and Development Authority Fund, to which shall be credited all Government grants, fees and charges received by the Authority, and all sums received by it from such other source as the Central Government may decide. Section 16(2) applies the Fund to the salaries, allowances and other remuneration of the members, officers and employees, and to the other expenses of the Authority in discharging its functions.
Section 16A(1), inserted in 2026, constitutes a second fund, the Policyholders' Education and Protection Fund.
Section 16A(2) credits to it: any grants and donations given to it by the Central Government, State Governments, the Authority, companies or any other institutions for its purposes; and the sums realised by way of penalties by the Authority under this Act or the Insurance Act, 1938 or the rules and regulations under them, together with the further amounts the sub section lists.
Two purposes, and both are worth stating. It separates the Authority's revenue from its enforcement, so that a penalty does not fund the body that imposes it. And it creates a pot dedicated to policyholder education and protection, which is the developmental half of the Authority's mandate given money of its own.
The Authority’s Money, and Its Accountability
Accounts and audit: section 17
Section 17(1) requires the Authority to maintain proper accounts and other relevant records and to prepare an annual statement of accounts in the form prescribed by the Central Government in consultation with the Comptroller and Auditor General of India.
Section 17(2) requires the accounts to be audited by the Comptroller and Auditor General at such intervals as he specifies, the expenditure of the audit being payable by the Authority to him.
Section 17(3) gives the Comptroller and Auditor General, and any person appointed by him, the same rights, privileges and authority in that audit as he has in the audit of Government accounts, and in particular the right to demand the production of books of account, connected vouchers and other documents and papers, and to inspect any of the offices of the Authority.
Section 17(4) requires the certified accounts with the audit report to be forwarded annually to the Central Government, which shall cause them to be laid before each House of Parliament.
The Comptroller and Auditor General is the constitutional auditor of the Union, so section 17 subjects the regulator's own spending to the same scrutiny as a Ministry's, and puts the result before Parliament.
The Central Government's control: sections 18 and 19
Section 18(1) provides that without prejudice to the foregoing provisions, the Authority shall, in exercising its powers or performing its functions, be bound by such directions on questions of policy, other than those relating to technical and administrative matters, as the Central Government may give in writing from time to time. A proviso requires that the Authority be given, as far as practicable, an opportunity to express its views before such a direction is given.
Section 18(2) provides that the decision of the Central Government, whether a question is one of policy or not, shall be final.
Read the two sub sections together and the limit of the Authority's independence is visible. It is free on technical and administrative matters. It is bound on questions of policy. And the Government decides which is which, conclusively. That is the same structure as section 21 of the Life Insurance Corporation Act, 1956, and it is the standard Indian formula.
Section 19(1) is the supersession power. If at any time the Central Government is of opinion:
(a) that on account of circumstances beyond the Authority's control it is unable to discharge the functions or perform the duties imposed on it by or under the Act; or
(b) that the Authority has persistently defaulted in complying with a direction given under the Act, or in the discharge of its functions or the performance of its duties, and as a result of the default the financial position or the administration of the Authority has suffered; or
The Authority’s Money, and Its Accountability
(c) that circumstances exist which render it necessary in the public interest to do so,
the Central Government may by notification supersede the Authority for the period the notification specifies, which shall not exceed six months, and the further consequences the section sets out follow.
Section 19(3) provides for reconstitution, and it is the sub section section 2B of the Insurance Act, 1938 cross refers to: while the Authority stands superseded under section 19(1), the Central Government may appoint a Controller of Insurance until it is reconstituted under section 19(3).
Section 19 has never been used, and a candid answer says so. Its significance is as a reserve power that shapes behaviour rather than as a live remedy.
Reporting, status and protection: sections 20 to 22
Section 20(1) requires the Authority to furnish the Central Government, at such time and in such form and manner as prescribed or as it directs, such returns, statements and particulars regarding any proposed or existing programme for the promotion and development of the insurance industry as it may require.
Section 20(2) requires the Authority, within nine months after the close of each financial year, to submit to the Central Government a report giving a true and full account of its activities, including its activities for the promotion and development of the insurance business, during the previous financial year.
Section 20(3) requires copies of that report to be laid before each House of Parliament as soon as may be after they are received.
Section 21 deems the Chairperson, members, officers and other employees of the Authority, when acting or purporting to act in pursuance of the Act, to be public servants within the meaning of section 21 of the Indian Penal Code.
Section 22 provides that no suit, prosecution or other legal proceeding shall lie against the Central Government, any officer of the Central Government, or any member, officer or employee of the Authority for anything done or intended to be done in good faith under the Act or the rules or regulations. A proviso preserves any suit or proceeding that could be brought apart from the Act.
The accountability map
| To whom | How | Provision |
|---|---|---|
| Parliament | Audited accounts laid before both Houses | Section 17(4) |
| Parliament | Annual activity report laid before both Houses | Section 20(2) and (3) |
| The Comptroller and Auditor General | Audit of the accounts, with power to inspect any office | Section 17(2) and (3) |
| The Central Government | Binding directions on questions of policy, the Government deciding what is policy | Section 18 |
| The Central Government | Supersession on three grounds | Section 19 |
| The Central Government | Returns and particulars on demand | Section 20(1) |
| The public and the industry | Appeal from its orders to the Securities Appellate Tribunal | Section 110, Insurance Act, 1938 |
| The courts | Judicial review of its regulations as subordinate legislation | Article 226 |
The Authority’s Money, and Its Accountability
A worked example
The Authority imposes penalties of forty crore rupees in a year, receives fees of three hundred crore, and receives no Government grant.
The fees go into the Insurance Regulatory and Development Authority Fund under section 16(1) and pay the salaries, allowances and expenses under section 16(2). The penalties do not. Since 5 February 2026 section 16A(2)(b) credits sums realised by way of penalties under this Act or the Insurance Act, 1938 to the Policyholders' Education and Protection Fund.
The Comptroller and Auditor General audits the accounts under section 17(2), with the right to inspect any office of the Authority, and the certified accounts with his report are laid before both Houses under section 17(4).
The Central Government writes directing the Authority to give priority to a particular class of rural product. Section 18(1) binds the Authority if that is a question of policy rather than a technical or administrative matter, the Authority being given, so far as practicable, an opportunity to express its views first; and section 18(2) makes the Government's decision on whether the question is one of policy final.
Suppose instead the direction is that a named insurer's registration be cancelled. That is not a question of policy; it is the exercise of a statutory power vested in the Authority by section 14(2)(a), and a direction of that kind would be outside section 18.
And suppose the Authority is superseded under section 19. Section 2B of the Insurance Act, 1938 then lets the Central Government appoint a Controller of Insurance until the Authority is reconstituted under section 19(3).
What it does NOT mean
It does not mean the Authority is funded by the Government. Section 15 makes a grant permissive; section 16 credits the fees and charges it levies under section 14(2)(g), and those are the substance of its income.
It does not mean penalties fund the regulator. Since 2026 they go to the Policyholders' Education and Protection Fund under section 16A.
It does not mean the Central Government may direct the Authority on anything. Section 18(1) is confined to questions of policy other than technical and administrative matters, although section 18(2) makes the Government the judge of that boundary.
And it does not mean the protection in section 22 is absolute. It covers what is done in good faith, and its proviso preserves proceedings that could be brought apart from the Act.
The Authority’s Money, and Its Accountability
Quick revision
Section 15: the Central Government may make grants after appropriation by Parliament. Section 16: the Insurance Regulatory and Development Authority Fund, credited with grants, fees and charges, applied to salaries and expenses.
Section 16A, from 5 February 2026: the Policyholders' Education and Protection Fund, credited with grants and donations and with the sums realised by way of penalties under this Act or the Insurance Act, 1938.
Section 17: proper accounts in the prescribed form; audit by the Comptroller and Auditor General, with his ordinary rights and a power to inspect any office; certified accounts and audit report laid before each House of Parliament.
Section 18: the Authority is bound by the Central Government's written directions on questions of policy, other than technical and administrative matters, after an opportunity to express its views so far as practicable; and the Government's decision whether a question is one of policy is final.
Section 19: supersession where the Authority is unable to function through circumstances beyond its control, has persistently defaulted with consequent harm to its finances or administration, or where it is necessary in the public interest; reconstitution under sub section (3), which is what section 2B of the Insurance Act, 1938 refers to.
Section 20: returns on demand; an annual report within nine months of the close of the financial year, laid before both Houses. Section 21: members, officers and employees are public servants. Section 22: protection for acts done in good faith.
Test yourself
1. From what is the Authority funded? From the Insurance Regulatory and Development Authority Fund under section 16, credited with Government grants, and with the fees and charges it levies under section 14(2)(g). A grant under section 15 is permissive, not an entitlement.
2. Where do penalties go, and why? To the Policyholders' Education and Protection Fund constituted by section 16A, inserted in 2026, so that the body imposing a penalty is not the body that keeps it, and so that policyholder education has money of its own.
3. Who audits the Authority, and what happens to the accounts? The Comptroller and Auditor General of India, with the rights he has in a Government audit and a power to inspect any office; the certified accounts and his report are laid before each House of Parliament: section 17.
4. How far may the Central Government direct the Authority? On questions of policy other than technical and administrative matters, in writing, after giving the Authority so far as practicable an opportunity to express its views; and the Government's decision whether a question is one of policy is final: section 18.
The Authority’s Money, and Its Accountability
5. On what grounds may the Authority be superseded? That circumstances beyond its control make it unable to discharge its functions; that it has persistently defaulted in complying with a direction or in discharging its functions, with consequent harm to its financial position or administration; or that circumstances exist rendering it necessary in the public interest: section 19(1).
6. Within what time must the Authority report on its activities? Within nine months after the close of each financial year, and the report is laid before each House of Parliament: section 20(2) and (3).
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.