Chennai, May 6 (IANS): The regulations governing the transfer of shares in insurance companies notified by the regulator recently have been largely accepted by the industry despite their having gone overboard on some aspects, said experts.
"Some of the norms are similar to those prevalent in other sectors like the maximum cap on holding by individual investors," a member of the Insurance Advisory Committee told IANS preferring anonymity.
"There cannot be any qualms about prescription of minimum lock-in period for Indian promoters and foreign investors and infusion of additional capital at periodic intervals to ensure solvency requirements," D. Varadarajan, a Supreme Court advocate and expert in insurance, company, competition law, told IANS.
The Insurance Regulatory and Development Authority of India (IRDAI) on Tuesday uploaded on its website the new regulations governing the transfer of equity shares of insurance companies.
As per the regulations, IRDAI may impose conditions like minimum lock-in period and infusion of additional capital in the proportion of the shareholdings to adhere to the solvency norms at all times on the Indian promoters as well as foreign investors.
Prior to the approval of share transfer, IRDAI would conduct a due diligence of the proposed transferee.
Prior approval of IRDAI is necessary for transfer or issue of equity shares in an insurance company where after the transfer, the holding of the transferee would exceed five percent of the paid-up equity capital.
However Varadarajan feels the regulations seem to have gone over board in some aspects and contrary to the extant Insurance Act (after its amendment) and the Companies Act, 2013.
"At the outset, the said Regulations have gone wrong in bracketing together both 'share transfer' and 'share transmission', whereas, it is the settled position that 'transfer' of shares is by the volition of parties among themselves and 'transmission' of shares is by operation of law, consequent upon the demise of the original shareholder," Varadarajan said.
According to him in the absence of any statutory presumption under the Insurance Act to treat both 'transfer' and 'transmission' of shares synonymously, the Regulations cannot be so framed as to include even 'transmission' of shares at par with 'transfer'.
"Therefore, the definition of the term 'transfer of shares' cannot be expanded artificially. Hence, there cannot be any due diligence or prior approval by the Authority in regard to 'transmission' of shares, as transmission of shares is by operation of law," Varadarajan said.
A senior industry expert told IANS that due diligence or prior approval is stipulated so that a person who is not fit and proper does not get to hold the shares in an insurer.
Varadarajan also cited another lacuna in the gazetted notification which clubs fresh issue of equity shares leading to change in the share holding pattern along with 'transmission' of shares and 'transfer' of shares.
"It is well known corporate jurisprudence that a subscriber to the fresh issue of share capital cannot be deemed to be 'transferee', and even by the general scheme of the amended Section 6A of the Insurance Act, there is nothing to suggest to this effect," Varadarajan said.
A former member of IRDAI told IANS that the management as well as the legal bandwidth of the regulator has to be expanded and deepened as the decisions of the regulator would be questioned at the Securities Appellate Tribunal (SAT).
Another industry official not wanting to be quoted told IANS: "It is time for IRDAI to get the legal view as a part of product approval process. This would protect IRDAI from being questioned on its product approval process following a regulatory action against an insurer."