Indian Insurance Sector:

An Overview UNIT 3 LEGAL AND REGULATORY

ENVIRONMENT
Objectives

After studying this unit, you will be able to:

 trace the important milestones of insurance regulations

 discuss the salient features and importance of the Insurance Act, 1938

 describe the composition, duties, powers and functions of IRDAI

 explain the duties of the directors of a company

 describe the functions of Board of SEBI

Structure

3.1 Introduction
3.2 The Insurance Act, 1938
3.3 The Insurance Regulatory and Development Authority Act, 1999
3.4 The Companies Act, 2013
3.5 Securities and Exchange Board of India Act, 1992
3.6 Summary
3.7 Keywords
3.8 Self-Assessment Questions
3.9 Further Readings

3.1 INTRODUCTION
We have traced the history of insurance in India in unit 1. There have been several
initiatives taken by the government of India as also the Indian Insurance Regulator to
regulate the insurance business in India and to protect the interests of the insurance
customers. Notable among these initiatives are passage of the Insurance Act, 1938,
nationalisation of life insurance and general insurance sectors, opening of insurance
sector for private operators, insurance ombudsman scheme, introduction of micro
insurance, anti-money laundering, regulating the insurance investments, norms on
insurance coverage in rural and social sectors, changes in FDIs and many more.

In this unit, we will discuss the important provisions of the Insurance Act, 1938, the
IRDA Act, 1999, the Companies Act, 2013 and the Securities and Exchange Board
of India Act, 1992.

3.2 THE INSURANCE ACT, 1938

The Indian Life Assurance Companies Act, 1912 was the first legislation to
68 regulate insurance business in India. Another act was passed in 1928, to enable the
government to collect statistical information about both life and non-life business Legal and Regulatory
Environment
transacted in India by Indian and Foreign Insurers including provident insurance societies.

Consolidating the provisions of these acts, the Insurance Act, 1938 was passed with
comprehensive provisions for effective control over the activities of insurance
companies with a view to protecting the interest of the insurance public. The
Act aimed to consolidate and amend the law relating to the business of insurance. It
covers both life and non-life insurance business. It came into effect on 1st July 1939.

Important Provisions of the Insurance Act, 1938

 Registration of insurance companies

 Maintenance and scrutiny of accounts and valuation reports

 Investment and utilization of funds

 Placing limit on the expenses of insurers

 Licensing of agents and their remunerations

 Prohibition of rebates

 Approval of premium rates and plans

 Maintaining solvency levels

 Constitution of Insurance Associations, Insurance Councils and Tariff Advisory

Committees.

The passage of the Insurance Laws (Amendment) Bill, 2015 paved the way for major
reform related amendments in the Insurance Act, 1938.The Insurance Amendment
Act 2021 aims to increase the flow of foreign capital into the Indian private insurers by
increasing the FDI limit from 49% to 74% in insurance. This increase in investment
limit is expected to incentivize competition and thereby growth.

We shall now see the provisions of some of the Important Sections.

Section 2: Definitions

(7A) “Indian insurance company” means any insurer, being a company which is
limited by shares, and, -

(a) which is formed and registered under the Companies Act, 2013 (18 of 2013)
as a public company or is converted into such a company within one year of
the commencement of the Insurance Laws (Amendment) Act, 2015;

(b) in which the aggregate holdings of equity shares by foreign investors including
portfolio investors, do not exceed seventy-four per cent of the paid-up equity
capital of such Indian insurance company, and the foreign investment in which
shall be subject to such conditions and manner, as may be prescribed”.

(c) Whosesole purpose is to carry on life insurance business or general insurance

business or re-insurance business or health insurance business.
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Indian Insurance Sector: (9) “Insurer” means-
An Overview
(a) an Indian Insurance Company, or

(b) a statutory body established by the Act of Parliament to carry on insurance

business, or

(c) an insurance co-operative society, or

(d) a foreign company engaged in re-insurance business through a branch

established in India.

(10) “Insurance Agent” means a person who receives or agrees to receive payment
by way of commission or other remuneration in consideration of his soliciting or
procuring insurance business including business relating to the continuance, renewal
or revival of policies of insurance.

(10A) “Investment Company” means a company whose principal business is the

acquisition of shares, stocks debentures or other securities;

(10B)“Intermediary or Insurance Intermediary” shall have the meaning assigned

to it in clause (f) of sub-section (1) of section 2 of the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999).

(11) “Life insurance business” means the business of effecting contracts of

insurance upon human life, including any contract whereby the payment of money
is assured on death (except death by accident only) or the happening of any
contingency dependent on human life, and any contract which is subject to
payment of premiums for a term dependent on human life and shall be deemed
to include:

(a) the granting of disability and double or triple indemnity accident benefits, if so
provided in the contract of insurance;

(b) the granting of annuities upon human life; and

(c) the granting of superannuation allowances and benefit payable out of any fund
applicable solely to the relief and maintenance of persons engaged or who
have been engaged in any particular profession, trade or employment or of
the dependents of such persons.

(13A)“Marine insurance business” means the business of effecting contracts of

insurance upon vessels of any description, including cargoes, freights and other
interests which may be legally insured in or in relation to such vessels, cargoes
and freights, goods, wares, merchandise and property of whatever description
insured for any transit by land or water, or both, and whether or not including
warehouse risks or similar risks in addition, or as incidental to such transit, and
includes any other risks customarily included among the risks insured against in
marine insurance policies;

(13B) “Miscellaneous Insurance Business” means the business of effecting contracts

of insurance which is not principally or wholly of any kind or kinds included in
70 clause (6A), (11) and (13A);
Section 6: Requirement as to Capital. Legal and Regulatory
Environment
(1) No insurer not being an insurer as defined in sub-clause (d) of clause (9) of section
2, carrying on the business of life insurance, general insurance, health insurance or
re-insurance in India on or after the commencement of the Insurance Regulatory
and Development Authority Act, 1999 (4 of 1999), shall be registered unless he
has,-

(i) a paid-up equity capital of rupees one hundred crores, in case of a person
carrying on the business of life insurance or general insurance; or

(ii) a paid-up equity capital of rupees one hundred crores, in case of a person
carrying on exclusively the business of health insurance; or

(iii) a paid-up equity capital of rupees two hundred crores, in case of a person
carrying on exclusively the business as a reinsurer ; or

Provided that the insurer, may enhance the paid-up equity capital, as provided in this
section in accordance with the provisions of the Companies Act, 2013, the Securities
and Exchange Board of India Act, 1992 and the rules, regulations or directions issued
thereunder or any other law for the time being inforce:

Provided further that in determining the paid-up equity capital, any preliminary expenses
incurred in the formation and registration of any insurer as may be specified by the
regulations made under this Act, shall be excluded.

(2) No insurer, as defined in sub-clause (d) of clause (9) of section 2, shall be registered
unless he has net owned funds of not less than rupees five thousand crore.

Section 27: Investment of Assets

(1) Every insurer shall invest and at all times keep invested assets equivalent to not
less than the sum of-

(a) the amount of his liabilities to holders of life insurance policies in India on
account of matured claims, and

(b) the amount required to meet the liability on policies of life insurance maturing
for payment in India, less-

(i) the amount of premiums which have fallen due to the insurer on such
policies but have not been paid and the days of grace for payment of
which have not expired, and

(ii) any amount due to the insurer for loans granted on and within the surrender
values of policies of life insurance maturing for payment in India issued by
him or by an insurer whose business he has acquired and in respect of
which he has assumed liability in the following manner, namely:-

(a) twenty-five per cent of the said sum in Government securities, a further
sum equal to not less than twenty five percent of the said sum in
Government securities or other approved securities and

(b) the balance in any of the approved investments, as may be specified 71

Indian Insurance Sector: by the regulations subject to such limitations, conditions and
An Overview
restrictions specified therein.

(2) In the case of an insurer carrying on general insurance business, twenty percent of
the assets in Government Securities, a further sum equal to not less than ten percent
of the assets in Government Securities or other approved securities and the balance
in any other investments in accordance with the regulations of the Authority and
subject to such limitations, conditions and restrictions as may be specified by the
Authority in this regard.

(3) For the purposes of subsections (1) and (2) any specified assets shall, subject to
such conditions, if any, as may be specified, be deemed to be assets invested or
kept invested in approved investments specified by regulations.

(4) In computing the assets referred to in subsections (1) and (2), any investment
made with reference to any currency other than the Indian rupee which is in excess
of the amount required to meet the liabilities of the insurer in India with reference
to that currency, to the extent of such excess, shall not be taken into account.

(5) Where an insurer has accepted re-insurance in respect of any policies of life
insurance issued by another insurer and maturing for payment in India or has ceded
re-insurance to another insurer in respect of any such policies issued by himself,
the sum referred to in subsection (1) shall be increased by the amount of the
liability involved in such acceptance and decreased by the amount of the liability
involved in such cession.

(6) The Government securities and other approved securities in which assets are under
sub-section (1) or sub-section (2) to be invested and kept invested shall be held
by the insurer free of any encumbrance, charge, hypothecation or lien.

(7) The assets required by this section to be held invested by an insurer incorporated
or domiciled outside India shall, except to the extent of any part thereof which
consists of foreign assets held outside India, be held in India and all such assets
shall be held in trust for the discharge of the liabilities of the nature referred to in
sub section (1) and shall be vested in trustees resident in India and approved by
the Authority, and the instrument of trust under this sub section shall be executed
by the insurer with the approval of the Authority and shall define the manner in
which alone the subject matter of the trust shall be dealt with.

Explanation: This sub section shall apply to an insurer incorporated in India whose
share capital to the extent of one third is owned by, or the members of whose governing
body to the extent of one third consists of members domiciled elsewhere than in India.

Section 27A: Further provisions regarding Investments

(1) No insurer carrying life insurance business shall invest or keep invested any part of
his controlled fund and no insurer carrying on general insurance business shall
invest or keep invested any part of his assets otherwise than in any of the approved
investments as may be specified by the regulations subject to such limitations,
conditions and restrictions therein.
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(2) Not with standing anything contained in sub-section (1) or sub-section (2) of Legal and Regulatory
Environment
section 27, an insurer may, subject to the provisions contained in the next succeeding
sub-sections, invest or keep invested any part of his controlled fund or assets
otherwise than in an approved investment, if-

(i) after such investment, the total amounts of all such investments of the insurer
do not exceed fifteen per cent of the sum referred to in sub-section (1) of
section 27 or fifteen percent of the assets referred to in sub-section (2) as the
case may be:

(ii) the investment is made, or, in the case of any investment already made, the
continuance of such investment is with the consent of all the directors present
at a meeting and eligible to vote, special notice of which has been given to all
the directors then in India, and all such investments, including investments in
which any director is interested, are reported without delay to the Authority
with full details of the investments and the extent of the director’s interest in
any such investment.

(3) An insurer shall not out of his controlled fund or assets as referred to in section 27,

(a) invest in the shares of any one banking company; or

(b) invest in the shares or debentures of any one company; more than the
percentage specified by the regulations.

(4) An insurer shall not out of his controlled fund or assets as referred to in sub-
section (2) of section 27 invest or keep invested in the shares or debentures of any
private limited company.

(5) All assets forming the controlled fund or assets as referred in sub-section(2) of
section 27, not being Government securities or other approved securities in which
assets are to be invested or held invested in accordance with this section, shall
(except for a part thereof not exceeding one tenth of the controlled fund or assets
as referred in sub-section (2) thereof in value which may, subject to such conditions
and restrictions as may be prescribed, be offered as security for any loan taken for
purposes of any investment), be held free of any encumbrance, charge,
hypothecation or lien.

(6) If at any time the Authority considers any one or more of the investments of an
insurer to be unsuitable or undesirable, the Authority may, after giving the insurer
an opportunity of being heard, direct him to realise the investment or investments,
and the insurer shall comply with the direction within such time as may be specified
in this behalf by the Authority.

(7) Nothing contained in this section shall be deemed to affect in any way the manner
in which any moneys relating to the provident fund of any employee or to any
security taken from any employee or other moneys of a like nature are required to
be held by or under any Central Act, or Act of a State Legislature.

Explanation: In this section “controlled fund” means-

(a) in the case of any insurer carrying on life insurance business - 73

Indian Insurance Sector: (i) all his funds, if he carries on, no other class of insurance business;
An Overview
(ii) all the funds in India appertaining to his life insurance business if he carries
on some other class of insurance business also.

(b) in the case of any other insurer carrying on life insurance business,-

(i) all his funds in India, if he carries on no other class of insurance business;

(ii) all the funds in India appertaining to his life insurance business if he carries
on some other class of insurance business also; but does not include any
fund or portion thereof in respect of which the Authority is satisfied that
such fund or portion thereof, as the case may be, is regulated by the law
of any country outside India or in respect of which theAuthority is satisfied
that it would not be in the interest of the insurer to apply the provisions of
this section.

Section 27B:Provisions regarding investments of assets of insurer carrying

general insurance business.

(1) All assets of an insurer carrying on general insurance business shall, subject to
such conditions, if any, as may be prescribed, be deemed to be assets invested or
kept invested in approved investments specified in section 27.

(2) All assets shall (except for a part thereof not exceeding one tenth of the total
assets in value which may, subject to such conditions and restriction as may be
prescribed, be offered as security for any loan taken for purposes of any investment
or for payment of claims, or which may be kept as security deposit with the banks
for acceptance of policies) be held free of any encumbrance, charge, hypothecation
or lien.

(3) Without prejudice to the powers conferred on the Authority by sub-section (5) of
section 27A, nothing contained in this section shall be deemed to require any
insurer to realise any investment made in conformity with the provisions of sub
section (1) of section 27 after the commencement of the Insurance (Amendment)
Act, 1968, which, after the making thereof, has ceased to be an approved
investment within the meaning of this section.

Section 32B: Insurance business in Rural and Social sector

Every insurer shall, after the commencement of the Insurance Regulatory and
Development Authority Act, 1999, undertake such percentages of life insurance
business and general insurance business in the Rural and Social sectors, as may be
specified, in the Official Gazette by the Authority, in this behalf.

Section 32C: Obligations of Insurer in respect of Rural or unorganized sector

and Backward classes

Every insurer shall, after the commencement of the Insurance Regulatory and
Development Authority Act, 1999 discharge the obligations specified under section
32B to provide life insurance or general insurance policies to the persons residing in
the rural sector, workers in the unorganized or informal sector or for economically
74
vulnerable or backward classes of the society and other categories of persons as may Legal and Regulatory
Environment
be specified by regulations made by the Authority and such insurance policies shall
include insurance for crops.
Section 32D: Obligations of insurer on respect of Insurance business in Third
Party Risks of Motor Vehicles.
Every insurer carrying on general insurance business shall, after the commencement of
the Insurance Laws (Amendment) Act, 2015, underwrite such minimum percentage of
insurance business in third party risks of motor vehicles as may be specified by the
regulations.
Provided that the Authority may, by regulations, exempt any insurer who is primarily
engaged in the business of health, re-insurance, agriculture, export credit guarantee,
from the application of this section.
Section 38: Assignment and transfer of Insurance Policies
(1) A transfer or assignment of a policy of insurance, wholly or in part, whether with
or without consideration, may be made only by an endorsement upon the policy
itself or by a separate instrument, signed in either case by the transferor or by the
assignor or his duly authorised agent and attested by at least one witness, specifically
setting forth the fact of transfer or assignment and the reasons thereof, the
antecedents of the assignee and the terms on which the assignment is made.
(2) An insurer may, accept the transfer or assignment, or decline to act upon any
endorsement made under sub-section (1), where it has sufficient reason to believe
that such transfer or assignment is not bonafide or is not in the interest of the
policyholder or in public interest or is for the purpose of trading of insurance
policy.
(3) The insurer shall, before refusing to act upon the endorsement, record in writing
the reasons for such refusal and communicate the same to the policyholder not
later than thirty days from the date of the policyholder giving notice of such transfer
or assignment.
(4) Any person aggrieved by the decision of an insurer to decline to act upon such
transfer or assignment may within a period of thirty days from the date of receipt
of the communication from the insurer containing reasons for such refusal, prefer a
claim to the Authority
(5) Subject to the provisions in sub-section (2), the transfer or assignment shall be
complete and effectual upon the execution of such endorsement or instrument duly
attested but except, where the transfer or assignment is in favour of the insurer,
shall not be operative as against an insurer, and shall not confer upon the transferee
or assignee, or his legal representative, any right to sue for the amount of such
policy or the moneys secured thereby until a notice in writing of the transfer or
assignment and either the said endorsement or instrument itself or a copy thereof
certified to be correct by both transferor and transferee or their duly authorised
agents have been delivered to the insurer:

Provided that where the insurer maintains one or more places of business in India,
such notice shall be delivered only at the place where the policy is being serviced 75
Indian Insurance Sector: Section 39: Nomination by policyholder
An Overview
(1) The holder of a policy of life insurance on his own life may, when effecting the
policy or at any time before the policy matures for payment, nominate the person
or persons to whom the money secured by the policy shall be paid in the event of
his death.

(2) Any such nomination in order to be effectual shall, unless it is incorporated in the
text of the policy itself, be made by an endorsement on the policy communicated
to the insurer and registered by him in the records relating to the policy and any
such nomination may at any time before the policy matures for payment be cancelled
or changed by an endorsement or a further endorsement or a will, as the case may
be, but unless notice in writing of any such cancellation or change has been delivered
to the insurer, the insurer shall not be liable for any payment under the policy made
bona fide by him to a nominee mentioned in the text of the policy or registered in
records of the insurer.

(3) The insurer shall furnish to the policyholder a written acknowledgement of having
registered a nomination or a cancellation or change thereof, and may charge such
fee as may be specified by regulations for registering such cancellation or change.

Section 45: Policy not be called in question on ground of mis statement after
three years

(1) No policy of life insurance shall be called in question on any ground whatsoever
after the expiry of three years from the date of the policy, i.e., from the date of
issuance of the policy or the date of commencement of risk or the date of revival
of the policy or the date of the rider to the policy, whichever is later.

(2) A policy of life insurance may be called in question at any time within three years
from the date of issuance of the policy or the date of commencement of risk or the
date of revival of the policy or the date of the rider to the policy, whichever is later,
on the ground of fraud.

(3) Notwithstanding anything contained in sub-section (2), no insurer shall repudiate a

life insurance policy on the ground of fraud if the insured can prove that the
misstatement of or suppression of material fact was true to the best of his knowledge
and belief or that there was no deliberate intention to suppress the fact or that such
misstatement of or suppression of material fact are within the knowledge of the
insurer.

(4) A policy of life insurance may be called in question at any time within three years
from the date of issuance of the policy or the date of commencement of risk or the
date of revival of the policy or the date of the rider to the policy, whichever is later,
on the ground that any statement of or suppression of a fact material to the
expectancy of the life of the insured was incorrectly made in the proposal or any
other document on the basis of which the policy was issued or revived or rider
issued.

(5) Nothing in this section shall prevent the insurer from calling for proof of age at any
time if he is entitled to do so and no policyshall be deemed to be called in question
76
 merely because the terms of the policy are adjusted on subsequent proof that the Legal and Regulatory
Environment
age of the life insured was incorrectly stated in the proposal.

Section 64VB: No risk to be assumed unless premium is received in Advance.

(1) No insurer shall assume any risk in India in respect of any insurance business on
which premium is not ordinarily payable outside India unless and until the premium
payable is received by him or is guaranteed to be paid by such person in such
manner and within such time as may be prescribed or unless and until deposit of
such amount as may be prescribed, is made in advance in the prescribed manner.

(2) For the purposes of this section, in the case of risks for which premium can be
ascertained in advance, the risk may be assumed not earlier than the date on
which the premium has been paid in cash or by cheque to the insurer.

Explanation: Where the premium is tendered by postal money order or cheque

sent by post, the risk may be assumed on the date on which the money order is
booked or the cheque is posted, as the case may be.

(3) Any refund of premium which may become due to an insured on account of the
cancellation of a policy or alteration in its terms and conditions or otherwise shall
be paid by the insurer directly to the insured by a crossed or order cheque or by
postal money order and a proper receipt shall be obtained by the insurer from the
insured, and such refund shall in no case be credited to the account of the agent.

(4) Where an insurance agent collects a premium on a policy of insurance on behalf of

an insurer, he shall deposit with, or despatch by post to, the insurer, the premium
so collected in full without deduction of his commission within twenty four hours of
the collections excluding bank and postal holidays.

(5) The Central Government may, by rules, relax the requirements of sub section (1)
In respect of particular categories in insurance policies.

(6) The Authority may, from time to time, specify, by the regulations made by it, the
manner of receipt of premium by the insurer.

Activity 3.1

Find out the amendments made in the Insurance (Amendment) Act, 2021 and summarise
your observations.
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3.3 THE INSURANCE REGULATORY AND

DEVELOPMENT AUTHORITY ACT, 1999
Insurance Regulatory and Development Authority (IRDA) is the statutory, independent
and apex body that governs and supervise the Insurance Industry in India. 77
Indian Insurance Sector: Establishment
An Overview
 IRDA Act was passed upon the recommendations of Malhotra Committee
report (7 Jan,1994), headed by Mr R.N. Malhotra (Retired Governor, RBI)

 Main Recommendations - Entrance of Private Sector Companies and Foreign

promoters & An independent regulatory authority for Insurance Sector in
India

 In April, 2000, it was set up as statutory body, with its headquarters at New
Delhi.

 The headquarters of the agency were shifted to Hyderabad, Telangana in

2001.

Mission Statement of the Authority

 To protect the interest of and secure fair treatment to policyholders.

 To bring about speedy and orderly growth of the insurance industry (including
annuity and superannuation payments), for the benefit of the common man,
and to provide long term funds for accelerating growth of the economy.

 To set, promote, monitor and enforce high standards of integrity, financial

soundness, fair dealing and competence of those it regulates.

 To ensure speedy settlement of genuine claims, to prevent insurance frauds

and other malpractices and put in place effective grievance redressal machinery.

 To promote fairness, transparency and orderly conduct in financial markets

dealing with insurance and build a reliable management information system to
enforce high standards of financial soundness amongst market players.

 To take action where such standards are inadequate or inefficiently enforced.

 To bring about optimum amount of self-regulation in day-to-day working of

the industry consistent with the requirements of prudential regulation.

Objectives of IRDA

 To promote the interest and rights of policy holders.

 To promote and ensure the growth of Insurance Industry.

 To ensure speedy settlement of genuine claims and to prevent frauds and

malpractices.

 To bring transparency and orderly conduct of/in financial markets dealing

with insurance.

Composition of IRDA

As per the section 4 of the IRDA Act 1999, Insurance Regulatory and Development
Authority of India (IRDAI), (which was established by an act of parliament) specify
the composition of Authority.
78
The Authority is a ten member team consisting of: Legal and Regulatory
Environment
(a) One Chairman

(b) Five whole-time Members

(c) Four part-time Members

(all appointed by the Government of India)

We will now see some of the important provisions of the Act.

Section 14: Duties, Powers and Functions of Authority

(1) Subject to the provisions of this Act and any other law for the time being in force,
the Authority shall have the duty to regulate, promote and ensure orderly growth
of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-section (1),
the powers and functions of the Authority shall include, -

(a) issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration;

(b) protection of the interests of the policy holders in matters concerning assigning
of policy, nomination by policy holders, insurable interest, settlement of
insurance claim, surrender value of policy and other terms and conditions of
contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organisations connected with the

insurance and re-insurance business;

(g) levying fees and other charges for carrying out the purposes of this Act;

(h) calling for information from, undertaking inspection of, conducting enquiries
and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organisations connected with the insurance business;

(i) control and regulation of the rates, advantages, terms and conditions that may
be offered by insurers in respect of general insurance business, not so controlled
and regulated by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (4 of 1938);
(j) specifying the form and manner in which books of account shall be maintained
and statement of accounts shall be rendered by insurers and other insurance
intermediaries;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

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Indian Insurance Sector: (m) adjudication of disputes between insurers and intermediaries or insurance
An Overview
intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee;

(o) specifying the percentage of premium income of the insurer to finance schemes
for promoting and regulating professional organisations referred to in clause
(f);

(p) specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector; and

(q) exercising such other powers as may be prescribed.

Section 20: Furnishing of returns etc., to Central Government

(1) The Authority shall furnish to the Central Government at such time and in
such form and manner as may be prescribed, or as the Central Government
may direct to furnish such returns, statements and other particulars in regard
to any proposed or existing programme for the promotion and development
of the insurance industry as the Central Government may, from time to time,
require.

(2) Without prejudice to the provisions of sub-section(1), the Authority shall,

within nine months after the close of each financial year, submit to the Central
Government a report giving a true and full account of its activities including the
activities for promotion and development of the insurance business during the
previous financial year.

(3) Copies of the reports received under sub-section (2) shall be laid, as soon as
may be after they are received, before each House of Parliament.

Section 24: Power to make rules

(1) The Central Government may, by notification, make rules for carrying out the
provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power,
such rules may provide for all or any of the following matters, namely:-

(a) the salary and allowances payable to, and other terms and conditions of
service of, the members other than part-time members under sub-
section(1) of section 7;

(b) the allowances to be paid to the part-time members under sub-section

(2) of section7;

(c) such other powers that may be exercised by the Authority under clause
(q) of sub-section(2) of section 14;

(d) the form of annual statement of accounts to be maintained by the Authority

under sub-section(1) of section 17;

(e) the form and the manner in which and the time within which returns and
80
 statements and particulars are to be furnished to the Central Government Legal and Regulatory
Environment
under sub-section(1) of section 20;
(f) the matters under sub-section(5) of section 25 on which the Insurance
Advisory Committee shall advise the Authority;
(g) any other matter which is required to be, or may be, prescribed, or in
respect of which provision is to be or may be made by rules.
Section 25: Establishment of Insurance Advisory Committee
(1) The Authority may, by notification, establish with effect from such date as it
may specify in such notification, a Committee to be known as the Insurance
Advisory Committee.
(2) The Insurance Advisory Committee shall consist of not more than twenty-five
members excluding ex-officio members to represent the interests of commerce,
industry, transport, agriculture, consumer fora, surveyors, agents,
intermediaries, organisations engaged in safety and loss prevention, research
bodies and employees’ association in the insurance sector.
(3) The Chairperson and the members of the Authority shall be the ex officio
Chairperson and ex officio members of the Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be to advise the Authority
on matters relating to the making of the regulations under section 26.
(5) Without prejudice to the provisions of sub-section(4), the Insurance Advisory
Committee may advise the Authority on such other matters as may be
prescribed.
Activity 3.2
Visit the IRDAI website and identify various initiatives taken by the Regulator to protect
the interests of the policyholders.
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3.4 THE COMPANIES ACT, 2013

The Companies Act 2013 is an Act of the Parliament of India which regulates
incorporation of a company, responsibilities of a company, directors, dissolution of
a company. The main provision of this act is to change national and international
economy format and expand economic growth by using advance technology in our
country. The Act aims to provide greater economy and innovation with reasonable
cost and process.

Objectives of the Act

The Companies Act 2013 comes with broad objectives, as follows:

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Indian Insurance Sector:  To encourage Investment in companies by making suitable provisions.
An Overview
 To avoid overlapping and conflict of jurisdiction in sectoral regulation.

 To provide innovative process and compliance cost.

 To protect shareholders interest by participation and control.

 To achieve objectives of economic and social policy.

According to the Companies Act, 2013, ‘Company’ means an organisation

incorporated under Company law 2013 or any other previous company law. Company
is an artificial person formed by single or group of people to do their work efficiently
and effectively. Companies include sole proprietorship, partnership, limited liability,
corporation, and public limited company.

We discuss below the provisions of some of the important sections:

Section 2: Definitions

2 (40) “financial statement” in relation to a company, includes:

i. a balance sheet as at the end of the financial year;

ii. a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;

iii. cash flow statement for the financial year;

iv. a statement of changes in equity, if applicable; and

v. any explanatory note annexed to, or forming part of, any document referred
to in sub-clause (i) to sub-clause (iv).

2 (41) “financial year”, in relation to any company or body corporate, means the
period ending on the 31st day of March every year, and where it has been incorporated
on or after the 1st day of January of a year, the period ending on the 31st day of March
of the following year, in respect whereof financial statement of the company or body
corporate is made up.

2 (51) “key managerial personnel”, in relation to a company, means—

i. the Chief Executive Officer or the managing director or the manager;

ii. the Company Secretary;

iii. the whole-time Director;

iv. the Chief Financial Officer; and

v. such other officer as may be prescribed;

Section 3: Formation of Company

(1) A company may be formed for any lawful purpose by:

a. seven or more persons, where the company to be formed is to be a

public company;
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 b. two or more persons, where the company to be formed is to be a private Legal and Regulatory
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company; or

c. one person, where the company to be formed is to be One Person

Company that is to say, a private company, by subscribing their names or
his name to a memorandum and complying with the requirements of this
Act in respect of registration:

(2) A company formed under sub-section (1) may be either:

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

Section 4: Memorandum

(1) The memorandum of a company shall state:

a. the name of the company with the last word “Limited” in the case of a
public limited company, or the last words “Private Limited” in the case of
a private limited company.

b. the State in which the registered office of the company is to be situated;

c. the objects for which the company is proposed to be incorporated and

any matter considered necessary in furtherance thereof;

d. the liability of members of the company, whether limited or unlimited; and

also state,-

e. in the case of a company having a share capital—

i. the amount of share capital with which the company is to be registered

and the division thereof into shares of a fixed amount and the number
of shares which the subscribers to the memorandum agree to subscribe
which shall not be less than one share; and

ii. the number of shares each subscriber to the memorandum intends to

take, indicated opposite his name;

f. in the case of One Person Company, the name of the person who, in the
event of death of the subscriber, shall become the member of the company.

Section 5: Articles

(1) The articles of a company shall contain the regulations for management of the
company.

(2) The articles shall also contain such matters, as may be prescribed:

Provided that nothing prescribed in this sub-section shall be deemed to prevent

a company from including such additional matters in its articles as may be
considered necessary for its management.
83
Indian Insurance Sector: (3) The articles may contain provisions for entrenchment to the effect that specified
An Overview
provisions of the articles may be altered only if conditions or procedures as
that are more restrictive than those applicable in the case of a special resolution,
are met or complied with.

(4) The provisions for entrenchment referred to in sub-section (3) shall only be
made either on formation of a company, or by an amendment in the articles
agreed to by all the members of the company in the case of a private company
and by a special resolution in the case of a public company.

(5) Where the articles contain provisions for entrenchment, whether made on
formation or by amendment, the company shall give notice to the Registrar of
such provisions in such form and manner as may be prescribed.

Section 7: Incorporation of company

(1) There shall be filed with the Registrar within whose jurisdiction the registered
office of a company is proposed to be situated, the following documents and
information for registration, namely:—

a. the memorandum and articles of the company duly signed by all the
subscribers to the memorandum in such manner as may be prescribed;

b. a declaration in the prescribed form by an advocate, a chartered

accountant, cost accountant or company secretary in practice, who is
engaged in the formation of the company, and by a person named in the
articles as a director, manager or secretary of the company, that all the
requirements of this Act and the rules made thereunder in respect of
registration and matters precedent or incidental thereto have been
complied with;

c. an affidavit from each of the subscribers to the memorandum and from

persons named as the first directors, if any, in the articles that he is not
convicted of any offence in connection with the promotion, formation or
management of any company, or that he has not been found guilty of any
fraud or misfeasance or of any breach of duty to any company under this
Act or any previous company law during the preceding five years and
that all the documents filed with the Registrar for registration of the
company contain information that is correct and complete and true to the
best of his knowledge and belief;

d. the address for correspondence till its registered office is established;

e. the particulars of name, including surname or family name, residential

address, nationality and such other particulars of every subscriber to the
memorandum along with proof of identity, as may be prescribed, and in
the case of a subscriber being a body corporate, such particulars as may
be prescribed;

f. the particulars of the persons mentioned in the articles as the first directors
of the company, their names, including surnames or family names, the
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 Director Identification Number, residential address, nationality and such Legal and Regulatory
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other particulars including proof of identity as may be prescribed; and

g. the particulars of the interests of the persons mentioned in the articles as

the first directors of the company in other firms or bodies corporate along
with their consent to act as directors of the company in such form and
manner as may be prescribed.

(2) The Registrar on the basis of documents and information filed under sub-
section (1) shall register all the documents and information referred to in that
subsection in the register and issue a certificate of incorporation in the prescribed
form to the effect that the proposed company is incorporated under this Act.

(3) On and from the date mentioned in the certificate of incorporation issued
under sub-section (2), the Registrar shall allot to the company a corporate
identity number, which shall be a distinct identity for the company and which
shall also be included in the certificate.

Section 129: Financial statement

(1) The financial statements shall give a true and fair view of the state of affairs of
the company or companies, comply with the accounting standards.

(2) At every annual general meeting of a company, the Board of Directors of the
company shall lay before such meeting financial statements for the financial
year.

Section 135: Corporate Social Responsibility

(1) Every company having net worth of rupees five hundred crore or more, or
turnover of rupees one thousand crore or more or a net profit of rupees five
crore or more during any financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors,
out of which at least one director shall be an independent director.

(2) The Board’s report under sub-section (3) of section 134 shall disclose the
composition of the Corporate Social Responsibility Committee

(3) The Corporate Social Responsibility Committee shall,—

a. formulate and recommend to the Board, a Corporate Social Responsibility

Policy which shall indicate the activities to be undertaken by the company
as specified in Schedule VII;

b. recommend the amount of expenditure to be incurred on the activities

referred to in clause (a); and

c. monitor the Corporate Social Responsibility Policy of the company from

time to time.

(4) The Board of every company referred to in sub-section (1) shall,—

a. after taking into account the recommendations made by the Corporate

Social Responsibility Committee, approve the Corporate Social 85
Indian Insurance Sector: Responsibility Policy for the company and disclose contents of such Policy
An Overview
in its report and also place it on the company’s website, if any, in such
manner as may be prescribed; and
b. ensure that the activities as are included in Corporate Social Responsibility
Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that
the company spends, in every financial year, at least two per centof the
average net profits of the company made during the three immediately
preceding financial years, in pursuance of its Corporate Social Responsibility
Policy:
Provided that the company shall give preference to the local area and areas
around it where it operates, for spending the amount earmarked for Corporate
Social Responsibility activities.
Provided further that if the company fails to spend such amount, the Board
shall, in its report made under clause (o) of sub-section (3) of section 134,
specify the reasons for not spending the amount.
Provided also that if the company spends an amount in excess of the
requirements provided under this sub-section, such company may set off such
excess amount against the requirement to spend under this sub-section for such
number of succeeding financial years and in such manner, as may be prescribed.
Explanation.—For the purposes of this section “average net profit” shall be
calculated in accordance with the provisions of section 198.
Section 149: Company to have Board of Directors
(1) Every company shall have a Board of Directors consisting of individuals as
directors and shall have—
(a) a minimum number of three directors in the case of a public company,
two directors in the case of a private company, and one director in the
case of a One Person Company; and
(b) a maximum of fifteen directors:
Provided that a company may appoint more than fifteen directors after passing
a special resolution.
Provided further that such class or classes of companies as may be prescribed,
shall have at least one woman director.
Section 166: Duties of Directors
(1) Subject to the provisions of this Act, a director of a company shall act in
accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to promote the objects
of the company for the benefit of its members as a whole, and in the best
interests of the company, its employees, the shareholders, the community and
for the protection of environment.
86
 (3) A director of a company shall exercise his duties with due and reasonable Legal and Regulatory
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care, skill and diligence and shall exercise independent judgment.

(4) A director of a company shall not involve in a situation in which he may have
a direct or indirect interest that conflicts, or possibly may conflict, with the
interest of the company.

(5) A director of a company shall not achieve or attempt to achieve any undue
gain or advantage either to himself or to his relatives, partners, or associates
and if such director is found guilty of making any undue gain, he shall be liable
to pay an amount equal to that gain to the company.

(6) A director of a company shall not assign his office and any assignment so
made shall be void.

(7) If a director of the company contravenes the provisions of this section such
director shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees.

Section 179: Powers of Board

(1) The Board of Directors of a company shall be entitled to exercise all such
powers, and to do all such acts and things, as the company is authorised to
exercise and do:

Provided that in exercising such power or doing such act or thing, the Board
shall be subject to the provisions contained in that behalf in this Act, or in the
memorandum or articles, or in any regulations not inconsistent therewith and
duly made thereunder, including regulations made by the company in general
meeting:

Provided further that the Board shall not exercise any power or do any act or
thing which is directed or required, whether under this Act or by the
memorandum or articles of the company or otherwise, to be exercised or
done by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any
prior act of the Board which would have been valid if that regulation had not
been made.

(3) The Board of Directors of a company shall exercise the following powers on
behalf of the company by means of resolutions passed at meetings of the
Board, namely:

(a) to make calls on shareholders in respect of money unpaid on their shares;

(b) to authorise buy-back of securities under section 68;

(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;

(e) to invest the funds of the company;

87
Indian Insurance Sector: (f) to grant loans or give guarantee or provide security in respect of loans;
An Overview
(g) to approve financial statement and the Board’s report;

(h) to diversify the business of the company;

(i) to approve amalgamation, merger or reconstruction;

(j) to take over a company or acquire a controlling or substantial stake in

another company;

(k) any other matter which may be prescribed:

(4) Nothing in this section shall be deemed to affect the right of the company in
general meeting to impose restrictions and conditions on the exercise by the
Board of any of the powers specified in this section.

Section 205: Functions of Company Secretary

1. The functions of the company secretary shall include:

(a) to report to the Board about compliance with the provisions of this Act,
the rules made thereunder and other laws applicable to the company;

(b) to ensure that the company complies with the applicable secretarial
standards;

(c) to discharge such other duties as may be prescribed.

Explanation: For the purpose of this section, the expression “secretarial

standards” means secretarial standards issued by the Institute of Company
Secretaries of India constituted under section 3 of the Company Secretaries
Act, 1980 and approved by the Central Government.

2. The provisions contained in section 204 and section 205 shall not affect the
duties and functions of the Board of Directors, chairperson of the company,
managing director or whole-time director under this Act, or any other law for
the time being in force.

Section 302: Dissolution of a company by Tribunal

1. When the affairs of a company have been completely wound up, the Company
Liquidator shall make an application to the Tribunal for dissolution of such
company.

2. The Tribunal shall on an application filed by the Company Liquidator under

sub-section (1) or when the Tribunal is of the opinion that it is just and
reasonable in the circumstances of the case that an order for the dissolution of
the company should be made, make an order that the company be dissolved
from the date of the order, and the company shall be dissolved accordingly.

3. The Tribunal shall, within a period of thirty days from the date of the order,—

(a) forward a copy of the order to the Registrar who shall record in the
register relating to the company a minute of the dissolution of the company;
88 and
 (b) direct the Company Liquidator to forward a copy of the order tothe Legal and Regulatory
Environment
Registrar who shall record in the register relating to the company a minute
of the dissolution of the company.
Activity 3.3
Trace the improvements made in the Companies Act, 2013, list the changes made in
Section 302
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3.5 SECURITIES AND EXCHANGE BOARD OF

INDIA ACT, 1992
An Act to provide for the establishment of a Board to protect the interests of investors
in securities and to promote the development of, and to regulate, the securities market
and for matters connected therewith or incidental thereto. Securities Exchange Board
of India (SEBI) was set up in 1988 to regulate the functions of securities market. SEBI
promotes orderly and healthy development in the stock market but initially SEBI was
not able to exercise complete control over the stock market transactions. As a result in
May 1992, SEBI was granted legal status. SEBI is a body corporate having a separate
legal existence and perpetual succession.

3.4.1 Objectives of SEBI

The overall objectives of SEBI are to protect the interest of investors and to promote
the development of stock exchange and to regulate the activities of stock market. The
objectives of SEBI are:
1. To regulate the activities of stock exchange.
2. To protect the rights of investors and ensuring safety to their investment.
3. To prevent fraudulent and malpractices by having balance between self-
regulation of business and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as brokers,
underwriters, etc.

3.4.2 Functions of SEBI

The SEBI performs functions to meet its objectives, to meet three objectives SEBI has
three important functions. These are:
i. Protective Functions
ii. Developmental Functions
iii. Regulatory Functions
89
Indian Insurance Sector: i. Protective Functions: These functions are performed by SEBI to protect the
An Overview
interest of investor and provide safety of investment.

As protective functions, SEBI performs following functions:

 It Checks Price Rigging -Price rigging refers to manipulating the prices of

securities with the main objective of inflating or depressing the market price of
securities. SEBI prohibits such practice because this can defraud and cheat
the investors.

 It Prohibits Insider trading -Insider is any person connected with the

company such as directors, promoters etc. These insiders have sensitive
information which affects the prices of the securities. This information is not
available to people at large but the insiders get this privileged information by
working inside the company and if they use this information to make profit,
then it is known as insider trading.

 SEBI prohibits fraudulent and Unfair Trade Practices: SEBI does not
allow the companies to make misleading statements which are likely to induce
the sale or purchase of securities by any other person.

 SEBI undertakes steps to educate investors so that they are able to

evaluate the securities of various companies and select the most profitable
securities.

 SEBI promotes fair practices and code of conduct in security market by

taking following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders

wherein companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has

provisions for stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of shares
unrelated to market prices.

ii. Developmental Functions

These functions are performed by the SEBI to promote and develop activities in
stock exchange and increase the business in stock exchange. Under developmental
categories following functions are performed by SEBI:

 SEBI promotes training of intermediaries of the securities market.

 SEBI tries to promote activities of stock exchange by adopting flexible and

adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock
exchange.
90
iii. Regulatory Functions Legal and Regulatory
Environment
These functions are performed by SEBI to regulate the business in stock exchange.
To regulate the activities of stock exchange following functions are performed:

 SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.

 These intermediaries have been brought under the regulatory purview and
private placement has been made more restrictive.

 SEBI registers and regulates the working of stock brokers, sub-brokers, share
transfer agents, trustees, merchant bankers and all those who are associated
with stock exchange in any manner.

 It registers and regulates the working of mutual funds etc.

 SEBI regulates takeover of the companies.

 It conducts inquiries and audit of stock exchanges.

3.4.3 Important Sections

We will now see some important provisions of the act:

Section 4: Management of the Board

(1) The Board shall consist of the following members, namely:

(a) a Chairman;

(b) two members from amongst the officials of the Ministry of the Central
Government dealing with Finance and administration of the Companies Act,
1956 (1 of 1956);

(c) one member from amongst the officials of the Reserve Bank;

(d) five other members of whom at least three shall be the whole-time members,to
be appointed by the Central Government.

(2) The general superintendence, direction and management of the affairs of the Board
shall vest in a Board of members, which may exercise all powers and do all acts
and things which may be exercised or done by the Board.

(3) Save as otherwise determined by regulations, the Chairman shall also have powers
of general superintendence and direction of the affairs of the Board and may also
exercise all powers and do all acts and things which may be exercised or done by
that Board.

(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1)
shall be appointed by the Central Government and the members referred to in
clauses (b) and (c) of that sub-section shall be nominated by the Central
Government and the Reserve Bank respectively.

(5) The Chairman and the other members referred to in clauses (a) and (d) of sub-
section (1) shall be persons of ability, integrity and standing who have shown 91
Indian Insurance Sector: capacity in dealing with problems relating to securities market or have special
An Overview
knowledge or experience of law, finance, economics, accountancy, administration
or in any other discipline which, in the opinion of the Central Government, shall be
useful to the Board.

Section7: Meetings

(1) The Board shall meet at such times and places, and shall observe such rules
of procedure in regard to the transaction of business at its meetings (including
quorum at such meetings) as may be provided by regulations.

(2) The Chairman if for any reason, is unable to attend a meeting of the Board,
any other member chosen by the members present from amongst themselves
at the meeting shall preside at the meeting.

(3) All questions which come up before any meeting of the Board shall be decided
by a majority votes of the members present and voting, and, in the event of an
equality of votes, the Chairman, or in his absence, the person presiding, shall
have a second or casting vote.

Activity 3.4

Look up the provisions of the SEBI Act, 1992 and give your suggestions to protect the
interests of investors in securities.

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Section11: Functions of Board

(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market, by such measures as it thinks fit.

(2) Without prejudice to the generality of the foregoing provisions, the measures
referred to therein may provide for—

(a) regulating the business in stock exchanges and any other securities markets;

(b) registering and regulating the working of stock brokers, sub-brokers, share
transfer agents, bankers to an issue, trustees of trust deeds, registrars to an
issue, merchant bankers, underwriters, portfolio managers, investment advisers
and such other intermediaries who may be associated with securities markets
in any manner;

(ba)registering and regulating the working of the depositories, participants,

custodians of securities, foreign institutional investors, credit rating agencies
and such other intermediaries as the Board may, by notification, specify in this
behalf;
92
 (c) registering and regulating the working of venture capital funds and collective Legal and Regulatory
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investment schemes, including mutual funds;

(d) promoting and regulating self-regulatory organisations;

(e) prohibiting fraudulent and unfair trade practices relating to securities markets;

(f) promoting investors‘ education and training of intermediaries of securities

markets;

(g) prohibiting insider trading in securities;

(h) regulating substantial acquisition of shares and takeover of companies;

(i) calling for information from, undertaking inspection, conducting inquiries and
audits of the stock exchanges, mutual funds, other persons associated with
the securities market, intermediaries and self-regulatory organisations in the
securities market;

(ia) calling for information and records from any person including any bank or any
other authority or board or corporation established or constituted by or under
any Central or State Act which, in the opinion of the Board, shall be relevant
to any investigation or inquiry by the Board in respect of any transaction in
securities;

(ib) calling for information from, or furnishing information to, other authorities,
whether in India or outside India, having functions similar to those of the Board,
in the matters relating to the prevention or detection of violations in respect of
securities laws, subject to the provisions of other laws for the time being in
force in this regard:

Provided that the Board, for the purpose of furnishing any information to any
authority outside India, may enter into an arrangement or agreement or
understanding with such authority with the prior approval of the Central
Government;

(j) performing such functions and exercising such powers under the provisions of
the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be
delegated to it by the Central Government;

(2A)Without prejudice to the provisions contained in sub-section (2), the Board may
take measures to undertake inspection of any book, or register, or other document
or record of any listed public company or a public company (not being intermediaries
referred to in section 12) which intends to get its securities listed on any recognised
stock exchange where the Board has reasonable grounds to believe that such
company has been indulging in insider trading or fraudulent and unfair trade practices
relating to securities market.

(3) Notwithstanding anything contained in any other law for the time being in force
while exercising the powers under clause (i) or clause (ia) of sub-section (2) or
sub- section (2A), the Board shall have the same powers as are vested in a civil
court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in
respect of the following matters, namely : 93
Indian Insurance Sector: (i) the discovery and production of books of account and other documents, at
An Overview
such place and such time as may be specified by the Board;

(ii) summoning and enforcing the attendance of persons and examining them on
oath;

(iii) inspection of any books, registers and other documents of any person referred
to in section 12, at any place;

(iv) inspection of any book, or register, or other document or record of the

company referred to in sub-section (2A);

(v) issuing commissions for the examination of witnesses or documents.

(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and
(3) and section 11B, the Board may, by an order, for reasons to be recorded in
writing, in the interests of investors or securities market, take any of the following
measures, either pending investigation or inquiry or on completion of such
investigation or inquiry, namely:

(a) suspend the trading of any security in a recognised stock exchange;

(b) restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities;

(c) suspend any office-bearer of any stock exchange or self-regulatory organisation

from holding such position;

(d) impound and retain the proceeds or securities in respect of any transaction
which is under investigation;

(e) attach, after passing of an order on an application made for approval by the
Judicial Magistrate of the first class having jurisdiction, for a period not
exceeding one month, one or more bank account or accounts of any
intermediary or any person associated with the securities market in any manner
involved in violation of any of the provisions of this Act, or the rules or the
regulations made thereunder:

Provided that only the bank account or accounts or any transaction entered
therein, so far as it relates to the proceeds actually involved in violation of any
of the provisions of this Act, or the rules or the regulations made thereunder
shall be allowed to be attached;

(f) direct any intermediary or any person associated with the securities market in
any manner not to dispose of or alienate an asset forming part of any transaction
which is under investigation:

(5) The amount disgorged, pursuant to a direction issued, under section 11B of this
Act or section 12A of the Securities Contracts (Regulation) Act, 1956 or section
19 of the Depositories Act, 1996, as the case may be, shall be credited to the
Investor Protection and Education Fund established by the Board and such amount
shall be utilised by the Board in accordance with the regulations made under this
94 Act.
 Legal and Regulatory
3.6 SUMMARY Environment

There have been several initiatives taken by the government of India as also the Indian
Insurance Regulator to regulate the insurance business in India and to protect the interests
of the insurance customers. We have discussed in detail the salient features and
importance of the Insurance Act, 1938. Important sections of this act as well as the
Insurance Regulatory and Development Authority Act, 1999. The composition, duties,
powers and functions of IRDAI and other issues are given in detail. The different
provisions covered in the Companies Act, 2013 and its amendments are also discussed.
Thefunctions of Securities and Exchange Board of India (SEBI) and some specific
sections of Securities and Exchange Board of India Act, 1992 are explained in this
unit.

3.7 KEYWORDS
Company : It is an artificial person formed by single or group of people to
do their work efficiently and effectively.

Insurance Agent : means an insurance agent who receives or agrees to receive

payment by way of commission or other remuneration in
consideration of his soliciting or procuring insurance business
including business relating to the continuance, renewal or revival
of policies of insurance.

Financial year : in relation to any company or body corporate, means the period
ending on the 31st day of March every year, and where it has
been incorporated on or after the 1st day of January of a year,
the period ending on the 31st day of March of the following
year, in respect where of financial statement of the company or
body corporate is made up.

3.8 SELF-ASSESSMENT QUESTIONS

1. Discuss the important provisions of the Insurance Act, 1938.

2. Explain what is life insurance business? Discuss the requirements of capital?

3. Describe the provisions of investments as per Section 27 of the Insurance Act

1938?

4. Distinguish between assignment and nomination?

5. Explain the powers of the Board as per the Companies Act 2013?

6. Consider the importance of the Insurance Act, 1938 including the amendments
made in the Insurance Laws (Amendment) Act, 2015 and summarise your
observations.

7. List the functions of the Company Secretary.

8. Describe the functions of Securities and Exchange Board of India (SEBI). 95

Indian Insurance Sector: 9. Discuss the Functions of Board as mentioned in the Securities and Exchange Board
An Overview
of India Act, 1992.

3.9 FURTHER READINGS

1. The Insurance Regulatoryand Development Authority Act, 1999

https://legislative.gov.in/sites/default/files/A1999-41.pdf

2. The Companies Act, 2013

https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

3. Securities and Exchange Board of India Act, 1992.

https://www.sebi.gov.in/sebi_data/attachdocs/1456380272563.pdf

4. The Insurance Act, 1938

https://legislative.gov.in/sites/default/files/A1938-04.pdf

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