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By: Atul Dua, Esq.
Seth Dua & Associates
New Delhi, India

The Insurance Regulatory and Development Authority (hereinafter referred to as ‘IRDA’) has through its guidelines dated October 19th, 2015, Reference No. IRDA/F&A/GDL/GLD/180/10/2015 (hereinafter referred to as ‘guidelines’) provided clarity on the term ‘Indian owned and controlled’ as used under the definition of ‘Indian Insurance Company’ in Section 2(7A) of The Insurance Laws (Amendment) Act, 2015.

In terms of the Consolidated Foreign Direct Investment Policy 2015, an ‘Indian insurance company’ shall ensure that its ownership and control remains at all times in the hands of resident Indian entities.

In order to be treated as an ‘Indian Insurance Company’, it is mandatorily required that (i) such Indian Insurance Company must be registered as a public company under the Companies Act, 2013; (ii) the foreign shareholding in such Indian Insurance Company should not exceed 49% of the total paid up equity capital; and (ii) such Indian Insurance Company should be ‘Indian owned and controlled’, in such manner as may be prescribed. In order to provide the clarity on ‘Indian owned and controlled’, IRDA has mentioned in the said Guidelines that:

1. 'Control' may be exercised in any one or more of the following criteria that includes:
(a) virtue of shareholding; or
(b) management rights; or
(c) shareholder’s agreements; or
(d) voting agreements; or
(e) any other manner as per applicable laws.

2. Further, Indian Insurance Company is required to ensure that:

  • Majority of its directors excluding independent directors are nominated by the Indian promoter(s) / Indian investor(s) and such board is further required to ensure control over significant policies of the insurance company.
  • Appointment of key management personnel including CEO, MD, and Principal Officer are done through the board of directors (BOD) or by Indian promoter(s) / Indian investor(s). However, key management person excluding CEO may be nominated by foreign investor provided such appointment is approved by BOD where majority of directors excluding independent director are nominees of Indian promoter(s) / Indian investor(s).
  • The Chairman of the Board who has a casting vote is nominated by the Indian promoter(s) / Indian investor(s).
  • Quorum includes the presence of majority of the Indian directors irrespective of whether the foreign investor’s nominee is present or not. The right of a foreign investor’s nominee to constitute a valid quorum for meetings is only a protective right and to that extent would not amount to control as long as the presence of nominees of Indian Promoter (s) / Investor (s) are also mandatorily taken into account for the purposes of quorum.

3. Further, in relation to the aforesaid compliances pertaining to 'Indian owned and controlled', all existing Indian insurance companies are required to file an 'undertaking' duly signed by the CEO and COO along with required documents, within a period of 3 (three) months from the date of issue of the aforesaid guidelines.

4. The aforesaid guidelines are also applicable to ‘Insurance Intermediaries’ such as brokers, third party administrators, surveyors and loss assessors. However, in case of an 'Insurance Intermediary' having more than 50% of its revenue from the non-insurance activities, the aforesaid guidelines shall not be applicable to such 'Insurance intermediary'.

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