On 19 October 2015, the Insurance Regulatory and Development
Authority of India (IRDA) published guidelines on 'Indian owned
and controlled' (Control Guidelines).
The Control Guidelines have come into effect on 19 October 2015
(Effective Date) and require compliance by existing Indian
insurance companies (IICs) within 3 months from the Effective Date.
IICs which come into existence after the Effective Date are
required to comply with the Control Guidelines before grant of
registration by the IRDA.
The Control Guidelines apply to IICs which (i) 'may come
into existence after notification of the Act'; (ii) 'may
propose to hike their foreign investment from the existing
level'; and (iii) 'do not intend to increase their current
foreign stake from the existing level'. Further, the Control
Guidelines are applicable not only to IICs, but also to
'insurance intermediaries' as defined under the Insurance
Regulatory and Development Authority Act, 1999 (eg. insurance
brokers, third party administrators, surveyors and loss assessors,
etc.). However, the Control Guidelines will not apply to
'insurance intermediaries' which generate 50% or more of
their revenue from 'non-insurance activities'.
The Control Guidelines provide that 'control' is
evidenced by any one or more of the following criteria in
respect of the IIC:
by virtue of shareholding in the IIC
(the IRDA has clarified that both direct and indirect foreign
holding in an IIC shall be computed in accordance with Rule 2(p) of
the Indian Insurance Companies (Foreign Investment) Rules, 2015
read with Regulation 11 of the IRDA (Registration of Indian
Insurance Companies) Regulations, 2000);
voting agreements; or
any other manner as per applicable
Pursuant to paragraph 4 of the Control Guidelines, the IRDA has
expressed that, in order to ensure 'Indian control' of the
IIC, IICs must ensure the following:
Composition of board of
directors of IIC (Board)
Indian promoter(s) /
Indian investor(s) to appoint the majority of the non-independent
directors on the Board
Appointment of key
Key management persons
(eg. chief executive officer, managing director, principal officer)
to be appointed either (i) by the Board, or (ii) by the Indian
promoter(s) / Indian investor(s)
Board should control
significant policies of the IIC
Chairman of the
If the chairman of the
Board has a casting vote, he / she should be nominated by Indian
promoter(s) / Indian investor(s)
Quorum at Board
Quorum for Board meetings means and includes the presence of a
majority of the Indian directors irrespective of the presence of a
foreign investor's nominee
Foreign investor's right to have its nominee present to
constitute valid quorum would be considered a protective right and
not 'control' in the foreign investor's hands if the
nominees of the Indian promoter(s)/ Indian investor(s) are
mandatorily counted for determination of quorum
Adjournment of Board meeting to be in accordance with the
Companies Act, 2013
The IRDA will ensure that an IIC complies with the requirement
of 'Indian owned and controlled' by requiring the IIC to
submit an undertaking signed by its CEO or Chief Compliance Officer
confirming such compliance (Undertaking). The Undertaking should be
accompanied with (i) a certified copy of a resolution of the Board
confirming compliance, and (ii) a certified copy of the agreement /
joint venture agreement in which amendments have been carried out
to give effect to the requirement of 'Indian owned and
The Control Guidelines provide a view into the regulator's
mind in respect of which shareholder rights are permissible and
which may be frowned upon. The Control Guidelines provide a broad
picture of 'Indian control' and provide a mechanism whereby
IICs will ensure compliance. We understand that the IRDA, in light
of the Control Guidelines, will examine each shareholders'
agreement / joint venture agreement to determine whether rights
granted to a foreign shareholder are acceptable. Accordingly, IICs
and their shareholders may have to wait for a few stake increase
applications to be cleared before it becomes clear what specific
rights are not acceptable. That being said, the publication of the
Control Guidelines is a leap forward in providing substantive
regulatory clarity by the IRDA.
The content of this document do not necessarily reflect the
views/position of Khaitan & Co but remain solely those of the
author(s). For any further queries or follow up please contact
Khaitan & Co at email@example.com
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Health insurance business in India has, traditionally, been regulated by the framework governing general insurance business as issued by the Insurance Regulatory and Development Authority of India (IRDAI)...
The insurance statutory and regulatory framework has,
historically, strictly restricted the amount of commission or
remuneration that can be paid to insurance agents and insurance
intermediaries (such as insurance brokers, corporate agents, web
aggregators and insurance marketing firms) for the solicitation and
procurement of insurance business.
The Insurance Regulatory Development Authority of India ("IRDAI") has, by way of a circular dated 18 May, 2016 issued revised Guidelines for Corporate Governance for insurers in India ("CG Guidelines").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).