India: IRDA Issues Guidelines On "Indian Owned And Controlled"

Last Updated: 20 October 2015
Article by Anuj Sah and Rohan Singh

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'.

Indian Control

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);
  • management rights;
  • shareholders' agreements;
  • voting agreements; or
  • any other manner as per applicable laws.

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 management persons 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)

Significant policies Board should control significant policies of the IIC

Chairman of the Board 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 meetings

  • 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

Ensuring Compliance

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 controlled'.


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

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