India: Insurance Newsletter – October 2015


The Insurance Regulatory and Development Authority of India ("IRDAI") has issued Guidelines ("Guidelines") on 19 October 2015 to further clarify "Indian Owned and Controlled" requirement for Indian insurance companies. As previously reported in our newsletters, the cap on foreign investment in Indian insurance companies ("Insurers") has been increased to 49% (from the earlier 26%) subject to them being "Indian owned and controlled, in such manner as may be prescribed". Earlier this year, the Central Government had issued1 the Indian Insurance Companies (Foreign Investment) Rules, 2015 ("Rules") to prescribe the manner of ownership and control of Insurers2 as defined under the amended (Indian) Insurance Act, 1938 ("Amended Act").

News reports suggest that the IRDAI has issued the Guidelines amid concerns that the Foreign Investment and Promotion Board is approving proposals for increase in foreign investment stake in Indian insurance companies without examining compliance with Indian "Indian owned and controlled" related issues.

I. Indian "control" related issues: an overview

The Amended Act defines "control" to include the right to appoint majority of directors or to control the management or policy decisions including contractually.

While the Rules required "ownership" and "control" to vest with resident citizens, they did not clarify the scope of "control". Accordingly, there were concerns particularly in the context of existing joint ventures as to whether "control" would extend to typical shareholders' rights (e.g., veto rights).

Accordingly, a key concern particularly from an existing investors' perspective was whether the IRDAI would consider typical minority protection/veto rights as constituting control. In light of this, the key clarifications issued by the IRDAI through the Guidelines are set out below.

II. Applicability of the Guidelines

The Guidelines apply to all insurance companies including existing insurance companies (having 26% stake) and insurance intermediaries such as brokers, third party administrators, surveyors and loss assessors3.

III. Elements of "Indian control" and prior position

The Guidelines require Insurers to ensure the following:

(a) their Board of Directors ("Board") comprises a majority of non-independent directors nominated by the Indian investor;

Note: The IRDAI always applied this requirement even under the earlier regime.

(b) their key management persons (including the CEO and MD) are appointed either through the Board or by the Indian investor;

Note: The IRDAI has in the past allowed foreign investors to nominate the CEO or MD and this is a substantial right that an existing investor would cease to have. This intends to vest day to day operational control in the hands of the Indian investor.

(c) foreign investor(s) nominate key management persons subject to approval by the Board;

Note: This was not regulated under the earlier regime and effectively gives the Indian investor veto rights through majority on the Board.

(d) their "significant policies" are controlled by the Board;

Note: This was also not regulated earlier and the scope of this condition is unclear especially since the IRDAI has not clarified what would constitute significant policies (i.e., relating to reinsurance or settlement of claims or otherwise).

(e) if the chairman of the Board has a casting vote, then the chairman must be appointed by the Indian promoter(s) or the Indian investor(s); and

(f) the presence of a majority of the directors nominated by the Indian investor must be mandatory to constitute "quorum" whether or not the nominees of the foreign investor are present. An Indian insurance company is free to require the presence of the foreign investor to constitute "quorum" but only as a protective right and not for the purposes of giving "control".

Note: Since, the Guidelines already provide for majority of the Indian investor's nominees on the Board, the requirement to have an Indian investor's nominee to constitute quorum may not be relevant.

The Guidelines are surprisingly silent on affirmative veto rights or voting on reserve matters and fail to clarify how the affirmative veto rights of foreign investors in existing joint ventures will be treated. It would be interesting to see if these rights which are commonly retained in existing joint venture agreements will now be diluted in light of the change in law.

IV. Compliance with the Guidelines and related timelines

4.1 In order to ensure compliance with the Guidelines, the IRDAI has made it mandatory for all Insurers to file an undertaking signed by the CEO and Chief Compliance Officer of such company confirming its compliance with "Indian owned and controlled" requirement. Such undertaking must be accompanied by:

(a) a certified copy of resolution passed by the board of directors confirming such compliance; and

(b) a certified copy of the joint venture agreement(s)/agreement(s) where amendments have been carried out to ensure such compliance.

4.2 All existing Insurers are required to comply with the Guidelines within 3 months of its issuance. Such period may be extended by the IRDAI for a further 3 months (subject to a maximum of 6 months) on an application made by the existing insurer citing "valid reasons". All new Insurers are required to comply with the Guidelines as a pre-condition to the grant of the certificate of registration.


The Guidelines have, to an extent, addressed some of the issues left open ended by the Amended Act and the subsequent Rules of the Central Government. The IRDAI has finally provided some clarity on the status of typical minority protection rights which were commonly enjoyed by foreign investors under the earlier regime – the quorum requirements under the Guidelines throw light on this issue and clarify that the presence of nominee(s) of the foreign investors as part of the quorum is a "protective" right intended to give such investors only blocking rights. As a consequence, the Guidelines appear to substantially dilute the other rights available to foreign investors under existing joint venture agreements by concentrating control in the hands of the Indian investors and reduce the position of their foreign counterparts to mere investors. In light of this, the IRDAI may be perceived to be effectively taking away the rights of existing foreign investors which it itself had approved under the earlier regime.


1 By way of a notification dated 19 February 2015.

2 An "Indian insurance company" has been defined to mean any insurer, being a company which is limited by shares, and, amongst others "in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed 49% of the paid up equity capital of such Indian insurance company, which is "Indian owned and controlled", in such manner as may be prescribed".

3 However, in the event an insurance intermediary has more than 50% of its revenue from non-insurance activities, these Guidelines will not be applicable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.