The Insurance Regulatory and Development Authority (IRDA) has been penalising life and general insurers under Section 102 of the Insurance Act 1938 for paying distributors far higher than provided in the regulations and for other violations.
While the companies have been silently paying the fine and carrying on their activities, industry officials privately complain that it would be risky to go to the courts against the IRDA penalties as this would seem like a tussle between the company and the regulator.
"An appellate mechanism similar to Securities Appellate Tribunal (SAT) or Telecom Disputes Settlement and Appellate Tribunal (TDSAT) is a simple option which is not there now for the insurers," a senior official of a private life insurer told IANS, preferring anonymity.
Agreeing that the Insurance Bill pending before parliament provides for an appellate tribunal, the official said: "It has been there for a long time. We do not know when it would be passed. Perhaps an interim appellate tribunal could be one option that the government can think of."
Reacting to the demand, IRDA chief T.S. Vijayan told IANS over the phone: "The penalty order is issued by the chairman. The companies can appeal against the order to the IRDA Board. Regulations are sub-ordinate laws to the Insurance Act and companies cannot violate them at will and those who do have to be penalised."
D. Varadarajan, a Supreme Court advocate who specialises in company and insurance laws, disagreed.
"Where is the question of appealing to the Board when IRDA does not have the penalising powers, which only the courts have under the insurance law," he contended while speaking to IANS over the phone from Delhi.
He said Section 102 of the Insurance Act gives IRDA powers to levy penalties only on four counts: failure to furnish documents, returns or statements; non-compliance with directions; non maintenance of solvency margins; and failure to comply with insurance treaties.
According to insurance industry officials, regulations and circulars cannot be treated as the regulator's directions.
Citing Section 26 of the Code of Criminal Procedure, Varadarajan said any offence under the Insurance Act has to be tried under Section 109 of the Insurance Act and that too, by a presidency or first class magistrate.
"It is to be noted that when the Insurance Act was amended by the IRDA Act, 1999, the procedural mechanism for the imposition of penalties should have been also amended sympathetically to provide more teeth to the Authority," he added.
"Unfortunately, that was not the case. While amending/inserting sections 102 to 105C in the Insurance Act attention was given only to prescribing penalties for infractions, leaving intact the power of courts to take cognizance of offences," he noted.
An official of a private life insurer told IANS that there are specific penalties for carrying on business in contravention of provisions under Section 103, for false statements under Section 104, wrongful possession and others under Section 105 and rural and social sector non-compliances under Section 105B and 105C of the Insurance Act.
He said Section 105A recognises offences by companies under the Act and makes their seniors responsible, which to a great extent, helps the Authority fix accountability.
"The Insurance Act, as things stand today, does not give the IRDA the power to form an independent appellate authority. Neither is it possible to form an appellate forum in the government," the official contended.
One option was an Ordinance to amend the Insurance Act to set up an appellate authority, he added.
Curiously, a forum that exists to address the issue has not been approached to do so.
The Life Insurance Council, a forum of Indian life insurers, says it would have taken up the issue had it been asked to do so.
"The absence of the appellate mechanism against IRDA penalty orders was not raised by any insurer with the Council till now. Had it been brought to our notice we would have taken it up with the regulator and the government as an industry issue," secretary general V. Manickam told IANS.
(Venkatachari Jagannathan can be contacted at v.jagannathan.com)
--IANS (Posted on 08-09-2013)