(Project file)

Submitted as per curriculum of B.Com. LLB (Hons.) on the topic of

Insurance Regulatory and

Development Authority act
1999

SUBMITTED TO: SUBMITTED BY:

Ms. Alka Sharma Charu lata
UILS Roll no. 204/20
PU Chandigarh Sem 1 , Sec D
B.COM LLB. (HONS.)
UILS, PU CHD.
[1]
At the outset, I wish to thank the Almighty God for his immense
blessings and pray to him to continue to guide me on the path of
my committed calling.
A sincere and heartfelt gratitude is due in the name of those
writers whose works have been borrowed and included in this
project meant for academic and scholastic pursuit of the students
enrolled in the Five year law course.
I take this opportunity to extend my thanks to our Director
Professor Rajinder Kaur and my teacher Ms. Alka Sharma,
University Institute of legal studies, Panjab University,
Chandigarh for her incontestably perfect unmatched guidance,
encouragement, valuable suggestions and efforts made during
the preparation of this project and during her lectures which
enabled me to complete this project successfully on this topic,
Insurance Regulatory and Development Authority 1999
I owe my regards to the entire faculty of the Department of
Legal Studies, from where I have learnt the basics of Law and
whose informal discussions, intellectual support helped me in
the entire duration of this work.
Charu Lata
Roll no. 204/20
Sec D Sem 1

[2]
S.no Topic Page no.
Insurance Regulatory and Development
4
1 Authority Act 1999

2 Features of IRDA Act 5-6

3 Composition of authority 6

4 Tenure and removal of members 7

5 Deposit and invalidation of proceedings of 7-8

authority

6 Duties , powers and functions of authority 8-10

7 Finance, account and audit 10-12

8 Establishment of insurance authority 12-13

9 Miscellenous provisions 13

10 Conclusion 14

11 Bibliography 15

[3]
 Insurance Regulatory and
Development Authority Act , 1999

To study the liberalization process in Insurance sector in India,

Malhotra Committee was formed under the Chairmanship of
Late Shri R.N. Malhotra has submitted its report in 1994 which
recommended that private companies be allowed to operate in
India. The Government accepted the Committee’s
recommendation and Insurance Regulatory Authority (IRA) was
set up in 1996 to show the path for privatization of insurance
Industry. The government of India introduced Interim Insurance
Regulatory Authority (IRA) bill in parliament in 1996. The bill
was later retitled as Insurance Regulatory and Development
Authority and introduced in 1999 & it received presidential
assent in Jan.2000. The aim of the Authority is “to protect the
interest of holders of Insurance policies to regulate, promote
and ensure orderly growth of Insurance industry & for
matters connected therewith or incidental thereto.” Under
this Act, an authority called IRDA is established which replaces
Controller of Insurance under Insurance Act 1938.

[4]
 Features of IRDA

 Corporate body by the aforesaid name which means it will

act as group of persons, called members, who will work
jointly not as an individual person like Controller of
Insurance.
 Having perpetual succession which means any member
may resign or die but the Authority will work.
 A common seal with power to enter into a contract by
affixing a stamp on the documents.
 Sue or be sued means the Authority can file a case against
any person or organization and vice versa.
 The insurance sector in India has been thrown open to the
private sector. The second and third schedules of the Act
provide for removal of existing corporations (or
companies) to carry out the business of life and general
(non-life) insurance in India.
 An Indian insurance company is a company registered
under the Companies Act, 1956, in which foreign equity
does not exceed 26 per cent of the total equity
shareholding, including the equity shareholding of NRIs,
FIIs and OCBs.
 After commencement of an insurance company, the Indian
promoters can hold more than 26 per cent of the total
equity holding for a period of ten years, the balance shares
being held by non-promoter Indian shareholders which will
not include the equity of the foreign promoters, and the
shareholding of NRIs, FIIs and OCBs.
 After the permissible period of ten years, excess equity
above the prescribed level of 26 per cent will be disinvested

[5]
 as per a phased program to be indicated by IRDA. The
Central Government is empowered to extend the period of
ten years in individual cases and also to provide for higher
ceiling on share holding of Indian promoters in excess of
which disinvestment will be required.
 On foreign promoters, the maximum of 26 per cent will
always be operational. They will thus be unable to hold any
equity beyond this ceiling at any stage.
 The IRDA Act also provides for the appointment of CoI by
the Central Government when the Regulatory Authority is
superseded.
 Failure to fulfill the social obligations would attract a fine
of Rs.25 lakh; in case the obligations are still not fulfilled,
licence would be cancelled

Composition of Authority (Section 4)

The Authority shall consist of nine persons as per details given

below:
 Chairperson.
 Not more than 5 whole time members.
 Not more than 4 part time members.
These persons shall be appointed by the Central Govt. from
amongst persons of ability, integrity & standing who have
knowledge or experience in life Insurance, general Insurance,
actuarial science, finance, economics, law accountancy,
administration or other discipline which would in the opinion of
the Central Govt. be useful to the Authority.

[6]
 Tenure (Section 5)

 The Chairman tenure will be for 5 years and eligible for

reappointment till he attains the age of 65 years.
 The appointment of members will be for 5 years and
eligible for reappointment but not exceeding the age 62
years.

Removal of Members (Section 6)

The Central Government can remove any member of the

Authority if he :-
a) Is declared bankrupt
b) Has become physically or mentally incapable of acting as a
member
c) Has been awarded punishment by any Court.
d) Has acquired such financial or other interest which affect his
function as a member.
e) Has so abused his position as to render his continuation in
office detrimental to the public interest.
But no member can be removed form the office unless & until
the reasonable opportunity of being heard is given to such
member in the matter.

Deposits ( Section 7)

 The minimum amount of paid-up equity capital is Rs.10

crore in case of life insurance as well as general insurance,
and Rs.20 crore in the case of re-insurance.

[7]
  Solvency margin (excess of assets over liabilities) is fixed
at not less than Rs.5 crore for life as well as general
insurance; for reinsurance solvency margin is stipulated at
not less than Rs.10 crore in each case.
 Insurance companies will deposit Rs.1 crore as security
deposit before starting their business.

Invalidation of proceedings of Authority (Section 11)

The proceedings of Authority will not become invalidate ( not

valid in the eyes of law) due to following reasons:-
 Defects in the formation of the Authority.
 Defect in appointment of any Member.

Duties, Powers & Functions of Authority (Section 14)

Duties:
The Authority shall have the duty to regulate, promote and
ensure orderly growth of the Insurance business and reinsurance
business subject to the provisions of any other provisions of the
act.

Powers & Functions to:-

(a) Issue to the applicant (Insurance company or Insurance

Agent or Surveyors or Insurance Brokers or Third Party
Administrators) a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration;

[8]
(b) Protection of the interests of the policyholders in matters
concerning assigning of policy, nomination by policyholders,
insurable interest, settlement of insurance claim, surrender value
of policy and other terms and conditions of contracts of
insurance;
(c) Specifying requisite qualifications, code of conduct and
practical training for insurance brokers , agents, surveyors, Third
Party Administrator ;
(d) Specifying the code of conduct for surveyors and loss
assessors (Who assess the loss of policyholder in case of
General Insurance);
(e) Promoting efficiency in the conduct of insurance business;
(f) Promoting and regulating professional organizations
connected with the insurance and re-insurance business;
(g) Levying fees and other charges on insurance companies,
Agents, Insurance Brokers, Surveyors and Third party
Administrator;
(h) Calling for information from, undertaking inspection of,
conducting enquiries and investigations including audit of the
insurers, intermediaries, insurance intermediaries and other
organizations connected with the Insurance business;
(i) Control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers in respect of general
insurance business not so controlled and regulated by the Tariff
Advisory Committee under section 64U of the Insurance Act,
1938
(j) Specifying the form and manner in which books of account
shall be maintained and statement of accounts shall be rendered
by insurers and other insurance intermediaries;
(k) Regulating investment of funds by insurance companies;

[9]
(l) Regulating maintenance of margin of solvency i.e., having
sufficient funds to pay insurance claim amount;
(m) To settle the disputes between insurers and intermediaries or
insurance intermediaries;
(n) Supervising the functioning of the Tariff Advisory
Committee;
(o) Specifying the percentage of premium income of the insurer
to finance schemes for promoting and regulating professional
organisations referred to in clause(f);
(p) Specifying the percentage of life insurance business and
general insurance business to be undertaken by the insurer in the
rural or social sector; and
(q) Exercising such other powers as may be prescribed.

FINANCE ACCOUNTS AND AUDIT

Grants from the Central Government (Section 15)

The Government after approval from the Parliament may grant

funds to discharge their duties as per this Act.

Constitution of Funds (Section 16)

(1) There shall be a fund to be called “The Insurance Regulatory

and Development Authority Fund” and there shall be credited
there to:—
a. all Government grants, fees and charges received by the
Authority;

[10]
b. all sums received by the Authority from such other source as
may be decided upon by the Central Government;
c. the percentage of prescribed premium income received from
the insurer/insurance intermediaries.

(2) The Fund shall be applied for meeting:— .( Section 16 (A) )

a. the salaries, allowances and other remuneration of the

members, officers and other employees of the Authority:
b. the other expenses of the Authority in connection with the
discharge of its functions and for the purposes of this Act.

Accounts and Audit (Section 17)

Accounts ( Section 17 (1) )

(1)The Authority shall maintain proper accounts and other
relevant records and prepare an annual statement of accounts in
such form as may be prescribed by the Central Government in
consultation with the Comptroller and Auditor-General of India.

Audit (section 17 (2), (3), (4) )

(2) The accounts of the Authority shall be audited by the
Comptroller and Auditor-General of India at such intervals as
may be specified by him and any expenditure incurred in
connection with such audit shall be payable by the Authority to
the Comptroller and Auditor-General.
(3) The Comptroller and Auditor-General of India and any other
person appointed by him in connection with the audit of the of
the accounts of the Authority shall have the same rights,

[11]
privileges and authority in connection with such audit as the
Comptroller and Auditor-General generally has in connection
with the audit of the Government accounts and, in the particular
shall have the right to demand the production of books of
account, connected vouchers and other documents and papers
and to inspect any of the offices of the Authority.
(4) The accounts of the Authority as certified by the Comptroller
and Auditor General of India or any other person appointed by
him in this behalf together with the audit-report thereon shall be
forwarded annually to the Central Government and that
Government shall cause the same to be laid before each House
of Parliament.

Establishment of Insurance Advisory

Committee (Section 25)

(1) The Authority may, by notification, establish with effect

from such date as it may specify in such notification, a
Committee to be known as the Insurance Advisory Committee.
(2) The Insurance Advisory Committee shall consist of not more
than twenty-five members excluding ex-officio members to
represent the interests of commerce, industry, transport,
agriculture, consumer fora, surveyors, agents, intermediaries,
organisations engaged in safety and loss prevention, research
bodies and employees’ association in the insurance sector.
(3) The Chairperson and the members of the Authority shall be
the ex-officio Chairperson and ex officio members of the
Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be to
advise the Authority on matters related to insurance.

[12]
(5) The Insurance Advisory Committee may advise the
Authority on such other matters as may be prescribed.

Miscellaneous Provisions

 The Central Government can issue the direction to the

Authority on policy matters not on administrative and
technical matters and the Authority is bound to follow such
direction.
 The Central Government can supersede any act of the
Authority.
 The Chairperson, Members and employees of Authority
shall be deemed to be public servant while performing the
duties as per the provision of this Act.
 The Authority can delegate its powers to Chairperson or
members or officers and employees of the Authority as per
regulation made under this act.
 The Authority has the power to make rules related to salary
& allowances and other terms & conditions to be applicable
to its Chairperson, members, employees or officers.
 The Authority has power to make regulations to be
followed at its meetings
 The rule & regulation made by the Authority shall be
placed before the Parliament.
 Any rule or regulations made under this act will bar the
applicability of other laws of the land.
 The Authority has the powers to make amendment in
Insurance Act 1938, LIC Act 1956 & GIBN Act 1972

[13]
 CONCLUSION
The preamble of the act clarifies that it is to establish an
authority which will :
 Protect the interests of holders of insurance policy
 Regulate , promote and ensure orderly growth of insurance
industry
 And other matter related to first and second.

The main aim to form IRDA is to create a regulator which will

regulate and develop the insurance sector in the country and
control all individuals or organizations who are directly or
indirectly involved with the insurance sector. The Authority has
the powers to issue regulations related to insurers, insurance
intermediaries, surveyors, third party administrators for their
registration, renewal of their license and review their workings
for smooth functioning of insurance sector. The Authority also
protects the interest of the policyholders for whom the insurers
are issuing the policies. With this the Authority does not become
supreme as it is accountable to the Central Government.

[14]
BIBLIOGRAPHY
 BOOKS
 Banking and Insurance ( Kalyani Publications )

 WEBSITES
 The IRDA Act 1999 (irdai.gov.in)
 Home: The National Institute of Open Schooling
(NIOS)

[15]