IRDAI vide Order bearing reference number: IRDAl/F&I/GDL/LSTD/155/08/2016 dated July 23, 2024, issued an Order in the matter of M/s. Care Health Insurance Ltd. (“ CHIL”) with respect to the Show Cause Notice (“ SCN ”) dated June 14, 2024, issued by the Authority in connection with directions of the Authority issued vide IRDAI Letter dated May 10, 2022, Response of CHIL and Submissions made by CHIL during the personal hearing held on July 15, 2024.
The observations/ issues raised by the Authority and decisions on these observations are summarized hereunder for reference:
Charge No
Violation
Observations of the Authority
Decision of the Authority
1
Section 48A of Insurance Act read with IRDA Circular on Appointment of Common/Nominee Director on Board dated August 30, 2018-
Sec 48A-
“No insurance agent or intermediary or insurance intermediary shall be eligible to be or remain a director in insurance company: Provided that any director holding office at the commencement of the Insurance Laws (Amendment) Act, 2015 shall not become ineligible to remain a director by reason of this section until the expiry of six months from the date of commencement of the said Act: Provided further that the Authority may permit an agent or intermediary or insurance intermediary to be on the Board of an insurance company subject to such conditions or restrictions as it may impose to protect the interest of policyholders or to avoid conflict of interest.”
Annexure A(1)(b) of IRDAI (Remuneration of Non-Executive Directors of Private Sector) Guidelines, 2016 for payment to non-executive director in form other than ‘profit related commission’ and ‘sitting fees’
Annexure A(1)(b)
“The Board may, at its discretion, provide for, in the Policy, payment of remuneration in the form of profit related commission to the non-executive directors, subject to the insurer making profits. Such remuneration, however, shall not exceed Rs. Ten lakh per annum for each such director excluding Chairman. For the Chairman of the Board, the remuneration may be decided by the Board of Directors of the respective company.”
The requirement to procure prior approval of IRDAI for providing remuneration to non-executive directors of insurers who are common directors in insurance intermediaries (other than in relation to sitting fees), cannot be avoided on grounds of such common director receiving stock options of the insurer, in his/her capacity as a director/employee of any other company.
Issuance of stock options to non-executive director in her capacity as the executive director is in violation of Insurance Act, IRDA Act and the circulars, guidelines issued thereof.
The Authority exercised the power vested under Section 102(b) of the Insurance Act, 1938 levied a penalty of Rs. 1 Crore (Rupees One Crore only) for the Charge.
The Authority exercised the power vested under Section 34 and 34E of the Insurance Act, 1938 required CHIL to cause a buyback of 75,69,685 shares of CHIL allotted to non-executive director at the same price per share as the exercise price (i.e. INR 45.32 per share).
he Authority has directed the Prowess to:
1. Remit the penalty of Rs. 1,00,00,000/- (Rupees One Crore) within a period of 45 days from receipt of this Order.
2. An intimation for remittance may be sent to Shri Mahesh Agarwal, General Manager (F & I) at IRDAI.
3. This Order shall be placed before the Board of CHIL at its next immediate meeting so that the Board can take note of the violation and take necessary preventive steps to avoid such violations in future.
4. CHIL shall submit a copy of the minutes of discussion to the Authority within 7 days of the same.
5. If CHIL feels aggrieved by this Order, an appeal may be preferred to the Securities Appellate Tribunal, Mumbai as per the provisions of Section 110 of the Insurance Act, 1938.
A copy of the Order is attached for your ready reference.
Source category: IRDAI
Attachments
- /2024/417_IRDAI_Order_in_the_matter_of_Care_Health_Insurance_Ltd_(CHIL).pdf
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