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THE INSURANCE ACT, 1938
Earlier to the Insurance Act, 1938, the
insurance business was carried by the insurance companies in accordance with
the principles of the Company Law,1913. When the business started growing, the
need for an independent law to regulate the insurance business was noticed and
a separate Act, the Insurance Act, 1938 was legislated. The Act was used for
all purposes relating to both life and general insurance businesses and their
regulations. With regards to general insurance, this Act is being used to
regulate the marine insurance, fire insurance and other insurances. Further
growth of business has made it complex and more legal provisions were required
to regulate it. The Marine Insurance Act, 1963, Public Liability Insurance Act,
1991, Insurance Regulatory and Development Authority Act, 1999 and regulations
made by the IRDA are some of the legislations that govern the insurance
business.
Short title, extent and commencement
1. (1) This Act may be called Insurance Act,
1938.
(2) It extends to the whole of India.
(3) It shall come into force on such date3 as
the Central Government may, by Notification in the Official Gazette, appoint in
this behalf.
Definitions
2. In this
Act, unless there is anything repugnant in the subject or context, -
(1) “Authority” means the Insurance
Regulatory and Development Authority established under sub-section (1) of
section 3 of the Insurance Regulatory and Development Authority Act, 1999;
(2) “Policy-holder” includes a person
to whom the whole of the interest of the policy-holder in the policy is
assigned once and for all, but does not include an assignee thereof whose
interest in the policy is infeasible or is for the time being subject to any
condition;
(3) “Approved securities,”
means-
(i) Government
securities and other securities charged on the revenue of the Central
Government or of the Government of a State or guaranteed fully as regards
principal and interest by the Central Government or the Government of any
State;
(ii) debentures or other
securities for money issued under the authority of any Central Act or Act of a
State Legislature by or on behalf of a port trust or municipal corporation or
city improvement trust in any Presidency-town;
(iii) shares of a corporation
established by law and guaranteed fully by the Central Government or the
Government of a State as to the repayment of the principal and the payment of
the divided;
(iv) securities issued or
guaranteed fully as regards principal and interest by the Government of any
Part B State and specified as approved securities for the purposes of this Act
by the Central Government by notification in the Official Gazette; and
(4) "Auditor" means a
person qualified under the Chartered Accountants Act, 1949 (38 of 1949), to act
as an auditor of companies;
(5) "Chief agent" means a
person who, not being a salaried employee of an insurer, in consideration of
any commission-
(i) Performs
any administrative and organizing functions for the insurer, and
(ii) Procures life
insurance business for the insurer by employing or causing to be employed
insurance agents on behalf of the insurer;
[(5-A) "Controller of Insurance"
means the officer appointed by the Central Government under section 2B to
exercise all the powers, discharge the functions and performs the duties of the
Authority under this Act or the Life
Insurance Corporation Act, 1956 (31 of 1956)
or the General Insurance Business (Nationalization) Act, 1972 (57 of 1972) or
the Insurance Regulatory and Development Authority Act, 1999;]
(6) "Court" means the principal
Civil Court of original jurisdiction in a district and includes he High Court
in exercise of its ordinary original civil jurisdiction;
(7) "Government security"
means a Government security as defined in the Public Debt Act, 1944 (18 of
1944);
[(7A) “Indian insurance company” means
any insurer being a company-
(a) which is formed and
registered under the Companies Act, 1956 (1 of 1956);
(b) in which the
aggregate holdings of equity shares by a foreign company, either by itself or
through its subsidiary companies or its nominees, do not exceed twenty-six
percent paid-up equity capital of such Indian insurance company;
(c) whose sole purpose is
to carry on life insurance business or general insurance business or
re-insurance business.
(8) "Insurance company"
means any insurer being a company, association or partnership which may be
wound up under the Indian Companies Act, 1913 (7 of 1913), or to which the
Indian Partnership Act, 1932 (9 of 1932), applies;
(9) "Insurer" means-
(a) any individual or unincorporated body of
individuals or body corporate incorporated under the law of any country other
than India, carrying on insurance business not being a person specified in
sub-clause (c) of this clause which-
(i) carries on that business in India,
or
(ii) has his or its principal place of
business or is domiciled in India, or
(iii) with the object of obtaining insurance
business, employs a representative, or maintains a place of business, in India;
(b) any body corporate [not being a person
specified in sub-clause (c) of this clause] carrying on the business of
insurance, which is a body corporate incorporated under any law for the time
being in force in India; or stands to any such body corporate in the relation
of a subsidiary company within the meaning of the Indian Companies Act, 1913 (7
of 1913), as defined by sub-section (2) of section 2 of that Act, and
(c) any person who in India has a standing
contract with underwriters who are members of the Society of Lloyd's whereby
such person is authorized within the terms of such contract to issue protection
notes, cover notes, or other documents granting insurance cover to others on
behalf of the underwriters.But does not include a principal agent' chief agent,
special agent' or an insurance agent or a provident society as defined in Part
III;
(10) "Insurance agent"
means an insurance agent licensed under Sec. 42 who receives agrees to receive
payment by way of commission or other remunerationin consideration of his
soliciting or procuring insurance business including business relating to the
continuance, renewal or revival of policies of insurance;
(11) "Managing agent"
means a person, firm or company entitled to the management of the whole affairs
of a company by virtue of an agreement with thecompany, and under the control
and direction of the directors except to the extent, if any, otherwise provided
for in the agreement, and includes any person, firm or\ company occupying such
position by whatever name called.
(12) "Prescribed"
means prescribed by rules made under this Act; and
(13) "Principal agent"
means a person who, not being a salaried employee of an insurer, in
consideration of any commission,—
(i) Performs any administrative
and organizing functions for the insurer; and
(ii) Procures general insurance business
whether wholly or in part by employing or causing to be employed insurance
agents on behalf of the
(14) "Special agent"
means a person who, not being a salaried employee of an insurer, in
consideration of any commission, procures life insurance business for the
insurer whether wholly or in part by employing or causing to be employed
insurance agents on behalf of the insurer, but does not include a chief agent.
(15) Insurance
cooperative society means any insurer being a cooperative society,
which is registered on or after the commencement of the insurance (amendment)
act, 2002, as a cooperative society under the cooperative societies act, 1912,
or under any other law for the time being in force in any state relating to cooperative
societies or under the multi-state cooperative societies act, 1984, having a
minimum paid up capital (excluding the deposits required to be made under
section 7), of rupees one hundred crores , in which no body corporate, whether
incorporated or not, formed or registered outside India, either by itself or
through its subsidiaries or nominees, any time, holds more than 26 percent of
the capital of such cooperative society, and whose sole purpose is to carry on
life insurance business or general insurance business in India.
Requirements as to capital
No insurer carrying on the business of life
insurance, general insurance or re insurance in India on or after the
commencement of the Insurance Regulatory and Development authority Act, 199,
shall be registered unless he has,-
(i) paid-up equity capital of rupees
one hundred crores, in case of a person carrying on the business of life
insurance or general insurance; or
(ii) a paid-up equity capital of rupees two
hundred crores, in case of a person carrying on the reinsurance business.
Further, no public company limited by shares
having its registered office in India, shall carry on life insurance business,
unless the capital of the company consists only of ordinary shares each of
which have a single face value, and the same paid up amount for all shares,
whether existing or new, except during any period not exceeding one year
allowed by the company for payment of calls on shares.
The act also provides that no prompter shall
any time hold more than 26 percent or such other percentage as may be
prescribed. Of the paid up capital in an Indian insurance company, and if he
does, the promoters shall divest in a phased manner the share capital in excess
of the 26 percent of the paid up equity capital or such excess paid up equity
capital as may be prescribed, and within such period as may be prescribed by
the central government.
Deposits
Every insurer shall, in respect of the
insurance business carried on by him in India, deposit and keep deposited with
the Reserve Bank of India in one of the offices in India of the Bank for and on
behalf of the Central Government the amount hereafter specified, either in cash
or in approved securities estimated at the market value of the securities on
the day of deposit, or partly in cash and partly in approved securities so
estimated:-
(a) in the case of life insurance
business, a sum equivalent to one per cent of his total gross premium written
direct in India in any financial year commencing after the 31st day of March,
2000, not exceeding rupees ten crores;
(b) in the case of general insurance
business, a sum equivalent to three per cent of his total gross premium written
in India, in any financial year commencing after the 31st day of March, 2000,
not exceeding rupees ten crores;
(c) in the case of re-insurance business, a
sum of rupees twenty crores
(d)
in case the
business done or to be done is marine insurance only and relates exclusively to
country craft or its cargo or both, the amount shall be one hundred thousand
rupees only.
An insurer shall not be registered for any
class of insurance business in addition to the class or classes for which , he
is already registered until the full deposit required has been made.
Audit
The balance-sheet, profit and loss account,
revenue account and profit and loss appropriation account of every insurer, in
respect of his insurance business, shall, unless subject to audit under the
Indian Companies Act, 1913 (7 of 1913), be audited annually by an auditor who
shall in have the powers of, exercise the functions vested in, and discharge
the duties and be subject to the liabilities and penalties imposed on, auditors
of companies by section 145 of the Indian Companies Act, 1913.
Investment of assets
Every insurer shall invest and at all times
keep invested assets equivalent to not less than the sum of-
(a) the amount of his liabilities to holders
of life insurance policies in India on account of matured claims, and
(b) the amount required to meet the
liability on policies of life insurance maturing for payment in India, less-
(i)
the amount of premiums which have
fallen due to the insurer on such policies but have not been paid and the days
of grace for payment of which have not expired, and
(ii) any
amount due to the insurer for loans granted on and within the surrender values
of policies of life insurance maturing for payment in India issued by him or by
an insurer whose business he has acquired and in respect of which he has
assumed liability, in the manner following, namely,
(a)
twenty-five per cent of the said sum in Government securities,
(b)
further sum equal to not less than twenty-five per cent of the said sum in
Government securities or other approved securities and
(c) the
balance in any of the approved investments specified in any over investment.
Every insurer carrying on the business of
life insurance, shall every year, within thirty-one days from the beginning of
the year submit to the authority a return showing as at 31st day
of December of the preceding year the assets held invested in accordance with
section 27 and 27A and all other particulars necessary to establish that the
requirements of that section have been complied with, and such return shall be
certified by a principal officer of the insurer. Every such insurer shall also
furnish, within fifteen days from the last day of March , June and September ,
a return certified as aforesaid showing as at the end of each of the said
months the assets held invested in accordance with section 27.
Power to appoint staff
The Authority may appoint such staff, and at
such places as it or he may consider necessary, for the scrutiny of the
returns, statements and information furnished by insurers under this Act and
generally to ensure the efficient performance of the functions of the Authority
under this Act.
Registration of principal agents, chief
agents and special agents
(1) The Authority or an
officer authorized by it in this behalf shall in the prescribed manner and on
payment of the prescribed fee, which shall not be more than twenty-five rupees
for a principal agent or a chief agent and ten rupees for a special agent,
register any person who makes an application to him in the prescribed manner
if,—
(a)
in the case of an individual, he does not suffer from any of the
disqualifications mentioned in sub-section (4) of Section 42, or
(b)
in the case of a company or firm, any of its directors or partners does not
suffer from any of the said
disqualifications, and a certificate to Act as a principal agent, chief agent
or special agent, as the case may be, for the purpose of procuring insurance
business shall be issued to him.
(2) A certificate issued
under this section shall entitle the holder thereof to act as a principal
agent, chief agent, or special agent, as the case may be, for any insurer.
(3) A certificate issued
under this section shall remain in force for a period of twelve months only
from the date of issue, but shall, on application made on this behalf, be renewed
from year to year on production of a certificate from the insurer concerned
that the provisions of clauses (2) and (3) of Part A of the Sixth Schedule in
the case of a principal agent, the provisions of clauses (2) and (4) of Part B
of the said Schedule in the case of a chief agent, and the provisions of
clauses (2) and (3) of Part C of the said Schedule in the case of a special
agent, have been complied with, and on payment of the prescribed fee, which
shall not be more than twenty-five rupees, in the case of a principal agent or
a chief agent, and ten rupees in the case of a special agent, and an additional
fee of the prescribed amount not exceeding five rupees by way of penalty, in
cases where the application for renewal of the certificate does not reach the
issuing authority before the date on which the certificate ceases to remain in
force:
Provided that, where the applicant is an
individual, he does not suffer from any of the disqualifications mentioned in
clauses (b) to (d) of sub-section (4) of section 42 and where the applicant is
a company or a firm, any of its directors or partners does not suffer from any
of the said disqualifications.
(4) Where it is found that
the principal agent, chief agent or special agent being an individual is, or
being a company or firm contains a director or partner who is suffering from
any of the disqualifications mentioned in subsection (4) of section 42, without
prejudice to any other penalty to which he may be liable, the Authority shall,
and where a principal agent, chief agent or special agent has contravened any
of the provisions of this Act may cancel the certificate issued under this
section to such principal agent, chief agent or special agent.
(5) The authority which
issued any certificate under this section may issue a duplicate certificate to
replace a certificate lost, destroyed or mutilated on payment of the prescribed
fee, which shall not be more than two rupees.
(6) Any person who acts as
a principal agent, chief agent or special agent, without holding a certificate
issued under this section to act as such, shall be punishable with fine which
may extend to five hundred rupees, and any insurer or any person acting on
behalf of an insurer, who appoints as a principal agent, chief agent or special
agent any person not entitled to act as such or transacts any insurance
business in India through any such person, shall be punishable with fine which
may extend to one thousand rupees.
(7) Where the person
contravening sub-section (6) is a company or a firm, then, without prejudice to
any other proceedings which may be taken against the company or firm, every
director, manager, secretary or any other officer of the company, and every
partner of the firm who is knowingly a party to such contravention shall be
punishable with fine which may extend to five hundred rupees.
(8) The provisions of
sub-sections (6) and (7) shall not take effect until the expiry of six months
from the commencement of the Insurance (Amendment) Act, 1950.
(9) No insurer shall, on
or after the commencement of the Insurance (Amendment) Act, 2002, appointment
or transacts any insurance business in India through any principal agent, chief
agent or special agent.
Regulation of employment of principal agents
(1) No insurer shall,
after the expiration of seven years from the commencement of the Insurance
(Amendment) Act, 1950, appoint, or transact any insurance business in India,
through a principal agent.
(2) Every contract between
an insurer and a principal agent shall be in writing and the terms contained in
Part A of the Sixth Schedule shall be deemed to be incorporated in, and form
part of, every such contract.
(3) No insurer shall,
after the commencement of the Insurance (Amendment) Act, 1950 (47 of 1950), appoint
any person as a principal agent except in a presidency-town unless the
appointment is by way of renewal of any contract subsisting at such
commencement.
(4) Within sixty days of
the commencement of the Insurance (Amendment) Act, 1950 (47 of 1950), every
principal agent shall file with the insurer concerned a full list of insurance
agents employed by him indicating the terms of the contract between the
principal agent and each of such insurance agents, and, if any principal agent
fails to file such a list within the period specified, any commission payable
to such principal agent on premiums received from the date of expiry of the
said period of sixty days until the date of the filing of the said list shall,
notwithstanding anything in any contract to the contrary, cease to be so
payable.
(5) A certified copy of
every contract as is referred to in sub-section (2) shall be furnished by the
insurer to the Authority within thirty days of his entering into such contract,
and intimation of any change in any such contract shall be furnished by the
insurer with full particulars thereof to the Authority within thirty days of
the making of any such change.
(6) If the commission
due to any insurance agent in respect of any general insurance business procured
by such agent is not paid by the principal agent for any reason, the insurer
may pay the insurance agent the commission so due and recover the amount so
paid from the principal agent concerned.
(7) Every contract as is
referred to in sub-section (2), subsisting at the commencement of the Insurance
(Amendment) Act, 1950 (47 of 1950), shall, with respect to terms regarding
remuneration, be deemed to have been so altered as to be in accordance with the
provisions of sub-section (4) of section 40A.
(8) If any dispute arises
as to whether a person is or was a principal agent the matter shall be referred
to the Authority, whose decision shall be final.
(9) Every insurer
shall maintain a register in which the name and address of every principal agent
appointed by him, the date of such appointment and the date, if any, on which
the appointment ceased shall be entered.
Commission, brokerage or fee payable to
intermediary or insurance intermediary
(1) No intermediary or
insurance intermediary shall be paid or contract to be paid by way of
commission, fee or as remuneration in any form, an amount exceeding thirty per
cent of the premium payable as may be specified by the regulations made by the
Authority, in respect of any policy or policies effected through him:
Provided that the Authority may specify
different amounts payable by way of commission, fee or as remuneration to an
intermediary or insurance intermediary or different classes of business of
insurance.
(2) Without prejudice to
the provisions contained in this Act, the Authority may, by the regulations
made in this behalf, specify the requirements of capital, form of business and
other conditions to act as an intermediary or insurance intermediary.
Register of insurance agents
Every insurer and every person who acting on
behalf of an insurer employs insurance agents shall maintain a register showing
the name and address of every insurance agent appointed by him and the date on
which his appointment began and the date, if any, on which his appointment
ceased.
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