IRDA

Registration of Transfer of Shares in Indian Insurance Companies

The transfer of shares in an Indian Insurance Companies will take place as per the requirements under the IRDAI (Registration of Indian Insurance Companies) Regulations 2022. The insurer can transfer its shares to the transferee provided the conditions specified under the regulations and the insurance act 1938 are met. For the purpose of the transfer of shares, the Indian Insurance Companies are required to obtain the approval of the authority before effecting it. The present article will discuss in detail the relevant provisions under the regulation and the Insurance Act, 1938 and further discusses the procedure for obtaining the authority’s prior approval.

Relevant Provision for Transfer of Shares under the Insurance Act 1938 and IRDAI Regulation

The relevant provision under the Insurance act 1938 and IRDAI (Registration Of Indian Insurance Companies) Regulation 2022 are section 6 (4) (b) and Regulation 6(3) (iii) & 6(10), respectively. 

Section 6 (4) (b) of the Insurance act 1938

According to section 6 (4) (b) of the Insurance Act 1938, the public company carrying on the life insurance business cannot register its share transfer. However, such transfer can be made after the approval of the authority in the given situations:

1. The transferee shall be required to furnish a declaration signifying the manner of holding the share. It can be held either by the transferee for his benefit or as a nominee.
2. The total paid-up holding of the transferee in the company’s shares exceeds 5% of its paid-up capital.
3. The total paid-up holding of the transferee in the company’s shares exceeds 2.5% of its paid-up capital where the transferee is a banking or investment company.
4. The nominal value of the shares transferred by any individual, firm, group, or constituents of a group or body corporate under the same management exceeds 1 % of the insured’s paid-up equity capital.

Regulation 6(3) (iii) & 6(10) of IRDAI (Registration Of Indian Insurance Companies) Regulation 2022

Regulation 6(3) (iii) allows the registration of the transfer of shares of the Special Purpose Vehicle with the authority’s prior approval, whereas, Regulation 6(10) mandates that the insurance company cannot register the transfer of its shares which would result in the change in shareholding in the situations where:

1. The transferee’s total paid-up holding in the insurance company shares exceeds 5% of its paid-up capital.
2. The nominal value of the shares transferred by any individual, firm, group, or constituents of a group or body corporate under the same management exceeds 1 % of the paid-up equity capital of the insurance company.

However, such a transfer is liable to get registered if the authority’s prior approval is obtained.

Procedure for Obtaining the Approval of the Authority

The procedure for obtaining the approval of the authority in case of the transfer of shares is as follows:

1. Application before the authority

a. Filing Application: The application shall be made by the company before the authority in a specified manner. The application shall consist of the following documents:

1. Requisite documents
2. Details of the transferor and transferee
3. complete details of the prosed transferee
4. Financial Strength
5. Source of funds
6. any other information

b. Declaration from proposed shareholders: The declaration shall be obtained from the proposed shareholder, which determines whether the proposed shares are for his own benefit or as a nominee.

c. Certificate by Merchant banker: The certificate shall be obtained from the SEBI registered Category- I Merchant banker which will certify the fair value of the insurer’s share.

d. Processing fees: The application shall be accompanied by the processing fee of Rs 1 lakh and the taxes.

2. Due Diligence

The authority after receiving the application shall perform due diligence on the transferee before the grant of approval for registration of the transfer of shares.

3. Conditions for Approval

After satisfaction, the authority approves the transfer of shares registration. The authority, while approving, can impose the following conditions for the transferee:

• Lock-in period under Regulation 6(1) of IRDAI (Registration of Indian Insurance Companies) Regulation 2022.
• Infusion of additional capital in proportion to the company’s shares holding.
• Compliance with all the conditions mentioned in the R3 certificate.

Transfer of Shares In Case Of Listed Insurance Companies

The transfer of shares in the case of listed insurance companies shall be done in the following ways:

1. Transfer of 1% to 5% of the paid-up equity capital of the insurer

The person willing to transfer paid-up equity capital of the insurer shall file a self-certification of the Fit and Proper Criteria of the acquirer with the insurer. Such filing of self-certification will act as the deemed approval of the authority. The transferor is required to inform immediately to the insurer upon execution of the transaction and is responsible for compliance with any transaction.

2. Acquisition of 5% or more paid-up equity capital of the insurer

The acquisition, which increases the aggregate holding of the person to 5% or more of the insured’s paid-up equity share capital, shall have to take prior approval of the authority. For subsequent acquisition of shares of the insurer to the mark of 10%, the insurer is not required to obtain the authority’s prior approval.

Shareholders to comply with due diligence and Fit & Proper Criteria: If the proposed acquisition or aggregate holding of the is proposed to be less than 5 % and there is suspicion by the insurer that a dubious method is adopted to get above 5% to defeat the real purpose to acquire the controllable interests in the insurer, in that case, the insurer can make a reference to the authority. The authority may pass an order which will require the shareholder to comply with the due diligence and meet the Fit & proper criteria.

Determination of the Extent of the Transfer

The determination of the extent of the transfer of shares shall be done in the following ways:

1. Transfer is executed in favour of one or more parties through single or multiple transactions to the tune of 1% or 5%:  The cumulative transfers made during a given financial year will be considered for calculating the amount of transfer or acquisition. The condition shall also apply to the promoter or promoter group in the case of listed companies.

2. Transfer is executed with the transaction of more than 5 %: The entity shall take prior approval of the authority for calculating the amount of transfer or acquisition.

Further, the transfer of shares in the case of listed companies is required to include an offer for sale by the existing shareholders.

Reporting Requirements for Transfer of Shares

The reporting requirements for the insurer under the transfer of shares are:

1. The insurer who has been granted registration for the transfer of shares shall, within 30 days at the end of every quarter, submit a statement indicating the change that the shareholders of the promoter increased by 1%.
2. Any change that exceeds the shareholding of the promoter to more than 5% will be required to be immediately reported to the authority.
3. The insurer shall file a declaration in respect of its promoter and investor that they meet the “Fit & Proper” criteria.
4. Insurance company shall have an obligation to inform the authority if there is any non-compliance in regard to the regulations, guidelines or circular framed in respect of the transfer of share.
5. The insurer is required to provide full particulars of any alteration that occurs or is made affects the following matters:
   • Any encumbrance create on the promoter’s shareholding
   • Change of Control of the Promoter
   • Regulatory or penal action against the promoter
   • Any other matter specified by the authority

Action Taken Against Non-Compliance 

If the transfer of shares does not take place in accordance with the specified limits, then the authority has the power to take regulatory action against the shareholders. Further, if the transfer takes place above the specified limits and without the prior approval of the authority, the following actions shall be taken:

1. The Transferee shall not hold any meeting rights in any of the meetings of the insurance company
2. The transferee shall immediately dispose of extra shares acquired beyond the specified threshold limit.

Conclusion

Any changes in the shareholding of the promoter or investor of the insurance company beyond the specified limits will require the prior authorisation of the IRDAI authority. The prior approval from the authority will act as a measure to regulate the transfer of shares in an insurance market. In order to protect the interest of the policyholder, the limits are specified by the authority, which will act as a barrier. Further, if it is found that the insurance company violates the specified limits, the authority is empowered under regulations to take regulatory action against the shareholders.

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