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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.
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:
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:
However, such a transfer is liable to get registered if the authority’s prior approval is obtained.
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:
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:
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.
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.
The reporting requirements for the insurer under the transfer of shares are:
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:
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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