Suspension or Cancellation of Registration Certificate by the IRDAI

Nikhil Mogha

01 Jun, 2024

The Indian company willing to start the operation of Insurance activities shall need to obtain the certificate of registration from the IRDAI. The company has to file Form IRDAI/R2 with the authority who will, after examining the applicant’s application and the other information, issue the certificate of registration in Form IRDAI/R3. In addition to registering the company as an Indian Insurance Company, the insurer must comply with certain compliance requirements under the IRDAI (Registration of Indian Insurance Companies) Regulations 2022. However, the said registration certificate can come under the authority’s scrutiny. The authority may suspend or cancel the insurance company’s certificate of registration if it does not meet the required requirements. The suspension or cancellation will lead the company to cease any new insurance business. The present article will enumerate such procedure for suspension or cancellation of the registration certificate and the reason attached therewith.

Reasons for Suspension or Cancellation of Registration certificate

Under the new regulation of IRDAI on the registration of Indian an insurance companies, the authority can suspend or cancel the IRDAI/R3 certificate (Certificate of Registration) provided to the insurer. The suspension or cancellation of the registration certificate can be for a class or class of Insurance business for a required period as specified under the order. The suspension or cancellation of the registration certificate may be due to the following reasons:

• The insurer fails to comply with the provisions of the Insurance Act 1938 and Sections 64V and 64VA of the act.
• The insurer becomes insolvent or is under liquidation.
• The business of the insurer is transferred to any other person or amalgamated with the business of any other insurer without the authority’s approval.
• There is a default in complying with the provision or any requirement of the act, rules, regulation, Direction or order.
• The conduct of the insurer’s business is prejudicial to the interests of the policyholders.
• The insurer fails to furnish any information to the authority
• The insurer does not submit any periodical returns with the authority
• The insurer does not cooperate in the inquiry conducted by the authority.
• The insurer indulges in unfair trade practices and manipulative practices.
• The insurer does not make any investment in the infrastructure or social sector.
• The authority has reason to believe that any claim arising on the insurer remains unpaid for 3 months after the final judgement of the court of law.
• The insurer carries on business other than the business for which the registration certificate is granted.
• The insurer fails to comply with the directions or orders passed by the authority.
• The insurer fails to comply with the provisions of the Companies Act 2013, General Insurance Business (Nationalisation) Act, 1872, FEMA 1999 or PMLA, 2002.
• The insurer fails to pay the annual fee.
• The insurer or promoter does not meet the “fit & proper” criteria.
• The insurer is convicted of an offence.

Penalty for repeated offences: The authority may impose a penalty on the applicant if it is found that there are repeated defaults.

Procedure for suspension of Registration Certificate

The authority, before the suspension of the registration certificate, shall have to consider the following steps:

1. Opportunity of being heard: The authority shall serve a notice to the applicant and give an opportunity of being heard to the insurer.
2. Serve Show-cause Notice: The authority shall serve notice to the applicant for seeking an explanation from the insurer as to why the action shall not be taken against him. The notice shall include the charges and the reasons against which the action is sought.
3. Time for responding to notice: The insurer has a time period of 21 days for responding to the show-cause notice. However, if the authority believes that it is necessary for the interest of the policyholders, then it may require the insurer to submit the response within such period as determined by the authority.
4. Passing of order: After receiving the reply, the authority shall have to pass the order within 30 days. If the authority does not receive any reply from the insurer against the show cause notice, in that case, the authority may decide the issue ex-parte.
5. Reasons for the decisions: The authority shall include the reasons for arriving at a decision in the order. It shall include justification for the penalty imposed on the order.
6. Copy of order: The authority shall send a copy of the order to the insurer within 7 days of passing the order.

Procedure for Cancellation of Registration Certificate

The authority may order for the cancellation of the registration certificate after holding an enquiry in accordance with the following procedure:

1. Appoint an Enquiry procedure: The authority will have to appoint an enquiry officer for the purpose of holding an enquiry.
2. Issue of Notice: The authority issue a notice to the insurer at its registered office or principal place of business.
3. Reply to notice: Theinsurer shall submit a reply to the enquiry officer within 21 days of receiving the notice. The reply shall consist of copies of documentary evidence and other evidence that are relied upon by the insurer.
4. Opportunity of being heard: The enquiry officer must give the insurer an opportunity of being heard to enable it to make submissions in support of its reply.
5. Appointing a presenting officer: The enquiry officer may ask the authority to appoint a present officer to present its case.
6. Appearance before the enquiry officer: The insurer can appear before the enquiry officer either in person or through any person authorised by it. However, an advocate cannot represent the insurer at the enquiry. Further, if the authority has appointed a presenting officer as an advocate, then it will be lawful for the insurer to present its case.
7. Submission of report with authority: After considering all the facts and documentary evidences presented by the insurer, the enquiry officer shall submit a report with authority and recommend the penalty and the reasons for imposing such penalty.
8. Issue of show cause notice: The authority, after receiving the report from the enquiry officer, shall consider it and issue a show cause notice to the insurer for seeking an explanation as to why the action shall not be taken.
9. Reply to Notice: The insurer shall submit a reply against the show-cause notice within 21 days of receiving it.
10. Passing of order: After considering the insurer’s reply, the authority shall pass the order within 30 days. If the authority has received no reply within 90 days, then the authority can proceed to pass the decision ex-parte.
11. Reasons for the order: The order passed by the authority shall include the reason for the decision. It shall include justification for the penalty imposed on that order.
12. Passing of order: The authority shall send a copy of the order to the insurer within 7 days of passing the order.

Effect of Suspension or Cancellation of Registration Certificate

The effect of the suspension or cancellation of the registration certificate is that from the date of suspension or cancellation of the registration certificate, the insurer shall cease to undertake any new transaction for the insurance business. However, the authority can allow the insurer to continue serving the existing policyholders.

Publication of order for suspension or cancellation of registration certificate

The order passed by the authority shall be published in at least 2 daily newspapers in the area where the insurer has its principal place of business.

Appeal to Securities Appellate Tribunal

The insurer aggrieved by order of the authority may appeal before the SAT^[1] or Securities Appellate Tribunal under Section 110 of the Insurance act 1938.

Voluntary surrender of Registration certificate by the insurer

The insurer may voluntarily surrender the registration certificate and may request the authority to cancel the same after examining the request in the following cases:

1. The business or class of business of the insurer has been transferred to another person in accordance with the order of the authority under the act.
2. The business or class of business of the insurer has been transferred to or amalgamated with the business of any other insurer that has obtained approval from the authority.
3. The insurer cannot commence its operations within the stipulated time after receiving the registration certificate.

Conclusion

The IRDAI holds the authority of suspension or cancellation of the registration certificate of the insurer. The authority may scrutinise the actions of the insurer if it is found that they are in default by suspending or cancelling the registration certificate. This scrutinisation enables the insurer to conduct its business in an informed manner and to serve the interest of the policyholders. Even though the authority holds the power of suspension or cancellation of the registration certificate, the insurer can voluntarily ask for the cancellation of the registration certificate. Henceforth, the insurer shall conduct its business in accordance with the conditions for which the approval is granted.

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