The Insurance Act 1938 & ANALYSIS

THESIS SUBMITTED

TO THE
BURDWAN UNIVERSITY
(BENGAL LAW COLLEGE)

FOR THE

6TH SEMESTER INTERNAL PROJECT

BY

ANUPAM MISHRA
BATCH 2017- 2019

1
 TABLE OF CONTENTS
S.NO. TOPIC PAGE NO.

1 Acknowledgement

2 Introduction

3 Salient Features of Insurance Act 1938

4 CONCEPT, NATURE AND SCOPE OF INSURANCE

5 Statutory provision

6 Conclusion

7 Bibliography

2
Acknowledgement:

It is my privilege to release the feelings of my gratitude to several persons

who helped me to conduct this project work. I express my heartful indebtness
gratitude to my respected teachers and TIC Mam Anindita Sarkar mam for her
sincere guidance and inspiration in completing this project. I am extremely
thankful to my Friends for their co-operation and co-ordination.

I also thank my family who have more or less contribution to prepare this
project report. The study has indeed helped me to explore More Knowledge
avenues related to my topic and will helpful in my future.

3
The Insurance Act 1938 (INTRODUCTION)
The Insurance Act 1938 – a comprehensive legislation governing not only Life but also
Non-Life branches of Insurance to provide State Control over Insurance business.

To regulate the activities of these Insurance Companies, and prevent them from
becoming speculative, and force them to act on sound.

Actuarial principles, the Life Insurance Companies Act was passed in 1912. But this Act
discriminated between Indian Companies and the foreign Companies.

The Indian Companies were required to make deposits with the Government while the
foreign companies were exempted. Â Thus resentment grew among the Indian insurance
companies and the independence movement, the non-cooperation movement of
Mahatma Gandhi added strength to the Indian Insurance Companies.

Indian Insurance Companies became a symbol of Swadeshi Movement – Be Indian Buy

Indian. Â The total insurance business which was Rs 22.44 crore in 1914 grew to Rs 298
crore by 1938 and the number of insurance companies grew from 44 to 176 during the
same period. Many of these companies failed soon after.

The Government of India appointed a committee to study the problem and suggest
measures. As a result The Insurance Act 1938 was passed. It was the first comprehensive
legislation governing both life and non-life companies providing strict control over
insurance business.

Section 2 in The Insurance Act, 1938

2 Definitions. —In this Act, unless there is anything repugnant in the subject or context,—

(1) “actuary” means an actuary possessing such 1 [qualifications as may be specified by

the regulations made by the Authority];
2
[(1A) “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;]
3
[(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 defeasible or is for the time being subject to any
condition;]

4
4
[(3) “approved securities” means—

(i) Government securities and other securities charged on the revenue of the Central
Government or of the Government of a 5 [***] State or guaranteed fully as regards
principal and interest by the Central Government or the Government of any 5 [***] 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 6 [***] State as to the repayment of the principal
and the payment of dividend;

(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 7 [***]]
8
[ Explanation.— In sub-clauses (i) and (iii) “Government of a State” in relation to any
period before the 1st November, 1956, means the Government of a Part A State;]
9
[(4) “auditor” means a person qualified under the Chartered Accountants Act, 1949 (38
of 1949) to act as an auditor of companies;]
10
[(4A) “banking company” and “company” shall have the meanings respectively
assigned to them in clauses (c) and (d) of sub-section (1) of section 5 of the Banking
Companies Act, 1949 (10 of 1949) 11 ;]

(5) “certified” in relation to any copy or translation of a document required to be

furnished by or on behalf of 12 [an insurer or a provident society as defined in Part III]
means certified by a principal officer of 13 [such insurer or provident society] to be a true
copy or a correct translation, as the case may be;
10
[(5A) “chief agent” means a person who, not being a salaried employee of an insurer, in
consideration of any commission—

(i) performs any administrative and organising 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
14
[(5B) “Controller of Insurance” means the officer appointed by the Central Government
under section 2B to exercise all the powers, discharge the functions and perform the
duties of the Authority under this Act or the Life Insurance Corporation Act, 1956 (31 of
1956) or the General Insurance Business (Nationalisation) 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 the High Court in exercise of its ordinary original civil jurisdiction;
15
[(6A) “fire insurance business” means the business of effecting, otherwise than
incidentally to some other class of insurance business, contracts of insurance against loss
by or incidental to fire or other occurrence customarily included among the risks insured
against in fire insurance policies;

(6B) “general insurance business” means fire, marine or miscellaneous insurance

business, whether carried on singly or in combination with one or more of them;]
16
[(7) “Government security” means a Government security as defined in the Public Debt
Act, 1944 (18 of 1944);]
17
[(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 per cent.
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.

Explanation.— For the purposes of this clause, the expression “foreign company” shall
have the meaning assigned to it under clause (23A) of section 2 of the Income-tax Act,
1961 (43 of 1961);]

(8) “insurance company” means any insurer being a company, association or partnership
which may be wound up under 18 [the Companies Act, 1956 (1 of 1956)], or to which the
Indian Partnership Act, 1932 (9 of 1932), applies;
19
[(8A) “insurance co-operative society” means any insurer being a co-operative
society,—

6
(a) which is registered on or after the commencement of the Insurance (Amendment)
Act, 2002, as a co-operative society under the Co-operative Societies Act, 1912 (2 of
1912) or under any other law for the time being in force in any State relating to co-
operative societies or under the Multi-State Co-operative Societies Act, 1984 (51 of
1984);

(b) having a minimum paid-up capital, (excluding the deposits required to be made under
section 7) of rupees one hundred crores;

(c) in which no body corporate, whether incorporated or not, formed or registered

outside India, either by itself or through its subsidiaries or nominees, at any time, holds
more than twenty-six per cent. of the capital of such co-operative society;

(d) whose sole purpose is to carry on life insurance business or general insurance
business in India ;]

(9) “insurer” means—

(a) any individual or unincorporated body of individuals or body corporate incorporated

under the law of any country 20 [other than India, 21 [***]] carrying on insurance business
[not being a person specified in sub-clause (c) of this clause] which—

(i) carries on that business in 22 [ India ], or

(ii) has his or its principal place of business or is domiciled in 22 [ India ], 23 [or

(iii) with the object of obtaining insurance business, employs a representative, or

maintains a place of business, in 22 [ 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 22 [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) 24 , as defined by sub-section (2) of section 2 of that Act, and

(c) any person who in 22 [India] has a standing contract with underwriters who are
members of the Society of Lloyd's whereby such person is authorised 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, 25 [but does not include a
principal agent, chief agent, special agent, or an insurance agent] or a provident
society 26 [as defined in Part III];

7
(10) “insurance agent” means an insurance agent licensed under section 42 27 [***] who
receives or agrees to receive payment by way of commission or other remuneration in
consideration of his soliciting or procuring insurance business 9 [including business
relating to the continuance, renewal or revival of policies of insurance];
28
[(10A) “investment company” means a company whose principal business is the
acquisition of shares, stocks, debentures or other securities;]
29
[(10B) “intermediary or insurance intermediary” shall have the meaning assigned to it
in clause (f) of sub-section (1) of section 2 of the Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999);]
30
[(11) “life insurance business” means the business of effecting contracts of insurance
upon human life, including any contract whereby the payment of money is assured on
death (except death by accident only) or the happening of any contingency dependent on
human life, and any contract which is subject to payment of premiums for a term
dependent on human life and shall be deemed to include—

(a) the granting of disability and double or triple indemnity accident benefits, if so
provided in the contract of insurance;

(b) the granting of annuities upon human life; and

(c) the granting of superannuation allowances and annuities payable out of any fund
applicable solely to the relief and maintenance of persons engaged or who have been
engaged in any particular profession, trade or employment or of the dependents of such
persons;]
31
[ Explanation. —For the removal of doubts, it is hereby declared that “life insurance
business” shall include any unit linked insurance policy or scrips or any such instrument
or unit, by whatever name called, which provides a component of investment and a
component of insurance issued by an insurer referred to in clause (9) of this section.]

(12) “manager” and “office” have the meanings assigned to those expressions in clauses
(9) and (11) respectively of section 2 of the Indian Companies Act, 1913 (7 of 1913) 32 ;

(13) “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 the company, 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. Explanation.— If a person occupying the position of managing

8
agent calls himself manager or managing director, he shall nevertheless be regarded as
managing agent for the purposes of section 32 of this Act;
33
[(13A) “marine insurance business” means the business of effecting contracts of
insurance upon vessels of any description, including cargoes, freights and other interests
which may be legally insured, in or in relation to such vessels, cargoes and freights,
goods, wares, merchandise and property of whatever description insured for any transit
by land or water, or both, and whether or not including warehouse risks or similar risks in
addition or as incidental to such transit, and includes any other risks customarily included
among the risks insured against in marine insurance policies;

(13B) “miscellaneous insurance business” means the business of effecting contracts of

insurance which is not principally or wholly of any kind or kinds included in clauses (6A),
(11) and (13A);]
34
[(13BA) “National Company Law Tribunal” means the National Company Law Tribunal
constituted under section 10FB of the Companies Act, 1956 (1 of 1956);]
35
[(13BB) “the National Company Law Appellate Tribunal” means the National Company
Law Appellate Tribunal constituted under sub-section (1) of section 10FR of the
Companies Act, 1956 (1 of 1956);]

(14) “prescribed” means prescribed by rules made under 36 [this Act]; and 37 [***]
38
[(15) “principal agent” means a person who, not being a salaried employee of an
insurer, in consideration of any commission,—

(i) performs any administrative and organising 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 insurer;]

(16) “private company” and “public company” have the meanings respectively assigned
to them in clauses (13) and (13A) of section 2 of the Indian Companies Act, 1913 (7 of
1913) 39 ;

(17) “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.

9
Salient Features of Insurance Act 1938
 The insurance sector in India has been thrown open to the private sector. The
second and third schedules of the Act provide for removal of existing corporations
(or companies) to carry out the business of life and general (non-life) insurance in
India.

 An Indian insurance company is a company registered under the Companies Act,

1956, in which foreign equity does not exceed 26 per cent of the total equity
shareholding, including the equity shareholding of NRIs, FIIs and OCBs.

 After commencement of an insurance company, the Indian promoters can hold

more than 26 per cent of the total equity holding for a period of ten years, the
balance shares being held by non-promoter Indian shareholders which will not
include the equity of the foreign promoters, and the shareholding of NRIs, FIIs and
OCBs.

 After the permissible period of ten years, excess equity above the prescribed level
of 26 per cent will be disinvested as per a phased programme to be indicated by
IRDA. The Central Government is empowered to extend the period of ten years in
individual cases and also to provide for higher ceiling on share holding of Indian
promoters in excess of which disinvestment will be required.

 On foreign promoters, the maximum of 26 per cent will always be operational.

They will thus be unable to hold any equity beyond this ceiling at any stage.

 The Act gives statutory status for the Interim Insurance Regulatory Authority (IRA)
set up by the Central Government through a Resolution passed in January 1996.

 All the powers presently exercised under the Insurance Act, 1938, by the Controller
of Insurance (CoI) will be transferred to the IRDA.

 The IRDA Act also provides for the appointment of CoI by the Central Government
when the Regulatory Authority is superseded.

 The minimum amount of paid-up equity capital is Rs.100 crore in case of life
insurance as well as general insurance, and Rs.200 crore in the case of re-
insurance.

10
  Solvency margin (excess of assets over liabilities) is fixed at not less than Rs.50
crore for life as well as general insurance; for reinsurance solvency margin is
stipulated at not less than Rs.100 crore in each case.

 Insurance companies will deposit Rs.10 crore as security deposit before starting
their business.

 In the non-life sector, IRDA would give preference to companies providing health
insurance.

 Safeguards for policy holders’ funds include specific provision prohibiting

investment of policy holders’ funds outside India and provision for investment of
funds in accordance with policy directions of IRDA, including social and
infrastructure investments.

 Every insurer shall provide life insurance or general insurance policies (including
insurance for crops) to the persons residing in the rural sector, workers in the
unorganized or informal sector or for economically vulnerable or backward classes
of the society and other categories of persons as may be specified by regulations
made by IRDA.

 Failure to fulfill the social obligations would attract a fine of Rs.25 lakh; in case the
obligations are still not fulfilled, licence would be cancelled

CONCEPT, NATURE AND SCOPE OF INSURANCE

Insurance is of primary importance both in the national economy and international trade.
Insurance premium cash-flows generate funds for investment in the economy. The
development of the insurance sector depends on the general level of economic
development and prospects for the immediate future.

Generally, there is a positive correlation between the economic development of a

country and the amount the people spend on insurance. Hence, this chapter deals with
the history and origin of insurance in India; definition of insurance as a contractual,
financial and legal aspects of insurance. Being a multi-dimensional subject, it is difficult to
point out the origin of insurance. In the beginning, the thinker Hardy Ivamy started
understanding insurance as a contractual relation between insurer and the assured
through which the former undertakes to indemnify the loss caused to the latter due to an

11
uncertain risk involved or to pay a certain sum of money in the event of an incident
happening or not happening, against a consideration called as premium.

Everything in this universe is subject to accident, destruction and perishment. A

businessman used this idea of risk as the substance of his business. He undertakes the
burden of risk against a consideration by a probability study and affixation of an
adequate consideration. He therefore earns profit on the trade of risk whereas the
insured is entitled to receive the indemnification or a fixed sum on the happening of the
uncertain event causing loss. Hence, the contract of insurance then is described as a
mechanism of risk distribution and sharing.

The contract of insurance thus serves two main purposes as follows:

i. There is an element of safety in insurance as there is distribution of loss among

a large number of persons through the medium of risk sharers.
ii. ii. In the long run it leads to an economic development and industrial growth in
the country. This is due to the fact that there is a large number of people also
invest their funds in the medium of insurance which may be utilized to start
industries or even to underwrite the securities of companies which ultimately
lead to the economic development of the country.

CONCEPT OF INSURANCE: Hardy Ivamy writes in his work - “General Principles of

insurance Law” that – A contract of insurance is a contract whereby one person called
the ‘insurer’, undertakes in return for the agreed consideration called the ‘premium’ to
pay to another person , called the ‘insured’ a sum of money or its equivalent on the
happening of a specified event.

In Prudential Insurance Company v. Inland Revenue Commissioner , Channel J. Said:

There must be either some uncertainty whether the event will ever happen or not, or if
the event is one which must happen at some time or another, there must be uncertainty
as to the time at which it will happen.

Generally an insurance agreement to be a valid contract must be –

i. A contract between an ‘insurer’ and the ‘insured’;

ii. The contract is based on the loss due to happening or not happening of a
future incident;
iii. A consideration in the form of payment of an amount by the insured and

12
iv. The insurer promises to make good the loss in so far money can do it, in case
the loss occurs on the happening of the contingency.

Thus one can observe that in a contract of insurance, one can insure ship or house but
cannot ensure that the ship shall not be lost or the house shall not burnt, but what
one can insure is that a sum of money shall be paid on the happening of a certain
event. Thus the subject matter of insurance is the compensation in the form of money
to be paid to the assured on happening of a risk...!!

NATURE OF INSURANCE: Insurance means the act of securing the payment of a sum
of money in the event of loss or damage to property, life, a person etc., by regular
payment of premiums. Insurance is a method of spreading over a large number of
persons, a possible financial risk too serious to be conveniently sustained by an
individual. The aim of all types of insurances is to protect the owner from a variety of
risks which he anticipates. The happening of the specified event must involve some
loss to the insured or at least should expose him to adversity which is, in the law of
insurance, called commonly the ‘risk’.

The nature of insurance depends on the nature of the risk required to be protected.
An insurance contract makes available the risk coverage to the insured. The buyer of
insurance pays a fixed premium in exchange for a promise of compensation in the
event of some specified loss. Insurance is bought because it gives peace of mind to the
holders. This comfort stage is important in personal and business life.

Though the most important purpose of insurance is to provide risk coverage, when
the contract period extends over a long time as in the case of life insurance, premium
payments comprise of two components: one for buying risk coverage and the other
towards savings.

The joining together of risk coverage and savings is peculiar with the life insurance and
is more common in developing countries like India. In the industrially superior
countries, the short duration life insurance contracts without a savings component are
equally popular. In the developing economies because of the savings component and
the long nature of the contract, life insurance has become an important instrument of
activating the long-term funds. The savings component puts the life insurance in
straight competition with other financial institutions and savings instrument.

In many developed countries, citizens are to a certain extent protected by social

security schemes provided by the government. These schemes offer financial aid to

13
citizens who are eligible on grounds of unemployment, old age, sickness, disability,
etc. The social security scenario in India is quite different, having traditionally been
the responsibility of the family or community. However, with industrialization,
urbanization, breakup of the joint family system and weakening of family bondage, it
has become necessary to provide social security arrangements that are
institutionalized and regulated by the state rather than the society.

The issues relating to social security are listed in the ‘Directive Principles of State
Policy’ of the Constitution of India. While the subject of ‘social security insurance’,
‘employment and unemployment’ form Item 23 of the Concurrent List, and the
subject of ‘the welfare of labour including conditions of work’, ‘provident fund’,
‘employee’s liability’, ‘workmen’s compensation’, ‘invalidity and old age pension’ and
‘maternity benefits’ form Item 24, also of the Concurrent List.

During the initial years of development and planning, it was believed that with the
process of development, a greater number of workers would join the organized sector
and eventually get covered by formal social security arrangements. However, the
actual experience has proved otherwise. There is now almost a stagnation of
employment in the organized sector with increase in the inflow of workers into the
informal sector. The unorganized workforce is characterized by scattered and
fragmented areas of employment, seasonality, lack of job security and low legislative
protection. Currently, out of an estimated workforce of nearly 400 million, only less
than 10 percent have the benefits of formal social security protection. Although the
government has a few centrally funded social assistance programmes like National
Old Age Schemes and National Family Benefit Schemes, the number of people covered
as well as the benefits is very meager. Furthermore, in a country like India, where
there is no provision for unemployment benefits, the concept of insurance becomes
extremely important.

FUNCTIONS OF INSURANCE: This sub-chapter deals with the various functions of

insurance like risk sharing, life insurance and annuities relief for members of society,
sharing burden of state to provide relief to destitute and aged citizens, making
available finance for social investment etc.

The fundamental function of insurance is to shift the loss suffered by a sole individual
to a willing and capable professional risk-bearer in consideration of a comparatively
small contribution called premium. In this process the professional risk-bearer i.e. the
insurer collects some small rate of contribution from a large number of people and if

14
there is any unfortunate person among them, the risk-bearer i.e. the insurer relieves
the sufferer from the effects of the loss by paying the insurance money. Thus it serves
the social purpose and it is “a social device whereby uncertain risks of individuals may
be combined in a group and thus, made more certain; small periodic contribution of
the individuals providing a fund out of which those who suffer losses may be
reimbursed”. The insurers collect the contributions of numerous policyholders and
those funds are invested in organized commerce and industry. They help the running
of giant industries and mobilize the capital formation.

In simple terms, “insurance is a protection against financial loss taking place on the
happening of an unexpected event”. All the individuals have assets tangible i.e. the
house, car, factory etc. or intangible like voice of a singer, leg of a footballer, the hand
of an author etc. All these can be insured because they run the risk of becoming non
functional either through a disaster or an accident.

The functions of Insurance can be bifurcated as below:

1. Primary Functions, 2. Secondary Functions and 3. Other Functions

The primary functions of insurance include –

i. Provide protection - The primary function of insurance is to offer protection
against future risk, accidents and uncertainty. Insurance is actually a shield
against economic loss, by sharing the risk with others.
ii. Collective risk - Insurance is a device to contribute to the financial loss of a
few among many. Insurance is a mean by which little losses are shared
among larger number of people. All the insured share the premiums towards
a fund and out of which the persons exposed to a particular risk are paid.
iii. Evaluation of risk - Insurance concludes the probable volume of risk by
evaluating various factors that give rise to risk. Risk is the origin for
determining the premium rate also. iv. Provide assurance - Insurance is a
device, which helps to modify from uncertainty to certainty. Insurance is a
mechanism whereby uncertain risks may be made more certain.

The secondary functions of insurance include:

i. Avoidance of losses - Insurance alarms individuals and businessmen to adopt

suitable device to prevent unfortunate consequences of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc. prevention
of losses causes smaller payment to the assured by the insurer and this will

15
 encourage for more savings by way of premium. The condensed rate of
premiums motivate for more business and better protection to the insured.
ii. Small capital to cover larger risks - Insurance relieves the businessmen from
security investments, by paying small amount of premium against superior risks
and uncertainty.
iii. Encourage towards the development of larger industries - Insurance provides
development opportunity to those larger industries having additional risks in
their setting up. Even the financial institutions may be prepared to give credit to
ailing industrial units which have insured their assets including plant and
machinery

The other functions of insurance include:

1. Way of savings and investment - Insurance serves as savings and investment,

insurance is a compulsory way of savings and it limits the unnecessary expenses by the
insured. For the reason of availing income-tax exemptions also people invest in
insurance.

2. Source of earning foreign exchange - Insurance is a worldwide business. The country

can earn foreign exchange by way of issue of marine insurance policies and various other
ways.

3. Risk-Free trade - Insurance promotes exports insurance, which makes the foreign
trade risk-free with the assistance of different types of policies under marine insurance
cover.

TYPES OF INSURANCE: As Insurance has become one of the most socially desirable and
commercially acceptable tertiary industries in the world, the types of insurance are wide,

16
both in private and public. The following flow chart describes the total cover of insurance
which varies from corpus and properties, living and nonlivings, chattels and all
belongings, movable and immovable extending to even various limbs of the body.

SCOPE OF INSURANCE: The insurance sector has a huge potential not only because
incomes are increasing and assets are expanding but also because the increasing
instability in the system. In a sense, we are living in a extra risky world. Trade is becoming
more and more global. Technologies are changing and getting replaced at a faster rate. In
this more uncertain world, for which enough evidence is available in the recent period,
insurance have an imperative role to play in reducing the risk burden that the individuals
and businesses have to bear. The approach to insurance should be in tune with the
changing times.

The aim of the insurance sector in India is to extend the insurance coverage over a larger
section of the population and a wider segment of activities. The three guiding principles
of the industry must be to charge premium not higher than what is acceptable by strict
actuarial considerations, to invest the funds for obtaining maximum yield for the policy
holders consistent with the safety of capital and to render efficient and prompt service to
policy holders. With a creative corporate planning and an abiding commitment to
improved service, the mission of widening the network of insurance can be achieved.

There is a probability of a shoot in employment opportunities. A number of web-sites are

coming up on insurance, a few financial magazines exclusively devoted to insurance and
also a few training institutes are being set up. Many of the universities and management
institutes have already started or are contemplating new courses in insurance. Life
insurance has today become a mainstream of any market economy since it offers plenty
of scope for collecting large sums of money for long periods of time. A well-regulated life
insurance industry which moves with the times by offering its customers specially made
products to satisfy their financial needs is, therefore, essential to progress towards a
unstressed future. Thus, one can understand the term ‘insurance’ better from its legal
nature, principles and functions as discussed above and is the base for all the types of
insurances.

17
Statutory provision
Prohibition of transaction of insurance business by certain persons

2C. (1) Save as hereinafter provided, no person shall, after the commencement of the

Insurance (Amendment) Act, 1950 (47 of 1950), begin to carry on any class of insurance
business in India and no insurer carrying on any class of insurance business in India shall
after the expiry of one year from such commencement, continue to carry on any such
business unless he is-

(a) a public company, or

(b) a society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under
any other law for the time being in force in any State relating to co-operative societies, or

(c) a body corporate incorporated under the law of any country outside India not being of
the nature of a private company:

Provided that the Central Government may, by notification in the official Gazette,
exempt from the operation of this section to such extent for such period and subject to
such conditions as it may specify, any person or insurer for the purpose of carrying on the
business of granting superannuation allowances and annuities of the nature specified in
sub-clause (c) of clause (11) of Section 2 or for the purpose of carrying on any general
insurance business:

Provided further that in the case of an insurer carrying on any general insurance business
no such notification shall be issued having effect for more than three years at any one
time:

Provided also that no insurer other than an Indian insurance company shall begin to
carry on any class of insurance business in India under this Act on or after the
commencement of the Insurance Regulatory and Development Authority of India Act,
1999.

(2) Every notification issued under subsection (1) shall be laid before Parliament as soon
as may be after it is issued.

(3) Notwithstanding anything contained in sub-section (1), an insurance co-operative

society may carry on any class of insurance business in India under this Act on or after the
commencement of the Insurance (Amendment) Act, 2002

18
Insurers to be subject to this Act while liabilities remain unsatisfied

2D. Every insurer shall be subject to all the provisions of this Act inrelation to any class of
insurance business so long as his liabilities in 3[India] in respect of business of that class
remain unsatisfied or not otherwise provided for.

This Act not to apply to certain insurers ceasing to enter into new contracts before
commencement of Act

2E. The provisions of this Act shall not apply to an insurer as defined in paragraphs (i)
or (iii) of sub-clause (a) of clause (9) of Section 2 in relation to any class of his insurance
business whether such insurer hits ceased, before the commencement of this Act, to
enter into any new contracts of that class of business.

Registration

3. (1) No person shall, after commencement of this Act, being to carry on any class of
insurance business in India and no insurer carrying on any class of insurance business
inIndia shall,after the expiry ofthree months from the commencement of this Act,
continue to carry on any such business, unless he has obtained from the Authority a
certificate of registration for the particular class of insurance business:

Provided that in case of an insurer who was carrying on any classof insurance business in
India at the commencement of this Act, failure to obtain a certificate of registration in
accordance with the requirements of this sub-clause shall not operate to invalidate any
contract of insurance entered into by him if before such date as may be fixed in this
behalf by the Central Government by notification in the official Gazette, he has obtained
that certificate:

Provided further that a person or insurer, as the case may be, carrying on any class of
insurance business in India, on or before the commencement of the Insurance Regulatory
and Development Authority of India Act, 1999, for which no registration certificate was
necessary prior to such commencement, may continue to do so for a period of three
months from such commencement or, if he had made an application for such registration
within the said period of three months, till the disposal of such application:

19
Provided also that any certificate of registration, obtained immediately before the
commencement of the Insurance Regulatory and Development Authority of India Act,
1999, shall be deemed to have been obtained from the Authority in accordance with the
provisions of this Act

(2) Every application for registration shall be made in such manner as may be determined
by the regulations made by the Authority and shall be accompanied by-

(a) a certified copy of the memorandum and articles of association, where the applicant
is a company and incorporated under the Indian Companies Act, 1913 (7 of 1913), or
under the Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act,
1866 (10 of 1866); or under any Act repealed thereby,] or, in the case of any other
insurer specified in sub-clause (a) (ii) or sub-clause (b) of clause (9) of section 2, a
certified copy of the deed of partnership or of the deed of constitution of the company,
as the case may be, or, in the case of an insurer having his principal place of business or
domicile outside India, the document specified in Clause (a) of Section 63;

(b) the name, address and the occupation, if any, of the directors where insurer is a
company incorporated under the Indian Companies Act, 1913 (7 of 1913), or under the
Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act, 1866 (10 of
1866), or under any Act repealed thereby, and in the case of an insurer specified in sub-
clause (a) (ii) of clause (9) of section 2 the names and addresses of the proprietors and of
the manager in India, and in any other case the full address of the principal office of the
insurer in India, and the names of the directors and the manager at such office and the
name and address of someone or more personsresident in India, authorised to accept
any notice required to be served on the insurer;

(c) a statement of the class or classes of insurance business done or tobe done, and a
statement that the amount required to be deposited by section 7 or section 98 before
application for registration is made has been deposited together with a certificate from
the Reserve Bank of India showing the amount deposited;

(d) where the provisions of section 6 or section 97 apply, a declaration verified by an

affidavit made by the principal officer of the insurer authorised in that behalf that the
provisions of those sections as to paid-up equity capital or working capital have been
complied with;

20
(e) in the case of an insurer having his principal place of business or domicile outside
India, a statement verified by an affidavit made by the principal officer of the insurer
setting forth the requirements (if any) not applicable to nationals of the country in which
such insurer is constituted, incorporated or domiciled which are imposed by the laws or
practice of that country upon Indian nationals as a condition of carrying on insurance
business in that country;

(f) a certified copy of the published prospectus, if any, and of the standard policy forms of
the insurer and statements of the assured rates, advantages, terms and conditions to be
offered in connection with insurance policies together with a certificate in connection
with life insurance business by an actuary that such rates, advantages, terms and
conditions are workable and sound:

Provided that in the case of marine accident and miscellaneous insurance business other
than workmen's compensation and motor car insurance the above requirements
regarding prospectus, forms and statements shall be complied with only insofar as the
prospectus, forms and statements may be available; and

(g) the receipt showing payment of fee as may be determined by the regulations which
shall not exceed fifty thousand rupees for each class of business as may be specified by
the regulations made by the Authority;

(h) such other documents as may be specified by the regulations made by the Authority.

(2A) If, on receipt of an application for registration and after making such inquiry as he
deems fit, the Controller is satisfied that—

(a) the financial condition and the general character of management of the applicant are
sound;

(b) the volume of business likely to be available to, and the capital structure and earning
prospects of, the applicant will be adequate;

(c) the interest of the general public will be served if the certificate of registration is
granted to the applicant in respect of the class or classes of insurance business specified
in the application; and

(d) the applicant has complied with the provisions of Sections 2-C, 5, 31A and 32 and has
fulfilled all the requirements of this section applicable to him, the Authority may register
the applicant as an insurer and grant him a certificate of registration.

21
(2AA) The Authority shall give preference to register the applicant and grant him a
certificate of registration if such applicant agrees, in the form and manner as may be
specified by the regulations made by the Authority, to carry on the life insurance business
or general insurance business for providing health cover to individuals or group of
individuals.

(2B) Where the Authority refuses registration; he shall record the reasons for such
decision and shall furnish a copy thereof to the applicant.

(2C) Any person aggrieved by the decision of the Authority refusing registration may,
within thirty days from the date on which a copy of the decision is received by him,
appeal to the Central Government.

(2D) The decision of the Central Government on such appeal shall be final and shall not
be questioned before any Court.

(3) Notwithstanding anything contained in sub-section (2A), in the case of any insurer
having his principal place of business or domicile outside India, the Authority, shall
withhold registration or shall cancel a registration already made, if he is satisfied that in
the country in which such insurer has his principal place of business or domicile Indian
nationals are debarred by the law or practice of the country relating to, or applied to
insurance from carrying on the business of insurance, or that any requirement imposed
on such insurer under the provisions of section 62 is not satisfied.

(4) The Authority shall cancel the registration of an insurer either wholly or in so far as it
relates to a particular class of insurance business, as the case may be, -

(a) if the insurer fails to comply with the provisions of section 7 or section 98 as to
deposits, or

(aa) if the insurer fails, at any time, to comply the provisions of Sec. 64VA as to the excess
of the value of his assets over the amount of his liabilities; or

(b) if the insurer is in liquidation or is adjudged an insolvent, or

(c) if the business or a class of the business of the insurer has been transferred to any
person or has been transferred to or amalgamated with thebusiness of any other insurer,
or

(d) if the whole of the deposit made in respect of insurance business has been returned
to the insurer under Sec. 9, or

22
 (e) if, in the case of an insurer specified in sub-clause (c)of clause (9) of section 2, the
standing contract referred to in that sub-clause is cancelled or is suspended and
continues to be suspended for a period of six months, or

(ee) if the Central Government so directs under sub- section (4) of Sec. 33] and the
Authority may cancel the registration of an insurer-

(f) if the insurer makes default in complying with, or acts in contravention of any
requirement of this Act or of any rule or any regulation or order made or, any direction
issued there under, or

(g) if the Authority has reason to believe that any claim upon the insurer arising in India
under any policy of insurance remains unpaid for three months after final judgment in
regular course of law, or

(h) if the insurer carries on any business other than insurance business or any prescribed
business , or

(i) if the insurer makes a default in complying with any direction issued or order made,
as the case may be, by the Authority under the Insurance Regulatory and Development
Authority of India Act, 1999, or

(j) if the insurer makes a default in complying with, or acts in contravention of, any
requirement of the Companies Act, 1956 (1 of 1956), or the Life Insurance Corporation
Act, 1956 (31 of 1956), or the General Insurance Business (Nationalisation) Act, 1972 (57
of 1972), or the Foreign Exchange Regulation Act, 1973 (46 of 1973).

(5) When the Authority withholds or cancels any registration under sub-section (3) or
clause (a), clause (aa), clause (e), clause (ee), clause (f), clause (g) or clause (h) of sub-
section (4), he shall give notice in writing to the insurer of his decision, and the decision
shall take affect on such date as he may specify in that behalf in the notice, such date not
being less than one month nor more than two months from the date of the receipt of the
notice in the ordinary course of transmission.

(5A) When the Authority cancels any registration underclause (b), clause (c) or clause (d)
of sub-section (4) the cancellation shall take effect on the date on which notice of the
order of cancellation is served on the insurer.

(5B) When a registration is cancelled the insurer shall not, after the cancellation has
taken effect, enter into any new contracts of insurance, but all rights and liabilities in
respect of contracts of insurance entered into by him before such cancellation takes

23
effect shall, subject to the provisions of sub-section (5D), continue as if the cancellation
had not taken place.

(5C) Where a registration is cancelled under clause(a), clause (aa), clause (e), clause (f),
clause (g) or clause (h) or clause (i) or clause (j) of sub-section (4), the Authority may at
his discretion revive the registration, if the insurer within six months from the date on
which the cancellation took effect makes the deposits required by section 7 or Section
98, or complies with the provisions of Section 64VA as to the excess of the value of his
assets over the amount of his liabilities or has his standing contract restored or has had
an application under sub-section (4) of section 3A accepted, or satisfies the Authority
that no claim upon him such as is referred to in clause (g) of sub-section (4) remains
unpaid or that he has complied with any requirement of this Act or the Insurance
Regulatory and Development Authority of India Act, 1999 or of any rule or any regulation,
or order made there under or any direction issued under those Acts that he has ceased to
carry on any business other than insurance business or any prescribed business, as the
case may be, and complies with any directions which may be given to him by the
Authority.

(5D) Where lithe registration of an insurance company is cancelled under sub-section (4),
the Authority may, after expiry of six months from the date on which the cancellation
took effect, apply to the Court for an order to wind up the insurance company, or to wind
up the affairs of the company in respect of a class of insurance business, unless the
registration of the insurance company has been revived under sub-section (5C) or an
application for winding up the company has been already presented to the Court. The
Court may proceed as ifan application under this sub-section were an application under
sub-section (2) of section 53, or sub-section (1) of Sec. 58, as the case may be.

(5E) The Authority may, by order, suspend or cancel any registration in such manner as
may be determined by the regulations made by it:

Provided that no order under this sub-section shall be made unless the person concerned
has been given a reasonable opportunity of being heard.

(6) [***]

(7) The Authority may, on payment of the prescribed fee,not exceeding five rupees, issue
a duplicate certificate of registration to replace a certificate lost, destroyed or mutilated,

24
or in any other case where he is of opinion that the issue of a duplicate certificate is
necessary.

Renewal of registration

3A. (1) An insurer who has been granted a certificate of registration under section 3 shall
have the registration renewedannually for each year after that ending on the 4[31st day
of March, after the commencement of the Insurance Regulatory and Development
Authority of India Act, 1999.

(2) An application for the renewal of a registration for any year shall be made by the
insurer to the Authority before the 31st day of December of the precedingyear, and shall
be accompanied as provided in sub-section

(3) by evidence of payment of the fee as determined by the regulations made by the
Authority which may vary according to the totalgross premium written direct in India,
during the year preceding the yearin which the application is required to be made under
this section, by the insurer in the class of insurance business to which the registration
relates butshall not—

(i) exceed one-fourth of one per cent. of such premium income or rupees five crores,
whichever is less;

(ii) be less, in any case, than five hundred rupees for each class of insurance business:

Provided that in the case of an insurer carrying on solely re-insurance business, the
provisions of this sub-section shall apply with the modification that instead of the total
gross premium written direct in India, the total premiums in respect of facultative re-
insurances accepted by him in India shall be-taken into account.

(3)The fee as determined by the regulations made by the Authority for the renewal of a
registration for any year shall,be paid into the Reserve Bank of India, or where there is no
office of thatBank, into the Imperial Bank of India acting as the agent of that Bank, or into
any Government treasury, and the receipt shall be sent along with the application for
renewal of the registration.

(4) If an insurer fails to apply for renewal of registration before the date specified in sub-
section (2) the Authority may, so long as an application to the Court under sub-section (5-

25
D) of section 3 has not been made, accept an application for renewal of the registration
on receipt from the insurer of the fee payable with the application and such penalty, not
exceeding the fee as determined by the regulations made by the Authority, and payable
by him, as the Authority may require:

Provided that an appeal shall lie to the Central Government from an order passed by the
Authority imposing a penalty on the insurer

(5) The Authority shall, on fulfillment by the insurer of the requirements of this section,
renew the registration and grant him a certificate of renewal of registration.

26
CONCLUSION
The Law of Insurance has gained greater importance in view of the growing risks and
massive investments in modern businesses, as also the increasing risks to the individual’s
life and limb. The development of new technologies and the opening up of the economy
has further added to the risk factors. The reforms in the insurance sector leading finally
to the opening of the insurance sector for private participation have brought in its wake
major changes not only in the design of the products available in the market but also the
manner in which they are marketed. The post-liberalized insurance industry panorama in
India is witnessing dramatic changes in terms of a lot of latest products and services, new
channels of distribution, greater use of information technology as a service facilitator etc.

Due to private players in the, the then monopolistic life insurance regime in India, the
potential for growth has become enormous. Also the Indian consumers are increasingly
becoming aware of the risks and benefits of insurance. Being such a prospective field, the
researcher is making an attempt to study performance and legal hurdles before private
and public life insurance companies in India as the old legislations were created only for
the public sector life insurance companies in India, hence are not fit to be applied to the
present private life insurers in India. In order to reveal the whole scenario of life
insurance business laws in India, the research problem under study was defined as “A
critical analysis of the law relating to the life insurance business in India”. Thus a
multidimensional subject is insurance. Being a law lecturer, this researcher felt the need
to review legal aspects over private and public life insurance companies in this open
economy and focus on legal setbacks arising in this field. Basically insurance being a
contract along with insurance laws, it is also governed by the contract laws and company
laws too. In all these future perspectives of life insurers, the role of regulatory bodies
plays a vital role. The researcher focused on the legal aspects of these life insurance
players like the entry pre-requisites, the capital base for private insurance companies,
discriminatory policies of India against private companies etc. After the entry of both the
life and non-life private insurance companies in India, the researcher here only
concentrates on life insurance companies because the study of legal aspects of both
these fields is quite massive one. The future development of this great potential oriented
life insurance field depends upon how regulatory bodies work over them, how private life
insurance companies cross the legal barriers in their way and in what manner nations
own the LICI can face the tough competition of these private players? Hence this growing
subject is chosen by this researcher. The post-liberalized insurance industry is facing

27
noticeable shift in consumer preferences resulting in providing the varied products by the
insurers. The market structure dominated by a few stabilized public sector players and
the players in the market is in a state of flux in terms of figure out in the market shares
but is full of potential. With largest number of life insurance policies in force in the world,
insurance happens to be a mega opportunity in India3 . It is a business growing at the
rate of 15-20 percent annually and presently is of the order of Rs. 450 billion. Together
with banking services, it adds about 7 percent to the country's GDP. Thus it is an indicator
that the growth potential for the insurance sector is immense.4 Thus in the light of global
competition in life insurance field, the researcher has chosen this topic because of
following reasons:

i) to study what kind of competitive and risk pressures does the life insurance
business experience,
ii) to evaluate performance of regulatory bodies in the life insurance sector,
iii) to differentiate LICI policies benefits as compared to the private life insurance
policies.

BIBLIOGRAPHY
In order to Complete the said project, i took help from the below links:

1. https://shodhganga.inflibnet.ac.in/bitstream/10603/130702/16/16_chapter%208.p
df
2. https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo1
07&flag=1
3. http://legislative.gov.in/sites/default/files/A1938-04.pdf

28