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Published by Enhelion, 2019-11-17 06:03:04

MODULE_5_12_

MODULE_5_12_

BANKING &
INSURANCE

CERTIFICATE COURSE

DEVELOPED BY
Corp Comm Legal

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MODULE - 5

LEGISLATIONS GOVERNING INSURANCE
LAW IN INDIA

5.1. INTRODUCTION OF INSURANCE IN INDIA insurance industry in India and hence the law in this
regard is uniform throughout the territories of India.
Law of Insurance has its origin and roots in England No one is there in India without having one or other
and has a long history. The concept of insurance has policy of life or non-life insurance policies.
been prevalent in India since ancient times amongst
Hindus. Many foreign insurance companies started List of regulations regulating insurance sector are as
the business of insurance and some Indian follows:
businessmen joined it as it is profitable. Overseas
traders practiced a system of marine insurance. The ▪ The Insurance Act, 1938
Government of India nationalized both the Life
Insurance and General Insurance in the interest of ▪ Life insurance Corporation Act, 1956
nation. The joint family system, peculiar to India, was
a method of social insurance of every member of the ▪ Insurance Regulatory And Development Act,
family on his life. Later, due to liberalization policy of 1999
government, “privatization” took place in all sectors
of business. The state enacted laws to control and ▪ Marine Insurance Act, 1963
regulate life and non-life insurance business. The
Constitution of India is federal in nature in as much 5.2. THE INSURANCE ACT, 1938
there is division of powers between the Centre and
the States. Insurance is included in the Union List, Till the end of the 19th century, the insurance was in
wherein the subjects included in this list are of the its inceptional stage. Therefore no legislation was
exclusive legislative competence of the Centre. The made till that time. Insurance companies were
Central Legislature is empowered to regulate the covered by the Indian Companies Act, 1883, but this
act was found inadequate for the purpose of
insurance companies. Therefore two acts i.e.
Provident Insurance Societies Act and Indian Life

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Insurance companies act were enacted. There were ▪ A public company, or
no control over general insurance.
▪ A society registered under the co-operative
So to remove these defects of the above two acts, The Societies Act,1912
Insurance act, 1938 was enacted and it had been
amended from time to time to make it up to date. ▪ A body corporate incorporated under the law of
any country outside India not being of the nature
5.2.1. SALIENT FEATURES OF THE INSURANCE of private company.
ACT, 1938
2. Every notification issued under sub-section 1 shall
The salient features of Insurance Act, 1938 are as be laid before Parliament as soon as may be after it is
follows: issued.

5.2.1.1. Wide Scope 3. Notwithstanding anything contained in sub-
section 1, an insurance co-operative society may
The Insurance Act of 1938 is extended to the whole carry on any class of insurance business in India under
of India.i The Act applies to all types of Insurance this act or after the commencement of the Insurance
Business i.e. life, marine, etc. It also governs the act, 2002.
provident companies, mutual offices and co-
operative societies. Assessment in or dividing 5.2.1.3. Definitionsiii
insurance is prohibited.
Insurer {Section 2(9)}:- Insurer means:
5.2.1.2. Prohibitionii
▪ An Indian Insurance Company, or
Prohibition of transaction of insurance business by ▪ A statutory body established by an act of
certain persons:-
Parliament to carry on insurance business, or
1. No person shall, after the commencement of the ▪ An insurance co-operative society, or
Insurance Act,1950, begin to carry on any class of ▪ A foreign company engaged in re-insurance
insurance business in India and no insurer carrying on
any class of insurance business in India shall after the business through a branch established in India.
expiry of one year from such commencement,
continue to carry on such business unless he is: Life Insurance Business {Section 2(11)}:- Life
Insurance Business means the business of effecting
contracts of insurance upon human life, including any

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contract whereby the payment of money is assured on singly or in combination with one or more of them.
on death or the happening of contingency dependent
on human life, and any contract which is subject to Health Insurance Business:- {Section 2(6C)}:-
payment of premiums for a term dependent on Health Insurance Business” means the effecting of
human life. contracts which provide for sickness benefits or
medical, surgical or hospital expense benefits,
Fire Insurance Business {Section 2(6A)};- “Fire whether in-patient or out-patient travel cover and
insurance business” means the business of effecting, personal accident cover.
otherwise than incidentally to some other class of
insurance business, contracts of insurance against Indian Insurance Company:- {Section 2(7A)}:- Indian
loss by or incidental to fire or other occurrence Insurance Company means any insurer, being a
customarily included among the risks insured against company which is limited by shares, and,
in fire insurance policies.
▪ Which is formed and registered under the
Marine Insurance Business:- {Section 2(13A):- companies act, 2013 as a public company or is
Marine insurance business means the business of converted into such a company within one year of
effecting contracts of insurance upon vessels of any the commencement of the Insurance laws act,
description, including cargoes, freights, and other 2015.
interests which may be legally insured or in relation
to such vessels, cargoes, goods, wares, merchandise ▪ In which the aggregate holdings of equity share
and property of whatever description insured for any by foreign investors, including portfolio
transit by land or water, or both and includes any investors, do not exceed 49% of the paid up
other risk customarily included among the risks equity capital of such Indian insurance company
insured against in marine insurance policies. which is Indian owned and controlled, in such a
manner as may be prescribed.
General Insurance Business:- {Section 6(B)};-
“General Insurance Business” means fire, marine or ▪ Whose sole purpose is to carry on life insurance
miscellaneous insurance business, whether carried business or general insurance business or re-
insurance business or health insurance business.

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5.2.1.4. Requirements as to Capitaliv (Amendment) Act 2015, at the expiration
of each financial year, prepare with
1. No insurer not being an insurer as defined in reference to that year, balance sheet,
sub-clause (d) of clause (9) of section 2, profit and loss accounts, a separate
carrying on the business of life insurance, account of receipts and payment, in
general insurance, health insurance, accordance with the regulations as may
reinsurance in India or after the be specified.
commencement of the IRDA Act, 1999 shall
be registered unless he has: 2. Every insurer shall keep separate
accounts relating to funds of
▪ A paid up equity capital of rupees 100 shareholders and policy holders.
crore, in case of a person carrying on the
business of life insurance or general 3. The accounts and the statements shall be
insurance or signed by the chairman of the board of
insurance company and two other
▪ A paid up equity capital of rupees 100 directors, the principal officer of the
crore in case of person carrying on company and shall be accompanied by the
exclusively the business of health statement containing the names,
insurance, or descriptions and occupation held by the
persons in charge of the management of
▪ A paid up equity capital of rupees 200 the business during the period to which
crore, in case of person carrying on the accounts and statements relate to.
exclusively the business as re-insurer.
4. Section 12 provides for audit of the
2. No insurer not being an insurer as defined in financial statements shall be audited by
sub-clause (d) of clause (9) of section 2, shall an auditor.
be registered unless he has net owned funds
of not less than rupees 5000 crore. 5. Section 13 requires investigation of
financial condition of the life insurance
5.2.1.5. Accounts, Audit, and Actuarial Report and business carried on by an actuary.
Abstractv

1. Every insurer on or after the
commencement of The Insurance Laws

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5.2.1.6. Investment of Assetsvi 4. The Government securities and other
approved securities in which assets are under
1. Every insurer shall invest and at all times keep sub-section (1) or (2) to be invested and kept
invested assets equivalent to not less invested shall be held by the insurer free of
than sum the sum of- any encumbrance, charge, hypothecation or
lien.
▪ The amount of liabilities to holders of life
insurance policies in India on account of 5.3. LIFE INSURANCE CORPORATION ACT, 1956
matured claims, and
An Act to provide for the nationalization of life
▪ The amount required to meet the liability insurance business in India by transferring all such
on policies of life insurance maturing for business to a Corporation established for the
payment in India. purpose and to provide for the regulation and control
of the business of the Corporation and for matters
2. In the case of an insurer carrying on general connected therewith or incidental thereto. The Life
insurance business, 25% of the assets in Insurance Corporation Act 1956 provides for the
government securities, a further sum equal to establishment of the Life Insurance Corporation of
not less than 10% of the assets in India which shall start functioning on September 1,
Government securities or other approved 1956. The Corporation shall have the status of a body
securities and balance in any other corporate with continuous succession, common seal
investment in accordance with the and the power to purchase, hold and sell off property
regulations of the Authority and subject to and shall have the right to litigate. The Life Insurance
such limitations. Corporation of India is the largest insurance and
investment group owned by Indian State with assets,
3. In computing the assets referred to in sub- funds and policies. The Parliament enacted the Life
section (1) and (2), any investment made with Insurance Corporation Act in 1956 which came into
reference to any currency other than the force on July 1, 1956. After the enactment, the
Indian rupee which is in the excess of the private insurance groups were nationalized and many
amount required to meet the liabilities of the insurance and provident societies were combined to
insurers in India with reference to that
currency, shall not be taken into account.

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form Life Insurance Corporation under the Government may have the power to decrease the
ownership of the State. capital of the Corporation as determined. The general
responsibility of the Corporation is to conduct the
The Act provides for the establishment of the Life business of life insurance and to secure that such
Insurance Corporation of India which shall start business is progressed for the benefit of the
functioning on September 1, 1956. The Corporation community, subject to the rules formulated by the
shall have the status of a body corporate with Central Government. The Corporation shall have the
continuous succession, common seal and the power following additional functions:
to purchase, hold and sell off property and shall have
the right to litigate. The corporation shall comprise of ▪ To conduct business of capital redemption,
a maximum of sixteen members including the allowances or reinsurance to the extent where
Chairman who shall be appointed by the Central such business appertain to the business of life
Government. The person to be appointed as a insurance;
member should not have any pecuniary or other
concerns which would affect detrimentally the ▪ To invest the accounts of the Corporation
performance of functions as a member of the according to the procedures of the Corporation
Corporation. The members shall also furnish the and to take measures to protect and realize any
information necessary to discharge the functions, to savings;
the Central Government when demanded. A member
who is involved directly or indirectly in any ▪ To purchase, hold and sell off property for
agreement performed or intended to be performed business purpose;
by the Corporation shall reveal the character of the
interest to the Corporation and he shall not involve in ▪ To transfer the insurance business conducted
any deliberations or debates of the Corporation in abroad to any others in the interest of the
relation to the agreement. Corporation;

The capital of the Life Insurance Corporation shall be ▪ To provide or lend finance under the security of
Rs. 5 crores but the Central Government shall after any corporeal property;
necessary appropriations and stipulations determine
and fix the capital of the Corporation. The Central ▪ To have a loan of any amount under the Security
as decided by the Corporation;

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▪ To conduct any other business if such business is amended by initiating The Life Insurance Corporation
functioning through the subordinate of any Amendment Bill, 2009 which enhances the equity
insurer whose business is transferred and is capital of the Corporation.
under the control of the Corporation;
Life Insurance Corporation of India (LIC) was
▪ To conduct any other business which is capable of established in 1956 to spread the message of life
being done by the Corporation and computed to insurance in the country and to mobilise people's
provide the business of the Corporation more savings for nation-building activities.
profitable;
5.3.1. MAIN FEATURES OF LIC
▪ To perform other functions for the efficient
implementation of any powers of the The main features of LIC are given below:
Corporation.
5.3.1.1. Saving Institution
After the enforcement of the Act, the Corporation
shall transfer the entire assets and accountabilities of Life insurance both promotes and mobilises saving in
the insurers who are engaged in the controlled the country. The income tax concession provides
business. Under certain circumstances the service of further incentive to higher income persons to save
the prevailing employees of the chief agents of the through LIC policies. The total volume of insurance
insurers shall be transferred to the Corporation. The business has also been growing with the spread of
Central Government is empowered under the Act to insurance-consciousness in the country. The total
establish Tribunals and appoint members as provided new business of LIC during 1995-96 was Rs. 51815
under the Act. The Corporation is endowed with crore sum assured under 10.20 lakh policies.
absolute privilege to carry on its activities. All the
policies and bonuses assured by the Corporation shall The LIC business can grow at still faster speed if the
be approved by the Central Government. following improvements are made:

The Central Government has formulated the Life The organizational and operational efficiency of the
Insurance Corporation Rules, 1956 according to the LIC should be increased.
power conferred under the Act. The Life Insurance
Corporation Act, 1956 has been proposed to be ▪ New types of insurance covers should be
introduced.

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▪ The services of LIC should be extended to debentures, and loans. LIC also plays a significant role
smaller places. in developing the business of underwriting of new
issues.
▪ The message of life insurance should be made
more popular. 5.3.1.4. Stabiliser in Share Market

▪ The general price level should be kept stable LIC acts as a downward stabiliser in the share market.
so that the insuring public does not get The continuous inflow of new funds enables LIC to
cheated of a large amount of the real value of buy shares when the market is weak. However, the
its long-term saving through inflation. LIC does not usually sell shares when the market is
overshot. This is partly due to the continuous
5.3.1.2. Term Financing Institution pressure for investing new funds and partly due to
the disincentive of the capital gains tax.
LIC also functions as a large term financing institution
(or a capital market) in the country. The annual net 5.3.2. DEFECTS
accrual of investible funds from life insurance
business (after making all kinds of payments liabilities The development banks in India suffers from a
to the policy holders) and net income from its vast number of defects as discussed below:
investment are quite large. During 1994-95, LIC's
total income was Rs. 18,102.92crore, consisting of 5.3.2.1. Dependence on Institutional Sources of
premium income of Rs. 1152, 80crore investment Finance
income of Rs. 6336.19crore, and miscellaneous
income of Rs. 238.33crore. The capital resources of development banks mainly
come from institutional sources. They have not been
5.3.1.3. Investment Institutions able to raise funds directly from public as is done by
the banks, insurance companies, etc. Dependence on
LIC is a big investor of funds in government securities. the institutional sources has enabled the
Under the law, LIC is required to invest at least 50% development banks to get funds at low yield rates.
of its accruals in the form of premium income in But, the low yield structure has come in the way of the
government and other approved securities. popularly of development banks. They could not
make their bonds and debentures popular in the
LIC funds are also made available directly to the market and raise sufficient funds from the public.
private sector through investment in shares,

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5.3.2.2. Defects of Loan Finance priority basis. But in reality, the major part of the
assistance has been granted to the large and
The development banks mostly provide assistance in established industrial concerns. New and small
the form of debt capital, particularly in term loans. No entrepreneurs are generally ignored by these banks.
doubt, loan financing assures a stable return on funds
and do not involve such managerial problems as are 5.3.2.4. Cheap Finance to Big Industries
faced during equity participation.
The big industrial houses not only receive large and
But the loan financing has its own drawbacks: growing, but also organised, assured and cheap
amounts of finance from development banks. In fact,
▪ Loan financing has distorted the capital the big industry sector has become over-dependent
structure of the borrowing industrial on the development banks for meeting their financial
concerns in favour of loan capital. The burden needs. Organised nature of financial resources of the
of fixed interest payments is too*heavy and is development banks enable them to grant cheap
one of the reasons for the industrial sickness credit.
in the country,
5.3.2.5. More Loans to Developed Areas
▪ The government loses potential corporation
tax because for the tax purposes, interest is The development banks are expected to reduce
considered as a cost item while estimating regional disparities by extending greater financial
corporate profits, assistance to the backward areas. But, experience has
shown that these banks have contributed more to the
▪ The industrial concerns also prefer loans to industrial concerns in the developed regions. About
debentures because default on loans are not half of the total assistance has been sanctioned for
made public and can be negotiable with the the four industrially advanced states of Maharashtra,
lending agency, Gujarat, Tamil Nadu and West Bengal.

▪ Loan financing has limited the development 5.3.2.6. Problem of Overdoes
of the corporate bond market.
The development banks, particularly, the State
5.3.2.3. Small Industries Ignored Finance Corporations are facing serious problem of
over dues. The over dues restrict the recycling of
An important objective of the development banks in
India is to provide financial assistance to new
enterprises, small arid medium industrial units on

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funds of the financial institutions and limit their ▪ Act as trustees of the insured public in their
capacity to lend. The development banks also suffer individual and collective capacities.
from the defect of procedural delays in sanctioning
and disbursing loans. ▪ Meet the various life insurance needs of the
community that would arise in the changing
5.3.3. OBJECTIVES OF LIC social and economic environment.

▪ Spread Life Insurance widely and in particular ▪ Involve all people working in the Corporation
to the rural areas and to the socially and to the best of their capability in furthering the
economically backward classes with a view to interests of the insured public by providing
reaching all insurable persons in the country efficient service with courtesy.
and providing them adequate financial cover
against death at a reasonable cost. ▪ Promote amongst all agents and employees of
the Corporation a sense of participation,
▪ Maximize mobilization of people's savings by pride and job satisfaction through discharge
making insurance-linked savings adequately of their duties with dedication towards
attractive. achievement of Corporate Objective.

▪ Bear in mind, in the investment of funds, the Life Insurance Business in India was nationalized with
primary obligation to its policyholders, whose effect from January 19, 1956. On the date, the Indian
money it holds in trust, without losing sight of business of 16 non-Indian insurers operating in India
the interest of the community as a whole; the and 75 Provident Societies were taken over by
funds to be deployed to the best advantage of Government of India. Life Insurance Corporation of
the investors as well as the community as a India, Act was passed by the Parliament on June 18,
whole, keeping in view national priorities and 1956 and came into effect from July 1, 1956. Life
obligations of attractive return. Insurance Corporation of India commenced its
functioning as a corporate body from September 1,
▪ Conduct business with utmost economy and 1956. Its working is governed by the LIC Act. The LIC
with the full realization that the moneys is a corporate having perpetual succession and a
belong to the policyholders. common seal with a power to acquire hold and

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dispose of property and can by its name sue and be ▪ Provide complete security and promote
sued. efficient service to the policy-holders at
economic premium rates.
Important Provisions of Life Insurance Corporation
Act, 1956 ▪ Conduct business with utmost economy and
with the full realization that the money
▪ Constitution belong to the policy holders.
▪ Capital
▪ Functions of the Corporation ▪ Act as trustees of the insured public in their
▪ Transfer of Services individual and collective capacities.
▪ Set-up of the Corporation
▪ Committee of the Corporation ▪ Meet the various life insurance needs of the
▪ Authorities community that would arise in the changing
▪ Finance, Accounts and Audit social and economic environment
▪ Miscellaneous
▪ Involve all people working in the corporation
5.3.4. OBJECTIVES OF LIC OF INDIA to the best of their capability in furthering the
interest of the insured public by providing
The LIC was established with the following efficient service with courtesy.
objectives:
5.3.5. ROLE AND FUNCTION OF LIC
▪ Spread life insurance widely and in particular
to the rural areas, to the socially and ▪ It collects the savings of the people through
economically backward carries with a view to life policies and invests the fund in a variety of
reaching all insurable persons in the country investments.
and providing them adequate financial cover
against death at a reasonable cost ▪ It invests the funds in profitable investments
so as to get good return. Hence the policy
▪ Maximization of mobilization of people’s holders get benefits in the form of lower rates
savings for nation building activities. of premium and increased bonus. In short, LIC
is answerable to the policy holders.

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▪ It subscribes to the shares of companies and ▪ It acts as a link between the saving and the
corporations. It is a major shareholder in a investing process. It generates the savings of
large number of blue chip companies. the small savers, middle income group and the
rich through several schemes.
▪ It provides direct loans to industries at a
lower rate of interest. It is giving loans to 5.4. INSURANCE REGULATORY AND
industrial enterprises to the extent of 12% of DEVELOPMENT ACT, 1999 (IRDA ACT)
its total commitment.
In India, during the last decade of the last century,
▪ It provides refinancing activities through there was a wave of liberalization in all economic
SFCs in different states and other industrial sectors including the insurance sector. Preliminary
loan giving institutions. insurance sector was nationalized and was in public
sector. To bring changes in insurance sector, the
▪ It has provided indirect support to industry government appointed a committee in April 1993
through subscriptions to shares and bonds of under the chairmanship of Sri R.N. Malhotra ex-
financial institutions such as IDBI, IFCI, ICICI, Governor of the Reserve bank of India. This
SFCs etc. at the time when they required committee examined the structure of the industrial
initial capital. It also directly subscribed to the industry and submitted its report on 7, January 1994
shares of Agricultural Refinance Corporation by recommending changes to make it more efficient
and SBI. and competitive keeping in view the structural
changes in other part of the financial system of the
▪ It gives loans to those projects which are economy. The committee suggested the following
important for national economic welfare. The recommendations for strengthening and
socially oriented projects such as modernization of the insurance regulatory system for
electrification, sewage and water smooth development of insurance sector.
channelising are given priority by the LIC.
▪ Recommendation of the entry of private
▪ It nominates directors on the boards of entities into the insurance sector to introduce
companies in which it makes its investments. healthy competition.

▪ It gives housing loans at reasonable rates of
interest.

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▪ Recommendation of gradual withdrawal of ▪ “Authority” means The Insurance Regulatory
Government capital in Life Insurance and Development Authority of India
Corporation and the General Insurance established under sub-section(1) of section 3
Corporation.
▪ “Chairperson” means the chairperson of the
▪ Recommendation that the General Insurance Authority.
Corporation would exclusively deal with the
reinsurance business. ▪ “Fund” Means the Insurance Regulatory and
Development Authority Fund constituted
▪ Recommendation to spread the insurance under sub section (1) of section 16.
sector to rural areas.
▪ “Member” means a whole time or part time
▪ Recommendation to delink the tariff advisory member of the authority and includes the
committee from the General Insurance chairperson.
Corporation and the committee should act as
an independent statutory authority. ▪ “Notification” means a notification published
in the Official Gazette.
5.4.1. PRELIMINARY
5.4.3. ESTABLISHMENT AND INCORPORATION
Short title, extent and commencementvii OF AUTHORITYix

▪ This act may be called the Insurance ▪ With effect from such date as the Central
Regulatory And Development Authority Act, Government may appoint, there shall be
1999. established, for the purpose of this act, an
authority to be called “The Insurance
▪ It extends to the whole of India. Regulatory And Development Authority of
▪ It shall come into force on such date as the India.”

Central Government may, by notification in ▪ The authority shall be a body corporate by the
the official Gazette, appoint. name aforesaid having perpetual succession
and a common seal with power, subject to the
5.4.2. DEFINITIONSviii provision of this act, to acquire, hold and
dispose of property, both movable and
▪ “Appointed day” means the date on which the
authority is established under sub-section(1)
of section 3

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immovable and to contract and shall sue or held office as a chairperson after he has
sued. attained the age of 65 years.

▪ The head office of the Authority shall be at ▪ A part-time member shall held office for a
such place as the Central Government may term not exceeding 5 years from the date on
decide from time to time. which he enters upon his office.

▪ The authority may establish offices at other 5.4.6. REMOVAL FROM OFFICExii
places in India.
1. The central Government may remove from
5.4.4. COMPOSITION OF AUTHORITYx office any member who:-

The authority shall consists of the following ▪ Is, or at any time has been, adjudged as an
members: insolvent; or

▪ A chairperson ▪ Has become physically or mentally
▪ Not more than five whole-time members incapable of acting as a member; or
▪ Not more than four part-time members.
▪ Has been convicted of any offence which,
To be appointed by the Central Government from in the opinion of the central Government,
amongst person of ability, integrity and standing who involves moral turpitude; or
have knowledge or experience in life insurance,
finance, economics, law etc. ▪ Has acquired such financial or other
interest as is likely to affect prejudicially
5.4.5. TENURE OF OFFICE OF CHAIRPERSON AND his functions as a member; or
OTHER MEMBERSxi
▪ Has so abused his position as to render
▪ The chairperson and every other whole-time his continuation in office detrimental to
member shall hold office for a term of five the public interest.
years from the date on which he enters upon
his office and shall be eligible for 2. No such member shall be removed under
reappointment: Provided that no person shall clause (d) and (e) of sub-section 1 unless he
has given a reasonable opportunity of being
heard in this matter.

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5.4.7. SALARY AND ALLOWANCES OF themselves at the meeting shall preside at the
CHAIRPERSON AND MEMBERSxiii meeting.

▪ The salary and allowances payable to, and ▪ The authority may make regulations for the
other terms and conditions of service of, the transaction of business at its meetings.
member other than part-time members shall
may be prescribed. 5.4.10. DUTIES, POWERS AND FUNCTIONS OF
AUTHORITYxv
▪ The part-time member shall receive such
allowances as may be prescribed. ▪ Subject to the provisions of this act and any
other law for the time being in force, the
▪ The salary, allowances, and other conditions authority shall have the duty to regulate,
of service of a member shall not be varied to promote and ensure orderly growth of the
his disadvantage after appointment. insurance business.

5.4.8. ADMINISTRATIVE POWER OF ▪ Issue to the applicant a certificate of
CHAIRPERSONxiv registration, renew, modify, withdraw,
suspend or cancel such registration.
The Chairperson shall have the powers of general
superintendence and direction in respect of all ▪ Specifying the code of conduct for surveyors
administrative matters of the authority. and loss assessors.

5.4.9. MEETINGS OF AUTHORITY ▪ Promoting efficiency in the conduct of
insurance business
▪ The authority shall meet at such times and
place and shall observe such rules and ▪ Promoting and regulating professional
procedures in regard to transaction of organizations connected with the insurance
business at its meetings as may be and re-insurance business.
determined by the regulations.
▪ Levying fees and other charges for carrying
▪ The chairperson is unable to attend a meeting out the purposes of this act.
of the authority, any other member chosen by
the members present from amongst ▪ Regulating investment of funds by insurance
companies.

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▪ Regulating maintenance of margin of ✓ The salaries, allowances and
solvency. other remuneration of the
members, offices and other
▪ Exercising such other powers as may be employees of the authority.
prescribed.
5.4.13. ACCOUNTS AND AUDITxviii
5.4.11. GRANTS BY CENTRAL GOVERNMENTxvi
▪ The authority shall maintain proper accounts
The Central Government may, after due and other relevant records and prepare an
appropriation made by Parliament by law in this annual statement of accounts in such form as
behalf, make to the authority grants of such sums of may be prescribed by the Central
money as Government may think fit for being utilized Government in consultation with the
for the purpose of this act. comptroller and Auditor-General of India.

5.4.12. CONSTITUTION OF FUNDSxvii ▪ The accounts of the authority shall be audited
by the Comptroller and Auditor General of
▪ There shall be constituted a fund to be called India at such intervals as may be specified by
“the Insurance Regulatory and Development him and any expenditure incurred in
Authority Fund” and there shall be credited connection with such audit shall be payable
thereto- by the authority to the comptroller and
Auditor-General.
✓ All Government grants, fees
and charges received by the ▪ The accounts of the authority as certified by
authority. the Comptroller and Auditor-General of India
or any other person appointed by him in this
✓ All sums received by the behalf together with the audit-report thereon
authority from such other shall be forwarded annually to the central
source as may be decided Government.
upon by the Central
Government.

▪ The fund shall be applied for meeting:-

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5.4.14. POWER OF CENTRAL GOVERNMENT TO section (1), the authority shall submit to the
ISSUE DIRECTIONSxix central government a report giving a full and
true account of its activities including the
▪ Without prejudice to the forgoing provisions activities for promotion and development of
of this act, the authority shall in exercise of its the insurance business during the previous
power or the performance of its function financial year.
under this act may bound by such directions
on questions of policy, other than those ▪ Copies of reports received under sub-section
relating to technical and administrative (2) shall be laid, as soon as may be after they
matters, as the central government may give are received, before each house of
in writing to it from time to time. parliament.

▪ The decision of the central government, 5.4.16. DELEGATION OF POWERSxxi
whether a question is one of policy or not,
shall be final. ▪ The authority may delegate to the
chairperson or any other member or office of
5.4.15. FURNISHING OF RETURNS, ETC, TO THE authority subject to such conditions as may
CENTRAL GOVERNMENTxx be specified in the order such of its powers
and functions under this act as it may deem
▪ The authority shall furnish to the central necessary.
government at such time and in such form and
manner, or as the central government may ▪ The authority may also form committees of
direct to furnish such returns, statements and the members and delegate them the powers
other particulars in regard to any proposed or and functions of the authority as may be
existing programme for the promotion and specified by the regulations.
development of the insurance industry as the
central government may require from time to 5.4.17. APPLICATION OF OTHER LAWS NOT
time. BARRED

▪ Without prejudice to the provision of sub- The provision of this act shall be in addition to the
provision of any other law for the time being in force.

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5.4.18. POWER TO REMOVE DIFFICULTIESxxii ▪ IRDA (Actuarial Report and Abstract)
Regulations, 2000
▪ If any difficulty arises in giving effect to the
provisions of this Act, the central government ▪ IRDA (Licensing of Insurance Agents)
may make such provisions not inconsistent Regulations, 2000
with the provisions of this act as may appear
to be necessary for removing the difficulty. ▪ IRDA (Assets, Liabilities and Solvency Margin
of Insurers) Regulations, 2000
▪ Every order made under this section shall be
laid, as soon as may be, after it is made, before ▪ IRDA (General Insurance-Reinsurance)
each house of parliament. Regulations, 2000

5.4.19. RULES AND REGULATIONS FRAMED ▪ IRDA (Registration of Indian Insurance
UNDER INSURANCE REGULATORY AND Companies) Regulations, 2000
DEVELOPMENT AUTHORITY ACT, 1999
▪ IRDA (Insurance Advertisements and
The following are the Regulations made by the Disclosure) Regulations, 2000
Authority by exercising the powers provided in the
act in consultation with the Insurance advisory ▪ IRDA (Meetings) Regulations, 2000
Committee constituted under section 25 of the
Insurance Regulatory and Development authority ▪ IRDA (Investment) Regulations, 2000
Act, 1999 and rules by the Central Government.
▪ IRDA (Conditions of Service of Officers and
▪ IRDA (Member of Insurance Advisory other Employees) Regulations, 2000
Committee) Regulations, 2000
▪ IRDA (Insurance Surveyors and Loss
▪ IRDA (Appointment of Insurance Advisory
Committee) Regulations, 2000 Assessors (Licensing, Professional

▪ IRDA (The Insurance Advisory Committee) Requirements and Code of Conduct))
(Meeting) Regulations, 2000
Regulations, 2000
▪ IRDA (Appointed Actuary ) Regulations,
2000 ▪ IRDA (Life Insurance - Reinsurance)
Regulations, 2000

▪ IRDA (Third Party Administrators - Health
Services) Regulations, 2001

▪ IRDA (Re-Insurance Advisory Committee)
Regulations, 2001

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▪ IRDA (Preparation of Financial Statements ▪ IRDA(Issuance of Capital by Life Insurance
and Auditor‘s Report of Insurance Companies) Regulations, 2011
Companies) Regulations, 2002
5.5. THE MARINE INSURANCE ACT, 1963
▪ IRDA (Protection of Policyholders‘ Interests) 5.5.1. SHORT TITLE AND COMMENCEMENTxxiii
Regulations, 2002
▪ It shall come into force on such date as the
▪ IRDA (Insurance Brokers) Regulations, 2002 Central Government may, by notification in
▪ IRDA (Obligations of Insurers to Rural and the Official Gazette, appoint.

Social Sectors) Regulations, 2002 5.5.2. DEFINITIONxxiv
▪ IRDA (Licensing of Corporate Agents)
▪ In this Act, unless the context otherwise
Regulations, 2002 requires:—
▪ IRDA (Manner of Receipt of Premium)
▪ “contract of marine insurance” means a
Regulations, 2002 contract of marine insurance as defined by
▪ IRDA (Distribution of Surplus) Regulations, section 3

2002 ▪ “freight” includes the profit derivable by a
▪ IRDA (Qualification of Actuary) Regulations, ship-owner from the employment of his ship
to carry his own goods or other movables, as
2004 well as freight payable by a third party, but
▪ IRDA (Micro-Insurance) Regulations, 2005 does not include passage money;
▪ IRDA (Maternity Leave) Regulations, 2005
▪ IRDA (Reinsurance Cessions) Notification ▪ “insurable property” means any ship, goods
▪ IRDA (Sharing of Database for Distribution or other movables which are exposed to
maritime perils;
of Insurance Products) Regulations, 2010
▪ IRDA (Treatment of Discontinued Linked ▪ “marine adventure” includes any adventure
where—
Insurance Policies) Regulations, 2010

▪ IRDA(Scheme for Amalgamation and
Transfer of General Insurance Business)
Regulations 2011

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✓ any insurable property is exposed to ▪ “ship” includes every description of vessel
maritime perils; used in navigation;

✓ the earnings or acquisition of any freight, ▪ “suit” includes counter-claim and set-off.
passage money, commission, profit or
other pecuniary benefit, or the security 5.5.3. MIXED SEA AND LAND RISKxxv
for any advances, loans, or disbursements
is endangered by the exposure of ▪ A contract of marine insurance may, by its
insurable property to maritime perils; express terms, or by usage of trade, be
extended so as to protect the assured against
✓ any liability to a third party may be losses on inland waters or on any land risk
incurred by the owner of, or other person which may be incidental to any sea voyage.
interested in or responsible for, insurable
property by reason of maritime perils; ▪ Where a ship in course of building or the
launch of a ship, or any adventure analogous
▪ “maritime perils” means the perils to a marine adventure, is covered by a policy
consequent on, or incidental to, the in the form of a marine policy, the provisions
navigation of the sea, that is to say, perils of of this Act, in so far as applicable, shall apply
the seas, fire, war perils, pirates, rovers, thereto, but except as by this section
thieves, captures, seizures, restraints and provided, nothing in this Act shall alter or
detainments of princes and peoples, jettisons, affect any rule of law applicable to any
barratry and any other perils which are either contract of insurance other than a contract of
of the like kind or may be designated by the marine insurance as by this Act defined.
policy;
5.5.4. AVOIDANCE OF WAGERING CONTRACTxxvi
▪ “movables” means any movable tangible
property, other than the ship, and includes ▪ Every contract of marine insurance by way of
money, valuable securities and other wagering is void.
documents;
▪ A contract of marine insurance is deemed to
▪ “policy” means a marine policy; be a wagering contract:—

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(a) Where the assured has not an insurable mortgagee has an insurable interest in
interest as defined by this Act, and the respect of any sum due or to become due
contract is entered into with no expectation under the mortgage.
of acquiring such an interest; or
▪ A mortgagee, consignee, or other person
(b) Where the policy is made “interest or no having an interest in the subject-matter
interest”, or “without further proof of interest insured may insure on behalf and for the
than the policy itself, or “without benefit of benefit of other persons interested as well as
salvage to the insurer”, or subject to any other for his own benefit.
like term.
▪ The owner of insurable property has an
5.5.5. INSURABLE INTEREST DEFINED insurable interest in respect of the full value
thereof, notwithstanding that some third
▪ Subject to the provisions of this Act, every person may have agreed, or be liable to
person has an insurable interest who is indemnify him in case of loss.
interested in a marine adventure.
5.5.7. MEASURE OF INSURABLE VALUExxviii
▪ In particular a person is interested in a marine
adventure where he stands in any legal or Subject to any express provision or valuation in the
equitable relation to the adventure or to any policy, the insurable value of the subject-matter
insurable property at risk therein, in insured must be ascertained as follows:—
consequence of which he may benefit by the
safety or due arrival of insurable property, or ▪ In insurance on ship, the insurable value is the
may be prejudiced by its loss, or by damage value, at the commencement of the risk, of the
thereto, or by the detention thereof, or may ship, including her outfit, provisions, and
incur liability in respect thereof. stores for the officers and crew, money
advanced for seamen’s wages, and other
5.5.6. QUANTUM OF INTERESTxxvii disbursements (if any) incurred to make the
ship fit for the voyage or adventure
▪ Where the subject-matter insured is contemplated by the policy, plus the charges
mortgaged, the mortgagor has an insurable of insurance upon the whole. The insurable
interest in the full value thereof, and the value, in the case of a steamship, includes also

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the machinery, boilers, and coals and engine circumstance which, in the ordinary course of
stores if owned by the assured; in the case of business, ought to be known to him. If the
a ship driven by power other than steam assured fails to make such disclosure, the
includes also the machinery and fuels and insurer may avoid the contract.
engine stores, if owned by the assured; and in
the case of a ship engaged in a special trade, ▪ Every circumstance is material which would
includes also the ordinary fittings requisite influence the judgment of a prudent insurer in
for that trade. fixing the premium, or determining whether
he will take the risk.
▪ In insurance on freight, whether paid in
advance or otherwise, the insurable value is ▪ In the absence of inquiry the following
the gross amount of the freight at the risk of circumstances need not be disclosed,
the assured, plus the charges of insurance. namely:— (a) any circumstance which
diminishes the risk;
▪ In insurance on goods or merchandise, the
insurable value is the prime cost of the (b) Any circumstance which is known or
property insured, plus the expenses of and presumed to be known to the insurer. The
incidental to shipping and the charges of insurer is presumed to know matters of
insurance upon the whole. common notoriety or knowledge, and matters
which an insurer in the ordinary course of his
▪ In insurance on any other subject-matter, the business as such ought to know;
insurable value is the amount at the risk of the
assured when the policy attaches, plus the (c) Any circumstance as to which information
charges of insurance. is waived by the insurer;

5.5.8. DISCLOSURE BY ASSUREDxxix (d) Any circumstance which it is superfluous
to disclose by reason of any express or implied
▪ Subject to the provisions of this section, the warranty.
assured must disclose to the insurer, before
the contract is concluded, every material ▪ Whether any particular circumstance, which
circumstance which, is known to the assured, is not disclosed, be material or not is, in each
and the assured is deemed to know every case, a question of fact.

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▪ The term “circumstance” includes any immaterial that the ship may have regained
communication made to, or information her route before any loss occurs.
received by, the assured.
▪ There is a deviation from the voyage
5.5.9. THE VOYAGE contemplated by the policy—

5.5.9.1. Implied Condition as to Commencement of (a) Where the course of the voyage is
Risk specifically designated by the policy, and that
course is departed from; or
▪ Where the subject-matter is insured by a
voyage policy “at and from” or “from” a (b) Where the course of the voyage is not
particular place, it is not necessary that the specifically designated by the policy, but the
ship should be at that place when the contract usual and customary course is departed from.
is concluded, but there is an implied condition
that the adventure shall be commenced ▪ The intention to deviate is immaterial; there
within a reasonable time, and that if the must be a deviation in fact to discharge the
adventure be not so commenced the insurer insurer from his liability under the contract.
may avoid the contract.
5.5.9.3. Excuse for Deviation or Delayxxxi
▪ The implied condition may be negative by
showing that the delay was caused by ▪ Deviation or delay in prosecuting the voyage
circumstances known to the insurer before contemplated by the policy is excused—
the contract was concluded, or by showing
that he waived the condition (a) where authorized by any special term in
the policy; or
5.5.9.2. Deviationxxx
(b) Where caused by circumstances beyond
▪ Where a ship, without lawful excused, the control of the master and his employer;
deviates from the voyage contemplated by
the policy, the insured is discharged from (c) Where reasonably necessary in order to
liability as from the time of deviation, and it is comply with an express or implied warranty;

(d) where reasonably necessary for the safety
of the ship or subject-matter insured; or

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(e) for the purpose of saving human life or (i) Where the assured is deprived of the
aiding a ship in distress where human life may possession of his ship or goods by a peril
be in danger; or insured against, and

(f) Where reasonably necessary for the (a) It is unlikely that he can recover the ship
purpose of obtaining medical or surgical aid or goods, as the case may be, or
for any person on board the ship; or
(b) The cost of recovering the ship or
(g) Where caused by the barratrously conduct goods, as the case may be, would exceed
of the master or crew, if barratry be one of the their value when recovered; or
perils insured against.
(ii) in the case of damage to a ship, where she
▪ When the cause excusing the deviation or is so damaged by a peril insured against that
delay ceases to operate, the ship must resume the cost of repairing the damage would
her course, and prosecute her voyage with exceed the value of the ship when repaired. In
reasonable dispatch. estimating the cost of repairs, no deduction is
to be made in respect of general average
5.5.9.4. Constructive Total Loss Definedxxxii contributions to those repairs payable by
other interests, but account is to be taken of
▪ Subject to any express provision in the policy, the expense of future salvage operations and
there is a constructive total loss where the of any future general average contributions to
subject-matter insured is reasonably which the ship would be liable if required; or
abandoned on account of its actual total loss
appearing to be unavoidable, or because it (iii) In the case of damage to goods, where the
could not be preserved from actual total loss cost of repairing the damage and forwarding
without an expenditure which would exceed the goods to their destination would exceed
its value when the expenditure had been their value on arrival.
incurred.
Marine Insurance is based on few principles which
▪ In particular, there is a constructive total are also its essentials these are principle of utmost
loss—

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good faith; principle of insurable interest; principle of of the insurer in place of the insured for the purpose
indemnity and principle of subrogation. Here utmost of claiming indemnity from a third person for loss
good faith shall mean that the insured relies covered by insurance. The insurer is entitled to
absolutely on the insurer, a contract of marine recover from a negligent third party for any loss
insurance is nothing different from any other form of payment made to the insured as also under section 79
contract as laid down in General Assurance Society v. of the Act.
Chandumull Jain, AIR 1966 SC 1644. Incase either
insured or insurer commits fraud the other party can Thus we can say that the Marine Insurance Act, 1963
avoid such contract. It shall be prima facie duty of is an essential piece of legislation which bring into its
both the parties to act in utmost good faith and ambit maritime losses. Prior to the legislation losses
disclose every material circumstance known as per incurred by the owner of goods and by the owner of
section 20 and 21. Insurable interest here would vessel were unaccounted. The law provides for
mean, at the time of insurance the insurer should insurance in all such cases relating to maritime losses
have interest in subject matter. The insurer is liable to and the contract of marine insurance is similar in
indemnify the insured in case of loss also given under nature to that of any other insurance and contract.
section 75 of the Act. Subrogation means substitution

i Section 1(2), Insurance Act, 1938. vii Section 1, Insurance Regulatory and Development Authority
ii Section 2C, Insurance Act, 1938. of India Act, 1999.
iii Section 2, Insurance Act, 1938.
iv Section 6, Insurance Act, 1938. viii Section 2, Insurance Regulatory and Development Authority
v Sections 11, 12, 13, Insurance Act, 1938. of India Act, 1999.
vi Section 27, Insurance Act, 1938.
ix Section 3, Insurance Regulatory and Development Authority
of India Act, 1999.

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x Section 4, Insurance Regulatory and Development Authority xix Section 18, Insurance Regulatory and Development
of India Act, 1999. Authority of India Act, 1999. Development
xx Section 20, Insurance Regulatory and Development
xi Section 5, Insurance Regulatory and Development Authority Authority of India Act, 1999. Development
of India Act, 1999. xxi Section 23, Insurance Regulatory and
Authority of India Act, 1999.
xii Section 6, Insurance Regulatory and Development Authority xxii Section 29, Insurance Regulatory and
of India Act, 1999. Authority of India Act, 1999.
xxiii Section 1,Marine Insurance Act, 1963.
xiii Section 7, Insurance Regulatory and Development Authority xxiv Section 2,Marine Insurance Act, 1963.
of India Act, 1999. xxv Section 4, Marine Insurance Act, 1963.
xxvi Section 6, Marine Insurance Act, 1963.
xiv Section 9, Insurance Regulatory and Development Authority xxvii Section 16, Marine Insurance Act, 1963.
of India Act, 1999. xxviii Section 18, Marine Insurance Act, 1963.
xxix Section 20, Marine Insurance Act, 1963.
xv Section 14, Insurance Regulatory and Development xxx Section 48, Marine Insurance Act, 1963.
Authority of India Act, 1999. xxxi Section 51, Marine Insurance Act, 1963.
xxxii Section 60, Marine Insurance Act, 1963.
xvi Section 15, Insurance Regulatory and Development
Authority of India Act, 1999.

xvii Section 16, Insurance Regulatory and Development
Authority of India Act, 1999.

xviii Section 17, Insurance Regulatory and Development
Authority of India Act, 1999.

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