Insurance laws amendments: Delegation unlimited may invite despotism
The proposal to shift the legislative powers and vest them with insurance regulator and several other amendments proposed to the two insurance laws have raised many an eyebrow in the insurance sector.
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Chennai, Dec 5 The proposal to shift the legislative powers and vest them with insurance regulator and several other amendments proposed to the two insurance laws have raised many an eyebrow in the insurance sector.
They also wondered about the legality of the amendments proposed.
"The industry as a whole is surprised at the gamut of the amendments proposed," an industry official told IANS on the condition of anonymity.
"The proposed amendments are a mixed bag. Those who are initiated, would shudder to think that many of the provisions empowering the sectoral regulator to make subordinate legislations would not muster legal scrutiny on the ground of the vice of excessive delegation of powers," D. Varadarajan, a Supreme Court advocate and member of the KPN (K.P. Narasimhan) Committee on Provisions of the Insurance Act, 1938, told IANS.
Varadarajan, specialising in company/competition/insurance laws, also added: "It is a settled position that the framers of law cannot abdicate its responsibility by leaning heavily on the Executive, give untrammeled plenary powers, which are within the legislative domain. Even though delegation of powers to the Executive is well known and accepted, vice of excessive delegation is an anathema."
According to him, the rule/regulation making power cannot be granted as a matter of routine, and requires to be circumscribed and canalized.
"The rule of law cannot transcend into rule by subordinate legislations. Further, any delegation of power should also conform to the Preamble of the respective Acts," he said.
Viewed through the above prism of law making, Varadarajan added: "The total delegation of power to the Regulator on a platter in regard to determination of paid up capital for various classes insurance business, as proposed in the Bill, is in contradistinction to the extant Section 6 of the Insurance Act, 1938, and is an instance of manifest excessive delegation of power to the Executive by the Legislature."
The proposed amendments include scrapping of the statutory Rs 100 crore startup capital for life and general insurance business and Rs 200 crore for reinsurance business, allowing different kinds of insurers, including captives, composite insurers, changing the investment provisions and allowing insurers to provide services related or incidental to insurance business and distribute other financial products as specified by and subject to regulations.
Yet another instance is the power proposed under a new Section 3AB to determine by way of regulations other financial products which may be distributed by an insurer, and also as to what are services related to or incidental to insurance business, said Varadarajan.
According to him, as per the definition insurance business includes, life, general, health other sub-classes and reinsurance business only, and in such a setting how the proposed scheme of Section 3AB would fit in?
Further, an insurer would be licensed to do insurance business of a class or sub-class as the case may be.
Against the backdrop of such a statutory scheme, the vires of the proposed section 3AB is highly suspect, as also the excessive delegation of power proposed to be conferred for regulation making by the Regulator, Varadarajan argued.
There is also absence of legislative indication as to what are "services related to or incidental to insurance business", and that the same is left to the wisdom of the Regulator.
In regard to qualifications and disqualifications of agents and insurance intermediaries, the existing law under Sections 42 and 42E contains elaborate provisions, subject to which power is conferred on the Regulator to make regulations in this behalf.
Whereas, under the Bill, the legislative intent and prescription is done away with, and excessive delegation is resorted to the regulations making body.
In the context of regulation making, it is given to understand that a few years ago, Parliamentary Committee on Subordinate Legislation examined through fine tooth-comb the various regulations framed by the Insurance Regulatory and Development Authority of India (IRDAI) and came out with various comments and suggestions. It is apposite to keep them in mind while embarking upon any regulation making exercise, Varadarajan said.
It is settled law that the legislature cannot delegate its essential legislative function in any case. It may lay down the legislative policy and principle, and must afford guidance for carrying out the said policy before it delegates its subsidiary powers on that behalf. The Supreme Court has stated that abdication of legislative power, or its excessive delegation, or a total surrender or transfer by the Legislature of its legislative functions to another body, is not permissible. Delegation unlimited may invite despotism unlimited.
There is also an astounding proposal to make offences under the IRDA Act punishable under the Insurance Act, which seems strange. Ideally, the IRDA Act would contain provisions for offences under that Act to make it self-contained code, like the SEBI Act, Varadarajan said.
"It is also surprising that there is no proposal to transfer penalties collected by the Insurance Regulator to transfer the same to the Consolidated Fund of India by taking a leaf out of the SEBI Act, which contains such a salutary provision, so that the penalizing authority would not be trigger-happy in imposing hefty penalties, disproportionate to the proven lapses, and thereby enriching the coffers of the penalizing authority," Varadarajan remarked.
He recalled the Supreme Court's advice given time and again th at mere existence of power to impose penalty on a statutory authority should not mean that penalty is to be imposed in each and every case, when a censure or warning would suffice, after adhering to the principles of natural justice.
"Be that as it may, it is not to be understood that IRDA would be harsh and unreasonable, but once these provisions enter the statute book, one cannot rule out the possibility that at a distance future an adventurous regime would experiment with the uncanalised power with trigger-happy mindset to deleterious effect," Varadarajan said.
The proposed amendments are also silent on the appointment of the Chief Vigilance Officer (CVO) for IRDAI.
The IRDAI is not exempted from getting the Chief Vigilance Commissioner's approval before appointing its Chief Vigilance Officer, said Finance Minister Nirmala Sitharaman to a question raised by AAP Rajya Sabha Member Narain Dass Gupta a while ago.
"As per the Finance Minister, the IRDAI is not exempted from getting Chief Vigilance Commissioner's approval while appointing its Chief Vigilance Officer. Hence, the Chief Vigilance Officer post is a sensitive post as per the government norms. And the official has to be transferred every three years," the senior IRDAI official told IANS.
(Venkatachari Jagannathan can be reached at [email protected])
