Introduction: The Insurance Regulatory and Development Authority of India (IRDAI) has issued a significant order, IRDAI/INT/ORD/MISC/199/11/2023, concerning M/s. Centcart Insurance Broking Services Private Limited. This order, under Regulation 39 of IRDAI (Insurance Brokers) Regulations, 2018, and Section 102 of the Insurance Act, 1938, delves into multiple charges, responses, and decisions. Let’s break down the key aspects of this order.
1. Background Overview: M/s. Centcart Insurance Broking Services Pvt Ltd applied for the renewal of its certificate of registration (CoR) on 30th June 2021. The IRDAI observed discrepancies in the filing of returns, leading to a series of communications and investigations.
2. Charge 1: Violation of Reg. 39(1): The broker failed to file certificates certified by the auditor as per Annexures I-A, I-B, I-C, and I-D from the second half-year of FY 2019-20 to the second half-year of FY 2020-21. The Broker acknowledged the oversight due to a misled employee and provided assurances for future compliance.
3. Charge 2: Violation of Reg. 39(2): The Broker did not submit periodical returns as per the prescribed formats within the specified time during the same period. The Broker attributed this to a technical glitch and implemented measures like a maker checker system for improved vigilance.
4. Charge 3: Violation of Reg. 39(3): The Broker submitted forged certificates, including tampered letterheads and signature portions of its auditor. The company admitted to the mistake, initiated legal action against the responsible employee, and lodged a police complaint. A penalty of Rs. 3,00,000 was imposed for this violation.
Conclusion: The IRDAI order on Centcart Insurance Broking Services reveals a combination of negligence, technical glitches, and fraudulent activities by an employee. While the broker has taken corrective measures and initiated legal actions, the submission of forged documents warrants a significant penalty. The order serves as a reminder to insurance brokers to uphold the highest standards of compliance and internal control. It also highlights the IRDAI’s commitment to maintaining the integrity of the insurance industry through strict enforcement of regulations.
Note: The broker is required to remit the penalty within 45 days from the date of this order and present the decision before the Board in the upcoming meeting. If dissatisfied, the broker has the option to appeal to the Securities Appellate Tribunal as per Section 110 of the Insurance Act, 1938.
INCURANCE REGULATORY AND
DEVELOPMENT AUTHORITY OF INDIA
of Insurance Regulatory and Development Authority of India
under Regulation 39 of IRDAI (Insurance Brokers) Regulations, 2018 read with
Section 102 of the Insurance Act, 1938
In the matter of M/s. Centcart Insurance Broking Services Private Limited
Based on the
(a) Show Cause Notice (SCN) Ref No: IRDAI/DB 492/11/SCN-2021 dated 7th October, 2021
(b) Response of Centcart Insurance Broking Services Private Limited (CIBSPL) to the aforesaid SCN vide letter dated 15thOctober, 2021
(c) Submissions made by CIBSPL during personal hearing granted by Member (Distribution) through video conferencing on 17th November, 2021 at the office of Insurance Regulatory and Development Authority of India, Hyderabad
1.1. M/s Centcart Insurance Broking Services Pvt Ltd, (hereinafter referred to as the “Broker/ CIBSPL”) a Direct Broker (Life & General) submitted an application to the Insurance Regulatory and Development Authority of India (hereinafter referred to as the Authority/IRDAI) for renewal of its certificate of registration (CoR) on 30th June, 2021 for the period 31.07.2021 to 30.07.2024.
1.2. While examining the renewal application, it was observed that the Broker did not file second Half-Yearly returns for FY 2019-20, first and second Half-Yearly returns for FY 2020-21. As the same is not in compliance with Regulation 39 (1) of IRDAI (Insurance Brokers) Regulations, 2018 (hereinafter referred to as said regulations), the Broker was asked to clarify vide communication dated 23rd July, 2021, the reason for non-compliance with aforesaid regulation and file all pending returns in BAP module immediately for further processing the application.
1.3. In response, the Broker on 28th July, 2021 submitted that all pending returns were uploaded in BAP. The Broker explained that due to technical reason, the pending returns could not be submitted on time.
1.4. However, discrepancies in respect of Unique Document Identification Number (UDIN) and certificate number were observed in the returns and response submitted by the Broker. Hence, additional information / documents /explanations /data were sought from the Broker vide letter dated 30th July, 2021. The Broker responded vide letter dated 5th August, 2021.
1.5. It was observed that the letterhead and the signature portion in the certificate copies filed /uploaded in respect of periodic returns in BAP appeared as tampered and, hence, the bonafides of the documents were not clear. Therefore, the Authority vide communication dated 10th August, 2021 and letter dated 27th August, 2021 sought clarification / explanation from the Broker.
1.6. The Broker in response dated 12th August 2021 and 13th September, 2021, admitted the mistake that the certificate copies filed are not authentic documents from the Chartered Accountant (CA) of the Company.
1.7. Based on the above, a Show Cause Notice dated 7th October, 2021 was issued to the Broker. CIBSPL vide letter dated 15th October, 2021 submitted response on the violations of IRDAI (Insurance Brokers) Regulations, 2018 specified in the SCN.
1.8. A personal hearing was granted to CIBSPL on 17th November, 2021 through video conference presided by Member (Distribution), Smt. S. N. Rajeswari. On behalf of the Broker, Mr. Varun Pandey, Principal Officer & Director and Mr. Brijesh Parnami, Director attended the hearing. From IRDAI, Mr. Randip Singh Jagpal, CGM, Mr. Mohammad Ayaz, AGM and Mr. Sumandeep Ghosh, Assistant of Brokers Department attended the hearing.
1.9. The charges framed against the Broker in the SCN dated 7th October, 2021, submissions of the Broker dated 15th October, 2021 in reply to SCN and CIBSPL submissions during personal hearing dated 17th November, 2021 have been examined in arriving at the decisions given below.
2. Charge 1:
Violation of Reg. 39(1) of the IRDAI (Insurance Brokers) Regulations, 2018:
2.1 Regulation 39(1) of the IRDAI (Insurance Brokers) Regulations, 2018, mandates that every insurance broker shall before 31st October and 30th April each year furnish to the Authority the certificates duly certified by the auditor as per Annexure I-A, Annexure I-B, Annexure I-C and Annexure I-D of said Regulations.
2.2 The Broker did not file the certificates duly certified by the auditor as per the above Annexures from second half year of FY 2019-20 till second half year of FY 2020-21.
Submissions of the Broker:
2.3 CIBSPL submitted that one of its employee was entrusted with the task of executing IRDAI related correspondence. Due to pandemic and subsequent lockdown, employees were provided with the option of working from home. While many of them disbursed their key result areas diligently others took the liberty and did not show their diligence to the expected levels. One of its employee lied to the management about BAP not working all the time and also when asked to share the evidence he submitted the screen shots of the error in BAP and that he had submitted the returns on BAP, the employee uploaded forged documents which the Chartered Accountant, Management of Centcart was unaware of. On realizing the blunder of their ex-employee measures have now been taken to ensure sanity. Subsequently half yearly returns have been uploaded in BAP.
2.4 The insurance brokers shall file periodical returns with certificates prescribed under Regulation 39(1) of said regulations duly certified by the auditor of the Insurance Broker. CIBSPL did not file these certificates from second half year of FY 2019-20 till second half year FY 2020-21. In this regard, the submissions of the Broker and measures taken to upload the returns in BAP are noted. However, the Broker is hereby cautioned to exercise care and diligence in filing the periodical returns within the time prescribed in the said regulations.
3. Charge 2:
Violation of Reg. 39(2) of the IRDAI (Insurance Brokers) Regulations, 2018
3.1 As per regulation 39(2) of said regulations, the insurance brokers shall file periodical returns, without fail within the time specified, as per the formats/ returns prescribed under Authority’s Business Analytical Project. Any failure to comply with this regulation without sufficient reason beyond 15 days shall attract penal action as specified under these regulations.
3.2 The Broker has not submitted the periodical returns as per the formats/ returns prescribed under Authority’s BAP module during second half year of FY 2019-20 to second half year of FY 2020-21.
Submission of the Broker:
3.3 CIBSPL submitted that due to technical glitch in BAP, the concerned employee explained that he was not able to file the returns and produced the screen shots of the same. Consequently, the same was intimated to the Authority. The Broker appraised that measures like maker checker has now been put in place and shall ensure that they would be more cautious moving forward.
3.4 The Broker submitted that due to technical reason, the returns were not submitted in time. As per records, the CIBSPL did not raise incident / ticket in BAP on the technical issue being faced while filing periodic returns. Also, the Broker could not submit any evidence on correspondence related to technical issues being experienced.
3.5 CIBSPL confirmed that measures like maker checker has now been put in place and that they would be more cautious moving forward. Considering the corrective measures taken, the Broker is cautioned to ensure filing of periodical returns within the time specified.
4. Charge 3:
Violation of Reg. 39(3) of the IRDAI (Insurance Brokers) Regulations, 2018
4.1 As per regulation 39(3) of IRDAI (Insurance Brokers) Regulations, 2018, any false or wrong certification or concealment of facts in the certificates submitted to Authority shall attract penal action as specified under these regulations.
4.2 The Broker has cut and pasted the letter head and signature portion of its Auditor from previous submitted certificates (i.e. Annexure I-A dated 31.10.2019) and used the same across all other certificates uploaded for second half-yearly return of FY 2019-20 till second half-yearly return of FY 2020-21.
Submission of the Broker:
4.3 CIBSPL has submitted that on receipt of IRDAI letter dated 27th August, 2021, the management realized that there appears to have been some error in the submissions made by the Company and therefore, decided to conduct a detailed enquiry. It was found that one employee, who was responsible for IRDAI compliances, including but not limited to making application before IRDAI for renewal of License, had inadvertently submitted wrong and forged documents in haste.
4.4 A police complaint has been lodged against the employee both by the CA and the organization in the Hyderabad police station on 6th September 2021. The copies of the complaint have been shared with the Authority. The copy of the complaint filed by CA is also submitted. The Broker regretted the inconvenience caused due to the negligence of the employee and the oversight of the management in this regard. The Broker assured the Authority that such errors will not happen in the future.
4.5 The Broker tendered unconditional apologies for such an act of misconduct that has been committed by a disgruntled employee, for which appropriate proceedings were initiated by the Broker. The act of misconduct if any, was not undertaken on instructions of the Company and was done by an employee at his own discretion and with a fraudulent intent to hide his mishaps. The Broker submitted that in such circumstances, the misconduct is not at all attributable to the organization, when admittedly the fraud/misconduct is committed by Employee not acting under instructions of the Company.
4.6 From the above submission of the Broker, it is established that Broker had submitted forged CA certificate to the Authority which amounts to grave misconduct under Reg. 39(3) of IRDAI (Insurance Brokers) Regulation, 2018. Subsequently, CIBSPL and CA lodged the police complaint against the employee.
4.7 As per the records, CIBSPL filed the forged certificates as Annexure I-A, Annexure I-B, Annexure I-C and Annexure I-D dated 25th April, 2020, 28th October, 2020 and 26th April, 2021. Though the Broker has initiated action against the errant employee, the above act of the Broker shows that it does not have proper internal controls. Submission of forged documents itself warrants a penalty.
4.8 Accordingly, in exercise of the powers vested upon the Authority under Section 102 (a) of the Insurance Act, 1938, a penalty of Rs. 3,00,000/- (Rupees Three Lakhs only) is hereby imposed on the Broker for violation of the provisions of Regulation 39(3) of IRDAI (Insurance Brokers) Regulations, 2018 for submission of forged CA certificates.
Summary of Decisions:
The following is the summary of decisions in this Order:
Brief Title of charge and the provisions violated
|1||Violation of Reg. 39(1) of the IRDAI (Insurance Brokers) Regulations, 2018 for not-filing periodic returns to the Authority.||Caution|
|2||Violation of Reg. 39(2) of the IRDAI (Insurance Brokers) Regulations, 2018 for not filing periodical returns, without fail within the time specified, as per the formats/ returns prescribed under Authority’s Business Analytical Project||Caution|
|3||Violation of Reg. 39(3) of the IRDAI (Insurance Brokers) Regulations, 2018 for submitting false or wrong certification or concealment of facts in the certificates submitted to Authority.||Penalty of Rs. 3,00,000/-(Rupees Three Lakhs only)|
5.1 Based on the decision on charge 3, a penalty of Rupees Three Lakhs shall be remitted by the Insurance Broker within a period of 45 days from the date of receipt of this Order through NEFT/ RTGS (details for which will be communicated separately). An intimation of remittance may be sent to firstname.lastname@example.org with a copy to email@example.com
5.2 The Order shall be placed before the Board of the Broker in the upcoming Board meeting and the Broker shall submit a copy of the minutes to the Authority.
5.3 If the Broker feels aggrieved by the above decisions in this Order, an appeal may be preferred to the Securities Appellate Tribunal as per Section 110 of the Insurance Act, 1938.
Date: 10th November, 2023