The government has put to rest the two-month-long turf war between insurance regulator Irda and capital market watchdog Sebi, clarifying that life insurance business includes any unit-linked insurance policy, scripts or similar instruments.
“Life insurance business shall include any Ulip or any such instruments. This would set at rest all the issues regarding Ulips between two financial regulators,” the government said in a statement after promulgating the Securities & Insurance Laws(Amendment & Validation) Ordinance 2010 to make necessary changes in the law.
The President of India has promulgated an Ordinance late last evening amending the RBI Act 1934, Insurance Act 1938, SEBI Act 1992 and Securities Contract Regulations Act 1956, thereby clarifying by way of an explanation that Life Insurance business shall include any Unit Linked Insurance Policy or scripts or any such instruments. This would set at rest all the issues regarding ULIPs between two financial regulators i.e. Securities Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA) .
Further, for sorting-out all issues of jurisdiction regarding hybrid products, a high level Committee under Chairmanship of Union Finance Minister has been constituted. Finance Secretary to Government of India, Secretary, Department of Financial Services and the Chiefs of four Financial Regulators viz. Reserve Bank of India (RBI), Insurance Regulatory Development Authority (IRDA), Securities Exchange Board of India (SEBI) and Pension Fund Regulatory Development Authority (PFRDA) will be the members of the aforesaid Committee.
Interestingly, in light of the new Ordinance, the government could also revisit the issue of taxation of Ulips under the proposed direct tax code (DTC), according to finance ministry officials. While the revised discussion paper on DTC released on Monday had not included Ulips under products availing tax exemption, pure life insurance products were eligible for this. Now, with the Ordinance making it clear that Ulips were an insurance product, the taxation issue had to be revisited, said the officials.
On April 10, Sebi triggered a turf war with Irda when it issued an order restraining 14 insurance entities from selling Ulips, saying these companies needed to take its approval before launching any product with an investment option. Several characteristics of Ulips product was unit-linked and money was raised from the public through sale of units, premium used to allocate units in funds chosen by investors, the product’s characteristics of fund management, charges, switch and partial withdrawal options – were that of an investment product, making registration with Sebi mandatory, the market regulator had argued.
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Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010
Promulgated by the President in the Sixty-first Year of the Republic of India.
An Ordinance further to amend the Reserve Bank of India Act, 1934, the Insurance Act, 1938, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992;
Whereas Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for her to take immediate action;
Now, therefore, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President is pleased to promulgate the following Ordinance:—
CHAPTER I
Preliminary
Short title and commencement.
1. (1) This Ordinance may be called the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010.
(2) It shall come into force at once.
CHAPTER II
Amendment to the Reserve Bank of India Act, 1934
Insertion of new Chapter IIIE in Act 2 of 1934.
2. After Chapter HID of the Reserve Bank of India Act, 1934, the following Chapter shall be inserted, namely:—
“CHAPTER IIIE
Joint Mechanism
Joint Mechanism.
45Y. (1) Notwithstanding anything contained in this Act or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or any other law for the time being in force, if any difference of opinion arises as to whether—
(i) any instrument, being derivative referred to in clause (a) or money market instrument referred to in clause (b) or repo referred to in clause (c) or reverse repo referred to in clause (d) or securities referred to in clause (e) of section 45U of this Act; or
(ii) any instrument, being policy of life insurance under the Insurance Act, 1938 (4 of 1938), or the rules or regulations made thereunder, or, scrips or any other securities referred to in sub-clauses (i), (ia), (ib), (ic), (id), (ie), (ii), (iia) and (iii) of clause (h) section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956),
is hybrid or composite instrument, having a component of money market investment or securities market instrument or a component of insurance or any other instrument referred to in clause (i) or clause (ii) and falls within the jurisdiction of the Reserve Bank of India or the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) or the Pension Fund Regulatory and Development Authority constituted by the Resolution of the Government of India number F.No. 1(6)2007-PR, dated the 14th November, 2008 or the Central Government, such difference of opinion shall be referred to a Joint Committee consisting of the following, namely:—
(a)the Union Finance Minister – ex officio Chairperson;
(b)the Governor, Reserve Bank of India – ex officio Member;
(c) the Finance Secretary in the Ministry of Finance, Government of India – ex officio Member;
(d) the Secretary (Financial Services) in the Ministry of Finance, Government of India – ex officio Member;
(e) the Chairperson, Insurance Regulatory and Development Authority ex officio Member;
(f) the Chairman, Securities and Exchange Board of India – ex officio Member;
(g) the Chairperson, Pension Fund Regulatory and Development Authority – ex officio Member.
(2) The Secretary (Financial Services) in the Ministry of Finance, Government of India shall be the convener of the meetings of the Joint Committee referred to in sub-section (1).
(3) In case of any difference of opinion referred to in sub-section (1), any Member of the Joint Committee may make a reference to the Joint Committee.
(4) The Joint Committee shall follow such procedure as it may consider expedient and give, within a period of three months from the date of reference made under sub-section (3), its decisions thereon to the Central Government.
(5) The decision of the Joint Committee shall be binding on the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority.”.
CHAPTER III
Amendment to the Insurance Act, 1938
Amendment of section 2 of Act 4 of 1938.
3. In the Insurance Act, 1938, in section 2, after clause (11), the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 9th day of April, 2010, namely:—
‘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.’
CHAPTER IV
Amendment to the Securities Contracts (Regulation) act, 1956
Amendment of section 2 of Act 42 of 1956.
4. In the Securities Contracts (Regulation) Act, 1956, in section 2, in clause (h), after sub-clause (id), the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 9th day of April, 2010, namely:—
‘Explanation.— For the removal of doubts, it is hereby declared that “securities” shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever named called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938. (4 of 1938)’
CHAPTER V
Amendment to the Securities and Exchange Board of India Act, 1992
Amendment of section 12 of Act 15 of 1992.
5. In the Securities and Exchange Board of India Act, 1992, in section 2, in sub-section (IB), the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 9th day of April, 2010, namely:—
“Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this section, a collective investment scheme or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer.”.
CHAPTER VI
Miscellaneous
Validation.
6. Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, the provisions of section 2 of the Insurance Act, 1938 (4 of 1938) or section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), as amended by this Ordinance , shall have and shall be deemed to always have effect for all purposes as if the provisions of the said Acts, as amended by this Ordinance , had been in force at all material times and accordingly any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, issued or purported to have been issued at any time before the 9th day of April, 2010, shall be deemed and always deemed to have been validly issued and shall not be called in question in any court of law or other authority solely on the ground that it was issued without a certificate of registration under any law for the time being in force or without following any procedure under any law for the time being in force, by an insurer or any other person.
