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VSWAMINATHAN B.Sc. B.L., FCA

1. INTRODUCTION:

The feud between the two regulatory authorities, in the aftermath of sebi’s ban on ulips, has turned out to be quite a sensitive topic. In the recent days, that has, as ever so, come to be ballooned by the media into a sensational one. In that, the media has dutifully arisen to the occasion, and in its own inimitable style, spared no pains but given the widest possible publicity to the new found hot topic with zeal and in a feverish pitch.

In the common perception, it is simply a ego war; not a turf war as dubbed, wrongly so, in some quarters.

2. The million dollar (multi crore rupees!) question, which possibly should have been nagging anyone’s courage of conviction, is: Should not the individual as well as common interests of the investors/ insured, being the stakeholders, have been given the topmost priority and unreservedly weighed with the government and its regulatory authorities in taking a rightful decision, to the end of finding a fittingly binding solution to the stalemate. That could have been accomplished, without procrastination, had they cared to realize that, after all, it is the fundamental right of an investor to invest in any such marketed product, so long as it has been duly registered with the appropriate authority – herein it is irda. As, according to the individual stand of both sebi and irda, what they so caringly are fighting for is wholly for safeguarding/  protecting the very same interests of the investing public.

3. Ever since the row started brewing, there have been views and counter views given a wide publicity. Anyone who has been closely following up could not have failed to take a note of the mutually varying facets of the controversy set in motion.

The stance of sebi, to be more precise- the premise on which it appears to have proceeded with issuance of the ban order, seems to be that, – its authority to issue any such order is unquestionable. The reasons stated and reiterated by sebi, as understood by one, are:

It is the and the only authority, which has been vested with exclusive powers to regulate the business in stocks and any other security markets. And, ULIP, in any of its varied avatars, is a product (or is it ‘commodity’- within its meaning as used in the law on income-tax?) with more of investment content than its insurance content; hence a ‘security’ falling within its jurisdiction.

In this context, it needs to be pinpointed that, contrary to the impression sought to be created during the recent debates, there appears to be no clear-cut definition or definitive guideline. For that matter, a search on the web is sure to make one realize that the term ‘security’ has no uniform but has varying meanings for different purposes. Besides, one has really failed to appreciate as to why, or sees no sense in– the term ‘investment’ being liberally, as if it means or refers to one and the same concept or equivalent to ‘security’. In short, any clinching ruling on the basic issue namely- as to whether or not ULIPs could be categorized as ‘security’ within the meaning, especially  for the purposes of the SEBI Act itself is, it seems, quite likely to be fraught with insurmountable difficultly; hence, likely to lead an inconclusive finding.

4. Going by, rather placing reliance on the market news in public domain, the indelible impression one is left with may be narrated thus: The holders of ulips, even in the wake of the ban order, are not known to have expressed any serious concern or anxiety. By and large, they have seen no reason to panic, much less to be so provoked as to doubt their own prudence in having and remaining invested in ulips. In other words, the holders of ulips mostly, left unto them, have not lost their faith or confidence in the soundness or usefulness of having or remaining invested in ulips. On the contrary, as reported in the press, (see Business Line, issue of 13th April – inter alia under – ‘policy –holders jam insurance agents’ phone lines’) – the holders of ulips have become apprehensive and been making discreet inquiries only because of the scare that the ban order came to precipitate in their minds.

5. For getting a glimpse of irda’s reactions, the press reports, in Economic Times, etc., narrated below, may be useful:

When contacted, R Kannan, member, irda, said: Ulips are internationally sold by insurance companies and not by any other segment of financial services. They are a composite insurance product, but the investment is shown separately because the investment risk is borne by the policyholder.

This product is structured as per international practice and is well within section 2(11) of the insurance act.

While the particular section in the Act recognizes life insurers’ right to sell such products, sebi probably feels the schemes that generate a return on investment are similar to collective investment schemes, which come under its jurisdiction.

6. According to a view, regardless of the other issues raised and debated, the following are the most fundamental ones that need to be focused on:

A) Whether or not sebi has, in issuing the ban order, acted in excess of its powers as a regulatory authority?

B) Do not the reactions of the investors as given publicity in the media go to conclusively establish that the ulips have, for tax and other considerations, been found by them, rather they have no qualms about the ulips being a safe and sound investment?

C) If the answer to B) is not but positive, should not sebi have, on its own, without any qualms or further procrastination, decided to and withdrawn the order in toto (though, has since been modified to some extent) as in fructuous or ab initio void?

In a nutshell: The all comprehensive issue requiring a conclusive finding is this:- Whether sebi was, in exercise of its powers as ‘regulatory authority’, by any logic, right in interfering in the marketing of any product, duly registered with an appropriate independent regulatory (or any other authority), – despite any other consideration; particularly, its inherent composition – that is, whether it is a combo– that is, a two-in-one or more than one – which has been permitted to be marketed?

7. In the common perception: Every regulatory authority, in acting on, or reacting to, in any such matter, mostly opts to confine itself to its rules and regulations (the ‘rules’) so framed as to take care of only the interests of the given sector coming within its purview. Such ‘rules’ are invariably framed in a manner that they address themselves to and meet only the ‘parochial’ concerns of the players in the sector the authority is expected to govern. For obvious reasons, and as a matter of conventional practice, the most of such rules are not necessarily founded on any ‘principle’ -in its profound and idealistic sense, from a socialistic point of view. The inevitable consequence is, in the event of being faced with a conflict of interests, such as herein,– a conflict of ego or turf war, or any other term one can think of – each authority strives and sticks to its own gun, ignoring or bypassing what the other authority has to say, – ‘come what may’. So much so, the rules as also the steps taken by each one of them on a seemingly peremptory but impulsive basis blatantly tend to overrule or bypass the most vital objective they are expected to serve or sub serve namely,  – the larger interests of the investors.

8. As has been observed in some quarters: Both regulators have been vociferously professing that their ultimate objective is to protect the interests of the investing/ insuring public. If that were truly so, then why the feud, is all the more confusing. Also, the finance ministry, besides the law ministry, has taken a recalcitrant and indifferent attitude, and tacitly refused to intervene and resolve the issue. Had it been otherwise, as was widely expected, and brought about a serious dialogue between the two regulators, so that a solution could have been surely found.

9. It has been pertinently asked in a thought provoking published article: Is litigation the only way to save the stakeholders’ interest? One is provoked to counter and in turn ask: Should not the only sensible answer to the poser be– most certainly, litigation is ‘no way’ – at all?

For justification, one should recall what the apex court had to say, rather strongly recommend, to the government / its authorities, in the matter of all such internal / in- house disputes. In its judgement handed down in the often-cited ‘ONGC’ case, the court has made a clean breast of its unequivocal reservations and reactions, and its clear-cut opinion.

10. In the ONGC case, the dispute pertained to issue(s) arising between the public sector undertaking and the tax – central excise- authorities. It was in that context that the court was constrained to express its strong opinion against the propriety, and the manner, in which the central government and its public sector undertakings were fighting their litigation in the courts by spending money and wasting public time. The court’s   direction was addressed to the cabinet secretary to handle the matter and report to the court as to why the litigation was being conducted “when the two sides are public sector undertakings under the union of India”. In response, the cabinet secretary reverted to admit that the government respected and accepted the views expressed by the court. What ensued thereafter went to suggest and make one and all believe that instructions were being issued from time to time to all the departments of the government of India as well as to the public undertakings of the central government to the effect that, – all disputes, regardless of the type, should be resolved amicably by mutual consultation or through the good offices of empowered agencies of the government or through arbitration; thereby, a recourse to court litigation should be eliminated.

Now, turning to the current dispute between the two regulatory authorities, the referred  opinion of the apex court, in one’s perception and strong conviction, has prima facie relevance; is rather, for obvious reasons,  of more relevance. Should that be the premise, the investors/ insured are left with no clue but have been kept wondering as to why, – the feud was to be moved in court; thereby, forcing them also into court litigation.

The sad commentary is that, – in case the government had the will as warranted, it certainly could have found ways and means to bring this mindless war to an abrupt end. Especially, had the concerned ministries chosen to effectively intervene, without overlooking the commitment made to the apex court in the above-referred ONGC case.

11. According to a media report, irda had opposed the idea of sebi’s move to have the jurisdictional issues resolved “through the hearing of pils’; it was of the opinion that they (pils) addressed “consumer interest issues rather than conflicts regarding jurisdiction”. The referred opinion of irda, to put it in the least offensive manner, deserves to be taken, not with the proverbial just – a pinch of, – but with a few pinches of salt. As, such an outlook, prima facie runs counter to the common conception that, – in any democracy, government, so also its authorities,  is believed to be of, and owes is very existence to – ‘the people’ and only  ‘the people’. Unless, of course, for what one does not know, the very basic concepts of – ‘people’ and ‘public interest’ have, as many other concepts, lately undergone a rudimentary change.

KEY NOTE: Sebi, as lately reported, has moved the Supreme Court pleading for transfer of the several pending cases relating to ulips from different high courts to one court. After having heard, the court has issued notices to – the centre, the irda, 14 insurance companies impacted/aggrieved by the ban order, and petitioners of two public interest litigation. The indication is – the matter is slated to be further heard on the 8th of July.

To conclude:

At the end of the day, the doubt lingers on: – Should not the regulatory authorities have acted prudently, in deciding to move the court on the subject controversy; and should not the government on its part have played an active role, instead of choosing to remain a ‘mute spectator’?

If looked at objectively, that is from the viewpoint of the stakeholders, there is no gainsaying that,- had the apex court’s incisive observations and recommendations in the landmark ONGC case not been lost sight of, hopefully, a different course of action would have come to be followed.

NF

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0 Comments

  1. v swaminathan says:

    @NB
    IN A LAYMAN’S LANGUAGE: BUT, USEFULLY, TO PUT IT IN THE FORM OF A ‘POSER’ – IS THERE ANY WISDOM, OR RATIONALE, OR RHYME OR REASON, MORE SO – SANITY IN A ‘DOMESTIC’ QUARREL/ ‘FAMILY’ FEUD BETWEEN – HUSBAND AND WIFE, OR TWO SONS – WHEN THERE IS A GREY-HAIRED HEAD / PATRIARCH OF THE FAMILY WHO IS EXPECTED TO, AND IF HE SO RIGHTLY MINDS, TO INTERVENE AND GIVE PROPER /APPROPRIATE ADVICE ?

    INDEED, LAST LINE, IS FOUNDED ON A STRIKINGLY PATRIOTIC OR PURITANICAL OUTLOOK; – BUT,ANYONE ELSE, WHO IS STILL LEFT WITH AN IOTA OF TRADITIONAL BELIEF IN MORAL VALUES OR ETHICAL PRINCIPLES,- MAY, POSSIBLY, HAVE A DIFFERENT OUTLOOK.(!!)

    VSWAMINATHAN

  2. NB says:

    Sir, will someone please clarify in layman’s terms what is all this about? Two arms of the cetntral govt. fighting, ok, but for what?

    Ours is indeed a great country!

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