The General Insurance Business (Nationalisation) Amendment Bill, 2021, will allow private participation in public sector insurance companies, with the government reducing its shareholding below 51 per cent and transferring management control to the prospective buyer. The Bill removes a clause that requires the Centre to hold at least 51 per cent shares in the National Insurance Company, New India Assurance Company, Oriental Insurance Company, General Insurance Corporation of India, and United India Insurance Company.
The Bill seeks to enhance insurance penetration and social protection and secure the interests of policyholders, according to the statement of objects and reasons. It includes a new section that states that the applicability of the Act ceases from the date the central government relinquishes control over an insurer.
‘Control’, according to current law, gives the Centre the right to appoint a majority of directors and power over its management or policy decisions by virtue of its shareholding rights or management rights under its articles of association. Such power would now vest with the board of the privatised insurer.
The government is separately identifying an insurer for privatisation as announced in the Union Budget by Finance Minister Nirmala Sitharaman. The Alternate Mechanism that includes the Finance Minister and Road Transport and Highways Minister, among others, will finalise the suitable candidate for privatisation, and send the proposal to Cabinet Committee on Economic Affairs (CCEA). The NITI Aayog has suggested United India Insurance Company as one of the candidates.
The Bill makes the director of an insurer, who is not a whole-time director, liable for any acts of omission or commission committed with his knowledge and consent. A new section in the Bill also makes a director liable for acting in connivance or for not practicing his/her duties diligently.
The board of directors of the insurer will be empowered to frame a new policy for regulating pay scales and other terms and conditions of service of employees or of any acquiring company.
“The government has opened the doors for private players to enter the public sector insurance space, and at the same time, tightened the noose around directors (other than whole-time directors),” said by Nischal S Arora, partner at Nangia Andersen. The directors will be held liable for not acting diligently until privatisation is completed. However, the provisions of the Act shall not apply on the insurer after stake dilution, Arora said.
The General Insurance Business (Nationalisation) Act, 1972, was enacted to provide for the acquisition and transfer of shares of Indian insurance firms for developing the general insurance business. In 2002, the Act was amended to transfer and vest the shares of the acquiring companies back with the central government, mandating it to maintain at least 51 per cent shareholding in general insurance companies.
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