The Insurance Regulatory and Development Authority of India (“IRDAI”), in a Circular dated 5th November 2020, has provided the draft of IRDAI (Manner of Determination of Compensation to Shareholders on Merger of an Insurer under a Scheme Prepared under Section 37A) Regulations, 2020 (“Draft Regulations”)
In connection to the proviso of Section 37A, the shareholders and members whose rights have been adversely impacted by the scheme of amalgamation /merger framed under the same shall be entitled to compensation. Hence, the Authority needs to frame the Regulations for determining such compensation.
The Draft Regulations are as follows:
1. Compensation to the shareholders whose rights against the acquiring insurer has been reduced. Such compensation shall be paid based on the residual value of the assets.
2. The residual value of the assets shall be the amount equal to the value of the assets of the acquired insurer as on the day immediately before the appointed day.
3. The compensation shall be paid either in cash and / or in kind or partially in cash and partially in kind.
4. Separate provisions for payment of compensation for merger / amalgamation of the branch of a foreign reinsurer has been provided.
5. Every shareholder of the acquired insurer shall be given such amount as compensation, as bears to the residual value of the assets, the same proportion as the amount of paid-up capital of the shares held by the shareholder bears to the total-up capital of the acquired insurer.
6. Under circumstances, where the amount of compensation offered in terms of these regulations is not acceptable to holders of not less than 10 percent of the paid up equity capital of the acquired insurer to whom the compensation is payable, such aggrieved persons may prefer an appeal to the Securities Appellate Tribunal before the date as may be notified by the Authority.
Note- The Draft Regulations have been provided at Annexure-A of the hyperlinked document. The comments / suggestions on the draft Regulations may be forwarded to Mr. Sumit Arora, Assistant Manager at sumit.arora@irdai.gov.in with a copy to Mrs. R Uma Maheswari, Deputy General Manager at uma@irdai.gov.in by 20th November, 2020.
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Section 37A (4A) of the Insurance Act, 1938 provides:
“(4A) Every policyholder or shareholder or member of each of the insurers, before amalgamation, shall have the same interest in, or rights against the insurer resulting from amalgamation as he had in the company of which he was originally a policyholder or shareholder or member:
Provided that where the interests or rights of any shareholder or member are less than his interest in, or rights against, the original insurer, he shall be entitled to compensation, which shall be assessed by the Authority in such manner as may be specified by the regulations.”
Source: Insurance Regulatory Development Authority of India
