Page 9 - Insurance Times March 2022

demand. However, we do understand of a second party (the principal) to a The International Financial Services
the concerns raised by the insurers that third party (the obligee). Centre (IFSC) in Gift City is deemed as a
they should have a recourse to recov- foreign territory, although it is located
ery on par with the banks. This aspect Irdai raises concern over on Indian soil. "The Indian government
has been taken up with the government govt move wants exchanges, depositories at IFSC
and I can tell you that they have re- to have an Indian flavour and have a
acted extremely positively on the issue The insurance regulator has raised cor- diversified shareholding that is preva-
of trying to keep insurers at par with porate governance concerns over the lent in exchanges of the mainboard. As
banks in the IBC code." government's move to appoint one per- part of this, there was a proposal where
son as chairman of two state-run insur- LIC could acquire 15% in India INX or
The general insurance companies are
ers. NSE IFSC (NSE's GIFT situated ex-
seeking changes in Indian Contract Act
and Insolvency and Bankruptcy Code The government had sought Insurance change), but the regulator has raised
(IBC) to bring surety bonds at par with Regulatory and Development Author- an objection," one of the two people
bank guarantees when it comes to re- ity of India's (Irdai) approval to appoint cited above said, seeking anonymity.
course available to them in case of a Anjan Dey as acting chairman of New Two exchanges are located at GIFT City-
default. India Assurance, a charge he already India INX and NSE International Ex-
holds at New Delhi-based Oriental In- change. They are units of BSE Ltd and
The finance minister in her Budget surance.
speech this year had said that surety National Stock Exchange of India Ltd.
bonds can be used as a substitute for "The regulator has also cited section India INX's only other big shareholder is
bank guarantees for government pro- 203 of the Companies Act, expressing ICICI Bank, which owns about 10%
curement in order to reduce the indi- its disapproval," said a person in the stake.
rect cost for suppliers and work contrac- know. Irdai did not respond to ET's Recently, State Bank of India also an-
tors. The insurance industry had hailed email. nounced a plan to acquire a 9.95% stake
this as a very positive move as this will Irdai shared its concerns last week af- in India International Clearing Corp.
give a big boost to project financing with ter the government sought its formal (IFSC) Ltd.
overall improvement in project viabil- nod for the appointment. Section 203 According to the Insurance Regulatory
ity. of the Companies Act says a whole-time and Development Authority of India

However, insurers are seeking legal re- managerial personnel shall not hold of- (Irdai)'s interpretation, the GIFT or IFSC
course against defaulting contractors fice in more than one company except is a foreign jurisdiction, and thus com-
to whom the surety bonds are issued. in its subsidiary. panies in IFSC are outside India, said the
Interestingly, the working group, which This can be allowed if it is approved by a second person, also requesting anonym-
the insurance regulator had formed to resolution with consent of all the ity.
study the viability of the surety bonds company's board of directors. "There "No insurer shall directly or indirectly
business, had recommended a robust has been no such resolution passed by invest outside India the funds of the
legislation for surety bonds and other either Oriental or New India Assur- policyholders," according to Section
non-fund-based guarantees as a neces- ance," the executive quote above said. 27E of the Insurance Act 2015.
sary condition for them to be intro- In the case of LIC, the funds belonging
duced. IRDAI red-flags LIC invest- to policyholders and shareholders are
"Surety bonds may also be included in ment in IFSC not bifurcated, which has complicated
other Acts such as Insolvency and Bank- Life Insurance Corp. of India's (LIC's) bid the problem.
ruptcy code, 2016 and given equivalent to buy 15% in India International Ex- "The exchanges have made some rep-
status as bank guarantees to ensure change (IFSC) Ltd (India INX), a stock resentations to the regulator and LIC,
speedy and effective resolution and exchange located in Gujarat's GIFT City, stating that the exchanges are set up
enforcement of indemnity by surety has been blocked by the insurance regu- under India's Companies Act, 2013, so
providers", it had said. lator over a clause in the Insurance Act technically they are Indian companies
A surety bond is a three-party contract that bars insurers from acquiring over- and not overseas entities. However, the
by which one party (the surety) guar- seas companies, two people directly regulator has not accepted this argu-
antees the performance or obligations aware of the matter said. ment," said the first person. T
The Insurance Times, March 2022 9