Joint plea by insurers against Sebi order seen

Haze hangs heavy over unit linked insurance plans (Ulips) a good five days after Securities and Exchange Board of India (Sebi) passed an order barring 14 insurance companies from collecting premiums from such policies.

On Wednesday, with offices and markets closed for Ambedkar Jayanti, conjectures and speculations flew fast and furious over the next move of the key stakeholders — the government, Sebi and Insurance Regulatory and Development Authority (Irda), and the
insurance companies, among others.

The government reiterated that it wants Sebi and Irda to move court immediately to decide once for all who should have jurisdiction over Ulips.    

“We want them to go to the court at the soonest. The larger issue on who has the regulatory oversight authority (over Ulips)... will be decided by the court. We want them to go to the court at the soonest,” finance secretary, Ashok Chawla said.

“Irda and Sebi will jointly settle the issue in courts as suggested by the minister,” Irda chairman J Hari Narayan said, without specifying when or where the legal battle would start.

At the same time, Chawla told reporters there was nothing wrong with Sebi’s Tuesday order asking insurance companies to get a clearance from it in case they want to launch a new Ulip. Sebi’s contention is that the bulk of the Ulip premium is invested and only a minuscule portion goes towards insurance, which makes makes the structure of these schemes very similar to that of mutual funds.

Irda, however, asked insurance companies to ignore this order just as it had asked them to ignore the earlier order. “There is no fresh clarification. The earlier one stands good,” Hari Narayan said.

A Sebi spokesperson said it being a holiday any decision would come only on Thursday.

Lawyers in the city weren’t sure what the procedure for filing a joint reference would be. “There are two writ courts —- High Court and Supreme Court. There is a need for clarification on what is a joint reference,” says Somasekhar Sundaresan, partner at J Sagar Associates.

Lawyers said the case could be filed in any high court by either Sebi or the 14 life insurance companies whose products had been banned in the first place.

“Irda was not given a notice and hence it cannot file a case. It can only be one of the parties,” Archit Jayakar, a solicitor with KJSV Solicitors & Advocates, said.

The 14 life insurers could either file a joint petition or file a case through a recognised body such as the Life Insurance Council, lawyers said.

“In all likelihood, it would be a joint petition by the insurers with Irda being one of the parties. If the 14 life insurers file cases separately, then a directive on any one case will be applicable to all others,” Jaykar said.

Queering the pitch somewhat is a public interest litigation (PIL) filed by one Rajendra Thacker against the Sebi order in the Bombay High Court, although some lawyers make light of it.

“The PIL doesn’t have much substance, as they have said the investors are suffering anxiety. But it is not that through the decision on the regulatory overlapping that all the Ulips issued are going to be made void,” Jayakar said. “The PIL doesn’t usurp the power from the ministry to negotiate. It doesn’t prevent Sebi or Irda from going to court. All that can happen is that they might give them a certain timeframe to decide.”

Another set of lawyers, however, believes the legal proceedings would be different now, since a PIL has been filed.

“A public interest litigation has been filed and now the court will direct all concerned parties to resolve their differences in the larger public interest,” said Shreyas Patel, partner at Majmudar & Co.
It is clear that the courts will decide the issue.

“Now that the issue has moved out of the domain of regulation, the genie of the quasi-judicial order cannot be put back in the bottle even by Sebi,” Sandeep Parekh, faculty member at IIM Ahmedabad and former executive director (legal affairs) at Sebi, wrote on his blog.

According to Parekh, ignoring the Sebi order on new Ulips could land insurance companies in some trouble. “The insurance regulator setting the order aside is an attempt to do what only the Securities Appellate Tribunal, high court or the Supreme Court can do, and is patently illegal and contrary to basic rule of law principles… What happens if the insurance industry breaches the order without a stay order? The only thing Sebi does on breach of its orders is file criminal prosecution —- mainly because it has no other tool to enforce its power,” he wrote.

 “…no court will entertain a mediation between two regulators (or any two persons). The Supreme Court has repeatedly stated that it will not (and the high courts too) cannot act as mediators. They will only decide a controversy where something is legally challenged by one party against another (in a writ in this case),” he added. (With PTI inputs)