The Securities Appellate Tribunal (SAT) on Thursday set aside an order by the Insurance Regulatory Development Authority (IRDA) asking Sahara Life Insurance to transfer its life insurance business to ICICI Prudential Life Insurance Co. Ltd.
The appellate court has asked the insurance regulator to hear the matter afresh and pass orders within three months. However, it upheld the appointment of an external administrator for Sahara Life.
As per the IRDA Act, the regulator can appoint an administrator if it feels policyholders’ interests may be compromised. The administrator looks at the day-to-day affairs of the insurer and suggests a revival plan.
In a first of its kind order on 28 July, IRDA had directed the transfer of Sahara’s insurance business. Following this, Sahara had filed an appeal in SAT saying that “the unilateral and drastic action (of) IRDA(is) in gross violation of the principles of natural justice and the various provisions of the Insurance Act”.
According to the tribunal, the insurance regulator should have applied the principles of proportionality before resorting to such extreme measures of transfer, merger or winding up of an insurance business altogether. “The action must commensurate with the nature of the violation in a given case,” SAT said in its order.
SAT also directed that the regulator place the administrator’s recommendations before Sahara and IRDA give the firm an opportunity to examine and respond to the proposals. In the order, SAT held that the appointment of an administrator is more in the nature of an administrative order.
“Appointment of an administrator is purely a temporary measure by the IRDA, primarily to bring the affairs of the insurer back on the right track and thereby protect the interests of the policyholders,” said SAT.
In an emailed statement, Sahara said, “Sahara Life Insurance got a major respite and its stand was vindicated by SAT, when it remanded and restored the whole matter to the file of the IRDA with a direction to proceed from the stage of seeking a representation/response from Sahara Life.”
Somasekhar Sundaresan, the lawyer representing IRDA, said that regulator was examining the order.
“We are studying the order and will decide the next course of action. The Tribunal has upheld the control over the business in the hands of the administrator but has said we must give another hearing. A view will be taken on larger policy issues since for IRDA, this is not just a situation in one case but a stand that will have implications in all future cases,” said Sundaresan.