Substitution of section 4.
121. For section 4 of the principal Act, the following sections shall be substituted, namely:––
Board of Directors.
‘4. (1) The general superintendence and direction of the affairs and business of the Corporation shall vest in its Board of Directors, which may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation and are not by this Act expressly directed or required to be done by the Corporation in general meeting.
(2) The Board of Directors of the Corporation shall consist of the following directors, not exceeding fifteen, of whom at least one shall be a woman, namely:-
(a) a Chairperson of the Board, to be appointed by the Central Government, who shall be a whole-time director of the Corporation;
(b) Managing Directors, not exceeding four, to be appointed by the Central Government, who shall be whole-time directors of the Corporation;
(c) not more than two officers of the Central Government not below the rank of a Joint Secretary to the Government of India, to be nominated by the Central Government;
(d) not more than two individuals, to be nominated by the Central Government, who have special knowledge or practical experience in actuarial science, business management, economics, finance, human resources, information technology, insurance, law, risk management, or any other field the special knowledge or practical experience of which would be useful to the Corporation in the opinion of the Central Government or who represent the interests of policyholders;
(e) where the total holding of members other than the Central Government in the paid-up equity capital of the Corporation is––
(i) not more than ten per cent., one individual;
(ii) more than ten per cent. but not more than twenty-five per cent., two individuals; and
(iii) more than twenty-five per cent., three individuals, elected by such members in such manner as may be specified by regulations, to be appointed by the Board;
(f) such number of independent directors, not exceeding three, to be recommended by the Nomination and Remuneration Committee and appointed by the Board;
(g) at any time when the number of directors to be elected under clause (e) is less than three, either due to the total holding of members other than the Central Government in the paid-up equity capital of the Corporation being not more than twenty-five per cent. or due to vacancy in elected directors, the Board may co-opt such number of individuals as independent directors who taken together with elected directors shall not exceed three:
Provided that such co-opted directors shall be recommended by the Nomination and Remuneration Committee and appointed by the Board, and shall continue to be directors until elected directors assume charge, whereupon an equal number of such co-opted independent directors shall retire in the order of their co-option.
(3) An independent director of the Corporation shall, in relation to the Corporation, meet the same criteria of independence as an independent director of a company is required to meet in relation to the company under sub-section (6) of section 149 of the Companies Act:
Provided that such a director shall also meet, in addition to the aforesaid criteria, any criteria that the Nomination and Renumeration Committee may formulate regarding qualifications, positive attributes and independence:
Provided further that every such director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence under this sub-section and that he is not aware of any circumstance or situation, which exist or may reasonably be anticipated, that could impair or impact his ability to discharge his duties with an objective independent judgment and without any external influence.
(4) An individual appointed by the Board as a director under clause (e) or clause (f) or clause (g) of sub-section (2) shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier, and shall hold office beyond such date only if his appointment is approved at the annual general meeting.
(5) Before an individual is appointed or nominated as a director under sub-section (2), the Central Government or the Nomination and Remuneration Committee, as the case may be, shall satisfy itself that such an individual as a director shall have no financial or other interest as is likely to affect prejudicially the exercise or performance by him of the functions of a director:
Provided that the Board shall satisfy itself from time to time with respect to every director other than a director nominated under clause (c) of sub-section (2) that he has no such interest:
Provided further that, for the purposes of this subsection, any individual who is, or whose appointment or nomination or election is proposed and who has consented to be a director, shall furnish such information as the Central Government or the Nomination and Remuneration Committee or the Board, as the case may be, may require.
(6) Notwithstanding anything contained in sub-section (2), on and from the appointed date, an individual appointed under section 4 who is eligible to be or remain a director under section 4A and who, immediately before such appointed date, held the office of a member of the Corporation-
(i) in the capacity as the Chairman of the Corporation, shall be deemed to be a director and the Chairperson under clause (a) of sub-section (2);
(ii) in the capacity as a Managing Director of the Corporation, shall be deemed to be a director and a Managing Director under clause (b) of sub-section (2);
(iii) and is an officer of the Central Government not below the rank of a Joint Secretary to the Government of India, shall be deemed to be a director nominated under clause (c) of sub-section (2);
(iv) and has been in office for a duration which is the longest or the second longest amongst members other than members referred to in clauses (i), (ii) and (iii), shall be deemed to be a director nominated under clause (d) of sub-section (2):
Provided that every such individual shall hold office until expiry of the term, if any, specified at the time of his appointment as a member of the Corporation, or until a director appointed or nominated, as the case may be, under sub-section (2) in place of such an individual assumes office:
Provided further that any act or proceeding of the collective body of members constituting the Corporation under section 4 before the appointed date, shall be deemed to be an act or proceeding, as the case may be, of the Board.
Explanation.-For the purposes of this sub-section,––
(a) notwithstanding anything contained in clause (7) of section 2, the expression “member” shall mean a member appointed to the Corporation constituted under section 4 [as it stood before the coming into force of section 121 of the Finance Act, 2021];
(b) “appointed date” means the date on which the provisions of section 121 of the Finance Act, 2021 shall come into force.
Disqualification to be director.
4A. An individual shall not be eligible to be or remain a director if,-
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence:
Provided that if an individual has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be a director;
(e) an order disqualifying him to be a director has been passed by a court or the National Company Law Tribunal constituted under section 408 of the Companies Act, and the order is in force;
(f) he has been convicted of the offence dealing with related party transactions under section 188 of the Companies Act or under any other law for the time being in force during the preceding five years;
(g) he has not paid any calls in respect of any shares of the Corporation held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of such call;
(h) he has not complied with the provisions of subsection
(i) of section 165 of the Companies Act;
(i) he is disqualified from being appointed as a director of a company under sub-section (2) of section 164 of the Companies Act;
(j) he is a salaried government official, other than an individual nominated director under clause (c) of subsection (2) of section 4;
(k) he is an insurance agent or an intermediary or an insurance intermediary;
(l) he is an employee of the Corporation, other than the Chairperson or a Managing Director, or of its subsidiary or associate company;
(m) he is a director of a subsidiary or an associate company of the Corporation and is other than the Chairperson or a Managing Director;
(n) he is an employee or a director or a promoter of any insurer carrying on life insurance business anywhere in the world, other than the Corporation or its subsidiary or associate company, or of any holding company, subsidiary or associate company of such an insurer;
(o) he absents himself from all the meetings of the Board held during a period of twelve months, with or without seeking leave of absence of the Board:
Provided that the disqualifications referred to in clauses (d), (e) and (f) shall continue to apply even if an appeal or petition has been filed against the order of conviction or disqualification.
Disclosure of interest by director and senior management.
4B. (1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year, or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any body corporate, which shall include shareholding, in such manner as may be prescribed.
(2) Every director who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into by the Corporation-
(a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, chief executive officer or trustee of that body corporate, or
(b) with a firm or other entity in which such director is a partner, owner or member, as the case may be,
shall not participate in any meeting of the Board or of its Committee in which such contract or arrangement is deliberated upon, or in any other deliberations or discussions regarding such contract or arrangement, and shall, in the case of such deliberations in a meeting of the Board or its Committee, disclose the nature of his concern or interest to the Board or the Committee, as the case may be:
Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested, or at the first meeting of the Board held after he becomes so concerned or interested.
(3) A contract or arrangement entered into by the Corporation without disclosure under sub-section (2) or with participation by a director who is concerned or interested in any way, whether directly or indirectly, in such contract or arrangement, shall be voidable at the option of the Corporation.
(4) Such employees as the Board may specify as constituting the senior management of the Corporation shall make disclosures to the Board relating to all material, financial and commercial transactions, in which they have personal interest that may have a potential conflict with the interest of the Corporation, and the Board shall formulate a policy on such transactions, including any materiality threshold therefore, and shall review such policy at least once every three years.
Explanation.-For the purposes of this sub-section, conflict of interest relates to dealing in the shares of the Corporation or any of its subsidiaries or associate companies, commercial dealings with bodies in which the senior management individual or his relatives have shareholding, etc.
(5) If an individual who is a director contravenes the provisions of sub-section (1) or sub-section (2), or an employee referred to in sub-section (4), contravenes such provisions, such an individual or employee shall be liable to pay penalty of a sum of up to one lakh rupees.
(6) Without prejudice to anything contained in subsection (5), it shall be open to the Corporation to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.
Explanation.-For the purposes of sections 4B and 4C, the expression “body corporate” shall include a company, a body corporate as defined under clause (11) of section 2 of the Companies Act, a firm, a financial institution or a scheduled bank or a public sector enterprise established or constituted by or under any Central Act or State Act, and any other incorporated association of persons or body of individuals.
Related party transactions.
4C. (1) Except with the consent of the Board and subject to such conditions as may be prescribed, the Corporation shall not enter into any contract or arrangement with a related party with respect to-
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services or property;
(f) such related party’s appointment to any office or place of profit in the Corporation, its subsidiary or associate company;
(g) underwriting the subscription of any securities, or derivatives thereof, of the Corporation:
Provided that no contract or arrangement involving transactions exceeding such sums as the Board may specify, shall be entered into except with the prior approval in the general meeting:
Provided further that no member shall vote in such general meeting to approve any contract or arrangement which may be entered into by the Corporation, if such member is a related party:
Provided also that nothing in this sub-section shall apply to any transactions entered into by the Corporation in its ordinary course of business, other than transactions which are not on an arm’s length basis:
Provided also that the requirement of approval under the first proviso shall not be applicable for transactions entered into between the Corporation and its wholly owned subsidiary, if any, whose financial statements are consolidated with the Corporation and placed before the members at the general meeting for adoption.
Explanation.-In this sub-section,-
(a) the expression “office or place of profit” means any office or place-
(i) where such office or place is held by a director, if the director holding it receives from the Corporation anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
(ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the Corporation anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
(b) the expression “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.
(2) Every contract or arrangement entered into under subsection (1) shall be referred to in a report made by the Board to the members, along with the justification for entering into such contract or arrangement.
(3) Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the members at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the members and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the Corporation against any loss incurred by it.
(4) Without prejudice to anything contained in sub-section (3), it shall be open to the Corporation to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.
(5) Any director or any other employee of the Corporation who had entered into or authorised a contract or arrangement in violation of the provisions of this section, shall be liable to pay penalty of a sum of up to twenty-five lakh rupees.
Adjudication of penalties.
4D. (1) The Central Government may, by an order published in the Official Gazette, appoint an officer of the Central Government, not below the rank of Joint Secretary to the Government of India or equivalent, as adjudicating officer for adjudging penalties under the provisions of this Act.
(2) The adjudicating officer may, on a complaint made in writing by a person authorised by the Corporation, and after giving a reasonable opportunity of being heard, by an order impose penalty on a director or employee liable to penalty under any provision of this Act on account of any contravention or violation on his part.
(3) The adjudicating officer, for the purposes of discharging his functions under this Act, shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908.) while trying a suit, to summon and enforce the attendance of any person and examine him on oath and to require the discovery and production of documents or other electronic records, and shall be deemed to be a civil court for purposes of Order XXI of the Civil Procedure Code, 1908 (5 of 1908.).
(4) A director or employee aggrieved by any order made by the adjudicating officer may prefer an appeal to such officer to the Central Government of a rank higher than that of the adjudicating officer as the Central Government may appoint as appellate authority, within thirty days from the date on which a copy of the order made by the adjudicating officer is received by the aggrieved individual, and the officer so appointed may, after giving the individual an opportunity of being heard, pass such order as he may deem fit, confirming, modifying or setting aside the order appealed against, or remanding the case to the adjudicating officer for disposal, with such directions as he may deem fit.
(5) Where a director or employee of the Corporation having already been subjected to penalty under this Act for any contravention or violation of any provision of this Act, again commits such contravention or violation within a period of three years from the date of order imposing such penalty passed by the adjudicating officer, he shall be liable for the second or subsequent contravention or violation for twice the amount of penalty provided therefor.’.
Notes on Clauses:
Clauses 119 to 137 of the Bill seek to amend certain provisions of the Life Insurance Corporation Act, 1956 (hereinafter referred to as “the LIC Act”).
It is proposed to amend section 2 of the LIC Act so as to insert new clauses to define the expressions “Audit Committee”, “Board of Directors” or “Board”, “Chairperson”, “Companies Act”, “court”, “director”, “financial statement”, “fully diluted basis”, “independent director”, “Managing Director”, “Nomination and Remuneration Committee”, “notification” and “special resolution”, to amend the definition of expression “member”, and to provide that the words and expressions not defined in the LIC Act or in the Insurance Act, 1938 but defined in the Companies Act, 2013, shall have the meanings respectively assigned to them in the Companies Act, 2013. These amendments are consequential to the other amendments proposed to the LIC Act.
It is further proposed to substitute section 4 of the LIC Act, to provide for the vesting of the general superintendence and direction of the affairs and business of the Life Insurance Corporation of India (hereinafter referred to as “LIC”) in its Board of Directors, the composition thereof, the appointment or nomination of directors thereon, and deeming of members constituting LIC immediately before the coming into force of this section as directors under the substituted section 4, in order to bring the provisions relating to corporate governance in alignment with the requirements under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 made by the Securities and Exchange Board of India under the provisions of the Securities and Exchange Board of India Act, 1992, and thereby enabling the listing of LIC on recognised stock exchanges and making of an initial public offer, through which Government may sell its shares in LIC.
It is also proposed to insert new sections 4A, 4B, 4C and 4D in the LIC Act to provide for disqualifications to be a director, disclosure of interest by director and senior management, related party transactions and adjudication of penalties for contravention or violation liable to penalty under the LIC Act, in order to bring the provisions relating to corporate governance in alignment with listing requirements.
It is also proposed to substitute section 5 of the LIC Act, to provide for LIC’s capital, issue of equity shares to the Central Government in consideration for paid-up equity capital provided by the Central Government to LIC before the coming into force of the new section, application of premiums received on issue of LIC’s shares, increase or reduction of share capital by the Central Government, making of reservation on a competitive basis in favour of LIC’s life insurance policyholders who may be offered shares at a price lower than that offered to public, eligibility of all LIC shares acquired by the Central Government during three years preceding an initial public offer for computation of minimum promoter’s contribution and of all fully paid-up equity shares of LIC held by the Central Government for an offer of sale by way of an initial public offer notwithstanding any ineligibility for such computation or any condition for a minimum holding period under any law for the time being in force, and issuing of other securities by LIC for raising funds to meet its business requirements. These amendments will enable issue of shares to the Central Government against paid-up capital invested by it in LIC as well as issue of bonus shares to the Central Government, which could be offered for sale by way of an initial public offer, with resultant receipt of money into the Consolidated Fund of India.
It is also proposed to insert new sections 5A, 5B, 5C, 5D, 5E and 5F in the LIC Act, to provide respectively for transferability of shares, voting rights, register of members, declaration in respect of beneficial interest in shares, deeming of LIC’s shares to be securities and right of registered shareholders to nominate, in order to bring the provisions relating to share transfer, rights of shareholders including voting in shareholder meeting, disclosure of beneficial interest in securities and recognition of securities as shares in alignment with the requirements under the Securities Contract (Regulation) Act, 1956 and listing requirements.
It is also proposed to substitute section 19 of the LIC Act to provide for the constitution, composition and powers of the Executive Committee of the Board, in order to bring the provisions relating to corporate governance in alignment with listing requirements.
It is also proposed to insert new sections 19A, 19B, 19C and 19D in the LIC Act to provide for the constitution, composition and the powers, functions and duties of various committees of the Board, in order to bring the provisions relating to corporate governance in alignment with listing requirements.
It is also proposed to substitute section 20 of the LIC Act to provide for entrustment and delegation of powers and duties of the Chairperson and Managing Directors of LIC by its Board, in order to bring the provisions relating to corporate governance in alignment with listing requirements.
It is also proposed to amend section 22 of the LIC Act to omit the existing provision under sub-section (2) for constitution of a Board in each zone of LIC and to amend the existing provision for a “member” of LIC (who corresponds to a director under the proposed amendments) to be a Zonal Manager of LIC, consequential to proposed constitution of Board of LIC under the substituted section 4 and the disqualification to be a director under clause (l) of the new section 4A.
It is also proposed to insert new section 23A in the LIC Act, to provide for annual general meeting and other general meetings of registered shareholders of LIC, in order to bring the provisions relating to the rights of LIC’s shareholders in alignment with listing requirements.
It is also proposed to substitute section 24 of the LIC Act, to provide for LIC having a multiplicity of funds, establishment of reserves and maintenance of separate funds for participating and non-participating policyholders of LIC, which are matters incidental to the proposed new sections 28, 28B and 28C.
It is also proposed to insert new sections 24A, 24B, 24C and 24D in the LIC Act, to provide respectively for books of account, financial statements, Board’s report and penalties for contravention by person charged with the duty of complying with the provisions of new sections 24A or 24B or 24C, in order to bring the provisions relating to the integrity of LIC’s accounting and financial reporting systems, control systems and compliance with the law and relevant standards in alignment with listing requirements.
It is also proposed to substitute section 25 of the LIC Act, to provide for appointment of auditors, and bring the provisions relating to the integrity of LIC’s audit, accounting standards and compliance with the law and relevant standards in alignment with listing requirements.
It is also proposed to insert new sections 25A, 25B, 25C and 25D in the LIC Act, to provide respectively for removal and resignation of auditor, powers and duties of auditor and auditor’s report, internal auditor and special auditor, in order to bring the provisions relating to the integrity of LIC’s audit, accounting standards and compliance with the law and relevant standards in alignment with listing requirements.
It is also proposed to amend section 26 of the LIC Act to provide for substitution of the reference to the Corporation with reference to the Board, consequential to constitution of the Board of LIC under the proposed amended section 4 in place of the constitution of the Corporation under the existing section 4.
It is also proposed to amend section 27 of the LIC Act, to omit the provisions relating to giving in the Annual Report an account of activities likely to be taken by LIC in the next financial year, in order to bring the provisions relating to the Annual Report in alignment with listing requirements.
It is also proposed to substitute section 28 of the LIC Act, to provide for the allocation to or reservation for registered shareholders of one hundred per cent. of the surplus relating to non-participating policyholders in every financial year’s surplus, in addition to up to ten per cent. of the surplus relating to participating policyholders, as against a maximum of ten per cent. of the total surplus under the existing section 28, representing enhancement in money receivable into the Consolidated Fund of India on account of such increased allocation or reservation.
It is also proposed to amend section 28A and insert new sections 28B and 28C in the LIC Act, to make provisions regarding the declaration of dividend and crediting of unclaimed and unpaid dividend amount to an Unpaid Dividend Account, in order to bring the provisions relating to dividends in alignment with listing requirements and consequential to the provision under the proposed new section 5 for issue of equity share capital to persons other than the Central Government.
It is also proposed to substitute section 46 of the LIC Act, to provide that defects in constitution of the Board and committees thereof, or in appointment or nomination of directors, will not invalidate their acts or proceedings, which are matters incidental to the proposed creation of the Board and its committees under the proposed new sections 4, 19, 19A, 19B, 19C and 19D.
It is also proposed to substitute section 47 in the LIC Act, to provide for protection of action taken by a director other than a whole-time director, which are matters incidental to the provision for independent, elected and other categories of non-whole-time directors under the proposed new section 4.
It is also proposed to amend sub-section (2) of section 48 of the LIC Act, to provide for making of rules by the Central Government relating to various matters that are either incidental to or consequent upon the various other amendments proposed in this Part.
It is also proposed to amend section 49 of the LIC Act, to provide for making of regulations by the Board of LIC relating to various matters that are either incidental or consequent upon the various other amendments proposed in this Part.
It is also proposed to insert new sections 50 and 51 in the LIC Act to provide for the form, manner, etc. for companies to apply with modifications to LIC, and to provide for the power of the Central Government to remove difficulties by order published in the Official Gazette, which are matters incidental to the various other amendments proposed in this Part.
These amendments will take effect from such dates as the Central Government may, by notification in the Official Gazette, appoint.
