Substitution of section 5.
122. For section 5 of the principal Act, the following sections shall be substituted, namely:-
Capital of Corporation.
‘5. (1) The authorised share capital of the Corporation shall be twenty-five thousand crore rupees, divided into two thousand and five hundred crore shares of ten rupees each: Provided that the Central Government may, by notification, increase the authorised share capital or reduce the authorised share capital to such amount not less than the amount of the paid-up equity capital of the Corporation immediately before the coming into force of section 122 of the Finance Act, 2021, as it may deem fit:
Provided further that the Corporation may, with the previous approval of the Central Government, consolidate or reduce the nominal or face value of the shares, divide the authorised share capital into equity share capital or a combination of equity and preference share capital, and divide the nominal or face value of shares into such denomination as the Corporation may decide.
(2) The Corporation shall, with the previous approval of the Central Government, issue equity shares to the Central Government in consideration for the paid-up equity capital provided by the Central Government to the Corporation as it stood before the coming into force of section 122 of the Finance Act, 2021.
(3) The share capital of the Corporation shall consist of equity shares and preference shares, which may be fully paid-up or partly paid-up:
Provided that the Board may determine the terms of issue of partly paid-up shares and payment of calls for such partly paid-up shares.
(4) The Corporation may from time to time increase its issued share capital, with the previous approval of the Central Government, whether by public issue or rights issue or preferential allotment or private placement or issue of bonus shares to existing members holding equity shares, or by issue of shares to employees pursuant to share based employee benefits schemes, or by issue of shares to life insurance policyholders of the Corporation, or otherwise:
Provided that the Central Government shall, on a fully diluted basis hold,-
(a) at all times, not less than fifty-one per cent. of the issued equity share capital of the Corporation;
(b) during a period of five years from the date of first issue of shares to any person other than the Central Government, not less than seventy-five per cent. of the issued equity share capital of the Corporation.
(5) Where the Corporation issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a share premium account, and the provisions of sub-sections (7) and (8) shall, except as provided in sub-section (6), apply as if the share premium account were the paid-up share capital of the Corporation.
(6) The share premium account referred to in subsection (5) may be applied by the Corporation-
(a) towards the issue of unissued shares of the Corporation to members as fully paid-up bonus shares;
(b) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the Corporation;
(c) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures or of any securities of the Corporation; or
(d) for the purchase of its own shares or other securities.
(7) The Corporation may, with the previous approval of the Central Government, by a special resolution, reduce its paid-up equity share capital in such manner as it may determine.
(8) Without prejudice to the generality of the power under sub-section (7), the Corporation may reduce its paid-up equity share capital by-
(a) extinguishing or reducing the liability on any of its equity shares in respect of share capital not paid-up; or
(b) cancelling, with or without extinguishing or reducing liability on any of its paid-up equity shares, any paid-up equity share capital which is either lost or is unrepresented by available assets; or
(c) paying off, with or without extinguishing or reducing liability on any of its paid-up equity shares, any paid-up equity share capital which is in excess of the wants of the Corporation.
(9) Notwithstanding anything contained in any other law for the time being in force-
(a) regarding various categories of persons in favour of whom an issuer may make reservations on a competitive basis, in relation to a public issue, the Corporation may make a reservation on a competitive basis, to an extent of up to ten per cent. out of the issue size, in favour of its life insurance policyholders as one of the reserved categories for such public issue:
Provided that the value of the allotment of equity shares to such a policyholder shall not exceed two lakh rupees, or such higher amount as the Central Government may by notification specify:
Provided further that, in the event of under-subscription in the policyholder reservation portion, the unsubscribed portion may be allotted on a proportionate basis, in excess of the value referred to in the first proviso, subject to the total allotment to a policyholder not exceeding five lakh rupees or such higher amount as the Central Government may by notification specify:
Provided also that the policyholders in favour of whom reservation is made under this sub-section may be offered shares at a price not lower than by more than ten per cent. of the price at which net offer to public is made to other categories of applicants;
(b) regarding ineligibility for computation of minimum promoter’s contribution, in relation to a public issue by way of an initial public offer, all equity shares of the Corporation held by the Central Government, including all shares acquired during the period of three years preceding the opening of such public offer, resulting from a bonus issue or otherwise, shall be eligible for such computation;
(c) requiring the holding of paid-up equity shares by the sellers for a minimum holding period as a condition for offering such shares for sale to the public, in relation to a public issue by way of an initial public offer, all fully paid-up equity shares of the Corporation held by the Central Government shall be eligible for such an offer for sale.
Explanation.-Words and expressions used in this subsection but not defined either in this Act or in the Insurance Act or in the Companies Act shall have the meanings respectively assigned to them in regulations made by the Securities and Exchange Board regarding issue of capital and disclosure requirements, to the extent not repugnant with the provisions of this Act.
(10) The Corporation may issue other securities, including bonds, debentures, notes, commercial paper and other debt instruments, for the purpose of raising funds to meet its business requirements.
Transferability of shares.
5A. (1) Save as otherwise provided in sub-sections (2) and (3), the shares of the Corporation shall be freely transferable:
Provided that any arrangement between two or more persons in respect of transfer of shares shall be enforceable as a contract.
(2) Nothing contained in sub-section (1) shall entitle the Central Government to transfer any shares held by it in the Corporation, if as a result of such transfer, the shares held by it, on a fully diluted basis, shall reduce to less than fifty-one per cent. of the issued equity share capital of the Corporation.
(3) The Corporation shall not register any transfer of its shares where, after the transfer, the total paid-up share capital holding of the transferee in the Corporation is likely to exceed five per cent. of its paid-up share capital, or such higher percentage as the Central Government may by notification specify.
Voting rights.
5B. Subject to the provisions of section 5A, no person, other than the Central Government, acting individually or with persons acting in concert with him, or constituents of a group, shall be entitled to exercise voting rights in respect of any equity shares held by him in excess of five per cent. of the paid-up share capital, or such higher percentage as the Central Government may by notification specify:
Provided that a member holding preference share capital in the Corporation shall, in respect of such capital, have a right to vote only on resolutions in a general meeting which directly affect the rights attached to his preference shares.
Explanation.-For the purposes of this section,––
(a) the expression “group” shall have the meaning assigned to it in the Competition Act, 2002 (12 of 2003.).
(b) the expression “persons acting in concert” shall have the meaning assigned to it in regulations made by the Securities and Exchange Board regarding substantial acquisition of shares and takeovers.
Register of members, etc.
5C. (1) The Corporation shall keep and maintain the following registers, in such form and in such manner as may be specified by regulations, namely:-
(a) register of members, indicating separately each class of equity and preference shares held by each member residing in or outside India;
(b) register of debenture-holders; and
(c) register of any other security holders.
(2) Every register maintained under sub-section (1) shall include an index of the names included therein.
(3) The register and index of beneficial owners maintained by a depository under section 11 of the Depositories Act, 1996 (22 of 1996.) shall be deemed to be the corresponding register and index for the purposes of this Act.
(4) No notice of any trust, whether express or implied or constructive, shall be entered on the register of members or be receivable by the Corporation:
Provided that nothing in this section shall apply to a depository in respect of shares held by it as a registered owner on behalf of the beneficial owners.
Explanation.-For the purposes of this section and section 5D, the expressions “beneficial owner”, “depository” and “registered owner” shall have the meanings respectively assigned to them in clauses (a), (e) and (j) of sub-section (1) of section 2 of the Depositories Act, 1996. (22 of 1996.)
Declaration in respect of beneficial interest in shares.
5D. (1) Where the name of a person is entered on the register of members of the Corporation as the holder of shares in the Corporation but he does not hold beneficial interest in such shares, such person shall make, within such time and in such form as may be prescribed for a company under section 89 of the Companies Act, a declaration to the Corporation specifying the name and other particulars of the person who holds beneficial interest in such shares.
(2) Every person who holds or acquires a beneficial interest in shares of the Corporation shall make, within such time and in such form as may be prescribed for a company under section 89 of the Companies Act, a declaration to the Corporation specifying the nature of his interest, particulars of the person in whose name the share stands registered in the books of the Corporation and such other particulars as may be prescribed under the said section.
(3) Where any change occurs in the beneficial interest in shares of the Corporation, the person referred to in subsection (1) and the beneficial owner specified in sub-section (2) shall, within a period of thirty days from the date of such change, make a declaration to the Corporation in such form and containing such particulars as may be prescribed for a company under section 89 of the Companies Act.
(4) No right in relation to any share in respect of which a declaration is required to be made under this section but has not been made by the beneficial owner, shall be enforceable by him or by any person claiming through him.
(5) For the purposes of this section, beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to-
(a) exercise or cause to be exercised any or all of the rights attached to such share; or
(b) receive or participate in any dividend or other distribution in respect of such share.
(6) Every individual who, acting alone or together or through one or more persons, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed for a company under section 90 of the Companies Act, in the shares of the Corporation or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2 of the Companies Act, over the Corporation (herein referred to as “significant beneficial owner”), shall make a declaration to the Corporation, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed for a company under section 90 of the Companies Act.
(7) The Corporation shall maintain a register of the interest declared by individuals under sub-section (6) and changes therein, which shall include the name of individual, his date of birth, address, details of ownership in the Corporation and such other details as may be prescribed for a company under section 90 of the Companies Act.
Shares to be securities.
5E. Notwithstanding anything contained in the Securities Contracts (Regulation) Act, 1956 (42 of 1956.) or any other law for the time being in force, the shares of the Corporation shall be deemed to be securities as defined under the said Act.
Right of registered members to nominate.
5F. (1) Every individual registered member may, at any time, nominate, in such manner as may be specified by regulations, an individual to whom all his rights in the shares shall vest in the event of death of such member.
(2) Where the shares are registered in the name of more than one individual jointly, the joint holders may together nominate, in such manner as may be specified by regulations, an individual to whom all their rights in the shares shall vest in the event of the death of all such joint holders.
(3) Notwithstanding anything contained in any other law for time being in force or in any disposition, whether testamentary or otherwise, where a nomination in respect of shares is made and which purports to confer on the nominee the right to vest the shares, the nominee shall, on the death of the member or, as the case may be, on the death of all the joint holders, become entitled to all the rights of the member or, as the case may be, of all the joint holders, in relation to such shares, and all other persons shall be excluded unless the nomination has been varied or cancelled before death in such manner as may be specified by regulations.
(4) Where the nominee is a minor, it shall be lawful for the individual registered holder of the shares to make nomination to appoint, in such manner as may be specified by regulations, any person to become entitled to the shares in the event of his death during the minority of the nominee.’.
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.
