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Home Acts & Rules Bill Bills FINANCE BILL, 2021 Chapters List Part III AMENDMENTS TO THE LIFE INSURANCE CORPORATION ACT, 1956 This
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Clause 123 - Substitution of section 19. - FINANCE BILL, 2021

FINANCE BILL, 2021
Part III
AMENDMENTS TO THE LIFE INSURANCE CORPORATION ACT, 1956
  • Contents

Substitution of section 19.

123. For section 19 of the principal Act, the following sections shall be substituted, namely:-

Executive Committee.

‘19. (1) The Board may constitute an Executive Committee of the Board, consisting of-

(i) the Chairperson;

(ii) Managing Directors;

(iii) the directors referred to in clause (c) of sub-section (2) of section 4; and

(iv) four directors nominated by the Board from amongst the directors referred to in clauses (d), (e), (f) and (g) of subsection (2) of section 4.

(2) The Executive Committee of the Board shall exercise such powers as the Board may entrust to it.”.

Investment Committee.

19A. The Board may, for such functions relating to investment of the funds of the Corporation as the Board may entrust, constitute an Investment Committee of the Board, consisting of the Chairperson and not more than seven other directors, of which a minimum two shall be directors other than directors appointed under clause (a) or clause (b) of sub-section (2) of section 4:

Provided that the officers of the Corporation heading the functions dealing with finance, risk, investment and law as well as its Appointed Actuary shall be invited to every meeting of the Committee and shall have a right to be heard at the meeting.

Explanation.-For the purposes of this section and section 24B, “Appointed Actuary” means the actuary appointed as such by the Corporation under the regulations made by the Authority under the Insurance Act regarding appointed actuaries.

Nomination and Remuneration Committee.

19B. (1) The Board shall constitute a Nomination and Remuneration Committee of the Board, consisting of three or more directors from amongst directors other than those appointed under clauses (a) or (b) of sub-section (2) of section 4, out of whom not less than one-half shall be independent directors at any time when the number of independent directors in office is sufficient to constitute such proportion of the membership of the Committee:

Provided that the Chairperson may be appointed as a member of the Nomination and Remuneration Committee but shall not chair the Committee.

(2) The Nomination and Remuneration Committee shall-

(i) formulate the criteria for determining qualifications, positive attributes and independence of a director to be appointed under clause (e) or clause (f) or clause (g) of subsection (2) of section 4 and recommend the same to the Board;

(ii) in accordance with the criteria referred to in clause (i), identify individuals who are qualified to be appointed as such a director:

Provided that while identifying individuals, the Committee shall have due regard to the requirements under the proviso to sub-section (1) of section 19C;

(iii) give its recommendations to the Board regarding appointment and removal of such an individual, and carry out evaluation of his performance; and

(iv) recommend to the Board a policy relating to the sum payable as sitting fees to a director nominated or appointed under clauses (d) or (e) or (f) or (g) of sub-section (2) of section 4, subject to such fees not exceeding such limit as may apply in respect of sitting fees payable to a director of a company under the Companies Act.

Audit Committee.

19C. (1) The Board shall constitute an Audit Committee of the Board, consisting of a minimum of three directors with independent directors forming a majority when the number of independent directors in office is sufficient to constitute such proportion of the membership of the Audit Committee:

Provided that a majority of directors on the Audit Committee, including its chairperson, shall be individuals with ability to read and understand financial statements and at least one individual shall have accounting or related financial management expertise.

(2) The Audit Committee shall act in accordance with the terms of reference specified by the Board, which shall include, inter alia,-

(a) recommendations for appointment, remuneration and terms of appointment of the auditors of the Corporation;

(b) review and monitoring of the independence and performance of the auditors, and the effectiveness of the audit process;

(c) examination of financial statements and auditor’s report thereon;

(d) approval of transactions of the Corporation with related parties:

Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the Corporation subject to such conditions as may be prescribed:

Provided further that in case of transaction other than transactions referred to in section 4C, and where the Audit Committee does not approve a transaction, it shall make its recommendations to the Board:

Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or an officer of the Corporation without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Corporation with the approval of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the Corporation against any loss incurred by it:

Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 4C, between the Corporation and its wholly owned subsidiary;

(e) scrutiny of inter-corporate loans and investments;

(f) valuation of undertakings or assets of the Corporation, wherever it is necessary;

(g) evaluation of internal financial controls and risk management systems;

(h) monitoring the end use of funds raised through public offers, and related matters.

(3) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the auditors and the management of the Corporation.

(4) The Audit Committee shall have authority to investigate any matter in relation to the items specified in sub-section (2) or referred to it by the Board and, for this purpose, shall have the power to obtain professional advice from external sources and have full access to information contained in the records of the Corporation.

(5) The auditors of the Corporation and such key managerial personnel as the Board may specify shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report.

Other Committees.

19D. The Board may constitute such other Committees of the Board as it may deem fit, to render advice to the Board on such matters as may be generally or specially referred to them, and to perform such duties as the Board may entrust to them.’.

 



 

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.

 
 
 
 
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