Substitution of section 24.
127. For section 24 of the principal Act, the following sections shall be substituted, namely:-
Funds of the Corporation.
‘24. (1) The Corporation shall have its own fund or funds, and all receipts of the Corporation shall be credited thereto and all payments of the Corporation shall be made therefrom:
Provided that the Board may, in relation to any of the funds of the Corporation or otherwise, establish reserves which may or may not be allocated for a specific purpose, and such sums as the Board may determine, may be transferred to or from such reserves.
(2) The Board shall, for every financial year after the financial year in which the provisions of section 127 of the Finance Act, 2021 come into force, cause to be maintained-
(a) a participating policyholders fund, to which all receipts from participating policyholders shall be credited and from which all payments to such policyholders shall be made; and
(b) a non-participating policyholders fund, to which all receipts from non-participating policyholders shall be credited and from which all payments to such policyholders shall be made:
Provided that the members, by resolution in a general meeting, may exempt maintenance of such funds for one financial year at a time up to two financial years.
Books of account, etc.
24A. (1) The Corporation shall prepare and keep at its central office books of account and other relevant books and records and financial statement for every financial year which give a true and fair view of the state of its affairs, including that of its zonal offices, and which explain the transactions effected both at the central office and at its zonal offices.
(2) The Corporation shall prepare and keep at each zonal office of the Corporation, books of account and other relevant books and records and financial statement for every financial year which give a true and fair view of the state of affairs of every divisional office established in the zone corresponding to such zonal office and which explain the transactions effected thereat.
(3) The Corporation shall prepare and keep at each divisional office of the Corporation, books of account and other relevant books and records and financial statement for every financial year which give a true and fair view of the state of affairs of every branch established under such divisional office and which explain the transactions effected thereat.
(4) All or any of the books of account and other relevant books and records referred to in sub-section (1) or sub-section (2) or sub-section (3) may be kept at such other place or places in India as the Board may decide.
(5) The Corporation shall be deemed to have complied with the provisions of sub-section (1) or sub-section (2) or sub-section (3), in respect of a zonal office or a divisional office, other than the central office, or a branch of the Corporation, whether within or outside India, if proper books of account relating to the transactions effected at such office or branch, are kept thereat and proper summarised returns are sent periodically to the central office or the corresponding zonal office or the corresponding divisional office, or to the other place referred to in sub-section (4).
(6) The books of account and other relevant books and records referred to in sub-section (1) or sub-section (2) or sub-section (3) may be kept in electronic form, in such manner as the Board may determine.
(7) The books of account of the Corporation relating to a period of not less than ten financial years immediately preceding a financial year, together with the vouchers relevant to any entry in such books of account, shall be kept in good order:
Provided that where the Central Government has appointed a special auditor under section 25D or is of the opinion that circumstances exist which render it necessary so to do, it may direct the Corporation that the books of account be kept for such longer period as the Central Government may specify.
Financial statements.
24B. (1) The financial statements of the Corporation shall give a true and fair view of the state of affairs of the Corporation and shall be in conformity with the standards on auditing issued by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949.), and with the accounting standards issued by the said Institute to the extent such accounting standards are applicable to insurers carrying on life insurance business and subject to any regulations made by the Authority under the Insurance Act relating to preparation of financial statements and auditor’s report: '
Provided that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the Corporation, merely by reason of the fact that they do not disclose any matters which are not required to be disclosed by this Act or by the Insurance Act or by the Insurance Regulatory and Development Authority Act, 1999 (38 of 1999.) or by any other law for the time being in force.
(2) At every annual general meeting, the Board shall place before such meeting financial statements for the preceding financial year.
(3) The Corporation shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the Corporation and of all its subsidiaries and associate companies in conformity with the auditing standards referred to in sub-section (1) and the accounting standards applicable by law, and shall place the same before the annual general meeting, along with the placing of its financial statements under sub-section (2):
Provided that the Corporation shall also attach along with its financial statements, a separate statement containing the salient features of the consolidated financial statement in respect of its subsidiaries and associate companies.
(4) The provisions of this Act applicable to financial statements under sub-section (1) and under section 24C, the inquiry by the auditor into matters referred to in and making of the auditor’s report on accounts under section 25B, and adoption of financial statements under section 23A at the annual general meeting, shall, mutatis mutandis, apply to the consolidated financial statement referred to in sub-section (3).
(5) Without prejudice to anything contained in subsection (1) or sub-section (3), where the financial statements are not in conformity with the standards referred to therein, the Corporation shall disclose in the financial statements the deviation from such standards, the reasons therefor and the financial effects, if any, arising out of such deviation.
(6) Financial statements including consolidated financial statement, if any, shall be approved by the Board before they are signed on behalf of the Board by the Chairperson, a Managing Director, one director other than a whole-time director, the heads of the finance and secretarial functions of the Corporation and its Appointed Actuary, for submission to the auditor for his report thereon.
(7) The auditor’s report shall be attached to every financial statement.
(8) A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published, along with a copy each of-
(a) any notes annexed to or forming part of such financial statement;
(b) the auditor’s report; and
(c) the Board’s report referred to in sub-section (1) of section 24C.
(9) The Central Government may, on its own or on an application by the Corporation, by notification, exempt the Corporation from complying with any of the requirements under this section, if it is considered necessary to grant such exemption in the public interest, and may grant any such exemption either unconditionally or subject to such conditions as it may specify in the notification.
Board’s report.
24C. (1) There shall be attached to financial statements placed before general meeting, a report by the Board, which shall include-
(a) number of meetings of the Board;
(b) a Directors’ Responsibility Statement;
(c) details in respect of frauds reported by auditors;
(d) a statement on declarations given by independent directors under the second proviso to sub-section (3) of section 4;
(e) the Corporation’s policy on directors’ appointment, including the criteria for determining qualifications, positive attributes and independence of a director, which are referred to in section 19B;
(f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made in the auditor’s report;
(g) particulars in respect of investments in terms of the provisions of section 27A of the Insurance Act as made applicable to the Corporation by notification issued under sub-section (2) of section 43;
(h) particulars of contracts or arrangements with related parties, referred to in sub-section (1) of section 4C;
(i) the state of the Corporation’s affairs;
(j) the amounts, if any, which are carried to any reserves;
(k) the amount, if any, which it recommends should be paid by way of dividend;
(l) material changes and commitments, if any, affecting the financial position of the Corporation, which have occurred between the end of the financial year to which the financial statements relate and the date of the report;
(m) a statement indicating the manner in which annual evaluation of the performance of individual directors has been made under section 19B;
(n) such other matters as may be prescribed:
Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures may be referred to instead of being repeated in the Board’s report:
Provided further that where the policy referred to in clause (e) is made available on the Corporation’s website, it shall be sufficient compliance of the requirement under the said clause if the salient features of the policy and any changes therein are specified in brief in the Board’s report and the web-address at which the policy is available is indicated therein.
(2) The Directors’ Responsibility Statement referred to in clause (b) of sub-section (1) shall state that-
(a) in the preparation of the annual accounts, the standards referred to in section 24B were followed, along with proper explanation relating to material departures;
(b) accounting policies were selected and applied consistently and the judgements made and estimates were reasonable and prudent, so as to give a true and fair view of the state of affairs of the Corporation at the end of the financial year and of the profit and loss of the Corporation for that period;
(c) proper and sufficient care for the maintenance of adequate accounting records was taken in accordance with the provisions of this Act for safeguarding the assets of the Corporation and for preventing and detecting fraud and other irregularities;
(d) the annual accounts were prepared on a going concern basis;
(e) the vigilance administration referred to in clause (h) of sub-section (1) of section 8 of the Central Vigilance Commission Act, 2003 (45 of 2003.) was in operation in the Corporation under the superintendence of the Central Vigilance Commission, and in addition, internal financial controls to be followed by the Corporation had been laid down and were operating effectively; and
(f) proper systems were devised to ensure compliance with the provisions of applicable laws and were operating effectively.
Explanation.-For the purposes of this sub-section, the expression “internal financial controls” means the policies and procedures adopted for ensuring the orderly and efficient conduct of the Corporation’s business, including adherence to its policies, safeguarding of its assets, prevention and detection of errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information.
(3) The Board’s report and any annexures thereto under sub-section (1) shall be signed on behalf of the Board by the Chairperson, a Managing Director and one director other than a whole-time director.
Penalties.
24D. If the Chairperson or the Managing Director in charge of finance or the head of the finance function of the Corporation or any other person of the Corporation charged by the Board with the duty of complying with the provisions of section 24A or section 24B or section 24C contravenes any of the said provisions, such Chairperson or Managing Director or head of finance function or other person shall, for each section whose provisions have been contravened, be liable to pay penalty of a sum which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.’.
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.
