Contents ths insurance act, 1938 Arrangement of Sections




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THE INSURANCE ACT, 19381


[AS AMENDED BY INSURANCE (AMENDMENT) ACT, 2002]

[4 of 1938]


An Act to consolidate and amend the law relating to the business of insurance
Whereas it is expedient to consolidate and amend the law relating to the business of insurance; it is hereby enacted as follows: -

PART I

Preliminary

Short title, extent and commencement.

1. (1)) This Act may be called Insurance Act, 19382.

(2) It extends to the whole of India.

(3) It shall come into force on such date3 as the Central Government may, by Notification in the Official Gazette, appoint in this behalf.
Definitions.

2. In this Act, unless there is anything repugnant in the subject or context, -


  1. “actuary” means an actuary possessing such 3a[qualifications as may be specified by the regulations made by the Authority];

4[(1A) “Authority” means the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999;]

  1. “policy-holder” includes a person to whom the whole of the interest of the policy-holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition;

  2. “approved securities,” means-

(i) Government securities and other securities charged on the revenue of the Central Government or of the Government of a State or guaranteed fully as regards principal and interest by the Central Government or the Government of any State;
(ii) debentures or other securities for money issued under the authority of any Central Act or Act of a State Legislature by or on behalf of a port trust or municipal corporation or city improvement trust in any Presidency-town;

(iii) shares of a corporation established by law and guaranteed fully by the Central Government or the Government of a State as to the repayment of the principal and the payment of the divided;


(iv) securities issued or guaranteed fully as regards principal and interest by the Government of any Part B State and specified as approved securities for the purposes of this Act by the Central Government by notification in the Official Gazette; and



  1. "Auditor" means a person qualified under the Chartered Accountants Act, 1949 (38 of 1949), to act as an auditor of companies ;

(4A) "banking company" and "company" shall have the meanings respectively assigned in them in clauses (c) and (d) of sub-section (1) of Section 5 of the Banking Companies Act, 1949 (10 of 1949);


(5) "certified" in relation to any copy or translation of a document required to be furnished by or on behalf of an insurer or a provident society as defined in Part III means certified by a principal officer of 6Esuch insurer or provident society to be a true copy or a correct translation, as the case may be;
(5A) "chief agent" means a person who, not being a salaried employee of an insurer, in consideration of any commission-
(i) performs any administrative and organising functions for the insurer, and
(ii) procures life insurance business for the insurer by employing or causing to be employed insurance agents on behalf of the insurer;
[(5 B) "Controller of Insurance" means the officer appointed by the Central Government under section 2B to exercise all the powers, discharge the functions and performs the duties of the Authority under this Act or the Life Insurance Corporation Act, 1956 (31 of 1956) or the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) or the Insurance Regulatory and Development Authority Act, 1999;]

(6) "Court" means the principal Civil Court of original jurisdiction in a district and includes the High Court in exercise of its ordinary original civil jurisdiction;


(6A) "fire insurance business" means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance Policies;
(6B) "general insurance business" means fire, marine or miscellaneous insurance business, whether carried on singly or in combination with one or more of them;
(7) "Government security" means a Government security as defined in the Public Debt Act, 1944 (18 of 1944);
2[(7A) “Indian insurance company” means any insurer being a company-

      1. which is formed and registered under the Companies Act, 1956 (1 of 1956);

      2. in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed twenty-six percent paid-up equity capital of such Indian insurance company;

      3. whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business.



Explanation- For the purpose of this clause, the expression “foreign company” shall have the meaning assigned to it under clause (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961);]
(8) "insurance company" means any insurer being a company, association or partnership which may be wound up under the Indian Companies Act, 1913 (7 of 1913), or to which the Indian Partnership Act, 1932 (9 of 1932), applies;
(8A)insurance co-operative society” means any insurer being a co-operative society,-

(a) which is registered on or after the commencement of the Insurance (Amendment) Act, 2002, as a co-operative society under the Co- operative Societies Act, 1912 (2 of 1912) or under any other law for the time being in force in any State relating to Co-operative Societies or under the Multi-State Co-operative Societies Act, 1984 (51 or 1984);

(b) having a minimum paid-up capital, (excluding the deposits required to be made under section 7), of rupees one hundred crores;

(c)in which no body corporate, whether incorporated or not, formed or registered outside India, either by itself or through its subsidiaries or nominees, at any time, holds more than twenty-six per cent of the capital of such Co-operative Society;

(d) whose sole purpose is to carry on life insurance business or general insurance business in India:
(9) "Insurer" means-

(a) any individual or unincorporated body of individuals or body corporate incorporated under the law of any country other than India, carrying on insurance business not being a person specified in sub-clause (c) of this clause which­-

(i) carries on that business in India, or
(ii) has his or its principal place of business or is domiciled in India, or
(iii) with the object of obtaining insurance business, employs a representative, or maintains a place of business, in India;
(b) any body corporate [not being a person specified in sub-clause (c) of this clause] carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India; or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913 (7 of 1913), as defined by sub section (2) of section 2 of that Act, and
(c) any person who in India has a standing contract with underwriters who are members of the Society of Lloyd's whereby such person is authorised within the terms of such contract to issue protection notes, cover notes, or other documents granting insurance cover to others on behalf of the underwriters.
but does not include a principal agent' chief agent, special agent' or an insurance agent or a provident society as defined in Part III;
(10) "insurance agent" means an insurance agent licensed under Sec. 42 who receives agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance;
(10A)"investment company" means a company whose principal business is the

acquisition of shares, stocks debentures or other securities;


(10B) “intermediary or insurance intermediary” shall have the meaning assigned to it in clause (f) of sub-section 2 of the Insurance Regularoty and Development Authority Act, 1999 (41 of 1999)
(11) “life insurance business" means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any
(12) "Manager" and "officer" have the meanings assigned to those expressions in clauses

(9) and (11), respectively of Section 2 of the Indian Companies Act, 1913 (7 of

1913);
(13) "Managing agent" means a person, firm or company entitled to the management of the whole affairs of a company by virtue of an agreement with the company, and under the control and direction of the directors except to the extent, if any, otherwise provided for in the agreement, and includes any person, firm or company occupying such position by whatever name called.
Explanation.—If a person occupying the position of managing agent calls himself manager or managing director, he shall nevertheless be regarded as managing agent for the purposes of Sec. 32 of this Act;
(13A)"marine insurance business" means the business of effecting contracts of insurance

upon vessels of any description, including cargoes, freights and other interests which may be legally insured, in or in relation to such vessels, cargoes and freights, goods, wares, merchandise and property of whatever description insured for any transit, by land or water, or both, and whether or not including warehouse risks or similar risks in addition or as incidental to such transit, and includes any other risks customarily included among the risks insured against in marine insurance policies;


(13B)"miscellaneous insurance business" means the business of effecting contracts of

insurance which is not principally or wholly of any kind or kinds included in clause (6A), (11) and (13A);


(14) "prescribed" means prescribed by rules made under this Act; and
(15) "principal agent" means a person who, not being a salaried employee of an insurer,

in consideration of any commission,—


(i) performs any administrative and organising functions for the insurer; and
(iii) procures general insurance business whether wholly or in part by

employing or causing to be employed insurance agents on behalf of the


(16) "private company" and "public company" have the meanings respectively assigned

to them in Clauses (13) and (13 A) of Sec. 2 of the Indian Companies Act, 1913 (7 of 1913);


(17) "special agent" means a person who, not being a salaried employee of an insurer, in consideration of any commission, procures life insurance business for the insurer whether wholly or in part by employing or causing to be employed insurance agents on behalf of the insurer, but does not include a chief agent.
Interpretation of certain words and expressions
2A. Words and expression used and not defined in this Act but defined in the Life Insurance Corporation Act, 1956 (31 of 1956), the General Insurance Business (Nationalisation) Act, 1972 (57 or 1972), and the Insurance Regulatory and Development Authority Act, 1999 shall have the meanings respectively assigned to them in those Acts.
Appointment of Authority of Insurance.
2B. [(1) If at any time, the Authority is superseded under sub-section (1) of section19 of the Insurance Regulatory and Development Authority Act, 1999, the Central Government may, by notification in the Official Gazette, appoint a person to be the Controller of Insurance till such time the Authority is reconstituted under sub-section (3) of section 19 of that Act

(2) In making any appointment under this section, the Central Government shall have due regard to the following considerations, namely, whether the person to be appointed has had experience in industrial, commercial or insurance matter and whether such person has actuarial qualifications.



PART II
Provisions Applicable to Insurers
Prohibition of transaction of insurance business by certain persons.­
2C. (1) Save as hereinafter provided, no person shall, after the commencement of the

Insurance (Amendment) Act, 1950 (47 of 1950), begin to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall after the expiry of one year from such commencement, continue to carry on any such business unless he is-


(a) a public company, or
(b) a society registered under the Co operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State relating to co-operative societies, or
(c) a body corporate incorporated under the law of any country outside India not being of the nature of a private company:

Provided that the Central Government may, by notification in the official Gazette, exempt from the operation of this section to such extent for such period and subject to such conditions as it may specify, any person or insurer for the purpose of carrying on the business of granting superannuation allowances and annuities of the nature specified in sub-clause (c) of clause (11) of Section 2 or for the purpose of carrying on any general insurance business:
Provided further that in the case of an insurer carrying on any general insurance business no such notification shall be issued having effect for more than three years at any one time:
Provided also that no insurer other than an Indian insurance company shall begin to carry on any class of insurance business in India under this Act on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999.
(2) Every notification issued under subsection (1) shall be laid before Parliament as soon as may be after it is issued.
(3) Notwithstanding anything contained in sub-section (1), an insurance co-operative society may carry on any class of insurance business in India under this Act on or after the commencement of the Insurance (Amendment) Act, 2002
Insurers to be subject to this Act while liabilities remain unsatisfied
2D. Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in 3[India] in respect of business of that class remain unsatisfied or not otherwise provided for.
This Act not to apply to certain insurers ceasing to enter into new contracts before commencement of Act
2E. The provisions of this Act shall not apply to an insurer as defined in paragraphs (i) or (iii) of sub-clause (a) of clause (9) of Section 2 in relation to any class of his insurance business whether such insurer hits ceased, before the commencement of this Act, to enter into any new contracts of that class of business.
Registration
3. (1) No person shall, after commencement of this Act, being to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall, after the expiry of three months from the commencement of this Act, continue to carry on any such business, unless he has obtained from the Authority a certificate of registration for the particular class of insurance business:
Provided that in case of an insurer who was carrying on any class of insurance business in India at the commencement of this Act, failure to obtain a certificate of registration in accordance with the requirements of this sub clause shall not operate to invalidate any contract of insurance entered into by him if before such date as may be fixed in this behalf by the Central Government by notification in the official Gazette, he has obtained that certificate:
Provided further that a person or insurer, as the case may be, carrying on any class of insurance business in India, on or before the commencement of the Insurance Regulatory and Development Authority Act, 1999, for which no registration certificate was necessary prior to such commencement, may continue to do so for a period of three months from such commencement or, if he had made an application for such registration within the said period of three months, till the disposal of such application:
Provided also that any certificate of registration, obtained immediately before the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall be deemed to have been obtained from the Authority in accordance with the provisions of this Act
(2) Every application for registration shall be made in such manner as may be determined by the regulations made by the Authority and shall be accompanied by-
(a) a certified copy of the memorandum and articles of association, where the applicant is a company and incorporated under the Indian Companies Act, 1913 (7 of 1913), or under the Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act, 1866 (10 of 1866); or under any Act repealed thereby,] or, in the case of any other insurer specified in sub clause (a) (ii) or sub clause (b) of clause (9) of section 2, a certified copy of the deed of partnership or of the deed of constitution of the company, as the case may be, or, in the case of an insurer having his principal place of business or domicile outside India, the document specified in Clause (a) of Section 63;
(b) the name, address and the occupation, if any, of the directors where insurer is a company incorporated under the Indian Companies Act, 1913 (7 of 1913), or under the Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act, 1866 (10 of 1866), or under any Act repealed thereby, and in the case of an insurer specified in sub clause (a) (ii) of clause (9) of section 2 the names and addresses of the proprietors and of the manager in India, and in any other case the full address of the principal office of the insurer in India, and the names of the directors and the manager at such office and the name and address of someone or more persons resident in India, authorised to accept any notice required to be served on the insurer;
(c) a statement of the class or classes of insurance business done or to be done, and a

statement that the amount required to be deposited by section 7 or section 98 before application for registration is made has been deposited together with a certificate from the Reserve Bank of India showing the amount deposited;


(d) where the provisions of section 6 or section 97 apply, a declaration verified by an affidavit made by the principal officer of the insurer authorised in that behalf that the provisions of those sections as to paid-up equity capital or working capital have been complied with;
(e) in the case of an insurer having his principal place of business or domicile outside India, a statement verified by an affidavit made by the principal officer of the insurer setting forth the requirements (if any) not applicable to nationals of the country in which such insurer is constituted, incorporated or domiciled which are imposed by the laws or practice of that country upon Indian nationals as a condition of carrying on insurance business in that country;
(f) a certified copy of the published prospectus, if any, and of the standard policy forms of the insurer and statements of the assured rates, advantages, terms and conditions to be offered in connection with insurance policies together with a certificate in connection with life insurance business by an actuary that such rates, advantages, terms and conditions are workable and sound:
Provided that in the case of marine accident and miscellaneous insurance business other than workmen's compensation and motor car insurance the above requirements regarding prospectus, forms and statements shall be complied with only insofar as the prospectus, forms and statements may be available; and
(g) the receipt showing payment of fee as may be determined by the regulations which shall not exceed fifty thousand rupees for each class of business as may be specified by the regulations made by the Authority;
(h) such other documents as may be specified by the regulations made by the Authority.
(2A) If, on receipt of an application for registration and after making such inquiry as he deems fit, the Controller is satisfied that—
(a) the financial condition and the general character of management of the applicant are sound;
(b) the volume of business likely to be available to, and the capital structure and earning prospects of, the applicant will be adequate;
(c) the interest of the general public will be served if the certificate of registration is granted to the applicant in respect of the class or classes of insurance business specified in the application; and
(d) the applicant has complied with the provisions of Sections 2 C, 5, 31­A and 32 and has fulfilled all the requirements of this section applicable to him, the Authority may register the applicant as an insurer and grant him a certificate of registration.
(2AA) The Authority shall give preference to register the applicant and grant him a certificate of registration if such applicant agrees, in the form and manner as may be specified by the regulations made by the Authority, to carry on the life insurance business or general insurance business for providing health cover to individuals or group of individuals.
(2B) Where the Authority refuses registration; he shall record the reasons for such decision and shall furnish a copy thereof to the applicant.
(2C) Any person aggrieved by the decision of the Authority refusing registration may, within thirty days from the date on which a copy of the decision is received by him, appeal to the Central Government.
(2D) The decision of the Central Government on such appeal shall be final and shall not be questioned before any Court.
(3) Notwithstanding anything contained in sub section (2A), in the case of any insurer having his principal place of business or domicile outside India, the Authority, shall withhold registration or shall cancel a registration already made, if he is satisfied that in the country in which such insurer has his principal place of business or domicile Indian nationals are debarred by the law or practice of the country relating to, or applied to insurance from carrying on the business of insurance, or that any requirement imposed on such insurer under the provisions of section 62 is not satisfied.
(4) The Authority shall cancel the registration of an insurer either wholly or in so far as it relates to a particular class of insurance business, as the case may be, ­-
(a) if the insurer fails to comply with the provisions of section 7 or section 98 as to deposits, or

(aa) if the insurer fails, at any time, to comply the provisions of Sec. 64­VA as to the excess of the value of his assets over the amount of his liabilities; or

(b) if the insurer is in liquidation or is adjudged an insolvent, or

(c) if the business or a class of the business of the insurer has been transferred to any person or has been transferred to or amalgamated with the business of any other insurer, or

(d) if the whole of the deposit made in respect of insurance business has been returned to the insurer under Sec. 9, or

(e) if, in the case of an insurer specified in sub clause (c)of clause (9) of section 2, the standing contract referred to in that sub clause is cancelled or is suspended and continues to be suspended for a period of six months, or

(ee) if the Central Government so directs under sub  section (4) of Sec. 33] and the Authority may cancel the registration of an insurer-
(f) if the insurer makes default in complying with, or acts in contravention of any requirement of this Act or of any rule or any regulation or order made or, any direction issued there under, or
(g) if the Authority has reason to believe that any claim upon the insurer arising in India under any policy of insurance remains unpaid for three months after final judgment in regular course of law, or
(h) if the insurer carries on any business other than insurance business or any prescribed business , or

(i) if the insurer makes a default in complying with any direction issued or order made, as the case may be, by the Authority under the Insurance Regulatory and Development Authority Act, 1999, or



(j) if the insurer makes a default in complying with, or acts in contravention of, any requirement of the Companies Act, 1956 (1 of 1956), or the Life Insurance Corporation Act, 1956 (31 of 1956), or the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), or the Foreign Exchange Regulation Act, 1973 (46 of 1973).
(5) When the Authority withholds or cancels any registration under sub section (3) or clause (a), clause (aa), clause (e), clause (ee), clause (f), clause (g) or clause (h) of sub section (4), he shall give notice in writing to the insurer of his decision, and the decision shall take affect on such date as he may specify in that behalf in the notice, such date not being less than one month nor more than two months from the date of the receipt of the notice in the ordinary course of transmission.
(5A) When the Authority cancels any registration under clause (b), clause (c) or clause (d) of sub section (4) the cancellation shall take effect on the date on which notice of the order of cancellation is served on the insurer.
(5B) When a registration is cancelled the insurer shall not, after the cancellation has taken effect, enter into any new contracts of insurance, but all rights and liabilities in respect of contracts of insurance entered into by him before such cancellation takes effect shall, subject to the provisions of sub section (5D), continue as if the cancellation had not taken place.
(5C) Where a registration is cancelled under clause (a), clause (aa), clause (e), clause (f), clause (g) or clause (h) or clause (i) or clause (j) of sub section (4), the Authority may at his discretion revive the registration, if the insurer within six months from the date on which the cancellation took effect makes the deposits required by section 7 or Section 98, or complies with the provisions of Section 64VA as to the excess of the value of his assets over the amount of his liabilities or has his standing contract restored or has had an application under sub section (4) of section 3A accepted, or satisfies the Authority that no claim upon him such as is referred to in clause (g) of sub section (4) remains unpaid or that he has complied with any requirement of this Act or the Insurance Regulatory and Development Authority Act, 1999 or of any rule or any regulation, or order made there under or any direction issued under those Acts that he has ceased to carry on any business other than insurance business or any prescribed business, as the case may be, and complies with any directions which may be given to him by the Authority.
(5D) Where lithe registration of an insurance company is cancelled under sub-section (4), the Authority may, after expiry of six months from the date on which the cancellation took effect, apply to the Court for an order to wind up the insurance company, or to wind up the affairs of the company in respect of a class of insurance business, unless the registration of the insurance company has been revived under sub section (5C) or an application for winding up the company has been already presented to the Court. The Court may proceed as if an application under this sub section were an application under sub-section (2) of section 53, or sub section (1) of Sec. 58, as the case may be.
(5E) The Authority may, by order, suspend or cancel any registration in such manner as may be determined by the regulations made by it:
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