Contents ths insurance act, 1938 Arrangement of Sections




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Provided that nothing in this sub section shall apply to any investment made with the previous consent of the Authority by an insurer, being a company with a view to forming a subsidiary company carrying on insurance business.
(5) An insurer shall not out of his controlled fund invest or keep invest any sum in the shares or debentures of any private limited company.
(6) Where an investment is in partly paid up shares, the uncalled liability on such shares shall be added to the amount invested for the purpose of computing the percentages referred to in clause (a) of sub section (3) and clause (a) of subjection (4).
(7) Notwithstanding anything contained in subsections (3) and (4), where new shares are issued to the existing shareholders by a company the existing shares of which are covered by Clause (i) or CIause (k) or Clause (l) of subjection (1) and of which an insurer is already a shareholder, the insurer may subscribe to such new shares:
Provided that the proportion of new shares subscribed by him does not exceed the proportion which the paid up amount on the shares held by him immediately before such subscription bears to the total paid up capital of the company at the time of such subscription
(8) If, on an application submitted through the Controller the Central Government is satisfied that special grounds exist warranting such exemption, the Central Government may for such period, to such extent and in relation to such particular investments and subject to such conditions as maybe specified by it in this behalf, exempt an insurer from all or any of the provisions of sub-sections (3), (4) and (7).
(9) An insurer shall not keep more than three per cent. of the controlled fund in fixed deposit or current deposit, or partly in fixed deposit and partly in current deposit, with any one banking company or with any one comparative society registered under the Insurance Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being us force and doing banking business:
Provided that in applying this sub section to the amount in deposit with banking on any day all the premiums collected by that company on behalf of the insurer during the preceding thirty days shall be excluded:
Provided further that the Authority may permit a co operative life insurance society as defined in C1ause (b) of sub section (1) of Section 95 to keep more than three per cent. of its controlled fund in fixed deposit with any co­operative society referred to in this subsection, if the fixed deposit is secured by a first mortgage on any immoveable property.
(10) All assets forming the controlled fund, not being Government securities or other approved securities in which assets are to be invested or held invested in accordance with Section 27, shall (except for a part thereof not exceeding one tenth of the controlled fund in value which may, subject to such conditions and restrictions as may be prescribed, be offered as security for any loan taken for purposes of any investment), be held free of any encumbrance, charge, hypothecation or lien.
(11) If at any time the Authority considers any one or more of the investments constituting an insurer's controlled fund to be unsuitable or undesirable, the Authority may, after giving the insurer an opportunity of being heard, direct him to realise the investment or investments, and the insurer shall comply with the direction within such time as may be specified by the Authority.
(12) Every insurer in existence at thecommencement of the Insurance (Amendment) Act, 1950 (47 of 1950), whose investments or any part thereof at such commencement contravene or contravenes any of the provisions of this section, shall, within ninety days from such commencement, submit to the Authority a report specifying in all such investments, and if the Authority is satisfied that it will not be in the interests of the insurer or any class of insurers generally to realise any such investments, it may, by order direct that the provisions of this section [other than the provisions contained in sub-section (11) shall not apply in relation to any such investments or to any class of investments generally for such period or periods as may be specified in the order.
(13) Without prejudice to the powers given to the Authority by subsection (11), nothing contained in this section shall be deemed to require any insurer to realise any investment made in conformity with the provisions of subsection (1) after the commencement of this Act which after the making thereof, has ceased to be an approved investment within the meaning of this section.
(14) Nothing contained in this section shall be deemed to affect in any way the manner in which any moneys relating to the provident fund of any employee or to any security taken from any employee or over moneys of a like nature are required  to be held by or under any Central Act, or Act of a State Legislature.
Explanation.- In this section "controlled fund" means-
(a) in the case of any insurer specified in sub-clause (a) (ii) or sub-clause (b) of Clause (9) of section 2 and carrying on life insurance business-

(i)  all his funds, if he carries on no other class of insurance business;

(ii) all the funds appertaining to his life insurance business if he carries on some other class of                      insurance business also; and

 (b) in the case of any other insurer carrying on life insurance business,-



(i) all his funds in India, if he carries on no other class of insurance business;

(ii) all the funds in India appertaining to his life insurance business if he carries on some other class of insurance business also;
but does not include any fund or portion thereof in respect of which the Authority is satisfied that such fund or portion thereof, as the case may be, is regulated by the law of any country outside India or in respect of which the Authority is satisfied that it would not be in the interest of the insurer to apply the provisions of this section.
Further provisions regarding investments.
27 B. (1) No insurer carrying on general insurance business shall, after the commencement of the Insurance (Amendment) Act, 1968 (62 of 1968), invest or keep invested any part of his asset otherwise than in any of the following approved investments, namely:
(a) the investment specified in clauses (a) to (e), (n), (q) and (r) of sub­-section (1) of Sec. 27A;
(b) debentures secured by a first charge on any immoveable property, plant or equipment of any company which has paid interest in full for the three years immediately preceding or for at least three out of the four or five years immediately preceding on such or similar debentures issued by it;
(c) debentures secured by a first charge on any immoveable property, plant or equipment of any company where either the book value or the market value, whichever is less, of such property, plant or equipment is more than twice the value of such debentures;
(d) first debentures secured by a floating charge on all its assets or by a fixed charge on fixed assets and floating charge on all other assets of any company which has paid dividends on its equity shares for the three years immediately preceding or for at least three out of the four or five years immediately preceding the date of the investment;
(e) preference shares of any company which has paid dividends on its equity shares for the three years immediately preceding or for at least three out of the four or five years immediately preceding;
(f) preference shares of any company on which dividends have been paid for the three years immediately preceding or for at least three out of the four or five years immediately preceding and which have priority in payment over all the equity shares of the company in winding up;
(g) shares of any company which have been guaranteed by another company, such other company having paid dividends on its equity shares for the three years immediately preceding or for at least three out of the four or five years immediately preceding:
Provided that the total amount of shares of all the companies under   that guarantee by the guaranteeing company is not in excess of fifty percent. of the paid up amount of preference and equity shares of the guaranteeing company;
(h) shares of any company on which dividends of not less than four per cent including bonus have been paid for the three years immediately preceding or for at least three out of the four or five years immediately preceding;
(i) first mortgages on immoveable proper situated in India or in any other country where the insurer is carrying on insurance business:
Provided that the property mortgaged is not lease hold property with an outstanding term of less than fifteen years and the value of the property exceeds by one third, or if it consists of buildings, exceeds by on-half, the mortgage money;
(j) such other investments as the Authority may, by notification in the Official Gazette, declare to be approved investments for the purposes of this section.
(2) Any prescribed assets shall, subject to such conditions, if any, as may by prescribed be deemed to be assets invested or kept invested in approved investments specified in sub-section (1).
(3) Notwithstanding anything contained in sub section (1), an insurer may, subject to the provisions contained in the next succeeding sub-sections, invest or keep invested any part of his assets otherwise than in an approved investment specified in subsection (1), if­-

(i) after such investment, the fatal amounts of all such investments of the insurer do not exceed twenty five per cent of his assets, and


(ii) the investment is made or in the case of any investment already made, the continuance of such investment is with the consent of all the directors, other than the directors appointed under Section 34 C, present at a meeting and eligible to vote, special notice of which has been given to  all the directors then in India, and all such investments, including investments in which any director is interested, are reported without delay to the Authority with full details of investments and the extent of the director's interest in any such investment:
Provided that the making, or the continuance, of such investment is not objected to by any director appointed under Section 34 C
(4) An insurer shall not invest or keep invested any part of his assets in the shares of any one banking company or investment company more than­-
(a) ten per cent of his assets, or

(b) two per cent of the subscribed share capital and Dentures of the banking company



or investment company concerned,
whichever is less.
(5) An insurer shall not invest or keep invested any part of his assets in the shares or debentures of any one company other than a banking company or investment company more than
(a) ten per cent of his assets, or
(b) ten per cent of the subscribed share capital and debentures of the company,
whichever is less:
Provided that nothing in this sub-section shall apply to any investment made by an insurer in the shares of any other insurer if such other insurer is a company within the meaning of Section 3 of the Companies Act, 1956 (1 of 1956) and carries on insurance or re insurance business in India.
(6) An insurer shall not invest or keep invested any part of his assets in the shares or debentures of any private company.
(7) Where an investment is in partly paid up shares, the uncalled liability on such shares shall be added to the amount invested for the purpose of computing the percentages referred to in Clause (a) of sub-section (4) and Clause (a) of sub section (5).
(8) Notwithstanding anything contained in sub sections (4) and (5) where new shares are issued to the existing shareholders by a company, the existing shares of which are covered by Clause (e) or clause (g) or Clause (h) of sub section (1) and of which an insurer is already a share holder, the insurer may subscribe to such new shares:
Provided that the proportion of new snares subscribed by him does not exceed the proportion which the paid up amount on the shares held by him immediately before such subscription bears to the total paid up capital of the company at the time of such subscription
(9) If, on an application submitted to the Authority, he has satisfied that special grounds exist warranting such exemption, he may, for such period, to such extent and in relation to such particular investments and subject to such conditions as may be specified by him in this behalf, exempt an insurer from all or any of the provisions of sub sections (4), (5) and (8).
(10) An insurer shall not keep more than ten per cent. of his assets in fixed deposit or current deposit, or partly in fixed deposit and partly in current deposit, with any one banking company or with any co operative society registered under the Co operative Societies Act, 1912 ( 2 of 1912), or under any other law for the time being in force and doing banking business:
Provided that in applying this sub section to the amount in deposit with a banking company on any day, all the premiums credited during the preceding sixty days, to the account of the insurer with such banking company and the amounts deposited, during the preceding thirty days, by such insurer with that banking company for payment of claims or out of re insurance recoveries, shall be excluded.
(11) All assets shall (except for a part thereof not exceeding one tenth of the total assets in value which may, subject to such conditions and restriction as may be prescribed, be offered as security for any loan taken for purposes of any investment or for payment of claims, or which may be kept as security deposit with the banks for acceptance of policies) be held free of any encumbrance, charge, hypothecation or lien.
(12) If at any time the Authority considers any one or more of the investments constituting an insurer's assets to be unsuitable or undesirable, he may, after giving the insurer an opportunity of being heard, direct the insurer to realize the investment or investments, and the insurer shall comply with the direction within such time as may be specified in this behalf by the Authority.
(13) Every insurer in existence at the commencement of the insurance (Amendment) Act, 1968, whose investments or any part thereof at such commencement do or does not fulfill the requirements of this section, shall, within ninety days from such commencement, submit to the Authority a report specifying all such investments, and, if the Authority is satisfied that it will not be in the interest of the insurer or any class of insurers generally to realise any such investments, he may, by order direct that the provisions of this section, other than the provisions contained in sub-section (12), shall not apply in relation to any such investments or to any class of investments generally for such period or periods as may be specified in the order.
(14) Without prejudice to the powers conferred on the Authority by sub­section (12), nothing contained in this section shall be deemed to require any insurer to realise any investment made in conformity with the provisions of sub section (1) after the commencement of the Insurance (Amendment) Act, 1968(62 of 1968), which, after the making thereof, has ceased to be an approved investment within the meaning of this section.
(15) Nothing contained in this section shall be deemed to affect in any way the manner in which any moneys relating to the provident fund of any employee or to any security taken from any employee or other moneys of a like nature are required to be held by or under any Central, Provincial or State Act.
(16) In this section, unless the context otherwise requires, "assets" means-

(a) in the case of an insurer carrying on life insurance business in India, all his assets required to be shown under the column "Other Classes of Business" in the balance sheet in Form A, in Part II of the First Schedule, but excluding any items against the head "Other Accounts (to be specified)";


(b) in the case of an insurer specified in sub-clause (a) (ii) or sub-clause (b) of C1ause (9) of Sec. 2, who is not carrying on life insurance business in India, all his assets required to be shown in the balance sheet in Form A in Part II of the First Schedule but excluding any items against the head "Other Accounts (to be specified)"; and
(c) in the case of any other insurer, the assets required to be shown in the statement in Form AA, in Part II of the First Schedule, but excluding office furniture,
but does not include any assets specifically held against any fund or portion thereof in respect of which the Authority is satisfied that such funds or portion thereof, as the case may be, is regulated by the law of any country outside India or in respect of enrich the Authority is satisfied that it would not be in the interest of the insurer to apply the provisions of this section.
Prohibition of investment of funds outside India
27C. (1) Without prejudice to anything contained in sections 27, 27A and 27B, the Authority may, in the interests of the policy-holders, specify by the regulations made by it, the time, manner and other conditions of investment of assets to be held by an insurer for the purposes of this Act.
(2) The Authority may give specific directions for the time, manner and other conditions subject to which the funds of policy-holders shall be invested in the infrastructure and social sector as may be specified by regulations made by the Authority and such regulations shall apply uniformly to all the insurers carrying on the business of life insurance, general insurance, or re-insurance in India on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999.
(3) The Authority may, after taking into account the nature of business and to protect the interests of the policy-holders, issue to an insurer the directions relating to the time, manner and other conditions of investment of assets to be held by him:
Provided that no direction under this sub-section shall be issued unless the insurer concerned has been given a reasonable opportunity of being heard
Statement of investment of assets
28. (1) Every insurer carrying on the business of life insurance shall every year, within thirty-one days from the beginning of the year submit to the Authority a return showing as at the 31st day of December of the preceding year the assets held invested in accordance with Section 27 and all other particulars necessary to establish that the requirements of that section have been complied with, and such return shall be certified by a principal officer of the insurer.
(2) Every such insurer shall also furnish, within fifteen days from the last day of March, June, and September, a return certified as aforesaid showing as at the end of each of the said months the assets held invested in accordance with Sec. 27.
(2A) In respect of the Government securities and other approved securities invested and kept invested in accordance with sub-section (1) of Section 27 an insurer shall submit along with the returns referred to in sub sections (1) and (2) a certificate, where such assets are in the custody of a banking company, from that company, and in any other case from the chairman, two directors and a principal officer, if the insurer is a company, or otherwise from a principal officer of the insurer to the effect that the securities are held free of any encumbrance, charge, hypothecation, or lien, and every such certificate after the first shall also state that since the date of the certificate immediately preceding all the securities have been so held.
(2B) In respect of the assets forming the controlled fund within the meaning of Section 27A, and which do not form part of the Government securities and approved securities invested and kept invested in accordance with Section 27, an insurer shall submit, along with the returns referred to in sub sections (1) and (2), a statement, where such assets are in the custody of a banking company, from that company, and, in any other case, from the chairman, two directors and a principal officer if the insurer is a company, or from a principal officer of the insurer if the insurer is not a company, specifying the assets, which are subjected to any charge and certifying that the assets, which are held free of any encumbrance, charge, hypothecation, or lien, and every such statement after the first shall also specify the charges created in respect of any of those assets since the date of the statement immediately preceding, and, if any such charges have been liquidated, the date on which they were so liquidated.
(3) The Authority may, at his discretion require any insurer to whom sub-section (1) applies to submit before the 1st day of August in each or any year a return of the nature referred to in subsection (1), certified as required by mat sub section and prepared as at the 30th day of June.
(4) In the case of an insurer having his principal place of business or domicile outside India, the Authority may, on application made by the insurer, extend the periods of fifteen and thirty one days mentioned in the foregoing sub sections to thirty days and sixty days, respectively.
(5) The Authority shall be entitled at any time to take such steps as he may consider necessary for the inspection or verification of the assets invested in compliance with Section 27 or for the purpose of securing the particulars necessary to establish that the requirements of that section have been complied with; the insurer shall comply with any requisition made in this behalf by the Authority, and if he fails to do so within two months from the receipt of the requisition he shall be deemed to have made default in complying with the requirements of this section.
Return of investments relating to controlled fund and changes therein.
28A. (1) Every insurer carrying on life insurance business, shall every year, within thirty one days from the beginning of the year submit to the Authority a return in the form specified by the regulations made by the Authority showing as at the 31st day of March of the preceding year, the investments made out of the controlled fund referred to in Section 27A, and every such return shall be certified by a principal officer of the insurer.
(2) Every insurer referred to in sub section (1) shall also submit to the Authority a return in the form specified by the regulations made by the Authority showing all the changes that occurred in the investments aforesaid during each of the quarters ending on the last day of March, June, September and December within thirty one days from the close of the quarter to which it relates, and every such return shall be certified by a principal officer of the insurers.
Returns of investments relating to the assets and changes therein
28B. (1) Every insurer carrying on general insurance business, shall, every year, within thirty one days from the beginning of the year, submit to the Authority a return in the form specified by the regulations made by the Authority form showing as at the 31st day of March of the preceding year the investments made out of his assets referred to in Section 27B, and every such return shall be certified by a principal officer of the insurer.
(2) Every insurer referred to in sub section (1) shall also submit to the Authority a return in the form specified by the regulations made by the Authority showing all the changes that occurred in the investment aforesaid during each of the quarters ending on the last day of March, June, September and December within thirty one days from the close of the quarter to which it relates, and every such return shall be certified by a principal officer of the insurer.
(3) Every insurer shall submit, along with the returns referred to in sub­-sections (1) and (2), a statement, where any part of the assets are in the custody of a banking company, from that company, and in any other case, from the chairman, two directors and a principal officer, if the insurer is a company, or from a principal officer of the insurer, if the insurer, is not a company, specifying the assets, which are subject to charge and certifying that the other assets are held free of any encumbrance, charge, hypothecation or lien, and every such statement after the first shall also specify the charges created in respect of any of those assets since the date of the statement immediately preceding, and, if any such charges have been liquidated, the date on which they were so liquidated.
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