Exemptions to Companies Established in International Finance Service Centers
Public unlisted companies and private companies, which have been licensed to operate by the Reserve Bank of India (‘RBI’), Securities and Exchange Board of India (‘SEBI’), or the Insurance Regulatory and Development Authority of India (‘IRDAI’) from an International Financial Services Centre (‘IFSC’) located in an approved multi services Special Economic Zone (‘Specified IFSC Companies’), have been exempted from the applicability of certain provisions of the Companies Act, 2013 (‘CA 2013’). Pursuant to the notifications dated January 4, 2017, the MCA has granted certain general exemptions to the Specified IFSC Companies from compliance with the following provisions of CA 2013:
i. prohibition under Section 42(3) on making fresh offer for private placement of securities during pendency of allotment under an earlier;
ii. restriction under Section 54(1)(c) on issuing sweat equity shares within a period of one year from the commencement of business;
iii. requirement under Section 118(10) requiring all companies to observe secretarial standards with respect to general and board meetings;
iv. compliance with corporate social responsibility under Section 135 to not apply for a period of five years from the commencement of business;
v. restriction under Section 139(2) on the ability of a company to appoint / re-appoint statutory auditors for more than the prescribed period;
vi. director residency requirement under Section 149(3) of having at least one director who has stayed in India for a total period of not less than 182 days, to not apply for the first financial year from the date of its incorporation;
vii. prohibition on making investments through more than two layers of investment companies under Section 186(1); and
viii. directors of Specified IFSC Companies will be entitled to exercise powers either by means of resolutions passed at board meetings or through circular resolutions, including for those matters prescribed under Section 179(3).
In addition to the general exemptions, specific exemptions from applicability of the following provisions of CA 2013 have been granted to public unlisted companies located in IFSC:
i. restriction under Section 47 on the voting rights of preference shareholders, provided that the charter documents provide for it;
ii. restrictions under Section 73(2)(a) to (e) on raising public deposits from members, provided that the deposits accepted do not exceed 100% of the aggregate of the paid-up share capital and free reserves and the details of monies so accepted has been filed with the Registrar of Companies in the manner prescribed;
iii. requirement under Section 149(1) to have a woman director;
iv. requirement under Section 152(6) providing for retirement of directors of public companies by rotation;
v. requirement to appoint the audit committee, nomination and remuneration committee or stakeholders’ relationship committee under Sections 177 and 178;
vi. consent of board of directors as stipulated under Section 188(1) for related party transactions;
vii. requirement under Section 196(4) to appoint a whole-time director, managing director or manager; and
viii. restriction under Section 197 on the remuneration payable to managerial personnel.
IRDAI Issues Clarifications on Remuneration Regulations Pertaining to Insurance Agents / Intermediaries
IRDAI had previously issued certain clarifications in respect of the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 (‘Reward Regulations’). A plain reading of Regulation 5(f) of the Reward Regulations appeared to suggest that insurers are restricted from paying commission or remuneration that is higher than the lowest of commission levels prescribed / approved under the following: (a) the Reward Regulations; or (b) the IRDAI (Linked Insurance Products) Regulations, 2013; or (c) the IRDAI (Non Linked Insurance Products) Regulations, 2013; or (d) the Guidelines on Product Filing Procedures for General Insurance Products, as applicable to general insurers. IRDAI has now clarified that the maximum rate of commission or remuneration payable by an insurer must not exceed the lower of either: (i) the maximum specified in the Reward Regulations, or (ii) any other rate of commission or remuneration approved by IRDAI under any other regulations or guidelines.
Notification of Section 2(87) of the Companies Act, 2013 and the Companies (Restrictions on number of layers) Rules, 2017
The Ministry of Corporate Affairs (‘MCA’) has, by way of notifications dated September 20, 2017, notified the proviso to Section 2(87) of the Companies Act, 2013 (‘Companies Act’) and the Companies (Restrictions on Number of Layers) Rules, 2017 (‘Layers Restrictions Rules’). Pursuant thereto, no company can have more than two layers of subsidiaries other than (i) banking companies, (ii) non-banking financial companies, (iii) insurance companies, and (iv) Government companies. Existing companies, which currently have more than two layers of subsidiaries, are:
i. required to file a return in Form CRL- 1, disclosing details in relation to such companies, within 150 days from September 20, 2017; and
ii. restricted from having any additional layer of subsidiaries over and above the layers existing on the date of notification of the Layers Restrictions Rules, and will not, in case one or more layers are reduced by it subsequent to the commencement of these rules, have the number of layers beyond the number of layers it has after such reduction or maximum layers allowed under the Layers Restrictions Rules (whichever is more).
The Layers Restriction Rules specify that for computing the number of layers, a layer comprising of one or more wholly owned subsidiary or subsidiaries will not be counted. It has also been clarified that Layers Restrictions Rules do not derogate from the proviso to Section 186(1) of the Companies Act which deals with the layers of investment companies a company may have. These provisions do not restrict any company from acquiring a company outside India with subsidiaries beyond two layers, as per the laws of such foreign country.
IRDAI Notifies Regulations Pertaining to Payment of Commission to Insurance Agents/ Intermediaries
Pursuant to the Insurance Laws (Amendment) Act, 2015, Section 40A of the Insurance Act, 1938 (pertaining to commission payable by insurance companies to intermediaries) was deleted, and the manner of regulating such commissions (and levels thereof) was delegated to the Insurance Regulatory and Development Authority of India (‘IRDAI’). Accordingly, the IRDAI notified the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 (‘Reward Regulations’), which will come into force on April 1, 2017. Some of the salient features of the Reward Regulations are as follows:
i. Every insurer is required to adopt a board approved policy for payment of commission, remuneration or reward to agents and intermediaries;
ii. The maximum commission or remuneration payable for various insurance products has been prescribed;
iii. Insurers appear to be restricted from paying commission or remuneration that is higher than the lowest of commission levels prescribed / approved under the following: (a) the Reward Regulations; or (b) the IRDAI (Linked Insurance Products) Regulations, 2013; or (c) the IRDAI (Non Linked Insurance Products) Regulations, 2013; or (d) the Guidelines on Product Filing Procedures for General Insurance Products, as applicable to general insurers. However, the relevant language of the Reward Regulations is not clear in this respect;
iv. Reward in life insurance and general insurance has been permitted to be paid over and above commission/ remuneration based on objective criteria approved by the board. Such reward (a) for life insurance, cannot be more than 20% of the first year commission or remuneration paid and is to be calculated on an overall basis without linkage to each policy solicited; and (b) for general insurance, cannot be more than 30% of commission or remuneration paid and is to be calculated separately for health insurance and other than health insurance without linkage to each policy solicited; and
v. No reward is due or payable to intermediaries whose revenue from activities other than insurance intermediation is more than 50% of their total revenue.
IRDAI (Registration of Indian Insurance Companies) (Eighth Amendment) Regulations, 2016
The Insurance Regulatory and Development Authority of India (‘IRDAI’) has notified the IRDAI (Registration of Indian Insurance Companies) (Eighth Amendment) Regulations, 2016 (‘IRDAI Amendment’), on July 25, 2016. Regulation 11 of the erstwhile regulations provided that foreign investment in insurance companies is to be calculated as the aggregate of: (i) quantum of paid-up equity share capital held by foreign investors (including foreign venture capital investors) in the insurance company; and (ii) proportion of the paid-up equity share capital held or controlled by each such foreign investor either by itself or through its subsidiary companies in the Indian promoter / Indian investor of the insurance company. Pursuant to the IRDAI Amendment, (ii) above is no longer applicable to an Indian promoter / any Indian investor of listed Indian insurance companies where the concerned Indian promoter / Indian investor is regulated by RBI, SEBI and / or the National Housing Bank.
IRDAI (Listed Indian Insurance Companies) Guidelines, 2016
The salient features of the IRDAI (Listed Indian Insurance Companies) Guidelines, 2016 (‘IRDAI Guidelines’) issued by IRDAI on August 5, 2016, which will apply to all insurers whose equity shares are listed on stock exchanges and to the allotment process pursuant to a public issue, are as follows:
i. Any transfer / arrangement or agreement to transfer between 1% to 5% of the paid up equity share capital of an insurer by any person will be subject to the “fit and proper” criteria–creating an exemption from the operation of Section 6A of the Insurance Act, 1938, which requires prior IRDAI approval for transfers in excess of 1% of the share capital of an insurer. Assessment of whether the “fit and proper” criteria are satisfied by an acquirer would be based on an analysis of, inter alia, past regulatory record, existence of any convictions / investigations by revenue or regulatory authorities and credit rating, etc.
ii. Any acquisition / arrangement or agreement for acquisition that will or is likely to take the aggregate holding of an acquirer to 5% or more of the paid-up equity share capital of the insurer or entitles such person to exercise 5% or more of the total voting rights of the insurer, will require prior approval of IRDAI in the manner specified under the IRDAI Guidelines;
iii. Any fresh acquisitions by a shareholder already having / likely to have an aggregate holding to the extent of 5% or more of the paid up equity share capital of the insurer: (a) where such acquisition results in the aggregate holding of such shareholder up to 10% of the shares/ voting rights of the insurer, will not require prior approval of IRDAI; and (b) where such acquisition results in the aggregate holding of such shareholder exceeding 10% of the paid up equity share capital / voting rights of the insurer, will require fresh approval of IRDAI; and
iv. Minimum holding by promoters / promoter group is required to be maintained at 50% of the paid up equity capital of the insurer at all times. However, in cases where the present holding of the promoters is below 50%, such holding will be considered to be the minimum holding.
 ‘Aggregate holding’ has been defined in the IRDAI Guidelines to mean the total holding through acquisition and the shares held by the applicant, his relatives, associate enterprises and persons acting in concert with him.
IRDAI issues Discussion Paper on Listing of Indian Insurance Companies
IRDAI has issued a discussion paper on listing of Indian insurance companies on August 11, 2016, which inter alia provides for: (i) all general insurance companies, including standalone health and reinsurance companies to mandatorily take steps to list their shares upon completion of eight years of operations; (ii) all life insurance companies to mandatorily list their shares upon completion of 10 years of operations; (iii) all insurance companies that have already exceeded the number of years of operation indicated in (i) and (ii) to initiate steps to ensure that they list their shares within a period of three years from the date of issue of the proposed guidelines; and (iv) Indian insurance companies that meet the above criteria to: (a) take up the matter of listing with their respective board of directors within a period of three months from the date of issue of the proposed guidelines; (b) file the roadmap for an initial public offering (‘IPO’), duly approved by their respective board of directors, with IRDAI within a period of 45 days from the date of such approval; and (c) initiate process of IPO in accordance with the approved roadmap within such period as may be approved by IRDAI.
IRDAI Issues Guidelines for Corporate Governance for Insurers in India
The Insurance Regulatory and Development Authority of India (‘IRDAI’) has issued guidelines for corporate governance for insurers in India (‘CG Guidelines’) on May 18, 2016, which are applicable from FY 2016-2017. Some salient features of the CG Guidelines are as follows: (a) the board of directors of the insurers (‘BoD’) is required to formulate a policy on related party transactions consistent with the parameters set out in the CG Guidelines; (b) the BoD is to have a minimum of three independent directors (to be complied with within one year of the effective date of the CG Regulations). An insurer can have two independent directors for the first five years from the grant of registration; (c) mandatory establishment of certain committees prescribed under the CG Guidelines; (d) specific guidelines have been prescribed for the appointment and reporting of key management persons and appointment of statutory auditors; and (e) all insurers are required to report status of compliance with the CG Guidelines on an annual basis.
IRDAI (Registration of Indian Insurance Companies) (Seventh Amendment) Regulations, 2016
IRDAI notified the IRDAI (Registration of Indian Insurance Companies) (Seventh Amendment) Regulations, 2016 (‘Registration Regulations’) on February 22, 2016. The key change introduced is with respect to the manner of calculation of equity capital held by foreign investors in an insurance company, which is to be calculated as an aggregate of:
i. The quantum of equity paid up capital held by foreign investors (including FVCI); and
ii. The proportion of the paid up equity capital held or controlled by such foreign investor either by itself or through its subsidiary companies in an Indian promoter/ investor of such insurance company. This does not apply to Indian promoters/ investors which are banking companies or public financial institutions.
On May 20, 2016, the IRDAI has issued an exposure draft for further amending the Registration Regulations, whereby it has been proposed that item (ii) above will not apply to an Indian promoter/ investor of a listed Indian insurance company regulated by RBI, SEBI or the National Housing Bank.
 ‘Foreign Investors’ has been defined under the Indian Insurance Companies (Foreign Investment) Rules, 2015 to mean all eligible non-resident entities or persons resident outside India investing in the equity shares of an Indian insurance company, as permitted under applicable foreign exchange regulations.
IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017
On April 20, 2017, the Insurance Regulatory and Development Authority of India (‘IRDAI’) issued the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 (‘Outsourcing Regulations’), which supersede the guidelines previously issued on February 1, 2011. Some of the salient features of the Outsourcing Regulations are set out below:
i. “Core” functions of insurers have been prescribed, which are prohibited from being outsourced, including investment functions, product designing, actuarial functions (including risk management) and redressal of policyholders’ grievances.
ii. The board of directors of an insurer is required to: (a) approve and put in place an outsourcing policy; and (b) constitute a committee comprising of key management persons, which has to mandatorily include the chief risk officer, chief financial officer and chief of operations. The committee is, inter alia, to be responsible for effective implementation of outsourcing policy, actions undertaken by each outsourcing service provider (‘OSP’), by annual performance evaluation of each OSP and reporting exceptions to the board of directors.
iii. Outsourcing arrangements are to be governed by legally binding agreements for a specified period which describe all important aspects of the arrangement, and can be subject to periodical renewals, if necessary.
iv. To avoid conflicts of interest, outsourcing arrangements with related parties / group entities of insurers or insurance intermediaries registered with IRDAI (‘RPs’) are to be avoided. Where such arrangements are proposed to be implemented, insurers are required to ensure that the consideration amount agreed upon with the RP, and modifications thereon (if any) will be subject to specific approval of the outsourcing committee.
v. Existing outsourcing arrangements to which these Outsourcing Regulations become applicable are to be appropriately amended within 180 days from the date of coming into effect of the Outsourcing Regulations to ensure compliance. All outsourcing arrangements with an annual pay-out either per OSP / activity of INR 1 crore (approx. USD 155,100) or more, are to be reported to the IRDAI in a prescribed format within 45 days from the close of a financial year.
CCI approves combination between LIC & IDBI
On November 22, 2018, CCI approved acquisition of 51% shareholding and management control rights in IDBI Bank Limited (‘IDBI’) by Life Insurance Corporation of India (‘LIC’). LIC is engaged in the provision of various schemes of life insurance to retail and corporate customers. IDBI operates as a full service universal bank and provides financial products and services, encompassing deposits, loans, payment services and investment solutions. 
In its competitive assessment, CCI found that the combination would not have an AAEC in India in the markets for (i) provision of life insurance; (ii) provision of housing finance; and (iii) banking services (other than housing finance), in particular the segments relating to deposits, home loans, agricultural banking, card business, retail banking services other than card business, deposits and home loan, medium and small business banking, and wholesale banking (other than retail business banking), on account of IDBI having an insignificant presence in these markets. Further, CCI found that while LIC’s and IDBI’s activities overlapped in the market for mutual funds, in particular the segments relating to (i) growth /equity oriented scheme; (ii) income/debt oriented scheme; (iii) balanced fund scheme; (iv) money market/liquid fund scheme; and (v) gilt funds, neither LIC’s nor IDBI’s presence in this markets was significant enough to result in an AAEC. With regard to a potential vertical relationship between LIC and IDBI in relation to bancassurance services, CCI held that considering the nature of bancassurance services and presence of IDBI in the segment, the combination will not confer any ability or provide any incentive to LIC to foreclose other banks engaged in the provision of bacassurance services. Based on the above, CCI decided to approve this combination.
 Combination Registration Number C-2018/10/605.
CCI Approves Acquisition by Ageas Insurance International from Royal Sundaram General Insurance
On December 19, 2018, CCI approved acquisition of 40% of the equity share capital of Royal Sundaram General Insurance Company Limited (‘RSGI’) by Ageas Insurance International N.V. (‘Ageas’) pursuant to the execution of a share purchase agreement and shareholders agreement entered into between the RSGI, Ageas, Sundaram Finance Limited (‘SFL’) and other selling shareholders of RSGI. 
Ageas is a Dutch company engaged in provision of international insurance solution to retail and business customers. In India, Ageas is present through IDBI Federal Life Insurance Company Limited (‘IFLI’) which engages in provision of life insurance services in India. RSGI is a subsidiary of SFL and is engaged in provision of general (non-life) insurance services to individuals and businesses. It offers motor, health, personal accident, home and travel insurance to individuals and also offers insurance products in fire, marine, engineering, liability, motor and business interruption risks to commercial customers.
In its competition assessment, CCI observed that since there was no horizontal overlap or vertical relationship between Ageas and RSGI, the combination was not likely to have any AAEC in India and therefore approved the acquisition.
 Combination Registration Number C-2018/11/618.