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JSA Blog | Shifting Gears: Merger of Insurance Companies

Current Regulatory Framework

The Insurance Act, 1938 (Insurance Act) permits an amalgamation of or transfer of insurance business between two insurance companies of the same class in accordance with a scheme prepared under applicable law and approved by the Insurance Regulatory and Development Authority of India (IRDAI).

Currently, the Insurance Act prohibits a merger of or transfer of insurance business of an insurance company with a non-insurance company. This restriction was much debated in 2015 during the proposed merger of HDFC Life and Max Life. The said transaction involved an intermittent step merger of Max Life (an insurance company) with its listed holding company Max Financial Services (a non-insurance company), and thereafter a merger of the combined entity with HDFC Life. After much debate, the transaction was rejected by the IRDAI on the technicality that the Insurance Act permits a merger between two insurance companies of the same class. Even though the merger of Max Life (an insurance company) with Max Financial Services (a non-insurance company) was an intermittent step, and the ultimate merged entity HDFC Life would have been an insurance company, the transaction was hit by an embargo under the Insurance Act.

Interestingly, the Chennai bench of the National Company Law Appellate Tribunal in the matter of Insurance Regulatory and Development Authority of India vs. Shriram General Insurance Company Limited1, held that Section 35 of the Insurance Act pertains to merger of or transfer of insurance business between insurance companies, and a merger of an insurance company and a non-insurance company does not fall within the contours of Section 35 of the Insurance Act. The appellate tribunal negated the argument of the IRDAI that Section 35 does not expressly permit a merger of a non-insurance company and an insurance company.

Road to Clarity: Proposed Amendments

The Government of India has proposed to overhaul the existing legislative framework, and one such proposal is to permit a merger of or transfer of insurance business from an insurance company to a non-insurance company. If implemented, it will settle the debate and set a clear legislative framework for merger of or transfer of business of an insurance company to a non-insurance company and vice versa. The proposed amendment will also set the path for innovative structures in the market, where exits could be provided to investors investing in promoters of insurance companies. Additionally, non-insurance companies could obtain an insurance license without going through the rigours of a fresh license. Since it is also proposed that insurance companies can undertake businesses other than insurance business, non-insurance portfolios could be acquired by insurance companies by undertaking merger as well as transfer of a business undertaking.

Simplification of the Exiting Regulatory Framework

The process prescribed for a merger of or transfer of business of an insurance company under the Insurance Act, read with the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 (Registration Regulations), is a three-step process. It is prescribed that transacting insurers inter-alia file a notice of intention notifying the IRDAI of the transaction followed by filing an application for seeking an ‘in principle’ approval from the IRDAI. Upon receiving an ‘in principle’ approval, the transacting insurers can file an application to other regulatory authorities including the National Company Law Tribunal, Reserve Bank of India, Securities Exchange Board of India, as applicable. The transaction is further subject to a final approval of the IRDAI after approval(s) from other regulatory authority(ies) is obtained by the transacting insurers. The aforesaid process is cumbersome and does not permit all regulatory authorities to be approached simultaneously. It is recommended that the process of merger of or transfer of insurance business between two insurance companies also be simplified such that there is a single window clearance from the IRDAI. Further, a process of merger or transfer of insurance business between an insurance company and a non-insurance company will also have to be proposed as part of the legislative framework.

Conclusion

The merger of insurance companies with non-insurance companies in India will represent a significant shift in the regulatory landscape, fostering greater innovation and ease of doing business. Such mergers could create synergistic benefits and form strategic alliances that could redefine the scope and scale of insurance services, enhancing value for both businesses and consumers.

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By: Sidharrth Shankar, Partner & Co-Chair Corporate Practice and Shivangi Sharma Talwar, Partner.

Tags Employment, JSA, Labour Code, Leading Law Firm, Leading Lawyers, Legal Updates

Setting the stage for Labour Codes implementation

The Government is serious about enforcement of the Labour Codes. It has meticulously planned to kickstart their implementation process soon. This is reflected in its overall strategy to take up Labour Codes implementation plan with rigour in the forthcoming budget to be announced on 1st February 2025. To make this happen, it has bolstered its efforts in getting Delhi and West Bengal to issue their draft rules by 31st March 2025.

The Wages Code and the Social Security Code will be the first two Labour Codes in the series of four Codes to be enforced. This will ensure that the Labour Codes in general and the Wages and the Social Security Codes in particular gain nationwide acceptance.

These two Codes are intended to be enforced in three phases. Large firms (500 employees and above) may take the lead on mandatory statutory compliances in the first year of the rollout followed by mid-size firms (100-500 employees) in the second year and small organisations (100 employees or less) in the third year. Enforcing two Labour Codes instead of all the four Labour Codes together will lessen the overall compliance burden that primarily rests on the employers. Selecting the Wages and the Social Security Codes to be the first two Codes to be implemented will be a game changer. These two Codes largely benefit the workforce including contingent, gig and platform workers. Hence, both the trade unions and employees are likely to extend cooperation and support their employers in implementation of the Labour Codes. This will test the waters and pave the way for modernizing the Indian labour law regime to suit the modern workplace.

Making compliance of these two Labour Codes mandatory in the first phase for the large corporates will not only lessen the regulatory burden of MSMEs and mid to small-sized organisations but lay the essential groundwork for the remaining organisations to follow suit. Additionally, the large corporates will not only be well-equipped to initiate the implementation process but will help in identifying and removing the potential roadblocks sooner.

The understaffing issue, that currently plagues the efficiency of some of the labour departments, will not adversely impact the enforcement process because the authorities will only need to focus on specific category of employers. These employers will essentially be the GCCs, multinational companies and Indian conglomerates who prioritize corporate governance. Further, proposed shift in the enforcement authority’s role from Labour Inspector to Inspector-cum-Facilitator would fast-track implementation of the new provisions, as they would need to provide compliance guidance to defaulting employers and an opportunity to comply instead of prosecuting them in the first instance.

Such labour law reforms will signal a business-friendly ecosystem in India and aid in achieving a win-win for corporates and their workforce. This will in turn act as a catalyst to boost investor confidence and not only attract new foreign players to India but also encourage existing players to expand their Indian operations. Hence, balancing interests of employers and workers is need of the hour and would go a long way in enhancing workforce participation as India moves towards its goal of becoming a USD 5 trillion economy.

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By: Minu Dwivedi – Partner, Prashaant Malaviya and Purbasha Panda – Associates

Tags Employment, JSA, Labour Code, Leading Law Firm, Leading Lawyers, Legal Updates

The Employee Moonlighting Dilemma

“Moonlighting” laws restrict an employer’s ability to take adverse employment decision against an employee who works for a different employer outside his regular work hours if the ancillary employment does not compete or interfere with such employee’s ability to adequately perform his primary job.

In India, certain statutory provisions provide for exclusive service and impose restrictions on double employment such as the Delhi Shops and Establishments Act, 1954, the Factories Act, 1948, and the Industrial Employment (Standing Orders) Central Rules, 1946. Further, restrictive covenants in employment contracts which are intended to operate during the subsistence of an employee’s employment are also enforceable under the Indian laws. Hence, the contractual provisions against moonlighting will be enforceable by employers against a defaulting employee.

In 2016, the Central Government enacted the Model Shops and Establishments Act, to revise the regulatory norms for operating offices and commercial establishments in India. Following this, several States amended their State-specific Shops and Establishments Act to modify the local law requirements in their respective jurisdictions. However, Maharashtra was the first State to repeal and reenact its State-specific Shops and Establishments Act. With this repeal and reenactment, the statutory restriction on double employment under the Bombay Shops and Establishment Act was omitted.

Amongst the labour law reforms that are in the pipeline, the Occupational Safety, Health and Working Conditions Code, 2020 imposes a restriction on double employment in a factory and mine. However, the draft Model Standing Orders for the Services Sector, 2020, which will be applicable to the IT sector too, while retaining the provision on “exclusive service” goes a step ahead by enabling workers to take up an additional job/assignment with their employer’s prior permission and subject to conditions, if any, imposed by their employer.

Job quality and pay issues may, over a period, lead to reduced levels of job satisfaction and loyalty in full-time employees. Such dissatisfied full-time employees become vulnerable and are more likely to fall for opportunist white-collar gig jobs. On the other hand, the entities offering white-collar gig jobs may be oblivious to the job status of their recruits, given that they are saved from having to hire and train freshers as these new recruits, who may be full-time employees of another entity, already have the expertise of quality and trained manpower.
The employer perspective on the issue of moonlighting remains divided. Whereas some regard it as cheating/deceitful and, therefore, unethical, others do not see much harm, provided that the freelance project, or second job, does not impact the full-time employee’s productivity or involve cross-leveraging of confidential data. Consequently, based on business requirements, including confidentiality and intellectual property rights (IPR) issues, an emergence of company policies that are either restricting moonlighting and dismissing defaulting employees from service, or allowing their employees to take up internal or external gigs, is being observed.

Authored by the Minu Dwivedi – Partner, JSA.