Guestcolumn 8212; Create the foundation

In the circumstances, it becomes necessary to examine and analyse the necessity of establishing a regulatory authority. It is an Authority to be vested with the functions of regulating, promoting, ensuring orderly growth of insurance business as rightly envisaged by the Malhotra Committee. One of the factors leading to the introduction of a regulatory authority was dilution of the Insurance Act 1938 since the nationalisation of life insurance in 1956, that of general insurance in 1972 and various Government Notifications issued from time to time. Consequently most of the authority and functions were taken away from the Controller of Insurance and vested in LIC and GIC.

According to the Malhotra Committee Report, IRA was essential, irrespective of the fact whether insurance sector was liberalised and private sector allowed to enter into this area or not. It is also necessary to bear in mind that even if the IRA Bill is passed in the form presented to the Parliament, it would not be competent to allow the private sector to enter into insurance industry until and unless the Life Insurance Nationalisation Act of 1972 are amended appropriately.

Setting up of a regulatory authority is absolutely necessary to perform the functions proposed to be assigned to it and amongst others protest the interests of the consumers at large. As of now, an aggrieved consumer has virtually nowhere to go for redress of his grievances except a Court of Law which every consumer cannot afford to do. Opening up the insurance industry to the private sector was to create competition in the market so that a consumer has the freedom to choose his insurer for his rightful claim of efficient and prompt service. No doubt, the existing insurance set up in the country has gone a long way in developing and marketing insurance product, but as I have said time and again, a great deal remains to be done and this would be possible by opening up the insurance industry to the private sector.

In any event, the IRA cannot be fully competent and functional until certain amendments are carried out in the two acts. As such, the question of allowing the private sector in the insurance industry could be considered at that stage. In the meantime, the Bill could be passed by the Parliament to enable IRA to become functional so that it can start the ground test of the system it has to introduce and apply in the insurance industry.

In the light of the above, it is hoped that our law makers in the Parliament would appreciate the need of establishing a regulatory authority and help the Government in doing so.

The author heads the study group on insurance of the PHD Chamber of Commerce. of Acirc;not;Utacirc;euro;ordm;Atilde;bdquo;7Acirc;frac14;Ttacirc;euro;ordm;ugh SEBI has sent a letter of findings8217; to HLL and its directors seeking an explanation as to why the company purchased BBLIL shares just before the merger. HLL has a strong defence as SEBI8217;s regulations on the term insider8217; is ambiguous. HLL says that under SEBI rules a promoter does not amount to being an insider.HLL had already approached the former Chief Justice of India, P N Bhagwati to interpret the term insider8217; and subsequently announced in a press briefing that a company cannot be called an insider by itself as it is a primary party. Says Keki Dadiseth, Chairman HLL: 8220;We have looked at each and every legal issue before taking a deision on merger. As far as acquiring of BBLIL shares are concerned, it was to increase Unilver8217;s shareholding to 51 per cent and following the merger we even extinguished those shares.8221;SEBI, on the other hand, charges that a company can be prosecuted if it is found guilty of trading in its own associate company8217;s shares prior to any announcement of any price-sensitive information. The SEBI regulations define insider trader as 8220;any person who is or was connected with the company or is deemed to have been connected wit the company and who is reasonably expected to have access, by virtue of of such connection, to unpublished price-sensitive information in respect of securities of the company8230;8221;Is SEBI sure about its facts? Says L.K. Singhvi, Senior Executive director of SEBI: 8220;We have taken the decision to send a communication to HLL after 14 months of investigation. Those who say that HLL has not indulged in insider trading regulations should read SEBI8217;s norms carefully.8221;Another issue which this controversy has generated is of the corporate governance. Though the corporate governance still remains an ambiguous and misunderstood phrase, promoters and management can no longer afford to ignore better corporate practices. Although the Confederation of Indian Industry CII and financial institutions are preparing separate set of corporate governance code, only less than a dozen companies have come forward to formulate the code.As the country gets integrated with the world economy, both Indian an well as international investors would seek greater disclosures, and more transparent explanation for major decisions taken by the management. Therefore, business groups will have to think twice before taking any sensitive decision. Better corporate governance demands that a company should disclose any information which can affect the small investors. The managements should not take the loyalty of shareholders for granted as nothing will stop an investor to switch his preferences to a foreign mutual fund after the full capital account covertibility comes into force after few years.Whatever the outcome of the HLL-SEBI fracas, it8217;s certain that SEBI has a herculean task in hand to curb insider trading. On the positive side it will force SEBI to re-define insider trading regulations once and for all so that promoters and management do not manipulate the law by planning mergers and takeovers in a dubious manner.