In an order signed by two members, BC Patnaik, Life and RK Sinha, Finance and Investment , the regulator has alleged that the insurer has carried out changes in the shareholding pattern of the joint venture, without its prior approval and also the company has not submitted the details of expiry of the joint venture agreement between the two partners since Nov 21
Hyderabad:
Finding fault with Edelweiss Tokio Life Insurance Company two counts, insurance regulator IRDAI has slapped a fine of Rs 20 lakh against the life insurer for carrying out changes in the shareholding pattern of the joint venture without its prior approval. .
Edelweiss Tokio Life Insurance Company is a joint venture between Edelweiss Financial Services Limited(EFSL) and Tokio Marine & Nichido Fire Insurance Company(TM) since Nov 2009. Promoter Rashesh Shah, along with wife Vidya Shah, and others hold 32.78 per cent stake in EFSL.
In an order signed by two members, BC Patnaik, Life and RK Sinha, Finance and Investment, the regulator has alleged that the insurer has carried out changes in the shareholding pattern of the joint venture, without its prior approval and also the company has not submitted the details of expiry of the joint venture agreement between the two partners since Nov 21.
EFSL had raised its stake in the life insurance JV from 51 per cent to 75.1 per cent through two right issues, raising Rs 450 crore of capital, where TM has reduced its shareholding to 24.9 per cent in the company.
In reply to the show cause notice by the IRDAI, Edelweiss Tokio Life Insurance countered that “the process of rights issues under the Companies Act, 2013 made them practically difficult to approach the IRDAI for prior approval in the events the subscription to the rights issue resulted in change in shareholding pattern. On the contrary , approaching the IRDAI for approval once the issue process has been initiated could result in potential non-compliance of the Companies Act, 2013.”
However, the IRDAI has rejected the counter arguments of the insurer saying the share application money of Rs 200 crore and Rs 250 crore were received on 18th Dec , 2021 and on 26th Sept, 2022 respectively and equity shares against the share application money of Rs 200 crore and Rs 250 crore were allotted on 27th Jan, 2022 and 27th Sept, 2022 respectively. It is clear that the shares allotment money in case of issuance rights shares of Rs 200 crore whereas, in case of issuances of rights shares of Rs 250 crore, share allotment had been completed immediately the next day – 27th Sept, 20
Thus, the insurer could have anticipated well in advance on both the occasion that shareholding pattern would change because of Tokio Marine would not subscribe the right issue and the entire share application money Rs 200 crore and Rs 250 crore for the proposed rights issue would be paid by the EFSL only.
Accordingly, the insurer should have approached the IRDAI to seek approval for issuance of equity shares to EEFSL, said the IRDAI.
The IRDAI’s second allegation said the joint venture agreement dated 28th Nov , 2009 entered between EFSL and Tokio Marine has expired during Nov 2021but the insurer had not informed it to the regulator.
However, the insurer has explained that it had sent a email dated 28th Nov, 2021 to the IRDAI informing the regulator about a board meeting where the expiry of the JV agreement was discussed. Also at the time of signing the original agreement between the two parties, it was laid out that the JV would be for 12 years and a revised mutual agreement is being current discussed.
The submission made by the insurer was considered given that the agreement was made for 12 years. However, the insurer is advised to update the IRDAI of any such alterations tat are material in nature, said the IRDAI .