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President inked ordinances on Insurance & Coal sector.

President Pranab Mukherjee (Source: Google)

Moving at rapid pace, the Union Cabinet on December 24 (a day after the conclusion of the winter session of Parliament) approved promulgation of the Ordinance on Insurance Bill, re-promulgation of the Coal Ordinance.

President Pranab Mukherjee signed the ordinance for the same on December 26, despite protests from the opposition. The insurance ordinance will increase foreign investment limit in insurance sector to 49% from the current 26% while the coal ordinance will provide legal backing for auction of coal blocks cancelled by the Supreme Court.

The Insurance Laws Amendment Bill, 2008 has been pending in Parliament for a “very long time” even it was approved by the Standing Committee as well as the Select Committee of the Rajya Sabha.

In this winter session, Insurance bill could not be taken up for discussion in Parliament due to the disturbance over the conversion and other issues.

There are 52 insurance companies in India, out of those 24 are in the life insurance business and 28 in general insurance segment. The total capital deployed in the private life insurance sector is close to Rs 35,000 crore. With FDI at 26 per cent, foreign equity is close to Rs 8,700 crore.

The Insurance Laws (Amendment) Bill, 2008:

The bill was introduced on December 22, 2008 in the Rajya Sabha.

Highlights of the Bill

  • The Bill allows foreign investors to hold up to 49% of the capital in an Indian insurance company.
  • It allows for nationalised general insurance companies to raise funds from the capital markets.
  • Companies or co-operative societies in the life or general insurance business must have a minimum equity capital of Rs 100 crore, while those in health insurance must have a minimum equity capital of Rs 50 crore.
  • An insurer cannot challenge a life insurance policy for any reason, after a period of five years.
  • Insurers, who fail to meet their obligations with respect to underwriting third party motor insurance, or underwriting policies in rural and social sectors or with vulnerable sections, face a fine of Rs 25 crore.
  • The Bill provides for appeals against decisions by Insurance Regulatory and Development Authority (IRDA) to lie with the Securities Appellate Tribunal set up under the SEBI Act, 1992.

Key Issues and Analysis

  • The Bill provides for Lloyd’s of London to be included within the definition of a foreign company. However, it is unclear whether the members of Lloyd’s who ultimately bear all risks of policies which are written, will be able to operate in the country. {Lloyd’s is the insurance market. Unlike many other insurance brands, Lloyd’s is not a company; it is a market where there members join together as syndicates to insure risks}.
  • The IRDA Act, 1999 required Indian promoters of an insurance company to reduce their stake to 26% over a period of ten years. The Bill does away with this requirement.
  • The Bill permits a policyholder to completely assign all rights under the policy to a third party, while allowing an insurer to decline such a transfer. The validity of such transfers is under legal challenge. While the Mumbai High Court has ruled that such transfers are valid, the case is currently facing appeal in the Supreme Court.
  • While appeals against decisions by IRDA lie with the Securities Appellate Tribunal, the Bill does not provide for the tribunal to appoint a member with experience in insurance law.
  • The Law Commission had suggested the merger of key provisions of the IRDA Act with the Insurance Act. This has not been implemented.

The Coal Mines (Special Provisions) Bill, 2014 has already been approved by the Lok Sabha during the session but the Rajya Sabha could not take it up for discussion.

The re-promulgation of ordinance on coal will facilitate e-auction of coal blocks for private companies for captive use and allot mines directly to state and central PSUs.

Mr. Jaitly said that along with the methodology for coal block auction for power sector and other sectors, the guidelines too have been cleared by the Cabinet. With the re-promulgation, the unfinished process of allocation of coal blocks will resume again.

The re-promulgation of the Ordinance will enable the Coal Ministry to go ahead with its decision to give a total 101 mines, including 65 through auction, in the first phase

The Coal Mines (Special Provisions) Bill, 2014:

The bill was introduced in Lok Sabha on December 10, 2014 by the Minister of Coal, Mr. Piyush Goyal.  It seeks to amend the Coal Mines (Nationalisation) Act, 1973 and the Mines and Minerals (Development and Regulation) Act, 1957.  The Bill replaces the Coal Mines (Special Provisions) Ordinance, 2014 that was promulgated on October 21, 2014.

Under the Coal Mines (Nationalisation) Act, 1973, coal mining was allowed for

  • Government companies,
  • Companies that the government had sub-leased the mines to, and
  • Private companies engaged in a specified end-use such as power, iron and steel, cement and coal washing.

The Bill seeks to enable private companies to mine coal for sale in the open market.

Categories of mines mentioned in bill:

The Bill creates three categories of mines: (i) Schedule I, (ii) Schedule II, and (iii) Schedule III.

Schedule I: includes

  • All the 204 coal mines cancelled by the Supreme Court in August 2014,
  • Any land acquired by the prior allottee in or around the coal mines, and
  • Mine infrastructure.

Schedule II includes 42 Schedule I mines that are currently under production or about to start production.

Schedule III mines includes the 32 Schedule I mines that have been earmarked for a specified end-use.

Method of allocation: Schedule I mines can be allocated by way of either public auction or government allotment.  Schedule II and III mines will be allocated only by way of public auction.  Public auction will be conducted by way of e-auction on a payment of maximum fee of Rs. 5 crore.

Eligibility: For the auction of Schedule I mines- any government, private or joint venture company is eligible to bid.  For the government allotment process, only government companies and companies that have been awarded power projects on the basis of competitive bidding for tariff are eligible.  For Schedule II and III mines- government, private and joint venture companies with a specified end-use are eligible to bid.

Purpose of mining: Coal mined from Schedule I mines can be used by companies for their own consumption, sale or any other purpose as specified in their mining lease.

Prior allottees: A prior allottee shall not be eligible to participate in the auction process (i) if he has not paid the additional levy imposed by the Supreme Court, or (ii) if he is convicted of an offence related to coal block allocation and sentenced to imprisonment for more than three years.

Nominated Authority: The central government shall appoint a nominated authority who will be an officer of the rank of a joint secretary in the government.

Functions of the nominated authority:

  • Conducting the process of auction and allotment,
  • Executing the vesting and allotment orders,
  • Collecting the auction proceeds and transferring them to the respective state governments.

Compensation for prior allottees: Prior allottees shall be compensated for land and mine infrastructure.  For the purpose of such compensation, land shall be valued as per the registered sales deed together with 12% simple interest from the date of purchase or acquisition, till the date of the execution of the vesting order. Prior allottees shall not be entitled to compensation till the additional levy has been paid.

Ordinance: It is issued by President under the Article 123 of constitution of India, when the Parliament is not in the session. Ordinance has a limited life, it shouls be ratified by the Parliament within six weeks of its next immediate session. Otherwise the ordinance lapses. Ordinance may be withdrawn at any time by the President. Ordinance has the same power as any law passed by Parliament but Constitution cannot be amended by the ordinance.

Re-promulgation of ordinance:  Until now there is no case has gone to Supreme Court regarding re-promulgation of ordinances by the President of India. But there is Supreme Court judgement in Dr. D.C. Wadhwa v. State of Bihar case. Supreme Court held that re-promulgation of Ordinances with the same text by the Governor of the Bihar, without any attempt to get bill passed by the state assembly (while it is in session) and coupled with promulgating ordinance in a routine manner would be a fraud on the Constitution of India. Such ordinance is liable to be struck down.

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