W.P. 23500 (W) of 2012. Case: Heritage Insurance Brokers Pvt. Ltd. & Anr. Vs Insurance Regulatory and Devlopment Authority & Ors.. High Court of Calcutta (India)
| Case Number | W.P. 23500 (W) of 2012 |
| Counsel | For Appellant: Mr. Saktinath Mukherjee, Sr. Adv., Mr. Debal Kumar Banerjee, Sr. Adv., Mr. P.S. Sengupta, Sr. Adv., Mr. Saptangshu Basu, Sr. Adv., Mr. Amitesh Banerjee, Mr. Mohit Gupta and Mr. A.P. Agarwalla, Advs. And For Respondents: Mr. Anindya Kumar Mitra, Ld. Adv. Gen., Mr. Abhijit Gangopadhyay and Mr. Kanak Kiran Badyopadhyay, Advs. |
| Judges | Soumen Sen, J. |
| Issue | Companies Act, 1956 - Section 73(1); Constitution of India - Article 19(1)(g); Insurance Act, 1938 (4 of 1938) - Sections 10, 102, 114A, 12, 2(10B), 23, 34, 36, 37, 38, 42, 42(3), 42(4), 42(4)(b)(c)(d)(e), 42(4)(g), 42D, 42D(1), 42D(3), 42D(5)(g), 42D(6), 42E, 42E(2), 64U, 64UM, 64VB; Insurance Regulatory and Development Authority Act, 1999 - ... |
| Judgement Date | February 14, 2013 |
| Court | High Court of Calcutta (India) |
Judgment:
Soumen Sen, J.
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The order of the Chairman dated 5th October, 2012 refusing to renew the licence issued under the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 (hereinafter referred to as "Brokers Regulations 2002") is the subject-matter of challenge in this writ application. The petitioner was functioning as a composite broker in terms of a licence initially granted on 18th February, 2003 which was subsequently renewed on 13th March, 2006 for a period of 3 years on and from 18th February, 2003.
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On 31st December, 2008, an application was filed for renewal.
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The authority concerned declined to renew the said licence. This has resulted in a writ application being filed and ultimately consequent upon an order being passed by the Hon'ble Supreme Court on 6th July, 2012, the Chairman considered the application filed for renewal on 31st December, 2008 and by a detailed order dated 5th October, 2012 rejected the said application for grant of renewal.
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This order forms the subject-matter of challenge in this writ application.
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Mr. Saktinath Mukherjee, the learned Senior Advocate appearing with Mr. Partha Sarathi Sengupta on behalf of the petitioners contended that the Chairman has completely misdirected his mind and acted arbitrarily, discriminatorily and improperly in rejecting the said application. It was argued that in view of Section 42D(3) of the Insurance Act, 1938 and the office Note dated 7th May, 2009, the only course open to the Chairman was to impose penalty on a finding being arrived at for violation of Regulation 23 of the Brokers Regulations, 2002 and it was not open to the Chairman to reject the said application.
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It was submitted that the only ground on which the renewal declined was that the petitioner had violated Regulation 23 of the Brokers Regulations, 2002. It was contended that the alleged violations of Regulation 23 occurred during 2003 and 2007 and it was on the basis of such stale charges on 5th October, 2012 renewal was declined. The petitioner as a composite broker deposited all the premiums and/or claims in the designated bank account opened with HSBC in 2003 but utilized a portion of the said amount from the designated bank for investments unknowingly and on a bona fide belief that such investment is permissible and continued with such practice till the petitioner was communicated on January 25, 2008 that the Regulatory Authority on the basis of on site inspection made during August 2007 found violation of Regulation 23 by making investments in mutual funds. It was contended that all throughout since the initial grant of licence, the petitioner made available the relevant books of accounts, the audited balance sheets and half yearly returns which would show the utilization of the said amount for investments in mutual funds but the respondent authorities did not object to the utilization of such amount from the Insurance Bank Account (hereinafter referred to as "IBA"). The very fact that the licence was renewed in 2006 would give an unmistakable impression and induced a belief that the Regulatory Authorities never considered utilization of a part of the said premium amount for investments on mutual fund to be of any consequence and far less a major violation. Mr. Sengupta pointed out various discrepancies in the impugned order which, inter alia, include that although it was mentioned that a designated bank account was opened in 2008 but the said designated account was in operation since 2003 which was accepted in Paragraph 2.5 of the impugned order. Moreover, if there had been any violation of Regulation 23 then the authorities were under an obligation and a duty to inform the petitioner about such violation so that in the year 2006 itself, the petitioner could have remedied the same. It is further submitted that the Regulatory Authority did not form an opinion that the said investment was made in unsafe fund and there had not been a single instance of any default of any kind either in payment of premium or disbursing the claim amount. The impugned order, according to the petitioner, suffers from a hostile discrimination against the petitioner and the same would be adequately reflected from the order of the Chairman in attempting to distinguish the cases of other brokers and/or insurance companies committing same and/or similar offences.
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The renewal of licence is governed by Regulation 13. The Chairman did not take into consideration the office Note dated 7th May, 2009 which clearly stipulates the approach that is required to be adopted in such matters and distinction has to be made in case of repeated violation of several regulations and single violation.
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The petitioner was never informed earlier to January 25, 2008 that the petitioner could not utilize the said amount for investment in mutual fund. The petitioner immediately remedied the breach and by March, 2008, the entire amount was restored to the designated bank account. In view thereof, there was no violation of Regulation as on 31st December, 2008 when the application for renewal was filed. The corpus being restored in the "Insurance Bank Account" prior to the application filed for renewal, the said authority could not have rejected the said application for renewal inasmuch as violation of Regulation 23 is not a disqualification for renewal of licence under Section 42D(3) of the Insurance Act, 1938.
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The Insurance Company did not consider such manner of utilization of insurance premium/claim as a serious matter or a major breach of the conditions of the licence particularly in view of renewal on 13th March, 2006. Moreover, the Regulatory Authority had failed to take into consideration that there had been not a single instance of default either in the payment of the premium or disbursing any claim amount and no one has suffered any prejudice by reason of such alleged violation of Regulation 23 of the Brokers Regulation, 2002.
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It was contended that renewal of licence is governed by Section 42D(3) of the Insurance Act and Regulation 13. Under Regulation 13(3) it is provided that the renewal shall be dealt with in the manner specified in Regulation 9. Under Section 42D(3) of Insurance Act the licence is liable to be renewed unless the applicant incurs any of the disqualifications mentioned in Clauses (b), (c), (d), (e) and (f) of Section 42(4) of the Insurance Act. It is undisputed position that the petitioner has not incurred any of the disqualifications under Section 42D(3). In the event, there be any conflict between Regulation 9 and Section 42D(3), the provisions of Section shall prevail, the Regulations being subordinate legislation.
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However, in paras 4.9, 4.10, 4.11, 4.12, 4.13, 4.15 and 4.16 of the impugned order the respondent no. 2 relying upon Section 42E(2) which confers upon IRDA rule making power for capital, form of business and other conditions to act as intermediary, has purported to hold that disqualifications mentioned in Section 42D(3) cannot be the only disqualification to deny renewal of licence. The Chairman relying upon Section 42D(6) which gives power to cancel licence, held in Para 4.12 that reasons for which licence can be cancelled, the renewal also can be refused for same reasons. While coming to this conclusion the respondent no. 2 ignored the safeguards provided under Regulations 36, 37 and 38 in respect of initiation of cancellation proceedings.
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In dealing with the violation of Regulation referred to in Paragraph 2.5 of the impugned order dated 5th October, 2012, it was argued that it would appear from the said impugned order that the authority had proceeded on the basis that between 2003 and 2008 there were 58 violations of Regulation 23 and to highlight this aspect, he had relied upon the instances as on 30th January, 2004 and 28th February, 2004. It was submitted that in spite of such investments being in full knowledge of the Authority by reason of regular filing of half yearly financial statements as on 30th September and 31st March under Regulation 26(1) and annual financial statements under Regulation 25(2), the Composite Licence of Heritage was renewed on 13th March, 2006 for a period of 3 years w.e.f. 18th February, 2006. At the time of such renewal, the Authority was not in doubt that the grant of such renewal would not be in the interest of the policyholders. This becomes relevant in view of subsequent stand being taken by the Chairman that licence could not be renewed in view of Regulation 9(2)(I) of the Brokers Regulation, 2002. The investments made upto March, 2006 could not have been relevant for denying renewal application dated 31st December, 2008 having regard to the aforesaid fact. All investments in mutual funds were in liquid fund, devoid of share, market risks and encashable at 24 hours' notice. The alleged violation of Regulation 23 if at all it was a violation, was remedied in March, 2008. The petitioner was, thereafter, allowed to function. The licence continued to be valid and operative by reason of Regulation 15 during pendency of renewal application made on 31st December, 2008 though the licence period in terms of Regulations 12 expired on 17th February, 2009. The respondent authorities did not take any steps for suspension or cancellation of licence under Regulation 35. If the authorities were certain that the withdrawal of funds from the Insurance Bank Account was a major breach and is a violation of the Code of Conduct, they could have taken such steps. The conduct of the respondents would clearly show that they did not treat the utilization of the said amount from the Insurance Bank Account to be a breach of trust or a major offence. On the other hand, the show cause notice dated 20th April, 2010 issued for proceeding for cancellation of licence was withdrawn as recorded in the order dated 20th May, 2010.
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The petitioner was subjected to hostile discrimination. In case of K M Dastur...
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