New Delhi: The Supreme Court on Friday issued notices to the Union government, the Insurance Regulatory and Development Authority (Irda) and 14 life insurers on a petition filed by the Securities and Exchange Board of India (Sebi) seeking transfer of cases from high courts relating to unit-linked insurance plans (Ulips).
This came after attorney general G.E. Vahanvati submitted that the jurisdictional dispute between the two regulators had to be settled by India’s highest court.
Sebi had independently moved the Supreme Court through a transfer petition asking it to settle the dispute with Irda over jurisdiction. Whenever a government agency files a transfer petition in the apex court, the attorney general usually appears on behalf of the petitioner.
Typically, the apex court’s notice requires the recipients to reply to the legal questions involved in the case.
Sebi’s petition sought the transfer of two pending cases before the Allahabad and Bombay high courts, which had named the insurance regulator and the Union government among the respondents.
The Supreme Court said the next hearing would be held on 8 July.
During the course of the hearing on Friday, the apex court bench headed by justice S.H. Kapadia questioned Sebi’s move to file the petition before the apex court. Kapadia asked why the cases should not be heard in the Bombay high court since Sebi and most life insurance companies are based there.
Vahanvati submitted that the issue of jurisdiction too has to be settled by the apex court. The bench also asked Vahanvati why a super regulator can’t be appointed to settle the case.
The dispute between the regulators needs a quick resolution, legal experts said.
“Nothing could be more detrimental to the economy than two regulators fighting over the issue of jurisdiction,” said K.K. Rai, senior advocate, Delhi high court. “The global economic crisis happened because of lack of effective regulation.”
Settling the case will bring relief to consumers who are unsure of the status of Ulips.
The turf war between the two regulators broke out after Sebi on 9 April barred 14 insurance firms from selling Ulips on the ground the instrument had an investment component, which brought them under its jurisdiction.
Sebi asked the 14 private life insurers to stop selling Ulips unless they got themselves registered with the capital markets regulator.
Sebi’s 9 April order was preceded by disagreements between the two regulators for a few months on the issue. Sebi issued the order following legal opinion that it had jurisdiction over Ulips.
Ulips are hybrid products sold by life insurers that mix a large investment component structured on the lines of a mutual funds with insurance. Ulips have been the insurance industry’s largest selling product for the last few years.
Data from Irda shows that there were 70.3 million Ulips involving premiums worth Rs90,645 crore in 2008-09. Subsequently, between April 2009 and February, the insurance industry sold another 1.67 million Ulips, which brought it premiums worth Rs44,611 crore.
Following the 9 April order, Irda told insurers to ignore the market regulator’s notice. A truce was brokered between the two by the finance ministry on 12 April. The regulators were to jointly seek a legal mandate on the issue from an appropriate court. In the interim, Irda would not approve new Ulip products, but existing products and Ulip customers would not be adversely affected by the dispute.