New Delhi: The Securities and Exchange Board of India (Sebi) has independently moved the Supreme Court through a transfer petition asking the court to settle its dispute with insurance regulator, Insurance Regulatory and Development Authority (Irda), over jurisdiction.
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.
Sebi’s move precluded the need to approach the judiciary jointly with Irda, as envisaged in the temporary truce hammered out by the finance ministry that had stepped in to sort out the dispute between the two regulators over jurisdiction over (Unit-linked insurance plans) Ulips, a hybrid product sold by insurers.
The matter is to come up for hearing on Friday and the court will either provide immediate relief or seek a detailed hearing, wherein status quo will prevail. This will be the first instance in which the court will intervene in a dispute between two regulators.
Mint had reported on 23 April that the legal battle between Sebi and Irda over the regulation of Ulips is set to be fought in the country’s highest court.
In its petition, Sebi has argued that since different high courts across the country could rule differently in the cases, it made sense for the regulators to escalate matters to the apex court. Accordingly, it has requested the apex court to pass appropriate orders restraining the high courts from entertaining any cases over the regulation of Ulips.
The long-festering controversy erupted after Sebi directed that insurers selling Ulips will have to be registered with it and sought to act against 14 insurers for issuing Ulips. Irda reacted adversely and claimed that since the hybrid product included insurance, it had jurisdiction over it and the insurer; the regulator then issued a statement challenging the Sebi order. After the finance ministry brokered peace, Sebi issued another order saying that the registration condition would apply only for the sale of new Ulip schemes.
Ulips are hybrid products that comprise investments in both debt and equity and life insurance cover. The existing law permits insurers to pay commissions of up to 40% to their agents for selling Ulips, motivating insurance agents to aggressively sell Ulips. In fact, Ulips account for up to 90% of the new business premium for some of the private sector life insurers.
The Sebi move comes at a time when its efforts to jointly move the courts with Irda was not making headway. While Sebi believes the existing civil code does not permit a joint permission before a high court, Irda argues otherwise.
Advised by its legal counsel, Sebi chairman C.B. Bhave on Wednesday wrote to Irda saying the plan to jointly move a high court to settle the dispute was not legally feasible as under Section 90 of the Civil Procedure Code, regulators cannot do so. This section deals with special proceedings if any particular law or regulatory decision affects the public at large. The capital markets regulator had sought the views of the attorney general, the highest law officer of the country, on this.
Irda has not yet formally responded, but seems to be disputing the Sebi claim. A senior Irda official, who did not want to be identified, said: “There is still a valid case of filing a joint application with a high court, according to our legal counsel.”
“If that’s the case, why hasn’t Irda shared with us its legal counsel’s opinion?” asked a Sebi official, who, like the Irda executive, did not want to be identified.
Meanwhile, Irda chairman J. Harinarayan said in Hyderabad: “Sebi has written a letter to us that, according to their legal counsel, the joint application is not valid in this (Ulip) case under Section 90 of Civil Procedure Court.”
Even as the Sebi-Irda disagreements continued, on 13 April, Mumbai-based investor Rajendra Thacker filed a public interest litigation (PIL) in the Bombay high court over the Irda-Sebi spat. The PIL seeks the reversal of the Sebi ban on the sale of Ulips. The PIL has been filed on the ground that several hundred thousand investors were suffering from anxiety and uncertainty about their investments due to the Sebi order.
On the same day, finance minister Pranab Mukherjee brokered a temporary truce between the two regulators, asking them to maintain status quo and approach the courts. A day later, Sebi said its ban on the sale of new Ulips remained.
Dhruv Kumar, a lawyer and former insurance professional, filed a second PIL in the Allahabad high court against Irda, seeking Sebi’s intervention and regulation of Ulips.
Anirudh Laskar in Mumbai and PTI contributed to this story.