Insurers keenly awaiting SAT's decision on SBI Life appeal

The decision of SAT about admitting or rejecting the appeal of SBI Life Insurance Company Ltd. against IRDAI's order to refund around Rs.275 crore to its policy holders is being awaited keenly by insurers, said officials.

The admission of the appeal by SAT may even result in a turf war as insurance regulator might prefer an appeal in the Supreme Court against the decision.

The Securities Appellate Tribunal (SAT) is likely to hear SBI Life's appeal case on May 5 to decide whether it could be admitted or not. Necessary notice has been issued to IRDAI.

SBI Life is a 74:26 joint venture between the State Bank of India (SBI) and BNP Paribas Cardif of France.

"It is an interesting case to watch. It could also be a trend-setter," a senior official of private insurer told IANS preferring anonymity.

According to experts there are two strong points that go against the admission of SBI Life's appeal: (a) lack of jurisdiction on the present case, and (b) absence of a member with insurance background to hear the insurance industry cases.

It is to be noted that the Insurance Laws (Amendment) Act, 2015, (Amendment Act) even though notified with effect from March 23, 2015, has retrospective effect from December 26, 2014, (i.e., the date of promulgation of the Insurance Ordinance), and that the provisions of the act are to be considered along with the provisions of the ordinance.

"In my considered opinion SAT would not entertain the appeal filed by SBI Life as the penalty was imposed even much prior to the promulgation of the Insurance Ordinance, and, accordingly, SAT does not have jurisdiction over the subject matter of appeal by SBI Life," D.Varadarajan, a Supreme Court advocate and expert in insurance, company, competition law, told IANS.

The provision enabling SAT to hear the appeals against insurance regulator's orders was not there in the insurance laws prior to the promulgation of the Insurance Ordinance.

In March 2014, IRDAI ordered SBI Life to refund Rs.275.29 crore collected in excess commission to holders of Dhanaraksha-Plus Limited Premium Paying Term policy.

"The final letter/order of IRDA rejecting SBI Life's representation was issued in February 2015, that is after the promulgation of the ordinance. Thus it is possible to argue that IRDA's final order of February 2015 is not compliant with the provisions of the law, that is, following due adjudication process," K.K. Srinivasan, former member, IRDAI, told IANS.

"It would be highly fanciful, speculative, specious and conjectural to contend for the appellant (SBI Life) that SAT would have jurisdiction to hear the appeal as the letter of IRDAI (Insurance Regulatory and Development Authority of India) rejecting the representation of SBI Life issued in February, 2015," Varadarajan added.

The February 2015 letter of IRDAI rejecting the representation of SBI Life, cannot by any stretch of imagination be passed off as an order of the Authority after the commencement of the Amendment Act, 2015.

As such, the SAT would not be inclined to buy such a self-serving interpretation, contrary to the letter and spirit of the amended law, he said.

"However, in case the SAT entertains the appeal, the only course available to IRDAI is to challenge the SAT's order in the Supreme Court," Varadarajan said.

According to Varadarajan, there is a misconception that every penalty order of the IRDAI after the Amendment Act has to be preceded by the adjudicatory mechanism.

"The matters that would come under the adjudicatory mechanism, before imposing penalty by the IRDAI are stated in Section 105C of the Act. Significantly, penalties imposed under section 102 are not to be preceded by adjudication," he added.