October 22, 2015
This client alert is supplemental to our client alert dated March 11, 2015. In the March alert, we had advised that the Indian government had increased the ceiling on foreign investment in an Indian insurance company to 49% of its total outstanding share capital. Of this foreign investment ceiling of 49%, 26% is permitted under the automatic route (i.e., without the prior approval of the Indian government). Foreign investment above 26% and up to 49% requires the prior approval of the Indian government. In addition, we had reported that prior approval of the Insurance Regulatory and Development Authority ("IRDA") is required in all circumstances where there is any change in shareholding of an Indian insurance company. However, the ownership and control of an Indian insurance company must remain in the hands of resident Indians at all times.
The [Indian] Insurance Act, 1938 was also amended in March, 2015 to define "control" to mean the right to appoint a majority of the directors on the board of the company or the power to control the management or policy decisions of a company by virtue of shareholding, management rights, shareholders agreements or voting rights agreements.
On October 19, 2015, the IRDA issued the "Guidelines on Indian Owned and Controlled" Insurance Companies (the "Guidelines") to further clarify the requirements with regard to Indian ownership and control of Indian insurance companies. The Guidelines apply to all Indian insurance companies that receive foreign investment. Indian insurance companies that already have foreign investment must comply with the Guidelines within the next three months.
The following are some of the key provisions of the Guidelines:
Given the requirements of the Guidelines, shareholder and other rights of foreign investors in Indian insurance companies will need to be structured appropriately to ensure that the IRDA does not consider such rights as providing control to the foreign investor.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. For further details, please contact the Gibson Dunn lawyer with whom you usually work or the following lawyers in the firm’s Singapore office:
Jai S. Pathak (+65 6507 3683, firstname.lastname@example.org)
Priya Mehra (+65 6507 3671, email@example.com)
Bharat Bahadur (+65 6507 3634, firstname.lastname@example.org)
Karthik Ashwin Thiagarajan (+65 6507 3636, email@example.com)
Sidhant Kumar (+65 6507 3661, firstname.lastname@example.org)
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