The insurance regulator has IRDA rejected the European insurance major AXA’s proposal to increase its stake in life and non-life insurance ventures with Bharti Enterprises from 26% to 49% as it felt that “management control” of the ventures will vest with foreign hands. The Parliament passed the new Insurance Law Bill in March which the foreign investment limit in insurance companies was increased to 49% but it also stressed that the control and majority ownership of these companies must remain with Indian promoters. But the proposal by AXA was kept aside by IRDA because the “veto rights” under an amended shareholder agreement was accorded to AXA and the management control being vested with the foreign firm.
IRDA has informed Bharti-AXA to restructure its agreement in such a way it should include not just the majority ownership, but the management control in the hands of resident Indian entities. It also cited the sensitivities faced by the insurers while mobilizing and handling huge amounts of public money and chances of its misuse. IRDA also emphasized the fact that the Bharti-AXA agreement should be in compliance with the provision of ‘control’ as defined in the Companies Act, Foreign Direct Investment Policy and Indian Insurance Companies (Foreign Investment) Rules, 2015, and the amended Insurance Act. According to these policies or Ac tor rules control is defined as “the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements”.
AXA was the first foreign partner firm to seek to raise stakes in the JVs with local partners after the foreign investment ceiling was raised. IRDA is working on issuing new guidelines for such JVs with foreign partners on the aspects regarding ‘management control’ under the corporate governance structure. The new guidelines will be ‘hybrid’ in nature and includes all financial and non-financial aspects of ‘management control’ secretly being in foreign hands. And from now a foreign investment proposal up to 26% in the insurance sector is permitted through the automatic route and proposals that take foreign investments above 26% and up to the ceiling of 49% need the approval from Foreign Investment Promotion Board (FIPB)
