The Supreme Court has admitted the Insurance Regulatory and Development Authority of India’s (Irdai) appeal against the Securities Appellate Tribunal’s (SAT) decision to stay the order directing Sahara India Life Insurance Company to transfer its life insurance business to SBI Life Insurance Company.
This has now raised concerns about the fate of the 3,300 Sahara India Life Insurance policyholders.
The apex court has acknowledged the need to find a solution that safeguards the interests of these policyholders who have filed their claims.
The next hearing is scheduled for July 10, 2023.
Solicitor General Tushar Mehta, while representing Irdai, expressed concerns about the impact of SAT’s stay on the servicing of Sahara policyholders. However, the court deemed the matter non-urgent and scheduled it for the original hearing date on July 3.
Chenthil Iyer, founder and chief strategist of Horus Financial Consultants, says: “It is a fact of common knowledge now that even big businessmen have a blind side and can be very bad with their decision-making. Sahara has been mired in financial mismanagement for ages. Still, there were no preventive measures coming from Irdai in terms of ensuring that there was no delay in the claim settlement of Sahara’s customers.”
Iyer adds: “Instead of waiting for the insurance business to be transferred to another company, Irdai should have an interim system of partial settlement from the security deposits collected from the insurers on an ongoing basis. If such a provision is not in place already, a new system must immediately be established so that such incidents do not occur in the future. Thankfully, the Supreme Court has got involved, and we can expect that a favourable order will come for Irdai soon.”
SBI Life Insurance declined to comment on the issue saying they are in their silent period due to the quarter one results.
Ankit Rajgarhia, principal associate at Karanjawala & Company, Advocates, says: “The admission of Irdai’s appeal against the decision of SAT by the Supreme Court raises potential implications for the 3,300 policyholders of Sahara India Life Insurance. The apex court acknowledged the need to find a solution to safeguard the interests of these policyholders who have filed their claims.”
Says Aakanksha Nehra, Associate Partner, PSL Advocates & Solicitors: "The legal proceedings leading to the passing of the order by the SAT in respect of Sahara India Life Insurance is part of a proceeding which commenced in 2017. As a part of this process, there is an administrator that was appointed by the IRDA as per the statutory powers and who is continuing to perform its functions."
"Hence, the regime that was in operation prior to the Order dated 13.06.2023 by the Hon'ble SAT shall continue to prevail. The SC is yet to consider the matter, and depending on their view, necessary directions would be passed as to which regime to prevail. The interest of the policy holders being considered by all the authorities and considering the nature of directions passed in the said legal proceedings, there does not seem to be any reason for any panic," adds Nehra.
Abhishek A Rastogi, founder of Rastogi Chambers, said that the Supreme Court’s admission of Irdai’s appeal signifies the court’s recognition of the significance of this case and the need to address the concerns of the Sahara policyholders.
“The court’s involvement ensures a fair and impartial evaluation of the regulatory actions and their impact on the policyholders’ rights,” he says.
The Irdai had issued an order on June 2, 2023, directing the immediate transfer of Sahara’s life insurance business to SBI Life. Irdai had cited Sahara’s rapidly deteriorating financial condition and its responsibility to protect and promote the interests of policyholders as the justification for this action. The transfer to SBI Life, a fit and proper insurer with sound financials, was deemed necessary, it said.
Regarding SAT’s decision to stay the implementation of the transfer order, Iyer says: “And it beats all logic why SAT stayed such an order by Irdai, which is very much in the interest of policyholders. The Supreme Court must reprimand the concerned officials in SAT for making such a bad decision.”
The Supreme Court’s involvement in the matter carries significant implications for the transfer of Sahara India Life Insurance Company’s business to SBI Life Insurance Company as well as the 3,300 policyholders of Sahara India Life Insurance.
The apex court’s assessment of the regulatory considerations, financial position, and arguments presented by Irdai and SAT will determine the future course of action. The primary objective is to protect the policyholders’ rights and ensure the stability of their life insurance policies during these legal proceedings.
WHAT IT MEANS
The Supreme Court’s admission of the appeal indicates that it recognises the importance of finding a solution to protect the interests of the 3,300 policyholders who have filed their claims, according to Rajgarhia.
The apex court will thoroughly review the arguments presented by the insurance regulator and SAT regarding the transfer of Sahara’s life insurance business to SBI Life.
The court will likely assess the rapidly deteriorating financial position of the Sahara firm. This evaluation will play a crucial role in determining whether the transfer of the life insurance business to SBI Life is a suitable measure to safeguard the interests of the policyholders.
The Supreme Court’s involvement indicates that it acknowledges the role of the insurance regulator as the prudential regulator responsible for protecting and promoting the interests of the policyholders. The court will consider the regulator’s perspective in passing the June 2 order for the immediate transfer of Sahara’s life insurance business to SBI Life.
Setting Aside SAT’s Order
The insurance regulator has argued that SAT’s order was “erroneous” and has presented a strong prima facie case for setting it aside, according to Rajgarhia.
The Supreme Court will assess the validity of these claims, potentially overturning SAT’s order regarding the transfer of the business.
The insurance regulator has emphasised the need to ‘ring-fence the assets/investments’ of the Sahara firm, says Rajgarhia.
The Supreme Court’s involvement signifies the recognition of the importance of protecting these assets and investments from diversion or misuse during legal proceedings.
To ensure the protection of the interests of the 3,300 policyholders amid the ongoing legal proceedings, the Supreme Court might take the following steps, according to experts.
The Supreme Court will carefully evaluate the arguments presented by both the insurance regulator and SAT, prioritising the well-being of the policyholders and aiming for an equitable resolution, says Iyer.
The court could appoint independent financial and legal experts to assess the financial position of the Sahara firm and the viability of transferring the life insurance business to SBI Life, thus providing an objective analysis to support its decision-making.
The court will ensure that the interests of the 3,300 policyholders are adequately represented throughout the legal proceedings, and could allow policyholder associations or representatives to present their views and concerns.
Asset Protection Measures
To prevent potential diversion or siphoning off of assets or investments, the court can consider granting a stay on any transactions involving these assets until a final decision is reached, thereby safeguarding the policyholders’ interests.
An efficient and prompt conclusion of the case is crucial to minimise uncertainty and potential harm to the policyholders. Delays can impact their confidence and financial stability, underscoring the need for expedited proceedings.
Transparency and Communication
Clear and regular communication with the policyholders regarding the progress of the legal proceedings is essential. Providing updates and ensuring transparency in decision-making will help maintain trust and confidence among the policyholders.
The Supreme Court’s admission of Irdai’s appeal signifies a critical juncture in the transfer of Sahara India Life Insurance Company’s business to SBI Life Insurance Company.
The court’s evaluation of the financial position, regulatory considerations, and the arguments presented by the insurance regulator and SAT will shape the future course of action, potentially leading to a resolution that protects the policyholders’ rights and ensures the stability of their life insurance policies.