Inspection, Investigation, Penalty and Appellate Procedure: formula sheet

Key formulas

Who orders and how

Authority → written order → Investigating Officer → investigates affairs → reports to Authority

Sub-section (1). The Authority may act at any time if it considers it expedient. The order must be in writing.

Who can be investigated

Insurer | intermediary | insurance intermediary

For an Indian insurer, 'insurer' includes its subsidiaries formed to do insurance business exclusively outside India, and all its branches in India or abroad (Explanation).

Assistance in investigation

Investigating Officer may employ auditor, actuary or both

Proviso to sub-section (1).

Inspection of books

Investigating Officer may at any time, and shall if directed by Authority, cause inspection of books of account by his officers

Sub-section (2). Applies notwithstanding section 210 of the Companies Act, 2013. A copy of the report goes to the entity.

Duty to produce

Manager, MD or other officer (incl. service provider or contractor of insurer) must produce books, registers, documents, database and give information within time specified

Sub-section (3).

Examination on oath

Officer may examine on oath any manager, MD or other officer in relation to his business

Sub-section (4).

Action on report

After reasonable opportunity to represent: (a) require action by insurer; (b) cancel registration; (c) direct person to apply to court for winding up

Sub-section (6). Clause (a) refers to the insurer. Winding up applies only if the entity is a company.

Regulations, appeal and costs

Regulations on books to be kept (7); appeal to SAT (8); expenses borne by entity, priority over insurer's debts, recoverable as arrear of land revenue (9)

Know each sub-section's subject.

Duty to produce (Section 33(3))

Officer must produce: books of account + registers + other documents + database in his custody or power

Applies to a manager, managing director or other officer, including a service provider or contractor of an outsourced service.

Duty to furnish information (Section 33(3))

Furnish statements and information on the affairs of the insurer, as the Investigating Officer requires, within the time he specifies

The time limit is fixed by the Investigating Officer.

Examination on oath (Section 33(4))

Investigating Officer may examine on oath any manager, managing director or other officer in relation to his business

Extends to outsourced service providers and contractors.

Report copy (Section 33(2))

Investigating Officer must supply the insurer a copy of the inspection report

Inspection operates notwithstanding Section 210 of the Companies Act, 2013.

Consequences (Section 33(6))

After reasonable opportunity to represent: require action, or cancel registration, or direct a winding-up application

The winding-up direction applies if the entity is a company, whether or not registration was cancelled.

Appeal and costs (Section 33(8), (9))

Appeal to Securities Appellate Tribunal; investigation expenses borne by the insurer

Expenses have priority over the insurer's debts and are recoverable as an arrear of land revenue.

Search and seizure trigger (Section 34H(1)(a))

Failure to produce books required under Section 33(2) lets the Chairperson authorise a search by an officer not below Deputy Director rank

Seized documents cannot be retained beyond 180 days without written reasons and the Chairperson's approval.

Action after report

Report received (S.33(1) or 33(5)) → reasonable opportunity to represent → written order under S.33(6)

The hearing comes before the order. The order must be in writing.

Three powers under Section 33(6)

(a) require action by insurer; (b) cancel registration; (c) direct application to court for winding up

Clause (c) applies only if the entity is a company, and works whether or not registration was cancelled.

Appeal

Aggrieved insurer/intermediary/insurance intermediary → Securities Appellate Tribunal (S.33(8))

Applies to any order made under Section 33.

Expenses of investigation

Borne by the entity; priority over debts due from insurer; recoverable as arrear of land revenue (S.33(9))

The Authority does not bear the cost.

Penalty for non-compliance with directions

Section 102: ₹1,00,000 per day of continuing failure or ₹1 crore, whichever is less

Covers failure to comply with directions, furnish returns, maintain solvency margin or comply with treaty directions.

Appeal to SAT (section 110)

Aggrieved person → SAT, within 45 days of receiving the Authority's order copy

Delay can be condoned on sufficient cause. Covers adjudication orders too.

SAT disposal target

Endeavour to dispose of the appeal within 6 months of receipt

It is an endeavour, not a strict bar.

SAT powers

After hearing parties: confirm, modify or set aside the order

A copy of its order goes to the Authority and the parties.

Procedure borrowed from SEBI Act

Sections 15U, 15V, 15W, 15Y, 15Z of the SEBI Act, 1992 apply to these appeals

Section 110(7). Do not describe their contents beyond this link unless asked.

Section 33(6) actions

Report + reasonable opportunity to represent → (a) direct action, (b) cancel registration, (c) direct winding-up application

Needs a written order.

Section 33(9) costs

Investigation expenses: paid by insurer/intermediary, priority over debts, recoverable as arrear of land revenue

Cost burden sits on the person investigated.

Section 6B(2) appeal

Appeal to SAT within 90 days of order sanctioning capital-structure scheme

Appellate forum is SAT where the registered office is situated.

Section 61A appeal

Order of the Tribunal → NCLAT within 45 days; none against consent orders

NCLAT also aims at disposal within 6 months.

Section 110D

No compensation claim for loss from sections 34, 34A, 34E, 37A or compliance with an Act order

Applies whether in contract or otherwise.

Quick revision

• The Authority can, by order in writing, direct an Investigating Officer to investigate the affairs of an insurer, intermediary or insurance intermediary.
• The Investigating Officer may employ an auditor, an actuary or both to assist an investigation.
• Under Section 33(2) the Investigating Officer may at any time, and shall when the Authority directs, cause his officers to inspect the books of account, despite section 210 of the Companies Act, 2013. He must supply the insurer or intermediary a copy of the inspection report.
• Managers, managing directors and other officers, including service providers and contractors under outsourcing, must produce books, registers, documents and the database, and furnish information.
• The Investigating Officer can examine such persons on oath in relation to their business.
• The report goes to the Authority, which may pass its order after giving such opportunity to make a representation as, in its opinion, seems reasonable.
• The Authority's order may require action by the insurer, cancel registration, or direct a person to apply to the court for winding up if the entity is a company.
• For Section 33, an Indian insurer includes its subsidiaries formed to do insurance business only outside India and all its branches, in India or abroad.
• Expenses of an investigation are paid by the insurer or intermediary, have priority over its debts, and are recoverable as an arrear of land revenue.
• An insurer, intermediary or insurance intermediary aggrieved by an order under Section 33 may appeal to the Securities Appellate Tribunal.
• Under Section 34H the Chairperson may authorise an officer not lower than Deputy Director or equivalent to search and seize.
• Seized documents cannot be kept beyond 180 days unless reasons are recorded and the Chairperson approves, and not beyond 30 days after the related proceedings end.

Common mistakes

• Saying the Central Government orders the investigation. Fix: Write that the Authority (IRDAI) orders it, by written order.
• Treating investigation and inspection as the same thing. Fix: Investigation is of the affairs of the entity under sub-section (1). Inspection is of books of account under sub-section (2). Only the second has a copy of the report supplied to the entity.
• Saying the duty applies only to the insurer as a company. Fix: Section 33(3) names every manager, managing director or other officer, and extends to service providers and contractors of outsourced services.
• Leaving out the database. Fix: Include the database in your list of items to be produced.
• Saying the Authority can pass the order immediately on receiving the report. Fix: Always write that a reasonable opportunity to make a representation comes first.
• Saying the Authority can order winding up itself. Fix: The Authority directs a person to apply to the court. The court winds up.
• Sending an appeal against an IRDAI order to the NCLAT or High Court. Fix: Authority orders go to SAT. NCLAT hears appeals from the Tribunal under section 61A.
• Counting 45 days from the date of the order. Fix: The period runs from the date the copy of the order is received.

Exam tips

• Learn the sub-sections in order, (1) to (9). A list with one line each is a safe answer for a short note.
• In case questions, write provision, analysis, conclusion. Quote the sub-section number next to each point.
• Always mention the three entity types and the opportunity of being heard before action.
• Add the practical point: the company's officers must have records ready and a compliance officer should coordinate the response.
• Do not add penalty amounts or other sections that are not asked. Link to section 105C only if the question is about penalties.
• Write the duty with its four elements: who, what to produce, what to furnish, and the time set by the Investigating Officer.
• Quote Section 33(3) for the duty, Section 33(4) for oath, Section 33(6) for consequences, Section 33(8) for appeal and Section 34H for search and seizure.
• In case questions, always mention outsourced service providers or contractors if the facts involve outsourcing.