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CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part I)

A life insurer's valuation shows a surplus of ₹50 crore. It plans to pay ₹30 crore from the surplus towards servicing its debentures, including interest. Under the first proviso to section 49(1), what is the position?

The payment is not permissible. Under the first proviso to section 49(1), payments from the surplus in service of debentures, including interest, cannot exceed fifty per cent of the surplus. Half of ₹50 crore is ₹25 crore, so ₹30 crore is too high.

  1. APermissible, since the surplus exceeds ₹30 crore
  2. BNot permissible, since payments in service of debentures, including interest, cannot exceed 50% of the surplus, i.e. ₹25 croreCorrect
  3. CPermissible only if the payment is below 10% of the surplus
  4. DNot permissible, since no surplus can ever be used for debentures

Explanation

The first proviso limits payments in service of debentures from the surplus, including interest, to 50% of the surplus. 50% of ₹50 crore = ₹25 crore, and ₹30 crore exceeds it. The 10% limit applies to interest alone, subject to an exception, not to the total payment.

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