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

Bharat Assurance Ltd has a valuation surplus of ₹60 crore. It intends to service its debentures from this surplus, with no offset of interest against interest credited to the funds in deciding the valuation interest basis. Under the first proviso to Section 49(1), what are the limits on total debenture payments and on interest paid?

Total debenture payments can be at most ₹30 crore, and interest at most ₹6 crore. The first proviso to Section 49(1) caps payments including interest at fifty per cent of surplus and interest at ten per cent of surplus, unless interest is offset in the valuation interest basis.

  1. ATotal payments up to ₹30 crore; interest up to ₹6 croreCorrect
  2. BTotal payments up to ₹6 crore; interest up to ₹30 crore
  3. CTotal payments up to ₹30 crore; interest up to ₹15 crore
  4. DTotal payments up to ₹60 crore; interest up to ₹6 crore

Explanation

Payments in service of debentures, including interest, cannot exceed 50% of the surplus: 50% of ₹60 crore is ₹30 crore. Interest paid cannot exceed 10% of the surplus (₹6 crore) unless it is offset against interest credited to the funds in deciding the valuation interest basis. No offset applies here, so the 10% limit holds.

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