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CS Professional · Banking and Insurance - Laws and Practice · Life Insurance

LIC's Board wants to use profits allocated to members under Section 28A for declaring a dividend and issuing fully paid-up bonus shares. Under Section 28(2) of the LIC Act, 1956, is this permissible?

Yes. Under Section 28(2), profits allocated to or reserved for members under Section 28A are utilised for purposes the Board approves, including dividend payment, issue of fully paid-up bonus shares and crediting any reserves the Board creates.

  1. ANo, such profits can only be paid to the Central Government
  2. BNo, such profits can only be credited to policyholders
  3. CYes, they may be used for purposes the Board approves, including dividend, bonus shares and crediting reservesCorrect
  4. DYes, but only for bonus shares and never for dividend

Explanation

Section 28(2) states that profits allocated to or reserved for members under Section 28A are to be utilised for purposes the Board approves, expressly including declaring or paying dividend, issuing fully paid-up bonus shares and crediting reserves the Board creates. Hence dividend is also permitted.

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