The final verdict on ULIPs: has SEBI lost?

The five-month-long proxy battle between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory Development Authority (IRDA) has ended abruptly. On 18 June the president promulgated the Securities and Insurance Laws (Amendment and Validation) Ordinance, which states unit linked insurance products (ULIPs) are insurance products. So ULIPs and other instruments which provide the combined ‘benefit’ of insurance and investment have been brought within the exclusive control of IRDA. This looks like IRDA has had its way, but is that really so?

As described in our previous article (India Business Law Journal May issue), SEBI ordered (on 9 April) all insurance companies to register with it before introducing ULIPs. SEBI said this was because ULIPs, which have both investment and insurance components, were “securities” as defined in the Securities Contracts (Regulations) Act, 1956 (SCRA). As such ULIPs were to be regulated by SEBI.

The ordinance nullifies the SEBI order by amending several statutes: it inserts an explanation into the Insurance Act, 1938, to bring ULIPs within the definition of “life insurance business”; it amends the SCRA to exclude ULIPs from the definition of “securities”; and amends the SEBI Act, 1992, to exclude ULIPs, from collective investment schemes and mutual funds.

Bharat Budholia is an associate at Juris Corp, a Mumbai-based firm that specializes in banking and finance, foreign investments, private equity, direct tax, bankruptcy and restructuring, M&A, insurance, energy and infrastructure, dispute resolution and international arbitration.