Based on the

(i)    Show Cause Notice (hereinafterreferred to as “SCN”) Dated 5^th April, 2016 issued by theAdjudicating Officer appointed by the Authority.

(ii)  Reply of M/s Exide Life InsuranceCompany Limited, erstwhile ING Vysya Life Insurance Co. Ltd.,(hereinafterreferred to as “Exide Life”) dated 5^th May, 2016 to the SCN.

(iii)Submissions made by Exide Life beforethe Adjudicating Officer during Personal Hearing on 17^th June, 2016 atthe office of Insurance Regulatory and Development Authority of India, 7^thFloor, United India Building, Basheerbagh, Hyderabad.

(iv)Inquiry Report of AdjudicationOfficer dated 30/10/2017,

(v)  Reply Letter dated November 10,2017 of Exide Life to the Inquiry Report.

(vi)Authority’s letter dated July 30,2018 to Exide Life intimating invoking Section 102 of Insurance Act 1938 andgiving them an opportunity of personal hearing in the matter

(vii)          The Submissions made by Exide Lifein its letter dated 14^th August, 2018 and during the PersonalHearing held on 30^th August, 2018 at 3.30 PM chaired by Dr. SubhashChandra Khuntia, Chairman, IRDAI, at the office of Insurance Regulatory andDevelopment Authority of India, Financial District, Nanakramguda, Hyderabad.

Background:

1. On examination of the data submitted by Exide Life withthe Authority through its letter No. EXL/Regl/42/2014-15 dated 21^stMay, 2014 in accordance with Circular No. IRDA/F&A/CIR/DATA/066/03/2012dated 2^nd March, 2012, it was observed that during the FY 2013-14 ExideLife had paid Rs.24 crores towards the “Infrastructure facility charges” and Rs.6.46 crores under the heads such as Auditorium Charges, Car parking, Rent forCorporate office and utility charges for Corporate Office, etc (totalling Rs.30.46 crores) to its Corporate Agent M/s. ING Vysya Bank Ltd., which is nowmerged with Kotak Mahindra Bank (hereinafter referred to as “Corporate Agent/Bank”)in violation of Clause 21 of the Guidelines on Licensing of Corporate Agentsdated 14/7/2005 (hereinafter referred to as “Corporate Agency Guidelines”) andSection 40 A of Insurance Act, 1938 as the same exceeded the limit ofexpenditure on commission stipulated under Section 40A of the Insurance Act,1938.

2. As regards possible violation of Section 40 ofInsurance Act, the matter was referred to Adjudicating Officer appointed by theAuthority as per the provisions of Section 105 (C) of Insurance Act 1938 asamended from time to time. The Adjudicating Officer issued a Show Cause Noticethrough letter No. IRDAI/ADJ/ExideLife/001/2016-17/OTW/441 dated 5^thApril, 2016 under Rule 4 of the Insurance (Procedure for Holding Inquiry byAdjudicating Officer) Rules, 2016 (hereinafter referred to as “AO Rules”) toExide Life.

3. Exide Life vide its letter dated 5^th May,2016 submitted its response to the SCN and as per the request of Exide Life,the Adjudicating Officer granted a personal hearing in the matter on 17^thJune, 2016.

4. The Adjudicating Officer submitted the inquiry reportalongwith recommendations to the Authority on 30/10/2017. The report was forwardedto Exide Life by the Authority on 9^th November, 2017. Anopportunity for personal hearing by the Chairman, IRDAI was also offered. ExideLife vide its letter dated 10^th November, 2017 stated that theAdjudicating Officer has observed in his report that there is no loss sufferedby the Policyholders, hence requested to condone the deviation and stated thatthey have no further submission to make on the report of Adjudicating Officer. The Insurer did not avail of the opportunity of personal hearing.

5. The Authority issued another letter dated July 30, 2018mentioning all the previous violations on the payouts to Corporate Agents byExide Life intimating that invoking provisions of Section 102 of Insurance Act,1938 is contemplated as penalty provisions of Section 40 (3) of Insurance Actare without prejudice to the provisions of Section 102 of the Insurance Act andallowed another opportunity of personal hearing in the matter.

6. ExideLife vide its letter dated 14^th August, 2018 submitted its responseto the letter dated July 30, 2018 and also opted for Personal hearing, whichwas held by the undersigned on 30^th August, 2018 at IRDAI office,Hyderabad. Mr. Kshitij Jain, CEO & MD, Mr. Anil Kumar C, CFO and Ms.Arpita Sen, CCO of Exide Life were present in the hearing. On behalf of theAuthority, Mr. V. Jayanth Kumar, CGM(Life), Mr. G.R. Surya Kumar, GM (EA to Chairman), Mr. Gautam Kumar, DGM (Life-Coordination), Ms. B. Padmaja, DGM (F&A-Life) and Ms. B. Aruna, Manager(Life-RA) were also present.

7. The submissions made by ExideLife in its letter dated 14^th August, 2018 and during the personalhearing on 30^th August, 2018 were taken into account.

8. The charges mentioned in the SCN5^th April, 2016, recommendations of Adjudication Officer,submissions of Exide Life to the SCN, to the letter dated July 30, 2018 of theAuthority and the submissions made during the personal hearing held on August30, 2018 are as follows:

(i) Chargesunder SCN dated 5^th April, 2016 by the Adjudication Officer

Under theprovisions of the Circular No. IRDA/F&I/CIR/F&A/066/03/2012 dated 2^ndMarch, 2012, Exide Life submitted the details on the payments made to Agentsand intermediaries under Section 31 B of the Insurance Act, 1938 for thefinancial year 2013-14 vide its letter dated 21^st May, 2014. Onexamining the information submitted by Exide Life, it was observed that anamount of Rs. 30.46 crore was paid by Exide Life to the Corporate Agent INGVysya Bank during the financial year 2013-14 towards “infrastructure facilitycharges” in addition to the commission.

(a)   That the payment of Rs.30.46 crore towards the“infrastructure facility charges” by Exide Life to the Corporate Agent is ingross violation of Clause 21 of the Guidelines on Licensing of CorporateAgents, 2005.

(b)   That the payment of Rs. 30.46 crore by the Exide Lifeto the Corporate Agent is in gross violation of Section 40 A of the InsuranceAct, 1938 as the same exceeded the limit of expenditure on commissionstipulated by Section 40 A of the Insurance Act, 1938.

(ii) Provisionsof Clause 21 of Corporate Agency Guidelines and Section 40 A of Insurance Act,1938:

Clause 21 of Corporate Agency Guidelines:

“....Insurer shall not pay any amount other than thepermitted agency commission, whether as administration charge or reimbursementof expenses or profit commission or in any other form to the corporate agent. This does not prevent the Insurer from sharing expenses of co-branded salesliterature with the Corporate Agent. Such expenses, however, should bereasonable and should not be in any way be linked with the success in sale orpremium earned by the Corporate Agent...”.

Section 40 A (1) of the Insurance Act, 1938:

Prior to the Insurance Laws (Amendment) Act, 2015,(the period for which the present SCN is applicable), the Section 40A prescribesceilings on expenditure on commission or remuneration in any form to be payableby Insurers and receivable by Insurance Agents.

(iii) Submissionsof Exide Life to the SCN:

(a)  The payment of Rs. 30.46 crore wasnot at all related to the Corporate Agency Tie-up with the ING Vysya Bank (nowKotak Bank) and therefore does not come under the purview of Clause 21 of CorporateAgency Guidelines.

(b)  Total payout to the CorporateAgent was Rs. 73.72 crores in the FY 2013-14. Out of this, Rs. 43.26 crorespertain to commission. Out of the balance of Rs. 30.46 crores, an amount of Rs.24 crore is towards infrastructure facilities charges and Rs. 6.46 crores weretowards Auditorium charges, car parking, rent for Corporate Office, utilitycharges for corporate office, etc., which were independent arrangements withthe Corporate Agent as landlord and have no linkage to solicitation ofinsurance business undertaken by the Bank under Corporate Agency agreement. Thereforethe same cannot be categorised as commission and accordingly may kindly not beconsidered in violation of Section 40 A of Insurance Act.

(iv) Recommendationof Adjudicating Officer

While examiningwhether the payment of Infrastructure facility charges, over and above thecommission, by Exide Life to the Corporate Agent is in compliance with the provisionsof Section 40 A of Insurance Act, 1938 and Clause 21 of Corporate AgencyGuidelines, the Adjudicating Officer mentioned that Clause 21 categoricallyprohibits Insurer to pay any amount other than the permitted agency commission,whether as administration charges or reimbursement of expenses or profit commissionor in any other form the Corporate Agent, therefore, no other charges arepermitted in the Corporate Agency Guidelines and recommended the following:

“

(i)     Under 105D of the Insurance Act, 1938, whilerecommending the quantum of monetary penalty under Section 105C of theInsurance Act, 1938, Adjudicating Officer shall have due regard to thefollowing factors, namely:

(a)   the amount of disproportionate gain or unfairadvantage, wherever quantifiable, made as a result of the default

(b)   the amount of loss caused to the policyholders as aresult of the default and

(c)    the repetitive nature of default

(ii)   It is noted that the Bank, being the promoter of theInsurer, provided the infrastructure facility as the Bank has more pan Indiapresence compared with the Insurer. There is no allegation that arm’s lengthdistance was not maintained for the agreement entered by both the parties. Therefore, no disproportionate gain to either party is observed. As there wasno disproportionate gain, the loss to the policyholders as a result of thedefault cannot be ascertained.

(iii) With regard to repetitive nature of the default,

(a)  Insurer vide order dated 30/7/2012was penalized for Rs. 10 lakhs for the FY 2009-10 and 2010-11 for reimbursementof marketing support cost for advertisements to erstwhile ING Vysya Bank. Itwas noted that the above amount was over and above the eligible commission.

(b)  Insurer vide order dated 11/12/2013was penalized for Rs. 1,00,000/- (Rs. one lakh) for the payout made, over andabove the permissible limits, to its Corporate Agents.

(c)   Insurer has been violating the Sec.31 B in spite of penalized for the same violation and the default fits into therepetitive nature of default.

(d)  Considering the above, I recommenda penalty on the Insurer for Rs. One lakh under Section 105C read with Section40 C (3) of the Insurance Act, 1938. ”

(v) Submissions of Exide Life in its letterdated 14^th August, 2018 and during the personal hearing held on30/8/2018:

(a)  The payments being in the natureof infrastructure facility charges were incurred in the normal course ofbusiness and executed under an unrelated independent contract and do notattract the provisions of Clause 21 of the IRDAI Corporate Agency Guidelines of2005.

(b)  The said payments cannot becategorised as commission and accordingly this is not in violation of Clause 21of erstwhile IRDAI Corporate Agency Guidelines 2005 and/or Section 40 A of theInsurance Act, 1938.

(c)  The payouts towards infrastructure facilities were ona fixed cost basis as per Infrastructure Agreement with ING Vysya Bank datedMay 25, 2012 where the employees of Exide Life would be using theinfrastructure of the Bank on a pan India basis at fixed cost of INR 50,000/-per branch per month. This arrangement was viewed to be commercially lessexpensive than entering into multiple individual agreements across India.

(d)  The payouts pertain to the periodsof 2012-13 and 2013-14 and these are under a different agreement forinfrastructure facilities and are not in the nature of repetitive violation. Nowthere is no tie up of Corporate Agency with this Bank (now Kotak Bank) and in2014 the agreement was cancelled.

(9) Analysisof the Response:

As per Clause 21 ofCorporate Agency Guidelines, Insurershall not pay any amount other than the permitted agency commission, whether asadministration charge or reimbursement of expenses or profit commission or inany other form to the corporate agent,except for reasonable expenses towards co-branding sales literature.

Withregard to the submission that the payouts are not repetitive it is observedthat the agreement entered between the Bank and Exide Life dated March 27, 2012is for ‘Facilities and Cost’ and the Annexure A of the Agreement shows thebroad nature of the facilities that would be provided by the Bank in agreementwith Exide Life. The payouts are made for the facility to assist “attending toconcerns or queries of the policyholders as per the service standards and normsprescribed by the Insurer (Exide Life) from time to time and/or redirect suchconcerns or queries to Insurer” as stated in the said agreement and do notpertain only for infrastructure costs as claimed by Exide Life. It is observedin this regard that the Bank as Corporate Agent of the Life Insurer hasresponsibility to attend to the queries from its policyholders withoutrequiring any payouts from the Life Insurer. The Agreement also contains thecost towards display of Exide Life advertisements on the Bank branch buildingswhich shall not exceed Rs. 50,000/- per the Bank branch location, unlessotherwise mutually agreed between the parties. It is observed that the Bank asCorporate Agent is one of the beneficiaries of these advertisements. Furtherthe Bank is not in the business of providing infrastructure facilities. Thus,the submissions that these contracts and payouts are not related to theCorporate Agent tie-up are not accepted and it is held that the payouts inquestion are in violation of Clause 21 of Corporate Agency Guidelines.

Furtherthe penalties already levied vide order dated 30/07/2012 were for similarviolations i.e. reimbursements made to the ING Vysya Bank in financial years2009-10 and 2010-11 for advertisements primarily aimed at building the brandimage of the company and towards setting up the sales kiosks, organizing theroad shows and customer awareness programs at different Bank locations.

Exide Life waspenalized for an amount of Rs. One lakh for the payouts made over and above thepermissible limits to Corporate Agents/Brokers under the heads marketingresearch activities during the financial year 2011-12 vide Authority’s Order No.IRDA/F&I/ORD/464.1/9/F&A/RDL-31B/2011-12/181 dated 11/12/2013 based onthe review of reports filed under Circular dated 2/3/2012.

Exide Life was alsopenalized for an amount of Rs. Two lakhs vide Order No. IRDA/F&A/ORD/MISC/185/11/2018dated 14/11/2018 for the payouts to ING Vysya Bank under the head ofInfrastructure facility charges during the FY 2012-13.

From the above it isclear that the violation of Clause 21 of IRDAI Corporate Agency Guidelines, 2005by the Exide Life is repetitive in nature. It is further seen that these largepayouts are being made repeatedly while Exide Life has not been able to complywith the expenses of management limits statutorily mandated in the respectiveyears.

Thus it is held thatpayout of Rs 24 Crs made by Exide Life towards the “Infrastructure facility charges” to its CorporateAgent during the FY 2013-14 is in violation of the said provisions of Clause 21of Corporate Agency Guidelines.

The provisions ofSection 105C read with Section 40 (3) of the Insurance Act are withoutprejudice to the provisions of Section 102 of the Insurance Act.

(10) Decision:

In view of theabove, in exercise of the powers conferred under Section 102 (b) of InsuranceAct, 1938, a penalty of Rs. 3 lakhs (Rs. three lakhs) is hereby imposed forrepeatedly violating during 2013-14 the provisions of Clause 21 of CorporateAgency Guidelines read with Section 40 A of Insurance Act, 1938. Further, ExideLife is directed to place this Order before the next meeting of the AuditCommittee of their Board and the next Board Meeting of Exide Life so that theBoard can take note of the violation and to take preventive action to avoidsuch violations in future. The Authority may be provided with copies of the minutesof those meetings.

11. Thepenalty amount of Rs. 3 lakhs (Rs. Three lakhs only) shall be remitted by ExideLife by debiting the Shareholders’ Account within a period of 45 days from thedate of issuance of this Order through NEFT/RTGS. An intimation of remittancemay be sent to Mr. V. Jayanth Kumar, Chief General Manager (Life) at theInsurance Regulatory and Development Authority of India, Survey No.115/1,Financial District, Nanakramguda, Hyderabad 500032, email id life@irda.gov.in.

12. If Exide Life feels aggrieved by any of the decisions inthis Order, an appeal may be preferred to the Securities Appellate Tribunal asper Section 110 of the Insurance Act, 1938.

Place : Hyderabad (Dr. Subhash C. Khuntia)

Date : 15^th November,2018 CHAIRMAN