LIC ACT, 1956 | LIFE INSURANCE COEPORATION OF INDIA

In this article you will study about the Life Insurance Corporation of India including establishment, objectives, functions, powers of LIC under Life Insurance Corporation Act

 

1. INTRODUCTION

 

The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

 

Life Insurance Corporation Act, 1956 provides for the nationalization of life insurance business in India by transferring all such business to a Corporation established for the purpose and provides for the regulation and control of the business of the Corporation and for matters connected therewith or incidental thereto. From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business.

 

2. ESTABLISHMENT OF LIC

 

Establishment and incorporation of Life Insurance Corporation of India (Section 3)

 

(1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India.

 

(2) The Corporation shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, and may by its name sue and be sued.

 

Constitution of the Corporation (Section 4)

 

(1) The Corporation shall consist of such number of persons not exceeding sixteen as the Central Government may think fit to appoint thereto and one of them shall be appointed by the Central Government to be the Chairman thereof.

 

(2) Before appointing a person to be a member, the Central Government shall satisfy itself that that person will have no such financial or other interest as is likely to affect prejudicially the exercise or performance by him of his functions as a member, and the Central Government shall also satisfy itself from time to time with respect to every member that he has no such interest; and any person who is, or whom the Central Government proposes to appoint and who has consented to be, a member shall, whenever required by the Central Government so to do, furnish to it such information as the Central Government considers necessary for the performance of its duties under this sub-section.

 

(3) A member who is in any way directly or indirectly interested in a contract made or proposed to be made by the Corporation shall, as soon as possible after the relevant circumstances have come to his knowledge, disclose the nature of his interest to the Corporation; and the member shall not take part in any deliberation or discussion of the Corporation with respect to that contract.

 

Capital of the Corporation (Section 5)

 

(1) The original capital of the Corporation shall be five crores of rupees provided by the Central Government after due appropriation made by Parliament by law for the purpose, and the terms and conditions relating to the provision of such capital shall be such as may be determined by the Central Government.

 

(2) The Central Government may, on the recommendation of the Corporation, reduce the capital of the Corporation to such extent and in such manner as the Central Government may determine.

 

3. OBJECTIVES OF LIC

 

• Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost.
• Maximize mobilization of people's savings by making insurance- linked savings adequately attractive.
• Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return.
• Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders.
• Act as trustees of the insured public in their individual and collective capacities.  
• Meet the various life insurance needs of the community that would arise in the changing social and economic environment. 
• Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy.
• Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

 

4. FUNCTIONS OF LIC

 

Functions of the Corporation (Section 6)

 

(1) Subject to the rules, if any, made by the Central Government in this behalf, it shall be the general duty of the Corporation to carry on life insurance business, whether in or outside India, and the Corporation shall so exercise its powers under this Act as to secure that life insurance business is developed to the best advantage of the community.

 

(2) Without prejudice to the generality of the provisions contained in sub-section (1) but subject to the other provisions contained in this Act, the Corporation shall have power-

 

(a) to carry on capital redemption business, annuity certain business or re-insurance business insofar as such re-insurance business appertains to life insurance business;

 

(b) subject to the rules, if any, made by the Central Government in this behalf, to invest the funds of the Corporation in such manner as the Corporation may think fit and to take all such steps as may be necessary or expedient for the protection or realisation of any investment; including the taking over of and administering any property offered as security for the investment until a suitable opportunity arises for its disposal;

 

(c) to acquire, hold and dispose of any property for the purpose of its business;

 

(d) to transfer the whole or any part of the life insurance business carried on outside India to any other person or persons, if in the interests of the Corporation it is expedient so to do;

 

(e) to advance or lend money upon the security of any movable or immovable property or otherwise;

 

(f) to borrow or raise any money in such manner and upon such security as the Corporation may think fit;

 

(g) to carry on either by itself or through any subsidiary any other business in any case where such other business was being carried on by a subsidiary of an insurer whose controlled business has been transferred to and vested in the Corporation under this Act;

 

 (h) to carry on any other business which may seem to the Corporation to be capable of being conveniently carried on in connection with its business and calculated directly or indirectly to render profitable the business of the Corporation;

 

(i) to do all such things as may be incidental or conducive to the proper exercise of any of the powers of the Corporation.

 

Power to impose conditions, etc. (Section 6-A)

 

(1) In entering into any arrangement, under Section 6, with any concern, the Corporation may impose such conditions as it may think necessary or expedient for protecting the interest of the Corporation and for securing that the accommodation granted by it is put to the best use by the concern.

 

(2) Where any arrangement entered into by the Corporation under Section 6 with any concern provides for the appointment by the Corporation of one or more directors of such concern, such provision and any appointment of directors made in pursuance thereof shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum, articles of association or any other instrument relating to the concern, and any provision regarding share qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Corporation in pursuance of the arrangement as aforesaid.

 

(3) Any director appointed as aforesaid shall-

 

(a) hold office during the pleasure of the Corporation and may be removed or substituted by any person by order in writing by the Corporation;

 

(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;

 

(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement.

 

Apart from these functions LIC also performs other functions-

 

(1) It is a specialised all-India financial institution which plays a very important role in capital market of the country;

 

(2) With a view to making sound investment, LIC invests in the shares of promising industrial enterprises, grant loans, mortgage of fixed assets and underwrites new issues, apart from making traditional investments in government securities;

 

(3) It maintains close contacts with other financial institutions such as IDBI, IFCI, ICICI and UTI for co-ordination of its investments;

 

(4) Corporation does not invest in private limited companies. It invests only in securities of public sector undertakings and promising public limited companies;

 

(5) It assumes great significance in the underwriting activity and has emerged as the largest underwriter in the country's capital market; and

 

(6) It has a significant place in the socio-economic life of the country. It helps in economic development by making huge investments in public, private and socially-oriented sectors of the economy.

 

5. COMPENSATION OF INSURANCE BUSINESS

 

Compensation for acquisition of controlled business (Section 16)

 

(1) Where the controlled business of an insurer has been transferred to and vested in the Corporation under this Act, compensation shall be given by the Corporation to that insurer in accordance with the principles contained in the First Schedule.

 

(2) The amount of the compensation to be given in accordance with the aforesaid principles shall be determined by the Corporation in the first instance, and if the amount so determined is approved by the Central Government it shall be offered to the insurer in full satisfaction of the compensation payable to him under this Act, and if, on the other hand, the amount so offered is not acceptable to the insurer he may within such time as may be prescribed for the purpose have the matter referred to the Tribunal for decision.

 

6. CONCLUSION

 

The Life Insurance Corporation Act, 1956, is a crucial piece of legislation that laid the foundation for the growth and development of the life insurance sector in India. It provided a platform for LIC to become the largest and most prominent life insurance company in the country, serving millions of policyholders across India.