Major Amendments in LIC Act 1956

The Ministry of Finance has announced that modifications to the Life Insurance Corporation (LIC) Act, 1956 would be effective from June 30, 2021. Amendments have also been made to guarantee that the Centre retains at least a 75 per cent interest in LIC for the next five years following its listing, and at least a 51 per cent stake after that time. In addition, modifications ensuring that policyholders get a part of the shares offered in the Initial Public Offering (IPO) have been passed and are effective as of Wednesday.

Converting the LIC from a corporation to a company, putting in place a board with independent directors in line with listing obligations, increasing the authorised capital to Rs 25,000 crore divided into shares of 10 each, and other legislative changes are among the changes made to the LIC Act. Part III of the Finance Act of 2021 pertains to modifications to the LIC Act of 1956, including the following changes.

1. Board of Directors Framework

The board of directors shall have general supervision and direction over the corporation's affairs and business, and may exercise all powers and perform all acts and things that may be exercised or performed by the corporation but are not expressly directed or required to be performed by the corporation in general meeting by this Act.

A Chairperson of the Board, to be chosen by the Central Government; a Chief Executive Officer and Managing Director; Managing Directors; and a Central Government Officer to be appointed by the Centre will make up the board. The Central Government will designate an individual who, in the view of the Central Government, has unique expertise or practical experience that would be beneficial to the corporation, or who represents the interests of policyholders.

2. Disqualification Criteria

The new Section 4A was added, which stipulated that a director could be disqualified if he or she is of unsound mind, is an undischarged insolvent, has applied to be adjudicated as an insolvent, has been convicted by a court of any offence, has a National Company Law Tribunal order disqualifying him to be a director, or has not been paid any calls in respect of any shares of the corporation held by him.

3. Declaration of Interests

The new Section 4B says every director shall disclose his concern or interest in any body corporate, including shareholdings, at the first meeting of the board in which he participates as a director and thereafter at the first meeting of the Board in every financial year, or whenever there is any change in the disclosures already made, then at the first board meeting held after such change.

4. Regarding Related Party 

The corporation shall not enter into any contract or arrangement with a related party with respect to the sale, purchase, or supply of any goods or materials; selling or otherwise disposing of, or buying, property of any kind; leasing of property of any kind; availing or using property of any kind; except with the consent of the board and subject to such conditions as may be prescribed. The corporation shall not enter into any contract or arrangement with a related party with respect to the sale, purchase, or supply of any goods or materials; selling or otherwise, according to Section 4C.

5. Establishing Investment Committee

The board may establish an Investment Committee of the Board, consisting of the Chief Executive and not more than seven other directors, of whom at least two shall be directors other than directors appointed, for such functions relating to investment of the corporation's funds as the board may entrust. The corporation's officials in charge of finance, risk, investment, and law, as well as the corporation's appointed actuary, will be invited to every meeting of the committee and shall have the right to be heard at the meeting.

6. Selection of Auditors

The corporation shall appoint as many auditors, which may be individuals or firms, as it deems fit at its first annual general meeting. Such an auditor shall hold office from the conclusion of that meeting until the conclusion of its sixth annual general meeting thereafter. He or she should similarly appoint an auditor for subsequent periods of five years at a time, and the manner and procedure will be prescribed.

According to reports, the Centre may sell up to 5 per cent of its share in the IPO. LIC will launch its IPO this fiscal, according to Finance Minister Nirmala Sitharaman, who announced it in this year's Budget. LIC is projected to overtake Reliance Industries Ltd as the country's largest corporation by market capitalisation once it gets public.