Allahabad HC asks Irda to scrutinize SBI Life Insurance

The 29 May order came in response to a petition filed by an SBI Life customer, Virendra Pal Kapoor, 72, who claimed he had invested Rs.50,000 in 2007 in the insurer’s Unit Plus II–Single, a unit-linked insurance product (Ulip) with an option of a limited term of five years, on the basic sum assured for life at Rs.3,12,500 (625% of the investment), with a choice of investment in a growth fund. But on maturity, he was paid a mere Rs.248.

This instance prompted the court “...to issue a direction to the Irda to critically examine each and every policy of SBI Life. If it (Irda) finds that the SBI Life, which has suffered penalties in the past for its defaults, has acted in breach of its guidelines it would be appropriate for it to direct SBI Life to discontinue its policies and to wind up its business,” the court said.

Mint has reviewed a copy of the order, which called the policy document an “unconscionable contract” that was “thus arbitrary, illegal and void…” The court ordered SBI Life to return the original amount of Rs.50,000 to the petitioner within a month.

Replying to an email, Braj Kishore, head, brand and corporate communication, SBI Life Insurance, on Friday, said, “We are waiting for a certified copy of judgement passed by the Lucknow bench of Allahabad high court in the matter referred by you. On receiving the same, we shall revert to you with our comments.”

The company hadn’t reverted back with a response as of press time on Monday. An email sent to Irda on Friday did not elicit any response.

The court held that the central government “will do well to ensure that the investors are not cheated in a manner, as in the present case, in which the entire investment of the senior citizen has been lost on the pretext of the policy being in tune with Irda guidelines”.

SBI Life Insurance, a joint venture between the State Bank of India (SBI) and BNP Paribas Cardif, has an authorized capital of Rs.2,000 crore and a paid-up capital of Rs.1,000 crore. During fiscal year 2014, SBI Life garnered a first-year premium of Rs.5,067.03 crore—the highest among 23 private insurers in India.

The court found that the policy in question was sold to Kapoor by an agent on behalf of SBI Life, on the basis of certain terms that did not have Irda’s approval.

While finding that Kapoor was sold the policy in the premises of SBI, and was allegedly misled by an agent of SBI in breach of Irda’s rules, the court deemed an alongside inspection of SBI’s directors (who are part of SBI Life’s board) necessary to find out if any unlawful gain had been made from sale of such policies.

According to SBI Life Insurance, Arundhati Bhattacharya, chairperson of SBI, and A. Krishna Kumar, managing director of SBI, are two of the 11 board members of the insurer.

“The ‘Serious Fraud’ Department of ministry of corporate affairs must examine these policies and unlawful gains made by the company and its directors including the directors of SBI, in the company, by cheating the policyholders on the pretext that its policies are in compliance with Irda regulations,” the court order said.

In an email to Mint, SBI said the scheme of the policy was that the mortality charges and other applicable charges were to be deducted every month by cancellation of appropriate number of units and as on the date of maturity, the remaining fund value would be paid.

“The insurance premium less the initial expenses were invested in the growth funds opted (for) by the petitioner... Considering the advanced age and the high sum assured, the mortality charges were obviously higher and the policyholder paid only one premium under the policy and thus the fund gets obviously reduced every year with the deduction of charges,” SBI said in an email.