sebi:WTM/PS/IMD/06/APR/2010

SEBI · SEBI · 2010-01-15 · Prashant Saran, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Entities directed not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI.

Provisions invoked

• s. 11A
• s. 19
• s. 11(1)
• s. 12
• s. 11(2)
• s. 2(11)

Regulations

• Reg. 3(3)

Parties

• HDFC Standard Life Insurance Company Limited

Holding

ULIPs offered by the entities are a combination of investment and insurance, and their investment components are in the nature of mutual funds which can only be offered/launched after obtaining registration from SEBI under section 12(1B) of the SEBI Act.

Full text

2 under the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “the SEBI Act”) and the regulations made thereunder, notices were issued to these entities on January 15, 2010 (except in case of HDFC Standard Life Insurance Company Limited where the notice was issued on December 14, 2009). SEBI had sought replies from the said entities as to how the ULIPs were launched without obtaining the requisite certificate of registration from SEBI and why appropriate action should not be taken against them under the provisions of the SEBI Act.

3 j. Unlike a mutual fund, a ULIP is not established in the form of a trust. The fund is held by the insurance company itself as required under the Insurance Act. Ancillary features such as fund management, fund management charges etc., are alone not sufficient to convert a life insurance product into a mutual fund scheme. k. A ULIP is an insurance contract falling within the ambit of life insurance business. “Life Insurance business” is defined under Section 2(11) of the Insurance Act, 1938 inter alia to mean the ‘business of effecting contracts of insurance upon human life’ or ‘the happening of any contingency dependent on human life’. The said definition indicates that the policy is dependent on the happening or the non-happening of an event linked to human life. l. ULIPs fall under the definition of Life Insurance products. Unit Linked Life Insurance Business is defined in IRDA (Investment) Regulations, 2000. Regulation 3(3) states “every insurer shall invest and at all times keep invested his segregated fund of units linked life insurance business as per pattern of investment offered to and approved by the policy holders….” m. “Linked business” is defined in IRDA (Registration of Companies) Regulations, 2000 which means life insurance contracts or health insurance contracts under which benefits are wholly or partly to be determined by reference to the underlying assets or any approved index. n. the product was launched after following appropriate procedures and obtaining

4 5. I have carefully considered the replies of each of the entities, product brochures of various ULIPs offered by them and the relevant material available on record. Since the subject matter in the notices issued to the entities is identical and their replies are substantially similar, I proceed to deal with issues involved in the matter by way of a common order. Some of the entities have also sought an opportunity of personal hearing. I note that each entity has been served with separate notices and each of them has availed of the opportunity of making its written submissions. Therefore, under

Source: SecMarx — sebi:WTM/PS/IMD/06/APR/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.