On 30th June 2021, the Life Insurance Corporation (amendment) Rules, 2021 came into effect. Life Insurance Corporation which was entirely owned and controlled by government will now be a corporate company which will go for its Initial Public Offer soon. This action has the potential to make Life Insurance Corporation the public limited company with largest market capitalisation surpassing the current one, Reliance Industries Ltd. 

The previous LIC rules which was effective since 1956 didn’t have provisions to allow its listing in stock exchange. The current amendment paves the way for the same by complying with the required conditions as per the Securities Exchange Board of India (SEBI) listing criteria and thus facilitating its conversion into a company. 

The key points related to the amendment are as follows:-

Stake of LIC

As per the amendments, government will retain at least 75% in the first five years after the first IPO and subsequently, not less than 51% of the stake. 

Capital Base

The authorised capital of the entity will be 25000 crores that will be divided into 2500 crore shares of 10 each instead of the current capital base it already has- 100 crores. 

Appointment of Board members

The chairperson, Chief Executive Officer, Managing Director and a central government officer will constitute the board. All of them are to be appointed by the central government. The number of board of directors will not exceed 15 and will have at least one woman as a director.

Disqualification of board members

If any director who is of unsound mind or is insolvent or has applied to be adjudicated as an insolvent or has been convicted by a court for any offence or has not paid any calls in respect of any of shares of the corporation held by him or has been disqualified by the National Company Law Tribunal order may be disqualified based on the above-mentioned grounds.

Disclosure of interest in other company

The act mandates that each director is required to disclose the facts related to his interest in any other body corporate even if it is in the form of shareholdings. Such information must be disclosed in the first meeting of board as well as in the first meeting of every financial year. Also, whenever there is any change in the disclosures already made, it has to informed in the very next board meeting.  

Related party

According to the amendment, the entity is not allowed to get in to contracts or agreements or transactions with any related party without the consent of the board and after complying with the conditions prescribed. However, transactions related to sale, purchase, supply of goods or materials or their sale with related companies is prohibited.

Formation of an Investment committee

An investment committee may be formed by Chief Executive along with not more than seven directors which will consist of at least 2 directors who are not specially appointed for functions relating to investment of funds. The officers who are in charge of finance, investment, law and risk are to be present at all the meetings and have the right to be heard.

Auditors

The entity can appoint as many auditors (individuals or firms) as required at the first annual general meeting who will continue to hold their office until the conclusion of its sixth AGM. 

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