Supreme Court Agrees To Hear Challenge Against LIC IPO
The Supreme Court of India on Thursday agreed to hear petitions challenging the initial public offering of Life Insurance Corp.
The LIC IPO closed on May 9 with record high participation from retail investors. The government is looking to raise as much as Rs 21,000 crore by selling a 3.5% stake in the nation’s biggest life insurer.
The petitions being heard in the Supreme Court are based on two main issues:
The amendment to the LIC Act,1956, which, as per the petitioners, converted the character of the insurer from a mutual benefit society to a joint stock company.
The passage of this amendment through the Finance Act, 2021 as a money bill.
Senior Advocate Indira Jaising argued that as a mutual benefit society, 95% of the surplus went to participating policyholders and that entitlement stood changed by the amendment.
To recap, the Section 28 of the LIC Act was amended via Finance Act, 2021.
Broadly, the petitioners have argued that prior to this amendment, 95% or more of surplus from life insurance business was to be allocated to or reserved for the life insurance policyholders. But by virtue of the amendment, the rights guaranteed under the Section 28 of the LIC Act have been taken away.
The policyholders, Jaising said, should be compensated for the change which was brought about in the nature of the insurer and distribution of the surplus.
The petitioners sought two interim reliefs from the court:
The money deposited in ASBA accounts should be retained during the pendency of the proceeding; or
The court should clarify that the rights of the investors will be dependent on the outcome of the proceedings before the top court.
The central government pointed out that the IPO was oversubscribed six times even in the category reserved for policyholders. The LIC Act, as originally drafted, did not confer any contractual rights on the participating policy holders to appropriate 95% surplus and the distribution was dependent on the central government, it told the apex court.
There was no statutory guarantee to policy holders on the distribution of surplus, government's counsel ASG N Venkatraman said.
The bench presided by Justice DY Chandrachud noted that the issues raised in the petition require further deliberations.
The issue as to what amendments can be made through a money bill is already pending before a Constitution bench. The top court tagged this aspect of the petition with the pending matters before it.
On the issue of change in nature of the insurer, the court has agreed to hear the petitions and has sought the response of the central government and LIC.
The bench did not find a case for any interim relief and declined the prayer of the petitioners while agreeing to hear the main matter.
LIC will be listed on the exchanges on May 17 when the trading in the shares of the insurer begins.