General Insurance Business (Nationalisation) Act, 1972

According to Section 6B of Insurance Act 1938 “general insurance business” means fire, marine or
miscellaneous insurance business, whether carried on singly or in combination with one or more
of them;]

OBJECTIVE:

The General Insurance Business (Nationalisation) Act, 1972 (Act No. 57 of 1972), was enacted to:

1. Acquire Shares: Take over the shares of Indian insurance companies and the operations of
existing insurers.
2. Promote Economic Development: Ensure that general insurance business is developed in a
way that benefits the community.

3. Prevent Wealth Concentration: Prevent the concentration of wealth that could harm the
public interest.

4. Regulate the Business: Control and regulate the general insurance business for the greater
good

Transfer of Shares of Indian Insurance Companies

1. Shares Transfer: All shares in the capital of Indian insurance companies are transferred to the
Central Government on the appointed day.

2. Transfer to Individuals: The Central Government will transfer at least ten shares of each
company to specified persons so the company can operate as a government entity.

3. Notification: The Central Government will issue a notification specifying the names of the
individuals receiving the shares.

4. Updating Records: The concerned insurance company must update its register of members
to reflect the new shareholders.

Transfer of Undertakings of Existing Insurers

1. Transfer of Undertakings: On the appointed day, the undertakings (business operations) of

non-Indian insurers are transferred to the Central Government. The government will then
allocate these undertakings to specified Indian insurance companies.

2. Multiple Transfers: Some undertakings may be transferred to more than one Indian
insurance company.
3. Assets and Liabilities: The transferred undertaking includes all assets, rights, liabilities, and
other properties of the insurer, including loans, obligations, and records.
Effect of the Transfer

1. Continued Validity: All contracts, legal agreements, and documents with the previous insurer
remain valid, and the Indian insurance company can enforce or act on them as if it was
originally a party.

2. Ongoing Legal Proceedings: Any ongoing legal proceedings related to the transferred
business will continue with the Indian insurance company as the new party.

3. Scope for Foreign Insurers: For foreign insurers, the transfer applies only to their general
insurance business in India and related assets, rights, and legal matters.

4. Disputes: If there is a dispute about the ownership of any property or the validity of any
rights or agreements, it will be decided by the Central Government after hearing the
concerned parties.

Formation of General Insurance Corporation of India

1. Establishment: The Central Government will form a Government company called the General
Insurance Corporation of India after the commencement of the Act. Its role is to oversee and
manage the business of general insurance. However, after the General Insurance Business
(Nationalisation) Amendment Act, 2002, the Corporation will focus on carrying out re-
insurance business instead.

2. Authorized Capital: The authorized capital of the Corporation is set at ₹250 crores, divided
into 2.5 crore fully paid-up shares of ₹100 each. Initially, ₹5 crores will be the subscribed
capital.

3. Name: The Corporation does not need to add the word “Limited” at the end of its name, as
per the provisions of the Companies Act, 2013.

Transfer of Shares to the Corporation

1. Shares Transferred to the Corporation: After the shares of Indian insurance companies are
transferred to the Central Government (except those transferred to specific individuals), they
will automatically be transferred to the Corporation. The insurance companies must update
their records to list the Corporation as the new holder of these shares.

2. Shares Transferred to the Central Government: As per the General Insurance Business
(Nationalisation) Amendment Act, 2002, shares in four major insurance companies (National
Insurance, New India Assurance, Oriental Insurance, and United India Insurance) that were
previously vested in the Corporation will now be transferred to the Central Government.
Amounts for Transfer and Distribution:

1. Transfer of Shares:

o The Central Government will pay an amount to the Corporation for the transfer of
shares from Indian insurance companies. This amount will then be distributed to the
shareholders of the company, as specified in the Schedule.

2. Transfer of Undertakings:

o When the undertaking of an existing insurer (not an Indian insurance company) is

transferred, the Central Government will pay an amount to the Corporation, which
will be given to the insurer, as specified in the Schedule.

3. Disbursement of Amounts:

o The total amount received by the Corporation will be treated as additional capital,
and this capital will be vested in the Central Government.

o The Corporation will distribute the amounts to the shareholders or insurers based on
their rights. If there is any dispute regarding the distribution, the Central
Government will resolve it.

Functions of the Corporation:

1. The Corporation has several functions, including:

o Carrying out any part of the general insurance business if it deems it necessary.

o Helping the acquiring companies set up standards of conduct and best practices in
general insurance.

o Assisting acquiring companies in managing their expenses, including commissions

and other costs.

o Advising on the investment of funds by acquiring companies.

o Issuing directions to acquiring companies on how to conduct their business.

2. Change After 2002 Amendment:

o After the 2002 amendment, the Central Government, rather than the Corporation,
performs these functions. The Government also aims to promote competition
among the acquiring companies to improve their efficiency.

Functions of Acquiring Companies:

1. Every acquiring company must carry out general insurance business according to the rules
and its own memorandum and articles of association.

2. Each acquiring company should work to develop the general insurance business in a way that
benefits the community.
 3. In carrying out its functions, the acquiring company must follow business principles and
abide by any directions issued by the Central Government or the Insurance Regulatory and
Development Authority (IRDA).

4. The Corporation and acquiring companies can enter into reinsurance contracts or treaties to
protect their interests, subject to rules set by the Central Government.

Utilization of Balance of Profit:

1. After making provisions for bad debts, asset depreciation, various funds (like provident and
welfare), and other necessary expenses, the remaining profit of the acquiring company
should be distributed as dividends to shareholders.

2. Any profit or sums received by the Corporation, including dividends, will be handled in a
manner prescribed by rules.