Month: February 2014

Can a plaintiff-patentee withdraw a suit for patent infringement at will?

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Post date February 26, 2014
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Can a patentee, after filing a suit for infringement and securing an interim injunction against the defendant, withdraw the suit at will? Interim orders after all, are granted only on a prima facie appreciation of the case and the result at the end of the trial could well be in favour of the defendant. Can the plaintiff therefore, be permitted to withdraw the suit at will without affording the defendant an opportunity to establish his case at trial? Also, since interim orders could have caused significant injury or loss to the defendant, can the defendant not legitimately expect restitution for the loss suffered by him? These questions are not answered by the Patents Act, 1970, but instead, require us to look into the Code of Civil Procedure, 1908 (“CPC”).

The relevant provisions of the CPC are Order 23, Rule 1 and Section 144. Order 23 of the CPC deals with ‘Withdrawal and Adjustment of Suits’.

Clearly, the plaintiff-patentee has the right to withdraw the suit at will, and there is nothing in the law that prevents him from doing so. The defendant however, is not without a remedy and can seek restitution of the costs incurred by him during the course of the litigation and as a consequence of it. Section 144 of the CPC provides for a remedy in such a situation.

Sub-section 1 of Section 144 provides for restitution when a decree or order undergoes variation or reversal in an appeal or revision or “any other proceeding”. The sub-section also envisages restitution upon setting aside or modification of the decree or the order passed in the first suit in a counter-claim or a counter-suit instituted for the purpose of setting aside or modifying the decree or the order in the first suit.

However, there is no express mention of whether or not such restitution is available in the event of withdrawal of a suit. That said, the provision is broad enough to accommodate such an eventuality since it refers to variation or reversal in “any other proceeding”, a phrase that captures the spirit of the provision to provide a remedy to a defendant who has suffered losses or costs as a consequence of the plaintiff’s suit.

When can an application for Section 144 be filed? Who can it be filed before?

Sub-section 1 of Section 144 answers both these questions. An application under Section 144 may be filed before the court which passed the decree or the order which was subsequently varied or reversed.

Such an application must naturally only be filed after such a variation or reversal of the decree or the order has happened. This also means that once the decree has been varied or reversed by an appellate court and rendered final, a stand-alone application under Section 144 may be moved before the court of first instance which had passed the original decree or order. Such an application would stand independent of the suit and the court shall hear it by virtue of being the court that passed the decree or the order.

A Calcutta High Court decision in Dilip Kumar Dey v. Vishwamitra Ram Kumar throws more light on Section 144.

Instead of an application under Section 144, can a counter-claim for damages or costs be instituted by the defendant? Sub-section 2 of Section 144 bars such a counter-suit:

(2) No suit shall be instituted for the purpose of obtaining any restitution or other relief which could be obtained by application under sub-section(1).

In summary therefore, although the plaintiff may withdraw the suit at will, the defendant is not without remedy to seek restitution, courtesy Section 144 of the CPC. An independent application can be filed, notwithstanding the withdrawal of the suit. Secondly, a remedy which may be sought under Section 144 cannot be sought by way of or as part of a counter-claim or a counter-suit.

(J. Sai Deepak, an engineer-turned-litigator, is a Senior Associate in the litigation team of Saikrishna & Associates. He is the founder of “The Demanding Mistress” blawg. All opinions expressed here are academic and personal.)

Tags civil procedure, patents, restitution, withdrawal of suit

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151 years of federal banking regulation in the United States

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Post date February 25, 2014
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151 years ago, on February 25, 1863, the United States enacted the National Banking Act of 1863 (“National Banking Act”), the first federal banking law, with the goal of creating a single national currency.

Single currency, national banks

At that time, notes were issued by several state banks and linked to their gold and silver holdings. Even though these notes were exchangeable and denominated as U.S. dollars, they were being issued by different banks with different paying abilities. This is because the gold and silver holdings of these banks were not uniform and they were not linked to any single unified entity or standard. The established national banks could issue notes that were printed by the government and backed by the U.S. Treasury. After the Act, each bank’s ability to issue notes was linked to the level of capital it deposited with the Comptroller of Currency at the Treasury, a position created under the Act. It also facilitated the phasing out of notes issued by the state banks by providing for a system of taxing those notes.

The banking system

Within one year however, the 1863 law was replaced by the National Bank Act of 1864 (“NBA”), which created the banking system of the United States. It established federally issued bank charters, which enabled the setting up of new national banks, and the conversion of state banks into national banks.

This is not to say that state banks became redundant. Since state banks could no longer issue notes, the capital requirements they had to fulfil became less onerous. This allowed the state banks to carry out rapid branch expansion while they continued to compete with the national banks in relation to regular banking services.

This dual system of banking created by the NBA now defines the U.S. banking system. The Comptroller of Currency (like the Reserve Bank of India in India) is responsible for the administration and supervision of national banks (and some of the activities of their subsidiaries).

John D Hawke (right) was the controversial Comptroller of the Currency who used the 1863 law to bar the Attorneys General from investigating and prosecuting predatory lending practices by banks and mortgage companies. Image on the left is published under a CC BY-SA 3.0 license.

As recently as 2004, the provisions of the NBA were used by the then Comptroller to bar the Attorneys General of states from investigating and prosecuting national banks for predatory lending practices in relation to the real estate sector. The Comptroller’s move is believed to have hastened the sub-prime mortgage crisis.

Banking regulation

The NBA created a unique, but fragmented, system of banking regulation in the U.S. with both federal and state-level regulation. Banking regulation is also separated from the regulation of other financial services, each of which is regulated by a separate agency.

Apart from the Comptroller, depending on the charter and the organisational structure of the bank, a national bank’s primary federal regulator could also be the Federal Deposit Insurance Corporation or the Federal Reserve Board.

The varying priorities of banking regulation

The NBA was the first step in defining banking regulation in the U.S. Since then, several laws have addressed different regulatory concerns.

– Following the 1929 depression, the Glass-Steagall Act was enacted to establish the Federal Deposit Insurance Corporation and provide deposit insurance to protect depositors from losing their deposits if a bank became insolvent.

– In 1999, a part of the Glass-Steagall Act was repealed, with the enactment of the Gramm–Leach–Bliley Act also known as the Financial Services Modernization Act of 1999. This allowed commercial banks, investment banks, and securities firms to consolidate. The aim of the Act was to increase competition in and provide equal access to the financial services industry. One of the criticisms of this Act however, was that it would result in banks that would become ‘too big to fail’.

– When the recession hit in 2007, the necessity of overhauling financial regulation in the U.S. became the primary concern of the U.S. government. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) was enacted in response to this need. It impacted not just banking regulation, but every sphere of financial services regulation. It streamlined the regulatory framework for the financial services industry in the U.S. by creating new agencies like the Financial Stability Oversight Council and the Bureau of Consumer Financial Protection. It also substantially changed the powers of existing agencies including the Comptroller, the Federal Reserve, the Federal Deposit Insurance Corporation, and the U.S. Securities and Exchange Commission.

From its formative period therefore, federal banking regulation in the U.S. has switched priorities from the protection of depositors to supporting the aggressive practices of banks, and then back again to the protection of depositors. It is still too early to say whether the lessons from the last recession will continue to affect financial policy and regulation in the U.S.

The Indian parallel to the 1863 law is the Reserve Bank of India Act, 1934. Studying the evolution of banking laws in the United States provides an interesting parallel to the evolution of our own laws. The Indian government and Reserve Bank of India have always been conservative, often taking pointers from the mistakes of regulators in the West. So far, this has held them in good stead.

(Deeksha Singh is part of the faculty on myLaw.net.)

Tags banking, Comptroller of Currency, currency

Supreme Court of India

The choice-of-seat dilemma and the separability question in Enercon

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Post date February 23, 2014
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The previous post discussed the Supreme Court’s views in Enercon (India) v. Enercon GmBH (dated February 14, 2014) on how arbitration clauses ought to be interpreted. In this post, we will look at two other issues related to the arbitration clause – namely, the choice-of-law issues that the vaguely drafted Clause 18 (the arbitration clause) in the Intellectual Property Licence Agreement (“IPLA”) gave rise to, and the discussion on separability that the challenge to the IPLA led to.

On the choice of seat

“18.3 All proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be London… The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply.”

It is really difficult to work out what the parties intended when they were drafting this clause. Did they intend for London to be the seat, using the word “venue” as an alternative for “seat”? But if that were the case, why insert the words, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”? Was it merely a reference to Part II of the Arbitration and Conciliation Act, 1996, inserted to ensure that an English award is enforceable in India? It is a very real possibility, as many India related foreign-seated arbitration clauses expressly include the application of Part II (and expressly exclude Part I).

The net result of this clause was confusion about what the seat was, whether the seat was different from the curial (that is, procedural) law, and what the law governing the arbitration agreement was.

On this point, we are not entirely in agreement with the reasoning of the Supreme Court. The Supreme Court believed that the parties had made no choice on the seat. They disregarded the language “The venue of the arbitration proceedings shall be London” holding that this sentence only indicated the parties’ choice of a convenient “venue” for their hearings, never mind the fact that there was no indication in the current case that suggested that London would be convenient. The obiter views of Eder J. in the English High Court proceedings in the same case, [2012] EWHC 689 (Comm), illuminate this point.

“London was not a convenient geographical venue for disputes concerning an Indian joint venture; intellectual property in India; an Indian and German company; where the evidence would be located in India and possibly to some extent in Germany. In my judgment, the designation of London therefore had to have some other function for it to be explicable.”

Having decided that the parties had only designated a venue and not a seat in Clause 18.3, the Supreme Court went on to consider the jurisdiction with which the arbitral proceedings had its closest connection – the ‘closest connection’ test is what is generally used by tribunals and courts to determine the seat in the absence of a choice by the parties. The Court cited Dicey and Morris on the Conflict of Laws in this regard.

This is where things get murky. The Court seems to assume that the words, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply” indicate that the parties have chosen Indian law to govern the arbitration, that is, they have chosen Indian law (including Part I of the Arbitration and Conciliation Act, 1996) as the “curial” or “procedural” law. Having come to the conclusion that the procedural law was Indian law, the Court found that designating London as the seat would lead to an absurdity – as Part I of the Indian Arbitration and Conciliation Act, 1996 cannot apply to a foreign-seated arbitration (following BALCO), and further, English law itself does not allow for the procedural law to be different from the law of the seat. In other words, the designation of London as a seat would render what the Court believed was the parties’ choice of curial law (the words “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”) redundant.

As far as the proper law of the arbitration agreement was concerned, the Court understood this to be Indian law without too much reasoning on the point, although one can argue that the proper law of the arbitration agreement follows the substantive law of the contract (the NTPC v. Singer argument) and as Indian law was the governing law of the IPLA (Clause 17), the proper law of Clause 18 should also be Indian law.

Having worked out that the curial law, the proper law of the arbitration agreement, and the governing law were all Indian law, the Court held that the seat should also be India, as the arbitration as a whole has its closest connection with India.

While we agree that the arbitration had its closest connection with India, we are not sure that there was a need to resort to this test in this first place. In other words, we do not entirely agree with the Court’s dismissal of the commonsense understanding of the parties’ designation of London as the “venue” to mean the “seat”, especially in light of the fact that London would not have been a “convenient” geographical venue.

The Court also discussed and distinguished several English judgments that supported the argument that the words, “The venue of the arbitration proceedings shall be London”, indicated the parties’ choice-of-seat.

One very similar case was Shashoua v. Sharma [2009] EWHC 957, where Cooke J. had held that in an ICC arbitration clause that provided that “the venue of arbitration shall be London, United Kingdom”, meant that London was the juridical seat and English law was the curial law.

“When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is, to my mind, that London is the juridical seat and English law the curial law…” (Para 30)

The Supreme Court believed that this reasoning was not applicable in the Enercon case, as the parties had not designated any supranational body of rules like the ICC Rules to govern the arbitration; instead they had chosen the India’s arbitration statute (Para 118). This reasoning (for distinguishing Enercon from Shashoua) is not entirely convincing.

Another case worth mentioning is Union of India v. McDonnell, [1993] 2 Lloyd’s Rep 48 where, similar to the Enercon clause, the arbitration agreement contained conflicting provisions: “The arbitration shall be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940 …” and “The seat of the arbitration proceedings shall be London, United Kingdom.” Saville J. held that the reference to the Indian Arbitration Act, 1940, did not have the effect of changing the “seat” designated by the parties. Rather, the phrase was only a reference to the internal conduct of the arbitration. The Supreme Court mentions this case in Para 119, but does not really distinguish it.

The Court also discussed a few other recent English cases on the proper law of the arbitration agreement and the “closest and most real connection” test (we have discussed these at length in a previous post). We won’t spend too much time on all the cases discussed by the Court (Paras 100 to 125) – but it is interesting to note that the Court seems to use the test prescribed in these cases on the proper law of the arbitration agreement – to work out the choice-of-seat.

The assumption that the parties designated Indian law as the curial law is also curious, and there is not enough discussion in the judgment on the possible alternative constructions of the sentence, “The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply”. It can be read as referring simply to Part II of the Indian 1996 Act, that is, the enforcement provisions, which is something international arbitration clauses often have to clarify.

On separability

One of the issues in dispute was whether the IPLA was a valid and enforceable contract. Enercon India argued that the IPLA had not been executed properly and on this basis, argued that the arbitration agreement, which was contained in Clause 18 of the IPLA, was also not valid or enforceable.

The Supreme Court dismissed this argument and rightly so. The Court discussed how Enercon India’s argument was not that the arbitration agreement was “null and void, inoperative and incapable of being performed” (Section 45) but that “ the matter cannot be referred to arbitration as the IPLA, containing the arbitration clause/agreement, is not a concluded contract.” (Para 75)

The logical leap Enercon Indian made in making that submission was incorrect as the arbitration agreement is a separate agreement (‘separate’ from the underlying contract) that is not affected by the lack of validity of the underlying contract. Here, there was absolutely no question that the arbitration agreement alone (that is, Clause 18) was agreed to by the parties (Para 76). Accordingly, the arbitration agreement in this case was valid, and unaffected by any ruling to the contrary in relation to the IPLA.

Since the validity of the IPLA was a substantive issue in dispute and formed part of the parties’ reference to arbitration, the Court left this issue to be decided by the arbitral tribunal in accordance with this arbitration agreement.

Drafting lessons

The drafting lessons from Enercon are fairly simple and easy to implement, but, as this dispute reflects, it is very important to get them right.

– One, specify the seat. And use the word, “seat”. This case, as well as the Shashoua case, highlights the confusion that can be caused by calling the “seat” by some other name.

– Secondly, think through the arbitral process that you spell out in your agreement. What is the appointment mechanism? Who appoints the chairman? Ensure that you don’t have an unworkable mechanism like under Clause 18.1 in this case — you don’t want to have to depend on a court to make sense of your drafting.

(Sindhu Sivakumar is part of the faculty on myLaw.net.)

Tags arbitration, arbitration agreement, choice of seat, drafting for arbitration, Supreme Court of India

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Enercon Case: Supreme Court breathes life into ‘unworkable’ arbitration clause

Post author By admin
Post date February 20, 2014
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The Supreme Court’s decision in Enercon (India) v. Enercon GmBH (dated February 14, 2014) is pretty significant for cross-border arbitration. While it does not drastically change the law the way BALCO for example did, it discusses (at length – the judgment is forty-odd pages) several issues of drafting, interpretation, and choice-of-law that we do not have too much jurisprudence on. In this post, we will go over the issues related to the drafting of the arbitration clause.

But first, the facts

The dispute between Enercon (India) and Enercon GmBH was a long-standing one. It started in 2008 and involved a number of courts along the way – the trial and appellate courts of Daman, the Bombay High Court, and the English High Court. We won’t get into the proceedings at length here; suffice to know that all these proceedings were procedural in nature, and did not involve a substantive decision on merits. Those keen to know more can read Paras 3 to 31 of the Supreme Court judgment.

The dispute was over a wind energy joint venture in India between a German and an Indian party. The German entity alleged that royalties and damages amounting to approximately Euros 89 million were due to it under an agreement that the parties had allegedly executed, the Intellectual Property Licence Agreement (“IPLA”).

The IPLA, in clause 18, was subject to an arbitration agreement:

“18.1 All disputes, controversies or differences which may arise between the Parties in respect of this Agreement including without limitation to the validity, interpretation, construction, performance and enforcement or alleged breach of this Agreement … any Party may refer … for resolution to an arbitral tribunal ….”

The arbitration clause (which we haven’t reproduced in full here – we’ll set them out in the context of the different points we will discuss) raised a number of issues that came up before the Supreme Court. There were arguments that the clause was invalid, and that even if it was valid, it was unworkable. There were also several arguments about the choice-of-laws of the parties, as the choice-of-law language in the clause was very poorly drafted.

The unworkability of the arbitration clause

In a previous post we had discussed how courts sometimes construe arbitration clauses in a narrow and semantic manner, drawing distinctions between references to arbitration containing the words “all disputes arising out of or in connection with this agreement” on the one hand and “all disputes under this agreement” on the other. This approach, you may remember from reading that post, was severely criticised and rejected in England for being antithetical to the pro-arbitration policy in place in most modern legal systems. The pro-arbitration policy requires courts to enforce arbitration clauses whenever possible – interpret them to ‘make them work’.

The Indian Supreme Court, in the Enercon case, adopted a similar stance and said that interpretation should be approached in a commercial manner, adopting “the attitude of a reasonable business person”, and not in a legalistic or semantic manner. In other words, if the clause indicates a clear intention to arbitrate, then that intention should not be voided simply because the drafters did not articulate this intention well.

In this case, a part of clause 18, the part dealing with arbitrator appointments, was drafted in an unworkable manner. It read:

“… any Party may refer dispute(s), controversy(ies) or difference(s) for resolution to an arbitral tribunal to consist of three (3) arbitrators, of whom one will be appointed by each of the Licensor [Enercon] and the Licensee [EIL] and the arbitrator appointed by Licensor shall also act as the presiding arbitrator.”

On a plain reading, this language makes no sense whatsoever. It starts off by saying that the tribunal will “consist of three (3) arbitrators”. In the very next breath however, it talks about the licensor and the licensee each appointing one arbitrator and for the licensor’s arbitrator to be the presiding arbitrator. This would mean that the tribunal would have only two members.

The Court was however, prepared to give effect to this clause. It did so by essentially severing the problematic words, “and the arbitrator appointed by Licensor shall also act as the presiding arbitrator” from the clause, and allowing the default mechanism set out in Section 10 of the Arbitration and Conciliation Act, 1996 — that of having the two party-appointed arbitrators choose the presiding arbitrator or the chairman — to operate in its place.

The Supreme Court has taken a very positive stance in enforcing such a difficultly worded arbitration clause. That the court is committed to a pro-arbitration policy that was set in motion by BALCO is a source of comfort.

In the next post, we will look at some of the choice-of-law questions that clause 18 threw up, as well as the Supreme Court’s discussion on separability of the arbitration clause.

(Sindu Sivakumar is part of the faculty at myLaw.net.)

Tags arbitration, arbitration clause, drafting for arbitration

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The regulatory confusion over banks as insurance brokers

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Post date February 9, 2014
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By and large, commercial banks operate in the insurance sector either as joint venture partners or as corporate agents. Historically, the Reserve Bank of India (“RBI”) has encouraged banks to enter the business (whether as a joint venture participant or as a corporate agent) provided they followed some guidelines and maintained some standards. However, to ensure that a bank maintains its solvency requirements and continues to function as an effective bank, the RBI insists on banks obtaining its prior approval before entering into the sector as a joint venture participant. The RBI does not perceive a similar risk in a bank acting as a corporate agent because there is no equity participation by the bank and the corporate agency is only a subsidiary business. Prior approval therefore, is not required.

Since foreign investment up to twenty-six per cent is permitted in the insurance sector, banks are highly sought after joint venture partners. Banks offer their huge database and distribution network to foreign partners who bring in specialised expertise. An insurer’s success depends on how deeply it penetrates the market and a bank’s readymade distribution network is very useful. ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company are examples of this structure.

A corporate agent is an insurance intermediary appointed by an insurer to sell its products. Its principal duty is owed to the insurer. Again, an established distribution network and the availability of a large database are advantages and insurance companies that have banks within their group benefit from having them as corporate agents.

Regulations make it difficult for new insurers stitch together a distribution network

According to Regulation 3(2) of the IRDA (Licensing of Corporate Agents) Regulations, 2002(“CA Regulations”) and subsequent circulars issued by the IRDA, a corporate agent (such as a bank) can only sell the products of one life insurer, one general insurer, and one health insurer.

New entrants face a distinct disadvantage. This is because most banks (who are ideal corporate agents) are either already in joint venture partnerships or have corporate agency tie-ups. Without an efficient distribution network, an insurer invariably meets its downfall.

Keeping this in mind, the Insurance Regulatory and Development Authority (“IRDA”) in 2011, notified draft regulations – the (draft) IRDA (Licensing of Bancassurance Agents) Regulations, 2011. Amongst other changes, this regulation divided the country into zones and permitted banks to act as corporate agents for a specified number of insurers within the same zone. In short, it proposed that the prevailing limit for acting on behalf of only one life insurer, one general insurer, and one health insurer in the whole country, apply instead to a zone. This tried to balance the playing field for new insurers who could also now appoint banks as corporate agents.

These regulations however, were never notified and there has been no statement from the IRDA explaining the delay.

There was strong opposition from industry — mainly, a strong lobby of insurers who already have banks as joint venture partners or corporate agents. Other insurers also felt that though this move may help insurers, it would not help consumers who would have to deal with different corporate agents as they moved across zones.

Banks to become insurance brokers

Interestingly, this was not the direction issued by the Finance Minster to the insurance industry on October 1, 2011. He had clearly indicated that if banks wanted to sell the products of more than one insurer, they should opt to become insurance brokers.

An insurance broker is an insurance intermediary who, in return for a consideration, arranges insurance or reinsurance cover for its clients (the prospective insured). For instance, if a person wanted to insure his life, he will approach an insurance broker. The broker will then look at all the life insurance covers available in the market (from different insurers) and advise the client as to the cover that is most suited for him. The broker does not recommend the product of only one insurer. It recommends the product of the insurer who is best suited to the needs of its client. In short, an insurance broker owes a primary duty to its client. While a corporate agent works solely for one insurer and sells the products of only that insurer, an insurance broker works for the customer rather than the insurer.

As brokers, the Finance Minister felt, banks would also become responsible sellers and be able to sell the products of different insurers. Accordingly, the IRDA notified the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 and the Reserve Bank of India notified certain requirements through its circular dated November 29, 2013. In short, banks were permitted to be insurance brokers with the prior approval of the IRDA and the RBI. This seemed to be good for banks, which could now choose between operating as insurance brokers or as corporate agents.

On December 20, 2013 however, a letter from the Finance Ministry to the chief executives of public sector banks advised public sector banks to become insurance brokers and leverage their branch network for insurance penetration. They should no longer act as corporate agents. A circular by the Department of Financial Services asked public sector banks to implement the spirit of the 2013- 2014 Budget speech by January 15, 2014.This took the insurance industry by surprise because now, banks could no longer be corporate agents, a decision that had not been discussed with the industry.

This move has the backing of the IRDA who have proposed that these guidelines will be the same for both state and private sector banks. There cannot be a distinction where state-run banks are selling all products while private banks continue to peddle the products of their own group companies.
It is becoming increasingly clear that the regulator is not going to change its stance. From a preliminary analysis, this will adversely affect banks that have promoted insurance companies. Most of these banks are corporate agents for life and general insurance companies within their group. Asking them to sell products of competing insurers does not make commercial sense. In fact, the executive directors of state run banks have clearly said that their foreign partners are already questioning their decision to enter India when the policy keeps changing arbitrarily. A joint venture is based on the premise that the insurer uses the Indian bank’s branch network for expansion. Taking this away, changes the game. Two foreign insurers — New York Life and ING — have already exited their Indian ventures.

Regulatory confusion

Perhaps, the regulators should analyse the adverse effect of this step on the insurance market, which is flooded with bank-promoted join ventures. An exit by foreign players does not help the market as it loses more sophisticated insurance practices.

This move also seems to have left the insurance industry in confusion, as there is no clarity on how the existing arrangements will be treated. Should they be terminated now or can they run their course? None of the banks have been asked to surrender their corporate agency licences. The CA Regulations have not been amended to exclude any reference to a ‘bank’. The IRDA has issued no circular, clarification, or direction to clarify matters at a time when clarity is much needed.

This position calls for better thought out and more regulated action by the IRDA and the Finance Ministry. There is much that needs to be clarified and one hopes that there will be more concerted thinking in the coming months before such a drastic step is taken.

(Deepa Mookerjee is part of the faculty on myLaw.net.)

Tags bancassurance, banking, insurance, insurance broker, insurance intermediary, IRDA