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Irdai penalises Axis Bank for making undue gains in Max Life deal

Insurance regulator IRDAI has penalised private lender Axis Bank for making undue gains of substantial amounts by way of transactions in shares of Max Life Insurance in violation of various norms. The regulator had last week imposed a penalty of Rs 2 crore on the bank which is also a corporate agent and Rs 3 crore on Max Life Insurance.

The promoters of the insurer had been engaging in transfer of shares of the insurer to Axis Bank at a price, which is substantially lower than the fair market value and subsequently buying the same shares from Axis Bank at a substantially higher price, IRDAI said.

Axis Bank had sold .998% of equity shares at a price of Rs 166 per share – at a fair market value based on the certificate of a chartered accountant. Subsequently, Axis Bank and its group of companies bought 12.002% shares within 22 days at a price range of Rs 31.51— Rs 32.12 per share, based on valuation as envisaged under Rule 11 UA of Income Tax Rules, 1962. “Therefore, there is no uniform basis for determination of price for transfer of shares,” IRDAI said.

The IRDAI has charged the bank “for violation of directions issued by the Authority vide its letters dated February 5, 2016 and January 28, 2021 in letter and spirit of law, as the transfer of shares was not done at fair market value determined on a uniform basis, which has led to Axis Bank, a registered corporate agent of the insurer along with its group companies, receiving undue monetary gain of significant amounts from such buy/sale of equity shares”.

“The transactions of transfer of shares on substantially differential prices by the promoters of the insurer have resulted in passing on undue monetary gain by circumventing the provisions of the Insurance Act, 1938, and IRDAI (Registration of Corporate Agents) Regulations 2015 for receiving remuneration in excess of its as specified by the Authority,” the order said.

Replying to the IRDAI show-cause notice, Axis Bank submitted that the transactions were not subject to the stipulations of the IRDAI, under the IRDAI’s January 2021 letter regarding calculation of fair market value on a uniform basis and were governed by two separate commercial transactions agreements entered into between MFSL, MSI and Axis in 2015 and 2020 in relation to the shares of Max Life.

The bank said the transactions do not involve any payment by the insurer (Max Life) to Axis (the corporate agent). Further, under the transactions, Axis paid valuable consideration to MFSL (Max Financial Services) and MSI (Mitsui Sumitomo) for acquisition of the said shares.

Currently, Axis Bank and its two subsidiaries — Axis Capital Ltd. and Axis Securities Ltd — collectively own 12.99% of Max Life Insurance post approval of the deal in April last year.

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