Regulatory framework for insolvency and bankruptcy proceedings for personal guarantors


Personal guarantors have been in the news ever since the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”) were notified and the first set of 12 insolvency resolution processes were initiated. The jurisprudence on the subject at that time ranged from according a moratorium on personal guarantors during the corporate insolvency resolution process (“CIRP”) of a corporate debtor (“CD”) to personal guarantors being kept out of the CIRP process.

Creating a framework for insolvency and bankruptcy of personal guarantors, the Central Government, on 15th November, 2019, appointed 1st December, 2019 as the date of implementation of provisions of the Code for the insolvency and bankruptcy relating to personal guarantors. Towards that end, following regulations and rules were also made and notified over the next few days, all with effect from 1st December, 2019:

  1. Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (“Insolvency Rules”).
  2. Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (“Insolvency Regulations”) (the Insolvency Rules and Insolvency Regulations hereinafter collectively be referred to as “Insolvency Rules and Regulations”).
  3. Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (“Bankruptcy Rules”).
  4. Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (“Bankruptcy Regulations”) (the Bankruptcy Rules and Bankruptcy Regulations hereinafter collectively be referred to as “Bankruptcy Rules and Regulations”).

This legal update aims to provide a quick overview of the notified provisions of the Code and the rules and regulations made in connection thereto. These apply to personal guarantors for a corporate entity whose personal guarantee has been invoked and remains unpaid.

Insolvency Resolution of Personal Guarantor

Key Features

Who can file and where: Application for the insolvency resolution of a personal guarantor can be filed by (i) the guarantor, either personally or through a Resolution Professional (“RP”), in Form A; or (ii) by a creditor of such a personal guarantor, either personally or through a RP in Form C. The Adjudicating Authority for insolvency of a personal guarantor is the Debt Recovery Tribunal (“DRT”).

However, if the CIRP of a CD is already pending with the National Company Law Tribunal (“NCLT”), then the insolvency petition for the personal guarantor ought to be filed before the same NCLT. If the petition of insolvency resolution of the personal guarantor predates the CIRP of the CD, then such an application will be transferred to the NCLT.

Demand Notice: Creditor to send a demand notice to the personal guarantor in Form B, demanding payment in 14 days of service of notice.

Withdrawal of Application: The DRT may permit withdrawal of the application either (i) before its admission, on a request made by the applicant or (ii) after its admission, on the request made by the applicant, if 90% of the creditors agree to such withdrawal.

Interim Moratorium: Upon filing of the application, a moratorium commences i.e., during such time any action or proceeding pending in respect of the debt is stayed and no proceedings can be initiated by a creditor against the personal guarantor, for any debt. Interim moratorium ceases upon admission / rejection of the application.

Resolution Professional: If the application lists an RP, then the DRT would either confirm the appointment or reject and nominate a replacement within 14 days of filing the application. If the application does not list an RP, then within 7 days of filing of the application, an RP is nominated to the DRT by the Insolvency and Bankruptcy Board (“Board”), who is then appointed as the RP vide an order of the DRT subject to the eligibility criteria being met.

Admission or Rejection: The appointed RP reviews the application and sends his comments to DRT within 10 days of his appointment recommending rejection or admission of the application. Based on the RP’s report, DRT can either admit or reject the application within 14 days of the RP’s report. If the application is admitted, the DRT can instruct negotiation between the guarantor and the creditor for arriving at the repayment plan. If the application is rejected due to the RP’s recommendation or that the application is to defraud the creditors, DRT would record that the creditor is entitled to file for a bankruptcy of the guarantor.

Moratorium: Once the application is admitted, a moratorium is applicable for 180 days. During this period, all pending legal proceedings for any debt of the personal guarantor are stayed, creditors cannot initiate legal proceedings for any debt and the guarantor cannot transfer, alienate, encumber or dispose of any of the assets or his legal right or beneficial interest.

Publication and Claims: The DRT will issue a public notice of the order of admission and call for submission of claims from the creditors within 21 days of the issuance.

Committee of Creditors: The RP to verify and collate all the claims received and prepare a list of creditors within 30 days of the public notice and establish a committee of creditors (“CoC”).

Repayment: The guarantor along with the RP will prepare a repayment plan with a proposal for restructuring of debts. The proposal should contain a justification and reason why creditors would agree to the proposed plan and also provide for payment of fee to the RP. While Insolvency Rules require the RP to submit the plan and his report within 21 days from the last submitted claim, the Insolvency Regulations require this to be done before completion of 120 days from the resolution process commencement date.

Meeting of the CoC: The plan would either propose a meeting of the creditor or mention that a meeting is not required. A meeting of the creditors, if required, will be held between 14 and 28 days of the RP submitting his report to the DRT, with at least 14 days’ notice. The notice ought to be accompanied by the repayment plan, report of the RP, forms for proxy voting and state of affairs of the guarantor.

The CoC may approve, modify or reject the repayment plan or decide to alter it, with the consent of the guarantor. The approval of the repayment plan requires a majority of more than 3/4 in value of the creditors present in person or by proxy and voting on the resolution in a meeting of the creditors. The voting right of each creditor is in proportion to the debt they are owed.

Report on the meeting by the RP: The RP submits a report on the meeting of creditor, which includes whether the plan was approved or rejected, any modifications that were proposed, the resolutions proposed and decided, creditors who were present or represented at the meeting, and the voting records of each creditor for all meetings of the creditors; and their voting. A copy of the report is to be provided to the guarantor, creditors and the DRT.

Final Order: DRT can either approve or reject the repayment plan on the basis of the report of the RP and provide a decree for implementation. Where a meeting of creditors is not convened, the DRT can direct for it to be convened. If a modification is directed, the DRT can re-convene a meeting of the CoC for reconsidering the modifications in the repayment plan.

Once approved, repayment plan takes effects and binds the guarantor and the creditors. If the plan is rejected, the guarantor and the creditors are entitled to file an application for bankruptcy.

Implementation of the Plan: The implementation of the plan is supervised by the RP. Once implemented, the RP to send the notice of implementation to the creditors, debtors and DRT, report summarising the receipts and payments made pursuant to the repayment plan and the extent of implementing. If the timeline mentioned in the plan passes without the plan being implemented completely, the plan is deemed to have ended prematurely. In such a case, the RP submits a report to DRT and details of receipts and payments under the plan, reasons for the premature end, details of the creditors, not fully satisfied. The premature end is recorded by the order of the DRT and unsatisfied creditors can file for bankruptcy of the guarantor. Basis the plan, a discharge order can be procured recording a discharge either subject to implementation or upon implementation of the plan.

Bankruptcy Process for Personal Guarantors

Key Features:

Who can file and when: The application for initiating bankruptcy can be filed to the DRT by (i) the guarantor himself, in Form A; or (ii) by a creditor either personally or through a RP in Form B where an order has been passed by the DRT due to:

  1.  rejection of application for insolvency; or
  2. rejection of repayment plan due to insolvency; or
  3. order that the repayment plan is not completely implemented or has ended prematurely.

In its application, the creditor must either confirm giving up of security for the benefit of all creditors of the personal guarantor once the order of bankruptcy is passed or that the application is only in respect of the unsecured debt.

The Adjudicating Authority for bankruptcy of a personal guarantor is also DRT. However, if the liquidation of a CD is pending with the NCLT, then the bankruptcy petition for the personal guarantor ought to be filed before the same NCLT and if the bankruptcy petition of the personal guarantor is filed and then the liquidation of the CD is ordered, then the bankruptcy petition will be transferred to the relevant NCLT.

Withdrawal: An application, once submitted, can only be withdrawn with the leave of the DRT.

Interim Moratorium: Upon filing of an application for initiating the bankruptcy process, a moratorium commences against the properties of the personal guarantor in respect of this debt. This moratorium ceases upon admission or rejection of the bankruptcy application.

Bankruptcy Trustee: If the application proposes the name of the bankruptcy trustee, then the DRT, would either confirm the appointment or reject the appointment after checking the disciplinary status with the Board. If the application does not propose a bankruptcy trustee, then within 7 days of filing of the application, a bankruptcy trustee is nominated to the DRT by the Board, who is then appointed as the bankruptcy trustee by DRT subject to the eligibility criteria being met.

The bankruptcy order does not affect the right of any secured creditor to realize or otherwise deal with his security interest, subject to the declaration given by the creditor in his application for bankruptcy. Any action for realisation of the security ought to be taken within 30 days of the bankruptcy order.

Effect of the Bankruptcy Order: On and from the date of the bankruptcy order the bankrupt is:

  1. disqualified from acting as a trustee, a public servant, being elected to any public office or as a member of any local authority;
  2. prior to entering into any financial or commercial transaction for INR 1,00,000/- and above, inform the other parties that he is undergoing bankruptcy;
  3. not to act as a director of any company, or take part in the promotion, formation or management of a company, prohibited from creating any charge on his estate or taking any further debt, incompetent to maintain any legal action or proceedings in relation to the bankruptcy debts and not be permitted to travel overseas without the permission of the DRT.

Public Notice: The DRT issues a public notice inviting claims from all creditors of the bankrupt, in Form C within 10 days of the bankruptcy commencement date. A creditor should submit a claim with proof to the bankruptcy trustee within 7 days of the publication of the notice, in Form F.

Committee of creditors: The bankruptcy trustee, within 14 days from the bankruptcy commencement date, prepares a list of creditors of the bankrupt and establish a CoC. Constitution of the CoC is to be informed to the DRT within 3 days from the meeting of creditors.

Meeting of the CoC: Within 21 days from the bankruptcy commencement date, the trustee issues a notice for calling a meeting of the creditors, to every creditor of the bankrupt as mentioned in the list. In the meeting, the voting share of each creditor to be in proportion to the debt owed to such creditor. The creditors/participants of the meeting are entitled to receive minutes of the meeting within 48 hours of the conclusion of the meeting. Any decision of the CoC will require the approval of more than 50% of voting share of the creditors who voted.

Realisation of Security Interest: A secured creditor who seeks to realise his security is required to inform the bankruptcy trustee of the price at which he proposes to realise the secured assets. A creditor cannot obtain interest in the assets of the bankrupt.

Administration and Distribution of Assets: The estate of the bankrupt excluding the excluded assets[ Excluded Assets means a) unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation, (b) unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family; (c) any unencumbered personal ornaments of the debtor or his immediate family which cannot be parted with, in accordance with religious usage shall not exceed INR 1,00,000; (d) any unencumbered life insurance policy or pension plan taken in the name of debtor or his immediate family; and (e) an unencumbered single dwelling unit owned by the debtor (i) in the case of dwelling unit in an urban area shall not exceed, INR 20,00,000 and (ii) in the case of dwelling unit in rural area shall not exceed, INR 10,00,000. ] vests in the bankruptcy trustee immediately from the date of his appointment and will take possession and control of all property, books, papers and other records relating to the estate of the bankrupt. The bankruptcy trustee may, with the approval of the CoC, divide amongst the creditors, properties which from its peculiar nature or other special circumstances cannot be readily or advantageously sold. Where the bankruptcy trustee has realised the entire estate of the bankrupt he will give notice of his intention to declare a final dividend or that no dividend or further dividend to be declared.

A meeting of the creditor is convened on completion of distribution of assets and the bankruptcy trustee provides a report on administration of the estate for the approval of the CoC which is to be approved within 7 days of receipt. Once approved, the bankruptcy trustee is released.

Discharge order: An order of discharge can be applied for 1)on the completion of 1 year from the bankruptcy commencement date; or 2) within 7 days of the CoC approving the report on administration of estate, whichever is earlier. A discharge order releases the personal guarantor from all bankruptcy debt, except for the breach of contract or fraud or excluded debt2.

KLA Analysis and Conclusion

The notification of the relevant provisions, rules and regulations is a major step towards creating the regulatory regime for insolvency and bankruptcy of personal guarantors. This is likely to be most beneficial for banks and financial institutions as it will be a time bound process and can take all promoters (who have given personal guarantees) into consideration. Now that the Supreme Court in the matter of Essar Steel has upheld the right of lenders to enforce personal guarantee outside a resolution plan, the timing of these notifications is very interesting. These provisions, rules and regulations formulate the pathway for implementation of the directives of the Supreme Court vis-à-vis actions against the personal guarantors.


1Excluded Assets means a) unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation, (b) unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family; (c) any unencumbered personal ornaments of the debtor or his immediate family which cannot be parted with, in accordance with religious usage shall not exceed INR 1,00,000; (d) any unencumbered life insurance policy or pension plan taken in the name of debtor or his immediate family; and (e) an unencumbered single dwelling unit owned by the debtor (i) in the case of dwelling unit in an urban area shall not exceed, INR 20,00,000 and (ii) in the case of dwelling unit in rural area shall not exceed, INR 10,00,000.
2Excluded debt means (a) liability to pay fine imposed by a court or tribunal; (b)liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation; (c) liability to pay maintenance to any person under any law for the time being in force; (d) liability in relation to a student loan; (e) any other debt as may be prescribed. A discharge order removes the disqualifications of bankruptcy.


Financial service providers – regulatory framework for insolvency and liquidation proceedings notified


The Insolvency and Bankruptcy Code, 2016 (“Code”) as enacted, specifically excludes Financial Service Providers (“FSPs”) from the definition of corporate debtor. Therefore, any proceeding under the Code, ideally, could not be initiated against an FSP.

In light of the current crisis in the Indian financial sector, in particular the Non- Banking Finance Companies and Housing Finance Companies, on 16 August 2019, the Ministry of Corporate Affairs along with the Insolvency and Bankruptcy Board of India (“IBBI”), had formed a sub-committee to set up the regulatory framework for the insolvency and liquidation proceedings with respect to FSPs in furtherance to their being notified under Section 227 of the Code. Pursuant to the deliberations of the sub-committee, on 15 November 2019, the IBBI formulated, notified and made effective the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules”). As a first step, on 18 November 2019, NBFC having an asset size of more than INR 500 crore were notified as the first FSPs under the Code.

Who are FSPs?

Financial Service Provider is a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator.

Financial Services includes any of the following services, namely:

  1. accepting of deposits;
  2. safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so;
  3. effecting contracts of insurance;
  4. offering, managing or agreeing to manage assets consisting of financial products belonging to another person;
  5.  rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of:
    1. buying, selling, or subscribing to, a financial product;
    2. availing a financial service; or
    3. exercising any right associated with financial product or financial service;
  6. establishing or operating an investment scheme;
  7. maintaining or transferring records of ownership of a financial product;
  8. underwriting the issuance or subscription of a financial product; or
  9. selling, providing, or issuing stored value or payment instruments or providing payment services;

Financial Sector Regulator means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the Central Government;

Corporate Insolvency Resolution Process and Liquidation of FSPs

Application of the Code: Provisions of insolvency and liquidation as set out in the Code, apply mutatis mutandis to the corporate insolvency resolution process (“CIRP”) of an FSP, as well as its liquidation, voluntary or otherwise, as notified pursuant to the FSP Rules by the Central Government.

Who can file and when: CIRP can be initiated against an FSP which has committed a default, where the amount of such default exceeds one lakh rupees. Provided that any application for CIRP against an FSP can only be initiated if the application is made by the sectoral regulator and such an application shall be treated as an application by a financial creditor under Section 7 of the Code. Even an application for voluntary liquidation requires the regulator’s prior permission.

Key Features:

  1. Filing process: The Application is to be filed in Form 1, along with a fee of INR 25,000. A copy of the said application is also be forwarded to the registered office of the FSP.
  2. Supporting Documents: The application is to be accompanied by a written consent and declaration furnished by the proposed Administrator in prescribed Form 2 and all documents referred to in the application and proof of payment of fee.
  3. Interim Moratorium: An interim moratorium prevails from the date of filing of the application till the admission or rejection of the application by the Adjudicating Authority (“AA”). The interim moratorium prohibits institution or continuation of suits or proceedings against the FSP, transfer, encumbrance, alienation or disposal by FSP, enforcement action in respect of the property of FSP. The interim moratorium and moratorium shall not apply to third party assets and properties in custody of the FSP, inclusive of funds, securities and other assets as may be prescribed.

    During the interim moratorium period and during the CIRP period, the license or registration which authorises the FSP to engage in the business of providing financial services will not be suspended or cancelled. During liquidation, such license or registration cannot be cancelled or suspended unless an opportunity of being heard is provided to the liquidator.
  4. Admission of the Application: On admission of the application, the AA appoints an administrator to exercise all the powers and functions of the interim resolution professional, resolution professional or the liquidator in the insolvency or liquidation proceedings. Moratorium as applicable under the Code, commences and continues for 180 days, extendable up to 270 days from the date of admission of the application.
  5. Committee of creditors: Upon admission of an application and assessment of claims received against the FSP, a committee of creditors is constituted, consisting of financial creditors of the FSP. Once the committee is constituted, the FSP is required to take its permission for specified activities, including raising any interim finance, creating security interest over its assets, recording change in ownership, amending constitutional documents, changing its management.
  6. Advisory Committee: The appropriate regulator may, constitute an Advisory Committee comprising of 3 or more members, qualified under the FSP Rules, within 45 days of the insolvency commencement date, to advise the Administrator in the operations of the FSP during the corporate insolvency resolution process. The terms and conditions of the members and the manner of conducting of their meetings and observance of rules of procedure are to be determined by the appropriate regulator. It is pertinent to note that the compensation paid to the members of this committee shall be part of the insolvency resolution process costs.
  7. Resolution Plan: The AA assisted by the Administrator and committee of creditors, arrive at a plan for resolution of insolvency of the FSP. If a resolution plan is not arrived at within the time prescribed in the Code or is rejected by the AA, the AA has the power to direct liquidation of the FSP. The resolution plan which is to be furnished for an FSP shall have to fulfil not only the mandatory contents as prescribed in Section 31 of the Code, but also include a statement explaining how the resolution applicant satisfies or intends to satisfy the requirements of engaging in the business of the FSP, as per extant laws.
  8. Permission of the regulator: Once the committee of creditors approves the resolution plan, the regulator’s no objection is to be obtained. The appropriate regulator would also be required to issue a “no-objection” on the basis of the “fit and proper” criteria applicable to the business of the FSP to the resolution plan. No order of dissolution or liquidation of an FSP can be passed unless the regulator has been given the opportunity of being heard. The Administrator can be appointed or replaced only with an application to be filed before the AA by the regulator.
  9. Withdrawal of Application: Withdrawal of the application may be permitted by the AA before its admission on a request made by the appropriate regulator.

These notifications augment the intent of the Code, that an FSP is a special category of entity and they ought not to be dragged into insolvency without there being a strong reason and involvement of the concerned regulator. With the notification of the FSP Rules, this interpretation is further strengthened and another layer of protection i.e., notification as FSP by Central Government, has been added for the FSP Rules to apply to an entity. Furthermore, the FSP Rules have also taken into consideration the continuation of the license and registration of FSPs in order to enable them to remain going concerns while their CIRP is ongoing. Given that an FSP is likely to have an interface with public, even the resolution applicants are required to be adequately equipped to engage in the business of an FSP, to further enable the “going concern” aspect. In our view, these steps are aimed at implementation of the intent of the Code, and bring clarity to the letter and spirit of the insolvency regime.


Growth of the Indian insurance industry till the USD 100 billion threshold

While numbers certainly reveal something, they may not relay the complete story. India has crossed a significant milestone by reaching USD 100 billion threshold, however there is immense potential for the market to grow.

The Insurance industry has been at the forefront of economic development in India and has driven the growth of our gross domestic product (GDP) in the last decade. The gross premium in the Indian insurance industry has reached approximately USD 100 billion with approx. USD 71.1 billion from life insurance and USD 23.38 billion from non-life insurance, pushing the country’s sector into the league of larger insurance economies globally. In life insurance business, India is ranked 10th among the 88 countries, for which data is published by Swiss Re and 15th in global non-life insurance markets.

Post liberalisation and privatisation, the regulatory changes enabling growth in the domestic insurance industry started from the Insurance Law (Amendment) Act in 2015 which increased the foreign direct investment (FDI) limit in the insurance sector from 26% to 49% to help attract foreign investments in the sector. Since then, insurers have been allowed to raise hybrid capital such as subordinated debt and/or preference shares from both onshore and offshore investors, divest equity through initial public offerings.

The insurance regulator IRDAI with support from the Government of India has taken a multifaceted approach towards developing the local insurance market.

Creation of reinsurance hub

The Indian reinsurance sector has a good number of players (both domestic and cross border reinsurers) to promote a healthy and competitive market for reinsurance, and it is expected that the capacity will increase which will result in to the establishment of a reinsurance hub in India in near future. A number of factors including the recent regulatory changes, India’s geographic advantage of being located in the heartland of South Asia with conducive relationships with the Chinese and Middle Eastern markets, the emerging economy and the exposure to increasing natural catastrophes allows India to become a regional reinsurance hub and expand aggressively and inclusively.

The development and benefits of IFSC GIFT City in Gujarat (infrastructure, exchange control relaxations and tax benefits) has garnered interest of many insurers, reinsurers and intermediaries which demonstrates the potential of GIFT City to match up to global financial centres in Singapore, London, Tokyo and Dubai and further facilitate the creation of a regional reinsurance hub in India.

Risk based capital regime

The regulator is currently weighing the option of shifting calculation of capital of insurance companies to a risk based regimes from a solvency denominated regime. This will ensure light touch supervision for entities that manage their risk well and will allow them to maintain minimum capital to support its overall business operations in consideration of its size and risk profile. While there are serious fatalities that are predicted, in the coming years some form of price discipline may be implemented to create a balance and democratise the process of calculating capital requirements.

Innovation Sandbox

Indian insurance development has always been conventional and conservative in its approach, however, the rise of digital technologies are ushering in a more precise, data-driven era, creating huge opportunities for insurers to demonstrate their value and to reap the financial rewards of doing so. Parallely, today’s customers have greater access to integrated information and their behaviour towards seeking and purchasing insurance products has immensely changed. The lack of brand loyalty and the need for exemplary customer satisfaction compounds the competition between insurance providers and the requirement to innovate and create seamless products further intensifies.

Insurance companies are now embracing InsurTech disruptors instead of combating them and are developing enterprise innovation models. IRDAI is granting access to start-ups and aggregators and is also enabling the innovation sandbox experiment. IRDAI has recently released the ‘Report of the Committee on Regulatory Sandbox’ which recommends that a regulatory test environment is needed to foster growth in the insurance value chain and increase the pace of the most innovative companies, in a way that provides InsurTech in particular and the Fintech sector as a whole with flexibility in dealing with regulatory requirements and at the same time focussing on policyholder protection and managing risks in a controlled environment.

Government Schemes

The Government of India has launched various social insurance schemes under various insurance segments that have instrumentally created more insurance penetration and sectoral growth. In April, 2016, the Government of India had launched Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship scheme of the government for agricultural/ crop insurance in India. Enrolments under the Pradhan Mantri Suraksha Bima Yojana (PMSBY) reached 130.41 million in 2017-18.

Industry experts have predicted that the government’s ambitious national health protection scheme- Ayushman Bharat scheme covering 100 million poor and vulnerable families with a cover of Rs. 5 lakh (US$ 7,723) per family of tertiary care and hospitalisation will be transformative for the insurance industry as it would have a major multiplier effect on a host of allied sectors like pharmaceutical, medical devices, data management, insurance hospitality and human resource management.

While the insurance sector regulator is rapidly taking the insurance market into the next phase of growth, other financial services regulators and law makers of the country are looking to holistically incentivise insurance market players. For e.g., some insurance products are covered under the EEE method of taxation, which translates to an effective tax benefit of approximately 30% on select investments and exchange control regulator has opened the market for offshore borrowings etc.

Having crossed a major milestone, the Indian insurance industry is expected to grow significantly by 2019-20, aided by the Centre’s Ayushman Bharat health insurance scheme.


India’s journey towards meeting the global IFSC benchmark

The year 2019 is beginning to show immense promise for the growth of India’s first International Financial Services Centre – GIFT City, Gujarat. GIFT City is a ‘smart’ city with high-quality physical infrastructure, an IFSC structured as special economic zone and global financial hub.

The International Financial Services Centres Authority Bill, 2019 was recently passed by the country’s cabinet to establish a unified regulator to oversee the dynamic financial services undertaken in GIFT City and ease inter-regulatory coordination.

The need for a coherent regulatory framework for India’s first IFSC was recognized in the Union Budget 2018, when the Finance Minister of India proposed the idea of a unified regulator to play the key role of a catalyst and provide an integrated and undivided approach to the ease of doing business with a single window clearance. It was also advocated that one of the most important roles of a unified regulator would be to act as an enabler by creating a conducive regulatory framework that is benchmarked globally. It would not be helmed around domestic rules and regulations, and instead would try to create a level playing field for the IFSC to compete globally.

This development forms part of a series of steps that the government has taken recently to promote GIFT City. Over the last three years, the Regulators in India namely Reserve Bank of India (banking and exchange control), Securities & Exchange Board of India (capital markets), Insurance Regulatory & Development Authority of India (insurance, reinsurance and insurance intermediaries) have created the issued regulatory framework allowing Indian and foreign financial institutions to open their offices in GIFT City.

The framework for allowing foreign insurers and reinsurers to set up shop in GIFT City was already provided by insurance regulator IRDAI. GIFT City presents itself as an opportunity to insurers and reinsurers globally to penetrate the Indian markets providing immense growth potential as an industry.  GIFT City caters to customers outside the jurisdiction of the domestic economy and allows financial interactions between service providers and customers across borders.

Late last year, IRDAI notified the revised norms under the order of preference which places insurers and reinsurers set up in GIFT City above global cross border reinsurers.

With the advent of the regulatory framework for setting up insurers and reinsurers in the realm of IFSC, the enabling of insurance intermediaries to set up in IFSC was much awaited. Recently in January, the framework to facilitate the entry and operations of domestic intermediaries in GIFT City was unveiled by IRDAI. Incentives in direct and indirect tax coupled with regulatory ease for setting up and operations have made the prospects of new business and growth brighter for insurance intermediaries.

The recent Vibrant Gujarat Summit 2019 brought about major optimism in global investors and the available opportunities in GIFT City.

Mr. Subhash Chandra Khuntia, Chairman of IRDAI said that GIFT City has the potential to emerge as a hub for the reinsurance sector for inbound and outbound financial transactions. Mr. Uday Kotak, vice chairman and MD of Kotak Mahindra Bank highlighted four sectors where GIFT City offers immense opportunities for business. These are stock markets, offshore asset management, offshore banking and Reinsurance. “India has the best minds in asset management, but we find that they move to other financial services centre as there were not similar centres in India. With GIFT City, we can present this brain drain,” said Kotak

Global Financial Centres Index, the world’s most authoritative comparison of the competitiveness of the world’s leading financial centres has recently featured GIFT City as one of the significant emerging IFSCs in the latest edition of ‘Global Financial Centres Index 24 (GFCI)’, released in London in September 2018. GIFT is ranked third in the list of the GFCI report, which has highlighted 15 centres that are likely to become more significant in the next few years.

“It is a great achievement for GIFT IFSC to join the GFCI so early in its development as a financial centre and is very encouraging that so many respondents see GIFT as becoming more significant in the future,” said Mark Yeandle, Director of Z/Yen Partners and the author of the Global Financial Centres Index series. The rank takes into consideration five major factors namely business environment, human capital, reputation, infrastructure & financial sector development. This is a significant achievement for a centre entering for the first time in the main index, GIFT City noted.

“The recognition of GIFT IFSC in list of most significant emerging financial centres and entry into main index of global financial centres by GFCI is the testimony of the contribution GIFT IFSC is making in the international financial services business,” said Ajay Pandey, MD & Group CEO, GIFT City.

The GIFT City profile in the latest GFCI report also states that GIFT City is a gateway for inbound and outbound business from India. GIFT City is fast emerging as a preferred destination for undertaking International Financial Services. GIFT City covers Banking, Insurance, Capital Market and allied services covering law firms, accounting firms and professional services firms. It provides very competitive cost of operation with competitive tax regime, single window clearance, relaxed Company Law provisions, International Arbitration Centre with overall facilitation of doing business.

Corporate & Commercial

Evolution of the data protection regime in India

India currently does not have any express legislation governing data privacy and protection. While the transition to a digital economy is underway, the processing of personal data has already become omnipresent. The reality is that almost every single activity undertaken by an individual involves some sort of data transaction or the other. The Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 at present govern protection of personal and sensitive personal information of individuals however, it does not address the growing concern on data security and the technological revolution that India is facing.

The Indian jurisprudence on privacy and data protection changed in August 2017 and marked a watershed moment when the Supreme Court in Justice K.S. Puttaswamy v. Union of India held that the Indian Constitution under Article 21 included a fundamental right to privacy. The ruling is the outcome of a petition challenging the constitutional validity of the Indian biometric identity scheme Aadhaar and the validity of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. This conception of privacy also aligned with already existing regulatory frameworks in data protection in other jurisdictions.

The European Union (EU) in 2013 proposed to harmonize and consolidate its preexisting data protection framework through a new regulation: the General Data Protection Regulation (GDPR). After GDPR went through extensive rounds of consultations, it finally came into force in 2018. This effort to create a comprehensive data protection regulation in the EU influenced the debate in India.

In December 2019, the government introduced the Personal Data Protection Bill, 2019, which would create the first cross-sectoral legal framework for data protection in India. The bill is largely modelled on the GDPR and aims to protect the informational privacy of individuals by creating a preventive framework that regulates how businesses collect and use personal data.

The bill creates a set of rights and responsibilities for the processing of personal data and broadly proposes to:

  • create a DPA for making regulations and enforcing the legal framework;
  • make consent a centerpiece of all processing of personal data;
  • create a separate category of “sensitive personal data” and states that such data can be processed only with explicit consent;
  • make data fiduciaries accountable for all compliances under the bill;
  • exempt certain kinds of data collection and processing from specific requirements;
  • require data localization;
  • follow a consultative process including various regulatory bodies in India;
  • implement monetary and criminal penalties including imprisonment for non-compliance.

The bill was until recently was open to comments from various stakeholders. We are yet to see what amendments were incorporated.