In the matter of Order dated 8th July, 2011 against M/s. Athena Insurance &

INSURANCE REGULATORY AND DEVELOPMENT AJUTHORITY OF INDIA Title:RECONSIDERATION ORDER Reference No.:IRDA/BRK/ORD/REORD/252/11/2011 Date:17/11/2011 In the matter of Order dated 8th July, 2011 against M/s. Athena Insurance & Reinsurance Brokers Pvt. Ltd. Application dated 5th May, 2009 seeking grant of renewal of Composite Broker Licence IRDA/BRK/ORD/REORD/252/11/2011 IRDA/CB 179/03 RECONSIDERATION ORDER OF THE CHAIRMAN, IRDA UNDER REGULATION 14(4) OF IRDA (INSURANCE BROKERS) REGULATIONS 2002 In the matter of Order dated 8th July, 2011 against M/s. Athena Insurance & Reinsurance Brokers Pvt. Ltd. Application dated 5th May, 2009 seeking grant of renewal of Composite Broker Licence ATHENA INSURANCE & REINSURANCE BROKERS PVT LTD (hereinafter referred to as the `Broker`) having its Registered Office at S.M.Banaji Bldg.No.1, Below State Bank of India, 49, Forjett Street, Mumbai-400 036 have been granted license by the Insurance Regulatory and Development Authority (hereinafter referred to as the ‘Authority’) to act as a Composite Broker, vide License No. 171 issued on 9.6.03 and renewed from 9.6.06 to 8.6.09 pursuant to the provisions of the IRDA (Insurance Brokers) Regulations, 2002. (hereinafter referred to as the `Regulations`).

2. The Authority received a complaint dated July 30, 2009 from one Mr. Narendra Bubna. The contents of this complaint brought to light certain omissions and commissions on the part of M/s Athena Insurance & Reinsurance Brokers Pvt Ltd. Consequently, when the Broking Company applied for renewal of its license on May 5, 2009, a Show Cause Notice dated February 3, 2010 was issued to the Broker to explain these acts of omission and commission. Thereafter, the explanation of the Broker was considered and finally on July 8, 2011, the Authority refused to grant renewal of license to the Broker under Regulation 14(1) of the IRDA (Insurance Brokers) Regulations, 2002. The order of the Authority was on the following charges and findings: (i) The Broker failed to disclose material facts in the application submitted for renewal of composite broker licence and violated provisions of circular no. IRDA/BRO/36/Aug-04 dated 18.08.2004: This Broking Company was issued a license at which point of time the major shareholding was held by Mr. Utpal Kapadia and his family. It appears that on August 12, 2005, 1.4 lakh shares of this Company amounting to 33% of the total shares were gifted in favour of one Mrs. Manju Bubna.

The husband of Mrs. Manju Bubna, namely Shri Narendra Bubna was actually conducting the affairs of this Company. These facts came to the knowledge of the Authority based on a complaint dated July 30, 2009 and police complaint of April 16, 2009 filed by Shri Narendra Bubna. The Broker applied for renewal of his broking license vide application dated May 5, 2009. This application was accompanied by a declaration to the effect that all questions have been truthfully and fully answered. This assertion by the Broking Company was incorrect in the light of the complaint of Mr. Narendra Bubna dated April 16, 2009 and transfer of shares, the effective management of the Company etc. The execution of gift deed on 12.08.2005 by which 1.40 lacs of shares of Athena Insurance & Reinsurance Brokers Pvt. Ltd. were gifted in favour of Mrs. Manju Buba was not disclosed to the Authority. As per Regulation 28 of IRDA (Insurance Brokers) Regulations, 2002 read with Circular No. 022/IRDA/F&A/Aug 05 dated 25-08-2005, Broking Companies are required to take prior approval of the Authority before effecting changes in shareholding to the Broking Company by any manner whatsoever.

As no such prior approval was taken, the Authority held that the Broker was in violation of the respective Regulation.

(ii) The Payment of premium on behalf of clients by the Broker is not in conformity with the functions of a Direct Broker specified under Reg. 3 of said regulations. It was noticed that in one instance the Broker even did not recover the premiums paid on behalf of the client and the same was written off as bad debt. There is no mention in the certificate from chartered accountant dated 6th September, 2010 on premiums paid by the Broker on behalf of their clients prior to renewal of license. (iii) The Broker failed to ensure the requirements specified in Regulation 27: Taking into consideration the contents of complaints and documents on record, the Authority came to the opinion that the internal controls and systems of the Broker were not adequate for the size, nature and complexity of business. The Broker, thus, violated the requirements of Regulation 27. 3. Aggrieved by the above order of the Authority, the Broker made an application dated August 9, 2011 under Regulation 14(3) seeking reconsideration of the decision of the Authority. 4. Accordingly, the Broker was advised to appear before me for personal hearing on 16.09.2011.

The Broker represented by Mr. S.P. Kulkarni, Principal Officer and Mr. Utpal Kapadia, Director appeared before me on the said date for personal hearing and made their oral and written submissions on the charges against them. 5. On the charge stated under 2(i) above, Mr. Utpal Kapadia, Director admitted that the transfer of shares by way of a gift deed to Mrs. Bubna was not disclosed to the Authority. He further stated that it was agreed mutually not to execute the gift deed until the authorized share capital of the Broking Company was enhanced and as this has not yet occurred, the actual transfer of shares was not affected in their books nor registered with the Registrar of Companies. Continuing, he stated that there were differences between Mr. Narendra Bubna and himself on which Mr. Bubna filed a complaint in the Girgaum Court which in turn ordered the Economic Offences Wing to investigate into the complaint. The Economic Offences Wing completed its inquiry and concluded that the allegations leveled on the Broking Company by Mr. Narendra Bubna were untrue. He stated that failing in his complaint through the legal system/police, Mr. Bubna filed a complaint with the IRDA on basis of which the renewal of license to M/s Athena was rejected.

6. On the charge stated under 2(ii) above, Mr. Kapadia stated that the payment was made on behalf of a certain client due to emergency and that there were four such instances, the last of which was two years ago. 7. On the charge stated under 2(iii) above, Mr. Kapadia stated that they have since ensured that internal controls are now in place. 8. The Authority has observed that new evidence has now been furnished with regard to the report of the Economic Offences Wing and has come to a revised opinion that the rejection of the license renewal application is disproportionate to the acts of omission and commission. 9. In view of the above facts, I am of the considered view that the charge of non-disclosure of material information on transfer of shares and consequent dispute with Mr. Narendra Bubna by the Broking Company is confirmed and in view of the violation, a fine of Rs.4,00,000 (Rupees four lakhs only) be imposed on the Broker.

10. It is admitted that the broker had paid premium on behalf of the clients which is in violation of the Regulations and for this violation, a fine of Rs.1,00,000 (Rupees one lakh only) be imposed. 11. The Authority accepts the assurance of the Broker that he has established proper internal controls and systems. 12. Hence, on a reconsideration, under the powers vested in Regulation 14(4) of the IRDA (Insurance Brokers) Regulations, 2002, I order that the Broking license of the applicant be renewed, on collection of fine imposed of Rs.5,00,000, with effect from 09.06.2009 for a further period of three years.

(J. Hari Narayan) Chairman Date: November 17, 2011 Place:Hyderabad