The first hearing on the case was held on Thursday, an advocate told Republica on condition of anonymity. A division bench of justices Girish Chandra Lal, Baidya Nath Upadhyaya and Bharat Bahadur Karki is hearing the case.[break]
"The lawsuit only says the latest directive will inflict huge losses on insurance business and should be annulled immediately," the source said. "The lawsuit also claims the directive goes against the prevalent laws."
This is the second time a lawsuit has been filed challenging the corporate governance directive issued by the Insurance Board.
Previously, the Supreme Court had refused to issue a stay order against the regulator´s decision to introduce the directive.
The directive on corporate governance has created uproar in the insurance sector as it puts a cap on remuneration of chief executives, bars insurance companies from generating business from promoters and prevents more than one member of a family from assuming the post of board director in the same company.
The restriction on insurance companies from generating business from their promoters or their family members has especially raised many an eyebrows.
Currently, most of the insurance companies, especially non-life, here are promoted by big corporate houses involved in businesses ranging from aviation to manufacturing. This has made it easier for these insurance companies to bag businesses, while preventing cash flight.
Although many insurers say this practice has failed to create a level playing field for them in the market, others point to the Insurance Act which allows companies to generate business from promoters and family members after getting approval from the regulator.
“Since the directive includes provisions that overstep the Act, it was obvious for some parties to feel dejected and knock the doors of the court,” Shekhar Aryal, former deputy director of the Insurance Board, told Republica. “But since the directive, as a whole, was aimed at bringing about reforms in the market, it will be better for the insurance sector if the regulator wins the case.”
Related story
KMC removes unauthorized boards placed in offices and shops
