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Insurance companies are looking at how best to exit from their investments in Tata Sons after it turned into a private limited company.
The Insurance Regulatory and Development Authority of India (IRDAI) has sought data on the exposure of each insurance company to Tata Sons, and wants them to sell it off.
“Section 27 of the Insurance Act 1938, bars insurance companies from investing in shares and debentures of private limited companies, as it is essentially public money that they are dealing with,” noted an insurer, who did not wish to be named, adding that some insurers have already started to pare down their holdings.
Industry bodies – General Insurance Council and Life Insurance Council – are understood to be collecting the data on behalf of the regulator, but many insurers are also in discussions on a possible roadmap to bring down their investments in Tata Sons.
“Tata Sons is a good and credible company, which is why insurers invested. But most of us were taken unaware by its decision to turn into a private limited company, and it is not advisable – and in many cases – even possible, to exit all investments at once,” noted an executive with an insurance company, adding that IRDAI has periodically sought data on their holdings in the company since it turned private.
LIC is already in talks with IRDAI on how to lower its exposure to Tata Sons in a time-bound manner. Another insurer said this is a “passive breach” of investment norms, as the company turned private after the investment was made. “In such cases, there is usually at least a three-day period given to exit the investments, but all companies can’t sell at one go,” he noted.
Tata Sons declined to comment on the issue. In August this year, Tata Sons received permission from the Registrar of Companies to convert to a private limited company. It had sought approval from shareholders to become a private company from a deemed public company in September last year, in the wake of the legal battle with Cyrus Mistry.
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