Attorney general Mukul Rohatgi, India’s top law officer, has declined a request from the law ministry seeking legal opinion on the proposed merger of Max Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd (HDFC Life), four people with direct knowledge of the development said.
With this, the fate of the transaction, the first of its kind in the insurance sector, hangs in fine balance with the final decision resting with the Insurance Regulatory and Development Authority of India (IRDA).
The law ministry is expected to give its independent opinion to IRDA in the coming weeks, the people cited above said, requesting anonymity.
Under the first of the proposed three-step merger process, Max Life will be demerged from Max Financial Services Ltd completely and all non-insurance businesses of Max Financial Services will be transferred to Max India, so that Max Financial Services stops to exist and Max Life becomes a standalone listed insurance firm immediately. Simultaneously, HDFC Life will be merged with Max Life; since HDFC will have a majority stake in the merged entity, HDFC Life will be automatically listed.
IRDA had expressed its reservations on the proposed structure in January. It had sought the law ministry’s views on the transaction since Section 35 of IRDA Act does not allow merger of an insurance firm with a non-insurance firm. The ministry referred the deal to the office of attorney general Mukul Rohatgi, seeking a legal interpretation of the applicable laws, as the end-merger in this case involved two insurance firms.
{{/usCountry}}IRDA had expressed its reservations on the proposed structure in January. It had sought the law ministry’s views on the transaction since Section 35 of IRDA Act does not allow merger of an insurance firm with a non-insurance firm. The ministry referred the deal to the office of attorney general Mukul Rohatgi, seeking a legal interpretation of the applicable laws, as the end-merger in this case involved two insurance firms.
{{/usCountry}}Rohatgi did not reply to phone calls and texts seeking comment.
In a joint statement, Max Life and HDFC Life said on Wednesday: “We have heard media reports about this development but we don’t have an independent confirmation. HDFC and Max Group remain strongly committed to conclude this proposed merger and will be working with the insurance regulator to do so.”
According to the people cited above, both firms have contended that the deal is in accordance with the spirit of the law and that the deal structure is legally valid under the composite scheme of arrangement of the Companies Act 2013, which says that such amalgamations can be possible if all legs of the arrangement process are done simultaneously and that if any leg of the amalgamation process falls through at any stage the entire deal falls through.
As per the Scheme of arrangement, the deadline for IRDA’s approval is end June while that for Court approval is February 2018-end. But the people cited above said both HDFC Life and Max Life could mutually extend the deadlines if need be, till the time regulators reach a final decision.
HDFC Life and Max Life had announced their merger plans in August last year, seeking to create an insurance giant with Rs1.1 trillion in assets.
The potential merger would create India’s largest private sector life insurer, surpassing ICICI Prudential Life Insurance Co. Ltd. It will be second only to state-run Life Insurance Corp. of India, which has a 70% share of new business premiums in the country. Mint reported in June last year the merger could trigger a long-awaited consolidation among private insurers in an industry with assets under management of Rs22.4 trillion, of which the share of India’s 23 private sector insurers is only Rs4.61 trillion, according to IRDA.
(Story filed in special arrangement with Livemint)