Imagine a situation where a person is found guilty of having committed a crime by a court of law after following a due process of ascertaining guilt. Imagine in this situation that the maximum penalty for having committed the offence is 20 years behind bars. The judge thereafter exercises his discretionary powers and pronounces that the guilty individual will be punished by paying a fine amounting to, say, `20 and by saying, “Sorry I shall never again do what I did.”

Have you not heard such a story many times before? The judge is indeed vested with powers to decide the quantum of penalty based on his understanding of the scale and seriousness of the offence committed and whether or not the offender is repentant. The story does not end here for the person held guilty usually has a right to appeal against a judgment against him in higher courts of law. But in many, if not most, judgments in India and elsewhere, the concerned judge explains in detail why he has arrived at his particular decision. In other words, there is an explanation why discretionary powers have been exercised either in favour or against a person. This is the crux of an effective, fair and transparent criminal justice system.
While the hypothetical example cited above may not appear analogous to the case that will follow, the issue is really one of whether a judge or an adjudicator — or the head of a regulatory authority, in this instance — should publicly explain why he exercises his powers in the way he does. This is a story of how a privately controlled company was allowed by a regulatory body to get away after paying a paltry fine for offences committed that could have resulted in the corporate entity going under, simply because it would not have been able to cough up the astoundingly large amount of money if it had been penalised to the maximum extent under the statute.
The company: Reliance General Insurance Company Limited, part of the Reliance Anil Dhirubhai Ambani Group headed by Anil Ambani. The watchdog: Insurance Regulatory and Development Authority (IRDA) chaired by J. Hari Narayan, who retired from the Indian Administrative Service in 2008 as chief secretary, Andhra Pradesh.
According to the IRDA head’s own calculation, Reliance General Insurance was to have been fined `17,500 crore under the provisions of Section 102(b) of the Insurance Act, 1938, for selling 3,50,000-odd policies under the “Reliance Health Wise Plan”, an insurance policy product that had neither been filed before the authority nor approved by it. The penalty was, however, brought down drastically to `20 lakh by the “judicious exercise and discretion vested with the authority” under Section 14 of the IRDA Act, 1999, read with 102(b) of Insurance Act, 1938.
Email messages sent to Mr Narayan were not responded to. He is, of course, not obliged to reply to queries from journalists.
The other interesting aspect of this case is that the IRDA chairman’s order, dated July 23, 2009, has been in the public domain for over two years now. However, until recently, each and every report about the imposition of the fine on this corporate entity in various media (websites and financial newspapers) did not mention the fact that the company could have been fined `17,499.8 crore (or `174,998,000,000) more than what it was.
In December 2005, Reliance General Insurance filed a healthcare insurance policy product called Reliance Health Care Policy before the IRDA which was approved in February 2006. In September the same year, the IRDA revised its guidelines for “file and use” specifying that the prior approval of the IRDA will be required if there is any change in name, terms and conditions or the price of an insurance product. In January 2008, it was brought to the notice of the IRDA that the company was selling a policy called Reliance Health Wise Plan which had not been approved by it. The insurer admitted that in 2007 it had reintroduced an old policy under a new name and at new prices.
A showcause notice was issued by the IRDA on April 13, 2009. Reliance General Insurance officials presented their case to the regulatory authority and the IRDA found that the insurer had violated Clauses 4 and 9 of the IRDA’s “file and use” guidelines which provide for levying a penalty not exceeding `5 lakh for each violation. Section 102(d) of the Insurance Act, 1938, too prescribes a penalty of `5 lakh for each violation which is punishable by levying a fine and also imprisonment. Since Reliance General Insurance had sold 3,50,000 policies in violation of the law, the entire fine would have amounted to a maximum of `17,500 crore.
Reliance General Insurance argued that the company had reverted to the original approved rate of 2005 and that it had refunded `1.07 crore to policyholders. The IRDA, however, pointed out that the claim made by the company had not been supported by documentary evidence. The IRDA subsequently fined the company only `20 lakh. The difference between `17,500 crore and `20 lakh is huge. Effectively, this amounted to only `5.70 per violation instead of `5 lakh.
Was this not a notional revenue loss to the exchequer? What happened to the claims under these policies? Were these returned? Or were these kept with Reliance? Were they paid to the insured persons? What happened to the interest accrued? These questions remain unanswered.
According to the IRDA’s own published figures, during 2009-10, in the list of complaints registered directly by non-life insurers, Reliance General Insurance topped the chart of 24 companies with 65,160 complaints reported out of a total of 1,86,615 complaints. The same year, Reliance disposed of 68,159 complaints (including pending complaints received before the beginning of the financial year) in favour of the insured, against an industry total of 1,72,854.

The writer is an educator and commentator