Restriction On dividends and bonuses

Section 49 of the Insurance Act, 1938 deals with restriction On dividends and bonuses. ] No insurer, , who carries on the business of life insurance or any other class or sub-class of insurance business to which section 13 applies, shall, for the purpose of declaring or paying any dividend to shareholders or any bonus to policy-holders or of making any payment in service of any debent The Act came into force on 01 Jul 1939.

²[49. Restriction on dividends and bonuses. --³[(1)] No insurer, ⁴***, who carries on the business of life insurance or any other class or sub-class of insurance business to which section 13 applies, shall, for the purpose of declaring or paying any dividend to shareholders or any bonus to policy-holders or of making any payment in service of any debentures, utilize directly or indirectly any portion of the life insurance fund or of the fund of such other class or sub-class of insurance business, as the case may be, except a surplus shown in the valuation ⁵[balance-sheet in such form as may be specified by the regulations made by the Authority] submitted to the ¹[Authority] as part of the abstract referred to in section 15 as a result of an actuarial valuation of the assets and liabilities of the insurer; nor shall he increase such surplus by contributions out of any reserve fund or otherwise unless such contributions have been brought in as revenue account applicable to that class or sub-class of insurance business on or before the date of the valuation aforesaid, except when the reserve fund is made up solely of transfers from similar surpluses disclosed by valuations in respect of which returns have been submitted to the ¹[Authority] under section 15 of this Act ⁶***:

Provided that payments made out of any such surplus in service of any debentures shall not exceed fifty percent, of such surplus including any payment by way of interest on the debentures, and interest paid on the debentures shall not exceed ten per cent, of any such surplus except when the interest paid on the debentures is offset against the interest credited to the fund or funds concerned in deciding the interest basis adopted in the valuation disclosing the aforesaid surplus:]

⁷[Provided further that the share of any such surplus allocated to or reserved for the shareholders, (including any amount for the payment of dividends guaranteed to them, whether by way of first charge or otherwise), shall not exceed such sums as may be specified by the Authority and such share shall in no case exceed ten per cent of such surplus in case of participating policies and in other cases the whole thereof.]

⁸[(2) For the purposes of sub-section (1), the actual amount of income-tax deducted at source during the period following the date as at which the last preceding valuation was made and preceding the date as at which the valuation in question is made may be added to such surplus after deducting an estimated amount for income-tax on such surplus, such addition and deduction being shown in ⁹[an abstract of the report of the actuary referred to in sub-section (1) of section 13].]

Section 49, The Insurance Act, 1938 (Act 4 of 1938).