Supreme Court Rules Insurance Companies Cannot Issue Shares at Premium, What Are the Implications?
According to a reviewed report, the Supreme Court has ruled that insurance companies operating in the sector are not permitted to charge a premium when selling shares to the general public. In a clear interpretation of the Insurance Act 2022, the court found that both the Insurance Authority and the Securities Board acted contrary to the law by allowing the issuance of shares at a premium. Previously, the Supreme Court had directed that the funds received from premiums be deposited into a special reserve account.
Kathmandu, 11th July – The court clarified that under the Insurance Act 2022, insurance companies cannot charge a premium fee when issuing ordinary or new shares. This ruling is expected to significantly impact insurance companies planning to issue new shares in the future. The arrangement also requires companies that have previously issued shares at a premium to maintain a reserve fund for the premium amount. However, there has been no debate in the Supreme Court yet regarding the pricing of shares. The Insurance Act mandates full payment for ordinary shares, a provision that remains somewhat contentious.
A senior lawyer commented, “The Companies Act also influences the face value of shares, but compliance with the Insurance Act is mandatory for insurance businesses.” He further noted that while banks and financial institutions may be allowed to sell shares at a premium, the issue remains disputed when it comes to insurance companies.
The Supreme Court noted that the Securities Board and Insurance Authority had permitted premium share sales contrary to the Insurance Act. Although the writ was dismissed following the hearing, the court issued a directive providing a clear interpretation of the law. This arose after Himalayan Reinsurance Company sold shares to the public at a premium in Mangsir 2080 (mid-December 2023). Lawyers Yamprasad Bhattarai and Bhimsen Rayamajhi filed the writ seeking an order to sell shares only at their face value. The joint bench of Supreme Court Justices Dr. Manoj Kumar Sharma and Shrikant Paudel dismissed the writ but issued a directive order.
The court stated that since the petitioners’ demand has already been implemented, there was no ground to issue a writ. It emphasized that this is a matter of public interest and concern. “The Securities Board does not appear to have fulfilled its legal duties in accordance with the law,” the order stated. “The approval for issuing shares at a premium under Section 45 (5) of the Insurance Act 2022 is illegal. The board has not fulfilled its responsibilities as per the Securities Act and regulations.”