SEBI vs IRDA: On whose turf do ULIPs fall?

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Who regulates unit-linked insurance plans (ULIPs)? The turf war between market regulator SEBI and insurance regulator IRDA has created a long line of baffled consumers. CNBC-TV18's Ashwin Mohan finds out what the law of the land has to say on this debate.

ULIPs are caught in no-man's land. SEBI and IRDA have locked horns over who gets to regulate them. IRDA is not happy that SEBI has sent insurance companies a show-cause notice, asking why ULIPs are being sold without its approval. Does SEBI have a legal ground in raising such an objection?

Legal experts seem to differ too.

Vishal Gandhi, Solicitor and Advocate, Gandhi & Associates, says the question is whether ULIPs are purely a contract of insurance or something beyond that, given the fact that it involves funds and investment management. "While collective investment schemes are regulated by SEBI, there is an exception relating to contracts of insurance. Since, prima facie, ULIPs appear more than just a mere contract of insurance I don't think there is anything wrong if SEBI has enquired into these ULIP products," he says.

Others, however, disagree.

"ULIP is an insurance product and the investment is incidental to it," says Satish Kishanchandani, Senior Partner, DSK Legal. "So IRDA could be correct here."

The IRDA ACT states that the insurance regulator has a duty and power subject to the Act, says Gandhi, "but it is subject to other laws also. They don't have some sort of a monopoly over their powers. Their powers are also subject to other laws too."

Legal experts say a fair option would be a coordinated approach by both SEBI and IRDA - action that would facilitate a single-window clearance.

Experts point out that if SEBI and RBI can see eye-to-eye over foreign venture capital investor regulations, regulating ULIPs should not be such a big deal.