SEBI Must Safeguard Interests of Policyholders: Peoples’ Commission on LIC’s IPO

People’s Commission on Public Sector and Public Services has requested the Securities and Exchange Board of India (SEBI) to exercise “utmost care and consideration in the ongoing Initial Public Offer (IPO) of LIC for safeguarding the interests of the policyholders and the society for whom the LIC carries on its activities, that acting in haste in pushing through the process of listing the LIC in the stock-markets would surely be against public interest.”

In a press release, the civil society group that includes renowned economists, bureaucrats, advocates and senior journalists such as Thomas Isaac, CP Chandrashekhar, Prabhat Patnaik, Aditi Mehta, Indira Jaising, SP Shukla, among others, wrote a letter to SEBI with reference to the Centre's proposal to list the Life Insurance Corporation (LIC) in the stock markets with the objective of disinvesting a portion of the government's equity, ostensibly to bring greater transparency in the functioning of the LIC.

The Peoples’ Commission contends that “this would help attract investments from “retail investors” while raising resources for the government.”

The press statement lists prima facie the various lapses in the government's approach to the disinvestment of the LIC. For one, it highlights that “Considering that it is the policyholders who have overwhelmingly contributed to the growth of the LIC since its inception, the commission feels that they have a legitimate claim on LIC’s equity base. The fact that LIC’s huge asset base has been built through policyholder participation justifies such a perspective. At best, the sovereign guarantee provided by the government to LIC's policyholders may be notionally valued and reckoned as a part of LIC’s equity capital.”

Further, it adds that “In view of the widespread public criticism of the proposal to disinvest LIC's equity, the government has opened a severely restricted window of 10 per cent for the policyholders to mislead them into silence. The share being offered to policyholders bears no relationship whatsoever to their legitimate status as the prime promoters of LIC's growth since its inception. A proposal such as this one, which places policyholders who are the largest stakeholders in the LIC in an unfair position vis-a-vis the small segment of elite investors, is prima facie violative of the principles of natural justice and as such, is patently illegal.”

In conclusion, the Peoples’ Commission states that it is “Confident that the SEBI, as an independent statutory regulator, will accord due importance to the above concerns of the civil society and proceed in an appropriate manner in processing the government's proposal.”

It may be recalled that earlier, on January 21, the forum had urged the Centre to revert its disinvestment plan and asserted that the IPO “sends a negative message on the government’s intention and resolve to fulfil its Constitutional mandate under the Directive Principles to promote the welfare of the people.”

People's Commission is a discussion forum created by civil society for subjecting the government's policy on disinvestment of public assets and public services to public scrutiny and placing its findings before the public at large. It examines implications for constitutional obligations of the welfare state, affirmative action, social justice, and reduction of income inequality. It also looks at employment generation, reduction of poverty, and environment protection, among other agendas.