Mumabi: Life Insurance Corp. of India (LIC) has defended its holding in ITC Ltd saying this was a routine investment decision and that there was no law or policy that prevented insurance firms from investing in tobacco firms.
It also said that all its activities are subject to directives and control of the central government, effectively passing the buck to the centre.
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The state-owned insurer said this in an affidavit filed in response to a public interest litigation that challenged its investments in tobacco firms. The ITC stock was chosen due to the company’s governance, track record, and the liquidity of the stock and its performance, the insurer said in its affidavit.
Contents of the affidavit were first reported by Business Standard on 23 June.
The petition, filed on 14 April by the Tata Trusts’ managing trustee R. Venkataramanan; Sumitra Pednekar, whose husband Satish Pednekar, a former home and labour minister in Maharashtra, died of throat cancer; and doctors at Tata Memorial Hospital, questioned the government holding stakes in tobacco companies.
It argued that it did not make sense for the government, which is tackling health issues arising out of tobacco consumption, to directly or indirectly hold stakes in ITC or any other firms in the tobacco business.
Five insurance companies (LIC, New India Assurance Co. Ltd, General Insurance Corp. of India, Oriental Insurance Co. Ltd and National Insurance Co. Ltd), along with the Specified Undertaking of the Unit Trust of India (SUUTI) hold 32% stake in ITC.
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LIC in the court document, said that it follows a conservative strategy, to protect the interest of its policy holders.
“Our aim and primary obligation is to see that returns are maximized with minimum risk. None of this is contrary to its aims and objectives, corporate social responsibility policy or the LIC Act.”
LIC currently holds 16.29% stake in ITC, which is more that the limit prescribed by Insurance Regulatory and Development Authority of India (IRDA). IRDA allows insurance firms to hold up to 15% stake in one company.
ALSO READ: IRDA asks LIC to reduce stake in companies to 15% or below
“ITC has diversified into a host of other sectors such as packaging, agro-business, information technology, branded apparel, personal care and other FMCG (fast-moving consumer goods) products,” the affidavit said. “Looking into positive yields and good returns to policyholders, the prudent decision to invest has been taken.”
Mint has seen a copy of the affidavit.
LIC further pointed out that all its activities, including investment decisions, are subject to directives and control of the central government. It asked to be discharged from the petitions since it’s under government control.
At present, investments in tobacco are not prohibited in the IRDA Act or LIC Act for public sector or for private sector insurance companies.
Indian laws such as the Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act only regulate the production, sale, distribution and consumption of tobacco. The petitioners have asked the court to direct the government to formulate a policy on investments in tobacco companies.
First Published: Tue, Jun 27 2017. 12 16 AM IST