The Insurance Regulatory and Development Authority of India (IRDAI) notified the IRDAI (Insurance Brokers) Regulations, 2018 (Brokers Regulations) on January 12, 2018, repealing the erstwhile brokers regulations of 2013. This continues what is now considered an eventful financial year for the insurance regulatory space in India.
The Brokers Regulations improved upon the existing framework for the governance and regulation of insurance brokers- who act as significant intermediaries in the insurance sector. IRDAI, under these new Regulations, prescribed that all insurance brokers are required to comply with the code of conduct (Code of Conduct) set out in Schedule I – Form H of the Regulations.Rule 2(h) and Rule 2(i) of the Code of Conduct specifically provide that insurance brokers are required to obtain a "written mandate" from the client (i.e. the insured) to represent the client before the insurer and must communicate the grant of cover to the client after effecting insurance. The Brokers Regulations, however, did not provide any guidance or prescription regarding the constitution and form of a "written mandate".
In the absence of such clarity, stakeholders in the industry, predominantly insurance brokers, expressed concerns about the validity and acceptability of a mandate communicated in a manner not conventionally understood to be in the "written" form.
As a backdrop to the above, the primary issue was whether a mandate communicated by a client to an insurance broker through electronic means, such as electronic mail (e-mail), short message service (SMS), or cross platform instant messaging services such as WhatsApp, would be classified as a "written mandate" under the Brokers Regulations.
Understanding a "Mandate"/Concept of a "Mandate"
A mandate has been defined as an "authority empowering one person to act on behalf of another"1. When a person acts on behalf of another person, he is said to be an agent of the latter, as provided under Section 182 of the Indian Contract Act, 1872. Further, specifically in respect of the relationship between a broker and a client, the High Court of Bombay has recognised a "broker" as a general agent whose authority arises out of and in the ordinary course of his business or profession, whereby he is empowered to act on behalf of the client generally in transactions of a particular kind, incidental to his business2.
A "mandate", therefore, is essentially a communication, sent by the client to its agent, expressly and unambiguously conveying the client's intention to authorise the agent to do certain things or perform certain actions, on behalf of the client.
The Brokers Regulations specify that the mandate has to be "written". It therefore needs to be examined whether communication made in electronic form can be considered as being in writing and, more specifically, whether a mandate communicated through an electronic form can be considered as "written" for the purposes of the Brokers Regulations.
Treatment of Electronic Forms of Communication under the Information Technology Act, 2000
Section 4 of the Information Technology Act, 2000 (IT Act) provides that: "where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is- (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference."
Further, Section 2(r) of the IT Act defines "electronic form" with reference to information to mean "any information generated, sent, received or stored in media, magnetic, optical, computer memory, micro film, computer generated micro fiche or similar device".
The IT Act provides for the mode and manner of communication of offer and acceptance electronically. Section 10A of the IT Act provides that in respect of contract formation, proposals, acceptances and their revocation can be expressed in electronic form or by means of electronic record and a contract so formed "shall not be deemed to be unenforceable" solely on the ground that electronic means were used to effect an offer or acceptance. The phrase "shall not be deemed to be unenforceable" means that a contract formed through electronic means, such as through email or SMS is deemed to have fulfilled the requirement of a contract in writing.
Hence any information or matter communicated between persons will satisfy the requirements of Section 4 of the IT Act, as long as the said information or matter is rendered in an electronic form (as defined under Section 2(r) of the IT Act) and is accessible so as to be usable for future reference. Such communication will stand on the same footing as written or printed documents and will be deemed to satisfy the requirement of a document being "in writing" as may be contained in any law in India.
In light of the above, a mandate communicated in electronic form, such as e-mail, SMS provided by mobile network operators, or WhatsApp, will satisfy the "written" requirement under the Brokers Regulations, provided they are capable of being generated, sent, received or stored on a computer and/or digital device and are accessible for future reference.
Jurisprudence on the Use of Electronic Forms of Communication
The judiciary, on its part, has also shown acceptance of electronic records3 in the existing rules and procedures requiring written communication. A noteworthy example would be the decision of the Supreme Court of India in Trimex International FZE Ltd. v. Vedanta Aluminium Ltd4 (Trimex Case), where the Court had to ascertain whether a concluded and binding contract existed between the petitioner and the respondent, in the absence of a signed agreement. The Court observed that the petitioner had made its offer and the respondent had provided its acceptance to the petitioner's offer, both over e-mails and held that there existed a valid, concluded contract between the parties on the basis of e-mails exchanged between them. The Trimex Case has been relied upon by various High Courts5 and is an established precedent for recognising the validity of e-mail exchanges.
Additionally, the High Courts have also recognised communication through e-mail and WhatsApp for the satisfaction of notice requirements6 and for serving summons to the defendant in a suit7.
Position under the Indian Evidence Act, 1972
Section 65B of the Indian Evidence Act, 1972 ("Evidence Act") deals with admissibility of electronic records as evidence in a court of law. Section 65B(1) states that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a document, admissible in any proceeding without production of the original if the conditions laid down in Section 65B(2) of the Evidence Act are satisfied. These conditions broadly deal with accuracy of the computer resource which generates the electronic record and its lawful use in the ordinary course of business to generate the electronic record.
In light of the above, a mandate communicated in electronic form, such as e-mail, SMS or WhatsApp will also be considered as documentary evidence as long as it satisfies the criteria for electronic records under Section 65B of the Evidence Act.
In September 2018, the Insurance Brokers Association of India, on the basis of legal advice received from law firm Cyril Amarchand Mangaldas, made representations to IRDAI seeking clarification in relation to the issue concerning admissibility of electronic communication as a "written mandate" as understood under the Brokers Regulations.
Consequently, IRDAI issued a circular dated December 24, 2018 , clarifying that a mandate communicated by a client to the insurance broker through an electronic form can be considered a "written mandate" within the meaning and scope of the Brokers Regulations. The insurance brokers, while accepting such a mandate, have been advised to bear in mind the contents of Section 65B of the Evidence Act relating to "admissibility of electronic records".
IRDAI's Circular – A Welcome Step
In light of the rapid technological development in the country, and the increasing use of digital mediums to effect communication, it is imperative for courts and regulators in India to be receptive towards accepting communication effected through electronic means, and to interpret statutes organically to suit evolving times.
IRDAI's position on this matter set out vide its circular dated December 24, 2018, though specifically issued in the context of the Brokers Regulations, is a step in the right direction. It indicates the willingness of IRDAI to integrate technology and allied market practices into existing laws so as to facilitate easy compliance at the stakeholder level.
1 P Ramnath Aiyar's Advanced Law Lexicon, 5th edition, Vol 3, pg. 3133.
2 Vardaji Kasturji Marwadi & another v. Chandrappa Bin Piraji Kshirsagar and others AIR 1916 Bom 155.
3 Section 2(t) of the IT Act defines an "electronic record" to mean 'data, record, or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche.'
4 Trimex International FZE Ltd. v. Vedanta Aluminium Ltd (2010) 3 SCC 1.
5 Shree Ganesh Metals v. Glencore International AG and Ors. 2017 IXAD (Delhi) 675; See also Waverley Private Limited v. Diversey India Private Limited 2016 (5) Bom CR 2A 08.
6 SBI Cards Payment Services Pvt. Ltd. v. Rohidas Jadhav 2018 SCC OnLine Bom 1262;
7 Kross Television India Pvt Ltd. v. Vikhyat Chitra Production 2017 SCC OnLine Bom 1433; Tata Sons Ltd &Ors v. John Doe &Ors. 2017 SCC OnLine Del 8335
8 Ref No. IRDAI/BRK/ORD/MISC/210/12/2018, available here.
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