The Insurance Regulatory and Development Authority of India imposed a penalty of 10 million rupees on Cholamandalam MS General Insurance Co. Ltd. over concerns related to the legitimacy of certain transactions amounting to 1.14 billion rupees.
The regulator raised concerns that certain transactions reported by Cholamandalam MS as vendor advances for the fiscal year 2016 to 2017 were not genuine business transactions, violating provisions in the corporate governance guidelines for insurers.
Out of 1.19 billion rupees in vendor advances, Cholamandalam MS paid 229.8 million rupees to Ashok Leyland Ltd., 93.9 million rupees to Cholamandalam MS Risk Services Ltd., 409.6 million rupees to DHFL Sales and Services Ltd. and 424.7 million rupees to Chola Insurance Distribution Services Pvt Ltd.
The company reported that the payment to Ashok Leyland was for advertising and publicity expenses related to an advertisement agreement between the companies. The regulator questioned the legitimacy of the transaction due to the advertisement rates reported by the company under the alleged advertisement agreement, which IRDAI said was significantly different from the amount it paid to Ashok Leyland.
IRDAI also said that Ashok Leyland, an original equipment manufacturer for automobiles, was not predominantly engaged in advertisement or branding business.
Cholamandalam MS reported that the payment to Cholamandalam MS Risk Services was for certain risk management services it provided for the insurer's fire and engineering segment, which IRDAI said was initially reported by the insurer as advertisement-related expenses.
The company also reported that it paid DHFL Sales and Service for manpower services and Chola Insurance Distribution Services for branding services, despite IRDAI's findings that the said companies did not predominantly engage in advertising, branding or manpower supply business.
As of Jan. 9, US$1 was equivalent to 71.17 Indian rupees.