Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: CONTROLLER OF INSURANCE VS Respondent: PAKISTAN INTERNATIONAL INSURANCE JUDGMENT
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title:CONTROLLER OF INSURANCE vs PAKISTAN INTERNATIONAL INSURANCE
JUDGMENT
Reported As: PLD 1993 Karachi 72 Result: Petition accepted Judgment JUDGMENT ' This petition for winding up of Pakistan International Insurance Company Limited (hereinafter referred to as "the respondent") has been filed by the Controller of Insurance, Government of Pakistan, under section 3(5D) and section 53 of the Insurance Act, 1938, read with section 305 of the Companies Ordinance, 1984. I had heard, at length, the arguments of Mr. Umer Qureshi, learned counsel for the petitioner, and Mr. S.M. Abbas, learned counsel for the respondent. Learned counsel had also filed written arguments. 2. According to the memo. Of petition, the respondent was incorporated under the Companies Act, 1913, and was registered by the Controller of Insurance (the petitioner) under section 3 of the Insurance Act, 1938 (hereinafter referred to as "the Act") in 1986 for doing all three classes of general insurance business, namely, Fire, Marine and miscellaneous insurance business. In July 1986, the petitioner received a copy of the letter dated 17-74986 from M/s. East Cheap Reinsurance Management Service Limited addressed to the respondent informing that the reinsurers had cancelled all their re-insurance treaties with the respondent since inception due to nonpayment of premium by the respondent. In view of the contents of the said letter dated 17-7-1986, the petitioner served a show-cause notice dated 24-7-1986, upon the respondent for alternate reinsurance arrangements by the respondent in place of the reinsurance arrangements they had made earlier with M/s. East Cheap Reinsurance Management Service Limited, London. The respondent was asked that alternate reinsurance arrangement be made within 10 days of the date of the notice and the respondent was also informed that if it desired to be heard in person, representative of the respondent may appear before the petitioner on 4-8-1986. According to the petitioner, no
---
## Page 2
satisfactory reply having been received, the petitioner issued two further show-cause notices and when the respondent failed to comply with the direction, petitioner cancelled the registration of the respondent by letter dated 2-11-1986 with effect from 15-12-1986. Cancellation of registration was done in exercise of the powers conferred upon the petitioner under section 3(4) (f) of the Act. The respondent filed an appeal against the cancellation of its registration before the Insurance Appellate Tribunal under section 110(1) of the Act but the said appeal was dismissed by the Tribunal on merits by its order dated 28-11-1987. The respondent then approached this Court in further Appeal being Misc. Appeal No, 44/1987 under section 110(12) of the Act but the said appeal was dismissed as withdrawn on an application filed by the appellant. The order dated 6-3-1988 of the learned Single Judge of this Court dismissing the Miscellaneous Appeal filed by the respondent reads as follows: "This is an application for withdrawal of the main appeal on the ground that the appellant has furnished the insurance cover to the extent of 11 per cent. As required under the rules. Mr. Umer Qureshi, learned counsel for the respondent submits that the respondent would scrutinize the insurance cover provided by the appellant and upon being satisfied then would renew the licence. Mr. Imam Ali Kazi, learned Deputy Attorney-General, is present on Court notice. ' The appeal is dismissed as withdrawn with no order as to costs and so also the stay application." 3. Thereafter, the respondent requested the petitioner by letter dated 7-3-1988 for revival of its registration with an undertaking that they would arrange the reinsurance treaties and got their confirmation within 45 days. The registration of the respondent was then revived vide letter dated 10-3-1988 of the petitioner on the basis of the undertaking given by the respondent. It may be, observed here that by its letter dated 7-3-1988, the respondent had undertaken to provide confirmation of reinsurance arrangement within 45 days and in any case by 21-4-1988 and by letter dated 10-3-1988 after referring to the undertakings given by the respondent, the Controller of Insurance ordered as follows: ' Now, therefore, the registration of the Pakistan International Insurance Co. Limited is hereby revived with effect from 7th March 1988 under subsection (SC) of section 3 of the Insurance Act, 1938 subject to the condition that the Company abide by the undertakings given by them as stated in the above paragraphs." ' According to the petitioner, in spite of the written undertaking of the respondent, it failed to fulfil its commitment within the specified period and, therefore, the petitioner withdrew the conditional revival order of the respondent by letter dated 21-6-1988 with effect from 1-8-1988 and since then the registration of the respondent stood cancelled. 4. It is also the case of the petitioner that it received a letter dated 16-8-1988 from the Federal Investigation Agency (FIA) whereby the petitioner was directed/instructed that any property of the respondent under lien of the department should not be released without prior approval of HA Since an investigation was going on regarding fraudulent acts of the Chairman of the respondent. According to the petitioner, in view of the aforesaid letter of FIA, as a matter of abundant caution, an enquiry was made from Allied Bank of Pakistan, Binnori Town Branch, Karachi, by petitioners' letter dated 4-7-1988 for confirmation of the deposits of the respondent under lien of petitioner's department in PLS/TDRS amounting to Rs, 19 lacs held by them in terms of the undertaking given by the Bank dated 11-1-1986 which was furnished to the department by the respondent at the time of its registration. In response to the letter dated 4-7-1988 of the petitioner, Allied Bank of Pakistan informed the petitioner by letter dated 15-8-1988 that the said undertaking dated 11-1-1986 furnished by the petitioner on behalf of the Bank was forged as the same was neither issued by the Bank nor the Bank held deposits of the respondent to the extent of Rs, 19 lags. The Bank, however, informed that the Bank had deposite of Rs, 19,000 only of the respondent. The petitioner then requested the Head Office of Allied Bank of Pakistan and the Banking Council to investigate the
---
## Page 3
matter and take further action. A letter was also written to F.IA. In response to petitioner's letter, Head Office of the Allied Bank of Pakistan informed the department by letter dated 8-10-1988 that the total deposits of the respondent with the aforesaid Branch of Allied Bank of Pakistan was Rs,19,000 only and there were chances of tampering with PLS/TDRS and issuances of letter on behalf of the Bank. There was no further response from Allied Bank of Pakistan, Banking Council or the HA and, therefore, the petitioner's department informed the Ministry of Commerce in October, 1988 about the aforesaid facts and the correspondence exchanged between the petitioner's department and the aforesaid agencies. 5. In the circumstances, the present petition for winding up of the respondent has been filed on the grounds taken in para. 19 of the petition, which are as follows: (a) Respondent is commercially insolvent; (b) Respondent had failed to make reinsurance arrangement which is a mandatory requirement of the law; (c) The company had played a fraud at the time of obtaining registration; (d) There are several claims of public against respondent which are unpaid and as such the continuance of the respondent as a insurance company is prejudicial to the interests of the policy- holders. (e) It is just and equitable that the company should be wound-up. ' It has further been stated in the memo. Of the petition that the statutory period of six months from the date on which the cancellation of registration took effect has already expired before this petition was filed (with reference to section 3(5D) of the Act). 6. Syed Nasir Hussain Zaidi, Chairman of the respondent, filed his counter-affidavit stating that the petition has been filed with mala fide intention to cause harm to the respondent and to the Chairman of the respondent company and the allegations against him are concocted and uncalled for. According to the Chairman of the respondent, in Misc. Appeal No, 44/88 before this Court, there was an amicable settlement outside the Court and, on account of the said settlement, the respondent withdrew the aforesaid appeal on the assurance given by the petitioner that the petitioner would withdraw the impugned orders and would revive the registration of the company. According to the Chairman of the respondent, in view of the letter dated 10-3-1988 of the petitioner, the previous allegation became a closed chapter but, despite this, reliance had been placed by the petitioner on previous happenings with the dishonest intention to harm the respondent. According to the respondent, the East Cheap Reinsurance Management Service Ltd. Of London had no concern with the existing treaties as the same were executed by M/s. Lander Eberli Shorter Limited and reference was made to their letter dated 23-7-1986, but copy of the said letter was not filed or brought on record. According to the respondent, as per the said letter dated 23-7-1986, the agreement between M/s. Lander Eberli Shorter Limited was valid till 17-12-1987. The respondent's Chairman, in his counter-affidavit, has repeated the earlier averments that Misc. Appeal filed by the respondent in this Court was withdrawn in pursuance of the settlement between the parties and in view of the said settlement, the respondent withdrew the appeal and the petitioner revived the company's registration and thus all past allegations were washed-off. It is further stated in the counter-affidavit as follows: "That the company (respondent) undertook to provide the confirmation for 11.5 per cent. Treaties for the year 1987 from M/s. Pana Harrison only within a period of 45 days and if the same was not arranged the same shall be arranged from Pakistan Insurance Corporation or any other foreign reinsurance company for which no undertaking was provided regarding time limit. The petitioner misconceived the undertaking given on 7-3-1988 and illegally withdrew the revival of registration on 21-6-1988 effective from 1st August 1988."
---
## Page 4
' As regards the allegation about the complaint of the FIA, it has been averred on behalf of the respondent that FIA had, later on, by letter dated 2-2-1989 withdrawn the earlier letter and that, according to FIA. Charges against the Chairman and the respondent company had not been established and that the undertaking for Rs, 19 lacs was issued by Mr. Muhammad Asim, Manager Allied Bank Limited, Binnori Tottm Branch, Karachi under his signatures. It is additionally averred in the counter-affidavit that the petitioner is in possession of two undertakings for the sum of Rs, 19 lacs each, one of Allied Bank of Pakistan Limited and the other of Indosuez Bank Limited. The allegation that the respondent is commercially insolvent has been denied stating that the respondent has more than Rs,42 Lacs in State Bank of Pakistan and the treaty arrangements had been made with Pakistan Insurance Corporation vide letter dated 23-10-1988 of PIC. The allegation about nonpayment of any genuine claim has been denied and it is further stated that, "if permitted to function and transact the business of the Insurance company, he (Chairman of respondent) is ready to give undertaking that he will satisfy all the claims against the said company within a short period of two years from the date the licence/registration is revived". The averment of the petitioner that statutory period of six months under section 3 (5D) of the Act had expired has been denied. 7. In the rejoinder filed by the Controller of Insurance himself, the pleas taken by the Chairman of the respondent in his counter-affidavit have been denied/challenged. In the rejoinder, reference was made to the several execution applications and the suits filed against the respondent in Lahore and Karachi with the purpose of establishing that various claims are pending against the respondent which have not been settled. Rejoinder is supported with documents showing decrees passed and executions pending against the respondent. 8. Reply to the rejoinder was filed by the Chairman of the respondent company stating that either the executions referred to in the rejoinder by the petitioner have been withdrawn or stay has been obtained from higher Courts against the other execution applications. Additionally, it has been pleaded that in case of fraud, penalty is provided under section 104 of the Insurance Act and petition for winding up under section 53 of the Act is not the proper remedy for any alleged fraud. Reliance has also been placed on section 309 of the Companies Ordinance, 1984, for the proposition that the winding up petition is not maintainable as the petitioner had not obtained prior sanction from the Corporate Law Authority, which is a mandatory requirement for filing a winding up petition. 9. In written and oral arguments, the counsel for the parties have reiterated their respective stands taken up in the pleadings. 10. First, I may deal with the three preliminary objections raised on behalf of the respondent by Mr. S.M. Abbas, Advocate. In pleadings as well as in the written arguments, an objection has been raised about the maintainability of this petition for winding up of the respondent-company on the ground that prior sanction from the Corporate Law Authority has not been obtained by the petitioner. In paragraph 15 of the written arguments of learned counsel for the respondent, the aforesaid objection has been taken as follows: "That so far as the winding up application under section 305 of the Companies Ordinance, 1984 is concerned, it is submitted that for the purpose of entertaining an application for winding up of the respondent company is concerned, the petitioner has to adopt the procedure laid down in section 309 of the said Companies Ordinance and before filing an application, he has to obtain a permission from the Authority defmed in section 2, subsection (3) which means Corporate Law Authority and under section 309B, no application shall be maintainable in law unless previous sanction has been obtained from the said Authority. The law further provides that even the Authority shall not give any sanction unless the company has first been afforded an opportunity of making representation and of being heard."
---
## Page 5
' Reference to section 309(b) of the Companies Ordinance, 1984 shows that the argument is misconceived. Section 309 reads as under: "309. Provisions as to applications for winding up.---An application to the Court for the winding up of a company shall be by petition presented, subject to the previsions of this section, either by the company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), or by any contributory or contributories or by all or any of the aforesaid parties, together or separately, or by the Registrar or by the Authority or by a person authorised by the Authority in that behalf: ' Provided that-- (a) a contributory shall not be entitled to present a petition for winding up a company unless-- either the number of members is reduced, in the case of a private company, below two, or, in the case of any other company, below seven; or the shares in respect of which he is contributory or some of them either were originally allocated to him or have been held by him, and registered in his name, for at least six months during the eighteen months before the commencement of the winding up, or have devolved on him through the death of former holder; (b) the Registrar shall not be entitled to present a petition for the winding up of a company unless the previous sanction of the Authority has been obtained to the presentation of the petition: ' Provided that no such sanction shall be given unless the company has first been afforded an opportunity of making a representation and of being heard; (c) the Authority or a person authorised by the Authority in that behalf shall not be entitled to present a petition for the winding up of a company unless an investigation into the affairs of the company has revealed that it was formed for any fraudulent or unlawful purpose or that it is carrying on a business not authorised by its memorandum or that its business is being conducted in a manner oppressive to any of its members or persons concerned in the formation of the company or that its management has been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; and such petition shall not be presented or authorised to be presented by the authority unless the company has been afforded an opportunity of making a representation and of being heard; (d) the Court shall not give a hearing to a petition for winding up a company by a contingent or prospective creditor until such security for costs has been given as the Court thinks reasonable and until a prima fade case for winding up has been established to the satisfaction of the Court; (e) the Court shall not give a hearing to a petition for winding up a company by the company until the company has furnished with its petition, in the prescribed manner, the particulars of its assets and liabilities and business operations and the suits or proceedings pending against it." ' Proviso (b) in section 309 lays down that the Registrar shall not be entitled to present a petition for the wilding up of a company unless the previous sanction of the Authority has been obtained to the presentation of the petition and that no such sanction shall be given unless the company has first been afforded an opportunity of making a representation and of being heard. The provision, therefore, places an embargo on the Registrar presenting a petition for winding up of a company by requiring him to obtain the previous sanction of the Corporate Law Authority. The aforesaid section 309 does not require prior sanction of the Authority for maintaining a petition by other persons or by the Controller of Insurance. As observed, the said preliminary objection is plainly misconceived. (b) The other objection taken by Mr. S.M. Abbas, learned counsel for the respondent was that if the case of the petitioner was that fraud had been committed by the respondent by making a false statement, section 104 would have been attracted which provides for penalty for making a false statement, but this would not give any ground for winding up of the respondent. This argument is also misconceived. Provisions of a penalty for making a false statement under section 104 of the
---
## Page 6
Act does not debar the Controller of Insurance from maintaining a winding up petition if such action on the part of the Insurance company is covered by a ground for winding up. (c) The other objection raised on behalf of the respondent Mr. S.M. Abbas, Advocate, was that the application for winding-up under section 53 of the Act was not maintainable in law as it had not been established that there was non-compliance of any requirement of the Act for a period of three months. According to the respondent, compliance had been made within a period of 2-1/2 months and as such there was no subsisting failure attracting the provision of section 53. The proposition, as advanced, is not correct inasmuch as failure of compliance of any requirement of the Act for a period of three months as a precondition for maintaining a petition for winding-up of an Insurance Company is restricted to clause (ii) of section 53(2)(b) of the Act. If before expiry of the three months' period, compliance of requirement has been made by the Insurance Company, a winding-up petition will not be maintainable under clause (ii), but a petition filed by the Controller of Insurance under other grounds available to him under section 53 would be otherwise maintainable. ' The case of the petitioner is that the required reinsurance arrangements had not been made by the respondent in spite of notices given by the Department which had resulted in the cancellation of the registration of the respondent under section 3(4) of the Act. No doubt there was default on the part of the respondent in not confirming arrangements of reinsurance as required, and more than three months had expired but then the petitioner did not resort to section 53 of the Act. On the other hand, the respondent challenged the cancellation of the registration and, ultimately, there was a settlement outside the Court and the appeal before this Court under section 110(12) of the Act was withdrawn and thereafter the registration of the respondent was revived. Later on, according to the respondent, fresh reinsurance arrangements had been made and the pleadings and the documents on record do not contradict the assertion of the respondent in this regard. The contention of Mr. S.M. Abbas is correct that the petitioner cannot, later on, take advantage of the earlier default in making reinsurance arrangements by the respondent as a fresh opportunity was given by the petitioner to the respondent for making new reinsurance arrangement which was availed of, according to the respondent, and the earlier cancellation of registration on account of reinsurance arrangement having been withdrawn cannot be validly made a basis for maintaining a winding up petition under clause (ii) of section 53(2) (b) of the Act. 11. However, in my view, the case against the respondent is covered by clause (iv) of section 53(2) (b) of the Act. According to this provision, in addition to the grounds on which an order of winding up may be based, the Court may order the winding up of an insurance company, if the Controller of Insurance, who is authorised to do so, applies in that behalf to the Court on the ground that the continuance of the insurance company is prejudicial to the interest of the policy-holders. In this context, reference may be made to two admitted documents. First is the letter dated 1-11-1988 of the Deputy Controller of Insurance, addresssed to the respondent, which is reproduced here: "The Chairman, ' Pakistan International Insurance Co. Ltd., ' 508 Uni Centre, 5th Floor, ' I.I. Chundrigar Road, ' Karachi ' Subject: Treaty arrangements for 1988, ' Dear Sir, ' Please refer to your letter No, PIIC/724/88 dated 22nd October, 1988 on the above subject. ' You are requested to please let this Department know at to why your request for revival of registration be not refused on the following grounds:
---
## Page 7
(1) Your company have played a fraud upon this Department at the time of its registration by furnishing a false undertaking to this Department that your company had deposited a sum of Rs, 19,00,000 (Rupees nineteen lacs) in the Allied Bank of Pakistan Ltd., Binnori Town Branch, Karachi in P.L.S. Term Deposits under lien of this Department. M/s. Allied Bank of Pakistan Ltd. Has recently informed this Department that the said undertaking was not issued by them and the actual amount deposited by your company in the said P.L.S. Term Deposits is Rs,19,000 (Rupees nineteen thousand) only. Copies of the letters dated 15-8-1988 and 8-10-1988 received from the said bank are enclosed at Annex. "A". It was the condition of your own Articles of Association vide Article No,6 which reads as follows: "6. The Company shall not apply for registration as an insurer under the Insurance Act, 1938, unless:--- (i) The paid-up capital of the Company is not less than twenty-five lac rupees; and (u) Not less than 90% of the paid-up capital invested in approved securities or in fixed deposits in any scheduled bank in Pakistan and the scrips of such investments other than the deposit made under section 7 of the Insurance Act, 1938 shall be kept in trust with a scheduled bank free of any encumbrances or hypothecation, and such investments shall not be disposed of except with prior approval of the Controller of Insurance or to satisfy a decree of a Court against the Company.' (2) Your company have utilized the Registration Certificate for extracting public money by issuing guarantees for illegal investment companies which you are not honouring. You yourself are in the knowledge of such guarantees issued by your company. (3) The Federal Investigation Agency has informed this Department that your company has fraudulently and dishonestly obtained money from general public which is under enquiry in that Agency. They have given notice to this Department under section 5(5) of the Federal Investigation Agency and instructed this Department not to transfer, alienate, release or assign in any manner,…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.