A Takaful company, registered with the Securities and Exchange Commission of Pakistan (SECP), has violated Takaful Rules, 2012 by not maintaining excess admissible assets over liabilities in its Participants' Takaful Fund.
The SECP has issued an order against the company here Friday where commission is of the view that there has been an established default of Rule 10(1)(k) of the Takaful Rules, as the company was required to maintain excess admissible assets over liabilities in its Participants' Takaful Fund at all times, which was not adhered to by the Company as on January 31, 2013.
The SECP said that the default of Rule 10(1)(k) of the Rules is established. Therefore, the penalty as provided under Rule 12(1)(d) of the Rules can be invoked against the Company. Under Rule 12(1)(d) of the Rules, the SECP instead of imposing the penalty, take a lenient view, and thus, condone the Company due to fact that the Company has agreed to ensure compliance with the requirements of the Rules. The requirements of the Rules are quite stringent compared to those of the repealed Takaful Rules, 2005, for which more time shall be required to deploy additional resources for ensuring compliance with these requirements. Moreover, the act of the Company has not harmed the interests of the policyholders/ participants of the Company. However, the Company is hereby advised to ensure compliance with the provisions of Rule 10(1)(k) of the Rules by March 31, 2015, SECP added.
Background of the issue revealed that the company had provided the Statement of Assets & Liabilities as on January 31, 2013. On perusal of the said Statement of Assets & Liabilities, it appeared that the Company has not complied with the provision of Rule 10(1)(k) of the Takaful Rules, 2012 (the "Rules") which relates to the 'Conditions applicable to operators'.
Rule 10(1)(k) of the Rules states that "Conditions applicable to Operator.- (1) An Operator,-(k) shall ensure that in case of General Takaful each Participant Takaful Fund, at all times, has admissible assets in excess of its liabilities:,," As per the Statement of Assets & Liabilities as on January 31, 2013, the Total Assets and Total Liabilities of the Participants' Takaful Fund (PTF) were as follows: Total Assets (PTF) Rs 311,588,681 and Total Liabilities (PTF) Rs 320,375,839. Total Liabilities of the PTF have surpassed the Total Assets of the PTF by an amount of Rs 8,787,158.
In this view, even if the Total Assets of the PTF would have been taken as admissible, the PTF would stand insolvent. The SECP said that it appeared that the provisions of Rule 10(1)(k) of the Rules have been violated to a greater extent, which attract penal action against the company as provided under Rule 12(1)(d) of the Rules.
Accordingly, the Show Cause Notice was issued under Rule 10(1)(k) read with Rule 12(1)(d) of the Rules to the Company, its Chief Executive and the Directors, calling upon them to show cause as to why the penalty, as provided under Rule 12(1)(d), should not be invoked against the Company for not complying with the provisions of Rule 10(1)(k) of the Rules.
In response to the said notice, the company said that the High Court of Sindh has made the Rules unenforceable and inapplicable as the Commission was ordered to maintain status quo. Moreover, they further argued that the Rules are not in the field in the light of the stay granted by the Court in Constitutional Petition No D-2791 of 2012. Therefore, the Commission may not enforce the Rules at the very first instance.
In this regard, it would be important to state that the order of the High Court of Sindh, whereby all parties were required to maintain status quo, does not set the Rules aside, hence, the Rules are very much in field and are applicable. The SECP said that it is quite evident that the Company has contravened the provisions of Rule 10(1)(k) of the Rules by not maintaining excess admissible assets over liabilities of the Company's Participants' Takaful Fund (PTF). The company's representative was clarified that the Rules have not been made inoperative by the Court in the light of its order, these Rules are still in the field, the SECP added.