The Securities and Exchange Commission of Pakistan (SECP) set aside an order of Executive Director Insurance SECP which imposed penalty of Rs 2 million on the National Insurance Company Limited (NICL). SECP Appellate Bench No III comprising Commissioner SCD Akif Saeed and Commissioner CLD Tahir Mahmood issued an order here on Thursday to decide an appeal number 12 of 2010 in favour of the NICL.
SECP Appellate Bench is of the view that when an application for granting exemption was made on 20/11/08 and subsequent applications made on 03/11/09 and 25/11/09, the department should have responded to the request and even if they had to refuse such a request, reasons should have been communicated to the concerned company.
According to the Appellate Bench order, SECP Executive Director Insurance has been directed to review the matter and recommend appropriate amendments to the commission so that in future the same issue may not crop up in other insurance companies. In terms of the provisions of section 29 of the Insurance Ordinance, 2000 (the "Ordinance"), the said company (the "Appellant") was required to maintain statutory deposit with the State Bank of Pakistan (SBP).The annual accounts of the Appellant for the year ended 31/12/08 showed that the Appellant paid up capital was Rs 2,000,000,000 and as such the statutory deposit requirement was Rs 200,000,000. The record available with the SBP showed that the Appellant has NIL balance against the statutory deposit.
Show cause notice dated 05/11/09 ("SCN") was issued by the Respondent under section 1l (l)(b), section 29, section 63 and section 157 of the Ordinance calling upon the Appellant to show cause as to why action should not be initiated against the Appellant for violation of aforementioned sections. The company was provided an opportunity of hearing; however, dissatisfied with the response of the company, the SECP passed the Impugned Order. The company through the Impugned Order was imposed penalty of Rs 2 million and was further directed to submit the statutory deposit of two hundred million in the SBP.
The company has preferred to file the instant appeal against the Impugned Order. The Appellant's counsel argued that the SECP failed to take into account that upon fulfilment of all statutory requirements, the company accrued a vested right to be granted exemption from the requirement of maintaining minimum statutory deposit under section 29 of the Ordinance, as it was incumbent upon the Respondent to set the minimum required amount as zero. The net admissible assets of the Appellant are well above the minimum solvency requirement. Therefore, under the proviso in section 29 of the Ordinance, NICL must be exempted from the minimum solvency requirements. Furthermore, the Appellant sent letters to the Respondent Dated 20/11/08, 03/11/09 and 25/11/09 informing them that there is an exemption and the Commission must exercise its discretion when the Appellant has fulfilled the conditions of meeting the minimum solvency requirement and statutory deposits.
As per order, the company has argued that the Respondent (Executive Director SECP) failed to take into account that upon fulfilment of all statutory requirements, the company accrued a vested right to be granted exemption from the requirement of maintaining minimum statutory deposit under section 29 of the Ordinance. Moreover, the company wrote letters dated 20/11/08, 03/11/09 and 25/11/09 informing Respondent that exemption is available under the provisions of Law and the Commission must exercise its discretion when the company has fulfilled the conditions of meeting the minimum solvency requirement and statutory deposits. However, there repeated requests were not responded by the Executive Director Insurance SECP.
Furthermore, the company has placed reliance on Balochistan High Court Judgement of Abdul Karim versus the Returning Officer/AC Hub at Hub and another PLD 1999 Quetta 78. The department on the other hand has argued that on achieving the levels of solvency, the Commission, in its sole discretion may grant waiver to any insurance company from the requirement of depositing with the State Bank. Moreover, the company cannot assume that such a waiver has been given.
SECP Appellate Bench accepted the company's argument that their application requesting exemption from minimum statutory deposit under section 29 of the Ordinance should have been properly dealt with by the department. In light of the above judgement of Balochistan High Court the word 'may' in the proviso to section 29 of the Ordinance is a binding obligation on the Commission as this effectuates a "legal right". The Respondent must exercise their discretion to grant exemption to the Appellant when the criterion for minimum solvency as well as maintenance of a statutory deposit has been fulfilled.
In view of the foregoing, SECP Appellate Bench has set aside the Impugned order with no order as to costs. The department is hereby directed to review the matter and recommend appropriate amendments to the Commission so that in future the same issue is not faced by other Insurance Companies, the order added.