' NISAR MUHAMMAD SHAIKH, J.--- This intra court appeal is directed against the judgment/decree dated 31-3-1999 passed by learned Single Judge of this Court on its original civil jurisdiction, whereby the Suit No,750 of 1981 filed by plaintiff/appellant (octroi contractor) for declaration, injunction, accounts and recovery, claiming octroi charges on the crude oil imported by respondent No,1 (company) for sale, use and consumption within octroi limits of respondent No,2 (Cantonment), was dismissed with no order as to costs.
2. Brief facts of the case, according to appellant, are that the appellant/plaintiff Muhammad Ramzan Katiar in pursuance of an open auction held on 14-5-1981 by Cantonment Board, Korangi Creek, Karachi (respondent No,2), acquired a right to collect octroi for a period from 1-7-1981 to 30- 6-1982 on the articles imported for use, consumption or sale within the limits of Korangi Creek Cantonment. Respondent No,1 i,e, Pakistan Refinery is a limited company having its registered office within the limits of Cantonment, from where it is operating its all functions viz. Sale, consumption and use of the crude oil, being imported by it regularly from abroad by sea route, which is discharged at Karachi Port and thereafter the same is transported by means of under ground pipelines and imported at its Refinery located within the area of Korangi Creek Cantonment.
According to appellant, the import of crude oil within such limits was subject to levy of Octroi 1% ad valorem under item No,27, section V, Schedule A of S.R.O. 900(I)/76, alternatively at the same rate under item No, 99, section XX of Schedule A aforesaid. Thus the appellant estimated the value of crude oil imported during the period from 1-7-1981 to 21-11-1982 @ Rs,187.5 crores and accordingly he claimed a sum of Rs,1,87,50,000. Since the respondent No,1 did not pay due amount of Octroi duty on such demand of the appellant/plaintiff, therefore, he filed a suit on 22-11-1981 for a decree of Rs,1,87,50,000 against respondent No,1/ defendant No,1, praying further for a preliminary decree for accounts directing defendant No,1 to render true and accurate account of the crude oil imported from 1-7-1981 to 21-11- 1982 and to be imported till 30-6-1982 and then a final decree for the amount found due.
3. The respondent No,1 /defendant No,1 Company while denying the import of crude oil from abroad by Sea, submitted in its written statement that such crude oil is received through underground pipelines, at the Refinery and no octroi duty is prescribed for receiving crude oil from up-country through underground pipelines and thus the schedule which provided a duty on alleged import is ultra vires and is not applicable. Respondent No,1 also submitted that even otherwise, the crude oil was not for consumption, use or sale within Cantonment area as the same before it is processed, cannot be consumed, used or sold in any manner. However, after such process the finished products are derived and only those finished products can be marketed for consumption, use or sale and whatever commodities are consumed, used or sold the octroi duty is invariably paid in the area where such product is marketed for consumption, use or sale. Respondent No,1 also pleaded that the Government of Pakistan, Ministry of Defence vide letter dated 31-1-1982 issued through Military Lands and Cantonment Department, had issued necessary instructions for exemption and subsequently they vide notification dated 31-1-1988 also exempted the crude oil being the property of Federal Government, from payment of octroi duty w.e.f 1-7-1981 and as such, the plaintiff/appellant is not entitled to maintain his claim. Respondent No,1 also pleaded that crude oil being a federal subject, is not subject to octroi charges and the relevant schedule is ultra vires to the constitution and that the suit is not maintainable.
4. Whereas the written statement of defendant No,2/ respondent No,2 Cantonment Board is that the plaintiff/appellant was awarded contract for collection of octroi on the terms and conditions notified prior to its auction and he was entitled to collect such tax within its scope. The schedule of taxable items with rate of tax, was published in the gazette of Pakistan which is binding on the plaintiff as well as the importer or on the taxable items for use, consumption or sale within the limits of Korangi Creek Cantonment. Respondent No,2 also stated that the plaintiff has authority to prevent import of taxable items from entering within the Cantonment limits without prior payment of octroi and the same can be collected by adopting all measures allowed by Octroi Rules.
5. Out of the pleadings of the parties, following issues were framed in the suit:--
(1) Whether the above suit has become infructuous and is liable to be dismissed in view of the exemption granted by Ministry of Defence, Government of Pakistan, vide Notification No,S.R.O.83(1)/88 dated 31-1-1988 published in Gazette of Pakistan (Extraordinary) dated 9-2-1988 exempting crude oil being the property of Federal Government brought into the refinery of defendant No,1 in Korangi Creek Cantonment, from payment of octroi duty with retrospective effect from 1-7-1981?
(2) Whether the crude oil being a federal subject is not subject to levy of octroi by the Cantonment Board and whether the relevant schedule to the Notification dated 10-9-1976, is ultra vires of the Constitution of the Islamic Republic of Pakistan, 1973?
(3) Whether Notification No, S.R.O. 83(1)/88 dated 31-1-1988 is without lawful authority and of no legal effect in so far as it exempts levy of octroi on crude oil with retrospective effect?
(4) Whether the crude oil imported by the defendant was not for sale, consumption and use?
(5) Whether the octroi duty is payable on crude oil which is received through underground pipeline at Pakistan Refinery?
(6) What should the decree be?
6. The plaintiff/appellant examined their General Manager namely Maqbool Ahmed and defendant No,1/ respondent No,1 examined their Internal Auditor namely Anwar Sadiq. They also produced various documents during their respective evidence. However, defendant No,2/ respondent No,2 did not adduce any evidence. On conclusion of the proceedings, learned Single Judge answered the legal questions involved in issues Nos,1 to 3, in the negative and while dealing with issues Nos, 4 and 5 jointly, decided the same against the plaintiff/appellant and thereby dismissed the suit vide judgment dated 31-3-1999 which has been impugned by the plaintiff/appellant through this appeal. However, the respondent No,1 has also filed memorandum of cross objections in respect of the findings on issues Nos,1 to 3. It appears that a review application being C.M.A. No,469 of 2002, filed by respondent No,1 in relation to an order dated 20-3-2002 passed for admission of this appeal for regular hearing, was disposed of on 26-3-2003 and the same is no more pending to be heard, therefore, the request for its hearing made in para-2 of written synopsis filed by advocate for respondent No,1, is of no effect.
7. We have heard learned counsel for the contesting parties and perused the relevant record including the R&Ps of the Suit.
8. Admittedly, the octroi contract was awarded to appellant under the "Terms and condition for open auction of octroi" (Exh.6/2), followed by an agreement dated 1-7-1981 (Exh.6/3) executed by Cantonment Board (Respondent No,2) in favour of appellant for collection of octroi duty on the goods brought within the limits of Korangi Creek Cantonment for sale, use or consumption, in accordance with Ministry of Defence Gazette Notification No, S.R.O.900(1)76 dated 10-9-1976. This notification (Exh.6/4) by which some amendment was made in original notification No,4/71 dated 1- 1-1971 (available at page 41 of R&Ps of Suit), prescribed the rate of Octroi duty as 1% ad valorem to be levied on the item shown at Serial No,27, section V of Schedule A, as under:-- "Mineral fuels, mineral oil and products of their distillation, bituminous substances and mineral waxes."
' The opening para of earlier/original notification No,4/74 of Ministry of Defence, published in Gazette of Pakistan dated 1-1-1971, reads as under:-- "In exercise of the powers conferred by subsection (1) of section 60 of the Cantonments Act, 1924 (Act II of 1924), the Cantonment Board Korangi Creek, with the previous sanction of the Central Government, hereby imposes an octroi duty on all goods and animals brought within the limits of Korangi Creek Cantonment for consumption, use or sale therein as per Schedule given below:-- ' It appears that after certain amendments in Schedule A of earlier/original Notification No,4/71 dated 1-1-1971, made through relevant notification dated 10-9-1976, some further amendments in the same notification dated 1-1-1971 were also made through subsequent notification No,S.R.O.472(1)/79 dated 31-5-1979 (available at page 71 of R&Ps of Suit) in respect of some articles of Schedule B which however is not alleged to have changed the position of relevant item No,27 of Schedule A of notification dated 10-9-1976. However, these notifications, according to learned counsel for respondent No,1, were since issued without compliance of pre-requisite conditions or adopting due procedure prescribed under sections 61, 62 and 255 of the Cantonments Act, 1924 therefore, the same being incompetent are already held by a Division Bench of this Court, to be of no legal effect, in the case of Burshane (Pakistan) Ltd. v. C.E.O Cantonment Board of Korangi Creek Karachi and 3 others reported in PLD 1983 Karachi 517. The decision made in this reported case, to the extent of the point raised by learned counsel, needs no comments as the same was not maintained by honourable Supreme Court in the appeal which was allowed. It is also reported as Cantonment Executive Officer and another v. Burshane (Pakistan) Ltd. And others (1986 SCMR 1308). Even otherwise, no such case has been filed by respondent No,1 challenging the alleged illegality of the respondent No,2 etc. In relation to the notification containing the octroi schedule in question.
9. All the aforesaid three notifications were issued by respondent No,2 with previous sanction of central/federal government in accordance with the provisions of relevant section 60 of the Cantonments Act, 1924 which reads as under:-- "60. General power of taxation---(1) The Board may, with the previous sanction of the Federal Government, impose in any cantonment any tax which, under any enactment for the time being in force, may be imposed in any municipality in the Province wherein such cantonment is situated.
(2) Any tax imposed under this section shall take effect from the date of its notification in the official Gazette."
' Accordingly, the imposition of 'any tax' by respondent No,2 could be such that may be imposed in any municipality of the Province under the relevant' law. The Municipal Administration Ordinance (No,X of 1960) which was promulgated in 1960 replacing City of Karachi Municipal Act 1933, provided under section 33 read with clause 4 of Third Schedule that the tax on the import of goods for consumption, use or sale in the municipality, may be levied in the prescribed manner, by the Municipal Committee with previous sanction of the Government. This Ordinance of 1960 was substituted by Sindh Local Government Ordinance, 1972 which was then replaced by Sindh Local Government Ordinance 1979 (XII of 1979) and the same in its section 60 read with Fifth Schedule, also provides similarly as in the said Ordinance of 1960 under which the relevant Rules namely the W.P. Municipal Committees Octroi Rules, 1964 were framed and the same were then adopted by the Provinces including Sindh, after the dissolution of one unit. Its Rule 2(m) defines "Octroi" to mean a tax on the import of goods for consumption, use or sale within the octroi limits. The word "import" has also been defined in Rule 2(i) as an import within octroi limits. .
10. It is thus clear from the above that the expression "any tax" used in section 60 of Cantonments Act, includes the octroi tax for which the appellant was lawfully empowered under section 83 of the Cantonments Act 1924, for the period of his Octroi contract, to collect the octroi as per approved schedule, on the goods imported/brought in the octroi limits of cantonment for use, consumption or sale within such limits. In this connection, the contention of learned Counsel for respondent No,1 that the respondent No,2 had no right to levy and collect octroi through appellant on the imported crude oil for which a Municipality had no power to impose, is of no force. He also referred in this regard to the case of Mst. Nargis Moeen and another v. Government of Pakistan through Secretary Defence, Islamabad and another (PLD 2003 Lahore 730) in which the tax on the transfer of property, imposed by a cantonment board being permissible to be imposed in municipal area, was then omitted by amendment in municipal laws, therefore, the cantonment board's power to impose such omitted tax was automatically diminished and thus the demand of such tax by the Board was declared as without jurisdiction and lawful authority. But in the instant case, the levy/imposition of octroi tax in question was not omitted from the relevant municipal laws so as to put 'embargo upon Cantonment Board from levying the same. The above citation is therefore of no help to the respondent No,1.
11. It is however, an admitted position that the crude oil was brought in the Refinery of respondent No,1 within octroi limits of respondent No,2 Cantonment, for its refining purpose. The contention raised by learned counsel for respondent No,1 that the imposition of octroi tax is not applicable to the crude oil which is received at the Refinery not by road but through under ground pipelines, is not supported by any law to prevent levy of octroi or put any bar upon it, on the import in such a way. The use of pipelines is not a new thing for transportation and import of crude oil as appears from various Statutes, Rules, etc. Which include Petroleum Act 1934, Petroleum Rules 1937, Pakistan Petroleum (Refining, Blending and Marketing) Rules 1971, Oil and Gas Regulatory Authority Ordinance 2002 etc. But the same are not helpful to support the above contention. However, it needs no clarification that the octroi tax is not like a toll tax so as to be imposed at the entry on the road or bridge but the octroi tax is liable not merely on the import or entry of goods in the octroi limits but also on its sale, consumption or use within such limits. Hence, merely the import of crude oil is not of any significant so as to attract the levy of octroi. However, the entry of crude oil within octroi limits is since admitted therefore, it would be immaterial if the same is brought through under ground pipelines or by road etc. In this regard learned Single Judge rightly observed in the impugned judgment that the contention of defendants is not correct when they say that the octroi duty is only leviable when the goods are brought in by road.
12. Now, the point for determination is whether the crude oil imported in to the octroi limits of cantonment was brought in for sale, use or consumption within such limits? The petroleum activities of crude oil are usually split out in five stages, namely (a) exploration (b) production (c) transportation (d) processing/refining and (e) marketing/ distribution. In the present case, it appears that the crude oil was imported from abroad by sea route, it was unloaded from incoming vessels and discharged at Keamari Port, Karachi and then transported through underground pipelines to the Refinery within the limits of Cantonment, where the same was processed and refined and its purfied/finished oil products were transmitted out of cantonment area to oil marketing companies at Keamari where they effected its sale, distribution etc. In this connection, the learned counsel for appellant also referred relevant parts of the affidavit in evidence of the witness of respondent No,1 who stated therein that imported crude oil is not consumed, used-or sold by PRL (Pakistan Refinery Limited) within the limits of Cantonment area but after refining, it is pumped through underground pipeline to Keamari where the oil marketing companies effect the sale and distribution of refined crude oil for home consumption. He further stated that the crude oil is the property of Federal Government, it is imported by PRL on behalf of Federal Government and that the price of imported crude oil is reimbursed to PRL by Federal Government. He also stated that oil marketing companies pay all dues and taxes and PRL is not liable to pay any octroi for temporary retention. In cross examination he also deposed that they transfer refined oil to various oil companies namely Shell, PSO and Caltex upon payment by them, the prices of which are fixed by the Government. The above statement of the witness of respondent No,1 collected from different parts of his evidence, was referred by learned counsel for appellant treating it partly to be in support of the case of appellant. However, the same cannot be termed to be an admission in so far as the sale of refined oil products within octroi limits is concerned, nor there is any proof to support the contention of appellant that all business dealings and sale transactions were conducted and finalized by respondent No,1 within octroi limits of cantonment where the office or head office of respondent No,1 is situated.
13. However, the paramount question for consideration is whether the crude oil, changing its form etc. Through a process of refining, amounts to its use etc. Or otherwise? The relevant issue No,4 which was related, inter alia, to the term "use", was dealt with in the impugned judgment and was concluded with the following observations:-- ' The fact of refinement cannot by any stretch of imagination be called "use" because "use" essentially entails depletion of the goods so used either in quantity or quality. In this case the crude oil is only divided into different products and the value thereof being enhanced as a result. I therefore, find that crude oil that is brought in the limits of defendant No,2 was neither for sale, nor for consumption nor for use.
' The contention of learned counsel for respondent No,1 is also that there arises no question of use or consumption of crude oil in the refinery where only the crude oil is refined and then its finished bye products are transmitted out of the limits of cantonment where they are then sold and thereby used and consumed by the purchasers and useRs, He in support of above, also placed his reliance on the cases of Bela Automatic Ltd. v. KMC and 2 others (PLD 1999 Karachi 410), Messrs Universal Merchants v. Commissioner of Karachi and 2 others (1980 CLC 704) and Municipal Committee Multan v. Burmah Shell Storage and Distributing Co. Of Pakistan Ltd. And another (PLD 1976 Lahore 726).
' Learned counsel for appellant however contended in this regard that admittedly, through the process of Refining, the crude oil was converted into purified oil products and consumable articles of commercially different nature therefore such act by itself amounts to "use" of crude oil in the refinery of respondent No,1 within the limits of respondent No,2. In support of his contention, he also placed reliance on the cases of Municipal Corporation, Faisalabad v. Atta Muhammad and others (1990 SCMR 84), Messrs Anwar Khan Mahboob Co. v. The State of Bombay and others (AIR 1961 SC 213) and Burmah Shell Oil Storage and Distributing Co. Of India Ltd. Belgaum v. Belgaum Borough Municipality, Belgaum (AIR 1963 SC 906).
14. Perusal of the case-law, cited by the parties' advocates respectively, shows that in the case of Bela Automatic Ltd. (supra) the petitioner-company had applied to the respondent-KMC for their enlistment in respect of the goods to be imported for their manufacturing plant in Balouchistan seeking exemption from payment of octroi at Karachi as the goods were not meant for consumption, use or sale within octroi limits of KMC but the same were imported for immediate transportation to Balouchistan. For such reason, the impugned action of KMC, withholding enlistment of petitioners for grant of transit pass facility, was held to be of no legal effect. However, neither the interpretation or definition of the term "use" etc. Nor the question of any process of the goods in the plant etc. Was involved in the reported case. Similar is the position in the remaining two reported, cases cited above, which are relied upon by learned counsel for respondent No,1 but none of these three cases is relevant to the point in question and, on the contrary, the case of Burshane (Pakistan) Ltd. (PLD 1983 Karachi 517) already cited by him and referred to above in para 8 in connection with another point, seems to be very relevant on the present point as the question in it was whether Octroi Duty was chargeable on empty liquified petroleum gas cylinders brought Into the area of Korangi Creek Cantonment for re-filling and whether re-filling the cylinders with L.P.G. Would amount to "using" the cylinders within the limits of the cantonment. Such question was answered by a Division Bench of this Court in the following words:-- "Since the word 'use' has not been defined by the Act or the rules (which have not been framed so far under the Act) it should be understood in its ordinary dictionary meaning. According to Concise Oxford Dictionary the word 'use' means 'employment, application to a purpose, treat in a specified manner'. Thus if an empty cylinder is imported for the purpose of re-filling, it is being employed or applied to specific purpose or is being treated in a specified manner. Hence there can be no manner of doubt that if an empty cylinder is brought within the limits of Cantonment for the purpose of re-filling with L.P.G at the plant of the petitioner, it shall fall within the mischief of the impugned Notification, because it has been brought within the Cantonment area for use therein. It is immaterial whether a cylinder is brought for the first time or repeatedly within the Cantonment area. If the same cylinder is brought repeatedly to use within the octroi limits of the Cantonment, it shall be liable to levy of octroi duty each time because it is being brought for 'use' within the said limits".
' The above conclusion was challenged on the ground that gas cylinders were brought into the area for use by reference to its meaning on the premises that their bringing into the area was for a temporary duration, namely re-filling of gas and did not entail total use as is the import of the word "use" occurring in the notification. Honourable Supreme Court observed in its judgment passed in the appeal, that:- "It is impossible to give to the word 'use' the same meaning as the word 'consumption' conveys for the latter entails a total loss of the material while the former denotes utilization or employment for or with some aim or purpose. Accordingly, it cannot be in its concept involve an element of total or partial application. Besides, the word 'use' is not qualified by any such word as 'total' or 'partial' in the Notification, therefore, such a meaning cannot be given to it".
' Thus, the conclusion of the Division Bench of this court that re-filling of empty cylinders with L.P.G amounts to using the cylinders within the octroi limits of cantonment, was upheld by honourable Supreme Court as reported in C.E.O. And another v. Burshane (Pak) Ltd. (1986 SCMR 1308).
15. Whereas in the case of Municipal Corporation Faisalabad v. Atta Muhammad and others (1990 SCMR 84) relied upon by learned counsel for appellant, the primary question for consideration was as to whether the iron beams imported within octroi limits for the purpose of wrapping the yarn on them and for ultimate export could be said to have been imported for 'use' within the octroi limits under W.P. Municipal Committees Octroi Rules 1964. By its impugned judgment, Lahore High Court dismissed such civil revision of appellants corporation as, in its opinion, the empty iron beams after their import into octroi limits were not transformed into consumer articles by subjecting them to the process of wrapping with the yarn and the articles thus prepared did not lose their characteristics as the iron beams and thereby these cannot be said to have been 'used' within octroi limits. But, the honourable Supreme Court set aside such judgment of Lahore High Court holding that the law laid down in the case of C.E.O. And another v. Burshane (Pak) Ltd. 1986 SCMR 1308 (already referred to above in para-14) and the principles in two unreported cases of (1) Messrs Saadat Factory and (2) C.O. Corporation City of Lahore and also the case reported as AIR 1947 F.C.
14, are fully attracted and applicable to the present case. These cases as referred and discussed by honourable Supreme Court in M.C. Faisalabad's case 1990 SCMR 84, shall also be advantageous to be reproduced here in brief. Accordingly, in unreported case of Chief Officer, Corporation City of Lahore v. The Punjab Flour and General Mills Co. Ltd. Lahore (Regular Second Appeal No, 1744 of 1943), the validity of 'Octroi without refund' levied by Municipal Committee was called in question.
The appeal in that case arose out of a suit brought by the said company for a mandatory injunction restraining the said corporation from levying any octroi on any wheat imported and then exported outside municipal limits. It was contended that wheat was not intended for consumption, use or sale within limits of corporation and was thus not liable to octroi duty. In his leading judgment A. Rehman J. Observed as under:-- "I was largely impressed by the fact that the wheat can be said to have been used in producing flour. If wood can be said to have been used in making furniture, if flour can be said to have been used in making bread, if cloth can be said to have been used in making shirts, and if hops can be said to have been used in making beer, there seems to be no reason why wheat should not be regarded to have been used when by adding labour its form has changed out of recognition and it has been converted into flour".
' Harris C.J. Agreed with this view and observed further that "Use can be defined as 'to put to some purpose' and it appears to me that wheat is clearly used in the manufacture of flour or atta. It is the raw material from which flour or atta is made". He also observed that "If the result is different from the raw material, then it appears to me, that it can be properly said that the raw material has been used to produce the finished articles whatever that may be". This decision gave rise to a further appeal by the said company and the same was disposed of by a reported decision in AIR 1947 FC
14. Federal Court observed in it that the wheat was converted by grinding into flour and other products and it was the flour and other products that were re-exported. Thus, the claim for disputed tax was well founded and therefore, this appeal was dismissed observing further that "We do not think it is possible for the appellant to deny that it used the wheat in its mills to convert it into the flour and other products in which it did business.
' Similarly, in another unreported case of Messrs Saadat Factory v. The Chairman, Municipal Committee, Dera Gazi Khan (Writ Petition No, 42 of 1961), the petitioner owned a ginning factory outside municipal limits of Dera Gazi Khan and the cotton ginned at his factory was taken by petitioner to Madina Factory situated within municipal limits, for processing. Municipal Committee made a demand of octroi duty on the imported ginned cotton. Petitioner challenged the validity of such demand and the question arose whether the municipality was empowered to charge octroi duty which was payable only when goods imported were consumed, used or sold within municipal limits. On the relevant question as to whether the goods were used within municipal limits within the meaning of the rules, the High Court observed that ordinary meaning of 'use' is utilization or employment for or with some aim or purpose or application or conversion to some end. In special sense it means the act of using, or the fact of being used as food etc. The court further observed that keeping in mind this dictionary meaning, there should be no difficulty in holding that by employing the word 'use' in the Octroi Rules, the intention was that if the goods so imported were intended to be utilized in some manner, though not consumed or sold, the facility afforded by this rule would not be available to the importer. In conclusion the High Court, holding that the demand of the octroi duty on the import of cotton for ginning purpose was justified, dismissed writ petition with further observations made as under:- "It appears to us that if such a person does something more than mere retention of the goods, as, for instance, subjects it to some kind of process of milling, pressing etc., although he may not be consuming or selling those goods, he is using them and, as such, he would be liable to pay octroi duty under Rule V.17 and cannot, therefore, avail of the reexport pass System under Rule V.32-A. We are also of opinion that the retention of such goods, though temporary in the sense that the foods, after being subjected to some kind of process, are re-exported, is not temporary in the sense that the goods are retained in the original condition; the intention being not merely retain them but to subject them to some kind of process. For this further reason also Rule V.32-A would not be applicable to such a case".
' In view of the above principles which were found fully attracted in the case before honourable Supreme Court, the appeal of Municipal Corporation, Faisalabad reported in 1990 SCMR 84, was allowed accordingly.
16. However, the case of Messrs Anwar Khan Mahboob Co. v. The State of Bombay and others (AIR 1961 SC 213) as relied upon by learned counsel for appellant, relates to the imposition of tax under the Bombay Sales Tax Act, 1953- on purchase of Tobacco for manufacture of "Bidis". The question relating to the 'consumption' within Article 286 of the Constitution of India involved in such case, is however distinguishable to the facts and circumstances of this case as the word 'consumption' was construed in a different context while the word 'use' was not expressed in relation to octroi.
' Whereas in Burmah Shell Oil Storage and Distribution Co. Of India Ltd. Belgaum v. Belgaum Borough Municipality, Belgaum (AIR 1963 SC 906), the legislative history of Octroi Tax was traced and the expression "consumption" was also dealt with exhaustively. This case was also referred and discussed by a Division Bench of Gujarat High Court in Jafarabad Municipality v. Kathiawar Industries Ltd. (AIR 1969 Gujarat 344) in which the main question before the court was whether the Salt manufactured by respondents-company outside the octroi limits of appellant-municipality and brought by it within these limits for the purpose of being crushed into powder in its factory situated within those limits and then being exported, is liable to octroi. The short question then arose was whether the Salt which has been, charged with octroi was brought for consumption or use by the respondent-factory. Since the appellant conceded that it was not brought for consumption therefore, the only point which the court was required to consider was whether it was brought for use by the factory. The court firstly dealt with the expression 'use' and after referring various dictionaries for the meaning to be attached to the relevant word 'use', lastly observed in the context of taxing provision that it would appear that the word 'use' is generally meant to convey the meaning to employ for or apply to a given purpose'. In this connection the court also observed that:-- ' The point to be noticed in the matter of context is that we are considering a taxing provision and the word 'use' has been used along with the word 'consumption'. It is therefore reasonable to hold that the use contemplated in the word 'use' is other than consumption, for consumption would also be user in the natural meaning of the word 'use'. It is obvious having regard to the context that the use that is made chargeable is not the same as consumption. If use was not other than consumption the legislature would be exercising itself needlessly. In the Constitution of India where octroi is dealt with under Entry 52 of List II to the Seventh Schedule, the tax is described as a tax 'on the entry of goods into the local area for consumption, use or sale therein.' The Constitution therefore sets out three different uses for which an entry of goods into the local area makes the goods chargeable for tax in the nature of octroi.
' The court further observed in the same case as under:-- "It is obvious that there can be no user of an article unless it is employed for a given purpose. The purpose may be a purpose to the use of which the article of that class is normally put or it may be special purpose. A motor car can be said to be used when it is used for transport. It is therefore not necessary or imperative that the article must undergo a visible change in form or substance.
Although a change in the article would be indicative of use, there would be user without any noticeable change as in the instances earlier mentioned. Whether or not there should be -a change in the article would depend upon the nature of the article and the purpose of its employment. It may well be that the article is such and the purpose for which it is brought in is such that a change in the article is to be expected if it is used. The relevant factors to be considered whether or not there has been user of an article therefore are the nature of the article and the manner in which it is dealt with or the purpose for which it is employed."
' Lastly, the court 'concluded the matter in the following words:- "Therefore In considering whether uncrushed salt in the present case was brought for use by the factory one must take into account the nature of the article and, the manner it is dealt with or the purpose for which it is employed. The relevant questions are (i) what the factory is for and (ii) what happens. To the salt. The factory is for crushing uncrushed salt which is brought to it for that purpose. The business activity of the factory is to crush salt. It is for the purpose of that business activity that salt is brought to it. Prima facie, therefore, the salt is brought to the factory for being used by the factory in order to carry on its business. The factory keeps on crushing the salt in its normal activity and the commodity used is salt in uncrushed form and the result of the use is salt in crushed form which is commercially different from the salt in uncrushed form. If the salt crushed is commercially different from the salt in uncrushed form, as it undoubtedly is, it is difficult to escape the conclusion that the factory uses uncrushed salt for carrying on its activity of producing a different commercial product. The fact that the chemical composition does not change and only the form changes does not make any difference. Therefore considering the purpose for which the uncrushed salt is brought and the effect on that salt on the accomplishment of that purpose there is no doubt that uncrushed salt was brought in for use by the factory and we hold that octroi is leviable on the uncrushed salt so brought to the factory for crushing."
' The appeal preferred against the said decision was dismissed by the apex Court holding that the octroi is leviable on the uncrushed salt which is brought to the octroi area and crushed as the activity would amount to both consumption and use of the uncrushed salt. Such decision was also reported as Kathiawar Industries Ltd. v. Jaffrabad. Municipality (AIR 1979 SC 1721).
17. In the present case, though the crude oil, refined oil, refinery etc. Find no mention in the Cantonment Act or Octroi Rules, however, the Pakistan Petroleum (Refining, Blending and Marketing) Rules, 1971 framed under Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act 1948, defines the crude oil in Rule 2(d) to mean a mineral -oil of petroleum origin consisting mainly of hydrocarbons. In Oil and Gas Regulatory Authority Ordinance, 2002 the crude oil is defined in section 2(v) to mean all petroleum other than refined oil products, etc. Its section 2(xxxi) provides that Refinery means an industrial plant where crude oil is processed or refined. Its section 2(xxx) says about refined oil products which means products that result from the refining of crude oil, etc. While the relevant provision in American Jurisprudence, as is reproduced in Ballentine's Law Dictionary, provides that "Refining Oil" means the operation whereby crude oil is split up into a number of commercial products by a process of fractional distillation.
The. Schedule II given in the aforesaid Rules of 1971, provides the ,list of various petroleum products total 21 in number. However, it is not disputed that the function/business activity of the refinery of respondent No,1 is to refine raw/crude/mineral or unrefined oil and for such an specific purpose the crude oil in question was admittedly brought into and received in the refinery where the same after undergoing necessary process was duly refined and thereby its various finished oil products were admittedly drived on such process of refinement of crude oil and then its consumable products were transmitted by respondent No,1 to oil marketing companies out of the octroi limits of the Cantonment area. Obviously, the crude oil no longer remains crude oil after the same is subjected to a process in the refinery and thereby it is converted into various consumable refined oil products, commercially of different nature, admittedly sold to and distributed by oil marketing companies. All such activity is the result of the use of the crude oil in the process, change of its original form, state, condition etc., and thereby its conversion from crude oil to different consumable commercial commodities. Therefore, the contention of learned counsel for respondent No,1 that the crude oil after its temporary retention for refinement within cantonment area, was sent back in refined condition out of the octroi limits to the oil marketing. Companies at Keamari where the same was then sold, used and consumed, is not correct being misconceived atleast on the point of use of crude oil in the refinery as mentioned above. Since the relevant events for the charge/levy of octroi duty in the present case, are the entry of goods/crude oil into the octroi limits of cantonment and its use in the process of its refinement within such area, resulting in its change and conversion into the purified/finished oil products of different nature consumable in commercial field therefore, it was liable to octroi duty. Accordingly, the law laid down and the principles set out by the Hon'ble Supreme Court in the case of Municipal Corporation Faisalabad v. Atta Muhammad and others (1990 SCMR 84) as reproduced/referred to above, are fully attracted and applicable being relevant to this case and as such the octroi duty is payable on the crude oil imported/brought into the octroi limits of Cantonment and also used within such area.
18. Apart from above, the claim of respondent No,1 as appears from his case, also seems to be that the crude oil in question was purchased by Government of Pakistan from Iran and the same was the property of Federal Government which imported it into Pakistan, while the respondent No,1 simply brought such crude oil within the limits of the Cantonment on behalf of Federal Government as an agent being a limited company and accordingly the respondent No,1 is not liable to pay any octroi tax on refinement of crude oil. Though the copy of contract if any, between Iran and Pakistan, pertaining to the relevant period, is not produced on record, yet the title or ownership of the property i,e, crude oil is not in question. The R&Ps of suit shows that an application being C.M.A. No, 2787 of 1988 was filed by plaintiff/appellant on 27-4-1988 under Order I, Rule 10, C.P.C. For adding Government of Pakistan through Secretaries concerned as party to the suit but the respondent No,1 in counter affidavit filed by its representative on 26-51988, vehemently opposed such request saying that the Government of Pakistan is not a necessary party to be joined in the suit. However, such application was then withdrawn on the joint statement of the parties filed on 11-3-1990. Even otherwise, a document i,e, letter dated 31-1-1982 of Military Lands and Cantonments Department, relied upon and produced by respondent No,1 through its evidence as Ex.7/1/A, itself says that the crude oil was imported by the respondent No,1. Moreover, the 'importer' as defined in Rule 2(j) :of W.P. Municipal Committees Octroi Rules, 1964 is a person ineharge of goods at the time of import and includes the person on whose behalf such goods are imported. While the 'import' has been defined in Rule 2(i) as an import within octroi limits. Since the respondent No,1 through evidence has admitted to have imported the crude oil on behalf of the federal government therefdre, it falls within the definition of importer as mentioned above. It appears that the respondent No,1 has either concealed or failed to produce the relevant document, contract or license to show under which authority its company imported or brought in the crude oil within the octroi limits of cantonment for its refinement purpose. There is no satisfactory evidence to show in what capacity respondent No,1 imported and refined the crude oil and under what terms and conditions. The limited company of the respondent No,1 though registered under. Companies Act, cannot be termed to be a department of the government so as to consider for its immunity from the liability of tax under any law. In any case, the appellant could not be prevented from acting in accordance with and in compliance of the provisions of the Cantonments Act, 1924. Even the Article 165 of the Constitution which is also relied upon by learned counsel for respondent No,1, does not bar the Cantonment Board, created under the enactment of Federal Legislation, from charging the tax on the property even if the same belongs to the Federal Government.
' At this stage, the learned counsel for respondent No,1, saying that a pure question of law can be raised at any stage, also raised a new plea that the very octroi contract/agreement dated 1-7-1981 (Exh.6/3) executed by respondent No,2 in favour of appellant, by itself is void and not enforceable under section 114 of Cantonments Act which requires the signatures of two members of the Cantonment Board on such agreement but the same is signed by one member only The provisions of the said section provide that every contract made by or on behalf of the Board, shall be signed by two members and be countersigned by the Executive Officer, provided that the Executive Officer may, in a case of urgency, with the previous sanction of the President of the Board, execute any contract on behalf of the Board. Accordingly, the said agreement is signed by the President and countersigned by the Executive Officer. Since the execution of the said agreement was never challenged or questioned being an admitted and undisputed document, therefore the irregularity, if any, in its execution is not prejudicial to the right, if any, of otheRs, Even otherwise, all necessary directions contained in the relevant provisions of the Cantonments Act relating to the taxation, have in effect and substance, been complied with and acted upon by the parties to the agreement, and thus the above contention raised for the first time, is of no help to the respondent No,1 so as to allow it to escape from the liability.
19. The next point for consideration is 'whether the crude oil could be exempted through a notification, from payment of octroi duty with retrospective effect? On this point two common issues Nos,1 and 3 were jointly decided by, learned Single Judge with following observations:-- "By now it is settled law that subordinate legislation, which clearly this happens to be, cannot give retrospective effect to a Notification. This notification is therefore, without lawful authority and of no legal effect".
' Against these observations/finding , respondent No,1 has filed cross objections in this appeal but the same, according to appellant's counsel, are time barred. Such exemption notification dated' 31- 1-1988 issued by Government of Pakistan, Ministry of Defence, published in Extra-ordinary Gazette of Pakistan on 9-2-1988 (Ex.7/2/A) is as under:-- "S.R.O.83(1)/88.---In exercise of the powers conferred by section 99-A of the Cantonments Act, 1924 (II of 1924), the Federal Government, is pleased to exempt, with effect from 1st July 1981, the crude oil, being the property of the Federal Government, brought into the Korangi Creek Cantonment, from payment of the octroi duty."
' Whereas the above referred section 99-A of the Cantonments Act, 1924 reads as follows:-- "99-A. General Power of Exemption.--The Federal Government may, by notification in the official gazette, exempt, either wholly or in part from the payment of any Tax imposed under this Act, any person or class of persons or any property or goods or class of property or goods".
' While subsection (2) of relevant section 60 of the said Act (already reproduced in para No,9 above) provides that the tax so imposed under this section, shall take effect from the date of its notification in the official gazette. Accordingly relevant section 60(2) specifically provides the notification of imposition of tax to be effective prospectively. Whereas section 99-A of the same Act does not confer any power for issuance of notification for exemption of such tax with retrospective effect. There is no dispute on the general proposition that a notification cannot operate retrospectively. Though this is also a well-settled principle of interpretation of a notification that the same cannot operate retrospectively but, in this connection, the contention of learned counsel for respondent No,1 is that the exemption notification issued in this case was since a beneficial notification and conferred a benefit therefore the same would operate retrospectively in view of a leading judgment delivered in Messrs Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others (1992 SCMR 1652). He referred in this regard, to 'its relevant part from para 21, which is quoted below:-- "It seems to be well-settled proposition of law that a notification which purports to impair an existing or vested right or imposes a new liability or, obligation, cannot operate retrospectively in the absence of legal sanction, but, the converse i,e, a notification which confers benefit cannot operate retrospectively, does not seem to be correct proposition of law"
' Conversely, the learned counsel for the appellant submitted that since the present notification also curtails the rights of the area people therefore the sane shall have to take effect prospectively from the date of its publication in the official gazette and not retrospectively from any prior date.
He also cited the case of Chief Administrator Auqaf v. Mst. Amna Bibi (2008 SCMR 1717) and referred the following part of its para-8:-- "It has been laid down by the superior courts that a notification which curtails or extends rights of citizens will take effect from date of its publication in gazette and not from any prior date".
' Again on the same point, the learned counsel for respondent No,1 also cited two more decisions in Ashraf Sugar Mills v. Federation of Pakistan and others (1993 CLC 910) and Collector of Central Excise and Sales Tax, Lahore v. Messrs Abdullah Sugar Mills Ltd. (2008 PTD 894) but it appears that the same principle has been followed in both these cases as was laid down by honourable Supreme Court in the case of Messrs Army Welfare Sugar Mills Ltd. And others (supra) in which the appellants-Sugar Mills, as appears, were enjoying the concessions of payment of Central Excise Duty on production of sugar under the earlier S.R.Os. But subsequently such concessions were withdrawn by way of two new S.R.Os. Both dated 3-6-1989, which were followed by a letter issued by the customs and central excise department informing the appellants of withdrawal of the exemption of the said duty and also that the entire stock of sugar available in the factories is subject to the said duty directing them to refund the amount wrongly adjusted on the basis of earlier notification granting exemption from such payment on sugar retrospectively. Thereupon, such appellants filed constitutional petitions and a Division Bench of this court dismissed/disposed of the same by a common judgment dated 29-11-1990 in the terms mentioned therein. It was challenged by the appellants and the leave to appeal was granted to them by the honourable Supreme Court to consider, inter alia, whether the rescission of earlier notification through impugned notifications dated 3-6-1989, infringed any vested right of the sugar mills and whether the official respondents could levy eritral excise duty on the sugar which was already produced by private petitioners/appellants prior to the date of above notification of 3-6-1989.
21. It appears that the said case of Sugar Mills (1992 SCMR 1652) is however distinguishable to the present case in which a liability for payment of Octroi duty was already imposed by respondent No,2 Cantonment Board vide notification dated 10-9-1976 which was a beneficial notification for the people and area of the Cantonment and it was issued after due approval of Octroi schedule by the competent authority, with previous sanction of Federal Government. Such existing right of collection of octroi duty was then entrusted to appellant for one year under a valid contract/agreement dated 1-7-1981 and the same was never denied by its executant/cantonrnent board. Thus the appellant acquired a vested right under such a contract to collect octroi duty as per notified octroi schedule for a specific . Period from 1-7-1981 to 30-6-1982 and op account of non payment of such octroi by respondent No,1.a the appellant. Filed a suit on 22-1 1-198 1 for recovery of such amount of octroi duty, but after about 6/7 years of the pendency of such suit, the exemption notification dated 31-1-1988 was issued with retrospective effect from 1-7-1981. This not only impaired the vested right of appellant but also deprived him as well as respondent No,2 of the benefit already conferred and existed in their favour retrospectively, Which also tantamount to curtailment of the right of the citizens and the public -of the cantonment area as, obviously, the taxes are usually imposed/levied by Municipal Committees, Cantonment Board, etc. Through their officials or the contractors to generate finance for the benefit . Of the area people and for public purposes and so also to develop and maintain the area and to administer, manage and run their official business/affairs smoothly being responsible for the same. So the notification in question, issued for the alleged benefit of respondent N0.1, amounts to be an act of curtailment of the beneficial rights of the people and the area of the Cantonment. Thus a - primary right/benefit, prescribed by substantive law to be drived from its specific enforcement, cannot be impaired, curtailed or taken away after expiry of a long period, retrospectively so as to defeat a claim- for certain amount for which the suit for its recovery, was already pending at relevant time.
' While arguing on retrospection the learned counsel for respondent No,1 also went on to say that legislature has ample power to legislate retrospectively and the power to legislate includes the power to legislate retrospectively, For this, he quoted M.A Rashid Khan and 2 others v. Azad Government and others (PLD 1981 .Azad J&K 30). He is right to this extent as the legislature is competent to legislate retrospectively, if there is no constitutional bar. But, such is not the point in controversy as the question involved here is .Relating to a subordinate legislation and in this respect it was held in Sheikh Fazal Ahmad v. Raja Ziaullah Khan and another (PLD 1964 SC 494) 'that a power to legislate with . Retrospective effect has never been accepted as included in power of subordinate legislation. Thus, the findings of learned Single Judge on the above point/issue is unexceptionable and as such the cross objections to it are not sustainable.
22. Learned counsel for respondent No,1 also pointed out that prior to the exemption notification dated 31-1-1988, a letter dated 31-1-1982 (Exh.7/1/A) was also issued on the same subject, by the Director to its Deputy Director, Military Lands and Cantonment Department, Ministry of Defence, Government of Pakistan, which is quoted fully, hereunder:-- "The case has been carefully examined from all angles particularly from the point of view of legal and administrative implications involved in the levy of octroi charges in this case. It has been decided at appropriate level in the Ministry of Defence that the imposition and recovery of this tax from Messrs Pakistan Refinery Ltd. Is neither logical nor fair and should not, therefore, be charged from them.
' You are, therefore, directed to please stop the Cantonment Board from demanding/recovery of the octroi duty on crude oil imported by Messrs Pakistan Refinery Ltd. With immediate effect. If your contractor concerned is not satisfied with this decision, the present contract should be terminated under its terms and conditions and a fresh contract granted by clearly exempting this commodity from octroi duty. The question of amending the octroi schedule may also be gone into, if considered legally necessary and a suitable amendment be submitted to this Department for publication in the official gazette as early as possible but not later than 28th February, 1982."
' As per the above letter, the levy and demand of octroi duty on the crude oil imported by respondent No, 1-Company was not logical or fair and therefore, a fresh octroi contract was proposed/suggested to be made exempting the crude oil from octroi duty and/or by amending the octroi schedule and such a suitable amendment was sought to be made for publication in the official gazette by 28-2-1982. But no such amendment etc. Was made in compliance of the above.
Such letter dated 31-1-1982 was even not referred in the subsequent notification dated 31-1-198'8 which is already found to be of no legal effect. However, in the above letter, it is clearly admitted that it was the respondent No,1 who imported crude oil in question and the imposition of octroi duty upon crude oil was not alleged in the above letter to be illegal or unauthorized. So mere by saying in the said letter of Government Department that it was not logical or fair, does not have the binding force to supersede the express provisions contained in the Statute under which the octroi schedule was notified with prior sanction of Federal Government. Accordingly the above mentioned executive/ administrative direction/instruction cannot be termed to be a judicial determination of the question involved in the matter.
23. The last question raised by respondent No,1 is arising out of the following findings of learned Single Judge on legal issue No,2:-- "Considering that the Cantonments fall under the Ministry of Defence and the Cantonments Act 1924, is a Federal Legislation and the Notification is issued under the power conferred by Section 60 of the Cantonments Act 1924, I find that the Cantonment Board i,e, defendant No,2 is fully authorized to levy octroi duty on goods brought into its jurisdiction".
' Respondent No,1 has questioned the above findings and has filed cross objections through its advocate who contended in this regard that since the tax on crude or mineral oil was a federal subject and was included in federal legislative list under fourth schedule of the Constitution of Pakistan, 1973 therefore, only the Parliament had the exclusive powers under Article 142(a) of the Constitution to make the law on such subject and as such the cantonment board has no power to impose or levy octroi tax on the imported crude oil and therefore, such octroi schedule in which the article of mineral oil was also included by the Cantonment Board for levy of octroi tax vide notification dated 10-9-1976 is ultra vires to the Constitution.
' The Federal legislative list, provided in Fourth Schedule, referred in clause (4) of Article 70 of the Constitution of Pakistan, 1973 prescribes relevant Entry No,51 in Part-I of Federal legislative list, as under:-- "51. Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy".
' Article 142(a) of the Constitution also provides that subject to the Constitution, the Parliament shall have exclusive power to make laws with respect to any matter in the federal legislative list. The Cantonments Act, 1924 which was extended to the whole of Pakistan, is a federal law and its relevant provisions already referred and discussed above in detail, fully cover and deal with the matter involved in this case relating to the Cantonment Board which is a statutory body. Learned counsel for respondent No,1 has not been able to successfully quote any provision of law or the Constitution to show that the powers conferred under the provisions of relevant enactment i,e, Cantonments Act, 1924, are exercised in contravention or violation of any law. On the contrary, the respondent No,1 also availed the remedy provided under section 99-A of the same Act of 1924 but without success due to the retrospection of the notification in question, which was since issued in favour of respondent No,1 under the provisions of the same Statute, hence its applicability cannot be denied by respondent No,
1. Thus the Octroi duty imposed on the import, use etc. Of the crude/mineral oil, mentioned as item No,27 in the duly approved octroi schedule issued under notification dated 10-9-1976 with previous sanction of Federal Government and also published in the official gazette in compliance of the relevant provisions of section 60 and others of the Cantonments Act, 1924 cannot be termed to be ultra vires of the Constitution in any way and therefore, such cross objections of respondent. No,1 are also riot sustainable.
' Since no one can be made liable for or exempted from the tax/duty merely by presumption and since the imposition/ levy of octroi duty is proved by the appellant to be under a lawful authority and in accordance with law therefore, the respondent No,l was to prove but has not been able to show any provision of law or the Constitution under which the exemption, concession or the immunity from payment of the tax/duty in question may be granted/ extended to it.
24. In view of the above, we hereby dispose of this appeal in the following terms:--
(a) Respondent No,1-company is held liable to pay octroi duty on the import and use of crude oil in its Refinery within the octroi limits of respondent No,2 Cantonment, to the appellant Octroi Contractor (since deceased through his L.Rs) for the period of his octroi contract from 1-7-1981 to 30-6-1982.
(b) Due to the legal and other complicated questions involved in the case, no sufficient material is brought/available on record of suit to enable the court to verify the amount claimed by appellant or to ascertain the quantum of liability on the respondent No,1, therefore, such a preliminary decree for accounts is allowed to be prepared for taking accounts 'of respondent No,1, through any appropriate mode to he adopted by the court on its original side.
(c) On completion of such inquiry/proceedings, a final decree shall be passed by the court in exercise of its original jurisdiction within a shortest possible time, in accordance with law.
(d) Thus the cross objections filed against the findings on issues Nos,1 to 3 recorded in the impugned judgment, are rejected being not sustainable.
(e) The findings on issues Nos,4 and 5 are reversed and accordingly the impugned judgment (which was not followed by a separate decree) is set aside and the R&Ps of Suit after the preliminary decree is drawn up, be sent back for compliance as mentioned above.
' This appeal stands allowed in the above terms, with no order as to the costs.
Infra Court Appeal allowed.
2013 C D 261 [Securities and Exchange Commission of Pakistan] Before Shahid Nasim, Executive Director CAPITAL INSURANCE COMPANY LIMITED: In the matter of Show Cause Notice dated 18th January, 2012, decided on 12th July, 2012.
Insurance Ordinance (XXXIX of 2000)- ----Ss. 11, 28 & 156---Failure to comply with provisions relating to "minimum paid up share capital" and "requirements as to capital"---Company had prima facie contravened provisions of Ss.28 & 11(1)(a) of Insurance Ordinance, 2000 relating to the minimum paid up capital requirement--Directors and Chief Executive of the company, in addition to the day to day running of the company and the management of its business, also had some fiduciary duties i,e,, duties held in trust and some wider obligations imposed by statute on them and the company-- Directors and the Chief Executive of the company were supposed to be well aware of their legal obligation; and the company's legal obligation in the said matter along with the consequences of the said default---Company had not complied with the statutory requirements pertinent to the minimum paid up share capital---Company was amongst the oldest and profit-making insurance companies in Pakistan---Contravention, in question did not appear to have affected the rights and interests of any of its stakeholders strictly during the period of noncompliance---Securities and Exchange Commission, in exercise of powers conferred on it under S.156 of the Insurance Ordinance, 2000, imposed a penalty of Rs,100,000 for such default/continuous default of provisions of Ss.11(1)(a) & 28 of the Insurance Ordinance, 2000---Chief Executive, the Directors and the company itself was warned and advised to exercise due caution in future while complying with the requirements of the law. [pp. 264, 266) A & B Muhammad Ishaq Butt, Director Capital Insurance Company Limited.
Date of hearing: 16th February, 2012.
' Under section 28 read with section 11(1)(a) and section 156 of the Insurance Ordinance, 2000 ' SHAHID NASIM, EXECUTIVE DIRECTOR.---This Order shall dispose of the proceedings initiated against Messrs Capital Insurance Company Limited ("the Company') for not complying with section 28 read with section 11(1)(a) of the Insurance Ordinance, 2000 ("the Ordinance").
Background Facts
2. The relevant provisions of section 11(1) of the Ordinance states that:- "11. Conditions imposed on registered insureRs,---
(I) An insurer registered under this Ordinance shall at all times ensure that:
(a) the provisions of this Ordinance relating to minimum paid-up share capital requirements are complied with"
3. The relevant provisions of section 28 of the Ordinance states that:- "28. Requirements as to ca ital.---(1) An insurer registered under this Ordinance to carry on insurance business shall have a paid-up capital of not less than the required minimum amount.
(2) For the purposes of this section, the required minimum amount is:
(a) one hundred and fifty million rupees, or such higher amount as may be prescribed by the Federal Government, for an insurer carrying on life insurance business; and
(b) eighty million rupees, or such higher amount as may be prescribed by the Federal Government, for an insurer carrying on non-life insurance business:"
4. The Ministry of Commerce vide S.R.O. Notification 291(1)/2007, dated March 26, 2007, prescribed the minimum amount of paid-up capital requirement for the insurers registered under the Ordinance. For the non-life insurers, the prescribed minimum amount of the paid-up capital was Rs,300 million as at December 31, 2011.
5. The unaudited financial statements for the three quarters ended September 30, 2011 reveal that the paid-up capital of the Company as on September 30, 2011 was Rs,262,705,750. Therefore, the Commission vide its letter No, ID/ENF/C apita1/2011/11096 dated November 21, 2011 advised the Company to provide its future plan as to how compliance with section 28 of the Ordinance shall be made before December 31, 2011.
6. The Company vide its letter No, CICL/2011/377 dated November 25, 2011, which was in response to the Commission's letter of November 21, 2011, stated that the Company is fully aware of its obligation to comply with the legal statutes being enforced by the authorities. The Company further stated that the Company intends to offer right issue to the existing shareholders for the rest of the amount i,e, RS, 37.29 million to meet the paid-up capital requirement of Rs, 300 million before close of the year 2011,
7. However, the Company via its letter No,CICL/2011/ 136 dated December 28, 2011 requested the Commission to grant an extension of one year to the Company for the increase in its paid-up capital based on the fact that the right shares offered by the Company were not subscribed by the existing shareholders of the Company up to the last date of right acceptance i,e, December 28, 2011.
8. The Commission vide its letter No, ID/ENF/Capital Ins/2011/11862 dated January 9, 2012 refused to grant extension to the Company for the increase in paid-up capital, based on the fact that the Commission has no power to grant any relaxation/exemption in this regard.
9. Therefore, the Company has prima facie contravened the provisions of section 28 read with section 11(1)(a) of the Ordinance, relating to the minimum paid-up capital requirement as on December 31, 2011.
Show Cause Notice
10. Accordingly, the Show Cause Notice was issued on January 18, 2012 under section 28 read with section 11(1.)(a) read with section 156 of the Ordinance to the Chief Executive and Directors of the Company, calling 'upon them to show cause as to why the penalty, as provided in section 156 of the Ordinance, should not be imposed upon them and/or upon the Company for not complying with provisions of section 28 read with section 1 1(11(a) of the Ordinance.
Company's Response to the Show Cuase Notice
11. The Company, via its letter No,CICL/2012/24 dated January 28, 2012, stated that the Company is not underwriting any new insurance business since January 1, 2012 for the reason that despite all its bona fide efforts, the Company has not been able to meet the paid-up capital requirement. The Company further stated that due to the reasons given in their letter dated December 28, 2011, the Company is not at faith. Hearing of the Case
12. The he aring in the matter was scheduled for February 16, 2012, which was communicated to the Company via hearing notice dated February 3, 2012.
13. The said hearing was attended by Mr. Muhammad Ishaq Butt, the Director of the Company. Brief proceedings of the hearing are as follows:--
(a) Mr. Muhammad Ishaq Butt (the "Company's representative") presented the Power of Attorney to act on behalf of the Chief Executive Officer and all the Directors of the Company in order to dispose of the proceedings of the matter.
(b) Mr. Muhammad Ishaq Butt stated that they have already submitted their reply to the Show- Cause Notice vide their letter of January 28, 2012. As a gesture of goodwill, he stated that the Company has already stopped underwriting any new business since January 1, 2012.
(c) The Company's representative further stated that the Company has not been able to meet the minimum paid-up capital requirement, as the Company's existing shareholders did not subscribe to the offer for right issue, and therefore, the Company is planning to pursue with its merger with another insurer.
(d) The Company's representative also mentioned that the Company is looking forward to wind up as their last option i,e,, in case they fail to fulfill the requirement of the Ordinance relating to the minimum paid-up share capital.
(e) The Company's representative requested for an extension/relaxation in the requirement for minimum paid-up share capital up till June 30, 2012.
(f) Executive Director - Insurance clarified to the Company's representative that the Commission cannot discriminate amongst the insurers, and hence, it may not be able to relax the requirement of paid-up capital. Consideration of Company's Submissions
14. The Company vide their letter No, CICL/2012/20 dated February 22, 2012 sought a two weeks time for filing their plan to raise the paid-up capital, stating that the Company has already stopped underwriting new business since January 1, 2012, and that the Company has, on its own motion, informed the Commission that they have failed to meet the minimum paid-up capital requirement.
15. However, the Company vide their letter No,CICL/2012/20 dated March 8, 2012 submitted their plan/ option as to how they have planned to raise their paid-up capital to Rs,300 million. These options were to offer unsubscribed right shares to an investor and to consider the the prospects of merger with any other insurer.
16. The options given by the Company vide their letter of March 8, 2012 show the Company's seriousness towards the resolution of the matter However, the Company had an ample time to plan the issuance of additional shares in order to meet the statutory obligation of minimum paid- up share capital when the Commission wrote to the Company on November 21, 2011. Nevertheless, it would be pertinent to consider that the non-subscription of right shares is beyond the control'of the Company itself.
17. The Commission wrote letter No, ID/ENF/Capital/ 2012/13689 dated June 6, 2012 to the Company, whereby the Company was advised to apprise about the status of enhancement of the paid up capital, as required under section 28 of the Ordinance.
18. The Company, vide their letter No, CICL/2012/186/ dated June 21, 2012 informed the Commission that the Company is still in the process of finding an investor or an opportunity of merger with another company, which revealed that the Company has still not complied with the minimum paid up capital requirements as required under section 28 of the Ordinance.
Conclusion
19. I have carefully examined and given due consideration to the written and verbal submissions of the Company, and have also referred to the provisions of the Ordinance. I am of the view that there has been a default under the relevant provision of the Ordinance. The Company has also admitted this as well, even prior to the issuance of the Show Cause Notice dated January 18, 2012.
20. Before proceeding any further, I find it relevant to discuss the duties of the Directors and the Chief Executive. The Directors and the Chief Executive of the Company, in addition to the day to day running of the Company and the management of its business, also have some 'fiduciary' duties i,e, duties held in trust and some wider obligations imposed by statute on them and on the Company.
The Directors and the Chief Executive of the Company are supposed to be well aware of their legal obligation and the Company's legal obligation in the aforesaid matter along with the consequences of the said default.
21. As a matter of fact, the Company has yet not complied with the statutory requirement pertinent to the minimum paid-up share capital.
22. The Company is amongst the oldest and profit-making insurance companies in Pakistan.
23. This contravention does not appear to have affected the rights and interests of any of its stakeholders strictly during the period of non-compliance. Order
24. In view of the foregoing material information, I, in exercise of powers conferred on me under section 156 the Ordinance, impose a penalty of Rs,100,000 for making such default/continuous default of the provisions of section 28 read with section 11(1)(a) of the Ordinance. The Chief Executive, the Directors and the Company itself is, hereby, warned and advised to exercise due caution in the future whilst complying with the requirements of the law.