Under Section 166 read with Section 156 of the Insurance Ordinance, 2000.
This Order shall dispose of the proceedings initiated against the chief executive and directors of M/s. Premier Insurance Limited (the "Company") for alleged non-compliance with Section 166 read with Section 156 of the Insurance Ordinance, 2000 (the "Ordinance"). The chief executive and directors of the Company shall be referred to as the "Respondents" hereinafter.
A. Background
2. An onsite inspection of M/s. Premier Insurance Limited (the "Company") was conducted on the order dated November 27, 2012, under Section 59A of the Ordinance, during which, the inspection team observed that the Company underwrote risks related to assets that were owned by the public sector entities in violation of Section 166 of the Ordinance.
3. The following instances were observed where the public property was insured by the Company: {{TABLE}} Policy number(s)
Name of Agent Virtual University of Pakistan 2012/08/LHRTPCDN09675 Policy Issue Date Class of Business Gross Premiu m (Rs.)
The Institute of Chartered Accountants Of Pakistan 2012/05/HOFFNDN05230 19/10/2012 Private Car (Comprehensive) 562098 The Institute of Chartered Accountants Of Pakistan 2012/06/HOTMCDN17621 12/07/2012 For Normal Policy 247980 Virtual University of Pakistan 2012/12/LHRTPCDN09892 18/07/2012 Motor Cycle (Comprehensive) 72748 The Institute of Chartered Accountants Of Pakistan 2011/201/15/E024/D/P/02302 19/12/2012 Private Car (Comprehensive) 31872 The Institute of Chartered Accountants Of Pakistan 2012/06/HOMILDP16002 31/07/2012 Electronic Equipment 22161 The Institute of Chartered Accountants Of Pakistan 2012/08/HOMILDP16593 26/06/2012 Marine Cargo (inland) 1005 The Institute of Chartered Accountants Of Pakistan 2012/09/HOMILDP17140 09/08/2012 Marine Cargo (inland) 3213 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 27/09/2012 Marine Cargo (inland) 3213 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 11/09/2012 Motor Cycle (Comprehensive) 3126 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 22/11/2012 Motor Cycle (Comprehensive) 2415 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 25/09/2012 Motor Cycle (Comprehensive) 2233 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 27/08/2012 Motor Cycle (Comprehensive) 2195 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 03/11/2012 Motor Cycle (Comprehensive) 2012 The Institute of Chartered Accountants Of Pakistan 2011/201/15/E024/D/P/02302 18/07/2012 Motor Cycle (Comprehensive) 1709 The Institute of Chartered Accountants Of Pakistan 2012/07/HOTMCDP19921 05/05/2012 Electronic Equipment 1607 The Institute of Chartered Accountants Of Pakistan 2011/ 201/13/ A03/ D/ P/ 14753 30/11/2012 Motor Cycle (Comprehensive) 1535 The Institute of Chartered Accountants Of Pakistan 2011/ 201/13/ A03/ D/ P/14753 19/03/2012 Motor Cycle (Comprehensive) 1430 The Institute of Chartered Accountants Of Pakistan 2011/201/13/A03/D/P/14753 19/03/2012 Motor Cycle (Comprehensive) 1425 The Institute of Chartered Accountants Of Pakistan 2011/201/13/A03/D/P/14753 19/03/2012 Motor Cycle (Comprehensive) 1265 The Institute of Chartered Accountants Of Pakistan 2011/ 201/ 13/ A03/ D/ P/14753 21/04/2012 Motor Cycle (Comprehensive) 815 The Institute of Chartered Accountants Of Pakistan 2011/ 201/13/ A03/ D/ P/14753 08/05/2012 Motor Cycle (Comprehensive) 718 The Institute of Chartered Accountants Of Pakistan 2011/201/15/E024/D/P/02302 13/04/2012 Motor Cycle (Comprehensive) 539 The Institute of Chartered Accountants Of Pakistan 2011/ 201/13/ A03/ D/ P/ 14753 12/06/2012 Electronic Equipment 200 {{TABLE}}
4. In view of the violations highlighted in the preceding paras, the Commission initiated penal action(s) by issuance of a Show Cause Notice on October 22, 2014 to the Respondents, calling upon them to show cause as to why the fine, as provided under Section 156 of the Ordinance should not be imposed fo, non-compliance with Section 166 of the Ordinance.
5. In response to the said Show Cause Notice, the Respondents, vide their letter dated September 22, 2014, stated that: "...we at Premier Insurance Limited concur with your view of strict adherence to the statute and its provision in letter and spirit. However we inadvertently booked a public sector client by extract similarities with ICAP that made us non-compliant to Section 166 of the Insurance Ordinance 2000.
Although ICAP is referred to as public sector organization in the subject show cause notice but ICAP itself claims to be an autonomous body registered under Chartered Accountants Ordinance 1961.
When booking business for ICAP and on recent re-confirmation on its renewal ICAP has stated that they remain an autonomous body and are not categorized as public centre although four government nominees are on their council but there are only governed by their ordinance. ICAP on its website has categorically stated that before the President of Pakistan assent in 1961 the Pakistan Institute of Accountants was formed with the idea to be an independent body and to date it operates under the same idea and is not to be classified as Public Sector Organization.
Inadvertently we carried the same view for the Virtual University of Pakistan in which we find ourselves to be incorrect for the oversight on the matter and are taking steps to rectify the matter by communicating the withdrawal of our services on expiry of the current insurance periods they have been covered for. The services would only be renewed if they provide us with the NOC for taking services from another insurer other than the National Insurance Corporation.
During the onsite inspection we had debriefed the inspection team that the onus should lie with insured instead of the Insurer as it is the insured that reaps benefit out of the services. However it is our opinion that the Company would like to raise and does not in any want to deflect from the fact that we inadvertently violated section 166 by booking Virtual University of Pakistan.
Keeping in view our steps to close business with Virtual University and the fact that ICAP is not covered under the public sector. Hope the above explanation satisfies the queries raised in the show cause notice. We would request an opportunity for our Senior General Manager and I to appear in person and present our case in front of you allowing a better understanding of our actions resulting in satisfaction of the queries raised in the show case notice."
6. In the above quoted response of the Respondents, it appeared that the Respondents considered the Institute of Chartered Accountants of Pakistan (ICAP) as a non-public sector organization / statutory corporation and that it did not fall within the scope of Section 166 of the Ordinance.
However, the Respondents admitted that the Virtual University (VU) was a public sector organization, and that the Company violated the provisions of Section 166 of the Ordinance issuing a policy to the VU.
7. The Respondents further stated that the insured should have been penalized for contravening the provisions of Section 166 of the Ordinance, as it is always the insured that reaps benefit out of the services being provided by an insurer.
B. Hearings
8. The Respondents requested for the hearing to defend their stance through the abovementioned response, and therefore, the Commission, vide its notice no. ID/Enf/Premier/ 2014/ 21089 dated October 21, 2014, scheduled the hearing for November 18, 2014 at 3:00 p.m. The said hearing was adjourned on the request of the Respondents and therefore was rescheduled for December 4, 2014 at 12:00 noon through notice no. ID/ Enf/Premier/ 2014/ 21256 dated November 11, 2014. The hearing was attended by Mr. Iftikhar Gadar, Chief Financial Officer and Mr. M. K. Baig, Senior General Manager of the Company.
9. The Respondents gave their arguments to defend the proceedings of the Show Cause Notice during the hearing of December 4, 2014. However, the matter could not be decided on the basis of the arguments and submissions made by the Respondents. Therefore, another opportunity was provided to the Respondents, vide notice no. ID/ Enf/Premier/2015/396 dated February 26, 2015, through which hearing was scheduled for March 19, 2015 at 11:00 a.m. through video link connecting the Head Office with the Karachi Office of the Commission. The hearing was attended by Mr. Iftikhar Gadar, Chief Financial Officer and Mr. M. K. Baig, Senior General Manager of the Company, for and on behalf of the Respondents.
10. Brief proceedings of the hearing of March 19, 2015 were as follows: a. Prior to the start of the hearing proceedings, the Respondents handed over the General Power of Attorneys in favor of Mr. Iftikhar Gadar, Chief Financial Officer and Mr. Mirza Khadim Baig, Senior General Manager, to the Commission; b. The Respondents were asked to present their stance, on which the Respondents stated that the Government of Pakistan published classification of all public sector entities i.e. the ministries and their respective associated departments / corporations in which ICAP was not listed as a public sector entity; c. The Respondents further stated that due to the reason that the Government itself did not classify ICAP as a public sector entity; therefore the Company treated it as an autonomous body. The Respondents further mentioned that ICAP itself claims to be an autonomous body registered under Chartered Accountants Ordinance, 1961 and that it does not fall under the category of a public sector corporate, other than a company, established or set up by the Federal Government or a Provincial Government in pursuance of any law.
14. In the instant case, the ICAP has been established through an act of parliament named as "Chartered Accountants Ordinance, 1961", and thus, it becomes imperative to declare ICAP as a "statutory corporation" in terms of Section 166 of the Ordinance. So, any kind of insurance of properties, whether movable or immovable owned by ICAP, shall fall within the definition of "public property" in light of Section 166 of the Ordinance. And the same treatment would also apply to the VU. Therefore, the Company issued insurance policies to ICAP and VU in violation of Section 166 of the Ordinance.
E. Overall Conclusion
15. I have carefully examined and given due consideration to the written and verbal submissions of the Respondents, and have also referred to the provisions of the Ordinance and other legal references, I am of the view that there has been an established default of the Section 166 the Ordinance. However, before proceeding further, I find it relevant to discuss the duties of the directors whom are required to be vigilant and perform their duties with due care. The directors are supposed to be well aware of their legal obligations in connection with the requirement of Rules and Regulations framed for an insurer.
16. After carefully examining the arguments and studying the facts and findings of the case as mentioned in the above paras of this Order, the default of Section 166 of the Ordinance has been established, as aforesaid. Therefore, the penalty as provided under Section 156 of the Ordinance can be imposed onto the Respondents.
17. The provisions of Section 156 of the Ordinance state that: "Penalties. - Except as otherwise provided in this Ordinance, any insurer who makes default in complying with or acts in contravention of any requirement of this Ordinance, or any direction made by the Commission, the Commission shall have the power to impose fine on the insurer and, where the insurer is a company, any director, or other officer of the company, who is knowingly a party to the default, shall be punishable with fine which may extend to one million rupees and, in the case of a continuing default, with an additional fine which may extend to ten thousand rupees for every day during which the default continues."
18. However, the Respondents were under the misconception that ICAP does not fall under the category of "public property" as defined under Section 166 of the Ordinance. The misconception or confusion took its root due to non-inclusion of ICAP in the list of functional and legal classification of corporations, autonomous bodies and attached departments under the Federal Government (April 2008), which was compiled by the National Commission for Government Reforms Prime Minister's Secretariat. It would be pertinent to state that the said list was not backed by any statute or law, and that it was compiled by the National Commission for Government Reforms to review the size and structure of the Government with the objective of providing a modern, efficient and accountable system of governance. Therefore, the aforesaid classification list cannot be considered as exhaustive for the purpose of "public property" as defined under Section 166 of the Ordinance.
19. Moreover, the Respondents have admitted their mistake of issuance of policy to VU, which was an oversight on their part.
F. Penalties and Directions
20. In exercise of the power conferred on me under Section 156 of the Ordinance, I, take a lenient view by not imposing the penalty as provided under the said Section of the Ordinance, and thus condone the Respondents for the reasons and circumstances as mentioned in the foregoing paras hereof. However, the Respondents are hereby strictly warned and directed to take immediate steps to discontinue issuing policies in respect of any "public property". The Respondents are further directed to note that in case of similar non-compliance in future, the Commission shall take severe action. Moreover, the Respondents are hereby directed to observe strict compliance of the provisions of the Ordinance, Rules and Regulations in future.
21. However, in case any willful misstatement is subsequently found in the submissions made by the Respondents, the Commission shall initiate proceedings under Section 158 of the Ordinance.
22. This Order is issued without prejudice to any other action that the Commission may initiate against the Company and / or its management (including the Chief Executive Officer of the Company) in accordance with the law on matters subsequently investigated or otherwise brought to the knowledge of the Commission.