1. MUNIB AKHTAR, J.---There are four petitions in all, each seeking the winding up of the respondent company ("Company"). The Company is in the (non-life) insurance business and the petitioners are its policy holders, Their grievance is that the insured event(s) having occurred and claims having been lodged, they became entitled to the relevant payments from the Company. These, the Company failed to make in full. The petitioners submit that they are the creditors of the Company and it has been unable to pay its debts. It is therefore prayed that it be wound up.
2. Learned counsel for the petitioners submitted that each petitioner had insured raw cotton stocks with the Company against fire hazard. I may explain that although there are four petitions, there are only three petitioners, one petitioner having claims against the Company under two separate policies, for which two different petitions were filed. In three petitions, the stocks were lying in a common warehouse maintained by TCP. On 16.03.2013, there was a fire at the warehouse with the result that the petitioners lost their stocks. The Company was duly informed and it appointed surveyors to inspect the site and report on the incident. The report was submitted and the surveyors assessed the loss. It was submitted that the Company accepted the report and its liability towards the petitioners, Reliance was placed on the Company's letter dated 05.06.2013. In the fourth petition, the goods (also raw cotton) were destroyed by fire while in transit from Chistian (in Punjab) to Karachi on or about 13.02.2013. However, the essential facts were the same: the claim was lodged, it was investigated and assessed, liability was accepted but the claim was not settled. Learned counsel submitted that the Company did made partial payments on the policies and details of the payments so made, as per the petitioners, have been given. However, the policies have not been settled in full. There was correspondence between the parties, and ultimately the petitioners served notice under section 306 of the Companies Ordinance, 1984. The amounts still not being satisfied, the present petitions were presented.
2. Learned counsel referred to the counter affidavit filed by the Company. It was submitted that it was clear from the counter affidavit that there was no reasonable or bona fide defense to the petitioners' claims. Learned counsel submitted that the principal defense put up by the Company was that its own claim with its re insurer, Pakistan Reinsurance Co. Ltd., had not been settled and that had created difficulties with regard to settling the petitioners' claims. In this regard, learned counsel drew attention to a letter dated 24.07.2014 from the re insurer to the Company (annexed to the counter affidavit), in witch the former had complained that the latter had not paid its premiums on the reinsurance policy/policies in a timely manner. The re- insurer had refused to settle the claim made on it by the Company unless the outstanding premiums were paid in full. According to learned counsel, this put(sic.) paid even to the defense, such as it was, that the Company had sought to make out. Learned counsel also made certain submissions on the law, which are considered below. It was prayed that the petitioners were entitled to an order winding up the Company.
3. Learned counsel for the Company candidly did not deny the basic facts as asserted by the petitioners, Learned counsel submitted that the Company was facing a liquidity crunch but was keen to settle its obligations. The re-insurer had wrongly held up the payments that were due to the Company and this had contributed to the difficulties faced by the latter. Payments had been made to the petitioners despite these difficulties. The Company had even offered certain property to the petitioners in lieu of unpaid balance amounts, but this offer had been rejected. It was submitted that by the time the petitions came to be heard the Company had settled around 75% of the claims, although I may note that this is disputed by the petitioners, However, it is undisputed that some payments were also made after the petitions were filed.
4. Thus, learned counsel submitted, the Company was striving diligently to settle the claims and there was every expectation that the policies would be repaid in full. To wind up the Company in such circumstances would be contrary to the facts and circumstances before the Court as also the relevant provisions of law. The petitions ought therefore to be dismissed.
5. Since payments had been made in part, and even after the petitions were filed, I had directed the petitioners to file a statement of payments made, as per their case. Such statement was filed on 19.12.2014. It shows that in the case of three petitions, around two-thirds of the claim has been settled. In respect of the fourth (which is by far the smallest claim), the petitioner's case is that only around a quarter of the claim has been settled. According to the petitioners, on an overall basis, the position that emerged was as follows: Position Total Claim (overall)Receipts As % Balance Before petitions filed157,652,86252,401,55733.24 105,251,305 After petitions filed 49,096,77431.14 Final position157,652,862101,498,33164.38 56,154,531 I have heard learned counsel as above, considered the record and examined the case cited.
6. Since the Company is in the insurance business, it is governed and regulated both by the Companies Ordinance, 1984 and the Insurance Ordinance, 2000. Section 305 of the former, which sets out the grounds on which a company can be wound up, is well known. Clause (e) provides that the Court may wind up a company if it is unable to pay its debts. Reference should also be made to section 503, subsection (1)(a) of which provides that the Companies Ordinance shall apply "to insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938". The reference to the latter statute ("1938 Act"), which was the predecessor legislation, must of course now be taken as a reference to the Insurance Ordinance, 2000.
7. The Insurance Ordinance itself, like the 1938 Act, has certain provisions relating to the winding up of insurance companies. Section 143 of the Insurance Ordinance provides as follows: "143. Winding up by the Court.---(1) The Court may order the winding up in accordance with the Companies Ordinance, 1984 (XLVII of 1984), of any insurance company and the provisions of that Ordinance shall, subject to the provisions of this Ordinance, apply accordingly.
(2) The Court may, provided that it is satisfied that such order is in the interests of the policy holders of the company, order the winding up of an insurance company:
(a) on the grounds set out in section 305 of the Companies Ordinance 1984 (XLVII of 1984), but subject always to the provisions of this Ordinance;
(b) if with the sanction of the Court previously obtained a petition in this behalf is presented by shareholders not less in number than one-tenth of the whole body of shareholders and holding not less than one-tenth of the whole share capital or by not less than fifty policy holders holding participating policies of life insurance other than paid up policies, that have been in force for not less than three years and have a total sum insured, including bonuses added to the sum assured of not less than fifty million rupees; or
(c) if the Commission, who is hereby authorized to do so, applies in this behalf to the Court on any of the following grounds, namely:- that the company having failed to comply with any requirement of this Ordinance has continued such failure or having contravened any provision of this Ordinance has continued such contravention for a period of three months after notice of such failure or contravention has been conveyed to the company by the Commission; that it appears from the returns furnished under the provisions of this Ordinance, or from the results of any investigation made thereunder, or from a report made by any Administrator appointed thereunder that the company is insolvent; or that the continuance of the company is prejudicial to the interests of the policy holders, An insurance company in respect of which a winding up order is made shall immediately cease to enter into new contracts of insurance, whether in life or non-life insurance.
8. All contracts of non-life insurance issued by an insurer which are in force at the date of an order for the winding up of the insurer, shall stand cancelled as at the date of the order or at such later date as may be specified in the order."
9. Section 53 of the 1938 Act had been in the following terms: "53. Winding up by the Court.---(1) The Court may order the winding up in accordance with the Companies Act, 1913, of any insurance company and the provisions of that Act shall, subject to the provisions of this Act apply accordingly.
(2) In addition to the grounds on which such an order may be based, the Court may order the winding up of an insurance company:
(a) if with the sanction of the Court previously obtained a petition in this behalf is presented by shareholders not less in number than one-tenth of the whole body of shareholders and holding not less than one tenth of the whole share capital or by not less than fifty policy-holders holding policies of life insurance that have been in force for not less than three years and are of the total value of not less than fifty thousand rupees; or
(b) if the Controller of Insurance, who is hereby authorized to do so, applies in this behalf to the Court on any of the following grounds, namely: that the company has failed to deposit or to keep deposited with the State Bank of Pakistan the amounts required by section 7 or section 98; that the company having failed to comply with any requirement of this Act has continued such failure or having contravened any provision of this Act has continued such contravention for a period of three months after notice of such failure or contravention has been conveyed to the company by the Controller of Insurance; that it appears from the returns or statements furnished under the provisions of this Act or from the result of any investigation made thereunder that the company is insolvent; or that the continuance of the company is prejudicial to the interest of the policy-holders,"
8. When the two sections are compared, there are similarities to be found but also important differences. Section 53 had simply stated, in its subsection (1), that an insurance company could be wound up, subject to the Act, on any of the grounds available for the winding up of companies under company law legislation. Subsection (2) provided for certain additional grounds. Subsection (1) of section 143 is cast in the same general terms as was subsection
(1) of section 53. However, subsection (2) is worded differently. It does contain more or less the same (additional) grounds to be found in subsection (2) of section 53. However, it also, in its first clause, makes specific reference to the grounds set out in section 305 of the Companies Ordinance. Furthermore, and this is the point of real divergence, subsection (2) of section 143 uses in its opening paragraph certain words not to be found in section 53: the Court may order the winding up of an insurance company "provided that it is satisfied that such order is in the interests of the policy holders of the company". Prima facie the new language used in section 143(2) are words of limitation, and they appear to have important consequences: they either act upon the very jurisdiction of the Court to wind up an insurance company or, at least, control the manner in which such jurisdiction can, or ought to, be exercised. During the hearing, I had specifically drawn the attention of learned counsel to these words, and invited submissions in this regard. Learned counsel for the petitioners submitted that these words ought to be construed in the same manner as in subsection (2)
10. (c)(iii), which also refers to the "interests of the policy holders". Learned counsel also referred to Controller of Insurance v. Pakistan Insurance Co. (Pvt.) Ltd. PLD 1993 Kar. 720 (SB). I may state immediately that, with respect, I did not find the cited decision of any direct relevance for the point under consideration. Nor, with respect, am I satisfied that because subsection (2)(c)(iii) refers to the policy holders of the company, that sheds any light on the proper application of the words used to open the subsection.
11. How then is one to construe those words, i,e., that the Court may order the winding up of an insurance company "provided that it is satisfied that such order is in the interests of the policy holders of the company"? (The words in quotes are, for convenience, hereinafter referred to as the "new words") As noted above, the opening paragraph of subsection (2) controls not merely grounds analogous to what were the "additional" grounds of section 53(2), but also, by virtue of clause (a), the grounds on which a company can be wound up under section 305 of the Companies Ordinance. The new words are clearly intended to be words of limitation. Do they go to the very root, so that if the Court is not so satisfied, it does not have the jurisdiction to wind up the company, or are they intended to be Words that only control or regulate the manner in which the Court is to exercise its jurisdiction? In my view, keeping in mind the language used, the new words go to the root of the Court's jurisdiction. In other words, the requirement imposed by the new words is not merely a factor that the Court must take into consideration while deciding whether to exercise its discretion to wind up the company. Had that been the intent, then the words used would have been similar to something such as the following: 'the Court, while deciding whether to wind up the company, shall [or must] take into consideration whether an order of winding up will be in the interests of the policy holders of the company'. Then, the new words would have simply been one factor among others (and perhaps many) for the Court to consider.
12. The actual words however are cast in more imperative terms. The sense in which the word "provided" is used is that of "only if". Therefore, unless the Court is so satisfied, it cannot make an order winding up an insurance company no matter how strongly a case is otherwise made out against it on any of the grounds enumerated in the various clauses of subsection (2).
13. The next question that arises is as to what is meant by the "policy holders of the company"? In my view, the policy holders are to be considered as a whole. However, this observation must be refined. If the company does only one type of insurance business, then of course there is no issue. But if it does more than one type of insurance business, then the Court may have to consider the various "categories" into which the policy holders may fall and give appropriate consideration to the "weight" (i,e., importance or relevance) to be assigned to each "category" for purposes of its satisfaction, as required by the new words. Be that as it may, the question with which I began this para leads to another question. What if the petition for winding up is presented by one or more of the policy holders: are they also to be taken into consideration while determining what lies in the interests of the policy holders as a whole? As is obvious, this is a question of no little importance for present purposes. In these petitions, the petitioners are policy holders, and they make their claim directly on the policies issued by the Company. However, in order to answer this question I will, for reasons that will become clear, have to take up another question first.
11. Given what it is that the new words require, on whom should lie the onus of satisfying the Court in terms thereof, and what ought to be the material on which the Court bases its decision? The initial response would undoubtedly be that the onus lies on the party seeking the relief, i,e., the petitioner seeking to wind up the company. But there is a difficulty here.
14. The petitioner, may not have access to full information as regards the company's affairs, The petitioner must of course be able to make out a case for winding up the company on whatever ground(s) he avers in his petition. But that may not be enough for purposes of the Court's satisfaction in terms of the new words. It is only the company that has full access to its own records, including in particular information relating to its policy holders as a whole.
15. To place the onus on the petitioner even as regards the new words may make it very easy for a company that ought otherwise to be wound up to escape this fate by the simple expedient of withholding information from the Court. Since I have held that the new words go to the very root of the Court's jurisdiction, the Court may have no option but to dismiss the petition. Such could not have been the law-maker's intent in using the new words. Now, one of the fundamental principles of insurance law is that insurance contracts are made in utmost good faith. This means (as presently relevant) that the prospective insured must make full disclosure of all relevant facts to the insurer. There must be no concealment. This is so even (and indeed, especially) if after considering all the facts so presented, the insurer refuses to issue a policy. I would utilize the spirit of this principle (i,e., of utmost good faith) here, as regards the new words, to put the burden on the company. The company must place all the relevant information about its affairs before the Court as can reasonably be regarded as necessary in order for the Court to properly determine whether it is in the interests of the policy holders for a winding up order to be made. There must be no concealment. It is the company's responsibility and duty to make full disclosure.
16. But what if the company fails or refuses to do so? In my view, the Court will then be at liberty to draw such inference as it deems appropriate from the company's lack of candor and failure to comply with its duty. Furthermore, the Court would also be at liberty to proceed to consider the matter of its satisfaction (in terms of the new words) on such material as is actually before it. And this brings me back to the question posed but left unanswered in para 10 above: if the petitioners are policy holders, are their interests also to be taken into account by the Court? In my view, this question ought, generally, to be answered in the negative. By reason of the very fact that such policy holders have moved the Court for the company's winding up, they have indicated unambiguously where their interests lie. But those may well be at odds with that of the other policy holders, when taken as a whole. Now, if the company has fulfilled its obligation and duty to make full disclosure of all the material information regarding its affairs, as just noted, then the Court would have all the necessary facts before it for purposes of making a determination in terms of the new words. In such situation the petitioners should be excluded when considering what is in the interests of the policy holders as a whole. However, if the company fails to make full disclosure as required of it, then the situation would be different. The Court would then be entitled to proceed on the basis of the record and information actually before it. Then, it would also be entitled to take into consideration the position of the petitioning policy holders, It may well be that in such a situation the Court may regard the petitioning policy holders as "stand-ins" for the policy holders as a whole, and proceed accordingly.
17. In my view that is the situation in the present case. Had the Company made full disclosure of its affairs as required of it, then I would have disregarded the present petitioners while considering whether I am satisfied that an order of winding up would be in the interests of the policy holders as a whole. However, the Company has made no such disclosure. Indeed, it has made no disclosure at all. Therefore, for the reasons given above, I am, in the facts and circumstances before me, entitled to take the present petitioners into consideration while determining whether an order to wind up the Company will be in the interests of the policy holders thereof.
18. Now, the petitioners' claims are not denied. They are indisputably the creditors of the Company, which has been unable to settle their claims in full. Notices under section 306 have been issued. In my view the petitioners have been able to successfully invoke clause (e) of section 305 of the Companies Ordinance, i,e., the Company is unable to pay its debts. The ground on which they seek to wind up the Company falls also within clause (a) of subsection
(2) of section 143. Since, as noted above, the Company has failed to make any disclosure regarding its affairs, I regard the petitioners as "stand-ins" for the Company's policy holders as a whole for purposes of the new words. In my view, it is in the interests of the policy holders of such an insurer as the Company, i,e., one that cannot settle in full policy claims as and when they fall due, for it to be wound up. However, at the same time, due consideration must be given to the fact that the Company has made payments to the petitioners and did so even after the petitions were presented. Reference in this regard may be made to the table in para 5 above. Since the Company has not produced any credible figures and statements/account of payments, I accept the figures given by the petitioners for present purposes.
15. Taking all the factors into consideration, I make a conditional order of the winding up of the Company. If the Company makes payment of the balance amount (i,e., Rs, 56,154,531/-) within six months from today, then the petitions shall be deemed dismissed. Otherwise, the winding up order will become absolute and operative at the conclusion of the six months. The payment to be made by the Company must be made to the Nazir of the Court and may be made in one lump sum or in such manner, periodic or otherwise, as the Company deems appropriate.
19. However, full payment must be made within the stipulated period, and payment of any lesser sum shall, notwithstanding anything herein contained, make the order of winding up order absolute. The Nazir will, after the period of six months, move a reference for pro rata disbursement of any amounts as received by him, and at that stage the Company will be entitled, if it so desires, to contest the balance amount as claimed by the petitioners and state the amount that, according to it, is actually due on any of the policies. If so contested, the matter will be resolved in such manner as the Court deems appropriate. If the winding up order becomes absolute then the Official Assignee shall act as the official liquidator of the Company. For purposes of subsection (4) of section 143, the operative date shall be the date on which the winding up order becomes absolute and operative, if such be ultimately the case. A copy of this order shall be sent immediately by the office to SECP for information and necessary action