1. SHAHID KARIM, J. --- This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 seeks the following prayer:-- (i)"The respondents No. 2 and .3 be directed to reduce the minimum statutory deposit requirement for the petitioner to an amount of zero under Section 29 of the Insurance Ordinance, 2000.
2. (ii)Rule 13(1) of the SECP (Insurance) Rules, 2002 be declared ultra vires and illegal having been passed in violation of the Insurance Ordinance, 2000 and Constitution of Pakistan, 1973.
3. (iii)The impugned order dated 13.11.2008 be declared illegal being ultra vires and in violation of the Insurance Ordinance, 2000 and Constitution of Pakistan, 1973.
4. (iv)The respondent No. 2 be directed to calculate the minimum solvency requirement of the petitioner in accordance with Section 36(3)(b) or (c) of the Insurance Ordinance, 2000.
5. (v)During the pendency of the writ petition, the operation of the impugned order dated 13.11.2008 be suspended and the petitioner be allowed to continue its lawful business."
6. 2.This order will also decide a connected appeal C.A. No. 1 of 2008 which is an appeal under Section 34 of the SECP Act, 1997. The challenge in appeal is to an order dated 13.11.2008 passed by the Appellate Bench of the SECP by which the appeal filed by the Asian Mutual Insurance Company (Guarantee) Limited ("Asian Mutual") was dismissed in the following terms:-- "15. For the reasons stated the appeal is not maintainable. The Appellant had sufficient time to comply with the requirements of law and which it has failed to do. The Appellant is directed to strictly comply with the impugned Directive. We further direct that the Appellant shall cease to carry out any kind of Insurance business."
3. The Constitutional petition and the Commercial Appeal are inextricably linked to each other as Asian Mutual challenges the constitutionality of rule 13(1) of the SECT' (Insurance) Rules, 2002 ("the Rules, 2002"). If it were held to be ultra vires the powers of the SE'CP and thus unconstitutional, the impugned order passed by the Appellate Bench and the subject-matter of the Commercial Appeal will also be declared as without lawful authority and the condition imposed by rule 13(1) of the Rules, 2002 will, not be applicable to Asian Mutual. Rule 13 to which a challenge has been laid and which according to the Asian Mutual is the primary impediment in the way of Asian Mutual continuing with its business and which formed the foundation of the Appellate Bench's order is to the following effect:-- 13.Solvency of non-life insurer.-- (1) For the purposes of clause (a) of sub-section (3) of Section 36 of the Ordinance, the following shall be the prescribed amount, namely:-- (a)In the case of an insurance company registered after the commencement date, fifty million rupees; and (b)In the case of an insurance company registered at the commencement date:-- (i)the amount applicable under the repealed Act, until the 31st December, 2002, (ii)fifteen million rupees until the 31st December, 2003: (iii)twenty-five million rupees until the 31st December, 2004; and (iv)fifty million rupees until the 31st December, 2005, and thereafter,"
7. 4.For the purposes of these proceedings we are concerned with sub-rule (1) of rule 13, which has been enacted to give effect to clause (a) of sub-section (3) of Section 36 of the Insurance Ordinance, 2000 ("the Ordinance 2000"). The Rules, 2002 have been enacted by the SECP in exercise of the powers conferred by sub-section (2) of Section 167 of the Ordinance, 2000 and there is no cavil with the source of the powers to vest in the SECP nor is there any challenge to the constitutionality of the rules in general. Asian Mutual contends that clause (c) of sub-rule (3) is beyond the periphery of the powers conferred by clause (a) of sub-section (3) of Section 36 of the Ordinance, 2000 and does not make an intelligible criteria with regard to, the peculiar nature and constitution of Asian Mutual which is a character distinct from other insurance companies.
8. According to the learned counsel for Asian Mutual, SECP ought to have brought its independent mind to bear on the case of Asian Mutual, in that, the company is covered by the definition of a mutual insurance company as given in Section 2(xxxix) and defines the company as follows:-- "mutual insurance company" means an insurer, being a company incorporated under the law of Pakistan or any country or state other than Pakistan, which has no share capital and of which, by its constitution, only and all policy holders are members."
9. 5.The peculiar nature of a mutual insurance company, which distinguishes the said company from other insurance companies. is the fact that a mutual insurance company has no share capital and by its very constitution only the policy holders are members. This is the feature, which sets a mutual insurance company apart from the other insurance companies. To this extent, the parties are not at variance. The parties are on common ground also with regard to the obligation of Asian Mutual to comply with the provisions of clauses (b) and (c) of sub-section (3) of Section 36. However, a brief background of the present controversy may be referred to in order to contextualize the controversy in its proper perspective:- <i>Asian Mutual is a mutual insurance company and has been registered under the Company Laws of Pakistan on 23.02.1951. Soon after the enforcement of the Ordinance, 2000, Asian Mutual was served with a notice dated 30.12.2002 requiring it to comply With the provisions of Section 29 of the Ordinance, 2000 read with rule 9 of the Rules, 2002. A reply was furnished by Asian Mutual in which it was stated that sub-section (3) of Section 28 provides that an insurance company which does not have a paid up share capital shall not be required to comply with the requirements of Section 28. Relying upon sub-section (2) of Section 29, it was averred that the said provision authorizes the SECP to reduce the amount of deposit to zero in order to cater to a situation of the kind where a mutual insurance company limited by guarantee and having no share capital is thereby barred from raising capital and, therefore, cannot deposit any amount with the State Bank of Pakistan as a minimum statutory deposit. Asian Mutual was once again served with a notice dated 17 12.2007 to which once again a reply was sent.
10. Asian Mutual filed a petition W.P. No. 5846 of 2008 which was disposed of on the ground that an appeal was maintainable under Section 33 of the SECP Act, 1997. On 6.5.2008 Asian Mutual received an order by which it had been determined that since the company had failed to meet the minimum solvency requirements as set forth in Section 36 of the Ordinance, 2000, the company was directed to cease from entering into any new contract of insurance. An appeal was filed before the Appellate Bench of the SECP which was decided by the impugned order dated 13.11.2008.
11. 6.The controversy revolves around Section 36 of the Ordinance, 2000 which, for facilitation, is reproduced as under:--- "36. Insurers of non-life insurance business to have assets in excess of minimum solvency requirement.-- (1)An insurer registered under this Ordinance to carry on non-life insurance business shall at all times have admissible assets in Pakistan in excess of its liabilities in Pakistan of an amount greater than or equal to the minimum solvency requirement.
12. (2)An insurer incorporated in Pakistan and registered under this Ordinance to carry on non-life insurance shall at all times have admissible assets in excess of its liabilities of an amount greater than or equal to the minimum solvency requirement.
13. (3)For the purposes of this section, the minimum solvency requirement is the greatest of.:--- (a)such required minimum amount as may be prescribed by the Commission; (b)such percentage as may be prescribed by the Commission of its earned premium revenue in the preceding twelve months, net of reinsurance expense subject to a maximum deduction for reinsurance of fifty per cent of the gross figure; and (c)such percentage as may be prescribed by the Commission of the sum of its liability for unexpired risk and its liability for outstanding claims, net of reinsurance subject to a maximum deduction for reinsurance in each case of fifty per cent of the gross figure: Provided that in the case of an insurer incorporated in a jurisdiction outside Pakistan the amounts set out in clauses (b) and (c) of this sub-section shall be calculated with reference to the earned premium revenue, unexpired risk liability and outstanding claims liability and related reinsurance balances of that insurer in respect of its insurance business in Pakistan only.
14. (4)The Commission may direct an insurer not to deal with any specified asset for any specified period of time in order to ensure compliance by the insurer with the provisions of this Part."
15. 7.The Appellate Bench while considering the case of the parties, pro and contra, concluded as follows:--- "All insurance companies are thus required to keep a deposit of ten (10) million Rupees with State Bank of Pakistan from the date of the afore-mentioned notification of 25th June, 2008 in terms of Section 29(2)(a) or 10% the insurers paid up capital whichever is higher. The wording of 29(2)(a) would have been clearer, had the words "or ten percent" been used instead of "and ten percent".
16. Nevertheless, the intent of the legislature is clear i.e. all insurance companies are required to make a deposit of ten (10) million Rupees, however, where such companies have a paid up capital; the statutory deposit must be ten percent of the insurers paid up capital where such percentage works out to more than ten (1) million Rupees.
17. In any case the above brief discussion by us on the notification of 25.6.2008 and Section 29(2)(a) of the Ordinance are academic, as they for the present purposes are neither applicable nor material to the case.
18. On the issue of whether the Appellant meets the minimum solvency level, it transpires from the Appellant own record that it does not meet the solvency level as prescribed by law."
19. "The minimum solvency level has been raised gradually from year 2003, where it was fifteen million Rupees to fifty (50) million Rupees by the year 2005 and beyond. The Appellant's record illustrates admissible assets of five million two hundred and sixty eight thousand (5.268) Rupees for the year 2007 which are to be considered for the purposes of solvency. The appellant has therefore failed to maintain and gradually enhance its assets and as result could not meet the solvency level laid down in rule 13(1)(b) of the Rules and thus not entitled to the waiver of statutory deposit as provided in proviso to Section 29(2)(b).
20. We have also examined the status of mutual insurance companies, to see whether the intention of the legislature was to treat them differently from the insurance companies with a paid up capital.
21. We find that the Ordinance does not distinguish between an insurance company with a paid up capital and one which does not have a paid up capital, as such all requirements of the Ordinance other than maintaining paid up capital mutatis mutandis apply to mutual insurance companies."
8. The nub of the arguments put forth by the learned counsel 'for Asian Mutual was that Asian Mutual applied to the Commission to abblish the requirement for deposit specified by Section 29 by reducing the required minimum amount to zero. However, this is not being granted on the premise that Asian Mutual has fallen foul of the compliance of Section 36(3)(a) of the Ordinance, 2000. The learned counsel for Asian Mutual does not dispute the fact that Asian Mutual does not meet the impugned solvency requirement as given in sub-section (3)(a) of Section 36, which lays down the minimum criteria for solvency. The primary argument of the learned counsel is that since the company does not have a paid up capital, it would be iniquitous and irrational to require Asian Mutual to comply with the provisions of the rule 13(1) of the Rules, 2002,the said rule can only be made applicable to the species of insurance companies which have a paid up capital. The primary reasons which weighed with the Appellate Bench of SECP in dismissing the appeal filed by the Asian Mutual was that rule 13 prescribed a progression in the admissible assets to be maintained by insurance companies which were operating at the commencement date and Asian Mutual had failed to meet the criteria set in this regard by rule 13 as also that rule 13 as well as the provisions of the Ordinance 2000 do not make a distinction in this regard between insurance companies that have paid up capital and insurance companies of the petitioner's kind.
22. 9.Section 28 of the Ordinance 2000 deals with the requirements as to capital. However, by sub- section (3) an insurer not having a share capital shall not be required to comply with the provisions of this section. Thus, the legislature while enacting Ordinance, 2000 was cognizant of the peculiar nature of mutual insurance companies such as Asian Mutual and did away with the requirement of having a share capital in the case of mutual insurance companies. Section 29 deals with deposits to be maintained with the State Bank of Pakistan by an insurer and the required minimum amount is specified in sub-section (2) of Section 29. The failure on the part of Asian Mutual to comply with the provisions of Section 36(3)(a) of the Ordinance, 2000 was an impediment in the way of Asian Mutual in seeking that exemption under Section 29.
23. 10.Asian Mutual contends that it is entitled to reduction in the required minimum amount to zero in terms of proviso to clause (b) of sub-section (2) of Section 29 but the Commission will not proceed to consider the request and abolish the said requirement since the power of the Commission has been circumscribed by the achievement of levels of solvency as required by the Ordinance. This clearly has a reference to Section 36(3) of the Ordinance, 2000.
11. It is not denied that Asian Mutual carries on non life insurance business and thus is required to have admissible assets in Pakistan in excess of its liabilities of an amount greater than or equal to the minimum solvency requirement. This is the requirement of sub-section (1) of Section 36, therefore, the primary tenor of Section 36 of the Ordinance, 2000 deals with having admissible assets by an insurer which shall be in excess of its liabilities in Pakistan. The admissible assets which the insurer is obliged to maintain should be of an amount greater than or equal to the 'minimum solvency requirement. That requirement has been spelt out in sub-section (3) of Section 36 and comprises the sum of clauses (a), (b) and (c). Upon a closer reading of sub-section (1) and
(3) of Section 36. it would be evident that the admissible assets which are to be in excess of the liabilities of an insurer must be of an amount greater or equal to the minimum solvency requirement. To reiterate, the criteria for minimum solvency requirement has been given in sub- section (3) of Section 36. Therefore, the admissible assets must be the whole of the conditions laid down in clauses (a), (b) and (c) and one condition cannot be separated from the other. Thus, admissible assets for the purpose of Section 36 will comprise the totality and cumulative figure accruing after taking into consideration the requirements given in clauses (a), (b) and (c) of sub- section (3). The admissible assets have to be calculated with reference to these clauses and will determine the minimum solvency requirement. The contention of Asian Mutual that since a mutual insurance company does not have a paid up capital, it should be absolved from the requirement of a minimum amount as given in clause (a) of sub-section (3) of section 36 and ought to be treated differently and not in the same category as the other insurance companies, is nuanced and does not have a basis in law. There is no doubt that Asian Mutual is a mutual insurance company and does not have a paid up capital but that fact does not impact the provisions of Section 36 so far it relates to the minimum solvency requirement. It is not denied by Asian Mutual that the company complies with the provisions of Section 32 relating to admissible assets as also that the company maintains admissible assets as explicated in Section 33 which relates to assets and liabilities in Pakistan. It will be recalled that Asian Mutual does not deny the fact that it is required to comply with the provisions of clauses (b) and (c) too. However, the compliance of clause (a) is also the obligation of mutual insurance companies since the said clause prescribes the required minimum amount and it may be prescribed by the Commission. There is no plausible reason to connect the lack of paid up capital in case of Asian Mutual with the required minimum amount given in clause (a) of sub-section (3) of Section 36.
12. Rule 13 has been enacted by the Commission and indicates the required minimum amount to be prescribed by the Commission. In the case of an insurance company registered after the commencement date, the prescribed amount is 50 million rupees. In the case of an insurance company registered on the commencement date like Asian Mutual, the amounts were required to be gradually increased and as on 31.12.2005, the insurer was required to have 50 million rupees as the required minimum amount. As adumbrated, this amount relates to the admissible assets in Pakistan of an insurer and has no linkage to the paid up capital of a non-life insurance business and it does not matter whether an insurance company has a paid up capital or not in order to complete the requirements of Section 36 of the Ordinance. It may be reemphasized that the holistic reading of Section 36 would bring forth the true extent and tenor of the said provision which relates to the maintenance of admissible assets in Pakistan by an insurer and it should be of an amount greater than or equal to the minimum solvency requirement. Therefore, no distinction can be drawn on this basis between an insurer having a share capital and one not having a share capital. The requirements of Section 36 will have to be applied across the board to all insurers. In a nub, Asian Mutual seeks the setting down of a required minimum amount which is different in its case from other non-life insurers having a share capital. The criteria for that distinction, according to Asian Mutual, ought to flow from the underlying concept of whether an insurer has a paid up share capital or not. This argument is based on a fallacy. The power conferred on the Commission is to prescribe a required minimum amount. It does not extend to completely abolishing the condition on the basis of a nuanced categorization. The Commission will be travelling beyond its delegated powers if it were to do so. The Rules can only be made to conform to the main Act and not in derogation thereof.
24. 13.Section 3 relates to division of insurance business with life and non-life. Thus the division is merely on the basis of whether the business is life insurance business or non-life insurance business. This is the only division contemplated by the Ordinance, 2000. The law did not choose to carve out a further category on the basis of corporate structure of insurers. It is the nature of business that they carry on is the true test of distinction and none else.
25. 14.A reading of Sections 28 to 31 will shed further light on the issue. These provisions deal with the requirements as to capital and statutory deposits. In respect of capital, Section 28(3) exempts an insurer, not having a share capital, from complying with the requirements of sub-section (1) as to a required minimum amount as paid-up capital. This is where the distinction ends and it does not extend to requirement as to deposits which every insurer is obliged to maintain as a required minimum amount. Although by the proviso to Section 29(2)(b) the Commission may abolish the requirement by reducing it to zero, that may only be done subject to achievements of levels of solvency as required by the Ordinance. Thus the preference is only in respect of capital and not deposits.
15. To reiterate, the minimum solvency requirement has nexus with admissible assets and not paid-up capital of an insurer and to do so with unduly tilt the advantage in favour of Asian Mutual and insurers similarly situated. There is no valid reason, nor does the law spell out any, to give preferential treatment to Asian Mutual. If the non-life insurers compete in the same realm and spheres of activity, it would be iniquitous and unreasonable to discriminate amongst insurers belonging to the same category in the nature of admissible assets. Also it is salutary principle of construction that legislative intent must be given effect if there is no ambiguity. Sub-section (2) leaves it in no manner of doubt that the requirement of admissible assets applies to all insurers of non-life insurance business without classification. Moreso, the provision is couched in mandatory terms by the use of the word 'shall'. It is not a fact in dispute that once an insurer commences business and continues with it over a period of time (as is the case with Asian Mutual) it inevitably accumulates assets and it does not have a paid-up share capital therefore, by extension, does not have admissible assets as well. If it complies with the provisions of Section 32 regarding admissible assets, it must, invariably, and as a necessary consequence thereof, comply with the requirement of Section 36, too. Therefore, the challenge to rule 13 on the ground that it travels beyond the powers conferred the. Commission by Section 167 of the Ordinance, 2000 is without any legal basis and unsustainable.
26. 16.In view of the above, there is no merit in the instant Constitutional petition as well as the Commercial Appeal, which are hereby dismissed.