1. This order shall dispose of Appeal No. 27 of 2018 filed under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997, by Crescent Star Insurance Company Limited (the Appellant) against the Order dated May 16, 2018 (the Impugned Order) passed by the Commissioner Insurance, SECP (the Respondent) for contravening Rule 13 of the Securities and Exchange Commission (Insurance) Rules, 2002 (the Rules) read with section 1 1(1)(c), section 32(2)(g), section 36 and section 156 of the Insurance Ordinance, 2000 (the Ordinance).
2. As per the facts of the case, there were two phases of adjudication for the alleged violations of afore stated legal provisions. In the first phase of adjudication the Respondent issued a Show Cause Notice dated January 4, 2017 (the First SCN) to the Appellant and its directors under Rule 13 of the Rules read with section 11(1)(c), section 32(2)(g), section 36 and section 156 of the Ordinance. It was alleged in the First SCN that examination of the financial statements for the period ending September 30, 2016 revealed that the Appellant was insolvent by an amount of Rs.74.303 million and citing investment of Rs. 421 million in the shares of a related party i.e. Dost Steel Limited (DSL) as the main reason of insolvency . The Appellant, in its reply and during the hearing of the First SCN, stated that Rs. 421 million were paid to DSL as Advance, against its shares, however , due to frustration of the agreement dated July 1, 2016 (the Agreement) only 4.7% shares of DSL, instead of 30%, were acquired by the Appellant. The Securities and Exchange Commission of Pakistan (the Commission) vide letter dated May 29, 2017, advised the Appellant to provide status of the aforesaid amount in terms of its classification as an investment in the shares of DSL or as a loan and the relevant provision under which it should be considered as an admissible asset for the purpose of solvency calculation. The Appellant replied vide a letter dated June 29, 2017 that it received only 15 million shares of Rs. 67.5 million due to gross violation of the Agreement, therefore, the balance amount of Advance (Rs. 354 million) has been converted into loan/debt at 3% plus KIBOR till such time the shares are issued.
The proceedings of the First SCN were concluded vide an Order dated August 1, 2017 (First Order) whereby , the off-site wing of the Insurance. Division was directed to evaluate the impact of converting the investment in the shares of DSL into a loan/debt, on solvency position of the Appellant.
3. As per facts mentioned in the Impugne d Order , in compliance of the First Orde r, the Respondent had reviewed the Financial Statements of the year ended December 31, 2016 (the Accounts), which revealed that the Appellant reported an advance of Rs, 386,379 million to the DSL (balance amount of Advance 359 Million + 32 Million markup ), which carried markup @ 1 year KIBOR plus 3% p.a. This Advance was not a fully admissible asset under Rule 10 of the Rules read with section 32(2) of the Ordinance, therefore, Appellant 's solvency margin was deficient by Rs. 227.431 million on December 31, 2016. In view of aforementioned facts, a Show Cause Notice Dated October 26, 2017 (the SCN) was issued to the Appellant and its directors for the contravention of Rule 13 of the Rules read with section 11(1)(c), section 32(2)(g) and section 36 and section 156 of the Ordinance. Hearing of the SCN was held on March 28, 2018, wherein, Appellant's representative denied the allegation contained in the SCN however , the Respondent being dissatisfied with the response, passed the Impugned Order and imposed a fine of Rs. 1,000,000/- (Rupees One Million Only) on the Appellant for its failure to meet the mandatory requirement relating to the minimum solvency for the year ended December 31, 2016.
4. The Appellant has challenged the Impugned Order inter alia on the grounds that to determine the solvency status for the period ended December 31, 2016, the Respondent had wrongly relied upon the Insurance Rules, 2017. The Appellant stated that conversion of Advance into loan was because of DSL's failure to perform the Agreement, however , the Respondent had excluded Rs.386.379 million (Balance Advance 354 Million 4- 32 Million markup ) from the admissible assets. The Appellant has alleged that the Respondent had ignored the fact that shares of full amount of Rs.421 million could not be acquired, therefore, the Appellant unilaterally converted the remaining amount of Advance into loan. The Appellant contended that irrespective of unilateral change of Advance into loan by the Appellant, DSL's accounts always showed it as Advance, however , the Respondent had failed to consider this fact. The Appellant has taken the plea that DSL's management vide a letter dated December 9, 2017 had assured to issue shares against the balance amount of Advance, therefore, the Appellant had reverted the amount of Rs.354 million as Advance (Note 22.1 of Annual Account of 2017, page 69). The Appellant indicated that the Impugned Order is not a speaking order because in para 22 of the Impugned Order the Respondent had stated that whether the amount of Advance is investment or a loan, it is not inadmissible by such percentage as prescribed under Rule 10 of Rules. However , no reason or justification or calculation had been given for the alleged inadmissibility of said amount by such percentage as prescribed by Rules. The Appellant has taken the stance that the Respondent had also failed to refer to the specific clause of section 32(2) of the 2000 Ordinance, under which the balance amount of Advance (Rs.354 million) had been treated and to what percentage it was excluded from admissible assets of the Appellant.
5. The Appellant had taken further plea that the Respondent had failed to differentiate between investment and loan, as there is a considerable difference in admissible percentages of investment and loan. In support of the afore stated plea, the Appellant stated that it is an undisputed fact that the Appellant made payment to DSL for a specific purpose of investment and in consideration DSL had issued some shares and remaining shares are to be issued against the balance amount of Advance. Appellant further stated that, if the said amount is neither treated as investment nor as a loan, even then it is an admissible asset under clause (c) of section 32(1) of the Ordinance because Advance is not an inadmissible asset under clauses (a) to (w) of section 32(2) of the Ordinance.
6. The Appellant stated that amount of Rs. 354 Million was an investment in shares of DSL (Listed Company), however , the Respondent had not only excluded this amount form the admissible assets under clause (q) of section 32(2) of the Ordinance but also failed to include Appellant's other investments in listed companies as admissible assets under clause (q) of section 32(2) of the Ordinance, which, allows admissibility of 50% of the total investments. Appellant's total investments as on December 31, 2017 were Rs. 798,237,906 and as per clause (q) of section 32(2) of the Ordinance, 50 % of the investments in listed companies was Rs. 399,1 18,953 and this amount was suf ficient to meet the minimum solvency requirement.
7. The Appellant further contended that the Respondent had failed to appreciate that it had increased paid up capital by Rs. 250 million through a rights issue and at the time Impugned Order was passed, the process of right issue was completed. Therefore, the required solvency requirement was achieved. The Appellant further stated that the Appellant and DSL are not related companies because there is no common control, or ownership interest of more than 49% or, being natural persons, they are members of the same family . In Appellant's case all three conditions were missing therefore, clause "P" of section 32 of the Ordinance was not applicable. Lastly , Appellant has taken the plea that an amount of Rs. 354 Million was advanced to DSL, therefore, it cannot be treated as a loan in terms of section 32(2) of the Ordinance.
8. The Respondent had rebutted the grounds of Appeal through covering letter/written comments dated October 18, 2018. In para six of the written comments and para 22 of the Impugned Order the Respondent had stated that whether the Advance to DSL is treated as loan or investment, it is inadmissible by such percentages as prescribed under Rule 10 of the Rules. Furthermore, in para ten of the written comments, the Respondent stated that during the year ended December 31, 2016, the status of Advance was loan therefore, solvency calculation was based on clause "t" of section 32(2) of the Ordina nce and Rule 10 of the Rules. Therefore , in cases where Advance was treated as loan, only 1% loan is admissible for the calculation of solvency . The Respondent stated that in view of above facts, Appellant had failed to maintain minimum solvency requirement.
9. The Appellate Bench (the Bench) has heard the parties and perused the record with the able assistances of Appellant's and Respondent's representatives. Appellant's representative reiterated the grounds of Appeal, whereas Respondent's representative argued that the Impugned Order had been passed in accordance with the requirements of applicable law. Appellant's plea that the Respondent had relied upon the Insurance Rules, 2017, while determining the solvency status for the period ended December 31, 2016, is factually incorrect therefore, we do not find merit in it. The Bench has observed that the Impugned Order had been passed without determining the status of "Advance" under section 32 of the Ordinance and Rule 10 of the Rules. The Bench has no doubt to hold that Respondent was required to affirm "Advance " either as loan or investment and accordingly was required to apply relevant calculation of admissible percentage for the purpose of minimum solvency , however , no such exercise was performed. The Bench is not inclined to maintain the Impugned Order because adjudication without application of relevant provision and calculation of admissible part of Advanc e cannot be appreciated as a reasonable order . The Bench has also observed that in the written comments, the Respondent had not only reiterated its previous stance (i.e. whether the amount of Advance is investment or. loan, it is not inadmissible by such percentage as prescribed under Rule 10 of Rules ) but also taken a contradictory stance and claimed that the amount of "Advance" was treated as loan, in the Impugned Order . The Bench is of the view that Respondent's subsequent plea is nothing but an attempt to support incurable flaws of Impugned Order . Furthermore, Respondent had failed to substantiate subsequent stances through the contents of the Impugned Order , therefore, it cannot be allowed.
10. The Bench is of the view that the amount of Advance is neither loan nor investment, therefore, clauses "p" and "t" of section 32(2) of the Ordinance are not applicable in Appellant' s case. Clause "p" deals with "shares in any one company or in group of related companies whereas clause "t" is about "loans to any person or group of related persons in aggregate". Admittedly , the Appellant had paid Rs. 421 million to DSL for shares purchase, however , instead of 30%, only 4.7% shares of the DSL (i.e. 15 million shares amounting to Rs. 67.5 million) were acquired by the Appellant and thereafter , the Appellan t unilaterally converted the balance amount of Advance (Rs. 354 million) into loan, till such time the shares are issued. Clause "p" is applicable only to extent of value of share purchased by Appellant. The Bench, endorse Appellant' s stance that the DSL is not its related company in judgment or a decree. We have minutely examined this aspect of the case. The text of section 22(1) is very clear , which requires that any person aggrieved by any judgment, decree, sentence, or final order passed by a Banking Court may, within thirty (30) days of such judgment, decree, sentence or final order prefer an appeal to the High Court. In section 22(1), the conjunction 'OR' indicates that the appeal can be filed either against a judgment or a decree. Since, it is the provision of law that the appeal can be filed against any final order including judgment or decree, hence the period of limitation will start from the date of judgment and not from the decree. In the case of Apollo Textile Mills (supra), the Hon'ble Supreme Court, while deliberating upon the same issue, has observed as under: "In the case of 'Imtiaz Ali v. Atta Muhammad and another ' (PLD 2008 SC 462) read with the case of 'Nakuleswar Sikdar v. Barun Chandra Chakravorty and another' (1971 SCMR 54), it was held that where appeal was allowed against the judgment or decree or a final order , filing of appeal within limitation was mandatory from the delivery of judgment and waiting for the grant of certified copy of the decree' would not enlarge the limitation and in such a case non-filing of the decree would not be fatal to the appeal."
10. It is now clear that an appeal under section 22 of the Ordinance was as to be filed within thirty (30) days of the announcement of judgment. In the present case, judgment was pronounced on 07-12-2017; therefore, the limitation started running from that date irrespectiv e of the fact that the decree was prepared on a subsequent date i.e. 27- 01-2018. The appellants had applied for certified copies on 19-01-2018. The fee for certified copies was deposited on 01-02-2018 and the copies were ready for delivery on 06-02-2018 and the same were received by the appellant. on 07-02-2018. From the above facts, it is clear that the appellants have applied for certified copies after 42 days of the announcement of the judgment, while the copies were collected by the appellants after 22 days of their application for the certified copies, meani ng thereby that the appeal was already time-barred when the application for certified copies was presented. What is more! The appeal was presented on 01-03-2018 i.e. after about 84 days and if the period of winter holidays is deducted, even then the appeal is hopelessly time-barred. The outcome of the entire discussion is that the present Appeal does not survive on the ground of merits as well as the same suffers from laches, as such the same is dismissed with no order as to cost.