2011 PLP 1402 (CLD)

1. This order shall dispose of Appeal No. 41 of 2011 filed under section 33 of the Securities and Exchange Commission of Pakistan (the "Commission") Act, 1997 (the "SECP Act") against the order dated 20-1-2011 (the "Impugned Order") passed by the respondent.

2. Onsite inspection of the appellant was conducted under order of the respondent dated 23-6-2010, in exercise of the powers conferred under section 59A(1) of the Insurance Ordinance, 2000 (the "Ordinance"). It was revealed that different policies were issued on a single risk; the appellant had retained multiple retention of premium per risk instead of single retention which was contrary to the terms and conditions of its reinsurance treaty. It was observed that the Company carried a risk of premature cancellation of its reinsurance treaty.

3. Show cause notice dated 15-11-2010 ("SCN") was issued under section 41 read with section 11(1)(d) and section 156 of the Ordinance to the Chief Executive Officer and the directors of the appellant. The appellant filed reply to the SCN and hearing in the matter was held. The respondent, dissatisfied with the response of the appellant, passed the Impugned Order and imposed a penalty of Rs 500,000.

4. The appellant has preferred the instant appeal against the Impugned Order. The appellant's counsel argued that:-- (a) the appellant's reinsurance treaty was executed between the appellant, as an insurance company, and the reinsurers; hence, the Commission has no jurisdiction as third party to this arrangement; (b) the appellant retained multiple retentions in various policies issued on a single risk since there was no such restriction in the reinsurance treaty clauses. In terms of the Insurance Association of Pakistan ("IAP") Building Regulation 10 a single risk could be safely divided in various sections where spacing is reasonable and any incident of fire would not affect the surrounding compartments. The aforementioned regulation is reproduced for ease of reference: "Distances-Separate Buildings: of Classes I-A, 1 and Construction: Buildings or Compartments, having opposing openings within 10 feet (3M) of each other must not be treated as separate risks for rating purposes unless the openings are protected by Single Fire Proof Doors or Shutters approved by the Insurance Association of Pakistan. Buildings or Compartments of class III construction having opposing openings within 20 feet (6M) of each other must not be treated as separate risks for rating purposes, except in the case of buildings, where one of the opposing walls is of brick, stone or cement set in cement line or mortar with all openings protected by single fire proof doors or shutters approved by the I.A.P".

5. The department representative argued that:-- (a) reinsurance treaties form the back bone of insurance business and its execution and the compliance thereof fall within the preview of the Commission; (b) in case the insurance company is found in contravention of its reinsurance treaty, the reinsurer at any time during the examination of treaty returns can cancel the reinsurance treaty arrangements which could have serious consequences for the ceding company. The appellant's reliance on IAP Building Regulation 10 cannot be accepted as the reinsurance treaty itself defines "Any one risk" in the following terms: "For the purposes of this Reinsurance "Any one Risk" is defined as any building &/or complex including all values at adjacent properties and Business Interruption &/or loss of profit in any one compound. The term of "One Compound" used herein is defined as any enclosed space, lot, site, premise &/or enclosure typically fenced in space in which the subject building &/or complex including adjacent properties stands. As for Contractor's All Risks, Erection All Risks and Machinery Breakdown, "Any One Risk" is defined as any building &/or complex including all values at adjacent properties or all values in any one compound &/or construction site including Third Party Liability Limit when written in conjunction with the main policy."

6. We have heard the parties and have gone through the law on the subject. Our findings on the issue are:-- (a) Section 20(4) (r) of SECP Act, section 2(xxvii) and section 2(iii) of the Ordinance have been reproduced for ease of reference: (20) Powers and Functions of the Commission (4) The Commission shall be responsible for the performance of the following functions: (r) exercising all powers, discharging all duties and performing all functions assigned to the Commission under, and generally administering, the Law of Insurance; Emphasis added 2(xxvii) "insurance" means the business of entering into and carrying out policies or contracts, by whatever name called, whereby, in consideration of a premium received, a person promises to make payment to another person contingent upon happening of an event, specified in the contract, on happening of which the second named person suffers loss, and includes reinsurance and retrocession: Provided that a contract of life insurance shall be deemed to be a contract of insurance notwithstanding that it may not comply with the definition setout in this clause; Emphasis added 2(iii) "reinsurance" means a contract of insurance under which the event, specified in the contract, contingent upon the happening of which, payment is promised to be made to the policy-holder thereunder, is payment by the policy-holder of a claim or claims made against that policy-holder under another contract or contracts of insurance, issued by that policy-holder. Emphasis added In terms of section 20(4)(r) of SECP Act, the Laws of Insurance, including the Ordinance, are administered by the Commission. Section 2(xxvii) and section 2(iii) of the Ordinance categorize insurance and reinsurance respectively as a contract. The Commission, thus, has been given the powers to regulate the contract of insurance including reinsurance. Section 41 of the Ordinance deals with reinsurance, which has been reproduced for ease of reference:

41. Requirement to effect and maintain reinsurance arrangements.

(1) An insurer shall effect and shall at all times maintain such reinsurance arrangements as are, in the opinion of the directors (or such other person or body responsible for conducting the management and business of the insurer), formed on reasonable grounds, having regard to the exposures of the insurer in respect of individual contracts accepted and in respect of aggregate losses arising out of individual events, adequate to ensure continuing compliance by the insurer with the provisions of the Ordinance relating to solvency. (2) Every insurer shall submit to the Commission, in the manner prescribed by the Commission and not less than one month prior to the coming into effect, or as soon as practicable thereafter, of any treaty reinsurance arrangement entered into by the insurer as cedant, such features of that reinsurance arrangement as may be prescribed by the Commission. (3) Where any reinsurance treaty the particulars of which have been submitted to the Commission under subsection (2) is altered or any new treaty reinsurance arrangement is made after the submission of the information under subsection (2), the insurer concerned shall submit to the Commission, in the manner prescribed by the Commission, particulars of such alteration in the treaty or such new treaty reinsurance arrangement within one month of such alteration or arrangement and shall submit such further information or clarification as the Commission may require. (4) The Commission may, at any time and after giving the insurer an opportunity of being heard, for reasons to be recorded in writing, direct the insurer to make such modifications in his reinsurance arrangements as the Commission may specify. (5) The Federal Government may make rules, not inconsistent with subsection (1), governing the reinsurance outside Pakistan, other than on a treaty basis, of insurance business underwritten by an insurer in Pakistan. Explanation:

For the purposes of this section, "reinsurance" includes "retrocession" Emphasis added The Commission has been entrusted with powers to oversee reinsurance arrangements outlined in section 41 of the Ordinance: firstly, the reinsurance treaties are to be submitted to the Commission by the insurer in terms of section 41(2) of the Ordinance, secondly, the insurer concerned shall submit to the Commission particulars of alteration in the treaty or new treaty entered into in terms of section 41(3) of the Ordinance and finally the Commission may direct the insurer to make modifications in its reinsurance arrangements in terms of section 41(4) of the Ordinance. Section 41(1) of the Ordinance gives the prerogative to the directors of a company to decide as to whether or not the re-insurance arrangements are adequate in order to ensure continuing compliance by the insurer with the provisions of the Ordinance relating to solvency. We do not see any violation of section 41 of the Ordinance in the instant case. Be that as it may, the compliance of re-insurance treaty cannot be left at the sole discretion of the directors of the company. The Commission has been entrusted with the powers to oversee the contract of insurance in terms of 20(4)(r) of SECP Act read with 2(xxvii) and 2(iii) of the Ordinance and as and when the directors transgress their powers, the Commission can take action against the directors to ensure the interest of the policy holder. (b) the appellant was in contravention of its reinsurance treaty as the appellant was not complying with the definition of 'risk' given in the reinsurance treaty and as a result was retaining multiple retention of premium per risk instead of single retention. The appellant counsel's reliance on IAP Building Regulation 10 to justify multiple retentions cannot be accepted as in terms of reinsurance treaty "Any One Risk" was defined as any building &/or complex including all values at adjacent properties or all values in any one compound &/or construction site, thus, defeating the argument of appellants counsel on multiple retentions in various policies issued on a single risk. In view of the above, the appellant is directed to comply with the requirements of the reinsurance treaty in letter and spirit. The Impugned Order is set aside to the extent of the penalty as violation of section 41 could not be established. Parties to bear their own costs. H.B.T./31/SEC Order accordingly. 2011 C L D 1409 [Karachi] Before Muhammad Athar Saeed and Irfan Saadat Khan, JJ Malik GULL MUHAMMAD AWAN

Appellant Versus FEDERATION OF PAKISTAN through Secretary, Ministry of Finance and 7 others

Respondents H.C. Appeals Nos.98 and 128 of 2009, decided on 24th June, 2011. (a) Tort

Suit for recovery of Rs.81.82 million as damages from officials of Sales Tax Department

Imposition of embargo on plaintiff's factory due to non-payment of tax

Loaded vehicle found by such official while leaving plaintiff's factory without payment of tax

Confiscation of such vehicle and imposition of penalty by authority

Plaintiff's plea that he was bringing some material to his factory in such vehicle, which was forcibly taken over by such officials, who detained him in their Headquarter whole night, where they assaulted, maltreated, manhandled and blind folded him

Appellate Tribunal set aside such confiscation order while condemning treatment meted out by such officials to plaintiff being a respectable and educated person

Degree for Rs.1,00,000 passed by Trial Court against such official jointly and severally

Validity

Plaintiff had made out a case of maltreatment against him as manner and method in which he was treated by such official was an inhuman activity

Demand of outstanding tax would not give authority and licence to such official to maltreat or misbehave with taxpayer

Such officials had taken law in their hands with mala fide intention

Plaintiff had based his claim upon damages and special damages worked out on basis of expected losses only and without bringing any exact amount of losses sustained by him

Damages claimed by plaintiff were exaggerated and he failed to prove same through evidence

Suit for damages in absence of actual losses suffered by plaintiff could not be decreed

Plaintiff had suffered mental shock and agony

Such officials entrusted with collection of taxes could not resort to harassing, insulting and torturing taxpayers illegally for their personal gratification

Damages awarded to plaintiff by Trial Court, though not being complete relief for agony suffered by him, would act as deterrent for such officials not to act so in future

High Court dismissed appeal while directed such official to pay damages awarded by Trial Court within thirty days, otherwise plaintiff would be entitled to mark up at Bank rate till its realization. Haji Salman Ali and Co. v. Province of Balochistan PLD 1994 Quetta 13 rel. (b) Tort

Damages, awarding of

Discretion of court exercisable in view of facts and circumstances of each case

Principles. (c) Tort

Damages, claim for

Essentials

Exact amount of damages suffered by plaintiff and its proof being essential for decreeing such suit

Principles. If some damages have been caused to a person the same are to be assessed in the exact amount and proved to this extent. Scanty and the claims based on no evidence should hardly be entertainable. The courts do not decree those types of damages the exact amount of which cannot be proved. Though damages to be awarded by the rule of thumb and exact amount is not determinable but person making the claim is legally obliged under the law to claim a sum of money as early as possible to the amount of damages suffered by him. Damages for mental torture, nerves shocks, the losses of livelihood for family etc., cannot be measured in terms of money and as no standard or method can be laid down in this regard, the claims are therefore to be worked out on a rational basis and not upon the working submitted by a person. Haji Salman Ali and Co. v. Province of Balochistan PLD 1994 Quetta 13 and Sufi Muhammad Ishaque v. Metropolitan Corporation Lahore PLD 1996 SC 737 rel. (d) Tort

Damages, claim for

Burden of proof

Person claiming such damages would be bound to prove same through evidence, otherwise, his claim would not be entertainable. Muhammad Ashraf v. Nawabuddin PLD 1951 Lah. 283 and Muhammad Akram v. Farman Bibi PLD 1990 SC 28 rel. Malik Gull Muhammad Awan Appellant in person (in HCA No.98 of 2009 and Respondent in HCA No.128 of 2009). Mrs. Masooda Qureshi for Respondents (in HCA No.98 and for Appellant in HCA No.128 of 2009). Date of hearing: 26th May, 2011. JUDGMENT IRFAN SAADAT KHAN, J.

These cross High Court Appeals have been filed against the judgment dated 27-2-2009, passed by learned single Judge of this court in Suit No. 965 of 1998.

2. Briefly stated that facts of the case are that the appellant is running his business in the name of Awan Packaging, manufacturing packing material and corrugated solid board cartons on Plots Nos. 31-32, Sector 81, Bilal Colony, Korangi, Karachi. Due to financial losses, appellant had to close down his business. As he was registered with the Sales Tax Department he applied for deregistration vide letter dated 3-6-1995. He also applied for grant of exemption certificate. For verification purposes, the Sales Tax Department visited his premises and found that some material was loaded in his Suzuki Pickup and he was about to leave his factory. The department stopped him and demanded for production of documents in respect of the material. Thereafter Sales Tax Department maltreated the appellant and demanded illegal gratification from him. It is also alleged that appellant was taken to the Head Quarter and was kept there whole night and was released in the next morning of 30-8-1995, however, his Suzuki Pickup and other items were confiscated by the department. The department initiated some legal proceedings against the appellant which he responded and the Appellate Tribunal vide its order dated 17-6-1996 directed the department to release forthwith his detained vehicle and raw material, which were then released after a considerable lapse of time and in deteriorated condition.

3. The appellant being aggrieved with the attitude of the respondents who had given him mental agony and torture and have totally ruined his business filed a suit for recovery of 81.82 million as damages against them. The matter thereafter was considered at length by the learned Single Judge, who vide above referred judgment came to the conclusion that respondents were jointly and severally responsible for humiliating the appellant and causing physical and mental injuries to him awarded cost of Rs.1,00,000 to be paid within 30 days of the order failing which appellant would be entitled to claim markup at bank rate from the period of default till the amount is realized. It is against this order that present High Court Appeal has been filed by the appellant.

4. The department has also filed an appeal against the said order stating that the learned Single Judge was not justified in awarding cost to the appellant as whatever action was taken by the department was in accordance with law.

5. Malik Gul Muhammad Awan, the appellant in person appeared before us and submitted that due to mala fide action taken by the respondents he had suffered losses and damages to the tune of approximately Rs.100 million and submitted that the respondents may be made liable for making the payment of this amount as in his opinion the amount awarded to him by the learned Single Judge was too meager. In support of his contentions he has also filed detailed written synopsis.

6. Mrs. Masooda Qureshi, Advocate appeared on behalf of the department and submitted that the appellant was found to be defaulter with respect to the sales tax demand and he was caught red handed by the department while he was transferring unpaid taxable items from his factory in his private Suzuki Pickup to some other place. She stated that mala fide on the part of the appellant is so obvious from the fact that the amount of damages and losses calculated by him was based upon presumptions and assumptions only. She further submitted that no documentary evidence with regard to the alleged losses suffered by the appellant had been attached either with the suit or with the present appeal and the entire amount is nothing but an arbitrary calculation made by the appellant. She submitted that the appellant was involved in deliberate evasion of the sales tax which is why his factory was visited by the department when he was found transferring the goods from his factory. She further submitted that the calculation worked out by the appellant is bogus as on the one hand the appellant has claimed himself to be a poor man and proprietor of a small industry only and on the other hand had claimed damages for the losses etc., running into million. She submitted that in view of the facts mentioned above not only the present HCA filed by the appellant is liable to be dismissed but the appeal filed by the department may be allowed in view of the fact that the learned Single Judge was not justified in granting damages in the sum of Rs.1,00,000 to the appellant as according to her department had simply performed its duty and no illegal action has been taken by the department in this regard. She, therefore, has prayed that the appeal filed by the department may be allowed by vacating the order passed by the learned Single Judge.

7. We have heard the appellant and the learned counsel for the department at length and have perused the record and the elaborate written arguments filed by them.

8. We have noted that the appellant was a manufacturer of corrugated solid board cartons, he applied for registration under fixed scheme on 18-4-1994 and was granted Sales Tax Registration No. 02-17-4819-003-46. After due verification his monthly sales tax liability was fixed at Rs. 1,

316. The appellant paid the said amount up to 30-7-1994 and thereafter fell in arrears. The department thereafter issued notices to the appellant for payment of the arrears but the appellant failed to response. The department thereafter imposed an embargo upon him vide order dated 1-6-1995. The department then received an information that even after the imposition of embargo, the appellant was carrying on business from his factory without paying the due sales tax liability. On 29-8-1995, the Sales Tax Department visited the appellant unit for enforcement of embargo and found a Suzuki loaded with corrugated solid board sheets leaving the factory without a gate pass or other clearance documents. The said goods and Suzuki were then seized by the staff of the department. Necessary adjudication proceedings were thereafter initiated and a demand of Rs.34,478 was worked out as sales tax and a penalty of Rs.5,000 was imposed for violation of sections 35-A and 48 of Sales Tax Act. The appellant thereafter challenged the said order before the Collector, who remanded the matter for de novo proceedings. However the appellant filed an appeal before the Appellate Tribunal, which set aside the order passed by the Collector and directed that the goods of appellant be released forthwith.

9. It is seen from the record and the written arguments that a number of allegations and counter allegations have been raised by both the parties wherein it has been alleged by the appellant that the allegation of sales tax department that he was caught red handed leaving the factory with material was totally incorrect whereas the fact was that he was bringing some material purchased by him from a Kabari of Sher Shah to his factory. He further submitted that sales tax department forcibly took over the said goods and Suzuki without any lawful justification. As per the appellant the manner in which the sales tax department behaved with him could hardly be termed to be a treatment carried out in a civilized society. As per the appellant the department assaulted him and used filthy language against him by calling him by names and forcibly took him to the Head Quarter not only by maltreating him but also manhandling him as well. He submitted that the attitude of the department was so bad that they not only scolded him but also blind folded him and kept him in the Head Quarter whole night and released him in the morning of 30-8-1995 without releasing his Suzuki and the items confiscated by them. The appellant submitted that during this whole period the sales tax department demanded illegal gratification for release of his goods and when the appellant refused to grease their palms. He submitted that during whole such period attitude of department was cruel and malicious. He submitted that all these things were brought to the knowledge of Tribunal, which vide its order dated 17-6-1996 has categorically noted as under: "I am seriously disgusted at the treatment meted out by the staff of the department to a respectable and educated citizen of the State. If such people are treated in this manner, I wonder how less educated people would be treated by the department."

10. We have noted that prima facie the appellant has made out a case of maltreatment against him and the manner and method in which the appellant was treated by the sales tax department, if true, appears to be an inhumane activity. Be that as it may, if some demands were outstanding against the appellant it does not give the authority and licence to the Sales Tax Department to either maltreat or misbehave with a person. The facts as narrated by the appellant, if were true, do not appear to be a proper method to deal with the tax payers in a civilized society. We, therefore, are of the considered view that the learned Single Judge was fully justified in finding the respondents jointly and severally liable for these acts.

11. From the pleadings, it appears that appellant is only aggrieved with regard to the amount of compensation and has no grievance so far as the findings recorded by the learned Single Judge that the government functionaries have taken the law in their hands with mala fide intention. It is seen from the record that awarding of damages has always been a discretionary power of a Court, which is always exercised keeping in view the facts and circumstances of each case. In the present case also, in our view, the learned Single Judge after examining the evidences and thrashing out the entire record and evidences has come to a conclusion and decreed the cost in the sum of Rs.1,00,

000. The calculation of damages as worked out by the appellant appears to be quite exaggerated. As the appellant has worked out the damages, special damages to him and his family and special damages to the business suffered due to mental agony and torture running into approximately 100 million, which is neither supported nor backed by any documentary evidence whatsoever.

12. It is a trite proposition of law that if some damages have been caused to a person the same are to be assessed in the exact amount and proved to this extent. Scanty and the claims based on no evidence should hardly entertainable. The courts do not decree those types of damages the exact amount of which cannot be proved. Though damages to be awarded by the rule of thumb and exact amount is not determinable but person making the claim is legally obliged under the law to claim a sum of money as early as possible to the amount of damages suffered by him. It is seen from the claim made by the appellant that this claim is based upon damages and special damages worked out on the basis of expected losses only and without bringing any exact amount of losses sustained by him. It was held in the judgment given in the case of Haji Salman Ali and Co. v. Province of Balouchistan (PLD 1994 Quetta 13) that damages and special damages were required to be proved item wise to the extent of damages allegedly sustained by the claimants. It was further held in the said judgment that plaintiff claiming damages on account of specific losses allegedly sustained by him by act of defendant was required to be proved each item claimed by him separately. Whereas in the instant case it is seen that claims running into approximately 100 million has been made on the basis of estimates only which in our view could hardly be considered to be the actual losses suffered by him. In our view in absence of such claims it is not possible to hold that the appellant had sustained the losses to the extent claimed by him.

13. It is also a trite law that in such type of cases the onus heavily lies upon the person claiming the said damages to make the said claim on the basis of evidences and when no such evidences are produced these damages are hardly entertainable. We are further fortified by referring the view expressed in the case of Muhammad Ashraf v. Nawabuddin (PLD 1951 Lahore 283) which was quoted with approval by the Hon'ble Supreme Court of Pakistan in the case of Muhammad Akram v. Farman Bibi (PLD 1990 SC 28) as under:-- "Some damage must necessarily have been caused. If we are to assess the damages only if the exact amount is proved, no damages can ever be decreed. Damages have so many times to be awarded by the rule of thumb but the fact that the exact amount is not determinable can be no reason for dismissal of a suit."

14. It is also a settled law that damages for mental torture, nerves shocks, the losses of livelihood for family etc., cannot be measured in terms of money and as no standard or method can be laid down in this regard, the claims are therefore to be worked out on a rational basis and not upon the working submitted by a person. It was held by the Hon'ble Supreme Court in the case of Sufi Muhammad Ishaque v. Metropolitan Corporation Lahore (PLD 1996 SC 737) that "person claiming damages has to prove the same through evidence as general, vague and scanty evidence in that regard cannot be relied upon". It was further held in the said judgment that "damages can be given for nerves shock caused by the sight of an accident at any rate to a close relative". It was further held that "compensation can be granted where a wrong is done to a party and damages flow from that wrong". It was further held that "there could be no yardstick or definite principle for assessing the damages in such cases. The damages are meant to compensate a party who suffers an injury. It may be bodily injury, loss of reputation, business and also mental shocks suffering". In view of the explicit findings given by the Hon'ble Supreme Court of Pakistan we are of the opinion that the appellant had suffered mental shock and agony but the real question is what would be the amount of compensation in this regard? To determine this question it has to be seen that whether a government department entrusted with the collection of taxes can resort to harassing, insulting and torturing the taxpayers illegally for their personal gratification our answer is an Emphatic NO. Therefore, despite our above observation we would still levy damages of Rs.1 million only, although we are of the view that it may not be a complete relief for the agony suffered by the petitioner but hopefully will act as a deterrent for the government departments from restraining to such tactics in future. We are of the considered opinion that it would meet the ends of justice if a sum of Rs.10,00,000 (Rupees One Million) as damages are recovered from the respondents jointly and severally within thirty days of passing of this order to be paid to the appellant failing which he would be entitled to claim markup at bank rate from the period of default till the amount is realized. The High Court Appeal filed by the appellant is thus disposed of in the above terms along with the pending application i.e. C.M.A. No.1357 of 2009.

15. So far as the High Court Appeal filed by the department is concerned in view of the findings recorded above the same is found to be frivolous and is hereby dismissed along with the pending application i.e. C.M.A. No.724 of 2009. S.A.K./G-29/K Order accordingly.