Adamjee Insurance Company Ltd etc Vs MD, PHA etc.

JUDGMENT SHEET

PESHAWAR HIGH COURT, PESHAWAR

JUDICIAL DEPARTMENT

FAO No.115-P of 2017 ADAMJEE INSURANCE COMPANY LIMITED and others Vs.

Managing Director Pakhtunkhwa Highway Authority, and others

Date of hearing 30.09.2026 For Appellant(s): Mr. Raheel Aslam Advocate.

For Respondent(s): M/s Aftab Qaisar & Shaiber Khan Advocates.

JUDGMENT

WIQAR AHMAD, J. Instant as well as the connected FAO No.116-P of 2017, bearing title, “Adamjee Insurance Company Limited and others Vs Managing Director Pakhtunkhwa Highway Authority and others”, arise out of same judgment dated 24.10.2017, passed by learned Insurance Tribunal, Khyber Pakhtunkhwa/District Judge, Peshawar. In the respective petitions filed under the Insurance Ordinance, 2000, (hereinafter referred to as “Insurance Ordinance”) respondent No.1 (claimant) had brought claims for encashment of the respective performance guarantees against the appellants (insurance company) and respondent No.2 (the contractor). It was

averred in the petition (in instant case) filed before the Insurance Tribunal that the contract for construction and improvement of Swari Sir Qilla Chowga Puran Shangla (including construction of a bridge under Package-IV) had been awarded to M/s Raja Sabir Zaman and Company, which had furnished a Performance Bond through the appellants in the sum of Rs.40,55,025/-. The contractor allegedly failed to execute and complete the work in accordance with the contractual specifications and had ultimately been demobilized from the site, whereafter the claimant completed the remaining work through another contractor at the risk and cost of the earlier contractor. It was further averred that, despite repeated requests and correspondence, appellants failed to encash the Performance Bond, compelling the claimant to institute the proceedings before the Insurance Tribunal seeking recovery of the guaranteed amount along with liquidated damages under section 118 of the Insurance Ordinance. The appellants filed written replies and, after framing of issues, parties led their respective evidence. Upon conclusion of FAO No.115-P/2017

proceedings, learned Insurance Tribunal, vide impugned judgment dated 24.10.2017, accepted both petitions and directed the appellants to pay Rs.4,055,025/- in instant case, and Rs.32,528,214/- in the connected case, along with liquidated damages. Feeling aggrieved of said judgment, appellants have preferred the instant and connected appeals, which are being decided together through this common judgment. Facts of the connected case mentioned above, were also largely similar to instant appeal.

2.We have heard arguments of learned counsel for the parties and perused the record.

3.Learned counsel for petitioner raised a number of objections to the impugned judgment, both legal and factual, but his main objection was with regard to the jurisdiction of learned Insurance Tribunal. Since objections as to jurisdiction of the Insurance Tribunal have been raised in both the appeals, this Court deems it necessary to first address question of jurisdiction of the Insurance Tribunal. Section 121 of the Insurance Ordinance, 2000 (hereinafter referred to as the “Insurance FAO No.115-P/2017

Ordinance”), provides for constitution of the Tribunal, section 122 deals with powers of the Tribunal, and section 123 provides for the procedure to be followed by the Tribunal.

Section 124 provides for appeals, and both the instant and connected appeals have been entertained under section 124 of the Insurance Ordinance. Section 122 contains the provision relating to jurisdiction of the Tribunal and, therefore, same is reproduced herein, below being much relevant;

“122. Powers of Tribunal:- (1) A Tribunal shall:

(a)in the exercise of its civil jurisdiction, have in respect of a claim filed by a policy-holder against an insurance company in respect of, or arising out of a policy of insurance, all the powers vested in a Civil Court under the Code of Civil Procedure, 1908 (Act V of

(b)in the exercise of its criminal jurisdiction, try the offences punishable under this Ordinance and shall, for this purpose, have the same powers as are vested in the Court of Sessions under the Code of Criminal Procedure, 1898 (Act V of 1898);

(c)exercise and perform such other powers and functions as are, or may be, conferred upon, or assigned to it, by or under this Ordinance; and

(d)in all matters with respect to which procedure has not been provided for in this Ordinance, follow the procedure laid down in the Code of Civil Procedure, 1908 (Act V of 1908) or the Code of Criminal FAO No.115-P/2017

Procedure, 1898 (Act V of 1898) as the case may be.

(2)The jurisdiction of a Tribunal shall not extend to appeals to which section 33 and section 34 of the SECP Act apply.

(3)No Court other than a Tribunal shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Tribunal extends under this Ordinance, including a decision as to the territorial limits and the execution of a decree, order or judgment passed by a Tribunal:

Provided that for the purposes of this section a Small Claims Settlement Committee established under section 117 shall not be deemed to be a Court.

4.Clause (a) of sub-section (1) of section 122 provides that, in exercise of its civil jurisdiction, the Tribunal shall, in respect of claims filed by a policyholder, against an insurance company in respect of or arising out of a policy of insurance, have all the powers of a Civil Court as provided under the Code of Civil Procedure, 1908. Similarly, in its criminal jurisdiction, clause (b) vests the Tribunal with the powers of a Criminal Court as provided in the Code of Criminal Procedure, 1898. Clause (c) provides that the Tribunal shall exercise and perform such other powers and functions as may be conferred upon it or assigned to it by or under the Insurance Ordinance. Section 122 is FAO No.115-P/2017

couched in a slightly different manner in the sense that, while it provides for powers of the Tribunal, the jurisdiction of the Tribunal has also been embedded in said provision of law.

There is no other provision in the Insurance Ordinance specifically providing for or defining the jurisdiction of the Insurance Tribunal. What we can infer from clause (a) of section 122 is that the Tribunal has jurisdiction in respect of a matter of a claim filed by a policyholder against an insurance company in respect of a matter arising out of a policy of the business of insurance. Similarly, it has the power to try offences which are punishable under the Insurance Ordinance and may perform such other functions as are separately conferred upon it under the Insurance Ordinance. It was main plea of learned counsel for appellants that the contract of guarantee (basis of the case before the insurance tribunal) had not been executed under any provision of the Insurance Ordinance; rather, same had been executed under section 126 of the Contract Act, read with the ancillary provisions contained therein.

Learned counsel for respondents, in rebuttal, FAO No.115-P/2017

stated that the term “insurance” has been widely defined in section 2 of the Insurance Ordinance and that same was also covering the contract in hand. For analysing this argument of learned counsel for respondents, this Court deems it appropriate to reproduce the definitions of the words “insurance”, “policy” and “policyholder”, as defined in the relevant clauses of section 2 of the Insurance Ordinance.

2.Definitions.--- In this Ordinance, unless there is anything repugnant in the subject or context,

(i)...

(ii)...

(iii)...

(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 the happening of an event, specified in the contract, on the 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 set out in this clause;

(xlv) "policy" means a contract of insurance;

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(xlvi) "policy holder" means the person to whom a policy is issued or, in the case of a policy of life insurance, the person to whom the whole of the interest of the policy holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition;

5.Coming back to section 122, same provides for jurisdiction of the Tribunal in the following cases;

a, Claims filed by a policyholder against an insurance company:

a(i). In respect of or arising out of an insurance policy.

a(ii). Against an insurance company.

b, The Tribunal also has jurisdiction in respect of all matters where such jurisdiction has expressly been conferred upon or assigned to it by or under the Insurance Ordinance.

There is no specific provision in the Insurance Ordinance conferring jurisdiction or specifically vesting powers in the Tribunal to decide questions arising from a performance guarantee executed by an insurance company.

We are, therefore, left with the jurisdiction of the Tribunal provided in clause (a) of section 122 of the Insurance Ordinance, which requires the essential conditions mentioned in paras a(i), FAO No.115-P/2017

a(ii) as given above. When tested on said touchstone, we find that it was not a claim filed by a policyholder against an insurance company and the claim was not arising from a policy of insurance, in terms of the Insurance Ordinance. The above-mentioned two essential elements mentioned in para a are missing in the case in hand. “Policyholder” has been defined under clause 45 of section 2 of the Insurance Ordinance as meaning a person to whom a policy is issued or, in the case of a policy of life insurance, the person to whom all interest in the policy is assigned once and for all, but same does not include an assignee whose interest in the policy is defeasible or subject to any condition for the time being. “Policy” has been defined in section 2 of the Insurance Ordinance as meaning a contract of insurance.

“Insurance” has been defined in clause 27 as the business of entering into or carrying out policies and contracts whereby (in consideration of a premium received) a person promises to make payment to another person contingent upon the happening of an event specified in the contract, or upon the happening FAO No.115-P/2017

of which the second-named person suffers loss, and includes re-insurance and retrocession.

The contract of insurance was included in the definition through a deeming clause provided in the proviso, as it was not fulfilling the essential conditions of the definition. The essential conditions of a policy and contract to be named as insurance may be deduced from the definition in the following manner:

i. Insurance means a business of entering into or carrying out policy or contract;

ii. The contract or policy are executed for a consideration of a premium;

iii. The person carrying the business of insurance promises the other person to make payment on happening of the contingency or an event as specified in the contract and on the happening of such an event the second person suffers loss.

The contract in the case in hand was carrying a totally different character; it was not dependent upon any contingency or happening of an event, nor had any such event been specified in the contract. The essential ingredient of an insurance contract is the happening of such event upon which a promise is made for making payment to another person FAO No.115-P/2017

contingent upon the happening of any event specified in the contract and, in the absence thereof, a contract cannot be called to be an insurance contract. Contents of contract in hand reveal that the appellant (insurance company) had undertaken to provide a guarantee that, if the principal, i.e. the contractor, failed to perform his obligations under the contract executed with the respondent authority and was declared to be in default of his contractual obligations, then, upon the first written demand of the employer, the insurance company would pay the guaranteed amount. It was, therefore, a contract of guarantee as defined in section 126 of the Contract Act, 1872, and was also governed by the relevant provisions contained in sections 127, 128 and 129 thereof. It was apparent that contract in the case in hand was not an insurance contract, nor were the plaintiffs before the Insurance Tribunal policyholders under the insurance contract.

They could not, therefore, have availed jurisdiction of Insurance Tribunal under section 122 of the Insurance Ordinance.

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6.Reading of the relevant provisions of the Insurance Ordinance clearly shows that the Insurance Tribunal established thereunder was a tribunal of limited jurisdiction, clearly delineated under section 122 of the Insurance Ordinance. Its jurisdiction was confined to the contours of section 122 and, being a tribunal of limited jurisdiction, it could not travel beyond the four corners of enabling law so as to assume jurisdiction over a matter not expressly contemplated thereunder. Any attempt by the Tribunal to enlarge, expand or assume jurisdiction on equitable or policy grounds would amount to a usurpation of legislative domain and would render the exercise of such jurisdiction ultra vires the enabling statute. The law in cases involving special jurisdiction is well settled: such jurisdiction is available only where the law expressly confers same, and matters not covered by such express terms are deemed to have been intentionally excluded. Hon’ble Sindh High Court, while rendering its judgment in the case of “Messrs EFU General Insurance Limited through Authorized Person/Attorney Vs. Messrs Duty Free Shops Ltd.”, reported as 2013 CLD FAO No.115-P/2017

1313, although seized with a different controversy, has held that the Insurance Tribunal under section 122(i) of the Insurance Ordinance had been created to adjudicate upon claims that might brought have been by the policyholders against an insurance company in respect of a policy of insurance and that such jurisdiction could not be invoked by the insurance company. A similar view was also expressed by same Hon’ble High Court in the case of “Messrs EFU General Insurance Ltd. Vs.

Messrs Pakistan National Tiles and Ceramics (Pvt.) Ltd.”, reported as 2015 CLD 1475.

Although the ratio of said judgments cannot be pressed into service directly in the case in hand, however regarding interpretation of the provision of subsection 1(a) of section 122, benefit can be obtained from the reasoning given in said judgment to the extent of holding that jurisdiction of the Insurance Tribunal (established under section 121 of the Insurance Ordinance) could only be invoked by a policyholder against an insurance company in respect of a policy of insurance under section 122 of the Insurance Ordinance.

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7.In light of what has been discussed above, it was found that the Insurance Tribunal was not having jurisdiction in the case in hand, where the respondents had sought encashment of the performance guarantee and recovery of the amount due under said contract. The petition should have been returned to the plaintiff before the Tribunal for presentation before the appropriate forum. Said exercise having not been done, this Court, while seized with instant appeals, may also exercise same powers. An appeal is a continuation of the proceedings, and when this Court has reached the conclusion that the Tribunal was lacking jurisdiction in both the connected cases, this Court is inclined to return the plaints filed before the Insurance Tribunal to the petitioners for presentation before the appropriate forum under Order VII Rule 10, CPC. Resultantly, both the appeals are partly allowed to the extent that the impugned judgment and decrees are set aside. The learned Insurance Tribunal is directed to return the petitions in both the cases to the respective petitioners under Order VII FAO No.115-P/2017

Rule 10, CPC, for presentation before the appropriate forum.

Announced

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JUDGE

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JUDGE

(DB)Hon’ble Mr. Justice Wiqar Ahmad, J. Hon’ble Ms. Justice Farah Jamshed, J.

*Atif Zafar JSS*

FAO No.115-P/2017