This is an appeal under Section 34 of the Security and Exchange Commission of Pakistan Act, 1997 read with Section 485 of the Companies Ordinance, 1974 whereby an order dated 24.4.2003 handed down by the Appellate Bench of the Security and Exchange Commission of Pakistan, Islamabad, is impugned and the following questions of law in this connection have been formulated:-- "1. Whether in the present of erroneous and conflicting interpretation of Section 224(2) of the Companies Ordinance 1984, given by the Respondent No, 1 and No, 2, an authoritative pronouncement by this honourable Court is required with regards the scope of time frame given in the said provision.
2. Whether the respondents have erred to appreciate that the words "vest" contained in Section 224(2) of the Companies Ordinance, 1984 does not mean that the respondents have become the owner of alleged tenderable gain and that the said . interpretation thereof is a negation to the pronouncement of august Supreme Court of Pakistan reported as 1987 SCMR 1197.
3 Whether the respondents have erred to appreciate that the appellant has validly discharged its of obligations arising under Section 224(2) of the Companies Ordinance, 1984 and the orders of the respondents are bad in law."
2. The appellant is a public limited company registered with the Karachi Stock Exchange and indulges in investments advisory services and money market operations etc.
3. The appellant is holding more than 10% shares of World Call Communication Ltd. and consequently is referred to as the beneficial owner and the World Call Communication, the issuer.
The Security & Exchange Commission of Pakistan (S.E.C.P) vide its letter dated 20th May, 2003, accused the beneficial owner of indulging in trading activity of sale and purchase of the issuer's shares within a period of 6 months resulting in a gain of Rs, 7,665,500/- (rupees seven million, six hundred, sixty-five thousand, five hundred only) and also accused the beneficial owner of violating the terms of Section 224(2) of the Companies Ordinance, 1984 by not tendering the gain so received to the issuer. The issuer too was accused of failing to make a demand in terms of Section 224(2) of the Ordinance. It was, therefore, the case of the S.E.C.P. that the accruing gain now vested with the S.E.C.P. and demanded the same.
4. After receipt of the letter, the beneficial owner/the appellant denied the accusation of indulging in trading activity with the issuer's shares but at the same time stated that upon a demand being made on 20th May 2003 by the "issuer' for the recovery of the amount gained and while adopting a reconciliatory stance, paid the amount under reference on 10.6.2003 to the issuer. It was, therefore, said that this payment has already been made leaving nothing in balance to be claimed by the S.E.C.P.
5. The appellant and the S.E.C.P. exchanged corresponds and a litigation later led to decision by the Commissioner (Security and Market Division) of the S.E.C.P. unfavourable to the appellant.
6. The appellant preferred an appeal under Section 33 of the S.E.C.P. Act 1997, whereas, the Appellate Bench of the S.E.C.P. did not fully agree with the interpretation given by the Commissioner with respect to the time periphery prescribed in Section 224 and while giving its own interpretation of the time limit had dismissed the appeal of the appellant/beneficial owner.
7. Precisely, therefore, this Court is. confronted with the legal proposition with respect to the interpretation of Section 224 and more particularly the periphery of time as given in this section as well as the word "vest".
8. The learned Appellate Bench while dilating on this issue had the following findings to give:-- "In connection with period mentioned in Section 224(2) of the Ordinance, it is stated that the section provides that "where a director, chief executive, managing agent, chief accountant, secretary, auditor or person who is beneficial owner as aforesaid fails or neglects to tender, or company fails to recover, any such gain as is mentioned in sub-section (1) within a period of six months, after its accrual, or within sixty days of a demand therefore, whichever is later such gain shall vest in the Commission and unless such gain is deposited in the prescribed account, the Commission may direct recovery of the same as an arrear of land revenue". A plain reading of the above clause would reveal that if the demand has been raised by the issuer in the very first month, then it has time to recover the amount up to the expiry of six months starting from the date of accrual of the gain. However, if the demand has been raised on the last day of the sixth month, then the issuer has another sixty days to recovery the amount from the beneficial owner. In other words beneficial owner has been required to surrender the gain within six months of accrual, whereas the issuer can collect the gain within a period of six months or maximum up to eight months in case demand has been made on the last day of the sixth month. Therefore, the words "whichever is later" cannot be construed as giving an unlimited time to the issuer for making a demand for such gain, as such an interpretation would lend redundancy to the whole idea of vesting the gain in the Commission and defeat the intention of the Legislature. The gain can only vest in the Commission after expiry of a certain time period, hence, the period of six months of the accrual of the gain and the period of sixty days should run concurrently."
On the question of vesting, the view was as follows:-- "With regard to view point of the counsel for word "vest" appears in Section 224(2) of the Ordinance, it is pointed out that under Section 23(d) of the Securities and Exchange Commission of Pakistan Act, 1997, "all other sums or property which may in any manner become payable to or vested in the Commission in respect of any matter incidental to exercise of its function and power" will become part of the Fund, to be administered and controlled by the Commission and the Commission has right to expend this Fund, in the slight of Section 24 of the said Act. Thus, the Commission acquires title and possession of amount of gain vested to the Commission."
And regarding the recovery of the gain from the issuer, from whom it had been remitted instead of the beneficial owner, the Commission was of the following view:-- "In connection with the view point of the counsel that the amount of the gain should now be recovered from the issuer instead of the beneficial owner, it is asserted that the beneficial owner has tendered the amount to the issuer, in response to a demand, raised by the issuer after the lapse of six months of the accrual of the gain
2. Section 224 of the Companies Ordinance 1984 reads as follows:--"Trading by directors, officers and principal share-holders:--
(1) where any director, chief executive, managing agent, chief accountant, secretary or auditor of a listed company or any person who is directly or indirectly the beneficial owner of the more than ten per cent of its listed equity securities makes any gain by the purchase and sale, or the sale and purchase, of any such security within a period of less than six months, such director, chief executive, managing agent, chief accountant secretary or auditor or person who is beneficial owner shall make a report and tender the amount of such gain to the company and simultaneously send an intimation to this effect to the registrar and the authority: Provided that nothing in this sub-section shall apply to a security acquired in good faith in satisfaction of debt previously contracted.
(2) Where a director, chief executive, managing agent, chief accountant, secretary, auditor or person who is beneficial owner as aforesaid fails or neglects to tender, or the company fails to recovery, any such gain as is mentioned in sub-section (1) within a period of six months after its accrual, or within sixty days, of a demand therefore, whichever, is later, such gain shall vest in the Commission and unless such gain is deposited in the prescribed account, the Commission may direct recovery of the same as an arrears of land revenue:
(3) For the purposes of Sections 220 to 224, the term 'auditor of the company' shall, where such auditor is a firm, include all partners of such firm.
Explanation:--(a) For the purposes of this section and Section 222, beneficial ownership of securities of any person shall be deemed, to include the securities beneficially owned, held or controlled by him or his spouse or by any of his dependent lineal ascendants of descendants not being himself or herself a person who is required to furnish a return under Section 222. and
(i) in the case where such person in a partner in a firm, shall be deemed to include the securities beneficially held by such firm; and
(ii) in the case where such person is a share-holder in a private company, shall be deemed to include the securities beneficially held by such company: Provided that for the purposes of Sub-section (1) the gain which is required to be tendered to the company by such person shall be an amount bearing to the total amount of the gain made, as the case may be, by the firm or private company the proportion as his relative interest bears to the total interest in such firm or private company.
(b) For the purposes of this Explanation, 'control', in relation to securities means the power to exercise a controlling influence over the voting power attached thereto.
(4) Whoever knowing and willfully contravenes or otherwise fails to comply with any provision of Section 222, Section 223 or Section 224 shall be liable to a fine which may extend to thirty thousand rupees and in the case of a continuing contravention, non-compliance or default to a further fine which may extend to one thousand rupees for every day after the first during which such contravention, noncompliance or default continues."
9. The rationale behind the enactment of this Section is to discourage trading between a "beneficial owner" and an "issuer", both having fiduciary relationship of such a kind where exploitation and wrongful gains were possible. The purpose of law was to deprive a "beneficial owner" of the gains which according to the intention of law were to be returned to the issuer. In case the gain through trading activity rather than serious vestment is not remitted to the issuer within a period of 6 months from the late of the earning of the profit and there being no demand made by the issuer, this amount vests with the S.E.C.P.
10. The beneficial owner has to tender the amount within 6 months' period provided from the date of the accrual or upon the demand being made by the issuer, in which case. the "beneficial owner" has to remit the gain within 60 days of the making of the demand which ever is later.
11.The question is whether the period of 60 days is to run concurrently with the sixty days period as has been observed by the Appellate Bench of the Commission or consecutively as has been observed by the Commissioner or this is open to some other interpretation. If the periods of 6 months and 60 days were intended to run concurrently, the splitting of the period as such in this Section was not required and a fixed time could have been given as eight months for this purpose.
12.If we go on the "concurrent" interpretation and if a demand is made within 6 months' period by the issuer, the 60 days' period may elapse before the expiry of 6 months' period. If before the expiry of 6 months' period a demand is made, the unexpired period of 6 months will get extended by 60 days.
13.But the question is, what happens when a demand is made by an issuer later than 6 months from the date of the accrual and beyond 8 months? Will it be hit by limitation and, therefore, his remedy to recover shall cease?
14. While discussing these possibilities, this Court is of the opinion that the interpretation as given by the Appellate Bench of Section 224(2) is not exhaustive. The period of 60 days has been given for purposes of making a demand in case there is a suppression of fact and thus lack of knowledge at the end of the issuer, In which eventuality he can make a demand within a period of 60 days from the date of his knowledge, otherwise, the gain is to vest in the Commission. Obviously, Section 224(2) is burdening both the beneficial owner and the issuer with a sensibility. In case of failure to act, both are deprived of the gain which then vests with the S.E.C.P.
15.So, a 60 days' period is also given to the issuer from the date of knowledge so that he could make a demand and pursue action for recovery. Fixing of six months' period for the beneficial owner was obvious because he is supposed to be actuated with the knowledge of the transaction and the gain, which knowledge -the issuer may be lacking depending on case to case basis.
16.The next question is what meaning can be ascribed towards; such gain shall vest in the Commission". The Black's Law Dictionary defines the word "vest" as follows:-- To give an immediate, fixed right of present or future. enjoyment: To clothe with possession; to deliver full possession of land or of an estate; to given seisin."
17.In the case of Fruit & Vegetable Merchants Union vs. The Delhi Improvement Trust [AIR 1957 SC 344 (V 44 c 51 April)], the word "vest" was defined as follows:-- "The word "vest" has not got a fixed connotation, meaning in all cases that the property is owned by the person or the authority in whom it vests. It may vest in title, or it may vest in possession, or it may vest in a limited sense, as indicated in the context in which it may have been used in a particular piece of legislation."
18.In the case of The Trustees of the Port of Karachi vs M/s Muhammad Bakhsh & Sons [PLD 1959 (W.P.) Karachi 658], the word "vest" was defined as follows:-- "Vest--Vesting of plot of land in person connotes such person's possession of land and his exercising control over it."
19.And in the case of Board of Foreign Missions of the Presbyterian Church in the United States of America through Lahore Church Council vs. The Government of the Punjab (1987 SCMR 1197), it was said that the word "vest" is a word of variable import, not having a fixed connotation and does not necessarily mean to "vest in title".
20.Similarly, in the case of Noor Muhammad vs. Sardar Khatoon and others (PLD 1951 Sindh 1), the following view was expressed while defining the word "vest":-- "The word 'vest has a very well-defined meaning. Vesting in relation to property means the acquisition of the legal right of immediate possession and dominion over property. It means nothing more. One speaks of a property vesting in an executor, a trustee, an official assignee or an owner of a property from the moment when the individual in question acquires the legal right of possession and dominion. The words the sum shall vest in the nominee', do not connote anything more than that in law the legal right to immediate possession of and dominion over the property shall pass from the trustees of the fund to the nominee and do not mean that the full rights of ownership including the right to the beneficial enjoyment of the property, shall pass to the nominee. The nominee becomes entitled to possession of the sum without having to obtain letters of administration or a succession certificate. A property may vest in one person, and the beneficial right of enjoying the property as an owner may at the same time vest in another person. The division of the full rights of ownership into the right to possession and dominion, and the right to the beneficial enjoyment of the property is one which is well-recongized. Where an executor is appointed by a will, the estate vests in the executor while the beneficial interests vest in the legatees, on the death of the Testator,..."
21. We find that the Section does not use the words "vest" and "belong" but merely the words "vest" and which has variable meanings and a correct meaning is to be ascribed to it according to the situation given in Section 224.
22.Therefore, several situations may arise and for covering the situations, the periods of "6 months after accrual" or "60 days of a demand" have been given. The requirement that after the lapse of afore-mentioned period, the gain shall vest in the Commission, will mean that its control and possession shall go to the Commission and issuer would be entitled to make a demand upon proof of innocence, lack of collusion, lack of knowledge, non-commission of any act of fraud etc. for return of the amount within 60 days from the knowledge.
23.Thus the primary aim of the S.E.C.P. is to protect the interest of the issuer, discourage exploitative trading and to punish the beneficial owner with the penalty while also becoming seisin of the gain. And the issuer is to be deprived of the property only on account of its indolence even after knowledge during the 60 days' period prescribed which may start from the date of knowledge and not otherwise.
24.In this case the issuer has remitted the gains after about 20 months. The issuer accepts the receipt. This money in fact belongs to the issuer in the absence of any proof of collusion between the two. The factum of any collusion in this case, however, remains unresolved and shrouded.
25. Since the purpose of Section 224 is to discourage frauds and collusive transactions meant to usurp the gains through the forbidden trading activity, the Commissioner or the Appellate Bench of the S.E.C.P. are required to establish the factum of collusion and fraud for determining a case under Section 224 which is hit by the limitation clause and this is essential prelude before the S.E.C.P decides as to whom the gain shall belong and short of that it shall always be considered as a custodian of the amount and not its owner.
26.As the above observations have answered all the questions raised, both the appeals (C.A. No, 8/2003 & C.A. No, 12/2004) are accepted accordingly. As the question with respect to the collusion of fraud inter-se the parties pertains to a factual controversy which remains unanswered at the end of the Commissioner or the Appellate Bench of the S.E.C.P., this Court would, therefore, confine its answers to the questions raised and the reference is, therefore, answered accordingly while this Court disagrees with the answers given on the legal questions by the learned Appellate Tribunal of S.E.C.P.