TARIQ BAKHTAWAR (DIRECTOR ENFORCEMENT). - -- This order shall dispose of the show cause proceedings initiated against the directors of M/s Huffaz Seamless Pipe Industries Limited (the "Company") under section 186 of the Companies Ordinance, 1984 ("the Ordinance") for appointing four directors without getting their consent in writing as required by section 184 of the Ordinance and by not-fixing/disclosure of the number of directors elected in the notice of meeting as required under subsection (2) of section 178 of the Ordinance.
2. The Company was incorporated as a public limited Company. Its shares are quoted at Lahore and Karachi Stock Exchanges. The principal object and business of the Company is to manufacture and sell seamless steel pipes and tubes etc. The paid-up capital of the Company is Rs,122.003 million divided into 12,200,278 shares of Rs,10 each. The Company has 1,419 shareholders including individuals, joint stock companies, insurance companies and financial institutions. The pattern of shareholding annexed to directors' report on the accounts for the year ended June 30, 2004 shows that directors, their spouses and minor children, and associated companies hold 50.227% of total shareholding which indicates that there is still considerable public interest in the shares of the Company. The latest elections of Directors of the Company were held on December 31, 2003. As per Form 29 (Particulars of Director) dated January 13, 2004 filed with the Company Registration Office, Karachi, the following 12 persons were appointed as directors by the Company: Name Nationality
1. Mr. Yousaf M. Yousaf NajibiBahraini
2. Hafiz Abdul Majid PakistaniPakistani
3. Hafiz Abdul Waheed PakistaniPakistani
4.
4. Hafiz Abdul Rehman MadniPakistani
5. Hafiz Ayub Ismail PakistaniPakistani
6. Mrs. Farida Majid PakistaniPakistani
7. Hafiz Abdul Sami PakistaniPakistani
8. Mr. Irshad Ahmad U.K. U.K.
9. Mr. Muhammad Hafeez U.K.U.K.
10. Mr. Muhammad Hashim KhooryU.A.E.
12. Mr. Nabil Abdul Rehman ArifU.A.E.
13. Mr. Abdul Aziz Eshaq U.A.E.
3. In order to dispose of the proceedings, it is necessary to have a glance into the background facts of the case. The Commission while examining the record of the Company observed that the Company has appointed four (4) IJAE based Directors without getting their written 'consent as required by section 184 of the Ordinance. It was further observed that the directors at the time of elections did not disclose in the notice of meeting the number of directors so fixed as required under subsection (2) of section 178 of the Ordinance. On enquiry, the Company admitted the statutory default and informed that since the number of retiring directors and the newly appointed directors were the same, therefore they did not consider it appropriate to mention the same in the notice of elections.
4. Consequently, a notice dated December 14, 2 J4 was served upon the directors and the Company Secretary to show cause and explain as to why penalty as provided under section 186 read with section 476 of the Ordinance may not be imposed for violation of the mandatory provisions of sections 178 and 184 of the Ordinance. The aforesaid notice was responded by the Company Secretary vide his letter dated December 24, 2004.
5. In order to provide an opportunity of person al hearing, the case was fixed for January 12, 2005 on which date Hafiz Abdul Majid, Chief Executive Officer (CEO) along with Mr. Abdul Hafeez Khan, Company Secretary and Mr. Fazal Mahmood, Auditor of the Company appeared and admitted the defaults. They also admitted the default of subsection (4) of section 178 of the Ordinance.
6. In the written submissions as well as at the time of hearing of this case, it was contended that the mistakes were not bona fide and occurred due to misunderstanding in interpretation of the relevant provisions of law. As far as the receipt of written consents of four elected directors are concerned, it was contended that these directors are foreign based and despite continuous persuasion by the Company, no consent was received, however, they were retained in good faith and in the larger interest of the Company. The Chief Executive assured that the Company will comply with the requirements of law in future.
7. In view of the foregoing, although the default is established and admitted however, keeping in view the assurance of the respondents that the requirements of law shall be complied in future, I am inclined to take a lenient view of the default and instead of imposing a maximum penalty of Rs,10,000 on all the Directors of the Company, impose a fine of Rs,5,000 on the Chief Executive and Company Secretary only as provided under section 186 read with section 476 of the Ordinance. The other Directors of the Company are also advised to be careful in compliance of law in future.
8. The Chief Executive and Company Secretary are directed to deposit the fine amounting to Rs,10,000 (Rupees ten thousand only) in the designated bank account maintained in the name of Securities and Exchange Commission of Pakistan with Habib Bank Limited, within thirty days from the receipt of this order and furnish the receipted challan to the Commission for record.