MUHAMMAD ATHAR SAEED, J.---This appeal under section 32 read with section 34 of Securities and Exchange Commission of Pakistan Act, 1997, has been filed by the appellant, who carries on business of investment consultants and deals and trades in securities and shares, against the order of the Re-constituted Appellate Bench No.1 of Securities and Exchange Commission of Pakistan, whereby an appeal filed by the respondent No.1 against the order of Director (Securities Market Division) Securities and Exchange Commission of Pakistan, who had vide his order dated 21st July, 2005, dismissed the complaint, filed by the respondents against the appellant.
2. Brief facts, of the case are that the appellant is a member of the Karachi Stock Exchange (Guarantee) Limited and maintains investment portfolios on behalf of various clients in which they trade in securities and shares quoted on Stock Exchange under instruction from and on behalf of various clients.
3. The respondent No.1 is the customer of the appellant and is maintaining a portfolio Account No.127000800 with the appellant since February, 2005. According to the respondent he sent 4000 physical shares of Pakistan Petroleum Limited on 11th March, 2005 through Mr. Shahzad an employee of the appellant for conversion from Physical Shares to Central Depositary System and crediting the same to his CDC sub-account, however, instead of crediting the same to his CDC sub-account these shares were erroneously credited to sub-Account No.730 in the name of Mr. Atif Majeed Shaghil. The respondent further submitted that when, he inquired whether the above mentioned shares have been credited to his CDC account, the concerned employee of the appellant kept hoodwinking him by asserting; that so far, no confirmation has been received from Central Depositary Company. The respondent further submitted that a meeting was held with appellant's representatives, who admitted their mistake and informed him that if and when written application is received from Mr. Atif Majeed Shaghil that the shares did not belong to him, the same will be transferred back to the respondent's CDC sub -account.
4. In compliance thereof the respondent requested Mr. Atif Majeed Shaghil to send this application,who obliged and vide his letter dated 5-4-2005 informe&the appellant that the shares had not been given by him and the same may be removed from his account. However, when again the transfer was not made despite passing of about more than 20 days from the receipt of letter of Mr. Atif Majeed Shaghil, he again contacted the appellant, who informed him that since the account of Mr. Atif was in debit, therefore, until the clearance of debit balance by him, the shares in question cannot be transferred to the respondent's account and he could not get any redresses from the appellant. The respondent filed the complaint before Securities and. Exchange Commission, which was forwarded vide his letter dated 5th April, 2005 and the same was received in the office of the Commission on 6th May, 2005.
5. After hearing the parties on 21-7-2005 the Director Securities Market vide his order dated 26th July, 2005, dismissed the complaint with the following observations:-- However, after considering the facts of this case and examining the record; it has been observed that respondent has no proper system of issuance of receipts while accepting physical shares for converting into book-entry form of CDC. If the respondent had followed proper legal procedure, the dispute would not have arisen in the first place. The respondent is hereby directed to have such procedure/system in place within 15 days from the date of the order and intimate the same to the undersigned, failing which action would be taken in accordance with the provisions of law. In view of the foregoing and considering the circumstances and chain of events that took place, I hereby dismiss the complaint finding the same as meritless in law as well as on facts.
6. Being aggrieved by the order of the Director (SMD) the respondent filed an appeal before the Appellate Bench of Securities and Exchange Commission of Pakistan, who vide their order dated 5th January, 2006, allowed the appeal and directed the appellant to credit 4000 shares of Pakistan Petroleum Limited to the respondent's account within seven days of the date of impugned order, hence this miscellaneous appeal.
7. We have heard Mr. Nasir J.R. Shaikh, learned counsel for the appellant, Mr. Muhammad Aqil and Mr. Abdul Majeed Shaghil, learned counsel for the respondent No.1 and Mr. Umar Sial learned counsel for respondent No.2.
8. The main contention of the learned counsel for the appellant is that the respondent and Atif Majeed Shaghil are close associates so much so that when the respondent opened his account with the appellants he had also appointed Mr. Atif Majeed Shaghil one of the single signatories for the operation of his account. He has also asserted that the respondent and the said Atif Majeed Shaghil worked in the same office and both sit near to each other in their office and the respondent depends on the knowledge and experience of Atif Majeed Shaghil for the sale and purchase of various securities and shares. While contradicting the facts narrated by the respondent in his complaint, filed before the Director SMD, he said that actual facts of the case are that the subject shares of PPL were handed over to Shahzad by Atif Majeed Shaghil and Shahzad had initialed the copies of these shares and handed over the same to Atif Majeed as acknowledgment for receipt of these shares. He further submitted that this fact is very clear from the records of the appellant's company as entry of these shares received from Atif Majeed has been made in the register of shares receipt on the same date they were alleged to be handed over to the appellant and these shares were then sent to the appellant's branch office in the Stock Exchange for crediting in the CDC sub-account of Atif Majeed and credited in that account on 19th March, 2005. He stated that on the basis of the securities of these shares and margin available in his account in shape of these shares, Atif Majeed was able to carry on extensive trading in purchase/sale of share sale and he never bothered to ask as to on what basis or on which margin he had been able to carry on such extensive trading.
9. The learned counsel submitted that once the market fell and loses suffered 'due to extensive trading the appellant Atif Majeed came to the conclusion that if these shares were allowed to remain in his account the same will be adjusted against debit balance in his account and the best way was to take the plea that the shares were handed over to Shahzad by the respondent to be credited in his CDC sub-account and were wrongly or malafidely credited to the account of Atif Majeed Shaghil and therefore, the loss of Atif Majeed will be reduced up to the amount of these shares. He stated that the shares were neither in the name of the respondent nor in the. Name Atif Majeed Shaghil and respondent had given contrary statements as to the identity of the owners as he had first claimed they were his friends but later on had submitted that they were friends of his friend. He stated that the Director SMD had thoroughly analyzed the facts of the case and after indepth analysis and examination he had rightly come to the conclusion that the respondent has not been able to prove that he had handed over the shares to the appellant and therefore, dismissed the complaint. He stated that the Appellate Bench of Securities Exchange Commission had brought no material on record to displace the findings of the Director SMD. He therefore, prayed that this appeal may be allowed and order of the Director SMD be restored.
10. The learned counsel for the respondent rebutting the arguments of the learned counsel for the appellant, submitted that the appellant had violated a number of provisions of various Ordinances and rules including provision of Companies Act, 1984, Securities and Exchange Ordinance, 1971. CDC Act and Rules and other rules and both the authorities below have given a clear cut finding that if the appellant had not violated the rules and maintained proper documentation as required by law and regulations, the dispute would not have arisen in the first place. The learned counsel also relied on a number of judgments of the Superior Courts in support of his contention that anything required to be done in a particular manner has to be done in that manner. They also presented a number of documents to prove that even in statements of account of Atif Majeed Shaghil on 21st March, 2005, these shares which have been alleged to have been handed over on 11th March, 2005 have not been shown, which proves the mala fide intention of the appellant. According to the learned counsel for the respondent the appellant had carefully manipulated the shares and instead of crediting in to the account of the respondent they have credited it to the account of Atif Majeed Shaghil so as to ensure that they do not have to account for the same to the respondent.
11. We having examined the case in the light of arguments of the learned counsel and carefully examined the records of the case and perused the order passed by the Director SMD and the impugned order. Both the authorities below in their order have held that the appellant has not followed the proper prescribed system of documentation including issuance of receipts while accepting the physical shares for converting into CDC. Both of them have also held that if the appellant had followed the rules and regulation and maintained the documentation as required by law, the dispute would not have arisen. It is also revealed from the perusal of orders and all the documents that neither the respondent has been able to prove that he was the one who had handed over the shares of PPL to the appellant nor has the appellant been able to prove that they had received these shares from Atif Majeed Shaghil and not from the respondent. The documents produced by the appellant to show from the record that these shares were entered in the name of Atif Majeed Shaghil and not respondent are also not the documents on which absolute reliance can be placed.
12. We have also noted that whereas the Director SMD has on the basis of factual position reached the conclusion that the crediting of the shares in the account of Mr. Atif Majeed Shaghil is not an afterthought but despite close relationship between the respondent and Atif Majeed Shaghil no collusiveness has been proved. The appellate authority has on the other hand held that the facts on the record, lead to the conclusion that it is a word of the appellant against the word of the respondent, without any of the parties substantiating their contention with cogent evidence. They have accepted the appeal because in their opinion the broker i.e. The appellant has failed to fulfil its statutory and fiduciary duties, therefore, in their opinion the benefit of doubt, if any, should go to the customer/investor. They also held that despite any decision in the case, the appellant will have still a legitimate claim against Mr. Atif Majeed Shaghil for the recovery of the debts owed by him.
13. We find ourselves in agreement with the reasoning of the appellate bench and since it is an admitted fact, which has also been accepted by the learned counsel for the appellant even before us that they have not maintained proper documentation and have not issued the prescribed receipts for shares nor have they maintained registers prescribed for entry and movements of these shares, the balance of convenience is not in their favour and the benefit of doubt, if any, should go to the customer/respondent.
14. In view of the above discussion, we are of the considered opinion that the appellate authority has passed the impugned order for cogent reasons, which are unexceptionable and no interference is called from this Court. As a consequence thereof the above appeal and listed applications, are dismissed in limine.
Appeal/.