RASHID I. MALIK, COMMISSIONER COMPANY LAW (SMD).---This order shall dispose of proceedings in the matter of (a) Show-Cause Notice No.CLD/EMD/FIU/17/2006/ 89-96 dated July 14, 2006 issued to: (1) Ahmed Spinning Mills Limited ("ASML"), (2) the Directors of ASML namely, Shaikh Abdul Wahid, Shaikh Muhammad Saeed, Mrs. Qaiser Begum, Mrs. Nasreen Wahid, Mrs. Abida Saeed, Mrs. Fouzia Begum and Sh. Abdul Raoof (the "Directors"), and (3) United Sugar Mills Limited ("USML"), (b) the proceedings in the matter of the Show-Cause Notice No. CLD/EMD/FIU/17/2006/79-85 dated July 14, 2006 issued to: (i) Clearshore Limited ("Clearshore"), (ii) Taj Mahmood Yayha; and (iii) Nasir Mahmood Yahya, and (c) issues arising from the Direction No. CLD/EMD/FIU/17/2006/97 dated 14 July, 2006 issued to JDW Sugar Mills Limited ("JDW") in the matter of acquisition of 75% shares of USML from the Directors and Clearshore, as common questions of fact and law are involved.
2. The Show-Cause Notice .Issued to ASML, Directors and USML required each of them to appear in person or explain their position in writing on or before 8 August, 2006 in respect of the following:
(a) ASML and the Directors to show cause as to why each of them should not be proceeded against for acting in concert with Clearshore in the matter of the acquisition of 22.44% shares of USML (the "Shares") from ASML in contravention of the provisions of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (the "Takeovers Ordinance"); and/or
(b) Each of Shaikh Abdul Wahid ("Sh. Wahid") and Shaikh Muhammad .Saeed ("Sh. Saeed") to show cause as to why they should not be proceeded against in the matter of acquisition of more than 25% shares in USML in contravention of the provisions of the Take overs Ordinance; and/or
(c) Each of Sh. Wahid and Sh. Saeed to show cause as to why he should not be proceeded against in the matter of acquiring direct or indirect control over not less than 75% shares in USML in contravention of the provisions of the Takeovers Ordinance.
3. ASML and the Directors submitted their respective replies to the subject show-cause notice vide their letter dated 5 August, 2006 which was received at the Commission on 7 August, 2006. In their reply the parties maintained that they had not violated the provisions of the Takeovers Ordinance, and therefore, the subject show-cause notice be withdrawn and/or "considered as satisfied". ASML and the Directors, however, reserved their right to make further submissions in a nearing. USML neither submitted reply to the subject show-cause notice nor did any one appear on its behalf before the undersigned.
4. On 10 August, 2006, vide its letter numbered CLD/ EMD/FIU /17/2006/110- 118 this office intimated, all parties that the matter was scheduled for hearing on 21 August, 2006 before the undersigned and requested further submissions from them, if any. On 21 August, 2006, ASML and the Directors submitted their letter dated 19 August, 2006 whereby this office was advised that each party had reviewed the matter and that they had "conveyed and explained" their respective response to the subject show-cause notice "adequately and sufficiently" in terms of their letter dated 5 August, 2006. ASML and the Directors requested disposal of the matter accordingly, as they did not "consider it necessary to make further submisions in a hearing" on 21 August, 2006.
5. Through this office's letter numbered CLD/EMD/FIU/ 17/2006/139-147 dated 8 September, 2006, ASML, the Directors and USML were given a final opportunity to review and obtain copies of documents on file and make further submissions on or before 19 September, 2006. They were also allowed to appear in person or through an authorized representative on the said date. ASML sought further extensions by their letters of 12 and 18 September.
2006. ASML's request was granted and the final hearing was scheduled for 28 September, 2006.
6. On 25 September, 2006, however, this office again received ASML's letter dated 21 September, 2006 wherein the Chief Executive of ASML restated the earlier position that the show-cause notice stood "sufficiently and clearly" replied to. ASML and !He Directors vide their letter dated 5 August 2006 admit that (a) ASML and USML were associated companies; (b) ASML has had a longstanding investment in USML by way of holding the Shares, which constituted 61% of the total assets of ASML as per audited accounts for the year ended 30 September, 2004; (c) 22.44% Shares of ASML were sold to Clearshore at Rs.16 per share in terms of the Clearshore Sale Agreement dated 10 November, 2004 ("Clearshore Agreement"); (d) the Directors held approximately 16.5% of the total issued share capital of USML, which were sold at a later date at the rate of Rs.333 per share; and (e)
Sh. Wahid and Sh. Saeed exercised control over not less than 75% shares of USML, including the Shares held by Clearshore, for purposes of sale of such shares along with management control of USML to JDW in terms of the Share Purchase Agreement dated 21 October, 2005 (the "JDW SPA"). However, ASML and the Directors maintain that:
(a) Clearshore is represented by one Mr. Shahid Hussain and the company was introduced to Sh.
Wahid and Sh. Saeed by "mutual contacts". They maintain that this office has misunderstood the relationship between the directors of Clearshore namely Taj M. Yahya and Nasir M. Yahya and (i)
Sh. Wahid and Sh. Saeed; and (ii) ASML. Further the Takeovers Ordinance requires the acquirer to file the prescribed returns, and ASML or the Directors are not responsible or liable in this regard. It is further asserted that the sale of the Shares to Clearshore was motivated by efforts on part of ASML to satisfy the Commission, which was contemplating winding up of ASML and the revenue generated by the sale was used to meet expenses and pay dividends to shareholders.
(b) Prior to 19 January, 2000, Sh. Wahid and Sh. Saeed "jointly owned 16% shares of USML" and that they "jointly became entitled to beneficial ownership of more than 50% shares of USML" by way of oral gift from Shaikh Maqbool Ahmed, their father (now deceased), however, such joint beneficial interest was not reported in time as the prescribed return under section 222 of the Companies Ordinance, 1984 (the "Ordinance") was not filed until "much later than the actual date of gift". It is further stated that the Takeovers Ordinance does not apply once shareholding of 51% or more is acquired, and since 36% shares of USML were received by them as gift from, their (now deceased) father, "there was no purchase price paid or acquisition agreement entered into and as a consequence thereof, there could be no possibility of any public offer to purchase shares", and therefore, the Takeovers Ordinance has not been violated.
(c) Shareholding of the Directors in ASML and USML along with other disclosures required under law, and from time to time made by ASML and USML are a matter of record, which speaks for itself.
7. The Show-Cause Notice to Clearshore and its sponsors/ directors Mr. Taj M. Yahya and Mr. Nasir M. Yahya required each party to show cause as to why action should not be taken under sections 25 and 26 of the Takeovers Ordinance for contravening the provisions of the Takeovers Ordinance, particularly acquisition of the Shares from ASML from persons acting in concert with them, namely, ASML and the Directors. Despite repeated notices, no one has appeared on behalf of Clearshore and others.
8. As regards USML, it was also deemed appropriate to grant it due opportunity to participate in these proceedings. However, USML has not participated in these proceedings.
9. Furthermore, in order to ensure fair and equal treatment to all investors and to maintain the confidence of investors in the securities market, the Commission in the interest of the securities market and pursuant to the powers conferred under section 25 of the Takeovers Ordinance read with section 20(4)(g) and (j) and section 20 (6) (b) and (g) of the Securities and Exchange Commission of Pakistan Act, 1997 on 14 July, 2006 directed JDW not to make all or any part of the outstanding payment of Rs.330 million under the JDW SPA pending disposal of these proceedings.
10. Having set out the admitted facts and the parties' respective contentions above, I address the first issue, that is, the common question of contravention of section 4 of the Takeovers Ordinance in the matter of acquisition of the Shares.
11. Section 2(1)(a) of the Takeovers Ordinance defines the term "acquirer" as follows: "means any person who, directly or indirectly, acquires or has proceeded to acquire voting shares in the target company, or acquires or has proceeded to acquire control of the target company, either by himself or through any person acting in concert" (Emphasis added).
12. The relevant portion of section 4 of the Takeovers Ordinance reads as under: "Acquisition of more than ten percent voting shares of a company.---(1) Any acquirer who acquires voting shares, which (taken together with voting shares, if any, held by the acquirer) would entitle the acquirer to more than ten percent voting shares in a listed company shall disclose the aggregate of his shareholding in that company to the said company and to the stock exchange on which the voting shares of the said company are listed as provided in subsection (2).
(2) The disclosure mentioned in subsection (1), shall be made within two working days of:
(a) the receipt of intimation of allotment of voting shares: or
(b) the acquisition of voting shares, as the case may be. Explanation. For the purposes of this section expression "acquisition" shall include purchases confirmed by the member of the stock exchange in accordance with sub-rule (4) of rule 4 of the Securities and Exchange Rules, 1971."
(Emphasis added)
13. A plain reading of the above quoted provisions of law make it abundantly clear that any person who acquires more than 10 percent of shares in a listed company must make adequate disclosure not only to the company whose shares such person has acquired but also to the stock exchange on which the securities are traded.
14. The terms of the sale of the Shares, as recorded by ASML and Clearshore in the Clearshore Agreement, contain an elaborate mechanism for the sale/purchase or the Shares whereby the payment had to be effected over a period of six months. Moreover, the said agreement specifically states that the subject transaction shall be governed and construed in accordance with the laws of Pakistan. Despite this, it is confirmed from the record available on file that the disclosures required under section 4 were not made. It is to be noted that although Clearshore is a UK company, its two above named directors (father and son respectively) are Pakistan nationals who are also directors in Tanaaz Textile Limited, a public company incorporated and established in Pakistan, and can hardly deny familiarity with Pakistan law. Even otherwise, ignorance of law is no defence. Consequently, it is clear that the acquirers have contravened the mandatory provisions of section 4 of the Takeovers Ordinance and are liable to be penalized for such breach.
15. Now, the question whether ASML and/or its Directors acted `in concert' with Clearshore in the matter of acquisition of the Shares in contravention of section 4 of the Takeovers Ordinance needs to be addressed. For such determination it is to be shown that the Directors and/or ASML (each being a person) did in fact `cooperate' with Clearshore for purposes of acquiring 22.44% 'voting shares' (being the Shares) in the target company (being USML, a listed company) in contravention of the said Section 4. Each of these aspects is discussed below.
16. The expression 'person acting in concert' is defined in section 2(1)(h) of the Takeovers Ordinance as follows: "person acting in concert" means a person who cooperates with the acquirer to acquire voting sh .Res or control of the target company;" (Emphasis added).
17. A plain reading of the above definition shows that the following conditions must be met before any person may be regarded as having acted in concert for purposes of contravention of the provisions of the Takeovers Ordinance:
(i) The person cooperates with the acquirer;
(ii) Such cooperation is for the acquisition of voting shares, that is, shares in the capital of a listed company: and
(iii) Such voting shares are of the target company, that is, the listed company whose shares are directly or indirectly acquired or intended to be acquired (as defined in section 2(1)(o) of the Takeovers Ordinance).
18. It is- obvious that each of the Directors and ASML is a 'person' at law vis-a-vis the first condition above. As for conditions (ii) and (iii) above, it is an admitted position that the shares are voting shares of a listed company. Thus, to determine whether the statutory test for 'person acting in concert' is satisfied in the present case, the only question requiring determination is whether there was cooperation between ASML and its Directors and Clearshore in the matter of acquisition of the Shares by Clearshore.
19. The show-cause notices issued to ASML, Directors and USML expressly stated that Clearshore is a dormant UK company and has two Directors, namely: Mr. Taj M. Yahya and Mr. Nasir M. Yayha, and that the son of Mr. Taj M. Yahya is a close family relation of Sh. Wahid and Sh. Saeed. ASML and the Directors in their reply dated 5 August, 2006 do not deny this, but state that Clearshore was introduced to ASML (Sh. Wahid and Sh.. Saeed in particular) through "mutual contacts" and that this office has misunderstood the relationship between the two.
20. On 9 February, 2006, Sh. Saeed in writing stated that the Directors "were approached by Mr. Shahid Hussain, a British National representing Clearshore, who was introduced by common family friend." The record shows that on 13 July, 2004 Clearshore vide its letter addressed to the Directors of ASML showed an interest to purchase the 22.44% shareholding of ASML in USML. It is also observed that documents signed on behalf of Clearshore have not been signed by Mr. Shahid Hussain but instead by Mr. Nasir M. Yahya son of Mr. Taj M. Yahya. Hence the contention that the Directors of ASML were approached by one Mr. Shahid Hussain prima fade appears to be false and misleading. The records of National Database and Registration Authority (NADRA) show that Mrs. Aasma Yahya (sister of Sh. Wahid and Sh. Saeed) is married to Tahir M.
Yahya (the other son of Mr. Taj M. Yahya). It is not out of place to mention that Tahir M. Yahya is also a witness to the JDW SPA and instrument of gift of USML shares mentioned in paragraph 30 below.
Hence, the Directors of Clearshore Mr. Taj M. Yahya and Mr. Nasir M. Yahya are related to Sh. Wahid and Sh. Saeed.
21. Furthermore, it is observed that Sh. Wahid and his spouse (Mrs. Nasreen Wahid), Sh. Saeed and his spouse (Mrs. Abida Saeed) and Mrs. Qaiser Begum (mother of Sh. Wahid and Sh. Saeed) are the five (out of seven) directors of ASML (these five individuals were also directors of USML until the sale of USML to JDW). Thus, it is clear that there is close family relationship between sponsors/directors of Clearshore and five out of seven directors of ASML and USML (at the relevant time). It is manifest that the so called "mutual contacts" are in fact close family relations.
22. Given the close family relations, and admissions on record, it is clear that there was in fact cooperation between the said parties, whereby the parties sought to make colossal gains. Also, the fact that the Directors did not sell their own shares in USML and subsequently joined hands with Clearshore to sell 75% shares to JDW emphasizes continued cooperation. Additionally, the fact that Clearshore later specifically requested JDW vide a letter signed by Mr. Nasir M. Yahya (and not by Mr. Shahid Hussain) to make payment for the shares to Sh. Wahid and Sh. Saeed further indicates that cooperation not only did exist in relation to the sale of the shares from ASML to Clearshore but also continued until afterwards when the Shares were sold to JDW with an enormous differential in sale price. Further it is observed that this sale of the shares to Clearshore does not appear to be an arms length transaction, inter alia, for the reason that the consideration for the Shares by Clearshore was made by depositing Rs. 9,782,377 in cash in ASML's bank account with Bank Al- Habib on 29 March, 2005 and transferring Rs.989,911 as an inward foreign remittance on 15 March, 2005. It is pertinent to note that the inward foreign remittance has originated from Dubai on the request of 'Al Zarooni Exchange Dubai, UAE' and routed through Lloyds Bank U.K. It has been observed that the remittance has not been transferred from the bank accounts of Clearshore evidencing payment by Clearshore. Most strikingly, the sale of the Shares being a post balance sheet event was not disclosed in the Directors Report for the relevant period and this transaction was concealed from ASML's external auditors. This transaction, therefore, was not reported in accordance with International Accounting Standards and section 234 of the Companies Ordinance, 1984. The external auditors of ASML have cast serious doubts about this transaction in the reply to the show- cause notice issued to the external auditors on 6 February, 2006. In their view the "state of affairs clearly indicates that either no transaction ... [for the sale of the Shares to Clearshore] was carried out or if carried out then kept confidential from all concerned i.e. Shareholders, Stock Exchange, etc. Including external auditors."
23. Based on the above, there is no doubt in my mind that Clearshore, ASML and the Directors in the matter of sale/purchase of the Shares in fact did cooperate with each other as contemplated in section 2(1)(h) of the Takeovers Ordinance, and this cooperation was for the illegal purposes which is discussed in the second issue below. Hence, the Directors and ASML by virtue of their majority presence on its Board did 'act in concert' with Clearshore to acquire the Shares. It is most regrettable that instead of ensuring due transparency and making due disclosures, which are a cornerstone for today's capital markets, directors of a listed company have deliberately attempted to misguide this office.
24. On the basis of information gathered by this office, Clearshore (being acquirer) and ASML/the Directors (each being a person acting in concert) did not comply with this mandatory statutory requirement. It is to be borne in mind that the purpose of the Takeovers Ordinance, as set out in its preamble, is to provide for fair and equal treatment to all investors and provide a transparent and efficient system for substantial acquisition of voting shares in listed companies. Accoi dingly, it will be defeating the intent of the Legislature if an acquirer, such as Clearshore, is allowed to avoid compliance with the mandatory provisions of the Takeovers Ordinance behind the cover of a person acting in concert with them, such as ASML and the Directors, and vice versa.
25. For the reasons explained above, it is concluded that each of the Directors and ASML have 'acted in concert' in the matter of the acquisition of the Shares in violation of the Takeovers Ordinance.
26. The second question to be determined is whether Sh. Wahid and Sh. Saeed acquired more than 25% shares in USML in contravention of section 5 of the Takeovers Ordinance.
27. As noted above, it is the case of Sh. Wahid and Sh. Saeed that prior to 19 January, 2000, Sh.
Wahid and Sh. Saeed "jointly owned 16% shares of USML" and that they "jointly became entitled to beneficial ownership of more than 50% shares of USML" by way of oral gift from Shaikh Maqbool Ahmed, their father (now deceased), however, such joint beneficial interest was not reported until "much later than the actual date of gift".
28. It is further stated in the letter dated 5 August, 2006 that the Takeovers Ordinance does not apply once shareholding of 51% or more is acquired, and since 36% shares of USML were received by them as gift from their (now deceased) father, "there was no purchase price paid or acquisition agreement entered into and as a consequence thereof, there could be no possibility of any public offer to purchase shares", and therefore, the Takeovers Ordinance has not been violated.
29. The shareholding patterns recorded in statutory returns filed with the Company Registration Office from the year 2000 up to the acquisition of USML by JDW show that Sh. Wahid and Sh. Saeed held 229,720 and 238,120 shares in USML, being 7.66% and 7.94% shareholding in USML, respectively.
Therefore, the position that Sh. Wahid and Sh. Saeed 'jointly owned 16% shares of USML" is patently wrong, as Sh. Wahid and Sh. Saeed did not in the relevant period have any such joint ownership in USML shares. Representations made by the two brothers in the JDW SPA also corroborate this fact, although it is misstated that they each individually held 8% shares of USML.
30. With regard to the assertion that they 'jointly became entitled to beneficial ownership of more than 50% shares of USML" by way of the Declaration Confirming Oral Gift (hiba bilaewaz) under the Principles of Mahammadan Law dated 19 January, 2000 (the "Declaration of Oral Gift") from their father, it is observed (assuming that the said instrument were in fact valid) that both brothers did not jointly acquire any such beneficial ownership. As per clause (2) of the Declaration of Oral Gift 1,087,130 shares of USML, which comes to approximately 36% shares of USML, were distributed equally between Sh.
Wahid and Sh. Saeed. Thus, Sh. Wahid and Sh. Saeed were to get the said beneficial rights to 543,565 shares each. If these purported beneficially owned shares are added to each brother's then existing shareholding of Sh. Wahid and Sh. Saeed cannot claim rights to more than approximately 26% shares of USML. Since, the said shareholding (approximately 8% each) and the said beneficial rights (approximately 18% each) are in the nature of individual rights and not joint shareholding or entitlement; it is wrong on part of Sh. Wahid and Sh. Saeed to suggest that they had crossed the threshold of 50% shareholding in USML.
31. It is also noted with regret that Directors have caused ASML to make erroneous and inaccurate statutory returns from the period 2000 till 2005. While the Declaration of Oral Gift purports to be executed in 2000, Form 32 (which was filed twice) records two totally different dates in this behalf, i.e. August, 2004 and 18 November, 2005. Further, USML vide their letter dated 2 February, 2006 has reported that since the gifted shares were pledged with certain "Financial Institutions", their transfer was effected on 24 October, 2005 after the shares were released of the pledge by the Financial Institutions. These conflicting stances raise serious doubts about the validity of the whole transaction involving these gifted shares, and compel a deeper analysis of the same.
32. Having reviewed the instrument of the Declaration of Oral Gift, I am unable to confirm its authenticity for, Inter alia, the reasons that .
(a) the instrument does not bear any attestation;
(b) father of Sh. Wahid and Sh. Saeed was not a director of USML in the relevant period, and it is not normal banking practice to seek pledge shares of a non -director shareholder for procuring finance or creating security such as a pledge; and
(c) reporting of beneficial interest is most dubious and until after sale of USML to JDW, these were never disclosed or reported as required by law. Furthermore, a standard provision in finance agreements and connected documentation is that a borrower is barred from effecting any change in ownership of any pledged share or otherwise creates an encumbrance thereon, and that the financial institutions reserve the right to liquidate the borrower to recover debt due, if security is jeopardized. Accordingly, any subsequent alienation of the pledged shares by the deceased Shaikh Maqbool Ahmed would not have been valid under law.
33. Moreover, under Islamic law, there are three essentials of hiba, namely: (a) offer, (b) acceptance, and (c) actual physical delivery. The concept of 'constructive' delivery is a concept not compatible with Islamic Jurisprudence on point. Under Islamic law, actual delivery has to be made in cases where the gifted property is a movable asset. Since the possession of pledged shares was with "Financial Institutions their delivery could not have been possible". Even otherwise, it is pointed out that the Takeovers Ordinance does not exempt the acquisition of beneficial shares.
There is no exemption available to such acquisition under section 3 of the Takeovers Ordinance, as these shares were neither held by them in their name prior to the coming into force of the Takeovers Ordinance, nor did they devolve in inheritance or succession or were transferred by a financial institution within the meaning and scope of clause (f) of section 3.
34. Lastly, even if the Commission was to believe the argument taken by Sh. Wahid and Sh. Saeed that the shares were gifted by their father in 2000 their transfer could not have been effected as the shares were pledged with Financial Institutions. The company secretary of USML vide his letter dated 2 February, 2006 has informed the Commission that since the 1,087,130 shares of USML in the name of Sheikh Maqbool Ahmed were pledged with Financial Institutions therefore their transfer was executed on 24 October, 2005 after their release by the Financial Institutions. Hence the acquisition of shares by Sh. Wahid and Sh. Saeed took place in 2005 and the Takeovers Ordinance applies accordingly. In view of the above Sh. Wahid and Sh. Saeed cannot maintain the inapplicability of the Takeovers Ordinance to the gifted shares.
35. The relevant portion of section 5 of the Takeovers Ordinance reads as under: "Additional acquisition of voting shares. (1) No person shall, directly or indirectly, acquire (a) voting shares, which (taken together with voting shares, if any, held by such person) would entitle such person to more than twenty-five percent voting shares in a listed company; or
(b) control of a listed company, unless such person makes a public announcement of offer to acquire voting shares or control of such company in accordance with this Ordinance.
(2) Before making announcement under subsection (1), such person shall make disclosure in the manner specified in section 4." (Emphasis added)
36. Based on the corporate filings made by USML with the Company Registration Office both Sh.
Wahid and Sh. Saeed had recorded individual shareholding in USML of approximately 8% as of December, 2005, which taken together with the beneficial ownership admitted by Sh. Wahid and Sh. Saeed confirms that each of them acquired more than 25% voting shares in USML without complying with the provisions of section 5. Ac :ordingly, both Sh. Wahid and Sh. Saeed are held liable for contravention of the mandatory provisions of section 5 of the 'Takovers Ordinance.
37. The third and the last question to be determined is whether Sh. Wahid and Sh. Saeed acquired direct or indirect control over not less than 75% shares in USML, which is, over and above the statutory thresholds of 51% in contravention of section 6 of the Takeovers Ordinance.
38. Section 6 of the Takeovers Ordinance reads as under: "Consolidation of Holdings.---(1) No acquirer, who has acquired more than twenty five percent but less than fifty one percent of the voting shares or control of a listed company, shall acquire additional voting shares or control unless such acquirer makes a public announcement of offer to acquire voting shares or control in accordance with this Ordinance: Provided that such acquirer shall not be required to make a fresh public announcement of offer within a period of twelve months from the date of the previous announcement.
(2) No acquirer shall acquire voting shares in excess of the quantity specified in the invitation of offer made by such acquirer and all additional or incremental acquisition beyond the preceding offer shall be valid only through further offer.
(3) Nothing in this section shall apply to a person who has already acquired fifty one percent or more of the voting shares or control in consequence of making a public announcement of the offer. (Emphasis added)
39. The JDW SPA records the representation that USML` shareholding is held as per the following breakdown: Particulars Percentage (%) Number of Shares Shaikh Abdul Wahid 8 220,720 Shaikh Muhammad Saeed 8 238,120 Beneficial shares of Shaikh Abdul Wahid18 542,330 Beneficial shares of Shaikh Muhammad Saeed18 544,800 Shares held by other directors:
1. Mrs. Qiaser Begum 14,280
2. Mrs. Abida Saeed 2,500
3. Mrs. Nasreen Wahid 2,500
4. Shaikh Abdul Raoof 2,5001 21,780 Cleareshore Unified 22 673,278
40. In light of the foregoing argument, it is clear that at the time of JDW SPA none of the above named sellers held more than 51% shares in USML in his/her/its own name. Sh. Wahid and Sh. Saeed being the larger shareholders held approximately 26% shares each in USML. They however together appear at the centre stage of the entire transaction with JDW, as the majority of the other sellers were their mother and respective spouses. As for Clearshore, it has already been established that Sh. Wahid and Sh. Saeed continually cooperated in the affairs of the dormant UK company vis-a- vis the sale of the shares and the eventual sale of USML shares to JDW.
41. At the end, I must revert to the argument raised by the Directors that they decided to sell the shares to Clearshore to satisfy the Commission, as the Commission was contemplating the winding up of ASML. I have perused the record and note that the Commission did serve a Show- Cause Notice No. EMD 233/75/2002/6096/6169 dated 25 March, 2004 on ASML to show cause as to why the Additional Registrar, Companies Registration Office, Karachi should not be given sanction to present the petition for winding up of ASML. However, at no point in time did the Commission suggest disposal of the long term investment of ASML. A striking feature of this transaction that while ASML was made to sell its long standing investment in USML for a throwaway price to a dormant company the Directors themselves did not sell their own shareholding in USML.
42. In view of the above discussions it is concluded that:
(a) Clearshore acted in contravention of section 4 of the Takeovers Ordinance in the matter of the acquisition of the shares from ASML and as discussed above ASML and the Directors acted in concert with Clearshore and its directors to acquire 22.44% shares of USML; and
(b) Sh. Wahid and Sh. Saeed have acquired more than 25% shares of USML in contravention of section 5 of the Takeovers Ordinance.
(c) Sh. Wahid and Sh. Saeed in exercising control over 75% shares of USML for purposes of sale of the same to JDW contravened the provisions of section 6 of the Takeovers Ordinance.
43. Therefore, in exercise of the powers conferred upon me and in order to safeguard and protect the interests of ASML shareholders and to ensure due compliance with the mandatory provisions of the Takeovers Ordinance, I hereby impose the following fines upon:
(i) Clearshore Limited for violation of section 4 of the Takeovers Ordinance.Rs.1,000,000 (Rupees one million)
(ii) Each director/sponsor of Clearshore, namely: Mr. Taj M. Yahya and Mr. Nasir M.
Yahya for violation of section 4 of the Takeovers Ordinance.Rs. 1,000,000 (Rupees one million) each
(iii) For contravention of section 5 of the Takeovers Ordinance, namely Shaikh Abdul Wahid, Shaikh Muhammad Saeed.Rs.1,000,000 (Rupees one million) each
(iv) For contravention of Section 6 of the Takeovers Ordinance. Shaikh Abdul Wahid Shaikh Muhammad Saeed Mrs. Qaiser Begum Mrs. Nasreen Wahid Mrs. Abida Saeed Mrs. Fouzia Begum Sh. Abdul Rauif Clearshore Limited Taj Muhmood Yahya Nasir Mahmood YayhaRs,5,00,000 (Rupees five Hundred thousand) each
44. The aforesaid persons are hereby directed to deposit the aforesaid fine in the designated Bank Account No. 50021-0 maintained in the name of Securities and Exchange Commission of Pakistan with Habib Bank Limited, Corporate Branch, Blue Area, Islamabad within thirty days from the receipt of this Order and furnish receipted vouchers or pay by a DD/pay order issued in the name of Commission for information and record, failing which proceedings under the Land Revenue Act, 1967 will be initiated which may result in the attachment and sale of movable and immovable property. It may also be noted that the said penalties are imposed in their personal capacity of the aforesaid persons who are required to pay the said amount from their personal resources.
45. Reviewing both transactions i.e. (i) the sale of the Shares to Clearshore and (ii) the subsequent sale of 75% shares of USML to JDW, it is observed that ASML and its Directors 'acting in concert' with their close relatives, i.e. The sponsors/ directors of Clearshore and devised an elaborate scheme to obtain benefit for themselves and in doing so have deprived the shareholders of ASML in the open market of approximately Rs.213.43 million (calculated on the basis of Rs.333 per share sale price after adjustment the sale of Rs.16 per share).
46. Under the terms of the JDW SPA a sum of Rs.420 million has already been paid to Sh. Wahid and Sh. Saeed, while Rs. 330 million is to be paid to Sh. Wahid and Sh. Saeed on or before 15 November 2006. Out of these Rs.330 million, a sum of Rs.
213.43 million (Rs.317 x 673,268 shares held by ASML) would have been due to ASML shareholders.
47. A vibrant securities market has become a cornerstone of a thriving economy, and confidence in the securities market in Pakistan cannot be restored and an environment conducive to its growth cannot be put in place unless and until there is adequate protection of investors. In accordance with the wishes of the Legislature, it is a declared objective of the Commission that the interests of investors small or large shall be protected alike. It may be noted that Pakistan is not the only country that has geared up to such objective, this is an international phenomena and ample precedent may be quoted in support. However, it is sufficient to mention the case of Securities and Exchange Board of India v. Alka Synthetics Ltd. AIR 1999 Gujarat 221, which discusses the powers available to the apex regulatory authority, the Securities and Exchange Board of India ("SEBI"), in order to regulate the speculative market and refers specifically to the powers available to SEBI under section 11 and section 11-B of the Securities and Exchange Board of India Act. Sections 11 and 11-B empowers SEBI with similar powers which are available to the Commission under section 20 of the Securities and Exchange Commission of Pakistan Act, 1997. It has been observed in the above case that. SEBI has to regulate a speculative market wherein varied situations may arise and that all exigencies and situations cannot be contemplated in advance. Therefore, SEBI has been entrusted with the duty and function to take such measures as it thinks fit. Since measures cannot be laid down as a one time exercise to be followed in defined cases, SEBI has to rise to the occasion for taking appropriate measures to combat situations in the speculative market, which may or may not be conceived in advance. It was held by the Court that the power of SEBI under sections 11 and 11-B should be considered and interpreted in a way so as to see that the objects sought to be achieved by the Securities and Exchange Board of India Act are fully served rather than being defeated on the basis of any technicality. The court went on to observe that SEBI was entrusted with the power to make necessary measures as it thinks fit in order to discharge its duties and functions.
48. As the Commission performs similar functions as SEBI and has similar powers under section 20 of the Securities and Exchange Commission of Pakistan Act, 1997, this decision is extremely instructive as to the powers that may be exercised by the Commission. The dicta laid down in Securities and Exchange Board of India v. Alka Synthetics Ltd. AIR 1999 Gujarat 221 must be applied in aid to protect investors in Pakistan as well.
49. Therefore, the undersigned in the interests of the securities market and in exercise of powers under section 20 of the Securities and Exchange Commission of Pakistan Act, 1997 and section 25 of the Takeovers Ordinance directs as follows:
(a) The Sellers i.e. Sh. Wahid, Sh. Saeed, Clearshore, Mrs. Qaiser Begum, Mrs. Nasreen Wahid, Mrs. Abida Saeed, and Sh. Abdul Raoof are hereby restrained from receiving Rs.213.43 million from the balance consideration of Rs.330 million under the JDW SPA;
(b) The amount of Rs.213.43 million which the Directors have sought to gain shall be equitably distributed among the affected shareholders of ASML upon instructions to be issued by the Commission in this behalf;
(c) In order to ensure compliance with the order/directions in the preceding paragraph, ASML is hereby directed to provide a complete list of its shareholders as at 10 November, 2004 so that monies are efficiently and promptly passed on to ASML shareholders entitled to receive the same in accordance with law. While I have not imposed any penalty on account of contravention of section 4 on the Directors, owing to the responsibility under the Takeovers Ordinance being placed on the acquirer i.e. Clearshore. Yet, it is clear that the Directors particularly Sh. Wahid and Sh. Saeed vis-a-vis the contravention of Section 4 have acted in concert in addition to the contraventions of sections 5 and 6 and have engaged in such actions which constitute an elaborate scheme in consert with Clearshore and its directors to deprive the then shareholders of ASML of approximately Rs.213.43 million. These individuals should not be able to escape liability for their action due to any technicalities as it would defeat the very intent and purpose of law. The undersigned hereby recommends the Commission to initiate appropriate proceedings for, inter alia, employing a scheme intended or calculated to operate as a fraud or deceit on the shareholders of ASML in accordance with law.