The appellant was served a show-cause notice dated 3-9-2004 under section 260(1) read with sections 255 and 476 of the Companies Ordinance, 1984 ("Ordinance") alleging noncompliance by the appellant with the provisions of section 235 of the Ordinance read with SRO No.45(I)/03 dated 13-1-2003 in the preparation of audited accounts of his client ("Company") for year ending 30-6- 2003. In consequence, it is alleged that in the aforesaid audited account statement of the Company the appellant failed to "transfer the amount of incremental depreciation from surplus on revaluation of fixed assets account to un-appropriated profit/accumulated loss account through statement of changes in equity". The appellant contested the notice and was heard by the respondent No.2 who passed the impugned order dated 18-2-2005 ("impugned order").
2. Learned counsel for the appellant has argued that whilst repeating the foregoing allegations made in the notice, the impugned order fails to detail the facts that disclose the default committed by the appellant in the relevant account statement of the company, its precise nature and the provision of law that stands contravened thereby. He has Laken us through the operative part of the impugned order in paragraph 11, which records as under:- "In view of the foregoing, the lapses and non- compliances on the part of the auditors cannot be taken lightly. After careful consideration of the conduct of the auditors of the company and the particular circumstances of this case, I am of the view that Mr. Khan Muhammad, FCA, has signed the audit report otherwise than in conformity with the requirements of section 255 of the Ordinance and has made himself liable for punishment under subsection (1) of section 260 of the Ordinance."
(emphasis added).
3. It is noted that reference to the "foregoing" in the quoted text contains a discussion on the general obligations of auditors but no discussion whatsoever of the constitutive facts of the case meriting adverse action against the appellant. Quite plainly, before coming to its quoted findings the impugned order neither specifies the default of the appellant that is found to be established on record nor the relevant legal provisions that consequently stand infringed by the appellant's conduct.
4. Learned counsel for the SECP explains that the factual basis of the findings given in the impugned order is derived from the admission made by the appellant in his reply to the show cause notice. We have perused the reply filed by the appellant wherein he has tried to justify his action in the preparation of the relevant account statement of the Company and done so without disputing or questioning the stand taken by the SECP in the show cause notice. That reply circumvents the allegations made in the show cause notice but at the same time it may be considered to impliedly acknowledge the same. For serving as proof, such a non-contentious explanation does not amount to an unequivocal admission of liability by the appellant for the purpose of proving the allegations made against him. Therefore, the plea that the appellant has admitted the allegations levelled is not tenable.
5. Therefore, a sifting of the, facts by the impugned order was necessary to. Sustain a finding of liability against the appellant. Be that as it may, the respondent SECP as a statutory body is also under an obligation to pass speaking orders that specify grounds upon which parties before it, including the appellant, are found to be delinquent. Without providing the relevant factual context the general description of the duties and obligations of an auditor given in the impugned order are a theoretical rendition that has no nexus with establishing liability of the appellant.
6. In the result, we find the impugned order dated 18-2-2005 to be defective for failing to specify the precise factual defaults of the appellant that are determined to be duly established on record and which are held to constitute violations of specified legal obligations for which sanctions contemplated by law may be imposed. The foregoing ingredients are necessary to lawfully impose liability on the appellant. Such particulars are essential for facilitating an appellate forum to apply its mind in assessing the validity of an order passed by the SECP; and for serving the rules of natural justice by confronting the affected party with the grounds of his liability. The instant matter is, accordingly, remanded to the respondent SECP for passing a fresh order based on the record after grant of hearing to the parties. The SECP shall pass a final order in the matter within two months from the date of receipt of a certified copy of this order. Disposed of.