ALI NAWAZ CHOWHAN, J.- This appeal under Section 34 of the Securities & Exchange Commission of Pakistan Act, 1997, is against the order dated 30th July, 2004, passed by an Appellate Bench of the Securities & Exchange Commission of Pakistan, Islamabad.
2. The operative part of the said order is to the following effect:- "One of the basic functions of an exchange is to provide secondary market trading platform while protecting the rights of the stakeholders which includes the issuers as well and ensuring that market is fair, efficient and transparent.
In the present case I am fully convinced that there is nothing available on record which could justify forcing a company to remain listed with the respondents as, I am of the opinion, that the respondents have failed to show as to how delisting of the petitioners would in any manner adversely effect the rights of the investor?. The SEC is concerned only with the fact that an adequate trading platform is available to the investors and, if this is ensured, as a matter of public policy, the Stock Exchange and the SEC should not interfere and insist on listing of a particular company, in this regard it is, however, relevant to note that the petitioners admittedly published in the prospectus that the shares of the respective companies would be listed at the LSE and ISE.
Therefore, any variation in the terms referred to in the prospectus or a statement in lieu of the prospectus pursuant to Section 58 of the Companies Ordinance, 1984 can only be made subject to the approval of or authority given by the company in general meeting. Accordingly, subject to the compliance of Section 58 of the Companies Ordinance, 1984, the respondents are hereby directed to de-list the petitioners from their respective exchange within 15 days from the date of the approval by its shareholders.
3. This de-listing order was passed by the Commission exercising its power under Section 9(6) of the Securities & Exchange Ordinance, 1969, which reads as follows:- "Where a Stock Exchange refuses to delist a security, the Commission may on petition by the applicant made within the prescribed time, direct the Stock Exchange to delist the security.
4. Prior to this when an application was moved for voluntary de-listing before the Lahore Stock Exchange, this was refused, In paragraph 5 of the order in relation to this refusal, it was said:-- "The representative of the Lahore Stock Exchange stated that LSE does not have any objection to the de-listing of the petitioner from its Exchange provided that it complies with the Regulation for Voluntary De-- listing currently in place at the Exchange and follows the procedure laid down therein."
5. Regulation No. 32-A applicable to the Lahore Stock Exchange in the matters of voluntary de- listing, requires:-.- - "(1) Any Company intending to seek voluntary de- listing" from the Exchange shall intimate to, the Exchange, immediately, of the intention of the majority security-holder/sponsors to purchase all securities, without exception, from all the security holders with the purpose to de-list the security alongwith the reasons thereof. Such information shall also include minimum price at which the securities are proposed to be purchased: Provided that the minimum' purchase price proposed by the sponsors will be the highest of the benchmark price based on any of the following:-
(a) Current market price as of the date the exchange receives the sponsors/majority security- holders intimation under 32-A (i).
(b) Average Market Price (Annualized).
(c) Break-up value based on historical cost.
(d) Earnings multiplier approach (for profitable companies).
(e) The maximum price at which the sponsors had purchased these shares from the open market in the preceding one year."
6. It is said that the purpose of this, regulation is to protect the rights of the investors in the securities.
7. The question is whether the operative part of the order under reference and impugned which does not provide any protection to the investors is a befitting order in law.
8. It was argued that the shares of the respondent-Company were not only listed with the Lahore Stock Exchange but we're also listed with the Karachi Stock Exchange and elsewhere and these, remained listed and transactions could be carried on by the Security-holders through the other Stock Exchanges:
5. On the other hand, it is said that the Security- holders required immediate information about the securities they were holding for taking any steps with convenient dispatch and, therefore, referrals to the other Stock Exchanges could cause delay and thus irreparable loss to them.
10. It was stated that making the Security-holders dependent upon the far-flung Stock Exchanges, only reflects a motive on the part of the company to remain dependant on the company and its agent in the matters of sale and purchase transactions of the securities disadvantageous.
11. That the Securities & Exchange Commission is also bound to follow its approved regulations meant for the Lahore Stock Exchange (Regulation No. 32-A). .Otherwise, different types of working at the end of the Securities & Exchange Commission and the Stock Exchange would only give rise to anomalies, contradiction and paradoxes detrimental for trade and commerce.
12. There is no cavil with the proposition that when a Stock Exchange refuses to de-list a security, the same powers can be exercised by the Commission. But should the de-listing order handed down by the Commission in respect of a security be without laying of safeguards for protection of the rights of the investors? The answer is in the negative.
13. The 1969 Ordinance of Securities & Exchange Commission of Pakistan follows the model of the Securities & Exchange Commission in the United States created through the Stock Exchange Act of 1933.
14. The purpose of creating the Commission as given in the preamble says:--- "The following Ordinance made by the President is hereby published for general information:- Whereas it is expedient to provide for the protection of investors, regulation of markets , and dealings in securities and for matters ancillary thereto; And whereas the national interest of Pakistan in relation to the achievement of uniformity requires Federal legislation in the matter."
15. Whereas, the U.S.A, Law relating to regulation of securities exchanges came into being through the Securities Exchange Act, 1934, with the following aim:- "To provide for the regulation of securities exchange and of over-the-counter markets operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges and markets, and for other purposes."
16. The problems at which modern securities regulation is directed are as old as the cupidity of sellers gullibility of buyers.
17. The. Harvard Professor Louis Loss, who also inspired the 1969 Securities & Exchange Commission Law in Pakistan, in his famous treaties on security regulation, makes the following observations:- "Although listing and registration are entirely discretionary with the issuer in the first instance, the issuer has no unqualified right to delist. Section 12 (d) of the act provides: A security registered with a national securities exchange may be withdrawn or stricken from listing and registration in accordance with the rules of the exchange and, upon such terms as the Commission may deem necessary to impose for the protection of investors, upon application by the issuer or the exchange to the Commission; whereupon the issuer shall be relieved from further compliance with the provisions of this section and* section 13 of this title and any rules or regulations under such sections as .To the securities so withdrawn or stricken.
The procedure for. Voluntary, delisting is prescribed in the Commission's rules. There must be a verified application, by either the issuer or the exchange, indicating the steps taken to satisfy the applicable rules of the exchange. There must also be a statement of the reasons for the application, "together with all material facts relating thereto and such facts as in the opinion of the applicant have a bearing, on whether the Commission should impose any terms for the protection of investors'"
If the application is made by the issuer and the Commission so, directs, the issuer must .Promptly notify all known holders of the security in question of the hearing on the application, and advise them of their right to present their view on appropriate terms by appearing at the hearing or writing' to the Commission. If the applicant offers the application in evidence an proof of the allegations it contains, the application constitutes the entire record unless objection is made either by counsel for the Commission or by a security holder or the issuer or exchange or any interested person.
Applications by exchange normally raise no particular problem, because for obvious reasons they are occasioned almost invariably by an event which has virtually terminated any public interest in the security. The grounds cited most frequently in applications by exchanges are that most of the issue has been exchanged for securities of another issuer or that the issuer is in the last stages of liquidation, or that the amount of the security outstanding (or at any rate the amount of exchange trading) has become greatly reduced, or that the security has become nearly worthless'.
Sometimes, however, the specific reasons given in the delisting application under these circumstances is that the issuer has failed to file reports required by its registration or the listing agreement, or has discontinued transfer and registrar facilities, or faces insolvency proceedings.
Some exchanges accommodate issuers which have determine to delist inactively traded securities by filing the delisting applications on their behalf as a matter of good public relations. And the New York Stock Exchange has developed and published criteria on the basis of which it will consider the initiation of delisting proceedings."
18. In his treaties he .Made reference to -the working of various Stock Exchanges and the practice of de listing there, In this book, the following relevant portion deals with New York Stock Exchange:- "Most of the exchanges themselves have rules requiring a vote of Security-holders. On the New York Stock Exchange for example, in the absence of "special circumstances" the proposed delisting must be approved by the security holders at a meeting at which a substantial percentage of the outstanding amount of the particular security is withdrawal from a substantial number of individual holders of the particular security"; and it 1s the Exchange's announced policy to consider as a minimum requirement approval by holders of two-thirds of the security without disapproval by as 10 percent of the individual holders."
He also gives the following illustrations:- "The applicant was Shawmut Association, a closed- end investment company organized as a Massachusetts trust, and its shares had been listed on the Boston Stock Exchange since its organization in 192.8. The stated reason for delisting was that the trustees believed it would improve the marketability of the shares and lessen the discrepancy between their asset value and their quoted market value. As is not infrequently the case with listed securities, there had been more trading over the counter than on the exchange: 27,703 shares as against 7258 during the first six months of 1943. The Commission first of all found that a portion of the apparent discrepancy between asset and market value was due to the applicant's method of determining asset value, lt then set forth the results of a study which showed that the discrepancy was not large in relation to comparable companies whose stocks were traded' solely over the counter. The Commission's opinion also summarized a study of the over-the- counter trading in the applicant's stock, which "revealed that members of the public usually were obliged to pay more for the shares when purchasing from or through dealers over the counter than current exchange parties; and that in selling, they received less." In some of the over-the- counter transactions where members of the public sold, it was found that in the course of 1 day the shares passed through the hands of two, three, or four dealers (at successive profits) before being finally sold to other members of the public."
In view primarily of the "grave questions as to whether the proposed withdrawal of the trust shares from listing and registration would deprive the shareholders of substantial advantages without giving them or the trust itself compensatory benefits." The Commission imposed two substantive terms in granting the application. One was that the delisting proposal be submitted to the shareholders through solicitations which complied with the Commissions and a summary of its findings. The other terms was that assents be obtained not only from holders of a majority of the shares but also from a majority of the holders-in other words, that there be a vote per capita as well as by shares."
19. So protection of investors appears to be the main aim of the. Ordinance, the rationale of the Ordinance and the purpose for creation of the Commission. Therefore, whereas a regulation sets conditions for a Stock Exchange for de-listing, this is to be observed by the Commission. The Commission cannot by pass that requirement merely because it has a higher concurrent jurisdiction regarding de- listing.
20. The only argument advanced before this Court is that the security holdings pertaining to Lahore Stock Exchange were minuscule as compared to the dealings in Karachi and about Rs. 24,000/- fee was being paid to the Lahore Stock Exchange for purposes of listing which was a waste of money.
21. In rebuttal, it was said that this company is doing transactions of a high magnitude and payment of Rs. 24,000/- was not a burden at all.
22. This Court was further told that unlike the Bombay Stock Exchange which has its terminals spread over, in various cities of India imparting instantaneous information to the shareholders enabling them to take quick decisions, there was no such facility available here, lt was alleged that the voluntary de-listing was maneuvered by the Company only to benefit the Security-holders of Karachi and to exploit the shareholders of Punjab dealing at Lahore Stock Exchange this way.
23. Once a company is listed with Stock Exchange and asked for voluntary de-listing, the Securities & Exchange Commission in view of Regulation No. 32-A approved by it, is also bound to follow the same and as such it cannot allow de-listing without meeting the requirement with respect to protection of the interest of the investors or without notice to them.
24. As the order impugned does not protect the interest of Security-holders, the order of delisting without advertence to said requirement will not be deemed correct in law and the Securities & Exchange Commission of Pakistan would be bound to follow the requirement while directly dealing with the question of de-listing the Company. The order of de-listing, therefore, is not only improper but is bad in law. It is set aside and the with no order as to cases.