MIAN SAQIB NISAR, J.---This appeal, under Article 185 (2) of the Constitution of the Islamic Republic of Pakistan, 1973, is directed against the judgment dated 2-6-2005, passed by the Lahore High Court, Lahore in Commercial Appeal No.12 of 2004, the main question. Involved in, the matter is about the construction, interpretation and application of section 224 of the Companies Ordinance, 1984 (hereinafter referred to as the Ordinance).
2. In the above context, the factual backdrop of the case is that the respondent (the beneficial owner) having more than 10 per cent shareholding of Messrs World Call Communication Ltd. (the issuer), made certain sale and purchase and vice versa transactions of the issuer's stocks within a period of 6 months with favourable differential price, which were imported to the Securities and Exchange Commission of Pakistan (SECP), on the prescribed Form No.32 as required under section 222 of the Ordinance; the said transactions are indicated as below:-- Nature of TransactionDate No. of SharesRate per share (Rs.)
Sale 15-6-2001 3,398,000 20.20 Purchase 25-6-2001 620,500 16.40 Purchase 15-8-2001 228,000 13.25 Purchase 22-8-2001 547,500 13.40
3. It is an, undisputed fact that the respondent on account of above mentioned sale/purchase transactions had made a gain of Rs.7.715 million. The case of the appellant is that in terms of section 224(2) of the Ordinance, the respondent was required to tender the amount of the gain (tenderable gain) to the issuer within 6 months of the accrual thereof or within 60 days of demand (whichever is later) raised by the issuer within a period of 6 months of the accrual of the gain. It is asserted that as per the SECP record, neither the tenderable gain was tendered by the respondent to the issuer company nor the issuer company raised demand for its recovery within the prescribed period thus, the process of recovery of the tenderable gain was initiated by the appellant against the respondent through letter dated 20-5-2003. In response, the respondent vide letter dated 11-6-2003 intimated to the appellant that issuer has already raised demand for the recovery of the aforesaid gain on 2-5-2003, hence the amount has been deposited in favour of the issuer on 10-6-2003. In the above scenario, the appellant asserts to have required the respondent to provide documents regarding the claim made by the issuer and on receipt of such information, the matter was examined in the light of section 224(1) of the Ordinance and it was discovered that the demand for the recovery of gains, which accrued in June-August, 2001, was raised by the issuer on 2-5-2003, well after the period of six months of the accrual of the gain and the amount of the gain was forwarded by the respondent to the issuer on 10-6-2003, which was after the receipt of the appellant's letter dated 20-5-2003, hence, according to the appellant, the demand and the payment made after the statutory period prescribed by section 224 of the Ordinance was absolutely unauthorized and illegal, thus, through a letter dated 4-8-2003, the issuer company was informed by the appellant that demand could only be raised for the recovery of the gain within a period of six months and once it is raised by the issuer within that time from the accrual of the gain, then two periods vis-a-vis, 6 months and 60 days run concurrently and, consequently, the issuer has a maximum period of eight months from the date of accrual of gain for the recovery thereof and in the circumstances me issuer was asked to furnish a demand draft of the tenderable gain in favour of the appellant. In response the issuer company through letter dated 18-8-2003 stated that the amount of gain in question cannot be tendered in favour of the appellant for the reasons stated therein, some further correspondence is also stated to have been exchanged in this context between the appellant and the issuer company, but as the demand was refused, the appellant served notice dated 26-2-2004 under section 224(2) of the Ordinance to the respondent (the beneficial owner) requiring it to pay the tenderable, gain to the appellant, which was replied on 26- 3-2004. As the reply was considered unsatisfactory, therefore, an order dated 16-7-2004 was passed by the Commissioner (SECP), by virtue whereof the respondent was directed to tender the amount of Rs.7,665,500 to the appellant within a period of thirty days. Aggrieved, by this order, the respondent filed an Appeal No. 21 of 2004, before the bench of SECP which was dismissed through order dated 4-11-2004. Both these orders were challenged by the respondent in Commercial Appeal No. 12 of 2004 before the Lahore High Court, Lahore which was accepted vide impugned order dated 2-6-2005. For rendering its decision, the High Court has formulated the following three questions:--
(i) Whether in the presence of erroneous and conflicting interpretation of section 224(2) of the Companies Ordinance, 1984, given by the respondents Nos.1 and No.2, an authoritative pronouncement by this honourable Court is required with regards the scope of time frame given in the said provision.
(ii) Whether the respondents have erred to appreciate that the word `vest' contained in section 224(2) of the Companies Ordinance, 1984 does not mean that the respondents have become the owner of alleged tenderable gain and that the said interpretation thereof is a negation to the pronouncement of august Supreme Court of Pakistan reported as 1987 SCM R 1197.
(iii) Whether the respondents have erred to appreciate that the appellant has validly discharged its obligations arising under section 224(2) of the Companies Ordinance, 1984 and the orders of the respondents are bad in law."
Having examined and analyzed the provisions of section 224, the learned High Court concluded "the rationale behind the enactment of this section is to discourage trading between a 'beneficial owner' and an 'issuer', both having fiduciary relationship of such a kind where exploitation and wrongful gains were possible. The purpose of law was to deprive a 'beneficial owner' of the gains which according to the intention of law were to be returned to the issuer. In case the gain through trading activity rather than serious investment is not remitted to the issuer within a period of 6 months from the date of the earning of the profit and there being no demand made by the issuer, this amount vests with the SECP"
"The beneficial owner has to tender the amount within 6 months' period provided from the date of the accrual or upon the demand being made by the issuer, in which case the 'beneficial owner' has to remit the gain within 60 days of the making of the demand whichever is later".
The High Court in para. 11 of the impugned judgment has posed a further question whether the period of 60 days is to run concurrently with the sixty days period as has been observed by the Appellate Bench of the Commission or consecutively as has been observed by the Commissioner or this is open to some other interpretation". While providing an answer thereto, it has been held:,- - "While discussing these possibilities, this Court is of the opinion that the interpretation as given by the Appellant Bench of section 224(2) is not exhaustive. The period of 60 days has been given for purposes of making a demand in case there is a suppression of fact and thus lack of knowledge at the end of the issuer. In which eventuality he can make a demand within a period of 60 days from the date of his knowledge, otherwise, the gain is to vest in the Commission. Obviously, section 224(2) is burdening both the beneficial owner and the issuer with a responsibility. In case of failure to act, both are deprived of the gain which then vests with the S.E.C.P.
So, a 60 days' period is also given to the issuer from the date of knowledge so that he could make a demand and pursue action for recovery. Fixing of six months' period for the beneficial owner was obvious because he is supposed to be actuated with the knowledge of the transaction and the gain, which knowledge the issuer may be lacking depending on case to case basis."
It is noticeable that while interpreting the said provision, the learned High Court has read into it the date of knowledge of the accrual by the issuer. ' Thus, question No.1 mentioned in the impugned judgment was accordingly answered by the Court.
4. In respect of Question No.2, the learned Judge of the High Court is of the view that the words "vest" and "belong" have not been used in the section, rather the expression "vest" is capable of variable meanings and a correct meaning is to be ascribed to it according to the situation given in section 224. To highlight some of the situations, it has been stated "therefore, several situations may arise and for covering the situations, the period of "six months after accrual" or "60 days of demand" have been given. The requirement that after the lapse of aforementioned period, the gain shall vest in the Commission, will mean its control and possession shall go to the Commission and the issuer shall be entitled to make a demand upon proof of innocence, lack of collusion, lack of knowledge, non-commission of any act of fraud etc. For return- of the amount within 60 days from the knowledge".
5. In the above context, it is held that as no fraud and collusion has been established on the record, the amount has been remitted to the issuer by the respondent (the beneficial owner) which has been accordingly accepted. The money, in fact, belonged to the issuer in absence of any proof of collusion between the two, therefore the appellant, in the circumstances, cannot claim the tenderable gain from the respondent. The restriction of period to tender and claim the gain within specific time was also held not an impediment in this regard.
6. Learned counsel for the appellant has argued that the learned High Court has erred in law by holding that the period of 60 days has been given in the cases where there is suppression of facts, thus, lack of knowledge at the end of the issuer in which eventuality the issuer can make demand within a period of 60 days from the date of his knowledge. This is contrary to the provisions of section 224(2) of the Ordinance; should the decision of the High Court be accepted, the issuer in any case can claim knowledge after the lapse of number of years, thus making mockery, of entire provision of law. It is further argued that the High Court has omitted to consider that both the companies are associated companies and have acted in collusion with each other by concealing the facts; and it was only upon the appellant's letter dated 20-5-2003 that both of them connived with each other and fabricated the letter dated 2-5-2003, whereupon a fraudulent demand was made from the respondent by the issuer on 10-6-2003, in order to circumvent the povisions of section 224(2) of the Ordinance. With reference to the foregoing, it is stated that in both, the companies i.e. The beneficial owner and the issuer, Mr. Suleman Taseer is the Chief Executive and, therefore, the factum of fraud and collusion between the two was permanent on the face of the record; and in such an eventuality, the parties privy to a fraud cannot be allowed to defeat the clear intent of the law and retain the ill-gotten gain. It is urged that the concept and meaning assigned to the expression 'vest' appearing in section 224 of the Ordinance has been glaringly misconstrued and misapplied by the learned High Court, as the judgments, to which reference has been made in reaching to the conclusion, are distinguishable on their own facts. It is reiterated that in the instant case when an ill-gotten gain has been made the beneficial owner to which no interest is shown by the issuer for the recovery within the mandated statutory period, the purpose of the law is that such amount shall become the property of the SECP and for all intents and purposes, it shall be the owner of the amount, because the amount cannot be allowed to be retained by anyone i.e. Who has made the gain in breach of the law, through fraud and the issuer is also not interested to take it back.
7. Learned counsel for 'the respondents has defended the impugned judgment and has also argued .That the documents, to which reference is being now made to show that the two companies were headed by Mr. Suleman Taseer, were never part of the record of the forums below.
This has, not even been the case of the SECP at any stage of the proceedings, even not before the High Court, therefore, such a new plea cannot be allowed to be raised at this stage. Moreover, the question of collusion, connivance and fraud being that of fact could not be inferred from such unproved material allegedly brought on the record of this Court, especially without any inquiry/investigation to the above effect, in that context was urged at the inception of the proceedings or any subsequent stage thereof.
Heard. Section 224 reads as under:-- "Section 224---Trading by directors, officers and principal shareholders.-
(1) Where, any director, chief executive, managing agent, chief accountant, secretary or auditor of a listed company or any person who is directly or indirectly the beneficial owner of more than ten per cent of its listed equity securities makes any gain by the purchase and sale, or the sale and purchase, of any such security within a period of less than six months, such director, chief executive, managing agent, chief accountant, secretary or auditor or person who is beneficial owner shall make a report and tender the amount of such gain to the company and simultaneously send an intimation to this effect to the Registrar and the Commission: Provided that nothing in this subsection shall apply to a security acquired in good faith in satisfaction of debt previously contracted.
(2) Where a director, chief executive, managing agent, chief accountant, secretary, auditor or person who is beneficial owner as aforesaid fails or neglects to tender, or the company fails to recover, any such gain as is mentioned in subsection (1) within a period of six months after its accrual, or within sixty days of a demand therefore, whichever is later, such gain shall vest in the Commission and unless such gain is deposited in the prescribed account, the Commission may direct recovery of the same as an area of land revenue.
(3) For the purposes of sections 220 to 224, the term "auditor of the company" shall, where such auditor is a firm, include all partners of such firm.
Explanation.--
(a) For the purposes of this section and section 222, beneficial ownership of securities of any person shall be deemed to include the securities beneficially .Owned, held or controlled by him or his spouse or by any of his dependent lineal ascendants or descendants not being himself or herself a person who is required to furnish a return under section 222, and
(i) in the case where such person is a partner in a firm, shall be deemed to include the securities beneficially held by such firm; and
(ii) in the case where such person is a shareholder in a private company, shall be deemed to include the securities beneficially held by such company: Provided that for the purposes of subsection (1) the gain which is required to be tendered to the company by such person shall be an amount bearing to the total amount of the gain made, as the case may be, by the firm or private company the same proportion as his relative interest bears to the total interest in such firm or private company.
(b) For the purposes of this Explanation, "control", in relation to securities, means the power to exercise a controlling influence over the voting power attached thereto.
(4) Whoever knowingly and wilfully contravenes or otherwise fails to comply with any provision of section 222, section 223 or section 224 shall be liable to a fine which may extend to thirty thousand rupees and in the case of a continuing contravention, non-compliance or default to a further fine which may extend to one thousand rupees for every day after the first during which such contravention, noncompliance or default continues."
9. It will be seen that this section applies to certain specified categories of persons, namely, a director, chief executive, managing agent, chief accountant, secretary or auditor of a listed company or a person who, is directly or indirectly, the beneficial owner of not less than 10% of the shares of a listed company. The section is triggered off by the sale or purchase of any shares of the company in question within a period of less than 6 months by a designated person (the "shareholder"), and, in the event of such a sale or purchase taking place, the shareholder is obligated to tender the amount of gain, if any, made by him to the company under intimation to the Registrar and the SECP. In the event of a failure to discharge the aforementioned legal obligation taking place, or, even if the company in question fails to recover the amount of the gain within the specified periods, the gain is to vest in the SECP and the failure to deposit such gain with it may lead to action for recovery as arrears of land revenue. The Explanation to the section extends the beneficial ownership of shares to the shareholder, or his spouse or any of his dependent lineal ascendants or descendants or any partnership firm or private company in which he has an interest. A proviso to subsection (1) excludes the application thereof only in relation to securities acquired in good faith in satisfaction of a debt previously contacted?
10. The primary question which requires resolution in the facts of the present case is relatable to the entitlement of the SECP to claim the gain to the exclusion of the shareholder (beneficial owner) or the company. The contention of SECP is that it acquires an absolute right and title to the gain. In the facts of the present case admittedly a substantial gain accrued and was initially not tendered or paid to the company prior to the cut off date. After SECP, by means of its letter dated 20th May, 2003 accused the beneficial owner of a violation of the law the amount was belatedly deposited not with SECP, but with the company, with the total delay being of the order of 20 months. The contention of SECP is that the amount in question had accrued to it and the company was not entitled to retain the same. Prime reliance was placed on the meaning of the word "vest" which was construed by it to mean that the title in the said amount had vested absolutely in SECP.
Further details of the dispute and the different arguments, of both parties have been omitted for purposes of brevity. The present analysis is confined only to a theoretical analysis of section 224.] Two interlinked questions arise out of the above:--
(i) What is the correct interpretations of the word "vest"? Does it have a fixed meaning which is exclusively relatable to the conferment of an absolute title or does it vary depending on the context in which it is used?
(ii) What is the objective underlying the section? What is the wrongful act which is forbidden by the section and what is the remedial action prescribed therein?
There can be little doubt about the fact that the word "vest" is variable in meaning and its interpretation is contextually dependent. If reference is made, for example, to the definition of "vest" contained in the New Oxford Dictionary (1998 Edition), page 2056, the relevant clauses read as under:-- "Vest" (verb) (usually, be vested in) confer or bestow (power, authority, property, etc.) on someone: executive power is vested in the President.
(usually, be vested with) give (someone) the legal right to power, property etc. The socialists came to be vested with the power of legislation.
(vest in) (of power, property etc.) come into the possession of the bankrupt's property vests in his trustees.
11. The above definition, which is not dissimilar to numerous other definitions in other legal lexicons, leaves little doubt in the matter. It follows therefore, that SECP's contention that the use of the word vest per se conferred an absolute title on it is erroneous. The question will have to be answered with reference to the context in which the word is used in the section. Any word, in isolation, has a wide range of disparate meanings. It is the combination of words reflected by the syntax of a sentence that confers logical coherence and meaning to it. It is this, which is the more important matter, to which we now turn.
12. The section unfortunately reflects a poor quality of legislative drafting. For example, the list of persons hit by it includes the managing agent of a company. Now the concept of a managing agent, as is well-known, was contained in the Companies Act 1913. It was defined in section 2(9) as meaning a person, firm or company entitled to the management of the whole affairs of a company by virtue of an agreement with the company. Thereafter by means of the Companies (Managing Agency and Election of Directors) Order, 1972 (P.O. No.2 of 1972) the concept of managing agency was repealed. It is, therefore, somewhat surprising to note that the legislature as late as the year 1984 is proceeding on the assumption that the managing agency system still exists and hence the language of section 224. In fact this section has been substantially copied out from section 14 of the Securities and Exchange Commission Ordinance, 1969 which read, at that time, as under:-- "14. Trading by directors, officers and principal shareholder. --
(1) Where any director or officer of an issuer of a listed equity security or any person who is directly or indirectly the beneficial owner of not less than ten per cent, of such securities makes any gain by the purchase and sale, or the sale and purchase, of any such security within a period of less than six months, such director or officer or beneficial owner shall make a report and tender the amount of such gain to the issuer: Provided that nothing in this subsection shall apply to a security acquired in good faith in satisfaction of a debt previously contracted.
(2) Where a director, officer or beneficial owner fails or neglects to tender, or the issuer fails to recover, any such gain as is mentioned in subsection (1) within a period of six months after its accrual, or within sixty days of a demand therefore, whichever is later, such gain shall vest in the Central Government which may recover the same as an arrear of land revenue."
13. It will be noted however that there is no reference to managing agents in that section although at that time the managing agency system was in full force and effect and thus it ought to have been there. Ironically, when the section was transplanted into the Companies Ordinance, 1984, in an expanded form, the reference to managing agents was added although by that time the system had been abolished. Thus both in 1969, as well as in 1984, clear errors were made.
14. Apart from the above error, there is a more substantial question which arises in relation to the interpretation of section 224. What was the objective underlying this section? No direct answer to this is provided by the language used in it. It merely states that in the event of a person falling within any of the categories mentioned therein making a profit in relation to a sale and purchase within a period of less than 6 months failing to tender the said profit within the prescribed time limit to the said company, or the company failing to recover it from the said person, the quantum of the gain is to vest in the SECP. But why? What is the justification for such a provision? What objective, rooted or based in public policy, is sought to be achieved thereby?
15. Although no direct answer is contained in this section, an answer can reasonably be inferred. It is clear that this section proceeds on the tacit assumption that the .Person in question was privy to inside information and, taking advantage of the same, obtained a gain to which accordingly he was morally not entitled and this was required it to surrender it to the company. In other words, 'there is a presumption, which is tacit, to the effect that the person has done something which is unjust or inequitable, or in violation of his, duties and obligations to the company as a person falling within any one of the prohibited categories, and thus should be compelled to surrender his gains to the company. Obviously, it would have been better if this presumption had been made explicit and not tacit but, accepting that the presumed legislative intent was the above, we can proceed further with our analysis.
16. It is easy to see that the categories mentioned in the section are not precisely coterminous in relation to questions of inside information. For example, a person who is an auditor of a company would not be constantly in the know of developments leading to anticipated profits or losses by the company on a day to day basis. The role of the auditor only comes into play when the accounts for the year which is ending are placed before him. As against this the chief executive of a company can be expected to be constantly in the know of privileged information. It is easy to envisage a case in which an auditor, acting in good faith, could carry out such a transaction without any ethical or equitable default on his part. The position of a chief executive would be completely different. Similarly, if we examine the position of a person who owns more than 10% of the shares of the company, it is, once again, easy to appreciate the fact that he may, in point of fact, be wholly denied any access to inside information. It is quite possible, that being a minority shareholder, he has no further knowledge of the financial position of the company than a person who holds only one share. He may not even be a director of a company or, of course, if he is a director, he would come under a different category and therefore perhaps a presumption could be drawn against him. Insofar as directors, as a class, are concerned, once again a distinction should be drawn between executive and non-executive directors. The fact that a very broad based definition of a person is given, so as to include his spouse and his lineal ascendants and descendants and including firms and private companies in which he is interested, strengthens the point.
17. We can now examine the comparative rights and liabilities of all three parties to the dispute.
They are respectively (i) the person who has carried out the transaction, (ii) the company whose shares have been bought or sold, and, finally, (iii) the SECP.
(i) As has been pointed out in the above the section has been made on the tacit assumption that the person who has carried out the transaction has acted in an inequitable or illegal manner by relying on inside information. His position, therefore, legally speaking is the weakest.
(ii) & (iii) We now turn to the company and SECP. The most important point to note here is that the section is confined to listed companies. These are, of course, those companies whose shares are quoted on the Stock Exchange and who have numerous shareholders, perhaps running into hundreds or even thousands, who are, on any conceivable version of the matter completely innocent. The SECP exists not in order to deprive them of their rights but to protect them. If the SECP fails to do so there is very little justification for the existence of its regulatory powers. The question, therefore, arises as to what justification there is, if a person with inside information has carried out a transaction on the basis of inside information, to deprive the innocent shareholders of their equitable entitlement by penalizing the company as a whole. On any conceivable view of the matter the only two persons or entities entitled to retain the profits are either the person in question, assuming he has acted in good faith, or the company whose shares he has bought or sold within 6 months. Clearly neither the State of Pakistan nor any of its statutory instrumentalities, is entitled to share in the profits. The argument on behalf of SECP, in essence, is that the company ought to have recovered the amount of the gains from the said person within the time limits specified in the section, which are either six months from the date of accrual of the gain, or sixty days from the date of demand by SECP. Two questions are immediately raised by this proposition:
(a) What is the modality provided in terms of which recovery can be made by the company from the said person within the drastically short time limits prescribed? The answer is none of course. All that the company can do is to file a suit for recovery of the amount in question. If there is a legal system in force in terms of which suits for recovery can be routinely decided within these time limits it is not within our knowledge. Suits for recovery of money normally run into five or ten years or even more and the execution proceedings would further add to the delay, to say nothing about the time taken in appeals. It should be borne in mind that it is the responsibility of the State to ensure speedy and expeditious justice to its citizens. The present, however, is a case in which on the one hand the State provides no mechanism for recovery of the amount by the Company within this time-frame, and, on the other hand decides to penalize its citizens by appropriating it. This is certainly unconscionable conduct. On the face of it, it seems very doubtful that this could be the legislative intent, either actual, presumed or implied.
(b) On the face of it, it seems to be a violation of Articles 23 and 24 of the Constitution. It is also arguably a violation of Article 4. On the interpretation of SECP the section is clearly Fun constitutional and has to be struck down. However, if a more restricted interpretation is placed on section 224 in terms whereof the word "vest" is not interpreted as amounting to an absolute transference of title to the gains in question to SECP the section can be sustained. On this interpretation the entitlement of SECP to recover the amount in question from the company would be treated as being in the nature of an enforcement mechanism to ensure that the wrongful gains do not remain with the person who has violated the section but are transferred to or for the benefit of the Company. Such a restrictive interpretive procedure is well-recognized and established in law. For example, in the case of KP Varghese v. Income Tax Officer (1981) 131 ITR 597 the facts of the case were that a person who had purchased a house at a certain price in the year 1958 disposed it of seven years later at the identical price to his daughter-in-law and five of his children although in the meanwhile the price had risen substantially. Placing reliance on section 52(2) of the Income Tax Act 1961 the Revenue sought to tax him on the ground that on the date of transfer the market price was substantially higher than the price declared by him, which was factually correct. The literal language of the section clearly supported this contention. The case ultimately came up before the Supreme Court of India with conflicting verdicts having earlier been delivered by different benches of the High Court. The Supreme Court accepted that on the literal interpretation of the section the Revenue had an unanswerable case. However, the court then proceeded to consider the parliamentary intent in enacting such a section. The objective underlying the section was clear: in numerous cases it happens that a transaction is not recorded at the true market value but at a lower amount and the official payment is supplemented by an unofficial or cash payment. Clearly this could not have happened in the facts of the given case since the purchasers were the daughter-in-law and children of the assessee. The transaction was therefore obviously a genuine one. The question was whether it was still hit by the section since the declared price was well below the market price. The Supreme "Court came to the conclusion that the action of the Revenue was not justified. The following paragraph (page 617) setting out the rationale for the decision is instructive: "Moreover, if subsection (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view point can be rationally considered as capital gains or any other type of income. It is, a well-settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with "Taxes on income other than agricultural income" and under which the I.T. Act, 1961, has been enacted, Parliament cannot "choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Subsection (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Subsection (2) would also be violative of the fundamental right of the assessee under Art. 19(1)(f) which fundamental right was in existence at the time when subsection (2) came to be enacted--since on the construction canvassed on behalf of the Revenue, the effect of subsection (2) would be to penalize the assessee for transferring his capital asset for a consideration lesser by 15% or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The court must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void."
18. In the facts of the present case to adopt a literal interpretation of section 221 would also be liable to render it unconstitutional, and in order to protect the section and bring it within the frame work of constitutionally prescribed parameters. We would prefer to interpret it in the manner set out in the above. Put in other words, the interpretation of the words should be determined in terms of the legislative intent.
19. It would follow from the above that the discussion in the High Court judgment about the time limits specified in the section legally loses its relevance since in no case, is SECP entitled to the gains. There are, however, some aspects of the judgment which it is not possible to maintain. For example, after concluding that the SECPs right is limited in nature the High. Court then proceeded to leave the door open for SECP to conduct a fresh enquiry to determine the fact of collusion between the shareholder and the company, if any, in order to thereafter decide whether the gain should belong to SECP itself or the company. It will be seen that this has pre-supposed the entitlement of SECP to claim the money. With all due respect to the High Court we are unable to sustain this finding. Insofar as the question that there may have been collusion or fraud between the company and the shareholder who purchased or sold its shares within .The prohibited time frame is concerned it is important to point out that the section itself provides a mechanism for punishing the guilty person. This is contained in subsection (4) thereof which provides that whoever has knowingly or wilfully contravened any of the provisions of the said section (or the associated sections 222 and 223) is liable to a fine which may extend to Rs.30,000 and in the case of a continuing contravention to a further fine for every day for which the contravention, non- compliance or default continues. This is more than ample in order to punish any person who may have been guilty. The gains will remain under all circumstances the property of the company and SECP has no right or entitlement thereto. This is in line with the general principle that the State can only require the property of its citizens by following a constitutionally mandated procedure. The State has no inherent power to confiscate property--if it does so it must pay compensation. It is only entitled to acquire property, by way of taxation because the constitution expressly permits this. No law can be passed authorizing the police to take over the ownership of stolen property which it has recovered merely because the owner has acted in an improper manner. The thief can be punished by the imposition of a fine or otherwise but the ownership of the stolen property will always be that of the rightful owner.
20. It should also be clarified that since the penal provision is stringent in nature it should be applied in an appropriate manner. In applying such a provision SECP should always bear in mind the importance of determining not merely a technical contravention but a substantial finding of guilt in relation to the person on whom the Len or penalty is being levied. It is not sufficient either in the case of this law, or any other law, merely on the basis of a technical contravention to arbitrarily impose a fine of either the full amount or 50% or 75% or any other arbitrarily chosen figure; a condign punishment is the requirement of law and equity.
21. In view of the aforesaid, this appeal has no merits and is hereby dismissed.