' IMRAN INAYAT BUTT, DIRECTOR/HOD (MSCI).---This order shall dispose of the proceedings initiated through Show Cause Notice bearing No, 1(07) BS/KSE/MSW/SMD/2011 dated September 7, 2012 ("SCN") issued to Invest Capital Markets Limited ("Respondent"), THE Certificate holder/ broker of the Karachi Stock Exchange Limited ("KSE") by the Securities and Exchange Commission of Pakistan ("Commission") under section 22 of the Securities and Exchange Ordinance, 1969 ("Ordinance") and Rule 8 of the Brokers and Agents Registration Rules, 2001 ("Brokers Rules").
2. The brief facts of the case are that the Respondent is registered with the Commission under the Brokers Rules. On perusal of the trading data of the KSE for the month of June and July 2012, it was noted that your client Saad Amir ("SA") and inter exchange client namely Tahir Rehman ("TR") engaged in selling and then squaring up their positions in different scrips.
3. During the month of June and July 2012, SA first sold and then squared up positions in the scrips of Jahangir Siddiqui Company Limited ("JSCL"), National Bank of Pakistan ("NBP"), Engro Foods Limited ("EFOODS") and D. G. Khan Cement Company Limited ("DGKC").
4. During the month of June and July 2012 TR first sold and then squared up positions in the scrips of Attock Refinery Limited ("ATRL"), EFOODS, Engro Corporation Limited ("ENGRO"), Fauji Fertilizer Company Limited ("FFC"), Lucky Cement Limited ("LUCK), Pakistan Petroleum Limited ("PPL") and Pakistan State Oil Company Limited ("PSO").
5. The Commission vide its letter dated July 27, 2012 sought clarification from the Respondent regarding eight different instances wherein sales were executed by SA and TR. In response the Respondent vide its letter dated July 27, 2012 received in the Commission on August 6, 2012 informed that TR is a client of Falki Capital (Pvt.) Limited, broker of the Islamabad Stock Exchange, ("ISE Broker") and operates through inter-exchange trading account. The Respondent provided the letter of ISE Broker with its reply wherein the ISE Broker admitted its fault and informed that the transactions in question were executed due to the mistake of its new trader. Moreover, the Respondent informed that trades executed by TR were erroneously entered by its trader and upon realization the same trades were squared up.
6. The aforementioned response of the Respondent was not considered satisfactory as it did not contain any evidence and justification regarding the execution of aforementioned sales by SA and TR. Consequently, SCN was issued to the Respondent under section 22 of the Ordinance and the Brokers Rules stating that the Respondent has, prima facie, contravened Clauses A(2) and A(5) of the Code of Conduct set forth under the third schedule of the Brokers Rules. The Respondent through the SCN, was asked to explain its position through written reply within seven (7) days of issuance of SCN and also required to appear in person or through an authorized representative before the undersigned at Commission's Head Office in Islamabad on Thursday, September 20, 2012 at 10-30 a.m. For hearing. However, the venue of the hearing was shifted to Commission's Karachi office.
7.. The Respondent vide its letter dated July 25, 2012 submitted its reply to the SCN. The important contentions raised in the response to the SCN by the Respondent are reproduced hereunder:- "We, Invest Capital Markets Limited regret that the trades done in the account of Mr.,Saad Amir were erroneously entered by our trader on the KATS and we came to the conclusion after thorough investigation that the trades in question were carried out due to careless attitude of the trader and had already taken strict disciplinary action."
"Invest Capital Markets Limited had always strictly adhered to the rules and regulations governing the operations of the exchange and believe this as one off event and expect that the regulator will take a lenient view on the matter. We hereby confirm and reiterate that the error occurred was not deliberate or intentional."
"Invest Capital markets Limited always thrive to serve their clients prudently by strictly adhering to the regulations governing the exchange. We hope that exchange will take a lenient view on the matter and give us the opportunity to serve our clients efficiently by strictly adhering to the rules and regulation governing the Exchange."
8. On the date of hearing, Mr. Sohail Yousaf, Director/Head of Equity and Settlement and Mr Ahmed Usman, Chief Financial Officer of the Respondent ("Representatives") appeared on behalf of the Respondent. Following are the important contentions made by the Representative at the time of hearing:--
(i) The Representatives asserted that proper systems and control are in place at brokerage house.
Further, they admitted the execution of short sale by its client SA, who is trader of the Respondent and attributed this mistake as lack of awareness on his part.
(ii) The Representatives contended that TA was the client of ISE Broker and it was the responsibility of ISE Broker to monitor its client position and trading activates because all the transaction were conducted through online terminal. They informed that the matter has also been taken up with the ISE Broker and they admitted the mistake and have given assurance that the same will not happen again.
(iii) The Representatives explained that Respondent tried to take necessary measures to stop such type of trading but unable to find any solution. Even the issue was taken up with vendor, where, they have been informed that problem can only be fixed when both Respondent and ISE Broker, have same trading software.
(iv) The Representatives prayed that the Commission may take a lenient view in this matter and drop the proceedings because the said trades were merely result of ignorance and unawareness.
9. After a detailed and thorough perusal of the facts, evidence/information available on record, contentions and averments made by the Representatives during the course of the hearing. it is established that the clients of the Respondent placed the sale orders without having preexisting interest. The contention of the Respondent that one of the clients was the inter-exchange client and it was the responsibly of ISE Broker to monitor its trading is not true. It was the responsibility of the Respondent to monitor all trading activities being carried out through its brokerage house in order to track and prevent any transaction being made in violation of any applicable rules and regulations. The Clause - 2(a) of the Short Selling under Ready Market, 2002 (the "Regulations") says "Blank Sales" means "a sale by a party that does not own shares or the sale does not constitute a sale with pre-existing' interest or is a sale by a party that has not entered into a contractual borrowing arrangement to meet delivery requirements". Hence, the sale by the Respondent without having preexisting interest in the client's account falls within the ambit of Blank Sale which is prohibited in the Regulations.
10. The Respondent has failed to exercise due care, skill and diligence in conduct of its business and has also failed to abide by the provisions of the Rules and Regulations issued by the Commission and KSE from time to time, thus violated the Clauses A(2) and A(5) of the Code of Conduct set forth under the third schedule of the Brokers Rules, which in turn is violation of Rule 12 of the Brokers Rules read with Rule 8 of the Brokers Rules. Further, placement of the sale orders without 'having pre- existing interest interfered with the fair and smooth functioning of the market and created misleading impression for the other investors.
11. It is the responsibility of each and every market participant to play its due role to ensure that market is fair, efficient and transparent for the protection of investors and to reduce the systematic risk of the market. If an market participant 'does not act accordingly then it should' be held accountable for that. The violation of the Rules and Regulations is a serious matter which entitles the Commission to suspend the Respondent's membership but I have elected not to exercise this power at present. However, in exercise of the powers under section 22 of the Ordinance, I hereby impose on the Respondent a penalty of Rs, 100,000 (Rupees One Hundred Thousand only).
Additionally, I strongly advise the Respondent to take immediate measures and put in place proper systems and checks to eliminate the occurrence of such instances in future. I again direct the Respondent to ensure that full compliance be made of all rules, regulations and directives of the Commission in the future for avoiding any punitive action under the law.
12. The matter is disposed of in the above manner and the Respondent is directed to deposit the fine in the account of the Commission being maintained in the designated branches of MCB Bank Limited not later than thirty (30) days from the date of this Order and furnish the copy of the deposit challan to the undersigned.
13. This Order is issued without prejudice to any other action that the Commission may initiate against the Respondent' in accordance with law on matters subsequently investigated or otherwise brought to the knowledge of the Commission.
Order accordingly.
2013 CLD 994 [Sindh] Be ore Aqeel Ahmed Abbasi and Sadiq Hussain Bhatti, JJ Mrs. RUKHSANA YAHYA---Appellant versus NAZAZ ALI and 2 others---Respondents High Court Appeal No, 197 of 2011, decided on 18th December, 2012.
Civil Procedure Code (V of 1908)- XXIX, R.2---Sindh Chief Court Rules (0.S.), R. 782- Service on corporation---Service upon Director of Corporation/Company---Dispute was with regard to service upon defendant company---Plea raised by plaintiff was that service to company through directors had been effected and there was no need of repeating the process---Validity---Once service effected upon defendants held to be good and matter was fixed for filing of written statements, notices could not be repeated without assigning any reason or showing sufficient cause in that respect---Company stood served in fact and law and there was no need of repeating service upon defendant company---Manager and director of the company were already being represented by a counsel, no prejudice in such regard was otherwise likely to be caused to defendant company---Appeal was allowed accordingly. (pp. 1001, 10021A & B Mansoor Textile Mills Limited, Shorkot v. Jamail Akhtar Naseeb, Textile Consultant Faisalabad 2001 CLC 1065 rel. Syed Muhammad Yahya for Appellant. H. A. Rahmani for Respondents.
Date of hearing: 4th December, 2012.
' SADIQ HUSSAIN BHATTI, J.---Appellants are aggrieved by order dated 4th November, 2011, passed by the learned single Judge of this Court on C.M.A. No,10791 of 2011, filed in Suit No,198 of 2010, whereby the said application was dismissed.
2. Brief facts of the case are that in the year 1998 the appellant entered into a contract with respondent No,2 for purchase of an office measuring 652 sq. Ft. Along with parking space measuring 300 sq. Ft. In a commercial plaza, known as 'Nice Trade Orbit', situated at Plot No,44-A & B, Block-6, PECHS, Main Shahrah-e-Faisal, Karachi. After payment of required amounts, allotment letter in respect of office No,114 and parking space of measuring 300 sq. Ft., both on first floor, was issued to the appellant. As per contract the project was to be completed by the year 2000 but despite payment of substantial amount the same was not done in time. The appellant approached the respondents with regard to completion of the project and handing over possession of office and car parking allotted to him, when he was assured by the respondent No,1, verbally as well as in writing for completion of project and handing over of possession at an early date. However, upon seeing no progress in construction work appellant again approached the defendants, who demanded the amount in excess to the agreed payment schedule and threatened that in case of failure of payment of the demanded amount, suit property shall be cancelled. Due to failure of respondents to honour their contractual obligations the appellant was constrained to file the above referred suit. Summons were issued to the defendants in Suit and defendants Nos.1 to 4 were served. C.M.A. No,9505 of 2011 under Order XXIX, Rule 2, C.P.C. Was filed by the appellant, seeking that service on respondents Nos.2 and 3 be 'held good' and in the alternate the said defendants may be served through defendant No,6. The matter was placed before the Court and the Additional Registrar (O.S.) was directed to scrutinize the said application and submit compliance report. In his report learned Additional Registrar (O.S.) submitted that above defendants have already been served vide diary dated 22-4-2010 of the board of Additional Registrar and were required to submit their written statements within four weeks but they failed to do so, as such, the matter was placed before the learned single Judge in Court on 3-10-2011 for proceeding ex parte against the said defendants. The report further reflected that despite the fact that the defendants Nos.2 and 3 already stood served, the learned Counsel for Appellant sLbrnitted 'application under Order XXIX, Rule 2, C.P.C. Before the Additional Registrar seeking that the matter may be placed in Court for orders on 3-10-2011. Additional Registrar (0.S.) held that the application(s) under Order'
XXIX, Rule 2, C.P.C. Filed by the appellant are misconceived and liable to be dismissed as the defendants Nos.2 and 3 already stood served, and the matter may be fixed in Court for ex parte orders. On 4-10-2011 the matter was fixed in Court on the basis of report submitted by learned Additional Registrar (O.S.), when the application filed by the appellant under section XXIX, Rule 2, C.P.C. Was dismissed by the Court.
3. After dismissal of the above application it was learnt that the matter has been fixed in Court for ex parte orders against defendants Nos.2 and 3, however, on a query it was found that the matter was not fixed in Court as the Additional Registrar (O.S.) decided to again send notices to the defendants Nos.2 and 3 and the summons dated 20-10-2011 were handed over to the counsel for the appellant for service through T.C.S.
4. In view of hereinabove fact and after dismissal of above C.M.A. No,9505 of 2011, the appellant filed another C.M.A. No,10791 of 2011 in the above suit, challenging the decision of learned Additional Registrar (O.S.) for sending the summons to defendants Nos. 2 and 3 again which, per learned Counsel was not only contradictory to the learned Additional Registrar's earlier order to the effect that the defendants Nos.2 and 3 have been served and service is held good but also highly prejudicial to the appellant's interests.
5. On 4-11-2011 the matter was placed before the learned single Judge for orders on C.M.A. No,10791 of 2011 and for perusal of report submitted by the learned Additional Registrar (O.S.), when the learned single Judge passed the impugned order, which reads as under:- "Learned counsel in support of his present application states that service has been ordered again on defendants Nos.2 and 3. His grievance appears to be that earlier service on these defendants was held good but that it is now being ordered that they be served again. Learned counsel states that ,defendant No,6, who is a director of the defendant No,2, has already been served and he requests that summons for defendants Nos.2 and 3 should be served on defendant No,6 and Mr. Mehmood Ali, the attorney of the defendants Nos.6, 7 and 8.
' I have considered what learned counsel has said, and with respect, I completely disagree with the proposition advanced by him. It is absolutely fundamental to the law that a defendant be served and, except in the case of summary chapter suits and suchlike proceeds, is entitled as of right to come and defend himself. It is therefore, essential that the defendant be served properly and adequately. If the Court or the Additional Registrar, who, for this purpose, is in fact exercising the jurisdiction of the Court, is for any reason satisfied that service should be effected again then, unless extraordinary circumstances are shown, the plaintiff cannot be regarded as having any grievance in this regard.
' Insofar as the defendant No,6 being the director of the defendant No,2 is concerned, it is sufficient to note that in any case, the defendant No,3 is an individual so that the service or otherwise on defendant No,6 can have nothing to do with this defendant. Secondly, the law, requires a company, i.e, the defendant No,2, to be served in a particular manner and it not the choice of the plaintiff that a particular Director of the company should be selected for purposes of service. Insofar as the attorney, Mr. Mehmood Ali, is concerned he is not a party at all to this suit and he is apparently the attorney only of the defendants Nos.,6, 7 and 8. In these circumstances, I fail absolutely to understand how service on defendants Nos.2 and 3 can or should be effected through the attorney.
As such I find no merit to this C.M.A., which is dismissed."
6. The above order has been challenged by the appellants through present High Court Appeal.
7. Learned counsel for the appellant, argued that the impugned order is based on misconceived facts and contrary to the material available on record, whereas relevant provisions regarding procedure provided for service upon a company have been ignored. He further argued that learned single Judge failed to appreciate the factual aspects of the matter and the order passed by the Additional Registrar (O.S.) whereby service upon defendants Nos.2 and 3 was held good and matter was fixed for proceeding ex parte. Per learned counsel, defendants Nos.2 and 3, despite having been served, are deliberately avoiding to appear in Court whereas two of the Directors of defendant No,2 have been served and are before the Court, thus the service upon Company through them has been duly effected twice, through Bailiff as well as by these Directors. It is contended by the learned counsel that there is no need for issuance of any further summons to the said defendants Nos.2 and 3. Per learned counsel no prejudice would have been caused if summons were sent through defendant No,6 or the attorney of defendants Nos.6, 7 and 8 as they both are not only husband and wife but are also Directors of defendant No,2. He further argued that in the absence of any valid reason for repeating service upon defendants Nos.2 and 3, the decision of the Additional Registrar (0.S.) is arbitrary and untenable in law. Whereas, the order passed by the learned single Judge in this regard is based on misreading and non-reading of the material facts and the evidence, available on record. Per learned counsel, service upon a company through any of the directors or even on the given registered office of the company is a valid service in law. In support of his contentions, the appellant relied on the case of MANSOOR TEXTILE MILLS LIMITED, SHORKOT v. JAMAIL AKHTAR NASEEB, TEXTILE CONSULTANT FAISALABAD [2001 CLC 1065]. He also referred Order XXIX, Rules 2 and 3, C.P.C. And Rule 782 of the Sindh Chief Court Rules (0.S.).
8. Conversely, learned counsel for respondents Nos.1 and 6 has controverted the submissions made by the appellant, and has supported the impugned order passed by the learned single Judge. It has been argued that C.M.A. No,9505 of 2011 was totally misconceived and legally incompetent as the summons were not served on defendant No,2 in terms of Order XXIX, Rule 2(a), C.P.C. While defendant No,3, being a permanent resident of Lahore could not be served at Karachi.
It is further submitted that from the report of the Bailiff it is evident that defendants No,3 was not legally served of the summons of the subject suit and, as such, the diary dated 22-4-2010 was rightly discarded by the Additional Registrar (O.S.) and defendants Nos.2 and 3 were rightly ordered to be served according to the procedure as provided under Sindh Chief Court Rules (0.S.) and, as such, there was no justification for appellant to file C.M.A. NQ.10791 of 2011, which has rightly been dismissed. He further argued that respondent No,4 is a sleeping Director of respondent No,2, who has never acted and/or participated in the affairs of respondent No,2, hence respondent No,2 cannot be legally served through respondent No,4 and prays that instant appeal may be dismissed.
9. We have heard both the learned counsel for the appellant and the respondents, and have also perused the impugned order and the case-law as well as provisions of Order XXIX, Rules 2 and 3, C.P.C. And Rule 782 of the Sindh Chief Court Rules (0.S.).
10. The appellant filed Suit No,198 of 2010 for declaration, cancellation of documents, permanent injunction, specific performance, possession and execution of documents of title and during pendency of the Suit and proceedings also filed a C.M.A. No,9505 of 2011 requesting that service upon defendants Nos.2 and 3 may be held good or alternatively they may be served through defendant No,6, one of the Directors of the Company i.e, defendant No,2. Report was called from Additional Registrar (O.S.), who reported that as per diary dated 22-4-2010 of the Board of Additional Registrar, defendants Nos.2 and 3 have been served, hence the C.M.A. No,9505 of 2011 is misconceived and liable to be dismissed, which was dismissed, accordingly by the Court. After dismissal of the above C.M.A., per learned counsel for the appellant, upon inquiry from office it revealed that Additional Registrar (0.S.) decided to again send the summons to defendants Nos.2 and 3, against such decision of learned Additional Registrar (O.S.) the appellant filed C.M.A. No,10791 of 2001, wherein it was prayed that the earlier decision of the Additional Registrar (O.S.) regarding service upon defendants Nos.2 and 3 could not be recalled without any valid reasons and the service upon such defendants may be held 'good service'. Such application was also dismissed by the learned single judge vide impugned order, hence this appeal.
11. To determine this aspect, it would be advantageous to examine the provisions of Order XXIX, Rule 2 of the Code of Civil Procedure, which read as under:- "Order XXIX, Rule 2.---Subject to any statutory provision regulating service of process, where the suit is against a corporation, the summons may be served --
(a) on the secretary, or on any director, or other principal officer of the corporation, or
(b) by leaving it or sending it by post addressed to the corporation at the registered office, or if there is no registered office then at the place where the corporation carries on business.
12. It would also be advantageous to examine the provision of Rule 782 of the Sindh Chief Court Rules (0.S.), which reads as under:- "Rule 782. Service on company. Every miscellaneous application, unless presented by the Company, and every notice, summons: order or document required to be served on a company shall be served at the registered office of the company and if there is no registered office, then at the principal or last known place of business of the company, by leaving a copy thereof with any officer or servant of the company, and in case no such person can be found there, then in such manner as the Registrar (O.S.) may direct. If the company is being wound up at the date of admission of a miscellaneous application, notice,summons, order or document, service shall be effected upon the liquidator. If the registered office or place of business referred to in this rule is situated beyond the original civil jurisdiction of the Court, service of the application, notice, , order or document, may with the leave of the summons Registrar (O.S.), be effected by sending a copy thereof by prepaid registered post addressed to the company at such office or place of business."
13. A bare perusal of the provisions of Order XXIX, Rule 2, C.P.C. As well as Rule 782 of the Sindh Chief Court Rules would reveal that in the case of corporation, the summons could have been served on any of the Directors of such Corporation as well as on the registered office of the company, whereas, in the instant case, learned counsel for Respondents Nos.1 and 6 after having been served are in attendance and have also filed their counter affidavit(s). It has also come on record that defendants Nos.2 and 3 were earlier served and service was held good and the matter was fixed for ex parte orders by the Additional Registrar (O.S.). No reason or justification has been shown for recalling such order by the Additional Registrar (O.S.).
14. Perusal of provisions of section 48 of the Companies Ordinance, 1984, regarding service of documents on a company reveals that, "a document may be served on a company or an officer thereof by sending it to the company or officer at the registered office of the company by post under a certificate of posting or by registered post, or by leaving it at the registered office of the company."
15. In the case of Mansoor textile Mills Limited (supra) it has been held that "in the case of corporation, the summons could have been served on any of the Directors of such Corporation and in the instant case, the learned counsel for the Managing Director of the added respondent being in attendance, the offering of copy of the amended plaint to the learned counsel for the respondent could be deemed to be enough service on the added respondent."
16. We have also perused the note dated 27-9-2011 of the Additional Registrar (O.S.), which reveals that defendants Nos.2, 3 and 5 were served and they were required to file their written statement(s) but they failed to do so since 22-4-2010 and neither they appeared nor they were represented by anyone. We are unable to understand as to why, once the service upon defendants Nos. 2, 3 and 5 was effected and held good by the Additional Registrar (O.S.) and the matter was fixed for filing written statement(s), notices were directed to be repeated against defendants Nos.2, 3 and 5, without assigning any reason or showing sufficient cause in this regard.
17. After careful consideration of the question involved in this matter and on perusal of the relevant provisions of law and the case relied upon by the learned counsel, we are of the view that the respondent No,2 i.e, the company stood served in fact and law and there is no need of repeating service upon the said respondent. We may observe that since respondent No,1, being the manager of the company and respondent No,6, being director of the respondent No,2 company, are already being represented by a counsel, no prejudice in this regard is otherwise likely to be caused to respondent No,2, who may file written statement within two weeks from the date of this order. As regards service upon respondent No,3 is concerned, we would direct the Additional Registrar (O.S.) to minutely examine the validity or otherwise of service of Court notices upon respondent No,3 and if sufficient reasons and valid grounds emerge from the record to repeat notice upon such respondent, then the complete report may be placed before learned single Judge, who may pass appropriate orders in this regard.
18. Instant appeal was allowed vide our short order dated 4-12-2012 to the extent that service upon respondents No,2 is held to be good, and these are reasons for such short order.