' SHAHID NASIM, EXECUTIVE DIRECTOR.---This order shall dispose of the proceedings initiated against Messrs Dawood Capital Management Limited (hereinafter referred as the "Company" or as "DCML"), and its Board of Directors (hereinafter referred as the "BOD") and officers through a Show Cause Notice ("SCN") dated November 8, 2012 issued under section 282J(1), section 282J(2) read with section, 282D and section 282M of the Companies Ordinance, 1984 for violations of Regulation 38(a) and Regulation 38(n) of the Non-Banking Finance Companies and Notified Entities Regulations 2008.
The Company is licensed by the Securities and Exchange Commission of Pakistan (hereinafter referred as the "Commission" or as "SECP") to undertake the businesses of asset management services and investment advisory services under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (hereinafter referred as the "NBFC Rules") and the Non- Banking Finance Companies and Notified Entities Regulations, 2008 (hereinafter referred as the "NBFC Regulations") and is managing 3 Collective Investment Schemes (CIS) namely, Dawood Income Fund (hereinafter referred as "DINF"), Dawood Islamic Fund (hereinafter referred as "DISF") and First Dawood Mutual Fund (hereinafter referred as "FDMF").
2. The SCN was issued encompassing the following facts pertaining to above referred CISs under management of DCML:--
(i) On April 28, 2012, the BOD of 'DCML in its 107th meeting approved full provisioning in the following non-performing debt securities in the investment portfolios of DINF, DISF and FDMF and the impact of provisioning was reflected in the daily Net Assets Value (NAV) of above referred respective CISs on April 30, 2012.
CIS/FundNon-performing Debt securitiesProvision approved by BOD on April 28, 2012 (Amount in Rs.)
DINF ICIBL TFC 22,500,000 DINF Pace Pak TFC 8,389,920 Sub Total 30,889,920 DISF PEL - Sukuk 15,906,838 DISF MLCF - Sukuk I 30,718,282 DISF MLCF - Sukuk II 1,295,469 Sub Total 47,920,589 FDMF Pace Pak - TFC 5,992,800 FDMF Telecard - TFC 3,413,156 FDMF MLCF - Sukuk I 37,901,004 FDMF MLCF - Sukuk II 1,598,214 Sub Total 48,905,174 Total 127,715,683
(ii) The impact on the NAV of DINF, DISF and FDMF before and after recording of full provisioning of nonperforming assets approved by the BOD of DCML is shown in the following table; DateDINF - NAV Amount (Rs.)DISF - NAV Amount (Rs.)FDMF - NAV Amount (Rs.)
April 27, 2012 (before full provision)79.93 108.28 09.16 April 30, 2012 (after full provision) 74.04 90.117 08.34 Increase/(Decrease) in NAV (Rs.) (5.89) (18.163) (0.82)
Increase/(Decrease) in NAV in percentage(7.36%) (16.77%) (8.95%)
(iii) Prior to making full provisions in the non-performing debt securities of DINF and DISF, the DCML and its related parties including connected persons, its CEO and her close relatives managed to get their investments redeemed and by doing so avoided imminent loss of Rs, 18.224 million to be incurred due to provisioning approved by DCML BOD in its meeting held on 28th April 2012. Since FDMF was a closed end scheme hence no redemption's were possible. The redemptions made from DINF and DISF and loss avoided are provided in the following table:-- Date of Redemp- tionsFund NameUnit HolderRelation-ship with DCML on its CEONo. of Units RedeemedApplied NAV on Redemption per Unit (Rs.)Total Amount Redeemed (Rs.)Loss avoided if Redemp- tions were made after recording full provisions on April 30, 2012 (Rs.)
17 Apr.
2012DINFTara Uzra DawoodCEO of DCML85,220 79.7837 6,799,167 489,214 26 Apr.
2012DINFHamida DawoodClose relative (mother) of CEO94,795 79.9209 7,576,088 557,185 26 Apr.
2012DINF Ayaz DawoodClose relative (brother) of CEO14,230 79.9200 1,137,279 83,641 Sub Total 15,512,5341,330,040 6 Apr.
2012DISFFirst Dawood Invest Bank Ltd.
Employees Contri-butory Provident FundFDIBL owns 2.24 million shares of DCML (major share- holders) and DCML owns 2.38 million shares of FDIBL79,977 108.33 8,663,6751,456,510 6 Apr.
2012DISFHamida DawoodClose relative (mother) of CEO14,655 108.33 1,587,538 266,892 9 Apr.
2012DISFB.R.R. Guardian ModarabaDirector-ship on the BOD of DCML276,778 108.49 30,028,5645,085,149 9 Apr.
2012DISFDawood Capital Management Ltd.CISs Manage- ment Company92,259 108.49 10,009,5211,695,050 13 Apr.
2012DISFDawood Family Takaful Ltd.- DFTLDCML owns 2.72 million shares in DFTL470,423 108.38 50,982,1208,590,520 Sub Total 101,271,41817,094,120 Total 116,783,95218,224,160
(iv) In view of the above stated facts, it appears that the management of DCML failed to safeguard the interest of the unit holders of DINF and DISF and did not discharge its fiduciary responsibility of managing assets of its CISs in good faith and gained undue advantage for itself, its related parties including connected persons and its officer by facilitating redemptions by using privileged information for the benefit of its own, its related parties including connected persons and its CEO in DINF and DISF before making full provisions in the debt securities of ICIBL, Pace Pak, MLCF and PEL, and thereby averting imminent loss of Rs,18.224 million to such persons.
4. On May 8, 2012 the trustee of DISF i,e, Central Depository Company of Pakistan (CDC) inquired from DCML on the provisioning made in the debt securities of DISF especially when group companies' unit holders redeemed their investment during the month of April 2012 i,e, prior to recording provisions. The management of DCML vide letter dated May 17, 2012 provided its justifications on this act. Thereafter CDC vide letter dated June 8, 2012 referred this matter to the SECP.
5. The matter of provisioning and redemptions in DISF was referred to the onsite inspection team of SECP which was already in process of conducting routine inspection of DCML. The inspection team not only highlighted the redemption and provisioning made in DISF but also presented details pertaining to provisioning in DINF and FDMF and redemptions in DINF. The inspection team issued its report on September 19, 2012.
6. The SCD-Supervision Department of SECP vide email dated September 28, 2012, addressed to the CFO and Company Secretary of DCML, required to provide copies of the minutes and notices containing the agenda items of BOD meetings held from January 1, 2012 till September 28, 2012. The CFO and Company Secretary of DCML provided copies of the minutes and notices containing agenda items of BOD meetings held from January 1, 2012 till September 28, 2012 through his letter dated October 4, 2012. Further, SCD Supervision Department of SECP vide letter dated October 25, 2012 requested the CEO of DCML to provide certified true copies of the minutes of BOD meetings held during July 2011 till October 2012. The CFO and Company Secretary of DCML vide letter dated November 1, 2012 provided the certified true copies of the required documents. Similarly on January 21, 2013 after issuance of the SCN, the CEO of DCML was also asked to provide certified true copies of the draft minutes and notices containing agenda items of BOD meetings and Audit Committee meetings held during FY 2011-12 (i,e, from July 2011 till June 2012). The same were provided by the CEO on January 30, 2013. Upon review of the above documents i,e, the Draft and Final minutes and notices containing agenda items of BOD meetings and Audit Committee, it transpired that;
(i) Notice of the 107th BOD meeting provided by the CFO and Company Secretary of DCML on October 4, 2012 consisted of seven (7) agenda items and it was found to be different from the copy of the notice for the same BOD meeting provided by the CEO on January 30, 2013 which comprised of eight (8) agenda items. Further, the sixth agenda item on the copy of notice provided by CEO reads that "To consider provisioning for TFCs and Sukuks investments of all funds." Whereas, the sixth agenda item on the copy of notice provided by CFO and Company Secretary reads that "To review the applicability of sub-regulation 65 of NBFC and NE Regulations, 2008".
(ii) Vital information relating to the discussions on provisioning of TFC/Sukuks as available in the draft minutes of the 39th AC meeting held on February 21, 2012 was deleted from the final minutes of the 39th AC meeting. The matter pertaining to provisioning in TFCs/Sukuks of DINF, DISF and FDMF available in the draft minutes of 39th AC meeting is produced below for ease of reference; "External Auditors (DINF, DISF and said that reports of all funds are clear, he further said that they would suggest further provisioning in TFCs and Sukuks although management have provided all the provisions as required as per the rules and regulation but being prudent and as per industry practice further provision be provided in all doubt full scipts."
(iii) The 39th AC meeting was attended by all the three members of AC i,e, Mr. Gul Nawaz (Chairman Audit Committee), Mr. S. Shabahat Hussain and Mr. Masood Wahedna. The draft minutes of 39th AC meeting were confirmed in the 40th AC meeting which was attended by Mr. Gul Nawaz and Mr. S. Shabahat Hussain. Both Mr. Gul Nawaz and Mr. S. Shabahat Hussain were requested to confirm; whether the matter of provisioning was discussed in the 39th AC meeting and whether AC in its 40th meeting held on April 28, 2012 decided to delete the matter of provisioning from the final minutes of 39th AC meeting. Both Mr. Gul Nawaz and Mr. S. Shabahat confirmed that the matter of provisioning was discussed in the 39th AC meeting and no such decision was taken for deletion of provisioning matter from the final minutes of 39th AC meeting.
(iv) Important information pertaining to the discussion on provisioning of TFC/Sukuks as available in the draft minutes of the 106th BOD held on February 21, 2012 meeting was also deleted from the final minutes of the 106th BOD meeting. The matter of provisioning in TFC/Sukuk of DISF, DINE and FDMF as available in the draft minutes of 106th BOD meeting is produced below for ease of reference; "Board discussed the points highlighted by Chairman Audit Committee and advised CFO to present complete detail of all TFC's and Sukuks in next BOD meeting on which Auditors are recommending further provision so that after detail discussion a decision can be taken".
(v) Similarly, 106th BoD meeting of DCML was attended by five members of BOD i,e, Ms. Tara Uzra Dawood (CEO and Acting Chairperson of 13D for 106th BOD meeting), Ms. Shafqat Sultana, Mr. Gul Nawaz, Mr. S. Shabahat Hussain and Mr. Masood Wahedna. The draft minutes of 106th BOD meeting were confirmed in the 107th BOD meeting which was attended by Ms. Tara Uzra Dawood (CEO), Mr. Nazimuddin Feroz, Mr. Gul Nawaz and Mr. S. Shabahat Hussain. All the attendees of 107th BOD meeting except Ms. Tara Uzra Dawood were requested to confirm; whether OD in its 107th meeting held on April 28, 2012 decided to delete the matter of provisioning from the final minutes of 106th BOD meeting. All of the above directors including Mr. Gul Nawaz, Mr. Nazimuddin Feroz and Mr. S. Shabahat in writing confirmed that no such decision was taken for deletion of provisioning matter from the final minutes of 106th BOD meeting.
7. DCML, its CEO, the CFO and Company Secretary initially submitted their response through their authorized representative on December 17, 2012. Later on they disengaged their authorized representative and also withdrew their submitted response on the SCN and provided their new response vide letter dated February 28, 2013 enlisting the following facts.
(i) The Company and its officers have not acted in violation of any regulatory framework and had not extended any undue advantage to itself, its related parties, including connected persons and its officers. Whatever has happened was the fact but it was just a coincidence/chance event and nothing was done intentionally.
(ii) Although provisioning of debt securities had been discussed by the BOD in its meeting held in February 2012 but it was never known to the management that decision would be taken in next meeting as normally till all the directors give their full support no decision was taken, even management had no idea on what scripts and how much further provision would be approved.
(iii) If the management and its officers had the anticipation of provisioning in upcoming BOD meeting then DCML would not have invested in DISF on April 6, 2012 and DCML would have redeemed its entire investment from DINF which is still there as of the submission of this reply.
(iv) If the management had the anticipation of provisioning the CEO would have redeemed all of her investment from the funds under management of DCML as more than fifty percent of her investment remained in the funds and other related/connected persons would have also redeemed their investment from the funds of DCML which was still there.
(v) Most of the Unit holders/investors referred in the SCN historically retained their investments in the funds even in the timings when high fluctuations/variations occurred in the NAV.
(vi) As far as redemptions of the corporate investors referred in the SCN are concerned they have their own BOD and Committees responsible for their own investments and disinvestments.
(vii) All the referred redemptions were made under the relevant laws and passed through Registrar and Trustee and there is no question of any facilitation in redemption process.
8. During the hearings, the CEO and the CFO and Company Secretary admitted that the matter of provisioning was discussed in 39th AC meeting and 106th BOD meeting and the BOD advised the CFO to present details/workings of provisioning in the 107th BOD wherein the decision of provisioning on non-performing debt securities in the of funds of DCML was to be taken. The CEO also stated that there were no mala fide intention behind this event and whatever happened was merely a chance event or coincidence. The CFO and Company Secretary admitted providing tampered notice of 107th BOD meeting to SECP and stated that it was all just a mistake. He further added that the deletion of provisioning matter from the minutes of 39th AC meeting and 107th BOD meeting was not approved by the members of BOD and AC and the deletion in the final minutes was oversight on his part. The CEO also admitted that the deletion of provisioning from the minutes of 106th BOD minutes was not approved by BOD. Although as an acting Chairperson of the 106th and 107th BOD meeting, she signed the minutes of 106th BOD meeting in good faith but she did not know that the provisioning matter has been deleted as a mistake from the minutes. The CEO also confirmed that the CFO was not amongst the beneficiaries, who have redeemed their investment prior to the approval of provisioning. The FO and Company Secretary did not avail the hearing opportunity on the date of last hearing. During the last hearing the CEO was not able to reply as to why the CFO and Company Secretary provided the forged notice to SECP and deleted the matter of provisioning from the final minutes of 39th AC meeting and from the final minutes of 106th BOD meeting, despite of the fact that he was not amongst the beneficiaries of the provisioning matter.
The attention of CEO was also drawn to;
(i) Copy of closed period notice annexed with the notice of 107th BOD meeting distributed to the directors of DCML informing about the "closed period" starting from April 21, 2012 to April 28, 2012 and requiring each director, CEO and other executives to restrain from dealing directly/indirectly in the units of the funds in any manner during the said period and
(ii) Redemptions made by the close relatives of the CEO on April 26, 2012 during the said closed period.
' In this context the CEO was asked as to how the redemptions of her close relatives were executed despite the closed period notice was served to her. In response she stated that, she was un-aware of such close period.
9. Ms. Shafqat Sultana vide her letter dated February 19, 2013 informed that she has disengaged herself from the DCML's appointed representative and have appointed new counsel in the matter.
Her counsel submitted a detailed response on February 21, 2013 encompassing the following facts;
(i) She was deeply concerned by the serious allegations raised against the Company and some of its unit holders in the SCN.
(ii) The redemptions highlighted in the SCN occurred no more than four weeks prior to the 107th BOD meeting in which provisioning was approved. However, in the preceding BOD meeting the issue of provisioning had been explicitly discussed and thus the directors were aware that provisioning was imminent.
(iii) In response to the concerns raised in the SCN, she had requested justifications from the unit holders whose redemptions had been highlighted in the SCN. Based on the justification received from the unit holders, she is of the view that redemptions made by such unit holders are justifiable though they appear to have been timed carelessly and it did not appear that they are motivated by any mala fide intentions.
(iv) She has not seen any evidence to suggest that the related parties and Dawood family members acted in collusion in a manner so as to avoid losses resulted from the debt provisioning.
(v) She could not speak on behalf of DCML or its officers.
10. During the hearings, Ms. Shafqat Sultana informed that she did not attend the 107th BOD meeting wherein the matter of provisioning was decided. However, she attended the 106th BOD meeting in which the matter of provisioning was highlighted by the Chairman AC. She was also requested to submit copies of draft minutes of 106th, 107th and 108th BOD meeting, which she provided in due course. During the hearing she stated that, she had personally inquired the matter of redemptions from the unit holders that were referred to in the SCN and she was of the view that there was no mala fide intentions behind the redemptions and it was all timed carelessly incident.
During the hearing she was shown the forged notice of the 107th BOD meeting provided by the management to SECP, draft and final minutes of 39th AC meeting and draft and final minutes of 106th BOD meeting in which the deletions were made without the approval of the members of AC and BOD. In this context she informed that the remaining directors on the BOD of DCML have taken serious notice of this matter and the CFO and Company Secretary of DCML who have provided the forged notice of 107th BOD meeting and certified true copies of the draft and final minutes of AC and BOD has been suspended and departmental enquiry has initiated against him. However, Ms. Shafqat Sultana apprised that the CFO and Company Secretary was not amongst the beneficiaries of the redemptions made by DCML, its connected parties, its CEO and their close relatives and what he has done is a result of mistake on his part.
11. Mr. Gul Nawaz, (Chairman of the AC) provided a detailed response on the SCN vide his letter dated November 14, 2012 encompassing the following facts;
(i) The matter of provisioning for non-performing debt securities was discussed in the 39th AC meeting and subsequent 106th BOD meeting. .
(ii) He was completely unaware of this fact that DCML, its related parties, its CEO and close relatives of CEO redeemed their investment prior to recording/taking decision of provisions in DISF and DINF and avoided such huge loss of Rs 18.22 million at the cost of remaining unit holders of DINF and DISF.
(iii)If he had prior knowledge of such sheer breach of fiduciary responsibility by the management of DCML and related parties, he would have immediately brought this to the knowledge of the other board members for appropriate action and subsequently to the regulators as well. He also provided the copies of draft minutes of AC and BOD meeting held during FY 2011-12.
12. Mr. Gul Nawaz also requested for separate hearing opportunity. During the hearing Mr. Gul Nawaz stated that he has resigned from the directorship of DCML and that is why he requested for separate opportunity of hearing. He added that he joined DCML board as an independent director because of his expertise in the field of asset management. He further stated that he had no financial stake whatsoever in DCML and he could not imagine such a failure of fiduciary responsibility on the part of management of DCML. He informed that the matter of provisioning of non-performing debt securities were initiated on the recommendation by the Auditors of DINF, DISF and FDMF, the matter was at length discussed in the 39th AC meeting and being the Chairman AC he discussed this issue at length in 106th BOD meeting, whereby the CFO and Company Secretary of DCML was advised to present details/workings in the next BOD meeting. The details/workings were presented by CFO and Company Secretary in 107th BOD meeting and decision of provisioning was taken accordingly.
13. Subsequent to the hearing, Mr. Gul. Vide his email dated March 11, 2013 informed that agenda item No, 6 pertaining to provisioning matter was missing in the minutes of 107th BOD meeting, however discussion, deliberation and subsequent approval on the provisioning issue was recorded under Agenda item No, 7 under the caption "Other Items", despite of the fact that it was a regular agenda item in the notice that circulated to the BOD members. He also provided the copy of notice of 107th BOD meeting which was circulated to him and it contained 8 agenda items including provisioning matter listed at agenda item No, 6.
14. Mr. S. Shabahat Hussain provided his responses on the SCN through his letters dated January 29, 2013, February 13, 2013 and February 18, 2013 disclosing the following facts;
(i) He has not availed, the services of DCML's legal advisor in the matter of SCN.
(ii) As a non-executive director he was not involved in day to day affairs of DCML and the matters referred to in the SCN relates to the day to day affairs.
(iii) Board unanimously decided the matter of provisioning purely on the basis of merit and facts/information provided by the management.
(iv) Before receiving the SCN, he was completely un-aware of the situation that related parties of DCML including connected person, its CEO and her close relatives redeemed their investment after 106th BOD meeting or prior to 107th BOD meeting wherein the decision on provisioning was taken.
(v) The matter of provisioning was discussed in the 39th AC meeting and thereafter in 106th BOD meeting as per agenda item No,2, hence the management was aware of the provisioning matter and placed the same in 107th BOD meeting for approval.
(vi) He also requested to exempt him from the hearings in the SCN.
15. Mr. Masood Wahedna submitted his detailed response on the SCN through his letter dated November 22, 2012 with the following facts;
(i) The issue of provisioning for non-performing debt securities was discussed in the 106th BOD meeting held on February 21, 2012. He apprised that the matter of provisioning was discussed even earlier and was also raised by the Auditors as they were of the view that the TFCs/Sukuks were not properly priced and further provisioning is required to reach at fair pricing.
(ii) He was not present in 107th BOD meeting held on April 28, 2012 but on the same day CEO of DCML consulted him over mobile phone on the provisioning matter before the commencement of BOD meeting.
(iii) He was completely unaware of this fact that DCML, its related parties, its CEO and close relatives of CEO redeemed their investment prior to recording/taking decision of provisions.
(iv) As nominee director of Bank of Khyber (BOK), their intent on the matter can be judged from the fact that despite suggesting and fully knowing the provisions will be made, no redemption was requested by BOK in DINF being the single largest investor in the fund.
16. Mr. Masood Wahedna also requested for separate hearing opportunity. During the hearing Mr. Masood Wahedna stated that BOK has around 15% shareholding in DCML and he was a nominee director of BOK on the board of DCML. He added that he was shocked to know that DCML, its connected parties, its CEO and her close relatives redeemed their investment before provisioning was approved by the board and due to this reason he resigned from the directorship of DCML, recently. He further added that the matter of provisioning was discussed in the 39th AC. Meeting.
Subsequently, Chairman AC highlighted the issue of provisioning in the 106th BOD meeting and the CFO and Company Secretary was advised to present details in the next BOD meeting so the board can reach a decision on this issue. He stated that being a professional from capital market, he suggested the BOD to revisit the non-performing debt portfolio in the funds of DCML and to make appropriate provisions accordingly. He also stated that BOK was the single largest investor in DINF and he being the nominee director of BOK had the complete knowledge about the prospective provisioning, still 130K's investment in DINF remained intact. During the hearing Mr. Masood Wahedna was requested to provide the copies of draft minutes of BOD and AC for the FY 2011-12, which he provided in due course.
17. Mr. Nazimuddin Feroze provided a detailed response on the SCN vide his letter dated January 9, 2013 with the following facts;
(i) As a nominee director of BRR Guardian Modaraba on the board of DCML, it was not his direct responsibility to approve day to day transactions of the funds as he was not involved in any respect in the day to day management of funds by DCML
(ii) He was not present in 106th BOD meeting held on February 21, 2012.
(iii) He also requested for separate opportunity of hearing in the matter.
18. During the course of hearing Mr. Nazimuddin Feroz stated that he has resigned from the directorship of DCML and that is why he requested for a separate opportunity of hearing. He was a nominee director on the board of DCML and had no personal financial stake in DCML or its funds.
Further, as he became aware of the facts stated in the SCN he immediately resigned from the directorship of DCML. He added that the matter of provisioning was not instantly approved by the board in its 107th BOD and a thorough discussion and deliberations were made on this agenda item. Further, it was not in his knowledge that DCML, its connected parties, CEO and their relatives have redeemed their investment prior to provisions were made in the funds of DCML. Mr. Nazimuddin Feroz stated that he was not present in the 106th BOD meeting. However, the minutes of 106th BOD meeting were confirmed in the 107th BOD meeting which he attended wherein the' decision of provisioning was taken. He was requested to provide the draft minutes of ROD meetings held during FY 2011-12, which he provided in due course.
19. I have considered the submissions made by the Chairperson of BOD, Chairman of AC, Members of AC and BOD, the CEO and the CFO and Company Secretary in their personal capacity and the CEO on behalf of the Company, in light of the relevant provisions of the Ordinance and the NBFC Regulations. I have also gone through the record placed before me and have come to the conclusion that;
(i) CDC as Trustee of DISF took notice of the matter of redemption of DCML and its related parties prior to recording of provisions in the non-performing debt securities portfolio of fund and brought this matter into the knowledge of SECP.
(ii) The SECP inspection team further probed the matter and also. Reported the redemptions made by CEO, close relatives of the CEO in DINF prior to recording of provisions in the non-performing debt securities portfolio of fund.
(11, Initially the management of DCML provided copy of notice of 107th BOD meeting in which the matter of provisioning was not mentioned in the agenda items in order to portray that the matter of provisioning was instantly discussed and decided in the 107th BOD meeting. Later on, it came into the notice of SECP that the matter of provisioning was earlier discussed in the 39th AC meeting and 106th BOD meeting and upon confirmation from the directors of DCML, the management was not left with any option but to provide a copy of notice of 107th BOD meeting wherein the matter of provisioning was mentioned in the agenda item.
(iv) When query was raised to the management of DCML that why forged notice of 107th BOD meeting was provided to SECP, the management took cover by calling it a sheer mistake on the part of CFO and Company Secretary.
(v) Similarly, the management of DCML deleted the matter of provisioning from the final minutes of 39th AC meeting and 106th BOD meeting without the authorization of AC and BOD members and the minutes were provided to SECP, in order to portray that the matter of provisioning was never discussed before 107th BOD meeting and it was only discussed and decided instantly in 107th BOD meeting. Later on, it was discovered that the matter of provisioning was earlier discussed in 39th AC meeting and 106th BCD meeting and its evidence is available in the draft minutes. The matter was further confirmed from the directors of DCML who also provided the draft minutes to SECP containing discussions on the matter.
(vi) When it was enquired from the management as to why the matter of provisioning was deleted from the minutes of 39th AC meeting and 106th BOD meeting, the management could not justify their action.
(vii) The management of DCML submitted that whatever happened was not intended and it was a chance event and was 'simply a co-incidence.
(viii) Ms. Shafqat Sultana admitted all the facts and submitted that she cannot speak on the part of DCML, its management and the unit holders who have redeemed their investments prior to provisioning was made and avoided losses but "this entire event was timed carelessly incident".
(ix) All the BOD members (excluding the CEO) admitted that they were unaware of the fact that the DCML, its connected parties, its CEO and their close relatives redeemed their investment prior to provisioning was decided and they also admitted that the management was aware of the fact that the matter of provisioning was to be decided in the upcoming 107th BOD meeting. Further, Mr. Gul Nawaz, Mr. Masood Wahedna and Mr. Nazimuddin Feroz immediately resigned from the directorship of DCML as. Soon as they came across the sheer breach of fiduciary responsibility by the management of DCML.
(x) It is evident and an undeniable fact that DCML, its related parties including connected persons, its CEO and the close relatives of the CEO, redeemed their investments prior to provisions made in the nonperforming debt securities portfolio of DINF and DISF and avoided imminent loss of Rs, 18.224 million. Preparation of forged documents, deletion of material facts from the official documents without the approval of respective authorities and submission of the same to SECP, indicate that the entire chain of events was designed to cover up the undue benefit passed on to the CEO, her close relatives and the connected persons of DCML through redemption of DISF and DINF units before the approval of provisions.
20. 'In view of the record available and the contentions of the CEO, CFO and Company Secretary, the Company, the chairperson of the BOD and other directors on the board it has been established that the management of DCML failed to safeguard the interest of the unit holders of DINF and DISF and did not discharge its fiduciary responsibility of managing assets of CISs under its management, in good faith and willfully gained undue advantage for itself, its related parties including connected persons and its officer by wilfully authorizing and permitting the redemptions of such persons in DINF and DISF before making full provisions in the debt securities of ICIBL, Pace Pak, MLCF and PEL, thereby avoiding imminent loss of Rs,18.224 million to the connected persons.
21. Additionally, the role of MCB Financial Services Limited (MCBFSL) as Trustee of DINF is found to be unsatisfactory, since it did not question the management of DCML for redemptions of the CEO and her close relatives in DINF before provisioning or highlight the matter to the regulator in order to safeguard the interest of DINF unit holders. MCBFSL is advised to perform its duties as stipulated in the NBFC Regulations.
22. The role of Messrs Riaz Ahmed & Co. Chartered Accountants, as the Internal Auditor of DCML is also found to be unsatisfactory, since it did not report the matter of redemptions of DCML, its related parties including connected persons, its CEO and her close relatives prior to provisions made in the non-performing debt securities portfolio of DINF and DISF to the Audit Committee of DCML and hence failed to perform its due role. In this context, Messrs Riaz Ahmed & Co. Is hereby advised to be careful in future and to perform its duties as internal auditor as stipulated in the.
NBFC Rules and Regulations. However, since the subject of the present Order does not encompass the actions of the Internal Auditor or the Trustee of DINF therefore, the above and the contents of the preceding paragraph suffice for the matter.
23. On the basis of the above facts, it is established that the management of DCML willfully authorized and permitted the use of privileged information, provided forged documents and made unauthorized changes in the documents of the company to permit undue advantage to itself, its related parties including connected persons, its CEO and her close relatives for avoiding imminent loss, that was subsequently passed on to the remaining unit holders of DINF and. DISF, which could have been equally shared otherwise. Therefore, this act of DCML is directly detrimental to the interest of the remaining unit holders and is against the fiduciary responsibilities stipulated in the Constitutive Documents of the CISs, thus failed to manage the assets of DINF and DISF in the interest of the unit holders. The default under Regulation 38(a) and Regulation 38(n) of the NBFC A Regulations has been established which is punishable under section 282J(1), section 282J(2) read with section 282M and section 282D of the Ordinance. I, therefore cancel the licenses of DCML on the basis of above-stated facts, to undertake the businesses of Asset management services and Investment advisory services and impose a penalty amounting to Rs, 20,000,000 (Twenty Million Rupees) on the CEO, due to the fact that DCML, its related parties including connected persons, its CEO and her close relatives have avoided imminent loss of Rs, 18.224 million and I also impose a penalty of Rs,1,000,000 (One Million Rupees) on the CFO and Company Secretary, for the wilful contraventions of Regulation 38(a) and Regulation 38(n) of the NBFC Regulations 2008. The CEO and the CFO and Company Secretary are hereby directed to deposit the penalty in the bank account of Securities and Exchange Commission of Pakistan with MCB Bank Limited within thirty days from the date of this Order and furnish original receipted challan to SECP. The amount of penalty shall not be charged to DINF or DISF or FDMF or DCML and shall be paid by the CEO and the CFO & Company Secretary of DCML from their own sources.
24. The certificate holders of FDMF at their meeting held on February 15, 2013, in compliance with the Regulation 65 of the NBFC Regulations 2008 have already opted in favour of conversion of FDMF into open ended scheme.
25. The Trustees of all three CISs under management of DCML, are hereby directed in terms of Regulation 45A(1)(f) read with Regulation 45A(1)(c) of NBFC Regulations 2008, to extinguish/revoke DINF, DISF and FDMF in the interest of the unit/certificate holders of the respective CISs.
26. Based on the honest submissions made to the Commission and keeping in view the fact that none of the Directors except the CEO has attained any personal benefit from the redemptions, I find that no violations have been committed by the BOD of DCML other than the CEO.
27. This order is issued without prejudice to any action, which may be taken or warranted for the above said defaults under any other provision of the law.