1. This order shall dispose of Appeal No, 19 of 2014 filed under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 (SECP Act) against the order (the Impugned Order) dated 26/3/14 passed by the Respondent.
2. The facts of the case are that the Respondent while examining the annual audited accounts (the Accounts) of Sitara Spinning Mills Limited (the Company) for the financial year ended on 30/06/12, observed that the Director's Report was not annexed with the Accounts filed with the Registrar under section 242 of the Companies Ordinance 1984 (the Ordinance). Therefore, a Show Cause Notice (SCN) dated 02/05/13 was issued to the Chief Executive officer, Directors and Company Secretary by the Respondent under sections 242 and 244 read with section 476 of the Ordinance.
3. The Company vide letter dated 09/05/13 responded to the SCN and thereafter, Mr. Rashid Sadiq (Authorized Representative) appeared on behalf of the Chief Executive Officer, Directors and Company Secretary (the Appellants) on 16/01/14 before the Respondent. The Authorized Representative along with other submissions pleaded that the section 244 of the Ordinance does not address filing of the Directors Report with the Commission, therefore SCN is infructuous.
4. The Respondent being dissatisfied with the response of the Appellants imposed a penalty of fine Rs,16,000/- (Sixteen thousand only) for violation of section 244 read with section 242 of the Ordinance in the following manner: S. No,Name Designation Amount (Rs,)
1.Mr. Imran GhafoorChief Executive/ Director4,000 2.Mr. Sharmeen ImranDirector 4,000 3.Mr. Muhammad Asif PashaDirector 4,000 4.Mr. Ma4ar All KhanCompany Secretary4,000 Total Amount 16,000
5. The Appellants, being aggrieved by the Impugned Order filed an appeal before the Appellate Bench on the following grounds: i. The Appellants have been accused of violation of section 242 of the Ordinance therefore could be only penalized under the same provision. Ii. The Appellants have not violated section 244 of the Ordinance, because it applies when "any copy of a balance-sheet is issued, circulated or published" for and to the shareholders or creditors, which does not cover filing of the balance sheet with the Registrar. iii. In presence of special penal provision in a section, general penal provision cannot be invoked. iv. The Appellants have filed the Accounts with the Registrar in compliance of section 242 of the Ordinance. Further, the Directors' Report was also attached with the Accounts circulated to the Shareholders. Therefore the Appellants have not hindered the disclosure by not attaching the Directors' Report. The Commission should not . Punish the Appellants on a mere technicality as the Appellants have made disclosure. The substantial compliance was made by the Appellants and doctrine of substantial compliance is supported by section 20(6)(d) of the Act, which requires the Commission "to strive to administer laws effectively but with a minimum of procedural requirements". v. The Commission must "strive to achieve uniformity" in performing its functions in view of section 20(6)(c). The Impugned Order is against the previous decisions of the Commission wherein it has been declared that the default in compliance of section 242 was not willful. The Respondent being public functionary deriving authority from a statute therefore is obliged to act justly, equitably and reasonably without any element of discrimination.
Vi. Impugned Order is against the preamble of the Ordinance and it does not promote the investments and development of economy. Further no loss was caused to any stakeholder due to omission of Directors' Report.
6. The Respondent rebutted the ground of appeal and stated: i. The SCN was issued under section 244 read with section 242 of the Ordinance and penalty was imposed by invoking section 244 of the Ordinance. The Company has violated section 244 therefore was accordingly penalized. ii. Circulation and issuance of the financial statements are broader terms which include circulation to all stakeholders including the Registrar. The Company did not ensure the filing of Directors'
Report with the Registrar while filing its accounts. iii. The special provision of Directors' Report is contained in section 244 whereas general provision is section 242 of the Ordinance. iv. The Company has neither complied with section 242 nor section 244 of the Ordinance and it has not filed the Accounts within the prescribed time period. v. The facts and circumstances of cited case are distinguished from the case in hand, therefore does not support the Appellants case. No discrimination was made while passing the Impugned Order. vi. The Directors have failed to meet their statutory- obligations by not complying with the requirements of section 244 of the Ordinance.
7. We have heard the parties and perused the record with the able assistance of the parties. After careful examination of the case we have reached to the conclusion that the instant appeal involves the issue of statutory interpretation of different provisions of the Ordinance and their ambit as per intent of the legislature. Therefore, without going into the merits of the case we desire to settle the applicability issue of sections 242 and 244 of the Ordinance for present and future reference.
8. The contents of the SCN and the Impugned Order alleges that the Company has not submitted the Directors' Report along with the Accounts for the year ended 30/06/12 as required under section 242 of the Ordinance, therefore has violated the provision of section 242 read with section 244 of the Ordinance. In this regard, para 7 of the Impugned Order is reproduced below to discuss the issue and to determine how the Respondent reached to the conclusion which resulted into the Impugned Order.
'The provisions of the law i.e, section 244 of the Ordinance clearly require the Respondents to issue, circulate or publish the Accounts annexing the Directors Report failing which is a penal offence. By virtue of section 242 these Accounts are required to be filed with the registrar. The Notice issued to the Respondents was served under the provisions of section 244 read with the provisions of section 242 of the Ordinance. The Accounts of the Company filed under section 242 of the Ordinance are deemed to have been 'issued, circulated and published'. Therefore, non-annexing of the Director's Report by the Respondents at the time of filing of Accounts with the Registrar is construed as a violation of the provisions of section 244 of the Ordinance and the contention that the Director's Report was 'circulated' to the shareholders but not annexed to the Accounts of the Company and filed with the Registrar is untenable. "
9. In view of the above stated abstract of the Impugned Order we have formulated three following issues to interpret the extent and application of sections 242 and 244 of the Ordinance: a. What is the ambit of section 242 of the Ordinance and to whom it renders rights and obligations. b. What is the ambit of section 244 of the Ordinance and to whom it renders rights and obligations. c. Whether the Accounts of the Company filed under section 242 of the Ordinance are deemed to have been "issued, circulated and published" as per section 244 of the Ordinance.
10. The relevant parts of sections 242 and 244 of the Ordinance are reproduced for ready reference and for further discussion on the issues formulated in above para: "242: Copy of balance-sheet to be forwarded to the registrar.- (1) Without prejudice to the provisions of subsection (5) of section 233, after the balance-sheet and profit and loss account or the income and expenditure account, as the case may be, have been laid before the company at the annual general meeting, such number of copies thereof along with the reports and documents required to be annexed to the same, not being less than three in the case of a listed company or two in the case of any other company, as may be prescribed, signed by the chief executive, directors, chairman of directors or the auditors of the company, as the case may be, in the manner provided by sections 236, 241 and 257, shall be filed with the registrar within thirty days from the date of such meeting.
(4) If a company makes default in complying with the requirements of this section, the company and every officer of the company who is knowingly and wilfully in default shall be liable,-
(b) if the default relates to any other company, to a fine which may extend to two thousand rupees and to a further fine which may extend to fifty rupees for every day after the first during which the default continues.
"244. Penalty for improper issue, circulation or publication of balance-sheet or profit and loss account. If any copy of a balance-sheet is issued, circulated or published without there being annexed or attached thereto, as the case may be, a copy each of (i) the profit and loss account or income and expenditure account, (ii) any accounts, reports, notes or statements referred therein (iii) the auditor's report, and (iv) the directors' report, the company, and every officer of the company who is knowingly and wilfully in default shall be punishable with fine which may extend to five thousand rupees. "
11. The above stated section clearly conveys the plain meaning, as ID required by the "Literal Rule" of statutory interpretation. Section 242 of I the Ordinance mandates the filing of the Accounts along with required documents and Reports with the Registrar within thirty days from the date of the general meeting and if the filing provision is violated by any company then it should be dealt through the penal provision contained in subsection (4) of section 242 of the Ordinance.
12. Further, in view of the "Literal Rule" of statutory interpretation, Section 244 of the Ordinance lays down the obligation of "issuing, circulating and publishing" of the Accounts along with different documents and reports. The words "issued, circulated or published" mentioned in the section are meant for the shareholders or the creditors of the company. Furthermore, section 244 of the Ordinance imposes certain penalty for violation of improper "issue, circulation and publication".
13. In view of the recognized interpretational rules, the provisions of section 242 and section 244 of the Ordinance are inter alia independent with respect to the filing, issue, circulation and publication perspective under the Ordinance. Non-filing of the documents under section 242 cannot be presumably considered a violation of section 244 on the basis that the since the documents have not been filed with the Registrar; therefore, the same could not be treated as "issued, circulated or published" to or for the Registrar. Therefore, the conclusion drawn by the Respondent in para seven of the Impugned Order wherein he stated that "The Accounts of the Company filed under section 242 of the Ordinance are deemed to have been 'issued, circulated and published' could not be accepted as intended statutory interpretation of the law.
14. In the light of above discussion we are of the view that while deciding the issue related to section 242 of the Ordinance the Respondent has wrongly applied and interpreted section 244 as related provision of section 242. The Respondent's act to issue SCN under sections 242 and 244 read with section 476 of the Ordinance was against the fundamental principles of justice and equity, wherein it has been envisaged that a person should be held liable only for the acts committed by him in violation of law. In view of the above discussion Appellant Bench believes that exercise of issuance of SCN which resulted into the Impugned Order was void ab initio therefore both could not be sustained.
15. In view of the aforesaid, the appeal is allowed and the SCN and the Impugned Order are hereby set aside being illegal and result of misinterpretation of law. Therefore, the case is remanded to the Respondent and is directed to initiate fresh proceedings and adjudge the matter independently under section 242, if any default has been committed by the Company in compliance of section 242 of the Ordinance.
16. Parties to bear their own cost.