This order will dispose of the proceedings initiated against the Chief Executive and Directors of Altern Energy Limited (the Company) under Show Cause Notice dated June 20, 2006 issued under Rule 11 of the Companies (Issue of Capital) Rules, 1996 (the Rules) read with Section 86 and Section 492 of the Companies Ordinance, 1984 (the Ordinance).
2. The brief facts of the case are that while examining the announcement made by the Company on March 22, 2006 for the right issue @1,450% at par, it was observed by the Enforcement Department that the company had not provided to the Commission and the Stock Exchange as required under Sub-rule (ii) of Rule 5 of the Rules the purpose of right issue, benefits to the company, use of funds and financial projections for three years. The company had also not provided financial plan and projections signed by all the directors who were present in the meeting in which the right issue was approved.
3. In this connection the Company was asked to provide the requisite information and documents vide Commission's letter No. EMD/233/480/03- 9436 dated March 29, 2006, In response, the information/documents provided by the Company on April 4, 2006 revealed that it intends to revamp and enhance its existing operating assets to gross ISO 29 MW and to acquire 60% equity stake in an independent Power Producer (IPP), IPPL, established under the 1994 power policy through special purpose vehicle Power Management Company (Pvt.) Limited "PMCL" which shall become a wholly owned subsidiary of the Company post transaction. It was observed from the information and documents provided that the name of the independent Power Producer in which the Company is to acquire 60% equity stake and other material information was not disclosed.
4. In this connection, a show cause notice (scn) dated June 20, 2006 was issued to the Directors of the Company calling upon them to show cause as to why penal action may not be taken against them as provided in Rule 11 of the Rules and Section 492 of the Ordinance for violating the statutory requirements of the law. A period of 14 days was given to respond to the aforesaid notice.
5. The aforesaid notice was responded by the former legal counsel of the Company M/s. Hassan & Hassan, Advocates vide letter dated July 1, 2006. The reply submitted by the Company against the scn is summarized as under:
(i) The Counsel for the directors has taken the plea that there is no violation, by the Company or its directors, of any provision of the Ordinance particularly of Section 492 of the Ordinance or of Rule 5 of the Rules as the Company is yet to make an offer of right shares to its share holders. It is stated that the Company has sent draft letter of offer and circular under section 86(3) of the Ordinance to the KSE for approval, which makes full disclosure of all the material particulars relating to the right issue. It is emphasized that in relation to issuance of shares, section 492 is attracted when a false statement is made in an offer of shares, and since the Company has not still made offer of shares to its shares holders hence there is no violation of section 492 of the Ordinance.
(ii) It was contended that the information provided to the Commission and the KSE under Rule 5(ii) and (iii) of the Rules does not constitute an offer of shares to the shareholders. The Company has also complied with the Rule 5(ii) and (iii) of the Rules as the decision of right issue was communicated to the Commission on the same day and subsequently the Company has also furnished the requisite information.
(iii) It is further emphasized that the rules are made pursuant to the Ordinance hence Rule 5(ii) relates to communication to the shareholders in terms of Section 86 (3) of the Ordinance and cannot be attributed to Rule 5(iii) which merely requires communication of the decision of right issue to the Commission and concerned stock exchange(s) on the same day.
6. Sheikh Muhammad Iqbal, Chief Executive and Mr. Khawaja Ahmad Hosain, Advocate, (newly appointed counsel to appear in this matter) appeared on behalf of the company at the time of hearing held on August 08, 2006 and agreed to disclose the required material information to the maximum in the Circular under Section 86(3) of the Ordinance, to be circulated among the shareholders with the offer letter for right issue. They agreed that the company did not provide the information to the Commission and the Stock Exchange as required under the Rules (although it was contended that it may have been a mistake or an overlook by the Company; there was no real intention to withhold the information). Further, they contended that the wrong committed under the purview of the Rules does not attract any penal action provided in the Ordinance as the two are independent. The Representatives of the Company has also assured that Company would ensure strict compliance of the provisions of the Ordinance in future.
7. The aforesaid submissions of the Company have been analyzed as follows: i. The Company was required to submit the information in terms of Rule 5(ii) & (iii) of the Rules along with communication of its decision of right issue at the time of making announcement. Since the Company has failed to submit the information as required under Rule 5(ii) along with the announcement of right issue, hence the Company has made contravention of Rule 5 of the Rules. of the Representative of the Company to drop the proceedings against those director who were not present in the Board of directors meeting where the decision to issue the right issue was taken, has been considered and found cogent hence I have decided to drop these proceedings against the three directors of the Company namely M/s. Athar Mahmood, Muhammad Taloot, Mujeeb Arif Khan.
11. This Order is issued without prejudice to any other action that the Commission may initiate against the company and its directors in accordance with law on matters subsequently investigated or otherwise brought to the knowledge of the Commission.