1. This order will dispose of the proceedings commenced with the Show Cause Notice dated 23.4 04 issued under Section 282-F of the Companies Ordinance, 1984 ("Show Cause Notice- or "SON") to Islamic Investment Bank Limited and its directors (hereinafter collectively referred to as "IIBL"), calling upon them to show cause as to why the board of directors should not be superseded for the reasons and on the grounds mentioned in the SCN.
2. Right from the outset, IIBL launched legal counter measures against the SON The history is short but extensive, but need not be gone into for the purposes of this order Suffice it to say that pursuant to the order dated 5.7.2004 passed by the Hon'bfe Lahore High Court, Rawalpindi Bench, in Writ Petition 185112004, the present committee was constituted to look into the affairs of IIBL and to dispose of the SCN proceedings_ The case made out in the SON for IIBL to answer can be segregated into two broad categories, namely, (a) a long list of fragrant violations by IIBL of the law governing its business and affairs, and ((by the trend of serious deterioration of IIBL's financial condition for over seven years Of course the two are not necessarily separable and in fact run into each other A company's management callous to the legal requirements could very well be the cause of the ruin of financial affairs of that company However, the alternate scenarios of a financially insolvent company with a legally compliant management or a financially healthy company with a legally delinquent management are equally possible In the instant case, both the financial malaise of 1.113L and the flagrant violations of law by its management are relied on in the SON as the grounds for superseding its board of directors unless cause to the contrary was shown by IIBL to the satisfaction of the Securities and Exchange Commission of Pakistan ("Commission").
3. 11BL filed its first written reply to the SON on /0.5.2004 ("First Reply") During the course of hearing, 11BL made oral submissions through its counsel which were then reduced into writing and filed on 4.8.2004 ("Second Reply") We have perused the SON, the First Reply, the Second Reply, our notes of the proceedings and oral submissions by learned counsel, the accounts of IIBL for the year ended 31.12.2003 ("FY-03 Accounts') and other material on record Violations of law The regulation of non-banking financial institutions was carried duf by the State Bank of Pakistan ("SBP") before the Commission became vested with this regulatory responsibility on 15.11.2002 by virtue of the Companies (Amendment) Ordinance, 2002. The said date for convenience is hereinafter referrer] to as the "cut-off date" Through the said amendments, the non-banking financial institutions were as a composite category renamed as non-banking finance companies ("NBFC") Prior to the cut-off date, the SBP regulated the non-banking finance companies including IIBL under the Banking Companies Ordinance, 1962 ("Beal read with Rules of Business for Non-Bank Financial Institutions ("SBP NBF1 Rules') After the cut-off date, the Commission regulates the affairs of NBFCs under the Companies Ordinance, 1984 ("Ordinance"), the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 ("SECP NBFC Rules") and the Prudential Regulations for Non-Banking Finance Companies ("SEOP PRs"), The fist of legal violations by IIBL stated in the SCN comprises of violations both before and after the cutoff date Most of the significant violations are of a recurring nature and continue to be violations as of today for being prohibited under the current legal regime administered by the Commission, regardless of the first date of their commission. This is a significant matter, as learned counsel for IIBL purported to argue that violations of law by IIBL prior to the cut-off date were not taken cognizance of by SBP and therefore ought not to form the basis of regulatory action by the Commission VVe do riot agree with this submission It is established law that no person can claim any vested right in a particular forum MouIla vs. The State, pm 1981 Karachi 745 (DR). This legal principle, coupled with the fact that most of the violations which occurred before the cut-off date have not been rectified and continue In present. Give ample authority to the Commission to take cognizance of such violations.
4. IIBL has not established any worthwhile defence to the. Allegations of legal violations. In fact, the evidence emerging from the inspection reports of the SRP and the reports of the statutory auditors mentioned in the SON is overwhelming for the conclusion that such violations were in fact committed and continue as of today.
5. Amongst the long list, the significant violations and instances of material non-compliance with mandatory legal requirements specifically discussed at length during the course of hearing are the following. l) Negative ecruit of IIBL T heir:* kr violation of Rule 5 2 b I of Hie COMMISSION NBFC Rules !n order to qualify for a licence to undertake investment finance services, !IBL is required under law to have equity of Rupees 300 million The material on record indicates that a like requirement under the SBP NBFI Rules and the directives issued from time to time by the SBP were not complied with by IIBL for a significant number of years, leading SBP to cause the Commission to issue a show-cause notice dated 24.10.2001 for winding-up IIBL. Howevei, it now transpires that the SBP issued another letter dated 12.11.2001 allowing IIBL to meet the minimum equity requirement by 1.1 2003 It is stated on this basis that the winding-up notice was merely a 'stick' whereas SBP was amenable to revival measures by IIBL. Learned counsel for IIBL further referred to eight letters dated 27.1.2003. 30.4.2003, 12.5.2003, 11.6.2003, 1g.6.2003, 15.92003. 24,9.2003 and 22.4.2003 written to the Commission with the aim to propose a rehabilitation plan and for injection of fresh equity in the bank for compliance with minimum capital requirements. Learned counsel stated that none of these communications were replied to by the Commission, and applications for injection of fresh equity were declined on the grounds that a show-cause notice for winding-up was pending against t113L. It was argued on this premise that by ils inaction the Commission on the one hand encouraged 11BL to believe that it may continue its operations and on the other made it impossible for IIBL to improve its equity On perusal of the record we come to the conclusion that the proposed equity injection by 11.13L for which the permission was declined by the Commission would hove been wholly insufficient to meet the legal minimum equity requirement of Rupees 300 million. We also note that subsequent to the rejection of its first request for injection of fresh equity on the grounds that winding-up proceedings against I1BL were pending, 118i_ again moved for permission by the Commission in this regard. However, IIBL failed to provide the information sought by the Commission vide its letter dated 2.8.20132, which led to rejection of the application vide this Commission's letter dated 8.7.2003, the second rejection was on account of 1113L's own failure to provide the requisite information. We do not countenance the argument on the analogy of estoppel as purported to be argued by the learned counsel, as there cannot be any estoppel by representation or by silence against a mandatory requirement of law It is beyond question that at all Limes when the said applications for injection of fresh equity were being made, IIBL was practically insolvent, its current liabilities were far in excess of its current assets, its own statutory auditors had qualified the audit reports for consecutive years on 'going concern assumption' basis, and I1BL was therefore and still remains) a case fit for winding-up under the principles and law declared by the Superior Courts The FY-03 Accounts reveal that IIBL is a long distance away frorn the required minimum equity of Rupees 300 million. In the scrq, in WP 1851/2004, as well as during the hearing the sanctity of these accounts as 'audited' was an issue of debate for not having been signed by auditors. Stepping aside this issue (for which penalties are independently provided under raw), the FY-03 Accounts Initialed' by the auditors indicate the following status of equity.
6. Without taking the qualifications expressed by the auditors into account, the negative equity comes to Rupees 507 million, necessitating injection of fresh equity of Rupees 807 million to meet the minimum equity requirement of Rupees 300 million.
7. Taking the qualifications expressed by the auditors into account, the negative equity comes to Rupees 840 million, necessitating injection of fresh equity of Rupees 1,140 million to meet the minimum equity requirement of Rupees 300 million.
8. When questioned as to why the qualificatJons by the auditors should not be taken into account while determining the real .Status of the financial affairs of IIBL, learned counsel argued, firstly_ that the Commission should not substitute itself for the auditors and, secondly. The qualifications related to 'provisioning' for the matters. Stated in the qualifications and. Provisioning being a matter of prudence only, did not impact the true financial position of 11BL We find both these submissions without merit, To address the first submission, reference is made to the following paragraphs of the Auditing Standard 13 (T he Auditors' RepOrt on Financial Statements, Members'
9. Handbook, Institute of Chartered Accountants of Pakistan): "37. A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot he expressed but the effect of any disagreement with management, or [imitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion_ A qualified opinion should be expressed as being 'except for' the effects of the matter to which the qualification relates 45, The auditor may disagree mill managernenl about matters such as the acceptability of accounting policies selected, the method of their appiication. Or the adequacy of disclosures in the financial statements. If such disagreements are material to the financial statements, the auditor should express a qualified or an adverse opinion," (text in bold is as provided in original) Accordingly, the three 'exceptions' stated by the auditors in the FY-03 Accounts, though not material to the extent for the auditors to give an adverse opinion or disclaim their opinion, were material enough to cause disagreement with the management of IIBL and for the auditors to make their opinion 'subject to' those exceptions. Although the Commission does not substitute itself for the auditors, there can be no objection if in analysis of the financial statements the impact of the 'exceptions' is taken into account, this is the standard practice anyway.
10. Regarding the second argument, the provisioning is not just a matter of prudence: it is integral to the financial statements giving a 'true and fair view' of the financial affairs of the company Learned counsel has with one swoop purported to discard the wisdom and rationale behind provisioning applied under all norms and standards of accounting and mandated under law. We need say no more on this We cannot but express our grave doubts on the actual profit being claimed in the FY- 03 Accounts, as it stands wiped out if the qualifications of auditors are even partially taken into account. The explanations given in the Directors' report in respect of these qualifications are mere puffs, generalities and do not inspire any credence. If such were the explanations offered to the auditors, it is no surprise they did not agree with the management What is surprising in fact is why the auditors proceeded to agree to the profil figures of IIBL despite these significant qualifications.
11. Keeping the afore-said in view, we find that IIBL is in material breach of Rule 5(2)(b)(i) of the SECP NBFC Rules ii) investment in equities /capital market operations in excess of the liquid net worth of 11BL in violation of Rule 15 of the COMMISSION NBFC Rules It is common ground that the liquid net worth of IIBL has been negative for the past several years, and continues to be so However. IIBL has invested heavily in equities in disregard of the legal prohibition under Rule 15 (and its predecessor rules) It was stated for IIBL that such operations have helped the bank to survive and therefore must be condoned. This submission is frightful, and is tantamount to justifying violations of law for beneficial consequences This so-called beneficial consequence is also purely fortuitous given the up-wing in the stock market To countenance such submission will lead to the odd conclusion that just what is intended by the Rule, that is, to allow a NBFC to invest only its own funds in risky capital market operations, should be turned on its head by permitting a NBFC in financial distress to play fast and lose with its depositors' money We are surprised at this submission and reject it outright as being unworthy of consideration We accordingly find that 11BL is In violation of Rule 15 of the SECP NBFC Rules, in) Investment in real estate in violation of Rule 3(0_,F of SBP NBFI Rules and Regulation 7(5) of Part If of SECP PRs IIBL invested heavily in real estate and continues to own real estate in violation of the afore-stated legal provisions, details whereof are set out in the SON During the hearing, IIBL purported to justify such investments with assertions of profits on disposal. As already discussed above. Beneficial consequences do not justify non- compliance with mandatory legal provisions. However, despite repeated enquiries. IIBL failed to satisfy us about the true state of affairs. The Safe Agreement placed on record with the Second Reply does not inspire confidence in it being an 'arms' length' and a genuine transaction. For being apparently a transaction at undervalue with favourable terms for the vendee. The connected matter pertaining to the US Dollar Bearer Bonds identified in the SON and further deliberated upon during the hearing also remains unresolved and we remain unsatisfied with the explanations offered by 11BL. It is not possible for us to assume an investigative role into these transactions.
12. Suffice it to say that all these transactions appear to be extremely shady and call for a deeper probe by the Commission.
13. Iv) Deposit taking despite below investu?Ent grade credit rating Rule 12 (1)(c) of the SECP NBFC Rules prohibits deposit taking by a NBFC unless it has obtained credit rating of minimum investment grade. This matter was discussed at some length during the hearing. It is an admitted fact that I1BL's credit rating would be below investment grade. However, IIBL continues to raise deposits in flagrant violation of this Rule No defence in this respect was advanced by tin_ Accordingly. IIBL is in violation of the afore-said Rule.
14. We accordingly find IIBL to be in continuing violation of the above cited legal provisions. There is yet a long list of other violations which may be investigated and dealt with separately under the relevant provisions of law.
15. The Financial Condition and Future of IIBL Far more significantly, the case stated in SON relates to the financial position of IIBL having deteriorated consistently for the last several years, without any reasonable expectation of recovery, 'f tie case nut iii SCN is based on annual inspection reports of the SBP from 1997 to 2001 the adverse and 'going concern assumption' opinions of statutory auditors of IIBL for the years ended 31.12. 2001 and 2002 and the qualified opinion with 'going concern assumption' for the year ended 31.12.2003. The SON also refers to the inspection report of the Commission dated 5.3.2003, but we do not take its results into account for the reason that IIBL has claimed never to have seen that report and given an opportunity to comment thereon. Finally, the SCN relying on the FY-03 Accounts makes out the case that the actual financial position of IIBL has deteriorated abysmally The mismanagement of IIBL.s financial affairs is evident from perusal of the financial statements of IIBL and the inspection reports of SBP. For instance, the trend of fresh borrowings at high financing cost to retire existing liabilities led to a debt trap which kept spiraling upwards year after year Prior credit appraisals for lending were rarely carried out It appears that no risk management policies or manuals were in force Unusually high and unsustainable returns on deposits were offered. Other like examples are on record. During the hearing IIBL, did not contest the allegations of mismanagement; in fact. These were admitted by stating that the revival measures now being proposed were targeted at removing the above-mentioned and other instances of mismanagement noted in the SBP inspection reports and the SCN.
16. IIBL had obviously no answer when confronted with the question as to why its managements attempts at playing down the financial results should be given any credence in view of the consistent adverse reports of the SBP as well as its own auditors. However, IIBL purported to make out a case as to the turn-around in its financial fortunes, primarily with reference to the progressive reduction in its pretax losses since 2001 culminating in the after-tax profit of Rs. 59 million reported in the FY-03 Accounts. As already discussed hereinabove, we have serious reservations about the existence of profit in view of the auditors' qualifications. The grave financial situation is further compounded by the huge gap between its liabilities and the sources available to discharge and provide for these liabilities The Following gaping mismatch between its Financial assets and financial liabilities as per its FY-03 Accounts indicates that the financial collapse of IIBL has already occurred Total Financial Assets 2,424 92 (million Rs.) Total Financial Liabilities (.1:422,66) Gap (997.74) Interest Bearing Financial Assets 927.67 Interest Bearing Financial Liabilities (3,204.02) Gap (2,276.35) Non-interest bearing Financial Assets 1,497.25 Non- interest bearing Financial Liabilities (218.64_1 Gap 1,278.61 It also appears that the non-interest bearing financial assets comprise of assets a significant portion of which was acquired by violating the rules of the game or represents receivables and the like which have been qualified in serious terms by the auditors. Such assets also comprise of 'expectations' of recoveries as opposed to actual recoveries Despite this hopeless scenario, IIBL has come forward with earnest pleas for opportunity to revive the bank While the salient features of the proposal for revival have varied over time as well as during the course of the proceedings, the one placed on record is dated 20.72004, read with the proposed measures stated at pages 20 to 21 of the Second Reply (together referred to as the "Revival Package") The quantifiable features of the Revival Package are relevant and are reproduced below: Injection of fresh equity of Rs. 516 million by 31.12.2004, comprising of rights issue of Rs 266 million and preference shares of Rs.250 million.
17. Capital adequacy limit will be met by 31,12.2005; ill) The total liabilities including deposits will be capped at the level stated in the FY-03 Accounts; Weighted average cost of funds will not exceed the benchmark stated in the FY-03 Accounts. And The stock-market portfolio stated in the FY-03 Accounts will not be exceeded.
18. In support of its Revival Package, 1113L's case before the Committee has focused on the following main submissions Segregation of the financial affairs of IIBL into two time segments - one before the year 2003, and the other after; Segregation of the regulatory and legal compliance status by 11BL into two time segments, one before the cut-off date and the other after; Despite having the powers to this effect under the BCO the SBP did not take any steps to remove the board of IIBL despite knowledge of legal violations and deteriorating financial position of IIBL.
19. The SBP caused the Commission to issue the winding-up notice while at the same time gave over one year to IIBL to set its affairs- in order vide its letter dated 24 11.2001, which means that the SBP was working with IIBL towards making it viable; While accepting the fact that IIBL had violated various legal provisions, it was stated that at the same time it was in constant touch with the Commission regarding its revival package In all fairness, any action plan should have been considered and if at all it was not acceptable to the Commission, it should have been rejected with reasons and communicated to IIBL This was not done; rather, a show-cause notice was isued fui supecseding the Board, and IIBL be given all relaxations and exemptions from the legal provisions as may be necessary for it to implement the Revival Package.
20. Learned counsel for IIBL ably presented a case which in essence pleads for the Commission to ignore the past, hold I1BL's hand and assist it in rehabilitating itself, and award it not only a licence without compliance with the mandatory legal provisions, but also grant all exemptions as may be required for it to continue as at logy ate luey GL.11 LUM UJeUJar slasse leAaletim aJnsua 01 Se IlwA se Ile le Islxe 01 aniolucia wogs 'vey etll raglagm eup,tualap of 'uon!Sod and ulepaDse 1811 So lepueu4 ayl owl loai 0l paIse eq woo JoleAsluo_upe iians uali!Jm are aairalajai jo SLUJCI sly eau peu!iwalGp ey Aluo Aew goium LwojJad slsel.
21. Leuowppe leJaAas uaA0 aq Aew 'pAeoy agl se Butiae sapisay 'ialerls!Up.Upe eql ,Jolarisluiurpe, Bill se 01 paualar Jaueu!Aieg GoUG1U0AU0 J01. pJ20{1 BulasiclaJ suosJad llo Apoq JO u0SJCI .(telieled ir! 6ulnulluaa sbuipaaaold dn-Eiumuyin takoVs) 1)Je01 eq 10 uOiSSaSJadilS JO; asap e sa5iew N3s.
22. Agi mou LlaA3 uolss!Iuwoo aul t.Wm pG-Is!Xa sJamod 'eat aidwe J04 saulAve stio!Qnp Sll Llo Sa5ialci eq. Nd Ox pue Aiampe 1811 a6e6ua 01 uaay peg aAeLi iqpiu uope jo asJnoa aiyarajaid aqi scieiped .(1g6!spuN LI! Os Glow pue) auop uegi Ales le!Sea Onogi 'sJapiogawis 5uyuasap WOJ4 Aeme slasse alyeireke aill Jo uolleclissp ul linseA pue Aaeoula JIGLI1 10 S6u!Peaoold uo!Lembil CL gar goRim sAeiap ie4npaocod pue le6ai a)eu!Piou! uGaq peg GAell lget!Tu AiaApe ainor uoRepribfl ayl 6u!ns_ind Iota uopeiepsuaa ag; lues!Buaa aJe of -dn-punom eq pinous Auedwoo e iio!Lork uo saauelsurnaila $e swiao ropadns ain. Ay pawlirap! $6u!ddeA et- Ile seg isil jo uo!Ppuop lepueu4 ay; jo se uoAa pue 'sew!; Ile 1v aouelsui s.Des le pale!i!u! Sbu!paGooid dn--buipul)v au} gpm ialieJed u!
23. 1811 01 luawaneinodua s,des CLII plp Jagi!Au pue 'S.1011E1.4 agi. Am:ida!! IOU pip Aiurepea uppeu!
24. Pes-aroje 61_11 IuGure6euew 51! Uo Aialenbs saq 1811 pa $1!Elje lO eleis luasaid 'all Joi Ai!i!q!Suadsar Inolli!A6 lau s! luGiunBre e111 .Uaweaflod lOU pue sroleopej se suouez!ue6ro AJo4ein6ar SAAGO Gauapr-udsunf wapaw CL l papJeBaps!p ucIsssunuo0 atll `Aluo Apeal 5ulaci ;NI swawpeue Alialme;$ ag1 jo GA!Pafqo eLli eaueApe lou prp 'eApaerild 5uieq lau Ay 'uo!Ssituwao ay) Ian AnuatuagaA pan6.1e iasunoa Pl-ue.91 '61;17Z UV\IDS Q66G pue (ZZZZ abed le) 99ZE HINDS 8661, &MO '1911 Aq suogediuniuwoo leJaAas of puadsar uo!siA10 pawaaucta pue sleGA am; JaAo 104 pansind AlaApae lair seen aapau drl-Bu!Pqm 8Lll ;egl pej CL l 104 IOU atahrk '41,16p1r10 '8* s,1811 5uparal us uo!Lel!Sati ou peg GAeg pinom .Puneu ACM Jain agi lau pue aaue!Idwoo-uou iequeisqns la asea a s! s tulocue 11 .6u!leJ l!paJa apel5 lueurlsGAul ln0ylLrrr pue sluatinsaAu!
25. Apnba l0 oliojtrod iireawuBs pauueld pue awraqqap e *Al!Nba aAgebau to asea e 'suo!Leio!A luea!Pue!s JaLao buowe 's! t ullai apeid luawisGAu! Au!Paploy Japun spsodap jo uoilellAu! JO sawnba it! luGialsaAu! TUSJJC ue '}uawa4nbai le0e3 wnwluiw 6u4aaw ul seadnd uo!Wiu awos jo lienrogs e jo uogsanb e IOU s! 11 'ass-3 Sltll u! Ameo!Kide auplaop 5N1 eas 'lieu 5! p lnq 'pe6paimou5(oe llaM s! ,eaueqdwoo leoeisyns, to auppop ayl .seinJ ayl Japun pacals!u!Wpe asogl Joj ,$)poly 6uflywn4s.Lou pue ,sauois 6u!Ddals, se paleau eq 01 al@Nk seini let_{; anfue of pepodind zez 0 6U6 L aid pus Z9C OS E9eL Old builp pue aaue!Iduroa iequeisyns jo Guirpop CLll uo bu!Alai lasuncia pewee! '7811 jo rnonej ui sale DAEIN clOAS agl ja pe air% Japun uo!ieJasrp ja 9SIOJBX.9 to ssaualyeuoseei agl al se pauaqsanb uGuAA suosaed lie jo mei Japun luawlea4 ienbe seleinisod 1pLIM /6L 'Lleis!Ned 40 aqyndad oureisi l0 uoRnmsuoa atll ja 5G alagry ;a liogemA Jo asea e ay iiem AJaA papa pue 'G6Jei le oCiisnpu! Agl al se Liam se -Km LA! s.Replaqame)s egi 01 aoosn[u! 01 lunoweluel pram ;unsaid le se ssauisny si! ;nage o6 0l ae4 ay p 1CI pue se ebeNaed len!Aad s.1811 idaape 01 'main Jno ui siphoned-off and remain available to satisfy IIBL's obligations to the depositors and investors on a pro rata basis.
26. We would indeed have inclined to agree to the route of appointment of administrator being adopted but for sub-section (A) of Section 282E of the Ordinance, which provides immunity to the administrator against actions taken in his capacity as the substitute board. It appears that while a liquidator is fastened with punitive consequences for any malfeasance or breach of trust during the course of winding-up, an administrator replacing the management of a NBFC under Section 282F is given immunity for his actual or intended actions. The rationale for this is far from clear While Instances of deliberate abuse of position may not be protected under law, it is a debate into niceties of law we cannot get into at this stage. Speaking strictly for IIBL, given its precarious financial condition and several dubious and off-balance sheet transactions the fruits of which may be hidden away but well within reach, we do not find it prudent to entrust the affairs of IIBL to an administrator with immunity for his actions under law.
27. Be that as it may, the appointment of an administrator in case of IIBL would suffer from another apparent inconsistency An administrator generally Is appointed to run the entity in lieu of its management, and the implicit assumption is that the entity can be turned around or run profitably if the management were replaced. Given the present financial condition of IIBL, we find it hard to accept that IIBL can be run, if at all, by any other than one with direct financial, career and reputational stakes, and fastened with fiduciary obligations the breach of which attracts penal consequences. The market has a memory of its own arid does not easily forgive those who take it for a ride. Let the management of IIBL face the consequences of its actions and omissions. If an administrator is appointed and tie fails in running the bank, the present management from that day onwards would be free from blame and may very well hold the Commission responsible for preventing a turn-around by permitting the implementation of its Revival Package, regardless of how far-fetched that possibility may sound at present.
28. All facts being considered, we are of the view that the circumstances stated in the SCN taken as a whole would point to the liquidation of IIBL as the preferred course of action rather than replacing the board with a person with immunity for his actions provided under law That leads us to the last, but most crucial, point of justification for the purported supersession of the board, being the preservation of the available assets of IIBL as well as ensuring that innocent depositors are not further deprived of their money The words "Islamic" and "Bank". Coupled with the unrealistically high returns IIBL offers continue to lure the depositors to trust in IIBL In this particular case our sympathies are higher for small individual depositors than for institutional investors (even though the latter ultimately utilize deposits of the public) and high net worth individuals, as the latter two invest in IIBL despite their professional ability or capacity to examine the financial affairs of IIBL through its published accounts for the last several years - in their case it is a willful and calculated assumption of risk, and commercial risks lie where. They fall. Not so for small individual depositors, who have only the Commission to protect their interests. At present, as stated by IIBL during the hearings, deposits by individuals are approximately Rupees 1.017 million, and constitute about 40% of the total deposit base. This is a significant sum for which the available assets of IIBL are wholly insufficient. We are not persuaded by the argument of the learned Counsel that at any given time the actual funds available to a bank are usually a fraction of the total deposit liabilities of a bank, as in those cases adequate statutory liquidity reserves are maintained by banks. During the course of the hearing, IIBL categorically refused to accept a condition of moratorium on individual deposits as a quid pro quo for accepting its Revival Package on the grounds that it would send negative signals about the bank to the market We are more concerned about any signals by the Commission to the market that all is well with 1113L With the foregoing in view, we are inclined to give one final opportunity to 11B1_, to implement its Revival Package by way of an offer in the following terms: IIBL will inject fresh equity of Rupees five hundred sixteen million (516,000.000), for consideration in cash, no later than 31 12.2004 The rights issue of Rupees two hundred sixty six million (266,000,000) will be made by 31 10,2004 and the preference issue will be made no later than 31.12.2004. All preparatory measures for the preference issue will be taken well in time. The rights issue will be made strictly in accordance with the provisions of the Companies (Issue of Capital) Rules, 1996. It is noted in this connection that the appropriate level of discount for the rights i5SLI8 will be determined by the Commission in accordance with law.
29. IIBL's investment in listed equities, real estate and shares of non-listed companies would be realized disposed of by 31 121004 in order for IIBL tb become compliant with the SECP NBFC Rules and SECP PRs.
30. IIBL will not accept any fresh deposits from individuals for an amount less than Rupees ten million (10,000,000) per individual.
31. IIBL will create a reserve fund for repayment of existing deposits of individuals by apportioning twenty percent (20%) of its profits to the reserve fund, and shall invest the reserve fund in Government securities.
32. 1181., will comply strictly with the requirement of publication of its credit rating under Rule 12 of SECP NBFQ Rules in all its publications or advertisements inviting deposits The weighted average cost of funds for IIBL will not exceed the benchmark stated in the FY-03 Accounts. liBL's liabilities and deposits shall not exceed the figures stated in the 1=Y- 03 Accounts.
33. IIBL shall submit fortnightly progress and status reports in the format specified by the Commission, for monitoring compliance with the afore-said conditions.
34. Should these conditions be acceptable to IIBL, it should signify its consent in writing to the Commission within one week of the dale of receipt of this Order It Is clarified that no counter-offer from IIBL shall be entertained In case of any questions of interpretation during implementation. The Commission shall interpret the same within the spirit of this order.
35. Page 12 or 12 in case of acceptance, concomitant relaxations under Rule 84 will be deemed to have been granted to IIBL by virtue of this order_ provided that, such relaxations will be limited to the extent required to comply with these conditions within the stipulated time-frame and for IIBL to continue its business consistent with the terms of the Revival Package and subject to the afore- said conditions Punitive action by the Commission in respect of the violations of SEP NB-FC Rules 5{ }(b)(), 12 and 15, and Regulation 7(5) of Pad II of SECP PRs (and their predecessor provisions under SBP NBFI Rules) shall remain suspended until 31.12.20134. And would be dropped altogether in case of substantial compliance by IIBL with the terms hereof and upon substantial achievement of the targets stated by IIBL in the Revival Package (except for condition number (i) relating to injection of fresh equity which must be fulfilled without any margin, 'substantial' for the purpose hereof means comptiance with a margin of not more than ten percent (10%)).
36. Should IIBL's acceptance to these conditions be not received by the Commission within the afore- said period (with time being of the essence), or should these conditions after acceptable.Not complied with by IIBL at any time, the Commission shall be free to take all appropriate action under law including filing of a petition for winding-up of IIBL The SCN is accordingly disposed of