The case before me pertains to the proceedings initiated against the directors of M/S Bawany Sugar Mills Limited (hereinafter referred to as the "Company") under Sub-section (2) and (3) of Section 227 of the Companies Ordinance, 1984 (the "Ordinance").
Background Facts
2. In order to dispose of the aforesaid matter, it is necessary to go into the background facts leading to the issue of the show cause notice by the Enforcement and Monitoring Division of the Commission. During the usual examination of the audited accounts of the listed companies received at the Commission under Sub-section (5) of Section 233 of the Ordinance, the annual accounts of the Company for the year-ended September 30, 2002, were scrutinized and it was found that an amount of Rs. 79.312 million was shown as payable to the Provident Fund in the Balance Sheet under the head "Creditors, Accrued and Other Liabilities". The amount payable to the Employees Provident Fund (hereinafter referred to as the "Fund") increased from Rs. 56.839 million as on September 30, 2001. In addition, an amount of Rs. 15.116 million was shown as "Interest on P. Fund Contribution" under the head "Financial Charges" in the Profit and Loss Account for the year ended September 30, 2002.
Show Cause Notice
3. In the above circumstances, the Enforcement & Monitoring Division apprehended violations of the statutory provisions of Sub-section (2) and (3) of Section 227of the Ordinance, and it was decided to take up this matter with the Company. Consequently, a show cause notice dated May 12, 2003 was issued under the above referred provisions read with Section 229 of the Ordinance to the following persons, who prima facie had authorized and permitted the contravention of the Provisions of Section 227 the Ordinance: i) Mr. Muhammad Din, Chief Executive ii) Mr. Qazi Amjad Abid Abbasai Director iii) Mr. M. Arshad Mirza, Director iv) Mrs. Husna Amjad Qazi, Director v) Mr. Khalid Ebrahim Bawany, Ex-Director vi) Mr. Muhammad Ashique, Ex-Director vii) Mr. Syed Zamir Hassan, Ex-Director viii) Mr. Shamas-ud-Din Khawaja, Director ix) Mr. Abdul Hussain Buledi, Director x) Mr. Ansar Hussain, Nominee Director, S.L.I.C. xi) Mr. Muhammad Abdul Samad, Nominee Director, N.I.T xii) Mr. Dawood Ebrahim Bawany, Ex-Director xiii) Mr. Muhammad Baqir Jafri, Ex-Director xiv) Mr. H.A. Sattar Muhammad, Ex-Director They were also advised to furnish certain documents/information including Provident Fund Trust Deed, rules and audited accounts to precisely ascertain the extent of violations.
Reply to the Show Cause Notice
4. The reply to the show cause notice was received from M/S Tariq Ayub Anwar & Co., Chartered Accountants vide their letter dated May 20, 2003 on behalf of all except Mr. Dawood Ebrahim Bawany, Mr. Ansar Hussain, Nominee Director SLIC and Mr. Muhammad Abdul Samad, Nominee Director NIT. In the reply, it was submitted by M/S Tariq Ayub Anwar & Co., that the Company was faced with liquidity constraints due to draught situation, lower size of cane crop, price competition, declining rate of yield per acre etc. It was further stated that the financial institutions refused to provide the required funds therefore, the directors of the Company decided to utilize the funds from provident fund to meet the working capital requirements of the Company and prevented the Company from being closed down. It was also averred that interest rate ranging from 15% to 18% was being accrued on the funds utilized by the Company. A written reply was also received from Mr. Muhammad Abdul Samad stating that he was co-opted as Director on the Board of Directors of the Company on January 14, 2002. It was further submitted that he had taken up the issue of contravention of Section 227 of the Ordinance in the meeting of Board of Directors held on January 25, 2003. To substantiate this assertion, a copy of the minutes of the meeting of the Board of Directors held on January 25, 2003 was also placed on record. It was prayed that he should be absolved from the violation of Section 227 of the Ordinance. No reply was, however, received from Mr. Ansar Hussain, Nominee Director, SLIC and Mr. Dawood Ebrahim Bawany.
Hearing of the Case
5. In order to provide an opportunity to the directors for personal hearing, the case was fixed on May 21, 2003. A request for adjournment of hearing was, however, received from M/S Tariq Ayub Anwar & Co., Chartered Accountants vide their letter dated May 20, 2003 on behalf of all except Mr. Ansar Hussain, and Mr. Muhammad Abdul Samad. On the date of hearing i.e. May 21, 2003, Mr. Haseeb Ahmed appeared on behalf of Mr. Abdul Samad, Nominee Director NIT and argued the case. He has not submitted any new arguments and repeated the contentions contained in the written reply to the show cause notice. In order to give another opportunity of hearing to other directors, the case was re-fixed on June 03, 2003 on which date Mr. Fasial Latif, ACA of M/S Tariq Ayub Anwar & Co., Chartered Accountants, Mr. Ansar Hussain, and Mr. M. Baqir Jaffery, Company Secretary appeared before the undersigned and argued the case. Mr. Faisal Latif represented all the directors except Mr. Dawood Ebrahim Bawany, Mr. Ansar Hussain and Mr. Muhammad Abdul Samad. Mr. Fasisal Latif admitted that no contribution has been paid to the Fund since 1998 and the investments in the approved securities made by the Provident Fund Trust up to 1997 were also en- cashed upon maturity and the money advanced to the Company during the years 1997, 1998, 1999 and 2000. Mr. Ansar Hussain, stated that he has expressed his concern over the violation of Section 227 by the Company in the meeting of Board of Directors held on January 25, 2003. Further, the management was also asked to chalk out a plan to settle this challan to the Commission. They shall also remain liable for any loss suffered by the employees on account of contravention of Section 227 of the Ordinance.