The facts relevant to this case, briefly stated, are that in terms of provisions of Sub-rule (2) of Rule 3 of the Companies (Audit of Cost Accounts) Rules, 1998 (the Rules), the directors of M/S Hamza Sugar Mills Limited (hereinafter referred to as the "Company") were required to appoint the cost auditor within sixty days of the close of the financial year ended September 30, 2002. The Company was also required to get prior approval of the Commission for the appointment of cost auditor in terms of the provisions of Sub-rule (2) of Rule 3 of the Rules. Accordingly, the Company was required to prefer an application to Commission on October 31, 2002 for approval of the appointment of the cost auditors. . In view of the failure of the Company to make an application for appointment of the cost auditor, an enquiry was made, which was responded by the Company vide its letter dated December 31, 2002 stating that the main directors were out of the country due to their business engagements and, therefore, a meeting of the Board of Directors could not be held to appoint the cost auditor. It was further submitted that the directors were expected to return to Pakistan in the month of January 2003 and application for appointment of cost auditors would be submitted immediately after approval of the Board of Directors. The Company, however, failed to submit application till February 20, 2003. The failure of the Company and its directors to comply with the aforesaid mandatory requirements necessitated action in terms of the Rule 5 of the Rules.
2. Consequently, a notice dated February 10, 2003 was issued to the Chief Executive and all the directors of the Company to show cause as to why fine may not be imposed on them for the contravention of Sub-rule (2) and (3) of the Rules. No reply to the show cause notice was received from the directors. The Company, however, submitted application for appointment of cost auditor vide letter dated April 18, 2003 which was received in the Commission on April 21, 2003 i.e. with a delay of 171 days. In order to provide an opportunity of personal hearing, the case was fixed on May 19, 2003 on which date Mr. Mohammad Afzal Khan appeared before me and argued the case on behalf of the Chief Executive and directors of the Company.
3. In the reply to the show cause notice as well at the time of hearing, it was contended that the main directors were out of the country due to their business engagements and, therefore, a meeting of the Board of Directors could not be held to appoint cost auditor. This argument of the directors is not tenable because presence of all the directors is not necessary at the meeting of the Board of Directors so even if some of the directors were out of the country, the rest of the directors could have taken this decision. Or otherwise, the Board of Directors could have approved the appointment of the cost auditor through a resolution by circulation.
4. In view of the aforesaid discussion and after considering the relevant facts and circumstances of this case, I am of the view that the requirements of Sub-rule (2) and (3) of Rule 3 of the Rules were violated by directors of the Company, which cannot be encouraged. The directors, therefore, have made themselves liable for failure to comply with the statutory requirements. In view of the fact that the Company has now appointed the cost auditor, I am inclined to take a lenient view of the default on assurance of the directors that they would ensure the compliance of this statutory requirement in future and, therefore, do not impose per day penalty for the default, which is prescribed at Rs. 100 per day in the case of continuous failure. I, however, impose a fine of Rs.2,000/- (Rupees two thousand only) each on the Chief Executive and all the Directors of M/s Hamza Sugar Mills Limited under Rule 5 of the Rules read with Section 476 of the Ordinance.
5. The following Directors /Chief Executive of the Company are hereby directed to deposit the fine amounting to Rs.2,000/- (Rupees two thousand only) each in the designated bank account of the Securities and Exchange Commission of Pakistan maintained with Habib Bank Limited within 30 days of the date of this Order and furnish receipted challans to the Commission.
1. Sheikh Nisar Ahmad Chief Executive
2. Sheikh Riaz Ahmad Director
3. Mian Muhammad Hanif Director
4. Mian Muhammad Rashid Director
5. Mian Muhammad Tayyab Director
6. Mr. Shafiq Ahmad Director
7. Mr. Muhammad Afzal Director
8. Mr. Asif Mahmood Director