M/s. Tri-Star Shipping Lines Limited (herein-after referred to as the company) was listed on the Karachi Stock Exchange in the year 1993 with a paid up capital of Rs. 200 million. The capital of the company was increased to Rs. 600 million in the year 1995 by issue of right shares @ 200%. The principal activity of the company is to provide the services of transportation of all sorts of cargoes, shipping, chartering, lightering, stevedoring, cargo handling, commercial operation and un-loading terminal operation.
2. The performance of the company since its listing is as under:-
3. {{TABLE}} YEAR ENDED 31.12.1993 31.12.1994 30.06.1995 30.06.1996 30.06.1997 30.06.1998 30.06.1999 (RS. IN MILLION)
PROFIT/LOSS (A.T)
20.999 47.017 41.178 10.725 (19.552)
Accounts not submitted
4. On examination of the performance of the company for the years referred to above it has been noticed that the company in the very first year of its operation earned a profit of Rs. 20.999 million.
In 1994, again it earned a profit of Rs. 47.017 million. The company paid dividend twice @ 15% in the years 1993 and 1994. Although the company in the year 1995 earned a huge profit of Rs.41.178 million yet it did not pay any dividend to its shareholders despite rising Rs. 400 million from them in the form of right issue at 200%. Instead of dividend distribution the company embarked upon an expansion plan by spending huge amount in acquiring new vessels which were financed through un-distributed profit, proceeds received on account of right issue and heavy loans obtained from a bank. The company expanded its fleet from one vessel: to six vessels during this period. Accordingly the Fixed assets which stood at Rs. 478.333 million as on 30.06.1995 increased to Rs. 940.034 million as on 30.06.1996 whereas long term loan including the amount shown under current maturity as on 30.06.1996 increased to Rs. 292.124 million. It appeared that things started deterioration during following year and company suffered from loss of Rs. 19.552 million in the year 1997. The bankers of the company namely Allied Bank Limited filed a suit for recovery of their loan amounting to Rs.
441.434 million in the High Court of Sind. The company also filed a suit in the High Court of Sind for damages amounting to Rs. 688 million. The company in the meantime published a notice under Section 159 of the Companies Ordinance, 1984 in the "Daily Dawn" on 17.07.1998 with the intention to raise funds by selling or replacing ships and to consider such measures and to take corrective measures in view of the mounting liabilities of the company. Accordingly a petition was filed in the Honorable High Court under Section 305 (a) (e) (h) of the Companies Ordinance, 1984 for winding up of the company. A news was published in the daily the "The News" on August 16, 1998 regarding arrest of the directors of the company by the FIA and appointment of official assignee by the Sindh High Court to take over control of the affairs of business and properties of Masood Tariq Baghpati and Mansoor Khalid Baghpati. The KSE, because of these events suspended trading into the shares of the company w.e.f., 31.08.1999.
4. Thereafter a large number of complaints are being received in the Commission that company is not responding to their letters. The company even failed to hold its AGMs for the year ended 30.06.1998 and 30.06.1999 and violated the provisions of Section 158 and 233 of the Companies Ordinance, 1984 depriving its shareholders of the information about the company's affairs.
5. In view of the matters stated above the Commission issued a show cause notice on 19.02.2000 requiring the Chief Executive of the company to explain as to why an Inspector should not be appointed to investigate into the affairs of the company. The company furnished its written reply through its Chief Executive on 02.03.2000 through which he also requested personal hearing which was fixed on 22.05.2000, but was adjourned to 30.05.2000. Mr. Masood T. Baghpattee, the chief executive of the company appeared for hearing on the given date and offered explanation. He requested to allow to submit more detailed reply in writing and his request was acceded to. He submitted his explanation in writing in following manner:- The company was incorporated in 1992 with a paid capital of Rs. 200 million and purchased first bulk carrier cargo vessel my Delta Star. The ship was purchased and 100% financed by the own resources of the company and no loan was taken from any bank; As a result of successful operation of the company, 15% cash dividend was paid twice to general public shareholders during 1993 and 1994; The performance of the company was greatly appreciated by FPCCI and in recognition of the good performance, a special trophy was awarded by President of Pakistan.
The bankers of the company was Allied Bank who offered to provide loan to company to purchase more vessels and agreed to mortgage the vessels including the existing one as security against such loans. In view of economic viability, and the national requirement of bulk carrier vessels, company agreed to purchase/import five more ships. Pakistan's annual dry bulk cargo shipping requirement is over 10 million tons per year whereas there was not a single bulk carrier vessels was available under Pakistani flag to carry this cargo and Government of Pakistan is paying over US$ 1.50 billion every year to foreign shipping companies. The company issued right shares for Rs. 400 million and with the loaning arrangement with Allied Bank, Company expanded her fleet from one vessel to Six vessels under national flag. In the meantime, with the change of political government, the new government changed the policy towards import of ships and imposed 38% of import levies on it. This was a complete violation of the E.C.C decision, which was taken earlier by the previous government and declared that there will be no import levies/taxes on purchase of ships. Due to this sudden change of government policy, the company could not bring their ships to Pakistan and carry Pakistani cargo. This meant that no Pakistani cargo was available to Pakistani flag ships. During 1996, one of the vessel m.v Delta joy met with an accident while she was carrying coal to France and some of the coal partly damaged by seawater. The total commercial value of the cargo was USD 1.90 million however the charterer/consignee put a large claim of USD 27 million and arrested 4 vessels of the company in European ports. The company approached French court who decided to reduce the above amount to USD 1.45 million and asked the company to put a bank guarantee of 1.45 million as security against alleged loss to the water damaged coal cargo and ordered for release of the ships upon receipt of such guarantee. However, it took four months to arrive at such judgment of the court and during this period, the whole fleet of the company was detained and huge daily expenses in respect of crew wages, ship expenses, bunkers, and port charges etc. had to be paid. This situation destroyed the cash flow of the company. The company requested their bankers to arrange the bank guarantee of USD 1.45 million to get release of the ships as per court judgment however, in the meantime the management of the bank changed. The new management decided not to extend any cooperation/assistance to company and refused to issue the bank guarantee. Due to this act of bank, company suffered huge losses and filed a case for damages against the bank vide suit no. 1215/97 in Sindh I ugh Court. As a counter blast, ABL also filed case under suit No. 1591/97 in the same Court. While both the above cases were proceeding in the Court, ABL took a very harsh and illegal step and lodged a false criminal complaint and registered a case against the company. The allegation of the bank was false and never proved. But as a result of this action by the bank, the undersigned/another director of the company were taken into custody by F.l.A followed by the detention in the jail. The reputation of the company and the directors were badly damaged. Alter 2 months, the divisional bench of Sindh High Court issued the judgment with following remarks:-
1. "No crime or breach of trust or fraud was committed by the company/ directors."
2. "The company was making regular payments of installments of loans to the bank. However, due to circumstances beyond control, the company was unable to continue to pay the installments on due dates.
3. Copy of the Judgment is on record. The company applied for voluntary winding-up in the Sindh High Court due to the non- cooperation of the bank and the Honourable Court granted the winding-up petition of the company and judgment was rendered to hand over the assets and the properties to official assignee of the court. The copy of the Court Order is on record. All the vessels of the company were arrested by A.B.L and crew members against their claims while the vessels were trading/shipping in foreign ports due to this, the whole operation of the company was suspended. The company and Allied Bank entered into an agreement on 29/12/98 followed by a Court decree.
In terms of Court decree, the possession of assets and properties of the company were handed over to bank through official assignee for its ultimate disposal. At present, all the vessels of the company have been sold on the request of ABL and other claimants through various foreign Courts in different countries through Court auction. The sale proceed of the vessels are still with foreign Courts which is subject to distribute/release to bank according to the maritime laws of that company. As per the agreement decree of the Court after adjustment of bank loans, any balance if available, shall be paid to the remaining creditors including shareholders. Under such circumstances, the company is not operative and not in function due to no resources/ funds. The company's present situation is due to both external and internal reasons. The company was not supported by the bank when it needed adequate bank guarantees and other necessary means to be operative. The sudden and unpredictable change of government's fiscal policy towards duty on ships also affected the company in an adverse manner. The company's fleet was illegally detained by the European charters for demand of an exaggerated security of USD 27 million. As a result of the above mentioned actions and reasons, the company has reached its present situation."
6. The arguments advanced by the Chief Executive of the company verbally as verbally as in writing have been considered and it appears that in the initial years the company performed satisfactory. Thereafter the affairs of the company deteriorated for which the Chief Executive of the company has, in very strong words, held other than the management responsible for failure of the company. But the bitterful fact is that 8000 shareholders appears to have lost their complete investment. They alleges that the company was mismanaged and the management siphoned out huge funds in purchase of vessels. The ultimate losers are those poor shareholders to whom the company is even not providing basic information in the form of the annual and half yearly accounts. The trading on the Stock Exchange has been suspended and they are even unable to sell their shares. In this circumstances I am convinced that an exercise should be carried out to bring to surface the facts of the case. In this fact finding process, the explanations offered by the chief executive may also be properly examined and analyzed and if the company has failed due to none of the defaults and misdoings of the management, that will also come on record.
7. In view of foregoing I, in the public interest and in exercise of powers conferred by Section 265 of the Companies Ordinance, 1984 (XLV-I1) of 1994) hereby appoint M/s. A. F Ferguson & Co., Chartered Accountants, Karachi to act as an Inspector to investigate into the affairs of M/s. Tri -Star Shipping Lines Limited on remuneration of Rs. 150,000/- to be paid by the company.
8. Without in any way limiting to the scope of investigation, the Inspector shall conduct investigation on all aspects of the operations of the company and shall alter scrutiny of the entire record and books of accounts furnish reports, inter alia, on the following matters :-
(i) Identification of reasons due to which a profitable enterprise has been completely ruined and report mis-management and oppression of minority shareholders, if any.
(ii) Analyze rationale behind huge expansion even depriving the shareholders of the company of fair return even in the years when the company earned profits.
(iii) Highlight developments due to which the management and bankers went into legal battle and state whether the management was responsible for such an unfortunate situation. Also point out the reasons and justification as to why the creditor bank suddenly withdraw its financial support due to which the affairs of the company were badly affected.
(iv) Highlight development which led to the arrest of company's vessels and the damage suffered by the company because of this event.
(v) Reasons and justification why the company decided to apply to the Sind High Court for voluntary winding up and as to why such proceedings were withdrawn by the company.
(vi) An inventory be made about the assets owned by the company, assets sold by the official assignee to discharge liabilities and the assets still left with the company specially the amount, if any, lying with foreign courts.
(vii) Whether or not proper records have been kept by the company as required by Section 230 and Section 234 of the Companies Ordinance, 1984.
(viii) Whether or not an adequate system of internal controls has been existing/exist so as to prevent mis-appropriation and mis-application of Company's assets.
(ix) Compliance with statutory requirements in the operations of the company indicating that the business was conducted and expenditure were incurred in accordance with the objects and for purposes of the company.
(x) Lapse or other delinquency detected during the course of investigation.
(xi) Suggest action against the management on account of discrepancies detected during the course of investigation.
9. The Inspector shall submit a detailed report to the Commission (in quadruplicate)