1. ORDER This order shall dispose of the iorocecil ins initiated against the Company and the directors of the Haseeb INaclas Sugar Milk Limited (hereinafter referred to as the "Company") for default-, made in complying with provisions of Section 249 of the. Companies Ordinance, 1984 (the "Ordinance").
2. The Company was incorporated as a public company limited by shares in the Vf2.0.1- 1.992 The shares of the Company are listed on the Karachi and Lahore Stock Exchanges. The paid up share capital of the Company is. Rs.324 mill ion divided in to 32.4 million ordinary shares of Rs.10 each. The Company is principally engaged in the production and sale of refined sugar and its .By-products, lts mills are located in Sheik.Hupura. The Company has 14457 shareholders comprising individuals, joint stock companies, insurance corporations, financial institutions etc and as per pattern of shareholding annexed to the Directors' Report hi the Accounts for the year September 30, 2004, directors, their spouses and minor children hold 273.3% of the total shareholding which indicates that there is considerable public interest in the shares of the Company, The Board of Directors of the Company as per its annual report for the year ended September 30, 2004 comprises of the following persons:
1. I Mian Muhammad lly Mehraj, Chairman Mian Viiacias.Riaz., Chief Executive Mrs . Shahzadi Ilva$, Director Mrs. Bono Mehrair Director Mrs. Zainab WaLias, Director L Ist, Maiza Ria4 Director 7, I I iafi lvluharnmad I rfan Hussain Butt, Director 3. The fact leading to this case, briefly stated, are that from the examination cif annual account; of the Company for the rear ended September 30, 2003, it has 1L-en observed that the board of directors Has declared an interim dividend at the rate of 10% amounting to I. 32.4 million on the basis of interim results for the period From October 1, 2002 to December 31, 2002. It has further been observed that total profits earned by the Company for the year amounts Lo Rs.
3. 27.116 million only and the interim dividend paid by the Company during its first .Quarter exceeded the total amount available at the year end by Rs. 5.284 million. It has been further observed that at the time the company had a history of Losses and accumulated losses of the Company stood at Rs, 71 million; 4_ The auditors of the Company Messrs Yousaf Sakem & Co, Chartered Acc:ountartks in their report to the Members also qualified the above violation in the Following terms:.
4. Quote 'During ale yvar the board of directors ham!. Devlandi 21,11orinr dividend al, January 29, .2003 at the raie i}1- 10% Jwitrreniing Rs 32r400,000 err the basis of trole.Riat msftits for myirril Decemirer 31, 2002. Thts thoiltengt r t< Subsequerray lo shareholders. Corrothroly arts acarroorillited 1469 alum' tfr 7/.002r126. This 44746'0 Jras inv0.1 paid in con 'Faro] t inn fDr S'ection 249 of the Companies On- km-Ince 1984"..
5. Fin 5. Failure of the Company to comply with mandatory requirement necessitutthi action against the Genii party and the directors in terms of Section 249 read with Section 498 of the Ordinance.
6. Accordingly, a show cause notice dated August 3, 2004 under the !Provisions of Sections 249 read with Section 498 of the Ordinance was. Served on the Company and its directors calling upon them to show cause and to explain as to why penalty may not be imposed for the contravention of the Section 249 of the Ordinance.
7. The Company responded to the aforesaid notice through their letter dated August 20, 2004 and informed that proceedings under Section 265 of the Ordinance were earlier initiated by the Commission on the grounds that performance of the Company was not satisfactory and it was not paying any dividend to its shareholderS. It was explained by the Company in respOnse to the aforesaid proceedings that its profitability would be improved as business conditions remained better as compared to previous years and on the basis of financial results the management would be able to announce the dividend. Consequently, considering the good results of the first quarter ended on December 31, 2002 and expecting the same level of results in the remaining quarters, board Of directors declared the interim dividend on January 29, 2003. Unfortunately, the on going moment-um could not he sustained due to the decrease ire 'selling price which was out of control of the management and ultimately the ).Rear was dosed belovh: the expected r(!Sults, e The submissions of the Company were not found cogent and in order to provide an opportunity of personal hearing, the case was fixed for March 07, 2005 on which date Mr- Munawar Aui, Genera] Manager Finance of the Company. Appeared on behalf of directors and the Compaity to plead the case.
8. In the written submissions as well ars during hearing of this case. It was contended that i. Dividend was announced to abate the pressure of Sec`uritic..S. And Exchange Commission of Pakistan, which had issued e Show Cause Notice. Under Section 265 of the Ordinance to investigate the affairs of the Company. A major groundr on which the said show cause notice was issued, happened to be non-mYrnent of dividend to the shareholders and due to this stress, Company declared dividend.
9. In Company's hAter dated August 13, 2003, it was stated that the decision for payment of dividend was not prudent but implied only to satisfy the shareholders and 1Vglitai9rY authorities_ iii Company earned good profits during the first quarter. And foreseeing the same results in future announced interim dividends. However same level of profit could not be sustained in the subsequent quarters due to decision of Government to permit import of raw sugar during February/ March 2003- This decision effecteti the production and also reduced the price of sugar and profits of the Company.
10. I have taken into consideration the submissions, made in writing as well as those at the time.Of hearing of this case and am of the view that the grounds taken by the Company are not convincing and do not support the contravention of law due to the following reasons: The law and regulation governing dividend, show that declaration of dividends by the Company, in excess of available profits, is a violation of law: Section 249 of the Ordinance provides that; Orohr \io diviriod shall Ile paid IT a company se Ora VfprgfitS Of the company," E.Brpwre The payment of dividend out of capital of the company is tthra ores and a breach of fiduciary duty on the part of directors and it is necessary for me to issue directions for making good the loss of capita] of Rs. 5.2P4 fF.uffere4.-1 by the Company due to imprudent decision of the I direct the Company, to recover within 30 days of the date of this Order, the capital loss of ks. 5.234 million from the directors. In this regard, the Company shall 'submit auditori' certificate after the payment of mount by the directors.
11. In ca or non-compliance of the above directive, the .Company and the directors shall be liable to action under Section 495 of the Ordinance, whic:h provides that: Where any. Directive is given or order is issued i.Ty the Court, the officer, the Commission, the registrar or the Federal Government under any provision of this Ordinance, non-compliance thereof within the period specified in such direction or order shall render every officer of the company or other person responsible for noncompliance thereof punishable, in addition to any other Liability, with fine not exceeding fifty thousand rupees :and in the ease of a continuing non-compliance, to a further fine not exceeding two thousand rupees for every day after the first during which such non- compliance continues. If non-compliance or failure continues alter conviction under sub-ection (1), the officer or other person whO is a party to such nun-compliance or failure shall be liable to punishment with imprisonment which may extend to six months and fine not exceeding two thousand rupees for every day after the first during which such non- compliance continues-, and .54,4 further cease to hold office in the company and be disqualified front holding any office in any company for a period of five years.