This order will dispose of the proceedings initiated against M/S Zahur Textile Mills Limited (the "Company") and its Chief Executive and directors for failure to hold Annual General Meeting for the calendar year 2002 and to lay therein a balance sheet and profit and loss account for the year ended September 30, 2001.
2. The relevant facts of this case, briefly stated, are that the Company was required to hold its Annual General Meeting (the "AGM") for the calendar year 2002 and to lay therein its balance sheet and profit and loss account for the year ended September 30, 2001 on or before March 31, 2002 as required under Sub-section (1) of Section 158 of the Companies Ordinance, 1984 (the "Ordinance").
The failure of the Company to comply with the mandatory requirements necessitated action against the Company, its Chief Executive and directors. A notice dated May 29, 2002, therefore, was issued to the Company, its Chief Executive and directors calling upon them to show cause in writing within fourteen days as to why penalties as provided under Clause (a) of Sub-section (4) of Section 158 read with Section 476 of the Ordinance may not be imposed upon them for contraventions of the above referred mandatory provisions of the Ordinance.
3. The response to the aforesaid show cause notice was received through the Company's letter dated June 07, 2002. In order to provide an opportunity of personal hearing, the case was fixed on June 14, 2002. Mr. Ejaz-ul-Haque, Director along with the financial consultant of the Company, Sh.
Naseem Qadir attended the hearing.
4. In the written submissions as well as at the time of hearing, it was averred that high turnover of accounting staff resulted delay in finalization of the audit of accounts of the Company for the year ended September 30, 2001. It was further stated that the Chief Executive of the Company had a major heart attack, which caused delay in holding of Annual General Meeting. The representatives also informed that audit of accounts was under progress and it was expected that the same would be complete by the end of June 2002. Accordingly, they have undertaken to hold the Annual General Meeting of the Company for the calendar year 2002 by August 15, 2002.
5. Before proceeding to decide this case, I consider it necessary to highlight the importance of the strict observance of the aforesaid mandatory provisions by the companies. The protection of the investors is one of the primary objectives of the Ordinance. It is the investors who provide seed for capital formation. If the interest of the investors is protected they will save and invest more. Their interest is protected by transmission of timely and adequate information to them. It is important that annual, half yearly and quarterly accounts are circulated to the investors within the time limits prescribed under the Ordinance. The timely circulation of these documents is imperative as they enable the investors to make sound investment decisions. The law provides a forum i.e. Annual General Meeting where the investors can freely discuss, speak and vote on the important matters like approval of accounts, appointment of auditors, election of directors and other important matters. Non-holding/delay in holding of AGM is a serious irregularity, which jeopardize the interest of all stakeholders of a company. Moreover, non-holding of Annual General Meeting could also trigger winding up of a company in terms of Section 305 of the Ordinance. The holding of Annual General Meeting once a year is a statutory requirement and the companies, therefore, must organize their affairs in such a way that Annual General Meetings are held within the prescribed time limit.
6. Reverting to the arguments of the Company, I find no merit in the contentions that the delay in holding of Annual General Meeting for the calendar year 2002 was due to the late finalization of the accounts for the year ended September 30, 2002 and also because of the illness of the Chief Executive of the Company. I am of the view that the directors have not taken this requirement of law seriously. Non-finalization of accounts is not a justifiable excuse for not holding Annual General Meeting within prescribed time limit. In this modern age, no listed company is expected to be without computer technology and accordingly it is believed that every company would prepare and submit timely accounts to its shareholders and other stakeholders. Moreover, the Commission has also made it obligatory for listed companies to circulate quarterly accounts to its shareholders etc. Therefore, the listed companies should gear up themselves to provide timely information to its shareholders and also ensure to hold timely Annual General Meetings. It has also been argued that the Annual General Meeting was delayed due to the serious illness of the Chief Executive. Though I sympathize with the ailing Chief Executive, yet I am greatly concerned at this situation, which indicates that if Chief Executive is not able to perform his functions due to illness, then the important decisions and compliance of law could not be made in his absence. The Board of Directors of a listed company is primarily responsible for running its affairs. It is their responsibility to put in place the requisite professional and technical executives for running day today affairs of the company. In case the Chief Executive is absent due to whatever reasons, the directors must make some alternative arrangement for running the affairs of the company during the period of absence of the Chief Executive. In a listed company substantial interest of general public and creditors is involved. It is the responsibility of the directors to see that the mandatory requirements of law are timely complied with. I am, therefore, not convinced by the argument of the Company that the finalization of annual accounts was delayed due to the illness of the Chief Executive. Under the circumstances, the representatives have not been able to make out a good case.
7. In view of the above, the default under Sub-section (1) of Section 158 of the Ordinance is considered as willful and deliberate for which the Company, its directors and Chief Executive have made themselves liable under Clause (a) of Sub-section (4) of Section 158 of the Ordinance. I am, however, taking a lenient view of the default and giving a chance to the Company and its Chief Executive and directors, who have undertaken that there would be no violation in future. I, therefore, impose a fine of Rs. 20,000/- (Rupees twenty thousand) on the Chief Executive only for default in complying with the provisions of Sub-section (1) of Section 158 of the Ordinance and for the continuous default, no further fine is imposed on the Company, its Chief Executive and directors, which is prescribed @ Rs 2,000/- per day. In case the Company, its Chief Executive and directors failed to hold the AGM within the time undertaken by them, then they shall also be liable for the per day fine prescribed under the law for the continuing default. As regard to non-presentation of annual accounts in the AGM, the directors shall be liable for prosecution in terms of Sub-section
(6) of Section 233 read with Sub-section (7) of Section 230 of the Ordinance, if they fail to hold AGM by August 15, 2002. I hope that the Company, its Chief Executive and directors will respond positively to the aforesaid leniency and will ensure strict observance of the requirements of law in future.
8. Mr. Mohsin Zahur, the Chief Executive of the Company is hereby directed to deposit the fine amounting to Rs 20,000/- in the following bank account of the Commission within 30 days of the receipt of this Order: