' ROOH-UL-AMIN KHAN, J.---By this single judgment, we propose to decide the instant appeal No, I.C.A No, 6 of 2012 titled "Securities and Exchange Commission of Pakistan v. The Liquidator, Islamic Investment Bank (under Liquidation) and others" and connected appeal bearing No, I.C.A No, 07 of 2012 titled "State Bank of Pakistan v. Securities and Exchange Commission of Pakistan and others" as both appeals have been directed against the order passed by learned Company Judge in C.M No, 35/2011 and C.M. No, 7-P/2011 in C.C. No, 5/2005 whereby the objections raised by the appellants with regard to maintainability of application under sections 412/413 were overruled and the applications under the above quoted section were held to be maintainable.
2. Brief but relevant resume of the case is that the appellant filed winding up petition under sections 305 and 309 of the Company Ordinance 1984 for winding up Islamic Investment Bank Limited "IIBL" on the ground that company has commercially, financially and technically become bankrupt and its substratum is disappeared thus has become unable to pay the debts. The learned Company Judge vide order dated 11.5.2009 passed winding up order with the observation that the regulators of the company viz Securities and Exchange Commission of Pakistan and State Bank of Pakistan (appellant) had acted negligently in discharge of their regulatory duties, therefore the officials of appellants connected with the affair of the company supervision must be taken to task. The Federal Government was equally held responsible to make good losses to the depositors.
The above said order was challenged by the appellants and Federal Government before the apex Court through Civil Appeals Nos.135-P, 136-P and 154- P of 2009 and Civil Appeals Nos. 878 and 879 of 2009 which were disposed of in the terms mentioned below: "As to the observations made, directions given by the learned Company Judge, regarding the State Bank of Pakistan Securities and Exchange Commission of Pakistan, the Chief Executive and the Directors of the Islamic Investment Bank and the Federal Government, the same are expunged as those were made without due notice to the said institutions or individuals. However, it will be open to the Company Judge to proceed in the matter, as he deems fit, after due notice to those against whom an action is suggested or proposed to be taken. All these appeals are disposed of in the terms mentioned above."
3. Subsequently the depositor/affectees of the Islamic Investment Bank Limited filed a C.M Application No, 7-P/2012 for determination of the loss by them and for its recovery from the responsible person including the Securities and Exchange Commission of Pakistan and State Bank of Pakistan. A separate C.M Application No, 35-P/ 2012 was filed by the official liquidator for similar relief by invoking the provision of sections 412 and 413 of Company Ordinance 1984. The learned Company Judge called for the reply of the respondent which was submitted accordingly, wherein applicability of sections 412 and 413 of the Company Ordinance were questioned on the ground that the Commission has been defined in section 2(6-A) of the Company Ordinance of 1984 and the same word is omitted from section 412 of the Ordinance ibid. The appellants have not taken part in the promotion and formation of the company nor they are regulators of the insolvent company, thus cannot be proceeded with, in the garb of sections 412 and 413 of the Ordinance.
Section ibid is applicable against those persons having any role in formation of the company or regulate its affair, whereas appellant have no such role, therefore the applications are not maintainable. The learned company Judge after hearing the parties overruled the objection by the appellants and application under sections 412 and 413 of the Company Ordinance, 1984, was held maintainable against them. Hence these appeals.
4. Having heard the learned counsel for the parties perusal of record would reveal that the petition under sections 305 and 309 of the Company Ordinance 1984, before the Company Court for winding up the Islamic Investment Bank Limited was filed on the following grounds:
(a) The Company is plainly, commercially, financially and technically insolvent. Its substratum has disappeared. It is unable to pay its debts.
(b) It is just and equitable to wind up the Company, in order to salvage whatever realizable assets are left for pro rata distribution amongst the depositors.
The Company is on a steep decline with continuous rapid erosion of assets available to discharge its liabilities to depositors and investors, the largest amongst which is the Hon'ble Supreme Court of Pakistan with a deposit of Rs, 574,995 million as on 31.12.2004. Its overall financial health is beyond repair, with the available unencumbered realizable assets being approximately 23 % only of the total amount due to the depositors in the Company (Deposits: asset ratio of 1:0.23).
(c) The Company has been carrying on unlawful and fraudulent activities, it is run and managed by persons who have failed to maintain true and proper books of accounts and have committed acts of fraud, misfeasance and malfeasance in relation to the Company."
5. The Company Judge passed the winding up order and appointed liquidator with direction that he shall take complete control of the affair of the company and proceed with the matter by completing the process of retrieving all the assets of the company within six months. It was observed that the appellants have played negative role in sinking of the company, therefore their responsible official be taken to task. The above order was challenged before the august Supreme Court of Pakistan through different appeals wherein remarks against the appellants and Federal Government were expunged for the reason that the same has been passed without providing them opportunity of hearing, however, the company Judge was held in the competence to pass appropriate order in this respect after hearing all the concerned. During pendency of liquidation, the official liquidator filed Misc. Application under the provision of sections 412/413 of the Company Ordinance which was objected by the appellants, but was repelled by the learned Company Judge. The appellants have attacked the impugned order mainly on the ground that neither they are promoters of the company nor have taken part in its formation, therefore, the application under sections 412/413 of the Company Ordinance 1984, can never be filed against them. The learned counsel for appellants emphasized that the definition of the commission is contemplated in section 2(6-A) whereas the word "Promotor" is defined in section 59(6)(a) of the Ordinance, 1984.
Section 414 of Ordinance ibid empowered the Company Judge to pass order under sections 412, 413 in respect of any person, who was at the relevant time a partner in that firm or a director of that body corporate. The learned counsel for petitioner while buttering his arguments stated that the learned Company Judge has not appreciated the facts that the word "Commission" being defined in section 2(6-A) of the Ordinance ibid was omitted by the legislature from section 412 whereas with regard to maintainability or non-maintainability of section 413 the impugned order is silent.
They also relied on various definitions of the word "Promotor" and argued that promoter means a person who solicit people to investment in corporation which is being formed. While submitting the prospectus or any other document for purpose of incorporation under the Ordinance 1984 detail of the promoter or the person involved in the formation of the company is to be provided whereby it is to be identified that who is promoter of the company, what interest promoter has and what amount is being paid to him in respect thereof. Such documents are submitted before the appellant (Commission) for initiating process of incorporation or invitation for subscription.
Likewise section 59(6-A) of the Company Ordinance 1984 provides that promoter is a person who is engaged in preparation of the prospectus or any part thereof and a special exclusion has been made therein, whereby any person working in the professional capacity for a person who is engaged by the person for procuring of the formation of the company is not included. In term of sections 12 and 13 of Company Ordinance and sections 20-21 and 22 of Securities and Exchange Commission Act, the SECP is a regulatory authority to regulate the business of the company for the purpose of safeguarding the interest of the depositor/investor and by no stretch of imagination it can be said that the commission is engaged in formation of the company.
6. Conversely the learned counsel for respondent described the role of SBP-SECP in formation and promotion of company and their failure to safeguard interest of shareholders/ depositor by not taking appropriate action against IIBL even after ringing the alarm buzzer. They went on to say that though the word "promotion" is not defined in Company Ordinance 1984, however section 412 is not the only place where it is incorporated, yet the same has been used in preamble of the statute. The definition provided in section 59 is strictly applicable to that particular section alone and not to section 412 because section of law begins with the expression "for the purpose of this section".
Besides, the scope of section 413 is much wider, because it applies to all classes of persons, who were knowingly parties to the carrying on of the business with intent to defraud the creditor or the company.
7. After hearing the learned counsel for the parties at length and consulting the necessary discussion that will have to follow may be initiated by extracting the provision of sections 412 and 413 of the Company Ordinance which read as under:- "412. Power of Court to assess damages against delinquent directors, etc. If in the course of winding up a company it appears that any person who has taken part in the promotion or formation of the company or any past or present director, liquidator or officer of the company-
(a) Has misapplied or retained or become liable or accountable for any money or property of the company; or
(b) Has been guilty of any misfeasance or breach of trust in relation to the company; The Court may, on the application of the official liquidator or the liquidator or of any creditor or contributory, made within the time specified in that behalf in subsection (2), examine into the conduct of the person, director, liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with surcharge at such rate as the Court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks just.
(2) An application under subsection (I) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in 'the winding up, or of the misapplication, retainer, misfeasance or bleach of trust, as the case may be, whichever is longer.
(3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.
413. Liability for fraudulent conduct of business.- (1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other person, or for any fraudulent purpose, the Court, on the application of the official liquidator or the liquidator or any creditor or contributory of the company, may, if it thinks fit, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation or liability, for all or any of the debts or other liabilities of the company as the Court may direct.
(2) On the hearing of an application under subsection (1), the official liquidator or the liquidator, as the case may be, may himself give evidence or call witnesses.
(3) Where the Court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration; and, in particular, may make provision for making that liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortage or charge or any interest in any mortage or charge on any assets of the company held by or vested in him, or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may, from time to time, make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection. " (underline is supplied for emphasis)
8. Bare reading of the aforementioned sections would make it abundantly clear that during pendency of the winding up of company if it appeared that any person, other than past or present director, liquidator or officer of the company, having role in the promotion or formation of the company, found liable or accountable for any money or property or guilty of misfeasance or breach of trust, the Court may on the application of official liquidator or any creditor or contributory within specific time investigate and look into the conduct of the person and may compel him to repay or restore money or property or any part thereof with surcharge at such rate as the Court thinks just and proper. Similarly, under section 413, the Company Judge has the power to declare that any person, who were knowingly party to the carrying on the business of the company with intention to defraud the creditor of the company or any other person for any fraudulent purpose and to affix upon him liability for any or all the debt or other liability of the company as the Court may direct.
9. The word "Promotion" being used in section 412 is of significant nature. Admittedly the word promotion is not defined in section 2 i.e, definition clause of Company Ordinance, however in addition to section 412, the said word has also been placed in the preamble of the Company Ordinance which is reproduced below:- "WHEREA S it is expedient to consolidate and amend the law relating to companies and certain other associations for the purpose of healthy growth of the corporate enterprises, protection of investors and creditors, promotion of investment and development of economy and matters arising out of or connected therewith; (emphasis supplied)"
10. In absence of any specific definition under the rule of interpretation of statute the plain meaning of the word has to be taken into consideration as it is the golden principle of interpretation of statute that the statutes is to be interpreted by using the original and natural meaning under the statute. The word provided in the statute is to be read word for word and is to be interpretted according to the ordinary meaning of the language. As discussed above the Company Ordinance 1984 does not provide a specific definition for the word "promotion" in term of section 412, therefore simple and ordinary meaning of the word "promotion" shall be seen for ascertaining the fact as to whether the appellant falls 'within the terms of promoter or otherwise.
The word "promotion" in accordance with the Webster dictionary means"
Promotion is one of the four elements of marketing mix (product, price, promotion, place). It is the communication link between sellers and buyers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision.
1. The act of promoting or the fact of being promoted; advancement.
2. Encouragement of the progress, growth, or acceptance of something; furtherance.
3. Advertising; publicity.
Promotion- encouragement of the progress or growth or acceptance of something.
Promotion. Noun.
1. Rise, upgrading, move up, advancement, elevation, exaltation, preferment, aggrandizement, ennoblement, rewarding, outstanding employees with promotion.
2. Publicity, advertising, hype, pushing plugging (informal), propaganda, advertising campaign, hard sell, media hype, ballyhoo (informal), puffery (informal), boosterism The company spent a lot of money on advertising and promotion.
3. Encouragement, backing, support, development, progress, boosting, advancement, advocacy, cultivation, espousal, furtherance, boosterism dedicated to the promotion of new ideas and research.
' According to Black's Law Dictionary, Sixth Edition, 1990 at page 1214, the word promotion is defined in the following manner:- Promote. To contribute to growth, enlargement, or prosperity of; to forward; to further; to encourage; to advance,"
' Similarly, according to Legal dictionary, promoter is defined in the following word:- Promoter A person who devises a plan for a business venture; one who takes the preliminary steps necessary for the formation of a corporation.
Promoters are the people, who, for themselves or on behalf of others, organize a corporation. They issue a prospectus, obtain stock subscriptions, and secure a charter. Promoters stand in a fiduciary relationship to the proposed company and must act in Good Faith in all their dealings for the proposed corporation.
' The Free dictionary by Farlex provide the following definition of Promoter: ' Promoter A person who devises a plan for a business venture, one who takes the preliminary steps necessary for the formation of a corporation.
Promoters are the people, who, for themselves or on behalf of others, organize 'a corporation. They issue a prospectus, obtain stock subscriptions and secure a charter. Promoters stand in a fiduciary relationship to the proposed company and must act in Good Faith in all their dealings for the proposed corporation.
11. From the above referred definitions of Promotion and Promoter it is manifest that any person who has taken part in influencing, persuading a person to invest or deposit his amount in a company or who advised plan for business venture or who take preliminary steps necessary for formation of the corporation, issue prospectus obtain stock subscription and secure charter would be promoter. It cannot be denied that the Securities and Exchange Commission of Pakistan has a pivotal role in promotion of the companies, so much so, time to time, it arranges and provides information to promote investor education. Section 20(4)(f) of. The S'ecurities and Exchange Commission Act enumerates that the commission' shall be responsible for performance and function with regard to the promotion and regulating the organization including security industries and related organization such as stock exchange and association of mutual fund, leasing company and other (NBFIs). Needless to mention that the company under liquidation is a Non- Banking Financial Institution, for regulation of which Securities and Exchange Commission is responsible. By inserting (20)(4)(f) in Securities and Exchange Act, 1997 the legislature has expressly held responsible the Securities and Exchange Commission for promoting and regulating of Non-Banking Financial Institution. Here it would be not out of context to mention that the Securities and Exchange Commission of Pakistan Act 1997 is later in time, as Company Ordinance has been enforced in the year 1984. The promotion regulating of the NBFIs is the mission and vision of SECP as declared by the SECP Act, 1997. From the above, it can safely be concluded that while expressly assigning the function of promoting and regulating the NBFIs the legislature was fully aware of the intent to make section 412 of the Company Ordinance 1984 fully applicable to regulators including Securities and Exchange Commission of Pakistan. The Securities and Exchange Commission of Pakistan deals with all the companies registered under the Companies Ordinance except the Banking Companies. It is the mission of SECP to promote an efficient and transparent capital market, develop the corporate sector and protect the investor through responsive policy measure, effective regulation and enforcement of best governance practices. We are sure, rather clear in our mind that the appellant would not deny the facts that the Securities and Exchange Commission Pakistan, being a regulator used to take action against companies for improving professional efficiency, sense of responsibility and healthy business environment.
12. The contention of learned counsel for appellants regarding applicability of definition of word "promotion" as contemplated in section 59(6-A) is unpursuasive and misconceived for the reason that the section of law i.e, 59 (6-A) begins with a phrase "for the purpose of this section". This expression used by the legislature has limited its applicability to section 59 only and exclude its relevancy to section 412 of the Company Ordinance. Had the intention of the legislature was to apply the same definition to section 412 then it would have not limited it by a specific phrase to section 59. Hence the definition of "promotion" contemplated in section 59 (6-A) has got no relevancy to section 412.
13. Record divulge that decline status of the company came into notice of the regulating wing of State Bank of Pakistan and Securities and Exchange Commission of Pakistan at the initial stage and they were in position to save the company from insolvency but they remain negligent from performing their statutory duty which resulted into fall of the company, followed by liquidation. The objections have been raised by appellants merely for choking the controversy and to stifle it in infancy on a hyper technical ground, which infact, is a step to wriggle out the appellant from their statutory liabilities through a short cut. It is an endeavour to let free the delinquent who have committed misfeasance or malfeasance and played negative role in relation with the insolvency of company under liquidation. No body can controvert the fact that the company under liquidation is registered and licensed organization being regulated, supervised and controlled by the Government of Pakistan through the State Bank and Securities and Exchange Commission of Pakistan. It was taking deposit from the public at large on the strength of its being organized and regulated by the Government of Pakistan which assurance was best source of promotion for the company.
14. For what has been discussed herein above, it is clear that any person who has taken part in the promotion and formation of the company the Court may examine into the conduct of such person and compel him to repay or restore the money or property etc of the company. Resultantly, both the appeals being devoid of merit stand dismissed.