This order shall dispose of proceedings in the matter of (a) Show Cause Notice No. CLD/EMD/FIU/17/2006/89-96 dated July 14 2006 issued to: (1) Ahmed Spinning Mills Limited ("ASML"), (2) the directors of ASML namely, Shaikh Abdul Wahid, Shaikh Muhammad Saeed, Mrs. Qaiser Begum, Mrs. Nasreen Wahid, Mrs. Abida Saeed, Mrs. Fouzia Begum and Sh. Abdul Raoof (the "Directors"), and (3) United Sugar Mills Limited ("USML"), (b) the proceedings in the matter of the Show Cause Notice No. CLD/EMD/FIU/17/2006/79-85 dated July 14 2006 issued to: (i) Clearshore Limited ("Clearshore"), (ii) Taj Mahmood Yayha; and (iii) Nasir Mahmood Yahya, and (c) issues arising from the Direction No. CLD/EMD/FIU/17/2006/97 dated 14 July 2006 issued to JDW Sugar Mills Limited ("JDW") in the matter of acquisition of 75% shares of USML from the Directors and Clearshore, as common questions of fact and law are involved.
2. The Show Cause Notice issued to ASML, Directors and USML required each of them to appear in person or explain their position in writing on or before 8 August 2006 in respect of the following:
(a) ASML and the Directors to show cause as to why each of them should not be proceeded against for acting in concert with Clearshore in the matter of the acquisition of 22.44% shares of USML (the "Shares") from ASML in contravention of the provisions of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (the "Takeovers Ordinance"); and/or
(b) Each of Shaikh Abdul Wahid ("Sh. Wahid") and Shaikh Muhammad Saeed ("Sh. Saeed") to show cause as to why they should not be proceeded against in the matter of acquisition of more than 25% shares in USML in contravention of the provisions of the Takeovers Ordinance; and/or
(c) Each of Sh. Wahid and Sh. Saeed to show cause as to why he should not be proceeded against in the matter of acquiring direct or indirect control over not less than 75% shares in USML in contravention of the provisions of the Takeovers Ordinance.
3. ASML and the Directors submitted their respective replies to the subject show cause notice vide their letter dated 5 August 2006 which was received at the Commission on 7 August 2006. In their reply the parties maintained that they had not violated the provisions of the Takeovers Ordinance, and therefore, the subject show cause notice be withdrawn and/or "considered as satisfied". ASML and the Directors, however, reserved their right to make further submissions in a hearing. USML neither submitted reply to the subject show cause notice nor did any one appear on its behalf before the undersigned.
4. On 10 August 2006, vide its letter numbered CLD/EMD/FIU/17/2006/110-118 this office intimated all parties that the matter was scheduled for hearing on 21 August 2006 before the undersigned and requested further submissions from them, if any. On 21 August 2006, ASML and the Directors submitted their letter dated 19 August 2006 whereby this office was advised that each party had reviewed the matter and that they had "conveyed and explained" their respective response to the subject show cause notice "adequately and sufficiently" in terms of their letter dated 5 August 2006. ASML and the Directors requested disposal of the matter accordingly, as they did not "consider it necessary to make further submissions in a hearing" on 21 August 2006.
5. Through this office's letter numbered CLD/EMD/FIU/17/2006/139-147 dated 8 September 2006, ASML, the Directors and USML were given a final opportunity to review and obtain copies of documents on file and make further submissions on or before 19 September 2006. They were also allowed to appear in person or through an authorized representative on the said date. ASML sought further extensions by their letters of 12 and 18 September 2006. ASML's request was granted and the final hearing was scheduled for 28 September 2006.
6. On 25 September 2006, however, this office again received ASML's letter dated 21 September 2006 wherein the Chief Executive of ASML restated the earlier position that the show cause notice stood "sufficiently and clearly" replied to. ASML and the Directors vide their letter dated 5 August 2006 admit that (a) ASML and USML were associated companies; (b) ASML has had a long standing investment in USML by way of holding the Shares, which constituted 61% of the total assets of ASML as per audited accounts for the year ended 30 September 2004; (c) 22.44% Shares of ASML were sold to Clearshore at Rs. 16 per share in terms of the Clearshore Sale Agreement dated 10 November 2004 ("Clearshore Agreement"); (d) the Directors held approximately 16.5% of the total issued share capital of USML, which were sold at a later date at the rate of Rs. 333 per share; and
(e) Sh. Wahid and Sh. Saeed exercised control over not less than 75% shares of USML, including the Shares held by Clearshore, for purposes of sale of such shares along with management control of USML to JDW in terms of the Share Purchase Agreement dated 21 October 2005 (the "JDW SPA").
However, ASML and the Directors maintain that:
(a) Clearshore is represented by one Mr. Shahid Hussain and the company was introduced to Sh.
Wahid and Sh. Saeed by "mutual contacts". They maintain that this office has misunderstood the relationship between the directors of Clearshore namely Taj M. Yahya and Nasir M. Yahya and (i)
Sh. Wahid and Sh. Saeed; and (ii) ASML. Further the Takeovers Ordinance requires the acquirer to file the prescribed returns, and ASML or the Directors are not responsible or liable in this regard. It is further asserted that the sale of the Shares to Clearshore was motivated by efforts on part of ASML to satisfy the Commission, which was contemplating winding up of ASML and the revenue generated by the sale was used to meet expenses and pay dividends to shareholders.
(b) Prior to 19 January 2000, Sh. Wahid and Sh. Saeed "jointly owned 16% shares of USML" and that they "jointly became entitled to beneficial ownership of more than 50% shares of USML" by way of oral gift from Shaikh Maqbool Ahmed, their father (now deceased), however, such joint beneficial interest was not reported in time as the prescribed return under Section 222 of the Companies Ordinance, 1984 (the "Ordinance") was not filed until "much later than the actual date of gift". It is further stated that the Takeovers Ordinance does not apply once shareholding of 51% or more is acquired, and since 36% shares of USML were received by them as gift from their (now deceased) father, "there was no purchase price paid or acquisition agreement entered into and as a consequence thereof, there could be no possibility of any public offer to purchase shares", and therefore, the Takeovers Ordinance has not been violated.
(c) Shareholding of the Directors in ASML and USML along with other disclosures required under law, and from time to time made by ASML and USML are a matter of record, which speaks for itself.
7. The Show Cause Notice to Clearshore and its sponsors/directors Mr. Taj M. Yahya and Mr. Nasir M.
Yahya required each party to show cause as to why action should not be taken under Sections 25 and 26 of the Takeovers Ordinance for contravening the provisions of the Takeovers Ordinance, particularly acquisition of the Shares from ASML from persons acting in concert with them, namely, ASML and the Directors. Despite repeated notices, no one has appeared on behalf of Clearshore and others.
8. As regards USML, it was also deemed appropriate to grant it due opportunity to participate in these proceedings. However, USML has not participated in these proceedings.
9. Furthermore, in order to ensure fair and equal treatment to all investors and to maintain the confidence of investors in the securities market, the Commission in the interest of the securities market and pursuant to the powers conferred under Section 25 of the Takeovers Ordinance read with Section 20 (4) (g) and (j) and Section 20 (6) (b) and (g) of the Securities and Exchange Commission of Pakistan Act, 1997 on 14 July 2006 directed JDW not to make all or any part of the outstanding payment of Rs. 330 million under the JDW SPA pending disposal of these proceedings.
10. Having set out the admitted facts and the parties' respective contentions above, I address the first issue, that is, the common question of contravention of Section 4 of the Takeovers Ordinance in the matter of acquisition of the Shares.
11. Section 2(1)(a) of the Takeovers Ordinance defines the term "acquirer" as follows: "means any person who, directly or indirectly, acquires or has proceeded to acquire voting shares in the target company, or acquires or has proceeded to acquire control of the target company, either by himself or through any person acting in concert" (Emphasis added).
12. The relevant portion of Section 4 of the Takeovers Ordinance reads as under: "Acquisition of more than ten percent voting shares of a company. (1) Any acquirer who acquires voting shares, which (taken together with voting shares, if any, held by the acquirer) would entitle the acquirer to more than ten percent voting shares in a listed company shall disclose the aggregate of his shareholding in that company to the said company and to the stock exchange on which the voting shares of the said company are listed as provided in sub-section (2).
(2) The disclosure mentioned in sub-section (1), shall be made within two working days of:
(a) the receipt of intimation of allotment of voting shares; or
(b) the acquisition of voting shares, as the case may be.
Explanation. For the purposes of this section expression "acquisition" shall include purchases confirmed by the member of the stock exchange in accordance with sub-rule (4) of Rule 4 of the Securities and Exchange Rules, 1971." (Emphasis added)
13. A plain reading of the above quoted provisions of law make it abundantly clear that any person who acquires more than 10 percent of shares in a listed company must make adequate disclosure not only to the company whose shares such person has acquired but also to the stock exchange on which the securities are traded.
14. The terms of the sale of the Shares, as recorded by ASML and Clearshore in the Clearshore Agreement, contain an elaborate mechanism for the sale/purchase of the Shares whereby the payment had to be effected over a period of six months. Moreover, the said agreement specifically states that the subject transaction shall be governed and construed in accordance with the laws of Pakistan. Despite this, it is confirmed from the record available on file that the disclosures required under Section 4 were not made. It is to be noted that although
(2) No acquirer shall acquire voting shares in excess of the quantity specified in the invitation of offer made by such acquirer and all additional or incremental acquisition beyond the preceding offer shall be valid only through further offer.
(3) Nothing in this section shall apply to a person who has already acquired fifty one percent or more of the voting shares or control in consequence of making a public announcement of the offer. (Emphasis added)
39. The JDW SPA records the representation that USML shareholding is held as per the following breakdown: Particulars Percentage (%) Number of Shares Shaikh Abdul Wahid 8 229,720 Shaikh Muhammad Saeed 8 238,120 Beneficial shares of Shaikh Abdul Wahid 18 542,330 Beneficial shares of Shaikh Muhammad Saeed 18 544,800 Shares held by other directors:
1. Mrs. Qiaser Begum 14,280
2. Mrs. Abida Saeed 2,500
3. Mrs. Nasreen Wahid 2,500
4. Shaikh Abdul Raoof 2,500 1 21,780 Cleareshore Limited 22 673,278
40. In light of the foregoing argument, it is clear that at the time of JDW SPA none of the above named sellers held more than 51% shares in USML in his/her/its own name. Sh. Wahid and Sh. Saeed being the larger shareholders held approximately 26% shares each in USML. They however together appear at the centre stage of the entire transaction with JDW, as the majority of the other sellers were their mother and respective spouses. As for Clearshore, it has already been established that Sh. Wahid and Sh. Saeed continually cooperated in the affairs of the dormant UK company vis-- vis the sale of the Shares and the eventual sale of USML shares to JDW.
41. At the end, I must revert to the argument raised by the Directors that they decided to sell the shares to Clearshore to satisfy the Commission, as the Commission was contemplating the winding up of ASML. I have perused the record and note that the Commission did serve a show cause notice No. EMD 233/75/2002/6096/6169 dated 25 March 2004 on ASML to show cause as to why the Additional Registrar, Companies Registration Office, Karachi should not be given sanction to present the petition for winding up of ASML. However, at no point in time did the Commission suggest disposal of the long term investment of ASML. A striking feature of this transaction that while ASML was made to sell its long standing investment in USML for a throwaway price to a dormant company the Directors themselves did not sell their own shareholding in USML.
42. In view of the above discussions it is concluded that:
(a) Clearshore acted in contravention of Section 4 of the Takeovers Ordinance in the matter of the acquisition of the shares from ASML and as discussed above ASML and the Directors acted in concert with Clearshore and its directors to acquire 22.44% shares of USML; and
(b) Sh. Wahid and Sh. Saeed have acquired more than 25% shares of USML in contravention of Section 5 of the Takeovers Ordinance.
(c) Sh. Wahid and Sh. Saeed in exercising control over 75% shares of USML for purposes of sale of the same to JDW contravened the provisions of Section 6 of the Takeovers Ordinance.
43. Therefore, in exercise of the powers conferred upon me and in order to safeguard and protect the interests of ASML shareholders and to ensure due compliance with the mandatory provisions of the Takeovers Ordinance, I hereby impose the following fines upon: defined cases, SEBI has to rise to the occasion for taking appropriate measures to combat situations in the speculative market, which may or may not be conceived in advance. It was held by the Court that the power of SEBI under Sections 11 and 11-B should be considered and interpreted in a way so as to see that the objects sought to be achieved by the Securities and Exchange Board of India Act are fully served rather than being defeated on the basis of any technicality. The court went on to observe that SEBI was entrusted with the power to make necessary measures as it thinks fit in order to discharge its duties and functions.
48. As the Commission performs similar functions as SEBI and has similar powers under Section 20 of the Securities and Exchange Commission of Pakistan Act, 1997, this decision is extremely instructive as to the powers that may be exercised by the Commission. The dicta laid down in Securities and Exchange Board of India vs. Alka Synthetics Ltd, AIR 1999 Gujarat 221 must be applied in aid to protect investors in Pakistan as well.
49. Therefore, the undersigned in the interests of the securities market and in exercise of powers under Section 20 of the Securities and Exchange Commission of Pakistan Act, 1997 and Section 25 of the Takeovers Ordinance directs as follows:
(a) The Sellers i.e. Sh. Wahid, Sh. Saeed, Clearshore, Mrs. Qaiser Begum, Mrs. Nasreen Wahid, Mrs. Abida Saeed, and Sh. Abdul Raoof are hereby restrained from receiving Rs. 213.43 million from the balance consideration of Rs. 330 million under the JDW SPA;
(b) The amount of Rs. 213.43 million which the Directors have sought to gain shall be equitably distributed among the affected shareholders of ASML upon instructions to be issued by the Commission in this behalf;
(c) In order to ensure compliance with the order/directions in the preceding paragraph, ASML is hereby directed to provide a complete list of its shareholders as at 10 November 2004 so that monies are efficiently and promptly passed on to ASML shareholders entitled to receive the same in accordance with law.
While I have not imposed any penalty on account of contravention of Section 4 on the Directors, owing to the responsibility under the Takeovers Ordinance being placed on the acquirer i.e. Clearshore. Yet, it is clear that the Directors particularly Sh. Wahid and Sh. Saeed vis--vis the contravention of Section 4 have acted in concert in addition to the contraventions of Section 5 and 6 and have engaged in such actions which constitute an elaborate scheme in consert with Clearshore and its directors to deprive the then shareholders of ASML of approximately Rs. 213.43 million. These individuals should not be able to escape liability for their action due to any technicalities as it would defeat the very intent and purpose of law. The undersigned hereby recommends the Commission to initiate appropriate proceedings for, inter alia, employing a scheme intended or calculated to operate as a fraud or deceit on the shareholders of ASML in accordance with law.