This order will dispose off the present appeal filed under sub-section (1) of section 33 of the Securities & Exchange Commission of Pakistan Act, 1997 (the "Act") by the petitioner company against the Order dated June 27, 2002 (the "Impugned Order") passed by the Executive Director (Enforcement & Monitoring).
1. Brief facts leading to this appeal are that a notice dated June 17, 2002 was issued by the Commission to the Petitioner, its chief executive and directors calling upon them to show cause 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 and prosecution proceedings may not be initiated under sub-section (6) of section 233 read with sub-section (7) of section 230 of the Ordinance for,
(a) not holding the Annual General Meeting ("AGM") for the calendar year 2001; and
(b) not filling the balance sheet & profit & loss account (the "Annual Accounts") for the years ended June 30, 2001 on or before December 31, 2001
2. The Company, its chief executive and the directors were given an opportunity of personal hearing before the Respondent (the "Executive Director") on June 24, 2002. They contended inter alia, closure of the factory and termination of service of all staff and workers in their defence.
However, the Executive Director noting the past history of non-compliance by the Company of the provisions of the Ordinance rejected these arguments. The Executive Director therefore imposed penalties as follows: i) for default in complying with the provisions of sub-section (1) of section 158 of the Ordinance, a fine of Rs.20,000/- on the Company, the chief executive and each one of the directors; ii) for continuous default in complying with the provisions of sub-section (1) of section 158 of the Ordinance, a fine of Rs.89,000/- on the Company, the chief executive and each one of the directors calculated at the rate of Rs.500/- per day from January 01, 2002 to June 27, 2002.
3. Aggrieved by the Impugned Order, the Company has preferred this appeal under sub-section (1) of section 33 of the Act before this Bench. This appeal has been filed on behalf of the Company only and not the chief executive and directors who were penalized in the Impugned Order, as they are no longer associated with the Company. The appeal was fixed for hearing on January 14, 2003 when the parties appeared and argued the case.
4. Mr. Mussawar Mahmood, General Manager of the Petitioner Company appearing on its behalf did not deny the fact that the defaults under the relevant provisions of the Ordinance were committed by the company and its management. He instead contended that the defaults were committed by the previous management of the company. He informed the Bench that the chief executive and the directors on whom the penalties under the Impugned Order were imposed were no longer associated with the Company. Mr. Mahmood further contended that the factory remained sealed and under lock and guard for two and half years on the orders of the civil court and as a consequence the Annual Accounts could not be prepared. He stated that some of the books of accounts were removed from the premises by the staff of the Company during this period. He informed the Bench that as the registered office of the Company was inside the factory premises it was not possible to prepare the Annual Accounts and hold the AGM within time. He also contended that there was a dire shortage of qualified staff as the factory is located in a remote area. He informed the Bench that despite all the difficulties, the new management had made serious efforts to regularize the affairs of the Company and the annual accounts for the previous three years have been prepared in less than six months period.
5. Mr. Atta Muhammad Khan, Director SEC along with Mr. Mubasher Saeed Joint Director appearing on behalf of the Executive Director (Enforcement & Monitoring) contended that the penalty imposed by the Executive Director in the Impugned Order was imposed after analyzing the past history of statutory compliance by the Company. They contended that none of the arguments presented by the petitioner constituted a legal justification for the defaults committed by the Company. They argued that if the management of the Company was serious in preparing the accounts and holding the AGM, they could have requested the civil court for access to the books of accounts in order to prepare the Annual Accounts.
6. We have heard both the parties and also examined the relevant provisions of the Ordinance. We agree with the argument presented on behalf of the Executive Director that the Company was not prevented by the civil court to fulfill its legal obligations under the provisions of the Ordinance. We also do not find any merit in the argument of the Petitioner that the books of accounts had been removed by the staff of the Company as this contradicts the Company's statement that the office of the Company and its documents were sealed and under guard pursuant to the orders of the civil court. However, considering the fact that the Company is under a new management, which has made earnest efforts to regularize the affairs, we are inclined to take a lenient view towards the Company. It is hoped that the new management will take due care and fulfill the legal obligations of the Company towards its shareholders.
In light of the submissions of the parties, examination of records and the above findings, we hold as follows:
(a) the penalty of Rs.20,000/- imposed on the Company in the Impugned Order dated June 27, 2002 is hereby upheld; and
(b) the continuing penalty imposed on the Company in the Impugned Order is hereby set aside.
The remaining portion of the Impugned Order relating to the penalties imposed upon the former chief executive and the directors of the Company will remain in operation, as they are not a party to these proceedings. This appeal is disposed off accordingly.