1. This order shall dispose of Appeal No,28 of 2013 filed under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 against the order dated 15.04.13 (the Impugned Order) passed by the Respondent under section 158(4) read with section 476 of the Companies Ordinance 1984 (the Ordinance).
2. The facts leading to the case are that that Shadman Cotton Mills Limited, (the Company) was required to hold its Annual General Meeting (the AGM) for the year ended June 30, 2012 on or before October 30, 2012. As per record of the Securities and Exchange Commission of Pakistan (the Commission), the Company held its AGM on January 22, 2013 i,e, with a delay of 83 days. Perusal of relevant record reveals that Chief Executive of the Company (Appellant No,2) vide his application made in terms of Rule 14 read with Rule 30 of The Companies (General Provisions and Forms) Rules, 1985 sought extension of 30 days for holding AGM of members of the Company till November 30, 2012. The Commission vide its letter dated 02.10.12 allowed the same. However, the Company failed to hold its AGM in the extended period. Therefore, proceedings vide Show Cause Notice (SCN) dated December 10, 2012 were initiated against the following directors of the Company: Mr. Zahid Mazhar, Chief Executive/Chairman Mr. Omer Bin Zahid, Director Mr. Hassan Bin Zahid, Director Mrs. Naila Zahid, Director Mr. Shahid Mazhar, Director Mrs. Ghazala Shahid, Director Mr. Ahmed Bin Shahid, Director Mrs. Noureen Rehan, Director
3. The hearing in the matter referred above was conducted on 11.02.13. Thereafter, the Respondent being dissatisfied with the defense, by taking lenient view, instead of imposing a maximum fine on the directors, penalty on the appellants was levied as follows: S. No. Names of Respondents Amount Rupees
1. Mr. Zahid Mazhar, CEO/Chairman5,000
2. Mr. Omer Bin Zahid, Director 5,000
3. Mr. Hassan Bin Zahid Director 5,000
4. Mrs. Naila Zahid, Director 5,000
5. Mr. Shahid Mazhar, Director 5,000
6. Mrs. Ghazala Shahid, Director 5,000
7. Mr. Ahmed Bin Shahid, Director 5,000
8. Mrs. Noureen Rehan, Director 5,000 TOTAL 40,000
4. The Appellants, being aggrieved by the Impugned Order filed an appeal before the Appellate Bench on the following grounds and prayed to set aside the Impugned Order being illegal, without lawful authority: i. The Impugned order is against the law and true facts of the case. ii. The learned Respondent, in the impugned order, has erred in evaluating the evidences (submitted at the appeal stage and also annexed as Annexure "A" to "J" with this appeal) provided by the appellants to their intentions to comply the law. iii. The learned Respondent, in the impugned order, has erred in making distinction between commissioning of willful and intentional breach of law and has treated all directors equally irrespective of their role. iv. The learned Respondent, despite being cited and provided, has ignored the principles established by this learned appellate authority in the matter of SCML v. Respondent (Annexure "K"). v. The learned Respondent, in the impugned order, has ignored the following citations provided: M/s Quice Food Industries Limited (2006 CLD 660) (Annexure "L"), and M/s Services Fabric Limited (2006 CLD 729) (Annexure "M").
Both of the afore-referred citations are relevant to ascertain the reality of case.
5. The Respondent replied to the appeal through para wise comments and rebutted the grounds of appeal and arguments of the Appellants against the impugned Order. The Respondent reiterated the arguments stated in the Impugned Order and prayed to dismiss the appeal. The Respondent rebutted the grounds of appeal in the following manner: i. The directors have violated and neglected the relevant provision of law by not holding the Annual General Meeting for the year ended 2012 and submitting the annual accounts within prescribed time in terms of section 158(1) of the Ordinance. The obligation to prepare financial statements and hold AGM is fiduciary duty of all the directors collectively and none of them can evade their responsibility by throwing this on other directors. Moreover, any breach of fiduciary duty would be considered willful in the eyes of law. Hence, the default is evident and established. The application for seeking direction under section 170 of the Ordinance for holding overdue AGM is a different statutory requirement, while default under section 158 is a separate issue. ii. Annex-A-D, F, G, H, relate to dispute between directors of the Company. Annex-E is application dated September 29, 2012 regarding grant of extension in holding of AGM 2012 till 30-Nov-12; which was granted vide letter dated October 2, 2012. Annex-I is application dated December 10, 2012 received on December 14, 2012 under section 170 in which permission was sought for holding of overdue AGM of 2012 after 45 days of the date of extension granted. This was acceded for 35 days i,e, up to January 22, 2013 vide letter dated December 19, 2012 in which it was clearly stated in para 3, that this direction shall be without prejudice to the penal and civil consequences of the defaults on the part of the Company and its officers in making compliance within the period laid down under sections 158 and 233 of the Ordinance. Annex-J is reply to show cause notice. iii. Based on record the Company held its general meetings and the fact of filing of accounts with delay is substantial evidence that default in terms of section 158(1) of the Ordinance was made and this fact does not need to be proved. iv. Not relevant in the case. v. Arguments are not found cogent as the competent authority may impose penalties based on substantial available evidence.
6: We have heard the parties at length and perused the relevant record with the able assistance of the parties.
7. The facts of the case are clear and evident that the Appellants failed to conduct the AGM within stipulated time and thereafter they even failed to hold the AGM within extended time period of 30 days i,e, till 30.11.12. Therefore, they have acted against the fiduciary responsibilities towards the Company in capacity of directors. Company Secretary Letter dated 10.12.12 addressed to director Enforcement exhibits admission to the fact that the Company has failed to conduct the AGM in extended period. This fact is an unrebutted and conclusive evidence of the violation of section 158 of the Ordinance by the Appellants.
8. It was the collective responsibility of the directors of the Company to hold the meeting in accordance with law but they have failed to comply with the requirements of law, therefore no distinction could be assumed regarding guilt or innocence of the directors.
9. In our view the directors of the Company have violated section 158 by not holding the AGM within extended time and thereafter AGM was conducted under the permission granted by the Respondent under section 170 of the Ordinance.
10. In the light of above stated facts which came on record through pleadings and submissions made before the Appellate Bench by the Appellants and Respondent it has been established that the Appellants have violated the section 158 of the Ordinance. Therefore, no case of appeal against the Impugned Order has been made out by the Appellants. In view of the aforesaid, there being no reason to interfere with the Impugned Order dated 15.04.13, hence, the appeal is dismissed.
11. Parties to bear their own cost.