MUHAMMAD IQBAL KALHORO, J.----Petitioner standing a trial in reference No.12/2018 pending before learned Accountability Court II, Sindh at Karachi filed an application under section 265-K, Cr.P.C., there for acquittal unsuccessfully has filed this petition for quashing of proceedings in the said reference against him.
2. As per brief facts, on a direction of the Honorable Supreme Court of Pakistan in a Suo Motu Case No.18/2010, NAB launched a probe into allegations of irregularities in transactions carried out by National Insurance Company Ltd. (NICL). It was discovered that management of NICL had made an irregular investment of Rs.100 million with First Dawood Investment Bank Ltd. (FDIB L) on 24.11.2008 at the rate of 18.5% per annum return for a period of six months in violation of Finance Division OM No.F.4 (I) 2002-BRII dated 2nd July, 2003 (OM). FDIBL, however , failed to honor its commitment and defaulted.
3. It is alleged that the said investment was recommended by an ln-house Investment Committee of NICL, which had no such authority , in a meeting held on 19.11.2008. The then Chairman and CEO, NICE approved it in the end but without getting a necessary endorsement from the Investment Committee or Board of Directors (SOD). On both the occasions, it was ignored on purpose that entire Non-Banking Financial Sector (NBFS) including FDIBL had booked heavy losses due to placing of floor by Security Exchange Commission of Pakistan (SECP) on Karachi Stock on 28.08.2008; and that in the said backdrop Pakistan Credit Rating Agency Limited (PACRA) had alerted the market against any investment through a press release dated 22.10.2008.
4. When FDIBL failed to encash Certificate of Insurance (COI) on maturity offered various options to NICL for settlement in the shape of properties, Privately Placed Term Finance Certif icates (PPTFCs), and its own Preference Shares. Pursuant to such offer, NICL through its BOD comprising five members including the petitioner , in a meeting held on 11.12.2009, decided to give approval to restructuring of COI by accepting PPTFCs of Messrs Flying Board and Paper Products and M/s Pak HY Oils Pvt. Ltd. and Preference Shares of FDIBL amounting to Rs.60 million at the rate of Rs.10 per share. Then the Special Committee of NICL Board comprising three (3) members, accused in the reference, deliberated over the matter and gave a nod to such approval. In the end, the matter came up before the Investment Committee of the NICL, comprising four members including petitioner Syed Hurr Riahi Gardazi, who was also a part of SOD, NICL. This committee accepted recommendation of Special Committee and approved restructuring. It is alleged all such recommendations and approvals for restructuring are illegal and in violation of aforesaid OM.
5. The last episode involves officials of FDIBL, the accused in the reference, who are alleged to transfer sick PPTFCs of Messrs Flying Board and Paper Products and Messrs Pak. HY Oils Ltd to NICL with mala fide intention and ulterior motives. The Preference Shares of FDIBL were accepted at Rs.10 per share although it was trading at Rs.2.76 at the relevant time and further fell to Rs.1.10 per share on maturity . It is concluded that accused/of ficials of NICL, including petitioner , in league with accused Nos.1 to 13, the Directors FDIBL, misused their authority and granted benefits to each- other causing a loss of Rs.67.056 million to the national exchequer .
6. Learned defense counsel has argued that petitioner is innocent and has been falsely implicated in this case; there is no incriminating evidence again st him; that the only allegation against him is that he as a member , Investment Committee, had recommended restructuring of a bad debt of 100 millio n invested with FDIBL and as a member of BOD, NICL had approved such restructuring. He has further submitted that petitioner was not a member of the Board which had invested the amount with FDIBL; that investment committee and BOD had acted on the advice of internal as well as external legal advisers, who both recommended settlement of dispute with FDIBL outside of the court to secure the investment; that the case against the petition er at the most is of making an incorrect decision which cannot be bracketed as a criminal offence infused with actus reus and mens rea; that option of restructuring availed by the BOD of NICL was the best one at that time as filing of the suit for recovery , of the amount would have taken NICL to nowhere for a long time; that out of 100 million, besides profit of 12 million, 71 million of principal amount has been recovered; that price of shares has alway s remained beyond control and domain of any one and just because the price of shares, accepted in restructuring, plummeted, the petitioner cannot be put to blame for it; that loss of Rs.67 million calculated by the I.O. in the reference is mathematically incorrect in view of recovery of 83 million; that at the time when share price was floating between Rs.5 to 7 per share, 4AB did not permit sale of the shares which otherwise would have fetched additional capital making a total over and above the original investment; that NAB has failed to show any mens rea on the part of petitioner in making a decision for restructuring a bad debt; that a decision which may turn out to be commercially incorrect does not mean that the decision maker is criminally liable for it; that such decision was made by all the Members of BOD and it cannot be presumed that each one was acting with a criminal intent and ill motive and that any such inference, if made, would be but a presum ption lacking solid evidence; that as there is no incident of mens rea and actus reus in this case, the criminal charge is meaningless and is not likely to culminate in conviction of the petitioner . In support of his arguments, learned counsel has relied upon an unreported decision of this court in Cr.
Acctt. Appeal No.68/2018, 2005 MLD 1854 , 2006 YLR 1648, 2008 SCMR 1118, PLD 2008 SC 166, PLD 2016 SC 276, 2017 PCr.LJ 674, 854, 2020 MLD 696, PLD 2003 SC 46, 1993 SCMR 523. PLD 1999 SC 1063 , 2015 PCr.LJ 205, 2008 SCMR 1118, 1972 PCr.LJ 1130, 596, PLD 1993 SC 399, PLD 1982 Kar 130, PLD 1994 SC 539, 1994 SCMR 771 PLD 2009 Kar . 278, 2016 SCMR 189 , 2017 SCMR 56 , 2020 SCMR 500 .
7. On the other hand learned Special Prosecutor NAB has supported the impugned order and has argued that there is sufficient material connecting the petitioner with commission of offence, and that guilt or otherwise of the petitioner can be determined only after recording of the evidence. In support of his arguments, he has relied upon case reported as 2008 SCMR 383 , 2009 PCr .LJ 36, 2016 PCr .LJ 1 144, 2009 YLR 1370 and 2011 MLD 313 .
8. We have heard the parties and perused the record and the case law cited at bar. It is mainly alleged that accused working on a senior position in NICL by misusing their authority invested an amount of Rs.100 million for 6 months in FDIBL against return of 18.5% per annum benefiting accused 11 to 13, who were its Directors and CEO.
Petitioner is not shown concerned with it. But he is stated to be a part of the comm ittees which recommended and approved restructuring of the investment after FDIBL failed to return the original amount and profit thereon on maturity . And which led NICL to accept PPTFCs of Messrs Flying Board and Paper Products and of Messrs Pak HY Oils (Pvt.) Ltd. worth Rs.10,000,000/- and Rs.30,000,000/- respectively besides 60 million Preference Shares of FDIBL at Rs.10 per share. Although, it is alleged, PPTFCs were sick and non-performing and the share of FDIBL was trading at Rs.2.76 and that further fell to Rs.1.10 at the time of maturity . Besides, meanwhile, PARCA ratings of FDIBL had fallen to BB. This proposal despite being highly unfeasible was pursued causing a loss of Rs.67.056 million to the national exchequer .
9. However , it is not disputed that before availing such a course various options to settle the matter were explored by the parties and only as a last and final resort NICL agreed to restructuring. The Special Committee which comprised senior officials of NICL, expert in financing, accused in the referenc e, approved this proposal after thoroughly examining its pros and cons . Thereafter , the matter was taken up by the Investment Committee, petitioner was one of its members, where again a full-fledged hearing and discussion took place and only then the approval was endorsed. But before any final decision could be made, NICL approached SECP to intervene and resolve the matter but in vain. After such failure, NICL involved its legal branch for guidance, which opined against institution of any legal proceedings for recovery on the ground that it was commercially unviable and could take years to end. Still unsatisfied, NICL decided to take a legal advice from Barrister Masroor Shah, he too opined against filing of recovery suit and advised for restructuring on the ground that it would enhance NICL's status to that of a secured creditor and even if FDIBL went into liquidity , it would have at least a better chance of recovery . Only after taking all these precautions step by step for striking a best bargain possible in the circumstances", the final approval to restructuring was granted by BOD which included the petitioner .
10. It was not one committee merely , which decided to go for restructuring but a whole lot of them plus board of directors chose to do so after weighing several options offered by FDIBL for settlement, and consulting the matter with legal experts, In these particular facts and circumstance when everyone concerned was on the board and behind such decision the question whether each one of them was acting with mens rea in order to cause loss to the national exchequer and gain to himself is not likely to be answered in affirmative. An incorrect decision wreaking havoc to the company does not mean that it is the result of some action or omission constituting an offence, and even if it is so, each one participating in the process acted with ill intent and is criminally liable for it, unless some relevant evidence to that end with specific role of the one shown concerned has been found. No one would dispute that in the course of transactions, the companies make whooping profits and yet some time suffer colossal losses.
The loss to a company could be caused by many factors, such as sudden change in market trends, force majeure, a bona fide mistake, a wrong decision taken at a wrong time by its managers, etc. But unless there is at least a prima fade evidence of actus reus imbued with malintent on their part to gain personal benefit or to cause loss to the public exchequer by benefiting others illegally , none of them would be held liable for committing offence of misuse of authority or breach of trust, etc. A division bench of this court. (com prising one of us Shamsuddin Abbassi J.) while harping on the same point in an identical context in a judgme nt dated 08.10.2019 in criminal accountability appeal No.68/2018 by petitioner against conviction and sentence in reference No.2/2014 has made relevant observations which we as a reference in support of our view reproduce herein under .
"15. We have noticed from the judgment impugned that the learned trial court has taken it for granted that the entire Board of Directors and everybody else who had dealt with the transaction was guilty of corruption and corrupt practices. We cannot agree with the learned trial court. Even if an offence was committed, it would not ipso facto mean that all players in the transaction could be burdened with criminal intent purely on presumptions and perceptions. In a case from the Indian jurisdiction Soma Chakravarty v.
State through CBI (2007) 5 SCC 403 the Indian Supreme Court observed that "The courts although may take a strict view of an offence where fraud is alleged against a public servan t, but only because it is found to have been committed, the same by itself may not be sufficient to arrive at a conclusion that all officers who have dealt with the files at one point of time or the other would be taking part in conspiracy thereof or would otherwise be guilty for aiding and abetting the offence. It is necessary to deal with the individual acts of criminal misconduct for finding out a case therefor ." A Single Judge of this Court in Jamot Ghulam Muhammad and 3 others v . The State (1972 PCr .LJ 1 130 Karachi), most aptly observed that: "There are numerous other instances of defaults in transactions purely civil in nature but Which often appear to answer fully the ingredients of a criminal offence; and with a little clever glossing over every such case could be converted into an earnest prosecution. It is here that a Court is called upon to act with circumspection and to exercise the utmost care and caution before it is persuaded to employ its process for compelling attendance. This duty is heavier in private complaints which relate to transactions apparently civil in nature. The tendency to view a criminal action as to handy means to constrain person's conduct cannot be under -scored. We are still left with people in this country who are prepared to pay a price for their fair name and the spectre of a criminal prosecution case often compel them easily to relent on a stand which is otherwise well founded in law and in equity . It is this growing abuse of the process of a criminal Court that has to be guarded against. The difficulty for the Court itself often arises on account of the overlapping nature of a civil and criminal cause. But yet with a prudent application of mind it should be possible to draw distinct ion between the two. It is perhaps well to remember that the word "crime" suggests that not only should a man have brought about the forbidden actus but also that the line of conduct which he had voluntarily continued to that conclusion was inspired, or at least accompanied, by mens rea. The accused in other words, shall have been actuated by a legally reprehensible attitude of mind."
16. It is well settled that the standard of proof in criminal cases is that of beyond reasonable doubt whereas in civil cases it is on a balance of probabilities. The same, in our opinion, would also apply to the board of directors of a company . Simply because a negligent decision or an error of judgment was made by the board as a whole or by any of its members, it would not automatically impute criminal liability unless an element of criminal intent could be proved or inferred. ..........."
17. In order for a criminal offence to be successfully established, the coincidence of mens rea and actus reus must necessarily be proved. Or, it must be shown that the offence with which a person is charged was one of strict liability hence the requirement of mens rea may be dispensed with. ............................. ..............................................
The Honorable Supreme Court in Nasir Abbas v . The State ( 2011 SCMR 1966 ) observed: "While examining the judgment of the trial Court, we noted with dismay that the Court besides non-reading material evidence on record, did not keep in view requirement of proof of two essential elements of an offence to warrant a finding of guilt i.e. mens rea and actus reus. The age old Latin phrase epitomizes this concept, "actus non facit reum nisi mens sit rea", which means that the act does not make a person guilty unless the mind be also guilty . Actus reus in simple parlance is the actual act of committing some offence contrary to the law of the land and mens rea is the intent to commit the said offence, if either of the elements is missing, the conduct would not attract a penal provision unless it is a case of strict liability wherein the absence of mens rea may not be fatal to the prosecution."
18. The offences with which the appellants were charged with, though not each of the appellant was charged under similar subsections; required that prosecution prove mens rea. We have been shown no evidence to establish that mens rea on the part of the appellants was proved at trial nor that it can be inferred by their conduct.
19. The learned Special Prosecutor argued that this was a case of misuse of authority . Apart from the fact that no mens rea was proved at trial, the learned Special Prosecutor was unable to assist us as to how, based on the evidence led at trial, the misuse of authority was proved. This issue has been addressed by the Honorable.
Supreme Court in the case of The State v. Anwar Saifullah Khan (PLD 2016 Supreme Court 276). The Honorable Court in that case, after going through a series of previous cases observed that "10. With reference to the precedent cases mentioned above the law appears to be settled by now that in a case involving a charge under section 9(a)(vi) of the National Accountability Ordinance; 1999 the prosecution has to make out a reasonable case against the accused person first and then the burden of proof shifts to the accused person to rebut the presumption of guilt in terms of section 14(d) of the said Ordinance. It is also apparent from the same precedent cases that a mere procedural irregularity in the exercise of jurisdiction may not amount to misuse of authority so as- to constitute an offence under section 9(a)(vi) of the National Accountability Ordinance, 1999 and that a charge of misuse of authority under that law may be attracted where there is a wrong and improper exercise of authority for a purpose not intended by the law, where a person in authority acts in disregard of the law with the conscious knowledge that his act is without the authority of law, where there is a conscious misuse of authority for an illegal gain or an undue benefit and where the act is done with intent to obtain or give some advantage inconsistent with the law. The said precedent cases also show that misuse of authority means the use of authority or power in a manner contrary to law or reflecting an unreasonable departure from known precedents or custom and also that mens rea or guilty mind, in the context of misuse of authority , would require that the accused person had the knowledge that he had no authority to act in the manner he acted or that it was against the law or practice in vogue but despite that he issued the relevant instruction or passed the of fending order ."
20. Keeping in view the above principles, we are unable to agree that the charge of misuse of authority was proved. We have asked the learned Special Prosecutor to indicate to us evidence that would satisfy the criterion established by the Honorable Supreme Court; however , he failed to do so."
11 Then there are other factors strikingly leaning against any chance or likelihood of conviction to the petitioner .
Such as, payment of return/profit of Rs.12,790,41 1/- at the agreed rate of 18.5%; payment of Rs.17 million by Messrs Flying Board and Paper Products vide a pay order dated 03.03.2016 against its PPFTCs of Rs.10 million to NICL, payment of Rs.54, 547,886/- by Messrs Pak HY Oils (Pvt.) Ltd. in respect of PPTFCs of Rs.30 million to NICL through two pay orders dated 14.03.2016 and Tax Challan. This makes a total of about Rs.83 million out of 100 million. In addition, NICL has 60 millio n preference shares of FDIBL which have been convened into 7,200,657 ordinary shares. If sold are likely to fetch additional cash inflow making a total either close or crossing the invested amount. Learned Special Prosecutor NAB stated emphatically in arguments that petitioner and others with a criminal mind in order to extend benefit to FDIBL, a sinking concern, accepted its 60 million preference shares at Rs.10 per share, although it was trading at Rs.2.76, and further on maturity when the share was convened into an ordinary share further fell to Rs.1.10. To counter it, a reference was made to a letter dated 10.-5.2-10 issued by Stock Exchange Commission of Pakistan (available at page 273 of IR.) at the instance of share-holders of FDIBL allowing it to issue 75 million preference shares of Rs. 10 each amounting to Rs.750 million including 20% green shoe option otherwise than right under sections 86(1) and 90 of the Companies Ordinance. And it was urged that such price was fixed by SECP . Be that as it may, this letter at least tends to illustrate that SECP was on the board and was aware of restructuring process.
12. It is further reflected that NICL was not the only concern which invested in COI with FDIBL but many others made identical investment and on its default settled the matter like NICL through PPTFCs, its preference shares and other assets. Only two out of many , BMA Chundrigar Road Saving Fund and State Life Insurance Corporation, filed recovery suits and succeeded in recovering the amount in a cash settlement and other assets. It was only under these circumstances a settlement by restructuring of COI through PPTFCs of Pak Oil Ltd, etc. was done.
Meaning thereby the restructuring was occasioned not by any other consideration but by a force majeure, a circumstance which was beyond control of the petitioner . It may next be mentioned that the case against the petitioner has mainly been predicated on a violation of Finance Division OM No.F.4 (1) 2002-BR.II dated 2" July, 2003. But interestingly this OM does not speak of issue(s) related to restructuring done or to be done for the purpose of recovery of an investment already gone bad. And is meant only to govern the way deposit of working balances with any public or private bank and an. investment in the non-government securities / TFCs/shares up-to maximum of 20% of the total funds is to be made by public sector enterprises, and local autonomous bodies. The petitioner admittedly was not part of the decision-making-process for investment, he obviously thus cannot be held accountable for a breach, if any, in adherence to the policy contained therein. When we take a holistic view of all such facts discussed above plus the payments so far received or are likely to be received on account of restructuring by NICL from sale of 7,200,657 ordinary shares of FDIBL, we feel persuaded that there is no probability of petitioner being convicted of of fence he is charged with.
13. For foregoing discussion, we are of the view that petitioner just being a part of a decision for recovery of lost investment, which has gone wrong and has caused alleged loss to NICL, in the capacity of one of members of Board of Directors and Investment Comm ittee cannot be held criminally liable for it in absence of any evidence pointing out to his actus reus combined with mens rea to make personal gain and to cause such a loss. The charge containing such allegations against him is groundless and there is no likelihood or probability of the petitioner being convicted against that on the material available with the prosecution. Resultantly the petition is allowed and the proceedings arising out of Reference No.12/2018 to the extent of the petitioner are quashed.