MUHAMMAD AZAM KHAN, J.
1. Through the instant Writ Petition filed under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973 ("Constitution"), the Petitioner [Gulistan Spinning Mills Limited], seeks to set aside the Inspection Order bearing No. EMD/1&1/233/128/2002 dated 20.03.2017 ("Impugned Inspection Order") issued by the Director, Corporate Supervision Department, SECP (Respondent No. 3) and the Inspection Letter of the same date bearing No. EMD/1&1/233/128/2002-1063 ("Impugned Inspection Letter") issued by the Additional Joint Director, Corporate Supervision Department, SECP (Respondent No. 4) on the grounds that same are illegal, without jurisdiction, contrary to law, unlawful, unwarranted, and unjust. The Petitioner further prays that the amendments made to Section 33(1) of the SECP Act, 1997 may be declared unconstitutional and ultra vires. Additionally, the Petitioner seeks directions restraining Respondents No.2 to 4 and their officials from interfering with the lawful rights of the Petitioner based on the aforementioned Impugned Inspection Order and Impugned Inspection Letter or from employing any coercive measures against the Petitioner.
2. The brief facts of the case, as per the contents of the instant Writ Petition, are that the Petitioner received the Impugned Inspection Letter, which refers to the enclosed Impugned Inspection Order.
Through the Impugned Inspection Letter, the Petitioner was informed that pursuant to the Impugned Inspection Order, Mr. Alshah Ali Raza, Additional Joint Director (Respondent No.4), and Mr. Muhammad Izharul-Haq Bhatti, Deputy Director, had been appointed as Inspectors to visit the registered office of Petitioner for the purpose of inspecting the Petitioner's records, books, books of accounts and papers. The Petitioner has alleged that the Impugned Inspection Order was issued after the alleged/purported review of the Annual Audited Accounts of the Petitioner for the year ending 30th June 2014 filed with the Registrar of Companies under Section 233(5) of the Companies Ordinance. Aggrieved by the Impugned Inspection Letter and Impugned Inspection Order, the Petitioner filed the instant Petition.
3. The Petitioner's counsel argued that the Impugned Inspection Order and the Impugned Inspection Letter are contrary to the true facts and real events; that the Impugned Inspection Order and Impugned Inspection Letter have been rendered in complete oblivion and negation of the correct state of affairs; that the Impugned Inspection Order and Impugned Inspection Letter are manifestly illegal, unmerited, without lawful authority, improper and of no legal effect, and are therefore liable to he set aside; that the 2007 amendment to Section 33 of the SECP Act unlawfully removed the right of appeal against interim orders; that Respondent No.2 is treating an order passed under Section 231 as an interim order; that the amendment in Section 33(1) of the SECP Act, 1997 is unconstitutional as it falls outside the scope of a Money Bill under Article 73 and lacked bicameral parliamentary approval per Article 70. The counsel further argued that the appointment of an inspector requires prima facie evidence of fraud or illegality, which is absent here; the actions lack specificity, are based on assumptions, and appear to be a fishing expedition. Such intrusive proceedings, especially into a closed and lawfully concluded transaction, damage the Petitioner's reputation and infringe its fundamental rights. The Impugned actions are therefore illegal, without jurisdiction, mala fide, and taken for extraneous reasons, in violation of due process, and are contrary to constitutional and legal principles, and must be struck down.
4. As per the report submitted on behalf of Respondent No.1, it is mentioned that the amendment in Section 33(1) of the SECP Act, 1997 is a valid piece of legislation and is not ultra vires of the Constitution. Accordingly, a prayer for dismissal of the instant petition is made on behalf of Respondent No.1 .
5. The learned counsel for Respondents Nos. 2 to 4 argued that the petition is premature and misconceived, as the appointment of inspectors and the inspection of books and accounts through an order under Section 231 of the Ordinance is essentially a fact--finding exercise and not an adverse order; rather, it is an administrative order, and no show-cause notice is required at this stage. SECP's powers to conduct inspection or inquiry are not subject to providing the opportunity of hearing initially; such right arises only when SECP intends to take adverse action based on the inspection, for which a show-cause notice is then required. The SECP Act, 1997 and the Companies Ordinance provide a self-contained mechanism of appeal, review, and revision. The Impugned Inspection Letter has been issued after due diligence and on account of data available on record; during the review of the annual audited accounts for the year ended 30' June 2014, the Respondents identified various anomalies, warranting a thorough inspection of the Petitioner's records. The inspection will ascertain whether the company affairs were managed in conformity with principles of good and efficient management and the applicable regulatory framework. The learned counsel prayed that the Petition lacks merit, raises no valid constitutional or legal violations, and should be dismissed with costs.
6. 1 have heard the reamed counsel for the parties and perused the record with their able assistance.
7. Perusal of the record shows that the Petitioner has impugned the Inspection Order dated 20.03.2017 passed under Section 231 of the Companies Ordinance, 1984, wherein it was observed that a thorough review/inspection of the company's records, books of accounts and books and papers is warranted. The contents of the Impugned Inspection Order require the Inspectors to submit a report regarding the affairs of the company in order to check whether they are being managed in conformity with accepted principles, standards of good and efficient management and the applicable regulatory framework. The Petitioner has also assailed the Inspection Letter dated 20.03.2017, appointing Mr. Alshah Ali Raza, Additional Joint Director and Mr. Muhammad Izhar-ul-Haq Bhatti, Deputy Director as Inspectors under Section 231 of the Companies Ordinance, 1984.
8. The learned counsel for the Petitioner submitted that although the Impugned Inspection Order has been purportedly issued under Section 231 of the Companies Ordinance, 1984, the language employed clearly reflects that SECP has, in essence, undertaken an enquiry/investigation into the affairs of the Petitioner's company--a course of action that falls exclusively within the ambit of Sections 263 and 265 of the Ordinance, which the SECP is not empowered to pursue. The SECP seeks to exercise powers available under Section 265 of the Ordinance under the guise of Section 231.
9. The Honorable Supreme Court of Pakistan in the case of Saif Power Limited Versus Federation of Pakistan through Secretary Ministry of Law, Civil Secretariat Islamabad and others (2023 SCMR 714), regarding the scope and nature of inspection under Section 231 and investigation under Sections 263 and 265 of the i Ordinance, stated the following: "Thus. we find that the provisions relating to inspection and investigation are distinct, An inspection is an administrative power exercised by the SECP to ensure compliance of regulatory requirements. This power is limited to the inspection of books of account of a company after recording of reasons for the inspection in this regard. Whereas. an investigation against a company is a serious matter, as it is capable of entailing consequences both financial and penal which will impact the goodwill oldie company. Consequently, an investigation cannot he ordered except on statutory grounds which include allegations of .fraud, illegalities into the affairs of the company, or misuse and misappropriation of Fiords the company. It is then the duty of the SECP to consider and weigh multiple factors such as the nature of the complaint and its source, ensure due process and follow the statutory process in good with, without any bias, prejudice or ulterior motives. The Ordinance does not prescribe the same process for an inspection simply because its scope is limited as are its consequences.
The dispute between the parties arises on account of the impugned order dated 26.07.2021 issued by the SECP. The emphasis is on the reasons provided in this order being indicators of cause of concern for the SECP on the basis of which they opted to inspect the books of account of the Petitioner. As per the order, the inspector shall conduct an inspection of all aspects of the company after scrutiny of all records, books and papers and provide a report on any unusual transaction or occurrence relating to the affairs of the company. These reasons are beyond the books of account, hence, beyond the scope of an inspection. We find that the order contains specific allegations, for which it seeks to investigate the matter in order to ascertain the merits of the allegations, this is beyond the scope of section 231 as the SECP is clearly looking to investigate into the allegations contained in its order dated 26.07.2012 and not to inspect books of account.
Even the causes of concern are based on potential allegations of misuse of funds and running the business against sound business practices as fictions costs are being built into different accounts.
Effectively, SECP issued a notice and order under section 231 of the Ordinance, while, in fact, exercising powers under section 265 of the Ordinance, without meeting the necessary requirements of the said section. In this context, the section mentioned is immaterial for this Court for the purposes of assessing whether it was an inspection or an investigation as it is the substance that matters and the powers that are sought to being exercised that determine which section of the law is being invoked."
10. Reliance in this regard is further placed upon Atlas Power Limited Versus Federation of Pakistan etc., in W.P. No. 20088 of 2012, wherein the Honorable Lahore High Court held: "In this background, the submission made by the learned counsel for the petitioners that in the guise of carrying out an inspection of books of account and hooks and papers, the inspecting authorities cannot make a roving enquiry into the affairs of the company merits ,serious consideration. This Court is of the opinion that the scope of inspection of books of account and other books and others books and papers under section 231 of the Ordinance has its limits and has to be distinguished from the investigation of the company's of airs umler section 263 and 265 of the Ordinance...
"SECP vide order dated 01.08.2012 appointed four persons "...to inspect the hooks of account and hooks and papers of the Com an ...." and on the same da ' issued im u ned letter dated 01.08.2012 and appointed inspectors in the garb of exercising powers under section 231 of the Ordinance. It is clear from the tenor of letter dated 01.08.2012 that the real purpose of SECP was lo investigate the affairs of the petitioners through inspectors but without the compulsion of issuance of a show cause notice to the petitioners as mandated by sections 265 of the Ordinance. It is accepted position that report under section 231 (5) can lead to investigation and appointment of inspectors under section 263 but inspectors cannot be appointed simultaneously with the order of inspection of books of accounts and other books and papers as SECP proceeded to do through letter dated 01.08.2012. Be that as it may, in case inspectors are to be appointed then prior show cause notice has to be given. For all intents and purposes, through letter dated 01.08.2012, SECP exercised powers under section 265 of the Ordinance as under section 231 of the Ordinance, it had no power to appoint inspectors to carry out the investigation into the affairs of the petitioners. The fact that inspectors were appointed under section 265 of the Ordinance is furthermore apparent from the task given to them in terms of clause 2 of letter dated 01.08.2012. The registrar or the inspecting official at the most can inspect the books of account and other documents/papers of similar nature in exercise of powers under section 231 of the Ordinance. However, the wide nature of work the inspectors were required to perform under the impugned letter could not be undertaken in terms of section 231 of the Ordinance. The source of power for issuance of order/letter dated 01.08.2012 was located in section 265 of the Ordinance and, therefore, SECP had to issue the show cause notice to the company before taking the proposed action."
11. It is a well-established principle that the appointment of Inspectors under Section 263 of the Ordinance for initiating an investigation cannot be made simultaneously with the direction to inspect books of accounts and other records, as the SECP purported to do through its Impugned Inspection Order. In any case, before appointing Inspectors, the law mandates the issuance of a prior show-cause notice to the concerned party. However, in the present matter, no such notice was issued to the Petitioner. For all practical purposes, the SECP, by its Impugned Inspection Letter, purported to exercise powers under Section 265 of the Ordinance, despite the fact that under Section 231, it had no authority to appoint Inspectors for the purpose of investigating the affairs of the Petitioner. This conduct on the part of the SECP reflects a clear overreach and exercise of powers beyond its jurisdiction.
12. In view of the foregoing discussion, this Court is persuaded to hold that the SECP shall confine its actions strictly within the parameters of its authority under Section 231 of the Companies Ordinance, 1984 / Section 221 of the Companies Act, 2017, while conducting an inspection of the books of account and other records of the Petitioner's company, in accordance with the guidelines laid down by the august Supreme Court in the case of Saif Power Limited (supra). It is further clarified that the powers of inspection under Section 231 are distinct and independent from the powers of investigation conferred under Sections 263 and 265, and the two are mutually exclusive.
Accordingly, the SECP is restrained from resorting to investigative actions under the pretext of conducting an inspection.
13. Moreover, in the event that the Petitioner is aggrieved by any order passed by the SECP in this regard, particularly if investigative powers are exercised under the guise of inspection, it shall be open to the Petitioner to seek appropriate relief before the competent forum in accordance with the remedies available under the law. Consequently, and in view of the above discussion, this Writ Petition stands disposed of in the terms set forth herein.