' Messrs Diamond Industries (Pvt.) Limited a public limited company (hereinafter referred to as Company) incorporated under the Companies Ordinance, 1984 (to be called hereinafter as Ordinance) for the purpose of setting up an industrial unit for the manufacture of Foam Products in the Industrial Estate of Gadoon Amazai, N.-W.F.P. The Company sought public subscription and then got listed on the Karachi, Lahore and Islamabad Stock Exchanges. The Company initially earned profit and paid dividends during the period dated 30-6-1995, but subsequently it showed losses for the years 1996, 1997, 1998 and 1999. These negative figures necessitated the examination of the financial statement and during which, in addition to the losses shown, some other illegalities and irregularities were also found and consequently the Securities and Exchange Commission of Pakistan (to be called hereinafter as Commission) through its Commissioner Enforcement (E.N.F.) issued show-cause notice on 11-9-1999 to the company, as to why the Inspector not be appointed under section 265 of the Ordinance to investigate the affairs of the Company in order to bring the true facts/affairs into lime light. A reply was filed to the said show-cause notice. However, after giving opportunity to the Company, an order appointing the Inspector was passed to investigate the affairs of the Company to bring out the true facts.
2. The Company filed an appeal under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 (Act XLII of 1997) (hereinafter to be referred as Act) before the Appellate Bench of the Commission which was accepted on the ground that "the impugned order has not been confined to the issues raised in the show-cause notice" and the order of appointment of the Inspector was set aside.
3. The Commission again issued a show-cause notice on variety of grounds. This show-cause notice, inter alia, contained the following illegalities and irregularities:--
(i) The annual accounts of the Company for the year ended 30-6-1999 and earlier years, reveals that the Company paid no return to its shareholders during the years 1996, 1997, 1998 and 1999.
(ii) The inconsistencies relating the gross profits, admin and selling expenditure, financial expenditure, operating profit and net profit have been noticed from the working results of the company relating to its half yearly accounts for the period ended 31-12-1996, 30-6-1997, 31-12-1997, 30-6-1998 and annual accounts for the period ended 30-6-1997, 30-6-1998 and 30-6-1999 respectively.
(iii) The Company spent heavy amount on advertising a trade name which was not registered in the name of Company.
(iv) No fee has been charged from the subsidiary Company which is not wholly owned subsidiary Company, for making its products under the said trade mark.
(v) That the Company has built up its raw material stock despite it has stopped production in September, 1997.
(vi) The publication of accounts are silent about the companies transactions with associated companies and it also appears that there is no adherence to the provision of section 203 of the Ordinance.
(vii) The Directors of the Company set up another platform namely Diamond Polymers (Pvt.) Ltd.
After the closure of the factory of Diamond Industries Limited, in which this Company has much reduced interest, thus the interest of shareholders of this Company has substantially diluted.
(viii) The Company appears to have deviated factually from its core business and has been operating as an investigation Company, which is violation of memorandum of association.
4. The above facts lead to the formation of an opinion by the Commission that the affairs of the Company are not being managed in accordance with sound business principles or prudent commercial parties but are being so conducted and managed as to deprive the members thereof a reasonable return.
5. The appellant submitted a detailed reply to the aforesaid show-cause notice. After considering reply to the show-cause notice and providing opportunity of hearing to the Company, the commission reached a conclusion that the affairs of the Company so conducted require an investigation under section 265 of the Ordinance and Inspector was appointed vide order dated 12-10-2000.
6. The appellant felt aggrieved of the order of the Commission filed an appeal under section 33 of the Act before the Appellate Bench of the Commission, which appeal, after hearing of the parties, was ultimately dismissed and now the present appeal under section 34 of the Act has been filed.
The Commission has also, of its own, filed reply to the appeal which was responded by the appellant by filing rejoinder thereto.
7. The learned counsel for the appellant has made twofold submissions:-- (0 Violation of the principle of natural justice and also of the statutory provisions by not giving a meaningful show-cause notice and providing an adequate opportunity of hearing.
(ii) That the order has been motivated by malice and bias on the part of respondent No, 1 .
8. The learned counsel for the appellant while elaborating the first point, the violation of the principle of natural justice, has submitted that it is the order dated 5-12-2000 passed by the Appellant Bench, which he called it as the "impugned order" is the last in the series and which has been impugned and the decision of this Court will be based on consideration of only this order on the principle of merger of orders of the 'ower forums in that of the highest one and also on the principle that it is the decree of the last Court, which is executable. In this respect reliance was placed on Saeed Ahmad v. Messrs Indo Enammel Works Limited, Lahore (PLD 1954 Lahore 490). In this context he has referred to the order of the Appellate. Bench and has submitted that the appeal was dismissed on two grounds:--
(i) that despite the huge losses suffered by the Company it has declared an interim dividend at the rate of 30% in March, 2000 for which the Company could not provide an evidence of profits justifying such dividend;
(ii) that the company has failed to prepare and present annual accounts of the Company for the year ended 30-6-2000 before the members in the annual general meeting within the statutory period provided for the purpose.
' The aforesaid two grounds are neither part of the show-cause notice dated 7-10-2000 nor part of the order of the Commissioner Enforcement (E.N.F.) (who may be hereinafter called as respondent No, 1) dated 12-10-2000. Whereby the Inspector was appointed to investigate the affairs. The reasons given by the Appellate Bench in its order has got no nexus whatsoever with the issue raised in either the show-cause notice or order dated 12-10-2000. Instead the appointment of an Inspector has been justified on the basis of aforesaid two charges which the Company was neither confronted with nor allowed to refute. No notice of these charges was given to the Company either verbally or in writing and hence it was deprived of affording a meaningful opportunity to be heard in respect of the issues forming the basis of the order of the Appellate Bench. It has been argued that under the rules of natural justice which have been incorporated in section 265 of the Ordinance, every person is entitled to a notice and full hearing before any order prejudicial to his interest is passed. The appointment of an Inspector to investigate the affairs is a serious matter which deeply affects the standing and reputation of the Company and particularly of the respondent-Company which is a publicly held and traded Company. Hence, he termed the order of the Appellate Bench as illegal as a violation of the rules of natural justice. On the point that the investigation ought not to be taken so lightly he placed reliance on AIR 1969 SC 707 (Rothas Industries Ltd. v. S.D. Agarwal and another), and 2000 MLD 1880 (Services Industries Textile Limited v.
Securities and Exchange Commission of Pakistan). On the point of violation on the principle of natural justice reliance was placed on PLD 1992 SC 534 (Riazuddin v. Chairman, Pakistan International Airlines Corporation and 2 others) PLD 1977 Lahore 461 (Aashiq Muhammad Khan Mazari v. Chairman, Federal Land Commission and others), AIR 1971 SC 752 (Surath Chandra Chakravarty v. The State of West Bengal) AIR 1952 SC 16 (Commissioner of Police, Bombay v.
Gordhandas Bhanji), AIR 1978 SC 851 (Mohinder Singh Gill and another v. The Chief Election Commissioner, New Delhi and other), AIR 1988 Patna 258 (Smt. Ambika Devi v. State of Bihar and others) and AIR 1985 Calcutta 281 (Sub-Divisional Controller of Food and Supplies, Durgapur and others v. Amulya Ratan Sadhu and others).
9. He has also submitted that the Appellate Bench has not referred to the other grounds in the order, except the two mentioned above and the judgment is silent about the other grounds mentioned in the show-cause notice or in the order of respondent No,1 and which is to be presumed that the said grounds have not been agitated before the Appellate Bench. In this respect reference was made on 1986 CLC 2337 (Noor Muhammad v. Din Muhammad and others) and PLD 1969 Lahore 16 (Mumtaz Begum v. Sh. Inayatullah). Once the grounds were not agitated and abandoned, the same cannot be pressed into service by the respondents in support of their case at this stage even in this Court no cross-objection has been filed in respect of the grounds which have been left unattended by the Appellate Bench and which according to the respondents go to the root of the case.
10. The other ground of the learned counsel for the Company is that the investigation as ordered by respondent No,1 is motivated by malice and bias. The respondents after having been failed to prove one set of allegations have come with another set of allegations showing their inclination to initiate the investigation against the Company on one pretext or the other as when the first order of investigation was set aside by the Appellate Court, it has again started the same on different grounds and the Appellate Bench has maintained the order of investigation totally on quite different grounds. He has submitted that there are two kinds of mala fides:
(i) mala fides on facts
(ii) mala fides in law.
' A reference was made to PLD 1997 Lahore 38 and submitted that if it is taken that the mala fides on facts has not been approved, at least it is a clear-cut case of mala fides in law as the impugned orders are totally illegal and unlawful.
11. On merits, the learned counsel for the Company has contended that both the grounds which weigh with the learned Appellate Bench are not sustainable. He has made efforts to justify the source of gains of the dividends as declared by the Company and has submitted that the time was still left at the disposal of the Company for the presentation of its account at the annual general meeting as being a publicly traded Company was required to present its audit account at such a meeting of the shareholders to be held within a period of six months following the close of its financial year and which was required to be held on or before 1-1-2001 while the impugned order was passed on the 5th of December, 2000, sufficient long before the crucial date. The Company has also made an application under section 158(1) of the Ordinance for the extension of time in holding the annual general meeting and forty-five days period was allowed by the commission vide its letter dated 11-12-2000. Even otherwise such a violation i,e, not holding the Annual General Meeting (AGM) in time at the most entails monitory penalty under section 159 of the Ordinance.
12. The learned counsel for the respondents, while controverting the contentions made by the learned counsel for the appellant, has contended that the main function of the commission is to protect the interest of the share-. Holders who may be in minority and for this purpose it is having overall supervision control over the affairs of the Company and to achieve this aim the Commission has also been given power to appoint an Inspector to investigate the affairs of the company.
13. A reference was made to the interim report, filed by the Inspectors after their appointment till the date of decision of the Appellate Court with regard to the first show-cause notice, wherein it has been found:
(1) that a contradictory stand has been taken by the appellant-Company as on one side it has stated that in view of the uncertainty of state of affairs, the Directors were considering the delisting of the Company from the stock exchanges and on the other hand it was building raw material stock; there is no evidence as to the subsequent position of the stock where they are still being paid by the Company or have been sold to its subsidiary Company.
(ii) With regard to the publicity of the trade mark it was observed that the amount which has been spent in the publicity of the brand names at the cost of other shareholders would be available to them if not have been spent so, and for which no compensation was paid to the Company for the use of the trade mark by the subsidiary Company, and this has diluted the interest of the minor shareholders.
(iii) It was suspected that the Company transferred funds to its associated companies without charging any interest thereby causing loss to the Company and the shareholders.
(iv) That Iftikhar Shafi remained Chief Executive of both Diamond Industries Limited and Diamond Polymer (Pvt.) Limited for some years who resigned later on in June, 2000 and this practice is in violation of the provision of section 203 of the Ordinance as both the companies were engaged in competitive business selling the same products under the trade name Diamond Foam.
(v) That the Company was not willing to provide complete record and complete information.
13. In addition to the above facts it has also been contended on behalf of the respondents that there are substantial allegations of irregularities and illegalities against the Company, and that the appellant taking shelter under the technicalities. The affairs of the Company require investigation by the Inspector and if the officer of the Company have committed no fault, then they should not be apprehensive of conducting the investigation by the Inspector.
14. In reply . To the submission made by the learned counsel for the company it has been contended that there is no violation of the principle of natural justice or any statutory provisions to that effect, respondent No,1 has passed the order of investigation on the grounds which are quite in consonance with the grounds mentioned in the show-cause notice. The Appellate Bench, the order of which has been impugned before this Court, has not confined the grounds of rejection of appeal only to the aforesaid two grounds specifically mentioned in the order and referred to above by the learned counsel for the Company, but had particularly made a reference to the grounds on which the order of appointment of Inspector has been passed and also with a reference to the submission made on behalf of the respondents and the order will have to be looked at in totality not in isolation of such-like observations. He has also vehemently pressed into service the same grounds as mentioned in the show-cause notice and also in the order of respondent No,1. He has also placed reliance on a case AIR 1959 Madras 229 (The Coimbatore Spinning and Weaving Company v. M/s. Srinivasan Chartered Accountant, Coimbatore and another), and has submitted that it is just an investigation by an Inspector and whose position is analogous to that of a Sub- Inspector of Police who investigates a criminal case and then made a report to that effect.
15. The learned counsel for the company, in his rejoinder, has also submitted that the Company was un ware of any interim report, as has been referred to by the learned counsel for the respondents as the same has not been conveyed to it and that legally it stands nowhere as the same has been submitted in pursuance of an order of the Commission which was ultimately set aside without any appeal and which has attained finality.
16.There is no cavil with the proposition of the principle of natural justice that before taking an action against a person prejudicial to his interest, he must be afforded an opportunity of hearing and which has also been specifically incorporated in section 265 of the Ordinance. The authorities referred to by the learned counsel for the Company have also specifically laid down certain principles to be observed i,e, that the person should be apprised of the charges levelled against him, the proposed action to be taken against him, so that he may be able to make a proper and effective representation and he B should not be taken on surprise. It has also been laid down in some of the judgments referred to above that the public orders publicly made in exercise of statutory authority cannot be construed in the light of explanation subsequently given by the officer making the order of what C he meant, or of what was in his mind or what he intended to do.
It is also not disputed in the present case that the Company has not been served with a show- cause notice mentioning all the allegations on the basis of which the order of appointment of the Inspector was passed and which has been admitted by the Company itself in the memorandum of its appeal at para. 12(A) (i), which reads:-- "As detailed above, the show-cause notice dated 7-8-2000 and the order dated 12-10-2000 appointing an Inspector had charged Diamond Industries with a variety of offences, all of which were effectively refuted at length in the various documents which have been appended hereinabove."
' What he emphasises is that the grounds specifically mentioned in the order of the Appellate Bench dated 5-12-2000 and what he called is "the impugned order" has got no nexus with the issues raised in the show-cause notice as according to him that the Appellate Bench had rejected the appeal only on two grounds specifically mentioned in para.3 of the impugned order and which are (i) that the Company could not justify the dividend at the rate of 30% paid in March, 2000 and
(ii) that it has not presented its annual accounts in the AGM, and which are not the grounds of the show-cause notice. By looking at the impugned order it is quite clear that it is not the only two grounds which weighed with the Appellate Bench but it was, in addition to the other grounds on the basis of which the order of appointment of Inspector was passed by respondent No,1 and which were agitated before the Appellate Bench. In this context relevant parts of the impugned order, which are the last two lines of para.2 and also para. 4 and which are reproduced respectively:--- "The officer appearing on behalf of the respondent opposed the appeal on the basis of grounds mentioned in the impugned order.
(4) After hearing both the appellant and respondent, we do not find any jurisdiction to interfere in the impugned order and the Inspector may continue his work so as to complete the fact-finding exercise."
Moreover, unlike the fiscal statute i,e, the income-tax, wealth tax and Customs Act, etc., where the scope of appeal has only been confined to the determination of limited question i,e, relating to law, the scope of the present appeal has not been confined to such limited question. Sections 33 and 34 of the Act, have given a right of appeal to a person passed by the lower forum without leaking any distinction as to what question could be agitated in the appeal filed under section 33 and what question in appeal filed under section 34. In the absence of any such embargo or limitation placed, the scope of appeal before this Court cannot be confined only to the question specifically referred to in the impugned order and by not looking at the other material which go deep to the root of the case and agitated before the Court and specially when a reference, as quoted above, has also been given in the impugned order. The plea of the learned counsel for the Company that the other grounds, which have not been specifically mentioned in the impugned order, on which the impugned order is to be maintained cannot be pressed at this stage unless a cross-objection has been filed. His this submission is totally not maintainable as the cross-objection is filed only when there is a part of a decree or judgment which is against a person, but here in the instant case not to speak of a part of the decree or judgment which is against the respondents, even none of the grounds of the impugned order are against the respondents. On filing appeal, in the absence of any limitation in the relevant laws confining the scope of appeal, the whole case opens and becomes the subject of discussion before the appellate forum. In this respect reliance can be placed on 2001 SCMR 256 (Allah Yar v. General Manager, Railways Headquarters, Lahore and another), the relevant portion of which reads:-- "Appellate forum is required to examine each and every aspect of the matter in-depth and only thereafter conclusion should be drawn in accordance with record, evidence, prevalent laws, rules made therein, principle of natural justice and settled norms of justice."
' The. Judgment both on the principle of natural justice and that of the merger of judgment in that of the Appellate Court, referred to by the learned counsel for the Company, are distinguishable and not applicable in the present case.
17. With regard to the malice and bias on the part of respondents nothing has been shown or brought on record to indicate that the respondents have been motivated by malice. Even the malice in law was also not shown to exist as the orders which have been passed are within the jurisdiction of the authority and quite legal and in accordance with law. After the acceptance of appeal of the Company and setting aside of the first order of appointment of the Inspector on technical grounds, as the grounds of the order were not in line with the grounds mentioned in the show-cause notice, does not debar the commission to proceed again against the company and even the order in appeal has also not precluded the Commission to proceed afresh. The mala fide cannot be attributed on this score too.
18. As far as the interim report is concerned, the same be kept out of consideration, inter alia, on the grounds that the same was prepared as a result of investigation initiated on the order of respondent No,1 which was subsequently set aside, without any further appeal, and which has attained finality.
19. On the question as to whether the investigation into the affairs of the Company is a serious matter, the judgments of the Indian Jurisdiction are also not unanimous on the point, as in the AIR 1969 SC 707, which was referred to by the learned counsel for the Company, held that the investigation is a serious matter as that the same may receive much press publicity as a result of which the reputation and the prospects of the Company may be adversely affected but on the other hand as held in AIR 1959 Madras 229 that it is like the investigation conducted by a Sub- Inspector of Police and the position of Inspector appointed for the purpose of investigation is analogous to that of Sub-Inspector of Police just to investigate the crime and submit his report. It was also held that certain powers of the Inspector to take evidence on oath is included in the powers and facilities of the Inspector but similarly are some powers and facilities which are also enjoyed by a police officer under the Criminal Procedure Code who can also take certain decisions e.g. As to whether a particular house to be searched or not, a particular paper to be seized or not and a particular person be arrested or not. The judgments cited by the learned counsel for the Company are relating to investigation into the affairs of the Company but with regard to different provisions/sections of law. According to the scheme of the Company laws relating to the investigation into the affairs of the company, there are different circumstances under which such an investigation is directed. According to cited judgment the matter for investigation was under sections 235 and 236 of the Companies Act, 1956. According to section 235 of the investigation can be initiated at the behest of certain persons/members of the Company by making an application to that effect and whose number may also be not less than a specified number of the members/persons. Under section 236 the members are required to support their application by evidence and they are also required to furnish security for the payment of the cost of the investigation. Under section 237 of the Companies Act, Central Government, without any application may by any member or person, can order the investigation into the affairs of the Company under certain circumstances. Similar provisions also exist under sections 263 to 271 of the Companies Ordinance, 1984 which come under the head "investigation and related matters under Part VIII, of the Ordinance concerning management and administration of the Company".
Sections 263, 264 and 265 of the Ordinance are in pari materia with sections 235, 236 and 237 of the Companies Act respectively. The investigation under sections 263 and 264 can only be ordered when the applicant is having sufficient evidence for showing that he has good reasons for requiring the investigation, but under section 265 (b) the Commission may direct the investigation if in its opinion there are circumstances suggesting that (i), (ii), (iii) and so on.
20. The two provisions whereby the investigation is directed to be conducted stand on different footing. The one under section 263 can only be ordered when the applicant is having evidence in support of his plea showing thereby that he has got good reason for requiring the investigation, but in the case of section 265(b) such an investigation can be directed suo motu by the Commission, if in the opinion of the Commission, the circumstances suggesting the grounds mentioned therein for the purpose of investigation. The former requires some proof while in the latter case it has been left to the opinion of the Commission formed on the basis of the circumstances leading to' the grounds justifying investigation. The judgment referred to by the learned counsel for the company 2000 MLD 1880 also does relate to the investigation under section 265 (a) but to section 263 and which judgment has also been based on AIR 1959 SC 707, referred to above, and which is distinguishable.
In case reported as Mian Miraj Din and others v. Brothers Steel Mills and others (1996 CLC 516), the Hon'ble Court after examining a number of law book/commentaries and the judgments of the Courts on the subject, cited at the bar, is of the view that an order for holding investigation into the affairs of the Company does not have the effect of infringements of rights of any person and the same is not judgment in the strict sense, as an order for investigation into the affairs of the Company is nothing but merely a step. It would be advantageous to reproduce the relevant portion of page 528 of the report:-- "It has also been held that the expression 'affairs of the Company' was wide enough to include any contravention of law and the Court could make declaration wherever it suspects that all was not well as regards the affairs of the Company. According to these commentaries these provisions have been made to protect minority shareholders and that a single shareholder could approach the Court. They have gone to the extent that an order for holding investigation into the affairs of the Company does not have the effect of infringement of right of any person and the same is not judgment in the strict sense as an order for investigation to the affairs of the Company is nothing but merely a step. According to the Authors the affairs of the Company includes ownership of the Company and share dealings and books of accounts as also the conduct of the Directors. The allegations against some of the Directors for manipulation of accounts was also one of the matters in which investigation could also be made by the Inspectors."
If the reputation of a person or of an entity is kept in view and on such a ground a hesitation is felt to investigate the matter, then there are cases in which the persons of high repute, may be politically or officially enjoying high status the investigation may not be ordered and then on the basis of such an apprehension no step can be taken even against the actual culprits who have committed the offence. It is just an investigation, probing into the matter, to reach the truth and not a penalty or punishment even does not include a reprimand or warning as at the conclusion of the investigation then it would be the Commission to prosecute a person/member under sections 270 and 271 of the Ordinance.
21. The Securities and Exchange Commission of Pakistan has been established, as per Preamble of the Act, for the beneficial regulation of the capital market, superintendence and control of corporate entities and for matters connected therewith and incidental thereto. It is also one of the functions of the Commission under section 20(4)(i) of the Act read with Item No,21 of the Schedule to the Act to conduct investigation in respect of matters related to the Act and Ordinance and particularly to investigate insider traders and securities and prosecuting offenders and to prosecute a Company or person found guilty as consequence of investigation per sections 270 and 271 of the Ordinance.
' Keeping in view the overall circumstances of the case it is abundantly clear that there are sufficient grounds mentioned in the show-cause notice and in the order of respondent No,1 which justify the investigation into the affairs of the Company and while maintaining the order of the forums below, the appeal is rejected.
Appeal rejected.