LHC verdict vindicates Nishat Group''s plea

The Lahore High Court (LHC) is reported to have upheld Nishat Group''s (of Mian Mansha) contention that SBP rules requiring majority share owners of banks to lodge their shares with the central bank in a blocked account did not apply on MCB Bank Ltd. Issuing a verbal order on Thursday, an LHC bench read out a short order (a typed copy of the same will be issued on Friday), giving MCB bank owners a major relief on the ground that the circular in question was issued in 1992 while the bank was privatised in 1991 when this particular requirement did not exist.
The privatisation agreement also did not mention any such mandatory provision. Furthermore, owners of MCB Bank contended that shareholders in other companies holding MCB shares could not be discriminated against. Besides, Mansha family''s other groups of companies such as DG Khan Cement, Adamjee Insurance and Nishat Mills hold MCB Bank shares.
Placing the shares in a blocked account and debarring their free trade reduces their market valuation. In 1992, SBP had made pledging of shares mandatory after it was discovered that shares of Union Bank had been pledged by its owner Naseem Saigol with the Bank of Punjab for availing a credit facility. The SBP felt that the pledging of bank shares amounted to one bank owning the other bank.
Subsequently, all other banks'' majority shareholders such as Abdullah Basudan of Saudi Arabia, Aga Khan Fund for Development (France), Best Way Group (UK), Al-Nahyans (Abu Dhabi) were made to lodge their shares in a blocked account with SBP. SBP requires any person owning more than five percent shares of a bank to meet its ''fit and proper'' criteria. It also requires that person to seek permission from the central bank before selling banks shares. Lahore High Court''s Thursday decision is set to be a major setback to SBP''s regulatory oversight. The petition challenging SBP''s contention was filed after SBP denied MCB Bank permission to buy RBS (Pakistan) operations. MCB Bank was also finding it hard to expand its overseas operations because of its legal wrangle with SBP.