Section 237 of Companies Ordinance: listed, non-listed companies must comply with requirements: SECP Bench

An Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has declared that there is no distinction between a listed and non-listed company for presentation of its consolidated financial statements to the commission under section 237 of the Companies Ordinance. According to an order issued by the SECP Appellate Bench Number-IV, the opinion of the Technical Services Directorate of Institute of Chartered Accountant of Pakistan (ICAP) also states that all companies irrespective of their status have to comply with the requirements of section 237 of the Ordinance.
In the instant case, section 237 of the Ordinance was applicable to the company as it was a holding company. The Fourth Schedule states that it applied to all listed companies, however, the Company as an unlisted company should have complied with the substantive law ie section 237 of the Ordinance which takes precedence over any schedule. Further, IAS-27 provides that the Standard applies to the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. There is no distinction between a listed and unlisted company. Further, the Company does not fall within the exemption of paragraph 10 of IAS-27 which provides that a parent company which itself is a subsidiary does not need to consolidate its investments in subsidiaries in accordance with the Standard The S.R.O 665(1)/2005 dated 28/06/05 relied on by the Company in support of its argument is in respect of listed companies and has no correlation with the facts of the instant case.
Section 237(8) of the Ordinance provides, "The Commission may, on an application or with the consent of the directors of a holding company, direct that in relation to any subsidiary, the provisions of this section shall not apply only to such extent as may be specified in the direction." Bench has noted that the Company had also requested for exemption under section 237(8) of the Ordinance which was granted to prepare consolidated financial statements for the period 30/06/11 and by the Appellate Bench for the accounting period 30/06/12 vide Order dated 09/12/14 in Appeal No 50 of 2012. The Registrar of Companies vide letter dated 23/06/15 had also granted exemption from preparation of consolidated accounts for the period ended 30/06/15. The Company, therefore, has tacitly accepted that the requirement to consolidate the financial statements exists in law and in the event of failure to comply with the said requirement, an application pursuant to section 237(8) of the Ordinance can be made to the Commission. Bench is of the view that if for any reason the Company could not comply with the requirements of section 237 of the Ordinance and IAS-27, the Company had the option to make an application pursuant to section 237(8) of the Ordinance to the Commission for an exemption which they have chosen not to exercise in the instant case.
In view of the foregoing, Bench see no reason to interfere with the Impugned Order, SECP Appellate Bench Number-IV added. Background revealed the facts leading to the case are that the commission while examining the annual audited accounts of the Company for the financial year ended on 30/06/08 observed that the Company contravened the provisions of section 237 of the Ordinance by failing to submit the consolidated financial statements comprising its subsidiary company.
Notice was served on the Company, Chief Executive Officer and Directors of the Company asking them to explain as to why necessary penal action may not be taken against them under section 237(9) for making default in complying with the provision of the said section. Head of Enforcement Department SECP (Respondent) dissatisfied with the response of the company held that the Company had not complied with provisions of section 237 of the Ordinance. However, keeping in view the arguments presented, a lenient view was taken and a token penalty of Rs 10,000 was imposed on each Director and Chief Executive Officer of the Company with the total penalty amounting to Rs 60,000. The company had preferred the appeal against the impugned order before the SECP Appellate Bench.