An Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has observed that the arguments of a leading oil and gas exploration and production company regarding changes proposed in the law relating to the appointment of share registrar in Draft Companies Bill, 2016 has no relevance as it is not the law currently in force.
In this regard, a two-member bench of the SECP has dismissed an appeal filed by the oil and gas exploration and production company against the order dated 21/04/16 (Impugned Order) passed by the Executive Director SECP (Respondent). The facts of the case are that Section 204A of the Companies Ordinance, 1984 (Ordinance) states that listed companies shall have independent share registrar possessing such qualifications and performing such functions as may be specified by the Securities and Exchange Commission of Pakistan (Commission).
The Commission while exercising the powers conferred under Section 506B of the Ordinance read with Section 204A of the Ordinance directed all the listed companies vide its Circular 44 of 2015 (Circular) to ensure compliance with the requirements of Section 204A(2) and the Balloters and Transfer Agents Rules, 2015 (BTA Rules) by appointing the share registrar registered under the BTA Rules. Moreover, all listed companies were required to comply with the aforesaid direction by 31/12/15. It was, however, observed that oil company (appellant) had not complied with the direction given by the Commission by not appointing the share registrar within the time prescribed under the Circular.
Show cause notice dated 19/01/16 (SCN) was served to the chief executive of the company. The company was directed in terms of the aforesaid provision to make good the default and ensure compliance with the provisions of the Ordinance and the Circular within 30 days from the date of the SCN.
The SECP has directed the company to make good the default within 60 days from the date of direction by appointing the share registrar registered under the BTA Rules to ensure compliance with the provisions of the Ordinance.
The company pleaded its case that the Commission is also seeking the revision of the mandatory requirement to have a share registrar and leaving it optional for companies to appoint a share registrar under the Draft Companies Bill, 2015. It is a well settled principle in law recognised by the Courts in Pakistan that benefit of change in law should be passed to any person affected. The law as yet is still in draft form; however, in view of the proposal to make the appointment of share registrar optional and the issues raised, the Commission may reconsider the enforcement of Section 204A of the Ordinance.
The Executive Director SECP said that the provisions of Section 204A of the Ordinance require that listed companies shall have independent share registrar possessing such qualifications and performing such functions as may be specified by the Commission.
The appellant has not complied with the aforesaid provisions even after SCN was served, wherein, the Chief Executive was directed to make good the default and ensure compliance of the Ordinance and Circular 44 of 2015 within 30 days from the date of the said notice. The said direction was not complied with within the prescribed time line. The SECP, however, vide its order dated 21/04/16 directed the chief executive of the company to make good the default within 60 days of the said direction. Appointment of independent share registrar should be viewed as an element of transparency in dealing with the matters relating to shareholders rather than an additional cost to the appellant and above all it is a mandatory provision of the law to be complied with by listed companies.
The appointment of share registrar is a mandatory requirement for all listed companies irrespective of its functions. There is no relaxation or exemption envisaged under section 204-A(2) of the Ordinance. The Companies Bill is still in the draft stages and, therefore, cannot be considered at this stage.
The bench has heard the parties that the company has argued that the appointment of the share registrar caused great inconvenience to the appellant and only 0.48 percent of the shares are in physical form of its total shares in the company, therefore, it is not necessary to appoint a share registrar.
The functions are not out of the ordinary course of business and the practicalities should be taken into consideration rather than the enforcement of the law. The company has further argued that the inclusion of the requirement of a share registrar for listed companies was made in the Ordinance through Finance Act 2007 and that an amendment in law through a Money Bill is ultra vires the Constitution and without any legal effect.
Moreover, it has been proposed in the Draft Companies Bill that the appointment of share registrar be made optional rather than mandatory which should be taken into consideration.
The SECP on the other hand has argued that Section 204A(2) is a mandatory requirement of the law and the appointment of share registrar helps improve transparency in respect of matters related to shareholders in a company.
Section 204A (2) of the Ordinance provides that, "Listed companies shall have an independent share registrar possessing such qualifications and performing such functions as may be specified by the Commission."
We are of the view that section 204A (2) of the Ordinance is an absolute requirement of the law which all listed companies must comply with regardless of whether they deem it necessary or not. It is also vital in improving transparency within a company in matters related to shareholders and protecting their interests.
Section 2 of the Securities and Exchange Commission of Pakistan (Amendment) Act, 2013 (SECP Amendment Act) has amended Section 5 of the SECP Act as follows: "(5) No act, proceeding or decision of the Commission shall be invalid only by reason of the existence of a vacancy or defect in the constitution of the Commission."
Further, section 4 of the SECP Amendment Act states "Anything done, actions taken, orders passed, instruments made, notifications issued, agreement made, proceedings initiated, processes or communications issued, powers conferred, assumed or exercised by the Commission as defined in clause (g) of Section 2 of the said Act or its employees as defined in clause (k) of Section 2 thereof in terms of amendments made through this Act, on or after December 19, 1997 and before the commencement of this Act, shall be deemed to have been validly done, made, issued, taken, initiated, conferred, assumed and exercised and the provisions of this Act shall have and shall be deemed to have had effect accordingly."
In view of this, any amendments made through the Finance Acts have now been regularised through the SECP Amendment Act. The company's argument pertaining to the changes proposed in the law relating to the appointment of share registrar in Draft Companies Bill has no relevance to the instant case as it is not the law currently in force. Taking this into account, Appellate Bench sees no reason to interfere with the Impugned Order. The Impugned Order is upheld with no order as to costs, SECP Appellate Bench added.
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