Violations by management: non-executive directors should act as whistleblowers: SECP bench

An Appellant Bench of the Securities and Exchange Commission of Pakistan (SECP) has observed that the non-executive/nominee directors of institutions and companies should act as a whistleblower to indicate violations committed by their company management. According to the order issued by the SECP, Appellant Bench No-IV, the bench has also directed the SECP to issue a direction for the institutions and companies, who nominate directors on Board of Directors (BoD) of different companies to arrange extensive training program for their nominee directors to ensure future compliance of relevant laws.
The bench order has disposed of Appeal No.29 of 2016 filed by a nominee director of a spinning mill under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 against the order dated 11/05/16 (the Impugned Order) passed by the Respondent (SECP) under section 158 read with section 476 of the Companies Ordinance 1984 (the Ordinance).
The Bench is of the view that a company director whether nominated or elected are responsible to ensure compliance of relevant laws however, while adjudicating upon a contravention attributed to the BOD of a company, we (bench) have to consider respective role and conduct of BOD members. No doubt the Appellant (nominee director) is a nominee/ non-executive director and he had no active role into day to day affairs of the Company, however this fact alone cannot exonerate him from the contravention of section 158 of the Ordinance. To dislodge the allegation that Appellant was knowingly and willfully, a party to the default, the Appellant in its defense has relied on two letters, an email and extracts of minutes of BOD wherein he has asked the Company''s management to comply with the requirements of relevant laws in true letter and spirit to avoid penal action of the Commission, however all went in vain. The Appellant has demonstrated good conduct by writing letters, email and by raising his concern during BOD with respect to violation of section 158 of the Ordinance.
The Appellant being a nominee director was required to be more vigilant and conscious to protect the interest of the institution represented by him. A non-executive/nominee director should have act as a whistle blower to indicate violations committed by company management. Firstly, Appellant was required to raise his concern within the Company and thereafter if his concerns were not addressed, he was required to intimate the violations to the Commission or the Stock Exchange. The documents annexed with the appeal shows that the Appellant by agitating the issue of
AGM within the Company has performed first part of his obligation, however second part whereby he was required to highlight the violations to the Commission or the Stock Exchange has not been fulfilled. The partial performance by the Appellant depicts good faith; therefore, it cannot be overlooked while deciding this appeal, SECP bench added.
In the said circumstances it is mandatory for the Bench to follow Principle of consistency in order to maintain balance and the doctrine of equality before law as enshrined in Article 4 and 25 of the Constitution. Therefore, bench hereby allows this appeal and sets aside the Impugned Order to the extent of Appellant. Bench has also directed the management of company to arrange, extensive training program for the directors representing company on different companies BOD so that they may discharge their fiduciary duties in accordance with law. The Bench also directed the SECP Director Corporate Supervision Division (Respondent) to issue a direction for the institutions/companies who nominate directors on BOD of different companies to arrange extensive training program for their nominee directors to ensure future compliance of relevant laws. Appellant is directed to refrain from similar non-compliance in future.