The Securities and Exchange Commission of Pakistan (SECP) has taken notice of the undisclosed related party transactions of a textile mill with the companies having its shareholdings and warned directors of the company to remain careful in future. According to an order issued by the SECP here on Tuesday, the order shall dispose of the proceedings initiated against the directors (the "Respondents") of a textile mill (company) through show cause notice dated January 5, 2018 (the "SCN") issued under the provisions of Section 214,216 read with Section 476 of the Companies Ordinance 1984 (the "Ordinance").
Brief facts of the case are that examination of the annual audited accounts of the Company for the year ended June 30, 2016 (the "Accounts") and subsequent information provided by the company revealed certain transactions with related parties in which the directors of the textile mills were interested by way of shareholding in the corresponding companies.
The directors of the textile mills were, prima facie, interested in the transactions stated due to their shareholding and had not disclosed their interest and had participated in the proceedings to approve the abovementioned related party transactions. Accordingly, the SCN was issued to the respondents wherein the respondents were called upon to show cause in writing as to why penal action may not be taken against them for default under of section 214 and 216 of the Ordinance. The Respondents through one of their authorized representative; Company Secretary, submitted a written response dated January 29, 2018. He submitted that interested directors were not directors in the corresponding companies and were only shareholders, thus not having any control over the decision-making of the abovementioned three related companies. It was further submitted that all the transactions in the SCN were in the normal course of business and were brought in the knowledge of the board of directors as related party transactions. It was submitted that the amounts in relevant transactions with unit-2 are minimal and insignificant as sales and purchases with unit-2 were about 0.0036% and 0.4446% of total sales and raw material purchases of the Company respectively. Further, payment of dividends and right shares issued by the Company to unit-2 are in fact transactions with owners.
In terms of the Commission's notification SRO 1003 (1)/2015 dated October I5, 2015, the powers to adjudicate cases under sections 214 and 216 have been delegated to the Executive Director (Corporate Supervision Department).
The SECP has analyzed the facts of the case, provisions of Sections 214 and 216 of the Ordinance, arguments put forth in writing and during the hearing by the authorized representatives. The transactions amongst the companies are not material in nature.
The respondents have also given an assurance to be careful with regard to related party transactions in future. The SECP, hereby concludes the proceedings with no adverse order, the SECP added.
Comments
Comments are closed.