The Securities and Exchange Commission of Pakistan (SECP) has directed a sugar mill to hold both the annual general meeting (AGM) and the election of directors without any further delay and also upheld the penalties levied on the company earlier.
The SECP re-constituted appellate bench recently issued an order to dispose of the three petitions filed by Mian Mohammad Ilyas Mehraj and other directors of Haseeb Wakas Sugar Mills Ltd under Companies Ordinance, 1984. The SECP bench comprises SECP commissioners Razi-ur-Rehman Khan and Salman Ali Shaikh to hear the case.
According to the order, the unit was required to hold its Annual General Meeting for the year ended September 30, 2004, on or before January 31, 2005, (the '2004 AGM'). However, one day before the meeting, the company published a notice for its postponement.
The reason given was that the majority of shareholders (ie present management) had requested for postponement of the meeting as five nominees who were contesting the election of director had acquired 39pc shares of the company in violation of Listed Companies (Substantial Acquisition of Voting Shares and Take-over) Ordinance, 2002.
The management thereafter lodged two complaints under Take-overs Law with the Securities Market Division of the SECP against the alleged acquisition of 39pc shares of the company. The Securities Market Division, without holding an inquiry under Takeovers Law, as had been requested by the management, rejected the allegation that there had been any violation of the Takeovers Law.
Prior to the above decision of the Securities Market Division, the Enforcement Department of the SECP had issued a show cause notice to the company and its directors including the chief executive for not holding the AGM within the prescribed time period.
In response, the management took up the same plea that since certain individuals had acquired substantial number of shares of the company in violation of the Takeovers Law and were intending to contest the election of directors to be held in 2004 AGM, it was incumbent upon the management to postpone the said AGM.
This argument was, however, rejected by Director (Enforcement) hearing the matter.
Consequently, the SECP imposed a penalty of Rs 50,000 on each of the seven directors including the chief executive, as well as the company.
The judgement said that petitioners have pleaded that the sole reason for not holding the AGMs was that the election of directors which was to be held in the AGM would have resulted in empowering the persons, who had acquired shares of the company in violation of the Takeovers Law.
The company would have been locked in a dispute and the shareholders would have suffered due to this. Also, according to the counsel, the management feared that they themselves may be found to be in violation of the Takeovers Law if they allowed the election to go through.
If all of this is true, SECP must agree that these are noble reasons. The SECP also agree that once inquiry is being conducted, it was reasonable to postpone the election of directors till the outcome of the inquiry. However, election of directors was just one of the agenda in the AGM and therefore should not have been made ground for not holding the AGM for two consecutive years.
The SECP did not see a reason why the AGM could have been held without holding the election of directors. The election of directors may have been held subsequently in an Extra-Ordinary General Meeting (EOGM) called specially for the purpose. This way neither the rights of the shareholders would have been violated, nor the management would have contravened the statutory requirement.
The Commission and the superior courts have repeatedly taken the stance that the AGM should not be postponed by the Company just because one of the agenda of the meeting cannot be carried out.
For instance, if the annual accounts of the Company are not ready the AGM should be held within the prescribed time and the accounts may be presented in an EOGM to be held later. By not holding the AGM, the management has infringed the shareholders' right to be informed of the Company's affairs and the struggle raging between two groups of shareholders for the management of the Company.
For the above reason, the SECP cannot agree that there has been no violation of law by the management in not holding the AGMs within the prescribed time. The penalties imposed on the petitioners in all the three previous orders are therefore, upheld.
Since the matter regarding the complaint of the management has been addressed and the inquiry report has found no violation of the Takeovers Law, there is no reason whatsoever to delay holding of the AGM and the election of directors. The company is, therefore, directed to hold both the AGM and the election of directors without delay, the SECP order added.