The Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has reduced the aggregate penalty of Rs 1,100,000 imposed on three associated companies to Rs 600,000 ie Rs 200,000 on each company for the contravention of provisions of Listed Companies (Substantial acquisition of voting shares and Takeovers) Ordinance, 2002.
According to an order issued by the SECP bench here on Monday, the SECP Enforcement Division has imposed an aggregate penalty of Rs 1,100,000 on the DS Industries (Appellant no.1), DS Textile Limited (Appellant no.2) and Ali Pervez Capital (Pvt) Limited (Appellant no.3) for the contravention of the provisions of Listed Companies (Substantial acquisition of voting shares and takeovers) Ordinance, 2002 (the Takeovers Ordinance).
The SECP Appellant Bench responded that the bench finds no reason to interfere with the findings of the Impugned Order, however it would be appropriate just to reduce the total quantum of penalty, imposed through the Impugned Order to Rs 600,000 ie Rs 200,000 on each Appellant and direct them to comply with the required laws in future to avoid any penal action. The appeal is disposed of, the bench added.
The bench further said that the case has been decided for future guidance of operational departments of the SECP. Explaining the Takeovers Ordinance, the Securities and Exchange Commission of Pakistan (SECP) has submitted before the commission's Appellate Bench that the purpose and objectives of Takeovers Ordinance is not for putting restraint on the sponsors from any transactions regarding acquisition of shares, rather it provides a fair and equal treatment to all the investors as well as a transparent and efficient system for substantial acquisition of voting shares and take-over of companies. This right of minority shareholders cannot be neglected on the plea of betterment of company or unintentional default, the SECP Enforcement Department added.
The background of the case revealed that the review of the statutory returns and pattern of shareholding annexed with annual reports for the year ended 30/06/07 and 30/06/08 of the (Target Company) revealed that collective shareholding of sponsors, directors and associated companies/related parties has increased from 40.46 % to 62.96 % in the aforesaid period. The substantial increase in holding was attributed mainly to the increase in holding of associated companies. The collective shareholding of the
associated companies prior to the aforesaid consolidation was prima facie, less than 51% of the paid up capital of the target company and they were required to make a public announcement of offer before acquisition of voting shares of the target company in terms of section 6 of Takeovers Ordinance.
The Executive Director Enforcement Division SECP being dissatisfied with response of the Appellants, imposed penalty on the directors of the Appellants who were responsible to control the affairs of their respective companies. The Appellants (companies) have preferred the instant appeal before the bench against the Impugned Order of the commission. The Appellants were charged with the same offence, however quantum of penalty was calculated on the basis of number of directors of each Appellant and no rational was provided in this regard. Thus, the different quantum of penalty for each Appellant rendered the Impugned Order illegal and discriminatory and liable to be set aside to the extent of the excess penalties imposed therein. The SECP Enforcement Division responded that it is important to state that the Appellants (through legal counsel) had admitted that the threshold prescribed in the Takeovers Ordinance had indeed been breached, admitted their default and requested lenient view. The Compliance of Section 4 of the Takeovers Ordinance by Appellants cannot be justified due to the fact that these companies have acted in concert since the very inception of the Target Company and it is this concert that has enabled the directors to be on the Board of Target Company and control and manage the affairs.
The SECP Enforcement Division has power under the Takeovers Ordinance to issue directions and impose penalties on the acquirers who have failed to execute their responsibility to comply with the prescribed legal requirements. Furthermore, the competent authority ensures judicious use of these powers while making a decision keeping in view the specific circumstances of each case, the SECP department added.
One of the grounds raised by the Appellants (companies) is imposition of different quantum of penalty on each Appellant for the same default, which needs consideration. The bench is unable to find out the rationale behind the imposition of penalty on the basis of number of directors of the Appellants. In our view the quantum of penalty should have been even for the same degree of default. As per settled legal principle uneven imposition of penalties in the same nature default cannot be sustained. For just conclusion of cases penalties should be imposed in equitable manner while adjudicating the violations of the same nature committed by different persons or entities.
As per the record and the contents of the Impugned Order it is undisputed fact that the Appellants have complied with section 4 of the Takeovers Ordinance and failed to comply with Section 6 of the Takeovers Ordinance. Therefore, in view of non-compliance of relevant provisions of law, the Appellants cannot be absolved from the admitted default and established violation. However, the penalty cannot be imposed on the basis of number of directors of the Appellants, as it has been calculated in the Impugned Order, the bench observed.