An appellate bench of the Securities and Exchange Commission of Pakistan (SECP) has set aside an investigation into the affairs of National Testing Service (NTS) and remanded the matter to the SECP Executive Director (CCD-Regulation) for giving an opportunity of hearing to the NTS.
According to an order issued by 2-member appellate bench of the SECP, the impugned order is set aside and the matter is remanded to the respondent [SECP Executive Director (CCD-Regulation)] to revisit the matter after giving an opportunity of hearing to the appellant (NTS) under the authority of expressed delegated powers. The order has been issued in the matter of appeal 91 of 2016 filed under section 33 of the SECP Act, 1997 against the impugned order dated 15/06/16 passed by the executive director (CCD-regulation).
The order further reveals that the officials of the SECP had not been delegated the powers to conduct inspections and investigations of 'not for profit' companies under sections 231 and 263 of the Companies Ordinance, 1984 and that such powers remained vested with the Commission.
The brief facts of the case are that the Commission vide order dated 24/02/16 (first inspection order) had appointed 4 of its officers as inspection team to carry out the inspection of books of accounts and other papers of the National Testing Service Pakistan (appellant) in terms of section 231 of the Companies Ordinance, 1984 on the specified grounds.
Pursuant to section 231 of the Ordinance, the inspection team carried out inspection of books of accounts and other books and papers of the appellant and submitted its inspection report dated 03/05/16 in terms of section 231(5) of the Ordinance.
The NTS informed the bench that the superior courts have interpreted that investigation into affairs of a company means investigation of all its business affairs ie profits and losses, assets including goodwill, contracts and transactions, investments and other property interests and control of subsidiary companies too. Therefore, it is clear that investigation by an inspector under the provisions of Ordinance does not entail investigations for purely legal issues, which can only be investigated and determined by a court of law. The Commission does not possess any powers and/or jurisdiction to investigate the affairs of such body corporate which does not fall within the domain of the Ordinance.
The provisions of the Ordinance do not empower the Commission or the inspector appointed by the Commission to determine the reasonability of the fee charged by the appellant regarding different testing services. The Commission cannot shift its duties on the inspector regarding the implementation of the laws against the appellant, the NTS added.
The NTS further added that SRO 154 provides for delegation of powers and functions by the Commission to various officers namely (a) commissioner (company law division), (b) head of departments and other officers, (c) head of department (corporate supervision department) and (d) director (corporate supervision department). Delegation of authority under category (d) above does contain delegation of powers to director (CCD) vis-à-vis section 231; however, such delegation is strictly in respect of (i) listed companies (except insurance companies and NBFCs) and (ii) private limited companies having share capital and other unlisted public companies. A plain reading of the above makes it clear that the delegation of authority above does not extend to matters relating to companies not having share capital. The appellant is a section 42 company having no share capital; therefore, the above delegation is of no avail, and the respondent as director (CCD) could not have exercised due power or authority to initiate any inquiry or inspection under section 231.
The appellate bench ordered that it has heard the parties ie the appellant (company) and the respondent (SECP). Section 263(c) of the Ordinance provides that the Commission may appoint one or more competent persons as inspectors to investigate the affairs, "in the case of any company, on receipt of a report under section 231(5) or on a report by the registrar under section 261(6) of the Ordinance." In the instant case, without going into the merits of the appeal the bench has to first see whether or not the appeal is admissible before the appellate bench.
In the instant case, investigation was ordered under section 263 of the Ordinance after first inspection report was submitted under section 231(5) of the Ordinance. The appellant has argued that the first inspection report issued under section 231 of the Ordinance cannot be a basis for the investigation as the delegation of authority to director (CCD) does not extend to matters relating to companies not having share capital and the appellant is a section 42 company having no share capital. The respondent has argued that this matter was not agitated before and the impugned order is an administrative direction against which no appeal lies and no hearing opportunity was required to be given to the appellant. The appellate bench is of the view that the appeal is admissible on the grounds that the issue at hand is prima facie ambiguity of delegation of powers and that no hearing opportunity was provided to the appellant.