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Petitioner: Bilal Aurangzeb Noor VS Respondent: The Commissioner (Smd), SECP, Islamabad
Court Name: Securities and Exchange Commission of Pakistan Judge(s): Aamir Ali Khan, Shaukat Hussain, Farrukh H. Sabzwari Title: Bilal Aurangzeb Noor vs The Commissioner (Smd), SECP, Islamabad Case No.: Appeal No. 9 of 2018 Date of Judgment:2019-12-20 Reported As: 2020 CLD 1113 Result: Appeal dismissed
Judgment ORDER 1. This Order shall dispose of Appeal No. 9 of 2018 filed by Bilal Aurangzeb Noor (Appellant) in the matter of Drekkar Kingsway Limited (the Company) against the Order dated December 8, 2017 (the Impugned Order) passed by the Commissioner , SMD, (Respondent) under Section 26 read with section 25 of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (Takeovers Ordinance) and Regulation 24 of the Listed Companies (Substantial Acquisition of V oting Shares and Takeovers) Regulations, 2008. 2. The Appeal was initially heard by a two member Appellate Bench on March 12, 2019. The Bench consisted of Mr. Shaukat Hussain, Commissioner and Mr. Aamir All Khan, Commissioner . Both commissioners were divided in their opinion with regard to the decision of this Appeal therefore, on August 23, 2019, the Registrar Appellate Bench referred the matter under Rule 16, sub-rule (6) to the Chairman, Securities and Exchange Commission of Pakistan (The Chairman) for constitution of a larger bench in order to decide the instant Appeal. The Chairman constituted a larger bench consisting of the two Commissioners who had already heard the matter and Mr. Tahir Mahmood, Commissioner . Hearing of the larger bench was held on September 19, 2019 however , Appellant's Counsel (Counsel) sought adjournment. Meanwhil e, due to retirement of Mr. Tahir Mahmood , Commissioner , the bench was dissolved. Thereafter , the Registrar Appellate Bench once again referred the matter under Rule 16, sub-rule (6) to the Chairman for constitution of a larger bench. The Chairman constituted a larger bench consisting of the two Commissioners who had initially heard the matter and Mr. Farrukh H. Sabzwari, Commissioner . Thereafter , the Appeal was re-fixed and heard by the Larger Appellate Bench on November 5, 2019. FACTS OF THE CASE 3. Brief facts of the case are that the Company was on the defaulter counter of the Pakistan Stock Exchange Limited (the PSX) and trading of its shares was suspended, since March 22, 2012. On December 9, 2014, the Company was moved to the normal counter of the PSX, opening price of the Company's share was Rs. 1.13
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whereas, the closing price of was recorded at Rs. 2.1 with nil volume. However , by December 16, 2014, the Company's share price had witnessed a sharp increase to Rs. 12.24, which represented a 983.18% rise, with a cumulative trading volume of 29,000 shares in 13 trading sessions. During the period December 9, 2014 to December 16, 2014, large buy orders were placed by Messrs Noor Capital (Pvt.) Limited (Noor Capital). In view of the above circumstances and facts, the Securities and Exchange Commission of Pakistan (the Commission), in exercise of powers conferred under section 139 read with section 137 of the Securities Act, 2015 (Securities Act), ordered an investigation vide order dated October 9, 2015 (the Investigation), to enquire into the dealing, business and other transactions pertaining to the shares of the Company , during the period from June 30, 2013 to February 12, 2015. 4. During the Investigation, it was revealed that on July 18, 2014, the Company's Board of Directors appointed Sheraz Jehangir Monnoo, Aurangzeb Noor and the Appellant as directors of the Company against casual vacancies and each of them was holding 500 shares of the Company . On December 24, 2014, Sheraz Jehangir Monnoo acquired 350,000 (15.63%) shares of the Company , whereas Noor Capital acquired 220,000 (9.82%) shares of the Company , on December 26, 2014 [on January 8, 2015, Noor Capital shareholding was reduced to 219,500 (9.80%)]. On January 8, 2015, the Appellant acquired 214,800 (9.59%) shares of the Company . It also came on record that the Appellant and Aurangzeb Noor had 80% shareholding in Noor Capital. The Appellant appeared before the investigation team on February 26, 2016 and stated that he bought the Company from Mr. Humayun Gauhar . He further stated that Sheraz Jehangir Monnoo and the Appellant injected money and made the Company profitable. Sheraz Jehangir Monnoo also appeared before the investigation team on March 30, 2016 and stated that the Appellant is his long-time friend and the Appellant came to him, with a plan to re-vamp the Company therefore, he injected about Rs. 11 to 14.5 million against Company's equity . On January 8, 2015 the Appellant, Aurangzeb Noor , Sheraz Jehangir Monnoo and Noor Capital had collective shareholding of 784,800 shares (214,800 + 500 + 350,000 + 219,500) in the Company . As per the contents of the Impugned Order , their shareholding constituted about 35% of the total issued voting shares of the Company , which they acquired while acting in concert. The Appellant and others were required to make a public announcement of the offer under Section 5 of the Takeovers Ordinance, prior to acquiring more than 25% shares, however , they failed to do so. 5. In the light of above facts, the Commission took cognizance of the aforementioned violation and served a Show Cause Notice dated June 5, 2017 (SCN) on the Appellant, Aurangzeb Noor , Sheraz Jehangir Monnoo and Noor Capital. Mr. Ahmed Bashir , Advocate High Court, filed a written reply to the SCN on behalf of the Appellant, Aurangzeb Noor , Sheraz Jehangir Monnoo and Noor Capital, vide four separate letters dated October 30, 2017. Hearing in the matter was held on November 2, 2017. The Respondent being dissatisfied with the reply of the Appellant, Sheraz Jehangir Monnoo, Aurangzeb Noor and Noor Capital, imposed a penalty in the following manner; Sr.No. Name Shares acquiredPenalty 1) Bilal Aurangzeb Noor (Appellant)214,800 214,8,000 2) Aurangzeb Noor 500 5,000 3) Sheraz Jehangir Monnoo 350,000 3,500,000 4) Noor Capital (Pvt.) Limited 219,500 2,195,000 Total 784,800 7,848,800 GROUNDS OF APPEAL AND ARGUMENTS 6. The Appellant has challenged the Impugned Order inter alia on the grounds that the Investigation, into the affairs of the Company was commenced on October 9, 2015 under section 139, read with section 137 of the Securities Act and eventually , a SCN was issued for the alleged violation of section 5 of the Takeovers Ordinance on June 5, 2017. At this point, the Counsel emphasized that the Takeovers Ordinance was repealed by section 178(1) of the Securities Act on May 13, 2015. therefore, issuance of a SCN under the repealed law was void. Furthermore, the Appellant states that the investigation under section 139 of the Securities Act could only be initiated against the
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violations of the Securities Act, therefore, the investigation with respect to violations of Takeovers Ordinance was illegal. 7. The Counsel argued that where legislature provides one method of dealing with a matter , the other is excluded and when the law specifies a particular procedure, it is obligatory to adhere to the same; Any negligence, failure or omission to do so invalidates the proceedings on account of which the whole superstructure raised on such defective foundation automatically crumbles. (Reliance is placed 2011 PTD (Trib) 2297 ). The counsel stated that all statements recorded during the investigation were without any legal backing, therefore, cannot be relied upon. 8. The counsel further argued that sections 139 and 137 of the Securities Act do not operate retrospectively , because investigation under these sections would affect or prejudice Appellant's substantive rights. In support of assertion, the Counsel has relied upon PLD 1998 SC 1. The Counsel argued that the Respondent had wrongly assumed that under section 6 of the General Clauses Act, 1897 (GC ACT), he was authorized to initiate fresh proceedings under the Takeovers Ordinance. However , he failed to appreciate that fresh proceedings could not be initiated under a repealed law unless there were pending investigations or enquiries. In support of this argument the counsel relied upon case laws cited as PLD 1980 Lah. 195 (Para 16); 1992 PTD 1001 (Para 16); PLD 1959 (W.P.) Kar . 94; 2016 PLC 168 (SC) (Para 6) and 1997 YLR 1627 . 9. The Counsel further argued that if we accept that the Respondent was authoriz ed to initiate fresh proceedings under the Takeovers Ordinance, then instead of sections 137 and 139 of the Securities Act, investigation/enquiry should have been initiated under section 21 of the Takeovers Ordinance. 10. The Counsel argued that the requirement to make a public announcement of offer is applicable in a situation where, a person, himself, acquires more than 25% shares in the target company . Therefore, the Appellant can only be held liable under this section, if he had acquired more than 25% shares of the target company without co- operation from persons acting in concert. Furthermore, shares owned by others does not entitle the Appellant to claim such shares, therefore, this section also does not cover the requirement of "acting in concert". 11. The Counsel also argued that addition and subtraction of a word in a statute is not permissible. Statute has to be read literally by giving the words used therein, ordinary , natural and grammatical meaning (PLD 2011 SC 260). The Counsel contended that the terms "person" and "acquirer" used in sectio ns 4 and 5 of the Takeovers Ordinance are not analogues therefore, to differentiate each other the phrase "persons, other than the acquirer " has been used in sections 13(7) and 16(1) of the Takeovers Ordinance. The term "acquirer" has been defined under section 2(1)(a) of the Takeovers Ordinance, which state that acquirer is a person who himself or through "any person acting in concert" acquires shares of the target company . Similarly , "persons acting in concert" has also been specifically defined in section 2(1)(j), which states that "a person who co-operates with the acquirer". "Person" and "acquirer" are different terms therefore, to differentiate each other the phrase "persons, other than the acquirer" has been used in sections 13(7) and 16(1) of the Takeovers Ordinance. 12. The Counsel also argued that the Respondent had ignored the fact that the Appellant was not a shareholder of Noor Capital on January 8, 2015 (the day when the Appellant acquired 9.59% shares of Company). Therefore, both (Noor Capital and Appellant) cannot act in concert. The counsel further stated that Noor Capital and Sheraz Jehangir Monnoo had acquired the shares of the Company , prior to the Appellant. Sheraz Jehangir Monnoo and Noor Capital acquired shares of the Company on December 24, 2014 and December 26, 2014, respectively . They paid the subscription amount out of their own funds and nothing is on record to suggest that they are not the legal and beneficial owners of the same. As required by section 5 of the Takeovers Ordinance, the Respondent had failed to prove the Appellant's entitlement with respect to 35% acquired voting shares of the Company . The Counsel concluded the arguments and stated that in simple dictionary meaning, the word "entitled" as defined in Shorter Oxford English Dictionary is "having a title to something". (PLD 1976 Supreme Court 6 (Para 66)). The Counsel argued that Penalties are not commensurate with the alleged violations. In this regard reliance has been placed on 2012 CLD 873 , 2011 CLD 537 , 2010 CLD 262 , 2009 CLD 970 , 2007 CLD 306 and 2006 CLD 408 . RESPONDENT'S REBUTT AL AND ARGUMENTS 13. The Respondent's representatives (the Representatives) have vehemently denied and rebutted the grounds of Appeal and arguments of the Counsel. The Representatives stated that the Impugned Order had been passed in
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accordance with law, and the Responden t had followed and implemented the permissible procedure and method of adjudication while dealing with this matter . It is a matter of record that the Takeovers Ordinance was repealed vide section 178(1) of the Securities Act However , section 6 of the GC Act saves rights created and liabilities incurred on account of a statute that has been repealed therefore, the Appellant was rightly penalized under the Takeovers Ordinance. 14. The Representatives further contended that the Securities Act had enhanced the quantum of penalty from fifty million to one hundred million and threshold of voting shares from 25%1 to 30% . Therefore, the Respondent was not authorized to impose new penalty and revised voting shares threshold, on account of violations committed during the existence of the Takeovers Ordinance. 15. The Representatives further argued that investigation under section 139 read with section 137 of the Securities Act was not initiated on account of Takeovers Ordinance violations, rather it was initiated to probe the trading activities in the shares of the Company . In support of this assertion, Representatives presented a copy of investigation order dated October 9, 2015 before the Bench. Representatives argued that it transpired during the Investigation that the Appellant along with others while acting in concert and without making public announcement of the offer, had acquired 35% voting shares of the Company , hence breached the threshold of 25%, contained in section 5 of the Takeovers Ordinance. The Representatives concluded that the violation attracted penal provisions of section 26 read with section 25 of the Takeovers Ordinance, therefore, SCN was issued and after due process, the Impugned Order was passed. 16. The Representatives argued that sections 4 and 6 of the Ordinance impose an obligation on the "acquirer", who acquired the shares in the target company , whereas Section 5 puts an obligation on a "person" who is intending to acquire shares of the target company . The Representatives stated that the Appellant is misconstruing the principles of interpretation, by reading sections 4 and 5 of the Takeover Ordinance in isolation. Interpretation of law stresses that the law has to be read in its entirety and no provision of any statute has to be read in isolation (2014 MLD 1515 Islamabad). The Representatives claimed that the Appellant is misinterpreting the established principle of law to intentionally defeat the purpose of the law. The Representatives further argued that the word "Person", "acquirer" and the term -person acting in concert" are substitutable as both "acquirer" and "person acting in concert" are defined as a person at the outset of each definition, respectively . The Representatives contended that the language and reference used in section 8 of the Takeovers Ordinance suffices to dislodge the Appellant's argument, with respect to "acquirer" and "person"; "Sectio n 8; Timing of the public announcement. (1) Before acquisition of voting shares beyond the threshold specified in section 5 or section 6, the acquirer shall......."The Representatives concluded that the referred section elucidates the intention of the legislature that the word 'acquirer' and 'person' are interchangeable. 17. The Representative stated that in order to defeat the requirements of the Takeovers Ordinance, the Appellant and others had structured the acquisition transaction with mala fide intention whereby , firstly , Appellant 'had transferred his entire shares in Noor Capital on August 29, 2014 (Form -A made up to October 30, 2012 and submitted on September 18, 2014), secondly re-acquired the transferred shares on October 20, 2015 (Form -A made up to October 31, 2015 and submitted on November 15, 2015)after acquisition of Company's shares. The Representatives lastly argued that the circumstances suggest, that acquisition of Company's shares was a deliberate act of the Appellant and others. UNANIMOUS VIEW OF THE LARGER BENCH 18. We have heard the parties (Appellant and Respondent) and perused the record with their able assistance. The Counsel's argument that the Respondent had wrongly invoked the provisions of Takeovers Ordinance is not tenable because the alleged violation pertains to the period December , 2014 to January , 2015 and at that time Takeovers Ordinance was in operation. It is very important to understand that a violation always leads towards a liability and liability resulting in penalty . Therefore, by virtue of Section 6, clause "c" of GC Act, the Respondent had rightly proceeded against the Appellant and others under the repealed Takeovers Ordinance. The Larger Bench has noted that instead of mentioning clause "c" of section 6 of the GC Act, the Respondent had referred to clause "e", however , it is an inadvertent and immaterial mistake that has not affected the rights of the Appellant and merits1 2 3 4 5
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of the case. In the circumstances, the Respondent was duly authorized to proceed under the repealed Takeovers Ordinance. For reference relevant provision of the GC Act is reproduced below; "6. Effect of repeal; the repeal shall not-- (a) .............................. (b) .............................. (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed ; " Emphasis Added 19. The takeover and acquisition provisions of Securities Act are not applicable to the Appellant's case because, its provisions have enhanced the quantum of penalty and threshold of acquisition of voting shares. Furthermore, requirements of section 5 of the Takeovers Ordinance were violated prior to its repeal however , such violations were revealed after its repeal. Article 12(1)(b) of the Constitution of the Islamic Republic of Pakistan, 1973, prohibits imposition of a penalty , of a kind different from the penalty prescribed at the time the offence was committed, therefore, the Respondent was not authorized to impose a penalty or any other condition, which was non-existent at the time violations were committed. The relevant part of the Article is reproduced below for ready reference; "Protection against retrospective punishment. (I) No law shall authorize the punishment of a person; (b) for an offence by a penalty greater than, or of a kind different from, the penalty prescribed by law for that offence at the time the offence was committed. Emphasis Added 20. We are of the view that the Respondent had observed the required legal procedure, therefore, issuance of SCN and passing of Impugned Order do not suffer any irregularity or illegality . The Larger Bench is not inclined to support the Appellant's assertion that violations of the Takeovers Ordinance were investigated under section 139 read with section 137 of the Securities Act. As a matter of fact, the investigation order , dated October 9, 2015 was not issued to investigate the alleged violations of Takeovers Ordinance, rather investigation was ordered to probe into the trading activities in the Company's shares during the period from June 30, 2013 to February 12, 2015. However , the investigation revealed that the Appellant along with others while acting in concert had acquired 35% voting shares of the Company , hence, violated the requirement of section 5 of the Takeovers Ordinance. Takeovers Ordinance violations were exposed during the Investigation, therefore, enquiry under section 21 of the Takeovers Ordinance was not necessary or required. The Appellant's liability for the violatio n of Takeovers Ordinance was incurred and accrued during the existence of the Takeovers Ordinance. Therefore, SCN proceedings and the Impugned Order are fully protected under Article 264(c) of the Constitution and Section 6(c) of the GC Act. In light of the above facts and circumstances, the cited case laws PLD 1980 Lah. 195 (Para 16); 1992 PTD 1001 (Para 16); PLD 1959 (W .P.) Kar . 94; 2016 PLC 168 (S. C.) (Para 6); 1997 YLR 1627, are not applicable in this case. 21. We have no doubt, that Section 139 and 137 of the Securities Act are procedural and can operate retrospectively , therefore, initiation of Investigation under such provisions was not prejudicial to the Appellant's substantive rights. The Commission had started the Investigation, to probe the trading activities in the shares of the Company , therefore, we endorse the Counsel's argument, that under section 139 of the Securities Act, only those offences and violations could be investigated, that had been committed under the Securities Act or under any rules or under any regulations made thereunder . 22. We are of the view that the Counsel's argument with regard to the Responde nt's reliance on the statements recorded during the Investigations is valid to an extent. The statements were recorded during the Investigation under section 139 of the Securities Act, which was conducted in the context of trading activities in the shares of the Company , therefore, these may not be used as core evidence to penalize the Appellant and others for the alleged violations of the Takeovers Ordinance. In our view, such statements could be treated as a relevant fact, therefore, to prove the alleged violations of the Takeovers Ordinance, the Respondent was required to rely upon other corroborated and independent evidence. In this case the Respondent had not passed the Impugned Order , merely
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on the basis of such statements, rather he relied upon independent documentary evidence of the Appellant and others shareholding in the Company . MAJORITY VIEW OF COMMISSIONERS MR. SHAUKA T HUSSAIN AND MR. F ARRUKH H. SABZW ARI 23. The Counsel's argument with regard to different meaning and application of terms "acquirer" used in section 2(a) and section 4 of the Takeovers Ordin ance and "Person" used in section 5 of the Takeovers Ordinance is based on misconception, therefore, we reject it. The Counsel's argument that definition of "acquire" is not applicable to section 5 of the Takeovers Ordinance is against the rules of interpretation, intent of the legislature and contrary to the scheme of law. In our view, the phrase started with "No person in section 5 of the Takeovers Ordinance means "no acquirer......" This observation is also supported by the wording of Section 6(1) of the Takeovers Ordinance, which says that; "No Acquirer , who has acquired more than twenty-five percent but less than fifty-one percent of the voting shares ........." Originally , the word "person" was used under section 5 of the Take overs Ordinance for the one who acquires more than 25% voting shares of a company , however , while explaining the acquisition requirement of more than 25% voting shares under section 6(1) of the Takeovers Ordinance, the word "person" has been replaced with the word "acquirer". Therefore, acquirer or person have been used interchangeably . We concur with the Respondent's view that interpre tation of law stresses that the law has to be read in its entirety and no provision of any statute be read in isolatio n. In view of the aforestated facts, we believe that in violation of section 5 of the Takeovers Ordinance, the Appellan t while acting in concert with Sheraz Jehangir Monnoo, Aurangzeb Noor and Noor Capital had acquired 35% voting shares of the Company . 24. The Appellant's contention that the Respondent had failed to establish the Appellant's entitlement with regard to 35% shareholding of the Company is misconceived and incorrect. Requirement of section 5 of Takeovers Ordinance is applicable to all persons, who acted in concert and, directly or indirectly , had acquired shares beyond the prescribed limit of 25% voting shares. Therefore, the Respondent was not required to establish entitlement of any single person with regard to 35% shareholding of the Company . Section 5 of the Takeovers Ordinance says that "No person shall, directly or indirectly acquire- a) voting shares ...." therefore, this section is applicable to persons acting in concert. In the circumstance, it was irrelevant whether Sheraz Jehangir Monnoo, Aurangzeb Noor and Noor Capital had purchased shares of Company with their own resources or funds provided by the Appellant. 25. The Counsel's argument that on January 8, 2015 the Appellant was not a share holder of Noor Capital therefore, their (Appellant and Noor Capital) shareholding in the Company , cannot be considered to constitute the offence of acting in concert, is prima facie in the Appellant's favour . However , circumstances suggest that transfer of Appellant's shares was a deliberately structured transaction to defeat the requirement of Section 5 of the Takeovers Ordinance. As per Form-A, filed by Noor Capital (Form -A made up to October 30, 2012 and submitted on September 18, 2014) the Appellant transferred his entire shareholding to Aurangzeb Noor , Mrs. Mudassara Aurangzeb and Mrs. Azmat Akbar on August 29, 2014. Thereafter , Noor Capital filed Form-A (Form -A made up to October 31, 2015 and submitted on November…
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