2007 PLP 1439 (CLD)

Ss. 260(1), 255 & 476

S. R. O. No. 45(I)/2003 dated 13-1-2003--Notice under S.260(1) read with Ss.255 & 476 of Companies Ordinance, 1984 by the Security Exchange Commission of Pakistan alleging non-compliance by auditor (appellant) with the provisions of S.235, Companies Ordinance, 1984 read with S.R.O. No.45(I)/2003, dated 13-1-2003 to the preparation of audited account statement of the Company (his client) wherein he failed to "transfer the amount of incremental depreciation from surplus on revaluation of fixed assets account to un-appropriated profit/accumulated loss account through statement of changes in equity"

Auditor contested the notice and was heard by the Commission who passed .the order of adverse action against the auditor

Validity

Impugned order of the Commission contained a discussion on the general obligations of auditors but no discussion whatsoever of the constitutive facts of the case was found meriting adverse action against the auditor

Impugned order neither specified the default of the auditor that was found to be established on record nor same pointed out the relevant legal provisions that consequently stood infringed by the auditor's conduct

Sifting of the facts by the impugned order was necessary to sustain a finding of liability against the auditor

Commission, as a statutory body was also under an obligation to pass speaking orders specifying grounds upon which parties before it, were found to be delinquent

Without providing the relevant factual context the general description of the duties and obligations of an auditor given in the impugned order were a theoretical rendition that had no nexus with establishing liability of the auditor

Impugned order was defective for failing to specify the precise factual defaults of the auditor which were determined to be duly established on record and which were found to constitute violations of specified Legal obligations for which sanctions contemplated by law may be imposed

Said ingredients were necessary to lawfully impose liability on the auditor

Such particulars were essential for facilitating the appellate forum to apply its mind in assessing the validity of an order passed by the Commission; and for serving the rules of natural justice by confronting the affected party with the grounds of his liability

High Court, in circumstances, remanded the matter to the Security Exchange Commission of Pakistan for passing a fresh order based on record after grant of hearing to the parties

Commission shall pass a final order in the matter within two months from the date of receipt of a certified copy of High Court order.

Scope

Reply, in the present case, circumvented the allegations made in the show-cause notice against the party but at the same time it may be considered to impliediy acknowledge the same

For serving as proof, such a non-contentious explanation did not amount to an unequivocal admission of liability for the purpose of proving the allegations made

Plea that the party had admitted the allegations levelled was not tenable in circumstances.