2012 PLP 44 (CLD)

AMIR M. KHAN AFRIDI, DIRECTOR (SMD).

This order will dispose of the proceedings initiated against Haji Ghani Haji Usman (the Offerer) through Show Cause Notice dated August 23, 2011 (the SCN) issued under section 22 of the Securities and Exchange Ordinance, 1969 (the Ordinance) regarding non compliance of orders passed by the Securities and Exchange Commission of Pakistan (the Commission) in the subject-matter under section 18A of the Ordinance regarding submission of applications by various applicants in violation of section 18A ibid for subscription of shares of Thatta Cement Company Limited, hereinafter referred to as the Company.

2. Facts of the case are that:-- (i) Shares of the Company were offered to the general public by the Offerer for subscription from February 26-27, 2008 through Offer for Sale Document (OFSD) dated February 16, 2008 issued, circulated and published with the approval of the Commission under section 62 read with section 57 of the Companies Ordinance, 1984; (ii) After the Initial Public Offering and the post ballot scrutiny, Arif Habib Limited, Consultant to the Offer (the Consultant) vide letter dated March 17, 2008 reported 185 cases comprising 257 applications being multiple and/or fictitious submitted for subscription of shares of the Company in violation of section 18A of the Ordinance; (iii) All the above mentioned cases were examined by the Commission and after calling explanations of the applicants, i.e. the persons named in the applications, vide various letters dated April 23, 2008 (for multiple applicants) and July 4, 2008 (for fictitious applicants), serving show cause notices during the period from December 2008 to May 2009 and providing each of them opportunity of hearing, 185 orders were passed, during the period March to June 2009, in respect of all the said 185 cases, under section 18A of the Ordinance (hereinafter referred to as the Orders); (iv) The Offerer was advised vide the above referred Orders to:- (a) deposit the confiscated subscription money of 254 applications amounting to Rs.2,857,500 in the Commission's bank account; and (b) to issue 1,500 shares against 3 applications. (v) Despite repeated reminders dated May 12, 2009; June 02, 2009; July 20, 2009; August 3, 2009; December 7, 2009 and June 28, 2010, the Offerer failed to deposit the confiscated subscription money of 254 applications (Annexure-I) amounting to Rs.2,857,500 within the time period stipulated in each order, which tantamount to the non -compliance of the Orders of the Commission. The Offerer also failed to ensure that the shares have been issued to three (3) applicants whose applications were restored (Annexure-II) by the Commission. (vi) The Offerer vide letter dated August 8, 2009 stated that: (a) after the ballot/draw, shares were allocated to all the successful applicants; (b) subscription money of the unsuccessful applicants was refunded; (c) the Offerer was paid amount in lieu of the shares offered by him; (d) after scrutiny, some applications doubtful to be in violation of section 18A were forwarded to the Commission for decision; and (e) presently, neither the Share Registrar nor the Arranger hold any money pertaining to the rejected applicants.

3. The Offerer vide its letter dated July 29, 2011 in response to the SCN stated that:-- (i) in all the offer for sale of shares reviewed by them, it was observed that the offerer of the shares have received the entire amount against the shares offered by them; (ii) in all the reviewed cases, shares of rejected applications have been offered to the applicants out of the 25% standby applications; (iii) market price of the Company's share was dropped at the time of the decision of the Commission on the rejected applications, which was taken approximately twelve months after the IPO and therefore no investor would have been willing to subscribe the shares at the offer price of Rs.22.50 when its market price was Rs.14.50; (iv) in all the reviewed cases, the Offerers were released the entire amount against the respective offers immediately after the ballot; (v) the Offerer does not have any obligation to buy back the shares of rejected applications and pay the proceeds to the Commission; (vi) the Offerer believes that the shares in question are held on the Commission's account and, therefore, the same were required to be offered through re-ballot and the proceeds thereof are transferred to the Commission; (vii) the shares in question belong to the Commission which can either be sold by the Commission in the market or held in its name; and (viii) the Commission may direct the Offerer whether to surrender the shares in question in its favour or dispose of the same and deposit the sale proceeds thereof in the Commission's bank account deeming to be confiscated money.

4. The Offerer appeared before the undersigned and made the following submissions; (i) the main reason due to which the Offerer did not implement the Orders passed by the Commission under section 18A of the Ordinance is delay on the part of the Commission to finalize the said cases; (ii) second ballot for allotment of the shares of the rejected applications was not conducted due to decrease in the market price of the Company's share; and (iii) the Commission may take shares of the rejected applications and sell these in the market and retain the proceeds thereof as the amount confiscated in violation of section 18A of the Ordinance;

5. In view of the above, it is stated that:-- (i) after receipt of the Offerer's letter dated March 17, 2008 attaching thereto the said 257 applications, explanations of all the persons named as applicants in the said 257 applications were called vide letters dated April 23, 2008 (for multiple applicants) and July 4, 2008 (for fictitious applicants); (ii) show-cause notices of various dates from December 2008 to May 2009 were issued to the said 257 applicants; (iii) orders in all the cases were passed during the period March to June 2009; (iv) the said orders were forwarded to the Offerer during the period March to June 2009 for implementation and compliance; (v) the Offerer's understanding that the offer had oversubscribed and the entire offered shares were transferred in the name of the successful applicants including those whose applications were rejected cannot be agreed to. The Share Registrar might have been authorized by the Offerer to transfer shares from its name to the successful applicants, but successful applications were required to be scrutinized. During the scrutiny, 257 applications were rejected and forwarded to the Commission for decision. How the Share Registrar can transfer shares in the names of applicants whose applications were rejected and pending for the decision under section 18A by the Commission? The shares of 254 applications whose subscription money has been confiscated by the Commission may be lying with the Share Registrar but still held in the name of the Offerer and therefore no question of buy-back is arises.

6. Keeping in view the above, I am of the considered opinion that the Offerer has intentionally and wilfully used delaying tactic in implementation of the Commission's 185 orders passed during the period March to June 2009 under section 18A of the Ordinance in the subject matter and, therefore, attract imposition of a penalty upto the sum of fifty million rupees as mentioned in section 22 of the Ordinance, however, taking lenient view a penalty, of three hundred thousand rupees (Rs. 300,000) is imposed for non-implementation of the Orders issued under section 18A of the Ordinance. The Offerer is further required to ensure compliance with the Orders issued under section 18A of the Ordinance in the following manner:-- (i) deposit in the Commission's account within thirty (30) days of the issue of this order the subscription money amounting to Rs.2,857,500 of 254 applications (Annexure-I) confiscated by the Commission under section 18A of the Ordinance; and (ii) ensure within thirty (30) days of the issue of this Order that shares of the Company have been issued against three (3) applications (Annexure-II).

7. Failure or refusal by the Offerer to comply with the Orders issued under section 18A of the Ordinance by the Commission, within the time specified above, will amount to a continuing default; and accordingly, the Offerer shall be liable to pay a further penalty of two hundred thousand rupees (Rs. 200,000) for every day during which such failure or refusal continues. H.B.T./47/SEC Order accordingly.