2005 PLP 297 (CLD)

The appellants mentioned above have filed Appeals Nos. l and 4 of 2003 under section 33 of the Securities and Exchange Commission of Pakistan Act, 1997 before the Appellate Bench against an order dated December 27, 2002 (the "Impugned Order") passed by Director (SMD). As the matter in both these appeals is interlinked and arises from one order, these appeals are being disposed of through this single order.

1. Mrs. Abida Salahuddin filed a complaint with the Securities and Exchange Commission of Pakistan ("Commission") against Salim Chamdia Securities (Private) Limited ("Salim Chamdia Securities"), alleging that she had invested her money for badla investment with Salim Chamdia Securities through Mr. Shahid Aziz who was the Manager of the former. Director (SMD) provided an opportunity of personal hearing to the parties in the case. In the Impugned Order, he rejected the plea of Mrs. Salahuddin regarding badla investment and promise of guaranteed profits by Salim Chamdia. However, he A imposed a fine of Rs.25,000 under section 22(1)(c) of the Securities and Exchange Commission Ordinance, 1969 on Salim Chamdia Securities for violating rule 4(4) read with rule 8(g) of the Securities and Exchange Rules, 1971 ("Rules") for not providing written confirmation of the transactions to the investor within 24 hours. Being dissatisfied with the findings of the Director in the impugned Order, both the parties have preferred the instant appeals before us. The case was fixed on 24 March, 2003 when the parties appeared before us. Appeal No. 1 of 2003.

2. Mrs. Abida Salahuddin, the Appellant in Appeal No. 1 of 2003 had sought to include Mr. Shahid Aziz, the Branch Manager of Salim Chamdia Securities and Managing Director, Karachi Stock Exchange (G) Ltd as respondents in her appeal. When the Bench enquired from the counsel for Mrs. Salahuddin as to how the said parties could be included in the appeal stage when they were not party to the proceedings before the Director (SMD), he requested for deletion of their names from the appeal. The Bench granted this request.

3. The counsel for Mrs. Salahuddin, Mr. Nazir Qureshi contended that Mrs. Salahuddin gave the money to Mr. Shahid Aziz, the Branch Manager of Salim Chamdia Securities for badla financing and not for trading activity. He stated that Mr. Shahid Aziz had enticed the appellant to invest the money and promised her fixed rate of return on her investment. He further stated that Mr. Shahid Aziz got Mrs. Salahuddin to sign a blank account form without informing her of any details. He claimed that the details were filled in the form later on. He alleged that Mrs. Salahuddin had deposited a total amount of Rs.540,000 with Salim Chamdia Securities and had received only Rs.56,823 in return for her investment. He argued that Mrs. Salahuddin was never provided any written confirmation or other proof of trading by Salim Chamdia for the alleged trading done in her name. He further argued that the Director (SMD) had failed to provide any relief to the appellant despite finding that Salim Chamdia Securities had violated the provisions rules 4(4) and 8(g). He prayed that the Impugned Order may be set aside and Salim Chamdia Securities be directed to pay back to Mrs. Salahuddin, the entire amount of Rs.5,40,000 along with interest at bank rate.

4. Mr. Kizilbash, Director (SMD.) appearing for himself contended that Mrs. Salahuddin had failed to provide any proof supporting her contention that the money was given by her to Salim Chamdia Securities for badla financing. He contended that the account opening form signed by Mrs. C Salahuddin clearly showed that the money was to be invested in trading activity and not for badla financing. He contended that the ledger statements and purchase and sales bills pertaining to Mrs. Salahuddin account show that she was actually trading in securities through her account.

5. Mr. Younus Mohiuddin appearing on behalf of Salim Chamdia Securities denied that Mrs. Salahuddin had given D the money for badla financing. He contended that the account opening form states `Account Opening Form for CDC and Shares Trading'. He further stated that it is for the customer to read the form carefully before signing it. He stated that as the head office of the company was in Karachi, the forms were sent there for filling in the necessary details required at the broker's end. Appeal No.4 of 2003.

6. Mr. Nazir Qureshi counsel for Mrs. Salahuddin requested in writing that she be made a party in Appeal No.4 of 2003 filed by Salim Chamdia Securities as she was the complainant and a necessary party to the proceedings. The Bench allowed this request. Mr. Younus Mohiuddin appearing on behalf of Salim Chamdia Securities contended that the Director (SMD) has erred in imposing the penalty on the company, as it had not violated the provisions of rule 4(4) and 8(g) of the Rules. He argued that rule 4(4) required a transmission of the confirmation to the customer and did not specify that the said confirmation had to be in writing. He contended that the company had been transmitting the confirmations to Mrs. Salahuddin on telephone and that amounted to valid transmission of the confirmation under rule 4(4). He argued that in any case, the word `transmit' or `transmission' in its ordinary dictionary meaning denotes `to pass on' or `communicate' and that should include the transmission, through telephone. He contended that the written confirmations of the trades are generated and kept at the company office for the customers to collect if so required by them.

7. Mr. Kizilbash contended that rule 4(4) read with rule 8(g) requires the members to prepare and transmit written confirmation to the customers. He argued that oral transmission of confirmations to the customers therefore did not fulfill the requirements of rule 4(4) and the company cannot shift the responsibility to the customers by saying that the customers can collect the confirmations from the company's office. .

8. We have heard all the parties and considered their arguments. There is no document on record, which supports the contention of Mrs. Salahuddin that the money invested by her with Salim Chamdia Securities was for badla financing and not for trading in securities. In fact as contended by Director (SMD), the ledger statement and purchase and sales bills pertaining to the appellants , account show that she was actively trading in securities through her account. Moreover the fact that Mrs. Salahuddin was handing over her money to Salim Chamdia Securities on a regular basis without receiving back any profit from it points to the fact that this was not a fixed return investment. Although it is possible that signatures of Mrs. Salahuddin were obtained on a blank account opening form, however the responsibility of due diligence lies with the customer herself. Moreover, Mrs. Salahuddin admits that she signed the form. She also admits that the money was given to the Manager of Salim Chamdia after she signed the form. The form clearly shows that account, which was to be opened, was for trading purposes and not for fixed return investment. The Bench enquired from Mrs. Salahuddin during the proceedings if she could produce any evidence in support of her contention that the money was given by her for badla investment, however she could not produce any evidence. In light of these circumstances we are unable to agree with her contention that Salim Chamdia Securities be directed to return the money invested by her. As regards the penalty, of Rs:25,000 imposed on Salim Chamdia Securities, it is for the violation of rule 4(4) of the Securities and Exchange Rules, 1971. The imposition of penalty does not make all the transactions executed in Mrs. Salahuddin's account, illegal or without authorization. Imposition of fine on Salim Chamdia Securities does not mean that the Director (SMD) had established Mrs. Salahuddin's claim against it.

9. As far as the appeal of Salim Chamdia Securities is concerned, we do not agree with their contention that Rule 4(4) does not lay down a requirement for transmission of written confirmations to the customers. Rule 4(4) is to be read with rule 8(g), which requires the members to prepare and maintain duplicates or counterfoils of memos. of confirmation issued to the customers under Rule 4(4). It is therefore wrong to argue that the requirement to `transmit' confirmations under rule 4(4) can be satisfied by transmission of oral confirmations. The contention of Salim Chamdia Securities cannot be accepted that the confirmations were prepared and kept at their office for collection by the customers. The law requires that the written confirmations must be provided to the customers 'I by the members. We therefore find no reason to interfere with the impugned order, which is hereby maintained. The appeal is dismissed accordingly. H.B.T./20/SEC Appeal dismissed