Md. Abdul Kader Faruk Vs. BSEC and others 2016 (2) LNJ 127

Case No: Writ Petition No. 5300 of 2013 with Writ Petition No. 5301 of 2013 with Writ Petition No. 5754 of 2013

Judge: Zafar Ahmed,

Court: High Court Division,,

Advocate: Mr. Rokanuddin Mahmud,Mr. Manzur Al Matin,Mr. Mustafizur Rahman Khan,Mr. Safayat Sultana Rume,Mr. A.M. Masum,Mr. Probir Neogi,Mr. Suvra Chakravarty,,

Citation: 2016 (2) LNJ 127

Case Year: 2016

Appellant: Md. Abdul Kader Faruk

Respondent: BSEC and others

Subject: Writ Petition,

Delivery Date: 2016-03-29

Md. Abdul Kader Faruk Vs. BSEC and others 2016 (2) LNJ 127
HIGH COURT DIVISION
(SPECIAL ORIGINAL JURISDICTION)
Md. Ashfaqul Islam, J
And
Zafar Ahmed, J
Judgment on
29.03.2016
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Md. Abdul Kader Faruk
. . . Petitioner
(In Writ Petition No. 5300 of 2013)
Shirin Faruk
. . . Petitioner
(In Writ Petition No. 5301 of 2013)
Kim Jong Suk
. . .Petitioner
(In Writ Petition No. 5754 of 2013)
- Versus -
Bangladesh Securities and Exchange Commission and others
... Respondents.
 (In all Writ Petitions)

Securities and Exchange Ordinance (XVII of 1969)
Sections 22 and 26
The requirements of section 22 of the Ordinance are two-folds; firstly, the Commission has to be satisfied that there has been a contravention, and secondly, the same was wilful. The Company, in the reply to the show cause notice, while admitting some of the allegations, gave clarifications of the events and stated that they occurred due to some ‘unavoidable circumstances’. The Company never admitted that the alleged contraventions were wilful. The Commission concluded that the contraventions are wilful, but refrained from giving any reason in support of its finding. This is simply perverse and violates the requirements of section 22. The enquiry report was not supplied along with the show cause notice. Neither in the show cause notice nor in the impugned order fraud was alleged. Absence of a speaking order cannot be cured by an affidavit giving reasons which should have been in the order itself. Therefore, we do not find any substance and relevancy in the argument. The order of imposition of penalty as well as the order rejecting the review application suffer from non-application of mind and are violative of the provisions of section 22 of the Ordinance. They have also failed to meet the requirement of duty to give reasons, which a quasi-judicial body is entrusted with the task of passing an order adversely against an individual. The decisions of the Commission imposing penalty upon the petitioners are perverse and without any lawful authority, firstly, because, those are solely based on reply of the Company, although the Commission treated the same as admission without lifting the corporate veil, and secondly, the Commission did not assign reasons of its own in holding that the contraventions are wilful and thus, violated the requirements of section 22 of the Ordinance.    . . . (30, 31, 38, 40 and 41)

Siemens Engineering & Manufacturing Company of India Ltd. Vs. Union of India and others, AIR 1976 SC 1785; (1976) 2 SCC 981; R. (on the application of Jones) Vs. North Warwickshire Borough Council, (2001) EWCA Civ 315; R. v. Oadby and Wigston Borough Council, ex p Dickman, (1996) 28 HLR 806 and Cauvery Software Engineering Systems Ltd., In re (2004) 11 Comp LJ 230 (SEBI), (Union of India v. H.P. Chothia, (1978) 2 SCC 586) ref.
 Writ Petition No. 5300 of 2013 with Writ Petition No. 5301 of 2013 with Writ Petition No. 5754 of 2013


Mr. Rokanuddin Mahmud, Senior Counsel, with
Mr. Mustafizur Rahman Khan,
Mr. Safayat Sultana Rume, and
Mr. A.M. Masum, Advocates
. . . For the Petitioners
 (In all Writ Petitions)
Mr. Probir Neogi, Senior Counsel, with
Mr. Suvra Chakravarty and
Mr. Manzur Al Matin, Advocates
. . . For the Respondent No. 1
(In all Writ Petitions)
 
JUDGMENT

Zafar Ahmed, J:
These writ petitions arise out of same facts and involve common question of law and therefore, they are heard together and disposed of by this single judgment.
  1. The petitioners have challenged the legality of imposition of penalty of Tk. 50,00,000/- upon the petitioners of Writ Petition (WP) Nos. 5300 of 2013 (Md. Abdul Kader Faruk) and 5754 of 2013 (Kim Jong Suk), and Tk. 25,00,000/- upon the petitioner of WP No. 5301 of 2013 (Shirin Faruk) by the respondent no. 1 Bangladesh Securities and Exchange Commission vide three separate memos being nos. SEC/Enforcement/ 1051/2012/26 (in WP No. 5300 of 2013), SEC/Enforcement/1051/ 2012/30 (in WP No. 5301 of 2013) and SEC/Enforcement 1051/2012/28 (in WP No. 5754 of 2013), all dated 27.01.2013.
  2. Challenging the imposition of penalty, each of the petitioners filed separate review applications which were rejected by the respondent no. 1 vide memo nos. SEC/Enforcement/1051/ 2012/246 (WP No. 5300 of 2013), SEC/Enforcement/1051/ 2012/245 (WP No. 5301 of 2013) and SEC/Enforcement/1051/ 2012/244 (WP No. 5754 of 2013), all dated 07.04.2013. The legality of the orders rejecting the review applications have also been challenged by the petitioners.
  3. This Court issued Rules and passed interim orders of stay. 
  4. Facts and sequences of events, as averred in the writ petitions, in brief, are as follows:  
The petitioners, three in number, are sponsor shareholders and Directors of the respondent no. 9 Company R.N. Spinning Mills Ltd., which carries on business as a textile manufacturer. It is a listed Company and its shares are publicly traded in the Dhaka and Chittagong Stock Exchanges.
By memo No. SEC/CI/ RI-70/ 2011/997 dated 11.01.2012 (Annexure-B), the respondent no. 1 Bangladesh Securities and Exchange Commission (in short the ‘Commission’) granted approval to the Company for making a rights offer for 13,91,41,230 ordinary shares of Tk. 10.00 each at an issue price of Tk. 20.00 per share (including premium of Tk. 10.00 each) totaling Tk. 278,28,24,600.00 only at a ratio of one rights share for each existing share subject to the terms and conditions contained therein.
Thereafter, the Company made the offer for the rights share and subscription closed on 13.03.2012. By letter dated 04.04.2012  (Annexure-C), the Company, in compliance of Rule 13(a) of the Securities and Exchange commission (Rights Issue) Rules, 2006 submitted a summary report of the subscription received against the offer stating that valid subscription received by the Company was Tk. 97,50,63,580.00 and that the unsubscribed amount to be offered to the underwriters was Tk. 180,77,61,020.00.
By letter dated 22.04.2012 (Annexure-D), the Company requested for the consent of the Commission to credit the rights shares to the BO accounts of the subscribers who had deposited their subscription within the stipulated time. By letter dated 24.04.2012 (Annexure-D1), the Company requested for extension of time for payment of subscription by two sponsor directors, namely Mr. Kim Jong Suk (petitioner of WP No. 5745 of 2013) and Mrs. Shirin Faruk (petitioner of WP No. 5301 of 2013) and one sponsor shareholder, M.L. Dyeing Ltd., who had not deposited the subscription within the stipulated time due to inadequacy of funds. However, the Commission did not immediately reply to the said letters and there was no consent of extension of time as requested.  
By several letters, all dated 26.042012 (Annexure-E series), the Company requested the underwriters to take up the issue in respect of the unsubscribed portion of the offer, which they did by depositing with the Company’s account the required amounts to the extent of their respective underwriting commitments thus completing the subscription, and this was duly informed by the Company to the Commission by letter dated 15.05.2012.   
By letters dated 22.05.2012, 05.06.2012 and 10.06.2012 (Annexure-F series), the Company informed the Commission of the overall subscription status of the rights issue, mentioning that the bankers to the issue, Bank Asia Ltd., had refused to accept in the relevant account deposit of the underwriters’ and sponsor shareholders’ subscription payments despite the Company’s requests, and  hence, the Company had arranged for the deposit of the said amount in separate accounts maintained with Shah Jalal Bank Ltd., Agrani Bank Ltd. and Bank Asia Ltd. The Company also informed the Commission that 3% tax on the premium amount totaling Tk. 4,17,42,370.00 had already been paid to the exchequer and provided the Commission with copies of bank statements regarding the deposit of subscription as well as copies of chalans evidencing payment of the tax. The Company requested the Commission to accord its approval to the crediting of the BO accounts of the subscribers with the rights shares. However, no such consent was immediately forthcoming.
By order No. SEC/CI/RI-70/ 2011/448 dated 12.06.2012 (Annexure-G), the Commission appointed the respondent nos. 4 and 5 (Director and Deputy Director of the Commission) to conduct an enquiry regarding compliance of subscription status of the rights issue of the Company. By a letter dated 24.06.2012 (Annexure-G1), the respondent no. 4 sought certain information in this regard from the Company. In response, by letter dated 26.06.2012 (Annexure-G2) the Company provided the information requested.
By letter No. SEC/CI/RI-70/ 2011/1406 dated 17.06.2012 (Annexure-H), the Commission consented to the deposit of the entire subscription money to the designated account of the rights issue maintained with Bank Asia Ltd.
By a letter dated 28.06.2012 (Annexure-I), the Commission sought to know from all listed companies, including the Company, the status as to compliance with notification No. SEC/CMRRCD/ 2009-193/119/ Administration/34 dated 22.11.2011 regarding minimum holding of shares by sponsor shareholders.
On 04.07.2012, two sponsor directors of the Company, namely, Mr. Kim Jong Suk and Mrs. Shirin Frauk and one sponsor shareholder of the same, namely, M.L. Dyeing Ltd. received several letters from the respondent no. 4 alleging that they had used the funds of the Company to subscribe to the shares. In reply, by a letter dated 07.07.2012, the Director, Finance and Secretary of the Company denied such allegation and asserted that the money had been paid by the said sponsor directors and shareholders from their own sources. Nonetheless, the Enquiry Officer was not satisfied with such explanation and sought further explanation from the said sponsor directors and shareholders by letters dated 15.07.2012, to which, however, no replies were given.
By a letter dated 25.07.2012 (Annexure-K), the Commission accorded its consent to the crediting of rights shares to the general shareholders, but not to the sponsor directors or the underwriters.
By a directive dated 20.09.2012 (Annexure-L), the Commission, in exercise of its powers under section 20A of the Securities and exchange Ordinance, 1969, directed that the sponsors and directors of the Company cannot transfer their shares until further order.
Thereafter, by a show cause notice dated 23.09.2012 (Annexure-M), addressed to the Directors, Managing Director and secretary of the Company, the Commission informed of the submission of the report by the respondent no. 4 stating the contraventions/violations contained therein. The notice asked the recipients to show cause as to why appropriate action should not be taken against them under section 22 of the Ordinance, 1969 for the alleged contraventions and also notified of a personal hearing on 04.10.2012. The show cause notice did not, however, enclose copy of the enquiry report.
On 04.10.2012, the Company, through its Secretary, gave a written reply to the said show cause notice (Annexure-N) and also appeared in the personal hearing. In the written reply, the Company gave its response to each of the alleged contraventions.
By a letter dated 14.01.2013 (Annexure-O), the Commission, in exercise of its power under section 2CC of the Ordinance, 1969 reduced the size of the issue to Tk. 119,95,60,980.00,  and passed direction for transferring the excess amount from the account of Bank Asia to the Company.
By two separate directives dated 23.01.2013 (Annexure-P and P1) issued under section 20A of the Ordinance, the Company was directed to remove the Managing Director and the Company Secretary and the latter was barred from holding office of any organization associated with the Commission for a period of 5 years.
Finally, by the impugned orders, all dated 27.01.2013 (Annexure-A), the Commission stated that since the Company had admitted the alleged contraventions, it imposed the penalty upon the petitioners and directed for payment of the said penalty amount within 15 (Fifteen) days.
The petitioners made applications to the Commission under section 26(2) of the Ordinance, 1969 on 13.02.2013 (Annexure-Q) for reviewing the aforesaid orders.
The Commission rejected the petitioners’ review applications vide the second impugned orders, all dated 07.04.2013 (Annexure-A1), without conducting any hearing of the said applications.
In the supplementary affidavit, it has been stated that with respect to the self same allegations as made in the proceedings against the petitioners, the Commission also proceeded against the Company i.e. R.N. Spinning Mills Ltd. under section 22 of the Ordinance, 1969  and imposed a penalty of Tk. 10,00,000/- by order No. SEC/ Enforcement/ 1051/2012/24 dated 27.01.2013. Impugning the said order and also the order rejecting the application for review, R.N. Spinning Mills Ltd. filed WP No. 4383 of 2013 and obtained a Rule Nisi and order of stay (Annexure-R and R1). Be it mentioned that the said writ petition is not before us for adjudication.
  1. Rules have been contested by the respondent no. 1 Commission by filing separate affidavit-in-opposition.
  2. The case of the Commission, in short, is that as per rule 6(2) of the Rights Issue Rules, 2006, the issuer is required to call upon the underwriter(s) to subscribe within 10 (ten) days of “closing of the subscription lists.” The Company’s subscription list opened on 19.02.2012 and closed on 13.03.2012 and thus, the period of calling upon the underwriters to subscribe to the unsubscribed shares was within 23.03.2012, whereas the Company called upon the underwriters on 26.04.2012 i.e. more than 1 (one) month after the prescribed time limit. The issuer, i.e. the writ petitioners’ Company has, therefore, violated the provision of rule 6(2) of the Rights Issue Rules. 
  3. Furthermore, the Company failed to provide proof of Bank Asia’s refusal to accept the underwriters’ and sponsor shareholders’ subscription. The letter dated 22.02.2012 from the Company to the Commission has no mention of Bank Asia refusing to accept the sponsor shareholders’ subscription payments. 3 (three) sponsors of the issuer, namely, Mrs. Shirin Faruk, Mr. Kim Jong Suk and M.L. Dying Limited deposited subscription money through Agrani Bank, Shahjalal Islami Bank and a different account of Bank Asia (which was not mentioned in the Rights Share Offer Document (ROD) as banker to the issue) between 03.06.2912 to 07.06.2012, even though the subscription for right shares had closed on 13.03.2012. The Company, therefore, clearly contravened the law and the terms and conditions imposed by the approval letter.
  4. Upon enquiry, the enquiry committee found the Subscription Status Report along with bank statements submitted by the petitioners’ Company on 22.03.2012 to be forged and false. The forgery was confirmed by the concerned banks and as such, there was absolutely no question of giving the Commission’s consent to the Company to credit the right shares as applied for.
  5. In respect of non-supply of the enquiry reports to the petitioners, it has been stated in the affidavit-in-opposition that it is apparent from the Company’s response dated 04.102012 that nowhere in the said letter the Company mentioned that it could not make any effective reply to the show cause notice for non-supply of the enquiry report, nor did it request the Commission to supply the same to it.
  6. Mr. Rokanuddin Mahmud, the learned Senior Counsel appearing for all the writ petitioners, advances the following arguments in support of the Rules:
    1. The most serious allegation, namely the usage of the Company’s funds by sponsor directors and sponsor shareholder, has not actually been admitted or proven, but rather, the facts and circumstances clearly show that these funds were generated from the subscription of the directors and sponsor shareholders themselves and not from the funds of the petitioners.
    2. The allegations brought against the petitioners, even if admitted, do not warrant the imposition of the penalty that has been given.
    3. The Commission has not applied its mind individually to the several allegations that have been made and arrived at a conclusion without recording any finding as to whether each of the charges was proven individually, but has rather proceeded in an omnibus fashion.
    4. The satisfaction of willful refusal, failure or contravention required for penalty to be imposed against a person being not present in the impugned orders, the same is violative of and ultra vires the provisions of section 22 of the Ordinance, 1969.
    5. The Commission having decided to proceed with respect to the allegations in issue under section 22 of the Ordinance, there is no scope to hold directors of the Company i.e. the petitioners vicariously liable for any alleged willful refusal, failure or contravention of the Company.
    6. The impugned orders were not preceded by any show cause notice personally addressed to the petitioners and hence, it is violative of section 22 of the Ordinance and the principle of natural justice.
    7. The Commission disposed of the petitioners’ applications for review unilaterally without even conducting an application hearing which is a blatant breach of the principle of natural justice.
  7. Mr. Probir Neogi, the learned senior Counsel appearing for the respondent no. 1 Commission, on the other hand, opposes the Rules by submitting that the Commission has duly followed the procedure prescribed by law. In the process, it conducted detailed and credible enquiry in the matter and served show cause notice upon the petitioners giving full particulars of the allegations brought against them. In the said notice, the enquiry report concerned was adequately quoted giving the petitioners ample opportunity of explaining their case. Furthermore, all the contraventions have been admitted by the petitioners in the reply to the show cause notice signed by the Company Secretary on behalf of the Company and the Directors.
  8. In respect of the argument advanced by Mr. Mahmud that the Directors of the Company cannot be individually penalized for wrongs committed by the Company, Mr. Neogi submits that the argument is not tenable in law for two reasons; firstly, a number of offences related to the penalty have been directly committed by the Directors or Sponsors themselves, and secondly, under the Ordinance, every Director, Manager or other officers responsible of the conduct of a Company is liable for the wrongs committed by such Company.
  9. Mr. Neogi finally submits that the Commission has fully complied with the provisions of section 22 of the Ordinance and that there has been no violation of the principle of natural justice.
  10. We have heard the learned Advocates of both sides and perused the materials on record.
  11. The respondent no. 1 the Commission issued one show cause notice dated 23.09.2012 (Annexure-M) which was addressed to the Company R.N. Spinning Mills Ltd. and its Directors. The notice referred to the enquiry report and set out the facts. In the notice, 8(eight) contraventions were mentioned out of which 3(three) contraventions i.e. contravention nos. (d), (f) and (g) were alleged to have been committed by the petitioners. The rest were directed against the Company itself and its Secretary.
  12. The petitioners did not reply to the show cause notice. However, the Company, through its Secretary, gave a written reply dated 04.10.2012 (Annexure-N) to the show cause notice responding to each of the contraventions.
  13. The Commission, vide separate impugned orders, all dated 27.01.2013 (Annexure-A), imposed penalty upon the petitioners and the Company. The Company is not a petitioner before us.
  14. The impugned orders are in identical terms, except for the operative parts, in which the names of the delinquents upon whom the penalty has been imposed. Analysis and discussion of one impugned order shall cover the cases of all the writ petitioners.
  15. The relevant portions of the impugned orders, so for as they relate to the petitioners, are quoted below for ready reference:
তারিখঃ ২৭ জানুয়ারী ২০১৩
অাদেশ
       যেহেতু, Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969) Hl Section 2(g) মোতাবেক R.N. Spinning Mills Ltd., ‘issuer’ হিসাবে অভিহিত (অতঃপর ইস্যুয়ার বলে উল্লেখিত);
       যেহেতু, কমিশন R.N. Spinning Mills Ltd. কে পত্র নং এসইসি/সিআই/ আরআই-৭০/২০১১/৯৯৭ তারিখ ১১/০১/২০১২ এর মাধ্যমে রাইট শেয়ার ইস্যুর অনুমোদন প্রদান করেছেz যেহেতু, R.N. Spinning Mills Ltd. তাদের রাইট শেয়ারের অনুমোদন পত্রে বর্ণিত শর্তাবলী যথাযথভাবে পরিপালন করে নাই;
       যেহেতু, an enquiry was conducted by the Commission regarding right issue of R.N spinning Mills Ltd. The enquiry officers have submitted the report. In the enquiry report they stated, among others, the following:
  1. .../ Contravention: ...
  2. .../ Contravention: ...
  3. .../ Contravention: ...
 
  1. ...
         Contravention: R.N Spinning Mills Limited has violated condition no. 11 of the approval letter and Rule 9(2) of Securities and Exchange Commission (right issue) Rules, 2006 by collecting subscription money after the expiry of subscription period through Agrani Bank Limited, Principal Branch which are not mentioned in the ROD as Banker to the issue. The sponsors also violated condition no. 11 of the approval letter and Rule 9(2) of Securities and Exchange Commission (right issue) Rules, 2006.
  1. .../Contravention: ...
  2. ...
         Contravention: R.N. Spinning Mills Limited, Managing Director, Company Secretary as well as board of directors have violated section 17(a) of The Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969) by giving company’s money (money of all the share holders) to Mrs. Shirin Faruk, director of R.N. Spinning Mills Limited; Mr. Kim Jong Suk, director of R.N spinning Mills Limited and M.L. Dying Ltd., sponsor share holder of R. N spinning Mills Limited for subscription of right shares.
  1. ...
         Contravention: Mr. Kim Jong Suk, director of R. N Spinning Mills Limited has violated condition no. 13 of the approval letter by depositing subscription money by cash instead of Demand Draft/Crossed Cheque/pay Orders.
  1. .../Contravention: ...
         যেহেতু, R.N. Spinning Mills Limited এর উপরোক্ত কার্যাবলী section 21(2) & 17(a) of Securities and Exchange Ordinance, 1969, Rule 9(2) of Securities and Exchange Commission (right issue) Rules, 2009 and condition No. 8, 11, 13 & 15 imposed under section 2CC of the Securities and Exchange Ordinance, 1969 এর সুস্পষ্ট লংঘন;
         যেহেতু, কমিশন উপরোল্লিখিত আইন পরিপালনে ব্যর্থতার দরুন R.N. Spinning Mills Ltd. এর বরাবরে একটি show cause-cum-hearing notice সূত্র নং-SEC/ Enforcement/ 968/2012/ 429 তারিখ ২৩ সেÃÃটম্বর ২০১২ প্রেরণ করে এবং ০৪ অক্টোবর ২০১২ তারিখে শুনানীর দিন ধার্য্য করে এবং ধার্য্যকৃত তারিখে R.N. Spinning Mills Ltd. এর ব্যবসÛাপনা পরিচালক, কোম্পনী সচিব এবং অন্যান্য পরিচালকদের পক্ষে প্রতিনিধি হিসাবে জনাব  আনোয়ার জাহিদ ভূইয়া, এডভোকেট উপসিÛত হয়ে ০৪ অক্টোবর ২০১২ তারিখে চিঠির মাধ্যমে কোম্পানীর লিখিত বক্তব্য দাখিল করেনz যাতে অন্যান্যের মধ্যে, নিম্নোক্ত বিষয়গুলির উল্লেখ আছে:
         “Regarding your show-cause notice for non compliance of securities related rules, our status stated below;
Contravention(a): .../Our status: ...
Contravention (b): .../Our status: ...
Contravention (c): .../Our status: ...
Contravention (d): ...
         Our status: Two Directors and a Sponsor were unable to pay their subscription money within the stipulated time. They have deposited their subscription money from 03.06.2012 to 07.06.2012, when the Scotia Branch of Bank Asia Limited did not agree to receive the subscription subscripting money, instantly we opened a new account on Agrani Bank Limited, principal branch and deposited the money.
Contravention (e): .../Our Status: ...
Contravention (f): ...
Our status: When the two directors and a sponsor were shown their interest to deposit the subscription money, Bank Asia denied to receiving the amount. Instantly, we opened the CD A/C (opened date 25.04.2012) with Agrani Bank Ltd, principal Branch in the name of R.N. Spinning mills Ltd. and deposited the said money. Subsequently, we have tried to deposit the subscription money to lead Bank STD A/C of Bank Asia Ltd. Scotia Branch, but they have refused to receive this said amount. Even we were also talked with higher authorities of the Bank Asia Ltd. but failed.  
After we tremendously requested to Bank Asia Limited to receive the subscription money but they refused, then we bound to open a new STD A/C (open date 3rd  June, 2012) with the same branch of Agrani Bank Ltd and transfer the subscription money of amounting to Tk. 160,26,63,580.00 and accordingly submitted the report to SEC. Later on authority of the SEC gave permission to Bank Asia for receiving the said subscription amount. After getting the permission from SEC, Bank Asia Limited issued a letter to issuer to deposit the subscription money to their respective branch and we have done that accordingly.
...
Contravention (g): ...
Our status: Yes, we have deposited the certain money by cash due to some unavoidable circumstances to deposit the money. We truly want your apologize for it. We are really sorry for that.
Contravention (h): .../Our status: ...
Conclusion: In conclusion, we apologize for all the events, which occurred by some unavoidable circumstances. Actually these events are started by non-payment of subscription money by two directors and a sponsor within the stipulated time. Later on all events are the sequence of each other happens one by one, which was totally beyond our control.”
যেহেতু, R.N. Spinning Mills Limited এর লিখিত বক্তব্য থেকে সুস্পষ্ট প্রতীয়মান হয় যে, শুনানীর নোটিশের অভিযোগসমূহ R.N. Spinning Mills Limited স্বীকার করেছে, যা ইচ্ছাকৃত এবং সিকিউরিটিজ আইন পরিপালনে ব্যর্থতা বিধায় Section 22 of the Securities and Exchange Ordinance, 1969 অনুযায়ী শাসি¹যোগ্য অপরাধ এবং যা ক্ষমার অযোগ্য;
আদেশ
         অতএব, সেহেতু, কমিশন, উল্লিখিত যাবতীয় বিষয় বিবেচনাপূর্বক, Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969) Hl section 22 [যা The Securities and Exchange (Amendment) Act, 2000 দ্বারা সংশোধিত) এর প্রদত্ত  ক্ষমতাবলে পরিচালক জনাব কিম জং সুক এর উপর ৫০ (পঞ্চাশ) লক্ষ টাকা জরিমানা ধার্য্য করল যা অত্র আদেশের তারিখ হতে ১৫ (পনের) দিনের মধ্যে "বাংলাদেশ সিকিউরিটিজ অ্যান্ড এক্সচেঞ্জ কমিশন' এর অনুকূলে উস্যুকৃত ব্যাংক ড্রাফট/পে-অর্ডারের মাধ্যমে কমিশনে জমা করতে হবেz
  1. It appears from the impugned order that in the process of reaching the conclusion in respect of finding the petitioners liable for the alleged contraventions, the Commission refrained from giving its own finding against each of them, rather solely relied upon the written reply of the Company. The Commission concluded that the Company admitted the charges mentioned in the notice which is wilful and hence, the directors are liable.
  2. The petitioners did not reply to the show cause notice. Nevertheless, they may be found liable for the alleged contraventions, but, in that case, the Commission must give specific finding to that effect. Simply a sole reliance on the reply of the Company in making them liable contravenes the fundamental principle of the Company Law that the Company, being a juristic person, is distinct from its members or shareholders. The Commission seems to have ignored this principle. The Commission must lift the corporate veil and record reasons for so doing prior to making the Directors liable on the basis of admission of the Company. Admission of ‘A’ in respect of ‘B’ cannot be the sole basis to make ‘B’ liable.
  3. The Commission passed the impugned order by virtue of the power conferred upon it under section 22 of the Securities and Exchange Ordinance, 1969. The relevant parts of section 22 run thus:
“22. Penalty for certain refusal or failure.-
  1. If any person-
    1. refuses or fails to furnish any document, paper or information which he is required to furnish by or under this Ordinance; or
    2. refuses or fails to comply with any order or direction of the Commission made or issued under this Ordinance; or
    3. contravenes or otherwise fails to comply with the provisions of this Ordinance;
the Commission may, if it is satisfied after giving the person an opportunity of being heard that the refusal, failure or contravention was wilful, by order direct that such person shall pay to the Commission by way of penalty such sum not less than one lakh taka as may be specified in the order and, in the case of a continuing default, a sum calculated at the rate of ten thousand further Taka for every day after the issue of such order during which the refusal, failure or contravention continues. (emphasis supplied)
  1. ...
  2. ...”
  1. By using the words ‘satisfied’ and ‘wilful’ in section 22(1)(c), the legislature has clearly intended that the Commission must be ‘satisfied that the contravention is wilful’. Any contravention, which is not wilful, or appears not to be wilful, in our view, would not attract section 22. It implies the requirement of giving reasons by the Commission as to contravention which is wilful.
  2. When the Commission passes an order under section 22, it acts as a quasi-judicial authority. Mahmudul Islam in ‘Constitutional Law of Bangladesh’ (3rd ed., pp. 694 para 5.64 J) referred to a number of cases and observed,
“Requirement of giving reasons: General principle of law is that in the absence of statutory requirement, an administrative order need not be a reasoned one except where there is a provision for an administrative appeal. However, fairness and transparency of administrative decisions require reasons to be recorded. The requirement of recording reasons by every quasi-judicial or even an administrative authority entrusted with the task of passing an order adversely against an individual and communication thereof to the affected persons is one of the recognised facets of the rules of natural justice and violation thereof has the effect of vitiating the order passed by the authority concerned. ...The requirement of reasoned decision not only ensures application of mind of the authority, eschews arbitrariness and improves the quality of administrative adjudication, but also ensures fairness and transparency and enables the review court to properly examine the impugned decision.”
  1. In R.V. Higher Education Funding Council ex p. Institute of Dental Surgery [1994] 1 AC 531, it was held that the giving of reasons may among other things concentrate the decision-maker’s mind on the right questions; demonstrate to the recipient that this is so; show the issues have been conscientiously addressed and how the result has been reached; or alternatively alert the recipient to a justiciable flaw in the process.
  2. In Siemens Engineering & Manufacturing Company of India Ltd. v. Union of India and others, AIR 1976 SC 1785: (1976) 2 SCC 981, the Indian Supreme Court while considering the exercise of statutory duties held that giving of reasons is like the principle of audi alteram partem, a basis principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. It was held that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of an order it makes. Every quasi-judicial order must be supported by reasons.
  3. In R. (on the application of Jones) v. North Warwickshire Borough Council, (2001) EWCA Civ 315, it was held by Laws LJ that “the general law as regards the duty of a public decision-maker to take relevant considerations into account is well-known. (1) If the operative statute provides a lexicon of relevant considerations to which attention is to be paid, then obviously the decision-maker must follow the lexicon. (2) If however the statute provides no such lexicon, or at least no exhaustive lexicon, then the decision-maker must decide for himself what he will take into account. In doing so he must obviously be guided by the policy and objects of the governing statute, but his decision as to what he will consider and what he will not consider is itself only to be reviewed on the conventional Wednesbury principle.”
  4. In R. v. Oadby and Wigston Borough Council, ex p Dickman, (1996) 28 HLR 806, it was held by Buxton J that “Looking at the wording chosen in the Regulations against the background of administrative law principles I have no doubt that the draftsman, and through him the legislator, is telling us that the only factors that are relevant, and, therefore, the only factors that the authority should take into consideration, are those which are specially set out. Otherwise, the implication is that the authority is bound to take into account a factor which has been said to be not irrelevant, or at least not to be relevant. That is a conclusion that I do not think is likely or even lawfully.”
  5. We have already noted that the requirements of section 22 of the Ordinance are two-folds; firstly, the Commission has to be satisfied that there has been a contravention, and secondly, the same was wilful.
  6. The Company, in the reply to the show cause notice, while admitting some of the allegations, gave clarifications of the events and stated that they occurred due to some ‘unavoidable circumstances’. The Company never admitted that the alleged contraventions were wilful. The Commission concluded that the contraventions are wilful, but refrained from giving any reason in support of its finding. This is simply perverse and violates the requirements of section 22.
  7. Mr. Neogi, the learned Senior Counsel for the respondent no. 1 Commission, refers to the case of Cauvery Software Engineering Systems Ltd., In re (2004) 11 Comp LJ 230 (SEBI) and submits that in the instant case, the petitioners, who are natural persons, acted as directors of the Company and are responsible for the commissions and omissions of the Company. In the cited case, relied upon by Mr. Neogi, it was held that,
“I find that the directors of the company are responsible for the commissions and omissions of the company as they are the persons who are conducting the affairs of the company. A corporate entity acts through its directors who are natural persons. It is therefore, necessary to lift the corporate veil and find that the natural persons who acts as directors of the company are guilty of the commissions and omissions of the company. The concept of corporate entity was evolved to encourage and evolve trade and commerce but not to commit illegalities and, therefore, I am convinced that this is a fit case to pass an order against the directors of Cauvery also.
The conduct of Cauvery and its directors is detrimental to the interest of the investors and the safety and orderly development of the securities market. Unless these are checked, it would pose serious challenge to the regulatory authority. It is to be noted that persons who operate in the market are required to maintain high standards of integrity, promptitude and fairness in the conduct of the business dealings. A listed Company which indulges in misconduct such as narrated above and shakes the confidence of the investors is not fit and proper to operate in the securities market.”
  1. The decision in the cited case was given by a whole time Member of Securities and Exchange Board of India (SEBI) which has been established under section 3 of the Securities and Exchange Board of India Act, 1992 (in short ‘SEBI Act’). The order was passed in exercise of the powers conferred upon the Member under section 19 of SEBI Act read with sections 11, 11(4)(b) and 11B of the Act. Section 19 of SEBI Act, 1992 states,
“19. The Board may, by general or special order in writing delegate to any member, officer of the Board or any other person subject to such conditions, if any, as may be specified in the order, such of its powers and functions under this Act (except the powers under section 29) as it may deem necessary.”
  1. Section 11 of SEBI Act deals with functions of the Board. Section 11(4)(b) runs thus:
“11(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:-
  1. ... 
  2. restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;” 
  1. The relevant parts of section 11B of SEBI Act as it stood at the relevant time, are as follows:
“11B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,- ...”
  1. In Cauvery case, reasons have been assigned for lifting the veil of incorporation. Moreover, the order was passed following a scrutiny and analysis of the show cause notice, the reply and relevant documents, which are absent in the instant case. Here, the Commission did not attempt to lift the corporate veil. Facts and circumstances also do not warrant the same in judicial review.
  2. Mr. Neogi refers to Annexure-2 series, which are Subscription  Status Reports filed by the Company and the respective Banks to the Commission and ancillary related documents, and submits that the enquiry committee found that the Subscription Status Report along with Bank statements submitted by the Company on 22.03.2012 are forged and false.
  3. The enquiry report was not supplied along with the show cause notice. Neither in the show cause notice nor in the impugned order fraud was alleged. Absence of a speaking order cannot be cured by an affidavit giving reasons which should have been in the order itself (Union of India v. H.P. Chothia, (1978) 2 SCC 586). Therefore, we do not find any substance and relevancy in the argument.
  4. So far as the rejection of review applications is concerned, the same is a non-speaking one. The rejection order dated 07.04.2013 (Annexure-A1) states,
“The Commission has considered your request dated February 13, 2013 as a review petition under section 26 of the Securities and Exchange Ordinance, 1969 and has decided to uphold its earlier decision of penalty imposed vide the above stated Order.”
  1. The order of imposition of penalty as well as the order rejecting the review application suffer from non-application of mind and are violative of the provisions of section 22 of the Ordinance. They have also failed to meet the requirement of duty to give reasons, which a quasi-judicial body is entrusted with the task of passing an order adversely against an individual.
  2. Our observations on the matter are concluded thus; the decisions of the Commission imposing penalty upon the petitioners are perverse and without any lawful authority, firstly, because, those are solely based on reply of the Company, although the Commission treated the same as admission without lifting the corporate veil, and secondly, the Commission did not assign reasons of its own in holding that the contraventions are wilful and thus, violated the requirements of section 22 of the Ordinance.
  3. The inevitable conclusion that follows from the above discussions is that the Rules must succeed.
  4. In the result, the Rules are made absolute. The impugned orders, all dated 27.01.2013 (Annexure-A to the writ petitions), imposing a penalty of Tk. 50,00,000/- upon the petitioners of WP Nos. 5300 of 2013 (Md. Abdul Kader Faruk) and 5754 of 2013 (Kim Jong Suk), and Tk. 25,00,000/- upon the petitioner of WP No. 5301 of 2013 (Shirin Faruk) and also orders, all dated 07.04.2013 (Annexure-A1 to the writ petitions) rejecting the review applications passed by the respondent no. 1 are declared to have been issued without lawful authority and are of no legal effect and are hereby set aside.
    There is no order as to cost.
Ed.