SECP informs Senate panel Winding up proceedings against Natover initiated

SOHAIL SARFRAZ

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has informed the Senate Standing Committee on Finance that the commission has filed criminal complaint against various individuals and has initiated winding up proceedings against the Natover Lease & Refinance Limited (NLRL) and any amount recovered will be distributed among the depositors/creditors on pro rata basis.

Briefing the Senate Standing Committee on Finance here on Tuesday under the chairmanship of Senator Ahmed Ali, SECP officials said that majority shareholders of NLRL are M/s Natover International (Pvt) Ltd "NIPL" and Nadeem Shaikh who are holding 40% and 28% shares respectively. Shaikh is not only the major shareholder in NLRL but also holds 98% of the issued share capital of NIPL as its Chairman. Shaikh, being sponsor of NLRL, directly or indirectly holds almost 71% shares in NLRL.

On the other hand, some committee members were of the view that the SECP has not been able to properly regulate the affairs of the Non-Banking Financial Companies (NBFCs).

The SECP officials informed the committee that the SECP had conducted an on-site inspection of NLRL on July 11, 2007. During the course of inspection, the inspectors discovered inter alia, that the management of the Company was involved in various transactions in violation of the prevailing regulatory framework including raising illegal deposits from the general public amounting to Rs: 562 million for and on behalf of NIPL. Most of these deposits were raised on monthly income scheme whereby monthly profit was paid to depositors. These fraudulent and illegal deposits were raised on behalf of NIPL through a financial instrument named Repo Security Deposit Receipt ("RSDR") by using the branch network of NLRL. NIPL also appointed Orion Investments (Private) Ltd. ("Orion"- owned by the son of Nadeem H Shaikh, CEO of NLRL) as its fiscal agents to raise such deposits. The amount so raised was siphoned out by the CEO of NLRL for his personal benefit with the active connivance of the Board of Directors ("BOD"). These deposits raised through RSDRs were not recorded in the books of NLRL as such the same were not the liability of NLRL. However, these RSDRs were serviced from the resources of NLRL by creating account receivable from NIPL in the books of NLRL. However, the receivable was not recovered from NIPL. The CEO and the board misappropriated and misapplied public funds to the tune of Rs 949 million.

Abdur Rehman Qureshi ex-SECP Chairman and presently advisor and secretary of the Commission further informed the committee that based on the recommendation of the Administrator, NLRL was declared as a sick entity.

The SECP in November 2008 initiated criminal proceedings against the CEO, Directors, CFO and Auditors of NLRL, NIPL and Orion before the Islamabad High Court wherein it was prayed that the accused may be tried and punished according to law for the offences they have committed and they be directed to deliver up the property acquired during the course of commission of the said offences. It was also prayed to the Honourable High Court to recover the misappropriated money from the CEO and his associates through sale of their properties. The said criminal complaint is presently pending adjudication before the Islamabad High Court where the matter was taken up on 09-05-2011 and was adjourned to a date in office.

Further, on the recommendation of Commission, the name of Nadeem H Shaikh has also been placed on Exit Control List. The superseded CEO and Board of NLRL have been permanently debarred to hold any position in NLRL by SECP vide Orders dated March 27, 2009.

After providing due opportunity to NLRL, SECP on May 19, 2009 passed an order whereby the leasing licence of NLRL was cancelled and winding up proceedings were initiated. Subsequently, SECP on August 19, 2009 filed a petition for winding-up (J.M 35 of 2009) of NLRL under Section 282 J (3) of the Ordinance in the Honourable Sindh High Court to ensure the distribution of available assets of NLRL among its depositors and creditors at the earliest as the deficit between the realisable value of assets and liabilities was increasing with each passing day. The Sindh High Court vide its Order dated February 01,2010 appointed Kadir Bakhsh Umrani, Official Assignee as Provisional Manager of NLRL to exercise such powers as are vested in a Provisional Manger in accordance with the Companies Ordinance, 1984. Presently, the winding-up petition is pending adjudication before the Sindh High Court where the matter was taken up on 20-09-2011, hearing was conducted and case was adjourned for a date in office, SECP officials added.

Some of the committee members expressed serious concern over the affairs in regulating NBFCs and was of the view that Natover Lease and its sister concerns have deprived general public of around Rs.860 million and SECP remained unable to protect the right of the small investors.

Committee also took notice of the absence of the SECP chairman in the meeting and decided to refer this matter to privilege committee for further necessary action.

Senator Haji Adeel from Awami National Party during the meeting informed the committee that SECP has failed to protect the small investors who have deposited their small savings in Natover Leasing and other companies owned by a family.

Some senators were not satisfied with the presentation of the SECP officials and contested that companies involved in this scam were depriving the small investors from their savings over the years and SECP failed to take cognizance of the matter. They were of the opinion that SECP bailed out the companies involved in the scam and failed to take strict action against the owners. At a time when equity of the company is running into negative Rs.180 million how the SECP liquidation efforts would yield results.

Chairman Senator Ahmed Ali constituted a sub-committee and asked it to submit recommendations within 15 days.