Failure to file accounts: SECP imposes Rs 0.16 million penalty on directors of sugar mill

The Securities and Exchange Commission of Pakistan (SECP) has imposed a penalty of Rs 160,000 on the directors of a sugar mill for not timely filing the interim financial statements ("quarterly accounts"/half yearly) as per requirements of section 245 of the Companies Ordinance.
According to an order issued by the SECP, the order has disposed of the proceedings initiated against the following directors including the chief executive officer (together referred to as "respondents") of a sugar mill (company). The proceedings against the respondents were initiated through show cause notice ("SCN") dated August 24, 2016 under the provisions of section 245 read with section 476 of the Companies Ordinance, 1984 (Ordinance).
The brief facts of the case are that the company did not file the interim financial statements ("quarterly accounts"/half yearly) for the specific periods with the commission, in a timely manner as per requirements of section 245 of the Ordinance.
Consequently, the SCN was issued to the respondents whereof they were called upon to show cause in writing within fourteen days as to why penal action may not be taken against them under subsection (3) of section 245 of the Ordinance for not filing the aforesaid quarterly accounts with the commission in a timely manner, as per requirements of the law.
Before proceeding further, it is necessary to advert to the following relevant provisions of the Ordinance. In terms of sub-section (1) of section 245 of the Ordinance read with commission's circular No 9 dated March 19, 2003, all1isted companies are, inter alia, required to file their quarterly accounts with the commission within stipulated time ie one month from the close of first and third quarters and two months from the close of second quarter.
Sub-section (3) of section 245, inter alia, provides as under: (3) If a company fails to comply with any of the requirements of this section, every director, including chief executive and chief accountant of the company who has knowingly by his act or omission been the cause of such default shall be liable to a fine of not exceeding one hundred thousand rupees and to a further fine of one thousand rupees for every day during which the default continues.
In terms of the commission's notification SRO 1003 (1)/2015 dated October 15, 2015, the powers to adjudicate cases under section 245 have been delegated to the director (Corporate Supervision Department).
The SECP has analysed the facts of the case, relevant provisions of the Ordinance, and submissions made by the respondents. Before deciding upon on matter, the SECP would like to highlight that the requirement to circulate interim accounts was introduced so that the shareholders could have timely access to information about the affairs of companies. Keeping in view the fact that timing of interim financial statements is of essence the disclosure and audit requirements of these accounts have been kept to a bare minimum. Interim financial statements prepared properly and in a timely manner not only provide to its users a reliable source of information regarding a company's financial position and performance but these also show the results of management's stewardship of resources entrusted to it. In order to ensure transparency, all the companies must meticulously follow the legal requirement for preparing and circulation of interim accounts. In addition to their responsibility of overseeing and managing affairs of the Company, directors also have fiduciary duties towards the company and its shareholders. They are, therefore, liable to a higher level of accountability which requires them to be vigilant and perform their duties with care and prudence. It is directors' responsibility to oversee the functioning of the company, to keep it appropriately staffed and organised to ensure due compliance of law.
It is clear that the aforesaid quarterly accounts of the company were not filed by the company. The attitude of the respondents shows that they are not concerned with following the law. The aforesaid reflects a total disregard of the applicable legal framework by respondent which is not befitting for directors of a public listed company in their fiduciary capacity as caretakers of the investment of the minority shareholders. Keeping in view of the above, the SECP hereby imposed a fine of Rs 5000 for each quarter on each respondents aggregating to Rs 160,000 for contravening the provision of section 245 of the Ordinance.