Foundations/NPOs: Revocation of licences be initiated under same law: SECP bench

An Appellant Bench of the Securities and Exchange Commission of Pakistan (SECP) observed that after revocation of the licences of the foundations/non-profit organizations (NPOs) under Section 42 of the Companies Ordinance, the SECP should initiate proceedings under the same law in accordance with the requirements of the Section 42 of the Ordinance.
According to an order issued by the SECP Appellant Bench, the order shall dispose of Appeal No 88 of 2019 filed by Shaheed Zulfikar Ali Bhutto Foundation (the Appellant) against the Order dated July 9, 2015 (the Impugned Order) passed by the Director, CLD-CCD (the Respondent).
The brief facts of the case are that a licence under Section 42 of the Companies Ordinance, 1984 (the Ordinance) was issued and in pursuance whereof the foundation was incorporated as a company on November 21, 1995.
In contravention of the direction issued by the SECP (the Commission) vide Circulars No 2 of 2015 dated January 1, 2015, Circular No 4 of 2015, and Circular No 5 of 2015 dated January 30, 2015; the foundation had failed to apply for renewal of licence up to February 16, 2015.
Therefore, the competent authority has revoked foundation's licence under Section 42, sub-section 4 of the Ordinance, and concerned registrar was directed to initiate proceedings to strike off appellant's name from the register of companies, under Section 439 of the ordinance.
The foundation had filed this appeal inter alia on the grounds that the due to political situation involving the promoters/directors and their subsequent exile from the country caused noncompliance.
The foundation stated that deaths of four out of seven promoters/directors of the foundation and death of the legal counsel, whose office address was the registered address of the Appellant, further aggravated the situation.
The foundation apprised that information regarding the Impugned Order was communicated to the Appellant by its banker vide its letter dated June 14, 2019 and prior to the aforestated date neither any notice nor the Impugned Order was received by the promoters/directors.
The foundation contended that the surviving promoters/directors desire to reactivate the appellant to promote its objectives and in this regard they undertake to comply with all the formalities and documentation required for the purpose of issuance and maintenance of license under Section 42 of the Companies Act, 2017 (the Act).
The appellant stated that the surviving promoters/directors undertake to make good all the default in filing of forms and documents, and compliance with license requirements, after revival of the license.
The foundation lastly stated that the foundation was condemned unheard and principles of due process and fair trial were not observed.
The SECP Bench has noted with great concern that for last 25 years the foundation remained non-compliant with the statutory and regulatory requirements, however, the Director-Adjudication-II, SECP had failed to initiate legal proceedings in this regard.
The bench is astonished that even the impugned order has not mentioned any previous non-compliances committed by the appellant, rather it was passed due to a technical default (failure to apply for renewal of licence).
The bench is of the view that appellant's failure to file audited annual financial statements, annual statutory forms and directors' election forms and respondent's failure to implement required procedure, is a grave reflection of abuse of licensing requirements and authority.
The bench has no doubt that the respondent was required to initiate legal and penal proceedings against the appellant at the time when first default was committed, however, the respondent had failed to discharge its duties in a required manner.
The bench is of the view that director Adjudication-II, SECP (respondent's) written comments and respondent's representative statement are not appropriate because without filing the past 25 years annual audited accounts and statutory returns, the appellant cannot be allowed to file application for renewal of licence under Section 42 of the Act.
Therefore, the bench cannot accept Director-Adjudication-II, SECP argument.
The SECP Appellant Bench noted an anomaly in the Impugned Order, whereby initiation of proceeding under Section 439 of the Ordinance was advised.
The bench is of the view that after revocation of the licence under Section 42 of the ordinance, the respondent was required to proceed in accordance with the requirements of the proviso of Section 42 of the ordinance, therefore, without adopting the required procedure, advising the concerned registrar to initiate proceeding under Section 439 of the Ordinance was unlawful.
The sub-section 4 of Section 42 of the Ordinance require that upon revocation of licence, the registrar shall change the status of association whose licence has been revoked and word or words "Limited", "(Private) Limited", or "(Guarantee) Limited", as the case may be, shall be entered at the end of the name of the association.
The SECP bench has observed that the appellant's licence was revoked in 2015, however, its status has not been changed by the Director-Adjudication-II, SECP and the appellant is still operating under the same name.
The law is clear and the bench has no doubt that after revocation of licence, the appellant cannot continue its operation without converting its status and making required amendments in necessary documents.
Furthermore, the bench has observed that under the ordinance, after change in status, the appellant had only two options, whether to continue with new status or opt for winding up.
Without prejudice to the aforestated correct legal position, the bench has noted that even no action under Section 439 of the Ordinance has been executed.
The bench is of the view that the facts reflect absence of due deliberation of actions and execution of orders under the licensing regime of Section 42 of the Ordinance/Act.