STATE BANK OF PAKISTAN Versus SALMAN ASSOCIATES (PVT.) LTD., KARACHI

The charge against the accused is that they being the Chief Executive and Director, respectively, of Messrs Salman Associates (Private) Ltd., a private registered company, when directed by the State Bank of Pakistan to furnish certain information and to produce certain record under section 43-A of the Banking Companies Ordinance, 1962, failed to do so, and thereby committed an offence punishable under section 83(1-C) of the said Ordinance.

2. Messrs Salman Associates (Private) Limited, with registered office at Patel Road, Quetta, was registered as company by the Deputy Registrar, Joint Stock Companies, Quetta, under the Companies Ordinance, 1984 on 7-6-1987, as per the Certificate of Incorporation issued by the said Deputy Registrar on that date. Accused Mian Abdul Ghaffar is the Chief Executive/Director of the said company, while accused Dr. (Mrs.) Najma Ghaffar is its Director. Prior thereto the accused were running business as a Partnership Firm and were inviting deposits of money. Since the accused were inserting advertisements inviting investments it appeared to the State Bank of Pakistan that they were indulging in illegal banking business and consequently they were directed to furnish information/documents respecting the business carried out by the said company, for the purpose of determining whether the said company was doing any banking business in contravention of section 27(1) of the Banking Companies Ordinance, 1962. A number of directives were issued which were served upon the said company. The inspections made at the offices of the company at Quetta and Karachi by the authorised officers of the State Bank of Pakistan produced no result as the said company did not allow the authorised officers of the Bank an access to many relevant records. The requisite information was also not furnished. Accordingly the Senior Deputy Director, Banking Inspection Department, who is authorised to launch prosecution in respect of offences committed under the Banking Companies Ordinance, 1962, filed a complaint against the accused for the said offence before this Court which was brought on regular file on 18-2-1988.

3. The accused pleaded not guilty to the charge framed against them and claimed a trial. At the trial the prosecution examined Mian Abdul Oadir, Senior Deputy Director (P.W.1), Sagheer Alam, Assistant Director (P.W.2), Muhammad Lateef, Inspecting Officer (P.W.3), Abdul Rauf Azmi, Inspecting Officer (P.W.4) and Syed Abrar Hussain, Inspecting Officer (P.W.5).

4. Accused Mian Abdul Ghaffar claims to have supplied all the required documents to the State Bank of Pakistan. He examined himself on oath, but did not examine any other witness in defence.

5. Accused Dr. (Mrs.) Najma Ghaffar has disputed the case of the prosecution by stating that she had no concern with the company and in fact co-accused Mian Abdul Ghaffar, who is her husband had obtained her signatures on various documents fraudulently. She claims to have tendered resignation from directorship, which was accepted on 10-11-1987. Accused Dr. (Mrs.) Najma Ghaffar has examined herself on oath. She, however, examined no other witness in defence.

6. The points for my determination are as follows: --

(i) Whether accused Mian Abdul Ghaffar and Dr. (Mrs.) Najma Ghaffar were the Chief Executive and Director of Messrs Salman Associates (Private) Ltd., a private registered company?

(ii) Whether the said company was directed by the State Bank of Pakistan under section 43-A of the Banking Companies Ordinance, 1962, to furnish information and documents respecting the business carried out by the company, which the said company failed to comply?

(iii) What offence ? if any, is committed by the accused or any one of them?

7. My findings on the above points are as follows: --

(i) Affirmative.

(ii) As under'.

(iii) Both the accused are guilty for the offence punishable under section 83(1-C) of the Banking Companies Ordinance, 1962.

REASONS ????

8. ???????? POINT NO.1 :

The photo-copy of certificate of incorporation issued under section 32 of the Companies Ordinance, 1984, is on record alongwith its annexures (Exh.6), which make it clear that both the accused were Directors of Messrs Salman Associates (Private) Ltd. Accused Mian Abdul Ghaffar has admitted this position in clear terms. Accused Dr. (Mrs.) Najma Ghaffar has also not seriously disputed this position. She has, however, shown her ignorance about the nature of business carried out by her husband. The defence of accused Dr. (Mrs.) Najma Ghaffar in her own words is as follows: --

"Mian Abdul Ghaffar, co-accused is my husband and he had obtained my signatures on various papers fraudulently, as he wanted to expand his business and in order to save income-tax I was being inducted as Director. In order to maintain good relations with my husband I agreed and just signed the papers. I had no knowledge that the co? accused was indulging in banking business without obtaining necessary permission from the State Bank of Pakistan. I am a lady doctor and I am employed in Telephone and Telegraph Department at Quetta. I produce the copy of my appointment order. In fact I had no concern with the business of my husband. When I came to know that my husband was carrying on banking business I resigned from the directorship. However, my resignation was accepted at belated stage on 10-11-1987."

9. There is, therefore, no difficulty in answering point No.(1) in affirmative.

10. POINTS Nos.2 and 3.

Mian Abdul Oadir, Senior Deputy Director (P.W.1) has testified that according to Form-29, both accused Wan Abdul Ghaffar and Dr. (Mrs.) Najma Ghaffar are Directors of Messrs Salman Associates (Private) Ltd., accused No.1. The evidence of Mian Abdul Oadir (P.W.1) also shows that previously the accused were running business as a Partnership firm and were in inserting advertisements for investment of money. It, therefore, appeared to complainant that the accused were transacting the business of banking in contravention of section 27(1) of the Banking Companies Ordinance, 1962. Consequently on 9-6-1987 the first directive was issued to accused No.1 (Exh, 8) in the following terms: --

"Whereas it appears that you are transacting banking business are associated in any way with such business in contravention of subsection (1) of section 27 of the Banking Companies Ordinance, 1962, as amended upto date, hereinafter referred to as the Ordinance, so State Bank by virtue of its powers conferred by Section 43-A of the Ordinance direct you through this requisition to comply with as under: --

(1) Furnish or let furnish to State Bank of Pakistan or its authorise representatives (whose name/designation and specimen signature are appended below) within two days from the receipt of this requisiti9n all record/information or any record specified by the State Bank of Pakistan representative in respect of, the alleged illegal banking business which is either under your custody/possession/control or within your knowledge.

(2) Let the authorised representative/s as aforesaid enter your registered office or any premises under your control to search/seize books, accounts, documents or other records in respect of the banking business carried exclusively by you or with the association of any other person and take copies of such books, accounts, documents or other records.

(3) Let the authorised representative/s examine/inspect or cause to be examined/inspected by the representative/s your company/officials of the company, its agents or any other person who has at any time been dealing, doing business or associated with your company or such other person.

(4) Let the authorised representative/s exercise all the powers conferred on State Bank of Pakistan by subsections (1), (2), (4) and (5) of section 40 of the Ordinance.

Specimen signatures of the officers ate given against their names for your information."

11. This directive was followed by other directives (Exh.10), (Exh.13), (Exh.14) and, (Exh.18), but the information sought and the documents required were not supplied to the State Bank of Pakistan. The list of investors and the legal documents of registration, alongwith memorandum and articles of association were, however, sent through (Exh.9). Sagheer Alam, Assistant Director (P.W.2), Muhammad Lateef, Inspecting Officer, (P.W3), Abdul Rauf Azmi, Ir.specting Officer (P.W.4), and Syed Abrar Hussain, Inspecting Officer (P.W.5), speak about the efforts made by the State Bank of Pakistan to procure the required information and documents, but without success. The evidence which has come on record makes it clear that there was sufficient material available with the State Bank of Pakistan to initiate an action under section 43-A of the Banking Companies Ordinance, 1962.

12. The main rather the only defence taken by accused Mian Abdul Ghaffar is that he had complied with the directed issued by the State Bank of Pakistan and no documents remained to be produced before the authorised officers. The record, however, speaks otherwise. There is overwhelming evidence on record to prove that the directives which were repeatedly issued were not complied with by Messrs Salman Associates (Private) Ltd., accused No.1. There is, therefore, no escape from the conclusion that the directives 8 issued under section 43-A of the Banking Comapanies Ordinance, 1962 were ignored by the accused.

13. It is contended on behalf of accused Dr. (Mrs.) Najma Ghaffar that she had nothing to do with the affairs of the company and co-accused Mian Abdul Ghaffar, who was the Chief Executive was solely responsible for the acts of accused No.1. In a partnership the liabilities of the partners in respect of the acts committed by them are usually subject to contract and the liabilities may be shifted to particular partners exonerating others. Sections 4, 5, 9 and 11 of the Partnership Act, 1932, are self-explanatory. However, under the Companies Ordinance, 1984, the liabilities are not, as a general rule, extinguished or assigned or fixed by contract. Section 194 of the Companies Ordinance, 1984, makes it clear that any contract to indemnify against or exempt from any liability attached to any director shall be void. A registered company is a legal person and it acts through natural persons, who are its directors. The management of the company has been entrusted to all the directors in explicit terms and not to any specific director or directors and the directors exercise powers on behalf of the company by means of a resolution passed at their meetings. Section 196 of the Companies Ordinance, 1984, deals with powers of directors. Under section 2(6) of the Companies Ordinance, 1984, the Chief Executive has to perform duties under the control/supervision of the directors. Reading sections 2(6), 194 and 196 of the Companies Ordinance, 1984, together it is abundantly clear that no director can be allowed to shift his liability or claim exemption there from for any reason whatsoever in the absence of any express provision of law in that behalf. Accordingly both accused Mian Abdul Ghaffar and Dr. (Mrs.) Najma Ghaffar are liable for the offence with which they are charged.

14. An attempt has been made by Mian Abdul Ghaffar to protect Dr. (Mrs.) Najma Ghaffar, who is his wife by accepting the responsibility for every act done by him on behalf of the company. The possible argument that whatever was done by accused Mian Abdul Ghaffar was not duly done by accused Dr. (Mrs.) Najma Ghaffar as she was not privy to it, is not tenable as it would amount to putting premium on the illegality and default of the directors in performance of their duties, vis-a-vis, the statutory provisions. Moreover accused Dr.(Mrs.) Najma Ghaffar is not a lady of conventional touch-me-not type but she is highly educated and a practising doctor. She does not appear to be as naive as she presents herself to be and consequently she being one of the directors of accused No.l is responsible for what accused Mian Abdul Ghaffar had done.

15. An attempt has also been made an behalf of the accused to make out a case of non-compliance of section 40 of the Banking Companies Ordinance, 1962, without realizing that it relates to a banking company and not to a company indulging in illegal banking business.

16. In the last a feeble attempt was made to show that accused Dr.(Mrs.) Najma Ghaffar has tendered her resignation from the directorship of the company on 10-11-1987 vide (Exh.16) before the filing of the present complaint on 8-2-1988. This resignation would be of no help to accused Dr. (Mrs.) Najma Ghaffar, mainly because of the fact that a number of directives under section 43-A of the Banking Companies Ordinance, 1962, were served upon accused No.1 prior to 10-11-1987, when she was admittedly a director. Under section 43-A of the Banking Companies Ordinance, 1962, each and every person is liable and duty bound, who has ever been associated with the business of the company in whatever capacity.

17. On all the scores both the accused viz. Mian Abdul Ghaffar, and Dr. (Mrs.)- Najma Ghaffar are guilty for the violation of section 43-A, which is punishable under section 83(1-C) of the Banking Companies Ordinance, 1962.

18. Accused Mian Abdul Ghaffar, who is the main accused in this case is i convicted for the said offence and is sentenced to suffer S.I. for 3 months and to pay an aggregate fine of Rs.25,000 (Rs. twenty-five thousand only) or in default to suffer S.I. for one month more. Accused Dr. (Mrs.) Najma Ghaffar is also convicted for the said offence, and is sentenced till rising of the Court and to pay an aggregate fine of Rs.25,000 (Rs. twenty-five thousand only) or in default to suffer S.I. for one month. She is allowed one month's time to deposit fine in the Nazarat of this Court. Accused Mian Abdul Ghaffar, who is in custody, be detained in Central Prison, Karachi, to serve out the sentence imposed on him.

N.H.Q./S-806/K ????????????????????????????????????????????????????????????????????????????????? Order accordingly.