Islamabad High Court (IHC) Upholds SECP’s Authority in Unauthorized Share Transfer Case
Islamabad 22-11-2024: The Islamabad High Court (IHC) dismissed an appeal filed under Section 34 of the Securities and Exchange Commission of Pakistan Act, 1997 (SECP Act), affirming the SECP’s decision against a broker accused of unauthorized share transfers. The judgment reinforces SECP’s authority to adjudicate such matters and sets significant precedents for the securities market.
The appeal stemmed from allegations that the broker, Siddiq Moti (deceased, represented by his legal heirs), transferred shares from the sub-account of a complainant, Mr. Naeem Hussain (Respondent No. 3), without proper authorization. The SECP had earlier found the broker in violation of Section 24(1) of the Central Depositories Act, 1997 (CD Act) and confirmed its findings through its Appellate Bench.
The Islamabad High Court (IHC) noted that similar jurisdictional challenges raised by the appellant had already been settled by the Lahore High Court and upheld by the Supreme Court of Pakistan in prior litigation. Consequently, the Court declined to revisit the issue of SECP’s jurisdiction.
The Islamabad High Court (IHC) reaffirmed SECP’s authority to adjudicate disputes involving unauthorized share transfers under the CD Act. The Court dismissed the appellant’s repeated challenges to SECP’s jurisdiction as meritless.
The Court held that broad authorizations in account opening forms do not satisfy the statutory requirements under Section 24(1) of the CD Act, which mandates explicit authorization for transactions in a sub-account. The broker’s reliance on implied authorizations was rejected.
The Court emphasized that under the Qanun-e-Shahadat Order, 1984, the broker bears the burden of proving:
- Valid authorization for transactions,
- The existence of a debit balance owed by the complainant, and
- Compliance with legal requirements for securities handling.
The broker’s defense of settling outstanding debit balances was deemed contrary to Section 16(a) of the Securities Ordinance, 1969, which prohibits brokers from extending credit for securities purchases.
The judgment reiterated that second appeals under Section 34 of the SECP Act are limited to correcting substantial errors in law or procedure. The Court refused to interfere with factual findings made by the SECP and its Appellate Bench, citing the principle established in Fayyaz Ahmed Vs. Muhammad Sarfraz Ghumman (2005 CLD 1229).
The appeal was dismissed with costs of Rs. 100,000, split equally between SECP and Respondent No. 3. The Court highlighted that the appellant failed to produce sufficient evidence to substantiate claims or to demonstrate procedural defects in SECP’s findings.
This judgment strengthens the regulatory framework of Pakistan’s securities market by affirming SECP’s authority and emphasizing strict compliance with statutory provisions for securities handling. It also sets a precedent for the burden of proof on brokers in similar disputes.
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