The High Court on Wednesday declared illegal a Bangladesh Securities and Exchange Commission order that had asked sponsor-directors of listed companies to individually hold minimum 2 per cent shares of the paid-up capital of their respective companies.
The bench of Justice Quazi Reza-Ul Hoque and Justice ABM Altaf Hossain pronounced the verdict in a petition filed by National Credit and Commerce Bank sponsor-director Mostafizur Rahman.
The commission issued a notification on November 22, 2011 asking sponsor-directors to hold 2 per cent shares individually and 30 per cent shares collectively.
The commission issued the notification to boost up the capital market as allegations were raised that one of the main cause for the market crash in 2010-2011 was the rampant selling of shares by directors of different companies.
Lawyer Shah Mohammad Ahasanur Rahman, who moved petition for the NCC Bank director, told New Age that they had challenged the Clause D and E of the commission notification.
The Clause D said that the sponsor-directors must have 2 per cent shares while the Clause E said that if any director failed to hold 2 per cent shares, his or her vacant post would be filled up by anyone holding 5 per cent shares of the company.
‘The High Court had earlier issued a rule asking the commission to explain the legality of the two clauses of the notification and today [Wednesday] the court declared the clauses illegal,’ said Ahasanur.
He said that they had argued that there was contradictions in the two clauses as one said that sponsor-directors must hold 2 per cent shares while the other said that anyone having 5 per cent shares could be a director.
Besides, if any company has 40-45 sponsors, how they will be able to be directors by holding 2 per cent shares each, he argued.
Earlier another High Court bench of Justice Farid Ahmed and Justice Sheikh Hassan Arif on May 21, 2012 rejected three writ petitions filed by directors concerned of the National Credit and Commercial Bank Limited, Popular Life Insurance and the Delta Life Insurance challenging the legality of the same notification.
‘We do not see any illegality of the notification issued on November 22 by the SEC in exercising its power under Section 2CC of the Securities and Exchange Ordinance 1969,’ the court had observed in the verdict.
It had also said, ‘There is no such apparent clash between the SEC rule and the Securities and Exchange Ordinance.’
The court had said that it appeared that the commission had imposed some control on the sponsor-directors compelling them to hold minimum shares individually.
‘We are of the view that the SEC is empowered from time to time to issue conditions on the company directors for the sake of securities and the capital market,’ the May 21, 2012 read.
The court had, however, termed some words of the notification improper.
The court had disagreed with the argument of the petitioners’ counsel that there was no provision in the world that company directors needed to hold minimum shares to become directors.
‘It appears that the concept of promoters or sponsor-directors is not new in the subcontinent where it has already been introduced,’ the court had said.
It had said, ‘The regulators always keep some control on the promoters-directors so that they cannot cheat the innocent public.’
In 2006, the government of India made it mandatory for holding minimum shares by the promoter-directors to keep them in control and Bangladesh had just introduced the concept in a different manner, the court had observed.
‘It is clear that the Memorandum and Articles of Association of the companies concerned always gave the upper hand to the promoters-directors,’ the court had said.
The court had observed, ‘Most of the directors were involved in stock business without concentrating on the affairs of their companies.’
When asked about the earlier verdict of another High Court bench, Ahasanur told New Age that the previous petitions by some sponsor-directors of some companies challenged the legality of Section 2CC of SEC ordinance.
The section gives the commission absolute authority regarding its consent or recognition on several matters relating to companies.
‘But we challenged the notification,’ Ahasanur said adding that the notification also contradicted other orders of the Bangladesh Bank and Insurance Development Regulatory Authority.
-With New Age input
