SBP asked to issue fresh notices to shareholders

RECORDER REPORT

KARACHI: Sindh High Court has announced its verdict in what is commonly known as the KASB vs SBP case. The Court has disposed of the petitions, ordering the State Bank of Pakistan (SBP) to issue fresh notices to shareholders regarding the scheme of amalgamation, provide auditors’ report regarding the valuation of KASB Bank, and if needed, make the compensation payment.

The three constitutional petitions were filed by Nasir Ali Shah Bukhari, KASB Corporation Limited, and Muzaffar Ali Shah Bukhari versus the Federation of Pakistan, State Bank of Pakistan, SECP, A.F. Fergusons & Co., BankIslami, and Cybernaut Investments Group.

The Sindh High Court has termed the SBP’s role in the amalgamation episode as “breaches of statutory duty.” The order finds that the SBP was not able to provide reasonable amount of time to the KASB Bank to comply with mandatory requirements, as just two days were given to the bank to consult its members, depositors, and other shareholders, as regards the amalgamation scheme.

The Court termed SBP’s inability to comply with regulations as “near complete failure” and “woefully inadequate”, as grounds for declaring it unreasonable. In this light, the SBP has been ordered to give notice to “those persons who were members of the Bank as on 27.04.2045 inviting abjections to the negative valuation of the Bank as set out in the scheme of amalgamation,” within 30 days of this judgment.

The SBP has also been directed to make “reasonable efforts to locate the particulars of the persons aforesaid from the Stock Exchange, CDC and BankIslami.” The SHC has directed the SBP to specify a period of 15 days from the publication on its website, as the period within which the objections can be taken.

Furthermore, the SBP is also now required to disclose the auditors’ report as regards the valuation of KASB. The central bank has been directed to prominently post the report in full, along with the notice. The posting of auditors’ report has been termed essential for compliance with the judgment.

That said, the SBP has been put under no obligation to provide any other information in excess of the auditors’ report, and has been granted the right to reject any such request for additional record.

In light of these steps, the SBP is then required to “issue a reasoned and speaking order within 30 days of the last day for filing objections.” The said Order would also be required to be posted on the website, and be intimated in the press. The Order can agree with the earlier valuation, or can arrive at a new one.

In case of valuation other than that in the auditors’ report, and is meaningful or substantive, the SBP shall include the modalities of payments to be made. The full compensation is required to be paid within four months of the Order, and SBP must ensure the same. On the “meaningfulness” of the compensation, the SBP has marked “payment equal to 10% or more of the par value of the Bank’s shares.” The Court has made SBP responsible for compensation, as compensation, if needed, would arrive from the breaches of statutory duty by the SBP.