January 4, 2002	Friday	Shawwal 19, 1422

ISLAMABAD, Jan 3: The Securities and Exchange Commission of Pakistan (SECP) has imposed a fine of Rs1 million on the chief executive of a listed company for unlawful transfer of funds to its power subsidiary.

The SECP said that Spencer and Company (Pakistan) Ltd made an unlawful interest-free advances amounting to Rs505 million in its associated company, Spencer Powergen Limited, in gross violation of the provisions of section 208 of the companies ordinance 1984.

Six other directors of the company, said the SECP, apparently connived with the chief executive and had been issued show-cause notice as to why they should not be punished for their involvement in the illegal transaction.

Spencer is a public limited company incorporated in 1948 with an authorized and paid-up share capital of Rs25 million and Rs15.4 million respectively as of June 30, 1999. Listed on the Karachi Stock Exchange, the company is carrying on business of property management and pharmaceutical production.

Examination of accounts of Spencer for the year ended June 30, 1999 revealed unsecured investments of Rs504.697 million in Spencer Powergen against paid-up capital plus free reserves of Rs272.465 million without approval of the shareholders and complying with the requirements of law.

The said investments were substantially higher than the permissible statutory limit of 30 per cent of the paid-up capital plus free reserves of the investing company. Moreover, Spencer continued to make investments in Spencer Powergen from 1996 onwards despite the fact that the then government had cancelled the power project of Spencer Powergen in August 1999.

It was further discovered from the accounts that Spencer has stopped charging mark-up on its huge advances provided to Spencer was experiencing difficulty in recovering the said advances, although it was paying mark-up to its associated company on funds borrowed there from.

These advances which were shown secured in the accounts in 1997 and 1998 were shown as unsecured in the accounts of 1999. The SECP found it a deliberate and wilful default and imposed a fine of Rs1 million on the chief executive of Spencer under sub- section 5 of section 208 of the companies ordinance.