ISLAMABAD, June 26: The Securities and Exchange Commission of Pakistan (SECP) has penalized the chief executive and all seven directors of Fateh Sportswear Limited for transfer of Rs39.246 million to associated undertakings in violation of the company law.

Under section 208 of the Companies Ordinance, 1984, the SECP spokesman explained, it is mandatory for a listed company to obtain the shareholders’ permission through a special resolution before making any investment in an associated company.

Such a resolution, it is further stipulated, would indicate the nature and amount of the investment as well as terms and conditions attached thereto. It is also required that the return on investments in the form of loans shall not be less than the borrowing cost of the investing company.

These are mandatory provisions and no investments in associated companies can be made without getting prior approval from the shareholders.

A scrutiny of the annual audited accounts for the year ended June 30, 2001, revealed that Fateh Sportswear Limited violated these provisions as no special resolution was got passed by them prior to investments.

According to the SECP press release, the amount advanced to the associated companies constituted as much as 64 per cent of paid up capital and reserves of Fateh Sports.

The Enforcement and Monitoring Division of the SECP has estimated that the company suffered a loss of approximately Rs50 million by not charging any mark-up on the said investment.

The SECP, therefore, imposed a penalty of Rs30,000 each on all seven directors and chief executive and directed them to recover the mark-up from the associated undertakings.