ISLAMABAD, Jan 29: Securities and Exchange Commission of Pakistan has penalized seven directors including the Chief Executive of Service Industries Textiles Limited, a spinning unit, for allegedly disposing of a sizable part of its machinery without seeking prior approval of the stakeholders.

This violation of Sections 196 and 160 of the Companies Ordinance, 1984, according to official source, was noticed by the Enforcement and Monitoring Division (EMD) of the SECP during an examination of the annual accounts of the company for the year ended September 30, 2000.

It is for the first time that, the source pointed out, the Commission has taken notice of a case involving what appeared to be surreptitious disposal of an industry without authorization from the shareholders.

As a result of such sale of the spinning unit comprising 18,700 spindles, the company incurred a loss of Rs93.2 million.

Further investigation by the EMD revealed that the material facts and vital information about the sale were concealed from the shareholders. They were asked to pass a resolution to authenticate the sale only after the unit concerned had been disposed of in total disregard of requirements of Section 160 of the company law.

Moreover, the company’s annual accounts indicate cash receipts from sale of the said machinery, whereas the management took the position in response to the Commission’s notices that there was no involvement of cash in the transaction that the machinery was “replaced”.