THE Sindh High Court last week scrapped the regulatory duty levied on more than 350 items by declaring a statutory regulatory order issued in October null and void.

Panic gripped the stock market on the reversal of duties, imposed by the government on items including food, cosmetics, electronics, automobiles, footwear, textile, furniture and others to discourage their imports.

The brunt of the blow was thought to be taken by local tyre makers, tile manufacturers and electronic items producers.

Some say the fault lies with the government, which should in the first place not take actions that go against the spirit of the Constitution and related rules

The imposition of anti-dumping duties has been the saviour of several domestic industries since September when the National Tariff Commission was revived and imposed duties on various sectors.

Now as investors realised that the margins and pricing power of companies in those sectors where the law applies would suffer, share prices of stocks in all those sectors went scurrying down last week.

In an earlier event, taking suo motu notice based on media reports that the Katas Raj pond (situated in Kallar Kahar, Punjab) was drying out due to consumption of underground water by nearby cement factories, the Supreme Court, after multiple hearings, served notices to cement factories in the vicinity.

In its Jan 19 ruling, the court said: “It is directed that for the time being, no further expansion of the cement plants shall be made without the approval of this court.”

It hammered shares of cement companies located in the north. But nervous investors dumped stocks in early trade across the cement sector until the realisation dawned that the order was pertinent to expansions only in the particular area of Punjab.

These are just two examples that show how court judgments can have profound impact on stock prices. Another recent matter in which people with vested interests involve courts is when they secured a stay order after the equity market regulators pushed a company on the so-called defaulters’ counter from the regular counter, causing intense volatility in the price of that stock.

Stay orders granted by courts in corporate matters have sometimes indirectly benefitted the wrongdoers.

A decade ago when the flamboyant Khalid Mirza and latter his successor Rahat Kaunain Hassan headed the Competition Commission of Pakistan (CCP), fines of hefty sums of billions of rupees were slapped on cement manufacturers on allegation of having formed cartels.

The companies and their strong-arm bargainer — All Pakistan Cement Manufacturers’ Association — immediately rushed to courts and secured stay orders. As a result, not a single paisa has been paid to the CCP to date.

The Gas Infrastructure Development Cess introduced in 2011 has been a matter of contention for years for energy companies.

The problem with stay orders is that the hearings of cases linger for years and years without a judgment. One has only to leaf through the annual accounts of any major company. Under the head of “contingent liabilities”, scores of cases and their slow progress would be seen.

As contingent liabilities in accounting terminology refers to liabilities which may or may not materialise, investors may remain in a state of perpetual panic, as an adverse judgment could jeopardise the actual as well as forecasted earnings of those companies and drag down their stock prices.

Moreover, since there is no specific time limit for the judgment to be given, decades-old cases continue to plague books of accounts every year. Contingent liabilities in some sugar and textile companies can be seen relating to legal cases that may have first surfaced around 30 years ago.

Some people view the recent court actions in matters corporate as growing intervention of the law.

But in case of dispute what other course is there for the aggrieved party but to turn to the court?

A veteran stockbroker at the local bourse says that the fault lies with the government. “If there is a technical flaw in any action taken by the government which goes against the spirit of the Constitution and related rules, industries and corporates have no choice but to knock at the doors of the courts.”

Where the state is involved, corporates can do no more than attend hearings and wait for ages for a judgment. But saner elements suggest that in order to avoid the delay in the settlement of pending matters in courts in regard to disputes between companies, both should agree to lay the cases before financial arbitrators, who can be chosen from knowledgeable professionals with no conflict of interest in related cases.

“For dispute resolution, courts should only be approached as a last resort,” a corporate lawyer from Lahore affirms.

Published in Dawn, The Business and Finance Weekly, February 12th, 2018