Fawad Ahmad Mukhtar vs Secp etc.

Stereo. H C J D A 38.

IN THE LAHORE HIGH COURT,

MULTAN BENCH MULTAN

JUDICIAL DEPARTMENT

Commercial Appeal No.02 of 2026

Fawad Ahmed Mukhtar, Versus Securities and Exchange Director, Reliance Weaving Commission of Pakistan Mills Limited, Multan and others

JUDGMENT

Dates of Hearing: 17.09.2026, 12.10.2026 and 14.10.2026 Appellants by: Malik Asif Rafique Rajwana, ASC with Abdul Sattar Alvi, Omar Ali Nasir, Adil Shabbir, Advocates assisted by Barrister Shahnawaz Abid Bodla and Jannat Khan, Advocates.

Respondents by: Mr. Ruman Bilal, Special Prosecutor SECP. Malik Masroor Haider Usman, Additional Advocate-General with Mr. Bashir Ahmed Buzdar, Assistant Advocate General.

JAWAD HASSAN, J. Through this single judgment, I intend to decide this Commercial Appeal as well as connected matters i.e. Commercial Appeals No.01, 03, 04, 05, 06 and 07 of 2026, as same question of law is involved in all these cases. This Court is deciding these Appeals on third date of hearing as per the time bound Provision of Section 34(5) of the Securities and Exchange Commission of Pakistan Act, 1997 (the “SECP Act”), which provides that the Court may adjourn the hearing for maximum of two dates and such adjournment may not be more than fifteen days at any one time or for more than thirty days in all.

2.These Appeals have been filed by the Appellants/Directors of Reliance Weaving Mills Limited, Multan; namely M/s. Fawad Ahmed

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Mukhtar, Shahid Aziz, Muhammad Mukhtar Sheikh, Faisal Ahmed, Muhammad Shaukat, Fatima Fazal and Fahad Mukhtar (separately) (the “Appellants/Directors”) under Section 34 of the SECP Act read with Section 5 of the Companies Act, 2017 (the “Companies Act”) against the orders dated 14.05.2022 and 24.06.2026, passed by Respondent No.3/Director/HOD, Adjudication Department, Securities & Exchange Commission of Pakistan (the “Respondent No.3/SECP”) and the Respondent No.2/Appellate Bench, SECP (the “Appellate Bench”), respectively.

I. OVERTURE OF THE CASE

3.This judgment deals with the interpretation of Section 103 of the Securities Act, 2015 (the “Securities Act”), read with Regulation 3(4) of the Reporting and Disclosure of (Shareholding by Directors, Executive Officers and Substantial Shareholders in Listed Companies) Regulations, 2015 (the “Regulations 2015”), and the legality of the penalties imposed by the SECP upon the Appellants for delayed filing of Form 5 regarding beneficial ownership, shareholding or management control, etc; and attracts the Doctrine of Substantial Compliance as recognized by the Superior Courts/Supreme Court of Pakistan.

II. PRELUDE OF THE APPEALS

4.The prelude of the Appeals is that Mr. Fawad Ahmed Mukhtar/Appellant is the Chairman and one of the Directors of the Reliance Weaving Mills Limited (RWML) (the “Company”). He is also the Chairman and CEO of the Fatima Group and one of the country’s leading business conglomerates a prominent Pakistani industrialist, entrepreneur and philanthropist, who has played a transformative role in shaping Pakistan’s industrial landscape by overseeing Group’s dynamic growth and diversification across sectors such as fertilizers, energy, textiles and sugar. The Company is a “Public Limited Company” registered under Section 32 of the repealed Companies Ordinance, 1984 (now the Companies Act), having its registered office at Multan and engaged in the business of weaving cotton

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yarn; and is also listed on the Pakistan Stock Exchange (PSX) under the ticker symbol REWM. The share price trades around PKR 156.25 to 171.54, with a market capitalization of approximately PKR 4.81 billion to 5.29, and its affairs are managed by its Board of Directors. The Appellants were re-appointed as Directors of the Company on the relevant dates and under Section 103 of the Securities Act, read with Regulation 3(4) of the Regulations 2015, every Director of a listed company is required to submit a statement of beneficial ownership in Form 5 to the SECP within seven days of becoming a Director. Owing to bona fide and inadvertent reasons, including disruptions caused by the COVID-19 pandemic, work-from-home arrangements and health and administrative difficulties faced by the then Company Secretary, the requisite Forms 5 could not be filed within the prescribed period. Upon the matter being pointed out by the SECP vide letter dated 23.12.2021, the Company, on behalf of the Appellants/Directors, voluntarily filed the requisite Forms 5 on 31.12.2021 along with the prescribed filing fee, before the initiation of adjudication proceedings. Thereafter, the SECP issued show-cause notices dated 21.04.2022, alleging a delay of 253 days in filing the Forms 5 and calling upon the concerned Directors to explain the default. The Appellants/Directors, through the Company's authorized representatives, submitted written replies and appeared at the hearing held on 11.05.2022, maintaining that the delay was unintentional, bona fide and had already been rectified voluntarily. The Respondent No.3/SECP vide separate orders dated 14.05.2022, imposed a penalty of Rs.60,000/- upon each Director under Section 106(2)(a) of the Securities Act. Being aggrieved, the Appellants/Directors preferred separate appeals before the Appellate Bench of the SECP under Section 33 of the SECP Act, contending, inter alia, that the delay was neither deliberate nor willful, had substantially occurred due to the COVID-19 pandemic, had been voluntarily rectified before the issuance of the show-cause notices, and had caused no loss to investors or the market. They also relied upon the ambiguity regarding the applicability of Form 5 upon the re-appointment of

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Appellants/Directors, as reflected in the SECP's clarification dated 20.04.2022, circulated by the Pakistan Stock Exchange on the same date. The Appellate Bench, vide consolidated order dated 24.06.2026, passed in Appeal Nos.109 to 115 of 2022, acknowledged, inter alia, that the Forms 5 had been filed before the issuance of the show-cause notices, that the defaults related to delayed filing rather than concealment or misrepresentation of beneficial ownership, and that the SECP's clarification indicated ambiguity regarding the applicability of Form 5 upon reappointment of Directors. Nevertheless, the Appellate Bench upheld the findings of contravention and reduced the penalty from Rs.60,000/- to Rs.30,000/- in each case. Subsequently, the SECP issued a final reminder/recovery notice dated 20.07.2026, requiring payment of the reduced penalty of Rs.30,000/- and warning of recovery proceedings under Section 42-B of the SECP Act in case of non-payment. Feeling aggrieved by the orders dated 14.05.2022 and 24.06.2026, the concerned Directors have challenged the same through these Appeal.

III. APPELLANTS’ SUBMISSIONS

5.Malik Asif Rafique Rajwana, ASC has submitted that the impugned orders are illegal and contrary to facts, record as well as the relevant law. He further submitted that in the Show Cause Notice no specific allegation of willful default has been leveled against the Appellants and onus to establish such allegation is on the prosecution department but the concerned authority has failed to prove the said allegation. He contended that though the quantum of penalty has been reduced by the Appellate Bench but it will adversely affect reputation of the Appellant’s company known as Reliance Weaving Mills Limited (the “Company”). He maintained that as per provisions of Section 103 of the Securities Act read with Regulation 3(4) of the Regulations 2015, every Director of a listed company is required to submit a statement of beneficial ownership in Form 5 to the Respondent No.1/SECP within seven days of becoming a Director. He added that there was no change / any change occurred in the position of

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Appellants/Directors and they were only re-appointed/re-elected, therefore, their case does not falls within the ambit of Section 103(1)(b)(c) of the Securities Act. Learned counsel while invoking doctrine of substantial compliance has relied on the judgments of the Supreme Court of Pakistan reported as “PROVINCE OF PUNJAB through District Collector, Bhakkar versus MUHAMMAD CHIRAGH and others” (PLD 2026 SC 53), “SHAHIN SHAH versus GOVERNMENT OF KHYBER PAKHTUNKHWA through Secretary Irrigation Department Peshawar and others” (2022 SCMR 1810). He has also relied on the judgment of this Court cited as Lahore Stock Exchange versus Lahore Appellate Bench S&EC (2006 CLD 988).

IV. RESPONDENTS’ SUBMISSIONS

6.Mr. Ruman Bilal, Special Prosecutor for SECP has objected to the maintainability of all these Appeals and defended the impugned orders on the ground that the reporting requirements under the Securities Act and the Regulations 2015 framed thereunder are intended to ensure transparency in the securities market, proper disclosure of beneficial ownership and compliance with statutory obligations, thereby safeguarding investors’ interests and maintaining public confidence in the capital market.

7.Arguments heard. Record perused.

V. DETERMINATION BY THE COURT

8.The preliminary objection raised by learned counsel for the SECP regarding the maintainability of these Appeals requires consideration. The present Appeals have been instituted under Section 34 of the SECP Act, which confers appellate jurisdiction upon this Court in respect of an order passed by the Appellate Bench and empowers the Court to accept, set aside or vary such order, or pass any other order as the interests of justice may require. Since the Appellants have called into question the legality of the orders passed by the Appellate Bench on questions arising under the Securities Act and the Regulations framed thereunder, this Court is competent to examine the controversy raised in these Appeals. The objection to their maintainability, therefore, cannot be sustained.

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(i)Time Bound Litigation

9.This Court is now deciding these Appeals on third date of hearing as per the time bound Provision of Section 34(5) of the SECP Act, which provides that the Court may adjourn the hearing for maximum of two dates and such adjournment may not be more than fifteen days at any one time or for more than thirty days in all. This case was filed on 17.09.2026, when notices were issued to the Respondents and thereafter was adjourned only for, one time to 12.10.2026, and decided today i.e. 14.10.2026.

10.Pertinent to mention here that the Companies Act was also enacted to reform Company Laws, as is evident from its Preamble, if read with the provisions of Sections 4 and 5 of the Act within a timeframe given under Section 6 of the Act as was held by this Court in the judgment reported as Lt. General (Retd.) Mahmud Ahmad Akhtar and another versus M/s Allied Developers (Private) Limited and others (2022 CLD 718), making it mandatory to decide a company matter in 120 days. Thereafter, this Court has also passed the judgment in a merger of Companies case reported as Fauji Fertilizer Company Limited and Fauji Fertilizer Bin Qasim Limited V/S Security and Exchange Commission of Pakistan and another (2025 CLD 343) [Lahore High Court (Rawalpindi Bench)].

11.Further reliance is placed upon the judgment rendered in the case of Shaheen Merchant versus Federation of Pakistan/National Tariff Commission and others (2021 PTD 2126), wherein this Court has examined in detail the institutional role, time specific legislation, regulatory mandate and statutory responsibilities of the National Tariff Commission in the light of relevant provisions of the Act. The relevant paragraph is reproduced as under:

“VII. PATHOLOGY REGARDING TIME SPECIFIC

TRIBUNAL WITH TIME BOUND MANDATE TO

DECIDE APPEALS UNDER THE ACT

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16.Section 70 of the Act specifically stipulates that if an interested party files an appeal against the initiation of investigation or a preliminary determination as provided under Section 70(1)(i), the Tribunal shall issue its decision within thirty days of the filing of such an appeal as laid down under sub-section 3 of Section 70. On the other hand, sub- section 5 of Section 70 specifically stipulates that any other appeal filed by an interested party against an affirmative or negative final determination, against a final determination pursuant to a review, against an order of the Commission for termination of investigation and against a determination of the Commission under Section 52 of the Act, must be decided by the Appellate Tribunal as expeditiously as possible but not later than forty-five days from the date of receipt of such an appeal. The purpose of specifically providing a time-frame for the Tribunal to decide the appeal is to make the Appellate Tribunal function within the timespecific bounds because the purpose and intent behind codifying the duration of time- frame is to ensure that the appeal before the Tribunal must be decided expeditiously as mandated under Article 37(d) of the Constitution. A careful glance of Section 70 clearly unveils that time is essence of the Appellate procedure whether it be before the Appellate Tribunal or before the High Court against the decision of the Tribunal as sub-section (13) also requires that the High Court shall render a decision within ninety days of receiving an appeal from the decision of the Appellate Tribunal. The irresistible conclusion that the Tribunal under Writ Petition No.62992 of 2021 11 the Act is a time-specific forum with a time-bound mandate to decide the Appeals, finds further strength from the Sub-section (6) of Section 70 of the Act wherein it is provided that the Appellate

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Tribunal shall hear the appeal from day-to-day and its significance as such is further heightened from perusal of Section 69 of the Act, wherein it is provided that even the absence of a Chairman, or the temporary incapacity of the Chairman, shall not affect the other members’ ability to act as the Appellate Tribunal which remains competent to exercise its powers and authority under the Act.

12.Furthermore, this judgment was followed by this Court in another judgment reported as Pakistan Tehreek-e-Insaaf through its General Secretary Asad Umar V/S Governor of Punjab and another (PLD 2023 Lahore 179 = PLJ 2023 Lahore 467) has discussed in detail and interpreted the time bound/time specific constitutional provisions in the following manner:

2.The common prayer in the ―consolidated petitions‖ revolves around the announcement of ―date of election‖ by the Respondents. Pertinently, on the issue of time specific/time bound provision of a Statue/Act, this Court has already rendered a detailed judgment reported in ―SHAHEEN MERCHANT Versus FEDERATION OF PAKISTAN etc‖ (2021 PTD 2126 Lahore) in which this Court has developed the doctrine of time bound legislation with its mandate to decide the matter as per time frame given under a statute while discussing the anatomy of authority/regulator, jurisprudential anthology regarding the duty of the State to provide expeditious justice under Article 37-D of the ―Constitution‖ while referring the judgments of Hon’ble Supreme Court of Pakistan and the legal anthropology of time frame, pathology regarding the time specific tribunal with time bound mandate to decide the matter under the law. This Court first time developed the principles of time frame by relying quote of Justice Warren E. Burger, Chief Justice of United States which reads as:

A sense of confidence in the courts is essential to maintain the fabric of ordered liberty for a free people and three things could destroy that confidence and do incalculable damage to society: (i) that people come to believe that inefficiency and delay will drain even a just judgment of its value; (ii) that people who have long been exploited in the smaller transactions of daily life

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come to believe that courts cannot vindicate their legal rights from fraud and over-reaching; (iii) that people come to believe the law – in the larger sense – cannot fulfill its primary function to protect them and their families in their homes, at their work, and on the public streets quotation.

In the aforesaid judgment, the Court specifically stated that under Article 37-D of the ―Constitution‖ the State is duty bound to give the expeditious justice.

(ii)No Change in Beneficial Ownership due to Re-Election

13.The core issue in these cases revolves around the legality of the penalties imposed upon the Appellants/Directors for an inadvertent and technical delay in filing Form 5 upon their re-appointment/re-election, despite there being no change in beneficial ownership, management control, or other relevant particulars. The record reveals that show-cause notices dated 21.04.2022 were issued by the SECP under Section 103 of the Securities Act, 2015, read with Regulation 3(4) of the Regulations, 2015, requiring the Appellants, being Directors of the Company, to submit their statements of beneficial ownership on Form 5 within seven days of becoming Directors. For ready reference Section 103 reads as follows:

103.Notification to the Commission of directors and others interest.— (1) Every director, executive officer or substantial shareholder of a listed company shall submit to the Commission in the prescribed form__

(a)a statement of beneficial ownership in the listed equity securities of the company or any other nature of securities as may be prescribed by the Commission;

(b)the particulars of any change in the interest aforesaid; and (c) any change in his position.

(2)The reporting requirement imposed by sub-sections (1) shall be fulfilled before the expiration of a period of seven days beginning with the day on which the requirement first arises.

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(3)For the purposes of sections 101 to 107, ―equity security‖ means any stock or transferable share (preferred or common) or similar security representing ownership, any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security, any such warrant or right itself, and such other security as may be prescribed by the Commission. A plain reading of Section 103 of the Securities Act reveals that the provision contemplates three distinct reporting obligations, namely; disclosure of beneficial ownership in the securities of a listed company, reporting of any change in such interest, and reporting of any change in the position of the person concerned. Sub-section (2) requires fulfillment of the reporting obligation within seven days from the date on which the requirement first arises. The expression “any change in his position” in clause (c) of sub-section (1) must, therefore, be read in the context of the reporting obligations prescribed under the section and the object sought to be achieved thereby. The provision does not merely require disclosure of changes in shareholding; it also contemplates disclosure where a change in the position of a Director or other person covered by the section gives rise to the reporting requirement. However, whether re-appointment or re-election of an existing Director, in the absence of any change in beneficial ownership or other relevant particulars, independently attracts a fresh reporting obligation is a question that must be examined in the light of the statutory language, the applicable Regulations and the circumstances in which the reporting requirement arises.

14.So for as this case is concerned, the main question requiring determination is whether the penalties imposed upon the Appellants for delayed filing of Form 5 are sustainable in the peculiar circumstances of these cases, particularly when the Appellants/Directors assert that their re-appointment/re-election did not involve any change in their beneficial ownership, shareholding, management control or position. The record

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reflects that the requisite Forms 5 were voluntarily submitted by the Company on behalf of all the Appellants on 31.12.2021, along with the prescribed filing fee, before the issuance of the show-cause notices. It is also evident from the impugned appellate order that the SECP acknowledged that the defaults related to delayed filing and not to concealment or misrepresentation of beneficial ownership. The Appellate Bench further took notice of the clarification issued by the SECP on 20.04.2022, which indicated ambiguity regarding the applicability of the reporting requirement upon the re-appointment of Appellants/Directors.

(iii)Doctrine of Substantial Compliance

15.There is no cavil with the proposition that Section 103 of the Securities Act, read with Regulation 3(4) of the Regulations 2015, imposes a statutory obligation upon the Directors of a listed company to submit the prescribed statement of beneficial ownership within the stipulated period. Such reporting requirements serve an important regulatory purpose; they promote transparency in the securities market, facilitate disclosure of relevant interests and changes in position, and protect investors by enabling them to make informed decisions. Compliance of these requirements cannot, therefore, be treated as optional merely because a Company is closely held or its Directors belong to the same family. Nevertheless, the existence of a statutory obligation does not dispense with the duty to examine the nature and effect of the alleged default, the circumstances in which it occurred, and whether the response adopted by the regulatory authority is justified on the facts of the case. In this regard, the doctrine of substantial compliance assumes significance. The Supreme Court of Pakistan, in Shahin Shah v. Government of Khyber Pakhtunkhwa through Secretary Irrigation Department, Peshawar and others (2022 SCMR 1810) has explained that the doctrine applies where a procedural deficiency is of such a nature that it does not materially affect the essence of the matter or defeat the object sought to be achieved by the statutory requirement. Its application depends

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upon the facts and circumstances of each case, and the Court must determine whether the purpose and intent of the relevant provision have, in substance, been fulfilled. The relevant paragraph of the judgment is reproduced as under:

In such circumstances, the doctrine of substantial compliance would apply which provides that the procedural fault in complying strictly with a provision of the law is so minor that it does not have a bearing on the essence of the dispute and the object sought to be achieved. The applicability of the doctrine of substantial compliance depends on the facts and circumstances of a dispute. It is for the Court to determine whether the object, purpose, and intent of a statutory prerequisite have been fulfilled and, formal compliance would be unimportant.

Similarly, in the judgment reported as “Dr. AKHTAR HASSAN KHAN and others Versus FEDERATION OF PAKISTAN and others” (2012 SCMR 455), the Hon’ble Supreme Court has observed that:

28.We have already noted that the decision to privatize HBL was taken as far back as 1995. However, on account of political instability, discouraging market forces and lack of positive response from the potential investors/financial institutions, the privatization remained abortive. The first step taken in the latest round culminating in the impugned privatization was in the year 2000. In the concise statement filed by the Privatization Commission which has not been controverted by the petitioners' learned counsel, it has explained in graphic detail various steps taken from the enactment of law and commencement of the privatization process to the culmination of approval of the highest bid to bring home the point that there was substantial compliance with law, the Rules and Regulations framed thereunder. After

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putting in place the legal regime, some of the important steps were appointment of AF Ferguson as Financial Advisor because international response for the search remained sluggish (Regulation No. 3 of the Privatization Commission (Hiring of Valuers) Regulations, 2001), calling for Expressions of Interest through advertisement (2-6-2002), requisition of Statements of Qualification (SOQs) from bidders, constitution of a Pre-qualification Committee (in terms of the Privatization Commission (Modes and Procedures) Rules, 2001), the screening of three parties by the said Committee, the recommendations of three parties by the Pre-qualification Committee for undertaking due diligence.

30.A careful perusal of the steps taken in the process for privatization of HBL referred to in the preceding paragraph would indicate that there was substantial compliance with the relevant provisions of the Privatization Commission Ordinance, 2000 and the Rules/Regulations framed thereunder. A minor deviation of Rules or Regulation, if any, in absence of any credible allegation of mala fides or corruption would not furnish a valid ground for interfere nce in judicial review. (emphasized supplied) 16. In another judgment reported as “Messrs NISHAT MILLS LIMITED versus SUPERINTENDENT OF CENTRAL EXCISE CIRCLE II and 3 others” (PLD 1989 Supreme Court 222), the Hon’ble Supreme Court has observed that:

It may be mentioned here that the above reproduce relaxations is similar to the one earlier granted to the appellant by order dated 21-8-1969. It cannot be denied that the principle of Substantial compliance', particularly with

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regard to requirement of statutory rules has been accepted by the Pakistan superior courts since long. Learned counsel for the appellant has, in this behalf rightly relied on (i) Imtiaz Ahmad v. Ghulam Ali (P L D 1963 S.C.382) 00 Ghulam Abba v. Zohra Bibi and another (PLD 1972 SC 337), (iii) Mrs. Dino Mlanakji Chinoy and 8 others v. Muhammad Matin (PLD 1983 SC 693) and Ov) Manager, Jammu and Kashmir, State Property in Pakistan v. Khuda Yar and another (PLD 1975 SC 678). These cases do support him.

It is not denied that the Pakistan superior Courts while insisting at, compliance with the statutory rules in accordance with their provisions as also the parent laws; have also by and large accepted the rule of 'substantial compliance' with a view to see, as observed in the case of Mrs. Dino Manakii Chinoy, that they are not applied and operated as "stumbling blocks", instead of "stepping stones". And we may add that they should also be not used simply to trap people by technicalities of these rules instead of advancing the purpose for which they are framed. Further reliance is placed on the judgment reported as “Dr. ZAFAR ULLAH and 5 others Versus SPECIALISTS CARE HOSPITAL through Chief Executive and 14 others” (2016 C L D 1283), wherein this Court has been held that:

37.The learned counsel for the respondents have relied upon a number of cases invoking the doctrine of substantial compliance as also the doctrine of estoppel to urge that certainly substantial compliance of the provisions of section 86 was made as also that the petitioners were estopped by their own conduct to challenge the further issue of capital. In Messrs Nishat Mills Limited v. Superintendent of Central Excise Circle II and 3 others (PLD 1989 Supreme Court 222),

39.These judgments which have been cited by the learned counsel for the respondents are precedents for the proposition of substantial compliance and waiver and estoppel. In the

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case in hand, firstly the petitioners had knowledge and notice of the further issue of capital. Even if the petitioners did not have notice, substantial compliance of the provisions of section 86 of the Ordinance 1984 was made by the issuance of circular in terms of section 86(3) and, therefore, the petitioners are estopped by their conduct and by their acquiescence to challenge the further issue of capital on the ground that notices were not issued to the petitioners.

17.Furthermore, in the judgment cited as Province of Punjab through the District Collector, Bhakkar v. Muhammad Chiragh and others (PLD 2026 SC 53), the Supreme Court emphasized the importance of substantial justice over an unduly technical approach where an inadvertent procedural lapse does not warrant such a consequence as would defeat the ends of justice. These principles, however, do not authorize a Court to disregard a mandatory statutory requirement; they require the Court to distinguish between a substantive breach that frustrates the legislative purpose and a procedural lapse whose consequences must be assessed in the light of the particular circumstances.

(iv)Protecting the Stock Market by Safeguarding Listed Companies Against Disproportionate Regulatory Penalties

18.As already discussed above that the Company is listed on the Pakistan Stock Exchange (PSX) under the ticker symbol REWM (and occasionally referenced as RELW) within the Textile Composite Sector. The share price trades around PKR 156.25 to 171.54, with a market capitalization of approximately PKR 4.81 billion to 5.29, and its affairs are managed by its Board of Directors (Appellants), therefore, action taken against its Directors will impact on the Investment. The underlying principle is that investor confidence and market stability require a fair balance between regulatory enforcement and the protection of legitimate business activity. The objective should not be to exempt listed companies from lawful accountability, but to ensure that regulation protects investors and market integrity without imposing unjustified or excessive sanctions on companies, their shareholders

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and the wider economy. Therefore, the Courts and the Regulators before taking any action against the listed Companies should keep in mind following Key Principles:

i. Proportionality of penalties: Regulatory sanctions should correspond to the seriousness of the violation, the degree of culpability, and the actual harm caused.

ii. Due process and fair hearing: Listed companies should have adequate notice, an opportunity to respond, and reasoned decisions before penalties are imposed.

iii. Protection against arbitrary enforcement: Regulators should act consistently, transparently, and within their statutory powers. iv. Investor and market protection: Disproportionate penalties can undermine share prices, damage shareholder value, and erode confidence in the capital market.

v. Effective judicial review: Courts should ensure that regulatory action is lawful, procedurally fair, and proportionate, while respecting the statutory mandate and technical expertise of regulators.

These Key Principles are to be seen with the Preamble of the Securities Act, which states that:

WHEREAS it is expedient to amend and consolidate law for the regulation of the securities industry, the protection of investors and for the matters connected therewith or ancillary thereto;

19.It is pertinent to mention here that this Court in the judgment reported as “MUHAMMAD KALEEM RATHORE versus INSTITUTE OF CHARTERED ACCOUNTANTS through President and 4 others” (2003 CLD 1734) authored by Mr. Justice Jawwad S. Khawaja, the then Judge of Lahore High Court and the Former Chief Justice of Pakistan; it has held that: Scope of Securities and Exchange Ordinance, 1969, is much more limited and is confined to matters such as Stock Exchanges and the listing of Companies by such Exchanges.

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Moreover, this Court has already discussed in detail the scope of foreign investment and the role of foreign investors in Pakistan firstly in the judgment reported as M.C.R. (Pvt) Ltd, franchisee of Pizza Hut versus Multan Development Authority and others (2021 CLD 639), relevant paragraphs are reproduced hereunder:

―28. Undoubtedly freedom of trade, business and commerce is a fundamental right guaranteed under Article 18 of the Constitution which states that every citizen shall have the right to enter upon any lawful profession or occupation, and to conduct any lawful trade or business. One of the basic purposes behind provision of this fundamental right is certainly to advance culture of socio-economic progress and to protect and promote business and trade activities and, at the same time, to encourage simplification of the process of establishing and carrying out new business ventures throughout the country because activities of business and trade create opportunities for the masses around and provide job options, financial stability and progress in the area.

29.Since the Pizza Hut is an international chain and entered into lease agreement with WASA, it is the duty of the Courts in Pakistan to see the rights of the parties and to protect their interest in order to build confidence of investors in Pakistan but at the same time the interest of government functionaries has also to be examined regarding financial interest of the Government.‖

20.This Court has then strengthened the scope of foreign investment in the recent judgment reported as M/s 5H INSAAT Ve Ticaret Anonim Sirketi Versus Secretary etc. (2025 CLD 813 [Lahore (Rawalpindi Bench)] = PLJ 2025 Lahore 738 (Rawalpindi Bench, Rawalpindi), wherein it has been held that:

Another important aspect of the matter, which also needs consideration, is that the Project relates to welfare of the public at large and it would not be wrong to say that a public interest project only aims to benefit society as a whole, often addressing social, environmental, or economic issues because

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it improves quality of life and promotes sustainable development. If such like projects are delayed then it will negatively impact the quality of life for the individuals, who are to be benefited from it, particularly when the project is intended to provide essential services or infrastructure. It can decimate public trust in government agencies, project directors, and other stakeholders, besides making it harder to secure funding or support for future projects. Especially, when the foreign investment involves then delay in completion of such kind of projects, will jeopardize tendency of entering new technologies, management practices and marketing techniques in the country.

And recently, this Court in the judgment reported as Sardar Amber Maqood V/S Federation of Pakistan, Privatisation Commission, PIACL etc. (PLD 2025 Lahore 827) has discussed in detail the Judicial Anthology Qua Protection of Foreign Investment and Judicial Restraint. The relevant paragraph is reproduced as under:

26.In the present case, the government has followed a transparent process of valuation, due diligence, and bidding, inviting both domestic and foreign investors under a pre- declared framework. The record discloses no evidence of mala fides, arbitrariness, or favoritism. This Court reiterates that for foreign investment to flow consistently and responsibly, there must be judicial recognition of policy stability, legal clarity, and regulatory predictability. An investment climate that is disrupted by litigation in the absence of constitutional violations can deter genuine investors and delay economic progress. The judiciary must therefore guard against substituting policy wisdom with

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judicial preference, particularly when the executive has acted within its constitutional and statutory mandate.

21.This approach is consistent with the Preamble of the Securities Act, which aims to regulate the securities industry and protect the interests of investors. Part II of the Act deals with Securities Exchanges, whereas Part VIII relates to Public Offers of Securities. Since Reliance Weaving Mills Limited is a listed Company, any action affecting its Board of Directors may have consequences for the Company’s affairs, its shareholders and investors’ confidence in the stock market. Therefore, while examining the matter, the interests of the company and its shareholders, as well as the need to maintain investors’ confidence, cannot be overlooked. In these circumstances, the Doctrine of Substantial Compliance is relevant and applied in the light of the facts and circumstances of the case.

VI. CONCLUSION

22.Applying the above principles to the present cases, this Court finds that the circumstances, when considered cumulatively, warrant interference with the impugned orders. The Appellants were re-appointed/re-elected as Directors of a family-owned listed company, and their consistent stance is that no change occurred in their beneficial ownership, shareholding, management control or position. The record further shows that the Forms 5 were submitted voluntarily, before the issuance of the show-cause notices, and that the SECP itself acknowledged the absence of concealment or misrepresentation. The delay was attributed to inadvertent administrative difficulties, including disruptions associated with the COVID-19 pandemic. Significantly, the SECP’s own clarification dated 20.04.2022 indicated ambiguity regarding the applicability of Form 5 upon the re-appointment of Directors. The relevant part is reproduced as under:

―It has been observed that few listed companies and its directors Advocate for the Respondent not filing returns (Form 4 and 5) in case of re-appointment of the same

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directors as nominee directors (having no shareholding of the company in their name) claiming inapplicability of the relevant provisions of the Act in the instant matters. ...‖ These circumstances are material in assessing whether the delayed filing, though not strictly in accordance with the prescribed period, warranted the imposition of monetary penalties in the cases before this Court.

23.In the judgment reported as Lahore Stock Exchange versus Lahore Appellate Bench S&EC (2006 CLD 988) this Court has relied on Treatise of the Harvard Professor Louis Loss1, who prepared the Securities and Exchange Ordinance, 1969 (repealed Ordinance) of Pakistan. The relevant part of the said judgment is reproduced hereunder:

―17. The Harvard Professor Louis Loss, who also inspired the 1969 Securities and Exchange Commission Law in Pakistan, in his famous Treatise on security regulation, makes the following observations:- ―Although listing and registration are entirely discretionary with the issuer in the first instance, the issuer has no unqualified right to delist. Section 12(d) of the act provides:

A security registered with a national securities exchange be withdrawn or stricken from listing and registration in accordance with the rules of the exchange and, upon such terms as the Commission may deem necessary to impose for the protection of investors, upon application by the issuer or the exchange to the Commission;

whereupon the issuer shall be relieved from further compliance with the provisions of this section and section 13 of this title and any rules or

Prof. Louis Loss of Harvard Law School, who was widely viewed as the father of securities law. Prof. Loss was the author of ''Securities Regulation,'' the first Treatise comprehensively bringing together the law and court decisions regarding securities laws when it was published in 1951. That book, expanded over the years, remains the leading text on the subject. Prof. Loss, who was a professor emeritus at Harvard, helped develop the initial theories that enabled the Securities and Exchange Commission to use the broadly worded anti-fraud provisions of the securities law to prosecute insider trading, an area not directly addressed by the law itself. The Oxford English Dictionary credits him with having coined the word ''Tippee,'' to refer to someone who trades stock after getting a tip from a corporate insider. His work has been cited in more than 1,000 court decisions, including more than 50 by the United States Supreme Court. Among his students at Harvard were four members of the US Supreme Court: Justice Ruth Bader Ginsburg, Justice Anthony M. Kennedy, Justice Antonin Scalia and Justice David Souter. The two major securities laws, the Securities Act of 1933 and the Securities Exchange Act of 1934, are often unclear and have been subjected to a large amount of interpretation over the years. Much of that interpretation stemmed from the work of Mr. Loss, whose treatise was expanded in a second edition published in 1961 by Little, Brown and then expanded to the current 11 volumes in 1989, with Joel Seligman, the dean of the University of Arizona law school, as a co-author.

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regulations under such sections as to the securities so withdrawn or stricken.‖

24.The object of the disclosure regime is not merely to secure the filing of a prescribed Form as a matter of formality; it is to ensure that the relevant information concerning beneficial ownership and changes in the position of persons covered by the statute is duly disclosed. In the present cases, the requisite Forms had been filed before the show-cause notice(s) were issued, and the impugned Appellate order itself records that the defaults did not involve concealment or misrepresentation. In these circumstances, the regulatory objective had, in substance, been achieved, albeit after the prescribed period. The absence of any demonstrated prejudice to investors or the market, considered alongside the voluntary rectification and the acknowledged ambiguity concerning re-appointment/re-election with no changes, further supports the Appellants’ plea.

25.It is true that the Appellate Bench reduced the penalty imposed upon each Appellant from Rs.60,000/- to Rs.30,000/-. However, the reduction in the quantum of penalty does not, by itself, resolve the underlying question as to whether the penalty ought to have been imposed in the circumstances of these cases. The issue is not whether the reporting requirement was capable of enforcement, but whether, in view of the voluntary filing before the show- cause notices, the absence of concealment or misrepresentation, the asserted absence of any change in the relevant particulars, and the ambiguity acknowledged by the SECP itself, the imposition of penalties was justified. In the considered view of this Court, the cumulative effect of these circumstances brings the cases within the principle of substantial compliance. The Appellants’ conduct does not disclose a deliberate attempt to withhold information from the regulator; rather, the record demonstrates that the required forms were submitted before formal adjudication proceedings were initiated. In these circumstances, sustaining the penalties would amount to attaching disproportionate consequences to a procedural

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delay, notwithstanding that the underlying reporting requirement had subsequently been fulfilled.

26.For the foregoing reasons, and in view of the Doctrine of Substantial Compliance as explained by the Supreme Court of Pakistan in the judgments reported as (2022 SCMR 1810), (2012 SCMR 455), (PLD 1989 S C 222) and (PLD 2026 SC 53), this Court is of the considered view that the impugned orders cannot be sustained in the peculiar facts and circumstances of these cases. Consequently, all these Appeals are allowed. The impugned orders dated 14.05.2022, passed by the Respondent No.3/SECP and the consolidated appellate order dated 24.06.2026, passed by the Appellate Bench, to the extent of the Appellants, are set aside, and the penalties imposed upon them are hereby annulled. No order as to costs.

(JAWAD HASSAN)

JUDGE

Approved for Reporting.

JUDGE

[email protected]