SHC issues notices to SBP, others on amalgamation of KASB bank with Bank Islami

KARACHI: The Sindh High Court (SHC) Friday issued notices to the Ministry of Finance, State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan )SECP) and others on a petition of a KASB shareholder against amalgamation of KASB Bank with Bank Islami.
Petitioner Ghazala Memon, who owned 4,600,000 shares worth Rs24.54 million in KASB bank, moved the court against the State Bank’s moratorium and amalgamation of the bank with Bank Islami submitting that due to such act her fully paid up shares in the bank were unlawfully cancelled and extinguished without her consent and opportunity of hearing.
Petitioner counsel Salahuddin Ahmed submitted in the petition that the federal government announced that it had sanctioned a scheme presented by the State Bank of Pakistan for the amalgamation of KASB into Bank Islami with immediate effect, however, at no point prior to the actual execution of the scheme, the government or the SBP ever circulate the impugned scheme amongst KASB members nor they were given opportunity of hearing before reducing the value of their investment to zero.
He submitted that the SBP and the federal government were under duty to prepare a scheme that protected all the stakeholders of KASB which included the shareholders of the bank in additional to creditors and depositors.
However, as per the impugned scheme only the interest of creditors and depositors were protected while the interest of shareholders were wiped out, the counsel mentioned adding that the SBP scheme amounts to a violation of their duty to act fairly and justly and is also violative of Article 25 of the Constitution.
He submitted that the respondent’s fraudulent preference of creditors at expense of shareholders was blatantly mala fide as the SBP was KASB’s primary creditor to the tune of Rs.1.81 billion and by virtue of impugned scheme, the SBP has secured each and every paisa of its own monies while destroying the entire value of the shareholders’ interest.
The counsel submitted that the entire process of imposing a moratorium followed by scheme of amalgamation whereby all the investors in the shares of KASB were left high and dry was carried out by the federal government and SBP without even intimating the Security Exchange Commission of Pakistan as such SECP was prevented from performing its statutory duty of protecting the interest of shareholders especially minority shareholders in companies and investors in equity markets.
He also submitted that the SBP’s rejection of the offer of the foreign investment group to invest at least US$50 million and up to US$100 million into KASB was mala fide and unreasonable as such investment would not only have restored the bank to health, but would also have protected the interests of KASB shareholders.
It was submitted that neither the federal government nor the SBP has the power to unilaterally cancel the fully paid up shares of any shareholder in any company and any exercise purporting to have such effect is illegal.
The court was prayed to declare amalgamation scheme of KASB into Bank Islami is unlawful and restrain respondent bank from creating third party interest in respect of any assets of KASB bank.
The petitioner sought restoration of status quo prior to execution of impugned scheme and compensation for the value of her shareholding as prevailing on the last day prior to suspension of trading in KASB shares.
The SHC’s division bench headed by Chief Justice Faisal Arab after preliminary hearing of the petition issued notices to the SBP, Ministry of Finance and others and in meantime restrained the respondent from creating third party interest and adjourned hearing for June 5.