BY SAM ALFAN.
The High Court has quashed decision by the Capital Markets Authority to penalise and former National Bank of Kenya Managing Director Munir Sheikh Ahmed from holding office in a public listed company for a period of three years.
Justice Pauline Nyamweya quashed the decision in the Notification of Enforcement action issued by the authority on April 3,2018 to disqualify Munir Sheikh Ahmed from holding a public listed company for a period of three years and a penalty of 5 million.
The Judge, however found that Munir had contravened several sections of the Capital Markets Regulations by among other things failing to supply the board with accurate and timely information to enable the board to discharge its duties.
The court found that Munir contravened the provisions of article 3.1.1 of the capital markets guidelines on corporate governance practices by the public listed companies in Kenya , 2002 by failing to assume a primary responsibility of fostering the longtime business of the corporation consistent with his fiduciary responsibility to the shareholders.
The judge found that the former National Bank managing director acted in contravention of regulation B.06 of the 5 schedule of the capital markets (securities) (public offers, listing and disclosure ) regulations 2002 by failing to ensure preparation of interim accounts for the period ended September 2015 and quartely accounts for the period ended 30 September 2015 in accordance with the international financial reporting standard (IFRS) which accounts were subsequently published and relied upon by the investing public.
The Judge also said Munir acted against Article 2.1.3 of the guidelines on corporate governance practices by public listed companies in Kenya , 2002 by failing to supply the board with relevant accurate and timely information to enable the board to discharge its duties.
“In contravention of responsibility to ensure that the board was provided with inaccurate information , the appellant (Munir Sheikh Ahmed) presented quarterly unaudited financial statements for the periods ended June 30,2015 and September 30,2015 to the NBK Board which erroneously indicated that the bank had earned income amounting to Kshs. 847,920,000.00 million from the sale of assets and understated the loan provisions.
The judge ruled that the prohibition orders sought by Munir could not be granted since he did not show or demonstrate that it was illegal for the Capital Market Authority to undertake the enforcement actions.
“In any event the orders sought of prohibition are superfluous given that the decision whose implementation is sought to be prohibited will be quashed. In addition , this court cannot prohibit the respondent (Capital Market Authority) from legally carrying out enforcement proceedings bin exercise of its statutory mandate against the applicant (Munir Sheikh Ahmed) in the future should the eventuality arise”, said the judge.
Munir moved to court through lawyer Issa Mansour seeking to quash decision in the Notification of Enforcement Action issued by the capital market authority disqualifying from holding office as key officer of a public listed company for a period of three years and penalty of five million.
He also sought to prohibit the implementation of the decision in the Notification of the said enforcement action. Munir also applied the court to prohibit capital market authority from undertaking any further proceedings against him.
Munir told the court that he was served with a notice to show cause letter dated August 22,2017 containing allegations of misrepresentation of financial statements for periods ending June 30,2015 and September 30,2015 with allegation of overseeing and authorizing the inclusion of Kshs. 847,920,000.000 in the interim second quarter and third reports of the bank of 2018 which the capital market authority alleged to have been prematurely recognized and overstated.
The show cause letter further contained allegation of embezzlement of funds where the market authority alleged that the National Bank of Kenya Limited’s management appeared to have devised a scheme where monies were fraudulently siphoned out of the bank of for services not rendered in the guise of deposit mobilization.
Munir said that he requested crucial information and documentation from the bank regarding the allegations made against him but the authority responded to him by away of a letter dated January 17,2018 and informed him that it has powers on its own motion to conduct investigations and inquiries into affairs of public companies whose securities are publicly offered or traded.
In response the authority described its principal objectives legal mandate and powers as provided under section 11 of the Capital Markets Act which include protection of the investors interests and they are charged with responsibility of ensuring that listed companies comply with the regulatory obligations which govern corporate governance.
The authority told the court following a whistle blower’s tip on various issues at the bank in 2015 and negative media reports that pointed to the possibility of breach of the capital markets regulatory obligations applicable to the Bank as a public listed entity , the authority lodged an independent inquiry into the bank’s affairs.
The authority noted that during the period 2014/2015 some members of the bank’s management appeared to have devised a scheme where monies were fraudulently siphoned out of the bank for services not rendered under guise of payment of commissions for a deposit mobilization exercise and that there was potential misrepresentation and reporting of financial statements through premature recognition of sale of assets and provisioning of nonperforming loans for the period ending June 2015 and September 2015 leading to overstatement of profits.
It added that there was nondisclosure of conflict of interest by the former managing director Munir to the board of the bank with respect to companies related to his sister and brother who were doing business with the bank preferential treatment..
