The High Court has declared to be illegal the stipulation that sponsor-directors of listed companies must hold at least 2% of shares, and together, should own at least 30%.
In the wake of the late 2010 stock market scam, in November 2011, the Securities and Exchange Commission (SEC) issued a notification specifying these two rules to boost up the then bear market.
According to the notification, in case any sponsor-director failed to keep his seat on the board, someone owning at least 5% of the floated shares could fill in for the “casual vacancy.” Yesterday, the HC declared that rule to be illegal as well.
Before the SEC issued the rule, there was no hard and fast stipulation for shareholding in order to become a director. The stock market regulator issued the notification so that directors became more interested in acquiring greater ownership and thus developed a greater sense of responsibility toward the company.
The High Court bench of Justice Quazi Reza-Ul Hoque and Justice ABM Altaf Hossain delivered the ruling upon hearing a writ petition filed by Mustafizur Rahman, a sponsor-director of the National Credit and Commerce Bank, after the SEC issued the notification.
In December 2012, based on that petition, the HC issued a rule asking the SEC why the notification should not be declared illegal. The SEC answered the rule and the court held several hearings on the issue over the past one and a half years.
After the SEC issued the notification, the sponsor-directors of listed companies who owned less than 2% shares had to acquire more shares from the bourse in order to keep their directorship.
Some major stock market players, who owned bulk shares of top listed companies, allegedly wanted to take advantage of the situation by raising the prices of the shares that they owned.
Supreme Court lawyer Shah Md Ahsanur Rahman, attorney of the petitioner, told the Dhaka Tribune that the court had declared the SEC rule illegal because it was discriminatory.
Ahsanur said he had told the court that the notification was discriminatory because there were two different provisions governing sponsor-directorship.
“Moreover, the NCC Bank had 49 sponsor-directors and it would not have been possible for each of them to own 2% of shares because at least 50% of shares must be issued to the public,” he explained.
Mirza Azizul Islam, former adviser to a caretaker government, told the Dhaka Tribune: “What will happen now is that no matter how much share one owns, they will not care for their company. Things will go back to what they were before.”
“The High Court order should not impact the decision-making of the investors. They should rather consider the fundamentals of the company while investing their money,” said Aziz, also a former SEC chairman.
Faruq Ahmed Siddique, another former SEC chair, said: “I opposed the move when it was made. It did not turn out to be successful. Even now, I do not believe that scrapping the rule will have any impact on the stock market.”