MUHAMMAD IQBAL (PARTNER) vs APPELLATE BENCH NO — 2026 CLD 402 KARACHI-HIGH-COURT-SINDH

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MUHAMMAD IQBAL (PARTNER) VS APPELLATE BENCH NO.1 Ss.255(3) & 260---Partner of Chartered Accountants Firm---Penal provision---Two or more interpretations, susceptibility of ---Scope and effect---Penalty , imposition of ---Nature and effect---Mens rea, absence of---Effect--- Reclassification of investments by Company was construed as a misstatement in it's Accounts changing materially the financial position of the Company, purportedly violating the International Accounting Standard-39 ('IAS-39') for which the Appellant (Partner of a Chartered Accountants Firm), as the Company's Auditor, was also held responsible and a token penalty (of Rs.10,000/-) was imposed on the Appellant by the Securities and Exchange Commission of Pakistan /SECP---Argument of the Appellant was that when the International Accounting Standard provides more than one option, the Appellant cannot be penalized contending that the penalty in such matters can only be imposed when there is a mens rea on the part of the Appellant or there is a willful breach of any of the statutory provisions---Validity---Imposing of penalty is not a criminal liability carrying any stigma, (as against imposition of fine on conviction which is a criminal liability); for establishing a quasi-criminal offence, the presence of guilty intent / mens rea is to be established ; until and unless there is a case of absolute statutory liability (where no mens rea is required to be proved) ; unless there is an evidence of fraud or willful gross negligence ipso facto a penalty cannot be imposed---If any penal provision is susceptible to two or more interpretations, then one that does not extend penalty / liability is to be preferred to one that does---In the event of ambiguity in a penal provision, it would be resolved in favour of the person who is liable to penalty---The impugned orders had acknowledged the 'rare circumstances' factor only to the extent of the press release of October 13, 2008 issued by IASB [International Accounting Standards Board)---Said press release was about the deterioration of the international financial markets, that occurred during the third quarter of year 2008---If the reclassification still can be done through IAS 39, then it cannot be confined only to what happened in the past, but, said option [of re-classification] can be invoked in cases where there are legally recognizable force majeure factors---Record revealed that the disputed non-compliance had been done for the first time, regarding which more than one interpretation is possible while from provisions of the amended Paragraphs 50B and 50C of IAS 39, it appears that the impugned act of reclassification attributed to the Appellant was not a result of some mens rea or a willful default, but a result of professional judgment---Consequently, imposing even atoken penalty (of Rs.10,000/-) can have adverse consequences---High /Appellate Court set-aside the impugned penalty ; consequently, modifying the impugned Appellate Order as well as Original Order passed by the SECP with a note of caution / warning to the Appellant, that he should exercise better standard of due diligence in the assignments, in order to avoid adverse consequences---Appeal, filed by Partner of a Chartered Accountants Firm, was disposed of accordingly.

MUHAMMAD IQBAL (PARTNER) vs APPELLATE BENCH NO — 2026 CLD 402 KARACHI-HIGH-COURT-SINDH

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