Concerns Raised Over Alleged Election Irregularities in a Listed Company

Security Papers Limited (SPL) is allegedly violating corporate governance laws and manipulating its board election process to sideline independent and minority shareholder representation to maintain control. Syed Asad Ali Shah, a former candidate for the independent director position, told ProPakistani that the director elections were effectively concluded last year when four candidates withdrew, leaving only two eligible individuals for three vacancies, including a female nominee. Under Section 159(5) of the Companies Act, 2017, this situation should have automatically resulted in their election—rendering any further nomination process illegal. However, SPL allegedly continued the process, inviting fresh nominations in an adjourned meeting which is illegal. In a letter to the Securities and Exchange Commission of Pakistan (SECP), another candidate Ahmed Munaf raised similar objections, alleging SPL’s actions contradicted the law and undermined the integrity of the electoral process. Asad endorsed this letter, stating that he would not refile his nomination due to the continued disregard for legal and regulatory requirements. The company allegedly removed both candidates, who were standing as independent directors, from the list of directors. It is also surprising that two letters were written to the SECP and the company by one of the candidates, yet no reply has been provided by either party, despite the irregularities being pointed out. Meanwhile, the controlling shareholder — State Bank of Pakistan (SBP) — is allegedly reluctant to allow independent oversight on SPL’s board. Despite SPL being officially categorized as a Public Sector Company (PSC), the SECP has been accused of passive oversight. This has allegedly allowed SPL to repeatedly violate SECP instructions, manipulate meeting agendas, and delay the elections through questionable means. At a prior general meeting, insiders told ProPakistani that SPL’s proxies allegedly were canceled and the session adjourned—without due process — once it became evident that the controlling bloc lacked the votes. Despite an SECP order prohibiting this, the meeting was delayed. Without urgent and firm regulatory intervention, this sets a precedent where powerful shareholders manipulate governance at the expense of minority rights. In an official response to ProPakistani, SPL said these procedural changes are legal and necessary for governance continuity. “On the day that the elections of November 2023 were to be held, the number of candidates exceeded the number to be elected. However, the Extraordinary General Meeting (EOGM) for the purpose of elections of directors was suspended pursuant to a court order issued by the Islamabad High Court on a petition filed by one of the candidates, who was also a shareholder of the Company. Meanwhile, on 26th January 2024 the Director Adjudication of the SECP designated the Company as a Public Sector Company (PSC). As you know, the eligibility requirements of independent directors for a PSC differ from those of listed companies simpliciter. This adjudication remained in field and was upheld by the Appellate Bench of the SECP by order dated 07.02.2025. In the period following the suspended elections of November 2023 until the date of issuance of the notice dated 6th March 2025 for the convening of the meeting for elections, the shareholders’ register as of the first book closure of 20 to 29 November 2023 ceased to be representative of the actual shareholders on account of significant trading and consequent changes in the shareholders’ register,” the company claimed. SPL further added. “In light of the above, the Board of Directors of the Company, without prejudice, decided to conduct the election as if the Company was a PSC, to minimize the risk of SECP penalties. In the circumstances, since the eligibility criteria for independent directors has changed, fair opportunity is being given to all persons interested in contesting as independent directors. Further, in view of the changes in the shareholders’ register, the opportunity is being given to file additional or fresh proxies. This will ensure that votes are cast based on the current shareholder list so that the Board is truly representative of the shareholders of the Company. The order of the SECP dated 26.1.2024 and the order dated 07.02.2025 of the Appellate Bench to adhere to public sector company regulations is the legal justification. So far as the issues of proxies are concerned, it should be noted that proxies may only be issued by a shareholder in favor of another shareholder.” In view of the significant transfers in the shares register that have taken place since November 2023, some shareholders who may have given a proxy may have ceased to be shareholders and some who were not shareholders may have become shareholders. It is for this reason that a fair chance is being given to update all proxies and to give an opportunity to new shareholders to appoint proxies as well. There is nothing illegal or unjust about this procedural change, the company stated. SPL stated, “At the time that the nominations were first called for independent directors (Nov. 2023), there was no SECP adjudication in field designating the Company as a PSC. The notice dated 6th March, 2025 has been issued in order to comply with the law applicable to PSCs in relation to the election of independent directors and SECP itself has from time to time granted multiple extensions for the holding of elections recognizing that the elections of directors were delayed by circumstances beyond the control of the Board of Directors of the Company.” It further added, “Please note that a Show Cause Notice was received on 27 October 2023 (SCN) wherein it was alleged that i) the Company is a PSC and therefore ii) certain individuals were not eligible to act as independent directors. This SCN resulted in the order dated 26.1.24, whereby the SECP designated the Company as a PSC. Later, on 7.2.25, the Appellate Bench upheld the SECP’s order. At the time that the nominations were first called for independent directors (Nov. 2023), there was no SECP adjudication in the field designating the Company as a PSC. Although an appeal has been preferred against these orders in the Sindh High Court (and the Appellate Bench’s order has been suspended), it is only out of abundant caution and to preserve the continuity of directors’ tenure that the Company is voluntarily and without prejudice to its appeal implementing PSC eligibility standards for independent directors.” These standards were not enforced in previous elections. The individuals who were disqualified by the SECP by order dated 26.1.24 were eligible to contest elections in 2020 under the eligibility requirements set for Public Listed Companies. These individuals retired during the pendency of the aforementioned proceedings and therefore the question of SPL taking any remedial measures of its own against them, do not arise, the company stated. For long-term investors committed to improving corporate governance, the inability to participate meaningfully in the process sends a discouraging signal to all PSX watchers, further suggesting that some state-owned enterprises are functioning under questionable practices and the government itself is doing it. Without immediate and decisive regulatory action, this case could normalize corporate manipulation, marginalize minority shareholders, and undermine progress in PSX. Capital markets will suffer, and investors with it.