Partners in law
IN a recent press release, the Securities and Exchange Commission of Pakistan announced the incorporation of 320 new companies in the month of October.
SECP’s pride is understandable: the incorporation of each new company takes it closer to realising its vision of ‘Pakistan Incorporated’ which entails the task of facilitating the corporatisation of the nearly three million Pakistani businesses presently operating as non-corporate entities. But why should SECP’s goals or their achievement matter to an ordinary person? And if they do matter, what is standing in the way of him enjoying the fruits of the achievement of these goals?
The first question is easily answered: increased corporatisation will lead to the expansion of the documented economy, bring more entities within the regulatory net and create greater competition. These hallmarks of a modern state will benefit the ordinary person. The larger tax base would create income for the national exchequer, which, at least in theory, will enable the government to serve citizens’ needs; enhanced regulation will create transparency in the way companies operate and provide legal protection to stakeholders; and greater competition will compel businesses to offer superior services at optimum prices.
The answer to the second question is more complex. Addressing a similar issue in the late 1970s, the French philosopher, Michel Foucault, observed: “the more you multiply enterprises … the more you multiply the surfaces of friction between each of these enterprises, the more you multiply opportunities for disputes, and the more you multiply the need for legal arbitration.” It follows that unless our legal system can cater for the increased disputes likely to arise from greater corporatisation, the advantages that should, by rights, flow to the country and the common man, will either remain stuck in the legal pipeline, or risk being lost altogether.
In examining whether our present legal system is equipped to deliver the promise of increased corporatisation, it is helpful to divide the potential cases that may arise as its consequence, into two categories: the first containing disputes between corporate entities, or between individuals and corporate entities, the second containing cases lodged by the SECP or brought against it by an entity or person claiming to be aggrieved by its enforcement actions. The distinction is important because while private disputes primarily affect only the parties named in them, cases involving the SECP define the scope and effectiveness of its writ and therefore have an impact on all sectors of the economy that it regulates.
Given the extent of their influence, it would be expected that the legal system handled cases involving the SECP as a special case, if not a priority. Interestingly, however, it is these very cases, rather than those between private parties, that presently face the greater risk of becoming mired in a court system that is not sensitised to the exigencies of corporate regulation. Is the legal system biased against the SECP? No. It is simply that whilst private parties have the option to pre-agree to refer their disputes to arbitration or opt to resolve these through other alternate means of dispute resolution, and thereby circumvent the court system altogether, the SECP has no such luxury.
Why is it restricted in this regard? In case of court actions that the SECP initiates, it is bound to refer to the forum prescribed in the statute it is seeking to enforce whereas in case of actions it defends, the choice of forum is determined by the constitution (in case of a writ) or the provisions of the relevant statute (in case of an appeal). In either case, the relevant forum is always a duly constituted court and for good reason: unlike private parties, the SECP, in carrying out its enforcement actions, is not pursuing a personal objective which may be resolved privately, but is acting in the capacity of a frontline enforcer. Just as it is incumbent upon the SECP to carry out its primary enforcement actions uniformly, transparently and in accordance with the law, it is equally important that any secondary cases that emanate from such actions be decided in a similar manner.
The exclusive mandate that courts have to entertain actions involving the SECP, creates an irrevocable, though under-appreciated, nexus between the SECP and the courts. The SECP may do all that it can to enhance its enforcement capacity, devise efficient procedures to conduct inspections and investigations, be vigilant in its issuance of show-cause notices and pass carefully considered orders and lodge well-prepared cases. The success of its efforts, however, is ultimately dependent upon the courts, and may easily come to naught merely by the filing of a spurious challenge, or even an application, which, given the absence of a formal demarcation between actions involving regulators and all other matters, is likely to proceed at a pace so leisurely that it may thwart the very purpose of the underlying enforcement action.
The solution, however, does not lie in the courts deferring to the will of the SECP in the interests of the growth of the economy. It lies in fact, in the courts and SECP realising that they are not adversaries but partners in creating, maintaining and upholding a transparent system of corporate law enforcement. It lies also in the courts devising a system, in consultation with SECP, under which, although they exercise all powers to determine the legality of its actions they do so with an understanding of its regulatory objectives and in an expeditious and efficient manner. In adopting this course, the courts and the SECP will not only bolster the clarity and predictability of the law but will also provide impetus to the modernisation of the economy and the sustained welfare of the ordinary person.
The writer is a barrister.