HC allows mutual funds to issue rights, bonus shares
Monday, 9 November 2009
FE Report
The High Court Sunday allowed mutual funds to raise their size by issuing bonus and rights, without curbing the securities regulator's absolute power to determine which funds would be eligible to expand capital base.
A High Court division bench comprising Justice Syed Mahmud Hossain and Justice Kamrul Islam Siddiqui gave the verdict, overturning June 2008 order of the Securities and Exchange Commission (SEC) following a writ petition by three investors.
"The judges ruled that the SEC's decision to bar the existing close-end mutual funds from issuing bonus and rights is unlawful," Shafiqur Rahman, a barrister at Dr. Zahir and Associates, said.
It means the mutual funds can now raise their capital base, provided that they get clearance from the SEC, he said, adding the verdict would be applicable for only those funds that were listed at the time of the regulator's order.
"In its ruling the High Court bench said that the SEC will be at liberty to allow or disallow the existing mutual funds to issue bonus and right shares," he said. "I think it's a split victory for the petitioners."
The court however has suspended "operation of the judgment" for a week, allowing the securities regulator enough time to appeal against the verdict in the country's Supreme Court.
"We will go to the Appellate Division (of the Supreme Court) to appeal against the ruling," Anwarul Kabir Bhuiyan, a spokesman and executive director of SEC told the FE.
"I have prayed for one week and the court has give us time. I will go to the Appellate Division if the SEC agrees," Mahmudul Islam, the lawyer of SEC, said after the verdict.
Experts said all eight mutual funds of the state-owned Investment Corporation of Bangladesh (ICB), AIMS and BSRS would be benefited by the verdict, although the ruling
could lead to manipulation by some funds.
"Especially, it's a good news for the ICB funds whose sizes are very small. I think the ruling paves the way for ICB to expand capital base of their existing funds," an expert said, speaking on condition of anonymity.
There will be some impact in the market this week, but it won't be large-scale because SEC's power has been kept intact to decide whether or not a mutual fund can raise its capital, he added.
In the capital market there are 19 close-end mutual funds approved by SEC. Among them, only the First ICB mutual fund issued 50 per cent bonus shares and AIMS First mutual fund issued 20 percent bonus shares in the last two years.
Investors who have been eagerly anticipating a favourable ruling on the case expressed their delight at the judgment.
"It's our victory," Ariful Islam, a general investor said after the delivery of verdict in the court. "We think we'll win even if the SEC makes appeal to the appellate division."
Investors filed the writ petition to the High Court in July last year challenging the SEC's amendment of rule number 66 a month back that barred fund managers from issuing rights or bonus shares.
SEC officials said they made the amendment, as they feared that some fund managers would try to exploit investors' sentiment by issuing rights and bonus shares.
Immediately after the writ petition, the court had directed all the listed mutual funds not to declare dividends until its disposal.
The High Court Sunday allowed mutual funds to raise their size by issuing bonus and rights, without curbing the securities regulator's absolute power to determine which funds would be eligible to expand capital base.
A High Court division bench comprising Justice Syed Mahmud Hossain and Justice Kamrul Islam Siddiqui gave the verdict, overturning June 2008 order of the Securities and Exchange Commission (SEC) following a writ petition by three investors.
"The judges ruled that the SEC's decision to bar the existing close-end mutual funds from issuing bonus and rights is unlawful," Shafiqur Rahman, a barrister at Dr. Zahir and Associates, said.
It means the mutual funds can now raise their capital base, provided that they get clearance from the SEC, he said, adding the verdict would be applicable for only those funds that were listed at the time of the regulator's order.
"In its ruling the High Court bench said that the SEC will be at liberty to allow or disallow the existing mutual funds to issue bonus and right shares," he said. "I think it's a split victory for the petitioners."
The court however has suspended "operation of the judgment" for a week, allowing the securities regulator enough time to appeal against the verdict in the country's Supreme Court.
"We will go to the Appellate Division (of the Supreme Court) to appeal against the ruling," Anwarul Kabir Bhuiyan, a spokesman and executive director of SEC told the FE.
"I have prayed for one week and the court has give us time. I will go to the Appellate Division if the SEC agrees," Mahmudul Islam, the lawyer of SEC, said after the verdict.
Experts said all eight mutual funds of the state-owned Investment Corporation of Bangladesh (ICB), AIMS and BSRS would be benefited by the verdict, although the ruling
could lead to manipulation by some funds.
"Especially, it's a good news for the ICB funds whose sizes are very small. I think the ruling paves the way for ICB to expand capital base of their existing funds," an expert said, speaking on condition of anonymity.
There will be some impact in the market this week, but it won't be large-scale because SEC's power has been kept intact to decide whether or not a mutual fund can raise its capital, he added.
In the capital market there are 19 close-end mutual funds approved by SEC. Among them, only the First ICB mutual fund issued 50 per cent bonus shares and AIMS First mutual fund issued 20 percent bonus shares in the last two years.
Investors who have been eagerly anticipating a favourable ruling on the case expressed their delight at the judgment.
"It's our victory," Ariful Islam, a general investor said after the delivery of verdict in the court. "We think we'll win even if the SEC makes appeal to the appellate division."
Investors filed the writ petition to the High Court in July last year challenging the SEC's amendment of rule number 66 a month back that barred fund managers from issuing rights or bonus shares.
SEC officials said they made the amendment, as they feared that some fund managers would try to exploit investors' sentiment by issuing rights and bonus shares.
Immediately after the writ petition, the court had directed all the listed mutual funds not to declare dividends until its disposal.