Federal Court makes landmark decision in Transmile case

PETALING JAYA: The Federal Court has ruled that principal officers and directors are liable if the companies they represent furnish misleading information.

In a landmark decision, it ruled yesterday that the provisions making them liable contained in Section 122(1) of the Securities Industry Act 1983 (SIA) did not violate the Federal Constitution.

The Federal Court’s decision implied that the charges made against Transmile Group Bhd’s former chief executive officer Gan Boon Aun by the Securities Commission (SC) for corporate offences were valid.

It, therefore, ordered Gan’s case to be remitted to the Sessions Court for continuation of the trial.

To recap, Gan was charged in 2007 by the SC for abetting Transmile in making a statement that was misleading in a material particular relating to the company’s revenue in its quarterly report on unaudited consolidated results for the financial year ended Dec 31, 2006. This was likely to induce the purchase of Transmile’s shares by other persons.

Gan was also charged in the alternative with having furnished a misleading statement to Bursa Malaysia Securities Bhd in the same financial statement. He was called to enter his defence on the alternative charge after the close of the prosecution case.

In June 2011, Gan made an application to the High Court to refer a constitutional question on the validity of Section 122(1) of the SIA. He argued that the provision was inconsistent with Article 5(1) of the Federal Constitution.

In 2016, the High Court referred the constitutional questions to the Federal Court for determination.

The SC said yesterday’s ruling by the Federal Court had wide-ranging ramifications as there are 32 other provisions in other Acts that are akin to the said provision. Section 122(1) of the SIA deems a company director, CEO, officer or representative of the company, to have committed an offence of the company, unless he can prove the lack of consent or connivance on his part and the exercise of diligence to prevent the commission of the offence.

In its heyday, Transmile was a darling stock and had the makings of an intra-Asian cargo player. But things turned awry in 2007 when Transmile missed its April 30 deadline for submission of its audited accounts for 2006. The company subsequently fell into Practice Note 17 status.