SHC Defines Limits of SECP Account-Freezing Powers

We are pleased to share a significant milestone achieved by our litigation team at Mohsin Tayebaly & Co. (MTC) in a corporate / regulatory matter regarding a former director of a public listed company and the Securities & Exchange Commission of Pakistan.

In a definitive judgment delivered by the High Court of Sindh, the court set aside a regulatory order issued under Section 255(8) of the Companies Act, 2017, which had frozen our clients’ personal bank accounts for over 16 months during a corporate investigation. The Court ordered the immediate unblocking of the accounts, establishing critical guardrails against regulatory overreach.

The Key Legal Precedents Established:

• Strict 30-Day Limit on Account Freezes:
  The Court ruled that a freezing order under Section 255(8) is strictly capped at a maximum of 30 days. Accounts cannot remain blocked indefinitely unless the funds are formally identified as “case property” required for a criminal trial under Section 255(7). Because the final investigation report only alleged administrative infractions subject to penalties—and not criminal prosecution—the protracted freeze was ruled patently illegal.
• Reason to Believe” vs. Arbitrary Suspicion:
  The judgment elevates the statutory threshold for regulatory enforcement. The Court reaffirmed that the power to freeze assets cannot be exercised on regulatory whim, speculation, or vague siphoning allegations. The regulator must possess tangible, rational evidence establishing a direct connection to a statutory offense before disrupting a citizen’s right to property.
• Prior Notice is a Mandate of Natural Justice:
  In defense of the rule of law, the Court held that the principle of audi alteram partem (the right to be heard) must be read into enforcement statutes. Barring a documented, exceptional urgency to prevent the destruction or concealment of assets, blocking an individual’s personal bank accounts without prior notice is an unlawful violation of due process and Section 24A of the General Clauses Act, 1897.

This landmark ruling serves as a vital safeguard for corporate directors, executives, and public shareholders across Pakistan. It firmly signals that while statutory investigations are valid, administrative enforcement mechanisms cannot be deployed as tools of pre-trial punishment or deployed indefinitely without judicial scrutiny. It protects individual livelihoods and reinforces the constitutional rights to property under Article 24 and right to due process guaranteed under Article 10A.

The firm’s team in this matter was led by Sameer Tayebaly, Senior Associate, and included Nadia Mehek, Associate and Talha Mahboob, Associate.