This article first appeared in The Edge Financial Daily, on September 29, 2015.

KUALA LUMPUR: The Court of Appeal has upheld that Section 122(1) of the Securities Industry Act 1983 (SIA) — which states that if a corporate body has committed an offence under the act, a director or chief executive officer (CEO), or one purporting to act in such a capacity for the company, is deemed liable — is valid and not unconstitutional.

In delivering the verdict, the appellate court’s Justice Datuk Tengku Maimun Tuan Mat said the section did not violate the Federal Constitution, according to the Securities Commission Malaysia (SC) in a statement yesterday.

The decision effectively overturned a High Court’s ruling to the contrary when Transmile Group Bhd founder and former CEO Gan Boon Aun, together with Transmile former executive director Khiuddin Mohd, challenged the validity of a charge brought against them.

Gan and Khiuddin were charged in 2007 for abetting Transmile in making a misleading statement relating to Transmile’s revenue in the company’s unaudited consolidated results for the financial year ended Dec 31, 2006, which was likely to induce the purchase of Transmile shares by other persons.

The accused were also charged with an alternative charge of furnishing the same misleading statement to Bursa Malaysia under Section 122B(a)(bb) of the SIA, which was read together with Section 122(1) of the same act.

If convicted, Gan and Khiuddin could face a minimum fine of RM1 million or imprisonment of up to 10 years, or both.

But in June 2011, Gan and Khiuddin challenged the validity of the alternative charge, arguing that the law was inconsistent with, among others, Article 5(1) of the Federal Constitution, which provides that “no person shall be deprived of his life or personal liberty save in accordance with law”.

In November 2011, the High Court upheld the duo’s challenge and ruled that the section was unconstitutional, which prompted the SC to file an appeal to the Court of Appeal against the High Court’s decision.

“Today (yesterday), the Court of Appeal overturned the decision of the High Court and held the provision to be valid, but granted a stay of its decision pending the defence’s appeal to the Federal Court,” the SC’s statement further read.

Even so, the decision yesterday was seen as another step closer for Gan and Khiuddin’s appeal against the charges brought by the SC to be heard soon, eight years after the duo were first charged for making the misleading statement.

Both the accused were, on March 22, 2011, called to enter their defence after the close of the prosecution case. The case was stayed, pending the disposal of the appeal in the appellate courts, the SC said earlier last month.

Meanwhile, the Kuala Lumpur High Court on Sept 17 dismissed the appeal of two former independent directors of Transmile, who had earlier been convicted to jail for one year and fined RM300,000 for authorising a misleading statement made in the same quarterly statement which was submitted by Transmile to Bursa Malaysia in February 2007.

Shukri Sheikh Abdul Tawab and Jimmy Chin Keem Feung were both convicted in the Sessions Court in 2011 for authorising the furnishing of the misleading statement to the exchange in Transmile's unaudited consolidated results for the fourth quarter of the financial year ended Dec 31, 2006.

The accused were found guilty under Section 122B(b)(bb) of the SIA by the Sessions Court on Oct 28, 2011, for having authorised the furnishing of the misleading statement to Bursa Malaysia.

The judge also affirmed the sentence, which had been imposed by the Sessions Court on Shukri and Chin — a one-year jail term and a fine of RM300,000 (in default six months’ imprisonment). 

Transmile was once the star of the local equity market and counted “Sugar King” tycoon Robert Kuok and Pos Malaysia Bhd among its investors.

Its former chairman is Tun Dr Ling Liong Sik, who is not only a former transport minister but also a former Malaysian Chinese Association president.

But the company fell from grace in 2007 when it was revealed that its stellar results were due to massive accounting irregularities, which were unravelled when auditors Deloitte & Touche refused to sign off its final accounts because they were doubtful of Transmile's receivables.

The board of Transmile, led by the Kuok Group, then appointed Moores Rowland Risk Management to conduct a special audit, which uncovered huge discrepancies in the receivables.

The auditors concluded that the results for the financial years ended December 2005 and 2006 were grossly overstated.

Transmile suffered losses of RM126.3 million instead of making a profit of RM157.5 million in 2006; in 2005, it chalked up losses totalling RM369.6 million instead of the RM84.4 million profit that was reported.

In 2010, Transmile slipped into the Practice Note 17 category; its securities were then suspended and delisted the following year.