Former CMC Motors finance director Sobakchand Shah has asked the High Court to dismiss the Capital Markets Authority’s application for stiffer penalties against him for his role in the 2012 financial scandal in the company, arguing that he has been punished enough.
Mr Shah says in court filings that his disqualification from holding directorship in any public listed company and the Institute of Certified Public Accountants of Kenya’s (ICPAK) Sh70,000 fine was enough punishment for his role in the scandal that nearly brought down the motor firm.
Mr Shah was punished by the capital markets regulator alongside former CEO Martin Forster, ex-Attorney General Charles Njonjo and businessman Jeremiah Kiereini.
The CMA argues that ICPAK’s penalty on Mr Shah was not commensurate with his misconduct as CMC’s finance director.
The CMA further filed a complaint against Mr Shah before the ICPAK, seeking stiffer penalties for the former finance director.
It also wants audit firm Deloitte found culpable for failing to disclose the existence of illegal offshore accounts the motor dealer’s directors ran in Jersey. Mr Shah now says the CMA should not be allowed to pursue further sanctions against him.
He insists that the capital markets regulator has not produced any evidence that was not considered in the ICPAK disciplinary committee hearings.
“The CMA has not placed before court information it had that was not before the committee. If the CMA knows something which the committee did not but should have known, the CMA should have tendered it as evidence before this court. Mr Shah has a right to earn a living and maintain the standard of living he is used to. I do not understand why the CMA is hounding him more,” says Amritlal Shah, the former CMC director’s lawyer.
The CMA has enjoined audit firm Deloitte in the suit, claiming that the ICPAK virtually left it off the hook for misconduct. It claims the auditors should have reported the fraud at CMC.
The CMA says the disciplinary committee erred in failing to give any reasons, justification or legal reasoning for its “failure to consider and deliberate on the role and acts of Deloitte, its partners and finance and accounting staff in CMC at the material time.”
Deloitte is yet to respond to the suit. The regulator accuses Deloitte of misstating the auto dealer’s accounts by abetting the booking of undelivered vehicle sales as revenues and not capturing interest payments for cars sold on credit, thereby inflating its earnings.
The two other disgraced CMC directors believed to be behind the mega scam—Mr Forster and Mr Kiereini— are engaged in separate court battles against the CMA.
Mr Forster last year filed a suit seeking to strike his name out of a report compiled by South African law firm Webber Wentzel, which implicated him and other senior managers in the CMC scandal. The suit is ongoing.
Mr Kiereini is in another suit fighting a Sh195.7 million claim against him by the CMA.
The capital markets regulator reported Mr Shah and Deloitte to ICPAK after reports of massive fraud, conflict of interest, and breach of fiduciary duty at CMC that cost its shareholders billions of shillings.
ICPAK imposed a fine of Sh20,000 on the former CMC executive in addition to another Sh50,000 to meet the cost of hearing the matter. He was also suspended for two years from the institute and will have to attain 60 hours of continuous professional development before he is readmitted.
The capital markets regulator holds that Mr Shah’s role in the scam could have cost the company more than Sh1.5 billion and believes that the Sh70,000 he was ordered to pay in fines and proceeding expenses was merely a slap on the wrist.
Mr Shah, however, says the ICPAK disciplinary committee covered everything the CMA is now bringing up, and that he responded to all accusations against him at length.
The former CMC director believes the committee took into consideration all accusations and his defence to the claims before rendering its judgment.
The CMA says in its appeal before the High Court that it was denied an opportunity to give testimony at the disciplinary committee hearings as it was not invited to do so.
But Mr Shah says that the disciplinary committee was within its power to decide whether or not to call the CMA to testify as a witness in the proceedings.
He adds that such proceedings are strictly between the accountant against whom a complaint has been lodged and the disciplinary committee.
“An inquiry into professional misconduct under the Accountants Act is a matter between the accountant whose conduct is under investigation and the disciplinary committee,” Mr Shah adds.