KUALA LUMPUR (June 6): Generally, it would be the norm for a company to seek the opinion and expertise of the company's board of directors (BOD). However, that was not the case at SRC International Sdn Bhd, the High Court heard on Thursday. 

The company's former chairman, Tan Sri Ismee Ismail, testified that in SRC's case, the board was more or less there to approve the directions of the shareholder, then prime minister Datuk Seri Najib Razak. 

"The point I'm trying to drive here is basically, when we were appointed to this newly incorporated entity called SRC, we didn't get a piece of blank paper saying 'OK, board members, you tell us what to do with this company. Which government-to-government endeavours [you would like to pursue?'] That was not the scenario.

"[Instead it was] OK, you are appointed as a board member, these are the directions or wishes of the shareholder [for the] management to execute with the board’s support," said Ismee, who was also the chief executive officer of Lembaga Tabung Haji.

Ismee is testifying in the ongoing civil action by SRC against Najib and the company's former CEO Nik Faisal Ariff Kamil. The court previously delivered a judgement in default against Nik Faisal, who is currently at large. 

Ismee added that for a time, the board was "excited" to execute Najib's decisions, because the directions between the shareholder and the board "were in tandem". 

Previously, Ismee testified that he was appointed to the position on Aug 1, 2011, and resigned on Aug 15, 2014, due to corporate governance issues, especially with regard to the company’s accounts and its finances as managed by Nik Faisal. 

On Thursday, the witness also agreed with the suggestion by Najib's lawyer, Farhan Shafee, that board members of SRC and its former parent company 1Malaysia Development Bhd (1MDB) were both subjected to the Companies Act, which specifies the board's obligation to exercise its fiduciary duty. 

This, Farhan suggested, would have negated Najib's alleged wishes and directions given to the board.

Farhan: Within the parameters of the applicable law, it would also necessarily include the BOD having to exercise its fiduciary duty.

Ismee: Yes. 

Farhan: That overrides the potential wishes of the then prime minister and minister of finance.

Ismee: Yes. 

During the defence’s cross-examination on Thursday, Farhan also said Najib had informed Ismee that if the then prime minister were to approve anything related to SRC or even 1MDB, it would only be upon the prior approval of the BOD. Ismee disagreed. 

Farhan: The position taken by my client is that what you are saying is untrue — that the BOD only acts after seeing some form of [direction]. My client's position is that he would only act after being told or comforted that the BOD has earlier made a decision on that matter.

Ismee: I disagree. 

Earlier, the witness told the court that the board did not micromanage the management of SRC, but rather kept an eye on and monitored the company's goings-on through reports from the management during board meetings. He said there had to be an element of trust in the management for things to operate. 

When questioned why the board didn't direct Nik Faisal to raise matters with Najib in some instances, Ismee said that as the CEO, Nik Faisal ought to have the wherewithal on what issues to highlight in his meetings with Najib.

"Nik Faisal was not a clerk. He was the CEO. He should have known what to highlight and what not to highlight. The board can't be instructing the CEO to do A, B, C, D," the witness said.

This civil case revolves around a RM4 billion Retirement Fund Inc (KWAP) loan, which was given to SRC in two tranches — in the second half of 2011 and the first half of 2012. This is separate from the SRC criminal case, for which Najib has been imprisoned.

SRC filed the RM4 billion suit against Najib and Nik Faisal in May 2021. Initially, the suit also named Ismee, former 1MDB CEO Datuk Shahrol Azral Ibrahim Halmi, and former SRC directors Datuk Mohammed Azhar Osman Khairuddin, Datuk Suboh Md Yassin, and Datuk Che Abdullah @ Rashidi Che Omar as defendants. 

They were dropped later, only for Najib to bring them back as third parties. A defendant can initiate this against a third party who is not part of the main suit, in order to claim any contribution, indemnity, or remedy as claimed by the plaintiff.  

SRC claims that out of the KWAP loan of RM4 billion, a sum of RM3.6 billion was immediately transferred out when the funds came into SRC, of which a sum of US$120 million eventually ended up in Najib’s bank account.

The trial before High Court judge Datuk Ahmad Fairuz Zainol Abidin continues on Monday.

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