CGBLE SIR QAISER ALL
SLIDES
MERGED
PLUS
AMMENDEMENTS
IN
COMPANIES
ACT
2017.
AMMENDMENTS
IN
COMPANIES ACT 2017 GIVEN
AT THE END AFTER ALL SIR
QAISER SLIDES.
1. SIR QAISER SLIDES
(FROM
PAGE NO 2 TO 1434)
2. AMMENDMENTS IN
COMPANIES ACT 2017
(FROM PAGE NO 1435 TO
1453)
Corporate Governance, Business
TITLE NAME
Laws & Ethics
Qaiser Iqbal
Associate Member of Institute of Cost and Management Accountants of Pakistan
QAISER IQBAL
Contents
 Introduction to teacher
 Aim of this syllabus
 Learning Outcome
 Syllabus
 Study Material
 Syllabus analysis
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Introduction to Teacher
 Associate Member of ICMAP
 Served Industry in the field of Accounts and Finance
 Started Full time teaching since 2010
 Areas of Teaching ; Corporate Laws, Taxation, Business Laws
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Aim of this Syllabus
 To develop in-depth knowledge, understanding and application skills of corporate
laws most relevant in local corporate environment in general and required for
secretarial practices, in particular
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Learning Outcome
 On the successful completion of this paper candidates will be able to
 Demonstrate knowledge of the legal terminology of company law and the basics of company
incorporation
 knowledge of the management of companies
 familiarity with investment by companies, financial accounts and distribution of profit
 knowledge of the appointment of auditors and their responsibilities and duties.
 Affairs of Company in event of Winding Up
 perform secretarial practices
 demonstrate working knowledge of meaning, formation and working of non-banking financial
institutes
 Demonstrate awareness of laws, rules and regulations related to SMCs, Securities Act, issue of
capital, listing, modarba, anti-money laundering and Stock exchange
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Syllabus by ICMAP
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Companies Act 2017, Relevant Rules And Regulations
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Special Companies
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Other Laws, Regulations and Professional Ethics
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Secretarial Practices
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Study Material & Resources
 Video Lectures
 Lecture Notes and Slides
 ICMAP Past Papers
 ICMAP Marking Scheme
 Examiner’s Comments
 Test Session
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Syllabus Analysis
30%
1
We identified 30%
of the syllabus
that you will need
to Cram
70%
Exam
Attempt
70% of this
Syllabus you
will understand
and will express
in your Words
Paper
attempting
technique &
Secretarial
Practices
2
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12
TITLE
Types
of NAME
Business
Qaiser Iqbal
Associate Member of Institute of Cost and Management Accountants of Pakistan
QAISER IQBAL
Businesses can be Categorized on the basis of Ownership criteria
Sole Proprietorship
2. Partnership
3. Company
1.
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Sole Proprietorships
 A business owned by one person
 the process of starting and managing your own business
 About 3/4 of all businesses in the Pakistan
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Sole Proprietorships
Advantages



Easy to start up
Able to make all
decisions for the
business
Keep all profits
Disadvantages
 Unlimited liability
 financial liability is NOT limited to
investments in the business –
extends to his/her total ability to
make payments
 Limited access to credit or financing
 Owner may not have all the skills or
expertise necessary
 Business dissolves when the owner dies
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Partnerships
 Owned by two or more people who share its risks and rewards
 A partnership agreement outlines the rights and responsibilities of each partner
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Partnerships
Advantages
Disadvantages
 Easy to start up
 All partners share risk
 Easier to obtain money
 Each partner contributes
 Bank more likely to lend
 Each partner brings different
skills and talents to the
business
 May be held responsible for
partner’s mistakes
 Unlimited liability
 Personality conflicts can affect
decision making
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Companies
 Registered by SECP and operates apart from its owners
 The owner must get a Registration Certificate of Company from the SECP
 The company must have a board of directors
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Companies
Advantages
 Limited liability
 Owners are only responsible
for the capital they invested
 Easy to raise money by selling
stock
 Business continues after owner’s
death
 Professionally managed (hire
experts)
Disadvantages
 Double taxation
 Company pays tax on income
 Stockholders pay tax on Dividends
 More government regulations
 Difficult and costly to start
 Complex business to run
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TITLE
NAME
Types
of Companies
Qaiser Iqbal
Associate Member of Institute of Cost and Management Accounts of Pakistan
QAISER IQBAL
Public Sector
Company
Single
Member
CO
Foreign Company
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Company/Registered Company
 means a company formed and registered under Companies Act 2017 or the
company law;
 company law means the repealed Companies Act, 1913, Companies
Ordinance, 1984 and Companies Ordinance
Foreign company
means any company or body corporate incorporated outside Pakistan, which
a) has a place of business or liaison office in Pakistan whether by itself or
through an agent, physically or through electronic mode; or
b) conducts any business activity in Pakistan in any other manner as may be
specified;
Statutory Company
 The companies which are formed under special statute are termed as
statutory companies.
 They are governed by act or ordinance through which they are created.
Examples of such types of companies are state bank of Pakistan, investment
Corporation of Pakistan etc.
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company limited by shares
means a company; having the liability of its members limited by the
memorandum to the extent of amount, if any, remaining unpaid on the shares
respectively held by them;
Company limited by guarantee
means a company having the liability of its members limited by the
memorandum to such amount as the members may respectively thereby
undertake to contribute to the assets of the company in the event of its being
wound up;
Unlimited Company means a company not having any limit on the liability of
its
members;
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Single Member Company
means a company which has only one member.
Public company
means a company which is not a private company.
Private company
means a company which, by its articles
a) Restricts the right to transfer its shares;
b) Limits the number of its members to fifty not including persons who
are in the employment of the company;
c) Prohibits any invitation to the public to subscribe for the shares, if
any, or debentures or redeemable capital of the company:
Listed company
means a public company, body corporate or any other entity whose
securities are listed on securities exchange;
Listed securities
means securities listed on the securities exchange;
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Subsidiary company or subsidiary means a company in which the
holding company
(a) controls the composition of the board; or
(b) exercises or controls more than one-half of its voting securities either
by itself or together with one or more of its subsidiary companies.
Wholly owned subsidiary a company shall be deemed to be a wholly
owned subsidiary of another company or the statutory body if all its shares
are owned by that other company or the statutory body.
Holding company, means a company which is another company‘s
holding company if, but only if, that other company is its subsidiary;
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Public sector company
means a company, whether public or private, which is directly or indirectly
controlled, beneficially owned or not less than fifty-one percent of the
voting securities or voting power of which are held by the Government or
any agency of the Government or a statutory body, or
in respect of which the Government or any agency of the Government or a
statutory body, has otherwise power to elect, nominate or appoint majority
of its directors and includes a public sector association not for profit,
licenced under section 42:
Listed company
means a public company, body corporate or any other entity whose
securities are listed on securities exchange;
Listed securities
means securities listed on the securities exchange;
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Body Corporate or “Corporation" includes
a) a company incorporated under this Act or company law; or
b) a company incorporated outside Pakistan, or
c) a statutory body declared as body corporate in the relevant statute.
Company law means the repealed Companies Act, 1913 (VII of 1913),
Companies Ordinance, 1984(XLVII of 1984) and Companies Ordinance,
2016 (VI of 2016);
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Mode of forming a company. Sec 14
Any
a) three or more persons associated for any lawful purpose may, by
subscribing their names to a memorandum of association and
complying with the requirements of registration, form a public
company; or
b) two or more persons so associated may in the like manner form a
private company; or
c) one person may form a single member company by complying with
the requirements in respect of registration of a private company and
such other requirement as may be specified.
Explanation
Mode of forming a company
I. Three or more persons may form a public company
II. Two or more persons may form a private company
III. One person may from a single member company.
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Liability for carrying on business with less than
three or, in the case of a private company, two
members. Sec 15
If at any time
a) the number of members of a company is reduced,
i. in the case of a private company, below two or
ii. in the case of any other company, below three
And
b) the company carries on business for more than six months while the
number is so reduced,
Then
every person who is a member of the company during the time that it so
carries on business after those six months
i. shall be severally liable for payment of whole debts of the company
(contracted during that time) and
ii. may be sued therefor without joinder in the suit of any other
member.
QAISER IQBAL
Obligation to Register as Company &
TITLE NAME
Role of Promoter
Qaiser Iqbal
Associate Member of Institute of Cost and Management Accounts of Pakistan
QAISER IQBAL
Contents
 Obligation to register certain associations, partnerships as companies Sec 9
 Mode of Forming a Company Sec 14 & 15
 Promoter of a company meaning and functions
 Promoters as described by Act
 Legal Status of Promoters
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Obligation to register certain associations, partnerships
as companies Sec 9
a) An association, partnership or entity consisting of more than
20 persons shall not be formed for the purpose of carrying on
any business that has for its object the acquisition of gain,
unless it is registered as a company under Companies Act
2017.
b) A person guilty of an offence under this section shall be liable
to a penalty not exceeding of level 1 on the standard scale and
also be personally liable for all the liabilities incurred in such
business.
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Exemption
Nothing in this section shall apply to
a) any society, body or association, other than a partnership, formed or
incorporated under any law for the time being in force in Pakistan; or
b)
a joint family carrying on joint family business; or
c)
a partnership of two or more joint families where the total number of members
of such families, excluding the minor members, does not exceed twenty; or
d)
a partnership formed to carry on practice as lawyers, accountants or any other
profession where practice as a limited liability company is not permitted under
the relevant laws or regulations for such practice.
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Mode of forming a company. Sec 14
Any
a) three or more persons associated for any lawful purpose may, by subscribing their names to a
memorandum of association and complying with the requirements of registration, form a public
company; or
b) two or more persons so associated may in the like manner form a private company; or
c) one person may form a single member company by complying with the requirements in respect of
registration of a private company and such other requirement as may be specified.
Explanation
Mode of forming a company
I. Three or more persons may form a public company
II. Two or more persons may form a private company One person may from a single member
company.
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Liability for carrying on business with less than three or,
in the case of a private company, two members. Sec 15
If at any time
a) the number of members of a company is reduced,
i. in the case of a private company, below two or
ii. in the case of any other company, below three
And
b) the company carries on business for more than six months while the number
is so reduced,
Then
every person who is a member of the company during the time that it so carries on
business after those six months
i. shall be severally liable for payment of whole debts of the company (contracted
during that time) and
ii. may be sued therefor without joinder in the suit of any other member.
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Stages of Incorporation & Promoters
Pre
Incorporation
Incorporation of
Company
QAISER IQBAL
Certificate of
Incorporation
Commencement
of Business
Certificate
8
Companies
Incorporation
Pre
Incorporation
Incorporation
Promoters Sec
2(50)
Named
Memorandum
On whose
Advise
Control
Prospectus
Authority to
appoint
Majority of
BODs
Major Policy of
the Company
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Decisions
9
Promoters of a Company Sec 2 (50)
Promoter means a person
(a) who is named as a subscriber to the memorandum of association of a
company; or
(b) who has been named as such in a prospectus; or
(c) who has control over affairs of the company. Such control can be directly or
indirectly whether as a shareholder, director or otherwise; or
(d) in accordance with whose advice, directions or instructions the board of the
company is accustomed to act.
A person who is acting merely in a professional capacity cant be regarded as
Promoter of the Company
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TITLE
NAME
Company
Basic
Concepts
Qaiser Iqbal
Associate Member of Institute of Cost and Management Accountants of Pakistan
Meetings
Statutory meeting of company. Sec 131
o Every public company having a share capital shall hold a general meeting of
the members of the company, to be called the statutory meeting.
o Public Company shall hold statutory meeting on the date whichever is
earlier.
a) within a period of 06 months from the date at which the company is
permitted to commence business or
b) within nine months from the date of its incorporation
o If first annual general meeting of a company is decided to be held earlier, no
statutory meeting shall be required.
Notice of the Meeting
o The notice of a statutory meeting shall be sent to the members at least 21
days before the date fixed for the meeting along with a copy of statutory
report.
o The directors, after sending the report to the members, shall deliver to the
registrar for registration of
i.
a copy of the statutory report, along with
ii.
report of the auditors on statutory report
o The directors shall cause a list, to be produced at the commencement of the
meeting, showing
i.
the names,
ii.
occupations,
iii. nationality and
iv. addresses of the members of the company, and
v.
the number of shares held by them respectively,
o Such list shall remain open and accessible to any member of the company
during the continuance of the meeting.
o The members of the company present at the meeting shall be at liberty to
discuss any matter relating to the formation of the company or arising out of
the statutory report, whether previous notice has been given or not.
o A resolution of which notice has not been given in accordance with the
articles shall not be passed.
o The meeting may adjourn from time to time, and at any adjourned meeting
any resolution of which notice has been given in accordance with the articles,
either before or after the original meeting, may be passed.
o an adjourned meeting shall have the same powers as an original meeting.
o The provisions of this section shall not apply to a public company which
converts itself from a private company after one year of incorporation.
o Any contravention or default in complying with requirement of this section
shall be an offence liablei.
in case of a listed company, to a penalty of level 2 on the standard scale;
and
ii.
in case of any other company, to a penalty of level 1 on the standard scale.
Annual general meeting. Sec 132
o Every company, shall hold, an annual general meeting
i.
within 16 months from the date of its incorporation and
ii. thereafter once in every calendar year within a period of one hundred and
twenty days following the close of its financial year.
o in the case of
i.
a listed company, the Commission, and,
ii.
in any other case, the registrar,
may for any special reason extend the time further 30 days within which any
annual general meeting shall be held.
Notice of the Meeting
o The notice of an annual general meeting shall be sent at least 21 days before
the date fixed for the meeting to
i.
the Commission,
ii.
members and
iii. every person who is entitled to receive notice of general meetings.
o In the case of a listed company, such notice, shall also be published in
English and Urdu languages at least in one issue each of a daily newspaper
of respective language having nationwide circulation.
Place of meeting
o An annual general meeting of a listed company shall be held in the town in
which the registered office of the company is situate.
o Provided that list company many hold such meeting in any other place
after getting approval from commission through an application in writing.
Video Link Facility
o A listed company must provide the facility of video- link to members
residing in other city enabling them to participate in its annual general
meeting who
i. hold at least ten percent of the total paid up capital or such other
percentage as may be specified.
ii. make the demand at least seven days prior to the date of meeting.
o This section shall not apply to a single member company.
o Any contravention or default in complying with requirement of this section
shall be an offence liable(a) in case of a listed company, to a penalty of level 2 on the standard scale;
and
(b) in case of any other company, to a penalty of level 1 on the standard scale
Calling of extraordinary general meeting. Sec 133
o All general meetings of a company, other than
i. the annual general meeting and
ii. the statutory meeting,
shall be called extraordinary general meetings.
o Extraordinary general meeting may be called by the board or members.
Calling of extraordinary general meeting by board
o The board may at any time call an extraordinary general meeting of the
company to consider any matter which requires the approval of the
company in a general meeting.
Calling of extraordinary general meeting by Members
o The board shall immediately proceed to call an extraordinary general
meeting.
o The requisition made by the members(a) not less than one-tenth of the total voting power in case of a company
having share capital, and
(b) not less than one-tenth of the total members in case of a company not
having share capital
o The requisition shall
i. state the objects of the meeting,
ii. be signed by the requisitionists and
iii. deposited at the registered office of the company.
If the board does not proceed to call EGM
o The requisitionists, may call the meeting if the board does not proceed
within 21 days from the date of the requisition being so deposited to cause a
meeting to be called.
o Any such meeting so called shall be held within 90 days from the date of the
deposit of the requisition.
o Any meeting called by the requisitionists, shall be called in the same
manner, as nearly as possible, as that in which meetings are to be called by
board.
o Any reasonable expenses incurred by the requisitionists in calling a meeting
shall be reimbursed to the requisitionists by the company
o The sums so paid shall be deducted from any fee or other remuneration
payable to such of the directors who were in default in calling the meeting.
Notice of meeting Sec 134
o Notice of the meeting specifying the place and the day and hour of
the meeting along with a statement of the business to be transacted
at the meeting shall be given
i. to every member of the company;
ii. to every director;
iii. to any person who is entitled to a share in consequence of the death
or bankruptcy of a member,
iv. to the auditors of the company;
o In case of a listed company it shall be mentioned in the notice that
such members, may demand the company to provide them the
facility of video-link to for attending the meeting
Ordinary Business
o In the case of an annual general meeting, all the businesses to be
transacted shall be deemed special, other than
a) the consideration of financial statements and the reports of the
board and auditors;
b) the declaration of any dividend;
c) the election and appointment of directors in place of those retiring;
and
d) the appointment of the auditors and fixation of their remuneration.
o All Ordinary businesses are conducted by way of an Ordinary resolution
except the election of directors which is conducted as per requirement of
Sec 159.
Special Business
o Where any special business is to be transacted at a general meeting,
there shall be annexed to the notice of the meeting
a) a statement setting out all material facts concerning such business,
b) the nature and extent of the interest, if any, therein of every director,
whether directly or indirectly, and,
c) where any item of business consists of the according of an approval to
any document by the meeting, the time when and the place where the
document may be inspected, shall be specified in the statement.
o The members having not less than ten per cent voting power in the
company may also give notice of a resolution.
Service of notice on a member. Sec 55
o A document or information may be served on a member
i.
at his registered address or,
ii. if he has no registered address in Pakistan, at the address supplied by him
to the company for the giving of notices to him
iii. against an acknowledgement or by
a) post or
b) courier service or
c) through electronic means or
d) in any other manner as may be specified.
o Where a notice is sent by post, service of the notice shall be deemed to be
effected by
a) properly addressing,
b) prepaying and
c) posting a letter containing the notice and,
d) to have been effected at the time at which the letter will be delivered in the
ordinary course of post.
unless the contrary is proved.
Notice of Resolution Sec 140
o The notice of a general meeting of a company shall state the general nature
of each business proposed to be considered and dealt with at a meeting
o In case of special resolution, accompanied by the draft resolution
Notice of resolution by members
o The members having not less than 5% voting power in the company may
give notice of a resolution.
o Such resolution together with the supporting statement shall be sent to the
company at least 10 days before the date of meeting, and
o the company shall forthwith circulate such resolution to all the members.
Notice of resolution by members for EOGM
o in the case of a meeting requisitioned by the members, Such resolution shall
be sent to the company together with the requisition for the meeting;
Proxies Sec 137
o A member of a company entitled to attend and vote at a meeting of the
company may appoint another person as his proxy to exercise all or
any of his rights to attend, speak and vote at a meeting.
o unless the articles of a company otherwise provide, this section shall
not apply in the case of a company not having a share capital;
o a member shall not be entitled to appoint more than one proxy to
attend any one meeting;
o if any member appoints more than one proxy for any one meeting and
more than one instruments of proxy are deposited with the company,
all such instruments of proxy shall be rendered invalid; and
o a proxy must be a member unless the articles of the company permit
appointment of a non-member as proxy.
o every notice of a meeting of a company shall prominently set out the
member's right to appoint a proxy and the right of such proxy to
attend, speak and vote in the place of the member at the meeting and
every such notice shall be accompanied by a proxy form.
o The instrument appointing a proxy shall
(a) be in writing; and
(b) be signed by the appointer or his attorney duly authorised in writing
(c) if the appointer is a body corporate be signed by an officer or an attorney
duly authorised by it.
o The proxies must be lodged with the company not later than 48 hours before
the time for holding a meeting and any provision to the contrary in the
company's articles shall be void.
o The members or their proxies shall be entitled to do any or all the following
things in a general meeting, namely(a) demand a poll on any question; and
(b) on a question before the meeting in which poll is demanded, to abstain from
voting or not to exercise their full voting rights; and
(c) any provision to the contrary in the articles shall be void.
o Every member entitled to vote at a meeting of the company shall be entitled
to inspect during the business hours of the company all proxies lodged with
the company.
o The provisions of this section shall apply mutatis mutandis to the meeting of
a particular class of members as they apply to a general meeting of all the
members.
Quorum of general meeting. Sec 135
o The quorum of a general meeting in the case of a public listed company
shall be
i. not less than ten members
ii. present personally, or through video-link
iii. who represent not less than 25% of the total voting power
unless the articles provide for a larger number.
o The quorum of a general meeting in the case of other than listed company
having share capital, shall be
i. two members
ii. present personally, or through video-link
iii. who represent not less than 25% of the total voting power
unless the articles provide for a larger number.
o The quorum of a general meeting In the case of a company not having
share capital, as provided in the articles
Quorum of general meeting remains absent
o No business shall be transacted at any general meeting unless a quorum
of members is present at that time when the meeting proceeds to
business.
o If within half an hour from the time appointed for the meeting a quorum
is not present, the meeting,
i. if called upon the requisition of members, shall be dissolved;
ii. in any other case, it shall stand adjourned to the same day in the next
week at the same time and place.
o if at the adjourned meeting a quorum is not present within half an hour
from the time appointed for the meeting, the members present
(personally or through video-link being) not less than two shall be a
quorum, unless the articles provide otherwise.
o Any contravention or default in complying with requirement of this
section shall be an offence liable(a) in case of a listed company, to a penalty of level 2 on the standard scale;
and
(b) in case of any other company, to a penalty of level 1 on the standard scale.
o The chairman of the board shall preside as chairman at every general
meeting of the company.
o If
a) there is no such chairman, or
b) at any meeting he is not present within 15 minutes after the time
appointed for holding the meeting, or
c) is unwilling to act as chairman,
any one of the directors present may be elected to be chairman.
o if none of the directors is present or is unwilling to act as chairman the
members present shall choose one of their member to be the chairman.
Resolution
A resolution is a formal way in which a company can note decisions that are
made at a meeting of company members.
There are two types of resolutions: ordinary and special.
Ordinary resolution Sec 2(46)
means a resolution passed by a simple majority (for example more than 50%
of the vote) of members of the company entitled to vote.
Members may present in person or by proxy or exercise the option to vote
through postal ballot at a general meeting;
Special resolution Sec 2(66)
o Means a resolution which has been passed by a majority of not less than
three-fourths (at least 75% of the vote) of such members of the company
entitled to vote as are present in person or by proxy or vote through postal
ballot at a general meeting
o Notice specifying the intention to propose the resolution as a special
resolution shall be delivered to such members at least 21 days before hold
such meeting.
o a resolution may be proposed and passed as a special resolution at a
meeting of which less than 21 days notice was served if
a) In case of listed companies, commission so allows and
b) In case of other companies if all members so agree
Conduct of meeting Sec 134
o Members of a company may participate in the meeting personally, through videolink or by proxy.
o In the case of a company having a share capital, every member shall have votes
proportionate to the paid-up value of the shares held by him.
o Any member holding shares or other securities carrying voting rights shall not be
debarred from casting his vote, nor shall anything contained in the articles have
the effect of so debarring him.
o In the case of a company limited by guarantee and having no share capital, every
member thereof shall have one vote.
o On a poll, votes may be given either personally or through video-link or by proxy
or through postal ballot in a manner and subject to the conditions as may be
specified.
Postal ballot Sec 2 (47)
o means voting by post or through any electronic mode
o Voting through postal ballot shall be subject to the provision in the articles of
association of a company, save as otherwise provided in Companies Act 2017;
Secret ballot
a method of voting in which each person writes their choice on a piece of paper so
that no one else knows how they have voted
Voting to be by show of hands in first instance. Sec 141
o Unless a poll is demanded, at any general meeting a resolution put to the
vote of the meeting shall be decided on a show of hands.
Declaration by chairman on a show of hands. Sec 142
o On a vote on a resolution at a meeting on a show of hands, a declaration by
the chairman that the resolution
(a) has or has not been passed; or
(b) passed unanimously or by a particular majority;
is conclusive evidence of that fact without proof of the number or proportion of
the votes recorded in favour of or against the resolution.
o An entry in respect of such a declaration in minutes of the meeting is also
conclusive evidence of that fact without such proof.
Demand for poll. Sec 143
o Before or on the declaration of the result of the voting on any resolution on a
show of hands, a poll
a) may be ordered to be taken by the chairman of the meeting of his own
motion, and
b) shall be ordered to be taken by him on a demand made in that behalf by the
members having not less than one-tenth of the total voting power.
o Member may present in person or through video-link or by proxy, where
allowed.
o The demand for a poll may be withdrawn at any time by the members who
made the demand.
Poll through secret ballot. Sec 144
o when a poll is demanded on any resolution, it may be ordered to be taken by
a) the chairman of the meeting by secret ballot of his own motion, and
b) shall be ordered to be taken by him on a demand made in that behalf by the
members having not less than one-tenth of the total voting power.
Time of taking poll. Sec 145
o A poll demanded
a) on the election of a chairman or on a question of adjournment shall be taken
forthwith and
b) a poll demanded on any other question shall be taken at such time, not more
than 14 days from the day on which it is demanded, as the chairman of the
meeting may direct.
o When a poll is taken,
i. the chairman or
ii. his nominee and
iii. a representative of the members demanding the poll
shall scrutinize the votes given on the poll and the result shall be announced by
the chairman.
o The chairman shall have power to regulate the manner in which a poll shall be
taken.
o The result of the poll shall be deemed to be the decision of the meeting on the
resolution on which the poll was taken.
Passing of resolution by the members through circulation.
Sec 149
o The members of
a) a private company or
b) a public unlisted company
may pass a resolution by circulation signed by all the members for the time being
entitled to receive notice of a meeting.
o
Any resolution passed shall be as valid and effectual as if it had been passed
at a general meeting of the company duly convened and held.
o A resolution shall not be deemed to have been duly passed, unless the
resolution has been circulated, together with the necessary papers, if any, to
all the members.
o A members‘ agreement to a written resolution, passed by circulation, once
signified, may not be revoked.
o A resolution shall be noted at subsequent meeting of the members and made
part of the minutes of such meeting.
Resolutions passed at adjourned meeting. Sec 146
o Where a resolution is passed at an adjourned meeting of
(a) a company;
(b) the holders of any class of shares in a company;
(c) the board; or
(d) the creditors of a company;
the resolution shall, for all purposes, be treated as having been passed on
the date on which it was in fact passed, and shall not be deemed to have
been passed on any earlier date.
Power of the Court to declare the proceedings of a general
meeting invalid Sec 136
o The Court may, on petition by members by member holding at least 10%
voting power, declare proceedings of a general meeting or part thereof
invalid and direct holding of a fresh general meeting.
o Petition shall be made within 30 days of the impugned meeting.
o Petitioner shall prove to the court they were prevented from using
effectively their rights by reason of a material defect or omission in the
notice or irregularity in the proceedings of the meeting.
o the accidental omission to give notice to, or the non-receipt of notice by,
any member shall not invalidate the proceedings at any meeting Sec 134(a)
Power of Commission to call meetings Sec 147
o If default is made in holding the statutory meeting, annual general meeting
or any extraordinary general meeting the Commission may, call, or direct the
calling of, the said meeting of the company in such manner as the
Commission may think fit.
o Commission may give above directions either
1) of its own motion or
2) on the application of any director or
3) member of the company.
o Commission may give such ancillary or consequential directions as the
Commission thinks expedient in relation to the calling, holding and
conducting of the meeting and preparation of any document required with
respect to the meeting.
o The directions may include a direction that one member of the company
present in person or by proxy shall be deemed to constitute a meeting.
Punishment for default Sec 148
o If any person makes default in holding a meeting of the company in
accordance with section 147 or in complying with any directions of the
Commission, shall be liable to a penalty of level 3 on the standard scale.
Filing of resolution. Sec 150
o Every special resolution passed by a company shall, within 15 days from the
passing thereof, be filed with the registrar duly authenticated by a director or
secretary of the company.
o Where articles have been registered, a copy of every special resolution for the
time being in force shall be embodied in or annexed to every copy of the articles
issued after the date of the resolution.
o A copy of every special resolution shall be forwarded to any member at his
request on payment of such fee not exceeding the amount as the company may
determine.
o Any contravention or default in complying with requirement of this section
shall be an offence liable to a penalty of level 1 on the standard scale.
Records of resolutions and meetings. Sec 151
o Every company shall keep records of(a) copies of all resolutions of members passed otherwise than at general
meetings; and
(b) minutes of all proceedings of general meetings along with the names of
participants, to be entered in properly maintained books.
o Minutes recorded if purporting to be authenticated by the chairman of the
meeting or by the chairman of the next meeting, shall be the evidence of the
proceedings at the meeting.
o Until the contrary is proved, every general meeting of the company in respect
of the proceedings whereof minutes have been so made shall be deemed to
have been duly called, held and conducted.
o The records must be kept at the registered office of the company from the date
of the resolution, meeting or decision simultaneously in physical and electronic
form and it shall be preserved for at least 20 years in physical form and
permanently in electronic form.
o Any contravention or default in complying with requirement of this section
shall be an offence liable to a penalty of level 1 on the standard scale.
Inspection of records of resolutions and meetings. Sec 152
o The books containing the minutes of proceedings of the general meetings shall
be open to inspection by members without charge during business hours,
subject to such reasonable restrictions as the company may by its articles or in
general meeting impose so that not less than two hours in each day be allowed
for inspection.
o Any member shall at any time after seven days from the meeting be entitled to
be furnished, within seven days after he has made a request in that behalf to
the company, with a certified copy of the minutes of any general meeting at
such charge not exceeding the amount as may be fixed by the company
o If any inspection required is refused, or if any copy is not furnished within the
time specified therein, the person guilty of an offence shall be liable to a penalty
of level 1 on the standard scale, and the registrar may direct immediate
inspection or supply of copy, as the case may be.
Representation of body corporate or corporation at meetings. Sec 138
o A body corporate or corporation which is a member of another company may, by
resolution of its board or other governing body authorise an individual to act as
its representative at any meeting of that other company, and the individual so
authorised shall be entitled to exercise the same powers on behalf of the
corporation which he represents.
o A body corporate or corporation which is a creditor of another company may, by
resolution of its board or other governing body authorise an individual to act as
its representative at any meeting of the creditors of that other company held in
pursuance of this Act or any other meeting to which it is entitled to attend in
pursuance of the provisions contained in any instrument and the person so
authorised shall be entitled to exercise the same powers on behalf of the
corporation which he represents.
Representation of Federal Government at meetings of companies. Sec
139
Being a member of the company the Federal Government or Provincial Government
may appoint any person to act as its representative at:
i. any meeting of the company; or
ii. any meeting of any class of members of the company.
Such person shall be deemed to be a member of such company and he shall be
entitled to exercise the same rights and powers, including the right to appoint proxy,
which the Federal Government or the Provincial Government has as a member of the
company.
Company Meetings
Board Meetings
Meetings of
Debenture Holders
Meetings of the
Creditors
Statutory Meetings
Meetings of
Shareholder
Annual General
Meetings
Extra Ordinary
Meetings
Class Meetings
First Auditor
Appointment of
Auditor
Appointed by
Board of Directors
Within 90 days
from
Incorporation
Remunerations
Determine by BOD
Stands Retire on
Date of 1st
AGM/Statutory
meeting
Subsequent
Auditor
Proposed By BOD
or Shareholder of
10%
At every AGM
Remuneration
Determine in AGM
Hold office till
next AGM and can
be reappointed
First Auditor Not
Appointed within
90 days of Inco
Subsequent
Auditor not
Appointed at AGM
Casual Vacancy
not filled within 30
days
Appointed auditor
Unwilling to
perform
Commission shall
appoint and fix
remuneration
Appointment, removal and fee of auditors Sec 246
Appointment by Directors
o The first auditor or auditors of a company shall be appointed by the board
within 90 days of the date of incorporation of the company.
o The auditor or auditors so appointed shall retire on the conclusion of the first
annual general meeting.
Proposed by Director/Appointment by Members
o the subsequent auditor or auditors shall be appointed by the company in the
annual general meeting on the recommendation of the board after obtaining
consent of the proposed auditors, a notice shall be given to the members with
the notice of general meeting.
o The auditor or auditors so appointed shall retire on the conclusion of the next
annual general meeting.
Proposed/Appointment by Member
o A member or members, shall also be entitled to propose any auditor or
auditors for appointment,
i. having not less than ten percent shareholding of the company and
ii. a notice in this regard has been given to the company not less than seven days
before the date of the annual general meeting.
o The company shall forthwith send a copy of such notice to the retiring auditor
and shall also be posted on its website.
Appointment by SECP
o The Commission may, of its own motion or on an application made to it by the company
or any of its members direct to appoint director if the company, fails to appoint
(a) the first auditors within a period of 90 days of the date of incorporation of the company;
(b) the auditors at an annual general meeting; or
(c) an auditor in the office to fill up a casual vacancy within thirty days after the occurrence
of the vacancy; and
(d) if the appointed auditors are unwilling to act as auditors of the company;
o The auditors of the company shall hold office till conclusion of the next annual general
meeting.
Remuneration
o The remuneration of the auditors of a company shall be fixed
i.
by the company in the general meeting;
ii. by the board , if the auditors are appointed by the board or
iii. by the Commission, if the auditors are appointed by the Commission,
as the case may be.
Consent to act as Auditor
o Every company shall obtain consent to act as auditor from the auditor within fourteen
days from the date of any appointment of an auditor and send to the registrar
intimation thereof, together with the consent in writing of the auditor concerned.
Removal of Auditor
o The auditor or auditors appointed by the board or the members in an annual general
meeting may be removed through a special resolution.
o Any casual vacancy of an auditor shall be filled by the board within thirty days from
the date thereof.
o Any auditor appointed to fill in any casual vacancy shall hold office until the
conclusion of the next annual general meeting.
o where the auditors are removed during their tenure, the board shall appoint the
auditors with prior approval of the Commission.
Representation of Retiring Auditor
o Where an auditor, other than the retiring auditor is proposed to be appointed, the
retiring auditor shall have a right to make a representation in writing to the company
at least two days before the date of general meeting.
o Such representation shall be read out at the meeting before taking up the agenda for
appointment of the auditor.
o where such representation is made, it shall be mandatory for the auditor or a person
authorized by him in writing to attend the general meeting in person.
The following persons shall not be appointed as auditor of a company, namely Sec 247
i. a person who is, or at any time during the preceding three years was, a director, other officer or
employee of the company;
ii.
a person who is a partner of , or in the employment of, a director, officer or employee of the company;
iii. the spouse of a director of the company;
iv. a person who is indebted to the company other than in the ordinary course of business of such
entities;
v.
a person who has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company other than in the ordinary course of business of such entities;
vi. a person or a firm who, whether directly or indirectly, has business relationship with the company
other than in the ordinary course of business of such entities;
vii. a person who has been convicted by a court of an offence involving fraud and a period of ten years has
not elapsed from the date of such conviction;
viii. a body corporate;
ix. a person who is not eligible to act as auditor under the code of ethics as adopted by the ICAP and
ICMAP; and
x.
a person or his spouse or minor children, or in case of a firm, all partners of such firm who hold any
shares of an audit client or any of its associated companies.
o If such a person holds shares prior to his appointment as auditor, whether as an individual or a partner in a
firm the fact shall be disclosed on his appointment as auditor and such person shall disinvest such shares
within ninety days of such appointment.
o a person who owes
i.
a sum of money not exceeding one million rupees to a credit card issuer; or
ii. a sum to a utility company in the form of unpaid dues for a period not exceeding ninety days;
shall not be deemed to be indebted to the company.
o A person shall also not be qualified for appointment as auditor of a company if he is disqualified for
appointment as auditor of any other company which is that company‘s subsidiary or holding company or a
subsidiary of that holding company.
o If, after his appointment, an auditor becomes subject to any of the disqualifications specified in this section, he
shall be deemed to have vacated his office as auditor with effect from the date on which he becomes so
disqualified.
o A person who, not being qualified to be an auditor of a company, or being or having become subject to any
disqualification to act as such, acts as auditor of a company shall be liable to a penalty of level 2 on the
standard scale.
o The appointment as auditor of a company of an unqualified person, or of a person who is subject to any
disqualifications to act as such, shall be void, and, where such an appointment is made by a company, the
Commission may appoint a qualified person in place of the auditor appointed by the company.
A person shall not be qualified for appointment as an auditor
o in the case of
i. a public company or
ii. a private company which is subsidiary of a public company or
iii. a private company having paid up capital of more than 10 million unless such person
is a chartered accountant having valid certificate of practice from the Institute of
Chartered Accountants of Pakistan or a firm of chartered accountants; and
o in the case of a company other than specified unless such person, is a chartered
accountant or cost and management accountant having valid certificate of practice
from the respective institute or a firm of chartered accountants or cost and
management accountants, having such criteria as may be specified.
o A firm whereof majority of practicing partners are qualified for appointment shall be
appointed by its firm name to be auditors of the company.
Signature of auditor’s report. Sec 251
o The auditor‘s report must state
a) the name of the auditor, engagement partner,
b) be signed,
c) dated and
d) indicate the place at which it is signed.
o Where the auditor is an individual, the report must be signed by him.
o Where the auditor is a firm, the report must be signed by the partnership firm with
the name of the engagement partner.
Audit of cost accounts Sec 250
A company or class of companies which is required under section 220 to
include in its books of account the particulars referred to therein, the
Commission may direct that an audit of cost accounts of the company shall
be conducted in such manner and with such stipulations as may be specified
in the order.
Such order shall be conducted by an auditor who is
a) a Chartered Accountant, or
b) a cost and management accountant and
such auditor shall have the same powers, duties and liabilities as an auditor
of a company and such other powers, duties and liabilities as may be
specified.
Auditors’ right to information. Sec 248
o An auditor of a company has a right
a) of access at all times to the company‘s books, accounts and vouchers (in
whatever form they are held); and
b) of access to such copies of, an extracts from, the books and accounts of the
branch as have been transmitted to the principal office of the company;
c)
to require any of the following persons to provide him with such information or
explanations as he thinks necessary for the performance of his duties as auditor
(i) any director, officer or employee of the company;
(ii) any person holding or accountable for any of the company‘s books, accounts or
vouchers;
(iii) any subsidiary undertaking of the company; and
(iv) any officer, employee or auditor of any such subsidiary undertaking of the
company or any person holding or accountable for any books, accounts or
vouchers of any such subsidiary undertaking of the company.
o If any officer of a company refuses or fails, without lawful justification, the
responsibility whereof shall lie on him, to allow any auditor access to any books
and papers in his custody or power, or to give any such information possessed by
him as and when required, or otherwise hinders, obstructs or delays an auditor
in the performance of his duties or the exercise of his powers or fails to give
notice of any general meeting to the auditor or provides false or incorrect
information, he shall be liable to a penalty of level 3 on the standard scale.
Dividend
A dividend is a payment made by a company to its shareholders, usually as a
distribution of profits. When a Company earns a profit or surplus, the Company is
able to re-invest the profit in the business (called retained earnings) and pay a
proportion of the profit as a dividend to shareholders
Final dividend
The amount of final dividend is proposed by directors and approved by members in
annual general meeting of the company. The directors propose this amount along
with the approval of annual financial statements. The members may reduce, accept
or reject the dividend as proposed by the director. However, they cannot resolve to
increase the amount as proposed by directors.
Final dividend is paid within thirty days of the date of annual general meeting for
all companies
Interim dividend
The directors of the company may propose and pay interim dividend before end of
the year. This dividend is usually announced with interim results (quarterly or half
yearly accounts) of the company in addition to the final dividend.
The interim dividend must be paid within 30 days of commencement of book
closure for this purpose or if share transfer books were not closed for this purpose
such dividend shall be paid within 30 days of date of directors meeting.
Restrictions on declaration of dividend. Sec 240
o The company in general meeting may declare dividends; but no dividend shall
exceed the amount recommended by the board.
o No dividend shall be declared or paid by a company for any financial year out of
the profits of the company made from
i. the sale or disposal of any immovable property or
ii. assets of a capital nature comprised in the undertaking or any of the undertaking
of the company,
unless the business of the company consists, whether wholly or partly, of selling and
purchasing any such property or assets.
o No dividend shall be declared or paid out of unrealized gain on investment
property credited to profit and loss account.
Dividend to be paid only out of profits. Sec 241
o Any dividend may be paid by a company either in cash or in kind only out of its
profits.
o The payment of dividend in kind shall only be in the form of shares of listed
company held by the distributing company.
Dividend not to be paid except to registered shareholders. Sec 242
o Any dividend declared by a company must be paid to its registered shareholders or
to their order within such period and in such manner as may be specified.
o Any dividend payable in cash may be paid by cheque or warrant or in any electronic
mode to the shareholders entitled to the payment of the dividend, as per their
direction.
o In case of a listed company, any dividend payable in cash shall only be paid through
electronic mode directly into the bank account designated by the entitled
shareholders
Directors not to withhold declared dividend. Sec 243
o When a dividend has been declared, it shall not be lawful for the directors of
the company to withhold or defer its payment and the chief executive of the
company shall be responsible to make the payment in the manner provided.
o Where a dividend has been declared by a company but is not paid within the
period specified, the chief executive of the company shall be punishable with
imprisonment for a term which may extend to two years and with fine which
may extend to five million rupees.
o Chief executive shall from the day of the conviction cease to hold the office of
chief executive of the company and shall not, for a period of five years from
that day, be eligible to be the chief executive or a director of that company or
any other company.
Company can withhold payment of dividend
i. where the dividend could not be paid by reason of the operation of any law;
ii. where a shareholder has given directions to the company regarding the
payment of the dividend and those directions cannot be complied with;
iii. where there is a dispute regarding the right to receive the dividend;
iv. where the dividend has been lawfully adjusted by the company against any sum
due to it from the shareholder; or
v. where, for any other reason, the failure to pay the dividend or to post the
warrant within the period aforesaid was not due to any default on the part of
the company; and
vi. the Commission has permitted the company to withhold or defer payment as
may be ordered by the Commission.
vii. a company may withhold the payment of dividend of a member where the
member has not provided the complete information or documents as specified
by the Commission.
Commission can permit the company to withhold or defer payment of dividend
i.
on an application of the company
ii. on the specified form
iii. made within fifteen working days from the date of declaration of the dividend,
and
iv. after providing an opportunity to the shareholder or person who may seem to
be entitled to receive the dividend of making representation against the
proposed action
Unpaid Dividend Sec 244
o
In case of Unclaimed or Unpaid dividends, the company shall be transfer the total
amount of dividend which remains unpaid or unclaimed to a separate profit
bearing account to be called the unpaid dividend account.
o Such account must be opened by the company for this purpose in any scheduled
bank.
o The company shall, within a period of ninety days of making any deposit of the
amount to the unpaid dividend account prepare a statement and place it on the
website of the company.
o Such statement will contain
a) the names,
b) the last known addresses,
c) number of shares held,
d) the amount of unpaid dividend to be paid to each shareholder and
e) such other particulars as may be specified
o Any person claiming to be entitled to any money transferred to the unpaid
dividend account of the company may apply to the company for payment of the
money claimed.
o The company shall make payment to the bonafide applicant within a period of
thirty days from the date of submission of claim with the company.
o The amount of profit generated from the account maintained by the company shall
be used by the company for its corporate social responsibility initiatives and
specified purposes.
o Where there is any dispute, embargo or restriction on payment of unclaimed
dividend or where an adjudication is pending before the competent authority or
court, the company shall process the claim after settlement of dispute, removal of
embargo or restriction.
o The company shall make appropriate disclosures in its financial statements and in
respect of unpaid dividend account providing therein details of amounts
transferred into such account, claims received and settled, profits generated from
such account and utilization of such profits during a financial year and such other
information as may be specified.
o If a company fails to comply with any of the requirements, the company and every
officer of the company shall be liable to a penalty of level 3 on the standard scale
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Officer Sec 2(45) includes any director, chief executive, chief financial
officer or a company secretary
A company director
is appointed to a company to manage the day-to-day business activities and
finances and to ensure all statutory filing obligations are met.
Directors must act lawfully and honestly and make decisions for the benefit of
the company and its members. Directors are both, trustee and agent of the
company.
Company Law Defines Director Sec 2(25)
Director includes any person occupying the position of a director, by whatever
name called.
Types of Company’s Director
Whole time directors
They are the full-time employee of the company. They look after all the
aspect of the company.
Whole time Director means a director employed to devote the whole of
his time and attention in the carrying on of the affairs of the Company.
Executive Director
The executive director is appointed by the board of directors and works
with the board to develop the strategic plan for the organization. As
leaders, executive directors must create the culture of their organizations.
They are the foundation of motivating employees and volunteers, oversee
the entire budget and marketing efforts, and encourage a positive
company culture.
A non-executive director
means, a person on the board of the company whoa) is not from among the executive management team and may or may not be
independent;
b) is expected to lend an outside viewpoint to the board of a company;
c) does not undertake to devote his whole working time to the company and
not involve in managing the affairs of the company;
d) is not a beneficial owner of the company or any of its associated companies
or undertakings;
e) does not draw any remuneration from the company except the meeting fee.
Independent director
An independent director means a director who is not connected or does not
have any other relationship, whether financial or otherwise, with
o the company,
o its associated companies,
o subsidiaries,
o holding company or
o directors; and
he can be reasonably perceived as being able to exercise independent business
judgment without being subservient to any form of conflict of interest.
Protection to independent and non-executive directors Sec 181
(a) an independent director; and
(b) a non-executive director;
shall be held liable, only in respect of such acts of omission or commission by
a listed company or a public sector company which had occurred with his
knowledge, attributable through board processes, and with his consent or
connivance or where he had not acted diligently.
Minimum number of directors of a company.- Sec 154
(a) a single member company shall have at least one director;
(b) every other private company shall have not less than two directors;
(c) a public company shall have not less than three directors; and
(d) a listed company shall have not less than seven directors.
o Only a natural person shall be a director.
Number of directorships. Sec 155
o A person shall not hold office as a director at the same time in more
than such number of companies as may be specified after the
commencement of this Act.
o Limit shall not include the directorships in a listed subsidiary.
o A person holding the position of director in more than seven (07)
companies on the commencement of this Act shall ensure the
compliance of this section within one year of such commencement.
Eligibility for Directorship and Election of Directors
First directors and their term. Sec 156
o The number of directors and the names of the first directors shall be
determined by the subscribers of the memorandum and shall be submitted
along with the documents for the incorporation of the company.
o The number of first directors may be increased by appointing additional
directors by the members in a general meeting.
o
The first directors shall hold office until the election of directors in the
first annual general meeting of the company.
Ineligibility of certain persons to become director.- Sec 153
A person shall not be eligible for appointment as a director of a company, if he
a) is a minor;
b) is of unsound mind;
c) has applied to be adjudicated as an insolvent and his application is pending;
d) is an undischarged insolvent;
e) has been convicted by a court of law for an offence involving moral turpitude;
f) has been debarred from holding such office under any provision of Companies Act 2017;
g) is lacking fiduciary behavior and a declaration to this effect has been made by the Court
under section 212 at any time during the preceding five years;
h) does not hold National Tax Number as per the provisions of Income Tax Ordinance, 2001
(XLIX of 2001): ( Provided that the Commission may grant exemption from the
requirement of this clause as may be notified).
i) is not a member
j) has been declared by a court of competent jurisdiction as defaulter in repayment of loan
to a financial institution;
k) is engaged in the business of brokerage pertaining to securities market as defined in the
Securities Act, 2015 (III of 101 2015) or futures market as defined in Futures Market Act,
2016 (XIV of 2016), or is a spouse of such person or is a sponsor, director or officer of
such brokerage house. (j) and (k) shall be applicable only in case of listed companies
clause (h) shall not be applicable on a foreign national who is not required to hold National
Tax Number under the provisions of the Income Tax Ordinance, 2001 (XLIX of 2001).
Ineligibility of bankrupt to act as director Sec 177
If any person being an undischarged insolvent acts as chief executive or
director of a company, he shall be liable to imprisonment for a term not
exceeding two years or to a fine not exceeding one hundred thousand rupees, or
to both.
Non member can be appointed as director
o Under following circumstances a Non member can be appointed as director
of the company, where
(i) a person representing a member which is not a natural person;
(ii) a whole-time director who is an employee of the company;
(iii) a chief executive; or
(iv) a person representing a creditor or other special interests by virtue of
contractual arrangements;
Penalty for unqualified person acting as director Sec 175
If a person who is not qualified to be a director or chief executive or who has
otherwise vacated the office of director or chief executive describes or
represents himself or acts as a director or chief executive, or allows or causes
himself to be described as such, shall be liable to a penalty of level 1 on the
standard scale
Requirements to conduct election for subsequent Directors
o The directors so continuing to perform their functions shall take immediate
steps to hold the election of directors.
o in case of any impediment report such circumstances to the registrar within
45days before the due date of the meeting in which elections are to be held.
o the holding of general meeting shall not be delayed for more than 90 days from
the due date of the meeting or such extended time as may be allowed by the
registrar, for reasons to be recorded, only in case of exceptional circumstances
beyond the control of the directors, or in compliance of any order of the court.
o The registrar, may on expiry of such period, either(a) on its own motion; or
(b) on the representation of the members holding not less than one tenth of the
total voting powers in a company having share capital; or
(c) on the representation of the members holding not less than one tenth of the
total members of the company not having share capital of the company,
directs the company to hold annual general meeting or extra ordinary general
meeting for the election of directors on such date and time as may be specified in
the order.
Procedure for election of directors
Procedure for election of directors. Sec 159
Before Election
o The existing directors of a company shall fix the number of directors to be
elected in the general meeting, not later than 35 days before convening of
such meeting.
o The number of directors so fixed shall not be changed except with the prior
approval of the general meeting in which election is to be held.
o The notice of the meeting at which directors are proposed to be elected shall
among other matters, expressly state
(a) the number of directors fixed; and
(b) the names of the retiring directors.
o Any member, whether he is a retiring director or otherwise, who seeks to
contest an election to the office of director shall file with the company a
notice of his intention to offer himself for election as a director not later than
fourteen (14) days before the date of the meeting at which elections are to be
held
o Any such person may, at any time before the holding of election, withdraw
such notice.
o All notices received by the company in shall be transmitted to the members
not later than 7 days before the date of the meeting.
o In the case of a listed company such notice shall be published in English and
Urdu languages at least in one issue each of a daily newspaper of respective
language having wide circulation
Conduct of Election
Directors of Company having share capital Sec 159
o If the number of persons who offer themselves to be elected is equal the
number of directors fixed then all such persons shall be stand so elected in
general meeting
o If the number of persons who offer themselves to be elected is more than the
number of directors fixed shall be elected by the members of the company in
general meeting in the following manner, namelya)
a member shall have such number of votes as is equal to the product of the
number of voting shares or securities held by him and the number of
directors to be elected;
b)
a member may give all his votes to a single candidate or divide them
between more than one of the candidates in such manner as he may choose;
and
c)
the candidate who gets the highest number of votes shall be declared
elected as director and then the candidate who gets the next highest number
of votes shall be so declared and so on until the total number of directors to
be elected has been so elected.
Directors of Company Limited by guarantee and not having
share capital
o The directors of a company limited by guarantee and not having share
capital shall be elected by members of the company in general meeting in
the manner as provided in articles of association of the company.
Consent to act as director to be filed with company– Sec 167
o A person shall not be appointed or nominated as a director or chief
executive of a company or represent as holding such office unless such
person has given his consent under form-28 in writing to the company for
such appointment or nomination.
o The consent given to the company under sub-section (1) shall be annexed to
the relevant form reporting the appointment of director or the chief
executive, as the case may be.
Power of Court Re-election of Directors and
Prohibition for certain acts
Powers of the Court to declare election of directors invalid.Sec 160
o The Court may
a) on the application of members Holding at least 10% of the voting power in the
company, and
b) Made within 30 days of the date of election
declare election of all directors or any one or more of them invalid.
The Court may declare such election as invalid if it is satisfied that there has been
material irregularity in the holding of the elections and matters incidental or
relating thereto.
Fresh election of directors in case of unlisted companies.- Sec 162
o After the election of directors if a member acquire the requisite shareholding to get
him elected as a director on the board of a company then such member may require
the company to hold fresh election of directors in accordance with the procedure laid
down in section 159 Provided that the number of directors fixed in the preceding
election shall not be decreased.
o The board shall upon receipt of requisition within 30 days proceed to hold fresh
election of directors of the company.
Terms of office of Director, Assignment of
office, Vacation and removal of office
Retirement of first and subsequent directors. Sec 158
o All directors of the company
(a) on the date of first annual general meeting; or
(b) in case of subsequent directors on expiry of term of office of directors ( 3
years),
shall stand retired from office
o The directors so retiring shall continue to perform their functions until their
successors are elected.
o The directors so continuing to perform their functions shall take immediate
steps to hold the election of directors and in case of any obstacle report such
circumstances to the registrar within 45 days before the due date of the annual
general meeting or extra ordinary general meeting, as the case may be, in
which elections are to be held.
Term of office of directors.- Sec 161
o A director elected shall hold office for a period of three years unless
a) he earlier resigns,
b) vacates office due to fresh election required
c) becomes disqualified from being a director or
d) otherwise ceases to hold office
o The term of office of directors of a company limited by guarantee and not
having share capital may be a period of less than three years as provided in the
articles of association of a company.
o Any casual vacancy occurring among the directors may be filled up by the
directors and the person so appointed shall hold office for the remainder of the
term of the director in whose place he is appointed.
o Any casual vacancy on the board of a listed company shall be filled up by the
directors at the earliest but not later than ninety days from the date, the
vacancy occurred.
Prohibition on assignment of office by directors. Sec 174
A director of any company shall not assign his office to any other person and
any such appointment shall be void ab-initio.
o the appointment by a director, with the approval of the board, of an alternate
or substitute director to act for him during his absence from Pakistan of not
less than ninety days, shall not be deemed to be an assignment of office.
o The alternate director appointed shall ipso facto vacate office if and when the
director appointing him returns to Pakistan.
o
Restriction on director's remuneration. Sec 170
o The remuneration of a director for performing extra services, including the
holding of the office of chairman, shall be determined by the board or the
company in general meeting, as the case may be, in accordance with the
provisions in the company's articles.
o The remuneration to be paid to any director for attending the meetings of the
board or a committee of directors shall not exceed the scale approved by the
company or the board, as the case may be, in accordance with the provisions of
the articles:
Vacation of office by the directors. Sec 171
o A director shall ipso facto cease to hold office if
a) he becomes ineligible to be appointed as a director on any one or more of
the grounds enumerated in section 153;
b) he absents himself from 03 consecutive meetings of the board without
seeking leave of absence;
c) he or any firm of which he is a partner or any private company of which he
is a director(i) without the sanction of the company in general meeting accepts or holds
any office of profit under the company other than that of chief executive
or a legal or technical adviser; or
(ii) accepts a loan or guarantee from the company in contravention of section
182;
Validity of acts of directors. Sec 168
o The acts of a person acting as a director are valid even if it is afterwards
discovered that
a) there was a defect in his appointment; or
b) he was disqualified from holding office; or
c) he had ceased to hold such office
Provided that, as soon as any such defect has come to notice, the director shall
not exercise the right of his office till the defect has been removed.
Removal of directors Sec 163
o A company may by resolution in general meeting remove a director appointed
or elected under Companies Act 2017.
o A resolution for removing a director shall not be deemed to have been passed
if the number of votes cast against it is equal to, or exceeds
a) the total number of votes for the time being computed in the manner laid
down in Sec 159(5) divided by the number of directors for the time being, if
the resolution relates to removal of a director appointed or where the
directors were elected unopposed; or
b) the minimum number of votes that were cast for the election of a director at
the immediately preceding election of directors, if the resolution relates to
removal of a director elected in the manner provided in Sec159(5).
Proceedings of BOD, Record, Loan
and Register of Directors
Proceedings of the board.- Sec 176
o The quorum for a meeting of board of a listed company shall not be less than
a) one-third of number of directors or
b) four,
whichever is greater.
the participation of the directors by video conferencing or by other audio visual
means shall also be counted for the purposes of quorum
o If at any time, there are not enough directors to form a quorum to fill a casual
vacancy, all the remaining directors shall be deemed to constitute a quorum
for this limited purpose.
o The quorum for a meeting of the board of other than listed company shall be
as provided in the articles.
o The board of a public company shall meet at least once in each quarter of a year.
o If a meeting of the board is conducted in the absence of a quorum or a meeting of board is
not held as required the chairman of the directors and the directors shall be liable(a) if the default relates to a listed company, to a penalty of level 2 on the standard scale; and
(b) if the default relates to any other company, to a penalty of level 1 on the standard scale.
Passing of resolution by the directors through circulation Sec 179
o A resolution in writing approved by all the directors or the committee of directors for the
time being entitled to receive notice of a meeting of the directors or committee of directors
shall be as valid and effectual as if it had been passed at a meeting of the directors or the
committee of directors duly convened and held.
o A resolution shall not be deemed to have been duly passed, unless the resolution has been
circulated, together with the necessary papers, if any, to all the directors.
o A resolution shall be noted at a subsequent meeting of the board or the committee thereof,
as the case may be, and made part of the minutes of such meeting.
o A directors‘ agreement to a written resolution, passed by circulation, once approved, may
not be revoked.
Records of resolutions and meetings of board Sec 178
o Every company shall keep records comprising
a) all resolutions of the board passed by circulation; and
b) minutes of all proceedings of board meetings or committee of directors along with the
names of participants, to be entered in properly maintained books.
o Minutes recorded to be authenticated by the chairman of the meeting or by the
chairman of the next meeting, shall be the evidence of the proceedings at the meeting.
o
o Until the contrary is proved, every meeting of board or committee of directors in
respect of the proceedings whereof minutes have been so made shall be deemed to have
been duly called, held and conducted.
o A copy of the draft minutes of meeting of board shall be furnished to every director
within 14 working days of the date of meeting.
o The records must be kept at the registered office of the company from the date of the
resolution, meeting or decision simultaneously in physical and electronic form and it
shall be preserved for at least 10 years in physical form and permanently in electronic
form.
o Any contravention or default in complying with requirement of this section shall be an
offence liable to a penalty of level 1 on the standard scale.
Loans to directors: requirement of members’ approval.- Sec 182
o A company shall not
(a) make a loan to a director of the company or of its holding company; or to any of his
relatives;
(b) give a guarantee or provide security in connection with a loan made by any person
to such a director; or to any of his relatives;
o this section shall apply to the loan provided to the chief executive or the whole time
director subject to the condition that the loan is granted under a scheme approved
by the members of the company
o In case of a listed company, approval of the Commission shall also be required
before sanctioning of any such loan.
o For the purpose of this section ―relative in relation to a director means his spouse
and minor children.
o This Section shall not apply to a company which in the ordinary course of its
business provides loans or gives guarantees or securities for the due repayment of
any loan.
o Every person who is a party to any violation of this section, including in particular any
person to whom the loan is made or who has taken the loan in respect of which the
guarantee is given or the security is provided, shall be punishable with fine which may
extend to one million rupees or with simple imprisonment for a term which may extend
to one year.
o All persons who are parties to any violation shall be liable, jointly and severally, to the
lending company for the repayment of the loan or for making good the sum with
markup not less than the borrowing cost of the lending company which the lending
company may have been called upon to pay by virtue of the guarantee given or the
security provided by such company.
Prohibition regarding making of political contributions.- Sec 184
o A company shall not contribute any amount or allow utilization of its assets
(a) to any political party; or
(b) for any political purpose to any individual or body.
o If a company contravenes the provisions of sub-section (1), then(a) the company shall be liable to a penalty of level 2 on the standard scale; and
(b) every director and officer of the company who is in default shall be punishable with
imprisonment of either description for a term which may extend to two years and shall
also be liable to a fine of one million rupees.
Prohibition regarding distribution of gifts. Sec 185
o A company shall not distribute gifts in any form to its members in its meeting.
o Any contravention or default in complying with requirement of this section shall be
an offence liable to a penalty of level 1 on the standard scale.
Contracts and Arrangements
with Directors
Contract of employment with directors Sec 210
o Every company shall keep at its registered office
a) where a contract of service with a director is in writing, a copy of the contract;
b) where such a contract is not in writing, a written memorandum setting out its
terms.
o The copies of the contract or the memorandum shall be open to inspection by
any member of the company without payment of fee.
o Any contravention or default in complying with requirement under this section
shall be an offence liable to a penalty of level 1 on the standard scale.
o The provisions of this section shall not apply to a private company.
Register of directors, officers Sec 197
o Every company shall keep at its registered office a register of its directors and
officers, including the chief executive, company secretary, chief financial officer,
auditors and legal adviser, containing with respect to each of them such particulars
as may be specified.
o Every person referred above shall, within a period of ten days of his appointment or
any change therein furnish to the company the particulars specified.
o Every company shall, within a period of fifteen days from the date of appointment
of any person referred above or any change among them, or in any of their
particulars, file with the registrar a return in the specified form and this sub-section
shall not apply to the first appointment made at the time of incorporation of the
company.
o If the name of any person is fraudulently or without sufficient cause entered in or
omitted from the register of directors of a company the person aggrieved or the
company, may apply to the Court for rectification of the register of directors.
o The Court may either refuse the application or may order rectification of the
register on such terms and conditions as it may deem fit and may make order as
to costs.
o Where the Court has passed an order under sub-section that prima facie entry in
or omission from, the register of directors the name or other particulars of any
person, was made fraudulently or without sufficient cause, the Court may send a
reference for adjudication of offence under sub-section (8) to the court as
provided in section 482.
o Anyone who fraudulently or without sufficient cause enters in, or omits from the
register of directors the name or other particulars of any person, shall be
punishable with imprisonment for a term which may extend to three years or
with fine which may extend to one million rupees, or with both. When it makes
an order for rectification of the register of directors in respect of a company, the
Court shall cause a copy of the order to be forwarded to the company and shall,
by its order, direct the company to file notice of the rectification with the registrar
within fifteen days from the receipt of the order
Rights to inspect Sec 198
o The register kept under section 197 shall, be open to the inspection of any member of the
company and of any other person during business hours, subject to such reasonable
restrictions, as the company may impose by its articles or in general meeting, so that not
less than two hours in each day are allowed.
o Inspection by any member of the company shall be without charge, and in the case of any
other person on payment of such fee as may be fixed by the company for each inspection.
o A person seeking to exercise the rights conferred by this section must make a request to
the company to that effect.
o The request must contain the following information
(a) in the case of an individual, his name and address;
(b) in the case of an organization, its name and address and also of the authorized person;
and
(c) the purpose for which the information is to be used.
o In the case any inspection is refused, the registrar on application made by the person to
whom inspection has been refused and upon notice to the company, may by order direct
an immediate inspection of the register.
o Any contravention or default in complying with requirements of this section shall be an
offence shall be liable to a penalty of level 1 on the standard scale.
Disclosure of interest by director Sec 205
o Every director of a company who is ,whether directly or indirectly, concerned or
interested in any contract or arrangement entered into, or to be entered into, by or
on behalf of the company shall disclose the nature of his concern or interest at a
meeting of the board..
o A director shall be deemed also to be interested or concerned if any of his relatives, is
so interested or concerned.
o Director’s relatives are
(a) the director‘s spouse;
(b) the director‘s children, including the step children; and
(c) the director‘s parents;
 The disclosure required to be made by a director shall be made
o in the case of a contract or arrangement to be entered into, at the meeting of the
board at which the question of entering into the contract or arrangement is first taken
into consideration or,
o if the director was not, on the date of that meeting, concerned or interested in the
contract or arrangement, at the first meeting of the board held after he becomes so
concerned or interested
o in the case of any other contract or arrangement, at the first meeting of the board held
after the director becomes concerned or interested in the contract or arrangement.
o A general notice given to the board to the effect that a director is a director or a member
of a specified body corporate or a partner of a specified firm and is to be regarded as
concerned or interested in any contract or arrangement which may, after the date of the
notice, be entered into with that body corporate or firm, shall be deemed to be a
sufficient disclosure of concern or interest in relation to any contract or arrangement so
made.
o Any such general notice shall expire at the end of the financial year in which it is given,
but may be renewed for further period of one financial year at a time, by a fresh notice
given in the last month of the financial year in which it would otherwise expire.
o No such general notice, and no renewal thereof, shall be of effect unless either it is given
at a meeting of the board, or the director concerned takes reasonable steps to ensure that
it is brought up and read at the first meeting of the board after it is given.
o Any contravention or default in complying with requirements of sub-sections (1) or (2),
shall be an offence liable to a penalty of level 1 on the standard scale.
Related party transactions Sec 208
o A company may enter into any contract or arrangement with a related party only in
accordance with the policy approved by the board.
o Every contract or arrangement entered into shall be referred to in the board‘s
report to the shareholders along with the justification for entering into such
contract or arrangement.
o Contracts or arrangement entered by director or employee without board’s consent
or special resolution in general meeting shall be ratified in ninety days.
o if not ratified then such contract or arrangement is voidable at the option of the
Board.
o In case of such transaction is with a related party to director or is authorized by the
other director, the concerned directors shall indemnify the company against the
loss incurred by it.
o Company can proceed for recovery of losses from director or employee who has
entered into such contract or arrangement
Transaction may be any of following
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services or
property; and
(f) such related party's appointment to any office or place of profit in the company, its
subsidiary company or associated company
o This section shall apply to any transactions entered into by the company in its
ordinary course of business on an arm‘s length basis.
o Arm’s length transactions means a transaction between two related parties that is
conducted as if they are unrelated
o Any director or any other employee of a company, who had entered into or
authorized the contract or arrangement in violation of the provisions of this section
shall be liable
(a) in case of listed company, be punishable with imprisonment for a term which may
extend to three years or with fine which shall not be less than five million rupees,
or with both; and
(b) in case of any other company, to a penalty of level 2 on the standard scale.
Related party includes
(i) a director or his relative
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds
alongwith his relatives, any shares of its paid up share capital;
(vi) any body corporate whose chief executive or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or
manager;
(vii)any person on whose advice, directions or instructions a director or manager
is accustomed to act
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity;
(viii) any company which is
(A) a holding, subsidiary or an associated company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(xi) such other person as may be specified;
For the purpose of this section “relative” means spouse, siblings and lineal
ascendants and descendants of a person.
Interested director not to participate or vote in proceedings of board
Sec 207
A director of a company who is concerned or interested in the contract or arrangement shall
not take any part in the discussion of, or vote on, any such contract or arrangement entered
into, or to be entered into.
His presence shall not count for the purpose of forming a quorum at the time of any such
discussion or vote; and if he does vote, his vote shall be void.
A director of a listed company who has a material personal interest in a matter that is being
considered at a board meeting shall not be present while that matter is being considered.
If majority of the directors are interested in, any contract or arrangement entered into, or to
be entered into, by or on behalf of the company, the matter shall be laid before the general
meeting for approval.
This sec shall not apply to
(a) a private company which is neither a subsidiary nor a holding company of a public
company;
(b) any contract of indemnity or insurance coverage executed by the company in favour of
interested director against any loss which he may suffer or incur by reason of becoming
or being a surety for the company or while undertaking any transaction on behalf of the
company:
Register of contracts or arrangements in which directors are
interested Sec 209
o Every company shall keep one or more registers giving separately the particulars of all
contracts or arrangements, in such manner and containing such particulars as may be
specified by the Commission.
o Every director shall within 30 days of his appointment or resignation of his office
disclose to the company the particulars relating to his concern or interest in the other
associations which are required to be included in the register.
o The register shall be kept at the registered office of the company and it shall be open for
inspection at such office during business hours and extracts may be taken therefrom,
and copies thereof as may be required by any member of the company shall be
furnished by the company to such extent, in such manner, and on payment of such fees
as may be specified.
o The register shall also be produced at the commencement of every annual general
meeting of the company and shall remain open and accessible during the continuance
of the meeting to any person having the right to attend the meeting.
o This section shall not apply to any contract or arrangement
a) for the sale, purchase or supply of any goods, materials or services if the value of
such goods and materials or the cost of such services does not exceed 500,000
rupees in the aggregate in any year; or
b) by a banking company for the collection of bills in the ordinary course of its
business.
o Any contravention or default in complying with requirements under this section
shall be an offence liable to a penalty of level 1 on the standard scale.
Disclosure to members of directors’ interest in contract appointing
chief executive or secretary Sec 213
o Every director of a company who is in any way, whether directly or indirectly, concerned
or interested, in any appointment or contract for the appointment of a
a) chief executive,
b) whole-time director or
c) Secretary
of the company shall disclose the nature of his interest or concern at a meeting of the board
in which such appointment or contract is to be approved
o The interested director shall not participate or vote in the proceedings of the board.
o All contracts entered into by a company for the appointment of a chief executive, wholetime director or secretary shall be kept at the registered office of the company.
o Every contract required to be kept must be open to inspection by any member of the
company without charge.
o Any member of the company is entitled, on request and on payment of such fee as may be
fixed by the company, to be provided with a copy within 7 days of any such contract.
Appointment of first chief executive. Sec 186
 The name of first chief executive shall be determined by the subscribers of the
memorandum and his particulars shall be submitted along with the documents
for the incorporation of the company
 The first chief executive shall, unless he earlier resigns or otherwise ceases to
hold office,
a) up to the first annual general meeting of the company or,
b) if a shorter period is fixed by the subscribers at the time of his appointment, for
such period.
Appointment of subsequent chief executive. Sec 187,188,189
 Within fourteen days from the date of election of directors the office of the chief
executive falling vacant. On the expiry of term of office a chief executive shall be
eligible for reappointment.
 The board shall appoint any person, including an elected director, to be the chief
executive.
 Such appointment shall not be for a period exceeding three years from the date
of appointment.
 The chief executive appointed against a casual vacancy shall hold office till the
directors elected in the next election appoint a chief executive.
 The chief executive retiring shall continue to perform his functions until his
successor is appointed.
 The terms and conditions of appointment of a chief executive shall be determined by
the board or the company in general meeting in accordance with the provisions in
the company's articles.
 The chief executive shall if he is not already a director of the company, be deemed to
be its director and be entitled to all the rights and privileges, and subject to all the
liabilities, of that office.
 A person who is ineligible to become a director of a company under section 153 or
disqualified under sections 171 or 172 shall not be appointed or continue as the chief
executive of any company.
Removal of chief executive.-Sec 190
 The
a) board by resolution passed by not less than three-fourths of the total number
of directors for the time being, or
b) company by a special resolution,
may remove a chief executive before the expiration of his term of office.
 Where more than seventy-five percent of the voting rights are held by the
Government
a) The Government or
b) an authority or
c) a person authorized by it
shall have the power to remove chief executive of a company.
Chief executive not to engage in business competing with
company's business.- Sec 191
 A chief executive of a public company shall not directly or indirectly engage in
any business which is of the same nature as and directly competes with the
business carried on by the company of which he is the chief executive or by a
subsidiary of such company.
 A business shall be deemed to be carried on indirectly by the chief executive if
the same is carried on by his spouse or any of his minor children.
 Every person who is appointed as chief executive of a public company shall on
such appointment disclose to the company in writing the nature of such
business and his interest therein.
Chairman in a listed company. Sec 192
 The board of a listed company shall within fourteen days from the date of
election of directors, appoint a chairman from among the non-executive
directors who shall hold office for a period of three years unless
a) he earlier resigns,
b) becomes ineligible or
c) disqualified under any provision of this Act or
d) removed by the directors.
The board shall clearly define the respective roles and responsibilities of the chairman
and chief executive.
The chairman shall be responsible for leadership of the board and ensure that the board
plays an effective role in fulfilling its responsibilities.
Every financial statements circulated under section 223 of this Act shall contain a
review report by the chairman on
a) the overall performance of the board and
b) effectiveness of the role played by the board in achieving the company‘s objectives.
Penalty Sec 193
Any contravention or default in complying with requirements of sections 186 to 192
shall be an offence liable to a penalty of level 2 on the standard scale and may also be
debarred by the authority which imposes the penalty from becoming a director or chief
executive of a company for a period not exceeding five years
Listed Companies Regulations
Code of Corporate
Governance 2019
A New Regime of
Governance
Stake Holders
Suppliers
Employees and
Managers
Share-Holders
Customers
Society
Government
Corporate governance is the collection of mechanisms, processes and relations by which corporate bodies
are controlled and operated.
The Corporate Governance Code sets out standards of good practice in relation to issues such as
I. board composition and development,
II. remuneration,
III. Accountability,
IV. audit, and
V. relations with shareholders.
Leadership
Every company should be headed by
an effective board which is
collectively responsible for the long
term success of the company
Principles of
Corporate
Governance
A
Accountability
B
Organizations should clarify and make
publicly known the roles and
responsibilities of the board and
management to provide shareholders with
a level of accountability
C
Transparency
D
a degree of clarity and openness about
how decisions are taken Transparency is
the basis of good governance and the first
step in fighting corruption.
Growth of Wealth and Its
Distribution
Corporate governance affects the
performance of economic entities and their
ability to attract the capital required for
economic growth
Promulgation of
2019 Regulations
On September 25, 2019, the Securities and Exchange Commission of Pakistan (SECP) issued the Listed Companies
(Code of Corporate Governance) Regulations, 2019 (“2019 Code”) under the powers conferred under section 156 read
with section 512 of the Companies Act 2017, superseding the Listed Companies (Code of Corporate Governance)
Regulations, 2017 (“2017 Code”).
It is believed that the corporate governance in this new regime will be more driven by principles than rules, therefore,
decision making process of listed companies would be under the spotlight.
the flexibility allows organizations to think out of the box as an alternate course of action could be followed, while
ensuring transparency.
Sec 156 & 512 of
Companies Act
The Securities and Exchange Commission of
Pakistan (SECP) may provide for framework to
ensure good corporate governance practices,
compliance and matters incidental and related for
companies or class of companies in a manner as
may be specified.
Accordingly, as was the case with the 2017 Code,
the SECP through SRO 1163(I)/2019 dated
September 25, 2019 issued the regulations, ‘the
Listed Companies (Code of Corporate Governance)
Regulations, 2019.
Applicability to Listed
Companies only
The 2019 Code is applicable to listed companies
only while the 2017 Code in its scope also included
all other entities, to the extent applicable, where
the statutes and underlying licensing requirements
requires such entities to comply with the 2017
Code.
The Companies Act, 2017 states that listed
company means a public company, body corporate
or any other entity whose securities are listed on
securities exchange.
Types of Regulations
Contained in Code 2019
The 2019 Code on an overall basis contains
regulations of the following three types:
i.
Mandatory Regulations;
ii. Non-mandatory Regulations; and
iii. Other provisions, which may be called as
‘recommendatory Regulations
Critical Analysis of
Regulations
Recommendatory
Regulations
29%
there are certain
Regulations in which
word ‘may’ and / or
‘encouraged’ have been
used.
01
Critical
Analysis of
Code 2019
03
49%
21%
Mandatory
Regulations
means such provisions
that are construed to
be
strictly complied with
by the company
02
Non-Mandatory Regulations
is based on ‘comply or explain
approach’ except the provisions for
which it is
explicitly stated as ‘mandatory’.
Mandatory Regulations
The 2019 Code is based on ‘comply or explain
approach’ except the requirements for which it is
explicitly stated as ‘mandatory’.
‘Mandatory’ in relation to the 2019 Code, means
such provisions that are construed to be strictly
complied with by the company and noncompliance of such regulations leads to penal
proceedings under regulation 37 of the 2019 Code.
Number of Directorship Reg 03
Subject to the requirements of section 155 of the Act, it
is mandatory that no person shall be elected or
nominated or hold office as a director of a listed
company including as an alternate director of more than
seven listed companies simultaneously:
Composition of Board
Diversity in Board Regulation 04
 The board of directors shall comprises of
members having the
o core competencies,
o diversity,
o requisite skills,
o knowledge,
o experience and
o fulfils any other criteria relevant in the
context of the company’s operations.
Composition of Board
In Listed Companies
The 2019 SECP through its Frequently Asked
Questions (FAQs) explained that if there are 07
directors on the board of a listed company, the
composition as per the 2017 Code would be
o
two independent directors,
o
two executive directors [including the Chief
Executive Officer (CEO)] and
o
three nonexecutive directors.
Independent director at least two or ⅓ with explanation of fraction
not rounded up as one
It is mandatory that each listed company shall have at least two or
one third members of the Board, whichever is higher, as independent
directors.
a listed company shall explain the reasons, in the compliance report, if
any fraction contained in such one-third number which is not rounded
up as one.
For the purpose of electing independent director, the Board shall be
reconstituted not later than expiry of its current term.
It is mandatory that the independent director shall submit his
consent to act as director, along with declaration to the company that
he qualifies the criteria of independence notified under the Act.
such declaration shall be submitted to chairman of the Board at first
meeting which is held after election of directors as well as on an event
of any change affecting his independence.
Independent director Under
Sec 166 Companies Act 2017
An independent director means a director who is
not connected or does not have any other
relationship, whether financial or otherwise, with
o the company,
o its associated companies,
o subsidiaries,
o holding company or
o directors; and
he can be reasonably perceived as being able to
use independent business judgment without
being submissive to any form of conflict of
interest.
A director shall not be considered independent if one or more of the following circumstances exist
a) he has been an employee of the company, any of its subsidiaries or holding company within the last three years;
b) he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or
holding company in the last three years;
c) he has a material business relationship with the company either directly, or indirectly as a partner, major
shareholder or director of a body that has such a relationship with the company or has had within the last three
years.
d) he has received remuneration in the three years preceding his/her appointment as a director or receives
additional remuneration.
e) he is a close relative of the company‘s promoters, directors or major shareholders
f) he holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies not being the associations licenced under section 42
g) he has served on the board for more than three consecutive terms from the date of his first appointment, and
for more than two consecutive terms in case of a public sector company
h) a person nominated as a director under sections 164 and 165
close relative‖ means spouse(s), lineal ascendants and descendants and siblings;
For (a), (b) and (c) in respect of public sector companies, the time
period shall be taken as two years instead of three years.
an independent director in case of a public sector company shall not
be in the service of Pakistan or of any statutory body or any body or
institution owned or controlled by the Government.
An independent director to be appointed under any law, rules, regulations or
code, shall be selected from a data bank containing
o names,
o Addresses,
o qualifications of persons who are eligible and
o willing to act as independent directors.
Such data bank can be maintained by any institute, body or association, as may
be notified by the Commission, having expertise in creation and maintenance of
such data bank and post on their website for the use by the company making the
appointment of such directors.
No individual shall be selected for the data bank without his consent in writing.
Responsibility of exercising due diligence before selecting a person from the data
bank referred to above, as an independent director shall lie with the company or
the Government, as the case may be, making such appointment.
The independent director of a listed company shall be elected in the same
manner as other directors are elected in terms of section 159 and the statement of
material facts annexed to the notice of the general meeting called for the purpose
shall indicate the justification for choosing the appointee for appointment as
independent director.
Executive directors not to be more than ⅓ with explanation of
fraction rounded up as one
The maximum number of executive directors,
including the CEO not be more than ⅓ of the
board of directors.
A listed company shall explain the reasons, in
compliance report, any fraction contained in such
one-third number which is rounded up as one.
Applicability: When the Board shall be
reconstituted not later than expiry of its current
term.
Executive director means a director who devotes
the whole or substantially the whole of his time
(whether paid or not) to the operations of the
company.
Female Director Reg 07
it is mandatory that the Board shall have at least one
female director when it is reconstituted after the
expiry of its current term.
Chairman of the Board Reg 09
The Chairman and the chief executive officer of a
company, by whatever name called, shall not be
the same person.
The Chairman shall be elected subject to the terms
and conditions and responsibilities provided
under section 192 of the Act and these
Regulations.
Chairman of the Board under Sec 192
of Companies Act 2017
(1) The board of a listed company shall within fourteen days from the
date of election of directors, appoint a chairman from among the nonexecutive directors who shall hold office for a period of three years
unless he earlier resigns, becomes ineligible or disqualified under any
provision of this Act or removed by the directors.
(2) The board shall clearly define the respective roles and responsibilities
of the chairman and chief executive.
(3) The chairman shall be responsible for leadership of the board and
ensure that the board plays an effective role in fulfilling its
responsibilities.
(4) Every financial statements circulated under section 223 of this Act
shall contain a review report by the chairman on the overall
performance of the board and effectiveness of the role played by the
board in achieving the company‘s objectives.
Representation of Minority
shareholders
(1) The minority members as a class shall be facilitated by the Board to
contest election of directors by proxy solicitation, for which purpose,
the listed companies shall:
(i) annex to the notice issued under sub-section (4) of section 159 of the
Act, a statement by a candidate from among the minority
shareholders who seeks to contest election to the Board, including a
profile of the candidate(s);
(ii) provide information regarding members and shareholding structure
to the candidate(s); and
(iii) on a request by the candidate(s) and at the cost of the company,
annex to the notice issued under sub-section (4) of section 159 of the
Act, an additional copy of proxy form duly filled in by such
candidate(s).
REMUNERATION OF DIRECTORS
Formal Policy Reg 16
The Board shall have in place a formal policy and transparent procedure
for fixing the remuneration packages of individual directors for attending
meetings of the Board and its committees.
Determination of remuneration Reg 17
No director shall determine his own remuneration and levels of
remuneration shall be appropriate and commensurate with the level of
responsibility and expertise, to attract and retain directors needed to
govern affairs of the company successfully and to encourage value
addition provided that it shall not be at a level that could be perceived to
compromise their independence.
The process adopted for determination of director’s remuneration shall
comply with the provisions of the Act and the company’s articles of
association.
Penalty limited to only for
mandatory provisions of Code
2019
The scale of penalty is same as given in both the
codes, i.e. the 2017 Code and the 2019 Code,
which is a penalty
o
may extend to Rs. 5 million and,
o
where the contravention is a continuing one,
with a further penalty that may extend to Rs.
100,000 for every day after the first during
which such contravention continues.
COMMITTEES OF THE BOARD
Audit Committee Regulation 27
o It is mandatory that the audit committee shall be constituted by the
Board keeping in view the following requirements,(i) the Board shall establish an audit committee of at least three
members comprising of non-executive directors and at least one
independent director;
(ii) chairman of the committee shall be an independent director, who
shall not be the chairman of the Board;
(iii) the Board shall satisfy itself that at least one member of the audit
committee shall be “financially literate”
(iv) the Audit Committee of a company shall appoint a secretary of the
committee who shall either be the company secretary or head of
internal audit.
o chief executive officer and the chief financial officer shall not be
members of the audit committee but should be available to attend its
meetings at the invitation of the chairman of audit committee.
o The audit committee shall meet the external auditors without the chief
financial officer and the head of internal audit being present
o At least once a year, the audit committee shall meet the head of
internal audit and other members of the internal audit function
without the chief financial officer and the external auditors being
present.
o It is mandatory that the Board of every company shall determine the
terms of reference of the audit committee
o It is mandatory that the Board shall provide adequate resources and
authority to enable the audit committee to carry out its responsibilities
effectively and the terms of reference of the audit committee shall be
explicitly documented which shall also include the following,- ( refer to
Code 2019)
o It is mandatory that the secretary of audit committee shall circulate
minutes of meetings of the audit committee to all members, directors,
head of internal audit and where required to chief financial officer prior
to the next meeting of the Board:
“financial literate”
o means a person who,(a) is a member of a recognized body of professional accountants; or
(b) has a post graduate degree in finance from a university or equivalent
institution, either in Pakistan or abroad, recognized by the Higher
Education Commission of Pakistan; or
(c) has at least ten (10) years of experience as audit committee member;
or
(d) at least twenty (20) years of senior management experience in
overseeing of financial, audit related matters.
Human Resource and Remuneration
Committee
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Human Resource and Remuneration
Committee Reg 28
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Nomination Committee Reg 29
o The Board may constitute a separate committee, designated as the nomination
committee, of such number and class of directors, as it may deem appropriate
in its circumstances.
o The nomination committee shall be responsible for,(i) considering and making recommendations to the Board in respect of the
Board’s committees and the chairmanship of the Board’s committees; and
(ii) keeping the structure, size and composition of the Board under regular
review and for making recommendations to the Board with regard to any
changes necessary.
o The terms of reference of nomination committee shall be determined by the
Board ensuring there is no duplication or conflict with matters stipulated
under terms of reference of Human Resource and Remuneration (HR&R)
Committee.
Risk Management Committee Reg 30
o The Board may constitute the risk management committee, of such number
and class of directors, as it may deem appropriate in its circumstances, to
carry out a review of effectiveness of risk management procedures and present
a report to the Board.
o The terms of reference of the committee may include the following,(i) monitoring and review of all material controls (financial, operational,
compliance);
(ii) risk mitigation measures are robust and integrity of financial information is
ensured; and
(iii) appropriate extent of disclosure of company’s risk framework and internal
control system in Directors report.
Comply or explain approach
The 2019 Code is based on ‘comply or explain
approach’ except the provisions for which it is
explicitly stated as ‘mandatory’.
Comply or Explain approach means discretion of a
company with respect to non-mandatory
provisions of the 2019 Code either to comply or
provide appropriate explanation as to any
impediment in its compliance in the compliance
report along with the financial statements.
‘comply or explain’ approach it is recognized that
an alternate way of fulfilling a nonmandatory
provision may be justified in particular
circumstances if objective of good governance can
be achieved.
Chief Financial Officer, Company Secretary and Head of Internal Audit
Qualification of chief financial Regulation 22
 A person shall not be appointed as the chief financial officer of a company unless:
a) he/ she has at least three years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is a member of the Institute of Chartered Accountants of Pakistan or
o Institute of Cost and Management Accountants of Pakistan; or
b) he/ she has at least five years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is either a member of professional body of accountants whose qualification is recognized as equivalent to post graduate
degree by HEC or
o has a postgraduate degree in finance from a university in Pakistan or
o equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC).
c) he/ she has at least seven years of managerial experience in fields of
o audit or accounting or in managing financial or
o corporate affairs functions of a company and
o has a suitable degree from a university in Pakistan or
o abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan
(HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification of Internal Auditor Regulation 23
A person shall not be appointed as the head of internal audit unless:
a) he/she
i. has three years of relevant experience in audit or finance or compliance function and
ii. is a member of the Institute of Chartered Accountants of Pakistan or
iii. Institute of Cost and Management Accountants of Pakistan; or
b) he/she
i. has five years of relevant experience in audit or finance or compliance function and:
ii. is a Certified Internal Auditor; or
iii. is a Certified Fraud Examiner; or
iv. is a Certified Internal Control Auditor; or
v. has a post graduate degree in business, finance from a university or
vi. equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC) and
vii. is a member of a professional body relevant to such qualification, if applicable.
c) he/ she
has at least seven years of managerial experience in fields of audit or accounting or
in managing financial or corporate affairs functions of a company and
has a suitable degree from a university in Pakistan or
abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan (HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification
of
Regulation 24
Company
Secretary
o No person shall be appointed as the Company Secretary unless he holds the
qualification as specified under the relevant Regulations by the Commission
Approval Regulation 20
The board of directors shall determine
o appointment,
o remuneration,
o terms and conditions of employment of
chief financial officer, company secretary and head of internal audit of companies.
Removal Regulation 21
o The removal of the chief financial officer, company secretary and head of
internal audit of a company shall be made with the approval of the board of
directors
o The head of internal audit may be removed upon recommendation of the audit
committee.
The term “removal” shall include non-renewal of contract.
Responsibility for Financial Reporting
and Corporate Compliance
Financial statement endorsed by chief financial
officer and chief executive officer Regulation 25
The chief executive officer and the chief financial officer shall duly endorse
i. the quarterly,
ii. half-yearly and
iii. annual financial statements
under their respective signatures prior to placing and circulating the same for
consideration and approval of the board of directors.
External Auditor Regulation 26
Chief executive officer and chief financial officer shall have the annual and
interim financial statement (both separate and consolidated where applicable)
initialed by the external auditors before presenting it to the audit committee and
the board of directors for approval.
Composition of internal audit function Reg 31
o There shall be an internal audit function in every company.
o The head of internal audit shall functionally report to the audit committee and
administratively to the chief executive officer and his performance appraisal
shall be done jointly by the Chairman of the audit committee and the chief
executive officer.
o No director on the Board, shall be appointed, in any capacity, in the internal
audit function of the company.
o The Board shall ensure that the internal audit team comprises of experts of
relevant disciplines in order to cover all major heads of accounts maintained
by the company.
o The company shall ensure that head of internal audit is suitably qualified,
experienced and conversant with the company's policies and procedures.
o The internal audit function, wholly or partially, may be outsourced by the
company to a professional services firm or be performed by the internal audit
staff of holding company and in lieu of outsourcing, the company shall appoint
or designate a fulltime employee other than chief financial officer, as head of
internal audit holding equivalent qualification prescribed under these
Regulations, to act as coordinator between firm providing internal audit
services and the Board:
o while outsourcing the function, the company shall not appoint its existing
external auditors or any of its associated company or associated undertaking,
as internal auditors.
o All companies shall ensure that internal audit reports are provided for the
review of external auditors.
o The auditors shall discuss any major findings in relation to the reports with
the audit committee, which shall report matters of significance to the Board.
Terms of appointment of external auditor Reg 32
o It is mandatory that no company shall appoint an external auditors, a firm of
auditors, which has not been given a satisfactory rating under the Quality
Control Review program of the Institute of Chartered Accountants of Pakistan
and registered with Audit Oversight Board of Pakistan under section 36I of the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
o It is mandatory that no company shall appoint as external auditors, a firm of
auditors which or a partner of which is non-compliant with the International
Federation of Accountants' Guidelines on Code of Ethics, as adopted by the
Institute of Chartered Accountants of Pakistan.
o It is mandatory that the Board of a company shall recommend appointment of
external auditors for a year and its remuneration, as suggested by the audit
committee and such recommendations shall be included in the Directors’ Report
and in case a recommendation for appointment of an auditor is other than the
retiring auditor, the reasons for the same shall be included in the Directors’
Report.
o It is mandatory that no company shall appoint its external auditors to provide
services in addition to audit except in accordance with these Regulations and
shall require the auditors to observe applicable International Federation of
Accountants guidelines in this regard.
o It is mandatory that the company shall ensure that the auditors do not perform
management functions or make management decisions, responsibility for which
remains with the Board and management of the company.
o It is mandatory that no company shall appoint a person as an external auditor or a
person involved in the audit of a company who is a close relative (spouse, parents,
dependents and non-dependent children) of the chief executive officer, the chief
financial officer, the head of internal audit, the company secretary or a director of the
company.
o It is mandatory that every company requires the external auditors to furnish a
management letter to its Board within 45 days of the date of audit report: Provided that
any matter deemed significant by the external auditor shall be communicated in writing
to the Board prior to the approval of the audited accounts by the Board.
Rotation of auditors Regulation 33
o It is mandatory that all listed companies in the financial sector shall change their external
auditors every five years
o All inter related companies/ institutions, engaged in business of providing financial
services shall appoint the same firm of auditors to conduct the audit of their accounts.
o Explanation:- Financial sector, for this purpose, means banks, non-banking financial
companies (NBFCs), modarabas and insurance or takaful insurance companies.
o It is mandatory that all listed companies other than those in the financial sector shall, at
the minimum, rotate the engagement partner after every five years.
o Provided that in case the audit firm is a sole proprietorship then after completion of five
years such audit firm shall be changed.
BOARD OF DIRECTORS, ITS MEMBERS AND MEETING OF
BOARD
Agenda and discussion in meetings Regulation 11
The Chairman shall set agenda of the meeting of the Board and ensure that reasonable time is available for
discussion of the same.
All written notices and relevant material, including the agenda of the meeting shall be circulated at least
seven days prior to the meeting, except in the case of emergency meeting, where the notice period may be
reduced or waived.
Minutes of meeting Regulation 12
The Chairman shall ensure that minutes of the meetings of the Board are kept in accordance with the
requirements of section 178 and 179 of the Act.
The company secretary shall be secretary to the Board.
Dissenting note
Where a director of a company is of the view that his dissenting note has not been satisfactorily recorded
in the minutes of a meeting, the matter may be referred to the company secretary for appending such note
to the minutes.
where the company secretary fails to do so, the director may file an objection with the Commission in the
form of a statement to that effect within 30 days of the date of confirmation of the minutes of the
meeting.
Attendance at meeting Regulation 13
The chief financial officer and company secretary or in their absence, the nominee appointed by
the Board, shall attend all meetings of the Board:
The chief financial officer and company secretary shall not attend such part of the Board meeting
wherein
a) agenda item relates to consideration of their performance or terms and conditions of their
service or
b) when, in the opinion of the Board, their presence in the meeting on any agenda item is likely
or may tend to impair the organizational discipline and harmony of the company.
ISSUES TO BE PLACED FOR DECISION OF THE
BOARD OF DIRECTORS
The chief executive officer of the company shall place issues for the information, consideration
and decision, as the case may be,
a)Significant issues.
b)Related party transactions.
Significant issues Reg 14
that include but are not limited to the following:
1. as soon as chief executive officer foresees risk of default concerning obligations on
any loans (including penalties and other dues to a creditor, bank or financial
institution or default in payment of public deposit), Term Finance Certificates (TFCs),
Sukuk or any other debt instrument, the same shall be brought to the attention of the
Board;
2. annual business plan, cash flow projections, forecasts and strategic plan;
3. budgets including capital, manpower and overhead budgets, along with variance
analysis;
4. matters recommended and/or reported by the audit committee and other committees
of the Board
5. quarterly operating results of the company as a whole and in terms of its operating
divisions or business segments;
Related party transactions Reg 15
The details of all related party transactions shall be placed periodically before the audit
committee of the company and upon recommendations of the audit committee, the
same shall be placed before the Board for review and approval
Provided where majority of the directors are interested in such transactions, the
matter shall be placed before the general meeting for approval.
The provisions in the 2019 Code with words such as ‘may’
and / or ‘encouraged’
In addition to the mandatory and non-mandatory provisions stipulated in the 2019 Code, there
are certain regulations / clauses in the 2019 Code in which word ‘may’ and / or ‘encouraged’
have been used.
We understand that these clauses remain recommendatory in nature and therefore neither are
mandatory nor fall into ‘comply or explain’ approach.
Certification for directors
under DTP not compulsory Now
In accordance with the 2017 Code it was compulsory for all
companies to ensure that all the directors on its board have
acquired the prescribed certification under any Director
Training Program (DTP) offered by institutions, local or
foreign, that meet the criteria specified by the SECP and
approved by it. For this purpose certain compliance dates
were also specified.
The 2019 Code has made this DTP as recommendatory as
the 2019 Code now uses the word ‘encouraged’.
Consequently, the requirement for a newly appointed
director on the Board to acquire, the DTP certification
within a period of one year from the date of
appointment as a director on the Board is also
recommendatory.
Further, the SECP’s role in granting exemption to
directors keeping in view the relevancy of minimum of
14 years of education and 15 years of experience on the
board of a listed company has been removed.
Additionally, the provisions relating to exemptions
from the requirements of the DTP certification
which were available in the following cases are
deleted in the 2019 Code:
• An individual having at least 25 years of post qualification
experience in fields of law, audit, tax, finance, corporate affairs,
regulatory or government sector experience and is member of
professional body of accountants whose qualification is
recognized as equivalent to post graduate degree by HEC.
• An individual having at least 30 years of experience in fields of
law, audit, tax, finance, corporate affairs, regulatory or
government sector experience and has a postgraduate degree in
the above mentioned fields from a university in Pakistan or
equivalent recognized and approved by HEC.
Directors’ Training
o It is encouraged that:
(i) by June 30, 2020 at least half of the directors on their Boards;
(ii) by June 30, 2021 at least 75% of the directors on their Boards; and
(iii) by June 30, 2022 all the directors on their Boards have acquired the
prescribed certification under any director training program offered by
institutions, local or foreign, that meet the criteria specified by the
Commission and approved by it.
(iv) A newly appointed director on the Board may acquire, the directors
training program certification within a period of one year from the
date of appointment as a director on the Board:
o director having a minimum of 14 years of education and 15 years of
experience on the Board of a listed company, local and/or foreign, shall
be exempt from the directors training program.
o Companies are also encouraged to arrange training for:
(i) at least one female executive every year under the Directors’ Training
program from year July 2020; and
(ii) at least one head of department every year under the Directors’
Training program from July 2022.
GOVERNMENT OF PAKISTAN
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
-.-.-.Islamabad, the 25th September, 2019
NOTIFICATION
SRO 1163 (I)/2019.- In exercise of the powers conferred under Section 156
read with section 512 of the Companies Act, 2017 (XIX of 2017), the same having been
previously published in the official Gazette vide Notification S.R.O. 485(I)/2019 dated 23 rd
April, 2019, as required under proviso to sub-section (1) of said section 512, the Securities
and Exchange Commission is pleased to notify the following Regulations, namely:-
CHAPTER 1
PRELIMINARY
1.
Short Title and Commencement.- (1) These Regulations shall be called the Listed
Companies (Code of Corporate Governance) Regulations, 2019.
(2)
These Regulations shall apply to the listed companies based on “comply or
explain approach” except the requirements for which it is explicitly stated as “mandatory”
and it shall be the responsibility of the board of directors (the “Board”) to use this approach
wisely and of investors to assess differing company approaches thoughtfully.
(3)
These Regulations shall come into force from the date of its publication.
2.
Definitions. – (1),- In these Regulations, unless there is anything repugnant in the
subject
or context,
(a)
“Annexure” annexure mean annexure appended to these Regulations;
(b) “Comply or explain approach” means discretion of a company with respect
to non-mandatory provisions of these Regulations either to comply or provide
appropriate explanation as to any impediment in its compliance in the compliance
report along with the financial statements;
1
(c) “Mandatory” in relation to these Regulations, means such provisions that are
construed to be strictly complied with by the company and non-compliance of such
Regulations leads to penal proceedings under regulation 37;
(2)
Unless otherwise specified, words and expressions used but not defined in
these Regulations shall have the same meaning as assigned to them in the Companies Act,
2017 (“the Act”) and the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of
1997).
CHAPTER II
NUMBER OF DIRECTORSHIP AND COMPOSITION OF BOARD
3.
Number of Directorship.- Subject to the requirements of section 155 of the Act, it is
mandatory that no person shall be elected or nominated or hold office as a director of a listed
company including as an alternate director of more than seven listed companies
simultaneously:
Provided that the said limit on directorship shall be effective when the Board
shall be reconstituted not later than expiry of its current term.
4.
Diversity in the Board.- The Board shall comprise of members having appropriate mix
of core competencies, diversity, requisite skills, knowledge, experience and fulfils any other
criteria as deem relevant in the context of the company’s operations.
5.
Representation of Minority shareholders.- The minority members as a class shall be
facilitated by the Board to contest election of directors by proxy solicitation, for which
purpose, the listed companies shall:
(i)
annex to the notice issued under sub-section (4) of section 159 of the Act,
a statement by a candidate from among the minority shareholders who
seeks to contest election to the Board, including a profile of the
candidate(s);
(ii) provide information regarding members and shareholding structure to the
candidate(s); and
(iii) on a request by the candidate(s) and at the cost of the company, annex to
the notice issued under sub-section (4) of section 159 of the Act, an
additional copy of proxy form duly filled in by such candidate(s).
6.
Independent Director.- (1) It is mandatory that each listed company shall have at
least two or one third members of the Board, whichever is higher, as independent directors.
2
Explanation.—For the purposes of this sub-regulation, a listed company shall
explain the reasons, in the compliance report, if any fraction contained in such one-third
number which is not rounded up as one.
(2)
For the purpose of electing independent director, the Board shall be
reconstituted not later than expiry of its current term.
(3)
It is mandatory that the independent director shall submit his consent to act
as director, along with declaration to the company that he qualifies the criteria of
independence notified under the Act and such declaration shall be submitted to chairman of
the Board at first meeting which is held after election of directors as well as on an event of
any change affecting his independence.
7.
Female Director.- Subject to section 154 of the Act, it is mandatory that the Board
shall have at least one female director when it is reconstituted after the expiry of its current
term.
8.
Executive Director.- (1) It is mandatory that the executive directors, including the
chief executive officer, shall not be more than one third of the Board.
(2)
For the purpose of compliance with the requirement of the above subregulation (1), the Board shall be reconstituted not later than expiry of its current term.
Explanation I.—For the purposes of this regulation, a listed company shall
explain the reasons, in compliance report, any fraction contained in such one-third number
which is rounded up as one.
Explanation II.- Executive director means a director who devotes the whole or
substantially the whole of his time (whether paid or not) to the operations of the company.
9.
Chairman of the Board.- (1) The Chairman and the chief executive officer of a
company, by whatever name called, shall not be the same person.
(2)
The Chairman shall be elected subject to the terms and conditions and
responsibilities provided under section 192 of the Act and these Regulations.
CHAPTER III
BOARD OF DIRECTORS, ITS MEMBERS AND MEETING OF BOARD
10.
Responsibilities of the Board and its members.- (1) Subject to the requirements of
section 183 and 204 of the Act, the Board is responsible for adoption of corporate governance
3
practices by the company and monitoring effectiveness of such practices and the members of
the Board shall ensure high ethical standards in performing their responsibilities.
(2)
The Board is responsible for the governance of risk and for determining the
company’s level of risk tolerance by establishing risk management policies and for this
purpose the Board is encouraged to undertake at least annually, an overall review of business
risks to ensure that the management maintains a sound system of risk identification, risk
management and related systemic and internal controls to safeguard assets, resources,
reputation and interest of the company and shareholders.
(3)
The Board of the company shall ensure that,(i)
a vision and/or mission statement monitoring the effectiveness of the
company’s governance practices and overall corporate strategy for the
company is prepared, adopted and reviewed as and when deemed
appropriate by the Board;
(ii)
a formal code of conduct is in place that promotes ethical culture in the
company and prevents conflict of interest in their capacity as member
of the Board, senior management and other employees. The Board
shall take appropriate steps to disseminate code of conduct throughout
the company along with supporting policies and procedures;
(iii)
adequate systems and controls are in place for identification and
redressal of grievances arising from unethical practices;
(iv)
a system of sound internal control is established, which is effectively
implemented and maintained at all levels within the company; and
(v)
a formal and effective mechanism is put in place for an annual
evaluation of the Board’s own performance, members of the Board and
of its committees.
(4)
The Board shall ensure that complete record of particulars of the significant
policies along with their dates of approval or updating is maintained by the company. The
significant policies may include but not limited to the following,(i)
(ii)
governance of risks and internal control measures;
human resource management including preparation of a succession
plan;
4
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
permissible fee for non-executive directors including independent
directors;
procurement of goods and services;
communication policy and investors’/shareholders’ relations;
marketing;
determination of terms of credit and discount to customers;
write-off of bad/doubtful debts, advances and receivables;
sale and lease of assets, undertaking, capital expenditure, planning and
control;
investments and disinvestment of funds;
debt coverage;
determination and delegation of financial powers;
transactions or contracts with associated companies and related
parties;
environmental, social and governance (ESG) including but not limited
to health and safety aspects in business strategies that promote
sustainability, corporate social responsibility initiatives and other
philanthropic activities, donations, contributions to charities and other
matters of social welfare; and
whistle blowing policy, by establishing a mechanism to receive, handle
complaints in a fair and transparent manner while providing protection
to the complainant against victimization.
(5)
The Chairman of the Board shall, at the beginning of term of each director,
issue letter to directors setting out their role, obligations, powers and responsibilities in
accordance with the Act and the company’s Articles of Association, their remuneration and
entitlement.
(6)
All directors of a company shall attend its general meeting(s), (ordinary and
extra-ordinary unless precluded from doing so due to any reasonable cause.
11.
Agenda and discussion in meetings.- (1)
The Chairman shall set agenda of the
meeting of the Board and ensure that reasonable time is available for discussion of the same.
(2)
All written notices and relevant material, including the agenda of the meeting
shall be circulated at least seven days prior to the meeting, except in the case of emergency
meeting, where the notice period may be reduced or waived.
12.
Minutes of meeting,- (1) The Chairman shall ensure that minutes of the meetings of
the Board are kept in accordance with the requirements of section 178 and 179 of the Act.
5
(2)
The company secretary shall be secretary to the Board.
(3)
Where a director of a company is of the view that his dissenting note has not
been satisfactorily recorded in the minutes of a meeting, the matter may be referred to the
company secretary for appending such note to the minutes and where the company
secretary fails to do so, the director may file an objection with the Commission in the form
of a statement to that effect within 30 days of the date of confirmation of the minutes of the
meeting.
13.
Attendance at meeting.- The chief financial officer and company secretary or in their
absence, the nominee appointed by the Board, shall attend all meetings of the Board:
Provided that the chief financial officer and company secretary shall not attend such
part of the Board meeting wherein agenda item relates to consideration of their performance
or terms and conditions of their service or when, in the opinion of the Board, their presence
in the meeting on any agenda item is likely or may tend to impair the organizational discipline
and harmony of the company.
CHAPTER IV
ISSUES TO BE PLACED FOR DECISION OF THE BOARD OF DIRECTORS
14.
Significant issues.- The chief executive officer of the company shall place
significant issues for the information, consideration and decision, as the case may be, of the
Board or its committees that include but are not limited to the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
as soon as chief executive officer foresees risk of default concerning
obligations on any loans (including penalties and other dues to a creditor, bank
or financial institution or default in payment of public deposit), Term Finance
Certificates (TFCs), Sukuk or any other debt instrument, the same shall be
brought to the attention of the Board;
annual business plan, cash flow projections, forecasts and strategic plan;
budgets including capital, manpower and overhead budgets, along with
variance analysis;
matters recommended and/or reported by the audit committee and other
committees of the Board;
quarterly operating results of the company as a whole and in terms of its
operating divisions or business segments;
internal audit reports, including cases of fraud, bribery, corruption, or
irregularities of material nature;
management letter issued by the external auditors;
6
(viii)
details of joint venture or collaboration agreements or agreements with
distributors, agents etc.;
(ix)
promulgation of or amendment to a law, rule or regulation, applicability of
financial reporting standard and such other matters as may affect the company
and the status of compliance therewith;
(x)
status and implications of any law suit or proceedings (show cause notice,
demand or prosecution notice) of material nature, filed by or against the
company;
(xi)
failure to recover material amounts of loans, advances, and deposits made by
the company, including trade debts and inter corporate finance;
(xii)
any significant accidents, fatalities, dangerous occurrences and instances of
pollution and environmental problems involving the company;
(xiii) significant public or product liability claims made or likely to be made against
the company, including any adverse judgment or order made on the conduct
of the company or of another company that may bear negatively on the
company;
(xiv) report on governance, risk management and compliance issues. Risks to be
considered shall include reputational risk and shall address risk analysis, risk
management and risk communication;
(xv)
disputes with labor and their proposed solutions, any agreement with the
labor union or collective bargaining agent and any charter of demands on the
company;
(xvi) reports on /synopsis of issues and information pursued under the whistle
blowing policy, clearly disclosing how such matters were dealt with and finally
resolved or concluded;
(xvii) implementation of environmental, social & governance; and health & safety
business practices including report on corporate social responsibility activities
and status of adoption/compliance of the Corporate Social Responsibility
(Voluntary) Guidelines, 2013 or any other regulatory framework as applicable;
(xviii) payment for goodwill, brand equity or intellectual property;
(xix) sale of assets, investments and interest in subsidiaries and undertakings, of
material amount or significant nature, which is not in the ordinary course of
business; and
(xx)
quarterly details of foreign exchange exposures and the safeguards taken by
management against adverse exchange rate movement, if material.
15.
Related party transactions.- The details of all related party transactions shall be
placed periodically before the audit committee of the company and upon recommendations
of the audit committee, the same shall be placed before the Board for review and approval:
7
Provided where majority of the directors are interested in such transactions, the
matter shall be placed before the general meeting for approval.
CHAPTER V
REMUNERATION OF DIRECTORS
16.
Formal Policy.- The Board shall have in place a formal policy and transparent
procedure for fixing the remuneration packages of individual directors for attending meetings
of the Board and its committees.
17.
Determination of remuneration.- (1)
No director shall determine his own
remuneration and levels of remuneration shall be appropriate and commensurate with the
level of responsibility and expertise, to attract and retain directors needed to govern affairs
of the company successfully and to encourage value addition provided that it shall not be at
a level that could be perceived to compromise their independence.
(2)
The process adopted for determination of director’s remuneration shall
comply with the provisions of the Act and the company’s articles of association.
CHAPTER VI
DIRECTORS’ TRAINING PROGRAM
18.
Directors’ Orientation Program.All companies shall make appropriate
arrangements to carry out orientation for their directors to acquaint them with these
Regulations, applicable laws, their duties and responsibilities to enable them to effectively
govern the affairs of the listed company for and on behalf of shareholders.
19.
Directors’ Training.- (1) It is encouraged that:
(i) by June 30, 2020 at least half of the directors on their Boards;
(ii) by June 30, 2021 at least 75% of the directors on their Boards; and
(iii) by June 30, 2022 all the directors on their Boards have acquired the
prescribed certification under any director training program offered by
institutions, local or foreign, that meet the criteria specified by the
Commission and approved by it.
(2)
A newly appointed director on the Board may acquire, the directors training
program certification within a period of one year from the date of appointment as a director
on the Board:
8
Provided that director having a minimum of 14 years of education and 15 years
of experience on the Board of a listed company, local and/or foreign, shall be exempt from
the directors training program.
(3)
Companies are also encouraged to arrange training for:
(i) at least one female executive every year under the Directors’ Training
program from year July 2020; and
(ii) at least one head of department every year under the Directors’ Training
program from July 2022.
CHAPTER VII
CHIEF FINANCIAL OFFICER, COMPANY SECRETARY AND HEAD OF INTERNAL AUDIT
20.
Approval.The Board shall appoint, determine remuneration, renew contracts and
terms and conditions of employment of chief financial officer, company secretary and head
of internal audit of the company.
21.
Removal.The removal of the chief financial officer, company secretary and head
of internal audit of a company shall be made with the approval of the Board:
Provided that the head of internal audit may be removed only upon
recommendation of the audit committee.
22.
Qualification of chief financial officer.financial officer of a company unless,-
No person shall be appointed as the chief
(i)
he/ she has at least three years of managerial experience in the fields of audit
or accounting or in managing financial or corporate affairs functions of a
company and is a member of the Institute of Chartered Accountants of
Pakistan or Institute of Cost and Management Accountants of Pakistan; or
(ii)
he/ she has at least five years of managerial experience in fields of audit or
accounting or in managing financial or corporate affairs functions of a
company and is either a member of professional body of accountants whose
qualification is recognized as equivalent to post graduate degree by Higher
Education Commission of Pakistan or has a postgraduate degree in finance
from a university in Pakistan or equivalent recognized and approved by the
Higher Education Commission of Pakistan; or
9
(iii)
he/ she has at least seven years of managerial experience in fields of audit or
accounting or in managing financial or corporate affairs functions of a
company and has a suitable degree from a university in Pakistan or abroad
equivalent to graduate degree, recognized and approved by the Higher
Education Commission of Pakistan:
Provided that existing chief financial officer of a listed company having at least
fifteen years of experience on the same position in a listed company shall be exempted from
qualification criteria given above.
23.
Qualification of internal auditor.internal audit unless:
No person shall be appointed as the head of
(i)
he/she has three years of relevant experience in audit or finance or compliance
function and is a member of the Institute of Chartered Accountants of Pakistan or Institute of
Cost and Management Accountants of Pakistan; or
(ii)
he/she has five years of relevant experience in audit or finance or compliance
function and:
(a) is a Certified Internal Auditor; or
(b) is a Certified Fraud Examiner; or
(c) is a Certified Internal Control Auditor; or
(d) has a post graduate degree in business, finance from a university or
equivalent recognized and approved by the Higher Education Commission
of Pakistan and is a member of a professional body relevant to such
qualification, if applicable;
(iii)
he/ she has at least seven years of managerial experience in fields of audit or
accounting or in managing financial or corporate affairs functions of a company and has a
suitable degree from a university in Pakistan or abroad equivalent to graduate degree,
recognized and approved by the Higher Education Commission of Pakistan.
Explanation: the expression, “body of professional accountants” means body
of professional accountants,(i)
established in Pakistan, governed under a special enactment of the Federal
Government as a self-regulatory organization managed by a representative
National Council, and has a prescribed minimum criterion of examination and
entitlement of membership of such body; or
(ii)
established outside Pakistan under a special enactment in the country of its
origin and is a member of the International Federation of Accountants (IFAC):
10
Provided that existing head of internal audit of a listed company having atleast
fifteen years of experience on the same position in a listed company shall be exempted from
qualification criteria given above.
24.
Qualification of company secretary.- No person shall be appointed as the company
secretary unless he holds the qualification as specified under the relevant Regulations by the
Commission:
Provided, the same person shall not simultaneously hold office of chief
financial officer and the company secretary of a listed company.
CHAPTER VIII
RESPONSIBILITY FOR FINANCIAL REPORTING AND CORPORATE COMPLIANCE
25.
Financial statement endorsed by chief financial officer and chief executive officer.The chief executive officer and the chief financial officer shall duly endorse the
quarterly, half-yearly and annual financial statements under their respective signatures prior
to placing and circulating the same for consideration and approval of the Board.
26.
External Auditor.Chief executive officer and chief financial officer shall have the
annual and interim financial statement, both standalone and consolidated where applicable,
initiated by the external auditors before presenting it to the audit committee and the Board
for approval.
CHAPTER IX
COMMITTEES OF THE BOARD
27.
Audit Committee.- (1) It is mandatory that the audit committee shall be constituted
by the Board keeping in view the following requirements,(i)
the Board shall establish an audit committee of at least three members
comprising of non-executive directors and at least one independent director;
(ii)
chairman of the committee shall be an independent director, who shall not be
the chairman of the Board;
(iii)
the Board shall satisfy itself that at least one member of the audit committee
shall be “financially literate”;.
Explanation:- for the purposes of this clause the expression, “financial literate”
means a person who,(a) is a member of a recognized body of professional accountants; or
11
(b)
(iv)
has a post graduate degree in finance from a university or equivalent
institution, either in Pakistan or abroad, recognized by the Higher
Education Commission of Pakistan; or
(c) has atleast ten (10) years of experience as audit committee member; or
(d) atleast twenty (20) years of senior management experience in overseeing
of financial, audit related matters.
the Audit Committee of a company shall appoint a secretary of the committee
who shall either be the company secretary or head of internal audit.
(2)
It is mandatory that meetings of the audit committee shall be held as per the
following requirements,(i)
the audit committee of a company shall meet at least once every quarter
of the financial year. These meetings shall be held prior to the approval
of interim results of the company by its Board and after completion of
external audit;
(ii)
a meeting of the audit committee shall also be held, if requested by the
external auditors, head of internal audit or by chairman of the audit
committee;
(iii)
the head of internal audit and external auditors represented by
engagement partner or in his absence any other partner designated by
the audit firm shall attend meetings of the audit committee at which
issues, if any, relating to accounts and audit are discussed:
Provided that chief executive officer and the chief financial officer shall not be
members of the audit committee but should be available to attend its meetings at the
invitation of the chairman of audit committee:
Provided further that at least once a year, the audit committee shall meet the
external auditors without the chief financial officer and the head of internal audit being
present:
Provided also that at least once a year, the audit committee shall meet the
head of internal audit and other members of the internal audit function without the chief
financial officer and the external auditors being present.
(3)
It is mandatory that the Board of every company shall determine the terms of
reference of the audit committee.
12
(4)
It is mandatory that the Board shall provide adequate resources and authority
to enable the audit committee to carry out its responsibilities effectively and the terms of
reference of the audit committee shall be explicitly documented which shall also include the
following,(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
determination of appropriate measures to safeguard the company’s
assets;
review of annual and interim financial statements of the company,
prior to their approval by the Board, focusing on,(a)
major judgmental areas;
(b)
significant adjustments resulting from the audit;
(c)
going concern assumption;
(d)
any changes in accounting policies and practices;
(e)
compliance with applicable accounting standards;
(f)
compliance with these Regulations and other statutory and
regulatory requirements; and
(g)
all related party transactions;
review of preliminary announcements of results prior to external
communication and publication;
facilitating the external audit and discussion with external auditors of
major observations arising from interim and final audits and any
matter that the auditors may wish to highlight (in the absence of
management, where necessary);
review of management letter issued by external auditors and
management’s response thereto;
ensuring coordination between the internal and external auditors of
the company;
review of the scope and extent of internal audit, audit plan, reporting
framework and procedures and ensuring that the internal audit
function has adequate resources and is appropriately placed within
the company;
consideration of major findings of internal investigations of activities
characterized by fraud, corruption and abuse of power and
management's response thereto;
ascertaining that the internal control systems including financial and
operational controls, accounting systems for timely and appropriate
recording of purchases and sales, receipts and payments, assets and
liabilities and the reporting structure are adequate and effective;
review of the company’s statement on internal control systems prior
to endorsement by the Board and internal audit reports;
13
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
instituting special projects, value for money studies or other
investigations on any matter specified by the Board, in consultation
with the chief executive officer and to consider remittance of any
matter to the external auditors or to any other external body;
determination of compliance with relevant statutory requirements;
monitoring compliance with these Regulations and identification of
significant violations thereof;
review of arrangement for staff and management to report to audit
committee in confidence, concerns, if any, about actual or potential
improprieties in financial and other matters and recommend
instituting remedial and mitigating measures;
recommend to the Board the appointment of external auditors, their
removal, audit fees, the provision of any service permissible to be
rendered to the company by the external auditors in addition to audit
of its financial statements, measures for redressal and rectification of
non-compliances with the Regulations. The Board shall give due
consideration to the recommendations of the audit committee and
where it acts otherwise it shall record the reasons thereof;
consideration of any other issue or matter as may be assigned by the
Board;
(5)
It is mandatory that the secretary of audit committee shall circulate minutes
of meetings of the audit committee to all members, directors, head of internal audit and
where required to chief financial officer prior to the next meeting of the Board:
Provided that where this is not practicable, the chairman of the audit committee
shall communicate a synopsis of the proceedings to the Board and the minutes shall be
circulated along with the minutes of the meeting of the Board.
28.
Human Resource and Remuneration Committee.- (1) There shall be a human
resource and remuneration committee of at least three members comprising a majority of
non-executive directors of whom at least one member shall be an independent director.
(2)
The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
(3)
The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief executive officer
and the head of human resource or any other person appointed by the Board may act as the
secretary of the committee.
14
(4)
The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person may attend the
meeting only by invitation.
(5)
A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or renewal of the
terms and conditions of his service comes up for consideration.
(6) The terms of reference of committee shall be determined by the Board which
may include the following,(i)
(ii)
(iii)
(iv)
(v)
(vi)
recommendation to the Board for consideration and approval a policy
framework for determining remuneration of directors (both executive
and non-executive directors and members of senior management). The
definition of senior management will be determined by the Board which
shall normally include the first layer of management below the chief
executive officer level;
undertaking, annually, a formal process of evaluation of performance of
the Board as a whole and its committees either directly or by engaging
external independent consultant and if so appointed, a statement to
that effect shall be made in the directors’ report disclosing therein name
and qualifications of such consultant and major terms of his / its
appointment;
recommending human resource management policies to the Board;
recommending to the Board the selection, evaluation, development,
compensation (including retirement benefits) of chief operating officer,
chief financial officer, company secretary and head of internal audit;
consideration and approval on recommendations of chief executive
officer on such matters for key management positions who report
directly to chief executive officer or chief operating officer; and
where human resource and remuneration consultants are appointed,
they shall disclose to the committee their credentials and as to whether
they have any other connection with the company.
29.
Nomination Committee.- (1) The Board may constitute a separate committee,
designated as the nomination committee, of such number and class of directors, as it may
deem appropriate in its circumstances.
(2)
The nomination committee shall be responsible for,-
15
(i)
(ii)
considering and making recommendations to the Board in respect of the
Board’s committees and the chairmanship of the Board’s committees;
and
keeping the structure, size and composition of the Board under regular
review and for making recommendations to the Board with regard to any
changes necessary.
(3)
The terms of reference of nomination committee shall be determined by the
Board ensuring there is no duplication or conflict with matters stipulated under terms of
reference of Human Resource and Remuneration (HR&R) Committee.
30.
Risk Management Committee.- (1) The Board may constitute the risk management
committee, of such number and class of directors, as it may deem appropriate in its
circumstances, to carry out a review of effectiveness of risk management procedures and
present a report to the Board.
(2)
The terms of reference of the committee may include the following,(i)
monitoring and review of all material controls (financial, operational,
compliance);
(ii)
risk mitigation measures are robust and integrity of financial
information is ensured; and
(iii)
appropriate extent of disclosure of company’s risk framework and
internal control system in Directors report.
CHAPTER X
INTERNAL AUDIT
31.
Composition of internal audit function.- (1) There shall be an internal audit function
in every company.
(2)
The head of internal audit shall functionally report to the audit committee and
administratively to the chief executive officer and his performance appraisal shall be done
jointly by the Chairman of the audit committee and the chief executive officer.
(3)
No director on the Board, shall be appointed, in any capacity, in the internal
audit function of the company.
(4)
The Board shall ensure that the internal audit team comprises of experts of
relevant disciplines in order to cover all major heads of accounts maintained by the company.
16
(5)
The company shall ensure that head of internal audit is suitably qualified,
experienced and conversant with the company's policies and procedures.
(6)
The internal audit function, wholly or partially, may be outsourced by the
company to a professional services firm or be performed by the internal audit staff of holding
company and in lieu of outsourcing, the company shall appoint or designate a fulltime
employee other than chief financial officer, as head of internal audit holding equivalent
qualification prescribed under these Regulations, to act as coordinator between firm
providing internal audit services and the Board:
Provided that while outsourcing the function, the company shall not appoint
its existing external auditors or any of its associated company or associated undertaking, as
internal auditors.
(7)
All companies shall ensure that internal audit reports are provided for the
review of external auditors.
(8)
The auditors shall discuss any major findings in relation to the reports with the
audit committee, which shall report matters of significance to the Board.
CHAPTER XI
EXTERNAL AUDIT
32.
Terms of appointment of external auditor.- (1) It is mandatory that no company
shall appoint an external auditors, a firm of auditors, which has not been given a satisfactory
rating under the Quality Control Review program of the Institute of Chartered Accountants of
Pakistan and registered with Audit Oversight Board of Pakistan under section 36I of the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
(2)
It is mandatory that no company shall appoint as external auditors, a firm of
auditors which or a partner of which is non-compliant with the International Federation of
Accountants' Guidelines on Code of Ethics, as adopted by the Institute of Chartered
Accountants of Pakistan.
(3)
It is mandatory that the Board of a company shall recommend appointment of
external auditors for a year and its remuneration, as suggested by the audit committee and
such recommendations shall be included in the Directors’ Report and in case a
recommendation for appointment of an auditor is other than the retiring auditor, the reasons
for the same shall be included in the Directors’ Report.
(4)
It is mandatory that no company shall appoint its external auditors to provide
services in addition to audit except in accordance with these Regulations and shall require the
17
auditors to observe applicable International Federation of Accountants guidelines in this
regard.
(5)
It is mandatory that the company shall ensure that the auditors do not perform
management functions or make management decisions, responsibility for which remains with
the Board and management of the company.
(6)
It is mandatory that no company shall appoint a person as an external auditor
or a person involved in the audit of a company who is a close relative (spouse, parents,
dependents and non-dependent children) of the chief executive officer, the chief financial
officer, the head of internal audit, the company secretary or a director of the company.
(7)
It is mandatory that every company requires the external auditors to furnish a
management letter to its Board within 45 days of the date of audit report:
Provided that any matter deemed significant by the external auditor shall be
communicated in writing to the Board prior to the approval of the audited accounts by the
Board.
33.
Rotation of auditors.- (1) It is mandatory that all listed companies in the financial
sector shall change their external auditors every five years:
Provided that all inter related companies/ institutions, engaged in business of
providing financial services shall appoint the same firm of auditors to conduct the audit of
their accounts.
Explanation:- Financial sector, for this purpose, means banks, non-banking
financial companies (NBFCs), modarabas and insurance or takaful insurance companies.
(2)
It is mandatory that all listed companies other than those in the financial
sector shall, at the minimum, rotate the engagement partner after every five years:
Provided that in case the audit firm is a sole proprietorship then after
completion of five years such audit firm shall be changed.
CHAPTER XII
REPORTING AND DISCLOSURE
34.
Directors’ Report.- (1) The quarterly financial statements of companies shall be
published and circulated along with directors’ review on the affairs of the company.
18
(2)
The Directors’ Report shall include the following,(i)
total number of directors including the following,(a) Male; and
(b) Female;
(ii)
composition including the following,(a) Independent directors;
(b) Non-executive directors;
(c) Executive directors; and
(d) Female director.
(iii)
The names of members of the Board’s committees.
(iv)
The directors in their report to members shall state the remuneration
policy of non-executive directors including independent directors, as approved by the Board,
which shall also include disclosing the significant features and elements thereof.
(3)
The company's Annual Report shall contain details of aggregate amount of
remuneration separately of executive and non-executive directors, including salary/fee,
perquisites, benefits and performance-linked incentives etc. Companies are encouraged to
provide aforesaid details of remuneration of individual directors in annual report.
35.
Disclosure of significant policies on website.- The company may post the following
on its website:
(1)
key elements of its significant policies including but not limited to the
following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(2)
communication and disclosure policy;
code of conduct for members of board of directors, senior
management and other employees;
risk management policy;
internal control policy;
whistle blowing policy;
corporate social responsibility/sustainability/ environmental, social
and governance related policy.
brief synopsis of terms of reference of the Board’s committees including:
(i)
(ii)
(iii)
Audit Committee
HR and Remuneration Committee
Nomination Committee
19
(iv)
(3)
Risk Management Committee
key elements of the directors’ remuneration policy.
36.
Compliance Statement and Auditor Review.- (1) It is mandatory that the company
shall publish and circulate a statement, as given under Annexure A to these Regulations, along
with their annual reports to set out the status of their compliance with the requirements of
these Regulations and the said statement shall be specific and supported by necessary
explanations..
(2)
It is mandatory that the company shall ensure that the statement of
compliance is reviewed and certified by statutory auditors as per relevant Regulations
specified by Commission.
(3)
It is mandatory that the statutory auditors of company shall highlight any noncompliance with these Regulations in their review report.
CHAPTER XIII
MISCELLANEOUS
37.
Penalty.- Whoever fails or refused to comply with, or contravenes regulation 3, 6, 7,
8, 27, 32, 33 and 36 of these Regulations, shall be punishable with penalty as provided under
sub-section (2) of section 512 of the Act.
38.
Relaxation from requirements of Regulations.- Where the Commission is satisfied
that it is not practicable to comply with any of the mandatory requirements of the regulation
3, 6, 7, 8, 27, 32, 33 and 36 of these Regulations, it may, for reasons to be recorded in writing,
on the application by the company, extend the time for compliance of the same subject to
such conditions as it may deem fit.
39.
Repeal and Savings.- (1) The Listed Companies (Code of Corporate Governance)
Regulations, 2017, hereinafter called as repealed regulations, shall stand repealed:
Provided that repeal of the repealed regulations shall not(a)
(b)
(c)
revive anything not in force at the time at which the repeal take effect; or
affect the previous operation of the repealed regulations or anything duly
done or suffered thereunder; or
affect any right, privilege, obligation or liability acquired, accrued or incurred
under or in respect of the said repealed regulations; or
20
(d)
(e)
affect any penalty imposed, forfeiture made or punishment incurred in respect
of any offence committed against or in violation of the repealed regulations;
or
affect any inspection, investigation, prosecution, legal proceeding or remedy
in respect of any obligation, liability, penalty, forfeiture or punishment as
aforesaid, and any such inspection, investigation, prosecution, legal
proceedings or remedy may be made, continued or enforced and any such
penalty, forfeiture or punishment may be imposed, as if these Regulations has
not been notified.
(2)
Save as otherwise specifically provided, nothing in these Regulations shall
affect or deemed to effect any action taken, orders issued, application received, relaxation
granted unless withdrawn, fee paid or accrued, resolution passed, direction given under the
repealed regulations shall, if in force at the effective date of these Regulations and not
inconsistent with provision of these Regulations, shall continue to be in force and have effect
as if it were respectively taken, made, directed, received, passed, given, executed or issued
under these Regulations.
-.-.-.-
21
Annexure A
[see regulation 36(1)]
Statement of Compliance with Listed Companies (Code of Corporate Governance)
Regulations, 2019
Name of company …………………………………………………………………………
Year ending………………………………………………………………………………….
The company has complied with the requirements of the Regulations in the following
manner:1.
The total number of directors are ____ as per the following,a. Male:
b. Female:
2.
The composition of the Board is as follows:
i.Independent directors
ii.Non-executive directors
iii.Executive directors
iv.Female directors
3.
The directors have confirmed that none of them is serving as a director on more than seven
listed companies, including this company;
4.
The company has prepared a code of conduct and has ensured that appropriate steps have
been taken to disseminate it throughout the company along with its supporting policies
and procedures;
5.
The Board has developed a vision/mission statement, overall corporate strategy and
significant policies of the company. The Board has ensured that complete record of
particulars of the significant policies along with their date of approval or updating is
maintained by the company;
6.
All the powers of the Board have been duly exercised and decisions on relevant matters
have been taken by the Board/ shareholders as empowered by the relevant provisions of
the Act and these Regulations;
7.
The meetings of the Board were presided over by the Chairman and, in his absence, by a
director elected by the Board for this purpose. The Board has complied with the
requirements of Act and the Regulations with respect to frequency, recording and
circulating minutes of meeting of the Board;
8.
The Board have a formal policy and transparent procedures for remuneration of directors
in accordance with the Act and these Regulations;
22
9.
The Board has arranged Directors’ Training program for the following:
(Name of Director)
(Name of Executive & Designation (if applicable);
10. The Board has approved appointment of chief financial officer, company secretary and
head of internal audit, including their remuneration and terms and conditions of
employment and complied with relevant requirements of the Regulations;
11. Chief financial officer and chief executive officer duly endorsed the financial statements
before approval of the Board;
12. The Board has formed committees comprising of members given below.a) Audit Committee (Name of members and Chairman)
b) HR and Remuneration Committee (if applicable) (Name of members and Chairman)
c) Nomination Committee (if applicable) (Name of members and Chairman)
d) Risk Management Committee (if applicable) (Name of members and Chairman)
13.
The terms of reference of the aforesaid committees have been formed, documented and
advised to the committee for compliance;
14. The frequency of meetings (quarterly/half yearly/ yearly) of the committee were as per
following,a) Audit Committee;
b) HR and Remuneration Committee (if applicable);
c) Nomination Committee (if applicable);
d) Risk Management Committee (if applicable);
15.
The Board has set up an effective internal audit function/ or has outsourced the internal
audit function to who are considered suitably qualified and experienced for the purpose
and are conversant with the policies and procedures of the company;
16.
The statutory auditors of the company have confirmed that they have been given a
satisfactory rating under the Quality Control Review program of the Institute of Chartered
Accountants of Pakistan and registered with Audit Oversight Board of Pakistan, that they
and all their partners are in compliance with International Federation of Accountants
(IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants
of Pakistan and that they and the partners of the firm involved in the audit are not a close
relative (spouse, parent, dependent and non-dependent children) of the chief executive
officer, chief financial officer, head of internal audit, company secretary or director of the
company;
17.
The statutory auditors or the persons associated with them have not been appointed to
provide other services except in accordance with the Act, these Regulations or any other
regulatory requirement and the auditors have confirmed that they have observed IFAC
guidelines in this regard;
23
18.
We confirm that all requirements of regulations 3, 6, 7, 8, 27,32, 33 and 36 of the
Regulations have been complied with; and
19.
Explanation for non-compliance with requirements, other than regulations 3, 6, 7, 8, 27,
32, 33 and 36 are below (if applicable):
__________________
Signature (s)
(Name in block letters)
Chairman
[File No. SY/SECP/8/13]
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Listed Companies Regulations
Code of Corporate
Governance 2019
A New Regime of
Governance
Stake Holders
Suppliers
Employees and
Managers
Share-Holders
Customers
Society
Government
Corporate governance is the collection of mechanisms, processes and relations by which corporate bodies
are controlled and operated.
The Corporate Governance Code sets out standards of good practice in relation to issues such as
I. board composition and development,
II. remuneration,
III. Accountability,
IV. audit, and
V. relations with shareholders.
Leadership
Every company should be headed by
an effective board which is
collectively responsible for the long
term success of the company
Principles of
Corporate
Governance
A
Accountability
B
Organizations should clarify and make
publicly known the roles and
responsibilities of the board and
management to provide shareholders with
a level of accountability
C
Transparency
D
a degree of clarity and openness about
how decisions are taken Transparency is
the basis of good governance and the first
step in fighting corruption.
Growth of Wealth and Its
Distribution
Corporate governance affects the
performance of economic entities and their
ability to attract the capital required for
economic growth
Promulgation of
2019 Regulations
On September 25, 2019, the Securities and Exchange Commission of Pakistan (SECP) issued the Listed Companies
(Code of Corporate Governance) Regulations, 2019 (“2019 Code”) under the powers conferred under section 156 read
with section 512 of the Companies Act 2017, superseding the Listed Companies (Code of Corporate Governance)
Regulations, 2017 (“2017 Code”).
It is believed that the corporate governance in this new regime will be more driven by principles than rules, therefore,
decision making process of listed companies would be under the spotlight.
the flexibility allows organizations to think out of the box as an alternate course of action could be followed, while
ensuring transparency.
Sec 156 & 512 of
Companies Act
The Securities and Exchange Commission of
Pakistan (SECP) may provide for framework to
ensure good corporate governance practices,
compliance and matters incidental and related for
companies or class of companies in a manner as
may be specified.
Accordingly, as was the case with the 2017 Code,
the SECP through SRO 1163(I)/2019 dated
September 25, 2019 issued the regulations, ‘the
Listed Companies (Code of Corporate Governance)
Regulations, 2019.
Applicability to Listed
Companies only
The 2019 Code is applicable to listed companies
only while the 2017 Code in its scope also included
all other entities, to the extent applicable, where
the statutes and underlying licensing requirements
requires such entities to comply with the 2017
Code.
The Companies Act, 2017 states that listed
company means a public company, body corporate
or any other entity whose securities are listed on
securities exchange.
Types of Regulations
Contained in Code 2019
The 2019 Code on an overall basis contains
regulations of the following three types:
i.
Mandatory Regulations;
ii. Non-mandatory Regulations; and
iii. Other provisions, which may be called as
‘recommendatory Regulations
Critical Analysis of
Regulations
Recommendatory
Regulations
there are certain
Regulations in which
word ‘may’ and / or
‘encouraged’ have been
used.
29%
01
Critical
Analysis of
Code 2019
03
49%
02
Non-Mandatory Regulations
is based on ‘comply or explain
approach’ except the provisions for
which it is
explicitly stated as ‘mandatory’.
21%
Mandatory
Regulations
means such provisions
that are construed to
be
strictly complied with
by the company
Mandatory Regulations
The 2019 Code is based on ‘comply or explain
approach’ except the requirements for which it is
explicitly stated as ‘mandatory’.
‘Mandatory’ in relation to the 2019 Code, means
such provisions that are construed to be strictly
complied with by the company and noncompliance of such regulations leads to penal
proceedings under regulation 37 of the 2019 Code.
Number of Directorship Reg 03
Subject to the requirements of section 155 of the Act, it
is mandatory that no person shall be elected or
nominated or hold office as a director of a listed
company including as an alternate director of more than
seven listed companies simultaneously:
Composition of Board
Diversity in Board Regulation 04
➢ The board of directors shall comprises of
members having the
o core competencies,
o diversity,
o requisite skills,
o knowledge,
o experience and
o fulfils any other criteria relevant in the
context of the company’s operations.
Composition of Board
In Listed Companies
The 2019 SECP through its Frequently Asked
Questions (FAQs) explained that if there are 07
directors on the board of a listed company, the
composition as per the 2017 Code would be
o
two independent directors,
o
two executive directors [including the Chief
Executive Officer (CEO)] and
o
three nonexecutive directors.
Independent director at least two or ⅓ with explanation of fraction
not rounded up as one
It is mandatory that each listed company shall have at least two or
one third members of the Board, whichever is higher, as independent
directors.
a listed company shall explain the reasons, in the compliance report, if
any fraction contained in such one-third number which is not rounded
up as one.
For the purpose of electing independent director, the Board shall be
reconstituted not later than expiry of its current term.
It is mandatory that the independent director shall submit his
consent to act as director, along with declaration to the company that
he qualifies the criteria of independence notified under the Act.
such declaration shall be submitted to chairman of the Board at first
meeting which is held after election of directors as well as on an event
of any change affecting his independence.
Independent director Under
Sec 166 Companies Act 2017
An independent director means a director who is
not connected or does not have any other
relationship, whether financial or otherwise, with
o the company,
o its associated companies,
o subsidiaries,
o holding company or
o directors; and
he can be reasonably perceived as being able to
use independent business judgment without
being submissive to any form of conflict of
interest.
A director shall not be considered independent if one or more of the following circumstances exist
a) he has been an employee of the company, any of its subsidiaries or holding company within the last three years;
b) he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or
holding company in the last three years;
c) he has a material business relationship with the company either directly, or indirectly as a partner, major
shareholder or director of a body that has such a relationship with the company or has had within the last three
years.
d) he has received remuneration in the three years preceding his/her appointment as a director or receives
additional remuneration.
e) he is a close relative of the company‘s promoters, directors or major shareholders
f) he holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies not being the associations licenced under section 42
g) he has served on the board for more than three consecutive terms from the date of his first appointment, and
for more than two consecutive terms in case of a public sector company
h) a person nominated as a director under sections 164 and 165
close relative‖ means spouse(s), lineal ascendants and descendants and siblings;
For (a), (b) and (c) in respect of public sector companies, the time
period shall be taken as two years instead of three years.
an independent director in case of a public sector company shall not
be in the service of Pakistan or of any statutory body or any body or
institution owned or controlled by the Government.
An independent director to be appointed under any law, rules, regulations or
code, shall be selected from a data bank containing
o names,
o Addresses,
o qualifications of persons who are eligible and
o willing to act as independent directors.
Such data bank can be maintained by any institute, body or association, as may
be notified by the Commission, having expertise in creation and maintenance of
such data bank and post on their website for the use by the company making the
appointment of such directors.
No individual shall be selected for the data bank without his consent in writing.
Responsibility of exercising due diligence before selecting a person from the data
bank referred to above, as an independent director shall lie with the company or
the Government, as the case may be, making such appointment.
The independent director of a listed company shall be elected in the same
manner as other directors are elected in terms of section 159 and the statement of
material facts annexed to the notice of the general meeting called for the purpose
shall indicate the justification for choosing the appointee for appointment as
independent director.
Executive directors not to be more than ⅓ with explanation of
fraction rounded up as one
The maximum number of executive directors,
including the CEO not be more than ⅓ of the
board of directors.
A listed company shall explain the reasons, in
compliance report, any fraction contained in such
one-third number which is rounded up as one.
Applicability: When the Board shall be
reconstituted not later than expiry of its current
term.
Executive director means a director who devotes
the whole or substantially the whole of his time
(whether paid or not) to the operations of the
company.
Female Director Reg 07
it is mandatory that the Board shall have at least one
female director when it is reconstituted after the
expiry of its current term.
Chairman of the Board Reg 09
The Chairman and the chief executive officer of a
company, by whatever name called, shall not be
the same person.
The Chairman shall be elected subject to the terms
and conditions and responsibilities provided
under section 192 of the Act and these
Regulations.
Chairman of the Board under Sec 192
of Companies Act 2017
(1) The board of a listed company shall within fourteen days from the
date of election of directors, appoint a chairman from among the nonexecutive directors who shall hold office for a period of three years
unless he earlier resigns, becomes ineligible or disqualified under any
provision of this Act or removed by the directors.
(2) The board shall clearly define the respective roles and responsibilities
of the chairman and chief executive.
(3) The chairman shall be responsible for leadership of the board and
ensure that the board plays an effective role in fulfilling its
responsibilities.
(4) Every financial statements circulated under section 223 of this Act
shall contain a review report by the chairman on the overall
performance of the board and effectiveness of the role played by the
board in achieving the company‘s objectives.
Representation of Minority
shareholders
(1) The minority members as a class shall be facilitated by the Board to
contest election of directors by proxy solicitation, for which purpose,
the listed companies shall:
(i) annex to the notice issued under sub-section (4) of section 159 of the
Act, a statement by a candidate from among the minority
shareholders who seeks to contest election to the Board, including a
profile of the candidate(s);
(ii) provide information regarding members and shareholding structure
to the candidate(s); and
(iii) on a request by the candidate(s) and at the cost of the company,
annex to the notice issued under sub-section (4) of section 159 of the
Act, an additional copy of proxy form duly filled in by such
candidate(s).
REMUNERATION OF DIRECTORS
Formal Policy Reg 16
The Board shall have in place a formal policy and transparent procedure
for fixing the remuneration packages of individual directors for attending
meetings of the Board and its committees.
Determination of remuneration Reg 17
No director shall determine his own remuneration and levels of
remuneration shall be appropriate and commensurate with the level of
responsibility and expertise, to attract and retain directors needed to
govern affairs of the company successfully and to encourage value
addition provided that it shall not be at a level that could be perceived to
compromise their independence.
The process adopted for determination of director’s remuneration shall
comply with the provisions of the Act and the company’s articles of
association.
Penalty limited to only for
mandatory provisions of Code
2019
The scale of penalty is same as given in both the
codes, i.e. the 2017 Code and the 2019 Code,
which is a penalty
o
may extend to Rs. 5 million and,
o
where the contravention is a continuing one,
with a further penalty that may extend to Rs.
100,000 for every day after the first during
which such contravention continues.
COMMITTEES OF THE BOARD
Audit Committee Regulation 27
o It is mandatory that the audit committee shall be constituted by the
Board keeping in view the following requirements,(i) the Board shall establish an audit committee of at least three
members comprising of non-executive directors and at least one
independent director;
(ii) chairman of the committee shall be an independent director, who
shall not be the chairman of the Board;
(iii) the Board shall satisfy itself that at least one member of the audit
committee shall be “financially literate”
(iv) the Audit Committee of a company shall appoint a secretary of the
committee who shall either be the company secretary or head of
internal audit.
o chief executive officer and the chief financial officer shall not be
members of the audit committee but should be available to attend its
meetings at the invitation of the chairman of audit committee.
o The audit committee shall meet the external auditors without the chief
financial officer and the head of internal audit being present
o At least once a year, the audit committee shall meet the head of
internal audit and other members of the internal audit function
without the chief financial officer and the external auditors being
present.
o It is mandatory that the Board of every company shall determine the
terms of reference of the audit committee
o It is mandatory that the Board shall provide adequate resources and
authority to enable the audit committee to carry out its responsibilities
effectively and the terms of reference of the audit committee shall be
explicitly documented which shall also include the following,- ( refer to
Code 2019)
o It is mandatory that the secretary of audit committee shall circulate
minutes of meetings of the audit committee to all members, directors,
head of internal audit and where required to chief financial officer prior
to the next meeting of the Board:
“financial literate”
o means a person who,(a) is a member of a recognized body of professional accountants; or
(b) has a post graduate degree in finance from a university or equivalent
institution, either in Pakistan or abroad, recognized by the Higher
Education Commission of Pakistan; or
(c) has at least ten (10) years of experience as audit committee member;
or
(d) at least twenty (20) years of senior management experience in
overseeing of financial, audit related matters.
Human Resource and Remuneration
Committee
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Human Resource and Remuneration
Committee Reg 28
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Nomination Committee Reg 29
o The Board may constitute a separate committee, designated as the nomination
committee, of such number and class of directors, as it may deem appropriate
in its circumstances.
o The nomination committee shall be responsible for,(i) considering and making recommendations to the Board in respect of the
Board’s committees and the chairmanship of the Board’s committees; and
(ii) keeping the structure, size and composition of the Board under regular
review and for making recommendations to the Board with regard to any
changes necessary.
o The terms of reference of nomination committee shall be determined by the
Board ensuring there is no duplication or conflict with matters stipulated
under terms of reference of Human Resource and Remuneration (HR&R)
Committee.
Risk Management Committee Reg 30
o The Board may constitute the risk management committee, of such number
and class of directors, as it may deem appropriate in its circumstances, to
carry out a review of effectiveness of risk management procedures and present
a report to the Board.
o The terms of reference of the committee may include the following,(i) monitoring and review of all material controls (financial, operational,
compliance);
(ii) risk mitigation measures are robust and integrity of financial information is
ensured; and
(iii) appropriate extent of disclosure of company’s risk framework and internal
control system in Directors report.
Comply or explain approach
The 2019 Code is based on ‘comply or explain
approach’ except the provisions for which it is
explicitly stated as ‘mandatory’.
Comply or Explain approach means discretion of a
company with respect to non-mandatory
provisions of the 2019 Code either to comply or
provide appropriate explanation as to any
impediment in its compliance in the compliance
report along with the financial statements.
‘comply or explain’ approach it is recognized that
an alternate way of fulfilling a nonmandatory
provision may be justified in particular
circumstances if objective of good governance can
be achieved.
Chief Financial Officer, Company Secretary and Head of Internal Audit
Qualification of chief financial Regulation 22
➢ A person shall not be appointed as the chief financial officer of a company unless:
a) he/ she has at least three years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is a member of the Institute of Chartered Accountants of Pakistan or
o Institute of Cost and Management Accountants of Pakistan; or
b) he/ she has at least five years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is either a member of professional body of accountants whose qualification is recognized as equivalent to post graduate
degree by HEC or
o has a postgraduate degree in finance from a university in Pakistan or
o equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC).
c) he/ she has at least seven years of managerial experience in fields of
o audit or accounting or in managing financial or
o corporate affairs functions of a company and
o has a suitable degree from a university in Pakistan or
o abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan
(HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification of Internal Auditor Regulation 23
A person shall not be appointed as the head of internal audit unless:
a) he/she
i. has three years of relevant experience in audit or finance or compliance function and
ii. is a member of the Institute of Chartered Accountants of Pakistan or
iii. Institute of Cost and Management Accountants of Pakistan; or
b) he/she
i. has five years of relevant experience in audit or finance or compliance function and:
ii. is a Certified Internal Auditor; or
iii. is a Certified Fraud Examiner; or
iv. is a Certified Internal Control Auditor; or
v. has a post graduate degree in business, finance from a university or
vi. equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC) and
vii. is a member of a professional body relevant to such qualification, if applicable.
c) he/ she
has at least seven years of managerial experience in fields of audit or accounting or
in managing financial or corporate affairs functions of a company and
has a suitable degree from a university in Pakistan or
abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan (HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification
of
Regulation 24
Company
Secretary
o No person shall be appointed as the Company Secretary unless he holds the
qualification as specified under the relevant Regulations by the Commission
Approval Regulation 20
The board of directors shall determine
o appointment,
o remuneration,
o terms and conditions of employment of
chief financial officer, company secretary and head of internal audit of companies.
Removal Regulation 21
o The removal of the chief financial officer, company secretary and head of
internal audit of a company shall be made with the approval of the board of
directors
o The head of internal audit may be removed upon recommendation of the audit
committee.
The term “removal” shall include non-renewal of contract.
Responsibility for Financial Reporting
and Corporate Compliance
Financial statement endorsed by chief financial
officer and chief executive officer Regulation 25
The chief executive officer and the chief financial officer shall duly endorse
i. the quarterly,
ii. half-yearly and
iii. annual financial statements
under their respective signatures prior to placing and circulating the same for
consideration and approval of the board of directors.
External Auditor Regulation 26
Chief executive officer and chief financial officer shall have the annual and
interim financial statement (both separate and consolidated where applicable)
initialed by the external auditors before presenting it to the audit committee and
the board of directors for approval.
Composition of internal audit function Reg 31
o There shall be an internal audit function in every company.
o The head of internal audit shall functionally report to the audit committee and
administratively to the chief executive officer and his performance appraisal
shall be done jointly by the Chairman of the audit committee and the chief
executive officer.
o No director on the Board, shall be appointed, in any capacity, in the internal
audit function of the company.
o The Board shall ensure that the internal audit team comprises of experts of
relevant disciplines in order to cover all major heads of accounts maintained
by the company.
o The company shall ensure that head of internal audit is suitably qualified,
experienced and conversant with the company's policies and procedures.
o The internal audit function, wholly or partially, may be outsourced by the
company to a professional services firm or be performed by the internal audit
staff of holding company and in lieu of outsourcing, the company shall appoint
or designate a fulltime employee other than chief financial officer, as head of
internal audit holding equivalent qualification prescribed under these
Regulations, to act as coordinator between firm providing internal audit
services and the Board:
o while outsourcing the function, the company shall not appoint its existing
external auditors or any of its associated company or associated undertaking,
as internal auditors.
o All companies shall ensure that internal audit reports are provided for the
review of external auditors.
o The auditors shall discuss any major findings in relation to the reports with
the audit committee, which shall report matters of significance to the Board.
Terms of appointment of external auditor Reg 32
o It is mandatory that no company shall appoint an external auditors, a firm of
auditors, which has not been given a satisfactory rating under the Quality
Control Review program of the Institute of Chartered Accountants of Pakistan
and registered with Audit Oversight Board of Pakistan under section 36I of the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
o It is mandatory that no company shall appoint as external auditors, a firm of
auditors which or a partner of which is non-compliant with the International
Federation of Accountants' Guidelines on Code of Ethics, as adopted by the
Institute of Chartered Accountants of Pakistan.
o It is mandatory that the Board of a company shall recommend appointment of
external auditors for a year and its remuneration, as suggested by the audit
committee and such recommendations shall be included in the Directors’ Report
and in case a recommendation for appointment of an auditor is other than the
retiring auditor, the reasons for the same shall be included in the Directors’
Report.
o It is mandatory that no company shall appoint its external auditors to provide
services in addition to audit except in accordance with these Regulations and
shall require the auditors to observe applicable International Federation of
Accountants guidelines in this regard.
o It is mandatory that the company shall ensure that the auditors do not perform
management functions or make management decisions, responsibility for which
remains with the Board and management of the company.
o It is mandatory that no company shall appoint a person as an external auditor or a
person involved in the audit of a company who is a close relative (spouse, parents,
dependents and non-dependent children) of the chief executive officer, the chief
financial officer, the head of internal audit, the company secretary or a director of the
company.
o It is mandatory that every company requires the external auditors to furnish a
management letter to its Board within 45 days of the date of audit report: Provided that
any matter deemed significant by the external auditor shall be communicated in writing
to the Board prior to the approval of the audited accounts by the Board.
Rotation of auditors Regulation 33
o It is mandatory that all listed companies in the financial sector shall change their external
auditors every five years
o All inter related companies/ institutions, engaged in business of providing financial
services shall appoint the same firm of auditors to conduct the audit of their accounts.
o Explanation:- Financial sector, for this purpose, means banks, non-banking financial
companies (NBFCs), modarabas and insurance or takaful insurance companies.
o It is mandatory that all listed companies other than those in the financial sector shall, at
the minimum, rotate the engagement partner after every five years.
o Provided that in case the audit firm is a sole proprietorship then after completion of five
years such audit firm shall be changed.
BOARD OF DIRECTORS, ITS MEMBERS AND MEETING OF
BOARD
Agenda and discussion in meetings Regulation 11
The Chairman shall set agenda of the meeting of the Board and ensure that reasonable time is available for
discussion of the same.
All written notices and relevant material, including the agenda of the meeting shall be circulated at least
seven days prior to the meeting, except in the case of emergency meeting, where the notice period may be
reduced or waived.
Minutes of meeting Regulation 12
The Chairman shall ensure that minutes of the meetings of the Board are kept in accordance with the
requirements of section 178 and 179 of the Act.
The company secretary shall be secretary to the Board.
Dissenting note
Where a director of a company is of the view that his dissenting note has not been satisfactorily recorded
in the minutes of a meeting, the matter may be referred to the company secretary for appending such note
to the minutes.
where the company secretary fails to do so, the director may file an objection with the Commission in the
form of a statement to that effect within 30 days of the date of confirmation of the minutes of the
meeting.
Attendance at meeting Regulation 13
The chief financial officer and company secretary or in their absence, the nominee appointed by
the Board, shall attend all meetings of the Board:
The chief financial officer and company secretary shall not attend such part of the Board meeting
wherein
a) agenda item relates to consideration of their performance or terms and conditions of their
service or
b) when, in the opinion of the Board, their presence in the meeting on any agenda item is likely
or may tend to impair the organizational discipline and harmony of the company.
ISSUES TO BE PLACED FOR DECISION OF THE
BOARD OF DIRECTORS
The chief executive officer of the company shall place issues for the information, consideration
and decision, as the case may be,
a)Significant issues.
b)Related party transactions.
Significant issues Reg 14
that include but are not limited to the following:
1. as soon as chief executive officer foresees risk of default concerning obligations on
any loans (including penalties and other dues to a creditor, bank or financial
institution or default in payment of public deposit), Term Finance Certificates (TFCs),
Sukuk or any other debt instrument, the same shall be brought to the attention of the
Board;
2. annual business plan, cash flow projections, forecasts and strategic plan;
3. budgets including capital, manpower and overhead budgets, along with variance
analysis;
4. matters recommended and/or reported by the audit committee and other committees
of the Board
5. quarterly operating results of the company as a whole and in terms of its operating
divisions or business segments;
Related party transactions Reg 15
The details of all related party transactions shall be placed periodically before the audit
committee of the company and upon recommendations of the audit committee, the
same shall be placed before the Board for review and approval
Provided where majority of the directors are interested in such transactions, the
matter shall be placed before the general meeting for approval.
The provisions in the 2019 Code with words such as ‘may’
and / or ‘encouraged’
In addition to the mandatory and non-mandatory provisions stipulated in the 2019 Code, there
are certain regulations / clauses in the 2019 Code in which word ‘may’ and / or ‘encouraged’
have been used.
We understand that these clauses remain recommendatory in nature and therefore neither are
mandatory nor fall into ‘comply or explain’ approach.
Certification for directors
under DTP not compulsory Now
In accordance with the 2017 Code it was compulsory for all
companies to ensure that all the directors on its board have
acquired the prescribed certification under any Director
Training Program (DTP) offered by institutions, local or
foreign, that meet the criteria specified by the SECP and
approved by it. For this purpose certain compliance dates
were also specified.
The 2019 Code has made this DTP as recommendatory as
the 2019 Code now uses the word ‘encouraged’.
Consequently, the requirement for a newly appointed
director on the Board to acquire, the DTP certification
within a period of one year from the date of
appointment as a director on the Board is also
recommendatory.
Further, the SECP’s role in granting exemption to
directors keeping in view the relevancy of minimum of
14 years of education and 15 years of experience on the
board of a listed company has been removed.
Additionally, the provisions relating to exemptions
from the requirements of the DTP certification
which were available in the following cases are
deleted in the 2019 Code:
• An individual having at least 25 years of post qualification
experience in fields of law, audit, tax, finance, corporate affairs,
regulatory or government sector experience and is member of
professional body of accountants whose qualification is
recognized as equivalent to post graduate degree by HEC.
• An individual having at least 30 years of experience in fields of
law, audit, tax, finance, corporate affairs, regulatory or
government sector experience and has a postgraduate degree in
the above mentioned fields from a university in Pakistan or
equivalent recognized and approved by HEC.
Directors’ Training
o It is encouraged that:
(i) by June 30, 2020 at least half of the directors on their Boards;
(ii) by June 30, 2021 at least 75% of the directors on their Boards; and
(iii) by June 30, 2022 all the directors on their Boards have acquired the
prescribed certification under any director training program offered by
institutions, local or foreign, that meet the criteria specified by the
Commission and approved by it.
(iv) A newly appointed director on the Board may acquire, the directors
training program certification within a period of one year from the
date of appointment as a director on the Board:
o director having a minimum of 14 years of education and 15 years of
experience on the Board of a listed company, local and/or foreign, shall
be exempt from the directors training program.
o Companies are also encouraged to arrange training for:
(i) at least one female executive every year under the Directors’ Training
program from year July 2020; and
(ii) at least one head of department every year under the Directors’
Training program from July 2022.
Listed Companies Regulations
Code of Corporate
Governance 2019
A New Regime of
Governance
Stake Holders
Suppliers
Employees and
Managers
Share-Holders
Customers
Society
Government
Corporate governance is the collection of mechanisms, processes and relations by which corporate bodies
are controlled and operated.
The Corporate Governance Code sets out standards of good practice in relation to issues such as
I. board composition and development,
II. remuneration,
III. Accountability,
IV. audit, and
V. relations with shareholders.
Leadership
Every company should be headed by
an effective board which is
collectively responsible for the long
term success of the company
Principles of
Corporate
Governance
A
Accountability
B
Organizations should clarify and make
publicly known the roles and
responsibilities of the board and
management to provide shareholders with
a level of accountability
C
Transparency
D
a degree of clarity and openness about
how decisions are taken Transparency is
the basis of good governance and the first
step in fighting corruption.
Growth of Wealth and Its
Distribution
Corporate governance affects the
performance of economic entities and their
ability to attract the capital required for
economic growth
Promulgation of
2019 Regulations
On September 25, 2019, the Securities and Exchange Commission of Pakistan (SECP) issued the Listed Companies
(Code of Corporate Governance) Regulations, 2019 (“2019 Code”) under the powers conferred under section 156 read
with section 512 of the Companies Act 2017, superseding the Listed Companies (Code of Corporate Governance)
Regulations, 2017 (“2017 Code”).
It is believed that the corporate governance in this new regime will be more driven by principles than rules, therefore,
decision making process of listed companies would be under the spotlight.
the flexibility allows organizations to think out of the box as an alternate course of action could be followed, while
ensuring transparency.
Sec 156 & 512 of
Companies Act
The Securities and Exchange Commission of
Pakistan (SECP) may provide for framework to
ensure good corporate governance practices,
compliance and matters incidental and related for
companies or class of companies in a manner as
may be specified.
Accordingly, as was the case with the 2017 Code,
the SECP through SRO 1163(I)/2019 dated
September 25, 2019 issued the regulations, ‘the
Listed Companies (Code of Corporate Governance)
Regulations, 2019.
Applicability to Listed
Companies only
The 2019 Code is applicable to listed companies
only while the 2017 Code in its scope also included
all other entities, to the extent applicable, where
the statutes and underlying licensing requirements
requires such entities to comply with the 2017
Code.
The Companies Act, 2017 states that listed
company means a public company, body corporate
or any other entity whose securities are listed on
securities exchange.
Types of Regulations
Contained in Code 2019
The 2019 Code on an overall basis contains
regulations of the following three types:
i.
Mandatory Regulations;
ii. Non-mandatory Regulations; and
iii. Other provisions, which may be called as
‘recommendatory Regulations
Critical Analysis of
Regulations
Recommendatory
Regulations
there are certain
Regulations in which
word ‘may’ and / or
‘encouraged’ have been
used.
29%
01
Critical
Analysis of
Code 2019
03
49%
02
Non-Mandatory Regulations
is based on ‘comply or explain
approach’ except the provisions for
which it is
explicitly stated as ‘mandatory’.
21%
Mandatory
Regulations
means such provisions
that are construed to
be
strictly complied with
by the company
Mandatory Regulations
The 2019 Code is based on ‘comply or explain
approach’ except the requirements for which it is
explicitly stated as ‘mandatory’.
‘Mandatory’ in relation to the 2019 Code, means
such provisions that are construed to be strictly
complied with by the company and noncompliance of such regulations leads to penal
proceedings under regulation 37 of the 2019 Code.
Number of Directorship Reg 03
Subject to the requirements of section 155 of the Act, it
is mandatory that no person shall be elected or
nominated or hold office as a director of a listed
company including as an alternate director of more than
seven listed companies simultaneously:
Composition of Board
Diversity in Board Regulation 04
➢ The board of directors shall comprises of
members having the
o core competencies,
o diversity,
o requisite skills,
o knowledge,
o experience and
o fulfils any other criteria relevant in the
context of the company’s operations.
Composition of Board
In Listed Companies
The 2019 SECP through its Frequently Asked
Questions (FAQs) explained that if there are 07
directors on the board of a listed company, the
composition as per the 2017 Code would be
o
two independent directors,
o
two executive directors [including the Chief
Executive Officer (CEO)] and
o
three nonexecutive directors.
Independent director at least two or ⅓ with explanation of fraction
not rounded up as one
It is mandatory that each listed company shall have at least two or
one third members of the Board, whichever is higher, as independent
directors.
a listed company shall explain the reasons, in the compliance report, if
any fraction contained in such one-third number which is not rounded
up as one.
For the purpose of electing independent director, the Board shall be
reconstituted not later than expiry of its current term.
It is mandatory that the independent director shall submit his
consent to act as director, along with declaration to the company that
he qualifies the criteria of independence notified under the Act.
such declaration shall be submitted to chairman of the Board at first
meeting which is held after election of directors as well as on an event
of any change affecting his independence.
Independent director Under
Sec 166 Companies Act 2017
An independent director means a director who is
not connected or does not have any other
relationship, whether financial or otherwise, with
o the company,
o its associated companies,
o subsidiaries,
o holding company or
o directors; and
he can be reasonably perceived as being able to
use independent business judgment without
being submissive to any form of conflict of
interest.
A director shall not be considered independent if one or more of the following circumstances exist
a) he has been an employee of the company, any of its subsidiaries or holding company within the last three years;
b) he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or
holding company in the last three years;
c) he has a material business relationship with the company either directly, or indirectly as a partner, major
shareholder or director of a body that has such a relationship with the company or has had within the last three
years.
d) he has received remuneration in the three years preceding his/her appointment as a director or receives
additional remuneration.
e) he is a close relative of the company‘s promoters, directors or major shareholders
f) he holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies not being the associations licenced under section 42
g) he has served on the board for more than three consecutive terms from the date of his first appointment, and
for more than two consecutive terms in case of a public sector company
h) a person nominated as a director under sections 164 and 165
close relative‖ means spouse(s), lineal ascendants and descendants and siblings;
For (a), (b) and (c) in respect of public sector companies, the time
period shall be taken as two years instead of three years.
an independent director in case of a public sector company shall not
be in the service of Pakistan or of any statutory body or any body or
institution owned or controlled by the Government.
An independent director to be appointed under any law, rules, regulations or
code, shall be selected from a data bank containing
o names,
o Addresses,
o qualifications of persons who are eligible and
o willing to act as independent directors.
Such data bank can be maintained by any institute, body or association, as may
be notified by the Commission, having expertise in creation and maintenance of
such data bank and post on their website for the use by the company making the
appointment of such directors.
No individual shall be selected for the data bank without his consent in writing.
Responsibility of exercising due diligence before selecting a person from the data
bank referred to above, as an independent director shall lie with the company or
the Government, as the case may be, making such appointment.
The independent director of a listed company shall be elected in the same
manner as other directors are elected in terms of section 159 and the statement of
material facts annexed to the notice of the general meeting called for the purpose
shall indicate the justification for choosing the appointee for appointment as
independent director.
Executive directors not to be more than ⅓ with explanation of
fraction rounded up as one
The maximum number of executive directors,
including the CEO not be more than ⅓ of the
board of directors.
A listed company shall explain the reasons, in
compliance report, any fraction contained in such
one-third number which is rounded up as one.
Applicability: When the Board shall be
reconstituted not later than expiry of its current
term.
Executive director means a director who devotes
the whole or substantially the whole of his time
(whether paid or not) to the operations of the
company.
Female Director Reg 07
it is mandatory that the Board shall have at least one
female director when it is reconstituted after the
expiry of its current term.
Chairman of the Board Reg 09
The Chairman and the chief executive officer of a
company, by whatever name called, shall not be
the same person.
The Chairman shall be elected subject to the terms
and conditions and responsibilities provided
under section 192 of the Act and these
Regulations.
Chairman of the Board under Sec 192
of Companies Act 2017
(1) The board of a listed company shall within fourteen days from the
date of election of directors, appoint a chairman from among the nonexecutive directors who shall hold office for a period of three years
unless he earlier resigns, becomes ineligible or disqualified under any
provision of this Act or removed by the directors.
(2) The board shall clearly define the respective roles and responsibilities
of the chairman and chief executive.
(3) The chairman shall be responsible for leadership of the board and
ensure that the board plays an effective role in fulfilling its
responsibilities.
(4) Every financial statements circulated under section 223 of this Act
shall contain a review report by the chairman on the overall
performance of the board and effectiveness of the role played by the
board in achieving the company‘s objectives.
Representation of Minority
shareholders
(1) The minority members as a class shall be facilitated by the Board to
contest election of directors by proxy solicitation, for which purpose,
the listed companies shall:
(i) annex to the notice issued under sub-section (4) of section 159 of the
Act, a statement by a candidate from among the minority
shareholders who seeks to contest election to the Board, including a
profile of the candidate(s);
(ii) provide information regarding members and shareholding structure
to the candidate(s); and
(iii) on a request by the candidate(s) and at the cost of the company,
annex to the notice issued under sub-section (4) of section 159 of the
Act, an additional copy of proxy form duly filled in by such
candidate(s).
REMUNERATION OF DIRECTORS
Formal Policy Reg 16
The Board shall have in place a formal policy and transparent procedure
for fixing the remuneration packages of individual directors for attending
meetings of the Board and its committees.
Determination of remuneration Reg 17
No director shall determine his own remuneration and levels of
remuneration shall be appropriate and commensurate with the level of
responsibility and expertise, to attract and retain directors needed to
govern affairs of the company successfully and to encourage value
addition provided that it shall not be at a level that could be perceived to
compromise their independence.
The process adopted for determination of director’s remuneration shall
comply with the provisions of the Act and the company’s articles of
association.
Penalty limited to only for
mandatory provisions of Code
2019
The scale of penalty is same as given in both the
codes, i.e. the 2017 Code and the 2019 Code,
which is a penalty
o
may extend to Rs. 5 million and,
o
where the contravention is a continuing one,
with a further penalty that may extend to Rs.
100,000 for every day after the first during
which such contravention continues.
COMMITTEES OF THE BOARD
Audit Committee Regulation 27
o It is mandatory that the audit committee shall be constituted by the
Board keeping in view the following requirements,(i) the Board shall establish an audit committee of at least three
members comprising of non-executive directors and at least one
independent director;
(ii) chairman of the committee shall be an independent director, who
shall not be the chairman of the Board;
(iii) the Board shall satisfy itself that at least one member of the audit
committee shall be “financially literate”
(iv) the Audit Committee of a company shall appoint a secretary of the
committee who shall either be the company secretary or head of
internal audit.
o chief executive officer and the chief financial officer shall not be
members of the audit committee but should be available to attend its
meetings at the invitation of the chairman of audit committee.
o The audit committee shall meet the external auditors without the chief
financial officer and the head of internal audit being present
o At least once a year, the audit committee shall meet the head of
internal audit and other members of the internal audit function
without the chief financial officer and the external auditors being
present.
o It is mandatory that the Board of every company shall determine the
terms of reference of the audit committee
o It is mandatory that the Board shall provide adequate resources and
authority to enable the audit committee to carry out its responsibilities
effectively and the terms of reference of the audit committee shall be
explicitly documented which shall also include the following,- ( refer to
Code 2019)
o It is mandatory that the secretary of audit committee shall circulate
minutes of meetings of the audit committee to all members, directors,
head of internal audit and where required to chief financial officer prior
to the next meeting of the Board:
“financial literate”
o means a person who,(a) is a member of a recognized body of professional accountants; or
(b) has a post graduate degree in finance from a university or equivalent
institution, either in Pakistan or abroad, recognized by the Higher
Education Commission of Pakistan; or
(c) has at least ten (10) years of experience as audit committee member;
or
(d) at least twenty (20) years of senior management experience in
overseeing of financial, audit related matters.
Human Resource and Remuneration
Committee
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Human Resource and Remuneration
Committee Reg 28
o There shall be a human resource and remuneration committee of at least three
members comprising a majority of non-executive directors of whom at least
one member shall be an independent director.
o The chairman of the committee shall be an independent director and the chief
executive officer may be included as a member of the committee.
o The committee shall meet at least once in a financial year and may meet more
often if requested by a member of the Board, or committee itself or the chief
executive officer
o The head of human resource or any other person appointed by the Board may
act as the secretary of the committee
o The chief executive officer (if not a member of the committee), head of human
resource (if not the secretary to committee) or any other advisor or person
may attend the meeting only by invitation.
o A member of the committee shall not participate in the proceedings of the
committee when an agenda item relating to his performance or review or
renewal of the terms and conditions of his service comes up for consideration.
o The terms of reference of committee shall be determined by the Board which
may include the following,- (Refer to the Code 2019)
Nomination Committee Reg 29
o The Board may constitute a separate committee, designated as the nomination
committee, of such number and class of directors, as it may deem appropriate
in its circumstances.
o The nomination committee shall be responsible for,(i) considering and making recommendations to the Board in respect of the
Board’s committees and the chairmanship of the Board’s committees; and
(ii) keeping the structure, size and composition of the Board under regular
review and for making recommendations to the Board with regard to any
changes necessary.
o The terms of reference of nomination committee shall be determined by the
Board ensuring there is no duplication or conflict with matters stipulated
under terms of reference of Human Resource and Remuneration (HR&R)
Committee.
Risk Management Committee Reg 30
o The Board may constitute the risk management committee, of such number
and class of directors, as it may deem appropriate in its circumstances, to
carry out a review of effectiveness of risk management procedures and present
a report to the Board.
o The terms of reference of the committee may include the following,(i) monitoring and review of all material controls (financial, operational,
compliance);
(ii) risk mitigation measures are robust and integrity of financial information is
ensured; and
(iii) appropriate extent of disclosure of company’s risk framework and internal
control system in Directors report.
Comply or explain approach
The 2019 Code is based on ‘comply or explain
approach’ except the provisions for which it is
explicitly stated as ‘mandatory’.
Comply or Explain approach means discretion of a
company with respect to non-mandatory
provisions of the 2019 Code either to comply or
provide appropriate explanation as to any
impediment in its compliance in the compliance
report along with the financial statements.
‘comply or explain’ approach it is recognized that
an alternate way of fulfilling a nonmandatory
provision may be justified in particular
circumstances if objective of good governance can
be achieved.
Chief Financial Officer, Company Secretary and Head of Internal Audit
Qualification of chief financial Regulation 22
➢ A person shall not be appointed as the chief financial officer of a company unless:
a) he/ she has at least three years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is a member of the Institute of Chartered Accountants of Pakistan or
o Institute of Cost and Management Accountants of Pakistan; or
b) he/ she has at least five years of managerial experience in fields of
o audit or accounting or
o in managing financial or corporate affairs functions of a company and
o is either a member of professional body of accountants whose qualification is recognized as equivalent to post graduate
degree by HEC or
o has a postgraduate degree in finance from a university in Pakistan or
o equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC).
c) he/ she has at least seven years of managerial experience in fields of
o audit or accounting or in managing financial or
o corporate affairs functions of a company and
o has a suitable degree from a university in Pakistan or
o abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan
(HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification of Internal Auditor Regulation 23
A person shall not be appointed as the head of internal audit unless:
a) he/she
i. has three years of relevant experience in audit or finance or compliance function and
ii. is a member of the Institute of Chartered Accountants of Pakistan or
iii. Institute of Cost and Management Accountants of Pakistan; or
b) he/she
i. has five years of relevant experience in audit or finance or compliance function and:
ii. is a Certified Internal Auditor; or
iii. is a Certified Fraud Examiner; or
iv. is a Certified Internal Control Auditor; or
v. has a post graduate degree in business, finance from a university or
vi. equivalent recognized and approved by the Higher Education Commission of Pakistan (HEC) and
vii. is a member of a professional body relevant to such qualification, if applicable.
c) he/ she
has at least seven years of managerial experience in fields of audit or accounting or
in managing financial or corporate affairs functions of a company and
has a suitable degree from a university in Pakistan or
abroad equivalent to graduate degree, recognized and approved by the Higher Education Commission of Pakistan (HEC).
The Commission, on application from the company, shall determine the suitability of such candidate.
Qualification
of
Regulation 24
Company
Secretary
o No person shall be appointed as the Company Secretary unless he holds the
qualification as specified under the relevant Regulations by the Commission
Approval Regulation 20
The board of directors shall determine
o appointment,
o remuneration,
o terms and conditions of employment of
chief financial officer, company secretary and head of internal audit of companies.
Removal Regulation 21
o The removal of the chief financial officer, company secretary and head of
internal audit of a company shall be made with the approval of the board of
directors
o The head of internal audit may be removed upon recommendation of the audit
committee.
The term “removal” shall include non-renewal of contract.
Responsibility for Financial Reporting
and Corporate Compliance
Financial statement endorsed by chief financial
officer and chief executive officer Regulation 25
The chief executive officer and the chief financial officer shall duly endorse
i. the quarterly,
ii. half-yearly and
iii. annual financial statements
under their respective signatures prior to placing and circulating the same for
consideration and approval of the board of directors.
External Auditor Regulation 26
Chief executive officer and chief financial officer shall have the annual and
interim financial statement (both separate and consolidated where applicable)
initialed by the external auditors before presenting it to the audit committee and
the board of directors for approval.
Composition of internal audit function Reg 31
o There shall be an internal audit function in every company.
o The head of internal audit shall functionally report to the audit committee and
administratively to the chief executive officer and his performance appraisal
shall be done jointly by the Chairman of the audit committee and the chief
executive officer.
o No director on the Board, shall be appointed, in any capacity, in the internal
audit function of the company.
o The Board shall ensure that the internal audit team comprises of experts of
relevant disciplines in order to cover all major heads of accounts maintained
by the company.
o The company shall ensure that head of internal audit is suitably qualified,
experienced and conversant with the company's policies and procedures.
o The internal audit function, wholly or partially, may be outsourced by the
company to a professional services firm or be performed by the internal audit
staff of holding company and in lieu of outsourcing, the company shall appoint
or designate a fulltime employee other than chief financial officer, as head of
internal audit holding equivalent qualification prescribed under these
Regulations, to act as coordinator between firm providing internal audit
services and the Board:
o while outsourcing the function, the company shall not appoint its existing
external auditors or any of its associated company or associated undertaking,
as internal auditors.
o All companies shall ensure that internal audit reports are provided for the
review of external auditors.
o The auditors shall discuss any major findings in relation to the reports with
the audit committee, which shall report matters of significance to the Board.
Terms of appointment of external auditor Reg 32
o It is mandatory that no company shall appoint an external auditors, a firm of
auditors, which has not been given a satisfactory rating under the Quality
Control Review program of the Institute of Chartered Accountants of Pakistan
and registered with Audit Oversight Board of Pakistan under section 36I of the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
o It is mandatory that no company shall appoint as external auditors, a firm of
auditors which or a partner of which is non-compliant with the International
Federation of Accountants' Guidelines on Code of Ethics, as adopted by the
Institute of Chartered Accountants of Pakistan.
o It is mandatory that the Board of a company shall recommend appointment of
external auditors for a year and its remuneration, as suggested by the audit
committee and such recommendations shall be included in the Directors’ Report
and in case a recommendation for appointment of an auditor is other than the
retiring auditor, the reasons for the same shall be included in the Directors’
Report.
o It is mandatory that no company shall appoint its external auditors to provide
services in addition to audit except in accordance with these Regulations and
shall require the auditors to observe applicable International Federation of
Accountants guidelines in this regard.
o It is mandatory that the company shall ensure that the auditors do not perform
management functions or make management decisions, responsibility for which
remains with the Board and management of the company.
o It is mandatory that no company shall appoint a person as an external auditor or a
person involved in the audit of a company who is a close relative (spouse, parents,
dependents and non-dependent children) of the chief executive officer, the chief
financial officer, the head of internal audit, the company secretary or a director of the
company.
o It is mandatory that every company requires the external auditors to furnish a
management letter to its Board within 45 days of the date of audit report: Provided that
any matter deemed significant by the external auditor shall be communicated in writing
to the Board prior to the approval of the audited accounts by the Board.
Rotation of auditors Regulation 33
o It is mandatory that all listed companies in the financial sector shall change their external
auditors every five years
o All inter related companies/ institutions, engaged in business of providing financial
services shall appoint the same firm of auditors to conduct the audit of their accounts.
o Explanation:- Financial sector, for this purpose, means banks, non-banking financial
companies (NBFCs), modarabas and insurance or takaful insurance companies.
o It is mandatory that all listed companies other than those in the financial sector shall, at
the minimum, rotate the engagement partner after every five years.
o Provided that in case the audit firm is a sole proprietorship then after completion of five
years such audit firm shall be changed.
BOARD OF DIRECTORS, ITS MEMBERS AND MEETING OF
BOARD
Agenda and discussion in meetings Regulation 11
The Chairman shall set agenda of the meeting of the Board and ensure that reasonable time is available for
discussion of the same.
All written notices and relevant material, including the agenda of the meeting shall be circulated at least
seven days prior to the meeting, except in the case of emergency meeting, where the notice period may be
reduced or waived.
Minutes of meeting Regulation 12
The Chairman shall ensure that minutes of the meetings of the Board are kept in accordance with the
requirements of section 178 and 179 of the Act.
The company secretary shall be secretary to the Board.
Dissenting note
Where a director of a company is of the view that his dissenting note has not been satisfactorily recorded
in the minutes of a meeting, the matter may be referred to the company secretary for appending such note
to the minutes.
where the company secretary fails to do so, the director may file an objection with the Commission in the
form of a statement to that effect within 30 days of the date of confirmation of the minutes of the
meeting.
Attendance at meeting Regulation 13
The chief financial officer and company secretary or in their absence, the nominee appointed by
the Board, shall attend all meetings of the Board:
The chief financial officer and company secretary shall not attend such part of the Board meeting
wherein
a) agenda item relates to consideration of their performance or terms and conditions of their
service or
b) when, in the opinion of the Board, their presence in the meeting on any agenda item is likely
or may tend to impair the organizational discipline and harmony of the company.
ISSUES TO BE PLACED FOR DECISION OF THE
BOARD OF DIRECTORS
The chief executive officer of the company shall place issues for the information, consideration
and decision, as the case may be,
a)Significant issues.
b)Related party transactions.
Significant issues Reg 14
that include but are not limited to the following:
1. as soon as chief executive officer foresees risk of default concerning obligations on
any loans (including penalties and other dues to a creditor, bank or financial
institution or default in payment of public deposit), Term Finance Certificates (TFCs),
Sukuk or any other debt instrument, the same shall be brought to the attention of the
Board;
2. annual business plan, cash flow projections, forecasts and strategic plan;
3. budgets including capital, manpower and overhead budgets, along with variance
analysis;
4. matters recommended and/or reported by the audit committee and other committees
of the Board
5. quarterly operating results of the company as a whole and in terms of its operating
divisions or business segments;
Related party transactions Reg 15
The details of all related party transactions shall be placed periodically before the audit
committee of the company and upon recommendations of the audit committee, the
same shall be placed before the Board for review and approval
Provided where majority of the directors are interested in such transactions, the
matter shall be placed before the general meeting for approval.
The provisions in the 2019 Code with words such as ‘may’
and / or ‘encouraged’
In addition to the mandatory and non-mandatory provisions stipulated in the 2019 Code, there
are certain regulations / clauses in the 2019 Code in which word ‘may’ and / or ‘encouraged’
have been used.
We understand that these clauses remain recommendatory in nature and therefore neither are
mandatory nor fall into ‘comply or explain’ approach.
Certification for directors
under DTP not compulsory Now
In accordance with the 2017 Code it was compulsory for all
companies to ensure that all the directors on its board have
acquired the prescribed certification under any Director
Training Program (DTP) offered by institutions, local or
foreign, that meet the criteria specified by the SECP and
approved by it. For this purpose certain compliance dates
were also specified.
The 2019 Code has made this DTP as recommendatory as
the 2019 Code now uses the word ‘encouraged’.
Consequently, the requirement for a newly appointed
director on the Board to acquire, the DTP certification
within a period of one year from the date of
appointment as a director on the Board is also
recommendatory.
Further, the SECP’s role in granting exemption to
directors keeping in view the relevancy of minimum of
14 years of education and 15 years of experience on the
board of a listed company has been removed.
Additionally, the provisions relating to exemptions
from the requirements of the DTP certification
which were available in the following cases are
deleted in the 2019 Code:
• An individual having at least 25 years of post qualification
experience in fields of law, audit, tax, finance, corporate affairs,
regulatory or government sector experience and is member of
professional body of accountants whose qualification is
recognized as equivalent to post graduate degree by HEC.
• An individual having at least 30 years of experience in fields of
law, audit, tax, finance, corporate affairs, regulatory or
government sector experience and has a postgraduate degree in
the above mentioned fields from a university in Pakistan or
equivalent recognized and approved by HEC.
Directors’ Training
o It is encouraged that:
(i) by June 30, 2020 at least half of the directors on their Boards;
(ii) by June 30, 2021 at least 75% of the directors on their Boards; and
(iii) by June 30, 2022 all the directors on their Boards have acquired the
prescribed certification under any director training program offered by
institutions, local or foreign, that meet the criteria specified by the
Commission and approved by it.
(iv) A newly appointed director on the Board may acquire, the directors
training program certification within a period of one year from the
date of appointment as a director on the Board:
o director having a minimum of 14 years of education and 15 years of
experience on the Board of a listed company, local and/or foreign, shall
be exempt from the directors training program.
o Companies are also encouraged to arrange training for:
(i) at least one female executive every year under the Directors’ Training
program from year July 2020; and
(ii) at least one head of department every year under the Directors’
Training program from July 2022.
Stages of Incorporation & Promoters
Pre
Incorporation
Incorporation of
Company
Certificate of
Incorporation
Commencement
of Business
Certificate
Companies Incorporation & Promoters
Companies
Incorporation
Pre
Incorporation
Incorporation
Promoters
Sec 2(50)
Named
Memorandum
On whose
Advise
Control
Prospectus
Authority to
appoint
Majority of
BODs
Major Policy
of the
Company
Decisions
Promoters of a Company Sec 2 (50)
Promoter means a person
(a) who is named as a subscriber to the memorandum of association of a
company; or
(b) who has been named as such in a prospectus; or
(c) who has control over affairs of the company. Such control can be directly or
indirectly whether as a shareholder, director or otherwise; or
(d) in accordance with whose advice, directions or instructions the board of the
company is accustomed to act.
A person who is acting merely in a professional capacity cant be regarded as
Promoter of the Company
Reservation of Name Sec 10
•
A person may make an application to the registrar for reservation of a name
mentioned in the application for a period not exceeding sixty ( 60 ) days.
•
Application must be in such form and manner and accompanied by such fee as may
be specified.
•
Where it is found that a name was reserved by furnishing false or incorrect
information, such reservation shall be cancelled.
•
in case the company has been incorporated with false or incorrect information, it
shall be directed to change its name.
•
The person making application shall be liable to a penalty not exceeding level 1 on
the standard scale.
•
If the name applied for is refused by the registrar, the aggrieved person may within
thirty ( 30 ) days of the order of refusal prefer an appeal to the Commission.
•
An order of the Commission shall be final and shall not be called in question before
any court or other authority.
Prohibition of certain names. Sec 10
o Company shall not be registered by a name which contains such word or
expression, as may be notified by the Commission or in the opinion of the
registrar is
i.
identical with or resemble or similar to the name of a company; or
ii.
inappropriate; or
iii.
undesirable; or
iv.
deceptive; or
v.
designed to exploit or offend religious susceptibilities of the people;
vi.
any other ground as may be specified.
Registration of Names with prior approval of SECP
o Except with prior approval in writing of the Commission, company shall not be registered by a name
which contains any word suggesting or calculated to suggest
(a) the patronage of any past or present Pakistani or foreign head of state;
(b) any connection with the Federal Government or a Provincial Government or any department or authority
or statutory body of any such Government;
(c) any connection with any corporation set up by or under any Federal or Provincial law;
(d) the patronage of, or any connection with, any foreign Government or any international organization;
(e) establishing a modaraba management company or to float a modaraba; or
(f) any other business requiring license from the Commission.
o Whenever a question arises as to whether or not the name of a company is in violation of the foregoing
provisions of this section, decision of the Commission shall be final.
Change of name by a company Sec 12,16
o A company may,
a) by special resolution and
b) with approval of the registrar signified in writing,
change its name
o The registrar shall enter the new name on the register in place of the former name.
o Registrar shall issue a certificate of incorporation altered and on the issue of such a
certificate, the change of name shall be complete.
o From the date of issue of such certificate, company shall
a) continue to mention its former name along with its new name for a period of 03
months
b) on the outside of every office or place in which its business is carried on and
c) in every document or notice.
o The change of name shall not affect
a) any rights or obligations of the company, or
b) render defective any legal proceedings by or against the company and
c) any legal proceedings that might have been continued or commenced against the
company by its former name may be continued by or commenced against the
company by its new name.
Registered office of company Sec 21
o A company shall have a registered office to which all communications and
notices shall be addressed
o Within a period of 30 days of its incorporation, notify such office to the registrar
in the specified manner.
o Notice of any change in situation of the registered office shall be given to the
registrar within a period of 15 days after the date of change.
o the change of registered office of a company from
a) one city in a Province to another; or
b) a city to another in any part of Pakistan not forming part of a Province;
shall require approval of general meeting through special resolution.
o If a company fails to comply with the requirements the company and its every
officer who is responsible for such non-compliance shall be liable to a penalty
not exceeding of level 1 on the standard scale
Publication of name by a company. Sec 22
Every company shall
o display in a conspicuous position, in letters easily legible in English or Urdu
characters its name and incorporation number outside the registered office and
every office or the place in which its business is carried on
o display a certified copy of certificate of incorporation at every place of business of
the company;
o get its name, address of its registered office, telephone number, fax number, email
and website addresses, if any, printed on letter-head and all its documents, notices
and other official publications; and
o have its name mentioned in legible English or Urdu characters, in all bills of
exchange, promissory notes, endorsements, cheques and orders for money or
goods purporting to be signed by or on behalf of the company and in all bills of
parcels, invoices, receipts and letters of credit of the company.
Publication of authorised as well as paid-up capital. Sec 25
o Where any notice, advertisement or other official publication of a company
contains a statement of amount of authorised capital of the company, such notice,
advertisement or other official publication shall also contain a statement in an
equally prominent position and in equally conspicuous characters of amount of
the paid up capital.
o Any company which makes default in complying with the requirements of subsection (1) and every officer of the company who is party to the default shall be
liable to a penalty not exceeding of level 1 on the standard scale.
Business and objects of a company. Sec 26 (1)
o A company may carry on or undertake any lawful business or activity and do any act or enter into any
transaction being incidental (related) and ancillary (additional) thereto which is necessary in attaining
its business activities:
o The principal line of business of the company shall be mentioned in the memorandum of association of
the company which shall always commensurate (matching) with name of the company; and
o any change in the principal line of business shall be reported to the registrar within thirty ( 30) days
from the date of change.
Principal line of business
means the business in which substantial assets are held or likely to be held or substantial revenue is earned
or likely to be earned by a company, whichever is higher.
A company shall not engage in a business which is
(a) prohibited by any law for the time being in force in Pakistan; or
(b) restricted by any law, rules or regulations, unless necessary licence, registration, permission or approval
has been obtained or compliance with any other condition has been made.
Memorandum
means the memorandum of association of a company as originally framed or as altered from time to time in pursuance
of company law or of this Act;
Articles
means the articles of association of a company framed in accordance with the company law or this Act;
Alter or Alteration
includes making of additions or omissions without substituting or destroying main scheme of the document;
Memorandum to be printed, signed and dated Sec 31
The memorandum shall be
(a) printed in the manner generally acceptable;
(b) divided into paragraphs numbered consecutively;
(c) signed by each subscriber, who shall add
o his present name in full,
o his occupation
o father‘s name or,
o in the case of a married woman or widow, her husband‘s or deceased husband‘s name in
full,
o his nationality and
o his usual residential address and
such other particulars as may be specified, in the presence of a witness who shall attest the
signature and shall likewise add his particulars; and
(d) dated.
Memorandum of company limited by shares Sec 27
o In the case of a company limited by shares the memorandum shall state
(i) the name of the company with the word
o Limited as last word of the name in the case of a public limited company,
o the parenthesis and words (Private) Limited as last words of the name in the case of a private limited
company, and
o the parenthesis and words (SMC-Private) Limited as last words of the name in the case of a single
member company;
(ii) the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the
registered office of the company is to be situate;
(iii) principal line of business:
(iv) an undertaking as may be specified;
(v) that the liability of the members is limited; and
(vi) the amount of share capital with which the company proposes to be registered and the division
thereof into shares of a fixed amount;
o no subscriber of the memorandum shall take less than one share; and
o each subscriber of the memorandum shall write opposite to his name the number of shares he
agrees to take.
Memorandum of company limited by guarantee. Sec 28
o In the case of a company limited by guarantee the memorandum shall state
(a) the name of the company with the parenthesis and words "(Guarantee) Limited" as last words of its name;
(b) the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the
registered office of the company is to be situate;
(c) principal line of business;
(d) an undertaking as may be specified;
(e) that the liability of the members is limited; and
(f) such amount as may be required, not exceeding a specified amount that each member undertakes to
contribute to the assets of the company in the event of its being wound up while he is a member or within
one year afterwards for payment of the debts and liabilities of the company contracted before he ceases to
be a member and of the costs, charges and expenses of winding up and for adjustment of rights of the
contributories among themselves.
o If the company has a share capital, the memorandum shall also state the amount of share capital with
which the company proposes to be registered and the division thereof into shares of a fixed amount and
the number of shares taken by each subscriber.
Memorandum of unlimited company Sec 29
o In the case of an unlimited company the memorandum shall state
(a) the name of the company with the word ―Unlimited‖ as last words of its name;
(b) the Province or the part of Pakistan not forming part of a Province, as the case may be, in which
registered office of the company is to be situate;
(c) principal line of business;
(d) an undertaking as may be specified;
(e) that the liability of the members is unlimited.
o If the company has a share capital, the memorandum shall also state the amount of share capital with
which the company proposes to be registered and the number of shares taken by each subscriber.
Copies of memorandum and articles to be given to members Sec 39
o Each company shall send to every member, at his request and within 14 days, on payment of such
sum, as the company may fix, a copy of the memorandum and the articles, if any.
Alteration of memorandum Sec 32
A company may by special resolution alter the provisions of its memorandum so as to
(a) change the place of its registered office
o from one Province to another or
o from Islamabad Capital Territory to a part of Pakistan not forming part of a Province and vice versa;
(b) change its principal line of business; or
(c) adopt any business activity or any change therein which is subject to licence, registration, permission or approval
under any law.
Steps of Alteration
i. Company shall pass Special resolution to alter the provisions of its memorandum
ii. File petition with commission and the alteration shall take effect when it is confirmed by the Commission on
petition.
iii. An alteration so as to change its principal line of business shall not require confirmation by the Commission
iv. A copy of the order confirming the alteration duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within 7 days from the date of the order
v. Company shall file a copy of the memorandum of association as altered within 30 days with the registrar
vi. Registrar shall register the same and issue a certificate which shall be conclusive evidence that all the requirements
of this Act with respect to the alteration and the confirmation thereof have been complied with and thenceforth the
memorandum so filed shall be the memorandum of the company
vii. In case of a transfer of registered office from the jurisdiction of one company registration office to another,
physical record of the company shall be transferred to the registrar concerned of the company registration office in
whose jurisdiction the registered office of the company has been shifted
ARTICLES OF ASSOCIATION
o Articles of association signed by the subscribers to the memorandum and setting out regulations for the
company.
o Articles of association of a company limited by shares may adopt all or any of the regulations contained
in Table A in the First Schedule to this Act.
o In the case of
a) an unlimited company or
b) a company limited by guarantee,
the articles, if the company has a share capital, shall state the amount of share capital with which the
company proposes to be registered.
o In the case of
o an unlimited company or
o a company limited by guarantee,
if the company has no share capital, the articles shall state the number of members with which the
company proposes to be registered.
o The articles of every company shall be explicit and without ambiguity
o The articles shall list and enumerate the voting and other rights attached to the different classes of
shares and other securities, if any, issued or to be issued by it.
Articles to be printed, signed and dated Sec 37
The articles shall be
(a) printed in the manner generally acceptable;
(b) divided into paragraphs numbered consecutively;
(c) signed by each subscriber, who shall add
o his present name in full,
o his occupation
o father‘s name or,
o in the case of a married woman or widow, her husband‘s or deceased husband‘s name in full,
o his nationality
o his usual residential address and
o such other particulars as may be specified,
in the presence of a witness who shall attest the signature and shall likewise add his particulars;
And
(d) dated.
Alteration of articles Sec 38
o A company may alter its articles
a) Subject to the provisions of this Act and
b) to the conditions contained in its memorandum and
c) by special resolution and
any alteration so made shall be as valid as if originally contained in the articles and be subject in like
manner to alteration by special resolution.
o where such alteration affects the substantive rights or liabilities of members or of a class of
members, it shall be carried out only if a majority of at least 3/4th of the members or of the class
of members affected by such alteration
o A copy of the articles of association as altered shall, within 30 days from the date of passing of the
resolution, be filed by the company with the registrar and he shall register the same and
thenceforth the articles so filed shall be the articles of the company.
Alteration of memorandum or articles to be noted in every copy Sec 40
o Where an alteration is made in the memorandum or articles of a company, every copy of the
memorandum or articles issued after the date of the alteration shall conform to the memorandum
or articles as so altered.
Form of memorandum and articles.—The form of Sec 41
 memorandum of association of a
company limited by shares;
 memorandum and articles of
association of a company limited by
guarantee and not having a share
capital;
 memorandum and articles of
association of a company limited by
guarantee and having a share capital;
and
 memorandum and articles of
association of an unlimited company
having a share capital,
• shall be in accordance with the form
set out in Table B, in the First
Schedule.
• shall be in accordance with the form
set out in Table C, in the First
Schedule.
• shall be in accordance with the form
set out in Table D, in the First
Schedule.
• shall be in accordance with the form
set out in Table E, in the First
Schedule.
GENERAL PROVISIONS WITH RESPECT TO REGISTRATION OF
MEMORANDUM AND ARTICLES
Registration of memorandum and articles Sec 16
o There shall be filed with the registrar an application on the specified form containing the following information and
documents for incorporation of a company
a) a declaration of compliance with all or any of the requirements of this Act and the rules and regulations made in
respect of registration
b) memorandum of association of the proposed company signed by all subscribers, duly witnessed and dated;
c) the articles of association signed by the subscribers duly witnessed and dated;
d) an address for correspondence till its registered office is established and notified.
o If the registrar is satisfied that all the requirements of this Act and the rules or regulations made thereunder have
been complied with, he shall register the memorandum and other documents delivered to him.
o On registration of the memorandum of a company, the registrar shall issue a certificate that the company is
incorporated.
o The certificate of incorporation shall state
a) the name and registration number of the company,
b) the date of its incorporation;
c) whether it is a private or a public company;
d) whether it is a limited or unlimited company; and
e) if it is limited, whether it is limited by shares or limited by guarantee
o The certificate shall be signed by the registrar or
authenticated by the registrar‘s official seal.
o The certificate shall be conclusive evidence that the
requirements of this Act as to registration have been
complied with and that the company is duly registered
under this Act.
o If registration of the memorandum is refused, the
subscribers of the memorandum or any one of them
authorised by them in writing may, within thirty days of the
order of refusal, prefer an appeal to the Commission.
o An order of the Commission shall be final and shall not be
called in question before any court or other authority
Effect of memorandum and articles Sec 17
o The memorandum and articles shall, when registered, bind the company and the members thereof to the
same extent as if they respectively had been signed by each member and contained a covenant on the part of
each member, his heirs and legal representatives, to observe and be bound by all the provisions of the
memorandum and of the articles, subject to the provisions of this Act.
o All moneys payable by a subscriber in pursuance of his undertaking in the memorandum of association
against the shares subscribed shall be a debt due from him and be payable in cash within thirty days from
the date of incorporation of the company.
o The receipt of subscription money from the subscribers shall be reported by the company to the registrar on
a specified form within forty-five days from the date of incorporation of the company, accompanied by a
certificate by a practicing chartered accountant or a cost and management accountant verifying receipt of
the money so subscribed.
o Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.
Effect of registration Sec 18
The registration of the company has the following effects, as from the date of incorporation
a) the subscribers to the memorandum, together with such other persons as may from time to time become
members of the company, are a body corporate by the name stated in the certificate of incorporation;
b) the body corporate is capable of exercising all the functions of an incorporated company, having perpetual
succession and a common seal;
c) the status and registered office of the company are as stated in, or in connection with, the application for
registration;
d) in case of a company having share capital, the subscribers to the memorandum become holders of the initial
shares; and
e) the persons named in the articles of association as proposed directors, are deemed to have been appointed to
that office.
Commencement of business by a public company Sec 19
o A public company shall not start its operations or exercise any borrowing powers unless
i. shares held subject to payment of the whole amount in cash have been allotted to an amount not less than the
minimum subscription and the money has been received by the company;
ii. every director of the company has paid to the company full amount on each of the shares taken by him and for
which he is liable to pay in cash;
iii. no money is or may become liable to be repaid to applicants for any shares which have been offered for public
subscription;
iv. a duly verified declaration by the chief executive or one of the directors and the secretary in the specified form
that the aforesaid conditions have been complied with has been filed with the registrar and
v. in the case of a company which has not issued a prospectus to public, there has been filed with the registrar a
statement in lieu of prospectus as per the Second Schedule annexed to this Act.
Minimum subscription
means the amount fixed by the memorandum or articles of association as minimum subscription upon which the
directors may proceed to allotment. If no amount is so fixed and specified, the whole amount of the share capital
other than that issued or agreed to be issued as paid up otherwise than in cash.
o The registrar after making such enquiries as he may deem fit to satisfy
himself that all the requirements of this Act have been complied with in
respect of the commencement of business and matters precedent and
incidental thereto, shall accept and register all the relevant documents.
o The acceptance and registration of documents shall be a conclusive
evidence that the company is entitled to start its operations and exercise
any borrowing powers.
o Nothing in this section shall apply
a) to a company converted from private to a public;
b) to a company limited by guarantee and not having a share capital.
Consequences of non-compliance of section 19
o If any company starts its business operations or exercises borrowing
powers in contravention of section 19, every officer or other person who
is responsible for contravention shall without prejudice to other
liabilities be liable to a penalty not exceeding level 2 on the standard
scale.
o Any contract made by a company before the date at which it is entitled
to commence business shall be provisional only and shall not be binding
on the company until that date and on that date it shall become binding.
Licencing of associations with charitable and not for profit objects Sec
42
o Where it is proved to the satisfaction of the Commission that an association is to
be formed as a limited company
(a) for promoting any lawful object
(b) intends to apply the company‘s profits and other income in promoting its objects;
and
(c) prohibits the payment of dividends to the company‘s members; and
(d) such company‘s objects and activities are not and shall not, at any time, be
against the laws, public order, security, sovereignty and national interests of
Pakistan
the Commission may, by licence for a period to be specified, permit the association
to be registered as a public limited company, without addition of the word Limited or
the expression (Guarantee) Limited to its name.
o A licence may be granted on such conditions and subject to such regulations as
the Commission thinks fit and those conditions shall be inserted in and deemed
part of the memorandum and articles, or in one of those documents
o The association on registration under this section shall enjoy all the privileges
and be subject to all the obligations of a limited company.
o The object that a company can promote may be any of the following
i. commerce,
ii. art,
iii. science,
iv. religion,
v. health,
vi. education,
vii. research,
viii. sports,
ix. protection of environment,
x. social welfare,
xi. charity or
xii. any other useful object;
o The Commission may at any time by order in writing, revoke a licence granted
with such directions as it may deem fit, on being satisfied that
(a) the company or its management has failed to comply with any of the terms or
conditions subject to which a licence is granted; or
(b) any of the requirements specified in or any regulations made under this section
are not met or complied with; or
(c) affairs of the company are conducted in a manner prejudicial to public interest; or
(d) the company has made a default in filing with the registrar its financial
statements or annual returns for immediately preceding two consecutive financial
years; or
(e) the company has acted against the interest, sovereignty and integrity of Pakistan,
the security of the State and friendly relations with foreign States; or
(f) the number of members is reduced, below three; or
(g) the company is
(i) conceived or brought forth for, or is or has been carrying on, unlawful or
fraudulent activities; or
(ii) run and managed by persons who fail to maintain proper and true accounts or
they commit fraud, misfeasance or malfeasance in relation to the company; or
(iii) run and managed by persons who are involved in terrorist financing or money
laundering; or
(iv) managed by persons who refuse to act according to the requirements of the
memorandum or articles or the provisions of this Act or failed to carry out the
directions or decisions of the Commission or the registrar given in exercise of the
powers conferred by this Act; or
(v) not carrying on its business or is not in operation for one year; or
(h) it is just and equitable that the licence should be revoked
 Before a licence is so revoked, the Commission shall give to the company a notice,
in writing of its intention to do so, and shall afford the company an opportunity to
be heard.
Effect of revocation of licence Sec 43
o On revocation of licence of a company under section 42, by the Commission
(a) the company shall stop all its activities except the recovery of money owed to it, if
any;
(b) the company shall not solicit or receive donations from any source; and
(c) all the assets of the company after satisfaction of all debts and liabilities shall, in
the manner as may be specified, be transferred to another company licenced under
section 42, preferably having similar or identical objects to those of the company,
within 90 days from the revocation of the licence or such extended period as may be
allowed by the Commission.
o a reasonable amount to meet the expenses of voluntary winding up or making an
application to the registrar for striking the name of the company off the register
may be retained by the company.
o the board of the company shall file within fifteen days from the date of such
compliance, a report to the registrar containing such information and supported
with such documents as may be specified.
o Where any assets of the company are transferred, in consequence of revocation of
licence, to another company licenced under section 42, the members and officers
of the first mentioned company or any of their family members shall not be
eligible to hold any office in the later company for a period of five years from the
date of transfer of such assets.
CONVERSION OF A COMPANY OF ANY CLASS INTO A COMPANY OF OTHER CLASS AND
RELATED MATTERS
Conversion of public company into private company and vice-versa Sec 46
o A public company may be converted into a private company
i. with the prior approval of the Commission in writing
ii. by passing a special resolution in this behalf by the public company
amending its memorandum and articles of association in such a manner that they include the
provisions relating to a private company in the articles and complying with all the
requirements as may be specified
o If the Commission is satisfied that the company is entitled to be so converted, such
conversion shall be allowed by an order in writing.
o A copy of the order duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within seven days from the date of the order.
o A copy of the memorandum and articles of association as altered shall, within 15 days from
the date of the order, be filed by the company with the registrar and he shall register the
same and thenceforth the memorandum and articles so filed shall be the memorandum and
articles of the newly converted company.
o If a company, being a private company, alters its articles in such a manner that they no
longer include the provisions which, under sub-section (1) of section 2, are required to be
included in the articles of a company in order to constitute it a private company, the
company shall
(a) as on the date of the alteration, cease to be a private company; and
(b) file with the registrar a copy of the memorandum and articles of association as altered
along with the special resolution.
Conversion of status of private company into a single-member company and
vice-versa Sec 47
o A private company may be converted into a single-member company
i. with prior approval of the Commission in writing
ii. by passing a special resolution in this behalf by the private company
amending its memorandum and articles of association, in such a manner that they
include the provisions relating to a single-member company in the articles and
complying with all the requirements as may be specified.
o if the Commission is satisfied that the company is entitled to be so converted, such
conversion shall be allowed by an order in writing.
o A copy of the order duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within seven days from the date of the
order.
o A copy of the memorandum and articles of association as altered shall, within fifteen
days from the date of the order, be filed by the company with the registrar and he
shall register the same and thenceforth the memorandum and articles so filed shall be
the memorandum and articles of the newly converted company
o If a company, being a single member company, alters its articles in such a manner
that they no longer include the provisions which are required to be included in the
articles of a company in order to constitute it a single member company, the company
shall
(a) as on the date of the alteration, cease to be a single member company; and
(b) file with the registrar a copy of the memorandum and articles of association as altered
along with the special resolution.
Conversion of status of unlimited company as limited company and viceversa Sec 48
o An unlimited company may be converted into a limited company
i. with prior approval of the Commission in writing
ii. by passing a special resolution in this behalf by the unlimited company
amending its memorandum and articles of association in such a manner that they
include the provisions relating to a company limited by shares in the articles and
complying with all the requirements as may be specified.
o If the Commission is satisfied that the company is entitled to be so converted, such
conversion shall be allowed by an order in writing.
o A copy of the order duly certified by an authorised officer of the Commission shall
be forwarded to the company and to the registrar within seven days from the date of
the order.
o If a company, being a limited company, alters its memorandum and articles in such
a manner that they include the provisions which constitute it as a company having
unlimited liability of its members, the company shall
(a) as on the date of the alteration, cease to be a limited company; and
(b) file with the registrar a copy of the memorandum and articles of association as
altered along with the special resolution.
Conversion of a company limited by guarantee to a company limited by
shares and vice-versa. Sec 49
o A company limited by guarantee may be converted into a company limited by shares
with prior approval of the Commission in writing
by passing a special resolution in this behalf by the company limited by guarantee
amending its memorandum and articles of association in such a manner that they
include the provisions relating to a company limited by shares in the articles and
complying with all the requirements as may be specified.
o If the Commission is satisfied that the company is entitled to be so converted, such
conversion shall be allowed by an order in writing.
o A copy of the order duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within seven days from the date of the
order.
o A copy of the memorandum and articles of association as altered pursuant to the
order shall within fifteen days from the date of the order be filed by the company with
the registrar and he shall register the same and thenceforth the memorandum and
articles so filed shall be the memorandum and articles of the newly converted
company.
o If a company, being limited by shares, alters its memorandum and articles in such a
manner that they include the provisions which constitute it a company limited by
guarantee, the company shall
(a) as on the date of the alteration, cease to be a company limited by shares; and
(b) file with the registrar a copy of the memorandum and articles of association as
altered along with the special resolution.
Issue of certificate and effects of conversion Sec 50
o The registrar upon registration of the memorandum and articles of association as
altered by the company upon conversion under sections 46 to 49, shall issue a
certificate to that effect.
o The conversion of status of a company under sections 46 to 49 shall not affect
(a) any debts, liabilities, obligations or contracts incurred or entered into, by or on
behalf of the company before conversion and such debts, liabilities, obligations 36
and contracts may be enforced in the manner as if such registration had not been
done; and
(b) any rights or obligations of the company or render defective any legal proceedings
by or against the company and any legal proceedings that might have been continued
or commenced against the company before conversion may be continued or
commenced upon its conversion.
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Companies (Incorporation) Regulations, 2017
(As amended upto April 17, 2018)
Islamabad, July 26, 2017
NOTIFICATION
S.R.O. 704(I)/2017.- In exercise of the powers conferred by sub-section (1) of section 512 read
with section 10, 14, 16 and 17 of the Companies Act, 2017 (XIX of 2017), the Securities and Exchange
Commission of Pakistan is pleased to notify the following Companies (Incorporation) Regulations,
2017, the same having been previous published vide notification S. R. O 423 (I)/2017 dated June 05, 2017,
namely:-
CHAPTER I
PRELIMINARY
1.
Short title and commencement.__ (1) These Regulations shall be called the Companies
(Incorporation) Regulations, 2017.
(2)
They shall come into force on August 14, 2017.
2. Definitions. – (1) In these regulations, unless there is anything repugnant in the subject or context,-
1
(i)
“Act” means the Companies Act, 2017 (XIX of 2017);
[(ii)
“annexure” means an annexure appended to these regulations;]
2
[(iia) “authorized intermediary” shall have the same meaning as assigned to it in clause (iii) of subregulation (1) of regulation 2 of the Intermediaries (Registration) Regulations, 2017;]
(iii)
3
“Commission” means the Securities and Exchange Commission of Pakistan established under
the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);
[(iiia) “form” means form appended to these regulations; and]
(iv)
“regulations” means the Companies (Incorporation) Regulations, 2017;
(2) Words and expressions used but not defined in these regulations shall have the same
meaning as assigned to them in the Act, the Securities and Exchange Commission of Pakistan Act,
1997, the Limited Liability Partnership Act, 2017, the Securities Act, 2015 and any rules made
thereunder.
CHAPTER II
RESERVATION OF NAME
1
Clause (ii) substituted by S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, clause (ii) read as
follows:“(ii) “annexure” means a form attached to these Regulations;”
2
New clause (iia) inserted by S.R.O. 483 (I)/2018 dated April 17, 2018.
3
New clause (iiia) inserted by S.R.O. 483 (I)/2018 dated April 17, 2018.
1
4
[3.
Reservation of Name. – (1) Any person desirous of forming a company shall have the option
to file either separate application for reservation of name in the manner as provided in sub-regulation (2)
of this regulation or combined application for reservation of name and incorporation of company in the
manner as provided in sub-regulation (3) of regulation 5.
(2)
Separate application for reservation of name in terms of sub-section (4) of section 10 of the Act
shall be made along with non-refundable application fee as specified in Seventh Schedule of the Act,
in the following manner,(i)
online application through e-service; or
(ii)
physical application as per Inc. Form-I of the regulations with the registrar.
(3)
The applicant may propose up to three names in order of priority for reservation of any one of
them, ensuring that the proposed names fulfil the criteria specified in section 10 of the Act and these
regulations.
(4)
The registrar, if satisfied that any one of the proposed names in the order of priority, fulfills the
criteria specified in the Act and these regulations, may issue availability of name as per Inc. AnnexureI for a period of sixty days from the date of availability of name letter.
(5)
If the applicant fails to file application for incorporation of company along-with evidence of
payment of fee within sixty days period, the name shall not remain available.
4
Regulation 3 substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, regulation 3 read as
follows:“3. Reservation of Name. – (1) Any person desirous of forming a company shall have the option to file either
separate or combined application for reservation of name and incorporation of company:
Provided that the application shall be filed either through e-service or in physical form.
(2) The combined application shall be made in the following manner,(i) application for reservation of name as per Annexure-I of the regulations along with non-refundable
application fee as specified in Seventh Schedule of the Act shall be filed with the registrar;
(ii) the applicant shall propose three names for the company in the order of priority, out of which any one
may be approved by the registrar subject to fulfillment of criteria mentioned in these regulations and
section 10 of the Act:
Provided that in case of refusal of the proposed names, the registrar shall issue the order of refusal as
per Annexure-III and application for incorporation of company shall be held pending till such time the
name of company is reserved.
(iii) application for incorporation of company mentioning name of company as per option 1 contained in
Annexure-I along with all relevant documents as specified in regulation 5:
Provided in case the name as per option 1 is not available, the registrar shall enter the name from
amongst other two options contained in Annexure-I, if deemed appropriate, in all the relevant forms
or documents in cases where combined application is filed.
(3) Separate application for reservation of name in terms of sub-section (4) of section 10 of the Act shall be
made in the following manner,(i) application as per Annexure-I of the regulations along with non-refundable application fee as specified
in Seventh Schedule of the Act shall be filed with the registrar;
(ii) the applicant shall ensure that the proposed name shall fulfil the criteria specified in section 10 of the
Act and these regulations.
(4) The registrar, if satisfied that the proposed name fulfills the criteria specified in the Act and these regulations,
may issue availability of name as per Annexure-II for a period of sixty days from the date of availability of name
letter.
(5) If the applicant fails to file application for incorporation of company within the said period, the name shall
not remain available.
(6) In case of refusal of the proposed name, the registrar shall issue the order of refusal as per Annexure-III.
(7) The registrar, while considering the application for reservation of name may require the applicant to furnish
such additional information as deemed appropriate.”
2
(6)
In case of refusal of the proposed name(s), the registrar shall issue the order of refusal as per
Inc. Annexure-II.
(7)
The registrar, while considering the application for reservation of name may require the
applicant to furnish such additional information as deemed appropriate:
Provided that where the requisite information is not provided within fifteen days or any further time
allowed by the registrar, the application shall be disposed of on the basis of available information.]
5
[3A. Modes of payment of fee. –The fee as per Seventh Schedule of the Act as required under these
regulations, may be paid through(a)
credit card; or
(b)
debit card; or
(c)
other mode of online payment made available by the Commission; or
(d)
challan in the designated branch of the bank.]
4.
Prohibition of certain names.– (1) Subject to section 10 of the Act, the following words and
combinations thereof shall not be used in the name of a company in English or any of the languages
depicting the same meaning,(i) Federal Government, Provincial Government, Name depicting association with any foreign
government, Name suggesting association with any political personality, Commission,
Authority, Register or Registered, Co-operative, Bureau, Division, Department, Undertaking,
Municipal, Union, Republic, Nation, President, Governor, Prime Minister, Chief Minister,
Minister, Cabinet, Senate, National Assembly, 6[Provincial Assembly,] Parliament/
Parliamentary, Statute/ Statutory, Court/ Judiciary/ Judge, 7[Jury,] Administrator.
(ii) Names of International bodies and abbreviations thereof including, but not limited to, United
Nations, South Asian Association for Regional Cooperation, Organization of Islamic
Conference, World Bank, International Finance Corporation, Asian Development Bank,
Islamic Development Bank, International Monetary Fund, Red Cross, Red Crescent.
Provided that the Commission may allow any of the above names under special circumstances
on the request of any government or authority.
(2)
Subject to section 10 of the Act, the following words 8[or acronyms] and combinations thereof
may only be used in the name of a company subject to the criteria mentioned in each case,(i) Association or Foundation - In case of companies to be established on grant of license by the
Commission under section 42 of the Act or which are licensed by the Directorate General of
Trade Organizations under the Trade Organizations Act, 2013.
(ii) Fund - In case of a public sector company, a trade organization, a Non-Banking Finance
Company to be established to undertake asset management services or private equity and venture
capital fund management services subject to prior approval of the Commission or a company to
be established on grant of license by the Commission under section 42 of the Act.
5
New regulation 3A inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
6
Inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
7
Inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
8
Inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
3
(iii) Council - In case of a company to be established on grant of license by the Commission under
section 42 of the Act. Moreover, this expression may also be allowed to Sports Association, Trade
Organization or a Professional Body.
(iv) Chamber - In case of an entity which is to be established as a Trade Organization under Trade
Organizations Act, 2013.
(v) Trust - In case of Non-Banking Finance Company to be established to undertake REIT
management services or asset management services subject to prior approval by the Commission.
(vi) Society - In case of a company if proper justification is provided to the satisfaction of the registrar.
(vii) Assurance/Assurer/Insurance/Insurer/Re-Assurance/Re-Assurer/Re-Insurance/Re-Insurer - In
case of companies to be established to undertake business of Insurance, Assurance, Reinsurance
and Re-assurance subject to prior approval of the Commission.
(viii) Board - In case of a company desirous to engage in the business of Paper and/or Board or to
public sector companies.
(ix) Bahria/Askari/Fauji/Fazaiya/Cadet/Armed
Forces
or
Forces/Army/Navy/Air
Force/Shaheen/Military/Defence - In case of companies to be established by the relevant agency.
(x) Bank/Banking/Banker - In case of companies to be established to undertake banking business
subject to prior approval of State Bank of Pakistan or an investment bank subject to prior approval
of the Commission.
9
[(xa) Chapter – In case of companies where NOC or permission of the organization/entities having
various chapters locally or globally, is provided.]
(xi) Charter/Chartered - In case of companies having charter from the sovereign authority of the
Federation or the Province.
(xii) Corporation - In case of companies where proper justification is submitted to the satisfaction of
registrar.
(xiii) Exchange/Bourse - In case of Securities Exchange, Commodity Exchange, Mercantile Exchange
and Exchange Company, subject to prior approval from the relevant authority.
(xiv) 10 [Omitted ]
11
[(xv) Names of Famous/Distinct Personalities – In case of a company, where no objection certificate
from the personality is provided or where proper justification is submitted to the satisfaction of
registrar.]
9
New clause (xa) inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
10
Clause (xiv) omitted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before omission, clause (xiv) read as
follows:“(xiv) Familiar Trade Names or Brand Names - In case of a company where permission of familiar trade name or
brand name user is provided or proper documentary evidence of ownership/ use of trade name or brand name is
furnished by the applicant to the satisfaction of the registrar.”
11
Clause (xv) substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, clause (xv) read as
follows:“(xv) Famous/Distinct Personalities - In case of a company where proper justification is submitted to the
satisfaction of registrar.”
4
(xvi) Federation - In case of a company licensed under section 42 of the Act or trade bodies under
Trade Organizations Act, 2013.
(xvii) Federal - In case of a company where it has a connection with or patronage of the Federal
Government subject to prior approval of the Commission.
(xviii) Province/Provincial/Sindh/Punjab/Baluchistan/Khyber Pakhtunkhwa or KPK/FATA/Gilgit
Baltistan or FANA/ Azad Jammu & Kashmir or AJK. In case of a company where it has a
connection with or patronage of the concerned Government subject to prior approval of the
Commission.
(xix) Group - In case of a company where this word implies several companies under single corporate
ownership and applicants have to provide evidence of subsidiary/associate relationship with two
or more companies.
(xx) Holding - In case of a company where it qualifies to be a holding company as defined in clause
37 of sub-section (1) of section 2 of the Act to the satisfaction of the registrar.
(xxi) Institute/Institution - In case of a company where it has submitted proper justification to the
satisfaction of the registrar.
(xxii) Finance, Financial, Investment Finance, Investment Advisory, Leasing, Asset Management,
Housing Finance, Modaraba, Venture Capital, Private Equity - In case of Non-Banking Finance
Company, investment company, Modaraba company, brokerage house subject to prior approval
by the Commission. In case of any public sector financial institution subject to prior approval by
the Commission or State Bank of Pakistan, as the case may be.
(xxiii) Name of Company containing country name or nationality other than Pakistan - In case of the
companies where appropriate justification is submitted to the satisfaction of the registrar.
(xxiv) Name of Company containing names of two countries i.e., Pakistan/Pak and any other foreign
country - In case of companies where documentary evidence is provided to the satisfaction of the
registrar to support the fact that the company is a Joint Venture of two Governments or companies
12
[or individuals of two relevant countries].
(xxv) New/Modern/The/Al/International/Company/Co./Inc./Firm/Partnership/LLP/LLC/Proprietor/
Enterprise/Mills/Factory - In case of a company where proper justification is submitted to the
satisfaction of the registrar. However, these expressions will not be acceptable if used to make
proposed company name distinctive from existing companies.
(xxvi) State - In case of public sector companies.
(xxvii) University - In case of University Management Company for the management of University in
terms of guidelines of Higher Education Commission.
(3)
(i)
(ii)
The name shall be considered undesirable, if—
13
[Omitted]
it includes any word or words which are offensive to any section of the people;
12
Substituted for the words “of two countries” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
13
Clause (i) omitted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before omission, clause (i) read as follows:-
“(i) it includes the name of a registered trade mark or a trade mark which is subject of an application for
registration, unless the consent of the owner or applicant for registration of the trade mark, as the case may be,
has been obtained and produced by the promoters;”
5
(iii)
it is identical with or resemble or similar to name of Limited Liability Partnership registered
under the Limited Liability Partnership Act, 2017;
(iv)
any other word which in the opinion of registrar is undesirable.
CHAPTER III
INCORPORATION OF COMPANY
14[5.
Application for incorporation of company. – (1) An application for incorporation of
company along with specified fee, shall be filed in any of the following modes, namely:(i)
separate application for incorporation of company in the manner as provided in subregulation (2); or
(ii)
combined application for reservation of name and incorporation of company in the
manner as provided in sub-regulation (3).
(2) An applicant shall make separate application for incorporation of company either online
through e-service or in physical form to the registrar as per Inc. Form-II along with the following
documents,(i)
memorandum (in case of online application, e-service shall automatically generate
memorandum on the basis of information provided by the applicant except for
companies having specialized business);
(ii)
articles where required;
(iii)
copies of valid NIC/NICOP (national identity card/ national identity card for overseas
Pakistanis) of the subscribers/ directors/chief executive officer or copies of valid
Passport in case of a foreigner;
(iv)
in case of a single member company copy of valid NIC/NICOP of nominee or copy of
valid Passport in case of a foreigner;
(v)
copy of NIC of witness in case of physical filing of application;
14
Regulation 5 substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, regulation 5 read
as follows:-
“5. Application for incorporation of company. – (1) An applicant shall make an application either through
e-service or in physical form to the registrar for incorporation of company as per Annexure-IV along with
the following documents,(i) Memorandum of Association;
(ii) Articles of Association, where required;
(iii) Copies of CNIC/NICOP of the subscribers/directors/chief executive officer or copies of Passport in case
of a foreigner;
(iv) Copy of CNIC/NICOP of Nominee only in case of single member company or copy of Passport in case
of a foreigner;
(v) Copy of CNIC of witness in case of physical filing;
(vi) Authorization for filing of documents for the proposed company by the subscribers as per Annexure-V
in favor of either one of them or registered intermediary;
(vii) NOC/Letter of Intent/ License (if any) of the relevant regulatory authority in case of specialized
business as mentioned in regulation 4; and
(viii) Original paid bank challan evidencing the payment of fee specified in Seventh Schedule of the Act.”
6
(vi)
in case of physical application, authority letter on stamp paper of requisite value in
favour of any one of the subscribers or registered intermediary, authorizing him to file
documents for incorporation of company on behalf of subscribers, make correction
therein, if required and collect certificate of incorporation and other documents after
incorporation of company. The authority letter shall be witnessed with his particulars
and shall also be notarized;
(vii)
NOC/Letter of Intent/ License (if any)/ approval letter of the relevant regulatory
authority in case of specialized business as mentioned in regulation 4;
(viii) in case of physical application, original paid bank challan or other evidence of payment
of fee specified in Seventh Schedule of the Act.
(ix)
copy of valid NIC/Passport of person duly authorized by the Board of directors of a
body corporate which is a subscriber along with copy of Board resolution. In case of a
subscriber which is a limited liability partnership, copy of valid NIC/ Passport of
designated partner empowered to act as such, along with copy of instrument
empowering him.
(x)
in case the subscriber is a foreign company or a foreign body corporate, the profile of the
company, detail of its directors, their nationality and country of origin, copy of its charter,
statute or memorandum and articles etc., certified in the manner as specified in regulation
15.
(3) The combined application for reservation of name and incorporation of company limited by
shares shall be filed online through e-service on payment of fee along with scanned copies of only
relevant and applicable documents, as mentioned in sub-regulation (2) except memorandum of
association and articles of association, which shall be generated by e-service:
Provided that facility of combined application shall not be available for companies to be formed
to carry on or engage in any business which is subject to a licence or registration, permission or
approval as required under the respective law:
Provided further that the applicant shall enter three names for the proposed company in the
order of priority, out of which any one may be approved by the registrar subject to fulfillment of
criteria mentioned in section 10 of the Act and in these regulations. If the name as per option one is
not available, the name from other options in order of priority shall be considered for incorporation
and in case of refusal of the proposed names, the registrar shall issue the order of refusal as per Inc.
Annexure-II.
(4) Any person may obtain certified copies of the extract of information contained in item 2.1 or
2.2 of Part-II (A), Part-II (D), Part-II (E) and Part-III of Inc. Form-II.]
6.
Memorandum of Association. – (1) The memorandum of association shall be in conformity
with Table B, C, D, E or F of the First Schedule to the Act and any other rules and regulations notified
by the Commission/Federal Government, as applicable to the kind of the company. It shall contain an
undertaking that the company shall not engage in any of the restricted business, launch multi-level
marketing (MLM), Pyramid and Ponzi Schemes, or other related activities/businesses or any lottery
business, or engage in any of the permissible business unless the requisite approval, permission, consent
or license is obtained from competent authority as may be required under any law for the time being in
force.
Explanation.- For the purposes of this regulation, “restricted business” 15[includes]
undertaking or indulging, directly or indirectly in the business of a Banking Company, NonBanking Finance Company, Mutual Fund, Private Fund, Leasing, Investment Company, Investment
Advisor, REIT Management Company, Housing Finance Company, Discounting Services,
15
Substituted for the word “means” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
7
Microfinance or Microcredit business, Insurance Business, Modaraba Management Company,
Stock Brokerage business, forex, managing agency, business of providing the services of security
guards, securities broker, securities adviser, securities manager, share registrar, credit rating company,
balloter, underwriter, debt securities trustee or any other business restricted under any law for the time
being in force or as may be notified by the Commission 16[or any other government authority].
(2) 17[ Omitted ]
(3) 18[ Omitted ]
(4)
The memorandum filed in physical form under sub-section (1) of section 16 of the Act,
shall be properly stamped as required by the Stamp Act, 1899 (II of 1899), if applicable, duly subscribed
and witnessed along with the declaration made thereunder:
Provided that in case of electronic submission of memorandum of association, the stamp duty
shall not be paid till the time the Provincial Governments devise and implement appropriate measures
for payment and recovery of stamp duty through electronic means in terms of section 10 of the
Electronic Transactions Ordinance, 2002 (LI of 2002).
(5)
The registrar may require any person who makes a declaration under sub-section (1) of
section 16 of the Act or is a promoter or director of the proposed company or is a witness to the
signatures of the subscribers to the memorandum to furnish such information, clarification or document
as he may deem necessary to satisfy himself for purposes of sub-sections (2) and (4) of section 16 of
the Act.
19
[7.
Articles of Association. – (1) In case, the subscribers opt to file combined application for
reservation of name and incorporation of company in the manner specified under sub-regulation (3) of
regulation 5, the articles as per Table A of First Schedule to the Act shall be the articles of the company.
16
Inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
17
Sub-regulation (2) omitted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before omission, sub-regulation (2)
read as follows:“(2) The memorandum of association of the company shall be signed by each subscriber to the memorandum.”
18
Sub-regulation (3) omitted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before omission, sub-regulation (3)
read as follows:“ (3) Where the subscriber to the memorandum is a body corporate, the memorandum of association shall be
signed by a natural person duly authorized in this behalf by a resolution of the board of directors of the body
corporate or designated partner in case of limited liability partnership.”
19
Regulation 7 substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, regulation 7 read
as follows:“7. Articles of Association. – (1) The subscribers of the company limited by shares may adopt the articles of
association as per Table A of First Schedule to the Act and notify the same to the registrar concerned as per
Annexure-IV:
Provided that in the situation mentioned hereinabove, filing of articles of association separately shall not be
required.
Provided further that in case articles of association as per Table A of the First Schedule to the Act are not
adopted, the company limited by shares shall file the articles of association signed by the subscribers to the
memorandum with the registrar along with application for incorporation.
(2) In the case of a company limited by guarantee or an unlimited company, the company shall file the articles
of association signed by the subscribers to the memorandum with the registrar along with application for
incorporation.
(3) Where the subscriber is a body corporate, the articles of association shall be signed by a natural person duly
authorized in this behalf by a resolution of the board of directors of the body corporate or designated partner of
the limited liability partnership.”
8
(2)
In case of separate application for incorporation of company, the subscribers of the
company limited by shares may adopt the articles as per Table A of First Schedule to the Act and notify
the same to the registrar concerned as per Inc. Form-II and filing of articles separately shall not be
required by company adopting Table A:
Provided that in case articles as per Table A of the First Schedule to the Act are not
adopted, the company limited by shares shall file the articles with the registrar along with application
for incorporation.
(3)
In the case of a company limited by guarantee or an unlimited company, the company
shall file the articles with the registrar along with application for incorporation.]
20
[7A. Signing of memorandum of association and articles of association. – (1) The memorandum
and articles of the company shall be signed physically or electronically, as the case may be, by each
subscriber to the memorandum and articles of association and where required, to be witnessed.
(2)
Where a subscriber is other than a natural person, the memorandum and articles of
association shall be signed by a natural person on its behalf in the following manner:
(i)
in case of a body corporate, duly authorized by a resolution of the board of
directors;
(ii)
in case of a limited liability partnership, a designated partner empowered to act
as such, alongwith copy of instrument empowering him; and
(iii)
in any other case by an authorized representative duly authorized to sign as
such.]
8.
Appointment of First Directors and Chief Executive Officer. – (1) The subscribers to the
memorandum shall determine the number of directors and the names of the first directors in terms of
provisions of section 157 of the Act.
(2)
The subscriber to the memorandum shall also determine the name of the first chief
executive officer in terms of provisions of section 186 of the Act.
(3)
The number of directors as determined by the subscribers and particulars of first
directors and first chief executive officer shall be stated in the application for incorporation of company
as per 21[Inc. Form -II].
9.
Other information to be provided.- (1) In addition to the particulars of subscribers as
provided in section 31 and 37 of the Act, following further information shall be provided namely:22
[(i) a subscriber, in case of a Pakistani national, shall also specify number of his valid NIC/ NICOP
and in the case of foreign national, number of his valid passport.]
(ii)
in case of a person other than a natural person, the address of its registered office or principal
office shall be mentioned and the authorized representative signing the documents shall 23[likewise]
provide his particulars.
20
New regulation 7A inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
21
Substituted for the expression “Annexure-IV” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
22
Clause (i) substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, clause (i) read as
follows:“(i) a subscriber, in case of a Pakistani national, shall also specify his national identity card number and in the
case of foreign national, his passport number.”
23
Inserted vide S.R.O. 483 (I)/2018 dated April 17, 2018.
9
10.
Witness in case of physical submission of a document.- (1) In case of electronic submission
of documents for incorporation of a company a witness is not required in terms of Section 3 of
Electronic Transactions Ordinance, 2002.
(2) In case of physical submission of documents for incorporation of a company, the same shall
be witnessed by a Pakistani National having valid CNIC:
Provided that where a document is required to be attested by a notary public or an oath
commissioner or class I magistrate, the same shall be witnessed in accordance with the relevant law.
11. Examination of documents by the registrar.- (1)The registrar shall examine the documents
submitted for registration of a company and if he/she is satisfied that the same are complete in all
respects and all the requirements of the Act and regulations relating to incorporation of the company
have been complied with, he shall register the memorandum and other documents delivered to him.
(2) In case any discrepancies and deficiencies are observed by the registrar in the documents
filed, the same shall be communicated to the applicant in writing for resolution and the applicant shall
remove the discrepancies and provide requisite information within seven days of date of written
communication from the registrar.
(3) In case no response is received within stipulated time period, a first reminder shall be issued
and a final reminder shall be issued seven days thereafter by the registrar concerned.
(4) In case no response is received from the applicant or the applicant fails to remove
discrepancies or provide requisite information to the satisfaction of registrar within seven days of issue
of final reminder, the registration of the 24[memorandum and other documents] may be refused.
12.
Issuance of Certificate of Incorporation.- (1) On registration of memorandum of association
of a company, the registrar shall issue a certificate of incorporation, under his signatures or authenticated
by his official seal, as per 25[Inc. Annexure-III], which shall be conclusive evidence that the
requirements of the Act as to registration have been complied with and that the company is duly
incorporated under the Act.
(2) The certificate of incorporation may be issued electronically or in physical form.
13.
Additional requirements for a single member company.- (1) A person desirous of forming
a single member company shall comply with all the requirements for incorporation of a company as per
regulation 5 of these Regulations.
(2) The person to be nominated under section 14 of the Act shall be in accordance with subSection (3) of Section 79 of the Act.
14.
Additional requirements for an association not for profit.- The subscribers to the
memorandum of an association not for profit shall obtain license 26[under section 42 of the Act], before
filing application in terms of regulation 5 of these regulations.
27[15.
Additional requirements for foreign subscribers and security clearance.- (1) In case the
subscriber is a foreign company or a foreign body corporate, the registrar shall require additional
24
Substituted for the word “memorandum” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
25
Substituted for the expression “Annexure-VI” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
26
Substituted for the words “as per Associations with charitable and not for profit objects (Licensing and
Corporate Governance) Regulations, 2017” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
27
Regulation 15 substituted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before substitution, regulation (15)
read as follows:“15. Additional requirements for foreign subscribers and security clearance.- (1)In case the subscriber is a foreign
company, additional information is required by the registrar including but not limited to, the profile of the
10
information including but not limited to, the profile of the foreign company or foreign body corporate,
detail of its directors, their nationality and country of origin, copy of its charter, statute or memorandum
and articles etc.:
Provided that the copy of any charter, statute, memorandum, articles or other instrument,
constituting or defining the constitution of a foreign company or a foreign body corporate required to
be filed with the registrar shall be duly certified to be a true copy by –
(i)
the public officer in the country where the foreign company or foreign body corporate
is incorporated to whose custody the original is committed; or
(ii)
a Notary public of the country where the foreign company or foreign body corporate is
incorporated; or
(iii)
an affidavit of a responsible officer of the foreign company or foreign body corporate
in the country where the company is incorporated:
Provided further that the signature and seal of the official referred to in clause (i) or the
certificate of the Notary Public referred to in clause (ii) above shall be authenticated by a Pakistan
diplomatic consular or consulate officer and the certificate of the officer of the foreign company or
foreign body corporate referred to in clause (iii) above shall be signed before a Pakistan diplomatic
consular or consulate officer.
(2)
In case the subscriber to the memorandum is an individual of foreign nationality, he
may be required to file additional documents as deemed necessary by the registrar.
(3)
The Commission shall obtain security clearance from Ministry of Interior (MoI) in
following cases and in the manner prescribed hereunder:
company, detail of its directors, their nationality and country of origin, copy of its charter, statute or
memorandum and articles etc.:
Provided that the copy of any charter, statute, memorandum, articles or other instrument,
constituting or defining the constitution of a foreign company required to be filed with the registrar shall be duly
certified to be a true copy by –
(i) the public officer in the country where the company is incorporated to whose custody the original
is committed; or
(ii) a Notary public of the country where the company is incorporated; or
(iii) an affidavit of a responsible officer of the company in the country where the company is
incorporated.
Provided further that the signature and seal of the official referred to in clause (i) or the
certificate of the Notary Public referred to in clause (ii) above shall be authenticated by a Pakistan diplomatic
consular or consulate officer and the certificate of the officer of the company referred to in clause (iii) above shall
be signed before a Pakistan diplomatic consular or consulate officer.
(2) In case the subscriber to the memorandum is a foreign national residing outside Pakistan, he
may be required to file additional documents as deemed necessary by the registrar and his/her signatures and
address on the memorandum and articles of association shall be identical with the details appearing in his
passport.
(3) The Commission shall obtain security clearance from Ministry of Interior (MoI) in following
cases and in the manner prescribed hereunder:
(i) companies having foreign (other than Afghan and Indian national or origin)
subscribers/officers will be incorporated and case shall be forwarded for security
clearance:
Provided that in case name of subscriber/officer is not security cleared by MOI, he or
she shall take immediate steps for replacement as subscriber/officer and shall transfer shares
held by him to another eligible person;
(ii) Companies having foreign subscribers/ officers who are Afghan or Indian national or of Afghan
or Indian Origin will be incorporated after receipt of security clearance;
(iii) Private security companies, will be incorporated after receipt of security clearance.”
11
(i)
companies having foreign (other than Afghan and Indian national or origin)
subscribers/officers will be incorporated on the basis of an undertaking of each
foreign subscriber /officer and case shall be forwarded for security clearance:
Provided that in case name of subscriber/officer is not security cleared
by MoI, the subscriber/officer and the company, shall take immediate steps for
replacement and shall transfer shares if any, held by the subscriber;
(ii)
companies having foreign subscribers/ officers who are Afghan or Indian
national or of Afghan or Indian Origin will be incorporated after receipt of
security clearance;
(iii)
security services provider companies will be incorporated after receipt of
security clearance from MoI.
(4)
The manner of security clearance shall be subject to any change in the security policy of
government from time to time.]
16. 28[ Omitted ]
28
Regulation 16 omitted vide S.R.O. 483 (I)/2018 dated April 17, 2018. Before omission, regulation (16) read as
follows:“16. Filing of Certificate for receipt of share money.- (1) The company shall report receipt of subscription
money from the subscribers along with certificate by a practicing chartered accountant or a cost and
management accountant verifying receipt of the money so subscribed within forty five days from the date of
incorporation of the company as per Annexure VII.
(2)
The shares of the subscriber shall be deemed to be cancelled where,(i) the company has reported non-receipt of share money or receipt of less than required share money
as per Annexure-VII; or
(ii) the company has not filed Annexure-VII within forty five days of incorporation as this shall be deemed
to be non-receipt of share money.
(3)
The registrar shall give following direction to the company:
(i) to remove the name of the subscriber from the register who has failed to pay the subscription
money;
(ii) either add another shareholder with evidence of payment of share money or to change status of the
company, if required:
Provided that before giving any such direction, an opportunity of hearing shall be granted by the
registrar to the company and the subscriber who has failed to pay share money.
(4)
The company shall be required to comply with the direction within fourteen days, failing which appropriate
action under the Act would be initiated by the registrar against the company:
Provided that the company shall submit revised information in pursuance of the direction as per
Annexure-IV along with the relevant documents within seven days from the last date the direction was required
to be complied with.”
12
29Inc. Form-I
COMPANIES (INCORPORATION) REGULATIONS, 2017
[See Section 10 of the Act and Regulation 3]
APPLICATION FOR RESERVATION OF NAME
(To be completed by applicant in block letters.)
1.
2.
Fee Payment
Details
1.1
Challan No
1.2
Challan Amount
(Rs.)
Propose three options for name Option 1
reservation in the order of priority.
(mandatory in case of combined Option 2
application. Fee will be charged
for one name only instead of three
names.)
Option 3
(Please enter the name without kind of company e.g. (Pvt.) Limited, Limited etc.). (Maximum
70 characters)
3.
(As required under proviso (i) to sub-section (1) of section 26 of the Act, the proposed name
shall always commensurate with the principal line of business of the company as mentioned
in memorandum of association)
Kind of proposed company
a.
b.
c.
d.
e.
Private Limited Company
Single Member Company
Public Limited Company
Association Not for-profit under section 42 of the Companies Act, 2017
Other (Please specify)
4.
Principal line of business for proposed company
(Brief object as per clause 3 (i) of the
Memorandum may be mentioned)
5.
Meaning / Significance of proposed name
(describe relevancy of proposed name with
company’s principal line of business)
29
Substituted all annexures “Annexure-I”, “Annexure II”, “Annexure III”, “Annexure-IV”, “Annexure-V”,
“Annexure VI”, and both “Annexure VII” with “Inc. Form-I”, “Inc. Form-II”, “Inc. Annexure-I”, “Inc. Annexure-II”
and “Inc. Annexure-III” vide S.R.O. 483 (I)/2018 dated April 17, 2018.
13
6.
If any company or entity exists with identical
or similar name, please mention your
relationship with such company or entity along
with board resolution/ NOC showing no
objection on registration of a company with
similar name.
7.
Declaration
8.
Name of Proposed Subscriber/Authorized
Intermediary
9.
Signatures
10.
Registration No of Authorized Intermediary, if
applicable
11.
12.
I do hereby solemnly and sincerely
declare that the information provided in
the form is true and correct and nothing is
concealed and that the proposed name, if
reserved, shall be used only for the
purpose of registration of company
N.I.C No. where the applicant is proposed
subscriber
(Passport No. in case of foreign national)
Contact details of the applicant, i.e. Address:
address, email and cell No. etc.
Email:
Cell No.
Day
Month
Year
13. Date
Enclosures:
1. Original paid bank challan evidencing payment of fee
2. Original NOC/permission/letter of intent of competent authority (if applicable)
3. Any other document deemed necessary.
14
Inc. Form-II
COMPANIES (INCORPORATION) REGULATIONS, 2017
[See Section 16 of the Act and Regulation 5]
APPLICATION FOR COMPANY INCORPORATION
PART-I
(To be completed by the applicant in block letters)
1.1 Name of the Company
1.2 Fee Payment
Details
1.2.1
Challan No
1.2.2
Challan Amount
(Rs.)
PART-II
Section – A - Company information
2.1* Correspondence Address
City
District
Telephone
Number
Province
Email
Address
Mobile Number
*Information regarding Correspondence address is to be provided only if the company does
not have a place as its registered office at the time of Incorporation of company.
2.2
Registered office Address, if
any
City
Telephone
Number
District
Province
Website(if
any)
15
Mobile Number
2.3
Email Address
Principal line of
business (Brief objects
as per clause 3 (i) of the
Memorandum may be
mentioned)
Section – B – Capital Structure
Class/ Kind
2.4
Authorized Capital
2.5
Paid Up Capital
Face Value
Number of
shares
Total Amount
Section – C – Special business information*
(Applicable in case of Banking Company, Non-banking Finance Company, Insurance
company, Modaraba management company, Stock Brokerage business, forex, managing
agency, business of providing the services of security guards and any other business restricted
under any other law or as may be notified by the Commission)
2.6
Nature of business in case of
specialized business requiring
license / permission / approval
(please specify and also attach
NOC / approval of the relevant
authority)
*(Additional documents will be required by the registrar)
Section – D – Company subscribers, directors, chief executive officer, and in case of
single member company, nominee
2.7
State Number of directors fixed by subscribers:
[Please note that as per law a company must have minimum director as follows:]
Kind of Company
Minimum number of
No. of proposed
directors required by
directors
law
Single Member Company
01
Private Limited Company 02
Public Limited Company
03
2.8 Details of subscribers, directors and chief executive officer *
16
**
Incorpor
ation/
Registra
tion
Number
Nationality
(with
former
nationality
and
nationality
of the
origin, if
different)
Residentia
l address/
registered
office
address or
principal
office (in
case of a
subscriber
other than
a natural
person)
NTN (in
case of
director
, where
applica
ble)
Designat
ion
(Directo
r/
Subscrib
er/ CEO)
Please
specify
* Add details as applicable
** Applicable on subscribers other than natural persons
***Please also mention names of other companies where directorship is held.
**** Signature of subscribers and consent to act as director or chief executive as the case may
be. In case of online submission, the document will be signed electronically.
2.9 Details of Nominee (only in case of single member company - Nominee shall not be a
person other than relatives of the member- namely, a spouse, father, mother, brother, sister and
son or daughter)
Name of Nominee
NIC of Nominee
Residential address of Nominee
Telephone number of Nominee
Email address of Nominee
Relationship of Nominee with
subscriber
Signature of Nominee
Section – E- If the company limited by shares intends to adopt tables contained in First
Schedule to the Act, tick the relevant table.
Table A- Part I (Articles of association of company limited by shares)
Table A- Part-II (Articles of association of single member company limited by shares)
17
****Signatures
NIC/NICO
P
(in case of
Pakistani
national)
or
Passport
No(in case
of
foreigner)
No of shares subscribed (for
subscriber)
Father’
s
/
Husban
d’s
Name
in full
***Occupation
Name
and
surna
me
(prese
nt
and
forme
r) in
full
Section – F- The company limited by shares in case it has not adopted articles of
association contained in First Schedule to the Act , company limited by guarantee and
unlimited company shall attach the articles of association.
PART-III
Declaration under section 16
3.1 Declarant Name
3.2 Declarant Profession /
Designation
(Please check relevant
box)
3.3 Declaration
□ Authorized Intermediary
□ a person named in the articles as Director of the
proposed company
I do hereby solemnly and sincerely declare that:
a) I have been authorized as declarant by the subscribers;
b) all the requirements of the Companies Act, 2017, and the
regulations made there under in respect of matters precedent
to the registration of the said Company and incidental
thereto have been complied with
c) I make this solemn declaration conscientiously believing the
same to be true.
3.4 Declarant Signature
3.5 Registration No of
authorized intermediary, if
applicable
Day
Month
Year
3.6 Date
Enclosures:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Original paid bank challan evidencing payment of fee;
Memorandum of Association;
Articles of Association, where applicable;
Copies of valid NIC/NICOP of the subscribers/directors/chief executive officer or copy
of Passport in case of a foreigner;
Copy of valid NIC/NICOP of Nominee only in case of single member company or copy
of Passport in case of a foreigner;
Copy of valid NIC of witness in case of physical filing;
NOC/Letter of Intent/ License (if any) of the relevant regulatory authority in case of
specialized business;
Authority letter for filing of documents for the proposed company as per requirement of
clause (vi) of sub-regulation (2) of regulation 5.
Copy of valid NIC/Passport of person duly authorized by the Board of directors of a body
corporate which is a subscriber along with copy of Board resolution and attendance
18
sheet. In case of a subscriber which is a limited liability partnership, copy of valid NIC/
Passport of designated partner empowered to act as such, along with copy of instrument
empowering him;
(x)
In case the subscriber is a foreign company or a foreign body corporate, the profile of the
company, detail of its directors, their nationality and country of origin, certified copy of
its charter, statute or memorandum and articles etc.
(xi)
In case of foreign subscriber/ officer, an undertaking on stamp paper of requisite value
duly signed, notarized and witnessed to the effect that in case name of subscriber/officer
is not security cleared by MoI, the subscriber/officer and the company, shall take
immediate steps for replacement and shall transfer shares if any, held by the subscriber.
Witness to above signatures: (For the documents submitted in physical form)
Signatures
Full Name (in Block Letters)
Father‘s/ Husband‘s name
Nationality
CNIC No.
Usual residential address
19
Inc. Annexure-I
Securities and Exchange Commission of Pakistan
Company Registration Office
<City Name>
No. CRO- /
<date>
<Applicant Name>
Applicant Address>
AVAILABILITY OF NAME
Dear Sir /Madam,
This is with reference to your name reservation request dated <date> on the above
subject.
2.
The above proposed name appears to be available for registration under the provisions
of the Companies Act, 2017 and the Companies (Incorporation) Regulations, 2017. The
proposed name shall be reserved for a period of sixty days only and the proposed company
shall be registered with the said name if the documents for registration, along with evidence of
payment of fee specified in Seventh Schedule of the Act, are presented within this period.
However, after the lapse of the period, this office shall not take any responsibility if the name
does not remain available for registration.
<Registrar*>
*Name & designation of the officer signing it
20
Inc. Annexure-II
Securities and Exchange Commission of Pakistan
Company Registration Office
<City Name>
No. CRO- /
<date>
<Applicant Name>
Applicant Address>
REFUSAL OF NAME
Dear Sir / Madam,
1.
This is with reference to your name reservation request dated <date> on the above
subject.
2.
The proposed name(s) is/are not available for registration due to the below mentioned
reasons/restrictions imposed under section 10 of the Companies Act, 2017 and the Companies
(Incorporation) Regulations, 2017:
<Pre-checked reasons as selected / checked from the examination page of application>
3.
However, you may adopt some other suitable name of your preference *(and resubmit
application for incorporation along with fresh proposed names) or file an appeal with the
Commission, if desired.
<Registrar**>
*applicable in case of combined application only
**Name & designation of the officer signing it
21
Inc. Annexure-III
COMPANY REGISTRATION OFFICE
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
Certificate of Incorporation
[Under section 16 of the Companies Act, 2017 (XIX of 2017)]
Corporate Unique Identification No. _____________
I hereby certify that (COMPANY NAME) is this day incorporated under the
Companies Act, 2017 (XIX of 2017) and that the company is (COMPANY KIND).
Given at (LOCATION) this (DAY) day of (MONTH), Two Thousand and YEAR.
SEAL
REGISTRAR*
*Name & designation of the officer signing the certificate.]
No.CLD/CCD/PR(12)/2017
(Bilal Rasul)
Secretary to the Commission
22
Modes of winding up. Sec 293
 The winding up of a company may be either
(a) by the Court or
(b) voluntary; or
(c) subject to the supervision of the Court.
Contributory
means a person liable to contribute towards the assets of the company in the event of its being wound up.
Minority members
means members together holding not less than ten percent of the equity share capital of the company.
WINDING UP BY COURT
Circumstances in which a company may be wound up by Court. Sec 301
 A company may be wound up by the Court
(a) if the company has, by special resolution, resolved that the company be wound up
by the Court; or
(b) if default is made in delivering the statutory report to the registrar or in holding
the statutory meeting; or
(c) if default is made in holding any two consecutive annual general meetings; or
(d) if the company has made a default in filing with the registrar its financial
statements or annual returns for immediately preceding two consecutive financial
years; or
(e) if the company has violated any law, rules or regulations for the time being in
force; or
(f) if the number of members is reduced,
i. in the case of public company, below three and
ii. in the case of a private company below two; or
(g) if the company is unable to pay its debts; or
(i) if, being a listed company, it ceases to be such company; or
(j) if the Court is of opinion that it is just and equitable that the company should be
wound up; or
(k) if a company ceases to have a member; or
(l) if the sole business of the company is the licensed activity and it ceases to operate
consequent upon revocation of a licence granted by the Commission or any other
licencing authority; or
(m) if a licence granted under section 42 to a company has been revoked or such a
company has failed to comply with any of the provisions of section 43 or where a
company licenced under section 42; or
(n) if the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year.
A company may also be wound up by the Court
if the company is
(i) conceived or brought forth for, or is or has been carrying on, unlawful or
fraudulent activities; or
(ii) carrying on business which is
a. prohibited by any law for the time being in force in Pakistan; or
b. restricted by any law, rules or regulations for the time being in force in Pakistan;
or
(iii) conducting its business in a manner oppressive to the minority members or
persons concerned with the formation or promotion of the company; or
(iv) run and managed by persons who fail to maintain proper and true accounts, or
commit fraud, misfeasance or malfeasance in relation to the company; or
(v) managed by persons who refuse to act according to
a. the requirements of the memorandum or articles; or
b. the provisions of Companies Act 2017; or
c. failed to carry out the directions; or
d. decisions of the Commission or the registrar.
Company when deemed unable to pay its debts. Sec 302
 A company shall be deemed to be unable to pay its debts
a) if a creditor to whom the company is indebted in a sum exceeding one hundred
thousand rupees has served on the company at its registered office, a demand
under his hand requiring the company to pay the sum so due and the company has
for thirty days thereafter
i. neglected to pay the sum, or
ii. to secure or compound for it to the reasonable satisfaction of the creditor; or
(b) if execution or other process issued on a decree or order of any Court or any other
competent authority in favour of a creditor of the company is returned unsatisfied in
whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its
debts.
 In determining whether a company is unable to pay its debts, the Court shall take
into account the contingent and prospective liabilities of the company
 The demand shall be deemed to have been duly given under the hand of the
creditor if it is signed by an agent or legal adviser duly authorised on his behalf.
Provisions as to applications for winding up. Sec 304
 An application to the Court for the winding up of a company shall be by petition
presented either
i. by the company, or
ii. by any creditor or creditors, or
iii. by any contributory or contributories, or
iv. by all or any of the aforesaid parties, together or separately or
v. by the registrar, or by the Commission or
vi. by a person authorised by the Commission in that behalf.
 A contributory shall not be entitled to present a petition for winding up a company
unless
(i) either the number of members is reduced,
• in the case of a private company, below two, or,
• in the case of public company, below three; and
(ii) the shares registered in his name in respect of which he is a contributory or held
by him, for at least six months during the eighteen months before the
commencement of the winding up, or have or transferred on him through the death
of a former holder;
The Commission or a person authorized by the Commission
 The Commission or a person authorized by the Commission in that behalf shall not
be entitled to present a petition for the winding up of a company unless an
investigation into the affairs of the company has revealed that
i. it was formed for any fraudulent or unlawful purpose or
ii. it is carrying on a business not authorised by its memorandum or
iii. its business is being conducted in a manner oppressive to any of its members or
persons concerned in the formation of the company or
iv. its management has been guilty of fraud, misfeasance or other misconduct towards
the company or towards any of its members;
 Such petition shall not be presented or authorised to be presented by the
Commission unless the company has been afforded an opportunity of making a
representation and of being heard
 If sole business of the company is the licensed activity and that licence is revoked, no
investigation into the affairs of the company shall be required to present the petition
for winding up of the company;
 The registrar shall not be entitled to present a petition for the winding up of a
company unless the previous sanction of the Commission has been obtained to the
presentation of the petition.
 Such sanction shall not be given unless the company has first been afforded an
opportunity of making a representation and of being heard.
Right to present winding up petition where company is being
wound up voluntarily or subject to Court‘s supervision. Sec 305
 Where a company is being wound up voluntarily or subject to the supervision of
the Court, a petition for its winding up by the Court may be presented by any
person authorized to do so.
 The Court shall not make a winding up order on a petition presented to it unless
it is satisfied that the voluntary winding up or winding up subject to the
supervision of the Court cannot be continued with due regard to the interests of
the creditors or contributories or both or it is in the public interest so to do.
Commencement of winding up by Court. Sec 306
 A winding up of a company by the Court shall be deemed to commence at the
time of the presentation of the petition for the winding up.
Circumstances in which company may be wound up voluntarily.
347,348,349,350
 A company may be wound up voluntarily
(a) if the company in general meeting passes a resolution requiring the company to
be wound up voluntarily as a result of
i. the expiry of the period for its duration, if any, fixed by its articles or
ii. on the occurrence of any event in respect of which the articles provide that the
company should be dissolved; or
(b) if the company passes a special resolution that the company be wound up
voluntarily; and,
 A voluntary winding up shall be deemed to commence at the time of the passing of
the resolution for voluntary winding up.
 In the case of voluntary winding up, the company shall, from the commencement
of the winding up, cease to carry on its business, except so far as may be required
for the beneficial winding up.
 Notice of any resolution for winding up a company voluntarily shall be given by
the company within ten days of the passing of the same by advertisement in a
newspaper in English and Urdu languages at least in one issue each of a daily
newspaper of respective language having wide circulation and a copy thereof shall
be sent to the registrar immediately thereafter.
Court may grant injunction Sec 307
o The Court may, at any time after presentation of the petition for winding up a company under this Act, and before making
an order for its winding up, upon the application of the company itself or of any its creditors or contributories, restrain
further proceedings in any suit or proceeding against the company, upon such terms as the Court thinks fit.
Powers of Court on hearing petition Sec 308
o The Court may, on receipt of a petition for winding up under section 304 pass any of the following orders within 90 days
from date of petition, namely
(a) dismiss it, with or without costs;
(b) make any interim order as it thinks fit;
(c) appoint a provisional manager of the company till the making of a winding up order;
(d) make an order for the winding up of the company with or without costs; or
(e) any other order as it thinks fit:
o the Court shall give notice to the company and afford a reasonable opportunity to it to make its representations, if any,
unless for special reasons to be recorded in writing, the Court thinks fit to dispense with such notice:
o The Court shall not refuse to make a winding up order on the ground only that the assets of the company have been
mortgaged for an amount equal to or in excess of those assets, or that the company has no assets.
o Where a petition is presented on the ground that it is just and equitable that the company should be wound up, the Court
may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners
and that they are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy.
o Where the Court makes an order for the winding up of a company, it shall forthwith cause intimation thereof to be sent to
the official liquidator appointed by it and to the registrar.
Copy of winding up order to be filed with registrar. Sec 309
o Within fifteen days from the date of the making of the winding up order, the petitioner in the winding up proceedings
and the company shall file a certified copy of the order with the registrar.
o If default is made in complying with the foregoing provision, the petitioner or, as the case may require, the company,
and every officer of the company who is in default, shall be liable to a penalty of level 1 on the standard scale.
o On the filing of a certified copy of a winding up order, the registrar shall forthwith make a minute thereof in his books
relating to the company, and shall simultaneously notify in the official Gazette that such an order has been made.
o Such order shall be deemed to be notice of discharge to the employees of the company, except when the business of the
company is continued.
Suits stayed on winding up order 310
o When a winding up order has been made or a provisional manager has been appointed, no suit or other legal
proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to
such terms as the Court may impose.
o The Court which is winding up the company shall have jurisdiction to entertain, or dispose of, any suit or proceeding by
or against the company.
o Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up
of the company is proceeding may be transferred to and disposed of by the Court.
Power of Court to stay winding up Sec 313
o The Court may at any time not later than three years after an order for winding up,
on the application of any creditor or contributory or of the registrar or the
Commission or a person authorised by it, and on proof to the satisfaction of the
Court that all proceedings in relation to the winding up ought to be stayed,
withdrawn, cancelled or revoked, make an order accordingly, on such terms and
conditions as the Court thinks fit.
o On any application the Court may, before making an order, require the official
liquidator to furnish to the Court a report with respect to any facts or matters which
are in his opinion relevant to the application.
o A copy of every order made shall forthwith be forwarded by the Court to the
registrar, who shall make a minute of the order in his books relating to the
company.
Court may ascertain wishes of creditors or contributories Sec 314
In all matters relating to the winding up of a company, the Court may
(a) have regard to the wishes of creditors or contributories of the company, as proved to
it by any sufficient evidence in a manner as provided under this Act;
(b) if it thinks fit for the purpose of ascertaining their wishes, order meetings of the
creditors or contributories to be called, held and conducted in such manner as may
be directed; and
(c) appoint a person to act as chairman of any such meeting and to submit a report in
this regard.
While ascertaining the wishes of creditors or contributories regard shall be had to the
value of each debt of the creditor or the voting power exercised by each contributory, as
the case may be.
Liability as contributories of present and past members. Sec
294
 In the event of a company being wound up, every present and past member
shall be liable to contribute to the assets of the company to an amount
sufficient for payment of its debts and liabilities and the costs, charges and
expenses of the winding up, and for the adjustment of the rights of the
contributories among themselves.
 A past member shall not be liable to contribute if he has ceased to be member
for one year or upwards before the commencement of the winding up;
 a past member shall not be liable to contribute in respect of any debt or liability
of the company contracted after he ceased to be a member;
 a past member shall not be liable to contribute unless it appears to the Court
that the present members are unable to satisfy the contributions required to be
made by them in pursuance of this Act;
 in the case of a company limited by shares, no contribution shall be required
from any past or present member exceeding the amount, if any, unpaid on the
shares in respect of which he is liable as such member;
 in the case of a company limited by guarantee, no contribution shall be
required from any past or present member exceeding the amount undertaken
to be contributed by him to the assets of the company in the event of its being
wound up
 nothing in this Act shall invalidate any provision contained in any policy of
insurance or other contract whereby the liability of individual members on the
policy or contract is restricted, or whereby the funds of the company are alone
made liable in respect of the policy or contract; and
 a sum due to any past or present member of a company in his character as such, by
way of dividends, profits or otherwise, shall not be deemed to be a debt of the
company payable to that member in a case of competition between himself and any
other creditor not being a member of the company, but any such sum may be taken
into account for the purpose of the final adjustments of the rights of the
contributories among themselves.
 In the winding up of a company limited by guarantee which has a share capital,
every member of the company shall be liable, in addition to the amount undertaken
to be contributed by him to the assets of the company in the event of its being
wound up, to contribute to the extent of any sum unpaid on any shares held by
him, as if the company were a company limited by shares.
Liability of directors whose liability is unlimited Sec 295
 In the winding up of a limited company any director, whether past or present, whose liability
is, in pursuance of this Act, unlimited, shall, in addition to his ability, if any, to contribute as
an ordinary member, be liable to make a further contribution as if he were, at the
commencement of the winding up, a member of an unlimited company
 a past director shall not be liable to make such further contribution if he has ceased to hold
office for a year or upwards before the commencement of the winding up;
 a past director shall not be liable to make such further contribution in respect of any debtor
liability of the company contracted after he ceased to hold office
 subject to the articles, a director shall not be liable to make such further contribution unless
the Court deems it necessary to require that contribution in order to satisfy the debts and
liabilities of the company, and the costs, charges and expenses of the winding up.
Contributories in case of death of member Sec 298
 If a contributory dies, whether before or after being placed on the list of contributories of a
company
(a) his legal representatives shall be liable, in due course of administration, to contribute to the
assets of the company in discharge of his liability, and shall be contributories accordingly; and
(b) if the legal representatives make default in paying any money ordered to be paid by them,
proceedings may be initiated for administering the property of the deceased contributory, and
of compelling payment of the money due, out of assets of the deceased.
Contributory in case of insolvency of member Sec 299
If a contributory is adjudged insolvent whether before or after he has been placed on the list
of contributories of a company, then
(a) his assignees in insolvency shall represent him for all the purposes of the winding up, and
shall be contributories accordingly, and may be called on to admit to proof against the
estate of the insolvent, or otherwise to allow to be paid out of his assets in due course of
law, any money due from the insolvent in respect of his liability to contribute to the assets
of the company; and
(b) there may be proved against the estate of the insolvent the estimated value of his liability
to further calls as well as calls already made.
Contributories in case of winding up of a body corporate which is a
member Sec 300
If a body corporate which is a contributory is ordered to be wound up, whether before or after
it has been placed on the list of contributories of a company
(a) the liquidator of the body corporate shall represent it for all purposes of the winding up of
the company and shall be a contributory accordingly, and may be called on to admit to
proof against the assets of the body corporate, or otherwise to allow to be paid out of its
assets in due course of law, any money due from the body corporate in respect of its
liability to contribute to the assets of the company; and
(b) there may be proved against the assets of the body corporate the estimated value of its
liability to future calls as well as calls already made.
OFFICIAL LIQUIDATORS
Appointment of official liquidator Sec 315
o For the purpose of the winding up of companies by the Court, the Commission shall
maintain a panel of persons from whom the Court shall appoint a provisional manager
or official liquidator of a company ordered to be wound up.
o A person shall not be appointed as provisional manager or official liquidator of more
than three companies at one point of time.
o The panel for shall consist of persons having at least ten years experience in the field of
accounting, finance or law and as may be specified by the Commission such other
persons, having at least ten years professional experience.
o Where a provisional manager is appointed by the Court, the Court may limit and
restrict his powers by the order appointing him or by a subsequent order, but otherwise
he shall have the same powers as a liquidator.
o On appointment as provisional manager or official liquidator, as the case may be, such
liquidator shall file a declaration within seven days from the date of appointment in the
specified form disclosing conflict of interest or lack of independence in respect of his
appointment, if any, with the Court and such obligation shall continue throughout the
term of his appointment.
o While passing a winding up order, the Court may appoint a provisional manager as the
official liquidator for the conduct of the proceedings for the winding up of the
company.
o If more persons than one are appointed to the office of official liquidator, the Court
shall declare whether any act by this Act required or authorised to be done by the
official liquidator is to be done by all or any one or more of such persons
o The Court may determine whether any, and what, security is to be given by any
official liquidator on his appointment
o The Court may, on the application of creditors to whom amounts not less than sixty
percent of the issued share-capital of the company being wound up are due, after
notice to the registrar, appoint a person whose name does not appear on the panel
maintained for the purpose, to be the official liquidator.
o An official liquidator shall not resign or quit his office before conclusion of the
liquidation proceedings except for reasons of personal disability to the satisfaction
of the Court.
o Any casual vacancy in the office of an official liquidator occurred due to his death,
removal or resignation, shall be filled up by the Court by the appointment of another
person from the panel maintained.
o The Commission may of its own, remove the name of any person from the panel
maintained on the grounds of misconduct, fraud, misfeasance, breach of duties or
professional incompetence
o the Commission before removing him from the panel shall give him a reasonable
opportunity of being heard.
o The person appointed on the panel under this section shall be subject to such code
of conduct and comply with the requirement of any professional accreditation
programs as may be specified by the Commission
o The official liquidator shall be described by the style of the official liquidator of the
particular company in respect of which he acts, and in no case he shall be described
by his individual name
Removal of official liquidator Sec 316
o The Court may, on a reasonable cause being shown including but not limited to
lack of independence or lack of impartiality, remove the provisional manager or
the official liquidator, as the case may be, on any of the following grounds,
namely
(a) misconduct;
(b) fraud or misfeasance;
(c) professional incompetence or failure to exercise due care and diligence in
performance of the powers and functions;
(d) inability to act as provisional manager or official liquidator, as the case may be;
(e) conflict of interest during the term of his appointment that will justify removal.
o Where the Court is of the opinion that any liquidator is responsible for causing
any loss or damage to the company due to fraud or misfeasance or failure to
exercise due care and diligence in the performance of his powers and functions,
the Court may recover or cause to be recovered such loss or damage from the
provisional manager or official liquidator, as the case may be, and pass such
other orders as it may think fit.
Remuneration of official liquidator Sec 317
o The terms and conditions of appointment of a provisional manager or official
liquidator and the fee payable to him shall be fixed by the Court on the basis of task
required to be performed, experience, qualification of such liquidator and size of the
company.
o An official liquidator, shall also be entitled to such remuneration by way of percentage
of the amount realized by him by disposal of assets as may be fixed by the Court
having regard to the amount and nature of the work actually done and subject to such
limits as may be prescribed: Provided that different percentage rates may be fixed for
different types of assets and items.
o In addition to the remuneration payable the Court may permit payment of a monthly
allowance to the official liquidator for meeting the expenses of the winding up for a
period not exceeding twelve months from the date of the winding up order.
o The remuneration fixed as aforesaid shall not be enhanced subsequently but may be
reduced by the Court at any time.
o If the official liquidator resigns, is removed from office or otherwise ceases to hold
office before conclusion of the winding up proceedings, he shall not be entitled to any
remuneration and the remuneration already received by him, if any, shall be refunded
by him to the company.
o No remuneration shall be payable to official liquidator who fails to complete the
winding up proceedings within the prescribed period or such extended time as may be
allowed by the Court.
Statement of affairs to be made to official liquidator Sec 320
o Where the Court has appointed a provisional manager or made a winding up order
and appointed an official liquidator, there shall be made out and submitted to the
provisional manager or official liquidator, a statement as to the affairs of the
company in the prescribed form, verified by an affidavit, and containing the
following particulars, namely
(a) particulars of the company‘s assets, debts and liabilities;
(b) the detail of cash balance in hand and at the bank;
(c) the names and addresses of the company‘s creditors stating separately the amount
of secured debts and unsecured debts, and, in the case of secured debts, particulars
of the securities given, their value and the dates when they were given.
(d) the names, residential addresses and occupations of the persons from whom debts
of the company are due and the amount likely to be realized therefrom;
(e) where any property of the company is not in its custody or possession, the place
where and the person in whose custody or possession such property is;
(f) full address of the places where the business of the company was conducted during
the six months preceding the relevant date and the names and particulars of the
persons in charge of the same;
(g) details of any pending suits or proceedings in which the company is a party; and
(h) such other particulars as may be prescribed or as the Court may order or the
provisional manager or official liquidator may require in writing, including any
information relating to secret reserves and personal assets of directors.
o The statement shall be submitted and verified by persons who are at the relevant date
the directors, chief executive, chief financial officer and secretary of the company.
o The provisional manager or official liquidator, subject to the direction of the Court,
may also require to make out and submit to him a statement in the prescribed form as
to the affairs of the company by some or all of the persons
a) who have been directors, chief executives, chief financial officer, secretary or other
officers of the company within one year from the relevant date;
b) who have taken part in the formation of the company at any time within one year
before the relevant date;
c) who are in the employment of the company, or have been in the employment of the
company within the said year, and are in the opinion of the official liquidator or
provisional manager capable of giving the information required and to whom the
statement relates;
o The statement shall be submitted within fifteen days from the relevant date, or within
such extended time not exceeding forty-five days from that date as the official
liquidator or provisional manager or the Court may, for special reasons, appoint.
o Any person making the statement required by this section shall be entitled to and be
paid by the official liquidator or the provisional manager, as the case may be, the
reasonable expenses incurred in preparation of such statement.
Report by official liquidator Sec 321
o Where the Court has made a winding up order and appointed an official liquidator, such
liquidator shall, as soon as practicable after receipt of the statement to be submitted
under section 320 and not later than sixty days, from the date of the winding up order
submit a report to the Court, containing the following particulars, namely
(a) the nature and details of the assets of the company including their location and current
value duly ascertained by a registered valuer;
(b) the cash balance in hand and in the bank, if any, and the negotiable securities, if any,
held by the company;
(c) the amount of authorised and paid up capital;
(d) the existing and contingent liabilities of the company indicating particulars of the
creditors, stating separately the amount of secured and unsecured debts, and in the case
of secured debts, particulars of the securities given;
(e) the debts due to the company and the names, addresses and occupations of the persons
from whom they are due and the amount likely to be realised on account thereof;
(f) debts due from contributories;
(g) details of trademarks and intellectual properties, if any, owned by the company;
(h) details of subsisting contracts, joint ventures and collaborations, if any;
(i) details of holding and subsidiary companies, if any;
(j) details of legal cases filed by or against the company;
(k) any other information which the Court may direct or the official liquidator may consider
necessary to include.
o The official liquidator shall also include in his report the manner in which the company
was promoted or formed and whether in his opinion any fraud has been committed by
any person in its promotion or formation, or by any director or other officer of the
company in relation to the company since its formation.
o The official liquidator shall also make a report on the viability of the business of the
company or the steps which, in his opinion, are necessary for maximising the value of the
assets of the company.
o The official liquidator may also, if he thinks fit or upon directions of the Court, make any
further report or reports.
o A certified copy of the reports aforesaid shall also be sent to the registrar simultaneously
with their submission to the Court .
Single Member
Companies Rules 2003
These rules shall apply to
(a) a company incorporated as single member
company; and
(b) a private company limited by shares which has
more than one member and becomes a single
member company after complying with the
requirements of these rules.
Later on these rules amended by SECP in April 2015
and eliminated requirements to file Form-S1 enabling
secretary to act in place of nominee directors
Learning Objectives
I.
Formation Rule 03
II. Change of Status Rule 04
III. Meetings Rule 05
IV. Company Secretary Rule 06
V. Transfer of Management Rule 07
VI. Contract with single Member Rule 08
VII. Conversion to Single Member Company Rule 09
VIII. Pattern and Style of Name of SMC Rule 10
SMC Formation Rule 03
A single person may form a private company limited by
shares having only one member to be called a single member
company.
Change in status of a single
member company Rule 04
 A single member company may be converted
into a private company
a) on increase of the number of its members to
more than one due to transfer of shares or
further allotment of shares or
b) death of the single member or
c) operation of law.
Conversion to Private
Company
 A single member company converting into a private company shall
 in case of transfer of shares or further allotment of shares,i. pass a special resolution for change of status from single member
company to private company
ii. alter its articles accordingly within thirty days of transfer of
shares or further allotment of shares;
iii. appoint and elect one or more additional directors in pursuance
of section 174
• within fifteen days of date of passing of the special resolution
• notify the appointment on Form 29 within fourteen days; and
i.
it shall file a notice of the fact in writing in the form as set out in
Form S2, with the registrar within sixty days from the date of
passing of special resolution.
Conversion in Case of Death
 in case of death of single member,
i. either be wound up in accordance with the provisions of the
Ordinance or
ii. be converted into private company.
 A single member company converting into a private company in
case of death of single member shall
i. the secretary shall take steps for transfer of shares in name of
legal heirs of the single member within seven days of the receipt
of succession certificate and in case of any impediment, report the
circumstances of the case to the registrar on Form S3;";
ii. the company shall pass a special resolution for change of status
from single member company to private company
iii. alter its articles accordingly within thirty days of transfer of
shares; and
iv. the members shall,
• within fifteen days of date of passing of the special resolution,
appoint and elect one or more additional directors of section
174and
• notify the appointment on Form 29 within fourteen days of date of
such appointment.
Conversion by operation of Law
 in case of operation of the law,i. transfer the shares, within seven days, in the name of relevant
persons to give effect to the order of the court or any other
authority;
ii. pass a special resolution for change of status from single member
company to private company
iii. alter its articles accordingly within thirty days of transfer of
shares; and
iv. appoint additional director or directors in pursuance of section
174
• within fifteen days of date of passing of the special resolution and
• notify the appointment on Form 29 within fourteen days of date
of such appointment.
Meetings of directors and
members Rule 05
 Any provision of the Ordinance or rules made thereunder or
articles of the company
whicha) enables or requires any matter to be done or to be decided by
directors or members of the company; or
b) requires any matter to be decided by a resolution of the directors
or members of the company,
shall be deemed to be satisfied if the decision is taken by the single
member or sole director, as the case may be, and is drawn up in
writing and recorded in the minutes book
Company secretary Rule 06
 A single member company shall appoint a company secretary
i. within fifteen days of incorporation or
ii. of becoming a single member company or
iii. of the office of company secretary falling vacant and
iv. notify such appointment on Form 29 within fourteen days of the
date of such appointment:
 The sole director shall not be the company secretary.
 The company secretary shall attend and cause a fair and accurate
summary of the minutes of all proceedings of general meetings and
meetings of director or directors, as the case may be, along with
the names of those participating in such meetings to be entered in
properly maintained minutes book.
Transfer of management Rule 07
 The secretary shall,
i. manage the affairs of the company in case of death of single
member till the transfer of shares to legal heirs of the single
member;
ii. inform the registrar concerned of death of the single member,
iii. provide particulars of the legal heirs to registrar and
iv. in case of any obstacle, report the circumstances seeking the
directions in the form as set out in Form S3 within seven days of
the death of the single member;
v. after satisfying himself of compliance with all the requirements of
the relevant laws, transfer the shares to the legal heirs along with
the management in accordance with the applicable laws; and
vi. call the general meeting of the members to elect directors.
 It shall be obligatory upon the company secretary to inform the
registrar concerned about the death of the single member.
 In case of any obstacle due to
i. transfer of shares, or
ii. election of directors or
iii. any other circumstances,
the registrar concerned shall call, or direct to calling of the meeting of
legal heirs as he deems fit and give such directions with regard to
election of directors and making alteration in the articles, if any, and
such additional and substantial directions as he thinks expedient in
relation to calling, holding and conducting of the meeting.
Contracts with single member
Rule 08
 Where a single member company enters into a contract with the
single member of the company, the single member company shall,
unless the contract is in writing, ensure that the terms of the
contract are forthwith set out in a written memorandum or are
recorded in the minutes of the first meeting of the directors of the
company following the making of the contract.
Company becoming a single member
company Rule 09
private company shall become a single member company
i. It passes a special resolution for change of its status
ii. makes necessary alteration in its articles
iii. obtains approval of the Commission
iv. an application for seeking approval shall be submitted in the form as
set out in Form S4
v. such Application shall be submitted to the Commission by the
company not later than thirty days from the date on which the special
resolution for change of status to single member company was
passed.
vi. the Commission on being satisfied grant the approval or otherwise as
it may deem fit to impose.
vii. the company shall transfer shares in the name of single member
within fifteen days of the approval of the Commission
viii. notify change in the board of directors on Form 29 within fourteen
days from date of transfer of shares.
ix. certified copy of the order containing approval, together with a notice
in the form as set out in Form S5 shall be filed with the registrar
concerned within fifteen days of the approval of the Commission for
change of status to single member company.
Pattern and style of the name of a
single member company Rule 10
 “XYZ (SMC-Private) Limited” shall be the pattern and style of the
name of a single member company and the
i. parenthesis,
ii. letters,
iii. hyphen and
iv. words “(SMC-Private) Limited”,
shall from part of the name of every single member company.
 On change of status of a private company into a single member
company, the registrar concerned shall issue a certificate in the
form as set out in Form S6, and the parenthesis, letters, hyphen
and words “(SMC-Private) Limited” shall from part of the name of
the company.
 On change of status of a single member company into a private
company, the registrar concerned shall issue a certificate in the
form as set out in Form S7 omitting the letters and hyphen “SMC” from part of the name of the single member company.
PROSPECTUS, ALLOTMENT, ISSUE AND TRANSFER OF SHARES AND OTHER SECURITIES
Prospectus Sec 57
o No prospectus shall be issued by or on behalf of a company unless on or before the
date of its publication, a copy thereof signed by every person who is named therein as
a director or proposed director of the company has been filed with the registrar.
o In case of any contravention of this section, the company and every person who is a
party to the issue, publication or circulation of the prospectus shall be liable to a
penalty not exceeding of level 2 on the standard scale.
Application for, and allotment of, shares and debentures. Sec 67
o An application for allotment of shares in and debentures of a company in pursuance
of a prospectus shall not be made for shares or debentures of less than such nominal
amount as the Commission may specify.
o The Commission may specify the form of an application which may contain such
declarations or verifications as it may, in the public interest, deem necessary.
o such form then shall form part of the prospectus.
o All certificates, statements and declarations made by the applicant shall be binding
on him.
o An application for shares in or debentures of a company which is made in pursuance
of a prospectus shall be irrevocable.
Repayment of money received for shares not allotted. Sec 68
o The company shall refund the money in the case of the unaccepted or unsuccessful
applications within fifteen days.
o If the refund required is not made, the directors of the company shall be jointly and
severally liable to repay that money with surcharge at the rate of 2% for every month
or part thereof from the expiration of the fifteenth day and shall be liable to a
penalty of level 3 on the standard scale.
Allotment of shares and other securities to be dealt in on securities exchange
Sec 69
o Where a prospectus states that application will be made for permission for the shares
or other securities to be dealt in on the securities exchange, any allotment made on an
application shall be void
i. if the permission has not been applied for before the seventh day after the first issue of
the prospectus or
ii. if the permission has not been granted before the expiration of 21 days from the date
of the closing of the subscription lists or
iii. such longer period not exceeding 42 days as may, within the said twenty-one days, be
notified to the applicants for permission by the securities exchange.
o All moneys received shall be deposited and kept in a separate bank account in a
scheduled bank so long as the company may become liable to repay it.
o Where the permission has not been applied for or has not been granted the company
shall forthwith repay without surcharge all money received from applicants.
o if any such money is not repaid within eight days after the company becomes liable to
repay it, the directors of the company shall be jointly and severally liable to repay that
money from the expiration of the eighth day together with surcharge at the rate of
two percent for every month or part thereof from the expiration of the eighth day and
in addition, shall be liable to a penalty of level 3 on the standard scale.
o if default is made the company and every officer of the company who authorizes or
permits the default shall be liable to a penalty of level 2 on the standard scale.
Return as to allotments Sec 70
A company having a share capital makes any allotment of its shares, the company shall,
within 30 days
o file with the registrar a return of the allotment, stating
i.
the number and nominal amount of the shares comprised in the allotment
ii. such particulars as may be specified, of each allottee, and
iii. the amount paid on each share
o in the case of shares allotted as paid up in cash, submit along with the return of
allotment, a [declaration from its chief executive report from its auditor to the effect
that the amount of consideration has been received in full by the company and
shares have been issued to each allottee;:
o in the case of shares allotted as paid up otherwise than in cash, submit along with
the return of allotment, a copy of the document evidencing the transfer of non-cash
asset to the company, or a copy of the contract for technical and other services,
intellectual property or other consideration, along with copy of the valuation report
(verified in the specified manner) for registration in respect of which that allotment
was made.
o file with the registrar
(i) in the case of bonus shares, a return stating the number and nominal amount of
such shares comprised in the allotment and the particulars of allottees together
with a copy of the resolution authorising the issue of such shares;
(ii) in the case of issue of shares at a discount, a copy of the resolution passed by the
company authorising such issue and where the maximum rate of discount exceeds
ten 44 per cent, a copy of the order of the Commission permitting the issue at the
higher percentage.
o No return of allotment shall be required to be filed for the shares taken by the
subscribers to the memorandum on the formation of the company.
SHARE CAPITAL AND NATURE, NUMBERING AND
CERTIFICATE OF SHARES, TRANSFER OF SHARES AND
OTHER SECURITIES.
Numbering of shares. Sec 60
o Every share in a company having a share capital shall be distinguished by its distinctive
number
o This section shall apply to a share held by a person whose name is entered as holder of
beneficial interest in such share in the records of a central depository system.
Nature of shares or other securities. Sec 61
o The shares or other securities of any member in a company shall be movable property
transferable in the manner provided by the articles of the company.
Shares certificate to be evidence. Sec 62
o A certificate, if
a) issued in physical form under common seal of the company or under official seal , or
b) issued in book-entry form, specifying the shares held by any person or shares held in
central depository system
shall be prima facie evidence of the title of the person to such shares.
Transfer of shares and other securities
Application for
Transfer of
Shares/Securities
Accept
Transfer
Transfer
Deed Lost
Refusal of
transfer
Issue and
Deliver Share
certificate
Give Prove
that transfer
was made
Give notice
of refusal
with reason
Change in
the register
of member
Give
Indemnity
then transfer
May accept
refusal
Transfer to
Successor-ininterest/Nominee
of Deceased
File an appeal
against refusal to
commission
Transfer of shares and other securities Sec 74
o An application for registration of transfer of shares and other transferable securities
may be made to the company either by the transferor or the transferee.
o Application must be
a) along with proper instrument of transfer
b) duly stamped and executed by the transferor and the transferee
o The company shall within 15 days after the application complete the process and
a) ensure delivery of the certificates to the transferee at his registered address; and
b) enter in its register of members the name of the transferee.
o The company shall within 10 days after an application of transfer is made for the
registration of the transfer of any shares or other securities to a central depository,
register such transfer in the name of the central depository
Transfer deed lost, destroyed or mutilated
o Where a transfer deed before its lodgment is
a) lost,
b) destroyed or
c) mutilated,
the company may register the transfer of shares or other securities
i.
on an application made by the transferee
ii. application must bearing the stamp required by an instrument of transfer and
iii. the transferee must proves to the satisfaction of the board that the transfer deed
duly executed has been lost, destroyed or mutilated.
o Before registering such transfer of shares or other securities, the company may
demand such indemnity as it may think fit.
Register of Transfers
o Every company shall maintain at its registered office a register of transfers of shares
and other securities.
o such register shall be open to inspection by the members and supply of copy thereof in
the manner stated in section 124.
o Nothing shall prevent a company from registering as shareholder or other securities
holder a person to whom the right to any share or security of the company has been
transmitted by operation of law.
o Any violation of this section shall be an offence liable to a penalty of level 2 on the
standard scale.
Board not to refuse transfer of shares Sec 75
o The board shall not refuse to transfer any shares or securities unless the transfer deed
is, for any reason, defective or invalid.
o The company shall within 15 days or, where the transferee is a central depository,
within five 5 days from the date on which the instrument of transfer was lodged with it
notify the defect or invalidity to the transferee.
o The transferee shall, after the removal of such defect or invalidity, be entitled to relodge the transfer deed with the company.
Notice of refusal to transfer. Sec 77
o If a company refuses to register a transfer of any shares or other securities, the
company shall, within 15 days after the date on which the instrument of transfer was
lodged with the company, send to the transferee notice of the refusal indicating
reasons for such refusal
o Any failure of the company to give notice of refusal after the expiry of the period shall
be deemed refusal of transfer.
o Any violation of this section shall be an offence liable to a penalty of level 2 on the
standard scale
Appeal against refusal for registration of transfer Sec 80
o
a)
b)
c)
o
o
o
o
o
The
transferor or
transferee, or
the person who gives intimation of the transmission by operation of law, as the case
may be, aggrieved by the refusal of transfer may appeal to the Commission within a
period of sixty 60 days of the date of refusal.
The Commission shall, provide opportunity of hearing to the parties concerned
The Commission may, by an order in writing, direct that the transfer or transmission
should be registered by the company
the company shall give effect to the decision within fifteen 15 days of the receipt of the
order.
The Commission may also give such incidental and consequential directions as to the
payment of costs or otherwise as it deems fit.
If default is made in giving effect to the order of the Commission within the period
specified every director and officer of the company shall be liable to a penalty of level 3
on the standard scale.
Restriction on transfer of shares by the
members of a private company
Restriction on transfer of shares by the members of a private
company. Sec 76
o a member of a private company desirous of selling any shares held by him, shall
intimate to the board of his intention through a notice.
o On receipt of such notice, the board shall, within a period of 10 days, offer those shares
for sale to the members in proportion to their existing shareholding.
o The letter of offer for sale shall be dispatched to the members through
a) registered post or
b) courier or
c) through electronic mode.
o The letter of offer for sale shall specifying
a) the number of shares to which the member is entitled,
b) price per share and
c) specifying the time limit, within which the offer, if not accepted, be deemed as
declined,
o If the whole or any part of the shares offered is declined or is not taken, the board may
offer such shares to the other members in proportion to their shareholding.
o If all the members decline to accept the offer or if any shares are left over, the shares
may be sold to any other person as determined by the member, who initiated the offer.
o The mechanism to determine the price of shares shall be such, as may be specified.
o the member selling shares to any other person shall ensure that as a result of such sale,
the limit of maximum number of members for a private company is not be exceeded.
o a private company may transfer or sell its shares in accordance with its articles of
association and agreement among the shareholders, if any, entered into prior to the
commencement of Companies Act 2017
o Any such agreement will be valid only if it is filed with the registrar within 90 days of
the commencement of this Act.
Transfer to successor-in-interest. Sec 78
o The shares or other securities of a deceased member shall be transferred on
application duly supported by succession certificate or by lawful award, as the case
may be, in favour of the successors to the extent of their interests and their names
shall be entered in the register of members.
Transfer to nominee of a deceased member. Sec 79
o The subscriber to the memorandum shall nominate a person who in the event of death
act as a trustee and to facilitate the transfer of shares to the legal heirs of the deceased
subject to succession to be determined under the Islamic law of inheritance and in case
of a non-Muslim members, as per their respective law.
o The person to be nominated shall not be a person other than the relatives of the
member, namely, a spouse, father, mother, brother, sister and son or daughter.
o The person nominated shall, after the death of the member, be deemed as a member of
company till the shares are transferred to the legal heirs
o If the deceased was a director of the company, other than a listed company, the
nominee shall also act as director of the company to protect the interest of the legal
heirs.
o The nomination shall not bias the right of the member making the nomination to
transfer, dispose of or otherwise deal in the shares owned by him during his lifetime
and, shall have effect in respect of the shares owned by the said member on the day of
his death.
Power to issue shares at a discount Sec 82
It shall be lawful for a company to issue shares in the company at a discount: Provided that
a) the issue of shares at a discount must be authorized by special resolution;
b) the resolution must specify
i. the number of shares to be issued,
ii. rate of discount, not exceeding the limits permissible and
iii. price per share proposed to be issued;
o the issue of shares at discount must be sanctioned by the Commission
o no such resolution for issuance of shares at discount shall be sanctioned by the
Commission if the offer price per share, specified in the resolution, is less than
(i) in case of listed companies, ninety percent of volume weighted average daily closing
price of shares for 90 days prior to the announcement of discount issue; or
(ii) in case of other than listed companies, the breakup value per share based on assets
(revalued not later than 3 years) or per share value based on discounted cash flow.
o not less than three years have elapsed since the date on which the company was entitled
to commence business;
o Approval of the Commission shall not be required by a listed company for issuing shares
at a discount if the discounted price is not less than ninety percent of the par value.
o directors and sponsors of listed companies shall be required to subscribe their portion of
proposed issue at volume weighted average daily closing price of shares for ninety days
prior to the announcement of discount issue;
o Where a company has passed a special resolution authorising the issue of shares at a
discount, it shall apply to the Commission where applicable, for an order sanctioning the
issue. The Commission on such application may, if, having regard to all the circumstances
of the case, thinks proper so to do, make an order sanctioning the issue of shares at
discount subject to such terms and conditions as it deems fit.
o Issue of shares at a discount shall not be deemed to be reduction of capital.
o Every prospectus relating to the issue of shares, and every statement of financial position
issued by the company subsequent to the issue of shares, shall contain particulars of the
discount allowed on the issue of the shares.
o Any violation of this section shall be an offence liable to a penalty of level 3 on the
standard scale.
o in case of listed companies discount shall only be allowed if the market price is lower than
the par value of the shares for a continuous period of past ninety trading days
immediately preceding the date of announcement by the board;
Application of premium received on issue of shares Sec 81
 If a company issues shares at a premium, whether for cash or otherwise, a sum equal to
the aggregate amount or the value of the premiums on those shares must be transferred
to an account, called "the share premium account".
 The amount in share premium account shall be used to write off
i. the preliminary expenses of the company;
ii. the expenses of, or the commission paid or discount allowed on, any issue of shares of
the company; and
iii. in providing for the premium payable on the redemption of any redeemable preference
shares of the company and
iv. to issue bonus shares to its members.
Further issue of capital Sec 83
 Where the directors decide to increase share capital of the company by issue of further share capital,
such shares shall be offered:
i. to persons who, at the date of the offer, are members of the company
ii. in proportion to the existing shares held
iii. by sending a letter of offer
 a letter of offer subject to the following conditions,
i. the shares so offered shall be strictly in proportion to the shares already held
ii. Time of offer not less than 15 days and not exceeding 30 days
iii. The offer , if not accepted within 30 days, shall be deemed to have been declined;
iv. The letter of offer duly signed by at least two directors
v. Letter of offer shall be dispatched to all the existing members before the commencement of period for
the acceptance of offer through registered post or courier or through electronic mode, ensuring that it
reaches the members.
vi. A copy of the letter of offer shall also be sent to the registrar.
vii. if the whole or any part of the shares offered is declined or is not subscribed, the directors may within
a period of 30 days from the close of the offer allot such shares in such manner as they may deem fit.
viii.in the case of a listed company any member, not interested to subscribe, may exercise the right to
renounce the shares to any other person, before the date of expiry stated in the letter of offer;
 where loan has been obtained from any Government by a public sector company
i. Government may direct that such loan or any part thereof shall be converted into shares in that
company
ii. on such terms and conditions as appear to the Government to be just and reasonable in the
circumstances of the case
iii. even if the terms of such loan does do not include the option for such conversion.
iv. where the authorised capital of a company is fully subscribed, or the un-subscribed capital is
insufficient, the same shall be deemed to have been increased to the extent necessary for issue of
shares to the Government
v. the company shall be required to file the notice of increase in share capital along with the fee
prescribed for such increase with the registrar within the period prescribed under this Act.
vi. If company makes defult, the Government, scheduled bank or the financial institution to whom
shares have been issued may file notice of such increase with the registrar and such notice shall be
deemed to have been filed by the company itself.
 Any violation of this section shall be an offence liable to a penalty of level 2 on the standard scale.
THE Listed COMPANIES (BUY-BACK OF SHARES)
Regulations,2019
Power of a company to purchase its own shares Sec 88
o Notwithstanding anything contained in this Act or any other law, for the time being in force, or the memorandum
and articles, a company may, subject to the provisions of this section and the regulations specified in this behalf,
purchase its own shares.
o The shares purchased by the company may, in accordance with the provisions of this section and the regulations,
either be cancelled or held as treasury shares:
o shares purchased by an unlisted public company or a private company shall be cancelled and not be held as
treasury shares
o The purchase of shares shall be made only under authority of a special resolution.
o The purchase of shares shall be made within a period as specified in the regulations.
o The proposal of the board to purchase shares shall, on conclusion of the board's meeting, be communicated to the
Commission and to the securities exchange on which shares of the company are listed.
o The purchase of shares shall always be made in cash and shall be out of the distributable profits or reserves
specifically maintained for the purpose.
o cancellation of shares under this section shall not be deemed to be a reduction of share capital within the meaning
of section 89 and such shares shall be cancelled in such form and manner as may be specified
o The shares held by the company as treasury shares shall, as long as they are so held, in addition to any
other conditions as may be specified, be subject to the following conditions, namely(a) the voting rights of these shares shall remain suspended; and
(b) no cash dividend shall be paid and no other distribution, whether in cash or otherwise of the company's
assets, including any distribution of assets to members on a winding up shall be made to the company in
respect of these shares:
o Provided that nothing in this sub-section shall prevent(a) an allotment of shares as fully paid bonus shares in respect of the treasury shares; and
(b) the payment of any amount payable on the redemption of the treasury shares, if they are redeemable.
o The board shall recommend to the members purchase of the shares.
o The decision of the board shall clearly specify the number of shares proposed to be purchased, purpose of
the purchase i.e. cancellation or holding the shares as treasury shares, the purchase price, period within
which the purchase shall be made, source of funds, justification for the purchase and effect on the financial
position of the company.
o Where a purchase of shares has been made under this section, the company shall maintain a register of
shares so purchased and enter therein the following particulars, namely(a) number of shares purchased;
(b) consideration paid for the shares purchased;
(c) mode of the purchase;
(d) the date of cancellation or re-issuance of such shares;
(e) number of bonus shares issued in respect of treasury shares; and
(f) number and amount of treasury shares redeemed, if redeemable.
o Any violation of this section shall be an offence liable to a penalty of level 3 on the standard scale and shall
also be individually and severally liable for any or all losses or damages arising out of such contravention.
GOVERNMENT OF PAKISTAN
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
-.-.-.Islamabad, the 16th March, 2020
NOTIFICATION
S.R.O 231 (I)/2020.- In exercise of the powers conferred under section 512 read with
sections 58, 82 and 83 of the Companies Act 2017 (XIX of 2017), the Securities and Exchange
Commission of Pakistan is pleased to notify the following regulations, the same having been
previously published in the official Gazette vide Notification No. S.R.O. 33(I)/2020 dated
January 15, 2020, as required under proviso to sub-section (1) of the said section 512,
namely:CHAPTER 1
PRELIMINARY
1.
Short Title and Commencement.- (1) These regulations shall be called the Companies
(Further Issue of Shares) Regulations, 2020.
(2)
They shall come into force at once except in the case of issues announced on or before
the date of these regulations.
(3)
These regulations shall apply to the companies issuing further capital by way of:
(i) right shares;
(ii) other than right shares;
(iii) bonus shares;
(iv) employee stock option schemes; and
(v) shares with different rights including preference shares.
2.
Definitions. – (1) In these regulations, unless there is anything repugnant in the
subject or context, –
(i)
“Act” means the Companies Act, 2017 (XIX of 2017);
(ii)
“issue of share at discount” means issue of share at a price below face
value of such share;
(iii)
“further issue of shares” means issue of shares under section 83 of the
Act and does not include Initial Public Offer or offer for sale of shares
by any person holding shares in listed company or further issue of
shares pursuant to any scheme of arrangement including merger,
demerger, amalgamation etc.;
(iv)
"exercise" means making of an application by an employee to a
company for issue of shares against option vested in him in pursuance
of a Scheme;
(v)
"exercise period" means the time period after vesting within which an
employee may exercise his right to apply for shares against an option
vested in him in pursuance of the Scheme;
Page 1 of 12
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
"exercise price" means the price payable by an employee for exercising
an option granted to him in pursuance of the Scheme;
“initial public offer or IPO” means first time offer of securities to the
general public;
“issue” for the purpose of these regulations, means further issue of
shares;
“issue size” means the total number of shares issued or proposed to be
issued by a company;
“issue price” means the price per share at which shares are offered or
issued;
“issue of shares by way of other than right” means issue of shares out
of the share capital of a company or body corporate to any person
without right offer, either for cash or for consideration otherwise than
in cash;
“market price” for the purpose of a scheme means latest available
closing price of the share on a securities exchange on which the shares
of the company are listed and where share price is not traded on a
given date, then the share price on the last trading day shall be
considered;
"option" means a right but not an obligation granted to an employee in
pursuance of a Scheme to apply for shares of a company at a predetermined price;
“preference shares” mean the shares which carry or would carry such
preferential rights or privileges as provided for in the articles of
association of the company including but not limited to the following:
(a)
(b)
(c)
(d)
(xv)
(xvi)
(xvii)
(xviii)
(xix)
carry preferential right over the rights of ordinary shareholders
to receive dividend; preference dividend may be cumulative or
non-cumulative;
carry preferential right over the rights of ordinary shareholders
to participate in profits of company;
carry preferential rights over the rights of ordinary
shareholders to be paid in the event of winding up of the
issuer; and
voting and non-voting rights
“right issue” means the shares offered by a company to its members
strictly in proportion to the shares already held in respective kinds and
classes ;
“scheme” means an Employees Stock Option Scheme (ESOS) approved
by the Commission in accordance with procedure and on conditions
specified through these regulations;
“schedule” means the schedule appended with these regulations.
"vesting" means to give or earn a right to apply for conversion of the
options, granted under a scheme, into shares of the company; and
"vesting period" means the period during which the vesting of an
option granted to an employee in pursuance of a scheme takes place.
Page 2 of 12
(2)
All terms and expression used but not defined in these regulations shall have the same
meaning as assigned to them in the Act, the Securities Act, 2015 (III of 2015) and the Securities
and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
CHAPTER II
RIGHT ISSUE
3. Conditions for right issue. – (1) Subject to requirements of section 83 of the Act, a listed
company issuing right shares shall, comply with the following general conditions, namely. –
(i)
board shall approve the decision to increase share capital and the said decision
shall be communicated on the same day to the Commission and to the securities
exchange for public dissemination;
(ii) Fractional shares, if any, shall not be offered and all fractions less than a share
shall be consolidated and disposed of by the company and the proceeds from
such disposition shall be paid to such of the entitled shareholders as may have
accepted such offer;
(iii) the decision of board shall clearly state the following(a)
quantum of the issue i.e. as percentage of existing paid up capital;
(b)
issue size;
(c)
issue price;
(d)
purpose of the issue;
(e)
utilization of the proceeds of the issue;
(f)
benefits of the issue to the company and its shareholders;
(g)
risks, if any, associated with the issue to which the company and/or its
members are exposed to;
(h)
justification for issue of shares at, premium or at discount to face value
(if applicable);
(iv) where announcement of the issue of bonus and right shares is made
simultaneously, the resolution of the board shall specify whether such bonus
shares qualify for right entitlement or not;
(v) the letter of offer under section 83 of the Act and information specified in
Schedule I to these regulations, shall be sent to all the members along with copy
of the extract of the resolution of the board’s meeting approving the right issue;
and
(vi) A listed company may issue right shares at face value or at premium to face value
provided the directors and substantial shareholders of the company undertake
in writing that:
(a) they will subscribe the right shares to be offered to them as per their right
entitlement or arrange subscription for the same through other persons;
and
(b) the balance of the right issue is underwritten through at least two
underwriters, not being associated companies or associated undertakings
of the issuer;
Page 3 of 12
Explanation: An underwriter may enter into sub-underwriting arrangement through
sub-underwriting agreement in writing provided such sub-underwriter is licensed by
the Commission to undertake underwriting of securities.
(2)
Subject to compliance with the requirements of section 82 of the Act, a company may
issue right shares at discount to face value provided the issue is underwritten in the form and
manner as stated in sub-regulation (1).
(3)
The book closure for the issue shall be made within thirty days from the date of the
board’s resolution or within such time period as approved by the Commission.
(4)
In case of a listed company, the letter of offer of right shall be dispatched or credited
within the time period as specified by the listings regulations of the securities exchange.
(5)
Right issue once announced by the board of a listed company shall not be varied,
postponed, withdrawn or cancelled.
CHAPTER III
BONUS ISSUE
4.
Conditions for bonus issue. - (1) A company, in accordance with the provisions of its
articles of association, may issue bonus shares subject to the following conditions, namely: (i)
the issue of bonus shares is approved by the board;
(ii)
in case of a listed company, the resolution of board approving to issue bonus
shares is communicated to the Commission and the securities exchange on the
same day i.e. on the day of the decision;
(2)
The decision of the board to issue bonus shares, once announced, shall not be varied,
postponed, withdrawn or cancelled.
CHAPTER IV
ISSUE OF SHARES BY WAY OF OTHER THAN RIGHT OFFER
5.
Conditions for issue of shares by way of other than right offer. - (1) A public company
may issue further shares, by way of other than right, under sub-section (1) of section 83 of
the Act subject to the following general conditions, namely. –
(i)
(ii)
the issue is proposed by the board;
the aforesaid proposal of the board clearly states the following(a) proposal of the board to issue shares without right offer is subject to approval
of the shareholders and the Commission;
(b) quantum of the issue both in terms of the number of shares and percentage of
paid up capital before and after the issue;
(c) issue price per share and justification for the same;
(d) consideration against which shares are proposed to be issued i.e. cash or other
than cash;
Page 4 of 12
(e)
name of person(s), their brief profile, existing shareholding, if any, in the
company, to whom the shares are proposed to be issued;
(f) purpose of the issue;
(g) justification for issue of the shares by way of other than right;
(h) benefits of the issue to the company and its members;
(i) breakup value per share as per the latest available audited and reviewed
accounts;
(j) consent of the person(s) to whom the shares are to be issued is(are) obtained;
(k) the proposed new shares shall rank pari passu in all respects with the existing
ordinary shares of the company. In case the proposed new shares are different
from the issued ordinary shares in any respect, then the board’s decision must
state the differences in detail
(l) average market price of the share, in case of a listed company, during the last
three months preceding the board’s decision as well as the latest available
market price; and
(m) where shares are proposed to be issued for consideration other than in cash, the
value of non-cash assets or services or intangible assets shall be determined by
a valuer:
Provided that the valuation shall not be older than six months from the
date of submission of the application to the Commission.
(2)
The aforesaid decision of the board, in case of a listed company shall be
communicated to the Commission and the securities exchange on the same day i.e. on the
date of the decision of the board.
CHAPTER V
CLASSES AND KINDS OF SHARE CAPITAL
6.
Conditions for issuance of shares with different rights. - A company may issue shares
with differential rights under section 58 of the Act subject to compliance with the following
conditions, namely(i)
(ii)
the issue of shares with different rights is recommended by the board through
resolution;
the decision of the board shall, in addition to particulars required under clauses (a)
to (g) of regulation 3 (iii), state the following(a)
(b)
(c)
(d)
description of different kind of shares such as ordinary shares and preference
shares;
description of different rights such as different class in each kind, rights and
privileges attached to each class or kind of capital;
whether the shares are being issued as right or other than right;
whether the holders of such shares shall be entitled to participate in profits or
surplus funds of the company;
Page 5 of 12
(e)
(f)
(g)
(h)
(i)
(j)
(iii)
(iv)
(v)
(vi)
whether the holders of such shares shall be entitled to participate in surplus
assets and profits of the company on its winding-up which may remain after the
ordinary shareholders has been repaid;
whether payment of dividend on preference shares is on cumulative or noncumulative basis;
in case the shares being issued are convertible into ordinary shares, then mode,
mechanism and manner of such conversion;
rights of holders of preference shares regarding dividend, participation in
general meetings and voting therein before and after conversion of preference
shares into ordinary shares;
in case the shares are partially or wholly redeemable, then mode and manner of
redemption;
any other feature as deem appropriate by the board.
the issue of shares is authorized by a special resolution;
the company shall seek approval of the Commission for issuance of such shares;
the company shall not amend, alter, vary or reassess the terms and conditions of such
issue without approval of the preference shares holders and the Commission;
in case a company perform an act which is contradictory to the provision to clause (v)
above, the Commission may:
(a)
(b)
(c)
direct such company to redeem the entire issue with immediate effect and make
full compensation along with interest accrued therein, if any; or
direct such company to convert the entire issue into ordinary shares with
immediate effect; or
give direction as deemed appropriate by the Commission through an order after
providing the company an opportunity of hearing.
CHAPTER VI
EMPLOYEE STOCK OPTION SCHEME
7.
Condition for issue of Employee Stock Option Scheme. - (1) A public company, may
issue shares to employees pursuant to a Scheme under section 83 of the Act, subject to the
following conditions(i)
(ii)
(iii)
(iv)
(v)
the articles of association of the company expressly provides and authorizes the offer
of scheme;
the board shall form a compensation committee for administration and
superintendence of the scheme provided that the chairman of the compensation
committee of listed company shall be an independent director;
board shall consider and resolve to offer the scheme;
the aforesaid decision of the board shall provide information required under subclause (a) to (f) of clause (ii) of sub-regulation (1) of regulation 5, as applicable;
the offer of scheme is authorized by a special resolution;
Provided that separate special resolution shall be required for the following,
where a scheme provides so, Page 6 of 12
(a)
(b)
(vi)
grant of option to employees of a subsidiary or holding company; and
grant of option to identified employees, during any one year, equal to or
exceeding one per cent of the issued capital (excluding outstanding conversions)
of the company at the time of grant of option;
In case shares are to be issued at discount to the face value, the company shall also
obtain approval of shareholders and the Commission under section 82 of the Act;
(vii)
the company and compensation committee shall ensure that its executive directors
and employees in senior management shall not participate in the deliberation or
discussion of their own allocation of options under the scheme;
(viii)
a company shall not vary the terms of a scheme in any manner which may be
detrimental to the interests of its employees:
Provided that a company may by special resolution in a general meeting vary the
terms of a scheme offered pursuant to an earlier resolution but not yet exercised by its
employees provided that such variation is not prejudicial to the interests of the option
holders.
(2)
There shall be a minimum period of one year between the grant of option and vesting
of option.
(3)
Where options are granted by a company under its scheme in lieu of options held by
the same person under a scheme in another company, which has merged or amalgamated
with the first mentioned company, the period during which the options granted by the
merging or amalgamating company were held by him shall be adjusted against the minimum
vesting period required under these regulations.
(4)
A company shall have the freedom to specify the lock-in period for the shares issued
pursuant to an exercise of option.
(5)
An employee shall not have the right to receive any dividend or to vote or be entitled
to rights of members in respect of option granted to him, till shares are issued to such
employee on exercise of option.
(6)
In case of failure to exercise the option, the options granted shall lapse and such
lapsed options may be granted to other employees within a period of thirty days from the
date of lapse.
(7)
An option granted to an employee shall not be transferable to any other person except
to an entitled employee of the company:
Provided that:
Page 7 of 12
(i)
(ii)
(iii)
in the event of death of an employee while in employment of a company, all
options granted to him till the date of his death shall vest in his legal heirs or
nominees;
in case an employee suffers a permanent incapacity while in employment of a
company, all options granted to him, as on the date of permanent
incapacitation, shall vest in him on that day;
in the event of resignation or termination of service of an employee, all options
not vested as on that day shall expire. Provided, the employee shall, subject to
the terms and conditions of the scheme, may be entitled to retain all the vested
options.
(8)
An option granted to an employee shall not be pledged, hypothecated, mortgaged or
otherwise alienated in any other manner.
8.
Scheme offered at the time of public offering. - If any options granted to employees
in pursuance of a scheme are outstanding at the time of IPO, the offering document shall
disclose number of such outstanding options, exercise price, exercise period and impact on
shareholding of the members in case all the outstanding options are exercised.
CHAPTER VII
GENERAL CONDITIONS, REPORTING AND DISCLOSURE REQUIREMENTS
9.
General conditions. - (1) The board shall not decide or recommend increase in capital
by way of further issue of shares, beyond the authorized capital as stipulated in the
memorandum and articles of association of the company or where resolution to give effect
to such increase is passed by the members or to be passed by the members before any such
increase.
(2)
In case share capital of a company has different classes or kinds having different rights
and privileges, this fact shall be distinctly mentioned in the letter of offer in case of right issue
and the difference in the rights and privileges of each class of share capital shall be clearly
stated in directors’ report to members.
10. Reporting. - (1) The company shall, within 30 days from the date of issue of shares, submit
a report to the Commission clearly indicating the shares issued to:
(i)
directors;
(ii)
associated companies;
(iii)
other shareholders; and
(iv) persons to whom unsubscribed shares are issued under sub-clause (iv) of clause
(a) of sub-section (1) of section 83 of the Act.
(2)
After issuance of right shares, the listed entity shall submit to the Commission
progress report on utilization of the proceeds of the right issue on quarterly basis containing
the following (i)
item-wise breakup of the proceeds utilized both in terms of amount and
percentage of the total allocation made to the relevant item. The breakup
Page 8 of 12
must be provided in comparative form with the utilization plan earlier
disclosed to the members;
(ii)
deviation, if any, from the purpose or use of proceeds earlier disclosed to the
members along-with justification for such deviation;
(iii)
the progress report shall be continuously submitted till such time the
proceeds from the right issue have been fully utilized or the purpose for which
the proceeds were raised is achieved.
CHAPTER VIII
MISCELLANEOUS
11.
Penalty for contravention of Regulations: Whoever fails or refused to comply with,
or contravenes any requirements of the regulations shall be punishable with penalty as
provided under sub-section (2) of section 512 of the Act.
12.
Repeal and Savings. - (1) The Companies (Further Issue of Shares) Regulations, 2018,
hereinafter referred to as the repealed regulations shall, upon coming into force of these
regulations, stand repealed:
Provided that repeal of the repealed regulations shall not(i)
(ii)
(iii)
(iv)
(v)
revive anything not in force at the time at which the repeal take effect; or
affect the previous operation of the repealed instruments or anything duly
done or suffered thereunder; or
affect any right, privilege, obligation or liability acquired, accrued or
incurred under or in respect of the said repealed regulations; or
affect any penalty imposed, forfeiture made or punishment incurred in
respect of any offence committed against or in violation of the repealed
regulations; or
affect any inspection, investigation, prosecution, legal proceeding or
remedy in respect of any obligation, liability, penalty, forfeiture or
punishment as aforesaid, and any such inspection, investigation,
prosecution, legal proceedings or remedy may be made, continued or
enforced and any such penalty, forfeiture or punishment may be imposed,
as if these regulations has not been notified.
(2)
Save as otherwise specifically provided, nothing in these regulations shall affect or
deemed to affect any action taken, orders issued, relaxation granted unless withdrawn, fee
paid or accrued, resolution passed, direction given under the repealed regulations shall, if in
force at the effective date of these regulations and not inconsistent with provision of these
regulations, shall continue to be in force and have effect as if it were respectively taken, made,
directed, passed, given, executed or issued under these regulations.
Page 9 of 12
Schedule I to the Companies (Further Issue of Shares) Regulations, 2020
Following information shall be sent to the members along with the letter of offer for right
issue by a listed company:
(A)
Information pertaining to company offering right issue:
(a)
Company profile and history
(i)
Name of Company
(ii)
Incorporation date
(iii)
Date of commencement of business
(iv)
Corporate Universal Identification Number (CUIN)
(v)
Website address and web-link where latest available financial
statements are placed (in case of listed company)
(vi)
Contact details for shareholder facilitation (in form of postal
address, phone number or email address)
(b)
profile of management and sponsors
(i)
Profile of directors (names, executive/ nonexecutive/
independent/nominee director and tenure of directorship
held)
(ii)
other directorships held (provide names of the company(ies))
(c)
name(s) of the statutory auditor(s)
(d)
existing capital indicating classes of shares, if any, separately
(i)
authorized Capital amounting to Rs._______ divided in to
_____________ shares of Rs. _____ each.
(ii)
paid-up capital
amounting to Rs._______ divided in to
_____________ shares of Rs. _____ each.
(e)
name of holding company, if any
(f)
financial highlights of company for preceding three years including
revenue/ sales, gross profit, profit before interest, tax, profit after tax,
accumulated profit or (loss), total assets, total liabilities, net equity,
break up vale per share, earnings per share, dividend, if any, bonus
issue, if any.
(g)
financial highlights for preceding one year of consolidated financial
statements same as (f) above, if any
(h)
detail of issue of capital in previous five years
(i) year wise detail of issue of capital (right issue or other than
right)
(ii) brief details of funds utilization through previous issue of right
shares, if any
Page 10 of 12
(B)
Details of the current right issue:
(a)
description of issue:
size of the proposed issue
divided into
of Rs.
Rs.____________
______________
__________ each
(b)
face value of the share
Rs.________each
(c)
basis of determination of price of the right issue
(d)
(e)
proportion of new issue to existing issued shares with condition, if any
date of meeting of board of directors (BOD) wherein the right issue
was approved
names of directors attended the BOD meeting
justification for the issue
(f)
(g)
(i)
details of the main objects for raising funds through present
right issue:
a) detail of project
b) total funds required for the project
c) percentage of funds required financed through the right issue
d) percentage of funds required financed from other sources, if
any
e) time of completion of project
(ii)
(h)
(C)
expected benefits of the issue to the company and its
members (description and amount)
Average market price of the share of the company during the last six
months
(i)
financial effects arising from right issue
(i)
increase in paid-up share capital
(ii)
net asset/breakup value per share before and after right issue
(iii)
gearing ratio before and after right issue
(j)
Total expenses to the issue
(i)
bankers’ commission
(ii)
others, if any
Information regarding risk and risk mitigating factors, as applicable:
(a)
description of major risks and company’s efforts to mitigate them :
(i)
risks relating to the project for which proceeds of the right
issue are to be utilized
(ii)
risks relating to subscription/under-subscription of right issue
(iii)
material contingencies
(iv)
material commitments
Page 11 of 12
(v)
(b)
(D)
any adverse issue reported by the auditor in their audit
reports in previous five years
names of underwriters, (if required)
Eligibility criteria & associated matters:
(a)
members’ eligible / entitlement of getting the Letter of Right
(b)
bankers to the issue
(c)
date upto which the offer, if not accepted, shall be deemed to have
been declined
(d)
mode of acceptance (only through banking channel)
(i)
bank account number
(ii)
date by which amount to be credited in bank account to
constitute valid acceptance
(iii)
number and date of pay order / bank draft and other banking
instrument.
(E)
Any other material information that may have direct or indirect bearing on the
investment decision.
[No. CSD/CI-Reg/14/2018]
Page 12 of 12
Government of Pakistan
Securities and Exchange Commission of Pakistan
-.-.-.Islamabad, the 23rd May, 2019
NOTIFICATION
S.R.O. 574 (I)/2019.- In exercise of powers conferred under section 512 read with
section 88 of the Companies Act 2017 (XIX of 2017), the same having been previously published
in the official Gazette vide Notification No. S.R.O. 486(I)/2019 dated April 23, 2019, as required
under proviso to sub-section (1) of said section 512, the Securities and Exchange Commission
is pleased to notify the following Regulations, namely:CHAPTER I
PRELIMINARY
1. Short title, commencement and applicability.- (1) These regulations shall be
called the Listed Companies (Buy-Back of Shares) Regulations, 2019.
(2)
They shall come into force at once.
(3) These regulations shall be applicable to buy-back of shares of companies
listed on the securities exchange, in pursuance of section 88 of the Companies Act, 2017 (XIX of
2017).
2. Definitions.- (1) In these regulations, unless there is anything repugnant in the
subject or context,(a) “Act” means the Companies Act, 2017 (XIX of 2017);
(b) “authorized officer” mean an officer of the company appointed by the
board of directors to act as manager to the offer;
(c) "inside information" has the same meaning as assigned to it under
section 129 of the Securities Act;
(d) “offer letter” means offer letter format prescribed under schedule I of
these regulations;
(e) "public announcement" means an announcement made by the
purchasing company for purchase or sale of its shares as per the format
prescribed in these regulations;
(f) "purchase" means buy-back of its own shares by a purchasing company
under section 88 of the Act and these regulations;
(g) "purchasing company" means a listed company that buy-back its own
shares under section 88 of the Act and these regulations;
1
(h) "purchase period" means the time period specified in regulation 7 of
these regulations within which the purchase is to be made;
(i)
"Schedule" means schedule annexed to these regulations;
(j)
"Securities Act" means the Securities Act, 2015 (III of 2015);
(k) “treasury shares” means the shares purchased and held by the
purchasing company in its own name in accordance with section 88 of
the Act and these regulations.
2.
All other words and expressions used but not defined in these regulations shall
have the same meanings as are assigned to them in the Act, the Securities Act and the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).
CHAPTER II
ELIGIBILITY FOR PURCHASE
3. Eligibility Requirements for the Purchase.- (1) A company shall be eligible to
purchase if it fulfils the following conditions, namely:(a)
it is listed on the securities exchange for a period of not less than three
years;
(b)
it is compliant with the minimum capital or equity requirements or
minimum free float requirement of the securities exchange, as set out in
listing regulations or licensing requirements , if any, after the purchase;
(c)
it has obtained approval of its members for purchase through special
resolution;
(d)
board has undertaken that the funds specified for the purchase by the board
of directors of the purchasing company are available with the company and
after the purchase, the purchasing company is capable of meeting its
obligations on time during the period up to the end of the immediately
succeeding twelve months;
(e)
the purchasing company should not be on the defaulter counter;
(f)
board of directors of a purchasing company shall not propose or
recommend a purchase in any of the following namely:(i)
winding up proceedings has commenced;
(ii)
a scheme of arrangement, compromise, reconstruction, merger or
de-merger is approved by the board of directors unless the Purchase
2
is a part of such arrangement, compromise, reconstruction, merger
or de-merger;
(iii)
(g)
a public offer for acquisition of shares of the purchasing company
under the Securities Act has been announced; and
before the expiry of six months from the date of an earlier general meeting
in which the purchase was disapproved by the members.
4. Procedure for Purchase.- (1) The general meeting in which the special resolution
is to be passed shall be held not later than thirty days of the date of the meeting of the board of
directors in which the purchase is recommended.
(2)
The purchasing company shall make a public announcement within two
working days of passing of the special resolution.
(3)
The board of directors of purchasing company shall, before making the public
announcement, authorize an officer of the company to act as manager to the offer who shall
ensure compliance with the legal requirements pertaining to purchase of shares.
(4)
The purchasing company shall, within five days of the public announcement,
dispatch through registered mail or courier or electronic mode of communication, to all its
members including custodian of depository receipts and other securities convertible into shares
being purchased, if any, whose names appear on the register of members:
(a) the offer letter on format specified in Schedule I;
(b) a copy of the public announcement on format specified in Schedule II; and
(c) in case of a tender offer, the share tender form on format specified in
Schedule III.
(5)
The authorized officer shall, within fifteen days of the closing of the purchase
period, submit a final report on the purchase to the Commission and the securities exchange on
the format specified in Schedule IV;
5. Purchase Procedure for Tender offer.- Where the purchase is made through a
tender offer to the shareholders, following procedure shall be followed in addition to the
procedure provide in regulation 4,(a)
the purchasing company shall, before making the public announcement,
open an escrow account with a scheduled bank;
(b)
the purchasing company shall at all times during the purchase period
maintain a deposit equivalent to twenty five percent of the consideration
payable in the escrow account;
3
(c)
the remaining amount shall be deposited by the purchasing company in
the escrow account at least three working days before the close of the
purchase period;
(d)
the purchasing company shall open a designated CDC account;
(e)
shares tendered for sale in physical form shall not be accepted for the
purchase;
(f)
shares shall be tendered through the share tender form to the authorized
officer and the share tender form must be received before the closing of
the purchase period;
(g)
within five days of the closing of the purchase period, the authorized officer
shall prepare a list containing names of all those shareholders who have
tendered shares for sale, the number of shares tendered and the number
of shares accepted by the purchasing company for the purchase from each
shareholder;
(h)
where the shares tendered for sale by shareholders exceed the number of
shares announced to be purchased, the following procedure shall be
adopted(i)
where all applications for up to five hundred shares can be
accommodated, then all such applications shall be
accommodated first. Where all application for five hundred
shares cannot be accommodated, then balloting by authorized
officer will be conducted among applications for five hundred
shares only;
(ii)
where all applications for up to five hundred shares have been
accommodated and shares are still available for purchase, then
all applications for up to one thousand shares shall be
accommodated. Where all applications for up to one thousand
shares cannot be accommodated, then balloting by authorized
officer will be conducted among applications for up to one
thousand shares only;
(iii)
where all applications for up to five hundred shares and one
thousand shares have been accommodated and shares are still
available for purchase, then all applications for up to fifteen
hundred shares shall be accommodated. Where all applications
up to fifteen hundred shares cannot be accommodated, then
balloting by authorized officer will be conducted among
applications for up to fifteen hundred shares only;
4
(iv)
where all applications for up to five hundred shares, one
thousand shares and fifteen hundred shares have been
accommodated and shares are still available for purchase, then
all application for up to two thousand shares shall be
accommodated. Where all applications for up to two thousand
shares cannot be accommodated, then balloting by authorized
officer will be conducted among applications for up to two
thousand shares;
(v)
after the purchase in the above mentioned manner, the balance
shares, if any, shall be purchased on prorate basis from all the
shareholders who have tendered more than two thousand
shares;
(i)
where the shares tendered for sale by a shareholder are less than the
minimum marketable lot, five hundred shares or marketable lot, whichever
is lower shall be accepted;
(j)
the payment for accepted shares shall be made by the authorized officer
through a bank draft or pay order out of the escrow account not later than
seven days of the closing of the purchase period; and
(k)
the unaccepted shares, if any, shall be returned within seven days of the
closing of the purchase period.
6. Purchase through securities exchange.- Purchase shall be made through
securities exchange subject to the following procedure, in addition to the purchase procedure
provided in regulation 4, namely,(a)
the purchase shall be made through the automated trading system of
the securities exchange; and
(b)
bid(s) for the purchase shall not be made during the first half hour and
the last half hour of each trading session.
7. Purchase Period.(1)
Purchase through tender offer shall be for a
period of thirty days commencing from the date of dispatch of the offer letter.
(2) The purchase period for purchase through securities exchange shall start not
later than seven days from the date of public announcement and shall close within ninety days
from the date of special resolution wherein members have given approval of the Purchase or
till such date that the purchase is completed, whichever is earlier.
8.
Purchase Price.- (1) In case of purchase through tender offer, the purchase
price shall be the price as recommended by the board of directors and approved by the
members through special resolution:
5
Provided that it shall not be less than the preceding five trading days weighted average
price of the shares.
(2)
Purchase through securities exchange shall be made at the spot/current share
price.
9. Maximum holding of Treasury Shares.- (1) Treasury shares shall not at any
time exceed twenty percent of the total paid up share capital of the purchasing company
provided that the free float of company after the purchase does not fall below twenty five
percent of the total paid up share capital of the purchasing company.
(2) Where the purchasing company has different classes of shares, the treasury
shares for any class of shares shall not exceed twenty percent of total issued at any time and
paid up shares of such class of shares.
(3) The treasury shares shall be held in the name of the purchasing company in a
CDC blocked account in freeze form.
(4)
indirectly.
The treasury shares shall not be placed under collateral either directly or
(5) Any shares allotted as fully paid bonus shares in respect of the treasury shares,
shall be treated as treasury shares for the purposes of these regulations and shall be held in
the name of the company in CDC blocked account in freeze form.
CHAPTER III
OBLIGATIONS AND RESTRICTIONS
10. Obligations of the Purchasing company.-
The purchasing company shall -
(a)
communicate to the Commission and the securities exchange
simultaneously, the decision of the board of directors regarding
recommendation of the purchase on the day the decision is made;
(b)
make public announcement on the format specified in Schedule II and
publish it in at least two daily newspapers, one each in Urdu and English
languages having nationwide circulation at least seven days before the
commencement of the purchase period;
(c)
the purchasing company shall deposit the consideration payable in the
designated clearing bank account at least one day before the settlement
date;
(d)
cancel the shares within ten days of the closing of the purchase period
where the purchase is made for the purpose of cancellation;
6
(e)
submit to the Commission, the securities exchange and CDC, a copy of
the special resolution authorizing the purchasing company to purchase
on next working day of the general meeting in which it is passed and such
resolution shall specify the indicative number and percentage of shares
to be purchased, mode of the purchase, allocated funds and the purchase
period;
(f)
submit to the Commission and the securities exchange, the published
copies of the public announcement within two days of its publication;
(g)
intimate to the Commission and the securities exchange on the day of
the closing of the purchase period, the number of shares purchased, and
advertise the same within two days of the closure of purchase period in
same newspapers in which the public announcement was published;
(h)
disclose in its annual report, detail of the shares purchased and detail of
the treasury shares disposed of and such disclosures shall contain at least
the number of shares purchased or sold and the price of the purchase or
sale; and
(i)
file with the registrar concerned within thirty days of the closing of the
purchase period the following documents(i)
(ii)
(iii)
(iv)
copy of the board of directors resolution regarding the purchase;
copy of the special resolution authorizing the purchase;
copy of the notice of the general meeting in which the special
resolution was passed; and
copy of the public announcement;
(j)
In case of purchase through securities exchange, report to the securities
exchange the number of shares purchased on daily basis for public
dissemination;
(k)
open Investor Account Service (IAS) at CDC for the purpose of the
purchase; and
(l)
CDC shall ensure that the shares shall remain in Blocked account until the
company decides to sell the treasury shares in accordance with these
regulations.
11. Restriction on the purchasing company.- The purchasing company shall not(a)
apply for voluntary delisting or voluntary winding up within a period of
twelve months of the close of the purchase period;
(b)
engage in the sale of the already held treasury shares through the
securities exchange7
(i)
(ii)
during the purchase period and during six months after the closing
of the purchase period; and
during the period it is in possession of price sensitive information;
(c)
save as provided in regulation 12, withdraw, cancel or postpone the
purchase once announced;
(d)
make a purchase before the expiry of three years from the last date of
subscription by shareholders in respect of any further issue of capital;
(e)
make a new purchase before the expiry of at-least one year from the date
of submission of the final report of the previous purchase to the
Commission by authorized officer for the purchase in accordance with
these regulations.
Explanation: For the purposes of clause (d) and (e), the purchase or the new
purchase shall be deemed to commence from the date of general meeting of
the purchasing company wherein the purchase is approved.
12. General Restrictions.- (1)
Except where the recommendation for the
purchase is not approved by the members in the general meeting, the recommendation for
the purchase by the board of directors shall not be withdrawn.
(2)
The sponsors, directors, officers, associated companies and undertakings and
shareholders holding more than ten percent of the voting shares of the purchasing company
shall not directly or indirectly trade in shares of the purchasing company during the following
periods(a)
from the date of meeting of the board of directors in which the purchase
is recommended till completion of the purchase; and
(b)
from the date of meeting of the board of directors in which the disposal
of treasury shares is recommended till completion of the sale.
CHAPTER IV
MISCELLANEOUS
13. Disposal of the Treasury Shares and procedure.- (1) The treasury shares
shall not be sold, transferred or otherwise disposed of by the purchasing company within a
period of six months from the closure of the purchase period.
(2) The treasury shares shall not be sold by the purchasing company unless it has
obtained approval of its board of directors.
(3) The purchasing company shall make a public announcement as per Schedule V
within two working days of decision of board of directors.
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(4) The board of directors of the purchasing company shall before making the
public announcement, designate an authorized officer for completion of sale of treasury
shares.
(5) The purchasing company shall not issue further capital, other than bonus shares
unless the treasury shares held by it are disposed of.
(6) The purchasing company may, subject to sub-regulation (1), dispose of treasury
shares in full or any part thereof in any of the following manners or combination thereof:
(a)
sell the treasury shares against consideration in the market through the
securities exchange's automated trading system in transparent
manner, as approved by board of directors; and
(b)
(7)
sell the treasury shares to its employees under the Companies
(further issue of shares) Regulations, 2018 under the authority of a
special resolution and with prior written approval of the Commission.
In case of sale of treasury shares the following procedure shall be followed,(a)
the decision of sale shall be made by the board of directors shall be
communicated to the Commission and the securities exchange on the
day the decision is made;
(b)
sale of treasury shares shall start not later than seven days from the
date of public announcement and shall close within forty-five days from
the date of decision of board or till such date that the sale is completed,
whichever is earlier.
(8) The purchasing company shall not dispose of the treasury shares in any manner
from the date of a public announcement of offer for acquisition of shares of the purchasing
company made by an acquirer under the Securities Act till the time the acquisition process is
complete.
(9) The purchasing company shall file the following information with the
registrar concerned within thirty days of the disposal of the treasury shares(a)
mode of disposal;
(b) maximum number of treasury shares available for sale;
(c)
total number of shares sold;
(d) date-wise and price-wise breakup of shares sold;
(e)
total consideration received;
(f)
cumulative number of treasury shares sold to date;
(g)
number of balance treasury shares if any; and
(h) cumulative number of shares cancelled to date.
(10) The purchasing company shall report to the securities exchange the number of
shares sold on daily basis for public dissemination.
9
14. Power to give directions:- Where the Commission is satisfied, on its own
motion or on the basis of any information received by it, that it is necessary and expedient so
to do(a)
in the interest of the shareholders of the purchasing company;
(b)
in the interest of investors or the market generally; or
(c)
to prevent the abuse of law or the process laid down in these
regulations; it may issue directions to the purchasing company, any of
its directors, officers, or any other person; including but not limited to(i)
stopping the purchasing company at any stage from making the
purchase or sale, as applicable;
(ii)
to do or desist from doing such acts as the Commission may
determine; and
(iii)
carry out such steps as are necessary to rectify the situation.
15. Repeal and Saving.- (1) The Listed Companies (Buy-back of shares)
Regulations, 2016, hereinafter referred as repealed Regulations, shall stand repealed:
Provided that repeal of repealed Regulation shall not –
(a)
revive anything not in force at the time at which the repeal takes effect;
or
(b)
affect the previous operation of the repealed Regulations or anything
duly done or suffered thereunder; or
(c)
affect any right, privilege, obligation or liability acquired, accrued or
incurred under the said repealed Regulations; or
(d)
affect any penalty imposed, forfeiture made or punishment awarded in
respect of any offence committed under the repealed Regulations; or
(e)
affect any inspection, investigation, prosecution, legal proceeding or
remedy in respect of any obligation, liability, penalty, forfeiture or
punishment as aforesaid,
and any such inspection, investigation, prosecution, legal proceeding or remedy may be made,
continued or enforced and any such penalty, forfeiture or punishment may be imposed, as if
these Regulations had not been commenced.
(2) Notwithstanding the repeal of the repealed Regulations anything done, actions
taken, proceedings initiated and instituted, processes or communications issued and powers
10
conferred, assumed or exercised by the Commission under the repealed Regulations shall, on
the coming into force of these regulations, be deemed to have been validly done, taken,
passed, issued, initiated or instituted, conferred, assumed and exercised and every action,
order, directive, notification, circular etc. issued by the Commission shall be deemed to have
been validly initiated or issued and shall be proceeded with to completion and be enforced
and have effect accordingly.
-.-.-.-
11
SCHEDULE I
OFFER LETTER IN CASE OF PURCHASE THROUGH TENDER OFFER OR PURCHASE THROUGH
SECURITIES EXCHANGE
[See Regulation 4(4)(a)]
(To be on the letterhead of the purchasing company and to be sent to all its members)
To: [Name and address of the member]
Subject:-
Offer for buy-back of shares by … (name of the purchasing company) … .
Dear Sir/Madam,
1.
Pursuant to the Public Announcement dated … (date of the Public Announcement) …
(copy enclosed) by … (name of the purchasing company) … (hereinafter referred to as the
Company) published in various daily newspapers on … [name and date of the Newspapers in
which the Public Announcement is published] this is to inform you that the Company intends
to buy-back its own … [number of shares] shares.
2.
Therefore, the Company hereby makes you an offer to buy-back shares held by you at
a purchase price of Rs. … (Purchase Price approved by members of the purchasing company in
general meeting) … per share. Please note that this offer for Purchase is valid till closing of the
Purchase Period, i.e., __________(date of the close of the Purchase Period).
3.
In case you are willing to sell the shares or part thereof held by you in the purchasing
company, you may;
(a) (In case of Tender Offer) tender the same through the Share Tender Form supporting by
the free-delivery note evidencing credit of shares in the designated CDC account to the
authorised officer. The Share Tender Form shall contain details of shares to be tendered, CDS
account number, full name of the shareholder, father’s name/husband’s name, CNIC number,
folio number, signature, phone number and postal & email addresses.
(b) (In case of purchase through Securities Exchange) sell such shares or part thereof to the
securities broker through the securities exchange by placing a sale order through your
securities broker.
4.
The authorized officer shall acknowledge receipt of the shares.
5.
Purchase shall be made in accordance with the provisions of section 88 of the
Companies Act, 2019 and the Listed Companies (Buy-back of Shares) Regulations, 2019.
6.
In case of any query regarding this offer for buy-back of shares, you may contact the
Company at the following addresses:
[Name, phone & fax numbers and postal & e-mail addresses of the contact person of the
purchasing company]
_________________________
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_________________________
[Name, phone & fax numbers and postal & e-mail addresses of the contact person of the
authorized officer]
_________________________
_________________________
7.
The directors of the purchasing company accept full responsibility for the correctness
of information contained in this Offer Letter.
Yours truly,
Date: _______
Place: ______
[Name, signature phone number and postal
address of the secretary of the Purchasing
company]
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SCHEDULE II
PUBLIC ANNOUNCEMENT FOR BUY BACK OF SHARES BY {NAME OF THE PURCHASING
COMPANY
[See Regulation 4(4)(b) and 10(b)]
To be published in the newspapers and on the website of the purchasing company
1. The public announcement shall contain at least the following information:
(a) Name and address of the registered office of the purchasing company;
(b) purpose of the purchase;
(c) indicative quantum of the purchase both in terms of number and as a
percentage of the paid up capital of the purchasing company, as applicable;
(d) date of commencement of the purchase i.e., effective date of the purchase;
(e) duration of the purchase period: From …( the date of commencement) to … (the
date of closing) ... both days inclusive
(f) name of the securities exchange;
(g) name, phone number, postal and email addresses of the authorized officer
appointed by purchasing company;
(h) name, contact number(s), postal & email address of the contact person(s)
appointed by the Company to handle queries and complaints regarding the
Purchase;
(i) any other information the purchasing company deems necessary to provide.
2. It is clarified that all those persons who validly hold shares of the purchasing company
are eligible to participate in the purchase even if their names do not appear on
Members' register of the purchasing company.
Date: _____
Place: _____
Name, signature & address of the Secretary of the purchasing
company
***
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SCHEDULE III
SHARES TENDER FORM
[See Regulation 4(4)(c) and Regulation 5(f)]
(Letter to be sent to the purchasing company by all those shareholders of the purchasing
company who accept the offer for Purchase and intend to sell shares in full or part thereof
held by them in the purchasing company)
To,
The Chief Executive Officer,
… (full name of the Authorised officer and address of its registered office) …
Subject:-
Tendering of shares for sale to …... (name of the purchasing company)
Pursuant to Offer Letter dated … (date of Offer Letter) … and the Public Announcement
dated … (date of the Public Announcement) published in the newspapers, I hereby tender …
(No. of shares) shares held by me in … (full name of the purchasing company) … for sale to …
(full name of the purchasing company) through you being their authorised officer.
Free-delivery note evidencing credit of shares in the designated CDC account is attached
herewith in original. Detail of the transfer is as under:CDC Transaction ID
CDC sub-account
Participant Sub-account
ID
No
CDC Investor
account No.
No. of
shares
I hereby undertake and affirm that I have read the contents of the Offer Letter and the Public
Announcement.
Yours truly,
Date: _______
[Full name, father’s name/husband’s name, CNIC number, folio
number, signature, phone number and postal & email addresses of the shareholder]
***
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SCHEDULE IV
FINAL REPORT ON THE PURCHASE TO BE SUBMITTED TO THE COMMISSION AND THE
SECURITIES EXCHANGE BY AUHORISED OFFICER
[See Regulation 4(5)]
To,
(i)
(ii)
The Director,
Securities and Exchange Commission of Pakistan,
Islamabad.
The Chief Executive,
The Pakistan Stock Exchange Limited,
Karachi.
As required under regulation 4(5) of the Companies (Buy-Back of Shares) Regulations, 2019,
information on the Purchase by … {Name of the purchasing company} is as under,
(i)
date of the board of directors meeting in which the Purchase was decided;
(ii)
date of the general meeting of the members of the purchasing company in
which special resolution regarding the Purchase was passed;
(iii)
date of publication of the Public Announcement;
(iv)
Purchase Period;
(v)
Purchase price (in case of tender offer);
(vi)
date-wise and price-wise breakup of the purchase (in case of purchase through
securities exchange)
(vii) date of publication of the Public Announcement;
(viii) date of dispatch of the Offer Letters;
(ix)
total number of shares tendered for sale;
(x)
total number of shares accepted;
(xi)
criteria/procedure adopted for acceptance of shares;
(xii)
number and date of return of unaccepted shares;
(xiii) amount, date and mode of payment against the shares accepted;
(xiv) number of treasury shares; and
(xv)
number of purchased shares cancelled, if any.
Yours truly,
Date: _______
Place: ______
[Name, signature, phone number, email and
postal address of the authorised officer]
***
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SCHEDULE V
PUBLIC ANNOUNCEMENT FOR SALE OF TREASURY SHARES BY
{NAME OF THE COMPANY}
[See Regulation 13(3)]
To be published in the newspapers and website of the purchasing company
(1) The public announcement shall contain at least the following information:
(a) Name and address of the registered office of the purchasing company;
(b) purpose of the sale;
(c) indicative quantum of the sale both in terms of number and as a percentage of
the paid up capital of the company;
(d) date of commencement of the sale i.e., effective date of the sale;
(e) duration of the sale period: From …( the date of commencement) to … (the date
of closing) ... both days inclusive
(f) name of the securities exchange;
(g) name, phone number, postal and email addresses of the authorized officer
appointed by the company;
(h) any other information the purchasing company deems necessary to provide.
Date: _____
Place: _____
[Name, signature & address of the Secretary of the company]
[No. CSD/BBR/124/2018]
17
Reduction of share capital Sec 89
O a company limited by shares may reduce its share capital
i. by special resolution
ii. if so authorised by its articles reduce and
iii. Subject to confirmation by the Court
O a company limited by shares may reduce its share capital in any way, namely
(a) cancel any paid up share capital which is lost or un represented by available assets;
(b) pay off any paid up share capital which is in excess of the needs of the company.
Objection by creditors and settlement of list of objecting creditors.
Sec 90
i.
every creditor of the company who is entitled to any debt or claim, shall
be entitled to object to the reduction.
ii. The Court shall settle a list of creditors so entitled to object, and all
creditors must be entered in that list and their consent must be taken by
the company.
iii. The Court shall dispense with the requirement of consent of creditors,
where the company agrees to secure the payment of his debt or claim.
iv. The payment may be full or such amount as fixed by court
Power to dispense with consent of creditor on security being
given for his debt Sec 91
Where a creditor entered on the list of creditors whose debt or claim is not discharged or
determined does not consent to the reduction, the Court may, if it thinks fit, dispense with
the consent of that creditor, on the company securing payment of his debt or claim by
appropriating as the Court may direct, the following amount, that is to say(a) if the company admits the full amount of his debt or claim, or, though not admitting it,
is willing to provide for it, then the full amount of the debt or claim; and
(b) if the company does not admit or is not willing to provide for the full amount of the
debt or claim, or if the amount is contingent or not ascertained, then an amount fixed
by the Court after the like inquiry, and adjudication as if the company were being
wound up by the Court.
Order confirming reduction. Sec 92
O the Court may make an order confirming the reduction on such terms and conditions as it
thinks fit. If the Court is satisfied that every creditor of the company is entitled to object to the
reduction
i.
either his consent to the reduction has been obtained or
ii. his debt or claim has been discharged or
iii. has been determined or has been secured.
Publication of reasons for reduction Sec 96
O In the case of reduction of share capital, the Court may require the company to publish
i.
The causes which led to the reduction
ii. Reasons for reductions and
iii. Such other information as the court may think expedient
Liability of members in respect of reduced shares Sec 94
if any creditor, entitled in respect of any debt or claim to object to the reduction of share capital, is, by reason of
his ignorance of the proceedings for reduction, or of their nature and effect with respect to his claim not entered
on the list of creditors, and, after the reduction, then
(a) every person who was a member of the company at the date of the registration of the order for reduction
shall be liable to contribute for the payment of that debt, or claim an amount not exceeding the amount which
he would have been liable to contribute if the company had commenced to be wound up on the day before that
registration; and
(b) if the company is wound up, the Court on the application of any such creditor and proof of his ignorance as
aforesaid, may, if it thinks fit, settle accordingly a list of persons so liable to contribute, and make and enforce
calls and orders on the contributories settled on the list as if they were ordinary contributories in a winding up.
Increase and reduction of share capital in case of a company limited by
guarantee having a share capital Sec 97
oA company limited by guarantee may, if it has a share capital and is so authorisedby
its articles, increase or reduce its share capital in the same manner and on the same
conditions subject to which a company limited by shares may increase or reduce its
share capital under the provisions of this Act.
Registration of order of reduction Sec 93
o The registrar on the filing with him of a certified copy of order of the Court
confirming the reduction of the share capital of the company, shall register the same.
o A resolution for reducing share capital as confirmed by an order of the Court
registered shall take effect on such registration and not before.
o The registrar shall certify under his hand the registration of the order and his
certificate shall be conclusive evidence that all the requirements of this Act with
respect to reduction of share capital have been complied with, and that the share
capital of the company is such as is stated in the order.
Penalty on concealment of name of creditor. Sec 95
If any officer of the company conceals the name of any creditor entitled to object to the
reduction, or willfully misrepresents the nature or amount of the debt or claim of any
creditor, or if any officer of the company abets any such concealment or
misrepresentation as aforesaid, every such officer shall be punishable with
imprisonment for a term which may extend to one year, or with fine which may extend to
five million rupees, or with both.
REGISTRATION OF MORTGAGES,
CHARGES, ETC.
Requirement to register a mortgage or charge Sec 100
A company that creates a mortgage or charge must file with the registrar for
registration
i. specified particulars of the mortgage or charge,
ii. a verified copy of the instrument ,if any, by which the mortgage or charge is
created or evidenced,
iii. within a period of 30 days beginning with the day after the date of its creation.
o
mortgage or charge created out of Pakistan
o in the case of
i. a mortgage or charge created out of Pakistan
ii. comprising property situated outside Pakistan,
thirty days after the date on which the instrument or copy could, in due course of
post, and if dispatched with due diligence, have been received in Pakistan shall be
substituted for thirty days within which the particulars and instrument or copy are
to be filed with the registrar.
o in case
i. the mortgage or charge is created in Pakistan
ii. comprises property outside Pakistan,
a copy of the instrument creating or purporting to create the mortgage or charge
verified in the specified manner may be filed for registration and further proceedings
may be necessary to make the mortgage or charge valid or effectual according to the
law of the country in which the property is situate.
o The registrar shall, on registration of a mortgage or charge issue a certificate of
registration under his signatures or authenticated by his official seal in such form
and in such manner as may be specified.
o No mortgage or charge created by a company shall be taken into account by the
liquidator or any other creditor unless
o it is duly registered and
o a certificate of registration of such charge is given by the registrar.
o Where any mortgage or charge on any property or assets of a company or any of its
undertakings is registered, any person acquiring such property, assets,
undertakings or part thereof or any share or interest therein shall be deemed to
have notice of the mortgage or charge from the date of such registration.
Register of charges to be kept by registrar Sec 102
✓ The registrar shall, in respect of every company, keep a register containing
particulars of the charges registered in such form and in such manner as may be
specified.
✓ A register kept in pursuance of this section shall be open to inspection by a person
on payment of such fees as may be prescribed.
Index to register of mortgages and charges Sec 103
✓ The registrar shall keep a chronological index, in the form, containing such
particulars, as may be specified, of the mortgages or charges registered with him
under the company law.
Duty of company and right of interested party as regards
registration Sec 105
✓ It shall be the duty of a company to file with the registrar for registration the specified
particulars of every mortgage or charge created by the company and of the issue of
debentures of a series but registration of any such mortgage or charge may be effected
on the application of any person interested therein.
✓ Where the registration is affected on the application of some person other than the
company, that person shall be entitled to recover from the company the amount of
any fees properly paid by him to the registrar on the registration.
Copy of instrument creating mortgage or charge to be kept at
registered office Sec 107
✓ Every company shall cause a copy of every instrument creating any mortgage or
charge requiring registration and of every instrument evidencing modification of the
terms or conditions thereof, to be kept at the registered office of the company.
Modification in the particulars of mortgage or charge Sec 106
✓ Whenever the terms or conditions or extent or operation of any mortgage or charge
registered under this Part are modified, it shall be the duty of the company to send to
the registrar the particulars of such modification together with a copy of the
instrument evidencing such modification verified in the specified manner, and the
provisions of this Part as to registration of mortgage or charge shall apply to such
modification of the mortgage or charge as aforesaid.
The following mortgage or charge needs to be registered under
Companies Act 2017
(a) a mortgage or charge on any immovable property wherever situate, or any interest
therein; or
(b) a mortgage or charge for the purposes of securing any issue of debentures;
(c) a mortgage or charge on book debts of the company;
(d) a floating charge on the undertaking or property of the company, including stock-intrade; or
(e) a charge on a ship or aircraft, or any share in a ship or aircraft;
(f) a charge on goodwill or on any intellectual property;
(g) a mortgage or charge or pledge, on any movable property of the company;
(h) a mortgage or charge or other interest, based on agreement for the issue of any
instrument in the nature of redeemable capital; or
(i) a mortgage or charge or other interest, based on conditional sale agreement, namely,
lease financing, hire-purchase, sale and lease back, and retention of title, for acquisition of
machinery, equipment or other goods.
where a negotiable instrument has been given to secure the payment of any book debts of
a company, the deposit of the instrument for the purpose of securing an advance to the
company shall not be treated as a mortgage or charge on those book debts
Rectification of register of mortgages. Sec 108
The Commission on the application of the company or any person interested and, on such
terms and conditions as seem to the Commission and on being satisfied may order that the
time for filing the required particulars be extended or that the omission or misstatement be
rectified, and may make such order as to the costs of the application as it thinks fit.
(a) the omission to file with the registrar the particulars of any mortgage or charge; or
(b) the omission or misstatement of any particular with respect to any such mortgage or
charge;
i. was accidental or
ii. due to inadvertence or
iii. to some other sufficient cause, or
iv. is not of a nature to prejudice the position of creditors or shareholders of the company,
or
v. that on other grounds it is just and equitable to grant relief,
Power of registrar to make entries of satisfaction and release in
absence of intimation from company. Sec 110
The registrar may enter in the register of charges
o a memorandum of satisfaction in whole or in part, or of
o the fact that part of the property or undertaking has been released from the charge
or
o has ceased to form part of the company‘s property or undertaking and
o inform the parties concerned.
Even if no intimation has been received by him from the company.
The registrar may enter in the register of charges on evidence being given to his
satisfaction with respect to any registered charge
i. that the debt for which the charge was given has been paid or satisfied in whole or in
part; or
ii. that part of the property or undertaking charged has been released from the charge
or
iii. has ceased to form part of the company‘s property or undertaking;
Company to report satisfaction of charge Sec 109
✓ A company shall give intimation to the registrar in the manner specified within a
period of 30 days from the date of payment or satisfaction, in full, of any mortgage
or charge created by it.
✓ The registrar shall cause a notice to be sent to the holder of the mortgage or charge
calling upon him to show cause within 14 days, as may be specified in such notice, as
to why payment or satisfaction in full shall not be recorded as intimated to the
registrar.
✓ If no cause is shown, by such holder of the mortgage or charge, the registrar shall
accept the memorandum of satisfaction and make an entry in the register of charges
kept by him.
✓ The notice shall not be required if a no-objection certificate on behalf of the holder
of the mortgage or charge is furnished, along with the intimation to be submitted.
✓ If any cause is shown, the registrar shall record a note to that effect in the register of
charges and shall inform the company.
✓ If a company fails to file the particulars of satisfaction of mortgage or charge within
the period specified the required particulars may be submitted with the additional
fee, as may be specified and imposing the penalty as specified in this Part.
Company’s register of mortgages and charges Sec 112
✓ Every company shall maintain a register of mortgages and charges requiring
registration, in such form and in such manner as may be specified and any violation
under this section shall be an offence punishable under this Act.
✓ The register of charges maintained and the copies of instrument creating any
mortgage and charge or modification thereof, kept in pursuance of this part shall be
open to inspection of
(a) any member or creditor of the company without fee; and
(b) any other person on payment of such fee as may be fixed by the company for each
inspection.
✓ The refusal of inspection of the said copies or the register shall be an offence under
this section and any person guilty of an offence under this section shall be liable to a
penalty of level 1 on the standard scale, and every officer of the company who
knowingly authorises or permits the refusal shall incur the like penalty, and in
addition to the above penalty, the registrar may by order compel an immediate
inspection of the copies or register.
RECEIVERS AND MANAGERS
Disqualification for appointment as receiver or manager Sec 115
The following shall not be appointed as a receiver or manager of the company‘s property,
namely
(a) a minor;
(b) a person who is of unsound mind and stands so declared by a competent court;
(c) a body corporate;
(d) a director of the company;
(e) an un-discharged insolvent unless he is granted leave by the court by which he has
been adjudged an insolvent; or
(f) a person disqualified by a Court from being concerned with or taking part in the
management of the company in any other way, unless he is granted leave by the Court.
Filing of accounts of receiver or manager Sec 114
o Every receiver of the property of a company
o who has been appointed under the powers contained in any instrument, and
o who has taken possession,
o shall within 30 days of expiry of every 6 months while he remains in possession,
file with the registrar an abstract in the form specified of his receipts and payments during
the period to which the abstract relates
Every receiver of the property of a company shall within 30 days on ceasing to act as
receiver,
o file with the registrar an abstract in the form specified of his receipts and payments
during the period to which the abstract relates, and
o within 15 days of ceasing to act as receiver, file with the registrar notice to that effect, and
the registrar shall enter the notice in the register of mortgages and charges.
Registration of appointment of receiver or manager Sec 113
✓ Where in order to ensure enforcement of security of a company‘s property, a person
obtains an order for the appointment of a receiver or manager, or appoints such a
receiver or manager under any powers contained in any instrument, he shall within
seven days of the order or of the appointment under the powers contained in the
instrument, file a notice of the fact with the registrar.
✓ Where a person appointed as a receiver or manager under this section ceases to act as
such, the person who had obtained the order or appointed such a receiver or manager
pursuant to the powers contained in any instrument shall on ceasing of the receiver or
manager, give the registrar a notice to that effect within seven days.
Application to Court Sec 116
✓ A receiver or manager of the company‘s property appointed under the powers
contained in any instrument may apply to the Court for directions in relation to any
particular matter arising in connection with the performance of his functions, and on
any such application the Court may give such direction, or may make such order
declaring the rights of persons before the Court, or otherwise, as the Court thinks just.
✓ A receiver or manager of the company‘s property appointed as aforesaid shall, to the
same extent as if he had been appointed by order of a Court be personally liable on
any contract entered into by him in the performance of his functions, except in so far
as the contract otherwise provides, and entitled in respect of that liability to
indemnity out of the assets; but nothing in this sub-section shall be deemed to limit
any right to indemnity which he would have apart from this sub-section, or to limit
his liability on contracts entered into without authority or to confer any right to
indemnity in respect of that liability.
Power of Court to fix remuneration of receiver or manager Sec 117
✓ The Court may, on an application made to it by the receiver or manager of the property,
by order fix the amount to be paid by way of remuneration to any person who, under the
power contained in an instrument, has been appointed as receiver or manager of the
company‘s property: Provided that the amount of remuneration shall not exceed such
limits as may be specified.
✓ The power of the Court shall, where no previous order has been made with respect
thereto
(a) extend to fixing the remuneration for any period before the making of the order or the
application therefore;
(b) be exercisable notwithstanding that the receiver or manager had died or ceased to act
before the making of the order or the application therefore; and
(c) where the receiver or manager has been paid or has retained for his remuneration for
any period before the making of the order any amount in excess of that so fixed for that
period, extend to requiring him or his representative to account for the excess or such part
thereof as may be specified in the order:
✓ The Court may from time to time, on an application made either by the liquidator or by
the receiver or manager, or by the registrar, vary or amend an order made under subsection (1) and issue directions to the receiver respecting his duties and functions or any
other matter as it may deem expedient:
Associated companies and associated undertakings mean
any two or more companies or undertakings, or a company and an undertaking,
interconnected with each other in the following manner, namely
(a) if a person who is owner or a partner or director of a company or undertaking,
or who, directly or indirectly, holds or controls shares carrying not less than
twenty percent of the voting power in such company or undertaking, is also the
owner or partner or director of another company or undertaking, or directly or
indirectly, holds or controls shares carrying not less than twenty percent of the
voting power in that company or undertaking; or
(b) if the companies or undertakings are under common management or control or
one is the subsidiary of another; or
(c) if the undertaking is a modaraba managed by the company
Associated Person
a person who is the owner of or a partner or director in a company or undertaking
or, who so holds or controls shares carrying not less than ten percent of the voting
power in a company or undertaking, shall be deemed to be an "associated person"
of every such other person and of the person who is the owner of or a partner or
director in such other company or undertaking, or who so holds or controls such
shares in such company or undertaking.
Investments in associated companies and undertaking Sec 199
o A company may make investment in any of its associated companies or
associated undertakings after getting the authority of a special resolution.
o The special resolution shall indicate
a) the nature
b) Period
c) amount of investment and
d) terms and conditions attached thereto.
 Investment shall include equity, loans, advances, guarantees, by whatever
name called.
Investment does not include
a) the amount due as normal trade credit,
b) where the terms and conditions of trade transaction(s) carried out on armslength and
c) in accordance with the trade policy of the company.
o The company shall not invest in its associated company or associated
undertaking by way of loans or advances except in accordance with an
agreement in writing
o such agreement shall include the terms and conditions specifying
a) the nature
b) Purpose
c) period of the loan
d) rate of return
e) fees or commission
f) repayment schedule for principal and return
g) penalty clause in case of default or late repayments and
h) security, if any, for the loan in accordance with the approval of the members in
the general meeting.
o The return on such investment shall not be less than
a) the borrowing cost of the investing company or
b) the rate as may be specified by the Commission
whichever is higher and shall be recovered on regular basis in accordance with the
terms of the agreement, failing which the directors shall be personally liable to
make the payment.
o The directors of the investing company shall certify that the investment is made
after due diligence and financial health of the borrowing company is such that it
has the ability to repay the loan as per the agreement.
o An increase in the amount or any change in the nature of investment or the terms
and conditions attached thereto shall be made only under the authority of a special
resolution.
o Every company shall maintain and keep at its registered office a register of
investments in associated companies and undertakings containing such particulars
as may be specified.
o Any contravention or default in complying with requirements of this section shall be
an offence liable to a penalty of level 3 on the standard scale and in addition, shall
jointly and severally reimburse to the company any loss sustained by the company in
consequence of an investment which was made without complying with the
requirements of this section
Investments of company to be held in its own name Sec 200
o All investments made by a company on its own behalf shall be made and held by it
in its own name.
o The company may hold any shares in its subsidiary company in the name of any
nominee of the company.
o Company can do so to ensure that the number of members of the subsidiary
company is not reduced below the statutory limit.
o Where the company has a right to appoint or get elected any person as a director
shares which are required to be held by a director thereof, may be registered or
held by such company jointly in its own name and in the name of such person or
nominee, or in the name of such person or nominee alone.
o Any shares or securities in which investments have been made by a company are
not held by it in its own name, the company shall forthwith enter in a register
maintained by it for the purpose at its registered office
a) the nature,
b) value and
c) such other particulars as may be necessary fully to identify such shares or
securities.
o The register shall, be open to the inspection of members without charge, and to
any other person on payment of such fees as the company may specify in this
behalf during business hours, subject to such reasonable restrictions, as the
company may impose, so that not less than two hours in each day be allowed.
o Any member may require a certified copy of register or any part thereof, on
payment of such fee as may be fixed by the company.
o The certified copies requested under this section shall be issued within a period of
05 working days.
o A member seeking to exercise either of the rights must make a request to the
company to that effect.
o If a company contravenes the company shall be punishable with fine which may
extend to 05 million rupees and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to two years or with
fine which may extend to one million rupees, or with both.
o Any contravention or default in complying with requirements of maintenance of
registered and issuance of its copies shall be an offence liable to a penalty of level 1
on the standard scale; and the registrar may by an order compel an immediate
inspection of the register or direct that copies required shall be sent to the persons
requiring them.
Method of contracting Sec 201
 A contract or other enforceable obligation may be entered into by a company as
follows
(a) an obligation which, if entered into by a natural person, will, by law, be required to
be by deed or otherwise in writing,
o may be entered into on behalf of the company
o in writing
o signed under the name of the company
o by a director, attorney or any other person duly authorised by the board and
o may affix common seal of the company;
(b) an obligation which, if entered into by a natural person, is not, by law, required to be
in writing,
may be entered into on behalf of the company
in writing or orally
by a person acting under the company‘s express or implied authority.
 All contracts made shall be effectual in law and shall bind the company and its
successors and all other parties thereto, their heirs, or legal representatives as the
case may be.
Execution of bills of exchange, promissory notes and deeds.- (1) A bill of exchange or
promissory note shall be deemed to have been made, drawn, accepted or endorsed on
behalf of a company if made, drawn, accepted or endorsed in the name of, or on behalf
of or on account of, the company by any person acting under its authority, express or
implied.
Company to have official seal for use abroad Sec 203
o A company that has a common seal may have an official seal for use outside
Pakistan.
o The official seal must be a facsimile of the company‘s common seal, with the
addition on its face of the name of every territory where it is to be used.
o The official seal when duly affixed to a document has the same effect as the
company‘s common seal.
o A company having such an official seal may, by writing under its common seal,
authorise any person appointed for the purpose in any territory not situate in
Pakistan to affix the same to any deed or other document to which the
company is party in that territory.
o The authority of any such agent shall, as between the company and any person
dealing with the agent, continue during the period, if any, mentioned in the
instrument conferring the authority, or if no period is mentioned therein, then
until notice of the revocation or determination of the agent‘s authority has
been given to the person dealing with him.
o The person affixing any such official seal shall, by writing under his hand, on
the deed or other document to which the seal is affixed, certify the date and
place of affixing the same.
o A deed or other document to which an official seal is duly affixed shall bind
the company as if it had been sealed with the common seal of the company.
Contracts by agents of company in which company is undisclosed principal Sec 214
 Every officer or other agent of a company who enters into a contract for or on behalf of the company in which
contract the company is an undisclosed principal shall, at the time of entering into the contract, make a
memorandum in writing of the terms of contract, and specify therein the person with whom it has been made.
 The company shall be, other than a private company, not being the subsidiary company of a public company.
 Every such officer or other agent shall forthwith deliver the memorandum aforesaid to the company and its
directors which shall be laid before next meeting of the board.
 If any such officer or other agent makes default in complying with the requirements of this section
(a) the contract shall, at the option of the company, be void as against the company; and
(b) such officer or other agent shall be liable to a penalty of level 1 on the standard scale.
Liability for undesired activities of the shareholders 215
 A member of a company shall act in good faith while exercising its powers as a shareholder at the general meetings
and shall consider the benefit of all the members.
 Without prejudice to his rights, a member of the company shall not exert influence or approach the management
directly for decisions which may lead to create hurdle in the smooth functioning of management.
 Any shareholder who fails to conduct in the manner provided in this section and as specified by the Commission
shall be guilty of an offence under this section and shall be liable to a penalty not exceeding of level 1 on the
standard scale.
Securities and deposits Sec 217
 A company or any of its officers or agents shall not receive or utilise any money received as security or deposit,
except in accordance with a contract in writing.
 The money so received shall be kept in a special account maintained by a company with a scheduled bank.
 This section shall not apply where the money received is in the nature of an advance payment for goods to be
delivered or sold to an agent, dealer or sub-agent in accordance with a contract in writing.
Books of account, to be kept by company 220
o Every company shall prepare and keep at its registered office books of account and
other relevant books and papers and financial statements for every financial year
which give a true and fair view of the state of the affairs of the company, including
that of its branch office or offices.
o In the case of a company engaged in production, processing, manufacturing or
mining activities, such particulars relating to utilisation of material or labour or
the other inputs or items of cost as may be specified, shall also be maintained:
o All or any of the books of account and other relevant papers shall be kept at
registered office.
o However Company may be kept at such other place in Pakistan as the board may
decide and where such a decision is taken, the company shall, within seven days
thereof, file with the registrar a notice in writing giving the full address of that
other place.
o Where a company has a branch office in Pakistan or outside Pakistan, it shall be
deemed to have complied with the provisions if proper books of account relating
to the transactions effected at the branch office are kept at that office and proper
summarized returns are sent periodically by the branch office to the company at
its registered office or the other place
o The books of account of every company relating to a period of not less than ten
financial years immediately preceding a financial year, or where the company had
been in existence for a period less than ten years, in respect of all the preceding
years together with the vouchers relevant to any entry in such books of account
shall be kept in good order.
o If a company fails to comply with any of the requirements of this section, every
director, including chief executive and chief financial officer, of the company who
has by his act or omission been the cause of such default shall(a) in respect of a listed company, be punishable with imprisonment for a term which
may extend to two year and with fine which shall not be less than five hundred
thousand rupees nor more than five million rupees, and with a further fine which
may extend to ten thousand rupees for every day after the first during which the
default continues; and
(b) in respect of any other company, be punishable with imprisonment for a term which
may extend to one year and with fine which may extend to one hundred thousand
rupees.
Financial Statements 223
o The board of every company must lay before the company in annual general
meeting its financial statements for the period,
a) in the case of first such statements since the incorporation of the company and
b) in any other case since the previous financial statements, made up to the date of
close of financial year adopted by the company.
o The first financial statement must be laid at some date not later than sixteen
months after the date of incorporation of the company and subsequently once at
least in every calendar year.
o The period to which the statements aforesaid relate, not being the first, shall not
exceed one year except where special permission of the registrar has been obtained.
o The financial statements must be laid within a period of one hundred and twenty
days following the close of financial year of a company.
o In the case of a listed company the Commission, and in any other case the registrar,
may, for any special reason, extend the period for a term not exceeding thirty days.
o The financial statement shall be audited by the auditor of the company, in the
manner hereinafter provided, and the auditor’s report shall be attached thereto.
However this requirement is not for such private companies , not being subsidiary
or holding of public company, having the paid up capital not exceeding one million
rupees
o Every company shall send followings statements , either by post or electronically, at least twentyone days before the date of meeting at which it is to be laid before the members of the company
a) audited financial statements together with the auditors’ report,
b) directors’ report and
c) In the case of a listed company the chairman’s review report
o Such Statements shall be sent to every member of the company and every person who is entitled
to receive notice of general meeting and Company shall keep a copy at the registered office of the
company for the inspection of the members.
o A listed company shall, simultaneously with the dispatch of the financial statements together
with all reports send by post three copies and electronically a copy of such financial statements
together with said reports to each of the Commission, registrar and the securities exchange and
shall also post on the company’s website
Approval and authentication of Financial Statements Sec 232
o The financial statements, including consolidated financial statement, if any, must
be approved by the board of the company and signed on behalf of the board by
the chief executive and at least one director of the company and in case of a listed
company also by the chief financial officer
o when the chief executive is for the time being not available in Pakistan, then the
financial statements may be signed by at least two directors.
o A private company having a paid up capital not exceeding one million rupees, the
financial statements shall also be accompanied by an affidavit executed by the
chief executive if the accounts are signed by him or by any of the directors if the
accounts has been signed by two directors, as the case may be, that the financial
statements have been approved by the board.
o The financial statements of a single member company shall be signed by one
director
o Any contravention or default in complying with requirements of this section shall
be an offence liable to a penalty of level 1 on the standard scale.
Copy of Financial Statements to be forwarded to the registrar 233
o after the audited financial statements have been laid before the company at the
annual general meeting and duly adopted a copy of such financial statements
together with reports shall be filed by the company electronically with the
registrar within thirty days from the date of such meeting in case of a listed
company and within fifteen days in case of any other company.
o This section shall not apply to a private company having the paid up capital not
exceeding ten million rupees.
Consolidated financial statements Sec 228
o There shall be attached to the financial statements of a holding company having a
subsidiary or subsidiaries a consolidated financial statements.
o Such consolidated financial statements shall comply with the disclosure
requirements of the relevant Schedule and financial reporting standards notified
by the Commission
o This shall not apply to a private company and its subsidiary, where none of the
holding and subsidiary company has the paid up capital exceeding one million
rupees.
o Where the financial year of a subsidiary precedes the day on which the holding
company‘s financial year ends by more than three months, such subsidiary shall
make an interim closing and prepare financial statements for consolidation
purposes.
Financial year of holding company and subsidiary Sec 229
o The board of a holding company shall ensure that, except where in their opinion
there are good reasons against it, its financial year and each of its subsidiaries
coincides.
o The Commission may, on an application of a holding company or a subsidiary of
the holding company, extend the financial year of any such company for such
purpose.
o While granting any extension the Commission may grant such other relaxations
as may be incidental or ancillary thereto.
Quarterly financial statements of listed companies Sec 237
o Every listed company shall prepare the quarterly financial information within
the period of
(a) one month of the close of first and third quarters of its year of accounts; and
(b) two months of the close of its second quarter of its year of accounts
o The quarterly financial statements shall be posted on the company‘s website for
the information of its members and also be transmitted electronically to the
Commission, securities exchange and with the registrar within the period
specified.
o the Commission may specify the time period for which the quarterly financial
statements shall be made available on the website of the company.
o a copy of the quarterly financial statements shall be dispatched in physical form
if so requested by any member without any fee.
o If a company fails to comply with any of the requirements of this section, every
director, including chief executive and chief financial officer of the company who
has by his act or omission been the cause of such default shall be liable to a
penalty of level 2 on the standard scale.
Filing of unaudited financial statements Sec 234
o A private company, not being a subsidiary of public company, having the paid up capital not exceeding
one million rupees or such other amount of paid up capital as may be notified by the Commission, shall
file the duly authenticated financial statements, whether audited or not, with the registrar within thirty
days from the holding of such meeting.
Right of member of a company to copies of the Financial Statements and the
auditor’s report Sec 235
o Any member of the company is entitled, on request and on payment of such fee as may be fixed by the
company to be provided with a copy of any financial statement. The copy must be provided within 7 days
after the request is received by the company.
Power of Commission to require submission of additional statements of accounts
and reports Sec 238
o The Commission may, by general or special order, require companies generally, or any class of companies
or any particular company, to prepare and send to the members, the Commission, the registrar, the
securities exchange and any other person such periodical statements of accounts, information or other
reports, in such form and manner and within such time, as may be specified in the order.
Rights of debenture-holders to obtain copies of financial statements Sec 239
o The holders of debentures, including the trustees for holders of debentures, of a company shall be entitled
to have copies of financial statements of the company and other reports on payment of such fee as may be
fixed by the company
Associated companies and associated undertakings mean
any two or more companies or undertakings, or a company and an undertaking,
interconnected with each other in the following manner, namely
(a) if a person who is owner or a partner or director of a company or undertaking,
or who, directly or indirectly, holds or controls shares carrying not less than
twenty percent of the voting power in such company or undertaking, is also the
owner or partner or director of another company or undertaking, or directly or
indirectly, holds or controls shares carrying not less than twenty percent of the
voting power in that company or undertaking; or
(b) if the companies or undertakings are under common management or control or
one is the subsidiary of another; or
(c) if the undertaking is a modaraba managed by the company
Associated Person
a person who is the owner of or a partner or director in a company or undertaking
or, who so holds or controls shares carrying not less than ten percent of the voting
power in a company or undertaking, shall be deemed to be an "associated person"
of every such other person and of the person who is the owner of or a partner or
director in such other company or undertaking, or who so holds or controls such
shares in such company or undertaking.
Investments in associated companies and undertaking Sec 199
o A company may make investment in any of its associated companies or
associated undertakings after getting the authority of a special resolution.
o The special resolution shall indicate
a) the nature
b) Period
c) amount of investment and
d) terms and conditions attached thereto.
 Investment shall include equity, loans, advances, guarantees, by whatever
name called.
Investment does not include
a) the amount due as normal trade credit,
b) where the terms and conditions of trade transaction(s) carried out on armslength and
c) in accordance with the trade policy of the company.
o The company shall not invest in its associated company or associated
undertaking by way of loans or advances except in accordance with an
agreement in writing
o such agreement shall include the terms and conditions specifying
a) the nature
b) Purpose
c) period of the loan
d) rate of return
e) fees or commission
f) repayment schedule for principal and return
g) penalty clause in case of default or late repayments and
h) security, if any, for the loan in accordance with the approval of the members in
the general meeting.
o The return on such investment shall not be less than
a) the borrowing cost of the investing company or
b) the rate as may be specified by the Commission
whichever is higher and shall be recovered on regular basis in accordance with the
terms of the agreement, failing which the directors shall be personally liable to
make the payment.
o The directors of the investing company shall certify that the investment is made
after due diligence and financial health of the borrowing company is such that it
has the ability to repay the loan as per the agreement.
o An increase in the amount or any change in the nature of investment or the terms
and conditions attached thereto shall be made only under the authority of a special
resolution.
o Every company shall maintain and keep at its registered office a register of
investments in associated companies and undertakings containing such particulars
as may be specified.
o Any contravention or default in complying with requirements of this section shall be
an offence liable to a penalty of level 3 on the standard scale and in addition, shall
jointly and severally reimburse to the company any loss sustained by the company in
consequence of an investment which was made without complying with the
requirements of this section
Investments of company to be held in its own name Sec 200
o All investments made by a company on its own behalf shall be made and held by
it in its own name.
o The company may hold any shares in its subsidiary company in the name of any
nominee of the company.
o Company can do so to ensure that the number of members of the subsidiary
company is not reduced below the statutory limit.
o Where the company has a right to appoint or get elected any person as a
director shares which are required to be held by a director thereof, may be
registered or held by such company jointly in its own name and in the name of
such person or nominee, or in the name of such person or nominee alone.
o Any shares or securities in which investments have been made by a company
are not held by it in its own name, the company shall forthwith enter in a
register maintained by it for the purpose at its registered office
a) the nature,
b) value and
c) such other particulars as may be necessary fully to identify such shares or
securities.
o The register shall, be open to the inspection of members without charge, and to
any other person on payment of such fees as the company may specify in this
behalf during business hours, subject to such reasonable restrictions, as the
company may impose, so that not less than two hours in each day be allowed.
o Any member may require a certified copy of register or any part thereof, on
payment of such fee as may be fixed by the company.
o The certified copies requested under this section shall be issued within a period of
05 working days.
o A member seeking to exercise either of the rights must make a request to the
company to that effect.
o If a company contravenes the company shall be punishable with fine which may
extend to 05 million rupees and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to two years or with
fine which may extend to one million rupees, or with both.
o Any contravention or default in complying with requirements of maintenance of
registered and issuance of its copies shall be an offence liable to a penalty of level 1
on the standard scale; and the registrar may by an order compel an immediate
inspection of the register or direct that copies required shall be sent to the persons
requiring them.
Register of Members, Directors, Debenture
Holder etc.
Register of members Sec 119,120
o Every company shall keep a register of its members
o There must be entered in the register such particulars of each member as may be
specified.
o In the case of joint holders of shares or stock in a company, the company‘s register of
members shall state the names of each joint holder. In other respects joint holders
shall be regarded for the purposes of this Part as a single member and the address of
the person named first shall be entered in the register.
o Every company having more than fifty members shall keep an index of the names of
the members of the company, unless the register of members is in such a form as to
constitute in itself an index.
o The company shall make any necessary alteration in the index within fourteen days
after the date on which any alteration is made in the register of members.
o The index shall contain, in respect of each member, a sufficient indication to enable
the account of that member in the register to be readily found.
o A person guilty of an offence shall be liable to a penalty of level 1 on the standard
scale.
Register of debenture-holders Sec 122,123
o Every company shall keep a register of its debenture-holders and any contravention
or default in complying with requirement of this section shall be an offence
punishable under this Act.
o There must be entered in the register such particulars of each debenture-holder as
may be specified.
o This section shall not apply with respect to debentures which, ex facie, are payable to
the bearer thereof.
o Every company having more than fifty debenture-holders shall keep an index of the
names of the debenture-holders of the company, unless the register of debentureholders is in such a form as to constitute in itself an index.
o The company shall make any necessary alteration in the index within fourteen days
after the date on which any alteration is made in the register of debenture-holders.
o The index shall contain, in respect of each debenture-holder, a sufficient indication to
enable the account of that debenture-holder in the register to be readily found.
o A person guilty of an offence under this section shall be liable to a penalty of level 1 on
the standard scale.
Rights to inspect and require copies. Sec 124
o The registers and the index shall, be open to the inspection of members or debenturesholders during business hours, subject to such reasonable restrictions, as the company
may impose, so that not less than two hours in each day be allowed.
o Inspection by any member or debenture-holder of the company shall be without charge
o In the case of any other person on payment of such fee as may be fixed by the company
for each inspection.
o Any person may require a certified copy of register and index or any part thereof, on
payment of such fee as may be fixed by the company.
o The certified copies requested under this section shall be issued within a period of five
working days, exclusive of the days on which the transfer book of the company is
closed.
o A person seeking to exercise either of the rights conferred by this section must make a
request to the company to that effect.
The request must contain the following information
(a) in the case of an individual, his name and address;
(b) in the case of an organisation, its name and address and also of the authorised person;
and
(c) the purpose for which the information is to be used.
o Any refusal of inspection require or if any copy required is not issued within the
specified period shall be an offence and any person guilty of an offence under this
section shall be liable to a penalty of level 1 on the standard scale.
o The registrar may by an order compel an immediate inspection of the register and
index or direct that copies required shall be sent to the persons requiring them.
Power to close register Sec 125
o
A company may, on giving not less than seven days' previous notice close its
a) register of members, or
b) the part of it relating to members holding shares of any class,
o for any period or periods not exceeding in the whole thirty days in each year.
o
The Commission may, on the application of the company extend the period for a
further period of fifteen days.
o In the case of listed company, notice must be given by advertisement in English and
Urdu languages at least in one issue each of a daily newspaper of respective language
having wide circulation.
o The provision of this section shall also apply for the purpose of closure of register of
debenture-holders of a company.
o Any contravention or default in complying with requirement of this section shall be an
offence liable to a penalty of level 2 on the standard scale.
Power of Court to rectify register Sec 126
 If
(a) the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members
or
register of debenture-holders of a company; or
(b) default is made or unnecessary delay takes place in entering on the register of members or register of debentureholders the fact of the person having become or ceased to be a member or debenture-holder
the person aggrieved, or any member or debenture-holder of the company, or the company, may apply to the Court for
rectification of the register.
 The Court may either refuse the application or may order rectification of the register on payment by the company of
any damages sustained by any party aggrieved, and may make such order as to costs as it in its discretion thinks fit.
 On any application the Court may decide any question relating to the title of any person who is a party to the
application to have his name entered in or omitted from the register, whether the question arises between members or
debenture-holders or alleged members or debenture-holders, or between members or alleged members, or debentureholders or alleged debenture-holders, on the one hand and the company on the other hand; and generally may decide
any question which it is necessary or expedient to decide for rectification of the register.
 Where the Court has passed an order under sub-section (3) that prima facie entry in or omission from, the register of
members or the register of debenture-holders the name or other particulars of any person, was made fraudulently or
without sufficient cause, the Court may send a reference for adjudication of offence under section 127 to the court as
provided under section 482.
Punishment for fraudulent entries in and omission from register Sec 127
 Anyone who fraudulently or without sufficient cause enters in, or omits from the register of
members or the register of debenture-holders the name or other particulars of any person, shall
be punishable with imprisonment for a term which may extend to three years or with fine which
may extend to one million rupees, or with both.
Notice to registrar of rectification of register Sec 128
 When it makes an order for rectification of the register of members in respect of a company
which is required by this Act to file a list of its members with the registrar, the Court shall cause a
copy of the order to be forwarded to the company and shall, by its order, direct the company to
file notice of the rectification with the registrar within fifteen days from the receipt of the order.
Register of directors, officers Sec 197
o Every company shall keep at its registered office a register of its
a) directors and officers,
b) chief executive,
c) company secretary,
d) chief financial officer,
e) auditors and
f) legal adviser,
containing with respect to each of them such particulars as may be specified.
o Every person shall, within a period of ten days of his appointment or any change
therein, as the case may be, furnish to the company.
o Every company shall, within a period of fifteen days from the date of appointment
of any such person or any change among them, or in any of their particulars, file
with the registrar a return in the specified form.
o This shall not apply to the first appointment made at the time of incorporation of
the company.
o Any contravention or default in complying with requirement shall be an offence
liable to a penalty of level 1 on the standard scale.
 If the name of any person is fraudulently or without sufficient cause entered in or omitted from
the register of directors of a company the person aggrieved or the company, may apply to the
Court for rectification of the register of directors.
 The Court may either refuse the application or may order rectification of the register on such
terms and conditions as it may deem fit and may make order as to costs.
 Where the Court has passed and order that prima facie entry in or omission from, the register
of directors the name or other particulars of any person, was made fraudulently or without
sufficient cause, the Court may send a reference for adjudication of offence to the court as
provided in section 482.
 Anyone who fraudulently or without sufficient cause enters in, or omits from the register of
directors the name or other particulars of any person, shall be punishable with imprisonment
for a term which may extend to three years or with fine which may extend to one million
rupees, or with both. (9) When it makes an order for rectification of the register of directors in
respect of a company, the Court shall cause a copy of the order to be forwarded to the company
and shall, by its order, direct the company to file notice of the rectification with the registrar
within fifteen days from the receipt of the order.
198. Rights to inspect.o The register kept under section 197 shall, be open to the inspection of any member of the
company and of any other person during business hours, subject to such reasonable
restrictions, as the company may impose by its articles or in general meeting, so that not less
than two hours in each day are allowed.
o Inspection by any member of the company shall be without charge, and in the case of any other
person on payment of such fee as may be fixed by the company for each inspection.
o A person seeking to exercise the rights conferred by this section must make a request to the
company to that effect.
(1) The request must contain the following information(a) in the case of an individual, his name and address
(b) in the case of an organisation, its name and address and also of the authorised person; and 100
(c) the purpose for which the information is to be used.
o In the case any inspection is refused, the registrar on application made by the person to whom
inspection has been refused and upon notice to the company, may by order direct an immediate
inspection of the register.
o Any contravention or default in complying with requirements of this section shall be an offence
shall be liable to a penalty of level 1 on the standard scale.
The Gazette of Pakistan Extraordinary
PART II
Notification
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
NOTIFICATION
Islamabad, April 01, 2003
S.R.O. 310(I)/2003. In exercise of the powers conferred by section 282 B of the Companies
Ordinance, 1984 (XLVII of 1984), the Federal Government is pleased to make the following
rules, namely:THE NON-BANKING FINANCE COMPANIES
(ESTABLISHMENT AND REGULATION) RULES, 2003
CHAPTER - I
General
1. Short title and commencement. (1) These rules may be called the Non-Banking Finance
Companies (Establishment and Regulation) Rules, 2003.
(2)
They shall come into force at once.
2. Definitions. (1) In these Rules, unless there is anything repugnant in the subject or context,
(iii)
“asset management services” mean the [business of providing services]1 for
management of collective investment schemes;
(iv)
“assets” mean properties of all kinds tangible or intangible, including shares,
units, certificates, securities, deposits, right and bonus shares, cash, bank
balances, profits, dividends, fees, commissions, all receivables, claims,
derivatives contract, licences, privileges, accrued or accruing or contingent”;
(v)
“associated companies” means associated companies and associated undertakings
as defined in sub-section (2) of section 2 of the Ordinance;
(vi)
“brokerage business” means the services being provided by a broker registered
under the Brokers and Agents Registration Rules, 2001;
1 Substituted for “services provided” vide SRO 1002(I)/2015 dated October 15, 2015
1
(vii)
“central depository company” means central depository as defined under the
Securities and Exchange Ordinance, 1969 (XVII of 1969);
(ix)
“closed-end fund” means an investment company or a closed-end scheme;
[(x) “closed end scheme” means a collective investment scheme having a specified period
of maturity which does not continuously offer its certificates for sale to investors
and entitles the holder of certificates, to receive, proportionate share of the net
assets of the closed end scheme:
Provided that existing closed end scheme shall be classified as closed end
scheme until revoked or converted into open end scheme for the purpose of these
rules,”;]2
(xi)
“close relative” includes spouse, lineal ascendants and descendants and brothers
and sisters;
[(xii) “collective investment scheme” means any arrangement whose sole purpose is the
collective investment of funds in a portfolio of securities, or other financial assets
for profits, income or other returns, and where the participants, who have pooled
in the funds, do not have any day to day control over the management of the
scheme, whether or not they have the right to be consulted or to give direction in
respect of such management:
Provided that the following shall not be considered as a Collective
Investment Scheme for the purpose of these rules:(i)
employee welfare trusts or gratuity trusts or employees provident funds or
employees pension funds setup for the benefit of employees by
companies; and
(ii)
any such pool of funds which is separately regulated by the Commission
or which is already established under any specific law;]3
(xiii) “Commission" means the Securities and Exchange Commission of Pakistan
established under the Securities and Exchange Commission of Pakistan Act,
1997(XLII of 1997);
(xiv)
“company” means a company as defined under the Companies Ordinance, l984
(XLVII of l984);
2 Substituted for“(x) “closed-end scheme” means a scheme constituted by way of trust to raise funds through issue of certificates to the public for investing in securities including
money market instruments for a definite or indefinite period but which does not continuously offer certificates entitling the holder of such certificates, to receive, on demand, his
proportionate share of the net assets of the closed-end scheme;” vide SRO 1002(I)/2015 dated October 15, 2015
3 Substituted for “(xii) “collective investment scheme” means a closed-end fund and an open-end scheme; “vide SRO 1002(I)/2015 dated October 15, 2015
2
(xv)
“connected person" in relation to an NBFC or a [notified entity]4, means,(a)
any person or trust beneficially owning, directly or indirectly, ten percent
or more of capital of the NBFC or the [notified entity]5;
(b)
any person able to exercise, directly or indirectly, ten percent or more of
the total voting power in that NBFC or the [notified entity]6;
(c)
a [notified entity]7 being managed by an NBFC;
(d)
the NBFC managing a [notified entity]8;
[(da)
notified entities being managed by the same NBFC;]9
(e)
a trustee or custodian of the [notified entity]10;
(f)
any person or trust controlled by a person who or which meets the
descriptions given in sub-clause (a) to (e);
(g)
any member of the group of which that person, or trust forms part; and
(h)
any director or officer of that NBFC or the investment company being
managed by that NBFC or of any of their connected persons as specified
in sub-clauses (a) to (g);
[ ]11
(xvii) “custodian” includes a bank licensed under the Banking Companies Ordinance,
1962 (LVII of 1962) or a trust company which is a subsidiary of such bank or a
central depository company approved by the Commission or an NBFC carrying
out investment finance services provided it has been approved by the Commission
to act as custodian or such other company as may be approved by the Commission
to act as custodian;
[(xviia) “discounting services” means the business of
instruments on conventional or Islamic basis;]12
discounting of financial
4 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
5 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
6 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
7 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
8 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
9 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
10 Substituted for “collective investment scheme” vide SRO 1002(I)/2015 dated October 15, 2015
11 Deleted clause (xvi) “(xvi) “constitutive documents” means the trust deed, offering documents and other principal documents governing the formation of a closed-end scheme
or an open-end scheme including all related material agreements;” vide SRO 1002(I)/2015 dated October 15, 2015
12 Substituted for “(xviia) “discounting services” means the services relating to the discounting of financial instruments;” vide SRO 1002(I)/2015 dated October 15, 2015
3
[(xviib) “deposit” means any deposit of money with, or any money borrowed or raised by
an NBFC, but shall not include,(a)
redeemable capital issued under section 120 of the Ordinance;
(b)
finance obtained from a financial institution;
(c)
advance, application or subscription money for shares in the NBFC;
(d)
cash margin or security deposit received in respect of finance provided by
NBFC;
(e)
subordinated loans; and
(f)
finance obtained from major shareholders, sponsors, and associated
companies:
Provided that the Commission shall be the final authority to determine, by
an order in writing, whether any money deposited, raised or borrowed falls under
the definition of deposit or otherwise;]13
[(xix) “equity” includes paid up ordinary share capital, preference shares which are
compulsorily convertible into ordinary shares, general reserves, statutory reserves,
balance in share premium account, reserve for issue of bonus shares, subordinated
loans and unappropriated profits, excluding accumulated losses.
Explanation.(i)
Surplus on revaluation of fixed assets as described in section 235 of the
Ordinance, treasury stocks, intangible assets, deferred tax reserves, and
surplus on revaluation of investments shall not be included in the equity.
(ii)
A loan may be classified as subordinated loan if it complies with the
following conditions:(a)
(b)
(c)
subordinated loan can be raised from any person, preferably from
the sponsors;
rate of profit on subordinated loan, if any shall be decided by
NBFC subject to the clearance of the Commission;
neither the interest nor the principal shall be paid even at maturity
if such payment would result in non-compliance with the equity or
capital adequacy requirements;
13 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
4
(iii)
(d)
subordinated loan shall be un-secured and sub-ordinate to all other
indebtedness including deposits;
(e)
subordinated loan shall be in the form of cash or liquid assets only;
(f)
auditor certificate evidencing injection of funds into NBFC as
subordinated loan;
(g)
minimum tenor of subordinated loan shall be specifically
mentioned; and
(h)
prior approval of the Commission is required for repayment of
subordinated loan.
For the purpose of calculating minimum equity requirements for licensing
purposes, the exposure of an NBFC in its subsidiaries and strategic
investments shall be deducted from equity:
Provided that the equity investment in subsidiary and strategic
investment shall be taken at cost.;]14
[(xx)
“finance" means provision of,(i)
any accommodation or facility on the basis of participation in profit and loss,
musharika or modaraba basis, mark-up or mark-down in price, hirepurchase, lease, rent-sharing, bills of exchange, promissory notes or other
instruments with or without buy-back arrangement by a seller, participation
term certificate, musharika or modaraba certificate, term finance certificate;
(ii)
guarantees, indemnities, letters of credit or any other financial engagement,
issued or undertaken on behalf of a person, with a corresponding obligation
of that person;
(iii)
a loan, advance, discounting services to any person;
(iv)
micro financing including any form of finance such as leases advances,
consumer loans, housing finance;
(v)
a financial facility or accommodation provided on the basis of Islamic mode
of financing; and
(vi)
any other form of financial facility provided to a person;]15
14 Substituted for “(xix) “equity” includes paid up share capital, reserves, subordinated loans and unappropriated profits (minus accumulated losses) excluding deferred tax
reserves, Surplus on Revaluation of Fixed Assets Account as described in section 235 of the Ordinance, treasury stocks and redeemable preference shares:
Explanation.- For the purpose of this clause the expression “subordinated loans” means loans given or arranged by the sponsors, free of cost, to meet any short fall in the minimum
equity requirement specified under these rules;”
5
[(xxa) “financial services company” for the purposes of these rules, means a financial
institution incorporated in Pakistan or outside Pakistan, insurance company, broker
i.e. of stock market or money market or commodities market; a company which is
primarily involved in distribution of securities, insurance products and units or
certificates of a notified entity, and any other company as notified by the
Commission in the official Gazette;]16
(xxi)
"form" means the forms annexed to the rules;
[(xxia) “forms of business” means following forms of business as notified in the official
Gazette by the Federal Government or any other form of business which the Federal
Government may, by notification in the official Gazette specify from time to time,
namely:(a)
asset management services;
(b)
discounting services;
(c)
housing finance services;
(d)
investment advisory services;
(e)
investment finance services;
(f)
leasing;
(g)
pension fund scheme business;
(h)
private equity and venture capital fund management services;
(i)
REIT management services; and
(j)
venture capital investment;]17
[(xxiaa)“fund management NBFC” means an NBFC licenced by the Commission to
undertake Asset Management Services or REIT Management Services or Pension
Fund Scheme Business or Private Equity and Venture Capital Fund Management
Services or Investment Advisory Services or any combination thereof;]18
15 Substituted for “(xx)“facility” includes a financing under a system which is based on participation in profit and loss, mark-up or mark-down in price, hire-purchase, lease, rentsharing, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika or modaraba
certificate, term finance certificate or any other mode, guarantee, indemnity, letter of credit and any other obligation, whether fund based or non-fund based;”
16 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
17 Substituted for “(xxia) “forms of business” means any of the forms of business specified in clause (a) of section 282A of the Ordinance;”
18 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
6
(xxib) “group” means persons, whether natural or legal, if one of them or his close
relatives, in case of a natural person, or, its subsidiary or associated company, if it
is a legal person, have control or hold [direct or indirect]19 substantial ownership
interest or have power to exercise significant influence over the other. For the
purpose of this clause the expression(a)
subsidiary shall have the same meaning as defined in sub-section (2) of
section 3 of the Ordinance;
(b)
control shall have the same meaning as defined [Securities Act, 2015 (III
of 2015)]20;
(c)
substantial ownership means beneficial shareholding of ten percent by a
person or by close relative; and
(d)
“significant influence” refers to the management control of the company
or the ability to participate in financial [operational and risk
management]21 policies, either exercised by representation on the Board of
Directors, through partnership or by statute or by agreement in the policy
making process;
[(xxiii) “housing finance services” means the business of providing consumer or
commercial Finance on conventional or Islamic basis to a person for the purchase
or construction of house or apartment or for purchase of land and construction
thereupon including the facilities availed for the purpose of making improvements
in house or apartment;]22
[(xxiiia) “independent director” shall have the same meaning as assigned to it in
regulation 35 of the Listing Regulations of Karachi Stock Exchange;]23
(xxv) “investment advisory services” means the services provided for, managing
discretionary or non-discretionary portfolios for both individual and institutional
clients and include the business of advising others as to the value of securities or
as to the advisability of investing in, purchasing or selling of securities, for
remuneration;
(xxvi) “investment company” means a company registered with the Commission under
the Ordinance in accordance with such criteria as may be specified by the
Commission by notification in the official Gazette;
19 19 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
20 Substituted for “in section 2 of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 (CIII of 2002)” vide SRO 1002(I)/2015 dated
October 15, 2015
21 Substituted for “and operating” vide SRO 1002(I)/2015 dated October 15, 2015
22 Substituted for “(xxiii) “housing finance services” means the loan provided to individuals for the purchase of residential house or apartment or land including the facilities
availed for the purpose of making improvements in house or apartment or land;” vide SRO 1002(I)/2015 dated October 15, 2015
23 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
7
[(xxviii) “investment finance services” means the business of providing finance on
conventional or Islamic basis;
(xxix) “leasing” means the business of providing finance on operating lease or finance
lease or Ijarah basis;]24
(xxxii) “major shareholder” means a person who, individually or in concert with his
family or as part of a group, holds ten percent or more shares having voting rights
of the paid-up capital of the company;
[(xxxiii) “lending NBFC” means an NBFC licenced by the Commission to undertake
leasing or housing finance services or investment finance services or discounting
services;
(xxxiiia) “NBFC” means a non-banking finance company which includes company
licenced by the Commission to carry out any one or more forms of business as
specified in clause (a) of section 282A of the Ordinance;]25
[(xxxiv) “non-bank micro finance company” means a non-deposit taking NBFC primarily
engaged in the business of Micro Financing as specified by the Commission from
time to time;]26
[(xxxvii) “Open End Scheme” means a collective Investment Scheme which offers units
for sale based on net asset value on continuous basis without specifying any
duration for redemption and which entitles the holder of such units on demand to
receive his proportionate share of the net assets of the scheme less any applicable
charges on redemption or revocation;]27
(xxxviii)“Ordinance” means the Companies Ordinance, l984 (XLVII of l984);
(xxxvix)"person" includes an individual, a Hindu undivided family, a firm, an association
or body of individuals whether incorporated or not, a company and every other
legal person;
24 Substituted for “(xxviii) “investment finance services” include money market activities, capital market activities, project finance activities, corporate finance services and
general services as specified by the Commission by notification in the official Gazette;
(xxix)
“leasing” includes financial services provided on operating lease or finance lease basis, in accordance with (in accordance with applicable International Accounting
Standards) or any other admissible mode determined by the Commission from time to time;” vide SRO 1002(I)/2015 dated October 15, 2015
25 Substituted for “(xxxiii) “NBFC” means a non-banking finance company as defined in clause (a) of section 282A of the Ordinance;” vide SRO 1002(I)/2015 dated October 15,
2015
26 Substituted for (xxxiv) “net assets”, in relation to a collective investment scheme, means the excess of assets over liabilities of the collective investment scheme, such excess
being computed in the manner specified by the Commission by notification in the official Gazette;” vide SRO 1002(I)/2015 dated October 15, 2015
27Substituted for “(xxxvii) “open-end scheme” means a scheme constituted by way of a trust deed that continuously offers for sale its units as specified in the constitutive
document that entitle the holder of such units on demand to receive his proportionate share of the net assets of the scheme less any applicable charges;” vide SRO 1002(I)/2015
dated October 15, 2015
8
(xxxixa) “promoter or sponsor” means a person who has made an application to the
Commission to form an NBFC under rule 4 and has contributed initial capital in
the proposed company or a person who replaces him;”
[(xxxixb) “Private Fund” means an arrangement which has the purpose of pooling funds
from one or more Eligible Investors for investment in a portfolio of securities or
other financial assets for profit, income or other returns and where participants of
the funds, neither have day to day control over the management of fund property,
nor the right to give directions in respect of such management and which is
established and operated by private fund management company:
Provided that for the purpose of these rules following shall not classify as
a private fund:
(i)
collective investment schemes regulated under the Non-Banking Finance
Companies and Notified Entities Regulations, 2008;
(ii)
employee welfare trusts or gratuity trusts or employees provident fund or
employee pension fund setup for the benefit of employees by companies;
and
(iii)
any such pool of funds which is separately regulated by the Commission
or which is already established under any other specific law.
(xxxixc) “private fund management company” means company licenced by the
Commission to provide private equity and venture capital fund management
services;
(xxxixd) “private equity and venture capital fund management services” means services
provided for management of private funds;]28
(xl)
“records” mean all documentary and electronic materials created, generated, sent,
communicated, received or stored, regardless of physical form or characteristics;
(xli)
“regulations” means the regulations made by the Commission in exercise of its
powers under Part VIIIA of the Ordinance;
(xlii) “Schedule” means the schedule to these rules;
[(xliia) “securities broker” means a trading right entitlement certificate holder or “TRE”
certificate holder who, by way of business,
(a)
makes or offers to make with any person or induces or attempts to induce
any person to enter into or to offer to enter into, any agreement for or with
a view to buying, selling, exchanging or subscribing for, securities; or
28 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
9
(b)
solicits or accepts any order for or otherwise trading in, or effects
transactions in, securities for clients or on its own account;”;]29
[(xliib) “strategic investment” means an investment which an NBFC makes with the
intention to hold it for a period of minimum 5 years and is more than 10% of its
equity;]30
(xliv) “trust” means a trust established by a deed under the provisions of the Trusts Act,
1882 (II of 1882);
[(xlv) “trustee” means a company appointed as a trustee of a notified entity as per the
rules and regulations made under Part VIII A of the Ordinance;]31
(2)
Words and expressions used but not defined in these rules shall have the same
meaning as assigned to them in the Ordinance or the [Securities Act, 2015 (III of 2015) or Rules
and Regulations made thereunder]32.
3. Eligibility criteria for the establishment of a NBFC. A NBFC may be established, if each
of its promoters, proposed directors, chief executive and chairman of the Board of Directors
fulfills the terms and conditions mentioned in the fit and proper criteria as may be specified by
the Commission by notification in the official Gazette and complies with the requirements of the
Ordinance, these rules and the regulations made under the Ordinance.
4. Permission to form a NBFC
(1)
A person desirous of forming a NBFC [to undertake any form of business]33 shall
make an application to the Commission as set out in Form-1 providing information, as given in
Annexure thereto, along with all the relevant documents and receipt evidencing the payment of
non-refundable processing fee as may be specified by the Commission by notification in the
official Gazette.
(2)
The Commission, if it is satisfied that the person seeking permission to form the
NBFC [to undertake any form of business]34 has fulfilled the criteria in terms of rule 3 and the
regulations, may permit by an order in writing [ ]35 to establish a NBFC.
[(3) The permission granted under sub-rule (2) shall be valid for a period of six
months unless extended for a maximum period of further three months under special
circumstances, on the application of the promoters made before the expiry of initial six months.
29 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
30 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
31 Substituted for “(xlv)
“trustee” includes a bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962) or a trust company which is a subsidiary of such a
bank or a central depository company approved by the Commission or a NBFC carrying out investment finance services provided it has been approved by the Commission to act as
trustee or such other company or trust as may be approved by the Commission to act as trustee;” vide SRO 1002(I)/2015 dated October 15, 2015
32 Substituted for “Securities and Exchange Ordinance, 1969 (XVII of 1969)” vide SRO 1002(I)/2015 dated October 15, 2015
33 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
34 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
35 Deleted the words ‘such person”
10
During the validity of this permission, the promoters shall get the NBFC incorporated and submit
an application to the Commission for grant of licence, after fulfilling all the conditions specified
in these rules.]36
5. Conditions for grant of licence.- [(1) An NBFC or any other company subject to eligibility in
terms of schedule I shall make separate applications to the Commission for grant of licence for
carrying out each form of business. The said application shall be submitted to the Commission in
Form-II along with a non-refundable processing fee as may be specified by the Commission by
notification in the official Gazette for each licence.
(2)
A fund management NBFC shall not be eligible for seeking licence for any form
of business allowed to lending NBFC and a lending NBFC shall not be eligible for seeking
licence for any form of business allowed to fund management NBFC.
(3)
An NBFC or any other company may apply to the Commission for grant of
licence subject to eligibility criteria given in Schedule I.
(4)
The Commission may issue a licence for asset management services to manage
only closed end fund. Licence granted to an NBFC for investment finance services shall be valid
for undertaking leasing, housing finance services and discounting services and such an NBFC
shall not be required to obtain separate licences for each form of business i-e., leasing, housing
finance services and discounting services specified in these rules.
(5)
Every other person engaged in any form of business shall within a period of six
months of coming into force of these rules apply in writing to the Commission, for grant of a
licence along with a non-refundable processing fee as specified by the Commission by
notification in the official Gazette.]37
36 Substituted for “(3) The permission granted under sub-rule (2) shall be valid for a period of six months unless extended for a maximum period of three months under special
circumstances, on the application of the promoters made before the expiry of said six months. During the validity of this permission, the promoters of the NBFC shall get the
NBFC incorporated as a public limited company or any other form of company as may be specified by the Commission by notification in the official Gazette.” Vide SRO
1002(I)/2015 dated October 15, 2015
37 Substituted for “(1) An NBFC shall make separate applications to the Commission for grant of licence for carrying out different forms of business. The said application shall be
submitted to the Commission in Form-II along with a non-refundable processing fee as may be specified by the Commission by notification in the official Gazette for each licence.
(2) An NBFC seeking licence for undertaking investment advisory or asset management services or both shall not be eligible for seeking licence for any other form of business.
Explanation.- (i) For the purpose of sub-rule (2), the Commission may issue a licence for asset management services to manage only closed-end funds.
(ii) All existing NBFCs licensed to provide investment advisory services that are managing closed-end funds shall, within six months of the coming into effect of this provision,
apply for an asset management services licence to manage closed-end funds.
(3) An NBFC licenced to carry out asset management services shall be eligible, subject to the criteria as may be specified by notification in the official Gazette, to undertake
pension fund scheme business as specified by the Federal Government to be a form of business in terms of section 282A of the Ordinance.
(4) An NBFC seeking licence for undertaking investment finance services or leasing or housing finance services or discounting services or all of the said forms of business shall
not be eligible for seeking licence for any other form of business
Explanation.- For the purpose of sub-rule (3), licence granted for investment finance services shall be valid for undertaking discounting services, and separate licence for
undertaking discounting services shall not be required.
11
[(6) The Commission shall, after making necessary inquiries and after obtaining such
further information, as it may consider necessary, and if it is satisfied that each of its promoters,
directors, chief executive and chairman of the Board of Directors fulfills the terms and
conditions mentioned in the fit and proper criteria, grant licence as per Form-III for one or more
forms of businesses subject to compliance of all or any of following conditions:(a)
the company fulfills the eligibility criteria given in Schedule I;
(b)
the company is not part of a group of companies already holding a licence, under
these rules, for the same form of business;
(c)
the company meets minimum equity requirements or any other requirement in
lieu of minimum equity requirement as may be prescribed by the Commission for
specific form of business or class of companies by notification in the official
Gazette, in respect of each form of business;
(d)
the company has allotted at least twenty five percent of the paid-up share capital
to the promoters;
(e)
the company’s promoters or majority shareholders and directors have deposited
their shares with Central Depository Company of Pakistan Limited in an account
marked as blocked and such shares shall not be sold or transferred without prior
approval of the Commission and shall be kept unencumbered:
Provided that directors holding qualifying shares, maximum up to 2 per cent of
the total share capital shall be exempt from this requirement;
(f)
the company’s promoters or majority shareholders and directors have given an
undertaking that they shall not enter into any agreement for sale or transfer of
their shares in any manner without prior approval of the Commission;
Provided that directors holding qualifying shares, up to maximum up to 2 per cent of the
total share capital shall be exempt from this requirement;
(g)
the company appoints its chief executive who does not hold such office in any
other company except for an investment company being managed by the said
company, provided that prior approval of the Commission has been obtained in
this regard;
(h)
the company shall not make any change in the Memorandum of Association,
other than increase in the authorized share capital, without prior approval of the
Commission;
(5) All existing NBFCs shall comply with the requirements set out in sub-rule (2) and (3) within a period of one year from the date of coming into effect of this provision or any
other time as may be specified by the Commission by notification in the official Gazette.” Vide SRO 1002(I)/2015 dated October 15, 2015
12
(i)
the company shall comply with the conditions as set out in these rules, the
regulations or any direction given by the Commission;
(j)
the company shall furnish evidence to the satisfaction of the Commission that the
personnel employed by it for executive positions, research or other related
functions possess sufficient educational qualifications and professional experience
to undertake the proposed form of business:
Provided that a new company shall furnish the evidence within 90 days of
grant of licence;
(k)
the company obtaining licences for multiple forms of business or any company
undertaking any form of business as an ancillary activity must have, other than
chief executive, at least one person responsible for heading each licenced form of
business;
(l)
the company incorporated as NBFC in accordance with criteria mentioned in rule
4 shall not undertake any other activity except the licenced activity; and
(m)
the company, its promoters and major shareholders, its chief executive and its
directors shall furnish separate undertakings to the Commission that they shall
comply in letter and spirit with the requirements of the Ordinance, these rules, the
regulations made under the Ordinance and the directions issued by the
Commission:
Provided that the Commission may, impose additional conditions or grant
time to the company for compliance with any of the above conditions as it deems
appropriate:
Provided further that the Commission may further extend the time granted
to the company for compliance.]38
38 Substituted for “(6) The Commission, after making necessary inquiries and after obtaining such further information, as it may consider necessary, and if it is satisfied that the
company has fulfilled the criteria in terms of rule 3 and the regulations, and that the promoters thereof are persons of means and integrity having knowledge of matters which the
company may have to deal with, in respect of the forms of businesses for which the licence is being sought, shall grant licence to such company in Form-III for one or more of the
forms of businesses subject to compliance of the following conditions, namely:(a)
the company is incorporated as a public limited company or such other form of company as may be specified by the Commission by notification in the official
(b)
the company is not part of a group of companies already holding a licence, under these rules, for the same form of business ;
Gazette;
(c)
the company has minimum equity as may be specified by the Commission by notification in the official Gazette, in respect of each form of business;
(d)
the company has allotted at least twenty five percent of the paid-up share capital to the promoters;
(e)
the company’s promoters or majority shareholders and directors have deposited their shares with Central Depository Company of Pakistan Limited in an account
(f)
the company’s promoters or majority shareholders and directors have given an undertaking that they shall not enter into any agreement for sale or transfer of their
(g)
the company appoints its chief executive who does not hold such office in any other company except for an investment company being managed by the said
marked as blocked and such shares shall not be sold or transferred without prior approval of the Commission and shall be kept unencumbered. 38
shares in any manner without prior approval of the Commission;
company, provided that prior approval of the Commission has been obtained in this regard;
(h)
the company has given an undertaking that no change in the Memorandum of Association, other than increase in the authorized share capital, shall be made without
prior approval of the Commission;
13
(7)
Without prejudice to the conditions prescribed under sub-rule (6) above, the
Commission may, while granting licence, impose such additional conditions, as it may deem
necessary.
[(7a) If a company fails to commence business within the period as specified by the
Commission while issuing licence, the licence shall be deemed to be cancelled unless the
specified period is extended by the Commission on the application made by the company.]39
(8)
The licence granted [ ]40shall be valid for three years41 from the date of its
issuance and shall be renewable upon expiry of the said period by making an application at least
one month prior to the expiry as set out in Form IV along with payment of a fee as specified by
the Commission by notification in the official Gazette.
(9)
The Commission may, after making such inquiry and after obtaining such further
information, as it may consider necessary, renew the licence[ ]42, for three years43 in Form V on
such conditions, as it may deem necessary:
Provided that till such time that the licence is renewed, the existing licence shall be
deemed valid for the purposes of these rules and the regulations unless the company fails to
apply as specified in sub-rule (8) and fulfill all the requirements to the satisfaction of the
Commission for the [renewal]44 of a licence:
Provided further that if the company fails to apply within the stipulated time period and
fulfills all the requirements to the satisfaction of the Commission its licence shall stand cancelled
and the Commission may initiate further proceedings to give effect to the cancellation.
[(10) Without prejudice to the terms and conditions prescribed in rule 7, the
Commission may, subsequent to the grant or renewal of licence, impose any other condition as it
may deem necessary in the public interest.]45
[
]46
(i)
the company has given an undertaking that the conditions as set out in these rules, the regulations or prudential regulations or any direction given by the Commission
shall be duly complied with; and
(j)
the company has furnished an undertaking that within ninety days of the grant of certificate of registration it shall furnish evidence to the satisfaction of the
Commission that the personnel employed by it for executive positions, research or other related functions possess sufficient educational qualifications and
professional experience to undertake the proposed form of business of the NBFC.” Vide SRO 1002(I)/2015 dated October 15, 2015
39 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
40 Deleted the words “to the NBFC” vide SRO 1002(I)/2015 dated October 15, 2015
41 Substituted for “one” vide S.R.O. 271 (I)/2010 dated April 21,2010
42 Deleted the words “of such NBFC” vide SRO 1002(I)/2015 dated October 15, 2015
43 Substituted for “one” vide S.R.O. 271 (I)/2010 dated April 21,2010
44 Substituted for “grant” vide SRO 1002(I)/2015 dated October 15, 2015
45 Substituted for “(10) Every company in existence which is engaged in one or more forms of businesses shall apply in writing to the Commission, as provided by sub-section (3)
of section 282C of the Ordinance, for grant of a licence along with a non-refundable processing fee as specified by the Commission:
Provided that till such time that a new licence is issued, the existing licences or registrations shall be deemed to be valid for the purposes of these rules unless the company fails to
apply for licence as specified in sub-rule (8) or the Commission declines to grant such licence for reasons to be recorded in writing.”.” vide SRO 1002(I)/2015 dated October 15,
2015
14
7. Conditions applicable to a NBFC.(1) A NBFC shall, ¾
(a)
maintain such books of accounts and other records, as prescribed under the
Ordinance, as shall depict a true and fair view of its state of affairs, including,__
(i)
journals, cash books and other records of original entry forming the basis
of entry in any ledger;
(ii)
ledgers (or other comparable record) reflecting assets, liabilities, income
and expenses along with all supporting documents or records;
(iii)
ledgers (or other comparable record) showing securities in the portfolio;
(iv)
record of transactions with banks;
(v)
record of the meetings of the board of directors and all relevant
committees including the audit committee, credit committee and
investment committee; and
(vi)
original record of all reports, analysis and memoranda containing
investment advice distributed;
(b)
maintain such books of accounts and other records, as prescribed under the
Ordinance, to depict a true and fair view of its state of affairs for a period of not
less than ten years;
(ba)
ensure that its statutory auditors are from the approved list of auditors circulated
by the Commission;
(c)
appoint an individual, having minimum three years experience, as its financial or
chief accounting officer who is(i)
a chartered accountant; or
(ii)
a cost and management accountant; or
(iii)
a member of a recognized foreign accountancy organization; or
46 Deleted the words “6. Commencement of operations by NBFC. (1) An NBFC shall commence or continue its business and operations only after it has complied with the
requirements of these rules and the regulations and has been issued a licence to carry out a form of business.
(2)
Without prejudice to the terms and conditions prescribed in rule 7, the Commission may, subsequent to the grant of licence to the NBFC, impose any other condition,
as it may deem necessary in the public interest.
(3)
If an NBFC fails to commence business within one year of the issuance of licence, the licence shall be deemed to be cancelled or otherwise as specified by the
Commission by notification in the official Gazette.”
15
(iv)
a person having master’s degree in commerce or business administration
with specialization in finance,
[Provided that a non-deposit taking and unlisted lending NBFC
may designate another officer as its financial or chief accounting
officer;]47
(ca)
appoint [as internal auditor]48;
[(i)
a person having minimum three years relevant experience who is-]49
(a)
(b)
(c)
(d)
(e)
(f)
(ii)
a chartered accountant; or
a cost and management accountant; or
a certificated internal auditor; or
a certified information system auditor; or
a member of recognized foreign accountancy organization; or
an individual having master degree in commerce or business
administration with specialization in finance; or
a chartered accountancy firm having satisfactory Quality Control Review
(QCR) and not being the statutory auditors to whom this function is
outsourced[.]50
[Provided that the internal auditor shall report directly to the board
of directors or the audit committee of the board of the NBFC.]51
(cb)
appoint a person as compliance officer to ensure reporting to the Commission of
status of compliance with the existing regulatory framework by the NBFC[:
Provided that a non-deposit taking and unlisted Lending NBFC may
designate another officer as its compliance officer;]52
(cc)
appoint such executives who shall fulfill the terms and conditions mentioned in
the fit and proper criteria specified by the Commission by notification in the
official Gazette;
[(cd)
appoint the directors in accordance with Schedule I, provided that the
Commission shall be the final authority to determine the status of a director as
independent or otherwise;]53
47 Substituted for “;” vide SRO 1002(I)/2015 dated October 15, 2015
48 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
49 Substituted for “(i) a person having minimum three years experience as internal auditor who is-“ vide SRO 1002(I)/2015 dated October 15, 2015
50 Substituted for “;” vide SRO 1002(I)/2015 dated October 15, 2015
51 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
52 Substituted for “;” vide SRO 1002(I)/2015 dated October 15, 2015
53 Substituted for “(cd)
(i)
appoint-
at least one third of its directors who shall be independent directors; and
16
(d)
prepare its accounts in conformity with the International Accounting Standards
notified under sub-section (3) of section 234 of the Ordinance and technical
releases issued by Institute of Chartered Accountants of Pakistan from time to
time;
[(da)
furnish to the Commission its quarterly and annual financial statements in
accordance with Schedule I;]54
[ ]55
(g)
follow directions issued to protect NBFCs against their involvement in money
laundering activities[, terrorist financing]56 and other unlawful trades;
(h)
[obtain rating in accordance with Schedule-I]57 as and when it becomes eligible
for rating as per the rating criteria of a rating agency registered with the
Commission, and such rating shall be updated at least once every financial year:
Provided that the NBFC shall within one year of the decrease in its rating
from the grade specified by the Commission by notification in the official
Gazette, obtain a fresh rating and during the period that its rating is below the
grade so specified, the NBFC may be allowed by the Commission to continue its
operations on such conditions as are deemed appropriate by the Commission;
[(i)
publish the rating in its annual report and quarterly reports, annual and quarterly
reports of the collective investment schemes managed by it, if applicable, and any
advertisement and brochures in relation to promotion of its business;]58 and
(j)
acquire and maintain membership of the relevant association and follow the code
of conduct specified by the said association approved by the Commission.”;
Provided that at least two of its directors, excluding the chief executive officer, shall have relevant experience of at least five years at a senior management level in the financial
sector;
Explanation.- For the purpose of this sub-clause, the expression "independent director" means a director who is not connected with the company or its promoters or directors on the
basis of family relationship and who does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, directors, executives or
related parties. The test of independence principally emanates from the fact whether such person can be reasonably perceived as being able to exercise independent business
judgment without being subservient to any apparent form of interference.
Provided further that the Commission shall be the final authority to determine the status of a director as independent or otherwise;” vide SRO 1002(I)/2015 dated October 15, 2015
54 Substituted for “(da)
furnish to the Commission within one month of the close of first and third quarter and within two months of the close of second quarter of the year of
account of its financial year, a balance sheet along with an income statement, cash flow statement and the statement of changes in equity for the respective quarters, whether
audited or otherwise;”
55 Deleted the words “(db) furnish a copy of its annual report together with copies of the balance sheet, income statement, cash flow statement and statement of changes in equity
along with the auditors report to the Commission or any other person as required by the Commission within three months of the close of the accounting period;
(e)
separately disclose in relevant notes to its quarterly and annual accounts all those facilities and exposures whose carrying value exceeds twenty percent of its equity;”
vide SRO 1002(I)/2015 dated October 15, 2015
56 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
57 Substituted for “obtain credit rating and, management quality rating, wherever applicable” vide SRO 1002(I)/2015 dated October 15, 2015
58 Substituted for “(i)
publish the credit rating and management quality rating, as the case may be, in its annual report and quarterly reports, annual and quarterly reports of
the collective investment schemes managed by the NBFC, if applicable, and any advertisement and brochures in relation to promotion of its business;” vide SRO 1002(I)/2015
dated October 15, 2015
17
[(k)
seek registration of notified entities as per the regulations notified by the
Commission in the Official Gazette before offering of unit, certificates or shares
of notified entities:]59
(2)
A NBFC shall not,
(a)
appoint as directors [those]60 persons who hold such office in any other
NBFC licensed for the same form of business.
Provided that this clause shall not apply to the nominees of the Federal or
Provincial Governments on the board of any NBFC or, any exception specified by
the Commission;
(aa)
appoint or change its chief executive or any of its directors subject to
fulfillment of the fit and proper criteria and prior approval of the
Commission provided that the Commission may refuse appointment of
any person[ ]61;
Explanation.- This clause shall not apply to a director nominated
by the Federal Government or Provincial Governments;
[(b)
enter into premises leasing or renting, and sale or purchase of any kind
with their directors, officers, employees or their close relatives or any
person acting on their behalf or such persons who either individually or in
concert with family members beneficially own 10% or more of the equity
of the NBFC:
Provided that this restriction shall not apply to such NBFCs that
have a policy to this effect duly approved by their board of directors:
Provided further that in case of any sale and purchase to the
directors the prior approval in writing of the board, excluding the
participation of the beneficiary directors, is required;]62
[(ba)
hold or make investment in a subsidiary other than that which is a
financial services company:
59 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
60 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
61 Deleted the words “without assigning any reason” vide SRO 1002(I)/2015 dated October 15, 2015
62 Substituted for “(b)
purchase anything from, or sell anything to any director, officer, employee of the NBFC or to a person who either individually or in concert with close
relatives beneficially owns ten percent or more either of the equity or other securities with voting rights, if any, issued by such NBFC;
Provided that this restriction shall not apply to such NBFCs that have a policy to this effect duly approved by their board of directors:
Provided further that in case of any sale and purchase to the directors the prior approval in writing of the board, excluding the participation of the beneficiary directors, is
required;”vide SRO 1002(I)/2015 dated October 15, 2015
18
Provided that an NBFC may make strategic investments in
financial services company with the approval of the Commission;]63
[(c)
form, sell or transfer ownership of shares in subsidiary or associated
company, merge with, acquire or takeover any other company unless it has
obtained prior approval of the Commission in writing to such formation or
sale or transfer;]64
[(ca)
sell strategic investment unless it has obtained prior approval of the
Commission in writing to such sale;
(cb)
merge with, acquire or takeover any other company unless it has obtained
prior approval of the Commission in writing to such scheme of merger,
acquisition or takeover;]65
[
]66
(f)
remove any of its records or documents relating to its business from
Pakistan to a place outside Pakistan without the prior permission of the
Commission;
[(h)
make aggregate investment in shares of unlisted company in excess of
twenty percent of its equity. Investment in unlisted company shall be
approved in a board meeting after carefully analyzing the merits and
financial impact of the investment and recording the decision in detail in
minutes of the meeting and such decisions shall be communicated to the
Commission within fourteen days of the board meeting along with copy of
the minutes:
Provided that the NBFC shall not own shares of any one unlisted
company in excess of ten per cent of its own equity or of the issued capital
of that company, whichever is less:
Provided further that investment by an NBFC out of its surplus
equity (i.e. over and above the required minimum equity requirements) in
unlisted shares of its subsidiaries or any other financial services company
63 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
64 Substituted for “(c)
sell or transfer ownership of shares in subsidiary or associated company, merge with, acquire or takeover any other company unless it has obtained
prior approval of the Commission in writing to such sale or transfer or scheme of merger, acquisition or takeover;” vide SRO 1002(I)/2015 dated October 15, 2015
65 Substituted for “(ca)
make investment in its subsidiary except out of its surplus equity (i.e. over and above the specified minimum equity requirement for the licences held by
such NBFC);” vide SRO 1002(I)/2015 dated October 15, 2015
66 Deleted the words “(e) enter into transactions with any broker which exceed ten percent of the total brokerage expense of the NBFC in any one accounting year
Provided that the NBFC shall not have a common director or officer or employee with the broker;” vide SRO 1002(I)/2015 dated October 15, 2015
19
in the group, shall not be taken into account for calculating the limit for
unquoted shares;]67
(i)
offer any of its own or other securities for any consideration other than
cash [or liquid assets]68 nor make any loan or advance against these
securities. Unless otherwise specified by the Commission by notification
in the official Gazette;
(j)
hold, deal or trade in real estate except for the use of NBFC itself or where
specified by the Commission by notification in the official Gazette[:
Provided that properties acquired by lending NBFC in satisfaction
of its claims shall be disposed of within a maximum period of seven years
from the date of acquisition;]69
[(k)
raise deposits in any form by whatever name called except as specified by
the Commission in the Non-Banking Finance Companies and Notified
Entities Regulations, 2008;]70
(l)
provide unsecured facilities or exposures except as specified by the
Commission by notification in the official Gazette; [and]71
(m)
encumber or mortgage or pledge or transfer clients’ assets deposited as
security with the NBFC against any facility extended to the client, for
securing its own obligation[.]72
(n)
undertake the brokerage business in capital market except by forming a
separate company for this purpose73.
[
]74
67 Substituted for “(h) make an investment in unquoted shares of any company in excess of twenty percent of its equity. Unquoted investment shall be approved in a board
meeting after carefully analyzing the merits and financial impact of the investment and recording the decision in detail in minutes of the meeting and such decisions shall be
communicated to the Commission within fourteen days of the board meeting along with copy of the minutes;
Provided further that all existing NBFCs, who have investment in unquoted shares exceeding twenty percent of their equity , shall bring such investments down to twenty percent
within a period of six months from the date of this provision taking effect.
Provided also that an investment by an NBFC out of its surplus equity (i.e. over and above the minimum specified regulatory requirement for the licences held by the NBFC) in its
wholly owned subsidiaries, for undertaking a form of business, shall not be taken into account for calculating the limit for unquoted shares;” vide SRO 1002(I)/2015 dated October
15, 2015
68Inserted vide vide SRO 1002(I)/2015 dated October 15, 2015
69 Substituted for “;” vide SRO 1002(I)/2015 dated October 15, 2015
70 Substituted for “(k)
raise funds in any form from individuals except as specified by the Commission by notification in the official Gazette;” vide SRO 1002(I)/2015 dated
October 15, 2015
71 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
72 Substituted for “; and” vide SRO 1002(I)/2015 dated October 15, 2015
73 Substituted for “Provided that the NBFCs already engaged in brokerage business shall comply with this requirement within a period of one year of coming into effect of this
provision” vide S.R.O. 271 (I)/2010 dated April 21,2010
74 Deleted the words “Provided that this sub-rule shall not apply to NBFC which have a valid license to undertake investment finance services business and have been, to such
terms and conditions as Commission may impose, granted permission by the Commission to undertake brokerage business without forming a separate company: and” vide SRO
1002(I)/2015 dated October 15, 2015
20
[(3) An NBFC shall comply with such minimum equity requirement or any other
requirement in lieu of minimum equity requirement as may be prescribed by the Commission
from time to time for specific form of business or class of companies by notification in the
official Gazette.]75
[7A. Payment of fee.- An NBFC shall pay such non-refundable fee as may be specified by the
Commission through notification in the official Gazette.]76
[8. Opening or closure of bank account, account with a broker or branch.- An NBFC shall
inform its board of director regarding opening or closure of any bank accounts, accounts with a
brokers or branches of an NBFC and the same must be recorded in the minutes of board
meeting.]77
[9. Insurance coverage.- An NBFC shall obtain sufficient insurance coverage from an insurance
company rated minimum A- by a credit rating agency registered with the Commission against
any losses that may be incurred as a result of employee’s fraud or gross negligence. The NBFC
shall make disclosure about the insurance coverage in its financial statements.]78
10. Exchange fluctuation risk. A NBFC shall make satisfactory arrangement to insulate itself
from exchange fluctuation risks associated with foreign currency obligations and transactions.
10A. Transitional provisions.- Within [six months]79 from the coming into force of these
provisions [or any amendments thereto]80, all NBFCs shall [ ]81 take such other actions as are
necessary to [comply]82 with the provisions of these rules:
Provided that, notwithstanding the fact that such actions have not been taken or
such changes have not been made, the NBFC shall comply with the provisions of these rules as if
they are licensed or registered under these rules.
[10B. Exemption from certain rules to specified Companies.- The companies specified in
Schedule II shall be exempt from certain rules specified in the said Schedule or as may be
prescribed by the Commission by notification in the official gazette.]83
75 Substituted for “(3)
An NBFC shall comply with such minimum equity requirement in respect of each form of business specified by the Commission from time to time by
notification in the official Gazette.” Vide SRO 1002(I)/2015 dated October 15, 2015
76 Substituted for “7A. Monitoring fee.- An NBFC engaged in deposit taking shall, within three months of the close of its financial year, pay to the Commission an annual fee as
may be specified by the Commission by notification in the official Gazette.” Vide SRO 1002(I)/2015 dated October 15, 2015
77 Substituted for “8. Opening or closure of bank account, account with a broker or branch.- Opening or closure of any bank accounts, account with a broker or branches of an
NBFC shall be approved in a board meeting by the board of directors of the NBFC after carefully analyzing its merits and financial impact and the reasons must be recorded in the
minutes of board meeting. Such decisions and minutes of the board meeting shall be communicated to the Commission within fourteen days of the said meeting.” Vide SRO
1002(I)/2015 dated October 15, 2015
78 Substituted for “9. Insurance coverage. A NBFC shall obtain sufficient insurance coverage on its own or for its clients’ benefit against any losses that may be incurred as a
result of employee’s fraud or gross negligence” vide SRO 1002(I)/2015 dated October 15, 2015
79 Substituted for “one year” vide SRO 1002(I)/2015 dated October 15, 2015
80 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
81 Deleted the words “alter their memoranda and articles of association or any existing contract or agreement and shall” vide SRO 1002(I)/2015 dated October 15, 2015
82 Substituted for the words “bring the memoranda and articles of association and working procedures of the NBFC in conformity” vide SRO 1002(I)/2015 dated October 15,
2015
83 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
21
FORM-I
[see rule 4(1)]
APPLICATION FOR PERMISSION TO FORM A NON – BANKING
FINANCE COMPANY
Dated: _______________
To
The Securities and Exchange
Commission of Pakistan,
Islamabad.
Dear Sir,
We hereby apply for grant of permission under rule 4 of the Non-Banking Finance Companies
(Establishment and Regulation) Rules, 2003, to form a Non-Banking Finance Company under
the name and style of * --------------------------------------------The information and documents as required in the Annexure to this form duly verified and
signed by all promoters and proposed directors along with five spare copies of this application
and an affidavit by them as to the correctness of the details is submitted.
We undertake to keep this information upto date by communicating changes or modifications
therein within fourteen days of such changes or modifications.
A receipt of rupees [(Rs._________)]84 being the processing fee, deposited in-------------- on -----------------------is enclosed.
Yours faithfully,
-----------------------Verification by
Oath Commissioner.
· Name of the company
84 Substituted for “five hundred thousand (Rs. 500,000/-)” vide S.R.O.570(I)/2012 dated May 25, 2012
22
ANNEXURE TO FORM-I
[see rule 4]
INFORMATION TO BE SUPPLIED FOR OBTAINING
PERMISSION TO FORM A NON – BANKING FINANCE COMPANY
AND SUBSEQUENT CHANGE IN DIRECTORSHIP AND CHIEF
EXECUTIVE
1.
Full name, former name if any, father’s or husband’s name, nationality, residential and
business address, national tax number, present occupation of each sponsor, proposed
director, proposed chief executive and proposed chairman of the Board. (Institutional
sponsors shall mention their names and addresses only instead of giving all these
particulars of their nominee directors).
2.
Names and addresses of companies, firms and other organizations of which the aforesaid
sponsors, proposed chief executive and proposed chairman are or have been directors,
partners or office holders during the last ten years. Copies of annual accounts of such
companies and firms for the last three years alongwith summary of their paid-up share
capital, free reserves, profit after tax and dividend payment to be provided.
3.
Financial standing, educational as well as professional qualifications and experience of
persons mentioned in paragraph 1 above, supported by documentary evidence.
4.
Percentage of capital, each sponsor proposes to contribute in the proposed company.
5.
Feasibility report of the proposed company.
6.
Evidence of payment of income tax and wealth tax by the sponsors in individual capacity
as well as by the companies, firms, etc., wherein they are or have been directors during
the preceding one year.
7.
Net-worth certificate of each sponsor supported by a duly authenticated copy of the latest
wealth statement filed with the taxation department. In the case of sponsors or directors
residing in countries where filing of wealth statement is not the requirement of law, a
certificate of personal net-worth and general reputation issued by a bank of international
repute shall be acceptable.
8.
Names of the bankers of the sponsors alongwith their account numbers.
9.
Draft of the Memorandum and Articles of Association.
10.
Affidavit from each person mentioned in paragraph 1 above, stating that(a)
he has not been associated with any illegal banking business, deposit taking or
financial dealings;
23
11.
(b)
he and companies in which he is a director or major shareholder have no over-due
loans or installments outstanding towards banks or other financial institutions;
(c)
neither he nor companies in which he is a director or major shareholder has
defaulted in paying taxes as on the date of application;
(d)
he has not been sponsor, director or chief executive of a defaulting cooperative
finance society or finance company;
(e)
he has never been convicted of fraud or breach of trust or of an offence involving
moral turpitude or removed from service for misconduct;
(f)
he has neither been adjudged an insolvent nor has defaulted in making payments,
to his creditors; and
(g)
his net-worth is not less than twice the amount to be subscribed by him personally
(not applicable to a nominee director).
Latest CIB report in respect of sponsors (individuals and institutions) as an evidence for
statement in clause (b) of paragraph 10
24
FORM-II
[see rule 5(1)]
APPLICATION FOR OBTAINING LICENCE TO UNDERTAKE OR CARRY
OUT *_________________ AS NON – BANKING FINANCE COMPANY
Dated, the-------------To,
The Securities and Exchange
Commission of Pakistan,
Islamabad.
Dear Sir,
We hereby apply for grant of licence under rule 5 of the Non-Banking Finance Companies
(Establishment and Regulation) Rules, 2003, to undertake __________* as a Non-Banking
Finance Company.
2. We hereby furnish the following information, __
(a) date of incorporation as a limited company;
(b) authorised, subscribed and paid-up share capital of the company (sponsors' equity
indicated separately);
(c) names and addresses of directors and number of shares held by each of them;
(d) directors' interest, direct or indirect, in any other company with details of such interest;
(e) details of persons or group controlling the company including major shareholders with
number and value of shares held;
(f) names of holding, subsidiary and associated undertaking, if any;
(g) details of qualified staff engaged;
(h) reasons for selecting the proposed place of business with statistical data; and
(i) additional facts in support of this application.
3. Certified copies of the memorandum and articles of association and certificate of incorporation
are enclosed.
4. An affidavit as to the correctness of the above information by the chief executive and two
directors is also furnished herewith. We undertake to keep this information upto date by
communicating changes or modifications therein within fourteen days of such change or
modifications.
5. A receipt of rupees [(Rs._________)]85 being the processing fee for each license, deposited in
__________ on ________ is enclosed.
Yours faithfully,
Signature----------------(To be signed by all the directors)
85 Substituted for “two hundred and fifty thousand (Rs. 250,000/-)” vide S.R.O.570(I)/2012 dated May 25, 2012
25
*Any one or more of the activities or functions as mentioned under section 282 (A) of the
Companies Ordinance, 1984.
26
FORM -III
[see rule 5([6]86)]
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
Islamabad, Dated, the __________
Registration No. _________
LICENCE TO CARRY OUT OR UNDERTAKE *_________AS NON-BANKING
FINANCE COMPANY
The Securities and Exchange Commission of Pakistan having considered the application for
grant of licence under rule 5 of the Non-Banking Finance Company (Establishment and
Regulation) Rules, 2003, by **_______________________________ and being satisfied that the
said **________________________________________ is eligible for the licence, hereby
grants, in exercise of the powers conferred by [sub-rule (6)]87 of rule 5 of the Non- Banking
Finance Company (Establishment and Regulation) Rules, 2003, licence to
**______________________________________ to undertake or carry out *__________ subject
to the conditions stated herein below or as may be prescribed or imposed hereafter.
The license is valid from __________________________to_____________________.
(date)
(date)
Signature of the Officer
*Any one or more of the activities or functions as mentioned under section 282 A of the
Companies Ordinance, 1984
** Name of the Company
(Official Seal and Stamp)
86 Substituted for “2” vide S.R.O.570(I)/2012 dated May 25, 2012
87 Substituted for “sub-rule (2)” vide S.R.O.570(I)/2012 dated May 25, 2012
27
FORM IV
[see rule 5(8)]
APPLICATION FOR RENEWAL OF LICENCE TO CARRY OUT
*_______________ AS NON-BANKING FINANCE COMPANY
Islamabad the ...................
Securities and Exchange Commission of Pakistan,
Government of Pakistan,
Islamabad
Dear Sir,
We hereby apply for renewal of the licence to carry out *...............................of by
**_____________ under rule 5 of the Non-Banking Finance Company (Establishment and
Regulation) Rules, 2003.
The licence issued or renewed earlier is due to expire on.......................
Original receipt of challan evidencing payment of renewal fee of rupees
[(Rs.__________)]88 is enclosed.
It is requested that the licence may be renewed w.e.f. ..................... for a period of three89
years.
Yours faithfully,
Name and Signature of the
Secretary or a director
of the company.
*Any one or more of the activities or functions as mentioned under section 282 A of the
Companies Ordinance, 1984.
** Name of the company.
88 Substituted for “two hundred and fifty thousand (Rs.250, 000/-)” vide S.R.O.570(I)/2012 dated May 25, 2012
89 Substituted for “one” vide S.R.O. 271 (I)/2010 dated April 21,2010
28
FORM V
[see rule 5([9]90)]
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN LICENCE TO
CARRY ON *_______________ AS NON-BANKING FINANCE COMPANY
Islamabad, the ............
The Securities and Exchange Commission of Pakistan, having considered the application for
renewal of licence to carry out *_________________submitted by **..............................under
rule 5 of the Non-Banking Finance Company (Establishment and Regulation) Rules, 2003, and
being satisfied that it would be in the public interest so to do, in exercise of powers conferred by
[sub-rule (9)]91 of rule 5 of the said rules, hereby renews the licence of**.......................... to
carry out *___________ subject to the conditions stated herein below or as may be prescribed or
imposed hereafter.
.........................................
(Signature of the officer)
* Any or more one of the activities or functions as mentioned under section 282 A of the
Companies Ordinance, 1984.
** Name of the company.
90 Substituted for “5” vide S.R.O.570(I)/2012 dated May 25, 2012
91 Substituted for “sub-rule 5” vide S.R.O.570(I)/2012 dated May 25, 2012
29
[Schedule I
[See rules 5 (1),5(3), 5(6)(a), 7 (1) (cd), 7 (1) (da), 7 (1) (h)]
Conditions Applicable to an NBFC
Eligibility Criteria
Forms
of Type
of Minimum
business
company
number
of
directors
1
Leasing
Housing
Finance
Services
iii) Investment
Finance
Services
iv) Discounting
services
(Lending
NBFC without
deposit taking
permission)
2
i) Any form
of
company
incorporat
ed
as
NBFC in
accordanc
e
with
criteria
mentioned
in rule 4.
ii) Any
existing
company
engaged
in these
forms of
business.
iii)
Any
other
company
as
approved
by
the
Commissi
3
2
or
minimum
number of
directors
stipulated
in
the
Ordinance,
whichever
is higher
Number of Number of
independent directors
directors
with
relevant
experience
of at least
Rating
five years at
a
senior
management
level for a
particular
form
of
business
4
5
6
1 or one (i) 1 director, N/A
third,
if number of
whichever is directors
higher
including
chief
executive is
less than or
equal to three
(ii)
2
directors, if
number
of
directors
including
chief
executive is
greater than 3
30
Submission
of financial
statements
7
As
per
requirements
of
the
Ordinance
on
i) Leasing
Listed
ii) Housing
company
Finance
which
was
Services
incorporated
iii) Investment as an NBFC
Finance
in accordance
Services
with criteria
iv) Discounting mentioned in
services
rule 4 and
(Lending
complies
NBFC
with with
the
deposit taking conditions
permission)
mentioned in
the
Regulations
for
raising
Deposit.
Investment
i) A public
advisory
limited
services
company
incorporat
ed
as
NBFC as
per
the
rule 4.
ii) An
existing
fund
managem
ent NBFC
Private Equity
and
Venture
Capital
Management
Services
i) Any form
of
company
incorporat
ed
as
NBFC as
per
the
rule 4.
ii) An
existing
fund
managem
Minimum
number of
directors
as
stipulated
in
the
Ordinance
2 or One
third,
whichever is
higher
Number of One third
directors
stipulated
in
the
Ordinance,
Number of One third
directors
stipulated
in
the
Ordinance,
2
directors Credit
excluding
Rating
chief
executive
(i) 1 director, Management As
per
if number of quality
requirements
directors
rating
of
the
including
Ordinance
chief
executive is
three
(ii)
2
directors, if
number
of
director,
including
chief
executive is
greater than 3
(i) 1 director, Management As
per
if number of quality
requirements
directors
rating
of
the
including
Ordinance
chief
executive is
three
(ii)
2
directors, if
number
of
director,
31
As
per
requirements
of
the
Ordinance
ent NBFC
Asset
management
services
REIT
management
services
i) A public
limited
company
incorporat
ed
as
NBFC as
per
the
Rule 4.
ii) An
existing
fund
managem
ent NBFC
with
a
valid
investmen
t advisory
services
licence
and
minimum
5 years’
experienc
e
Number of One third
directors
stipulated
in
the
Ordinance,
i) A public
limited
company
incorporat
ed
as
NBFC as
per
the
Rule 4
ii) An
existing
fund
managem
ent NBFC
iii)
A
public
limited
company
Number of One third
directors
stipulated
in
the
Ordinance,
including
chief
executive is
greater than 3
(i) 1 director, Management As
per
if number of quality
requirements
directors
rating
of
the
including
Ordinance
chief
executive is
three
(ii)
2
directors, if
number
of
director,
including
chief
executive is
greater than 3
(i) 1 director, Management As
per
if number of quality
requirements
directors
rating
of
the
including
Ordinance
chief
executive is
three
(ii)
2
directors, if
number
of
director,
including
chief
executive is
greater than 3
32
Pension
scheme
business
fund
which is
primarily
engaged
in
the
business
of
real
estate
developm
ent.
i) A
fund
managem
ent NBFC
with
a
valid
asset
managem
ent
services
licence
and
minimum
3 years’
experienc
e
of
managing
multiple
types of
collective
investme
nt
schemes
ii) A
life
insurance
company.
with
a
valid
licence
and
minimum
3 years’
experienc
e
Minimum One third
number of
directors
as
stipulated
in
the
Ordinance,
(i) 1 director, Management As
per
if number of quality
requirements
director,
rating
of
the
including
Ordinance
chief
executive, is
3
(ii)
2
director, If
number
of
director,
including
chief
executive, is
greater than 3
]92
92 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
33
Schedule II
[See rule 10 B]
Sr. No.
1.
Exemption from Certain Rules to specified Companies
Type of Company
Exemption
Companies other than (i) Clauses (a), (b), (c), (d), (e), (f), (g) and (h) of subFinancial Institutions
rule 6 of Rule 5
undertaking activities (ii) Clauses (a), (b), (ba), (c), (ca), (cc), (cd), (h), (i) and
of lending NBFCs as
(j) of sub-rule 1 of Rule 7
an ancillary business
(iii) Clauses (a), (aa), (b), (ba), (c), (ca), (cb), (h), (i), (j)
and (l) of sub-rule 2 of Rule 7
(iv) Sub-rule 3 of Rule 7
(v)
Rule 8
(vi) Rule 9
]93
93 Inserted vide SRO 1002(I)/2015 dated October 15, 2015
34
Eligibility criteria for the establishment of a NBFC Rule 03
A NBFC may be established, if each of its sponsors, proposed directors, chief
executive and chairman of the Board of Directors fulfills the following terms and
conditions, namely
(a) he has not been associated with any illegal banking business, deposit taking or
financial dealings;
(b) he and companies in which he is a director or major shareholder
o have no over-due loans or installments outstanding towards any NBFC or any
banking or non-banking financial institution;
o has defaulted in the payment of taxes as on the date of application;
(c) he has not been sponsor, director or chief executive of a defaulting co-operative
finance society or finance company;
(e) he has never been convicted of fraud or breach of trust or of an offence involving
moral turpitude or removed from service for misconduct;
(f) he has neither been adjudged as insolvent; and
(g) his net-worth (except for a nominee director) as per wealth statements submitted
with the tax authorities is not less than twice the amount to be subscribed by him
personally.
Permission to form a NBFC Rule 4
a) A person desirous of forming a NBFC shall make an application to the Commission
b) Application must be as set out in Form-1 providing information along with all the
relevant documents and receipt
c) Application must evidencing the payment of non-refundable processing fee
amounting to one hundred thousand rupees.
d) The Commission may, if it is satisfied that the person seeking permission to form the
NBFC has fulfilled the terms and conditions specified in rule 3, permit by an order in
writing such person to establish a NBFC.
e) The permission granted shall be valid for a period of 06 months
f) Permission can be extended for a maximum period of 03 months under special
circumstances, on the application of the promoters made before the expiry of such 6
months.
g) During the validity of this permission, the promoters of the NBFC shall get the
NBFC incorporated as a public limited company under the Companies Act.
Business Carried on by NBFCs Sec 282A.
Non-banking finance companies (NBFCs) which include companies licensed by the
Commission to carry out any one or more of the following forms of business, namely:(i) Investment Finance Services;
(ii) Leasing;
(iii) Housing Finance Services;
(iv) Venture Capital Investment;
(v) Discounting Services;
(vi) Investment Advisory Services;
(vii) Asset Management Services; and
(viii) any other form of business which the Federal Government may, by notification in
the official Gazette specify from time to time.
Conditions for grant of licence Rule 05
o A NBFC shall make separate applications to the Commission for grant of licences for
carrying on different forms of business, as specified in section 282 A of the Ordinance.
o Application shall be submitted to the Commission in Form-II
o Application must with a non-refundable processing fee amounting to one hundred
thousand rupees for each such licence:
o If the Commission is satisfied then Commission may issue a single licence for both
investment advisory and asset management services.
o The Commission may, while granting licence, impose such conditions, as it may deem
necessary.
o The licence granted to the NBFC under these rules shall be valid for one year and each
licence shall be renewable annually on an application as set out in Form IV along with
payment of a fee of rupees twenty five thousand.
o Every company in existence which is engaged in one or more forms of business as specified
in section 282A of the Ordinance shall apply in writing to the Commission, as provided by
sub-section (3) of section 282C of the Ordinance, for grant of a licence along with a nonrefundable processing fee of rupees fifty thousand:
Conditions for grant of licence
The Commission, if it is satisfied that the company has fulfilled the conditions specified in rule 3, shall grant licence to
such company in Form-III for one or more of the functions or activities subject to compliance of the following
conditions, namely
(a) the company is incorporated as a public limited company under the Act;
(b) the company has separate layers of minimum equity in respect of the following forms of business as mentioned
against eac activity, namely:i) investment Finance services
rupees three hundred million;
ii) leasing
rupees two hundred million;
iii) venture capital investment
rupees Five million (for a venture capital
company);
iv) discounting services
rupees two hundred million;
v) investment advisory and asset management services
rupees thirty million;
vi) housing Finances services
rupees one hundred million.
(c) the company has allotted at least 15% of the paid-up share capital to the promoters;
(d) the promoters and directors have given undertaking that they shall not dispose of their shares for a minimum
period of 03 years from the date of commencement of business except with the prior approval of the Commission;
(e) the company appoints its chief executive who does not hold such office in any other company. Such CEO can also
hold office for another fund being managed by the said company with the prior approval of the Commission;
(f) the company has given an undertaking that no change in the Memorandum of Association and in the Board of
directors shall be made without prior approval of the Commission
(g) the company has given an undertaking that the conditions of operation as set out in these rules or regulations or
specified by special order of Commission or any direction given by the Commission shall be duly complied with; and
(h) the company has furnished an undertaking that within 90 days of the grant of certificate of registration it shall
furnish evidence to the satisfaction of the Commission that the personnel employed by it for executive positions,
research or other related functions possess sufficient educational qualifications and professional experience to
undertake the proposed form of business of the NBFC.
Conditions applicable to a NBFC Rule 07
Maintenance of record
A NBFC shall maintain below books of accounts and other records for a period of not less than 10 years and shall
maintain such books of accounts and other records, as prescribed under the Ordinance, as shall depict a true and fair
view of its state of affairs, including,
(i) journals, cash books and other records of original entry forming the basis of entry in any ledger;
(ii) ledgers (or other comparable record) reflecting assets, liabilities, income and expenses along with all supporting
documents or records;
(iii) ledgers (or other comparable record) showing securities in the portfolio;
(iv) record of transactions with banks;
(v) record of the meetings of the board of directors and all relevant committees including the audit committee, credit
committee and investment committee; and
(vi) original record of all reports, analysis and memoranda containing investment advice distributed;
o prepare its accounts in conformity with the International Accounting Standards notified under sub-section (3) of
section 234 of the Ordinance and technical releases issued by Institute of Chartered Accountants of Pakistan from
time to time,
o furnish to the Commission its quarterly and annual financial statements in accordance with Schedule I;
o ensure that its statutory auditors are from the approved list of auditors circulated by the Commission;
Appointment of financial or chief accounting officer
NBFC shall appoint an individual, having minimum 03 years experience, as its financial or chief accounting officer
who is
(i) a chartered accountant; or
(ii) a cost and management accountant; or
(iii) a member of a recognized foreign accountancy organization; or
(iv) a person having master’s degree in commerce or business administration with specialization in finance,
Appointment of Internal Auditor
NBFC shall appoint an individual as internal having minimum three years relevant experience who is
i. a chartered accountant; or
ii. a cost and management accountant; or
iii. a certificated internal auditor; or
iv. a certified information system auditor; or
v. a member of recognized foreign accountancy organization;
vi. an individual having master degree in commerce or business administration with specialization in finance; or
vii. a chartered accountancy firm having satisfactory Quality Control Review (QCR) and not being the statutory
auditors to whom this function is outsourced.
Appointment of other officers
An NBFC shall
i. appoint a person as compliance officer to ensure reporting to the Commission of status of compliance with the
existing regulatory framework by the NBFC
ii. a non-deposit taking and unlisted Lending NBFC may designate another officer as its compliance officer
iii. appoint such executives who shall fulfill the terms and conditions mentioned in the fit and proper criteria
specified by the Commission by notification in the official Gazette;
iv. appoint the directors in accordance with Schedule I, provided that the Commission shall be the final authority to
determine the status of a director as independent or otherwise
Credit Rating
i. obtain rating in accordance with Schedule-I as and when it becomes eligible for rating as per the rating criteria of
a rating agency registered with the Commission.
ii. such rating shall be updated at least once every financial year
iii. NBFC shall within one year of the decrease in its rating from the grade specified by the Commission by
notification in the official Gazette, obtain a fresh rating and during the period that its rating is below the grade so
specified,
iv. the NBFC may be allowed by the Commission to continue its operations on such conditions as are deemed
appropriate by the Commission;
v. publish the rating in its annual report and quarterly reports, annual and quarterly reports of the collective
investment schemes managed by it, if applicable, and any advertisement and brochures in relation to promotion
of its business;
vi. acquire and maintain membership of the relevant association and follow the code of conduct specified by the
said association approved by the Commission.”;
A NBFC shall not,
(a) appoint or elect more 25% of its directors from the same family, including spouse, lineal ascendants and
descendants, and brothers and sisters;
(b) purchase anything from, or sell anything to any director, officer, employee of the NBFC or from or to a person who
either individually or in concert with close relatives beneficially owns 10% or more either of the equity or other
securities with voting rights, if any, issued by such NBFC, (without the prior approval in writing of the
Commission;)
(c) transfer ownership of controlling shares, merge with, acquire or take-over any other company without prior
approval of the Commission in writing to the scheme of such merger, acquisition or takeover;
(d) make a loan or advance money to any person except in connection with the ordinary course of business of the
NBFC;
(e) employ as a broker, directly or indirectly, any of its directors or officers or employees or a person who beneficially
owns whether individually or in association with close relatives 10% or more either of the equity or other securities
with voting rights if any, issued by the NBFC,( unless it has obtained prior approval of the Commission for such
appointment;)
(f) remove any of its records or documents relating to its business from Pakistan to a place outside Pakistan without
the prior permission of the Commission;
(g) change its chief executive and board of directors excluding director nominated by creditors, sponsoring financial
institutions and insurance companies without prior approval of the Commission;
(h) make investment in un-quoted shares of any company without the approval of the Commission; and
(i) offer any of its own or other securities for any consideration other than cash nor make any loan or advance against
these securities.
Non-banking Finance Companies and Notified Entities Regulations, 2008
Prevention of NBFCs involvement in money laundering, terrorist financing and other illegal trades Regulation 09
All NBFCs shall ensure prevention of money laundering and other illegal trades and abide by such laws, directives
and circulars as may be issued by the Federal Government or the Commission to safeguard the NBFC against
involvement in money laundering activities and other illegal trades.
An NBFC shall comply with the following conditions,
it shall determine the true identity of the prospective customer or investor before extending its services and care shall
be taken to establish beneficial ownership of all accounts and those using safe custody.;
i.
it shall accept money from a customer only after ensuring that an account has been opened in the name of the
customer using the account opening form developed by the respective industry associations in consultation with
the Commission;
ii. it shall establish effective procedures for obtaining identification from new customers and devise a policy to
ensure that business transactions are not conducted with persons who fail to provide evidence of their identity;
iii. it shall conduct its business in conformity with the Rules and these Regulations and shall not offer services or
provide any assistance in transactions which, in the opinion of the NBFC, are associated with illegal activities or
relating to terrorist financing from legitimate or illegal means;
iv. it shall establish effective procedures for monitoring of customer accounts on a regular basis, checking identities
and bonafide of remitters and beneficiaries of transactions and retain record of transactions; and
v. it shall not make payment or receive amounts in cash exceeding Rs.50,000/-.
The above limit shall not apply to cash payments made for repayment of Finance by an existing borrower
Procedure for approval for appointment or re-appointment of directors and chief executives
o An NBFC shall follow the following procedure for obtaining approval of appointment or re-appointment or any
change of its directors or chief executive,
o in case of election of directors the NBFC 10 days before the date of the meeting in which election of directors is to be
held, shall submit an application for the individuals seeking to contest the elections whether they are retiring
directors or otherwise;
o in case of occurrence of any casual vacancy or reappointment of chief executive, the NBFC must submit an
application within 10 days of the occurrence of any casual vacancy or reappointment, as the case may be;
o in case the Board of Directors of an NBFC decides to remove its chief executive before the expiration of his term of
office or the chief executive decides to tender his resignation before the completion of his term of office or
replacement of Chief Executive on completion of his term, the NBFC shall inform the Commission at least one
month before the decision along with reasons for the same
o Provided that the NBFC shall, within this one month period, submit an application complete in all respects, for
obtaining approval for appointment of the new chief executive;
o the application shall be submitted in compliance with the requirements of Schedule IX and be accompanied by
information and documents required therein; and
o any deficiency or shortcoming in the information or documents submitted by the NBFC to the Commission shall be
rectified by the NBFC within 14 days of the issue of the letter by the Commission informing the NBFC of the
deficiency or shortcoming:
Limit on aggregate liabilities of an NBFC Regulation 15B
o Aggregate liabilities, excluding contingent liabilities and security deposits, of a non-deposit taking NBFC shall not
exceed 10 times of its equity.
o Contingent Liabilities of an NBFC shall not exceed the limits prescribed below:
Following shall not constitute contingent liabilities for the purpose of this regulation,
(a) non-fund based Finance to the extent covered by liquid assets;
(b) non-fund based finance where the payment is guaranteed by the Federal Government, Provincial Government,
Financial Institution rated AA by a credit rating agency registered with the Commission; and
(c) claims other than those related to provision of Finance (fund based or non-fund based) to the NBFCs’ constituents,
where the probability of conversion of these claims into liabilities is remote in the view of the Auditor.
Creation of reserve fund regulation 16
A deposit taking lending NBFC shall create a reserve fund
i. wherein at least 20% of the after tax profits of the NBFC shall be credited till the time that the reserve fund equals
the amount of the paid up capital of the NBFC and
ii. thereafter a sum not less than 5% of its after tax profits shall be credited to the reserve fund.
Issuance of bonus shares may be made from the reserve fund after appropriation made under Regulation 16 however
the NBFC shall transfer further amounts to the reserve fund in order to comply with the requirements of Regulation
(16).
Maximum Exposure of NBFC to a single person, or Group
Total outstanding Exposure to a person
i. The total outstanding Exposure (fund based and non-fund based) by an NBFC to a person shall not at any time
exceed twenty per cent (20) of the equity of an NBFC (as disclosed in the latest financial statements)
ii. The maximum outstanding fund based Exposure does not exceed 15% of the equity of an NBFC
Total outstanding Exposure to a group of persons
i. The total outstanding Exposure (fund based and non-fund based) by an NBFC to any group shall not exceed
twenty five per cent (25) of the equity of an NBFC (as disclosed in the latest financial statements)
ii. the maximum outstanding fund-based Exposure does not exceed twenty per cent (20) of the equity of an NBFC
The limits prescribed above shall not be applicable to exposure taken by an NBFC in its own subsidiaries out of its
surplus equity.
In case of micro financing, the following Exposure limits shall be applicable
(a) Poor Person Rs. 500,000 for housing loan
(b) Rs. 200,000 for general loans other than hosing loan
(b) Microenterprise Rs. 500,000
The following weightage will be applicable in respect of placements with financial institutions,(i) 10% weightage on Exposure to financial institutions with ‘AAA’ Rating;
(ii) 25% weightage on Exposure to financial institutions rated at least ‘AA‘;
(iii) 75% weightage on Exposure to financial institutions rated at least ‘A’.
Maintenance of Capital Adequacy Ratio (‘CAR’) 17A
A deposit taking NBFC shall be required to maintain CAR of 8% for the first two years from coming into force of these
regulations and 10% for subsequent years as per the criteria given in Schedule IXA.
Asset Liability Management System 17B
The board of directors of a deposit taking NBFC shall approve a policy for effective monitoring of the NBFC’s assets
and liabilities profiles for managing liquidity risks by containing mismatches (running total) in maturity of assets and
liabilities across all time buckets by establishing internal prudential limits.
Exposure Limits in Capital Market 17C
o An NBFC’s aggregate exposure in listed equity securities and spread transactions shall not exceed 50% of its equity
and this condition shall not be applicable on non-deposit taking NBFCs.
Spread transactions mean such transactions where shares of one company are purchased on one settlement date and
simultaneously sold on another settlement date, that will be considered as one transaction
o An NBFC’s investment in equity securities of any company shall not exceed 10% of the paid-up capital of the
investee company or 10% of its own equity, whichever is less
o The shares acquired in excess of 10% limit, due to the Underwriting Commitments, shall be sold off within a period
of 06 months from the date of acquisition of such shares
o The above restriction shall not be applicable to investments made by an NBFC in its own subsidiaries and long term
strategic investments out of surplus equity.
o Investments in equity securities shall be valued at cost of acquisition for the purpose of calculating the above limit.
Limit on clean placements Regulation 18
o An NBFC shall make clean placement only with financial institutions rated at least A- or equivalent by a credit
rating agency registered with the Commission
o The aggregate Exposure of Deposit taking NBFC shall not exceed its equity.
o Clean placement” means Exposure without taking any security or collateral.
Limit on Unsecured Finance 18A
An NBFC may provide unsecured Finance up to Rs. 200,000/- (Rupees two hundred thousand only) to a single
borrower.
The aggregate unsecured Finance shall not exceed equity of the NBFC
The total unsecured finance shall not exceed 50% of the equity of the deposit taking NBFC provided further that this
Regulation shall not be applicable in case of Non Banking Micro Finance Company.
Classification and Provisioning for non-performing assets Regulation 25
o A Lending NBFC shall observe the criteria for classification of its assets and provisioning as provided in Schedule
X.
o In addition to time based criteria provided in Schedule X subjective evaluation of performing and non-performing
Finance shall be made for risk assessment and where considered necessary the category of classification determined
on the basis of the aforementioned time based criteria shall be further downgraded
o The status of classification of a rescheduled or restructured non-performing Finance shall be changed only when
the terms and conditions of such Finance are fully met for a period of at least six months when at least 20% of the
outstanding amount (principal and mark up) is recovered in cash.
o An NBFC shall ensure that the status of classification and provisioning of a rescheduled or restructured nonperforming Finance is not changed in its reports to the Commission merely due to rescheduling or restructuring of
a Finance and rescheduled or restructured Finance shall be reported to the Credit Information Bureau as such and
not as default.
o At the time of rescheduling or restructuring, an NBFC shall reconsider, reexamine and record in detail the viability
of the project or business and shall accordingly obtain a revised business plan, latest CIB report and endeavor to
obtain additional security to protect its interests.
o A Lending NBFC shall take benefit of realizable value of assets held as collateral against non-performing Finance as
per criteria given in Schedule XI;
o An NBFC shall review, at least on a quarterly basis, the recovery of their Finance, portfolio and shall properly
document the evaluations so made.
o The external auditors as a part of the annual audit of the NBFC shall verify that all requirements under these
Regulations or any other circular issued by the Commission for classification of assets and determination of
provisions required against them have been complied with.
Creation of General Provision against micro finance portfolio Regulation 25A
The NBFCs with micro finance portfolio shall maintain a General Provision equivalent to 0.5% of the net outstanding
micro finance portfolio (Finance net of specific provisions) provided that general provision shall not be required in
cases wherein Finance is secured against liquid assets with appropriate margins.
282C. Incorporation of NBFC.A NBFC shall not be incorporated without prior approval of the Commission.
A NBFC shall not carry on business unless
i. it holds a licence issued in that behalf by the Commission;
ii. any such licence may be issued subject to such conditions and
iii. payment of such fees as the Commission may deem fit to impose.
Every company in existence which is engaged in any one or more forms of business as specified in section 282 A,
before the expiry of six months from coming into force and every other company before commencing any form of
business as specified in section 282 A, shall apply in writing to the Commission for grant of a licence under this
section.
The Commission, if it is satisfied that the company has fulfilled the conditions in respect of the business for which the
licence is being sought, may grant licences to such company for one or more of the forms of business specified in
section 282 A.
A NBFC shall not commence or carry on business unless it has such minimum equity as may be prescribed by the
Commission from time to time in respect of each form of business as specified in section 282A.
282CA. Registration of notified entities
o Any entity notified by the Federal Government under section 282A shall not operate without prior registration with
the Commission.
o Notwithstanding anything contained in this Ordinance or any other law, the Commission may register the notified
entity on such terms and conditions and payment of such fee, as the Commission may deem fit to impose from time
to time.
o Every entity notified by the Federal Government under clause (b) of section 282A which is in existence before the
commencement of this provision shall within a period of six months apply in writing to the Commission for
registration under this section, and the Commission after being satisfied that the applicant has fulfilled the
conditions specified by the Commission may register the notified entity.
282D. Power to issue directions.
Notwithstanding anything contained in any other provision of this Ordinance, where the Commission is satisfied that
it is
necessary and expedient so to do–
(a) in the public interest; or
(b) to prevent the affairs of any NBFC 2[or notified entity from] being conducted in a manner harmful to the interests
of Shareholders or unit or certificate holders or persons whose interests are likely to be affected or in a manner
prejudicial to the interests of the NBFC notified entity or
(c) to secure the proper management of any NBFC or notified entity generally, it may issue directions to NBFCs or
notified entities generally or to any NBFC or notified entity in particular to do or desist from doing such acts as the
Commission may deem fit and to carry out such changes as are necessary to rectify the situation and the NBFCs 1[or
notified entities] shall be bound to comply with such directions.
282E. Power to remove.The Commission may, in writing, by order, remove from office, with effect from such date as may be specified in the
order,
any chairman or
director or
chief executive or
other officer or
person responsible for the affairs of the NBFC or a notified entity.
The Commission shall pass such order if the commission is satisfied that
(a) continued association of any chairman or director or chief executive or any other officer or person responsible for
the Affairs of a NBFC or a notified entity , is or is likely to be harmful to the interests of NBFC or its shareholders
persons whose interest is likely to be affected; or
(b) the public interest so demands; or
(c) to prevent the affairs of a NBFC being conducted in a manner detrimental to the interest of its shareholders 8[or
unit or certificate holders or in a manner prejudicial to the interests of NBFC ; or
(d) to secure a proper management of the NBFC it is necessary so to do,
the Commission may, for reasons to be recorded in writing, by order, remove from office, with effect from such date
as may be specified in the order, any chairman or director or chief executive 11[by whatever name called] or other
officer 12[or person responsible for the affairs] of the NBFC 13[or a notified entity].
282F. Power to supersede Board of Directors.
Where the Commission is satisfied that the association of the Board of Directors of any NBFC or a notified entity is or
is likely to be harmful to the interest of the NBFC or a notified entity or its shareholders or is otherwise undesirable;
or for all or any of the reasons specified in section 282 E; the Commission may, for reason to be recorded in writing,
by order, supersede the Board of Directors of a NBFC 2 or a notified entity with effect from such date and for such
period as may be specified in the order.
282G. Power to require to furnish information, etc.
The Commission may, at any time, by notice in writing, require NBFCs to furnish it within the time specified therein
or such further time as the Commission may allow, with any statement or information or document relating to the
business or affairs of NBFCs (including any business or affairs with or NBFCs is or are concerned),at such intervals
as the Commission may deem necessary.
(2) No NBFC, director, officer, employee or agent or auditor thereof shall, in any document, prospectus, report,
return, accounts, information or explanation required to be furnished in pursuance of this part or the rules made
thereunder, or in any application made under this Part or the rules, make any statement or give any information
which he knows or has reasonable cause to believe to be false or incorrect or omit any material fact therefrom.
282H. Special Audit
o The Commission shall monitor the general financial condition of a NBFC 7[or notified entity], and, at its discretion, may order
special audit and appoint an auditor to carry out detailed scrutiny of the affairs of NBFC 8[or notified entity], provided that the
Commission may, during the pendency of the scrutiny, pass such interim orders and directions as may be deemed appropriate
by the Commission.
o On receipt of the special audit report, the Commission may direct a NBFC 9[or notified entity] to do or to abstain from doing
certain acts and issue directives for immediate compliance which shall forthwith be complied with, or take such other action
under this Ordinance as it deems fit.
282I. Inquiry by the Commission
o The Commission may cause an enquiry or inspection to be made by any person appointed in this behalf into the affairs of a
NBFC or of any notified entity or] of any of its directors, managers or other officers or persons responsible for its affairs].
o An enquiry or inspection has been ordered, every director, manager or other officer of the NBFC or the notified entity to which
or to whose director, manager or other officer the enquiry or inspection relates and every other person who has had any dealing
with such NBFC 6[or the notified entity], its director, partner, manager or officer shall furnish such information in his custody
or power or within his knowledge relating to, or having bearing on the subject-matter of the enquiry or inspection as the person
conducting the enquiry or inspection may by notice in writing require.
o The person conducting an enquiry or inspection may call for, inspect and seize books of account and documents in possession
of any such NBFC or the notified entity or any of its directors, managers or other officers.
282J. Penalty for failure, refusal to comply with, or contravention of any provision of this Part.
Notwithstanding anything contained in any other provision of this Ordinance, if a NBFC 8[or a notified entity] or its officers
(including auditors) fails or refuses to comply with, or contravenes any provision contained in this Part or of any of the provisions
of the rules made under section 282B or 9[regulation, circular or directive or] any direction or order passed by the Commission
under the provisions contained in this Part or knowingly and willfully authorizes or permits such failure, refusal or contravention,
shall, in addition to any other liability under this Ordinance, be also punishable with fine the amount of which shall not exceed
10[fifty] million rupees:
282K. Penalty for making false statement, etc.
282L. Procedure for amalgamation of NBFCs.
o NBFCs may be amalgamated with each other when
a. a scheme containing the terms of such amalgamation has been placed in draft before the shareholders of each of the NBFC
concerned separately, and
b. approved by a resolution passed by a majority in number representing two thirds in value of the shareholders of each of the
said NBFCs
Shareholder may present either in person or by proxy at a meeting called for the purpose.
Notice of Meeting
a) Notice for such meeting shall be given to every shareholder of each of the NBFC concerned in accordance with the relevant
articles of association.
b) Notice shall indicating the time, place and object of the meeting.
c) Such notice shall also be published at least once a week for three consecutive weeks in not less than two newspapers which
circulate in the locality or localities where the registered offices of the NBFCs concerned are situated and one of such
newspapers being in a language commonly understood in the locality or localities.
o If the scheme of amalgamation is approved by the majority of shareholders it shall be submitted to the Commission for
sanction.
o If sanctioned by the Commission by an order in writing passed in this behalf be binding on the NBFCs concerned and also on
all the shareholders thereof.
o Where a scheme of amalgamation is sanctioned by the Commission the remaining or resulting entity shall transmit a copy of
the order sanctioning the scheme to the registrar.
o The registrar shall, on receipt of any such order, strike off the name of the NBFC hereinafter in this section referred to as the
amalgamated NBFC which by reason of the amalgamation will cease to function.
o On the sanctioning of scheme of amalgamation by the Commission, the property and the liabilities of the amalgamated NBFC
shall be transferred to and become the liabilities of the NBFC which under the scheme of amalgamation is to acquire the
business of the amalgamated NBFC.
o Any shareholder, who
a) has voted against the scheme, of amalgamation at the meeting or
b) has given notice in writing at or prior to the meeting
that he dissents from the scheme of amalgamation, shall be entitled, in respect of the shares held by him in that NBFC, their value
as determined by the Commission when sanctioning the scheme and such determination by the Commission as to the value of the
shares to be paid to dissenting shareholder shall be final for all purposes.
Anti-Money Laundering Act, 2010
Act No. VII of 2010
An Act to provide for prevention of money laundering
Offence of money laundering Sec 03
o A person shall be guilty of offence of money laundering, if the person
(a) acquires, converts, possesses, uses or transfers property, knowing or having
reason to believe that such property is proceeds of crime;
(b) conceals or disguises the true nature, origin, location, disposition, movement or
ownership of property, knowing or having reason to believe that such property is
proceeds of crime;
(c) holds or possesses on behalf of any other person any property knowing or having
reason to believe that such property is proceeds of crime; or
(d) participates in, associates, conspires to commit, attempts to commit, aids, abets,
facilitates, or counsels the commission of the acts specified in clauses (a), (b) and
(c).
Punishment for money laundering Sec 04
o Whoever commits the offence of money laundering shall be punishable with
rigorous imprisonment for a term which shall not be less than one year but may
extend to ten years and shall also be liable to fine which may extend to one million
rupees and shall also be liable to forfeiture of property involved in money
laundering or property of corresponding value.
o Provided that the aforesaid fine may extend to five million rupees in case of a
company and every director, officer or employee of the company found guilty
under this section shall also be punishable under this section.
National Executive Committee to combat money laundering
o Within 30 days of the commencement of this Act the Federal Government shall, by
notification in the official Gazette, constitute a committee to be known as the
National Executive Committee.
o The Director General FMU shall also act as Secretary of the National Executive
Committee.
o The National Executive Committee may constitute one or more sub-committees to
perform such functions as it may deem fit.
o The National Executive Committee may delegate or assign its functions to the
General Committee or a subcommittee, if need be.
o The General Committee may invite any person to participate in the meeting as it
deems necessary.
Functions of National Executive Committee
The National Executive Committee shall hold its meetings not less than twice a year
and shall be responsible to
i. develop, review and oversee the implementation of national strategy to fight money
laundering and financing of terrorism;
ii. determine offences existing in Pakistan that may be considered to be predicate
offences for the purposes of this Act
iii. provide guidance and sanction in framing of rules and regulations under this Act;
iv. make recommendations to the Federal Government for effective implementation of
this Act and framing of national policy to combat money laundering and financing
of terrorism;
v. issue necessary directions to the agencies involved in the implementation and
administration of this Act;
vi. discuss any other issue of national importance relating to money laundering and
financing of terrorism; and
vii. undertake and perform such other functions as assigned to it by the Federal
Government, relating to money laundering and financing of terrorism.
Financial Monitoring Unit
o The Federal Government shall, by notification in the Official Gazette, establish a
Financial Monitoring Unit which shall be housed in SBP or at any other place in
Pakistan.
o The FMU shall have independent decision making authority on day-to-day matters
coming within its areas of responsibility.
o A Director General who shall be a financial sector specialist who shall be appointed
by the Federal Government in consultation with SBP to head FMU and exercise all
powers and functions of the FMU subject to the administrative oversight of the
General Committee.
The FMU shall exercise the following powers and perform the following functions,
namely:—
(a) to receive Suspicious Transaction Reports and CTRs from financial institutions and
such non-financial businesses and professions as may be necessary to accomplish
the objects of this Act;
(b) to analyse the Suspicious Transaction Reports and CTRs and in that respect the
FMU may call for record and information from any agency or person in Pakistan
related to the transaction in question. All such agencies or persons shall be required
to promptly provide the requested information;
(c) to disseminate on a confidential basis, after analyzing the Suspicious Transaction
Reports, and CTRs and other record, necessary information or materials to the
concerned investigating or prosecuting agencies for enquiry or other action under
this Act or any other applicable law;
(d) to create and maintain a data base of all Suspicious Transaction Reports and CTRs,
related information and such other materials as the Director General determines
are relevant to the work of the FMU and in that respect, the FMU is authorised to
establish necessary analytic software and computer equipment to effectively search
the database, sort and retrieve information and perform real time linkages with
databases of other agencies both in and outside Pakistan as may be required from
time to time;
(e) to co-operate with financial intelligence units in other countries and to make
reciprocal arrangements after due administrative process to share, request and
receive information relating to money laundering and financing of terrorism;
(f) to represent Pakistan at all international and regional organisations and
groupings of financial intelligence units and other international groups and forums which address the offence of
money laundering and other related matters;
(g) to submit to the General Committee and the National Executive Committee the reports including an annual report
containing overall analysis of the Suspicious Transaction Reports and CTRs, statistics concerning the investigations
and prosecutions conducted in relation to the offences of money laundering and financing of terrorism in Pakistan and
recommendations on countermeasures to combat money laundering and financing of terrorism. In this behalf, FMU
may call periodic reports from the investigating and prosecuting agencies in such manner as may be specified by FMU;
(h) to frame regulations in consultation with SBP and SECP for ensuring receipt of Suspicious Transaction Reports and
CTRs from the financial institutions and non-financial businesses and professions with the approval of the National
Executive Committee;
(i) to recommend to the regulatory authorities of reporting entities to issue regulations as considered necessary in the
context of combating money laundering and financing of terrorism, including customer due diligence and ancillary
record-keeping.
(j) to enter into arrangements with domestic agencies and authorities or engage a financial institution or an
intermediary or such other non-financial businesses and professions or any of its officers as may be necessary for
facilitating implementation of the provisions of this Act, the rules or regulations made hereunder; and
(k) to perform all such functions and exercise all such powers as are necessary for, or ancillary to, the attainment of the
objects of this Act.
Procedure and manner of furnishing information by reporting entities.
o Every reporting entity shall file with FMU, to the extent and in the manner
prescribed by the FMU, Report of Suspicious Transaction conducted or attempted
by, at or through such reporting entity, if it knows, suspects or has reason to
suspect that the transaction or a pattern of transactions of which the transaction is
a part,(a) involves funds derived from illegal activities or is intended or conducted in order to
hide or disguise proceeds of crime;
(b) is designed to evade any requirements of this section
(c) has no apparent lawful purpose after examining the available facts, including the
background and possible purpose of the transaction; or
(d) involves financing of terrorism, including fund collected, provided, used or meant
for, or otherwise linked or related to, terrorism, terrorist acts or organizations and
individuals concerned with terrorism:
o Every reporting entity shall, in accordance with the regulations issued by relevant
regulatory authority of that reporting entity, conduct customer due diligence and
maintain record of transactions, account files and documents obtained through
such diligence.
Attachment of property involved in money laundering Sec 08
o An investigating officer may, on the basis of the report in his possession received
from the concerned investigating or prosecuting agency, by order in writing, with
prior permission of the Court, provisionally attach a property, which he reasonably
believes to be the property involved in money laundering for a period not exceeding
90 days from the date of the order.
o The investigating officer shall, within 48 hours immediately after attachment forward
a copy of the order and the report referred to in that sub-section to the head of the
concerned investigating agency in a sealed envelope.
o Every order of attachment made shall cease to have effect after
i. the expiry of the period 90 days or
ii. on the date of the finding made under sub-section (2) of section 9
whichever is earlier.
o Nothing in this section shall prevent the person interested in the enjoyment of the
immovable property attached from such enjoyment.
o “person interested”, in relation to any immovable property, includes all persons
claiming or entitled to claim any interest in the property.
o The investigating officer who provisionally attaches any property shall submit to the
Court monthly report of the progress made in the investigation.
Investigation Sec 09
o The investigating officer shall within 07 days from the date of
a) order of attachment made under section 8 or,
b) seizure of property under section 14 or 15,
serve a notice of not less than thirty days on the person concerned.
o The notice shall call upon such person to indicate
a) the sources of his income,
b) earning or assets,
out of which or by means of which he has acquired the property that was attached or
seized
o where a notice specifies any property as being held by a person on behalf of any
other person, a copy of such notice shall also be served upon such other person.
o Where property is held jointly by more than one person, notice shall be served upon
all persons holding such property.
o The investigating officer shall, after—
(a) considering the reply to the notice issued;
(b) hearing the aggrieved person; and
(c) taking into account all relevant materials placed on record before him;
record a finding whether all or any other properties referred to in the notice are
properties involved in money laundering.
o Where the investigating officer determines that a property is the property involved in
money laundering, he shall, apply to the Court for an order confirming
a) the attachment of the property made under section 8 or
b) retention of property or
c) record seized under section 14 or 15.
o The Court may after giving opportunity of hearing to the aggrieved persons pass an
order confirming the attachment, retention, seizure or release of the property.
o The attachment or retention or seizure of the property shall(a) continue during the pendency of the proceedings relating to any predicate offence
or money laundering before a Court; and
(b) become final if it is proved in the Court that the property is the property involved in
money laundering.
o Where the provisional order of attachment has been confirmed, the investigating
officer shall forthwith take possession of the attached property
o The Court may, on the application of the investigating officer, order immediate sale
of the property in any manner
where the property seized is
a) perishable in nature or
b) subject to speedy and natural decay, or
c) when the expense of keeping it in custody is likely to exceed its value
o After passing the order of forfeiture the Court shall direct the release of all
properties other than the properties involved in money laundering to the persons
from whom such properties were seized.
Vesting of property in Federal Government Sec 10
o Where an order of forfeiture has been made in respect of any property of a person,
all the rights and title in such property shall vest absolutely in the Federal
Government free from all encumbrances.
o Nothing in this section shall operate to discharge any person from any liability in
respect of such encumbrances, which may be legally enforced against such person.
Management of forfeited properties.
o The Federal Government may, by order published in the Official Gazette, appoint as
many trustees and receivers as it thinks fit to perform the functions of an
Administrator.
o The Administrator appointed shall receive and manage the property in relation to
which an order has been made in such manner and subject to such conditions as
may be prescribed.
o The Administrator shall also take such measures, as the Federal Government may
direct, to dispose of the property which is vested in the Federal Government under
section 10.
Search and seizure
 where the investigating officer, on the basis of information in his possession, has reason to believe that any person
(a) has committed any act which constitutes money-laundering;
(b) is in possession of any property involved in money laundering; or
(c) is in possession of any record which may be useful for or relevant to proceedings under this Act,
he may either himself, or authorize any officer subordinate to him to
(i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such record or
properties are kept;
(ii) break open the lock of any door, box locker, safe, almirah or other receptacles for exercising the powers conferred
by clause (i) where the keys thereof are not available;
(iii) seize any such record or property found as a result of such search;
(iv) place marks of identification on such record or make, or cause to be made, extracts or copies therefrom;
(v) make a note of any inventory of such record or property; or
(vi) examine any person, who is found to be in possession or control of any such record or property, in respect of all
matters relevant for the purposes of any investigation under this Act.”;
 The powers to search shall be exercisable by the investigating officer with the prior permission of the Court.
 Where immediate action is required, the powers of search and seizure shall be exercisable with the prior permission
of the senior officer of the concerned investigating or prosecuting agency not below the rank of an officer of BS-20.
 The investigating officer shall, within forty-eight hours immediately after search and seizure, forward a copy of the
report on search and seizure to the head of the concerned investigating or prosecuting agency in a sealed envelope.
 Where the investigating officer is satisfied that any evidence shall be or is likely to be concealed or tampered with,
he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located
and seize that evidence.

Search of persons Sec 15
 If an investigating officer, has reason to believe that any person has secreted
about the person or anything under his possession, ownership or control, any
record or property which may be useful for or relevant to any proceedings
under this Act, he may search that person and seize such record or property
which may be useful for or relevant to any proceedings under this Act.
 The investigating officer shall, within forty-eight hours immediately after
search and seizure, forward a copy of the report on search and seizure to the
head of the concerned investigating or prosecuting agency in a sealed
envelope.
 No female shall be searched by any one except a female.
 The investigating officer shall record the statement of the person searched in
respect of the records or property involved in money laundering and found or
seized in the course of the search.
Power to arrest Sec 16
 If the investigating officer or any other officer of the agency authorized in
this behalf by the Federal Government by general or special order, has, on
the basis of material in his possession, reason to believe (the reason for
such belief to be recorded in writing) that any person has been guilty of an
offence punishable under this Act, he may after obtaining warrant from
the Court or the nearest Judicial Magistrate arrest such person and shall,
as soon as may be, inform him of the grounds for such arrest.
 The investigating officer or any other officer, as the case may be, shall,
immediately after arrest of such person forward a copy of the order along
with his report to the head of the concerned investigating or prosecuting
agency in a sealed envelop.
 Every person arrested shall within twenty-four hours be taken to a judicial
magistrate having jurisdiction
 The period of twenty-four hours shall exclude the time necessary for the
journey from the place of arrest to the Magistrate’s court.
Retention of property Sec 17
 Where any property has been seized and the investigating officer has, on the basis of material in his possession,
reason to believe that such property is required to be retained for the purposes of investigation under section 9,
such property may be retained for a period not exceeding 90 days from the time such property was seized:
 The investigating officer shall duly inform the Court about any peculiar nature of the seized property and, where
necessary, seek appropriate directions for its proper care during retention.
 The investigating officer, immediately after he has passed an order for retention of property for purposes of
investigation, shall forward a copy of the order to the head of the concerned investigating or prosecuting agency in a
sealed envelop.
 On the expiry of the period of 90 days, the property shall be returned to the person from whom such property was
seized unless the Court permits retention of such property beyond the said period.
 The Court, before authorizing the retention of such property beyond the period specified, shall satisfy itself that the
property is prima facie property involved in money laundering and the property is required for the purposes of
investigation.
Retention of records Sec 18
 Where any record has been seized under section 14 or section 15 and the investigating officer has reason to believe
that any of such records are required to be retained for an investigation under this Act, he may retain such records
for a period not exceeding 90 days from the time the record was seized.
 The person, from whom records were seized, shall be entitled to obtain copies of records retained.
 On the expiry of the period specified, the records shall be returned to the person from whom such records were
seized unless the Court permits retention of such records beyond the said period.
 The Court before authorizing the retention of such records beyond the period of 90 days shall satisfy itself that the
records were required for the purposes of investigation.
Presumption as to records or property in certain cases Sec 19
 Where any document of public record is found in the possession or control of any person in the course of a survey or
a search under this Act or where any records have been received from any place outside Pakistan duly authenticated
by such authority or person and in such manner as may be prescribed in the course of proceedings under this Act,
the Court or the investigating or prosecuting agency as the case may be, shall-
(a) presume, that the signature and every other part of such record which purports to be in the hand writing of any
particular person or which the Court may reasonably assume to have been signed, by or to be in the hand writing
of, any particular person, is in that person’s hand writing; and in the case of a record executed or attested, that it
was executed or attested by the person by whom it purports to have so executed or attested; and
(b) admit the document in evidence, notwithstanding that it is not duly stamped, if such document is otherwise
admissible in evidence.
Jurisdiction Sec 20
The Court of Sessions established under the Code of Criminal Procedure, 1898 (V of 1898) shall, within its territorial
jurisdiction, exercise jurisdiction to try and adjudicate the offences punishable under this Act and all matters provided
in, related to or arising from this Act:
Provided
(a) where the predicate offence is triable by any court other than the Court of Session, the offence of money laundering
and all matters connected therewith or incidental thereto shall be tried by the Court trying the predicate offence; and
(b) where the predicate offence is triable by any court inferior to the Court of Session, such predicate offence, the
offence money laundering and all matters connected therewith or incidental thereto shall be tried by the Court of
Session.
Attachment, seizure and forfeiture etc., of property in a contracting State or Pakistan Sec 30
 Where the investigating officer has made an order for attachment of any property under section 8 or where the court
has made an order confirming such attachment or forfeiture of any property under section 9 and such property is
suspected to be in a contracting state, the Court on an application by the investigating officer, may issue a letter of
request to a Court or an authority in the contracting state for execution of such order.
 Where a letter of request is received by the Federal Government from a court in a contracting State requesting
attachment or forfeiture of the property in Pakistan derived or obtained, directly or indirectly, by any person from
the commission of an offence under section 3 committed in that contracting State, the Federal Government may
forward such letter of request to the investigating agency, as it thinks fit, for execution in accordance with the
provisions of this Act or permit execution of the request in the manner sought by the contracting state so long as
doing so would not violate Law of Pakistan or is, in any manner, not prejudicial to the sovereignty, security, national
interest or public order.
 The steps may include any inquiry, investigation of survey in respect of any person, place, property, assets,
documents, books of accounts in any bank or financial institution or any other relevant matters.
 Any inquiry, investigation, or survey shall be carried out by an agency in accordance with such directions issued in
accordance with the provisions of this Act.
 The provisions of this Act relating to attachment, adjudication, forfeiture vesting of property in the Federal
Government, survey, search and seizures shall apply to the property in respect of which letter of request is received
from a court or contracting State for attachment or forfeiture of property.
AS AMMENDED UPTO FEBRUARY 2016
Anti-Money Laundering Act, 2010
Act No. VII of 2010
An Act to provide for prevention of money laundering
WHEREAS it is expedient to provide for prevention of money laundering, combating financing
of terrorism and forfeiture of property derived from, or involved in, money laundering or financing of
terrorism and for matters connected therewith or incidental thereto;
1. Short title, extent and commencement.— (1) This Act may be called the Anti-Money
Laundering Act, 2010.
(2)
It extends to the whole of Pakistan.
(3)
This section shall come into force at once
2. Definitions.— In this Act, unless there is anything repugnant in the subject or context,—
(a)
“attachment” means prohibition of transfer, conversion, disposition or movement of
property by an order issued under section 8;
(b)
“company” means any body corporate and includes a firm or other association of
individuals;
(c)
“CTR” means report on currency transactions exceeding such amount as may be
(d)
“Court” means the Court specified under section 20;
(e)
“Director General” means the Director General of FMU appointed under section 6;
(f)
“financial institution” includes any institution carrying on any one or more of the
following activities, namely:-
specified by the National Executive Committee by notification in the official Gazette;
(i)
acceptance of deposits and other repayable funds from the public;
(iii)
financial leasing;
(v)
issuing and managing means of payments including but not limited to credit
and debit cards, cheques, traveller’s cheques, money orders,
(ii)
(iv)
lending in whatsoever form;
money or value transfer;
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(vi)
(vii)
bank drafts and electronic money;
financial guarantees and commitments;
trading in —
(a). money market instruments ;
(b). foreign exchange
(c). exchange, interest rate and index instruments;
(d). transferable securities
(e). commodity futures trading.
(viii)
(ix)
participation in shares issues and the provision of services related to such
issues;
individual and collective portfolio management;
(x)
safekeeping and administration of cash or liquid securities on behalf of other
persons;
(xi)
investing, administering or managing funds or money on behalf of other
persons;
(xii)
(xiii)
(xiv)
insurance business transactions;
money and currency changing; and
carrying out business as intermediary.
(g)
omitted;
(h)
“FMU” means the Financial Monitoring Unit established under section 6;
(i)
“foreign serious offence” means an offence:—
(j)
(i)
against the law of a foreign State stated in a certificate issued by, or
(ii)
which, had it occurred in Pakistan, would have constituted a predicate
offence;
on behalf of, the government of that foreign State; and
“investigating or prosecuting agency” means the National Accountability Bureau
(NAB), Federal Investigation Agency (FIA), Anti-Narcotics Force (ANF) or any other
law enforcement agency as may be notified by the Federal Government for the
investigation or prosecution of an offence under this Act;
(k)
“investigating officer” means the officer nominated or appointed under section 24;
(l)
“National Executive Committee” means the National Executive Committee constituted
under section 5;
(m)
“non-financial businesses and professions” means real estate agents, jewelers,
dealers in precious metals and precious stones, lawyers, notaries and other
2
legal professionals, accountants, trust and company service providers and
such other non-financial businesses and professions as may be notified by the
Federal Government;
(n)
“offence of money laundering” has the meaning as defined in
(o)
“person” means an individual, a firm, an entity, an association or a body of individuals,
(p)
“prescribed” means prescribed by rules made under this Act;
(q)
“proceeds of crime” means any property derived or obtained directly or
section 3;
whether incorporated or not, a company and every other juridical person;
indirectly by any person from the commission of a predicate offence or a
foreign serious offence;
(r)
“property” means property or assets of any description, whether corporeal or
incorporeal, movable or immovable, tangible or intangible, and includes deeds and
instruments evidencing title to, or interest in, such property or assets, including cash
and monetary instruments, wherever located;
(ra)
“property involved in money laundering” means proceeds of crime, property derived or
obtained directly or indirectly from the offence of money laundering and property
used or intended to be used in commission of the offence of money laundering, a
predicate offence or a foreign serious offence;
(s)
“predicate offence” means an offence specified in the Schedule to this Act;
(t)
“record” includes the records maintained in the form of books or stored in a
(u)
“reporting entity” means an entity specified in clause (f) or clause (m) and includes
computer or any electronic device, or such other form as may be prescribed;
any other entity designated as such by Federal Government by notification in the
official Gazette;
(v)
“SBP” means State Bank of Pakistan established under the State Bank of Pakistan Act,
1956 (XXXIII of 1956);
(w)
“Schedule” means schedule to this Act;
(x)
“SECP” means Securities and Exchange Commission of Pakistan established under the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);
3
(y)
“Suspicious Transaction Report” means the report on suspicious transaction specified
under section 7; and
(z)
“transfer” means sale, lease, purchase, mortgage, pledge, gift, loan,
or any
other form of transfer of right, title, possession or lien.
3.
Offence of money laundering.—A person shall be guilty of offence
(a)
acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is proceeds of crime;
(b)
conceals or disguises the true nature, origin, location, disposition, movement or
laundering, if the person:—
of money
ownership of property, knowing or having reason to believe that such property is
proceeds of crime;
(c)
holds or possesses on behalf of any other person any property knowing or having
reason to believe that such property is proceeds of crime; or
(d)
participates in, associates, conspires to commit, attempts to commit, aids, abets,
facilitates, or counsels the commission of the acts specified in clauses (a), (b) and
(c).
Explanation-I.— The knowledge, intent or purpose required as an element of an offence set
forth in this section may be inferred from factual circumstances in accordance with the
Qanun-e-Shahadat Order, 1984 (P.O. 10 of 1984).
Explanation II.- For the purposes of proving an offence under this section, the conviction of an
accused for the respective predicate offence shall not be required.
4. Punishment for money laundering.—Whoever commits the offence of money laundering
shall be punishable with rigorous imprisonment for a term which shall not be less than one year but
may extend to ten years and shall also be liable to fine which may extend to one million rupees and
shall also be liable to forfeiture of property involved in money laundering or property of corresponding
value.
Provided that the aforesaid fine may extend to five million rupees in case of a company and
every director, officer or employee of the company found guilty under this section shall also be
punishable under this section.
5. National Executive Committee to combat money laundering.— (1) Within thirty days of the
commencement of this Act the Federal Government shall, by notification in the official Gazette,
constitute a committee to be known as the National Executive Committee which shall consist of the
following members, namely:—
4
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Minister for Finance or Advisor to the Prime
Minister on Finance/concerned Minister
Chairman
Minister on Foreign Affairs
Member
Minister for Interior
Member
Member
Minister for Law and Justice
Member
Governor SBP
Member
Chairman SECP
omitted
Member
(h)
Director General
(2)
The Director General FMU shall also act as Secretary of the National Executive
(i)
Committee.
any other member to be nominated by the Federal Government.
(3)
The National Executive Committee shall hold its meetings not less than twice a year
and shall be responsible to,—
(a)
develop, review and oversee the implementation of national strategy to fight money
laundering and financing of terrorism;
(b)
determine offences existing in Pakistan that may be considered to be predicate
offences for the purposes of this Act;
(c)
provide guidance and sanction in framing of rules and regulations under this
(d)
make recommendations to the Federal Government for effective implementation of
Act;
this Act and framing of national policy to combat money laundering and financing of
terrorism;
(e)
issue necessary directions to the agencies involved in the implementation and
administration of this Act;
(f)
discuss any other issue of national importance relating to money laundering and
financing of terrorism; and
(g)
omitted;
(h)
omitted;
(i)
omitted;
(j)
omitted;
5
(k)
undertake and perform such other functions as assigned to it by the Federal
Government, relating to money laundering and financing of terrorism.
(3A) The National Executive Committee may constitute one or more sub-committees to
perform such functions as it may deem fit.
(3B) The National Executive Committee may delegate or assign its functions to the General
Committee or a subcommittee, if need be.
(4) The National Executive Committee shall be assisted by a General Committee to be
composed of—
(a) Secretary Finance
Chairman
(b) Secretary Interior
Member
Member
(c) Secretary Foreign Affairs
Member
(d) Secretary Law
(da) Chairman National Accountability Bureau
(db) Chairman Federal Board of Revenue
Member
Member
(dc) Director General, Federal Investigation Agency
Member
(dd) Director General, Anti Narcotics Force
Member
(e) Deputy Governor SBP
Member
Member
(f) Commissioner SECP
(g) omitted
(h) Director General
Member
(i) any other Member to be nominated by Federal Government
(5)
Committee.
The Director General FMU shall also act as Secretary of the General
(6)
The General Committee may invite any person to participate in the meeting as it
deems necessary.
(7)
The General Committee shall, inter alia—
(a)
take measures as necessary for development and review of performance of
investigating agencies, FMU and the financial institutions and non-financial
businesses and professions, relating to anti-money laundering;
(b)
review training programs for Government, financial institutions, non-financial
(c)
provide necessary assistance to the National Executive Committee in carrying out its
functions and duties under this Act;
businesses and professions and other persons, relating to anti money laundering ;
6
(d)
discuss any other issue of national importance relating to money laundering;
(da)
approve FMU’s budgetary proposals for achieving the objects of this Act;
(db)
approve FMU’s staffing requirements, pay, allowances, privileges and compensation
packages and other matters incidental thereto; and
(e)
undertake and perform such other functions as assigned or delegated to it by the
National Executive Committee.
(8) The General Committee may constitute one or more sub-committees to perform such
functions as it may deem fit.
6. Financial Monitoring Unit.—(1) The Federal Government shall, by notification in the Official
Gazette, establish a Financial Monitoring Unit which shall be housed in SBP or at any other place in
Pakistan.
(2)
The FMU shall have independent decision making authority on day-to-day matters
coming within its areas of responsibility.
(3)
A Director General who shall be a financial sector specialist who shall be
appointed by the Federal Government in consultation with SBP to head FMU and exercise all powers
and functions of the FMU subject to the administrative oversight of the General Committee.
(4) The FMU shall exercise the following powers and perform the following functions,
namely:—
(a)
to receive Suspicious Transaction Reports and CTRs from financial institutions and
such non-financial businesses and professions as may be necessary to accomplish
the objects of this Act;
(b)
to analyse the Suspicious Transaction Reports and CTRs and in that respect the FMU
may call for record and information from any agency or person in Pakistan related to
the transaction in question. All such agencies or persons shall be required to promptly
provide the requested information;
(c)
to disseminate on a confidential basis, after analyzing the Suspicious Transaction
Reports, and CTRs and other record, necessary information or materials to the
concerned investigating or prosecuting agencies for enquiry or other action under
this Act or any other applicable law;
(d)
to create and maintain a data base of all Suspicious Transaction Reports and CTRs,
related information and such other materials as the Director General
7
determines are relevant to the work of the FMU and in that respect, the FMU is
authorised to establish necessary analytic software and computer equipment to
effectively search the database, sort and retrieve information and perform real time
linkages with databases of other agencies both in and outside Pakistan as may be
required from time to time;
(e)
to co-operate with financial intelligence units in other countries and to make
reciprocal arrangements after due administrative process to share, request and
receive information relating to money laundering and financing of terrorism;
(f)
to represent Pakistan at all international and regional organisations and
groupings of financial intelligence units and other international groups and forums
which address the offence of money laundering and other related matters;
(g) to submit to the General Committee and the National Executive Committee the reports
including an annual report containing overall analysis of the Suspicious Transaction
Reports and CTRs, statistics concerning the investigations and prosecutions
conducted in relation to the offences of money laundering and financing of terrorism
in Pakistan and recommendations on countermeasures to combat money laundering
and financing of terrorism. In this behalf, FMU may call periodic reports from the
investigating and prosecuting agencies in such manner as may be specified by FMU;
(h)
to frame regulations in consultation with SBP and SECP for ensuring receipt of
Suspicious Transaction Reports and CTRs from the financial institutions and nonfinancial businesses and professions with the approval of the National Executive
Committee;
(i)
to recommend to the regulatory authorities of reporting entities to issue regulations
as considered necessary in the context of combating money laundering and
financing of terrorism, including customer due diligence and ancillary record-keeping.
(j)
to enter into arrangements with domestic agencies and authorities or engage a
financial institution or an intermediary or such other non-financial businesses and
professions or any of its officers as may be necessary for facilitating implementation
of the provisions of this Act, the rules or regulations made hereunder; and
(k)
to perform all such functions and exercise all such powers as are necessary for, or
ancillary to, the attainment of the objects of this Act.
8
(5)
On considering the suspicious transaction report or CTR the FMU may, if deems
necessary, convey matters involving regulatory or administrative action to the concerned regulatory
or administrative body for appropriate action.
(6)
Subject to the regulations sanctioned by the National Executive Committee in this
behalf, the Director-General may, if there appear to be reasonable grounds to believe that a property
is the property involved in money laundering, order freezing of such property, for a maximum period of
fifteen days, in any manner that he may deem fit in the circumstances.
7. Procedure and manner of furnishing information by reporting entities.—(1) Every reporting
entity shall file with FMU, to the extent and in the manner prescribed by the FMU, Report of Suspicious
Transaction conducted or attempted by, at or through such reporting entity, if it knows, suspects or
has reason to suspect that the transaction or a pattern of transactions of which the transaction is a
part,-
(a)
involves funds derived from illegal activities or is intended or conducted in order to
hide or disguise proceeds of crime;
(b)
is designed to evade any requirements of this section
(c)
has no apparent lawful purpose after examining the available facts, including the
background and possible purpose of the transaction; or
(d)
involves financing of terrorism, including fund collected, provided, used or meant for,
or otherwise linked or related to, terrorism, terrorist acts or organizations and individuals
concerned with terrorism:
Provided that Suspicious Transaction Report shall be filed by the reporting entity with the FMU
immediately, but not later than seven working days after forming that suspicion."
(2)
Any government agency, autonomous body, regulatory authority, domestic or foreign,
may share intelligence or report their suspicions within the meaning of suspicious transaction report
or CTR to FMU in normal course of their business and the protection provided under section 12 shall be
available to such agency, body or authority.
(3)
All CTRs shall, to the extent and in the manner prescribed by the FMU, be filed by the
reporting entities with the FMU immediately, but not later than seven working days, after the respective
currency transaction.
(4)
Every reporting entity shall keep and maintain all record related to Suspicious
Transaction Reports and CTRs filed by it for a period of at least five years after reporting of transaction
under sub-sections (1), (2) and (3).
9
(5)
The provisions of this section shall have effect notwithstanding any obligation as to
secrecy or other restriction on the disclosure of information imposed by any other law or written
document.
(6)
Notwithstanding anything contained in any other law for the time being in force, any
Suspicious Transaction Reports required to be submitted by any person or entity to any investigating
or prosecuting agency shall, on the commencement of this Act, be solely and exclusively submitted to
FMU to the exclusion of all others.
(7)
Every reporting entity shall, in accordance with the regulations issued by relevant
regulatory authority of that reporting entity, conduct customer due diligence and maintain record of
transactions, account files and documents obtained through such diligence.
8. Attachment of property involved in money laundering.—(1) An investigating officer may, on
the basis of the report in his possession received from the concerned investigating or prosecuting
agency, by order in writing, with prior permission of the Court, provisionally attach a property, which he
reasonably believes to be the property involved in money laundering for a period not exceeding ninety
days from the date of the order.
(2) The investigating officer shall, within forty-eight hours immediately after attachment
under sub-section (1), forward a copy of the order and the report referred to in that sub-section to
the head of the concerned investigating agency in a sealed envelope.
(3) Every order of attachment made under sub-section (1) shall cease to have effect after
the expiry of the period specified in that sub-section or on the date of the finding made under subsection (2) of section 9 whichever is earlier.
(4) Nothing in this section shall prevent the person interested in the enjoyment of the
immovable property attached under sub-section (1) from such enjoyment.
Explanation.—For the purposes of this sub-section, “person interested”, in relation to any
immovable property, includes all persons claiming or entitled to claim any interest in the property.
(5) The investigating officer who provisionally attaches any property under sub-section (1)
shall submit to the Court monthly report of the progress made in the investigation.
9. Investigation.—(1) The investigating officer shall, not later than seven days from the date of
order of attachment made under sub-section (1) of section 8 or, seizure of property under section 14
or section 15, serve a notice of not less than thirty days on the person concerned. The notice shall call
upon such person to indicate the sources of his income, earning or assets, out of which or by means
of which he has acquired the property attached under sub-section (1) of section 8, or, seized under
section 14 or section 15, the evidence on which he relies and other relevant information and particulars,
and to show
10
cause why all or any of such properties should not be declared to be the properties involved in money
laundering and forfeited to the Federal Government:
Provided that where a notice under this sub-section specifies any property as being held by a
person on behalf of any other person, a copy of such notice shall also be served upon such other
person:
Provided further that where such property is held jointly by more than one person, such notice
shall be served upon all persons holding such property.
(2)
The investigating officer shall, after—
(a)
considering the reply, if any, to the notice issued under subsection (1);
(b)
hearing the aggrieved person; and
(c)
taking into account all relevant materials placed on record before
him;
record a finding whether all or any other properties referred to in the notice issued under subsection (1) are properties involved in money laundering:
Provided that if the property is claimed by a person, other than a person to whom the notice
had been issued, such person shall also be given an opportunity of being heard to prove that the
property is not a property involved in money laundering.
(3) Where the investigating officer on the basis of report received from the concerned
investigating agency determines under sub-section (2) that a property is the property involved in
money laundering, he shall, apply to the Court for an order confirming the attachment of the property
made under subsection (1) of section 8 or retention of property or record seized under section 14 or
section 15.
“(3A) The Court may, after giving opportunity of hearing to the persons concerned with the property
attached under sub-section (1) of section 8 or retained or seized under section 14 or section 15, pass
an order confirming the attachment, retention, seizure or as the case may be, release of the property.
The attachment or retention or seizure of the property shall(a)
continue during the pendency of the proceedings relating to any predicate offence or
money laundering before a Court; and
(b)
become final if it is proved in the Court that the property is the property involved in
money laundering.”
(4) Where the provisional order of attachment made under sub-section (1) of section 8 has
been confirmed under sub-section (3A), the investigating officer shall forthwith take possession of the
attached property:
11
Provided that where the property seized is perishable in nature or subject to speedy and
natural decay, or when the expense of keeping it in custody is likely to exceed its value, the Court may,
on the application of the investigating officer, order immediate sale of the property in any manner
deemed appropriate in the circumstances.
(5)
Where on conclusion of a trial for any predicate offence or money laundering, the
person concerned is acquitted, the attachment of the property or retention or seizure of the property
or record under sub-section (3A) and net income, if any, shall cease to have effect.
(6)
Where the attachment of any property or retention or seizure of the property or record
becomes final under clause (b) of sub-section (3A), the Court shall make an order for forfeiture of
such property.
(7)
After passing the order of forfeiture under sub-section (6), the Court shall direct the
release of all properties other than the properties involved in money laundering to the persons from
whom such properties were seized.
10. Vesting of property in Federal Government.—Where an order of forfeiture has been made
under sub-section (6) of section 9 in respect of any property of a person, all the rights and title in
such property shall vest absolutely in the Federal Government free from all encumbrances:
Provided that where the Court, after giving an opportunity of being heard to any other person
interested in the property attached under section 8, or seized under section 14, is of the opinion that
any encumbrance on the property or leasehold interest has been created with a view to defeat the
provisions of this Act, it may, by order, declare such encumbrance or lease-hold interest to be void
and thereupon the aforesaid property shall vest in the Federal Government free from such
encumbrances or lease-hold interest:
Provided further that nothing in this section shall operate to discharge any person from any
liability in respect of such encumbrances, which may be legally enforced against such person.
11. Management of forfeited properties.—(1) The Federal Government may, by order published
in the Official Gazette, appoint as many trustees and receivers as it thinks fit to perform the functions
of an Administrator.
(2)
The Administrator appointed under sub-section (1) shall receive and manage the
property in relation to which an order has been made under sub-section (6) of section 9 in such
manner and subject to such conditions as may be prescribed.
(3)
The Administrator shall also take such measures, as the Federal Government may
direct, to dispose of the property which is vested in the Federal Government under section 10:
12
Provided that, where the property seized is perishable in nature or subject to speedy and
natural decay, or when the expense of keeping it in custody is likely to exceed its value, the
Administrator may sell it at once after reasonable notice to the Federal Government.
12.
No civil or criminal proceedings against banking companies, financial
institutions, etc., in certain cases.—Save as otherwise provided in section 7, the financial institutions,
non-financial businesses and professions, and their officers shall not be liable to any civil, criminal or
disciplinary proceedings against them for furnishing information required under this Act or the rules
and regulations made hereunder.
13. Power of survey.—(1) Notwithstanding anything contained in any other provisions of this
Act, where an investigating officer, on the basis of material in his possession, has reasons to believe
that an offence of money laundering has been committed, he may, with the permission of the Court,
enter any place,—
(a)
within the limits of the area assigned to him; or
(b)
in respect of which he is authorized for the purposes of this section by such other
authority who is assigned the area within which such place is situated,
at which any act constituting the commission of such offence is carried on, and may require any
proprietor, employee or any other person who may at that time and place be attending in any
manner to, or helping him in, such act so as to,—
(i)
afford him the necessary facility to inspect such record as he may require and which
may be available at such place;
(ii)
afford him the necessary facility to check or verify the proceeds of crimes or any
(iii)
furnish such information as he may require as to any matter which may be useful for,
or relevant to, any proceedings under this Act.
transaction related to proceeds of crimes which may be found therein; and
Explanation.—For the purpose of this sub-section, a place, where an act which constitutes the
commission of the offence is carried on, shall also include any other place, whether any activity is
carried on therein or not, in which the person carrying on such activity states that any of his records or
any part of his property relating to such act are or is kept.
(2) The investigating officer referred to in sub-section (1), shall, after entering any place
referred to in that sub-section and within forty-eight hours immediately after completion of survey,
forward a copy of the report on survey to the head of the concerned investigating or prosecuting
agency in a sealed envelope.
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(3)
The investigating officer acting under this section may,—
(a)
place marks of identification on the records inspected by him and make or cause to
be made extracts or copies there from.
(b)
make an inventory of any property checked or verified by him, and
(c)
record the statement of any person present in the place which may be useful for or
relevant to any proceeding under this Act.
14. Search and seizure.—(1) Subject to sub-section (2), where the investigating officer, on the
basis of information in his possession, has reason to believe that any person—
(a)
has committed any act which constitutes money-laundering;
(c)
is in possession of any record which may be useful for or relevant to proceedings
(b)
is in possession of any property involved in money laundering; or
under this Act, he may either himself, or authorize any officer subordinate to him to,—
(i)
enter and search any building, place, vessel, vehicle or aircraft where he has
reason to suspect that such record or properties are kept;
(ii)
break open the lock of any door, box locker, safe, almirah or other receptacles
(iii)
(iv)
(v)
(vi)
for exercising the powers conferred by clause (i) where the keys thereof are
not available;
seize any such record or property found as a result of such search;
place marks of identification on such record or make, or cause to be made,
extracts or copies therefrom;
make a note of any inventory of such record or property; or
examine any person, who is found to be in possession or control of any such
record or property, in respect of all matters relevant for the purposes of any
investigation under this Act.”;
(2) The powers to search under sub-section (1) shall be exercisable by the investigating
officer with the prior permission of the Court:
Provided that where immediate action is required, the powers of search and seizure shall be
exercisable with the prior permission of the senior officer of the concerned investigating or
prosecuting agency not below the rank of an officer of BS-20.
(3)
The investigating officer shall, within forty-eight hours immediately after search and
seizure, forward a copy of the report on search and seizure to the head of the concerned investigating
or prosecuting agency in a sealed envelope.
(4)
Where the investigating officer, upon information obtained during survey under
section 13, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may,
for reasons to be recorded in writing, enter and search the building or place where such evidence is
located and seize that evidence.
14
(5) omitted.
15. Search of persons.—(1) If an investigating officer, has reason to believe (the reason for
such belief to be recorded in writing) that any person has secreted about the person or anything
under his possession, ownership or control, any record or property which may be useful for or relevant
to any proceedings under this Act, he may search that person and seize such record or property
which may be useful for or relevant to any proceedings under this Act.
(2)
The investigating officer shall, within forty-eight hours immediately after search and
seizure, forward a copy of the report on search and seizure to the head of the concerned investigating
or prosecuting agency in a sealed envelope.
(3)
omitted.
(4)
omitted.
(5)
omitted.
(6)
No female shall be searched by any one except a female.
(7)
The investigating officer shall record the statement of the person searched under
sub-section (1) in respect of the records or property involved in money laundering and found or
seized in the course of the search.
(8)
omitted.
16. Power to arrest.— (1) If the investigating officer or any other officer of the agency referred
to in sub-section (2) of section 24 authorized in this behalf by the Federal Government by general or
special order, has, on the basis of material in his possession, reason to believe (the reason for such
belief to be recorded in writing) that any person has been guilty of an offence punishable under this
Act, he may after obtaining warrant from the Court or the nearest Judicial Magistrate arrest such
person and shall, as soon as may be, inform him of the grounds for such arrest.
(2)
The investigating officer or any other officer, as the case may be, shall,
immediately after arrest of such person under sub-section (1) forward a copy of the order along with
his report to the head of the concerned investigating or prosecuting agency in a sealed envelop.
(3) Every person arrested under sub-section (1) shall within twenty-four hours be taken to a
judicial magistrate having jurisdiction:
15
Provided that the period of twenty-four hours shall exclude the time necessary for the journey
from the place of arrest to the Magistrate’s court.
17. Retention of property.—(1) Where any property has been seized under section 14 or section
15 and the investigating officer has, on the basis of material in his possession, reason to believe that
such property is required to be retained for the purposes of investigation under section 9, such
property may be retained for a period not exceeding ninety days from the time such property was
seized:
Provided that the investigating officer shall duly inform the Court about any peculiar nature of
the seized property and, where necessary, seek appropriate directions for its proper care during
retention.
(2)
The investigating officer, immediately after he has passed an order for retention of
property for purposes of investigation under section 9, shall forward a copy of the order to the head of
the concerned investigating or prosecuting agency in a sealed envelop.
(3)
On the expiry of the period specified under sub-section (1), the property shall be
returned to the person from whom such property was seized unless the Court permits retention of
such property beyond the said period.
(4)
The Court, before authorizing the retention of such property beyond the period
specified in sub-section (1), shall satisfy itself that the property is prima facie property involved in
money laundering and the property is required for the purposes of investigation under section 9.
(5)
omitted.
18. Retention of records.—(1) Where any record has been seized under section 14 or section 15
and the investigating officer has reason to believe that any of such records are required to be
retained for an investigation under this Act, he may retain such records for a period not exceeding
ninety days from the time the record was seized.
(2)
The person, from whom records were seized, shall be entitled to obtain copies of
records retained under sub-section (1).
(3)
On the expiry of the period specified under sub-section (1), the records shall
be returned to the person from whom such records were seized unless the Court permits retention of
such records beyond the said period.
(4) The Court before authorizing the retention of such records beyond the period mentioned
in sub-section (1) shall satisfy itself that the records were required for the purposes of investigation
under section 9.
16
(5)
omitted.
19. Presumption as to records or property in certain cases.—Where any document of public
record is found in the possession or control of any person in the course of a survey or a search under
this Act or where any records have been received from any place outside Pakistan duly authenticated
by such authority or person and in such manner as may be prescribed in the course of proceedings
under this Act, the Court or the investigating or prosecuting agency as the case may be, shall(a)
presume, that the signature and every other part of such record which
purports to be in the hand writing of any particular person or which the Court may
reasonably assume to have been signed, by or to be in the hand writing of, any
particular person, is in that person’s hand writing; and in the case of a record
executed or attested, that it was executed or attested by the person by whom it
purports to have so executed or attested; and
(b)
admit the document in evidence, notwithstanding that it is not duly stamped, if such
document is otherwise admissible in evidence.
20. Jurisdiction.—(1) The Court of Sessions established under the Code of Criminal Procedure,
1898 (V of 1898) shall, within its territorial jurisdiction, exercise jurisdiction to try and adjudicate the
offences punishable under this Act and all matters provided in, related to or arising from this Act:
Provided,—
(a)
where the predicate offence is triable by any court other than the Court of Session,
the offence of money laundering and all matters connected therewith or incidental
thereto shall be tried by the Court trying the predicate offence; and
(b)
where the predicate offence is triable by any court inferior to the Court of Session,
such predicate offence, the offence money laundering and all matters connected
therewith or incidental thereto shall be tried by the Court of Session.
21.
Offences to be non-cognizable and non-bailable.— (1) Notwithstanding
anything contained in the Code of Criminal Procedure, 1898 (Act V of 1898) and subject to subsections (2) and (3),—
(a)
every offence punishable under this Act shall be non-cognizable and non-bailable;
17
(b)
no person accused of an offence punishable under this Act for a term of
imprisonment of more than three years shall be released on bail or on his own bond
unless—
(i)
the Public Prosecutor has been given due notice; and
(ii)
where the Public Prosecutor opposes the application, the Court is
satisfied that there are reasonable grounds for believing that he is not
guilty of such offence and that he is not likely to commit any offence
while on bail.
(2) The Court shall not take cognizance of any offence punishable under section 4 except
upon a complaint in writing made by,—
(a)
the investigating officer; or
(b)
any officer of the Federal Government or a Provincial Government authorized in
writing in this behalf by the Federal Government by a general or special order made
in this behalf by that Government:
Provided that where the person accused is a financial institution, the investigating officer or
any other authorized officer, as the case may be shall, before filing such complaint, seek the approval
of the concerned regulatory authority which shall not withhold its decision for a period exceeding sixty
days.
(3)
The Court shall not take cognizance of any offence punishable under sub-section (1)
of section 33 except upon a complaint in writing made by the FMU.
(4)
The power and discretion on granting of bail specified in clause (b) of sub-section
(1) are in addition to the power and discretion under the Code of Criminal Procedure, 1898 (Act V of
1898), or any other law for the time being in force on granting of bail.
22.
Application of Code of Criminal Procedure, 1898 (Act V of 1898) to proceedings
before Courts.—(1) The provisions of the Code of Criminal Procedure, 1898 (Act V of 1898) shall, in so
far as they are not inconsistent with the provisions of this Act, apply to arrest, bail, bonds, search,
seizure, attachment, forfeiture, confiscation, investigation, prosecution and all other proceedings under
this Act.
(2) The Federal Government may appoint a person who is an advocate of a High Court to be
a Public Prosecutor on such terms and conditions as may be determined by it and any person so
appointed shall be competent to conduct proceedings under this Act before a Court and, if so
directed by the Federal Government, to withdraw such proceedings:
18
Provided that a person shall not be qualified to be appointed as a Public Prosecutor under this
section unless he has been in practice as an Advocate for not less than seven years in the High Court;
Provided that an advocate who has been appointed as prosecutor by the investigating or
prosecuting agencies shall be qualified to be appointed as Public Prosecutor under this section
notwithstanding the requirements of the first proviso.
(3)
Every person appointed as a Public Prosecutor under this section shall be deemed to
be a public prosecutor within the meaning of clause (t) of sub section (1) of section 42 of the Code
of Criminal Procedure, 1898 (Act V of 1898), and the provisions of that Code shall have effect
accordingly.
(4)
When a Prosecutor appointed under sub-section (1), is, for any reason,
temporarily unable to conduct proceedings before the Court, the proceedings shall be
conducted by such person as may be authorized in this behalf by the Court.
23. Appeal to High Court.—Any person aggrieved by final decision or order of the Court may
prefer an appeal to the High Court within sixty days from the date of communication of the decision
or order on any question of law or fact arising out of such decision or order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be submitted within a further
period not exceeding sixty days.
Explanation.— For the purposes of this section, “High Court” means,—
(a)
the High Court within the jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain; and
(b)
where the Federal Government is the aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a case where there are more
than one respondent, any of the respondents, ordinarily resides or carries on business
or personally works for gain.
24. Appointment of investigating officers and their powers.—(1) The investigating or
prosecuting agencies may nominate such persons as they think fit to be the investigating officers
under this Act from amongst their officers.
(2) The Federal Government may, by special or general order, empower an officer not below
BPS-18 of the Federal Government or of a Provincial Government to act as an investigating officer
under this Act.
19
(3)
Where any person other than a Federal or Provincial Government Officer is appointed
as an investigating officer, the Federal Government shall also determine the terms and conditions of
his appointment.
(4)
Subject to such conditions and limitations as the Federal Government may impose,
an investigating officer may exercise the powers and discharge the duties conferred or imposed on
him under this Act.
25. Authorities to assist.- (1) Notwithstanding the provisions of any other law, the officers of
the Federal Government, Provincial Government, local authorities and financial institutions shall
provide requisite assistance to the investigating officers, FMU and other authorities in the enforcement
of this Act.
(2)
Whoever willfully fails or refuses to provide the requisite assistance under sub-section
(1) shall be guilty of misconduct and shall be proceeded against by its respective department or
organization and a report of such proceedings shall be submitted within reasonable time to the
concerned investigating or prosecuting agency or FMU or other authority, as the case may be.”.
26.
Agreements with foreign countries.— (1) The Federal Government may enter into an
(a)
the investigation and prosecution of any offence under this Act or under the
corresponding law in force in that country;
(b)
exchange of information for the prevention of any offence under this Act or under the
corresponding law in force in that country;
(c)
seeking or providing of assistance or evidence in respect of any offence under this
Act or under the corresponding law in force in that country ;
(d)
transfer of property relating to any offence under this Act or under the corresponding
law in force in that country.
agreement on reciprocal basis with the Government of any country outside Pakistan for—
(2) The agreement in terms of sub-section (1) shall be subject to such conditions, exceptions
or qualifications as may be specified in the said agreement:
Provided that the agreement shall not be enforceable if it may, in any manner, be prejudicial
to the sovereignty, security, national interest or public order.
(3)
In this section and the succeeding sections, unless the context otherwise requires,—
20
(a)
the expression “contracting State” means any country or place outside
Pakistan in respect of which arrangements have been made by the Federal
Government with the Government of such country through a treaty or otherwise;
(b)
the expression “identifying” includes establishment of a proof that the property was
(c)
“tracing” means determining the nature, source, disposition, movement, title or
ownership of property.
derived from, or used in, the commission of an offence under section 3; and
27. Letter of request to a contracting State etc.—(1) Notwithstanding anything contained in
this Act or the Code of Criminal Procedure, 1898 (Act V of 1898), if, in the course of an investigation
into an offence or other proceedings under this Act, the investigating officer or any officer superior in
rank to the investigating officer believes that any evidence is required in connection with investigation
into an offence or proceedings under this Act and he is of opinion that such evidence may be
available in any place in the contracting State, he may, with the prior permission of the head of that
investigation agency, issue a letter of request to a court or an authority in the contracting State
competent to deal with such request to—
(a)
examine facts and circumstances of the case; and
(b)
take such steps as he may specify in such letter of request.
(2)
The letter of request shall be transmitted in such manner as the Federal Government
may specify in this behalf.
(3)
Every statement recorded or document or thing received under sub-section
28.
Assistance to a contracting State in certain cases.—Where a letter of request is
(1) shall be deemed to be the evidence collected during the course of investigation.
received by the Federal Government from a court or authority in a contracting State requesting for
investigation into an offence or proceedings under this Act or under the corresponding law in force in
that country, the Federal Government may forward such letter of request to the Court or to the
authorized officer or any authority under this Act as it thinks fit for execution of such request in
accordance with the provisions of this Act or, in the manner sought by the contracting state so long
as doing so would not violate laws of Pakistan or is, in any manner, not prejudicial to the sovereignty,
security, national interest or public order.
29.
Reciprocal arrangements for processes and assistance for transfer of accused
persons.— (1) Where a Court, in relation to the offence of money laundering, desires that,—
21
(a)
a summons to an accused person;
(b)
a warrant for the arrest of an accused person;
(c)
a summons to any person requiring him to attend and produce a document or other
thing or to produce it, or
(d)
a search warrant,
issued by it shall be served or executed at any place in any contracting State, it shall send such
summons or warrant in duplicate in such form, to such court, judge or magistrate through such
authorities as the Federal Government may specify in this behalf and that court, judge or magistrate,
as the case may be, shall cause the same to be executed.
(2) Where a Court, in relation to an offence punishable under section 4, has received for
service or execution,—
(a)
a summons to an accused person;
(b)
a warrant for the arrest of an accused person;
(c)
a summons to any person requiring him to attend and produce a document or other
thing, or to produce it; or
(d)
a search warrant, issued by a court, judge or magistrate in a contracting State, it shall
cause the same to be served or executed as if it were a summons or warrant
received by it from another court in the said territories for service or execution within
its local jurisdiction; and where;
(i)
a warrant of arrest has been executed, the person arrested shall be dealt
(ii)
search warrant has been executed, the things found in this search shall, so
with in accordance with the procedure specified under section 16;
far as possible, be dealt with in accordance the procedure specified under
section 14 and 15:
Provided that the provisions of this sub-section shall not have effect if the exercise of power
hereunder is, in any manner, likely to prejudice the sovereignty, security, national interest or public
order.
(3) Where a person transferred to a contracting State pursuant to sub-section (2) is a
prisoner in Pakistan, the Court or the Federal Government may impose such conditions as that Court
or Government deems fit.
22
(4) Where the person transferred to Pakistan pursuant to sub-section (1) is a prisoner in a
contracting State, the Court in Pakistan shall ensure that the conditions subject to which the prisoner is
transferred to Pakistan are complied with and such prisoner shall be kept in such custody subject to
such conditions as the Federal Government may direct in writing.
30. Attachment, seizure and forfeiture etc., of property in a contracting State or Pakistan.—(1)
Where the investigating officer has made an order for attachment of any property under section 8 or
where the court has made an order confirming such attachment or forfeiture of any property under
section 9 and such property is suspected to be in a contracting state, the Court on an application by
the investigating officer, may issue a letter of request to a Court or an authority in the contracting
state for execution of such order.
(2) Where a letter of request is received by the Federal Government from a court in a
contracting State requesting attachment or forfeiture of the property in Pakistan derived or obtained,
directly or indirectly, by any person from the commission of an offence under section 3 committed in
that contracting State, the Federal Government may forward such letter of request to the investigating
agency, as it thinks fit, for execution in accordance with the provisions of this Act or permit execution
of the request in the manner sought by the contracting state so long as doing so would not violate
Law of Pakistan or is, in any manner, not prejudicial to the sovereignty, security, national interest or
public order.
(3)
The Federal Government may, on receipt of a letter of request under section 27 or
section 28, direct any investigating agency under this Act to take all steps necessary for tracing and
identifying such property.
(4)
The steps referred to in sub-section (3) may include any inquiry, investigation of
survey in respect of any person, place, property, assets, documents, books of accounts in any bank or
financial institution or any other relevant matters.
(5) Any inquiry, investigation, or survey referred to in sub-section (4) shall be carried out by
an agency mentioned in sub-section (3) in accordance with such directions issued in accordance
with the provisions of this Act.
(6) The provisions of this Act relating to attachment, adjudication, forfeiture vesting of
property in the Federal Government, survey, search and seizures shall apply to the property in respect
of which letter of request is received from a court or contracting State for attachment or forfeiture of
property.
31.
Procedure in respect of letter of request.—Every letter of request summons
or warrant, received by the Federal Government from, and every letter of request, summons or
warrant, to be transmitted to a contracting State under this Act shall be transmitted to a contracting
State or, as the case may be, sent to the concerned Court in Pakistan in such form and in such
manner as the Federal Government may specify in this behalf.
23
32. Punishment for vexatious survey and search.—Any investigating officer exercising powers
under this Act or any rules made hereunder, who, without prior permission from the Court,—
(a)
surveys or searches, or causes to be surveyed or searched, any building or place; or
(b)
detains or searches or arrests any person,
shall for every such offence be liable on conviction for imprisonment for a term which may extend to
two years or fine which may extend to fifty thousand rupees or both.
33. Liability for failure to file Suspicious Transaction Report and for providing false
information.— (1) Whoever willfully fails to comply with the suspicious transaction reporting
requirement as provided in section 7 or give false information shall be liable for imprisonment for a
term which may extend to three years or with fine which may extend to one hundred thousand rupees
or both.
(2) In the case of the conviction of a reporting entity, the concerned regulatory authority may
also revoke its licence or registration or take such other administrative action, as it may deem
appropriate.
34. Disclosure of information.—(1) The directors, officers, employees and agents of any
reporting entity, financial institution, non-financial business or profession or intermediary which report
a suspicious transaction or CTR pursuant to this law or any other authority, are prohibited from
disclosing, directly or indirectly, any person involved in the transaction that the transaction has been
reported.
(2)
A violation of the sub-section (1) is a criminal offence and shall be punishable by a
maximum term of three years imprisonment or a fine which may extend to five hundred thousand
rupees or both.
(3)
Any confidential information furnished by a financial institution, non-financial business
and profession, or any other person under or pursuant to the provisions of this Act, shall be kept
confidential by the FMU, investigation agency or officer as the case may be.
35. Bar of jurisdiction.—(1) No suit shall be brought in any Court to set aside or modify any
proceeding taken or order made under this Act and no prosecution, suit or other proceedings shall lie
against the Federal Government, or any officer of the Government, or FMU, its officers or any agency
controlled or supervised by the Government, or members of the National Executive Committee or
General Committee, for anything done or intended to be done in good faith under this Act.
24
(2) No Court shall have jurisdiction to entertain any suit or proceedings in respect of any
matter which the investigating officer and Committee or the Court is empowered by or under this Act
to determine and no injunction shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred by or under this Act.
36.
Notices, etc. not to be invalid on certain grounds.—No notice, summons,
order, document or other proceeding, furnished or made or issued or taken or purported to have been
furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid,
or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such notice,
summons, order, documents or other proceedings if such notice, summons, order, document or other
proceeding is in substance and effect in conformity with or according to the intent and purpose of this
Act.
37. Offences by companies.—(1) Where a person committing a contravention of any of the
provisions of this Act or of any rule, regulation, direction, or order made hereunder is a company, every
person who, at the time the contravention was committed, was responsible for such contravention in
the conduct of the business of company shall be deemed to be guilty of the contravention and shall
be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to
punishment if he proves that the contravention took place without his knowledge or that he exercised
all due diligence to prevent such contravention.
(2) Notwithstanding anything in sub-section (1) where a contravention of any of the
provisions of this Act or of any rule, regulation, direction or order made hereunder has been
committed by a company and it is proved that the contravention has taken place with the consent,
connivance or knowledge of any director, manager, secretary or other officer of any company, such
director, manager, secretary or other officer shall also be deemed to be guilty of the contravention
and shall be liable to be proceeded against and punished accordingly.
the firm.
Explanation.—For the purposes of this section, “director” in relation to a firm, means a partner in
38.
Continuity of proceedings in the event of death or insolvency.— (1) Where,—
(a)
any property of a person has been attached under this Act and no representation
(b)
any representation has been preferred to the Court, and
against the order attaching such property has been preferred; or
25
(i)
in a case referred to in clause (a) such person dies or is adjudicated as
(ii)
in a case referred to in clause (b), such person dies or is adjudicated as
insolvent during the pendency of representation,
insolvent before preferring representation to the Court; or
then it shall be lawful for the legal representatives of such person or the official assignee or the official
receiver, as the case may be, to prefer representation to the Court, or as the case may be to continue
the representation before the Court, in the place of such person.
(2)
Where,—
(a)
after passing of a decision or order by the Court, no appeal has been preferred to the
High Court under section 23; or
(b)
any such appeal has been preferred to the High Court,- then—
(i)
in a case referred to in clause (a), the person entitled to file the appeal dies
or is adjudicated an insolvent before preferring an appeal to the High Court,
or
(ii)
in a case referred to in clause (b),the person who had filed the appeal dies
or is adjudicated as insolvent during the pendency of the appeal before the
High Court,
then, it shall be lawful for the legal representatives of such person, or the official assignee or the
official receiver, as the case may be, to prefer an appeal to the High Court or to continue the appeal
before the High Court in place of such person and the provision of section 23 shall, so far as may be,
apply, or continue to apply, to such appeal.
(3)
The powers of the official assignee or the official receiver under sub-section
(1) or sub-section (2) shall be exercised by him subject to the provisions of the Insolvency (Karachi
Division) Act, 1909(III of 1909) or the Provincial Insolvency Act, 1920 (V of 1920) as the case may be.
39. Act to have overriding effect.—(1) Subject to sub-section (2), the provisions of this Act
shall have effect notwithstanding anything inconsistent contained in any other law for the time being
in force.
(2) The provisions of this Act shall be in addition to, and not in derogation of, the Anti
Narcotics Force Act, 1997 (III of 1997), the Control of Narcotics Substances Act, 1997 (XXV of 1997), the
Anti-terrorism Act, 1997 (XXVII of 1997) and the National Accountability Ordinance, 1999 (XVIII of 1999)
and any other law relating to predicate offences.
26
40.
Members etc., to be public servants.—The Director General, Members of the National
Executive Committee and General Committee, and other officers and employees of the FMU,
investigating officer and the officers subordinate to him shall be deemed to be public servants within
the meaning of section 21 of the Pakistan Penal Code (Act XLV of 1860).
41.
Act not to apply to fiscal offences.- (1) Except with prior consultation of FMU, an
investigating or prosecuting agency shall not charge any person with the offence of money
laundering in relation to a predicate offence punishable under the Sales Tax Act, 1990 (VII of 1990)
and the Federal Excise Act, 2005.
(2) In relation to the laws specified in sub-section (1), no offence other than the following
shall be notified as predicate offence, namely:a. Sub-Sections 11 and 13 of Section 33 read with section 2(37) of the Sales Tax Act, 1990;
and
b.
42.
Sub-section (3) of section 19 of the Federal Excise Act, 2005."
Power to amend the Schedule.—The Federal Government may, by notification in the
official Gazette, amend the Schedule to this Act so as to add any entry thereto or modify or omit any
entry therein.
43.
Power to make rules.—The Federal Government may in consultation with the National
Executive Committee and by notification in the Official Gazette, make rules for carrying out the
purposes of this Act.
44.
Power to make regulations.—Subject to the supervision and control of the National
Executive Committee, FMU may, by notification in the official Gazette, make such regulations as may
be necessary for carrying out its operations and meeting the objects of this Act.
45. Power to remove difficulties.—If any difficulty arises in giving effect to the provisions of this
Act, the Federal Government may, by order, published in the Official Gazette, make such provisions not
inconsistent with the provisions of this Act as may appear to be necessary for removing the difficulty.
46. Validation of actions, etc.- Anything done, actions taken, orders passed, instruments
made, notifications issued, agreements made, proceedings initiated, processes or communication
issued powers conferred, assumed or exercised, by the Federal Government, Financial Monitoring Unit
or its officers on or after the 5th January, 2008 and before the commencement of this Act, shall be
deemed to have been validly done, made, issued, taken, initiated, conferred, assumed, and exercised
and provisions of the Act shall have, and shall be deemed always to have had, effect accordingly.
27
“THE SCHEDULE”
[ see section 2 (w) ]
Section –I
109
111
The Pakistan Penal Code, 1860 (Act XLV of 1860)
Punishment of abetment if the act abetted is committed in consequence and where
no express provision is made for its punishment.
Liability of abettor when one act abetted and different act done
112
Abettor when liability to commutative punishment for act abetted and for act done
113
Liability of abettor for an affect caused by the act abetted different from that
intended by the abettor
115
Abetment of offence punishable with death or imprisonment for life, if offence not
committed, if act causing harm be done in consequence
116
Abetment of offence punishable with imprisonment-if offence be not
committed
117
Abetting commission of offence by the public or by more than ten persons
118
Concealing design to commit offence punishable with death or imprisonment for life,
if offence by committed; if offence be not committed
119
Public servant concealing design to commit offence which it is his duty to
prevent
120
Concealing design to commit offence punishable with imprisonment
120B
Punishment for criminal conspiracy.
121
Waging, or attempting to wage war, or abetting of war against Pakistan
121A
Conspiracy to commit offence punishable by section 121.
122
Collecting arms, etc. with intention of waging war against Pakistan.
161
Public servant taking gratification other than legal remuneration in respect of an
official act.
162
Taking gratification, in order, by corrupt or illegal means, to influence public servant
164
Punishment for abetment by public servant of offences defined in section 162 or 163.
165
Public servant obtaining valuable thing, without consideration from person
165A
Punishment for abetment of offences defined in section 161.
163
Taking gratification, for exercise of personal influence with public servant
concerned in proceeding or business transacted by such public servant.
28
302
Punishment for qatl-i-amd
316
Punishment for qatl shibh-i-amd.
327
Punishment
337k
Causing hurt to extort confession or to compel restoration of property.
343
Wrongful confinement for three or more days
344
Wrongful confinement for ten or more days
345
Wrongful confinement for person for whose liberation writ has been issued
346
Wrongful confinement in secret
347
Wrongful confinement to extort property or constrain to illegal act
348
Wrongful confinement to extort confession or compel restoration of property
363
Punishment for kidnapping
364
Kidnapping or abducting in order to murder
364A
Kidnapping or abducting a person under the age of fourteen.
365
Kidnapping or abducting with intent secretly or wrongfully to confine person
365A
Kidnapping or abducting for extorting property, valuable security etc.
365B
Kidnapping, abducting or inducing woman to compel for marriage etc.
366
Kidnapping, abducting or inducing woman to compel her marriage, etc.
366A
Procuration of minor girl
366B
Importation of girl from foreign country
367
Kidnapping or abducting in order to subject person to grievous hurt, slavery etc
367A
Kidnapping or abducting in order to subject person to unnatural lust
368
Wrongfully concealing or keeping in confinement, kidnapped or abducted person
369
Kidnapping or abducting child under ten years with intent to steal from its person
29
370
Buying or disposing of any person as a slave
371
Habitual dealing in slaves
371A
Selling person for purposes of prostitution etc
371B
Buying person for purposes of prostitution etc
374
Unlawful compulsory labour
376
Punishment of rape
379
Punishment for theft.
380
Theft in dwelling house. etc
381
Theft by clerk or servant of property in possession of master
381A
Theft of a car or other motor vehicle.
382
Theft after preparation made for causing death, hurt or restraint, in order to the
committing of the theft.
384
Punishment for extortion.
385
Putting person in fear of injury in order to commit extortion
392
Punishment for robbery.
395
Punishment for dacoity
402
Assembling for purpose of committing dacoity
402B
Punishment for hijacking
406
Punishment for criminal breach of trust.
411
Dishonestly receiving stolen property.
412
Dishonestly receiving stolen property in the commission of a dacoity
413
Habitually dealing in stolen property
414
Assisting in concealment of stolen property
417
Punishment for cheating.
30
419**
Punishment for cheating by personation.”;
421
Dishonest or fraudulent removal or concealment of property to prevent
distribution among creditors
422
423
Dishonest1y or fraudu1ently preventing debt being available for creditors
Dishonest or fraudulent execution of fees of transfer containing false
statement of consideration
424
Dishonest or fraudulent removal or concealment of property
465
Punishment for forgery.
467
Forgery of valuable security, will, etc.
468
Forgery for the purpose of cheating.
471
Using as genuine a forged document
472
Making or possessing counterfeit seal, etc with intent to commit forgery
punishable under section 467
473
Making or possessing counterfeit seal, etc with intent to commit forgery
punishable otherwise
474
Having possession of document described in section 466 or 467 knowing it to be
forged and intending to use it as genuine
475
Counterfeit device or mark used for authenticating documents described in section
467, or possessing counterfeit marked material
476
Counterfeit device or mark used for authenticating documents other than those
described in section 467, or possessing counterfeit marked material
477
Fraudulent cancellation destruction, etc., of will, authority to adopt, or
valuable security. 477A
Falsification of accounts.
482
Punishment for using a false trade-mark or property mark
483
Counterfeiting a trade mark of property mark used by another
484
Counterfeiting a mark used by a public servant
485
Making or possession of any instrument for counterfeiting a trade mark or
property
486
Selling goods marked with a counterfeit trade mark or property mark
487
Making a false mark upon any receptacle containing goods
488
Punishment for making use of any such false mark
31
489
Tampering with property mark with intent to cause injury
489A
Counterfeiting currency-notes or bank notes.
489B
Using as genuine, forged or counterfeit currency notes or bank-notes.
489C
possession of forged or counterfeit currency-notes or bank notes.
489D
making or possessing instruments or materials for forging or counterfeiting
currency-notes or bank notes.
489E
Making or using documents resembling currency-notes or bank notes.
489G**
Counterfeiting or using documents resembling Prize Bonds or unauthorized sale
thereof.”;
493A
Cohabitation caused by a man deceitfully inducing a belief of
lawful marriage
496A
Enticing or taking away or detaining with criminal intent a woman
Section –II
The Arms Act, 1878 (XI of 1878)
19
For breach of section 5, 6, 10, 13 to17.
20
For secret breaches of section 5 to 10, 14 and 15.
Section –III The Foreigners Act, 1946 (XXXI of 1946) 14 Penalties.
Section III-A Prevention of Corruption Act, 1947 (II of 1947)**
5
Criminal misconduct.
5B
Declaration of Assets.
5C
Possession of Property disproportionate to known sources of income.
Section IIIB Foreign Exchange Regulation Act, 1947 (VII of 1947)-Illegal forex business**
Subsection (1) of section 4 read with section 23.
Section 5 read with section 23.
Section –IV
66
67
The Copyright Ordinance, 1962 (XXXIV of 1962)
Offences of infringement of copyright or other rights conferred by this
Ordinance .
Possession of plates for purpose of making infringing copies
32
68
Penalty for making false entries in the Register, etc. or producing or tendering false
evidence .
69
Penalty for making false statements for the purpose of deceiving or influencing any
authority or officer.
70
False attribution or authorship, etc.
Section –V
13
The Pakistan Arms Ordinance, 1965 (W.P. Ordinance XX of 1965)
Penalty for breach of sections 4, 5, 8 to 11
Section –VI
The Customs Act, 1969 (IV of 1969)**
Section 2(s) read with clause 8, 89 of section 156(1)
Section 15 read with clause 8, 9, 89 & 90 of section 156 (1)
Section 16 read with clause 8, 9, 89 & 90 of section 156 (1)
Section 32 read with clause 14 of section 156 (1)
Section 32A read with clause 14A of section 156(1)
Section 139 read with clause 70 of section 156 (1)
Section –VIA The Securities Act, 2015 (Act No. III of 2015)***
Section 128. (Prohibition of insider trading) read with Section 159
Section 133 (Market Manipulation) read with Section 159
Section –VII
The Emigration Ordinance, 1979 (XVIII of 1979)
17
Unlawful immigration etc.
18
Fraudulently inducing to emigrate.
19
False representation of Government authority.
22
Receiving money etc. for providing foreign employment.
Section –VIIA**** The Sales Tax Act, 1990
33 (entries 11 and 13 of Section 33 of Table) Offences and Penalties
Section –VIII
The Control of Narcotic Substances Act, 1997 (XXV of 1997)
5
Punishment for contravention of section 4
11
Punishment for contravention of section 10.
15
Punishment for contravention of section 14.
41
Prohibition of alienation of freezed property.
9
13
Punishment for contravention of section 6, 7 and 8.
Punishment for contravention of section 12.
33
42
Prohibition of acquiring property in relation to which proceedings have been taken
under the Act
Section –IX
The Anti-Terrorism Act, 1997 (XXVII of 1997)
All offences under this Act*
Section –IXA
17
The Pakistan Environmental Protection Act 1997 (XXXIV of 1997)*
Penalties
18 Offences by bodies corporate
Section -X
9
Section -XI
National Accountability Ordinance, 1999 (XVIII of 1999)
Corruption and Corrupt Practices.
The Registered Designs Ordinance, 2000 (XLV of 2000)*
27
Offences and penalties
28
Falsification of Register, etc.
29
Falsely representing a design as registered
Section -XII The Trade Marks Ordinance, 2001 (XIX of 2001)*
99
Penalty for applying false trade description, etc.
101
Penalty for falsification of entries in Register
107
Penalty for improperly describing a place of business as connected with the Trade
Marks Registry
Section -XIII The Prevention & Control of Human Trafficking Ordinance, 2002 (LIX of 2002)*
3
Punishment for human trafficking
4
Offences committed by organized criminal groups
5
Repetition of commission of offences
34
Section XIV The Federal Excise Act, 2005****
19(3) Offences, penalties, fines and allied matters
* Inserted through SRO No. 3 dated January 8, 2011
** Inserted through Federal Government notification dated 1 st April 2015
*** Inserted through Federal Government notification dated 21 st December 2015
**** Inserted through Federal Government notification dated 3 rd February 2016
35
Securities Act, 2015
Listing of securities Sec 19
o A company that wishes to have its securities listed on a securities exchange shall submit
a) an application in the form and manner specified by the securities exchange, and
b) send a copy of the application to the Commission.
c) Upon receipt of an application the securities exchange may list the securities for trading on the
securities exchange.
o securities exchange list security after making such inquiry as it may consider necessary that the
applicant fulfils the conditions prescribed in this behalf.
o Where a securities exchange refuses to list a company’s securities, the Commission may, either
on petition by the applicant made within the prescribed time or on its own motion, direct the
securities exchange to list the securities.
o Where, after the listing of securities, the Commission or securities exchange finds that
a) the application is deficient in any material respect or
b) the company has failed to comply with any prescribed condition or requirement and
c) the continued listing of the securities would not be in the public interest,
The Commission or the securities exchange may, by order, either require the company to correct the
deficiency or comply with the prescribed condition or requirement within the time specified in the
order or revoke the listing.
PUBLIC OFFERS OF SECURITIES
Offer of securities Sec 87
o This Part applies to offer of securities other than Government debt securities.
o No person shall make a public offer of securities unless
a) the issuer or offeror of the securities has submitted for approval to the Commission and
b) the Commission has approved prospectus.
o A prospectus approved by the Commission shall be valid for a period of sixty days from the date of
such approval or for a longer period approved by the Commission.
o The time period of sixty days provided for approval of prospectus may be extended by the
Commission by reasons to be recorded in writing.
o The Commission shall not be liable to any action in damages suffered as a result of any prospectus
approved by the Commission.
o A person who, in connection with a public offer of securities, makes a false or fictitious application,
commits an offence.
o The Commission may, where it considers it appropriate, forfeit any or all of the money paid or
payable in respect of an offering application after providing the applicant a reasonable opportunity of
being heard.
o No person shall make a public offer of securities if such person or its directors, sponsors or substantial
shareholders have been holding the office of the directors, or have been sponsors or substantial
shareholders in any company, which
(a) had been declared defaulter by the securities exchange; or
(b) whose TRE certificate has been cancelled or forfeited by the securities exchange; or
(c) which has been de-listed by a securities exchange due to non-compliance of its regulations:
The Commission may grant relaxation upon reasons to be recorded, and rectification of cause leading to such
de-listing.
TRE Certificate. means a Trading Right Entitlement Certificate issued by the Exchange including
the. certificate issued to the existing members on the date of corporatization; evidencing right of. the TRE
Certificate Holder to apply for registration as a Broker in accordance with the.
o This section shall not apply
(a) to securities offered by the State Bank of Pakistan;
(b) where the securities are offered in connection with a private offering or private placement; and
(c) issue of shares of a subsidiary to the members of a listed holding company by way of specie dividend or any
other distribution in the prescribed manner.
(d) where the securities are offered by the issuer to—
(i) members or employees of the issuer; or
(ii) members of the families of any such members or employees; and
(e) where the securities are shares and are offered as bonus shares to any or all of the members of the issuer;
Approval, issue, circulation and publication of prospectus Sec 88.
No person shall issue, circulate and publish prospectus including a shelf-prospectus or
supplement to the prospectus until it has been approved by the Commission which approval
may be subject to such conditions or restrictions as the Commission considers necessary.
Issue and Publication
o The issuer or the offeror, as the case may be, shall, not less than twenty one days before
the proposed date of publication of the prospectus, submit a copy to the Commission for
approval.
o Where a public offer of securities is to be made in Pakistan the issuer or offeror, as the
case may be, shall publish the prospectus in full text or in such abridged form as may be
prescribe, at least in one Urdu and one English daily newspaper.
o The prospectus shall not be published in the newspapers less than seven days or more
than thirty days before the commencement of the public subscription.
o The issuer or the offerer, as the case may be, shall make available sufficient number of
copies of the prospectus approved by the Commission , free of charge, from the date of
its publication in the newspapers till the closing of the subscription at the registered
office of the issuer, with all the securities exchanges of the country, with all the bankers
to the issue, the concerned share registrar, the concerned ballotter and the concerned
credit rating agency, if any.
o The prospectus in full text and the shares subscription form shall be uploaded on the website of the issuer and
shall remain there from the date of its publication in the newspapers till the closing of the subscription.
o No person shall issue, circulate, publish, telecast or broadcast without the prior written approval of the
Commission, an advertisement, other than a prospectus, announcing a public offer of securities for which a
prospectus is required under this Part unless a prospectus has been published and the advertisement gives an
address in Pakistan from which it can be obtained.
o The issuer or offeror, as the case may be, shall not, at any time, vary the terms of the clauses stipulated in its
prospectus except subject to the approval of the Commission.
o Where an issuer or the offerer, as the case may be, can issue, circulate and publish supplement to the prospectus
inviting the general public for subscription of the security(ies) earlier offered to the public through shelfprospectus, provided that—
(a) it has obtained prior written approval of the Commission for its issue, circulation and publication;
(b) the last supplement should be published within such time period to be prescribed by the Commission; and
(c) the aggregate amount of the offer or issue floated in tranches should not exceed the total issue size as
mentioned in the shelf-prospectus.
o A copy of each supplement to the prospectus shall be filed with the registrar on or before the date of its issue,
circulation or publication.
o A supplement to the prospectus shall contain such information as may be prescribed by the Commission and it
shall be published in atleast all those newspapers in which the shelf-prospectus has been published.
o In case of any misstatement or omission of material information from the supplement to the prospectus,
sections 92 and 93 shall apply mutatis mutandis.
Contents of prospectus Sec 89
The Commission may approve a prospectus if it contains such information and reports as
may be prescribed.
Expert to be independent Sec 90
A prospectus shall not contain a statement purporting to be made by an expert unless the
expert is a person who is not, and has not been, engaged or interested in the formation or
promotion or in the management of the company.
Expert’s consent to issue of prospectus containing statement made by him Sec
91
A prospectus that contains a statement purporting to be made by an expert or to be based on
a statement made by an expert shall not be issued, circulated or published unless
(a) the expert has given, his written consent to the issue of the prospectus with the statement
in the form and context in which it is included; and
(b) there appears in the prospectus a statement that the expert has given and has not
withdrawn his consent.
Criminal liability for defective prospectus Sec 92
A person commits an offence, who—
(a) makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
(b) omits information or a statement from a prospectus that this Act or any rule or regulation
made under this Act, requires to be included in the prospectus.
Compensation for false or misleading prospectus Sec 93
Every offeror, issuer, director of an offeror or issuer or any person who has signed the
prospectus shall be liable to pay compensation to any person who acquires any of the securities,
in reliance upon the prospectus, to which the prospectus relates and suffers loss in respect of
them as a result of any incorrect, untrue or misleading statement in the prospectus or the
omission from it of any matter required to be included by or under section 89.
Abridged prospectus Sec 94
Notwithstanding the provisions of this Part, a public offer of securities may be made by
publication of an abridged version of a prospectus (an abridged prospectus), instead of a
prospectus, if
(a) a prospectus is prepared in accordance with section 89 and the abridged prospectus is
prepared in accordance with such requirements as may be prescribed;
(b) a copy each of the prospectus and the abridged prospectus is submitted to the Commission
at the same time for approval and both the prospectus and the abridged prospectus are
approved by the Commission;
(c) sufficient copies of the prospectus are made available for collection at the times and places
specified in section 88 and the abridged prospectus; and
(d) the public offer complies with such other requirements as may be prescribed.
Issue of securities outside Pakistan Sec 95
No company shall, except with the prior approval of the Commission, issue or list any securities
outside Pakistan.
Disclosure of price sensitive information Sec 96
o A listed company shall disclose to the public forthwith any price sensitive information relating to the company or
its subsidiaries
a) which has come to the company’s knowledge and
b) which would be material to an investor’s investment decision.
o This shall also include following information that
(a) is necessary to enable the public to appraise the position of the company and its subsidiaries;
(b) is necessary to avoid the creation or continuation of a false market in the securities of the company or
(c) might reasonably be expected to materially affect the market activity and the price of its securities.
False market being defined as an uninformed market or one which is based on incomplete information.
o A listed company shall ensure that the means it uses for circulating information are such that it equally, timely and
effectively provides access to such information by the holders of the securities of the company and investors.
o A listed company meets the requirements of such section when information that affects the market or a sector of the
market generally is made public in a manner that would be likely to bring it to the attention of persons who
commonly invest in securities of a kind whose price or value might be affected by the information.
o In the event that a listed company is also traded or listed on a foreign market or exchange, the listed company shall
ensure that where information is released to those markets the same information is released in Pakistan
simultaneously.
o A listed company may, under its own responsibility, delay the public disclosure of price sensitive information such
as not to prejudice its legitimate interests, provided that
(a) such delay would not be likely to mislead public investors;
(b) any person receiving the information owes the listed company a duty of confidentiality, regardless of whether such
duty is based on law, regulations, articles of association or contract; and
(c) the listed company is able to ensure the confidentiality of that information.
Short selling Sec 77
o Except in accordance with regulations , a person shall not sell any listed securities that he or his principal
does not own either for his own account or for the account of another person.
o A person who sells securities includes a person who
(a) sells the securities;
(b) purports to sell the securities;
(c) offers to sell the securities;
(d) holds himself out as entitled to sell the securities; or
(e) instructs a securities broker to sell the securities.
o A person is treated as owning securities only if
(a) he or his agent is legally entitled to the securities;
(b) he has purchased the securities or has entered into an unconditional contract to purchase the securities,
even if he does not yet have title to them;
(c) he owns other securities convertible into or exchangeable for the securities and has tendered the other
securities for conversion or exchange;
(d) he has an option to acquire the securities and has exercised the option; or
(e) he has rights or warrants to subscribe to the securities and has exercised the rights or warrants.
Duties of securities exchange Sec 06
(1) It shall be the duty of a securities exchange to ensure
(a) a fair, transparent and efficient market in securities that are traded on its securities market; and
(b) that risks associated with its business and operations are managed prudently.
(2) In discharging its above duty, a securities exchange shall
(a) act in the public interest; and
(b) ensure that the interest of investor, customer and public at large prevails where it conflicts with the interest of the
securities exchange, TRE certificate holder, shareholders, board of directors and management.
(3) A securities exchange shall operate its facilities in accordance with the regulations made under section 7 and
approved under section 8.
(4) A securities exchange shall regulate the operations, standards of practice and business conduct of TRE certificate
holder and their representatives and other employees in accordance with the regulations, policies, procedures and
practices of the securities exchange.
(5) A securities exchange shall ensure that the listed companies and its designated officers shall comply with the
regulations, policies, procedures and practices of the securities exchange.
(6) A securities exchange shall preserve confidentiality with regard to all information in its possession concerning TRE
certificate holder and their customers, except that such information may be disclosed by the securities exchange as and
when required in writing to do so by the Commission or by a clearing house under its regulations or required under
any law for the time being in force, or it is ordered to do so by the Court.
(7) A securities exchange shall have efficient procedures and arrangements for addressing customer’s complaints. (8)
The securities exchange shall put in place such structural provisions, operating procedures, and surveillance
techniques to detect and prevent insider trading and market abuse.
(9) A securities exchange shall immediately notify the Commission if it becomes aware
(a) of a financial irregularity or other matter which in the opinion of the securities exchange may indicate that its
financial integrity is in question or that it is unable to meet its legal obligations;
(b) that any TRE certificate holder is unable to comply with any regulation of the securities exchange or any financial
resources regulation;
(c) of a financial irregularity or other matter which in the opinion of the securities exchange may indicate that the
financial standing or integrity of a TRE certificate holder is in question or that a TRE certificate holder may not be able
to meet his legal obligations; or
(d) of non-compliance or violation by a company listed on such securities exchange of any provisions of this Act or any
regulations made by there under.
(10) A securities exchange shall immediately notify the Commission of any action taken against a TRE certificate
holderor listed company.
(11) A securities exchange shall at all times provide and maintain, for the conduct of its business,
(a) adequate and properly equipped premises;
(b) automated systems with adequate capacity, facilities to meet contingencies or emergencies, physical, virtual and
logical security arrangements and technical support; and
(c) comprehensive business continuity plan.
(12) A securities exchange shall ensure that appointment or removal of chief executive officer and chief regulatory
officers by whatever names called is made with the prior approval of the Commission.
Regulations of securities exchange Sec 07
(1) Without limiting the generality of sub-section (4) of section 5, the regulations of a securities exchange, may make
provision
(a) with respect to the constitution, powers and functions of the governing body of the securities exchange and matters
relating to disciplining of the directors, officers and functionaries of the securities exchange;
(b) with respect to the development of risk management system, including control measures and safeguards with
respect to large exposures, and matters connected therewith;
(c) with respect to the risk management procedures, misalignment of incentives and conflict of interest between
securities broker, its employees and its clients;
(d) with respect to disclosure of conflict of interest by directors and employees of the securities exchanges;
(e) with respect to the eligibility, admittance and conduct of TRE certificate holder;
(f) with respect to listing and delisting of securities;
(g) with respect to the appointment and functioning of internal auditors;
(h) expulsion, suspension or disciplining of TRE certificate holder for conduct inconsistent with just and equitable
principles in connection with trading in securities or for a contravention of the regulations of the securities exchange;
(i) with respect to liquidation of the assets of securities brokers deposited or in control of the securities exchange to
fulfill customer claims arising there from;
(j) with respect to the terms and conditions under which securities may be traded;
(k) with respect to operational, information system and regulatory audit of securities broker and securities exchange
including the regular assessment of trading systems as well as the assessment of reliability and effectiveness of all risk
management and control measures implemented by securities exchange;
(l) with respect to the mechanism for inspection and provisions relating to audit and compliance of securities brokers
including cooperation with other licensed entities for violation of any requirement of this Act or any rules or
regulations made there under;
(m) with respect to proprietary trading by TRE certificate holder;
(n) effective surveillance and monitoring to detect and prevent insider trading and market abuse practices;
(o) with respect to fair and properly supervised trading practices;
(p) with respect to the prohibition of trading in securities by securities brokers or their representatives, either directly
or indirectly, for their own accounts or accounts of associated persons, except in accordance with the regulations of the
securities exchange;
(q) with respect to measures to prevent manipulation, market rigging and artificial markets in its securities market;
(r) for preventing the excessive use of credit by way of initial or maintenance margin in respect of the purchase or
carrying of any securities;
(s) for effective know your customer and customer due diligence policies and procedures and other matters ancillary to
anti-money laundering;
(t) the recording and publishing of details of trading;
(u) the financial integrity of securities broker such as to provide reasonable assurance that all obligations out of the
trading in securities on the securities market of that securities exchange will be met;
(v) with respect to the fee and charges payable for facilities and services provided by the securities exchange;
(w) with respect to brokerage and other charges by securities brokers;
(x) with respect to the equitable allocation of the dues, fees and other charges levied by the securities exchange;
(y) with respect to settlement of claims and dispute resolution between any of its securities brokers, or between
securities brokers and their customers, or between securities brokers and their accredited representatives or between
accredited representative(s) of securities brokers and their customers, in relation to any market contract of the
securities exchange;
(z) where a securities broker appears to be unable or likely to become unable, to meet his obligations in respect of one
or more market contracts, to enable action to be taken to close out his position in relation to all unsettled market
contracts to which he is a party, including facilitation in default proceedings; and (aa) generally for the carrying on the
business of the securities exchange with due regard to the interests and protection of the investing public.
(2) The regulations of a securities exchange shall apply to
(a) the securities exchange, its employees and its directors and the securities exchange shall be responsible to ensure
their compliance with such regulations;
(b) securities brokers, their representatives and other employees and the securities broker shall be responsible to
ensure their compliance with such regulations; and
(c) listed company.
(3) The power to make regulations conferred by this section on the securities exchange shall be subject to the condition
of previous placement of the said regulations on the website of the securities exchange along with the rationale for
eliciting public opinion thereon for a period of not less than seven days starting from the date of its placement on the
website: Provided that, on an application by the securities exchange, the Commission may waive the condition of
eliciting public opinion in cases requiring the immediate implementation of a proposed regulation(s).
(4) The Commission may, by notice in writing served on a securities exchange, require it
(a) to make regulations specified in the notice within the period specified; or
(b) to amend regulations referred to in the notice in the manner and within the period specified in the notice.
(5) Where the Commission is satisfied that a securities exchange has not complied with a requirement referred to in
sub-section (4) within the period specified in the notice, the Commission may make or amend the regulations specified
in the notice instead of the securities exchange and the regulations so made or amended shall be deemed to have been
made or amended by the securities exchange and shall have effect accordingly.
__________________________________________________________________
__________________________________________________________________
ISLAMABAD, MONDAY, MAY 18, 2015
__________________________________________________________________
__________________________________________________________________
PART I
Acts, Ordinances, President’s Orders and Regulations
NATIONAL ASSEMBLY SECRETARIAT
Islamabad, the 6th May, 2015
No. F. 22(22)/2015-Legis.
The following Act of Majlis-e-Shoora (Parliament) received the assent of the President on 13th
May, 2015 and is hereby published for general information:
Act No. III of 2015
An Act to amend and consolidate law for the regulation of the securities industry and the
protection of investors
Whereas it is expedient to amend and consolidate law for the regulation of the securities
industry, the protection of investors and for the matters connected therewith or ancillary thereto;
It is hereby enacted as follow:
PART 1
PRELIMINARY
1.
Short title, extent and commencement.
(1) This Act may be called the Securities Act, 2015.
(2)
It extends to the whole of Pakistan.
(3)
Except for PART V, this Act shall come into force at once, and
PART V of this Act shall come into force on such date as the Federal Government may, by
notification in the official Gazette, appoint.
2.
Definitions.
In this Act, unless there is anything repugnant in the subject or context,
(i)
“accredited” means accredited in accordance with section 67;
(ii)
“associate”, in relation to
(a)
an individual, means
(I)
that individual’s spouse, son, adopted son, step-son, daughter, adopted daughter, stepdaughter, father, stepfather, mother, stepmother, brother, stepbrother, sister or stepsister;
(II)
any company of which that individual is a director;
(III) any company in which that individual or any of the persons
mentioned in sub-clause (i), has control of twenty per cent or more of the voting power in the
company, whether such control is exercised individually or jointly; or
(IV)
any employee of that individual; or
(b)
a company, means another company in which the first-mentioned
company has control of not less than twenty per cent of the voting power in that company,
and a reference in this Act to an associated person or associated company shall be
construed accordingly;
(iii)
“auditor” means a chartered accountant as defined in clause (b) of sub-section (1)
of section 2 of the Chartered Accountants Ordinance, 1961 (X of 1961), to be appointed from the
panel of auditors approved by the Commission to perform the functions assigned to auditors
under this Act;
(iv)
“balloter” means a person who provides services to an issuer for selecting the
required number of applicants of public issue through a ballot;
(v)
“bank” means a bank licenced under section 27 of the Banking Companies
Ordinance, 1962 (LVII of 1962);
(vi)
“central depository” means any company licensed by the Commission for the
handling of securities, as envisaged in the Central Depository Act 1997 (XIX of 1997) and
licensed under section 49 of this Act;
(vii) “clearing facility” means a facility for the clearing and settlement of securities
traded on a securities exchange;
(viii) “clearing house” means a company that is licenced by the Commission as a
clearing house under section 24;
(ix)
“clearing member” means a person who, is admitted as a clearing member for
clearing and settlement on his own behalf as well as on behalf of others under the regulations of
a clearing house;
(x)
“Commission” means the Securities and Exchange Commission of Pakistan
established under section 3 of the Securities and Exchange Commission of Pakistan Act,
1997(XLII of 1997);
(xi)
“commissioner” means a commissioner as defined in section 2 (h) of the
Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);
(xii) “company” means a company as defined in clause (7) of sub-section (1) of section
2 of the Companies Ordinance, 1984 (XLVII of 1984);
Explanation:—The expression “company” used in this Act, shall, wherever the
context requires, also include a body corporate or corporation established by any special
enactment for the time being in force;
(xiii) “control” includes the right to appoint majority of directors or to control
management or policy decisions, exercisable by a person individually or through any person
acting in concert, directly or indirectly, whether by virtue of his shareholding, management right,
shareholders agreement, voting agreement or otherwise;
(xiv) “Court” means the Company Bench of a High Court as provided in sections 7 and
8 of the Companies Ordinance, 1984 (XLVII of 1984);
(xv) “customer” means a person on whose behalf a regulated person carries on any
regulated securities activity and includes any person commonly known as an investor;
(xvi) “customer assets” means money received, receivable or retained by or any other
property deposited with, a regulated person in the course of his business for which he is liable to
account to his customer, and any money or other property accruing there from;
(xvii) “customer money” means money of any currency that, in the course of carrying
on his regulated securities activity, a regulated person holds or receives on behalf of a customer
or which he owes to a customer;
(xviii) “default proceedings” means proceedings or other action taken by a clearing
house, stock exchanges and central depository under its default regulations;
(xix) “default regulations”, means those provisions of the regulations which provide
for the initiation of proceedings or other action if a clearing member has failed or appears to be
unable or likely to become unable, to meet his obligations for all unsettled or open market
contracts to which he is a party;
(xx) “depository receipt” means a certificate or other record, whether or not in the
form of a document, which
(a)
is issued by or on behalf of a person who holds any shares, debt securities and warrants
of a particular issuer; and
(b)
acknowledges that another person is entitled to rights in relation to the share, debt
securities and warrants, debt securities and warrants of the same kind;
(xxi) “director”, in relation to a company, includes any person occupying in relation to
the position of a director, by whatever name called;
(xxii) “expert” includes banker, securities advisor, engineer, valuer, accountant, lawyer
and any other person whose profession gives authority to a statement made by him;
(xxiii) “family” means a spouse and lineal ascenda
nts and descendants;
(xxiv) “futures broker” means a person who, by way of business, whether as principal
or agent,—
(a)
makes or offers to make with any person or induces or attempts to induce any
person to enter into or to offer to enter into any agreement for or with a view to the purchase or
sale of a futures contract; or
(b)
solicits or accepts any order for, or otherwise dealing in, a futures contract;
(xxv) “futures exchange” means a public company that is licensed by the Commission
as a futures exchange;
(xxvi) “holding company” means a holding company as defined in section 3 of the
Companies Ordinance, 1984 (XLVII of 1984);
(xxvii) “issuer”, in relation to securities, means any person who has issued or proposes to
issue a security;
(xxviii)“licenced person” means any person or entity licenced under this Act and includes
a regulated person;
(xxix) “listed company” means a public company, body corporate or other entity any of
whose securities are listed on securities exchange;
(xxx) “listed securities” means securities listed on the securities exchange;
(xxxi) “majority shareholder” means shareholder who holds, owns or control, directly
or indirectly, more than fifty percent of the shares having voting rights in a company or who, for
other reasons, has domination or control of the company and includes a group of shareholders
who collectively own more than fifty percent of shares or otherwise have that domination or
control;
(xxxii)
“margin” means the amount of cash, approved securities or any other form
of margin as prescribed;
(xxxiii)“market contract” means(a)
a contract subject to the regulations of a clearing house entered into by the
clearing house with a clearing member under a novation and for the purpose of clearing and
settlement of transactions using the clearing facility before or after default proceedings have
commenced; or
(b)
a transaction which is being cleared or settled using the clearing facility and
subject to the regulations of a clearing house, whether or not a novation referred to in sub-clause
(a) is to take place;
(xxxiv) “money” includes any form of money, whether represented by a cheque or other
payable order or otherwise;
(xxxv) “non-banking finance company” shall have the same meaning as assigned to it in
clause (a) of section 282A of the Companies Ordinance, 1984 (XLVII of 1984);
(xxxvi) “offeror” means any person or entity holding, directly or indirectly, such number
of securities as may be prescribed and offers such securities for sale to the public or invites any
other person to make subscription for such an offer and includes an issuer;
(xxxvii)
“prescribed” means prescribed by regulations made by the Commission;
(xxxviii)
“principal”, in relation to a representative, means the regulated person
which the representative represents;
(xxxix) “private company” means a private company as defined in clause (28) of subsection (1) of section 2 of the Companies Ordinance, 1984 (XLVII of 1984);
(xl)
“private offering (non-public offering) or private placement” means an offer to
sell or issue securities to a group of investors (whether individual or institutional) not more than
the number prescribed and not using the print or electronic media for inviting offers;
(xli) “prospectus” means any document described or issued as a prospectus and
includes any document, notice, circular, material, advertisement, offer for sale document,
publication or other invitation offering to the public (or any section of the public) or inviting
offers from the public for the subscription or purchase of any securities of a company, body
corporate or entity, other than deposits invited by a bank and certificate of investments and
certificate of deposits issued by non-banking finance companies;
(xlii) “public company” means a public company as defined in clause (30) of subsection (1) of section 2 of the Companies Ordinance, 1984 (XLVII of 1984);
(a)
(xliii) “qualified institutional buyer” means
a bank;
(b)
a financial institution as defined under clause (15A) of sub-section (1) of section 2
of the Companies Ordinance, 1984 (XLVII of 1984); or
(c)
any other entity, which is notified by the Commission as a ‘qualified institutional
buyer’based on the criteria prescribed under regulations;
(xliv) “quotation and trade reporting system” means the operation of facilities that
permit the dissemination of price quotations for the purchase and sale of securities and reports of
completed transactions in securities;
(xlv) “record” means all documentary, electronic and digital materials created,
generated, sent, communicated, received or stored, regardless of physical form or characteristics;
(xlvi) “regulated market” means any securities exchange, over-the-counter market or
platform that is licensed by the Commission;
(xlvii) “regulated person” means a person or entity licenced by the Commission under
Part V of this Act to carry on any regulated securities activity;
(xlviii) “regulated securities activity” means a regulated securities activity as specified in
section 63;
(xlix) “regulations” means regulations made by the Commission under this Act;
(l)
“representative” means an individual, by whatever name called, in the
employment of or acting for or by arrangement with, a regulated person, who carries out for that
regulated person any such activity (other than work ordinarily performed by accountants, clerks
or cashiers), whether or not he is remunerated, and whether his remuneration, if any, is by way of
salary, wages, commission or otherwise; and includes any officer of a company who performs
for the company any such activity whether or not he is remunerated, and whether his
remuneration, if any, is by way of salary, wages, commission or otherwise and includes an agent
of a regulated person;
(li)
(a)
“rules” means rules made under this Act;
(lii)
“securities” in the case of listed instruments includes
shares and stock of a company (shares);
(b)
any instrument creating or acknowledging indebtedness which is issued or
proposed to be issued by a company including, in particular, debentures, debenture stock, loan
stock, bonds, notes, commercial paper, sukuk or any other debt securities of a company, whether
constituting a charge on the assets of the company or not (debt securities);
(c)
loan stock, bonds, sukuk and other instruments creating or acknowledging
indebtedness by or on behalf of a government, central bank or public authority (Government and
public debt securities);
(d)
modoraba certificates, participation term certificates and term finance certificates;
(e)
any right (whether conferred by warrant or otherwise) to subscribe for shares or
debt securities (warrants);
(f)
any option to acquire or dispose of any other security (options);
(g)
units in a collective investment scheme, including units in or securities of a trust
fund (whether open-ended or closed end);
(h)
the rights under any depository receipt in respect of shares, debt securities and
warrants (custodian receipts); and
(i)
any other instrument notified by the Commission to be securities for the purposes
of this Act,
but does not include
(a)
futures contracts;
(b)
bills of exchange;
(c)
promissory notes; and
(d)
certificates of deposit;
(liii) “securities adviser” means a person, who
(a)
gives investment advice on whether, which, the time at which or the terms or conditions
on which, securities may be bought, sold, exchanged or subscribed for;
(b)
issues analyses or reports, for the purposes of facilitating the recipients of the
analyses or reports to make decisions on whether or the time at which or the terms or conditions
on which, specific securities may be bought, sold, exchanged or subscribed for; or
(c)
advises on the management of a portfolio of securities for another person
without holding property of the other person; and
(ii)
on terms that preclude him from doing so,
but does not include
(I)
a bank;
(i)
(II)
a person who gives such advice or issues such analyses or
reports
(A)
in a newspaper, magazine, book or other publication which is made generally available to
the public, and which does not have as its principal or only object the provision of
advice or the issue of analyses or reports, concerning securities; or
(B)
in television broadcast or radio broadcast for reception by the public,
whether on subscription or otherwise; and
(III) any other person excluded to the such extent as may be notified by the
Commission;
(liv) “securities broker” means a trading right entitlement certificate holder or “TRE”
certificate holder who, by way of business,
(a)
makes or offers to make with any person or induces or attempts to induce any person to
enter into or to offer to enter into, any agreement for or with a view to buying, selling,
exchanging or subscribing for, securities; or
(b)
solicits or accepts any order for or otherwise trading in, or effects transactions
in, securities for clients or on its own account;
(lv)
“securities exchange” means a public company that is licensed by the
Commission as a securities exchange under section 5;
(lvi) “securities manager” means a person who manages or offers or agrees to manage,
with or without remuneration, a portfolio of securities belonging to another person, whether on a
discretionary authority granted by that other person or otherwise;
(lvii)
“securities market” means any market or place at which or any service or facility
(whether electronic or otherwise) by means of which, offers or invitations to sell, purchase or
exchange securities are regularly made on a centralized basis, being offers or invitations that are
intended or may reasonably be expected, to result, directly or indirectly, in the acceptance or
making, respectively, of offers to sell, purchase or exchange securities;
(lviii) “senior management officer” includes, chief executive officer/ managing director,
deputy managing director/chief operating officer and chief regulatory officer or holder of such
positions by whatever name called;
(lix)
“settlement”, in relation to a market contract, includes partial settlement;
(lx)
“shelf registration” means an arrangement that allows a single offering
document allowing companies to make multiple offerings as disclosed in the offering document
within a prescribed time and subject to prescribed conditions;
(lxi) “subsidiary” means a subsidiary as defined in section 3 of the Companies
Ordinance, 1984 (XLVII of 1984);
(lxii) “substantial shareholder”, in relation to a company, means a person
who has
an interest in shares of a company
(a)
the nominal value of which is equal to or more than ten per cent of the issued share
capital of the company; or
(b)
which enables the person to exercise or control the exercise of ten per cent or
more of the voting power at a general meeting of the company;
(lxiii) “trading in securities” means (whether as principal or agent)
(a)
making or offering to make with any person, or inducing or attempting to induce any
person to enter into or to offer to enter into, any agreement for or with a view to the purchase or
sale of a security; or
(b)
soliciting or accepting any order for or otherwise trading in a security;
(lxiv) “trading right entitlement certificate” or “TRE certificate” means a trading right
entitlement certificate as defined in the Stock Exchanges (Corporatization, Demutualization and
Integration) Act, 2012 (XV of 2012);
(lxv) “trading right entitlement certificate holder” or “TRE certificate holder” means a
trading right entitlement certificate holder as defined in the Stock Exchanges (Corporatization,
Demutualization and Integration) Act, 2012 (XV of 2012); and
(lxvi) “underwriter” means a person who
(a)
on a firm commitment basis purchases newly issued securities or securities offered for
sale for the purpose of public resale on behalf of the issuer or offeror or who guarantees to an
issuer or offeror that the unsold residue of the issuer’s public issue or sale will be taken up; or
(b)
on a best efforts basis acts as an underwriter for the issuer.
PART II
SECURITIES EXCHANGES
3.
Licensing requirement.
(1) No person shall establish or operate or assist in establishing or operating or hold himself out
as operating a securities market except under and in accordance with a securities exchange
licence granted by the Commission under section 5.
(2)
The Commission shall determine the number and places for the establishment of
securities exchanges.
4.
Eligibility for licensing.
(1) Subject to sub-section (2), a public company having an object to operate as a stock exchange
shall be eligible for licensing as a securities exchange only if
(a)
it has, and maintains at all times, a minimum paid-up capital (net of losses) of rupees five
hundred million or such higher amount as may be notified by the Commission;
(b)
not more than such percentage of share of the company as may be notified by the
Commission is held directly or indirectly by a
(i)
securities broker or any connected person or the majority shareholder of such securities
broker, or an associate of the majority shareholder of such securities broker;
(ii)
securities exchange or any connected person or the majority shareholder of such
securities exchange, or an associate of the majority shareholder of such securities exchange;
(iii)
futures broker or any connected or the majority shareholder of such futures
broker, or an associate of the majority shareholder of such futures broker; or
(iv)
futures exchange or any connected person or the majority shareholder of such
futures exchange, or an associate of the majority shareholder of such futures exchange:
Provided that the Commission may in the official Gazette notify any class
or classes of persons to hold such number of shares of the securities exchange as the Commission
deems appropriate;
(c)
its promoters, directors, majority shareholders, senior management officers fulfill
the fit and proper criteria as may be prescribed; and
(d)
it satisfies such other conditions as may be prescribed.
(2)
For the purposes of clause (b) of sub-section (1), two or more companies are
connected companies if one of them is
(a)
the holding company of the other;
(b)
(c)
a subsidiary of the other; or
a subsidiary of the holding company of the other.
5.
Grant of licence.
(1) A public company eligible for a licence may apply to the Commission to be licenced as a
securities exchange in such form and manner as may be prescribed.
(2)
The application under sub-section (1), shall be accompanied by the prescribed fee.
(3)
The Commission may require an applicant to provide the Commission with such
further information as it considers necessary in relation to the application, in such form or
verified in such manner as the Commission may direct.
(4)
The Commission may, in writing, subject to such conditions or restrictions as it
may think fit to impose, grant licence to a public company as a securities exchange if the
Commission is satisfied that the company shall operate a fair, transparent and efficient securities
market; manage any risks associated with its business and operations prudently and enforce
compliance by TRE certificate holder and listed companies with its regulations.
(5)
In the exercise of its powers to grant licence under sub-section (4), the
Commission shall have regard to whether,-
(i)
(a)
the company’s regulations make satisfactory provision for
a fair, transparent and efficient market in securities that are traded through its facilities;
(ii)
companies;
(iii)
(iv)
company;
the proper regulation and supervision of TRE certificate holder and listed
appropriate measures for the protection of customers;
an equitable distribution of the dues, fees and other charges levied by the
(v)
the trading in securities by its officers and employees; and
(vi)
any other matters as may be prescribed;
(b)
the company has sufficient financial, human and system resources
establish and operate a fair, transparent and efficient securities market;
(ii)
meet contingencies or disasters, including events such as technical complications
occurring with automated systems; and
(i)
(iii)
provide adequate security arrangements;
(c)
the company has made arrangement with respect to the appointment, removal
from office and functions of the persons responsible for making or enforcing the exchange
regulations, in such manner to secure a proper balance
(i)
between the interests of the TRE certificate holder of the company; and
(ii)
interest:
between the interests of the company or its TRE certificate holder and the public
Provided that the arrangements shall not be regarded as satisfying these
requirements unless the persons responsible for such matters include a number of persons
independent of the company, its TRE certificate holder and other regulated persons sufficient to
ensure the balance referred to in sub-clause (ii); and
(d)
it would not be contrary to the public interest to licence the company.
(6)
Subject to the provisions of this Act, a securities exchange licence shall be granted
subject to such annual renewal fee as may be prescribed.
6.
Duties of securities exchange.
(1) It shall be the duty of a securities exchange to ensure
(a)
a fair, transparent and efficient market in securities that are traded on its securities
market; and
(b)
(a)
that risks associated with its business and operations are managed prudently.
(2)
In discharging its duty under sub-section (1), a securities exchange shall
act in the public interest; and
(b)
ensure that the interest of investor, customer and public at large prevails where it
conflicts with the interest of the securities exchange, TRE certificate holder, shareholders, board
of directors and management.
(3)
A securities exchange shall operate its facilities in accordance with the regulations
made under section 7 and approved under section 8.
(4)
A securities exchange shall regulate the operations, standards of practice and
business conduct of TRE certificate holder and their representatives and other employees in
accordance with the regulations, policies, procedures and practices of the securities exchange.
(5)
A securities exchange shall ensure that the listed companies and its designated
officers shall comply with the regulations, policies, procedures and practices of the securities
exchange.
(6)
A securities exchange shall preserve confidentiality with regard to all information
in its possession concerning TRE certificate holder and their customers, except that such
information may be disclosed by the securities exchange as and when required in writing to do so
by the Commission or by a clearing house under its regulations or required under any law for the
time being in force, or it is ordered to do so by the Court.
(7)
A securities exchange shall have efficient procedures and arrangements for
addressing customer’s complaints.
(8)
The securities exchange shall put in place such structural provisions, operating
procedures, and surveillance techniques to detect and prevent insider trading and market abuse.
(9)
A securities exchange shall immediately notify the Commission if it becomes
aware
(a)
of a financial irregularity or other matter which in the opinion of the securities exchange
may indicate that its financial integrity is in question or that it is unable to meet its legal
obligations;
(b)
that any TRE certificate holder is unable to comply with any regulation of the
securities exchange or any financial resources regulation;
(c)
of a financial irregularity or other matter which in the opinion of the securities
exchange may indicate that the financial standing or integrity of a TRE certificate holder is in
question or that a TRE certificate holder may not be able to meet his legal obligations; or
(d)
of non-compliance or violation by a company listed on such securities exchange
of any provisions of this Act or any regulations made by there under.
(10) A securities exchange shall immediately notify the Commission of any action
taken against a TRE certificate holderor listed company.
(11) A securities exchange shall at all times provide and maintain, for the conduct of
its business,
(a)
adequate and properly equipped premises;
(b)
automated systems with adequate capacity, facilities to meet contingencies or
emergencies, physical, virtual and logical security arrangements and technical support; and
(c)
comprehensive business continuity plan.
(12) A securities exchange shall ensure that appointment or removal of chief executive
officer and chief regulatory officers by whatever names called is made with the prior approval of
the Commission.
7.
Regulations of securities exchange.
(1) Without limiting the generality of sub-section (4) of section 5, the regulations of a securities
exchange, may make provision
(a)
with respect to the constitution, powers and functions of the governing body of the
securities exchange and matters relating to disciplining of the directors, officers and
functionaries of the securities exchange;
(b)
with respect to the development of risk management system, including control
measures and safeguards with respect to large exposures, and matters connected therewith;
(c)
with respect to the risk management procedures, misalignment of incentives and
conflict of interest between securities broker, its employees and its clients;
(d)
with respect to disclosure of conflict of interest by directors and employees of the
securities exchanges;
(e)
with respect to the eligibility, admittance and conduct of TRE certificate holder;
(f)
with respect to listing and delisting of securities;
(g)
with respect to the appointment and functioning of internal auditors;
(h)
expulsion, suspension or disciplining of TRE certificate holder for conduct
inconsistent with just and equitable principles in connection with trading in securities or for a
contravention of the regulations of the securities exchange;
(i)
with respect to liquidation of the assets of securities brokers deposited or in
control of the securities exchange to fulfill customer claims arising there from;
(j)
with respect to the terms and conditions under which securities may be traded;
(k)
with respect to operational, information system and regulatory audit of securities
broker and securities exchange including the regular assessment of trading systems as well as
the assessment of reliability and effectiveness of all risk management and control measures
implemented by securities exchange;
(l)
with respect to the mechanism for inspection and provisions relating to audit and
compliance of securities brokers including cooperation with other licensed entities for violation
of any requirement of this Act or any rules or regulations made there under;
(m)
with respect to proprietary trading by TRE certificate holder;
(n)
effective surveillance and monitoring to detect and prevent insider trading and
market abuse practices;
(o)
with respect to fair and properly supervised trading practices;
(p)
with respect to the prohibition of trading in securities by securities brokers or their
representatives, either directly or indirectly, for their own accounts or accounts of associated
persons, except in accordance with the regulations of the securities exchange;
(q)
with respect to measures to prevent manipulation, market rigging and artificial
markets in its securities market;
(r)
for preventing the excessive use of credit by way of initial or maintenance
margin in respect of the purchase or carrying of any securities;
(s)
for effective know your customer and customer due diligence policies and
procedures and other matters ancillary to anti-money laundering;
(t)
the recording and publishing of details of trading;
(u)
the financial integrity of securities broker such as to provide reasonable assurance
that all obligations out of
the trading in securities on the securities market of that securities
exchange will be met;
(v)
with respect to the fee and charges payable for facilities and services provided by
the securities exchange;
(w)
with respect to brokerage and other charges by securities brokers;
(x)
with respect to the equitable allocation of the dues, fees and other charges levied
by the securities exchange;
(y)
with respect to settlement of claims and dispute resolution between any of its
securities brokers, or between securities brokers and their customers, or between
securities brokers and their accredited representatives or between accredited representative(s) of
securities brokers and their customers, in relation to any market contract of the securities
exchange;
(z)
where a securities broker appears to be unable or likely to become unable, to meet
his obligations in respect of one or more market contracts, to enable action to be taken to close
out his position in relation to all unsettled market contracts to which he is a party, including
facilitation in default proceedings; and
(aa) generally for the carrying on the business of the securities exchange with due
regard to the interests and protection of the investing public.
(2)
The regulations of a securities exchange shall apply to
(a)
the securities exchange, its employees and its directors and the securities exchange shall
be responsible to ensure their compliance with such regulations;
(b)
securities brokers, their representatives and other employees and the securities
broker shall be responsible to ensure their compliance with such regulations; and
(c)
listed company.
(3)
The power to make regulations conferred by this section on the securities
exchange shall be subject to the condition of previous placement of the said regulations on the
website of the securities exchange along with the rationale for eliciting public opinion thereon
for a period of not less than seven days starting from the date of its placement on the website:
Provided that, on an application by the securities exchange, the Commission may waive
the condition of eliciting public opinion in cases requiring the immediate implementation of a
proposed regulation(s).
(4)
The Commission may, by notice in writing served on a securities exchange,
require it
(a)
to make regulations specified in the notice within the period specified; or
(b)
to amend regulations referred to in the notice in the manner and within the period
specified in the notice.
(5)
Where the Commission is satisfied that a securities exchange has not complied
with a requirement referred to in sub-section (4) within the period specified in the notice, the
Commission may make or amend the regulations specified in the notice instead of the securities
exchange and the regulations so made or amended shall be deemed to have been made or
amended by the securities exchange and shall have effect accordingly.
8.
Approval of regulations or amendments to regulations of securities exchange.—
(1) No regulation of a securities exchange or any amendment whether by way of rescission,
substitution, alteration or addition to a regulation shall have effect unless it has the approval in
writing of the Commission.
(2)
A securities exchange shall submit or cause to be submitted to the Commission
for its approval the regulations and every amendment thereto that require approval under subsection (1), together with explanations of their purpose and likely effect, including their effect on
the investing public, in sufficient detail to enable the Commission to decide whether to approve
them or refuse to approve them.
(3)
The Commission shall, by notice in writing served on the securities exchange,
give its approval or refuse to give its approval to the regulations or amendment of the
regulations, as the case may be, or any part thereof.
(4)
The Commission may give its approval under sub-section (3) subject to
requirements that shall be satisfied before the regulations or amendment of the regulations or any
part thereof take effect.
(5)
Subject to the approval of the Commission under sub-section (3) all regulations or
amendments to the regulations made by the securities exchange shall be notified in the official
Gazette and shall take effect from such date as may be specified in the notification.
9.
Statutory obligation of securities broker to comply with regulations of securities
exchange.
Securities broker of a securities exchange shall comply with the regulations of that exchange.
10.
Securities exchange to assist the Commission.
A securities exchange shall provide such assistance to the Commission as the Commission may
require for the performance of the functions and duties of the Commission, including the
furnishing of such returns and the provision of such books and other information relating to the
business of the securities exchange or in respect of trading in securities or any other
information as the Commission may require from time to time for the proper administration of
this Act.
11.
Review of disciplinary action taken by securities exchange.
(1) Where a securities exchange reprimands, impose penalty, suspends, expels or otherwise takes
disciplinary action against securities broker in accordance with its regulations, the securities
exchange shall immediately inform the Commission in writing of the name of the securities
broker, the reason for and nature of the action taken, the amount of any sum imposed by way of
penalty and the period of any suspension.
(2)
The securities exchange shall grant an opportunity of being heard to the securities
broker before it impose a penalty, reprimands, suspends, expels or otherwise takes disciplinary
action against the securities broker:
Provided that where the securities exchange is satisfied that delay in the suspension of
securities broker shall be detrimental to the interest of investors or the public in general, the
securities exchange may, after recording reasons in writing, immediately suspend the securities
broker till the time an opportunity of hearing is provided to the securities broker and a final
decision is taken within a period of not more than thirty days.
(3)
The Commission may, on its own motion or on application by an aggrieved
person, review any disciplinary action taken by a securities exchange under sub-section (1) and
may affirm, modify or set aside the decision of the securities exchange after giving the securities
broker and the securities exchange an opportunity of being heard.
(4)
Nothing in this section shall preclude the Commission, in any case where a
securities exchange fails to act against a securities broker, from suspending, expelling or
otherwise disciplining a securities broker, but before doing so the Commission shall give the
securities broker and the securities exchange an opportunity to be heard:
Provided that where the Commission is satisfied that delay in the suspension of any
securities broker shall be detrimental to the interest of investors or the public in general, the
Commission may, after recording reasons in writing, immediately suspend any securities broker
till the time an opportunity of hearing is provided to the securities broker and a final decision is
taken within a period of not more than thirty days.
(5)
Any action taken by a securities exchange under sub-section (1) shall be without
prejudice to the power of the Commission to take such further action as it deems fit with regard
to the securities broker or his licence.
12.
Power of the Commission to issue directions to securities exchange.
(1)The Commission may, if it considers it necessary or expedient
(a)
for ensuring fair, transparent and efficient securities markets or for ensuring fair,
transparent and efficient clearing and settlement of securities transactions;
(b)
for ensuring the integrity of, and proper management of systemic risks in,
securities markets;
(c)
for ensuring a fair and proper governance structure of the securities exchange; or
(d)
in the interest of the public or for the protection of customers, issue directions to
a securities exchange by notice in writing either of a general or specific nature.
(2)
Without prejudice to the generality of sub-section (1), any direction issued under
that sub-section may relate to
(a)
the trading or the termination of trading on or through the facilities of that securities
exchange;
(b)
any securities listed or quoted on that securities exchange;
(c)
the manner in which securities exchange carries on its business,;
(d)
removing or suspending the directors or officers of the securities exchange from
office or suspending securities brokers of the securities exchange; and
(e)
any other matter that the Commission considers necessary for the effective
administration of this Act or the rules or regulations made under the Act,
and the securities exchange shall comply with any such direction.
13.
Emergency powers of the Commission.
(1) Where the Commission has reason to believe or decides on the recommendation of the
securities exchange, that an emergency exists or where the Commission considers it necessary or
expedient in the interest of the public or section of the public or for the protection of customers,
the Commission may direct by notice in writing a securities exchange to take such action as it
considers necessary to maintain or restore fair, transparent and efficient trading in securities or
any class of securities, including but not limited to,—
(a)
liquidate any position in respect of any securities or any class of securities;
(b)
terminate trading on a securities market;
(c)
suspend trading on a securities market;
(d)
confine trading to liquidation of securities positions;
(e)
order the liquidation of all positions or part thereof or the reduction in such
positions;
(f)
limit trading to a specific price range;
(g)
modify trading days or hours;
(h)
require any person to act in a specified manner in relation to trading in securities
or any class of securities; and
(i)
modify or suspend any of the regulations of a securities exchange,
and the securities exchange shall comply with that direction.
(2)
Where the Commission suspends trading on a securities market under clause (c)
of sub-section (1) the suspension shall be for a period not exceeding three months, provided that
the Commission may, if it considers it necessary, extend the suspension for one further period
not exceeding three months at the expiry of which the Commission shall either notify the
securities exchange in writing that the suspension has expired or proceed to cancel the securities
exchange licence or pass such orders as it deems appropriate.
(3)
Where a securities exchange fails to comply with a direction of the Commission
under sub-section (1), within such time as is specified by the Commission, the Commission may
take all necessary actions as it deem appropriate.
(a)
(4)
In this section, “emergency” means
an act of government affecting securities;
(b)
any major market disturbance which prevents the market from accurately
reflecting the forces of supply and demand for such securities; or
(c)
any other situation or practice which in the opinion of the Commission constitutes
an emergency.
14.
Suspension or cancellation of securities exchange licence.
(1) The Commission may, by notice in writing served on the securities exchange,—
(i)
suspend the license granted under this Act with effect from the date specified in
the notice for such period as may be specified in the notice; or
(ii)
cancel a securities exchange licence granted under this Act with effect from the
date specified in the notice; or
(iii)
supersede the governing body or other authority of the securities exchange; or
(iv)
suspend or remove the director, officer, or a TRE certificate holder from his office
or securities exchanges,
if the securities exchange
(a)
ceases to comply with the eligibility conditions specified in
section 4;
(b)
ceases to operate a securities market that it has been licensed to under section 5;
(c)
is being wound up or enters into an arrangement with its creditors or members
without the prior written approval of the Commission;
(d)
fails to comply with any requirement of this Act or any other applicable law;
(e)
fails to comply with a direction of the Commission;
(f)
fails to provide the Commission with information required by the Commission or
provides false or misleading information;
(g)
is operating in a manner detrimental to the public interest; or
(h)
requests the Commission to do so.
(2)
For the purposes of clause (b) of sub-section (1) a securities exchange shall be
deemed to have ceased to operate its securities market if
(a)
it has ceased to operate its securities market for more than thirty days unless it has
obtained the prior written approval of the Commission to do so; or
(b)
it has ceased to operate such securities market under a direction issued by the
Commission under section 12 or 13.
(3) The Commission may by the notice served under sub-section (1) permit the
securities exchange to continue, on or after the date on which the suspension or cancellation is to
take effect, to carry on such activities affected by the suspension or cancellation as the
Commission may specify in the notice for the purpose of
(a)
closing down the operations of the securities exchange; and
(b)
protecting the public interest.
(4)
Except where responding to a request under clause (h) of subsection (1), the Commission shall not take action under sub-section (1) without first giving the
securities exchange an opportunity of being heard.
(5)
Where the Commission suspends or cancels the licence of a securities exchange
under this section, it shall cause notice of that fact to be published in at least two daily
newspapers having wide circulation.
(6)
Any notice of suspension under sub-section (1) may direct that the functions of the
governing body of the securities exchange shall be performed during the period of suspension by
such person as may be specified in the notice.
15.
Effect of cancellation of licence.
A cancellation of licence referred to in section 14 shall not operate so as to
(a)
avoid or affect any agreement, transaction or arrangement entered into on the securities
market operated by the securities exchange where the agreement, transaction or arrangement was
entered into before the cancellation of the licence; and
(b)
affect any right, obligation or liability arising under such agreement, transaction
or arrangement.
16.
Accounts and audit.—(1) A securities exchange shall keep proper books of
accounts and records of its profit and loss, assets and liabilities and all other transactions of the
securities exchange as may be prescribed.
(2)
The securities exchange shall send audited financial statements along with
auditor’s report of the securities exchange for the financial year, including such other items as
may be prescribed, within three month after the end of each financial year or such later time as
allowed by the Commission.
(3)
The Commission may, where it deems appropriate, also require operational and
regulatory audit to be conducted by an independent auditor in a prescribed manner.
(4)
The auditors report shall be in such a manner as may be prescribed.
(5)
The auditors shall have a right of access at all reasonable times to the books,
accounts, vouchers and other records of the securities exchange and are entitled to require from
officers of the securities exchange such information and explanations as they consider necessary
for the performance of their duties as auditor.
(6)
The accounting and other records required to be reported under this section shall
be preserved by the securities exchange for a period of ten years or such longer period as may be
prescribed.
17.
Power of the Commission to appoint auditor.
(1)Where the Commission is satisfied that it is in the public interest to do so, it may appoint in
writing an auditor for special audit, at the expense of the securities exchange, to examine, audit
and report, either generally or in relation to any matter, on the books, accounts and records of a
securities exchange.
(2)
The Commission may appoint special auditors to furnish the Commission with a
regulation compliance audit report in the form and manner prescribed.
18.
Annual report.
(1) A securities exchange shall, within four months after the end of its financial year or such later
time as allowed by the Commission, give to the Commission an annual report that includes
(a)
a description of the activities undertaken by the securities exchange in the financial year;
(b)
the resources (including financial, technological and human resources) that the
securities exchange had available, and used, in order to ensure compliance with its obligations
and, in particular, its obligation to ensure that the securities market of the securities exchange
operates in a fair, transparent and efficient manner;
(c)
an analysis of the extent to which the securities exchange considers that the
activities undertaken, and resources used, have resulted in full compliance with all of its
obligations under this Act, rules and regulations made under the Act; and
(d)
an independent regulation compliance report from the auditor certifying
regulatory compliance of the securities exchange during the financial year.
(2)
The securities exchange shall ensure that the annual report is accompanied by
such other information and statements as may be prescribed.
(3)
The annual report shall be accompanied by an audit report.
19.
Listing of securities.
(1) A company that wishes to have its securities listed on a securities exchange shall submit an
application in the form and manner specified by the securities exchange, and send a copy of the
application to the Commission.
(2)
Upon receipt of an application under sub-section (1), the securities exchange may,
if it is satisfied after making such inquiry as it may consider necessary that the applicant fulfils
the conditions prescribed in this behalf, list the securities for trading on the securities exchange.
(3)
Where a securities exchange refuses to list a company’s securities, the
Commission may, either on petition by the applicant made within the prescribed time or on its
own motion, direct the securities exchange to list the securities.
(4)
Where, after the listing of securities, the Commission or securities exchange finds
that the application is deficient in any material respect or that the company has failed to comply
with any prescribed condition or requirement and that the continued listing of the securities
would not be in the public interest, the Commission or the securities exchange may, by order,
either require the company to correct the deficiency or comply with the prescribed condition or
requirement within the time specified in the order or revoke the listing.
(5)
A company’s listed securities may be delisted on application by the company to
the securities exchange which may deny the application or grant it on such conditions as appear
necessary or appropriate for the protection of customers.
(6)
Where a securities exchange refuses to delist a company’s securities, the Commission may, on
petition by the company made within the specified time, direct the securities exchange to delist
the security.
(7)
The Commission or a securities exchange may, if it considers it to be in the
interests of an orderly market or in the public interest so to do, by order recording the reasons,
suspend for a period not exceeding sixty days the trading of any listed securities and may, from
time to time, for stated reasons and in the said manner extend the suspension for such further
periods as it deems appropriate.
(8)
No application for the listing of securities shall be refused and no listing shall be
revoked, without first giving the relevant company an opportunity to be heard.
20.
Compulsory listing.
Where the Commission, having regard to the nature of and the dealings in a company’s
securities, is of the opinion that it is necessary or expedient in the public interest so to do, it may,
after consulting the securities exchange and giving the company an opportunity of being heard,
direct the securities exchange to list the company’s securities.
PART III
CLEARING-HOUSES
21.
Interpretation.
(1) In this Part
(a)
“defaulter” means a clearing member who is the subject of any default proceedings; and
(b)
“market charge” means a charge, whether fixed or floating, created in favour of a
clearing house
(i)
over any property which is held by or deposited with the clearing house; and
(ii)
for the purpose of securing liabilities arising directly in connection with the
clearing house ensuring the settlement of a market contract; and
(c)
“market collateral” includes cash or any other prescribed form of collateral which
is held by or deposited with a clearing house for the purpose of securing liabilities arising
directly in connection with the clearing house ensuring the settlement of a market contract.
(2)
Where a charge is created partly for the purpose specified in the definition of
“market charge” in sub-section (1) and partly for other purposes, the charge is in this Part a
market charge in so far as it has effect for that specified purpose.
(3)
Where any collateral is granted partly for the purpose specified in the definition of
“market collateral” in sub-section (1) and partly for other purposes, the collateral is in this Part
market collateral in so far it has been provided for that specified purpose.
(4)
References in this Part to the law on insolvency include references to the relevant
provision made by or under
(a)
the Companies Ordinance, 1984 (XLVII of 1984); and
(b)
any other enactment which is concerned with or in any way related to the
insolvency of a person.
(5)
References in this Part to settlement in relation to a market contract are to the
discharge of the rights and liabilities of the parties to the contract, whether by performance,
compromise or otherwise.
22.
Licensing requirement.
(1) No person shall establish or operate or assist in establishing or operating or hold himself out
as operating a clearing facility except under and in accordance with a clearing house licence
granted by the Commission under section 24.
(2)
The Commission shall determine the number and places for the establishment of
clearing houses.
23.
Eligibility for licensing.
(1) Subject to sub-section (2), a public company shall be eligible for licensing as a clearing
house, if
(a)
it has, and maintains at all times, a minimum paid-up capital (net of losses) of rupees five
hundred million or such higher amount as may be notified by the Commission;
(b)
its shareholding is held, directly or indirectly, in such percentage as may be
notified by the Commission by following
(i)
a securities exchange or any connected company or the majority shareholder
of such
securities exchange, or an associate of the majority shareholder of such securities exchange; or
(ii)
a futures exchange or any connected company or the majority shareholder of such
futures exchange, or an associate of the majority shareholder of such futures exchange:
Provided that the Commission may in the official Gazette notify any class or
classes of person to hold such number of shares of the clearing house as the Commission deems
appropriate:
Provided further that any sale or purchase of shares of the clearing house shall be
subject to the prior approval of the Commission;
(c)
its promoters, directors, senior management officers fulfill the fit and proper
criteria as may be prescribed; and
(d)
it satisfies such other conditions as may be prescribed.
(2)
For the purposes of clause (b) of sub-section (1), two or more companies are
connected companies if one of them is
(a)
the holding company of the other;
(b)
a subsidiary of the other; or
(c)
a subsidiary of the holding company of the other.
24.
Grant of licence.
(1) A public company eligible for a licence may apply to the Commission to be licensed as a
clearing house in such form and manner as may be prescribed.
(2)
The application under sub-section(1) shall be accompanied by the prescribed fee.
(3)
The Commission may require an applicant to provide the Commission with such
further information as it considers necessary in relation to the application, in such form or
verified in such manner as the Commission may direct.
(4)
The Commission may, in writing, subject to such conditions or restrictions as it
may think fit to impose, grant a licence to a public company as a clearing house if the
Commission is satisfied that the company will ensure that, as far as is reasonably practical, there
are fair, transparent and efficient clearing arrangements for transactions in securities; the
company will manage any risks associated with its business and operations prudently and the
company will enforce compliance by its clearing members with its regulations.
(5)
In the exercise of its powers to grant licence under sub-section (4), the
Commission shall have regard to whether,(a)
the company’s regulations make satisfactory provision for
(i)
the proper regulation and efficient operation of the clearing facility which it operates;
(ii)
the proper regulation and supervision of its clearing members; and
(iii)
equitable allocation of reasonable dues, fees, and other charges among its clearing
members and other persons using its facilities; and
(iv)
any other matters as may be specified by the Commission from time to time;
(b)
the company has sufficient financial, human and system resources
(i)
establish and operate a fair, transparent and efficient clearing facility;
(ii)
meet contingencies or disasters (including events such as technical complications
occurring with automated systems);
(iii)
provide adequate security arrangements; and
(iv)
any other matters as may be specified by the Commission; and
(c)
it would not be contrary to the public interest to licence the company.
(6)
Subject to the provisions of this Act, a clearing house licence shall be granted
subject to such annual renewal fee as may be prescribed.
25.
Duties of clearing house.
(1) It shall be the duty of a clearing house to ensure
(a)
fair, transparent and efficient clearing and settlement arrangements for any transactions in
securities cleared or settled through its facilities; and
(b)
that risks associated with its business and operations are managed prudently.
(2)
In discharging its duty under sub-section (1), a clearing house shall act in the
interest of the public, having particular regard to the interest of customers.
(3)
A clearing house shall operate its facilities in accordance with the regulations
made under section 26 and approved under section 27.
(4)
A clearing house shall formulate and implement appropriate procedures for
ensuring that its clearing members comply with its regulations.
(5)
A clearing house shall preserve confidentiality with regard to all information in its
possession concerning its clearing members and their customers, except that such information
may be disclosed by the clearing house as and when required in writing to do so by the
Commission or by the securities exchange under its regulations or required under other law for
the time being in force or if it is ordered to do so by the Court.
(6)
A clearing house shall have efficient procedures and arrangements for addressing
customer’s complaints.
(7)
A clearing house shall immediately notify the Commission if it becomes aware
(a)
of a financial irregularity or other matter which in the opinion of the clearing house may
indicate that its financial integrity is in question or that it is unable to meet its legal obligations;
(b)
that any of its clearing members is unable to comply with any regulation of the
clearing house;
(c)
of a financial irregularity or other matter which in the opinion of the clearing
house may indicate that the financial standing or integrity of a clearing member is in question or
that a clearing member may not be able to meet its legal obligations.
(8)
A clearing house shall immediately notify the Commission of any action taken by
it against a clearing member.
(9)
A clearing house shall at all times provide and maintain for the conduct of its
business,
(a)
adequate and properly equipped premises;
(b)
automated systems with adequate capacity, facilities to meet contingencies or
emergencies, physical, virtual and logical security arrangements and technical support; and
(c)
comprehensive business continuity plan.
(10) A clearing house shall ensure that appointment or removal of its chief executive
officer and chief regulatory officer, by whatever name called, is made with the prior approval of
the Commission.
26.
Regulations of clearing house.
(1) Without limiting the generality of sub-section (4) of section 24 , the regulations of a clearing
house, may make provision —
(a)
for the registration of or transfer of securities;
(b)
for the settlement of transactions involving securities;
(c)
for guaranteeing to its clearing members the performance of market contracts;
(d)
for setting up a settlement guarantee fund;
(e)
with respect to the constitution, powers and functions of the governing body of
the clearing house;
(f)
with respect to the eligibility, admittance and conduct of clearing members;
(g)
with respect to operational, information system and regulatory audit of the
clearing house and its clearing members;
(h)
with respect to the manner of establishment, maintaining and operating clearing
accounts with the clearing house;
(i)
with respect to the establishment and operations of clearing and settlement
system;
(j)
with respect to the development of risk management system including control
measures and safeguards with respect to large exposures and matters connected therewith;
(k)
with respect to the establishment, maintenance and contributions to the clearing
and settlement fund and investments thereon;
(l)
with respect to the mechanism and procedure for satisfaction of loss or liability in
the clearing settlement system;
(m)
with respect to the mechanism for inspection and provisions relating to audit and
compliance of clearing members including cooperation with other licensed entities for violation
of any requirement of this Act or any rules or regulations made there under;
(n)
with respect to the statements to be sent by the clearing house to its clearing
members;
(o)
with respect to regulating access to the computer settlement system of the
clearing house and the limits of such access;
(p)
with respect to the fee and charges payable for facilities and services provided by
a clearing house;
(q)
with respect to the dispute resolution between clearing members, complaint
handling, disciplinary action, hearing and appeal procedure;
(r)
with respect to the delivery of securities for settlement through the central
depository;
(s)
for the expulsion, suspension or disciplining of clearing members for any
contravention of the regulations of the clearing house;
(t)
with respect to acting as central counter party; and
(u)
generally for the carrying on the business of the clearing house.
(2)
In addition to the requirements of sub-section (1), the regulations of a clearing
house shall also include default provisions, to the satisfaction of the Commission, for carrying
out of proceedings or other action if a clearing member has failed or appears to be unable or
likely to become unable to meet its obligations for all unsettled or open market contracts to
which he is a party.
(3)
Where a clearing house undertakes default proceedings, all subsequent action for
settlement of market contracts to which the defaulter is a party shall be presumed to be taken
under the default regulations.
(4)
The regulations of a clearing house shall apply to the employees and
representative of its clearing members, and the clearing member shall be responsible to ensure
their compliance with such regulations.
(5)
The power to make regulations conferred by this section on the clearing house
shall be subject to the condition of previous publication of the said regulations on the website of
clearing house along with a rational for eliciting public opinion thereon within a period of not
less than seven days from the date of its publication placement on website:
Provided that, on an application by the clearing house, the Commission may waive the
condition of placement of proposed regulations on the website of the clearing house in cases
requiring the immediate implementation of a proposed regulation(s).
(6)
The Commission may, by notice in writing served on a clearing house, require it
(a)
to make regulations specified in the notice within the period specified; or
(b)
to amend regulations referred to in the notice in the manner and within the period
specified in the notice.
(7)
Where the Commission is satisfied that a clearing house has not complied with a
requirement referred to in sub-section (6) within the specified period the Commission may make
or amend the regulations specified in the notice instead of the clearing house and the regulations
so made or amended shall be deemed to have been made or amended by the clearing house and
shall have effect accordingly.
27.
Approval of regulations or amendments to regulations of clearing house.
(1) No regulation of a clearing house or any amendment whether by way of rescission,
substitution, alteration or addition, thereto shall have effect unless it has the approval in writing
of the Commission.
(2)
A clearing house shall submit or cause to be submitted to the Commission for its
approval the regulations and every amendment thereto that require approval under sub-section
(1), together with explanations of their purpose and likely effect, including their effect on
customers, in sufficient detail to enable the Commission to decide whether to approve them or
refuse to approve them.
(3)
The Commission shall, by notice in writing served on the clearing house, give its
approval or refuse to give its approval to the regulations or amendment of the regulations, as the
case may be, or any part thereof.
(4)
The Commission may give its approval under sub-section (3) subject to
requirements that shall be satisfied before the regulations or amendment of the regulations or any
part thereof take effect.
(5)
Subject to the approval of the Commission under sub-section (3), all regulations
or amendments to the regulations made by the clearing house shall be notified in the official
Gazette and shall take effect on such date as may be specified in the notification.
28.
Statutory obligation of clearing members to comply with regulations of clearing
house.
Members of a clearing house shall comply with the regulations of that clearing house.
29.
Clearing house to assist the Commission.
A clearing house shall provide such assistance to the Commission as the Commission may
require for the performance of the functions and duties of the Commission, including the
furnishing of such returns and the provision of such books and other information relating to the
business of the clearing house or in respect of any trading in securities, any clearing
arrangements for securities or any other information as the Commission may require from time
to time for the proper administration of this Act.
30.
Review of disciplinary action taken by clearing house.
(1) Where a clearing house reprimands, penalizes, suspends, expels or otherwise takes
disciplinary action against a clearing member in accordance with its regulations, the clearing
house shall immediately inform the Commission in writing of the name of the clearing member,
the reason for and nature of the action taken, the amount of any sum imposed by way of penalty
and the period of any suspension.
(2)
The clearing house shall grant an opportunity of being heard to its clearing
member before it impose penalty, reprimands, suspends, expels or otherwise takes disciplinary
action against the member:
Provided that where the clearing house is satisfied that delay in the suspension of its
member shall be detrimental to the interest of investors or the public in general, the clearing
house may, after recording reasons in writing, immediately suspend its member till the time an
opportunity of hearing is provided to the member and a final decision is taken within a period of
not more than thirty days.
(3)
The Commission may, on its own motion or on application by an aggrieved
person, review any disciplinary action taken by a clearing house under sub-section (1) and may
affirm, modify or set aside the decision of the clearing house after giving the clearing member
and the clearing house an opportunity of being heard.
(4)
Nothing in this section shall preclude the Commission, in any case where a
clearing house fails to act against a clearing member, from suspending, expelling or otherwise
disciplining a clearing member, but before doing so the Commission shall give the clearing
member and the clearing house an opportunity to be heard.
(5)
Any action taken by a clearing house under sub-section (1) shall be without
prejudice to the power of the Commission to take such further action as it deems fit with regard
to the clearing member or its licence.
31.
Power of the Commission to issue directions to clearing house.
(1) The Commission may, if it considers it necessary or expedient
(a)
for ensuring fair, transparent and efficient clearing and settlement of transactions in
securities;
(b)
markets; or
for ensuring the integrity of and proper management of systemic risks in securities
(c)
customers,
in the interests of the public or a section of the public or for the protection of
issue directions by notice in writing either of a general or specific nature to a
clearing house.
(2)
Without prejudice to the generality of sub-section (1), any direction issued under
that sub-section may relate to
(a)
the clearing and settlement of market contracts and the making of adjustments of
contractual obligations arising out of those securities contracts;
(b)
the manner in which a clearing house carries on its business;
(c)
removing or suspending the directors or officers of the clearing house from office
or suspending clearing members of the clearing house; and
(d)
any other matter that the Commission considers necessary for the proper
administration of this Act or the rules and regulations made hereunder,
and the clearing house shall comply with any such direction.
32.
Emergency powers of the Commission.
(1)Where the Commission has reason to believe or decides on the recommendation of clearing
house, that an emergency exists or where the Commission considers it necessary or expedient in
the interest of the public or section of the public or for the protection of customers or where the
Commission takes action under section 13, the Commission may direct by notice in writing a
clearing house to take such action as it considers necessary including but not limited to
(a)
altering conditions of delivery;
(b)
fixing the settlement price at which securities are to be liquidated;
(c)
requiring additional deposits;
(d)
requiring margins or additional margins for any securities; and
(e)
modifying or suspending any of the regulations of the clearing house,
and the clearing house shall comply with that direction.
(2)
Where a clearing house fails to comply with a direction of the Commission under
sub-section (1), within such time as is specified by the Commission, the Commission may take
all necessary actions as it deems appropriate.
(a)
(3)
In this section, the expression “emergency” means
any act of government affecting securities;
(b)
any major market disturbance which prevents the market from accurately
reflecting the forces of supply and demand for securities; or
(c)
any other situation or practice which in the opinion of the Commission constitutes
an emergency.
33.
Suspension or cancellation of clearing house licence.
(1)The Commission may by notice in writing served on the clearing house suspend for such
period as may be specified in the notice or cancel a clearing house licence granted under this Act
with effect from the date specified in the notice if the clearing house—
(a)
ceases to comply with the eligibility conditions specified in section 23;
(b)
ceases to operate the clearing facility that it has been licensed to operate under
section 24;
(c)
is being wound up;
(d)
fails to comply with any requirement of this Act;
(e)
fails to comply with a direction of the Commission;
(f)
fails to provide the Commission with information required by the Commission or
provides false or misleading information;
(g)
is operating in a manner detrimental to the public interest; or
(h)
requests the Commission to do so.
(2)
For the purposes of clause (b) of sub-section (1) a clearing house shall be deemed
to have ceased to operate as a clearing house, if
(a)
it has ceased to operate its clearing house facility for more than thirty days unless it has
obtained the prior approval of the Commission to do so; or
(b)
it has ceased to operate such clearing facility under a direction issued by the
Commission under section 31 or section 32.
(3)
The Commission may by the notice served under sub-section (1) permit the clearing house to
continue, on or after the date on which the cancellation is to take effect, to carry on such
activities affected by the cancellation as the Commission may specify in the notice for the
purpose of
(a)
closing down the operations of the clearing house; and
(b)
protecting the public interest.
(4)
Except where responding to a request under clause (h) of sub-section (1), the
Commission shall not cancel a clearing house licence without first giving the clearing house an
opportunity of being heard.
(5)
Where the Commission suspends or cancels the licence of a clearing house under
this section, it shall cause notice of that fact to be published in at least two daily newspapers
having wide circulation.
(6)
Any notice of suspension under sub-section (1) may direct that the functions of
the governing body of the clearing house shall be performed during the period of suspension by
such person as may be specified in the notice.
34.
Effect of cancellation of licence.
A cancellation of licence under section 33 shall not operate so as to
(a)
avoid or affect any agreement, transaction or arrangement entered into on the securities
market of a securities exchange where the agreement, transaction or arrangement was entered
into before the cancellation of the licence; and
(b)
affect any right, obligations or liability arising under such agreement, transaction
or arrangement.
35.
Accounts and audit.
(1) A clearing house shall keep proper books of accounts and records of its profit and loss, assets
and liabilities and all other transactions of the clearing house as may be prescribed.
(2)
The clearing house shall send audited financial statements to the Commission
along with auditors report of clearing house for the financial year, including a profit and loss
account, balance sheet, cash flow statement and such other items as may be prescribed within
three months after the end of each financial year or such later time as allowed by the
Commission.
(3)
The Commission may, where it deems appropriate, also require operational and
regulatory audit to be conducted by an independent auditor in a prescribed manner.
(4)
The auditors report shall be in such a manner as may be prescribed.
(5)
The auditors shall have a right of access at all reasonable times to the books,
accounts, vouchers and other records of the clearing house and shall be entitled to require from
officers of the clearing house such information and explanations as they consider necessary for
the performance of their duties as auditor.
(6)
The accounting and other records required to be reported under this section shall
be preserved by the clearing house for a period of ten years or such longer period as may be
prescribed.
36.
Power of the Commission to appoint auditor.
(1) Where the Commission is satisfied that it is in the public interest to do so, it may appoint in
writing an auditor for special audit, at the expense of the clearing house, to examine, audit, and
report, either generally or in relation to any matter, on the books, accounts and records of a
clearing house.
(2)
The Commission may appoint special auditors to furnish the Commission with a
regulation compliance audit report in the form and manner prescribed.
37.
Annual report.
(1) A clearing house shall, within four months after the end of its financial year or such later time
as allowed by the Commission, give to the Commission an annual report that includes
(a)
a description of the activities undertaken by the clearing house in the financial year;
(b)
the resources, including financial, technological and human resources, that the
clearing house had available, and used, in order to ensure compliance with its obligations;
(c)
an analysis of the extent to which the clearing house considers that the activities
undertaken, and resources used, have resulted in full compliance with all of its obligations under
this Act, rules and regulations made under the Act; and
(d)
an independent regulations compliance report from the auditor certifying
regulatory compliance of the clearing house during the financial year.
(2)
The clearing house shall ensure that the annual report is accompanied by such
other information and statements as may be prescribed.
(3)
The annual report shall be accompanied by an audit report where required by the
Commission under sub-section (4).
(4)
The Commission may, by giving written notice to the clearing house, require the
clearing house to obtain an audit report by a person to be approved by the Commission on the
annual report and on any information or statements accompanying it.
38.
Proceedings of clearing house take precedence over laws of insolvency.
(1) The following shall not be to any extent invalid at law on the ground of inconsistency with
the law relating to the distribution of the assets of a person on insolvency, bankruptcy or winding
up or on the appointment of a receiver over any of the assets of a person
(a)
a market contract;
(b)
the regulations of a clearing house relating to the settlement of a market contract;
(c)
any proceedings or other action taken under the regulations of a clearing house
relating to the settlement of a market contract;
(d)
a market charge;
(e)
the default regulations of a clearing house; or
(f)
any default proceedings.
(2)
No person, nor a court acting under the laws of insolvency, may exercise any
power to prevent or interfere with
(a)
the settlement of a market contract in accordance with the regulations of a clearing house;
or
(b)
any default proceedings.
39.
Duty to report on completion of default proceedings.—(1) A clearing house shall,
upon completion by it of any default proceedings, prepare a report on such proceedings stating in
respect of each defaulter
(a)
the action taken against the defaulter;
(b)
defaulter; or
(c)
the net sum, if any, certified by the clearing house to be payable by or to the
the fact that no sum is payable.
(2)
A clearing house which has prepared a report pursuant to sub-section (1) shall
supply the report to
(a)
the Commission;
(b)
the relevant securities exchange;
(c)
the central depository; and
(d)
the defaulter to whom the report relates.
(3)
Where the Commission receives pursuant to sub-section (2) a report made
pursuant to sub-section (1), it may publish notice of that fact in such manner as it considers
appropriate to bring it to the attention of creditors of the defaulter to whom the report relates.
(4)
Where a defaulter receives pursuant to sub-section (2) a report made pursuant to
sub-section (1), he shall, at the request of any of his creditors,
(a)
make the report available for inspection by the creditor within two days from the receipt
of such request; or
(b)
on payment of the prescribed fee, supply to the creditor all or any part of that
report as requested.
(5)
In sub-sections (2), (3) and (4), “report” includes a copy of a report.
40.
Net sum payable on completion of default proceedings.
(1) This section shall apply to any net sum certified under clause (b) of sub-section (1) of section
39 by a clearing house, upon the completion by it of any default proceedings, to be payable by or
to a defaulter.
(2)
Where an order for receivership or winding up has been made or a resolution for
voluntary winding up has been passed, any net sum shall be
(a)
provable in the bankruptcy or winding up; and
(b)
taken into account for the purpose of any law relating to set-off.
(3)
For the purposes of sub-section (2), the certificate of the clearing house as to the
amount of the net sum payable shall be receivable in evidence as sufficient proof of the net sum
payable.
41.
Disclaimer of property, rescission of contracts, etc.
(1) Section 407 of the Companies Ordinance, 1984 (XLVII of 1984) shall not apply in relation to
(a)
a market contract;
(b)
a contract effected by a clearing house for the purpose of realizing property
provided as market collateral;
(c)
a market charge; or
(d)
any default proceedings.
(2)
Section 406 of the Companies Ordinance, 1984 (XLVII of 1984) shall not apply
to any act, matter or thing which has been done pursuant to
(a)
a market contract;
(b)
a disposition of property pursuant to a market contract;
(c)
the provision of market collateral;
(d)
a contract effected by a clearing house for the purpose of realizing property
provided as market collateral or any disposal of property pursuant to such a contract;
(e)
a disposal of property in accordance with the regulations of a clearing house as to
the application of property provided as market collateral;
(f)
a disposal of property as a result of which the property becomes subject to a
market charge or any transaction pursuant to which that disposal is made;
(g)
a disposal of property made in enforcing a market charge;
(h)
a market charge; or
(i)
any default proceedings.
42.
Enforcement of judgments over property subject to market charge, etc.
(1) Notwithstanding anything contained in any other law for the time being in force, where
property is subject to a market charge or has been provided as market collateral, no execution or
other legal process for the enforcement of a judgment or order may be commenced or continued,
and no distress may be levied, against the property by a person not seeking to enforce any
interest in or security over the property, except with the consent of the clearing house concerned.
(2)
Where by virtue of this section a person would not be entitled to enforce a
judgment or order against any property, any injunction or other remedy granted with a view to
facilitating the enforcement of any such judgment or order shall not extend to that property.
43.
Clearing member to be party to transactions as principal.—Where for the
purposes of fulfilling clearing and settlement obligation or margin call or mark-to-market loss or
any other obligation, whatsoever, a clearing member enters into any transaction or contract with
a clearing house, irrespective of its nature, including but not limited to a market contract, in the
capacity as a principal or agent, notwithstanding anything contained in any other law, rule or
regulation, in such transaction or contract the clearing member shall act and considered as
Principal and liable to make payment or delivery, to the clearing house, as the case may be.
44.
Property deposited with clearing house.
(1) Subject to sub-section (2), where any property is deposited as market collateral by a clearing
member with a clearing house in accordance with the regulations of the clearing house, then,
notwithstanding any other law or rules or regulations , no action, claim or demand, either civil or
criminal, in respect of any right, title or interest in such property held or enjoyed by any person
shall lie or shall be commenced or allowed, against the clearing house or its nominees.
(2)
The operation of sub-section (1) in respect of any property deposited as market
collateral with a clearing house is subject to any modifications and exclusions provided in the
regulations of the clearing house.
45.
Preservation of rights, etc.
Except to the extent that they expressly provide, the provisions of this Part shall not operate to
limit, restrict or otherwise affect
(a)
any right, title, interest, privilege, obligation or liability of a person;
(b)
any investigation, legal proceeding or remedy in respect of any such right, title,
interest, privilege, obligation or liability.
PART IV
CENTRAL DEPOSITORY COMPANIES
46.
Interpretation.
In this Part
(a)
“account holder” shall have the same meaning as is assigned to it in sub-section (3) of
section 2 of the Central Depositories Act, 1997 (XIX of 1997);
(b)
“CDS element” means central depository system element and includes an account
holder, a participant, an issuer of eligible securities, an eligible pledgee or any other market
intermediary as may be prescribed under the Central Depositories Act, 1997 (XIX of 1997);
(c)
“investor account” means the account opened by an investor with a central
depository in accordance with the terms and conditions specified by such central depository;
(d)
“investor account holder” means any individual who, or other entity which, is
allowed by central depository at its discretion to open and maintain an investor account with
central depository with or without having direct access to CDS;
(e)
“participant” shall have the same meaning as is assigned to it in clause (17) of
section 2 of the Central Depositories Act, 1997 (XIX of 1997); and
(f)
“sub-account holder” has the same meaning as given in clause (28) of section 2 of
the Central Depositories Act, 1997 (XIX of 1997).
47.
Licensing requirement.
No person shall establish or operate or assist in establishing or operating or hold himself out as
operating a depository facility except under and in accordance with a central depository licence
granted by the Commission under section 49:
Provided that a licensing requirement provided in this section shall not be applicable on
depository facility provided by State Bank of Pakistan through State Bank of Pakistan- Banking
Services Corporation for government securities.
48.
Eligibility for licensing.
A company shall be eligible for licensing as a central depository only if
(a)
the company is incorporated as a public company under the Companies Ordinance, 1984
(XLVII of 1984);
(b)
the company complies with all the requirements in Central Depositories Act
1997 (XIX of 1997);
(c)
it has, and maintains at all times, a minimum paid-up capital (net of losses) of
rupees five hundred million or such higher amount as may be notified by the
Commission;
(d)
the collective shareholding of the securities exchanges does not exceed such
percentage as the Commission may notify, of the total shareholding of the company:
Provided that the Commission may in the official Gazette notify any class
or classes of persons to hold such number of shares of the central depository as the Commission
deems appropriate:
Provided further that any sale or purchase of shares of the central
depository shall be subject to the prior approval of the Commission;
(e)
no promoter, director, majority shareholders, senior management officer or
employee of such a company
(i)
has been convicted of fraud, breach of trust or an offence involving moral turpitude or
removed from service for misconduct or has been adjudicated as insolvent;
(ii)
dealings;
has been associated with any illegal banking business, deposit taking or financial
(iii)
has been a sponsor, director, chief executive or a senior management officer of
any defaulting entity;
(iv)
has ever been a defaulter of any commercial bank or financial institution,
including non-banking financial institution, securities exchange and clearing house or has
suspended payment or has compounded with his creditors;
(v)
has ever been a defaulter or non-payer of verified unsettled claims of its customer
as a TRE certificate holder of securities exchange; and
(vi)
fulfill the fit and proper criteria as may be prescribed;
(f)
the promoters of such company are persons of experience and integrity and have
special knowledge of matters which the company may have to deal with as a central depository
company; and
(g)
it satisfies such other conditions as may be prescribed.
49.
Grant of licence.
(1) A public company eligible for a licence may apply to the Commission to be licensed as a
central depository in such form and manner as may be prescribed.
(2)
The application under sub-section (1) shall be accompanied by a prescribed fee.
(3)
The Commission may require an applicant to provide the Commission with such
further information as it considers necessary in relation to the application, in such form or
verified in such manner as the Commission may direct.
(4)
The Commission may, in writing, subject to such conditions or restrictions as it
may think fit to impose, license a public company as a central depository if the Commission is
satisfied that the company will ensure that, as far as is reasonably practicable, there are fair,
transparent and efficient depository facilities, the company will manage any risk associated with
its business and operations prudently, in the manner prescribed and the company will enforce
compliance by CDS element with its regulations.
(5)
In the exercise of its powers to grant licence under sub-section (4), the
Commission shall have regard to, whether—
(i)
(a)
the company’s regulations make satisfactory provision for
the proper regulation and efficient operation of the depository facility which it operates;
(ii)
the proper regulation and supervision of CDS element;
(iii)
maintaining the accounts of its account holders, participants,
sub-account holders and investor account holders in the manner as may be prescribed;
(iv)
equitable allocation of dues, fees and other charges among the CDS element and
other persons using its facilities; and
(v)
(b)
any other matters as may be prescribed;
the company has sufficient financial, human and system resources to—
(i)
establish and operate a fair, transparent and efficient depository facility;
(ii)
meet contingencies or disasters (including events such as technical complications
occurring with automated systems); and
(iii)
provide adequate security arrangements; and
(c)
it would not be contrary to the public interest to license the company.
(6)
Subject to the provisions of this Act, a licence granted under this section shall be
subject to such annual renewal fee as may be prescribed.
50.
Duties of central depository.
(1) It shall be the duty of a central depository to ensure
(a)
fair, transparent and efficient depository facility;
(b)
that risks associated with its business and operations are managed prudently;
(c)
compliance with all the provisions of the Central Depositories Act, 1997 (XIX of
1997); and
(d)
that requirements referred to in clause (b) of sub-section (4) of section 49 shall
be evaluated, examined and certified by such independent and
reputable expert and in such
time intervals as may be prescribed.
(2)
In discharging its duty under sub-section (1), a central depository shall act in the
interest of the CDS elements and in particular shall give paramount importance to the interest
of the public.
(3)
A central depository shall operate its facilities in accordance with the Central
Depositories Act, 1997 (XIX of 1997) and the regulations made there under.
(4)
A central depository shall formulate and implement appropriate procedures under
its regulations, compliance of which shall be mandatory on all CDS elements .
(5)
A central depository shall have efficient procedures and arrangements for
addressing complaints and taking enforcement actions thereof.
(6)
A central depository shall immediately notify the Commission if it becomes
aware
(a)
of a financial irregularity or other matter which in the opinion of the central depository
may indicate that its financial integrity is in question or that it is unable to meet its legal
obligations;
(b)
that any of its CDS element is unable to comply with any regulation of the
central depository; and
(c)
of a financial irregularity or other matter which in the opinion of the central
depository may indicate that the financial standing or integrity of a CDS element is in question
or that a CDS elements may not be able to comply with legal and regulatory requirements.
(7)
A central depository shall ensure that appointment or removal of its chief
executive officer by whatever name called is made with the prior approval of the Commission.
(a)
(8)
A central depository shall at all times provide and maintain
adequate and properly equipped premises;
(b)
automated systems with adequate capacity, facilities to meet contingencies or
emergencies, security arrangements and technical support; and
(c)
comprehensive business continuity plan for the conduct of its business.
51.
Regulations of central depository.
(1) Without limiting the generality of sub-section (4) of section 49, the regulations of a central
depository, may make provision
(a)
with respect to the constitution, powers and functions of the governing body of the
central depository;
(b)
with respect to the appointment and functioning of internal auditors;
(c)
with respect to operational, information system, risk evaluation and regulatory
audit of the central depository;
(d)
with respect to the mechanism for inspection, enforcement and other punitive
actions relating to audit and compliance of CDS Elements including cooperation with other
licensed entities for violation of any requirement of this Act or any rules or regulations made
there under;
(e)
with respect to the equitable allocation of the dues, fees and other charges levied
by the central depository;
(f)
with respect to dissemination of information to CDS element, securities exchange,
clearing house, other entities or intuitions and general public;
(g)
with respect to integrity and professional conduct of its employees; and
(h)
generally for carrying on the business of the central depository.
(2)
The power to make regulations conferred by this section on the central depository
shall, for eliciting public opinion thereon, be subject to condition of previous publication of the
said regulations alongwith their rationale on the website of central depository for a period of
seven days starting from the date of its placement on website:
Provided that, on an application by the central depository, the Commission may waive
the condition of placement of proposed regulations on the website of the central depository in
cases requiring the immediate implementation of a proposed regulation.
(3)
it
(a)
The Commission may, by notice in writing served on a central depository, require
to make regulations specified in the notice within the period specified; or
(b)
to amend regulations referred to in the notice in the manner and within the period
specified in the notice.
(4)
Where the Commission is satisfied that a central depository has not complied with
a requirement referred to in sub-section (3) within the specified period the Commission may
make or amend the regulations specified in the notice instead of the central depository and the
regulations so made or amended shall be deemed to have been made or amended by the central
depository and shall have effect accordingly.
52.
Approval of regulations of central depository.—
(1) No regulation of a central depository or any amendment, whether by way of rescission,
substitution, alteration or addition, to a regulation shall have effect unless it has the approval in
writing of the Commission.
(2)
A central depository shall submit or cause to be submitted to the Commission for
its approval the regulations and every amendment thereto that require approval under sub-section
(1), together with explanations of their purpose and likely effect, including their effect on the
investing public, in sufficient detail to enable the Commission to decide whether to approve them
or refuse to approve them.
(3)
The Commission shall, by notice in writing served on the central depository, give
its approval or refuse to give its approval to the regulations or amendment of the regulations, as
the case may be or any part thereof.
(4)
The Commission may give its approval under sub-section (3) subject to
requirements that shall be satisfied before the regulations or amendment of the regulations or any
part thereof take effect.
(5)
Subject to the approval of the Commission under sub-section (3), all regulations
or amendments thereto made by the central depository shall be notified in the official Gazette
and shall take effect upon such publication or such date as may be specifically specified in the
notification.
53.
Obligation of CDS element to comply with regulations and procedures of central
depository.
CDS element shall at all times comply with the regulations and procedures of the central
depository.
54.
Central depository to assist the Commission.
A central depository shall provide such assistance to the Commission as the Commission may
require for the performance of the functions and duties of the Commission, including the
furnishing of such returns and the provision of such books and other information relating to the
business of the central depository or in respect of any activity and arrangements in securities or
any other information as the Commission may require from time to time for the proper
administration of this Act and the Central Depositories Act, 1997 (XIX of 1997).
55.
Power of the Commission to issue directions to central depository.
(1) The Commission may, if it considers it necessary or expedient—
(a)
for ensuring fair, transparent and efficient working of the central depository;
(b)
for ensuring the integrity and proper management of systemic risks in the
securities markets;
(c)
in the interests of the public or a section of the public or for the protection of
customers, the CDS elements and their clients,
issue directions by notice in writing either of a general or specific nature to a central
depository.
(2)
Without prejudice to the generality of sub-section (1), any direction issued under
that sub-section may relate to
(a)
the book-entry system of the central depository;
(b)
the manner in which a central depository carries on its business;
(c)
removing or suspending the directors or officers of the central depository from
office or suspending CDS elements of the central depository;
(d)
the settlement of investor or customers claims and enforcement and other punitive
actions against CDS element; and
(e)
any other matter that the Commission considers necessary for the proper
administration of this Act and the Central Depositories Act, 1997 (XIX of 1997) or the rules and
regulations made hereunder,
and the central depository shall comply with any such direction.
56.
Emergency powers of the Commission.
(1) Where the Commission has reason to believe or decides on the recommendation of the
central depository, that an emergency exists or where the Commission considers it necessary or
expedient in the interest of the public or section of the public or for the protection of customers
or where the Commission takes action under section 13 or section 32, the Commission may
direct by notice in writing a central depository to take such action as it considers necessary and
the central depository shall comply with that direction.
(2)
Where a central depository fails to comply with a direction of the Commission
under sub-section (1), within such time as is specified by the Commission, the Commission may
take such other action, including but not limited to those specified in sub-section (1), as the
Commission considers fit to maintain or restore fair, transparent and efficient depository facility.
(3)
In this section, “emergency” means
any act of government affecting securities;
(b)
any major market disturbance which prevents the market from accurately
reflecting the forces of supply and demand for securities; or
(c)
any other situation or practice which in the opinion of the Commission constitutes
an emergency.
57.
Suspension or cancellation of licence.
(1) The Commission may, by notice in writing served on the central depository,—
(a)
(i)
suspend the license granted under this Act with effect from the date specified in
the notice for such period as may be specified in the
notice; or
(ii)
supersede the board of directors or other authority of the central depository; or
(iii)
suspend or remove the director, officer or member from his office; or
(iv)
cancel the licence granted under this Act with effect from the date specified in the
notice,
if the central depository
(a)
ceases to comply with the eligibility conditions specified in
ection 48;
(b)
ceases to operate the central depository facility that it has been licensed to
operate under section 49;
(c)
is being wound up;
(d)
fails to comply with any requirement of this Act or the Central Depositories Act,
1997 (XIX of 1997);
(e)
fails to comply with a direction of the Commission;
(f)
fails to provide the Commission with information required by the Commission or
provides false or misleading information;
(g)
is operating in a manner detrimental to the public interest; or
(h)
requests the Commission to do so.
(2)
For the purposes of clause (b) of sub-section (1) a central depository shall be
deemed to have ceased to operate as a central depository if
(a)
it has ceased to operate its depository facility for more than thirty days unless it has
obtained the prior approval of the Commission to do
so; or
(b)
it has ceased to operate such depository facility under a direction issued by the
Commission.
(3)
The Commission may by the notice served under sub-section (1) permit the
central depository to continue, on or after the date on which the suspension or cancellation is to
take effect, to carry on such activities affected by the suspension or cancellation as the
Commission may specify in the notice for the purpose of
(a)
closing down the operations of the central depository; and
(b)
protecting the public interest.
(4)
Except where responding to a request under clause (h) of sub-section (1), the
Commission shall not take any action under sub-section (1) against the central depository
without first giving the central depository an opportunity of being heard.
(5)
Where the Commission suspends or cancels the licence of a central depository
under this section, it shall cause notice of that fact to be published in at least two daily
newspapers having wide circulation.
58.
Effect of cancellation of licence.
A cancellation of licence under section 57 shall not operate so as to
(a)
avoid or affect any agreement, transaction or arrangement entered into on the securities
market of a securities exchange where the agreement, transaction or arrangement was entered
into before the cancellation of the licence; or
(b)
affect any right, obligation or liability arising under such agreement, transaction
or arrangement.
59.
Accounts and audit.
(1) A central depository shall keep proper books of accounts and records of its profit and loss,
assets and liabilities and all other transactions of the central depository as may be prescribed.
(2)
The central depository shall, within three months after the end of each financial
year, prepare financial statement of the central depository for the financial year, including a
profit and loss account, balance sheet, cash flow and such other items as may be prescribed.
(3)
The auditors shall prepare a report on the financial statement received and send
such statement to the central depository within three months from the close of financial year or
such later time as allowed by the Commission and the central depository shall forthwith after its
receipt send a copy of the report and a copy of the statement of accounts to the Commission.
(4)
The Commission may, where it deems appropriate, require all system to be
audited by an independent auditor in alternate year in a prescribed manner.
(5)
The auditors report shall be prepared in such a manner as may be prescribed.
(6)
The auditors shall have a right of access at all reasonable times to the books,
accounts, vouchers and other records of the central depository and are entitled to require from
officers of the central depository such information and explanations as they consider necessary
for the performance of their duties as auditor.
(7)
The accounting and other records required to be reported under this section shall
be preserved by the central depository for a period of ten years or such longer period as may be
prescribed.
60.
Power of the Commission to appoint auditor.
(1) Where the Commission is satisfied that it is in the public interest to do so, it may appoint in
writing an auditor for special audit, at the expense of the central depository, to examine, audit
and report, either generally or in relation to any matter, on the books, accounts and records of a
central depository.
(2)
The Commission may appoint special auditors to furnish the Commission with a
regulation compliance audit report in the form and manner prescribed.
61.
Annual report.
(1) A central depository shall, within four months after the end of its financial year or such later
time as allowed by the Commission, give to the Commission an annual report that includes
(a)
a description of the activities undertaken by the central depository in the financial year;
(b)
the resources including financial, technological and human resources, that the
central depository had available and used in order to ensure compliance with its obligations; and
(c)
an analysis of the extent to which the central depository considers that the
activities undertaken and resources used, have resulted in full compliance with all of its
obligations under this Act and the Central Depositories Act, 1997 (XIX of 1997) and its
regulations.
(2)
The central depository shall ensure that the annual report is accompanied with
information prescribed for this purposes which may include, without limitation,
(a)
names of the participants who are members of the company;
(b)
number of account holders as well as sub-account holders;
(c)
list of shareholders of the company indicating change in the shareholdings, if any;
and
(d)
experience.
names of senior management staff of the company with qualifications and
(3)
The annual report shall be accompanied by an audit report where required by the
Commission.
(4)
The Commission may, by giving written notice to the central depository, require
the central depository to obtain an audit report, by a person to be approved by the Commission,
on the annual report and on any information or statements accompanying it.
62.
Preservation of rights, etc.
Except to the extent that they expressly provide, the provisions of this Part shall not operate to
limit, restrict or otherwise affect
(a)
any right, title, interest, privilege, obligation or liability of a person; and
(b)
any investigation, legal proceeding or remedy in respect of any such right, title,
interest, privilege, obligation or liability.
PART V
REGULATED SECURITIES ACTIVITIES
63.
Scope of regulated securities activities.
For the purposes of this Act, a person shall be deem to be carrying on a regulated securities
activity if such person carries out on business or purports to do so, as a
(a)
securities broker;
(b)
securities adviser;
(c)
securities manager;
(d)
share registrar;
(e)
credit rating company;
(f)
balloter;
(g)
underwriter;
(h)
debt securities trustee; or
(i)
any other activity as may be notified by the Federal Government.
64.
Licensing requirement.—(1) No person shall carry on a regulated securities
activity or purport to do so, unless such person is licensed by the Commission under this Act and
operates in accordance with such licence.
(2)
A licence granted under this Act shall specify the regulated securities activity or
activities that the regulated person is permitted to undertake and such person shall be restricted to
such regulated securities activity or activities so specified.
(3)
The Commission may, by notification in the official Gazette, exempt any
financial institution or class of financial institutions from the operation of sub-section (1) subject
to such terms and conditions as may be prescribed.
Explanation.—For the purposes of this sub-section the expression “financial institution”
shall have the same meaning as defined under clause (15A) of sub-section (1) of section 2 of the
Companies Ordinance, 1984 (XLVII of 1984).
65.
Eligibility for licensing.—(1) A licence in respect of a regulated securities activity
shall only be granted to a public or private company except that
(a)
in the case of a securities adviser, a licence may be granted to an individual; and
(b)
in the case of a representative, a licence may only be granted to an individual.
(2)
A regulated person that is licensed to indulge in a regulated securities activity
shall be restricted to undertake only that activity exclusively.
(3)
In the case of a bank a licence under this Part except a licence for underwriting or
any other regulated activity as may be prescribed shall be granted only to a subsidiary company
of the bank for such purpose and such subsidiary shall be exclusively engaged in regulated
securities activities.
66.
Representatives.
No person shall act as a representative in carrying on business in any regulated securities activity
or hold himself out as doing so, unless he is the holder of a representative’s licence for that
regulated securities activity and is duly accredited to a principal.
67.
Accreditation of representatives.
(1) A representative is accredited to a principal for the purposes of this Act only if
(a)
the licence of the representative states that he is accredited to the principal; and
(b)
the representative is recorded as being accredited in the register of regulated
persons maintained by the Commission under section 72.
(2)
The Commission shall not issue a representative’s licence unless both the
representative and the principal have informed the Commission in writing that he is or is to be
accredited.
(3)
Where the accreditation of a representative has been terminated whether by the
principal or the representative
(a)
the principal shall immediately notify the Commission, and any securities exchange of
which he is a TRE certificate holder, in writing of such termination;
(b)
the principal shall publish in two daily newspapers having wide circulation a
notice advising of such termination and shall make arrangements for the placement of the notice
on the securities exchange website;
(c)
the representative shall forthwith return his licence to the Commission; and
(d)
the Commission shall forthwith amend the register of regulated persons
accordingly.
68.
Application for licence.
(1) An application for a licence under this Part shall be made to the Commission in the
prescribed form and shall be accompanied by the prescribed fee and shall
(a)
give the Commission information it requires
(i)
about the services which the applicant will hold himself out as being able to provide if the
application is allowed;
(ii)
about the business which the applicant proposes to carry on and to which the
application relates and about any person whom the applicant proposes to employ or with whom
the applicant intends to be associated in the course of carrying on the business; and
(iii)
to enable the Commission to consider the matters referred to in section 151; and
(b)
specify the location of all premises at which the records or other documents of the
regulated securities activity in respect of which the application is made are to be kept.
(2)
The Commission may require an applicant to provide it with such further
information as the Commission considers necessary.
(3)
An application for the grant of a representative’s licence shall be supported in the
prescribed manner by a principal who is the holder of or who has applied for a licence to conduct
a regulated securities activity.
69.
Grant of licence.
(1) Subject to the provisions of this Act, the Commission may, on an application duly made in
accordance with section 68, grant the licence or refuse the application.
(2)
The Commission shall grant a licence if satisfied that the applicant
is a fit and proper person to be licenced, having regard to the provisions of section 151;
(b)
will be able, if licensed, to comply with any financial resources regulations that
may apply to the applicant;
(c)
has specified premises under clause (b) of sub-section (1) of section 68 that are
suitable for keeping records or other documents;
(d)
in the case of an application for a representative’s licence, has passed such
examination and undertaken such training as may be prescribed;
(e)
complies with the conditions prescribed in relation to anti-money laundering and
counter financing of terrorism under the applicable laws; and
(f)
satisfies such other conditions as may be prescribed.
(3)
Subject to the provisions of this Act, a licence granted under this section shall be
granted for a period of one year and may be renewed for further periods of one year provided
that,(a)
(a)
the regulated person applies for renewal of licence one month prior to the expiry
of his license;
(b)
pays the prescribed annual licence fee; and
(c)
meets the requirements of sub-section (2).
70.
Power of the Commission to impose conditions.
(1) The Commission may grant a licence subject to such conditions or restrictions as it considers
necessary.
(2)
The Commission may, by written notice served on the holder of the licence,
amend or cancel any of the conditions or attach new conditions.
71. Power of the Commission to issue directions to regulated persons.—(1) The
Commission may by notice in writing give a regulated person a direction under this section
where it appears to the Commission that
(a)
it is desirable for the protection of public interest or customers; or
(b)
the regulated person is contravening, has contravened or is about to contravene or
has failed to comply with any provision of or requirement under this Act, any rule or any
regulation made under this Act or in purported compliance with any such provision or
requirement has furnished the Commission with information that is false, inaccurate or
misleading.
(2)
A direction under this section may contain all or any of the following prohibitions
or requirements, namely:
(a)
require a regulated person to cease and desist from the contravention;
(b)
prohibit a regulated person from entering into transactions of a class or
description specified in the notice or entering into them otherwise than in circumstances so
specified or to an extent so specified;
(c)
prohibit a regulated person from soliciting business from a person of a class or
description so specified or from persons other than persons of such a class or description;
(d)
prohibit a regulated person from carrying on business in a specified manner or
otherwise than in a specified manner;
(e)
as regards any assets whether in Pakistan or elsewhere and whether they are the
assets of the regulated person or not
(i)
prohibit the regulated person from transferring, alienating or otherwise disposing of such
assets or from dealing with them in a manner specified in the notice; or
(ii)
require the regulated person to deal with such assets in, and only in, a manner
specified in the notice;
(f)
require a regulated person to maintain in Pakistan assets of such value as appears
to the Commission to be desirable with a view to ensuring that the regulated person will be able
to meet his liabilities in respect of his business; or
(g)
require a regulated person to transfer control of assets of a specified class or
description to a trustee approved by the Commission,
and the regulated person shall comply with such direction.
(3)
A direction under this section shall be for such specified period as the
Commission considers necessary which period may be extended by the Commission as
considered necessary by it.
(4)
The Commission may, by written notice either of its own motion or on the
application of the regulated person on whom a prohibition or requirement has been imposed
under this section, rescind or vary the prohibition or requirement if it appears to the Commission
that it is no longer necessary for the prohibition or requirement to take effect or continue in force
or, as the case may be, that it should take effect or continue in force in a different form.
72.
Register of regulated persons.
(1) The Commission shall maintain a register of regulated persons in the form it considers most
appropriate.
(2)
For each regulated person, other than a representative, the register shall record
(a)
the name and address of the regulated person;
(b)
the date on which the licence was granted;
(c)
the type of regulated securities activity permitted by the licence;
(d)
any conditions attached to the licence;
(e)
the name and address of every accredited representative, manager and officer;
(f)
the location of the premises at which the records or other documents of the
regulated person are kept;
(g)
where the regulated person is a company, the name of each director and of the
secretary of the company and the names of majority shareholder;
(h)
any order of cancellation of licence; and
(i)
such other particulars as the Commission considers necessary in the interest of the
investing or general public.
(3)
For each representative, the register shall record
(a)
his name and address;
(b)
the date on which his licence was granted;
(c)
the name and address of the principal to whom he is accredited; and
(d)
such other particulars as the Commission considers desirable in the interest of the
investing or general public.
(4)
The register referred to in sub-section (1) shall be made available on the website
of the Commission and securities exchange.
(5)
Any person may apply for a certified copy of the information contained in the
register upon payment of the prescribed fee in the prescribed manner.
73.
Notification of change in register particulars.
Where
(a)
a regulated person ceases to carry on the business to which his licence relates; or
(b)
a change occurs in any matter particulars of which are required by section 72 to
be entered in the register,
the regulated person shall as soon as is practicable and in any event within seven days give to the
Commission notice in writing of the event concerned.
PART VI
CONDUCT OF REGULATED SECURITIES ACTIVITIES
74.
Standards of conduct.—
In the conduct of regulated securities activities, a regulated person shall at all times act according
to the principles of best practice and, in particular, shall
(a)
observe a high standard of integrity and fair dealing;
(b)
act with due care, skill and diligence;
(c)
observe high standards of market conduct;
(d)
seek from customers information about their circumstances and investment
objectives which might reasonably be expected to be relevant in enabling the regulated person to
fulfill his responsibilities to the customer;
(e)
take steps to give public information to every customer which will enable the
customer to make a balanced and informed investment decision;
(f)
avoid any conflict of interest with customers and, where such a conflict
unavoidably arises, to ensure fair treatment to the customer by complete disclosure and the
interests of the regulated person should never be unfairly placed above those of the customer;
(g)
protect properly, by way of segregation and identification, those customer assets
for which the regulated person is properly responsible;
(h)
maintain adequate financial resources to meet the regulated securities activities
commitments of the regulated person and withstand the risks to which the business is subject;
(i)
organize and control internal affairs in a responsible manner;
(j)
keep proper records and maintain such records for a period of ten years or such
longer period as notified by the Commission;
(k)
have efficient procedures and arrangements for addressing customer’s complaints
and settlement of customer’s claims;
(l)
have adequate arrangements to ensure that all staff employed are suitable,
adequately trained and properly supervised, together with well-defined compliance procedures;
(m)
have adequate system of internal controls and internal audit, ensuring compliance
with the relevant laws for the time being in force;
(n)
make efforts to resolve any dispute through mediation; and
(o)
deal with the Commission in an open and co-operative manner and keep the
Commission informed of anything concerning the regulated person that might be expected to be
disclosed to it.
75.
Business conduct regulations.
(1) Without prejudice to section 169 the Commission may make regulations requiring regulated
persons to comply with such practices and standards relating to their conduct in carrying on the
regulated securities activities for which they are licensed as are specified in the regulations.
(2)
Without limiting the generality of sub-section (1), the Commission may make
regulations for or with respect to
(a)
the use of misleading or deceptive advertisements by or on behalf of a regulated person;
(b)
the disclosure to a customer of the financial risks in respect of securities trading
recommended by the regulated person to the customer;
(c)
the avoidance of any conflict of interest between the regulated person and a
customer;
(d)
recommendations made by a regulated person;
(e)
the priority to be given to customer’s orders;
(f)
fit and proper criteria for the promoters, directors, senior management officers
and officers of regulated person;
(g)
implementation of in-house compliance and internal audit function to ensure
compliance to the applicable regulatory framework;
(h)
observance of fair trade and market practices and prohibition of market abuses,
fraudulent practices and deception of general public;
(i)
trading against a customer; and
(j)
any other matter relating to the practices and standards of conduct required of a
regulated person in conducting the regulated securities activity for which the regulated person is
licensed.
76.
Issue of contract notes.
A regulated person shall, in respect of every contract for the purchase, sale or exchange of
securities entered into by him, whether as principal or agent, make out a contract note in such a
manner as may be prescribed.
77.
Short selling.
(1) Except in accordance with regulations , a person shall not sell any listed securities that he or
his principal does not own either for his own account or for the account of another person.
(2)
For the purposes of sub-section (1), a person who sells securities includes a
person who
(a)
sells the securities;
(b)
purports to sell the securities;
(c)
offers to sell the securities;
(d)
holds himself out as entitled to sell the securities; or
(e)
(a)
instructs a securities broker to sell the securities.
(3)
For the purposes of sub-section (1), a person is treated as owning securities only if
he or his agent is legally entitled to the securities;
(b)
he has purchased the securities or has entered into an unconditional contract to
purchase the securities, even if he does not yet have title to them;
(c)
he owns other securities convertible into or exchangeable for the securities and
has tendered the other securities for conversion or exchange;
(d)
(e)
or warrants.
he has an option to acquire the securities and has exercised the option; or
he has rights or warrants to subscribe to the securities and has exercised the rights
78.
Customer assets.
(1) A regulated person shall
(a)
treat and deal with all customer assets received by him from a customer in respect of any
regulated securities activity as belonging to that customer;
(b)
account for in a separate trust account, designated or evidenced as such, for all the
customer assets received from the customer or accruing to the customer pursuant to clause (a);
and
(c)
not commingle those customer assets with the assets of the regulated person.
(2)
Without prejudice to section 169 the Commission may make regulations with
respect to the segregation, safekeeping and utilization of customer assets that a regulated person
holds on behalf of a customer.
(3)
Without limiting the generality of sub-section (2), regulations may
(a)
require customer money to be paid into segregated bank accounts established for
customer money and designated as trust accounts or customer accounts;
(b)
make provision with respect to the opening, control and keeping of bank accounts
and specify when and how customer money is to be paid into such accounts and require it to be
dealt with, and accounted for, in the prescribed manner;
(c)
require the maintenance of records in relation to such accounts;
(d)
require the submission to the Commission, upon request or at prescribed
intervals, of prescribed information, records and documents for the purpose of enabling the
Commission to ascertain readily whether the regulations are being complied with; and
(e)
provide for any other matter relating to customer assets.
PART VII
ACCOUNTS, CAPITAL REQUIREMENTS AND AUDIT
79.
Accounts and records to be kept.—(1) Every regulated person shall keep such
accounting and other records as prescribed which shall sufficiently explain the transactions and
financial position of all business relating to his licence and enable a true and fair financial
statements to be prepared from time to time and shall keep those records in such manner and
form as to enable them to be conveniently and properly audited.
(2)
Without limiting the generality of sub-section (1), such accounts and other records
shall be maintained as may be prescribed.
(3)
The accounting and other records required to be maintained under this section
shall be preserved by the regulated person for a period of not less than ten years from the date on
which they are made and shall at all reasonable times be open to inspection by the Commission
or by any person appointed by the Commission.
(4)
All records shall be maintained in sufficient detail to establish readily whether or
not any financial resources regulations are being complied with.
80.
Financial resources regulations.—
(1) Without prejudice to
section 169, the Commission may make regulations requiring regulated persons to have and
maintain, in respect of the securities regulated activity for which they are licensed, the financial
resources set by the regulations.
(2)
Financial resources regulations may—
(a)
(i)
require regulated persons to maintain financial resources in accordance with —
specified requirements as to the amount in which they are to be maintained; and
(ii)
any other prescribed requirements;
(b)
prescribe the assets, liabilities and other matters to be taken into account under
the regulations to determine the financial resources of a regulated person and the extent to which,
and the manner in which, they are to be taken into account for that purpose;
(c)
require regulated persons to submit to the Commission, at intervals set out in the
regulations, returns of their financial resources and trading activities in a form set by the
Commission;
(d)
require regulated persons to submit returns to the Commission in response to a
request by the Commission for information relating to their financial resources and any trading
activities; and
(e)
persons.
provide for any other matter relating to the financial resources of regulated
81.
Failure to comply with financial resources regulations.—(1) If a regulated person
becomes unable to comply with financial resources regulations the regulated person shall —
(a)
notify the Commission, of that fact;
(b)
in the case of a securities broker, also notify the securities exchange of which the
regulated person is a TRE certificate holder, clearing house and central depository, of that fact;
and
(c)
cease conducting the regulated securities activity for which the regulated person is
licensed, otherwise than for the purpose of giving effect to an agreement or arrangement
permitted under his licence and entered into before the time when it became so aware.
(2)
The duties of a regulated person under sub-section (1) shall arise as soon as the
regulated person becomes aware or should, with the exercise of diligence, have become aware,
of his inability to comply with the financial resources regulations.
(3)
A regulated person that is a company is deemed to be aware of an inability to
comply with the financial resources regulations if a director or employee of it is so aware or
should, with the exercise of diligence, have been aware of the inability.
(4)
Where the Commission becomes aware of an inability by a regulated person to
comply with financial resources regulations the Commission may, whether or not notice has been
given under sub-section (1),
(a)
suspend the licence; or
(b)
permit the regulated person to carry on business on the conditions, if any, the
Commission imposes.
(5)
Where the Commission suspends a licence for a specified period under subsection (4), the suspension shall be for a period not exceeding three months, provided that the
Commission may, if it considers it necessary, extend the suspension for such further periods not
exceeding three months at any time, at the expiry of which the Commission shall either notify in
writing the regulated person that the suspension has expired or proceed to cancel the licence, as it
deems appropriate.
82.
Monitoring compliance with financial resources regulations.—(1) The
Commission may at any time, by notice in writing served on a regulated person, require the
regulated person to satisfy the Commission that the regulated person complies with all of the
requirements of the financial resources regulations that apply to the regulated person in such
manner as may be prescribed.
(2)
Without limiting the generality of sub-section (1), the Commission may exercise
any of the powers of an auditor appointed by the Commission under section 86 for the purpose of
ascertaining whether a regulated person complies with all of the requirements of the financial
resources regulations that apply to the regulated person.
83.
Auditor to be appointed.—(1) Within one month after becoming licenced under
this Act a regulated person, other than a representative, shall appoint an auditor, approved by the
Commission, to perform the functions required of an auditor of a regulated person under or
pursuant to the provisions of this Act and the regulations made hereunder.
(2)
An auditor shall not be eligible for appointment under sub-section (1) if he is
(a)
a director, officer, employee, shareholder, partner or family member of the regulated
person; or
(b)
a partner or employee of such person; or
(c)
not in compliance with the section 254 of the Companies Ordinance, 1984
(XLVII of 1984).
(3)
A regulated person shall, within seven days of the appointment of an auditor,
notify the Commission in writing of the name and address of the auditor.
(4)
A regulated person shall, within seven days, notify the Commission in writing of
the removal or resignation of an auditor.
84.
Audited accounts to be lodged with the Commission.— A regulated person other
than a representative, shall —
(a)
for the financial year from the day on which he commences to carry on a
regulated securities activity; and
(b)
for each subsequent financial year,
prepare financial statements, a balance sheet and a cash flow statement made up to the last day
of the financial year which shall show a true and fair view, contain the information prescribed,
and shall lodge those documents with the Commission not later than four months after the end of
the financial year, together with an auditor’s report which shall express opinions on such matters
as may also be prescribed.
85.
Auditor to report to the Commission in certain cases.—If, during the performance
of his duties as auditor for a regulated person, an auditor—
(a)
becomes aware of any matter which in his opinion adversely affects the financial
or regulatory position of the regulated person to a material extent; or
(b)
discovers evidence of a contravention of any financial resources regulations or of
section 78 (customer assets) or with section 79(accounts and records to be kept),
he shall promptly report it in writing to the Commission and to the regulated person.
86.
Power of the Commission to appoint auditor for special audit.— Where the
Commission is satisfied that it is in the interest of a regulated person, his customers or the
investors or general public to do so, it may appoint in writing an auditor to conduct special audit,
at the expense of the regulated person, to examine, audit and report, either generally or in
relation to any matter, on the books, accounts and record of the regulated person and on money,
securities or other property held on account of any other person by the regulated person or by a
nominee appointed by the regulated person, if
(a)
the regulated person has failed to lodge audited accounts with the Commission under
section 84; or
(b)
the Commission has received a report of audit under section 85; or
(c)
the Commission has reason to believe that the regulated person has failed to
comply with any financial resources regulations, with section 78 (customer assets) or with
section 79 (accounts and records to be kept).
PART VIII
PUBLIC OFFERS OF SECURITIES
87.
Offer of securities.—(1) This Part applies to offer of securities other than
Government debt securities.
(2)
Subject to the provisions of this Part, no person shall make a public offer of securities
unless the issuer or offeror of the securities has submitted for approval to the Commission, and
the Commission has approved prospectus.
(3)
No person shall make a public offer of securities if such person or its directors,
sponsors or substantial shareholders have been holding the office of the directors, or have been
sponsors or substantial shareholders in any company, which—
(a)
had been declared defaulter by the securities exchange; or
(b)
whose TRE certificate has been cancelled or forfeited by the securities exchange;
or
(c)
regulations:
which has been de-listed by a securities exchange due to non-compliance of its
Provided that the Commission may grant relaxation upon reasons to be recorded, and
rectification of cause leading to such de-listing.
(4)
Sub-section (2) shall not apply—
(a)
to securities offered by the State Bank of Pakistan;
(b)
where the securities are offered in connection with a private offering or private
placement; and
(c)
issue of shares of a subsidiary to the members of a listed holding company by way
of specie dividend or any other distribution in the prescribed manner.
(d)
where the securities are offered by the issuer to—
(i)
members or employees of the issuer; or
(ii)
members of the families of any such members or employees; and
(e)
where the securities are shares and are offered as bonus shares to any or all of
the members of the issuer;
(5)
A prospectus approved by the Commission shall be valid for a period of sixty
days from the date of such approval or for a longer period approved by the Commission in case
of shelf registration, provided that the supplement to the prospectus for each offering shall
contain updated disclosures:
Provided that the time period of sixty days provided for approval of prospectus may be
extended by the Commission by reasons to be recorded in writing.
(6)
The Commission shall not be liable to any action in damages suffered as a result
of any prospectus approved by the Commission.
(7)
A person who, in connection with a public offer of securities, makes a false or
fictitious application, commits an offence.
(8)
The Commission may, where it considers it appropriate, forfeit any or all of the
money paid or payable in respect of an offering application under sub-section (7) after providing
the applicant a reasonable opportunity of being heard.
88.
Approval, issue, circulation and publication of prospectus.—(1) No person shall
issue, circulate and publish prospectus including a shelf-prospectus or supplement to the
prospectus until it has been approved by the Commission which approval may be subject to such
conditions or restrictions as the Commission considers necessary.
(2)
The issuer or the offeror, as the case may be, shall, not less than twenty one days
before the proposed date of publication of the prospectus, submit a copy to the Commission for
approval.
(3)
Where a public offer of securities is to be made in Pakistan the issuer or offeror,
as the case may be, shall publish the prospectus in full text or in such abridged form as may be
prescribe, at least in one Urdu and one English daily newspaper.
(4)
The prospectus shall not be published in the newspapers less than seven days or
more than thirty days before the commencement of the public subscription.
(5)
The issuer or the offerer, as the case may be, shall make available sufficient
number of copies of the prospectus approved by the Commission under subsection (1), free of
charge, from the date of its publication in the newspapers till the closing of the subscription at
the registered office of the issuer, with all the securities exchanges of the country, with all the
bankers to the issue, the concerned share registrar, the concerned ballotter and the concerned
credit rating agency, if any.
(6)
The prospectus in full text and the shares subscription form shall be uploaded on
the website of the issuer and shall remain there from the date of its publication in the newspapers
till the closing of the subscription.
(7)
No person shall issue, circulate, publish, telecast or broadcast without the prior
written approval of the Commission, an advertisement, other than a prospectus, announcing a
public offer of securities for which a prospectus is required under this Part unless a prospectus
has been published and the advertisement gives an address in Pakistan from which it can be
obtained.
(8)
The issuer or offeror, as the case may be, shall not, at any time, vary the terms of
the clauses stipulated in its prospectus except subject to the approval of the Commission.
(9)
Where an issuer or the offerer, as the case may be, can issue, circulate and
publish supplement to the prospectus inviting the general public for subscription of the
security(ies) earlier offered to the public through shelf-prospectus, provided that—
(a)
it has obtained prior written approval of the Commission for its issue, circulation
and publication;
(b)
the last supplement should be published within such time period to be prescribed
by the Commission; and
(c)
the aggregate amount of the offer or issue floated in tranches should not exceed
the total issue size as mentioned in the shelf-prospectus.
(10) A copy of each supplement to the prospectus shall be filed with the registrar on or
before the date of its issue, circulation or publication.
(11) A supplement to the prospectus shall contain such information as may be
prescribed by the Commission and it shall be published in atleast all those newspapers in which
the shelf-prospectus has been published.
(12) In case of any misstatement or omission of material information from the supplement to
the prospectus, sections 92 and 93 shall apply mutatis mutandis.
89.
Contents of prospectus.—The Commission may approve a prospectus if it
contains such information and reports as may be prescribed.
90.
Expert to be independent.— A prospectus shall not contain a statement purporting
to be made by an expert unless the expert is a person who is not, and has not been, engaged or
interested in the formation or promotion or in the management of the company.
91.
Expert’s consent to issue of prospectus containing statement made by him.— A
prospectus that contains a statement purporting to be made by an expert or to be based on a
statement made by an expert shall not be issued, circulated or published unless—
(a)
the expert has given, his written consent to the issue of the prospectus with the
statement in the form and context in which it is included; and
(b)
there appears in the prospectus a statement that the expert has given and has not
withdrawn his consent.
92.
Criminal liability for defective prospectus.— A person commits an offence,
(a)
makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
who—
(b)
omits information or a statement from a prospectus that this Act or any rule or
regulation made under this Act, requires to be included in the prospectus.
93.
Compensation for false or misleading prospectus.— Every offeror, issuer, director
of an offeror or issuer or any person who has signed the prospectus shall be liable to pay
compensation to any person who acquires any of the securities, in reliance upon the prospectus,
to which the prospectus relates and suffers loss in respect of them as a result of any incorrect,
untrue or misleading statement in the prospectus or the omission from it of any matter required to
be included by or under section 89.
94.
Abridged prospectus.—Notwithstanding the provisions of this Part, a public offer
of securities may be made by publication of an abridged version of a prospectus (an abridged
prospectus), instead of a prospectus, if—
(a)
a prospectus is prepared in accordance with section 89 and the abridged
prospectus is prepared in accordance with such requirements as may be prescribed;
(b)
a copy each of the prospectus and the abridged prospectus is submitted to the
Commission at the same time for approval and both the prospectus and the abridged prospectus
are approved by the Commission;
(c)
sufficient copies of the prospectus are made available for collection at the times
and places specified in section 88 and the abridged prospectus; and
(d)
the public offer complies with such other requirements as may be prescribed.
95.
Issue of securities outside Pakistan.— No company shall, except with the prior
approval of the Commission, issue or list any securities outside Pakistan.
96.
Disclosure of price sensitive information.— (1) Except as provided in subsection (4), a listed company shall disclose to the public forthwith any price sensitive
information relating to the company or its subsidiaries which has come to the company’s
knowledge and which would be material to an investor’s investment decision, including
information that—
(a)
subsidiaries;
is necessary to enable the public to appraise the position of the company and its
(b)
is necessary to avoid the creation or continuation of a false market in the
securities of the company (false market being defined as an uninformed market or one which is
based on incomplete information); or
(c)
might reasonably be expected to materially affect the market activity and the price
of its securities.
(2)
A listed company shall ensure that, when disclosing information pursuant to
clauses (a) to (c) of sub-section (1), the means it uses for disseminating information are such that
it equally, timely and effectively provides access to such information by the holders of the
securities of the company and investors.
(3)
A listed company meets the requirements of sub-section (1) when information
that affects the market or a sector of the market generally is made public in a manner that would
be likely to bring it to the attention of persons who commonly invest in securities of a kind
whose price or value might be affected by the information.
(4)
A listed company may, under its own responsibility, delay the public disclosure
of price sensitive information such as not to prejudice its legitimate interests, provided that—
(a)
such delay would not be likely to mislead public investors;
(b)
any person receiving the information owes the listed company a duty of
confidentiality, regardless of whether such duty is based on law, regulations, articles of
association or contract; and
(c)
the listed company is able to ensure the confidentiality of that information.
(5)
In the event that a listed company is also traded or listed on a foreign market or
exchange, the listed company shall ensure that where information is released to those markets the
same information is released in Pakistan simultaneously.
(6)
Without limiting the generality of this section the listed company shall also
comply with such further obligations and requirements as may be prescribed.
97.
Notification of required disclosure by the Commission or a securities exchange.—
(1) A listed company shall respond promptly upon being informed by the Commission or a
securities exchange that there are unusual movements in the price or volume of its traded
securities by promptly disclosing to the public—
(a)
details of any matter or development of which it is aware that is or may be
relevant to the unusual movements, or
(b)
a statement of the fact if it is not aware of any such matter or development.
(2)
It shall be the responsibility of the listed company to respond promptly, in the
same manner, to any news in the print and electronic media regarding that company which may
prima facie affect the opinion of investor or public at large.
(3)
Without limiting the general effect or provisions of this Part, listed companies
shall also comply with such further reporting obligations and requirements as may be prescribed.
98.
Power of the Commission to require production of records and documents
concerning listed companies.—(1) Where—
(a)
it appears to the Commission that there are circumstances suggesting that the
business of a listed company has been or is being conducted
(i)
with intent to defraud its creditors or the creditors of another person;
(ii)
for a fraudulent or unlawful purpose; or
(iii)
in a manner that adversely effects any of its members;
(b)
it appears to the Commission that there are circumstances suggesting that a
company was listed for a fraudulent or unlawful purpose;
(c)
it appears to the Commission that there are circumstances suggesting that the
persons concerned with the listing of a company or the management of its affairs have in
relation to the listing or management been guilty of fraud, misfeasance or other misconduct
towards it or its members; or
(d)
it appears to the Commission that there are circumstances suggesting that the
members of a listed company have not been given all the information with respect to its affairs
that they might reasonably
expect,
the Commission may give directions —
(i)
to the directors or management of the listed company;
(ii)
to a subsidiary or an associated company of the listed company; or
(iii)
to a listed company or listed companies that own or control either individually or
collectively a majority shareholding of the listed company or have the power to place a majority
of directors on the board of the listed company or
(iv)
where it appears to the Commission that it is in the interest of the investor or
public interest,
requiring it, at the time and place specified in the directions, to produce the records and
documents specified in the directions.
(2)
The Commission may, when acting under sub-section (1), authorize a person, on
producing, if required to do so, evidence of his authority to require a listed company referred to
in sub-section (1) to produce to him records and documents specified by him.
(3)
The Commission or authorized person may require production of records and
documents from a listed company under this section. The Commission or authorized person may
also require production of those records and documents from a person who appears to the
Commission or authorized person to be in possession of them.
(4)
The power under this section to require a listed company or other person to
produce records and documents includes the power—
(a)
if the records and documents are produced—
(i)
to take copies of them or extracts from them; and
(ii)
to require that person or any other person who is a present or past officer of the
listed company or is or was at any time employed by the listed company, to provide an
explanation of any of them; or
(b)
if the records and documents are not produced, to require the person who was
required to produce them to state, to the best of his knowledge and belief, where they are.
99.
Remedy in cases of unfair prejudice by listed companies.-—
(1) If it appears to the Commission from any information, record or other document obtained
under this Act or the rules or regulations made under the Act or any other legislative power, that
the affairs of a listed company is being or has been conducted in a manner unfairly prejudicial to
the interests of some or all of its shareholders, the Commission may make an application to the
Court for an order under this section.
(2)
If on an application under this section the Court is of the opinion that the
company’s affairs are being or have been conducted in a manner unfairly prejudicial to the
interests of its members generally or of some part of the members, whether or not the conduct
consists of an isolated act or a series of acts, the Court may, with a view to bringing to an end the
matters complained of —
(a)
make an order restraining the carrying out of the act or conduct;
(b)
order that the company shall bring in its name the proceedings the Court considers
fit against the persons, on the terms, the Court orders;
(c)
appoint a receiver of the whole or a part of the company’s property or business
and may specify the powers and duties of the receiver or manager and fix his remuneration; and
(d)
make any other order it considers fit, whether for regulating the conduct of the
company’s affairs in future or for the purchase of the shares of any members of the company by
other members of the company or by the company and, in the case of a purchase by the
company, for the reduction accordingly of the company’s capital or otherwise.
(3)
Where an order under this section makes an alteration in or an addition to the
constitution of a company, the company shall not have power without the leave of the Court to
make any further alteration in or addition to the constitution inconsistent with the order.
100. Power of the Commission to issue directives to listed companies.—Where it
appears to the Commission that —
(a)
it is desirable for the protection of members or other holders of securities or in the
public interest;
(b)
the listed company is in breach of listing regulations; or
(c)
the listed company is contravening, has contravened or is about to contravene or
has failed to comply with any provision of, or requirement under, this Act, any rules or any
regulations made, under this Act or in purported compliance with any such provision or
requirement, has furnished the Commission with information that is false, inaccurate or
misleading,
the Commission may issue directive to the listed company —
(i)
to cease and desist from the breach of this Act or rules or regulations made there
under;
(ii)
to do or not to do any matter as specified under this Act or rules or regulations
made there under; or
(iii)
with regard to or for any other matter that the Commission considers necessary in
exercise of its powers under this Act or rules or regulations made there under,
and the listed company shall comply with the directive.
101. Duty of directors and others to disclose shareholding in listed company.—(1)
Every person who becomes a director, executive officer, or substantial shareholder of a listed
company shall give notice in writing to the company
(a)
of his beneficial ownership in the listed equity securities of the company or any other
nature of securities as may be prescribed by the Commission; and
(b)
of the amount and description of the securities of the company and date of
acquisition of beneficial ownership.
(2)
A director, executive officer or substantial shareholder of a listed company shall
give notice in writing to the company of any of the following events, namely:
(a)
any change in beneficial ownership mentioned in sub-section (1) and the
notification shall state the number, amount and description of securities involved.
(b)
any gain referred to in section 104.
(3)
The reporting requirement imposed by sub-sections (1) and (2) shall be fulfilled
before the expiration of a period of seven days beginning with the day on which the requirement
first arises.
(4)
For the purposes of sections 101 to 107, the term “executive officer” - includes
but not limited to the chief executive, chairman, chief financial officer, secretary, auditor or any
other officer of the company as may be prescribed by the Commission.
(5) For the purposes of sections 101 to 107 beneficial ownership of securities of any
director, executive officer or substantial shareholder, in case of natural person, shall be deemed
to include the securities beneficially owned, held or controlled by—
(a)
him or her;
(b)
the wife or husband of a director of a company, not being herself or himself a
director of the company;
(c)
the minor son or daughter of a director where “son” includes step-son and
“daughter” includes step-daughter; and “minor” means a person under the age of eighteen years;
(d)
a private company, where such director, executive officer or substantial
shareholder is a shareholder, but to the extent of his proportionate shareholding in the private
company:
Provided that “control” in relation to securities means the power to exercise a controlling
influence over the voting power attached thereto.
Provided further that in case the substantial shareholder is a non-natural person, only
those securities will be treated beneficially owned by it, which are held in its name.
102. Register of directors’ interests notified under section 101.— (1) Every listed
company shall keep a register for the purposes of section 101 in the form approved by the
Commission.
(2)
Whenever a company receives notification from a director, executive officer or
substantial shareholder pursuant to section 101, the company shall enter in the register, against
name of the respective director, executive officer or substantial shareholder, the information
received and the date of the entry.
(3)
Whenever a listed company is notified of any matter in consequence of
requirement imposed by sub-section (1) of section 101, the company shall notify it to the
Commission, within seven days of the receipt of the information, showing therein name of
director, executive officer or shareholder, date of appointment or acquisition of beneficial
ownership and number of shares held by him.
103.
Notification to the Commission of directors and others’ interest.—(1) Every
director, executive officer or substantial shareholder of a listed company shall submit to the
Commission in the prescribed form (a)
a statement of beneficial ownership in the listed equity securities of the company
or any other nature of securities as may be prescribed by the Commission;
(b)
the particulars of any change in the interest aforesaid; and
(c)
any change in his position.
(2)
The reporting requirement imposed by sub-sections (1) shall be fulfilled before
the expiration of a period of seven days beginning with the day on which the requirement first
arises.
(3)
For the purposes of sections 101 to 107, “equity security” means any stock or
transferable share (preferred or common) or similar security representing ownership, any security
convertible, with or without consideration, into such a security, or carrying any warrant or right
to subscribe to or purchase such a security, any such warrant or right itself, and such other
security as may be prescribed by the Commission.
104. Trading by directors and others.—
Where any director, executive officer or substantial shareholder of a listed company irrespective
of any intention makes any gain computed in the prescribed manner, by the purchase and sale, or
the sale and purchase, of any beneficially owned listed equity securities of same class, or any
other nature of securities as may be prescribed by the Commission, within period of less than six
months, such director, executive officer or substantial shareholder shall make a report to the
Commission in the prescribed form before the expiration of a period of seven days beginning
with the day on which the gain accrues:
Provided that nothing in this section shall apply to any nature of acquisition as may be
prescribed by the Commission.
105.
Tender of gain to be credited to Federal Consolidated Fund.— Where director,
executive officer or substantial shareholder makes any gain mentioned in section 104, such
director, executive officer or substantial shareholder shall tender the amount of such gain to the
Commission within the period of six months of the accrual of gain and the Commission shall
credit the amount of such gain to the Federal Consolidated Fund.
106.
Directive by the Commission.—(1) Where within the period provided in section
105, a director, executive officer or substantial shareholder fails or neglects to tender the gain,
the Commission may by order in writing direct such director, executive officer or substantial
shareholder to tender the gain to the Commission for onward credit to the Federal Consolidated
Fund.
(2)
where any person who contravenes or fails to comply with any provision of
sections 101, 102, 103, 104, 105 and 107, the Commission may by order in writing direct,—
(a)
in the case of an individual, to pay by way of penalty to the Commission such
sum which may extend to five hundred thousand rupees and to a further sum which may
extend to one thousand rupees per day for every day during which the default continues; and
(b)
in the case of a company, the company and its every director or officer who is
knowingly and willfully in default, to pay by way of penalty to the Commission such amount
which may extend to five hundred thousand rupees and to a further amount which may extend to
one thousand rupees per day for every day during which the default continues.
(3)
Any person, who obstructs or contravenes or does not comply with any order or
direction given under this section commits an offence and shall be liable to pay by way of
penalty such amount which may extend to five million rupees or three times the tenderable gain
made whichever is higher.
107. Notification to the Commission of prescribed information.—(1) Every listed
company, once in each year, prepare in the prescribed manner and file with the Commission a
return containing the prescribed information.
(2)
The return referred to in sub-section (1) shall be filed with the Commission within
forty-five days from the date of the annual general meeting held in the year or, where no such
meeting is held or if held is not concluded, from the last day of the calendar year to which it
relates.
PART IX
TAKEOVERS
108.
Interpretation.
In this Part,
(a)
“acquirer” means any person who, directly or indirectly, acquires or intends to acquire
voting shares or voting rights in, or control of the target company, either by himself or through
any person acting in concert;
(b)
“manager to the offer” means a bank, securities broker or an investment bank
licensed by the Commission, appointed as per requirements of this Part;
(c)
“offer period” means the period from the date of public announcement of public
offer to the date of closure of public offer or earlier withdrawal thereof;
(d)
“persons acting in concert” means
(i)
persons who, with a common objective or purpose of acquisition of voting shares
or voting rights in, or control over a target company, pursuant to an agreement or understanding,
formal or informal, directly or indirectly co-operate for acquisition of such shares or voting
rights in, or control over the target company.
(ii)
without prejudice to the generality of the foregoing, the persons falling within
the following categories shall be deemed to be persons acting in concert with
other
persons within the same category, unless the contrary is established,
(A)
a company, its holding company, subsidiary company and any company under the same
management or control;
(B)
a company, its promoters or sponsors or its directors, and any
person entrusted with the management of the company;
(C)
directors of companies referred to in item (A) of this sub-clause
and associates of such directors;
(D)
acquirer;
relatives of the acquirer or persons acting in concert with the
(E)
a securities manager and its client, who is an acquirer; and
(F)
banks, financial advisors and securities brokers of the acquirer, or
of any company which is a holding company or subsidiary of the acquirer, and where the
acquirer is an individual, of the relative of such individual:
Provided that this sub-clause shall not apply to a bank whose sole
role is that of providing normal commercial banking services or activities in relation to a public
offer under this Act;
Explanation.
For the purposes of this clause “associate” of a person means,
(i)
any relative of such person; and
(ii)
trusts of which such person or his relative is a trustee;
(iii)
partnership firm in which such person or his relative is a partner; or
(iv)
private company in which the person or his relative is director or a
member;
(e)
“public announcement” means the announcement of intention to acquire or offer
to acquire voting shares of the target company made to the public by the acquirer pursuant to this
Partin the prescribed manner and includes the announcement made in relation to a competitive
bid;
(f)
“public offer” means the public offer for acquisition of voting shares of a target
company and includes any competitive bid or bids made for this purpose;
(g)
“relative” means spouse, real and half siblings and their children, and lineal
ascendants and descendants of a person;
(h)
“voting shares” means shares in the equity share capital of a target company
carrying voting rights and includes any security which entitles the holder thereof to obtain or
exercise voting rights;
Explanation.
For the purpose of this clause shares also include all depository receipts carrying an entitlement
to exercise voting rights in the target company; and
(i)
“target company” means a listed company or holding company of a listed
company whose voting shares or control are directly or indirectly acquired or intended to be
acquired.
109. This Part not to apply to certain transactions.
(1) Except as provided otherwise in sub-section (2), nothing contained in this Part shall apply to
(a)
allotment of voting shares pursuant to a right issue to existing members of a company in
proportion to their shareholding, except voting shares allotted and issued under sub-section (7) of
section 86 of the Companies Ordinance, 1984 (XLVII of 1984);
(b)
allotment of voting shares to the licenced underwriters pursuant to any
underwriting agreement;
(c)
acquisition of voting shares in the ordinary course of business by banks and
financial institutions as enforcement of security;
(d)
acquisition of voting shares by succession or inheritance;
(e)
a scheme of arrangement or reconstruction including amalgamation or merger or
de-merger under any law for the time being in force;
(f)
exercise of option by a bank or a financial institution in pursuance of a conversion
option under a loan agreement;
(g)
sale of shares in consequence of privatization of a unit or its management rights
within the meaning of Privatization Commission Ordinance, 2000 (LII of 2000);
(h)
acquisition pursuant to inter se
transfer of shares amongst qualifying persons, being,
(i)
relatives;
(ii)
persons named as promoters or sponsors in the memorandum of Association of
target company holding not less than twenty five percent of the equity securities of the target
company;
(iii)
a company, its subsidiaries, its holding company, other subsidiaries of such
holding company;
(iv)
major shareholders of a target company collectively exercising management
control for a continuous period of three years prior to the proposed acquisition;
Explanation:—For the purposes of this clause the expression “major shareholder”
means person directly holding more than twenty per cent of voting shares of the target company;
(i)
a scheme of rehabilitation of a company approved under any law for the time
being in force.
(2)
After the acquirer acquires voting shares pursuant to sub-section (1), the acquirer
shall make a disclosure of the acquisition in the prescribed manner.
110. Acquisition of more than ten per cent voting shares of a company.
(1) Any acquirer who acquires voting shares, which, taken together with voting shares, if any,
held by the acquirer, would entitle the acquirer to more than ten per cent voting shares in a listed
company, shall disclose the aggregate of his shareholding in that company to the said company,
the securities exchange on which the voting shares of the said company are listed and the
Commission as provided in sub-section (2).
(2)
days of
The disclosure mentioned in sub-section (1) shall be made within two working
(a)
the receipt of intimation of allotment of voting shares; or
(b)
the acquisition of voting shares, as the case may be.
Explanation.
For the purposes of this section the expression “acquisition” shall include purchases confirmed
by the TRE certificate holder of a stock exchange in accordance with applicable rules or
regulations.
(3)
An acquirer may acquire additional voting shares within a period of twelve
months after acquisition of voting shares pursuant to sub-section (1) without making disclosure
as required by sub-section (1) in case the total acquisition does not exceed an aggregate of thirty
per cent.
111. Acquisition of voting shares beyond prescribed limits or control of a company.
No person shall, directly or indirectly,
(a)
acquire voting shares, which (taken together with voting shares, if any, held by such
person) would entitle such person to more than thirty per cent voting shares in a listed company;
or
(b)
acquire additional voting shares in case the acquirer already holds more than
thirty per cent but less than fifty-one per cent of the voting shares of a listed company:
Provided that such acquirer shall not be required to make a fresh public
offer within a period of twelve months from the date of the previous public offer; or
(c)
acquire control of a listed company,
unless such person makes a public offer to acquire voting shares of the listed company in
accordance with this Part.
112.
Number of voting shares and offer price.—(1) The public offer by the acquirer
shall be made for such minimum number of voting shares and for such minimum offer price as
may be prescribed.
(2)
Where the number of voting shares offered for sale by the shareholders are more
than the voting shares offered to be acquired by the acquirer, the acquirer shall, in consultation
with the manager to the offer, accept the public offer or offers received from the shareholders on
a proportional basis:
Provided that acquisition of voting shares from a shareholder shall not be less than the
minimum marketable lot or the entire holding if it is less than the marketable lot.
113. Appointment of manager to the offer.—Before making any public offer the
acquirer shall appoint a manager to the offer who shall not be an associate, or a group company,
of the acquirer or the target company.
114. Timing of the public announcement of intention.
Any person intending to acquire control or voting shares of the target company which may
attract the provisions of section 111, shall make a public announcement of its intention to
acquire in such manner as may be prescribed.
115. Public announcement of intention and public offer not to contain misleading
material.
The public announcement of intention, the public offer, any other advertisement, circular,
brochure or any publicity material issued in respect of, or in relation to, the acquisition of voting
shares shall not contain any misleading or incorrect information.
116. Conditional offer.—(1) A public offer by the acquirer may be made conditional
upon minimum level of acceptances:
Provided that such level shall not be less than the limit prescribed by the Commission.
(2)
Where a public offer is made conditional upon minimum level of acceptance, the
acquirer may reject all such acceptances if the same do not reach the minimum level specified in
the public offer:
Provided that the acquirer shall be free to accept the acceptances even if such
acceptances, put together, do not reach the specified minimum level.
117. Persons to whom public offer shall be made.—The acquirer shall ensure that the
offer letter is sent to all the shareholders of the target company whose names appear on the
register of members of the company as on the date specified in the public announcement:
Provided that where the public announcement is made pursuant to an agreement to
acquire voting shares or control of the target company, the offer letter shall be sent to the
shareholders other than the parties to the agreement.
118. Prohibition for acquirer.
Where the acquirer has, neither in the public announcement nor in the offer letter, stated his
intention to dispose of the undertaking or a sizeable part thereof, of the target company except in
the ordinary course of business of the target company, the acquirer, where he has proceeded to
acquire control of the target company, shall not dispose of the undertaking or a sizeable part
thereof, of the target company for a period of two years from the date of acquisition of the
control.
119. Prohibitions on board of directors of the target company.
(1) The board of directors of the target company, during the offer period, shall not
(a)
sell, transfer, or otherwise dispose of or enter into an agreement for sale, transfer, or for
disposal of the undertaking or a sizeable part thereof, not being sale or disposal of assets in the
ordinary course of business of the company or its subsidiaries;
(b)
encumber any asset of the company or its subsidiary;
(c)
issue any further shares during the offer period; or
(d)
enter into any material contract.
(2)
Once the public announcement of intention has been made, the board of directors
of the target company shall not appoint any person who represents or has an interest in the
acquirer as an additional director or against a casual vacancy on the board of directors, till
acquisition is completed.
(3)
The target Company shall not transfer the securities acquired by the acquirer
unless all obligations have been fulfilled by the acquirer under this chapter as certified by the
manager to the offer.
(4)
Notwithstanding anything contained in the Companies Ordinance, 1984 (XLVII
of 1984), once the acquisition of shares has been completed in accordance with this Part, the
target company shall allow such changes in the board of directors as would give the acquirer
proportionate representation on the board or control of the company.
(5)
In case the acquirer does not get a proportionate representation on the board of
directors of the target company or the number of casual vacancies so created to complete the
board on the basis of proportional representation are not sufficient, the acquirer may serve a
notice on the target company for holding of fresh elections and shall submit a copy of such
notice to the Commission forthwith.
(6)
The board of directors of the target company shall cause the election of directors
to be held within thirty days from the receipt of the notice under
sub-section (5), and the elections shall be held in accordance with the provisions
of sub-sections (2) to (5) of section 178 of the Companies Ordinance, 1984
(XLVII of 1984).
(7)
The board of directors so elected shall hold office during the remainder of the
term of the outgoing directors of the target company.
120.
Competitive bid.
(1) Any person, other than the acquirer who has made the first public announcement, who is
desirous of making a competitive bid, shall, within twenty-one days of the public announcement
of the first offer, make a public announcement of his offer for acquisition of at least same
number of voting shares of the target company.
Explanation.—For the purpose of this section a bid shall be deemed as competitive only
if it offers a higher purchase price.
(2)
A competitive bid shall not be for less than the number of voting shares for which
the earlier public offer has been made.
(3) The provisions of this Part shall, mutatis-mutandis, apply to the competitive bid made
under sub-section (1).
121. Upward revision of offer.
Irrespective of whether or not there is a competitive bid, the acquirer, who has made the public
announcement, may make upward revision in his offer in respect to the price or the number of
voting shares to be acquired, at any time up to seven working days prior to the date of the closure
of public offer.
122. Withdrawal of public offer.
(1) Except as provided in sub-section (2), a public offer, once made, shall not be withdrawn.
(2)
A public offer may be withdrawn,-
(a)
if a competitive bid has been made;
(b)
if the sole acquirer, being a natural person, has died or has been declared to be of
unsound mind before the completion of the acquisition process; or
(c)
in such circumstances as may be prescribed.
(3)
If the acquirer who made the first public offer does not withdraw his offer within
seven working days of the public announcement of the competitive bid or does not make an
upward revision of his offer within the time specified in section 121, the earlier offer on the
original terms shall continue to be valid and binding on the acquirer, except that the closing date
of such public offer shall stand extended to the date of closure of public offer under the last
subsisting competitive bid.
123. Security to be furnished by the acquirer.
(1) The acquirer shall furnish a security for performance of his obligations on such terms and
conditions as may be prescribed.
(2)
The total consideration payable under the public offer shall be calculated
assuming full acceptances irrespective of whether the consideration for the public offer is
payable in cash or otherwise.
(3)
In case there is any upward revision of offer, consequent upon a competitive bid
or otherwise, the value of the security shall be increased as may be prescribed under sub-section
(1).
(4)
The security furnished shall be released in such manner as may be prescribed.
124. Conduct of takeovers.—(1) The Commission shall make regulations with respect
to the making and conduct of takeover offers and matters incidental and connected therewith.
(2)
Without prejudice to the generality of sub-section (1), the Commission may make
regulations for or with respect to—
(a)
the form, manner, timing and submission of offers;
(b)
public announcements of intention and public offer;
(c)
independent advice to shareholders;
(d)
the obligations of directors;
(e)
the standard of care and responsibility;
(f)
the timing and content of documents;
(g)
the offer timetable;
(h)
asset valuations and offer pricing;
(i)
restrictions on trading before and during the offer;
(j)
security to ensure completion of a takeover offer;
(k)
mandatory offers, offer size and acquisition;
(l)
squeeze outs;
(m)
competitive bids;
(n)
conditional offers; and
(o)
any other matter that the Commission considers necessary to ensure the proper
conduct of takeovers.
125. Powers of Commission to issue directions under this Part.
The Commission may, in the interest of the securities market, give such directions as it deems
fit including
(a)
directing the person concerned not to further deal in securities;
(b)
prohibiting the person concerned from disposing of any of the securities acquired
in violation of provisions of this Part;
(c)
directing the person concerned to sell the voting shares acquired in violation of
the provisions of this Part; and/or
(d)
taking such action against the person concerned as may be necessary.
126. Penalties for non-compliance.
(1) In the event of withdrawal of public offer, except as provided in section 122, or
contravention of any provision of this Part, the Commission may, after providing reasonable
opportunity of hearing, by an order in writing, debar the acquirer and any person acting in
concert from acquiring voting shares of a listed company for a period of three years.
(2)
In case any member of the board of directors or management of the target
company contravenes any provision of this Part, such person shall, on a finding by the
Commission, after providing reasonable opportunity of hearing, stand disqualified to hold the
office of director, chief executive officer, by whatever name called, chief financial officer or
company secretary in a listed company for a period of two years.
(3)
If any person
(a)
refuses or fails to furnish any document, paper or information which he is
required to furnish by, or under, this Part;
(b)
refuses or fails to comply with any order or direction of the Commission made or
issued under this Part; or
(c)
contravenes or otherwise fails to comply with the provisions of this Part,
the Commission may, if satisfied, after giving the person an opportunity of being heard, that the
refusal, failure or contravention was willful, impose penalty which may extend to one hundred
million rupees as may be specified in the order.
PART X
INSIDER TRADING
127. Application of this Part.—The provisions of this Part shall apply to listed
securities traded by listed companies and insiders described in section 130.
128. Prohibition of insider trading.—
(1) No person shall indulge in insider trading and any contravention of this section shall be an
offence.
(2)
Insider trading shall include,
(a)
an insider person transacting any deal, directly or indirectly, using inside information
involving listed securities to which the inside information pertains or using others to transact
such deals;
(b)
any other person to whom inside information has been passed or disclosed by an
insider person transacting any deal, directly or indirectly, using inside information involving
listed securities to which the inside information pertains or using others to transact such deals;
(c)
transaction by any person as specified in clauses (a) and (b) or any other person
who knows or ought to have known under normal and reasonable circumstances, that the
information possessed and used for transacting any deal is inside information; or
(d)
an insider person passing on inside information to any other person, or suggesting
or recommending to another person to engage in or dealing in such listed securities with or
without the inside information being disclosed to the person who has dealt in such securities.
(3) The following shall not be deemed as insider trading:
(a)
any transaction performed under an agreement that was concluded before the time
of gaining access to inside information; or
(b)
the disclosure of inside information by an insider person as required under law.
(4)
No contract shall be void or unenforceable by reason only of an offence under this
section.
129. Inside information.—For the purposes of this Part the expression “inside
information” means—
(a)
information which has not been made public, relating, directly or indirectly, to
one or more issuers of listed securities or to one or more listed securities and which, if it were
made public, would be likely to have an effect on the prices of those listed securities or on the
price of related listed securities;
(b)
in relation to derivatives on commodities, information which has not been made
public, relating, directly or indirectly, to one or more such derivatives and which are traded in
accordance with accepted market practices on those markets;
(c)
in relation to persons responsible for the execution of orders concerning listed
securities, information which is conveyed by a client to such person and related to the client’s
pending orders; or
(d)
information regarding decision or intentions of a person to transact any trade in
listed securities.
130. Insiders.-—Insiders shall include—
(a)
any sponsor, executive officer or director of an issuer of listed securities;
(b)
any sponsor, executive officer, director or partners of a legal person or
unincorporated business association, in which the issuer holds a share or voting rights, directly or
indirectly, of twenty-five per cent or more;
(c)
any sponsor, executive officer director or partner of a legal person or
unincorporated business association who holds, directly or indirectly, a share or voting rights of
twenty per cent or more in an issuer of listed securities;
(d)
any sponsor, executive officer or director of an organization that has been
engaged in the placement of securities or the public offer of securities, as well as any employee
of the issuer or an organization participating in the issuing and marketing of such securities who
has had access to insider information during his employment, for a period of one year after
leaving employment;
(e)
any person holding a share, directly or indirectly, which enables him to appoint
director on the board, or ten per cent or more shares of an issuer of listed securities;
(f)
any sponsor, executive officer or director of a credit institution in which the
issuer of listed securities has an account;
(g)
any person obtaining inside information as part of his employment or when
discharging his usual duties in an official capacity or in any other way relating to work
performed under contract of employment or otherwise;
(h)
any person obtaining inside information through unlawful means;
(i)
spouse, lineal ascendant or descendant including step children partner or nominee
of a person referred to in clauses (a) to (h); and
(j)
any person obtaining information or advice to trade in a security from any person
referred to in clauses (a) to (i).
131.
Listed companies’ responsibilities to disclose inside information.—(1)
Whenever a listed company or a person acting on their behalf, discloses any inside
information to any third party in the normal exercise of employment, profession or duties,
complete and effective public disclosure of that information must be made simultaneously:
Provided that the provisions shall not apply if the person receiving the information owes
a duty of confidentiality, regardless of whether such duty is based on a law, regulations, articles
of association or contract.
(2)
Listed companies or persons acting on their behalf, shall maintain a list of persons
employed, under contract or otherwise in the prescribed manner, who have access to inside
information and such companies and persons acting on their behalf shall regularly update this list
and send it to the Commission whenever required by the Commission.
(3)
Listed company shall in the list of persons that have access to insider information
state that the persons listed have acknowledged the requirements of this Part related to the
prohibition to conclude transactions with the use of inside information and to advise the persons
to whom they provide inside information.
(4)
Any person who contravenes the provisions of this section and regulations made
hereunder shall commit an offence.
PART XI
OTHER MARKET ABUSES
132. False trading and market rigging transactions.—(1) No person shall create or
cause to be created or do anything that is calculated to create a false or misleading appearance of
active trading in securities on a securities market or a false or misleading appearance with
respect to the price of securities on the securities market and any contravention of this section
shall be an offence.
(2)
Without limiting the general nature of what constitutes a false or misleading
appearance of active trading under sub-section (1), a false or misleading appearance of active
trading in securities is created for the purpose of this section if a person—
(a)
enters into or carries out, directly or indirectly, any transaction for the sale or
purchase of securities that does not involve a change in the beneficial ownership of them or
offers to do so;
(b)
offers to sell securities at a price that is substantially the same as the price at
which he has made or proposes to make or knows that an associate of his has made or proposes
to make, an offer to buy the same or substantially the same, number of them; or
(c)
offers to buy the securities at a price that is substantially the same as the price at
which he has made or proposes to make or knows that an associate of his has made or proposes
to make, an offer to sell the same or substantially the same, number of them.
133.
Market manipulation.—(1) A person shall commit an offence, if—
(a)
he places an order, enters into or carries out, directly or indirectly any
transactions, in the listed securities of a company that by themselves or in conjunction with any
other transaction
(i)
increase or are likely to increase, their price with the intention of inducing another person
to purchase or subscribe for or to refrain from selling securities issued by the same company or a
related company;
(ii)
reduce or are likely to reduce, their price with the intention of inducing another
person to sell or to refrain from purchasing, securities issued by the same company or a related
company;
(iii)
stabilise or are likely to stabilise, their price with the intention of inducing another
person to sell, purchase or subscribe for or to refrain from selling, purchasing or subscribing for,
securities issued by the same company or by a related company; or
(iv)
has the effect of misleading investors who trade in securities on the basis of
closing prices.
(b)
he, for the purposes of inducing, dissuading, effecting, preventing or in any
manner influencing or turning to his advantage the sale or purchase of any security, directly or
indirectly, does any act or practice or engage in a course of business, or omit to do any act which
operates or would operate as a fraud, deceit or manipulation upon any person, in particular(i)
makes any fictitious quotation;
(ii)
creates a false and misleading appearance of active trading in any security;
(iii)
ownership;
effects any transaction in such security which involves no change in its beneficial
(iv)
enters into an order or orders for the purchase and sale of security which will
ultimately cancel out each other and will not result in any change in the beneficial ownership of
such security;
(v)
directly or indirectly, effects a series of transactions in any security creating the
appearance of active trading therein or of raising of price for the purpose of inducing its
purchase by others or depressing its price for the purpose of inducing its sale by others;
(vi)
being a director or an officer of the issuer of a listed equity security or a beneficial
owner of not less than ten per cent of such security who is in possession of material facts, omits
to disclose to the public through securities exchange any such facts while buying or selling such
security.
134. Fraudulently inducing trading in securities.—A person shall commit an offence, if
he induces or attempts to induce another person to subscribe for, sell or purchase securities
(a)
by making or publishing any statement, promise or forecast or giving any investment
advice that is false, misleading or deceptive;
(b)
by any concealment of material facts; or
(c)
by recording or storing in or by means of, any mechanical, electrical or other
device, information that is false or misleading in a material particular.
135.
Employment of fraudulent or deceptive devices.—A person shall commit an
offence if he, directly or indirectly, in connection with any transaction with any other person
involving the subscription for the purchase or sale of securities,—
(a)
employs any device, scheme or artifice to defraud that other person;
(b)
engages in any act, practice or course of business which operates as a fraud or
deception or is likely to operate as a fraud or deception, on that other person; or
(c)
makes any untrue statement of a matter of fact or omits to state a material fact
necessary in order to make the statements made in the light of the circumstances under which
they were made, not misleading.
136. False or misleading statement inducing securities transactions.—(1) A person
shall commit an offence, if he, directly or indirectly, for the purpose of inducing the subscription
for, sale or purchase of securities by others, of any listed company or to maintain, increase,
reduce or stabilise the price of its securities, makes with respect to those securities or with
respect to the operations or the past or future performance of the company—
(a)
any statement or disseminates information through the media which is, at the time
and in light of the circumstances in which it is made, false or misleading with respect to any
material fact and which he knows or has reasonable grounds to believe to be false or misleading;
or
(b)
any statement or disseminates information through the media which is, by reason
of the omission of a material fact, rendered false or misleading and which he knows or has
reasonable grounds to believe is rendered false or misleading by reason of omission of that fact.
(2)
A person commits an offence if he, directly or indirectly, takes advantage of
occasional or regular access to the traditional or electronic media by voicing an opinion about
securities while having previously taken positions on that securities, without having
simultaneously disclosed that conflict of interest to the public in a proper and effective way.
PART XII
SUPERVISION AND INVESTIGATION
137.
Power of the Commission to call for information.—(1) Notwithstanding
anything contained in any other law for the time being in force, the Commission may, by notice
in writing, require any person to furnish it with such information as it may require during the
course of inquiry, inspection or investigation and for the purposes thereof, within such time and
verified in such manner as it may specify.
(2)
The Commission may by notice in writing require any person to appear before it
or a Commissioner or an officer authorized by the Commission or produce such record and
documents as are required by the Commission.
(a)
(3)
Every person required under sub-section (2),
shall be bound to answer all reasonable questions put to him and state the truth; and
(b)
may be asked to make a statement of the facts which shall be reduced into
writing and signed by him or affixed with his signature or thumb print.
(4)
A Commissioner or an employee to whom any of the functions or powers of the
Commission have been delegated under this section may, for the purposes of a proceeding,
require anyone,
(a)
to produce before him, and to allow to be examined and kept, any books, accounts or
other documents in the custody or under the control of such person, being documents relating to
any matter the examination of which may be considered necessary for disposing of the
proceedings by such Commissioner or officer; and
(b)
to furnish such information and documents in his possession relating to any matter
as may be necessary for the purpose of the proceeding.
(5)
The duty to supply information under this section applies notwithstanding any
other enactment or law in Pakistan.
(6)
Any person who does not provide information required by the Commission
commits an offence and is liable to be punished under this Act.
138.
Inspection.—(1)
For the purpose of ascertaining whether a person who is or at any time has been, a licensed
person is complying or has complied with any provision of or requirement under this Act or of
any rule or regulation made under this Act or the terms and conditions of his licence, the
Commission may from time to time inspect any record or document relating to the business to
which the licence applies.
(2)
The Commission may through a written order authorize any person, hereinafter
referred to as the “authorized person”, to exercise the powers of the Commission under this
section.
(3)
In the exercise of his powers under this section, an authorized person may—
(a)
require the licensed person or any other person whom he believes is in possession
of or has under his control, any record or document referred to in sub-section (1), to produce it to
him;
(b)
make inquiries of a licensed person or any other person whom he has reasonable
cause to believe has information relating to any record or document, referred to in sub-section
(1), concerning any such record or document or concerning any transaction or activity which was
undertaken in the course of or which may affect, the business conducted by the licensed person;
and
(c)
inspect and make copies or take extracts from, and where necessary take
possession of, such documents.
(4)
For the purpose of an inspection under this section, the licenced person or other
person mentioned in sub-section (3) shall afford to an authorized person access to the records or
documents as may be required for the inspection and shall produce to the authorized person such
records or documents as he may require.
(5)
Any person who, without reasonable excuse, fails to comply with a requirement
imposed on him by an authorised person under this section commits an offence.
139.
Investigation.—(1) Where the Commission has reasonable cause to believe,
either on its own motion or as a result of a complaint received, that
(a)
an offence has been committed under this Act or under any rules or under any
regulations made under this Act or is about to be committed;
(b)
a licensed person may have or is about to engaged in defalcation, fraud,
misfeasance or other misconduct in connection with his licensed activity; or
(c)
the manner in which a licensed person has engaged or is engaging or about to
engage in his licensed activity is not in the interest of the customer or the public interest,
the Commission may in writing direct one or more of its employees or one or more other
persons, hereinafter referred to as “the investigator”, to investigate any of the matters referred to
in clauses (a), (b) or (c) and to report the results of the investigation to the Commission.
(2)
Any person who is reasonably believed or suspected by the investigator to have in
his possession or under his control any record or document relevant to an investigation under this
section or who is so believed or suspected of otherwise having such information in his
possession or under his control shall—
(a)
produce to the investigator, within the time and at the place as the investigator
requires in writing, any record or document specified by the investigator which is or may be,
relevant to the investigation and which is in his possession or under his control;
(b)
if required by the investigator, give the investigator an explanation or
particulars in respect of any record or document produced under clause (a);
further
(c)
attend before the investigator at the time and place as the investigator requires in
writing, and answer under oath administered by the investigator truthfully and to the best of his
ability all questions relating to the matters under investigation as the investigator may put to him;
and
(d)
give the investigator all assistance in connection with the investigation which he
is reasonably able to give, including responding to any written question by the investigator.
(3)
A person commits an offence and shall be liable to be punished under this Act if
he—
(a)
fails to produce any record or document required to be produced under clause (a)
of sub-section (2);
(b)
fails to comply as required under clause (b) of sub-section (2);
(c)
fails to attend before the investigator as required under clause (c) of sub-section
(2);
(d)
fails to answer a question put to him by the investigator under clause (c) of subsection (2) or gives a false or misleading answer or who in giving an answer recklessly makes a
false statement or omits material information known to him; or
(e)
fails to comply with clause (d) of sub-section (2).
140.
Destruction of documents.—A person who destroys, falsifies, conceals or
disposes of or causes or permits the destruction, falsification, concealment or disposal of any
document, which he knows or ought to know is relevant to an inspection under section 138 or an
investigation under section 139, commits an offence.
141.
Powers of the investigator in relation to investigations.—(1) The investigator
shall, for the purposes of investigations, have the same powers as are vested in a court under the
Code of Civil Procedure, 1908 (Act V of 1908), while trying a suit, in respect of the following
matters, namely:—
(a)
Summoning and enforcing the attendance of any witness and examining him on
oath or affirmation;
(b)
compelling the discovery or production of any document or other material object;
(c)
receiving evidence on affidavit; and
(d)
issuing commissions for the examination of witnesses and documents.
(2)
Any person who contravenes the requirements of clause (a), (b) or (c) of subsection (1) and if such contravention is deliberate the investigator may, with the prior approval of
the Commission, make an application to the Court for attachment of his property or require him
to furnish security for his appearance.
(3)
Any proceeding before the investigator shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Pakistan Penal Code, 1860 (Act
XLV of 1860).
(4)
Any contravention of or non-compliance with any orders or directions of the
investigator exercising powers under sub-section (1) shall be an offence punishable under subsection (8) of section 159.
PART XIII
POWERS OF INTERVENTION BY COMMISSION IN RELATION TO LICENSED
PERSONS
142. Scope of powers under this Part.—(1) The powers conferred on the Commission
under this Part may be exercised in relation to any licensed person if it appears to the
Commission that—
(a)
the exercise of the powers is desirable for the protection of customers or in the
public interest; or
(b)
he is not a fit and proper person to be a licensed person; or
(c)
the licensed person has contravened or failed to comply with any provision of or
requirement under this Act, any rule or any regulation made by the Commission under this Act
or, in purported compliance with any such provision or requirement, has furnished the
Commission with information that is false, inaccurate or misleading.
(2)
The Commission for reasons to be recorded may on its own motion exercise its
powers conferred by section 143, 144 or 145.
(3)
For the purposes of this section, the Commission may take into account any
matters that could be taken into account in deciding whether to suspend or revoke a licence.
(4)
The powers conferred on the Commission by this Part may be exercised in
relation to a person whose licence has been suspended or revoked or other punitive action has
been taken against him, whether or not the suspension or revocation or other punitive actions
taken is the subject of appeal.
143.
Restriction of business.—(1) The Commission may prohibit a licensed person
and its customers from doing any one or more of the following, namely:—
(a)
entering into —
(i)
transactions of a specified description or other than of a specified description; or
(ii)
transactions in specified circumstances or other than in specified circumstances;
or
(iii)
transactions to a specified extent or other than to a specified extent;
(b)
soliciting business from persons of a specified description or from persons other
than of a specified description; or
(c)
carrying on business in a specified manner or other than in a specified manner.
(2)
A prohibition under this section may relate to transactions entered into in
connection with or for the purposes of the regulated activity or to other business that is carried on
in connection with or for the purposes of any such regulated activity.
144.
Restriction on dealing with property.—The Commission may, after recording
reasons in writing, as regards any property whether in Pakistan or elsewhere and whether it is the
property of a licensed person not—
(a)
prohibit a licensed person from disposing of such property or prohibit him from
dealing with it in a specified manner or other than in a specified manner; or
(b)
manner.
require a licensed person to deal with such property in, and only in, a specified
145.
Maintenance of property.—(1) The Commission may require a licensed person
to maintain in Pakistan property of such value as appears to the Commission to be desirable with
a view to ensuring that the licensed person will be able to meet his liabilities in respect of his
regulated activity.
(2)
The Commission may direct that, for the purposes of any requirement under this
section, property of any specified class or description shall or shall not be taken into account.
146.
Rescission and variation of prohibition or requirement.—The Commission may,
either of its own motion or on the application of a licensed person and its customers on whom a
prohibition or requirement has been imposed under this Part, rescind or vary the prohibition or
requirement if it appears to the Commission that it is no longer necessary for the prohibition or
requirement to take effect or continue in force or, as the case may be, that it should take effect or
continue in force in a different form.
147.
Notices.—(1) The power to impose, rescind or vary a prohibition or requirement
under this Part shall be exercisable by written notice served by the Commission on the licensed
person concerned and any such notice shall take effect on such date as is specified in it.
(2)
If the Commission refuses to rescind or vary a prohibition or requirement on the
application of the licensed person to whom it applies, it shall serve notice on him to that effect.
(3)
A notice imposing a prohibition or requirement, varying a prohibition or
requirement otherwise than on the application of the licensed person to whom it applies, and any
notice under sub-section (2) shall state the reasons for which the prohibition or requirement has
been imposed or varied or, as the case may require, why the application for variation or
rescission was refused.
(4)
The Commission may give public notice of any prohibition or requirement
imposed by it under this Part and of any rescission or variation thereof, and any such notice may,
if the Commission considers necessary, include a statement of the reasons for the prohibition,
requirement, variation or rescission.
148. Winding up orders.—(1)
In the case of a licenced person which is a
company, if it appears to the Commission that it is desirable for the protection of customers that
the company should be wound up under the Companies Ordinance, 1984 (XLVII of 1984), the
Commission may present a petition for it to be wound up under that Ordinance on the ground
that it is just and equitable that it should be wound up and that Ordinance shall apply to such
petition as it applies in relation to a petition presented under that Ordinance.
(2)
of 1984),—
Notwithstanding anything contained in the Companies Ordinance, 1984 (XLVII
(a)
a licensed person shall not file a petition for winding up unless it satisfies the
Commission in the manner prescribed that it has settled all outstanding investors claims as per
default regulations and has obtained prior approval of the Commission and the Commission may,
in the interest of the public or interest of investors, impose such conditions as it deems
appropriate.
(b)
The Court may refuse to entertain petition for winding up of a company, if the
Court is satisfied that(i)
requirements of clause (a) have not been fulfilled;
(ii)
petitioner intends to avoid or prejudice investigation of offences under this Act; or
(iii)
any other ground that the Court deems fit in the facts and circumstances of the
case.
149.
Orders of Court.—(1) Where, on the application of the Commission, it appears
to the Court that a licensed person has contravened any provision of this Act or any condition of
his licence or is about to do an act that, if done, would be such a contravention, the Court may,
without prejudice to any order it would be entitled to make otherwise than pursuant to this
section, make one or more of the following orders, namely:—
(a)
an order restraining the licensed person from acquiring, disposing of or otherwise
dealing with any property specified in the order;
(b)
an order appointing a person to administer the property of the licensed person;
(c)
an order declaring a contract to be void or voidable;
(d)
for the purpose of securing compliance with any other order under this section, an
order directing a licensed person to do or refrain from doing any act specified in the order; or
(e)
any ancillary order which the Court considers necessary in consequence of the
making of any other order under this section.
(2)
The Court may, before making an order under sub-section (1), direct that notice of
the application be given to such persons as it considers fit or direct that notice of the application
be published in such manner as it considers fit or both.
(3)
The Court may, of its own motion or on the application of an interested party,
reverse, vary or discharge an order made by it under this section or suspend the operation of such
an order.
PART XIV
DISCIPLINE OF LICENSED PERSON
150.
where—
Disciplinary action in respect of licensed person.—(1) Subject to section 154,
(a)
a licensed person is or was at any time, guilty of misconduct; or
(b)
the Commission is of the opinion that a licensed person is not a fit and proper
person to remain a licensed person,
the Commission may exercise such of the following powers as it considers appropriate in
the circumstances of the case—
(i)
suspend his licence, whether in relation to all or any of its activities for which he
is licenced, for such period or until the occurrence of such event as the Commission may specify;
or
(ii)
cancel his licence, whether in relation to all or any of the its activities for which
he is licensed; or
(iii)
publicly reprimand the licensed person.
(2)
Subject to section 151, where a licensed person is or was at any time, guilty of
misconduct, the Commission may make one or more of the following orders, separately or in
addition to any power exercisable under clause (i), (ii) or (iii) of sub-section (1) that the licensed
person shall pay to the Commission by way of penalty such sum,—
(a)
not exceeding fifty million rupees;
(b)
not exceeding the amount of any profit gained or loss avoided by the licensed
person as a result of the misconduct in question;
(c)
appropriate to reimburse the Commission for the costs and expenses it has
reasonably incurred in relation or incidental to the investigation of the licensed person’s
conduct.
(3)
A licensed person ordered to make a payment under sub-section (2) shall pay the
sum ordered to the Commission within fifteen days or such further period as the Commission
may specify by notice under section 151, after the order has taken effect.
(4)
A licensed person commits an offence if he fails to comply with an order under
sub-section (2).
(5)
In this section “misconduct” means—
(a)
a contravention of any of the provisions of this Act, the rules, regulations made by
the Commission or regulations made under this Act;
(b)
a contravention of any of the terms or conditions of a licence granted under this
Act;
(c)
failure to comply with a direction of the Commission; or
(d)
an act or omission by a licensed person in relation to his activity which, in the
opinion of the Commission, is or is likely to be prejudicial to the public interest,
and the expression “guilty of misconduct” shall be construed accordingly.
(6)
For the avoidance of doubt, any disciplinary action taken by the Commission
under this section or section 149 shall be without prejudice to any other action, whether civil or
criminal, that may be taken against the licensed person in respect of the same conduct.
(7)
In determining whether a licensed person is a fit and proper person for the
purposes of clause (b) of sub-section (1), the Commission shall have regard to the matters
specified in section 151.
151.
Determination of “fit and proper”.—(1) Subject to sub-section (2), the
Commission shall prescribed the fit and proper criteria for licensed person or in case of
company, member of the board of directors and senior management officers of licensed person.
(2)
In considering whether a licensed person, incase of company, member of the
board of directors or senior management officers is fit and proper person for the purposes of
this Act, the Commission shall, in addition to any other matter that the Commission may
consider relevant, have regard to—
(a)
(b)
(c)
(d)
(i)
himself; or
(ii)
company.
the financial status or solvency;
the educational or other qualifications or experience;
the ability to carry on their activity competently, honestly and fairly; and
the reputation, character, reliability and financial integrity of,—
where the licensed person is an individual, the individual
where the licensed person is a company, the company and any officer of the
(3)
Without limiting the generality of sub-section (2), the Commission may, in
considering whether a licensed person is a fit and proper person, take into account—
(a)
any information in the possession of the Commission whether provided by the
licensed person or not, relating to
(i)
any person who is to be employed by, associated with or who will be acting for or on
behalf of, the licensed person for the purposes of his regulated activity;
(A)
(ii)
where the licensed person is a company in a group of companies
any other company in the same group of companies; or
(B)
any substantial shareholder or officer of the company or any
company referred to in sub-sub-clause (a);
(b)
whether the regulated person has established effective internal control procedures
and risk management systems to ensure his compliance with all applicable regulatory
requirements applicable to him;
(c)
the state of affairs of any other business which the licensed person carries on or
proposes to carry on.
(4)
In sub-clause (ii) of clause (a) of sub-section (3), “group of companies” means
any two or more companies one of which is the holding company of the other or others as the
case may be.
152.
Other circumstances for disciplinary action in respect of licensed persons.—(1)
Subject to section 151, the Commission may cancel the licence, whether in relation to all or any
of the activities for which he is licensed, or suspend his licence, whether in relation to all or any
of the activities for which he is licensed, for such period or until the occurrence of such event as
the Commission may specify, if
(a)
where the licensed person is an individual, he—
(i)
is shown by certified medical evidence to have become mentally or physically
incapable of performing the activities to which the licence relates;
(ii)
has been adjudged a bankrupt, in Pakistan or elsewhere;
(iii)
has been adjudged as a defaulter in repayment of a loan in a sum exceeding one
hundred thousand rupees by a court of competent jurisdiction;
(iv)
is convicted, whether in Pakistan or elsewhere, of fraud or other offences
involving dishonesty;
(v)
is in breach of this Act, any rule or any regulation made by the Commission or a
securities exchange under this Act;
(vi)
licence;
(vii)
contravenes or fails to comply with any condition applicable in respect of the
fails to comply with a direction of the Commission;
(viii) fails to provide the Commission with information required or provides false or
misleading information;
(ix)
ceases to carry on the business for which he is licenced;
(x)
is the holder of a representative’s licence and the licence of the principal to whom
he is accredited is cancelled or suspended; or
(xi)
a licence;
(i)
by reason of any other circumstances, is no longer a fit and proper person to hold
(b)
where the regulated person is a company,
the company goes into liquidation or is ordered to be wound up;
(ii)
a receiver of all or a substantial part of the property of the company is appointed;
(iii)
the company ceases to carry on the business for which it is licensed;
(iv)
the Commission has reason to believe that the company or any of its directors or
employees has not performed his duties honestly and fairly;
(v)
the company contravenes or fails to comply with any condition applicable in
respect of the licence;
(vi)
the company is in breach of this Act, any rule or any regulation made under this
Act;
(vii)
fails to comply with a direction of the Commission;
(viii) fails to provide the Commission with information required or provides false or
misleading information; or
(ix)
by reason of any other circumstances, the company is no longer a fit and proper person to hold a
licence.
(2)
Where the Commission suspends a licence under this section, the suspension shall
be for a period not exceeding three months, provided that the Commission may, if it considers it
necessary, extend the suspension for such other period as may be specified by the Commission
at the expiry of which the Commission shall either lift the suspension or proceed to cancel the
licence, as it deems appropriate.
(3)
The licence of a person shall be deemed to be suspended if he fails to pay the
prescribed annual fee and, subject to sub-section (4), the suspension shall remain in force until
such time as the Commission considers it appropriate that his licence should no longer be
suspended and informs the licensed person to that effect by notice in writing.
(4)
Where a licence is suspended under sub-section (3) and the prescribed fee has not
been paid within thirty days after the day on which the suspension becomes effective under subsection (3) or such further period as the Commission may specify by notice in writing to the
regulated person, the licence shall be deemed to be revoked.
(5)
The Commission may cancel or suspend a licence at the request of the licensed
person.
(6)
For the purposes of sub-clause (vi) of clause (a) and sub-clause (iii) of clause (b)
of sub-section (1), a licensed person shall be deemed to have ceased to carry on the business for
which he is licensed if —
(a)
he has for more than thirty days ceased to carry on the business for which he is
licensed unless he has obtained prior approval of the Commission to do so; or
(b)
he has ceased to carry on business under a direction issued by the Commission.
(7)
Where the Commission suspends or cancels the licence of a licensed person under
this section, it shall cause notice of that fact to be disseminated in such manner as the
Commission deems appropriate. .
153.
Effect of cancellation or suspension of licence.—(1) The cancellation or
suspension of a licence under this Act shall not operate so as to—
(a)
avoid or affect an agreement, transaction or arrangement entered into by the
licensed person on the securities market of a securities exchange where the agreement,
transaction or arrangement was entered into before the revocation or suspension; or
(b)
affect a right, obligation or liability arising under the agreement, transaction or
arrangement.
(2)
Where a licence is cancelled or suspended under this Part, the Commission may
by notice in writing and subject to such conditions as the Commission may specify in the
notice,—
(a)
require the regulated person to transfer to or to the order of, his customer such
records relating to customer property or to the affairs of the customer held at any time for the
customer, in such manner, as the Commission may specify in the notice; or
(b)
permit the licensed person to,—
(i)
in the case of a cancellation, carry on business operations for the purpose of
closing down the business connected with the cancellation; or
(ii)
in the case of a suspension, carry on only essential business operations for the
protection of interests of customers during the period of suspension,
154.
Procedural requirements for exercise of disciplinary powers under this Part.—
(1) The Commission shall not exercise any power under section 147 or 148 without first giving
the licensed person in respect of whom the power is to be exercised a reasonable opportunity of
being heard:
Provided that where the Commission is satisfied that delay in the suspension of licence
shall cause risk of serious financial damage to the customer of that licensed person or is
detrimental to the interest of investors or the public in general, the Commission may, after
recording reasons in writing, immediately suspend its TRE certificate till the time an opportunity
of hearing is provided to the licensed person and a final decision is taken within a period of not
more than thirty days.
(2)
The Commission may prescribe the manner in which the licensed person shall be
given an opportunity to be heard.
(3)
Where the Commission decides to exercise any power under section 127 or 148,
the Commission shall inform the licensed person in respect of whom the power is exercised of its
decision to do so by notice in writing and the notice shall include—
(a)
a statement of the reasons for which the decision is made;
(b)
the time at which the decision is to take effect;
(c)
in so far as applicable, the duration and terms of any cancellation or suspension to
be imposed under the decision;
(d)
in so far as applicable, the terms in which the licensed person is to be reprimanded
under the decision;
(e)
in so far as applicable, the amount of any pecuniary penalty to be imposed under
the decision and the period, being specified as a period after the decision has taken effect, within
which it is required to be paid.
PART XV
MISCELLANEOUS
155.
Indemnity.—No suit, prosecution, other legal proceedings or action in damages
shall lie against the Commission, commissioners, officers and employees of the Commission for
anything done or omitted in the exercise or performance of any function, power or duty
conferred or imposed by or under this Act or the rules and regulations made under this Act
unless the act or omission is shown, to have been done or made in bad faith.
156.
Rights of applicants and holders of licence.—(1) The Commission shall not—
(a)
(b)
refuse an application for the grant of any licence in respect of any activity; or
cancel or suspend any licence granted under this Act,
without first giving the applicant or the licence holder, as the case may be, an opportunity to be
heard.
(2)
The Commission shall, if it refuses an application, notify the applicant in writing
of the refusal.
(3)
The Commission shall, if it cancels or suspends a licence, notify the licence
holder in writing of the cancellation or suspension and of—
(a)
the date on which the cancellation or suspension takes effect; and
(b)
the duration of a suspension or the event which will terminate it.
(4)
prescribed.
The manner in which a person shall be given an opportunity to be heard may be
157.
Civil liabilities.—
(1) Every contract made in contravention of any provision of this Act or any rule or regulations
made thereunder shall be voidable as regards the rights of any party to the contract contravening
such provision or any person not being a party to the contract who acquires any right under the
contract with actual knowledge of the facts by reason of which its making or performance was in
such contravention and any person affected by such contract not being himself a party to the
contravention may sue to rescind any such contract to the extent it has been consummated or for
damages when recision is not possible.
(2)
Any person who makes or causes to be made, in any application, report or
document filed with the Commission or a securities exchange pursuant to this Act or any rules or
regulations made thereunder, any statement which was false or misleading with respect to any
material fact, at the time and in the light of the circumstances under which it was made, shall be
liable to any person who has purchased or sold a security in reliance on such statement for
damages caused by such reliance, without regard to the presence or absence of any contractual
relationship between the two, unless the person who made or caused to be made the application,
report or document proves that he acted in good faith and had no knowledge or reasonable
ground to believe that the statement was false or misleading.
(3)
Any person who participates in any act or transaction in contravention of the
provisions contained in Part XI (market abuse) shall be liable to any person who has purchased
or sold a security in reliance on such act or transaction for damages caused by such reliance,
without regard to the presence or absence of any contractual relationship between the two, unless
the person so contravening proves that he acted in good faith and had no knowledge or
reasonable ground to believe that there was any fraud, untruth or omission.
(4)
Every person who directly or indirectly exercises control over the affairs of any
person liable under this section shall also be liable to the same extent as the person whose affairs
are so controlled, unless he proves that he acted in good faith and did not directly or indirectly
induce the act or acts giving rise to the cause of action.
(5)
Liability under this section shall be joint and several and every person who
becomes liable may recover contribution as in cases of contract from any person who, if joined
in the original suit, would have been liable to make the same payment, unless the plantiff was,
and the defendant was not, guilty of fraudulent misrepresentation.
(6)
No suit for the enforcement of any right or remedy provided for in this section
shall lie after the expiry of three years from the date of the accrual of the cause of action.
(7)
The rights and remedies provided by this Act shall be in addition to any other
rights and remedies available under any other law for the time being in force.
158.
Standard of proof.— Where it is necessary for the Commission to establish or to
be satisfied, for the purposes of this Act other than provisions relating to criminal proceedings
that a licenced person has contravened—
(a)
(b)
this Act;
any provision of this Act or any rule or regulation made under this Act;
any notice or requirement given or made under or pursuant to any provision of
(c)
any of the terms and conditions of a licence granted under this Act; or
(d)
any other condition imposed under or pursuant to any provision of this Act,
it shall be sufficient for the Commission to establish or to be satisfied as to the matter referred to
in clause (a), (b), (c) or (d), as the case may be, on the standard of proof applicable to civil
proceedings in summary manner in a court of law.
159.
Offences and penalties.—(1) Any person who commits an offence under
section 128 (insider trading) shall be liable—
(a)
in the case of an individual, to imprisonment of either description for a term which may
extend to three years or to a fine which may extend to two hundred million rupees or three times
the amount of gain made or loss avoided by such person, or loss suffered by another person,
whichever amount is higher; and
(b)
in the case of a company, to a fine which may extend to three hundred million
rupees or three times the amount of gain made or loss avoided by such company, or loss suffered
by another person, whichever amount is higher.
(2)
Any person who commits an offence under sections 132,133,134, 135 and 136,
Part XI (other market abuses) shall be liable—
(a)
in case of an individual, to imprisonment of either description for a term which
may extend to three years or a fine not exceeding two hundred million rupees, or both; and
(b)
in the case of a company, to a fine which may extend to three hundred million
rupees.
(3)
Any person who contravenes the provisions of sections 3 and 22 and sub-section
(1) of section 64 (operating without a licence or other authority) shall be liable to pay to the
Commission, by way of penalty,—
(a)
in the case of an individual, such sum which may extend to hundred million
rupees;
(b)
rupees; and
in the case of a company, such sum which may extend to two hundred million
(c)
in the case of a continuing offence, a further sum which may extend to two
hundred thousand rupees for every day or part thereof during which the offence continues.
(4)
Any person who commits an offence under section 92 (criminal liability for
defective prospectus) shall be liable to imprisonment of either description for a term which may
extend to three years or with fine not exceeding one hundred million rupees or with both unless
he proves that either the statement was immaterial or that he had reasonable ground to believe
and did up to the time of issue of prospectus, that the statement was true.
(5)
Notwithstanding sub-sections (1), (2), (3) and (4), any person who—
(a)
contravenes or fails to comply with any provision of this Act, or of any rules or of
any regulations made under this Act;
(b)
furnishes or produces any return, document or statement for the purposes of this
Act or any requirement imposed under the provisions of this Act or of any rules or regulations
made under this Act, the contents of which, to his acknowledge, are untrue, incorrect or
misleading; or
(c)
obstructs or contravenes or does not comply with any order or direction of the
Commission, including an employee of the Commission, or an authorized person or investigator,
in the performance of his duties under this Act,
shall be liable to pay by way of penalty—
(i)
rupees; and
in the case of an individual, such sum which may extend to one hundred million
(ii)
rupees and
in the case of a company, such sum which may extend to two hundred million
(6)
Where the offence under sub-section (5) involved fraud, deceit or deliberate
disregard of the regulatory requirement such person shall be liable to pay by way of penalty—
(a)
rupees; and
(b)
in the case of an individual, such sum which may extend to one hundred million
in the case of a company, such sum which may extend to two hundred million
rupees;
(7)
Where the offence under sub-section (5) involved fraud, deceit or deliberate
disregard of the regulatory requirement and such offence resulted in substantial losses or created
a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to
the person who committed the offence such person shall be liable to pay by way of penalty,—
(a)
in the case of an individual, such sum which may extend to one hundred million
rupees or twice the amount of loss caused or gain made whichever is higher; and
(b)
in the case of a company, such sum which may extend to two hundred million
rupees or twice the amount of loss caused or gain made whichever is higher.
(8)
Notwithstanding sub-sections (1), (2), (3), (4), (5), (6) and (7), the Commission
may impose an additional penalty, not exceeding the amount of loss caused, on an individual or a
company if the individual or the company has failed to comply with any provision of this Act, or
of any rules or of any regulations made under this Act or direction given by the Commission
under this Act and the non-compliance has resulted in a loss to any other person.
160. Penalty to be imposed by the Commission.—Wherever a penalty is provided for
any offence, contravention of or default in complying with, any of the provisions of this Act,
rules or regulations made under this Act, such penalty shall be imposed by the Commission after
providing a reasonable opportunity of hearing to the party.
161. Appeal.—(1) Any person aggrieved by the final decision of the Commission may,
within sixty days of the decision communicated to him, prefer an appeal to the Court .
(2)
The Court may, on an appeal made to it under sub-section (1), accept, set aside or
vary the decision of the Commission or make such other order as the interests of justice require.
Explanation.—For the purposes of sub-section (1), “final decision of the Commission”
means a decision of the Appellate Bench of the Commission under section 33 of the Securities
and Exchange Commission of Pakistan Act, 1997
(XLII of 1997).
(3)
The Court shall, at the stage of admission of the appeal or at any time thereafter
on the application of the aggrieved person and after due notice to the Commission, decide by
means of a reasoned order whether the appeal is to be admitted in part or in whole depending on
the facts and circumstances of the case:
Provided that the admission of the appeal shall not per se operate as a stay and nor shall
any stay be granted therein unless the Commission has been given an opportunity of being heard.
(4)
Notwithstanding anything contained in any other law, the hearing of appeal shall
continue day-to-day, unless sufficient cause has been shown by the parties jointly or severally
which is beyond the control of the parties, the Court may adjourn the hearing for maximum of
two dates and such adjournment shall not be more than fifteen days at any one time or for more
than thirty days in all.
(5)
Where on third hearing any party fails to appear and address arguments before the
Court the Court shall proceed and decide appeal on merits and it shall be deemed that such party
has relinquished its rights to address arguments.
162. Recovery of penalties—(1) Any penalty imposed by the Commission in the
exercise of its powers under this Act or any rules or any regulations made under this Act, shall be
payable to the Commission and may be recovered by the Commission as a decree for the
payment of money in case where the person aggrieved by such order has (a)
preferred an appeal under section 161 of this Act and the Court upheld the final
order of the Commission and it will automatically be converted into execution proceeding and no
fresh notices need to be issued to appellant; or
(b)
not preferred an appeal to the Appellate b
ench of the Commission under section 33 of the Securities and Exchange Commission of
Pakistan Act, 1997 (Act XLII of 1997) and the Court on application of the Commission has
confirmed and allowed conversion or initiation of execution proceedings after notices to the
parties as deemed appropriate by the Court.
(2)
The Court shall exercise all the powers of executing court as provided in the Code
of Civil Procedure 1908 (Act V of 1908), for the purposes of recovery of penalties:
Provided that the Court may, for reasons to be recorded, dispense with any procedure in
the Code of Civil Procedure 1908 (Act V of 1908), and follow such procedure as it may deem fit
in the circumstances of the case for expeditious disposal.
(3)
The executing Court may attach any immovable property or sale of any movable
property, including bank accounts, of the person or company on whom a penalty has been
imposed under this Act by the Commission and any transaction or attempt to alienate, transfer,
encumber or mortgage such property shall be void, illegal and without any lawful authority.
(4)
All government departments, authorities, bodies, private entities, housing
societies or schemes, by whatever name called, banks and any other concerned entity shall on the
orders of the Court be bound to assist the Commission in providing details of moveable or
immovable property of judgment debtor.
163.
Cognizance of offences.—Notwithstanding anything contained in the Code of
Criminal Procedure, 1898 (Act V of 1898), no court shall take cognizance of any offence
punishable with imprisonment or fine or both, under this Act except on a complaint, in writing of
the facts constituting the offence, by an officer authorized in this behalf by the Commission
singed by a commissioner and no court inferior to that of court of session shall try any such
offence.
164. Prosecution of offences by the Commission.—(1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1898 (Act V of 1898), all prosecution of offences
under this Act, any rules or regulations made under this Act, against any person shall be
conducted by a special public prosecutor appointed by the Commission.
(2)
On receipt of complaint, the court shall issue summons as for the attendance of
the accused in the first instance and on failure of the accused to appear before the court, warrant
of arrest shall be issued by the court.
Explanation.—For the purposes of this section, the term “complaint” shall
the report in writing of facts constituting the offence of the investigation officer of the
Commission as referred to in section 139.
include
(3)
Personal attendance of the officer authorized by the Commission to file a
complaint before the court trying the offence shall not be necessary on each date during the trail
proceedings in the presence of special public prosecutor referred to in sub-section (1).
(4)
The court shall adopt procedure provided for under Chapter XXII-A of the Code
of Criminal Procedure, 1898 (Act V of 1898) and all prosecutions before the court under this Act
shall be disposed of and the judgment pronounced, as expeditiously as possible.
(5)
The hearing of the matters referred to in sub-section (1) shall not be adjourned
except for sufficient cause to be recorded, or for more than fourteen days at one time and court
may impose such cost at it may deem fit.
(6)
The court may, for reasons to be recorded, dispense with any procedure in the
Code of Criminal Procedure, 1898 (Act V of 1898) and follow such procedure as it may deem fit
in the circumstances of the case for expeditious disposal of the complaint.
165. Register of notifications issued by the Commission.—The Commission shall
maintain and make available for general public on its website a register of notifications issued by
the Commission under this Act.
166. Liability of directors, etc. for offences by companies.—(1)Where an offence
under this Act, any rules or any regulations made under this Act, committed by a company is
proved to have been committed with the consent or connivance of or to be attributable to any
neglect on the part of an officer of the company, that officer as well as the company shall be
guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(2)
Where the affairs of a company are managed in accordance with the instructions
of any other person, not being a professional advisor sub-section (1) shall apply in relation to the
acts and defaults of a member in connection with his functions of management as if he were a
director of the company.
(3)
In this section “officer” means a director, member of the committee of
management, chief executive, manager, secretary or any person who was purporting to act in any
such capacity.
167. Liability of licensed person for acts of representative, etc.-—For the purposes of
this Act, an act, omission or failure of a representative, employee or other person acting for or
on behalf of a licensed person within the scope of his office or employment shall be deemed to
be the act, omission or failure of the licensed person as well as of the representative, employee or
other person.
168. Securities acquired in good faith.—(1) A person who, without fraud and for a
lawful consideration, becomes the possessor of a certificate of an equity security, scrip,
debenture, debenture stock or bond and who is without notice that the title of the person from
whom he derived his own title was defective shall hold such certificate and all rights attached
thereto free from any defect of title of prior parties and free from defences available to prior
parties among themselves.
(2)
A securities exchange may regulate the documentation, procedures and guarantees
required to transfer property insecurities and the effects thereof on the respective rights and
liabilities of the parties and such regulations, if approved by the Commission, shall constitute
binding and enforceable terms and conditions of contracts effected on the exchange, shall govern
the rights and liabilities of the parties thereto, and shall govern the rights and liabilities with
respect to transfers of shares on its books of the issuer of listed securities notwithstanding any
provisions to the contrary contained in the Contract Act, 1872 (IX of 1872), the Negotiable
Instruments Act, 1881 (XXVI of 1881), the Transfer of Property Act, 1882 (IV of 1882) or the
Companies Ordinance, 1984(XLVII of 1984), or any other law for the time being in force.
169.
Power of the Commission to make regulations.—
(1) In addition to the powers conferred by any other provision under this Act, the Commission
may make regulations for carrying out the purposes and provisions of this Act and for the due
administration of this Act.
(2)
Without prejudice to the generality of sub-section (1), the Commission may make
regulations for or with respect to
(a)
applications for licences, the issue of licences and incidental matters;
(b)
the standards for the qualifications, experience and training of applicants for
licensing under Part V;
(c)
the conditions for the conduct of business on a securities market;
(d)
capital requirements in relation to any regulated securities activity or other
activity licensed or authorized under this Act, with the power to the Commission to vary such
capital requirements by order as the Commission deems fit;
(e)
securities broker’s financial responsibility whether by way of minimum capital or
a ratio between net capital or aggregate indebtedness, or both;
(f)
classification of securities brokers into different categories and conditions
attached thereto;
(g)
the class or classes of securities that may be traded by securities broker and the
terms and conditions governing trading in securities by securities broker;
(h)
the compulsory provision by securities exchanges of a centralized customer
protection compensation fund;
(i)
short selling;
(j)
matters pertaining to takeovers under Part IX;
(k)
best efforts and other levels of underwriting commitment;
(l)
the registration, operation and regulation of quotation and trade reporting systems;
(m)
misalignment of incentives and conflict of interest between regulated persons, its
employees and its clients;
(n)
processing and determination of customer complaints;
(o)
form and content of contract confirmation notes, customer agreements and risk
disclosure statements;
(p)
form, content, distribution, reporting and publication of written, printed or visual
material or advertisements or prospectus with respect to any regulated securities activity,
securities issue, securities investment or trading;
(q)
persons who produce or disseminate research concerning listed securities or
issuers of listed securities and persons who produce or disseminate other information
recommending or suggesting investment strategy, intended for distribution channels or for the
general public;
(r)
information to be contained in auditors’ reports required to be lodged under this
Act on the annual accounts of licensed persons ;
(s)
appointment, remuneration and responsibilities of an auditor appointed under this
Act and the costs of an audit carried out under this Act;
(t)
registration, functioning and operations of qualified institutional buyers;
(u)
establishment and regulation of a secondary market in privately placed securities
amongst qualified institutional buyers;
(v)
display of licences and the issue of duplicates;
(w)
making and filing of annual or other regular returns to the Commission by
licensed persons;
(x)
requirements and procedure for shelf registration;
(y)
disclose conflict of interest by directors and management of licensed persons and
regulated persons;
(z)
appointment and conduct of directors and management of licensed person and
regulated person;
(aa) fit and proper criteria for director and management of licensed persons and
regulated persons;
(bb) preemptive measure and actions for market monitoring and surveillance,
promoting level playing field for investors and public at large;
(cc) special or general inspection and examination and investigation and audit of
licensed person or regulated person;
(dd) orderly conduct, prohibition of fraudulent activities and unfair trade practices and
prevention of market abuse in securities markets;
(ee)
the code of conduct for securities brokers, securities advisors and analysts;
(ff)
effective surveillance and monitoring to detect and prevent insider trading and
market abuse practices;
(gg) effective know your customer and customer due diligence policies and procedures
and other matters ancillary to anti-money laundering;
(hh) manner of outsourcing important functions by a securities exchange, clearing
house or a central depository;
(ii)
provide for a mechanism for conducting inspections and investigations of regulated
persons in coordination with securities exchanges, clearing houses and central depositories
including the establishment of a specialized entity for this purpose;
(jj)
manner and procedure for providing applicants and holders of licence opportunity
of hearing; and
(kk)
all matters or things which by this Act are required or permitted to be prescribed
or which are necessary or expedient to give effect to this Act.
(3)
For the avoidance of doubt, the powers of the Commission to make regulations
under this section are in addition to and not in derogation of any other power of the Commission
to make regulations under any provision of this Act or any other Act.
(4)
Before any regulations are made or amended under this Act the Commission shall
publish a draft of the regulations in the official Gazette and place it on its website, for eliciting
public opinion on the draft regulations, for a period of not less than fourteen days starting from
the date of its placement on the website.
(5)
Every regulations made or amended by the Commission shall be published in the
official Gazette and shall come into effect on such date as may be specified in the notification.
170. Power of the Commission to issue directions to a securities exchange, clearing
house and central depositor.
(1) In addition to the powers conferred by any other section, where the Commission considers it
necessary or expedient, in the public interest or for the protection of investors or proper
administration of securities exchanges, clearing houses and central depositories, it may,
notwithstanding anything contained in any other law for the time being in force, issue directions,
by notice in writing, either of a general or specific nature.
(2)
Without prejudice to the generality of sub-section (1), any direction issued under
that sub-section may cover areas, including but not limited to,
(a)
the enhanced corporate Governance polices;
(b)
the specified structure of board of directors to ensure independence and avoidance
of conflict of interest;
(c)
stringent qualification and fit and proper criteria of directors;
(d)
stringent qualification and fit and proper criteria of its senior management
officers;
(e)
the enterprise risk evaluation and measurement and mitigation measures;
(f)
the segment risk evaluation and measurement and mitigation measures;
(g)
the risk mitigation against frauds, forgeries, etc.;
(h)
the internal audit, internal controls and compliance;
(i)
the composition and terms of reference of committees, including, audit and
compliance, human resources, IT security, etc.
(j)
punitive and disciplinary actions by the Commission against the board of directors
and management in case of non-compliances or violations of any law for the time being in force,
rules, regulations and directives issued there under;
(k)
the distribution of dividends, retention and reinvestments of profits towards
development, protection of stakeholders and investing public, insurance against risks and threats,
etc.; and
(l)
any other matter as the Commission deems appropriate.
and securities exchanges, clearing houses and central depositories shall comply with any such
direction.
171. Forms.—The Commission may, by notice in the official Gazette, specify forms
that are required to be used for any purpose under this Act or the rules or regulations made under
this Act.
172. Codes and guidelines, etc.—(1) The Commission may issue such codes,
guidelines or regulatory or policy statements as it considers appropriate for providing guidance,
in relation to
(a)
any of its regulatory objectives under this Act;
(b)
any matter relating to any of the functions of the Commission under this Act;
(c)
proving guidance to licensed person;
(d)
the operation of any provision of this Act.
(2)
The Commission may publish any such code, guideline or regulatory or policy
statement in such manner as it deems fit.
173. Act not to affect the powers of the State Bank of Pakistan.
Nothing in this Act shall be read or construed as diluting, interfering with or affecting the powers
and functions of the State Bank of Pakistan under any law.
174. Act to override other laws.—The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for the time being in
force.
175.
Power to make rules.—(1) The Federal Government may, by notification in the
official Gazette, make rules for carrying out the purposes of this Act.
(2)
Without prejudice to the generality of sub-section (1), the Federal Government
may make rules for or with respect to—
(a)
the practice, conduct, functioning and regulation of share registrars,
underwriters, balloters, debenture trustees, banker to an issue, advisors and consultants to the
issue;
(b)
the registration, functioning and operation of credit rating agencies;
(c)
the establishment and operation of compensation fund arrangements for
customers;
(d)
public offerings and private placement of securities;
(e)
for establishment of various classes of securities brokers;
(f)
the establishment of alternative trading platforms;
(g)
for establishment and orderly conduct of bond pricing agencies and matters
related thereto;
(h)
extension of credit, lending and borrowing of securities and pledging of
customer’s securities by securities brokers; and
(i)
for establishment and orderly conduct of a centralized know your customer
organization and matters related thereto.
(3)
The power to make rules under this section shall be subject to the condition of
previous publication and before making any rules the draft thereof shall be published in the
official Gazette and also be placed on the website of the Commission for soliciting public
opinion thereon within the period of not less than thirty days starting from the date of its
placement on the website.
176.
Removal of difficulties.—If any difficulty arises in giving effect to any provision
of this Act, the Federal Government may, make such order as it may deem necessary for
removing the difficulty.
177. Transitional provisions.
(1) A company that, immediately prior
to the commencement of Part II of this Act, is registered as a stock exchange under section 5 of
the Securities and Exchange Ordinance, 1969 (XVII of 1969), shall thereupon be deemed to be
licensed under this Act as a securities exchange and shall be allowed to offer facilities necessary
for trading in futures contracts until such time as it may be required to obtain a separate licence
as a futures exchange.
(2)
A stock exchange, immediately prior to the commencement of this Act,
registered under section 5 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), shall
obtain licence under section 3 within a period of one year from the date of commencement of
this Act.
(3)
A person who, immediately prior to the commencement of Part V of this Act, is
registered as a broker under section 5A of the Securities and Exchange Ordinance, 1969 (XVII of
1969), shall be deemed to be licensed under this Act as a securities broker till the time his
existing certificate of registration remains valid and shall thereupon be required to obtain a
licence under this Act and such person shall also be allowed to effect transactions in futures
contracts until such time as it may be required to obtain a separate licence as a futures broker.
(4)
A person who, immediately prior to the commencement of Part V of this Act, is
registered as an agent under section 5A of the Securities and Exchange Ordinance, 1969 (XVII
of 1969), shall thereupon be deemed to be licensed under this Act as a representative till the time
his existing certificate of registration remains valid and shall thereupon be required to obtain a
licence under this Act.
(5)
A company that, immediately prior to the commencement of Part II of this Act, is
registered as a clearing house under rule 4 of the Clearing Houses (Registration and Regulation)
Rules, 2005, shall thereupon be deemed to be licensed under this Act as a clearing house till the
time its existing certificate of registration remains valid and shall thereupon be required to obtain
a licence under this Act.
(6)
A person who, immediately prior to the commencement of Part IV of this Act, is
registered as a central depository under rule 4 of the Central Depository Companies
(Establishment and Regulation) Rules, 1996, shall thereupon be deemed to be licensed under this
Act as a central depository till the time his existing certificate of registration remains valid and
shall thereupon be required to obtain a licence under this Act.
(7)
From the commencement of this Act, rules made under the Securities and
Exchange Ordinance 1969 (XVII of 1969), which are in force immediately prior to the
commencement of this Act and which have not been specifically repealed by this Act shall
continue to be in force and have effect as they have been made by the Federal Government under
this Act.
(8)
From the commencement of this Act, regulations made by the Commission under
the Securities and Exchange Ordinance, 1969 (XVII of 1969), which are in force immediately
prior to the commencement of this Act shall continue to be in force and have effect as they have
been made by the Commission under this Act.
(9)
From the commencement of this Act, regulations made by the Commission under
the Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance,
2002 (CIII of 2002), which are in force immediately prior to the commencement of this Act
shall continue to be in force and have effect as they have been made by the Commission under
this Act.
(10) From the commencement of this Act, regulations made by a stock exchange under
the Securities and Exchange Ordinance, 1969 (XVII of 1969), which are in force immediately
prior to the commencement of this Act shall continue to be in force and have effect as they have
been made by the securities exchange under this Act.
(11) From the commencement of this Act, regulations made by a clearing house under
the Securities and Exchange Ordinance, 1969 (XVII of 1969), which are in force immediately
prior to the commencement of this Act shall continue to be in force and have effect as they have
been made by the clearing house under this Act.
(12) Any condition that has been attached by the Commission to a person registered
under the Securities and Exchange Ordinance, 1969 (XVII of 1969), and that is in force
immediately prior to the commencement of Part V of this Act, shall be treated as being attached
to any licence which is regarded as subsisting by virtue of these transitional provisions.
(13) Anything done, actions taken, orders passed, instruments made, notifications
issued, proceedings initiated and instituted, prosecutions filed, processes or communications
issued and powers conferred, assumed or exercised by the Commission under the Securities and
Exchange Ordinance, 1969 (XVII of 1969) and the Listed Companies (Substantial Acquisition of
Voting Shares and Take-Overs) Ordinance, 2002 (CIII of 2002), shall, on the coming into
operation of any provision of this Act, be deemed to have been validly done, made, issued, taken,
initiated, conferred, assumed and exercised and every action, prosecution or proceeding
instituted and every order, directive, notification, circular, code, guidelines etc. issued by the
Commission shall be deemed to have been initiated, instituted or issued under this Act and shall
be proceeded with to completion and be enforced and have effect accordingly.
(14) Every order or directive or notification, circular, code, guidelines etc. issued by the
Commission which are in force on the coming into operation of any provision of this Act shall
continue to be in force and have effect as they have issued by the Commission under this Act.
178. Repeal and savings.
(1) The enactments specified in the Schedule to this Act are hereby repealed to the extent
mentioned in the fourth column thereof.
(2)
Notwithstanding the repeal of any enactments by this section,—
(a)
any notifications, rules, regulations, bye-laws, orders or exemption issued, made
or granted under any such enactment shall have effect as if had been issued, made or granted
under the corresponding provision of this Act;
(b)
any official appointed and anybody elected or constituted under any such law
shall continue and shall be deemed to have been appointed, elected or constituted, as the case
may be, under the corresponding provision of this Act;
(c)
any document referring to any enactment hereby repealed shall be construed as
referring, as far as may be, to this Act, or to the corresponding provision of this Act;
(d)
mortgages recorded in any register book maintained at any office under any
enactment hereby repealed shall be deemed to have been recorded in the register book
maintained under the corresponding provision of this Act;
(e)
any licence, certificate or document issued made or granted under any enactment
hereby repealed shall be deemed to have been issued, made or granted under this Act and shall,
unless cancelled in pursuance of the provision of this Act, continue in force till the date specified
in the certificate or document.
THE SCHEDULE
[See section 178]
————
Short title
Extent of repeal
————
(1)
(2)
Securities and Exchange
(i)
Clauses (a), (ab), (ac), (ad), (ca), (ce),
Ordinance, 1969 (XVII
(cf), (d), (dd), (de), (e), (f), (g), (h), subof 1969).
clauses (i), (ii) and (iii) of clause (l),
clauses (m), (n), (o), (p) and (q) of sub-section (1) of section 2;
(ii)
in section 2, in sub-section (1), in clause (da) the words “a Stock Exchange or”;
(iii)
and 32E.
sections 8, 9, 10, 15A, 15 B, 15C, 15D, 15E, 16, 17, 18A, 31, 32, 32A, 32B, 32C
The Listed Companies
(Substantial Acquisition
of Voting Shares and
Take-Overs) Ordinance
2002 (CIII of 2002).
The whole Ordinance.
Companies Ordinance, 1984 Sections 52 to 66 and sections 220 to 224.
(XLVII of 1984)
ABDUL JABBAR ALI,
Acting Secretary.
[As Amended Up-to-Date Till 2012]
The Gazette of Pakistan
EXTRAORDINARY
PUBLISHED BY AUTHORITY
ISLAMABAD, THURSDAY, JUNE 26, 1980
PART I
Acts, Ordinance, President's Orders and Regulations including Martial Law Orders and
Regulations
GOVERNMENT OF PAKISTAN
MINISTRY OF LAW AND PARLIAMENTARY AFFAIRS
(Law Division)
Islamabad, the 26th June, 1980.
No. F. 17(1)/80-Pub.-The following Ordinances made by the President on the 26th June, 1980
are hereby published for general information:-
ORDINANCE XXXI OF 1980
AN
ORDINANCE
to provide for matters relating to registration of modaraba companies and the floatation,
management and regulation of modarabas.
WHEREAS it is expedient to provide for matters relating to registration of modaraba
companies and the floatation, management and regulation of modarabas and for matters
connected therewith or ancillary thereto:
AND WHEREAS the President is satisfied that circumstances exist which render it
necessary to take immediate action;
Now, THEREFORE, in pursuance of the Proclamation of the fifth day of July, 1977, read
with the Laws (Continuance in Force) Order, 1977 (C.M.L.A. Order No. 1 of 1977), and in
exercise of all powers enabling him in that behalf, the President is pleased to make and
promulgate the following Ordinance:PART 1
PRELIMINARY
1.
Short title, extent and commencement.-(1) This Ordinance shall be called the
Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980.
(2) It extends to the whole of Pakistan.
(3) It shall come into force at once.
2.
Definition.-(1) In this Ordinance, unless there is anything repugnant in the subject or
context,-
[(a)
"Commission" means the Commission as defined in the Securities and Exchange
Commission of Pakistan Act, 1997 (XLII of 1997);]1
[(ab)
“Modaraba” means a business in which a person participates with his money and another
with his efforts or skill or both his efforts and skill and shall include Unit Trusts and
Mutual Funds by whatever name called;]2
(b)
"Modaraba Certificate" means a certificate of definite denomination issued to the
subscriber of the Modaraba acknowledging receipt of money subscribed by him;
(c)
"modaraba company" means a company engaged in the business of floating and
managing modaraba;
(d)
“Modaraba Fund" means a fund raised through floatation of modaraba;
(e)
"Prescribed" means prescribed by rules;
(f)
"Registrar" means the Registrar appointed under section 3;
(g)
"rules" means rules made under this Ordinance; and
(h)
"Tribunal" means a Tribunal constituted under section 24.
(2) All terms and expressions used but not defined in this Ordinance shall have the same
meaning as in Companies Act, 1913 (VII of 1913).
1
2
Clause (a) inserted through Finance Act, 1999.
Clause (a) re-lettered as clause (ab) through Finance Act, 1999.
3.
Appointment of Registrar.- The Federal Government may, by notification in the official
gazette, appoint a person to be the Registrar for the purpose of this Ordinance.
PART II
REGISTRATION OF MODARABA COMPANIES
4.
No company to operate without registration.- No modaraba company shall operate
without registration with the Registrar.
5.
Eligibility for registration.- (1) A company shall be eligible for registration as a
modaraba company if it fulfills the following conditions, namely:(a) that it is registered under the Companies Act, 1913 (VII of 1913), or is a body
corporate formed under any law in force and owned or controlled, whether directly or
through a company or corporation, by the Federal Government or a Provincial
Government;
(b) that, being a company solely engaged in the flotation and management of modaraba,
it has a paid up capital of not less than [two and a half million rupees]3;
(c) that none of its directors, officers or employees has been convicted of fraud or breach
of trust or of an offence involving moral turpitude;
(d) that none of its directors, officers or employees has been adjudged an insolvent or has
suspended payment or has compounded with his creditors;
(e) that its promoters are, in the opinion of the Registrar, persons of means and integrity
and have knowledge of matters which the company may have to deal with as a
modaraba company; and
(f) that, being a company also engaged in business other than floatation and management
of modaraba, it has a paid up capital of such amount and of such nature as may be
prescribed.
6.
Application for registration.- (1) A company which is eligible for registration as a
modaraba company may make an application for registration to the Registrar in such form and
with such documents as may be prescribed.
(2)
The Registrar, if he is satisfied after such enquiry and after obtaining such further
information as he may consider necessary that the applicant is eligible for registration and that it
3
Substituted for “five million” through Modarba Companies and Modarba (Floatation and Control) (Second Amendment) Act, 1985.
is in the public interest so to do, may grant registration to such company on such conditions as he
may deem fit.
(3)
In particular and without prejudice to the generality of the powers conferred by
subsection (2), such conditions may include:(i)
investments to be made;
(ii)
information and returns to be furnished to the Registrar;
(iii)
business to be undertaken; and
(iv)
restriction on transfer of shares by promoters, sponsors or persons holding
controlling interest.
PART III
PROVISIONS APPLICABLE TO MODARABAS
7.
(2)
Types of modaraba.- (1) Modaraba may be of two descriptions:(i)
Multipurpose Modaraba.-That is to say a modaraba having more than one specific
purpose or objective.
(ii)
Specific purpose Modaraba.-That is to say a modaraba having one specific
purpose or objective.
A modaraba may be either for a fixed period or for an indefinite period.
8.
Creation and maintenance of modaraba.- (1) A modaraba company registered under
section 4 shall apply to the Registrar, in such form and with such documents as may be
prescribed, for permission to float modaraba.
(2)
An application for floatation of modaraba shall be accompanied by a prospectus which
shall contain, inter alia, the following information, namely;
(i)
the name and type of the modaraba;
(ii)
the conditions and amounts of the modaraba to be floated and the division thereof
into Modaraba Certificates of fixed amount;
(iii)
the business scheme, prospectus and mode of distribution of profit;
(iv)
the amount to be subscribed by the modaraba company to the modaraba in its own
name supported by evidence about its ability to meet the commitment;
(v)
the form of the Modaraba Certificate; and
(vi)
such other matters as may be prescribed.
(3)
The application, the prospectus and the documents filed therewith shall be authenticated
by all the directors of the company.
9.
Religious Board.- The Federal Government shall, for the purpose of this Ordinance,
constitute a Religious Board which shall consist of such members and shall have such functions,
terms and conditions as may be prescribed.
10.
Business of modaraba.- No modaraba shall be a business which is opposed to the
injunctions of Islam and the Registrar shall not permit the floatation of a modaraba unless the
Religious Board has certified in writing that the modaraba is not a business opposed to the
injunctions of Islam.
11. Authorization.-The Registrar may, after obtaining from the Religious Board a certificate to
the effect mentioned in section 10 and on being satisfied that it is in the public interest so to do,
grant a certificate in the prescribed form authorising the floatation of modaraba on such
conditions as he may deem fit, including conditions as to the business to be undertaken, expenses
relating to the management of the Modaraba Fund, preservation of assets and other matters
relating to the mode of management and distribution of profits:
Provided that, before issuing the certificate of authorization, the Registrar may require the
modaraba company to make such modifications, additions or omissions in the prospectus as the
Religious Board may have indicated or as he may deem fit.
12.
Modaraba to be a legal person.- (1) A modaraba shall sue and be sued in its own name
through the modaraba company.
(2)
The assets and liabilities of each modaraba shall be separate and distinct from those of
another modaraba as also from those of the modaraba company.
13.
Conditions applicable to Modaraba.-(1) No allotment of Modaraba Certificates shall be
made unless a prospectus approved by the Registrar has been issued and the minimum amount
stated
in the prospectus to be the amount which must be raised in order to provide for the business
operations and expenses has been subscribed.
(2)
All moneys received from the applicants for Modaraba Certificates for a modaraba shall
be deposited and kept in a separate account in a scheduled bank as defined in the State Bank of
Pakistan Act, 1956 (XXXIII of 1956), until they are refunded in accordance with the provisions
of subsection (3) or until it is certified by the Registrar that Modaraba Certificates have been
allotted in an amount not less than the minimum amount referred to in sub-section (1).
(3)
If the subscription referred to in sub-section (1) has not been received by the date
specified in the prospectus, all moneys received from the applicants shall be refunded to them
within fifteen days of the said date and the modaraba company and the directors thereof shall be
jointly and severally liable to repay the money which is not so refunded.
(4)
The modaraba company shall issue Modaraba Certificates within thirty days from the
date of allotment.
(5)
The modaraba company shall maintain a register of holders of Modaraba Certificates in
such form and in such manner as may be prescribed.
(6)
The modaraba company shall maintain separate bank account, funds, assets and liabilities
of each modaraba.
(7)
No modaraba shall be liable for the liabilities, or be entitled to benefit from the assets, of
any other modaraba or of the modaraba company.
(8)
A Modaraba Certificate shall be transferable in the manner provided for in the prospectus
of the modaraba.
14.
Preparation and circulation of annual accounts, reports, etc.- (1) The modaraba
company shall, within six months from the close of the accounting year of the modaraba, prepare
and circulate to the holders of modaraba certificates:(i)
annual balance sheet and profit and loss account in such form and manner as may
be prescribed;
(ii)
a report of the auditor on the balance sheet and profit and loss account;
(iii)
a report by the modaraba company on the state of affairs, activities and business
prospects of the modaraba and the amount of profits to be distributed to the
certificate holders.
(2)
In addition to the documents referred to in sub-section (1) the modaraba company shall
furnish to the Registrar and to the holders of Modaraba Certificates such reports, accounts and
information as may be prescribed or as the Registrar may, at any time by an order in writing,
require.
(3)
The modaraba company shall submit five copies of the accounts, statements and reports
referred to in sub-sections (1) and (2) to the Registrar simultaneously with the circulation of
these documents to the holders of Modaraba Certificates.
15.
Audit of accounts. - (1)The accounts of a modaraba shall be audited by an auditor who is
a Chartered Accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of
1961), appointed by the modaraba company with the approval of the Registrar and such auditor
shall have the same powers, duties and liabilities as an auditor of a company has under the
Companies Act, 1913 (VII of 1913), and such other powers, duties and liabilities as are, or may
be, provided in this Ordinance and the rules.
(2)
In addition to other matters, the auditors shall also state in his report whether in his
opinion the business conducted investments made and expenditure incurred by the modaraba are
in accordance with the objects, terms and conditions of the modaraba.
16.
Prohibition of false statement, etc.- No modaraba company, director, officer, employee
or agent or auditor thereof shall, in any document, prospectus, report, return, accounts,
information or explanation required to be furnished in pursuance of this Ordinance or the rules or
in any application made under this Ordinance or the rules, make any statement or give any
information which he knows or has reasonable cause to believe to be false or incorrect or omit
any material fact therefrom.
17.
Conditions applicable to modaraba company.- (1) No modaraba company shall engage
in any business which is of the same nature and competes with the business carried on by a
modaraba floated or controlled by it.
(2)
No modaraba company or any of its directors or officers or their relatives shall obtain
loan, advance or credit from the funds of the modaraba or on the security of the assets of the
modaraba.
Explanation.-In this sub-section, "relative", in relation to a director or officer, means the spouse,
brother or sister or any of the lineal ascendants or descendants of the director or officer.
(3)
A modaraba company shall subscribe in each modaraba floated by it not less than ten per
cent of the total amount of Modaraba Certificates offered for subscription.
18. Remuneration of modaraba company.- The remuneration of a modaraba company in
respect of a modaraba floated by it shall be a fixed percentage of the net annual profits of the
modaraba and shall not exceed ten per cent of such net annual profits computed in the manner to
be prescribed.
[18A. Power to issue directions.- (1) Notwithstanding anything contained in any other
provision of this Ordinance, where the Registrar is satisfied that it is necessary and expedient so
to do –
(a)
(b)
(c)
in the public interest; or
to prevent the affairs of any modaraba from being conducted in a manner detrimental to
the interest of holders of Modaraba Certificates; or
to secure the proper management of any modaraba generally;
he may issue such directions to a modaraba company or the modaraba companies generally, as
he may deem fit, and the modaraba company and its management shall be bound to comply
with such directions.
(2)
The Registrar may, on a representation made to him or on his own motion, modify or
cancel any direction issued under sub-section (1), and in so modifying or canceling any direction
may impose such conditions as he thinks fit.]4
19.
Cancellation of registration.- (1) Where the Registrar is of the opinion that a modaraba
company has contravened or has failed to comply with any provision of this Ordinance or the
rules or with any direction made or given thereunder, he may, if he considers necessary in the
public interest so to do, by order in writing:(a)
cancel the registration of the modaraba company; and
(b)
remove the modaraba company from the management of the modaraba floated by
it:
Provided that no such order shall be made without giving the modaraba company an
opportunity of being heard.
(2)
The modaraba company removed from the management of a modaraba under clause (b)
of sub-section (1) shall not be entitled to or be paid any compensation or damages for loss or
termination of office.
(3)
A modaraba company removed from the management of a modaraba under clause (b) of
sub-section (1) shall not be entitled to float any modaraba.
(4)
A modaraba company aggrieved by an order of the Registrar under sub-section (1) may
prefer an appeal to the [Commission]5 within thirty days of the date of the order.
[(5) An appeal preferred under sub-section (4) shall be disposed off by the 6[Commission] 6 after
giving the appellant an opportunity of being heard.]7
20.
Appointment of Administrator.- (1) If(a) the Registrar, has reason to believe that a modaraba company has been conducting the
affairs of a modaraba in a manner prejudicial to the interest of the modaraba or the
holders of Modaraba Certificates or in a fraudulent or unlawful manner or has
committed a default in complying with the provisions of this Ordinance or the rules or
with any direction made or given thereunder or any condition of the modaraba;
(b) the registration of a modaraba company has been cancelled; or
(c) any other modaraba under the management of the modaraba company has been
ordered to be wound up by the Tribunal, the Registrar, after affording the modaraba
4
Inserted through The Modaraba Companies and Modaraba (Floatation and Control) (Amendment) Act, 2012
Substituted for “Federal Government” through Finance Act, 1999.
6
Substituted for “Federal Government” through Finance Act, 1999.
7
Sub-section (5) inserted through Modarba Companies and Modarba (Floatation and Control) (Amendment) Act, 1985.
5
company an opportunity of being heard, may, without prejudice to any other action
under the law, by order in writing:(i)
appoint an administrator to take over and manage the modaraba in place of the
modaraba company for such period as the Registrar may specify; or
(ii)
require the modaraba company to carry out such changes in the management
and procedure as may be specified; or
(iii)
remove the modaraba company and appoint another modaraba company in its
place to manage the modaraba.
(2)
The Registrar shall not make an order under sub-section (1) without the approval of the
[Commission] 8.
21.
Enquiries.- (1) The Registrar may, on his own motion or on an application made by the
holders of Modaraba Certificates the value of which is not less than ten per cent of the total
subscribed amount of the modaraba, by an order in writing cause on enquiry to be made by a
person appointed by him in this behalf into the affairs of a modaraba company or the modaraba
or any business transaction thereof.
(2)
Where an enquiry under sub-section (1) has been ordered, every director, manager or
other officer of the modaraba company to which the enquiry relates and every other person who
has had any dealing with such modaraba company or director or officer shall furnish such
information or document in his custody or power or within his knowledge relating to or having a
bearing on the subject matter of the enquiry as the person conducting the enquiry may by notice
in writing require.
(3)
The person conducting an enquiry under sub-section (1) may for the purpose of such
enquiry enter into any premises belonging to or in occupation of the modaraba company or of the
person to whom the enquiry relates and may call for, inspect and seize books of accounts and
documents in possession of any such modaraba company, director, manager or any other officer
or employee thereof.
(4)
The person holding an enquiry under sub-section (1) shall, for the purpose of such
enquiry, have the same powers as are vested in a court under the Code of Civil Procedure, 1908
(Act V of 1908), when trying a suit in respect of the following matter, namely:(a)
enforcing the attendance of a person and examining him on oath or affirmation;
(b)
compelling the discovery and production of documents; and
(c)
issuing commissions for the examination of witnesses.
(5)
On receipt of the report of the person conducting the enquiry, the Registrar shall take
such action as he may consider necessary on the basis of the report.
8
Substituted for “Federal Government” through Finance Act, 1999.
WINDING UP
22.
Circumstances in which modaraba may be wound up voluntarily.- (1) A modaraba
floated for a fixed period or for a specific purpose shall be wound up by the modaraba company
itself on the expiry of the period fixed for the modaraba or the accomplishment of the purpose of
the modaraba, as the case may be, provided the following conditions are fulfilled, namely:(a)
all the directors of the modaraba company shall make a declaration verified by an
affidavit to the effect that they have made a full enquiry about the affairs of the
modaraba and, having done so, have formed the opinion that the modaraba will be
able to discharge its liabilities, pay the amount subscribed by the holders of
Modaraba Certificates and all their other dues in full within a period of twelve
months from the date of expiry of the period fixed for the modaraba or the
accomplishment of the purpose of the modaraba, as the case may be;
(b)
the declaration referred to in clause (a) shall be supported by a report of the
auditor of the modaraba on the affairs of the modaraba and shall have no effect
unless it is filed with and approved by the Registrar within ninety days of the date
of expiry of the period fixed for the modaraba or the accomplishment of the
purpose of the modaraba, as the case may be.
(2)
Any person aggrieved by the decision of the Registrar under clause (b) of sub-section (1)
may prefer an appeal to the 8[Commission] 9 within thirty days of the day on which the decision
is given.
[(3)
An appeal preferred under sub-section (2) shall be disposed of by the [Commission] 10
after giving the appellant an opportunity of being heard.]11
23.
Circumstances in which modaraba may be wound up by the Tribunal.- (1) A
modaraba shall be wound up by the Tribunal on an application made by the Registrar if(i)
in the case of a modaraba for a fixed period on the expiry of that period or, in the
case of a modaraba for a specific purpose on the accomplishment of its purpose,
the declaration referred to in section 22 has not been filed with the Registrar
within the period specified in that section;
(ii)
in the case of any modaraba, the Registrar has declared that:(a)
9
the modaraba is unable to discharge its liabilities;
Substituted for “Federal Government” through Finance Act, 1999.
Substituted for “Federal Government” through Finance Act, 1999.
11
Sub-section (3) inserted through Modarba Companies and Modarba (Floatation and Control) (Amendment) Act, 1985.
10
(iii)
(b)
the accumulated losses of the modaraba exceed fifty per cent of the total
amount subscribed by the holders of the Modaraba Certificates; or
(c)
the business of the modaraba is being or has been, conducted for a
fraudulent purpose or with intent to defraud the holders of the Modaraba
Certificates, or its creditors or any other person;
the Tribunal is of opinion that it is just and equitable that the modaraba should be
wound up.
(2)
The Registrar may make an application to the Tribunal for the winding up of a modaraba
on receipt of an application under sub-section (1) of section 21 or of the report of an enquiry
under that section relating to the modaraba.
(3)
No application shall be made by the Registrar under sub-section (1) or (2) without giving
the modaraba company an opportunity of being heard.
24.
Constitution of Tribunal.- (1) The Federal Government may, by notification, in the
official Gazette, constitute one or more Tribunals for the purpose of this Ordinance and, where it
constitutes more than one Tribunal, shall specify in the notification the area within which, or the
class of cases in respect of which, each such Tribunal shall exercise jurisdiction under this
Ordinance.
(2)
A Tribunal shall consist of a person who is, or has been, or is qualified to be a judge of a
High Court.
25.
Powers of a Tribunal.- (1) A Tribunal shall(a) in the exercise of its Civil jurisdiction, have in respect of a claim filed by a holder of
Modaraba Certificates against the modaraba company or by a modaraba company
against any other party with whom it has entered into business transactions relating to
Modaraba Fund, or in respect of an application by the Registrar for the winding up of
a modaraba company, all the powers vested in a civil court under the Code of Civil
Procedure, 1908 (Act V of 1908);
(b) in the exercise of its criminal jurisdiction, try the offences punishable under this
Ordinance and shall, for that purpose, have the same powers as are vested in the
Court of a Sessions Judge under the Code of Criminal Procedure, 1898 (Act V of
1898):
Provided that a Tribunal shall not take cognizance of any offence punishable
under this Ordinance except on a complaint in writing made by the Registrar or an
officer authorized by him in writing; and
(c) exercise and perform such other powers and functions as are, or may be, conferred
upon or assigned to it by or under this Ordinance.
(2)
All proceedings before a Tribunal shall be deemed to be judicial proceedings within the
meaning of sections 193 and 228 of the Pakistan Penal Code (Act XLV of 1860), and the
Tribunal shall be deemed to be a court for the purposes of sections 480 and 482 of the Code of
Criminal Procedure, 1898 (Act V of 1898).
(3)
No court other than the Tribunal shall have or exercise any jurisdiction with respect to
any matter to which the jurisdiction of the Tribunal extends under this Ordinance.
26.
Procedure of the Tribunal.- (1) Matters before the Tribunal shall come up for regular
hearing as expeditiously as possible and, except in extraordinary circumstances and on grounds
to be recorded, the Tribunal shall hear the cases from day to day.
(2) In the exercise of its civil jurisdiction, the Tribunal shall, in all suits before it, including suits
for recovery of money, follow the summary procedure Provided for in Order XXXVII of the
First Schedule to the Code of Civil Procedure, 1908 (Act V of 1908).
27.
Powers of Tribunal on hearing application for winding up of modaraba.- (1) If, after
hearing the application for winding up of a modaraba, the Tribunal decides to wind up the same
it shall appoint a liquidator in consultation with the Registrar and approve a general scheme of
winding up.
(2)
After a winding up order has been passed by the Tribunal, the modaraba company shall
forthwith hand over charge of the modaraba to the liquidator and furnish him with such
statements, documents, records, information and other material as may be required by him.
(3)
The liquidator shall conduct the winding up proceedings in the prescribed manner under
the control and directions of the Tribunal.
(4)
The winding up proceedings shall be completed within a period of one year from the date
of appointment of the liquidator, unless the Tribunal, for special reasons to be recorded in
writing, extends the period.
(5)
During the winding up proceedings, the Tribunal may allow the administrator appointed
by the Registrar under section 20, if any, to continue to function or may appoint an administrator
to manage the modaraba till the disposal of the proceedings.
28.
Judgement and decree.- (1) A Tribunal shall, after the case has been heard, pronounce
judgement as early as practicable and on such judgement a decree shall follow forthwith. (2) The
Tribunal shall, on the application of the decree-holder, forthwith order execution of the decree:
Provided that, if the decree is for money, the recovery in execution thereof shall be made
as arrears of land revenue.
29.
Finality of orders.- Subject to the provisions for appeal as provided in section 30, no
court or other authority shall call or permit to be called in question any order, judgement or
sentence of the Tribunal or the legality or propriety of anything done or intended to be done by
the Tribunal under this Ordinance.
30.
Appeals. - (1) Any person aggrieved by any order, judgement, decree or sentence of the
Tribunal may, within thirty days of such order, judgement, decree or sentence, prefer an appeal
to the High Court within whose jurisdiction the order, judgement, decree or sentence is passed:
Provided that no appeal shall lie from an interlocutory order which does not dispose of
the entire case before the Tribunal.
(2)
An appeal under sub-section(1) shall be heard by a Bench of two judges of the High
Court and shall lie on any one of the following grounds, namely:-
(3)
(a)
the decision being contrary to law or to some usage having the force of law; or
(b)
the decision having failed to determine a material issue of law or usage having the
force of law; or
(c)
a substantial error apparent in the procedure provided by or under this Ordinance,
which may possibly have led to an error in the decision.
An appeal may be preferred under this section from a decision made ex-parte.
31.
Punishment.- (1) Whoever contravenes the provisions of section 4, 10, 13, 14, 16 or 17
shall be punishable with imprisonment of either description for a term which may extend to three
years and with fine which may extend to five hundred thousand rupees.
(2)
Where, the contravention referred to in sub-section (1) has caused loss to the modaraba or
any other person, a further fine to the extent of the loss shall be imposed.
32.
Penalty.- [(1)]12 If any person(a) refuses or fails to furnish any document, return or information which he is required to
furnish by or under this Ordinance; or
(b) refuses or fails to comply with any condition imposed or made by the Federal
Government or direction made or given under this Ordinance or the rules; or
(c) contravenes or otherwise fails to comply with any provision of this Ordinance or the
rules other than those referred to in sub-section (1) of section 31, the Registrar, may,
if he is satisfied, after giving the person an opportunity of being heard, that the
refusal, failure or contravention was willful, by order, direct that such person shall
pay to the Federal Government by way of penalty such sum not exceeding one
hundred thousand rupees as may be specified in the order and, in the case of a
continuing default, a further sum calculated at a rate not exceeding one thousand
12
Section 32 re-numbered as sub-section (1) through Finance Act, 1999.
rupees for every day after the issue of such order during which the refusal, failure or
contravention continues.
[(2)
Any person aggrieved by an order passed under sub-section (1) may, within sixty days of
such order, prefer an appeal to the Commission.] 13
33. Liability of director, manager or officer of a company.- (1) Where the person guilty of an
offence referred to in sub-section (1) of section 31 or in section 32 is a company or other body
corporate, every director, manager, or other officer responsible for the conduct of its affairs shall,
unless he proves that the offence was committed without his knowledge, or that he exercised all
diligence to prevent its commission, be deemed to be guilty of the offence.
(2)
Any sum directed to be paid under section 32 shall be recoverable as an arrear of land
revenue.
(3)
No prosecution for an offence against this Ordinance or the rules shall be instituted in
respect of the same facts on which a penalty has been imposed under section 32.
34.
Powers of the Registrar in relation to certain Proceedings.In any proceedings
under section 32, the Registrar shall have the same powers as are vested in a court under the
Code of Civil Procedure, 1908 (Act V of 1908), when trying a suit in respect of the following
matters, namely:(a)
enforcing attendance of a person and examining him on oath or affirmation; and
(b)
compelling the discovery and production of documents.
35.
Application of fine.- The Tribunal imposing any fine under this Ordinance may direct
that the whole or any part thereof shall be applied in or towards(i)
payment of costs of the proceedings;
(ii)
payment to an aggrieved party of compensation for any loss caused by the
offence;
(iii)
payment of compensation for any loss mentioned in sub-section (2) of section 31.
36.
Enforcement of provisions of the Ordinance, etc.- (1) If a modaraba company makes
default in complying with any provisions of this Ordinance or a direction made or given under
this Ordinance and fails to make good the default within thirty days of the service of a notice to
the modaraba company requiring it to do so, the Tribunal may, on an application made to the
Tribunal by the Registrar, make an order directing the modaraba company and any director or
officer thereof to make good the default within such period as may be specified in the order.
13
Sub-section (2) inserted through Finance Act, 1999.
(2)
Nothing in this section shall be deemed to prejudice the operation of any provision of this
Ordinance providing for the imposition of penalties on the modaraba company or its directors
and officers in respect of any such default as aforesaid.
37.
Exemption from tax.- The income of a modaraba shall be exempt from tax under the
Income Tax Ordinance, 1979 (XXXI of 1979), if not less than ninety per cent of its profits in a
year is distributed to the holders of the Modaraba Certificates.
38. Power of Federal Government to exempt, etc.- The Federal Government may, by
notification in the official Gazette, exempt from the requirements of sub-sections (1) and (3) of
section 17 a company or a body corporate formed under any law and owned or controlled by the
Federal Government or a Provincial Government, whether directly or through a company or
corporation set up by such Government.
39.
Delegation of Powers.- The Registrar may, by notification in the official Gazette,
delegate, subject to such limitations, restrictions or conditions, if any, as he may, from time to
time specify, such of his powers and functions under this Ordinance as he may deem fit to any
officer subordinate to him.
40.
Indemnity.- No suit, prosecution or other legal proceeding shall lie against the Federal
Government or the Registrar or any other officer for anything which is in good faith done or
intended to be done under this Ordinance or any rules.
41.
Power to make rules. -(1) The Federal Government may, by notification in the official
Gazette, make rules for carrying out the purpose of this Ordinance.
(2)
In particular and without prejudice to the generality of the foregoing power, such rules
may include(i)
the duties and functions of the Registrar;
(ii)
terms and conditions of a Tribunal;
(iii)
procedure relating to a Tribunal;
(iv)
composition, terms and conditions of the Religious Board;
(v)
procedure relating to the Religious Board;
(vi)
form, contents and other requirements of a prospectus;
(vii)
issue and allotment of Modaraba Certificates;
(viii) maintenance of modaraba accounts and funds;
(ix)
form of balance sheet and profit and loss account;
(x)
audit and auditor's certificate;
(xi)
annual and periodical accounts and reports;
(xii)
inspection of record and supply of copies of documents;
(xiii) matters relating to winding up;
(xiv)
matters and procedure relating to enquiries;
(xv)
charging and determination of fees payable under this Ordinance; and
(xvi)
such other matters as are to be or may be prescribed.
[41A. Power to make regulations.- (1) The Commission may, by notification in the official
Gazette, make such regulations as are necessary to carry out the purposes of this Ordinance:
Provided that the power to make regulations conferred by this section shall be subject
to the condition of previous publication and before making any regulations the draft thereof shall
be published in the manner considered most appropriate by the Commission for eliciting public
opinion thereon within a period of not less than fourteen days from the date of publication.
(2) Any regulation made under sub-section (1) may provide that a contravention thereof shall be
punishable with a fine which may extend to one hundred thousand rupees and, where the
contravention is a continuing one, with a further fine which may extend to one thousand rupees
for every day after the first during which such contravention continues.
41B. Power to issue directives, circulars, guidelines, etc.—The Commission may issue such
directives, circulars, codes, guidelines or notifications as are necessary to carry out the purposes
of this Ordinance and the rules and regulations made thereunder.]14
42.
Act to override other laws. -The provisions of this Ordinance shall have effect
notwithstanding anything contained in the Companies Act, 1913 (VII of 1913), or any other law
for the time being in force.
43.
14
Removal of difficulties. -If any difficulty arises in giving effect to any provision of this
Inserted through The Modaraba Companies and Modaraba (Floatation and Control) (Amendment) Act, 2012
Ordinance, the Federal Government may make such order, not inconsistent with the provisions
of this Ordinance, as may appear to it to be necessary for the purpose of removing the difficulty.
General,
M. ZIA-UL-HAQ,
President
Religious Board Sec 9 & Rule 6
o The Federal Government shall, for the purpose of this Ordinance, constitute a
Religious Board which shall consist of such members and shall have such functions,
terms and conditions as may be prescribed.
o The Religious Board shall consist of three members appointed by the Federal
Government by notification in official Gazette, one of whom shall be the Chairman.
o Two of the members shall be religious scholars and the Chairman shall be a person
who is, or has been, or is qualified to be a Judge of a High Court.
o Meetings of the Religious Board shall be held to consider applications for floatation
of modaraba as and when called by the Chairman, but at least once in every two
months unless there is no business to transact.
o The Board may wherever so required obtain clarification or additional information
from the modaraba company or offer a personal hearing to the modaraba company
before arriving at a decision.
o The proceedings of each meeting of the Religious Board shall be recorded in such
manner as may be specified by it and the same shall be signed by the Chairman or, in
his absence, by the member presiding over the meeting.
o All orders and decisions of the Religious Board shall be authenticated by the
Chairman or a member or officer especially empowered in this behalf by the Board.
o The Religious Board shall give its decision within thirty days from the date of closure
of its last hearing in a communication bearing official seal of the Board.
o A member of the Religious Board shall hold office for a term of three years unless he
resigns, ceases to hold office or is removed earlier.
o Any casual vacancy shall be filled in by appointment by the Federal Government of a
person qualified to be a member, for the un-expired term of the outgoing member
o The members of the Board, other than a Chairman who is Judge of a High Court,
shall be entitled to :(a) a fixed fee of Rs.500/- per day
(b) traveling and daily allowance as admissible to Grade 20 officers of the Federal
Government.
o The sittings of the Religious Board shall normally be held at Islamabad but the Board
may sit in such places in Pakistan as it may from time to time decide.
o On being called upon to appear before the Religious Board appearance may be in
person or through an authorized representative.
o All sittings of the Religious Board shall be presided over by the Chairman and in his
absence by a member as may be nominated by him.
o There shall be an official seal of the Religious board which shall remain in the
custody of the Chairman or an officer authorized by him in writing.
Business of modaraba Sec 10
No modaraba shall be a business which is opposed to the injunctions of Islam and the
Registrar shall not permit the floatation of a modaraba unless the Religious Board has
certified in writing that the modaraba is not a business opposed to the injunctions of
Islam.
Types of modaraba Sec 7
Modaraba may be of two descriptions:(i) Multipurpose Modaraba.-That is to say a modaraba having more than one specific
purpose or objective.
(ii) Specific purpose Modaraba.-That is to say a modaraba having one specific purpose
or objective.
A modaraba may be either for a fixed period or for an indefinite period.
Modaraba to be a legal person Sec 12
A modaraba shall sue and be sued in its own name through the modaraba company.
The assets and liabilities of each modaraba shall be separate and distinct from those of
another modaraba as also from those of the modaraba company.
REGISTRATION OF MODARABA COMPANIES
No company to operate without registration Sec 4
No modaraba company shall operate without registration with the Registrar.
Eligibility for registration Sec 5 & Rule 7
A company shall be eligible for registration as a modaraba company if it fulfills the following conditions,
namely
(a) that it is registered under the Companies Act, 2017 or is a body corporate formed under any law in force
and owned or controlled, whether directly or through a company or corporation, by the Federal
Government or a Provincial Government;
(b) that, being a company solely engaged in the flotation and management of modaraba, it has a paid up
capital of not less than two and a half million rupees
(c) that none of its directors, officers or employees has been convicted of fraud or breach of trust or of an
offence involving moral turpitude;
(d) that none of its directors, officers or employees has been adjudged an insolvent or has suspended
payment or has compounded with his creditors;
(e) that its promoters are, in the opinion of the Registrar, persons of means and integrity and have
knowledge of matters which the company may have to deal with as a modaraba company; and
(f) that, being a company also engaged in business other than floatation and management of modaraba, it
has a paid up capital of such amount and of such nature as may be prescribed.
Capital of company also engaged in other business.
A company which is also engaged in business other than floatation and management of modaraba shall be
eligible for registration as a modaraba company only if it has a paid up capital of at least seven and a half
million rupees of which an amount of not less than two and a half million rupees shall be set aside for the
modaraba free from any encumbrances.
Application for registration Sec 6
A company which is eligible for registration as a modaraba company may make an
application for registration to the Registrar in such form and with such documents as
may be prescribed.
Registration of Modaraba Company Rule 4
An application for registration of a modaraba company shall be made to the Registrar
in Form IX.
The application shall be accompanied by
(a) five copies of the Memorandum and Articles of Association;
(b) five copies of Certificate of incorporation;
(c) receipted Treasury Challan in respect of the fees paid for the application;
(d) five copies of the latest audited accounts, if the company has already been in
business; and
(e) a precise description of the business being done.
The company shall make such changes in its Memorandum and Articles of Association
or in their Board of Directors as may be required by the Registrar.
The Registrar on being satisfied that the company is eligible to be registered shall issue
a Certificate of Registration in Form X on such conditions as may be specified.
Creation and maintenance of modaraba Sec 8
o A modaraba company registered under section 4 shall apply to the Registrar, in such
form and with such documents as may be prescribed, for permission to float
modaraba.
o An application for floatation of modaraba shall be accompanied by a prospectus
which shall contain, inter alia, the following information, namely;
(i) the name and type of the modaraba;
(ii) the conditions and amounts of the modaraba to be floated and the division thereof
into Modaraba Certificates of fixed amount;
(iii) the business scheme, prospectus and mode of distribution of profit;
(iv) the amount to be subscribed by the modaraba company to the modaraba in its own
name supported by evidence about its ability to meet the commitment;
(v) the form of the Modaraba Certificate; and
(vi) such other matters as may be prescribed.
o The application, the prospectus and the documents filed therewith shall be
authenticated by all the directors of the company.
Conditions applicable to Modaraba Sec 13
o No allotment of Modaraba Certificates shall be made unless a prospectus approved by the
Registrar has been issued and the minimum amount stated in the prospectus to be the
amount which must be raised in order to provide for the business operations and
expenses has been subscribed.
o All moneys received from the applicants for Modaraba Certificates for a modaraba shall
be deposited and kept in a separate account in a scheduled bank as defined in the State
Bank of Pakistan Act, 1956 (XXXIII of 1956), until they are refunded or until it is certified
by the Registrar that Modaraba Certificates have been allotted in an amount not less than
the minimum amount
o If the subscription has not been received by the date specified in the prospectus, all
moneys received from the applicants shall be refunded to them within fifteen days of the
said date and the modaraba company and the directors thereof shall be jointly and
severally liable to repay the money which is not so refunded.
o The modaraba company shall issue Modaraba Certificates within thirty days from the
date of allotment.
o The modaraba company shall maintain a register of holders of Modaraba Certificates in
such form and in such manner as may be prescribed.
o The modaraba company shall maintain separate bank account, funds, assets and
liabilities of each modaraba.
o No modaraba shall be liable for the liabilities, or be entitled to benefit from the assets, of
any other modaraba or of the modaraba company.
o A Modaraba Certificate shall be transferable in the manner provided for in the prospectus
of the modaraba.
Conditions applicable to modaraba company Sec 17
o No modaraba company shall engage in any business which is of the same nature and
competes with the business carried on by a modaraba floated or controlled by it.
o No modaraba company or any of its directors or officers or their relatives shall obtain
loan, advance or credit from the funds of the modaraba or on the security of the
assets of the modaraba.
o A modaraba company shall subscribe in each modaraba floated by it not less than ten
per cent of the total amount of Modaraba Certificates offered for subscription.
Explanation.-In this sub-section, "relative", in relation to a director or officer, means the
spouse, brother or sister or any of the lineal ascendants or descendants of the director or
officer.
Remuneration of modaraba company Sec 18
The remuneration of a modaraba company in respect of a modaraba floated by it shall be
a fixed percentage of the net annual profits of the modaraba and shall not exceed ten per
cent of such net annual profits computed in the manner to be prescribed.
Preparation and circulation of annual accounts, reports, etc. Sec 14
The modaraba company shall, within six months from the close of the accounting year of
the modaraba, prepare and circulate to the holders of modaraba certificates
(i) annual balance sheet and profit and loss account in such form and manner as may
be prescribed;
(ii) a report of the auditor on the balance sheet and profit and loss account;
(iii) a report by the modaraba company on the state of affairs, activities and business
prospects of the modaraba and the amount of profits to be distributed to the
certificate holders.
The modaraba company shall furnish to the Registrar and to the holders of Modaraba
Certificates such reports, accounts and information as may be prescribed or as the
Registrar may, at any time by an order in writing, require.
The modaraba company shall submit five copies of the accounts, statements and reports
to the Registrar simultaneously with the circulation of these documents to the holders of
Modaraba Certificates.
Cancellation of registration Sec 19
o Where the Registrar is of the opinion that a modaraba company has contravened or
has failed to comply with any provision of this Ordinance or the rules or with any
direction made or given thereunder, he may, if he considers necessary in the public
interest so to do, by order in writing
(a) cancel the registration of the modaraba company; and
(b) remove the modaraba company from the management of the modaraba floated by it
o no such order shall be made without giving the modaraba company an opportunity of
being heard.
o The modaraba company removed from the management of a modaraba shall not be
entitled to or be paid any compensation or damages for loss or termination of office.
o A modaraba company removed from the management of a modaraba shall not be
entitled to float any modaraba.
o A modaraba company aggrieved by an order of the Registrar may prefer an appeal to
the Commission within thirty days of the date of the order.
o An appeal shall be disposed off by the Commission after giving the appellant an
opportunity of being heard.
WINDING UP Sec 22
Circumstances in which modaraba may be wound up voluntarily
o A modaraba floated for a fixed period or for a specific purpose shall be wound up by the modaraba
company itself on the expiry of the period fixed for the modaraba or the accomplishment of the
purpose of the modaraba, as the case may be, provided the following conditions are fulfilled, namely
(a) all the directors of the modaraba company shall make a declaration verified by an affidavit to the
effect that they have made a full enquiry about the affairs of the modaraba and, having done so, have
formed the opinion that the modaraba will be able to discharge its liabilities, pay the amount
subscribed by the holders of Modaraba Certificates and all their other dues in full within a period of
twelve months from the date of expiry of the period fixed for the modaraba or the accomplishment of
the purpose of the modaraba, as the case may be;
(b) the declaration referred to in clause (a) shall be supported by a report of the auditor of the modaraba
on the affairs of the modaraba and shall have no effect unless it is filed with and approved by the
Registrar within ninety days of the date of expiry of the period fixed for the modaraba or the
accomplishment of the purpose of the modaraba, as the case may be.
o Any person aggrieved by the decision of the Registrar under clause (b) of sub-section (1) may prefer an
appeal to the Commission within thirty days of the day on which the decision is given.
o An appeal preferred under sub-section (2) shall be disposed of by the Commission after giving the
appellant an opportunity of being heard.
Circumstances in which modaraba may be wound up by the Tribunal Sec 23
A modaraba shall be wound up by the Tribunal on an application made by the Registrar
if(i) in the case of a modaraba for a fixed period on the expiry of that period or, in the
case of a modaraba for a specific purpose on the accomplishment of its purpose, the
declaration has not been filed with the Registrar within the period specified in that
section;
(ii) in the case of any modaraba, the Registrar has declared that:a) the modaraba is unable to discharge its liabilities;
b) the accumulated losses of the modaraba exceed fifty per cent of the total amount
subscribed by the holders of the Modaraba Certificates; or
c) the business of the modaraba is being or has been, conducted for a fraudulent
purpose or with intent to defraud the holders of the Modaraba Certificates, or its
creditors or any other person;
ISLAMABAD, MONDAY, JANUARY 26, 1981
PART II
Statutory Notifications (S.R.O)
GOVERNMENT OF PAKISTAN
MINISTRY OF FINANCE
NOTIFICATION
Islamabad, the 26th January, 1981
S.R.O.83/(I)/81.__ In exercise of the powers conferred by section 41 of the Modaraba
Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), the Federal
Government is pleased to make the following rules, namely :THE MODARABA COMPANIES AND MODARABA RULES, 1981
1.
Short title and commencement.__ (1) These rules may be called the Modaraba
Companies and Modaraba Rules, 1981.
(2)
They shall come into force at once.
2.
Definitions__ (1) In these rules, unless there is anything repugnant in the subject or
context,__
(a)
“Advocate” means a person entered in any role under the provisions of the
Legal Practitioners and Bar Councils Act, 1973 (XXV of 1973);
(b)
“Certificate holders” means holders of Modaraba Certificates;
(c)
“Chairman” means the Chairman of the Religious Board;
(d)
“Form” means a form set out in the First Schedule;
(e)
“Member” means a member of the Religious Board and includes the
Chairman;
(f)
“Ordinance” means the Modaraba Companies and Modaraba (Floatation and
Control) Ordinance, 1980 (XXXI of 1980);
(g)
“Religious Board” means the Board constituted under section 9;
(h)
“Section” means a section of the Ordinance;
1
(i)
3.
All other terms and expressions used but not defined in these rules shall have
the same meanings as are assigned to them in the Ordinance.
Registrar. __ (1) The headquarters of the Registrar shall be at Islamabad.
(2) Without prejudice to the powers, duties and functions conferred or imposed on him by
the Ordinance, the following shall be the duties and functions of the Registrar, namely:(a)
to receive applications for registration as modaraba companies;
(b)
issue to a modaraba company a Certificate of Registration which indicates the serial
number of registration, year of registration and office of issue and has the official
seal of the Registrar affixed thereto;
(c)
to provide secretarial services to the Religious Board;
(d)
to refer the applications for floatation of modaraba which shall be in Form-I, to the
Religious Board and obtain their certificate in writing in Form II that the modaraba is
not a business opposed to the injunctions of Islam;
(e)
to receive applications for and grant Certificate of Authorization in Form III for
floatation of modarabas on such conditions as he may deem fit in keeping with the
provisions of section 11;
(f)
to lay-down, receive and examine all reports, accounts and other documents referred
to in section 14 and to pass orders for and receive such additional documents or
reports or information as may be considered necessary;
(g)
to issue a certificate in Form IV on receipt of a declaration in Form V that Modaraba
Certificate have been allotted in an amount not less than the minimum amount stated
in the prospectus to be raised in order to provide for the business operations and
expenses;
(h)
to allow issue of certificates of a modaraba at a premium or at a discount.
(3)
The Registrar shall examine or cause to be examined any documents received and
return for rectification any document filed with or delivered to him for registration, filing or
recording if it is found to be defective or incomplete or mutilated and shall not register file or record
such document until the requirements indicated by him have been complied with and a revised or
corrected document furnished:
Provided that the Registrar may for special reasons instead of returning the document
demand a fresh document or ask the modaraba company to depute a representative to rectify or
complete the document as may be necessary.
(4)
The Registrar shall not register, file or record any document in respect of which a fee
is payable until such fee has been deposited in the correct head of account and receipt furnished to
him and shall, pending the payment of such fee, act in the same way as if no such document had
been tendered for registration, filing or record.
2
(5)
When a document is accepted for being registered, filed or recorded, the Registrar
shall issue an acknowledgement in Form VI of the First Schedule.
(6)
All documents of each modaraba company and each modaraba shall be kept
together, distinct and separate from those of other modaraba companies and modarabas.
(7)
The Registrar shall make endorsement of the following particulars on every
document registered, filed or recorded in his office, namely serial number (a separate serial number
shall be given to each document); name of the modaraba company and of the modaraba; brief
description of the document including its enclosures; and the date on which the document is
registered, filed or recorded, and shall sign, and affix his official seal, to every such endorsement.
(8)
In the office of the