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Corporate Laws, Made Easy

Compiled by:
Syed Atif Hassan Abidi -i–
Corporate Laws Made Easy Preface

The Examinations of ICAP are a demanding test of student’s ability to master the wide range of
knowledge and skills required of the modern professionals. Subject of “Corporate Laws” is one of the
efforts made by ICAP in this context for enhancing student’s knowledge about detailed overview of
corporate and other laws & rules prevailing in Pakistan.

The best and most recommended source for this subject are the Bare Laws such as “Companies
Ordinance 1984, Miscellaneous Rules, Regulations, Codes and Sundry Laws”. The basic problems faced
by the students in this subject is the selection of source as the bare laws are sometimes too difficult to
understand or too lengthy to digest & revise at final prep for the ICAP Exam.

For these reasons there arise needs to have some comprehensive and easy notes for this subject. For
this purpose these notes are being prepared using different sources but importantly emphasizing on
the original sources. Following sources are being used in compiling these notes

¾ Companies Ordinance 1984 (Volume 1)

¾ Other Rules, Laws & Regulations
¾ Sir Naeem Baig (CAPS) class notes
¾ ATFL (Vol 1 & 2)
¾ Notes made by Sir Muammad Asif (SKANS)
¾ Notes made by self
¾ Notes of Sir Kashif Adeel

Now this booklet contains notes of all course contents of Corporate Laws in just 84 pages,
(except Module D portion)

How To use:

It is strongly recommended that first of all you should thoroughly read from the original ordinances,
rules etc. Then you may develop your own notes / short points to have the course contents in your grip
and also its good for revision purposes. You may either consult these notes as guideline for preparation
of your own notes or you may select these notes for your revision, It’s totally upto you.

Syllabus outline by ICAP is the most important thing to ensure completeness which unfortunately is being
ignored by most of the students, hence loosing the grip on the complete course. Therefore the syllabus
outline is provided in these notes as table of contents and all topics are cross referred with that outline.

I have tried to ensure completeness in these notes and where not completed, have referred towards the
best sources available for that data. However human error is expected so if you find anything missing or
some spell / logical mistakes in these notes please mail me about such errors by referring to page no. at
my mail id ““. In most cases fines & penalties are not incorporated in these notes

I am especially thankful to my friends for effective coordination in making of these notes

Hope these notes could serve you. For notes & other study
material for module E visit
and download mails from
May ALLAH bless all of you with success in every exam of both lives.
E-Mail id:
Please also pray for me
Syed Atif Hassan Abidi
April 14, 2009 These notes are also
available at -i–
Corporate Laws Made Easy ICAP Syllabus Outline

ICAP Syllabus Outline

PAPER E 16: CORPORATE LAWS (100 marks)


The syllabus aims to provide the knowledge and understanding of corporate and other relevant laws,
rules and regulations and to familiarize with the secretarial practices including the knowledge of
handling various matters usually expected to be performed by the secretary of a corporate entity. Case
studies / scenario based questions in addition to descriptive Questions will be set
in the examination.

The examinees are expected to possess detailed knowledge of the Companies Ordinance 1984 over
and above what they have learnt at the Intermediate stage. Topics examined at the Intermediate stage
may or may not be directly re-examined here, however, examinees would need to utilize knowledge
and skills learnt earlier. The knowledge required for Companies Rules would also be comprehensive
but for other Laws and regulations only general knowledge would suffice.


1. Practical aspects in respect of areas of the Companies Ordinance, 1984 covered

at Module D examination in Company Law paper.
2. Companies Ordinance, 1984 from section 261 onwards.
Second schedule 40
3. Various Rules under the Companies Ordinance 30
4. Secretarial Practices
5. Other laws and regulations

Note: The weightages given above are for guidance purposes only and deviations in
setting of papers may be expected.


1. Areas of the Companies Ordinance, 1984 covered at Module D Examination in Company Law (N-1)
Paper. iv
In the Corporate Laws paper at Final level, students are to have a more in-depth knowledge and
understanding of those parts of the Companies Ordinance, 1984 which were covered in the Company
Law paper at Module D, however, the emphasis of testing at the Final Examination level would be
application of those provisions from a practical viewpoint. Testing would focus on the level of
understanding of those provisions and their application.

2. Other specialized areas of the Companies Ordinance, 1984.

a. Part VIII Investigation and related matters. 1

b. Part VIII A Non Banking Finance Companies (NBFC) 3
Provisions as to Establishment and Regulation of NBFC

c. Part IX Arbitration, arrangements and reconstruction. 5 -i–
Corporate Laws Made Easy ICAP Syllabus Outline

d. Part X Prevention of oppression and mismanagement. 7

e. Part XI Winding-up

i) Modes of winding-up, and provisions relating to contributories (sections 297 and 306) 12

ii) Winding-up by court; provisions relating to the following: 14

- Cases in which companies may be wound-up by the court (section 305 and 306).
- Petition for winding-up (section 309 and 310).
- Commencement of winding-up by the Court (Section 311).
- Official liquidators (section 321 to 331, 333 and 334, 336 and 337, 339 to 341 and 346 to 350).
- Enforcement of court orders (section 355 to 357)
* For section 328 and 329, students are only required to be familiar with the contents of statement of
affairs to be made to official liquidator and report by official liquidator.

iii) Voluntary winding-up (Sections 358 to 401) 20

iv) Provisions applicable to every mode of winding-up 26

- Status of companies being wound-up (section 402)
- Proof and ranking of claims (Section 403 to 407)
- Supplementary provisions as to winding-up (Section 421, 422 and 431 to 434)

f. Part XIII Winding-up of unregistered companies 09

g. Part XIV Companies established outside Pakistan (Section 450 to 462) 10

h. Part XV Registration offices and fees (section 468 and 469) 11

i. Part XVI General – legal proceedings, offences etc. (Section 494 and 496) 11

Second Schedule
- Salient features of disclosure requirements for prospectus or statement in lieu of prospectus and
understanding of the reports and certificates to be included in the prospectus.

3. Various Rules under the Companies Ordinance

a. Explanatory provisions only of Companies Rules 1985; knowledge of the contents of the Forms is not 28

b. Capital Issues – The rules for issue of capital by companies, premium on shares, issue of shares for 36
consideration other than cash and related aspects, covered by the Companies (Issue of Capital) Rules,
1996 and Stock Exchange Rules.

c. Companies (Appointment of Legal Advisors) Rules, 1975. 38

d. Companies (Buy-back of Shares) Rules, 1999. 39

e. Companies' Share Capital (Variation in Rights and Privileges) Rules, 2000. 40

f. Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003 (1 – 10) 41

Non-Banking Finance Companies and Notified Entities Regulations, 2008
- Regulation 25 42
- Schedule IX (Fit and Proper Criteria) 46
- Schedule X (Long, Medium and Short Term Financing Facilities) 45

4. Secretarial practices
Floatation of shares and securities including prospectus, offer for sale and convertible securities, stock iv - ii –
Corporate Laws Made Easy ICAP Syllabus Outline

exchange listing rules, underwriting, brokerage, etc.; and discount and premium on shares; application
and allotment of shares, issue of share certificates and bonus and right shares and transfer and
transmission of shares of companies, investigation and dividend.
a) Filing requirements, maintenance of statutory books and registers under the Companies Ordinance,
b) Meetings of shareholders and directors and all proceedings thereto, including notices, agenda,
quorum, voting, poll, proxies, resolutions and minutes.
c) Functions and responsibilities of the Securities and Exchange Commission of Pakistan under the
SECP Act (Act No. XLII of 1997).

5. Other laws and regulations

a) Foreign Exchange Regulations – Foreign Exchange Manual 8th Edition 80

i) Chapter XIX Loans, overdrafts and guarantees

Part A: Rupee loans

Foreign exchange regulations relating to definition of foreign controlled companies, provisions
for general permission for lending to foreign controlled companies for working capital, local
borrowings by foreign controlled companies for capital expenditure.

Part B: Foreign private loans

Private foreign currency loans, repatriable foreign currency loans by foreign controlled
companies for meeting working capital requirements, foreign currency loans (repatriable and
nonrepatriable basis) by Pakistani firms and companies functioning in Pakistan.

ii) Chapter XX – Securities 82

Knowledge and application of provisions relating to rules and regulations governing acquisition and
holding of foreign securities, issue, transfer and export of Pakistani securities to non-residents, general
exemption from the restriction on transfer and issue of Pakistani securities to non-residents, procedure
for issue of shares to non-residents, trading of quoted shares by non-residents, and special instructions
regarding shares transferred under the Central Depository System – CDS of the Central Depository

b) Stock Exchange Listing Rules and Guidelines – especially those relating to secretarial matters, 48
public issue of shares, Code of Corporate Governance and Transfer Pricing. 52

Laws governing certain specialized institutions

c) Banking Companies Ordinance, 1962 – Sections pertaining to audit and accounts, mainly sections 59
34 to 38 of the Banking Companies Ordinance, 1962.

d) The Central Depositories Act, 1997 and Central Depository Companies (Establishment and 60
Regulation) Rules 1996 – Understanding of provisions relating to 61
- Central Depository System; and
- Effect of the Central Depository on provisions of the Companies Ordinance, 1984 relating to interalia,
sending of notices to members, registration of transfers, payment of dividend, maintenance of register
of members, issue of bonus and right shares and effect on the rights of members.

e) Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980. 62

Provisions relating to the following:
- Definitions (Section 2)
- Registration of Modaraba Companies (Section 4 to 6)
- Provisions applicable to Modaraba (Section 7 to 23,33,37,41 and 42)
Modaraba Companies and Modaraba rules, 1981
- Rules 2 to 4,7 to 13,16 to 20-B,23 and 25 to 28
- First Schedule (Form no.1,9 and 11 including annexures)
- Third Schedule - iii –
Corporate Laws Made Easy ICAP Syllabus Outline

- Fourth Schedule (salient features of matter to be specified in prospectus and reports to be set out

f) The Insurance Ordinance, 2000 – provisions relating to statutory and special audits and maintenance 67
of accounts, mainly sections 45 to 49, 51 and 52 and the Securities and Exchange Commission
(Insurance) Rules 2002 including regulations and Format accounts. Broad understanding of the Code of
Corporate Governance for listed and unlisted insurance companies.

g) The Securities and Exchange Ordinance 1969 and the Securities and Exchange Rules, 1971 – 68
provisions pertaining to issuance of shares and securities to the general public (mainly section 9 ) and
Insider Trading.

h) 1. Competition Ordinance 2007 (Chapter I,II,IV,V), 70

3. COMPETITION ( Leniency) REGULATIONS 2007 iv

i) Listed Companies (Substantial Acquisition of Voting Shares and Takeover) ordinance, 2002. and 77
Listed Companies (Substantial Acquisition of voting shares and Takeovers) Regulations , 2008

j) Rules and regulations framed by the Federal Government from time to time, as may be specifically
notified by the Institute of Chartered Accountants of Pakistan for inclusion in the syllabus.

Note: Where specific reference to an Act, Ordinance, Rules, Regulations, Guidelines or SRO gazette
notification is given it is to be assumed that it covers any subsequent amendments that may be made
therein from time to time. 57.44


N-1. Areas of the Companies Ordinance, 1984 covered at Module D Exam in Company Law Paper.

Should be prepare from the same source as were being prepared in Module D. Some commonly
acceptable standard sources for preparation of Module D course are
9 PAC Book for Module D (Company Law)
9 ATFL (Volume 1)
9 Companies Ordinance 1984 (Section 1 to 262)

N-2. Secretarial Practices

This portion involves Practical application of Management & Administration portion of Module D course.
Following sources are very helpful for preparation of this portion
ƒ Foot notes of S.A.Salam Ordinance in the portion of Meetings & Administration
ƒ Chapters of Meetings & Administration in ATFL. (Vol 1)
ƒ ICAP Past Papers

N-3. Competition Ordinance

This portion has been taken from Notes of Sir Kashif Adeel available at In these
notes Sir Kashif Adeel have covered Competition Ordinance along with Merger Control &
Leniency Regulations incorporated as & where necessary. We are really thankful to him for such a nice
Portion of Syllabus Outline Completeness (Tried to be) ensured in these notes
2.Ordinance 261 onward Maximum as near to original, nearly up to 95% covered
3.Rules 100% Completeness from original sources
5.Other Laws Completed to the extent of Sir Naeem Baig class notes
(except Code of Corp Governance i.e. 100% covered in these notes) - iv –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Investigation and Related matters (SEC 263 to 282)

Investigation of affairs of company:

SECP may appoint inspectors to investigate and report on affairs of company on:
− Application of Members or Shareholders having 1/10th voting securities.
− Application of persons comprising 1/10th in number of the persons entered in register of members [Co
not having Share Capital]
− Application of Registrar if he called for information or explanation and it was not given or was
− Order of court
− Resolution of company in general meeting.
− Discretion of SECP, if there are circumstances suggesting that:

ƒ Business is conducted to defraud Creditors, Members or any other person or Oppressive to

members or purpose is fraudulent/ unlawful.
ƒ Person in management are guilty of Breach of Trust, Misfeasance or Misconduct.
ƒ Members are deprived of reasonable return.
ƒ Members are not given reasonable information.
ƒ Shares are allotted for inadequate consideration.
ƒ Business is not managed on sound principles/prudent practices.
ƒ Financial position is indicating insolvency.

™ Application must be supported by Evidence showing good reason for investigation.

™ SECP may require any security for cost of investigation.
™ Commission shall give a show cause notice to company.

Power of Inspector

¾ Inspector to be Court for following purposes:

9 Enforcing attendance of persons and examining them.
9 Compelling discovery & production of books and papers.
9 Issuing commissions for examination of witness.
¾ If Inspector thinks necessary, he can also investigate (after approval of Commission) the affairs of:
9 Any body corporate which is (or at any relevant date has been) company’s associated
company as Subsidiary, Holding, Subsidiary of holding or Holding of subsidiary.
9 Any body corporate which is or was managed by a Chief Executive who is or was also Chief
Executive of the company.
9 Any person who is Chief executive, Managing agent or an associate of Chief executive or
managing agent.

Inspector’s Report

¾ Inspector may (or on direction of SECP shall) make interim reports and on conclusion of investigation
shall make final report to SECP
¾ Such report shall be typed or printed as SECP may direct
¾ SECP shall forward a copy of inspector’s report to:

™ Registered office of the Co. with directions of SECP

™ Members at their request [who applied for investigation]
™ Court [if applied by court]

¾ SECP may forward a copy, on request of and on payment of prescribed fee to:
™ Members/ Body corporate/ Persons interested in affairs of Company
™ Persons whose interest as creditor appears to be affected
¾ SECP may send copy to registrar which such directions as think fit.
¾ SECP may get report/any part published itself or may direct Company to do so.
¾ Copy of report shall be admissible in any legal proceedings as evidence of opinion of inspector. -1–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Court Orders

If reasons proved after investigation Commission may apply to Court and Court may:

1. Remove any Director, Chief Executive, Managing agent or other officer.

ƒ No compensation for loss of office

ƒ If Directors removed [casual vacancy filled in accordance with the provisions of AOA]
ƒ If CE removed [Directors shall elect another person as CE]
ƒ If all directors including CE removed [General Meeting for election of directors be called]
ƒ Directors etc. so removed will be ineligible for such post for 5 years or such lesser period as
directed by the Court

2. Direct Directors to carry out changes in management and in accounting policies.

3. Direct any existing contract, which is to the detriment of the Co., to be annulled or modified.
ƒ No compensation payable on modification or annulment of contracts
4. Direct company to call a meeting of members to take remedial actions on specified matters.

Proceedings for recovery of damages & property

SECP can proceed for recovery of
¾ Damages [in case of fraud, breach of trust, misconduct]
¾ Property [which has been misapplied or wrongfully retained]

Expenses of Investigation:

9 Firstly paid by Commission and subsequently reimbursed from

9 Persons convicted of prosecution or persons who have applied for investigation.

Imposition of restriction on shares & debentures and prohibition on transfer:

If SECP think fit, for finding out relevant facts about any shares, it may impose following restrictions

ƒ Transfer of shares void

ƒ Not be issued
ƒ No voting rights
ƒ No further shares issue in right of those shares
ƒ No payment from Company to anyone for sum due
ƒ No change in directors, CE, Managing agent unless by operation of law.

Enquiries and investigation against Company shall not be effected by

¾ Resolution passed by Company for winding up
¾ Petition submitted by court for winding up
¾ Civil/Criminal proceedings initiated against Company/Officers -2–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984


Section 282-(A) [Application of this Part]

1. An NBFC, which includes companies licensed by SECP to carry out any one or more of the following
forms of the business:
a) Investment Finance Services
b) Leasing
c) Housing Finance Service
d) Venture Capital Investment
e) Discounting Services
f) Investment Advisory Services
g) Asset Management Services
h) Such other companies as the Federal Government may notify for this purpose.
2. Notified Entities (NE) which include such other company or class of companies or corporate body or
trust or any other entity or person as the Federal Government may, by notification in the official Gazette
specify for the purpose
Section 282-(B) [Powers to make rules]
ƒ Federal Government & SECP may make rules for establishment and regulation of NBFCs & NEs;
Section 282-(C) [Incorporation of NBFC]
1) NBFC shall not be incorporated without prior approval by the SECP.
2) NBFC shall not carry on any business unless it holds a license from SECP for that business.
3) Existing companies in any one or more forms of businesses mentioned in 282A shall before expiry of 6
months from coming into force of this clause and every other company before commencing so shall
apply in writing to the SECP for grant of a license
4) NBFC shall not commence business unless has minimum prescribed capital for each form of business.
Section 282-(CA) [Registration of Notified Entities (NE)]
Æ NEs shall not operate without prior registration with the SECP.
Æ SECP may register the NE on terms and conditions as SECP may deem fit
Æ Every NE which is in existence before the commencement of this provision shall within a period of 6
months apply in writing to the SECP for registration
Section 282-(D) [Power to issue Directions]
The SECP may issue directions (that NBFC/NE bound to follow) from time to time where it is satisfied to do so
ƒ in the public interest
ƒ to prevent the affaires of NBFC being conducted in a manner detrimental to the interest of shareholders
or the persons having interest in the NBFC
ƒ to secure proper management of NBFC by rectifying situations
Section 282-(E) [Powers to remove]
Where SECP satisfied that Association of any chairman, director, chief executive or any other officer of the
NBFC/NE is detrimental to interest of NBFC/NE, its shareholders or the person interested, the SECP by make
an order remove such person from their office after giving an opportunity of being heard.
¾ Where delay in opinion of SECP be detrimental to shareholder’s interest, SECP may, at time of
representation on opportunity of being heard, direct such person not to hold such office or be
concerned with management of NBFC/NE
¾ Vacancy filled by person appointed by SECP till election in general/Board meeting
¾ Person so removed shall not take part in management for term not exceeding 3 years
Section 282-(F) [Power to supersede BOD]
Where the SECP satisfied that Association of BOD of NBFC/NE is detrimental to interest of NBFC/NE, it may
supersede the BOD for such period as it may specify
Section 282-(H) [Special Audit]
SECP shall monitor the general financial conditions of NBFC/NE and may order for special audit to carry out
detail scrutiny of affairs of NBFC/NE. On receipt of special audit orders, NBFC/NE may be directed to do/
abstain certain acts
Section 282-(I) [Inquiry by Commission]
SECP may call an inquiry or inspection by persons appointed by it. The inquiry officer may call any information
inspect and cease books of account and documents of NBFC. All the directors, managers, officers and related -3–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

persons shall furnish necessary information to the inquiry officer.

Section 282-(J) [Penalty for failure, refusal to comply with provisions]
9 Fine not more than 50,000,000 to NBFC/NE or officers including auditors
9 All directors/managers/officers liable unless proved not being part of guilty
9 Cancellation of license (all/any form of business) after giving opportunity of being heard.
9 On cancellation of license functions of NBFC/NE shall cease & SECP may move court for winding up.
9 If NBFC/NE continues after suspension every responsible directors /managers /officers liable for Fine =
50 million (Per day fine = 200,000)
9 If officers/auditor fails to deposit penalty up to 6 months, SECP may in writing disqualify him for any
office in NBFC or any Company for such period as may be specified
Section 282-(K) [Penalty for making false statements]
9 Penalty for making false statement or using position for getting benefit for himself/relative, Fine not
exceeding 100,000 or Imprisonment not exceeding 3 years; or both
9 If officer/director/CE of NBFC/NE controlled/owned by Federal/Provincial Govt. extends loan to anyone
on verbal instructions (not in writing) of holder of public office without drawing attention of his
senior/BOD shall be liable for imprisonment that may extend to 1 year or fine or both, in addition to
other actions taken against him in accordance with law
9 If any company not being NBFC/NE, or any NBFC/NE whose registration has been cancelled, transacts
business specified in 282-A ; Its CE, every director, manager & other officer and every member of
association or body of individuals, be punishable with imprisonment for term which may extend to 7
years & fine not exceeding 1 million and shall be ordered by the Court to pay the fine within a time fixed
by Court (or in default to suffer further imprisonment 5 years)
Section 282-(L) [Procedure for amalgamation of NBFC]
ƒ NBFCs may be amalgamated with each other provided a scheme containing the terms of such
amalgamation has been placed in draft before shareholders of each NBFC separately and it is
approved by a resolution passed by a majority of 2/3.
ƒ Notice of general meeting be given to each shareholder & also be published at least once a week for 3
consecutive weeks in not less than 2 newspapers of localities of registered offices of NBFCs (1 shall be
in understandable language of that locality/localities).
ƒ Any share holder who has voted against the scheme and descend from the scheme of amalgamation
shall be entitled to claim from NBFC in respect the shares held by him and the decision of SECP on the
value of shares shall be final for all purposes.
ƒ Once the scheme for amalgamation is approved by the requisite majority of shareholders, it shall be
submitted to the SECP for sanction. After the scheme being sanctioned by SECP
9 It shall become binding on the concerned NBFC and all their shareholders.
9 Remaining/surviving entity shall transmit a copy of the sanctioning order of the SECP to the
registrar concerned, who shall on receipt of sanction order strike off the name NBFC which has
been amalgamated and it will cease to function.
9 The property and liability of the amalgamated NBFC shall be transferred to and vest in
resulting/surviving entity.
Section 282-(M) [Punishment or adjudication of fine or penalty]
ƒ Where a penalty or fine is provided for any offence, contravention or default in complying with, any
provision of Section 282, the same shall be adjudged and imposed by the SECP. Provided that fine or
penalty shall only be imposed after giving an opportunity to show cause and if he so requests, after giving
him an opportunity of being heard personally (or through such person as may be prescribed in this behalf.)
ƒ No Court shall take cognizance of any offence punishable u/s 282 K except on complaint in writing made by
an officer of SECP generally or specially authorized in writing in this behalf by the SECP and no Court other
than the High Court shall try such offence.
Section 282-(N) [Rehabilitation of NBFCs and NEs]
Æ SECP shall have the same powers as are exercisable by the Federal Government u/s 296 for rehabilitation
of a NBFC/NE which is facing financial or operational problems.
Æ Where SECP declares a NBFC/NE as sick, the SECP may, in addition to powers u/s 296 -
ƒ Make application to the Court u/s 412 or 413 and u/s 408 & 409 and provisions of these sections
shall apply mutatis mutandis in all respects
Æ Failure to give effect, or implementing rehabilitation plan approved by SECP
9 Fine not exceeding 10 million rupees (Per day Rs 10,000) -4–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Arbitration, Arrangements and Reconstruction (SEC 283 to 289)

Compromise is an agreement terminating disputes between parties.

Arrangement involves reorganization of capital by consolidation or division of shares of different class.

Power of companies to refer matters to Arbitration:

Company may refer matter to arbitration by:

¾ By Written agreement
¾ According to Arbitration Act 1940
¾ On existing or future difference between itself and other company or person

Parties to arbitration may delegate to arbitrator powers to settle any term or determine any matter capable of
being lawfully settled.

Power to make compromise or arrangements with Creditors/Members:

When Compromise or Arrangement is proposed between Company and Creditors or Members:

1. Court shall, on application, order a meeting of creditors or members to be conducted.
2. If a majority in number representing 3/4th in value of creditors or members approves it, it will be binding
on all Creditors/Members
3. Court shall make an order sanctioning Compromise/Arrangement provided
ƒ Court is satisfied that all material facts have been disclosed
ƒ Company would file Copy of order to Registrar within 30 days
ƒ Copy of order shall be annexed to every MOA and AOA issued after it.
Court may at any time
• Stay commencement of any suit/ proceedings against the Company
• Give such directions or make such modification as think fit by it.

If court is satisfied that Compromise/Arrangement cannot work satisfactory, it may (self or on application by
registrar/interested person) make an order of winding up.

Information as to compromise or arrangement with Creditors/Members:

Where a meeting of Creditors/Members is called, every notice shall accompany a statement showing:
ƒ Terms of compromise/arrangement explaining its effect.
ƒ Material interest of Directors (including C.E.) as Directors or Members or Creditors.
ƒ Effect of Compromise/Arrangement on these interests so far as different from like interests of other

If a notice is given by advertisement, it shall either

9 Accompany such statement or
9 Mention the place where statement could be obtained by Creditors/Members free of charge.

Same information required for Trustees of any deed securing issue of debentures, if compromise affects rights
of Debenture holders.

Every director, CE, Managing agent, Trustee for debenture holders shall give to Company
™ Notice of such matters related to himself necessary for compromise or arrangement
™ Such further info as requested by Company

Provision for facilitating Reconstruction and Amalgamation:

If an application of Compromise/Arrangement proposes a Reconstruction/Amalgamation, Court may make

provisions relating to all or any of following matters:
1. Transfer to the transferee company of whole or part of undertaking, properties and liabilities. -5–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

2. The allotment/appropriation of any shares/debentures or other interest by the transferee company.

3. Continuation by or against the transferee company of any legal proceedings.
4. Dissolution, without winding up, of the transferor company.
5. Provisions regarding any person dissenting from scheme or contract.
6. Other matters.

After the order of transfer, all properties and liabilities stand transferred and removed from charge, if the order
contains so.
Certified copy is filed with registrar within 30 days.

Power and Duty to acquire shares of members dissenting from scheme or contract:

If a scheme of transfer of shares is approved by 9/10th shareholders (holders of shares whose transfer is
involved, other than shares already held by transferee Company at date of offer) within 120 days of offer from
Transferee Company:

Transferee company may give notice to dissenting members within 60 days of its intention to acquire
their shares and
Company will be bound then to acquire shares on same terms and conditions, as given in scheme for
transfer of shares, of approving shareholders.
Dissenting shareholders may apply to court within 30 days of notice.
If court thinks fit, it may direct otherwise.
If court rejects application
a. Order of rejection is to be filed by Transferee Company to Transferor Company
b. Within 30 days (of notice or order whichever is later)
c. Price payable (kept in a separate account in a Schedule bank) will be handed over to transferor
d. Instrument of transfer also filed to transferor Company, executed on behalf of shareholders by
any person appointed by trustee
e. Transferee Co shall
ƒ Register Transferor Company as holder of those shares
ƒ Within 30 days of registration inform dissenting share holders of the fact & receipt
of amount payable to them

Where Transferee Company already holds more than 1/10th shares, above provisions would not apply unless:
¾ Every holder of Transferor Company is offered the same terms. And
¾ The holders, who approve the scheme, shall be 3/4th in majority having 9/10th remaining shares.

When Transferee Company becomes holder of 9/10th shares in cumulative:

9 It will give notice to remaining shareholders.
9 Remaining shareholders may within 90 days of notice require Transferee Company to acquire their

Provisions relating to offer or circular containing offer

Each such offer or recommendation by directors of transferor to accept shall

ƒ Contain such info as may be prescribed
ƒ Contain statement by transferee company ensuring that steps taken for availability of cash
ƒ Presented to registrar for registration
o Registrar may refuse to register if info not provided
Appeal against orders of registrar can be filed to SECP -6–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Oppression, Mismanagement and Rehabilitation (SEC 290 to 296)

Prevention of Oppression
Who can apply:

1. Member(s) having 20% or more Issued share capital or

2. Creditors having interest equivalent to 20% or more Paid up capital or
3. Registrar, if affairs conducted/will be conducted in an Unlawful, Ultravires MOA, Oppressive or
Prejudicial manner

Order of Court:

If Court is of the opinion, on any such petition that

ƒ Co affairs conducted in a manner aforesaid
ƒ To wind up Co would unfairly prejudice Co/members
Court may order:
1. Regulating Company’s affairs in future
2. Purchase of shares of any members of Co or by other member of the co or by co itself.
™ If purchase by co, reduction accordingly of company’s capital.
Where any order makes any alteration in company’s MOA/AOA
™ It is as valid as if duly made by Special Resolution of co
™ Copy of order to be filed with Registrar within 14 days.

Power of Court:

1. Court may terminate or modify any agreement between co and any Director including Chief Executive,
Managing Agent or Other officer on terms and conditions as may in the opinion of court are just &
2. Court may set aside any transfer/delivery of goods, payment execution or other transaction within 3
months before application, which is deemed in his solvency to be a fraudulent preference.
3. Court may decide any other matter including change in management.
4. Court may on application of any party to the proceedings make interim orders
[Any claim for damages against co would be inadmissible.]

Management by Administrator
Representation to the SECP

If any time creditors having interest of amount not less than 60% of paid up capital represents to SECP that:

1. Company’s members/creditors/directors/person connected with management of company is guilty of

Breach of Trust, Misfeasance or Misconduct.
2. Affairs are conducted in Unlawful, fraudulent, Oppressive, and prejudicial manner.
3. Members are deprived of reasonable return.
9 No adequate dividend for consecutive 3 years
4. Industrial project or unit to be set up or belonging to company is not completed, commenced or
smoothly operated such that:
i. Market value or net worth of share has fallen below 75% of Par value.
ii. Debt/Equity ration has fallen beyond 9:1.
iii. Current ration fallen beyond 0.05:1
5. Industrial unit owned by company is not in operation for 2 years.
6. Accumulated losses exceed 60% of paid up capital.

SECP may appoint an Administrator within 60 days of receipt of representation to manage the affairs of
company on specified terms
Administrator may be appointed from
Panel maintained by SECP -7–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Other person by giving notice to SBP if that person is not on panel

Provisions relating to Administrator

Receive such remuneration as SECP may determine

On appointment management of company’s affairs vest in him shall exercise all powers of
ƒ Director/management shall cease
He can cancel any purchase/sale agency contracts which is patently to benefit any director or person
related with management
He is not liable to compensate or pay damages for
ƒ Loss of office
ƒ Termination of contract
After purpose of appointment fulfills, SECP may permit the company to appoint directors and
Administrator shall cease to hold office.
No suit can be filed against Administrator for acts done in good faith in pursuance of these rules.
SECP may issue such directions to Administrator as it deems desirable and he may apply to SECP any
time for instructions about different matters.
Any person aggrieved by orders of SECP or Administrator (termination of contract) may appeal to
Federal Govt. within 60 days of order.
Any order or decision of SECP under this section shall be final and shall not be called in question in
any court
Provisions of this section shall apply notwithstanding anything contained in MOA, AOA & Companies
Ordinance 1984.

Rehabilitation of sick units by Federal Govt.

ƒ Provisions apply to Industrial unit owing by company facing financial/operational problems, declared sick by
Federal Govt.
ƒ After declaration as such, any institution, authority, committee or person authorized by Federal Govt., may
draw a Rehabilitation Plan which may include any or all of the following provisions

a) Reconstruction, Compromise or Amalgamation.

b) Alteration of share capital and variation of rights
c) Alteration of loan structure, rescheduling and conversion into share capital carrying special rights.
d) Acquisition/transfer of shares of sponsors/persons managing affairs of company.
e) Issue further share capital including shares containing special rights
f) Removal and appointment of Directors including CE or other officer
g) Amendments, modification & cancellation of existing contracts
ƒ Without any compensation.
h) Alteration of MOA, AOA or change in Accounting Policies.

ƒ Plan shall be submitted to Federal Govt. for approval.

ƒ After approval, it will be published in Official Gazette.
ƒ Federal Govt. or any person authorized by Federal Govt. shall supervise Rehabilitation Plan.
ƒ Copy of plan sent to registrar by Federal Govt. for registration and it should be kept with other documents
of the Company

Provisions shall apply notwithstanding anything contained in MOA, AOA, CO 1984. -8–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Winding up of unregistered Companies (SEC 443 to 449)

What is Unregistered Company

¾ Includes any Partnership, Association or Company consisting of more than 7 members.

¾ Not includes
9 A Railway company incorporated by UK or Pakistani Law
9 A company registered under any previous Companies Act or under Co.Ord1984.

Provisions of winding up

No unregistered company shall be wound up voluntary or subject to supervision of court [Only By

For determining Court having jurisdiction
9 Company shall be deemed to be registered in Province where its Principal Place of Business is
9 Principal place of business where proceedings are started, deemed to be registered office of
Circumstances of winding up are:
a. If the company is dissolved, or ceased to carry on business or is carrying on business to
wind up affairs.
b. If company is unable to pay debt.
c. If Court thinks it just and equitable.

Company when deemed unable to pay debt:

1. A creditor whose Rs. 25,000 or more is due, serves his notice and company within 30 days neither
pays nor secures nor compound for satisfaction of creditor.
2. A suit has been instituted against any member for any sum due from the company/member on behalf of
company and a notice is served to company and company neither pays nor secures within 15 days.
3. Execution issued on a decree obtained in favor of creditor and it returned unsatisfied in whole or in part.
4. If it is proved to the satisfaction of Court
ƒ Court shall take into account Prospective and Contingent Liabilities


9 All those liable to contribute for payment of liability, expense of winding up and adjustment of
rights among themselves.
9 If he dies/gets solvent, his heirs/assignees shall be contributories.

Miscellaneous Provisions

™ Companies established outside Pakistan would be wound up as an unregistered company

™ Provisions of this ordinance with respect to staying and restraining suits and legal proceedings between
petition for winding up and order for winding up shall extend to suits & proceedings against any
™ No suit/proceedings can be continued/started against unregistered company being wound up against
any contributory of company
ƒ Except by leave of court
™ Court & Official liquidator may exercise any powers on unregistered company being wound up as it is a
company registered under Company’s Ordinance 1984
™ If unregistered company has no power to suit/to be sued in a common name
ƒ Court may order all properties, interests, rights & obligations to be vest in Official liquidator
ƒ Official liquidator may, after giving indemnity as directed by court, bring or defend in his
official name any suit/proceedings -9–
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Companies established outside Pakistan (sec 450 to 462)

Documents to be delivered to Registrar

Every foreign Company incorporated outside Pakistan having a Place of business in Pakistan within 30 days of
Establishment or Change of place in Pakistan shall deliver following documents to registrar:
9 Certified copy of charter, statue, MOA & AOA or other instrument defining constitution in
English/Urdu(or translation in English/Urdu)
9 Full address of Registered Office or Principal Office in the country of incorporation
9 List of directors, chief executive and secretaries with detailed particulars.
9 Return showing complete particulars of Principal Officer in Pakistan.
[Name (sur,former,father,husband), nationality(present,former), designation & addresses]
9 Complete particulars of Persons authorized to receive notices etc. together with his consent.
9 Full address of office in Pakistan, deemed to be Principal Office in Pakistan.
9 Return containing particulars of change, where any change in above info / docs, within 30 days of

Documents to be given every year:

1. Prescribed no. of copies, not less than 3, of audited B/S and P&L with such particulars as are
required to be filed by a company registered in Pakistan.
2. List of Pakistani members and Debenture holders.
Within earlier of
™ 45 days of date of submission to the public authority of country of incorporation, or
™ Within 6 months of the date up to which accounts are prepared

Certain obligation of Foreign Companies:

ƒ Maintain at Principal Officer a register of Pakistani members and debenture holders which shall be
open to inspection.
ƒ In prospectus, inviting share or debenture, state country of incorporation.
ƒ For issue of Prospectus authorization of Federal Govt. is must.
ƒ State the name of Co, country of incorporation, outside every office in English/Urdu
ƒ Mention liability, if limited, on each prospectus, advertisement & outside every place of business in
English, Urdu and vernacular language.
ƒ Also state above particulars on every document.

Service of document on company

Deemed to be sufficiently served
a) By giving to person authorized in this behalf.
b) By leaving or posting to place of business where
i. Address of authorized person not provided
ii. Authorized person is dead, ceased to reside at provided address or refused to
accept the documents on Company’s behalf.

Miscellaneous provisions:
If Co fails to comply requirements
ƒ It shall have no effect on validity of any contract, dealing or transaction entered into by the Company
and liability to be sued
ƒ Company can not bring any suit, claim, set-off, counter claim unless all requirements met.
Provisions of Companies Ordinance 1984 relating to name, power of registrar for investigation/inspection
shall apply to this Company.
Where Company intends to cease having place in Pakistan it shall 30 days before ceasing to have place of
ƒ Intimate to Registrar.
ƒ Publish notice of such intention at least in 2 newspapers.
[Obligation of Company to deliver documents shall also cease]
ƒ Restriction of going house to house for sale of securities (except offices) - 10 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Registration offices and fees( SEC 468, 469)

Registrar not to accept defective documents (SEC 468)

If in the opinion of the registrar, any document required or authorized by or under this Ordinance to be filed or
registered with the registrar-
9 contains any matter contrary to law, or does not otherwise comply with the requirements of law;
9 is not complete owing to any defect, error or omission;
9 is insufficiently legible or is written upon paper which is not durable; or
9 is not properly authenticated;

The registrar may either

¾ require the company to file a revised document on specified form & within specified time
¾ Refuse to accept or register the same.

Where the registrar refuses to accept any document for any of the reasons aforesaid
ƒ The same shall not be deemed to have been delivered to him in accordance with the provisions of this
Ordinance unless revised document provided in specified time.
ƒ The registrar shall communicate his decision in writing to the company.

If registration of any document is refused, the company may either

ƒ Supply the deficiency and remove the defect pointed out or,
ƒ within thirty days of the order of refusal, prefer an appeal to
Registrar, where the order of refusal has been passed by an additional registrar, a joint
registrar, a deputy registrar or an assistant registrar
SECP, where the order has been passed, or upheld in appeal, by the registrar

An order of the SECP shall be final and shall not be called in question before any Court

Acceptance of documents presented after prescribed time (SEC 469.)

Where any document required or authorized by or under Company’s Ordinance to be filed or registered with the
registrar within a specified period is presented after the expiry of such period, the registrar may accept same
ƒ on payment by the company or other person concerned of such additional fee as may be prescribed by
the Commission, not exceeding 3 times the amount of the specified fee payable in respect thereof
ƒ No such document shall be deemed to have been filed with the registrar until the specified has been
paid in full.
ƒ Acceptance of the document by the registrar shall not absolve the defaulting company or other person
concerned of any liability arising from the default, delay in filing or other failure to comply with the
requirements of Companies Ordinance.

General Proceedings, offences etc ( SEC 494, 496)

Liability of directors for allotment of shares for inadequate Consideration ( SEC 494)
Any director, creditor or member of a company may apply to the Court for a declaration that any shares of the
company specified in the application have been allotted for inadequate consideration.
Every director of the company who
1. is a party to making the allotment of such shares
2. had knowledge that the consideration so received by the company was inadequate, or
3. failed to take reasonable steps to ascertain whether such consideration was in fact adequate
Shall be liable, jointly and severally with his co-directors, if found by court after full enquiry into circumstances
of transactions, to make good to the company the following amount
[Consideration to be received – consideration inadequately received]
Penalty for carrying on ultra virus business (SEC 496)
If any business or part of business carried on or any transaction made, by a company is ultra vires of the
company Every person who acted as a director or officer of the company and is responsible for carrying on
such business shall be liable to a fine not exceeding 5,000 rupees and shall also be personally liable for the
liabilities and obligations arising out of such business or transaction. - 11 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Introduction to winding up (SEC 297 to 304)

Meanings & Objectives of Winding up

ƒ A proceedings in which all affairs of company are wound up, its rights & liabilities ascertained and the
claims of its creditors are paid off out of the proceeds of the assets of the Company including
contributions by its members to necessary extent.
ƒ Where any surplus assets are left, the same are distributed to members of company in proportion of
their rights under AOA
ƒ Then company is dissolved in compliance with formalities of Company.Ord.1984

Consequences of winding up

™ Winding up puts an end to business of company

™ Winding up doesn’t means that company s financially embarrassed, even a solvent company may
sometimes wind up in apprehension of future losses

Effects of winding up as regards to different persons are

9 Company continues to be a corporate entity with all rights.
9 Only Management & Administration passes to Liquidator.

9 A new statutory liability comes into existence
9 No transfer or change in shareholdings except with approval of Liquidator.

9 They have to lodge claims with Liquidator and Prove debt (except secured creditor).
9 Cannot file or continue suit against company except with leave of court.

9 Winding up by court appears to be a notice of termination
ƒ They an prove claims/damages in respect of wrongful termination
9 Voluntary winding up does not necessary operates as notice of discharge

9 Directors/ CE and officers cease to hold office except for the purposes of winding up
9 Committee of inspection or creditors in general meeting may sanction continuance

Properties of company
9 No disposition of properties without leave of court

Modes of winding up

Company can be wound up in any of the following modes

1) By court [Compulsory winding up]
2) Voluntary
3) Under supervision of court

“Contributory means every person liable to contribute to the assets of a company in the event of its being
wound up, and include the holder of any shares which are fully paid up; and persons who are deemed to be
contributories or alleged to be a contributory” - 12 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Liability of contributory accrues on commencement of liability but payable at time specified in calls made on him
for enforcing the liability.

Liability of contributories as past and present members

Past and Present members will contribute money to pay all debts, liabilities, expenses of winding up and
adjustment of rights of contributories among themselves with following qualification:

ƒ No contribution from past member if member ceases to be a member one year before winding up or
debt was contracted after he ceased to be a member.
ƒ Past member will contribute only if court deems it necessary that present members are unable to pay
ƒ For company limited by shares, maximum liability shall be upto amount unpaid on shares.
ƒ For company limited by guarantee, maximum liability shall be upto amount undertaken by member.
ƒ For company limited by guarantee having share capital, maximum liability shall be amount unpaid on
shares as well as amount undertaken by member.
ƒ A sum due to any member in respect of dividend, profit etc. shall not be a debt.
ƒ Ordinance not applied where liability of individual is restricted and funds of company liable (e.g. policy
of insurance)

Liability of director whose liability is unlimited:

In addition to his liability as ordinary member, such director shall be liable to contribute as if he were a member
of unlimited company provided:

− If he ceased to be a director one year before winding up or if debt was contracted after he ceased
to be a member.
− Contribution will be made only if court deems it necessary subject to Articles.

Contributories in case of death, insolvency or winding up of member.

1. His legal representative will be liable
2. Deceased’s property if default is made by legal representatives in payment of money
1. His assignee
2. May be proved against the estate of insolvent.
Winding up:
1. Liquidator.
2. May be proved against assets of body corporate.



ICAP have specifically excluded following sections from course of Corporate Laws, Module E

ƒ Winding up by Court [ 307, 308, 312 to 320, 332, 335, 338, 342 to 345, 351 to 354 ]

ƒ Provisions applicable to every mode of winding up [ 408 to 420, 423 to 430, 435 to 442 ]

Please refer to ICAP course outline for any change therein. - 13 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Winding up by Court (SEC 305 to 357)

Petition for winding up

Winding up by Court shall be deemed to commence on presentation of petition for winding up to Court.
Following persons may file petition to court subject to certain conditions mentioned

1. Company, after Special resolution

ƒ Company has to file particulars of assets, liabilities and suits against it

2. Creditors including contingent or prospective creditors

ƒ Have to give security for costs of winding up

3. Contributories
ƒ If no. of members reduced below minimum numbers (2 or 7).
ƒ Shares have been held by him for at-least 6 months during last 18 months.

4. Registrar (with sanction of SECP)

5. SECP, after investigation that
ƒ Business of company is Illegal, ultravires MOA or oppressive to members or
ƒ Management is guilty of fraud or misfeasance or misconduct

Circumstances in which company may be wound up by Court

1. On Special resolution by members of Company

2. Default by company in
a. Holding Statutory meeting
b. Holding Statutory report
c. Holding any 2 consecutive AGM

3. Number of members fall below minimum number.

4. Company. does not commence business within 1 year of incorporation
5. Company suspends its business for whole year.
6. Company Ceased to be a listed company. if was so
7. Unable to pay debt.
8. If court thinks it just and equitable.
9. Where the business of company is
a. Illegal
b. Ultravires Memorandum.
c. Oppressive to minority shareholders, promoters and members
d. Management is guilty of fraud, misfeasance, or misconduct towards MOA, AOA or Co

Minority share holders means shareholders together holding at least 20 % of the share holding

Company when deemed unable to pay its debts.

1. If a creditor of lesser of 50,000 or 1% of Paid Up Capital serves a notice at registered office of company
for payment of sum, himself or through agent or legal advisor and within 30 days
9 Company. neither pays the same
9 Nor secures
9 Nor satisfies creditor by compounding it

2. If court order in favor of creditor and still he remains unsatisfied

3. It is proved to court that company is unable to pay debt
9 Court shall take into account Contingent and Prospective liabilities - 14 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Official liquidator

Official Liquidator occupies dual position on winding up

ƒ He represents company & creditors

He is bound to be impartial, not to make secret profits

He is paid agent of company: bound to carry out duties with due care and skills

Appointment of Official Liquidator (OL)

Court shall maintain a panel of persons form amongst persons specified by SECP
From this panel 1or more OL or Provisional Manager (PM) shall be appointed
Such person with 3 days of communication of order shall inform court of his inability to act so
A person other than panel can be appointed if
1. Court considers it. or
2. On application of creditor whom 60% of issued share capital or more is due
3. Notice of fact sent to Registrar.

OL shall forthwith start his duties till conclusion of winding up

Where more than 1 person are appointed, court shall declare whether any act shall be done by all or some
or anyone
Court shall decide whether any security needed to be given by OL

Resignation, removal & Filling Vacancy:

ƒ OL Can’t resign before conclusion of winding up

o except on personal disability to the satisfaction of court
ƒ Can be removed by court any time.
ƒ Any vacancy in office of OL to be filled by Court,
o Outgoing OL shall continue to act until successor takes his place.

Remuneration of OL

™ OL is paid remuneration for his services as follows

9 %age of amount realized on disposal of assets
ƒ There may be different %age for different class of assets Or
9 Fixed by the Court having regard to amount and nature of work done

™ In addition to remuneration Court may permit payment of monthly allowance for meeting expenses of
winding up for period of 12 months from date of commencement
™ Subsequently, remuneration can not be enhanced but may be reduced by court anytime
™ If OL resigns, removed or otherwise ceases to hold office before conclusion
ƒ He shall not be entitled to any remuneration
ƒ Remuneration already paid shall be refunded to company

General provisions as to Official Liquidator

ƒ Past acts of OL having defects on appointment or qualification are valid till discovery.
ƒ Winding up procedure shall be completed within 1 year. Extension may be granted by court
9 For one month at a time, maximum for six months
9 On ground that any proceedings by or against company are pending in a Superior Court.

ƒ If OL is convicted of misfeasance, breach or default, he shall

9 cease to hold office
9 Be disqualified for 5 years to hold any other office including that of Director in any company.

ƒ A Receiver can not be appointed for assets in the hands of Liquidator - 15 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

ƒ except by leave of court.

9 OL shall maintain proper books to make entries or minutes of proceedings, any other prescribed matters
ƒ Creditors and contributories can inspect it

9 OL shall take property of company in custody from any directors etc

ƒ He may contact dist. Magistrate having jurisdiction over that area

Statement of affairs

™ Within 21 days from the relevant date or time extended by OL, PM, or Court till 45 days.
™ Relevant date for purpose of this statement of affairs means
o where PM or OL is appointed, its date of appointment or
o where no such appointment is made, the date of winding up order.

Statement shall be submitted and verified by persons who
¾ Were directors, chief executive or secretary at the relevant date
¾ Have within 1 year of relevant date
9 Been Directors, Chief Executive or Officer
9 Taken part in formation of company
9 Been in employment of company and are capable of giving required information
9 Been in employment of a company which is the officer of the company.

1) The assets of company stating separately, Cash in hand, Cash at bank and Negotiable securities
2) Debts and liabilities of company
3) The names, addresses and occupation of the creditors of the company stating separately
o Secured debt (with particulars, value and date of security given)
o Unsecured debt

4) Names, addresses and occupation of debtors and amount likely to be realized from them.
5) Where property of company is in possession of any other person, name of person and place property.
6) Places where company conducted its business in last 6 months from relevant date and name of
incharges there
7) Detail of pending suits or proceedings in which company is a party
8) Any other prescribed information.

9 Any Creditor or Contributory can take copy on payment of prescribed fee.

9 OL may reimburse expenses incurred in preparation of report from company’s assets.
ƒ Expenses may include preparation of affidavit for verification purposes

Report by Official Liquidator

On winding up order as soon as possible, after receipt of Statement of Affairs, not later than 30 days or
further 30 days extendable by court shall submit a preliminary report To Court

Such statement shall contain following particulars

1. Capital issued, subscribed and paid up
2. Estimated amount of assets and liabilities giving separately
a. Cash, Bank and negotiable securities
b. Debts due from Contributories
c. Debts due to company and securities(if any) available against them
d. Movable and Immovable properties of company
e. Unpaid calls
3. Cause of failure if company has failed - 16 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

4. Whether in his opinion, further inquiry is desirable to any matter relating to formation, promotion, or
conduct of business

If OL thinks fit, he may make a further report stating

9 Manner in which company was formed or promoted
9 Whether in his opinion any fraud has been committed by any person (director or other officer) in its
formation or promotion since its formation.

Certified copy of report shall also be sent to registrar simultaneously.

Liquidator’s Account

¾ OL shall present to court an account of his receipts and payments and dealing as liquidator at
prescribed times but not less than twice in a year
¾ Account shall be in prescribed form, made in duplicate & verified by declaration
¾ Court may have such accounts get audited.
¾ 1 copy held with court and other delivered to Registrar along with auditor’s report
¾ Each copy shall be open for inspection by any person on payment of prescribed fees
¾ OL shall send it to every creditor and contributory along with auditor’s report.

Powers of Official Liquidator

OL shall with sanction of court or committee of inspection have following general powers

ƒ To institute or defend any suit, action, prosecution or other legal proceedings (civil/criminal) in the name
and on behalf of the company
ƒ To carry on business necessary for beneficial winding up.
ƒ To sell movable and immovable property of company by Public auction or private contract.
ƒ To pay any classes of creditors in full
ƒ To compromise or make arrangements with creditors having any type of claim against company
ƒ To compromise all calls, debts, liabilities or claim/damages between company and contributories, debtors
or other persons apprehending liabilities and all questions affecting assets or winding up of company

OL shall have following powers subject to any general/special directions of court or committee of inspection

ƒ To execute all deeds and use company seal

ƒ To prove, rank and claim in bankruptcy/insolvency of any contributory for any balance against his estate
and receive dividends in bankruptcy/insolvency in respect of that balance
ƒ To accept, make, or endorse bills of exchange
ƒ To raise on security of assets of company any money requisite
ƒ To take out in his official name letter of administration to any deceased contributory, do any other act for
payment due from contributory
ƒ To appoint an agent to do business which he himself can not do
ƒ To do acts to recover payments due from a contributory
ƒ To do other acts as are necessary for winding up and distribution of assets

Certain obligations of Official Liquidator

9 OL shall maintain proper books to make entries, or minutes of proceedings, any other prescribed
matters. Creditors and contributories can inspect it.
9 OL shall take property f company in custody from any directors etc, for which he may contract Dist.
Magistrate having jurisdiction over that area

Provisional Manager

ƒ At any time after presentation of petition and before Winding up orders, court may appoint a person
eligible for appointment as official liquidator. - 17 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

ƒ Court shall give notice to company and provide opportunity to make representation
¾ Court may dispense such notice for reasons to be recorded.
ƒ PM shall have same powers as official liquidator
¾ Court may limit and restrict his powers in appointment or subsequent order.
ƒ PM shall cease to hold office when order of winding up being made.

Committee of Inspection

Official liquidator shall within 30 days of orders, summon separate meeting of creditors and contributories of
company for determining
9 Whether COI inspection should be appointed to act with official liquidator
9 Who should be its members

Where Winding up order made on ground that company is unable to pay its debts, it is not necessary for
official liquidator to conduct such meeting
If there is a difference between creditors and contributories, court shall decide it

Distribution by official liquidator

ƒ Official liquidator shall, subject to directions of court, distribute surplus funds among
creditors/contributories within 30 days of receipt.

ƒ Surplus funds means funds that come in hands of official liquidator after providing
9 Expenses of Winding up
9 Preferential payments
9 Claims against company which are subject matter of adjudication/assessment.
¾ Amount retained for this purpose shall be invested in Khas deposit certificates that shall be
deposited with court and distributions shall be made when claims are settled.

Dissolution of Company

™ Under following circumstances court shall make an order that the Company be dissolved from date of
order and the company shall be dissolved accordingly
o When affairs of company have been completely wound up
o When court is of the opinion that official liquidator cannot proceed for winding up for want of
funds and assets.
o For any other reason just and reasonable of the case

™ Dissolution shall not extinguish any right of debt due to company against or from any person.
™ Copy of order shall be forward to registrar within 15 days of making. Registrar shall make a minute of
dissolution of company.

Powers of the Court

ƒ Court may fix a time within which creditors are to prove their debts/claims or to be excluded from any
distribution made before these debts proved.
ƒ Adjust rights of contributories amongst themselves, so distribute any surplus to entitled persons.
ƒ When assets are insufficient to satisfy the liability, court may make an order of payment out of assets for
costs, charges and Winding up expenses in such order/priority as court may think fit.

ƒ At any time after Winding up order require any of ;

9 Contributory, trustee, receiver, banker, agent, officer, employee or auditor of company
to convey, surrender, deliver or transfer to OL any
9 Money, property, books, papers or documents of company in his hands.

ƒ Court may at any time after Winding up order, order any contributory to pay any money due from
him/estate of person whom he represents to company.
ƒ In following cases a contributory can setoff any amount, due to him from company, otherwise than as a
member of company - 18 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

™ In case of unlimited companies

™ Limited company, where directors liability is unlimited
™ Cases where creditors are paid in full, as regards call made after.

Settlement of List of Contributories

As soon as may be possible after making a winding up order, court shall settle a list of contributories with
powers of rectify register of members where necessary and shall cause the assets of the company to be
collected and applied in discharge of its liabilities.

In settling list of contributories, court shall distinguish between

ƒ Person who are contributories in their own rights
ƒ Person who are contributories as being representative of or liable for debts of others.

Court may dispense with settling list of court where it is not necessary
ƒ to make calls
ƒ to adjust right of contributories.

Enforcement of Orders

™ All orders made by court under companies ordinance may be enforced in same manner in which
decree of such court in any suit be enforced.
™ Such orders for winding up shall be enforceable in any place of Pakistan in the same manner as at
place of jurisdiction.

™ Where any order of court is to be enforced by any other court

¾ A certified copy of order to be produced to proper officer of court required to enforce the same.
¾ Production of such copy shall be evidence of that order.
¾ Such 2nd court shall enforce matters in the same manner. - 19 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Voluntary Winding up (SEC 358 to 395)

Circumstances for voluntary winding up:

A company may be voluntary wound up under following circumstances

1. When period, if any, fixed by articles expires; or

2. Where event, if any, occurs the occurrence of which AOA provides for dissolution and company in
general meeting passes a resolution for it
3. Where Company resolves by general meeting that company be wound up voluntary

Voluntary winding up deemed to commence at date on which resolution passed.

Consequences of winding up:

¾ Company ceases to carry on business

o except for requirements of winding up.
¾ Corporate state/powers continue until company is dissolved.

Notice of resolution:

Notice of resolution for winding up company is to be given within 10 days

ƒ By advertisement in Official Gazette

ƒ In newspapers having circulation in
• Province of registered office
• For listed; also in Province of Stock exchange (English & Urdu)
ƒ To Registrar

Declaration of solvency:

Directors of company (if more than 3, majority of Directors including Chief Executive) shall at a meeting of
Board of Directors make a declaration, verified by affidavit to the effect that they have made full enquiry and
concluded that
1. Company has no debts or
2. Company is able to pay its debts within 12 months of commencement of winding up.

Declaration shall not be effective unless

9 Made within 5 weeks immediately preceding date of resolution
9 Delivered to registrar for registration within 5 weeks of passing of resolution
9 Supported by auditor’s report on P&L A/C and Balance Sheet.

If Directors make declaration without reasonable ground they will be punishable

ƒ Imprisonment of six months or
ƒ Fine Rs. 10,000 or
ƒ Both
o If debts are not paid within specified period, it will be assumed that directors did not have any
reasonable ground.

Members Voluntary winding up

Appointment of liquidator:

Company in general meeting shall appoint one or more liquidators to wind up affairs and distribute assets,
9 Such meeting may fix Remuneration, otherwise it will be same as in winding up by court

On appointment all Powers of Directors, Chief Executives & other officers cease except so far as Company
in general meeting or liquidators allows for - 20 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

9 Giving notice of resolution to wind up company.

9 Appointment of Liquidator
9 Filing consent of Liquidator.

If any vacancy occurs by death & resignation or otherwise in office of liquidator, company in general
meeting may fill, subject to arrangement with creditors.

9 For this purpose general meeting may be called by

ƒ Out going liquidator: or
ƒ Continuing liquidator or
ƒ Any contributory or
ƒ Court on application of
• Registrar or
• Any other person interested in winding up

9 Meeting shall be held in manner provided by Co.Ord 1984 or AOA or court may determine

Company shall give notice to registrar within 10 days of appointment, filling vacancy etc

Calling creditor’s meeting in case of insolvency

ƒ Liquidator shall call a meeting of creditors where

9 12 months expires without paying debt or
9 Liquidator thinks that company is unable to pay debt in stated time.

ƒ OL shall present Statement of Affairs.

ƒ Creditors may appoint different liquidator who has consented to act as such.
ƒ Notice of meeting, Return of meeting and Statement of Affairs are to be sent to Registrar within 10 days
of meeting.

Duty of Liquidator to call general meeting at end of each year:

ƒ If winding up continues for more than 1 year liquidator shall summon a general meeting of company at
9 End of 1st year of commencement of winding up
9 Within 30 days of extended period, where proceedings are not concluded during 1st year and
extension is granted.

ƒ Liquidator shall lay before general meeting

9 Audited receipts and payments
9 Dealing as liquidator & conduct of winding up
9 Reason for delay, steps taken, time required.

ƒ Return of convening meeting, notice, statements shall be filed to Registrar within 10 days.

Final meeting and Dissolution:

1. As soon as affairs of company are fully wound up, Liquidator shall

™ Make up a report & accounts of winding up, showing how it has been conducted and how
property being disposed off.
™ Call a general meeting of Company for giving report + notice + any explanation
™ Get accounts audited and copy of audited accounts with auditor’s report shall be sent to
each contributory by post at least 10 days before meeting

2. Notice for meeting must be published at least 10 days before meeting

3. Within 1 week after meeting Liquidator shall sent followings to Registrar:
a. Copy of his report and account
b. Return of holding meeting + minutes or
c. Return of non-holding meeting + fact of no quorum - 21 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

4. Registrar shall register it these documents after scrutiny

5. On expiration of 3 months company deemed to be dissolved.
6. Court may order to defer date of winding up on application of liquidator or interested person and
certified copy of this order is to be filed with Registrar.

Powers to accept shares etc. as consideration:

Liquidator of transferor company, with sanction of special resolution of company, may have general or special
authority to
ƒ Accept shares or interest in profits of Transferee Company for distribution among members of
Transferor Company

Any dissenting member of transferor company shall apply to liquidator within 7 days for
9 Abstain from carrying resolution into effect
9 Purchase of his interest at price determined by agreement/arbitration

Voluntary winding up by creditors

Meeting of Creditors:

¾ Company shall call a meeting of creditors on or very next day of members’ meeting on which resolution
of winding up was passed.
ƒ Notice of both meetings shall be sent together
ƒ Notice of creditors meeting shall be advertised in same manner

¾ Directors and Chief Executive of company shall

ƒ Cause, a full statement of company’s affairs together with list of creditors(and estimated
amount of their claims), to be laid before creditor meeting.
ƒ Appoint one of directors to preside at meeting, who shall attend & preside accordingly

¾ If meeting of voluntary winding up is adjourned, resolution passed at creditor’s meeting shall be

deemed to have been passed immediately after adjourned meeting is held
¾ Notice of any resolution passed at creditors’ meeting is to be given to registrar within 10 days along
with consent of appointed liquidator.

Appointment of liquidators:

ƒ Creditors and company at their respective meetings may nominate a person who has given written
consent to act as liquidator
9 If liquidator not appointed by either of creditor or company, liquidator appointed by other
shall be liquidator.
9 If creditor & company select different persons as liquidator, creditors shall override

ƒ Company shall within 7 days of nomination by creditors may apply to court for an order directing
9 Person nominated by company shall be liquidator instead of or jointly with nominated by
9 Any other person to be liquidator (by Court)

ƒ On appointment all Powers of Directors, Chief Executives & other officers cease except so far as Company
in general meeting or liquidators allows for
9 Giving notice of resolution to wind up company.
9 Appointment of Liquidator & filing his consent
9 If COI or Creditor(if no COI) may sanction continuation

Committee of Inspection (COI)

™ Creditors at their meeting may appoint a COI containing not more than 5 members - 22 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

™ Company shall appoint not more than 5 of its members to act as members of COI at meeting for
passing winding up resolution or subsequently
™ Creditor may refuse all/any of said persons, unless court direct otherwise
o Court may on application by company, appoint other person to act as member in place of those
rejected by creditors

Main Difference between members & creditors voluntary winding up

The winding up for which declaration of solvency has been made and delivered to registrar is termed as
“Members Voluntary winding up”, otherwise it would be “Creditor’s voluntary winding up”

Provisions same in members/creditors Subject to following Exception

voluntary winding up

Remuneration of auditor Same

Filing vacancy of liquidator Same

Powers of liquidator to accept shares etc as Powers not exercised unless court/COI sanction it

Creditors meeting in insolvency Liquidator bound to call meeting of both creditors

and members

Final meeting and dissolution Liquidator bound to call meeting of both, and
Person obtaining order shall file same with registrar
within 10 days (not 14 days)

Provisions applicable to every Voluntary Winding Up

Accounts and Statements to be audited

ƒ All accounts and statements being placed before meetings of creditors or contributories shall be duly
audited by an auditor.
ƒ Auditor’s report shall be annexed to these accounts etc
ƒ Auditor shall submit his report within two months of end of period.

Distribution of property of company

9 Properties of company on winding up be applied in satisfaction of its liabilities pari passu.

9 Subject to such application, distributed to members according to their rights, unless AOA provides

Powers and duties of liquidator in voluntary winding up

Exercise powers of court of setting lists of contributories

Exercise Powers of court to make calls
¾ Creditor/contributory may apply to court with respect to any powers exercise by liquidator

Liquidator shall pay debts of company and shall adjust rights of contributories among themselves
Following powers/duties are same as in winding up by court
ƒ Distribution of funds
ƒ Period of winding up [1 year/ extended period by court] - 23 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

ƒ Liability for misfeasance or breach of trust etc

ƒ Determination of duties by court among more than 1 liquidator

Power of court to appoint & remove liquidator

¾ Court may appoint liquidator, he would have same powers/obligations as in winding up by court
¾ Court may remove & appoint new one on application of creditors/contributory/registrar
¾ Remuneration fixed by court as in case of winding up by court


Liquidator within 14 days of appointment publish in Official Gazette and deliver notice to registrar
Any arrangement between company, in course of winding up, and creditors shall, subject to appeal within
21 days, be
ƒ Binding on Company if sanctioned by special resolution
ƒ Binding on creditors if accepted by 3/4th in number & value of creditors

Liquidator may apply to court for public examination of promoters, directors etc
Expenses of winding up including remuneration of liquidator shall be paid in priority of all
Where company is being wound up voluntarily and order is made for winding up by court, court may adopt
all/any of proceedings of voluntary winding up

Power to apply to court to have questions determined or powers exercised

9 Liquidator or any contributory or any creditor may apply to court to

ƒ Determine any question arising in winding up of company
ƒ Exercise all/any powers of court as if it was winding up by court.

9 Court may, if think fit, accede wholly/partly for above on conditions as think fit
9 Copy of order staying proceedings of winding up forwarded by company to registrar. - 24 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Winding up subject to supervision of court (SEC 396 to 401)

Power to order winding up subject to supervision

Where co has passed resolution for voluntary winding up, court may
ƒ Of its own motion or
ƒ On application of any person entitled to apply court for winding up

make an order of continuance of voluntary winding up but subject to supervision of court with such
liberty to creditor/contributory etc, & with such conditions as think fit.

Petition of continuance of voluntary winding up under supervision of court shall be deemed to be

petition for winding up by court for purposes of legal proceedings

Winding up subject to supervision of court and effect on liquidator

9 Court shall appoint an official liquidator who would replace liquidator appointed by company
ƒ On application by creditor/contributory/registrar/persons authorized by SECP

9 Liquidator shall, subject to restrictions imposed by courts, exercise all his powers as liquidator of voluntary
winding up without sanction of court
9 Order for winding up under supervision shall not affect duties, obligation etc of liquidator under voluntary
winding up

9 If order for winding up under supervision is made and subsequently order for winding up by court is made,
court may appoint voluntary liquidator as official liquidator
ƒ Either provisionally or permanently
ƒ Either with or without addition of any other person

9 Court shall use all powers as if it were a winding up by court

Regards to wishes of creditors and contributories

Court may in following matters shall have regard to the wishes of creditor or contributories as proved by
sufficient evidence

In directing between winding up by court and winging up under supervision of court

In appointment of liquidator
In all matters relating to winding up under supervision of court - 25 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Provisions applicable to every mode of winding up

Status of company being wound up

Company being wound up shall continue to be a company for all purposes till its final dissolution
All powers of Co.Ord 1984 shall apply to company mutatis mutandis

Proof & Ranking of claims

In every winding up all debts payable on a contingency and all claims against the company, present or future,
certain or contingent, shall be admissible to prove against company
9 A just estimate being made, if possible, of value of debts/ claims
9 In case of insolvent company: subject to provisions of Co.Ord or law of insolvency

For winding up of insolvent companies, rules & provisions of law of insolvency shall apply

Preferential Payments:

ƒ Rent, Rates, and Taxes of Federal Govt., Provincial Govt., or Local authority payable within 12 months
ƒ Wages and Salaries payable to employees not exceeding 4 months from the relevant date
ƒ Accrued Holiday remuneration and Termination benefits.
ƒ Insurance payable as employer (except in case of Reconstruction or Liquidation)
ƒ Amount due in respect of compensation for death or disability of employee under Workmen’s
Compensation Act 1923.
ƒ Amount due to employees for:
9 Pension fund
9 Provident fund
9 Gratuity fund
9 Other Welfare fund
ƒ Expenses of investigation payable.

Avoidance of Transfer:

ƒ Transfer of Shares after commencement of winding up is void unless approved by Liquidator.

ƒ Transfer of property (movable or immovable) made within one year before commencement of winding
up is void unless in ordinary course of business and in good faith for valuable consideration.

Disclaimer of property (Sec 407)……….

Supplementary Provisions

Payments received by Liquidator:

ƒ Liquidator shall open an account in a Scheduled Bank in company name.
ƒ All receipts shall be deposited within 3 days in that account.
ƒ If liquidator retains amount exceeding 500 rupees or such amount as authorised by Court, he shall be
punishable as follows:
9 Make good any loss
9 Pay surcharge @ 2% p.m.
9 Disallowance of all or part of remuneration
9 Removed from office by Court. - 26 –
Corporate Laws Made Easy Specialised areas of Companies Ordinance 1984

Unclaimed dividends and undistributed assts:

ƒ Money With liquidator (after 6 months) shall be submitted to SBP + credit to Federal Govt. in Company
Liquidation Account
ƒ Liquidator shall forthwith submit to Registrar a statement containing particulars of persons entitled to
participate along with official receipt of SBP
ƒ Liquidator responsibility ceases on receipt of deposit from SBP.
ƒ Thereafter Registrar can make payment after approval of authority.
ƒ Any money unpaid after 15 years shall be transferred to general revenue A/C of Fed.Govt

Books, accounts and other proceedings to be kept by liquidator:

ƒ At Registered Office.
ƒ Any Creditor/Contributory can inspect it.
ƒ Federal Govt. may alter any requirement.

Appointment of Auditor:
ƒ Same provisions as applicable to companies not in the process of being wound up, Except
9 All obligations of management with respect to audit vest in liquidator
9 Appointment of auditor made By authority appointing liquidator i.e. (Court, Members, or
Creditors) and same shall fix his Remuneration
ƒ Where no auditor is appointed, liquidator shall inform Commission who will appoint.

Liquidator to exercise certain powers subject to sanction (sec 421)…….

Meetings to ascertain wishes of creditors (Sec 422)………..

The portion of “Provisions applicable to Every Winding up” is highly summarized in these notes, For details of
aforementioned sections and preferential payments, please refer to Companies Ordinance 1984 - 27 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

Companies (General Provisions and Forms) Rules, 1985

These Rules shall be read with relevant sections & provisions of Companies Ordinance 1984. Following table
describes the cross linking (where applicable) between these rules and the relevant sections, of the Companies
Ordinance 1984, to be read together with these rules
Rule Linked with Section Rule Linked with Section Rule Linked with Section

2A 19.(1).(c) & 27 (1).(c) 14 158.(1) & 233.(1) 19 269.(2),(b)

3 21 14A 196.(2).(j) 20 278
4 30 14C 205.(1) 21 289 & 50
5 37.(4) & 38 15 208 22 451.(1)
6 42 16 224 23 451,452 & 453
7 44 17 233.(5), 242.(1) & 245.(1) 24 136, 150 & 471
11 57.(1) 17A 255 25 476.(3), 477.(1) & 484
12 73.(1) 17C 237 26 504
13 121,122,123 & 129 18 263 35 506

1. Short title & commencement

Companies (General Provisions and Forms) Rules, 1985. They shall come into force at once

2. Definitions

2.A. Additional particulars to be specified by a subscriber.

In addition to the general particulars to be added on signing MOA a subscriber shall specify his NIC number or
his passport number in the case of foreign national Provided that in case of a person other than a natural
person, the address of its registered office or principal office shall be specified and the authorized
representative signing the documents shall also add his particulars as stated in this rule

3. Application for confirmation of alteration of memorandum under section 21.

An application for confirmation of the alteration of any of the provisions of the memorandum of the company
shall be submitted to the SECP by a responsible officer not later than 60 days from the date on which the
special resolution seeking such alteration was passed.

The application shall contain the following information correct as on the day immediately preceding the day of
the passing of the special resolution and signed by a responsible officer, namely:

ƒ Name and address of the company;

ƒ Number and date of incorporation;
ƒ Subscribed and paid-up capital;
ƒ Redeemable capital;
ƒ Business actually being carried on and the clause in the memorandum justifying it
ƒ Reasons for the proposed alteration

The following documents correct as on the day immediately preceding the day of the passing of the special
resolution and certified by a responsible officer shall be submitted along with the application, namely:
a. A copy of the memorandum and the articles;
b. A copy of the special resolution;
c. Minutes of the meeting at which the special resolution was adopted;
d. Particulars of dissenting shareholders or creditors together with their objections;
e. A copy of the latest audited balance sheet;
f. Statement in comparative form showing the existing provisions of the memorandum as are proposed to
be altered and the provisions as would appear after the proposed alterations have been made,
indicating the reason for change
g. Pattern of holding of its shares in Form 34;
h. Names and addresses of each of its creditors to whom an amount exceeding 50,000 rupees is due with
the amount mentioned against each along with their consent to the alteration; and
i. Names and addresses of the persons likely to be affected along with their consent to the alteration - 28 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

4. Registration of memorandum, etc., u/s 30.

The memorandum and the articles filed for registration to the registrar, shall be properly stamped as required
by the Stamp Act, 1899 (II of 1899), and shall be accompanied by 3 copies duly subscribed and witnessed
along with the specified declaration

The declaration shall be made in Form 1 by a person engaged in the formation of the company who is
1. An advocate, entitled to appear before any High Court in Pakistan or the Supreme Court; or
2. A member of the ICAP or the ICMA practicing in Pakistan;
3. A person named in the articles as a director or other officer of the company.

The registrar may require any person who makes the declaration 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 that objects of company are lawful.

5. Enquiries as to availability of company names for registration under sections 37 and 38.
The promoters of a company desirous of having a company registered, or a responsible officer of a company
intending to change its name, may make an application to the registrar concerned asking for information as to
whether the proposed name is or is not available for adoption, and the registrar shall, furnish the information
ordinarily within 2 days of the receipt of the application.

6. Application for grant of a license for Associations not for profit

The promoters or members of an association desirous of obtaining a licence for such association shall make an
application to the SECP in writing duly singed by them or by any person authorized by the association in this

The application shall be accompanied by

ƒ 3 copies of the draft memorandum and the articles of the proposed association;
ƒ A list of promoters of the association with their occupations and addresses;
ƒ A declaration by a person specified in rule 4 to the effect that he has scrutinized the application and the
accompanying documents, and that he is satisfied about compliance with the provisions of the
ordinance and fulfillment of conditions for license.
ƒ The names of companies, associations and other institutions in which the promoters of the proposed
association hold any office stating the office held in each case;
ƒ If the association is already in existence, a copy each of the audited balance-sheet, income and
expenditure account and the annual report on the working of the association for the financial year
immediately preceding the date of the application
ƒ An estimate of the future annual income and expenditure of the proposed company, specifying the
sources of income and objects of expenditure; and
ƒ Brief statement of work already done by the association or proposed to be done after registration.

SECP on being satisfied that it shall be in the public interest so to do, may grant the license subject to such
conditions as it may deem fit to impose.

Besides others the following conditions shall also be fulfilled and shall be included in MOA
The association shall be formed as a public company;
Payment of remuneration for services or otherwise to its members, whether holding an office in the
company or not, shall be prohibited;
No change in the MOA and the AOA shall be made except with the prior approval of the SECP
The limit of liability of its members shall not be less than a reasonable amount having regard to all the
circumstances of the case
Patronage of any government or authority, express or implied, shall not be claimed unless such
government or authority has signified its consent thereto in writing.

7. Conversion of a public company into a private company under section 44.

Where the alteration of the articles of a company has the effect of converting a public company into a private
company, the company shall, not later than 60 days from date on which the special resolution seeking such - 29 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

alteration was passed, make an application in Form 2 to the SECP for its approval.

8. Service of documents on public functionaries.

An application or any document submitted to the SECP or the registrar for the purposes of any of the provisions
of the Ordinance shall, be deemed to have been received or delivered to it or him on the day on which it is
received by its or his office.

9. Mode of submission of returns and applications to the SECP

A document, statement, return, report, communication or application required to be submitted to the SECP or a
Stock Exchange, may be sent to the SECP or the Stock Exchange at its headquarters by registered post or by
delivery either in person or through an agent, against an acknowledgment of receipt.

¾ Any document or additional detail required to be filed or lodged with the SECP or the Registrar under the
Ordinance may be submitted electronically
¾ Any form prescribed under these rules shall be authenticated by the companies by affixing electronic
signature or advanced electronic signature, as defined under the Electronic Transactions Ordinance, 2002,
(LI of 2002).
¾ The filing of electronic documents with the SECP or the registrar, as the case may be, shall be made from
the date of launching of any E-Services Project of the SECP, provided that for a period to be determined by
the SECP from time to time, the submission of documents in paper form shall be permissible.
¾ From date of launching of any E-Services Project, the company shall file any additional document required
to be submitted to the SECP or the registrar under the Ordinance, in a scanned form.
¾ The fee for the filing of documents may be paid through any of the acceptable methods of payment
specified by the SECP from time to time.
¾ The SECP may provide e-service for the electronic filing or lodging of documents required under the
Ordinance to be filed or lodged with the SECP or the registrar.

A copy of or an extract from any document electronically filed or lodged with the SECP or the registrar under
these rules or supplied or issued by the SECP or the registrar shall be admissible in evidence in any
proceedings as of equal validity as the original document.

Where a document is electronically filed or lodged, the SECP or the registrar shall not be liable for any loss or
damage suffered by any person by reason of any error or omission, if such error or omission was made in good
faith and in the ordinary course of the discharge of the duties of the SECP or the registrar or was due to any
defect or breakdown in service or in equipment used for the e-service

10. Circulation of reports and notices by companies.

Any report, notice, statement, circular or other document required under the Ordinance or any rule to be
circulated, transmitted or forwarded to the members debenture-holders or creditors shall be sent, transmitted or
forwarded by post under certificate of posting or through a courier service
• Except it is delivered to addressee personally against acknowledgement or sent by registered post

11. Submission of prospectus for approval of the SECP under section 57

An application for approval of prospectus of a listed company or of a company which proposes to make an
application to a stock exchange for the listing of its securities, submitted to the SECP, shall be accompanied by
3 copies of the prospectus along with other required certificates documents, and an affidavit affirming that all
the information in the prospectus and other documents filed is true and correct.

12. Verification of copies of contracts for purposes of section 73

Copies of contracts, required to be filed with the registrar when allotted as paid up otherwise than in cash, shall
be verified–
™ By an affidavit of a responsible officer that these are true copies; or
™ By a certification of the public officer having custody of the original document.

13. Verification of copies for purposes of sections 121, 122, 123 and 129.
A copy of every instrument or deed creating or evidencing any charge and required to be filed with the registrar
in shall be verified as follows
ƒ Where the instrument or deed relates, whether wholly or partly, to property situate in Pakistan, the copy
shall be verified in same manner as provided in rule 12 above. - 30 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

Where the instrument or deed relates solely to property situate outside Pakistan, the copy shall be verified by
an affidavit of a responsible officer of the company, or of a person interested in the mortgage or charge on
behalf of any person other than the company, stating that it is a true copy.

14. Application for extension in the period for holding annual general meeting and laying balance–
sheet, etc., therein under section 158 or 233.

An application for the grant of an extension in the time for holding any AGM (not being first AGM) or laying
before the AGM a balance-sheet and profit and loss account (or in the case of a company not trading for profit,
an income and expenditure account) shall, in the case of a listed company, be submitted to the SECP and, in
any other case, to the registrar concerned not less than 30 days before the last date on which such general
meeting is required to be held
ƒ Provided registrar concerned or SECP, may for special reasons to be recorded, entertain an application
submitted less than 30 days before last date on which AGM is required to be held

The application of extension shall state -

¾ The registration number, name and address of the company;
¾ Date on which the last general meeting was held and the financial year for which the financial statements
and reports relating to accounts were laid at such meeting;
¾ Date up to which AGM is required to be held and financial statements & reports laid therein
¾ Reasons for not being able to hold AGM or laying financial statements & reports at the general meeting
by the required date and justification for extension in period to the extent applied
ƒ When delay is attributed to non-completion of books of accounts / non-finalization of audit, the
exact state of books of accounts with reasons for such, and such information being
accompanied by a certificate of the company’s auditor as to the state of its accounts, reasons
for delay in completion of audit and minimum time required for it.
¾ Shall be accompanied by a copy of the last audited balance-sheet and profit and loss account.

14A. Approval of capital expenditure etc. by the directors.

The amount of capital expenditure to be incurred on any single item and the amount of book value for the
disposal of a fixed asset, shall be exceeding 1 million rupees & 100 thousand rupees respectively.

14B. Qualifications of company secretary.

Directors of public listed company shall take reasonable steps to ensure that company secretary is a person
who appears to them having requisite knowledge & experience to discharge his functions & who is
ƒ A member of, -
Æ A recognized body of professional accountants; or
Æ A recognized body of corporate or chartered secretaries; or
ƒ An MBA, M.COM or a law graduate from a university recognized by the HEC, having at least 2 years
relevant experience
ƒ A retired government servant in BS-19 or equivalent or above with at least 15 years service
Provided that a person already engaged by a public listed company as company secretary before 26 october,
2002, may continue in that capacity if he has an experience of not less than 5 years.

The company secretary of a single member company shall be a person holding a bachelor degree from a
university recognized by the HEC.

14C. Particulars of directors and officers, etc.

Following shall be particulars of directors and officers, including the CE, managing agent, secretary, chief
accountant, auditors and legal adviser, for the purpose of Register of directors and other officers

Æ For individual, his present name in full, his father’s name, in the case of a married woman or a widow, the
name of her husband or deceased husband, his NIC number and in case of foreign national passport
number, his usual residential address, nationality and, if that nationality is not the nationality of origin,
nationality of origin and his business occupation, if any, and if he holds any other directorship or other office
the particulars of such directorship or office;
Æ For person other than natural person, along with its name and address of registered or principal office, all - 31 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

particulars (motioned above) of its directors/office bearers,

Æ For firm, the full name, address and (above mentioned) particulars of each partner, and the date on which
each became a partner.

15. Copy of resolution, passed for investment in associates to be filed with SECP and registrar.
A copy of every resolution passed for investment in associates, together with information & documents
specified in Form 30 shall be filed with SECP & registrar concerned in case of a listed company, and with the
registrar concerned in the case of any other company within 14 days from the passing of resolution.

16. Computation of amount to be tendered to listed company by certain beneficial owners

Any gain made from the purchase and sale, or sale and purchase, of a listed security within a period of less
than 6 months, by directors / officers etc. that is required to be reported to the SECP & Registrar, and to be
tendered to the company shall be computed in the following manner
ƒ Purchase at lowest rates shall be matched against Sales at highest rates prevailing within the 6 months,
and the recoverable amount calculated with respect to every individual transaction by reference to the
difference between the purchase price and the sale price of any purchase and sale, or sale and purchase
disregarding any other transactions, that is to say, the lowest in rate and highest out rate of the purchases
and sales or the sales and purchases shall be matched
ƒ Purchases & sales shall be matched as aforesaid so long as the securities involved in the purchase and
sale are of the same class and of the same listed company

Distribution of bonus shares & allotment of right shares by listed company to existing shareholder either on
basis of his entitlement or on account of purchase of right allotment letters from market shall not constitute
a purchase
Any loss arising out of any transaction in a listed security shall not be set off against the gain arising out of
such security computed in the manner aforesaid:
Amount of brokerage, stamp duty and other expenditure incurred in making the gain may be deducted
subject to production of such documentary evidence in support of expenditure incurred as may be
acceptable to the company.

17. Number of copies of accounts & reports to be filed with SECP, Regsitrar, SE & Shareholders
ƒ in case of a listed company, 5 copies of the annual or half-yearly accounts and balance-sheet and other
reports with the registrar concerned & SECP
ƒ in case of a public company (not being a listed company), 5 copies of the annual accounts and balance-
sheet and other reports with the registrar concerned

Rule Auditors Report on Under Section Form

17A Accounts of a Company 255 35-A

17B Accounts of a Banking Company 255 35-B
17C Consolidated Financial Statements 237 (3) 35-C
Review Report on subsidiary’s accounts 237 (4) 35-D

18. Application for investigation on affairs of the Company

Every such application for investigation shall specify

1. Name & address of registered office of the company whose affairs are sought to be investigated;
2. Names and addresses of the applicants, and, in case of a company having a share capital, also total
number of shares of company held by each of them together with amount paid up thereon
3. If company has a share capital, the issued and paid-up capital of the company and the nominal or face
value of the shares or, if the company has no share capital, the total number of its members;
4. Precise & specific reasons for requesting the investigation with particulars of alleged irregularities
5. Whether the applicants agree to give security for payment of the costs of investigation and the ceiling of
the amount up to which they so agree

Such application shall be accompanied by such documentary evidence in support of the reasons for
requesting the investigation and the alleged irregularities as is reasonably open to the applicants
Such application shall be singed by the applicants and shall be verified by their affidavit stating, inter-alia, - 32 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

the paragraphs of the application containing statements true to their knowledge and the paragraphs of the
application which contain statements true to the best of their information and belief.
The SECP may, before passing any order on the application, require the applicants or any one or more of
them to produce such further documentary or other evidence as it may consider necessary
™ For satisfying itself as to the veracity of the allegations made in the application; or
™ For ascertaining any information which, in the opinion of the SECP, is necessary for enabling it
to pass orders on the application; or
™ For ascertaining the eligibility of applicants or any number of them to make application.

19. Fee payable for acquiring Inspector’s report u/s 269.

Shall be the same as is payable to the registrar under the 6th Schedule for the supply of a certified copy or
extract of any document or register kept by the registrar.

20. Authentication of copy of Inspector’s report u/s 278

A copy of Inspector’s Report, shall be authenticated either
Æ By a responsible officer under the seal of company whose affairs have been investigated; or
Æ By a certificate of the SECP or the registrar having custody of the report.

21. Manner of giving notice to shareholders, dissenting from scheme of amalgamation u/s 289

A notice required to be given by a transferee company to any dissenting shareholder of the transferor company
or to any holders of remaining shares of the transferor company who has not assented to the scheme or
contract shall be given in the manner provided u/s 50 of Ordinance and rule 10 (above)

While making or issuing any offer or issuing any circular containing any recommendation from the directors of
the transferor company to the members of that company to accept such offer, the company shall furnish to
them information specified in form 37 in addition to the statement disclosing steps taken to ensure availability of
necessary cash.

22. Certification of documents delivered to registrar by Foreign Company u/s 451.

A copy of any charter, statute, memorandum, articles or other instrument, constituting or defining constitution of
a foreign company required to be filed with registrar shall be duly certified to be a true copy by
Æ The public officer in country where the company is incorporated to whose custody the original is committed;
Æ A Notary public of the country where the company is incorporated; or
Æ An affidavit of a responsible officer of the company in the country where the company is incorporated.

The signature and seal of the public officer or certificate of the Notary Public shall be authenticated by a
Pakistan diplomatic consular or consulate officer and the certificate of the responsible officer mentioned above
shall be singed before a Pakistan diplomatic consular or consulate officer.

23. Certification of translation of documents of Foreign Company required to be filed with registrar and
number of copies of balance sheet, etc., to be filed with registrar u/s 453
5 copies of the balance-sheet and profit and loss account shall be filed with the registrar concerned. The
translation into English or Urdu of documents required to be filed with the registrar shall be certified to be
correct translation of the original in the following manner
Where translation made outside Pakistan, it shall be authenticated by signature & seal, if any, of the
public officer or Notary Public as mentioned in Rule 22:
o Signature or seal of the person certifying be authenticated by Pakistan diplomatic consular or
consulate officer.
Where translation made within Pakistan, it shall be authenticated by affidavit of person having, in
opinion of registrar, an adequate knowledge of the language of original and of English/Urdu

24. Maximum fees to be charged by companies.

The fee to be charged by a company for inspection of any document or register or for the supply of any copy
thereof to a person, other than a creditor or member of the company, shall be same as in Rule 19

25. Persons authorised to represent in proceedings

Following persons shall be entitled to appear before the Federal Government or the SECP or the registrar in - 33 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

any proceedings under sub-section (3) of section 476 or sub-section (1) of section 477 or section 484

If the proceedings are against a company

a) Chief executive of the company; or
b) Any other person who could make a declaration under rule 4 and who is authorised in writing
by the company for the purpose or
c) Secretary of the company; or
d) Such other person who possesses the qualification specified by the SECP
If proceedings are against an officer of company or any other individual allegedly responsible for offence
a) Officer or person so alleged; or
b) Any other person who could make a declaration under rule 4, duly authorised in writing by the
said officer or person for the purpose of the proceedings, unless otherwise required by the
Federal government, SECP or the registrar

Provided the written authority entitling person, mentioned in (b) above, shall be furnished to the Federal
government, SECP or the registrar as the case may be, prior to the proceedings

26. Forms prescribed under section 504.

For the purpose of section 504, any form in the Schedules shall be deemed annexed to these rules.

27. Translation of documents other than companies established outside Pakistan.

If any document or portion of it, required to be filed / registered with Registrar, is not in English or Urdu
language, translation of that document or portion in English or Urdu language be authenticated by affidavit of
person having, in opinion of registrar, an adequate knowledge of language of original and of English/Urdu, shall
be attached to each copy of document furnished to registrar.

28. Signing and authentication of applications, documents, etc.

All applications and documents filed with or sent to the Federal Government, SECP or registrar, by or on behalf
of the company, shall be signed and verified by a responsible officer or, in the case of any individual entitled to
submit an application, by such individual, and the Federal Government, SECP or the registrar, may require
such documentary proof with respect to the status, designation or entitlement of the person or individual making
or authenticating application as it or he may deem necessary.

29. Prescribed particulars.

The particulars contained in the forms are hereby prescribed as the particulars, if any, required under the
relevant provision or provisions of the Ordinance.

30. Mode of submission of applications, etc.

Every application made to the registrar, SECP or Federal Government shall, in addition to complying with other
requirement of Ordinance or rules, be
ƒ Duly singed and verified by an affidavit by the applicant indicating complete name and address and, in the
case of a company, signed and verified by an affidavit by a responsible officer of the companyNeatly and
legibly written, typed or printed, setting out precisely the facts, grounds and claims or relief applied for in
serially numbered paragraphs and specifying the relevant provisions of the Ordinance under which action
or relief is applied for;
ƒ Accompanied by documents referred to in the application or relied upon and, in the case of an appeal
against any order or decision, by a certified copy of such order or decision;
ƒ Accompanied by 1 spare copy, duly signed, dated and verified and accompanied by copies of the
documents as aforesaid
ƒ Accompanied by the original bank challan or draft for the fee paid for the application.

31. Interpretation of the requirements of the Schedules and forms.

For the application and interpretation of the requirements of the schedules or forms, unless the subject or
context otherwise requires, the following shall apply:
If an information is required to be disclosed and, in the application of the provision to a company, there is
no information which could be so disclosed, an express statement giving the factual position would be
required to be made instead of the information to be stated;
If a certain information is required to be disclosed “if practicable”, “if determinable”, “as near thereto as - 34 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

circumstances admit” or under some other similar expression, and it is not practicable for a company to
disclose or provide information as required, the precise reasons as to why it is not practicable / possible to
do so or the circumstances which necessitate deviation from the actual requirements shall be included
instead of the information required to be stated.

32. Copies of applications to various authorities, etc., to be forwarded to others.-

A copy of every application together with a copy of each of the documents enclosed therewith shall be
forwarded by the applicant and stating the same fact therein
Æ If application made to the Federal Government, forward to SECP and registrar concerned;
Æ If application made to the SECP or the registrar who is head of the organisation for the registration of
companies in Pakistan, forward to the registrar concerned;

33. Mode of furnishing of returns to the SECP.- Any person required by or under any provision of the
Ordinance or these rules to furnish any document, statement, return or report to the 57[SECP] shall deliver it,
either in person or through an agent, against receipt, to the 58[SECP] or send it to the 59[SECP] by registered
post at its Headquarters at Islamabad.

34. Payment of fees, etc.

All fees, charges and other sums payable under the Ordinance or any rules or any order of the Federal
Government, SECP or the registrar shall be accounted for to the and deposited with a designated bank branch
specified by the SECP and the original receipt thereof shall be furnished to the concerned authority.

35. Penalty for contravention of these rules

As provided in sub-section (2) of section 506. [i.e. Rs 500,000 , For continuing default 10,000/day ]

36. Powers of the Federal Government to relax rules.—Where the Federal Government is satisfied that it is
not practicable or necessary to comply with the requirements of rule 22, 23 or 27 it may, for reasons to be
recorded, relax the rule in the such case subject to any conditions deemed fit

37. Repeal The Companies Rules, 1941 are hereby repealed.

FORMS associated with these Rules

As per course outline issued by ICAP only explanatory provisions of Companies Rules 1985;
Knowledge of contents of the Forms is not expected

However following Forms are important to see as per recommendations of Sir Naeem Baig (CAPS)

Form – 1 Incorporation of Companies

Form – 3 Return of Allotment
Form – 7 Notice of increase in nominal Capital
Form – 10 Mortgages & Charges
Form – 16 Modification in Mortgages & Charges
Form – 21,22,23 Related to Commencement of business
Form – 25 Statutory Report certification
Form – 26 Special resolution
Form – 27 List of Person consenting to act as Directors
Form – 28 Consent of Directors
Form – 29 Particulars of Directors, CE etc
Form – 31,32 Beneficial ownership
Form – 34 Pattern of Shareholding
Form – 35 Extension of period of dividend
Form – 38-46 Related to Foreign Company - 35 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

Companies (Issue of Capital) Rules 1996


A company which owns a Loan Based Project or Equity Based Project and proposes to raise capital through
public offer for the first time shall comply with the following conditions:


™ Financial plan b approved by institution financing the project.

™ Size of capital to be issued shall be in accordance with the financial plan approved by the Institution
financing the project.
™ Underwriting is not mandatory.
™ The auditor shall certify that the Sponsor’s subscription has been received in full and at least 80%
utilized in the project.
™ Stock Exchange shall certify that
9 Atleast 30% of plant & machinery has been installed
9 Last consignment of plant & machinery has been shipped.
™ The Sponsors shall all the time retain at least 25% of the capital of the Company.


™ The fixed capital expenditure shall be entirely financed by Equity.

™ The project must be appraised by a Financial Institution or a Commercial Bank or an Investment Bank.
™ The appraisal report shall be accompanied by a certificate from the auditor conforming that:
9 Capital allocated to the Sponsors, Foreign and Local investors have been fully paid.
9 The land for the project have been acquired L/C’s has been established and shipment schedule
for plant & machinery with the supplier has been finalized.
™ The issue shall be fully underwritten and the Under Writers (Not being Associated Co.) shall include
atleast two financial institution including Commercial Banks and Investment Banks.
™ The Under Writers shall evaluate the project in their independent Due Diligence Report.
™ Sponsors subscription must be received in full before public issue and auditors must certify the same
™ The Sponsors shall retain atleast 25% of the capital of the Company for the period of 5 years from the
date of public subscription.


A Company may issue shares to the public on premium subject to the following conditions:

ƒ Company shall have profitable operation record of at least one year.

ƒ The premium on public offer shall not exceed the amount of premium charged on placement (local or
[Names & addresses of such institutions must be disclosed in prospectus]
ƒ The issue shall be fully underwritten. The Under Writers shall give justification of premium in Due
Diligence Report.
ƒ The Due Diligence Report shall form the part of material contract.
ƒ Full justification of the premium shall be disclosed in prospectus.
ƒ Employees getting preferring allocation shall be charged premium at the same rate as to the public.
ƒ If there is preferential allocation at Par to any person
¾ Such shares shall not be saleable for the period of two years.
¾ These persons shall be issued Jumbo Certificate with the marking “Not saleable for two years”.
After the expiry of prescribed period the shares would be splited into Marketable Lots


• The company shall not make a right issue within 1 year of
1. First issue of capital to the public; or - 36 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

2. Further issue of capital through right issue.

• The company while announcing right issue shall clearly state
1. The purpose of right issue
2. Benefits to the company & use of funds
3. Financial projection for three years. That shall be signed by all the directors who were present
in the meeting in which the right issue was approved.
• The decision of the company to issue right shares shall be communicated to the SECP and the
respective stock exchange on the day of decision.
• The company may charge premium on the right shares up to free reserves per share as certified by the
company’s auditor, provided where a company purposes to charge premium on right issue above the
free reserves per share shall be required to fulfill additional conditions:

1. At least 40% share holders undertake to subscribe their portion of right at such premium.
2. The remaining right issue shall be fully under written and the under writers shall give the full
justification of premium in Due Diligence Report.

• The right issue of following shall fully and firmly under written
9 Loss making company or
9 A company whose market share price during preceding 6 months has remained below than
par value,
• Book closure shall be made within 45 days of the announcement of the right issue.
• Payment and renunciation date once announced shall not be extended except under special
circumstances with the permission of respective stock exchange.
• If announcement of bonus and right issue is made simultaneously the resolution of the Board shall
specify whether the bonus shares covered by the announcement qualify for right entitlement.


• The decision of directors regarding bonus issue shall be communicated to stock exchange & SECP on
the date of decision. [If SECP closed at that time, on very next day before 09:45 am]
• Free Reserves retained after bonus issue must be 25 % of enhanced capital
[ Free Reserves – Bonus ] = atleast 25% [ Capital + Bonus ]
• The auditor shall certify the same.
• All contingent liabilities shall be deducted while calculating free reserves.


Free reserves includes any amount which has been set aside out of reserves or other surplus after
adjustment of all intangibles or fictitious assets and is free that it is not retained to meet any specific
liability, diminution in value of asset contingencies and commitments.

But does not include the followings

9 Reserve for revaluation of assets

9 Goodwill reserve
9 Depreciation reserve
9 Development allowance reserve
9 Worker’s Welfare Fund
9 Provision for taxation [ deferred/current ]
9 Capital redemption reserve


Following are the conditions for valuation of assets representing consideration for shares:

ƒ Value of assets shall be determined by consulting valuer registered with Pakistan Engineering Council
and is on the penal of atleast two financial institutions as valuer.
ƒ Value must be net of depreciation. - 37 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

ƒ Goodwill and intangible assets shall be excluded from the consideration.

ƒ A certificate from a practicing CA shall be obtained for compliance of above conditions.


A person who holds more than 10% of shares of the company may offer such shares for sale to general public
subject to following conditions:

• Size of capital be offered to the public shall be not less than lesser of
¾ 100,000,000 or
¾ 25% of the capital
• No premium shall be charged unless the company has profitable operations of one year.
• In case the premium is charged other formalities regarding premium
9 Offer shall be under written
9 Under writers shall give justification in due diligence report.
9 Full justification of premium shall also be disclosed in offer for sale.
9 Due diligence report forming part of material contracts.


Where a company has been privatized by the Federal Govt. or the Provincial Govt. the new management shall
not offer shares to the public
™ for a period of 3 years from the date of privatization
™ at a price higher than a purchased price per share.

Purchase Price per share may be adjusted by right or bonus shares or similar distribution made out of pre
acquisition reserves.

SECP shall relax these rules for reason to be recorded, if requirements of these rules does’nt seem to
be practicable.


A company having capital not less than 500,000 shall appoint legal advisor
Purpose To advise the company in the performance of its functions and discharge its duties in
accordance with the law
Remuneration The appointment shall be on retainership basis, not less than Rs.1,500 per month
9 No person other than advocate or registered firm of advocates
9 Company shall not appoint an advocate or firm of advocates to be the legal advisor, if at the time of
appointment, the number of companies of which such advocate or firm is legal advisor, will exceed:
• In case of advocate 3
• In case of firm product of 3 and number of partners
If a company contravenes the above provisions the responsible person of the company shall be punishable
with simple imprisonment for a term which may extends to 3 months or fine or both
Legal Formalities
Every company shall obtain certificate from legal advisor once a year that he or they are not engage in more
than 3 companies as legal advisor
The company within 15 days of appointment of legal advisor furnish to the Registrar particulars of legal
advisor (Just like form 29) - 38 –
Corporate Laws Made Easy Various Rules under Companies Ordinance


Company shall have sufficient cash available

Company shall have following ratios

¾ Debt Equity Ratios 75:25
¾ Current Ratio 1:1

The above ratios shall be disclosed in the explanatory statement annexed with the notice of meeting.

Decision of Purchase

ƒ The Directors of the company in a meeting shall take decision of

9 Purchase
9 Purchase price
9 Number of shares to be purchased
ƒ They shall fix a date for General Meeting of the company to pass Special Resolution.
ƒ The decision of the Directors shall be communicated to the SECP and SE on the date of decision.
ƒ The tender notice shall contain the following information:

™ Maximum No. of shares to be purchased.

™ The manner in which offer to be communicated.
™ The last date by which the offer to sell shall be made by the shareholder.
™ The names and addresses of the designated branches of the authorized banks.

Purchase Procedure

1. A shareholder interested to sell his share to the company in response of the tender notice shall make offer
to sell in writing to the designated branches of the authorized banks providing following information:

ƒ Name of the shareholder

ƒ Father name / Husband name
ƒ NIC No
ƒ Address
ƒ No. of shares offered
ƒ Shares distinctive number [If shares are not in CDS]
ƒ Folio number [If shares are not in CDS]
ƒ The account number [If shares are in CDS]

2. The company shall take a decision within 10 days of the closing date.
3. In case the offer exceeds the required purchase the acceptance shall be made by the company on pro-rata
basis in lots of 500.
4. The acceptance of the offer shall be communicated to the shareholder within 10 days of the decision.
5. The shareholder whose offer has been accepted shall submit to the bank share certificates along with
verified transfer deed within seven days of the receipt of the acceptance of the company.
• Where the shares are in CDS a confirmation from the CDC about the availability of shares
along with authorization to transfer the shares to the designated bank.
6. In case the company bank (Designated) does not receipt the shares within 7 days the acceptance of the
company shall be deemed to have been revoked.
7. Company shall pay the price of shares purchased within 7 days of the receipt of shares.

Other Formalities

¾ The purchase shall be disclosed in the Balance Sheet as reduction of capital and necessary details
would be provided in the Notes to the Account.
¾ Company shall submit to SECP & Registrar concerned a Return & “Declaration of Solvency” within 30
days of purchase in manner set out in schedule to these rules. - 39 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

COMPANIES SHARE CAPITAL (variation in rights & privileges) RULES 2000


A company limited by shares may have more than one kind of share capital and may have different classes of
share under each kind. Where a company intends to have different kinds of share capital it shall specifically so
provide in its memorandum & articles.


• Different voting rights

ƒ Voting right disproportionate to the paid up value of shares
ƒ Voting right for specific purpose
ƒ No voting right

• Different right of entitlement of:

ƒ Dividend
ƒ Right shares
ƒ Bonus shares
ƒ Receiving of notices of meeting and to attend those meetings

• Right & Privileges for period:

ƒ Indefinite period
ƒ Definite period
ƒ Period determined by members from time to time in special resolution


ƒ The company has to pass to pass special resolution if it intends to issue different kinds of capital
ƒ No company shall issue further capital of any kind except with the approval of SECP
ƒ Offer of further capital of any kind shall be made to each existing share holder proportionately without
any discrimination. If any of the existing share holder decline to accept the offer of further capital, the
shares so declined shall be disposed off by the directors in such manner as may be provided in the
articles or special resolution.
ƒ If the capital of different kind is offered to general public this fact shall be distinctly mentioned in offering
documents together with respective rights & privileges. - 40 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

NBFC Rules 2003 [ 1 to 10 ; Amended}

Eligibility Conditions for establishment of NBFC

An NBFC may be established if each of its
ƒ Promoters
ƒ Proposed Directors
ƒ Chief Executive
ƒ Chairman of BOD
fulfills terms & conditions mentioned in “Fit & Proper Criteria” & complies with Ordinance, NBFC Rules &

Permission & conditions to form NBFC

™ Separate application for different forms of businesses

™ SECP may grant license if satisfied that person seeking permission have fulfilled following conditions:

1) Application made on Form I + Annexures + Non Refundable Fee 100,000

2) Company is incorporated as Public Company
3) Company shall have separate minimum capital requirement for each business
4) The company has allocated at least 25% of the capital to the sponsors/promoters
5) The promoters & director of the company shall give an undertaking that they shall not dispose off their
shares for a period of 3 years except with the prior approval of SECP
ƒ Deposit their share in CDC in account marked as “Blocked”
ƒ For physical shares jumbo lot stamped as “Not to be sold/transferred without approval”
ƒ Shares shall be free from any lien and charge
6) The chief executive shall not held any similar position in any other company,
[ Except for a fund being managed by such company with prior approval of SECP ]
7) The company shall give undertaking that conditions set out in these rules, regulations and any
directions given by NBFC shall be duly complied with.
8) License granted by SECP shall be valid for 1 year from date of issuance and shall be renewable
annually on application of NBFC at least 1 month before expiry of 1 year,
• If NBFC fails to commence business within 1 year of issuance of license or fails to apply for
renewal before 1 month of expiry of validity, License shall be deemed cancelled.
9) Company has furnished an undertaking that within 90 days of grant of certificate of registration, it shall
provide an evidence to the satisfaction of SECP, that person appointed for executive posts , research
etc possess sufficient educational qualifications for business.
10) Company is not part of a Group of Companies already holding license for same type of business

™ Permission granted shall be valid for 6 months, or further extension of 3 months on application of promoters
in exceptional circumstances; during this period promoters shall get NBFC incorporated as Public Company
™ An NBFC seeking permission to undertake Investment advisory or investment management services or
both shall not be eligible for seeking license for any other form of business.
™ NBFC licensed to carry asset management services shall be eligible to undertake pension fund scheme.
™ An NBFC seeking permission to undertake Leasing, IFS, HFS or Discounting services or all of these shall
not be eligible for seeking license for any other form of business.
™ SECP may while granting license, impose such additional conditions as deemed fit by it.

Conditions Applicable to NBFC

NBFC shall:

ƒ Maintain proper books of account and retain them not less than 10 years; books includes
¾ Journals, cash books & other records
¾ Ledgers reflecting assets, liabilities, income & expenses
¾ Ledgers / comparable records showing securities in portfolio
¾ Record of transactions with banks
¾ Records of meetings of BOD & all relevant committees(audit, investment & credit committees)
¾ Original record of all reports, analysis & memoranda containing Investment advices distributed.
ƒ Prepare its accounts according to IAS & technical releases issued by ICAP - 41 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

ƒ Disclose all the facilities exceeding 20% of its equity in its accounts
ƒ Furnish annual audited accounts to SECP within 3 months of close of accounting period
ƒ Furnish to SECP quarterly accounts, whether audited or not, within 1 month of close of 1st & 3rd
Quarter and within 2 months of close of 2nd Quarter
ƒ Obtain Credit rating & management quality rating, when it becomes eligible for such ratings
¾ Rating be updated at least once in every financial year
¾ Within 1 year of decrease in its rating, from grade specified by SECP, obtain fresh rating
¾ Publish these ratings in its annual & quarterly reports and in advertisements & Brochures
ƒ Acquire & maintain membership of relevant association & follow its code, approved by SECP
ƒ NBFC engaged in deposit taking shall, within 3 months of close of its financial year, pay to the SECP
an annual monitoring fee as may be specified by SECP by notification in official Gazette
ƒ Appoint at least 1/3rd of its directors as independent directors and at least 2 of its directors excluding
CEO shall have relevant experience of at least 5 years in Financial Sector at senior management level
ƒ Follow directions issued to protect NBFC against their involvement in money laundering and other
unlawful trades
ƒ Opening and closure of bank accounts or account with broker or branches of an NBFC shall be
approved in meeting of BOD after carefully analyzing its merit & Financial impact. Reasons must be
recorded in minutes and such minutes shall be communicated to SECP within 14 days of meeting
ƒ Obtain sufficient Insurance coverage on its own/clients benefits against any losses that may incur
due to employee’s fraud or gross negligence.
ƒ Make satisfactory arrangements to isolate itself from fluctuation risks associated with foreign
currency obligations & transactions
ƒ Appoint a person as internal auditor having minimum 3 years of experience as internal auditor, who is
9 CA
9 Certified internal auditor
9 Certified Information System auditor
9 Member of recognized foreign accountancy organization
9 M. Com
9 MBA (Finance
9 CA Firm having satisfactory QCR, not being its statutory auditor

ƒ Appoint a person as compliance officer to ensure reporting to SECP & compliance with regulations
ƒ Appoints its Financial/Chief Accounting Officer having at least 3 years experience who is a:
9 CA
9 Member of recognized foreign accountancy organization
9 M. Com
9 MBA (Finance)

NBFC shall not:

ƒ Transfer ownership of controlling shares, merge with, acquire or takeover any other company without
SECP approval
ƒ Make investment in subsidiaries, except out of its surplus equity.
ƒ Enter into transaction with any broker exceeding 10% of total brokerage expense in 1 accounting year.
ƒ Have a common director/officer/employee of broker.
ƒ Remove any record/documents out of Pakistan without prior approval.
ƒ Make investment in unquoted shares in excess of 20% of its equity.
ƒ Offer any of its securities for consideration otherwise than in cash
ƒ Raise funds in any form from individual except where specified by SECP
ƒ Provide unsecured facilities or exposures
ƒ Hold, deal or Trade in Real Estate except for its own use or where specified by SECP
ƒ Undertake brokerage business except forming a separate company.
ƒ Encumber/mortgage/pledge/transfer clients assets deposited as security with NBFC for securing own
ƒ Appoint director who hold such office in any other NBFC licensed for same form of business.
[Not applicable to nominees of Federal/Provincial Government or any other specified exception]
ƒ Appoint or change its Chief Executive or director not fulfilling “Fit & Proper Criteria” - 42 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

Regulation 25 ( NBFC & Notified Entities Regulations, 2008 )

Regulation 25: Classification and Provisioning for non-performing assets.

A Leasing Company, Investment Finance Company and Housing Finance Company shall observe the criteria
for classification of its assets and provisioning as provided in
9 Schedule X till June 30, 2010 and
9 Schedule XI with effect from July 01, 2010.

Subjective Evaluation of Loans & Advances

ƒ In addition to time based criteria provided in Schedule X & Schedule XI subjective evaluation of performing
& non-performing advances, loans and lease port-folio shall be made for risk assessment
¾ Where considered necessary the category of classification determined on the basis of time based
criteria shall be further downgraded:
¾ Such evaluation shall be carried out on the basis of adequacy of security inclusive of its realizable
value, cash flow of the Borrower or lessee, operations in the account and records covering advances
and credit worthiness of the Borrower or lessee.
ƒ Subjective evaluation of investment portfolio and other assets shall also be carried out by NBFC.
Classification of such assets and provisioning required against them shall be determined keeping in view
the risk involved and the requirements of the International Accounting Standards as notified by SECP under
the Ordinance and the Technical Releases issued by ICAP, time to time.
ƒ NBFC shall review, at least on a quarterly basis, the recovery of their loans, advances and lease portfolio &
shall properly document the evaluations so made: Shortfall in provisioning, if any, determined as a result of
quarterly assessment, shall immediately be provided in the books.

Rescheduling / Restructuring of Non-Performing Facility

ƒ Status of classification of a rescheduled/restructured non-performing Facility shall be changed only when:

9 Terms and conditions of rescheduled/restructured Facility are fully met for a period of at least 6 months
(excluding grace period, if any) from date of such rescheduling/ restructuring; and
9 At least 20% of the outstanding amount is recovered in cash:
ƒ Condition of 6 months retention period shall not apply if the Borrower repays or adjusts at least 50% of the
restructured or rescheduled loan amount in cash.
ƒ NBFC shall ensure that status of classification & provisioning of a rescheduled/restructured non-performing
Facility is not changed in its reports to SECP merely due to rescheduling/restructuring of a Facility and
rescheduled/restructured loans shall be reported to the Credit Information Bureau (CIB) as such and not as
ƒ Where the Borrower subsequently defaults (either on principal or mark-up) after the rescheduling /
restructuring, the NBFC shall classify the loan or lease in the same category as it was in at the time of
rescheduling / restructuring and NBFC may further downgrade the classification after taking into account
the time based criteria stated in Schedule X or XI.
ƒ At the time of rescheduling / restructuring an NBFC shall reconsider and re-examine the viability of the
project or business and shall accordingly secure its interests.

Valuation of Security and Realizable Value

ƒ Before making any provision an NBFC may avail the benefit of leased assets, or additional collaterals held
against lease, or collaterals held against advances or loans, it can consider the realizable value of
mortgaged or pledged or leased or collaterally held assets for deduction from the outstanding principal
amount of loans or advances or lease against which such assets are leased, mortgaged, pledged or
collaterally held:

ƒ The value of the mortgaged, pledged assets, other than Liquid Assets, to be considered for this purpose
shall be the FSV
9 FSV once determined, shall remain valid for 3 years from the date of the valuation during which
period the underlying collateral or leased assets will not be revalued for provisioning purpose.
9 The adjustment factors of 80%, 70% and 50% shall be applied on the value so determined for the
purpose of determining provisioning requirement in 1st, 2nd and 3rd year of valuation, respectively.
9 Thereafter, the assets shall be revalued and the adjustment factor of 50% shall be applied for all - 43 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

subsequent years.
9 The FSV of the collateral shall be restricted to fresh revaluation or previous value, whichever is
9 In case of NBFCs, licensed by SECP to undertake housing finance services, FSV once
determined, shall remain valid for a period of 10 years from the date of valuation
[Adjustment factor of 70% shall be applied on the value so determined]

ƒ NBFCs shall observe the following criteria for determining the realizable value of mortgaged, pledged,
leased or collaterally held assets, namely:-
a) Only assets having registered mortgage, equitable mortgage (where NOC for creating further
charge has not been issued by NBFC) and pledged or collaterally held assets shall be considered;
b) Assets having pari-passu charge shall be considered on proportionate basis;
c) Hypothecated assets & assets with second / floating charge shall not be considered;
d) Valuations shall be carried out by an independent professional valuer listed on the panel of valuers
maintained by Pakistan Banks Association or Leasing Association of Pakistan;
e) The valuers while assigning any values to the mortgaged, pledged, leased or collaterally held
assets, shall take into account all relevant factors affecting the salability of such assets including
any difficulty in obtaining their possession, their location, their condition and the prevailing
economic conditions in the relevant sector, business or industry;
f) Realizable value of mortgaged, pledged, leased or collaterally held assets determined by the
valuers must take into account the amount that can be realized from the asset if sold in a forced or
distressed sale condition;
g) Valuers shall in their report explain the assumptions, calculations, formula and method adopted in
determination of the realizable values;
h) Valuations shall be conducted at least once in three years: Provided that, except for a Housing
Finance Company, if a valuation is older than three years, a fresh re-valuation shall be done failing
which the valuation shall be taken as nil.

ƒ The categories of mortgaged, pledged, leased or collaterally held assets which are considered for valuation
and the discounting factors to be applied shall be as under and no other assets shall be taken into

Liquid Assets:
9 Valuation of Liquid Assets shall be determined by NBFC & verified by external auditors.
9 Values of pledged shares of a listed company shall be taken at their market value on balance sheet
date & as per method, if any, specified by ICAP
Pledged Stocks:
In the case of pledged stocks of perishable and nonperishable goods,-
9 FSV provided by valuers shall not be more than 6 months old, at each balance sheet date;
9 The goods shall be perfectly pledged;
9 The operation of the godowns shall be in control of the NBFC;
9 Regular and valid insurance and other records should be available; and
In case of perishable goods, the valuers should also give the approximate date when these are
expected to be of no value.

ƒ Values of mortgaged, pledged, leased or collaterally held assets determined by valuers shall be subject to
verification by external auditors, who may reject cases of valuation, which in their opinion
9 Do not appear to have been professionally carried out and values determined are unreasonable, or
9 Are not backed by valid documentation of mortgage, pledge, leased or collaterally held asset, and
are not supported by legal opinion wherever required.

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. - 44 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

NBFC and Notified Entities Regulations, 2008

Schedule X (Long, Medium and Short Term Financing Facilities)



MADE [N-1]
1. OAEM Where Rental, mark-up, interest, Unrealized mark-up, No Provision
(Other Assets profit or principal is overdue by interest or profit to be put in
Especially 90 days or more from the due Suspense Account and not
Mentioned) date. to be credited to Income
Account except when
realized in cash.
2. Substandard. Where Rental, mark-up, interest, As above. 20%
profit or principal is overdue by .
180 days or more from the due
3. Doubtful. Where Rental, mark-up, interest, As above. 50%
profit or principal is overdue by
1 year or more from the
due date.
4. Loss. (a): Where Rental, mark-up, As above. 100%
interest, profit or principal is
overdue by two years or more
from the due date.
(b): Where Trade Bills (Import, As above.
Export or Inland Bills) are not paid
or adjusted within 180 days of the
due date.
(c): In case of Credit Cards where
Rental, markup, interest, profit or
principal is overdue by 180 days
or more from the due date.
1. OAEM Where Rental, mark-up, interest, Unrealized mark-up, No Provision
(Other Assets profit or principal is overdue by 90 interest or profit to be put
Especially days or more from the due date. in Suspense Account and
Mentioned) not to be credited to
Income Account except
when realized in cash.
2. Substandard. Where Rental, mark-up, interest, As above. 20%
profit or Principal is overdue by .
1 Year or more from due date.
3. Doubtful. Where Rental, mark-up, interest, As above. 50%
profit or Principal is overdue by
2 year or more from due date.
4. Loss. Where Rental, markup, interest, As above. 100%
profit or Principal is overdue by
3 years or more from due date.
[N-1]: Rate of Provision to be applied at the difference resulting from outstanding balance of principal against
the facility less the amount of Liquid Assets realizable without recourse to a Court of Law and adjusted FSV of
mortgaged, pledged, leased or collaterally held assets as valued by independent professional Valuer listed on
the panel of valuers maintained by the Pakistan Banks Association or the Leasing Association of Pakistan. - 45 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

NBFC and Notified Entities Regulations, 2008 Schedule VIII ( Fit & Proper Criteria )

Fit and Proper Criteria” (FPC) in relation to NBFC is applicable on the following persons:

1. Promoters and major shareholders of the NBFC,

2. Director of NBFC
3. Chief Executive (CE) of NBFC
4. Key Executives of NBFC.

9 Proposed Directors or CE of NBFC shall not assume the charge of their respective offices until their
appointments have been approved by SECP.
9 The application for seeking approval of SECP shall be submitted by the NBFC along with the requisite
information required under Annexure “A” and an Affidavit as specified in Annexure “B”.
9 All persons subject to Fit and Proper Criteria must submit any change in the submitted information
through the company secretary of the NBFC to the SECP.

“Key Executive” means key executives of the NBFC and includes, inter alia, the persons discharging the
following functional responsibilities

9 Any executive, including the chief executive or any officer acting as second to chief executive officer
including chief operating officer or by whatever name called;
9 Chief financial officer, head of accounts or head of finance;
9 Head of internal audit, information technology, credit or risk management, human resource, operations,
marketing, research, treasury, law, company secretary or compliance officer;
9 Investment analyst;
9 Chief Investment Officer
9 Fund manager; and
9 Any other functional responsibility which the SECP may include.

Appointment of Key Executives shall not require prior approval however an NBFC shall ensure at the time of
appointing a Key Executive that such person qualifies the Fit and Proper Criteria.

The fitness & propriety of any person will be assessed taking into account all the relevant factors including but
not limited to the following 4 broad elements: Provided that last 2 elements may not be considered while
assessing the fitness & propriety of promoters and major shareholder of the NBFC.

1. Integrity and Track Record

2. Financial soundness
3. Competence and Capability
4. Conflict of interest

1. Integrity and Track Record

A person shall not be considered Fit and Proper if he:
ƒ Has been convicted of an offence involving moral turpitude;
ƒ Has been involved in the mismanagement of investments, financial or business misconduct, fraud,
ƒ Has been the subject to adverse findings, after conducting an inquiry, by the SECP or any other regulatory
or professional body or government agency;
ƒ Has been actively involved in the management of a company or firm whose registration or license has been
revoked or cancelled or which has gone into liquidation or other similar proceedings due to
mismanagement of affairs, financial misconduct or malpractices;
ƒ Is ineligible, under the ordinance or any other legislation or regulation, from acting as a director or serving
in a managerial capacity of an NBFC or a company;
ƒ Has entered into a plea bargain arrangement with the national accountability bureau;
ƒ In case of promoters or major shareholder of NBFC, does not have the requisite disclosed and verifiable
financial resources; and
ƒ In case of promoters or major shareholders of NBFC, does not have an established and proven track
record of successfully running a business enterprise for 3 to 5 years, preferably a public listed company. - 46 –
Corporate Laws Made Easy Various Rules under Companies Ordinance

2. Financial soundness

In determining a person’s financial soundness, the following shall be considered:

ƒ Whether such person’s financial statements or record including wealth statements or income tax returns or
assessment orders are available;
ƒ Whether the person has been declared by a court of competent jurisdiction as defaulter in repayment of
loan to a financial institution exceeding Rupees one million;
ƒ Whether the latest Credit Information Bureau report of the person shows overdue payments or default to a
financial institution;
ƒ Whether the person has applied to be adjudicated as an insolvent and his application is pending;
ƒ Whether the person is an un-discharged insolvent; and
ƒ Whether the person has been declared a defaulter by a stock exchange.

3. Competence and Capability

ƒ Should be individuals having business/mgmt experience of at least 5 years at senior level
ƒ Shall have experience and knowledge in any profession such as banking, Collective Investment Scheme,
accounting, law, internal audit or information technology etc;
For CE
ƒ Should have a minimum experience of 7-10 years in a senior management position, preferably in the
regulated financial services sector.
ƒ Should have demonstrated, through his qualifications and experience, the capacity to successfully
undertake the cognate responsibilities of the position;
For Key Executives
ƒ Must be qualified professionals possessing relevant experience and degrees relating to the job/ assignment

4. Conflict of interest

The directors or chief executive of NBFC shall not:

¾ Be a director in any other NBFC engaged in a similar business in Pakistan.
Provided that this condition shall not apply to nominees of the Federal or Provincial
Governments on the board of any NBFC;
¾ Be a director, chief executive, chief financial officer, chief internal auditor, research analyst or a trader
(by whatever name or designation called) in a stock brokerage house or in any company or entity
owned and controlled by a member of a stock exchange; and
¾ Be a member of a stock exchange engaged in the business of brokerage or is a spouse of such
member or in control of more than 20% shareholding, directly or indirectly through his close relatives.

In case of Key Executives, the NBFCs must ensure that no Key Executive shall head more than one functional
area that give rise to conflict of interest within the organization. For example, the departments of audit and
accounts shall not be headed by the same person. Further, a key executive shall not hold directorship in his or
her personal capacity:
¾ In a business concern which is also a client of the NBFC, and
¾ In any other financial institution.

The Fit and Proper Criteria is perpetual in nature and an NBFC shall ensure compliance with the provisions of
Fit and Proper Criteria. And any violations or circumvention of the Fit and Proper Criteria shall be dealt with
under the provisions of the Ordinance - 47 –
Corporate Laws Made Easy Other Laws


Eligible Security It means a security which the CDC has declared to be eligible for deposit with CDS
Defaulter Counter It means a separate counter setup by the SE for trading of listed securities who have
committed irregularities in respect of listing regulations.
Listed Security Any Share, Scrip, Debenture, PTC’s, Modaraba Certificates, Musharika Certificates,
TFC’s, Bonds, or such other instrument has the Federal Govt. may by notification
specified and which is accepted for listing on the SE.
Listed Company A company which has listed on the SE. whose securities has listed on the SE and
includes a provisionally listed company.
Credit Information It is department in state Bank that provide information about the loan given to
Bureau (CIB) different companies

Listing Of Companies & Securities

• No dealing in the securities of company shall be allowed on the SE either on ready quotations board
or future counter unless the company and the securities have been listed and permission for such
dealing has been granted in accordance with listing regulations.
• The above permission shall be granted upon an application made by the company in prescribe form.
o The SE in granting such permission will consider among other things, sufficiency of public
interest in the company or security.
• Board of SE will be sole authority to grant, refuse or defer such permission.
• Board shall decide permission within 3 months of application
o If refused, the reasons shall be communicated to applicant & SECP within 2 weeks.
o Applicant can reapply after 6 months with fresh application.
• Board may require additional documents other than prescribed
• If not provided, application deemed refused.


The company or authorized representative shall undertake that:

• Securities shall be quoted at the discretion of SE
• SE shall have right to suspend or remove any security without notice. Furthermore company cannot
bind SE to remove its securities.
• The provision of listing regulations shall supersede the articles of association that are not in
• SE can delist company/security on non compliance.

Offer of Capital by Companies / Modarabas to the Public

The capital is upto Rs.500,000,000 Atleast 50% shall be offered to public

Capital beyond 500,000,000 Atleast 250,000,000 or 25% of the capital which
ever is higher.
Allocation of capital to overseas Pakistani Shall not exceed 20% of public offer.
Allocation of capital to employee Shall not exceed 5% of the public offer

In case of Modaraba applying for listing

ƒ 30% of the capital of the Modaraba shall be subscribed by Modaraba Company, sponsors, friends,
relatives and associates.
ƒ Balance 70% shall be offer to the public as per Modaraba Rules.
• The allocation of capital to:
a. Sponsors in excess of 25%
b. Allocation of shares under pre-IPO placement including employees
shall not be saleable for a period of six months from the date of public subscription.

Prospectus, Allotment, Issue and Transfer of Shares

™ No company will be listed unless it is public company and has a minimum capital of Rs. 200 Million. - 48 –
Corporate Laws Made Easy Other Laws

™ Company registered in AJK or in the Northern areas of Pakistan shall be eligible for listing and will be
treated at par with the company registered in Pakistan.
™ No company shall be listed unless the public issue has been subscribed by not less than 500 applicants.
™ Company may make public offer of security to be the eligible security in CDS.
™ The application for shares shall be accepted only through Bankers to the Issue.
™ The directors shall not participate in the public subscription.
™ Company shall inform the SE about the subscription receipt with in 3 working days of the closing of the
subscription list.
™ The company shall take decision about the acceptance of applications within 10 days of the closure of the
subscription list.
9 The company shall refund application money to the unsuccessful applicants within 10 days of
above decision. [ Afterward charges @ 1.5% per month.]
9 In case of over subscription the company shall immediately file ballot register with the SE.
9 The company shall dispatch share certificates to successful applicants in marketable lot within 30
9 If the security is eligible security the CDC procedure will be followed.
™ Company shall consolidate / split, as may be required by security holder in writing, certificates into
marketable lots within 30 days of application.
™ The company shall verify signature of the share holder within 48 hours of the receipt of application.
™ The company shall verify signature of the shareholder within 48 hours of the request.
™ The company shall complete the transfer receipt immediately on receiving the share for transfer.
™ Prospectus / offer for sale with performa application shall be published atleast in 1 english and urdu
newspaper of Karachi, Lahore & Islamabad between 7 & 30 days of opening of subscription lists.
™ The company shall give minimum of 21 days notice to the SE prior to the closure of share transfer book for
any purpose.
ƒ Company shall issue transfer receipts immediately after receiving shares for transfer
ƒ Company shall not charge any transfer fee.
ƒ Duration for one time closure [7 days but not exceeding 15 days]
ƒ Duration for total closure closures in year [Not exceeding 45 days]

Dividend & Entitlement

It is applied on only listed companies.

a) The company shall inform SE regarding decision of the directors relating to the announcement of
dividend, bonus issue, right issue, and other entitlement. atleast 21 days before the book closure.
b) Interim dividend warrant shall be dispatch within 45 days from the date of commencement of book
c) Final dividend warrants shall be dispatch to the shareholder within 45 days from the date of AGM at
which it has approved.
™ Dividend warrants are dispatched through registered post.
d) The company shall inform the SE as soon as dividend warrants are posted to the share holders.
e) All dividend warrants, in addition to the registered office of the company shall be encashable at
Karachi, Lahore, Hyderabad, Sakkhar, Quetta, Multan, Faisalabad, Islamabad, Rawalpindi and
Peshawar for the period of 3 months from the date of issue.
f) Every company shall send to the SE 300 copies of annual report and interim report as soon as these
are send to the share holders.

Annual General Meeting

a) Company shall hold its AGM within 3 months of close of its financial year.
b) The Modaraba shall hold its ARM (Annual Review Meeting) within 4 months of close of its financial
c) The period holding of AGM may be extended for a period of maximum 60 days with SE approval.
a. SE shall give that approval on production of similar approval from SECP.
b. Fee : 1st month / part => 10,000 2nd month / part => 12,500
d) The company shall obtain prior approval from the SE in respect of time and date of AGM.
e) Company shall furnish copies of minutes of AGM and every EOGM to the SE within 60 days of the
f) Company shall furnish a complete list of its shareholders as at 31st December each year, within 30 - 49 –
Corporate Laws Made Easy Other Laws


Increase in capital

a) Exery listed company shall advice the SE regarding all decisions taken by the BOD for changes in
capital through issuance of right & bonus shares.
b) Company shall issue right letters in marketable lots within 30 days from the date of reopening of share
transfer register.
c) Company shall issue bonus shares within 45 days from the date of reopening of share transfer register.

Listing of Subsidiary Company

¾ A listed company distributing shares of its unlisted subsidiary company in the form of dividend, right
issue etc (in kind) shall get such company listed on the SE.
¾ Company shall immediately notify to the SE regarding any change in the BOD.
¾ Listed company shall obtain prior approval of the SE for any amendment in the Mamorandom and
Articles of Association.
¾ Intimate SE regarding issue of Participation Term Certificate

De-listing, Suspension and defaulter counter

A company may be de-listed, suspended or placed on the defaulter counter for any of the following reasons:

ƒ If the shares of a company are quoted below 50% of the face value for a continues period of 3 years.
ƒ If the company has failed to declare dividend or bonus:

o For 5 years from the declaration of last dividend and bonus.

o For 5 years from the date of commencement of production.[For manufacturing company]
o For 5 years from the date of commencement of business [in all other case].

ƒ If the company has failed to holds its AGM for continues period of 3 years.
ƒ If the company has failed to pay annual listing fee for 2 years.
ƒ If the company has failed to comply with the listing regulations.
ƒ If the company refuse to join CDS.
ƒ Company has gone into liquidation, voluntary or by court.

Securities on default counter shall be affected separately, (prices quoted separately)

Suspension or delisting shall be communicated to company and notified to trade by posting it on
notice board of SE.

Voluntary De-Listing
ƒ A company intending to seek voluntary de-listing shall intimate to the SE immediately regarding
• Intention of the majority shareholders/sponsors to purchase all the shares from other shareholders
with the purpose to de-list the company.
• Reasons of voluntary de-listing
• Minimum price at which the shares are proposed to be purchased.

ƒ The minimum purchase price proposed by the sponsors will be the highest of benchmark price based upon
any of the following:
• Current market price
• Average market price (Annual Average)
• Breakup value based historical cost whereas
[ Breakup value = Equity/no. of shares ]
• Earning multiplier approach
Fair value of shares = Estimated Earning x Price Earning Ratio
*Estimated Earning = Average price per share of last 3 years.
*Price Earning Ratio = Market Price per share / EPS

• The maximum price at which the sponsors had purchased shares from the market during the
12 months - 50 –
Corporate Laws Made Easy Other Laws

ƒ Now SE shall determine the minimum percentage of shares to be purchased by the sponsors to qualify for
9 In case of disagreement of the sponsors on minimum percentage of shares to be purchased. The
sponsors shall file an appeal with the SECP within 10 days of the decision of the SE.
9 The decision of the SECP shall be final and binding.
ƒ The sponsors cannot withdraw their offer to purchase their shares if such proposal has been approved by
the company in a general meting by not less than 3/4th majorities through a special resolution.
ƒ The SE may for any reasons refuse to accept the proposal of the company.
ƒ The copy of the special resolution passed by the company for voluntary de-listing send to SE immediately
alongwith complete list of the shareholders.
ƒ Together with the application of de-listing the company shall submit an undertaking from a purchase agent
(who may be commercial bank, investment bank or a member of SE.)
ƒ The offer to purchase at the relevant price from the other shareholders shall remain open atleast for a
period of 60 days. The application for voluntary de-listing shall be accompanied with the consent of
purchase agent.
ƒ The company after passing special resolution shall convey to all the shareholders the decision of the
majority shareholders through a register post alongwith copy of special resolution. A notice in this regard
shall also be published in two widely circulated news papers including one in Karachi.
ƒ On completion of purchase, the company shall submit the following information.
• Total no. of shares issued
• Shares owned by majority shareholders before the offer
• Shares purchased under the offer
• Total shares currently owned by the majority shareholders
• Shares still outstanding with minority shareholders
ƒ The sponsors shall continue to remain obliged to purchase the shares still outstanding with the minority
from them at relevant price for a period of 12 months from the expiry of initial pay back period.
ƒ The company once de-listed under listing regulation shall not be allowed to re-listing for a period of 5 years.

Transfer Pricing
ƒ No listed company shall use a price other than the arm’s length price
9 Except in rare circumstances subject to the approval of the BOD, if it is in the interest of the
company to do so.
ƒ Directors shall approve transfer pricing policies for related party transaction.
ƒ For each related party, company shall maintain following records:
1. Name of related party;
2. Nature of relationship with related party;
3. Nature of transaction;
4. Amount of transaction;
5. Terms and conditions of transaction, including the amount of consideration received or
6. Basis or method for determining such consideration;
7. Detailed assumption and estimates underlying the transfer price and details of computation
of transfer price; and
8. A statement whether, in management’s opinion, such consideration is an arm’s length
ƒ The record of all related party transaction shall also be placed before the Board of Directors at each Board
meeting for formal approval and before the Audit Committee of the company.
9 Transactions not executed as arm’s length shall be separately placed.
ƒ The listed companies shall present the record of related party transactions together with all relevant
documents, agreements, calculations and explanations to the statutory auditor for the purposes of the
statutory audit.
ƒ All listed companies shall publish and circulate a statement along with their annual reports to setout the
status of their “compliance with the best practices on Transfer Pricing”
ƒ All listed companies shall ensure that statement of compliance with the best practices of Transfer Pricing is
reviewed and certified by statutory auditors. - 51 –
Corporate Laws Made Easy Other Laws


Board of Directors
Independent director
A director who is not connected with the listed company or its promoters or directors on basis of family
relationship and does not have any other relationship with listed company or its associate or related party.

Executive and Non Executive directors

Executive directors are working whole time director and non-executive director, on the other hand include
independent person who give outside view point to the BOD of the company and do not devote their whole
working time to the company.
The guiding factor distinguishing between executive and non-executive director is the extent of their
involvement in the management of the company.
ED can be defined as “paid director” and NED as “non paid director”

Independent Non Executive Directors

ƒ All listed companies shall encourage effective representation of independent non-executive directors
including directors representing minority interest on the BOD, so that, the board as a group includes core
competence relevant to each listed company.
ƒ Minority share holders as a class are facilitated to contest election of directors by obtaining proxies.
a. The company shall annex to the notice of general meting at which director election are to be held, a
statement (by the candidate from the minority share holders who seeks to contest election of the
b. This statement shall include the profile of that candidate.
c. Also annex, on request of candidate, an additional copy of proxy form duly filled by the candidate,
and transmit the same to all shareholders.
ƒ The directors of the listed company shall also include atleast one independent director representing
institutional equity interest of a banking company, DFI (Development Financial Institute), NBFI (including
modarabas, leasing companies or investment bank), mutual funds or insurance company.
ƒ Directors nominated by creditors (sec 182) or Federal govt. or by foreign equity holders shall not be taken
as independent director.
ƒ Independent director representing an institutional investor shall be selected by such investors through a
resolution of its BOD and the policy with regards to selection of such person for election on BOD of
investee company shall be disclosed in directors report.
ƒ Executive director shall not be more than 75% of the elected directors including chief executive, except
a. Where relaxed by SECP
b. Banking company which is required by prudential regulations not to have more than 25% directors
as paid executive directors.
ƒ The directors of listed company at the time of filing of their consent to act as director shall give a declaration
that they are aware of their duties and powers under the relevant clause of Memorandum & Articles of
Association and Listing regulations of SE.

Qualification & Eligibilty to act as director

™ A company shall not have a person a director who is a director of 10 other listed companies.
™ No person shall be selected as director of listed company if
a. His name not borne on register of National Tax Payers (except: non resident)
b. He has been convicted as defaulter of Banking company, DFI or NBFI.
c. He being a member of SE has been declared as defaulter.
™ That person or his spouse shall not be engaged in business of stock brokerage,
¾ Unless specifically exempted by SECP

Tenure of Office
3 Years
Any casual vacancy shall be filled by directors within 30 days - 52 –
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Responsibilities, Powers & Functions of BOD

ƒ Directors shall exercise their powers/duties in best interest of the company.

ƒ Every listed company shall ensure that
a. A “statement of ethics and business practices” is prepared and signed by each director and
employees in acknowledgment of their understanding and acceptance of the code of conduct, and
the same is circulated annually by the directors to establish a standard of conduct for the director
and employee.
b. The director shall adopt of vision and mission statement and overall corporate strategy for the
company and also formulate significant policiesregarding to
1. Risk management
2. Human Resource Management,
3. Procurement of goods and services
4. Marketing
5. Determination of terms of credit and discount to customers
6. Write off bad debts
7. Acquisition and disposal of fixed assets
8. Investments
9. Borrowings of money
10. Donations and charities etc
11. Determination & Delegation of financial powers
12. Transactions with associated companies and related parties
13. Health safety and environment.
ƒ A complete record of the significant policies alongwith dates on which they were approved or amended by
the directors shall be maintained.
ƒ BOD shall define level of materiality keeping in view circumstances of company and recommendations of
any technical/executive sub-committee.
ƒ The directors shall establish a system of sound internal control which is effectively implemented at all
ƒ The following powers shall be exercised by the BOD documented by a resolution passed at a board
9 Investment and dis-investment of funds, where, maturity period is 6 months or more [Except in
case of Banking Co, DFI, NBFI, Trust & Insurance Co]
9 Determination of nature of loans and advances
9 Write off of bad debts & determination of provision on doubtful debts
9 Write off of inventories and other assets
9 Determination of terms & circumstances in which a law suit may be compromised and claim in
favor of company may be waived, released etc.
ƒ Appointment remuneration and terms and conditions of the employment of chief executive officer and
other executive directors of the company shall be determined and approved by the BOD.
ƒ In case of modarba or NBFI, whose main business is investment in listed securities, BOD shall approve
and adopt an investment policy, which is stated in their annual report.
ƒ All listed companies shall make appropriate arrangements to carry out orientation courses for their directors
to acquaint them with their duties & responsibilities and to enable them to manage affairs of the company.

Meetings of the BOD

¾ The chairman of the listed company shall preferably be elected from the non-executive directors.
¾ BOD shall clearly define roles and responsibilities of chairman and chief executive, whether or not these
offices are be held by separate individual or same individual
¾ Chairman shall, if present, preside over meetings of BOD.
¾ BOD shall atleast meet once in every quarter of financial year.
¾ Written notices (including agenda) shll be circulated not less than 7 days before
• Except in case of emergency meetings where the period is reduced/waived
¾ The chairman will ensure that the minutes of meeting of the board are properly recorded and circulated to
the directors and officers who entitled to attend meeting not later than 30 days of the meeting unless a
shorter period specified in AOA..
¾ If director of the company is of the view that his dissenting notes have not been appropriately recorded in
the minutes, he may refer to the company secretary to require him to append his dissenting notes with - 53 –
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minutes of meeting.
• If company secretary fails to do so he may file an objection with the SECP.

Significant issues to be placed for decision by BOD

The following matters and significant issues shall be placed for information consideration and approval by the

• Annual business plan

• Cash flow projections and other forecasts
• Budgets alongwith variance analysis
• Quarterly operating activities
• Internal audit report, including cases of fraud and irregularity
• Management letter issued by external auditor
• Details of joint ventures and agreements with distributors and agents
• Promulgation or amendment of any law rules/regulations/accounting standards which may affect the
listed company
• Status and implication of law suits by and against the company
• Any show cause notice, demand, prosecution etc from revenue regulatory authorities
• Default in payment of loans
• Failure to recover material amounts
• Significant accident, dangerous occurrence and instances of pollution involving the listed company
• Dispute with the labor and proposed solution.
• Payment of goodwill or brand

Chief Financial Officer (CFO) and Company Secretary(CS)

Appointment & Removal
The appointment, remuneration and terms and conditions of the employment of the CFO and CS and the
head of internal audit shall be determined by CEO with the approval of the board.
They shall not be removed except by the CEO with the approval of the board.


• Member of recognized body of professional accountant ; or
• Graduate from recognized university or equivalent having atleast 5 years experience of
financial and corporate affairs of a listed company or a bank or a financial institution.

• Member of recognized body of professional accountants
• Member of recognized body of corporate chartered secretary
• MBA, M.COM, LLB having atleast 5 years of relevant experience

Requirement to attend Board Meetings

1. The CFO and company secretary shall attend the meeting of BOD and would not be deemed to be
directors and cast vote at the meeting
2. They shall not attend such part of meeting of BOD which involves consideration of agenda items
relating to CFO, CS, CEO or any director.

Corporate & financial Reporting Framework

Responsibility of Financial Reporting and Corporate Compliance

Responsibility - 54 –
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• No listed company can circulate its financial unless the CFO and CEO present the financial statement duly
endorsed by their signature for consideration and approval of the directors. The directors after
consideration and approval shall authorize the signing of financial statement for circulation and issuance.
• The company secretary shall furnish a “secretarial compliance certificate” in a prescribed form as part of
annual return filed with the registrar of company to satisfy that secretarial and corporate requirement of the
Companies Ordinance 1984 has been complied with.

Director’s Report (Sec-236)

The director shall include their statement to the following effect in the director’s report prepared under section
236 of the Companies Ordinance, 1984

9 The financial statement prepared by the management of the listed company, present fairly its state
of affairs the results of operations, cash flow and changes in equity.
9 Proper books of account have been maintained.
9 Appropriate accounting policies have been consistently applied in preparation of financial
statement and accounting estimates are based on reasonable and prudent judgment.
9 International accounting standard as applicable in Pakistan have been followed in preparation of
financial statement and any departure there from have been adequately disclosed.
9 Internal control is sound and effectively implemented.
9 There is no significantly doubt on the ability of company to continue or going concern.
9 There is no material departure from the best practices of the corporate governance.

The following matters shall also be disclosed in the director’s report (if necessary):

¾ If the company is not considered to be going concern the reason shall be disclosed.
¾ Significant deviation from last year operating results along with reasons.
¾ Keep operating and financial data of last 6 years in summarized form.
¾ If the company has no declared dividend or issue bonus shares, the reason shall be given.
¾ Where any statutory payments (Taxes & Duties) are outstanding the reason shall be disclosed.
¾ Significant plans and decisions like corporate restructuring, business expansion and
discontinuance of operations shall be given along with future prospects risks and uncertainty.
¾ Statement on the value of investment of provident fund, gratuity and pension fund shall be
¾ Number of board’s meeting held during the year and attendance by each director shall be
¾ All trade in shares of Company, carried out by its directors, CEO, CFO, Company Secretary and
their spouses & minor children.
¾ The pattern of share holding shall be reported to disclose the aggregate number of shares
(alongwith name wise detail) held by:
o Associated companies and related parties (name wise)
o NIT and ICP (name wise)
o Directors, CEO and their spouses & minor children (name wise)
o Executives; [Employee of company other than CEO & Directors whose
annual basic salary > 500,000]
o Public sector company and corporations (Government owned)
o Banks, DFI, NBFI, insurance companies, modarabas and mutual funds
o Share holders holding 10% or more voting rights

Frequency of Financial Reporting

ƒ Quarterly unaudited financial statements having directors’ review on affairs of company be published
and circulated within 1 month.
ƒ Half yearly statements shall have auditors’ limited review and shall be circulated within 2 months.
ƒ Annual reports shall be circulated within 4 months.(Now 3 in Companies Ordinance 1984)
ƒ Listed companies shall immediately disseminate information to Stock exchange and SECP which
affects their share price. - 55 –
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This information may include but shall not be restricted to information regarding a joint venture, merger or
acquisition or loss of any material contract; purchase or sale of significant assets; any unforeseen or
undisclosed impairment of assets due to technological obsolescence, etc.; delay/ loss of production due to
strike, fire, natural calamities, major breakdown, etc.; issue or redemption of any securities; a major change in
borrowings including any default in repayment or rescheduling of loans; and change in directors, Chairman or
CEO of the listed company.

Auditors not to hold shares

™ Auditors (partners, spouse, minor children) can not sale, purchaseor hold shares in listed company or its
™ If they hold prior to appointment, they will notify in 14 days and will dispose those in 90 days.

Disclosure of interest by directors holding company’s shares

Where any director/CEO sells/buys share of its company, he shall notify Company Secretary immediately
and also deliver written record of price, No. of shares/certificates within 4 days to Company Secretary.
This notice shall be presented by company’s secretary at immediate next Board Meeting
If there is default in giving notice by director etc, company’s secretary shall place this matter before
immediate Board meeting.
Every listed company shall determine a closed period prior to announcement of interim/final results and any
business decision which may materially affect share price. No director/CEO/Executive shall deal in shares
of that company whether directly on indirectly, during that closed period.

Offer of shares by company proposed to be listed

Every company proposed to be listed at time of public offer shall comply with the requirement as given in
the related listing regulations
According to listing regulation of KSE, company shall offer higher of
i. 250 million or
ii. 25% of share capital.
For companies having share capital < 500 million, atleast 50 % shall be offered

Divestiture of Shares by Sponsors/Controlling Interest

In the event of divestiture of not less than 75% of the total shareholding of a listed company, other than
ƒ A divestiture by non-resident shareholderS in favour of other non-resident shareholders; or
ƒ A disinvestment through the process of privatization by the Federal or Provincial Government
at a price higher than the market value ruling at the time of divestiture, then…

9 Directors shall allow the transfer of shares after it has been ascertained that an offer in writing has been
made to the minority shareholders for acquisition of their shares at the same price at which the divestiture
of majority shares was contemplated.
9 Where the offer price to minority shareholders is lower than the price offered for acquisition of controlling
interest, such offer price shall be subject to the approval of the SECP

Audit Committee

9 The director shall establish an audit committee which shall comprise not less than three members including
9 Majority of members shall be from Non-Executive directors (NED).
9 Chairman of the committee shall be preferably from NED.
9 The names of the members of audit committee shall be given in the annual report.

Frequency of Meetings - 56 –
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™ The audit committee shall meet atleast once every quarter of the financial year.
™ These meetings shall be held
a. Prior to approval of interim results of the company
b. Before and after the completion of external audit.
™ A meeting of the audit committee shall also be held if requested by external auditor or the head of internal

Attendance at Meetings

¾ The CFO and the head of internal audit and a representative of external audit shall attend meetings of the
audit committee at which issues relating to the accounts and audit are discussed.
¾ Provided, that atleast once a year the audit committee shall meet alone with the
i. External auditor [without presence of CFO and head of internal audit.]
ii. Head of internal audit [without presence of CFO and external auditor.]

Reporting Procedure

Audit committee shall appoint a secretary who shall circulate the minutes of the meeting to the members of
committee, directors and CFO within the fortnight.

Terms of Reference of Audit Committee

9 The BOD of the company shall determine the terms of reference of audit committee
9 Audit committee shall inter alia (along other things) be responsible for recommending to the BOD, the
appointment of external auditor and shall consider any question of resignation or removal of external
auditor, audit fee and other services by external auditors.
9 The terms of reference also includes the following:
1. Determination of appropriate measures to safe guard company’s assets
2. Review of preliminary announcements of results prior to publication
3. Review of quarterly, half yearly and annual financial statement prior to approval of BOD, focusing on:
• Major judgment areas
• Significant adjustment resulting from the audit
• Going concern assumption
• Changes in accounting policies
• Compliance with applicable accounting standards
• Compliance with listing regulations & other statutory requirement
4. Facilitating the external auditor and discussion with them on their major observations.
5. Review of management letter issued by external auditor and management response thereto.
6. Ensuring coordination between internal and external auditor
7. Review of scope, extent and resources of internal audit function.
8. Consideration of major finding of the internal investigation
9. Ascertaining that the adequacy and affectivity of internal control system including financial and
operational controls and accounting system and reporting structure
10. Monitoring compliance with the best practices of the corporate governance
11. Instituting special projects, value for money studies or other investigations on any matter specified by
BOD in consultation with CEO.
12. Any other matter as may be assigned by the BOD

Internal Auditor
In listed companies, there should be an internal audit function.
Head of internal audit shall have access to the chair of audit committee.
Company shall ensure providence of Internal auditors’ reports for review by external auditors.
Auditors shall discuss any major findings with relation to the reports with audit committee, which shall report
significant matters to BOD.

External Auditor - 57 –
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ƒ No listed company shall appoint as external auditor who is not been given satisfactory rating under the
QCR program of ICAP.
ƒ The external auditor shall be compliant with IFAC guidelines on code of ethics as adopted by ICAP.
ƒ The BOD shall recommend the appointment of external auditors for one year as suggested by audit
committee. The recommendations shall be included in the director report.
™ If change of auditor recommended before 3 consecutive years, reasons should be included in
Director’s Report.
ƒ No listed company shall appoint external auditor to provide services in addition to audit
™ Except in accordance with the IFAC guidelines.
ƒ All listed company in the financial sector shall change their external auditor every five years.
™ Financial sector include Banks, NBFCs, Modarbas and Insurance companies.
ƒ All listed companies other than these financial sector companies shall at minimum rotate the engagement
partners every 5 years.
ƒ No listed company shall appoint as CEO, CFO, Internal auditor or director who was at any time during the
preceding 2 years
a. Partner of the firm of external auditor; or
b. An employee who is involved in the audit of the company; or
c. Close of relation of such partner or employee.
ƒ The company shall acquire the external auditor to furnish the management letter to its board of directors
not later than 30 days of audit report.
ƒ Every listed company require a partner of the firm of auditor to attend the AGM at which accounts are

Compliance with the Codes

9 The listed company shall publish in the annual reports a “statement of compliance with the best
practice of the code of corporate governance”.
9 This statement shall be reviewed by the external auditors.
9 SECP may relax any of best practices, if it is impracticable to comply, for reasons to be recorded. - 58 –
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9 The provisions of BCO relating to preparation of accounts are applicable to:
™ Every banking company incorporated in Pakistan
™ Every banking company incorporated outside Pakistan in respect of business transacted through
branches in Pakistan
9 The accounts are prepared on the expiry of every calendar year
9 The accounts are also published in the prescribed manner in newspaper
9 The accounts shall be signed by
In case of banking company incorporated in Pakistan
Manager or principal officer and atleast 3 directors (if directors < 3, then all)
In case of banking company incorporated outside Pakistan
Manager or principal officer in Pakistan and by another officer next in seniority
9 The requirement of Companies Ordinance, 1984 in respect of preparation, transmission and filling of
accounts etc shall be applicable

9 B/S and P & L prepared in accordance with provisions of BCO shall be audited by a CA who is borne on
penal of auditors maintained by SBP.
9 Auditors shall hold office for 3 years [cannot be removed before expiry of term except approval by SECP]
9 Accounts & Audit report shall be furnished as returns to SBP within 3 months of close of period to which
they relate. [ further extension of 3 months in special circumstances ]
9 Every banking company incorporated outside Pakistan is required to display at a prominent place in the
principal office and in every branch in Pakistan, copy of latest accounts not later than 1st Monday of
August. These accounts shall remain displayed until replaced by subsequent accounts.
9 Audit is conducted as per direction of SBP
9 3 copies of accounts shall be sent to Registrar - 59 –
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CENTRAL DEPOSITORY ACT, 1997 and Relevant Rules

ƒ The CDS is an electronic book entry system to record the transfer of securities.
ƒ Central Depository Company (CDC) has implemented it that works similar to a Bank.
ƒ Securities be deposited in CDS & transaction be completed electronically, thereby, removing difficulties of
counting, verification, storage & transportation of certificates including settlement on stock exchange

Basic Operations of CDS

¾ Deposit of existing securities into CDS
¾ Withdrawal of security from system
¾ Free transfer or book entry transfer without physical movement
¾ Pledge and de-pledge of securities
¾ DVP delivery vs. payment facility
¾ Various corporate actions under Companies Ordinance, 1984

Elements of CDC
¾ Account Holder
¾ Participant (Just like members of Stock Exchange)
¾ Issuer
¾ Eligible pledge
¾ DVP (Delivery Verses Payment) A/c Holder

Account Structure

1. Main Account
Each participant in the CDS is allocated a main Account by virtue of being participant in system. This account is
mainly used as transit account for movement of securities and settlement of deliveries by the participant.

2. House Account
It is used for securities beneficiary owned by the participant

3. Sub Account (Client Account)

It is used for keeping the securities belonging to the client of the participant.
A participant is allowed to open any number of sub-accounts

4. Group Client Account

Used by clients who do not want to utilize the facility of sub-accounts. Each group account contains securities
owned by the group of clients. Detailed break up of securities held by each member is maintained outside CDS

5. Cash Accounts / DVP Account

The participants who opts DVP facility are required to deposit a rolling settlement fund to be used for
settlement of DVP obligations. Balance of that fund would be stored in that account

CDS will provide a list of beneficial owners to enable the issuer to issue notices of general meetings under
the Companies Ordinance, 1984.
When shares are in CDS the beneficial owner has to produce original NIC or passport while attending the
When proxies are appointed; the form of proxy shall be witnessed and enclosed by attested copies NIC or
passport of the both appointer and the proxy.Form of proxy shall contain CDS A/C # of appointer.

The CDC will prepare a list of beneficial owners who are entitled to receive the dividend on the date of book
closure. This list shall contain necessary information like particulars, no. of shares, face value of shares,
gross dividend, income tax, Zakat and net dividend etc.
The company and the issuer or its appointed Registrar will prepare dividend warrant on the basis of above
information and dispatch to beneficial owners. - 60 –
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Bonus shares
In case of bonus shares the CDC, on receipt of intimation from the company shall increase the holding of each
beneficial owner with the bonus shares.

Right shares
The CDC shall provide list of beneficial owners to the company together with right entitlement.
The company shall prepare letter of right and dispatch to the beneficial owner.
The CDC accounts of beneficial owners shall be credited after subscription of right money.

Consolidation and sub division of capital

CDC will calculate new share balance on the basis of existing share holding.
A program will run which will replace the old balances with the new balances.

Central Depository Companies (Establishment and Regulation) Rules 1996

Eligibility for registration.
A company desirous of commencing business as a central depository company shall be eligible for registration
under these rules if it fulfils the following conditions
ƒ Such company is incorporated as a public limited company under Companies Ordinance, 1984
ƒ It has entered into equity participation or technical collaboration arrangement with an internationally
recognized institution or agency;
ƒ At least one stock exchange in Pakistan is a shareholder of such a company;
ƒ Promoters of such company are persons of means and integrity and have special knowledge of matters
which the company may have to deal with as a central depository company.
ƒ No promoter, director , officer or employee of such a company has been-
¾ Convicted of fraud, breach of trust or an offence involving moral turpitude or removed from
service for misconduct or has been adjudicated as insolvent;
¾ Associated with any illegal banking business, deposit taking or financial dealings;
¾ A sponsor, director, chief executive or a senior management officer of a defaulting co-operative
finance society or finance company; and
¾ A defaulter of any commercial bank or financial institution including non-banking financial
institution or has suspended payment or has compounded with his creditors;
ƒ Application to the SECP in form I + Rs 500,000
ƒ SECP, if satisfied, after such inquiry obtaining such further information as consider necessary, that
applicant is eligible for registration; and it would be in interest of the capital market so to do, may grant
a certificate of registration in form II on such conditions as it may deem appropriate.
ƒ SECP may establish an Advisory Committee in respect of a CDC whose functions shall be advising
CDC on matters relating to services provided by such depository company; and to make
recommendations for improving the efficiency of the CDC.

Renewal of registration.-
¾ The certificate of registration shall be renewable on payment of 100,000 (application in form III).
¾ SECP shall, after making such inquiries and obtaining such further information as consider necessary,
within 30 days of receipt of application, renew the registration of such company for 1 year in form IV.

Submission of annual report, etc.-

CDC shall file its annual report and account within 6 months of close of accounting period alongwith following:-
™ Names of the issuers who are members of the company;
™ Names of the participants who are members of the company;
™ Number of account holders as well as sub-account holders;
™ List of shareholders of company indicating change in shareholdings, if any
™ Names of senior management staff of company with qualifications & experience.
™ Such other documents, information or explanation relating to its affairs as the SECP may, from
time to time, by order in writing, require - 61 –
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Modaraba Means a business in which a person participates with his money and another
with his efforts or skills or both his efforts and skills and includes unit trusts and
mutual funds by whatever name called.
Modaraba Fund Means a fund raised through floatation of Modaraba.
Modaraba Certificate Means a certificate of definite denomination issued to the subscriber of the
modaraba acknowledging receipt of money subscribe by him.
Modaraba Company Means a company engaged in the business of floating and managing modaraba.
Registrar Means the Registrar of modaraba and Modaraba Company appointed by the
Federal Govt. for the purpose of this Ordinance.
Religious Board The Federal Govt. has constituted a religious board which consists of three
members one of whom is chairman and two members are religious scholars and
chairman shall be a person who is to be qualified for a Judge of High Court.

No company shall operate as Modaraba Company with out registration to Registrar (Modaraba)

Eligibility for Registration

1. Company must be incorporated

2. Minimum capital requirement:

• If the company is only engaged in floatation and management of Modaraba, not less than 2.5 million
• If the company is engaged in other business, atleast Rs. 7.5 million of which Rs. 2.5 million must be set
aside for modaraba management.

3. The directors and officers must fulfill the following conditions:

• Normal criteria (as mentioned in Companies Ordinance, 1984)

• The promoters and directors should be in the opinion of Registrar persons of means and integrity and
have special knowledge of the matters which the modaraba company has to deal.


A company which is eligible for registration as Modaraba Company may make an application on prescribed
form to registrar. (Form IX)

Contents of Application (Form IX)

1. Particulars of the company:

• Name
• Status
• Date & placement of registration
• Address
• Authorized and Paid up Capital
• Details of persons or group controlling the company
• Names of subsidiary, holding and associated companies
• Description and place of business

2. Particulars of Directors and Officers

• General particulars
• Names of associated company and the company where they have directors in the past
• Financial standing
• Professional qualification
• Experience along with supported documents - 62 –
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• Affidavit of each person

3. Documents to be attached

The application shall be accompanied by following documents:

• Five copies of MOA & AOA

• Five copies of certificate of incorporation
• Five copies of latest audited accounts
• Precise description of business being done
• The undertaking that any change made by the company in the MOA & AOA and the BOD as may be
required by the Registrar

If the Registrar is satisfied that the applicant shall be eligible for registration and it is in the public interest to do
so, it may grant registration.

Types of Modaraba
Specific Purpose Modaraba A modaraba having one specific purpose or objective
Multi Purpose Modaraba A modaraba having more than one specific purpose or objectives
A modaraba may be either for a fixed period or for an indefinite period.

Business Objects of Modaraba

The business objects of modaraba must not be opposed to the injunction of Islam. The Registrar shall not
permit the floatation of modaraba unless the Religious Board has certified in writing that the modaraba is not a
business opposed to the injunction of Islam. The business objects of modaraba are contained in prospectus
and being not a company it has not any MOA & AOA.

Modaraba to be Legal Person

Modaraba shall sue and to be sued in its own name but through the modaraba company. The assets and
liabilities of each modaraba shall be separate and distinct from another modaraba and also from the modaraba

Capital of Modaraba

The capital of modaraba shall be called certificate capital. There is no provision in the Modaraba Ordinance for
the minimum capital required, however, modaraba is to be listed on SE it has to follow the Listing Regulations
in this regard. (200 million)
As per Modaraba Rules the modaraba company must subscribe 10% of the modaraba fund, however, through
subsequent guideline the Registrar of modaraba has increase this requirement to 20%.
Further more listing requirement has provided that 30% of the modaraba fund shall subscribe by Modaraba
Company, directors, sponsors, friends and relatives etc.
The modaraba certificates do not carrying any voting rights and these are transferable like share through
transfer deed.

Floatation and Authorization of Modaraba

A modaraba company registered under the Modaraba Ordinance can apply to the Registrar for obtaining
permission to floating modaraba. It shall submit an application on prescribe form-I.

Contents of Form-I
• Name and address of Modaraba Company and its registration number
• Name and type of modaraba indicating exact purpose objectives and duration of modaraba
• Description of business operations, organizational set up, plans and prospects along with feasibility
report - 63 –
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• Details showing how the business and operation shall be conducted and how the operation will no be
opposed to the Principals of Islam
• Amount of modaraba fund to be floated, its division and conditions
• Amount to be subscribe by Modaraba Company and amount to be set aside for modaraba
• Form of modaraba certificate [Same as Share Certificate]

The following documents shall be annexed with the application:

• Certified copy of the registration certificate of the modaraba company
• Five copies of prospectus signed by all directors of Modarba Company.
• Five copies of the latest audited accounts of the company

The registrar after obtaining a certificate from the Religious Board and after being satisfied that it is in the public
interest shall grant a certificate to the modaraba company authorizing it to float a modaraba.

Listing on the Stock Exchange

After getting authorization from Registrar Modaraba the Modaraba Company shall take necessary steps for
listing of Modaraba on SE inviting general public to subscribe to the modaraba certificate. (Listing procedure is

Prospectus of Modaraba

• The disclosure requirement of the prospectus of modaraba are more or less the same as provided in
the Companies Ordinance, 1984, however, the Modaraba Ordinance and Rules prescribe independent
disclosure of the prospectus of Modaraba which are given in the forth schedule to the Modaraba Rules.
• The prospectus is signed by all the directors of Modaraba Company.
• The copy of the prospectus is filed with registrar of Modaraba for registration.
• The business operation of Modaraba are provided in the prospectus which are vetted by the religious
• The Modaraba must be floated within 12 months of the date of authorization.

Conditions Applicable to Modaraba Company and Modaraba

• A Modaraba Company shall not carry on any business which is carried on by Modaraba floated by it.
• Neither the Modaraba Company nor any of its director/officer shall obtain any loan or advance from
modaraba fund.
• No allotment of modaraba certificate is made unless a prospectus approved by Registrar has been
issued and the minimum subscription has been received.
• All money received from the applicants of modaraba fund shall be deposited in a separate bank
• Modaraba Company shall issue modaraba certificate within 30 days of allotment.
• Modaraba Company shall maintain register of certificate holders.
• Modaraba Company shall maintain separate bank account, fund ,assets and liabilities of each

Remuneration of Modaraba Company

The remuneration of Modaraba Company shall be not more than 10% of the annual net profit of the modaraba
on the basis of audited accounts

Accounts and Audit

A Modaraba Company is responsible to ensure that proper books of accounts are kept for each Modaraba at
the registered office of the Company.
Modaraba Company shall be responsible to prepare, circulate and file accounts of Modaraba in a prescribe
manner. (Accounts are maintained like listed companies, IAS are applicable, Disclosures are prepared - 64 –
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according to 3rd schedule to the Modaraba Rules)

Authentication of Accounts

The accounts of Modaraba are authenticated by the chief executive and two directors of the Modaraba

Qualification of Auditor

Same as provided in Companies Ordinance, 1984.

Appointment of Auditor

The appointment of auditor of Modaraba is made by a Modaraba Company with the approval of Registrar. The
auditor of Modaraba shall be independent of the auditor of the Modaraba Company. The terms of appointment
of the auditor of Modaraba and including fee etc. shall be approved by the Registrar annually.

Removal of Auditor

A Modaraba Company seeking to appoint auditor other than the existing auditor, must inform the existing
auditor in writing given reasons of change and copy to Registrar. The Registrar, if he desires and after
obtaining necessary clarifications and explanations from the existing auditor shall take the decision, which shall
be final.
An auditor may resign from his appointment with the approval of Registrar.

Profit Distribution of Modaraba

A Modaraba may distribute profit in cash or issue of bonus certificates out of capitalize reserves or profit.
Dividend may be interim or final. (Same in case of Companies Ordinance, 1984)
If 90% of profit is distributed to the modaraba certificate holders, the income of the modaraba shall be exempt
from tax. The Modaraba Company before declaring the dividend may set aside necessary reserves to comply
with Prudential Regulation for Modaraba.

Return of Allotment

Whenever the company makes any allotment of modaraba certificates it must file with the Registrar a return of
allotment within one month of allotment.

Annual List of Certificate Holders

Every Modaraba Company shall in respect of Modaraba prepares and file with the Registrar a list of certificate
holders & summary in the following manner:

• Within 18 months from modaraba floatation and

• Thereafter, once atleast in every year

The above list is prepared on the date of reopening of the register of the certificate holders relating to final
dividend and if there is no such date, 31st December of the year.
The list is filed with the Registrar within 30 days of the respective date.

Mortgage & Charges

All the charges created on the assets of Modaraba are to be registered with the registrar within 21 days of the
creation of the charge. (procedure is same as in Companies Ordinance, 1984)

Increasing the Modaraba Fund (Nominal Fund) - 65 –
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A Modaraba Company may under the authority of a board resolution decide to increase the modaraba fund.
The fund shall be increased after alteration of prospectus with the approval of Registrar.
Before giving approval the registrar at the expense of Modaraba shall issue a notice in news paper for the
proposed increase for knowing the opinion of modaraba certificate holders and others within the period not less
than 14 days.
After getting permission from Registrar Modaraba company shall be authorize to increase the authorize
fund/nominal fund.

Further Issue of Modaraba Certificates in the Form of Right

Same as in case of Companies Ordinance, 1984

Annual Review Meeting of Modaraba (ARM)

• Each Modaraba shall hold an ARM of its certificate holders in the town in which the registered office of
the Modaraba Company is situated.
• The purpose of meeting is to review the performance of Modaraba during the year. It is held within the
4 months of the close of financial year of Modaraba.
• There is no voting right of certificate holders in the meeting.
• For the purpose of notice of the meeting the provision of Companies Ordinance, 1984 is applicable
mutatis mutandis.

Winding up of Modaraba
Circumstances in which Modaraba may be wound up Voluntarily

i. A Modaraba may be wound up voluntarily under the following conditions:

• Time period for which the Modaraba was formed has been expired
• The specific purpose for which the Modaraba was formed has been achieved
ii. All the directors of Modaraba Company shall make a declaration (Declaration of Solvency) that they
have made full inquiry about the affairs of Modaraba and they have formed an opinion that Modaraba
shall be able to discharge its liabilities and pay the amount of modaraba fund in full within the period of
12 months.
iii. The above declaration shall be supported by auditor certificate and it shall have no effect unless it is
filed with the Registrar within 90 days expiry of period for which Modaraba has formed or accomplishing
the purpose of Modaraba.

Circumstances in which Modaraba may be wound up by Modaraba Tribunal

A Modaraba shall be wound up by the Tribunal on an application made by the Registrar if:
i. In case of voluntary winding up the required declaration has not been filed
ii. In case the registrar has declared that:

• Modaraba has unable to pay its liabilities

• Accumulated losses of the Modaraba exceeds 50% of the paid up fund
• Business of the Modaraba has been conducted for a fraudulent purpose

iii. The Tribunal of the opinion that it is just and equitable that Modaraba should be wound up.


On application to Registrar of 10% or more certificate holders of Modarba, there can be an inspection
of modarba or a particular transaction.
A Modarba Company can also be replaced by a new modarba company or by an administrator by
Registrar. - 66 –
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ƒ Every insurer in respect of all insurance business and in case of insurer incorporated outside
Pakistan in respect of insurance business transacted in Pakistan, shall maintain proper books of
9 A Register of records of policies( with particulars)
9 A Register of records of claims( with particulars)
9 Other books & Records as may be prescribed.
ƒ Every Insurer shall furnish a statement of Assets & Liabilities.
ƒ The accounts shall be signed in the following manner:
9 Insurer incorporated in Pakistan; Chairman plus 2 directors plus Principal
Officers with names
9 Insurer incorporated outside Pakistan; Principal Officer in Pakistan plus two
directors or closest comparable officer equivalent thereto.

ƒ Every Insurance Compnay shall appoint an auditor who shall be
™ Approved by SECP to perform audit of Insurance Companies
™ Authorised by Companies Ordinance 1984 to perform audit of public companies.
• SECP may appoint an auditor (other than company’s) to investigate such accounts, statements
and books as SECP may direct. [Special Audit]
• Audited accounts shall be submitted to SECP within 4 months from end of period.
[Further extension 15 days]

Following course grid is not covered in this portion…..

“Securities and Exchange Commission (Insurance) Rules 2002 including regulations and Format
accounts. Broad understanding of the Code of Corporate Governance for listed and unlisted insurance
Please refer to original sources for these regulations and code These are available at SECP’s site or
also can be downloaded from under the notes “Corporate Laws complete
course 1 / 2”. - 67 –
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• Any Issuer (Company) who intends to get its securities listed on the Stock Exchange shall submit an
application in a prescribed form to the Stock Exchange and a copy to SECP.
• Stock Exchange if satisfied may list the securities for dealing on the Stock Exchange.
9 If the Stock Exchange refuses to list the securities then company can file petition with SECP.
9 SECP through an Order may direct the Stock Exchange to list the securities.

• Where after listing of the security the SECP or the SE find that
9 The application is deficient in any material respect; or
9 The issuer (Co.) has failed to comply with any prescribed conditions or rules
9 The continued listing of the security would not be in public interest
The SECP/SE may by order require the issuer to correct the deficiency or comply with the prescribed
conditions or may revoke the listing.

• A listed security may de-listed on the application of issuer.

o The SE may deny or grant the de-listing for the protection of investor.
o Where SE refuses to de-list a security the SECP on the petition of issuer may direct the SE to
de-list the security.
• The SECP or the SE, if thinks appropriate may suspend the trading of any listed security for a period of
60 days and the suspension period and the suspension period may be extended for another 60 days.


ƒ No person shall indulge in insider trading.
ƒ Insider trading shall include, –
9 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
9 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;
9 Transaction by any person mentioned in above cases, 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;
9 An insider person suggesting or recommending to another person to engage in dealing in any listed
securities to which the inside information possessed by the insider person pertains, without the
inside information being disclosed to the person who has dealt in such securities:
ƒ Nothing in this section shall apply to
9 Any transaction performed under an agreement that was concluded before the time of gaining
access to inside information; or
9 The disclosure of inside information by an insider person as required under law.
ƒ No contract shall be void or unenforceable by reason only of an offence under this section.

1. Information which has not been made public relating, directly or indirectly, to listed securities or one or
more issuers 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 securities;
2. In relation to derivatives on commodities or 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; or
3. 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.

a) Sponsors, executive officers and directors of an issuer;
b) Sponsors, executive officers, directors and partners of a legal person or unincorporated business
association, in which the issuer holds shares or voting rights, directly or indirectly, of 20% or more;
c) Sponsors, executive officers, directors and partners of a legal person or unincorporated business
association who holds, directly or indirectly, shares or voting rights of 10% or more in an issuer; - 68 –
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d) Sponsors, executive officers and directors of an organization, that has been engaged in the placement
of listed securities or public offer of securities or issuing and marketing of such securities, who has had
access to insider information during his employment till a period of one year after leaving employment;
e) Any natural person holding, directly or indirectly, 10% or more shares of an issuer;
f) Sponsors, executive officers and directors of credit institutions in which the issuer has an account;
g) Any person obtaining inside information as part of his employment/discharging his usual duties in an
official capacity, or in any other way relating to work performed under contract of employment/
h) Any person obtaining inside information through unlawful means; and
i) A spouse, lineal ascendant or descendant, partner or nominee of any above


¾ Listed companies shall inform the public, in the manner specified by the SECP, as soon as possible of
inside information which directly concerns the listed securities.
¾ Listed companies may delay the public disclosure of inside information, in order not to prejudice their
legitimate interests, provided that such delay does not mislead the public and provided that the
company is able to ensure the confidentiality of the information and the company shall inform the SECP
of the decision to delay the public disclosure of inside information forthwith.
¾ Whenever a listed company or a person acting on its 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 in the manner specified by SECP: 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.
¾ Listed companies or persons acting on its behalf, shall maintain and regularly update a list of persons
employed, under contract or otherwise in the manner specified by the SECP who have access to inside
information and provide such list to the SECP whenever the SECP requests it.
¾ Persons discharging managerial responsibilities within a listed company and, where applicable,
persons closely associated with them, shall notify the SECP of transactions conducted on their own
account relating to the securities of such listed company in the manner specified by the SECP.
¾ The Exchanges shall adopt structural provisions, operating procedures and surveillance techniques to
detect and prevent insider trading and market abuse practices, within such time as may be specified by
the SECP and according to the regulations made hereunder.


Any person who contravenes the provisions of this ordinance shall, on being found guilty of
contravention by the SECP, be liable to fine, which may extend to 10,000,000 rupees or 3 times the
amount of gain made or loss avoided by such person, or loss suffered by another person, whichever
amount is higher.
In addition to the fine imposed, such person may
o Be directed by the SECP
ƒ To surrender to SECP, an amount equivalent to gain made or loss avoided by him; or
ƒ To pay any other person who has suffered a loss, an amount equivalent to the loss so
suffered by such person; and
o Where such person is an executive officer, director, auditor, advisor, consultant of a listed
company, be removed from such office by an order of the SECP and debarred from auditing
any listed company for a period of upto three years; or
o Where such person is registered as a broker / agent, be liable to cancellation of registration.
Where an insider person discloses inside information to any other person who is not required to
possess such information for any reason, the insider person shall be liable to fine, to be imposed by
SECP, which may extend to 30 million rupees.
The SECP may, by notification in the official Gazette, make regulations to regulate 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

SECURITY & EXCHANGE RULES, 1971 not included in these notes. Plz refer to original rules.
These are available at SECP’s site or also can be downloaded from under the notes
“Corporate Laws complete course 1 / 2” - 69 –
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Taken from Notes of Sir Kashif Adeel available at


Abuse of dominant position is prohibited. An abuse of dominant position consists of practices which prevent,
restrict, reduce or distort competition in the relevant market.
Examples of such practices include:
a) Limiting production, sale and unreasonable increase in prices or other unfair trading conditions.
b) Charging different prices from different customers for the same goods or services without justification
(price discrimination).
c) Making sale conditional with purchase of other goods or services (tie-ins).
d) Making the conclusion of contract subject to the acceptance of others.
e) Dissimilar conditions for equivalent transactions for different parties (competitive disadvantage).
f) Exit the competitor; prevent new entry and creating monopoly in the market by predatory prices.
g) Boycott, exclude other undertaking from production, distribution or sale of goods or services.
h) Refusal to deal.


An undertaking or an association of undertakings shall not enter into a contract or take a decision for
production, supply, distribution or control of goods or services to prevent, restrict or reduce competition in the
relevant market except when granted exemption under this Ordinance. A contract entered into in contravention
of this section shall be void.
Prohibited agreements include:
a) Fixing prices / imposing restrictive trading conditions for purchase, sale and distribution of goods &
b) Dividing market by territories, volume of sale, purchase or type of goods and services.
c) Fixing quantity of goods for production, sale or means for services.
d) Limiting technical development for production and sales of goods or services.
e) Collusive tendering or bidding for purchase and sale of goods and procurement of services.
f) Applying different conditions for equivalent transactions to different parties.
g) Making conclusion of contract subject to acceptance of others.
When it is granted? If request to CCP for exemption has been made by party to contract; or Practice meets the
criteria for exemption.
Exemption period The exemption shall be for a specified period and may have effect from an earlier date on
which it is granted. The exemption period may be extended in the specified circumstances.
When it is cancelled? If the CCP has reasonable grounds that the information was incomplete, false or
misleading or the circumstance has changed upon which the exemption was granted
Consequences and actions CCP may take the following action after a notice in writing:
(i) Cancel the exemption.
(ii) Vary or remove any conditions or obligations.
(iii) Impose additional conditions or obligations.
Who may grant? CCP
Scope Contracts meeting criteria for individual and block exemption both
When it is cancelled?
• Breach of condition imposed by order.
• Failure to comply with the obligation imposed by order.
• A particular agreement does not meet the criteria for exemption.
Pre-requisites Before making an order the CCP shall:
(i)Publish the details of proposed order for bringing it to the attention of the affected.
(ii) Consider any representation made in this respect.
Retrospective The order may have effect from an earlier date.


CCP may grant individual & block exemption on application by undertaking in respect of following agreements:
ƒ Improving production or distribution. - 70 –
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ƒ Promoting technical or economic progress allowing consumers a fair share of resulting benefits.
ƒ The benefits of that clearly outweigh the adverse effect of absence or lessening of competition.


An undertaking shall NOT enter into the deceptive marketing practices. Deceptive marketing practices shall be
deemed to be continued in following circumstances:
a) Distribution of false/misleading information capable of harming business interests of other undertaking.
b) Distribution of false/misleading information to customers lacking reasonable basis about prices,
character, method or place of production, properties, suitability for use or quality of goods
c) False or misleading comparison of goods in advertising
d) Fraudulent use of another’s trademark, firm name, product labeling or packaging


An undertaking shall NOT enter into a merger which substantially lessens the competition by creating or
strengthening a dominant position in the relevant market.
Merger shall be deemed to have occurred if:
ƒ 2 / more independent undertakings merge into new undertaking & cease to exist as separate legal entities
ƒ 1 undertaking is absorbed by another with the latter retaining its legal entity and former ceasing to exist;
ƒ 1 / more persons or other undertakings acquire direct or indirect control of the whole or part of one or
more other undertakings;
ƒ Acquisition by one undertaking of the assets or a substantial part of the assets, of another undertaking is
to place the first undertaking in a position to replace or substantially replace the second undertaking;
ƒ A collaborative arrangement by which two or more undertaking devote their resources to pursue a
common objective.
An undertaking(s) shall apply for clearance of the intended merger if:
(i) An undertaking intends to acquire shares or assets of other undertaking.
(ii) Two or more undertakings intend to merge whole or part of their businesses.
(iii) Undertaking(s) meet the pre-merger notification threshold.
Application for clearance shall be made for intended merger which may substantially lessen the competition by
dominant position. The undertaking(s) shall give notice of intended merger within 07 days of agreement of
intended merger. The application shall not be made unless:
The Value of Is at least
Gross asset of undertaking
excluding goodwill. Rs. 300 million
Combined assets (all undertakings) Rs. 1 billion
Annual turnover of undertaking
in preceding year Rs. 500 million
Combined turnover (all undertakings) Rs. 1 billion
The CCP may change the thresholds from time to time after publication in Gazette.
Applicant Individual, Individual Company or body corporate
Application to be filed by: Authorized officer Partnership firm Partner.
Where application is made jointly, joint representatives may be authorized by CCP on behalf of joint applicants.
Dispensing: The CCP may dispense with any particular information by giving a notice with to applicant.
Compliance: The CCP may allow the part of application to be complied with in alternate and alternate manner
if it is impossible to be complied with. The application may be manner rejected if it is not in compliance.
No. of copies: 3 copies or as many copies and in such manner as required.
Fee: The application shall be accompanied by fee paid by challan or draft.
Rates of fee:
Turnover (Rs in million) Fees (Rs.)
Upto 500 250,000
500-750 400,000
750-1,000 500,000
Exceeding 1,000 750,000 - 71 –
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Notice of intended merger is to be given to all other parties. CCP may specify to give notice to such other
parties if the applicant is unable to contact other parties.


The CCP shall asses the strength of competition and the probability that the parties after merger will behave
competitively in the relevant market after taking into account the following factors:
(a) the actual and potential level of import competition in the market;
(b) the ease of entry into the market, including tariff and regulatory barriers;
(c) the level and trends of concentration, and history of collusion, in the market;
(d) the degree of countervailing power in the market;
(e) the dynamic characteristics of the market, including growth, innovation, and product differentiation;
(f) the nature and extent of vertical integration in the market;
(g) whether the business or part of the business of a merger party or merger has failed or is likely to fail; and
(h) whether the merger situation will result in the removal of an effective competitor

PHASE–I ORDER BY CCP: Whether merger is dominance

Phase-I review shall entail a quick review and allow merger situation to proceed without delay which do not
raise competition. The CCP shall decide on receipt of complete application whether the transaction falls within
the meaning of merger and inform the applicant if the transaction is not within the meaning of merger. The
CCP shall pass an order within 30 days of receipt of application whether the intended merger meets the
threshold and presumption of dominance. Further, the CCP may require the undertaking to provide additional
information for a second phase review. If order is not passed within 30 days of application, it shall mean that
the CCP has no objection on intended merger.
PHASE–II ORDER BY CCP: Whether dominance lessens the competition
If the CCP is unable to determine on the basis of phase-I review that the situation does not raise competition it
shall carry out a phase-II review. The CCP may require further information in phase-II review. On initiation of
second phase review, the CCP shall assess and give decision within 90 days of receipt of additional
information whether the merger will substantially lessen the competition by dominant position in the relevant
market. The CCP may reject the application if the required information is not provided. If the decision is not
made within 90 days, it shall mean that the CCP has no objection on intended merger.
If the CCP determines in second phase review that intended merger will substantially lessen the competition by
dominant position, still it may approve merger on the following grounds:
(a) It substantially contributes to the efficiency, production and distribution of goods & services.
(b) Such efficiency could not reasonably be achieved by a less restrictive means of competition.
(c) The benefits of that clearly outweigh the adverse effect of lessening or absence of competition.
(d) It is the least anti-competitive option for the failing undertaking’s assets when one undertaking is facing
actual or imminent financial failure.
If CCP determines that transaction under review does not meet the above criteria, it may:
(a) Prohibit the consummation of transaction.
(b) Approve the transaction by imposing conditions.
(c) Approve the transaction on condition that undertaking shall not enter into legally enforceable agreements.
If the undertaking(s) consummate merger without approval of CCP, the CCP shall pass order against such
merger (under section 31) after giving opportunity of being heard.


The CCP may review the conditions subject to which the exemption was granted either on its own motion or on
application made by undertaking within one year of exemption. If the CCP finds that exemption was based on
false or misleading information or the conditions has not been fully complied with, it shall, after providing
opportunity of being heard:
(a) Undo such merger or acquisition.
(b) Prescribe modification or additions in the original order.
The CCP shall provide opportunity of being heard before passing an order. An ex-prate decision may be made
if the undertaking does not afford opportunity. The hearing shall be private, however, in exceptional
circumstance the hearing may be conducted in public. If the CCP make a favorable decision it may impose
conditions and shall give notice to undertaking(s). The CCP may specify the period of the decision within
which the merger shall be carried out in effect depending on the circumstances. The CCP will not take further
action in this period unless the circumstance arise which lead to the subsequent review. The decision may be
placed on website. When the CCP makes unfavorable decision it shall issue a notice to the parties stating the - 72 –
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fact and objections. The CCP may issue directions to remedy, mitigate or eliminate the effects of merger. The
decision may be placed on website.
™ Complainants shall provide following information to the CCP while making the complaints:
ƒ Name and address of the complainant;
ƒ the relationship between the complainant and the merger parties or merged entity;
ƒ a concise explanation of the reasons and details of the complaint, including details of the merger
situation to which the complaint relates, when and how the complainant became aware of the merger
situation, and the relative market positions of the parties named in the complaint;
ƒ evidence directly related to the facts set out in the complaint, including appropriate copies of relevant
correspondence, statistics or data which relate to the facts set out in the complaint.
™ The CCP will consider each complaint on its merits to determine if an investigation is warranted. If the CCP
decides to pursue the complaint, it will seek further information from the merger parties.
™ The complainant should make clear to CCP if he does not wish to be identified. However, sometimes it is
necessary to reveal information which may identify the source of complaint for effective handling of
complaint. When providing information or documents to the CCP, complainants shall provide a non-
confidential version of complaint & of any other information or documents which complainant may furnish.
™ The CCP may recognize the importance of complainants voluntarily supplying information and also their
interest in maintaining confidentiality. If the CCP proposes to disclose any of the information over which
confidentiality has been claimed, it may consult the complainant providing the information.


If the CCP concludes that the situation may prevails after an intended merger which substantially lessens
competition in the relevant market, the CCP may give appropriate written directions to remedy, mitigate or
prevent the effects of merger. The directions may include the following:
(a) Prohibiting an intended merger from being carried into effect or requiring a merger to be dissolved or
modified in required manner;
(b) requiring the merger parties to enter into such legally-enforceable agreements specified to prevent or
lessen the anti-competitive effects which have arisen;
(c) requiring the merger parties to dispose of such operations, assets or shares of such undertaking in
required manner;
(d) providing a performance bond, guarantee or other form of security on required terms and conditions.
The persons suffering loss from the merger are entitled to commence civil action seeking relief against relevant
undertaking(s). Such right shall arise on the decision of appeal or expiry of period of appeal.
Where the merger situation is subject to review under merger laws in more than one jurisdiction, the CCP shall:
(a) without compromising effective enforcement of the domestic law seek to cooperate its reviews of
transnational mergers in appropriate cases;
(b) consider actions by which they can eliminate or reduce the impediments to cooperation and coordination;
(c) encourage merging parties to facilitate coordination among competition authorities, in particular with
respect to timing of notifications and voluntary waivers of confidentiality rights, without drawing any negative
inferences from a party’s decision not to do so;
(d) give the merging parties, the opportunity to consult with the concerned competition authority at key stages
of investigation with respect to any significant or practical issue that may arise during the course of
(e) give an opportunity to third parties, with a legitimate interest, in the merger review as recognized under
reviewing country’s merger laws, to express their review under the merger review process.
(f) treat foreign undertakings, no less favorably than domestic undertakings in like circumstances.
(g) endeavor in reaching, in so far as possible, consistent, or at least non-conflicting outcomes
The CCP may issue guidelines in respect of the merger frame work. The guidelines shall be illustrative and not
exhaustive and shall not set a limit on the investigation and enforcement powers of the CCP. The guidelines
shall not be a substitute for the Ordinance, the rules, regulations and orders.


The following are functions and powers of CCP:
(a) To initiate proceedings in accordance with procedures of this Ordinance and make orders in respect of
contravention of provisions of this Ordinance.
(b) To conduct studies for promoting competition in all sectors of commercial economic activity.
(c) To conduct inquiries into affairs of undertakings.
(d) To give advice to undertakings whether action taken by undertaking is within provisions of this Ordinance.
(e) To engage in competition advocacy.
(f) To take all other actions necessary of purpose of this ordinance. - 73 –
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The CCP shall promote competition through advocacy which shall include:
(a) Awareness, training and other necessary actions for the promotion of competition.
(b) Reviewing the policy for fostering competition and making recommendations to FG or PG for amendments
in the laws affecting competition.
(c) Holding open hearings and expressing opinion on the issues affecting state of competition or commercial
(d) Posting all decisions made, inquiries under review and completed, merger guidelines and educational
material on its website.
The CCP may pass orders(s) as it deem appropriate in case of contravention of prohibitions under this
Ordinance. The CCP may impose penalty in all such contraventions after giving notice and opportunity of being
heard. In case the undertaking does not avail the opportunity, the CCP shall pass ex-prate order. The CCP
shall publish its order along with basis of order in its Official Gazette. An order shall have effect notwithstanding
anything contrary contained in any other law or any contract or memorandum or articles.
ORDERS OF CCP [31, 32]
The CCP may pass following orders:
In Case of abuse of dominant position: require the undertaking to take actions necessary to restore the
competition and not to repeat prohibitions and not to engage in the similar practices.
prohibited agreement: annul or amend the agreement or related practices and not to repeat prohibitions or
enter into similar contract or practices
deceptive marketing require the undertaking to take actions specified in the order necessary
to restore the competition and not to repeat prohibitions
merger -authorize the merger subject to conditions.
-authorize merger after second phase review.
-prohibit merger only after second phase review.
CCP may pass an interim order after giving the undertaking an opportunity of being heard if it appears that:
(a) Final order will take time.
(b) There is a situation that may cause serious or irreparable damage.
(c) Issuing interim order is in public interest.
The CCP may direct the undertaking to do or refrain from doing any act specified in the order. An interim order
shall remain in force until cancelled by CCP or final order is passed.
In case of inquiry or proceedings the CCP shall have the powers of Civil Court under the Code of Civil
Procedures, 1908 while trying a suit in the following matters:
(a) Summoning and enforcing attendance of witness and examining him on oath.
(b) Discovering and production of documents or material object as evidence.
(c) Accept evidence on affidavit.
(d) Requisitioning of any public record from any court or office.
(e) Issuing of a commission for the examination of any witness or document.
Any proceedings before the CCP shall be deemed to be judicial proceedings.
The CCP may require the undertaking to produce any books, accounts, documents or information to be
examined and kept by any officer of the CCP.
The CCP may authorize any officer to enter and search premises of an undertaking. The CCP:
(a) shall have full and free access to premises, place accounts, documents and computer.
(b) may stamp or make extracts or copy of accounts, documents or computer stored information.
(c) may impound any accounts or documents and retain for necessary period.
(d) may impound and retain computer for necessary period where a hard copy of computer stored record is not
made available.

An officer appointed in this behalf shall provide authority of the CCP to the undertaking. The CCP may
authorize a valuer to enter into premises and inspect accounts and documents necessary for his valuation. Any
owner, manager or person present in premises shall provide all facilities and reasonable assistant to the
officer. The authorized officer shall give receipt of documents and computer impounded or retained. The
undertaking shall have right to examine impounded accounts and computer and make an extract or copy
during regular office hours and under supervision.
If an undertaking refuses an officer of CCP to enter into premises without reasonable cause, an investigating - 74 –
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officer may enter into premises by force. The order shall be in writing and signed by two members of the CCP.
If an officer exercises his powers which are vexatious, excessive or mala fide intent, such officer shall be
punishable with a fine upto Rs. 500,000 and imprisonment upto one year or both.

When a criminal court passes an order imposing fine, it may order that a sum equal to whole or part of fine
recovered shall be paid to complainant and in case the fine is not recovered, the sum shall be paid out of Fund.
The amount paid shall not prejudice the right of aggrieved person to avail any remedy under any other law.
And awarding compensation in subsequent proceedings in the same matter the court shall take into account
the sum already recovered and paid.




The CCP may pass order directing the undertaking, director, officer or employee of the undertaking to pay
penalty after giving opportunity of being heard where the undertaking:
(a) has been engaged in prohibited activity
(b) failed to comply with order of CCP
(c) failed to supply with the copy of required document or information
(d) has furnished false or inaccurate information or statement
(e) knowingly abuses, interferes with, impedes, imperils or obstructs the process of CCP in any manner
Provided that fair comments made in good faith and public interest on working or order of CCP after
completion of proceeding shall not be subject to penalty.
In case of Penalty (depending upon circumstances)
contravention of prohibitions:
-amount not exceeding Rs. 50 million; or
-amount not exceeding 15% of the turnover
non-compliance of order, notice or requisition of CCP or failure
-amount not exceeding Rs. 1 million to supply copy of agreement, document or information
continuing default of order of CCP:
-an amount not exceeding Rs. 1 million for every day after the first day
The CCP may vary the amount and rate of penalties in public interest after approval of FG.
The failure to comply with the orders of the CCP shall constitute a criminal offence punishable with
imprisonment of 01 year and fine of Rs. 25 M. The CCP may also initiate proceedings in a court of competent
If the CCP is satisfied that the undertaking being a party to the prohibited agreements alleged to have violated
this Ordinance has made a full and true disclosure, it may impose a lesser penalty.
CCP may grant an undertaking total immunity from financial penalties if the following conditions are satisfied:
(a) The undertaking is the first to provide with evidence of any activity leading to violations of section 3-11
provided that the CCP does not already have such information.
(b) The undertaking:
(i) provides all the information, documents and evidence available to it regarding the prohibited activity;
(ii) maintains continuous and complete cooperation throughout the proceedings until the conclusion of
any action;
(iii) refrains from further participation in the alleged activity from the time of its disclosure to the CCP;
(iv) must not have been the one to initiate the prohibited activity; and
(v) must not have coerced another undertaking to take part in prohibited activities.
An undertaking may benefit 100% reduction in penalty if:
(a) the undertaking is the first to provide with evidence of prohibited activities;
(b) information is given after CCP has started proceedings but before sufficient information to issue a
written notice that it proposes to make a decision;
(c) the conditions prescribed are satisfied. - 75 –
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An undertaking may benefit 50% reduction in penalty if it provides evidence of prohibited activities before the
CCP issues a written notice but are not the first to come forward.
Any reduction in penalty under these circumstances is discretionary. The CCP shall take into account the
following in exercising its discretion:
(a) the stage at which the undertaking comes forward;
(b) the evidence already in the CCP’s possession; and
(c) the quality of the information provided by the undertaking.
An undertaking or person empowered by it seeking leniency shall contact the CCP. The initial contact may be
made by telephone. The application for leniency shall be in writing and supported with evidence. The
application shall be submitted within 8 weeks of initial contact.
Initial contact may be without disclosure of identity. However, the application shall contain relevant information
along with the name of undertaking. The undertaking may provide the evidence with the application or a list of
proposed evidences to be provided later. It may provide the type and duration of infringement of provisions,
product affected and identity of those involved. If the applicant does not fulfill the obligations, any subsequent
applicant shall move up from him in priority.

The CCP shall keep confidential the identity of undertaking coming with the evidence throughout the
proceedings. Immunity granted by CCP shall not affect the right of third parties. Third parties can pursue their
claim in the competent court.
If the CCP finds that the undertaking has given false evidence or failed to comply with the condition upon which
the reduced penalty was impose, it may revoke the leniency and impose penalty at normal rates.
Immunity granted by the CCP cannot exclude claims by third parties who may have suffered loss as a result of
the activities in respect of which immunity is granted. Third parties, therefore, shall have the right to pursue the
private claims for damages before the Court.
The CCP may serve notice on concerned person, undertaking, chief executive or director of the undertaking to
pay the said amount within prescribed time. If the penalty is not paid within the prescribed time, the CCP may
recover such amount in any of the following ways:
(a) Attachment of moveable and sale of immoveable property including bank accounts.
(b) Appointment of receiver for management of moveable or immoveable property.
(c) Recovery of the amount as arrears of land revenue through District Revenue Officer.
(d) Require any of the following by notice to deduct and pay the sum specified in notice before specified date:
(i) from whom any money is due or may become due to the undertaking.
(ii) who holds or controls the receipt and disposal of money belonging to undertaking
(iii) who is responsible to pay any sum to the undertaking.
Any bank, receiver, District Revenue Officer or undertaking who has paid any sum to the CCP shall be deemed
to have paid on behalf of the undertaking. A receipt of the CCP shall discharge the liability of such person to
the extent of amount so paid. If a bank, receiver or DRO or undertaking fails to deduct sum specified in the
notice, such person shall be treated as defaulter and money shall be recoverable from him.
APPEALS [41, 42]


Any person aggrieved by the order of CCP or Member or authorized officer of the CCP may submit an appeal
before appellate bench of CCP within 30 days of passing the order. The appellate bench shall comprise of at
least 02 members. The decision of the appellate bench shall be made unanimously or by majority where the
bench comprises more than two members. In case of a tie, the order appealed against shall have effect of final
order. The member who passed the order appealed against shall not be member of the appellate bench. The
appeal shall be in prescribed form and with prescribed fee.
Any person aggrieved by the order of the appellate bench may prefer an appeal to Supreme Court within 60
days of communication of the order. - 76 –
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Listed Companies (Substantial Acquisition of Voting Shares & Takeover) Ordinance, 2000

Acquirer Any person who directly and indirectly acquires or has proceeded to acquire voting
shares in the target company, or control of the target company either by himself or
through any person acting in concern.
Control Includes the right to appoint majority of directors or to control management or policy
decisions whether by virtue of shareholding, management right, shareholder agreement
or voting agreement.
Target A listed company whose voting shares or control is directly or indirectly acquired or
Company intended to be acquired.
Public Offer It means public offer for acquisition of voting shares of a target company and includes
any competitive bid.
Offer Period From date of public announcement to closure date of public offer
Public It means public announcement of public offer for acquisition of voting shares and
Announcement includes public announcement of competitive bid.
Persons acting Means a person who cooperates with the acquirer to acquired voting shares or control of
in concern target company.
Manager to the Before making public announcement, acquirer shall appoint a Bank/Financial Institution
offer or member of Stock Exchange to act as so.

This Ordinance not to be applied to certain transactions

ƒ Shares issued under pre-IPO’s
ƒ Right issue
ƒ Shares allocated under underwriting arrangements.
ƒ Acquisition of shares by financial institution as enforcement of securities.
ƒ Acquisition of shares by succession inheritance.
ƒ Schemes of mergers & reconstruction of companies.

Acquisition of more than 10% of voting shares of company (Sec 4)

ƒ Any acquirer who acquires voting shares (taken together with existing shares), which would entitled to
acquires more than 10% voting shares in a listed company shall disclosed the aggregate of his
shareholding to the Stock Exchange.
ƒ The above disclosure shall be made within 3 working days of the acquisition.
ƒ If he acquires more shares but remain below 25%, he shall not be liable to disclose if additional
acquisition is within 12 months.

Substantial acquisition of voting share and acquisition of control of a listed company

Additional acquisition (Sec 5 & 6)

9 No person shall directly or indirectly acquire

¾ Voting shares (taken together with existing shares) which would entitled such person to more than
25% of voting shares in a listed company; or
¾ Control of a listed company.
Unless such person makes a public announcement of the offer to acquire voting shares or control of listed

9 Before making public announcement the person shall make necessity disclosure to the Target Company
and stock exchange.
9 No acquirer (who has acquired more than 25% but less than 50% of the voting shares or control) shall
acquire additional voting shares or control unless such persons makes a public announcement of the offer.
¾ Provided such acquire shall not be required to make a fresh public announcement of the offer
within period of 12 months from the previous announcement.

Number of shares to be acquired - 77 –
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™ Offer by acquirer shall be a %age of Total Capital

™ If no of shares offered for sale by shareholders are more than shares offered to be acquire, acquirer
shall in consultation with mnager to the offer accept shares on proportional basis.
o Provided that acquisition shall not be less than minimum marketable lot or entire shares, if they
are less than marketable lot.

Public announcement

1. The announcement shall be published at least in one Urdu and one English newspaper.
2. The public announcement shall contain prescribed information.
3. Copy of announcement shall be submitted to SECP through manager to the offer atleast 2 days before
4. The announcement shall also be sent to all stock exchange where company has registered and to target
5. It shall not contain any misleading information.

General obligation of acquirer

ƒ Within 2 working days of public announcement, the acquirer shall send to the target company, a copy of
proposed offer letter along with copy to SECP.
ƒ The acquirer shall ensure that the offer letter is sent to all the shareholders of Target Company whose
name appear on register of members on date specified in Public Announcement.
ƒ Date of acceptance of public offer shall not be later than 60th day from day of Public Announcement.
ƒ The acquirers shall complete all the procedures including the payment to shareholders who had accepted
the public offer within 30 days from the date of closure of public offer

General Obligations of the vote of target company

ƒ The board of directors of Target Company shall not during the offer period:
a. Sell or transfer undertaking of company or any of its subsidiary.
b. Encumber the assets of company or its subsidiary
c. Issue any right or bonus shares
d. Enter into any material contract
ƒ The Target company shall furnish to the acquirer a list of its shareholders for sending offer letter.
ƒ During the offer period, the board of directors shall not appoint additional directors or fill any casual
vacancy by person representing acquirer.
ƒ BOD may, if think fit, give their unbiased comments & recommendations to shareholders on public offer.
ƒ Target Company shall facilitate transfer in name of acquirer, the shares.
ƒ The acquirer who has acquired 30% of voting shares shall be entitled to the proportionate representation
on the board of directors.
a. The acquirer shall serve a notice to the target company, the copy of which shall be sent to stock
b. On receipt of notice, the BOD of Target Company shall cause a Board meeting within 10 days.
c. BOD of Target Company shall fill the casual vacancy created by the resignation of 1 or more
existing directors to accommodate the acquirer.
ƒ In case the acquirer does not get proportionate representation on the board of Target Company or the
number of casual vacancies created is not sufficient, he may serve a notice to target company for holding
fresh director’s election and a copy of notice to SECP.
™ The BOD of Target Company shall hold the election within 30 days of the receipt of above notice.
™ The BOD so elected shall hold the office during the remainder period of outgoing directors.
™ Any irregularity in the election of directors may be brought to the notice of SECP within 7 days of
such election.
™ The SECP may declare the election null & void and order for fresh election under supervision of

Inquiry & Action by SECP

SECP may appoint inquiry officer to undertake an inquiry for following purposes:
o To inquire into the complaints received from investors holding not less than 10% of the total voting - 78 –
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power in the Target company regarding any irregularity in substantial acquisition process.
o To inquire suo moto (upon its own knowledge or information) in the best interest of security market
o To ascertain whether the provision of this Ordinance is complied with.
The inquiry officer as soon as possible shall submit a report to SECP
SECP shall communicate the findings to the acquirer, seller the Target Company and manger to the offer.
On receipt of reply from the respective parties, SECP may pass following appropriate directions and take
appropriate measures in the best interest of security market
¾ Directing the persons concern not to further deal in the securities
¾ Prohibiting the concerned person from disposing off the securities acquired in violation of
provisions of this Ordinance.
¾ Directing the concerned person to sell the securities acquired in violation of provisions of this
¾ Taking any other action.


™ If any person contravenes the provision of this ordinance he may debarred as acquirer for next 3
™ In case the BOD or management of Target Company contravenes any provision of this Ordinance the
directors, chief executive and company secretary shall stand disqualify to hold such offices in a listed
company for next 2 years.
™ Fine = Rs.1,000,000 + Rs.10,000 / day for continuing default

“Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2008 not
included in these notes.

Please refer to original sources for these regulations and code These are available at SECP’s site or also can
be downloaded from under the notes “Corporate Laws complete course 1 / 2”. - 79 –
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Foreign Exchange Regulations

Foreign Exchange Regulations (Loans)

Rupee Loan
Foreign Controlled Company means a firm, branch or office of a company or a firm which is:
¾ In case of company incorporated outside Pakistan, a branch office.
¾ In case of company incorporated inside Pakistan
ƒ 50% of the shares or more is subscribed by foreign nationals or
ƒ 50% of the directors or more are foreign nationals
ƒ In case of equal shareholding, Chief executive is foreign national.
¾ In case of partnership
ƒ 50% or more of the capital is owned by foreign nationals or
ƒ The majority of the partners are foreign nationals

No loan to company controlled by persons resident outside Pakistan (i.e. FCC)

Lending to FCC for working capital:

Authorized dealers can give Rupee loan to FCC to meet working capital requirements subject to Prudential

Lending for Capital expenditure:

− FCCs are normally required to meet their capital expenditure requirements out of
1. Their Rupee resources
2. From loans raised abroad with the permission of FG/State bank.
− In special circumstances, such companies are allowed to raise Rupee loans through medium and long-term
local borrowing.
− FCC engaged in manufacturing are permitted to meet their requirements of capital expenditure by:
1. Taking loans from banks, DFI and other financial institutions
2. Issuing participation term certificates.

Foreign Private Loan

No loan from abroad:
Borrowing from abroad is prohibited except with approval of SBP.
SBP has given general permission to private sector entrepreneurs to obtain foreign currency loans subject to
following conditions:
1. Loans are obtained from
i. Banks or financial institutions abroad
ii. Parent companies of multinationals
iii. Suppliers as supplier credit including credit under PAYE Scheme.
2. Loans do not involve government guarantee
3. Obtained for financing the foreign currency cost of projects covered by Govt.’s
Industrial/Investment Policy.
4. Loans should be contracted on best possible terms.
5. Repayment period of such loans should not be less than five years.

Foreign currency loan by FCCs:

™ FCCs are allowed to contract foreign currency loans from

− Banks or financial institutions abroad
− Their head offices
− Other overseas branches/associates
™ Following are conditions in this behalf: - 80 –
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− Loans are obtained for working capital requirements

− Repayment period should not exceed 12 months.
− Rate of interest should not exceed 1% over LIBOR.
− Such loan can be rolled over for further period not exceeding 12 months.
™ Branches of foreign companies in Pakistan are not allowed to pay interest on such loans.
™ Foreign contractors are not allowed to pay interest.

Procedure for obtaining and repayment of such loan:

− FCC approaches Authorized dealer.
− Authorized dealer gets satisfaction that applicant is FCC.
− On confirmation, FCC can contract loan and repatriate the amount for credit to their Rupee account with
authorized dealer.
− On receipt of loan, Authorized dealer issues a proceeds realization certificate and record the particulars of
− On maturity having received inward remittance, authorized dealer will allow payment of Interest – tax and
− While reporting remittance of interest a certificate confirming applicable LIBOR and Payment of tax will be
attached with Form-M.
− While reporting remittance of Principal, a copy of proceeds realization certificate will be attached with Form-

Foreign currency loan for working capital by Pakistani firms and companies functioning in Pakistan:

Pakistani firms or companies (except banks) can obtain foreign currency loan on:
¾ Non-Repatriable basis
¾ Repatriable basis

Conditions for non-repatriable loan:

¾ Loan would be treated as rupee loan to the extent of rupees generated out of inward remittance.
¾ Principal and interest will be paid in Pakistan and will not be remitted to abroad.

Conditions for repatriable loan:

ƒ Loan is interest free.
ƒ Period of loan is not less than one year.
ƒ No bank guarantee for securing such loan from Pakistan.
ƒ No forward cover.
ƒ No facility of absorption of exchange risk by Govt. of Pakistan.
™ Agreement for repatriable loan will be provided to SBP for registration.
™ Repayment Schedule will also be provided to SBP for registration along with proceeds realization certificate
(after remittance).

Foreign currency loan for any other purpose:

Individuals, firms, companies resident in Pakistan, FCC and branches of FCC (except banks) are allowed to
obtain loans from abroad in foreign currency on repatriable basis for any purpose subject to following

For Principal:
ƒ There is no ceiling on amount of loan.
ƒ Repayment period should not be less than 5 years.
ƒ Repayment should be made in equal installments.

For Interest:
ƒ Interest rate will not exceed LIBOR+1.5%
ƒ Interest will be paid in arrears on half yearly or yearly basis.
ƒ Borrower shall be free to pay tax at a fixed or floating rate according to above formula.
ƒ Payment will be subject to deduction of Pakistani taxes.

Others: - 81 –
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ƒ Exchange risk will be borne by borrower.

ƒ No forward cover will be provided by authorized dealer.
ƒ No bank guarantee from Pakistan.
™ Agreement will be provided to authorized dealer for registration who will handle all related transactions and
on completion of disbursement, he will intimate details to Investment Division at Karachi along with
proceeds realization certificate.
™ Thereafter, authorized dealer will be free to remit installment of principal and interest on due dates.

Foreign Exchange Regulations (Securities)

Security includes shares, stocks, debentures, debenture stocks, govt. securities, deposit, deposit receipts in
respect of deposit of securities and units or sub units of unit trusts but does not include bills of exchange or
promissory notes other than govt. promissory note.

Foreign Security
A security issued elsewhere than in Pakistan and any security which is payable in foreign currency or
elsewhere in Pakistan.
Person resident outside Pakistan (i.e. non-resident)
ƒ A foreign national, including a foreign national of indo-pak origin (resident in Pakistan)
ƒ A Pakistani holding dual nationality resident in Pakistan
ƒ A company registered in Pakistan which is controlled by a person resident outside Pakistan.

Import/Export of Securities:

Import of securities (Foreign and Pakistani):

ƒ No restriction on import into Pakistan whether Pakistani or foreign securities.
Export of Pakistani securities:
ƒ Specific/general prior approval of SBP through authorized dealer.
Export of foreign securities:
ƒ A Pakistani national can hold foreign securities.
ƒ To send abroad for sale/transfer, he should apply to State Bank through Authorized dealer for
export license.
ƒ Permission will be granted if authorized dealer declares that
o Security will be received back in Pakistan within specified time.
o If sold, sale proceeds will be repatriated to Pakistan.
(Application may also be given for exchange of Pakistani securities with foreign securities)

Transfer of securities to non-resident:

ƒ Transfer of securities to non-resident is prohibited except with permission of State Bank.
ƒ It includes transfer of:
o Pakistani securities (held by person resident in or out of Pakistan)
o Foreign securities (held by Pakistani national)
ƒ Pledge or hypothecation to non-resident is also prohibited.
ƒ Concerned company/non-resident should apply to State Bank through authorized dealer.

Exemption to rule “no transfer of securities outside Pakistan”

™ Issue/transfer/export allowed on repatriation basis to:
1. Non-resident Pakistani
2. Pakistani having dual nationality
3. Foreign national
4. A firm or trust or mutual fund registered and functioning outside Pakistan
™ Conditions to be satisfied:
i. Price must be paid in foreign exchange through normal banking channel or out of foreign
currency account in Pakistan.
ii. Purchase price is not less than
a. Price quoted on stock exchange (in case of listed shares) - 82 –
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b. Break up value of shares (in case of unlisted shares)

™ This exemption applies in following cases:

1. Issue of shares out of new public offer (irrespective of nature of business)
2. Transfer of listed shares (irrespective of nature of business)
3. Placement of new/initial shares with foreign investors by a public or private listed company which
a. A manufacturing company
b. A service organization in sectors open for foreign investors as per Investment
Policy of government.
4. Transfer of shares of above companies (3b)
5. Issue of right and bonus shares to non-resident holding shares under exemption.
6. Issue of government securities to foreign nationals
7. Transfer of Pakistani securities by non-resident to eligible non-resident on same repairable basis.
8. Issue of NIT units to followings:
a. Non-resident Pakistani
b. Pakistani having dual nationality
c. Foreign nationals

Procedure for issue of shares to non-resident:

Issued to non-resident out of new public offer:

− Company may open foreign currency account in Pakistan or abroad for collection.
− For unsuccessful applicants, money shall be refunded.
− For successful candidates, money shall be repatriated into Pakistan and account will be closed
within one week.
− PRC is obtained from authorized dealer.
™ In case of subscription directly received in Pakistan, shares may be issued for equivalent rupees as per

Issue to non-resident against Plant and Machinery:

− An application along with import documents shall be submitted to Exchange Policy Department for
issue of Exchange Entitlement Certificate.
− Exchange Entitlement Certificate will be issued by State Bank at average of selected authorized
dealers’ buying and selling rates on date of filing of Bill of Entry with Customs.
− Company can issue shares to non-resident up to value mentioned in Exchange Entitlement

Issued against Foreign currency:

− If payment is made in foreign currency to foreign currency account with authorized dealer,
authorized dealer will issue a certificate showing date wise deposit and buying exchange rates at
separate dates.
− Company issue securities on equivalent rupees at exchange rates shown on certificate.

Trading of quoted shares by non-resident:

− Non-residents are allowed to trade freely on stock exchanges in Pakistan.
− Non-residents will open “Special Convertible Rupee Account” with authorized dealer.
− Such account can be fed by:
ƒ Remittance from abroad.
ƒ Transfer from a Foreign currency account in Pakistan.
− Account will be debited on purchase of quoted shares.
− Account will be credited on proceeds of disinvestments and dividend.
− Fund available in SCRA can be transferred to:
ƒ Another country
ƒ Another foreign currency, without prior approval of State Bank.
− Authorized dealers will submit to State Bank, a statement showing position of balance in SCRA on
each Saturday within 2 days of weekend. - 83 –
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Special instructions regarding shares transferred under CDS of Central Depository Companies:

− Special account will be opened at CDC for each non-resident investors.
− There shall be no netting or adjustment and payment/receipt in respect of sales/purchase will be
settled independently.

Initial transfer in CDC:

While approving initial transfer:
− Company will ensure that shares are registered on repatriation basis in the name of non-resident.
− If shares are not so registered, company will obtain requisite documents issued in the name of non-
resident e.g. broker’s memo, PRC and transferee’s certificate (if shares purchased from another

Subsequent transactions in CDC:

− For investment involving SCRA, authorized dealer will maintain complete records of all transactions
and statement of SCRA will be furnished to State Bank.
− For investment not involving SCR, original documents (broker’s memo, PRCs) will be submitted to
company by Participant along with certificate that shares are in the name of CDC and have been
deposited/withdrawn from non-resident account at CDC.
− Company will update non-resident’s record and will furnish to authorized dealer.
− Authorized dealer will keep it for onward submission to SBP.

Dividend, Bonus, Right shares:

− CDC will issue to respective company a list of beneficial non-resident shareholders.
− For non-residents’ not investing through SCRA, company will verify holding from its records.
− For non-residents investing through SCRA, company will obtain undertaking cum certificate from
authorized dealer.

Documents to be submitted on issue/transfer of securities to non-resident:

By company to authorized dealer within 30 days of transfer/issue.

MOA/AOA/COI if not already submitted.
− SECP’s approval
− State Bank’s Exchange Entitlement Certificate
− Encashment certificate and/or PRCs from authorized dealer
− Copy of Board’s resolution
Remittance to non-resident through authorized dealer:

− Company may export securities to non-resident on Repatriation basis through authorized dealer.
− Authorized dealer may also allow remittance in respect of:
ƒ Dividend (net of taxes)
ƒ Disinvestment proceeds not exceeding the market value or breakup value

Books and audit:

Authorized dealer shall maintain complete record of shares held by non-resident including proof and shall
produce for audit by inspection team of State Bank. Record shall not be destroyed until audited. - 84 –