HOW CORPORATE LAW AUTHORITY

(CLA) HELPS THEM?

One of the best piece of legislation emerging out of the 90 days of caretaker Prime
Minister Moeen Qureshi was Companies (Amendment) Ordinance 1993, limiting the
aggregate investment in associated companies, to not exceeding 30 percent of the
equity of the lending company, with prior approval of at least 60% of the total
shareholder.

The law was importent because it sought to put an end to a corporate practices that had
been instrumental in the concentration of wealth in few hands. In fact inter-corporate
investment was the route taken by the, " Lahore Mafia" to acquire several of the
profitable units privatized by first Sharif govt.

The Monopoly Control Authority (MCA) annual report for 1991-92 found 308 cases of
inter-corporate financing during the year and another report about textile found that 105
of 164 textile units examined by it, invested Rs 6,585 million and Rs 4,285 million
repectively in 1991-92 and 1192-93 in their associated undertakings.

There was also a reverse flow from the associated companies to the parent companies
and 92 textile units received Rs 2,524 million and Rs 2,222 million from their associated
companies during the two years. Thus total inter-corporate financing in the textile sector
during 1990-92 came to a staggering Rs 9 billion.

Even before the promulgation of Companies Amendment Ordinance 1993, company-

law 1984 and related laws were impregnated with provisions aimed at checking the
concentration of wealth and creation of cartels and monopolies. For example the
company law required a listed company seeking to extend loan to an associated
undertaking to give a notice, in at least two newspapers, stating what will be the
security, terms of payment, profit or rate of interest etc.

The Monopolies and Restrictive Trade Practice, Control and Prevention Ordinance 1970
had clearly envisaged that the provisions prohibiting undue concentration of wealth will
be attracted if an individual holds or controls more than 50% shares of a company. It
also stated that a situation of undue concentration of wealth would arise if there are
dealings between " associated undertakings" resulting in unfair benefits to the
shareholders of one undertaking, to the prejudice of the other.

The law also established a presumption of unreasonable monopoly power when

competing undertakings with 20% or more of a market are interlocked through common
management or control or through common partners. It prohibited anti-competitive
mergers and acquisitions and financial institutions from making loans to firm associated
with them, on terms and in amount more favorable than those afforded to an unrelated
firm. Many of the above mentioned situations emerged in respect of acquisition of five
cement plants by Mian Mohammad Mansha and his relatives and business associates
and yet Corporate Law Authority failed to take cognizance of the situation. When the
unprecedented price hike of cement in the wake of privatization forced the government
to launch an inquiry into the phenomenon, MCA concluded that " the MCA is unable to
regulate prices of any goods manufactured by a dominating or single monopolistic firm"

In an interview with Pakistan and Gulf Economists in March 10, 1990 issue, Chairman
of Corporate Law Authority Irtaza Hussain had said, " in my view, the consolidation of
group accounts should be introduced shortly" and that Corporate Law Authority will
soon seek public comments on proposed Companies Court Rules with regard to windig
up of companies.

The Chief Justice of Pakistan asked us to write down the rules (about winding up the
companies) and they are voluminous at the Companies Ordinance. Comments of
Honorable Judges of High Court have already been received and I am glad to say that
these have been approved recently. Within two months, the draft rules are expected to
be public for public comments" he had said emphatically.

Ironically, Irtaza Hussain has been member of every commission, committee or working
group set up by successive governments during last eight years but the need to require
the big business to publish consolidated group accounts and promulgate rules about
liquidation of sick companies has apparently withered away and therefore, has not been
mentioned by any working group or committee seeking to reform the corporate sector.

The company law, 1984 required all the private limited companies to go public if their
paid up capital exceeded Rs 50 million. However, there are score of private limited
companies with annual turnover ranging between several hundred million to 2 billion
rupees but they have not gone public. These include Mohammad Amin Mohammad
Bashir (pvt) Ltd, the parent company of Crescent Group, Alnoor Fertilizer Industries,
Jaffer Bros, Dawood Corporation, Tabani Corporation, Arfeen International owning
Pakistan's biggest oil tanker, Ghani and Tayyab (pvt) Ltd of Haji Tayyab, Ittefaq
Foundary, Shahnawaz Ltd and Mercury Corporation.

How CLA has facilitated people to make quick money can also be illusterated by the
following example.

Allied Bank Ltd (ABL) President Khalid Latif was arrested by Federal Investigation
Agency (FIA) on January 11, 1995 for financial bungling relating to Allied Bank
Modaraba. According to complaint, a section officer of Ministry of Finance, Khalid Latif
had drawn Rs 30 million from a branch of his own bank, in the name of Pak Trading
Company, set up, on the security of fake export bills. The amount was used by him to
purchase shares of Allied Bank Modaraba, in the name of eight different persons.

Similarly Yunus Habib Chief Executive Officer (CEO) of Mehran Bank, now serving
prison was accused to have incorporated 27 fake companies in whose name he was
drawing money from his own bank. Schon group is reported to have set up string of fake
companies to withdraw Rs 662 million from National Fibre after its privatization. How a
fake company can be floated and shares can be bought in the name of eight different
persons prove that something is very wrong with the Corporate Law Authority which
registers the companies and oversees the floating of shares.

Previously we have already elaborated How Pakistan Services Limited (PSL) was used
by Hashwani to make a chain of subsidiaries in Pakistan, UK and USA.