Cfap-02 Claw Sir Atif Abdi Updated Notes For Summer 2022

1.
Introduction to Companies Page 1
Ch # 1: Introduction to Company Law and Companies
This chapter deals with the basics of the Companies Act 2017, and different type of
companies allowed to be registered under the Companies Act 2017. Moreover this
chapter highlights the authorities under the Companies Act 2017 that can exercise
powers on the registered companies. The chapter also highlights a special type of
association that is registered under the Companies Act 2017 to act as an association not
for profit.
Main Contents of the Chapter

 Introduction of Companies Act 2017
 Type of Companies
 Authorities under Companies Act 2017
 Association not for profit
Syllabus Area Covered by the chapter
A 1.1: Companies Act, 2017

(Section 1-8, 14(2), 42-44, 45, 52, 54, 254, 255)
A 1.4: Companies (General Provisions & Forms) Regulations, 2018
(Regulation 8)
Level of Completeness:
100% (except referential & transitional provisions)
1. Introduction to Companies Page 2
Introduction of Companies Act 2017
Short title, extent and commencement (Sec 1)
 Name: Companies Act, 2017

 Extends to Whole Pakistan
Company – 2(17)
A company formed and registered under this Act or the company law;
Company law – 2(18)

The repealed Companies Act, 1913 (VII of 1913), Companies Ordinance, 1984(XLVII of 1984), Companies
Ordinance, 2016 (VI of 2016) and also includes this Act unless the context provides otherwise;
Body corporate or Corporation – 2(9)

Includes
 A company incorporated under this Act or company law; or
 A company incorporated outside Pakistan, or
 A statutory body declared as body corporate in the relevant statute, but does not include
- A co-operative society registered under any law relating to cooperative societies; or
- Any other entity, not being a company as defined in this Act or any other law for the time being
which the concerned Minister of the FG may, by notification, specify in this behalf;
Application of Act to non-trading companies with purely provincial objects (Sec 3)
For not trading corporations, whose objects are confined to a single Province
 Minister-in-Charge (Minister) of the Provincial Government (PG) may exercise the powers
of concerned Minister of the Federal Government (FG) or Commission (SECP)
 Where licence is issued by PG or its concerned Minister under this section, the company
shall mention this fact in all its documents.
 If such a company extends its operational activities beyond territorial limits of respective
province, it shall be liable to a penalty of level 3 and be wound up on application by SECP.
Different levels of penalty suggested by the Companies Act, 2017 (Sec 479)
Level Limit of penalty Per day penalty during which the default continues
1 Upto Rs.25,000 Upto Rs.500
Tutor 2 Upto Rs.500,000 Upto Rs. 1,000
Note 3 Upto Rs.100 million Upto Rs.500,000
Act to override memorandum, articles, etc. (Sec 4)

 The provisions of this Act shall have effect notwithstanding (despite) anything contained in
any other law or MOA or AOA or in any contract or agreement executed by it or in any
resolution passed in general meeting directors meetings.
 Any conflicting (with Companies Act) provision contained in such documents shall be void.
Type of Companies
In your earlier papers you have understood that companies have some distinguishing
features over partnerships and sole proprietorships such as:
Separate legal personality
 Company can enter into contracts with other persons
Tutor  A company owns its own assets
 A company is personally liable to pay tax on its income (profits).
Note
Limited liability
The liability of the owners of a company for the debts of the company is limited to the
amount of their investment in the company.
Transfer of ownership and perpetual succession
 Shareholders can transfer their share in the ownership of company to someone else,
 It does not affect the legal status or legal existence of company.
 Company continues to exist (unaffected by change in ownership)
Companies by virtue of registration
Under Companies Act 2017 (Sec 14), a company may be registered as:
 Company limited by shares
 Company limited by guarantee
 Unlimited Company
Company limited by shares – Sec 2(20)

A company; having the liability of its members limited by the memorandum to the extent of amount, if
any, remaining unpaid on the shares respectively held by them;
Company limited by guarantee – Sec 2(19)

A company having the liability of its members limited by memorandum to such amount as the members
may respectively thereby undertake to contribute to the assets of the company in the event of its being
wound up;
Unlimited company – Sec 2(71)

A company not having any limit on the liability of its members;
Additional provision as to companies limited by guarantee (Sec 45)
 A company limited by guarantee may have share capital.

 Every provision in the MOA/AOA, or in any resolution, declaring to divide the undertaking
of the company into shares or interests shall be treated as a provision for a share capital
(even if the nominal amount or number of the shares or interests is not mentioned at all).
 For company limited by guarantee and not having a share capital, every provision in MOA/
AOA/ any resolution aiming to give any person, other than member, a right to participate in
the divisible profits of the company shall be void.
Public and Private Companies
Public company – 2(52)

A company which is not a private company
Listed company – 2(38)
A public company, body corporate or any other entity whose securities are listed on securities exchange
Private company – 2(49)
A company which, by its articles,—
 Restricts the right to transfer its shares, if any;
 Limits the number of its members to 50 not including persons who are in employment of company;
 Prohibits any invitation to the public to subscribe for the shares, if any, or debentures or redeemable
capital of the company:
Provided that, where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this definition, be treated as a single member
Single Member Company – 2(65)
Which has only one member.
(Process of registration is same as private companies)
Non complying the restrictions of private company as imposed by definition (Sec 52)
 Company shall cease to be entitled to the privileges and exemptions of private companies
 Company or any other interested person can apply to SECP for relief from consequences:
 SECP may make an order of relief, on terms and conditions deemed fit, if it is satisfied that:
- Failure to comply was Accidental or due to inadvertence or other sufficient cause or
- On other ground it is just and equitable to grant relief
Holding company and subsidiary company
Holding company - 2(37)

Company which is another Co’s holding company if, but only if, that other company is its subsidiary;
Subsidiary company or Subsidiary - 2(68)

In relation to any other company (i.e. holding), means a company in which the holding company
 Controls the composition of the board; or
(can appoint or remove all or a majority of the directors)
 Exercises or controls more than 50% of its voting securities either by itself or together with one or
more of its subsidiary companies (layers):
Provided that such class or classes of holding companies shall not have layers of subsidiaries
beyond such numbers, as may be notified,
A company shall be deemed to be a subsidiary company of the holding company even if the
above control is of another subsidiary company of the holding company;
Note: the expression “company” includes any body corporate;
Wholly owned subsidiary” - 2(74)

A company shall be deemed to be a wholly owned subsidiary of another company or the statutory body if
all its shares are owned by that other company or the statutory body.
Authorities under Companies Act 2017
Securities and Exchange Commission of Pakistan – The SECP (Sec 7, 8 & 54)
 SECP shall exercise such powers and perform such functions as are conferred by this Act.
 Such powers and functions of SECP shall be in addition to those given in SECP Act, 1997.
Reference to the Court
 Concerned Minister of Federal Government or SECP may make a reference to the Court
 Reference can be made on any question or matter, considered to be of special significance,
requiring orders etc concerning affairs of company/class of companies/action of officer.
 Officer in this section includes an auditor, liquidator or agent of the company.
 On such a reference, court may make such order as it may deem just and equitable.
 SECP commenced its operations on 1st January 1999.

 SECP replaced Corporate Law Authority
 SECP regulates the affairs of Companies, Insurance Companies, Banking Companies,
Modarbas & Non-Banking Finance Companies
 SECP’s Head office is at Federal Capital, Islamabad
Tutor  SECP has 8 regional offices
Note - 1 at Federal Capital i.e. Islamabad
- 4 at provincial capitals
- 3 in other major cities i.e. Multan, Faisalabad and Sukkur.
Service of documents on SECP or registrar
A document or information may be served on SECP or registrar against an acknowledgement

or by post or courier service or through electronic means or in any other manner as may be
specified.
Document - 2(26)
Includes any information or data recorded in any legible form or through use of modern electronic
devices or techniques whatsoever, including books and papers, returns, requisitions, notices, certificates,
deeds, forms, registers, prospectus, communications, financial statements or statement of accounts or
records maintained by financial institutions in respect of its customers;
E-service - 2(27)
Any service or means provided by the SECP for the lodging or filing of electronic documents
Electronic document - 2(28)

Includes documents in any electronic form and scanned images of physical documents
Reg # 8 - Companies (General Provisions & Forms) Regulations, 2018

Service of documents on Commission, registrar or company
 An application/document required to be submitted to SECP/Registrar as per companies
Act shall, unless otherwise proved, 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.
 An application or any document required to be served on the company/officers as per
Companies Act or related rules or regulations shall be served at the registered office of the
company against an acknowledgement or by post or courier service or through electronic
means including facsimile and email or by leaving it at the registered office of the company.
(A document may also be served at residential address of officers if deemed necessary)
Registrar
Registrar - 2(57)
A registrar, an additional registrar, an additional joint registrar, a joint registrar, a deputy registrar, an
assistant registrar or such other officer as may be designated by SECP, performing duties and functions
under this Act;
Power of registrar to call for information or explanation (Sec 254)
 Where registrar is of opinion that any information, explanation or document is necessary

with respect to any matter in any document submitted to him or received by him, he may,
by a written order, call upon company and any of its present or past directors, officers or
auditors to furnish such information, explanation or document, within 30 days
 Person who ceased to hold office more than 6 years before date of order not be compelled
 It shall be the duty of company and all above specified persons to furnish the required
information, explanation or documents
 If no or inadequate information/explanation is furnished; Registrar may call for inspection
of such books and papers as considers necessary within specified time
 It shall be duty of company and such persons to produce such books and papers.
 If company/any person refuses or makes default in following requirements of this section
- Company shall be liable to level 2 penalty; and
- Every defaulting officer shall be punishable with imprisonment of either description for
a term of not more than 2 years, and be liable to fine which may extend to Rs. 1 million
- Court may make an order directing the company to produce such books or papers
 On receipt of such information or explanation or books and papers, registrar may annex
the same (or any copy/extract) to the original document submitted to him
 Registrar may attach info/explanation/books or copy/extract of it with original document
 If info/explanation/books not furnished within specified time, or is unsatisfactory
Registrar may report the circumstances in writing to SECP.
Seizure of documents by registrar, inspector or investigation officer (Sec 255)

 If registrar, inspector or investigation officer has reasonable ground to believe that books
and papers relating to, any Company/Chief Executive/Officer/Associate may be destroyed,
mutilated, altered, falsified or secreted, he may, after obtaining permission of SECP:
- Without warrants, enter such place where such books and papers are kept;
- Search that place in the manner specified in order; and
- Seize / retain such books and papers, or any other item, as he considers necessary.
 Registrar may also authorise any officer (not below the rank of assistant registrar) for this
 Registrar shall return books and papers seized as soon as may be (not later than 30 days)
 SECP may, after providing Company an opportunity to show cause against order proposed
to be made by it, allow registrar to retain such for a further period not exceeding 30 days:
 Registrar may, before returning take copies/extracts or put identification marks
 Every search or seizure made under this section shall be carried out in accordance with
provisions of Code of Criminal Procedure, 1898 (Act V of 1898)
 A search-warrants from the concerned Magistrate may be obtained where:
- He thinks that any person or occupants of any place may create hindrance, resist search;
- Such document or thing is not known to be in the possession of any person;
- General search is required for any proceedings, inspection or investigation; or
- Any person will not or would not produce any document or thing as required
 After obtaining warrant he may also direct local police, authority or any agency to provide
necessary assistance to such person.
Further Retention / Freezing

 In case of seizure of any property, material or thing in relation to any offense under this Act
or administered legislation (as per SECP Act 1997) or scheduled offences, he may retain the
same as a case property and produce it as and when required during the trial as per law.
 If SECP has reason to believe that it is proceeds of crime of any offence under this Act or
administered legislation, it may pass an order to freeze account, securities and any other
property etc for not more than 30 days.
 Any aggrieved person may approach the Court and obtain order for release of aforesaid
after expiry of 30 days of such seizure/freezing etc, if he can satisfy the Court that the same
is not associated with any offence under this Act or any administered legislation
 Court while passing release order may impose such restriction and condition as deemed fit.
Court (Sec 5, 6)
Court - 2(23)
A Company Bench of a High Court having jurisdiction under this Act;
Jurisdiction of the Court

 Court shall be High Court having jurisdiction at the place of registered office of company.
 No civil court or any other court shall have jurisdiction to entertain cases of companies
 For winding up, the place which was registered office of Co for longest duration during
preceding 180 days shall be taken for considering jurisdiction
Creation of Benches
 In each High Court, there shall be one or more company benches on permanent basis
 These to be constituted by the Chief Justice of relevant High Court
 There shall be a Registrar (Registrar of Company Bench) duly notified by Chief Justice of
respective High Court who shall be assisted by any officers assigned by that Chief Justice.
 Registrar shall perform all functions assigned to it under this act including all ministerial
and administrative business (e.g. receipt of petitions, applications, written replies, issuance
of notices, service of summons and other functions or duties as may be prescribed u/s 423)
 Chief Justice, if think fit, may also establish a secretariat in each Company Bench in a
prescribed form and manner to provide secretarial support and other prescribed functions.
Procedure of the Court
Written submissions to the court
 All written submissions to the Court shall be filed with Registrar of Company Bench.
 Written submissions shall, among other things, include:
- A petition/application setting out concise statement of facts, grounds and relief claimed;
- A written reply with particulars of set off, if any;
- Affidavit(s) of facts by petitioner/applicant/respondent/other persons in support of the
case, duly attested by the oath commissioner (or as may be provided under the rules);
- Any other relevant documents in possession of petitioner/applicant/respondent
- Any application for discovery of documents or interim injunction, if required;
- A list of any case law along with a summary of same on which petitioner/applicant is
placing reliance;
- Address for effecting service, mobile number, email and fax or any other mode notified
by the Court; and
- Any other document as may be required by the Registrar of the Company Bench.
Issuance of summons to respondents
 Where any petition or application is filed, summons may be issued by Registrar along with
a copy of petition or application and annexed documents annexed therewith
 It shall be served on respondent through any one or more of the following modes:
- The bailiff (court official)
- Process-server of Court, through registered post by courier
- By publication in one English language and one Urdu language daily newspaper
- Through electronic modes (if so directed by the Court) in addition to other modes
 Respondent shall file a written reply and particulars of set-off (if any) with the concerned
Registrar within 30 days from date of first service
 If respondent fails to file the reply, a report shall be submitted by Registrar before Court
 Court may proceed ex-parte and announce final order on the basis of documents available.
Presentation of the case before court

 On proper receiving of all written submissions and after ensuring that all copies properly
supplied to parties, Registrar shall present the case file to the Court on a day fixed under
notice to parties, within 45 days of the first service of notices or any extended time by court
 Court, after consulting counsel of parties, shall fix a date and allocate time for hearing.
 No adjournment shall be granted once the Court has fixed a date of hearing
 It is duty of parties to ensure presence of their respective counsel / alternate arrangements
 Only in exceptional circumstances beyond control of a party, Court may grant another
opportunity of hearing
(subject to payment of Rs.10,000 or such higher amount as may be determined by Court)
Process of hearing:
 Court shall continue with the proceedings and decide the matter on the basis of documents
and affidavits placed before Court, in a summary manner
 Court shall pass final orders within 120 days from date of presentation of the case
 Court may, if it is in the interest of justice, conduct the proceedings on a day to day basis
 Court may, if deems fit, may impose costs up to Rs 100,000/- per day or such higher
amount as the Court may determine against any party to the proceeding causing the delay.
Cross Examination
 If court thinks fit, in exceptional circumstances, it may order attendance of the relevant
deponent (depositor of affidavit etc) for cross examination by such opposing party as the
Court deems fit
- Court may refer the matter to Registrar or any other for recording of cross examination
- Recording of cross examination shall be completed within 30 days from date of order
(Extension till additional 15 days on payment of Rs.10,000/- or any higher amount)
- All questions and answers along with objections shall be duly recorded in writing;
- Registrar shall have the powers of Civil Court under the Code of Civil Procedure, 1908
for the purposes of this cross examination
 Court may take notice of serious misstatements and non-disclosure of facts by any party
and dismiss petition or application or close the right of defence and pass a final order
(higher of costs of proceedings or fine up to Rs.100,000/- shall be levied on defaulting one)
 Registrar shall place any application for interim relief including any interlocutory order
before the Court for adjudication immediately upon its filing.
 Provisions of the Qanun-e-Shahadat (Order)1984 and the Code of Civil Procedure, 1908
shall not apply to the proceedings under this section except to such extent as the Court may
determine in its discretion.
Appeal to Supreme Court
 Any person aggrieved by any judgment or final order of Court may, within 60 days, file a
petition for leave to appeal in the Supreme Court of Pakistan:
 No appeal or petition shall lie against any interlocutory (temporary) order of Court
Association not for profit (Sec 42 to 44)
Licence from SECP
 Licence may be granted if SECP is satisfied that:

- It is formed as limited company for promoting commerce, art, science, religion, health,
education, research, sports, protection of environment, social welfare, charity or any
other useful object;
- It intends to apply the company’s profits and other income in promoting its objects; and
- It prohibits the payment of dividends to the company’s members; and
- Such company’s objects and activities are not and shall not, at any time, be against the
laws, public order, security, sovereignty and national interests of Pakistan,
 Such association shall not add the words “Limited” or “(Guarantee) Limited”, to its name.
 Licence may be of a specific period
 Licence may be granted on such conditions & subject to such regulations as SECP thinks fit
 Those conditions shall be inserted in and deemed part of MOA and/or AOA.
 MOA & AOA shall be in accordance with the form set out in Table F in the First Schedule or
as near thereto as circumstances admit and approved by the SECP.
 Association shall enjoy all privileges and be subject to all obligations of a limited company.
Revocation of Licence
SECP may at any time by order in writing, revoke such licence with such directions as it may
deem fit, on being satisfied on any of the following:
 Company/management has failed to comply with any of the terms or conditions of licence;
 Any of the requirements of this section or any connected regulations are not met;
 Affairs of company are conducted in a manner prejudicial to public interest; or
 Company has made a default in filing with registrar its financial statements or annual
returns for immediately preceding 2 consecutive financial years;
 Company has acted against the interest, sovereignty and integrity of Pakistan, the security
of the State and friendly relations with foreign States;
 Number of members is reduced, below 3;
 The company is
- Conceived or brought forth for unlawful or fraudulent activities;
- Run and managed by persons who fail to maintain proper and true accounts or they
commit fraud, misfeasance or malfeasance in relation to the company;
- Run and managed by persons involved in terrorist financing or money laundering;
- Managed by persons who refuse to act according to MOA or AOA or the provisions of
this Act or failed to carry out the directions or decisions of the SECP or the registrar; or
- Not carrying on its business or is not in operation for 1 year; or
 It is just and equitable that the licence should be revoked:
Before revocation, SECP shall give notice and an opportunity to be heard to the company
Effect of revocation of licence

 Company shall stop all its activities except the recovery of money owed to it, if any;
 Company shall not solicit or receive donations from any source; and
 All the net assets of the company shall, in a specified manner, be transferred to another
company licensed u/s 42, preferably having similar or identical objects, within 90 days of
revocation or any extended period (if allowed by the SECP)
 After such transfer, the members and officers of the first company or any of their family
members shall not be eligible to hold any office in later company for next 5 years.
 A reasonable amount to meet expenses of voluntary winding up or making an application
to the registrar for striking off the name may be retained by the company.
Process
 After compliance of above requirements, BOD shall file within 15 days, a report to registrar
containing such information and documents as may be specified.
 Within 30 days of acceptance of the report by registrar BOD shall
- Initiate necessary proceedings for voluntary winding up; or
- Make an application to registrar for striking the name of company off the register
(if it has no assets and liabilities)
 If requirements not complied with on a timely basis; SECP may appoint an administrator to
manage affairs of company and initiate proceedings for winding up.
 The provisions of this act (section 291) shall apply mutatis mutandis to this administrator
Any officer making default in complying with any requirement of sections 42 & 43 shall, along
with other actions, be punishable by a penalty not exceeding level 2 (Sec 44)
Other Restrictions on Association Not for Profit
 Payment of remuneration by company or its subsidiary entity for services or otherwise to
members of the company (or their family member) shall be prohibited (whether holding
Circular an office in the company/subsidiary or not)
 This prohibition shall also apply till 5 years after a member quits from his membership
 Subscribers to MOA & AOA shall continue to be a member unless allowed by SECP
(Proposed new director in that place shall not be appointed unless allowed by SECP)
 Application to quit from membership and new director shall be submitted to SECP (in
terms of Rule 30) including the following documents regarding the incumbent director
- Copy of CNIC or Passport (if a foreign national)
- Minutes of meeting where proposal to appoint/opt new director was approved
- Resume along with affidavit by incumbent director / member that he/she
a) Has sufficient skills, expertise & resources for attainment of objects of
company;
b) Has not been associated with money laundering or terrorists financial
activities;
c) Is not defaulter of loans etc
 Company shall not (directly/indirectly) participate in any political campaign for elective
public office or other political activities similar to those of a political party or contribute
any funds or resources for any such cause (Just like section 184 of Companies Act)
2. Incorporation of Companies Page 12
Ch # 2: Incorporation of Companies
Now when you are familiar with the basic structure of the Act and different type of
Companies, you should proceed with the concept of the incorporation of companies. This
chapters deals with the registration of companies and ancillary issues including the
process of registration, rules for choosing names, an understanding of the MOA and AOA,
the process regarding the change in the said documents and the requirements regarding
obtaining certificate of incorporation.

 Steps of Incorporation
 Names
 Memorandum of Association (MOA)
 Specimen MOA(1st Schedule)
 Companies (Incorporation) Regulations, 2017
 Alteration in MOA
 Articles of Association (AOA) and its alteration
 General provisions regarding MOA & AOA
 Registration and Certificate of Incorporation
 Conversion of Companies

(Section 9-18, 21-24, 26-29, 31-41, 46-51, 53, 118)
A 1.2: First Schedule of the Companies Act, 2017
(Regulation 10, 11, 26)
A 1.9: Companies (Incorporation) Regulations, 2017.
(Regulation 2 to 10 & 15)
100% except Sec 14(1)(c) which is covered in Ch 11
Steps of Incorporation
Promoters shall be going through the following steps in order to get their company registered
 Getting availability of suitable name from registrar
 Preparing Memorandum of Association (MOA)
 Preparing Articles of Association (AOA)
 Filing documents with registrar
 Obtaining the “certificate of incorporation” of company
Promoter – 2(50)
A person:
 Who is named as a subscriber to the MOA; or
 Who has been named as such in a prospectus; or
 Who has control over affairs of the company, directly or indirectly whether as a shareholder, director
or otherwise; or
 In accordance with whose advice, directions or instructions board of company is accustomed to act
(not applicable to to a person who is acting merely in a professional capacity and to the SECP,
registrar or any authorised officer by virtue of enforcement or regulation of the provisions of this Act
or any rules, regulations, instructions, directions, orders thereof)
Mode of forming a company (Sec 14)
Following number of persons associated for lawful purpose may, by subscribing their names
to MOA and complying requirements of this Act in respect of registration, form a company:
 For Public Companies: 3 or more
 For Private companies: 2 or more
o For Single Member Company: 1 Person
Obligation to register certain associations, partnerships as companies (Sec 9)
No association, partnership or entity of more than 20 persons shall be formed for carrying on
any business (for gain) without registration as company under the Companies Act 2017.
 Penalty = Level 1 + personally liable for all liabilities incurred
Exceptions
 Any society, body or association, other than a partnership, formed or incorporated under
any other Pakistan law; or
 A joint family carrying on joint family business; or
 A partnership of two or more joint families where the total number of members of such
families, excluding the minor members, does not exceed twenty; or
 A partnership formed to carry on practice as lawyers, accountants or any other profession
where practice as limited liability Co not permitted under relevant laws / regulations
Names
Prohibition of certain names (Sec 10)
Prohibited Names
 A name which contains such word or expression, as may be notified by the SECP
 A name which is, in the opinion of registrar:
- Identical with name of a company already registered;
- Nearly resembling that name of a company already registered;
- Inappropriate;
- Undesirable;
- Deceptive;
- Designed to exploit or offend the religious susceptibilities of the people;
- Any other grounds as may be specified
Names which requires prior approval of SECP
 Prior approval of SECP required if name suggests

- The patronage of any, past or present, Pakistani or foreign, Head of State
- Any connection with the Federal Government or a Provincial Government or any
department or authority of any such Government;
- Any connection with any corporation set up by or under any Federal or Provincial law
- The patronage or any connection with foreign Government/ international organization
- Establishing a modaraba management company or to float a modaraba; or
- Any other business requiring licence from the SECP.
Decision of the SECP regarding validity of name shall be final
Application for reservation of a name
 A person may make an application in specified form and manner with a specified fee, to the
registrar for reservation of any name for a period not exceeding 60 days.
 If the application is refused by registrar, aggrieved person may within 30 days of the order
of refusal prefer an appeal to SECP.
 If it is found that a name was reserved by furnishing false or incorrect information, such
reservation shall be cancelled
- If company has been incorporated, it shall be directed to change its name.
- Person making application shall be liable to a penalty not exceeding level 1
 Order of SECP shall be final and shall not be called in question before any court or authority
Publication of name by a limited company (Sec 22 to 24)
Every company shall:

 Display in a conspicuous position outside every office or place of business, name &
incorporation number, in letters easily legible and in English or Urdu characters.
 Display a certified copy of certificate of incorporation at every place of business.
 Mention its name in legible English or Urdu characters, in all bills of exchange, promissory
notes, endorsements, cheques and orders for money or goods purporting to be signed by or
on behalf of company and in all bills of parcels, invoices, receipts and letters of credits.
 Get its name, address of registered office, telephone, fax number, e-mail and website
addresses, if any, printed on letter-head and all documents, notices and official publications
Penalties for non-publication of name.
A penalty of level 1 be levied on following offences:

 Not displaying its name in the manner provided for by this Act
 Issuing / authorizing any document without mentioning the name
(defaulter would also be personally liable to holder of such promissory note etc)
Publication of Logo on advertisement

“Advertisements” falls within the scope of “notice”. Companies are required to publish their
. full names on advertisements instead of just publishing their logos bearing their trade
Circular names only.
Change and rectification of names and after effects
Rectification of name of a company (Sec 11)
 If wrong name selected by company inadvertently or the name was obtained by furnishing
false information:
- It may change name with the approval of registrar; and
- It shall change name within 30 days if registrar directs so.
 Registrar shall, before issuing direction for change of name, afford company an opportunity
to make representation against proposed direction
 If the company fails to report compliance with above direction within specified period, the
registrar may
- Enter on the register a new name for the company selected by him; and
- Issue a certificate of incorporation on change of name (just like section 13)
 Non complying with the direction of registrar or continue using previous name after the
name has been changed by the registrar shall attract a penalty of level 1
Change of name by a company (Sec 12)
 Company may, by special resolution and written approval of registrar, change its name.
 No approval under this section shall be required where change in name is only the addition
or omission of the expression “(Private)” or “(SMC-Private)” or “(Guarantee)Limited” or
“Limited” or “Unlimited” due to conversion of the status of a company.
Special resolution – 2(66)
A resolution which has been passed by a majority of not less than three-fourths of such members entitled
to vote as are present in person or by proxy or vote through postal ballot at a general meeting of which
not less than 21 days notice specifying the intention to propose the resolution as a special resolution has
been duly given.
Provided that, if all the members entitled to attend and vote at any such meeting so agree, a resolution
may be proposed and passed as a special resolution at a meeting of which less then 21 days notice has
been given
Ordinary resolution – 2(46)

A resolution passed by a simple majority of such members of the company entitled to vote as are present
in person or by proxy or exercise the option to vote through postal ballot, as provided in the articles or as
may be specified, at a general meeting
Registration of change of name and effect thereof (Sec 13)
 Registrar shall enter the new name on the register

 Registrar shall issue a new certificate of incorporation altered to meet circumstances
 Continue to mention former name along with its new name on the outside every business
place and in all documents (for 90 days from date of issue of new certificate)
 Change of name shall not affect the rights & obligations of Co.
 Legal proceeding may be continued against the Co in new name
Students are hereby advised to read SECP’ Guideline for name selection to
make themselves familiar with the common issues and restrictions placed by
SECP on selection of names. Moreover you would found a list of prohibited
words that are not allowed to be used by any company other than the specified
companies for that sector etc.
Tutor
Note That guideline is not part of syllabus, however that is good to see for a more
comprehensive understanding
Memorandum of Association (MOA)
Business and objects of a company (Sec 26)
 A company may undertake any lawful business or activity and do any act or enter into any
transaction being incidental thereto which is necessary in attaining its business activities
 A company shall not engage in a business which is
- Prohibited by any law for the time being in force in Pakistan; or
- Restricted by any law, rules or regulations, unless necessary licence, registration,
permission or approval obtained or compliance with other condition has been made.
 The principal line of business of shall be mentioned in MOA which shall always
corresponds with the name of company; and
 Principal line of business means the business in which substantial assets are held or likely
to be held or substantial revenue is earned or likely to be earned, whichever is higher.
 Any change in the principal line of business shall be reported to registrar within 30 days
and registrar may give direction of change of name if it is in violation of this section.
Clauses of MOA (Sec 27, 28, 29)
Name Clause
Name of company should be mentioned in the MOA with the following last words
- Public Co: "Limited"
- Private Co: "(Private) Limited"
- Single Member Company “(SMC-Private) Limited”
- Guarantee Ltd "(Guarantee) Limited"
- Unlimited: “Unlimited”
Registered Office Clause

Province or part of Pakistan not forming part of a province
(in which registered office is to be situated)
Address of Registered office (Sec 21 & 53)
 Co shall have a registered office within 30 days of incorporation
 Any document or information may be served on company or any of its officers at the
registered office against an acknowledgement (or by post or courier service or
through electronic or in any other manner as may be specified)
 Notify to registrar in specified manner
 Notice of change be communicated to registrar within 15 days of change
 Level 1 penalty for non compliance
Objects Clause
Principal line of business shall be mentioned
Undertaking Clause
An undertaking as may be specified (please see Specimen MOA – 1st Schedule)
Liability Clause
Company Limited by Shares

“Liability of the Members is limited”
Company Limited by Guarantee
“Liability of the Members is limited”; and
“that each member undertakes to contribute to the assets of the company in the event of its
being wound up while he is a member or within one year afterwards, for payment of the debts
and liabilities of the company contracted before he ceases to be a member, and of the costs,
charges and expenses of winding up, and for adjustment of the rights of the contributories among
themselves such amount as may be required, not exceeding a specified amount;
Unlimited Company
“Liability of the Members is unlimited”
Authorised Share Capital Clause
Amount of share capital with which Co proposes to be registered, and the division into shares
of a fixed amount
 Every subscriber of MOA is required to take at least one share

 Each subscriber shall write opposite to his name, number of shares he has agreed to take.
 For companies limited by guarantee and unlimited companies, this clause shall be included
only if the company has a share capital
Authorised Capital or nominal capital - 2(5)
Such capital as is authorised by MOA to be the maximum amount of share capital of the company;
…………………………………………………………………………………………………………………………………………………………….
Special transitional provisions to be followed for existing companies (for object clause)
 Existing companies shall continue with their existing MOA and the object stated at serial number 1 of
the object clause shall be treated as the principal line of business;
 If object stated at serial number 1 is not the principal line of business, it shall be required to intimate to
registrar their principal line of business within specified time
 A revised copy of MOA indicating principal business at serial number 1 shall also be furnished to
registrar; and
 Existing companies or companies to be formed to carry on or engage in any business which is subject to
a licence or registration, permission or approval shall mention the businesses as required under the
respective law and the rules and regulations made there under;
Specimen MOA (1st Schedule)
MEMORANDUM OF ASSOCIATION
ABC (PRIVATE) LIMITED
1. The name of the company is “ABC Textile (Private) Limited.
2. The registered office of the company will be situated in the Province of Sindh.
3. (i) The principal line of business of the company shall be to carry-out the manufacturing,
sale, import and export of textiles.
(ii) Except for the businesses mentioned in sub-clause (iii) hereunder, the company shall
engage in all the lawful businesses and shall be authorized to take all necessary steps and
actions in connection therewith and ancillary thereto.
(iii) Notwithstanding anything contained in the foregoing sub-clauses of this clause nothing
contained herein shall be construed as empowering the Company to undertake or indulge,
directly or indirectly in the business of a Banking Company, Non-banking Finance Company
(Mutual Fund, Leasing, Investment Company, Investment Advisor, Real Estate Investment
Trust management company, Housing Finance Company, Venture Capital Company,
Discounting Services, Microfinance or Microcredit business), Insurance Business, Modaraba
management company, Stock Brokerage business, forex, real estate business, managing
agency, business of providing the services of security guards or any other business restricted
under any law for the time being in force or as may be specified by the Commission.
(iv) It is hereby undertaken that the company shall not:
(a) engage in any of the business mentioned in sub-clause (iii) above or any unlawful
operation;
(b) launch multi-level marketing (MLM), Pyramid and Ponzi Schemes, or other related
activities/businesses or any lottery business;
(c) engage in any of the permissible business unless the requisite approval, permission,
consent or licence is obtained from competent authority as may be required under any law for
the time being in force.
4. The liability of the members is limited.
5. The authorized capital of the company is Rs.1,000,000/- (Rupees one Million only) divided
into 100,000 (one hundred thousand) ordinary shares of Rs.10/- (Rupees ten only) each.
We, the several persons whose names and addresses are subscribed below, are desirous of
being formed into a company, in pursuance of this memorandum of association, and we
respectively agree to take the number of shares in the capital of the company as set opposite
our respective names:
Name and NIC No. Father’s/ Nationality Occupation Residential No of shares
Signature
Surname (in case of Husband’s with any address in taken by
(present & foreigner, Name in full former full each
former) in Passport #) Nationality subscriber
full
AB Gh Pakistani Trading Street ---, 10 (Ten) ---
business No. --, F- -
7/2,
Lahore
10 (Ten)
10 (Ten)
Total number of shares taken 30 (Thirty)
Dated the __________day of __________, 20 ___

Witness to above signatures: (For the documents submitted in physical form)
Signature
Full Name (in Block Letters)
Father’s/ Husband’s name
Nationality
Occupation
NIC No.
Usual residential address
Witness to above signatures: (For the documents submitted electronically) (Digital Signature
Certificate Provider)
Name:
Address:
Companies (Incorporation) Regulations, 2017
Reservation of Name (Reg # 3)
 Promotors shall have the option to file either separate application for reservation of name
or combined application for reservation of name and incorporation of company
 Separate application for reservation of name shall be made along with non-refundable
application fee as specified in Seventh Schedule of the Act, in the following manner,-
Online application through e-service; or
Physical application as per Inc. Form-I of the regulations with the registrar.
 Applicant may propose up to 3 names in order of priority for reservation of any 1 of them
 Registrar, if satisfied that any one of the proposed names in order of priority, fulfills the
criteria, may issue availability of name for 60 days from date of availability of name letter.
 If applicant fails to file application for incorporation of company along-with evidence of
payment of fee within sixty days period, the name shall not remain available
 In case of refusal of the proposed name(s), the registrar shall issue the order of refusal.
 Registrar may require applicant to furnish such additional information as deemed
appropriate: If requisite information is not provided within 15 days or any further time
allowed by registrar, application shall be disposed of on the basis of available information.
Modes of payment of fee (Reg # 3A)
Fee as per 7th Schedule of the Act as required under these regulations, may be paid through-
 Credit card; or
 Debit card; or
 Other mode of online payment made available by the SECP; or
 Challan in the designated branch of the bank.
Prohibition of certain names (Reg # 4)

Following words and combinations shall not be used in name of a company in English or any
of the languages depicting the same meaning:
 Federal Government, Provincial Government, Name depicting association with any foreign
government, Name suggesting association with any political personality, SECP, Authority,
Register or Registered, Co-operative, Bureau, Division, Department, Undertaking,
Municipal, Union, Republic, Nation, President, Governor, Prime Minister, Chief Minister,
Minister, Cabinet, Senate, National Assembly, Provincial Assembly, Parliament/
Parliamentary, Statute/ Statutory, Court/ Judiciary/ Judge, Jury, Administrator.
 Names of International bodies and abbreviations thereof including, but not limited to,
United Nations, South Asian Association for Regional Cooperation, Organization of Islamic
Conference, World Bank, International Finance Corporation, Asian Development Bank,
Islamic Development Bank, International Monetary Fund, Red Cross, Red Crescent.
Provided that the SECP may allow any of the above names under special circumstances on
the request of any government or authority.
Following words or acronyms and combinations thereof may only be used in the name of a
company subject to the criteria mentioned in each case:
 Association or Foundation - companies to be established on grant of license by the SECP
under section 42 of the Act or which are licensed by the Directorate General of Trade
Organizations under the Trade Organizations Act, 2013.
 Fund - a public sector company, a trade organization, a NBFC to be established to
undertake asset management services or private equity and venture capital fund
management services subject to prior approval of the SECP or a company to be established
on grant of license by the SECP under section 42 of the Act
 Council - a company to be established on grant of license by the SECP under section 42 of
the Act. Moreover, this expression may also be allowed to Sports Association, Trade
Organization or a Professional Body.
 Chamber - an entity which is to be established as a Trade Organization under Trade
Organizations Act, 2013.
 Trust - NBFC to be established to undertake REIT management services or asset
management services subject to prior approval by the SECP.
 Society - a company if proper justification is provided to the satisfaction of the registrar.
 Assurance/Assurer/Insurance/Insurer/Re-Assurance/Re-Assurer/Re-
Insurance/Re-Insurer - companies to be established to undertake business of Insurance,
Assurance, Reinsurance and Re-assurance subject to prior approval of the SECP.
 Board - a company desirous to engage in the business of Paper and/or Board or to public
sector companies.
 Bahria/Askari/Fauji/Fazaiya/Cadet/Armed Forces or Forces/Army/Navy/Air Force
/Shaheen/Military/Defence - companies to be established by the relevant agency.
 Bank/Banking/Banker - companies to be established to undertake banking business
subject to prior approval of State Bank of Pakistan or an investment bank subject to prior
approval of the SECP.
 Chapter – companies where NOC or permission of the organization/entities having various
chapters locally or globally, is provided.]
 Charter/Chartered - companies having charter from the sovereign authority of the
Federation or the Province.
 Corporation - companies where proper justification is submitted to the satisfaction of
registrar.
 Exchange/Bourse - Securities Exchange, Commodity Exchange, Mercantile Exchange and
Exchange Company, subject to prior approval from the relevant authority.
 Names of Famous/Distinct Personalities – a company, where NOC from the personality
is provided or where proper justification is submitted to the satisfaction of registrar.]
 Federation - a company licensed under section 42 of the Act or trade bodies under Trade
Organizations Act, 2013.
 Federal - a company where it has a connection with or patronage of the Federal
Government subject to prior approval of the SECP.
 Province/Provincial/Sindh/Punjab/Baluchistan/KPK/ FATA/Gilgit Baltistan or

FANA/ Azad Jammu & Kashmir or AJK. a company where it has a connection with or
patronage of the concerned Government subject to prior approval of the SECP.
 Group - a company where this word implies several companies under single corporate
ownership and applicants have to provide evidence of subsidiary/associate relationship
with two or more companies.
 Holding - a company where it qualifies to be a holding company as defined in clause 37 of
sub-section (1) of section 2 of the Act to the satisfaction of the registrar.
 Institute/Institution - a company where it has submitted proper justification to the
satisfaction of the registrar.
 Finance, Financial, Investment Finance, Investment Advisory, Leasing, Asset
Management, Housing Finance, Modaraba, Venture Capital, Private Equity - NBFC,
investment company, Modaraba company, brokerage house subject to prior approval by
the SECP. any public sector financial institution subject to prior approval by the SECP or
State Bank of Pakistan, as the case may be.
 Name of Company containing country name or nationality other than Pakistan - the
companies where appropriate justification is submitted to the satisfaction of the registrar.
 Name of Company containing names of two countries i.e., Pakistan/Pak and any other
foreign country - companies where documentary evidence is provided to the satisfaction of
the registrar to support the fact that the company is a Joint Venture of two Governments or
companies 12[or individuals of two relevant countries].
 New/Modern/The/Al/International/Company/Co./Inc./Firm/Partnership/LLP/LLC
/Proprietor/ Enterprise/Mills/Factory - a company where proper justification is
submitted to the satisfaction of the registrar. However, these expressions will not be
acceptable if used to make proposed company name distinctive from existing companies.
 State - public sector companies.
 University - University Management Company for the management of University in terms
of guidelines of Higher Education SECP.
The name shall be considered undesirable, if:

 it includes any word or words which are offensive to any section of the people;
 it is identical with or resemble or similar to name of Limited Liability Partnership
registered under the Limited Liability Partnership Act, 2017;
 any other word which in the opinion of registrar is undesirable.
Application for incorporation of company (Reg # 5)
 An application for incorporation of company along with specified fee, shall be filed in any of
the following modes, namely:-
- Separate application for incorporation of company; or
- Combined application for reservation of name and incorporation of company
 An applicant shall make separate application for incorporation of company either online
through e-service or physical form to registrar as per Form-II with following documents,-
- MOA (For online application, e-service shall automatically generate MOA on basis of
information provided by applicant except for companies having specialized business);
- AOA where required;
- Copies of valid NIC/NICOP (national identity card/ national identity card for overseas
Pakistanis) of subscribers/ directors/chief executive officer or copies of valid Passport
in case of a foreigner;
- In case of a SMC copy of valid NIC/NICOP of nominee or copy of valid Passport in case of
a foreigner;
- Copy of NIC of witness in case of physical filing of application;
- In case of physical application, authority letter on stamp paper of requisite value in
favour of any one of the subscribers or registered intermediary, authorizing him to file
documents for incorporation of company on behalf of subscribers, make correction
therein, if required and collect certificate of incorporation and other documents after
incorporation of company. The authority letter shall be witnessed with his particulars
and shall also be notarized;
- NOC/Letter of Intent/ License (if any)/ approval letter of the relevant regulatory
authority in case of specialized business;
- In case of physical application, original paid bank challan or other evidence of payment
of fee specified in Seventh Schedule of the Act.
- Copy of valid NIC/Passport of person duly authorized by the Board of a body corporate
which is a subscriber along with copy of Board resolution. In case of a subscriber which
is a limited liability partnership, copy of valid NIC/ Passport of designated partner
empowered to act as such, along with copy of instrument empowering him.
- In case the subscriber is a foreign company or a foreign body corporate, the profile of
the company, detail of its directors, their nationality and country of origin, copy of its
charter, statute or MOA and AOA etc., certified in the manner specified in regulation 15.
 Combined application for reservation of name and incorporation of company limited by
shares shall be filed online through e-service on payment of fee along with scanned copies
of only relevant and applicable documents, except MOA and AOA, which shall be generated
by e-service: Provided that facility of combined application shall not be available for
companies to be formed to carry on or engage in any business which is subject to a licence
or registration, permission or approval as required under the respective law: Provided
further that the applicant shall enter three names for the proposed company in the order of
priority, out of which any one may be approved by the registrar subject to fulfillment of
criteria mentioned in section 10 of the Act and in these regulations. If the name as per
option one is not available, the name from other options in order of priority shall be
considered for incorporation and in case of refusal of the proposed names, the registrar
shall issue the order of refusal as per Inc. Annexure-II.
 Any person may obtain certified copies of the extract of information
MOA of Association (Reg # 6)
 MOA shall be in conformity with Table B, C, D, E or F of the First Schedule to the Act and
any other rules and regulations notified by the SECP/Federal Government, as applicable to
the kind of the company. It shall contain an undertaking that the company shall not engage
in any of the restricted business, launch multi-level marketing (MLM), Pyramid and Ponzi
Schemes, or other related activities/businesses or any lottery business, or engage in any of
permissible business unless requisite approval, permission, consent or license is obtained
from competent authority as may be required under any law for the time being in force.
Explanation.- “restricted business” includes undertaking or indulging, directly or
indirectly in the business of a Banking Company, NBFC, Mutual Fund, Private Fund, Leasing,
Investment Company, Investment Advisor, REIT Management Company, Housing Finance
Company, Discounting Services Microfinance or Microcredit business, Insurance Business,
Modaraba Management Company, Stock Brokerage business, forex, managing agency,
business of providing the services of security guards, securities broker, securities adviser,
securities manager, share registrar, credit rating company, balloter, underwriter, debt
securities trustee or any other business restricted under any law for the time being in force
or as may be notified by the SECP or any other government authority
 MOA filed in physical form under the Act, shall be properly stamped as required by the
Stamp Act, 1899 (II of 1899), if applicable, duly subscribed and witnessed along with the
declaration made thereunder: Provided that in case of electronic submission of MOA of
association, the stamp duty shall not be paid till the time Provincial Governments devise
and implement appropriate measures for payment and recovery of stamp duty through
electronic means in terms of section 10 of Electronic Transactions Ordinance, 2002
 Registrar may require any person who makes a declaration under the Act or is a promoter
or director of the proposed company or is a witness to the signatures of the subscribers to
the MOA to furnish such information, clarification or document as he may deem necessary
to satisfy himself for purposes of sub-sections (2) and (4) of section 16 of the Act
AOA of Association (Reg # 7)
 In case, subscribers opt to file combined application for reservation of name and
incorporation of company, the AOA as per Table A shall be the AOA of the company.
 In case of separate application for incorporation of company, subscribers of company
limited by shares may adopt AOA as per Table A and notify the same to registrar and filing
of AOA separately shall not be required by company adopting Table A:
 If AOA as per Table A are not adopted, company limited by shares shall file the AOA with
the registrar along with application for incorporation.
 In the case of a company limited by guarantee or an unlimited company, the company shall
file the AOA with the registrar along with application for incorporation.
Signing of MOA of association and AOA of association (Reg # 7A)
 MOA & AOA shall be signed physically or electronically, as the case may be, by each
subscriber and where required, to be witnessed.
 Where a subscriber is other than a natural person, shall be signed by a natural person on
its behalf in the following manner:
- in case of a body corporate, duly authorized by a resolution of the board of directors;
- in case of a limited liability partnership, a designated partner empowered to act as such,
alongwith copy of instrument empowering him; and
- in any other case by an authorized representative duly authorized to sign as such
Appointment of First Directors and Chief Executive Officer (Reg # 8)
 Subscribers to MOA shall determine the number of directors and names of first directors.
 Subscriber shall also determine name of first chief executive officer.
 Number of directors as determined by the subscribers and particulars of first directors and
first chief executive officer shall be stated in application for incorporation of company
Other information to be provided (Reg # 9)
In addition to the particulars of subscribers as provided in section 31 and 37 of the Act,

following further information shall be provided namely:
 A subscriber, in case of a Pakistani national, shall also specify number of his valid NIC/
NICOP and in the case of foreign national, number of his valid passport.]
 In case of a person other than a natural person, the address of its registered office or
principal office shall be mentioned and the authorized representative signing the
documents shall likewise provide his particulars.
Witness in case of physical submission of a document (Reg # 10)
 In case of electronic submission of documents for incorporation of a company a witness is

not required in terms of Section 3 of Electronic Transactions Ordinance, 2002.
 In case of physical submission of documents for incorporation of a company, the same shall
be witnessed by a Pakistani National having valid CNIC: Provided that where a document is
required to be attested by a notary public or an oath SECPer or class I magistrate, the same
shall be witnessed in accordance with the relevant law.
Additional requirements for foreign subscribers and security clearance (Reg # 15)
 If subscriber is a foreign company or a foreign body corporate, registrar shall require

additional information including but not limited to, the profile of the foreign company or
foreign body corporate, detail of its directors, their nationality and country of origin, copy
of its charter, statute or MOA and AOA etc.:
 Copy of any charter, statute, MOA, AOA or other instrument, constituting or defining the
constitution of a foreign company or a foreign body corporate required to be filed with the
registrar shall be duly certified to be a true copy by –
- the public officer in the country where the foreign company or foreign body corporate is
incorporated to whose custody the original is committed; or
- a Notary public of the country where the foreign company or foreign body corporate is
incorporated; or
- an affidavit of a responsible officer of the foreign company or foreign body corporate in
the country where the company is incorporated:
 Signature and seal of the officials or certificate of Notary Public referred above shall be
authenticated by a Pakistan diplomatic consular or consulate officer and the certificate of
officer of foreign company / body corporate shall be signed before a Pakistan diplomatic
consular or consulate officer.
 If subscriber is an individual of foreign nationality, he may be required to file additional
documents as deemed necessary by the registrar.
 SECP shall obtain security clearance from Ministry of Interior (MoI) in following cases and
in the manner prescribed hereunder:
- Companies having foreign (other than Afghan and Indian national or origin)
subscribers/officers will be incorporated on the basis of an undertaking of each foreign
subscriber /officer and case shall be forwarded for security clearance:
(if name of subscriber/officer is not security cleared by MoI, the subscriber/officer and
the company, shall take immediate steps for replacement and shall transfer shares if
any, held by the subscriber);
- companies having foreign subscribers/ officers who are Afghan or Indian national or of
Afghan or Indian Origin will be incorporated after receipt of security clearance;
- security services provider companies will be incorporated after receipt of security
clearance from MoI.
 Manner of security clearance shall be subject to any change in the security policy of
government from time to time
Alteration in MOA (Sec 32-34, 40)

Alter or alteration - 2(2)
Making of additions or omissions without substituting or destroying main scheme of the document;
Grounds for alteration in Object or Registered Office clause

 Change the place of its registered office from.-
- One province to another province or Islamabad Capital Territory and vice versa; or
- One province or Islamabad Capital Territory to a part of Pakistan not forming part of a
province and vice versa; or
 Change its principal line of business; or
 Adopt any business activity or any change therein which is subject to licence, registration,
permission or approval under any law.
Process of alteration
 Pass a special resolution.

 Apply to SECP for approval.
(Approval not required where alteration related to change its principal line of business)
 A copy of duly certified order of SECP shall be forwarded to the company and to the
registrar within 7 days from the date of the order.
 Copy of altered MOA shall be filed to registrar by company within 30 days of date of order
(SECP may, on an application by company, extend the time for the filing of MOA)
 Registrar shall register it and issue a certificate which shall be conclusive evidence
 Onwards the altered MOA shall be considered as the MOA of the company:
 Where alteration involves a transfer of registered office from jurisdiction of one company
registration office to another, physical record of company shall be transferred to the other
registrar (where the registered office has been shifted)
 Where alteration involves change in principal line of business, company shall only file the
amended MOA with registrar within 30 days to comply this section.
Alteration of memorandum
Company shall submit a petition to SECP within 60 days of special resolution
SECP Approval for alteration

 SECP may make an order confirming alteration on such terms and conditions as it thinks fit
and make such order as to costs as it thinks proper.
 SECP shall in exercising its discretion have regard to the rights and interests of
- Members of company or of any class of them; and
- Creditors
 SECP may, if it thinks fit, give such directions and make such orders as it may think
expedient for facilitating or carrying into effect any such arrangement.
Articles of Association (AOA) and its alteration
Articles - Sec 2(3)

The articles of association of a company framed in accordance with the company law or this Act;
Registration of Articles (Sec 36)
 Companies limited by shares have 2 options. It may either

- Adopt Table A; or
- Get the AOA registered with registrar
 Other companies shall get the AOA registered
 For Guarantee limited or unlimited companies, AOA shall state:
- Company having share capital: Amount of share capital at time of registration
- Company not having share capital: Number of members at time of registration
 AOA shall list and enumerate the voting and other rights attached to different classes of
shares and securities issued or to be issued by the company.
 Contravenes of this section shall attract a penalty of level 1
Alteration in AOA (Sec 35, 38, 40)
 Company may, by special resolution, alter its AOA

 Any alteration shall be as valid as if originally contained in the AOA
 If alteration affects the substantive rights or liabilities of members or of a class of members,
it shall be carried out only if a majority of at least 3/4th of those affected vote for that
(personally or through proxy)
 A copy of altered AOA shall be filed with registrar within 30 days of passing of resolution
 Registrar shall register the same and thenceforth those AOA shall be the AOA of company.
Members are not bound by the alteration which increases their liability or require them to
subscribe for more shares unless he agrees in writing.
General Provisions regarding MOA & AOA
Printing, signature, etc. of MOA & AOA (Sec 31 & 37)
MOA and AOA shall be

 Printed
 Divided into paragraph numbered consecutively
 Dated
 Signed by each subscribers giving following details in presence of a witness
(witness shall attest signature and add his particulars also)
- Present Name in full
- Occupation
- Nationality
- Fathers Name
- (Husband name In case of married/ widow women)
- Nationality
- Usual residential Address
- Others particulars as may be prescribed
Formats of MOA and AOA (Sec 41)

Company Type Table of First Schedule
- Co Ltd by Shares AOA Table A
- Co Ltd by Shares MOA Table B
- Co Ltd by Guarantee (Not having Sh.Cap) - MOA+AOA Table C
- Co Ltd by Guarantee (Having Sh.Cap) - MOA+AOA Table D
- Unlimited Co - MOA+AOA Table E
Copies of memorandum and articles to be given to members (Sec 39)
 Within 14 days of request on payment of prescribed amount.

 Contravention shall attract a penalty of level 1
Registration and Certificate of Incorporation
Registration of memorandum and articles (Sec 16, 17)
 There shall be filed with registrar an application containing following information etc:
- A declaration on specified form, by an authorized intermediary or by a person named in
AOA as a director, of compliance with requirements of Act, rules and regulations;
- MOA of the proposed company signed by all subscribers, duly witnessed and dated;
- AOA signed by the subscribers duly witnessed and dated
(not mendatory for company limited by share, if it has adopted Table A)
- An address for correspondence till its registered office is established and notified.
 If registrar think that any document or information contains any matter contrary to law or
is not complete (have defect, error or omission, or is not properly authenticated), he may
require company to file a revised document or remove deficiencies within specified period.
 If applicant fails to remove the deficiencies, registrar may refuse registration of company
 If registration is refused, subscribers may, within 30 days of refusal, prefer appeal to SECP.
 Order of SECP shall be final and shall not be called in question before any court/authority
 If registrar is satisfied that all requirements of this Act, rules or regulations have been
complied with, he shall register the MOA and other documents delivered to him.
Certificate of incorporation
 On registration of MOA, registrar shall issue a certificate that the company is incorporated.
 The certificate of incorporation shall state
- Name and registration number of the company;
- Date of its incorporation;
- Whether it is a private or a public company;
- Whether it is a limited (limited by shares or guarantee) or unlimited company; and
 Certificate shall be signed by registrar or authenticated by registrar’s official seal.

 Certificate shall be conclusive evidence that all legal requirements are fulfilled and that the
company is duly registered under this Act.
SECP Clarification on website

Certificate of incorporation should not be deemed permission to carry out any business
(mentioned in MOA) where further permission, license etc of relevant public authority
are required. Co must take permission from relevant authority.
Effect of memorandum and articles.
 Upon registration, MOA and AOA shall bind the company and the members
(just like that they all have signed it)
 All moneys payable by a subscriber against the shares subscribed shall be a debt due from
him and be payable in such time and manner as may be specified by SECP.
 Any violation of this section or direction of registrar shall be an offence liable to a penalty
of level 1
Members and the effect of registration. (Sec 18, 118)
 Subscribers to MOA + upcoming members, are now a body corporate by the stated name.
 The body corporate is capable of exercising all the functions of an incorporated company,
having perpetual succession;
 Status and registered office of company are as stated in the application for registration;
 For company having share capital, subscribers become holders of the initial shares; and
 Persons named in AOA as proposed directors, are deemed to have been appointed.
Who are the members:
 Subscribers are deemed to have agreed to become members; and

 Every other person whose names are entered in the register of members:
- to whom is allotted, or who becomes the holder of any class or kind of shares; or
- who has agreed to become a member (for company not having a share capital)
Liability for carrying on business with less minimum members (sec 15)
If number of members of a company is reduced below minimum number of members:

- Private company other than a single member company 2 members
- Any other company 3 members
and the company carries on business for more than 180 days while, every person who is a
member during the time that it so carries on business after those 180 days shall be
severally liable for payment of whole debts of company contracted during that time and
may be sued therefore without joinder in the suit of any other member
(provided that member(s) is cognizant of the fact)
Conversion of Status of Companies (46 to 51)
Public to Private / Private to SMC / Unlimited to Limited / Limited by Guarantee to

Limited by Shares (Provisions same for all these conversions)
 Pass special resolution

 Amend its MOA and AOA to include conditions of the proposed status company
 Comply with all the requirements as may be specified
 Apply to SECP for approval
 If SECP is satisfied, such conversion shall be allowed by an order in writing.
 A copy of confirming order, duly certified by authorised officer of SECP, shall be forwarded
to the company and to registrar within 7 days from the date of the order.
 A copy of altered MOA & AOA shall, within 15 days from the date of the order, be filed by
the company with registrar
 Thenceforth MOA and AOA so filed shall be the MOA and AOA of newly converted company.

Conversion of status of a company
 Company shall, not later than 60 days from special resolution, make an application on
Form 2 to SECP for its approval
 Company shall file a copy of MOA & AOA as altered on Form 2A with the registrar within 15
days from date of the order of SECP.
Private to Public / SMC to Private / Limited to Unlimited / Limited by shares to Limited

by Guarantee (Provisions same for all these conversions)
 If a company alters its AOA to exclude the conditions of existing status company:
- as on the date of the alteration, cease to be the existing status company; and
- file with the registrar a copy of altered MOA and AOA along with special resolution.
 Default would attract a penalty of level 2
Other conditions
 For conversion of listed company into private company, SECP shall give notice of every
such application, to securities exchange and shall consider their representation.
Reserve share capital on conversion from unlimited to limited company
 Unlimited company (having share capital) may, by its resolution for registration as a
limited company, increase nominal amount of its share capital by increasing nominal
amount of each share
 Such increased amount shall not be called up (except in winding up)
Issue of certificate and effects of conversion

 Registrar upon registration of altered MOA & AOA upon conversion shall issue a certificate.
 The conversion of status of a company shall not affect:
- Any debts, liabilities, obligations or contracts incurred before conversion; and
- Any rights or obligations of the company and any legal proceedings.

Intimation about change in nominee or his particulars
A SMC shall report change in nominee or change in particulars thereof or appointment in case
of conversion of status to a SMC, within 15 days of change/conversion to registrar on Form 15
3. Meetings and Proceedings Page 35
Ch # 3: Meetings and Proceedings
Now when we are familiar with basics of company law and we also have learned about
the statutory requirements involved in the share capital and debentures of the company,
it’s time to move on towards the administration of the companies. We shall be covering
5 chapters in the administration portion.
The chapter of meetings is the first in series. Whenever company has to finalise the
things, it needs a meeting to put all the interested and empowered together for taking
decisions with consensus. There are two major type of meetings (with some further
classifications also) that are being conducted in a company for the decision making
 Directors Meeting
 Board Meeting (all directors)
 Committee Meetings (only directors part of that specific committee)
 Members Meeting
 General Meetings (all the members)
 Statutory Meeting
 Annual General Meeting
 Extraordinary General Meeting
 Class Meeting (Specific class of members)
This chapter primarily deals with members meetings (general meeting in majority)

 Type of Meetings
 Secretarial Formalities
 Format of Notice and Special Resolution
 Voting in a Meeting
 Companies (Postal Ballot) Regulations, 2018
A 1.1: Companies Act, 2017 (Section 55, 131-152, 178, 215)

A 1.3: Companies (Postal Ballot) Regulations, 2018
(Regulation 9, 27 to 29)
100%
Type of Meetings
Statutory meeting of company (Sec 131)
Every public company having share capital and every private company, that was converted
into public within 1 year of incorporation, must hold "statutory meeting" within earlier of :
 180 days of commencement of business
 9 months of incorporation
If first AGM of a company is decided to be held earlier, no statutory meeting shall be required.
Statutory Report
 Notice of a statutory meeting shall be sent to the members at least 21 days before the
meeting along with a copy of “statutory report”.
 Certified by the CE and at least 1 director; and in case of a listed company also by the CFO
 Statutory report shall include:
- Total No of shares issued, distinguishing shares allotted for cash & other than cash
- Total consideration received against shares allotted
- Abstract of receipts and payments made upto a date within 15 days of report, showing
o Receipts from issue of shares, debentures & other sources
o Payments made
o Balance remaining on hand
o Estimated amount of preliminary expenses including discount/commissions paid
- Names, addresses and occupation of directors, chief executive, secretary, legal
advisors and auditors or changes therein from the date of incorporations
- Details of any contract to be presented before meeting for approval / modification
- Extent of carrying/not carrying out underwriting contracts + reasons for not carrying
- Particulars of any commission or brokerage paid or payable for issue or sale of shares
to any director, chief executive, secretary or officer or to a private company of which
he is a director
 Report shall briefly state affairs of Co since incorporation + its business plan + any changes
 Shall contain auditors’ certificate for correctness of allotment of shares & receipt of money
 Company shall send a copy of the statutory report and auditor’s report to the registrar for
registration after sending to members
Proceedings of Statutory Meeting

 Directors shall make available a list of members (& their particulars) to be produced at
commencement of meeting & shall be open for inspection by any member during meeting.
 Members may discuss anything at meeting regarding incorporation and its operations
 No resolutions can be passed without notice being given to members in specified manner.
 Meeting may be adjourned from time to time and any resolution passed in the adjourned
meeting will be as effective as the original one.(provided notice given in specified manner)
 Any contravention of this section shall be an offence liable

- In case of a listed company, to a penalty of level 2
- In case of any other company, to a penalty of level 1
1st Schedule - Table A- Clause 25 & 30

 21 days includes day of meeting but excludes day of serving notice
 Adjournment is initiated by chairman with the consent of members
 It shall not be necessary to give notice of adjourned meeting
 If a meeting is adjourned for ≥ 15 days, Notice shall be given in same manner
Cross Link (otherwise not needed for an adjourned meeting)
Annual General Meeting (Sec 132)
 1st AGM;
- Within 16 months of incorporation
 Subsequent AGM;
- Once in every year
- Within 120 days of close of its financial year
 Extension of 30 days (for special reasons) by SECP (Listed Co) or Registrar (other Co)
 AGM of listed Co shall be held in the town of registered office or in a nearest city
 In a listed company, members residing in a city holding at least 10% of paid up capital, or
such other percentage as may be specified, may demand at least 7 days before meeting, a
facility of video- link to participate in its AGM.
 Notice of AGM shall be given to members, and all other entitled, 21 days before meeting.
 For listed Co; notice shall also be
- Sent to SECP, in addition to its being dispatched in normal course to members
- Published in English and Urdu languages at least in one issue each of a daily
newspaper of respective language having nationwide circulation
This section is not applicable to a single member company.

Extension for holding AGM
 Breakdown of computer software would not be accepted as special reason
 Listed companies are advised to keep “backup files” of data in their own interest to compile
accounts in time
Circular Notices of AGM/EOGM to be forwarded to SECP
 Notice + statement u/s 134 shall be faxed to SECP on same date when sent to members
 Copies of newspaper (in which notice was published) shall be forwarded to SECP within 7
days of publication
 Requirements also be fulfilled if sent notice & scanned copies of newspaper on SECP’s email

Application for extension in holding AGM and laying of financial statements
 An application for the grant of an extension in time for holding AGM or laying before AGM
the financial statements shall, be submitted to SECP / Registrar not less than 30 days
before the last date on which such general meeting is required to be held
 Registrar/SECP may for special reasons to be recorded in writing, entertain an application
which is submitted less than 30 days before the due date
 The application for extension shall state
- Registration number, name and address of the company;
- Date on which the last AGM, if any, was held and the financial year of which the financial
statements were laid at therein;
- Date up to which the AGM is required to be held under relevant sections and the date up
to which the financial statements are required to be laid therein;
- Reasons for the extension; and
- When the delay is attributed to non-completion of books of accounts or non finalization
of audit, the exact state of books of accounts with reasons for non completion of same
accompanied by a certificate of auditor as to the state of its accounts, reasons for delay
in completion of audit and the minimum time required for the purpose.
Extraordinary General Meeting (Sec 133)
 All meetings other than AGM and Statutory meeting shall be called EOGM.
 Notice of EOGM shall be given to members 21 days before meeting
 For any company other than listed, if all the members entitled to attend and vote at any
EOGM so agree, a meeting may be held at a shorter notice.
 The directors may call an EOGM at anytime for taking approval of members on any matter.
Meeting on requisition of members
 Also can be called on requisition of members > 1/10th of voting power at date of requisition
(for company not having share capital, requisition may be given by 10% of total members)
 Requisition shall state the objects of meeting + signed + deposited at Reg.Office of Co
 On such requisition directors shall call the EOGM. If directors do not call EOGM within 21
days of requisition; members shall call within 90 days of requisition.
 Meeting shall be caused in same manner as would have been called by directors.
 All expense incurred by member for such meeting shall be reimbursed by Co and same
amount shall be retained from amounts payable to directors who defaulted calling meeting
Meetings called by SECP (Sec 147, 148)
 If Co fails to hold statutory meeting, AGM or EOGM requested by members, SECP on its own
motion or on application of any director or any member
 SECP may direct Co to hold such meetings in directed manner + ancillary directions
including direction that 1 person present personally / proxy shall be deemed a meeting.
[Such Meeting shall deemed to be called by Co in accordance with provisions]
 All costs borne by Co unless SECP directs same to taken from some defaulting official of Co.
 If any person makes default in holding such a meeting or in complying with any directions
of the SECP, shall be liable to a penalty of level 3
Power of the Court to declare the proceedings of a general meeting invalid (Sec 136)
Where material defects or omission in the notice or irregular proceedings of the meeting...
 On a petition filed by members having 10% or more voting rights to court
 Within 30 days of the meeting
 Court may declare such proceedings/part invalid & direct holding of fresh general meeting
Secretarial Formalities
Pre-requisites for a meeting (Sec 55, 134, 135)
Quorum
 The quorum shall be:
- Listed Co: 10 members present personally or through video link
(having at least 25% voting powers of their account or as proxies)
- Others: 2 members present personally or through video link
(having at least 25% voting powers of their account or as proxies)
 For company not having share capital, quorum shall be as provided in the AOA.
 If Quorum not complete within half hour of meeting, the meeting shall be:
- Dissolved (if called by requisitionists) .
- Adjourned to same day, time and place in next week (If called by company)
 If quorum not present within half hour at adjourned meeting, quorum shall be not less then
two members either personally or through video link (unless articles provide otherwise)
Notice
 Shall state time, place and day of the meeting + business to be transacted.
 Given to every director, member/nominee of member in case of member’s death or
insolvency and to the auditor.
 Accidental omission to give notice to, or non-receipt of notice by, any member shall not
invalidate the proceedings at any meeting
 For listed company; It shall be mentioned in the notice that if certain members, having 10%
paid up capital or such other % as may be specified, reside in a city they may demand
company to provide them facility of video-link to for attending meeting
Mode of serving notice to members (Sec 55)

 Personally
 Sending it by post or courier service or through electronic means or in any other
manner as may be specified or,
 If has no registered address in Pak, to address, if any, within Pakistan supplied by him
- Where a notice is sent by post, notice deemed to have been effected at the time at which
the letter would be delivered in the ordinary course of post.
- Notice to joint-holders of share may be given to joint-holder named first in the register
- Notice in case of death/insolvency given to legal representative/ assignee of insolvent

Circulation of reports and notices by companies
Unless otherwise provided by Act or these regulations, any report, notice, statement, circular
or other document required under the Act or any related rule or regulations to be circulated,
transmitted or forwarded to the members, debenture-holders or creditors shall be served,
 Personally against an acknowledgement (if required by law);
 On a member, debenture-holder or creditor at his registered address;
(if he has no registered address in Pakistan, at the address provided by him to company);
 By post or courier service;
 Through electronic means; or
 In any other manner as may be notified by SECP

Video link facility for meetings
Such meeting, with video link facility, shall be conducted in the following manner:
 Company shall ensure that the notice of general meeting specifically mentions this facility
 Demand by members residing in a city and holding 10% of the total paid up capital;
 Chairman and company secretary shall
- Ensure that only member or proxy holder is attending the meeting through video link
- Take any further steps to maintain integrity of such meetings;
- Take the responsibility to ensure availability of adequate facilities at specified locations
without interruption / distortion
- Appoint coordinator at place of video facility to conduct voting and assist chairman;
 Company secretary shall secure the tele/video recording of the proceedings of meetings
and keep the same in his custody along with other relevant record.
Special Business
 All businesses of AGM other then the following are considered special businesses
- Consideration of financial statements, auditors' and directors' reports
- Appointment of auditors and fixing their remuneration
- Declaration of dividends
- Election or appointment of directors
 If any special business is to discussed at meeting; notice shall include statement of all the
facts about the business and shall disclose full the interests of any directors, if any,
 If the meeting involves approval of some document then the place and time at which the
document may be inspected should be stated in the statement.
Chairman
 The chairman of the board shall chair every General Meeting

 If there is no such chairman or chairman not present within 15 minutes of start of meeting
or is unwilling to chair meeting then any director can chair.
 If no director is present or is unwilling, then members can select any person as chairman.
Any contravention of this section shall be an offence liable to a penalty of level 3 (for listed) or
level 2(for others)
Records of resolutions and meetings of members and directors (Sec 151, 152, 178)
 Every company shall keep records of copies of all resolutions of members passed otherwise
than at general meetings, and minutes of all proceedings of general meetings along with the
names of participants, to be entered in properly maintained books
 Copy of minutes of BOD meeting shall be provided to all directors with 14 days of meeting
 Unless proved contrary, every meeting for which minutes have been made shall be deemed
to be called, held & conducted in accordance with Act. and all proceedings deemed valid.
 Every minutes, signed by chairman of that meeting or the chairman of next meeting, shall
be evidence of the proceedings in that meeting.
 The records must be kept at registered office from the date of the resolution, meeting or
decision (simultaneously in physical and electronic form)
 Record in physical form shall be preserved for at least 20 years for members meetings
(10 years requirement for directors meetings u/s 178)
 Record in electronic form shall be preserved permanently
For meetings of BOD; records of copies of all resolutions of directors passed by circulation, and
minutes of all proceedings of directors meetings along with names of participants, to be recorded
Inspection of records of resolutions and meetings of members:
 Books open for inspection by members free of cost during normal business hours (not less
than 2 hours each day) with such restrictions as may be imposed by the AOA
 Any member shall at any time after 7 days from meeting be entitled to have, within 7 days
after request to Co, with certified copy of minutes of any general meeting (prescribed fee)
Tutor’s Note: Format of Minutes

Minutes of 62nd Annual General Meeting of XYZ Industries Limited held on 30th January 2022
at 12:00 Noon at the Company’s Registered Office, at Plot No ABC, Landhi Industrial & Trading
Estate, Landhi, Karachi.
Present
1. Mr. XYZ (In Chair)

2. Habib Kiyani
3. Akhtar Wajid
4. Suleman
5. Aziz Jamal
6. Abdul Rashid
7. Mr. Mohammad Ajmal (CFO & Company Secretary)
8. Mr. Mohammad Anwar (Audit & Engagement Partner MNO & Co)
And 15 other Shareholders were present to attend and vote during the AGM. It is to be noted
that 18 proxies were received aggregating to 79% of the shareholding of XYZ Industries Ltd.
1. NOTICE OF MEETING
The Notice of Meeting already circulated was taken as read at the proposal of Mr. Suleman
seconded by Mr. Aziz Jamal.
2. MINUTES OF LAST MEETING

At the proposal of Mr. Habib Kiyani seconded by Mr. Abdul Rashid the minutes of last
Annual General Meeting held on 07th January 2020 were taken as read and confirmed.
Thereafter the Chairman signed the minutes.
3. DIRECTORS’ REPORT & ACCOUNTS

The Directors’ report and Audited Accounts already circulated were read and explained to
the shareholders who had a general discussion on the accounts, made queries, which were
replied to to their satisfaction by the Chairman.
4. APPOINTMENT OF AUDITORS
At the proposal of Mr.Aziz Jamal, M/s. MNO & Company Chartered Accountants were
unanimously appointed as auditors of the Company for the year 2019-2020 at a
remuneration of Rs. 500, 000/-
5. IT WAS UNANIMOUSLY RESOLVED THAT:

The following objects to be added in Company’s Business Plan
A. To purchase any land, plot(s) of land or immovable property or any right or interest
therein either singly or jointly or in Partnership with any person(s) or Body corporate
or partnership Firm and to develop and construct thereon residential, commercial
complex or complex(es) either singly or jointly or in partnership as aforesaid,
comprising offices for sale or self use or for earning rental income thereon by letting
out individual units comprised in such building(s) subject to applicable regulatory
approval and legal framework.
B. To purchase any movable or immovable property including industrial, commercial,

residential, or farm lands. Plots, buildings, houses, apartments, flats or areas within or
outside the limits of Municipal Corporation or other local bodies, anywhere within the
geographical territories of Islamic Republic of Pakistan, to divide the same into
suitable plots subject to applicable regulatory approach and Legal framework, and to
rent or sell the plot for building/constructing residential houses, bungalows, business
premises, and colonies and rent or sell the same and realize cost in lump sum or easy
installments or by hire purchase system and otherwise subject to applicable
regulatory approval and legal framework.
C. To purchase, sell and otherwise to carry on the business such as builders, contractors,
architects, engineers, estate agents, decorators and surveyors subject to applicable
regulatory approval and legal framework.
D. To Set-up cement, ready mix concrete, construction materials and allied industries.
E. To develop, install and set up power plants for generation, transmission and
distribution of electricity in Pakistan.
F. To apply for license as a Non-Banking Finance Company (NBFC) to form a real estate
investment trust (REIT) and undertake various real estate related activities.
G. It was further noted that the Directors had no direct or indirect interest in these
transactions/resolutions except to the extent of their shareholding in the company.
6. VOTE OF THANKS
There being no other business on agenda, the shareholders had a general informal
exchange of views with the Chairman before the meeting terminated with a vote of thanks
to the Chair.
CONFIRMED ON _______________ CHARIMAN

Attendance at meetings
Proxies (Sec 137)
 Every member entitled to attend and vote at a meeting is entitled to appoint proxy
 Proxy not applicable in company not having share capital (unless AOA provides otherwise)
 No member shall be entitled to appoint more than 1 proxies
- If appoints more than 1 proxies all instruments of proxies submitted shall be invalid
 A proxy must be the member of the Co unless AOA provide otherwise.
 Every notice of the Co shall set out the member's right to appoint proxy + proxy form
 Proxy instrument shall be filed in writing and signed by appointer
- If appointer is a body corporate then also need to be under its seal.
 Proxy instrument shall be filed not later than 48 hours before meeting
- Anything contained in AOA providing lesser period shall be void.
- In calculating so, hours of a non working days shall not be counted
 Members / proxies can do anything in meeting like demanding a poll on some matter or
abstaining from voting on some matter (Anything contrary to it in AOA shall be void)
 Every member entitled to inspect all proxies filed with Co during normal business hours.
 Provisions of this section apply to all general meetings & meetings of any class of members.
Failure to issue notices in time or issuing notices with material defect or omission or any other
contravention of this section shall make company and its officer liable to-
(a) a penalty of level 2 (listed company)
(b) a penalty of level 1 (any other company)
Proxy form in Urdu as well

Companies Limited by Shares and Limited by Guarantee having share capital shall
publish their proxy form in English as well as Urdu Language (as per given format)
Circulars
Holding of General Meeting through video conferencing facility (Listed Co only)

- Facility may be provided at any place other than the town where meeting to be held
- Co shall arrange facility in that city and intimate members 5 days before meeting
- Chairman and minimum Quorum of such a meeting shall be present in that meeting
- Chairman & Secretary shall take responsibilities to ensure availability of adequate
facility and also ensure that only valid members/proxy is attending the meetings
Representations of corporations at meetings of companies and of creditors (Sec 138)

 A body corporate being a member of other company may, by resolution of its directors or
governing body, authorizes an individual to act as its representative.
 A body corporate, being a creditor of any company, may authorize any individual to
represent it at the creditor’s meeting of that company
 Person so authorised shall be entitled to exercise the same powers on behalf of corporation
which he represents
Representation of federal government, etc, at meetings of companies (Sec 139)
 If FG or PG is member of any company, the concerned Minister may appoint any individual
to act as its representative at any meeting of member or any class of members
 That individual shall be deemed to be a member of such a company and shall be entitled to
exercise the same rights and powers, including the right to appoint proxy
Passing of resolution by the members through circulation (Sec 149)
 Except for ordinary businesses of AGM, members of a private company or a public unlisted
company (having not more than 50 members), may pass a resolution (ordinary or special)
by circulation signed by all members for time being entitled to receive notice of a meeting.
 Any such resolution shall be as valid and effectual as if it had been passed at a duly
convened general meeting.
 Resolution shall be circulated, together with necessary papers, if any, to all the members.
 A members’ agreement to such a written resolution, once signified, may not be revoked.
 Such resolution shall be noted at subsequent meeting of the members and made part of the
minutes of that meeting.
Formalities regarding Resolutions
Notice of resolution (sec 140)

 Along with notice to members, a draft resolution of special resolutions shall be sent.
 Member(s) having at least 10% voting power may also give notice of resolution to the
company along with the statement of resolution.
 Such notice shall reach company
- Along with the requisition of EOGM, if the meeting called by members
- Before 10 days of the meeting, in any other case
 Co shall circulate the notice forthwith to all members.
 Any contravention of this section shall be an offence liable:
- For listed company, to a penalty of level 2
- For any other company, to a penalty of level 1
Resolution passed at adjourned meeting (Sec 146)

Date of passing a resolution = Date on which it was in fact passed and not the earlier date
Filing of Special Resolution (Sec 150)
 Every Special Resolution duly authenticated by a director or secretary to be filed with the
registrar within 15 days of passing thereof.
 Copy of every Special Resolution to be annexed to every copy of (registered) AOA issued
after date of resolution.
 Copy of Special Resolution to be forwarded to members on his request on payment of a fee.
 Any contravention of this section shall be an offence liable to a penalty of level 1
Tutor’s Note: Format of Notice (Listed Company)

Notice of AGM
NOTICE IS HEREBY GIVEN that the 41st Annual General Meeting of COLGATE-PALMOLIVE
(PAKISTAN) LIMITED will be held on Wednesday, September 18, 2019 at 10:30 a.m. at Avari Towers
Hotel, Fatima Jinnah Road, Karachi to transact the following business:
ORDINARY BUSINESS
1. To receive, consider and adopt the audited financial statements of the Company for the year
ended June 30, 2019 together with the Directors’ and Auditors’ reports thereon.
2. To declare final dividend in cash @ 200% i.e. Rs.20.00 per share of Rs.10.00 each held by the
members as recommended by the Board of Directors. This is in addition to interim cash dividend
@ 165% i.e. Rs.16.50 per share already paid.
3. To appoint Auditors and fix their remuneration.
SPECIAL BUSINESS
4. To consider to pass the following resolutions as special resolution:
a) “RESOLVED that the transactions carried out in normal course of business with associated
companies during the year ended June 30, 2019 be and are hereby ratified and approved.”
b) “RESOLVED that the Chief Executive of the Company be and is hereby authorized to approve
all the transactions carried out and to be carried out in normal course of business with
associated companies/ related parties during the ensuing year ending June 30, 2020 and in
this connection the Chief Executive be and is hereby also authorized to take any and all
necessary actions and sign/execute any and all such documents/indentures as may be
required in this regard on behalf of the Company.”
Statement under Section 134 of the Companies Act, 2017 in the above matter mentioned in item No.4
is annexed.
By Order of the Board
(MANSOOR AHMED)
Karachi: August 19, 2019 Company Secretary
NOTES:
1. The share transfer books of the Company will remain closed from September 12, 2019 to
September 18, 2019 (both days inclusive). Transfers received in order by Shares Registrar of the
Company, M/s. FAMCO Associates (Private) Limited, 8-F, Near Hotel Faran, Nursery, Block-6,
P.E.C.H.S., Shahra-e-Faisal, Karachi up to close of business on September 11, 2019 will be treated
in time for entitlement of the dividend and purpose of attending the annual general meeting.
2. A member, who has deposited his/her shares into CDC, must bring his/her participant’s ID
number and CDC account/sub-account number along with original Computerized National
Identity Card (CNIC) or original Passport at the time of attending the meeting.
3. A member entitled to attend and vote at the Annual General Meeting may appoint another
member as his/ her proxy to attend, speak and vote instead of him/her, and a proxy so appointed
shall have such rights, as respects attending, speaking and voting at the meeting as are available
to a member. A proxy must be a member of the Company.
4. Form of proxy, in order to be valid must be properly filled-in/executed and received at the
registered office of the Company situated at […] not later than 48 hours before time of meeting.
5. Members holding shares in physical form are requested to promptly notify Shares Registrar of
any change in their addresses. Shareholders maintaining their shares in electronic form should
have their address updated with their participant or CDC Investor Accounts Service.
6. Under the provisions of Section 242 of Companies Act, 2017, it is mandatory for a listed Company
to pay cash dividend to its shareholders only through electronic mode. To receive dividends
directly into their bank account, shareholders are requested to fill in Electronic Credit Mandate
Form available on Company’s website and send it duly signed along with a copy of CNIC to
registrar of the Company M/s. FAMCO Associates (Private) Limited, in case of physical shares. In
case shares are held in CDC then Electronic Credit Mandate Form must be submitted directly to
shareholder’s broker/participant/CDC account services. No further action is required if IBAN has
already been incorporated/ updated in the CDC account or physical folio of the shareholder.
7. SECP has directed to facilitate the members receiving Annual Financial Statements and Notices
through electronic mail system (e-mail). We are pleased to offer this facility to our members who
desire to receive Annual Financial Statements and Notices of the Company through e-mail in
future. In this respect members are hereby requested to convey their consent via e-mail on a
standard request form which is available at the Company website i.e. www. colgate.com.pk. It is
the responsibility of member to timely update Shares Registrar of any change in registered e-mail.
8. Members can also avail video conference facility, in this regard, please fill following and submit to
registered address of Company 10 days before holding of AGM. If the Company receives consent
from members holding aggregate 10% or more shareholding residing at a geographical location,
to participate in the meeting through video conference at least 10 days prior to date of meeting,
Company will arrange video conference facility in the city subject to availability of such facility.
“I/We, ____________________ of _____________, being a member of Colgate-Palmolive (Pakistan) Limited,
holder of __________ ordinary share(s) as per Registered Folio No. ______ hereby opt for video
conference facility at _____________.”
9. The Company will intimate members regarding venue of video conference facility at least 5 days
before date of AGM along with complete information necessary to enable them to access facility.
Members can exercise their right to demand a poll subject to Section 143 to Section 145 of the
Companies Act, 2017 and applicable clauses of the Companies (Postal Ballot) Regulations, 2018.
10. Form of Proxy is enclosed.
STATEMENT OF MATERIAL FACTS - PURSUANT TO SECTION 134 OF COMPANIES ACT, 2017

This statement sets out the material facts concerning the Special Business, given in agenda item No.4
of the notice will be considered to be passed by the members.
1 - Agenda Item No. 4(a) of Notice – Transactions carried out with associated companies/
related parties during the year ended June 30, 2019 to be passed as a Special Resolution.
[DESCRIPTION OF SPECIAL BUSINESS…………………………………………………….]
2 - Agenda Item No. 4(b) of the Notice – Authorization to the Chief Executive for the transactions
carried out and to be carried out with associated companies during the ensuing year ending June
30, 2020 to be passed as a Special Resolution
[DESCRIPTION OF SPECIAL BUSINESS…………………………………………………….]
https://colgate.com.pk/app/colgate/pk/wp-content/uploads/2014/08/NOTICE-OF-AGM-2019.pdf
[Slighted edited (and selected content deleted) to make it more understandable for students]
Voting in a Meeting
There are two main ways of voting

 Show of Hands (Quantity of persons voting in present is counted)
 Poll (Voting power is counted)
General rules as to voting (Sec 134)
 No member can be debarred from using his voting rights.

 Fractional votes (less than one) shall not be accounted for.
 Members may participate in meeting personally, through video-link or by proxy.
 For company limited by guarantee having no share capital, all members shall have 1 vote
 SECP shall have the power to notify any business requiring the approval of the members
shall only be transacted through postal ballot for any company or class of companies.
Postal ballot- 2(47)

Voting by post or through any electronic mode. Voting through postal ballot shall be subject to the
provision in articles of association of a company, save as otherwise provided in this Act;
Voting right – 2(73)

Right of a member of a company to vote on any matter in a meeting of company either present in person
or through video-link or by proxy or by means of postal ballot.
Provided that attending meeting through video-link shall be subject to such facility arranged by company
and in the manner as may be specified, save as otherwise provided in this Act;
Show of Hands (141, 142)
 Unless a poll is demanded voting shall be done by show of hands (in first instance).
 Declaration by Chairman shall be evidence that voting by show of hands has passed a
resolution or not, or whether or not has passed unanimously or with particular proportion.
 It shall be entered in the books of minutes and unless contrary is proved Chairman's
declaration will be valid.
Poll
 Every member shall have voting rights proportional to paid up value of securities held
 Votes may be given either personally or through proxy
Poll through secret ballot (Sec 144)

When a poll is demanded, chairman may, on his own motion or on demand by member(s),
present in person, through video-link or by proxy, having 10% voting power, order such poll.
Demand for poll (sec 143)
Before or on the declaration of the result of the voting on any resolution on a show of hands, a
poll may be ordered to be taken by the chairman:
 Of his own motion
 On a demand made by members present in person or through video-link or by proxy,
where allowed, and having at least 10% voting power.
Demand for a poll may be withdrawn at any time by the members who made the demand.
Time of taking poll (Sec 145)
For election of chairman or adjournment

Immediately
Any other case;

Within 14 days from the day poll was demanded, as the chairman may direct.
 After polling; chairman/his nominee and a representative of party demanding poll shall
scrutinize results
 Chairman shall declare the result and has power to regulate manner in which polls may be
conducted and the results of poll shall be final.
1st Schedule - Table A- Clause 35, 38, 39

 In case of equality of votes (show of hands or poll), the chairman shall have an
additional or casting votes
 In case of joint shareholders, vote of senior member shall be counted
Cross Link (Seniority shall be determined by the order in which their names appear in the
register of members).
 A member of unsound mind can vote through his committee or legal guardian who
can vote in both cases through person or proxy
Undesired activities of the shareholders (Sec 215)
 A member of a company
- Shall act in good faith while exercising its powers as a shareholder at general meetings
- Shall not conduct themselves in a manner that is considered disruptive to proceedings
of meeting.
 A member shall not exert influence or approach the management directly for decisions
which may lead to create hurdle in the smooth functioning of management.
 Contravention of this section shall attract a a penalty of level 1.

Conduct of shareholders in the meeting
 Chairman shall read out the manner in which general meeting shall be conducted that
includes providing opportunity to the members seeking any explanation and meaningful
discussion, choice of suitable language and time allocated to members to participate in the
proceedings of the meetings.
 Shareholders shall observe following conduct in general meetings:
- Shall not bring such material that may cause threat to participants or premises where
meeting is being held;
- Shall confine themselves to the agenda items covered in the notice of meeting;
- Shall keep comments and discussion restricted to the affaires of the company; and
- Shall not conduct in a manner to disclose any political affiliation.
Companies (Postal Ballot) Regulations, 2018
The right of vote through postal ballot shall be provided to members of:
 Every company; and
 A listed company in case of election of directors. (Reg # 3)
ELECTRONIC VOTING
Responsibility of company (Reg # 4)
 BOD shall approve:

- Procedure for appointment of e-voting service provider in accordance with these
regulations and AOA;
- Mode of provision of information to foreign shareholders (for e-voting)
 Company shall maintain record of email and mobile number of members
 If poll is demanded in general meeting, company shall, within 7 days of demand, send to all
members, complete information (including following), for casting vote in a secured manner
- Web address, login details, password, date of casting e-vote and other necessary details
through email; and
- Security codes through SMS from web portal of e-voting service provider; or electronic
signature.
 Company shall ensure that relevant agenda items are correctly uploaded in the web portal
of e-voting service provider and shall resolve any grievances of members in this regard
Electronic signature - Reg 2(e)

Shall be the same as defined under clause (n) of section 2 of the Electronic Transactions Ordinance, 2002
Procedure for e-voting (Reg # 7)
 Facility for e-voting shall remain open for at least 3 days

 It shall close at 5PM (PST) on the date preceding the date of the poll.
 Identity of members shall be authenticated through electronic signature or authentication
for login.
 Members shall cast vote online during the time specified
 After casting vote on a resolution, member shall not be allowed to change it subsequently
 E-voting service provider shall be required to
- Keep the result of e-voting confidential; and
- Provide access to chairman of general meeting in which poll was demanded to unblock
result of e-voting on the day of poll.
E-voting service provider (Reg # 5,6)
Company shall appoint any of the following e-voting service provider subject to the given
eligibility and other requirements.
 Central depository licensed under Securities Act, 2015; or
 A share registrar and ballotter as registered under the Share Registrars and Ballotters
Regulations, 2017, subject to the following minimum requirements:
- It owns a web portal and secured system based on display of electronic ballots,
recording of member’s votes and number of votes polled in favour or against any
resolutions, in such a manner that the entire e-voting accurately gets registered and
counted in electronic registry in a centralized server with adequate cyber security;
- Its entire system is certified by independent external auditors or expert regarding
information security standards (e.g. ISO Certification), penetration testing, cyber
security protection, business continuity and disaster recovery arrangements;
- It is not an associated company/undertaking or related party of appointing company
- Its web portal and secured system shall use following security features:
 Electronic signature or authentication for communication with members;
 Maintenance of passwords in the encrypted mode in the database;
 CAPTCHA mechanism upon login of e-voting portal;
 Secure communication by use of HTTPs protocol and SSL certificate;
 Significant activity by web portal users shall be logged;
 Backup of database for data loss prevention;
Cyber Security - Reg 2(d)

Includes protecting information, equipment, devices, computer, computer resource, communication
device and information stored therein, from unauthorized access, use, disclosures, disruption,
modification or destruction;
Authentication - Reg 2(b)

Authentication through email and SMS codes for ensuring communication with legitimate member;
VOTING THROUGH BALLOT PAPER
Responsibility of Company (Reg # 8)
 It shall, within 3 working days of general meeting, in which poll is demanded, publish ballot
paper in English and Urdu languages at least in one issue each of a daily newspaper of
respective language having nationwide circulation substantially on the prescribed format
(Annexure I) containing the draft resolution and following information:
- Business address and contact details of chairman of the general meeting in which poll
was demanded, where duly filled ballot paper has to be sent by members;
- Detailed procedure for submission of ballot papers.
 It shall also upload ballot paper along with above prescribed information on its website.
Procedure for voting through ballot paper (Reg # 9)
 Members shall ensure that duly filled and signed ballot paper with copy of CNIC should
reach the chairman through post or email 1 day before day of poll, during working hours.
 The signature on the ballot paper shall match with the signature on CNIC.
 For foreign members and representatives of body corporate, corporation and Federal
Government, acceptability of other identification documents in lieu of CNIC shall be
approved by BOD.
RESULT OF POLL (Reg # 10)
 Chairman shall record the time and date of receipt of ballot papers, keep them in safe
custody and ensure confidentiality of the result till it is formally announced after the
conclusion of the voting in the meeting.
 Decision of chairman regarding validity of the vote shall be final.
 Chairman shall immediately after the conclusion of poll, count votes cast during time of poll
in person, through proxy, video-link and post and in case of e-voting unblock result of e-
voting in the presence of a representative of members demanding the poll.
 Result of poll shall be announced in meeting by chairman and it shall also be published on
company’s website at the earliest but not later than 24 hours from conclusion of meeting.
 Chairman, after announcement of result shall send execution report of poll, substantially on
the format as provided in Annexure II, to the company who shall preserve it safely.
ELECTION OF DIRECTORS (Reg # 11)
If the number of contestants is more than the number of directors fixed, listed company shall:
 Send relevant information to members not later than 7 days before general meeting and
the regular procedure for e-voting shall apply (in case of e-voting)
 Publish the ballot paper and relevant information in newspapers and upload the ballot
paper on its website not later than 7 days before general meeting and regular procedure
for voting through ballot paper shall apply (in case of voting through ballot paper)
Chairman shall immediately after conclusion of voting, count votes casted during the meeting
in person, through proxy, video-link and post and in case of e-voting unblock result of e-voting
and announce result (as given in regulation 10)
4. Directors and other officers Page 56
Ch # 4: Directors and other officers
Directors are the persons who are responsible for day to day operations of the business,
and take decisions in their board or committee meetings. It is important to know how
directors work, what are their duties, powers, interests and liabilities.
As per the definition of director prescribed in the Companies Act 2017, “director means
any person occupying the position of director by whatever name”. Now the definition
clearly means that there is different type of directors working in or for a company. In
this chapter we shall be trying to get an understanding to these different directors along
with the rules for their appointment, election, removal and the tenure of directorship.
There are some other directors also in case of listed companies, we shall be
understanding those inter-alia different regulations regarding those directors in the
chapter of “Code of Corporate Governance”
Like the previous chapter of “Meeting”, this chapter is also fundamental to the users of
this book regarding importance. Students must be able to demonstrate and apply their
knowledge in the practical sceneries presented in the papers of different professional
qualification encompassing the Companies Act 2017.
After you are familiar with the management of company through its directors, it is
important to know that there are also some other officers performing the duties
assigned to them under Companies Act 2017. This chapter also encompasses rules and
regulations framed by the Companies Act regarding the appointment, removal,
qualification criteria and functions of these officers. This chapter also guides the
maintenance of a register for all such officers and making of entries therein. This
chapter also covers selected area from the “Directors and Secretaries Guide by SECP” to
make the students more familiar with the functions of a company secretary that has not
been properly covered in the Act. Although that area specifically is not part of the
syllabus, however it is critically important for understanding the secretarial practices
required to be exercised by a company secretary regarding different dimensions of its
functions.
Two different regulations, dealing with the connected issues of companies act presented
in this chapter, are also part of this chapter. In a nut-shell this chapter would be guiding
you with all the concepts of management and the officers. Users are directed to use this
chapter in conjunction with chapter 25 (i.e. code of corporate governance)

 Introduction and Appointment of Directors
 Election of Directors
 Removal of Directors
 Meetings of Directors
 Duties, Liabilities and Powers etc. of Directors
 Interest of Directors
 Chief Executive and Chairman
 Sole purchase, sale or distribution agent
 Company Secretary and Share Registrar
 Auditor
 Register of Director and other Officers

(Section 98, 99, 153-198, 204-213, 246-253)
(Regulation 20 to 24)
A 1.7: Companies (Related Party Transactions & Maintenance of Related Records)
Regulations, 2018 (Regulation 3 to 6)
A 3.6: Companies (Manner and Selection of Independent Directors Regulations, 2018)
100% (except transitional provisions)
Introduction and Appointment of Directors
Director – 2(25)
Includes any person occupying the position of a director, by whatever name called
Minimum number of directors of a company (sec 154)
SMC  At least 1
Other private  At least 2
Public (unlisted)  At least 3
Public (Listed)  At least 7
 Only natural persons to be directors
 Public interest companies shall be required to have female representation on their board
as may be specified by the SECP

Female representation on the board of public interest company
 BOD of a public interest company (not being a listed company), shall have at least 1 female
director having at least bachelor’s degree from an institution recognized by HEC
 A company having no female representation on its board, shall, in addition to its elected or
nominated directors, appoint at least 1 female director within 1 year of these Regulations
 This regulation shall not apply in case, a company has already female representation on its
board having requisite educational qualification
Number of directorships (Sec 155)

 No person shall, after commencement of this Act, be a director, including alternate director
at the same time in more than such number of companies as may be specified
(This limit shall not include the directorships in a listed subsidiary)
 Any casual vacancy on board of a listed company shall be filled up by directors at the
earliest but not later than 90 days from the date of vacancy.
Consent to act as director to be filed with registrar (Sec 167)
 No person shall be appointed or nominated as a director or CE or represent such positions,

nor shall any person name any other person as a director/CE or proposed director/CE,
without giving his consent in writing for such appointment or nomination.
 The consent given to the company shall be filed with registrar within 15 days thereof.
Contract of employment with directors (Sec 210)
 Every company, except private, shall keep at its registered office:

- A copy of the contract (where a contract of service with a director is in writing); or
- A written memorandum setting out its terms (where such a contract is not in writing)
 Copies of contract/memorandum shall be open to inspection by any member without fee.
Any contravention shall be an offence liable to a penalty of level 1
Compliance with the Code of Corporate Governance (Sec 156)

SECP may provide for framework to ensure good corporate governance practices and the
connected matters for companies or class of companies in a manner as may be specified.
Different type of Directors
Type of Sec # Method of Appointment Tenure

Director
First 157 Names & numbers are determined by subscribers Till 1st AGM
Director to MOA and their particulars shall be submitted (N-1)
along with the documents for incorporation
(number of 1st directors may be increased by
appointing additional directors in general meeting)
Subsequent 159 Method of election 3 Years

(Elected) (see upcoming units for more details) (N-1)
Substantial 162 Where a person acquires requisite shareholding to 3 Years

Acquirer get him elected as a director, he may require the
(N-2) company to hold fresh election of directors
Casual 161 Remaining directors shall fill Remaining

Vacancy (Not mandatory unless number of directors are time
reduced below minimum directors)
Nominee 164 By company's creditors or other special interests As per terms of

Director by virtue of contractual arrangements. contract
Body corporate/corporation owned or controlled

by FG/PG may also have directors nominated on
board to whom such corporation or company has
extended credit facilities.
Directors 165 Directors nominated by: Shall hold

representing  A body corporate or company or any other office during
special entity owned or controlled, whether directly or pleasure of
interest indirectly, by FG/PG on board of company in nominating
which it has made investment; body
 Virtue of investment made by FG/PG/SECP (N-3)
 Foreign equity holders on board or any other
body corporate set up under a regional or other
co-operation arrangement approved by FG.
Alternate 174 Actual director being out of Country for not less During actual
Director than 90 days director’s
(With approval of other directors an alternate/ absence from
substitute director can be appointed) Pakistan
Non-executive director (for the purpose of Sec 181 only)

Means, a person on the board who:
 Is not from among the executive management team and may or may not be independent;
 Is expected to lend an outside viewpoint to the board;
 Does not undertake to devote his whole working time to company and not involve in
managing the affairs of the company;
 Is not a beneficial owner of company or any of its associated companies or undertakings;
 Does not draw any remuneration from the company except the meeting fee.
Notes:
1)Retirement of directors (Sec 158, 161)

 Retiring directors shall continue to perform functions until successors are elected; and
 Shall take immediate steps to hold the election of directors and in case of any hurdle report
circumstances to registrar within 45 days before due date of relevant AGM/EOGM
 Holding of AGM/EOGM shall not be delayed for more than 90 days (or extended time
allowed by registrar) from due date of meeting, for reasons to be recorded, in exceptional
circumstances beyond the control of directors, or in compliance of any order of court.
 The registrar may, on expiry of above period, direct the company to hold AGM/EOGM for
the election of directors on such date and time as may be specified in order; Either on:
- Its own motion; or
- Representation of members holding at least 10% voting powers in a company having
share capital or members comprising at least 10% of the total members of the company
not having share capital
 Any officer or other person who fails to comply with such direction liable to fine of level 2
 Term of office of directors of a company limited by guarantee and not having share capital
may be a period of less than 3 years as provided in AOA
2) Fresh election of directors on request of substantial acquirer (Sec 162)
 Number of directors fixed in the preceding election shall not be decreased.

 Listed company shall follow such procedure as may be specified by the SECP
 Board shall, as soon as practicable but not later than 30 days from receipt of such
requisition, proceed to hold fresh election of directors of the company.

Fresh election of directors of a listed company
Substantial acquirer shall file a requisition along with following documents to

company:
 Evidence of acquisition of requisite shareholding to get him elected as a director;
 Affidavit that he has complied with requirements of all relevant laws while acquiring; and
 An undertaking that he shall not dispose of the shares till next election of directors
Notice of the meeting (for fresh election) shall also disclose the fact that fresh elections
are being held on application of a member under section 162 of the Act:
3) Certain provisions not to apply to directors representing special interest (sec 165)
 Provisions of election, term of office and removal not applicable to these directors:
 If the authority/person nominating him wishes to cast votes at election to others as well
Votes available at election of directors shall exclude those minimum votes which
would have been sufficient to elect such director if he had contested election
Numerical example of available votes in sec 165

For example....
If nominating body have some 100,000 shares and they have already designated 1 director
Tutor Note on this company using the powers of special interest section....
Now say company is going for election with 12 number of seats....
So this body would have some 12x100,000 = 1,200,000 votes available for casting....
But as they have already appointed one director without voting we would exclude some
votes....
How much....
The minimum number of votes that were secured by the director who got least number of
votes in previous election and was selected at last place....
Now for example last time the last elected director (the one with minimum votes in
successful candidates) got 230,000 votes....
Then the appointing authority would exclude (minus) 230,000 votes from those 1,200,000
votes and now they would be participating the election with 970,000 votes (if they wish to
cast votes to other directors as well)
Hopefully the user of book have properly got the example and point.
Independent Directors (Sec 166)

A director who is not connected or does not have any other relationship, whether pecuniary or other,
with company, associates, subsidiaries, holding or directors; and he can be reasonably perceived as being
able to exercise independent business judgment without being subservient to any conflict of interest
No director shall be considered independent if one or more of following circumstances exist:

 Has been employee of company, its subsidiaries or holding company within last 3 years;
 Is or has been CE of subsidiaries, associated undertaking or holding company in last 3 years
 Has, or has had within last 3 years, a material business relationship with company either
directly, or indirectly as a partner, major shareholder (10% voting power individually or in
concert with his family or as part of group) or director of a body having such relationship.
 Has received remuneration in 3 years preceding his/her appointment as a director or
receives additional remuneration, excluding retirement benefits from company apart from
a director’s fee or has participated in stock option or a performance-related pay scheme;
 Is a close relative of the company’s promoters, directors or major shareholders:
(close relative means spouse, lineal ascendants and descendants and the siblings)
 Holds cross-directorships or has significant links with other directors through involvement
in other companies or bodies not being associations licenced u/s 42;
 Has served on board for more than 3 consecutive terms from date of his first appointment,
and for more than 2 consecutive terms in case of a public sector company
(such person shall be deemed “independent director” after a lapse of one term)
 Person nominated as a director or representing special interest (u/s 164 & 165)
For public sector companies, time period shall be taken as 2 years instead 3 years in first 3
conditions. An independent director in case of a public sector company shall not be in service of
Pakistan or any statutory body or any body or institution owned/controlled by Government.
Independent director of a listed company shall be elected in the same manner as other
directors are elected (u/s 159) and the statement of material facts annexed to the notice shall
indicate the justification for choosing the appointee for appointment as independent director.
Maintenance of a databank of independent directors

 An independent director to be appointed under any law, rules, regulations or code, shall be
selected from a data bank containing names, addresses and qualifications of persons who
are eligible and willing to act as independent directors
 It shall be maintained by any institute, body or association, as notified by SECP, having
expertise in so; and post on their website for use by the company making appointment
(Exercising due diligence before selecting a person from data bank lie with company/Govt)
 The manner and procedure of selection of independent directors on the databank who
fulfill the qualifications and other requirements shall be specified by the SECP.
Requirements of maintaining databank shall be deemed relaxed till such time a notification is
issued by the SECP and may be relaxed by SECP on an application made by company supported
with the sufficient justification or the practical difficulty, as the case may be.
Companies (Manner and Selection of Independent Directors) Regulations, 2018
Eligibility criteria for person desirous of inclusion in databank
 A person who:
- Either holds at least a graduate degree from a university recognized and approved by
HEC or is a member of a professional body; and
- Has at least 5 years of relevant experience in one or more of the fields of finance, law,
management, sales, marketing, administration, research, corporate governance,
technical operations or other disciplines relevant to the company’s business; or
 Has at least 15 years of relevant work experience in the above mentioned fields; and
 Person is willing to act as an independent director
 Can confirm that on appointment, would devote reasonable time to affairs of company in
order to enable him/her to discharge his/her stewardship responsibilities as given under
applicable law, corporate governance directives and if applicable, licensing requirements.
The expression, “professional body” means:

 Established in Pakistan, governed under a special enactment of the Federal Government as a
self-regulatory organization manged by a representative National Council, and has a
prescribed minimum criterion of examination and entitlement of membership of such body; or
 Established outside Pakistan and established under a special enactment in the country of its
origin and which is a member of the international body relevant for such field.
Directors’ Training Program
Independent director, after being appointed/ elected on board, shall complete Director’s
Training Program or avail exemption from SECP as per requirements of Listed Companies
(Code of Corporate Governance) Regulations, 2017 within 12 months of appointment etc.
Procedure and manner for inclusion of person desirous of inclusion in databank
 Any person so desirous and is eligible shall apply to institute with all relevant details
 Every Director Training Institute / organization (approved by SECP) shall provide
following details to institute within 15 days of any individual completing the DTP
- Name of Director
- CNIC / Passport # (if applicable)
- Year of completion of DTP
- Email address (if available)
Maintenance of data bank by the Institute
 Place the information on process of registration in databank, eligibility criteria, fees and
documents and other relevant details on its website
 Ensure that information shall be in format easily accessible & downloadable by applicants.
 May determine necessary measures, conditions and procedure for including and retaining
details of individuals in the databank.
 May fix a fee, with approval of SECP, to be paid by individuals for their names in databank.
Every person whose name is included in databank shall be responsible for the accuracy, adequacy
and completeness of the information and particulars provided by him/her to the institute
Database of indepnednt directors shall not include name of any person who has been:
 Ineligible under any applicable law
 Debarred by SECP
 Convicted by court of any offense involving moral turpitude or fraud
 Convicted in mismanagement of investments in any capacity
 Involved in management of any company whose registration or licence have been revoked
or cancelled or have gone into liquidation or other similar proceedings due to
mismanagement, misconduct of malpractices
 Entered into plea bargain arrangement with NAB
Responsibility of company and disclaimer by the Institute
 Company shall be responsible for exercising its own due diligence before selecting an
individual form the databank for appointment as independent director.
 Company shall require such individual to submit an undertaking on a non-judicial stamp
paper that he/she meets the requirements of this regulation with supporting information.
The institute shall conspicuously display the following disclaimers on its website:
“It is responsibility of every person appointing independent director, to exercise due diligence in
terms of requirements of Act or applicable laws for purpose of selecting a person from data bank;
Inclusion in databank does not guarantee selection as an independent director; institute shall
neither guarantee nor make any representation regarding the accuracy and or reliability of the
information about any person whose name has been included in the databank; and
Institute shall not be responsible for any contravention of any law committed by any company or
its directors by the reason of the fact that person appointed by company as an independent
director was selected from the databank nor it will be a defence in any court of law.”
How will independent director be elected?

[Q#25 of FAQ of Listed Companies (Code of Corporate Governance) Regulations 2017]
In view of the requirements of Section 153 and 166 of the Act, an independent director shall
Tutor Note be a member. However such member shall, in addition to test and circumstances of
independence as stated in Section 166 of the Act, not hold more than 10% of the shares of
the Company. Therefore, the requirements of being member shall be fulfilled by such
independent director prior to contesting elections. In this regard, companies shall facilitate
such directors by making amendment in their Articles of Association regarding
qualification shares, where required.
The conduct of the election and removal of independent director/s shall be made in
accordance with the election procedures as per Section 159 and 163 of the Act respectively
and articles of association of Company. Further, the statement of material facts annexed to
the notice of the general meeting called for the purpose of elections shall indicate the
justification for such person/s contesting election as independent director. Moreover, it
shall be the responsibility of the Chairman of the Meeting to inform all members in
attendance of the mandatory requirement of electing independent director/s. Chairman
shall also ensure that an independent director/s are elected during the general meeting and
specific slot/s for independent directors shall not be filled-up by unqualified nominees.
Section 166(2)(g) of the Act provides that an independent director shall not be
considered independent if he has served on BOD for more than three consecutive
terms from the date of his first appointment provided that such person shall be
deemed independent director after a lapse of one term. If an independent director
fills casual vacancy and holds office till conclusion of the remaining term, will
his/her remaining term be considered a complete term?
[Q#5 of FAQ of Listed Companies (Code of Corporate Governance) Regulations 2017]
The Act has used the word term and not number of years. In terms of Section 161 (2), a
director filling casual vacancy shall hold office till conclusion of the remaining term. This
implies that in case of casual vacancy, regardless of remaining number of months/ years,
such remaining term shall be considered as a complete term. Accordingly, an independent
director filling casual vacancy, shall have two more consecutive terms in that particular
company. Similarly, if an independent director resigns or vacates office of director before
the next election of BOD, he shall have two more consecutive terms in that particular
company. Further, there is no provision for relaxation of clause (g) of proviso to sub-
section (2) of section 166 of the Act.
Election of Directors
Procedure for election of directors (Sec 159)
 Directors of Co shall, fix No of elected directors not later than 35 days before general
meeting at which directors are to be elected
- Number so fixed shall not be changed except prior approval of general meeting in which
election is held
 Notice of meeting shall expressly state-
- No of elected directors fixed; and
- Names of retiring directors.
 Any person who seeks to contest in election of director shall (whether he is a retiring
director or otherwise), file with Co a notice of his intention at least 14 days before meeting
- Notice may be withdrawn at any time before holding of election
- All such notices received by Co shall be transmitted to the members at least 7 days
before meeting
- For listed company: Such notice shall be published in English and Urdu languages at
least in 1 issue each of a daily newspaper of respective language having wide circulation
 For Co having share capital (where No of contestants > No of directors fixed)

- Votes = No of voting shares or securities held x No of directors to be elected.
- Member may give all votes to 1 candidate or divide them between more than 1
- Candidate getting highest votes elected as director and then candidate getting next
highest votes shall be so declared and so on until total directors elected.
 For company limited by guarantee, not having share capital

- Elected by members of Co in general meeting in manner as provided in AOA.
Powers of the Court to declare election of directors invalid (Sec 160)
 On application of members having at least 10% voting power

 Within 30 days of the date of election
Court may, declare election of all directors or any one or more of them invalid if satisfied
that there has been material irregularity in election procedures.
Removal of Directors
Directors can be removed

 By Members (through resolution)
 By operation of Law (vacation of office)
 By SECP through a disqualification order
Removal of directors through resolution (Sec 163)
Resolution for removal not deemed to have been passed if No of votes casted against
resolution (i.e. in favor of director) is equal to or exceeds:
 Elected Directors: Minimum No of votes casted at immediately

preceding election
 First / Casual Directors: Total votes [u/s 159(5)] divided by

/ Substantial Acquirer Number of directors for the time being.
Removal of directors by operation of Law – Vacation of Office
Vacation of office by directors (Sec 171)
 Becomes ineligible u/s 153
 Absents himself (without leave of absence) for 3 consecutive meetings of BOD; or
 He or any firm (of which he is a partner) or any private company (of which he is a director)
- Without sanction of general meeting accepts or holds any office of profit under Co other
than chief executive or a legal or technical adviser; or
- Accepts a loan or guarantee from Co in contravention of sec 182
[Any additional grounds may be specified in AOA for vacation of office by directors]
Validity of acts of directors (Sec 168)
 Any act of a director, or of a meeting of directors attended by him, shall not be invalid only
due to any defect (subsequently discovered) in his appointment
 Director shall not exercise right of his office till the defect has been rectified
Ineligibility to become director (sec 153)
 Minor;
 Unsound mind;
 Has applied to be adjudicated as an insolvent and his application is pending;
 Undischarged insolvent;
 Has been convicted by a court of law for an offence involving moral turpitude;
 Has been debarred from holding such office under any provision of this Act;
 Has betrayed lack of fiduciary behaviour (u/s 212) at any time during preceding 5 years;
 Does not hold National Tax Number (NTN) as per Income Tax Ordinance, 2001
(SECP may grant exemption from the requirement of this clause as may be notified)
 Not a member, except
- Person representing a member which is not a natural person
- Whole-time director who is an employee of the company;
- Chief Executive
- Person representing a creditor or other special interests by virtue of contractual
arrangements
Additional Ineligibilities only for Listed Co
 Declared by Court of competent jurisdiction as defaulter in repayment of loan to a

financial institution
 Engaged in the business of brokerage, or is spouse of such person or is sponsor, director
or officer of a corporate brokerage house
Exemption from the requirements of having an NTN by Director, to be eligible.
SECP has granted a general exemption to the directors of small size companies, as
defined under 3rd Schedule of Companies Act 2017 including agriculture promotion
companies, from the said requirements for a period of 2 years
Circular
Penalties for ineligible persons on acting as a director (Sec 175, 177)
 If any person being an undischarged insolvent acts as CE or director of a company, he shall

be liable to imprisonment up to 2 years or to a fine up to Rs 100,000 or to both.
 If a person who is not qualified to be a director or chief executive or who has otherwise
vacated the office of director or CE describes or represents himself as so, shall be liable to a
penalty of level 1
Disqualification of directors by SECP (Sec 172, 173)
In any of the circumstances given hereunder, SECP may pass a disqualification order against a
person to hold the office of a director for a period up to 5 years beginning from date of order:
 Conviction of an offence in connection with promotion, formation, management or
liquidation of a company, or with receivership or management of a company's property;
 Persistent default in relation to provisions of this Act requiring any return, account or
other document to be filed with, delivered or sent, or notice of any matter to be given, to
the SECP or the registrar;
 A person has been a director of a company which became insolvent at any time, while he
was a director or subsequently
(Order against any such person shall not be made after end of 2 years beginning with the
day on which the company of which that person is or has been a director became insolvent)
 Business of the company in which he is or has been a director, has conducted to defraud its
creditors, members or any other persons or for a fraudulent or unlawful purpose, or in a
manner oppressive of any of its members or that the company was formed for any
fraudulent or unlawful purpose; or
 Person concerned in the formation of the company or the management of its affairs have in
connection therewith been guilty of fraud, misfeasance, breach of trust or other misconduct
towards the company or towards any of its member; or
 Affairs of the company of which he is a director have been conducted in a manner which
has deprived the shareholders thereof of a reasonable return; or
 Person has been convicted of allotment of shares for inadequate consideration; or
 Person is involved in illegal deposit taking; or
 Person has been convicted of financial irregularities or malpractices in a company or
 Company of which he is a director has acted against the interests of the sovereignty and
integrity of Pakistan, the security of the State, friendly relations with foreign States; or
 Company of which he is a director refuses to act according to the requirements of the
memorandum or articles or the provisions of this Act or fail to carry out the directions of
the SECP given in the exercise of powers under this Act; or
 Person is convicted of insider trading or market manipulation practices; or
 Person has entered into a plea bargain arrangement with the NAB or any other regulatory
body;
 Person has been declared a defaulter by the securities exchange;
 That it is expedient in the public interest so to do.
An order under this section may be made by SECP on its own motion or upon a complaint
made in this regard.
Before making order, SECP shall afford the person concerned an opportunity of representation
and of being heard.
Any order made by SECP under this section shall be without prejudice to the powers of SECP
to take such further action as it deems fit with regard to the person concerned.
Personal liability for company’s debts where person acts while disqualified (Sec 173)
Person shall be personally responsible for all relevant debts of a public interest company if:
 In contravention of a disqualification, he is involved in the management of the company, or
(debts and other liabilities incurred at time when he was involved in management)
 As a person who is involved in the management of company, he acts on instructions given
without the leave of SECP by a person who is subject of a disqualification order
(debts and other liabilities incurred at a time when he was acting on instructions given)
Provided that where the decision is taken in the board, the disqualified director shall be
personally responsible to the extent of proportionate amount of liability so incurred.
Where a person is personally responsible under this section for the relevant debts of a
company, he is jointly and severally liable in respect of those debts with the company and any
other person who, whether under this section or otherwise, is so liable.
Public interest company – 2(53)

A company which falls under the criteria as laid down in 3rd Schedule to this Act or deemed to be such
company under section 216;
Whoever contravenes or fails to comply with provisions of sections 154 to 168 or is a party to contravention
of said provisions shall be liable to a penalty of level 2 and may also be debarred by the authority imposing
penalty from becoming or continuing a director of company for a period not exceeding 3 years (Sec 169)
Meetings of Directors
Proceedings of the board (Sec 176)
 The quorum for a board meeting of a listed company shall be the greater of
- 1/3rd of the number of directors; or
- 4
 Participation of directors by video conferencing or by other audio visual means shall also
be counted for the purposes of quorum
 If there are not enough directors to form a quorum to fill casual vacancy, all the remaining
directors shall be deemed to constitute a quorum for this limited purpose.
 Quorum for other than listed company shall be as provided in the AOA.
 Board of a public company shall meet at least once in each quarter of a year.
 Contravention of this section shall attract a penalty of
- Level 2 for listed company
- Level 1 for others
Passing of resolution by the directors through circulation (Sec 179)
 A resolution in writing signed by majority of the directors/committee of directors for the

time being entitled to receive notice of a meeting shall be as valid and effectual as if it had
been passed at a meeting of directors/committee duly convened and held.
 Before passing it, the resolution should be circulated with necessary papers to all directors
 Such resolution shall be noted at a subsequent meeting of board/committee and made part
of the minutes of such meeting.
 Directors’ agreement to a written resolution, passed by circulation, once approved, may not
be revoked.
SECP circular – BOD Meeting through tele/video conferencing

 Allowed to all directors of Listed or unlisted public Co
 Previously it was only allowed for directors abroad; Now directors in Pakistan can also
attend the meeting through tele/video conferencing
 Draft minutes shall be sent for confirmation to director(s) who participated through
this medium
Circular  Minutes shall be signed by chairman of the meeting
 It shall be responsibility of secretary to observe requirements of quorum and other
legal formalities.
 No need to record the tele/video conference
SECP circular – Meeting of BOD Abroad
 SECP wants to discourage meetings of listed companies abroad as this is undue
wastage of Co’s resources
 SECP has defined certain thresholds of number of meeting allowed (to be conducted
abroad) as per the foreign shareholding of the respective companies.
Duties, Liabilities and Powers etc of Directors
Duties of directors (Sec 204)
 Act in accordance with the articles of the company.

 Act in good faith in order to promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the company, its employees the
shareholders the community and for the protection of environment.
 Discharge his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
 Shall not involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company.
 Shall not achieve or attempt to achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the company.
 Shall not assign his office and any assignment so made shall be void.
 SECP may provide for the extent of duties and the role of directors as may be specified.
Any breach of duty, default or negligence by a director in contravention of AOA or any of its
policy or decision of the board may be ratified by the company through a special resolution
and the SECP may impose any restriction as may be specified.
In addition to any other fine, contravention of this section shall attract a penalty of level 1
Liabilities of directors and officers (Sec 180, 181)
Any provision in AOA/Contract with Co for exempting any Director/CE/Officer or any person
(whether an officer or not), employed by Co as auditor, from, or indemnifying him against, any
liability that would otherwise attach to him in respect of any negligence, default, breach of
duty or breach of trust of which he may be guilty in relation to the company, shall be void
 Exemption: Co may indemnify any such Director/CE/Officer/Auditor against any liability
incurred by him in defending any proceedings (civil or criminal), in which judgment is
given in his favor or in which he is acquitted, or relief is granted to him by the court.
Protection to independent and non-executive directors
An independent director and a non-executive director shall be held liable, only in respect of
such acts of omission or commission by a listed company or a public sector company which
had occurred with his knowledge, attributable through board processes, and with his consent
or connivance or where he had not acted diligently.
Unlimited Liability of a Director
Limited company may have directors with unlimited liability (Sec 98)
 In limited Co (if provided by MOA), liability of all directors/any one may, be unlimited.
 On the appointment / election of a director,
- Fact (his liability will be unlimited) shall be disclosed in proposal,
- Furthermore the promoters & officers shall give him a notice in writing that his liability
will be unlimited (before he takes charge)
 Any violation of this section shall be an offence liable to a penalty of level 1
Special resolution of limited company making liability of directors unlimited (Sec 99)
 A limited Co (if authorised by AOA) may, by special resolution, alter its MOA to render the
liability of its all directors/any one unlimited.
 Alteration shall not apply, without the consent of present director.
Restrictions on Directors
Restriction on director’s remuneration (Sec 170)
For performing extra services (including holding of office of chairman)

 Determined by directors / General meeting in accordance with AOA
For attending meetings,
 Shall not exceed scale approved by directors/Co in general meeting accordance with AOA
Prohibition regarding making of political contributions (sec 184)

 A company cannot make any contribution to any political party or for any political reasons
 If a company contravenes the provisions of this section:
- Company shall be liable to a penalty of level 2; and
- Every director and officer in default shall be punishable with imprisonment of either
description up to 2 years and shall also be liable to a fine of Rs 1 million.
Prohibition regarding distribution of gifts (Sec 185)

 A company shall not distribute gifts in any form to its members in its meeting.
SECP circular – Prohibition on Grant of Gifts to Shareholders

 Companies are directed to restrain from any gift/incentive in lieu of gifts
(token/coupons/lunches/takeaway packages) in any form or manner to its
shareholders at or in connection to AGM
Circular
 Companies must denounce any demand of gifts/incentive from shareholder
Restriction on non-cash transactions involving directors (Sec 211)
 No company shall enter into an arrangement by which

- A director of company/holding/subsidiary/associated or a person connected with him
acquires or is to acquire assets for consideration other than cash, from the company; or
- Company acquires or is to acquire assets for consideration other than cash, from such
director or person so connected;
unless prior approval for such arrangement is accorded by a resolution of general meeting
of company/holding company.
 Notice for approval of resolution shall include the particulars of arrangement along with
the value of the assets involved in such arrangement duly calculated by a registered valuer.
 Any arrangement in contravention shall be voidable at the instance of company unless:
- the restitution of any money or other consideration which is the subject- matter of the
arrangement is no longer possible and the company has been indemnified by any other
person for any loss or damage caused to it; or
- any rights are acquired bona fide for value and without notice of the contravention of
the provisions of this section by any other person.
 The company shall ensure that all cash transactions with its directors are conducted only
through banking channels.
Loan to Director (Sec 182)
 Unless the transaction has been approved by a resolution of members, a company shall not:
- Make a loan to a director of company or of its holding company; or to any of his relatives
(spouse and minor children)
- Give a guarantee or provide security in connection with a loan made by any person to
such a director; or to any of his relatives;
 For a listed company, approval of SECP shall also be required before sanctioning of loan.
 This section shall not be applicable on a company which in ordinary course of its business
provides loans or gives guarantees or securities for the due repayment of any loan.
 Every person who is a party to any contravention of this section shall be liable:
- To a fine up to Rs 1 million; or
- For simple imprisonment for up to 1 year.
- Jointly and severally, to lending company for repayment of loan or for making good the
sum with markup not less than borrowing cost of lending company
This section shall apply to any transaction represented by a book-debt which was from its
inception in the nature of a loan or an advance.
Powers of directors (Sec 183)
Directors may exercise all such powers of Co as are not by Act/AOA/special resolution,
required to be exercised by Co in general meeting. Directors of Co shall exercise following
powers on behalf of Co by means of a resolution passed at their (BOD) meeting
 Issue shares
 Issue debentures or any instrument in the nature of redeemable capital
 Borrow moneys otherwise than on debentures
 Invest the funds of the company
 Make loans
For banking co: acceptance of deposits from public not be deemed a borrowing or placing of deposit
with another banking company not be deemed making of loans
 Authorise a director or firm (of which he is a partner) or any partner of such firm or a
private company (of which he is a member or director) to enter into any contract with Co
for making sale, purchase or supply of goods or rendering services with Co
 Approve financial statements
 Approve bonus to employees
 Incur capital expenditure on any single item or dispose of a fixed asset in accordance with
given limits prescribed by SECP
 Undertake obligations under leasing contracts exceeding one million rupees;
 Declare interim dividend; and
 Take over a company or acquire a controlling or substantial stake in another company;
 Any other matter which may be specified.
 Having regard to such amount as may be determined to be material (as construed in the
generally accepted accounting principles) by the board to
- write off bad debts, advances and receivables;
- write off inventories and other assets of the company; and
- determine terms and circumstances in which a law suit may be compromised and a
claim / right in favour of Co may be released/extinguished/relinquished
The directors of Public Co or subsidiary of Public Co shall not except with consent of general
meeting either specifically or by way of an authorisation, do any of the following things
 Sell, lease or otherwise dispose of the undertakings or a sizeable part thereof, unless main
business of the company comprises of such selling or leasing
 Sell or otherwise dispose of the subsidiary of the company
 Remit, give any relief or give extension of time for repayment of any debt outstanding
against any person specified in section 182
Any such resolution, if not implemented within 1 year from date of passing, shall stand lapsed.
A listed company is not entitled to sell or otherwise dispose of the undertaking, which results in
or may lead to closure of business operation or winding up of the company, without there being a
viable alternate business plan duly authenticated by the board.
For this section
Undertaking shall mean an undertaking in which the investment of the company exceeds 20% of its net
worth as per audited financial statements of preceding financial year or an undertaking which generates
20% of the total income of the company during previous financial year;
Sizeable part in any financial year shall mean 25% or more of the value of the assets in that class as per
audited financial statements of preceding financial year;
Any contravention of this section shall attract a penalty of level 2 and defaulting person shall
be individually and severally liable for losses or damages arising out of such action.
SECP Circular – Statement of special business for sale, lease or disposal of

undertaking or sizeable part
Listed company and its subsidiary shall, while issuing notice of its general meeting,
annex a statement of special business, detailing, as minimum, following information,
namely :
Circular
 In case of sale, lease or disposal of sizeable part of undertaking:
- Detail of assets to be disposed of i.e. cost, revalued amount, book value and
current market price/fair value.
- In case of disposal of land location and area proposed to be sold shall be
disclosed.
- The proposed manner of disposal of said assets.
- Reasons for sale, lease or disposal of assets and benefits expected to accrue to
shareholders.
 In case of sale or disposal of entire undertaking, following additional information

shall be provided.
- Future business plan of the seller company.
- Total cost of the proposed future business plan and means of financing.
- Expected time of completion of the proposed project.
- The mode of disposal in this case shall be through tender in newspapers.
- After transaction, report regarding sale proceeds and utilization shall be
submitted to SECP on quarterly basis.
- Nothing contained herein shall enable listed companies to sell or otherwise
dispose of entire undertaking for closure of business operation or winding up
of the company.
 Co shall, simultaneously with the dispatch of notice of meeting to its members, send a
copy to SECP
Interest of Directors
Disclosure of interest by directors (Sec 205)
 Every director (himself or through spouse / parents / children including step) who is
directly or indirectly concerned or interested in any contract or arrangement entered into,
or to be entered into, by or on behalf of company shall disclose nature of his concern or
interest at a meeting of directors:
 Time of Disclosure
- In case of a contract or arrangement to be entered into, at meeting of BOD at which
the question of entering into contract or arrangement is first taken into consideration
- If director was not concerned or interested on date of that meeting; at first meeting of
BOD held after he becomes concerned/interested
- In case of any other contract/arrangement, at first meeting of BOD held after director
becomes concerned or interested
 A general notice given to directors if a director of company is a director/member of a
specified body corporate or firm and is concerned/interested in any contract/arrangement
- Which may, after date of notice, be entered into with that body corporate or firm, shall
be deemed to be sufficient disclosure of concern/interest
- General notice shall expire at end of financial year in which it is given, but may be
renewed for further 1 financial year by giving notice in last month of year of expiry
- General notice/renewal shall be effective only if given at meeting of BOD or takes
reasonable steps ensuring it is brought up & read at first meeting of BOD after it
Any contravention of this section shall be an offence liable to a penalty of level 1
Interest of officers (Sec 206)

 No other officer shall enter into any contract or arrangement with company in which he is
directly or indirectly concerned or interested, unless he makes a disclosure & obtains
approval of directors.
 Any contravention under this section shall be an offence liable to a penalty of level 1
Interested director not to participate or vote in proceedings of board (Sec 207)

Over the approval of matter where he is interested; director cannot take part in discussion, or
vote. (Nor to be counted in quorum.)
Exceptions:
 Private Co (neither subsidiary nor holding of Public Co).
 Any contract of indemnity or insurance coverage executed by company in favor of
interested director against any loss which all or any of director(s), may suffer by reason of
becoming or being a surety for the company
(company shall only insure liability arising out of transaction approved by BOD/member)
Other requirements
 A director of a listed company who has a material personal interest in a matter that is being
considered at a board meeting shall not be present while that matter is being considered.
 If majority of directors are interested in, any contract or arrangement, the matter shall be
laid before the general meeting for approval.
Declaring a director to be lacking fiduciary behavior (Sec 212)

Court may so declare, if he contravenes the requirements of section 205 to 208
(Opportunity of show cause provided)
Disclosure to members of director’s interest in contract appointing chief executive or

secretary (Sec 213)
 Every director who is in (directly/indirectly) concerned or interested, in any appointment
of a chief executive, whole- time director or secretary of company shall
- Disclose the nature of his interest or concern at the relevant board meeting
- Not participate or vote in the proceedings of the board.
 All such contracts shall be kept at the registered office of the company.
 Every contract must be open to inspection by any member of the company without charge.
 Any member is entitled, on request and on payment defined fee, to be provided with a copy
of any such contract within 7 days of request
 Any contravention under this section shall be an offence liable to a penalty of level 1
Register of contracts or arrangements in which directors are interested (sec 209)
 Company shall keep 1 or more registers giving separately the particulars of all contracts or
arrangements, in manner and containing particulars as may be specified by SECP
 Every director shall, within 30 days of his appointment, or relinquishment of his office,
disclose to the company:
- Specified particulars relating to his concern or interest in the other associations; or
- Such other information relating to himself as may be specified.
 Register shall be kept at registered office
 It shall be open for inspection during business hours and extracts may be taken therefrom
 Any copies thereof required by any member shall be furnished by company to such extent,
in such manner, and on payment of such fees as may be specified.
 Register shall also be produced at commencement of every AGM and shall remain open and
accessible during continuance of meeting to any person entitled to attend the meeting.
 This section shall not apply to any contract or arrangement:
- For sale, purchase or supply of any goods, materials or services if the value of such
goods/services does not exceed Rs 500,000 in the aggregate in any year; or
- By a banking company for the collection of bills in the ordinary course of its business.
Any contravention under this section shall be an offence liable to a penalty of level 1

Particulars of contracts or arrangements in which directors are interested
 Date of the contract or arrangement;
 Names of the parties thereto;
 Principal terms and conditions thereof;
 Amount of contract or arrangement;
 Name of the director interested in the contract or arrangement;
 Name of the association and the extent or nature of interest of director therein and
also his relationship with association; and
 Date on which interest or concern arises or changes.
Related party transactions (Sec 208)
 Company may enter into any contract/arrangement with a related party only in accordance
with the policy approved by board, subject to such conditions as may be specified for:
- Sale, purchase or supply of any goods or materials;
- Selling or otherwise disposing of, or buying, property of any kind;
- Leasing of property of any kind;
- Availing or rendering of any services;
- Appointment of any agent for purchase or sale of goods, materials, services or property;
- Related party's appointment to any office of profit in company/subsidiary/associated.
 Where majority of directors are interested in any of above transactions, the matter shall be
placed before the general meeting for approval as special resolution
 Nothing in this sub-section shall apply to any transactions on an arm’s length basis.
 Every such contract or arrangement shall be referred to in director’s report along with the
justification for entering into such contract or arrangement.
 SECP may specify record to be maintained by company with regards to such transactions.
 Where any contract or arrangement is entered without obtaining consent as aforesaid and
is not ratified by board/shareholders within 90 days, it shall be voidable at option of board
 If contract or arrangement is with a related party to any director, or is authorised by any
other director, directors concerned shall indemnify company against any loss incurred by it
 Any such director or any other employee shall be liable:
- For listed company, be punishable with imprisonment up to 3 years or with fine of at
least Rs 5 million, or with both.
- For any other company, to a penalty of level 2
Related party
 A director or his relative (spouse, siblings and lineal ascendants and descendants)
 A key managerial personnel or his relative;
 A firm, in which a director, manager or his relative is a partner;
 A private company in which a director or manager is a member or director;
 A public company in which a director or manager is a director or holds alongwith his

relatives, any shares of its paid up share capital;
 Any body corporate whose chief executive or manager is accustomed to act in accordance
with the advice, directions or instructions of a director or manager;
 Any person on whose advice, directions or instructions a director or manager is
accustomed to act
(advice, directions or instructions given in a professional capacity are excluded)
 Any company which is
- A holding, subsidiary or an associated company of such company; or
- A subsidiary of a holding company to which it is also a subsidiary;
 Such other person as may be specified;
Office of profit
 Receives anything by way of remuneration over and above his remuneration as director;
Companies (Related Party Transactions & Maintenance

of Related Records) Regulations, 2018
Conditions for Policy of related party transactions (Reg # 3)
Policy approved by the board shall be subject to the following minimum conditions,
namely:-
 Minimum information required for related parties including nature of related party
relationship at time of approval in board/general meetings;
 Limitations or conditions that may be applicable for certain related party transactions;
 Potential risks of related party transactions and mitigating measures;
 Procedure to be followed in case of failure to present related party transactions for
approval by the appropriate forum within prescribed time; and
 Pricing policy.
Not applicable on related party transactions in ordinary course of business on arm‘s length basis
Conditions for transactions to be characterized as “arm’s length transactions (Reg # 4)”.
A transaction between related parties shall be characterized as an “arm’s length transaction”,

only if it is carried out in a way, as if-
 Parties to the transaction were unrelated in any way;
 Parties were free from any undue influence, control or pressure;
 Through its relevant decision-makers, each party was sufficiently knowledgeable about the
circumstances of the transaction, sufficiently experienced in business and sufficiently well
advised to be able to form a sound business judgement as to what was in its interests; and
 Each party was concerned only to achieve the best available commercial result for itself in
all the circumstances.

Approval of related party transactions (Reg # 5)
Board shall approve related party transactions and following minimum information shall be
circulated and disclosed to directors along with agenda for BOD meeting called for approval:
 Name of related party;
 Names of the interested or concerned persons or directors;
 Nature of relationship, interest or concern along with complete information of financial or
other interest of directors, managers or key managerial personnel in related party;
 Detail, description, terms and conditions of transactions;
 Amount of transactions;
 Timeframe or duration of the transactions or contracts or arrangements;
 Pricing policy;
 Recommendations of the audit committee, where applicable; and
 Any other relevant and material information that is necessary for the board to make a well
informed decision regarding the approval of related party transactions
Where approval of members is required for related party transactions, the above information
shall be provided to the member in statement of material facts u/s 134 of Companies Act
Responsibility of Board (Reg # 6)
The board shall ensure:

 To educate and train management and relevant employees so that they can identify and
report the related party transactions to board or other authorized persons;
 To provide direction as to whom a director or employee can consult, in case where they are
uncertain if a transaction is a related party transaction or not;
 To set general criteria to approve transactions or arrangement with related parties at
various levels;
 To identify and determine whether related party transaction requires members’ approval;
 That any related party transactions requiring members’ approval are put before members;
 To fix the responsibility for identification and disclosure of related party transactions; and
 That company meets its legal & regulatory obligations regarding related party transactions
Chief Executive and Chairman
Chief Executive – 2(14)

In relation to a company means an individual who, subject to control and directions of the board, is
entrusted with whole, or substantially whole, of the powers of management of affairs of the company and
includes a director or any other person occupying the position of a chief executive, by whatever name
called, and whether under a contract of service or otherwise;
Appointment of Chief Executive
First chief executive (Sec 186)
 Every company shall have a chief executive appointed in manner provided in this act.
 Name of first chief executive shall be determined by subscribers of MOA
 His specified particulars shall be submitted along with the documents of incorporation.
 Hold office till 1st AGM (unless he earlier resigns or otherwise ceases to hold office) or
shorter period (if any; fixed by subscribers)
 Government shall have the power to nominate chief executive of a public sector company
in such manner as may be specified.
Subsequent chief executive (Sec 187)
 Subsequent CE is appointed by the directors within 14 days of election of directors

 Term; Not more than 3 years from the date of appointment.
 Retiring CE is eligible for re-appointment.
 Retiring shall continue to perform until successor appointed unless non-appointment of his
successor is due to any fault on his part or his office is expressly terminated.
 Government shall have the power to nominate chief executive of a company where
majority of directors is nominated by Government, in such manner as may be specified.
Casual Vacancy (Sec 187)
 CE is appointed by directors within 14 days of casual vacancy

 Term: Till the directors elected in the next election appoint a chief executive
Terms of appointment of chief executive (Sec 188)
 To be determined by directors or company in a general meeting in accordance with AOA.

 Terms and conditions of appointment of a chief executive nominated by Government shall
be determined by the Government, in such manner as may be specified.
 CE deemed to be director (if not already a director) and entitled to all rights & liabilities
Other requirements regarding Chief Executive
Restriction on appointment of chief executive (Sec 189)
No person who is ineligible to become a director of a company or is disqualified shall be

appointed or continue as the chief executive of any company.
Removal of chief executive before expiration of term (Sec 190)
 Board by resolution passed by at least 3/4th of total number of directors for time being; or
 Company by a special resolution; or
 By Government/authority/person nominated authorised by it, where more than 75% of
the voting rights are held by the Government.
Chief executive not to engage in business competing with company's business (Sec 191)
 CE of a public company shall not directly or indirectly (spouse/minor children) engage in

any business of same nature and directly competing with business carried on by his
company or its subsidiary.
 If he is engaged in any such business at the time of appointment in a public company, he
shall disclose in writing nature of business and his interest therein.
Chairman in a listed company (Sec 192)
 Board of a listed company shall within 14 days from date of election of directors, appoint a
chairman from among the non-executive directors
 Chairman shall hold office for 3 years unless he earlier resigns, becomes ineligible or
disqualified under any provision of this Act or removed by the directors.
 The chairman shall be responsible for leadership of board and ensure that the board plays
an effective role in fulfilling its responsibilities.
 Annual financial statements shall contain a review report by the chairman on the overall
performance of board and effectiveness of role played by board in achieving the objectives.
Conditions applicable to both; Chairman and Chief Executive (Sec 192, 193)
 Board shall clearly define the respective roles and responsibilities of chairman and CE:
 SECP may specify the classes of companies for which the chairman and chief executive shall
not be the same individual.
 Any contravention or default in complying with requirements relating to CE and chairman
shall be an offence liable to a penalty of level 2; and may also be debarred from becoming a
director or CE of a company for a period not exceeding 5 years.
Sole purchase, sale or distribution agent (Sec 196)
No company (incorporated in Pakistan or outside) which is carrying on business in Pakistan

shall, without the approval of SECP, appoint any sole purchase, sale or distribution agent:
Exception to this rule
Company incorporated, or person ordinarily residing, outside Pakistan are not required to
obtain the approval of SECP for such appointment.
(unless the major portion of business of such company or person is conducted in Pakistan)
Whoever contravenes any of the provisions of this section shall be punished with imprisonment
up to 2 years, or with fine which may extend to Rs.100,000, or with both; and, if the person guilty
of the offence is a company or other body corporate, every director, chief executive, or other
officer, agent or partner thereof shall, unless he proves that the offence was committed without
his knowledge or that he exercised all due diligence to prevent its commission, be deemed to be
guilty of the offence.
Company Secretary and Share registrar
Company secretary (Sec 194)
Company secretary – 2(21)

Any individual appointed to perform secretarial and other duties customarily performed by a
company secretary, having such qualifications and experience, as may be specified;
Public company must have secretary; possessing such qualification as may be specified
Reg # 22 - Companies (General Provision and Form) Regulations, 2018

Qualification & experience of a Company Secretary
 A member of, -
- A recognized body of professional accountants; or
- A recognized body of corporate or chartered secretaries; or
 An MBA/M.COM/law graduate from university recognized by HEC (or similar foreign
qualification with equivalence certificate from HEC), having ≥ 2 years relevant experience
(for listed ≥ 5 years)
 A retired government servant in BS-19 or equivalent or above with at least 15 years service
Directors & Secretaries Guide by SECP – Functions of Co. Secretary

(Not Part of syllabus – Just given for developing an understanding)
These are not specified by the Act, but are usually contained in an employment
contract. The company secretary generally performs the following functions:-
Guideline
A. Secretarial functions:
 To ensure compliance of provisions of Ordnance, rules, other statutes and bye-

laws of the company.
 To ensure that business of the company is conducted in accordance with its
objects as contained in its MOA
 To ensure that affairs of Co are managed in accordance with its objects
contained in the AOA and Act.
 To prepare the agenda in consultation with Chairman and other documents for
all the meetings of BOD.
 To arrange with and to call and hold meetings of the board and to prepare a
correct record of proceedings.
 To attend the broad meetings in order to ensure that the legal requirements are
fulfilled, and provide such information as are necessary.
 To prepare, in consultation with the chairman, the agenda and other documents
for the general meetings.
 To arrange with consultation of chairman the annual and extraordinary general
meetings of Co and to attend such meetings in order to ensure compliance with
the legal requirements and to make correct record thereof.
 To carry out all matters concerned with allotment of shares, and issuance of
share certificates including maintenance of statutory Share Register and
conducting appropriate activities connected with share transfers.
 To prepare, approve, sign and seal agreements leases, legal forms, and other
official documents on the company’s behalf, when authorised by the broad of the
directors or the executive responsible.
 To advise, in conjunctions with the company’s solicitors, the chief executive or
other executive, in respect of the legal matters, as required.
 To engage legal advisors and defend the rights of company in Courts of Law.
B. Legal obligations of secretary:
 Filling of various documents/returns with the Registrar/SECP as required under

provisions of Act
 Proper maintenance of books and registers of the company as required under
the provisions of the Act.
 To see whether legal requirements of the allotment, issuance and transfer of
share certificates, mortgages and charges, have been complied with.
 To convene/arrange the meetings of directors, on their advise.
 To issue notice and agenda of board meetings to every director.
 To carry on correspondence with directors of company on various matters.

 To record the minutes of the proceedings of the meetings of the directors.
 To implement the policies formulated by the directors.
 To deal with all correspondence between the company and the shareholders.
 To issues notice and agenda of the general meetings to the shareholders.
 To keep the record of the proceedings of all general meetings.
 To make arrangement for payment of the dividend within prescribed period
C. To maintain the following statutory books
 Register of transfer of shares;

 Register of buy-backed shares by a company;
 Register of mortgages, charges etc.;
 Register of members and index thereof;
 Register of debenture-holders;
 Register of directors and other officers;
 Register of contracts, arrangements and appointments in which directors etc
are interested;
 Register of directors' shareholdings and debentures;
 Register of Pakistani members, directors and officers, in case of a foreign
company;
 Minute books;
 Proxy register;
 Register of deposits;
D.Other duties
 Ensuring that statutory forms are filed promptly

 Providing members and auditors with notice of meeting.
 Sending the Registrar copy of special resolutions
E.Supplying copy of accounts to every member, debenture holder & every person
entitled to receive notice.
F. Keeping or arranging minutes of directors' meetings and general meetings

G. Ensuring that people entitled to do so, can inspect company records.
H. Custody and use of the common seal
Independent Share Registrar (Sec 195)
Every listed company shall have an independent share registrar possessing such
qualifications and performing such functions as may be specified.
Auditor
Appointment and remuneration of auditors (Sec 246)
Auditor Time of Appointment Appointed by Term of Office

First 90 days of incorporation Directors Till 1st AGM
Subsequent At AGM Members on recommendation Till next AGM
of the BOD
Casual Vacancy 30 days of such vacancy Directors Till next AGM
 Auditor, appointed by directors or the members, may be removed before conclusion of next
AGM by Special Resolution
 If auditor is removed by Special resolution, next auditor will be appointed by board with
prior approval of SECP.
SECP shall appoint auditor, on its own motion or on application by company or members, if:
 1st auditors not appointed by directors within 90 days of the incorporation
 Auditor not appointed in an AGM
 Casual vacancy not filled by directors within 30 days
 Auditors appointed are unwilling to act
Appointing Authority Remuneration Fixed by

Directors Directors
SECP SECP
All other cases Members
Retirement of existing and Appointment of new auditor in an AGM
 Member(s) having at least 10% shareholding shall also be entitled to propose any auditor
whose consent has been obtained.
 A notice shall be given to company at least 7 days before the date of the AGM..
 On receipt of such notice, company shall:
- Sent a copy of notice to the retiring auditor, forthwith.
- Post it on its website.
 Retiring auditor can make representation to company at least 2 days before AGM. It shall
be read in AGM and it shall be mandatory for auditor/representative to attend the meeting.
 Company shall intimate the registrar within 14 days of appointment / removal / casual
vacancy together with the consent of appointed auditor.
Qualification and disqualification of auditors (Sec 247)
 Auditor shall be a CA having valid certificate of practice form ICAP or a Firm of CAs for:
- Public Company
- Private Company which is subsidiary of Public Company
- Private Company having paid up share capital of at least Rs. 3 million.
 For companies other than above, auditor shall be CA or CMA having certificate of practice
from respective institute or Firm of CAs/CMAs having such criteria as may be prescribed
 Firm where majority of partners practicing are qualified for appointment can be appointed
in firms name.
 Only partners meeting above criteria shall be authorized to act and sign on behalf of firm.
DISQUALIFICATIONS OF AUDITOR
1. Person who during preceding 3 years was director, other officer or employee of Company
2. Person who is a director, other officer or employee of Company
3. Person who is a partner or employee of a director, officer or employee of Company
4. Spouse of the director of Company
5. Person indebted to Company, other than in ordinary course of business of such entities
- Not be considered indebted, if owes less than 1,000,000 to a credit card issuer
- Not be considered indebted, if unpaid utility dues for ≤ 90 days to utility Company
6. Body Corporate
7. Person or his spouse and his minor children, or in case of a firm, all partners of a firm who
holds any shares in Company or its associated company.
(If he holds shares before appointment, the fact shall be disclosed at time of appointment
and shall disinvest such shares within 90 days of appointment)
8. Person who has given a guarantee/security in connection with the indebtedness of any
third person to the company other than in the ordinary course of business of such entities;
9. Person or a firm who, directly or indirectly, has business relationship with the company
other than in the ordinary course of business of such entities;
10. Person who has been convicted by a court of an offence involving fraud and a period of 10
years has not elapsed from the date of such conviction;
11. Person who is not eligible to act as auditor under the code of ethics as adopted by the
ICAP and the ICMAP;
 Person disqualified as auditor of a Company shall also be disqualified for its Holding
company, its Subsidiary Company or Subsidiary Company of its Holding Company.
 If after appointment auditor becomes disqualified, he shall deem to vacate office with effect
from date he becomes disqualified
 If an unqualified/disqualified person is appointed as auditor; It shall be void and SECP may
appoint a qualified person in place of the auditor appointed by Company.
 A person, who not being qualified to be an auditor, acts as auditor of a company shall be
liable to a penalty of level 2
Rights and duties of auditors
RIGHTS (Sec 248)
 To access freely to all books & papers of Company and all supporting documents
 Access to copies/extracts of branch records as transferred to Principal office of company
 To require any of the following, to provide him necessary information or explanations:
- Any director, officer or employee of the company;
- Any person holding or accountable for any of company’s books, accounts or vouchers;
- Any subsidiary of the company;
- Any officer, employee or auditor of any subsidiary
- Any person holding or accountable for books, accounts or vouchers of any subsidiary
 The auditor is entitled to attend, receive all notices of any general meeting
 The auditor is entitled to be heard at any general meeting which he attends on any part of
the business which concerns him as auditor
DUTIES (Sec 249)
 Conduct audit, prepare report and express opinion in compliance with the requirements
of ISA adopted by the ICAP.
 Carry out such examination to form an opinion as to
- Whether adequate accounting records have been kept and adequate returns have been
received from branches not visited by him; and
- Whether the company’s F/S are in agreement with accounting records and returns.
 Auditor shall make a report on books of accounts and F/S; shall be laid before AGM.
 The report shall state; whether or not:
- They have obtained sufficient audit evidence for audit
- In their opinion, proper books of accounts have been kept
- Statement of Financial position and profit and loss account and Other Comprehensive
Income or the income and expenditure account and the cash flows has been prepared
in accordance with Act and are in agreement with their books and returns.
- The true and fair view has been given by F/S
- In their opinion all the investments made, expenditure incurred and guaranteed
extended was for the purpose of the business.
- Zakat deductable under Zakat and Ushr Ordinance 1980 been deducted & deposited.
 If auditor's report makes reference to some other report or statement:
- Such report be annexed to auditor's report and be considered a part of report.
 SECP may direct any Company or class of Company that the auditor’s report shall also
include a statement of such additional matters as may be so specified.
 Where any qualification is put in auditor's report, there shall be added the reasons for it
and the true position of Company to the best of auditor's knowledge.
 For listed company, auditor or a person authorized by him in writing shall be present in the
general meeting in which financial statements and auditor’s report are to be considered.
 SECP may by general or special order, direct, that the statement of compliance to be
attached with Directors Report, shall be reviewed by the auditor who shall issue a review
report to the members on the format as specified.
Signature of auditors’ report (Sec 251)
The auditor’s report must

 State the name of auditor and Engagement Partner
 Signed by auditor (or partner of audit firm practicing in Pakistan)
 Dated
 Indicate the place at which it is signed
If audited by a firm, report must be signed by the firm with name of engagement partner.
Audit of Cost Accounts (Sec 250)
Where any company or class of companies are required to keep cost accounts, SECP may
direct audit of cost accounts be conducted in specified manner & stipulations by a CA or CMA
having same powers, duties etc as auditor, and other prescribed powers, duties & liabilities
Such audit shall be directed by SECP subject to the recommendation of the regulatory
authority supervising the business of relevant sector.
Companies required to submit following documents and info to SECP for approval
- Recommendations of 3 names of CAs/CMAs (preferring one of them with reasons)
- Details of experiences of cost audit of above CAs/CMAs
Circular - Valid copies of certificates of Practice from ICAP/ICMAP
- Affidavit under rule 30 of Companies Rules 1985
- Original paid challan of application processing fee
- Application to be signed by CE & submit to SECP at least 30 days before appointment
Penalty for non-compliance.
By companies (Sec 252)

Any contravention or default in complying with requirements of sections 246, 247, 248 and
250 shall be an offence liable to a penalty of level 3 on the standard scale.
By auditors (Sec 253)

For non compliance, Penalty of level 2
If auditor’s report is made with the intent to profit such auditor or any other person or to put
another person to a disadvantage or loss or for a material consideration, auditor shall,
additionally be punishable with imprisonment up to 2 years and penalty up to Rs 1 million.
Register of Director and other Officers
Officer – 2(45)
Includes any director, CE, CFO, company secretary or other authorised officer of a company;
Chief Financial Officer (CFO) – 2(15)

An individual appointed to perform such functions and duties as are customarily performed by a CFO;
Register of directors, officers (Sec 197)

 Every company shall keep at its registered office a register of its directors and officers,
including the chief executive, company secretary, CFO, auditors and legal adviser
 Register shall contain such particulars as may be specified.
 Every such officer shall, within 10 days of appointment or any change therein, furnish to
the company the said particulars
 Every company shall file, with registrar a return in specified form, within 15 days from
- Date of appointment of any such officer;
- Any change among them; or
- Any change in any of their particulars
 Immediately above requirement not applicable to first appointment at incorporation of Co.
 Any contravention shall be an offence liable to a penalty of level 1

Particulars of directors and officers
 Register shall have particulars as specified through Form 29 (furnished to the company by
each of these officers)
 Company shall file a return with the registrar as per Form 29
 In case of resignation of a director or CEO, Form 29 shall be supported by resignation letter
duly signed by resigning director, verified through an affidavit on stamp paper duly signed
by person signing Form 29 and attested by oath commissioner and witnessed.
Order for rectification (Sec 197)
If name of any person is fraudulently or without sufficient cause entered in or omitted from
the register of directors of a company:
 Person aggrieved or company, may apply to Court for rectification of such register
 Court may either refuse the application or may order rectification on such terms and
conditions as it may deem fit and may make order as to costs.
 With order of rectification, Court may send a reference for adjudication of offence
 Person at fault shall be punishable with imprisonment up to 3 years or with fine up to Rs 1
million, or with both.
 Court shall forward a copy of order to the company and shall, by its order, direct the
company to file notice of rectification with registrar within 15 days from receipt of order.
Rights to inspect (Sec 198)
 Register shall be open to inspection of any member (free of cost) and any other person (on
payment of fee fixed by the company) during business hours, subject to such reasonable
restrictions, as company may impose by its AOA or in general meeting
 At least 2 hours in each day should be allowed for inspection.
 Any person wishing o inspect must make a request to the company.
 The request must contain the following information-

- In the case of an individual, his name and address;
- In the case of an organisation, its name and address and also of authorised person; and
- The purpose for which the information is to be used.
 If inspection requested by any person is refused, registrar shall on his application and upon
notice to the company, may by order direct an immediate inspection of the register.
 Any contravention of this section shall be an offence shall be liable to a penalty of level 1
Beneficial ownership of shareholders or officer of a company – 2(7)
Ownership of securities beneficially owned, held or controlled by any officer or substantial shareholder
directly or indirectly, either by:
(a) him or her;
(b) the wife or husband of an officer of a company, not being herself or himself an officer of the company;
(c) the minor son or daughter of an officer (including step child);
(d) in case of a company, where such officer or substantial shareholder is a shareholder, but to the extent
of his proportionate shareholding in the company:
Provided that “control” in relation to securities means the power to exercise a controlling influence over
the voting power attached thereto:
Provided further that in case the substantial shareholder is a non- natural person, only those securities
will be treated beneficially owned by it, which are held in its name.
Substantial shareholder”, in relation to a company, means a person who has an interest in shares:
(a) the nominal value of which is equal to or more than 10% of the issued share capital of company; or
(b) which enables the person to exercise or control the exercise of 10% or more of the voting power at a
general meeting of the company;
5. Investments, contracts and Dividends Page 93
Ch # 5: Investments, contracts and dividends

After understanding the concepts of meetings, management and the officers of the
company, now we should move towards understanding the provisions of the Companies
Act 2017 regarding miscellaneous issues involving cash and cash equivalents. Dealing
with the assets of the company especially cash and its application is a very sensitive area
and there exists a huge opportunity for the management (directors and other officers)
to misappropriate those assets. As the members are not looking after all the day to day
activities of the business, therefore utilization of company’s assets is a matter of trust
which is placed by the members on these officers. In the absence of any guidance or
‘Standard Operating Procedures (SOPs)’ management of these areas can turn into
fraudulent activities which need to be safeguarded through the provisions of said Act.
This chapter would be addressing the issues relating to the investments of the company,
restrictions placed by the Companies Act regarding to those investments and specified
areas where the investments can be made by a registered company. This chapter would
also be covering the topic of contracts and prohibition on deposits that were previously
being invited by the company. Moreover, the issues relevant to dividend, restrictions on
it and the treatment of unclaimed assets are also dealt with in this chapter (including
the discussion of an Investor Education Fund created by SECP).
 Investments in Associated companies or undertakings
 Companies (Investments in Associated companies/undertakings) Reg 2017
 Other Rules of Investments
 Employees’ Contributory Fund (Investment in Listed Securities) Regulations 2018
 Contracts
 Deposits
 Dividends
 Companies (Distribution of Dividends) Regulations, 2017
 Unclaimed shares, modaraba certificates and dividends
A 1.1: Companies Act, 2017 (Section 84, 199-203, 214, 217-219, 240-245)
A 1.6: Employees’ Contributory Fund (Investment in Listed Securities) Regulations, 2018
A 1.5: Companies (Investment in Associated Companies and Associated Undertakings)
Regulations, 2017
A 1.8: Companies (Distribution of Dividends) Regulations, 2017
100%
Investments in Associated companies or undertakings (Sec 199)
 No investment in Associated Co/undertakings except with Special Resolution

 Special Resolution shall indicate nature, period and amount of investment and terms &
conditions attached
 An increase in amount or any change in nature of investment or the terms and conditions
shall be made only through special resolution.
Additional requirements in case of loan
 Loans or advances shall be made in accordance with an agreement in writing approved by

members, which shall along with other things include the terms and conditions specifying
- Nature, purpose, period of the loan
- Rate of return, fees or commission
- Repayment schedule for principal and return
- Penalty clause in case of default or late repayments and
- Security, if any, for the loan
 Return on such investment shall not be less than the higher of borrowing cost of investing
company or the rate as may be specified by SECP
 Return shall be recovered on regular basis in accordance with the terms of the agreement
(failing which the directors shall be personally liable to make the payment)
 Directors shall certify that the investment is made after due diligence and financial health
of the borrowing company is such that it has the ability to repay loan as per the agreement.
Other conditions
 SECP may by notification in official Gazette, specify class of Co/undertakings** to which

this restriction not apply; & through regulations, specify conditions & restrictions*** on
nature, period & amount of investment and terms & conditions attached + other ancillary
matters
 Company shall maintain and keep at its registered office, a register of such investments
containing such particulars as may be specified.
 Any contravention shall be an offence liable to a penalty of level 3 + personal liability
***SECP has published “Companies (Investment in associated Companies or undertakings) Regulation 2017”
under this section. And are included in CFAP syllabus. Notes of the same can be found in upcoming unit)
Note: Investment shall include equity, loans, advances, guarantees, by whatever name called,
except for the amount due as normal trade credit, where the terms and conditions of trade
transaction(s) carried out on arms-length and in accordance with trade policy of the company.
Associated Companies and Associated Undertakings - Sec 2(4)

Two or more companies or undertakings, or a company and an undertaking, interconnected with each
other in the following manner
 if a person who is the owner or a partner or director of a company or undertaking, or who, directly or
indirectly, holds or controls shares carrying not less than twenty per cent of the voting power in such
company or undertaking, is also the owner or partner or director of another company or undertaking,
or, directly or indirectly, holds or controls shares carrying not less than twenty per cent of the voting
power in that company or undertaking; or
 if the companies or undertakings are under common management or control or
 one is the subsidiary of another; or
 if undertaking is a modaraba managed by the company;
A person who is owner of or a partner or director in a company or undertaking or, who so holds or
controls shares carrying not less than 10% of voting power in a company or undertaking, shall be
deemed to be an "associated person" of every such other person and of person who is owner of or a
partner or director in such other company or undertaking,or who so holds or controls such shares in
such other company or undertaking
Provided that shares shall be deemed to be owned, held or controlled by a person if they are owned,
held or controlled by that person or by spouse or minor children of the person:
Provided further that—
 directorship of a person or persons by virtue of nomination by the concerned Minister of FG or a
Provincial Government or a financial institution directly or indirectly owned or controlled by such
Government or National Investment Trust; or
 directorship of a person appointed as an “independent director”; or
 shares owned by the National Investment Trust or a financial institution directly or indirectly owned or
controlled by the Federal Government or a Provincial Government or shares registered in the name of a
central depository, shall not be taken into account for determining the status of a company, undertaking
or person as associated company, associated undertaking or associated person
** Exemption from requirements of sec 199 by SECP

 Banking Co licensed by SBP for investment made in ordinary course of business,
excluding equity investments
 DFI licensed by SBP for investment made in ordinary course of business, excluding
equity investments
 NBFC licensed by SECP for investment made in ordinary course of business, excluding
Circulars equity investments
 NBFC licensed by SECP to carry out Investment Advisory Services or Asset
Management Services for investments made in collective investment scheme being
managed by such NBFC
 Modarba management Co for investments in modarba being managed by it
 Holding Co for investment in wholly owned subsidiary
(Disinvestment of > 25% made by special resolution)
 Investment made by an Investment Company (as per NBFC & NE Regulations 2008)
 Co whose principal business is such investments
 Private Co (not being subsidiary of Public Co)
 Associates of NBFC licensed by SECP to carry out Asset Management Services for
investments made in open end scheme being managed by such NBFC
Companies (Investment in Associated Companies

or Associated Undertakings) Regulations, 2017.
These Regulations shall apply to all companies except those specifically exempted by SECP
through notification under section 199 of the Companies Act, 2017 (Reg # 1)
NOTICE OF MEETING AND INFORMATION TO MEMBERS (Reg # 3,4)
Company shall disclose following information in the statement of special business
Disclosures for all types of investments
(A) Regarding associated company / undertaking
 Name of associated company / undertaking;

 Basis of relationship;
 EPS for the last three years;
 Break-up value per share, based on latest audited financial statements;
 Financial position, including main items of statement of financial position and profit and
loss account on the basis of its latest financial statements; and
 For investment in relation to a project of associated company / undertaking that has not
commenced operations, following further information:
- Description of project and its history since conceptualization;
- Starting date and expected date of completion of work;
- Time by which such project shall become commercially operational;
- Expected time by which the project shall start paying return on investment; and
- Funds invested or to be invested by the promoters, sponsors, associated company /
undertaking distinguishing between cash and non-cash amounts;
(B) General disclosures

 Maximum amount of investment to be made;
 Purpose, likely benefits to investing company & members and the period of investment
 Sources of funds and if those are borrowed funds,-
- Justification for investment through borrowings;
- Detail of collateral, guarantees provided and assets pledged for obtaining those; and
- Cost benefit analysis;
 Salient features of related agreement(s), if any, with associated company / undertaking;
 Direct or indirect interest of directors, sponsors, majority shareholders and their relatives,
if any, in that company / undertaking / transaction;
 If investment has already been made, the performance review of such investment including
complete information/justification for any impairment or write offs; and
 Any other important details necessary for the members;
Additional disclosures in case of equity investment

 Maximum price at which securities will be acquired;
 Justification, if purchase price is higher than market value (listed securities) and fair value
(unlisted securities);
 Maximum number of securities to be acquired;
 Number of securities and % held before and after proposed investment;
 Current and preceding 12 weeks’ weighted average market price (for listed securities); and
 Fair value determined (for unlisted securities);
Additional disclosures in case of investments in form of loans, advances and guarantees

 Category-wise amount of investment;
 Average borrowing cost of investing company, KIBOR for relevant period, rate of return for
Shariah compliant products and unfunded facilities for relevant period, as the case may be;
 Rate of interest, mark up, profit, fees or commission etc. to be charged;
 Particulars of collateral or security to be obtained;
 Repayment schedule and terms and conditions of loans or advances
 If the investment is convertible into securities
- This fact along with terms and conditions;
- Conversion formula;
- Circumstances in which conversion may take place; and
- The time when the conversion may be exercisable;
Other information to be disclosed to the members

 If associated company/undertaking/any of its sponsors or directors is also a member of the
investing company, information about their interest in investing company.
 If any decision to make investment under the special resolution passed is not fully
implemented till the holding of subsequent general meeting, the status of decision shall be
explained through a statement having the following details:
- Total investment approved;
- Amount of investment made to date;
- Reasons for deviations from the approved timeline of investment; and
- Material change in financial statements of associated company/undertaking since then.
Other formalities
 Latest annual audited financial statements and interim financial statements, if any, of
associated company/undertaking shall be available for inspection in that general meeting
 Listed company shall simultaneously dispatch a copy of notice and statement to head office
of SECP, through fax or email and courier service (same day it is dispatched to members)
 Directors while presenting the special resolution shall
- Certify to members that they have carried out necessary due diligence for proposed
investment before recommending to members.
- Make available duly signed recommendations of due diligence for inspection in meeting
RESTRICTIONS AND CONDITIONS (Reg # 5)
Scenario Conditions Applicable

Investment in unlisted Fair value shall be determined by a person having such
equity securities qualifications and experience and registered as a valuer in such
manner and on such terms and conditions as may be specified by
the SECP (Sec 460 of Companies Act)
Approval is granted by - Such limit shall stand exhausted upon the investment reaching
members for investment that limit on a cumulative basis (in one go or on piecemeal basis)
in any securities up to a - Such approval shall not be valid for any recurring investment
certain limit even after divestment of securities
Share deposit money - Shall be transferred only after announcement of offer for issue of
shares by the associated company / undertaking
- If shares not issued within 90 days or within the time prescribed
by relevant legal and regulatory framework, whichever is later,
such share deposit money shall be treated as loan
- That loan shall be subject to interest, mark up or return from the
date of transfer of funds.
Rate of return on loans, Shall not be less than higher of
advances and debt - KIBOR for the relevant period; or
securities etc - Borrowing cost of the investing company
Shariah compliant mode Transactions shall be structured in such a way that the rate of
of financing return on such facilities is not less than that higher of
- That earned by Islamic Banks or Islamic Financial Institutions in
Pakistan on similar facilities during equivalent time period; or
- Borrowing cost of the investing company
Unfunded facilities Rate of return to be charged shall be determined based on the rate
(e.g guarantee, letter of of interest, mark up, profit, fees or commission etc., as the case
indemnity, LC etc.) may be, charged by commercial banks or Islamic Banks and
Financial Institutions on similar unfunded facilities
Interest, mark up, profit, Shall be recovered periodically by the investing company in line
fees or commission etc with the terms and conditions approved by the members
Loan as running finance, - Shall not extend such facility for a period beyond 1 year
revolving line of credit - Members may approve renewal of such loan or advance as per
or other similar facility section 199 of Companies Act 2017
Unless otherwise specifically authorised by members in general meeting, special resolution

shall be valid for 12 months and shall stand lapsed after such period (Reg # 6)
MAINTENANCE OF REGISTER (Reg # 7)
 In addition to any other (legally required) records, investing company shall maintain a
register in the specified Form and shall enter the particulars of its such investments.
 Entries in register shall be made instantly upon such investment, in chronological order
 Entries shall be authenticated through signatures by company secretary or any other
person authorised by BOD.
 Register shall be maintained at registered office under the custody of company secretary or
any other officer authorised by BOD
 Register shall be preserved permanently.
 The provisions applicable to inspection of register under Companies Act shall also apply
Contents of register (as per Annexure)
 Name of associated company/undertaking

 Type of Investment (Equity, debt Security, Loan, Guarantee etc)
Tutor  Major Terms and conditions (including rate of mark up, return, commission etc)
Note  Date of the Board resolution for recommending such investment for member’s approval
 Date of members’ approval in general meeting
 Amount approved by members
 Period over which investment will be made
 Date of making investment
 Amount invested
 No of securities acquired (if applicable)
 Date of divestment / repayment
 Amount divested / repaid
 No of securities disposed of / redeemed, if applicable
 Sale consideration / Redemption amount, for securities
 Remaining amount of investment
 Remaining balance (No of securities). If applicable
 Remarks (including details where approval has lapsed being time barred, or any default by the
associated company or associated undertaking)
Any contravention of the regulations shall be punishable with a penalty which may extend to Rs 5
million and, where contravention is a continuing one, with a further penalty which may extend to
Rs.100,000 for every day after first during which such contravention continues. (Reg # 8)
Other Rules of Investments
Investment of company to be held in its own name (sec 200)
All investment by a company on its own behalf shall be made and held by it in its own name;
Exceptions
 If company has a nominee director on any other company; shares in that company, being
qualification shares, may be registered/ held by such company jointly in its own name and
in name of such nominee, or in name of such nominee alone
 Holding company may hold any shares in subsidiary in name of its nominee, if necessary to
ensure number of members of subsidiary company not reduced below minimum members
 Depositing with, or transferring to, or holding, or registering in name of a CDC any shares
or securities.
Where any such shares/securities not held by it in its own name
 Company shall forthwith enter in register maintained for the purpose at registered office,
the nature, value & other particulars necessary to identify such shares/securities; and
 Register shall, be open to the inspection during business hours, subject to such reasonable
restrictions, as company may impose, so that not less than 2 hours in each day be allowed
- By members on request, without any fee.
- By any other person on payment of such fees as company may specify in this behalf.
 Any member may require a certified copy of register or any part, on fee fixed by company.
 Certified copies requested shall be issued within 7 days.
 If any inspection is refused, Registrar may on an application direct immediate inspection
 Any contravention shall be an offence liable to a penalty of level 1 + fine up to Rs 5 million
for company and up to RS 1 million for officer + imprisonment up to 2 years.
Employees’ provident and other fund (Sec 218, 219)
Provident fund, contributory pension fund or any other contributory retirement fund has been
constituted by compny for its employees or any class of its employees
All moneys (Employer contribution + Employee contribution+ Interest/profit) receipt/accrual
 Be deposited in a
- National Savings Scheme;
- Special account to be opened by company for the purpose in a scheduled bank; or
- (Where company itself is a scheduled bank) Special account to be opened by company
for the purpose either in itself or in any other scheduled bank; or
 Be invested in
- Government securities; or
- In bonds, redeemable capital, debt securities or instruments issued by a statutory
body, units of collective investment schemes registered as notified entities with SECP;
- In listed securities subject to conditions as may be prescribed by SECP
(Employees’ Contributory Fund (Investment in Listed Securities) Regulations, 2018).
Where a trust has been created by a company with respect to any of these funds
 Company shall be bound to collect contribution of employees concerned and pay such
contributions + its own contributions to trustees within 15 days from date of collection
 Obligations of company shall devolve on trustees and shall be discharged by them instead
of the company.
 The trustees of provident fund, contributory pension or retirement fund shall have
appropriate representation from the members of the funds.
Any contravention shall be an offence liable to a penalty of level 1 + personally liable to pay
the loss suffered by employee, on account of such contravention.
Employees’ Contributory Fund (Investment in Listed Securities) Regulations, 2018
 These regulations shall apply to all provident funds or any other contributory retirement
funds constituted by a company or a trust created by a company for management of fund
 These shall not apply to a pension fund under Voluntary Pension Systems Rules, 2005.
 Within one year from effective date of these regulations, all investments from funds /
trusts shall be adjusted gradually and brought in conformity with these regulations.
 Fund or trust shall amend trust deed and include a clause providing a 1 time option to new
employees for allowing or not allowing fund or trust to make such investments (Reg # 1)
Contribution means all money contributed to fund or trust either by employees or company or both
Fund means a provident fund or any other contributory retirement fund constituted by a company for
its employees or any class of its employees;
Size of Fund or Trust means total assets of the contributory fund or Trust including realized profit on
such investments at cutoff date
Limits for investment and other conditions (Reg 3, 4)
Investments shall not exceed 50% of the size of Fund or Trust subject to following sub limits
Type of Investment Limits at the time of making Other Conditions (Reg 4)
investment (Reg 3)
Total Single Company /
Security / Scheme
Debt collective 50% of 50% of total Shall be made only in those
investment the size limit schemes which have been
schemes registered as of Fund / (50% of 50%) assigned stability rating of A by a
notified entity with Trust credit rating company licensed
SECP with SECP
Bonds, redeemable 30% of Lower of Securities shall be assigned a
capital, debt securities the size - 5% of that issue minimum rating of “A” by a credit
or instruments issued of Fund / - 10% of total rating company licensed with
by a statutory body or Trust limit SECP and with at least a stable
listed debt securities (10% of 30%) outlook
SECP may, from time to time,
change this minimum rating
Listed equity collective 30% of 30% of total
investment schemes, the size limit
registered as notified of Fund / (30% of 30%)
entity with SECP Trust
Type of Investment Limits at the time of making Other Conditions (Reg 4)

investment (Reg 3)
Total Single Company
/ Security /
Scheme
Listed equity 30% of Lower of Shall be made only if
securities the size - 5% of - That Co has minimum profitable
of Fund / outstanding operational record of immediate
Trust shares in paid 3 preceding years;
up capital of - That Co has paid average dividend
investee of not less than 15% during 2 out
- 10% of total of 3 preceding consecutive years;
limit - Minimum free float of that shall
(10% of 30%) not be less than 15% or 50 million
shares whichever is higher; and
- That Co has breakup value at least
equal to par value of its shares
Initial Public Offers 5% of Lower of - Shall be made in companies having
(IPO) of equity limit for - 1% of profitable operational record;
securities equity outstanding - Shall not subscribe to an IPO
(5% of shares in paid underwritten by its associated
30%), up capital of companies / undertakings
every 6 investee - Shall not subscribe to an IPO of a
months in - 2% of total greenfield project;
calendar limit for
year equity
investments
(2% of 30%)
Other Limits (Reg 3)
 Total investment in bonds, redeemable capital, debt securities or instruments issued by a
statutory body or listed debt securities, of a particular sector, as per sector classification
made by Pakistan Stock Exchange, shall not exceed 20% of investment limit for these
investments (20% of 30%)
 Total investment in bonds, redeemable capital, debt securities or instruments issued by a
constituting statutory body or listed debt securities of constituting company or its
associated companies shall not exceed 10% of investment limit provided (10% of 30%)
 Total investment in listed equity securities of a particular sector, as per sector classification
made by Pakistan Stock Exchange, shall not exceed 20% of investment limit for these
investments (i.e. 20% of 30%)
 Total investment in listed equity securities of constituting company or its associated
companies shall not exceed 10% of investment limit provided (10% of 30%)
Money market collective investment schemes registered as notified entity with SECP
 Investment shall be made only in schemes which have been assigned minimum stability
rating of “AA-” by a credit rating company licensed with SECP
(SECP may, from time to time, change this minimum rating)
 Investment can be made up to 100% of the size of the Fund or Trust
- Total investment, at time of making investment in any single money market collective
investment scheme shall not exceed 20% of size of Fund or Trust; and
- Total investment, at time of making investment in money market schemes managed by
a single asset management company, shall not exceed 50% of size of Fund or Trust
Other Conditions (Reg 4)
 Investment in collective investment schemes that are hybrid in nature shall follow the
maximum investment limits of equity securities (i.e 30%)
 Hybrid funds which are allowed to invest in debt securities shall comply with condition for
bonds, redeemable capital, debt securities etc
 If aggregate investment in listed equity securities (other than equity collective investment
schemes) is Rs.50 million or above, Fund or Trust shall appoint or seek advice from
investment advisor holding a valid license from SECP
- If investment is made on advice of investment advisor the conditions for investment in
equity securities shall not be applicable (e.g. 15% dividend etc.)
- Investment advisor will be held liable for loss to Fund or Trust due to his negligence;
 Investment shall not be made in listed debt securities if issuer of securities has defaulted in
any of its financial obligations;
 Fund or Trust shall be managed by qualified individuals having requisite skills, knowledge
& experience in capital market to ensure protection of investment and employees’ interest
 Fund or Trust shall develop and maintain appropriate investment policies explaining
investment limit, investment avenues and risk appetite also including business allocation
among securities brokers and shall invest in liquid securities and shall refrain from
activities including day trading, investment in future markets (except spread transactions)
and investment in securities either through borrowing or through leverage
Mandatory submission regarding investments out of provident fund trust (Reg 5)
Every company, constituting the provident fund/Trust shall within 1 month of the close of
every 6 months of the financial year of such fund/trust submit to SECP financial information of
the fund/trust, as contained in the Annexure “A" (given below).
(duly endorsed by CEO, in case of Fund and by head of trustees in case of Trust)
- - - - - - Annexure “A" - - - - - -
Mandatory disclosures regarding Investments out of Provident Fund:
Audited/Un-
Audited
audited
Particulars
2018 2017
Rs. Rs.
Size of Fund-Total Assets xxx xxx
Cost of Investments out of Provident Fund/Trust xxx xxx
Fair Value of Investments out of Provident xxx xxx
Fund/Trustof Investments out of Provident
Percentage XX XX
Fund/Trust
Break-up of Fair Value of Investments out of Provident Fund/Trust
Year 2015 Year 2014

Particulars Rs. % of Rs. % of
investment investment
Investment in listed Money Market xxx xx XXX xx
Collective Investment Schemes
Investment in Equity Collective
Investment Scheme
Investment in Debt Collective
Investment Schemes
Investment in Other Collective
Investment Schemes
Investment in Listed Debt
Securities
Investment in Listed Equity xx
xxx xxx xx
Securities
Investment in Debt Instruments of xx
xxx xxx xx
Statutory Bodies
Investment in Government xx
Securities xxx xxx xx
Bank Balances xxx xx xxx xx
Others xxx xx xxx xx
Contracts
General provisions regarding Contracts
Method of contracting (Sec 201)
A contract or other enforceable obligation may be entered into by a company as follows:

 An obligation requiring the contract in writing by law; such contract may be entered into
on behalf of company in writing signed under the name of company by a director, attorney
or any other person duly authorised by the board and may affix common seal of company;
 An obligation not requiring contract in writing by law; contract may be entered n behalf of
company in writing or orally by a person acting under express or implied authority
 All such contracts shall be effectual in law and shall bind the company and its successors
and all other parties thereto, their heirs, or legal representatives as the case may be
Agent for Execution of deeds (Sec 202)
 Company may, by writing under common seal, empower any person (generally/specified
matters) as its attorney, to execute deeds on its behalf at any place either in or outside
Pakistan
 Every deed signed by such attorney under his seal shall bind Co as if it were common seal
 Any bill of exchange or promissory note shall be deemed to have been made / drawn /
accepted / endorsed on behalf of Co if made / drawn / accepted / endorsed in name of / by
/ on behalf / on account of, Co by any person acting under its authority (express/implied)
Power of company to have official seal for use abroad (Sec 203)
 Company may have separate official seal for any territory outside Pak
 Official seal add on its face the name of every territory where it is to be used
 Company may authorise any person appointed in any territory not situated in Pak to affix
same to any deed or other document to Co is party
 Authority of agent shall continue during period mentioned in instrument authorizing him;
 If no period mentioned, shall continue until notice of revocation/determination of agent’s
authority has been given to person dealing with him.
 The person affixing official seal shall certify the date and place of affixing.
 Official seal duly affixed shall bind the company
Contracts by agents of company in which company is undisclosed principal (sec 214)
 Agent or officer of such a contract shall make a memorandum of terms of such contract,
specify person with whom it has been made, & shall deliver it to Co & copies to directors
which shall be laid before directors at their next meeting.
 If default is made in requirements of this section, contract shall, at option of Co, be void as
against Co; and such officer/agent shall be liable to a penalty of level 1.
[ Not applicable to Private Co (not being subsidiary of a Public Co) ]
Deposits
Security deposits
Employees’ security deposits (Sec 218)
Moneys/securities deposited with company by its employees in pursuance of their contract:

 Shall be kept or deposited by company within 15 days from date of deposit in
- Special account to be opened by Co for the purpose in a scheduled bank; or
- National Saving Schemes
 No portion utilized by company, except breach of contract of service by employee
(after giving notice to him)
Other Securities and deposits, etc. (sec 217, 219)
 No company, officer or agent shall receive or utilize securities / deposits except in

accordance with a contract in writing,
 All moneys received shall be deposited in a separate bank account.
 Not applicable where money received is in nature of an advance payment for goods to be
de livered or sold to an agent, dealer or sub-agent in accordance with contract in writing
Any contravention shall be an offence liable to a penalty of level 1 + personally liable to pay
the loss suffered by depositor, on account of such contravention.
Prohibition on acceptance of deposits from public (Sec 84)
 On and after the commencement of this Act, no company shall invite, accept or renew
deposits from the public:
 If a company accepts or invites, or allows or causes any other person to accept or invite:
- For acceptance of any deposit: Penalty shall not be less than amount accepted; and
- For invitation for any deposit: Penalty of level 3
 For contravention, every officer in default shall be punishable with imprisonment up to 2
years and shall also be liable to fine which may extend to five million rupees.
 Nothing contained in this section shall apply to-
- a banking company, or
- such other class of companies as the SECP may specify in this behalf.
“Deposit” means any deposit of money with, and includes any amount borrowed by Co, but shall not include
loan raised by issue of debentures or loan obtained from banking company or financial institution or an
advance against sale of goods or provision of services in the ordinary course of business.
Dividends
Restrictions on declaration of dividends (Sec 240, 241)
 Any dividend may be paid by a company either in cash or in kind only out of its profits.
(In kind shall only be in form of shares of listed company held by distributing company)
 Company may in a general meeting declare dividend
 Dividend shall not exceed the amount recommended by directors
 No dividend paid out of profits from sale of any immovable property / capital assets unless
- Company operates in business of sale and purchase of property and assets; and
- Only after such profits are adjusted for any losses incurred on disposals of these
 Dividend cannot be given out of unrealized gains on investment property credited to P&L
1st Schedule – Table A – Clause 73 (Capitalisation of Profits)

Directors may, before recommending any dividend, set aside out of the profits of Co such
sums as they think proper as reserves which shall, at discretion of directors, be applicable
for meeting contingencies, or for equalizing dividends, or for any other purpose to which
profits of Co may be properly applied, and pending such application may, at like
discretion, either be employed in the business of company or be invested in such
Cross Link investments (other than shares of the company) as the directors may, subject to the
provisions of the Act, from time to time think fit
Payment of Dividend (Sec 242, 243)
Mode of payment
 Dividend must be paid to its registered shareholders or to their order within such period
and in such manner as may be specified
 Dividend payable in cash may be paid by cheque or warrant or in any electronic mode to
the relevant shareholders as per their direction
 For listed company, any dividend payable in cash shall only be paid through electronic
mode directly into the bank account designated by the entitled shareholders.
<<<SECP Circulars >>>

- Dividend Warrant may be sent through courier services also
- Dividend warrants shall be crossed as “Account Payee” only
- In a case where Co has to take approval of financial institutions before declaration of
divided, the announcement regarding dividend shall not be made till clearance have
been obtained
Circular
Period for payment of dividend
After declaration, it shall not be lawful for directors/Co to withhold dividend and Chief
Executive shall be responsible to make payment within period specified by SECP (i.e. 15 days)
from the date of declaration.
Date of Declaration
Final Dividend ⇒ Date of approval of dividend (AGM)
Interim Dividend ⇒ Date of approval of dividend (Director’s Meeting)
Interim dividend ⇒ Date of commencement of book closure

(with notice of book closure given)
Penalty for delay in payment on Chief Executive
 Up to 2 years imprisonment or Fine up to 5 Million Rupees or both

 Debarred from becoming CEO/director of Co and any other company for 5 years,
No offence deemed where
 Dividend not paid due to operation of law

 Shareholders has given such direction for payment which cannot be complied with
 There is a dispute on regarding the right to receive dividend
 Dividend has been adjusted against any sum due to company by the shareholder
 Any other reason (where default was not on part of company)
For delay Co shall make application & get permission from SECP within 45 days of declaration
A company may also withhold the payment of dividend of a member where the member has
not provided the complete information or documents as specified by the SECP.
Withholding of dividend of members who have not submitted their CNIC copy
Listed Company may apply to SECP for withholding if following conditions are met:
- Notices issued by such company in respect of last 3 dividend declarations
- Company shall give undertaking to SECP that said shareholder have not provided CNIC
- Newspaper clipping (Evidence of notices and intimation to submit CNIC) given to SECP
Circular - List of such shareholders is prominently displayed on website.
- On receipt of CNIC copy, dividend warrants shall be issued to that person within 5 days
Companies (Distribution of Dividends) Regulations, 2017
Period for making payment of dividends (Reg # 3)
 Cash dividend shall be paid within 10 working days of date of declaration u/s7 sec 243
 Every listed company shall ensure that book closure must be started for determination of
interim dividend entitlement within 15 days of approval by the board
 Period of book closure shall not exceed 3 working days
Working day
Means any day on which banks are open for business.
Manner of payment of cash dividends (Reg # 4)
Company other than listed
 Company shall obtain cash dividend distribution mandate at time of becoming a

shareholders of the company comprising of following 3 modes:
- Direct transfer into the designated bank account; or
- Dividend warrant (in name of registered shareholder or his authorized person) ; or
- Cross cheque "A/C Payee Only" (name of registered shareholder or authorized person)
 Shareholder can change the mandate at any time during the year through a written request
containing all requisite details to the company.
 Dividend warrant or cheque should also bear the identification number
(includes CNIC, child registration certificate number or juvenile card number for a minor,
where applicable and registration number or NTN of shareholder being artificial person)
Rules for paying into designated bank accounts
 Company may appoint a paying agent, directly or through its share registrar, and provide it
with details of entitled shareholders including its all relevant details;
 Net amount shall either be transferred to the bank account of paying agent or made
available to paying agent through any other mean for onward distribution;
 Paying agent shall make payments as per details provided by the company
(in case of failure, for any reason, promptly communicate the same to company);
 Paying agent shall provide company with confirmations of payments into designated bank
accounts of relevant shareholders for onward communication to the relevant shareholders.
Additional requirements for listed companies

 Shareholders shall be intimated by company, its share registrar or paying agent through
sms, e-mail, registered post or any other mode regarding credit of amount into bank
 Calculation of dividend amount including number of shares held, total amount, tax and
zakat deductions and net amount credited through paying agent and a certificate thereof
shall be provided to the shareholders in electronic form through the CDC;
 Listed company shall also provide to CDC the details of cash dividends which could not be
paid to shareholder(s) with reasons including reasons as to why dividends are withheld
 CDC shall make available certificate received by it through its system or any other system
developed by it, for the purposes of record and tax filings;
 CDC shall maintain history of dividends paid to shareholders of every listed company and
provide access to such information to shareholder, company and its share registrar.
Other miscellaneous General Rules

 Company shall provide shareholders with a certificate for record purposes or for tax filings.
 If shares are held in book-entry form, information pertaining to designated bank account of
shareholders shall be obtained through CDC in accordance with its regulations
 For physical shares, every listed company shall approach shareholders where information
of designated bank account has not been provided or where information not found valid.
 A company may appoint its share registrar or a paying agent for distribution of dividend
payable in cash
 Banks may not be required to appoint a paying agent and may itself assume functions and
responsibility of paying agent provided in these regulations.
 If shares of listed companies are held with custodian banks where checking accounts
and/or omnibus cash accounts are maintained for distribution of dividend, paying agent
shall be authorized to credit the checking account or omnibus account
 Custodian banks shall ensure passing on dividend amount to respective foreign investors
within 5 working days of receipt and in case of inability, it shall forthwith return the money
to the respective listed company.
 If shares of a company, whether listed or not, are held by a non-resident shareholder
having no designated bank account, company may make payment of cash dividend to such
shareholder in a manner and within such time period as may be allowed by SBP
 Any dividend withheld under regulation 5 or 6 (given below) shall be paid to the entitled
shareholder in the same manner as provided under this regulation within a period of 15
working days from date of removal of reason to withhold such cash dividend.
Designated bank account
Means a bank account maintained with a banking company and designated by a shareholder for
the purpose of receiving any dividend payable in cash;
Paying agent
Means a bank, any approved payment service provider or a CDC appointed by a company for
making payment of cash dividend directly into designated bank account of entitled shareholder
Application to withhold or defer payment of dividend (Reg # 5)
 Company may apply to SECP for approval to withhold or defer payment of dividend on
Annexure I along with payment of fee as specified in 7th Schedule of the Act:
 Company shall also intimate the respective shareholder of its intention and reasons to do
so within 15 days from date of declaration.
 SECP, after providing an opportunity to the shareholder or any aggrieved person, may
allow the company to withhold or defer payment of dividend
Circumstances to withhold payment of dividend (Reg # 6)
A company may on its own and without making application to SECP withhold the payment if:
 Shareholder has not provided the company with its identification number;
 In case of a listed company, the shareholder has not provided complete and valid details of
designated bank account for direct credit of cash dividend;
 In case of a company other than a listed company, the shareholder has instructed the
company for direct credit to designated bank account but has not provided complete and
valid details of designated bank account for direct credit of cash dividend; and
 An embargo or restriction has been placed by the competent authority in respect of shares
held by the entitled shareholder:
Before withholding dividend, company shall send a notice to shareholder on its registered
address and advertisement in this regard shall be published in 2 newspapers having nationwide
circulation within 15 working days of declaration
Unclaimed shares, modaraba certificates and dividends
Unclaimed shares, modaraba certificates and dividend to vest with FG (Sec 244)
This section shall be applicable to following

 Shares or modaraba certificates which have been issued, and remain unpaid for 3 years
from the date it is payable; or
 Where dividend (or any bonus shares or certificates) has been declared by a company or
Modaraba, and remain unclaimed for 3 years from the date it is due;
 Any other instrument or amount which remain unclaimed or unpaid, having such nature
and for such period as may be specified;
Notice to the shareholder / certificate holder

 Company shall give a 90 days notices to shareholders, certificate holders or owner to file a
claim by a registered post acknowledgement due on his last known address
 After expiry of 90 days, final notice in specified form shall be published in 2 daily
newspapers, one in Urdu and one in English, having wide circulation.
Transferring to the Federal Government

 If no claim is made, company shall after 90 days from date of publication of 2nd notice:
- Deposit any unclaimed or unpaid amount to the credit of FG (in case of sum of money)
- In case of shares, modaraba certificates or other instrument; Report and deliver these to
SECP and the SECP shall, after selling these in specified manner and period, deposit the
proceeds to the credit of FG
 After transferring company shall preserve and continue to preserve all original record
pertaining to those and provide copies of relevant record to the SECP
(until it is informed by SECP in writing that they need not to be preserved any longer)
 Such amounts shall be maintained in a profit bearing account with SBP or NBP to be called
“Companies Unclaimed Instruments and Dividend and Insurance Benefits and Investors
Education Account” as may be notified by concerned Minister of FG
 It shall be deemed to be part of public accounts and interest/profit accumulated on it shall
be credited on quarterly basis to the “Investors Education and Awareness Fund” (u/s 245)
Procedure to Claim after the transfer

 Any claimant may apply to SECP in such manner with such documents as may be specified
 SECP after necessary verification from company concerned, forward claim to SBP/NBF for
making payment (equivalent to his unclaimed or unpaid dividend or amount of proceeds)
 Payment shall be made within a 30 days from date of verification by the company.
 While making payment, expenses incurred for sale of those shares etc shall be deducted
 If the relevant shares/certificates have not been sold as on date of claim, the person shall
be entitled to receive those shares/modaraba certificates/ other instrument.
 Where any dispute regarding those arises or is pending adjudication before the competent
authority or Court, SECP shall process claim in accordance with the final decision.
 No claim shall be entertained after 10 years from the credit of any amount FG
 Every company, within 30 days of close of each financial year, shall submit to SECP a return
of all unclaimed shares certificates, instruments or dividend in manner specified by SECP.
Contravenes of this section shall attract a penalty of level 3
 “Companies Unclaimed Instruments and Dividend and Insurance Benefits and Investors
Education Account” shall be available on direction of Minister to serve as a collateral in
order to facilitate the provision of credit facility to clearing house to address any systemic
risk in the capital market:
 This option shall only be exercised where, in opinion of SECP, resources of clearing house
are or likely to be insufficient for timely settlement of trades executed at the exchanges.
Establishment of Investor Education and Awareness Fund (Sec 245)
There is hereby established a fund to be called Investor Education and Awareness Fund to be
managed and controlled by the SECP as may be prescribed through rules.
Fund shall be credited with:

 Interest/profit earned on “Companies Unclaimed Instruments and Dividend and Insurance
Benefits and Investors Education Account” (u/s 244);
 Forfeited amounts of applicants, who makes false or fictitious application for subscription
of shares offered under the prospectus, (u/s 87 of Securities Act, 2015);
 Specific grants or donations given by FG, PG, companies, or any other institution or person;
 Interest or other income received out of the investments made from the Fund;
 Amount realised in terms of association not for profit on its winding up (u/s 341 & 371);
 Such other amounts as may be prescribed.
The Fund shall be utilized for:

 Promotion of investor education and awareness in such manner as may be prescribed;
 Educational activities including seminars, training, research & publications for investors;
 Awareness programs, including through print, electronic and social media, for investors;
 Funding investor education and awareness activities approved by the SECP; and
 Meeting the administrative expenses of the Fund.
“Investors” means investor in securities, insurance policyholders and customers of NBFC & Modarabas.
 SECP shall, by notification in official Gazette, constitute an advisory committee with such
members as may be prescribed, for recommending investor education and awareness
activities that may be undertaken by SECP or any other agency, for utilization of Fund
 SECP shall ensure maintenance of proper and separate accounts and other records for the
Fund including details of receipts & expenditure and other relevant particulars
 Accounts of Fund shall be audited by auditors, being a firm of CAs, appointed by SECP.
 SECP may invest the moneys of the Fund in such manner as set out in Trusts Act, 1882
6. Accounts and Records Page 116
Ch # 6: Accounts and Records
This chapter deals with the requirements of maintaining different books and records by
a company. It also covers the procedure to prepare and transmit the financial
statements of the company as well as its approval at different levels. The chapter also
encompasses the contents of director’s report and its authentication requirement.
Whenever a company with a single subsidiary or more than one subsidiary prepares its
financial statements, the law requires the company to prepare the group accounts as
well. Sections 228-230 of this chapter shall be dealing with those group accounts.
Apart from the annual financial statements, listed companies are also required to
prepare their quarterly accounts in conformity with the requirements of the Act
supported by SECP’s circulars guiding different formalities and relaxation regarding
those quarterly financial statements. This chapter, apart from other requirements of
annual accounts, shall also be dealing with these quarterly accounts.
Last unit of the chapter deals with the maintenance and updating of the register of
members and debenture holders, inter-alia, different requirements associated with those
registers.

 Books of Accounts
 Final Accounts
 Director’s Report
 Group Accounts
 Quarterly Accounts of Listed Companies
 Register of members and debenture holders
A 1.1: Companies Act, 2017 (Section 56, 119-130, 216, 220-239)

(Regulation 14, 19, 25)
100% (except referential provisions)
Books of Accounts
Books of accounts to be kept by company (sec 220)
Book and Paper and book or paper – 2(10)

Includes books of account, cost accounting records, deeds, vouchers, writings, documents, minutes and
registers maintained on paper or in electronic form
Books of account – 2(11)
Include records maintained in respect of
(a) all sums of money received and expended by a company and matters in relation to which the receipts
and expenditure take place;
(b) all sales and purchases of goods and services by the company;
(c) all assets and liabilities of the company; and
(d) items of cost in respect of production, processing, manufacturing or mining activities;
 Every Co shall prepare and keep proper books of account, F/S and other books & papers
 These shall give a true and fair view of the state of the affairs of the company, including that
of its branch office or offices, if any.
 In the case of a company engaged in production, processing, manufacturing or mining
activities, such particulars relating to utilisation of material or labour or the other inputs or
items of cost as may be specified, shall also be maintained. (i.e. Cost Accounts)
 Books of account and vouchers relating to following period shall be kept in good order:
- At least 10 financial years immediately preceding current financial year
- All the preceding years, where company had been in existence for less than 10 years
 This Section shall also apply to books of account required to maintain by liquidator
Place of books of accounts
 Books of accounts shall be kept at registered office.

 All or any of books of account may be kept at such other place in Pakistan as directors
may decide and within 7 days of decision, Co shall file with registrar a notice in writing
giving full address of other place
 Where a Co has a branch office (in/outside Pakistan) Co shall be deemed to have complied
provisions of this section if proper books of account relating to transactions of branch
office are kept at branch office and proper summarised returns are periodically sent by
branch office to Co at Place where books kept.
Inspection by Directors
 Directors may during business hours inspect these books etc (maintained within Pak)
 If some financial information is maintained outside country, copies of such financial
information shall be maintained and produced for inspection by any director.
 Officers and other employees shall give full assistance to director making such inspection
Penalty for contravention

If a company fails to comply with any requirements of this section, every responsible director,
including CE and CFO shall:
 For listed company, be punishable with imprisonment up to 2 years and with fine up to Rs
500,000 and daily fine up to Rs 10,000; and
 For any other company, be punishable with imprisonment up to 1 year and with fine up to
Rs 100,000.
Inspection of books of account by the SECP (Sec 221, 222)
 Books of account and books and papers of every company shall be open to inspection by
any officer authorised by SECP for reasons to be recorded in writing
 Duty of every director, officer or other employee of company to produce them all books
and papers of Co and to furnish him with any such statement, information or explanation
relating to affairs of Co, as said person may require of him within specified time and place
 Also duty of every director, officer or other employee of Co to give them all assistance
 Person making inspection may, during inspection
- Make or cause to be made copies of books of account and other books and papers; or
- Place or cause to be placed by marks of identification thereon in token of the inspection;
- Take possession of such documents and retain them for 30 days if there are reasonable
grounds for believing that they are evidence of the commission of an offence.
 Where inspection has been made under this section by an officer authorised by SECP; such
officer shall make a report to SECP.
 Officer authorised shall have all powers of SECP under this Act for making inquiries.
Penalty for default in compliance with these provisions

 Imprisonment up to 180 days + fine up to RS 100,000.
 Relevant director/officer shall deem to have vacated his office and shall be disqualified for
holding such office in any company, for 3 years.
Authentication of documents and proceedings (Sec 56)

Unless any specific authentication requirement has been prescribed by the Act, any document
or proceeding requiring authentication by a company may be signed either by an officer or a
representative authorized by the board.
Submission of additional statements of accounts and reports (Sec 238)

SECP may, by general or special order, require any company or class of companies to prepare
and send to members, registrar, any authority, stock exchange and any other person such
periodical statements of accounts, information or other reports (audited by an auditor) in
such form and manner and within such time, as may be specified in order
Final Accounts
Financial statements – 2(33)

(a) a statement of financial position as at the end of the period;
(b) a statement of profit or loss and other comprehensive income or in the case of a company carrying on
any activity not for profit, an income and expenditure statement for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and other explanatory information;
(f) comparative information in respect of the preceding period; and
(g) any other statement as may be prescribed;
Financial year – 2(32)
The period in respect of which any financial statement of the company or the body corporate, as the case
may be, laid before it in general meeting, is made up, whether that period is a year or not;
Financial period – 2(32)
The period (other than financial year) in respect of which any financial statements thereof are required
to be made pursuant to this Act;
Financial Statements (sec 223)
 BOD must lay before AGM its financial statements (F/S) for the period
- For first F/S; Since the incorporation of company to the date of close of financial year
- For subsequent F/S; Since the preceding F/S to the date of close of financial year.
 F/S must be laid within 120 days of close of financial year
 Extension of 30 days (for special reasons) by SECP (Listed Co) or Registrar (other Co)
 First F/S must be laid within 16 months of date of incorporation
 Subsequently must be laid once at least in every calendar year.
 Period of F/S shall not exceed 1 year except special permission by Registrar
 F/S shall be audited by auditor of company and auditor’s report shall be attached thereto
(not required for a private company having paid up capital not exceeding 1 million or such
higher amount as may be notified by the SECP)
 Every company shall send in specified form and manner the audited F/S + Auditors’ report
+ Directors’ report + Chairman’s review report (for listed only) to every member and every
person entitled to receive notice, either by post or electronically, at least 21 days before
AGM and shall keep a copy at the registered office for the inspection of members.
 Listed company shall, simultaneously send by post 3 copies and electronically 1 copy of all
above to SECP, Registrar and Securities Exchange and shall also post on company’s website
 Reports be made available on website of Company for a time period as may be specified
 This section shall not apply to a SMC except the requirements of audit
If any copy of F/S is issued/circulated/published without a copy of (i) any component of F/S (ii) auditors’
report, (iii) review reports on statement of compliance, (iv) directors’ report and (v) statements of
compliance; Company, and every officer who is in default shall be liable to a penalty of level 1 (Sec 236)
Transmitting Audited F/S and Notice of AGM through e-mail etc
SECP has allowed companies to circulate annual balance sheet and profit and loss
account, auditor's report and directors report etc. (Audited F/S) along with notice of
AGM to its members through e-mail subject to following conditions
Circulars  Co shall obtain prior written consent and e-mail addresses of its members who opt so
 Co shall place on its website a Standard Request Form that members may use to
communicate their e- mail address and consent for electronic transmission
 E-mail addresses of such members shall be recorded in member 's register
 It will be responsibility of members to communicate changes in registered e-mail
 If any such member, who has provided consent under this circular, requests for hard
copy of such F/S; same shall be provided free of cost within 7 days
 Co shall remain liable to send Audited F/S and Notice through registered post/courier
to those members who do not opt for such transmission
 Co shall ensure the security/authenticity of the information so transmitted
Transmitting Audited F/S through CD/DVD/USB
 Consent of shareholders shall be obtained in AGM/EOGM for the same

 Requirements of filing accounts with SECP and SE shall be fulfilled
 If any such member requests for hard copy of such F/S; same shall be provided free of
cost within 7 days at their registered address
 Co shall place on its website a Standard Request Form that members may use to
communicate their needs of hard copies of annual audited accounts to shareholders
instead sending the same through CD/DVD/USB along with postal and email address of
the Company Secretary/Share registrar to whom request shall be sent
 If a member prefers to receive hard copies for all the future audited accounts, then such
preference shall be given to company in writing and company is bound to provide hard
copies to such member in future also.
Contents of the F/S (Sec 225)
 F/S shall:
- give a true and fair view of the state of affairs of the company
- comply with the financial reporting standards notified by SECP
- be prepared in accordance with requirements of 3rd Schedule for different companies
 Any company that intends to make unreserved compliance of IFRS issued by the IASB shall
be permitted to do so.
 SECP may, of its own motion or upon application by a company, modify the requirements of
the relevant Schedule for the purpose of adapting it to the circumstances of a company.
 SECP shall have power from time to time to grant exemption to any company or any class
of companies if it is in the public interest so to do, from compliance with all or any of the
requirements of the relevant Schedule.
 This section shall not apply to an insurance or banking company or any other class of
companies for which requirements of F/S are specified in law regulating such companies.
Approval and Authentication of F/S (Sec 232)
 F/S must be approved by board and signed on behalf of the board by chief executive and at
least 1 director, and in case of a listed company also by the CFO:
 If CE is for time being out of Pakistan, then it may be signed by at least 2 directors:
 For private company having paid up capital up to RS 1 million, F/S shall be accompanied by
an affidavit by CE or a director, as the case may be, that F/S have been approved by BOD.
 F/S of a SMC shall be signed by 1 director.
Copy of audited F/S to be forwarded to the registrar (Sec 233)
 In addition to requirements of section 223, after audited F/S have been laid before
company at AGM and duly adopted, a copy of such financials along with reports &
documents required to be annexed to same, signed as per the requirements of act, shall be
filed with registrar within
- 30 days from date of such meeting (for listed companies)
- 15 days from date of such meeting (for other companies)
 If general meeting before which the F/S are laid does not adopt the same or defers
consideration or is adjourned, a statement of that fact and reasons shall be annexed to said
documents and copies required to be filed with registrar.
 This section shall not apply to a private company having paid up capital not exceeding Rs.
10 million or such higher amount as may be notified by the SECP.
 Any contravention shall be an offence liable to a penalty of level 2 for listed companies and
level 1 for other companies
Right of members & debenture-holder to copies of F/S (Sec 235, 239)
 Any member or debenture-holder (including trustees) entitled, on request and on payment

of such fee as may be fixed by company to be provided with a copy of any financial
statement and other reports.
 Copy must be provided within 7 days after the request is received by company.
 Any contravention shall be an offence liable to a penalty of level 1
Director’s Report
Duty to prepare directors’ report and statement of compliance (Sec 226)
 Board shall prepare a directors’ report for each financial year.

(Not applicable to a private company, not being a subsidiary of public company, having the
paid up capital not exceeding Rs 3 million)
 SECP may by general or special order, direct such class or classes of companies to prepare a
statement of compliance (with contents as may be specified)
 For holding company, all information must be given for consolidated financial statements.
 Directors report shall give greater emphasis to matters that are significant to undertakings
included in the consolidation.
 Contravention of this section shall attract a penalty of level 1
Contents of directors’ report (Sec 227)
Directors shall make out and attach to every BS a report about

 State of Co’s affairs,
 Amount (if any) recommended as dividend; and
 Amount(if any) proposed to carry to Reserve Fund, General Reserve or Reserve Account
Additional contents for Public Companies and their subsidiaries
 Names of persons who, at any time during the financial year, were directors of company.
 Principal activities and the development and performance of the business during the year.
 A description of the principal risks and uncertainties facing the company.
 Any changes that have occurred during the financial year concerning nature of the business
of the company, its subsidiaries or any other company in which the company has interest.
 Information and explanation in regard to any modification in the auditor’s report;
 Information about the pattern of holding of the shares in the specified form;
 Name and country of origin of the holding company, if such company is a foreign company;
 Earning per share;
 Reasons for loss if incurred during the year and future prospects of profit, if any;
 Information about defaults in payment of any debts and reasons thereof;
 Comments in respect of adequacy of internal financial controls;
 Any material changes and commitments affecting financial position which have occurred
between the year end and the date of directors report;
 Disclosures about remuneration package of each of the directors and CEO including salary,
benefits, bonuses, stock options, pension & other incentives; and
 Any other information as may be specified.
Foreign company – 2(35)

Any company or body corporate incorporated outside Pakistan, which
(a) has a place of business or liaison office in Pakistan whether by itself or through an agent,
physically or through electronic mode; or
(b) conducts any business activity in Pakistan in any other manner as may be specified
Additional contents for Listed companies
Business review must, to extent necessary for understanding the development etc, include:
 Main trends and factors likely to affect future development, performance and position
 Impact of the company’s business on the environment;
 Activities undertaken by company, for corporate social responsibility, during the year
 Directors’ responsibility for adequacy of internal financial controls as may be specified.
 Legitimate reasons for not declaring dividend despite earning profits and future prospects
of dividend, if any
Authentication of Director’s Report and Statement of Compliance
Must be approved by board and signed by the Chief Executive and a director of the company.
Penalty for contravention
 For listed company, level 2 penalty; and

 For any other company, level 1 penalty.
Group Accounts
Consolidated financial statements
Requirements of Consolidated financial statements (Sec 228)
 With financial statements of holding company having subsidiary/ subsidiaries at year end;
attach consolidated financial statements of group presented as a single enterprise
 Consolidated financial statements shall comply with disclosure requirement of 4th
Schedule and International Accounting Standards
 Where financial year of a subsidiary precedes holding’s financial year end by more than 90
days, such subsidiary shall make an interim closing on holding’s financial year end and
prepare financial statements for consolidation purposes.
 Every auditor of holding company shall also report on consolidated financial statements
and exercise all powers and duties of an auditor
 Disclose in the consolidated financial statements:
- Any qualifications contained in auditors’ reports of subsidiary/subsidiaries; and
- Any note or saving contained in such accounts to call attention to a significant matter
 Every consolidated financial statement shall be signed by the same persons by whom
individual financial statements of holding company required to be signed.
 All provisions of accounts & filling shall apply mutatis mutandis to consolidated accounts
 SECP may (on application of a holding company) direct that in relation to any subsidiary,
provisions of this section shall not apply to such extent as may be specified in the direction.
This section shall not apply to a private company and its subsidiary if both have paid up capital
of not more than Rs 1 million.
SECP Circular – Group Companies to maintain their websites
Holding companies required to maintain their website and place on it the annual audited
group Financial Statements + Auditors Report + Directors report
Circular
Financial year of holding company and subsidiary (Sec 229)
 BOD of a holding Co shall ensure that financial year of each of its subsidiaries coincides
with its own financial year (except where there are good reasons against it)
 SECP may (on application of holding/subsidiary)
- Extend the financial year of any such company
- Grant such other relaxations as may be necessary while granting extension
Rights of holding company’s representatives & members (sec 230)
 Holding company may, by resolution, authorise representatives named in resolution to

inspect books of account kept by any of its subsidiaries
 Books of account of any such subsidiary shall be open to inspection by those
representatives at any time during business hours.
 Rights of appointing inspector to investigate company’s affairs available to members may
also be exercised by members of holding as if they also were members of subsidiary
Financial Statements of modaraba company to include modaraba accounts (Sec 231)
There shall be attached to F/S of modaraba Co, annual accounts and other reports prescribed
in “Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980” made out
 As at the end of financial year of modaraba
(if such financial year coincides with financial year of modaraba Co)
 As at the end of financial year of modaraba last before that of modaraba Co,
(If financial year of modaraba does not coincide with modaraba Co)
Quarterly Accounts of Listed Companies (Sec 237)
 Every listed company shall prepare quarterly financial statements within the period of-
- 30 days of the close of 1st and 3rd quarters of its year of accounts; and
- 60 days of the close of 2nd quarter of its year of accounts:
 SECP may, on application by company, extend the period of filing 1st quarter accounts for a
period not exceeding 30 days (if the company was allowed extension u/s 223)
 Half yearly accounts shall be subject to limited scope review by auditors of company in
such manner, term and conditions as may be determined by ICAP and approved by SECP.
 Quarterly financial statements shall be
- Posted on company’s website for information of its members
(within such time as may be specified by SECP)
- Transmitted electronically to SECP, securities exchange and registrar within 30/60 days
- Dispatched in physical form, if so requested by any member, without any fee
 Requirements of approval & authentication (u/s 232) also applicable to quarterly accounts
 On non compliance of this section, every responsible director, including CEO and CFO shall
be liable to a penalty of level 2
Maintenance of website by public (listed & unlisted companies)

Every public company shall maintain a functional website giving information on following
(in English and Urdu language):
 Profile of Company
[Vision, mission, Reg #, NTN, Reg Office address, phone & email]
Circulars  Governance
[Profile of BOD, Shareholding pattern, name of auditors & legal advisor]
 Investor relations
[Notices of Co , site map, link for SECP’s investor’s complaint section, contact us etc]
 Media [Membership of industry associations, announcements, clarifications]
 Logo of JAMAPUNJI (SECP’s investor education portal)
Additional details (on website) for Listed Company only

 Election of Directors
[Notice of election, profile of contestants 7 days prior to election, proxy form]
 Name and address of Share registrar
 Investors information
[Annual report, Financial highlights, Interim accounts, Auditor, Rating of Co.]
Listed Co shall place its Financial Statements on website at least 21 days before AGM

Availability of financial statements on the website of listed Company
A listed company shall make available its annual and quarterly financial statements for the last
10 years, where applicable, on its website
Register of Members and Debenture holders
Register of members and index (Sec 119, 120)

 Every company shall keep a register of its members
 Entered such particulars in the register as may be specified.
 For joint holders of shares, register shall state names of each joint holder. Joint holders as a
single member and address of person named first shall be entered in the register
 Every company having more than fifty members shall keep an index of names of members
(unless register is in such a form as to constitute in itself an index)
 Shall make any necessary alteration in index within 14 days of alteration in register.
 Index shall contain a sufficient indication to readily found any member
Register of debenture holders and index (sec 122, 123)

 Every company shall keep a register of its debenture-holders
 Entered such particulars in the register as may be specified.
 Company having more than 50 debenture-holders shall keep an index of names of them
(unless register is in such a form as to constitute in itself an index)
 Shall make any necessary alteration in index within 14 days of alteration in register.
 Index shall contain a sufficient indication to readily found any debenture-holder
These registers shall be prima facie evidence of any matter directed by this Act (Sec 129)

Particulars of members and debenture-holders
In case of a member or debenture-holder who is a natural person

 folio number;
 full name;
 father's name/ husband name;
 NIC/NICOP/Passport Number;
 nationality;
 mobile number/landline number;
 email address, if available;
 usual residential address;
 occupation, if any;
 in case of foreign national or dual national, country of origin;
 in case of minor member or debenture-holder, his date of birth along with name and
address of his guardian;
 date on which name was entered in the register as a member /debenture holder; and
 date on which person ceased to be a member / debenture-holder and reason of cessation.
In case of member or debenture-holder other than a natural person—

 folio number;
 name of legal person;
 official address;
 name of authorized representative/designated partner and his particulars
 date on which name was entered in the register as a member /debenture holder; and
 date on which person ceased to be a member/ debenture-holder and reason of cessation.
Additional particulars in the case of a company having a share capital—

 number of shares/debentures held by each member/ debenture-holder;
 class or kind, if any, of shares/ debentures held;
 distinctive number of each share held, where applicable; and
 number of shares / debentures held by member/ debenture-holder which are subject to
encumbrance, if any, along with nature of encumbrance.
Inspection of registers of members and debenture-holders (sec 124)
 Registers and index shall, be open to inspection of members or debentures-holders during

business hours, subject to reasonable restrictions by company, at least 2 hours a day
 Inspection by any member or debenture-holder shall be without charge
 Inspection by any other person shall be on payment of the fee fixed by company
 Person wishing to inspect shall make a request to company with the following:
- In the case of an individual, his name and address;
- In case of an organisation, its name and address and also of the authorised person; and
- Purpose for which the information is to be used.
 Any person may require a certified copy of register and index or any part thereof
- On payment of such fee as may be fixed by the company.
- Certified copies shall be issued within 7 days, excluding book closure days
 For any refusal of inspection or certified copy
- Penalty of level 1
- Registrar may order an immediate inspection or direct to sent the required copies
Power to close registers (sec 125)

 Company may close registers by a notice of not less than 7day
 For listed company, notice must be given by advertisement in English and Urdu languages
at least in 1 issue each of a daily newspaper of respective language having wide circulation.
 Closure shall not exceed 30 days in a whole year.
(SECP may, on application of the company extend this period to a further 15 days)
 Contravention of this section shall be an offence liable to a penalty of level 2
Rectification of Registers (Sec 126 to 128)
 Where name fraudulently entered / omitted; or default / unnecessary delay in entering or

removing name of member; Person aggrieved may apply to court for rectification.
 Court may either refuse or order rectification of registers on payment by company of any
damages sustained by party aggrieved, and may make such order as to costs as thinks fit
 Court may decide any question relating to title of any person (party to application).
 Court shall cause a copy of order to be forwarded to company and shall direct the company
to file notice of rectification with the registrar within 15 days from the receipt of the order.
Punishment for fraudulent entries in and omission from register
Imprisonment up to 3 years or with fine up to Rs 1 million rupees, or both.

Return for change in shareholding
A company other than a listed company, shall inform the registrar about any change of more
than 25% in its shareholding or membership or voting rights as per Form 3A within 15 days
after the day on which the threshold of more than 25% is reached.
Annual Return (Sec 130)
 Company having a share capital and the companies not having share capital shall once in
each year, prepare and file with registrar an annual return containing particulars in a
specified form (different for both type of companies) as on the
- Date of the AGM; or
- Last day of the calendar year, where no such meeting is held or if held is not concluded
 Annual return shall be filed with the registrar within 30 days from the above date
(For listed company, registrar may for special reasons extend the period till 15 more days)
 All the particulars required to be submitted shall have been previously entered in one or
more registers kept by the company for the purpose.
 No need to file return in case there is no change of particulars in the last annual return filed
- Inform the registrar in a specified manner that there is no change of particulars
- SMC and private companies having capital up to Rs 3 million need not to inform
 Any contravention of this section shall be an offence liable:
- For listed company, to a penalty of level 2
- For other company, to a penalty of level 1
No notice of any trust, expressed, implied or constructive, shall be entered on the register of
members, or sent to registrar (Sec 121)
Record of Ultimate Beneficial Owner (Sec 123A)
 Company shall maintain information of its ultimate beneficial owners in such form and
manner, within such period and obtain such declaration from members as may be specified
 ‘Ultimate beneficial owner’ here means a natural person who ultimately owns or controls a
company, whether directly or indirectly, through such % of shares or voting rights or by
exercising effective control in that company through such other means, as may be specified.
 Every company shall, in such form and manner as may be specified, maintain a register of
its ultimate beneficial owners
 Company shall timely record their accurate and updated particulars, including any change
therein, and provide a declaration to this effect to the registrar
 If any government is a member of a company such particulars of the relevant government
shall be entered in the register of ultimate beneficial owners in the specified manner.
 Contravention shall attract a penalty which may extend till:
- 1 Million (a director or officer of the company or any other person); and
- 10 Million (the company, to a penalty which may extend to ten million rupees.”
Tutor’s Note: Extracts from the Annual Report (for practical understanding)
Directors’ Report
The Directors of your Company are pleased to present the Annual Report with the audited financial
statements of the Company for the year ended June 30, 2020.
Financial Performance at a Glance
A brief financial analysis is presented as under:
2019 – 2020 2018 - 2019

Operating Results Increase /(Decrease)
Amount in PKR million
Gross Revenue 57,870 48,719 18.78%
Net Revenue 43,530 36,961 17.77%
Gross Profit 12,617 10,471 20.49%
Gross Profit % 28.98% 28.33% 65 bps
Selling & Distribution Costs 5,504 5,132 7.25%
Administrative Expenses 582 520 11.92%
Operating Profit 6,808 5,003 36.08%
Profit After Tax 4,865 3,511 38.56%
Earnings per Share – Rupees 84.54 61.01 38.56%
Financial Highlights
Net Turnover of the Company grew by 17.77% over last year on the back of volume gains and price
adjustments across all categories. During the second half of the year, the growth could be attributed to
consumers’ panic buying and surge in demand for hygiene products owing to the COVID-19 pandemic.
Your Company’s agile supply chain and countrywide distribution network met this demand amid
challenging Government’s actions to stem the spread of COVID-19 limiting access to stores, limited
mobility of staff and shortage of imported materials.
Input costs were up during the second half of the year as the rupee weakened further against the US
Dollar. The Company also made alternate sourcing arrangements to overcome shortages of some
imported materials due to COVID-19 in order to keep production going. The Company also increased its
stock levels to cater for unforeseen disruption in the supply of key materials resulting in increased
working capital investment and higher inventory keeping costs. This translated into 65 bps gain in gross
profit margin despite selling price adjustments and favorable pack mix changes.
Selling and distribution costs increased by 7.25% as compared to last year primarily due to freight
related cost. Administrative expenses went up by 11.92% due to employee related cost and depreciation
expense.
Income from short term investments was up by 75.55% on account of higher interest rates during the
first half of the year. Revenue growth and higher income from short term investments resulted in
38.56% increase in profit after tax and earnings per share.
Appropriation of Profit
2019 – 2020
PKR In ‘000’
Profit after tax 4,864,816
Un-appropriated profit brought forward 447
Profit available for appropriation 4,865,263
Appropriations:
Proposed Final Cash Dividend @ 235% i.e. PKR 23.5 per share 1,352,329
(2019: @ 200% i.e. PKR 20 per share)
Proposed bonus shares @ 10% i.e. 1 share for every 10 shares held 57,546
(2019: 0% i.e. Nil)
Interim Cash Dividend @ 225% i.e. PKR 22.5 per share 1,294,783
(2019: @ 165% i.e. PKR 16.5 per share)
Transfer to General Reserve 2,160,000
Un-appropriated profit carried forward 605
Principal Risks and Uncertainties
The Company is exposed to certain inherent risks and uncertainties. However, we consider the following
as key risks:
• Adverse movement in foreign exchange rates and commodity prices;

• Data security and data privacy; and
• Market disruption due to changes in tax laws and regulations to widen the tax net.
The Company works with internal and external stakeholders to mitigate / reduce to acceptable level the
likely impacts of aforesaid risks.
Business Performance Highlights
Colgate continued to lead the Oral Care category, and strengthened its leadership position by relaunching
its flagship brand, Maximum Cavity Protection, with a new uplifting global packaging, and a
communication focused around functional superiority of stronger teeth. The focus remained on building
consumption for the category and special packs were introduced for smaller towns and rural consumers
to encourage brushing. Continuous improvement and innovation in packaging led to the launch of new
hanger packs which improved the visibility of smaller packs in general trade.
Responding to the importance of personal hygiene and hand washing in this period of pandemic, the
Company launched its locally manufactured Palmolive Liquid Hand Soap range in attractive new
packaging and three variants delivering on consumers’ needs of germ protection and natural ingredients
for skin care. The range is available in bottles and refill pouches and the launch is supported by an
integrated marketing campaign.
On the back of increased demand, Palmolive soaps continued to grow its market share with Company’s
efforts behind its distribution expansion. Introduction of new luxury size bars and economy bundle
packs helped strengthen position in retail channels.
Fabric Care category remained competitive with all key players focusing on gaining market share.
Unorganized sector continued to grow due to lower price and higher trade margins in both fabric and
dish washing products. In these challenging times, we remained committed to have uninterrupted
supplies of our products to the stores.
Health, Safety and Environment
Keeping our people safe while ensuring that our products reach our consumers has been topmost
priority. Strict social distancing protocols, including work from home for Head Office staff were
implemented. Clear guidelines were issued, and frequent communication was made with all employees
to ensure that they understand their role in curbing the spread of this virus while ensuring that
Company’s operations are carried out smoothly.
The Company complies with all applicable rules and regulations in the formulation, manufacture,
labeling and marketing of its products and takes active measures to reduce discharge of hazardous waste
in the environment. In order to remain environment friendly, the Company encourages its employees to
identify potentially hazardous conditions, while also providing training on work safety and sound
environmental practices.
The Company is committed on carrying out its business in a responsible manner and continuously looks
for ways to reduce the impact of its products on the environment.
The Company continues to invest in projects that will reduce its environmental footprint. During the
year, the Company invested PKR 82 million in a new waste water treatment plant based on bio-
treatment technology.
Corporate Social Responsibility
The Company distributed 500,000 hygiene kits amounting to PKR 30.366 million throughout the country
which not only provided basic hygiene products to the community but also reminded them about the
importance of washing hands to fight COVID-19.
Furthermore, the Company has pledged to provide PPEs including 30,000 pairs of gloves, 30,000 surgical
masks and 8,500 protective suits to hospitals in smaller towns of the country as way to show its
gratitude to our doctors and paramedic teams who have put themselves at risk to provide healthcare and
support to the patients of COVID-19. This support will continue in future as and when the country needs
your Company to step up efforts to help the medical fraternity.
During these unprecedented times, the Company has committed to cover all COVID-19 treatments costs
for employees and their immediate family. This also includes our distributors’ sales team which handles
our products. The welfare of our employees is paramount.
The Company also made donations amounting to PKR 22.6 million for social welfare projects.
To promote positivity during these challenging times, Colgate continues its commitment to spread smiles
via its comprehensive oral health education focused school program - Bright Smiles Bright Futures. The
program has reached around 13 million children since its inception through Colgate’s trained educators.
My Bright Smiles Global Art Contest had a dual objective, of not only increasing oral health awareness
through art, but also to mitigate fear in kids by spreading optimism and smiles in these tough times. The
contest has been conducted digitally, and Pakistan has again managed to create a ripple globally by
contributing highest number of artworks from any participating country.
Future Outlook
Recovery has started as businesses and communities have adapted to the new ways of living and
conducting business, but the challenges are far from over. The economic recovery is slow, and fear of a
pandemic’s second wave is keeping businesses from going forward with their growth and expansion
plans.
Although consumer goods companies especially those providing hygiene and personal care products
have generally done well during the pandemic, it is expected that the current economic condition would
soften the demand as consumers would look to down trade and curtail discretionary spending.
The Company is well placed to help consumers meet their daily needs for hygiene and personal care
products with its wide range of products across all categories. More products are also in the pipeline
which will provide consumers with greater choices of products to take care of their families and loved
ones.
Internal Financial Controls
The directors are aware of their responsibility with respect to internal financial controls. Through
discussions with management and auditors (both internal and external), they confirm that adequate
controls have been implemented by the Company.
Financial & Corporate Reporting Framework
In compliance with the provisions of the listing regulations of the Pakistan Stock Exchange, the Board
members are pleased to place the following statements on record:
• The financial statements prepared by the management of the Company present its state of affairs
fairly, the results of its operations, cash flows and changes in equity.
• The Company maintains proper books of accounts.
• Appropriate accounting policies have been consistently applied in preparation of financial
statements and accounting estimates are based on reasonable and prudent judgment.
• International Financial Reporting Standards, as applicable in Pakistan are followed in preparation of
financial statements.
• The system of internal control is sound in design and has been effectively monitored and
implemented.
• There are no doubts on the Company’s ability to continue as a going concern.
• There has been no material departure from the best practices of corporate governance, as detailed
in the listing regulations.
• Summary of key operational and financial data for the last six years is annexed in this annual report.
• Information about taxes and levies is given in the notes to and forming part of financial statements.
• The valuation of investment made by the staff retirement funds based on their respective accounts
is as follows:
2019 – 2020
PKR In ‘000’
CPPL Staff Provident Fund 650,616
CPPL Staff Gratuity Fund 690,498
• The Board held five (5) meetings during the year. Attendance by each director was as follows:
Directors Name Attendance
Mr. Iqbal Ali Lakhani 3
Mr. Zulfiqar Ali Lakhani 5
Mr. Amin Mohammed Lakhani 5
Mr. Tasleemuddin Ahmed Batlay (upto March 10, 2020) 3
Ms. Aliya Saeeda Khan 5
Mr. Peter John Graylin - Nominee of CP – USA 5
Mr. Mukul Vinayak Deoras – Nominee of CP – USA (upto March 10, 2020) 3
Ms. Xaun Dai – Nominee of CP – USA (from March 10, 2020) 2
Mr. Kamran Yousuf Mirza (from March 10, 2020) 2
Mr. Shahid Ali Bukhari (from March 10, 2020) 2
Leave of absence was granted to directors who could not attend some of the Board meetings.
• The Audit Committee held four (4) meetings during the year. Attendance by each member was as
follows:
Members Name Attendance

Mr. Amin Mohammed Lakhani 4
Mr. Kamran Yousuf Mirza (from March 10, 2020) 1
• The HR Committee held one (1) meeting during the year. Attendance by each member was as
follows:
Members Name Attendance

Mr. Kamran Yousuf Mirza 1
Mr. Zulfiqar Ali Lakhani 1
Composition of Board
The board consists of 6 male and 2 female directors with following composition:
Independent directors (including 1 female director) 3
Other non-executive directors 4
Executive director 1
Total number of directors 8
Remuneration Policy of Non-Executive Directors

The fee of the Non-Executive and Independent Directors for attending the Board and Committee
meetings of the Company is determined by the Board from time to time.
Remuneration Package of Chief Executive and Directors

Remuneration package of Chief Executive and other directors is disclosed in note 38 to the financial
statements.
Auditors
The Auditors, Messrs A. F. Ferguson & Co., Chartered Accountants, retire at the conclusion of the 42nd
Annual General Meeting. Being eligible, they have offered themselves for re-appointment and the Board’s
Audit Committee has also recommended their re-appointment which has been endorsed by the Board.
Pattern of Shareholding
A statement showing pattern of shareholdings of the Company and additional information as at June 30,
2020 is included in the report.
The Board has determined threshold in respect of trading of Company’s shares by executives and
employees who are drawing annual basic salary of PKR 1.5 million or more.
Subsequent Events
The Honorable Supreme Court of Pakistan has decided the matter of Gas Infrastructure Development
Cess in favor of the Government on August 13, 2020. The effect of this decision has been appropriately
accounted for in these financial statements.
Except for the decision of GIDC, no material changes and commitments affecting the financial position of
the Company have occurred between the end of the financial year and the date of this report.
Acknowledgement
This year belongs to our employees and our distributors work force as it is due to their unwavering
commitment and passion that the Company has been able to provide its consumers with the products
they need to take care of their families and loved ones.
We would like to extend our sincere gratitude to our consumers for their trust in our brands. We are
thankful to our customers, distributors, supply chain partners, bankers and shareholders for their
continued support.
On behalf of Board of Directors
Chairman Chief Exective

Karachi: August 24, 2020
Statement of Compliance with Listed Companies (Code of

Corporate Governance) Regulations, 2019 (Link with Ch 25)
For The Year Ended June 30, 2020
The Company has complied with the requirements of with Listed Companies (Code of Corporate
Governance) Regulations, 2019 (the Regulations) in the following manner:
1. The total number of directors are eight as per the following:

a. Male 6
b. Female 2
2. The composition of the Board is as follows:
Independent Directors Ms. Aliya Saeeda Khan

Mr. Kamran Y. Mirza
Mr. Syed Shahid Ali Bukhari
Other Non-executive Directors Mr. Iqbal Ali Lakhani - Chairman
Mr. Amin Mohammed Lakhani
Mr. Peter John Graylin
Ms. Xuan Dai
Executive Director Mr. Zulfiqar Ali Lakhani
Female Directors Ms. Aliya Saeeda Khan
Ms. Xuan Dai
3. The Directors have confirmed that none of them is serving as a Director on more than seven listed
companies, including this Company.
4. The Company has prepared a Code of Conduct and has ensured that appropriate steps have been
taken to disseminate it throughout the Company along with its supporting policies and procedures.
5. The board has developed a vision / mission statement, overall corporate strategy and significant
policies of the Compa- ny. The Board has ensured that complete record of particulars of the
significant policies along with their date of approval or updating is maintained by the Company.
6. All the powers of the Board have been duly exercised and decisions on relevant matters have been
taken by the Board / shareholders as empowered by the relevant provisions of the Act and these
Regulations.
7. The meetings of the Board were presided over by the Chairman and, in his absence, by a director
elected by the Board for this purpose. The Board has complied with the requirements of the
Companies Act, 2017 and the Regulations with respect to frequency, recording and circulating
minutes of meetings of the Board.
8. The Board have a formal policy and transparent procedures for remuneration of directors in
accordance with the Act and these Regulations.
9. Majority of the Directors of the Company are completed / exempted from the requirement of
Directors’ Training program.
10. The board has approved appointment of Chief Financial Officer and Head of Internal Audit, including
their remuneration and terms and conditions of employment and complied with relevant
requirements of the Regulations. Mr. Mansoor Ahmed was assigned the responsibilities of Company
Secretary of the Company in addition to his responsibilities in other group companies.
11. Chief Financial Officer and Chief Executive Officer duly endorsed the financial statements before
approval of the Board.
12. The Board has formed committees comprising of members given below:
Audit Committee Ms. Aliya Saeeda Khan – Chairperson

Mr. Iqbal Ali Lakhani - Member
Mr. Amin Mohammed Lakhani – Member
Mr. Kamran Y. Mirza - Member
HR and Remuneration Committee Mr. Kamran Y. Mirza - Chairman
Mr. Iqbal Ali Lakhani - Member
Mr. Zulfiqar Ali Lakhani – Member
Ms. Aliya Saeeda Khan – Member
13. The terms of reference of the aforesaid committees have been formed, documented and advised to
the committee for compliance.
14. The frequency of meetings of the committees were as per following:
a. Audit Committee 4 quarterly meetings

b. HR and Remuneration Committee 1 annual meeting
15. The board has outsourced the internal audit function of the Company to a firm of Chartered
Accountants, who are considered suitably qualified and experienced for the purpose and are
conversant with the policies and procedures of the Company.
16. The statutory auditors of the Company have confirmed that they have been given a satisfactory
rating under the Quality Control Review program of the Institute of Chartered Accountants of
Pakistan and registered with Audit Oversight Board of Pakistan, that they and all their partners are
in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as
adopted by the Institute of Chartered Accountants of Pakistan and they and the partners of the firm
involved in the audit are not a close relative (spouse, parent, dependent and non-dependent
children) of the chief executive officer, chief financial officer, head of internal audit, company
secretary or director of the Company.
17. The statutory auditors or the persons associated with them have not been appointed to provide
other services except in accordance with the Act, these regulations or any other regulatory
requirement and the auditors have confirmed that they have observed IFAC guidelines in this
regard.
18. We confirm that all other requirements of Regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Regulations
have been complied with.
19. Explanation for non-compliance with requirements, other than regulations 3,6,7,8,27,32,33 and 36
is below:
Regulations Explanation
10 (3) (V) The present Board was elected effective from March 10, 2020, accordingly, the Board
committees i.e. Audit Committee and Human Resource and Remuneration Committee
were reconstituted thereafter. The process of annual evaluation of the members of the
Board and of its committees shall be completed during the year ending June 30,
2021.
14 (ii) & (iii) The Chief Executive as well as the Chief Commercial Officer of the Company place
significant issues for the information, consideration and decision of the Board and
or its committees and same are discussed in various formats for example annual
business plan, cash flow projections, forecasts and strategic plan and budgetary
information are discussed during review of the financial performance of the
Company, therefore, the same matters are not recorded separately. However,
going forward, the management will include review of these matters / information
specifically in the minutes of themeetings under the head of significant matters.
Iqbal Ali Lakhani Zulfiqar Ali Lakhani

Chairman Chief Executive
Karachi: August 24, 2020
Source: https://colgate.com.pk/for-investors/financial-reports/
(Slightly modified and represented for the purpose of understanding)
7. Investigation of Companies Page 140
Ch # 7: Investigation of companies

 Investigation
A 1.1: Companies Act, 2017 (Section 256-275)

(Regulation 30, 31)
100%, save as provided in a tutor note at the end
Note: To make the language of this chapter easy, some legal savings and referential provisions
have been deleted or simplified.
Investigation
Application to the SECP and appointment of Inspector (Sec 256, 257)
SECP may appoint inspectors to investigate and report on affairs of Co on:

 Application of Members or Shareholders having 10% voting securities.
[Co having share capital]
 Application of persons comprising 10% in number of persons entered in member’s register
[Co not having Share Capital]
 On receipt of a report of inspection on books of accounts (u/s 221) or
 On receipt of report by the registrar, where information not furnished to him (u/s 254);
 Special Resolution of company in general meeting, proposing investigation
 Order of court
 Discretion of SECP, if there are circumstances suggesting that:
- Business is conducted to defraud Creditors, Members or any other person or Oppressive
to members or purpose is fraudulent/ unlawful.
- Persons concerned in formation of company or in the management are guilty of breach
of trust, misfeasance or misconduct.
- Members are deprived of reasonable return.
- Members are not given reasonable information.
- Any shares are allotted for inadequate consideration.
- Business is not managed on sound principles/prudent practices.
- Financial position is indicating insolvency.
 Application must be supported by Evidence showing good reason for investigation.
 SECP may require any security, from applicant, for cost of investigation.
 Before making order, company shall be given an opportunity of being heard.
 While appointing an inspector, SECP may define the scope of the investigation, the period
to which it is to extend or any other matter connected or incidental to the investigation.

Application u/s 256
 Application for investigation by members shall specify—

- Name and address of registered office of company whose affairs are to be investigated;
- Names and addresses of applicants, and, in case of a company having a share capital,
also total number of shares held by each of them together with amount paid up thereon;
- If company has a share capital, issued and paid-up capital and the nominal or face value
of shares or, if company has no share capital, the total number of its members;
- Precise and specific reasons for requesting the investigation with particulars of alleged
irregularities, including the period to which it extends; and
- Whether applicants agree to give security for payment of the costs of investigation and
the ceiling of the amount up to which they so agree.
 Application shall be accompanied by such documentary evidence in support of reasons for

requesting the investigation and alleged irregularities as is reasonably open to applicants.
 Application shall be signed by applicants and shall be verified by their affidavit stating,
inter-alia, paragraphs of application which contain statements true to their knowledge and
such paragraphs which contain statements true to the best of their information and belief.
 SECP may, before passing any order on the application, require the applicants or any one or
more of them to produce such further evidence as SECP may consider necessary for:
- Purpose of satisfying itself as to veracity of allegations made in the application; or
- Ascertaining any information which, in opinion of SECP, is necessary to pass orders; or
- Ascertaining eligibility of applicants or any one or more of them to make application.
Duty of officers to assist the inspector (Sec 261, 263, 273)
 It is duty of all officers and other employees and agents (whether present or past) and all
persons who have dealings with company to give to the inspector all required assistance.
 Any person making default in complying above requirement shall be punishable with
imprisonment for a term up to 2 years and shall also be liable to a fine up to Rs 1 Million.
 The expression “agents” includes the bankers, legal advisers and auditors.
- A legal adviser is only allowed to disclose the name and address of his client
(not required to disclose any privileged communication made to him in that capacity)
- Bankers not required to disclose any information as to be the affairs of any of their
customers other than the company, body corporate, or person under investigation.
 If, from inspector report, it appears to SECP that any person has been guilty of any offense
for which he is criminally liable, SECP may, prosecute such person for the offence.
Serious Fraud Investigation (Sec 258)
 If any offence is included in the offences relating provided in 6th Schedule, SECP may
appoint an inspector or investigation officer to investigate that offence.
 SECP may authorize any 1 or more of its officers or appoint such number of professionals
from the persons of ability, integrity and having experience in fields of corporate affairs,
accountancy, taxation, forensic audit, capital market, banking, IT, law or any other specified
 Such officer shall have all the powers of investigation officer under this Act, SECP Act, 1997
and Code of Criminal Procedure 1898; and shall report in such manner as SECP may direct.
 If the offence is connected with any other offence, the Court may also try that other offence
 If it is found that the accused person has committed any other offence, Court may convict
him for such other offence and pass any sentence under this Act or any other law.
 If such offence is tried by any special court, higher or equal to Court of Session, joint trial
will be conducted by such special court of all offences and convict an accused accordingly.
 If SECP is satisfied that the matter is of public importance, it may request Minister of FG to
form a Joint Investigation Team (JIT)
- To be headed by a senior level officer of SECP (at least additional director)
- May include any person eligible for being appointed as investigation officer
- Also a Gazetted officer of any Federal law enforcement agency, bureau or authority
- Any person who fails to comply with directions, of Minister of FG, shall be guilty of an
offence punishable with imprisonment of 30 days or fine up to Rs 100,000 by Court
 Upon completion of investigation, the JIT shall, through Special Public Prosecutor, submit a
report before the Court and such report shall be admissible as evidence in the Court.
Powers of the Inspector
To be a Court for certain purposes (Sec 259)

Inspector shall have the same powers as are vested in Court under Code of Civil Procedure,
1908, in respect of the following matters:
 Enforcing the attendance of persons and examining them on oath or affirmation;
 Compelling discovery and production of books and papers and any material objects; and
 Issuing commissions (i.e. permissions) for the examination of witnesses;
Every proceeding before such inspector shall be deemed to be “judicial proceeding” within the
meaning of Pakistan Penal Code, 1860
To carry investigation into affairs of associated companies (Sec 260)
If inspector considers it necessary, for reasons to be recorded in writing, he may probe after
seeking prior approval of SECP, affairs of any other associated company or undertaking and
also from chief executive of any such company (after providing an opportunity of being heard)
Inspector’s report (Sec 262, 271)
 Inspector may (or on direction of SECP shall) make interim reports and on conclusion of
investigation shall make final report to SECP
 SECP shall forward a copy of inspector’s report to:
- Registered office of company [with such directions as SECP may think fit]
- Members at their request [who applied for investigation]
- Court [if applied by court]
 SECP may forward a copy, on request of and on payment of prescribed fee to:
- Members / Body corporate / Persons interested in affairs of Co
- Persons whose interest as creditor appears to be affected
 SECP may send copy to registrar which such directions as think fit.
 SECP may get report or any part of it to be posted on its website
 Copy of inspector report, authenticated in specified manner, shall be admissible in any legal
proceedings as evidence of the opinion of the inspector or inspectors.

Authentication of copy of Inspector’s report
A copy of the report of an inspector or inspectors, shall, be authenticated by an officer of SECP
Court Orders (Sec 264 to 268)
If reasons proved after investigation SECP may apply to Court and Court may, after giving
opportunity of being heard, by an order:
 Remove any Director, Chief Executive or other officer.
- If Directors removed
[casual vacancy filled in accordance with the provisions of AOA]
- If CE removed
[Directors shall elect another person as CE]
- If all directors including CE removed
[General Meeting for election of directors be called]
- Directors etc. so removed will be ineligible for such post for 5 years or such lesser
period as directed by the Court
- No compensation for loss of office
 Direct the directors to carry out changes in management and in accounting policies.
 Direct any existing contract, which is to the detriment of the company or intents to benefit
any officer or director shall be annulled or modified to the specified extent.
- The order shall not have a retrospective effect
- No compensation payable on modification or annulment of contracts
 Direct the company to call a general meeting to take remedial actions on specified matters.
In some circumstances SECP may require the registrar or any other authorised person to file a
petition in court for winding up or apply to court for an order under Oppression (u/s 286).
Proceedings for recovery of damages or property (Sec 269)
 If from inspector report, it appears to SECP that proceedings should, in public interest, to
be brought by any associated company etc (u/s 260), SECP may itself bring proceedings in
the name of such company for the recovery of:
- Damages in respect of any fraud, misfeasance, breach of trust or other misconduct in
connection with promotion or formation, or management of such company etc; or
- Any property of such company etc which has been misapplied or wrongfully retained;
 SECP shall be indemnified by such company etc against any costs or expenses incurred in it
 Court / other authority before which proceedings are brought shall pass order accordingly
Imposition of restrictions on shares & debentures and prohibition of transfer (Sec 272)
 If SECP think fit, different restrictions on can be imposed by SECP for the purpose of:
- Finding out relevant facts about any shares or debentures
- Restricting the change in directors owing to a recent transfer of shares
- Restricting the change in directors owing to a proposed transfer of shares
 Following sort of restrictions (after providing an opportunity of being heard) for a period
not exceeding 1 year can be imposed by the SECP:
- Transfer of shares/debentures void
- Shares/debentures not be issued
- No voting rights
- No further shares issue in right of existing shares
- No payment from company to anyone for sum due in respect of dividend etc on these
shares (except in liquidation)
- No change in directors or CE unless by operation of law.
 SECP may, by order, at any time, vary or rescind any such above order
(shall be served on the company within 14 days of making order)
 Aggrieved person may apply to the Court
(Court may, if it thinks fit, by order, vacate any such order of SECP)
 Any person who fails to comply with the requirements of this section shall be punishable
with imprisonment up to 1 year, or with fine up to Rs 1 million, or both.
 Any contravention shall also attract a penalty of level 2
 A prosecution shall not be instituted under this section except with the consent of SECP.
Expenses of investigation (Sec 270)
 Expenses of investigation shall in first instance be defrayed by SECP then to be reimbursed

 If expenses are not recovered, they shall be borne by SECP.
 Following persons shall, to the extent mentioned below, be liable to reimburse the SECP:
Person Extent of Liability

Person convicted or is ordered to pay Such extent as may be specified by SECP or
damages or restore any property Court convicting such person
Any associated company etc in whose Extent of the amount or value or property
name proceedings are brought recovered by it as a result of the proceedings
Where investigation ordered by SECP Company whose affairs are ordered to be
investigated, shall be liable
If investigation ordered on application Members making application and company dealt
of the members with by the report shall be liable to such extent,
if any, as SECP may direct
Enquiries and investigation not to be affected by: (Sec 274)
 Resolution passed by Co for winding up

 Petition submitted by court for winding up
 Civil/Criminal proceedings initiated against Co/Officers
Tutor Note:
Following sections and subsections, pertaining to investigation, not covered in this unit due to
their referential nature (only referring to other sections and not prescribing any provision)
[Section 270(2)(3)(4)(5)(6), 272(7) & 275]
8. Mediation, Arbitration, Mismanagement, Restructuring and Rehabilitation Page 147
Ch # 8: Mediation, Arbitration, Mismanagement,

Restructuring and Rehabilitation
This chapter deals with the different actions that may be taken against the company or
any of its officers, under the stipulations of the Companies Act 2017, by different
stakeholders including but not limited to the creditors, members, registrar, SECP or the
court etc.
After reading this chapter you would be able to differentiate between all these actions,
their initiation process, proceeding under these action and the after effects of the said
actions on the structure of the company as well as the legal position of its officers etc.
Another important action against the company that may be initiated by these
stakeholders is the petition for winding up of the company through court (on a
compulsorily basis). The said action is covered under an upcoming chapter of the same
book i.e. “Winding up”.

 Mediation & Arbitration
 Arrangements & Reconstructions
 Oppression
 Management by Administrator
 Rehabilitation of Sick Public Sector Companies
 Comparisons of different actions
 Corporate Restructuring Companies
 Corporate Rehabilitation
B 1.1: Companies Act, 2017 (Sections: 276 to 292)

B 2.1: Corporate Restructuring Companies Act, 2016 (Sections: 1 to 6)
B 2.2: Corporate Rehabilitation Act, 2018 (Chapter: I and II)
B 2.3: Corporate Restructuring Companies Rules, 2019
B 2.4: Corporate Rehabilitation Regulations, 2019
100%,
Note: To make the language of this chapter easy, some legal savings, duplication, transitional
provisions and the referential provisions have been deleted or simplified.
Mediation and Arbitration
Mediation and Conciliation Panel (Sec 276, 277)
 SECP shall maintain a panel as “Mediation and Conciliation Panel”

 It shall consist of individuals having specified qualifications
 Purpose would be the mediation between parties during the pendency of any proceedings
before the SECP or the Appellate Bench under this Act.
 Any of the parties to the proceedings may by mutual consent apply to SECP/Appellate
Bench in specified form and fees for referring the matter to this Panel
 SECP/Appellate Bench shall appoint one or more individuals from that panel.
 Fee and other terms and conditions of individuals of this Panel shall be specified.
 Panel shall follow such procedure as and dispose of the matter within 90 days from such
reference and forward its recommendations to SECP/Appellate Bench
A company, its management, members or creditors may also by written consent, directly refer
a dispute, claim or controversy arising between them or between members or directors inter-
se, for resolution, to any individuals enlisted on mediation and conciliation panel before taking
recourse to formal dispute resolution. (Sec 277)
Reference of matters to arbitration (Sec 278)
 A company may by written agreement refer any existing or future difference between itself
and any other company or person to arbitration, in accordance with Arbitration Act, 1940.
 Companies may delegate to arbitrator power to settle any term or to determine any matter
capable of being lawfully settled or determined by companies themselves or by BOD etc.
 Provisions of Arbitration Act, 1940 shall apply to all arbitrations in pursuance of this Act.
Arrangements and Reconstruction
Compromise with creditors and members (Sec 279, 280)
When Compromise or Arrangement is proposed between company and Creditors or Members:

 SECP shall, on application of company/creditor/member/liquidator, order a meeting of
creditors or members to be conducted.
 If a majority in number representing 3/4th in value of creditors or members approves it, it
will be binding on all stakeholders
 SECP shall make an order sanctioning Compromise/Arrangement provided
- SECP is satisfied that all material facts have been disclosed including financial position,
auditor's report on latest accounts, pending investigation etc
- Copy of order shall be forwarded to Registrar within 7 days of order
- Copy of order shall be annexed to every MOA and AOA issued after it.
(contravention of this sub section would attract penalty of level 1)
 SECP may at any time
- Stay commencement of any suit/ proceedings until final disposal of the application
- Give such directions or make such modification as think fit by it.
 If SECP is satisfied that Compromise/Arrangement cannot work satisfactory, it may initiate
proceedings of winding up.
The expression "arrangement" includes a reorganisation of share-capital by consolidation of

shares of different classes or by division of shares into shares of different classes or by both
Information as to compromises or arrangements with creditors and members (Sec 281)
 Where a meeting of creditors or members is called for compromise or arrangement, every

notice shall accompany a statement showing:
- Terms of compromise/arrangement explaining its effect.
- Material interest of Directors (including C.E.) as Directors or Members or Creditors.
- Effect of Compromise/Arrangement on these interests so far as different from like
interests of other persons.
 If a notice is given by advertisement, it shall either
- Accompany such statement or
- Mention 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, Trustee for debenture holders shall give to Co
- Notice of such matters related to himself necessary for compromise or arrangement
- Such further info as requested by Co
(failing to do so within time allowed by company, shall attract a penalty of level 1)
Any contravention of this section shall attract penalty of level 1

(unless shown that default was due to refusal of other director/C.E/trustee to supply details)
Powers of SECP to facilitate reconstruction or amalgamation of companies (Sec 282)
SECP may order a meeting of creditors or members in a directed manner, if an application is

made to SECP (u/s 279) and it is shown that:
 Compromise/arrangement is proposed in connection with a scheme for reconstruction of
any company, or amalgamation of or division of a company into 1 or more companies;
 Under the scheme whole or any part of undertaking or property or liabilities of transferor
company is to be transferred to transferee company or is proposed to be divided among
and transferred to two or more companies; and
 A copy of the scheme drawn up by applicants has been filed with the registrar;
SECP may, either by an order, sanction the compromise or arrangement or by a subsequent

order, make provision for all or any of the following matters:
 Transfer to the transferee company of whole or part of undertaking, properties & liabilities.
 Allotment/appropriation of any shares etc or other interest by the transferee company.
 Continuation by or against the transferee company of any legal proceedings.
 Dissolution, without winding up, of the transferor company.
 Provisions regarding any person dissenting from scheme or contract.
 Such incidental, consequential and supplemental matters as are necessary
No stamp duty shall be payable on such transfer:
The property (if the order so directs) vests freed from any charge that is by virtue of the
compromise or arrangement to cease to have effect.
Order relating to merger / demerger
Merging / demerging companies shall also be required to circulate following for the meeting:
 Draft of the proposed terms of the scheme drawn and adopted by board of each;
 Confirmation that a copy of the draft scheme has been filed with the registrar;
 A report adopted by respective board explaining effect of compromise on members, laying
out in particular the share swap ratio, specifying any special valuation difficulties;
 Report of the expert with regard to valuation, if any;
 A supplementary audited financial statements
(if latest accounts are outdated by more than 180 days before meeting for approval)
A copy of the order by SECP shall be forwarded to the registrar within seven days from the
date of the order.
The concept of Transferor and the Transferee Company

 The company whose assets or shares are being transferred to another
company is known as a transferor company.
 The company to which the assets or shares are being transferred is known as
Tutor Transferee company.
Note  In case of amalgamation, dissolving company is known as Transferor
company and the surviving / new company is known as Transferee company.
SECP shall give notice of every application u/s 279 to 282 to registrar and shall take into
consideration the representation made by registrar before passing any such order (Sec 283)
Amalgamation of wholly owned subsidiaries in holding company (Sec 284)
A company and its 1 or more wholly owned subsidiaries may amalgamate and continue as one
company, or 2 or more companies, each wholly owned by same person, may amalgamate and
continue as 1 company without complying the provisions of these sections (compromise,
reconstruction or arrangement etc) if:
 Scheme of amalgamation is approved by board of each amalgamating company; and
 Each resolution provides that-
- Shares of each transferor company will be cancelled without payment; and
- Board is satisfied that transferee company will be able to pay its debts during next 1
year and a declaration of this will be filed with the registrar; and
- Person or persons named in resolution will be the directors of transferee company.
Board of each amalgamating company must, not less than 20 days before amalgamation, give
written notice of the proposed amalgamation to every secured creditor of the company.
Transferee company shall file a copy of the approved scheme with the relevant registrar
Any contravention shall be an offence liable to a penalty of level 2
Power to acquire shares of members dissenting from scheme or contract (Sec 285)
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 SECP within 30 days of notice.

 If SECP thinks fit, it may direct otherwise.
 If SECP rejects application
- Order of rejection is to be filed by Transferee company to Transferor company
- Within 30 days (of notice or order whichever is later)
- Price payable (kept in a separate account in a Schedule bank) will be handed over to
transferor company
- Instrument of transfer also filed to transferor company, executed on behalf of
shareholders by any person appointed by trustee
- Transferee company shall
 Register Transferee company as holder of those shares
 Within 30 days of registration inform dissenting share holders of the fact &
receipt of amount payable to them
 Where Transferee Co already holds more than 1/10th shares, above provisions would not
apply unless:
- Every holder of Transferor Co is offered the same terms. And
- The holders, who approve the scheme, shall be 3/4th in majority having 9/10th
remaining shares.
 When, after the transfer as per such scheme, Transferee company becomes holder of
9/10th shares in cumulative:
- It will give notice to remaining shareholders within 30 days (if wasn’t given previously)
- Remaining shareholders may within 90 days of notice require Transferee Co to acquire
their shares
- Transferee company will be bound to acquire shares on same or some other agreed
terms and conditions (as SECP may finalise), as given in scheme for transfer.
Provisions relating to offer or circular containing offer
 Every such offer / circular or every recommendation to members of Transferor company

by its board to accept such offer shall
- Be accompanied by such information as may be specified;
- Contain statement by transferee company ensuring the availability of necessary cash
- Be presented to registrar for registration
(Registrar may refuse to register if above information not provided or is misleading)
 Appeal shall lie to SECP against an order of registrar refusing to register any such circular.
 SECP or any party may make a reference to the Court, on any matter, for necessary orders
 Issuance of circular without registration would be an offence of level 1 penalty
Above powers of SECP shall be exercised by Court for such companies or class of companies or
having such capital, as may be notified by the concerned Minister of FG.
Oppression
Application to Court (Sec 286)
Who can apply:
 Member(s) having 10% or more Issued share capital or

 Creditors having interest equivalent to 10% or more Paid up capital or
 If SECP or Registrar is of the opinion that the affairs of company are conducted or 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

- Company’s affairs conducted in a manner aforesaid
- To wind up the company would unfairly prejudice the members or creditors
Court may order:
- Regulating company’s affairs in future
- Purchase of shares of any members of company by other member or by company itself.
- Reduction of company’s capital (If shares to be purchased by the company)
 Where any order makes any alteration in Co’s MOA/AOA

- It is as valid as if duly made by the resolution of company
- Copy of order to be filed with registrar within 14 days.
Default of this provision would attract a penalty of level 1
This section shall not prejudice the right of any person to any other remedy or action.
Powers of the Court (Sec 287-289)
 Court may terminate or modify any agreement between company and any director
including CEO or other officer on terms and conditions as may in opinion of court are just
and equitable.
 Court may set aside any transfer or delivery of goods, payment, execution or other
transaction within 90 days before application, which is deemed in his solvency to be a
fraudulent preference. [any claim for damages against co would be inadmissible.]
 Court may decide any other matter including change in management.
 Court may on application of any party to the proceedings make interim orders
Management by Administrator (Sec 291)
Representation to the SECP
Any creditor(s) having interest of amount not less than 60% of paid up capital may represent
to SECP that:
 Company’s members, creditors, directors or person connected with management are guilty
of breach of trust, misfeasance or misconduct;
 Affairs are conducted in unlawful, fraudulent, oppressive, and prejudicial manner;
 Members are deprived of reasonable return;
[No adequate dividend for consecutive 3 years]
 Industrial project or unit to be set up or belonging to company has not been completed,
commenced or smoothly operated such that:
- Market value (securities exchange) or net worth of share has fallen below 75% of Par.
- Debt/Equity ratio has fallen beyond 9:1.
- Current ration fallen beyond 0.5:1;
 Industrial unit owned by company is not in proper operation for 2 years; or
 Accumulated losses exceed 60% of paid up capital.
Appointment of Administrator
SECP may, after giving an opportunity of being heard, 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 (on recommendations of SBP); or
 Person other than Panel (on application of creditors or suo-moto) by giving notice to SBP
Provisions relating to the administrator
 Receive such remuneration as SECP may determine

 On appointment management of company’s affairs vest in him and he shall exercise all the
powers of directors or management [director/management shall cease]
 He can cancel any purchase or sale agency contracts which is patently to benefit any
director or person related with management
 No compensation or payment of damages applicable for
- Loss of office
- Termination of contract
 No suit can be filed against Administrator for acts done in good faith in pursuance of rules.
 Any order or decision of SECP under this section shall be final and shall not be called in
question in any court
 Any person aggrieved by orders of SECP or Administrator (termination of contract) may

appeal to Minister of Federal Govt. within 60 days of order.
 After purpose of appointment fulfills, SECP may permit the company to appoint directors
and Administrator shall cease to hold office.
 SECP may issue such directions to Administrator (as to his powers and duties) as it deems
desirable and he may apply to SECP any time for instructions about different matters.
 The SECP may, make regulations to carry out the purposes of this section.
Provisions of this section shall apply notwithstanding anything contained in Act/MOA/AOA

Rehabilitation of Sick Public Sector Companies (Sec 292)
Provisions of this section shall apply to Public Sector Company which is facing financial or
operational problems; and is declared sick by Minister of FG
Public Sector Company – 2(54)
A company, whether public or private, which is directly or indirectly controlled, beneficially owned or
not less than 51% of the voting securities or voting power of which are held by the Government or any
agency of the Government or a statutory body, or in respect of which the Government or any agency of
the Government or a statutory body, has otherwise power to elect, nominate or appoint majority of its
directors and includes a public sector association not for profit, licenced under section 42:
Provided that nomination of directors by the SECP on the board of the securities exchange or any other
entity or operation of any other law shall not make it a public sector company;
 After such declaration, any institution, authority, committee or person (i.e Task Force)
authorized by Minister of FG, may draw a Rehabilitation Plan which may include, along
with other matters, any or all of the following provisions:
- Reconstruction, Compromise or Amalgamation.
- Alteration of share capital and variation of rights
- Alteration of loan structure, rescheduling and conversion into share capital carrying
special rights or other relief and modification in the terms and conditions of debts etc
- Variation in rights of creditors including any security pertaining thereto.
- Acquisition or transfer of shares of the company
- Issue further share capital including shares containing special rights
- Removal and appointment of Directors including CE or other officer
- Amendments, modification & cancellation of existing contracts
[Without any compensation]
- Alteration of MOA, AOA or change in accounting policies and procedures.
 Plan shall be submitted to Minister of FG for approval.
 Plan shall be published in Official Gazette (unless otherwise decided) for ascertaining the
views of shareholders, creditors and other persons concerned within a specified period.
 On approval of plan, its provisions, with necessary modification, shall become final and
take effect and be implemented and shall be valid, binding and enforceable in all respects
 Minister of FG may vary or rescind rehabilitation plan from time to time and issue such
directions as to its implementation as it may deem fit.
 Minister of FG, or any person authorized by so, shall supervise Rehabilitation Plan.
 FG may, by notification in official Gazette, make rules to carry out purposes of this section.
 Approved Plan shall be published in official Gazette and a copy shall be forwarded to the
registrar who shall register and keep the same with the documents of the company.
 Whosoever fails to give effect the rehabilitation plan or any related matter shall be liable
to imprisonment of for a term up to 3 years and fine up to Rs 5 million + Rs.10,000 per day
Comparisons of different actions
Applicants Reasons Authority Actions
Investigation
 Application of Members - Business is conducted to SECP - SECP may require any security for
or Shareholders having defraud Creditors, Members or cost of investigation
1/10th voting securities. any other person or Oppressive - SECP shall give opportunity of being
[Co having share capital] to members or purpose is heard to the company
 Application of persons fraudulent/ unlawful. - Duty of all officers and other
comprising 1/10th in - Person in management are employees and agents of Co to give
number of the persons guilty of Breach of Trust, all assistance
entered in register of Misfeasance or Misconduct. - Inspector is Appointed
members - Members are deprived of - Inspector gives report to SECP
[Co not having Share reasonable return.
Capital] - Members are not given If reasons proved after investigation
 Application of Registrar if reasonable information. SECP may apply to Court and Court may:
he called for information - Shares are allotted for  Remove any Director, CEO or officer.
or explanation and it was inadequate consideration.  Direct Directors to carry out changes
not given or was - Business is not managed on in management and in accounting
unsatisfactory. sound principles/prudent policies.
 Order of court practices.  Direct any existing contract to be
 Resolution of Co - Financial position is indicating annulled or modified.
 Discretion of SECP, if insolvency.  Direct Co to call a meeting of
reasons proved members to take remedial actions on
matters.
Management by Administrator
Creditors having interest of  Co’s members/ creditors/ SECP SECP may appoint an Administrator
amount not less than 60% directors/ person connected within 60 days of receipt of
of paid up capital with management of Co is representation to manage the affairs of
guilty of Breach of Trust, Co on specified terms
Misfeasance or Misconduct.
 Affairs are conducted in  On appointment management of Co’s
Unlawful, fraudulent, affairs vest in him shall exercise all
Oppressive, and prejudicial powers of director/management
manner. [Director/management shall cease]
 Members are deprived of  He can cancel any purchase/sale
reasonable return.[No agency contracts which is patently to
adequate dividend for benefit any director or person
consecutive 3 years] related with management
 Industrial project or unit to be  He is not liable to compensate or pay
set up or belonging to Co is not damages for
completed, commenced or - Loss of office
smoothly operated - Termination of contract
 Industrial unit owned by Co is  After purpose of appointment fulfills,
not in operation for 2 years. SECP may permit the Co to appoint
 Accumulated losses exceed directors and Administrator shall
60% of paid up capital. cease to hold office.
Oppression
 Member(s) having 10% If affairs conducted/will be Court - Court may order:
or more Issued share conducted in an Unlawful, * Regulating Co’s affairs in future
capital or Ultravires MOA, Oppressive or * Purchase of shares of any members of
 Creditors having Prejudicial manner Co or by other member of the co or by co
interest equivalent to itself.
10% or more Paid up - Court may terminate or modify any
capital or agreement between Co and any
 SECP/Registrar Director including CEO, Managing
Agent or officer
- Court may set aside any transfer /
delivery of goods, payment
execution or other transaction
within 3 months before application
- Court may order Change in
management
Winding up by Court
 Co, after Special  On Special resolution by Court
resolution members
 Creditors including  Default by Co in For Details See Winding up
contingent or - Holding Statutory (Chapter # 14)
prospective creditors meeting
 Contributories - Filing Statutory report
 Registrar (with sanction - Holding any 2
of SECP) consecutive AGM
 SECP  No of members fall below
minimum.
 Co. does not commence
business within 1 year of
incorporation
 Co suspends business for
whole year.
 Co Ceased to be a listed Co. if
was so
 Unable to pay debt.
 Court thinks it just & equitable.
 Where the business of Co is
- Illegal
- Ultravires
Memorandum.
- Oppressive to minority
Sh.holders (≥10%) or
members etc
- Management is guilty of
fraud, misfeasance, or
misconduct towards
MOA, AOA or Co
Ord.1984.
Corporate Restructuring Companies (CRC)
Tutor’s Note:
In this complete unit:
- Any reference of Section # shall be treated as reference of Corporate Restructuring Companies Act,2016
- Any reference of Rule # shall be treated as reference of Corporate Restructuring Companies Rules,2019
What is a Corporate Restructuring Company (and connected concepts)
Corporate Restructuring Company (CRC)

Means a public limited company licensed by SECP under this Act to carry out the business of:
 Acquisition, management, restructuring and resolution of non-performing assets of financial
institutions; and
 Restructuring, reorganization, revival and liquidation of commercially or financially distressed
companies and their business.
Non performing asset

Means a financial asset held on the books of a financial institution with respect to which the obligor has
been in arrears for more than one year on any payment obligation or which has been classified by the
financial institution as a loss in its books in accordance with the applicable laws and includes all security
interests with respect thereto;
Financial asset
Includes any short, medium or long term interest and non-interest bearing loan, finance, advance,
lease, installment, term finance certificate, participation term certificate, modaraba, musharaka, ijara,
profit and loss sharing agreement, redeemable capital, guarantee or contractual right to receive
payment of money in respect of sums advanced or committed to an obligor by a financial institution;
Obligor
Means any individual, proprietorship, partnership, trust, company or other entity that has, with
respect to a financial asset, a contractual or legal obligation to make payment, effect performance,
provide security or collateral, whether as principal, surety, guarantor or otherwise ad whether such
obligation is primary, secondary, matured or contingent
Collateral
Means a property in relation to which security interest of any description has been created;
Property
Means property of any description, movable or immovable, tangible or intangible, and rights,
interests, title and claims attached to property, whether certain or contingent, existing or
arising in future, and shall include documents of title pertaining to a property;
Security interest
Means a guarantee, charge, mortgage, lien, hypothecation, pledge, assignment or any other
security interest in relation to collateral;
Incorporation and licensing requirement
Incorporation of CRC (Sec 4.)
 No CRC shall be incorporated without prior approval of SECP

 No CRC shall carry on business unless it is established as a public limited company under
Companies Act and holds a license from SECP
Eligibility and licensing procedure (Rule 3)
 Any person may apply to SECP for grant of licence as a CRC subject to following criteria:
- Promotors and directors are, in opinion of SECP, persons of means & integrity and have
special knowledge and experience regarding restructuring of companies in distress,
financial engineering techniques and skills & capacity to deal with out of court work out;
- Promoters have given an undertaking that they shall not enter into any agreement or
utilize the assets of the financial institutions or companies for personal gain;
- A company shall be incorporated with such paid up capital as may be specified by SECP
in consultation with SBP and with approval of Ministry of Finance;
- Proposed director, officer or employee of such company shall not be such a person who
has been convicted of any offence involving fraud or breach of trust and adjudged as
insolvent or who has suspended payment or has compounded with his creditors;
- There is no instance of overdue or past due payment to financial institution, irrespective
of amount, appearing in latest consumer credit information report (CCIR) of person and
of companies, Limited Liability Partnerships, firms, or sole proprietorships where
promoter is chief executive, director (other than nominee), partner or owner;
- Any other requirement as SECP may deem fit.
 Application shall be on format provided in Form- I along with such supporting documents
as provided in Annexure A along with payment of fee of Rs 50,000 deposited with the
designated bank branch and accounted for to SECP.
 Application may be made by applicant himself or through a person duly authorized in this
behalf, who is either -
- A person named as subscriber or director in the articles or a chief executive ; or
- Intermediary registered with SECP under Intermediary (Registration) Regulations,2017
 SECP, after satisfying, may approve the application and direct the applicant to incorporate
the CRC and intimate SECP immediately.
 SECP may grant a licence, subject to such general or special conditions as it may deem fit.
 Licence granted shall remain valid unless surrendered by CRC or cancelled by SECP.
 SECP may refuse to grant a licence after giving a reasonable opportunity of hearing
- Order of refusal to grant licence shall be communicated to applicant stating reasons.
- Such CRC shall, within 3 months from order, take necessary steps to either get its name
struck off from register or get itself wound up voluntarily under Companies Act.
- Failure to take any of the above actions, SECP may make an application to Court having
jurisdiction for winding up of the company
Person
Includes an individual, partnership, firm and company but does not include a Government agency;
Government Agency
Means a department, agency or a body corporate set up or established by the Federal Government or a
Provincial Government and includes the Federal Government and a Provincial Government itself;
Functions and working of CRC (Sec 5)
CRC may exercise 1 or more of the following functions and powers to:
 Acquire, buy, hold, manage, restructure, reschedule, resolve, settle, recover, assign, transfer
and dispose of non-performing assets;
 Deal with any loan, advance, financial commitment, lease, hire-purchase, rental, sale and
buy-back arrangement, mudaraba, musharaka, ijara or other financial transaction or
security interest relating to non-performing assets;
 Acquire, take over, hold, re-organize, restructure, encumber, assign, sell lease and
otherwise deal with any asset, property, undertaking or collateral with respect to non-
performing assets;
 Acquire, hold, manage, restructure, reorganize, revive, merge, amalgamate, lease, liquidate,
assign and dispose of distressed companies, their business and properties;
 Advise, develop, advance, support, implement and raise finances for rehabilitation,
restructuring, reorganization or liquidation of distressed companies, their businesses and
properties;
 Enter into partnerships, joint venture agreement, profit or loss sharing arrangement or
otherwise collaborate or participate with any company or other person in relation to non-
performing assets or distressed companies;
 Commence, continue, defend, desist enforce, implement and perform any and all actions or
activities in relation to non-performing assets and distressed companies;
 Establish, promote, concur or participate in establishing any company or other entity,
which may seem, directly or indirectly, to benefit its business
 Provide finance as defined in Financial Institutions (Recovery of Finances) Ordinance,2001;
 Establish and provide management services to trusts;
 Act as an agent for any financial institution for recovering their non-performing assets; and
 Develop and implement a scheme in terms of section 8A.
CRC, its directors, officers & agents shall not perform any function and power so as to:
 Involve in speculative transactions;
 Aid an obligor with the sole object to avoid its debt obligations or performance of a
contract remove its assets and properties from the reach of its creditors, evade payment of
any tax, duty or other fiscal charge to Government Agency;
 Circumvent fair valuation and proper appraisal of non-performing assets and the collateral
thereof by reputable evaluating and appraising entities;
 Transact business other than at arm’s length; and
 Not comply with applicable laws, except as expressly provided otherwise under this Act.
Speculative transaction
Means a transaction which,-
(a)substantially relates to the purchase or sale of any commodity, including bonds, debentures, shares or
right to, or interest in, property of any description;
(b)provides for settlement or execution otherwise than by actual delivery or transfer of such commodity;
(c)secures against loss on account of price fluctuations and risks associated with volatility in market; and
(d)may be prescribed by SECP from time to time;
Transfer of non-performing assets (Sec 6)
 A financial institution may, with prior approval of its Board, transfer and assign its non-
performing assets to a CRC (other than a CRC controlled by it) or its affiliates, by entering
into a transfer and assignment agreement with it on mutually agreed terms and conditions;
 On vesting date, all rights, title, interest, benefits, privileges and remedies of such financial
institution, concerning non-performing assets and obligors, shall transferred, assigned,
conveyed, sold and vested in favour of CRC without the need of any further action;
 Transfer and assignment agreement shall not be required to be registered under any law;
 All contracts, deeds, instruments, approvals, commitments or consents relating to the non-
performing assets subsisting or having effect immediately before vesting date and to which
the transferor may have been a party or beneficiary shall be of full force and effect in
favour of or against the CRC and may be enforced or acted upon fully and effectively
 Any such transfer or assignment shall be deemed to be effected by law and not:
- By virtue of execution of such agreement by any party thereto; and
- Constitute any assignment, transfer, devolution, conveyance, lease, consent order,
alienation, parting with possession or any other disposition under any applicable law
 Rights, powers and remedies provided to a CRC under this Act may be exercised separately
or concurrently by it and are in addition to and not in derogation of any other rights
Affiliate
Means a shareholder, director, employee, agent or adviser of a financial institution and includes an entity
that directly or indirectly controls or is controlled by such financial institution, and a shareholder, director,
employee, agent or adviser of such entity;
Control”
Means direct or indirect ownership of 50% or more of the voting rights in an entity;
Vesting date
Mean the date of signing of the transfer and assignment agreement;
Financial institutions or companies availing services of CRC shall provide full support and
assistance in provision of documentation including details of obligations, claims, registered
interests, pending or threatened litigation through disclosures of all cases and the court in which
such litigations or cases are pending, amount of claims, finance or loan pertaining to the non-
performing assets granted by the companies or financial institutions to the obligator and the
collateral thereof held by the financial institutions and any part payments of the finance or loan
made by the obligator to the company or the financial institution (Rule 5)
Cancellation of licence (Rule 4)
SECP may, after providing a reasonable opportunity of being heard, cancel the licence if:
 in opinion of SECP, the CRC has been in violation of any provision of these rules or
condition of licence; or
 any of its directors or chief executive is by a competent court of law convicted for an
offence of fraud or any criminal offence of moral turpitude; or
 it is declared undischarged insolvent by a court;
 it is wound up by an order passed by a court of competent jurisdiction; or
 it voluntarily makes application to SECP who upon being satisfied that the CRC has
completed all formalities for closure of its business, including but not limited to pending
obligations, accepted the application.
SECP may, while cancelling licence of a CRC, take such measures and issue such directions as it
deems appropriate as are not inconsistent with the Act.
Provisions of this Act shall have effect notwithstanding anything to the contrary contained in any
other law, contract, instrument, MOA/AOA or in any agreement executed by a company or in any
resolution passed by the company in a general meeting or by its directors, whether the same is
registered, executed or passed before or after commencement of this Act (Sec 3)
Corporate Rehabilitation
To provide for rehabilitation and re-organisation of distressed corporate entities
Tutor’s Note:
In this complete unit:
- Any reference of Section # shall be treated as reference of Corporate Rehabilitation Act, 2018
- Any reference of Reg # shall be treated as reference of Corporate Rehabilitation Regulations, 2019
Rehabilitation of Debtor
Debtor (Sec 6)
A debtor shall be a company incorporated or registered under Co.Act 2017 or previous
companies legislation and shall not include a
 Financial institution;
 Company engaged in the business of insurance as per Insurance Ordinance, 2000
 Company which has debts of less than Rs 100 million or such other sum as the Federal
Government may, by notification in official Gazette, specify from time to time;
 Company against which an order of dismissal u/s 17 has been passed within past 5 years;
 Company for which a rehabilitation plan has been confirmed under this Act in past 7 years;
 Company against which a winding up order has already been passed;
 Company which has resolved by special resolution to be wound up voluntarily;
 Company against which execution proceedings are pending for satisfaction of one or more
decrees for an aggregate sum not less than 25% of the value of its assets; or
 Company which has availed relief under the BPD Circular No. 29 of 2002 issued by SBP.
Commencement of a case (Sec 8)
 Debtor may file a petition in Court for an order of mediation, supported by a plan of
rehabilitation, statement of affairs and special resolution of debtor approving the plan.
 Qualifying creditors may file a petition in Court for an order of mediation against a debtor.
 On first date of hearing, Court shall issue proper notice to parties listed in petition through:
- Registered post, acknowledgement due;
- Courier service; and
- Publication in one English language and one Urdu language daily newspaper of wide
circulation in the country;
 Notice shall also specify a date of hearing not later than 21 days after service of notice.
 Any person interested of filing a written reply to petition shall do so at least 3 days prior to
the hearing and supply a copy of such reply to the party that filed the petition.
 Court may, if satisfied, direct the:
- Debtor to submit, within 15 days, the statement of affairs in the Court; and
- Qualifying creditor to submit, within 30 days after submission of statement of affairs, a
plan of rehabilitation of the debtor in the Court.
Qualifying creditors Means one or more creditors holding unpaid and overdue claims for an aggregate
amount of not less than 2/3rd of the value of assets of the debtor as per its latest balance sheet;
Plan of rehabilitation (Sec 7)

A plan of rehabilitation shall specify the following matters in relation to a debtor,–
 Claims and classes of claims against the debtor;
 Interests and classes of interests in the debtor;
 Claims and interests belonging to the debtor;
 Claims or interests that will not be impaired under the plan of rehabilitation;
 Claims or interests that will be impaired under the plan of rehabilitation;
 Places of business of debtor, details of its assets and any security interests over such assets;
 Particulars of shareholders, directors and key management of the debtor; and
 Scheme of implementation of the plan of rehabilitation of the debtor.
A plan of rehabilitation may provide for following matters, in relation to a debtor:
 Settlement, restructuring or rescheduling of any claims or interests or classes of those
 Change of ownership and management of the debtor;
 Sale of assets of debtor and distribution of proceeds among holders of claims or interests;
 Assumption, rejection or assignment of any executory contract or lease of debtor;
 Enforcement of any claims or interests belonging to the debtor; and
 Any matter concerning rehabilitation of the debtor or distribution of property of debtor.
Claim or debt means right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal, secured or unsecured and includes
principal amount and any mark-up, profit, return and other charges;
Interests or class of interests means any person or class of persons liable to contribute to the assets of
a company in the event of its being wound up and includes holder of any shares which are fully paid up;
Security interest means a charge, mortgage, lien, hypothecation, pledge, assignment or any other
encumbrance over a property;
Property means property of all description, whether movable or immovable, tangible or intangible,
existing or future, claims for money, cash, and includes instruments that evidence title in property;
Statement of affairs of debtor (Sec 9)
Shall be verified by affidavit of CEO/Director of debtor and shall contain following particulars:
 Assets, debts and liabilities of the debtor;
 Particulars of creditors, stating separately amount of secured unsecured debts and for
secured debts, particulars of securities given, their value and dates when they were given;
 Debts receivable by debtor and persons from whom those are due and expected amount;
 If any property of debtor is not in its custody or possession, the place where and the person
in whose custody or possession such property is;
 Full address of places where business of the debtor was conducted during 6 months
preceding the relevant date and names and particulars of persons in charge of the same;
 Details of any pending suits or proceedings in which the debtor is a party;
 Latest publically disclosed accounts and the last audited accounts; and
 Such other particulars as may be prescribed or as the Court may by order require.
Whoever intentionally files a statement of affairs which is false in material particulars or falsely
denies his signature on any document before the Court, or fails to file statement of affairs without
just excuse when so ordered by Court, shall be guilty of an offence punishable with imprisonment
of either description for a term which may extend to 6 months, or with fine, or with both.
Mediation
Mediation (Sec 10)
 Court may, after notice and hearing of petition, pass an order for appointment of insolvency
experts to act as sole mediator or joint mediators, in relation to plan of rehabilitation.
 Mediator appointed by Court shall carry out mediation between debtor and creditors or
different classes of creditors to achieve acceptance of the plan of rehabilitation
 A mediator shall have the following powers to:
- Hold separate meetings of shareholders of debtor and creditors;
- Invite, scrutinize and determine claims and interest against the debtor;
- Determine security interests created over the debtor’s assets;
- Determine the debtor’s assets available for satisfaction of the claims of the creditors;
- Carry out valuation of assets of debtor through professional experts approved by SBP;
- Exercise any other power given by Court, on its own or on application of Mediator
 A mediator shall, from date of his appointment, submit monthly progress reports and may
refer any matter to Court for appropriate directions including for:
- Production of any records or property of the debtor in possession of any person; and
- Examination and attendance of any person concerned with affairs of the debtor.
 Person filing the petition shall provide necessary funds to allow mediator to perform the
functions and, where required, matter may be referred to Court for necessary directions
Notice of order of mediation (Sec 11)
Person filing the petition under this Act shall provide the notice of the order of mediation to all
interested parties within 3 days of the order through,–
 Registered post, acknowledgement due;
 Courier service; and
 Publication in one English language and one Urdu language daily newspaper of wide
circulation in the country;
The notice of order of mediation shall specify the appointment of mediator and for filing of any
claims against, and interests in, the debtor with the mediator within a period of fourteen days of
publication of notice of the order of mediation.
Acceptance of plan of rehabilitation (Sec 13)

 Acceptance or rejection of a plan of rehabilitation shall not be solicited from a holder of a
claim or interest unless such holder is first provided with a copy of the plan.
 A class of creditors shall be deemed to have accepted a plan of rehabilitation if such plan is
accepted by the creditors holding at least two-thirds in value of such class.
 A class of interests of the debtors, shall be deemed to have accepted a plan of rehabilitation
if such plan is accepted by holders of at least two-thirds in value of interests of such class.
 A class that is not impaired under a plan of rehabilitation and each holder of a claim or
interest of such class are conclusively presumed to have accepted plan and the solicitation
of acceptance from holders of claims or interests of such class is not required.
Confirmation of a plan of rehabilitation (Sec 14)

 Court may, after notice and a hearing, confirm a plan of rehabilitation and:
- with respect to each class of claims or interests, —
(i) such class has accepted the plan; or
(ii) such class is not impaired under the plan; and
- except to extent that holder of a particular claim has agreed to a different treatment of
claim, plan provides that holder will receive cash equal to allowed amount of such claim.
 Provisions of a plan of rehabilitation confirmed by Court bind the debtor, any entity issuing
securities under plan, any entity acquiring property under plan and any creditor or
shareholder of debtor, whether or not the claim or interest of such creditor or shareholder
is impaired under plan and whether or not such creditor or shareholder has accepted plan.
 Court may refuse to confirm a plan if the principal purpose of the plan is avoidance of taxes,
duties and fiscal charges levied under law.
Implementation of plan of rehabilitation (Sec 15)

 Court may, on application of debtor or qualifying creditors and after notice and a hearing,
pass such directions as deemed appropriate for implementation of plan and any person
responsible for carrying out the plan or any part thereof shall comply with such directions.
 Court may direct debtor and any other necessary party to execute or deliver or to join in
the execution or delivery of any instrument required to effect a transfer of property dealt
with by a plan of rehabilitation confirmed by Court and to perform any other act, including
the satisfaction of any charge, that is necessary for the consummation of the charge.
Revocation of confirmation of a plan of rehabilitation (Sec 16)

 Court may, on application of any person aggrieved by plan of rehabilitation, at any time
within 12 months of date of confirmation of plan and after notice and a hearing, make an
order, upon such terms as the Court thinks fit declaring the confirmation to have been void.
 Court may pass above order if order of confirmation was procured by fraud.
 A revoking order shall provide for all such measures as are necessary to protect any entity
which has acquired rights in good faith reliance on the order of confirmation.
Dismissal or Conversion of Case
Dismissal of a case (Sec 17)
 Court may, on application of any person concerned with debtor or on its own, dismiss a
case or may suspend all proceedings under this Act at any time, if Court determines that:
- Continuation of proceedings would amount to an abuse of the judicial process;
- Person filing the petition has failed to provide necessary funds for mediation; and
- Mediator has not been able to perform his functions within 12 months from apointment
 Dismissal of a case does not affect validity of any action taken during pendency of a case.
 Unless the Court for any reason orders otherwise, the dismissal of a case shall:
- Re-instates:
(i) any proceeding or custodianship superseded under this Act;
(ii) any transfer avoided under this Act; and
(iii) any charge voided under this Act;
- Vacates any order or transfer ordered under this Act; and
Conversion of a case to winding up (Sec 18)
 A case may, on application to Court, be converted into winding up for following reasons
- Failure to achieve acceptance of plan of rehabilitation in 12 months from appointment
of an administrator (except where administrator has been removed u/s 22); or
- Court finds that a petition under this Act was filed by debtor for fraudulent purposes.
 An application for conversion under this section shall be filed by the:
- Debtor;
- Qqualifying creditors; or
- Administrator appointed in the case.
 Order of conversion shall also provide for appointment of a liquidator and Court shall for
such purpose exercise necessary jurisdiction under Co.Act 2017.
 An administrator appointed in a case shall not be appointed as liquidator in that case.
Consequences of conversion (Sec 19)
 An order of conversion shall be deemed to be a winding up order by Court under Co.Act

2017 and winding up of debtor shall be deemed to have commenced on the date of
commencement of the case under this Act.
 All proceedings subsequent to an order of conversion shall be carried out in accordance
with provisions of Co.Act 2017
 Following an order of conversion, a financial institution may initiate or continue with
proceedings under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (XLVI
of 2001) without seeking permission from the Court under Co.Act 2017.
Panel of Insolvency Experts
Insolvency experts (Sec 5)

 SECP shall, in consultation with SBP, maintain a panel of insolvency experts who shall be
professionals having a minimum experience of 15 years in field of accountancy, banking,
finance, law, management and sound knowledge of insolvency practices of the country.
 Insolvency expert shall be entitled to remunerations and privileges as may be prescribed.
 SECP may, by regulations, prescribe the code of conduct for the panel of insolvency experts
to be appointed under this Act and organize training, capacity building and accreditation
programmes for professional development of such insolvency experts.
Code of conduct (Reg # 8)

An insolvency expert shall follow the code of conduct as provided in Schedule I
Remuneration of insolvency expert and administrator (Reg # 7)
 Remuneration shall be determined by:
- Debtor if petition for an order of mediation is filed by debtor
- Debtor & qualifying creditor with mutual consent if petition filed by qualifying creditor
(In case of disagreement between them remuneration shall be determined by Court).
 Court may award such fees and expenses to an administrator as may be recommended by
the qualifying creditor filing petition u/s 20 of the Act:
 Remuneration shall reflect value of work to be performed and experience and qualification
of insolvency expert and such remuneration shall be paid in manner as agreed between the
debtor and/or qualifying creditor and the insolvency expert and confirmed by Court.
Eligibility Criteria (Reg # 4)
An individual shall be ineligible to be included in the Panel, if he/she:-

 is not a person residing in Pakistan;
 is of unsound mind;
 has applied to be adjudicated as an insolvent and his application is pending;
 is an undischarged insolvent;
 has been convicted by a court of law for any offence provided under any law;
 has been debarred from being appointed as provisional manager or liquidator under the
Companies Act by the competent Court;
 is lacking fiduciary behavior and a declaration to this effect has been made by the court at
any time during the preceding five years;
 has been declared by a court of competent jurisdiction as defaulter in repayment of loan to
a financial institution;
 in case of a Pakistani national, is not an income tax filer with the Federal Board of Revenue.
If at any time after name of an insolvency expert is included in Panel, any disqualification
occurs, he/she shall immediately intimate SECP and Court
An insolvency expert, while accepting an assignment, shall provide an undertaking that he/she
possesses adequate resources, knowledge, expertise, experience and skills to perform his/her
duties with professional competence in conformity with legal and regulatory requirements.
Any person may apply to SECP to be included in the Panel if he/she meets following criteria:-
 Has a bachelors degree in law, or masters degree in accounting, banking, finance,
management, or equivalent, duly recognized by HEC; or
 Is a CA or CMA or ACCA or such other equivalent qualification as may be notified by SECP:
(for CA/CMA the person must have membership of the relevant professional institute)
 In case of an advocate, his/her name must be appearing on common roll of advocates of a
High/Supreme Court prepared and maintained by relevant Bar Council
Application procedure (Reg # 5)
 Any eligible person may apply to SECP to be included in the Panel on Form I.
 SECP may require applicant to furnish additional information, clarification, or documents.
(SECP may refuse application if the applicant fails to provide the same)
 SECP shall, after consultation with SBP, enter the name of the applicant in the Panel.
(Proposed names of insolvency experts, for inclusion in or removal from Panel, shall be
furnished by designated officer of SBP within 30 days from date of intimation by SECP)
 SECP may, after affording reasonable opportunity of hearing may refuse to include name in
the Panel, if in opinion of SECP such applicant does not meet the relevant requirements
 SECP may, after providing opportunity of hearing to insolvency expert listed on the panel,
in consultation with SBP, remove his/her name from the Panel if;-
- At any time becomes ineligible; or
- Fails to comply with or contravenes requirements of code of conduct; or
- Order of removal is passed by Court in terms of the provisions of the Act in the case of
insolvency expert or Companies Act in case of provisional manager or official liquidator
who is appointed as an insolvency expert under the Act; or
- Removal is recommended by SBP; or
- Has obtained membership of Panel on the basis of incorrect or misleading information;
- Fails to provide any information, clarification or documents to SECP, within time; or
- Any other reason deemed sufficient by SECP:
 An applicant whose application is refused by SECP or his/her name is removed from the
Panel shall not be eligible to submit a fresh application within 6 months of refusal/removal.
A list of professionals included in the Panel, including particulars as per Form II, shall be
displayed on the website of SECP. (Reg # 6)
Jurisdiction of courts
Jurisdiction and powers of High Court (Sec 3)
 Court having jurisdiction under this Act shall be High Court having jurisdiction over place
at which registered office / principal place of business of debtor or is situated.
 Court shall in exercise of its:
- Civil jurisdiction, have all powers vested to civil court in Code of Civil Procedure, 1908;
- Criminal jurisdiction, have all powers vested in a court exercising jurisdiction under the
Code of Criminal Procedure, 1898 (Act V of 1898); and
- Company jurisdiction, have all powers vested in a court exercising jurisdiction under
Co.Act 2017.
 All matters coming before Court under this Act shall be disposed of expeditiously and final
judgment shall be pronounced as soon as may be practicable and, except in extraordinary
circumstances, Court shall hear the case on day to day basis.
Appeal and review (Sec 4)
 An appeal shall lie, at the instance of any person aggrieved by an order made by a Judge of
the High Court in exercise of the jurisdiction conferred by this Act, in same way as an
appeal lies against an order passed by a single Judge of that Court.
 Court may review, rescind or vary any order made by it under this Act.
Stay of actions against debtor (Sec 12)
 In a case commenced under this Act, Court may, on an application made to it by debtor or
an interested person, pass an order after notice and a hearing for–
- Preservation of assets of debtor in such manner as Court may deem fit in circumstances;
- Protection of the debtor or its shareholders, directors and guarantors.
against any imminent adverse action, measure, process or proceeding commenced to
recover a claim against the debtor or its shareholders, directors and guarantors through
sale, transfer, repossession or mortgage of assets of debtor or its shareholders, directors
and guarantors, or by creating any rights or interests in relation to such assets.
 Stay granted shall, if not earlier vacated, ipso facto cease to have effect on,–
- Confirmation of a plan u/s 14; or
- Dismissal of the case u/s 17.
 Court may, on application of qualifying creditors or an interested party and after notice and
a hearing, grant such relief from stay granted as may be necessary to prevent irreparable
harm or loss to the interest of that party.
9. Winding Up Page 172
Ch # 9: Winding Up
After having understood all the requirements relating to the incorporation of
companies, regulation of their affairs and different actions against these companies
under the Companies Act 2017, now we shall be moving towards the winding up of the
companies under the said act.
There may be a situation where the stakeholders are forced to shut down the operations
or alternately they may wish to close the business on their own. But it is important to
know that shutting down the company is not that easy because the companies are
engaged in the business on the assumption of going concern and perpetual succession.
This chapter deals with all these complexities about how the business might wind-up its
affairs in the best interest of stakeholders.

 Introduction to Winding up
 Winding up by Court
 Member’s Voluntary Winding up
 Creditor’s Voluntary Winding up
 Provisions applicable to every Voluntary Winding Up
 Winding up under supervision of court
 Provisions applicable to all modes of winding up
 Miscellaneous Provisions of winding up (Extracts from bare Law)

(Section 293 to 302, 304 to 306, 312 to 396, 406 to 426)
100% except transitional provisions; save as provided in tutor note below
Sections & subsections skipped during preparation of notes in this chapter

 Skipped Sections 64, 305, 318, 344, 345, 346, 361, 367, 375, 379,
 Skipped sub-sections 320(7), 350(3), 356(2)(5), 372(2)(6), 390(2),
Tutor 417(4), 406(2)
Note  Provisio to the Sec 360, Sub- sec 392(6)(7)
Note: To make the language of this chapter easy, many duplicating and too obvious provisions
are deleted and/or simplified.
Introduction to Winding up
Meanings & Objectives of Winding up

 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
Tutor proceeds of the assets of Company including contributions by its members
(known as contributories in context of winding up).
Note
 Contributory means every person liable to contribute to the assets of a
company in the event of its being wound up, and include the persons who are
deemed to be contributories or alleged to be a contributory (see below)
 Where any surplus assets are left, the same are distributed to members of
company in proportion of their rights under AOA
 Then company is dissolved in compliance with formalities of Companies Act.
Modes of winding up (Sec 293)
The winding up of a company may be either

 By the Court or
 Voluntary; or
 Subject to the supervision of the Court.
The concept of Contributories
Liability as contributories of present and past members (Sec 294)
Past and present members will contribute money to pay debts, liabilities, expenses of winding
up and adjustment of rights of contributories among themselves with following qualification:
 A past member shall not be liable to contribute if
- Member ceases to be a member one year before commencement of winding up; or
- Debt was contracted after he ceased to be a member;
- Unless it appears to Court that present members are unable to satisfy the contributions.
 For company limited by shares, maximum liability shall be up to amount unpaid on shares.
 For company limited by guarantee, maximum liability shall be up to amount guaranteed.
 For company limited by guarantee having share capital, maximum liability shall be amount
unpaid on shares as well as amount undertaken by member.
 A sum due to any member in respect of dividend, profit etc. shall not be considered a debt.
- Amount would not be paid before paying any other creditor
- Amount may be taken into account for final adjustments of rights of contributories
 If there is any provision contained in any policy of insurance or other contract where funds
of company are alone made liable, the member would not be asked to pay that liability
Liability of directors whose liability is unlimited (Sec 295)
 In addition to his liability as ordinary member, such director shall be liable to contribute as
if he were a member of unlimited company.
 A past director shall not be liable to contribute if
- Member ceases to be a member one year before commencement of winding up; or
- Debt was contracted after he ceased to be a director;
- Unless it appears to Court that present members are unable to satisfy the contributions.
 Director shall not be liable to make further contribution unless Court deems it necessary.
Deemed or alleged to be contributories (Sec 298 to 300)
Situation Who shall be considered Contributory

Death  His legal representatives shall be liable
 If legal representatives make default in payment, proceedings may be
initiated for administering the property of the deceased.
Insolvency  His assignees in insolvency shall represent him
 There may be proved against the estate of the insolvent
Winding up of a  Liquidator of the body corporate shall represent it
body corporate  There may be proved against the assets of the body corporate
who is a member
Other provisions regarding contributories (296, 297)
 A person holding fully paid-up shares in a company shall be considered as a contributory

but shall have no liabilities of a contributory, while retaining rights of such a contributory.
 The liability of a contributory shall create a debt accruing due from him at the time when
his liability commenced, but payable at the time specified in calls made on him.
Status of companies being wound up (Sec 387)
 A company being wound up (i.e. in the course of winding up) shall continue to be a
company for all purposes till its final dissolution in accordance with this Act
 All provisions and requirements of this Act relating to companies shall continue to apply
mutatis mutandis for companies being wound up (unless otherwise specified)
 From date of commencement of winding up, the official liquidator (court) or liquidator
(voluntary) shall be deemed to have taken the place of BOD and CEO.
Winding up by Court
Sequence of events in case of winding up by Court

1) Petition for winding up
2) Appointment of Provisional Manager
Tutor 3) Winding up order and Appointment of Official Liquidator
4) Getting prepared Statement of Affairs
Note
5) Report to the court
6) Procedures for winding up
7) Distribution of the Funds
8) Dissolution of Company
Step # 1 - Petition for winding up
Circumstances in which a company may be wound up by Court (Sec 301)
A company may be wound up by the Court if:

 Company has, by special resolution, resolved to be wound up by the Court
 Default is made in holding statutory meeting or delivering statutory report to registrar
 Default is made in holding any 2 consecutive AGM
 Company has made a default in filing with registrar financial statements or annual returns
for immediately preceding 2 consecutive financial years; or
 If number of members is reduced below 3 (public company) or 2 (private company)
 Company is unable to pay its debts; or
 It ceases to be a listed company, if was so.
 Court is of opinion that it is just and equitable that the company should be wound up; or
 Company ceases to have a member; or
 Sole business of the company is the licensed activity and the licence have been revoked
 Licence granted u/s 42 has been revoked or company has failed to comply requirements or
where liquidator of such a company has failed to complete the voluntary winding up
proceedings within 1 year from the date of commencement of winding up; or
 A listed company suspends its business for a whole year.
 Company is
- Conceived, or brought forth for or carrying, unlawful or fraudulent activities; or
- Carrying on business prohibited or restricted by any law etc in force in Pakistan; or
- Conducting its business in a manner oppressive to the minority members (not less than
10% voting power) or persons concerned with formation or promotion of company; or
- Run and managed by persons who fail to maintain proper and true accounts, or commit
fraud, misfeasance or malfeasance in relation to the company; or
- Managed by persons who refuse to act according to requirements of MOA/AOA/this Act
or failed to carry out directions of SECP/Registrar.
Promotion or carrying on of any of the following scheme shall be deemed to be unlawful:

 Raising unauthorised deposits from general public, indulging in referral marketing, multi-
level marketing (MLM), Pyramid and Ponzi Schemes, locally or internationally
 Any other business activity notified by SECP to be against public policy or a moral hazard
 Where in return of a deposit (in cash, coupons, certificates, tickets or other documents), a
payment at future date or grant of property/right/benefit, determined by chance or lottery
etc, is assured or promised
Company when deemed unable to pay its debts (Sec 302)
 If a creditor, to whom the company is indebted in a sum exceeding Rs.100,000, has served a
demand at registered office requiring company to pay amount; and company has neglected
to pay/secure/compound it within 30 days to the satisfaction of creditor; or
 If court or any other competent authority orders in favour of creditor and still he remains
unsatisfied (in full or in parts); or
 If, it is proved to the Court that company is unable to pay its debts, after considering the
contingent and prospective liabilities of the company.
Conditions applicable to the applicants for petition of winding up (Sec 304)
Applicant Conditions to be fulfilled by the applicant for filing petition

Contributory  Number of members is reduced below 2 or 3; and
 Shares (due to which he is a contributory) were originally allotted to him or
have been held by him, and registered in his name, for at least 180 days
during 18 months before commencement of winding up, or have devolved
on him through death of a former holder
Registrar  Sanction of the SECP should be obtained before presentation of petition.
 Sanction shall not be given unless providing opportunity of being heard to
the company
SECP or its  After an investigation into the affairs of the company, that might persuade
officer the SECP to move towards winding up by court
 After the opportunity of being heard is provided to the Company
(No investigation required where a licence is revoked and sole business of
the company is the licensed activity)
Creditor  Such security for costs shall be given as the Court thinks reasonable
(Contingent/  A prima facie case for winding up has been established to the satisfaction of
prospective) the Court;
Company  Shall furnish the particulars of assets & liabilities and business operations
and the suits or proceedings pending against it.
A winding up of a company by the Court shall be deemed to commence at the time of the
presentation of the petition for the winding up (Sec 306)
Step # 2 - Appointment of Provisional Manager (Sec 315)
 Court may appoint a provisional manager (PM ) till the making of a winding up order
 On passing a winding up order, Court may appoint PM as the official liquidator (OL)
 PM shall have same powers as of OL (unless Court have limited and restricted)
Step # 3 - Appointment of Official Liquidator
Panel maintained by SECP (Sec 315)

 SECP shall maintain a panel of persons from whom the Court shall appoint a PM or OL
 Any casual vacancy in office of OL occurred due to his death, removal or resignation, shall
be filled up by the Court by appointment of another person from the panel
 The panel shall consist of
- Persons having at least 10 years experience in the field of accounting, finance or law
- Such persons as specified by SECP, having at least 10 years professional experience
 Court may, on application of creditors to whom amounts not less than 60% of the issued
share-capital are due, after notice to the registrar appoint a person other than panel
 Person appointed on the panel shall be subject to such code of conduct and comply with the
requirement of any professional accreditation programs as may be specified by the SECP.
 SECP may of its own, remove the name of any person from the panel on the grounds of
misconduct, fraud, misfeasance, breach of duties or professional incompetence
(after providing a reasonable opportunity of being heard)
Other requirements (Sec 315)

 A person shall not be appointed as PM or OL of more than 3 companies at the same time.
 On appointment as PM/OL he shall file a declaration within 7 days of appointment in the
specified form disclosing conflict of interest or lack of independence, if any, with Court
 If more than 1 OL are appointed, Court shall specify respective powers
 In case of any dispute or any varying stance amongst liquidators, the matter shall be
referred to Court for an appropriate order in chambers in the presence of these all.
 Court may determine any security to be given by any OL on his appointment.
 An OL shall not resign or quit his office before conclusion of liquidation proceedings
(except for reasons of personal disability to the satisfaction of the Court)
 Provided that in case of resignation, the outgoing official liquidator shall, unless the Court
directs otherwise, continue to act until the person appointed in his place takes charge.
Grounds for Removal of OL by the court (Sec 316)

 Misconduct;
 Fraud or misfeasance;
 Professional incompetence or failure to exercise due care and diligence;
 Inability to act as PM or OL
 Conflict of interest during the term of his appointment that will justify removal.
Court may recover such loss or damage (caused due to fraud or misfeasance or failure to exercise
due care and diligence) from PM or OL and pass such other orders as it may think fit.
Remuneration of official liquidator (Sec 317)
 Terms and conditions including fee of PM or OL shall be fixed by the Court on the basis of
- Task required to be performed
- Experience
- Qualification of such liquidator and
- Size of the company.
 OL shall be entitled to such remuneration as may be fixed by Court having regard to
amount and nature of work actually done and subject to such limits as may be prescribed
 Remuneration shall be a percentage of the amount realised by him by disposal of assets
 Different percentage rates may be fixed for different types of assets and items.
 In addition to remuneration, the Court may permit payment of a monthly allowance to the
official liquidator for meeting the expenses of winding up for a period not exceeding 1 year.
 Remuneration shall not be enhanced subsequently but may be reduced by Court any time.
 If OL resigns, is removed from office or otherwise ceases to hold office before conclusion of
winding up, he shall not be entitled to any remuneration and remuneration already
received by him shall be refunded by him to the company.
 No remuneration shall be payable to OL who fails to complete the winding up proceedings
within the prescribed period or such extended time as may be allowed by the Court.
Step # 4 - Getting prepared Statement of Affairs (Sec 320)
When:
 Within 15 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
- Date of appointment of PM, if any; or
- Date of winding up order, where no PM is appointed
Who:
Statement shall be submitted and verified by persons who
 Were directors, chief executive, CFO, secretary and employee at the relevant date
 Have within 1 year of relevant date
- Been Directors, Chief Executive, CFO, secretary or other officer of the company
- Taken part in the formation of company
- Been in employment of the company and are capable of giving information
Any of the above persons shall be entitled to and be paid by PM/OL, the reasonable expenses
incurred in preparation of such statement.
Particulars to be included
 Particulars of the assets, debts and liabilities;

 Detail of cash balance in hand and at the bank;
 Names and addresses of creditors stating separately amount of secured and unsecured
debts, and particulars of the securities given (their value and dates when they were given).
 Debts due to the company and the particulars of the persons from whom they are due
 If any property of company is not in its custody or possession, place and person in whose
custody or possession such property is;
 Full address of the places where business of company was conducted during 180 days
preceding the relevant date and the names and particulars of persons incharge of the same;
 Details of any pending suits or proceedings in which the company is a party; and
 Such other particulars as may be prescribed or as the Court/PM/OL may order
(including any information relating to secret reserves and personal assets of directors)
Any person stating himself in writing to be a creditor or contributory shall be entitled at all
reasonable times, on payment of prescribed fee, to inspect the statement, and to a copy /extract.
Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an
offence under Pakistan Penal Code, 1860 and shall, on application of OL/PL, be punishable.
Any contravention or default in complying with this section shall attract penalty of level 2
Step # 5 - Report to the court (Sec 321)
OL shall as soon as practicable, after receipt of statement of affairs and not later than 60 days
from date of winding up order, submit a report to Court, containing the following particulars:
 Nature and details of the assets of the company
(including location and current value duly ascertained by a registered valuer)
 Cash balance in hand and in the bank and negotiable securities held by the company;
 Amount of authorised and paid up capital;
 Existing and contingent liabilities of company indicating particulars of the creditors
(stating separately secured and unsecured debts and particulars of the securities given)
 Debts due to the company and the particulars of the persons from whom they are due
 Debts due from contributories;
 Details of trademarks and intellectual properties owned by the company;
 Details of subsisting contracts, joint ventures and collaborations;
 Details of holding and subsidiary companies;
 Details of legal cases filed by or against the company;
 Any other information which the Court may direct or OL may consider necessary
OL shall also include in his report the manner in which company was promoted or formed and
whether in his opinion any fraud has been committed by any person in its promotion or
formation or by any director or other officer in relation to the company since its formation.
Other Reports
 OL shall also make a report on the viability of the company’s business or the steps which, in
his opinion, are necessary for maximising the value of the assets of the company.
 OL may also, if he thinks fit or upon directions of Court, make any further report or reports.
 A certified copy of the above reports shall also be sent to the registrar simultaneously with
their submission to the Court.
Step # 6 - Procedures for winding up
Powers of the Court
Power to exclude creditors not proving in time (Sec 334)

Court may fix a time or times within which creditors are to prove their debts or claims, or to
be excluded from the benefit of any distribution made before those debts are proved.
Adjustment of rights of contributories (Sec 335)

Court shall adjust the rights of contributories among themselves, and distribute any surplus
among the persons entitled thereto.
Power to order costs (Sec 336)

If assets are less than liabilities, court may make an order as to the payment out of the assets
of the costs, charges and expenses incurred in winding up in such priority as Court thinks just.
Power to require delivery of property (Sec 325)

Court may require any contributory and any trustee, receiver, banker, agent, officer or
employee or past officer or employee or auditor to pay, deliver to OL any money, property or
books and papers including documents in his hands to which company is prima facie entitled.
Settlement of list of contributories and application of assets (Sec 323)

 After making a winding up order, court shall settle a list of contributories with powers to
rectify register of members where necessary and shall cause the assets of company to be
collected and applied in discharge of its liabilities.
 In settling list of contributories, court shall distinguish between
- Person who are contributories in their own rights
- Person who are contributories as being representative of or liable for debts of others.
 Court may dispense with settling list of contributories where it is not necessary
Power to order payment of debts by contributory (Sec 329)

 Court may make an order on any contributory to pay in a manner directed by the order,
any money due from him/estate or from estate of person whom he represents to company
 In following cases a contributory can set-off any amount due to him from Co with calls:
- In case of unlimited companies
- Limited Co, where directors liability is unlimited
- Cases where creditors are paid in full, as regards call made after
Powers and duties of official liquidator (Sec 337)
Subject to directions and overall control by the Court, OL shall have the powers to:
 Carry on company’s business for the beneficial winding up of company;
 Do all acts and to execute, in name of company, all deeds, receipts and other documents;
 Sell immovable and movable property and actionable claims of company by public auction
or private contract (with power to transfer it to any person or body corporate);
 Sell whole of the undertaking of company as a going concern;
 Institute or defend any suit, prosecution or other legal proceeding in name of company;
 Invite and settle claim of creditors, employees or other claimant
 Distribute sale proceeds in accordance with priorities established under this Act;
 Draw, accept, make and endorse any negotiable instruments in name of company;
 Obtain any professional assistance or appoint any professional in discharge of his duties
 Appoint an agent for protection of the assets of the company;
 Appoint an Advocate entitled to appear before Court or any other person to assist him;
 Take all such actions, steps, or to sign, execute and verify any paper, deed, document,
application, petition, affidavit, bond or instrument as may be necessary to perform his duty.
 Apply to Court for such orders or directions as may be necessary for winding up
Any creditor or contributory or registrar may apply to the Court with respect to any exercise
or proposed exercise of any of the powers delegated by the court.
General provisions as to liquidators (Sec 319)
 OL shall conduct proceedings of winding up and perform such duties as Court may impose
 Acts of liquidator shall be valid, despite any defect that may afterwards be discovered in his
appointment or qualification:
 After his appointment has been shown invalid, his further acts would be considered invalid
 Winding up proceedings shall be completed by OL within a period as determined by Court.
 If an OL is convicted of misfeasance, or breach of duty or other lapse or default he shall
- Cease to be the OL of the company
- Cease to hold any other office in any company including that of a director
- Also become disqualified, for 5 years from being the liquidator or to hold any such office
 The registrar or SECP shall take cognizance of any lapse, delay or other irregularity on part
of OL and may report the same to the Court.
Exercise and control of liquidator's powers (Sec 340)
 In administration of assets and distribution thereof, OL shall have regard to any directions
that may be given by resolution of the creditors or contributories at any general meeting.
 OL may summon general meetings of creditors or contributories for ascertaining their
wishes at such times as creditors or contributories may direct by resolution, or whenever
requested in writing to do so by 10%in value of creditors or contributories
 OL shall use his discretion in administration of assets and in distribution among creditors
 If any person is aggrieved by any act or decision of OL, that person may apply to Court
 Court may confirm, reverse or modify the act and make such order as it thinks fit.
Step # 7 - Distribution of the Funds by OL (Sec 341)
 Official liquidator shall, subject to directions of court, distribute surplus funds among
creditors/contributories within 30 days of receipt.
 Surplus funds means funds that come in hands of official liquidator after providing
- Expenses of Winding up
- Preferential payments
- Claims against Co which are subject matter of adjudication/assessment.
(Amount retained shall be invested in Special Saving Certificates to be deposited to
court and distributions shall be made when claims are settled)
For companies licenced u/s 42 (association not for profit)
 If assets are surplus after satisfaction of all debts and liabilities, those shall be transferred
to another company licenced u/s 42, preferably having similar or identical objects in the
manner as may be specified and subject to such conditions as the Court may impose:
 If any assets not so transferred due to any reason, all such assets shall be sold and proceeds
shall be credited to the Investor Education and Awareness Fund formed (u/s 245)
Step # 8 - Dissolution of Company (Sec 342)
 Under following circumstances court shall make an order that the Co be dissolved from
date of order and the company shall be dissolved accordingly
- When affairs of company have been completely wound up;
- When court is of the opinion that OL cannot proceed for winding up for want of funds
and assets; or
- For any other reason just and reasonable of the case.
 Dissolution shall not extinguish any right of debt due to Co 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 and shall publish a notice in the
official Gazette that the company is dissolved.
Official liquidator shall be liable to level 1 penalty if he contravenes this section

Records to be kept by OL
Books containing proceedings of meetings (Sec 338)
OL shall maintain proper books of accounts and also keep the following books:
 Register showing the dates at which notices were issued to creditors and contributories;
 Minutes book of all proceedings etc of any meeting of contributories or the creditors;
 Register containing particulars of all transactions and negotiations made by him
Liquidator’s account (Sec 339)
The OL shall:
 Maintain proper and regular books of accounts including receipts and payments made by
him in such form and manner as may be prescribed;
 At the end of 180 days from winding up order, prepare a report consisting of account of his
receipts & payments and dealings as liquidator, together with any prescribed information
 It shall be subject to a limited scope review by company’s auditor;
 Present to Court and file with the registrar a certified copy of such accounts within 30 days
from close of half year.
 Such copies shall be open to the inspection of any person on payment of prescribed fee;
 Where winding up is not concluded within 1 year from winding up order, within 60 days
after close of each year, prepare a statement of financial position and receipt & payment
accounts, get it audited by company’s auditor and lay before the contributories in the
general meeting in same manner as annual accounts are laid before AGM (as per sec 223)
The account and information shall be in the prescribed form, shall be made in duplicate, and
shall be verified by a declaration in the prescribed form.
When account and books and papers have been audited

 1 copy alongwith auditor's report shall be filed and kept by Court
 Other copy alongwith auditor's report shall be delivered to registrar for filing
 Each copy shall be open to inspection of any person on payment of prescribed fee.
OL shall cause a copy of the account to be sent by post to every creditor and contributory:
 within 30 days in case of half yearly accounts; and
 at least 50 days before date of AGM (if winding up not concluded in a year’s time)
Concerned Minister of Federal Government may, by notification in official Gazette require that
the accounts and information referred above shall be furnished to an officer to be designated by
it for the purpose and that such officer shall cause the accounts to be audited
Member’s Voluntary Winding up
A voluntary winding up shall be deemed to commence at the time of passing of resolution

for voluntary winding up (Sec 348)
Effect of voluntary winding up on status of company (Sec 349)
 Company shall, from the commencement of winding up, cease to carry on its business,
except so far as may be required for the beneficial winding up thereof
 Corporate state and corporate powers of the company shall continue until it is dissolved.
Sequence of events in case of Voluntary winding up

1) Circumstances initiating the requirements of voluntary winding up
2) Declaration of Solvency by the directors
Tutor 3) Calling of general meeting by directors
4) Passing of Special Resolution by the members
Note
5) Appointment of Liquidator and fixing remuneration
6) Notice of Resolution to be notified in the official gazette and sent to registrar
7) Calling of different meetings by Liquidator
8) Final meeting called by liquidator
9) Dissolution of the company
Step # 1 - Circumstances in which company may be wound up voluntarily (Sec 347)
A company may be wound up voluntarily:

 If company in general meeting passes a resolution requiring voluntarily winding up:
- When period, if any, fixed by articles expires; or
- Where event, if any, occurs the occurrence of which AOA provides for dissolution
 If the company passes a special resolution that the company be wound up voluntarily;
Note: The word “Resolution” shall be used onwards for both type of resolutions.
Step # 2 - Declaration of solvency (Sec 351)
All Directors of Co (if more than 3, majority of Directors including CE) shall at a board meeting
make a declaration, verified by affidavit to the effect that they have made full enquiry and
concluded that
 Company has no debts; or
 Company is able to pay its debts within period specified in the declaration, not exceeding
12 months of commencement of winding up.
Declaration shall not be effective unless it:

 is made within 5 weeks immediately preceding date of resolution
 is delivered to the registrar for registration before date of resolution
 contains a declaration that the company is not being wound up to defraud any person or
persons; and
 is accompanied by a copy of the report of auditors of the company on the statement of
financial position and profit and loss account of company for the period from last year end
date to the latest practicable date immediately before the making of the declaration.
If debts are not paid within specified period, it will be assumed that directors did not have any
reasonable ground.
Director(s) making declaration without reasonable ground are punishable by level 3 penalty
Step # 5 - Appointment of liquidator (Sec 353)
 Company in general meeting shall appoint one or more liquidators

 Written consent to act as liquidator shall be obtained in advance
 On appointment of liquidator, all the powers of board shall cease, except
- For the purpose of giving notice of resolution to wind up the company;
- For filing of consent of liquidator; or
- In so far as company in general meeting, or liquidator sanctions the continuance.
 Liquidator shall not resign before conclusion of winding up except for reasons of personal
disability to the satisfaction of members and also be removed by resolution of members
Remuneration of Liquidator
 Company may in general meeting fix the remuneration of the liquidator

 All the rules regarding of remuneration and monthly allowance are same as of winding up
by the court (Sec 317)
 The liquidator can also be removed by a resolution in general meeting.
Casual vacancy in office of liquidator (Sec 354)
 If a vacancy occurs by death, resignation or otherwise in office of liquidator, company in

general meeting may fill vacancy by appointing a person who has given his written consent.
 A general meeting shall be convened by the outgoing liquidator before he ceases to act
 If there are more than 1 liquidators, meeting shall be called by the continuing liquidator
 If liquidator fails to conduct meeting, it may be convened by any contributory, or by SECP
on the application of any person interested in the winding up
 Meeting shall be held in the manner provided by this Act or in determined by the SECP on
application by any contributory/continuing liquidator/any interested person.
 For default, every person including outgoing liquidator shall be charged level 1 penalty
Power of liquidator to accept shares as consideration for sale of assets (Sec 356)
 Liquidator of transferor Company, with the sanction of special resolution, may have
general or special authority to:
- Receive, by way of compensation for the transfer or sale, shares, policies, or other like
interests in transferee company, for distribution among members of transferor; or
- Enter into any other arrangement where members of transferor may, instead receiving
cash, shares or policies etc, participate in profits or receive any benefit from,
transferee.
 If any member of transferor company who did not vote in favour of special resolution
expresses his dissent in writing addressed to liquidator and left at registered office of
company within 7 days after passing of special resolution, he may require liquidator either
- To abstain from carrying the resolution into effect; or
- To purchase his interest at a price to be determined by agreement or by arbitration.
(purchase money shall be paid before the company is dissolved, and be raised by
liquidator in such manner as may be determined by special resolution).
 Provisions of Arbitration Act, 1940 shall apply to all arbitrations, except where conflicting
Step # 6 - Notice of resolution to wind up voluntarily (Sec 350)
 Notice of any such resolution shall be given by the company within 10 days of passing, by
advertisement in a newspaper in English and Urdu languages at least in one issue each of a
daily newspaper of respective language having wide circulation
 A copy of such notice shall be sent to the registrar immediately thereafter.
 Any contravention shall be an offence liable to a daily penalty of level 1
Step # 7 - Calling of different meetings by Liquidator
Duty of liquidator where company turns out to be insolvent (Sec 357)
 Liquidator shall call a meeting of creditors where the liquidator is of the opinion that the
company will be unable to pay its debts in full within the stated period
 He shall present a statement of the assets & liabilities and other specified particulars.
 Creditors may decide to continue with the existing liquidator or appoint a different person
 In the case of a different liquidator, any director or member of company may, within 15
days after nomination apply to the Court for an order either
- Directing that the person nominated as liquidator by company shall be liquidator
instead of or jointly with the person nominated by creditors, or
- Appointing some other person to be liquidator instead of the one by creditors.
 A return of convening creditors meeting + copy of notice + statement of assets & liabilities
+ minutes of the meeting shall be filed with the registrar within 10 days of meeting.
 If liquidator fails to comply with this section, he shall be liable to a penalty of level 1.
Duty of liquidator to call general meetings (Sec 358)
 The liquidator shall summon and hold AGM within a period of 60 days from close of first
year after the commencement of winding up;
 He shall lay before the meeting
- Audited accounts consisting of statement of financial position; and
- Receipt and payment accounts
- Auditors’ report and liquidator’s report on acts, dealings and conduct of winding up
 He forward by post to every contributory a copy of the these accounts and reports
 A return of convening each general meeting + copy of notice, accounts and reports + list of
contributories as on date of meeting + minutes of meeting shall be filed by the liquidator
with the registrar within 15 days of meeting.
 If liquidator fails to comply, he shall be liable to a penalty of level 1 for each failure
Step # 8 & 9 - Final meeting and dissolution (Sec 359)
 As soon as the affairs of a company are fully wound up, the liquidator shall
- Prepare final accounts of the company
- Get the accounts audited
- Prepare a report of winding up, showing that the property and assets of the company
have been disposed of and its debts fully discharged and other specified particulars
- Call a general meeting for presenting the report and accounts, and giving explanations.
 Notice along with a copy of all documents shall be sent by post or courier or through
electronic mode to each contributory at least 21 days before the meeting.
 Notice of meeting shall also be published at least 21 days before meeting (same as sec 350)
 Within 1 week after meeting, liquidator shall file with registrar:
- His final report in specified form, if meeting properly conducted; or
- A return that the meeting was duly summoned and that no quorum was present
 Registrar shall after due scrutiny register theses documents
 If, after scrutiny, any irregularity is observed by registrar, he may take any further action
 On the expiration of 90 days from such registration, company shall be dissolved
 Court may on the application of liquidator or of any other interested person, make an order
deferring the date of dissolution for such time as Court thinks fit.
 Applicant shall within 14 days of order, deliver to the registrar a certified copy of the order
for registration (failing to do so would attract a daily penalty of level 1)
 If liquidator fails to comply with this section, he shall be liable to a penalty of level 1.
Alternative provisions as to annual and final meetings in case of insolvency (Sec 360)
If liquidator has called a meeting of creditors where company turns out to be insolvent (u/s
357) the above 2 meetings (i.e. sec 358 & 359) shall be held like creditor’s winding up.
Creditor’s Voluntary winding
A winding up where a declaration of solvency has been made, is members’ voluntary winding
up; and where declaration has not been made, it is creditors’ voluntary winding up (Sec 352)
Meeting of creditors (Sec 362)
The company shall:

 Cause a meeting of its creditors not later than 14 day after the first members meeting;
 Cause the notices of meeting to be sent by post to creditors at least 7 days before meeting
 Cause notice of the creditors' meeting to be advertised in same manner
 Send a copy simultaneously to the registrar.
The directors of the company shall-

 Make out a statement of company's affairs and assets and liabilities together with a list of
the creditors, details of securities held by them, estimated amount of their claims to be laid
before the meeting of creditors and such other information as may be specified; and
 Appoint one of their members to preside at the said meeting.
Appointment of liquidator
Process of appointment (Sec 363)
 Creditors and company at their respective meetings may nominate a person as liquidator
 If no person is nominated by creditors, person nominated by company shall be liquidator
 If no person is nominated by company, person nominated by creditors shall be liquidator.
 If creditors and company nominate different persons, persons nominated by creditors shall
be the liquidator:
 Any director, member or creditor may, within 15 days of nomination of liquidator by
creditor, apply to the Court for an order
- Directing that person nominated by the company shall be liquidator instead of or jointly
with person nominated by creditors; or
- Appointing some other person to be liquidator instead of person appointed by creditors.
 Liquidator shall not resign or quit his office as liquidator before conclusion of the winding
up proceedings except for reasons of personal disability to the satisfaction of the Court and
may also be removed by the Court for reasons to be recorded.
 Notice of appointment of liquidator and resolution passed at creditors’ meeting shall be
given to registrar, along with consent of liquidator within 10 days of the passing thereof.
Fixing of liquidator's remuneration (Sec 364)
 Fixed by creditors or court

 Other rules same as member’s voluntary winding up (Sec 353)
Cessation or continuance of the boards’ powers (Sec 365)
 On appointment of a liquidator, all powers of BOD, CEO and other officers shall cease,
except for giving notice of resolution to wind up and appointment of liquidator and filing of
consent of the liquidator
 The creditors, in general meeting may sanction the continuance thereof.
Power to fill vacancy in office of liquidator (Sec 366)
 Creditors in their meeting may fill vacancy by appointing a person after getting his consent
 Vacancy occurred in office of a liquidator appointed by Court shall not be filled by creditors
 Other rules same as member’s voluntary winding up (Sec 354)
Duty of liquidator to call meeting of company and of creditors (Sec 368)
Same as for Member’s voluntary winding up (Sec 358)
The only exception is that in case of Creditor’s voluntary winding up, meeting of both
(members and creditors is called)
Final meeting and dissolution (Sec 369)
Same as for Member’s voluntary winding up (Sec 359)
The only exception is that in case of Creditor’s voluntary winding up, meeting of both
(members and creditors is called)
Provisions applicable to every Voluntary Winding Up
Powers of the Court regarding liquidator and proceeding (Sec 373 & 380)
 If there is no liquidator acting, Court may appoint a liquidator just like winding up by court
 Liquidator so appointed shall have the same powers as are exercisable by an OL
 Remuneration of such liquidator shall be fixed by court (same as in winding up by court)
 Court may replace a liquidator on application of any creditor/contributory/registrar/SECP.
 Where a company is being wound up voluntarily, and an order is made for winding up by
Court; Court may, if thinks fit, adopt all or any of the proceedings in voluntary winding up
Powers and duties of the liquidator in voluntary winding up
General powers and duties (Sec 372)
 The liquidator may:

- Exercise any power of OL u/s 337 with the sanction of a special resolution (members
voluntary winding up) or meeting of the creditors (creditors voluntary winding up);
- Exercise any other powers given by this Act to liquidator in a winding up by Court;
- Exercise the power of Court of settling a list of contributories or making calls;
- Summon general meeting of company and creditors for getting sanctions or other issues
 Liquidator shall pay debts and shall adjust rights of contributories among themselves.
 Regarding distribution of funds, liquidator shall follow the same process as in winding up
by court (i.e. sec 341)
 Winding up proceedings shall be completed within 1 year from date of commencement
 Court may, on application of liquidator, grant extension
- By 30 days at single time and 180 days in all
- Shall be allowed only if any proceedings are pending in a court
 When several liquidators are appointed, any power may be exercised by 1 or more of them
as may be determined at time of appointment (if not determined then by at least 2 of them)
Application of liquidator to Court for public examination of promoters etc (Sec 377)
 Liquidator may make a report to Court stating that in his opinion a fraud or any other
irregularity has been committed by any person in promotion or formation of the company,
or by any officer in relation to the company since its formation
 Court may direct that person or officer shall attend before the Court on an appointed day
 On that day, person shall be publicly examined in manner provided for such examination.
Power to apply to Court to have questions determined or powers exercised (Sec 376)
 Liquidator or any contributory or creditor may apply to the Court to:

- Determine any question arising in the winding up of a company; or
- Exercise enforcing of calls, staying of proceedings or any other matter that court may
exercise in case of winding up by the Court.
 Liquidator/contributory may apply to Court for an order setting aside any attachment,
distress or execution against estate/effects company after commencement of winding up.
 Such application shall be made to court having jurisdiction to wind up the company:
 Upon such application, court may accede wholly or partially on such terms and conditions
as it thinks fit, or may make such other orders on the application as it thinks just.
 A copy of an order staying the proceedings in winding up under this section shall forthwith
be forwarded to the registrar, who shall make a minute of the order in his books.
Notice by liquidator of his appointment (Sec 374)
 Every liquidator shall, within 14 days after his appointment, publish in the official Gazette,
and deliver to registrar, a notice of his appointment in the form specified.
 If liquidator fails to comply with, he shall be liable to a daily penalty of level 1.
Other Provisions
Distribution of property of company (Sec 370)
Subject to the provisions of preferential payments, property of a company shall be applied in

satisfaction of its liabilities pari passu and shall, unless AOA provide otherwise, be distributed
among the members according to their rights and interests.
Statement of Affairs and Reports by Liquidator (Sec 371)
The provisions of winding up by court shall also apply here with the exceptions that
 Voluntary liquidator would be performing these functions
 Relevant date shall be counted as date of commencement of the winding up; and
 Report shall be submitted to the registrar instead of the Court.
Costs of voluntary winding up (Sec 378)
All costs, charges and expenses properly incurred in winding up, including the remuneration
of liquidator, shall subject to the rights of secured creditors, if any, be payable out of the assets
of the company in priority to all other claims.
Winding up under supervision of court
Power to order winding up subject to supervision (Sec 381, 382)
 Where a company has passed resolution for voluntary winding up, court may make an
order that it shall continue but under supervision of Court with such terms and conditions
as the Court thinks just:
- of its own motion or
- on application of any person entitled to apply court for winding up
 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
Effect on liquidator (Sec 384 to 386)
 Court may on an application by any creditor or contributory or registrar or a person

authorised by SECP in this behalf, replace the liquidator
 New liquidator shall have the same powers, obligations and rights as the previous one.
(subject to any restriction imposed by Court)
 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
- Either provisionally or permanently
- Either with or without addition of any other person
Court may have regard to the wishes of creditors and contributories (Sec 383)
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 winding up under supervision of court
 In appointment of liquidator
 In all matters relating to winding up under supervision of court
Provisions applicable to all modes of winding up
Debt of all description to be proved (Sec 388, 389)
In every winding up all debts payable on a contingency and all claims against the Co, present
or future, certain or contingent, shall be admissible to prove against Co
 A just estimate being made, if possible, of value of debts/ claims
 In case of insolvent Co: 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 (Sec 390)
In a winding up, there shall be paid in priority to all other debts-
 All revenues, taxes, cesses and rates due from the company to FG/PG/local authority at the
relevant date and having become due and payable within 1 year afterwards on pari passu;
 All wages or salary (including wages payable for time or piece work and salary earned by
way of commission) of any employee in respect of services rendered to the company;
(any remuneration in respect of a period of holiday or of absence on medical grounds or
other good cause shall be deemed to be wages in respect of services)
 All accrued holiday remuneration becoming payable to any employee (or any other person
in case of his death) on termination of his employment before, or by winding up order, or
the dissolution of the company;
Accrued holiday remuneration" includes all sums which, by virtue of employment or of
any enactment, are payable on account of remuneration
 All amounts due, in respect of contributions towards insurance payable during 1 year after
the relevant date, by the company as employer, under any other law for time being in force;
(unless company is being wound up voluntarily merely for the purposes of reconstruction
or of amalgamation with another company)
 All amounts due in respect of any compensation or liability for compensation under the
Workmen's Compensation Act, 1923 in respect of death or disablement of any employee
(unless the company has, at commencement of winding up, under such a contract with
insurers u/s 14 of such Act, rights capable of being transferred to and vested in workman)
 If any compensation under the said Act is a weekly payment, amount payable shall be taken
to be the amount of lump sum for which such weekly payment could, if redeemable, be
redeemed, if the employer made for that purpose under the said Act;
 All sums due to any employee from a provident fund, a pension fund, a gratuity fund or any
other fund for the welfare of employees maintained by company; and
 Expenses of any investigation held in pursuance of this Act payable by the company.
After retaining amount necessary for the costs and expenses of winding up, foregoing debts
shall be discharged forthwith (so far as the assets are sufficient to meet them)
The foregoing debts shall:

 Rank equally among themselves and be paid in full, unless the assets are insufficient to
meet them, in which case they shall abate in equal proportion; and
 Have priority over the claims of holders of debentures under any floating charge, and be
paid accordingly out of any property subject to that charge (if funds are insufficient)
In the event of a landlord or other person distraining or having distrained on any goods or
effects of the company within ninety days before date of winding up order, foregoing debts
shall be a first charge on goods or effects so distrained on, or the proceeds of the sale thereof.
Transfers of shares and assets near the period of winding up (Sec 391)
 Every transfer of shares and alteration in status of a member made after commencement of
winding up shall (unless approved by liquidator) be void;
 Any transfer or disposition of property/assets made within 1 year before presentation of a
petition for winding up by Court or passing resolution for voluntary winding up shall be
void (except made in ordinary course of business or in favour of a purchaser or
encumbrancer in good faith and for valuable consideration)
Disclaimer of onerous property (Sec 392)
Sometimes any part of the property of a company consist of:

 Land of any tenure, burdened with onerous covenants;
 Shares or stocks in companies;
 Any other property which is not saleable by reason of the possessor being bound either to
the performance of any onerous act or to the payment of any sum of money; or
 Unprofitable contracts,
Liquidator may, by writing signed by him, with leave of court disclaim the property, despite
necessary efforts to sell or taking possession or exercising any act of ownership, at any time
within 1 year after commencement of winding up (or any extended period allowed by Court)
If any person interested in property has applied to liquidator requiring him to decide whether
he will or will not disclaim and liquidator has not, within 28 days give notice to the applicant
 Liquidator shall not be entitled to disclaim such property
 He shall be deemed to have adopted it.
The Court may require such notices to be given to persons interested, and impose such terms
as a condition of granting leave, and make such other order as Court considers just and proper.
The Court may, on the application of any person who is entitled to the benefit or subject to the
burden of a contract made with the company, make an order rescinding the contract on such
terms as to payment by or to either party for non-performance as the Court considers just.
The Court may, if think fit, on application by any interested person, make an order for the
vesting of the property in that person on such terms as the Court considers just and proper.
Liquidator to exercise certain powers subject to sanction (Sec 406)
The liquidator may, with the sanction of the Court / Special Resolution do the following things
or any of them subject to the control of court
 Pay any classes of creditors in full;
 Make any compromise or arrangement with creditors or other claimants of amount due;
 Compromise any calls and liabilities to calls, debts, and liabilities etc and take any security
for discharge of any such calls, debt, liability or claim.
Meetings to ascertain wishes of creditors or contributories (Sec 407)
 In all matter relating to winding up of a company, the Court:

- Shall have regard to the wishes of creditors or contributories
(proved to it by any sufficient evidence);
- May direct meetings of creditors or contributories to ascertain the wishes; and
- May appoint chairman of any such meeting and the result may be reported to the Court.
 When ascertaining wishes of creditors, regard shall be had to value of each creditor’s debt.
 When ascertaining wishes of contributories, regard shall be had to voting power.
Payments by liquidator into bank (Sec 416)
 Liquidator shall open an account in a Scheduled Bank in the name of company.

 All receipts shall be deposited within 3 days in that account.
 If liquidator retains amount exceeding Rs 10,000/- or such amount as authorised by Court,
he shall be punishable as follows:
- Make good any loss
- Pay surcharge @ 2% p.m.
- Disallowance of all or part of remuneration
- Removed from office by Court (on application of registrar/creditor/contributory)
 Every liquidator who makes default in complying with this section shall, in addition to his
other liabilities, be punishable with imprisonment up to 3 years and with fine which may
extend to higher of RS 500,000 or the amount of loss caused / wrongful gain
Unclaimed dividends and undistributed assets (Sec 417)
 Any money representing unclaimed dividends or undistributed assets with liquidator

(after 180 days) or any such amount in his hands at the date of dissolution shall be
deposited in the account to be maintained specifically for this purpose (u/s 244)
 Liquidator shall furnish to SECP official receipt SBP/NBP and a statement in specified form
describing regarding all payments
- Nature of the sums;
- Names and last known addresses of the persons entitled to participate;
- Amount to which each is entitled;
- Nature of his claim thereto; and
- Such other particulars as may be specified
 Liquidator responsibility ceases on receipt of deposit from SBP.
 Any claimant of any amount may apply to SECP for payment prescribed manner.
 Any liquidator retaining any such money shall be liable to
- Pay surcharge on the amount retained @ 2% per month or part thereof
- Pay any expenses or losses occasioned by reason of his default
- Disallowance of all or such part of his remuneration as the Court may think just
- Be removed from his office by the Court on an application by SECP.
Books of accounts and other proceedings to be kept by liquidators (Sec 418)
 Every liquidator shall maintain at registered office proper books of accounts (u/s 220)
 Any creditor or contributory may, subject to control of Court, inspect any such books etc
 Concerned Minister of FG may alter or add to any requirements of this section by a general
or special order.
 If any liquidator contravenes any provisions of this section, he shall be punishable with
imprisonment up to 2 years and with fine, which may extend to Rs 500,000/-
Continuance of provisions relating to audit (Sec 419)
 Same provisions as applicable to companies not in the process of being wound up, Except
- All obligations of management for audit vest in liquidator
- Appointment of auditor shall be made by the same persons who have appointed
liquidator (i.e. Court, Members, or Creditors) and same shall fix his Remuneration
 Remuneration shall be be paid by liquidator from the funds of company
 Where no auditor is appointed, liquidator shall inform SECP who will appoint.
Inactive Company (Sec 424)
Where a company, other than listed, is formed for a future project or to hold an asset or
intellectual property and has no significant accounting transaction, such a company or an
inactive company may make application to registrar for obtaining status of inactive company
Inactive company
Company, other than listed, which has not been carrying on any business or operation,
or has not made any significant accounting transaction during last 2 financial years;
Significant accounting transaction
Means any transaction other than-
(i) payments made by it to fulfill the requirements of this Act or any other law;
(ii) allotment of shares to fulfill the requirements of this Act; and
(iii) payments for maintenance of its office and records.
 Registrar on consideration of the application shall allow the status of inactive company
 Registrar shall issue a certificate in such form as may be specified to that effect.
 Registrar shall maintain a register of inactive companies in such form as may be specified.
 If a company has not filed financial statements or annual returns for 2 financial years
consecutively, registrar shall issue a notice to company and enter its name in the register
maintained for inactive companies.
 An inactive company shall have such minimum number of directors, file such documents as
may be specified by SECP through regulations to the registrar to retain its inactive status in
the register and pay such annual fee as prescribed in Seventh Schedule
 Inactive company may become an active company on an application accompanied by
specified documents by the SECP on payment of fee prescribed in Seventh Schedule.
 Registrar shall strike off name of that inactive company from register of inactive
companies, which has failed to comply with the requirements of this section.
 Any contravention or default shall be an offence liable to a penalty of level 2
 If false or misleading information given to obtain the status of an inactive company,
directors and other officers in default shall be liable to imprisonment up to 3 years
Easy exit of a defunct company (Sec 426)
 A company which ceases to operate and has no known assets and liabilities, may apply to
registrar in specified manner and paying fee mentioned in Seventh Schedule.
 After examination of application, the registrar may publish a notice in the Official Gazette
stating that, at expiration of 90 days from notice, name of the applicant company will be
struck off from register of companies and company will be dissolved.
 Such notice shall also be posted on the SECP’s website.
 Any civil, criminal or other liability of every director, officer and member shall continue
Register of companies – 2(56)
Register of companies maintained by the registrar on paper or in any electronic form under this Act;
Registrar may strike defunct company off register (Sec 425)
 If registrar believes that a company is not carrying on business or is not in operation, he

may send to company by post a letter inquiring the same
 If registrar does not within 15 days of sending letter receive any answer, he may send to
company by registered post another letter referring to first, and stating that, if an answer is
not received to second letter within 30 days, a notice will be published in newspaper with a
view to striking the name of company off the register.
 If registrar either receives an answer from the company that it is not carrying on business
or is not in operation, or does not within 15 days after sending the second letter receive
any answer, he may publish in the newspaper having wide circulation, and send to the
company by post a notice that, at expiration of 30 days from date of that notice, name of the
company mentioned therein will be struck off the register and company will be dissolved
 If, in any case where a company is being wound up, the registrar has reasonable cause to
believe either that no liquidator is acting or that the affairs of the company are fully wound
up, and the returns required to be made by the liquidator have not been made for a period
of 3 consecutive months after notice by the registrar demanding the returns has been sent
by post to the company, or to the liquidator at his last known place of business, the
registrar may publish in the newspaper having wide circulation and send to the company a
like notice as provided above.
 At the expiration of the mentioned time the registrar may strike its name off the register,
and shall publish notice thereof in the official Gazette, and, on the publication in the official
Gazette of this notice, the company shall be dissolved:
 Any liability criminal, civil or otherwise (if any) of every director, officer, liquidator and
member shall continue and may be enforced as if company had not been dissolved
 Nothing in this section shall affect the powers of the Court to wind up that company.
 If a company/member/creditor feels aggrieved by the action, Court, on his application
made before expiry of 3 years from publication in official Gazette, may, order the name of
company to be restored to register and, upon filing of a certified copy of such order with
registrar, company shall be deemed to have continued in existence, and Court may by the
order give such directions and make such provisions as seem just
 A letter or notice under this section may be addressed to company at its registered office,
or if no office has been registered, to care of some director, chief executive or other officer
of the company whose name and address are known to registrar or if no such address is
known, may be sent to each of the persons who subscribed the MOA, addressed to him at
the address mentioned in the memorandum.
 Provisions of this section shall not apply to a company which has known assets & liabilities
- Such company shall be proceeded against for winding up.
- If due to inadvertence name of any such company has been struck off the register, the
registrar may, after such enquiries as he may deem fit, move SECP to have name of the
company restored to register and thereupon SECP may, if satisfied, order restoration
 Provisions of this section shall mutatis mutandis apply to a company established outside
Pakistan but having place of business in Pakistan
Miscellaneous Provisions of winding up (Extracts from bare Law)
322. Court directions on report of official liquidator
(1) The Court shall, on consideration of the report of the official liquidator, fix a time limit
within which the entire proceedings shall be completed and the company be dissolved:
Provided that the Court may, if it is of the opinion, at any stage of the proceedings, or on
examination of the reports submitted to it by the official liquidator and after hearing the
official liquidator, creditors or contributories or any other interested person, that it will not be
advantageous or economical to continue the proceedings, revise the time limit within which
the entire proceedings shall be completed and the company be dissolved.
(2) The Court may, on examination of the reports submitted to it by the official liquidator and
after hearing the official liquidator, creditors or contributories or any other interested person,
order sale of the company as a going concern or its assets or part thereof:
Provided that the Court may where it considers fit, appoint a sale committee comprising such
creditors, promoters and officers of the company as the Court may decide to assist the official
liquidator in sale under this sub- section.
(3) Where a report is received from the official liquidator or the Commission or any person
that a fraud has been committed in respect of the company, the Court shall, without prejudice
to the process of winding up, order for investigation under section 257, and on consideration
of the report of such investigation it may pass order and give directions under sections 391 or
392 or direct the official liquidator to file a criminal complaint against persons who were
involved in the commission of fraud.
(4) The Court may order for taking such steps and measures, as may be necessary, to protect,
preserve or enhance the value of the assets of the company.
(5) The Court may pass such other order or give such other directions as it considers fit.
324. Custody of company's properties.
(1) Where a winding up order has been made or where a provisional manager has been
appointed, the official liquidator or the provisional manager, as the case may be, shall, on the
order of the Court, forthwith take into his custody or control all the property, effects and
actionable claims to which the company is or appears to be entitled to and take such steps and
measures, as may be necessary, to protect and preserve the properties of the company.
(2) On an application by the official liquidator or otherwise, the Court may, at any time after
the making of a winding up order, require any contributory for the time being on the list of
contributories, and any trustee, receiver, banker, agent, officer or other employee of the
company, to pay, deliver, surrender or transfer forthwith, or within such time as the Court
directs, to the official liquidator, any money, property or books and papers in his custody or
under his control to which the company is or appears to be entitled.
(3) The promoters, directors, officers and employees, who are or have been in employment of
the company or acting or associated with the company shall extend full cooperation to the
official liquidator in discharge of his functions and duties.
(4) Notwithstanding anything contained in sub-section (1), all the property and effects of the
company shall be deemed to be in the custody of the Court from the date of the appointment of
the Provisional manager or the passing of order for the winding up of the company as the case
may be.
(5) Where any person, without reasonable cause, fails to discharge his obligations under sub-
sections (2) or (3), he shall be punishable with imprisonment which may extend to two years
or with fine which may extend to five hundred thousand rupees, or with both.
326. Power to summon persons suspected of having property of company
(1) The Court may, at any time after the appointment of a provisional manager or the making
of winding up order, summon before it any officer of the company or person known or
suspected to have in his possession any property or books or papers of the company, or
known or suspected to be indebted to the company, or any person whom the Court deems
capable of giving information concerning the promotion, formation, trade, dealings, books or
papers, affairs or property of the company.
(2) The Court may examine a person summoned under sub-section (1) on oath concerning the
matters aforesaid, either by word of mouth or on written interrogatories, and may reduce his
answers to writing and require him to sign them.
(3) The Court may require a person summoned under sub-section (1) to produce any books
and papers in his custody or power relating to the company, but, where he claims any lien on
books or papers produced by him, the production shall be without prejudice to that lien, and
the Court shall have jurisdiction in the winding up to determine all questions relating to that
lien.
(4) If any person so summoned, after being paid or tendered a reasonable sum for his
expenses, fails to come before the Court at the time appointed, not having a lawful impediment
made known to the Court at the time of its sitting and allowed by it, the Court may cause him
to be apprehended and brought before the Court for examination.
(5) If, on his examination, any officer or person so summoned admits that he is indebted to the
company, the Court may order him to pay to the provisional manager or, as the case may be,
the liquidator, at such time and in such manner as the Court may direct, the amount in which
he is indebted, or any part thereof, either in full discharge of the whole amount or not, as the
Court thinks fit, with or without costs of the examination.
(6) If, on his examination, any such officer or person admits that he has in his possession any
property belonging to the company, the Court may order him to deliver to the provisional
manager or, as the case may be, the liquidator that property or any part thereof, at such time,
in such manner and on such terms as the Court may direct.
(7) Orders made under sub-sections (5) and (6) shall be executed in the same manner as
decrees for the payment of money or for the delivery of property under the Code of Civil
Procedure, 1908 (Act V of 1908), respectively.
(8) Any person making any payment or delivery in pursuance of an order made under sub-
section (5) or sub-section (6) shall by such payment or delivery be, unless otherwise directed
by such order, discharged from all liability whatsoever in respect of such debt or property.
327. Power to order public examination of promoters, directors.
(1) When an order has been made for winding up a company by the Court, and the official
liquidator has made a report to the Court stating that in his opinion a fraud or other actionable
irregularity has been committed by any person in the promotion or formation of the company
or by any director or other officer of the company in relation to the company since its
formation, the Court may, after consideration of the report, direct that such person, director or
other officer shall attend before the Court on a day appointed by the Court for that purpose,
and be publicly examined as to the promotion or formation or the conduct of the business of
the company, or as to his conduct and dealings as director, manager or other officer thereof.
(2) The official liquidator shall take part in the examination, and for that purpose may, if
specially authorised by the Court in that behalf, employ such legal assistance as may be
sanctioned by the Court.
(3) Any creditor or contributory may also take part in the examination either personally or by
any person entitled to appear before the Court.
(4) The Court may put such questions to the person examined as the Court thinks fit.
(5) The person examined shall be examined on oath, and shall answer all such questions as the
Court may put or allow to be put to him.
(6) A person ordered to be examined under this section_
(a) shall, before his examination, be furnished at his own cost with a copy of the official
liquidator's report; and
(b) may at his own cost employ any person entitled to appear before the Court, who shall be at
liberty to put to him such questions as the Court may deem just for the purpose of enabling
him to explain or qualify any answer given by him:
Provided that if he is, in the opinion of the Court, exculpated from any charges made or
suggested against him, the Court may allow him such costs as in its discretion it may think fit.
(7) If any such person applies to the Court to be exculpated from any charges made or
suggested against him, it shall be the duty of the official liquidator to appear on the hearing of
the application and call the attention of the Court to any matters which appear to the official
liquidator to be relevant, and if the Court, after hearing any evidence given or witnesses called
by the official liquidator, grants the application, the Court may allow the applicant such costs
as it may think fit.
(8) Notes of the examination shall be taken down in writing and shall be read over to or by,
and signed by, the person examined, and may thereafter be used in evidence against him and
shall be open to the inspection of any creditor or contributory at all reasonable times.
(9) The Court may, if it thinks fit, adjourn the examination from time to time
(10) An examination under this section may, if the Court so directs, and subject to any rules in
this behalf, be held before any officer of the Court, being an official referee, registrar,
additional registrar or deputy registrar.
(11) The powers of the Court under this section as to the conduct of the examination, but not
as to costs may be exercised by the person before whom the examination is held by virtue of a
direction under sub-section (10).
328. Power to arrest absconding contributory
The Court, at any time either before or after making a winding up order, on proof of probable
cause for believing that a contributory is about to quit Pakistan or otherwise to abscond, or to
remove or conceal any of his property, for the purpose of evading payment of calls or of
avoiding examination respecting the affairs of the company, may cause the contributory to be
arrested and his books and papers and movable property to be seized, and kept safely until
such time as the Court may order.
330. Power of Court to make calls.
(1) The Court may, at any time after making a winding up order, and either before or after it
has ascertained the sufficiency of the assets of the company, make calls on and order payment
thereof by all or any of the contributories for the time being settled on the list of the
contributories to the extent of their liability, for payment of any money which the Court
considers necessary to satisfy the debts and liabilities of the company, and the costs, charges
and expenses of winding up, and for the adjustment of the rights of the contributories among
themselves.
(2) In making the call the Court may take into consideration the probability that some of the
contributories may partly or wholly fail to pay the call.
331. Power to order payment into bank
(1) The Court may order any contributory, purchaser or other person from whom any money
is due to the company to pay the same into the account of the official liquidator in a scheduled
bank instead of to the official liquidator, and any such order may be enforced in the same
manner as if it had directed payment to the official liquidator.
(2) Information about the amount deposited shall be sent by the person paying it to the official
liquidator within three days of the date of payment.
332. Regulation of account with Court
All moneys, bills, notes and other securities paid and delivered into the scheduled bank where
the official liquidator of the company may have his account, in the event of a company being
wound up by the Court, shall be subject in all respect to the orders of the Court.
333. Order on contributory conclusive evidence
(1) An order made by the Court on a contributory shall, subject to any right of appeal, be
conclusive evidence that the money, if any, thereby appearing to be due or ordered to be paid
is due.
(2) All other pertinent matters stated in the order shall be taken to be truly stated as against
all persons, and in all proceedings whatsoever.
343. Saving of other proceedings
Any powers conferred on the Court by this Act shall be in addition to, and not in derogation of,
any existing power of instituting proceedings against any contributory or debtor of the
company, or the estate of any contributory or debtor, for the recovery of any call or other
sums.
355. Notice by liquidator of his appointment
(1) The liquidator shall, within ten days after his appointment, file with the registrar for
registration a notice of his appointment in the specified form.
(2) If the liquidator fails to comply with this section, he shall be liable to a daily penalty of level
1 on the standard scale.
393. Fraudulent preference
(1) Where a company has given preference to a person who is one of the creditors of the
company or a surety or guarantor for any of the debts or other liabilities of the company, and
the company does anything or suffers anything done which has the effect of putting that
person into a position which, in the event of the company going into liquidation, will be better
than the position he would have been in if that thing had not been done prior to one hundred
and eighty days of commencement of winding up, the Court, if satisfied that, such transaction
is a fraudulent preference may order as it may think fit for restoring the position to what it
would have been if the company had not given that preference.
(2) If the Court is satisfied that there is a preference transfer of property, movable or
immovable, or any delivery of goods, payment, execution made, taken or done by or against a
company within one hundred and eighty days before the commencement of winding up, the
Court may order as it may think fit and may declare such transaction invalid and restore the
position.
394. Liabilities and rights of certain fraudulently preferred persons
(1) Where, in the case of a company which is being wound up, anything made or done after the
commencement of this Act, is invalid under section 393 as a fraudulent preference of a person
interested in property mortgaged or charged to secure the company's debt, then (without
prejudice to any rights or liabilities arising apart from this provision) the person preferred
shall be subject to the same liabilities and shall have the same rights as if he had undertaken to
be personally liable as surety for the debt to the extent of the charge on the property or the
value of his interest, whichever is less.
(2) The value of the said person's interest shall be determined as at the date of the transaction
constituting the fraudulent preference, and shall be determined as if the interest were free of
all encumbrances other than those to which the charge for the company's debt was then
subject.
(3) On any application made to the Court with respect to any payment on the ground that the
payment was a fraudulent preference of a surety or guarantor, the Court shall have
jurisdiction to determine any questions with respect to the payment arising between the
person to whom the payment was made and the surety or guarantor and to grant relief in
respect thereof, notwithstanding that it is not necessary so to do for the purposes of the
winding up, and for that purpose may give leave to bring in the surety or guarantor as a third
party as in the case of a suit for the recovery of the sum paid.
(4) Sub-section (3) shall apply, with the necessary modifications, in relation to transactions
other than the payment of money as it applied in relation to such payments.
395. Avoidance of certain attachments, executions
(1) Where any company is being wound up by or subject to the supervision of the Court, any
attachment, distress or execution put in force without leave of the Court against the estate or
effects or any sale held without leave of the Court of any of the properties of the company after
the commencement of the winding up shall be void.
(2) Nothing in this section applies to proceedings by the Government.
396. Effect of floating charge
Where a company is being wound up, a floating charge on the undertaking or property of the
company created within one year immediately preceding the commencement of the winding
up shall, unless it is proved that the company immediately after the creation of the charge was
solvent, be invalid except to the amount of any cash paid to the company at the time of, or
subsequently to the creation of, and in consideration for, the charge, together with markup on
that amount at the rate of five percent per annum or part thereof or such other rate as may be
notified by the Commission in the official Gazette.
408. Documents of company to be evidence.
Where any company is being wound up, all books and papers of the company and of the
liquidators, shall, as between the contributories of the company, be prima facie evidence of the
truth of all matters purporting to be recorded therein.
409. Summary disposal of certain suits by liquidators
Notwithstanding anything contained in the Code of Civil Procedure, 1908 (Act V of 1908), a
liquidator desiring to recover any debt due to the company may apply to the Court in which
the proceedings are pending that the same be determined summarily, and the Court may
determine it on affidavits but when the Court deems it just and expedient, either on an
application made to it in this behalf or of its own motion, it may set down any issue or issues
for hearing on other evidence also and pass such orders for discovery of particulars as it may
do in a suit.
410. Limitation
Notwithstanding anything contained in the Limitation Act (IX of 1908), in computing the time
within which a liquidator may file a suit for the recovery of any debt due to the company, the
period which elapses between the making of the petition for liquidation and the assumption of
charge by the liquidator, or a period of one year, whichever be greater, shall be excluded.
411. Court fees
(1) Notwithstanding anything contained in the Court- fees Act, 1870 (VII of 1870), or in the
Code of Civil Procedure, 1908 (Act V of 1908), where sufficient funds are not available with
the liquidator and it is necessary to file a suit for the recovery of a debt due to the company, no
court- fee stamp need be affixed on the plaint.
(2) If the liquidator succeeds in the suit, the Court shall calculate the amount of court-fee
which would have been paid by the liquidator if he had not been permitted to sue under sub-
section (1), and such amount shall be recoverable by the Court from any party ordered by the
decree to pay the same.
(3) Where the liquidator does not succeed, the court-fee shall be payable by him out of other
assets, if any, whenever realised.
412. Inspection of documents

(1) After an order for a winding up by or subject to the supervision of the Court, the Court may
make such order for inspection by creditors and contributories of the company of its
documents as the Court thinks just, and any documents in the possession of the company may
be inspected by creditors or contributories accordingly.
(2) The order as aforesaid may, in the case of voluntary winding up, be made by the
Commission.
(3) Nothing in sub-section (1) shall be taken as excluding or restricting any rights conferred
by any law for the time being in force-
(a) on the Federal Government or a Provincial Government; or
(b) on the Commission or any officer thereof; or
(c) on any person acting under the authority of any such Government or the
Commission or officer thereof; or
(d) on the registrar.
413. Disposal of books and papers of company.
(1) Subject to any rules made under sub-section (3), when a company has been wound up and
is about to be dissolved, the books and papers of the company and of the liquidators may be
disposed of as follows, that is to say_
(a) in the case of a winding up by or subject to the supervision of the Court in such way as the
Court directs;
(b) in the case of a members voluntary winding up, in such way as the company by special
resolution directs; and
(c) in the case of a creditors’ voluntary winding up, in such a way, as the creditors of the
company may direct.
(2) After the expiry of three years from the dissolution of the company no responsibility shall
rest on the company, or the liquidators, or any person to whom the custody of the books and
papers has been committed, by reason of any book or paper not being forthcoming to any
person claiming to be interested therein.
(3) The concerned Minister-in-Charge of the Federal Government, may by notification, prevent
for such period (not exceeding three years from the dissolution of the company as the
concerned Minister-in-Charge of the Federal Government thinks proper, the destruction of the
books and papers of a company which has been wound up, and enable any creditor or
contributory of the company to make representations to the concerned Minister-in-Charge of
the Federal Government.
(4) Any contravention or default in complying with requirements of this section shall be an
offence liable to a penalty of level 2 on the standard scale.
414. Power of Court to declare dissolution of company void
(1) Where a company has been dissolved, the Court may at any time within two years of the
date of the dissolution, on an application being made for the purpose by the liquidator of the
company or by any other person who appears to the Court to be interested, make an order,
upon such terms as the Court thinks fit, declaring the dissolution to have been void, and
thereupon such proceedings may be taken as might have been taken if the company had not
been dissolved.
(2) It shall be the duty of the person on whose application the order was made, within fifteen
days after the making of the order, to file with the registrar a certified copy of the order, and if
that person fails so to do he shall be punishable a daily penalty specified in level 1 on the
standard scale.
415. Information as to pending liquidations.
(1) Where a company is being wound up, if the winding up is not concluded within one year
after its commencement, the liquidator shall, once in each half year and at intervals of not
more than one hundred and eighty days, or such shorter period as may be prescribed, until the
winding up is concluded, file in the Court or with the registrar, as the case may be, a statement
in the prescribed form and containing the prescribed particulars with respect to the accounts,
proceedings in and position of the liquidation alongwith the report of auditors.
(2) Any person stating himself in writing to be a creditor or contributory of the company shall
be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed
fee, to inspect the statement, and to receive a copy thereof or extract therefrom; but any
person untruthfully so stating himself to be a creditor or contributory shall be deemed to be
guilty of an offence under section 182 of the Pakistan Penal Code, 1860 (Act XLV of 1860), and
shall be punishable accordingly on the application of the liquidator.
(3) When the statement is filed in the Court a copy shall simultaneously be filed by the
liquidator with the registrar and shall be kept by him along with the other records of the
company.
(4) If a liquidator fails to comply with the requirements of this section, he shall be liable to a
penalty of level 1 on the standard scale.
420. Enforcement of duty of liquidator to make return
(1) If any liquidator who has made any default in complying with any provision of this Act or
committed any other irregularity in the performance of his duties fails to make good the
default or undo the irregularity, as the case may be, within thirty days after the service on him
of a notice requiring him to do so, the Court may of its own motion or on an application made
to it by any contributory or creditor of the company or by the registrar, make an order
directing the liquidator and any other person involved to make good the default or undo the
irregularity or otherwise make amends as the circumstances may require, within such time as
may be specified in the order:
Provided that, where an application under this section is made by the registrar, the Court shall
dispose of the same within fourteen days of the submission thereof.
(2) Any such order may provide that all costs of, and incidental to, the application shall be
borne by the liquidator.
(3) Nothing in this section shall be taken to prejudice the operation of any enactment
imposing penalty on a liquidator in respect of any such default or irregularity as aforesaid.
421. Notification that a company is in liquidation
(1) Where a company is being wound up, whether by or under the supervision of the Court or
voluntarily, every advertisement, notice, invoice, order for goods, business letter or other
communication or document issued by or on behalf of the company or a liquidator of the
company or a receiver or manager of the property of the company, being a document on or in
which the name of the company appears, shall contain a statement that the company is being
wound up and about the mode of its winding up.
(2) If default is made in complying with this section, the company and any of the following
persons who authorises or permits the default, namely, any officer of the company, any
liquidator of the company and any receiver or manager, shall be liable to a penalty of level 1
on the standard scale.
422. Court or person before whom affidavit may be sworn
(1) Any affidavit required to be sworn under the provisions or for the purposes of this Part
may be sworn-
(a) in Pakistan, before any Court, judge, or person lawfully authorised to take and receive
affidavits; and
(b) elsewhere before a Pakistan Consul or Vice-Consul.
(2) All courts, judges, justices, commissioners, and persons acting judicially in Pakistan shall
take judicial notice of the seal or stamp or signature, as the case may be, of any such court,
judge, person, Consul or Vice-Consul, attached, appended or subscribed to any such affidavit
or to any other document to be used for the purposes of this Part.
423. Power to make rules
(1) The Supreme Court may, in consultation with the Courts or, where the Supreme Court
advises the Federal Government to do so, the Federal Government may in consultation with
the Courts, from time to time, make rules, consistent with this Act, concerning the mode of
proceedings to be held for winding up a company in a Court and in the courts subordinate
thereto, and for voluntary winding up (both members and creditors), for the holding of
meetings of creditors and members in connection with proceedings under section 279 of this
Act, and for giving effect to the provisions as to the reduction of the capital and the scheme of
reorganisation of a company and generally for all applications to be made to the Court and all
other proceedings or matters coming within the purview or powers or duties of the Court
under the provisions of this Act and shall make rules providing for all matters relating to the
winding up of companies which, by this Act, are to be prescribed.
(2) Without prejudice to the generality of the foregoing powers, such rules may enable or
require all or any of the powers and duties conferred and imposed on the Court by this Act in
respect of the matters following, to be exercised or performed by the official liquidator, and
subject to control of the Court, that is to say, the powers and duties of the Court in respect of_
(a) holding and conducting meetings to ascertain the wishes of creditors and contributories;
(b) settling lists of the contributories and rectifying the register of members where required,
and collecting and applying the assets;
(c) requiring delivery of property or documents to the liquidator;
(d) making calls;
(e) fixing a time within which debts and claims must by proved:
Provided that the official liquidator shall not, without the special leave of the Court, rectify the
register of members, and shall not make any call without the special leave of the Court.
10. Other Miscellaneous Areas of Companies Act 2017 Page 209
Ch # 10: Other Miscellaneous Areas of Companies Act
This chapter is introduced to cover the areas of Companies Act 2017 that are not being
dealt with in any previous chapter i.e. the areas of
- Companies Established outside Pakistan

- Winding up of Unregistered Companies
- Refusal of documents by registrar
- Miscellaneous

 Companies Established outside Pakistan
 Winding up of Unregistered Companies
 Refusal of documents by registrar
 Miscellaneous
 Miscellaneous sections of Companies Act (not covered elsewhere)

(Sections: 427 to 468,471 to 473, 498, 500, 505)
100% except transitional provisions
Companies Established outside Pakistan

This Part shall apply to all foreign companies i.e. companies incorporated outside Pakistan
which establish or have a place of business or conduct business within Pakistan (Sec 434).
Establishing a place of business in Pakistan - Documents to be delivered (Sec 435, 436)
Every foreign company incorporated outside Pakistan having a place of business in Pakistan
within 30 days of Establishment of place in Pakistan shall deliver following to registrar:
 Certified copy of charter, statue, MOA & AOA or other instrument defining constitution in
English/Urdu (or translation in English/Urdu)
 Full address of Registered Office or principal office in the country of incorporation
 Return showing complete particulars of Principal Officer in Pakistan.
[Name (sur,former,father,husband), nationality (present,former), designation & addresses]
 Complete particulars of persons authorized to receive notices etc. together with his consent
 Full address of office in Pakistan, deemed to be Principal Office in Pakistan.
 List of directors, chief executive and secretary with following particulars:
Directors Individual
& CEO Present and former name and surname in full, his usual residential address,
his current nationality, and nationality of origin, and his business occupation,
if any, and other directorship which he holds;
Body Corporate
Corporate name and registered or principal office; and full name, address,
nationality and nationality of origin of each of its director
Secretary Individual
Present and former name and surname, and his usual residential address;
Body corporate
Corporate name and registered or principal office:
 Registrar shall maintain a register of foreign companies on paper or in any electronic form
under this Act in such form and manner as may be specified
 If any alteration is made or occurs in the above documents, addresses or particulars the
company shall, within 30 days of alteration, deliver to registrar a return containing the
specified particulars of the alteration and consent of new persons specified (if any).
Service of notice or documents on foreign company (Sec 440)

Deemed to be sufficiently served
 By giving to person authorized in this behalf (left or sent by post at his address).
 By serving at any place of business established in Pakistan against acknowledgement or by
post or courier service or through electronic or other specified means where:
- Address of authorized person not provided
- Authorized person is dead, ceased to reside at provided address or refused to accept
the documents on company’s behalf.
Accounts of foreign companies (Sec 437)
Every foreign company shall in every year make out and file with registrar together with a list
of Pakistani members and debenture-holders the following accounts:
 Prescribed number of copies of financial statements (at least 3), as nearly as may be, like
companies registered in Companies Act 2017 in respect of operations in Pakistan.
(as if such operations had been conducted by a separate public company of Pakistan)
 Prescribed copies of annual statement of financial position and profit and loss accounts of
the company in English (or certified translation in English in case of any other language)
that it is required to file with an authority in country of incorporation; or
 Prescribed number of copies of financial statements (at least 3), as nearly as may be, like
companies registered in Companies Act 2017 in respect of the company (i.e. all operations)
(if it is not required to file with any authority in country of incorporation)
Time period for filing

Within earlier of
 45 days of date of submission to the public authority of country of incorporation, or
 Within 180 days of the date up to which accounts are prepared
Certain obligation of Foreign Companies (Sec 438)
 Maintain at Principal Office a register of Pakistani members and debenture holders which
shall be open to inspection.
 In prospectus, inviting share or debenture, state country of incorporation.
 State conspicuously name of company and country of incorporation outside every office in
English / Urdu (or one of the vernacular language used in that place, if outside local limits)
 Also state above particulars on every document.
 Mention liability, if limited, on each prospectus, advertisement & outside every place of
business in English or Urdu language.
Power of the SECP to require information from foreign companies (Sec 439)
 SECP may, at any time, call upon a foreign company to furnish information of shareholding
including beneficial ownership or such other information or document, as may be required
 It shall be the duty of company and its officers to furnish so within specified time.
 Contravention of this section shall attract a penalty of level 3.
Ceasing to have place of business - Intimation of to be given (Sec 443)

Such company shall at least 30 days before it intends to cease to have any place of business:
 Give a notice of such intention to the registrar; and
 Publish a notice of such intention at least in 2 daily newspapers circulating in the Province
or Provinces in which such place or places of business are situate.
[
(From date of intention obligation to delivery any document to registrar shall also cease)
Miscellaneous provisions:
What is a Place of Business (Sec 445)
Place of business includes a branch, management, share transfer or registration office, factory,
mine or other place of business. but does not include an agency
(unless agent has a general authority to negotiate and conclude contracts on behalf of
company or maintains a stock of merchandise belonging to company)
Following shall not be considered as a place of business

 Only dealings in Pakistan through an agent or broker
 Dealing through subsidiaries (incorporated, resident, or carrying on business in Pakistan)
Status of contracts on non compliance (Sec 441)
If company fails to comply with requirement of filing documents with registrar:

 It shall not affect the validity of any contract, dealing or transaction entered into by the
company or its liability to be sued.
 Company shall not be entitled to bring any suit, claim any set-off, make any counter-claim
or institute any legal proceeding in respect of any such contract, dealing or transaction
Provisions applicable on registered companies also applicable on these (Sec 442)
 Provisions relating to names (sec 10 to 13) shall, as far as applicable, also apply to these
 Power of inspection, inquiries and investigation shall likewise extend to such companies.
Issue of prospectus (Sec 446)
No person shall issue, circulate or distribute in Pakistan any prospectus offering for
subscription securities of a foreign company or soliciting deposits of money, whether it has or
has established or not a place of business in Pakistan unless authorised to do so by SECP.
Restriction on campaign for sale of securities (Sec 447)
 No person shall go from house to house offering securities of a foreign company for
subscription or purchase to the public or any member of the public.
 In this “house” shall not include an office used for business purposes.
If any foreign company fails to comply with any provisions of this Part; company, and every
responsible officer or agent of the company shall be liable to a penalty of level 1 (Sec 444)
Winding up of Unregistered Companies
What is Unregistered Co (Sec 427)
 Includes any Partnership, Association or Co consisting of more than 7 members.

 Not includes
- A Railway Co incorporated by UK or Pakistani Law
- A Co registered under any previous Companies Act or under Companies Act 2017.
Winding up of unregistered companies (Sec 428, 429, 433)
All provisions of this Act with respect to winding up shall apply to an unregistered company,
with the following exceptions and additions:
 No unregistered Company shall be wound up voluntary or subject to supervision of court

(Only By Court)
 For determining Court having jurisdiction
- Company shall be deemed to be registered in Province where its principal place of
business is situated
- If it has a principal place of business in more than one province, then proceeding can be
started in any such province
- Principal place of business where proceedings are started would be deemed to be
registered office of the company
 Circumstances of winding up are:
- If the Co is dissolved, or ceased to carry on business or is carrying on business to wind
up affairs.
- If Co is unable to pay debt.
- If Court thinks it just and equitable.
Company when deemed unable to pay debt
 A creditor having due balance of Rs. 50,000 or more, duly serves his notice to the company
in prescribed manner and company within 30 days neglects to pay, neither secures nor
compound for satisfaction of creditor.
 A suit has been instituted against any member for any sum due from the company or
member on behalf of Company; and a notice is served to company and company neither
pays nor secures within 15 days.
 Execution issued on a decree obtained in favor of creditor and it returned unsatisfied in
whole or in part.
 If it is otherwise proved to the satisfaction of Court that company is unable to pay debt.
[Court shall take into account Prospective & Contingent Liabilities]
If a company incorporated outside Pakistan ceases to carry on business in Pakistan, it may be

wound up as an unregistered company under this Part, notwithstanding that it has been
dissolved or otherwise ceased to exist as a company under or by virtue of any foreign law.
Who would be Contributories in winding up of unregistered companies
All those liable to pay or contribute to the

 Payment of any debt or liability of the company;
 Payment of any sum for the adjustment of the rights of the members among themselves; or
 Payment of the cost and expenses of winding up
If any contributory dies or gets insolvent, legal representatives and heirs of deceased one and
assignees of insolvent contributories shall be consider contributory.
If unregistered company has no power to suit or to be sued in common name (Sec 432)
 Court may order all properties, interests, rights & obligations to be vest in the Official
liquidator.
 Official liquidator may, after giving indemnity as directed by court, bring or defend in his
official name any suit or proceedings
Refusal of documents by registrar
Registrar not to accept defective documents (sec 464)
Registrar may require the company to file revised document on specified form & within
specified time, if in the opinion of the registrar, any document required or authorized by or
under this Act to be filed or registered with the registrar:
 Contains any matter contrary to law, or does not comply with requirements of law;
 Is not complete owing to any defect, error or omission;
 Is insufficiently legible or is written upon paper which is not durable;
 Is not properly authenticated;
If the company fails to submit revised document, registrar may refuse to accept or register the
document and communicate his decision in writing to the company.
Where the registrar refuses to accept any document, the same shall not be deemed to have
been delivered to him unless revised document provided in specified time.
If registration of any document is refused, the Co may either

 Supply the deficiency and remove the defect pointed out or,
 Within 30 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, an additional joint registrar, a deputy registrar, an assistant registrar
or such other officer as SECP may designate
- 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 etc
If a document has been accepted for record and its data or any information contained therein
or any of supporting documents subsequently found to be defective/incorrect/false/forged:
 Registrar may, for special reasons to be recorded in writing, allow the rectification in such
document or allow the filing of a revised document in lieu thereof.
 If it is not possible of rectification etc or it was accepted by mistake, registrar may, for
special reasons to be recorded in writing, cancel the recording thereof.
Disputes relating to shareholding and directorship and the registrar (Sec 466)
The registrar shall have no jurisdiction to determine the rights of the parties relating to
shareholding and directorship.
Acceptance of documents presented after prescribed time (Sec 468)
 Where any document required or authorized by or under this act to be filed or registered
with registrar within a specified period is presented after the expiry of such period, the
registrar may accept same:
- On payment by the company or other person concerned of following fee:
# 2 times fee for filing within 90 days of actual due time
# 3 times fee for filing within 180 days of actual due time
# 4 times fee for filing within 1 year of actual due time
# 5 times fee for filing within 2 years of actual due time
(This provision is not applicable to Public Interest Company)
- No such document shall be deemed to have been filed with the registrar until the
specified has been paid in full.
 Acceptance of the document by the registrar shall not absolve the company or other person
concerned of any liability arising from the default, delay in filing or other failure to comply
with the requirements of Act.
 No proceeding shall be initiated against the company or any of its officers on account of
delay if the above mentioned fee have been paid.
Miscellaneous
Filing of documents
Filing of documents electronically (Sec 471)

 SECP may provide any means or mode for filing, any document, return or application
required to be filed, lodged or submitted with the SECP or the registrar under this Act or
the rules or regulations made thereunder electronically.
 Any additional information or document required to be submitted with any document to be
filed shall also be submitted through electronic means including scanned form.
 Any electronically submitted document shall be authenticated by affixing electronic
signature or advanced electronic signature, as per Electronic Transactions Ordinance, 2002
 From date appointed by SECP through notification in official Gazette any document, return
or application required to be filed, lodged or submitted with SECP or registrar under this
Act or the rules or regulations made thereunder, shall only be lodged, filed or submitted
electronically through e-service or any other means or service provided by SECP
 SECP may relax requirement of this section for a company or class of companies, for such
document, return or application and for such time as may be notified from time to time.
Destruction of physical record (Sec 472)

 Record of companies including statutory returns and applications, maintained by registrar
and SECP shall be preserved for such period as SECP may determine
 Such record may be destroyed in the manner as may be specified
 Physical record converted into electronic shall be admissible evidence in legal proceedings.
Supply of documents, information, notices to the members electronically (Sec 473)

 After a date notified by SECP, the information, notices and accounts or any other document
to be provided by the company to its members under this Act, shall only be provided
electronically on the email address provided by the members.
 Member requiring supply of any of above document shall bear the cost fixed by company
Other Requirements
Certification of Shariah compliant companies & Shariah compliant securities (Sec 451)
 No company shall claim that it is a Shariah compliant company unless it has been declared
Shariah compliant in such form and manner as may be specified.
 No person shall claim that a security, whether listed or not, is Shariah compliant unless it
has been declared Shariah compliant in such form and manner as may be specified.
 Company shall appoint any person for Shariah compliance, advisory, or audit only if that
person meets the fit and proper criteria and fulfills specified terms and conditions:
 This section shall not apply to a banking company or any other company which is required
to follow Shariah governance framework prescribed by SBP.
Approval of transfer of shares by the agents licenced by the SECP (Sec 467)
 The licence under this section may be granted by SECP in the manner and subject to such
conditions, and to persons having such qualification and infrastructure, as may be specified
 In case of companies to be notified, before making any application for registration of the
transfer of shares to the BOD, transferor and transferee shall appear before such agent;
who shall record the statement of both parties and forward a certified copy of statement to
the company for further necessary action.
 Agent shall maintain complete record of all the statements recorded by him including the
documents submitted by the parties, for a period of 10 years.
 Agent shall be responsible for the loss caused to any person due to any fault on his part, as
determined by the Court while deciding a case under section 126.
 Agent may charge the fee for the services rendered by him, not exceeding the limit notified
by the SECP.
 This shall not apply to transfer or transmission of shares by operation of law.
 SECP may at any time revoke the licence on being satisfied that agent has failed to comply
with any of the terms or conditions to which the licence is subject:
 Before such revocation SECP shall give to the agent notice in writing of its intention to do
so, and shall afford the association an opportunity to be heard.
Companies’ Global Register of Beneficial Ownership (Sec 452)
 Every substantial shareholder or officer of a company incorporated under Company law,

who is citizen of Pakistan (within meaning of Citizenship Act, 1951) including dual
citizenship holder (whether residing in Pakistan or not) having shareholding in a foreign
company or body corporate shall report to company his shareholding or any other interest
as may be notified by SECP, on a specified form within 30 days of holding such position.
 Foreign company means a company or body corporate incorporated outside Pakistan
(whether having a place of business or conducts in Pakistan or not)
 Company shall submit such information received by it during the year to registrar along
with annual return.
 Contravention of this section shall be an offence liable to a fine of level 1 and registrar shall
make an order specifying time to provide such information.
 If said directions of registrar not fulfilled, person shall be punishable with imprisonment up
to 3 years and with fine up to Rs 500,000/- or both.
 SECP shall keep such record in Companies’ Global Register of Beneficial Ownership.
 SECP shall provide the information to FBR or to any other agency, authority and court.
Prevention from fraud, money laundering & terrorist financing (Sec 453)
 Every officer of a company shall try to prevent commission of any fraud, offences of money
laundering including predicated offences as provided in Anti-Money Laundering Act, 2010
 Non compliance would attract an imprisonment up to 3 years and fine up to Rs.100 million
 If such officer has taken all reasonable measures available under the applicable laws within
his capacity to prevent commission of such offence, he shall not be liable under this section.
 Punishment provided under this section shall be in addition to any punishment attracted
under Anti-Money Laundering Act, 2010 (VII of 2010).
Misc sections of Co. Act not covered elsewhere (Extracts from bare Law)
448. Registration of charges
(1) The provision of sections 100 to 112 both inclusive, shall extend to charges on properties
in Pakistan which are created, and to charges on property in Pakistan which is acquired, by a
foreign company which has an established place of business in Pakistan:
Provided that references in the said sections to the registered office of the company shall be
deemed to be reference to the principal place of business in Pakistan of the company:
Provided further that, where a charge is created outside Pakistan or the completion of the
acquisition of property takes place outside Pakistan, clause (a) of the proviso to sub-section
(1) and sub-section (4) of section 100 shall apply as if the property wherever situated were
situated outside Pakistan.
(2) Where a company to which this section applies creates, or has created at any time before
establishing a place of business in Pakistan, a charge on any property otherwise registerable
under this Act it shall register the same with the registrar in accordance with the provisions of
this Act-
(a) within thirty days of the establishment of a place of business in Pakistan; or
(b) if the charge was created before the commencement of this Act and subsisted immediately
before such commencements, within ninety days thereof.
449. Notice of appointment of receiver
The provisions of section 113 and 114 shall mutatis mutandis apply to the case of all foreign
companies having an established place of business in Pakistan and the provisions of section
220 shall apply to such companies to the extent of requiring them to keep at their principal
place of business in Pakistan the books of account required by that section with respect to
money received and expended, sales and purchases made, and assets and liabilities in relation
to its business in Pakistan:
Provided that references in the said section to the registered office of the company shall be
deemed to be reference to the principal place of business in Pakistan of the company.
450. Notice of liquidation
(1) If a foreign company having an established place of business in Pakistan goes into
liquidation in the country of its incorporation, it shall–
(a) within thirty days give notice thereof to the registrar, and simultaneously publish a notice
at least in two daily newspapers circulating in the Province or Provinces or the part of
Pakistan not forming part of a Province, as the case may be, in which its place or places of
business are situated and furnish to the registrar within thirty days of the conclusion of the
liquidation proceedings all returns relating to the liquidation and the liquidation account in
respect of such portion of the company’s affairs as relates to its business in Pakistan; and
(b) cause, in legible letters, a statement to appear, on every invoice, order, bill-head, letter
paper, notice of other publication in Pakistan, to the effect that the company is being wound
up in the country of its incorporation.
(2) Where a company to which this section applies has been dissolved, or has otherwise
ceased to exist, no person shall, after the date of such dissolution or cessation, carry on, or
purport to carry on, any business in Pakistan in the name or on behalf of such company.
(3) Nothing in this section shall be construed as preventing a company to which this section
applies from being wound up in Pakistan in accordance with the provisions of this Act,
notwithstanding that it has neither been dissolved nor otherwise ceased to exist in the country
of its incorporation.
454. Free Zone Company
(1) A company incorporated for the purpose of carrying on business in the export processing
zone or an area notified by the Federal Government as free zone, shall be eligible to such
exemptions from the requirements of this Act as may be notified in terms of section 459.
(2) The Commission may, for the protection of foreign investors and to secure foreign
investment, restrict the disclosure of information maintained by the registrar regarding
promoters, shareholders and directors of the company incorporated under sub-section (1),
who are foreign nationals unless such disclosure of information is authorized by the company
in writing:
Provided that the restriction of non-disclosure contained in this section shall not apply to the
revenue authorities collecting tax, duties and levies or requirement or obligation under
international law, treaty or commitment of the Government.
(3) A company formed for the purposes stated in sub-section (1) may be dispensed with the
words “Private Limited” or “Limited” as the case may be, and called as the “Free Zone
Company” having the parenthesis and alphabets "FZC" at the end of its name.
(4) A Free Zone Company shall pay the annual renewal fee as specified in the Seventh
Schedule.
455. Filing of documents through intermediaries
(1) A person may, for the purpose of filing of documents under this Act, avail services of
intermediary as may be specified.
(2) An intermediary intending to provide services in terms of sub-section (1) must possess the
requisite qualification and be registered with the Commission in the manner as may be
specified.
(3) The registration as intermediary under this section shall be liable to be cancelled by the
Commission on such grounds and in such manner as may be specified after providing an
opportunity of being heard.
456. Acceptance of advances by real estate companies engaged in real estate projects
(1) Notwithstanding anything contained in this Act or any other law, any company which
invites advances from public for real estate project shall comply with the provisions of this
section in addition to those provided in the other provisions of this Act.
(2) A company engaged in real estate project shall_
(a) not announce any real estate project, unless it has obtained the approval of the
Commission and all necessary approvals, permissions or NOCs etc., of the concerned
authorities required as per applicable general, special and local laws, having jurisdiction over
area under which the real estate project is being developed or undertaken to the satisfaction
of the Commission and subject to such additional disclosure requirements as may be notified;
(b) not make any publication or advertisement of real estate projects, unless it has obtained
the approval of the Commission and all necessary approvals, permissions or NOCs etc., of the
concerned authorities required as per applicable general, special and local laws, having
jurisdiction over area under which the real estate project is being developed or undertaken to
the satisfaction of the Commission and subject to such additional disclosure requirements as
may be notified;
(c) not accept any advances or deposits in any form whatsoever against any booking to sell or
offer for sale or invite persons to purchase any land, apartment or building, as the case may be,
in any real estate project or part of it, unless it has obtained the approval of the Commission
and all necessary approvals, permissions or NOCs, of the concerned authorities required as
per applicable general, special and local laws, having jurisdiction over area under which the
real estate project is being developed or undertaken to the satisfaction of the Commission and
subject to such additional disclosure requirements as may be notified;
(d) not accept a sum against purchase of the apartment, plot or building, as the case may be, as
an advance payment from a person without first entering into a written agreement for sale
with such person except nominal fee for application;
(e) maintain and preserve such books of account, records and documents in the manner as
may be specified;
(f) deposit any sum obtained from the allottees, from time to time, in a separate escrow
account opened in the name of the project as may be specified;
(g) comply with any directions notified by the Commission and accounting framework as may
be notified; and
(h) do or not to do any act or activity as may be specified.
(3) For the purposes of this section the escrow accounts shall be dedicated exclusively for
carrying out the project and no attachment shall be imposed on the payment of such escrow
accounts for the benefit of creditors of the real estate company except for the purpose of
project and the real estate company shall recognize its income in accordance with
International Financial Reporting Standards notified by the Commission.
(4) The Commission shall provide copy of any returns or information submitted by real estate
company free of cost to the concerned authority, on their request, to enable such authority to
regulate real estate project under its jurisdiction in accordance with the applicable laws.
(5) The conditions laid down under this section shall be in addition to and not in derogation of
requirement of law and concerned authority under whose jurisdiction the project is being
undertaken by the real estate company shall continue to exercise its authority in a manner
provided in the relevant law.
(6) Any person who contravenes the provisions of this section shall be guilty of an offence
which is liable to a penalty of level 3 on the standard scale.
Explanations._For the purposes of this section the-
(i) expression “real estate project” shall include projects for the development and construction
of residential or commercial buildings or compounds and shall not include other construction
project;
(ii) expression “authority” shall include authority created or prescribed under any law which
has powers to give permission for planning and development of real estate project in specific
area.
457. Agriculture Promotion Companies
(1) Notwithstanding anything contained in this Act or any other law for the time being in
force, any person, having its Principal line of business related to produce for agriculture
promotion or managing produce as collateral or engaged in any activity connected with or
related to any Produce or other related activities may establish Agriculture Promotion
Company under this section in such form and manner and subject to such terms, conditions
and limitations as may be specified.
Explanation._For the purpose of this section:
(a) “Agriculture Promotion Company” includes a Producer Company or a Collateral
Management Company involved in Produce or any other company or class of companies or
corporate body or any other entity as the concerned Minister- in-Charge of the Federal
Government may, by notification in the official Gazette specify as Agriculture Promotion
Company under this section;
(b) “Produce” means-
(i) produce of farmers, arising from agriculture (including animal husbandry, forest products,
re-vegetation, bee raising and farming plantation products), or from any other activity or
service which promotes the farming business; or
(ii) any product resulting from any of the above activities, including by-products of such
products;
(iii) any activity which is intended to increase the production of anything referred to in above
sub-clauses or improve the quality thereof;
(2) Producer Company means any company, with or without share capital, formed under this
section by farmers and engaged in any activity connected with or related to any Produce
including the following matters-
(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export
of produce of the members or import of goods or services for their benefit;
(b) processing including preserving, drying, distilling, brewing, canning and packaging of
produce of its members;
(c) rendering technical services, consultancy services, training research; and development and
all other activities for the promotion of the interests of its Members;
(d) arranging insurance of produce; and
(e) financing of procurement, processing, marketing, extending of credit facilities including
microfinance subject to such terms and conditions as may be specified, or any other financial
services to its members;
(3) Every Producer Company shall deal primarily with the produce of its members for
carrying out any of its activities.
(4) For the purposes of this section, member of a Producer Company means farmers as
promoters and sponsors of a Producer Company and farmers admitted to membership after
registration in accordance with requirements as specified in the regulations.
(5) Collateral Management Company means any company formed under this section to engage
in the activity of managing produce as collateral, including but not limited to the following
matters:
(a) warehousing, i.e. provision of quality storage and preservation services for a range of
agricultural commodities;
(b) issuance of credible warehouse receipts for agricultural commodity financing; and
(c)stock audit and verification services;
(6) If an Agriculture Promotion Company or Collateral Management Company or Producer
Company or their members indulges in any activity which is prejudicial to the interests of
farmers, members, lending institutions, commodity exchange, consumers, or other
stakeholders, shall be liable to a penalty of level 3 on the standard scale.
(7) Any dues outstanding against agriculture promotion company under this section shall be
recoverable as arrears of land revenue.
(8) Notwithstanding any provision of this section, the Government or any institution or
authority owned and controlled by the Government may form an Agriculture Promotion
Company.
458. Power to give exemptions by the Federal Government
Notwithstanding anything contained in this Act or any other law, the concerned Minister-in-
Charge of the Federal Government may, by notification in the official Gazette exempt
companies under sections 454, 456 and 457 from any provisions of law for the time being in
force.
459. Quota for persons with disabilities in the public interest companies
Every public interest company, employing one hundred or more employees shall ensure
special quota for employment of persons with disabilities of two percent or such higher
percentage as may be specified or required under the applicable Federal and Provincial law:
Provided that in case of any conflict between this Act and any other Federal or Provincial law
for persons with disabilities, the later shall apply.
460. Valuation by registered valuers
(1) Where a valuation is required to be made in respect of any property, stocks, shares,
debentures, securities or goodwill or any other assets (herein referred to as the assets) or net
worth of a company or its liabilities under the provisions of this Act, it shall be valued by a
person having such qualifications and experience and registered as a valuer in such manner,
on such terms and conditions as may be specified.
(2) The valuer appointed under sub-section (1) shall_
(a) make an impartial, true and fair valuation of any assets which may be required to be
valued;
(b) exercise due diligence while performing the functions as valuer; and
(c) not undertake valuation of any assets in which he has a direct or indirect interest or
becomes so interested at any time before submission of the report.
(3) The valuer shall prepare his report in such manner and applying such approaches, as may
be specified.
(4) If a valuer contravenes the provisions of this section or the regulations made thereunder,
the valuer shall be liable to a penalty of level 2 on the standard scale:
Provided that if the valuer has contravened such provisions with the intention to defraud the
company, its members or creditors, he shall be punishable with imprisonment for a term
which may extend to one year and with fine which may extend to five hundred thousand
rupees.
(5) Where a valuer has been convicted under sub-section (4), he shall be liable to_
(a) refund the remuneration received by him to the company; and
(b) pay for damages to the company or to any other person for loss arising out of incorrect or
misleading statements of particulars made in his report.
(6) The registration as valuer under this section shall be liable to be cancelled by the
Commission on such grounds and in such manner as may be specified after providing an
opportunity of being heard.
461. Security clearance of shareholder and director
The Commission may require the security clearance of any shareholder or director or other
office bearer of a company or class of companies as may be notified by the concerned Minister-
in-charge of the Federal Government.
462. Registration offices
(1) For the purposes of the registration of companies and other work under this Act, there
shall be offices at such places as the Commission thinks fit.
(2) The Commission may appoint such registrars as it thinks necessary for the registration of
companies and performing other duties under this Act, and may make regulations with
respect to their duties.
(3) While performing their functions and duties under this Act, all registrars shall observe and
follow the order and instructions of the Commission.
(4) The Commission may direct a seal or seals to be prepared for the authentication of
documents required for or connected with the registration of companies.
(5) Any person may, in the manner as may be specified, inspect the documents kept by the
registrar and may require a certified copy of certificate of incorporation or any other
certificate of any company, or a copy or extract of any other document or register maintained
by the registrar or any part thereof on payment of the fees specified in the Seventh Schedule.
(6) A copy of or an extract from any document filed or lodged, whether in electronic or
physical form, with the Commission or the registrar under this Act or the rules or regulations
made thereunder or supplied or issued by the Commission or the registrar and certified to be
a true copy thereof or extract therefrom under the hand and seal of an officer of the
Commission or the registrar, shall be admissible in evidence in any proceedings as of equal
validity as the original document.
(7) Where a document is filed or lodged, whether in electronic or physical form, with the
Commission or the registrar, the Commission or the registrar shall not be liable for any loss or
damage suffered by any person by reason of any error or omission of whatever nature arising
or appearing in any document obtained by any person under the e-service or in physical form
under this Act or the rules or regulations made thereunder, if such error or omission was
made in good faith and in the ordinary course of the discharge of the duties of the Commission
or the registrar or occurred or arose as a result of any defect or breakdown in the service or in
the equipment used for the provision of the e-service.
(8) Wherever any act is by this Act directed to be done to or by the registrar it shall, until the
Commission otherwise directs, be done to or by the existing Registrar of Companies or in his
absence to or by such person as the Commission may for the time being authorise; but, in the
event of the Commission altering the constitution of the existing registration offices or any of
them, any such act shall be done to or by such officer and at such place with reference to the
local situation of the registered offices of the companies to be registered as the Commission
may appoint.
463. Production of documents kept by registrar
(1) No process for compelling the production of any document or register kept by the registrar
shall issue from any court except with the special leave of that court for reasons to be
recorded; and any such process, if issued, shall bear thereon a statement that it is issued with
the special leave of the court so granted and state the reasons for grant of such leave.
(2) A copy of, or extract from, any document or register kept and registered at any of the
offices for the registration of companies under this Act, certified to be a true copy under the
hand of the registrar (whose official position it shall not be necessary to prove) shall, in all
legal proceedings, be admissible in evidence as of equal validity with the original document.
(3) Notwithstanding anything contained in any other law, no one shall, without the permission
of the Commission in writing, take over or remove any original document or register from the
custody of the registrar.
465. Special return to rectify the data
(1) The Commission or the registrar may at any time, by a general or specific order, require a
company or class of companies or all the companies to file a special return signed by all the
directors to rectify the record.
(2) The information provided in the special return filed under this section shall be a
conclusive evidence of all the relevant facts and shall not be called in question by any of the
person who has signed it.
(3) The persons who have signed the special return shall be responsible for the loss caused to
any person on account of incorrect information provided in the return filed under this section.
(4) A company shall inform the registrar about any change of more than twenty five percent in
its shareholding or membership or voting rights in a manner as may be specified by the
Commission.
498. Liability of directors for allotment of shares for inadequate consideration.
(1) 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.
(2) Every director of the company who is a party to making the allotment of such shares shall
be liable, jointly and severally with his co-directors, to make good to the company the amount
by which the consideration actually received by the company for the shares is found by the
Court, after full inquiry into the circumstances of the transaction, to be less than the
consideration that the company ought to have received for such shares, if it is proved, as to
any such first mentioned director, that such director-
(a) had knowledge that the consideration so received by the company was inadequate; or
(b) failed to take reasonable steps to ascertain whether such consideration so received by the
company was in fact adequate.
500. Penalty for carrying on ultra vires business.
If any business or part of business carried on or any transaction made, by a company is ultra
vires of the company shall be an offence and 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 penalty of
level 3 on the standard scale, and shall also be personally liable for the liabilities and
obligations arising out of such business or transaction.
505. Application of Act to companies governed by special enactments
(1) The provisions of this Act shall apply_

(a) to insurance companies, except in so far as the said provisions are inconsistent with the
provisions of the Insurance Ordinance, 2000 (XXXIX of 2000);
(b) to banking companies, except in so far as the said provisions are inconsistent with the
provisions of the Banking Companies Ordinance, 1962 (LVII of 1962);
(c) to modaraba companies and modarabas, except in so far as the said provisions are
inconsistent with the provisions of the Modaraba Companies and Modaraba (Floatation and
Control ) Ordinance, 1980 (XXXI of 1980);
(d) to any other company governed by any special enactment for the time being in force,
except in so far as the said provisions are inconsistent with the provisions of such special
enactments.
(2) The provisions of sections 130, 132, 220 to 239, 247 to 267, 270 and 271 shall mutatis
mutandis apply to listed companies or corporations established by any special enactment for
the time being in force whose securities are listed and in the said sections the expression
“company” shall include a listed company so established:
Provided that the Commission may, by notification in the official Gazette, direct that the
provisions of any of the aforesaid sections specified in the notification shall, subject to such
conditions, if any, as may be so specified, not apply to any listed company or securities so
specified.
"Startup company" means a company that

(a) is in existence lor not more than ten years from the date of its incorporation or such other
period or periods as may be specified;
(b) has a turnover for any of the financial years since incorporation that is not greater than
five hundred million rupees or such other amount or amounts as may be specified;
(c) is working towards the innovation, development or improvement of products or processes
or services or is a scalable business model with a high potential of employment generation or
wealth creation or for such other purposes as may be specified; or
(d) such other companies or classes of cornpanics as may be notified by the Commission:
Provided that a company formed by the splitting up or reconstruction of an existing company

shall not be considered as a startup company:
11. Introduction to Share Capital Page 229
Ch # 11: Introduction to Share Capital
After learning the basics of the Companies Act and the procedure regarding the
incorporation of companies, lets move on to the concept of share capital. As per the
Companies Act 2017, ‘Share’ means a share in the share capital of the company. So any
sort of share in the overall share capital of the company shall be regarded as a ‘share’. In
this chapter we shall be starting with the basics of share capital and would be moving to
the procedures regarding different alterations in authorised as well as paid up capital of
the company including the reduction of share capital.
Basics of share capital as elaborated in this chapter include types of share capital
including the rules regarding share certificate of the company. Apart from the different
alterations we shall also be focusing on the process to transfer the shares and remedies
available to shareholder in case of a refusal to the said transfer application.

 Introduction to Share Capital
 Transfer and Transmission of Shares
 Alteration in Authorised Capital
 Reduction of Share Capital
A 1.1: Companies Act, 2017 (Section 25, 60-62, 71-80, 85-87, 89-97)
(Regulation 13, 16, 16A & 17)
Introduction to Share Capital
Publication of authorized as well as paid-up capital (Sec 25)
 If any notice, advertisement or other official publication of a company contains a statement

of amount of authorised capital of company, such document shall also contain a statement in
equally prominent position and conspicuous characters of amount of the paid up capital.
 Default shall attract a penalty of level 1.
Authorised Capital
Maximum amount of share capital with which company is registered
Paid up Capital
Nominal value (Face value) of shares (in each class) that have been issued to the
Tutor shareholders against full payment.
Note (Company is liable for this amount)
Partly Paid up Capital

The amount of share capital against which company has not received any cash
Uncalled Capital
That part of partly paid up capital that is not called up by the company
(In case of winding up, companies can call the unpaid portion of the share capital,
till that time it is called as uncalled capital)
Shares and the Share Certificate
Features of a share and the share certificate (Sec 60, 61, 62, 71)
 Every share shall be distinguished by its distinctive number:

 This requirement would not apply where a share is held by a person through CDS.
 Shares or other securities of any member shall be movable property transferable in the
manner provided by AOA of the company.
 Share certificate shall be prima facie evidence of the title of such shares, whether:
- Issued in physical form under signature of authorised officer of the company; or
- Issued in book-entry form (specifying shares held by any person through CDS).
 Manner of issue of a certificate of shares, form of such certificate and other matters shall be
such as may be specified.
 Every company shall issue certificates of shares or other securities within 30 days after the
allotment and ensure delivery of certificates to the person entitled at his registered address
(Violation, of the 30 days limit, shall be an offence liable to a penalty of level 1)
Tutor
Note

Issue of certificate of shares
 Physical certificate of shares of a company shall be issued in following manner:
- In pursuance of a resolution passed by the Board; and
- On surrender to the company of letter of allotment, (except issues against letters of
acceptance or of renunciation), or in cases of issue of bonus shares:
 No new certificate (subdivided, consolidated) or duplicate certificate (in lieu of those
which are defaced, torn or old decrepit, worn-out, or in cases where space for recording
transfers has been duly utilized), unless the original certificate is surrendered to the
company.
 The certificate of shares issued in physical form shall specify the
- Certificate number
- Folio number
- Name of company
- Authorized and paid up capital of company at time of issuance of certificate
- Date of issue
- Name(s) of the person (s) in whose favor the certificate is issued
- Class and kind of share
- Par value of share
- In case of transfer, name of transferee, date of transfer, signature of authorized
officer of company
 For duplicate share certificate, date of initial issuance along with word “DUPLICATE” shall
be mentioned on the certificate.
 Share certificate shall be issued under company’s common seal, affixed in the presence of,
and signed by 2 directors duly authorized by the Board for the purpose
(For SMC shall be affixed and signed by the single director)
Prohibition on issuance of bearer shares or bearer share warrants, etc (Sec 60A)
 Company shall not allot, issue, sell, transfer or assign any bearer shares, bearer share
warrants or any other equity or debt security of a bearer nature, by whatever name called
 Any such allotment, issue, sale, transfer, assignment or other disposition shall be void.
 Bearer means a negotiable instrument that accords ownership or control in a company to
the person who possess such instrument
 All existing bearer shares or bearer share warrants, if any, shall either be registered or
cancelled, in such manner and within such period, as may be specified.
 Contravening this section shall attract penalty of
- 1 Million (to a director or officer of the company or any other person); and
- 10 Million (to the Company)
Reg # 16A - Companies (General Provisions & Forms) Regulations, 2018

Procedure for registration or cancellation of securities of bearer nature
If a company has issued any equity or debt security of a bearer nature before sec 60A:
 It shall, within 3 months of enforceability of sec 60A, publish a notice (Form 40), in at least
1 daily English and Urdu language national newspaper having wide circulation in province
in which the registered office of the company is situated, requiring the holders to
surrender such securities to the company for their registration in the name of the holders.
 Every holder shall, within 3 months of publication of notice, surrender same to company.
 Company shall, after making appropriate enquiry, enter the name of holder in the register
 Where holder fails to surrender securities to company, company shall within 3 months of
deadline for surrendering apply to court for an order for cancellation of security (w.e.f
date of order), as per sec 89, and shall also publish a notice in at least 1 daily English and
Urdu language national newspaper having wide circulation in the province in which the
registered office of the company is situated, within 14 days of application to court.
 Any such security shall be duly accounted for in next annual return to be filed by company.
 A company which has issued bearer securities prior to coming into force of this provision
shall prepare and maintain a register of number of such securities (Form 41), containing
particulars of holders of securities, date of their issue, surrender and cancellation, if any.
Issuance of shares in book-entry form (Sec 72)

 After commencement of this Act from a date notified by SECP, a company having share
capital, shall have shares in book-entry form only.
 Every existing company shall be required to replace its physical shares with book-entry form
in a specified manner:
- From the date notified by SECP, within 4 years from the commencement of this Act
- SECP may notify different dates for different classes of companies:
- SECP may, if deem fit, extend the period (of 4 years) for another 2 years.
Nothing in this section shall apply to the shares of such companies or class of companies as may be
notified by the SECP.

Issuance of shares in book-entry form
Subsequent to notification u/s 72, all companies required to replace its physical shares with
book-entry form shall apply to a CDC for declaration of company’s shares as eligible securities
and comply with requirements of CDC for issuance of shares in book entry form
Issue of duplicate certificates (Sec 73)
 Duplicate shall be issued by company within 30 days from date of application if original:
- is proved to have been lost or destroyed, or
- having been defaced or mutilated or torn is surrendered to company.
 Company shall issue duplicate after making inquiry and on terms & conditions deem fit
 Company may charge fee and actual expenses incurred on inquiry.
 If Company, for any reasonable cause, is unable to issue duplicate certificate, it shall notify
this fact with reasons within 20 days of application
If a company with intent to defraud, issues duplicate certificate, it shall be punishable with fine up
to Rs 100,000; and every officer of who is in default shall be punishable with imprisonment for a
term which may extend to 180 days, or with fine which may extend to Rs 50,000, or with both.
Transfer and Transmission of Shares
Transfer of shares and other securities (Sec 74)
 Application for transfer may be made either by transferor or transferee

 Co shall not register a transfer unless proper instrument of transfer duly stamped and
executed by transferor and transferee has been delivered to company.
 Company shall within 15 days of application, complete the process and:
- Ensure delivery of the certificates to transferee at his registered address; and
- Enter in its register of members the name of the transferee:
 In case of conversion of physical shares etc into book-entry form, company shall, within 10
days of application, register such transfer in the name of the CDC:
 Where transfer deed is lost, destroyed or mutilated before lodgment,
- Application made by transferee bearing stamp required by instrument of transfer
- Transferee shall prove to directors that transfer deed is lost / destroyed / mutilated.
 Co may demand such indemnity as it may think fit before registering the transfer
 Register of transfers of shares and other securities shall be maintained at registered office
- Such register shall be open to inspection by the members
- Supply of copy just like section 124 (Members’ Register).
 Section shall also apply to registering transmission by operation of law.
This section shall not apply to any transfer of shares or other securities pursuant to a transaction
executed on the securities exchange.
Transfer of shares in case of a private company (Sec 76)
 A member of a private company, desirous of selling any shares, shall intimate BOD his
intention through a notice.
 BOD shall within 10 days, offer those shares for sale to the members in proportion to their
existing shareholding:
 The letter of offer for sale shall be dispatched to the members through registered post or
courier or through electronic mode, specifying:
- Number of shares to which the member is entitled
- Price per share
- Time limit, within which the offer, if not accepted, be deemed as declined.
 If whole or any part of shares offered is declined or is not taken, BOD may offer such shares
to other members in proportion to their shareholding.
 If all members decline to accept the offer or if any shares are left over, shares may be sold to
any other person as determined by the original member (who initiated the offer)
 The mechanism to determine the price of shares shall be such, as may be specified.

Transfer of shares by member of a private company
 A member of a private company (other than SMC), desirous to sell any share(s) held by
him shall intimate the board of his intention through a notice.
 Transferor shall offer shares for sale at a specific price or at some other price arrived at
through negotiation between offering member and the board of directors.
 In case all the members decline to accept the offer or if any of the shares are left over, the
shares may be sold to any other person (but not at a price lower than the offered price)
 Nothing in this regulation shall apply to—
- Transfer of qualification shares required by the director u/s 200 of the Act; or
- Shares, which are required to be transferred by operation of law; or
- Shares, which have been gifted to family;
(“spouse”, “children”, “siblings”, lineal ascendants and descendants)
Refusal of Transfer
Directors not to refuse transfer of shares (sec 75)
 Directors shall not refuse unless transfer deed is defective or invalid

 Within 15 days of deposit of instrument of transfer notify defect/invalidity to transferee
(if transferee is CDC: within 5 days)
 Applicant shall be entitled to relodge transfer deed after removal of defect/invalidity.
 AOA may impose any limitations & restrictions on this process for Private company.
Notice of refusal to transfer (Sec 77)
 Company shall, within 15 days after the date on which instrument of transfer was lodged
with the company, send to transferee notice of refusal indicating reasons for such refusal
 Failure by the company to give notice of refusal after the expiry of said period shall be
deemed refusal of transfer.
Appeal against refusal for registration of transfer (Sec 80)
 Transferor/Transferee/Successor in interest may appeal to SECP against any refusal to

register transfer/transmission
 Appeal to SECP may be preferred within 60 days of refusal
 SECP may direct Co to register the transfer or transmission or that it need not be registered
(Co shall give effect of the decision within 15 days of receipt of order)
 Not giving such effect shall attract a penalty of level 3
 Before making order, SECP may provide opportunity of hearing to the parties concerned.
 SECP may give such incidental & consequential directions as to payment of costs or
otherwise as it deems fit.
Transfer of shares in case of death of a member
Transfer to successor-in-interest (Sec 78)
 Shares etc of a deceased member shall be transferred on application with succession

certificate or by lawful award, in favour of the successors to the extent of their interests.
 Their names shall be entered in the register of members.
Difference between Transfer and transmission

Transfer means transferring shares to someone on a voluntary basis however transmissions
occurs by operation of law e.g on death the shares are transferred to the legal
representatives or in case of insolvency the shares are transferred to official assignee etc.
Note
Transfer to nominee of a deceased member (Sec 79)
 Any member may deposit with company a nomination to protect the interest of his legal
heirs in the event of his death
 On death of member, nominee shall be deemed as a member till the shares are transferred
to legal heirs.
 If the deceased was a director of company (other than listed), nominee shall also act as
director of company to protect the interest of the legal heirs.
 Transfer of shares to the legal heirs shall be subject to
- Islamic law of inheritance; and
- As per their respective law, in case of a non-Muslim members
 Nominee can only be member’s spouse, father, mother, brother, sister, son or daughter.
 Such nomination would not prejudice his right to transfer, dispose of or otherwise deal in
shares owned by him during his lifetime
Alteration in Authorised Capital
Power of company to alter its share capital (Sec 85)
 Company limited by shares, (if authorised by AOA), may alter conditions of MOA so as to
- Increase its share capital by such amount as it thinks expedient;
- Consolidate & divide whole or any part of its share capital into shares of larger amount
than its existing shares;
- Sub-divide shares, or any of them, into smaller amount than fixed by MOA
- Cancel shares which have not been taken or agreed to be taken by any person as at the
date of resolution for such, and diminish the amount of its share capital
(Such cancellation shall not be deemed to be a reduction of share capital)
 Rights attaching to new shares (or class) shall be same and strictly proportional to the rights
attaching to previous shares (or class) so consolidated or sub-divided
 New shares issued shall rank paripassu with existing shares in all matters including right to
bonus or right issue and dividend
 File with registrar notice of exercise of any such option within 15 days of exercise
Reduction of Share Capital
Reduction of share capital (sec 89)
With court confirmation; Company limited by shares (if authorised by AOA), may by special
resolution reduce its share capital in any way, and may
 Cancel any paid-up share capital which is lost or un-represented by available assets
 Pay off any paid-up share capital which is in excess of the needs of Co;
Process of Reduction (Sec 90 to 93)
 Pass Special resolution
 Apply to court for sanctioning order
 Court shall fix a date to settle a list of objecting creditors
 All creditors, who are entitled to any debt or claim on date fixed by court, must be entered in
that list till that date and their consent must be taken by the company
 Court shall dispense with the requirement of consent of creditor, where company agrees to
secure payment of his debt or claim
- Full amount or
- Amount fixed by court (where company doesn’t admit his debt or claim).
 Court may make an order confirming the reduction, If satisfied that either consent of entitled
creditor obtained or his debt / claim been discharged / determined / secured
 Certified copy of order of court confirming reduction filed with registrar.

- Resolution for reducing share capital only effective if registered by registrar.
- Registrar shall issue certificate of registration of order
Same process for increase or reduction of share capital shall be followed by the companies limited
by guarantee and having a share capital, if authorised by its AOA (Sec 97)
Other Formalities regarding reduction of share capital
Publication of reasons for reduction (Sec 96)
Court may (if Court thinks fit) require the company to publish in manner specified by Court;
 Reasons for reduction, or
 Such other information as Court may think expedient, and
 Causes which led to reduction
Liability of members in respect of reduced shares (Sec 94, 95)
 A member of company, past or present, not be liable for the amount reduced
 Except liability of creditor not met by company; who (due to his ignorance) was not included
in list made by court and, after reduction, company is unable to pay his debt/claim (within
meaning of winding up by court provisions of Act); then
- Every person who was member of company at date of registration of order shall be liable
to contribute up to an amount he would have been liable to contribute for such
debt/claim if Co had commenced winding up before registration date; and
- If company is wound up; Court may, if thinks fit, on application (+ proof of ignorance) by
creditor, settle list of persons liable to contribute, make & enforce calls & orders on those
contributories as if they were ordinary contributories in winding up.
 Nothing in this section shall affect the rights of contributories among themselves
An imprisonment up to 1 year, or fine up to Rs 5 million or both applicable on officer(s) who

 Conceals the name of any creditor entitled to object to the reduction; or
 Willfully misrepresents the nature or amount of the debt or claim of any creditor; or
 Assist any such concealment or misrepresentation
Prohibitions on company regarding buy back etc (sec 86, 87)
Restrictions Exceptions to the restriction

1) Buy the shares of  If subsidiary company carries on a business of brokerage, on
its holding company behalf of its clients
(shall not exercise voting rights on shares of holding company)
 Subsidiary company acting as a trustee
(unless holding company is beneficially interested in the trust)
 If shares are held by a company by operation of law.
Any violation of this portion shall attract a penalty of level 2

2) Provide financial  A Private company (not being a subsidiary of a public company)
assistance (loan or  Lending of money by a banking company in ordinary course of its
advance etc) to business;
anyone for purchase  Provision of money in accordance with any scheme approved
of its own shares or through special resolution and in accordance with specified
shares of its holding requirements, if purchase of the shares held by a trust for benefit
of employees or such shares held by employee of the company;
 Provision or securing an advance to any of its employees
(including chief executive who, before his appointment was not a
director; and excluding all directors of company) for such
Any violation of this portion shall attract a penalty of level 1
12. Debentures Page 240
Ch # 12: Debentures
After going through the concepts of share capital and miscellaneous provisions related to
that, we are moving towards the Debt part (means debentures). As per the definition,
debentures are any security of a company evidencing debt.
This chapter shall be highlighting the provisions regarding debentures and different
securities provided by the company to its lenders in connection with these debentures.
This chapter shall also be highlighting the procedures to secure a loan when it’s in the
form of a series of debentures secured through (most probably) a single property.
Regarding the same issue, we shall be covering the concept of trustee and its rights &
obligations.
Moreover we shall also be covering the concept of some special form of debentures that
are not based on interest (rather they contribute in profit or loses of a company or a
venture). Whenever company issues such a debenture that is other than traditional way
of issuing, there exists a risk of miscommunication or misunderstanding regarding the
terms of these debentures. Section 66 of the Companies Act 2017 provides guidance to
secure the issuer as well as the investor in this regard.

 Introduction to Debentures
 Mortgages and Charges
 Series of debentures and the role of Trustee
 Securities Not Based on Interest
A 1.1: Companies Act, 2017 (Section 30, 63, 65, 66, 100-117)
A 1.4: Companies (General Provisions & Forms) Regulations, 2018 - Regulation 18
100% (except transitional provisions and save as provided in a tutor note)
Introduction to Debentures
Debenture – 2(24)
Includes debenture stock, bonds, term finance certificates or any other instrument of a company
evidencing a debt, whether constituting a mortgage or charge on the assets of the company or not;
Issue of debentures (Sec 63)
 A company may issue different kinds of debentures having different classes, rights and
privileges as may be specified.
 The rights, privileges and the procedure for the following must be specified
- Procedure for securing the issue of debentures
- Form of debenture trust deed
- Procedure for debenture holders to inspect the trust deed and to obtain a copy thereof.
Implied power to borrow (Sec 30)

MOA and AOA of a company shall be deemed to include the power to enter into any arrangement
for obtaining loans, advances, finances or credit, as defined in Banking Companies Ordinance,
1962 and to issue other securities not based on interest for raising resources from a scheduled
bank, a financial institution or general public.
Type of Securities
Mortgage or charge - 2(42)

An interest or lien created on the property or assets of a company or any of its undertakings or both as
security;
Pledge is ‘bailment’ of goods as security for repayment of a debt or performance

Moveable assets => Physical possession with lender
Mortgage is a “transfer of an interest in specific immovable property for the purpose of

Tutor securing the payment of money advanced or to be advanced by way of loan, an existing or
Note future debt or performance of an engagement which may give rise to a financial liability.
Immoveable assets =>Transfer of Title to lender
Charge is a security for payment of a debt or other obligation that does not pass ‘title of
property’ or any right to its possession to the person to whom the charge is given.
Any asset => A right to take possession in event of default to pay the loan
Fixed and Floating charge

Fixed Charge is created on specific assets (e.g Electric Motor – Model # 34658).. In this case
that particular asset cannot be sold; Floating charge is created on class of assets (e.g. stock –
not any specific item). In this case company can sell any asset that belongs to that class)
Mortgages and Charges
Requirements to register a mortgage or charge
Certain mortgages and charges to be void if not registered (Sec 100)
 Following pledges, mortgages and charges created by Co shall be registered by filing copy of
instrument + Particulars with registrar in specified manner within 30 days after creation
- For purpose of securing any issue of debentures
- On any immovable property wherever situate/any interest therein
- On any book debts of Company
- On any movable property of Co
- Floating charge on undertaking/property of Co including stock.
- On a ship or aircraft, or any share in a ship or aircraft
- On goodwill or on any intellectual property;
- Based on agreement for the issue of any instrument in nature of redeemable capital; or
- Based on conditional sale agreement, lease financing, hire-purchase, sale and lease back,
and retention of title, for acquisition of machinery, equipment or other goods:
 Registrar shall issue a certificate of registration under his signatures or his official seal in
such form and in such manner as may be specified.
 No mortgage or charge created by a company shall be taken into account by the liquidator
or any other creditor unless it is duly registered.
Special Case Duty to register it within 30 days after:

Mortgage / charge created outside Date on which instrument or copy could, in due course
Pakistan comprising property of post, and if dispatched with due diligence, have been
situated outside Pakistan received in Pakistan
Mortgage / charge created in Pak Creation; despite further proceedings may be
comprising property outside Pak necessary to make it valid according to law of that
country
Co acquires property (subject to a Date of acquisition
charge and charge not registered)
 Where a negotiable instrument has been given to secure the payment of any book debts,
Deposit of instrument to Co shall not be treated as a mortgage/charge on those debts
 Where any mortgage/charge is registered; any person acquiring such property/any part
/any share or interest therein, shall be deemed to have notice of mortgage/charge
 Any subsequent registration of a mortgage or charge shall not prejudice any right acquired
in respect of any property before the mortgage or charge is actually registered.
 This section shall not prejudice any contract or obligation for repayment of money secured.
On any modification in such mortgage or charge, it is duty of Co to send registrar particulars
of such modification + copy of instrument evidencing modification (Sec 106)
Duty of company and right of interested party as regard registration (Sec 105)
 Prime responsibility of registration with registrar is on Co

 However registration may be effected on application of any person interested therein.
 Such person entitled to recover from Co the amount of any fees properly paid by him
Rectification of register of mortgages (sec 108)
 SECP may (on application of Co/interested person) on terms and conditions seem just and
expedient, order for extension in time of registration or rectification on being satisfied that:
- Omission to register a mortgage/charge within 30 days, or
- Omission or mis-statement of any particular, or
was accidental or due to inadvertence or to some other sufficient cause, or is not prejudicial
to creditors/shareholders, or any other grounds just and equitable
 Certified copy of order of SECP shall be filed with registrar within 7 days of such order
 Extension in time shall not prejudice any rights acquired in respect of property concerned
prior to the time when the mortgage or charge is actually registered.
Payment or Satisfaction of Debenture
Company to report satisfaction of charge (Sec 109, 111)

 Duty of Company to give intimation to registrar of payment/satisfaction, in full, of any
registered charge or mortgage within 30 days from date of payment /satisfaction.
 Registrar shall then sent notice to holder of charge/mortgage to show cause, within fixed
time ≤ 14 days, why payment or satisfaction of charge/mortgage should not be recorded
- If no cause shown; Registrar shall order that a memorandum of satisfaction be entered in
register and shall furnish Co with a copy (if required by it)
- If cause is shown; Registrar shall record a note to that effect in register, and shall inform
Company about it
 Registrar shall not send above notice, if a No Objection Certificate (NOC) on behalf of the
holder of the mortgage or charge is furnished by the company
 If a company fails to file the particulars of satisfaction of mortgage or charge within 30 days,
required particulars may be submitted with the additional fee + Level 1 penalty
Power of registrar to make entries in absence of intimation from Company (sec 110)
 Registrar may, if satisfied by evidence (without intimation by company) make entries in

register that
- Debt has been paid or satisfied in whole or in part, or
- Part of the property or undertaking charged has been released from charge or has ceased
to form part of Co's property or undertaking
 Registrar shall also inform the parties concerned
Register and records of mortgages and charges
Maintained by Registrar (Sec 102 & 103)
 Registrar shall, in respect of every company, keep a register containing particulars of the
charges registered in such form and in such manner as may be specified.
 Register shall be open to inspection by a person on payment of prescribed fees
 Registrar shall keep chronological index, in specified form containing specified particulars
Maintained by the Company (sec 112)
 Every company shall maintain a register of mortgages and charges in specified manner
 Register and copies of instrument, creating any mortgage and charge or modification thereof,
shall be open to inspection of:
- Any member or creditor of the company without fee; and
- Any other person on payment of such fee as may be fixed by company
 Non compliance of this section shall attract a penalty of level 1
 In addition to above penalty, registrar may by order compel an immediate inspection
Every company shall keep at registered office, a copy of every instrument creating any mortgage
or charge or evidencing modification of the terms or conditions thereof (Sec 107).
Series of debentures and the role of Trustee
Series of debentures entitling holders pari passu
Particulars in case of series of debentures (Sec 101)
 File with registrar within 30 days after execution of deed containing charge or execution of
any debentures of the series (if there is no such deed) following particulars + copy of deed
verified in prescribed manner, or one of the debentures of series (if no such deed):
- Total amount secured by whole series;
- Dates of resolutions authorizing issue of the series and date of the covering deed, if any,
by which the security is created or defined;
- A general description of the property charged; and
- Names of the trustees, if any, for the debenture-holders; together with a copy of the deed
verified in the specified manner containing the charge
 Registrar shall, on payment of prescribed fee, enter those particulars in register:
 Where more than one issue is made of debentures in series, there shall be filed with registrar
for entry in register particulars of date and amount of each issue,
(Omission to do this shall not affect validity of debentures issued)

Verification of copies for purposes of sections 100, 101 and 106.
A copy of every such instrument or deed evidencing any charge or mortgage or pledge shall
be verified (to be a true copy) as follows:
For property relates, wholly or partly, to property situated in Pakistan
- By an affidavit of an authorized officer; or
- By a certification of the public officer having custody of the original document.
For property situated outside Pakistan
- By an affidavit of an authorized officer of company, or
- By an affidavit of a person interested in the mortgage or charge or pledge on behalf of any
person other than the company
Endorsement of certificate of registration on debenture or the certificate of debenture

stock (sec 104)
 The company shall cause a copy of every certificate of registration to be endorsed on every
debenture or certificate of debenture stock which is issued by company and is secured by it
 If the certificate of debenture or debenture stock is issued in book-entry form, appropriate
disclosure shall be made in the manner as may be specified
 Company not required endorsing instruments issued before mortgage/charge was created.
Powers and liabilities of trustee (Sec 65)
 Trustee nominated or appointed under trust-deed (if empowered by deed) shall have right
to sue for all redemption monies and interest in following cases:
- Co as mortgagor binds himself to repay debenture loan or pay accrued interest, or both,
in the manner provided on the due date;
- Mortgaged property is wholly or partially destroyed or security is rendered insufficient
(other than wrongful act or default of issuer) and trustee has given Co a reasonable
opportunity of providing further security adequate to render whole security sufficient
and Co has failed to do so;
- Trustee is deprived of whole or part of security by wrongful act / default of Co
- Trustee entitled to take possession of property and same not provided by Co
 Where a suit is brought, the Court may at its discretion stay the suit and all proceedings
therein, until the trustee has exhausted all his available remedies against mortgaged
property unless trustee abandons his security and, if necessary, retransfers property.
 Trustee or any person acting on his behalf (if authorised by trust-deed) shall sell, without
intervention of Court, mortgaged property or any part thereof in default of repayment
schedule of Principal or interest on the due date by Co.
Subsections deliberately not covered in notes to section 65
Subsections 4 to 7, being mere interpretation and savings of the bare law, are not covered in
these notes. If any student wishes to ensure completeness in this section, he or she may consult
Note bare law for the same.
Moreover sec 64 has not been discussed in this chapter considering its relevance with winding
up (priority of payments)
Receivers and Managers
Appointment of receiver or manager (Sec 113)
 In order to ensure enforcement of security of a company’s property, a receiver or manager

may be appointed by an order or under any powers contained in any instrument
 A notice of the fact shall be filed with the registrar within 7 days of order or appointment.
 Where a receiver or manager ceases to act registrar shall be intimated within 7 days.
 Registrar shall enter the same in the register of mortgages and charges.
 Any violation this section shall be an offence liable to a penalty of level 1.
Filing of accounts of receiver or manager (Sec 114)
 Every receiver who has taken possession shall within 30 days of expiry of every 180 days
while he remains in possession, and also within 30 days on ceasing to act as receiver, file
with registrar an abstract in specified form of his receipts and payments during that period
 Receiver shall also, within 15 days of ceasing to act as receiver, file with the registrar notice
to that effect, and registrar shall enter the notice in the register of mortgages and charges.
 Where a receiver has been appointed, every invoice, order for goods, or business letter
issued by or on behalf of the company or receiver, containing company’s name, shall contain
a statement that a receiver has been appointed.
 Above provisions shall apply to managers, under powers of instrument, in same manner
 Any contravention by receiver or manager shall be an offence liable to a penalty of level 1.
Disqualification for appointment as receiver or manager (Sec 115)
 Minor;
 Person who is of unsound mind and stands so declared by a competent court;
 A body corporate;
 A director of the company;
 An un-discharged insolvent unless he is granted leave by the court by which he has been
adjudged an insolvent; or
 A person disqualified by a Court from being concerned with or taking part in management
of the company in any other way, unless he is granted leave by the Court.
Application to Court (Sec 116)
 A receiver or manager may apply to Court for directions in relation to any particular matter
 Court may give such direction or make such order as the Court thinks just.
 A receiver or manager shall, to the same extent as if he had been appointed by order of a
Court be personally liable on any contract entered into by him, except in so far as contract
otherwise provides, and entitled in respect of that liability to indemnity out of the assets;
Power of Court to fix remuneration of receiver or manager (Sec 117)
 Court may, on application by receiver or manager, by order fix the remuneration

 Amount of remuneration shall not exceed such limits as may be specified.
 The power of the Court shall:
- Extend to fixing the remuneration for any period before making order or application;
- Be exercisable even if receiver/manager had died or ceased before order/application;
- Extend to requiring him, if deemed fit, to account for the excess or such part as may be
specified in the order (if receiver/manager has been paid for any period before order)
 On an application made by liquidator, receiver, manager or registrar; Court may vary or
amend an order made under this section and issue directions to the receiver respecting his
duties and functions or any other matter as it may deem expedient:
 Order shall not be varied to increase the amount of remuneration payable to any person.
Securities and Redeemable Capital - Not Based on Interest (Sec 66)
 A company may by public offer or, upon terms and conditions contained in an agreement,
issue any instrument in nature of redeemable capital in consideration of funds, moneys or
accommodations, whether in cash or in specie or against any promise, guarantee,
undertaking or indemnity issued to or in favour of or for the benefit of the company.
 It can be issued to one or more scheduled banks, financial institutions or any other person
notified by SECP (see circulars) either severally, jointly or through their syndicate
 Such agreement may include (in addition to others) all or any of following matters
- Mode and basis of repayment by Co within a certain time period;
- Arrangement for sharing of profit and loss;
- Creation of "participation reserve” by Co in manner provided in agreement for issue of
participatory redeemable capital in which all financers shall participate for interim &
final adjustment on maturity in accordance with terms & conditions
- If net loss on maturity; Right of holders to convert outstanding balance of capital/ part
into ordinary shares of Co at break-up price calculated in prescribed manner.
 Terms & conditions and rights for issue of such instruments not be challenged by the
company or any of its shareholders (unless conflicting with Act/MOA/AOA/Resolutions)
 The provision of this Act relating to the creation, issue, increase or decrease of the capital
shall not apply to the redeemable capital.
Redeemable Capital – 2(55)

 Includes sukuk and other forms of finances obtained on the basis of
- Participation term certificate (PTC)
- Musharika certificate
- Term finance certificate (TFC), or
- Any other security or obligation not based on interest
representing an instrument or a certificate of specified denomination, called the face value or
nominal value, evidencing investment of the holder in the capital of the company other than share
capital, on terms and conditions of the agreement for the issue of such instrument or certificate; or
 Such other certificate or instrument as the Minister of FG may, by notification in the official Gazette,
specify for the purpose (SECP Circular - Commercial Paper specified as redeemable capital)
Here “sukuk” represents investment in certificates of equal nominal value representing undivided
shares in ownership of tangible assets of particular project or specific investment activity, usufruct and
services;
Other persons specified for purpose of issue of these securities

 TFC in nature of redeemable capital may be issued to “Pension Fund trusts”
 Investment Finance Companies granted license by FG
 Registered Corporate Brokers
 Mutual Funds
 Trusts
Circulars  Provident Funds & Gratuity Funds
13. Further Issue of Share Capital Page 250
Ch # 13: Further Issue of Share Capital

This chapter deals with the stipulations of the law regarding the issuance of share capital
by companies. After the first issuance of shares, company can issue shares in different
forms e.g. right issue, private placement, other than right issue, bonus issue, issuance of
shares with varied rights and employees stock option scheme etc.
After you have completed the complete syllabus, it is recommended that this chapter shall
be read in conjunction with the initial units of the chapter of “Securities Act 2015” to
develop an overall understanding and mind map. This is important to note that this
chapter does not deal with first issue of capital and for the said rules, you are
suggested to see chapter # 16

 Issuance of shares at Discount
 Issuance of Shares on Premium
 Bonus Issue
 Further Issue of Capital
 Private Placement
 Issuance of shares with differential rights
 Employees Stock Option Scheme
 General conditions, reporting & disclosure requirements
 Return as to Allotment
 Registered Valuers
A 1.1: Companies Act, 2017 (Section 58, 59, 70, 81-83)

A 1.4: Companies (General Provisions & Forms) Regulations, 2018 - Regulations:
12,15
A 2.1: Private Placement of Securities Rules, 2017 - Rules 4 to 6
A 2.2: Companies (Further Issue of Shares), Regulation 2020
100% (save as provided in a tutor note)
Issuance of Shares at Discount (Sec 82 of Companies Act 2017)
 Shares cannot be issued on discount within 3 year of commencement of business

 Issue of share at discount must be authorised by special resolution at general meeting
 The resolution must specify:
- Number of shares to be issued
- Rate of discount, not exceeding limits permissible under this section
- Price per share proposed to be issued
 For listed companies discount shall only be allowed if market price is lower than par value
for a continuous period of 90 trading days immediately preceding date of announcement by
BOD
 Company must apply to SECP for an order sanctioning the issue

- SECP may make an order sanctioning issue on such terms & conditions as think fit.
- Shares to be issued within 60 days after sanctioning by SECP or within such extended
time as SECP may allow
 No such resolution shall be sanctioned by the SECP if the offer price per share is less than:
- For listed company, 90% of volume weighted average daily closing price of shares for 90
days prior to announcement of discount issue; or
- In case of other than listed companies, breakup value per share based on assets (revalued
not later than 3 years) or per share value based on discounted cash flow
(above calculations in both cases must be certified by the statutory auditor)
 Approval of SECP would not be required by a listed company for issuing shares at a
discounted price not less than 90% of the par value;
 Issue of shares at a discount shall not be deemed to be reduction of capital.
 Every prospectus and every statement of financial position issued by the company
subsequent to issue of shares shall contain particulars of discount allowed.
 Directors and sponsors of listed companies shall be required to subscribe their portion of
proposed issue at volume weighted average daily closing price of shares for 90 days prior to
the announcement of discount issue;
Issue of shares at discount means issue of share at a price below face value of such share
Issuance of Shares on Premium (Sec 81 of Companies Act 2017)
 Premium shall be transferred to " share premium account"

 Share premium account may be applied by Co in
- writing off the preliminary expenses
- writing off commission paid or discount allowed on issue of shares/debentures
- redemption of any redeemable preference shares or debentures on premium
- issuing fully paid bonus shares to members of Co
BONUS ISSUE (Reg # 4 of Further Issue Regulations 2020)
A company, in accordance with AOA, may issue bonus shares subject to following conditions:
 BOD shall approve the decision to issue bonus shares;
 Resolution of BOD to issue bonus shares shall be communicated to SECP & SE on same day
(for listed company only)
 Decision to issue bonus shares, once announced by the board, cannot be withdrawn.
Tutor Note:
Any reference to any “Regulation” number given in the complete chapter shall be construed a
reference to the Further Issue Regulations 2020 The topics covered from the sections of the
Companies Act 2017 are expressly given with the heading of the relevant portion.
Further Issue of Capital
Offer of Further Shares (Sec 83 – Companies Act 2017)
Further shares shall be offered to:

1) Persons who, at the date of offer, are members of company by sending a letter of offer:
- Shares offered shall be strictly proportional to that already held in respective classes etc
- Offer letter shall state number of shares offered and time within which the offer, if not
accepted, shall be deemed to have been declined;
- Time limit shall not be less than 15 days and not exceeding 30 days from date of offer
- For listed company, any member may exercise the right to renounce the shares offered
to him in favour of any other person, before the date of expiry stated in offer letter
- If whole or any part of shares offered is declined or is not subscribed, directors may allot
such shares in such manner as they may deem fit within 30 days of close of expiry (or
within such extended time not exceeding 30 day with approval of SECP)
Public company may reserve certain % of further issue for employees under “Employees Stock
Option Scheme” to be approved by SECP in accordance with specified conditions.
2) Any person, subject to approval of SECP, in case of a public company
- Through Special resolution
- Either for cash or for a consideration other than cash
- Value of non-cash asset, service, intellectual property shall be determined by a valuer
registered by SECP.
Offer letter, duly signed by at least 2 directors, shall be dispatched through registered post or
courier or through electronic mode to all existing members
 Ensuring that it reaches the members before commencement of period for acceptance.
 A copy of offer letter shall simultaneously be sent to registrar.
If a loan has been obtained from any Government by a public sector company, Govt may direct
that such loan or any part of it shall be converted into shares of that company
 If Govt considers it necessary in public interest
 On such terms and conditions as appear to be just and reasonable
(considering financial position of that company, terms of interest rate and other matters)
 It can be exercised even if the terms of such loan does do not include option for conversion.
If authorised capital of company is insufficient or fully subscribed
 It shall be deemed to have been increased to the extent necessary for issue of shares to Govt,
scheduled bank or financial institution due to any obligation to issue shares to them
 Company shall be required to file notice of increase in share capital along with the fee
prescribed for such increase with registrar within the period prescribed under this Act:
 Govt, scheduled bank or financial institution may also file notice + fee and shall be entitled
to claim reimbursement from the company
Any violation of this section shall attract a penalty of level 2

Further Issue of Shares
Letter of offer shall, among other matters and information, expressly state:
(i) Authorized and paid up capital along with the number of shares and par value of each
share
(ii) Profits & Losses, dividend, bonus declared during preceding 3 years (or less if applicable);
(iii) Amount of proposed issue (indicating the number of shares and par value of each share);
(iv) Proportion of new issue to existing shares with any condition applicable thereto;
(v) Purpose of the issue specifying the main object for which additional funds are required;
(vi) Date upto which the offer, if not accepted, shall be deemed to have been declined; and
(vii) Any other material information
Right Issue (Reg # 3)
Listed company shall, comply with following conditions:

 Board shall approve the decision to increase share capital
 It shall be communicated on same day to SECP and the SE for public dissemination;
 Fractional shares (less than one), if any, shall not be offered and
- All fractions shall be consolidated and disposed of by company
- Proceeds shall be paid to such shareholders who have accepted the right issue;
 Decision of board shall clearly state the following:
- Quantum of the issue (% of existing paid up capital);
- Issue size;
- Issue price;
- Purpose of the issue;
- Utilization of the proceeds of the issue;
- Benefits of the issue to the company and its shareholders;
- Risks, if any, associated with issue to which company and/or members are exposed to;
- Justification for issue of shares at, premium or at discount to face value (if applicable);
 If announcement of bonus and right shares is made simultaneously, resolution of the board
shall specify whether such bonus shares qualify for right entitlement or not;
 Letter of right offer and information specified in Schedule I, shall be sent to members with
extract of resolution of board’s meeting approving the right issue;
 Right offer letter shall be dispatched within the time period specified by Rule Book of PSX
 Right issue once announced by board shall not be varied, postponed, withdrawn/cancelled
 Right issue can be at face value or premium, provided directors & substantial shareholders
undertake in writing that:
- They will subscribe the right shares to be offered to them as per their right entitlement
or arrange subscription of that through other persons; and
- Remaining issue is underwritten through at least 2 underwriters, not being associated
companies or undertakings of the issuer;
(He may also engage sub-underwriters, licensed by SECP, by written arrangement)
Any company may issue right shares at discount if the issue is underwritten in the form and
manner as stated above
Book closure shall be made within 30 days of board’s resolution or within such time period as
approved by SECP.
Issue means further issue of shares;

Initial Public Offer (IPO) means first time offer of securities to the general public
Further issue of shares means issue of shares under section 83 of the Act and does not include
IPO or offer for sale of shares by any person holding shares in listed company or further issue of
shares pursuant to any scheme of arrangement including merger, demerger, amalgamation etc;
Issue size means the total number of shares issued or proposed to be issued by a company;
Issue price means the price per share at which shares are offered or issued;
Right issue means the shares offered by a company to its members strictly in proportion to the
shares already held in respective kinds and classes
Issue of shares other than right (Reg # 5)

Means issue of shares out of the share capital of a company or body corporate to any person
without right offer, either for cash or for consideration otherwise than in cash
A public company may issue further shares, other than right, if the issue is proposed by the
board clearly stating the following:
 Proposal of the board is subject to approval of shareholders and SECP;
 Quantum of the issue (Amount and % of paid up capital) before and after the issue;
 Issue price per share and justification for the same;
 Consideration against which shares are proposed to be issued (cash or other than cash);
 Name of person(s), their brief profile, existing shareholding, if any, to whom the shares are
proposed to be issued;
 Purpose of the issue;
 Justification for issue other than right;
 Benefits of the issue to the company and its members;
 Breakup value per share as per the latest available audited and reviewed accounts;
 Consent of the person(s) to whom the shares are to be issued is(are) obtained;
 Proposed new shares shall rank same in all respects with existing ordinary shares.
(If they are of different rank, then the board’s decision must state the differences in detail)
 Average market price of the share (listed company), during the last 3 months preceding the
board’s decision as well as the latest available market price; and
 If shares are proposed to be issued for consideration other than in cash, the value of non-
cash assets or services or intangible assets shall be determined by a valuer:
(valuation shall not be older than 6 months from date of submission of application to SECP)
For listed company, the above decision of board shall be communicated to SECP and SE on the
same day of the decision of the board.
Private Placement u/s 83 (Private Placement of Securities Rules, 2017)
Conditions for Issue of Further Share Capital through Private Placement: (Rule 4)
 Compliance of Companies Act 2017 (sec 83) with respect to Further Issue of Shares is must.
 The offer / invitation to subscribe to shares shall not be made to more than fifty persons.
(Not applicable, if shares offered to qualified institutional buyers and Employees under
employees stock option scheme)
 Offer to more than 50 persons would be considered as Public offer (not private placement)
 The Company shall not release any public advertisement or utilize any media, marketing or
distribution channels or agents to inform public at large about such offer.
 The company shall not make more than two private placements in any financial year.
 The shares shall be offered through information memorandum which contain minimum
information as defined in schedule I.
 Company shall ensure that proceeds of the issue are utilized in the form and manner as
disclosed in the information memorandum.
 All monies payable towards subscription of shares capital shall be paid through cheque or
demand draft or other banking channel but not by cash.
Conditions for Issue of Debt Securities through Private Placement (Rule 5)
 Compliance of the Provisions of the Companies Act 2017 is required.

 In-case company is issuing Convertible Securities Compliance of the Provision of Companies
Act 2017 with respect to Further Issue of Shares shall be ensured. Further Conversion shall
be in-accordance with the provision of Information Memorandum.
 Debt securities are tradeable and transferable only among the specified persons.
 Company has arranged “Security” if required.
 Trust Deed shall contain information as specified by SECP.
 In-case debt securities are Sukuk or Asset Backed Security, compliance of regulatory
frameworks shall be ensured.
Reporting to SECP (Rule 6)
 In-case of Further Issue of Share Capital, Company shall report allotment through specified
form in compliance of Companies Act 2017 & Companies (General Provisions and Form)
Regulations 2018.
 In-case of Debt Security, company shall within 30 days of closing of the subscription period,
report the issue to the Commission on the Format as specified in Schedule – II to these rules,
and so redemption status in the form and manner specified by the Commission.
Issuance of shares with differential rights (Reg # 6)
Preference shares” means shares which carry or would carry such preferential rights or
privileges as provided for in AOA including but not limited to the following
- Carry preferential right over the rights of ordinary shareholders to
o Receive dividend; preference dividend may be cumulative or non-cumulative;
o Participate in profits of company;
o Be paid in event of winding up;
- Voting and non-voting rights.
Conditions for Issuance of shares with differential rights
 Issue shall be recommended by the board through resolution;

 Decision of board shall, in addition to particulars for right issue, state the following:
- Description of different kind of shares such as ordinary shares and preference shares;
- Description of different rights and privileges attached to each class or kind of capital;
- Whether the shares are being issued as right or other than right;
- Whether holders of shares shall be entitled to participate in profits or surplus of Co;
- Whether holders of shares shall be entitled to participate in surplus assets and profits of
company on its winding-up (left after the ordinary shareholders has been repaid);
- Whether payment of dividend on preference shares is on cumulative basis or not;
- If shares are convertible into ordinary; the mode, mechanism and manner of conversion
- Rights of holders of preference shares regarding dividend, participation in general
meetings and voting (before and after conversion into ordinary shares);
- If shares are partially or wholly redeemable, then mode and manner of redemption;
- Any other feature as deem appropriate by the board.
 Issue of shares should be authorized by a special resolution;

 Company shall not amend, alter, vary or reassess the terms and conditions of such issue
without approval of the holder of such shares carrying differential rights;
 If company alters the conditions without above approval, SECP may direct the company:
- To redeem entire issue with immediate effect and make full compensation along with
interest accrued therein, if any; or
- To convert entire issue into ordinary shares with immediate effect; or
- As deemed appropriate by SECP, after providing an opportunity of hearing.
 A company may convert its ordinary shares into preference shares or convert its shares (of
a particular kind) from one class to another, on the basis of a special resolution
- Rights of holders of such converted shares should be provided for in the AOA
- A share that is not a redeemable preference share when issued cannot afterwards be
converted into redeemable preference share.
Appeal to court against variation of right (Sec 59 – Companies Act 2017)

 Variation of rights of shareholders of any class shall be through alteration in AOA (u/s 38)
 Not less than 10% of class of shareholders aggrieved by variation of their rights may, within
30 days of resolution, apply to Court for an order canceling the resolution
 Application made by one or more of their number (as they may authorise in writing)
 Court shall not pass such an order unless satisfied that
- Some facts which would have had a bearing on decision of the shareholders were
withheld by Co in getting resolution passed or,
- Variation would unfairly prejudice shareholders of that class.
 Company shall, within 15 days of such order, forward copy of order to registrar.
(Non forwarding of such order to registrar would attract a penalty of level 1)
Variation includes abrogation , revocation or enhancement
Employee Stock Option Scheme (Reg # 7, 8)
Employees’ Stock Option – Sec 2(29) of Companies Act 2017

Option given to directors, officers or employees of a company or of its holding company or subsidiary
company or companies, if any, which gives such directors, officers or employees, the right to purchase
or to subscribe for shares of the company at a price to be determined in the manner as may be specified;
 Public company, may issue shares to employees subject to the following conditions-
- AOA expressly provides and authorizes the offer of scheme;
- Board shall form a compensation committee for administration and superintendence of
the scheme and for listed chairman of committee shall be an independent director;
- Board shall consider and resolve to offer the scheme;
- Decision of board shall provide information required Reg 5, as applicable;
- Offer of scheme should authorized by a special resolution;
- If shares are at discount, also obtain approval of shareholders & SECP (u/s 82);
- Company & committee shall ensure that its executive directors and senior management
shall not participate in discussion of their own allocation of options under the scheme;
 Company shall not vary the terms of a scheme in any manner which may be detrimental to
the interests of its employees:
- Company may by special resolution vary terms of a scheme offered pursuant to an earlier
resolution but not yet exercised by its employees
- Such variation should not be prejudicial to the interests of the option holders.
 A separate special resolution shall be required for the following scheme:

- Grant of option to employees of a subsidiary or holding company; and
- Grant of option to identified employees, during any one year, equal to or exceeding 1% of
issued capital (excluding outstanding conversions) at the time of grant of option;
 There shall be a minimum period of 1 year between grant of option and vesting of option.
 If options are granted under scheme in lieu of options held by same person under a scheme
in another company, which has merged or amalgamated with this company, period of
holding of options in previous company shall also be counted in this 1 year calculation.
 Company shall have freedom to specify the lock-in period for the shares issued pursuant to
an exercise of option.
 An employee shall not have right to receive dividend/vote/other rights of members in

respect of option granted to him, till he exercise the option.
 In case of failure to exercise the option, options granted shall lapse
- Lapsed options may be granted to other employees within 30 days from date of lapse.
 An option granted to employee shall not be transferable to any other person, provided that
- It is transferable to another entitled employee
- In case of death, all options granted to him till date of death shall vest in legal heirs etc;
- In case of permanent incapacity, all options granted to him shall vest in him on that day;
- In case of resignation or termination, all options not vested as on that day shall expire.
(he may be entitled to retain all vested options subject to conditions of Scheme)
 An option shall not be pledged, hypothecated, mortgaged or otherwise used in any manner.
Scheme means an Employees Stock Option Scheme (ESOS) approved by SECP in accordance with
procedure and on conditions specified through these regulations
Option means a right but not an obligation granted to an employee in pursuance of a Scheme to
apply for shares of a company at a pre- determined price;
Vesting means to give or earn a right to apply for conversion of options, granted under a scheme,
into shares of the company
Vesting period means the period during which the vesting of an option granted to an
employee in pursuance of a scheme takes place.
Exercise means making of an application by an employee to a company for issue of shares against
option vested in him in pursuance of a Scheme;
Exercise period means the time period after vesting within which an employee should
exercise right to apply for shares against option vested in him in pursuance of Scheme;
Exercise price means the price payable by an employee for exercising an option granted
to him in pursuance of a Scheme;
Market price means latest available closing price on a securities exchange on which shares of the
company are listed and where share is not traded on a given date, then the share price on the last
trading day shall be considered;
If any options granted to employees in pursuance of a scheme are outstanding at the time of IPO,
the offering document shall disclose number of such outstanding options, exercise price, exercise
period and impact on shareholding of the members in case all outstanding options are exercised.
General conditions, reporting & disclosures etc (Reg # 9 to 11)
General conditions
 Further issue recommended by board shall not go beyond authorized capital as per MOA &
AOA or any resolution by members for increasing the same
 If share capital has different classes having different rights and privileges
- This fact shall be distinctly mentioned in the right offer letter; and
- Difference in such rights and privileges shall be clearly stated in directors’ report.
Reporting. –
 Company shall, within 30 days from issue of shares, submit a report to SECP clearly
indicating the shares issued to:
- Directors;
- Associated companies;
- Other shareholders; and
- Persons to whom unsubscribed shares are issued
(if existing members have declined or undersubscribed right)
 After right issue, listed entity shall submit to SECP quarterly progress report (till complete
utilisation of funds or accomplishment of the purpose) containing the following:
- Item-wise breakup of proceeds utilized (% and amount of total) in comparative form with
the utilization plan earlier disclosed to the members;
- Deviation, if any, along-with justification for such deviation;
Whoever fails or refused to comply with, or contravenes any requirements of regulations shall be
punishable with penalty up to Rs 5 million and a daily penalty up to Rs 100,000/- if continued.
Return as to allotments (Sec 70 – Companies Act 2017)
Co having share capital shall within 45 days of allotment (or any extended time by registrar)
 File with registrar a return of the allotment, stating
- Number of shares
- Nominal amount of shares comprised in allotment
- Such particulars (as may be prescribed) of each allottee
- Amount paid on each share; and
 For Shares allotted as paid up in cash
- Submit a report from its auditor to the effect that the amount of consideration has been
received in full by the company and shares have been issued to each allottee:
- If company has no auditor, report shall be obtained from a practicing CA or a CMA;
 For Shares allotted otherwise than in cash;
- Submit a copy of document evidencing transfer of non-cash asset to company, or a copy
of contract for technical & other services, intellectual property or other consideration
- Submit a copy of the valuation report (verified in the specified manner) for registration
 Bonus Shares
- File with registrar, Return stating No & amount of such shares and particulars of each
allottee + copy of resolution authorising bonus issue
 Issue of shares on discount
- File with registrar, copy of resolution passed by company & copy of order of SECP
sanctioning the issue (if maximum rate of discount exceeds 10%)
 Shares allotted to scheduled bank or a financial institution
- Section shall apply mutatis mutandis to shares allotted to scheduled bank or a financial
institution in pursuance of any obligation of company to issue shares to these
- Where default made by company in filing Return of allotment, scheduled bank or financial
institution may file such return + such documents as may be specified by SECP, and shall
be entitled to recover from company any fee properly paid by it to registrar.
No such return required to be filed for shares taken by subscribers on formation of company

Return of allotments of shares
For shares allotted against consideration otherwise than cash, documents shall be verified
by:
(i) An affidavit of an authorized officer that these are true copies;
(ii) Certification of public officer having custody of the original document, where applicable
Financial Institution – 2(31)

(a) any company whether incorporated within or outside Pakistan which transacts business of
banking or any associated or ancillary business in Pakistan through its branches within or outside
Pakistan and includes a government savings bank, but excludes the State Bank of Pakistan;
(b) a modaraba or modaraba management company, leasing company, investment bank, venture
capital company, financing company, asset management company and credit or investment institution,
corporation or company; and
(c) any company authorised by law to carry on any similar business, as concerned Minister of FG may
by notification in the official Gazette, specify;
Registered valuers (Reg # 8A, 8B)
 If valuation is required under the provisions of Companies Act 2017, following persons shall
be eligible to conduct the same:
- Consulting Engineers registered with Pakistan Engineering Council (PEC);
- Practicing CA having satisfactory QCR awarded by the ICAP; and
- Any other person as may be notified by the SECP.
 The above valuers shall also be deemed to be registered with the SECP
 All such valuers shall continue to be regulated, administered and monitored by the entities
in which they are originally registered, and shall comply with all relevant rules, regulations,
instructions etc. of such entities in addition to requirements of the Act. (not applicable on
valuers of banking transactions, who shall be regulated under applicable laws).
Category of Assets etc Eligible Valuer

Movable property i.e. plant and Registered with PEC as a Consulting
machinery, immovable property i.e. land, Engineer
building etc., and natural resources etc
Stocks, shares, debentures, securities, net Practicing CA having satisfactory QCR
worth of business, goodwill and other awarded by the ICAP
intangible assets, services, and liabilities
All other assets Registered with PEC as a consulting
engineer, having relevant experience at least
5 years
 Valuer shall not undertake valuation of any assets in which he has a direct or indirect interest
or becomes so interested at any time before submission of the report.
 Valuation shall not be older than 6 months, or such other time period as may be notified by
SECP, from the date of submission to the authorities (Registrar or SECP as the case may be)
 Relevant entity or agency, on its own motion or on the reference by SECP, may initiate
necessary action against eligible valuers for any misconduct or failure to perform
professional duties as per rules and regulations, and may cancel their registration.
- Such valuer shall be deemed as de-registered; and
- Shall not be eligible to conduct any valuation for the above purposes
14. Buy back of Share Capital Page 263
Ch # 14: Buy Back of Share Capital

This chapter deals with the stipulations of the law regarding a famous method of buy back
of share capital. We shall be understanding comprehensively the process of reduction of
share capital through the process of buy back by listed companies.
Moreover the Buy Back Regulations specifying different Do’s and Don’ts shall also be
discussed in this chapter along with a new concept of treasury shares.
It is important to note that the aforesaid regulations does not apply to Special Purpose
Acquisition Companies (as discussed in Public Offering Regulations i.e. Ch 16)

 Buy back of shares
 Listed Companies (Buy-Back of Shares) Regulations, 2019
A 1.1: Companies Act, 2017 (Section 88)

A 3.3: Listed Companies (Buy-Back of Shares) Regulations, 2019
100%
Buy back of the Shares by Listed Company (Sec 88 - Companies Act 2017)
A company may (subject to provisions of 88 and regulations by SECP) purchase its own shares
 Shares purchased by the company may either be cancelled or held as treasury shares.
- Shares purchased by unlisted or private company can be cancelled only and not be held
as treasury shares (i.e. The option of treasury shares only allowed to Listed company)
 Cancellation of shares (u/s 88) shall not be treated as reduction in share capital (u/s 89).
 Shares held by company as treasury shares shall, as long as they are so held, in addition to
any other conditions as may be prescribed, be subject to the following conditions:
- Voting rights of these shares shall remain suspended; and
- No cash dividend shall be paid and no other distribution whether in cash or otherwise of
the company's asset;, including any distribution of assets to members on a winding up,
shall be made to the company in respect of these shares
 Company may dispose of the treasury shares as prescribed by regulations.
 Board of directors shall recommend to the members purchase of the shares.
 Purchase shall be made only under authority of a special resolution.
 Purchase shall be made within a period as specified in the regulations.
 Decision of the board shall clearly specify
- Number of shares proposed to be purchased
- Purpose of the purchase (cancellation or holding as treasury shares)
- Purchase price
- Period within which the purchase shall be made
- Source of funds
- Justification for the purchase and
- Effect on the financial position of the company.
 Proposal of the board to purchase shall, on conclusion of board meeting, be communicated
to SECP and to the stock exchange
 Purchase of shares shall always be made in cash and shall be out of the distributable profits
or reserves specifically maintained for the purpose.
 Purchase of shares shall be made through stock exchange as prescribed by regulations.
 Nothing in this sub-section shall prevent-
- An allotment of shares as fully paid bonus shares in respect of the treasury shares; and
- Payment of any amount payable on the redemption of treasury shares (if redeemable)
 Company shall maintain a register of shares so purchased and enter following particulars:
- Number of shares purchased;
- Consideration paid for the shares purchased;
- Mode of the purchase;
- Date of cancellation or re-issuance of such shares;
- Number of bonus shares issued in respect of treasury shares;
- Number and amount of treasury shares redeemed, if redeemable.
Any violation of this section shall be an offence liable to a penalty of level 3 and shall also be
individually and severally liable for any or all losses or damages due to contravention.
Listed Companies (Buy-Back of Shares) Regulations, 2019
Eligibility Requirements for the Purchase (Reg # 3)
A company shall be eligible to purchase if it fulfills the following conditions:

 It is listed on the securities exchange for at least 3 years;
 It is compliant with minimum capital/equity requirements or free float requirement of
securities exchange, as per listing or licensing requirements , if any, after purchase;
 It has obtained approval of its members through special resolution;
 Board has undertaken that
 Funds specified for the purchase are available with the company; and
 After the purchase, purchasing company is capable of meeting its obligations on time
during the period till the end of next 12 months;
 Purchasing company should not be on the defaulter counter;
Board shall not propose or recommend a purchase in any of the following cases:
 Winding up proceedings has commenced
 A scheme of arrangement, compromise, reconstruction, merger or de-merger is approved by
board (unless the Purchase is a part of such arrangement etc)
 A public offer for acquisition of shares of the purchasing company under Securities Act has
been announced; and
 Before the expiry of 6 months from date of an earlier general meeting in which purchase was
disapproved by members.
The Purchase Procedure (Reg # 4 to 8)
Procedure for Purchase (Reg # 4)

 General meeting for passing special resolution shall be held within 30 days of date of board
meeting in which the purchase is recommended.
 Purchasing company shall make a public announcement within 2 working days of special
resolution.
 Board shall, before making the public announcement, authorize an officer of company to act
as manager to the offer (to ensure compliance with legal requirements of purchase)
 Purchasing company shall, within 5 days of public announcement, dispatch through
registered mail or courier or electronic mode of communication to its members including
custodian of depository receipts and other securities convertible into the shares being
purchased, if any, whose names appear on the register of members:
- The offer letter;
- A copy of the public announcement; and
- The share tender form (in case of a tender offer)
 Authorized officer shall, within 15 days of closing of purchase period, submit a final report
to SECP and securities exchange
Act means the Companies Act, 2017

Inside information" has same meaning as assigned to it under section 129 of Securities Act;
Public announcement means an announcement made by purchasing company for purchase
or sale of its shares as per the format prescribed in these regulations;
All other words and expressions used but not defined in these regulations shall have the same
meanings as are assigned to them in the Act, Securities Act and SECP Act, 1997
Additional Procedure for Tender Offer (Reg # 5)
 Company shall open an escrow account with scheduled bank, before public announcement;
- During purchase period shall maintain a deposit equivalent to 25% of amount payable
- Remaining shall be deposited at least 3 working days before close of purchase period
 Company shall open a designated CDC account;
 Shares tendered for sale in physical form shall not be accepted for the purchase;
 Shares shall be tendered through the share tender form to authorized officer before closing
of the purchase period;
 Within 5 days of closing of purchase period, authorized officer shall prepare list containing:
- Names of all those shareholders who have tendered shares for sale;
- Number of shares tendered;
- Number of shares accepted by purchasing company for purchase from each shareholder
 Where shares tendered for sale by a shareholder are less than minimum marketable lot then
lower of 500 shares or marketable lot shall be accepted
 Payment for accepted shares shall be made by authorized officer through bank draft or pay
order out of escrow account within 7 days of the closing of purchase period; and
 Unaccepted shares, if any, shall be returned within 7 days of closing of purchase period.
Where shares tendered for sale exceed the number of shares announced to be purchased:
 1st preference shall be given to applications up to 500 shares
 2nd preference shall be given to applications up to 1000 shares
 3rd preference shall be given to applications up to 1500 shares
 4th preference shall be given to applications up to 2000 shares
 After accommodating all above, the balance shares, if any, shall be purchased on prorate
basis from all the shareholders who have tendered more than 2000 shares
-
- Note: If all applications in any of above preferences or level cannot be accommodated, a
balloting shall be conducted among applications exceeding immediately preceding level.
Additional Procedure for Purchase through securities exchange (Reg # 6)
 Purchase shall be made through automated trading system of securities exchange; and
 Bid(s) for the purchase shall not be made during first half hour and last half hour of each
trading session.
Purchase Period (Reg # 7)
Purchase Through tender offer Within 30 days of the dispatch of offer letter
Through securities exchange Shall start within 7 days from date of public announcement
Shall be closed on earlier of
- 90 days of date of special resolution
- Date on which purchase is completed
Purchase Price (Reg # 8)
Purchase Through tender offer Shall be the price as recommended by board and approved
by members through special resolution
(shall not be less than preceding 5 trading days weighted
average price of the shares)
Through securities exchange Shall be made at the spot/current share price
Regulations regarding Treasury Shares
Maximum holding of Treasury Shares (Reg # 9)
 Treasury shares shall not exceed 20% of total paid up share capital of purchasing company.
 Where purchasing company has different classes of shares, treasury shares for any class of
shares shall not at any time exceed 20% of total issued and paid up shares of such class.
 These shall be held in name of purchasing company in CDC Blocked Account in freeze form
 Treasury shares shall not be (directly or indirectly) placed under collateral
 Shares allotted as fully paid bonus shares for treasury shares, shall be treated as treasury
shares and shall be held in company’s name in CDC Blocked Account in freeze form
Disposal of the Treasury Shares (Reg # 13)
 Treasury shares shall not be sold, transferred or otherwise disposed of by company within
6 months from the closure of the purchase period.
 Treasury shares shall not be sold by company without approval of board
 Company shall make a public announcement within 2 working days of decision of board.
 Board shall designate an authorized officer for completion of sale of treasury shares before
making the public announcement.
 Shares may be disposed of in full or parts in any of following manners or combination:
- In the market through securities exchange's automated trading system in transparent
manner, as approved by board; and
- Sell treasury shares to its employees under the Companies (further issue of shares)
Regulations, 2018 by special resolution and prior written approval of SECP.
 In case of sale of treasury shares the following procedure shall be followed,-

- Decision of board shall be communicated to SECP and securities exchange on same day;
- Sale of treasury shares shall start not later than seven days from the date of public
announcement and shall close within forty-five days from the date of decision of board or
till such date that the sale is completed, whichever is earlier.
 Company shall file following information to registrar concerned within 30 days of disposal:
- Mode of disposal;
- Maximum number of treasury shares available for sale;
- Total number of shares sold;
- Date-wise and price-wise breakup of shares sold;
- Total consideration received;
- Cumulative number of treasury shares sold to date;
- Number of balance treasury shares if any; and
- Cumulative number of shares cancelled to date.
 Company shall also report to the securities exchange number of shares sold on daily basis
for public dissemination.
 Company shall not dispose of treasury shares during offer period of a public announcement
of offer for acquisition of its shares by an acquirer under the Securities Act.
 Company shall not issue further capital, other than bonus shares unless the treasury shares
held by it are disposed of.
Obligations and Restrictions of the Purchasing Company
Obligations (Reg 10)
Purchasing company shall -

 Communicate to SECP and securities exchange on day of decision of board for purchase;
 Submit to SECP, securities exchange and CDC, a copy of special resolution on next working
day of general meeting (resolution shall specify the number and percentage of shares to be
purchased, mode of the purchase, allocated funds and the purchase period);
 Make public announcement on specified format and publish in at least 2 daily newspapers,
one each in Urdu and English languages having nationwide circulation, at least 7 days before
commencement of purchase period;
 Submit to SECP and securities exchange published copies of public announcement within 2
days of its publication;
 Company shall deposit the consideration payable in designated clearing bank account at
least 1 day before settlement date;
 Intimate to SECP and securities exchange on day of closing of purchase period, the number
of shares purchased, and advertise the same within 2 days of closure of purchase period in
same newspapers in which the public announcement was published;
 Cancel the shares within 10 days of closing of purchase period (if cancellation is sought);
 Disclose in annual report, detail, price and number of shares purchased and treasury shares
disposed of; and
 File these documents with registrar concerned within 30 days of closing of purchase period
- Copy of the board of directors resolution regarding the purchase;
- Copy of the special resolution authorizing the purchase;
- Copy of notice of general meeting in which the special resolution was passed; and
- Copy of the public announcement;
 Report to securities exchange the number of shares purchased on daily basis for public
dissemination (if purchase through securities exchange);
 Open Investor Account Service (IAS) at CDC for purchase; and
 CDC shall ensure that the shares shall remain in Blocked account until the company decides
to sell the treasury shares.
Restriction (Reg 11, 12)
The purchasing company shall not-

 Apply for voluntary delisting / winding up within 12 months of close of purchase period;
 Engage in the sale of already held treasury shares through the securities exchange during:
- Purchase period and 6 months after the closing of purchase period; and
- The period it is in possession of price sensitive information;
 Withdraw, cancel or postpone the purchase once announced
(except where the recommendation of purchase by directors is not approved by members);
 Make a purchase before the expiry of 6 months from last date of subscription by
shareholders in respect of any further issue of capital (excluding bonus);
 Make a new purchase before expiry of at-least 1 year from date of submission of the final
report of previous such purchase to SECP by authorized officer
(purchase shall be deemed to commence from the date of general meeting for approval)
 Sponsors, directors, officers, associated companies and undertakings and shareholders
holding more than 10% of the voting shares of purchasing company shall not directly or
indirectly trade in shares of purchasing company from the date of board meeting:
- In which the purchase is recommended till completion of the purchase; and
- In which the disposal of treasury shares is recommended till completion of the sale.
Power to give directions (Reg 14)
SECP may issue directions to purchasing company, any of its directors, officers, or any other
person, where SECP is satisfied (on its own motion or on the basis of any information received
by it) that it is necessary and expedient so to do:
 in the interest of the shareholders of the purchasing company;
 in the interest of investors or the market generally; or
 to prevent the abuse of law or the process laid down in these regulations;
Directions may include:

 Stopping the purchasing company at any stage from making the purchase or sale;
 To do or desist from doing such acts as the SECP may determine; and
 Carry out such steps as are necessary to rectify the situation.
15. Insider Trading & Other Areas of Securities Act Page 270
Ch # 15: Insider Trading & Other Areas of Securities Act

This chapter deals with different provisions regarding the securities of the company.
Being promulgated in 2015, Securities Act 2015 proved to be the major revamp of that
year that had compiled various provisions relating to the securities of companies at a
single place with symmetry. Apart from repealing many sections of the old Companies
Ordinance 1984, it also had repealed Substantial Acquisition Ordinance 2002 and the
selected sections of Securities and Exchange Ordinance 1969 previously included in the
syllabus.
This chapter only deals with selected portion of Securities Act 2015 that deals with Insider
trading and related terms and conditions. The other areas of the Securites Act 2015 are
either classified in Ch # 16 dealing with initial public offer or Ch # 18 dealing with the
topic of Substantial Acquisition

 Trading by directors and other officers
 Insider Trading
 Protection of the security holder or other stakeholders
 Regulated Securities Activities
 Other definitions

A 3.1: Securities Act 2015 (Section 2, 63-65, 96-106, 128-131) and Relevant Rules
and Regulations made there under
Level of Completeness
100% except transitional and penalty provisions
Trading by directors and other officers
Directors and others shareholding in Listed Company (Sec 101 – 103)
Duty to disclose
 Every person who becomes a director, executive officer, or substantial shareholder of a listed
Co shall give notice in writing to the Co of
- His beneficial ownership in the listed equity securities of Co or any other securities as
prescribed by SECP; and
- Amount and description of such securities
- Date of acquisition of beneficial ownership.
 These persons shall give notice in writing to the Co of any of the following events:
- Any change in beneficial ownership
(number, amount and description of securities)
- Any gain from trading of these securities (u/s 104)
 Notices shall be given within 7 days of acquisition or change
Executive officer
Includes but not limited to the
 Chief executive
 Chairman
 Chief Financial Officer
 Secretary
 Auditor
 Any other officer prescribed by SECP.
“Auditor” means a Chartered Accountant as defined in Chartered Accountants Ordinance, 1961 (X of
1961), to be appointed from the panel of auditors approved by SECP to perform audit under this Act.
Substantial Shareholder
A person who has an interest in shares of a company
 ≥ 10% of the issued share capital of Co; or
 Which enables person to exercise or control exercise of ≥ 10% of voting power at general meeting
Beneficial ownership
Shall be deemed to include the securities beneficially owned, held or controlled by the
 Person;
 Spouse of a director of a Co, not being a director of the Co;
 Minor child of a director including step-child
 A private Co, where such person is a shareholder (to the extent of his proportionate shareholding)
“control” means the power to exercise a controlling influence over the voting power attached thereto.
Note: If substantial shareholder is non-natural person, only securities held in its name shall be counted.
Equity Security
Means any stock or transferable share (preferred or common) or similar security representing
ownership, any security convertible, with or without consideration, into such a security, or carrying
any warrant or right to subscribe to or purchase such a security, any such warrant or right itself, and
such other security as may be prescribed by SECP
Trading in securities
Means (whether as principal or agent)
 Making or offering to make with any person, or inducing or attempting to induce any person to enter
into or to offer to enter into, any agreement for or with a view to the purchase or sale of a security;
or
 Soliciting or accepting any order for or otherwise trading in a security;
Notification to SECP
 Every such person shall submit to SECP in the prescribed form –

- A statement of such beneficial ownership
- Particulars of any change in the interest aforesaid; and
- Any change in his position.
 Such information shall be submitted within 7 days of acquisition or change
Register of directors’ interests
 Every listed Co shall keep a register for recording such information in the form approved by
SECP.
 On receipt of notice, Co shall
- Enter in register against their names, information received and date of the entry.
- Notify it to SECP within 7 days of the receipt of information, showing all details.
Gain made by trading of Listed Company’s shares (104-106)
Where any such person (irrespective of any intention) makes any gain by the purchase and sale,
or the sale and purchase, of any beneficially owned securities of same class within 6 months,
such person shall make a report to SECP in the prescribed form within 7 days of accrual of gain:
Nothing in this section shall apply to any nature of acquisition as may be prescribed by SECP.
 In case of gain; such person shall tender amount of gain to SECP within 6 months of accrual
of gain
 SECP shall credit the amount of such gain to Federal Consolidated Fund.
 Where such person fails or neglects to tender the gain, SECP may by order in writing direct
such persons to tender the gain to SECP for onward credit to Federal Consolidated Fund.
Fine: Any person, who obstructs or contravenes or does not comply with any order or
direction given under this section shall be liable to pay a penalty of an amount which may
extend to higher of
- 5 million rupees or
- 3 times the tenderable gain made
Fines & Penalties payable to SECP (Sec 101 to 105)

That individual or in case of a Co, Co and its every director or officer who is knowingly and
willfully in default
- May extend to Rs 500,000; and
- May extend to Rs 1000 per day for every day during which the default continues
Insider Trading
PROHIBITION OF INSIDER TRADING (Sec 128)
No person shall indulge in insider trading.

Insider trading shall include
 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
 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;
 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;
 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:
Nothing in this section shall apply to

 Any transaction performed under an agreement that was concluded before the time of
gaining access to inside information; or
 The disclosure of inside information by an insider person as required under law.
No contract shall be void or unenforceable by reason only of an offence under this section.
INSIDE INFORMATION (Sec 129)
 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;
 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
 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.
 Information regarding decision or intentions of a person to transact any trade in listed
securities
INSIDERS (Sec 130)
 Sponsors, executive officers and directors of an issuer;

 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 25% or more;
 Sponsors, executive officers, directors and partners of a legal person or unincorporated
business association who holds, directly or indirectly, shares or voting rights of 20% or more
in an issuer;
 Sponsors, executive officers and directors of an organization, that has been engaged in the
placement of listed securities or public offer of securities, as well as any employee of the
issuer or an organization participating in the issuing and marketing of such securities, who
has had access to insider information during his employment till a period of one year after
leaving employment;
 Any natural person holding, directly or indirectly, which enables him to appoint director on
the board, 10% or more shares of an issuer;
 Sponsors, executive officers and directors of credit institutions in which the issuer has an
account;
 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/ otherwise;
 Any person obtaining inside information through unlawful means; and
 A spouse, lineal ascendant or descendant (including step children), partner or nominee of
any above
 Any person obtaining information or advice to trade in a security from any person referred
above.
LISTED COMPANIES RESPONSIBILITIES TO DISCLOSE INSIDE INFORMATION (131)

 Whenever a listed Co 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.
 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.
 Listed company shall in that list, state that the persons listed have acknowledged the
requirements of this Part related to the prohibition of insider trading
 Any person who contravenes provisions of this section and regulations shall commit an
offence
Protection of the security holder or other stakeholders
Price sensitive information
Disclosure of price sensitive information (Sec 96)
 Listed company shall disclose to public forthwith any price sensitive information relating to
the company or its subsidiaries which has come to its knowledge and which would be
material to an investor’s investment decision, including information that is necessary to:
- Necessary to enable the public to appraise the position of company & its subsidiaries;
- Necessary to avoid the creation or continuation of a false market (uninformed market
or one which is based on incomplete information) in the securities of the company; or
- Might reasonably be expected to materially affect the market activity and the price of
its securities.
 Shall ensure that the means it uses for disseminating information are such that it equally,
timely and effectively provides access to such information securities holders and investors.
 Target is to bring it to the attention of persons who commonly invest in securities of a kind
whose price or value might be affected by the information.
 Listed company may, under its own responsibility, delay the public disclosure of price
sensitive information, provided that:
- Such delay would not be likely to mislead public investors;
- Any person receiving the information owes listed company a duty of confidentiality
(such duty may be based on law, regulations, AOA or contract); and
- Listed company is able to ensure the confidentiality of that information.
 If a listed company is also traded or listed on a foreign market / exchange, it shall ensure that
where information is released to those markets, it should be released in Pakistan
simultaneously
Disclosure in case of information received by others (Sec 97)
 Upon being informed by SECP or securities exchange that there are unusual movements in
the price or volume of its securities; company shall promptly disclose to the public:
- Details of any matter or development of which it is aware that is or may be relevant to
the unusual movements, or
- A statement of the fact if it is not aware of any such matter or development.
 Listed company shall also respond likewise to any news in the print and electronic media
regarding company which may prima facie affect the opinion of investor or public at large.
Powers of SECP
To require production of records and documents concerning listed company (Sec 98)
SECP may give directions requiring (within stipulated time and at specified place) to produce
the specified records and documents, where it appears to SECP that there are circumstances
suggesting that:
 Business of a listed company has been or is being conducted
- with intent to defraud its creditors or the creditors of another person;
- for a fraudulent or unlawful purpose; or
- in a manner that adversely effects any of its members;
 A company was listed for a fraudulent or unlawful purpose;
 The persons concerned with listing of company or management of its affairs have been guilty
of fraud, misfeasance or other misconduct towards it or its members; or
 Members have not been given all the information with respect to its affairs that they might
reasonably expect,
Such directions may be given to
 Directors or management of the listed company;
 A subsidiary or an associated company of the listed company; or
 Holding company or companies
 A person who appears to be in possession of these records and documents.
OTHER CONDITIONS
 SECP may authorize a person in this behalf to demand records and documents
 The power given by this section also includes the power:
If the records and documents are produced
- To take copies of them or extracts from them; and
- To require that person or any other a present or past officer / employee of the listed
company, to provide an explanation of any of them; or
If the records and documents are not produced
- To require that person to state, to the best of his knowledge, where they are.
“Record” means all documentary, electronic and digital materials created, generated, sent,
communicated, received or stored, regardless of physical form or characteristics;
“Majority shareholder” means shareholder who holds, owns or control, directly or indirectly, more
than fifty percent of the shares having voting rights in a company or who, for other reasons, has
domination or control of the company and includes a group of shareholders who collectively own more
than fifty percent of shares or otherwise have that domination or control;
“Control” includes the right to appoint majority of directors or to control management or policy
decisions, exercisable by a person individually or through any person acting in concert, directly or
indirectly, whether by virtue of his shareholding, management right, shareholders agreement, voting
agreement or otherwise;
To issue directives to listed companies (Sec 100)
SECP may issue specific directions, where it appears to SECP that:

 It is desirable for the protection of members, other security holders or in public interest;
 Listed company is in breach of listing regulations; or
 Listed company is contravening, has contravened or is about to contravene or has failed to
comply with any provision of, or requirement under, this Act, any rules or any regulations
made, under this Act or in purported compliance with any such provision or requirement,
has furnished the Commission with information that is false, inaccurate or misleading,
Specific directions to Listed Company may include:

 To cease and desist from the breach of this Act or rules or regulations made there under;
 To do or not to do any matter as specified under this Act or rules or related regulations; or
 With regard to or for any other matter that SECP considers necessary
Remedy in cases of unfair prejudice by listed companies (Sec 99)
 SECP may make an application to the Court, If it appears to SECP that the affairs of a listed
company is being or has been conducted in a manner unfairly prejudicial to the interests of
its shareholders (on the basis of any information, record or document obtained under this
Act or the rules or regulations made under the Act or any other legislative power)
 If court is satisfied (on the correctness of complaint), Court may:
- Make an order restraining the carrying out of the act or conduct;
- Order that the company shall bring in its name the proceedings the Court considers fit
against the persons, on the terms, the Court orders;
- Appoint a receiver of the whole or a part of company’s property or business and may
specify the powers and duties of receiver or manager and fix his remuneration; and
- Make any other order it considers fit, whether for regulating the conduct of the
company’s affairs in future or for the purchase of the shares of any members by other
members or by the company
(In case of a purchase by company, order for the reduction accordingly of capital etc)
 If any such order makes an alteration or addition to the constitution of a company, company
shall not have power to make any further alteration or addition to the constitution
inconsistent with that order (without the leave of Court)
Regulated Securities Activities (sec 63 to 65)
What are regulated securities activities (Sec 63)
For the purposes of this Act, a person shall be deem to be carrying on a regulated securities
activity if such person carries out on business or purports to do so, as a
 Securities Broker;
 Securities Adviser;
 Securities Manager;
 Share Registrar;
 Credit Rating company;
 Balloter;
 Underwriter;
 Debt securities trustee; or
 Any other activity as may be notified by the Federal government.
“Regulated person” means a person or entity licenced by SECP to carry on regulated securities activity;
“Securities broker” means TRE (Trading Right Entitlement) certificate holder who, by way of business,
 Makes or offers to make with any person or induces or attempts to induce any person to enter into
or to offer to enter into, any agreement for or with a view to buying, selling, exchanging or
subscribing for, securities; or
 Solicits or accepts any order for or otherwise trading in, or effects transactions in, securities for
clients or on its own account;
“Securities adviser” means a person, who
 Gives investment advice on whether, which, the time at which or the terms or conditions on which,
securities may be bought, sold, exchanged or subscribed for;
 Issues analyses or reports, for the purposes of facilitating the recipients of the analyses or reports
to make decisions on whether or the time at which or the terms or conditions on which, specific
securities may be bought, sold, exchanged or subscribed for; or
 Advises on the management of a portfolio of securities for another person
- Without holding property of the other person; and
- On terms that preclude him from doing so, but does not include
(I) a bank;
(II) a person who gives such advice or issues such analyses or reports
(A) in a newspaper, magazine, book or other publication which is made
generally available to the public, and which does not have as its principal
or only object the provision of advice or the issue of analyses or reports,
concerning securities; or
(B) in television broadcast or radio broadcast for reception by the public,
whether on subscription or otherwise; and
(III) any other person excluded to the such extent as may be notified by SECP;
“Securities manager” means a person who manages or offers or agrees to manage, with or without
remuneration, a portfolio of securities belonging to another person, whether on a discretionary
authority granted by that other person or otherwise;
“Balloter” means a person who provides services to an issuer for selecting the required number of
applicants of public issue through a ballot;
“Underwriter” means a person who

(a) on a firm commitment basis purchases newly issued securities or securities offered for sale for the
purpose of public resale on behalf of the issuer or offeror or who guarantees to an issuer or offeror that
the unsold residue of the issuer’s public issue or sale will be taken up; or
(b) on a best efforts basis acts as an underwriter for the issuer.
Customer
A person on whose behalf a regulated person carries on any regulated securities activity and includes
any person commonly known as an investor;
Customer assets
Money received, receivable or retained by or any other property deposited with, a regulated person in
the course of his business for which he is liable to account to his customer, and any money or other
property accruing there from;
Customer money
Money of any currency that, in the course of carrying on his regulated securities activity, a regulated
person holds or receives on behalf of a customer or which he owes to a customer;
Requirements for Licensing (Sec 64 & 65)
 No person shall carry on a regulated securities activity or purport to do so, unless such
person is licensed by SECP and operates in accordance with such licence.
 Licence shall specify the activity/activities that regulated person is permitted to undertake
 Such person shall be restricted to such regulated securities activities so specified.
 SECP may, by notification in the official Gazette, exempt any financial institution or class of
financial institutions from this section subject to any prescribed terms and conditions
 Licence shall only be granted to a public or private company except that in case of a:
- Securities adviser [Licence may be granted to an individual]
- Representative [Licence may only be granted to an individual]
 In case of bank, the licence (except a licence for underwriting or any other regulated activity
as may be prescribed) shall be granted only to subsidiary company of bank
“Representative” means an individual, by whatever name called, in the employment of or acting for or
by arrangement with, a regulated person, who carries out for that regulated person any such activity
(other than work ordinarily performed by accountants, clerks or cashiers), whether or not he is
remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or
otherwise; and includes any officer of a company who performs for the company any such activity
whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages,
commission or otherwise and includes an agent of a regulated person;
Principal
In relation to a representative, means the regulated person which the representative represents;
Definitions of Securities Act 2015 (Not covered elsewhere)
Associate
In relation to an individual, means

 Spouse, son, adopted son, step-son, daughter, adopted daughter, step-daughter, father, stepfather,
mother, stepmother, brother, stepbrother, sister or stepsister;
 Any company of which that individual is a director;
 Any company in which that individual or any of the relatives mentioned above has control of 20%
or more of the voting power (individually / jointly) in the company; or
 Any employee of that individual; or
In relation to a company, means

Another company in which this company has control of not less than 20%
Clearing facility
A facility for the clearing and settlement of securities traded on a securities exchange
Clearing member
A person who, is admitted as a clearing member for clearing and settlement on his own behalf as well
as on behalf of others under the regulations of a clearing house
Default proceedings
Proceedings or other action taken by a clearing house, stock exchanges and CDC under its default
regulations;
Default regulations
Those provisions of the regulations which provide for the initiation of proceedings or other action if a
clearing member has failed or appears to be unable or likely to become unable, to meet his obligations
for all unsettled or open market contracts to which he is a party
Depository receipt
A certificate or other record, whether or not in the form of a document, which
 Is issued by or on behalf of a person who holds any shares, debt securities and warrants of a
particular issuer; and
 Acknowledges that another person is entitled to rights in relation to the share, debt securities and
warrants, debt securities and warrants of the same kind
Family
A spouse and lineal ascendants and descendants
Futures broker
A person who, by way of business, whether as principal or agent,—
 Makes or offers to make with any person or induces or attempts to induce any person to enter into
or to offer to enter into any agreement for or with a view to the purchase or sale of a futures contract;
or
 Solicits or accepts any order for, or otherwise dealing in, a futures contract
Market contract
 A contract subject to the regulations of a clearing house entered into by the clearing house with a
clearing member under a novation and for the purpose of clearing and settlement of transactions
using the clearing facility before or after default proceedings have commenced; or
 A transaction which is being cleared or settled using the clearing facility and subject to the
regulations of a clearing house, whether or not a novation referred above is to take place
Money
Includes any form of money, whether represented by a cheque or other payable order or otherwise
Qualified institutional buyer

 A bank;
 A financial institution; or
 Any other entity notified by SECP on the criteria prescribed under regulations;
Quotation and trade reporting system

The operation of facilities that permit the dissemination of price quotations for the purchase and sale
of securities and reports of completed transactions in securities;
Regulated market
Any securities exchange, over-the-counter market or platform that is licensed by the Commission;
Securities in the case of listed instruments includes

 shares and stock of a company (shares);
 any instrument creating or acknowledging indebtedness which is issued or proposed to be issued
by a company including, in particular, debentures, debenture stock, loan stock, bonds, notes,
commercial paper, sukuk or any other debt securities of a company, whether constituting a charge
on the assets of the company or not (debt securities);
 loan stock, bonds, sukuk and other instruments creating or acknowledging indebtedness by or on
behalf of a government, central bank or public authority (Government and public debt securities);
 modoraba certificates, participation term certificates and term finance certificates;
 any right (whether conferred by warrant or otherwise) to subscribe for shares or debt securities;
 any option to acquire or dispose of any other security (options);
 units in a CIS, including units in or securities of a trust fund (whether open-ended or closed end);
 rights under any depository receipt in respect of shares, debt securities and warrants; and
 any other instrument notified by SECP to be securities for the purposes of this Act,
but does not include futures contracts, bills of exchange, promissory notes and certificates of deposit
Securities Market
Any market or place at which or any service or facility (whether electronic or otherwise) by means of
which, offers or invitations to sell, purchase or exchange securities are regularly made on a centralized
basis, being offers or invitations that are intended or may reasonably be expected, to result, directly or
indirectly, in the acceptance or making, respectively, of offers to sell, purchase or exchange securities;
Senior management officer
Includes, chief executive officer/ managing director, deputy managing director/chief operating officer
and chief regulatory officer or holder of such positions by whatever name called;
16. First Issue of Shares (Initial Public Offer) Page 283
Ch # 16: First Issue of Capital (Initial Public Offer – IPO)

This chapter deals with different provisions regarding the securities of the company. The
main focus of this chapter is to give an understanding of the process adopted by the
companies for their first issue of capital. It is important to note that you already have
covered the process of further issue of share capital in the Chapter # 13 of the same book.
There are some connected procedures as well regarding the first issue such as Book
building process, first allotment, timelines for the issue and the commencement of the
business process and related formalities

 Prospectus
 Main contents of Prospectus
 Allotment
 Commencement of Business
 Public Offering Regulations, 2017

A 1.1: Companies Act 2017 (19, 20, 57, 67-69)
A 3.1: Securities Act 2015 (Section 87-95) and Relevant Rules and Regulations made
there under
A 3.5: Public Offering Regulations, 2017
A 1.2: Second Schedules of the Companies Act, 2017
100% except
- 2nd Schedule of Companies Act 2017
(for which a note has been given t end of Schedule 1 of public offering regulations)
- Public offering regulations from 13 to 16b dealing with debt offering (to avoid duplication)
Prospectus
“Prospectus” means any document described or issued as a prospectus and includes any document,
notice, circular, material, advertisement, offer for sale document, publication or other invitation
offering to the public (or any section of the public) or inviting offers from the public for the subscription
or purchase of any securities of a company, body corporate or entity, other than deposits invited by a
bank and certificate of investments and certificate of deposits issued by non-banking finance
companies;
Offer of securities (Sec 87)
 This Part applies to offer of securities other than Government debt securities.
 No person shall make a public offer of securities unless prospectus is approved by SECP.
 Approval not required in following cases
- Securities offered by the State Bank of Pakistan
- Securities offered in connection with a private offering or private placement
- Issue of shares of a subsidiary to members of a listed holding company by way of specie
dividend or any other distribution in prescribed manner.
- Where securities are offered by issuer to members or employees of the issuer or their
family members
- Bonus shares to any or all of the members of the issuer;
 A person shall not make a public offer of securities if such person or its directors, sponsors
or substantial shareholders have been holding the office of the directors, or have been
sponsors or substantial shareholders in any company, which—
- had been declared defaulter by the securities exchange; or
- whose TRE certificate has been cancelled or forfeited by the securities exchange; or
- has been de-listed by a securities exchange due to non-compliance of its regulations:
- (SECP may grant relaxation upon valid reasons, and rectification of such issue)
 Approved prospectus shall be valid for 60 days or for a longer period approved by SECP in
case of shelf registration
- Supplement to prospectus for each offering shall contain updated disclosures:
- Time period of 60 days may be extended by SECP by reasons to be recorded in writing.
 SECP shall not be liable to any action in damages suffered due to any prospectus approved
by it.
 A person who makes a false or fictitious application, commits an offence
- SECP may, where it considers it appropriate, forfeit any or all of the money paid or
payable in respect of such applications, after providing opportunity of being heard.
“Substantial Shareholder” means a person who has an interest in shares of a company which
(a) Is equal to or more than 10% of the issued share capital of the company; or
(b) Enables the person to exercise or control exercise of 10% or more voting power at a general meeting
“Shelf Registration” means an arrangement that allows a single offering document allowing
companies to make multiple offerings as disclosed in the offering document within a prescribed time
and subject to prescribed conditions;
“Private offering (non-public offering) or private placement” means an offer to sell or issue
securities to a group of investors (whether individual or institutional) not more than the number
prescribed and not using the print or electronic media for inviting offers;
Approval, issue, circulation and publication of prospectus (Sec 88, 94)
 No person shall issue, circulate and publish prospectus including a shelf-prospectus or

supplement to the prospectus until it has been approved by SECP.
 Issuer or offeror, as the case may be, shall submit a copy to SECP for approval at least 21 days
before date of publication
 Prospectus shall be published in full text or in such abridged form as may be prescribe, at
least in one Urdu and one English daily newspaper.
 The prospectus shall not be published in the newspapers less than seven days or more than
thirty days before the commencement of the public subscription.
 Sufficient number of copies of approved prospectus shall be made available free of charge,
from the date of its publication in the newspapers till the closing of the subscription at
- Registered office of the issuer,
- All the securities exchanges of the country
- All the bankers to the issue
- Concerned share registrar, ballotter and credit rating agency, if any.
 Prospectus in full text and the shares subscription form shall be uploaded on website of the
issuer and shall remain there from the date of its publication in till closing of the
subscription.
 If a person wants to issue, circulate, publish, telecast or broadcast an advertisement, other
than prospectus, announcing a public offer; he shall have to obtain SECP approval for that
- No approval required if a prospectus has already been published and the advertisement
gives an address in Pakistan from which it can be obtained.
 At any time terms of clauses stipulated in prospectus cannot be varied; except approval of
SECP
Issuer
Any person who has issued or proposes to issue a security;
“Offeror
Any person or entity holding, directly or indirectly, such number of securities as may be prescribed and
offers such securities for sale to the public or invites any other person to make subscription for such an
offer and includes an issuer;
Supplement to prospectus
If a supplement to the prospectus is issued/published in continuance of shelf-prospectus;
following requirements should be followed
 Prior written approval of SECP is required before issue, circulation and publication
 Last supplement should be published within such time period as prescribed by SECP; and
 Aggregate amount of the offer or issue floated in tranches should not exceed the total issue
size as mentioned in the shelf-prospectus.
 A copy of each supplement shall be filed with the registrar on or before its issue/publication
 It shall contain such information as may be prescribed by SECP
 Shall be published in at least all those newspapers in which shelf prospectus has been
published
 Sections 92 and 93 shall also apply in case of supplement to prospectus.
Tutor’s Note: Shelf Prospectus and supplement to the prospectus shall be read and understood in
conjunction with Public Offering Regulations 2017
Abridged prospectus (Sec 94)
Public offer may be made by publication of an abridged prospectus instead of a prospectus, if:
 A prospectus is prepared in accordance with section 89 and abridged prospectus is prepared
in accordance with such requirements as may be prescribed
 A copy each of prospectus and abridged prospectus is submitted to SECP at the same time
for approval and both documents are approved by the SECP;
 Sufficient copies of prospectus and the abridged prospectus are made available u/s 88
 Public offer complies with such other requirements as may be prescribed.
Prospectus. (Sec 57 of the Companies Act 2017)
 No prospectus shall be issued by or on behalf of a company unless on or before the date of

its publication, a copy thereof signed by every person who is named therein as a director or
proposed director of the company has been filed with the registrar.
Liability for defective prospectus
Criminal liability (Sec 92)

A person commits an offence, who—
 Makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
 Omits information or a statement from a prospectus that this Act or any rule or regulation
made under this Act, requires to be included in the prospectus.
Civil Liability (Sec 93)

Every offeror, issuer, director of offeror or issuer or any person who has signed the prospectus
shall be liable to pay compensation to any person who acquires any of the securities (in reliance
on prospectus) and suffers loss in respect of them as a result of any incorrect, untrue or
misleading statement in the prospectus or the omission of any required information.
Expert in connection with a prospectus
“Expert” includes banker, securities advisor, engineer, valuer, accountant, lawyer and any other person
whose profession gives authority to a statement made by him;
Expert to be independent (Sec 90)
Expert should be a person who is not, and has not been, engaged or interested in the formation
or promotion or in the management of the company.
Expert’s consent (Sec 91)
A prospectus that contains a statement purporting to be made by an expert or to be based on a

statement made by an expert shall not be issued, circulated or published unless—
 Expert has given, his written consent to the issue of the prospectus with that statement; and
 There appears in the prospectus a statement of expert and has not withdrawn his consent.
No company shall, except with prior approval of SECP, issue or list any securities outside Pakistan.
(Sec 95)
Contents of Prospectus (Public Offering Regulations 2017 – 1st Schedule)
Main Contents of Prospectus
01. Cover Page

02. Inside Cover Page
03. Glossary of Technical Terms:
04. Definitions
05. Table of Content
06. Part I: Approvals, Consents and Listing on the Securities Exchange
07. Part II Summary of the Prospectus
08. Part III Overview, History and Prospects:
09. Part IIIA. Share Capital and Related Matters
10. Part IV. Principal Purpose of the Issue and funding arrangements:
11. Part IVA: Valuation Section
12. Part V: In case of issue of debt securities (Islamic and conventional)
13. Part VI: Risk Factors
14. Part VII: Financial Information:
15. Part VIIA: Revaluation of the assets
16. Part VIIB: Dividend policy:
17. Part VIIC: Credit Rating (in case of debt securities)
18. Part VIID: Trustee and Security (in case of debt securities)
18. Part VIIE: Investment agent and Security (in case of debt securities)
19. Part VIII: Management of the Company
20. Part IX: Legal proceedings and overdue loans
21. Part X: Underwriting arrangement, Commissions, Brokerage and other Expenses
22. Part XI: Miscellaneous Information
23. Part XII: Material Contracts:
24. Part XIII: Book building procedure / instructions fro registeration and bidding
25. Part XIV: Application and Allotment instructions for retail portion:
26. Part XV: Signatories to the Prospectus:
27. Part XVI: Memorandum of Association:
28. Application Form
29. Bidding Form
Tutor’s note: Users of the book are advised to see the 1st Schedule of the Public Offering
Regulations 2017 (from the bare law) for proper understanding. This portion contain only
headings of the main contents of prospectus. Also the users are suggested to skim through the 2nd
Schedule of Companies Act 2017 for a format of SILOP and connected reports thereto.
Reports to be set out in the prospectus
1. A report made by auditors (who shall be named in the prospectus) for each of the two
financial year immediately preceding the issue of the prospectus with respect to the following:
(a) Profits and losses and assets and liabilities; and
(b) the details of dividend (date, rate, class of shares) paid by company during last two financial
years immediately preceding the issue of prospectus of the company. if no accounts have been
made up in respect of any part of the period of two years ending on a date three months before
the issue of the prospectus, containing a statement of that fact.
2. If company has no subsidiaries, the report shall so far as regards profits and losses, assets and
liabilities for each of the 2 financial years immediately preceding the issue of prospectus;
3. If the company has subsidiaries, the report shall so far as regards profits and losses, assets
and liabilities of the company as a whole with combined profits and losses of its subsidiaries,
and individually with profit and losses of each subsidiary concern;
4. If any shares have been or are to be issued or the proceeds, or any part of the proceeds, of
issue of securities are or is to be applied directly or indirectly for the purchase of any business
and by reason of that purchase entitled to an interest, as respects either the capital or profits
and losses or both, in such business exceeding 50% thereof, a report made by auditors (who
shall be named in the prospectus) upon profit and loses and assets and labilities of business;
5. If the proceeds, or any part of the proceeds, of the issue of the shares or debt securities are or
is to be applied directly or indirectly in any manner resulting in the acquisition by the company
of shares in any other body corporate and by reason of that acquisition or anything to be done
in consequence thereof or in connection therewith, that body corporate will become a
subsidiary of the company, a report made by auditors (who shall be named in the prospectus)
upon the profits or losses, the assets and labilities of the other body corporate for each of the
two financial year immediately preceding the issue of the prospectus;
6. The said report shall indicate how the business acquired is in the best interest of shareholders
of the issuer. Where the business being acquired has subsidiaries, how such subsidiaries are in
the best interest of shareholders;
7. In case of debt security, summary of the credit rating report by the credit rating agency, report
by the company’s auditors on security backing the issue and reports by the debt security trustee
and Investment Agent that the security arranged and the mechanism for its enforcement, if
needed, is appropriate for safeguarding interest of the security holders;
8. Statement on accuracy of the contents of the prospectus; and
9. The Chief Executive and CFO of company shall certify that prospectus constitutes a full, true
and plain disclosure of all material facts relating to the securities offered by the prospectus
Allotment of Shares
Process of Allotment
Application for, and allotment of, shares and debentures (Sec 67)
 Application shall not be made of less than nominal amount as SECP may from time to time
specify (generally/particularly).
 SECP may specify “Application Form” for subscription
(Form shall form part of prospectus).
 All certificates, statements & declarations made by applicant shall be binding on him.
 Application in pursuance of a prospectus shall be irrevocable.
Repayment of money received for shares not allotted (Sec 68)
 Company shall refund the money in the case of the unaccepted or unsuccessful applications
within the time as may be specified.
 If the refund is not made within the time specified, the directors of company shall be
- Jointly and severally liable to repay that money with surcharge @ 2% for every month or
part thereof from the expiration of 15th day
- Liable to a penalty of level 3
Allotment of shares and debentures to be dealt in on stock exchange (sec 69)
 Where prospectus states that application has been or will be made for permission for shares
or debentures offered to be dealt in on any stock exchange, Allotment be void if
- Permission has not been applied until 7 days after the date of prospectus
- Permission has not been granted until 21 days from closure of subscription lists [Stock
Exchange may allow further 21 days(maximum) and notify to applicant]
 If permission not applied/granted as aforesaid, directors be jointly & severally liable to
- Repay money; and
- Surcharge @ 2%/month or part thereof from expiration of 8th day;
- Penalty of level 3
 All moneys received shall be deposited in separate bank account in scheduled bank until
returned (due to contravention)
 Permission shall not be deemed to be refused if it is intimated that the application (yet not
granted) will be given further consideration.
 Section shall also be applicable to shares/debentures agreed to be taken by underwriter
Tutor Note: Subsection 5, clause b deliberately skipped being mere interpretation of law
Tutor
Note
Commencement of Business (Sec 19, 20)
 A company shall not commence its operations or exercise any borrowing powers unless:
- Shares have been allotted in cash not less than the minimum subscription
- Every director of Co has paid to Co in cash full amount on each of the shares taken or
contracted to be taken by him
- No money is or may become liable to be repaid to applicants for any shares which have
been offered for public subscription
- Filed with the registrar a duly verified declaration by the chief executive or one of the
directors and the secretary in the prescribed form that conditions complied with
- For a company which has not issued a prospectus, there has been filed with registrar a
statement in lieu of prospectus (SILOP)
 Registrar shall after making necessary enquiries, accept & register all relevant documents
 Such registration shall be a conclusive evidence that the company is entitled to start its
operations and exercise any borrowing powers.
 Nothing in this section shall apply to a
- Company converted from private to a public;
- Company limited by guarantee and not having a share capital.
Minimum subscription
The amount, if any, fixed by MOA/AOA upon which the directors may proceed to allotment or if
no amount is so fixed, the whole amount of share capital other than that issued or agreed to be
issued on consideration other than cash.
Consequences of non-compliance
 Every officer or other person who is responsible for contravention shall along with other
liabilities be liable to a penalty not exceeding level 2
 Any contract made by a company before the date at which it is entitled to commence business
shall be provisional only and shall not be binding on the company until that date
Public Offering Regulations, 2017
Eligibility (Reg # 1)
They shall apply to:

 Public limited company or body corporate proposing to issue securities to general public;
 An Offeror who intends to offer securities to the general public; and
 Sponsors of the public limited company or body corporate, the Consultants to the Issue,
the Underwriter, the Book Runner, the Designated Institution, the Banker to an Issue,
Investment Agent and Issuing and Paying Agent.
Note: These Regulations shall not apply to an Issue by Special Purpose Vehicle or body
corporate specifically setup by Federal Government or any provincial Government for purpose
of issue of any debt security, under any other law or offer of securities under Securities Act2015
Offeror means any person or entity holding, directly or indirectly, such number of securities as
prescribed in these Regulations and offers such securities for sale to the public or invites any other
person to make subscription for such an offer and includes an Issuer;
Offer for Sale means an offer of securities for sale to the general public by an Offeror
Banker to an Issue means a scheduled bank licensed by the SECP as a Banker to an Issue.;
Book Runner means a securities broker or a scheduled bank who holds a valid license from the SECP
to act as an Underwriter
Designated Institution includes the securities exchange, central depository and clearing company to
provide Book Building System
General Conditions for Public Offer of Securities (Reg # 3)
 Approval must have been taken from BOD

 Issuer has profitable track record for at least 2 preceding financial years from its core
business activities (shall not apply in case of Green Field Project);
- If not such track, sponsors shall retain at least 51% of post issue capital till company
reports net profit for 2 consecutive financial years including profit from core activities;
- Issuer shall submit a business plan to turnaround company into a profitable venture;
- Issuer shall disclose following on the cover page of Prospectus in bold language:
“This is a loss-making company. Risks associated with loss making companies are comparatively
much higher than profitable companies. Prospective investor should therefore, be aware of the risk
of investing in such companies and should make decision to invest only after careful due diligence. It
is advisable to consult any independent investment advisor before making any investment
 At least 51% shares of issuer are held by same persons for at least 2 preceding financial years
(shall not apply in case of new issuance of shares or Green Field Project);
 The profitability rule or the 51% condition shall not apply in case of:
-
Green Field Project;
-
Public offering of debt security whose debt servicing is guaranteed from Government.
-
Public offering of debt security by multilateral agencies.
-
Public offering of debt security by state owned enterprises having entity rating of BBB+
and above
SECP may consider relaxing any of the above 2 clauses in case of privatization of government
owned entities by Privatisation Commission through capital markets.
In case of green field project, following criteria shall be applicable:

 Sponsors’ contribution, in form of equity in green field project at time of IPO, shall not be less
than 51% of equity and shall be retained till commencement of commercial production
 If project require debt financing, in addition to equity, financial close shall be mandatory
 Successful business track record of sponsors preferably running listed company(ies),
manufacturing/ industrial units etc. considering various parameters such as operational
profitability, operating cash flows, EPS and dividend payout etc.
 Experience and skills of the Management to run the proposed project.
 If required, Engineering, Procurement and Construction (EPC) contract shall be in place.
 Land for the project (if required) is acquired by Issuer in its name
 Sponsors shall retain at least 51% of post issue paid-up capital till company reports net profit
after tax for 2 consecutive financial years including profit from its core activities.
 Issuer shall disclose the following on the cover page of the Prospectus in bold language:
“It is a green field project. Risks associated with the green field project are much higher than a project
that has commenced commercial production/operations. Prospective investor should, therefore, be aware
of risk of investing in such projects and should make the decision to invest only after careful due diligence.
It is advisable to consult any independent investment advisor before making any investment.
Green Field Project” includes a project that is being newly built by the Issuer and has not
commenced commercial production/operation
 The securities shall be issued in book-entry form only;

 No Issuer shall make a public offer if
- Issuer, its sponsors, promoters, substantial shareholders and directors have over
dues or defaults, irrespective of the amount, appearing in the report obtained from the
credit information bureau; and
(Not applicable to nominee director of government/creditor & independent director)
- Issuer or its directors, sponsors or substantial shareholders have been holding the office
of directors, or have been sponsors or substantial shareholders in any company,
(a) Which had been declared defaulter by securities or futures exchange; or
(b) Whose TRE certificate has been cancelled or forfeited by securities exchange; or
(c) Which has been de-listed by securities exchange due to non- compliance of its
regulations. (SECP may grant relaxation upon reasons to be recorded, and
rectification non compliance)
 Issuer shall appoint Consultant to the Issue, Book Runner, Underwriter, Balloter and Share
Registrar and Banker to an Issue (where required), through separate written agreements
(not applicable if issue/offer is made simultaneously in domestic & international markets)
- Appointment of consultant to the Issue shall not be mandatory in case of IPO of other
class of shares by listed companies.
- SECP may consider relaxing appointment of Consultant to Issue in case of privatization
of government owned entities by Privatization Commission through capital markets
- If Consultant to the Issue is not appointed by the Issuer, a specific disclosure in this
context shall be made on the Cover page of the Prospectus.
- For public offering of debt securities, only Scheduled bank, investment finance service
license holder and DFIs can act as Consultant to the Issue.
 Consultant to the Issue, Book Runner and Underwriter and their associates shall not publish
any research report in respect of Issuer or Issue from date of their appointment till the date
of allotment of securities to general public;
(Information memorandum and other marketing material may be prepared and shared with
the prospective investors through private arrangement)
 Underwriter may enter into separate agreements with other underwriters (licensed by
SECP), with the consent of the issuer and any such arrangement shall be disclosed in the
Prospectus (fixed price method) and in supplement to Prospectus (book building method)
 Consultant to the Issue may enter into separate agreements with any expert for performance
of its duties;
 Issuer shall ensure that Centralized E-PO System (CES) is available for the general public
Submission of Draft Prospectus for approval
 Issuer (itself or) through its Consultant to the Issue, shall submit an application along with
draft prospectus for listing of its securities to the securities exchange
 Copy of application with draft prospectus shall also be sent to the SECP for its record;
 Language of draft prospectus should be simple, plain, clear and easily understandable.
 The Issuer while submitting draft prospectus shall comply with following requirements;
- Prepare draft prospectus as per 1st Schedule
- Should be translated into Urdu in addition to English version.
- Prepare the draft abridge prospectus, if any, as per 2nd Schedule.
- Prepare draft advertisement, if any, as per 3rd Schedule.
- Prepare draft supplement, in case of shelf registration as per 4th Schedule.
 If some disclosures are not applicable to a particular issue, the Issuer and Consultant to the
Issue, if any shall report the same to SECP along with rationale.
 Draft prospectus shall be placed by securities exchange on its website for a period of 7
working days and the same shall be notified by securities exchange to its members, for
seeking public comments.
 Draft prospectus shall also be placed on the website of Issuer and Consultant to the Issue;
 Securities exchange shall ensure that all comments received on draft prospectus have been
incorporated and suitably addressed by Consultant to the Issue and the Issuer to the
satisfaction of securities exchange.
 While processing any application submitted by Issuer through Consultant to Issue u/s 19 of
the Act, SE, in shall additionally examine the proposed issue from various aspects including
eligibility requirements and suitability of Issuer or security for listing considering interest of
general public and its benefits to capital market.
(Issuer shall made all such disclosures as are necessary to comply with SECP Act 1997)
 The securities exchange may ask for any additional information as required
 The securities exchange shall communicate its approval or reasons for rejection of the
application to the Consultant to the Issue (if any) with a copy to the Issuer and SECP.
 After obtaining approval of securities exchange, Issuer through Consultant to the Issue shall
submit an application (along with processing fee & documents) to SECP for approval.
- Any change in Prospectus after its approval and prior to its publication, may be made
only with prior written approval of the securities exchange and SECP
- Any change in Prospectus after its publication, may be made only with prior written
approval of securities exchange and SECP
(shall be disseminated to public through publication of addendum to Prospectus in at
least all those newspapers, websites in which Prospectus has been published earlier)
 In case application for listing is refused by the securities exchange, Issuer through the
Consultant to the Issue may file a petition before the SECP within 30 days of such refusal.
 Company may issue securities outside Pakistan subject to approval of SECP and payment of
non-refundable fee of Rs 1 million and submission of documents prescribed in 6th Schedule.
 Securities subscription form as per 7th Schedule shall be made part of the Prospectus.
 % utilization of excess IPO proceeds, if Strike Price is determined above Floor Price
 Offer size and allocation of capital to general public shall be as per the requirements of the
relevant regulations of securities exchange
Centralized E-PO System (CES) means a centralized system through which applications for
subscription of securities through Public Offering can be made electronically through internet,
Automated Teller Machines (ATM) and mobile phones;
Prospectus includes any document, notice, circular, material, advertisement, offer for sale document,
publication or other invitation offering to the public (or any section of the public) or inviting offers from
the public for the subscription or purchase of any securities of a company, body corporate or entity,
other than deposits invited by a bank and certificate of investments and certificate of deposits issued
by non-banking finance companies
Public Offer means offer of securities by an Issuer including an offer tothe general public or a section
of the public but does not include Private Offer or Private Placement
Shelf Registration means an arrangement that allows the Issuer to make offering in multiple tranches
through a single offering document i.e. Prospectus;
Tranche means offer of a certain portion out of the total issue size as disclosed in the shelf prospectus.
Supplement to the shelf prospectus means an updated condensed form of the full prospectus for
inviting public subscription through subsequent tranche(s)
Public Offer of Shares (Reg # 4 & 5)
An Issuer including an Offeror may make public offer of shares as per any of the method given
below:
Fixed Price Method:

Offer price is set by the Issuer in consultation with the Consultant to the Issue.
Book Building Method:

A mechanism of price discovery of shares through bidders (who make Bids at Floor Price or
within the Price Band). A Strike Price is arrived at through Dutch Auction Method.
Offer Price means the price per share at which shares are offered to the general public in case of Fixed
Price method and the retail investors in case of the Book Building and set by the Issuer in consultation
with the Consultant to the issue
Bid Amount or Money means amount equal to product of the number of shares bid for and the Bid
Price
Bidder means an investor who makes a bid for subscription of shares in the Book Building process;
Floor Price in case of book building means the minimum price per share set by the Issuer in
consultation with Consultant to an Issue ;
Price Band in case of Book Building means Floor Price with an upper limit of 40% above the Floor
Price, allowing Bidder to make Bid at Floor Price or within the Price Band
Book Building means a process undertaken to elicit demand for shares under which bids are
collected from the Bidders and a book is built which depicts demand for the shares at different price
levels;
Book Building System means an online electronic system operated by the Designated Institution for
conducting Book Building;
Dutch Auction Method means the method through which Strike Price is determined by arranging all
the Bids in descending order based on the Bids Prices along with the number of shares and the
cumulative number of shares bid for. The Strike Price is determined by lowering the Bid Price to the
extent that the total number of securities offered under the Book Building Portion are subscribed;
Strike Price means the price per share determined on the basis of Book Building process.
Conditions for public offer of Shares (for Issuer)
An Issuer shall comply with the following conditions, namely,-

 Sponsors of the Issuer shall retain their entire shareholding in the company for a period of
not less than 12 months from the last date for public subscription;
 Sponsors of Issuer shall retain not less than 25% of the paid up capital of the company for
not less than 3 financial years from the last date for the public subscription;
 Above 2 rules (1 year or 3 year holding of shares) not applicable in case of:
- Secondary public offering; and
- Initial public offering of other class of shares by listed companies.
 The shares of the sponsors mentioned above shall be kept unencumbered in a blocked
account with CDC;
 With approval of securities exchange, sponsors may sell their shareholding through block-
sale to any other person who shall be deemed sponsor for purposes of these Regulations.
 The issuer may allot shares on account of preferential allocation to its employees at the same
price at which shares are offered to the general public;
Public offer for green field project, balancing, modernization and replacement
 Public offer shall be in accordance with financial plan approved by board of Issuer.
 Financial plan shall be disclosed in prospectus along with rationale for variations, if any;
Offer of shares through fixed price method (Reg # 6)
 Issuer shall decide offer price in consultation with Consultant to the Issue, if any.
 An explanations for offer price shall be given under a separate section of prospectus titled as
“Valuation Section”
 Public offer shall be fully underwritten.
 An issuer shall issue shares to general public at the price not higher than the price at which
shares were issued to investor during 6 months prior to date of public subscription
 After approval of prospectus by SECP, Issuer or Consultant to the Issue shall seek from the
securities exchange the dates for the publication of prospectus and the subscription period.
 Non-compliance with any condition imposed by securities exchange and SECP while
granting approval for issuance, circulation and publication shall be considered as violation
of prospectus and the Securities Act.
 Consultant to the Issue shall place a copy of the approved Prospectus on its website and the
websites of the Issuer and the securities exchange after inserting dates of the subscription
period.
 Prospectus shall be issued, circulated and published not less than 7 days and not more than
30 days before commencement of the subscription period for the retail portion of the Issue.
 Approved prospectus/abridged prospectus shall be published in at least 1 English and 1

Urdu Newspaper
 General public shall submit application for subscription to the Banker to an Issue either in
physical form or electronically.
 Application shall be duly accompanied by a crossed cheque or demand draft or pay order in
the name of Issuer or evidence of direct debit of subscription money from the applicant’s
bank account or blocking of the subscription money in the applicant’s bank account.
 Within 10 working days of close of public subscription period or any shorter period specified
by SECP
- Shares shall be allotted and issued against accepted and successful applications; and
- Subscription money of the unsuccessful applicants shall be unblocked/ refunded.
 The Issuer, the Consultant to the Issue and the Underwriter shall maintain record of the issue
for a period of at least 10 years from the closing of the public subscription.
 Company whose shares are offered through fixed price shall not be provisionally listed
Book building method
Conditions for offer of shares through Book Building (Reg # 7)
 The offer Size shall not be less than 25 million shares and Rs. 250 million
(or such higher number of shares and amount as specified by SECP from time to time)
 Company whose shares are issued through Book Building shall not be provisionally listed.
 Maximum 75% of the offer size is allocated to book building portion and the remaining
minimum 25% to the retail investors.
 The retail portion of the public offer shall be fully underwritten.
Book Building Portion means the part of the total Issue which has been allocated for subscription
through Book Building;
Retail Investor means an investor who bids for a security or make an application for subscription of
a security out of the offer size allocated to the general public;
SECP may allow undertaking of book building process and subscription by retail investors
simultaneously, if Consultant to the Issue, Book Builder and Issuer satisfy the SECP that necessary
arrangements in terms of IT infrastructure, underwriting for retail portion, distribution network,
etc are in place for such
 Bidders may be allowed to place bids for 100% of the offer size and strike price shall be the
price at which 100% of the offer size is subscribed.
 However, successful bidders would be allotted and issued only 75% of the offer size and the
remaining 25% would be offered to the retail investors.
 Bidders shall give an undertaking along with application that they would subscribe to the
unsubscribed shares, if any, by the retail investors and their remaining bid money would
remain deposited/ blocked till allotment of unsubscribed shares by the retail investors, if
any, to them on pro-rata basis.
 If retail portion is fully subscribed, bid money shall be immediately refunded or unblocked.
(In this case, the retail portion may not be underwritten)
(SECP may impose any other conditions on case to case basis)
 Book building portion shall be credit underwritten by one or more book runners.
 Issuer and Consultant to the Issue (if any) shall provide names and Unique Identification
Numbers of all their associates, if any, to Book Runner; at least 3 working days before
commencement of Bidding Period.
 The book runner shall enter the names and UIN number of associates of Issuer, associates of
Consultant to the Issue and its associates, if any in book building system in order to ensure
compliance with regulations.
 The associates of Issuer as disclosed in Prospectus shall not in aggregate make bids in excess
of 10% of the shares offered though Book Building
 The associates of Consultant to Issue and Book Runner shall not in aggregate make bids in
excess of 10% of the shares offered through Book Building:
(not applicable to such associates that are Financial Institutions, Mutual Funds and
Insurance Companies)
 Consultant to the issue shall ensure that the issuer has entered into a tripartite agreement in
writing with the Designated Institution and the Book Runner.
 The agreement shall also specify the rights, privileges, duties, responsibilities and
obligations of each party to agreement and shall provide a clause on dispute resolution
mechanism among the parties.
 Issuer, Consultant to Issue, Book Runner, Underwriter and Designated Institution shall
maintain record of issue for a period of at least 10 years from closing of public subscription
Offer Size means the total number of securities offered for sale comprising allocation to the Book
Building Portion and allocation to the retail portion, if any, excluding pre-IPO placement;
Institutional Investors means any of the following entities:
 A financial institution;
 A company as defined in the Companies Act
 An insurance company established under the Insurance Ordinance, 2000;
 A securities broker;
 Fund established as Collective Investment Scheme in NBFC & Notified Entities Regulations, 2008;
 A fund established as Voluntary Pension Scheme under the Voluntary Pension System Rules, 2005;
 A private fund established under Private Fund Regulations, 2015;
 Any employee’s fund established for beneficial of employees;
 Any other fund established under any special enactment;
 A foreign company or any other foreign legal person;
Procedure for public offer of shares through Book Building. (Reg # 8)
 Issuer shall decide the Floor Price and the Price Band in consultation with the Consultant to
the Issue.
- Floor Price and its determination shall be disclosed under separate section titled as
“Valuation Section” in the prospectus
- It should contain justifications given by Issuer or Consultant to the Issue in support of
Floor Price set by Issuer
- The upper limit of the Price Band should not be more than 40% of the Floor Price
 Floor price shall not be revised once the Prospectus has been approved by SECP
 After inserting dates of Bidding period, copy of Prospectus shall be placed on the website of
Issuer, Book Runner, Designated Institution, SE and Consultant to the Issue, if any
 The Issuer shall publish the Prospectus at least 1 day before commencement of registration
of bidders by the Book Runner
 Bidding shall be conducted electronically through the System in a fair, efficient and
transparent manner.
 Registration of bidders by Book Runner shall commence at least 3 working days before the
start of bidding period and shall remain open till 03:00 pm on last date of bidding period.
 Book Runner shall
- At least establish bid collection centers in Islamabad, all provincial capitals, AJK and
Gilgit/ Baltistan.
- Provide a mechanism for registration of bidders at bid collection centers and collection
agents.
- Make all necessary arrangements for receiving bids and instruments evidencing
payment
- May also designate any of the Bankers to an Issue as its collection agent.
- Put in place a mechanism to enter details including maximum Bid amount of the Bidders
into System
 After entering details of bidders into the System, Designated Institution shall assign and
communicate password and user ID to bidders enabling them to directly place the bid and
revise bid upward only.
 The bidding shall remain open for at least 1 working days.
 Book Building process shall be considered as cancelled if Issuer does not receive bids for the
number of shares allocated under Book Building Portion
- Same shall be immediately intimated by Book Runner and Consultant to the Issue to
SECP, securities exchange, Designated Institution and the bankers to an issue.
- All Bankers to Issue shall be advised by book runner for refund/ unblocking of Bid
Money of bidders.
- Margin money shall be unblocked/ refunded to bidders, where required, immediately
but not later than 3 working days of the closing of the Bidding Period;
 Book Building process shall be considered as cancelled if total number of bids received is
less than 40;
 Book-Runner shall ensure that subscription money received against bids accepted shall not
be released to the Issuer by the Banker to the Book Building Portion until:
- Credit of all shares allocated under the retail portion of the issue; and
- Issuance of NOC by securities exchange in case the company is already listed (or formal
trading of the company in case of new listing).
Bid Collection Center includes designated offices of the Book Runner, specified branches of any
scheduled bank and offices of any other institution specified by the Book Runner where bids are
received and processed;
Bidding Period means the period during which bids for subscription of shares are received;
Procedure for bidding (Reg # 9)

 Bids can be placed as a ‘Limit Bid’ or a ‘Step Bid’ either electronically or with bid collection
centers and collection agent.
 Minimum size of limit bid and any step (Step Bid), shall not be less than Rs 1 million;
 Book runner shall vet the bid applications and accept only such bid applications that are duly
filled in and supported by a crossed cheque or demand draft or pay order or confirmation
from Banker to Issue that Bid Money has been electronically debited from the bidder account
or is blocked in the bidder account;
 For institutional investors, book runner may accept bid applications with minimum 25%
margin money.
(Book runner may waive this margin requirement for institutional investors at its own
discretion)
 On receipt of bid application, Book Runner shall enter Bid into System and issue to bidder an
electronic receipt bearing name of book runner, name of bidding center, date and time;
 Bidding shall commence from 09:00 a.m. and close at 05:00 p.m. on all days of Bidding.
 Bids shall be collected and entered in system by Book-Runner till 05:00 p.m. on last day of
bidding period;
 Bidders can revise the bids upward till 05:00 p.m. on the last day of Bidding Period;
 Book Runner may reject any bid application (for reasons to be recorded in writing) and
reason of rejection would be disclosed to bidder. (Decision of Book Runner shall not be
challengeable by bidder)
 Designated Institution shall through the System display live throughout the bidding period
an order book in descending order showing demand for shares at various prices and the
accumulated number of shares bid for along with percentage of the total shares offered.
 Order book should also show the revised bids. The order book shall be accessible through
websites of the Designated Institution, Book Runner, Consultant to Issue, securities
exchange, clearing house and CDC;
 At close of bidding period, Strike Price shall be determined on basis of Dutch Auction Method
by Designated Institution;
 Bidders making bids at prices above Strike Price shall be allotted shares at the Strike Price;
 In case the bids received are sufficient to allot the total number of shares offered for sale
under the Book Building Portion, allotment shall be made on basis of highest bid priority.
 In case all bids made above the Strike Price are accommodated and shares are still available
for allotment, such available shares will be allotted against bids made at Strike Price strictly
on proportionate basis.
 Bidders who have made bids below Strike Price shall not qualify for allotment of securities
(Book runner shall intimate their respective banks for unblocking their Bid Money within 1
working day of the close of the bidding period)
 Within 1 day of the closing of the bidding period, successful bidders shall be intimated the
Strike Price and the number of shares provisionally allotted to each of them;
 Successful bidders shall be issued securities only after end of public subscription, in form of
book-entry to be credited in their respective accounts
 Designated Institution shall continue to display on its website, data pertaining to Book
Building and determination of Strike Price for a period of at least 3 working days after
closure of the bidding period.
Bid means an intention to buy a specified number of shares at a specified price;

Bid Amount or Bid Money means the amount equal to the product of the number of shares bid for and
the Bid Price;
Limit Bid mean a bid placed by the bidder at a maximum price that he is willing to pay for shares under
the Book Building method;
Step Bid means a series of Limit Bids at increasing prices provided that Bid Amount of any step is not
less than 1 million rupees under the Book Building method;
Consolidated Bid mean a bid which is fully or partially beneficially owned by persons other than the
one named therein.
Secondary Public Offering means offer of securities to the general public subsequent to IPO;
Restrictions (Reg # 10)
 Biding period shall not be extended except in extra ordinary circumstances

(e.g. closure of banks, failure of System, etc)
 Book Runner shall apply to SECP for extension in Bidding Period after obtaining NOC from
securities exchange. If extension is granted, the same shall be disseminated through
publication in all those newspapers where prospectus was published and website of issuer,
consultant to the issue, book runner, the designated institution and the securities exchange.
The bidder shall not:

 Make bid below the Floor Price and above the upper limit of the Price Band;
 Make A bid for more than 10% of the shares allocated under the Book Building Portion
 Make a bid with price variation of more than 10% of the prevailing indicative strike price or
such other % as may be specified by SECP;
 Make a consolidated bid;
 Make more than one bid either severally or jointly; or
 Make downward revision both in terms of Bid Price and Bid Volume (In case of upward
revision, Bid Volume may be adjusted ensuring that bid amount/money remains the same);
 Withdraw the Bid
No person shall take part in the book building process, directly or indirectly severally or jointly in
any manner or engage in any act or practice which create a false and misleading appearance of
active bidding for raising or depressing strike price in the book building process.
Procedure for allocation of shares to retail investors (Reg # 11).

 Within 3 working days of closing of Bidding Period, Issuer or Consultant to the Issue shall
publish all supplement to prospectus in those newspapers in which prospectus was earlier
published and also disseminate same to securities exchange, banker to issue & underwriter.
Supplement to the prospectus means information relating to results of the Book Building
or information relating to Strike Price, Offer Price, names of the underwriters of retail
portion, underwriting commission bifurcating as take up commission or any other,
commitment by the successful bidders for subscribing the undersubscribed retail portion
in case of 100% book building, category wise breakup of the successful bidders along with
number of shares allocated to them, dates of public subscription and such other
information as specified by the SECP.
 Issuer may offer the shares to the retail investors at a certain discount to the strike price.
 Within 10 working days of close of public subscription or any shorter period specified by
SECP, shares shall be allotted and issued against the accepted and successful applications
and the subscription money of the unsuccessful applicants shall be unblocked/ refunded.
 In case retail portion of the issue, if any, remains unsubscribed, the unsubscribed shares shall
either be taken up by the underwriters or allotted to successful bidders at the strike price
determined in the book building process on pro-rata basis.
Offer for sale of shares by the Offeror. (Reg # 12)

 A person or group holding more than 10% shares of a listed company or body corporate,
may offer such shares for sale to the public if offer size (product of offer price or floor price
and number of shares being offered) of capital to public shall not be less than Rs 100 Million
 In case of offer for sale of shares of an unlisted company or body corporate, size of offer of
capital shall be in accordance with these Regulations and regulations of securities exchange;
 Such Offer for sale by existing shareholders is not allowed in case of green field project
Functions and responsibilities of different persons in the public offering process
General responsibilities of Consultant to the Issue, Book Runner, Underwriter, Banker

to an Issue and Issuing and Paying Agent (Reg # 17)
 Make all efforts to protect the interests of investors.

 Maintain high standards of integrity, dignity and fairness in the conduct of its business.
 Fulfill its obligations in a prompt, ethical, and professional manner.
 At all times exercise due diligence, ensure proper care and exercise independent
professional judgment.
 Endeavor to ensure that inquiries and complaints from investors are dealt with in a timely
and appropriate manner;
 Avoid conflict of interest and make appropriate disclosure to the customers of their possible
source or potential areas of conflict of duties and interest which would impair their ability
to render fair, objective and unbiased services;
 Ensure that they have made the reporting lines and compensation arrangements for their
employees in a way to eliminate or effectively manage actual & potential conflicts of interest;
 Ensure that their directors and employees shall not directly or indirectly indulge in any
insider trading or other market abuses;
 Have internal control procedures and financial and operational capabilities which can be
reasonably expected to protect its operations, its customers, investors and other regulated
persons from financial loss arising from theft, fraud, and other dishonest acts, professional
misconduct or omissions;
 Be responsible for the acts or omissions of its employees in respect of conduct of its business;
 Frame policies and procedures to ensure compliance with the requirements of these
regulations by its employees;
 Ensure that communications with the securities exchange and the SECP are kept
confidential, except as required to be disclosed to the customers;
 Render only such services as agreed in writing with their customer and are not prohibited
under these regulations and any other applicable law;
 Maintain a functional website containing all public information about the issue and
mechanism for handling of complaints;
 Inculcate a culture of compliance of the regulatory requirements through ongoing education
and training of their employees.
 Ensure that internal control policy is widely disseminated for compliance by all employees
and is reviewed for appropriateness and sufficiency by the competent authority at least once
every year;
 Promptly investigate, in the event of a breach of policies, procedures, controls or misconduct,
and take appropriate steps to rectify weaknesses, if any, to prevent recurrence of breach;
 Employ sufficient human resource is adequately trained to efficiently perform its functions;
 Submit any document, report or information as and when required by the SECP;
 Ensure that annual review, for appropriateness and sufficiency, of the internal control
system is carried out by the internal audit department, which reports directly to the board
of directors or its audit committee.
 Ensure that any change in license status, any penal action against it or any material change
in its financial and operating position which may have adverse effect on the interest of issuer,
or investors is promptly notified to the issuer, the offeror, SECP and securities exchange;
 Ensure that all information provided to the securities exchange and SECP is true, accurate
and no material fact is omitted or suppressed; and
 In case of consultant to the issue give, any investment advice about any security in the media
unless a disclosure of its interest in the said security is made, while giving such advice.
Functions of the consultant to the issue. (Reg # 18)
 Preparation of prospectus, and related documents and ensuring that the same are prepared
in accordance with the requirements of the applicable laws including section 89 of act, these
regulations, regulations of securities exchange and other applicable regulatory framework;
 Before submitting the application to the securities exchange under section 19 of act, the
consultant to the issue shall examine the proposed issue from various aspects including
eligibility requirements and suitability of the issuer or security for listing considering the
interest of general public and its benefits to the capital market.
 Give justifications in support of the offer/ floor price set by the issuer under a separate
section titled as “valuation section ” in the prospectus.
 Assist in the execution of agreements of the issuer with underwriters, bankers to an issue,
book runner, designated institution, debt security trustee, issuing and paying agent ,balloter
and transfer agent and investment agent;
 On behalf of the issuer, seeking the approval of the securities exchange;
 Preparation and publication of prospectus and advertisements with regard to public issue;
 Ensure that the public offering including book building is carried out in accordance with the
prospectus and requirement of these regulations and the act;
 Preparation and submission of final report on the issue to the SECP;
 Comply with all the applicable directives and orders issued by the SECP; and
 Any other related function as may be specified by the SECP from time to time.
Responsibilities of the consultants to the issue (Reg # 19)
 Ensure that, after having made due and careful enquiry, they have reasonable grounds to
believe that-
- Application submitted to securities exchange and prospectus submitted to SECP under
meets the relevant requirements of act, these regulations, regulations of the securities
exchange and other applicable regulatory framework; and
- Documents, reports, statements and information submitted along with application and
prospectus are not false or misleading and do not contain any material omission;
 Ensure that adequate disclosures are made to the investors in a timely manner so as to
enable them to make a balanced and informed decision.
 Endeavor to ensure that the investors are provided with true and adequate information
without making any misleading or exaggerated claims or any misrepresentation and are
made aware of the associated risks before taking any investment decision.
 Obtain from their employees an undertaking stating therein that they will not misuse their
position of having access to non-public information, if any, relating to the issue for their
personal benefit or for the benefit of any other person who does not have or is not authorized
to have access to such information;
 Actively participate in preparation of the prospectus and ensure that all material facts,
including all potential risks, as required under the law are disclosed therein and that the
issuer is compliant with all the laws applicable to the issue of securities;
 Remain associated with the issue till its completion i.e. Credit of securities, submission of
final report to the securities exchange and SECP, resolution of the issue related complaints,
if any, and implementation of final decision of the SECP on application rejected, if any.
 Ensure that they understand the nature of business of their customer.
 Ensure that their customer is fully briefed on its obligations and potential liabilities
pertaining to its application and supporting documents including the prospectus, in relation
to the requirements stipulated by the SECP.
 Ensure that their customer has been made aware of the need for it to extend its full
cooperation in the provision and verification of information for the purposes of assignment;
 Withdraw from the assignment in case their customer fails or refuses to address its concerns
about the issue or any related information provided to it.
The consultants to the issue shall not-

 Make any false statement, whether oral or written, either about their qualifications or
capability to render services or their achievements with regard to services rendered to their
potential customers;
 Make unsubstantiated claims or statements, in order to acquire business from the customer,
about qualifications of their professional staff or their capability to render certain services
or their achievements concerning the consultancy services rendered by them;
 Submit any document or report to the SECP that contains any untrue or false statement, or
any material fact omitted therefrom;
 Agree to manage or be associated with any issue as consultant unless its responsibilities
relating to the issue are clearly determined through an agreement in writing; and
 Be a party to or instrumental for -
- Creation of false market;
- Price rigging or manipulation or;
- Conveying of non-public price sensitive information in respect of securities proposed to
be listed in securities exchange to any person.
Responsibilities of the book runner (Reg # 20)
 Ensure that necessary infrastructure and electronic system is available to accept bids and to
conduct the whole book building process in a fair, efficient and transparent manner;
 Ensure blocking of bid and margin money of the bidders in their respective accounts;
 The book runner must be financially capable for honoring its commitments arising out of
defaults by their investors, if any;
 Use the software provided by the designated institution for the book building on such terms
and conditions as may be agreed through an agreement in writing
 Ensure that the software used for book building is based on dutch auction method for display
of the order book and determination of the strike price;
 Ensure that the bidders can access to the system and can revise their bids electronically
using the user id and the password;
 Underwrite the book building portion;
 Ensure that it has obtained list and unique identification numbers of the associates of the
issuer and the consultant to the issue;
 Ensure that names and unique identification numbers of all the persons mentioned above
are entered and capped in a manner as prescribed in these regulations before
commencement of the bidding period;
 Ensure that it blocked all unique identification numbers and names of all related employees
for participation in the bidding
Responsibilities of banker to an issue: (Reg # 21)
 Ensure that information related to the subscription of the issue is provided to the issuer,
within the time period and in the form and manner as disclosed in the prospectus or as
required under the agreement executed with the them;
 In case of application supported by blocked amount, on receipt of application, immediately
block the bid money or subscription money in respective account of the bidder or subscriber;
 Upon receipt of information from book runner and balloter and share registrar, immediately
unblock bid money or subscription money of unsuccessful bidders or subscribers;
 Immediately inform the SECP regarding any penal action, legal proceedings initiated against
it by the state bank of pakistan;
 Not accept applications for subscription of securities and subscription money thereof after
closing of the subscription period.
Responsibilities of underwriter. (Reg # 22)
 Obtain from its relevant employees, an undertaking stating therein that they will not misuse
their position of having access to the non-public information, if any, relating to the issue
being underwritten for their personal benefit or for the benefits of any other person who
does not have or is not authorized to have access to such information;
 Ascertain before entering into an underwriting agreement that the regulatory requirement,
if any, relating to the exposure limits on investment in securities are not breached in case it
is called upon to fulfill its commitment of subscribing the unsubscribed portion of an issue
pursuant to the underwriting agreement;
 In the event of being called upon to subscribe to the securities underwritten pursuant to an
agreement, subscribe such securities within such time as specified in the agreement but it
shall not exceed fifteen days starting from the date of issue of such intimation, notice,
invitation by the issuer;
 Sell the securities subscribed pursuant to the underwriting agreement in the secondary
market or to persons other than the directors, sponsors and associates of the issuer;
 Publish its entity credit rating in its periodic financial reports, and each advertisement and
brochure, if any, in relation to promotion of its business;
The underwriter shall not,-

 Enter into any buy-back or repurchase arrangement with the issuer or any other person with
respect to the securities underwritten by it;
 Derive any undue benefits directly or indirectly, from any underwriting transaction other
than the commission payable to it under the underwriting agreement;
 Make any oral/written statement, which would misrepresent its underwriting commitment;
 Give, directly or indirectly, any investment advice about any security in the media unless a
disclosure of its interest in the said security is made, while giving such advice;
 Willfully make false statement or conceal any material fact in any document, report or paper
furnished to the SECP;
 Participate itself or through its associates for the subscription of shares out of retail portion
of an issue which is underwritten by it;
 Be party to or instrumental for creation of false market;
 Be party to or instrumental for price rigging or manipulation;
 Be party to or instrumental for passing of unpublished price sensitive information in respect
of securities which are listed or proposed to be listed on the securities exchange to any
person or intermediary;
 Undertake underwritings commitments exceeding 4 times of its equity (excluding
unrealized gains and revaluation surplus) as per its latest audited financial statements.
(Any subsequent agreement by underwriter to issue with other underwriters duly licensed
by SECP may be excluded while arriving at this exposure limit)
Responsibilities of issuing and paying agent (Reg # 23)
 Enter into an agreement in writing with issuer to act as issuing and paying agent for issue;
 Ensure that conditions laid down for the issuance of debt securities are strictly adhered to;
 Ensure that the issuer has the minimum credit rating as specified in these regulations;
 Ensure that the issuer has met all the requirements as prescribed in these regulations before
the issuance of debt securities;
 Obtain copies of all the investor agreements i.e. The agreements executed with the initial
subscribers and the said agreements contain salient features and other terms and conditions
of the issue including the following,-
- Covenants of the issue of debt securities;
- Non availability of any recourse to the initial subscribers on the issuer and issuing and
paying agent and to the subsequent purchasers on the sellers in the secondary market;
- Non availability of any guarantee by any bank or other financial institution;
- Default history of the issuer including rescheduling/restructuring of loan for the last 5
years; and
 Verify all the documents submitted by the issuer i.e. Copy of board’s resolution etc. And have
in custody certified copies of the original document and issue a certificate that documents
are in order;
 Place specimen of the investors’ agreement between the issuer and the subscribers
containing minimum terms and conditions on its website.
 On the issue date, deliver debt securities to investors against proof of payment and at
maturity, after receiving funds from the issuer, effect repayment on receipt of the debt
security from the investors;
 Make it clear to the initial subscribers in the investor agreement and the general public in
the prospectus that their investment is subject to credit and other risks inherent in such
instruments and payment would be made to them after the issuer has made the funds
available to issuing and paying agent;
 Inform the initial subscribers that in case of any default by the issuer, it will not be in a
position to seek recovery from the issuer or initiate any action against the issuer either on
its own or on behalf of the investors;
 In case of any default by the issuer, be responsible for the immediate notification of such
default to the holders of the debt security and the SECP
 In case of partial payment by the issuer, distribute received funds, among all the holders of
the debt securities, on pro-rata basis and while doing so it shall take all necessary measures
to safeguard its position against any adverse consequences including incorporation of this
provision in agreement executed between issuer and issuing and paying agent;
 Submit a report on the issue to the SECP within fifteen days from the last date for closing of
the subscription of the debt security and the report shall contain all the material facts and
figures relating to the issue including those as required under these regulations to be
reported to the SECP; and
 Obtain from concerned depository company list of debt security holders on monthly basis.
Responsibilities of designated institution in case of book building. (Reg # 24)
The designated institution in case of book building system shall perform following
functions namely;
 Record name, unique identification number, national tax number, postal and email
addresses, land line & cell numbers, bank account number and branch address and investor
account number or sub-account number of bidder with participant account number;
 Provide a mechanism for registration of the bidders before commencement of the bidding
period till 03:00 p.m. On the last day of the bidding period and require the investors to
provide at least such information
 Generate bidders’ internet protocol (IPs) address and keep record of all IP addresses from
where the bids are placed;
 Record the number of shares bid for, the bid price, type of the bid i.e. Limit bid or step bid,
date and time of the entry of the bid;
 Display the bids revised, and date and time of upward revision;
 Neither allow withdrawal of bid, nor accept the bids placed at a bid price that is below the
floor price or above the upper limit of the price band;
 Display live the total number of shares offered for sale, the floor price, price band, total
number of bids received, total number of shares bid for and indicative strike price;
 Build an order book showing demand for the shares at various price levels in a descending
order along with the accumulated number of shares bid for and percentage of total shares
offered under the book building portion;
 Discover the strike price at the close of the bidding period;
 Generate alerts for the bidders via short message service through cell phones and emails
upon entry of the bid, at the time of upward revision of the bid, and upon discovery of the
strike price; and
 Ensure that system must provide the bidders the option to upward revise their bids online
or through the book runner during the period permitted under these regulations;
The designated institution shall ensure that:

 Identity of the bidder is not displayed; and
 No bid is entered into the system after closing of the bidding period
Special Purpose acquisition Company
“Special Purpose Acquisition Company (SPAC)” or “SPAC” means a Company formed and registered
under the Companies Act, 2017, having sole principal line of business to raise money through public
offering for entering into merger or acquisition transactions
Custodian means an investment agent/debt securities trustee, Bank, Investment Finance Service
license holder and Depository Company engaged in regulated activities, not being an associate of the
Special Purpose Acquisition Company, appointed for securing the monies of investors in the escrow
account.”;
Escrow Account means an account maintained with a scheduled bank (having an investment grade
rating) by a custodian”;
Merger means the merger, acquisition, amalgamation, combination or joining of two or more
companies or other entities as may be specified by the Commission for the purpose of merger or part
thereof into an existing company”;
Permitted Investments means investments in Government securities, mutual funds (except equity
based), money market instruments, debt securities and sukuks with investment grade ratings;”;
12a. Eligibility to Commence business as SPAC

No person shall commence business as a SPAC unless
 it is registered as a public limited company having principle line of business of SPAC, having
a paid-up capital of not less than ten million rupees, and shall not carry out any commercial
business other than the business of SPAC; and
 its promoters, sponsors, directors and chief executive officer fulfil the Fit and Proper criteria
as specified in the Ninth Schedule.
12c. Listing
A SPAC offering securities to the public shall be listed on the securities exchange.
12d. Modes of fund raising

A SPAC can raise funds through issuance of equity securities and/or warrants either by;
 Initial Public Offer (IPO); or
 Private placements
12e. Minimum Fund Raised
A SPAC shall raise at least Rs. 200 million to undertake a merger or acquisition transaction.
The offering document/prospectus should clearly provide the justification that the funds
raised are sufficient enough to enable the SPAC to have a core business with sufficient size and
scale relative to the industry in which the business operates.
12b.Functions of SPAC
A SPAC shall be responsible, -
 to raise and utilize funds for the sole purpose of merger or acquisition transaction and
complete the transaction within permitted time frame as per these regulations;
 to open an escrow account and maintain custodial arrangements for escrow account at all
times as required under these regulations;
 to act in the best interests of the investors and to ensure that merger transactions shall be
structured in such a manner to avoid any conflict of interest;
 to be obliged to manage its assets, in the interest of the investors in good faith and to the best
of its ability and without undue advantage for itself or any of its related parties, associates
or its officers;
 to ensure that at least 15% shareholding of merged entity (post-merger) are held by the
sponsors for a period of at least one year from the date of merger:
(SPAC sponsors may increase shareholding % in merged entity, if merged entity, subsequent
to merger, starts generating operating profit within specified time as per prospectus);
 to ensure that sponsor’s shareholding in the target company premerger/acquisition should
be less than 30% of the total shareholding of the target company;
 to prepare draft prospectus as per format and disclosures prescribed in Schedule Eleven and
shall submit application for approval of prospectus as per these regulations and Act, 2015.
12f. Time frame for completion of qualifying acquisition

 SPAC must complete the merger or acquisition transaction within the permitted time frame
of 36 months from the date of listing of SPAC on the exchange:
 Provided that SECP may, upon request by SPAC, after reasons to be recorded in writing,
extend the permitted time by 6 months subject to terms and conditions as deem appropriate
12g. Shareholders’ Approval
 Each merger or acquisition transaction shall be approved by the shareholders by way of

special resolution. The SAPC shall provide the disclosures as specified in Schedule Twelve,
while presenting to the shareholder.
 SPAC shall ensure mandatory implementation of e-voting.
 The notice of general meeting by SPAC shall not be less than 21 days.
12o. Failure to complete merger or acquisition transaction

 In case SPAC fails to complete merger or acquisition transaction within the permitted time
frame or within such extended time as approved by the Commission it shall notify the
Commission and the concerned securities exchange of the same fact within seven days.
 In case where SPAC fails to complete the merger or acquisition transaction prior to expiry of
the permitted time frame due to any unforeseen circumstances/reasons, it shall immediately
notify the same to the Commission and the concerned securities exchange of the fact.
12h. Rights of holders of voting securities who vote against a qualifying acquisition /
Refund to Investors Or where SPAC fails to complete merger/acquisition transaction
 A SPAC shall be entitled to make refund to the entitled shareholders from the Escrow account
in the following scenarios, -
- where company is unable to complete the merger or acquisition transaction within the
permitted time period as specified in these regulations or as approved by SECP; or
- to those entitled shareholders, who do not approve merger or acquisition transaction.
 If the SPAC is unable to complete the merger or acquisition transaction within the permitted
time period, the securities holders, will receive pro rata amount out of the Escrow account
including any profit accrued/credited in the Escrow account, net of any taxes payable.
 SPAC shareholder/(s), other than directors, sponsors and chief executive offer, disapproving
the merger or acquisition transaction shall be –
- entitled to receive, in exchange for their securities, a sum equivalent to 90% of their
initial investment, net of any taxes payable and expenses related to the facilitation of the
exchange, provided that such merger or acquisition transaction is approved and
completed within the permitted time frame; and
- paid as soon as practicable upon completion of the merger or acquisition transaction
should they elect to exchange their securities. The securities tendered in exchange for
cash must be cancelled. In complying with this requirement, the SPAC must specify, in
the circular to shareholders in relation
- to the qualifying acquisition, the timeframe for payment to holders of securities electing
to exchange their securities. The SPAC must also demonstrate that this timeframe is
reasonable, including providing details of all milestones or steps to be taken.
- the basis of computation for refund must be disclosed in the prospectus and notice of
the general meeting.
- SPAC shall notify through its share registrar the list of dissenting shareholders to CDC.
Shares of the dissenting shareholder shall immediately be blocked by CDC.
- for the purpose of processing the list of dissenting shareholder/(s) and freezing, SPAC
shares shall not be tradeable on the securities exchange for one day i.e. immediately
after the date of book closure.
 SPAC immediately after processing payments from the Escrow account as per the procedure
specified in these regulations shall stand delisted and process of its voluntary winding up
shall be initiated by the SPAC as specified in Companies Act, 2017.
12i. Management of Escrow Account
 SPAC must place at least ninety percent (90%) of the funds raised in an escrow account
immediately upon receipt of all proceeds. 10% of the total proceeds may be utilized to defray
expenses related to the initial public offering/private placements, operating costs, fund the
search for a target business and complete the qualifying acquisition;
 Monies in escrow account shall only be utilized for purpose of merger or acquisition.
 The monies in the escrow account can be released by the custodian for such purposes as
permitted under these regulations and upon termination of the escrow account
 The escrow account can be terminated-
- following the completion of all merger or acquisition within permitted time frame; or
- upon failure to complete merger or acquisition transaction by SPAC.
 The proceeds in the escrow account can be invested in permitted investments and any
income generated by the funds held in the escrow account, including profit or dividend
income derived from the permitted investments, must accrue to the escrow account and
SPAC must ensure that in such investments initial capital is preserved.
 Members of management team shall not be eligible for any other payments from escrow
account other than to securities purchased by them during and after public offering.
12j. Fair market value of Acquisition
 The fair market value of the target company or companies, as the case may be, must equal to
at least eighty percent (80%) of the aggregate amount in the escrow account, net of any taxes
payable and the losses incurred on the investments made out of the escrow account.
 Fair market value should be supported by a valuer’s report recognized under Co. Act, 2017
12k. Additional financing
 SPAC can raise additional funds by way of rights issue or other than right issue or through
secondary public offering to complete its merger or acquisition transaction within the
permitted time period specified in these regulations or as approved by the Commission. At
least ninety percent (90%) of the proceeds received, as a result, shall also immediately be
deposited into escrow account.
 Where a SPAC proposes to obtain debt financing, the SPAC must ensure that–
- any credit facility obtained prior to the completion of the merger or acquisition
transaction, may only be drawn after the approval of the merger or acquisition through
special resolution;
- the funds from the credit facility obtained must be applied towards the financing of the
merger or acquisition, defraying related costs or enhancing the business(es) acquired
under the merger or acquisition; and
- the monies in the escrow account must not be used as collateral for the debt financing.
12l. Majority ownership and management control:-

The merger or acquisition by SPAC should result in majority ownership or management
control by the SPAC of the merged/target entity.
12m. Change in board of directors and management team

Any change in the board, if so required, shall only be made in a manner provided in the
Companies Act, 2017, provided that the directors of SPAC shall at all times comply with fit
and proper criteria given under Ninth Schedule.
12n. The Custodian - its roles and responsibilities.
 The funds raised by SPAC from issuance of securities shall be kept by the custodian in escrow
account, in accordance with the custodian agreement, these Regulations and applicable laws
 Contents of the custodian agreement must be in accordance and in compliance with these
regulations and at minimum should include such information as specified in Schedule Ten.
 SPAC must secure and maintain custodial arrangements at all times over the monies in the
escrow account until the termination of the escrow account.
 A custodian must take appropriate measures to ensure the safekeeping of the monies held
in the escrow account.
 A custodian must ensure that proper accounting records and other records of escrow
account are maintained.
 A custodian may be provided a mandate by the SPACs to invest the amounts held in the
escrow account in permitted investments.
 A custodian may only distribute the funds held in the escrow account in accordance with the
provisions of the custodian agreement.
 The custodian shall disclose any information to the Commission and PSX upon request;
 The custodian agreement will terminate–
- on the appointment of a new custodian following the resignation or termination of
services of the existing custodian; or
- following the termination of the escrow account.
12p. Power of the Commission to issue directions

The Commission may issue such directions to the SPAC, including but not limited to filing of
reports and furnishing such documents and information to the Commission or to the
investors, as it may deem fit, and SPAC shall comply with such requirements.
12q. Relaxation
Commission may, if deems appropriate based on valid justification provided by the SPAC, upon
reasons to be recorded in writing, relax any of the requirements of Chapter VIA subject to such
conditions or limitations as it deems appropriate.
Public offer for debt securities
Bid means an intention to buy a specified number of debt securities for a particular profit rate/spread;
Bid Amount or Bid Money means the amount equal to the product of the number of debt securities
bid for and the face value of debt security;
Limit bid means a bid placed by the bidder for a particular profit rate/spread under the book building
method.
Step Bid means a series of Limit Bids at different profit rates/spreads provided that Bid Amount of any
step is not less than 1 million rupees under the Book Building method;
Book Building means a process undertaken to elicit demand for debt securities under which bids are
collected from the Bidders and a book is built which depicts demand for the debt securities at different
profit rate/spread levels;
Reverse Dutch Auction Method means the method through which the cutoff profit rate/spread is
determined by arranging all the profit rate/spread in an ascending order along with the number of debt
securities and the cumulative number of debt securities bid for at each profit rate/spread. The cut off
profit rate/spread is determined by increasing the profit rate/spread to the extent that the total
number of debt securities offered under the Book Building portion are subscribed.
Cut off profit rate/spread mean the profit rate/spread of a debt security determined on the basis of
book building process.
Government Guaranteed Sukuk means Sukuk issued by any corporation or body corporate owned
and controlled by the Federal Government and such Sukuk is guaranteed by the Federal Government;
Debt Securities Trustee means a person licenced by SECP under the At and Appointed as a Debt
Securities Trustee by an issuer through execution of Trust Deed;
Tutor’s Note:
The regulations from 13 till 16b are purposely not given here to avoid repetition of the contents
under the debt offering. The process is much similar to equity offering with a little bit reverse
process in case of book building
17. Stock Exchange Rule Book Page 318
Ch # 17: Stock Exchange Rule Book

 Listing and Offer of Capital
 Prospectus, allotment, issue and transfer of shares
 Dividend, AGM, Disclosures and other rules etc
 Quality of Audits
 Defaulter segment, suspension and delisting
 Voluntary de-listing
 Reverse Merger
Any reference to a “Company” shall be construed as a reference to a “Listed Company”

throughout the chapter.
A 3.2: Rule Book of Pakistan Stock Exchange - Chapter 5
Approximately 100% (save as provided in a tutor note at the end of chapter)
Moreover the wording have been simplified at many places making some irrelevant discussion
redundant to make notes a bit easier to read & memorise. Some immaterial changes in the context
of some rules also ignored to make things simple. Students who want to ensure exactly 100%
completeness are advised to consult bare Rule book and supplement same with these notes
Listing and Offer of Capital
Listing of Companies & Securities
 No dealing in the securities of Co shall be allowed on the SE either on Ready Delivery

Contract Market or Future Counter unless the Co or the securities have been listed and
permission for such dealing has been granted by SE.
 Application for listing shall be made on Form-I with prescribed documents (Appendix-I)
 A copy of that application by the issuer shall be submitted to SECP for Record
 The Exchange shall ask for additional information / documentation
 Exchange shall accept application when issuer has completed all requirements
 Exchange shall place draft prospectus on its website for a period of 7 working days and shall
notify same, for seeking public comments. Exchange shall ensure that all comments received
on draft prospectus are incorporated and suitably addressed to its satisfaction.
 Exchange shall complete the approval process of listing of equity security within 15 days
 In case of refusal, communicate within 2 weeks of refusal
(after providing an opportunity of being heard)
 Applicant shall furnish full & authentic information.
 Applicant shall furnish full & authentic information.
 The issuer whose ordinary shares are already listed at Exchange may apply for listing of
other class of shares without making public offer of respective class of shares
 No listing of a company or security shall be allowed unless the applicant company provides
an undertaking on Form-II
Listing application of following companies shall not be entertained:
 Where Issuer, its sponsors, promoters, substantial shareholders and directors have over-
dues or defaults, irrespective of the amount, appearing in report obtained from CIB.
 Issuer, or its directors, sponsors, or substantial shareholders have been holding the office of
directors, or have been sponsors or substantial shareholders in any company:
- Which has been declared defaulter by the securities exchange; or
- Whose TRE Certificate has been cancelled or forfeited by the securities exchange; or
- Which has been delisted by securities exchange due to non-compliance of regulations
The loan amounting to Rs.500,000 or more written-off by a financial institution during last five
years be shall disclosed in the prospectus.
Offer of Capital by Companies / Modarabas to the Public
For Companies already listed

At least Rs 100 million
For Companies Proposed to be listed (except for SPAC)

Post Issue Paid up Capital (PIC) Allocation of capital to general public
(excluding premium and pre IPO placements)
Up to Rs 2.5 Billion: At least 10% of post issue Capital
(Will be required to subsequently enhance quantum of
public shareholding to 25% within 3 years of listing)
More than Rs 2.5 Billion and At least 10% of post issue Capital
up to Rs 5 Billion: (Will be required to subsequently enhance quantum of
public shareholding to 15% within 3 years of listing)
More than Rs 5 Billion and At least 10% of post issue Capital

up to Rs 10 Billion:
More than 10 Billion: At least 5% of post issue Capital
In case of Modaraba applying for listing
 30% of the capital of the Modaraba shall be subscribed by Modaraba Co, sponsors, friends,
relatives and associates.
 Balance 70% shall be offer to the public as per Modaraba Rules.
If Exchange is satisfied that it is not practicable to comply with requirements of above in particular
case(s) may, for reasons to be recorded, relax regulations subject to approval of SECP
General rules
 Allocation of Capital to overseas Pakistanis Shall not exceed 20% of Public Offer
(Rule may be relaxed in case of under subscription in the quota for resident Pakistanis)
 The amount should be subscribed through proper banking channel.
 In case of under subscription in either of the categories i.e., the quota allocated to resident
or non-resident Pakistanis, the unsubscribed portion will be allocated to the applicants of
other category.
 Allocation of Capital to employees Shall not exceed 5% of Public Offer
 In case where the shares are issued/offered through Book Building, it shall comply with the
requirements of the Public Offering Regulations 2016.
 Shares shall be allotted or allocated to any persons including sponsors or employees in the
manner and with such conditions as prescribed under Public Offering Regulations.
Prospectus, Allotment, Issue and Transfer of Shares
 No Co will be listed unless it is public Co and has a minimum capital of Rs. 200 Million.
 Co registered in AJK or in the Northern areas of Pakistan shall be eligible for listing and will
be treated at par with the Co registered in Pakistan.
 No Co shall be listed unless public issue has been subscribed by at least 500 applicants.
 Co 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 named as such
in the prospectus.
 The directors or offeror shall not participate in the public subscription.
 Prospectus or offer for sale shall be submitted to and cleared by the Exchange before an
application for its approval is made to SECP.
 Exchange may require additional information, data, certification or requirement to be
included in the prospectus or the offer for sale.
 The prospectus shall conform to and be in accordance with the Securities Act, 2015 and any
other law
 Audited accounts to be incorporated in the Prospectus / Offer for sale document shall not be
older than 8 months from date of publication of the same
 Prospectus shall contain all disclosures mentioned in the Public Offering Regulations.
 In case of secondary public offering and initial public offering of other class of shares, Listed
Companies are allowed to publish the Prospectus/Offer for sale document based on audited
accounts older than eight months, if they are compliant with requirements related to annual
and quarterly accounts as specified under the Companies Act
 Co shall inform the SE about the subscription receipt within 3 working days of the closing of
the subscription list.
 Co shall take decision about acceptance within 10 days of closure of the subscription list.
 All other rules of allocation and refund timeline are same as in Companies Act 2017
 Co shall split allotment letter and letter of right within 7 days of such application.
 Co shall consolidate / split, as may be required by security holder in writing, certificates into
marketable lots within 30 days of application.
 Co shall verify signature of the share holder within 48 hours of the receipt of application.
 Company shall complete shares transfer and have ready for delivery the share certificates
lodged for registration of transfer within 45 days of such application
 No listed Company shall exercise any lien on fully paid shares/securities and nor shall there
be any restriction on transfer of fully paid shares/securities.
 Prospectus / offer for sale with performa application shall be published at least in 1 English
and Urdu newspaper of Karachi, Lahore & Islamabad between 7 & 30 days of opening of
subscription lists.
 Issuer shall make available to Exchange and to bankers to the issue for distribution printed
copies of prospectus or offer for sale and application forms for shares in quantity to be
determined by Exchange and bankers.
 Company or Offeror shall, within 30 days of closing of subscription list, pay brokerage to TRE
Certificate Holders at not more 1% of value of shares actually sold through them.
 The Co shall give minimum of 14 days notice to the SE prior to the closure of share transfer
book for any purpose.
- Co shall issue transfer receipts immediately after receiving shares for transfer
- Co shall not charge any transfer fee.
- Duration for one time closure [7 days but not exceeding 15 days]
- Duration for total closure closures in year [Not exceeding 45 days]
 Companies quoted on Futures Counter shall intimate to Exchange the dates of their book
closure and corporate actions, if any, on or before 20th day of the month with a notice period
of at least 21 days after the said 20th day for commencement of book closure
Disclosures to be made in all the prospectuses/offer for sale

 Audited accounts to be incorporated in the Prospectus / Offer for sale document which shall
not be older than 6 months from the date of publication of the same.
 Break-up value of shares as per latest audited account supported by auditors certificate.
 In the financial plan, amount of interest/mark-up/financial charges during pre-production
period shall be shown separately.
 Brief write-up of each director and CEO with academic qualification & relevant experience.
 Detail of project, if any, like status of civil work, break up of plant and machinery, its cost,
made, supplier, status i.e. new or used, ordered, shipped, reached at site, installed, etc.
 Any other disclosure which the Exchange may require for the benefit of the investors.
Dividend, AGM, Disclosures and other rules etc
Dividend & Entitlement

 Co shall inform SE regarding decision of directors relating to announcement of dividend,
bonus issue, right issue, and other entitlement atleast 14 days before the book closure.
 Interim dividend warrant shall be dispatch within 30 days from the date of commencement
of book closure.
 Final dividend warrants shall be dispatch to the shareholder within 30 days from the date of
AGM at which it has approved.
 Dividend warrants are dispatched through registered post.
 The Co shall inform the SE as soon as dividend warrants are posted to the share holders.
 All dividend warrants, in addition to the registered office of the Co 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.
Annual General Meeting and Other Reporting requirements

 Listed Companies shall intimate to Exchange the date and time of holding of their AGM
 Companies are encouraged to avoid overlap with other Listed Companies in holding AGM
 Shall provide video-link facility to shareholders to enable them to participate in AGM
 Co shall hold its AGM within 120 days of close of its financial year.
 The Modaraba shall hold its ARM (Annual Review Meeting) within 120 days of close of its
financial year.
 The period holding of AGM may be extended with SECP’s approval.
(SE shall be intimated within 48 hours of receipt of approval)
- SE shall give that approval on production of similar approval from SECP.
- Failure to seek extension from Exchange; Liable to penalty at 2 times the above rates
 The Co shall obtain prior approval from the SE in respect of time and date of AGM.
 Co shall furnish copies of minutes of AGM and EOGM to the SE within 60 days of meetings.
 Co shall furnish complete list of shareholders as at 31st December annually, within 30 days.
 Intimate “Free Float” securities as on March 31st, June 30th, Sep 30th and Dec 31st.
(Within 15 days of close of each quarter).
 Ensure that requisite input into the CDC free-float functionality is entered in a timely
manner. A company and its issuer who fails to communicate correct details of Free-Float
shall be liable to a penalty of Rs. 5,000/- per day from date of first communication of such
details till correct details are communicated.
 Submit directly to the Exchange along with the annual audited accounts, an annual Free-
Float certificate duly verified by the auditor, in the specified format.
 Company shall send/transmit to SE its statutory report, annual report, in prescribed manner
not later than 21 days before the relevant meeting of shareholders.
 Company shall transmit to SE all notices as well as resolutions prior to their publication and
dispatch to shareholders and also file with SE certified copies of all such resolutions as soon
as these have been adopted and become effective.
 Company shall send/transmit to SE its quarterly accounts in the prescribed manner
CDC shall notify to SE late/non-submission of quarterly Free-Float information by any company
Bonus shares:
 Company shall issue bonus shares certificates within 30 days from date of re-opening of
share transfer register closed for this purpose:
 Bonus shares shall be credited into respective CDS Accounts of shareholders maintained
with the CDC or dispatched to the shareholders concerned by registered post or through
courier services unless shareholder require otherwise in writing;
 SE shall be immediately intimated as soon as the bonus shares are credited / dispatched;
 For Book-Entry Securities, procedure prescribed by CDC shall additionally be followed
Increase in capital
 Every listed Co shall advice the SE regarding all decisions taken by the BOD for changes in
capital through issuance of right & bonus shares immediately.
 Co shall issue right letters in marketable lots within 30 days from the date of reopening of
share transfer register.
 Co shall issue bonus shares within 30 days of date of reopening of share transfer register
Listing of Subsidiary Co
 A listed Co distributing shares of its unlisted subsidiary Co in the form of dividend, right issue
etc (in kind) shall get such Co listed on the SE within 120 days of approval of such
distribution in general meeting of holding company.
 Co shall immediately notify to the SE regarding any change in the BOD.
 Listed Co shall obtain prior approval of the SE for any amendment in the Memorandum and
Articles of Association.
 Intimate SE regarding issue of Participation Term Certificate
 In case of failure of such subsidiary company to apply for listing or refusal by SE for such
listing for any reason, company shall encash shares of subsidiary at the option of recipients
at a price not less than current break-up value, or face value, whichever is higher, within 30
days from expiry of 120 days or from date of refusal of listing whichever is earlier,
 Failure to do so can cause suspension in trading of shares of company or de-listing.
 Every company and issuer of listed security shall notify to SE at least 1 week in advance the
date, time and place of its board meeting specially called for consideration of its quarterly
and annual accounts or for declaration of any entitlement
Every company shall advise SE of:

 Decision to issue Participation Term Certificates, purpose thereof and relevant details;
 Submit copy of application made to authorities and certified copy of consent order.
Where no trading has taken place on SE in securities of a company for continuous 180 days, SE, if
it is satisfied that prices quoted are not in accordance with market realities, may except in cases
where the earlier quotation is below par value and, with prior approval of SECP, quote such
companies at par from 181st day irrespective of price earlier prevalent.
POWER TO OBTAIN DOCUMENTS:
SE may, by written notice, require a Company/management company, trustee, or its directors,

officers, employees etc to produce any documents/information (whether in documentary or
electronic form) for investigating into a matter of possible breach of any Regulations
Disclosure of Price Sensitive information
Company shall immediately disseminate to SECP and SE all price-sensitive information relating
to business and other affairs of listed company that may affect market price of shares in
prescribed manner (prior to its release to any other person or print / electronic media)
Price-sensitive information may include but shall not be limited to:

 Any material change in nature of business due to technical, strategic, manufacturing, or
marketing related changes, opening of new line of business or closure of any existing line of
business, either partly or fully;
 Information regarding any joint ventures, merger, demerger, restructuring, acquisition or
any material contract entered into or lost;
 All decisions of Board relating to cash dividend, bonus issue, right issue or any other
entitlement or corporate action, buy back of securities or voluntary delisting;
 Purchase or sale of significant assets, franchise, brand, goodwill, royalty, financial plan, etc.;
 Any undisclosed revaluation of assets including impairment of assets due to any reason;
 Delay or loss of production due to strike, fire, natural calamities, major breakdown, etc.;
 Major change in borrowings including projected gains to accrue to the company;
 Issue or redemption of securities or any change in the terms of issued securities;
 Material change in ownership of the company;
 Any default in repayment, restructuring of loans or breach of loan agreement by company;
 Default, delay, restructuring in payment of markup, profit, interest etc., and in redemption of
principal amount for Debt Securities issued by a Listed Company along with reasons;
 Change in directors, Chairman, CEO or auditors of the company;
 Fraud/default by the company or fraud/default/arrest of its directors, CEO or executives;
 Initiation of winding up proceedings against company or any of its associated/subsidiary;
 Non-renewal of license by SECP or any other relevant licensing authority with reason(s);
 Any other information that is deemed price sensitive information.
Such information shall be disseminated to SECP and SE as soon as any decision about above
referred matters or any other significant issue is taken by board or a significant matter requiring
disclosure has come into the knowledge of company’s management
Disclosure of material information to the Exchange
 If company becomes aware or is made aware of any rumor or report containing material
information likely to affect market price or volume of its Securities, including broadcasted /
presented through electronic media, It should clarify/confirm/deny such false information
 Company shall also clarify the same in writing to SE within 1 day of such publication etc
 Where Exchange enquires from Issuer concerning unusual movements in price or trading
volume etc, Issuer shall respond promptly by giving sufficient information
 Where any director, CEO or executive or their spouses sell, buy or take any beneficial
position in shares of the listed company
-He/She shall immediately notify in writing to Secretary.

-Also deliver a written record of price, no of shares, form of share certificates (physical
or in CDS), and nature of transaction to Secretary within 2 day of effecting transaction
- Secretary shall immediately forward the same notice to SE.
- Notice shall also be presented by Secretary at very next meeting of board
(Also If there is default in give such notice, inform same in next board meeting)
 Company (excluding open-end funds) shall determine closed period before announcing of
interim/final results and any decision that may materially affect market price of shares.
- No director, CEO or executive shall deal in shares in any manner during closed period.
- Closed period shall start from the day when any sensitive document/statement is sent
to board and terminate after the information is made public.
- Company shall advise its directors about closed period at time of circulating agenda
and working papers for board meetings, along with sending intimation of same to SE
 Where Exchange receives any information from an acquirer under section 110 of the
Securities Act 2015 (i.e. acquisition of 10% shares of listed company) , it shall immediately
disseminate the same to all concerned
Compliance with access to inside information regulations, 2016:
 All Companies shall maintain and regularly update a register to enlist persons employed
under contract or otherwise, who have access to inside information, in manner as provided
in Access to Inside Information Regulations, 2016
 Listed Company shall designate a senior management officer who shall be responsible for
entering or removing names of persons in the said register in a timely manner and making
3.
it available as and when required by the Commission.
Quality of Audits
 All listed companies shall facilitate QCR of the audit working papers of practicing CAs, carried
out by ICAP and shall authorize their auditors to make available the details to the QCR
Committee of ICAP.
 Listed company shall not appoint or retain any auditor, who has been found guilty of
professional misconduct, by SECP or by a Court of Law, for a period of 5 years unless lesser
period is determined by SECP
 If any partner(s) of a firm has been held guilty of professional misconduct, firm shall only be
appointed if a written confirmation is given to all stock exchanges, SECP and ICAP that such
partner shall not be engaged in audit of any listed company for the specified period.
 No Listed company shall, appoint or retain any person as auditor who is engaged by the
company to provide prohibited services.
 Listed company shall also not appoint or retain any auditor, if a person associated with the
auditor (partner, colleague director or holder of 20% shares in a company etc) has been, at
any time during preceding 1 year engaged as a consultant or advisor or to provide any
prohibited services
An auditor shall be guilty of “professional misconduct” if he:-

 Fails to report a material misstatement or fact known to him and non-disclosure of which may
render financial statements misleading or disclosure of which is necessary in professional capacity;
 Fails to obtain sufficient information to warrant the expression of an opinion or his exceptions are
sufficiently material to negate expression of an opinion;
 Makes a statement which is misleading, or deceptive;
 incites any one to commit a criminal offence, or helps or encourages anyone in planning or
execution of a criminal offence which is committed;
 agrees with anyone to prevent or obstruct the course of justice by concealing, destroying or
fabricating evidence by a misleading statement which he knows to be untrue;
 deceives any person, either by making a statement, which he knows to be false, or by suppressing
matters relevant to a proper appreciation of its significance;
 expresses his opinion on financial statements of any business or enterprise in which he, his firm or
a partner in his firm has substantial interest.
 is penalized under any of the provisions of the Companies Act 2017 in relation to his function as an
auditor of a listed company; and
 is guilty of any other act which is determined as professional misconduct by the Commission in
relation to his function as an auditor of a listed company.
Prohibited Services
1. Preparing financial statements, accounting records and accounting services;
2. Financial information system design & implementation, significant to overall financial statements;
3. Appraisal or valuation services for material items of financial statements;
4. Acting as Appointed Actuary within meaning of the term defined by the Insurance Ordinance, 2000;
5. Actuarial advice and reviews in respect of provisioning and loss assessments for an insurance
entity;
6. Internal audit services related to internal accounting controls, financial systems /statements;
7. Human resource services relating to:-
 Executive recruitment;
 Working (including secondments) where management decision will be made on client
behalf;
8. Legal Services;
9. Management functions or decisions;
10. Corporate finance services, advice or assistance which may involve independence threats such as
promoting, dealing in or underwriting of shares of audit clients.
11. Any exercise or assignment for estimation of financial effect of a transaction or event where an
auditor provides litigation support services.
12. Share Registration Services (Transfer Agents) and;
13. Any other service which Council with approval of SECP, may determine as “prohibited service”
SECP may, in its sole discretion and to the extent deemed fit exempt one or more services from
the restriction aforesaid. ICAP also may, with the prior written approval of the Commission,
and to the extent deemed fit and proper, exempt one or more services from this restriction.
De-listing, Suspension and defaulter counter
Listed company may be placed in Defaulters’ Segment, suspended and/ or de-listed for
following reasons and in manner provided below:
Reason for placing in defaulter Further Actions

segment
It has not commenced its commercial 1) Issue notice(s) for general public about placement of
production (manufacturing) or business the company or its securities on the Defaulters’ Segment
operations (other companies) within 90 as per the format of notice agreed with SECP;
days of commencement of commercial 2) Advise CDC and/or Registrar (physical shares) to
production/ operations as per Prospectus freeze shares of that company in CDS accounts or in the
It has suspended commercial production/ name of sponsors, directors and senior management of
business operations in its principle line of the Company, as per relevant information to be provided
business for a continuous period of 1 year to the CDC/ Registrar by SE;
CDS eligibility has been suspended by (in case of change of management/revival of company,
CDC SE may request CDC/Registrar to allow transfer of such
Auditor has issued a qualified opinion on blocked shares upon submission of a valid scheme of
going concern assumption or has issued a revival including supporting documents etc by Company
disclaimer or an adverse opinion
Failed to hold its AGM as per law Action # 1 & 2 (as discussed above); and
Failed to submit its annual audited If company repeat this next year as well, trading shall be
accounts for immediately preceding suspended and company shall be given 90 days to rectify
financial year as per law If still not rectified, SE shall initiate following further
actions
3) SE shall issue compulsory buy-back directions to
majority shareholders/sponsors having control of
Company as per Rule Book within time specified by SE,
not exceeding 90 days from date of such direction
4) Upon completion of buy-back process or failure to
comply with the same, SE shall delist such Company
within 90 days through a written notice;
5) Submit details of case to SECP for further action under
Securities Act, 2015 and Companies Act, 2017
Failed to join CDS after its security has Trading shall be suspended immediately; and
been declared eligible security If not rectified within 90 days, then Action # 3, 4, 5
CDS eligibility has been revoked by CDC
License of listed regulated person or
listed company has been cancelled or
revoked by SECP or licensing authority
Reason for placing in defaulter Further Actions

segment
It has failed to pay within specified time: Action # 1 & 2

(i) Annual listing fees for 2 years; or Instruct the company to rectify within 90 days, failing
(ii) Any penalty imposed by SE under which, trading shall be suspended; and
these Regulations though final order; Action 3, 4 & 5 also to be followed
or (iii) Any other dues payable to SE
Failed to comply with any provision of
this Chapter or any requirement by SE in
the interest of protecting investors etc
A show cause notice for winding up has Action # 1 & 2
been issued to the company by the If SECP has passed order for winding-up, SE shall
Commission immediately disseminate such information to public.
On filing of winding-up petition by SECP in Court, trading
shall be suspended
On appointment of official liquidator, SE shall delist
Winding-up petition filed in the court by Action # 1 & 2
creditors or shareholders, if the relevant Suspend trading in shares of the Company
applicant(s) are at least 10%of On appointment of liquidator / official liquidator (by
equity/capital of Co as per latest Court), SE shall proceed to delist
accounts
Voluntary winding-up proceedings have

commenced through special resolution
Mechanism to be followed for Suspension of Trading in the Shares:

 SE shall suspend trading by providing notice of 14 trading days for submitting reasons
 Upon failure to rectify its default within 7 trading days from date of such notice, trading in
shares of the company shall be allowed only on T+0 (SPOT) for next 7 days
 Upon continued failure to rectify, SE shall suspend trading from the 15th trading day.
 SE shall obtain clearance from SECP prior to providing company notice of 14 trading days.
 Trading shall be suspended immediately if CDS eligibility have been revoked by CDC
 No company, which has been de-listed so, shall be restored and its shares not be re-quoted
until it removes the causes and receives assent of Managing Director of SE for restoration.
 No company shall be de-listed unless it has been provided an opportunity of being heard.
 If company having more than 1 ground for placement on Defaulters’ Segment, SE shall follow
steps prescribed that leads to earlier suspension or delisting
Effects of suspension of trading in the shares of a company suspended
 Transfer in physical shares shall be restricted except Share Registrar/ Transfer Agent/
company has received transfer request from shareholder prior to suspension; or shares
have been purchased prior to suspension and there is a proper instrument of transfer
 It shall be mandatory upon Co to ensure that no transfers in physical shares take place during
the period of suspension.
 Within 10 days of suspension, Co shall provide SE copy of its Share Transfer Register, as of
day prior to day of suspension and details of allowed transfers within 48 hours of transfers
Restoration of trading in the shares of suspended company

 SE upon an application for restoration of trading by company, may restore trading, where
the cause of suspension has been removed to satisfaction of SE.
 Where trading is suspended continuously for 180 days or more, SE may require company to
comply with any one or more of following conditions in prescribed manner/ time:
- Submit satisfactory resumption proposal including milestones to implement that;
- Publish appropriate public announcement detailing measures adopted for that cause;
- Conduct a corporate briefing session for the shareholders and analysts;
- Release latest annual or quarterly financial report or any other relevant report/
documents deemed acceptable by SE for the purpose; and/ or
- Comply with any specific requirements or conditions as may be prescribed by SE
Suspension of trading in listed shares due to scheme of amalgamation/ reconstruction:
 Where Company enters into a scheme of reconstruction or amalgamation or division/

splitting of a Company into 1 or more companies, pursuant to order of Court, SECP or SBP as
per Scheme of Merger/ Amalgamation/ Reconstruction already notified by SE, SE on
announcement of final dates of closure of share transfer registers, shall suspend trading in
shares of that Company being merged as per SE’s trading schedule already notified.
 SE shall also issue separate notice for delisting of merged Company upon compliance
Voluntary De-Listing
(not applicable to SPAC)
 A Co intending to seek voluntary de-listing shall after special resolution in general meeting
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 Co.
- Reasons of voluntary de-listing
- Minimum price at which the shares are proposed to be purchased.
 if decision made during trading hours, the intimation must be made during trading hours
 if decision made after trading hours, the intimation must be made before the opening of
trading of the Exchange on the next working day.
 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)
- Maximum price at which the sponsors had purchased shares from market during 12
months
- Intrinsic value per share
[Breakup value = Net Assets / Number of shares ]
* Valued by professional valuers approved by Pakistan Bankers Association
* Valuation should not be older than 6 months
- Earning multiplier approach (for profitable companies)
[Fair value = Estimated Earning x Price Earning Ratio]
*Price Earning Ratio = Market Price per share / EPS
*Estimated Earning = Higher of latest EPS or Weighted Average EPS of last 3 years.
(Weights of 45%, 35%, 20% assigned to previous 3 years respectively)
 Now SE shall determine the minimum percentage of shares to be purchased by the sponsors
to qualify for de-listing.
- 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.
- The decision of the SECP shall be final and binding.
 Sponsors cannot withdraw their offer to purchase their shares if such proposal has been
approved by the company in a general meeting through a special resolution.
 The SE may for any reasons refuse to accept the proposal of the Co.
 Copy of the special resolution passed by the Co for voluntary de-listing send to SE
immediately along with complete list of the shareholders.
 Together with the application of de-listing the Co shall submit an undertaking from a
purchase agent (who may be commercial bank, investment bank or a member of SE.)
 Offer to purchase at relevant price from other shareholders shall remain open atleast for 60
days. Application for voluntary delisting shall contain consent of purchase agent
 Company after passing special resolution shall convey to all shareholders the decision of
majority shareholders through a register post with copy of special resolution. Notice in this
regard shall also be published in 2 widely circulated news papers including one in Karachi.
 On completion of purchase, the Co shall submit the following information.
- Total no. of shares issued (with %)
- Shares owned by majority shareholders before the offer (with %)
- Shares purchased under the offer (with %)
- Total shares currently owned by the majority shareholders (with %)
- Shares still outstanding with minority shareholders (with %)
- Amount of Bank Guarantee required (approved by Exchange/SECP)
 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 of 60 days.
 Sponsors shall submit a Bank Guarantee valid for 12 months in an amount and format
acceptable to the Exchange to secure such obligation.
 Requirement of Bank Guarantee will not be applicable where a Broker of SE act as a purchase
agent on behalf of sponsors.
(purchase agent will be required to submit an undertaking in format prescribed by SE)
 Co once de-listed hereunder shall not be allowed to re-listing for a period of 5 years.
(SE may allow, in some cases, listing of securities on Over-the-Counter (OTC) market)
Where Exchange is satisfied that it is not practicable to comply with any requirement pertaining
to voluntary delisting, in particular case(s), Exchange may, for reasons to be recorded, relax such
requirement subject to such conditions as it may deem fit
Purchase agent
 Together with application for de-Iisting, company must submit an undertaking from a
Purchase Agent (a commercial bank, or an investment bank or a Broker) on behalf of
majority security holders which will constitute an irrevocable open offer to purchase.
 Offer to remain valid at least 60 days or as may be fixed by Exchange from date of
commencement of purchase.
 Upon approval of minimum purchase price in the general meeting, Company shall submit
the bank guarantee of Purchase Agent in an amount and such format as is demanded by the
Exchange to secure its obligation.
 Bank guarantee shall remain valid for a period not less than 15 days from the expiry date of
the initial buy back period or when all outstanding shares have been purchased by the
majority shareholders, whichever is earlier.
 If a Broker of the Exchange is appointed as Purchase Agent and the total purchase amount
does not exceed Rs. 2.5 million, the requirement of Bank Guarantee can be replaced with the
undertaking of such Broker on the prescribed format.
 In case of appointment of purchase agent other than a Broker of the Exchange, all trades shall
be routed through a Broker of the Exchange.
All the trades during initial 60 days will be conducted on KATS (Karachi Automated Trading
System) only irrespective of marketable lot. Purchase agent will be required to maintain a live bid
in the System at the minimum purchase price approved by the Exchange. The purchase price shall
be based on market forces, subject to minimum purchase price determined by the Exchange.
Time frame for completion for requirements:

 Company shall immediately intimate the decision of its Board of Directors to de-Iist the
securities, including a copy of the relevant resolution passed in this regard
- If decision is made during trading hours or before the beginning of trading, then
intimation to the Exchange must be made during trading hours
- If the decision is made after trading hours then the intimation must be made to the
Exchange before the opening of trading on next business day
 Within 1 week of intimation, company will furnish its sponsors’/majority shareholders
undertaking to purchase the securities.
- Exchange shall be empowered to ask for any additional information or details
- Same shall be provided by company within 15 days of such request
 Board on its own or on basis of recommendations of Special Committee will determine /
approve the purchase price. The decision of the Board will be communicated to the
sponsors/company and shall also be notified and announced immediately.
 Any member of Board and/or Special Committee holding 2% or more shares of this company
will not participate in the deliberations during the process
 Sponsors/majority shareholders will be required to convey their acceptance/refusal to the
purchase price approved by Board within 7 days of conveying of the relevant decision
 Appeal can be made to SECP on determination of purchase price (within 10 days)
 Once purchase price has been finalized, company will be required to do following:
- Obtain approval of proposal of voluntary de-Iisting in the general meeting within 30
days of the acceptance of sponsors.
- After approval of general meeting, the requirements under Voluntary De-listing
Regulations shall be completed within 7 days to commence the purchase of shares.
- Sponsors will purchase the securities for a period of 60-days.
- Upon expiry of purchase period, company will submit the relevant documents /
information to the Exchange within a period of 21 days.
- After receipt of required documents/information and compliance of the relevant
requirements as stipulated by the Exchange, the securities of the company shall stand
de-listed after a period of 30 days.
Reverse Merger
Reverse Merger mean a merger transaction where an Operating Unlisted Company becomes a Listed
Company by merging with and into a Listed Shell Company;
Operating Unlisted Company means an unlisted company currently in operation;
Listed Shell Company mean any Listed Company, classified by SE as a Listed Shell Company on the
basis of erosion of its equity, no or nominal business operations in its principal line of business or no or
nominal assets.
Surviving Company mean the Listed Company survived pursuant to scheme of arrangement of an
Operating Unlisted Company with a Listed Shell Company approved by relevant competent authority;
Request to be considered as Listed Shell Company
In order to be considered as a Listed Shell Company and identify the provisions relating to a
proposal of merger, every Listed Company shall;
 Communicate SE the approval of its board to consider the proposal of merger received from
Operating Unlisted Company.
 Submit to SE the confirmation received from Operating Unlisted Company that it has
received the approval by board of directors to initiate merger negotiation.
The Exchange may require the Listed Company to provide any additional information as
deemed appropriate, for determining the proposed transaction as a Reverse Merger.
The Exchange shall communicate in writing, within 15 days from the date of receipt of such
intimation, if the proposed transaction is a Reverse Merger or otherwise.
Requirements for reverse merger

In case SE confirms that proposed transaction is a Reverse Merger, Listed Shell Company shall;
 Ensure compliance with all applicable requirements.
 Submit to SE, the prescribed information / documents.
 Submit an undertaking that proposed Surviving Company shall fulfill following conditions:
- The minimum paid-up capital shall not be less than Rs. 200 million,
- The minimum Free Float shall not be less than
o 25% of the issued share capital and
o 5 million Free Float shares within one year from date of approval of scheme
- The Promoters/ Sponsors/ Controlling Directors / Majority Shareholders are / were
not also the Promoters/ Sponsors/ Controlling Directors / Majority Shareholders in a:
o Listed Company, which is in the Defaulters’ Segment; or
o Listed Company, which was delisted within the past five years; or
o Corporate Brokerage House whose TRE Certificate has been cancelled/
forfeited, or declared defaulter by SE or NCCPL, due to noncompliance of any
regulations etc, but shall not include TRE Certificate surrendered voluntarily
to SE (if such TRE Certificate Holder does not have pending investor claims).
- It is not an associated company or a wholly owned subsidiary of any other Listed

Company, which is in the Defaulters’ Segment or trading in its shares is suspended due
to violation/non-compliance of laws.
- There are no overdue loan/payments to any financial institution against the
CEO/Promoters/ Sponsors/ Directors/ Major Shareholders of the Surviving Company
either in their individual capacity or as CEO, Director, Partner or Owner in any
Company / Firm / Sole Proprietorship;
- There are no overdue loan/payments to any financial institution against the Operating
Unlisted Company, its associated / group companies and undertakings;
- None of its Sponsors, Major Shareholders, Directors and Management, Associated
Company/Entity has been declared involved in any fraudulent activity by the SECP, SBP
or any other investigation agency or court of law;
- None of the Sponsors, Major Shareholders, Directors and Management, Associated
Company/Entity of the Listed Shell Company has been declared involved in any
fraudulent activity by SECP, SBP or any other investigation agency or court of law;
- Shares of sponsors shall be inducted into CDS in freeze status for a period of not less
than 3 years and sponsors shall not be allowed to sell their shares during this period;
- It shall ensure compliance with all requirements of the PSX Regulations.
Other Requirements
 Listed Shell Company shall obtain confirmation from SE that it has complied with the
requirements of before seeking the shareholders' approval for a scheme of Reverse Merger.
 If a Listed Shell Company enters into a scheme of Reverse Merger without complying with
any requirement(s), the Exchange shall place the Surviving Company in the Defaulters’
Segment and/or initiate any other actions including suspension of trading in its shares or
delisting as determined by the Exchange.
 Where the Exchange is satisfied that it is not practicable to comply with any requirement it
may, for reasons to be recorded, relax such requirement.
Tutor’s Note: Unit 5.18 of Rule book of Pakistan Stock exchange Limited dealing with the listing
and other fee etc not covered in these notes. Moreover the repetitive nature definitions and other
fines and penalties also not covered
18. Substantial Acquisition Page 336
Ch # 18: Substantial Acquisition

 Applicability of Substantial Acquisition Law
 Acquisition of Substantial Shareholding
 Further Actions (Competitive bids, Upward Revision and Withdrawal)
 General Obligations of different parties in substantial acquisition process
 Miscellaneous
Any reference to a “Company” shall be construed as a reference to a “Listed Company”

throughout the chapter.
A 3.1: Securities Act 2015 (Sec 107-126)

A 3.4: Listed Companies (Substantial Acquisition of voting shares and Takeovers)
Regulations, 2017
100% except minor deviations of repetitive contents
Applicability of Substantial Acquisition Law
Tutor’s Note: This unit covers the sections from 107 to 126 of the Securities Act 2015 along with
the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations,
2017. The regulations have been spread throughout the unit at the relevant places with proper
reference of the regulation.
This portion not to be applied to certain transactions (Sec 109)

 Right issue (Except disposal by directors after decline by shareholders u/s 86(7) Companies Act 2017)
 Shares allocated under underwriting arrangements.
 Acquisition of shares by financial institution as enforcement of securities.
 Acquisition of shares by succession inheritance.
 Schemes of mergers & reconstruction of companies.
 Shares of unlisted companies
 Conversion option by Banks (20% outstanding Loan Balance)
 Privatization of unit or its management rights under the Privatization Commission Ordinance, 2000
 Transfer of voting shares to a relatives without monetary consideration;
 Scheme of rehabilitation of a Co approved by the Commission;
 Acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,
(i) relatives;
(ii) persons named as promoters or sponsors in the memorandum of Association of target company
holding not less than 25% of the equity securities of the target company;
(iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding company;
(iv) major shareholders (directly holding > 20% shares) of a target company collectively exercising
management control for a continuous period of three years prior to the proposed acquisition;
Regulation 4: In these type of acquisitions: Acquirer shall, within 2 working days of acquisition, make a
disclosure of the acquisition to the target company, the stock exchanges and the Commission.
Relevant definitions from Securities Act 2017 (Sec 2)
Acquirer Any person who directly and indirectly acquires or has proceeded to acquire
voting shares in the target Co, or control of the target Co either by himself or
through any person acting in concern.
Target Co A listed Co (or holding Co of a listed Co) whose voting shares or control is
directly or indirectly acquired or intended to be acquired.
Public Offer It means public offer for acquisition of voting shares of a target Co and includes
any competitive bid.
Offer Period Date of public announcement to closure date of public offer or earlier
withdrawal
Public Means public announcement of intention to acquire or public offer for
Announcement acquisition of voting shares and includes public announcement of competitive
bid
Persons acting (i) persons who, with a common objective or purpose of acquisition of voting
in concern shares or voting rights in, or control over a target Co, pursuant to an
agreement or understanding, formal or informal, directly or indirectly co-
operate for acquisition of such shares or voting rights in, or control over the
target Co.
(ii) without prejudice to the generality of the foregoing, the persons falling
within the following categories shall be deemed to be persons acting in concert
with other persons within same category, unless the contrary is established,
a) Co/holding Co/subsidiary Co and any Co under same management/control
b) Co, its promoters or sponsors or its directors, and any person entrusted
with the management of the Co;
c)Directors of companies referred in (A) and associates of such directors;
d) relatives of the acquirer or persons acting in concert with the acquirer;
e) a securities manager and its client, who is an acquirer; and
f) banks, financial advisors and securities brokers of the acquirer, or of any
Co which is a holding Co or subsidiary of the acquirer, and where the acquirer
is an individual, of the relative of such individual:
Shall not apply to a bank whose sole role is that of providing normal commercial
banking services or activities in relation to a public offer under this Act;
For the purposes of this clause “associate” of a person means,

(i) any relative of such person
(ii) trusts of which such person or his relative is a trustee
(iii) partnership firm in which such person or his relative is a partner
(iv) private Co in which person or his relative is director or a member;
Manager to the Before making public announcement, acquirer shall appoint a Bank/Financial
offer Institution or member of Stock Exchange to act as so.
Relative Spouse, real and half siblings and their children, and lineal ascendants and
descendants of a person
Voting Shares Shares in the equity share capital of a target Co carrying voting rights and
includes any security which entitles holder to obtain or exercise voting rights;
Explanation. For the purpose of this clause shares also include all depository
receipts carrying an entitlement to exercise voting rights in the target company
Acquisition of Substantial Shareholding
Acquisition of more than 10% of voting shares of Co (Sec 110 & Reg # 4)
 Any acquirer who acquires voting shares (taken together with existing shares), which would
entitled to acquires more than 10% voting shares in a listed Co shall disclosed the aggregate
of his shareholding to the Stock Exchange, that listed Co and SECP
 The above disclosure shall be made within 2 working days of the acquisition or receipt of
information of allotment
 If he acquires more shares but remain below 30%, he shall not be liable to disclose if
additional acquisition is within 12 months.
Additional acquisition (Sec 111 & 114)
 No person shall directly or indirectly acquire

- Voting shares (taken together with existing shares) which would entitled such person
to more than 30% of voting shares in a listed Co; or
- Control of a listed Co.
Unless such person makes a public announcement of the offer to acquire voting shares or
control of listed Co.
 Before making public announcement the person shall make necessity disclosure to the
Target Co and stock exchange.
 No acquirer (who has acquired more than 30% 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 offer.
- 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.
Relevant definitions from the Listed Companies (Substantial Acquisition of voting shares and
Takeovers) Regulations, 2017 (Reg # 2)
Acceptance period - The period commencing on the 48th day of the public announcement of offer and
closing with the close of the public offer which shall not be later than the 54th day from the date of the
public announcement of offer;
Date of public announcement - The date on which the public announcement is published m newspapers:
Offer letter - The letter to be issued, by the acquirer to the shareholders whose names appear on the
register of members of the target company as on the date of book closure, the custodians of Global
Depository Receipt(s), the custodians of American depository Receipt(s) and holders of convertible
securities (where the period of conversion falls within the offer period) in pursuance of section 117 of the
Act and in accordance with the specifications provided in Schedule];
Eligibility (Reg # 3)
- A person who is a shareholder of target company as on date of book closure shall be eligible to
participate in the public offer.
- All Global Depository Receipt and American Depositary Receipt holder(s) entitled to participate in public
offer as on date of book closure
- Convertible security holders (where the period of conversion falls within the offer period)
Minimum offer price (Reg # 13.)
If shares of target company are frequently traded, price shall be highest amongst:
- Negotiated weighted average price under a share purchase agreement
(it shall include total consideration paid in whatsoever manner, inducing liabilities settled whether
taken over or not, personal liabilities of sellers and consideration paid either in cash or otherwise against
the shares purchased);
- Highest price paid by acquirer etc for such shares during previous 6 months
- Weighted average share price as quoted on stock exchange during previous 6 months;
- Average share price as quoted on stock exchange during 4 weeks preceding the date of public
announcement of intention
- Price calculated on basis of net assets value carried out by a CA firm based on of audited financial data
not older than 6 months from date of public announcement of offer. For fixed assets, CA firm shall obtain
services of a valuer, whose name appears on panel of valuers maintained by Pakistan Banks’ Association
If shares of target company are not frequently traded (have not been traded for at least 80% of trading
days during previous six months and average daily trading is less than higher of 0.5 percent of its free
float or 100,000 shares), price shall be highest amongst:
- Negotiated weighted average price under a share purchase agreement
(it shall include total consideration paid in whatsoever manner, inducing liabilities settled whether
taken over or not, personal liabilities of sellers and consideration paid either in cash or otherwise against
the shares purchased);
- Highest price paid by acquirer etc for such shares during previous 6 months
- Price calculated on the basis of net assets value carried out by a CA firm based on of audited financial
data not older than 6 months from date of public announcement of offer. For fixed assets, CA firm shall
obtain the services of a valuer, whose name appears on the list of panel of valuers maintained by
Pakistan Banks’ Association.
Public announcement of offer (Reg # 7)
- A public announcement of offer shall be made by the acquirer through the manager to the offer within
180 days of making the public announcement of intention in the newspapers.
- Acquirer may extend the above time period for a maximum of 90 days under intimation to SECP and SE
- Notice of public announcement of offer shall be submitted through manager to the offer to target
company (at its registered office for being placed before the board of directors of such company), the
securities exchange and the Commission.
- The securities exchange shall make the information about the public announcement of offer available,
on the same day by placing the information on its website, posting it on its notice board through
notification on the automated information system and by making an announcement on the house of the
securities exchange.
- Public announcement of offer shall contain the information as prescribed in schedule VII.
- Notice of public announcement of offer shall be submitted to the Commission along with the document
prescribed in Schedule VIII along with a non-refundable fee of Rs.500,000/- to be deposited In the
designated account of the Commission.
- Within 2 working days of the submission of notice of the public announcement of offer to the target
company, the securities exchange and Commission, the public announcement of offer shall be published
in English and Urdu language, in at least two daily newspapers having circulation in all provinces.
Published copy of public announcement of offer shall be submitted to the Commission, the target
company {at its registered office) and the securities exchange, on the same day of its publication.
Rules for Public Offer (Reg # 8 to 12)
- On 22nd day of public announcement of offer, Target Co shall announce its book closure from 36th day
of public announcement of offer, to determine eligibility of persons to receive offer letter (as per rules
of Pakistan Stock Exchange)
- Books shall remain closed for 7 days. (i.e. from 36th day till the 42nd day of the public announcement)
- Target company shall provide an updated and certified list of its members to the acquirer on 43rd day
- Acquirer shall, within 2 days of receipt of list, issue offer letters to the members and other eligible persons
- Date of closure of public offer shall not be later than 54th day from the date of public announcement
of offer
- If an addendum or corrigendum to the public announcement is published by the acquirer (voluntary
or on direction of SECP), the offer period shall re-commence from date of the publication of the
addendum/corrigendum.
Acceptance of public offer (Reg # 18)
- On 46th day, acquirer through an advertisement in the newspapers in which public announcement of
offer or competitive bid, as the case may be, was published, shall inform shareholders of target company
of the commencement of acceptance period.
- Advertisement shall be in the form prescribed under Schedule X.
- Shareholders of target company may accept the public offer during the acceptance period by tendering
their shares physically to the manager to the offer or in a designated CDC account specified for the
purpose in the public announcement of offer.
- Convertible security holder intending to accept the public offer shall convert their securities into shares
and tender the same to the manager to the offer during acceptance period in the designated CDC
account.
- Custodians of Global Depository Receipts holders or American Depositary Receipts holders shall upon
the request of the respective holders convert the Global Depository Receipts or American Depositary
Receipts, as the case may be, into shares and tender the same to the manager to the offer during the
acceptance period in the designated CDC account.
- Manager to the offer shall send a written confirmation of receipt to the custodians of Global Depository
Receipts holders or American Depositary Receipts holders, the shareholders of the target company and
convertible security holders who have tendered their shares to the manager to the offer as acceptance
of the public announcement of offer.
Mode of payment (Reg # 19)
Consideration for the voting shares shall be payable in form of cash through demand draft or pay order or
cheque or any other banking instrument drawn on the special bank account opened by the acquirer in
terms of regulation 20.
Procedure for payment (Reg # 20)
The acquirer shall, within 2 days from the date of closure of public offer, open a special bank account and
deposit therein such sum as would, together with the security furnished under regulation 15, make up the
entire sum due and payable to the shareholders as consideration for acceptances received and accepted in
terms of public offer.
Number of shares to be acquired (Sec 112)
 Offer by acquirer shall be a %age of Total Capital as SECP may prescribe.

 If no of shares offered for sale by shareholders are more than shares offered to be acquire,
acquirer shall in consultation with manager to offer accept shares on proportional basis.
Provided that acquisition shall not be less than minimum marketable lot or entire shares,
if they are less than marketable lot.
Number of voting shares to be acquired (Reg # 14)

- Acquirer shall make a public announcement of offer to acquire at least 50% of remaining voting shares
of the target company.
- If public offer is made conditional upon minimum level of acceptances, such minimum level shall not be
more than 35% of the remaining voting shares.
Illustration:- Where acquirer holds 10% voting shares of the target company and enters into an
agreement to acquire another 20% voting shares, then such acquirer shall make a public
announcement of offer for 50% of remaining 70% voting shares of target company. In such a
case the minimum level of acceptances for public offer cannot be more than 24.5% which is 35%
of 70% offered to he acquired through public offer
Security to be furnished by the acquirer (Sec 123)

 Acquirer shall furnish security for performance of obligations.
 Total consideration payable under public offer shall be calculated assuming full acceptances
irrespective of whether consideration is payable in cash / otherwise.
 In case there is any upward revision of offer, consequent upon a competitive bid or
otherwise, the value of the security shall be increased in same proportion
Provision of security (Reg # 15)
Security shall be provided by acquirer on or before date of issue of public announcement of offer
and shall be in either of the following forms, -
- Cash, deposited with a commercial bank with a minimum credit rating of “A”;
(Escrow account operated by the manager to the offer)
- Government securities with minimum 10% margin shall be deposited.; or
- Bank guarantee in favor of the manager to the offer from a commercial bank with a minimum rating of
“A" and valid till all obligations of the acquirer are fulfilled as certified by the manager to the offer; or
- Margin trading system eligible shares with 30% haircut based on their current market value. (Manager
to the offer shall mark to market the shares on a weekly basis and any shortfall after mark to market
shall be notified to acquirer in form of margin call and acquirer shall deposit the shortfall on same day)
Release of security (Reg # 16)

- Security shall be released by manger to offer, within 7 working days after all payments to shareholders
have been made or (in case of withdrawal) upon certification by the manager to the offer about same
- Where security is not released by manager to the offer with 7 days the manager to the offer shall pay a
surcharge @ 6 months KIBOR + 4%.
- In the event of non-fulfillment of obligations by acquirer, manager to offer shall realize the security by
way of withdrawal of cash, foreclosure of deposit, calling of bank guarantee or sale of government
securities and shares and proceeds shall be utilized to meet all obligations under Act and Regulations
Further Actions (Competitive bids, Upward Revision and Withdrawal)
Procedure for making competitive bid (Sec 120)
 Any person, other than the acquirer who has made the first public announcement, who is
desirous of making a competitive bid (Higher than 1st), shall, within 21 days of public
announcement of the first offer, make a public announcement of his offer for acquisition of
the same voting shares of the target Co
 Shall not be for less than number of voting shares for which the earlier public offer has been
made
 On public announcement of competitive bid; 1st person shall have option to make another
announcement
- Revising the public offer; or
- Withdrawing the public offer with the prior approval of SECP:
 If no such announcement made within 7 days of public announcement of competitive bid,
the earlier offer on the original terms shall continue to be valid and binding on acquirer until
the closure of last sustaining public offer.
 Provisions of this Act shall, mutatis-mutandis, apply to the competitive bid
Competitive Bid (Reg # 17)

- First and subsequent competitive bids have to be made within 21 days of the public announcement of
the first offer.
- Public announcement of competitive bid shall be made in same manner and in same newspapers in
which first public announcement of offer was published.
- A copy of public announcement of competitive bid shall be submitted, through manager to the offer, to
SECP, the original acquirer, target company (for being placed before board of directors) and securities
exchange (for being notified on the notice board and on the automated information system thereof), at
least 4 days prior to the date of publication in newspapers.
- The public announcement of a competitive bid shall contain the information as prescribed in Schedule
VII.
- Managers to the offer of competitive bidder(s) and person who made the first public announcement
shall jointly, one day before the commencement of acceptance period for the public offer, publish a
comparative statement of both bids in same newspapers
- Upon public announcement of a competitive bid, original acquirer shall have the option to make another
announcement:
(a) revising public offer in respect of the price and number of voting shares to be acquired without
changing any other terms and conditions of the said public offer; or
(b) withdrawing the public offer:
- If no such announcement is made within 10 days of public announcement of competitive bid(s)
* Earlier offer on original terms shall continue to be valid and binding on the acquirer who has made
the earlier public offer,
* Date of closing of public offer shall stand extended to date of closure of public offer under last subsisting
competitive bid(s).
Upward Revision (Sec 121)
Whether or not there is a competitive bid; An acquirer who has made public announcement, and
has not withdrawn his public offer, shall have the option to make an upward revision of offer
in respect of the price or the number of voting shares to be acquired at any time within 7
working days prior to date of closure of the last subsisting public offer without changing any
other terms and conditions of the said public offer.
Conditions for upward revision of offer (Reg # 23)

Any upward revision of offer shall be made on the following conditions:
- Making of a public announcement in respect of such changes or amendments in all the newspapers in
which the earlier public announcement was made;
- Informing SECP, the securities exchange and the target company at its registered office, simultaneously;
and
- Increase in the value of the security accordingly.
Withdrawal of public offer (Sec 122)
A public offer, once made, may be withdrawn—

 if the withdrawal is consequent upon any competitive bid;
 if the sole acquirer, being a natural person, has died or has been declared unsound; or
 in such circumstances as may be prescribed.
Withdrawal of public offer (Reg # 22)
- In case where the acquirer is a company and it has gone into liquidation or has been declared bankrupt
before acquisition;
- If acquirer is an individual and he has been declared as an un discharged insolvent or has applied to
be adjudicated as insolvent before the completion of acquisition; or
- Acquirer has been declared by Court of competent jurisdiction as a defaulter in repayment of loans
to financial institutions
Where there is a withdrawal of public offer and the acquirer has:
- Crossed 30% threshold as a consequence of acquiring voting shares pursuant to an agreement, acquirer
shall immediately reduce the holding to less than 30%; or
- Gained control as a consequence of acquiring voting shares pursuant to an agreement, acquirer
shall immediately sell his shareholding to give up control
In case of withdrawal of public offer, the manager to the offer shall return shares tendered by shareholders
within 3 days from announcement of withdrawal and release the security deposited to the acquirer or
the Court (in case of insolvency or bankruptcy of the acquirer)
General Obligations of different parties in substantial acquisition process
Miscellaneous Obligations of the acquirer
General Obligations of the acquirer (Reg # 24)

- Acquirer shall announce its public announcement of offer only after careful & responsible consideration
- Acquirer and Manager to Offer must be satisfied that it can and would continue to be able to implement
takeover offer in full
- At the time of the public announcement of offer ensure that the identities of all the persons interested in
the acquisition (including the persons who makes arrangement for all the funding requirements) is
disclosed to public and target company.
- If any director or an acquirer that is a public company is faced with a conflict of interest as a result of a
proposed acquisition, the acquirer's board of directors shall establish an independent committee to
assess the proposed public offer.
- Within 2 working days of public announcement, acquirer shall send a copy of the proposed offer letter
to the target company, securities exchange and SECP.
- If acquirer is a company, public announcement or any other connected material issued to shareholders
shall state that the directors accept the responsibility for the information contained in such documents:
(if a director wishes to get exemption from responsibility, he shall issue a statement with reasons in
public announcement).
- Persons, other than acquirer, having interest in target company or an Insider or a beneficial owner of
more than 10% voting shares during last 12 months, shall not participate in any matters relating to a
public offer including any preparatory steps leading to the offer.
- On or before public announcement of offer, acquirer shall arrange the requisite security as provided
under Act & regulations.
- Ensure that firm financial arrangements for public offer & other suitable disclosures have been made in
public announcement
- Acquirer shall, within 10 days from closure of public offer, complete all procedures relating to the public
offer including payment to the shareholders who have accepted the public offer.
- Acquirer shall comply with all requirements of Act, regulations and the regulations of securities
exchange at all times.
- All acts of acquirer shall be in good faith and in best interest of target company and its shareholders
considering the long term viability of the target company.
Changes in the officc of manager to the offer (Reg # 27)

Any change in office of manager to the offer shall be immediately intimated to SECP, securities exchange
and target company(manager to the offer shall be liable for any default/non-compliance for the relevant
period of appointment)
Equality of treatment (Reg # 28)

All shareholders of target company are to be treated equally and all shareholders of the same class are to
be treated similarly.
Oppression of minority (Reg # 29)

Rights of control shall be exercised in good faith and oppression of minority/non-controlling shareholders
shall be unacceptable.
General obligations of the manager to the offer (Reg # 26)
The manager to the offer shall deemed to be the agent of the acquirer.
Before public announcement of offer is made, the manager to the offer shall ensure that:
- Acquirer, its sponsors, promoters, substantial shareholders, directors and associates have no over dues
or defaults, irrespective of amount, appearing in the report obtained from the credit information bureau.
- Acquirer or its directors, sponsors or substantial shareholders have not been holding the office of the
directors, or have been sponsors or substantial shareholders in any company,
(i) which had been declared defaulter by the securities exchange or futures exchange; or
(ii) whose TRE certificate has been cancelled or forfeited by the securities exchange; or
(iii) which has been de-listed by the securities exchange due to non- compliance of its regulations.
(SECP may grant relaxation upon reasons to be recorded, and rectification of cause leading
to such delisting)
- Acquirer is able to implement the public offer;
- Firm arrangements for funds and money nave been made to fulfill the obligations under the public offer;
- Public announcement is made in accordance with the Act and these regulations;
- Contents of public announcement and offer letter are true, fair and adequate and based on reliable
sources, quoting sources;
- Furnish to SECP on format provided in Schedule XI a due diligence certificate along with a copy of
proposed offer letter;
The manager to the offer shall:
- On day of public announcement ensure that proposed public announcement of offer is filed with SECP,
target company and relevant securities exchange in accordance with the Act and these regulations;
- Upon fulfillment of obligations by acquirer under the Act and regulations, cause the release of balance
amount of security; and
- After ensuring compliance with provisions of Act and any other laws or rules and regulations as may be
applicable, send a report to SECP within 20 days from the date of closure of public offer or earlier
withdrawal thereof.
Obligations of the Target Company
General Obligations of the BOD of target Co (Sec 119)

 The board of directors of Target Co shall not during the offer period:
- Sell or transfer undertaking of Co or any of its subsidiary.
- Encumber the assets of Co or its subsidiary
- Issue any right or bonus shares
- Enter into any material contract
 During the offer period, the board of directors shall not appoint additional directors or fill
any casual vacancy by person representing acquirer.
 Target Co shall facilitate transfer in name of acquirer, the shares. (after all the requirements
of the Act has been fulfilled)
 The acquirer who has acquired 30% of voting shares shall be entitled to the proportionate
representation on the board of directors.
- BOD of Target Co shall fill the casual vacancy created by the resignation of 1 or more
existing directors to accommodate the acquirer.
 In case the acquirer does not get proportionate representation on the board of Target Co or
the number of casual vacancies created is not sufficient, he may serve a notice to target Co
for holding fresh director’s election and a copy of notice to SECP.
- BOD of Target Co shall hold the election within 30 days of the receipt of above notice.
- BOD so elected shall hold the office during remainder period of outgoing directors.
General Obligations of the Board of Directors of the target company (Reg # 25)
- Target company shall furnish to acquirer, within later of 7 days of request of acquirer or 7 days from the
date mentioned in public announcement, a list of convertible security holders as are eligible for
participation containing name, address, shareholding and folio number, and of those persons whose
applications for registration of transfer of the securities are pending with the company.
- Target company shall ensure that the acquirer and the Manager to the Offer are provided with all
relevant and material information which they require for the purposes of due diligence.
- Board of directors of the target company shall send its unbiased comments and recommendations on
the public offer to the shareholders if so desired by the acquirer(s) or shareholder(s) of the target
company.
- Board of target company shall facilitate the acquirer In verification of securities tendered for
acceptance.
- Where an acquirer, in compliance with the provisions of Act has acquired requisite percentage of voting
shares of target company after completing the process of public offer, shall be entitled to a proportionate
representation on the board of directors or control of the company as prescribed under the Act.
- Target company shall comply with all the requirements of the Act, those regulations and the regulations
of the securities exchange at all times.
Disclosure by the target company (Reg # 5)

A target company shall immediately, in writing, inform the securities exchange and SECP-
- Of a firm intention to acquire control or such voting shares of the target company, is notified to the
target company;
- When target company is subject of rumor and speculation or there is an unusual movement in its share
price or traded volume and there are reasonable grounds for concluding that it is the potential
acquirer's actions which has led to the situation;
- When negotiations or discussions are about to commence with a person(s) for acquiring control or
voting shares of target company; or
- When director, chief executive and/or majority shareholder of target company informs target company
that they individually or in concert with each other or their family members/associates are entering into
negotiations for sale of their shareholding.
Securities exchange on being informed by the target company shall make information available on same
day to the shareholders of target company and prospective investors by placing the information on its
website, posting it on its notice board through notification on the automated Information system and by
making an announcement on the house of the securities exchange.
If any information given by target company under these regulations is found to be false and the target
company gains any benefit from the false information, the target company shall be liable to a penalty
under the Act.
Miscellaneous
Public announcement of the intenetion
Public announcement of intention (Reg # 6)

- Before making any public announcement of intention, acquirer shall appoint a "Consultant to the Issue"
duty licensed by SECP, as manager the offer to assist it in the acquisition of shareholding beyond 30% or
control of the target company;
- Before an acquirer, -
(a) enters into negotiations for a share purchase agreement;
{b) in the case of a company, passes a board resolution;
(c) starts raising funds; or
(d) commences a due diligence process to evaluate the share price of the target company;
- Acquirer through the manager to the offer shall, after careful and responsible consideration, make a
public announcement of Intention in the newspapers.
- Notice of public announcement of intention shall be submitted to the target company (at its registered
office for placement before the board of directors of such company), the securities exchange and SECP.
- Securities exchange shall make the information about public announcement of intention available, on
same day, by placing information on its website, posting it on its notice board, through notification on
the automated information system and by making an announcement on the house of securities exchange.
- Within 2 working days of submission of notice of public announcement of intention to target company,
securities exchange and SECP, the public announcement of intention shall be published in English and
Urdu language, in at least two daily newspapers having circulation in all provinces. Published copy of
public announcement of intention shall be submitted to the Commission, the target company (at its
registered office) and the securities exchange on the same day of its publication.
- Public announcement of intention shall contain such information as prescribed in Schedule VI.
- Where an acquirer makes a public announcement of intention in order to deceive any other person, or
to induce or influence any other person to act in a particular manner or withdraws public announcement
of intention without any reasonable cause or reason, such person shall be liable to a penalty under Act.
- All persons concerned with public announcement of intention shall make full and prompt disclosure of
all relevant information and take every precaution to avoid the creation or continuance of an
uninformed market and the parties involved in such announcement shall take care that statements
which may mislead the shareholders or the market are not made.
Withdrawal of public announcement of intention (Reg # 21)
- If sole acquirer has died or has been declared bankrupt or of unsound mind;
- If negotiations to acquire voting shares of the target company have failed;
- Where due diligence is unfavourable;
- Time period for making public announcement of offer and extension has lapsed.
- Where the acquirer is a company: it has gone into liquidation or its BOD passes a resolution not to
acquire the voting shares of the target company; or
- In case of regulated/licensed entity the requisite approval have not been granted by the concerned
regulatory authority.
Acquirer shall immediately-
- Make a public announcement of withdrawal in all the newspapers in which the public announcement of
intention was made and disclose reasons for withdrawal; and
- Inform SECP, securities exchange and the target company at its registered office along with reasons.
Inquiry & Actions by SECP (Sec 124 - 126)
 SECP may pass following appropriate directions and take appropriate measures in the best
interest of security market
- Directing the persons concern not to further deal in the securities
- Prohibiting the concerned person from disposing off the securities acquired in violation
of provisions of this Act.
- Directing the concerned person to sell the securities acquired in violation of provisions
of this Act.
- Taking any other action.
 SECP may make regulations for or with respect to
- Form, manner, timing and submission of offers;
- Public announcements of intention and public offer;
- Independent advice to shareholders;
- Obligations of directors;
- Standard of care and responsibility;
- Timing and content of documents;
- Offer timetable;
- Asset valuations and offer pricing;
- Restrictions on trading before and during the offer;
- Security to ensure completion of a takeover offer;
- Mandatory offers, offer size and acquisition;
- Squeeze outs;
- Competitive bids;
- Conditional offers; and
- Any other matter that SECP considers necessary to ensure the proper conduct of
takeovers.
Penalties
 If any person contravenes the provision of this Act he may debarred as acquirer for next 3
years.
 In case the BOD or management of Target Co contravenes any provision of this Act the
directors, chief executive and Co secretary shall stand disqualify to hold such offices in a
listed Co for next 2 years.
Mock (Summer 2018 Paper of ICAP) 350
19. Non Banking Finance Companies Page 350
Ch # 19: Non Banking Finance Companies
This chapter deals with the companies that wants to be engaged in the businesses that
are normally being done by a banking company. These companies want to remain under
the umbrella of the Company Law. Just like Association not for profit (Sec 42), these
companies are required to obtain licence as well as permission to do these businesses.
These types of companies are dealt with in a separate division by the SECP. SECP is vested
with approximately similar powers like SBP in case of banking companies. As these
companies deals with cash and cash equivalent, therefore heavy monitoring and very
tight regulatory environment is required for these sort of companies.
The requirements given in this chapter encompasses the requirements contained in the
rules and regulations framed by SECP for regulating the affairs of these companies in the
best interest of these companies, their customers, security market and the public at large.

 Requirements of Companies Ordinance 1984 (continued in Companies Act 2017)
 Definitions of NBFC Rules and NBFC & NE Regulations 2008
 NBFC (Establishment & Regulation) Rules 2003
 NBFC and Notified Entities Regulations 2008
C 1.1: Companies Ordinance, 1984 (Section 282A to 282N)

C 1.2: NBFC (Establishment and Regulation) Rules 2003-Rules 1 to 7
C 1.3: The Non-banking Finance Companies and Notified Entities Regulations, 2008
(Regulation 2, 3, 9, 10, 15B, 16-18, and 25)
Tutor Note: Definitions contained in NBFC Rules 2003 and NBFC & Notified Entities
Regulations 2008 have been used throughout the chapter for the purpose of
understanding of users. Moreover duplicated definitions have been removed.
Requirements of Companies Ordinance 1984
What is an NBFC (282A & 282B)
 An NBFC, which includes companies licensed by SECP to carry out any one or more of the
following forms of the business:
- Investment Finance Services
- Leasing
- Housing Finance Service
- Discounting Services
- Venture Capital Investment
- Investment Advisory Services
- Asset Management Services
- Such other companies as FG may notify for this purpose.
 Notified Entities (NE) which include such other Co or class of companies or corporate body
or trust or any other entity or person as FG may, by notification in the official Gazette specify
for the purpose
FG & SECP may make rules for establishment and regulation of these.
Incorporation or Registration of NBFC or the Notified Entity
Incorporation of NBFC (sec 282C)
 NBFC shall not be incorporated without prior approval by the SECP.

 NBFC shall not carry on any business unless it holds a license from SECP for that business.
 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 Co before
commencing so shall apply in writing to the SECP for grant of a license
 NBFC shall not commence business unless has minimum prescribed capital for each form of
business.
Registration of Notified Entities (NE) (sec 282CA)
 NEs shall not operate without prior registration with the SECP.
 SECP may register NE on terms and conditions as SECP may deem fit
 NE which is in existence before commencement of this provision shall within 6 months apply
in writing to SECP for registration
Powers exercisable by SECP on NBFCs
Power to issue Directions (sec 282D)
The SECP may issue directions (that NBFC/NE bound to follow) from time to time where it is
satisfied to do so
- in the public interest
- 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
- to secure proper management of NBFC by rectifying situations
Powers to remove (sec 282E)
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, SECP by an order remove such person from office after giving opportunity of being
heard.
 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
 Vacancy filled by person appointed by SECP till election in general/Board meeting
 Person so removed shall not take part in management for term not exceeding 3 years
Power to supersede BOD (sec 282F)
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
Special Audit (sec 282H)
SECP shall monitor general financial conditions of NBFC/NE and may order for special audit to
carry out detail scrutiny of affairs. On receipt of special audit orders, NBFC/NE may be directed
to do/ abstain certain acts
Inquiry by Commission (sec 282I)
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 persons shall furnish necessary information to the inquiry
officer.
Procedure for amalgamation of NBFC (sec 282L)
 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.
 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).
 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.
 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
- It shall become binding on the concerned NBFC and all their shareholders.
- 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.
- The property and liability of the amalgamated NBFC shall be transferred to and vest
in resulting/surviving entity.
Punishment or adjudication of fine or penalty (sec 282M)
 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)
 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.
Rehabilitation of NBFCs and notified entities (sec 282N)
 SECP shall have the same powers as are exercisable by Federal Government u/s 296 for the
rehabilitation of a NBFC / notified entity which is facing financial or operational problems.
Tutor’s Note:
Penalties and repealed sections of Companies Ordinance 1984 not discussed
Definitions of NBFC Rules 2003 and NBFC & NE regulations 2008
Different forms of business allowed to an NBFC
Following (09) forms of business as notified in the official Gazette by the Federal Government or any other
form of business which the Federal Government may, by notification in the official Gazette specify from
time to time, namely:
1) Investment finance services

The business of providing finance on conventional or Islamic basis;
“Investment Finance Company” means NBFC licensed by SECP to provide investment finance services
Finance involves provision of,

- any accommodation or facility on the basis of participation in profit and loss, musharika or
modaraba basis, mark-up or mark-down in price, hire-purchase, lease, rent-sharing, bills of
exchange, promissory notes or other instruments with or without buy-back arrangement by a
seller, participation term certificate, musharika or modaraba certificate, term finance
certificate;
- guarantees, indemnities, letters of credit or any other financial engagement, issued or
undertaken on behalf of a person, with a corresponding obligation of that person;
- a loan, advance, discounting services to any person;
- micro financing including any form of finance such as leases advances, consumer loans, housing
finance;
- a financial facility or accommodation provided on the basis of Islamic mode of financing; and
- any other form of financial facility provided to a person;
“Consumer Financing” means the financing allowed to individuals for meeting their personal,
family or household needs.
2) Leasing
The business of providing finance on operating lease or finance lease or Ijarah basis
“Leasing Company” means an NBFC licensed by the SECP to provide leasing;
“Consumer Leasing” means any leasing allowed to individuals for meeting their personal, family or
household needs;
3) Housing finance services

Business of providing consumer or commercial Finance on conventional or Islamic basis to a person
for the purchase or construction of house or apartment or for purchase of land and construction
thereupon including the facilities availed for the purpose of making improvements in house or
apartment;
“Housing Finance Company” means NBFC licensed by SECP to provide housing finance services;
4) Discounting Services
Business of discounting of financial instruments on conventional or Islamic basis
“Discount house” means an NBFC licensed by the SECP to provide discounting services.
5) Asset management services

Business of providing services for management of collective investment schemes
“Asset Management Company” means an NBFC licensed by SECP to provide asset management
services
Collective Investment Scheme

Any arrangement whose sole purpose is the collective investment of funds in a portfolio of securities,
or other financial assets for profits, income or other returns, and where the participants, who have
pooled in the funds, do not have any day to day control over the management of the scheme, whether
or not they have the right to be consulted or to give direction in respect of such management:
Provided that following shall not be considered as a Collective Investment Scheme for purpose of
these rules:
- employee welfare trusts or gratuity trusts or employees provident funds or employees pension
funds setup for the benefit of employees by companies; and
- any such pool of funds which is separately regulated by the SECP or which is already
established under any specific law;
“Distributor” means a person who performs distribution function for Collective Investment Schemes;
Closed-end fund
An investment company or a closed-end scheme
Investment company
A company registered with SECP under the Ordinance and the requirements of NBFC
and Notified Entities Regulations 2008
Closed end fund/scheme

A collective investment scheme having a specified period of maturity which does not
continuously offer its certificates for sale to investors and entitles the holder of
certificates, to receive, proportionate share of the net assets of the closed end scheme
Provided that existing closed end scheme shall be classified as closed end scheme until
revoked or converted into open end scheme for the purpose of these rules,
“Offering Document” means:

(a) a published document containing information on a Collective Investment Scheme to
invite the public for purchase of certificates or units in that scheme;
(b) a document inviting contributions from eligible persons for a pension fund; and
(c) all supplementary documents thereto or any document relating to an income
payment plan
“Constitutive Documents” means trust deed, offering document, supplemental

documents and other principal documents governing the formation of a Closed End
Scheme, Open End Scheme or Pension Fund and other related material agreements;
6) Investment advisory services
Services provided for, managing discretionary or non-discretionary portfolios for both individual and
institutional clients and include the business of advising others as to the value of securities or as to
the advisability of investing in, purchasing or selling of securities, for remuneration;
“Investment Advisor” means an NBFC licensed by SECP to provide investment advisory services
“Discretionary Portfolio” means a portfolio of securities and deposit with financial institution
managed by an Investment Advisor under an agreement entered into with a client on a duly
notarised stamp paper of applicable value and whereby investment decisions are made and
executed by the Investment Advisor on behalf of its client
“Non-Discretionary Portfolio” means a portfolio of securities and deposit with financial

institution managed by an Investment Advisor under an agreement entered into with the client
on a duly notarised stamp paper of applicable value whereby investment decisions are executed
by the Investment Advisor on written instructions of the client
Open End Scheme
A collective Investment Scheme which offers units for sale based on net asset value on continuous
basis without specifying any duration for redemption and which entitles the holder of such units
on demand to receive his proportionate share of the net assets of the scheme less any applicable
charges on redemption or revocation
7) Pension fund scheme business;
8) Private equity and venture capital fund management services;

Services provided for management of private funds
Private fund management company means Company licenced by the SECP to provide private
equity and venture capital fund management services
Private Fund
An arrangement which has the purpose of pooling funds from one or more Eligible Investors for
investment in a portfolio of securities or other financial assets for profit, income or other returns and
where participants of the funds, neither have day to day control over the management of fund
property, nor the right to give directions in respect of such management and which is established and
operated by private fund management company
Provided that for the purpose of these rules following shall not classify as a private fund:
- collective investment schemes regulated under the Non-Banking Finance Companies and
Notified Entities Regulations, 2008;
- employee welfare trusts or gratuity trusts or employees provident fund or employee pension
fund setup for the benefit of employees by companies; and
- any such pool of funds which is separately regulated by the SECP or which is already
established under any other specific law.
9) REIT management services; and

Other classifications of NBFC
Fund management NBFC

An NBFC licenced by the SECP to undertake
 Asset Management Services or
 REIT Management Services or
 Pension Fund Scheme Business or
 Private Equity and Venture Capital Fund Management Services or
 Investment Advisory Services or
 Any combination thereof;
Lending NBFC
An NBFC licenced by the SECP to undertake
 Leasing or
 Housing finance services or
 Investment finance services or
 Discounting services
Deposit taking NBFC means a lending NBFC with a valid permission to raise Deposits or have
outstanding Deposits on its books;
Non-deposit taking NBFC means a Lending NBFC which does not have a permission to raise
Deposits;
Deposit
Any deposit of money with, or any money borrowed or raised by an NBFC, but shall not include,
- Redeemable capital issued under section 120 of the Ordinance (non interest based);
- Finance obtained from a financial institution;
- Advance, application or subscription money for shares in the NBFC;
- Cash margin or security deposit received in respect of finance provided by the NBFC
- Subordinated loans; and
- Finance obtained from major shareholders, sponsors, and associated companies:
Provided that SECP shall be the final authority to determine, by an order in writing, whether any
money deposited, raised or borrowed falls under the definition of deposit or otherwise;
Non-bank micro finance company

A non-deposit taking NBFC primarily engaged in the business of Micro Financing as specified by the SECP
from time to time
“Micro Financing” means Finance provided to a poor person or microenterprise;

“Poor person” means an individual who has meager means of subsistence and whose total
business income excluding expenses during a year is less than or equal to Rs 600,000/-or such
other minimum limit as may be prescribed from time to time;
“Microenterprises” means projects or businesses in trading or manufacturing or services or
agriculture that lead to livelihood improvement and income generation. These projects or
businesses are undertaken by micro entrepreneurs who are either self-employed or employ few
individuals not exceeding 10 (excluding seasonal labour)
Definitions used in context of security for loans
Unsecured
Means the Exposure without any security or collateral.
Exposure
Finance, subscription to or investment in securities, debt instruments, units or certificates or
shares of a Notified Entity , placements, deposits with Financial Institutions, derivatives, Margin
Trading System (MTS) or any mechanism that replaces it, but does not include:
 Obligations under letters of credit and letters of guarantee to the extent of cash margin held
by an NBFC;
 Finance provided to financial institutions through REPO transactions with underlying
statutory liquidity requirement eligible securities;
 deposits in current and savings accounts other than term deposits;
Secured
Means Exposure backed by Tangible Security and any Other Form of Security with appropriate margins
(in cases where margin has been specified by the SECP appropriate margin shall at least be equal to the
specified margin)
“Tangible Security” means Readily Realizable Assets, mortgage of land, plant, building,
machinery and any other fixed assets;
Other Form of Security includes hypothecation of stock (inventory), assignment of receivables,
lease Rentals, contract receivables[etc.]
Readily Realizable Assets include Liquid Assets and stocks pledged with the NBFCs and are in
their possession, with ‘perfected lien’ duly supported with complete documentation;
Liquid Assets
means the assets which are readily convertible into cash and includes encashment or realizable value of
gold, Government Securities, bank deposits, shares of listed companies which are actively traded on the
stock exchange, certificates or shares of a Closed End Fund, Deposits issued by DFIs or NBFCs rated at least
‘A-’ by a credit rating agency registered with the SECP, Certificates of Musharika issued by Modarabas
rated at least ‘A’ by a credit rating agency registered with the SECP, listed TFCs and Sukuks rated at least
‘A’ by a credit rating agency registered with the SECP and which are actively traded in the market,
commercial papers rated at least ‘A’ by a credit rating agency registered with the SECP, National Saving
Scheme securities and units of Open End Scheme for which a duly licensed Asset Management Company
quotes daily offer and redemption price;
FSV
Means the forced sale value which reflects the possibility of price fluctuations and can be realized by selling
the mortgaged, pledged, leased or collaterally held assets in forced or distressed sale conditions;
Government Securities
Include monetary obligations of the Federal Government or a Provincial Government or of a corporation
wholly owned or controlled, directly or indirectly, by the Federal Government or a Provincial Government
and guaranteed by the Federal Government and any other security as the Federal Government may, by
notification in the Official Gazette, declare, to the extent determined from time to time, to be a Government
Securities;
Other Definitions
Assets
Properties of all kinds tangible or intangible, including shares, units, certificates, securities, deposits, right
and bonus shares, cash, bank balances, profits, dividends, fees, commissions, all receivables, claims,
derivatives contract, licences, privileges, accrued or accruing or contingent
Connected person
In relation to an NBFC or a notified entity, means,
 any person or trust beneficially owning, directly or indirectly, ten percent or more of capital of the
NBFC or the notified entity;
 any person able to exercise, directly or indirectly, ten percent or more of the total voting power in that
NBFC or the notified entity;
 a notified entity being managed by an NBFC;
 the NBFC managing a notified entity;
 notified entities being managed by the same NBFC;
 a trustee or custodian of the notified entity;
 any person or trust controlled by a person who or which meets the descriptions given in above clauses
 any member of the group of which that person, or trust forms part; and
 any director or officer of that NBFC or the investment company being managed by that NBFC or of any
of their connected persons as specified in all above clauses
Custodian (link with connected person)

Includes a bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962) or a trust
company which is a subsidiary of such bank or a central depository company approved by the SECP
or an NBFC carrying out investent finance services provided it has been approved by the SECP to act
as custodian or such other company as may be approved by SECP
Contingent Liabilities
 A possible obligation that arises from past events, the existence of which will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the entity; or
 A present obligation that arises from past events but is not recognized on the books of the NBFC and
Notified Entity because:
- it is not probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; or
- the amount of the obligation cannot be measured with sufficient reliability and includes letters
of credit, letters of guarantee, bid bonds or performance bonds, advance payment guarantees
and Underwriting Commitments;
“Underwriting Commitments” mean commitments given by NBFCs to the limited companies at the
time of new issue of equity or debt instrument, that in case the proposed issue of equity or debt
instrument is not fully subscribed, the un-subscribed portion will be taken up by them (NBFCs);
Eligible Investor
A person offering minimum of 3 million rupees for investment and who furnishes an undertaking to the
NBFC that such investor understands the risks involved in the management of portfolio on discretionary
or non-discretionary basis:
Provided that in the case of an entity such an undertaking shall be made by the board of directors or
trustees as the case may be;
Equity
Includes paid up ordinary share capital, preference shares which are compulsorily convertible into
ordinary shares, general reserves, statutory reserves, balance in share premium account, reserve for issue
of bonus shares, subordinated loans and unappropriated profits, excluding accumulated losses.
Explanation.
(i) Surplus on revaluation of fixed assets as described in section 235 of the Ordinance, treasury stocks,
intangible assets, deferred tax reserves, and surplus on revaluation of investments shall not be included
in the equity.
(ii) A loan may be classified as subordinated loan if it complies with the following conditions:
 subordinated loan can be raised from any person, preferably from the sponsors;
 rate of profit on subordinated loan, if any shall be decided by NBFC subject to the clearance of the SECP;
 neither the interest nor the principal shall be paid even at maturity if such payment would result in
non-compliance with the equity or capital adequacy requirements;
 subordinated loan shall be un-secured and sub-ordinate to all other indebtedness including deposits;
 subordinated loan shall be in the form of cash or liquid assets only;
 auditor certificate evidencing injection of funds into NBFC as subordinated loan;
 minimum tenor of subordinated loan shall be specifically mentioned; and
 prior approval of the SECP is required for repayment of subordinated loan.
(iii) For the purpose of calculating minimum equity requirements for licensing purposes, the exposure of
an NBFC in its subsidiaries and strategic investments shall be deducted from equity:
Provided that the equity investment in subsidiary and strategic investment shall be taken at cost.;
Equity of the Borrower

Includes paid-up capital, general reserves, balance in share premium account, reserve for issue of bonus
shares and retained earnings or accumulated losses, revaluation reserves on account of fixed assets and
Subordinated Loans:
 Revaluation reserves will remain part of the equity for first three years only, from the date of asset
revaluation, during which time the borrower will strengthen its equity base to enable it to avail
facilities without the benefit of revaluation reserves. However, if a borrower gets revaluation during
the three years period, the borrower will be allowed the benefit from fresh revaluation, to the extent
of increase in revaluation reserves, but restricting the benefit of such incremental value to 3 years only.
Similarly, if after 3 years, the borrower again gets revaluation of the assets with resultant addition in
their value, the benefit of such revaluation may also be allowed for the next 3 years, again to the extent
of increase in revaluation reserves.
 For a loan to be classified as subordinated loan, the following conditions shall be met:
- Subordinated loan shall be un-secured and sub-ordinate to NBFC indebtedness; and
- Subordinated loan shall be documented by a formal subordination agreement between the
provider of the loan and the Borrower that the loan is subordinate to NBFC claim;
Independent director
Shall have the same meaning as assigned to it in regulation 35 of the Listing Regulations of Karachi Stock
Exchange;
Net Assets
in relation to a collective investment scheme and pension fund, means the excess of assets over liabilities
of collective investment scheme or pension fund, computed in the manner provided in these regulation;
Element of income
It represents the difference between net assets value on the issuance or redemption date, as the ease may
be, of units and the Net Asset Value (NAV) at the beginning of the relevant accounting period..
Element of income is a transaction of capital nature and the receipt and payment of element of income is
taken to unit holders' fund; however, to maintain same ex-dividend net asset value of all units outstanding on
accounting date, net element of income contributed on issue of units lying in unit holders fund is refunded on
units in the same proportion as dividend bears to accounting income available for distribution.
Person
Includes an individual, a Hindu undivided family, a firm, an association or body of individuals whether
incorporated or not, a company and every other legal person
Rental
Include lease Rentals, Rentals in respect of housing finance facilities, hire purchase installments or any
other amount received by NBFC from Borrower against the grant of a Facility;
“TFC” means debt instrument issued for the purpose of raising funds in the form of redeemable capital;
“Total Expense Ratio” means the ratio of the sum of all fees, expenses, taxes or government levies charged
to the Collective Investment scheme to average daily net assets value of that Collective Investment Scheme;
“Small Enterprise” and “Medium Enterprise”, (together referred to as the SME)”, includes ,-
(a) small enterprise:- a business entity not a public limited company that has annual turnover
up to Rs. 150 million and employees (including contractual) up to 50; and
(b) medium enterprise:- a business entity that has annual turnover of more than Rs. 150 million
and up to Rs. 800 million and number of employee (including contractual) between 51 to 100 for
trading entity and between 51 to 250 for manufacturing or service entity”;
NBFC (Establishment & Regulation) Rules 2003
Establishment of NBFC (Rule 3 and 4)
 A person desirous of forming a NBFC to undertake any form of business shall make a
prescribed application to SECP, along with all the relevant documents and receipt evidencing
the payment of prescribed non-refundable processing fee
 Each of its promoters, proposed directors, chief executive and chairman of the Board shall:
- fulfills the terms and conditions mentioned in the fit and proper criteria
(given in Schedule of NBFC & NE Regulations 2008 – not part of syllabus); and
- complies with the requirements of Ordinance, rules and the regulations.
 SECP, if satisfied, may permit by an order in writing to establish a NBFC.
 The permission granted shall be valid for a period of 6 months
(extendable up to 3 months under special circumstances, on application of promoters made
within those initial 6 months)
 During validity of this permission, promoters shall get the NBFC incorporated and submit an
application to SECP for grant of licence.
Promoter or Sponsor
A person who has made an application to the SECP to form an NBFC and has contributed initial capital
in the proposed company or a person who replaces him
Conditions for grant of licence (Rule 5)
 An NBFC or any other company subject to eligibility (Schedule-I) shall make separate
prescribed applications to SECP for grant of licence for carrying out each form of business.
 Application shall be submitted along with a prescribed non-refundable processing fee
 If a company fails to commence business within the period as specified by SECP while issuing
licence, the licence shall be deemed to be cancelled
(unless specified period is extended by SECP on application by the company)
 A fund management NBFC shall not be eligible for seeking licence for any form of business
allowed to lending NBFC and vice versa.
 SECP may issue a licence for asset management services to manage only closed end fund.
 Licence granted for investment finance services shall be valid for undertaking leasing,
housing finance services and discounting services
(not be required to obtain separate licences for each form of business)
Every other person engaged in any form of business shall within a period of 6 months of coming
into force of these rules apply in writing to SECP, for grant of a licence along with specified non-
refundable processing fee
Persons already engaged in business of micro financing shall apply in writing to SECP for licence
within 6 months from date of publication of this Notification or such other extended date as may
be specified by SECP through Notification in official Gazette:
 Shall not be required to obtain licence if having less than 5000 active borrowers or having
outstanding loan portfolio of less than 50 million rupees:
 Such person should be receiving funding or financing from a bona fide source (e.g. reputed
local or international donor agencies or Federal/Provincial Governments or entities
regulated by SECP/SBP etc)
 Such fund providers shall try to route the funding through proper banking channels and to
oversee its operations so that these are conducted legitimately, as specified by SECP.
SECP shall, after making necessary inquiries and after obtaining such further information, as it
may consider necessary, grant licence for one or more forms of businesses subject to
compliance of all or any of following conditions:
 Company fulfills the eligibility criteria given in Schedule I;

 Company is not part of a group of companies already holding a licence, under these rules,
for the same form of business;
 Company meets minimum equity requirements or any other requirement in lieu of
minimum equity as may be prescribed by SECP for each business or class of companies
 Company has allotted at least 25% of the paid-up share capital to the promoters;
 Promoters or majority shareholders and directors have deposited their shares with CDC in
an account marked as blocked (except directors holding qualifying shares, maximum up to
2% of total share capital)
- Such shares shall not be sold or transferred without prior approval of SECP
- Shares shall be kept unencumbered
- They shall also give an undertaking that they shall not enter into any agreement for
sale or transfer of their shares in any manner without prior approval of SECP
 Company appoints its chief executive who does not hold such office in any other company
(except for investment company being managed by company with prior approval of SECP)
 Company shall not make any change in MOA (except increase in authorized share capital),
without prior approval of the SECP
 Company shall comply with these rules, the regulations or any direction given by SECP
 Company shall satisfy SECP with evidence that the personnel employed by it for executive
positions, research or other related functions possess sufficient educational qualifications
and professional experience to undertake the proposed form of business:
(a new company shall furnish the evidence within 90 days of grant of licence)
 Company obtaining multiple licences or any undertaking any form of business as ancillary
activity must have at least 1 person responsible for heading each form of business (other
than chief executive)
 The incorporated NBFC shall not undertake any other activity except licenced activity
Group
Persons, whether natural or legal, if one of them or his close relatives, in case of a natural person, or, its
subsidiary or associated company, if it is a legal person, have control or hold [direct or indirect
substantial ownership interest or have power to exercise significant influence over the other.
For the purpose of this clause the expression
 subsidiary shall have the same meaning as defined in sub-section (2) of section 3 of the Ordinance;
 control shall have the same meaning as defined [Securities Act, 2015 (III of 2015);
 substantial ownership means beneficial shareholding of ten percent by a person or by close relative;
and
 significant influence refers to the management control of the company or the ability to participate
in financial operational and risk management policies, either exercised by representation on the
Board of Directors, through partnership or by statute or by agreement in the policy making process
Major shareholder
A person who, individually or in concert with his family or as part of a group, holds ten percent or more
shares having voting rights of the paid-up capital of the company
 SECP may, impose additional conditions or grant time to the company for compliance with
any of the above conditions as it deems appropriate
 SECP may further extend the time granted to the company for compliance
Renewal of the Licence
 Licence granted shall be valid for 3 years from date of its issuance
- Shall be renewable upon expiry of 3 years by making a prescribed application at least
1 month prior to expiry along with payment of a prescribed fee
 SECP may, after making such inquiry and after obtaining such further information, as it may
consider necessary, renew the licence, for 3 years
 Till renewal of licence, the existing licence shall be deemed valid for the purposes of these
rules and the regulations (unless company fails to apply 1 month prior to expiry)
 If company fails to apply for renewal within stipulated time period and fulfills all the
requirements to the satisfaction of the SECP its licence shall stand cancelled
Conditions applicable to an NBFC (Regulation 7)
RATINGS
 Obtain rating in accordance with Schedule-I as and when it becomes eligible for rating as
per the rating criteria of a rating agency registered with SECP
 Such rating shall be updated at least once every financial year:
 Within 1 year of decrease in its rating from grade specified by SECP, obtain a fresh rating
(During that SECP may allow NBFC to continue its operations on prescribed conditions)
 Publish the rating in its annual report and quarterly reports, annual and quarterly reports
of the collective investment schemes managed by it, if applicable, and any advertisement
and brochures in relation to promotion of its business
APPOINTMENT OF OFFICERS
 Auditors
Ensure that its statutory auditors are from approved list of auditors circulated by SECP;
 Financial or Chief Accounting Officer

Appoint an individual, having minimum 3 years experience, who is a
- Chartered Accountant (CA); or
- Cost and Management Accountant (CMA); or
- Member of a recognized foreign accountancy organization; or
- M.Com or MBA (with specialization in finance)
 Internal Auditor
Individual having minimum 3 years relevant experience who is a
- Member of recognized foreign accountancy organization; or
- Certificated Internal Auditor (CIA); or
- Certified Information System Auditor (CISA); or
Can also be outsourced to a CA firm having satisfactory QCR (not being statutory auditors)
Internal auditor shall report directly to the board or the audit committee
 Compliance Officer
Appoint a person to ensure reporting to the SECP of the status of compliance with existing
regulatory framework by NBFC
Note:
Non-deposit taking and unlisted lending NBFC may designate another officer as its
compliance officer, financial or chief accounting officer
 Executives
Appoint persons who fulfill terms and conditions mentioned in fit and proper criteria;
 Directors
- Appoint directors in accordance with Schedule I
- SECP shall be final authority to determine status of an independent of director
- Shall not appoint person who hold such office in any other NBFC licensed for same
business.
These rules shall not apply to a director nominated by the Federal Government or Provincial
Governments or any exception specified by SECP
RESTRICTIONS ON INVESTMENTS
NBFC shall not:

 Hold or make investment in a subsidiary other than a financial services company
(May make strategic investments in financial services company with approval of SECP)
- Microfinance companies may set up non-financial subsidiaries with intimation to SECP,
to supplement/complement community service objective of that company
- Conditions and exceptions pertaining to these investments shall be specified by SECP
Financial services company
A financial institution incorporated in Pakistan or outside Pakistan, insurance company, broker
i.e. of stock market or money market or commodities market; a company which is primarily
involved in distribution of securities, insurance products and units or certificates of a notified
entity, and any other company as notified by the SECP in the official Gazette;
Strategic Investment - An investment which an NBFC makes with the intention to hold it for a
period of minimum 5 years and is more than 10% of its equity
 Enter into followings without prior approval of SECP

- Form, sell or transfer ownership of shares in subsidiary or associated company
- Merge with, acquire or takeover any other company (Scheme should be approved)
- Sell strategic investment
 Make aggregate investment in shares of unlisted company in excess of 20% of its equity.
- Such Investment shall be approved in a board meeting after carefully analyzing the
merits and financial impact of the investment
- Decision shall be recorded in detail in the minutes of the meeting
- Shall be communicated to SECP within 14 days of meeting along with copy of minutes:
 Own shares of any one unlisted company in excess of lessor of

- 10% of its own equity or
- 10% of the issued capital of that company
Note: Investment out of surplus equity (over and above required minimum equity
requirements) in unlisted shares of its subsidiaries or any other financial services company in
the group, shall not be taken into account for calculating the limit for unquoted shares
ACCOUNTS & RECORDS
NBFC shall comply with the requirements of Companies Act 2017 with regard to:
 Maintenance of Books of accounts and other records
 10 years preservation requirement
 Giving True and Fair view
 Complying with ISA suggested by Sec 234 and Technical Releases by ICAP
Books of accounts includes following

 Journals, cash books and other records of original entry forming the basis of entry in any
ledger (supporting documents);
 Ledgers (or comparable record) reflecting assets, liabilities, income and expenses along
with all supporting documents or records;
 Ledgers (or comparable record) showing securities in the portfolio;
 Record of transactions with banks;
 Record of the board meetings and all relevant committees meetings including audit
committee, credit committee and investment committee; and
 Original record of all reports, analysis and memoranda containing investment advice;
NBFC shall furnish to SECP its quarterly and annual financial statements in accordance with
Schedule I (i.e. as per the requirements of the Companies Act 2017);
NBFC shall not remove any of its records or documents relating to its business from Pakistan to
a place outside Pakistan without the prior permission of SECP
Records All documentary and electronic materials created, generated, sent, communicated, received
or stored, regardless of physical form or characteristics
RESTRICTED BUSINESSES
An NBFC shall not:
 Undertake brokerage business in capital market
(except by forming a separate company for this purpose)
Securities broker
A trading right entitlement (TRE) certificate holder or who, by way of business,
 Makes or offers to make with any person or induces or attempts to induce any person to enter
into or to offer to enter into, any agreement for or with a view to buying, selling, exchanging or
 Hold, deal or trade in Real Estate
(except for the use of NBFC itself or where specified by SECP)
Note: Properties acquired by lending NBFC in satisfaction of its claims shall be disposed of
within a maximum period of 7 years from the date of acquisition
 Enter into premises leasing or renting, and sale or purchase of any kind with their
directors, officers, employees or their close relatives or any person acting on their behalf or
such persons who either individually or in concert with family members beneficially own
10% or more of the equity of the NBFC:
- Not applicable to NBFCs that have such a policy duly approved by their BOD:
- In case of any sale and purchase to the directors the prior approval in writing of the
board, excluding the participation of the beneficiary directors, is required;
Close relative - Includes spouse, lineal ascendants and descendants and brothers and sisters
OTHER REQUIREMENTS
NBFC Shall:
 Acquire and maintain membership of the relevant association and follow the code of
conduct specified by the said association approved by SECP
 Seek registration of notified entities as per the regulations notified by SECP in the Official
Gazette before offering of unit, certificates or shares of notified entities:
 Follow directions issued to protect NBFCs against their involvement in money laundering
activities, terrorist financing and other unlawful trades;
NBFC shall not:
 Raise deposits in any form by whatever name called except as specified by SECP in the Non-
Banking Finance Companies and Notified Entities Regulations, 2008;
 Provide unsecured facilities or exposures except as specified by SECP
 Encumber or mortgage or pledge or transfer clients’ assets deposited as security with the
NBFC against any facility extended to the client, for securing its own obligation.
 Offer any of its own or other securities for any consideration other than cash or liquid assets
nor make any loan or advance against these securities
(Unless otherwise specified by SECP)
Eligibility Criteria (Schedule-I) – Not part of Syllabus (only for understanding)
Form of Type of Company Number of Rating No of directors

Business independent with relevant
directors experience
(At least 5 years at
a senior
management level
for that business)
Lending NBFC* Listed company which was 2 or One third, Credit 2 directors
(with deposit incorporated as an NBFC and complies whichever is Rating excluding chief
taking with conditions mentioned in the higher executive
permission) Regulations for raising Deposit.
Lending NBFC* i) Any form of company incorporated 1 or one third, N/A 1 director
(without as NBFC whichever is
(If No of directors
deposit taking ii) Any existing company engaged in higher
including chief
permission) these forms of business.
executive is 3)
iii) Any other company as approved by
SECP
2 directors
Investment i) Public limited company incorporated One third Manage-
advisory as NBFC -ment (If No of director,
services ii) An existing fund management NBFC including chief
quality
executive is
rating
Private Equity i) Any form of company incorporated greater than 3)
and Venture as NBFC
Capital ii) An existing fund management NBFC
Management
Services
Asset i) A public limited company
management incorporated as NBFC
services ii) An existing fund management NBFC
with a valid investment advisory
services licence and minimum 5 years’
experience
REIT i) Public limited company incorporated
management as NBFC
iii) A public limited company
Pension fund i) A fund management NBFC with a
scheme business valid asset management services
licence and minimum 3 years’
experience of managing multiple types
of collective investment schemes
ii) A life insurance company. with a
valid licence and minimum 3 years’
experience
*Lending NBFCs are Leasing, Housing Finance Services, Investment Finance Services and Discounting
Minimum No of Directors
Lending NBFC without deposit taking permission

Higher of
 2
 Minimum No of directors as per Companies Act 2017
All others
Minimum No of directors as per Companies Act 2017
Submission of Financial Statements (for all type of businesses)

As per the requirements of the Companies Act 2017
NBFC and Notified Entities Regulations 2008
Money laundering, terrorist financing and other illegal trades (Reg 9)
All NBFCs shall ensure prevention of money laundering and other illegal trades and abide by
laws, directives and circulars issued by Federal Government or SECP to safeguard NBFC. NBFC
shall not offer services or provide any assistance in transactions which, in opinion of NBFC, are
associated with illegal activities or to terrorist financing from legitimate or illegal means.
NBFC shall also:
 Determine true identity of the prospective customer or investor before extending services
and care shall be taken to establish beneficial ownership of all accounts and those using safe
custody.
Customer means a person who has placed a Deposit with the Lending NBFC or has
invested in the units or certificates of a Notified Entity or has obtained Finance from a
Lending NBFC or has any business relationship with the NBFC or Notified Entity.
 Accept money from a customer only after ensuring that an account has been opened in the
name of the customer using the account opening form
(developed by the respective industry associations in consultation with SECP)
 Scrutinize and properly investigate any unusual transaction into or from the account
maintained with NBFC
 Not make payment or receive amounts in cash exceeding Rs.50,000/-.

(shall not apply to cash payments made for repayment of Finance by existing borrower)
 Establish effective procedures for

- Obtaining identification from new customers
- Devising a policy to ensure that business transactions are not conducted with persons
who fail to provide evidence of their identity
- Monitoring of customer accounts on a regular basis
- Checking identities and bonafide of remitters and beneficiaries of transactions
- Retain record of transactions
Approval for appointment/re-appointment of directors and chief executives (Reg 10)
Tutor’s Note: A proposed director or chief executive of NBFC and Investment Company shall
not assume the charge of office until their appointment has been approved by SECP.
Election of directors in AGM/EOGM
 NBFC shall submit an application for the individuals seeking to contest the elections
(including retiring directors) 10 days before the meeting date
 Within 10 days from date of election, NBFC shall submit an application for appointment
or reappointment of chief executive
Casual vacancy or reappointment of Director or Chief Executive
NBFC must submit an application within 10 days of the occurrence of any casual vacancy or
reappointment, as the case may be;
Replacement of Chief Executive
NBFC shall inform SECP immediately along with reasons for it, where:
 BOD decides to remove chief executive before expiration of his term; or
 Chief Executive decides to tender his resignation before completion of his term; or
 Replacement of Chief Executive on completion of his term
NBFC shall, within 10 days, submit an application complete in all respects, for obtaining
approval for appointment of the new chief executive
Any deficiency or shortcoming in information or documents submitted by the NBFC to SECP

shall be rectified by the NBFC within 14 days of the issue of letter by SECP informing the same
- Where NBFC does not remove the deficiency/shortcoming, SECP may close the matter
Appointment of Independent Directors (Reg 10A)
An NBFC shall ensure compliance with following requirements while appointing independent
directors on its board,-
 Independent directors shall be selected from the data bank notified by SECP as per
Companies Act, 2017; and
 Independent directors shall be elected in the same manner as shareholder directors are
elected in accordance with Companies Act, 2017 (u/s 159)
Maximum Exposure of NBFC to a single person, or Group (Reg 17)
Single Person
 Total outstanding Exposure (fund based and non-fund based) by NBFC to a person shall not
at any time exceed 20% of the equity of an NBFC (as disclosed in the latest financials)
 Maximum outstanding fund based Exposure should not exceed 15% of the equity of NBFC
 For NBFC engaged exclusively in issuance of guarantees to enhance the quality of debt
instruments issued to finance infrastructure projects in Pak, shall not at any time exceed
40% of the equity (as disclosed in latest financial statements) and Qualified Capital. Provided
also that this relaxation shall be applicable to the NBFC as mentioned above:
a. For first 5 years of its operations; and
b. For total outstanding Exposure for finance raised otherwise from the public
 An infrastructure finance company and a non deposit taking NBFC that is not involved in
retail lending and provides finance to other NBFCs or financial institutions, may exceed the
above limits by up to 5% and 10% of its equity, respectively.
Infrastructure finance company means an NBFC that deploys at least 70% of total assets
in infrastructure finance for infrastructure projects, which SECP may notify through
circular and is compliant with minimum equity and CAR requirement
Group
 Total outstanding Exposure (fund based and non-fund based) by NBFC to any group shall
not exceed 25% of the equity of an NBFC (as disclosed in the latest financials)
 Maximum outstanding fund-based Exposure should not exceed 20% of the equity of NBFC
Above limits shall not be applicable to exposure taken by an NBFC in its own subsidiaries out
of its surplus equity.
Above regulation shall not apply to an NBFC not accessing Public Funds in Pakistan.
Explanation:- Public Funds include public deposits, inter-corporate deposits, bank finance and all
funds received whether directly or indirectly from outside sources such as funds raised by issue of
debentures, commercial papers, etc. Further, indirect receipts of public funds means funds received
not directly but through associates and group entities which have access to public funds
Micro financing
Poor Person Microenterprise
Rs. 1,500,000 for housing loan Rs. 1,500,000
Rs. 500,000 for general loans other than hosing loan
How to calculate Exposure

 100% of the deposits placed with lending NBFC, under perfected lien, shall be deducted from
Exposure
 90% of the following shall be deducted from Exposure, -
- Deposits with any other financial institution or scheduled bank rated at least A or
equivalent by a credit rating agency registered with SECP, under perfected lien; and
- Encashment value of Government Securities and National Saving Scheme securities
deposited by the Borrower with the lending NBFC as collateral;
 85% of unconditional financial guarantees, payable on demand, issued by the scheduled
banks rated at least ‘A’ or equivalent by a credit rating agency registered with SECP, accepted
as collateral by NBFCs shall be deducted from the Exposure;
 30% of listed TFCs and Sukuks, rated at least ‘A’ or equivalent by a credit rating agency
registered with SECP, and shares of KSE 100 index companies held as security with duly
marked lien shall be deducted; and
 75% of Encashment Value of a Life Policy issued by an A-rated insurance company, duly
assigned and endorsed in favor of the lending NBFC using it as a Security”; and
 Following weightage will be applicable in respect of exposure to financial institutions,-

- 10% weightage for ‘AAA’ Rating
- 25% weightage for ‘AA‘
- 75% weightage for ‘A’
Exposure Limits in Capital Market (Reg 17C)
 An NBFC’s aggregate exposure in listed equity securities, and spread transactions shall not
exceed 50% of its equity (regulation not be applicable on non-deposit taking NBFCs)
“spread transactions” mean such transactions where shares of one company are purchased on
one settlement date and simultaneously sold on another settlement date, that will be considered
as one transaction
 NBFC’s investment in equity securities of any company shall not exceed lessor of
- 10% of paid-up capital of investee company; or
- 10% of its own equity
Shares acquired in excess of 10% limit, due to Underwriting Commitments, shall be sold off
within 6 months from the date of acquisition of such shares:
 Amount of provisions created against permanent diminution shall be deducted from cost of
acquisition of equity investments
Above restriction shall not be applicable to investments made by an NBFC in its own
subsidiaries and long term strategic investments out of surplus equity.
For the purpose of this Regulation “investments in equity securities” shall be valued at cost of
acquisition for the purpose of calculating the above limit
Limit on clean placements (Reg 18)

An NBFC shall make clean placement (exposure without taking any security or collateral) only
with financial institutions rated at least A- or equivalent by a credit rating agency registered
with SECP
Limit on aggregate liabilities of an NBFC (Reg 15B)
Aggregate liabilities, excluding contingent liabilities and security deposits shall not exceed.
Non-deposit taking NBFC 10 times of its equity
NBFC engaged exclusively in issuance of 10 times of its equity & qualified
guarantees to enhance quality of debt instruments capital
issued to finance infrastructure projects in Pak (SECP may specify qualified capital and
its terms and conditions)
Contingent Liabilities of an NBFC shall not exceed the limits prescribed below:
Credit Rating of AA-and above 2 times of equity
Credit Rating of A-to A+ 1.5 times of equity
Credit Rating of BBB+ 0.5 times of equity
NBFC engaged exclusively in issuance of guarantees 10 times of its equity & qualified capital
to enhance quality of debt instruments issued to (SECP may specify qualified capital and
finance infrastructure projects in Pak its terms and conditions)
Following shall not constitute contingent liabilities for the purpose of this regulation:
 Non-fund based Finance to the extent covered by liquid assets;
 Non-fund based finance where the payment is guaranteed by
- Federal Government
- Provincial Government
- Financial Institution rated AA by a credit rating agency registered with SECP
 Claims other than those related to provision of Finance to the NBFCs’ constituents, where
the probability of conversion of these claims into liabilities is remote in the view of Auditor
Creation of reserve fund (Reg 16)
A deposit taking lending NBFC shall create a reserve fund wherein

 At least 20% of after tax profits shall be credited till reserve fund equals the paid up capital
 Thereafter a sum not less than 5% of its after tax profits shall be credited to reserve fund.
Issuance of bonus shares may be made from the reserve fund after appropriation made as per
the defined regulation, however NBFC shall transfer further amounts to the reserve fund in
order to comply with the requirements of Regulation
Maintenance of Capital Adequacy Ratio (‘CAR’). (Reg 17A)

Deposit taking NBFC shall be required to maintain CAR of 8% for first 2 years from coming into
force of these regulations and 10% for subsequent years as per criteria given in Schedules
Asset Liability Management System. (Reg 17B)

BOD of a deposit taking NBFC shall approve a policy for effective monitoring of NBFC’s assets
and liabilities profiles for managing liquidity risks by containing mismatches (running total) in
maturity of assets and liabilities across all time buckets by establishing internal prudential
limits.
Also the aggregate Exposure of Deposit taking NBFC shall not exceed its equity.
Classification of Assets and provisioning (Reg 25)
Time Based criteria
 A lending NBFC shall observe the ‘Time Based criteria” for classification of its assets and
provisioning as provided in Schedule X.
 A Lending NBFC shall take benefit of realizable value of assets held as collateral against
non-performing Finance as per criteria given in Schedule XI;
Subjective Evaluation
 In addition to time based criteria provided in Schedule X subjective evaluation of performing

& non-performing finance shall be made for risk assessment
- Where considered necessary the category of classification determined on the basis of
time based criteria shall be further downgraded:
- 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 Borrower or lessee.
 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 IAS as notified by
SECP and the Technical Releases issued by ICAP, time to time.
 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 this assessment, shall immediately be provided in books.
Rescheduling / Restructuring of Non-Performing Facility
 Status of classification of a rescheduled/restructured non-performing Finance shall be

changed only when:
- Terms and conditions of rescheduled/restructured Finance are fully met for a period
of at least 6 months (excluding grace period, if any) from date of such rescheduling/
restructuring; and
- At least 20% of the outstanding amount (principal + markup) is recovered in cash:
 Condition of 6 months retention period shall not apply if the Borrower repays or adjusts at
least 50% of the restructured or rescheduled loan (principal + markup) amount in cash either
at the time of restructuring or during grace period (if any)
 NBFC shall ensure that status of classification & provisioning of a rescheduled/ restructured
non-performing Finance is not changed in its reports to SECP merely due to
rescheduling/restructuring of a Finance and rescheduled/restructured loans shall be
reported to the Credit Information Bureau (CIB) as such and not as default.
 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.
 At the time of rescheduling / restructuring an NBFC shall reconsider, re-examine and record
in detail the viability of the project or business and shall accordingly obtain a revised
business plan, latest CIB report and try to obtain additional security to secure its interests.
External auditors (as a part of annual audit of NBFC) shall verify that all requirements under
these Regulations or any other circular issued by SECP for classification of assets and
determination of provisions required against them have been complied with.
20. Banking Companies and Transactions Page 378
Ch # 20: Banking Companies and Transactions

 Introduction to Banking Companies
 Requirements regarding Minimum Capital, Reserves and Assets
 Restrictions relating to directors and other officers
 Other Restrictions
 Accounts and Audit
 Miscellaneous
 Payment Systems and Electronic Fund Transfers Act, 2007
C 3.1: The Banking Companies Ordinance, 1962

• Part I (Sections 1, 2, 5 & 6)
• Part II (Sections 9, 11, 13 to 19, 21, 22, 24, 29, 34 to 38)
D 5.1: Payment Systems and Electronic Fund Transfers Act, 2007
(Section 2, 4, 5, 8, 14, 18)
100% (except penalties, duplications, obvious interpretations & definitions and
transitional provisions)
Tutor’s Note: Circulars are not covered in this chapter

Introduction to Banking Companies
What is a Banking Company and applicability of Banking Companies Ordinance 1962
Banking
Accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise;
Banking company
Any company which transacts the business of banking in Pakistan and includes their
branches and subsidiaries functioning outside Pakistan of banking companies incorporated
in Pakistan;
Note: Any company which is engaged in manufacture of goods or carries on any trade and which accepts
deposits of money from the public merely for the purpose of financing its business as such manufacturer
or trader shall not be deemed to transact the business of banking within the meaning of this clause;
Deposits of money
Shall be deemed to include money called, invited or collected for the purpose of investment
or borrowing in any business carried on by company, firm or person by whom, or on whose
behalf, such money is called irrespective of the nature of the relationship, arrangement or
terms offered or provided to person making investment, deposits of money or payment
Branch or branch office

Any branch or branch office, whether called a pay office or sub-pay office or by any other
name, at which deposits are received, cheques cashed or moneys lent
Foreign banking company

Banking company, not incorporated in Pakistan, which has a branch or branches doing
banking business in Pakistan under a licence issued by SBP in this behalf;
Company
Any company which may be wound up under the Companies Act 2017 and includes a branch
of a foreign banking company doing banking business in Pakistan under a licence issued by
the SBP in this behalf
Ordinance to override memorandum, articles, etc (Sec 6)
Save as other-wise expressly provided in this Ordinance,-

 Provisions of this Ordinance shall override anything contained in MOA/AOA/Agreement/
Resolution passed by members or BOD
 Any provision contained in these documents against the ordinance shall be considered void
Application of other laws not barred (Sec 2)
Provisions of this Ordinance shall be in addition to, and not in derogation of, the Companies Act
2017 and any other law for the time being in force.
Companies Act 2017 – Sec 505

The provisions of Companies Act 2017 shall apply to
(a) Insurance companies
(b) Banking Companies
Tutor (c) Modaraba companies and modarabas
(d) Any other company governed by any special enactment
Note except in so far as the said provisions are inconsistent with the provisions of
relevant law (e.g. Banking Companies Ordinance 1962 etc)
Prohibition of trading (Sec 9)
Except as authorised under section 7, no banking company shall directly or indirectly deal in
the buying or selling or bartering of goods or engage in any trade or buy, sell or barter for others,
other than the bills of exchange received for collection or negotiation.
Goods means every kind of movable property, other than actionable claims, stocks, shares, money,
bullion and species, and all instruments referred to in section 7
Requirements regarding Minimum Capital, Reserves and Assets
Minimum paid-up capital and reserves requirements (Sec 13)
 No banking company in Pakistan shall:

- Commence business unless it has a minimum paid-up capital as may be determined by
the SBP; or
- Carry on business unless aggregate of its paid up capital and unencumbered general
reserves (items as may be notified by SBP) is of such minimum value within such period
as may be determined and notified by the SBP from time to time.
SBP may by order in writing require any banking company, which has failed to comply
with above provision, to deposit with SBP shortfall amount (required – actual) on such
terms and conditions as the SBP may determine
 If any dispute arises in computing aggregate value of capital and unencumbered general
reserves of any banking company, a determination thereof by the SBP shall be final.
 For companies incorporated outside Pakistan, requirements shall be deemed to have
complied with if it deposits, and keeps deposits, with SBP an amount by transfer of funds
from outside Pakistan or in the form of assets acquired out of remittable profits made by it
from deposits in Pakistan which is not less than that limit, in any one or more of following:
- Interest-free deposit in cash in Pakistan rupees
- Interest-free deposit in a freely convertible approved foreign exchange within the
meaning of SBP of Pakistan Act,1956; and
- Deposit of un-encumbered approved securities
(i.e. such other securities as FG may, by notification in the official Gazette, declare)
 Any such amount deposited with SBP shall, in the event of company ceasing for any reason
to carry on banking business in Pakistan, be an asset of the banking company on which the
claims of all the creditors of the banking company in Pakistan shall be a first charge.
Regulation of authorised, subscribed & paid-up capital and the voting rights (Sec 14)
Banking company incorporated in Pakistan shall satisfy the following conditions:

 Subscribed capital shall not be less than ½ of authorized capital
 Paid-up capital shall not be less than ½ of subscribed capital
 While increasing capital, same must be ensured within such period (not exceeding 2 years)
as SBP may allow
 Capital of company should consists of ordinary shares and perpetual non-cumulative
preference shares only
 Voting rights of any one shareholder should be strictly proportionate to the paid-up capital
contributed by him
 Voting rights of any one shareholder, except those of FG or a Provincial Government, should
not exceed 5% of total voting rights
No suit or other proceeding shall be maintained against any registered shareholder on the
ground that the title to the said share vests in a person other than the registered holder except
 By a transferee of share on the ground that he has obtained from registered holder a transfer
in accordance with any law relating to such transfer; or
 On behalf of a minor or a lunatic on the ground that registered holder holds the share on
behalf of the minor or lunatic.
Every chairman, managing director or CEO shall furnish to SBP through that banking company
returns containing full particulars of:
 His shareholding in the banking company;
 Any change in that holding; or
 Any variation in the rights attaching thereto and
 Such other information as SBP may require (in such form and time as may be specified).
SBP may require any banking company, by an order in writing stating reasons, to increase its paid
up capital by such amount and within such period as may be specified in the order
Order by SBP to reduce, divest or transfer shareholding
 SBP may, by an order in writing stating reasons, require any person to reduce, divest or
transfer to a fit and proper person, his shareholding in banking company within such
reasonable period and in such manner as may be specified in the order where:
- SBP has determined that a person is holding or is a beneficial owner of 5% or more
shares without prior approval of the SBP; or
- A person that acquired shareholding with prior approval of SBP subsequently fails to
meet the fit and proper test.
 Where a person holding 5% or more shares is or is likely to be detrimental to the interest of
banking company or its depositors, SBP may by written order require such person to divest
his shareholding to a fit and proper person.
 Before giving any order, person concerned shall be given opportunity of being heard
 Where order is not complied with, SBP may dispose of such shares either through stock
exchange or public auction. Net sale proceeds of such shares shall be paid to the respective
shareholders within a period of 3 months. If necessary, SBP may require
- Issuance of duplicate shares in place of the original shares; and
- CDC to make appropriate changes in their records
 If SBP is of opinion that any delay would be detrimental to public interest or interest of
banking company or depositors, SBP may make an appropriate interim order and conduct
the proceedings in a reasonably expeditious manner.
 The interim order may include prohibition of:
- Transfer of, or the carrying out of agreement or arrangement to transfer such shares;
- Exercise of voting rights in respect of such shares;
- Payment of cash or stock dividends in respect of such shares; and
- Issue of further shares to the concerned shareholder;
Any person aggrieved by any of above orders may prefer appeal to the Central Board of Directors
of SBP (During the proceedings, shareholder shall not derive any benefit including dividends, right
shares, voting rights, etc. from shareholding without express permission of Central Board)
Reserve Fund (Sec 21)
Every banking company incorporated in Pakistan shall create a reserve fund to which shall be
credited following % of profit as disclosed in annual accounts and before dividend declaration:
 If amount in such fund + Share premium account is less than paid-up capital; 20 %
 If amount in such fund + Share premium account is not less than paid-up capital; 10 %
If any appropriation is made from the reserve fund or share premium account, report the fact
to the SBP within 21 days (or any extension allowed by SBP) from such appropriation,
explaining the circumstances relating to such appropriation
Cash Reserve (Sec 22)
Every banking company (not being a schedule bank) shall maintain by way of cash reserve in
cash with itself, or in current account opened with the SBP or its agent or partly in cash and
partly in such account(s) a sum equivalent to at least:
 5% of its demand liabilities in Pakistan (i.e. liabilities which must be met on demand)
 2% of its time liabilities in Pakistan (i.e. liabilities which are not demand liabilities)
Shall submit to SBP before 15th day of every month a return showing the amount so held on
Thursday of each week of preceding month with particulars of its demand and time liabilities in
Pakistan on each Thursday (in case of a public holiday; balance on preceding working day)
Maintenance of liquid assets (Sec 29)
 Every banking company and every financial institution specified u/s 3A shall maintain in
Pakistan, an amount which shall not be less than such percentage of total of its time and
demand liabilities in Pakistan, as may be notified by the SBP from time to time
 Such amount shall be in cash, gold or unencumbered *approved securities valued at a price
not exceeding lower of cost or current market price.
*Approved securities includes such types of Pakistan rupee obligations of FG or a Provincial

Government or of a Corporation wholly owned or controlled, directly or indirectly, by these
Government and guaranteed by FG as FG may, by notification in the official Gazette, declare, to the
extent determined from time to time.
 SBP may separately specify for banking companies or financial institutions the applicable
percentage either in general, for all or a class, or for any particular institution etc.
 Following shall be deemed to be cash maintained
- Any deposit required to be made with SBP by a banking company incorporated outside
Pakistan u/s 13
- Any balances maintained in Pakistan by banking company in current account with SBP
(or its agent or both), or in profit and loss sharing term deposit account with SBP
(including the balance required to be so maintained u/s 36 of the SBP Act, 1956)
 Every banking company shall submit to SBP every month a return (before the close of next
month to which return relates) showing the amount so maintained on Thursday of each
week of preceding month with particulars of its demand and time liabilities in Pakistan on
each Thursday (in case of a public holiday; balance on preceding working day)
 The cash deposited by a banking company or financial institution under this section shall be
deemed to be part of the assets of the banking company but it shall not be
- Subject to any encumbrance
- Available for discharge of any liability other than order of liquidation by High Court
- Available to attachments in execution of any decree or recoverable under Order of any
authority under any law for the time being in force, except any claim of the SBP.
Restrictions relating to Directors and other Officers
Election of new directors (Sec 15)
 SBP may require any banking company to call a general meeting to hold fresh election
 Banking company shall be bound to comply with the order
 Election shall be held within such time as maybe specified
(not less than 2 months from date of order)
 SBP may also allow further time in it, if deemed fit.
 Every fresh director elected shall hold office for remaining tenure of previous BOD
 Such election, duly held, shall not be called in question in any court.
Appointment of director by the SBP (Sec 15A)
SBP may appoint one person to be a director of a banking company, whether or not he holds
any qualification shares.
Restriction on term of office of directors (Sec 15B)
 Elected director shall not hold office for more than 6 consecutive years
(Any break of less than 3 years in continuity of office shall be ignored while calculating it)
 Such director shall not be eligible for re-election unless a period of 3 years has elapsed
 This Requirement not applicable to CEO or a director nominated under section 15A
Vacation of Office (Sec 15 C)
 Director shall vacate his office if in relation to the banking company, he has failed to:
- Pay any advance or loan or any installment or interest thereon or any amount due on
any guarantee; or
- Do or perform any act agreed to or undertaken in writing by him
 And such failure continues for 1 month after notice in writing has been served on him
Prohibition regarding employment of managing agents and others (Sec 11)
Banking company shall not employ or be managed by a managing agent or employ or continue
the employment of any person:
 Who has been, adjudicated insolvent or has suspended payment, or has compounded with
his creditors; or
 Who has been, convicted by criminal court of an offence involving moral turpitude; and
 Whose remuneration (or part of it) is in the form of commission or a share in profits of Co.
Last point not applicable to the payment by a banking company of:

- Any bonus in pursuance of a settlement or award arrived at or made under any law relating to
industrial disputes or in accordance with any scheme framed by such banking company or in
accordance with usual-practice prevailing in banking; or
- Any commission to any broker (including guarantee broker), cashier-contractor, clearing and
forwarding agent, auctioneer or any other person, employed by banking company under a
contract otherwise than as a regular member of the staff
Banking company shall not be managed by any person who:

 Is a director of any other company not being a subsidiary of banking company or company
registered u/s 42 of Companies Act 2017 except with previous approval of SBP;
 Is engaged in any other business or vocation; or
 Has a contract with company for its management for period exceeding 5 years at any 1 time
(Such contract may be renewed or extended for a further period not exceeding 5 years at a
time, if and so often as the directors so decide)
“Managing director” means a director who, by virtue of an agreement with the banking company or of
a resolution passed by the banking company in general meeting or by its Board of Directors or, by virtue
of its MOA/AOA, is entrusted with management of the whole, or substantially the whole of the affairs of
the company, and includes a director occupying the position of managing director, by whatever name
called.
Officer found guilty of contravention of Law
 SBP may make an order a person shall cease to hold office with effect from specified date:
- Where any chairman/director/manager/CEO is, or has been found by any tribunal or
other authority (other than a criminal court) to have contravened the provision of any
law; and
- SBP is satisfied that contravention is of such a nature that association of such person
with banking company is or will be detrimental to interest of the banking company or
its depositors (stakeholders) or otherwise undesirable
 Order by SBP may also provide that he shall not, without permission of SBP, directly or
indirectly, be concerned with, or take part in the management of, the banking company or
any other banking company for such period as may be specified (not exceeding 5 years)
 An opportunity of making representation shall be provided before making order.
 Opportunity not be given if any delay would be detrimental to interests of stakeholders.
 Any decision or order of SBP made under this section shall be final for all purposes.
Other Restrictions
Restrictions relating to loans, advances and securities
Restrictions on loans and advances (Sec 24)
Banking company shall not:

 Make any loans or advances against the security of its own shares; or
 Grant unsecured loans or advances to, or make loans and advances on the guarantee of:
- Any of its directors;
- Any of the family members of any of its directors;
(Spouse, dependent lineal ascendants and descendants and dependent siblings)
- Any firm or private company in which banking company or any of the above persons is
interested as director, proprietor or partner; or
- Any public limited company in which the banking company or any of the above persons
is substantially interested.
Banking company shall not make loans or advances to any of its directors or to individuals, firms
or companies in which it or any of its directors is interested as partner, director or guarantor
without the approval of majority of the directors (excluding the director concerned)
Prohibition of charge on unpaid capital (Sec 17)
Banking company shall not create any charge upon any unpaid capital of the company
Prohibition of floating charge on assets (Sec 18)
 Banking company shall not create a floating charge on undertaking or any property of the
company or any part thereof, unless creation of such floating charge is certified in writing by
SBP as not being detrimental to the interest of the depositors of such company.
 Any banking company aggrieved by refusal of certificate by SBP may, within 90 days of
communication of refusal, appeal to FG.
 Decision of FG shall be final on such appeal
Restrictions as to payment of dividend (Sec 19)
 Banking company shall not pay any dividend on its shares until all its capitalised expenses
have been completely written off.
Capitalised expenses would also include preliminary expenses, organisation expenses, share-selling
commission, brokerage, amounts of losses incurred and any other item of expenditure which is not a
tangible asset
 A banking company may pay dividends on its shares without writing off:
- Depreciation, if any, in value of its investment in approved securities
(where depreciation has not actually been capitalised or accounted for as a loss)
- Depreciation, if any, in value of its investments in shares, debentures or bonds, other
than approved securities
(if adequate provision for depreciation has been made to the satisfaction of auditor)
- Bad debts, if any.
(if adequate provision for debts has been made to the satisfaction of auditor)
 If a banking company meets minimum capital requirement and capital adequacy ratio as
specified by SBP from time to time, and has also accounted for the portion of capitalized
expenses, goodwill etc., for the year to the satisfaction of auditor, it shall also be eligible for
payment of dividend out of profits for the said year.
 If the SBP is satisfied that conditions or financial position of banking company are not
favourable for such payment, it may, by order stating reasons, restrict or prohibit any
company from paying dividends for such period as may be specified in the order
 Interim order shall be made, if any delay would be detrimental to interests of stakeholders
Amount of commission, brokerage, discount or remuneration in any form in respect of any of the
shares it shall not exceed in aggregate 2.5% of the paid-up value of these shares. (Sec 16)
Accounts and Audit
Accounts and balance-sheet (Sec 34)
 At the expiration of each calendar year every banking company shall prepare a balance-sheet
and profit and loss account as on the last working day of the year
(as per forms set out in the Second Schedule to the extent it is practicable)
 Requirements applicable to Banking companies incorporated in Pakistan (regarding all
business transacted by it) and every banking company incorporated outside Pakistan
(regarding all business transacted through its branches in Pakistan)
SBP may, after giving not less than 15 days notice, from time to time by a notification in the official
Gazette, amend the forms set out in the Second Schedule.
Authentication of Accounts
Balance sheet and profit and loss account shall be signed by the
 Banking company incorporated in Pakistan
Manager or the principal officer of the company and all the directors
(where there are more than 3 directors of the company, by at least 3 of those directors)
 Banking company incorporated outside Pakistan
Manager or agent of the principal office of the company in Pakistan and by another officer
next in seniority to the manager or agent.
Filing of the accounts (Sec 36, 37)
 Accounts and balance-sheet together with auditor’s report (approved) shall be published in
the prescribed manner
 3 copies of the above documents shall be furnished as returns to SBP within 3 months of the
year end (SBP may extend this time by a further period not exceeding 3 months)
 Banking company may or a private company shall send to registrar simultaneously 3 copies
of above documents
 On such filing, the requirements to file these document under Companies Act 2017 (Sec 134)
shall cease. (chargeable with same fees as applicable under that Ordinance)
Display of accounts by banking companies incorporated outside Pakistan (Sec 38)

Every banking company incorporated outside Pakistan shall:
 Not later than first Monday in August of any year in which it carries on business
 Display in a conspicuous place in its principal office and in every branch office in Pakistan, a
copy of its last audited balance sheet and profit and loss account prepared u/s 34
 Keep it so displayed until replaced by a copy of the subsequent accounts
 Also display in like manner, the copies of its complete audited balance sheet and profit and
loss account relating to its banking business as soon as they are available
 Keep the copies so displayed until copies of such subsequent accounts are available.
Audit (Sec 35)

Balance sheet and profit and loss account shall be audited by a person who is
 A CA (as per Chartered Accountants Ordinance, 1961) qualified to be auditor of companies
 Borne on the panel of auditors maintained by SBP for this purpose
SBP shall classify the panel of auditors, so maintained, in different categories for different
banking companies keeping in view the scope and size of such banking companies.
An auditor shall hold office for a period of 3 years
(shall not be removed from office before that period except with the prior approval of the SBP)
SBP may, from time to time, lay down guidelines for the audit of banking companies and the
auditors shall be bound to follow those guidelines.
If SBP is not satisfied with the performance of auditor or the auditor has not fulfilled any of the
requirements of this section, SBP after giving the auditor an opportunity of being heard may:
 Revoke the appointment of external auditors of the banking company;
 Downgrade the category of the auditor in the panel of the auditors; and
 Remove the auditor from the panel of the auditors for a maximum period of 5 years.
In addition to the other required matters, he shall also state in his report:
 Whether or not the information and explanations required by him have been found to be
satisfactory;
 Whether or not the transactions of the banking company which have come to his notice have
been within the powers of the banking company;
 Whether or not the returns received from branch offices of the banking company have been
found adequate for the purposes of his audit;
 Whether the profit and loss account shows a true balance of profit and loss for the period
covered by such account; and
 Any other matter which he considers should be brought to the notice of the shareholders
Auditors shall report all the matters of material significance to SBP and reporting of such
information and material shall not constitute breach of confidentiality under any law
Auditor shall have same powers and duties as are under Companies Act
Definitions not covered elsewhere (Sec 5)
“Creditor” includes persons from whom deposits have been received on the basis of participation in
profit and loss and a banking company or financial institution from which financial accommodation or
facility has been received on the basis of participation in profit and loss, mark-up in price, hire-
purchase, lease, or otherwise;
“Debtor” includes a person to whom, or a banking company or financial institution to which, finance as
defined in the Banking Tribunals Act 2017, has been provided;
“Borrower” is any person to whom any credit limit is sanctioned (availed/not), including
 its subsidiariesin case of company
 any member in case of Hindu undivided family
 any firm in which such member is a partner;
 any partner of A firm or any other firm in which such partner is a partner; and
 in the case of an individual, any firm in which such individual is a partner
“Gold” includes gold in the form of coin, whether legal tender or not, or in the form of bullion or ingot,
whether refined or not;
“Substantial interest” in an undertaking shall be deemed to be possessed by a person if he or any of

his family members is the owner, director or officer of or has control over the undertaking or if he or
any of his family members holds shares carrying not less than 20% of the voting power in such
undertaking;
For the purpose of this clause,—
(i) “Control” in relation to an undertaking, means the power to exercise a controlling influence over the
management or the policies of the undertaking, and, in relation to shares, means the power to exercise a
controlling influence over the voting power attached to such shares;
(ii) “Person” includes a Hindu undivided family, a firm, an association or body of individuals, whether
incorporated or not, a company and every other juridical person; and
(iii) “Undertaking” means any concern, institution, establishment or enterprise engaged in the
production, supply or distribution of goods, or in the provision or control of any services relating to the
provision of board, lodging, transport, entertainment or amusement, or of facilities in connection with
the supply of electrical or other energy, or to the purveying of news, insurance or investment.
“Credit information” means any information relating to

 Amounts& nature of credit facilities, bills purchased/discounted, LC and LG, indemnities and other
engagements.
 The nature of security taken from any borrower for credit facilities granted to him;
 The guarantees, indemnities or other engagements furnished to a banking company; and
 Operations or accounts in respect of credit facilities.
“Acted knowingly” means If he has

 Departed from established banking practices and procedures or
 Circumvented the regulations or related credit restrictions laid down by SBP.
Payment Systems and Electronic Fund Transfers Act, 2007
Designation of Payment System (Sec 4 & 5)
 State Bank may designate a PS as a DPS by a written order, if necessary in the public interest.
 State Bank may inspect the premises, equipment, machinery, apparatus, books or other
documents, or accounts and transactions relating to PS, in considering to designate it as DPS.
State Bank may revoke the designation of a DPS if it is satisfied that:

 DPS has ceased to operate effectively as a PS;
 Operator of the designated system has knowingly furnished information or documents to
the State Bank in connection with the designation of the PS which is or are false or misleading
in any material particular;
 Operator or settlement institution of the DPS is in the course of being wound up or otherwise
dissolved, whether in Pakistan or elsewhere;
 Any of terms and conditions of designation or requirements of Act has been contravened; or
 State Bank considers that it is in public interest to revoke designation.
The State Bank shall not revoke a designation without giving the operator of the DPS an
opportunity to be heard. However, the State Bank may suspend the designation of a PS without
notice pending the final order, if an immediate systemic risk is involved.
“Payment System” inter-alia means a system relating to payment instruments, or transfer, clearing,
payment settlement, supervision, regulation or infrastructure thereof and includes clearing, settlement
or transfer of Book Entry Government Securities;
“Electronic Payment System” means implementation of Payment System Electronically;
“Operator” means any financial or other institution or any person, authorized by the State Bank to
operate any Designated Payment System;
Disqualification of Staff (Sec 8)
Person shall not be appointed to serve in any capacity by an operator if such person has been:
 Adjudged a bankrupt, or has suspended payments, or has compounded a debt with creditors,
whether in or outside Pakistan, within 10 years prior to the date of appointment; or
 Has been convicted of an offence under this Act or committed any other offence involving
moral turpitude or such an offence has been compounded against him.
Any person being the chairman, director, chief executive, by whatever name called, or official
liquidator, or an officer of a DPS mismanages the affairs of the payment system or misuses his
position for gaining direct or indirect benefit for himself or any of his family members or any other
person, shall be disqualified to serve in any capacity in a designated payment system.
Prohibition of Issuance of Payment Instruments (sec 14)
 SBP may, by a written order, prohibit any person from issuing or using any Payment
Instrument if, in its opinion the:
- Issuing or use of Payment Instrument is detrimental to the reliable, safe, efficient and
smooth operation of Payment Systems of Pakistan or monetary policy of SBP;
- Prohibition is in the interest of the public; or
- Payment Instrument has been issued with an object to entice or defraud the public.
- Person has, in the opinion of SBP, failed to comply with the requirements of this Act.
 For that SBP may inspect the premises, equipment, machinery, apparatus, books or other
documents, or accounts and transactions of the issuer of the Payment Instrument.
 Any Person creating obstruction to an officer or representative of SBP in such inspection
shall, upon complaint made to a court having jurisdiction, be liable to punishment up to 3
years imprisonment of either description or with fine up to Rs 5 million or both.
 SBP shall before passing an order, give such Person a reasonable opportunity to make
representation before it. SBP may also, in appropriate cases, without notice direct a Person
to immediately stop issuing a Payment Instrument, pending the final order.
“Payment Instrument” means any instrument, whether tangible or intangible, that enables a person
to obtain money, goods or services or to otherwise make payment; but excludes Payment Instruments
prescribed in Negotiable Instrument Act, 1881 (XXVI of 1881);
Clearing Houses, Audit and Inspection.- (Sec 18)
 SBP may nominate one or more Clearing Houses to provide clearing or settlement services
for a Payment System on such terms and conditions as may be determined by it.
 SBP may conduct audits and inspections of Clearing Houses and the Clearing House shall, as
required, assist SBP to the extent necessary to enable it to carry out an audit or inspection.
 Such auditors shall be appointed with prior approval in writing of the State Bank.
“Clearing House” means corporation, company, association, partnership, agency or other entity that
provides clearing or settlement services for a Payment System;
“Accepted Card” means a card, code or other means of access to a Consumer’s Account for the purpose
of initiating Electronic Fund Transfers;
“Account” means a current deposit, saving deposit, or any other account maintained by a consumer in
a Financial Institution in which credits and debits may be effected by virtue of Electronic Fund
Transfers;
“Authorized” means authorized by the State Bank for the purposes of this Act;
“ATM Card” means any card for use at any ATM to initiate Electronic Fund Transfers.
“Authorized Party” means a bank, a Financial Institution, a Clearing House, a Service Provider or any
person authorized by the State Bank to transact business under this Act in Pakistan;
“Automated Teller Machine (ATM) Operator” means any person or a Financial Institution operating
any ATM at which consumers initiate Electronic Fund Transfers;
“Book Entry Government Securities” means any securities issued by the Government under any
written law transferable by a book entry on a register or otherwise;
“Business Day” means any day on which offices of consumers, Financial Institutions, operators or
Service Providers involved in Electronic Fund Transfer are open to the public;
“Cheque in the Electronic Form” means a cheque which contains the exact image of a paper cheque
in electronic form and is generated, written and signed in a secure system ensuring minimum safety
standards as may be prescribed by the State Bank;
“Consumer” means any person who or which avails the facility of Electronic Fund Transfer;
“Debit Instrument” means a Card, Access Code, or other device other than a cheque, draft or similar
paper instrument, by the use of which a person may initiate an Electronic Fund Transfer;
“Card” means any card including an ATM card, Electronic Fund Transfer point of sale card,
debit card, credit card or stored value card, used by a Consumer to effect an Electronic Fund
Transfer;
“Access Code” includes pin, password or code, which provides a means of access to a
Consumer’s Account for the purpose of initiating an Electronic Fund Transfer;
“Electronic Fund or Electronic Money” means money transferred through an Electronic Terminal,
ATM, telephone instrument, computer, magnetic medium or any other electronic device so as to order,
instruct or authorize a banking company, a Financial Institution or any other company or person to
debit or credit an account and includes monetary value as represented by a claim on the issuer which
is stored in an electronic device or Payment Instrument, issued on receipt of funds of an amount not
less in value than the monetary value issued, accepted as means of payment by undertakings other than
the issuer and includes electronic store of monetary value on a electronic device that may be used for
making payments or as may be prescribed by the State Bank;
“Electronic Fund Transfer” means any transfer of funds, other than a transaction originated by
cheque, draft or similar paper instrument, which is initiated through an Electronic Terminal, telephonic
instrument, point-of -sale Terminal, stored value card Terminal, debit card, ATM, computer magnetic
tape or any other electronic device so as to order, instruct, or authorize a Financial Institution to debit
or credit an Account;
“Electronic Money Institution” means an undertaking, that issues means of payment in the form of
Electronic Money and is duly authorized to do so;
“Electronic Terminal” means an electronic device, operated by a consumer, through which a
consumer may initiate an Electronic Fund Transfer;
“Financial Institution” means a financial institution as defined in the Financial Institutions
(Recovery of Finances) Ordinance, 2001 (XLVI of 2001) and includes a banking company or any other
Electronic Money Institution or person, authorized by the State Bank in this behalf, that directly or
indirectly holds an account belonging to a consumer.
“Government” means the Federal Government or any Provincial Government;
“Netting” means the conversion into one net claim or one net obligation of claims and obligations
resulting from transfer orders which a participant either issues to, or receives from, one or more other
participants with the result that only a net claim can be demanded or a net obligation be owed;
“Participant” means a party to an arrangement that establishes a Payment System;
“Person” includes a legal person or a body of persons whether incorporated or not.
“Real Time Gross Settlement System” means a Payment System which can effect final settlement of
funds, payment obligations and Book Entry Government Securities and instruments on a continuous
basis during such operating hours of a processing day as the State Bank may determine on a
transaction-by-transaction basis;
“Service Provider” includes an operator or any other Electronic Fund Transfer Service Provider.
“Systemic Risk” means the risk that relates to the inability of a participant to meet its obligations in
the Payment System as they become due or a disruption to the Payment System that could, for whatever
reason, cause other participants in the Payment System to be unable to meet their obligations as they
become due; and
“Truncated Cheque” means a cheque which is truncated in a securesystem, during the course of a
clearing cycle, by an Authorized Party, whether paying or receiving payment, immediately on capture
of a scanned image, substituting physical movement of the cheque in the original form, and includes a
cheque in the electronic form
21. Insurance Companies Page 396
Ch # 21: Insurance Companies
This chapter deals with the basics of the Insurance Ordinance 2000. At first a basic
introduction and type of insurance companies has been given in this chapter. Afterwards
requirements as to register as an insurance company and the related procedure has been
discussed. Later in this chapter, special statutory and other fund requirements for a Life
insurer are discussed in detail. Then requirements as to Share capital, statutory deposits
and minimum solvency requirements are discussed.
C 2.1: Insurance Ordinance, 2000

• Part I (Sections 1 to 4)
• Part II (Sections 5 to 13)
• Part III (Section 14)
• Part IV (Section 28)
• Part V (Sections 35, 36)
• Part VII (Sections 45 to 48)

 Introduction and types of insurance
 Registration of an Insurer
 Statutory and other funds of life insurance companies
 Solvency requirements
 Accounts & Audit
 Minimum Capital & Deposit Requirements
 Other Definitions
100% (except penalties & transitional provisions)
Introduction and types of Insurance
“Insurance” means contract where, in consideration of a premium received, a person

promises to make payment to another person contingent upon the happening of an event,
specified in the contract, on the happening of which the second-named person suffers loss,
Insurance also includes contracts of reinsurance and retrocession.

Contract of life insurance shall be deemed to be a contract of insurance even if it may not comply
with one or more conditions of the definition.
Types of contracts (Sec 3)
Insurance business is divided into life insurance business and non-life insurance business which
are effected and carried out through following type of contracts:
Life insurance Business
 Payment of money on death of a person or happening of a contingency dependent on

termination/continuance of human life;
 Payment of premiums for a term dependent on termination/continuance of human life;
 Payment of an annuity for a term dependent on the continuance of human life;
 Payment of an annuity for a term not dependent on continuance of human life but exceeding
period of 1 year;
 An indemnity for medical expenses;
 A continuous disability income contract;
 An investment contract;
 Such other contracts as may be prescribed.
Contract whose principal object is one of the above, but also contains some provisions of a non-life
insurance nature shall be considered as a Life Insurance business.
Non-Life insurance Business
 All insurance contracts not constituting life insurance business.

 A contract that provides for payment on the death by accident and:
- is carried out by a non-life insurer
- duration of the contract is less than 1 year
 A contract for the payment of money in the event of a person suffering loss, other than
death, attributable to accident, sickness or infirmity and:
Classes of life and non-life business (Sec 4)
Life Insurance Business
Class 1 - Ordinary life business;

Contracts of life insurance other than contracts included in Class 2, Class 3 or Class 4;
Class 2 - Capital redemption business;

Contracts of capital redemption contracts.
Class 3 - Pension fund business;

Contracts of life insurance which are
 maintained for a pension or retirement scheme and
 owned by trustees under the scheme
Class 4 - Accident and health business.
Contracts providing
 fixed pecuniary benefits or
 benefits in the nature of indemnity or
 a combination of both,
against risks of the policy holder or a person for whose benefit the contract was made -
- sustaining injury as a result of an accident;
- becoming incapacitated in consequence of an accident or disease; or
- suffering loss, including medical expenses, attributable to accident, sickness or infirmity
Non-Life insurance business
(a) for direct and facultative reinsurance business;
Class 1 - Fire and property damage business;

Insurance against loss from loss of or damage to property, other than as contained in class2;
Class 2 - Marine, aviation and transport business;

Insurance against loss to the policy holder arising from the following (including 3rd party risks
and carrier’s liability but excluding risks contained in class 3/5):
 loss of or damage to, or arising out of or in connection with the use of:
- means of transport, including motor vehicles and railway rolling stock used on land,
vessels used on the sea or on inland waters, and aircraft; or
- the machinery, tackle, furniture or equipment of those means of transport;
 loss of or damage to merchandise, baggage and all other goods in transit, irrespective of the
form of transport;
Class 3 - Motor third party compulsory business;
Insurance against loss arising from liabilities incurred to third parties arising out use of motor
vehicles on land
Class 4 - Liability business;

Insurance against loss to the policy holder arising from liabilities incurred to third parties, other
than in respect of risks specified in class 2, class 3 or class 5;
Class 5 - Workers’ compensation business;
Insurance against loss to workers arising out of or in connection with the employment of the
workers by the insured persons;
Class 6 - Credit and suretyship business;

Effecting and carrying out:
 contracts of insurance against loss to the policy holder arising from failure, whether
through insolvency or otherwise, of debtors to pay debts when they fall due; or
 contracts of insurance against loss to the policy holder arising from his having to perform
contracts of guarantee entered into by him; or
 contracts for fidelity bonds, performance bonds, administration bonds, bail bonds, custom
bonds or similar contracts of guarantee.
Class 7 - Accident and health business

Similar to Class 4 of Life Insurance Businesses
 Contract is not more than 1 year
 It excludes contracts of Class 5 of Non life Insurance Businesses;
Class 8 - Agriculture insurance including crop insurance;

Contracts of insurance against loss to the policyholder arising from loss of or damage to
agriculture related property including crops;
Class 9 - Miscellaneous business;

Contracts of insurance of types not included in any other class;
(b) for treaty reinsurance business:
Class 9 - Proportional treaty business

Contracts of treaty reinsurance, whether obligatory or otherwise, of such a nature that a
proportion of premium or of a separately identified part of premium on insurance contracts
which are the subject matter of the treaty is payable to the reinsurer by the cedant and an
identical proportion of claims or of a separately identified part of claims on those contracts is
payable to the cedant by the reinsurer, and including without limitation treaties of quota-share
and surplus classifications;
Class 10 - Non-proportional treaty business.
Contracts of treaty reinsurance, not being contracts of a type included in Class 9.
 SECP may prescribe sub-classes of business into which any of above may be divided.
 FG may prescribe any class of businessas a restricted class or sub-class.
Registration of an Insurer and ancillary conditions
Application for Registration
Persons eligible to transact insurance business (Sec 5)
 Public company
 Body corporate incorporated under the laws of Pakistan
(not being a private company or the subsidiary of a private company);
Undertaking insurance business in Pakistan by Foreign Companies
Government has allowed 100% foreign equity in the insurance business in Pakistan subject to
the following conditions: -
- Foreign companies shall be required to bring a minimum amount of US$ 4 million
(at least US$ 2 million shall come from abroad)
Circular - There shall be no restriction on the number of branches; and
- There shall be no restriction as to whom they shall employ.
- Shall be following minimum paid up capital requirements as applicable to local insurers.
- Shall be given national treatment in extending all facilities as enjoyed by local companies.
A certificate of registration to carry on insurance business shall be obtained from SECP.
Procedure for obtaining certificate (Sec 6)
 Eligible Person shall apply to SECP for registration as Life or non Life insurer.
 Application shall:
- Be in writing (English /Urdu);
- Signed by authorized persons;
- Not be false or misleading in a material particular
- Contain such information as may be prescribed; and
- Be accompanied by such documents, reports, certificates etc as may be prescribed.
 An application for registration to carry on life insurance business shall in all cases include:
- A statement of the rates, advantages, terms and conditions of life insurance policies
proposed to be offered
- In the case of investment-linked policies a description of:
o Investments to which the policy is linked;
o Basis on which the benefits payable under the policy are determined;
o Frequency with which and basis by which the unit values are determined; and the
values attributed to units at the time of purchase and sale;
o Basis by which values are attributed to units at the time of and for the purpose of
purchase and sale;
o Basis on which expenses attributed to the policy are determined; and
o Basis on which charges for mortality attributed to the policy are determined;
- Business plan showing premium income, expenses and results for 10 years from
registration
- A copy of any written, electronic or other material issued by the applicant for mass
communication or for communication with a policy holder or prospective policy holder,
in respect of life insurance policies proposed to be offered by the applicant
- A statement by appointed actuary that the terms and conditions of the life insurance
contracts proposed to be entered into are sound and workable; and
- A statement by the appointed actuary that the business plan has been prepared
according to principles which appear to him to be reasonable and sound.
In case of a change in the particulars specified above before approval or rejection, applicant shall
give notice to the SECP within 14 days (signed by any two authorized persons)
“Authorised person” means, in the case of a company, a director, including the chief executive, (by
whatever name called), or in the case of insurers being bodies corporate incorporated outside Pakistan
and continuing business as such after the commencement of this Ordinance, the closest comparable
equivalent thereto, under the laws of the place of incorporation of such foreign body corporate;
“Investment-linked” in relation to life insurance means investment contracts, the principal object of
which is the provision of benefits calculated by reference to units, the value of which is related to the
market value of a specified class or group of assets of the party by whom the benefits are to be provided;
Registration by SECP (Sec 7 to 10)
SECP may register the insurer to carry on respective insurance business If satisfied that;
 Applicant has complied with the provisions relating to
- Minimum paid up share capital requirements;
- Minimum statutory deposits;
- Minimum solvency requirements; and
- Reinsurance arrangements;
 Applicant is, and will be, able to;
- Meet its liabilities;
- Meet criteria for sound and prudent management.
- Comply with other requirements of Insurance Ordinance 2000
 Its statutory auditor is recognized by the SECP as appropriately qualified for the task.
 In case of a life insurer, it has appointed actuary whose appointment is not disapproved by
the SECP.
 On the basis of the information provided by the application and any other information
received by SECP, the application ought to be granted the approval.
SECP shall not grant a certificate if

 It is not in accordance with policy decisions made by FG.
 It enables applicant to carry both life and non-life insurance business.
Any person can inspect or take copies of document filed with the application on payment of
prescribed fee. (Sec 8)
Time limit for grant of permission or Refusal
 SECP shall, within 30 days of receipt, notify (in writing) the grant or refusal
 Time can be extended by further 60 days if SECP notifies the applicant in writing before
expiry of first 30 days.
 If the application is deficient
- SECP shall notify before the expiry of 30 days from receipt
- Application shall not be treated as received, until applicant has rectified deficiency.
Restrictions by SECP
 SECP may, specify any class, classes, sub-class or sub-classes of business prescribed as
restricted which it is not authorized to carry on.
 SECP may (in writing), where deemed fit, require applicant to comply with any conditions
for the protection of policy holders.
 conditions shall not be imposed with 30 days prior notice of intention of conditions and
after giving such insurer an opportunity of being heard.
Revocation of registration (Sec 9)
 Registration will be valid until revoked by SECP upon request of insurer

 SECP shall satisfy itself that adequate provision has been made for the irrevocable transfer
to a registered insurer of all insurance liabilities incurred by the insurer seeking revocation.
 Certificate of registration shall be surrendered to SECP on revocation of registration.
Notification of grant or revocation of registration (Sec 10)
SECP shall cause notice of following to be published in the gazette.

 Grant of Registration (including any limitations of business which may be underwritten).
 Revocation of registration
SECP may, on payment of the prescribed fee, issue a duplicate certificate of registration if it is lost,
destroyed or mutilated, or in any other case where it is of opinion that the issue of a duplicate
certificate is necessary.
Conditions imposed on registered insurers (Sec 11)
Insurer registered under this Ordinance shall at all times ensure that
 It has comply with and will continue to comply the requirements of this Ordinance
 It abides by the decisions of any small disputes resolution committee constituted under this
ordinance.
Every insurer shall pay to SECP, on or before 15th January in every calendar year, an annual
supervision fee of the greatest of:
 Rs. 100,000; or
 0.1% of gross direct premium written in Pakistan during the calendar year preceding the
calendar year ended on the previous 31st day of December; or
 Such amount as may be prescribed.
Criteria for sound and prudent management.-(Sec 12)
Following shall be recognised as criteria for sound and prudent management
 Business is carried on with integrity, due care and professional skills appropriate to nature
and scale of its activities;
 Each director and officer of the insurer is a fit and proper person to hold that position;
 In the case of an applicant which is a body corporate incorporated outside pakistan the
principal officer in Pakistanis a fit and proper person to hold that position;
 Insurer is directed and managed by a sufficient number of persons who are fit and proper
persons to hold the positions which they hold;
 Insurer maintains adequate accounting and other records of its business that enable the:
- Business to be prudently managed; and
- Insurer to comply with the obligations imposed on it by or under this Ordinance.
 The insurer maintains adequate systems of control of its business and records.
(held by the persons who are responsible for the direction and management of insurer)
The insurer shall not be regarded as conducting its business in a sound and prudent manner if
 It fails to conduct its business with due regard to the interests of policy holders and
potential policy holders.
 sIt fails to satisfy an obligation to which it is subject by virtue of this Ordinance; or
 It fails to supervise the activities of a subsidiary with due care and diligence and without
detriment to the insurer’s or applicant’s business.
No insurer shall appoint a managing agent for the conduct of its business.
Fit and Proper Person
A person is a fit and proper person who

 possesses such experience and qualifications as are appropriate for the duties for which he
is responsible, and
 conducts those duties with due diligence and skill.
A person is not a fit and proper person to hold the position of Chairman, or of Chief Executive
or principal officer in Pakistan, if
 That person does not have experience or qualifications of direct relevance to the conduct of
insurance operations.
 The association of that person with the insurer is or is likely, for whatever reason, to be
detrimental to the interest of insurer or of the policy holders, or is otherwise undesirable.
Restriction on issue of certain life policies (Sec 13)

 Insurer shall not offer any policy or contract in respect of life insurance business other than
those specifically filled at the time of registration, or any amendment thereof
unless the insurer has, at least 30 days prior to issue, furnished to SECP in respect of such
contracts same particulars and materials about such other policy or contract.
 SECP may, within 30 days, require the insurer in writing to make such changes in the
particulars and materials as SECP may direct.
Statutory and other funds of life insurance companies
Requirements to maintain funds (Sec 14)
Statutory Funds (Sec 14)

A life insurer shall at all times maintain following number of statutory funds
 At least 1 for its life insurance business.
 1 or more statutory funds exclusively for each of the following
- Investment-linked businesses
- Capital redemption businesses
- Pension fund businesses
- Accident and health insurance businesses
- Life insurance business outside Pakistan
- Any class or sub class as may be prescribed by SECP.
 Statutory funds may be divided or amalgamated with the approval of SECP.
 SECP may direct a life insurer to amalgamate or transfer where SECP believes that
amalgamation or transfer is required for the protection of the interests of policy holders.
“Statutory fund” means a fund that
 is established in the records of a life insurer and
 relates solely to the life insurance business or a particular part thereof
Shareholders’ Fund and Permanent Capital Fund (Sec 14)

 Insurer having a share capital shall maintain a shareholders’ fund.
 Insurer not having a share capital shall maintain in its records a permanent capital fund.
“Shareholders’ fund” means a fund that is established in the records of a life insurance company and
which contains that part of the assets and liabilities of a life insurer which is attributed to it and is not
attributed to any statutory fund maintained by that life insurer;
“Permanent capital fund” means a fund that is established in the records of a life insurance company
not having a share capital, and which contains that part of the assets and liabilities of a life insurer which
is attributed to it and is not attributed to any statutory fund maintained by that life insurer;
In this Ordinance, a reference to the shareholders’ fund shall be deemed to include a reference to the
permanent capital fund, and provisions shall apply mutate mutandis to the permanent capital fund.
SOLVENCY REQUIREMENTS
Every insurer shall ensure all the times that it has complied with the provisions relating to
minimum solvency requirements;
Solvency Requirements in the case of Non Life Insurer (Sec 36)
Non-life insurer shall at all times have admissible assets in Pakistan in excess of its liabilities in
Pakistan of an amount greater than or equal to the minimum solvency requirement.
 Minimum Solvency requirement is greatest of:
- Amount as may be prescribed by SECP;
- Prescribed % of earned premium revenue of last 12 months less reinsurance expense
(deduction is allowed max up to 50% of premium revenue of last 12 months)
- Prescribed % of (liability for unexpired risk + outstanding claims) less reinsurance
(deduction is allowed maximum up to 50% of gross figure)
 For foreign company amount will be calculated in respect of its insurance business in
Pakistan only.
 SECP may direct an insurer not to deal with any specified asset for any specified period of
time.
Solvency Requirements in the case of Life Insurer (Sec 35)
 A life insurer shall maintain in its shareholders’ fund a surplus of admissible assets in
Pakistan over liabilities in Pakistan of not less than
- Such higher amount as may be prescribed
 Life insurer shall maintain, in each statutory fund, a surplus of admissible assets in
Pakistan over liabilities in Pakistan (other than policyholder liabilities) equal to or greater
than following amount
For investment-linked business A sum calculated as may be prescribed
Other than investment-linked Amount of policyholder liabilities calculated as
may be prescribed
Note: In case of policy liabilities in another currency; the above calculations (assets and liabilities) shall
be made in that specific currency. And securities denominated in that currency and issued and
guaranteed as to principal and profit or return by Government of the other country, shall be deemed for
the purposes of this section to be admissible assets
 FG may prescribe % (subject to maximum of 40%) of the assets of the shareholders’ fund,
or statutory fund (excluding funds for investment-linked policies), which shall be invested
in Government securities, or in a combination of Government securities and other approved
securities.
Accounts & Audit
Books and records (Sec 45)
Every insurer
 Incorporated in Pakistan, for all businesses
 incorporated outside Pakistan for Pakistan Business only
shall maintain proper books and records in English/Urdu Language in bound/loose leaf form in
electronic or any other form capable of being retrieved at any time and approved by SECP.
Insurer shall secure the books and make it error free.
Proper Books and record means and includes
 A register or record of policies, issued by the insurer, the name and address of the policy
holder, the date when the policy was effected and a record of any transfer, assignment or
nomination of which the insurer has notice;
 A register or record of claims, made with the date of the claim, the name and address of the
claimant and the date on which the claim was discharged, or, in the case of a claim which is
rejected, the date of rejection and the grounds therefor; and
 Such other books and records as may from time to time be prescribed.
“Books” includes -
 A register;
 Accounts or accounting records, however compiled, recorded or stored;
 A document; and
 Any other record of information.
Annual Reporting requirements (Sec 46)
Every insurer shall file following statements duly audited by approved auditor to SECP annually.
In such form manner and time as may be prescribed.
Life Insurer
 A statement of assets and liabilities for each statutory fund operated by the life insurer and
the shareholders’ fund;
 A statement of profits and losses for the shareholders’ fund;
 A statement of cash flows for each statutory fund operated by life insurer and shareholders’
fund;
 A revenue account for each statutory fund operated by the life insurer;
 A statement of premiums for each statutory fund operated by the life insurer;
 A statement of claims for each statutory fund operated by the life insurer;
 A statement of expenses for each statutory fund operated by the life insurer;
 A statement of investment income for each statutory fund operated by the life insurer;
 Such other statements as may be prescribed by the Federal Government;
Non Life insurer

 A statement of assets and liabilities;
 A statement of profits and losses;
 A statement of cash flows;
 A statement of premiums;
 A statement of claims;
 A statement of expenses;
 A statement of investment income;
 A statement of claims analysis;
 A statement of exposures; and
 Such other statements as may be prescribed by the federal government;
SECP may prescribe a form of balance sheet, profit and loss account, revenue account and any
other statement required under the Companies Ordinance, 1984 (XLVII of 1984), and filing made
in such form shall satisfy the requirements of that Ordinance.
Statements shall be
 Signed by
- (chairman + two directors + the principal officer)for insurer incorporated in Pakistan
- (principal officer + two directors (or equivalent officer) for insurer incorporated outside
Pakistan,
 accompanied by
- a statement containing the names and descriptions of in charge of the management of the
business during the period of statements;
- a report on the affairs of the business; and
- a statement that in their opinion;
o the annual statutory accounts have been drawn up in accordance with the Ordinance and
any rules made there under;
o the insurer has throughout in year complied with the provisions relating to paid-up capital,
solvency and reinsurance arrangements; and
o as at the date of the statement, the insurer continues to be in compliance with the
provisions relating to paid-up capital, solvency and reinsurance arrangements.
Filing
 At least one printed copy, To SECP in manner as may be prescribed
 Within four months from the end of the period to which they related(Extension Max 1
Month by SECP)
 Signed by (chairman + two directors + principal officer of the company + CE (if any)
Quarterly Returns
Every insurer, Incorporated in Pakistan, for all businesses and incorporated outside Pakistan for
Business in Pakistan only, shall furnish, to SECP, after December, March, June and September
every year
 A statement of assets and liabilities certified by a principal officer and prepared in the form
and manner as may be prescribed
 In case of life insurer having investment linked business, signed (2 directors + principal
officer) a statement containing:
- The assets underlying the units linked to policies in force;
- The values assigned to each such asset;
- The valuation placed on the units; and
- The amount of any provisions made in determining the valuation.
Explanations
 Life insurer shall furnish such returns separately for each statutory fund and Shareholders’
Fund.
 An actuarial valuation of policyholder liabilities at the date to which such statement is made
up is not required but valued as may be prescribed.
Filing
 Within 6 weeks from the end of period to which they related (Extension Max 15 days by
SECP)
 Signed by (chairman + two directors + principal officer of the company + CE, if any)
Audit.(Sec 48)
Every insurer shall appoint an auditor who shall be:

 Approved by the Commission as qualified to perform audits of insurance companies;
 Authorised under the Companies Ordinance to perform audits of public companies.
The auditor shall have power of exercise duties and liabilities of Companies Ordinance 1984.
The auditor expresses an opinion (in writing in a report attached to the statements) as to whether:
 Statements accurately reflect the books and records of the company;
 Company has maintained proper books and records;
 Statements present fairly the state of affairs of the company as at the balance date and the
result of the company for the financial year ended on that date;
 In the case of a life insurer, apportionment required to be performed has been performed
in accordance with the advice of the appointed actuary; and
 The statements have been prepared in accordance with this Ordinance.
Information to be delivered to SECP (Sec 47)
 Every insurer shall deliver to the SECP such additional copies as may be prescribed of all
accounts, documents, reports and returns filed under the Companies Ordinance, 1984 at
the same time as they are required to be filed there under.
 An insurer incorporated outside Pakistan shall deliver to SECP within 30 days on which such
insurer is required to provide such information a copy of the annual accounts prepared
under the laws of the place of its incorporation and a copy of any public document which
shows or purports to show the annual profit or state of affairs of the insurer in respect of
its business in Pakistan.
Accounts documents reports should be in English/Urdu/translation in English language along
with certified copy of English translation
Minimum Capital & Deposit Requirements
Requirements as to capital.- (Sec 28)

All insurers shall have a paid-up capital of not less than as may be prescribed.
Insertion of Rule 9 in SEC (Insurance) Rules 2002 regarding minimum paid up

capital requirements
Year End
2015 2016 2017
Circulars Type of insurer 31 30 31 30 31
December June December June December
Rupees in Million
Life insurer 500 550 600 650 700
Non Life insurer 300 350 400 450 500
Meaning of Paid up Capital: For the purpose of this ordinance the term”Paid up capital”
wherever ever occurring shall connote paid up capital “Net of accumulated losses”
An insurer, not having a share capital, shall not be required to comply with this section.
Tutor’s Note: This section is variable in nature depending upon latest notification and should be
referred from the relevant bare law applicable at the time of examination.
Other Definitions of the Insurance Ordinance 2000 (Sec 2)
“Continuous disability contract” means a contract under which a benefit is payable in the event of:
 Death, by a cause specified in the contract, of the person whose life is insured; or
 Injury to, or disability of, the insured as a result of accident or sickness; or
 Insured being found to have a specified medical condition or disease;
“Domestic insurance policy” means contract of insurance that provides insurance cover in respect of
loss of or damage to a building used primarily and principally as a residence for the policy holder, for
persons with whom the policy holder has a family or personal relationship, or for both the policy holder
and such persons, or loss of or damage to the contents of such a building, or both;
“Investment Contract” means a contract of insurance, providing for benefits to be paid on death or on a
specified date or dates before death where the benefits paid are calculated by reference to either a running
account or units under the contract whether or not the minimum value of that account or those units is
guaranteed and providing for the account to be increased during the currency of the contract;
“Mutual insurance company” means an insurer, being a company incorporated under the law of Pakistan
or any country or state other than Pakistan, which has no share capital and of which, by its constitution,
only and all policy holders are members;
“Participating”, in reference to life insurance business, means contracts of life insurance, other than
investment-linked contracts, health contracts, group life contracts and group health contracts, under the
terms and conditions of which the policy holder has an entitlement to participate in distributions by the
life insurer of profits or surpluses;
Explanation: a benefit paid under a policy is not a distribution of profit or surplus if benefit is determined
according to terms and conditions of the contract and is not subject to the exercise of discretion by insurer;
“Private motor property damage policy” means a contract of insurance that provides insurance cover
in respect of loss of or damage to a motor vehicle or of the contents of a motor vehicle used primarily and
principally as a means of private transport by the policy holder, by persons with whom the policy holder
has a family or personal relationship, or by both the policy holder and such persons;
“Takaful” means a scheme based on mutual assistance in compliance with the provisions of Islamic
Shariah, and which provides for mutual financial aid and assistance to the participants in case of
occurrence of certain contingencies and whereby the participants mutually agree to contribute to the
common fund for that purpose;
“Surveyor” means a person (by whatever name called) who examines the goods, property or any
interests insured under a contract of non-life insurance to express an independent opinion as to the
cause, extent, location and amount of any loss incurred or claimed to be incurred under that contract;
22. Competition Act 2010 Page 412
Ch # 22: Competition Act 2010

This chapter deals with the basics of the Competition Act 2010. The main purpose behind
this law is to make provisions to ensure free competition in all spheres of commercial and
economic activity to enhance economic efficiency and to protect consumers from anti-
competitive behavior and to provide for the establishment of the Competition Commission
of Pakistan to maintain and enhance competition; and for matters connected therewith
or incidental thereto.
This chapter would be discussing 4 basic areas where prohibition are being imposed by
the Competition Act 2010 to ensure that no undertaking in Pakistan may be able to
eliminate or reduce the level of competition to exploit the consumers. These areas are:
 Abuse of Dominant Position

 Certain Agreements
 Deceptive Marketing Practices
 Mergers

 Application of Competition act 2010
 Abuse of Dominant Position
 Prohibited Agreements
 Deceptive marketing Practices
 Mergers lessoning competition
D 2.1: Competition Act, 2010 (Chapter I and II)
100%
Application of Competition Act 2010
Competition Act 2010 deals all undertakings and all actions or matters that take place in
Pakistan and distort competition within Pakistan (Sec 1)
Undertaking
Any natural or legal person, governmental body including a regulatory authority, body corporate,
partnership, association, trust or other entity in any way engaged, directly or indirectly, in the
production, supply, distribution of goods or provision or control of services and shall include an
association or undertakings
Goods
Includes any item, raw material, product or by-product which is sold for consideration
Wholesaler
A person who purchases goods and sells them to any other person for re-sale
Retailer
A person who sells the goods to any other person other than for re-sale (to end consumers)
Services
A service of any description Whether industrial, trade, professional or otherwise
Powers under Competition Act 2010 are being exercised “Competition Commission of Pakistan”
(CCP) and shall apply to following four broad areas

 Certain Agreements
 Deceptive Marketing Practices
 Mergers
These areas are further discussed in the upcoming units.

Abuse of Dominant Position (Sec 3)
Abuse of dominant position is prohibited.
Dominant position
Dominant position of one undertaking or several undertakings in a relevant market shall be deemed to
exist if such undertaking or undertakings have ability to behave to an appreciable extent independently
of competitors, customers, consumers and suppliers and the position of an undertaking shall be
presumed to be dominant if its share of the relevant market exceeds 40%
Relevant market
Market which shall be determined by SECP with reference to a product market and a geographic market
Product market comprises of all products/services which are regarded as interchangeable
or 'Substitutable by consumers by reason of the products' characteristics, prices and uses.
A geographic market comprises the area in which the undertakings concerned are involved in
the supply of products or services and in which the conditions of competition are sufficiently
homogenous and which can be distinguished from neighboring geographic areas because, in
particular, the conditions of competition are appreciably different in those areas;
An abuse of dominant position consists of practices which prevent, restrict, reduce or distort
competition in the relevant market.
Examples of such practices (include but are not limited to):
 Limiting production, sale and unreasonable increase in prices or other unfair trading
conditions.
 Charging different prices from different customers for the same goods or services without
any objective justification (price discrimination).
 Making sale conditional with purchase of other goods or services (tie-ins).
 Making the conclusion of contract subject to acceptance of other parties of supplementary
obligations which by their nature or according to commercial usage, have no connection with
the subject of the contract
 Applying dissimilar conditions to equivalent transactions for different parties (placing them
at a competitive disadvantage).
 Driving the competitor out of market, preventing new entry and creating monopoly in the
market by predatory prices.
 Boycott, exclude other undertaking from production, distribution or sale of goods or
services.
 Refusal to deal.
Prohibited Agreements (Sec 4 to 9)
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 Act.
(Sec 4)
A contract entered into in contravention of this section shall be void.
Agreement
Includes any arrangement; understanding or practice whether or not it is in writing or intended to be
legally enforceable
Prohibited agreements (include but are not limited to):
 Fixing prices or imposing restrictive trading conditions for purchase, sale and distribution
of goods & services.
 Dividing market by territories, volume of sale or purchase, type of goods and services or by
any other means.
 Fixing or setting the quantity of production, distribution or sale with regards to goods
 Fixing manner or means of providing any services.
 Limiting technical development for production and sales of goods or services.
 Collusive tendering or bidding for purchase and sale of goods and procurement of services.
 Applying different conditions for equivalent transactions to different parties.
EXEMPTIONS TO PROHIBITED AGREEMENTS
Criteria for claiming exemptions (Sec 9)
CCP may grant individual & block exemption on application by undertaking in respect of
agreements which substantially contributes to:
 Improving production or distribution;
 Promoting technical or economic progress allowing consumers a fair share of resulting
benefits; or
 Benefits of that clearly outweigh the adverse effect of absence or lessening of competition.
Individual Exemptions (Sec 5)
 CCP may grant an exemption for a particular practice or agreement If

- Request to CCP has been made by party to the practice or agreement; or
- Practice meets the criteria for exemption.
 Exemption may be granted subject to the conditions as CCP considers it appropriate to
impose and has effect for such period as the CCP considers appropriate.
- That period must be specified in the grant of exemption .
- Exemption may have effect from an earlier date (than that on which it is granted)
- On an application made prescribed way, CCP may extend period of exemption
(CCP may do so only in specified circumstances)
Cancellation Of Individual Exemption (Sec 6)
If CCP has some reasonable grounds to believe (on its own or on any complaint) that
 There has been material change of circumstances;
 Information on which it based its exemption was incomplete, false or misleading materially;
or
 The exempted party failed to meet any obligation
CCP may by notice in writing

- Cancel the exemption;
- Vary or remove any condition or obligation; or
- Impose one or more additional conditions or obligations
Breach of a condition also has the effect of cancelling the exemption.
Block Exemption (Sec 7 & 8)
 If agreements falling within a particular category of agreements have met the exemption
criteria (in the opinion of CCP), CCP may make a block exemption order
 Block exemption order may impose additional conditions or obligations
 Block exemption order may provide that:
- Breach of a condition imposed by order has the effect of canceling block exemption;
- If there is a failure to comply with an obligation imposed by order, CCP may, by notice
in writing, cancel the block exemption
- CCP may cancel the block exemption If CCP considers that a particular agreement is not
meeting the prescribed criteria for exemptions
- The order shall ceased to have effect at the end of specified period.
 Before making a block exemption order, CCP must:
- Publish details of its proposed order in such a way as CCP thinks most suitable for
bringing it to the attention of those likely to be affected; and
- Consider any representations' about it which are made to CCP.
 Block exemption may have effect from an earlier date (than that on which it is granted)
Deceptive Marketing Practices (Sec 10)
An undertaking shall NOT enter into the deceptive marketing practices.
Deceptive marketing practices shall be deemed to be continued in following circumstances:

 Distribution of false/misleading information capable of harming business interests of other
undertaking.
 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
 False or misleading comparison of goods in advertising
 Fraudulent use of another’s trademark, firm name, product labeling or packaging
Mergers Lessening Competition (Sec 11)
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
Means the merger, acquisition, amalgamation; combination or joining of two or more undertakings or
part thereof into an existing undertaking or to form a new undertaking
Acquisition
Any change of control of any undertaking by way of acquisition of shares, assets or any other means
Application for intended merger
 Undertaking or undertakings shall apply for clearance from CCP of the intended merger
- Where an undertaking, intends to acquire shares or assets of another undertaking, or
two or more undertakings intend to merge the whole or part of their businesses; and
- Undertaking(s) meet the pre-merger thresholds stipulated by CCP
Threshold stipulated in Regulations (for understanding; not in syllabus)
The Value of Is at least

Gross asset of undertaking excluding goodwill. 300 million; or
Tutor Combined assets (all undertakings) 1 billion; or
Annual turnover of undertaking in preceding year 500 million; or
Note
Combined turnover (all undertakings) 1 billion
 Concerned undertakings shall submit a pre-merger application to CCP as soon as they agree
in principle or sign a non-binding letter of intent to proceed with the merger
 Application shall be in the prescribed form and accompanied by a processing fee
 Undertakings shall not proceed with merger until they have received CCP’s clearance.
Where an undertaking has consummated the merger without making application, CCP shall make
appropriate orders (after giving the undertaking an opportunity of being heard)
Review of application by CCP and issuance of order
Phase I – Review (Whether the merger is dominance)
 CCD shall decide on whether the intended merger meets thresholds and presumption of
dominance through an order
 Order shall be made within 30 days of receipt of the application.
 Failure to make such determination within 30 days for first phase review shall mean that
CCP has no objection to the intended merger
Phase II – Review (Whether dominance lessons the competition)
 If so determined, CCP shall initiate a second phase review

 CCP may require concerned undertakings to provide necessary information
 CCP shall, within 90 days of receipt of the requested information review the merger to assess
whether it substantially lessens competition by creating or strengthening a dominant
position in the relevant market, and shall give its decision on .the proposed transaction. In
case concerned ·undertakings fail to pro.vide the information requested, the Commission
may reject the application.
 Failure to render a decision within 90 days shall mean that CCP has no objection.
 If CCP is satisfied with its findings, it may:
- Prohibit the consummation of the transaction
- Approve such transaction subject to the conditions laid in its order;
- Approve such transaction on the condition that said undertakings enter into legally
enforceable agreements specified by CCP in its order. .
Relaxation by CCP
If after 2nd phase review CCP determines that the intended merger Substantially lessens
competition, it may however approve the transaction, if it is shown that
 It contributes 'substantially to efficiency of the production or distribution of goods or to the
provision of services;
 Such efficiency could not reasonably have been achieved by a less restrictive means of
competition;
 Benefits clearly outweigh the adverse effect of absence or lessoning of competition; or
 It is the least anti-competitive option for the failing undertaking's assets
(when one of the undertakings is faced with actual or imminent financial failure)
Burden of proof shall lie with the undertaking seeking the approval
Post approval review
 CCP may, within 1 year, review the order of approval of merger on its own or on application
of undertakings concerned on the ground that the circumstances of the relevant market or
undertakings have so changed as to warrant review of the conditions imposed.
 If, at any time, CCP determines that approval was based on false or misleading information
submitted by the undertaking, or conditions prescribed in order of CCP have not been fully
complied with, CCP may (after giving the undertaking an opportunity of being heard)
- Undo such merger or acquisition; or
- Prescribe modifications or additions in the original order.
23. Anti Money Laundering Page 420
Ch # 23: Anti Money Laundering
The reason behind this enactment is to provide for prevention of money laundering, combating
financing of terrorism and forfeiture of property derived from, or involved in, money laundering
or financing of terrorism and for matters connected therewith or incidental thereto
Nothing in this Act shall apply to fiscal offences (Sec 41)
“fiscal offence" means an offence punishable under the Income Tax Ordinance 2001 (XLIX of 2001), the
Federal Excise Act. 2005, the Customs Act, 1969 (IV of 1969) except sections 2 (s), 15, 16,32A and 158 thereof;
the Sales Tax Act, 1990 and any other law as the Federal Government may notify in this behalf;

 What is money Laundering
 National Executive Committee & General Committee
 Financial Monitoring Unit
 STR and CTR
 Appointment and Powers of Investigating officer
 Actions under Anti money Laundering Act
 Involvement of Courts
 Arrangements with Foreign Government
 Misc
D 3.1: Anti-money Laundering Act, 2010 and Anti-money Laundering Regulations,

2015 (Rule 4, 5, 7 and Appendix I&II)
100% (except any immaterial duplication and savings deleted)
What is Money Laundering
Offence of money laundering (Sec 3)

A person shall be guilty of offence of money laundering, if the person:
 Acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is proceeds of crime;
 Conceals or disguises the true nature, origin, location, disposition, movement or ownership
of property, knowing or having reason to believe that such property is proceeds of crime;
 Holds or possesses on behalf of any other person any property knowing or having reason to
believe that such property is proceeds of crime; or
 Participates in, associates, conspires to commit, attempts to commit, aids, abets, facilitates,
or counsels the commission of the above 3 acts.
The knowledge, intent or purpose required as an element of an offence set forth here may be
inferred from factual circumstances in accordance with Qanun-e-Shahadat 1984.
Proceeds of crime
Any property derived or obtained directly or indirectly by any person from the commission of a
predicate offence or a foreign serious offence
AML/CFT - Anti Money Laundering and Countering Financing of Terrorism
Predicate offence - An offence specified in the Schedule-I to this Act
Foreign serious offence
- against the law of a foreign state stated in a certificate issued by, or on behalf of, the government
of that foreign State; and
- which, had it occurred in Pakistan, would have constituted a predicate offence;
Punishment for money laundering (Sec 4 & 37)

Whoever commits the offence of money laundering shall be
 Punishable with rigorous imprisonment of at least 1 year (may extend up to 10 years);
 Liable to fine which may extend to Rs. 21 Million; and
 Liable to forfeiture of property involved in the money laundering
Penalty in case of a Company

 Fine may extend to Rs. 100 Million
 Every director, officer or employee found guilty shall also be punishable under this section.
 Where a company contravene the provisions of this Act or any related rules etc, every
responsible person (director/partner, manager, secretary or other officer) shall be liable to
be proceeded against and punished accordingly
(except he proves that contravention took place without his knowledge or that he exercised
all due diligence to prevent such contravention)
Company - Means any body corporate and includes a firm or other association of individuals
National Executive Committee & General Committee (Sec 5)
 Federal Government shall, by notification in official Gazette, constitute a National Executive

Committee within 30 days of commencement of this Act
 National Executive Committee shall be assisted by a General Committee
 National Executive Committee may delegate or assign its functions to General Committee or
a subcommittee, if deems appropriate
Functions of National Executive Committee & General Committee
National Executive Committee (NEC)
 Shall Meet at least twice a year to develop, co-ordinate and publish national strategy to fight
money laundering and financing of terrorism;
 Determine offences existing in Pakistan that may be considered to be predicate offences
 Provide guidance and sanction in framing of rules and regulations under this Act;
 Make recommendations to the Federal Government for effective implementation of this Act
and framing of national policy to combat money laundering and financing of terrorism;
 Make recommendations to the Federal Government on the application of countermeasures
as called for by Financial Action Task Force (FATF)
 Approve, review and oversee the implementation of a national strategy to fight money
laundering and financing of terrorism;
 Seek reports from competent authorities, including an annual report containing overall
analysis of the STRs and CTRs, statistics concerning the investigations and prosecutions
conducted in relation to the offences of money laundering and the financing of terrorism in
Pakistan, statistics of supervisory actions taken by the AML/CFT regulatory authorities or
by the oversight body for SRB.
 Secretary of NEC may call periodic reports from the AML/CFT regulatory authorities,
Oversight body for SRB, investigating and prosecuting agencies in such manner as may be
specified by him;
 Discuss any other issue of national importance relating to money laundering and financing
of terrorism; and
 Undertake and perform such other functions as may be assigned to it by the Federal
Government, relating to money laundering and financing of terrorism.
Competent authorities
The regulators, oversight bodies for SRBs, the Financial Monitoring Unit and the Investigating or
prosecuting agencies as defined in this Act;
General Committee
 Develop a national strategy to fight money laundering and financing of terrorism;
 Issue necessary directions to investigating or prosecuting agencies, AML/CFT regulatory
authorities, FMU and any other authority appointed by the Federal Government involved in
the implementation and administration of this Act, including measures for development and
performance review of such agencies and authorities;
 Seek reports from the competent authorities as it may require, including an annual report
containing overall analysis of the STRs and CTRs, statistics concerning the investigations and
prosecutions conducted, statistics of supervisory actions taken by AML/CFT regulatory
authorities or by the oversight body for SRB.
 Secretary of General Committee may call periodic reports from the AML/CFT regulatory
authorities, oversight body for SRB, investigating and prosecuting agencies in such manner
as may be specified by the Secretary;
 Approve FMU’s budgetary proposals for achieving the objects of this Act;
 Approve FMU’s staffing requirements, pay, allowances, privileges and compensation
packages and other matters incidental thereto;
 Provide necessary assistance to the NEC in carrying out its functions and duties;
 Discuss any other issue of national importance relating to money laundering etc; and
 Undertake and perform such other functions as assigned or delegated to it by the NEC
General Committee may invite any person to participate in the meeting and may constitute one or
more sub committees to perform such functions as it deems necessary.
Financial institution
Includes any institution carrying on any one or more of the following activities, namely:—
 Acceptance of deposits and other repayable funds from the public;
 Lending in whatsoever form;
 Financial leasing;
 Money or value transfer;
 Issuing and managing means of payments including but not limited to credit and debit cards,
cheques, travelers cheques, money orders, bank drafts and electronic money;
 Financial guarantees and commitments;
 Trading in—
- Money market instruments;
- Foreign exchange;
- Exchange, interest rate and index instruments;
- Transferable securities; and
- Commodity futures trading:
- Participation in shares issues and the provision of services related to such issues;
- Individual and collective portfolio management;
- Safekeeping and administration of cash or liquid securities on behalf of other persons;
- Investing, administering or managing funds or money on behalf of other persons;
- Insurance business transactions;
- Money and currency changing; and
- Carrying out business as intermediary.
Designated non-financial businesses and professions or DNFBPs

 Real estate agents, including builders and real estate developers, when performing the prescribed
activities in the prescribed circumstances and manner;
 Dealers in precious metals and precious stones, including jewellers and gem dealers, when
performing the prescribed activities in the prescribed circumstances and manner;
 Lawyers, notaries, accountants and other legal professionals who carryout monetary transactions
for their clients concerning the following activities:-
- Managing, operating, buying and selling of real estate, legal persons and legal arrangements and
preparing documents therefor;
- Managing of client money, securities or other assets;
- Managing bank, savings or securities accounts; or
- Organizing contributions for the creation, operation or management of companies;
 Trust and company service providers, when they carry out monetary transactions or services for
a client concerning the following activities:–
- Acting as a formation agent of legal persons;
- Acting as or arranging for another person to act as a director or secretary of a company, a partner
of a partnership, or a similar position in relation to other legal persons;
- Providing a registered office, business address or accommodation, corres-pondence or
administrative address for a company, a partnership or any other legal person or arrangement;
- Acting as or arranging for another person to act as a trustee of a trust or performing the
equivalent function for another form of legal arrangement; and
- Acting as or arranging for another person to act as a nominee shareholder for another person;
 Such other designated non-financial businesses and professions as may be notified by the Federal
Government;
Financial Monitoring Unit (FMU)
Establishment of FMU (Sec 6)

 Federal Government shall, by notification in Official Gazette, establish a FMU
 FMU shall be housed in SBP or at any other place in Pakistan.
 FMU shall have independent decision making authority on day-to-day matters
 A Director -General who shall be a financial sector specialist shall be appointed by the
Federal Government in consultation with SBP to head FMU and exercise all powers and
functions of the FMU subject to the administrative oversight of the General Committee.
Powers and Functions of FMU (Sec 6, 46 & Regulation 7)
 Receive Suspicious Transactions Reports (STRs) and CTRs from reporting entities;
 Analyse STR and CTRs;
(FMU may call for record and information from any agency or person in Pakistan, except
income tax information, related to the transaction in question)
 Disseminate STR and any necessary information to investigating agencies concerned;
 Create and maintain a database of all STRs and CTRs, related information and such other
materials as Director-General determines are relevant to the work of FMU;
(FMU is authorised to establish necessary analytic software and computer equipment to
effectively search the database, sort and retrieve information and perform real time linkages
with databases of other agencies both in and outside Pakistan)
 Co-operate with Financial intelligence units in other countries in order to share, request
information subject to reciprocal agreements entered in by the Federal Government;
 Represent Pakistan at all international and regional organisations and groupings of financial
intelligence units and other international groups and forums which address the offence of
money laundering, financing of terrorism and other related matters;
 Request investigating or prosecuting agencies any feedback regarding the disseminations
above in form of periodic reports or statistics concerning investigations and prosecutions
 Frame regulations in consultation with AML/CFT Regulatory authority for ensuring receipt
of STRs and CTRs from reporting entities with approval of National Executive Committee;
 Recommend to regulatory authorities of reporting entities to issue necessary regulations
(in the areas of customer due diligence and ancillary record-keeping)
 Engage a financial institution or an intermediary or such other non-financial businesses and
professions or any of its officers as may be necessary for implementation of Act etc.
 Perform all such functions and exercise all such powers as are necessary for this Act.
Investigating or Prosecuting agency
- NAB (National Accountability Bureau);
- FIA (Federal Investigation Agency);
- ANF (Anti-Narcotics Force); or
- Any other law enforcement agency as may be notified by Federal Government for the
investigation or prosecution of a predicate offence;
On considering the STR or CTR, the FMU may, if deems necessary, convey matters involving
regulatory or administrative action to the concerned regulatory or administrative body for
appropriate action.
Director-General may order freezing of a property, if there appear to be reasonable grounds to

believe that any property is involved in money laundering or financing of terrorism, for a
maximum period of 15 days, in any manner that he may deem fit in the circumstances.
Freezing of Property (Regulation 7 of Anti-Money Laundering Rules 2008)

Where a reporting entity knows, suspects or has reasons to suspect that any property or
account is involved in money laundering or terrorist financing and needs immediate
attention or action on the part of FMU as to the freezing of such property or account:
Concerned reporting entity shall immediately inform Director General of such property or
account along with the grounds that warrant immediate action.
Subject to the supervision and control of National Executive Committee, FMU may, by notification
in the official Gazette, make such regulations as may be necessary for carrying out the purposes of
this Act. (Sec 44)
Validation of actions before promulgation of this Act (Sec 46)

Anything done, actions taken, orders passed, instruments made, notifications issued,
agreements made, proceedings initiated, processes or communication issued, powers
conferred, assumed or exercised, by FMU Commission or its officers on or after 5th January,
2008 and before commencement of this Act, shall deemed to be valid and effective.
AML/CFT regulatory authority (Sec 6A-6C)
AML/CFT regulatory authority means the regulators and SRBs (as specified in Schedule IV) who
shall exercise the following powers and functions with respect to its reporting entities:
 Licensing or registration of reporting entities;
 Imposing any conditions to conduct any activities by reporting entities to prevent the offence
of money laundering, predicate offence or financing of terrorism;
 Issuing regulations, directions and guidelines with respect to sections 7A to 7H;
 Providing feedback to reporting entities for purpose of compliance with the same
 Issuing regulations, directions and guidelines for financing of proliferation obligations;
 Monitoring and supervising, including conducting inspections, for determining compliance
with the requirements of this Act and any rules, regulations or order made thereunder
 Compelling production of information relevant to monitoring such compliance
 Impose sanctions, including monetary and administrative penalties to the extent and in the
manners as may be prescribed, upon their respective reporting entity, including its directors
and senior management and officers, who violates any of above requirements
(Aggrieved person may prefer an appeal in such manner and within such period to such
authority as may be prescribed);
 Maintaining statistics of actions performed in respect of functions and powers conferred by
this Act, in order to report to the NEC and the General Committee as required; and
 Exercising any other such powers and performing any other such functions that may be
otherwise granted in any other applicable law.
Proliferation financing means the financing of proliferation of weapons of mass destruction
“TFS” or “Targeted Financial Sanctions”

Freezing and prohibition obligations in relation to the property of designated or proscribed
persons under the United Nations (Security Council) Act 1948 or the Anti-terrorism Act, 1997
and any rules or regulations made thereunder
Oversight Body for SRB
Federal Government shall by notification in the Official Gazette appoint the body which shall
exercise and perform following powers and functions with respect to their respective SRB:-
 Make regulations for the SRB with respect to the provisions of this Act;
 Monitor and oversee the SRB in accordance with the provisions of this Act;
 Impose sanctions to the extent and in the manner as may be prescribed, upon their
respective SRB who fails to comply with any provision of this Act and any rules or regulations
made thereunder; and
 Exercise any other powers and perform any other functions as may be notified by the Federal
Government in the official Gazette.
Suspicious Transaction Report (STR) & Currency Transaction Report (CTR)
Furnishing of information by financial institutions or reporting entities (Sec 7)
 Every financial institution shall file with the FMU, in the prescribed manner, STR conducted
or attempted by, at or through that financial institution if financial institution and reporting
entity knows, suspects, or has reason to suspect that transaction or pattern of transactions
to which this transaction is a part:
- Involves funds derived from illegal activities or is intended or conducted in order to hide
or disguise proceeds of crime;
- Is designed to evade any requirements of this section;
- Has no apparent lawful purpose after examining available facts, including background
and possible purpose of the transaction; or
- Involves financing of terrorism:
Regulation 4 of Anti-Money Laundering Rules 2008

Every financial institution and Non-financial businesses and professions (selected by
FMU) shall file the STR with FMU on prescribed format
 STR/CTR shall be filed by financial institution or reporting entity with FMU immediately
 Every reporting entity shall keep and maintain all record related to STRs and CTRs filed by
it for a period of at least 10 years after reporting of transaction
 Any other government agency, autonomous body or regulatory authority may also share
intelligence or report their suspicions on similar basis to FMU in normal course of business
Regulation 5, Anti-Money Laundering Rules 2008 (Currency Transactions

Reports)
When a financial institution or a Non-financial businesses and profession undertakes a
cash based transaction involving payment, receipt, or transfer of an amount exceeding
the minimum threshold as specified by National Executive Committee (NEC), they shall
file a report of such transaction on prescribed format
Exemptions
NEC may exempt a financial institution from above reporting requirements with respect
to transactions between financial institutions and following categories of entities:
 A department or agency of Federal Government or Provincial Government or any
autonomous body under Federal Government or provincial Government.
 Any business or category of business the reports on which entail little or no risk
concerning money laundering and terrorist financing.
Secretary of the NEC shall publish in official gazette at appropriate times (at least once
each year) a list of all the entities whose transactions with financial institution are exempt
Customer Due Diligence (CDD) 7A-7J
 Every reporting entity shall conduct CDD in manner as may be prescribed in accordance with
provisions of this Act in the following matters, namely:-
- Entering into a business relationship;
- Conducting an occasional transaction above the prescribed threshold;
- Where there is a suspicion of money laundering or terrorist financing; or
- Where there are doubts about the veracity or adequacy of previously obtained data.
 Every reporting entity shall:
- Identify the customer and verify the customer’s identity on the basis of documents, data
or information obtained from reliable and independent sources;
- Identify the beneficial owner and take reasonable measures to verify his identity on the
basis of documents, data or information obtained from reliable sources
- Understand and, as appropriate, obtain information on the purpose and intended nature
of the business relationship; and
- Monitor the business relationship on an ongoing basis.
 Reporting entity may rely on 3rd party to perform CDD in the manner as may be prescribed.
 Every reporting entity shall maintain a record of all transactions for a period of at least 5
years following the completion of transaction / termination of relationship
 Where a reporting entity is unable to complete CDD requirements, it shall:
- Not open the account, commence business relations or perform the transaction; or shall
terminate the business relationship if any ; and
- Promptly consider filing a Suspicious Transaction Report in relation to the customer.
 No reporting entity shall enter into a business relationship or conduct any transaction with
a customer who is anonymous or provides a fictitious name.
 Every reporting entity shall take appropriate steps to identify, assess and understand the
risks to which its business is subjected to, in accordance with this Act and as prescribed.
 Every reporting entity shall implement compliance management arrangements, including
the appointment of a compliance officer at a management level and training programs,
having regard to the money laundering and terrorism financing risks and the size of the
business during the course of their activities subject to this Act and as prescribed.
 Every reporting entity shall implement policies and procedures to ensure their compliance
with the provisions of this Act and orders, rules or regulations made thereunder that impose
TFS obligations upon reporting entities.
 If any reporting entity or natural person contravenes any of the above provisions, it may be
subjected to sanctions, as mentioned under clause (h) of section 6A as may be prescribed.
 Any person aggrieved by the delay or failure of a reporting entity to complete CDD
requirements or establish business relationship or conduct any transaction, may file an
appeal to the concerned AML / CFT Regulatory Authority within 90 days.
 Concerned AML / CFT Regulatory Authority shall decide the appeal within sixty days.
Beneficial owner
 Natural person who ultimately owns or controls a customer or the natural person on
whose behalf a transaction is being conducted; or
 Natural person who exercises ultimate effective control over a legal person or legal
arrangement;
Business relationship
Professional or commercial relationship between a reporting entity and a customer to
conduct
transaction, activity or to provide service or product;
Occasional transactions
any transaction conducted by a reporting entity for a customer with whom the reporting
entity does not have a business relationship
Some clarifications regarding STR
No civil or criminal proceedings against banking companies, financial institutions, etc.,

in certain cases (Sec 12)
Save as provided in section 7, Reporting entities and their officers shall not be liable to any civil,
criminal or disciplinary proceedings against them for furnishing information required under
this Act or the rules and regulations made thereunder.
Liability for failure to file STR and for providing false information (Sec 33)
Whoever willfully fails to comply with the STR requirement or give false information shall be
liable for imprisonment for a term which may extend to 5 years or with fine which may extend
to Rs. 500,000 or both.
Concerned regulatory authority may also revoke license or registration of reporting entity or may
take such other administrative action as it may deem appropriate.
Disclosure of information (Sec 34)

Directors, officers, employees and agents of any reporting entity or intermediary which report
a STR or CTR, are prohibited from disclosing, directly or indirectly, any person involved in
transaction that the transaction has been reported.
A violation of this section is a criminal offence and shall be punishable by a maximum term of 5
years imprisonment or a fine which may extend to Rs. 2 Million or both.
Any confidential information furnished by a reporting entity, or any other person under or
pursuant to the provisions of this Act, shall, as far as possible, be kept confidential by the FMU,
investigation agency or officer as the case may be.
Appointment and Powers of Investigation Officer
Investigation Officer
Appointment of investigating officers and their powers (Sec 24)
 Investigating agencies may nominate amongst their officers such persons as they think fit to
be the investigating officers under this Act from.
 Federal Government may, by special or general order, empower an officer not below BPS-18
of Federal or Provincial Government to act as an investigating officer under this Act.
 Where any person other than a Federal or Provincial Government Officer is appointed as an
investigating officer, Federal Government shall also determine the terms and conditions of
his appointment.
 Investigating officer may exercise powers and discharge the duties, subject to such
conditions and limitations as the Federal Government may impose.
Punishment for vexatious survey and search (Sec 32)
Any investigating officer who, without prior permission from the Court:
 Surveys or searches, or causes to be surveyed or searched, any building or place; or
 Detains or searches or arrests any person,
Shall be liable on conviction for imprisonment for a term which may extend to 2 years or fine
which may extend to Rs. 50,000 or both.
Officers of Federal Government, Provincial Government & local authorities, financial institutions
are hereby empowered to assist the investigating officers and agencies and other authorities in the
enforcement of this Act. On refusal to provide required assistance, he shall be guilty of misconduct
and shall be proceeded against by its respective department and a report of that shall be submitted
within reasonable time to the concerned investigating or prosecuting agency or FMU, and shall be
punished with an imprisonment up to 5 years, a fine up to Rs. 1 million or both (in case of a natural
person) or a fine up to Rs. 10 million (in case of a legal person) (Sec 25)
Members etc., to be public servants (Sec 40)
The Director General, Members of the National Executive Committee and General Committee,
and other officers and employees of the FMU, investigating officers and the subordinate officers
to him shall be deemed to be public servants within the meaning of section 21 of the Pakistan
Penal Code (Act XLV of 1860).
Actions under Anti-Money Laundering Act 2010
Attachment of property involved in money laundering (Sec 8)
Attachment
Means prohibition of transfer, conversion, disposition or movement of property u/s 8
Transfer
Means sale, lease, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title,
possession or lien.
Property
Means property or assets of any description, whether corporeal or incorporeal, movable or immovable,
tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such
property or assets, including cash and monetary instruments, wherever located
Record
Includes the records maintained in the form of books or stored in a computer or any electronic device,
or such other form as may be prescribed
 Investigating officer may, on the basis of report received from the concerned investigating
agency, by order in writing, with prior permission of Court, provisionally attach property
which he reasonably believes to be proceeds of crime or involved in money laundering
 Property may be attached for a period not exceeding 180 days from date of order.
 Court may grant further extension up to 180 days
 Every order of attachment shall cease to have effect after the expiry of earlier of
- 180 days of order; or
- Date of the finding of investigation (u/s 9)
 Investigating officer shall within 48 hours immediately after attachment, forward a copy of
the order, along with the report, to the head of the concerned investigating agency:
- In a sealed envelope;
- In prescribed manner
 Concerned investigating agency, shall keep such order and material for such period as may
be prescribed.
 Investigating officer shall submit to Court monthly report of progress made in investigation
Nothing in this section shall prevent the person interested (claiming or entitled to claim any
interest in property) in the enjoyment of the immovable property attached from such enjoyment.
Investigation (Sec 9)
Notice of attachment / seizure

 Investigating officer shall, within 7 days from the date of order of attachment (u/s 8) or
seizure of property (u/s 14 & 15), serve a notice of at least 30 days on person concerned.
 The notice shall call upon such person to indicate the
- Sources of income, earning or assets from which he acquired property attached/seized
- Evidence on which he relies
- Other relevant information and particulars
- Reasons why the properties should not be declared to be involved in money laundering
and forfeited to Federal Government:
 If a property is being held by a person on behalf of any other person, a copy of such notice
shall also be served upon such other person
 If such property is held jointly by more than 1 person, such notice shall be served upon all
persons holding such property.
Findings of investigation officer

 Investigating officer shall record a finding (whether all or any properties referred in notice
are involved in money laundering), after:
- considering the reply, if any, to the notice issued;
- hearing the aggrieved person; and
- taking into account all relevant materials placed on record before him;
 If investigating officer determines that any property is involved in money laundering, he
shall apply to Court for order confirming attachment or retention of property etc seized.
 Where provisional order of attachment has been confirmed, investigating officer shall
forthwith take possession of the attached property
 Such attachment or retention of the seized property or record shall:
- Continue during proceedings of predicate offence or money laundering before a court;
- Become final if concerned person is proved to be a guilty of money laundering
Actions
 Court may, on application of investigating officer, order immediate sale of the property in
any manner deemed appropriate in the circumstances, where
- Property seized is perishable in nature or subject to speedy and natural decay, or
- Expense of keeping it in custody is likely to exceed its value
 Where on conclusion of a trial for any predicate offence and money laundering, person
concerned is released; attachment or retention shall cease to have effect.
 Where attachment of any properly or retention of seized property or record becomes final,
the Court shall make an order for forfeiture of such property.
(Court may direct the release of all properties other than properties involved in money
laundering to persons from whom properties were seized)
Application of investigation techniques (Sec 9A)
 Investigating officer may with permission of court (within 60 days of such permission), use
techniques including undercover operations, intercepting communications, assessing
computer system and controlled delivery for investigation of offences of money laundering,
associated predicate offences and financing of terrorism.
 60 days may be extended up to further 60 days by court on a request made to it in writing.
(if it is satisfied on the basis of situation or reasons given in the written request)
 Fed.Govt may make rules to regulate the procedure and for execution of order
Forfeiture of Properties
Vesting of property in Federal Government (Sec 10)
 Where an order of forfeiture has been made, all the rights and title in such property shall
vest absolutely in the Federal Government free from all encumbrances
 If Court is of the opinion that any encumbrance on property or leasehold interest has been
created to defeat the provisions of this Act; It may declare such encumbrance or lease-hold
interest to be void and property shall vest in Federal Government free from such charge
(The person shall not be discharged from any liability in respect of such encumbrances,
which may be enforced against such person by a suit for damages)
Management of forfeited properties (Sec 11)
 Federal Government may, by order published in official Gazette, appoint as many trustees
and receivers as it think fit to perform the functions of an Administrator.
- Administrator shall receive and manage the forfeited properties in prescribed manner
- Administrator shall also take such measures, as Federal Government may direct, to
dispose of the properly which is vested in the Federal Government
 Administrator may sell property after reasonable notice to Federal Government, where
Power of survey (Sec 13)
 Where an investigating officer has reasons to believe that an offence of money laundering
has been committed, he may, with the permission of the Court, enter any place at which any
act constituting such offence is carried on:
- Within the limits of the area assigned to him; or
- In respect of which he is authorized for the purposes of this section by such other
authority who is assigned that area
 Investigating officer may require any proprietor, employee or any other person who may be
present there to
- Afford him necessary facility to inspect such required record available at such place
- Afford him necessary facility to check or verify proceeds of crimes or any transaction
related to proceeds of crimes
- Furnish required information which may be useful for any proceedings under this Act.
 Investigating officer acting under this section may:
- Place marks of identification on records inspected and make extracts/copies there from
- Make an inventory of any property checked or verified by him
- Record the statement of any person present in the place (useful for any proceeding)
Search and seizure (Sec 14)
 Where investigating officer has reason to believe that any person:

- has committed any act which constitutes money-laundering,
- is in possession of any proceeds of crime involved in money laundering, or—
- is in possession of any records relating to money-laundering,
then he may, either himself or authorize any officer subordinate to him, to:
- Enter and search any suspected building, place, vessel, vehicle or aircraft
- Break lock of any door, locker, safe, almirah etc, where the keys are not available
- Seize any record or property found as a result of such search
- Place marks of identification on record or make extracts or copies therefrom
- Make a note or any inventory of such record property
- Examine on oath any person, who is found to be in possession or control of any record or
property, in respect of all matters relevant for investigation
 Powers to search shall be exercisable with the prior permission of the Court.
 If investigating officer is satisfied that any evidence is likely to be concealed or tampered
with, he may enter and search the place where such evidence is located and seize that.
Search of persons (Sec 15)

 If an investigating officer has reason to believe that any person has secreted about the person
or anything under his possession, ownership or control, any record or proceeds of crime
which may be useful for or relevant to any proceedings under this Act, he may, with the prior
permission of the Court, search that person and seize such record or property.
 A female shall only be searched by a female.
 Investigating officer shall record the statement of the person searched
Common procedure (Sec 13, 14 & 15)

 Investigating officer shall within 48 hours immediately after completion of survey or search
& seizure, forward a copy of the report on survey or search & seizure, along with the reasons
and copies or details of the material in his possession, to the head of the concerned
investigating agency in a sealed envelope.
 Shall keep such record and material in such manner and such period, as may be prescribed.
Retention of property (Sec 17)
 Where any property has been seized (u/s 14 or 15) and investigating officer has reason to
believe that such property is required to be retained for investigation (u/s 9) such property
may be retained for a period not exceeding 90 days from the time of seizure:
 Investigating officer shall duly inform Court about any strange nature of seized property and,
where necessary, seek appropriate directions for its proper care during retention.
 On expiry of 90 days, property shall be returned to the person from whom such property
was seized unless the Court permits retention of such property beyond the said period.
(Court shall be satisfied that the property is prima facie involved in money laundering)
Common procedure (Sec 16 & 17)

 Investigating officer or any other officer shall immediately after arrest or retention, forward
a copy of the order along with the copies or details of material in his possession to the head
of the concerned investigating agency in a sealed envelop in prescribed manner
 Such agency shall keep such order and material for such period as may be prescribed.
Retention of records (Sec 18)
 Where any record has been seized (u/s 14 or 15) and the investigating officer has reason to
believe that any of such records are required to be retained for an inquiry, he may retain
such records for a period not exceeding 90 days from time of seizure.
 Person, from whom records were seized, shall be entitled to obtain copies of such records
 On expiry of 90 days, records shall be returned to the person from whom such records were
seized unless the Court permits retention of such records beyond the said period.
(Court shall be satisfied that the records were required for investigation u/s 9)
Involvement of Courts in Anti-money Laundering Act, 2010
Jurisdiction (Sec 20 & 23)
Court of Session established under the Code of Criminal Procedure, 1898 shall, within its
territorial jurisdiction, exercise jurisdiction to try and adjudicate these offences
 Where predicate offence is triable by any court other than Court of Session, offence and all
connected matters shall be tried by the Court trying the predicate offence; and
 Where predicate offence is triable by any court inferior to Court of Session, offence and all
connected matters shall be tried by the Court of Session.
Appeal to High Court
 Any person aggrieved by final decision or order of Court may prefer an appeal to High Court
within 60 days from date of communication of the decision or order
 High court may also give extension in the stipulated time up to next 60 days
(if satisfied that appellant was prevented by sufficient cause from filing the appeal time)
High Court means High Court within jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain
Where aggrieved party is Federal Government, High Court within the jurisdiction of which respondent,
or any of the respondents, ordinarily resides or carries on business or personally works for gain
Appointment of Public Prosecutor (Sec 22)
 Federal Government may appoint a Public Prosecutor on terms and conditions deemed fit
 Must be an advocate of a High Court
 Should be in active practice as an Advocate for at least 7 years in High Court
 Shall be competent to conduct proceedings under this Act before a Court
(Also to withdraw such proceedings, if directed by Federal Government)
When a Prosecutor appointed is, for any reason, temporarily unable to conduct proceedings
before the Court, proceedings shall be conducted by any person authorized by the Court.
Provisions of Code of Criminal Procedure, 1898 (that are not inconsistent with this act) shall apply
to arrest, bail, bonds, search, seizure, attachment, forfeiture, confiscation, investigation,
prosecution and all other proceedings including Public prosecutor under this Act.
Offences to be cognizable and non-bailable (Sec 21)
Cognizable offence, in context of criminal offences, means that police officer has
power to arrest without warrant and non cognizable offense means police
inspector cannot arrest without a warrant and investigation cannot be initiated
Tutor without a cour order
Note
Every offence punishable under this Act shall be cognizable and non-bailable;
 A person convicted for imprisonment of more than 3 years shall not be released on bail or
on his own bond unless:
- Public Prosecutor has been given due notice; and
- Court is satisfied that there are reasonable grounds for believing that he is not guilty of
such offence and that he is not likely to commit any offence while on bail
(Where Public Prosecutor opposes the application)
 Court shall not take cognizance of any offence (u/s 4) except upon a complaint in writing
made by investigating officer; or any officer of Federal or Provincial Government authorized
in writing (by Federal Government thorough a general or special order)
 Where person accused is a reporting entity, investigating officer or other authorized officer
shall, before filing such complaint, seek approval of concerned regulatory authority
(Concerned authority shall not withhold its decision for a period exceeding 60 days)
Court shall not take cognizance of any offence punishable due to non filing of STR or for
providing false information except upon a complaint in writing made by the FMU or
investigating or prosecuting agency.
Bar of jurisdiction (Sec 35)
No suit shall be brought in any Court to set aside or modify any proceeding taken or order made
under this Act and no prosecution, suit or other proceedings shall lie against the Federal
Government, or any officer of the Government, or FMU, its officers or any agency controlled or
supervised by the Government, or members of the National Executive Committee or General
Committee for anything done or intended to be done in good faith under this Act.
No Court shall have jurisdiction to entertain any suitor proceedings in respect of any matter which
the investigating officer and Committee or the Court is empowered by or under this Act to
determine and no injunction shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred by or under this Act.
Arrangements to Combat Money Laundering with Foreign Countries
Reciprocal Arrangements with foreign countries
Agreements with foreign Governments (Sec 26)
Federal Government may enter into such an agreement for:

 Enforcing the provisions of this Act;
 Regarding any offence under this Act or under corresponding law in force in that country
- Exchange of information for the prevention of same
- Seeking or providing of assistance or evidence in respect of any such offence
- Transfer of property relating to any such offence
Other Conditions
 The agreement shall be subject to such conditions, exceptions or qualifications as may be
specified in the said agreement
 Agreement shall not be enforceable if it may, in any manner, be prejudicial to sovereignty,
security, national interest or public order.
Contracting State means any country or place outside Pakistan in respect of which
arrangements have been made by Federal Government with the Government of such country
through a treaty or otherwise
Arrangements for processes and assistance for transfer of accused persons (Sec 29)
 Where a Court desires that following summons or warrants issued by it shall be served or
executed at any place in any contracting State, it shall send these in duplicate in such form,
to such court, judge or magistrate through such authorities as Federal Government may
specify in this behalf
- A summons to an accused person;
- A warrant for the arrest of an accused person;
- A summons to any person requiring him to attend and produce a document or other thing
or to produce it, or
- A search warrant,
 Where a Court has received any such summons or warrant from a contracting State, it shall
cause these to be served or executed as if it were a summons or warrant from a local court.
 Where a prisoner is transferred to a contracting State, Court or Federal Government may
impose any conditions deemed fit.
 Where a prisoner is transferred to Pakistan, Court shall ensure that conditions subject to
which prisoner is transferred to Pakistan are complied with and such prisoner shall be kept
in such custody subject to such conditions as Federal Government may direct in writing.
Letter of Requests (Sec 27, 28, 30 & 31)
Request for Evidence
 If the investigating officer or any officer superior in rank believes that any required evidence
may be available in any place in contracting State, he may, with prior permission of the head
of that investigation agency, issue a letter of request to a court or an authority in
contracting State competent to deal with such request to:
- Examine facts and circumstances of the case; and
- Take such steps as he may specify in such letter of request.
 Letter of Request shall be transmitted in such manner as Federal Government may specify.
 Where a similar letter of request is received by Federal Government from a court or

authority in a contracting State; Federal Government may forward such letter of request to
Court or to authorized officer/authority as it thinks fit for execution of such request in
accordance with this Act or, in the manner sought by the contracting state.
Request for Attachment, seizure and forfeiture of property
 If the investigating officer has made an order for attachment of any property (u/s 8) or where
court has made a confirming order on it (u/s 9) and such property is suspected to be in a
contracting state, Court (on application by investigating officer) may issue a letter of
request to a Court or an authority in the contracting state for execution of such order.
 Where such a letter of request is received by Federal Government from a court in a

contracting State, Federal Government may forward such letter of request to investigating
agency, as it thinks fit, for execution in accordance with this Act or in the manner sought by
the contracting state.
 Federal Government may also direct any investigating agency under this Act to take all steps
necessary for tracing (determining the nature, source, disposition, movement, title or
ownership of property) and identifying (includes establishment of a proof that property was
derived from, or used in, commission of an offence u/s 3) such property.
Misc
Notices, etc. not to be invalid on certain grounds (Sec 36)

No notice, summons, order, document or other proceeding, furnished or made or issued or
taken or purported to have been furnished or made of issued or taken in pursuance of any of
the provisions of this Act shall be invalid, or shall be deemed to be invalid merely by reason of
any mistake, defect or omission in such notice, summons, order, documents or other
proceedings if such notice, summons, order, document or other proceeding is in substance and
effect in conformity with or according to the intent and purpose of this Act.
Presumption as to records or property in certain cases (Sec 19)

Where any document of public record is found in the possession or control of any person in the
course of a survey or a search relating to any predicate offence or where any records have been
received from any place outside Pakistan duly authenticated by such authority or person and in
such manner as may be prescribed in the course of proceedings under this Act, the Court or the
investigating agency, as the case may be, shall:
 Presume, that the signature and every other part of such record which purports to be in the
hand writing of any particular person or which the Court may reasonably assume to have
been signed, by or to be in the hand writing of, any particular person, is in that person’s hand
writing; and in the case of a record executed or attested, that it was executed or attested by
the person by whom it purports to have so executed or attested; and
 Admit the document in evidence, notwithstanding that it is not duly stamped, if such
document is otherwise admissible in evidence.
Powers of Federal Government
Power to amend the Schedule (Sec 42)

Federal Government may, by notification in official Gazette, amend the Schedule to this Act so
as to add any entry thereto or modify or omit any entry therein.
Power to make rules (Sec 43)

Federal Government may in consultation with National Executive Committee and by
notification in official Gazette make rules for carrying out the purposes of this Act.
Power to remove difficulties (Sec 45)

If any difficulty arises in giving effect to the provisions of this Act, Federal Government may, by
order, published in official Gazette, make such provisions not inconsistent with the provisions
of this Act, as may appear to be necessary for removing the difficulty.
Continuity of proceedings in the event of death or insolvency. (Sec 38)
Where a person dies or is adjudicated as insolvent in case of:

 Any property of a person has been attached under this Act and no representation against the
order attaching such property has been preferred, and such person dies; or
 Any representation has been preferred to the Court, and
then it shall be lawful for the legal representatives of such person or the official assignee or
the official receiver, as the case may be, to prefer representation to the Court, or as the case may
be to continue the representation before the Court, in the place of such person.

 After passing of a decision or order by the Court, no appeal has been preferred to the High
Court u/s 23; or
 Any such appeal has been preferred to the High Court
then, it shall be lawful for the legal representatives of such person, or the official assignee
or the official receiver, as the case may be, to prefer an appeal to the High Court or to continue
the appeal before the High Court in place of such person and the provision of section 23 shall,
so far as may be, apply, or continue to apply, to such appeal.
23. Anti Money Laundering - Annexures Page 443
SCHEDULE-I - List of Predicate Offences
The Pakistan Penal Code, 1860 (Act XLV of 1860)

109 Punishment of abetment if the act abetted is committed in consequence and where no express provision
is made for its punishment.
111 Liability of abettor when one act abetted and different act done.
112 Abettor when liability to commutative punishment for act abetted and for act done.
113 Liability of abettor for an affect caused by the act abetted different from that intended by him.
115 Abetment of offence punishable with death or imprisonment for life, if offence not committed, if act
causing harm be done in consequence.
116 Abetment of offence punishable with imprisonment, if offence be not committed.
117 Abetting commission of offence by the public or by more than ten persons.
118 Concealing design to commit offence punishable with death or imprisonment for life, if offence by
committed; if offence be not committed.
119 Public servant concealing design to commit offence which it is his duty to prevent.
120 Concealing design to commit offence punishable with imprisonment
120B Punishment for criminal conspiracy.
121 Waging, or attempting to wage war, or abetting of war against Pakistan.
121A Conspiracy to commit offence punishable by section 121.
122 Collecting arms, etc. with intention of waging war against Pakistan.
161 Public servant taking gratification other than legal remuneration in respect of an official act.
162 Taking gratification, in order, by corrupt or illegal means, to influence public servant.
163 Taking gratification, for exercise of personal influence with public servant
164 Punishment for abetment by public servant of offences defined in section 162 or 163.
165 Public servant obtaining valuable thing, without consideration from person concerned in proceeding or
business transacted by such public servant.
165 A Punishment for abetment of offences defined in section 161.
302 Punishment for qatl-i-amd.
316 Punishment for qatlshibh-i-amd.
327 Punishment.
337k Causing hurt to extort confession or to compel restoration of property.
343 Wrongful confinement for three or more days.
344 Wrongful confinement for ten or more days.
345 Wrongful confinement for person for whose liberation writ has been issued.
346 Wrongful confinement in secret.
347 Wrongful confinement to extort property or constrain to illegal act.
348 Wrongful confinement to extort confession or compel restoration of property.
363 Punishment for kidnapping.
364 Kidnapping or abducting in order to murder.
364A Kidnapping or abducting a person under the age of fourteen.
365 Kidnapping or abducting with intent secretly or wrongfully to confine person.
365A** Kidnapping or abducting for extorting property, valuable security etc.
365 B Kidnapping, abducting or inducing woman to compel for marriage etc.
366 Kidnapping, abducting or inducing woman to compel her marriage, etc.
366A Procuration of minor girl.
366B Importation of girl from foreign country.
367 Kidnapping or abducting in order to subject person to grievous hurt, slavery etc.
367A Kidnapping or abducting in order to subject person to unnatural lust.
368 Wrongfully concealing or keeping in confinement, kidnapped or abducted person.
369 Kidnapping or abducting child under ten years with intent to steal from its person.
370 Buying or disposing of any person as a slave.

371 Habitual dealing in slaves.
371A Selling person for purposes of prostitution etc.
371B Buying person for purposes of prostitution etc.
374 Unlawful compulsory labour.
376 Punishment of rape.
379 Punishment for theft.
380 Theft in dwelling house etc.
381 Theft by clerk or servant of property in possession of master.
381A Theft of a car or other motor vehicle.
382 Theft after preparation made for causing death, hurt or restraint, in order to committing of theft.
384 Punishment for extortion.
385 Putting person in fear of injury in order to commit extortion.
392 Punishment for robbery.
395 Punishment for dacoity.
402 Assembling for purpose of committing dacoity.
402 B Punishment for hijacking.
406 Punishment for criminal breach of trust.
411 Dishonestly receiving stolen property.
412 Dishonestly receiving stolen property in the commission of a dacoity.
413 Habitually dealing in stolen property.
414 Assisting in concealment of stolen property.
417 Punishment for cheating.
419 Punishment for cheating by personation
421 Dishonest or fraudulent removal or concealment of property to prevent distribution in creditors.
422 Dishonestly or fraudulently preventing debt being available for creditors.
423 Dishonest or fraudulent execution of fees of transfer containing false statement of consideration.
424 Dishonest or fraudulent removal or concealment of property.
465 Punishment for forgery.
467 Forgery of valuable security, will, etc.
468 Forgery for the purpose of cheating.
471 Using as genuine a forged document.
472 Making or possessing counterfeit seal, etc. with intent to commit forgery punishable u/s 467.
473 Making or possessing counterfeit seal, etc with intent to commit forgery punishable otherwise.
474. Having possession of document described in section 466 or 467 knowing it to be forged and intending to
use it as genuine.
475 Counterfeit device or mark used for authenticating documents described in section 467, or possessing
counterfeit marked material
476 Counterfeit device or mark used for authenticating documents other than those described in section 467,
or possessing counterfeit marked material.
477 Fraudulent cancellation destruction, etc., of will, authority to adopt, or valuable security.
477 A Falsification of accounts.
482 Punishment for using a false trade-mark or property mark.
483 Counterfeiting a trade mark of property mark used by another.
484 Counterfeiting a mark used by a public servant.
485 Making or possession of any instrument for counterfeiting a trade mark or property.
486 Selling goods marked with a counterfeit trade mark or property mark.
487 Making a false mark upon any receptacle containing goods.
488 Punishment for making use of any such false mark.
489 Tampering with property mark with intent to cause injury.
489A Counterfeiting currency-notes or bank notes.
489B Using as genuine, forged or counterfeit currency notes or banknotes.

489C Possession of forged or counterfeit currency-notes or bank notes.
489D Making or possessing instruments for forging or counterfeiting currency-notes or bank notes.
489E Making or using documents resembling currency-notes or bank notes.
489G Counterfeiting or using documents resembling Prize Bonds or unauthorized sale thereof
493 A Cohabitation caused by a man deceitfully inducing a belief of lawful marriage.
496A Enticing or taking away or detaining with criminal intent a woman.
The Arms Act, 1878 (XI of 1878)
19 For breach of section 5, 6, 10, 13 tol7.
20 For secret breaches of section 5 to 10, 14 and 15.
The Foreigners Act, 1946 (XXXI of 1946)
14 Penalties.
Prevention of Corruption Act, 1947 (II of 1947)
5 Criminal misconduct
5B Declaration of Assets
5C Possession of Property disproportionate to known sources of income
Foreign Exchange Regulation Act, 1947 (VII of 1947)-Illegal forex business
23 Subsection (1) of section 4 read with section 23.
Section 5 read with section 23
The Copyright Ordinance, 1962 (XXXIV of 1962)
66 Offences of infringement of copyright or other rights conferred by this Act.
67 Possession of plates for purpose of making infringing copies.
68 Penalty for making false entries in Register, etc. or producing or tendering false evidence.
69 Penalty for making false statements for the purpose of deceiving or influencing any authority or
officer.
70 False attribution or authorship, etc.
The Pakistan Arms Ordinance, 1965 (W.P. Ordinance XX of 1965)
13 Penalty for breach of sections 4, 5, 8 to 11.
The Customs Act, 1969 (IV of 1969)
156(1) Section 2(s) read with clause 8, 89 of section 156(1)
Section 15 read with clause 8, 9, 89 & 90 of section 156 (1)
Section 32 read with clause 14 of section 156 (1)
Section 32A read with clause 14A of section 156(1)
The Securities Act, 2015 (Act No. III of 2015
128 (Prohibition of insider trading) read with Section 159
133 (Market Manipulation) read with Section 159
The Securities and Exchange Act, 1969 (XVII of 1969)
A/1 All offences under this Act prescribing minimum punishment for a period of year.
The Emigration Ordinance, 1979 (XVIII of 1979)
17 Unlawful immigration etc.
18 Fraudulently inducing to emigrate.
19 False representation of Government authority.
22 Receiving money etc. for providing foreign employment.
The Sales Tax Act, 1990
33 (Entries 11 and 13 of Section 33 of Table) Offences and Penalties
The Control of Narcotic Substances Act, 1997 (XXV of 1997)

5 Punishment for contravention of section 4.
9 Punishment for contravention of section 6, 7 and 8.
41 Prohibition of alienation of freezed property.
42 Prohibition of acquiring property in relation to which proceedings have been taken
The Anti-Terrorism Act, 1997 (XXVII of 1997)
All offences under this Act prescribing minimum punishment for a period of over one year.
National Accountability Ordinance, 1999 (XVIII of 1999)
9 Corruption and Corrupt Practices.
The Registered Designs Ordinance, 2000 (XLV of 2000)

27 Offences and penalties
28 Falsification of Register, etc
29 Falsely representing a design as registered
The Trade Marks Ordinance, 2001 (XIX of 2001)
99 Penalty for applying false trade description, etc
101 Penalty for falsification of entries in Register
107 Penalty for improperly describing a place of business as connected with the Trade Marks Registry
The Income Tax Ordinance, 2001
192 Prosecution for false statement in verification- where tax sought to be evaded is Rs 10 million or
more
192A Prosecution for concealment of Income-where tax sought to be evaded is Rs 10 million or more
194 Prosecution for improper use of National Tax Number [Certificate}- where tax sought to be evaded
is Rs 10 million or more
199 Prosecution for abetment – where tax sought to be evaded is Rs 10 million or more
The Prevention & Control of Human Trafficking Ordinance, 2002 (LIX of 2002)
3 Punishment for human trafficking
4 Offences committed by organized criminal groups
5 Repetition of commission of offences
The Federal Excise Act, 2005
19(3) Offences, penalties, fines and allied matters
APPENDIX -1
Contents of CTR (Currency Transection Report)
Following are the contents of CTR (Currency Transection Report)
Information about the person on whose behalf transection is conducted such as

- Name, Father’s/ Husband’s Name
- Nationality, Business and date of Birth
- Permanent, present and other known addresses
- Contact information such as Residential/official number Fax number cell number etc.
- Identification number such as CNIC or NTN number
- Relationship with financial Institution
Information about the individual Conducting the Transection

Information about amount and type of Transection

- Date and amount of transection
- Particulars of foreign currency transaction (If applicable)
- Type of transection such as transfer, Exchange, deposit, withdrawal or issuing a negotiable
instrument.
Information about financial Institution where the transection took place.

- Name, NIFT code, branch code and Address of Branch
- Name, Designation, contact information of reporting officer
- Name and contact information of “contact Person” for future correspondences.
Report should be
- dated
- signed and stamped by reporting officer.
APPENDIX – II
Contents of STR (Suspicious Transection Report)
Following are the contents of STR (Suspicious Transection Report)
Information of financial Institution Reporting the suspicion.

- Identification of Primary Regulator such as SBP, SECP or any other
Information of the suspect.

- Business relation with suspect and whether the relationship is still maintained along with
reason of continuance of relationship or date of discontinuance of relationship.
- Identity of other persons known to be involved in reporting activity.
Information about Suspicious Transection

- Date of transection and amount involved
- Description and brief narration of suspicious Transection
- Information such as account number, Title, date of opening, Current status, Monthly balance
debit/credit limts used etc. of account of origination.
- Other relevant Information (if any)
Information if the transaction already been reported to any Law Enforcement Agency. If so,
particulars of agency.
Report should be
- dated
24. Foreign Exchange Regulations Page 449
Ch # 24: Foreign Exchange Regulations
This chapter covers two chapters of Foreign Exchange manual (i.e loans and Securities).
The purpose of this Act is to regulate certain payments, dealings in foreign exchange and
Securities and the import and export of currency and bullion. It is expedient in the
economic and financial interest of Pakistan to provide for such the regulation.

 Loans (Ch XIX - Foreign Exchange Manual of SBP)
 Securities (Ch XX - Foreign Exchange Manual of SBP)
D 1.1: Foreign Exchange Manual of State Bank of Pakistan

(Chapter 19 and 20)
100%
(Except Para Para 18(i)(e) of Ch 19 and Para 6(C) of chapter 20 of the Manual)
Loans, Overdrafts & Guarantee (Foreign Exchange Manual - Chapter 19)
Non-Resident Pakistanis/Resident Foreign Nationals (Rupee Loan)
Borrowing in PKR by  Allowed to borrow for any purpose except purchase of shares
Foreign Controlled (of any kind)
Companies  Prudential Regulations (by SBP), KYC and ‘AML/CFT’ standards
registered in shall be followed
Companies Act 2017  Purpose of borrowing must be clear and documented in
(Para 2) Authorized Dealer’s and company’s record.
Borrowings by Non-  Authorized Dealers have general permission to grant such loans
Resident Pakistanis in local currency
(Para 3)  Prudential Regulations (by SBP), KYC and ‘AML/CFT’ standards
shall be followed
 Purpose of borrowing must be clear and documented.
 For purchase of immovable property, banks can lend subject to
following conditions:
- Loan will be paid in FCY (remittances or FCY accounts)
- Sale proceeds of such immovable property shall not be
eligible for repatriation.
Borrowings by  Authorized Dealers may grant such rupee loans, except for
Resident Foreign purchasing immovable property and purposes restricted by SBP
Nationals (Para 3) / any other law.
Loans etc against  Authorized Dealers may give PKR loans to their resident clients
Guarantees of Non- against guarantees of non-residents (or banks operating abroad)
Residents /  Compliance of Prudential Regulations is must.
Collateral held  Guarantees involving FCY outflows (for due diligence fee,
outside Pak. (Para 5) commission fee, guarantee premium fee etc) shall require prior
approval of SBP.
Loans & Overdrafts by Authorized Dealers in FCY. (Para 6)
 Will not grant any such loans without prior approval of SBP (except FE-25 loans)
 Applications should be made to SBP mentioning purpose, particulars of the guarantee or
collateral, if any, and manner in which loans or overdrafts are expected to be paid.
Private Sector Borrowings from Abroad - PSBA (Para 7)

PSBA refers to FCY loans raised by eligible borrowers in private sector in PAK from foreign
lenders in convertible foreign currencies in form of commercial credit, supplier’s credit, buyer’s
credit, working capital loans, inter-company loans, issuance of FCY bonds, structured loan
facilities and FCY financing under Islamic arrangement.
Common terms and conditions of PSBA

Eligible  Companies registered under Companies Act, 2017 and Independent Power
Borrowers Producers (IPPs), except financial intermediaries(Banks, DFIs, NBFCs,
Payment System Providers etc)
 Branches of foreign companies in PAK opened with permission of Board of
Investment (BOI)
 Long term credit rating of companies or their sponsors must not be lower
than BB- issued by a recognized local/international credit rating agency
(except in the case of intercompany loans)
 Credit rating condition not applicable to exporters (If PSBA is up to 80% of
annual exports)
Note: Individuals, trusts, non-profit organizations and NGOs are not eligible
to raise PSBA.
Eligible  Internationally recognized such as Foreign Banks, International Capital
Lenders Markets, Multilateral Financial Institutions (e.g IFC, ADB, etc), Government
owned Development Financial Institutions, Export Credit Agencies,
Suppliers of Plant & Machinery, and parent/associates.
 Only those lenders, who comply with the international standards
(Financial Action Task Force Guidelines) of ‘Anti Money Laundering (AML)’
& ‘Combating Financing of Terrorism (CFT)’.
Security  Any collateral/charge created on any property owned by eligible
borrowers/or their sponsors
 For pledge of shares; Requirements of chapter 20 of the manual shall also
be followed
 Issuance of bank guarantees by Authorized Dealers and corporate
guarantees by sponsors in favor of lenders is permitted for the loans
registered with the Authorized Dealer.
PSBA  Authorized Dealer will register all FCY loans after checking compliance of
Registration all requirements of this chapter of Foreign Exchange Manual
Forward  Authorized Dealers can extend such facility for earlier of 1 year or
Cover remaining maturity of loan
Facility  For maturity of more than 1 year; facility would be 12-months on rollover
basis
 Facility will not be provided for less than 1 month
 Borrower will not hedge the amount more than the loan.
Pre-  Prepayment of PSBA will not be allowed except for the “PSBA for Project
Payments Financing”
 Swapping PSBA with local currency loans will not be allowed.
Waivers/  Any waiver/exception from the terms and condition mentioned in the
Exceptions policy will require prior approval of the Exchange Policy Department
related to (EPD) i.e. before execution of the facility documents
PSBA
1) PSBA for Project Financing.
 Can be raised for meeting capitalized cost (preliminary expenses, import of plat,
procurement of technical expertise etc) and repayment of existing PSBA in all sectors
including SME and infrastructure projects.
 Maturity should not be less than 3 years.
 Borrowing Cost Ceiling excluding relevant benchmark rate
- 350 basis points for 3 to 5 years loan
- 600 basis points for more than 5 years loan
 Funds shall not be allowed for lending, investment in capital market /real estate or acquiring
a Co in Pak
 These loans can be converted into equity after later of completion of the project or 3 years
- Prior approval of EPD shall be obtained.
- For unlisted, loan will be converted at break-up value established by external auditors
approved by SBP.
- For listed, loan will be converted at the average market value of previous 6 months.
- Exchange rate given in latest audited financial statements will be used to establish
 Refinancing of existing PSBA Project Loans will only be allowed if fresh PSBA is to be raised
at relatively lower rate of all-in-cost and/or the outstanding maturity of the original PSBA
will either be maintained or extended.
 Amount of loan can be credited in a FCY account
(opened under the requirements of Foreign Exchange Manual for making import and
consultancy payments)
2) PSBA for Working Capital.
 It can be raised for meeting FCY component of working capital requirements of companies
established / operating in PAK.
 Maturity shall range between 01 month and 1 year. (can also be rolled over for a minimum
period of 1 month)
 Borrowing Cost Ceiling excluding relevant benchmark rate: 200 basis points
 Branches of foreign companies working in PAK with the permission of BOI can only borrow
interest free loans from their sponsors/parents.
 Foreign contractors working in PAK with permission of BOI and/or registered with PEC can
borrow interest free loans from their sponsors/parents.
- They can repay the loans only after completion of contracted work/project or a
milestone
- Shall submit milestone completion certificate/completion certificate, issued by
relevant authority.
- Also, they will submit a clearance certificate issued by the Revenue Authorities
 The amount of loan borrowed under this category cannot be credited in a FCY account.
3) PSBA for Bridge Financing.
 Will be raised only for meeting financing gap arising from outstanding project payments and
delays in disbursements from committed FCY equity or PSBA for Project Financing.
 The maturity shall range between 6 months and 1 year.
 Loan amount can be retained in special FCY account only for making payments relating to
import of goods and services under the already established contracts.
4) PSBA mobilized through Securitized Instruments, Issuance of Bonds & Financing

under Islamic Arrangement
 Require prior approval of SBP

 Can be used for establishment of new projects, import of plant & machinery,
modernization/expansion of existing projects, buying/acquiring patents/operating
licenses/trademarks, procurement of technical expertise and repayment of existing PSBA in
all sectors including SM and infrastructure projects.
a Co in Pak.
 Application may be submitted to EPD of SBP through Authorized Dealers
- Seeking approval to issue bonds/securitized instruments in international capital/debt
markets,
- Shall mention all necessary information with key terms and waivers required, and draft
documents.
Note: Any type of loan not falling under any of above mentioned categories may be referred to
SBP for consideration
FCY Trade Financing from Abroad – FTFA (Para 8)
‘FTFA’ refers to credits extended for imports/exports directly by overseas suppliers/buyers,

banks and financial institutions to finance LC and other overseas contractual obligations.
Common terms and conditions of FTFA

Eligible  Companies registered under Companies Act, 2017 and members of
Borrowers chambers of commerce, except financial intermediaries (Banks, DFIs,
NBFCs, Payment System Providers etc)
Investment (BOI)
Note: Individuals, trusts, NPOs and NGOs are not eligible to raise PSBA.
Eligible  Internationally recognized such as banks, International & Multilateral

Lenders Financial Institutions etc
 FTFA may also be raised from suppliers/buyers and parent companies
FTFA  Authorized Dealer will register all FCY loans after checking compliance of
Waivers etc  Any waiver/exception from the terms and condition mentioned in the
related to policy will require prior approval of the EPD i.e. before execution of the
PSBA facility documents
1) Import Loans under FTFA.
 Can be used to finance LC and other overseas contractual obligations for transactions over
USD 5 million
 The maturity shall range between 2 years to 5 year.
 Amount of loan can be retained in a FCY account (opened under requirements of Foreign
Exchange Manual)
2) Export Loans under FTFA.
 Exporters, having firm commitments with overseas buyers, may obtain FTFA in convertible
currencies
 Maximum tenure of loans will be period generally fixed for repatriation of export proceeds
+ 60 days.
 Borrowing Cost Ceiling excluding relevant benchmark rate: 200 basis points (for maturity
up to 240 days)
 After availing facility, he cannot obtain export finance in PKR from a PAK bank and any other
for same export.
 FCY amount of loan will be converted into PKR with Authorized Dealer and will not be
retained in FCY.
 The FCY loan will be repaid, along with interest, out of the related export proceeds.
 In case of cancellation/delay of export, exporter may repay loan from the proceeds of other
export consignment or from his FCY account.
Financial Sector Borrowings from Abroad – FSBA (Para 9)
‘FSBA’ refers to FCY borrowings from abroad by the eligible borrowers operating in the financial
sector of PAK.
Common terms and conditions of FSBA

Eligible  Banks, financial institutions, Development Finance Institutions (DFI),
Borrowers housing finance companies, non-banking finance companies, microfinance
banks/institutions, Payment System Operators, Payment System
Providers and branches/subsidiaries of foreign banks in PAK.
 Requests from Authorized Dealers/banks in Public Sector will be dealt
with at EPD of SBP,
 Economic Affairs Division, Government of PAK will deal with the requests
received from all other Public Sector Enterprises (PSEs) operating in
financial sector of PAK.
Eligible  International financial institutions, donor agencies, specialized
Lenders banks/institutions and overseas branches/correspondents of Authorized
Dealers (banks) in PAK.
Pre-  The request for prepayment of FSBA will be evaluated by SBP on a case to
paymnets case basis.
1) Credit Lines/Overdrafts established by Authorized Dealers with

Correspondents/Overseas Branches.
 The maximum maturity of such loan/credit line will be 7 days.

 In case of any security, arrangement details to be furnished to EPD SBP for approval.
 Interest on such facility may be remitted by Authorized Dealers without the prior approval
of SBP.
2) FSBA by Authorized Dealers/Banks and Branches/Subsidiaries of Foreign Banks in

PAK for Liquidity Management Purpose.
 The maximum maturity of this loan will be 1 month to 1 year.

 Can be rolled over for a minimum period of 1 month
 Borrower can borrow FCY up to 100% of its unimpaired capital as per its latest audited
financial statements
 No security would be offered to lenders (borrowing will be clean and based on balance sheet
strength).
 It will be allowed to deploy loan proceeds locally in interbank market including financing of
trade transactions
3) Long Term FSBA by Authorized Dealer.
 Authorized Dealer shall submit the request to the Director – EPD, SBP
 Such requests shall be considered by SBP on their merit, on a case to case basis.
4) FSBA by Micro Finance Banks/Institutions in PAK.
 Purpose shall be the financing of their loan portfolio only.

 Minimum maturity of the loan will be 2 years.
 Cost of borrowing will be negotiable and competitive with prevailing rate in local market.
 If cost of borrowing from international institutions is higher than LIBOR + 5%, Micro Finance
Banks/Institutions shall submit local quotes of rate from local lending institutions,
 Funds will immediately be converted into PKR and credited to borrower PKR account
(maintained with concerned Authorized Dealer in PAK)
 Authorized Dealers may provide forward cover/hedging facility on such FCY loans
 Issuance of guarantees by sponsor/donors in favor of lenders is permitted under this
registered loan
5) FSBA by other Financial Institutions i.e. NBFIs, DFIs, PSOs, PSPs, Leasing Companies,
House Building Finance Companies and Insurance Companies.
 Will approach the Director – EPD (SBP) along with all supporting documents
 State Bank will consider the request on its merit, on a case to case basis.
Guarantees
Guarantees on behalf of Residents of PAK in favor of Non-residents. (Para 10)
 Prior approval is required for giving any guarantee or undertaking or opening of LC etc
(which may result in payment to a non-resident either in FCY or Rupees).
 Applications for guarantees related to FCY borrowing from abroad or equity investment
abroad will be forwarded to Director, EPD, SBP.
 Other cases will be forwarded to Director, Foreign Exchange Operations Dept, SBP-Banking
Services Corp.
 These restrictions also apply to renewal of such guarantees etc
 Application for renewal shall state the extent up to which facilities were utilized during
previous 12 months
 If guarantee is called, concerned Authorized Dealer shall report to SBP/SBP BSC within a
week.
Guarantees on behalf of Non-Residents in favor of Residents of PAK. (Para 11)
 Applications for this purpose should be made by Authorized Dealer to Director, Foreign
Exchange Operations Department, SBP-Banking Services Corporation giving full particulars
previous 12 months
week.
 Restrictions does not apply to:
- Cases covered under paras 14 and 15;
- Guarantee extended by Authorized Dealer on basis of back-to-back guarantee from
overseas branch etc;
- Advising of export LC established by non-resident banks nor to negotiation of
documents thereunder.
Above restrictions (Para 10,11) do not apply to guarantees given by Authorized Dealers in favor
of non-residents on behalf of their customers in ordinary course of business in respect of missing
documents, authentication of signatures, release of goods on Trust Receipts and defects in
documents negotiated by them under LC etc. (Para 14)
Performance/Bid Bond Guarantees. (Para 12)
 Authorized Dealers and Insurance Companies (regulated by SECP) may issue such
guarantees on behalf of exporters, members of recognized Consultancy/Construction
Associations and Companies approved by PEC, if
- Tenders specifically call for furnishing of such guarantees.
- Beneficiary is foreign Government or Government sponsored Organization or private
company or a firm.
- The tenderer is a bonafide exporter or manufacturer and there is no restriction on its
export from PAK.
- For firms, organization issuing the performance or bid bond must satisfy itself that the
tenderer is a bonafide Consultancy/Engineering firm, having the requisite financial and
technical resources
Remittances under Guarantees or Performance Bonds and their Reporting to SBP.

(Para 13)
 Authorized Dealers may process remittances against the Guarantees or bonds only if it
become necessary
 They should scrutinize the terms to confirm that liability is certain due to default of party in
PAK.
 While reporting such remittances to concerned area office of Foreign Exchange Operations
Dept, SBP-Banking Services Corp in their monthly foreign exchange returns, they will bunch
Forms 'M' with following documents:
- Copy of the Guarantee or Performance Bond.

- Copy of claim received by foreign bank from concerned beneficiary demanding such
payment.
- Copy of correspondence, if any, between foreign bank and beneficiary.
- Copy of correspondence exchanged by party in PAK on whose behalf Guarantee/Bond
was issued with the concerned beneficiary about calling of the Guarantee/Bond.
Guarantees and Collaterals in favor of Overseas Bank Branches and Correspondents.

(Para 15)
Application for prior approval should be made to Director, EPD, SBP by letter giving full details
of guarantees or collaterals and that of underlying transaction.
Guarantees in favor of Government Departments/Ministries/Public Sector Entities (Para

16)
 Authorized Dealers may issue such FCY guarantees subject to compliance of Prudential and
other Regulations
 If guarantee is called, amount will be paid in PKR to concerned Government department/
ministry/PSE.
Renewal of Loans and Overdrafts. (Para 17)

Renewal shall also require prior approval of SBP/SBP-Banking Services Corporation
Minimum Requirements for Loan Registration (Para 18)

Documentation required Other Conditions
PSBA for Project Financing
- Original loan/credit agreement. - Remittance of down payment will be
- A list of company's Directors along with their made by Authorized Dealers to the
National identity numbers/ passport number and extent of agreement
certified true copies of same. - Authorized Dealer will approach
- Beneficial ownership of the borrower. Exchange Policy Dept, SBP for
- Project report showing the details of the project permission to remit principal
including its cost (showing breakup of local and repayments & interest payments.
foreign component). - For all loan related fees/expenses,
- Location of the project & a copy of Certificate ofAuthorized Dealer will approach
Incorporation of company. Foreign Exchange Operations Dept,
- In case of Buyer's Credit arranged by the foreign SBP-Banking Services Corporation
supplier, authenticated copy of purchase contract.
- Authorized Dealer will furnish
following documents to EPD, SBP:
- For intercompany loans, documentary evidence of a) PRC (For direct disbursement)
the relationship between the companies. b) EEC (For import of plant etc)
- For exporter, documentary evidence and data of Auditor’s Certificate for amount of
last year’s exports. PSBA utilized with original
agreement etc (Import of

services)
- After establishing liability of foreign
lender, repayment schedule will be
submitted to EPD, SBP in
quadruplicate through Authorized
Dealer within 1 month of earlier of
completion of loan disbursement or
the project
- After that, process the remittance of
principal, interest & other fees and
shall maintain a copy of all
documents
PSBA for Working Capital/ Bridge Financing
- The original loan/credit agreement. - On complete disbursement of loan,
- A list of the company's Directors along with their Authorized Dealer will maintain
National identity numbers/ passport number and PRC/Certificate of Deposit in
certified true copies of the same. original.
- Beneficial ownership of the borrower. - Authorized Dealer can process
- An authenticated copy of final repayment remittance of principal, interest and
schedule other fees, once the loan is
registered.
documents
PSBA for Securitized Instruments/Bonds & Financing under Islamic Arrangement
- Request of issuer with related prospectus of issue
- Beneficial ownership of the borrower.
- Industry analysis, yield curves and ratings of
other bonds/TFCs issued by industry.
- Rating of the issuer and the instrument by the
recognized local or international rating agency.
- Details of utilizations of the proceeds.
- Repayment mechanism and obligations.
- In case of Islamic financing/securitized
instruments, the details of underlying asset (s).
- Shariah compliance certificate (in case of Sukuk)
Financial Sector Borrowings from Abroad (FSBA)
- The original loan/credit agreement/swift - Authorized Dealer will report
message. transaction till maturity.
- A copy of the final expected repayment schedule. - After registration of loan, Authorized
Dealer can remit principal
repayments and interest payments.
Credit Lines/Overdrafts established by Authorized Dealers with Correspondents/

Overseas Branches.
- The original loan/credit agreement. - Authorized Dealer will subsequently
report transaction to the Statistics &
Data Warehouse Department of SBP.
FSBAs to be raised by Micro Finance Banks/Institutions in PAK.
- Request letter duly signed by the CEO/CFO of the - Upon complete disbursement of loan,
borrowing bank/ institution. the Authorized Dealer will keep the
- Original loan/credit agreement. PRC, in original, on its record.
- A copy of the final repayment schedule - After that, process the remittance of
- An undertaking by the borrower bank/institution principal, interest & other fees and
that the loan agreement is compliant with the shall maintain a copy of all
provisions of legal and regulatory framework documents
applicable to the lender and the borrower.
Long Term FSBAs to be raised by the Authorized Dealers.
- Request letter duly signed by the President/CEO
of the applicant institution.
- Purpose and rationale for raising such loans.
- Repayment schedule and mechanism.
- Details of the collaterals or other securities
offered.
FSBAs to be raised by other Financial Institutions i.e. NBFIs, Leasing Companies, House
Building Finance Companies & Insurance Companies
- Details of utilization of the proceeds.
offered.
Import Loan under FTFA
- Request letter duly signed by the importer. - Authorized Dealer will approach
- A list of the company's Directors along with their Exchange Policy Dept, SBP for
National identity numbers/ passport number and permission to remit principal
certified true copies of the same. repayments & interest payments.
- Beneficial ownership of the borrower. - After establishing liability of foreign
- Loan Agreement, in original, lender, repayment schedule will be
- Detail of Goods to be imported, under the subject submitted to EPD, SBP in
agreement, along with the timelines involved quadruplicate through Authorized
therein. Dealer
- For Buyer’s credit; Purchase Contract, in original. - After that, process the remittance of
documents
Export Loans under FTFA

- Request letter duly signed by the exporter. - Upon complete disbursement of loan,
- List of company's Directors with their NIC Authorized Dealer will keep PRC in
numbers /passport number and certified true original, on its record.
copies of same - After that, process the remittance of
- Beneficial ownership of the borrower. principal, interest & other fees and
- Loan Agreement in original. shall maintain a copy of all
- Copy of the relevant Letter of Credit. documents
- A copy of the final repayment schedule
Guarantees
- Authorized Dealer’s letter containing full details.
- Applicant’s request.
- List of company's Directors with their NIC
numbers /passport number and certified true
copies of same
- Format of Bank Guarantee.
- Copy of Agreement.
- Copy of purchase order/contract, in case of
advance payment guarantee.
- Details of claims received against guarantee at
time of request for renewal of guarantee, if any.
In addition, SBP may ask for any other document/ info, as and when deemed necessary.
Responsibilities of Authorized Dealers.

 Maintain a centralized loan database of outstanding FCY loans.
 Maintain the record of beneficial owners/directors of the borrowers and lenders.
 Maintain all the category-wise documents as mentioned below at all times.
 Check the compliance of all the terms and conditions mentioned in the relevant category.
 Ensure the compliance of KYC/AML/CFT guidelines issued by SBP from time to time.
 Register the loan before executing any transaction for their clients.
 Ensure to have independent assessment of each FCY loan proposal/transaction from money
laundering/ terrorism financing risk and foreign exchange risk perspective.
 Conduct appropriate due diligence of proposal including particulars of lender & borrower
 Conduct annual focused Internal Audit of FCY Loan Registration function.
Reporting Mechanism for Authorized Dealers (Para 19 to 21)

 For reporting foreign private loans on DAP, ensure that Loan Registration Number is
obtained from Statistics & Data Warehouse Department by 5th of next month
 Subject data will be reported on FCY loans portal with proper purpose codes assigned
 Ensure that repayment schedules are updated on FCY loans portal at all times
 Ensure that any subsequent changes in terms of Loan Agreement should comply with
relevant regulations of that category. Also maintain record of such changes/amendments.
 In case of non-compliance of rules and non-submission/late submission of any returns/
reports, regulatory action shall be taken against Authorized Dealer under FERA, 1947
Securities (Foreign Exchange Manual - CHAPTER 20)
Import and Export of Securities
Import of Securities (Sec 2)

There are no restrictions under the Act on import into Pakistan of any securities whether
Pakistani or foreign.
Export of Pakistani Securities (Sec 4)

Pakistan Nationals (resident outside Pakistan) would need permission of SBP (through
Authorized Dealer)
Export of Foreign Securities (Sec 3)

 Pakistan national resident in Pakistan is permitted to hold or retain such securities (acquired
legally)
 Taking or sending securities to place outside Pakistan is only allowed with SBP permission.
 Interested person should apply SBP through Authorized Dealer for relevant export licence.
 After permission, securities can be send through Authorized Dealer with undertaking that:
- The securities will be received back in Pakistan within a specified period; or
- In case of sale, the sale proceeds in foreign currency will be repatriated to Pakistan.
 SBP may also consider applications, through Authorized Dealer or stock broker, for exchange
of securities (i.e. foreign securities held by residents of Pakistan with Pakistan securities held
by residents abroad).
Transfer of Securities to Non-Residents
Prohibition on Transfer of Securities to Non-Residents
 Transfer of any of the following security in favour of "a person resident outside Pakistan" is
prohibited except with general or special permission of SBP.
- All Pakistani securities (i.e. securities expressed to be payable in Pak Rupees or
registered in Pakistan) whether held by persons resident in or outside Pakistan;
- All foreign securities held by Pakistan nationals;
- Pledging or hypothecation etc to or in favour of non-residents; or
- Utilizing them for forming trusts or settlements of which a non-resident is beneficiary
 Authorized Dealers are required to obtain permission of SBP before purchasing securities
registered in Pak on behalf of "persons resident outside Pakistan".
 Companies must also obtain permission of SBP before registering its transfer in name of such
persons
Person resident outside Pakistan covers a foreign national including a foreign national of
Indo-Pakistan origin as also a Pakistani holding dual nationality for the time being resident
in Pakistan and a company registered in Pakistan which is controlled directly or indirectly
by a person resident outside Pakistan.
General Exemption (Sec 6)
SBP has granted general exemption for issue, transfer and export of securities on repatriation
basis:
 Price shall be paid in foreign exchange through normal banking channel by remittance from
abroad or out of foreign currency account maintained by subscriber/purchaser in Pak
 Price is not less than price quoted on stock exchange (listed securities)
 Price is not less than breakup value of shares, certified by practicing CA(unlisted securities)
Exemption shall be applicable to following persons:

 A Pakistan national resident outside Pakistan.
 A person who holds dual nationality including Pakistan nationality, whether living in or
outside Pakistan.
 A foreign national, whether living in or outside Pakistan.
 A firm or trust or mutual fund registered and functioning outside Pakistan, excluding entities
owned or controlled by foreign government.
Exemption applies in following cases:

 Issue of shares and Modaraba Certificates/Trust and Fund Units out of new public offers
 Transfer of shares quoted on Stock Exchange(s) of the country
 Private placement of new/initial shares with foreign investors by any company, which is,
- A manufacturing company related to power generation/energy related infrastructure,
producers of computer software and companies established to set up software
technology parks for developing computer Software packages/programs
- Engaged in activities in Service, Infrastructure, Social & Agriculture sectors etc which
are open to foreign investors by Govt Investment Policy (if complaint with conditions
and after obtaining ‘Entitlement Certificate’ from SBP certifying value of investment).
 Transfer of shares of the companies prescribed in above point
 Transfer of Pakistani securities held by a “person resident outside Pakistan” on repatriable
basis to other eligible ‘persons resident outside Pakistan’ on same basis against payment
outside Pakistan (certificate for this shall be given by transferee to company concerned)
 Issue of rights and bonus shares in all those cases where shares are held on repatriable basis
by ‘persons resident outside Pakistan’ in accordance with permission of SBP.
 Issue of Government securities to foreign nationals.
 Issue/transfer of rupee denominated corporate debt instruments viz. PTC/TFC etc. and
Registered WAPDA Bonds as permitted under relevant SRO governing such issue and sale.
 Issue of NIT Units to above persons (except firm)
Procedure for issue of Shares out of new public offers on repatriable basis (Para 7)
 Companies issuing shares may open foreign currency collection accounts with banks abroad
or in Pak for receiving subscription in foreign currency.
- May also allow refunds from these accounts to unsuccessful applicants.
- Amount by successful applicants should be repatriated to Pak and foreign currency
accounts closed within a week of allotment of shares.
- Proceeds Realization Certificate (PRC) shall be obtained from Authorized Dealer
 For remittance directly to Pakistan in company’s rupee account, shares may be issued for
rupee equivalent paid by concerned Authorized Dealer as shown in PRC.
 If shares are to be issued to non-resident sponsors against plant and machinery supplied by
them,application should be submitted to area office of Foreign Exchange Operation Dept
with relative import documents (original invoices & bills of entry, copies of bills of lading or
airway bills and import authorization from Trade Development Authority, if applicable)
- Exchange Entitlement Certificate (EEC) will be issued at average of interbank buying
and selling rates on dates of filing of bills of entry with Customs.
- After getting EEC, company may issue shares upto value mentioned in the Certificate.
 If non-resident sponsors want to pay in foreign currency through foreign currency account,
Authorized Dealer will issue a Certificate showing date-wise deposit of equity in account and
its buying exchange rate on date of deposit.
- Company may issue shares after receipt of money in its account for the equivalent
Rupee amount at the exchange rate shown in the Certificate.
 At request of company, SBP shall authorize an Authorized Dealer for remittance of dividend
 Shares issued/transferred shall be intimated by company to designated Authorized Dealer

within 30 days of issue/transfer on prescribed form along with following documents
- MOA, AOA and Certificate of Incorporation/Registration etc., if not already submitted
- For issuing ordinary shares through public offer, Bank’s PRC and permission of SECP.
- For issuing ordinary shares through private placement against equity repatriated to
Pakistan under paragraph, PRCs in original.
- For issuance of shares of companies other than manufacturing, Entitlement Certificate
obtained from SBP by submitting following through a nominated Authorized Dealer: -
o Encashment Certificate and/or PRC showing foreign currency or equivalent Rs
o MOA, AOA and Certificate of Incorporation.
o Attested copy of Board of Investment's Registration Letter, (if applicable)
o Particulars of sponsor shareholders
- For issue of rights shares, PRCs in original with copy of Board’s Resolution.
- For bonus shares, a copy of Board’s Resolution, Auditor’s certificate for compliance
with existing applicable laws and audited accounts for the respective year.
- For issuance against plant and machinery, EEC in original.
- For issuance against equity deposited in a foreign currency account for import of plant
& machinery, Account holding bank’s certificate in original.
- For transfer of listed shares, Stock Broker’s Memo and PRCs both in original.
(If shares negotiated privately, documents of deal and price on SE on that date)
- For transfer of shares of un-listed companies, Auditor’s certificate for break-up value,
a copy of audited accounts of that year, documentary evidence of sale price and PRCs
- For transfer of shares from one non-resident to another non-resident against payment
outside Pakistan certificate from transferee and PRCs
- For issue of Government Securities, issue/transfer of debt instruments and issue of NIT
Units, PRCs with copies of related documents.
To enhance due diligence with respect to export of securities to non-resident investors,

Authorized Dealers are required to submit following additional documents/information:
 Formal Share Purchase Agreement etc between Investor & Investee.

 Business profile containing ownership, organization/group, locations, markets & products.
 Promoters’/ Directors’ names, addresses, ID/passport numbers & country of domicile.
 Certificate of Incorporation or equivalent issued/acknowledged by the relevant Authority.
 MOA & AOA or equivalent registered with the relevant Authority.
 Annual Audited Financial Statements with Auditors’ report & notes for last year.
 Pattern of Shareholders (name, national identity number & shares held) etc
 Related Party details including beneficial ownership with above documents, if any.
Authorized Dealers shall maintain centralized record/data of all such cases and update the same
for On-site inspection /Off-site monitoring by SBP.
Companies issuing/registering transfer of shares on repatriation basis, may export the share
certificates through designated Authorized Dealer to shareholders. Authorized Dealer shall also
allow remittances in respect of the following:-
 Dividend, net of applicable taxes
 Disinvestment proceeds not exceeding market value (listed)/break up value (unlisted) less
brokerage/commission on submission of:
- Name and address of non-resident share holder.
- Name and address of company whose shares were sold by non-resident beneficiary,
indicating type of that company (This requirement may be waived for quoted shares).
- Name, address and residential status of the buyer of the shares in question.
- Copy of broker’s memo (listed) /breakup value certificate of a practicing CA (unlisted)
Issue of Securities and NIT Units to non resident on non-repatriation basis and its
transfer on the same basis. (Para 8)
 All type Pakistani Securities including NIT Units (except unlisted) allowed, if payment is
made either in foreign exchange or in Pakistan rupees
 Securities must be registered at Pakistan address of purchaser and a clear undertaking by
him that no repatriation of capital and profits/dividends will be claimed at any stage.
 Such securities may also be transferred to a person (resident/non resident) on same basis,
 Such person may also be issued bonus/right shares as per his entitlement on same basis
Trading of Quoted Securities by Non-Residents (Para 9)
Trading of Quoted Shares.

“Special Convertible Rupee Account" (SCRA) will be opened with any Authorized Dealer in Pak
 It can be fed by remittances from abroad or by transfer from a foreign currency account
maintained by non-resident in Pakistan.
 Fund available in SCRA can be transferred outside Pakistan or credited to foreign currency
account maintained in Pakistan at any time without prior approval of SBP.
 Balance can be used for purchase of any quoted share
 Payment is debited and the disinvestments proceeds are credited to account on production
of stock broker's memo showing purchase or sale by account holder
 SCRA can also be credited with dividend income.
 Transfers from an SCRA to other may be made for share transfer between 2 account-holder
Non-residents also allowed to trade in Ready/Cash/Futures Markets through SCRA

 A separate sub-account under SCRA shall be opened by foreign investors
 Margins relating to Ready/Cash/Futures may also be routed through this account.
 While allowing refund of margin through SCRA, Authorized Dealer should ensure that the
broker has quoted date and relevant instrument number
 Daily statement showing inflow/outflow and opening/closing balances in SCRA shall be
reported to Statistics and Data Warehouse Department
 Authorized Dealers shall report information on market value of such investments through
future trading in their weekly returns to Statistics and Data Warehouse Department
 Head/ Principal Offices of all Authorized Dealers are advised to submit statements to
Statistics and Data Warehouse Department, SBP in excel format on daily and weekly basis
Commission earned by international brokers from their overseas clients and credited to
broker’s SCRA account may be remitted by Authorized Dealers if funds have derived from
inward remittances or paid out of SCRA of investor.
Trading of PIB, Treasury Bills, Registered Corporate Debt Instruments and WAPDA’s
Registered Bonds listed with Stock Exchange(s) in Secondary Market.
Non-residents are allowed to trade freely in such securities if relevant S.R.Os permit them to
hold bonds in secondary market, through SCRAs subject to the above instructions
Special Instructions regarding shares transferred CDC (Para 10)
 Separate account/sub-account will be opened at CDC for each such non-resident investor
 All transactions at CDS (i.e., deposit or withdrawal) be supported by actual fund movement
 No netting/adjustments allowed
 Payment/receipt for each transaction should be settled independent of other transactions
 If investment is made/routed through SCRA, it should never show an overdrawn position.
 Securities available in account/sub-account may be pledged in favor of NCCPL in case of non-
availability of funds in SCRA to meet margin requirements
Initial transfer in the name of CDC.

 Company concerned will ensure that shares are registered in its record on repatriation basis
in the name of non-resident concerned.
 If not so registered, company will obtain requisite documents issued in name of investor
Subsequent transactions i.e., deposit/withdrawal at CDS.

 For investments made through GDRs, Authorized Dealer will ensure that complete/proper
record of all transactions is kept at their end and the prescribed statements of SCRAs are
furnished to SBP as usual
 For investments not involving SCRA, original documents will be submitted as usual to the
respective company by along with a certificate that shares are in the name of CDS and have
since been deposited into/withdrawn from respective non-residents account at CDS.
 Company, after updating its record, will furnish the same to designated Authorized Dealer.
 Authorized Dealer will keep these documents in its record for onward submission to SBP in
prescribed manner along with returns pertaining to dividend/ bonus or right issue
 He will as usual make remittance of disinvestment proceeds as per prescribed drill/rules.
Dividend Payment/allotment of bonus or right shares.
 CDC will issue to relevant company a list of beneficial non-resident shareholders certifying
their individual holding as on Ex-date of dividend/bonus/right
 Before issue of dividend warrant or allotment of shares, company will verify the holding of
non-residents not involving SCRAs from its record and for the non-residents investing
through SCRAs, it will obtain an undertaking-cum-certificate from Authorized Dealer
 List provided by CDS will invariably be attached by company to the returns.
Investment by the branches of Foreign Banks and the Foreign Controlled Investment
Banks (Para 11)
 Branches of foreign banks in Pak and foreign controlled investment banks incorporated in
Pak are permitted to invest in Pak. Rupee listed corporate debt instruments issued in Pak
 Such investment should be made through IPO and secondary market purchases
 If those debt instruments are convertible into shares, it should not exceed lessor of 30% of
paid-up capital of issuer or 30% of paid-up capital and reserves of the invester
 Profit/interest accruing treated as income for purpose of profit/dividend remittance
Other Requirements
Transfers between Registers etc (Para 12)
Only allowed with the general or special permission of the SBP.
Investment Abroad by Residents including firms and companies. (Para 13)
Allowed to make equity based investment (other than portfolio investment) in companies
(whether incorporated or not) /Joint Ventures on repatriable basis, with permission of SBP
 Allowed only for those countries that allow repatriation of profits, dividends and capital.
 Only companies incorporated in Pakistan including foreign controlled companies and firms
owned by Pakistani Nationals resident in Pakistan are allowed investment under scheme.
 Can invest only in similar businesses in foreign countries (in which investor has expertise).
 Investor should be financially sound as per audited accounts for last 3 years.
(For I.T companies, as per last 1 year)
 Proposal should be economically as per feasibility report.
 Should have potential for future earnings of foreign exchange with other advantages to the
country such as employment opportunities for Pakistanis and improvement in national HR.
 Funds for investment should be legitimate and tax paid
 Investor should have a clean record of loan repayments.

 Funding for investment is allowed only from inter-bank market or from funds available in
foreign currency accounts of investors or out of funds available in incremental deposits of
frozen foreign currency accounts, or Foreign Currency accounts maintained by exporters
 Following investments by individuals would be permitted without detailed scrutiny
- Small investments by individuals in a few shares of listed companies abroad
- Share option exercise by employees of subsidiaries of foreign companies in Pak
 SBP would also deal with such proposals of Public Sector Organizations in financial sector
(For other sectors, concerned ministry would deal with investment proposals)
 After making such investment, investor is required to:
- Make a return to SBP on prescribed form through their banker within 1 month;
- Provide copy of Certificate of Incorporation and Commencement of Business of target
organization to Authorized Dealer with copies of share certificates etc.
- Repatriate dividend/disinvestments proceeds to Pak through banking channels.
File with SBP a PRC for amounts received, converted to local currency by bank
concerned (Amounts not be allowed for credit to Foreign Currency Account or for
purchase of Pakistani securities on Repatriable basis)
 Detailed applications with audited accounts, particulars of Directors/Partners of investor
company/firm, name and address of target company/firm, its line of business & particulars
of its Directors/Partners, should be forwarded to Director, EPD, SBP, Karachi.
Investment Abroad by Locally Established Mutual Funds. (Para 14)
 Allowed to invest abroad for diversification of their portfolio, to extent of 30% of aggregate
funds mobilized (including foreign currency funds), in permissible categories
 A cap of US$ 15 million is applicable at any given time.
 Such investment must strictly follow scope and conditions approved by SECP
 Such funds would need prior approval of SBP through Authorized dealer.
- Apply to Director, EPD, SBP with details of proposed operations & related documents.
- Requests will be evaluated on a case to case basis
Registration of Foreign Securities. (Para 15)
 All residents of Pakistan acquiring such securities (entitling cash flows in foreign currency)
shall make a return to SBP within 1 month of acquisition with particulars of such securities.
 Foreign nationals residing in Pakistan are not required to submit the above returns.
Under-writing of shares, term and Modaraba certificates by foreign banks (Para 16)
 Foreign banks’ branches in Pakistan have general permission to under-write shares to the
extent of lessor of 30% of public offering or 30% of its own paid-up capital and reserves
 Also permitted to under-write public issues of PTC, TFCs and modaraba certificates
(if these are convertible to shares, restrictions of 30% would also apply)
 For a loan to be classified as subordinated loan, the following conditions shall be met:
- Subordinated loan shall be un-secured and sub-ordinate to NBFC indebtedness; and
- Subordinated loan shall be documented by a formal subordination agreement between the
provider of the loan and the Borrower that the loan is subordinate to NBFC claim;
Independent director
Shall have the same meaning as assigned to it in regulation 35 of the Listing Regulations of Karachi Stock
Exchange;
Net Assets
in relation to a collective investment scheme and pension fund, means the excess of assets over liabilities
of collective investment scheme or pension fund, computed in the manner provided in these regulation;
Element of income
It represents the difference between net assets value on the issuance or redemption date, as the ease may
be, of units and the Net Asset Value (NAV) at the beginning of the relevant accounting period..
Element of income is a transaction of capital nature and the receipt and payment of element of income is
taken to unit holders' fund; however, to maintain same ex-dividend net asset value of all units outstanding on
accounting date, net element of income contributed on issue of units lying in unit holders fund is refunded on
units in the same proportion as dividend bears to accounting income available for distribution.
Person
Includes an individual, a Hindu undivided family, a firm, an association or body of individuals whether
incorporated or not, a company and every other legal person
Rental
Include lease Rentals, Rentals in respect of housing finance facilities, hire purchase installments or any
other amount received by NBFC from Borrower against the grant of a Facility;
“TFC” means debt instrument issued for the purpose of raising funds in the form of redeemable capital;
“Total Expense Ratio” means the ratio of the sum of all fees, expenses, taxes or government levies charged
to the Collective Investment scheme to average daily net assets value of that Collective Investment Scheme;
“Small Enterprise” and “Medium Enterprise”, (together referred to as the SME)”, includes ,-
(a) small enterprise:- a business entity not a public limited company that has annual turnover
up to Rs. 150 million and employees (including contractual) up to 50; and
(b) medium enterprise:- a business entity that has annual turnover of more than Rs. 150 million
and up to Rs. 800 million and number of employee (including contractual) between 51 to 100 for
trading entity and between 51 to 250 for manufacturing or service entity”;
NBFC (Establishment & Regulation) Rules 2003
Establishment of NBFC (Rule 3 and 4)
 A person desirous of forming a NBFC to undertake any form of business shall make a
prescribed application to SECP, along with all the relevant documents and receipt evidencing
the payment of prescribed non-refundable processing fee
 Each of its promoters, proposed directors, chief executive and chairman of the Board shall:
- fulfills the terms and conditions mentioned in the fit and proper criteria
(given in Schedule of NBFC & NE Regulations 2008 – not part of syllabus); and
- complies with the requirements of Ordinance, rules and the regulations.
 SECP, if satisfied, may permit by an order in writing to establish a NBFC.
 The permission granted shall be valid for a period of 6 months
(extendable up to 3 months under special circumstances, on application of promoters made
within those initial 6 months)
 During validity of this permission, promoters shall get the NBFC incorporated and submit an
application to SECP for grant of licence.
Promoter or Sponsor
A person who has made an application to the SECP to form an NBFC and has contributed initial capital
in the proposed company or a person who replaces him
Conditions for grant of licence (Rule 5)
 An NBFC or any other company subject to eligibility (Schedule-I) shall make separate
prescribed applications to SECP for grant of licence for carrying out each form of business.
 Application shall be submitted along with a prescribed non-refundable processing fee
 If a company fails to commence business within the period as specified by SECP while issuing
licence, the licence shall be deemed to be cancelled
(unless specified period is extended by SECP on application by the company)
 A fund management NBFC shall not be eligible for seeking licence for any form of business
allowed to lending NBFC and vice versa.
 SECP may issue a licence for asset management services to manage only closed end fund.
 Licence granted for investment finance services shall be valid for undertaking leasing,
housing finance services and discounting services
(not be required to obtain separate licences for each form of business)
Every other person engaged in any form of business shall within a period of 6 months of coming
into force of these rules apply in writing to SECP, for grant of a licence along with specified non-
refundable processing fee
Persons already engaged in business of micro financing shall apply in writing to SECP for licence
within 6 months from date of publication of this Notification or such other extended date as may
be specified by SECP through Notification in official Gazette:
 Shall not be required to obtain licence if having less than 5000 active borrowers or having
outstanding loan portfolio of less than 50 million rupees:
 Such person should be receiving funding or financing from a bona fide source (e.g. reputed
local or international donor agencies or Federal/Provincial Governments or entities
regulated by SECP/SBP etc)
 Such fund providers shall try to route the funding through proper banking channels and to
oversee its operations so that these are conducted legitimately, as specified by SECP.
SECP shall, after making necessary inquiries and after obtaining such further information, as it
may consider necessary, grant licence for one or more forms of businesses subject to
compliance of all or any of following conditions:
 Company fulfills the eligibility criteria given in Schedule I;

 Company is not part of a group of companies already holding a licence, under these rules,
for the same form of business;
 Company meets minimum equity requirements or any other requirement in lieu of
minimum equity as may be prescribed by SECP for each business or class of companies
 Company has allotted at least 25% of the paid-up share capital to the promoters;
 Promoters or majority shareholders and directors have deposited their shares with CDC in
an account marked as blocked (except directors holding qualifying shares, maximum up to
2% of total share capital)
- Such shares shall not be sold or transferred without prior approval of SECP
- Shares shall be kept unencumbered
- They shall also give an undertaking that they shall not enter into any agreement for
sale or transfer of their shares in any manner without prior approval of SECP
 Company appoints its chief executive who does not hold such office in any other company
(except for investment company being managed by company with prior approval of SECP)
 Company shall not make any change in MOA (except increase in authorized share capital),
without prior approval of the SECP
 Company shall comply with these rules, the regulations or any direction given by SECP
 Company shall satisfy SECP with evidence that the personnel employed by it for executive
positions, research or other related functions possess sufficient educational qualifications
and professional experience to undertake the proposed form of business:
(a new company shall furnish the evidence within 90 days of grant of licence)
 Company obtaining multiple licences or any undertaking any form of business as ancillary
activity must have at least 1 person responsible for heading each form of business (other
than chief executive)
 The incorporated NBFC shall not undertake any other activity except licenced activity
Group
Persons, whether natural or legal, if one of them or his close relatives, in case of a natural person, or, its
subsidiary or associated company, if it is a legal person, have control or hold [direct or indirect
substantial ownership interest or have power to exercise significant influence over the other.
For the purpose of this clause the expression
 subsidiary shall have the same meaning as defined in sub-section (2) of section 3 of the Ordinance;
 control shall have the same meaning as defined [Securities Act, 2015 (III of 2015);
 substantial ownership means beneficial shareholding of ten percent by a person or by close relative;
and
 significant influence refers to the management control of the company or the ability to participate
in financial operational and risk management policies, either exercised by representation on the
Board of Directors, through partnership or by statute or by agreement in the policy making process
Major shareholder
A person who, individually or in concert with his family or as part of a group, holds ten percent or more
shares having voting rights of the paid-up capital of the company
 SECP may, impose additional conditions or grant time to the company for compliance with
any of the above conditions as it deems appropriate
 SECP may further extend the time granted to the company for compliance
Renewal of the Licence
 Licence granted shall be valid for 3 years from date of its issuance
- Shall be renewable upon expiry of 3 years by making a prescribed application at least
1 month prior to expiry along with payment of a prescribed fee
 SECP may, after making such inquiry and after obtaining such further information, as it may
consider necessary, renew the licence, for 3 years
 Till renewal of licence, the existing licence shall be deemed valid for the purposes of these
rules and the regulations (unless company fails to apply 1 month prior to expiry)
 If company fails to apply for renewal within stipulated time period and fulfills all the
requirements to the satisfaction of the SECP its licence shall stand cancelled
Conditions applicable to an NBFC (Regulation 7)
RATINGS
 Obtain rating in accordance with Schedule-I as and when it becomes eligible for rating as
per the rating criteria of a rating agency registered with SECP
 Such rating shall be updated at least once every financial year:
 Within 1 year of decrease in its rating from grade specified by SECP, obtain a fresh rating
(During that SECP may allow NBFC to continue its operations on prescribed conditions)
 Publish the rating in its annual report and quarterly reports, annual and quarterly reports
of the collective investment schemes managed by it, if applicable, and any advertisement
and brochures in relation to promotion of its business
APPOINTMENT OF OFFICERS
 Auditors
Ensure that its statutory auditors are from approved list of auditors circulated by SECP;
 Financial or Chief Accounting Officer

Appoint an individual, having minimum 3 years experience, who is a
- Member of a recognized foreign accountancy organization; or
 Internal Auditor
Individual having minimum 3 years relevant experience who is a
- Member of recognized foreign accountancy organization; or
- Certificated Internal Auditor (CIA); or
- Certified Information System Auditor (CISA); or
Can also be outsourced to a CA firm having satisfactory QCR (not being statutory auditors)
Internal auditor shall report directly to the board or the audit committee
 Compliance Officer
Appoint a person to ensure reporting to the SECP of the status of compliance with existing
regulatory framework by NBFC
Note:
Non-deposit taking and unlisted lending NBFC may designate another officer as its
compliance officer, financial or chief accounting officer
 Executives
Appoint persons who fulfill terms and conditions mentioned in fit and proper criteria;
 Directors
- Appoint directors in accordance with Schedule I
- SECP shall be final authority to determine status of an independent of director
- Shall not appoint person who hold such office in any other NBFC licensed for same
business.
These rules shall not apply to a director nominated by the Federal Government or Provincial
Governments or any exception specified by SECP
RESTRICTIONS ON INVESTMENTS
NBFC shall not:

 Hold or make investment in a subsidiary other than a financial services company
(May make strategic investments in financial services company with approval of SECP)
- Microfinance companies may set up non-financial subsidiaries with intimation to SECP,
to supplement/complement community service objective of that company
- Conditions and exceptions pertaining to these investments shall be specified by SECP
Financial services company
A financial institution incorporated in Pakistan or outside Pakistan, insurance company, broker
i.e. of stock market or money market or commodities market; a company which is primarily
involved in distribution of securities, insurance products and units or certificates of a notified
entity, and any other company as notified by the SECP in the official Gazette;
Strategic Investment - An investment which an NBFC makes with the intention to hold it for a
period of minimum 5 years and is more than 10% of its equity
 Enter into followings without prior approval of SECP

- Form, sell or transfer ownership of shares in subsidiary or associated company
- Merge with, acquire or takeover any other company (Scheme should be approved)
- Sell strategic investment
 Make aggregate investment in shares of unlisted company in excess of 20% of its equity.
- Such Investment shall be approved in a board meeting after carefully analyzing the
merits and financial impact of the investment
- Decision shall be recorded in detail in the minutes of the meeting
- Shall be communicated to SECP within 14 days of meeting along with copy of minutes:
 Own shares of any one unlisted company in excess of lessor of

- 10% of its own equity or
- 10% of the issued capital of that company
Note: Investment out of surplus equity (over and above required minimum equity
requirements) in unlisted shares of its subsidiaries or any other financial services company in
the group, shall not be taken into account for calculating the limit for unquoted shares
ACCOUNTS & RECORDS
NBFC shall comply with the requirements of Companies Act 2017 with regard to:
 Maintenance of Books of accounts and other records
 10 years preservation requirement
 Giving True and Fair view
 Complying with ISA suggested by Sec 234 and Technical Releases by ICAP
Books of accounts includes following

 Journals, cash books and other records of original entry forming the basis of entry in any
ledger (supporting documents);
 Ledgers (or comparable record) reflecting assets, liabilities, income and expenses along
with all supporting documents or records;
 Ledgers (or comparable record) showing securities in the portfolio;
 Record of transactions with banks;
 Record of the board meetings and all relevant committees meetings including audit
committee, credit committee and investment committee; and
 Original record of all reports, analysis and memoranda containing investment advice;
NBFC shall furnish to SECP its quarterly and annual financial statements in accordance with
Schedule I (i.e. as per the requirements of the Companies Act 2017);
NBFC shall not remove any of its records or documents relating to its business from Pakistan to
a place outside Pakistan without the prior permission of SECP
Records All documentary and electronic materials created, generated, sent, communicated, received
or stored, regardless of physical form or characteristics
RESTRICTED BUSINESSES
An NBFC shall not:
 Undertake brokerage business in capital market
(except by forming a separate company for this purpose)
Securities broker
A trading right entitlement (TRE) certificate holder or who, by way of business,
 Makes or offers to make with any person or induces or attempts to induce any person to enter
into or to offer to enter into, any agreement for or with a view to buying, selling, exchanging or
 Hold, deal or trade in Real Estate
(except for the use of NBFC itself or where specified by SECP)
Note: Properties acquired by lending NBFC in satisfaction of its claims shall be disposed of
within a maximum period of 7 years from the date of acquisition
 Enter into premises leasing or renting, and sale or purchase of any kind with their
directors, officers, employees or their close relatives or any person acting on their behalf or
such persons who either individually or in concert with family members beneficially own
10% or more of the equity of the NBFC:
- Not applicable to NBFCs that have such a policy duly approved by their BOD:
- In case of any sale and purchase to the directors the prior approval in writing of the
board, excluding the participation of the beneficiary directors, is required;
Close relative - Includes spouse, lineal ascendants and descendants and brothers and sisters
OTHER REQUIREMENTS
NBFC Shall:
 Acquire and maintain membership of the relevant association and follow the code of
conduct specified by the said association approved by SECP
 Seek registration of notified entities as per the regulations notified by SECP in the Official
Gazette before offering of unit, certificates or shares of notified entities:
 Follow directions issued to protect NBFCs against their involvement in money laundering
activities, terrorist financing and other unlawful trades;
NBFC shall not:
 Raise deposits in any form by whatever name called except as specified by SECP in the Non-
Banking Finance Companies and Notified Entities Regulations, 2008;
 Provide unsecured facilities or exposures except as specified by SECP
 Encumber or mortgage or pledge or transfer clients’ assets deposited as security with the
NBFC against any facility extended to the client, for securing its own obligation.
 Offer any of its own or other securities for any consideration other than cash or liquid assets
nor make any loan or advance against these securities
(Unless otherwise specified by SECP)
Eligibility Criteria (Schedule-I) – Not part of Syllabus (only for understanding)
Form of Type of Company Number of Rating No of directors

Business independent with relevant
directors experience
(At least 5 years at
a senior
management level
for that business)
Lending NBFC* Listed company which was 2 or One third, Credit 2 directors
(with deposit incorporated as an NBFC and complies whichever is Rating excluding chief
taking with conditions mentioned in the higher executive
permission) Regulations for raising Deposit.
Lending NBFC* i) Any form of company incorporated 1 or one third, N/A 1 director
(without as NBFC whichever is
(If No of directors
deposit taking ii) Any existing company engaged in higher
including chief
permission) these forms of business.
executive is 3)
iii) Any other company as approved by
SECP
2 directors
Investment i) Public limited company incorporated One third Manage-
advisory as NBFC -ment (If No of director,
services ii) An existing fund management NBFC including chief
quality
executive is
rating
Private Equity i) Any form of company incorporated greater than 3)
and Venture as NBFC
Capital ii) An existing fund management NBFC
Management
Services
Asset i) A public limited company
management incorporated as NBFC
with a valid investment advisory
services licence and minimum 5 years’
experience
REIT i) Public limited company incorporated
management as NBFC
iii) A public limited company
Pension fund i) A fund management NBFC with a
scheme business valid asset management services
licence and minimum 3 years’
experience of managing multiple types
of collective investment schemes
ii) A life insurance company. with a
valid licence and minimum 3 years’
experience
*Lending NBFCs are Leasing, Housing Finance Services, Investment Finance Services and Discounting
Minimum No of Directors
Lending NBFC without deposit taking permission

Higher of
 2
 Minimum No of directors as per Companies Act 2017
All others
Minimum No of directors as per Companies Act 2017
Submission of Financial Statements (for all type of businesses)

As per the requirements of the Companies Act 2017
NBFC and Notified Entities Regulations 2008
Money laundering, terrorist financing and other illegal trades (Reg 9)
All NBFCs shall ensure prevention of money laundering and other illegal trades and abide by
laws, directives and circulars issued by Federal Government or SECP to safeguard NBFC. NBFC
shall not offer services or provide any assistance in transactions which, in opinion of NBFC, are
associated with illegal activities or to terrorist financing from legitimate or illegal means.
NBFC shall also:
 Determine true identity of the prospective customer or investor before extending services
and care shall be taken to establish beneficial ownership of all accounts and those using safe
custody.
Customer means a person who has placed a Deposit with the Lending NBFC or has
invested in the units or certificates of a Notified Entity or has obtained Finance from a
Lending NBFC or has any business relationship with the NBFC or Notified Entity.
 Accept money from a customer only after ensuring that an account has been opened in the
name of the customer using the account opening form
(developed by the respective industry associations in consultation with SECP)
 Scrutinize and properly investigate any unusual transaction into or from the account
maintained with NBFC
 Not make payment or receive amounts in cash exceeding Rs.50,000/-.

(shall not apply to cash payments made for repayment of Finance by existing borrower)
 Establish effective procedures for

- Obtaining identification from new customers
- Devising a policy to ensure that business transactions are not conducted with persons
who fail to provide evidence of their identity
- Monitoring of customer accounts on a regular basis
- Checking identities and bonafide of remitters and beneficiaries of transactions
- Retain record of transactions
Approval for appointment/re-appointment of directors and chief executives (Reg 10)
Tutor’s Note: A proposed director or chief executive of NBFC and Investment Company shall
not assume the charge of office until their appointment has been approved by SECP.
Election of directors in AGM/EOGM
 NBFC shall submit an application for the individuals seeking to contest the elections
(including retiring directors) 10 days before the meeting date
 Within 10 days from date of election, NBFC shall submit an application for appointment
or reappointment of chief executive
Casual vacancy or reappointment of Director or Chief Executive
NBFC must submit an application within 10 days of the occurrence of any casual vacancy or
reappointment, as the case may be;
Replacement of Chief Executive
NBFC shall inform SECP immediately along with reasons for it, where:
 BOD decides to remove chief executive before expiration of his term; or
 Chief Executive decides to tender his resignation before completion of his term; or
 Replacement of Chief Executive on completion of his term
NBFC shall, within 10 days, submit an application complete in all respects, for obtaining
approval for appointment of the new chief executive
Any deficiency or shortcoming in information or documents submitted by the NBFC to SECP

shall be rectified by the NBFC within 14 days of the issue of letter by SECP informing the same
- Where NBFC does not remove the deficiency/shortcoming, SECP may close the matter
Appointment of Independent Directors (Reg 10A)
An NBFC shall ensure compliance with following requirements while appointing independent
directors on its board,-
 Independent directors shall be selected from the data bank notified by SECP as per
Companies Act, 2017; and
 Independent directors shall be elected in the same manner as shareholder directors are
elected in accordance with Companies Act, 2017 (u/s 159)
Maximum Exposure of NBFC to a single person, or Group (Reg 17)
Single Person
 Total outstanding Exposure (fund based and non-fund based) by NBFC to a person shall not
at any time exceed 20% of the equity of an NBFC (as disclosed in the latest financials)
 Maximum outstanding fund based Exposure should not exceed 15% of the equity of NBFC
Infrastructure finance company means an NBFC that deploys at least 70% of total assets
in infrastructure finance for infrastructure projects, which SECP may notify through
circular and is compliant with minimum equity and CAR requirement
Group
 Total outstanding Exposure (fund based and non-fund based) by NBFC to any group shall
not exceed 25% of the equity of an NBFC (as disclosed in the latest financials)
 Maximum outstanding fund-based Exposure should not exceed 20% of the equity of NBFC
Above limits shall not be applicable to exposure taken by an NBFC in its own subsidiaries out
of its surplus equity.
Above regulation shall not apply to an NBFC not accessing Public Funds in Pakistan.
Explanation:- Public Funds include public deposits, inter-corporate deposits, bank finance and all
funds received whether directly or indirectly from outside sources such as funds raised by issue of
debentures, commercial papers, etc. Further, indirect receipts of public funds means funds received
not directly but through associates and group entities which have access to public funds
Micro financing
Poor Person Microenterprise
Rs. 1,500,000 for housing loan Rs. 1,500,000
Rs. 500,000 for general loans other than hosing loan
How to calculate Exposure

 100% of the deposits placed with lending NBFC, under perfected lien, shall be deducted from
Exposure
 90% of the following shall be deducted from Exposure, -
- Deposits with any other financial institution or scheduled bank rated at least A or
equivalent by a credit rating agency registered with SECP, under perfected lien; and
- Encashment value of Government Securities and National Saving Scheme securities
deposited by the Borrower with the lending NBFC as collateral;
 85% of unconditional financial guarantees, payable on demand, issued by the scheduled
banks rated at least ‘A’ or equivalent by a credit rating agency registered with SECP, accepted
as collateral by NBFCs shall be deducted from the Exposure;
 30% of listed TFCs and Sukuks, rated at least ‘A’ or equivalent by a credit rating agency
registered with SECP, and shares of KSE 100 index companies held as security with duly
marked lien shall be deducted; and
 75% of Encashment Value of a Life Policy issued by an A-rated insurance company, duly
assigned and endorsed in favor of the lending NBFC using it as a Security”; and
 Following weightage will be applicable in respect of exposure to financial institutions,-

- 10% weightage for ‘AAA’ Rating
- 25% weightage for ‘AA‘
- 75% weightage for ‘A’
Exposure Limits in Capital Market (Reg 17C)
 An NBFC’s aggregate exposure in listed equity securities, and spread transactions shall not
exceed 50% of its equity (regulation not be applicable on non-deposit taking NBFCs)
“spread transactions” mean such transactions where shares of one company are purchased on
one settlement date and simultaneously sold on another settlement date, that will be considered
as one transaction
 NBFC’s investment in equity securities of any company shall not exceed lessor of
- 10% of paid-up capital of investee company; or
- 10% of its own equity
Shares acquired in excess of 10% limit, due to Underwriting Commitments, shall be sold off
within 6 months from the date of acquisition of such shares:
 Amount of provisions created against permanent diminution shall be deducted from cost of
acquisition of equity investments
Above restriction shall not be applicable to investments made by an NBFC in its own
subsidiaries and long term strategic investments out of surplus equity.
For the purpose of this Regulation “investments in equity securities” shall be valued at cost of
acquisition for the purpose of calculating the above limit
Limit on clean placements (Reg 18)

An NBFC shall make clean placement (exposure without taking any security or collateral) only
with financial institutions rated at least A- or equivalent by a credit rating agency registered
with SECP
Limit on aggregate liabilities of an NBFC (Reg 15B)
Aggregate liabilities, excluding contingent liabilities and security deposits shall not exceed.
Non-deposit taking NBFC 10 times of its equity
NBFC engaged exclusively in issuance of 10 times of its equity & qualified
guarantees to enhance quality of debt instruments capital
issued to finance infrastructure projects in Pak (SECP may specify qualified capital and
its terms and conditions)
Contingent Liabilities of an NBFC shall not exceed the limits prescribed below:
Credit Rating of AA-and above 2 times of equity
Credit Rating of A-to A+ 1.5 times of equity
Credit Rating of BBB+ 0.5 times of equity
NBFC engaged exclusively in issuance of guarantees 10 times of its equity & qualified capital
to enhance quality of debt instruments issued to (SECP may specify qualified capital and
finance infrastructure projects in Pak its terms and conditions)
Following shall not constitute contingent liabilities for the purpose of this regulation:
 Non-fund based Finance to the extent covered by liquid assets;
 Non-fund based finance where the payment is guaranteed by
- Federal Government
- Provincial Government
- Financial Institution rated AA by a credit rating agency registered with SECP
 Claims other than those related to provision of Finance to the NBFCs’ constituents, where
the probability of conversion of these claims into liabilities is remote in the view of Auditor
Creation of reserve fund (Reg 16)
A deposit taking lending NBFC shall create a reserve fund wherein

 At least 20% of after tax profits shall be credited till reserve fund equals the paid up capital
 Thereafter a sum not less than 5% of its after tax profits shall be credited to reserve fund.
Issuance of bonus shares may be made from the reserve fund after appropriation made as per
the defined regulation, however NBFC shall transfer further amounts to the reserve fund in
order to comply with the requirements of Regulation
Maintenance of Capital Adequacy Ratio (‘CAR’). (Reg 17A)

Deposit taking NBFC shall be required to maintain CAR of 8% for first 2 years from coming into
force of these regulations and 10% for subsequent years as per criteria given in Schedules
Asset Liability Management System. (Reg 17B)

BOD of a deposit taking NBFC shall approve a policy for effective monitoring of NBFC’s assets
and liabilities profiles for managing liquidity risks by containing mismatches (running total) in
maturity of assets and liabilities across all time buckets by establishing internal prudential
limits.
Also the aggregate Exposure of Deposit taking NBFC shall not exceed its equity.
Classification of Assets and provisioning (Reg 25)
Time Based criteria
 A lending NBFC shall observe the ‘Time Based criteria” for classification of its assets and
provisioning as provided in Schedule X.
 A Lending NBFC shall take benefit of realizable value of assets held as collateral against
non-performing Finance as per criteria given in Schedule XI;
Subjective Evaluation
 In addition to time based criteria provided in Schedule X subjective evaluation of performing

& non-performing finance shall be made for risk assessment
- Where considered necessary the category of classification determined on the basis of
time based criteria shall be further downgraded:
- 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 Borrower or lessee.
 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 IAS as notified by
SECP and the Technical Releases issued by ICAP, time to time.
 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 this assessment, shall immediately be provided in books.
Rescheduling / Restructuring of Non-Performing Facility
 Status of classification of a rescheduled/restructured non-performing Finance shall be

changed only when:
- Terms and conditions of rescheduled/restructured Finance are fully met for a period
of at least 6 months (excluding grace period, if any) from date of such rescheduling/
restructuring; and
- At least 20% of the outstanding amount (principal + markup) is recovered in cash:
 Condition of 6 months retention period shall not apply if the Borrower repays or adjusts at
least 50% of the restructured or rescheduled loan (principal + markup) amount in cash either
at the time of restructuring or during grace period (if any)
 NBFC shall ensure that status of classification & provisioning of a rescheduled/ restructured
non-performing Finance is not changed in its reports to SECP merely due to
rescheduling/restructuring of a Finance and rescheduled/restructured loans shall be
reported to the Credit Information Bureau (CIB) as such and not as default.
 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.
 At the time of rescheduling / restructuring an NBFC shall reconsider, re-examine and record
in detail the viability of the project or business and shall accordingly obtain a revised
business plan, latest CIB report and try to obtain additional security to secure its interests.
External auditors (as a part of annual audit of NBFC) shall verify that all requirements under
these Regulations or any other circular issued by SECP for classification of assets and
determination of provisions required against them have been complied with.
Ch # 20: Banking Companies and Transactions

 Introduction to Banking Companies
 Requirements regarding Minimum Capital, Reserves and Assets
 Restrictions relating to directors and other officers
 Other Restrictions
 Accounts and Audit
 Miscellaneous
 Payment Systems and Electronic Fund Transfers Act, 2007
C 3.1: The Banking Companies Ordinance, 1962

• Part I (Sections 1, 2, 5 & 6)
• Part II (Sections 9, 11, 13 to 19, 21, 22, 24, 29, 34 to 38)
D 5.1: Payment Systems and Electronic Fund Transfers Act, 2007
(Section 2, 4, 5, 8, 14, 18)
100% (except penalties, duplications, obvious interpretations & definitions and
transitional provisions)
Tutor’s Note: Circulars are not covered in this chapter

Introduction to Banking Companies
What is a Banking Company and applicability of Banking Companies Ordinance 1962
Banking
Accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise;
Banking company
Any company which transacts the business of banking in Pakistan and includes their
branches and subsidiaries functioning outside Pakistan of banking companies incorporated
in Pakistan;
Note: Any company which is engaged in manufacture of goods or carries on any trade and which accepts
deposits of money from the public merely for the purpose of financing its business as such manufacturer
or trader shall not be deemed to transact the business of banking within the meaning of this clause;
Deposits of money
Shall be deemed to include money called, invited or collected for the purpose of investment
or borrowing in any business carried on by company, firm or person by whom, or on whose
behalf, such money is called irrespective of the nature of the relationship, arrangement or
terms offered or provided to person making investment, deposits of money or payment
Branch or branch office

Any branch or branch office, whether called a pay office or sub-pay office or by any other
name, at which deposits are received, cheques cashed or moneys lent
Foreign banking company

Banking company, not incorporated in Pakistan, which has a branch or branches doing
banking business in Pakistan under a licence issued by SBP in this behalf;
Company
Any company which may be wound up under the Companies Act 2017 and includes a branch
of a foreign banking company doing banking business in Pakistan under a licence issued by
the SBP in this behalf
Ordinance to override memorandum, articles, etc (Sec 6)
Save as other-wise expressly provided in this Ordinance,-

 Provisions of this Ordinance shall override anything contained in MOA/AOA/Agreement/
Resolution passed by members or BOD
 Any provision contained in these documents against the ordinance shall be considered void
Application of other laws not barred (Sec 2)
Provisions of this Ordinance shall be in addition to, and not in derogation of, the Companies Act
2017 and any other law for the time being in force.
Companies Act 2017 – Sec 505

The provisions of Companies Act 2017 shall apply to
(a) Insurance companies
(b) Banking Companies
Tutor (c) Modaraba companies and modarabas
(d) Any other company governed by any special enactment
Note except in so far as the said provisions are inconsistent with the provisions of
relevant law (e.g. Banking Companies Ordinance 1962 etc)
Prohibition of trading (Sec 9)
Except as authorised under section 7, no banking company shall directly or indirectly deal in
the buying or selling or bartering of goods or engage in any trade or buy, sell or barter for others,
other than the bills of exchange received for collection or negotiation.
Goods means every kind of movable property, other than actionable claims, stocks, shares, money,
bullion and species, and all instruments referred to in section 7
Requirements regarding Minimum Capital, Reserves and Assets
Minimum paid-up capital and reserves requirements (Sec 13)
 No banking company in Pakistan shall:

- Commence business unless it has a minimum paid-up capital as may be determined by
the SBP; or
- Carry on business unless aggregate of its paid up capital and unencumbered general
reserves (items as may be notified by SBP) is of such minimum value within such period
as may be determined and notified by the SBP from time to time.
SBP may by order in writing require any banking company, which has failed to comply
with above provision, to deposit with SBP shortfall amount (required – actual) on such
terms and conditions as the SBP may determine
 If any dispute arises in computing aggregate value of capital and unencumbered general
reserves of any banking company, a determination thereof by the SBP shall be final.
 For companies incorporated outside Pakistan, requirements shall be deemed to have
complied with if it deposits, and keeps deposits, with SBP an amount by transfer of funds
from outside Pakistan or in the form of assets acquired out of remittable profits made by it
from deposits in Pakistan which is not less than that limit, in any one or more of following:
- Interest-free deposit in cash in Pakistan rupees
- Interest-free deposit in a freely convertible approved foreign exchange within the
meaning of SBP of Pakistan Act,1956; and
- Deposit of un-encumbered approved securities
(i.e. such other securities as FG may, by notification in the official Gazette, declare)
 Any such amount deposited with SBP shall, in the event of company ceasing for any reason
to carry on banking business in Pakistan, be an asset of the banking company on which the
claims of all the creditors of the banking company in Pakistan shall be a first charge.
Regulation of authorised, subscribed & paid-up capital and the voting rights (Sec 14)
Banking company incorporated in Pakistan shall satisfy the following conditions:

 Subscribed capital shall not be less than ½ of authorized capital
 Paid-up capital shall not be less than ½ of subscribed capital
 While increasing capital, same must be ensured within such period (not exceeding 2 years)
as SBP may allow
 Capital of company should consists of ordinary shares and perpetual non-cumulative
preference shares only
 Voting rights of any one shareholder should be strictly proportionate to the paid-up capital
contributed by him
 Voting rights of any one shareholder, except those of FG or a Provincial Government, should
not exceed 5% of total voting rights
No suit or other proceeding shall be maintained against any registered shareholder on the
ground that the title to the said share vests in a person other than the registered holder except
 By a transferee of share on the ground that he has obtained from registered holder a transfer
in accordance with any law relating to such transfer; or
 On behalf of a minor or a lunatic on the ground that registered holder holds the share on
behalf of the minor or lunatic.
Every chairman, managing director or CEO shall furnish to SBP through that banking company
returns containing full particulars of:
 His shareholding in the banking company;
 Any change in that holding; or
 Any variation in the rights attaching thereto and
 Such other information as SBP may require (in such form and time as may be specified).
SBP may require any banking company, by an order in writing stating reasons, to increase its paid
up capital by such amount and within such period as may be specified in the order
Order by SBP to reduce, divest or transfer shareholding
 SBP may, by an order in writing stating reasons, require any person to reduce, divest or
transfer to a fit and proper person, his shareholding in banking company within such
reasonable period and in such manner as may be specified in the order where:
- SBP has determined that a person is holding or is a beneficial owner of 5% or more
shares without prior approval of the SBP; or
- A person that acquired shareholding with prior approval of SBP subsequently fails to
meet the fit and proper test.
 Where a person holding 5% or more shares is or is likely to be detrimental to the interest of
banking company or its depositors, SBP may by written order require such person to divest
his shareholding to a fit and proper person.
 Before giving any order, person concerned shall be given opportunity of being heard
 Where order is not complied with, SBP may dispose of such shares either through stock
exchange or public auction. Net sale proceeds of such shares shall be paid to the respective
shareholders within a period of 3 months. If necessary, SBP may require
- Issuance of duplicate shares in place of the original shares; and
- CDC to make appropriate changes in their records
 If SBP is of opinion that any delay would be detrimental to public interest or interest of
banking company or depositors, SBP may make an appropriate interim order and conduct
the proceedings in a reasonably expeditious manner.
 The interim order may include prohibition of:
- Transfer of, or the carrying out of agreement or arrangement to transfer such shares;
- Exercise of voting rights in respect of such shares;
- Payment of cash or stock dividends in respect of such shares; and
- Issue of further shares to the concerned shareholder;
Any person aggrieved by any of above orders may prefer appeal to the Central Board of Directors
of SBP (During the proceedings, shareholder shall not derive any benefit including dividends, right
shares, voting rights, etc. from shareholding without express permission of Central Board)
Reserve Fund (Sec 21)
Every banking company incorporated in Pakistan shall create a reserve fund to which shall be
credited following % of profit as disclosed in annual accounts and before dividend declaration:
 If amount in such fund + Share premium account is less than paid-up capital; 20 %
 If amount in such fund + Share premium account is not less than paid-up capital; 10 %
If any appropriation is made from the reserve fund or share premium account, report the fact
to the SBP within 21 days (or any extension allowed by SBP) from such appropriation,
explaining the circumstances relating to such appropriation
Cash Reserve (Sec 22)
Every banking company (not being a schedule bank) shall maintain by way of cash reserve in
cash with itself, or in current account opened with the SBP or its agent or partly in cash and
partly in such account(s) a sum equivalent to at least:
 5% of its demand liabilities in Pakistan (i.e. liabilities which must be met on demand)
 2% of its time liabilities in Pakistan (i.e. liabilities which are not demand liabilities)
Shall submit to SBP before 15th day of every month a return showing the amount so held on
Thursday of each week of preceding month with particulars of its demand and time liabilities in
Pakistan on each Thursday (in case of a public holiday; balance on preceding working day)
Maintenance of liquid assets (Sec 29)
 Every banking company and every financial institution specified u/s 3A shall maintain in
Pakistan, an amount which shall not be less than such percentage of total of its time and
demand liabilities in Pakistan, as may be notified by the SBP from time to time
 Such amount shall be in cash, gold or unencumbered *approved securities valued at a price
not exceeding lower of cost or current market price.
*Approved securities includes such types of Pakistan rupee obligations of FG or a Provincial

Government or of a Corporation wholly owned or controlled, directly or indirectly, by these
Government and guaranteed by FG as FG may, by notification in the official Gazette, declare, to the
extent determined from time to time.
 SBP may separately specify for banking companies or financial institutions the applicable
percentage either in general, for all or a class, or for any particular institution etc.
 Following shall be deemed to be cash maintained
- Any deposit required to be made with SBP by a banking company incorporated outside
Pakistan u/s 13
- Any balances maintained in Pakistan by banking company in current account with SBP
(or its agent or both), or in profit and loss sharing term deposit account with SBP
(including the balance required to be so maintained u/s 36 of the SBP Act, 1956)
 Every banking company shall submit to SBP every month a return (before the close of next
month to which return relates) showing the amount so maintained on Thursday of each
week of preceding month with particulars of its demand and time liabilities in Pakistan on
each Thursday (in case of a public holiday; balance on preceding working day)
 The cash deposited by a banking company or financial institution under this section shall be
deemed to be part of the assets of the banking company but it shall not be
- Subject to any encumbrance
- Available for discharge of any liability other than order of liquidation by High Court
- Available to attachments in execution of any decree or recoverable under Order of any
authority under any law for the time being in force, except any claim of the SBP.
Restrictions relating to Directors and other Officers
Election of new directors (Sec 15)
 SBP may require any banking company to call a general meeting to hold fresh election
 Banking company shall be bound to comply with the order
 Election shall be held within such time as maybe specified
(not less than 2 months from date of order)
 SBP may also allow further time in it, if deemed fit.
 Every fresh director elected shall hold office for remaining tenure of previous BOD
 Such election, duly held, shall not be called in question in any court.
Appointment of director by the SBP (Sec 15A)
SBP may appoint one person to be a director of a banking company, whether or not he holds
any qualification shares.
Restriction on term of office of directors (Sec 15B)
 Elected director shall not hold office for more than 6 consecutive years
(Any break of less than 3 years in continuity of office shall be ignored while calculating it)
 Such director shall not be eligible for re-election unless a period of 3 years has elapsed
 This Requirement not applicable to CEO or a director nominated under section 15A
Vacation of Office (Sec 15 C)
 Director shall vacate his office if in relation to the banking company, he has failed to:
- Pay any advance or loan or any installment or interest thereon or any amount due on
any guarantee; or
- Do or perform any act agreed to or undertaken in writing by him
 And such failure continues for 1 month after notice in writing has been served on him
Prohibition regarding employment of managing agents and others (Sec 11)
Banking company shall not employ or be managed by a managing agent or employ or continue
the employment of any person:
 Who has been, adjudicated insolvent or has suspended payment, or has compounded with
his creditors; or
 Who has been, convicted by criminal court of an offence involving moral turpitude; and
 Whose remuneration (or part of it) is in the form of commission or a share in profits of Co.
Last point not applicable to the payment by a banking company of:

- Any bonus in pursuance of a settlement or award arrived at or made under any law relating to
industrial disputes or in accordance with any scheme framed by such banking company or in
accordance with usual-practice prevailing in banking; or
- Any commission to any broker (including guarantee broker), cashier-contractor, clearing and
forwarding agent, auctioneer or any other person, employed by banking company under a
contract otherwise than as a regular member of the staff
Banking company shall not be managed by any person who:

 Is a director of any other company not being a subsidiary of banking company or company
registered u/s 42 of Companies Act 2017 except with previous approval of SBP;
 Is engaged in any other business or vocation; or
 Has a contract with company for its management for period exceeding 5 years at any 1 time
(Such contract may be renewed or extended for a further period not exceeding 5 years at a
time, if and so often as the directors so decide)
“Managing director” means a director who, by virtue of an agreement with the banking company or of
a resolution passed by the banking company in general meeting or by its Board of Directors or, by virtue
of its MOA/AOA, is entrusted with management of the whole, or substantially the whole of the affairs of
the company, and includes a director occupying the position of managing director, by whatever name
called.
Officer found guilty of contravention of Law
 SBP may make an order a person shall cease to hold office with effect from specified date:
- Where any chairman/director/manager/CEO is, or has been found by any tribunal or
other authority (other than a criminal court) to have contravened the provision of any
law; and
- SBP is satisfied that contravention is of such a nature that association of such person
with banking company is or will be detrimental to interest of the banking company or
its depositors (stakeholders) or otherwise undesirable
 Order by SBP may also provide that he shall not, without permission of SBP, directly or
indirectly, be concerned with, or take part in the management of, the banking company or
any other banking company for such period as may be specified (not exceeding 5 years)
 Opportunity not be given if any delay would be detrimental to interests of stakeholders.
 Any decision or order of SBP made under this section shall be final for all purposes.
Other Restrictions
Restrictions relating to loans, advances and securities
Restrictions on loans and advances (Sec 24)
Banking company shall not:

 Make any loans or advances against the security of its own shares; or
 Grant unsecured loans or advances to, or make loans and advances on the guarantee of:
- Any of its directors;
- Any of the family members of any of its directors;
(Spouse, dependent lineal ascendants and descendants and dependent siblings)
- Any firm or private company in which banking company or any of the above persons is
interested as director, proprietor or partner; or
- Any public limited company in which the banking company or any of the above persons
is substantially interested.
Banking company shall not make loans or advances to any of its directors or to individuals, firms
or companies in which it or any of its directors is interested as partner, director or guarantor
without the approval of majority of the directors (excluding the director concerned)
Prohibition of charge on unpaid capital (Sec 17)
Banking company shall not create any charge upon any unpaid capital of the company
Prohibition of floating charge on assets (Sec 18)
 Banking company shall not create a floating charge on undertaking or any property of the
company or any part thereof, unless creation of such floating charge is certified in writing by
SBP as not being detrimental to the interest of the depositors of such company.
 Any banking company aggrieved by refusal of certificate by SBP may, within 90 days of
communication of refusal, appeal to FG.
 Decision of FG shall be final on such appeal
Restrictions as to payment of dividend (Sec 19)
 Banking company shall not pay any dividend on its shares until all its capitalised expenses
have been completely written off.
Capitalised expenses would also include preliminary expenses, organisation expenses, share-selling
commission, brokerage, amounts of losses incurred and any other item of expenditure which is not a
tangible asset
 A banking company may pay dividends on its shares without writing off:
- Depreciation, if any, in value of its investment in approved securities
(where depreciation has not actually been capitalised or accounted for as a loss)
- Depreciation, if any, in value of its investments in shares, debentures or bonds, other
than approved securities
(if adequate provision for depreciation has been made to the satisfaction of auditor)
- Bad debts, if any.
(if adequate provision for debts has been made to the satisfaction of auditor)
 If a banking company meets minimum capital requirement and capital adequacy ratio as
specified by SBP from time to time, and has also accounted for the portion of capitalized
expenses, goodwill etc., for the year to the satisfaction of auditor, it shall also be eligible for
payment of dividend out of profits for the said year.
 If the SBP is satisfied that conditions or financial position of banking company are not
favourable for such payment, it may, by order stating reasons, restrict or prohibit any
company from paying dividends for such period as may be specified in the order
 Interim order shall be made, if any delay would be detrimental to interests of stakeholders
Amount of commission, brokerage, discount or remuneration in any form in respect of any of the
shares it shall not exceed in aggregate 2.5% of the paid-up value of these shares. (Sec 16)
Accounts and Audit
Accounts and balance-sheet (Sec 34)
 At the expiration of each calendar year every banking company shall prepare a balance-sheet
and profit and loss account as on the last working day of the year
(as per forms set out in the Second Schedule to the extent it is practicable)
 Requirements applicable to Banking companies incorporated in Pakistan (regarding all
business transacted by it) and every banking company incorporated outside Pakistan
(regarding all business transacted through its branches in Pakistan)
SBP may, after giving not less than 15 days notice, from time to time by a notification in the official
Gazette, amend the forms set out in the Second Schedule.
Authentication of Accounts
Balance sheet and profit and loss account shall be signed by the
 Banking company incorporated in Pakistan
Manager or the principal officer of the company and all the directors
(where there are more than 3 directors of the company, by at least 3 of those directors)
 Banking company incorporated outside Pakistan
Manager or agent of the principal office of the company in Pakistan and by another officer
next in seniority to the manager or agent.
Filing of the accounts (Sec 36, 37)
 Accounts and balance-sheet together with auditor’s report (approved) shall be published in
the prescribed manner
 3 copies of the above documents shall be furnished as returns to SBP within 3 months of the
year end (SBP may extend this time by a further period not exceeding 3 months)
 Banking company may or a private company shall send to registrar simultaneously 3 copies
of above documents
 On such filing, the requirements to file these document under Companies Act 2017 (Sec 134)
shall cease. (chargeable with same fees as applicable under that Ordinance)
Display of accounts by banking companies incorporated outside Pakistan (Sec 38)

Every banking company incorporated outside Pakistan shall:
 Not later than first Monday in August of any year in which it carries on business
 Display in a conspicuous place in its principal office and in every branch office in Pakistan, a
copy of its last audited balance sheet and profit and loss account prepared u/s 34
 Keep it so displayed until replaced by a copy of the subsequent accounts
 Also display in like manner, the copies of its complete audited balance sheet and profit and
loss account relating to its banking business as soon as they are available
 Keep the copies so displayed until copies of such subsequent accounts are available.
Audit (Sec 35)

Balance sheet and profit and loss account shall be audited by a person who is
 A CA (as per Chartered Accountants Ordinance, 1961) qualified to be auditor of companies
 Borne on the panel of auditors maintained by SBP for this purpose
SBP shall classify the panel of auditors, so maintained, in different categories for different
banking companies keeping in view the scope and size of such banking companies.
An auditor shall hold office for a period of 3 years
(shall not be removed from office before that period except with the prior approval of the SBP)
SBP may, from time to time, lay down guidelines for the audit of banking companies and the
auditors shall be bound to follow those guidelines.
If SBP is not satisfied with the performance of auditor or the auditor has not fulfilled any of the
requirements of this section, SBP after giving the auditor an opportunity of being heard may:
 Revoke the appointment of external auditors of the banking company;
 Downgrade the category of the auditor in the panel of the auditors; and
 Remove the auditor from the panel of the auditors for a maximum period of 5 years.
In addition to the other required matters, he shall also state in his report:
 Whether or not the information and explanations required by him have been found to be
satisfactory;
 Whether or not the transactions of the banking company which have come to his notice have
been within the powers of the banking company;
 Whether or not the returns received from branch offices of the banking company have been
found adequate for the purposes of his audit;
 Whether the profit and loss account shows a true balance of profit and loss for the period
covered by such account; and
 Any other matter which he considers should be brought to the notice of the shareholders
Auditors shall report all the matters of material significance to SBP and reporting of such
information and material shall not constitute breach of confidentiality under any law
Auditor shall have same powers and duties as are under Companies Act
“Creditor” includes persons from whom deposits have been received on the basis of participation in
profit and loss and a banking company or financial institution from which financial accommodation or
facility has been received on the basis of participation in profit and loss, mark-up in price, hire-
purchase, lease, or otherwise;
“Debtor” includes a person to whom, or a banking company or financial institution to which, finance as
defined in the Banking Tribunals Act 2017, has been provided;
“Borrower” is any person to whom any credit limit is sanctioned (availed/not), including
 its subsidiariesin case of company
 any member in case of Hindu undivided family
 any firm in which such member is a partner;
 any partner of A firm or any other firm in which such partner is a partner; and
 in the case of an individual, any firm in which such individual is a partner
“Gold” includes gold in the form of coin, whether legal tender or not, or in the form of bullion or ingot,
whether refined or not;
“Substantial interest” in an undertaking shall be deemed to be possessed by a person if he or any of

his family members is the owner, director or officer of or has control over the undertaking or if he or
any of his family members holds shares carrying not less than 20% of the voting power in such
undertaking;
For the purpose of this clause,—
(i) “Control” in relation to an undertaking, means the power to exercise a controlling influence over the
management or the policies of the undertaking, and, in relation to shares, means the power to exercise a
controlling influence over the voting power attached to such shares;
(ii) “Person” includes a Hindu undivided family, a firm, an association or body of individuals, whether
incorporated or not, a company and every other juridical person; and
(iii) “Undertaking” means any concern, institution, establishment or enterprise engaged in the
production, supply or distribution of goods, or in the provision or control of any services relating to the
provision of board, lodging, transport, entertainment or amusement, or of facilities in connection with
the supply of electrical or other energy, or to the purveying of news, insurance or investment.
“Credit information” means any information relating to

 Amounts& nature of credit facilities, bills purchased/discounted, LC and LG, indemnities and other
engagements.
 The nature of security taken from any borrower for credit facilities granted to him;
 The guarantees, indemnities or other engagements furnished to a banking company; and
 Operations or accounts in respect of credit facilities.
“Acted knowingly” means If he has

 Departed from established banking practices and procedures or
 Circumvented the regulations or related credit restrictions laid down by SBP.
Payment Systems and Electronic Fund Transfers Act, 2007
Designation of Payment System (Sec 4 & 5)
 State Bank may designate a PS as a DPS by a written order, if necessary in the public interest.
 State Bank may inspect the premises, equipment, machinery, apparatus, books or other
documents, or accounts and transactions relating to PS, in considering to designate it as DPS.
State Bank may revoke the designation of a DPS if it is satisfied that:

 DPS has ceased to operate effectively as a PS;
 Operator of the designated system has knowingly furnished information or documents to
the State Bank in connection with the designation of the PS which is or are false or misleading
in any material particular;
 Operator or settlement institution of the DPS is in the course of being wound up or otherwise
dissolved, whether in Pakistan or elsewhere;
 Any of terms and conditions of designation or requirements of Act has been contravened; or
 State Bank considers that it is in public interest to revoke designation.
The State Bank shall not revoke a designation without giving the operator of the DPS an
opportunity to be heard. However, the State Bank may suspend the designation of a PS without
notice pending the final order, if an immediate systemic risk is involved.
“Payment System” inter-alia means a system relating to payment instruments, or transfer, clearing,
payment settlement, supervision, regulation or infrastructure thereof and includes clearing, settlement
or transfer of Book Entry Government Securities;
“Electronic Payment System” means implementation of Payment System Electronically;
“Operator” means any financial or other institution or any person, authorized by the State Bank to
operate any Designated Payment System;
Disqualification of Staff (Sec 8)
Person shall not be appointed to serve in any capacity by an operator if such person has been:
 Adjudged a bankrupt, or has suspended payments, or has compounded a debt with creditors,
whether in or outside Pakistan, within 10 years prior to the date of appointment; or
 Has been convicted of an offence under this Act or committed any other offence involving
moral turpitude or such an offence has been compounded against him.
Any person being the chairman, director, chief executive, by whatever name called, or official
liquidator, or an officer of a DPS mismanages the affairs of the payment system or misuses his
position for gaining direct or indirect benefit for himself or any of his family members or any other
person, shall be disqualified to serve in any capacity in a designated payment system.
Prohibition of Issuance of Payment Instruments (sec 14)
 SBP may, by a written order, prohibit any person from issuing or using any Payment
Instrument if, in its opinion the:
- Issuing or use of Payment Instrument is detrimental to the reliable, safe, efficient and
smooth operation of Payment Systems of Pakistan or monetary policy of SBP;
- Prohibition is in the interest of the public; or
- Payment Instrument has been issued with an object to entice or defraud the public.
- Person has, in the opinion of SBP, failed to comply with the requirements of this Act.
 For that SBP may inspect the premises, equipment, machinery, apparatus, books or other
documents, or accounts and transactions of the issuer of the Payment Instrument.
 Any Person creating obstruction to an officer or representative of SBP in such inspection
shall, upon complaint made to a court having jurisdiction, be liable to punishment up to 3
years imprisonment of either description or with fine up to Rs 5 million or both.
 SBP shall before passing an order, give such Person a reasonable opportunity to make
representation before it. SBP may also, in appropriate cases, without notice direct a Person
to immediately stop issuing a Payment Instrument, pending the final order.
“Payment Instrument” means any instrument, whether tangible or intangible, that enables a person
to obtain money, goods or services or to otherwise make payment; but excludes Payment Instruments
prescribed in Negotiable Instrument Act, 1881 (XXVI of 1881);
Clearing Houses, Audit and Inspection.- (Sec 18)
 SBP may nominate one or more Clearing Houses to provide clearing or settlement services
for a Payment System on such terms and conditions as may be determined by it.
 SBP may conduct audits and inspections of Clearing Houses and the Clearing House shall, as
required, assist SBP to the extent necessary to enable it to carry out an audit or inspection.
 Such auditors shall be appointed with prior approval in writing of the State Bank.
“Clearing House” means corporation, company, association, partnership, agency or other entity that
provides clearing or settlement services for a Payment System;
“Accepted Card” means a card, code or other means of access to a Consumer’s Account for the purpose
of initiating Electronic Fund Transfers;
“Account” means a current deposit, saving deposit, or any other account maintained by a consumer in
a Financial Institution in which credits and debits may be effected by virtue of Electronic Fund
Transfers;
“Authorized” means authorized by the State Bank for the purposes of this Act;
“ATM Card” means any card for use at any ATM to initiate Electronic Fund Transfers.
“Authorized Party” means a bank, a Financial Institution, a Clearing House, a Service Provider or any
person authorized by the State Bank to transact business under this Act in Pakistan;
“Automated Teller Machine (ATM) Operator” means any person or a Financial Institution operating
any ATM at which consumers initiate Electronic Fund Transfers;
“Book Entry Government Securities” means any securities issued by the Government under any
written law transferable by a book entry on a register or otherwise;
“Business Day” means any day on which offices of consumers, Financial Institutions, operators or
Service Providers involved in Electronic Fund Transfer are open to the public;
“Cheque in the Electronic Form” means a cheque which contains the exact image of a paper cheque
in electronic form and is generated, written and signed in a secure system ensuring minimum safety
standards as may be prescribed by the State Bank;
“Consumer” means any person who or which avails the facility of Electronic Fund Transfer;
“Debit Instrument” means a Card, Access Code, or other device other than a cheque, draft or similar
paper instrument, by the use of which a person may initiate an Electronic Fund Transfer;
“Card” means any card including an ATM card, Electronic Fund Transfer point of sale card,
debit card, credit card or stored value card, used by a Consumer to effect an Electronic Fund
Transfer;
“Access Code” includes pin, password or code, which provides a means of access to a
Consumer’s Account for the purpose of initiating an Electronic Fund Transfer;
“Electronic Fund or Electronic Money” means money transferred through an Electronic Terminal,
ATM, telephone instrument, computer, magnetic medium or any other electronic device so as to order,
instruct or authorize a banking company, a Financial Institution or any other company or person to
debit or credit an account and includes monetary value as represented by a claim on the issuer which
is stored in an electronic device or Payment Instrument, issued on receipt of funds of an amount not
less in value than the monetary value issued, accepted as means of payment by undertakings other than
the issuer and includes electronic store of monetary value on a electronic device that may be used for
making payments or as may be prescribed by the State Bank;
“Electronic Fund Transfer” means any transfer of funds, other than a transaction originated by
cheque, draft or similar paper instrument, which is initiated through an Electronic Terminal, telephonic
instrument, point-of -sale Terminal, stored value card Terminal, debit card, ATM, computer magnetic
tape or any other electronic device so as to order, instruct, or authorize a Financial Institution to debit
or credit an Account;
“Electronic Money Institution” means an undertaking, that issues means of payment in the form of
Electronic Money and is duly authorized to do so;
“Electronic Terminal” means an electronic device, operated by a consumer, through which a
consumer may initiate an Electronic Fund Transfer;
“Financial Institution” means a financial institution as defined in the Financial Institutions
(Recovery of Finances) Ordinance, 2001 (XLVI of 2001) and includes a banking company or any other
Electronic Money Institution or person, authorized by the State Bank in this behalf, that directly or
indirectly holds an account belonging to a consumer.
“Government” means the Federal Government or any Provincial Government;
“Netting” means the conversion into one net claim or one net obligation of claims and obligations
resulting from transfer orders which a participant either issues to, or receives from, one or more other
participants with the result that only a net claim can be demanded or a net obligation be owed;
“Participant” means a party to an arrangement that establishes a Payment System;
“Person” includes a legal person or a body of persons whether incorporated or not.
“Real Time Gross Settlement System” means a Payment System which can effect final settlement of
funds, payment obligations and Book Entry Government Securities and instruments on a continuous
basis during such operating hours of a processing day as the State Bank may determine on a
transaction-by-transaction basis;
“Service Provider” includes an operator or any other Electronic Fund Transfer Service Provider.
“Systemic Risk” means the risk that relates to the inability of a participant to meet its obligations in
the Payment System as they become due or a disruption to the Payment System that could, for whatever
reason, cause other participants in the Payment System to be unable to meet their obligations as they
become due; and
“Truncated Cheque” means a cheque which is truncated in a securesystem, during the course of a
clearing cycle, by an Authorized Party, whether paying or receiving payment, immediately on capture
of a scanned image, substituting physical movement of the cheque in the original form, and includes a
cheque in the electronic form
Ch # 21: Insurance Companies
This chapter deals with the basics of the Insurance Ordinance 2000. At first a basic
introduction and type of insurance companies has been given in this chapter. Afterwards
requirements as to register as an insurance company and the related procedure has been
discussed. Later in this chapter, special statutory and other fund requirements for a Life
insurer are discussed in detail. Then requirements as to Share capital, statutory deposits
and minimum solvency requirements are discussed.
C 2.1: Insurance Ordinance, 2000

• Part I (Sections 1 to 4)
• Part II (Sections 5 to 13)
• Part III (Section 14)
• Part IV (Section 28)
• Part V (Sections 35, 36)
• Part VII (Sections 45 to 48)

 Introduction and types of insurance
 Registration of an Insurer
 Statutory and other funds of life insurance companies
 Solvency requirements
 Accounts & Audit
 Minimum Capital & Deposit Requirements
 Other Definitions
100% (except penalties & transitional provisions)
Introduction and types of Insurance
“Insurance” means contract where, in consideration of a premium received, a person

promises to make payment to another person contingent upon the happening of an event,
specified in the contract, on the happening of which the second-named person suffers loss,
Insurance also includes contracts of reinsurance and retrocession.

Contract of life insurance shall be deemed to be a contract of insurance even if it may not comply
with one or more conditions of the definition.
Types of contracts (Sec 3)
Insurance business is divided into life insurance business and non-life insurance business which
are effected and carried out through following type of contracts:
Life insurance Business
 Payment of money on death of a person or happening of a contingency dependent on

termination/continuance of human life;
 Payment of premiums for a term dependent on termination/continuance of human life;
 Payment of an annuity for a term dependent on the continuance of human life;
 Payment of an annuity for a term not dependent on continuance of human life but exceeding
period of 1 year;
 An indemnity for medical expenses;
 A continuous disability income contract;
 An investment contract;
 Such other contracts as may be prescribed.
Contract whose principal object is one of the above, but also contains some provisions of a non-life
insurance nature shall be considered as a Life Insurance business.
Non-Life insurance Business
 All insurance contracts not constituting life insurance business.

 A contract that provides for payment on the death by accident and:
 A contract for the payment of money in the event of a person suffering loss, other than
death, attributable to accident, sickness or infirmity and:
Classes of life and non-life business (Sec 4)
Life Insurance Business
Class 1 - Ordinary life business;

Contracts of life insurance other than contracts included in Class 2, Class 3 or Class 4;
Class 2 - Capital redemption business;

Contracts of capital redemption contracts.
Class 3 - Pension fund business;

Contracts of life insurance which are
 maintained for a pension or retirement scheme and
 owned by trustees under the scheme
Class 4 - Accident and health business.
Contracts providing
 fixed pecuniary benefits or
 benefits in the nature of indemnity or
 a combination of both,
against risks of the policy holder or a person for whose benefit the contract was made -
- sustaining injury as a result of an accident;
- becoming incapacitated in consequence of an accident or disease; or
- suffering loss, including medical expenses, attributable to accident, sickness or infirmity
Non-Life insurance business
(a) for direct and facultative reinsurance business;
Class 1 - Fire and property damage business;

Insurance against loss from loss of or damage to property, other than as contained in class2;
Class 2 - Marine, aviation and transport business;

Insurance against loss to the policy holder arising from the following (including 3rd party risks
and carrier’s liability but excluding risks contained in class 3/5):
 loss of or damage to, or arising out of or in connection with the use of:
- means of transport, including motor vehicles and railway rolling stock used on land,
vessels used on the sea or on inland waters, and aircraft; or
- the machinery, tackle, furniture or equipment of those means of transport;
 loss of or damage to merchandise, baggage and all other goods in transit, irrespective of the
form of transport;
Class 3 - Motor third party compulsory business;
Insurance against loss arising from liabilities incurred to third parties arising out use of motor
vehicles on land
Class 4 - Liability business;

Insurance against loss to the policy holder arising from liabilities incurred to third parties, other
than in respect of risks specified in class 2, class 3 or class 5;
Class 5 - Workers’ compensation business;
Insurance against loss to workers arising out of or in connection with the employment of the
workers by the insured persons;
Class 6 - Credit and suretyship business;

Effecting and carrying out:
 contracts of insurance against loss to the policy holder arising from failure, whether
through insolvency or otherwise, of debtors to pay debts when they fall due; or
 contracts of insurance against loss to the policy holder arising from his having to perform
contracts of guarantee entered into by him; or
 contracts for fidelity bonds, performance bonds, administration bonds, bail bonds, custom
bonds or similar contracts of guarantee.
Class 7 - Accident and health business

Similar to Class 4 of Life Insurance Businesses
 Contract is not more than 1 year
 It excludes contracts of Class 5 of Non life Insurance Businesses;
Class 8 - Agriculture insurance including crop insurance;

Contracts of insurance against loss to the policyholder arising from loss of or damage to
agriculture related property including crops;
Class 9 - Miscellaneous business;

Contracts of insurance of types not included in any other class;
(b) for treaty reinsurance business:
Class 9 - Proportional treaty business

Contracts of treaty reinsurance, whether obligatory or otherwise, of such a nature that a
proportion of premium or of a separately identified part of premium on insurance contracts
which are the subject matter of the treaty is payable to the reinsurer by the cedant and an
identical proportion of claims or of a separately identified part of claims on those contracts is
payable to the cedant by the reinsurer, and including without limitation treaties of quota-share
and surplus classifications;
Class 10 - Non-proportional treaty business.
Contracts of treaty reinsurance, not being contracts of a type included in Class 9.
 SECP may prescribe sub-classes of business into which any of above may be divided.
 FG may prescribe any class of businessas a restricted class or sub-class.
Registration of an Insurer and ancillary conditions
Application for Registration
Persons eligible to transact insurance business (Sec 5)
 Public company
 Body corporate incorporated under the laws of Pakistan
(not being a private company or the subsidiary of a private company);
Undertaking insurance business in Pakistan by Foreign Companies
Government has allowed 100% foreign equity in the insurance business in Pakistan subject to
the following conditions: -
- Foreign companies shall be required to bring a minimum amount of US$ 4 million
(at least US$ 2 million shall come from abroad)
Circular - There shall be no restriction on the number of branches; and
- There shall be no restriction as to whom they shall employ.
- Shall be following minimum paid up capital requirements as applicable to local insurers.
- Shall be given national treatment in extending all facilities as enjoyed by local companies.
A certificate of registration to carry on insurance business shall be obtained from SECP.
Procedure for obtaining certificate (Sec 6)
 Eligible Person shall apply to SECP for registration as Life or non Life insurer.
 Application shall:
- Be in writing (English /Urdu);
- Signed by authorized persons;
- Not be false or misleading in a material particular
- Contain such information as may be prescribed; and
- Be accompanied by such documents, reports, certificates etc as may be prescribed.
 An application for registration to carry on life insurance business shall in all cases include:
- A statement of the rates, advantages, terms and conditions of life insurance policies
proposed to be offered
- In the case of investment-linked policies a description of:
o Investments to which the policy is linked;
o Basis on which the benefits payable under the policy are determined;
o Frequency with which and basis by which the unit values are determined; and the
values attributed to units at the time of purchase and sale;
o Basis by which values are attributed to units at the time of and for the purpose of
purchase and sale;
o Basis on which expenses attributed to the policy are determined; and
o Basis on which charges for mortality attributed to the policy are determined;
- Business plan showing premium income, expenses and results for 10 years from
registration
- A copy of any written, electronic or other material issued by the applicant for mass
communication or for communication with a policy holder or prospective policy holder,
in respect of life insurance policies proposed to be offered by the applicant
- A statement by appointed actuary that the terms and conditions of the life insurance
contracts proposed to be entered into are sound and workable; and
- A statement by the appointed actuary that the business plan has been prepared
according to principles which appear to him to be reasonable and sound.
In case of a change in the particulars specified above before approval or rejection, applicant shall
give notice to the SECP within 14 days (signed by any two authorized persons)
“Authorised person” means, in the case of a company, a director, including the chief executive, (by
whatever name called), or in the case of insurers being bodies corporate incorporated outside Pakistan
and continuing business as such after the commencement of this Ordinance, the closest comparable
equivalent thereto, under the laws of the place of incorporation of such foreign body corporate;
“Investment-linked” in relation to life insurance means investment contracts, the principal object of
which is the provision of benefits calculated by reference to units, the value of which is related to the
market value of a specified class or group of assets of the party by whom the benefits are to be provided;
Registration by SECP (Sec 7 to 10)
SECP may register the insurer to carry on respective insurance business If satisfied that;
 Applicant has complied with the provisions relating to
- Minimum paid up share capital requirements;
- Minimum statutory deposits;
- Minimum solvency requirements; and
- Reinsurance arrangements;
 Applicant is, and will be, able to;
- Meet its liabilities;
- Meet criteria for sound and prudent management.
- Comply with other requirements of Insurance Ordinance 2000
 Its statutory auditor is recognized by the SECP as appropriately qualified for the task.
 In case of a life insurer, it has appointed actuary whose appointment is not disapproved by
the SECP.
 On the basis of the information provided by the application and any other information
received by SECP, the application ought to be granted the approval.
SECP shall not grant a certificate if

 It is not in accordance with policy decisions made by FG.
 It enables applicant to carry both life and non-life insurance business.
Any person can inspect or take copies of document filed with the application on payment of
prescribed fee. (Sec 8)
Time limit for grant of permission or Refusal
 SECP shall, within 30 days of receipt, notify (in writing) the grant or refusal
 Time can be extended by further 60 days if SECP notifies the applicant in writing before
expiry of first 30 days.
 If the application is deficient
- SECP shall notify before the expiry of 30 days from receipt
- Application shall not be treated as received, until applicant has rectified deficiency.
Restrictions by SECP
 SECP may, specify any class, classes, sub-class or sub-classes of business prescribed as
restricted which it is not authorized to carry on.
 SECP may (in writing), where deemed fit, require applicant to comply with any conditions
for the protection of policy holders.
 conditions shall not be imposed with 30 days prior notice of intention of conditions and
after giving such insurer an opportunity of being heard.
Revocation of registration (Sec 9)
 Registration will be valid until revoked by SECP upon request of insurer

 SECP shall satisfy itself that adequate provision has been made for the irrevocable transfer
to a registered insurer of all insurance liabilities incurred by the insurer seeking revocation.
 Certificate of registration shall be surrendered to SECP on revocation of registration.
Notification of grant or revocation of registration (Sec 10)
SECP shall cause notice of following to be published in the gazette.

 Grant of Registration (including any limitations of business which may be underwritten).
 Revocation of registration
SECP may, on payment of the prescribed fee, issue a duplicate certificate of registration if it is lost,
destroyed or mutilated, or in any other case where it is of opinion that the issue of a duplicate
certificate is necessary.
Conditions imposed on registered insurers (Sec 11)
Insurer registered under this Ordinance shall at all times ensure that
 It has comply with and will continue to comply the requirements of this Ordinance
 It abides by the decisions of any small disputes resolution committee constituted under this
ordinance.
Every insurer shall pay to SECP, on or before 15th January in every calendar year, an annual
supervision fee of the greatest of:
 Rs. 100,000; or
 0.1% of gross direct premium written in Pakistan during the calendar year preceding the
calendar year ended on the previous 31st day of December; or
 Such amount as may be prescribed.
Criteria for sound and prudent management.-(Sec 12)
Following shall be recognised as criteria for sound and prudent management
 Each director and officer of the insurer is a fit and proper person to hold that position;
 In the case of an applicant which is a body corporate incorporated outside pakistan the
principal officer in Pakistanis a fit and proper person to hold that position;
 Insurer is directed and managed by a sufficient number of persons who are fit and proper
persons to hold the positions which they hold;
 Insurer maintains adequate accounting and other records of its business that enable the:
- Business to be prudently managed; and
- Insurer to comply with the obligations imposed on it by or under this Ordinance.
 The insurer maintains adequate systems of control of its business and records.
(held by the persons who are responsible for the direction and management of insurer)
The insurer shall not be regarded as conducting its business in a sound and prudent manner if
 It fails to conduct its business with due regard to the interests of policy holders and
potential policy holders.
 sIt fails to satisfy an obligation to which it is subject by virtue of this Ordinance; or
 It fails to supervise the activities of a subsidiary with due care and diligence and without
detriment to the insurer’s or applicant’s business.
No insurer shall appoint a managing agent for the conduct of its business.
Fit and Proper Person
A person is a fit and proper person who

 possesses such experience and qualifications as are appropriate for the duties for which he
is responsible, and
 conducts those duties with due diligence and skill.
A person is not a fit and proper person to hold the position of Chairman, or of Chief Executive
or principal officer in Pakistan, if
 That person does not have experience or qualifications of direct relevance to the conduct of
insurance operations.
 The association of that person with the insurer is or is likely, for whatever reason, to be
detrimental to the interest of insurer or of the policy holders, or is otherwise undesirable.
Restriction on issue of certain life policies (Sec 13)

 Insurer shall not offer any policy or contract in respect of life insurance business other than
those specifically filled at the time of registration, or any amendment thereof
unless the insurer has, at least 30 days prior to issue, furnished to SECP in respect of such
contracts same particulars and materials about such other policy or contract.
 SECP may, within 30 days, require the insurer in writing to make such changes in the
particulars and materials as SECP may direct.
Statutory and other funds of life insurance companies
Requirements to maintain funds (Sec 14)
Statutory Funds (Sec 14)

A life insurer shall at all times maintain following number of statutory funds
 At least 1 for its life insurance business.
 1 or more statutory funds exclusively for each of the following
- Investment-linked businesses
- Capital redemption businesses
- Pension fund businesses
- Accident and health insurance businesses
- Life insurance business outside Pakistan
- Any class or sub class as may be prescribed by SECP.
 Statutory funds may be divided or amalgamated with the approval of SECP.
 SECP may direct a life insurer to amalgamate or transfer where SECP believes that
amalgamation or transfer is required for the protection of the interests of policy holders.
“Statutory fund” means a fund that
 is established in the records of a life insurer and
 relates solely to the life insurance business or a particular part thereof
Shareholders’ Fund and Permanent Capital Fund (Sec 14)

 Insurer having a share capital shall maintain a shareholders’ fund.
 Insurer not having a share capital shall maintain in its records a permanent capital fund.
“Shareholders’ fund” means a fund that is established in the records of a life insurance company and
which contains that part of the assets and liabilities of a life insurer which is attributed to it and is not
attributed to any statutory fund maintained by that life insurer;
“Permanent capital fund” means a fund that is established in the records of a life insurance company
not having a share capital, and which contains that part of the assets and liabilities of a life insurer which
is attributed to it and is not attributed to any statutory fund maintained by that life insurer;
In this Ordinance, a reference to the shareholders’ fund shall be deemed to include a reference to the
permanent capital fund, and provisions shall apply mutate mutandis to the permanent capital fund.
SOLVENCY REQUIREMENTS
Every insurer shall ensure all the times that it has complied with the provisions relating to
minimum solvency requirements;
Solvency Requirements in the case of Non Life Insurer (Sec 36)
Non-life insurer shall at all times have admissible assets in Pakistan in excess of its liabilities in
Pakistan of an amount greater than or equal to the minimum solvency requirement.
 Minimum Solvency requirement is greatest of:
- Amount as may be prescribed by SECP;
- Prescribed % of earned premium revenue of last 12 months less reinsurance expense
(deduction is allowed max up to 50% of premium revenue of last 12 months)
- Prescribed % of (liability for unexpired risk + outstanding claims) less reinsurance
(deduction is allowed maximum up to 50% of gross figure)
 For foreign company amount will be calculated in respect of its insurance business in
Pakistan only.
 SECP may direct an insurer not to deal with any specified asset for any specified period of
time.
Solvency Requirements in the case of Life Insurer (Sec 35)
 A life insurer shall maintain in its shareholders’ fund a surplus of admissible assets in
Pakistan over liabilities in Pakistan of not less than
- Such higher amount as may be prescribed
 Life insurer shall maintain, in each statutory fund, a surplus of admissible assets in
Pakistan over liabilities in Pakistan (other than policyholder liabilities) equal to or greater
than following amount
For investment-linked business A sum calculated as may be prescribed
Other than investment-linked Amount of policyholder liabilities calculated as
may be prescribed
Note: In case of policy liabilities in another currency; the above calculations (assets and liabilities) shall
be made in that specific currency. And securities denominated in that currency and issued and
guaranteed as to principal and profit or return by Government of the other country, shall be deemed for
the purposes of this section to be admissible assets
 FG may prescribe % (subject to maximum of 40%) of the assets of the shareholders’ fund,
or statutory fund (excluding funds for investment-linked policies), which shall be invested
in Government securities, or in a combination of Government securities and other approved
securities.
Accounts & Audit
Books and records (Sec 45)
Every insurer
 Incorporated in Pakistan, for all businesses
 incorporated outside Pakistan for Pakistan Business only
shall maintain proper books and records in English/Urdu Language in bound/loose leaf form in
electronic or any other form capable of being retrieved at any time and approved by SECP.
Insurer shall secure the books and make it error free.
Proper Books and record means and includes
 A register or record of policies, issued by the insurer, the name and address of the policy
holder, the date when the policy was effected and a record of any transfer, assignment or
nomination of which the insurer has notice;
 A register or record of claims, made with the date of the claim, the name and address of the
claimant and the date on which the claim was discharged, or, in the case of a claim which is
rejected, the date of rejection and the grounds therefor; and
 Such other books and records as may from time to time be prescribed.
“Books” includes -
 A register;
 Accounts or accounting records, however compiled, recorded or stored;
 A document; and
 Any other record of information.
Annual Reporting requirements (Sec 46)
Every insurer shall file following statements duly audited by approved auditor to SECP annually.
In such form manner and time as may be prescribed.
Life Insurer
 A statement of assets and liabilities for each statutory fund operated by the life insurer and
the shareholders’ fund;
 A statement of profits and losses for the shareholders’ fund;
 A statement of cash flows for each statutory fund operated by life insurer and shareholders’
fund;
 A revenue account for each statutory fund operated by the life insurer;
 A statement of premiums for each statutory fund operated by the life insurer;
 A statement of claims for each statutory fund operated by the life insurer;
 A statement of expenses for each statutory fund operated by the life insurer;
 A statement of investment income for each statutory fund operated by the life insurer;
 Such other statements as may be prescribed by the Federal Government;
Non Life insurer

 A statement of assets and liabilities;
 A statement of profits and losses;
 A statement of cash flows;
 A statement of premiums;
 A statement of claims;
 A statement of expenses;
 A statement of investment income;
 A statement of claims analysis;
 A statement of exposures; and
 Such other statements as may be prescribed by the federal government;
SECP may prescribe a form of balance sheet, profit and loss account, revenue account and any
other statement required under the Companies Ordinance, 1984 (XLVII of 1984), and filing made
in such form shall satisfy the requirements of that Ordinance.
Statements shall be
 Signed by
- (chairman + two directors + the principal officer)for insurer incorporated in Pakistan
- (principal officer + two directors (or equivalent officer) for insurer incorporated outside
Pakistan,
 accompanied by
- a statement containing the names and descriptions of in charge of the management of the
business during the period of statements;
- a report on the affairs of the business; and
- a statement that in their opinion;
o the annual statutory accounts have been drawn up in accordance with the Ordinance and
any rules made there under;
o the insurer has throughout in year complied with the provisions relating to paid-up capital,
solvency and reinsurance arrangements; and
o as at the date of the statement, the insurer continues to be in compliance with the
provisions relating to paid-up capital, solvency and reinsurance arrangements.
Filing
 Within four months from the end of the period to which they related(Extension Max 1
Month by SECP)
 Signed by (chairman + two directors + principal officer of the company + CE (if any)
Quarterly Returns
Every insurer, Incorporated in Pakistan, for all businesses and incorporated outside Pakistan for
Business in Pakistan only, shall furnish, to SECP, after December, March, June and September
every year
 A statement of assets and liabilities certified by a principal officer and prepared in the form
and manner as may be prescribed
 In case of life insurer having investment linked business, signed (2 directors + principal
officer) a statement containing:
- The assets underlying the units linked to policies in force;
- The values assigned to each such asset;
- The valuation placed on the units; and
- The amount of any provisions made in determining the valuation.
Explanations
 Life insurer shall furnish such returns separately for each statutory fund and Shareholders’
Fund.
 An actuarial valuation of policyholder liabilities at the date to which such statement is made
up is not required but valued as may be prescribed.
Filing
 Within 6 weeks from the end of period to which they related (Extension Max 15 days by
SECP)
 Signed by (chairman + two directors + principal officer of the company + CE, if any)
Audit.(Sec 48)
Every insurer shall appoint an auditor who shall be:

 Approved by the Commission as qualified to perform audits of insurance companies;
 Authorised under the Companies Ordinance to perform audits of public companies.
The auditor shall have power of exercise duties and liabilities of Companies Ordinance 1984.
The auditor expresses an opinion (in writing in a report attached to the statements) as to whether:
 Statements accurately reflect the books and records of the company;
 Company has maintained proper books and records;
 Statements present fairly the state of affairs of the company as at the balance date and the
result of the company for the financial year ended on that date;
 In the case of a life insurer, apportionment required to be performed has been performed
in accordance with the advice of the appointed actuary; and
 The statements have been prepared in accordance with this Ordinance.
Information to be delivered to SECP (Sec 47)
 Every insurer shall deliver to the SECP such additional copies as may be prescribed of all
accounts, documents, reports and returns filed under the Companies Ordinance, 1984 at
the same time as they are required to be filed there under.
 An insurer incorporated outside Pakistan shall deliver to SECP within 30 days on which such
insurer is required to provide such information a copy of the annual accounts prepared
under the laws of the place of its incorporation and a copy of any public document which
shows or purports to show the annual profit or state of affairs of the insurer in respect of
its business in Pakistan.
Accounts documents reports should be in English/Urdu/translation in English language along
with certified copy of English translation
Minimum Capital & Deposit Requirements
Requirements as to capital.- (Sec 28)

All insurers shall have a paid-up capital of not less than as may be prescribed.
Insertion of Rule 9 in SEC (Insurance) Rules 2002 regarding minimum paid up

capital requirements
Year End
2015 2016 2017
Circulars Type of insurer 31 30 31 30 31
December June December June December
Rupees in Million
Life insurer 500 550 600 650 700
Non Life insurer 300 350 400 450 500
Meaning of Paid up Capital: For the purpose of this ordinance the term”Paid up capital”
wherever ever occurring shall connote paid up capital “Net of accumulated losses”
An insurer, not having a share capital, shall not be required to comply with this section.
Tutor’s Note: This section is variable in nature depending upon latest notification and should be
referred from the relevant bare law applicable at the time of examination.
Other Definitions of the Insurance Ordinance 2000 (Sec 2)
“Continuous disability contract” means a contract under which a benefit is payable in the event of:
 Death, by a cause specified in the contract, of the person whose life is insured; or
 Injury to, or disability of, the insured as a result of accident or sickness; or
 Insured being found to have a specified medical condition or disease;
“Domestic insurance policy” means contract of insurance that provides insurance cover in respect of
loss of or damage to a building used primarily and principally as a residence for the policy holder, for
persons with whom the policy holder has a family or personal relationship, or for both the policy holder
and such persons, or loss of or damage to the contents of such a building, or both;
“Investment Contract” means a contract of insurance, providing for benefits to be paid on death or on a
specified date or dates before death where the benefits paid are calculated by reference to either a running
account or units under the contract whether or not the minimum value of that account or those units is
guaranteed and providing for the account to be increased during the currency of the contract;
“Mutual insurance company” means an insurer, being a company incorporated under the law of Pakistan
or any country or state other than Pakistan, which has no share capital and of which, by its constitution,
only and all policy holders are members;
“Participating”, in reference to life insurance business, means contracts of life insurance, other than
investment-linked contracts, health contracts, group life contracts and group health contracts, under the
terms and conditions of which the policy holder has an entitlement to participate in distributions by the
life insurer of profits or surpluses;
Explanation: a benefit paid under a policy is not a distribution of profit or surplus if benefit is determined
according to terms and conditions of the contract and is not subject to the exercise of discretion by insurer;
“Private motor property damage policy” means a contract of insurance that provides insurance cover
in respect of loss of or damage to a motor vehicle or of the contents of a motor vehicle used primarily and
principally as a means of private transport by the policy holder, by persons with whom the policy holder
has a family or personal relationship, or by both the policy holder and such persons;
“Takaful” means a scheme based on mutual assistance in compliance with the provisions of Islamic
Shariah, and which provides for mutual financial aid and assistance to the participants in case of
occurrence of certain contingencies and whereby the participants mutually agree to contribute to the
common fund for that purpose;
“Surveyor” means a person (by whatever name called) who examines the goods, property or any
interests insured under a contract of non-life insurance to express an independent opinion as to the
cause, extent, location and amount of any loss incurred or claimed to be incurred under that contract;
Ch # 22: Competition Act 2010

This chapter deals with the basics of the Competition Act 2010. The main purpose behind
this law is to make provisions to ensure free competition in all spheres of commercial and
economic activity to enhance economic efficiency and to protect consumers from anti-
competitive behavior and to provide for the establishment of the Competition Commission
of Pakistan to maintain and enhance competition; and for matters connected therewith
or incidental thereto.
This chapter would be discussing 4 basic areas where prohibition are being imposed by
the Competition Act 2010 to ensure that no undertaking in Pakistan may be able to
eliminate or reduce the level of competition to exploit the consumers. These areas are:
 Abuse of Dominant Position

 Certain Agreements
 Deceptive Marketing Practices
 Mergers

 Application of Competition act 2010
 Prohibited Agreements
 Deceptive marketing Practices
 Mergers lessoning competition
D 2.1: Competition Act, 2010 (Chapter I and II)
100%
Application of Competition Act 2010
Competition Act 2010 deals all undertakings and all actions or matters that take place in
Pakistan and distort competition within Pakistan (Sec 1)
Undertaking
Any natural or legal person, governmental body including a regulatory authority, body corporate,
partnership, association, trust or other entity in any way engaged, directly or indirectly, in the
production, supply, distribution of goods or provision or control of services and shall include an
association or undertakings
Goods
Includes any item, raw material, product or by-product which is sold for consideration
Wholesaler
A person who purchases goods and sells them to any other person for re-sale
Retailer
A person who sells the goods to any other person other than for re-sale (to end consumers)
Services
A service of any description Whether industrial, trade, professional or otherwise
Powers under Competition Act 2010 are being exercised “Competition Commission of Pakistan”
(CCP) and shall apply to following four broad areas

 Certain Agreements
 Deceptive Marketing Practices
 Mergers
These areas are further discussed in the upcoming units.

Abuse of Dominant Position (Sec 3)
Abuse of dominant position is prohibited.
Dominant position
Dominant position of one undertaking or several undertakings in a relevant market shall be deemed to
exist if such undertaking or undertakings have ability to behave to an appreciable extent independently
of competitors, customers, consumers and suppliers and the position of an undertaking shall be
presumed to be dominant if its share of the relevant market exceeds 40%
Relevant market
Market which shall be determined by SECP with reference to a product market and a geographic market
Product market comprises of all products/services which are regarded as interchangeable
or 'Substitutable by consumers by reason of the products' characteristics, prices and uses.
A geographic market comprises the area in which the undertakings concerned are involved in
the supply of products or services and in which the conditions of competition are sufficiently
homogenous and which can be distinguished from neighboring geographic areas because, in
particular, the conditions of competition are appreciably different in those areas;
An abuse of dominant position consists of practices which prevent, restrict, reduce or distort
competition in the relevant market.
Examples of such practices (include but are not limited to):
 Limiting production, sale and unreasonable increase in prices or other unfair trading
conditions.
 Charging different prices from different customers for the same goods or services without
any objective justification (price discrimination).
 Making sale conditional with purchase of other goods or services (tie-ins).
 Applying dissimilar conditions to equivalent transactions for different parties (placing them
at a competitive disadvantage).
 Driving the competitor out of market, preventing new entry and creating monopoly in the
market by predatory prices.
 Boycott, exclude other undertaking from production, distribution or sale of goods or
services.
 Refusal to deal.
Prohibited Agreements (Sec 4 to 9)
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 Act.
(Sec 4)
A contract entered into in contravention of this section shall be void.
Agreement
Includes any arrangement; understanding or practice whether or not it is in writing or intended to be
legally enforceable
Prohibited agreements (include but are not limited to):
 Fixing prices or imposing restrictive trading conditions for purchase, sale and distribution
of goods & services.
 Dividing market by territories, volume of sale or purchase, type of goods and services or by
any other means.
 Fixing or setting the quantity of production, distribution or sale with regards to goods
 Fixing manner or means of providing any services.
 Limiting technical development for production and sales of goods or services.
 Collusive tendering or bidding for purchase and sale of goods and procurement of services.
 Applying different conditions for equivalent transactions to different parties.
EXEMPTIONS TO PROHIBITED AGREEMENTS
Criteria for claiming exemptions (Sec 9)
CCP may grant individual & block exemption on application by undertaking in respect of
agreements which substantially contributes to:
 Improving production or distribution;
 Promoting technical or economic progress allowing consumers a fair share of resulting
benefits; or
 Benefits of that clearly outweigh the adverse effect of absence or lessening of competition.
Individual Exemptions (Sec 5)
 CCP may grant an exemption for a particular practice or agreement If

- Request to CCP has been made by party to the practice or agreement; or
- Practice meets the criteria for exemption.
 Exemption may be granted subject to the conditions as CCP considers it appropriate to
impose and has effect for such period as the CCP considers appropriate.
- That period must be specified in the grant of exemption .
- Exemption may have effect from an earlier date (than that on which it is granted)
- On an application made prescribed way, CCP may extend period of exemption
(CCP may do so only in specified circumstances)
Cancellation Of Individual Exemption (Sec 6)
If CCP has some reasonable grounds to believe (on its own or on any complaint) that
 There has been material change of circumstances;
 Information on which it based its exemption was incomplete, false or misleading materially;
or
 The exempted party failed to meet any obligation
CCP may by notice in writing

- Cancel the exemption;
- Vary or remove any condition or obligation; or
- Impose one or more additional conditions or obligations
Breach of a condition also has the effect of cancelling the exemption.
Block Exemption (Sec 7 & 8)
 If agreements falling within a particular category of agreements have met the exemption
criteria (in the opinion of CCP), CCP may make a block exemption order
 Block exemption order may impose additional conditions or obligations
 Block exemption order may provide that:
- Breach of a condition imposed by order has the effect of canceling block exemption;
- If there is a failure to comply with an obligation imposed by order, CCP may, by notice
in writing, cancel the block exemption
- CCP may cancel the block exemption If CCP considers that a particular agreement is not
meeting the prescribed criteria for exemptions
- The order shall ceased to have effect at the end of specified period.
 Before making a block exemption order, CCP must:
- Publish details of its proposed order in such a way as CCP thinks most suitable for
bringing it to the attention of those likely to be affected; and
- Consider any representations' about it which are made to CCP.
 Block exemption may have effect from an earlier date (than that on which it is granted)
Deceptive Marketing Practices (Sec 10)
An undertaking shall NOT enter into the deceptive marketing practices.
Deceptive marketing practices shall be deemed to be continued in following circumstances:

 Distribution of false/misleading information capable of harming business interests of other
undertaking.
 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
 False or misleading comparison of goods in advertising
 Fraudulent use of another’s trademark, firm name, product labeling or packaging
Mergers Lessening Competition (Sec 11)
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
Means the merger, acquisition, amalgamation; combination or joining of two or more undertakings or
part thereof into an existing undertaking or to form a new undertaking
Acquisition
Any change of control of any undertaking by way of acquisition of shares, assets or any other means
Application for intended merger
 Undertaking or undertakings shall apply for clearance from CCP of the intended merger
- Where an undertaking, intends to acquire shares or assets of another undertaking, or
two or more undertakings intend to merge the whole or part of their businesses; and
- Undertaking(s) meet the pre-merger thresholds stipulated by CCP
Threshold stipulated in Regulations (for understanding; not in syllabus)
The Value of Is at least

Gross asset of undertaking excluding goodwill. 300 million; or
Tutor Combined assets (all undertakings) 1 billion; or
Annual turnover of undertaking in preceding year 500 million; or
Note
Combined turnover (all undertakings) 1 billion
 Concerned undertakings shall submit a pre-merger application to CCP as soon as they agree
in principle or sign a non-binding letter of intent to proceed with the merger
 Application shall be in the prescribed form and accompanied by a processing fee
 Undertakings shall not proceed with merger until they have received CCP’s clearance.
Where an undertaking has consummated the merger without making application, CCP shall make
appropriate orders (after giving the undertaking an opportunity of being heard)
Review of application by CCP and issuance of order
Phase I – Review (Whether the merger is dominance)
 CCD shall decide on whether the intended merger meets thresholds and presumption of
dominance through an order
 Order shall be made within 30 days of receipt of the application.
 Failure to make such determination within 30 days for first phase review shall mean that
CCP has no objection to the intended merger
Phase II – Review (Whether dominance lessons the competition)
 If so determined, CCP shall initiate a second phase review

 CCP may require concerned undertakings to provide necessary information
 CCP shall, within 90 days of receipt of the requested information review the merger to assess
whether it substantially lessens competition by creating or strengthening a dominant
position in the relevant market, and shall give its decision on .the proposed transaction. In
case concerned ·undertakings fail to pro.vide the information requested, the Commission
may reject the application.
 Failure to render a decision within 90 days shall mean that CCP has no objection.
 If CCP is satisfied with its findings, it may:
- Prohibit the consummation of the transaction
- Approve such transaction subject to the conditions laid in its order;
- Approve such transaction on the condition that said undertakings enter into legally
enforceable agreements specified by CCP in its order. .
Relaxation by CCP
If after 2nd phase review CCP determines that the intended merger Substantially lessens
competition, it may however approve the transaction, if it is shown that
 It contributes 'substantially to efficiency of the production or distribution of goods or to the
provision of services;
 Such efficiency could not reasonably have been achieved by a less restrictive means of
competition;
 Benefits clearly outweigh the adverse effect of absence or lessoning of competition; or
 It is the least anti-competitive option for the failing undertaking's assets
(when one of the undertakings is faced with actual or imminent financial failure)
Burden of proof shall lie with the undertaking seeking the approval
Post approval review
 CCP may, within 1 year, review the order of approval of merger on its own or on application
of undertakings concerned on the ground that the circumstances of the relevant market or
undertakings have so changed as to warrant review of the conditions imposed.
 If, at any time, CCP determines that approval was based on false or misleading information
submitted by the undertaking, or conditions prescribed in order of CCP have not been fully
complied with, CCP may (after giving the undertaking an opportunity of being heard)
- Undo such merger or acquisition; or
- Prescribe modifications or additions in the original order.
Ch # 23: Anti Money Laundering
The reason behind this enactment is to provide for prevention of money laundering, combating
financing of terrorism and forfeiture of property derived from, or involved in, money laundering
or financing of terrorism and for matters connected therewith or incidental thereto
Nothing in this Act shall apply to fiscal offences (Sec 41)
“fiscal offence" means an offence punishable under the Income Tax Ordinance 2001 (XLIX of 2001), the
Federal Excise Act. 2005, the Customs Act, 1969 (IV of 1969) except sections 2 (s), 15, 16,32A and 158 thereof;
the Sales Tax Act, 1990 and any other law as the Federal Government may notify in this behalf;

 What is money Laundering
 National Executive Committee & General Committee
 Financial Monitoring Unit
 STR and CTR
 Appointment and Powers of Investigating officer
 Actions under Anti money Laundering Act
 Involvement of Courts
 Arrangements with Foreign Government
 Misc
D 3.1: Anti-money Laundering Act, 2010 and Anti-money Laundering Regulations,

2015 (Rule 4, 5, 7 and Appendix I&II)
What is Money Laundering
Offence of money laundering (Sec 3)

A person shall be guilty of offence of money laundering, if the person:
 Acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is proceeds of crime;
 Conceals or disguises the true nature, origin, location, disposition, movement or ownership
of property, knowing or having reason to believe that such property is proceeds of crime;
 Holds or possesses on behalf of any other person any property knowing or having reason to
believe that such property is proceeds of crime; or
 Participates in, associates, conspires to commit, attempts to commit, aids, abets, facilitates,
or counsels the commission of the above 3 acts.
The knowledge, intent or purpose required as an element of an offence set forth here may be
inferred from factual circumstances in accordance with Qanun-e-Shahadat 1984.
Proceeds of crime
Any property derived or obtained directly or indirectly by any person from the commission of a
predicate offence or a foreign serious offence
AML/CFT - Anti Money Laundering and Countering Financing of Terrorism
Predicate offence - An offence specified in the Schedule-I to this Act
Foreign serious offence
- against the law of a foreign state stated in a certificate issued by, or on behalf of, the government
of that foreign State; and
- which, had it occurred in Pakistan, would have constituted a predicate offence;
Punishment for money laundering (Sec 4 & 37)

Whoever commits the offence of money laundering shall be
 Punishable with rigorous imprisonment of at least 1 year (may extend up to 10 years);
 Liable to fine which may extend to Rs. 21 Million; and
 Liable to forfeiture of property involved in the money laundering
Penalty in case of a Company

 Fine may extend to Rs. 100 Million
 Every director, officer or employee found guilty shall also be punishable under this section.
 Where a company contravene the provisions of this Act or any related rules etc, every
responsible person (director/partner, manager, secretary or other officer) shall be liable to
be proceeded against and punished accordingly
(except he proves that contravention took place without his knowledge or that he exercised
all due diligence to prevent such contravention)
Company - Means any body corporate and includes a firm or other association of individuals
National Executive Committee & General Committee (Sec 5)
 Federal Government shall, by notification in official Gazette, constitute a National Executive

Committee within 30 days of commencement of this Act
 National Executive Committee shall be assisted by a General Committee
 National Executive Committee may delegate or assign its functions to General Committee or
a subcommittee, if deems appropriate
Functions of National Executive Committee & General Committee
National Executive Committee (NEC)
 Shall Meet at least twice a year to develop, co-ordinate and publish national strategy to fight
money laundering and financing of terrorism;
 Determine offences existing in Pakistan that may be considered to be predicate offences
 Provide guidance and sanction in framing of rules and regulations under this Act;
 Make recommendations to the Federal Government for effective implementation of this Act
and framing of national policy to combat money laundering and financing of terrorism;
 Make recommendations to the Federal Government on the application of countermeasures
as called for by Financial Action Task Force (FATF)
 Approve, review and oversee the implementation of a national strategy to fight money
laundering and financing of terrorism;
 Seek reports from competent authorities, including an annual report containing overall
analysis of the STRs and CTRs, statistics concerning the investigations and prosecutions
conducted in relation to the offences of money laundering and the financing of terrorism in
Pakistan, statistics of supervisory actions taken by the AML/CFT regulatory authorities or
by the oversight body for SRB.
 Secretary of NEC may call periodic reports from the AML/CFT regulatory authorities,
Oversight body for SRB, investigating and prosecuting agencies in such manner as may be
specified by him;
 Discuss any other issue of national importance relating to money laundering and financing
of terrorism; and
 Undertake and perform such other functions as may be assigned to it by the Federal
Government, relating to money laundering and financing of terrorism.
Competent authorities
The regulators, oversight bodies for SRBs, the Financial Monitoring Unit and the Investigating or
prosecuting agencies as defined in this Act;
General Committee
 Develop a national strategy to fight money laundering and financing of terrorism;
 Issue necessary directions to investigating or prosecuting agencies, AML/CFT regulatory
authorities, FMU and any other authority appointed by the Federal Government involved in
the implementation and administration of this Act, including measures for development and
performance review of such agencies and authorities;
 Seek reports from the competent authorities as it may require, including an annual report
containing overall analysis of the STRs and CTRs, statistics concerning the investigations and
prosecutions conducted, statistics of supervisory actions taken by AML/CFT regulatory
authorities or by the oversight body for SRB.
 Secretary of General Committee may call periodic reports from the AML/CFT regulatory
authorities, oversight body for SRB, investigating and prosecuting agencies in such manner
as may be specified by the Secretary;
 Approve FMU’s budgetary proposals for achieving the objects of this Act;
 Approve FMU’s staffing requirements, pay, allowances, privileges and compensation
packages and other matters incidental thereto;
 Provide necessary assistance to the NEC in carrying out its functions and duties;
 Discuss any other issue of national importance relating to money laundering etc; and
 Undertake and perform such other functions as assigned or delegated to it by the NEC
General Committee may invite any person to participate in the meeting and may constitute one or
more sub committees to perform such functions as it deems necessary.
Financial institution
Includes any institution carrying on any one or more of the following activities, namely:—
 Acceptance of deposits and other repayable funds from the public;
 Lending in whatsoever form;
 Financial leasing;
 Money or value transfer;
 Issuing and managing means of payments including but not limited to credit and debit cards,
cheques, travelers cheques, money orders, bank drafts and electronic money;
 Financial guarantees and commitments;
 Trading in—
- Money market instruments;
- Foreign exchange;
- Exchange, interest rate and index instruments;
- Transferable securities; and
- Commodity futures trading:
- Participation in shares issues and the provision of services related to such issues;
- Individual and collective portfolio management;
- Safekeeping and administration of cash or liquid securities on behalf of other persons;
- Investing, administering or managing funds or money on behalf of other persons;
- Insurance business transactions;
- Money and currency changing; and
- Carrying out business as intermediary.
Designated non-financial businesses and professions or DNFBPs

 Real estate agents, including builders and real estate developers, when performing the prescribed
activities in the prescribed circumstances and manner;
 Dealers in precious metals and precious stones, including jewellers and gem dealers, when
performing the prescribed activities in the prescribed circumstances and manner;
 Lawyers, notaries, accountants and other legal professionals who carryout monetary transactions
for their clients concerning the following activities:-
- Managing, operating, buying and selling of real estate, legal persons and legal arrangements and
preparing documents therefor;
- Managing of client money, securities or other assets;
- Managing bank, savings or securities accounts; or
- Organizing contributions for the creation, operation or management of companies;
 Trust and company service providers, when they carry out monetary transactions or services for
a client concerning the following activities:–
- Acting as a formation agent of legal persons;
- Acting as or arranging for another person to act as a director or secretary of a company, a partner
of a partnership, or a similar position in relation to other legal persons;
- Providing a registered office, business address or accommodation, corres-pondence or
administrative address for a company, a partnership or any other legal person or arrangement;
- Acting as or arranging for another person to act as a trustee of a trust or performing the
equivalent function for another form of legal arrangement; and
- Acting as or arranging for another person to act as a nominee shareholder for another person;
 Such other designated non-financial businesses and professions as may be notified by the Federal
Government;
Financial Monitoring Unit (FMU)
Establishment of FMU (Sec 6)

 Federal Government shall, by notification in Official Gazette, establish a FMU
 FMU shall be housed in SBP or at any other place in Pakistan.
 FMU shall have independent decision making authority on day-to-day matters
 A Director -General who shall be a financial sector specialist shall be appointed by the
Federal Government in consultation with SBP to head FMU and exercise all powers and
functions of the FMU subject to the administrative oversight of the General Committee.
Powers and Functions of FMU (Sec 6, 46 & Regulation 7)
 Receive Suspicious Transactions Reports (STRs) and CTRs from reporting entities;
 Analyse STR and CTRs;
(FMU may call for record and information from any agency or person in Pakistan, except
income tax information, related to the transaction in question)
 Disseminate STR and any necessary information to investigating agencies concerned;
 Create and maintain a database of all STRs and CTRs, related information and such other
materials as Director-General determines are relevant to the work of FMU;
(FMU is authorised to establish necessary analytic software and computer equipment to
effectively search the database, sort and retrieve information and perform real time linkages
with databases of other agencies both in and outside Pakistan)
 Co-operate with Financial intelligence units in other countries in order to share, request
information subject to reciprocal agreements entered in by the Federal Government;
 Represent Pakistan at all international and regional organisations and groupings of financial
intelligence units and other international groups and forums which address the offence of
money laundering, financing of terrorism and other related matters;
 Request investigating or prosecuting agencies any feedback regarding the disseminations
above in form of periodic reports or statistics concerning investigations and prosecutions
 Frame regulations in consultation with AML/CFT Regulatory authority for ensuring receipt
of STRs and CTRs from reporting entities with approval of National Executive Committee;
 Recommend to regulatory authorities of reporting entities to issue necessary regulations
(in the areas of customer due diligence and ancillary record-keeping)
 Engage a financial institution or an intermediary or such other non-financial businesses and
professions or any of its officers as may be necessary for implementation of Act etc.
 Perform all such functions and exercise all such powers as are necessary for this Act.
Investigating or Prosecuting agency
- NAB (National Accountability Bureau);
- FIA (Federal Investigation Agency);
- ANF (Anti-Narcotics Force); or
- Any other law enforcement agency as may be notified by Federal Government for the
investigation or prosecution of a predicate offence;
On considering the STR or CTR, the FMU may, if deems necessary, convey matters involving
regulatory or administrative action to the concerned regulatory or administrative body for
appropriate action.
Director-General may order freezing of a property, if there appear to be reasonable grounds to

believe that any property is involved in money laundering or financing of terrorism, for a
maximum period of 15 days, in any manner that he may deem fit in the circumstances.
Freezing of Property (Regulation 7 of Anti-Money Laundering Rules 2008)

Where a reporting entity knows, suspects or has reasons to suspect that any property or
account is involved in money laundering or terrorist financing and needs immediate
attention or action on the part of FMU as to the freezing of such property or account:
Concerned reporting entity shall immediately inform Director General of such property or
account along with the grounds that warrant immediate action.
Subject to the supervision and control of National Executive Committee, FMU may, by notification
in the official Gazette, make such regulations as may be necessary for carrying out the purposes of
this Act. (Sec 44)
Validation of actions before promulgation of this Act (Sec 46)

Anything done, actions taken, orders passed, instruments made, notifications issued,
agreements made, proceedings initiated, processes or communication issued, powers
conferred, assumed or exercised, by FMU Commission or its officers on or after 5th January,
2008 and before commencement of this Act, shall deemed to be valid and effective.
AML/CFT regulatory authority (Sec 6A-6C)
AML/CFT regulatory authority means the regulators and SRBs (as specified in Schedule IV) who
shall exercise the following powers and functions with respect to its reporting entities:
 Licensing or registration of reporting entities;
 Imposing any conditions to conduct any activities by reporting entities to prevent the offence
of money laundering, predicate offence or financing of terrorism;
 Issuing regulations, directions and guidelines with respect to sections 7A to 7H;
 Providing feedback to reporting entities for purpose of compliance with the same
 Issuing regulations, directions and guidelines for financing of proliferation obligations;
 Monitoring and supervising, including conducting inspections, for determining compliance
with the requirements of this Act and any rules, regulations or order made thereunder
 Compelling production of information relevant to monitoring such compliance
 Impose sanctions, including monetary and administrative penalties to the extent and in the
manners as may be prescribed, upon their respective reporting entity, including its directors
and senior management and officers, who violates any of above requirements
(Aggrieved person may prefer an appeal in such manner and within such period to such
authority as may be prescribed);
 Maintaining statistics of actions performed in respect of functions and powers conferred by
this Act, in order to report to the NEC and the General Committee as required; and
 Exercising any other such powers and performing any other such functions that may be
otherwise granted in any other applicable law.
Proliferation financing means the financing of proliferation of weapons of mass destruction
“TFS” or “Targeted Financial Sanctions”

Freezing and prohibition obligations in relation to the property of designated or proscribed
persons under the United Nations (Security Council) Act 1948 or the Anti-terrorism Act, 1997
and any rules or regulations made thereunder
Oversight Body for SRB
Federal Government shall by notification in the Official Gazette appoint the body which shall
exercise and perform following powers and functions with respect to their respective SRB:-
 Make regulations for the SRB with respect to the provisions of this Act;
 Monitor and oversee the SRB in accordance with the provisions of this Act;
 Impose sanctions to the extent and in the manner as may be prescribed, upon their
respective SRB who fails to comply with any provision of this Act and any rules or regulations
made thereunder; and
 Exercise any other powers and perform any other functions as may be notified by the Federal
Government in the official Gazette.
Suspicious Transaction Report (STR) & Currency Transaction Report (CTR)
Furnishing of information by financial institutions or reporting entities (Sec 7)
 Every financial institution shall file with the FMU, in the prescribed manner, STR conducted
or attempted by, at or through that financial institution if financial institution and reporting
entity knows, suspects, or has reason to suspect that transaction or pattern of transactions
to which this transaction is a part:
- Involves funds derived from illegal activities or is intended or conducted in order to hide
or disguise proceeds of crime;
- Is designed to evade any requirements of this section;
- Has no apparent lawful purpose after examining available facts, including background
and possible purpose of the transaction; or
- Involves financing of terrorism:
Regulation 4 of Anti-Money Laundering Rules 2008

Every financial institution and Non-financial businesses and professions (selected by
FMU) shall file the STR with FMU on prescribed format
 STR/CTR shall be filed by financial institution or reporting entity with FMU immediately
 Every reporting entity shall keep and maintain all record related to STRs and CTRs filed by
it for a period of at least 10 years after reporting of transaction
 Any other government agency, autonomous body or regulatory authority may also share
intelligence or report their suspicions on similar basis to FMU in normal course of business
Regulation 5, Anti-Money Laundering Rules 2008 (Currency Transactions

Reports)
When a financial institution or a Non-financial businesses and profession undertakes a
cash based transaction involving payment, receipt, or transfer of an amount exceeding
the minimum threshold as specified by National Executive Committee (NEC), they shall
file a report of such transaction on prescribed format
Exemptions
NEC may exempt a financial institution from above reporting requirements with respect
to transactions between financial institutions and following categories of entities:
 A department or agency of Federal Government or Provincial Government or any
autonomous body under Federal Government or provincial Government.
 Any business or category of business the reports on which entail little or no risk
concerning money laundering and terrorist financing.
Secretary of the NEC shall publish in official gazette at appropriate times (at least once
each year) a list of all the entities whose transactions with financial institution are exempt
Customer Due Diligence (CDD) 7A-7J
 Every reporting entity shall conduct CDD in manner as may be prescribed in accordance with
provisions of this Act in the following matters, namely:-
- Entering into a business relationship;
- Conducting an occasional transaction above the prescribed threshold;
- Where there is a suspicion of money laundering or terrorist financing; or
- Where there are doubts about the veracity or adequacy of previously obtained data.
 Every reporting entity shall:
- Identify the customer and verify the customer’s identity on the basis of documents, data
or information obtained from reliable and independent sources;
- Identify the beneficial owner and take reasonable measures to verify his identity on the
basis of documents, data or information obtained from reliable sources
- Understand and, as appropriate, obtain information on the purpose and intended nature
of the business relationship; and
- Monitor the business relationship on an ongoing basis.
 Reporting entity may rely on 3rd party to perform CDD in the manner as may be prescribed.
 Every reporting entity shall maintain a record of all transactions for a period of at least 5
years following the completion of transaction / termination of relationship
 Where a reporting entity is unable to complete CDD requirements, it shall:
- Not open the account, commence business relations or perform the transaction; or shall
terminate the business relationship if any ; and
- Promptly consider filing a Suspicious Transaction Report in relation to the customer.
 No reporting entity shall enter into a business relationship or conduct any transaction with
a customer who is anonymous or provides a fictitious name.
 Every reporting entity shall take appropriate steps to identify, assess and understand the
risks to which its business is subjected to, in accordance with this Act and as prescribed.
 Every reporting entity shall implement compliance management arrangements, including
the appointment of a compliance officer at a management level and training programs,
having regard to the money laundering and terrorism financing risks and the size of the
business during the course of their activities subject to this Act and as prescribed.
 Every reporting entity shall implement policies and procedures to ensure their compliance
with the provisions of this Act and orders, rules or regulations made thereunder that impose
TFS obligations upon reporting entities.
 If any reporting entity or natural person contravenes any of the above provisions, it may be
subjected to sanctions, as mentioned under clause (h) of section 6A as may be prescribed.
 Any person aggrieved by the delay or failure of a reporting entity to complete CDD
requirements or establish business relationship or conduct any transaction, may file an
appeal to the concerned AML / CFT Regulatory Authority within 90 days.
 Concerned AML / CFT Regulatory Authority shall decide the appeal within sixty days.
Beneficial owner
 Natural person who ultimately owns or controls a customer or the natural person on
whose behalf a transaction is being conducted; or
 Natural person who exercises ultimate effective control over a legal person or legal
arrangement;
Business relationship
Professional or commercial relationship between a reporting entity and a customer to
conduct
transaction, activity or to provide service or product;
Occasional transactions
any transaction conducted by a reporting entity for a customer with whom the reporting
entity does not have a business relationship
Some clarifications regarding STR
No civil or criminal proceedings against banking companies, financial institutions, etc.,

in certain cases (Sec 12)
Save as provided in section 7, Reporting entities and their officers shall not be liable to any civil,
criminal or disciplinary proceedings against them for furnishing information required under
this Act or the rules and regulations made thereunder.
Liability for failure to file STR and for providing false information (Sec 33)
Whoever willfully fails to comply with the STR requirement or give false information shall be
liable for imprisonment for a term which may extend to 5 years or with fine which may extend
to Rs. 500,000 or both.
Concerned regulatory authority may also revoke license or registration of reporting entity or may
take such other administrative action as it may deem appropriate.
Disclosure of information (Sec 34)

Directors, officers, employees and agents of any reporting entity or intermediary which report
a STR or CTR, are prohibited from disclosing, directly or indirectly, any person involved in
transaction that the transaction has been reported.
A violation of this section is a criminal offence and shall be punishable by a maximum term of 5
years imprisonment or a fine which may extend to Rs. 2 Million or both.
Any confidential information furnished by a reporting entity, or any other person under or
pursuant to the provisions of this Act, shall, as far as possible, be kept confidential by the FMU,
investigation agency or officer as the case may be.
Appointment and Powers of Investigation Officer
Investigation Officer
Appointment of investigating officers and their powers (Sec 24)
 Investigating agencies may nominate amongst their officers such persons as they think fit to
be the investigating officers under this Act from.
 Federal Government may, by special or general order, empower an officer not below BPS-18
of Federal or Provincial Government to act as an investigating officer under this Act.
 Where any person other than a Federal or Provincial Government Officer is appointed as an
investigating officer, Federal Government shall also determine the terms and conditions of
his appointment.
 Investigating officer may exercise powers and discharge the duties, subject to such
conditions and limitations as the Federal Government may impose.
Punishment for vexatious survey and search (Sec 32)
Any investigating officer who, without prior permission from the Court:
 Surveys or searches, or causes to be surveyed or searched, any building or place; or
 Detains or searches or arrests any person,
Shall be liable on conviction for imprisonment for a term which may extend to 2 years or fine
which may extend to Rs. 50,000 or both.
Officers of Federal Government, Provincial Government & local authorities, financial institutions
are hereby empowered to assist the investigating officers and agencies and other authorities in the
enforcement of this Act. On refusal to provide required assistance, he shall be guilty of misconduct
and shall be proceeded against by its respective department and a report of that shall be submitted
within reasonable time to the concerned investigating or prosecuting agency or FMU, and shall be
punished with an imprisonment up to 5 years, a fine up to Rs. 1 million or both (in case of a natural
person) or a fine up to Rs. 10 million (in case of a legal person) (Sec 25)
Members etc., to be public servants (Sec 40)
The Director General, Members of the National Executive Committee and General Committee,
and other officers and employees of the FMU, investigating officers and the subordinate officers
to him shall be deemed to be public servants within the meaning of section 21 of the Pakistan
Penal Code (Act XLV of 1860).
Actions under Anti-Money Laundering Act 2010
Attachment of property involved in money laundering (Sec 8)
Attachment
Means prohibition of transfer, conversion, disposition or movement of property u/s 8
Transfer
Means sale, lease, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title,
possession or lien.
Property
Means property or assets of any description, whether corporeal or incorporeal, movable or immovable,
tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such
property or assets, including cash and monetary instruments, wherever located
Record
Includes the records maintained in the form of books or stored in a computer or any electronic device,
or such other form as may be prescribed
 Investigating officer may, on the basis of report received from the concerned investigating
agency, by order in writing, with prior permission of Court, provisionally attach property
which he reasonably believes to be proceeds of crime or involved in money laundering
 Property may be attached for a period not exceeding 180 days from date of order.
 Court may grant further extension up to 180 days
 Every order of attachment shall cease to have effect after the expiry of earlier of
- 180 days of order; or
- Date of the finding of investigation (u/s 9)
 Investigating officer shall within 48 hours immediately after attachment, forward a copy of
the order, along with the report, to the head of the concerned investigating agency:
- In a sealed envelope;
- In prescribed manner
 Concerned investigating agency, shall keep such order and material for such period as may
be prescribed.
 Investigating officer shall submit to Court monthly report of progress made in investigation
Nothing in this section shall prevent the person interested (claiming or entitled to claim any
interest in property) in the enjoyment of the immovable property attached from such enjoyment.
Investigation (Sec 9)
Notice of attachment / seizure

 Investigating officer shall, within 7 days from the date of order of attachment (u/s 8) or
seizure of property (u/s 14 & 15), serve a notice of at least 30 days on person concerned.
 The notice shall call upon such person to indicate the
- Sources of income, earning or assets from which he acquired property attached/seized
- Evidence on which he relies
- Other relevant information and particulars
- Reasons why the properties should not be declared to be involved in money laundering
and forfeited to Federal Government:
 If a property is being held by a person on behalf of any other person, a copy of such notice
shall also be served upon such other person
 If such property is held jointly by more than 1 person, such notice shall be served upon all
persons holding such property.
Findings of investigation officer

 Investigating officer shall record a finding (whether all or any properties referred in notice
are involved in money laundering), after:
- considering the reply, if any, to the notice issued;
- hearing the aggrieved person; and
- taking into account all relevant materials placed on record before him;
 If investigating officer determines that any property is involved in money laundering, he
shall apply to Court for order confirming attachment or retention of property etc seized.
 Where provisional order of attachment has been confirmed, investigating officer shall
forthwith take possession of the attached property
 Such attachment or retention of the seized property or record shall:
- Continue during proceedings of predicate offence or money laundering before a court;
- Become final if concerned person is proved to be a guilty of money laundering
Actions
 Court may, on application of investigating officer, order immediate sale of the property in
any manner deemed appropriate in the circumstances, where
 Where on conclusion of a trial for any predicate offence and money laundering, person
concerned is released; attachment or retention shall cease to have effect.
 Where attachment of any properly or retention of seized property or record becomes final,
the Court shall make an order for forfeiture of such property.
(Court may direct the release of all properties other than properties involved in money
laundering to persons from whom properties were seized)
Application of investigation techniques (Sec 9A)
 Investigating officer may with permission of court (within 60 days of such permission), use
techniques including undercover operations, intercepting communications, assessing
computer system and controlled delivery for investigation of offences of money laundering,
associated predicate offences and financing of terrorism.
 60 days may be extended up to further 60 days by court on a request made to it in writing.
(if it is satisfied on the basis of situation or reasons given in the written request)
 Fed.Govt may make rules to regulate the procedure and for execution of order
Forfeiture of Properties
Vesting of property in Federal Government (Sec 10)
 Where an order of forfeiture has been made, all the rights and title in such property shall
vest absolutely in the Federal Government free from all encumbrances
 If Court is of the opinion that any encumbrance on property or leasehold interest has been
created to defeat the provisions of this Act; It may declare such encumbrance or lease-hold
interest to be void and property shall vest in Federal Government free from such charge
(The person shall not be discharged from any liability in respect of such encumbrances,
which may be enforced against such person by a suit for damages)
Management of forfeited properties (Sec 11)
 Federal Government may, by order published in official Gazette, appoint as many trustees
and receivers as it think fit to perform the functions of an Administrator.
- Administrator shall receive and manage the forfeited properties in prescribed manner
- Administrator shall also take such measures, as Federal Government may direct, to
dispose of the properly which is vested in the Federal Government
 Administrator may sell property after reasonable notice to Federal Government, where
Power of survey (Sec 13)
 Where an investigating officer has reasons to believe that an offence of money laundering
has been committed, he may, with the permission of the Court, enter any place at which any
act constituting such offence is carried on:
- Within the limits of the area assigned to him; or
- In respect of which he is authorized for the purposes of this section by such other
authority who is assigned that area
 Investigating officer may require any proprietor, employee or any other person who may be
present there to
- Afford him necessary facility to inspect such required record available at such place
- Afford him necessary facility to check or verify proceeds of crimes or any transaction
related to proceeds of crimes
- Furnish required information which may be useful for any proceedings under this Act.
 Investigating officer acting under this section may:
- Place marks of identification on records inspected and make extracts/copies there from
- Make an inventory of any property checked or verified by him
- Record the statement of any person present in the place (useful for any proceeding)
Search and seizure (Sec 14)
 Where investigating officer has reason to believe that any person:

- has committed any act which constitutes money-laundering,
- is in possession of any proceeds of crime involved in money laundering, or—
- is in possession of any records relating to money-laundering,
then he may, either himself or authorize any officer subordinate to him, to:
- Enter and search any suspected building, place, vessel, vehicle or aircraft
- Break lock of any door, locker, safe, almirah etc, where the keys are not available
- Seize any record or property found as a result of such search
- Place marks of identification on record or make extracts or copies therefrom
- Make a note or any inventory of such record property
- Examine on oath any person, who is found to be in possession or control of any record or
property, in respect of all matters relevant for investigation
 Powers to search shall be exercisable with the prior permission of the Court.
 If investigating officer is satisfied that any evidence is likely to be concealed or tampered
with, he may enter and search the place where such evidence is located and seize that.
Search of persons (Sec 15)

 If an investigating officer has reason to believe that any person has secreted about the person
or anything under his possession, ownership or control, any record or proceeds of crime
which may be useful for or relevant to any proceedings under this Act, he may, with the prior
permission of the Court, search that person and seize such record or property.
 A female shall only be searched by a female.
 Investigating officer shall record the statement of the person searched
Common procedure (Sec 13, 14 & 15)

 Investigating officer shall within 48 hours immediately after completion of survey or search
& seizure, forward a copy of the report on survey or search & seizure, along with the reasons
and copies or details of the material in his possession, to the head of the concerned
investigating agency in a sealed envelope.
 Shall keep such record and material in such manner and such period, as may be prescribed.
Retention of property (Sec 17)
 Where any property has been seized (u/s 14 or 15) and investigating officer has reason to
believe that such property is required to be retained for investigation (u/s 9) such property
may be retained for a period not exceeding 90 days from the time of seizure:
 Investigating officer shall duly inform Court about any strange nature of seized property and,
where necessary, seek appropriate directions for its proper care during retention.
 On expiry of 90 days, property shall be returned to the person from whom such property
was seized unless the Court permits retention of such property beyond the said period.
(Court shall be satisfied that the property is prima facie involved in money laundering)
Common procedure (Sec 16 & 17)

 Investigating officer or any other officer shall immediately after arrest or retention, forward
a copy of the order along with the copies or details of material in his possession to the head
of the concerned investigating agency in a sealed envelop in prescribed manner
 Such agency shall keep such order and material for such period as may be prescribed.
Retention of records (Sec 18)
 Where any record has been seized (u/s 14 or 15) and the investigating officer has reason to
believe that any of such records are required to be retained for an inquiry, he may retain
such records for a period not exceeding 90 days from time of seizure.
 Person, from whom records were seized, shall be entitled to obtain copies of such records
 On expiry of 90 days, records shall be returned to the person from whom such records were
seized unless the Court permits retention of such records beyond the said period.
(Court shall be satisfied that the records were required for investigation u/s 9)
Involvement of Courts in Anti-money Laundering Act, 2010
Jurisdiction (Sec 20 & 23)
Court of Session established under the Code of Criminal Procedure, 1898 shall, within its
territorial jurisdiction, exercise jurisdiction to try and adjudicate these offences
 Where predicate offence is triable by any court other than Court of Session, offence and all
connected matters shall be tried by the Court trying the predicate offence; and
 Where predicate offence is triable by any court inferior to Court of Session, offence and all
connected matters shall be tried by the Court of Session.
Appeal to High Court
 Any person aggrieved by final decision or order of Court may prefer an appeal to High Court
within 60 days from date of communication of the decision or order
 High court may also give extension in the stipulated time up to next 60 days
(if satisfied that appellant was prevented by sufficient cause from filing the appeal time)
High Court means High Court within jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain
Where aggrieved party is Federal Government, High Court within the jurisdiction of which respondent,
or any of the respondents, ordinarily resides or carries on business or personally works for gain
Appointment of Public Prosecutor (Sec 22)
 Federal Government may appoint a Public Prosecutor on terms and conditions deemed fit
 Must be an advocate of a High Court
 Should be in active practice as an Advocate for at least 7 years in High Court
 Shall be competent to conduct proceedings under this Act before a Court
(Also to withdraw such proceedings, if directed by Federal Government)
When a Prosecutor appointed is, for any reason, temporarily unable to conduct proceedings
before the Court, proceedings shall be conducted by any person authorized by the Court.
Provisions of Code of Criminal Procedure, 1898 (that are not inconsistent with this act) shall apply
to arrest, bail, bonds, search, seizure, attachment, forfeiture, confiscation, investigation,
prosecution and all other proceedings including Public prosecutor under this Act.
Offences to be cognizable and non-bailable (Sec 21)
Cognizable offence, in context of criminal offences, means that police officer has
power to arrest without warrant and non cognizable offense means police
inspector cannot arrest without a warrant and investigation cannot be initiated
Tutor without a cour order
Note
Every offence punishable under this Act shall be cognizable and non-bailable;
 A person convicted for imprisonment of more than 3 years shall not be released on bail or
on his own bond unless:
- Public Prosecutor has been given due notice; and
- Court is satisfied that there are reasonable grounds for believing that he is not guilty of
such offence and that he is not likely to commit any offence while on bail
(Where Public Prosecutor opposes the application)
 Court shall not take cognizance of any offence (u/s 4) except upon a complaint in writing
made by investigating officer; or any officer of Federal or Provincial Government authorized
in writing (by Federal Government thorough a general or special order)
 Where person accused is a reporting entity, investigating officer or other authorized officer
shall, before filing such complaint, seek approval of concerned regulatory authority
(Concerned authority shall not withhold its decision for a period exceeding 60 days)
Court shall not take cognizance of any offence punishable due to non filing of STR or for
providing false information except upon a complaint in writing made by the FMU or
investigating or prosecuting agency.
Bar of jurisdiction (Sec 35)
No suit shall be brought in any Court to set aside or modify any proceeding taken or order made
under this Act and no prosecution, suit or other proceedings shall lie against the Federal
Government, or any officer of the Government, or FMU, its officers or any agency controlled or
supervised by the Government, or members of the National Executive Committee or General
Committee for anything done or intended to be done in good faith under this Act.
No Court shall have jurisdiction to entertain any suitor proceedings in respect of any matter which
the investigating officer and Committee or the Court is empowered by or under this Act to
determine and no injunction shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred by or under this Act.
Arrangements to Combat Money Laundering with Foreign Countries
Reciprocal Arrangements with foreign countries
Agreements with foreign Governments (Sec 26)
Federal Government may enter into such an agreement for:

 Enforcing the provisions of this Act;
 Regarding any offence under this Act or under corresponding law in force in that country
- Exchange of information for the prevention of same
- Seeking or providing of assistance or evidence in respect of any such offence
- Transfer of property relating to any such offence
Other Conditions
 The agreement shall be subject to such conditions, exceptions or qualifications as may be
specified in the said agreement
 Agreement shall not be enforceable if it may, in any manner, be prejudicial to sovereignty,
security, national interest or public order.
Contracting State means any country or place outside Pakistan in respect of which
arrangements have been made by Federal Government with the Government of such country
through a treaty or otherwise
Arrangements for processes and assistance for transfer of accused persons (Sec 29)
 Where a Court desires that following summons or warrants issued by it shall be served or
executed at any place in any contracting State, it shall send these in duplicate in such form,
to such court, judge or magistrate through such authorities as Federal Government may
specify in this behalf
- A summons to an accused person;
- A warrant for the arrest of an accused person;
- A summons to any person requiring him to attend and produce a document or other thing
or to produce it, or
- A search warrant,
 Where a Court has received any such summons or warrant from a contracting State, it shall
cause these to be served or executed as if it were a summons or warrant from a local court.
 Where a prisoner is transferred to a contracting State, Court or Federal Government may
impose any conditions deemed fit.
 Where a prisoner is transferred to Pakistan, Court shall ensure that conditions subject to
which prisoner is transferred to Pakistan are complied with and such prisoner shall be kept
in such custody subject to such conditions as Federal Government may direct in writing.
Letter of Requests (Sec 27, 28, 30 & 31)
Request for Evidence
 If the investigating officer or any officer superior in rank believes that any required evidence
may be available in any place in contracting State, he may, with prior permission of the head
of that investigation agency, issue a letter of request to a court or an authority in
contracting State competent to deal with such request to:
- Examine facts and circumstances of the case; and
- Take such steps as he may specify in such letter of request.
 Letter of Request shall be transmitted in such manner as Federal Government may specify.
 Where a similar letter of request is received by Federal Government from a court or

authority in a contracting State; Federal Government may forward such letter of request to
Court or to authorized officer/authority as it thinks fit for execution of such request in
accordance with this Act or, in the manner sought by the contracting state.
Request for Attachment, seizure and forfeiture of property
 If the investigating officer has made an order for attachment of any property (u/s 8) or where
court has made a confirming order on it (u/s 9) and such property is suspected to be in a
contracting state, Court (on application by investigating officer) may issue a letter of
request to a Court or an authority in the contracting state for execution of such order.
 Where such a letter of request is received by Federal Government from a court in a

contracting State, Federal Government may forward such letter of request to investigating
agency, as it thinks fit, for execution in accordance with this Act or in the manner sought by
the contracting state.
 Federal Government may also direct any investigating agency under this Act to take all steps
necessary for tracing (determining the nature, source, disposition, movement, title or
ownership of property) and identifying (includes establishment of a proof that property was
derived from, or used in, commission of an offence u/s 3) such property.
Misc
Notices, etc. not to be invalid on certain grounds (Sec 36)

No notice, summons, order, document or other proceeding, furnished or made or issued or
taken or purported to have been furnished or made of issued or taken in pursuance of any of
the provisions of this Act shall be invalid, or shall be deemed to be invalid merely by reason of
any mistake, defect or omission in such notice, summons, order, documents or other
proceedings if such notice, summons, order, document or other proceeding is in substance and
effect in conformity with or according to the intent and purpose of this Act.
Presumption as to records or property in certain cases (Sec 19)

Where any document of public record is found in the possession or control of any person in the
course of a survey or a search relating to any predicate offence or where any records have been
received from any place outside Pakistan duly authenticated by such authority or person and in
such manner as may be prescribed in the course of proceedings under this Act, the Court or the
investigating agency, as the case may be, shall:
 Presume, that the signature and every other part of such record which purports to be in the
hand writing of any particular person or which the Court may reasonably assume to have
been signed, by or to be in the hand writing of, any particular person, is in that person’s hand
writing; and in the case of a record executed or attested, that it was executed or attested by
the person by whom it purports to have so executed or attested; and
 Admit the document in evidence, notwithstanding that it is not duly stamped, if such
document is otherwise admissible in evidence.
Powers of Federal Government
Power to amend the Schedule (Sec 42)

Federal Government may, by notification in official Gazette, amend the Schedule to this Act so
as to add any entry thereto or modify or omit any entry therein.
Power to make rules (Sec 43)

Federal Government may in consultation with National Executive Committee and by
notification in official Gazette make rules for carrying out the purposes of this Act.
Power to remove difficulties (Sec 45)

If any difficulty arises in giving effect to the provisions of this Act, Federal Government may, by
order, published in official Gazette, make such provisions not inconsistent with the provisions
of this Act, as may appear to be necessary for removing the difficulty.
Continuity of proceedings in the event of death or insolvency. (Sec 38)

 Any property of a person has been attached under this Act and no representation against the
order attaching such property has been preferred, and such person dies; or
 Any representation has been preferred to the Court, and
then it shall be lawful for the legal representatives of such person or the official assignee or
the official receiver, as the case may be, to prefer representation to the Court, or as the case may
be to continue the representation before the Court, in the place of such person.

 After passing of a decision or order by the Court, no appeal has been preferred to the High
Court u/s 23; or
 Any such appeal has been preferred to the High Court
then, it shall be lawful for the legal representatives of such person, or the official assignee
or the official receiver, as the case may be, to prefer an appeal to the High Court or to continue
the appeal before the High Court in place of such person and the provision of section 23 shall,
so far as may be, apply, or continue to apply, to such appeal.
SCHEDULE-I - List of Predicate Offences
The Pakistan Penal Code, 1860 (Act XLV of 1860)

109 Punishment of abetment if the act abetted is committed in consequence and where no express provision
is made for its punishment.
111 Liability of abettor when one act abetted and different act done.
112 Abettor when liability to commutative punishment for act abetted and for act done.
113 Liability of abettor for an affect caused by the act abetted different from that intended by him.
115 Abetment of offence punishable with death or imprisonment for life, if offence not committed, if act
causing harm be done in consequence.
116 Abetment of offence punishable with imprisonment, if offence be not committed.
117 Abetting commission of offence by the public or by more than ten persons.
118 Concealing design to commit offence punishable with death or imprisonment for life, if offence by
committed; if offence be not committed.
119 Public servant concealing design to commit offence which it is his duty to prevent.
120 Concealing design to commit offence punishable with imprisonment
120B Punishment for criminal conspiracy.
121 Waging, or attempting to wage war, or abetting of war against Pakistan.
121A Conspiracy to commit offence punishable by section 121.
122 Collecting arms, etc. with intention of waging war against Pakistan.
161 Public servant taking gratification other than legal remuneration in respect of an official act.
162 Taking gratification, in order, by corrupt or illegal means, to influence public servant.
163 Taking gratification, for exercise of personal influence with public servant
164 Punishment for abetment by public servant of offences defined in section 162 or 163.
165 Public servant obtaining valuable thing, without consideration from person concerned in proceeding or
business transacted by such public servant.
165 A Punishment for abetment of offences defined in section 161.
302 Punishment for qatl-i-amd.
316 Punishment for qatlshibh-i-amd.
327 Punishment.
337k Causing hurt to extort confession or to compel restoration of property.
343 Wrongful confinement for three or more days.
344 Wrongful confinement for ten or more days.
345 Wrongful confinement for person for whose liberation writ has been issued.
346 Wrongful confinement in secret.
347 Wrongful confinement to extort property or constrain to illegal act.
348 Wrongful confinement to extort confession or compel restoration of property.
363 Punishment for kidnapping.
364 Kidnapping or abducting in order to murder.
364A Kidnapping or abducting a person under the age of fourteen.
365 Kidnapping or abducting with intent secretly or wrongfully to confine person.
365A** Kidnapping or abducting for extorting property, valuable security etc.
365 B Kidnapping, abducting or inducing woman to compel for marriage etc.
366 Kidnapping, abducting or inducing woman to compel her marriage, etc.
366A Procuration of minor girl.
366B Importation of girl from foreign country.
367 Kidnapping or abducting in order to subject person to grievous hurt, slavery etc.
367A Kidnapping or abducting in order to subject person to unnatural lust.
368 Wrongfully concealing or keeping in confinement, kidnapped or abducted person.
369 Kidnapping or abducting child under ten years with intent to steal from its person.
370 Buying or disposing of any person as a slave.

371 Habitual dealing in slaves.
371A Selling person for purposes of prostitution etc.
371B Buying person for purposes of prostitution etc.
374 Unlawful compulsory labour.
376 Punishment of rape.
379 Punishment for theft.
380 Theft in dwelling house etc.
381 Theft by clerk or servant of property in possession of master.
381A Theft of a car or other motor vehicle.
382 Theft after preparation made for causing death, hurt or restraint, in order to committing of theft.
384 Punishment for extortion.
385 Putting person in fear of injury in order to commit extortion.
392 Punishment for robbery.
395 Punishment for dacoity.
402 Assembling for purpose of committing dacoity.
402 B Punishment for hijacking.
406 Punishment for criminal breach of trust.
411 Dishonestly receiving stolen property.
412 Dishonestly receiving stolen property in the commission of a dacoity.
413 Habitually dealing in stolen property.
414 Assisting in concealment of stolen property.
417 Punishment for cheating.
419 Punishment for cheating by personation
421 Dishonest or fraudulent removal or concealment of property to prevent distribution in creditors.
422 Dishonestly or fraudulently preventing debt being available for creditors.
423 Dishonest or fraudulent execution of fees of transfer containing false statement of consideration.
424 Dishonest or fraudulent removal or concealment of property.
465 Punishment for forgery.
467 Forgery of valuable security, will, etc.
468 Forgery for the purpose of cheating.
471 Using as genuine a forged document.
472 Making or possessing counterfeit seal, etc. with intent to commit forgery punishable u/s 467.
473 Making or possessing counterfeit seal, etc with intent to commit forgery punishable otherwise.
474. Having possession of document described in section 466 or 467 knowing it to be forged and intending to
use it as genuine.
475 Counterfeit device or mark used for authenticating documents described in section 467, or possessing
counterfeit marked material
476 Counterfeit device or mark used for authenticating documents other than those described in section 467,
or possessing counterfeit marked material.
477 Fraudulent cancellation destruction, etc., of will, authority to adopt, or valuable security.
477 A Falsification of accounts.
482 Punishment for using a false trade-mark or property mark.
483 Counterfeiting a trade mark of property mark used by another.
484 Counterfeiting a mark used by a public servant.
485 Making or possession of any instrument for counterfeiting a trade mark or property.
486 Selling goods marked with a counterfeit trade mark or property mark.
487 Making a false mark upon any receptacle containing goods.
488 Punishment for making use of any such false mark.
489 Tampering with property mark with intent to cause injury.
489A Counterfeiting currency-notes or bank notes.
489B Using as genuine, forged or counterfeit currency notes or banknotes.

489C Possession of forged or counterfeit currency-notes or bank notes.
489D Making or possessing instruments for forging or counterfeiting currency-notes or bank notes.
489E Making or using documents resembling currency-notes or bank notes.
489G Counterfeiting or using documents resembling Prize Bonds or unauthorized sale thereof
493 A Cohabitation caused by a man deceitfully inducing a belief of lawful marriage.
496A Enticing or taking away or detaining with criminal intent a woman.
The Arms Act, 1878 (XI of 1878)
19 For breach of section 5, 6, 10, 13 tol7.
20 For secret breaches of section 5 to 10, 14 and 15.
The Foreigners Act, 1946 (XXXI of 1946)
14 Penalties.
Prevention of Corruption Act, 1947 (II of 1947)
5 Criminal misconduct
5B Declaration of Assets
5C Possession of Property disproportionate to known sources of income
Foreign Exchange Regulation Act, 1947 (VII of 1947)-Illegal forex business
23 Subsection (1) of section 4 read with section 23.
Section 5 read with section 23
The Copyright Ordinance, 1962 (XXXIV of 1962)
66 Offences of infringement of copyright or other rights conferred by this Act.
67 Possession of plates for purpose of making infringing copies.
68 Penalty for making false entries in Register, etc. or producing or tendering false evidence.
69 Penalty for making false statements for the purpose of deceiving or influencing any authority or
officer.
70 False attribution or authorship, etc.
The Pakistan Arms Ordinance, 1965 (W.P. Ordinance XX of 1965)
13 Penalty for breach of sections 4, 5, 8 to 11.
The Customs Act, 1969 (IV of 1969)
156(1) Section 2(s) read with clause 8, 89 of section 156(1)
Section 32A read with clause 14A of section 156(1)
The Securities Act, 2015 (Act No. III of 2015
128 (Prohibition of insider trading) read with Section 159
133 (Market Manipulation) read with Section 159
The Securities and Exchange Act, 1969 (XVII of 1969)
A/1 All offences under this Act prescribing minimum punishment for a period of year.
The Emigration Ordinance, 1979 (XVIII of 1979)
17 Unlawful immigration etc.
18 Fraudulently inducing to emigrate.
19 False representation of Government authority.
22 Receiving money etc. for providing foreign employment.
The Sales Tax Act, 1990
33 (Entries 11 and 13 of Section 33 of Table) Offences and Penalties
The Control of Narcotic Substances Act, 1997 (XXV of 1997)

9 Punishment for contravention of section 6, 7 and 8.
41 Prohibition of alienation of freezed property.
42 Prohibition of acquiring property in relation to which proceedings have been taken
The Anti-Terrorism Act, 1997 (XXVII of 1997)
All offences under this Act prescribing minimum punishment for a period of over one year.
National Accountability Ordinance, 1999 (XVIII of 1999)
9 Corruption and Corrupt Practices.
The Registered Designs Ordinance, 2000 (XLV of 2000)

27 Offences and penalties
28 Falsification of Register, etc
29 Falsely representing a design as registered
The Trade Marks Ordinance, 2001 (XIX of 2001)
99 Penalty for applying false trade description, etc
101 Penalty for falsification of entries in Register
107 Penalty for improperly describing a place of business as connected with the Trade Marks Registry
The Income Tax Ordinance, 2001
192 Prosecution for false statement in verification- where tax sought to be evaded is Rs 10 million or
more
192A Prosecution for concealment of Income-where tax sought to be evaded is Rs 10 million or more
194 Prosecution for improper use of National Tax Number [Certificate}- where tax sought to be evaded
is Rs 10 million or more
199 Prosecution for abetment – where tax sought to be evaded is Rs 10 million or more
The Prevention & Control of Human Trafficking Ordinance, 2002 (LIX of 2002)
3 Punishment for human trafficking
4 Offences committed by organized criminal groups
5 Repetition of commission of offences
The Federal Excise Act, 2005
19(3) Offences, penalties, fines and allied matters
APPENDIX -1
Contents of CTR (Currency Transection Report)
Following are the contents of CTR (Currency Transection Report)
Information about the person on whose behalf transection is conducted such as

Information about the individual Conducting the Transection

Information about amount and type of Transection

- Date and amount of transection
- Particulars of foreign currency transaction (If applicable)
- Type of transection such as transfer, Exchange, deposit, withdrawal or issuing a negotiable
instrument.
Information about financial Institution where the transection took place.

Report should be
- dated
APPENDIX – II
Contents of STR (Suspicious Transection Report)
Following are the contents of STR (Suspicious Transection Report)
Information of financial Institution Reporting the suspicion.

- Identification of Primary Regulator such as SBP, SECP or any other
Information of the suspect.

- Business relation with suspect and whether the relationship is still maintained along with
reason of continuance of relationship or date of discontinuance of relationship.
- Identity of other persons known to be involved in reporting activity.
Information about Suspicious Transection

- Date of transection and amount involved
- Description and brief narration of suspicious Transection
- Information such as account number, Title, date of opening, Current status, Monthly balance
debit/credit limts used etc. of account of origination.
- Other relevant Information (if any)
Information if the transaction already been reported to any Law Enforcement Agency. If so,
particulars of agency.
Report should be
- dated
Ch # 24: Foreign Exchange Regulations
This chapter covers two chapters of Foreign Exchange manual (i.e loans and Securities).
The purpose of this Act is to regulate certain payments, dealings in foreign exchange and
Securities and the import and export of currency and bullion. It is expedient in the
economic and financial interest of Pakistan to provide for such the regulation.

 Loans (Ch XIX - Foreign Exchange Manual of SBP)
 Securities (Ch XX - Foreign Exchange Manual of SBP)
D 1.1: Foreign Exchange Manual of State Bank of Pakistan

(Chapter 19 and 20)
100%
(Except Para Para 18(i)(e) of Ch 19 and Para 6(C) of chapter 20 of the Manual)
Loans, Overdrafts & Guarantee (Foreign Exchange Manual - Chapter 19)
Non-Resident Pakistanis/Resident Foreign Nationals (Rupee Loan)
Borrowing in PKR by  Allowed to borrow for any purpose except purchase of shares
Foreign Controlled (of any kind)
Companies  Prudential Regulations (by SBP), KYC and ‘AML/CFT’ standards
registered in shall be followed
Companies Act 2017  Purpose of borrowing must be clear and documented in
(Para 2) Authorized Dealer’s and company’s record.
Borrowings by Non-  Authorized Dealers have general permission to grant such loans
Resident Pakistanis in local currency
(Para 3)  Prudential Regulations (by SBP), KYC and ‘AML/CFT’ standards
shall be followed
 Purpose of borrowing must be clear and documented.
 For purchase of immovable property, banks can lend subject to
following conditions:
- Loan will be paid in FCY (remittances or FCY accounts)
- Sale proceeds of such immovable property shall not be
eligible for repatriation.
Borrowings by  Authorized Dealers may grant such rupee loans, except for
Resident Foreign purchasing immovable property and purposes restricted by SBP
Nationals (Para 3) / any other law.
Loans etc against  Authorized Dealers may give PKR loans to their resident clients
Guarantees of Non- against guarantees of non-residents (or banks operating abroad)
Residents /  Compliance of Prudential Regulations is must.
Collateral held  Guarantees involving FCY outflows (for due diligence fee,
outside Pak. (Para 5) commission fee, guarantee premium fee etc) shall require prior
approval of SBP.
Loans & Overdrafts by Authorized Dealers in FCY. (Para 6)
 Will not grant any such loans without prior approval of SBP (except FE-25 loans)
 Applications should be made to SBP mentioning purpose, particulars of the guarantee or
collateral, if any, and manner in which loans or overdrafts are expected to be paid.
Private Sector Borrowings from Abroad - PSBA (Para 7)

PSBA refers to FCY loans raised by eligible borrowers in private sector in PAK from foreign
lenders in convertible foreign currencies in form of commercial credit, supplier’s credit, buyer’s
credit, working capital loans, inter-company loans, issuance of FCY bonds, structured loan
facilities and FCY financing under Islamic arrangement.
Common terms and conditions of PSBA

Eligible  Companies registered under Companies Act, 2017 and Independent Power
Borrowers Producers (IPPs), except financial intermediaries(Banks, DFIs, NBFCs,
Payment System Providers etc)
Investment (BOI)
 Credit rating condition not applicable to exporters (If PSBA is up to 80% of
annual exports)
Note: Individuals, trusts, non-profit organizations and NGOs are not eligible
to raise PSBA.
Eligible  Internationally recognized such as Foreign Banks, International Capital
Lenders Markets, Multilateral Financial Institutions (e.g IFC, ADB, etc), Government
owned Development Financial Institutions, Export Credit Agencies,
Suppliers of Plant & Machinery, and parent/associates.
Security  Any collateral/charge created on any property owned by eligible
borrowers/or their sponsors
 For pledge of shares; Requirements of chapter 20 of the manual shall also
be followed
 Issuance of bank guarantees by Authorized Dealers and corporate
guarantees by sponsors in favor of lenders is permitted for the loans
registered with the Authorized Dealer.
PSBA  Authorized Dealer will register all FCY loans after checking compliance of
Forward  Authorized Dealers can extend such facility for earlier of 1 year or
Cover remaining maturity of loan
Facility  For maturity of more than 1 year; facility would be 12-months on rollover
basis
 Facility will not be provided for less than 1 month
 Borrower will not hedge the amount more than the loan.
Pre-  Prepayment of PSBA will not be allowed except for the “PSBA for Project
Payments Financing”
 Swapping PSBA with local currency loans will not be allowed.
Waivers/  Any waiver/exception from the terms and condition mentioned in the
Exceptions policy will require prior approval of the Exchange Policy Department
related to (EPD) i.e. before execution of the facility documents
PSBA
1) PSBA for Project Financing.
 Can be raised for meeting capitalized cost (preliminary expenses, import of plat,
procurement of technical expertise etc) and repayment of existing PSBA in all sectors
including SME and infrastructure projects.
 Maturity should not be less than 3 years.
 Borrowing Cost Ceiling excluding relevant benchmark rate
- 350 basis points for 3 to 5 years loan
- 600 basis points for more than 5 years loan
a Co in Pak
 These loans can be converted into equity after later of completion of the project or 3 years
- Prior approval of EPD shall be obtained.
- For unlisted, loan will be converted at break-up value established by external auditors
approved by SBP.
- For listed, loan will be converted at the average market value of previous 6 months.
- Exchange rate given in latest audited financial statements will be used to establish
 Refinancing of existing PSBA Project Loans will only be allowed if fresh PSBA is to be raised
at relatively lower rate of all-in-cost and/or the outstanding maturity of the original PSBA
will either be maintained or extended.
 Amount of loan can be credited in a FCY account
(opened under the requirements of Foreign Exchange Manual for making import and
consultancy payments)
2) PSBA for Working Capital.
 It can be raised for meeting FCY component of working capital requirements of companies
established / operating in PAK.
 Maturity shall range between 01 month and 1 year. (can also be rolled over for a minimum
period of 1 month)
 Branches of foreign companies working in PAK with the permission of BOI can only borrow
interest free loans from their sponsors/parents.
 Foreign contractors working in PAK with permission of BOI and/or registered with PEC can
borrow interest free loans from their sponsors/parents.
- They can repay the loans only after completion of contracted work/project or a
milestone
- Shall submit milestone completion certificate/completion certificate, issued by
relevant authority.
- Also, they will submit a clearance certificate issued by the Revenue Authorities
 The amount of loan borrowed under this category cannot be credited in a FCY account.
3) PSBA for Bridge Financing.
 Will be raised only for meeting financing gap arising from outstanding project payments and
delays in disbursements from committed FCY equity or PSBA for Project Financing.
 The maturity shall range between 6 months and 1 year.
 Loan amount can be retained in special FCY account only for making payments relating to
import of goods and services under the already established contracts.
4) PSBA mobilized through Securitized Instruments, Issuance of Bonds & Financing

under Islamic Arrangement
 Require prior approval of SBP

 Can be used for establishment of new projects, import of plant & machinery,
modernization/expansion of existing projects, buying/acquiring patents/operating
licenses/trademarks, procurement of technical expertise and repayment of existing PSBA in
all sectors including SM and infrastructure projects.
a Co in Pak.
 Application may be submitted to EPD of SBP through Authorized Dealers
- Seeking approval to issue bonds/securitized instruments in international capital/debt
markets,
- Shall mention all necessary information with key terms and waivers required, and draft
documents.
Note: Any type of loan not falling under any of above mentioned categories may be referred to
SBP for consideration
FCY Trade Financing from Abroad – FTFA (Para 8)
‘FTFA’ refers to credits extended for imports/exports directly by overseas suppliers/buyers,

banks and financial institutions to finance LC and other overseas contractual obligations.
Common terms and conditions of FTFA

Eligible  Companies registered under Companies Act, 2017 and members of
Borrowers chambers of commerce, except financial intermediaries (Banks, DFIs,
NBFCs, Payment System Providers etc)
Investment (BOI)
Note: Individuals, trusts, NPOs and NGOs are not eligible to raise PSBA.
Eligible  Internationally recognized such as banks, International & Multilateral

Lenders Financial Institutions etc
 FTFA may also be raised from suppliers/buyers and parent companies
Waivers etc  Any waiver/exception from the terms and condition mentioned in the
related to policy will require prior approval of the EPD i.e. before execution of the
PSBA facility documents
1) Import Loans under FTFA.
 Can be used to finance LC and other overseas contractual obligations for transactions over
USD 5 million
 The maturity shall range between 2 years to 5 year.
 Amount of loan can be retained in a FCY account (opened under requirements of Foreign
Exchange Manual)
2) Export Loans under FTFA.
 Exporters, having firm commitments with overseas buyers, may obtain FTFA in convertible
currencies
 Maximum tenure of loans will be period generally fixed for repatriation of export proceeds
+ 60 days.
 Borrowing Cost Ceiling excluding relevant benchmark rate: 200 basis points (for maturity
up to 240 days)
 After availing facility, he cannot obtain export finance in PKR from a PAK bank and any other
for same export.
 FCY amount of loan will be converted into PKR with Authorized Dealer and will not be
retained in FCY.
 The FCY loan will be repaid, along with interest, out of the related export proceeds.
 In case of cancellation/delay of export, exporter may repay loan from the proceeds of other
export consignment or from his FCY account.
Financial Sector Borrowings from Abroad – FSBA (Para 9)
‘FSBA’ refers to FCY borrowings from abroad by the eligible borrowers operating in the financial
sector of PAK.
Common terms and conditions of FSBA

Eligible  Banks, financial institutions, Development Finance Institutions (DFI),
Borrowers housing finance companies, non-banking finance companies, microfinance
banks/institutions, Payment System Operators, Payment System
Providers and branches/subsidiaries of foreign banks in PAK.
 Requests from Authorized Dealers/banks in Public Sector will be dealt
with at EPD of SBP,
 Economic Affairs Division, Government of PAK will deal with the requests
received from all other Public Sector Enterprises (PSEs) operating in
financial sector of PAK.
Eligible  International financial institutions, donor agencies, specialized
Lenders banks/institutions and overseas branches/correspondents of Authorized
Dealers (banks) in PAK.
Pre-  The request for prepayment of FSBA will be evaluated by SBP on a case to
paymnets case basis.
1) Credit Lines/Overdrafts established by Authorized Dealers with

Correspondents/Overseas Branches.
 The maximum maturity of such loan/credit line will be 7 days.

 In case of any security, arrangement details to be furnished to EPD SBP for approval.
 Interest on such facility may be remitted by Authorized Dealers without the prior approval
of SBP.
2) FSBA by Authorized Dealers/Banks and Branches/Subsidiaries of Foreign Banks in

PAK for Liquidity Management Purpose.
 The maximum maturity of this loan will be 1 month to 1 year.

 Can be rolled over for a minimum period of 1 month
 Borrower can borrow FCY up to 100% of its unimpaired capital as per its latest audited
financial statements
 No security would be offered to lenders (borrowing will be clean and based on balance sheet
strength).
 It will be allowed to deploy loan proceeds locally in interbank market including financing of
trade transactions
3) Long Term FSBA by Authorized Dealer.
 Authorized Dealer shall submit the request to the Director – EPD, SBP
 Such requests shall be considered by SBP on their merit, on a case to case basis.
4) FSBA by Micro Finance Banks/Institutions in PAK.
 Purpose shall be the financing of their loan portfolio only.

 Minimum maturity of the loan will be 2 years.
 Cost of borrowing will be negotiable and competitive with prevailing rate in local market.
 If cost of borrowing from international institutions is higher than LIBOR + 5%, Micro Finance
Banks/Institutions shall submit local quotes of rate from local lending institutions,
 Funds will immediately be converted into PKR and credited to borrower PKR account
(maintained with concerned Authorized Dealer in PAK)
 Authorized Dealers may provide forward cover/hedging facility on such FCY loans
 Issuance of guarantees by sponsor/donors in favor of lenders is permitted under this
registered loan
5) FSBA by other Financial Institutions i.e. NBFIs, DFIs, PSOs, PSPs, Leasing Companies,
House Building Finance Companies and Insurance Companies.
 Will approach the Director – EPD (SBP) along with all supporting documents
 State Bank will consider the request on its merit, on a case to case basis.
Guarantees
Guarantees on behalf of Residents of PAK in favor of Non-residents. (Para 10)
 Prior approval is required for giving any guarantee or undertaking or opening of LC etc
(which may result in payment to a non-resident either in FCY or Rupees).
 Applications for guarantees related to FCY borrowing from abroad or equity investment
abroad will be forwarded to Director, EPD, SBP.
 Other cases will be forwarded to Director, Foreign Exchange Operations Dept, SBP-Banking
Services Corp.
previous 12 months
week.
Guarantees on behalf of Non-Residents in favor of Residents of PAK. (Para 11)
 Applications for this purpose should be made by Authorized Dealer to Director, Foreign
Exchange Operations Department, SBP-Banking Services Corporation giving full particulars
previous 12 months
week.
 Restrictions does not apply to:
- Cases covered under paras 14 and 15;
- Guarantee extended by Authorized Dealer on basis of back-to-back guarantee from
overseas branch etc;
- Advising of export LC established by non-resident banks nor to negotiation of
documents thereunder.
Above restrictions (Para 10,11) do not apply to guarantees given by Authorized Dealers in favor
of non-residents on behalf of their customers in ordinary course of business in respect of missing
documents, authentication of signatures, release of goods on Trust Receipts and defects in
documents negotiated by them under LC etc. (Para 14)
Performance/Bid Bond Guarantees. (Para 12)
 Authorized Dealers and Insurance Companies (regulated by SECP) may issue such
guarantees on behalf of exporters, members of recognized Consultancy/Construction
Associations and Companies approved by PEC, if
- Tenders specifically call for furnishing of such guarantees.
- Beneficiary is foreign Government or Government sponsored Organization or private
company or a firm.
- The tenderer is a bonafide exporter or manufacturer and there is no restriction on its
export from PAK.
- For firms, organization issuing the performance or bid bond must satisfy itself that the
tenderer is a bonafide Consultancy/Engineering firm, having the requisite financial and
technical resources
Remittances under Guarantees or Performance Bonds and their Reporting to SBP.

(Para 13)
 Authorized Dealers may process remittances against the Guarantees or bonds only if it
become necessary
 They should scrutinize the terms to confirm that liability is certain due to default of party in
PAK.
 While reporting such remittances to concerned area office of Foreign Exchange Operations
Dept, SBP-Banking Services Corp in their monthly foreign exchange returns, they will bunch
Forms 'M' with following documents:
- Copy of the Guarantee or Performance Bond.

- Copy of claim received by foreign bank from concerned beneficiary demanding such
payment.
- Copy of correspondence, if any, between foreign bank and beneficiary.
- Copy of correspondence exchanged by party in PAK on whose behalf Guarantee/Bond
was issued with the concerned beneficiary about calling of the Guarantee/Bond.
Guarantees and Collaterals in favor of Overseas Bank Branches and Correspondents.

(Para 15)
Application for prior approval should be made to Director, EPD, SBP by letter giving full details
of guarantees or collaterals and that of underlying transaction.
Guarantees in favor of Government Departments/Ministries/Public Sector Entities (Para

16)
 Authorized Dealers may issue such FCY guarantees subject to compliance of Prudential and
other Regulations
 If guarantee is called, amount will be paid in PKR to concerned Government department/
ministry/PSE.
Renewal of Loans and Overdrafts. (Para 17)

Renewal shall also require prior approval of SBP/SBP-Banking Services Corporation
Minimum Requirements for Loan Registration (Para 18)

Documentation required Other Conditions
PSBA for Project Financing
- Original loan/credit agreement. - Remittance of down payment will be
- A list of company's Directors along with their made by Authorized Dealers to the
National identity numbers/ passport number and extent of agreement
certified true copies of same. - Authorized Dealer will approach
- Beneficial ownership of the borrower. Exchange Policy Dept, SBP for
- Project report showing the details of the project permission to remit principal
including its cost (showing breakup of local and repayments & interest payments.
foreign component). - For all loan related fees/expenses,
- Location of the project & a copy of Certificate ofAuthorized Dealer will approach
Incorporation of company. Foreign Exchange Operations Dept,
- In case of Buyer's Credit arranged by the foreign SBP-Banking Services Corporation
supplier, authenticated copy of purchase contract.
- Authorized Dealer will furnish
following documents to EPD, SBP:
- For intercompany loans, documentary evidence of a) PRC (For direct disbursement)
the relationship between the companies. b) EEC (For import of plant etc)
- For exporter, documentary evidence and data of Auditor’s Certificate for amount of
last year’s exports. PSBA utilized with original
agreement etc (Import of

services)
- After establishing liability of foreign
lender, repayment schedule will be
submitted to EPD, SBP in
quadruplicate through Authorized
Dealer within 1 month of earlier of
completion of loan disbursement or
the project
documents
PSBA for Working Capital/ Bridge Financing
- The original loan/credit agreement. - On complete disbursement of loan,
- A list of the company's Directors along with their Authorized Dealer will maintain
National identity numbers/ passport number and PRC/Certificate of Deposit in
certified true copies of the same. original.
- Beneficial ownership of the borrower. - Authorized Dealer can process
- An authenticated copy of final repayment remittance of principal, interest and
schedule other fees, once the loan is
registered.
documents
PSBA for Securitized Instruments/Bonds & Financing under Islamic Arrangement
- Request of issuer with related prospectus of issue
- Beneficial ownership of the borrower.
- Industry analysis, yield curves and ratings of
other bonds/TFCs issued by industry.
- Rating of the issuer and the instrument by the
recognized local or international rating agency.
- Repayment mechanism and obligations.
- In case of Islamic financing/securitized
instruments, the details of underlying asset (s).
- Shariah compliance certificate (in case of Sukuk)
Financial Sector Borrowings from Abroad (FSBA)
- The original loan/credit agreement/swift - Authorized Dealer will report
message. transaction till maturity.
- A copy of the final expected repayment schedule. - After registration of loan, Authorized
Dealer can remit principal
repayments and interest payments.
Credit Lines/Overdrafts established by Authorized Dealers with Correspondents/

Overseas Branches.
- The original loan/credit agreement. - Authorized Dealer will subsequently
report transaction to the Statistics &
Data Warehouse Department of SBP.
FSBAs to be raised by Micro Finance Banks/Institutions in PAK.
- Request letter duly signed by the CEO/CFO of the - Upon complete disbursement of loan,
borrowing bank/ institution. the Authorized Dealer will keep the
- Original loan/credit agreement. PRC, in original, on its record.
- A copy of the final repayment schedule - After that, process the remittance of
- An undertaking by the borrower bank/institution principal, interest & other fees and
that the loan agreement is compliant with the shall maintain a copy of all
provisions of legal and regulatory framework documents
applicable to the lender and the borrower.
Long Term FSBAs to be raised by the Authorized Dealers.
offered.
FSBAs to be raised by other Financial Institutions i.e. NBFIs, Leasing Companies, House
Building Finance Companies & Insurance Companies
- Details of utilization of the proceeds.
offered.
Import Loan under FTFA
- Request letter duly signed by the importer. - Authorized Dealer will approach
- A list of the company's Directors along with their Exchange Policy Dept, SBP for
National identity numbers/ passport number and permission to remit principal
certified true copies of the same. repayments & interest payments.
- Beneficial ownership of the borrower. - After establishing liability of foreign
- Loan Agreement, in original, lender, repayment schedule will be
- Detail of Goods to be imported, under the subject submitted to EPD, SBP in
agreement, along with the timelines involved quadruplicate through Authorized
therein. Dealer
- For Buyer’s credit; Purchase Contract, in original. - After that, process the remittance of
documents
Export Loans under FTFA

- Request letter duly signed by the exporter. - Upon complete disbursement of loan,
- List of company's Directors with their NIC Authorized Dealer will keep PRC in
numbers /passport number and certified true original, on its record.
copies of same - After that, process the remittance of
- Beneficial ownership of the borrower. principal, interest & other fees and
- Loan Agreement in original. shall maintain a copy of all
- Copy of the relevant Letter of Credit. documents
- A copy of the final repayment schedule
Guarantees
- Authorized Dealer’s letter containing full details.
- Applicant’s request.
- List of company's Directors with their NIC
numbers /passport number and certified true
copies of same
- Format of Bank Guarantee.
- Copy of Agreement.
- Copy of purchase order/contract, in case of
advance payment guarantee.
- Details of claims received against guarantee at
time of request for renewal of guarantee, if any.
In addition, SBP may ask for any other document/ info, as and when deemed necessary.
Responsibilities of Authorized Dealers.

 Maintain a centralized loan database of outstanding FCY loans.
 Maintain the record of beneficial owners/directors of the borrowers and lenders.
 Maintain all the category-wise documents as mentioned below at all times.
 Check the compliance of all the terms and conditions mentioned in the relevant category.
 Ensure the compliance of KYC/AML/CFT guidelines issued by SBP from time to time.
 Register the loan before executing any transaction for their clients.
 Ensure to have independent assessment of each FCY loan proposal/transaction from money
laundering/ terrorism financing risk and foreign exchange risk perspective.
 Conduct appropriate due diligence of proposal including particulars of lender & borrower
 Conduct annual focused Internal Audit of FCY Loan Registration function.
Reporting Mechanism for Authorized Dealers (Para 19 to 21)

 For reporting foreign private loans on DAP, ensure that Loan Registration Number is
obtained from Statistics & Data Warehouse Department by 5th of next month
 Subject data will be reported on FCY loans portal with proper purpose codes assigned
 Ensure that repayment schedules are updated on FCY loans portal at all times
 Ensure that any subsequent changes in terms of Loan Agreement should comply with
relevant regulations of that category. Also maintain record of such changes/amendments.
 In case of non-compliance of rules and non-submission/late submission of any returns/
reports, regulatory action shall be taken against Authorized Dealer under FERA, 1947
Securities (Foreign Exchange Manual - CHAPTER 20)
Import and Export of Securities
Import of Securities (Sec 2)

There are no restrictions under the Act on import into Pakistan of any securities whether
Pakistani or foreign.
Export of Pakistani Securities (Sec 4)

Pakistan Nationals (resident outside Pakistan) would need permission of SBP (through
Authorized Dealer)
Export of Foreign Securities (Sec 3)

 Pakistan national resident in Pakistan is permitted to hold or retain such securities (acquired
legally)
 Taking or sending securities to place outside Pakistan is only allowed with SBP permission.
 Interested person should apply SBP through Authorized Dealer for relevant export licence.
 After permission, securities can be send through Authorized Dealer with undertaking that:
- The securities will be received back in Pakistan within a specified period; or
- In case of sale, the sale proceeds in foreign currency will be repatriated to Pakistan.
 SBP may also consider applications, through Authorized Dealer or stock broker, for exchange
of securities (i.e. foreign securities held by residents of Pakistan with Pakistan securities held
by residents abroad).
Transfer of Securities to Non-Residents
Prohibition on Transfer of Securities to Non-Residents
 Transfer of any of the following security in favour of "a person resident outside Pakistan" is
prohibited except with general or special permission of SBP.
- All Pakistani securities (i.e. securities expressed to be payable in Pak Rupees or
registered in Pakistan) whether held by persons resident in or outside Pakistan;
- All foreign securities held by Pakistan nationals;
- Pledging or hypothecation etc to or in favour of non-residents; or
- Utilizing them for forming trusts or settlements of which a non-resident is beneficiary
 Authorized Dealers are required to obtain permission of SBP before purchasing securities
registered in Pak on behalf of "persons resident outside Pakistan".
 Companies must also obtain permission of SBP before registering its transfer in name of such
persons
Person resident outside Pakistan covers a foreign national including a foreign national of
Indo-Pakistan origin as also a Pakistani holding dual nationality for the time being resident
in Pakistan and a company registered in Pakistan which is controlled directly or indirectly
by a person resident outside Pakistan.
General Exemption (Sec 6)
SBP has granted general exemption for issue, transfer and export of securities on repatriation
basis:
 Price shall be paid in foreign exchange through normal banking channel by remittance from
abroad or out of foreign currency account maintained by subscriber/purchaser in Pak
 Price is not less than price quoted on stock exchange (listed securities)
 Price is not less than breakup value of shares, certified by practicing CA(unlisted securities)
Exemption shall be applicable to following persons:

 A Pakistan national resident outside Pakistan.
 A person who holds dual nationality including Pakistan nationality, whether living in or
outside Pakistan.
 A foreign national, whether living in or outside Pakistan.
 A firm or trust or mutual fund registered and functioning outside Pakistan, excluding entities
owned or controlled by foreign government.
Exemption applies in following cases:

 Issue of shares and Modaraba Certificates/Trust and Fund Units out of new public offers
 Transfer of shares quoted on Stock Exchange(s) of the country
 Private placement of new/initial shares with foreign investors by any company, which is,
- A manufacturing company related to power generation/energy related infrastructure,
producers of computer software and companies established to set up software
technology parks for developing computer Software packages/programs
- Engaged in activities in Service, Infrastructure, Social & Agriculture sectors etc which
are open to foreign investors by Govt Investment Policy (if complaint with conditions
and after obtaining ‘Entitlement Certificate’ from SBP certifying value of investment).
 Transfer of shares of the companies prescribed in above point
 Transfer of Pakistani securities held by a “person resident outside Pakistan” on repatriable
basis to other eligible ‘persons resident outside Pakistan’ on same basis against payment
outside Pakistan (certificate for this shall be given by transferee to company concerned)
 Issue of rights and bonus shares in all those cases where shares are held on repatriable basis
by ‘persons resident outside Pakistan’ in accordance with permission of SBP.
 Issue of Government securities to foreign nationals.
 Issue/transfer of rupee denominated corporate debt instruments viz. PTC/TFC etc. and
Registered WAPDA Bonds as permitted under relevant SRO governing such issue and sale.
 Issue of NIT Units to above persons (except firm)
Procedure for issue of Shares out of new public offers on repatriable basis (Para 7)
 Companies issuing shares may open foreign currency collection accounts with banks abroad
or in Pak for receiving subscription in foreign currency.
- May also allow refunds from these accounts to unsuccessful applicants.
- Amount by successful applicants should be repatriated to Pak and foreign currency
accounts closed within a week of allotment of shares.
- Proceeds Realization Certificate (PRC) shall be obtained from Authorized Dealer
 For remittance directly to Pakistan in company’s rupee account, shares may be issued for
rupee equivalent paid by concerned Authorized Dealer as shown in PRC.
 If shares are to be issued to non-resident sponsors against plant and machinery supplied by
them,application should be submitted to area office of Foreign Exchange Operation Dept
with relative import documents (original invoices & bills of entry, copies of bills of lading or
airway bills and import authorization from Trade Development Authority, if applicable)
- Exchange Entitlement Certificate (EEC) will be issued at average of interbank buying
and selling rates on dates of filing of bills of entry with Customs.
- After getting EEC, company may issue shares upto value mentioned in the Certificate.
 If non-resident sponsors want to pay in foreign currency through foreign currency account,
Authorized Dealer will issue a Certificate showing date-wise deposit of equity in account and
its buying exchange rate on date of deposit.
- Company may issue shares after receipt of money in its account for the equivalent
Rupee amount at the exchange rate shown in the Certificate.
 At request of company, SBP shall authorize an Authorized Dealer for remittance of dividend
 Shares issued/transferred shall be intimated by company to designated Authorized Dealer

within 30 days of issue/transfer on prescribed form along with following documents
- MOA, AOA and Certificate of Incorporation/Registration etc., if not already submitted
- For issuing ordinary shares through public offer, Bank’s PRC and permission of SECP.
- For issuing ordinary shares through private placement against equity repatriated to
Pakistan under paragraph, PRCs in original.
- For issuance of shares of companies other than manufacturing, Entitlement Certificate
obtained from SBP by submitting following through a nominated Authorized Dealer: -
o Encashment Certificate and/or PRC showing foreign currency or equivalent Rs
o MOA, AOA and Certificate of Incorporation.
o Attested copy of Board of Investment's Registration Letter, (if applicable)
o Particulars of sponsor shareholders
- For issue of rights shares, PRCs in original with copy of Board’s Resolution.
- For bonus shares, a copy of Board’s Resolution, Auditor’s certificate for compliance
with existing applicable laws and audited accounts for the respective year.
- For issuance against plant and machinery, EEC in original.
- For issuance against equity deposited in a foreign currency account for import of plant
& machinery, Account holding bank’s certificate in original.
- For transfer of listed shares, Stock Broker’s Memo and PRCs both in original.
(If shares negotiated privately, documents of deal and price on SE on that date)
- For transfer of shares of un-listed companies, Auditor’s certificate for break-up value,
a copy of audited accounts of that year, documentary evidence of sale price and PRCs
- For transfer of shares from one non-resident to another non-resident against payment
outside Pakistan certificate from transferee and PRCs
- For issue of Government Securities, issue/transfer of debt instruments and issue of NIT
Units, PRCs with copies of related documents.
To enhance due diligence with respect to export of securities to non-resident investors,

Authorized Dealers are required to submit following additional documents/information:
 Formal Share Purchase Agreement etc between Investor & Investee.

 Business profile containing ownership, organization/group, locations, markets & products.
 Promoters’/ Directors’ names, addresses, ID/passport numbers & country of domicile.
 Certificate of Incorporation or equivalent issued/acknowledged by the relevant Authority.
 MOA & AOA or equivalent registered with the relevant Authority.
 Annual Audited Financial Statements with Auditors’ report & notes for last year.
 Pattern of Shareholders (name, national identity number & shares held) etc
 Related Party details including beneficial ownership with above documents, if any.
Authorized Dealers shall maintain centralized record/data of all such cases and update the same
for On-site inspection /Off-site monitoring by SBP.
Companies issuing/registering transfer of shares on repatriation basis, may export the share
certificates through designated Authorized Dealer to shareholders. Authorized Dealer shall also
allow remittances in respect of the following:-
 Dividend, net of applicable taxes
 Disinvestment proceeds not exceeding market value (listed)/break up value (unlisted) less
brokerage/commission on submission of:
- Name and address of non-resident share holder.
- Name and address of company whose shares were sold by non-resident beneficiary,
indicating type of that company (This requirement may be waived for quoted shares).
- Name, address and residential status of the buyer of the shares in question.
- Copy of broker’s memo (listed) /breakup value certificate of a practicing CA (unlisted)
Issue of Securities and NIT Units to non resident on non-repatriation basis and its
transfer on the same basis. (Para 8)
 All type Pakistani Securities including NIT Units (except unlisted) allowed, if payment is
made either in foreign exchange or in Pakistan rupees
 Securities must be registered at Pakistan address of purchaser and a clear undertaking by
him that no repatriation of capital and profits/dividends will be claimed at any stage.
 Such securities may also be transferred to a person (resident/non resident) on same basis,
 Such person may also be issued bonus/right shares as per his entitlement on same basis
Trading of Quoted Securities by Non-Residents (Para 9)
Trading of Quoted Shares.

“Special Convertible Rupee Account" (SCRA) will be opened with any Authorized Dealer in Pak
 It can be fed by remittances from abroad or by transfer from a foreign currency account
maintained by non-resident in Pakistan.
 Fund available in SCRA can be transferred outside Pakistan or credited to foreign currency
account maintained in Pakistan at any time without prior approval of SBP.
 Balance can be used for purchase of any quoted share
 Payment is debited and the disinvestments proceeds are credited to account on production
of stock broker's memo showing purchase or sale by account holder
 SCRA can also be credited with dividend income.
 Transfers from an SCRA to other may be made for share transfer between 2 account-holder
Non-residents also allowed to trade in Ready/Cash/Futures Markets through SCRA

 A separate sub-account under SCRA shall be opened by foreign investors
 Margins relating to Ready/Cash/Futures may also be routed through this account.
 While allowing refund of margin through SCRA, Authorized Dealer should ensure that the
broker has quoted date and relevant instrument number
 Daily statement showing inflow/outflow and opening/closing balances in SCRA shall be
reported to Statistics and Data Warehouse Department
 Authorized Dealers shall report information on market value of such investments through
future trading in their weekly returns to Statistics and Data Warehouse Department
 Head/ Principal Offices of all Authorized Dealers are advised to submit statements to
Statistics and Data Warehouse Department, SBP in excel format on daily and weekly basis
Commission earned by international brokers from their overseas clients and credited to
broker’s SCRA account may be remitted by Authorized Dealers if funds have derived from
inward remittances or paid out of SCRA of investor.
Trading of PIB, Treasury Bills, Registered Corporate Debt Instruments and WAPDA’s
Registered Bonds listed with Stock Exchange(s) in Secondary Market.
Non-residents are allowed to trade freely in such securities if relevant S.R.Os permit them to
hold bonds in secondary market, through SCRAs subject to the above instructions
Special Instructions regarding shares transferred CDC (Para 10)
 Separate account/sub-account will be opened at CDC for each such non-resident investor
 All transactions at CDS (i.e., deposit or withdrawal) be supported by actual fund movement
 No netting/adjustments allowed
 Payment/receipt for each transaction should be settled independent of other transactions
 If investment is made/routed through SCRA, it should never show an overdrawn position.
 Securities available in account/sub-account may be pledged in favor of NCCPL in case of non-
availability of funds in SCRA to meet margin requirements
Initial transfer in the name of CDC.

 Company concerned will ensure that shares are registered in its record on repatriation basis
in the name of non-resident concerned.
 If not so registered, company will obtain requisite documents issued in name of investor
Subsequent transactions i.e., deposit/withdrawal at CDS.

 For investments made through GDRs, Authorized Dealer will ensure that complete/proper
record of all transactions is kept at their end and the prescribed statements of SCRAs are
furnished to SBP as usual
 For investments not involving SCRA, original documents will be submitted as usual to the
respective company by along with a certificate that shares are in the name of CDS and have
since been deposited into/withdrawn from respective non-residents account at CDS.
 Company, after updating its record, will furnish the same to designated Authorized Dealer.
 Authorized Dealer will keep these documents in its record for onward submission to SBP in
prescribed manner along with returns pertaining to dividend/ bonus or right issue
 He will as usual make remittance of disinvestment proceeds as per prescribed drill/rules.
Dividend Payment/allotment of bonus or right shares.
 CDC will issue to relevant company a list of beneficial non-resident shareholders certifying
their individual holding as on Ex-date of dividend/bonus/right
 Before issue of dividend warrant or allotment of shares, company will verify the holding of
non-residents not involving SCRAs from its record and for the non-residents investing
through SCRAs, it will obtain an undertaking-cum-certificate from Authorized Dealer
 List provided by CDS will invariably be attached by company to the returns.
Investment by the branches of Foreign Banks and the Foreign Controlled Investment
Banks (Para 11)
 Branches of foreign banks in Pak and foreign controlled investment banks incorporated in
Pak are permitted to invest in Pak. Rupee listed corporate debt instruments issued in Pak
 Such investment should be made through IPO and secondary market purchases
 If those debt instruments are convertible into shares, it should not exceed lessor of 30% of
paid-up capital of issuer or 30% of paid-up capital and reserves of the invester
 Profit/interest accruing treated as income for purpose of profit/dividend remittance
Other Requirements
Transfers between Registers etc (Para 12)
Only allowed with the general or special permission of the SBP.
Investment Abroad by Residents including firms and companies. (Para 13)
Allowed to make equity based investment (other than portfolio investment) in companies
(whether incorporated or not) /Joint Ventures on repatriable basis, with permission of SBP
 Allowed only for those countries that allow repatriation of profits, dividends and capital.
 Only companies incorporated in Pakistan including foreign controlled companies and firms
owned by Pakistani Nationals resident in Pakistan are allowed investment under scheme.
 Can invest only in similar businesses in foreign countries (in which investor has expertise).
 Investor should be financially sound as per audited accounts for last 3 years.
(For I.T companies, as per last 1 year)
 Proposal should be economically as per feasibility report.
 Should have potential for future earnings of foreign exchange with other advantages to the
country such as employment opportunities for Pakistanis and improvement in national HR.
 Funds for investment should be legitimate and tax paid
 Investor should have a clean record of loan repayments.

 Funding for investment is allowed only from inter-bank market or from funds available in
foreign currency accounts of investors or out of funds available in incremental deposits of
frozen foreign currency accounts, or Foreign Currency accounts maintained by exporters
 Following investments by individuals would be permitted without detailed scrutiny
- Small investments by individuals in a few shares of listed companies abroad
- Share option exercise by employees of subsidiaries of foreign companies in Pak
 SBP would also deal with such proposals of Public Sector Organizations in financial sector
(For other sectors, concerned ministry would deal with investment proposals)
 After making such investment, investor is required to:
- Make a return to SBP on prescribed form through their banker within 1 month;
- Provide copy of Certificate of Incorporation and Commencement of Business of target
organization to Authorized Dealer with copies of share certificates etc.
- Repatriate dividend/disinvestments proceeds to Pak through banking channels.
File with SBP a PRC for amounts received, converted to local currency by bank
concerned (Amounts not be allowed for credit to Foreign Currency Account or for
purchase of Pakistani securities on Repatriable basis)
 Detailed applications with audited accounts, particulars of Directors/Partners of investor
company/firm, name and address of target company/firm, its line of business & particulars
of its Directors/Partners, should be forwarded to Director, EPD, SBP, Karachi.
Investment Abroad by Locally Established Mutual Funds. (Para 14)
 Allowed to invest abroad for diversification of their portfolio, to extent of 30% of aggregate
funds mobilized (including foreign currency funds), in permissible categories
 A cap of US$ 15 million is applicable at any given time.
 Such investment must strictly follow scope and conditions approved by SECP
 Such funds would need prior approval of SBP through Authorized dealer.
- Apply to Director, EPD, SBP with details of proposed operations & related documents.
- Requests will be evaluated on a case to case basis
Registration of Foreign Securities. (Para 15)
 All residents of Pakistan acquiring such securities (entitling cash flows in foreign currency)
shall make a return to SBP within 1 month of acquisition with particulars of such securities.
 Foreign nationals residing in Pakistan are not required to submit the above returns.
Under-writing of shares, term and Modaraba certificates by foreign banks (Para 16)
 Foreign banks’ branches in Pakistan have general permission to under-write shares to the
extent of lessor of 30% of public offering or 30% of its own paid-up capital and reserves
 Also permitted to under-write public issues of PTC, TFCs and modaraba certificates
(if these are convertible to shares, restrictions of 30% would also apply)
25. Code of Corporate Governance Page 469
Ch # 25: Code of Corporate Governance

 Listed Companies (Code of Corporate Governance) Regulations, 2019
 Code of Corporate Governance for Public Sector
D 4.1: Listed Companies (Code of Corporate Governance) Regulations, 2019 and

Public Sector Companies (Corporate Governance) Rules, 2013
Listed Companies (Code of Corporate Governance) Regulations, 2019.
Unless otherwise specified, words and expressions used but not defined in these regulations shall
have same meaning as assigned to them in Companies Act 2017 and SECP Act, 1997. [Reg # 2(2)]
Comply or explain approach - Reg 2(1)(b)

Means discretion of a company with respect to non-mandatory provisions of these
Regulations either to comply or provide appropriate explanation as to any impediment in its
compliance in the compliance report along with the financial statements;
Mandatory - Reg 2(1)(c)
Means such provisions that are construed to be strictly complied with by company and non-
compliance of such Regulations leads to penal proceedings under regulation 37
Tutor’s Note:
For all mandatory requirements you can see << Mandatory >> written with relevant heading
Composition of BOD (Reg # 4 to 9)
BOD shall comprises of members having core competencies, diversity, requisite skills,
knowledge, experience and fulfils any other criteria relevant in the context of the company’s
operations.
Female Director << Mandatory >>

BOD shall have at least 1 female director when it is reconstituted after the expiry of its current
term
Executive Director << Mandatory >>

Executive director means a director who devotes the whole or substantially the whole of his
time (whether paid or not) to the operations of the company.
 Executive directors, including CEO, shall not be more than 1/3rd of its BOD.
(explain the reasons, in compliance report, if any fraction is rounded up as 1)
What is difference between an executive and a non-executive director? (Q#8 of

FAQ)
Section 181 (2) of the Act defines non-executive director. Generally, executive directors
Tutor Note are the working, whole-time directors of a company. Non-executive directors, on the other
hand are those who are not from among the executive management team and may or may
not be independent. An executive director cannot be categorically defined as a "paid
director" and a non-executive director as one who is "not a paid director". The guiding
factor in distinguishing between executive and non-executive directors of a company is
the extent of their involvement in managing the affairs of the company rather than their
pecuniary interests
Independent Director << Mandatory >>
 Independent directors of each listed company shall not be less than the higher of
- 2 members; or
- 1/3rd of the total members of BOD
(explain the reasons, in compliance report, if any fraction is not rounded up as 1)
 Independent director shall submit his consent and a declaration to chairman of BOD that he
qualifies the criteria of independence notified under the Companies Act 2017 (the ‘Act’).
- At first meeting which is held after election of directors; and
- On an event of any change affecting his independence.
In a BOD of 7, what should be the ideal composition as per these regulations
- 3 Independent directors
- 2 Executive directors (including the CEO)
Tutor Note - 2 Non-executive directors (other than independent)
There should be at least 1 female out of these 7 directors (in any category)
Representation of Minority shareholders
The minority members as a class shall be facilitated to contest election of directors by proxy
solicitation, for which purpose, the listed companies shall:
 Annex to the notice of election, a statement by a candidate from among the minority
shareholders who seeks to contest election to the BOD
 Such statement shall include a profile of the candidate(s);
 Provide information regarding members and shareholding structure to candidate(s); and
 On a request by the candidate(s) and at the cost of the company, annex to the notice an
additional copy of proxy form duly filled in by such candidate(s);
Chairman of BOD
 Chairman and CEO shall not be the same person.

 Chairman shall be elected as per the requirements of the Act.
Number of Directorship (Reg # 3) << Mandatory >>
A person shall not be elected or nominated or hold office as a director of a listed company,
including as an alternate director, of more than 7 listed companies simultaneously
Limit shall be effective when BOD shall be reconstituted not later than expiry of current term
Responsibilities of BOD and its members (Reg # 10)
 BOD shall carry out its fiduciary duties with a sense of objective judgment and in good faith
in the best interests of the company and its stakeholders.
 BOD is responsible for the governance of risk and for determining the company’s level of risk
tolerance by establishing risk management policies.
 BOD shall undertake at least annually, an overall review of business risks to ensure that the
management maintains a sound system of risk identification, risk management and related
systemic and internal controls to safeguard assets, resources, reputation and interest of the
Company and shareholders.
 Chairman shall, at the beginning of term of each directors, issue letter to directors setting
out their role, obligations, powers and responsibilities in accordance with Act and AOA, their
remuneration & entitlement.
 All directors shall attend its general meeting(s), (ordinary and extraordinary) unless
precluded from doing so due to any reasonable cause.
Can foreign directors attend general meeting through video conference ? (Q#22-
FAQ)
Tutor Foreign directors can attend general meeting through video conferencing facility. However
Note other directors are required to attend the general meetings of the shareholders in person
except precluded for any reasonable cause.
The BOD shall ensure that:
 A vision and/or mission statement and overall corporate strategy for the company is
prepared, adopted and reviewed as and when deemed appropriate by BOD.
 A formal code of conduct is in place that promotes ethical culture in the company and
prevents conflict of interest in their capacity as member of BOD, senior management and
other employees.
 Take appropriate steps to disseminate code throughout Co with supporting policies etc
 These shall be put on the company’s website;
 Adequate systems and controls are in place for identification and redressal of the grievances
arising from unethical practices;
 A system of sound internal control is established, which is effectively implemented and
maintained at all levels within the company;
 A formal and effective mechanism is put in place for an annual evaluation of BOD’s own
performance, members of BOD and of its committees;
BOD shall define the level of materiality, keeping in view specific circumstances of company and
the recommendations of any technical or executive sub-committee of BOD that may be set up for
this;
BOD shall maintain a complete record of particulars of the significant policies along with their
date of approval or updating.
The significant policies may include but are not limited to the following:
 Governance of risks and internal control measures;
 Human resource management including preparation of a succession plan;
 Permissible fee for non-executive directors including independent directors
 Procurement of goods and services
 Communication policy and investors’/shareholders’ relations
 Marketing
 Determination of terms of credit and discount to customers
 Write-off of bad/doubtful debts, advances and receivables
 Sale and lease of assets, undertaking, capital expenditure, planning and control
 Investments and disinvestment of funds
 Debt coverage
 Determination and delegation of financial powers
 Transactions or contracts with associated companies and related parties
 Environmental, social and governance (ESG) including health and safety aspects in business
strategies that promote sustainability. (E.g. Corporate Social Responsibility (CSR) initiatives
and other philanthropic activities, donations / contributions to charities and other social
causes); and
 Whistle blowing policy, by establishing a mechanism to receive, handle complaints in a fair
and transparent manner while providing protection to complainant against victimization.
Meeting of BOD (Reg # 11, 12, 14, 15)
 Chairman shall set the agenda of the meeting and ensure that reasonable time is available
for discussion
 All written notices and material shall be circulated at least 7 days prior to meetings
(except in emergency meetings, where notice period may be reduced or waived)
 Chairman shall ensure that minutes are kept in accordance with requirements of Act.
 If a director is of the view that his dissenting note has not been satisfactorily recorded in the
minutes
- The matter may be referred to company secretary for appending it to the minutes.
- If he fails to do so, director may file an objection with SECP within 30 days of
confirmation of minutes.
Related party transactions
 Details of all related party transactions shall be placed periodically before Audit Committee
 On recommendations of audit committee it shall be placed before BOD for approval.
(if majority of directors are interested in such, it shall be placed before general meeting)
Meeting of BOD - Issues to be placed for decision of BOD
CEO shall place significant issues for the information, consideration and decision, as the case
may be, of the BOD or its committees that include but are not limited to the following:
 As soon as CEO foresees risk of default concerning obligations on any loans (including
penalties) to a creditor, bank or financial institution or default in payment of public deposit),
Term Finance Certificates (TFCs), Sukuk or any other debt instrument
 Annual business plan, cash flow projections, forecasts and strategic plan;
 Budgets including capital, manpower and overhead budgets, along with variance analysis;
 Matters recommended and/or reported by audit committee and other committees of BOD;
 Quarterly operating results of company (as a whole as well as its operating divisions or
business segments);
 Internal audit reports, including cases of fraud, bribery, corruption, or irregularities of
material nature;
 Management letter issued by the external auditors;
 Details of joint venture or collaboration agreements or agreements with distributors, agents
etc.;
 Promulgation of or amendment to a law, rule or regulation, applicability of financial
reporting standard and such other matters as may affect company and status of compliance
 Status and implications of any law suit or proceedings (show cause notice, demand or
prosecution notice) of material nature, filed by or against the company;
 Failure to recover material loans, advances, and deposits made by company, including trade
debts and inter corporate finance;
 Any significant accidents, fatalities, dangerous occurrences and instances of pollution and
environment involving company;
 Significant public or product liability claims made or likely to be made against Co, including
any adverse judgment or order made on conduct of company or of another company that
may bear negatively on it;
 Report on governance, risk management and compliance issues.
(Considering reputational risk, risk analysis, risk management and risk communication);
 Disputes with labor and their proposed solutions, any agreement with the labor union or
collective bargaining agent and any charter of demands on the company;
 Reports on /synopsis of issues and information pursued under the whistle blowing policy,
clearly disclosing how such matters were dealt with and finally resolved or concluded;
 Implementation of environmental, social and governmental and health and safety business
practices including report on corporate social responsibility activities and status of
adoption/compliance of corporate social responsibility (Voluntary) Guidelines 2013 or any
other regulatory framework as applicable;
 Payment for goodwill, brand equity or intellectual property;
 Sale of assets, investments and interest in subsidiaries and undertakings, of material amount
or significant nature, which is not in the ordinary course of business; and
 Quarterly details of foreign exchange exposures and safeguards taken by management
against adverse exchange rate movement.
Remuneration of Directors (Reg # 16, 17)
 BOD shall have in place a formal policy and transparent procedure for fixing remuneration
packages of individual directors for attending meetings of BOD and its committees.
 No director shall determine his own remuneration.
 Levels of remuneration shall be appropriate and commensurate with level of responsibility
and expertise, to attract and retain directors needed to govern the company successfully and
to encourage value addition.
 However, it shall not be at a level that could be perceived to compromise their independence.
 Company shall comply with the provisions of the Act and the AOA
Directors’ Training Program (Reg # 18, 19)
 All companies shall make appropriate arrangements to carry out orientation courses for
their directors to acquaint them with these Regulations, applicable laws and their duties.
 It is encouraged that by following dates, the given number of the directors on their BOD have
acquired the prescribed certification under any director training program offered by
institutions, local or foreign, that meet the criteria specified by SECP and approved by it:
- June 30, 2020 At least half of the directors;
- June 30, 2021 At least 75% of the directors; and
- June 30, 2022 All the directors.
 A newly appointed director shall acquire directors training program certification within 1
year from the date of appointment (unless exempted or already certified)
 Director having a minimum of 14 years of education and 15 years of experience on BOD of a
listed company, local and/or foreign, shall be exempt from directors training program.
(SECP shall grant exemption keeping in view the relevancy of qualification & experience)
 Companies are also encouraged to arrange training, every year, also for:
- Atleast 1 female executive under Training program from year starting July, 2020
- Atleast 1 head of department under Training program from year starting July, 2022.
CFO, Company Secretary and Head of Internal Audit (Reg # 13, 20 to 24)
 The company secretary shall be secretary to BOD.

 BOD shall determine appointment, remuneration, terms and conditions of employment of
CFO, company secretary and head of internal audit of companies.
 CFO and company secretary (or in their absence, the nominee appointed by Board), shall
attend all meetings of the Board:
 CFO and company secretary shall not attend such part of Board meeting where
- Agenda item relates to consideration of their performance or terms of their service; or
- In opinion of Board, their presence in the meeting on any agenda item is likely or may
tend to impair the organizational discipline and harmony of the company.
Can positions of company secretary and internal auditor be given to one person?
(Q#14 of FAQ)
No. The two positions carry minimal synergy and, therefore should be performed by
separate persons.
Tutor Note
Can a full time employee (including CFO and company secretary) of a listed company
hold a similar position in an unlisted group company? Question (Q#15 of FAQ)
The Regulations do not restrict any full time employee in a listed company from working
in a similar position in an unlisted group company. However, appropriate steps should be
taken by BOD of companies concerned to ensure that additional workload would not affect
the quality of work performed by such employee and no conflict of interest would arises
as a result of holding similar positions in two group companies.
 Removal of CFO, company secretary and head of internal audit shall be made with approval
of BOD
 Head of internal audit may be removed upon recommendation of the audit committee.
Qualification of CFO
Should have following number of years managerial experience in fields of audit or accounting
or in managing financial or corporate affairs functions of a Co having prescribed qualification
Qualification Experience
A member of the ICAP or ICMAP At least 3 years
Either a member of professional body of accountants whose qualification At least 5 years
is recognized as equivalent to post graduate degree by HEC or has a
postgraduate degree in finance from a university in Pakistan or equivalent
recognized and approved by the HEC
A suitable degree from a university in Pakistan or abroad equivalent to At least 7 years
graduate degree, recognized and approved by HEC. (SECP, on application
from company, shall determine the suitability of such candidate)
Qualification of Internal Auditor

Qualification Experience
A member of the ICAP or ICMAP At least 3 years
Any of the following qualifications At least 5 years
 Certified Internal Auditor; or
 Certified Fraud Examiner; or
 Certified Internal Control Auditor; or
 Post graduate degree in business, finance from a university or
equivalent recognized and approved by HEC and is a member of a
professional body relevant to such qualification, if applicable.
A suitable degree from a university in Pakistan or abroad equivalent to At least 7 years
graduate degree, recognized and approved by HEC. (SECP, on application
from company, shall determine the suitability of such candidate)
“Body of professional accountants” means

 Established in Pakistan, governed under special enactment of FG as a self-regulatory
organization managed by a representative National Council, and has prescribed criteria of
examination & entitlement of membership
 Established outside Pakistan under a special enactment of that country and which is a member
of the IFAC.
Qualification of Company Secretary

The qualification as specified under the relevant Regulations by SECP.
(Person shall not simultaneously hold office of CFO & company secretary of a listed company)
Committees of BOD
Audit Committee (Reg # 27) << Mandatory >>

The audit committee shall be constituted by BOD keeping in view the following requirements:
 It should be of at least 3 members comprising of non-executive directors and at least 1
independent director.
 Chairman of committee shall be an independent director
(who shall not be the chairman of BOD)
 A secretary of committee shall be appointed who shall either be company secretary or head
of internal audit.
 At least 1 member of the audit committee qualifies as “financially literate”.
A person who is member of recognized body of professional accountants or has post graduate
degree in finance from university or equivalent institution, either in Pakistan or abroad
recognized by HEC has atleast 10 years of experience as audit committee member; or atleast
20 years of senior management experience in overseeing financial, audit related matters
Meeting
 Audit committee shall meet at least once every quarter of the financial year.
(shall be held prior to approval of interim results by its BOD and after completion of audit)
 A meeting of audit committee shall also be held, if requested by external auditors or head of
internal audit.
 Head of internal audit and external auditors represented by engagement partner (or in his
absence any other partner designated by audit firm) shall attend meetings of audit
committee at which issues relating to accounts and audit are discussed.
 CEO and CFO shall not be the members of audit committee but must attend the meeting of
audit committee at the invitation of Chairman.
 At least once a year, audit committee shall meet the
- External auditors without the CFO and the head of internal audit being present.
- Head of internal audit and other members of that function without presence of CFO and
external auditors
Terms of Reference
 Determination of appropriate measures to safeguard the company’s assets;

 Review of annual and interim financial statements , prior to their approval by the BOD,
focusing on:
- Major judgmental areas;
- Significant adjustments resulting from the audit;
- Going concern assumption;
- Any changes in accounting policies and practices;
- Compliance with applicable accounting standards, these regulations and other
statutory requirements;
- All related party transactions.
 Review of preliminary announcements of results prior to external communication and
publication;
 Facilitating external audit and discussion with them of major observations arising from
interim and final audits and any matter that auditors may wish to highlight in the absence of
management, if necessary;
 Review of management letter issued by external auditors and management’s response
thereto;
 Ensuring coordination between the internal and external auditors ;
 Review of scope and extent of internal audit, audit plan, reporting framework and
procedures and ensuring that the internal audit function has adequate resources and is
appropriately placed within the company;
 Consideration of major findings of internal investigations of activities characterized by fraud,
corruption and abuse of power and management's response thereto;
 Ascertaining that internal control systems including financial and operational controls,
accounting systems for timely and appropriate recording of purchases and sales, receipts
and payments, assets and liabilities;
 Review of statement on internal control systems prior to endorsement by BOD and internal
audit reports;
 Instituting special projects, value for money studies or other investigations on matter
specified by BOD, in consultation with CEO & to consider transfer of any matter to external
auditors/any other external body;
 Determination of compliance with relevant statutory requirements;
 Monitoring compliance with the these regulations and identification of significant violations
thereof;
 Review of arrangement for staff and management to report to audit committee in confidence,
concerns about actual/potential improprieties in financial and other matters and
recommend instituting remedial measures;
 Recommend to BOD, appointment of external auditors, their removal, audit fees, provision
of any service permissible to be rendered by the external auditors in addition to audit.
 Consideration of any other issue or matter as may be assigned by BOD.
Secretary of audit committee shall circulate minutes of meetings of audit committee to all
members, directors, head of internal audit and where required to CFO prior to next meeting of
BOD. If it is not practicable, chairman of Audit Committee shall communicate a synopsis of the
proceedings to BOD and minutes shall be circulated immediately after the meeting of BOD.
Human Resource and Remuneration Committee: (Reg # 28)
 Shall consist of at least 3 members comprising a majority of non-executive directors

 At least 1 of the non-executive director shall be an independent director.
 Chairman shall also be an independent director.
 CEO may be included as a member of the committee.
Meeting
 Committee shall meet at least once in a financial year

(may meet more often if requested by a member of BOD, or committee itself or CEO)
 Head of HR or any other person appointed by BOD may act as the secretary of committee.
 CEO (if not a member of the committee), head of human resource (if not the secretary to
committee) or any other advisor or person may attend the meeting only by invitation.
 A member of committee shall not participate in the proceedings of committee when an
agenda item relating to his performance or review or renewal of terms and conditions of his
service comes up for consideration.
Terms of Reference
 Recommend to BOD for consideration and approval a policy framework for determining
remuneration of directors (executive & non-executive) and members of senior management
(definition of senior management will be determined by BOD, it normally include the layer
below the CEO);
 Undertaking annually a formal process of evaluation of performance of BOD as a whole and
its committees (either directly or by engaging external independent consultant)
 Recommending human resource management policies to BOD;
 Recommending to BOD the selection, evaluation, development, compensation (including
retirement benefits) of chief operating officer, CFO, company secretary and head of internal
audit;
 Consideration and approval on recommendations of CEO on such matters for key
management positions who report directly to CEO or chief operating officer; and
 Where human resource & remuneration consultants are appointed, their credentials shall be
known by the committee and statement shall be made by them as to whether they have any
other connection with company
Nomination Committee: (Reg # 29)
 BOD may constitute this committee, of such number and class of directors, as may deem fit
 The terms of reference shall be determined by BOD ensuring there is no duplication or
conflict with matters stipulated under terms of reference of HR&R committee.
 It shall be responsible for

- Considering and making recommendations to BOD in respect of BOD committees and
their chairmanship
- Keeping structure, size and composition of BOD under regular review and for making
recommendations to BOD with regard to any changes necessary.
Risk Management Committee: (Reg # 30)
 BOD may constitute this committee, of such number and class of directors, as it may deem
fit, to carry out a review of effectiveness of risk management and present a report to BOD.
 The terms of reference of the committee may include the following:

- Monitoring and review of all material controls (financial, operational, compliance);
- Risk mitigation measures are robust and integrity of financial information is ensured;
- Appropriate extent of disclosure of risk framework and internal control system in
Directors report.
Internal Audit (Reg # 31)
There shall be an internal audit function in every company

 Head of internal audit shall functionally report to the audit committee and administratively
to the CEO
(His performance appraisal shall be done jointly by Chairman of audit committee and CEO)
 A director cannot be appointed, in any capacity, in internal audit to ensure independence
 BOD shall ensure that the internal audit team comprises of experts of relevant disciplines in
order to cover all major heads of accounts maintained by the company.
 Company shall ensure that head of internal audit is suitably qualified, experienced and
conversant with the company's policies and procedures.
 Company shall ensure that internal audit reports are provided for review of external
auditors
 Auditors shall discuss any major findings in relation to the reports with the audit committee,
which shall report matters of significance to the BOD.
Outsourcing
 The internal audit function, wholly or partially, may be outsourced by the company to a
professional services firm or be performed by the internal audit staff of holding company.
 In lieu of outsourcing, the company shall appoint or designate a fulltime employee other than
CFO, as head of internal audit holding equivalent qualification, to act as coordinator between
that firm and BOD.
 While outsourcing the function, company shall not appoint its existing external auditors as
internal auditors.
External Audit
Terms of Appointment (Reg # 32) << Mandatory >>
 No company shall appoint as external auditors, a firm of auditors, which

- Has not been given a satisfactory rating under QCR program of ICAP and registered
with Audit Oversight Board of Pakistan.
- Is or a partner of which is non- compliant with the IFAC Guidelines on Code of Ethics,
as adopted by ICAP
 BOD shall recommend appointment of auditors for a year, as suggested by audit committee.
 The recommendations of audit committee shall be included in Directors’ Report.
(for recommending auditor other than retiring auditor, reasons shall be also be included)
 No company shall appoint its auditors to provide services in addition to audit except in
accordance with these regulations and shall require the auditors to observe applicable IFAC
guidelines in this regard.
 Co shall ensure that auditors do not perform management functions or make management
decisions, responsibility for which remains with the BOD and management of the company.
 No company shall appoint a person as an external auditor or a person involved in the audit
of a company who is a close relative (spouse, parents, dependents and non- dependent
children) of CEO, CFO, head of internal audit, company secretary or a director of company.
 Every company shall require external auditors to furnish a management letter to its BOD
within 45 days of the date of audit report.
 Provided that any matter deemed significant by external auditor shall be communicated in
writing to the BOD prior to the approval of the audited accounts by the BOD.
Rotation of auditors (Reg # 33) << Mandatory >>

 All listed companies in financial sector shall change their external auditors every 5 years.
 All inter related companies/ institutions, engaged in business of providing financial services
shall appoint the same firm of auditors to conduct the audit of their accounts.
(Financial sector, means banks, NBFC, modarabas and insurance/ takaful companies).
 All listed companies other than those in the financial sector shall, at the minimum, rotate
engagement partner after every 5 years.
Initials of External Auditors (Reg # 26)
CEO and CFO shall have the annual and interim financial statement (both separate &
consolidated where applicable) initialed by the external auditors before presenting it to audit
committee and BOD for approval.
Is the requirement for external auditors to initial financial statements before these
are considered/ approved by the Audit Committee and BOD, inconsistent with the
provisions of Act, which states that responsibility for preparation of financial
statements lies with directors ? (Q#18 of FAQ)
Tutor Note
The requirement for auditors to initial the financial statements is for identification only.
The responsibility of preparation of financial statements rests with BOD in accordance
with provisions of the Act.
Endorsement of the financial statement by CFO and CEO (Reg # 25)
CEO and CFO shall duly endorse quarterly, half-yearly and annual financial statements under
their signatures prior to placing and circulating it for consideration and approval of BOD
Reporting & Disclosure
Directors’ Report (Reg # 34)
The quarterly unaudited financial statements of companies shall be published and circulated
along with directors’ review on the affairs of the company.
 The BOD shall state in the Directors’ Report the following:
Total number of Directors: Composition:

Male: (i) Independent Directors
Female: (ii) Other Non executive Directors
(iii)Executive Directors
(iv) Female Directors
 Names of Members of BOD committees shall be disclosed in each Directors’ Report.

 Directors’ report shall state remuneration policy of non-executive directors including
independent directors, as approved by BOD. This includes disclosing the significant features
and elements thereof.
Company's Annual Report shall contain details of aggregate amount of remuneration separately
of executive and non-executive directors, including salary/fee, perquisites, benefits and
performance-linked incentives etc.
Disclosure of significant policies on website (Reg # 35)
The company may post the following on its website:

 Key elements of its significant policies including but not limited to the following:
- Communication and disclosure policy;
- Code of conduct for board of directors, senior management and other employees;
- Risk management policy;
- Internal control policy;
- Whistle blowing policy;
- Corporate social responsibility/sustainability/ environmental, social and governance
related policy.
 Brief synopsis of terms of reference of the Board’s committees including:
- Audit Committee
- HR and Remuneration Committee
- Nomination Committee
- Risk Management Committee
 Key elements of the directors’ remuneration policy.
Compliance Statement and Auditor Review (Reg # 36) << Mandatory >>
 All companies shall publish and circulate a statement, along with their annual reports to set
out the status of their compliance with the requirements of Regulations.
 Statement shall be specific and deemed to be supported by necessary evidence.
 All companies shall ensure that the statement of compliance is reviewed and certified by
statutory auditors as per relevant Regulations specified by SECP.
 Auditors shall ensure that any non-compliance with these Regulations is highlighted in their
review report.
Compliance with Regulations (Reg # 37, 38)
 Whoever fails or refused to comply with, or contravenes regulation 3, 6, 7, 8, 27, 32, 33 and
36 of these Regulations, shall be punishable with penalty as provided under Sec 512(2) of
Companies Act 2017. (i.e. Rs 5 Million + 100,000/- per day)
 Where SECP is satisfied that it is not practicable to comply with any of the mandatory
requirements of the regulation 3, 6, 7, 8, 27, 32, 33 and 36 of these Regulations, it may, for
reasons to be recorded in writing, on the application by the company, extend the time for
compliance of the same subject to such conditions as it may deem fit.
Does the Regulations conflict with the Companies Act, 2017 ? (Q#2 of FAQ)
The Regulations are framed to ensure not to reproduce or be in conflict with the
requirements of the Act.
Tutor Note However, in case of any conflict, the requirements of Act shall prevail.
Annexure A
Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations,
2019
Name of company …………………………………………………………………………

Year ending………………………………………………………………………………….
The company has complied with the requirements of the Regulations in the following manner:
1. The total number of directors are ____ as per the following:
a. Male:
b. Female:
2. The composition of BOD is as follows:
a) Independent Directors
b) Other Non-executive Director
c) Executive Directors
d) Female Directors
3. The directors have confirmed that none of them is serving as a director on more than seven listed
companies, including this company.
4. The company has prepared a Code of Conduct and has ensured that appropriate steps have been
taken to disseminate it throughout the company along with its supporting policies and procedures.
5. BOD has developed a vision/mission statement, overall corporate strategy and significant policies of
the company. A complete record of particulars of significant policies along with the dates on which they
were approved or amended has been maintained.
6. All the powers of BOD have been duly exercised and decisions on relevant matters have been taken
by BOD/ shareholders as empowered by the relevant provisions of the Act and these Regulations.
7. The meetings of BOD were presided over by the Chairman and, in his absence, by a director elected
by BOD for this purpose. BOD has complied with the requirements of Act and the Regulations with
respect to frequency, recording and circulating minutes of meeting of BOD.
8. The BOD have a formal policy and transparent procedures for remuneration of directors in
accordance with the Act and these Regulations.
9. BOD has arranged Directors’ Training program for the following:
(Name of Director)
(Name of Executive & Designation (if applicable))
10. BOD has approved appointment of CFO, Company Secretary and Head of Internal Audit, including
their remuneration and terms and conditions of employment and complied with relevant requirements
of the Regulations.
11. CFO and CEO duly endorsed the financial statements before approval of BOD.
12. BOD has formed committees comprising of members given below:
a) Audit Committee (Name of members and Chairman)
b) HR and Remuneration Committee (Name of members and Chairman)
c) Nomination Committee (if applicable) (Name of members and Chairman)
d) Risk Management Committee (if applicable) (Name of members and Chairman)
13. Terms of reference of aforesaid committees have been formed, documented and advised to the
committee for compliance.
14. The frequency of meetings (quarterly/half yearly/ yearly) of the committee were as per following:
a) Audit Committee
b) HR and Remuneration Committee
c) Nomination Committee (if applicable)
d) Risk Management Committee (if applicable)
15. BOD has set up an effective internal audit function/ or has outsourced the internal audit function
to ……….. who are considered suitably qualified and experienced for the purpose and are conversant
with policies and procedures of company.
16. The statutory auditors of the company have confirmed that they have been given a satisfactory
rating under the quality control review program of the ICAP and registered with Audit Oversight BOD
of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold
shares of the company and that the firm and all its partners are in compliance with International
Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the ICAP
17. The statutory auditors or the persons associated with them have not been appointed to provide
other services except in accordance with the Act, these regulations or any other regulatory requirement
and the auditors have confirmed that they have observed IFAC guidelines in this regard.
18. We confirm that all other requirements of regulations 3, 6, 7, 8, 27,32, 33 and 36 of the Regulations
have been complied with; and
19. Explanation for non-compliance with requirements, other than regulations 3, 6, 7, 8, 27, 32, 33 and
36 are below (if applicable):
__________________
Signature (s)
(Name in block letters)
Chairman
Code of Corporate Governance for Public Sector Companies
The code is applicable to Public Sector Companies only.

(The word “Co.” wherever used in this chapter means “Public Sector Company” only)
Public Sector Company

Means a company, whether public or private, which is directly or indirectly controlled, beneficially
owned or not less than 51% of the voting securities or voting power of which are held by the
Government or any instrumentality or agency of the Government or a statutory body, or in respect of
which the Government or any instrumentality or agency of the Government or a statutory body, has
otherwise power to elect, nominate or appoint majority of its directors, and includes a public sector
association not for profit, licensed under section 42 of the Act.
In the case of listed Public Sector Companies, where there is any inconsistency with the Code of
Corporate Governance, the provisions of these rules shall prevail.
All companies shall ensure compliance with the following Code of Corporate Governance (CCG).
All provisions except where explicitly stated otherwise are mandatory.
Criteria for sound and prudent management. –

The Public Sector Company shall not be regarded as conducting its business in a sound and
prudent manner if it fails to conduct its business with due regard to the legitimate policy
objectives and development targets of the Government.
Following shall be the criteria for sound and prudent management of a Public Sector Company,
which shall be bound to comply with it at all times namely: -
 Each director and Chief Executive complies with the fit and proper criteria.
 Company is directed and managed by a sufficient number of persons who are fit and proper
persons to hold the positions which they hold; and
 Company maintains adequate accounting and other records of its business.
Accounting and other records shall not be regarded as adequate unless they are so maintained
 to enable the business to be prudently managed;
 to enable the Company to comply with
- the obligations imposed on it by any law; and
- All professional standards and pronouncements of relevant professional bodies as
applicable in Pakistan.
Composition of the Board
 The BOD shall consist of executive and non-executive directors, including independent
directors and those representing minority interests with the requisite skills, competence,
knowledge and experience so that the board as a group includes core competencies and
diversity, including gender, considered relevant in the context of the Co’s operations.
 The Board shall have at least one-third of its total members as independent directors.
Executive
Means an employee of a Public Sector Company, who is entrusted with responsibilities of an
administrative or managerial nature, including the Chief Executive and Executive Director;
Non-Executive Director
A director of a Public Sector Company who is not entrusted with responsibilities of an administrative
or managerial nature;
Independent Director
Means a Non-Executive Director who is not in the service of Pakistan or of any statutory body or any
body or institution owned or controlled by the Government and who is not connected or does not have
any other relationship, whether pecuniary or otherwise, with the Public Sector Company, its associated
companies, subsidiaries, holding company or directors. The test of independence principally emanates
from the fact whether such person can be reasonably perceived as being able to exercise independent
judgment without being subservient to any form of conflict of interest.
A director shall not be considered independent if one or more of the following exist:
 he has been an employee of the Public Sector Company, any of its subsidiaries, or holding company
during the last two years;
 he has, or has had within the last two years, a material business relationship with the Public Sector
Company either directly or indirectly, or director of a body that has such a relationship with the Public
Sector Company;
 he has received remuneration in the two years preceding his appointment as a director or has
received additional remuneration excluding retirement benefits from the Public Sector Company
apart from director's fee or has participated in the Public Sector Company's share option or a
performance-related pay scheme;
 he is a close relative (spouse, lineal ascendants and descendants and brothers and sisters)of the
company's promoters, directors or major shareholders;
 he holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies; or
 he has served on the Board for more than two consecutive terms from the date of his first appointment
provided that such person shall be deemed independent director after a lapse of one term;
 Company shall disclose in annual report Non-executive, Executive & Independent directors.
 No Independent Director shall participate in share options or any similar schemes of the
Company which entitle him to acquire any interest in the Company.
 Minority shareholders as a class are facilitated to contest election of directors by proxy

solicitation, for which purpose the companies shall:
- Annex with the notice of meeting on which election is to be held, a statement by a
candidate among minority shareholders who seeks to contest election of BOD, such
statement may include a profile of the candidate(s);
- Provide information regarding members and shareholding structure to candidate(s)
representing minority shareholders;
- On a request by candidate(s) representing minority shareholders and at the cost of the
Co, annex to the notice an additional copy of proxy form duly filled in by such
candidate(s);
Appointing authorities, including Government and other shareholders, shall apply the fit and
proper criteria (and any other requirements as to fitness and propriety issued under any special
law) in making nominations of the persons for election as Board members under the provisions
of the Act.
Term of office and removal of directors.
Following matters shall be dealt with in accordance whit the provisions of Companies Act 2017.
 Appointment or election
 Filling of casual vacancy
 Directors nominated by Government and
 Removal of an elected director
Maximum number of directorships to be held by a director

No person shall be elected or nominated as director of more than 5 listed and public sector
companies simultaneously (Except their subsidiaries)
Responsibilities, powers and functions of BOD
The BOD of a Co shall ensure that:

 Adequate systems and controls are in place for identification and redress of grievances
arising from unethical practices.
 it comply with policy directions received from Government from time to time.
 it comply with the reporting requirements received from the Government within the
specified time-frame, related to, including but not limited to, audit, finance, parliamentary
business, performance and ancillary matters:
 Obligations to all shareholders are fulfilled and they are duly informed in a timely manner of
all material events through shareholder meetings and other necessary communications.
 A vision and/or mission statement and overall corporate strategy for the Co is prepared and
adopted. It shall further ensure that significant policies have been formulated;
Significant policies for this purpose may include:

 Formal approval and adoption of annual report, including financial statements;
 Implementation of an effective communication policy with all the stakeholders of the Company;
 Identification and monitoring of the principal risks and opportunities of Company
 Ensuring that appropriate systems are in place to manage these risks and opportunities,
including, safeguarding the public reputation of the Company;
 Acquisition or disposal of fixed assets and investments;
 Protection of public interests;
 Human resource management including preparation of a succession plan;
 Procurement of goods and services;
 Marketing;
 Determination of terms of credit and discount to customers;
 Write-off of bad/doubtful debts, advances and receivables;
 Capital expenditure, planning and control;
 Borrowings up to specified limit (exceeding amounts shall be sanctioned by shareholders)
 Determination and delegation of financial powers to executives and employees;
 Transactions or contracts with associated companies and related parties;
 The corporate social responsibility (CSR) initiatives including donations, charities,
contributions and other payments of a similar nature;
 Health, safety and environment; and
 The whistleblower policy.
 Any service delivered or goods sold by a Company as a public service obligation where decisions
are taken in fulfilling social objectives of Government but are not in its commercial interests,
outlay of such action shall be quantified and request for appropriate compensation shall be
submitted to the Government for consideration.
 Board shall define the level of materiality, keeping in view specific context of the Company and
the recommendations of any committee of Board for such purpose.
A complete record of particulars of the significant policies along with the dates on which they were
approved or amended by the BOD shall be maintained.
 Professional standards and corporate values are put in place that promotes integrity in the
form of a Code of Conduct. Board shall take steps to disseminate this Code throughout the
Co along with supporting policies and procedures and it shall be put on the Co’s website;
 A system of sound internal control is established, which is effectively implemented and
maintained at all levels within Co to ensure compliance with the fundamental principles of
probity & propriety; objectivity, integrity and honesty and relationship with stakeholders
Principle of probity and propriety
Company's assets and resources are not used for private advantage and due economy is exercised so as
to reduce wastage. The principle shall be adhered to, especially with respect to following:
 Handling of public funds, assets, resources and confidential information by directors, executives
and employees; and
 Claiming of expenses;
Principle of objectivity, integrity and honesty
Conflict of Interest
A person shall be deemed to have an interest in a matter if he has any stake, pecuniary or otherwise,
in such matter which could reasonably be regarded as giving rise to a conflict between his duty to
objectively perform his functions under these rules so that his ability to consider and decide any
matter impartially or to give any advice without bias, may reasonably be regarded as impaired
 Directors & executives of Company do not allow conflict of interest to undermine their objectivity
in any of their activities, both professional and private
 They do not use their position to private gains in a social or business relation outside Company.
 There shall be appropriate identification, disclosure and management of conflict of interest
 An appropriate conflict of interest policy is developed and duly enforced.
 Such person shall play no part in the relevant discussion, decision or action;
 A "register of interests" is maintained and the same shall be made publicly available.
 Such interests may include, for instance, any significant political activity, including office holding,
elected positions, public appearances and candidature for election, undertaken in the last 5 years;
 A declaration by the directors and executives that they shall not offer or accept any payment, bribe,
favor or inducement which might influence, or appear to influence, their decisions and actions;
and
 Board shall also develop and implement policy on "anti-corruption" to minimize actual or
perceived corruption in the company; and
Principle of relationship with stakeholders:
 Ensuring that directors & executives uphold the reputation of company by treating general public,
institutional investors and others with courtesy, integrity & efficiency, and ensuring service
quality;
 Ensuring equality of opportunity by establishing open and fair procedures for making
appointments and for determining terms and conditions of service.
 Board may nominate a committee consisting of a director or senior Executives for investigating,
where necessary on a confidential basis, any deviation from the company's code of conduct; and
 Ensuring compliance with law and internal rules and procedures relating to public procurement,
tender regulations, purchasing and technical standards, when dealing with suppliers of goods and
services. Board shall ensure that quality standards are followed with due diligence and suppliers
comply with the standards specified and are paid for supplies or services within the time agreed.
Role of the chairman and CEO:

,
 Board shall evaluate the candidates based on fit and proper criteria and guidelines specified
by SECP for appointment of CEO
 Board shall recommend at least 3 individuals to the Government for appointment as CEO.
 On receiving approval of Government, Board shall appoint the CEO in accordance with
Companies Act 2017.
 Board shall also be responsible for development and succession planning of CEO.
 The chairman of the Board shall be elected by the Board of Directors of the Public Sector
Company. However, this provision shall not apply where chairman of the Board is appointed
by the Government.
 CEO is responsible for the management of the Company and for its procedures in financial
and other matters, subject to the oversight and directions of the Board. His responsibilities
include implementation of strategies and policies approved by Board, making appropriate
arrangements to ensure that funds and resources are properly safeguarded and are used
economically, efficiently and effectively and in accordance with all statutory obligations.
 Office of chairman shall be separate, and his responsibilities distinct, from CEO.
 Provided that the Board shall nominate the company secretary or any other official at
appropriate level as focal person for maintaining liaison with the Government regarding the
aforesaid matters.
 Chairman of the Board shall,—
- Ensure that Board is properly working and all matters relevant to the governance of
the Company are placed on the agenda of Board meetings;
- Conduct the Board meeting including fixing the agenda; and
- Ensure that all the directors are enabled and encouraged to fully participate in the
deliberations and decisions of the Board.
- Be responsible to lead Board and ensure its effective functioning and development
- Not be involved in day to day operations of the Company.
Misconduct of a Director
A director, once appointed or elected, shall hold office for 3 years, unless he resigns or is
removed in accordance with the provisions of the Act.
The removal of a nominated director shall only take place;

 if he has not performed up to a standard, determined through a performance evaluation;
 if he is found to be in non-compliance with the provisions of the Act or these rules;
 if he fails to fulfil his duties and responsibilities under these rules;
 if he fails to comply with or deliberately ignores policy directives of the Government;
 for any administrative reasons such as posting, transfer, retirement, etc., the Government
decides to withdraw the nomination; or
 in the event of his misconduct.
the notice of removal to a nominated director shall also give reasons for removal of the director
among other things.
 Misconduct means & includes,—

- Indulging in a competing professional or personal conflict of interests' situation;
- Using funds, assets and resources of the Company without due diligence and care;
- Failing to treat colleagues and staff with respect, or using harassment in any form of
physical or verbal abuse
- Making public statements without authorization by the Board;
- Receiving gifts or other benefits from any external sources offered to him in connection
with his duties on the Board; or
- Abusing or misusing his official position to gain undue advantage or assuming financial
or other obligations in private institutions or for persons which may cause
embarrassment in the performance of official duties or functions.
Related party transactions
 Details of all related party transactions shall be placed before Audit Committee of Co and
upon recommendations of Audit Committee same shall be placed before BOD for review and
approval.
 Transactions not executed at arm's length price shall also be placed separately at board
meeting along with necessary justification for consideration & approval of BOD on
recommendation of Audit Committee.
 BOD of Co shall approve pricing methods for related party transactions that were made on
the terms equivalent to those that prevail in arm’s length transaction, only if such terms can
be substantiated.
 Every Co shall maintain a party wise record of transactions, in each financial year, entered
into with related parties in that year along with all relevant documents and explanations.
 The record of related party transactions shall include the following particulars in respect of
each transaction:
- Name of related party;
- Nature of relationship with related party;
- Nature of transaction;
- Amount of transaction; and
- Terms and conditions of transaction, including amount of consideration.
Company may seek a general mandate from its members for recurrent related party
transactions of revenue or trading nature or those necessary for its day-to-day operations such
as the purchase and sale of supplies and materials, but not in respect of the purchase or sale of
assets, undertakings or businesses. A general mandate is subject to annual renewal.
Meetings of the board
 Board shall meet at least once, each quarter of a year

(In case of non-compliance, the same shall be reported to SECP with reasons of non-
compliance, within 14 days of the end of relevant quarter)
 All written notices, including the agenda, of meetings shall be circulated at least 7 days before
meetings (except for emergency meetings, notice period may be reduced or waived)
 Chairman shall ensure that minutes are appropriately recorded.
 After approval of chairman minutes shall be circulated, to directors and officers entitled to
attend meetings, not later than 14 days thereof (unless shorter period is provided in AOA)
 Where a director is of the view that his dissenting note has not been satisfactorily recorded
in minutes of meeting, he may refer the matter to Co Secretary. The director may require the
note to be appended to the minutes, otherwise he may file an objection with SECP in the form
of a statement
 Board meeting held and attended through video-conferencing shall be a valid meeting, if its
proceedings are properly recorded and requirements specified by SECP are fully met.
Significant issues to be placed for decision of BOD
 Annual business plan, cash flow projections, forecasts and strategic plan;
 Budgets including capital, manpower and overhead budgets, along with variance analyses;
 Internal audit reports, including cases of fraud or major irregularities
 Management letter issued by the external auditors;
 Details of joint venture or collaboration agreements or agreements with distributors, agents,
etc.;
 Promulgation or amendment to a law, rule or regulation, enforcement of an accounting
standard and such other matters as may affect the Co;
 Status and implications of any law suit or proceedings of material nature, filed by or against Co;
 Any show cause, demand or prosecution notice received from revenue or regulatory authorities;
 Failure to recover material amounts of loans, advances, and deposits made by the Co, including
trade debts and inter-corporate finances;
 Any significant accidents, dangerous occurrences and instances of pollution and environmental
problems involving the Co;
 Material payments of government dues, including income tax, excise and customs duties, and
other statutory dues including penal charges thereon;
 Inter-corporate investments in and loans to or from associated concerns in which the business
group, of which the Company is a part, has significant interest;
 Policies related to the award of contracts and purchase and sale of raw materials, finished goods,
machinery etc;
 Default in payment of principal or interest, including penalties on late payments and other dues,
to a creditor, bank or financial institution or default in payment of public deposit;
 Annual, quarterly, monthly or other periodical accounts as are required to be approved by the
Board for circulation amongst its members;
 Related party transactions.
 Significant public or product liability claims made or likely to be made against the Co, including
any adverse judgment or order made on the conduct of the Co or of another Co that may bear
negatively on the Co;
 Report on governance, risk management and compliance issues.
 Disputes with labor and their proposed solutions, any agreement with labor union or collective
bargaining agent and any charter of demands on the Co;
 Whistleblower protection mechanism;
 Report on CSR activities; and
 Payment for goodwill, brand equity or intellectual property.
Chief Financial Officer (CFO), Co Secretary and Head of Internal Audit
Appointment and removal

 Appointment, remuneration and terms and conditions of employment of CFO, Co Secretary
and Head of Internal Audit of companies shall be determined with the approval of BOD.
 Removal of CFO and Co Secretary shall be made with BOD’s approval
No person shall be appointed as CFO and secretary unless he is fit and proper for that position.
Chief Financial Officer (CFO)
CFO shall be responsible for ensuring that appropriate advice is given to the Board on all
financial matters, for keeping proper financial records and accounts, and for maintaining an
effective system of internal financial control.
No person shall be appointed as the CFO unless he is,-

 Member of recognized body of professional accountants - at least 5 years relevant experience
(in case of companies having total assets of Rs 5. billion or more)
 MBA(Finance) from University recognized by HEC - at least 10 years relevant experience
(in case of other companies)
,
Company Secretary
Shall be responsible for ensuring that Board procedures are followed, and that all applicable
laws, rules and regulations and other relevant statements of best practice are complied with.
Role of secretary may be combined with CFO or any other member of senior management.
No person shall be appointed as the company secretary of a Company unless he is a,—

 Member of a recognized body of professional accountants; or
 Member of a recognized body of corporate or chartered secretaries; or
 MBA, M.Com or law graduate from a university recognized by HEC with at least five years
relevant experience.
Requirement to attend board meetings
 CFO and Co Secretary shall attend all meetings of BOD.

 Provided that CFO and Co Secretary shall not attend such part of a meeting of BOD, which
involves consideration of an agenda item relating to CFO and Co Secretary respectively.
 Unless elected as a director, CFO and company secretary shall not be deemed to be a director
or entitled to cast a vote at meetings of Board
Corporate and financial reporting framework
Directors’ remuneration
 There shall be a formal and transparent procedure for fixing remuneration packages of
individual directors.
 No director shall be involved in deciding his/her own remuneration.
 Directors’ remuneration packages shall encourage value creation within Co. These shall be
subject to prior approval of shareholders/board as required by Co’s AOA.
 Levels of remuneration shall be appropriate to attract and retain the directors needed to run
the Co successfully.
 Subject to provisions of Act and AOA, shareholders/board shall determine the remuneration
for non-executive directors. However, shall not be at a level that perceived to compromise
their independence.
 Co's Annual Report shall contain details of the aggregate remuneration separately of
executive and non-executive directors, including salary/fee, benefits and performance-
linked incentives etc.
Disclosure of an Executive's remuneration is an important aspect for Company. Annual report shall contain a
statement on remuneration policy and details of remuneration of members of Board. Separate figures need
to be shown for salary, fees, other benefits and other performance-related elements.
Frequency of financial reporting
 Annual report including annual financial statements shall be placed on Company's website.
 Every Company shall, within 1 month of close of first, second and third quarter of its year of
account, prepare a profit and loss account for, and balance-sheet as at the end of, that
quarter, whether audited or otherwise, for Board's approval.
 Public Sector Companies which are listed on the exchange shall prepare half-yearly accounts
within such time period and undertake limited scope review by the auditors as specified by
the Commission from time to time.
Every Company shall adopt IFRS, as are notified by SECP under Companies Act 2017
Director’s Report
Directors shall annex statements to following effect with Directors’ Report

 Financial statements, prepared by the management of the Co, present its state of affairs
fairly, the result of its operations, cash flows and changes in equity;
 Proper books of account of the Co have been maintained;
 Appropriate accounting policies have been consistently applied in preparation of financial
statements and accounting estimates are based on reasonable and prudent judgment;
 They recognize their responsibility to establish and maintain sound system of internal
control which is regularly reviewed & monitored; and
 Board has complied with relevant principles of corporate governance, and has identified
rules that have not been complied with, period in which such non-compliance continued, and
reasons for such non-compliance;
 Appointment of chairman and other Board members and terms of appointment along with
remuneration policy adopted are in best interests of Company (in line with best practices)
If necessary following information shall also be annexed to Directors’ Reports:
1) Where Company is reliant on a subsidy or other financial support from Government, a detailed
disclosure of the fact;
2) KPIs of Company relating to its social objectives and outcomes which significantly reflect the
work and impact of Company and a comparison of actual results with budgeted figures. KPIs
shall focus on as to how well Company has responded to accountability requirements, improved
service delivery, reduced costs and adherence to principles of environmental and CSR;
3) Significant deviations from last year in operating results of the Co shall be highlighted and
reasons thereof shall be explained;
4) Key operating and financial data of last six years shall be summarized;
5) Where any statutory payment on account of taxes, duties, levies and charges is outstanding, the
amount together with a brief description and reasons for the same shall be disclosed;
6) Significant plans and decisions, such as corporate restructuring, business expansion and
discontinuance of operations, shall be outlined along with future prospects, risks and
uncertainties surrounding the Co;
7) A statement as to the value of investments of provident, gratuity and pension funds, based on
their respective audited accounts;
8) Number of board and committees’ meetings held during year and attendance by each director
shall be disclosed;
9) Pattern of shareholding shall be reported to disclose aggregate number of shares (along with
name wise details where stated below) held by:
I. Government
II. Associated companies, undertakings and related parties
III. Mutual funds
IV. Directors and their spouse(s) and minor children
V. Executives; (an employee of a Co other than the CEO and directors)
VI. Public sector companies and corporations;
VII. Banks, DFIs, NBFCs, insurance companies, takaful, modarabas and pension funds
VIII. Shareholders holding five percent or more voting rights in the Co
Responsibility for financial reporting and corporate compliance
 No Co shall circulate its financial statements unless the CEO and the CFO present the financial
statements, duly certified under their respective signatures, for consideration and approval
of the BOD and the Audit Committee.
 BOD shall after consideration and approval, authorise the signing of financial statements
Disclosure of interest by directors and other officers holding Co’s shares
 Every director, if he or his relative, is in any way, directly or indirectly, concerned or

interested in any contract or arrangement entered into, or to be entered into, by or on behalf
of the Company shall disclose nature of his concern or interest at a director meeting.
 Any other officer (including CEO & other Executives) so interested shall disclose to the
Company through a communication to company secretary, the nature and extent of his
interest in the transaction.
 Such officer and company shall ensure that such information is properly placed and
considered by any forum where related matter is to be discussed and approved.
 If a director or officer has an existing interest, before joining the Board, he shall disclose such
interest to the Board, which shall take such facts into consideration for any current and
future decision making.
Board orientation and learning
 Orientation courses shall be held by a Company, to enable directors to better comprehend

specific context in which it operates, including its operations and environment, awareness
of Company's values and standards of probity and accountability as well as their duties
 In order to ensure that irectors are well conversant with the corporate laws and practices,
they are encouraged to have certification under an appropriate training or education
program offered by any institution, local or foreign.
 In order to acquaint Board with the wider scope of responsibilities concerning the use of
public resources, to act in good faith and in the best interests of the Company, at least one
orientation course shall be arranged annually for directors and following information in
writing, inter-alia, shall be provided:
- Company's aims and objectives;
- Control environment and control activities;
- Key policies and procedures;
- Risk management and internal control framework;
- Background of key personnel, including their job descriptions;
- Delegation of financial and administrative powers;
- Board and staff structure;and
- Budgeting, planning and performance evaluation systems.
Performance evaluation.—
 Board shall monitor and assess the performance of senior management on a periodic basis,
at least once a year, and hold them accountable for accomplishing objectives, goals and KPI.
 Performance evaluation of Board including chairman & CEO shall be undertaken annually by
the Government for which the Government shall enter into performance contract with each
member of the Board at the time of his appointment.
BOARD COMMITTEES
Board shall set up following committees to support it in performing its functions efficiently, and
for seeking assistance in the decision making process:
 Audit committee
(for efficient & effective internal and external financial reporting mechanism)
 Risk management committee - for financial sector or having assets of Rs. 5 billion or more
(to effectively review the risk function)
 Human resources committee
(all employee related matters including recruitment, training, remuneration, performance
evaluation, succession planning, and measures for effective utilization of the employees)
 Procurement committee
(ensure transparency in procurement transactions and in dealing with the suppliers)
 Nomination committee
(to identify, evaluate and recommend candidates for vacant positions, including casual
vacancies, on the Board, including the candidates recommended by the Government for
consideration of shareholders or in case of casual vacancy to the board of directors after
examining their skills and characteristics that are needed in such candidates)
- nomination committee shall submit its proposal within 30 days of a vacancy arising or
on a recommendation made by the Government as the case may be.
Other Requirements
 The Board committees shall be chaired by non-executive directors.
 Independent directors in the committees shall not be less than their proportionate strength.
 The existence of such committees shall not absolve the Board from its collective
responsibility for all matters.
 Committees shall have written terms of reference that define their duties, authority and
composition, and shall report to the full Board.
 The minutes of committee meetings shall be circulated to all Board members.
Board shall concern itself with policy formulation and oversight and not approval of individual
transactions except which are of an extraordinary nature or involve materially large amount.
Audit Committee
 Board shall establish an audit committee, whose members shall be financially literate and
majority of them, including its chairman, shall be Independent Non Executive Directors.
 Names of members of audit committee shall be disclosed in each annual report
 Chairman and CEO shall not be a member of the audit committee.
Terms of reference
 BOD shall determine terms of reference of Audit Committee.

 Audit Committee shall, inter alia, recommend BOD appointment of external auditors, their
removal, audit fees, provision by external auditors of any service to Co in addition to audit
 BOD shall give due consideration to the recommendations of the Audit Committee in all these
matters and where it acts otherwise, it shall record the reasons thereof.
The terms of reference of the Audit Committee shall also include the following:
a) Determination of appropriate measures to safeguard the Co’s assets;
b) Review of quarterly, half-yearly and annual financial statements of the listed Co, prior to their
approval by the BOD, focusing on:
 Major judgmental areas;
 Significant adjustments resulting from the audit;
 The going concern assumption;
 Any changes in accounting policies and practices; and
 Compliance with applicable accounting standards;
Appropriateness of going concern assumption is generally not in question when auditing

company having funding arrangements backed by Government. However, where such
arrangements do not exist, or where Government funding of Company may be withdrawn
and the existence of Company may be at risk, ISA provide useful guidance. This issue is
increasingly important for Companies which have been privatized;
c) Facilitating the external audit and discussion with external auditors of major observations
arising from interim and final audits and any matter that the auditors may wish to highlight (in
the absence of management, where necessary);
d) Review of management letter issued by external auditors and management’s response thereto;
e) Ensuring coordination between the internal and external auditors;
f) Review of the scope and extent of internal audit and ensuring that the internal audit function
has adequate resources and is appropriately placed within the Co;
g) Consideration of major findings of internal investigations and management's response thereto;
h) Ascertaining that the internal control systems including financial and operational controls,
accounting systems and the reporting structure are adequate and effective;
i) Review of Co’s statement on internal control systems prior to endorsement by the BOD;
j) Instituting special projects, value for money studies or other investigations on any matter
specified by BOD, in consultation with CEO and to consider remittance of any matter to external
auditors or to any other external body;
k) Determination of compliance with relevant statutory requirements;

l) Monitoring compliance with best practices of corporate governance and identification of
significant violations thereof; and
m) Consideration of any other issue or matter as may be assigned by the BOD.
n) Recommending or approving the hiring or removal of the chief internal auditor;
o) Overseeing whistle-blowing policy and protection mechanism
Reporting procedure
 Audit Committee shall appoint a secretary of committee who shall circulate minutes of
meetings of Audit Committee to all members, directors and CFO within 14 days of meeting
Audit Committee and the External Auditor
Audit committee shall be responsible for managing relationship of Company with the external
auditors. In this regard, the audit committee's responsibilities include:
 Suggesting the appointment of external auditor to Board, the audit fee, and any questions of
resignation or dismissal
 Considering the objectives and scope of any non-financial audit or consultancy work
proposed to be undertaken by external auditors, and reviewing the remuneration for it
 Discussing with external auditors before the audit commences the scope of the audit and the
extent of reliance on internal audit and other review agencies
 Discussing with external auditors any significant issues from review of financial statements
by the management, and any other work undertaken or overseen by the audit committee;
 Reviewing and considering the external auditors' communication with management and
management’s response thereto
 Reviewing progress on accepted recommendations from the external auditors.
Recommendations of audit committee for appointment of retiring auditors or otherwise shall

be included in directors' report. In case of a recommendation for change of external auditors
before lapse of 3 consecutive financial years, the reasons for the same shall also be included
Attendance at meetings
 CFO, Head of Internal Audit and external auditors (represented by engagement partner or
any other partner designated by audit firm) shall attend meetings of Audit Committee at
which issues relating to accounts and audit are discussed:
 At least once a year, Audit Committee shall meet alone with
- External auditors
(without CFO and Head of Internal Audit being present)
- Head of internal audit
(without CFO and the external auditors being present)
External auditors
 An audit firm having satisfactory rating under Quality Control Review program of the ICAP.
 Every Company shall ensure that its annual accounts are audited by external auditors
(as per Companies Act 2017)
 External auditors shall take into account the specific requirements of any other relevant
regulations, ordinances or ministerial directives which affect the audit mandate and any
special auditing requirements.
 No Co shall appoint a firm of auditors which or a partner of which is non-compliant with
IFAC Guidelines on Code of Ethics, as adopted by the ICAP.
 External auditors shall observe applicable guidelines issued by IFAC with regard to
restriction of non-audit services. Audit committee shall also ensure that external auditors do
not perform management functions or make management decisions, which is responsibility
of Board and management.
 In assessing materiality, external auditor must, in addition to exercising professional
judgment, consider any legislation or regulation which may impact that assessment.
 All companies in financial sector shall change their external auditors every 5 years.
(Financial sector, means banks, NBFC’s, modarabas and insurance/takaful companies)
 All companies other than financial sector shall, at a minimum, rotate engagement partner after
every 5 years.
 No Company shall appoint a person as its chief executive, CFO, Chief Internal Auditor or
director who was a partner of firm of external auditors (or an employee involved in the audit
of the Company) at any time during the 2 year 's preceding such appointment.
 Every Co shall require external auditors to furnish a Management Letter to its BOD within
30 days of the date of audit report:
 External auditors shall independently report to shareholders in accordance with statutory
and professional requirements. They shall also report to the Board and audit committee the
matters of audit interest, as laid down in ISA.
Internal audit
 There shall be an internal audit function in every Co. The Head of internal Audit shall be
accountable to the audit committee and have unrestricted access to the audit committee.
 No person shall be appointed as chief internal auditor unless he is considered and approved
as "fit and proper" for the position by the Audit Committee.
 No person shall be appointed as Chief Internal Auditor unless he has 5 years of relevant audit
experience and is a:
- Member of a recognized body of professional accountants; or
- Certified Internal Auditor; or
- Certified Fraud Examiner; or
- Certified Internal Control Auditor; or
- MBA (finance) from a university recognized by HEC
Individuals serving as chief internal auditor for the last 5 years at the time of coming into force of
these rules shall be exempted from the above qualification requirement.
 The internal audit function shall have an audit charter, duly approved by audit committee
and shall work, as far as practicable, in accordance with the standards for the professional
practice of internal auditors issued by the Institute of Internal Auditors Inc.,
 All companies shall ensure that internal audit reports are provided for the review of external
auditors. The auditors shall discuss any major findings in relation to the reports with the
Audit Committee, which shall report matters of significance to the BOD.
Compliance with the Code
 All companies shall publish and circulate a statement along with their annual reports to set
out the status of their compliance with CCG.
 Statement along with annual report shall also be filed with SECP and registrar concerned.
 All companies shall ensure that statement of compliance with the rules is reviewed and
certified by statutory auditors before its publication.
 Where Federal Govt is satisfied that it is not practicable to comply with any of these rules, it
may, for reasons to be recorded, relax same subject to such conditions as it may deem fit.
Penalty for contravention of the rules. —
Whoever fails or refuses to comply with, or contravenes any provision of these rules, or
knowingly and willfully authorises or permits such failure, refusal or contravention shall, in
addition to any other liability under the Ordinance, be punishable with fine and, in the case of
continuing failure, to a further fine, as provided in sub-section (2) of section 506 of Ordinance.
Code for Listed Companies vs Code for Public Sector companies

Considering much repetition and practical difficulties being faced by many
students in memorizing the requirements of both the codes separately, it is
Tutor suggested that student should memorise the code for listed company being short,
easy in nature and more important than code for Public Sector. Thereafter the
Note students should memorise those areas of Code for Public Sector that are either
not covered in Code for listed or are materially different from that. A list of such
topic is given hereunder
 Criteria for Sound and Prudent Management
 Principles of probity & propriety, objectivity & relationship with
stakeholders
 Role of Chairman and CEO
 Misconduct of a Director
 Qualification of CFO & Company Secretary
 Additional contents of Directors Report
 Board orientation and learning
 Audit Committee and the External Auditor
 Criteria for determining Fit & Proper Person
ANNEXURE
CRITERIA FOR DETERMINING A 'FIT AND PROPER PERSON'
The person proposed for the said position:
 Is at least graduate;
 Is a reputed businessman or a recognised professional with relevant sectoral experience;
 Has financial integrity;
 Has no convictions or civil liabilities;
 Is known to have competence;
 Has good reputation and character;
 Has the traits of efficiency and honesty;
 Does not suffer from any disqualification to act as a director stipulated in the Act;
 Has not been subject to an order passed by SECP cancelling the certificate of registration
granted to the person individually or collectively with others on the ground of its indulging
in insider trading, fraudulent and unfair trade practices or market manipulation, illegal
banking, forex or deposit taking business;
 Has not been subject to an order passed by SECP or any other regulatory authority,
withdrawing or refusing to grant any license or approval to him which has a bearing on the
capital market;
 Is not a stock broker or agent of a broker; and
 Does not suffer from a conflict of interes
(this includes political office holders in a legislative role)
A director shall cease to be considered as a "fit and proper person" for the purpose, if he incurs
any of the following disqualifications:
 He is convicted by a court for any offence involving moral turpitude, economic offence,
disregard of securities and company laws or fraud;
 An order for winding up has been passed against a company of which he was the officer
 He or his close relatives have been engaged in a business which is of the same nature as and
directly competes with the business carried on by Company (of which he is a director)
 He does not conduct his duties with due diligence and skill; or
 His association with the Public Sector Company is likely, for whatever reason, to be
detrimental to the interest of the Public Sector Company, or be otherwise undesireable.
26. Code of Ethics for CA in Business Page 504
Ch # 26: Code of Ethics for CA in Business

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act
in the public interest. A CA’s responsibility is not exclusively to satisfy the needs of an individual
client or employing organization. The Code contains requirements and application material to
enable CAs to meet their responsibility to act in the public interest. (100.1 A1)
The Requirements in the Code, designated with the letter “R” impose obligations. (100.2 A1)
Application material, designated with letter “A” provides context, explanations, suggestions for
actions or matters to consider, illustrations and other guidance relevant to a proper
understanding of the Code. While such application material does not of itself impose a
requirement, consideration of the material is necessary to the proper application of the
requirements of the Code, including application of the conceptual framework. (100.2 A2)

Part 1
 Introduction and Fundamental Principles (110)
 Conceptual Framework (120)
Part 2
 Applying the conceptual framework – CA in business (200)
 Conflicts of interest (210)
 Preparation and presentation of information (220)
 Acting with sufficient expertise (230)
 Financial interests, compensation and incentives linked to financial reporting
and decision making (240)
 Inducements, including gifts and hospitality (250)
 Responding to non-compliance with laws and regulations (260)
 Pressure to breach the fundamental principles (270)
D 6.1: ICAP Code of Ethics for Chartered Accountants (Revised 2019) (Part I and II)
Approximately 100% with some obvious duplications removed
PART 1 COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND

CONCEPTUAL FRAMEWORK
INTRODUCTION AND FUNDAMENTAL PRINCIPLES (110)
1) INTEGRITY (111)
 Straightforward & honest in professional & business relationships

 Integrity also implies fair dealing and truthfulness.
 Should not be associated with reports, returns, communications or other information
where they believe that the information:
- Contains a materially false or misleading statement;
- Contains statements or information furnished recklessly; or
- Omits or obscures required information to mislead
 When a CA becomes aware of having been associated with such information, he shall take
steps to be disassociated from that.
 If CA provides a modified report in respect of such information, he is not in breach of code
2) OBJECTIVITY (112)
 Not to compromise their professional or business judgment because of bias, conflict of

interest or the undue influence of others.
 A CA shall not undertake a professional activity if a circumstance or relationship unduly
influences the accountant’s professional judgment regarding that activity.
3) PROFESSIONAL COMPETENCE & DUE CARE (113)
 Maintain & apply professional knowledge and skill to ensure that clients or employers
receive competent professional service (using sound judgements)
 Act diligently in accordance with applicable technical and professional standards (carefully,
thoroughly and on a timely basis) when providing professional services.
 Professional competence may be divided into two separate phases:
- Attainment of professional competence; and
- Maintenance of professional competence.
 Maintaining professional competence requires continuing awareness and understanding of
relevant technical, professional and business developments. Continuing professional
development (CPD) enables a CA to develop and maintain such competence
 CA shall also take reasonable steps to ensure that those working under his authority have
appropriate training and supervision.
 Where appropriate, a CA shall make clients, employers or other users of the professional
services or activities, aware of the limitations inherent in the services or activities.
4) CONFIDENTIALITY (114)
CA should respect the confidentiality of information acquired as a result of professional and

business relationships.
 Be alert to the possibility of inadvertent disclosure, including in a social environment, and
particularly to a close business associate or an immediate or a close family member;
 Maintain confidentiality of information within the firm or employing organization;
 Maintain confidentiality of information disclosed by a prospective client/employer;
 Not disclose confidential information acquired as a result of professional and business
relationships outside firm or employing organization without proper & specific authority;
 Not use such confidential information for personal or any 3rd party advantage;
 Not use or disclose any such confidential information, after that relationship has ended;
 Take reasonable steps to ensure that personnel under CA’s control, and individuals from
whom advice and assistance are obtained, respect the accountant’s duty of confidentiality.
Circumstances where CAs are or may be required to disclose confidential information:
 Disclosure is permitted by law and is authorized by the client or the employer;

 Disclosure is required by law, for example:
- Production of documents or other provision of evidence in the course of legal
proceedings
- Disclosure to appropriate public authorities of violation of law that come to light
 Professional duty or right to disclose, when not prohibited by law:
- To comply with QCR program of ICAP;
- To respond to an inquiry or investigation by ICAP or other regulatory body;
- To protect professional interests of a CA in legal proceedings
- To comply with technical standards and ethics requirements.
In deciding whether to disclose confidential information, CAs should consider following:

 Whether interests of any parties, including 3rd parties, could be harmed if the client or
employing organization consents to the disclosure of information by the CA.
 Whether all relevant information is known and corroborated, to the extent practicable and
does not involve Incomplete information and Unsubstantiated facts or conclusions
 The proposed type of communication, and to whom it is addressed
 Whether the parties to whom the communication is addressed are appropriate recipients
5) PROFESSIONAL BEHAVIOR (115)
 Should comply with relevant laws and regulations and avoid any action that may bring
discredit to the profession.
 A CA shall not knowingly engage in any business, occupation or activity that impairs or
might impair the integrity, objectivity or good reputation of the profession, and as a result
would be incompatible with the fundamental principles
C ONCEPTUAL FRAMEWORK (120)
The conceptual framework specifies an approach for a CA to:

 Identify threats to compliance with the fundamental principles;
 Evaluate the threats identified; and
 Address the threats by eliminating or reducing them to an acceptable level.
When applying the conceptual framework, the CA shall:
1) Exercise professional judgment;
 It involves application of relevant training, professional knowledge, skill and experience

matching with the facts and circumstances, including nature and scope of particular
professional activities, and interests and relationships involved.
 An understanding of known facts & circumstances is a prerequisite in applying framework
- Required when the CA applies the conceptual framework in order to make informed
decisions about the courses of actions available and appropriateness of the same
- Also required in determining the actions necessary to obtain this understanding and
coming to conclusion about whether fundamental principles have been complied with
 In exercising professional judgment CA might consider, among other matters, whether:
- A concern that potentially relevant information might be missing from the facts and
circumstances known to the accountant.
- There is an inconsistency between known facts & circumstances and CA’s expectations.
- The expertise and experience are sufficient to reach a conclusion.
- There is a need to consult with others with relevant expertise or experience.
- The information provides a reasonable basis on which to reach a conclusion.
- CA’s own preconception or bias might be affecting exercise of professional judgment.
- There might be other reasonable conclusions that could be reached from available info.
2) Remain alert for new information and to changes in facts and circumstances; and
3) Use the reasonable and informed third party test.
- Whether the same conclusions would likely be reached by another party.

- Consideration is made from the perspective of a reasonable and informed third party,
who weighs all the relevant facts and circumstances that the accountant knows, or could
reasonably be expected to know, at the time the conclusions are made.
- 3rd party does not need to be an accountant, but would possess the relevant knowledge
and experience to understand and evaluate the appropriateness of the actions
Identifying Threats
 It involves understanding of facts and circumstances, including any professional activities,

interests & relationships that might compromise compliance with fundamental principles
 Existence of certain conditions, policies and procedures established by the profession,
legislation, regulation, firm, or employing organization might also help identify threats e.g.
- Corporate governance requirements.
- Educational, training and experience requirements for the profession.
- Effective complaint systems which enable CA and general public to draw attention to
unethical behavior.
- An explicitly stated duty to report breaches of ethics requirements.
- Professional or regulatory monitoring and disciplinary procedures.
 It is not possible to define every situation that creates threats.
 Threats fall into one or more of the following categories:
Threat Description
Self Interest A financial or other interest will inappropriately influence a CA’s
judgment or behavior
Self-review May not appropriately evaluate results of a previous judgment made;
or an activity performed by accountant, or by another within his firm
or employing organization, on which he will rely when forming
judgment
Advocacy CA will promote a client’s or employer’s position to the point that the
accountant’s objectivity is compromised
Familiarity Due to long or close relationship with client, or employer, CA will be
too sympathetic to their interests or too accepting of their work
Intimidation CA will be deterred from acting objectively because of actual or
perceived pressures, including attempts to exercise undue influence
Note: A circumstance might create more than one threat, and a threat might affect compliance
with more than one fundamental principle.
Evaluating Threats
 After identifying a threat, he shall evaluate whether such a threat is at an acceptable level
as per 3rd party test.
 Both qualitative as well as quantitative factors should be considered
 If CA becomes aware of new information or changes in facts and circumstances, he shall re-
evaluate to determine:
- The level of a threat;
- Whether previous safeguards applied continue to be appropriate to address threats; or
- Identification of any new threat
Addressing Threats
The accountant shall address the threats by

 Eliminating the circumstances, including interests or relationships, that creating threats;
 Applying available and applicable safeguards to reduce threats to an acceptable level; or
 Declining or ending the specific professional activity.
In forming the overall conclusion about safeguards applied or planned, the accountant shall:
 Review any significant judgments made or conclusions reached; and
 Use the reasonable and informed third party test.
Considerations for Audits, Reviews and Other Assurance Engagements
Independence
 CAs in practice are required by International Independence Standards to be independent

when performing audits, reviews, or other assurance engagements.
 Independence is linked to the fundamental principles of objectivity and integrity.
 It comprises:
- Independence of mind – the state of mind that permits the expression of a conclusion
without being affected by influences that compromise professional judgment
- Independence in appearance – the avoidance of facts and circumstances that are so
significant that reasonable & informed 3rd party would likely to conclude that firm’s or
team member’s integrity, objectivity or professional skepticism has been compromised
 Categories of threats to compliance with fundamental principles are also the categories of
threats to compliance with independence requirements.
Professional Skepticism
 CAs in practice are required to exercise professional skepticism when planning and
performing audits, reviews and other assurance engagements.
 Professional skepticism and fundamental principles are inter-related concepts
PART 2 CHARTERED ACCOUNTANTS (CAs) IN BUSINESS
APPLYING THE CONCEPTUAL FRAMEWORK

CAS IN BUSINES (SECTION 200)
A CA in business might be an employee, contractor, partner, director (executive or non-

executive), owner-manager, or volunteer of an employing organization. The legal form of the
relationship of the accountant with the employing organization has no bearing on the ethical
responsibilities placed on the accountant.
Identifying Threats
Following are examples of facts and circumstances within each of those categories of threats
that might create threats for a CA when undertaking a professional service:
Threat Examples
Self-interest  A CA holding a financial interest in, or receiving a loan or guarantee from,
the employing organization.
 A CA participating in incentive compensation arrangements offered by
the employing organization.
 A CA having access to corporate assets for personal use.
 A CA being offered a gift or special treatment from a supplier of the
employing organization.
Self-review  A CA determining the appropriate accounting treatment for a business

combination after performing the feasibility study supporting the
purchase decision.
Advocacy  A CA having the opportunity to manipulate information in a prospectus

in order to obtain favorable financing
Familiarity  A CA being responsible for the financial reporting of the employing

organization when an immediate or close family member employed by
the organization makes decisions that affect the financial reporting of the
organization.
 A CA having a long association with individuals influencing business
decisions.
Intimidation  A CA or immediate or close family member facing the threat of dismissal

or replacement over a disagreement about:
 The application of an accounting principle.
 The way in which financial information is to be reported
Evaluating Threats
The CA’s evaluation of the level of a threat might be impacted by the work environment within
the employing organization and its operating environment. For example:
 Leadership that stresses the importance of ethical behavior and the expectation that
employees will act in an ethical manner.
 Policies and procedures to empower and encourage employees to communicate ethics
issues that concern them to senior levels of management without fear of retribution.
 Policies and procedures to implement and monitor the quality of employee performance.
 Systems of corporate oversight or other oversight structures and strong internal controls.
 Recruitment procedures emphasizing the importance of employing high caliber competent
personnel.
 Timely communication of policies and procedures, including any changes to them, to all
employees, and appropriate training and education on such policies and procedures.
 Ethics and code of conduct policies.
Addressing Threats and Communicating with TCWG
 When communicating with those charged with governance in accordance with the Code, a
CA shall determine the appropriate individual(s) within the employing organization’s
governance structure with whom to communicate.
 In determining with whom to communicate, a CA might consider the nature and importance
of the circumstances; and matter to be communicated.
 If a CA communicates with individuals who have management responsibilities as well as
governance responsibilities, the accountant shall be satisfied that communication with
those individuals adequately informs all of those in a governance role with whom the
accountant would otherwise communicate
 In extreme situations, if the circumstances that created the threats cannot be eliminated
and safeguards are not available or capable of being applied to reduce the threat to an
acceptable level, it might be appropriate for a CA to resign from the employing organization
CONFLICTS OF INTEREST (SECTION 210)
Conflict of interest creates threats to compliance with principle of objectivity and might create
threats to compliance with other fundamental principles. Such threats might be created when:
 A CA provides a professional service related to a particular matter for 2 or more clients
whose interests with respect to that matter are in conflict; or
 The interests of a CA with respect to a particular matter and the interests of the client for
whom the accountant provides a professional service related to that matter are in conflict.
Examples of circumstances that might create a conflict of interest include:

 Serving in a management or governance position for two employing organizations and
acquiring confidential information from one organization that might be used by the CA to
the advantage or disadvantage of the other organization.
 Undertaking a professional activity for each of two parties in a partnership, where both
parties are employing the accountant to assist them to dissolve their partnership
 Preparing financial information for certain members of management of the accountant’s
employing organization who are seeking to undertake a management buy-out.
 Being responsible for selecting a vendor for the employing organization when an immediate
family member of the accountant might benefit financially from the transaction.
 Serving in a governance capacity in an employing organization that is approving certain
investments for the company where one of those investments will increase the value of the
investment portfolio of the accountant or an immediate family member.
Conflict Identification
 A CA shall take reasonable steps to identify circumstances that might create a conflict of
interest.
 Such steps shall include identifying:
- Nature of the relevant interests and relationships between the parties involved; and
- The service and its implication for relevant parties.
Threats Created by Conflicts of Interest
 Level of threat will be more than acceptable level if connection between the professional
activity and the matter on which the parties’ interests conflict is more
 Examples of other safeguards to address threats include:
- Restructuring or segregating certain responsibilities and duties.
- Obtaining appropriate oversight, for example, acting under the supervision of an
executive or non-executive director.
- CA is encouraged to seek guidance from within the employing organization or from

others, such as a professional body, legal counsel or another accountant. When dong that
name of organizations must be kept anonymous
- withdrawing from the decision-making process related to the matter giving rise to the
conflict of interest
Disclosure and Consent
It is generally necessary to:

 Disclose the nature of the conflict of interest and how any threats created were addressed
to the relevant parties.
 Obtain consent from the relevant parties for the CA to undertake the professional activity
when safeguards are applied to address the threat.
 There can be implied consent when the CA has sufficient evidence to conclude that the
parties know the circumstances at the outset and have accepted the conflict of interest if
they do not raise an objection to the existence of the conflict.
If such disclosure or consent is not in writing, the CA is encouraged to document:

 The nature of the circumstances giving rise to the conflict of interest;
 The safeguards applied to address the threats when applicable; and
 The consent obtained
PREPARATION AND PRESENTATION OF INFORMATION (SECTION 220)
CAs at all levels in an employing organization are involved in the preparation or presentation
of financial and non-financial information like Operating and performance reports, Decision
support analyses, Budgets and forecasts, Risk analyses, Information provided to the internal and
external auditors, General and special purpose financial statements, Tax returns, Reports filed
with regulatory bodies for legal and compliance purposes both within and outside the
organization for Management and TCWG, Investors and lenders or other creditors and various
Regulatory Bodies in order to assist stakeholders in understanding and evaluating state of
affairs and decision making process.
Such Preparing/presenting information might create self-interest, intimidation or other threats

As safeguards when preparing or presenting information, a CA shall:
 Prepare or present the information in accordance with a relevant reporting framework,
where applicable;
 Prepare or present the information in a manner that is intended neither to mislead nor to
influence contractual or regulatory outcomes inappropriately;
 Exercise professional judgment to:
- Represent the facts accurately and completely in all material respects;
- Describe clearly the true nature of business transactions or activities; and
- Classify and record information in a timely and proper manner; and
 Not omit anything with the intention of rendering the information misleading or of
influencing contractual or regulatory outcomes inappropriately
Use of Discretion in Preparing or Presenting Information
Preparing or presenting information might require the exercise of discretion in making

professional judgments. However no such discretion shall be applied with the intention of
misleading others or influencing contractual or regulatory outcomes inappropriately.
Examples of ways in which discretion might be misused to achieve inappropriate outcomes:
 Determining estimates, for example, determining fair value estimates in order to
misrepresent profit or loss.
 Selecting or changing an accounting policy or method among two or more alternatives
permitted under the applicable financial reporting framework, for example, selecting a
policy for accounting for long- term contracts in order to misrepresent profit or loss.
 Determining the timing of transactions, for example, timing the sale of an asset near the end
of the fiscal year in order to mislead.
 Determining the structuring of transactions, for example, structuring financing transactions
in order to misrepresent assets and liabilities or classification of cash flows.
 Selecting disclosures, for example, omitting or obscuring information relating to financial
or operating risk in order to mislead
When performing professional activities, especially those that do not require compliance with a
relevant reporting framework, like pro forma reports, budgets or forecasts the CA shall exercise
professional judgment to identify and consider:
 The purpose for which the information is to be used;
 The context within which it is given; and
 The audience to whom it is addressed
Relying on the Work of Others
A CA who intends to rely on the work of others, either internal or external to the employing
organization, shall exercise professional judgment whether to use the work or not based on
below factors
 Reputation & expertise of, and resources available to, the other individual or organization.
 Whether the other individual is subject to applicable professional and ethics standards.
Addressing Information that is or Might be Misleading

When the CA knows that he is associated is misleading, the accountant shall take appropriate
actions to seek to resolve the matter which may be:
 Discussing concerns with appropriate level(s) of management within the accountant’s
employing organization or those charged with governance, and requesting such individuals
to take appropriate action to resolve the matter. Such action might include:
- Having the information corrected.
- If the information has already been disclosed to the intended users, informing them of
the correct information.
 Consulting the policies and procedures of the employing organization (for example, an
ethics or whistle-blowing policy) regarding how to address such matters internally.
 Consulting with:
- A relevant professional body.
- The internal or external auditor of the employing organization.
- Legal counsel.
 Determining whether any requirements exist to communicate to Third parties, including
users of the information and Regulatory and oversight authorities
 In extreme circumstances he should resign from the employing organization
Documentation
The CA is encouraged to document the facts, accounting principles or other relevant professional
standards involved, the communications and parties with whom matters were discussed, courses
of action considered and how the accountant attempted to address the matter(s).
ACTING WITH SUFFICIENT EXPERTISE (SECTION 230)
The principle of professional competence and due care requires that a CA only undertake
significant tasks for which the accountant has, or can obtain, sufficient training or
experience.
A self interest threat might be created if there is:

 Insufficient time for performing or completing the relevant duties.
 Incomplete, restricted or otherwise inadequate information for performing the duties.
 Insufficient experience, training and/or education.
 Inadequate resources for the performance of the duties
Factors that are relevant in evaluating the level of such a threat include:
 The extent to which the CA is working with others.
 The relative seniority of the accountant in the business.
 The level of supervision and review applied to the work
 If accountant determines that declining is appropriate, the accountant shall communicate
the reasons.
FINANCIAL INTERESTS, COMPENSATION AND INCENTIVES LINKED TO FINANCIAL

REPORTING AND DECISION MAKING (SECTION 240)
CAs might have financial interests of immediate or close family members that, in certain
circumstances, it might create threats to compliance with the fundamental principles.
Examples of circumstances that might create a self-interest threat include situations in which the CA
or an immediate or close family member:
 Has a motive and opportunity to manipulate price-sensitive information in order to gain
financially.
 Holds a direct or indirect financial interest in the employing organization and the value of
that financial interest might be directly affected by decisions made by the accountant.
 Is eligible for a profit-related bonus and the value of that bonus might be directly affected
by decisions made by the accountant.
 Holds, directly or indirectly, deferred bonus share rights or share options in the employing
organization, the value of which might be affected by decisions made by the accountant.
 Participates in compensation arrangements which provide incentives to achieve targets or
to support efforts to maximize the value of the employing organization’s shares. An example
of such an arrangement might be through participation in incentive plans which are linked
to certain performance conditions being met.
Factors that are relevant in evaluating the level of such a threat include:
 The significance of the financial interest. What constitutes a significant financial interest
will depend on personal circumstances and the materiality of the financial interest to the
individual.
 Policies and procedures for a committee independent of management to determine the
level or form of senior management remuneration.
 In accordance with any internal policies, disclosure to those charged with governance of:
- All relevant interests.
- Any plans to exercise entitlements or trade in relevant shares.
 Internal and external audit procedures that are specific to address issues that give rise to
the financial interest.
INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY (SECTION 250)

An inducement is an object, situation, or action that is used as a means to influence another
individual’s behavior. Inducements can range from minor acts of hospitality between business
colleagues to acts that result in non-compliance with laws and regulations. Offering or accepting
inducements might create a self-interest, familiarity or intimidation threat to compliance with
the fundamental principles, particularly the principles of integrity, objectivity and professional
behavior. An inducement can take many different forms, for example:
 Gifts.
 Hospitality.
 Entertainment.
 Political or charitable donations.
 Appeals to friendship and loyalty.
 Employment or other commercial opportunities.
 Preferential treatment, rights or privileges
Inducements with Intent to Improperly Influence Behavior
A CA shall not offer or accept, or encourage others to offer or accept, any inducement that is
made, or which the accountant considers a reasonable and informed third party would be likely
to conclude is made, with the intent to improperly influence the behavior of the recipient or of
another individual.
The determination of whether there is actual or perceived intent to improperly influence

behavior requires the exercise of professional judgment. Relevant factors to consider might
include:
 The nature, frequency, value and cumulative effect of the inducement.
 Timing of when the inducement is offered relative to any action or decision that it might
influence.
 Whether the inducement is a customary or cultural practice in the circumstances, for
example, offering a gift on the occasion of a religious holiday or wedding.
 Whether the inducement is an ancillary part of a professional activity, for example, offering
or accepting lunch in connection with a business meeting.
 Whether the offer of the inducement is limited to an individual recipient or available to a
broader group. The broader group might be internal or external to the employing
organization, such as other customers or vendors.
 The roles and positions of the individuals offering or being offered the inducement.
 Whether the CA knows, or has reason to believe, that accepting the inducement would
breach the policies and procedures of the counterparty’s employing organization.
 The degree of transparency with which the inducement is offered.
 Whether the inducement was required or requested by the recipient.
 The known previous behavior or reputation of the offeror.
Consideration of Further Actions
If the CA becomes aware of an inducement offered with actual or perceived intent to

improperly influence behavior, threats to compliance with the fundamental principles might
still be created
Examples of actions that might be safeguards to address such threats include:

 Informing senior management or those charged with governance of the employing
organization of the CA or the offeror regarding the offer.
 Amending or terminating the business relationship with the offeror.
Inducements with No Intent to Improperly Influence Behavior
Examples of circumstances where offering or accepting such an inducement might create

threats even if the CA has concluded there is no actual or perceived intent to improperly
influence behavior include:
 Self-interest threats - A CA is offered part-time employment by a vendor.
 Familiarity threats - A CA regularly takes a customer or supplier to sporting events.
 Intimidation threats - A CA accepts hospitality, the nature of which could be perceived to be
inappropriate were it to be publicly disclosed.
Examples of actions that might eliminate threats created by offering or accepting such an
inducement include:
 Declining or not offering the inducement.
 Transferring responsibility for any business-related decision involving the counterparty to
another individual who the CA has no reason to believe would be, or would be perceived to
be, improperly influenced in making the decision.
 Being transparent with senior management or those charged with governance of the
employing organization of the CA or of the counterparty about offering or accepting an
inducement.
 Registering the inducement in a log maintained by the employing organization of the
accountant or the counterparty.
 Having an appropriate reviewer, who is not otherwise involved in undertaking the
professional activity, review any work performed or decisions made by the accountant with
respect to the individual or organization from which the accountant accepted the
inducement.
 Donating the inducement to charity after receipt and appropriately disclosing the donation,
for example, to those charged with governance or the individual who offered the
inducement.
 Reimbursing the cost of the inducement, such as hospitality, received.
 As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
Immediate or Close Family Members
Where the CA becomes aware of an inducement being offered to or made by an immediate or

close family member and concludes there is intent to improperly influence the behavior of the
accountant or of the counterparty, or considers a reasonable and informed third party would
be likely to conclude such intent exists, the accountant shall advise the immediate or close
family member not to offer or accept the inducement
Factor that is relevant is the nature or closeness of the relationship, between:

 The accountant and the immediate or close family member;
 The immediate or close family member and the counterparty; and
 The accountant and the counterparty.
For example, the offer of employment, outside of the normal recruitment process, to the
spouse of the accountant by a counterparty with whom the accountant is negotiating a
significant contract might indicate such intent.
RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS (260)
A self-interest or intimidation threat to compliance with the principles of integrity and

professional behavior is created when a CA becomes aware of non-compliance or suspected
non-compliance with laws and regulations.
Non-compliance with laws and regulations comprises acts of omission or commission,

intentional or unintentional, which are contrary to the prevailing laws or regulations
committed by the following parties:
 The CA’s employing organization;
 Those charged with governance of the employing organization;
 Management of the employing organization; or
 Other individuals working for or under the direction of the employing organization.
Examples of laws and regulations addressing include those that deal with:
 Fraud, corruption and bribery.
 Money laundering, terrorist financing and proceeds of crime.
 Securities markets and trading.
 Banking and other financial products and services.
 Data protection.
 Tax and pension liabilities and payments.
 Environmental protection.
 Public health and safety.
Non-compliance might result in fines, litigation or other consequences for the employing
organization, potentially materially affecting its financial statements. Importantly, such non-
compliance might have wider public interest implications in terms of potentially substantial
harm to investors, creditors, employees or the general public.
Responsibilities of Organization’s Management and Those Charged with Governance
The employing organization’s management, with the oversight of those charged with
governance, is responsible for ensuring that the employing organization’s business activities
are conducted in accordance with laws and regulations. Management and those charged with
governance are also responsible for identifying and addressing any non-compliance
 The employing organization;
 An individual charged with governance of the employing organization;
 A member of management; or
 Other individuals working for or under the direction of the employing organization
Responsibilities of All CAs including Senior Members
If protocols and procedures exist within the CA’s employing organization to address non-
compliance or suspected non- compliance, the accountant shall consider them in determining
how to respond to such non-compliance.
Many employing organizations have established protocols and procedures regarding how to
raise non-compliance or suspected non-compliance internally. These protocols and procedures
include, for example, an ethics policy or internal whistle-blowing mechanism. Such protocols
and procedures might allow matters to be reported anonymously through designated channels.
Obtaining an Understanding of the Matter

This understanding shall include:
 The nature of the non-compliance or suspected non-compliance and the circumstances in
which it has occurred or might occur;
 The application of the relevant laws and regulations to the circumstances; and
 An assessment of the potential consequences to the employing organization, investors,
creditors, employees or the wider public.
 A senior CA is expected to apply knowledge and expertise, and exercise professional
judgment.
 The accountant might also consult on a confidential basis with others within the employing
organization or a professional body, or with legal counsel.
Addressing the Matter

 Have the matter communicated to those charged with governance;
 Comply with applicable laws and regulations, including legal or regulatory provisions
governing the reporting of non-compliance or suspected non-compliance to an appropriate
authority
 Have the consequences of the non-compliance or suspected non- compliance rectified,
remediated or mitigated;
 Reduce the risk of re-occurrence; and
 Seek to deter the commission of the non-compliance if it has not yet occurred.
Determining Whether Further Action Is Needed

CA shall assess the appropriateness of the response of the accountant’s superiors, if any, and
those charged with governance.
Relevant factors to consider in assessing the appropriateness of the response of the senior CA’s
superiors, if any, and those charged with governance include whether:
 The response is timely.
 They have taken or authorized appropriate action to seek to rectify, remediate or mitigate
the consequences of non-compliance, or to avert non-compliance if it has not yet occurred.
 The matter has been disclosed to an appropriate authority where appropriate and, if so,
whether the disclosure appears adequate
The determination of whether further action is needed, and the nature and extent of it, will
depend on various factors, including:
 The legal and regulatory framework.
 The urgency of the situation.
 The pervasiveness of the matter throughout the employing organization.
 Whether the senior CA continues to have confidence in the integrity of the accountant’s
superiors and those charged with governance.
 Whether the non-compliance or suspected non-compliance is likely to recur.
 Whether there is credible evidence of actual or potential substantial harm to the interests
of the employing organization, investors, creditors, employees or the general public.
CA shall exercise professional judgment in determining the need for, and nature and extent of,
further action. In making this determination, the accountant shall take into account whether a
reasonable and informed third party would be likely to conclude that the accountant has acted
appropriately in the public interest.
Further action that the CA might take includes:

 Informing the management of the parent entity of the matter if the employing organization
is a member of a group.
 Disclosing the matter to an appropriate authority even when there is no legal or regulatory
requirement to do so.
 Resigning from the employing organization
Seeking Advice
As assessment of the matter might involve complex analysis and judgments, the senior CA might
consider:
 Consulting internally.
 Obtaining legal advice to understand the accountant’s options and the professional or legal
implications of taking any particular course of action.
 Consulting on a confidential basis with a regulatory or professional body.
Determining Whether to Disclose the Matter to an Appropriate Authority
The determination of whether to make such a disclosure depends in particular on the nature
and extent of the actual or potential harm that is or might be caused by the matter to investors,
creditors, employees or the general public. For example, the CA might determine that disclosure
of the matter to an appropriate authority is an appropriate course of action if:
 The employing organization is engaged in bribery (for example, of local or foreign
government officials for purposes of securing large contracts).
 The employing organization is regulated and the matter is of such significance as to
threaten its license to operate.
 The employing organization is listed on a securities exchange and the matter might result
in adverse consequences to the fair and orderly market in the employing organization’s
securities or pose a systemic risk to the financial markets.
 It is likely that the employing organization would sell products that are harmful to public
health or safety.
 The employing organization is promoting a scheme to its clients to assist them in evading
taxes.
The determination of whether to make such a disclosure will also depend on external factors
such as:
 Whether there is an appropriate authority that is able to receive the information, and cause
the matter to be investigated and action to be taken
 Whether there exists robust and credible protection from civil, criminal or professional
liability or retaliation afforded by legislation or regulation, such as under whistle-blowing
legislation or regulation.
 Whether there are actual or potential threats to the physical safety of the senior CA or other
individuals.
Imminent Breach
In exceptional circumstances, the senior CA might become aware of actual or intended conduct
that the accountant has reason to believe would constitute an imminent breach of a law or
regulation that would cause substantial harm to investors, creditors, employees or the general
public. Having first considered whether it would be appropriate to discuss the matter with
management or those charged with governance of the employing organization, the accountant
shall exercise professional judgment
Documentation
In relation to non-compliance or suspected non-compliance, the senior CA is encouraged to have
the following matters documented:
 The matter.
 The results of discussions with the accountant’s superiors, if any, and those charged with
governance and other parties.
 How the accountant’s superiors, if any, and those charged with governance have responded
to the matter.
 The courses of action the accountant considered, the judgments made and the decisions
that were taken.
 How the accountant is satisfied that the accountant has fulfilled the responsibility
PRESSURE TO BREACH THE FUNDAMENTAL PRINCIPLES (SECTION 270)
A CA shall not:
 Allow pressure from others to result in a breach of compliance with the fundamental
principles; or
 Place pressure on others that the accountant knows, or has reason to believe, would result
in the other individuals breaching the fundamental principles.
A CA might face pressure that creates threats to compliance with the fundamental principles.
Pressure might be explicit or implicit and might come from:
 Within the employing organization, for example, from a colleague or superior.
 An external individual or organization such as a vendor, customer or lender.
 Internal or external targets and expectations.
Examples of pressure that might result in threats include

 Pressure related to conflicts of interest:
- From a family member to act as a vendor.
 Pressure to influence preparation or presentation of information:
- Pressure to report misleading financial results to meet investor, analyst or lender
expectations.
- From elected officials on public sector accountants to misrepresent programs or
projects to voters.
- From colleagues to misstate income, expenditure or rates of return to bias decision-
making on capital projects and acquisitions.
- From superiors to approve or process expenditures that are not legitimate business
expenses.
- Pressure to suppress internal audit reports containing adverse findings.
 Pressure to act without sufficient expertise or due care:
- From superiors to inappropriately reduce the extent of work performed.
- From superiors to perform a task without sufficient skills or training or within
unrealistic deadlines.
 Pressure related to financial interests:
- From superiors, colleagues or others, e.g., those who might benefit from participation in
compensation or incentive arrangements to manipulate performance indicators.
 Pressure related to inducements:
- From others, either internal or external to the employing organization, to offer
inducements to influence inappropriately the judgment or decision making process of
an individual or organization.
- From colleagues to accept a bribe or other inducement, for example to accept
inappropriate gifts or entertainment from potential vendors in a bidding process.
 Pressure related to non-compliance with laws and regulations:
- Pressure to structure a transaction to evade tax.
Factors that are relevant in evaluating the level of threats created by pressure include:
 The intent of the individual who is exerting the pressure and the nature and extent of the
pressure.
 The application of laws, regulations, and professional standards to the circumstances.
 The culture and leadership of the employing organization including the extent to which they
reflect or emphasize the importance of ethical behavior and the expectation that employees
will act ethically.
 Policies and procedures, if any, that the employing organization has established, such as
ethics or human resources policies that address pressure.
Documentation
The CA is encouraged to document:

 The facts.
 The communications and parties with whom these matters were discussed.
 The courses of action considered.
 How the matter was addressed.
Mock (Summer 2018 Paper of ICAP) 527

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1.

Introduction to Companies Page 1

Ch # 1: Introduction to Company Law and Companies

Main Contents of the Chapter

Syllabus Area Covered by the chapter

A 1.1: Companies Act, 2017

Introduction of Companies Act 2017

Short title, extent and commencement (Sec 1)

 Name: Companies Act, 2017

Company law – 2(18)

Body corporate or Corporation – 2(9)

Application of Act to non-trading companies with purely provincial objects (Sec 3)

Act to override memorandum, articles, etc. (Sec 4)

Companies by virtue of registration

Company limited by shares – Sec 2(20)

Company limited by guarantee – Sec 2(19)

Unlimited company – Sec 2(71)

Additional provision as to companies limited by guarantee (Sec 45)

 A company limited by guarantee may have share capital.

Public and Private Companies

Public company – 2(52)

Holding company and subsidiary company

Holding company - 2(37)

Subsidiary company or Subsidiary - 2(68)

Wholly owned subsidiary” - 2(74)

Authorities under Companies Act 2017

Reference to the Court

 SECP commenced its operations on 1st January 1999.

Service of documents on SECP or registrar

A document or information may be served on SECP or registrar against an acknowledgement

Electronic document - 2(28)

Reg # 8 - Companies (General Provisions & Forms) Regulations, 2018

Power of registrar to call for information or explanation (Sec 254)

 Where registrar is of opinion that any information, explanation or document is necessary

Seizure of documents by registrar, inspector or investigation officer (Sec 255)

Further Retention / Freezing

Jurisdiction of the Court

Procedure of the Court

Written submissions to the court

Issuance of summons to respondents

Presentation of the case before court

Appeal to Supreme Court

Association not for profit (Sec 42 to 44)

Licence from SECP

 Licence may be granted if SECP is satisfied that:

Effect of revocation of licence

Main Contents of the Chapter

Syllabus Area Covered by the chapter

A 1.1: Companies Act, 2017

Mode of forming a company (Sec 14)

Obligation to register certain associations, partnerships as companies (Sec 9)

Prohibition of certain names (Sec 10)

Names which requires prior approval of SECP

 Prior approval of SECP required if name suggests

Application for reservation of a name

Publication of name by a limited company (Sec 22 to 24)

Every company shall:

Penalties for non-publication of name.

A penalty of level 1 be levied on following offences:

Publication of Logo on advertisement

Change and rectification of names and after effects

Rectification of name of a company (Sec 11)

Change of name by a company (Sec 12)

Dated the __day of , 20 _