Investments, contracts and dividends overview

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).
Main Contents of the Chapter
 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
Syllabus Area Covered by the chapter
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
Level of Completeness:
100%
5. Investments, contracts and Dividends Page 94
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

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5.

Investments, contracts and Dividends Page 93

Ch # 5: Investments, contracts and dividends

Investments in Associated companies or undertakings (Sec 199)

 No investment in Associated Co/undertakings except with Special Resolution

Additional requirements in case of loan

 Loans or advances shall be made in accordance with an agreement in writing approved by

 SECP may by notification in official Gazette, specify class of Co/undertakings** to which

Associated Companies and Associated Undertakings - Sec 2(4)

** Exemption from requirements of sec 199 by SECP

Companies (Investment in Associated Companies

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;

(B) General disclosures

Additional disclosures in case of equity investment

Additional disclosures in case of investments in form of loans, advances and guarantees

Other information to be disclosed to the members

RESTRICTIONS AND CONDITIONS (Reg # 5)

Scenario Conditions Applicable

Unless otherwise specifically authorised by members in general meeting, special resolution

MAINTENANCE OF REGISTER (Reg # 7)

Contents of register (as per Annexure)

 Name of associated company/undertaking

Other Rules of Investments

Investment of company to be held in its own name (sec 200)

Where any such shares/securities not held by it in its own name

Employees’ provident and other fund (Sec 218, 219)

Employees’ Contributory Fund (Investment in Listed Securities) Regulations, 2018

Limits for investment and other conditions (Reg 3, 4)

Type of Investment Limits at the time of making Other Conditions (Reg 4)

Other Conditions (Reg 4)

Mandatory submission regarding investments out of provident fund trust (Reg 5)

Year 2015 Year 2014

General provisions regarding Contracts

Method of contracting (Sec 201)

A contract or other enforceable obligation may be entered into by a company as follows:

Agent for Execution of deeds (Sec 202)

Contracts by agents of company in which company is undisclosed principal (sec 214)

Employees’ security deposits (Sec 218)

Moneys/securities deposited with company by its employees in pursuance of their contract:

Other Securities and deposits, etc. (sec 217, 219)

 No company, officer or agent shall receive or utilize securities / deposits except in

Prohibition on acceptance of deposits from public (Sec 84)

Restrictions on declaration of dividends (Sec 240, 241)

1st Schedule – Table A – Clause 73 (Capitalisation of Profits)

Payment of Dividend (Sec 242, 243)

<<<SECP Circulars >>>

Period for payment of dividend

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

Penalty for delay in payment on Chief Executive

 Up to 2 years imprisonment or Fine up to 5 Million Rupees or both

No offence deemed where

 Dividend not paid due to operation of law

Companies (Distribution of Dividends) Regulations, 2017

Period for making payment of dividends (Reg # 3)

Manner of payment of cash dividends (Reg # 4)

Company other than listed

 Company shall obtain cash dividend distribution mandate at time of becoming a