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THE COMPANIES ACT, 2017

An Act to reform and re-enact the law relating to companies and for matters connected therewith

[Gazette of Pakistan, Extraordinary, Part-I, 31st May, 2017]

\ACT NO. XIX OF 2017

No. F. 22(40)/2016-Legis.–The following Act of Majlis-e-Shoora (Parliament) received the assent of the President on the 30th May, 2017 is hereby published for general information:–

WHEREAS it is expedient to reform company law with the objective of facilitating corporatization and promoting development of corporate sector, encouraging use of technology and electronic means in conduct of business and regulation thereof, regulating corporate entities for protecting interests of shareholders, creditors, other stakeholders and general public, inculcating principles of good governance and safeguarding minority interests in corporate entities and providing an alternate mechanism for expeditious resolution of corporate disputes and matters arising out of or connected therewith;

It is hereby enacted as follows:–

 

PART I
PRELIMINARY

  1. Short title, extent and commencement. (1) This Act may be called the Companies Act, 2017.

(2)      It extends to the whole of Pakistan.

(3) This Act shall come into force at once, except Section 456 which shall come into force on such date as the Federal Government or an authority or person authorized by it may, by notification in the official Gazette, appoint.

  1. Definitions. (1) In this Act, unless there is anything repugnant in the subject or context,–

(1)      “advocate shall have the same meaning as assigned to it in Section 2 of the Legal Practitioners and Bar Councils Act, 1973 (XXXV of 1973);

(2)      “alter or “alteration includes making of additions or omissions without substituting or destroying main scheme of the document;

(3)      “articles mean the articles of association of a company framed in accordance with the company law or this Act;

(4)      “associated companies and “associated undertakings mean any two or more companies or undertakings, or a company and an undertaking, interconnected with each other in the following manner, namely:–

(a)      if a person who is owner or a partner or director of a company or undertaking, or who, directly or indirectly, holds or controls shares carrying not less than twenty percent of the voting power in such company or undertaking, is also the owner or partner or director of another company or undertaking, or directly or indirectly, holds or controls shares carrying not less than twenty percent of the voting power in that company or undertaking; or

(b)      if the companies or undertakings are under common management or control or one is the subsidiary of another; or

(c)      if the undertaking is a modaraba managed by the company;

          and a person who is the owner of or a partner or director in a company or undertaking or, who so holds or controls shares carrying not less than ten percent of the voting power in a company or undertaking, shall be deemed to be an “associated person” of every such other person and of the person who is the owner of or a partner or director in such other company or undertaking, or who so holds or controls such shares in such company or undertaking:

          Provided that–

(i)       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 the spouse or minor children of the person;

(ii)      directorship of a person or persons by virtue of nomination by concerned Minister-in-Charge of the Federal Government or as the case may be, a Provincial Government or a financial institution directly or indirectly owned or controlled by such Government or National Investment Trust; or

(iii)     directorship of a person appointed as an “independent director”; or

(iv)     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, where such shares are not beneficially owned by the central depository;

          shall not be taken into account for determining the status of a company, undertaking or person as an associated company, associated undertaking or associated person;

(5)      “authorised capital or “nominal capital means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company;

(6)      “banking company means a banking company as defined in clause (c) of Section 5 of the Banking Companies Ordinance, 1962 (LVII of 1962);

(7)      “beneficial ownership of shareholders or officer of a company” means 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 where “son” includes step-son and “daughter” includes step-daughter; and “minor” means a person under the age of eighteen years;

(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.

                   Explanation. For the purpose of this Act “substantial shareholder”, in relation to a company, means a person who has an interest in shares of a company–

(a)      the nominal value of which is equal to or more than ten per cent of the issued share capital of the company; or

(b)      which enables the person to exercise or control the exercise of ten per cent or more of the voting power at a general meeting of the company;

(8)      “board”, in relation to a company, means board of directors of the company;

(9)      “body corporate or “corporation includes–

(a)      a company incorporated under this Act or company law; or

(b)      a company incorporated outside Pakistan, or

(c)      a statutory body declared as body corporate in the relevant statute, but does not include–

(i)       a co-operative society registered under any law relating to cooperative societies; or

(ii)      any other entity, not being a company as defined in this Act or any other law for the time being which the concerned Minister-in-Charge of the Federal Government may, by notification, specify in this behalf;

(10)    “book and paper” and “book or paper includes books of account, cost accounting records, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form;

(11)    “books of account 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;

(12)    “central depository shall have the same meaning as assigned to it under the Securities Act, 2015 (III of 2015);

(13)    “chartered accountant shall have the same meaning as assigned to it under the Chartered Accountants Ordinance, 1961 (X of 1961);

(14)    “chief executive”, 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;

(15)    “chief financial officer means an individual appointed to perform such functions and duties as are customarily performed by a chief financial officer;

(16)    “Commission shall have the same meaning as assigned to it under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);

(17)    “company means a company formed and registered under this Act or the company law;

(18)    “company law means 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;

(19)    “company limited by guarantee means a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up;

(20)    “company limited by shares means a company; having the liability of its members limited by the memorandum to the extent of amount, if any, remaining unpaid on the shares respectively held by them;

(21)    “company secretary means any individual appointed to perform secretarial and other duties customarily performed by a company secretary and declared as such, having such qualifications and experience, as may be specified;

(22)    “cost and management accountant shall have the same meaning as assigned to it under the Cost and Management Accountants Act, 1966 (XIV of 1966);

(23)    “Court means a Company Bench of a High Court having jurisdiction under this Act;

(24)    “debenture includes debenture stock, bonds, term finance certificate or any other instrument of a company evidencing a debt, whether constituting a mortgage or charge on the assets of the company or not;

(25)    “director includes any person occupying the position of a director, by whatever name called;

(26)    “document 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;

(27)    “e-service means any service or means provided by the Commission for the lodging or filing of electronic documents;

(28)    “electronic document includes documents in any electronic form and scanned images of physical documents;

(29)    “employees’ stock option means the option given to the 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;

(30)    “expert includes an engineer, a valuer, an actuary, a chartered accountant or a cost and management accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force or any other person notified as such by the Commission; (31) “financial institution” includes–

(a)      any company whether incorporated within or outside Pakistan which transacts the 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 the concerned Minister-in-Charge of the Federal Government may by notification in the official Gazette, specify;

(32)    “financial period in relation to a company or any other body corporate, means the period (other than financial year) in respect of which any financial statements thereof are required to be made pursuant to this Act;

(33)    “financial statements in relation to a company, includes–

(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;

(34)    “financial year in relation to a company or any other body corporate, means 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;

(35)    “foreign company means any company or body corporate incorporated outside Pakistan, which–

(a)      has a place of business or liaison office in Pakistan whether by itself or through an agent, physically or through electronic mode; or

(b)      conducts any business activity in Pakistan in any other manner as may be specified;

(36)    “Government includes Federal Government or, as the case may be, Provincial governments unless otherwise expressly provided in this Act;

(37)    “holding company, means a company which is another company’s holding company if, but only if, that other company is its subsidiary;

(38)    “listed company means a public company, body corporate or any other entity whose securities are listed on securities exchange;

(39)    “listed securities means securities listed on the securities exchange;

(40)    “memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of company law or of this Act;

(41)    “modaraba” and “modaraba company shall have the same meaning as assigned to it in the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(42)    “mortgage or charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security;

(43)    “net worth means the amount by which total assets exceed total liabilities;

(44)    “notification means a notification published in the official Gazette and the expression “notify” shall be construed accordingly;

(45)    “officer includes any director, chief executive, chief financial officer, company secretary or other authorised officer of a company;

(46)    “ordinary resolution means 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;

(47)    “postal ballot” means voting by post or through any electronic mode:

                   Provided that voting through postal ballot shall be subject to the provision in the articles of association of a company, save as otherwise provided in this Act;

(48)    “prescribed means prescribed by rules made by the Federal Government under this Act;

(49)    “private company means a company which, by its articles–

(a)      restricts the right to transfer its shares;

(b)      limits the number of its members to fifty not including persons who are in the employment of the company; and

(c)      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;

(50)    “promoter means a person–

(a)      who is named as a subscriber to the memorandum of association of a company; or

(b)      who has been named as such in a prospectus; or

(c)      who has control over affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(d)      in accordance with whose advice, directions or instructions the board of the company is accustomed to act:

          Provided that–

(i)       nothing in sub-clause (d) shall apply to a person who is acting merely in a professional capacity; and

(ii)      nothing contained in sub-clause (d) shall apply to the Commission, 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;

(51)    “prospectus shall have the same meaning as assigned to it under the Securities Act, 2015 (III of 2015);

(52)    “public company means a company which is not a private company;

(53)    “public interest company means a company which falls under the criteria as laid down in the Third Schedule to this Act or deemed to be such company under Section 216;

(54)    “public sector company means a company, whether public or private, which is directly or indirectly controlled, beneficially owned or not less than fifty-one percent of the voting securities or voting power of which are held by the Government or any agency of the Government or a statutory body, or in respect of which the Government or any agency of the Government or a statutory body, has otherwise power to elect, nominate or appoint majority of its directors and includes a public sector association not for profit, licenced under Section 42:

                   Provided that nomination of directors by the Commission 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;

(55)    “redeemable capital 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 concerned Minister-in-Charge of the Federal Government may, by notification in the official Gazette, specify for the purpose;

                   Explanation. “sukuk” represents redeemable investment in certificates of equal nominal value representing undivided shares in ownership of tangible assets of a particular project or specific investment activity, usufruct and services;

(56)    “register of companies means the register of companies maintained by the registrar on paper or in any electronic form under this Act;

(57)    “registrar” means 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 the Commission, performing duties and functions under this Act;

(58)    “regulations means the regulations made by the Commission under this Act;

(59)    “rules means rules made by the Federal Government under this Act;

(60)    “scheduled bank shall have the same meaning as assigned to it under the State Bank of Pakistan Act, 1956 (XXXIII of 1956);

(61)    “securities include the securities as provided in sub-clauses (a) to (i) of clause (lii) of Section 2 of the Securities Act, 2015 (III of 2015) whether listed or not;

(62)    “securities exchange means a public company licenced by the Commission as a securities exchange under the Securities Act, 2015 (III of 2015);

(63)    “share means a share in the share capital of a company;

(64)    “Shariah compliant company” means a company which is conducting its business according to the principles of Shariah;

(65)    “single member company means a company which has only one member;

(66)    “special resolution means a resolution which has been passed by a majority of not less than three-fourths of such members of the company entitled to vote as are present in person or by proxy or vote through postal ballot at a general meeting of which not less than twenty-one 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 than twenty-one days notice has been given;

(67)    “specified” means specified through regulations made under this Act;

(68)    “subsidiary company or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company–

(a)      controls the composition of the board; or

(b)      exercises or controls more than one-half of its voting securities either by itself or together with one or more of its subsidiary companies:

                   Provided that such class or classes of holding companies shall not have layers of subsidiaries beyond such numbers, as may be notified,

        Explanation. For the purposes of this clause–

(i)       a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (a) or sub-clause (b) is of another subsidiary company of the holding company;

(ii)      the composition of a company’s board shall be deemed to be controlled by another company if that other company by exercise of power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(iii)     the expression “company” includes any body corporate;

(iv)     “layer” in relation to a holding company means its subsidiary or subsidiaries;

(69)    “Table means Table in a Schedule to this Act;

(70)    “turnover means the aggregate value of sale, supply or distribution of goods or on account of services rendered, or both, net of discounts, if any, held by the company during a financial year;

(71)    “unlimited company means a company not having any limit on the liability of its members;

(72)    “valuer means a valuer registered with the Commission;

(73)    “voting right means the right of a member of a company to vote on any matter in a meeting of the company either present in person or through video-link or by proxy or by means of postal ballot:

(74)    “wholly owned subsidiary a company shall be deemed to be a wholly owned subsidiary of another company or the statutory body if all its shares are owned by that other company or the statutory body.

(2) The words and expressions used and not defined in this Act but defined in the Securities Act, 2015 (III of 2015) or the Securities and Exchange Commission of Pakistan Act, 1997(XLII of 1997) or the Central Depositories Act, 1997 (XIX of 1997) shall have the meanings respectively assigned to them in those Acts.

  1. Application of Act to non-trading companies with purely provincial objects. (1) The powers conferred by this Act on the concerned Minister-in-Charge of the Federal Government or the Commission, in relation to companies which are not trading corporations and the objects of which are confined to a single Province, may be exercised by the Minister-in-Charge of the Provincial Government:

Provided that where the licence is issued by the Provincial Government or, as the case may be, its concerned Minister-in-Charge, in exercise of the powers conferred by this section, the company shall mention this fact in all its documents.

(2) A non-trading corporation formed under sub-section (1) extending its operational activities beyond the territorial limits of its respective province shall be liable to a penalty of level 3 on the standard scale and be wound up on the application by the Commission.

  1. Act to override. Save as otherwise expressly provided herein–

(a)      the provisions of this Act shall have effect notwithstanding anything contained in any other law or the memorandum or articles of a company or in any contract or agreement executed by it or in any resolution passed by the company in general meeting or by its directors, whether the same be registered, executed or passed, as the case may be, before or after the coming into force of the said provisions; and

(b)      any provision contained in the memorandum, articles, contract, agreement, arrangement or resolution aforesaid shall, to the extent to which it is repugnant to the aforesaid provisions of this Act, become, or be, void, as the case may be.

PART II
JURISDICTION OF COURT

  1. Jurisdiction of the Court and creation of Benches. (1) The Court having jurisdiction under this Act shall be the High Court having jurisdiction in the place at which the registered office of the company is situate.

(2) Notwithstanding anything contained in any other law no civil Court as provided in the Code of Civil Procedure, 1908 (Act V of 1908) or any other Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Court is empowered to determine by or under this Act.

(3) For the purposes of jurisdiction to wind up companies, the expression “registered office” means the place which has longest been the registered office of the company during the one hundred and eighty days immediately preceding the presentation of the petition for winding up.

(4) There shall be, in each High Court, one or more benches on permanent basis, each to be known as the Company Bench, to be constituted by the Chief Justice of the High Court to exercise the jurisdiction vested in the High Court under this Act:

Provided that Benches constituted under the Companies Ordinance, 1984 (XLVII of 1984), shall continue to function accordingly unless otherwise notified by the respective Chief Justice of the High Court:

Provided further that provisions of Section 6 shall be effective from the date of notification by the Chief Justice of the respective High Court within one hundred and eighty days from the date of the commencement of this Act.

(5) There shall be a Registrar to be known as “Registrar of the Company Bench” duly notified by the Chief Justice of the respective High Court who shall be assisted by such other officers as may be assigned by the Chief Justice of the respective High Court.

(6) The Registrar of the Company Bench shall perform all the functions assigned to it under this Act including all ministerial and administrative business of the Company Bench such as the receipt of petitions, applications, written replies, issuance of notices, service of summons and such other functions or duties as may be prescribed under Section 423.

(7) The Chief Justice of the respective High Court, if deemed appropriate, may also establish a secretariat in each Company Bench of the respective High Court in such form and manner to provide secretarial support and to perform such functions as may be prescribed under Section 423.

  1. Procedure of the Court and appeal. (1) Notwithstanding anything contained in any other law for the time being in force all written submissions to the Court under this Act shall be filed with the Registrar of the Company Bench.

(2) For the purposes of this Act, written submissions shall, inter alia, include–

(a)      a petition or application setting out a concise statement of facts, grounds and the relief claimed;

(b)      a written reply with particulars of set off, if any;

(c)      an affidavit of facts by the petitioner or applicant, or respondent, as the case may be, including affidavits, if required, of other persons in support of the case, duly attested by the oath commissioner, or as may be provided under the rules;

(d)      any other relevant documents in possession of the petitioner or applicant or respondent, as the case may be;

(e)      any application for discovery of documents or interim injunction, if required;

(f)       a list of any case law along with a summary of the same on which the petitioner or applicant is placing reliance;

(g)      address for effecting service, mobile number, email and fax or any other mode notified by the Court; and

(h)      any other document as may be required by the Registrar of the Company Bench.

(3) Where any petition or application is filed under any provision of this Act, summons may be issued by the Registrar of the Company Bench along with a copy of the petition or application and the documents annexed therewith and the same shall be served on the respondent through the bailiff or process- server of the Court, through registered post, acknowledgement due, by courier and by publication in one English language and one Urdu language daily newspaper and, in addition, if so directed by the Court through electronic modes, and the service duly effected through any one of the modes mentioned under this sub-section shall be deemed to be valid service.

Explanation. “electronic modes” means service of summons on a party or other person by electronic transmission through devices such as, facsimile, email, or in such other form or mode as may be notified by the Court.

(4) The respondent shall file a written reply and particulars of set-off, if any, as set out in sub-section (2) of this section with the concerned Registrar of the Company Bench within thirty days from the date of first service through any of the modes as laid down in sub-section (3).

(5) Where the respondent fails to file the written reply within the time prescribed in sub-section (4), a report shall be submitted by the Registrar of the Company Bench before the Court and the Court may pass necessary orders to proceed exparte and announce the final order on the basis of the documents available on record.

(6) The Registrar of the Company Bench, on completion of receipt of all written submissions and after ensuring that all copies of such written submissions are duly supplied to the parties as per procedure laid down by the Court, shall present the case file to the Court on a day fixed under notice to the parties, within forty-five days of the first service of notices or such extended time as may be granted by the Court.

(7) The Court after consulting the counsel of the parties shall fix a date and allocate time for hearing of the case.

(8) No adjournment shall be granted once the Court has fixed a date of hearing under sub-section (7) and it will be duty of the parties to ensure the presence of their respective counsel or in absence of the counsel make alternate arrangements:

Provided that only in exceptional circumstances beyond control of a party, the Court may grant another opportunity of hearing subject to the payment of an amount of rupees ten thousand or such higher amount as may be determined by the Court as costs to be paid to the Court.

(9) The Court shall treat affidavits, counter affidavits and other documents filed by the parties to the proceedings as evidence and decide the matter on the basis of the documents and affidavits placed before the Court, in a summary manner and pass final orders within the time stipulated in sub-section (11).

(10) In exceptional circumstances where the Court is of the view that any issue of facts requires cross examination, the Court may order attendance of the relevant deponent or deponents for the purposes of cross examination by such opposing party or parties as the Court deems fit and for the purposes of this section the affidavit filed by such deponent shall be considered as his examination-in-chief:

Provided that–

(i)       the Court may refer the matter to the Registrar of the Company Bench or any other person for recording of cross examination of the deponent who shall complete recording of cross examination within thirty days from the date of the order of the Court, or such extended time as may be allowed by the Court which shall not be more than fifteen days on payment of rupees ten thousand or such higher amount as may be determined by the Court as costs payable to the Court and to submit a report accordingly;

(ii)      all questions and answers along with any objections raised by any party shall be duly recorded in writing; and

(iii)     the Registrar of the Company Bench shall have all the powers of the Civil Court under the Code of Civil Procedure, 1908 (V of 1908) for the purposes of execution of service and summoning of deponents and conducting cross examination in accordance with the directions of the Court.

(11) The petition presented before the Court shall be decided within a period of one hundred and twenty days from the date of presentation of the case and for this purpose the Court may, if it is in the interest of justice, conduct the proceedings on a day to day basis and if the Court deems fit it may impose costs which may extend to one hundred thousand rupees per day or such higher amount as the Court may determine against any party to the proceeding causing the delay.

(12) The Court may, at any time, take notice of serious misstatements and material non-disclosure of facts by any party to the proceedings and dismiss the petition or application or close the right of defence of the respondent with costs of the proceedings and impose a fine which may extend to one hundred thousand rupees whichever is higher and pass a final order.

(13) Notwithstanding anything contained in this section, the Registrar of the Company Bench shall place any application for interim relief including any interlocutory order before the Court for adjudication immediately upon its filing.

(14) Any person aggrieved by any judgment or final order of the Court passed in its original jurisdiction under this Act may, within sixty days, file a petition for leave to appeal in the Supreme Court of Pakistan:

Provided that no appeal or petition shall lie against any interlocutory order of the Court.

(15) Save as otherwise expressly provided under this Act, the provisions of the Qanun-e-Shahadat (Order)1984 (P.O. No. X of 1984) and the Code of Civil Procedure, 1908 (Act V of 1908) shall not apply to the proceedings under this section except to such extent as the Court may determine in its discretion.

PART III
POWERS AND FUNCTIONS OF THE SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

  1. Powers and functions of the Commission. (1) The Commission shall exercise such powers and perform such functions as are conferred on it by or under this Act.

(2) The powers and functions of the Commission under this Act shall be in addition to and not in derogation to the powers and functions of the Commission under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).

  1. Reference by the Federal Government or Commission to the Court. (1) Without prejudice to the powers, jurisdiction and authority exercisable by the concerned Minister-in-Charge of the Federal Government or any functionary thereof or the Commission under this Act, the concerned Minister-in-Charge of the Federal Government or the Commission, as the case may be, may make a reference to the Court, on any question or matter which is considered to be of special significance requiring orders, determination or action concerning affairs of a company or class of companies or any action of any officer thereof.

Explanation. In this sub-section “officer” includes an auditor, liquidator or agent of the company.

(2) Where a reference is made to the Court under sub-section (1), the Court may make such order as it may deem just and equitable under the circumstances.

PART IV
INCORPORATION OF COMPANIES AND MATTERS INCIDENTAL THERETO

  1. Obligation to register certain associations, partnerships as companies. (1) No association, partnership or entity consisting of more than twenty persons shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association, partnership or entity, or by the individual members thereof, unless it is registered as a company under this Act and any violation of this section shall be an offence punishable under this section.

(2) A person guilty of an offence under this section shall be liable to a penalty not exceeding of level 1 on the standard scale and also be personally liable for all the liabilities incurred in such business.

(3)      Nothing in this section shall apply to–

(a)      any society, body or association, other than a partnership, formed or incorporated under any law for the time being in force in Pakistan; or

(b)      a joint family carrying on joint family business; or

(c)      a partnership of two or more joint families where the total number of members of such families, excluding the minor members, does not exceed twenty; or

(d)      a partnership formed to carry on practice as lawyers, accountants or any other profession where practice as a limited liability company is not permitted under the relevant laws or regulations for such practice.

PROVISIONS WITH RESPECT TO NAMES OF COMPANIES

  1. Prohibition of certain names. (1) No company shall be registered by a name which contains such word or expression, as may be notified by the Commission or in the opinion of the registrar is–

(a)      identical with or resemble or similar to the name of a company; or

(b)      inappropriate; or

(c)      undesirable; or

(d)      deceptive; or

(e)      designed to exploit or offend religious susceptibilities of the people; or

(f)       any other ground as may be specified.

(2) Except with prior approval in writing of the Commission, no company shall be registered by a name which contains any word suggesting or calculated to suggest–

(a)      the patronage of any past or present Pakistani or foreign head of state;

(b)      any connection with the Federal Government or a Provincial Government or any department or authority or statutory body of any such Government;

(c)      any connection with any corporation set up by or under any Federal or Provincial law;

(d)      the patronage of, or any connection with, any foreign Government or any international organisation;

(e)      establishing a modaraba management company or to float a modaraba; or

(f)       any other business requiring licence from the Commission.

(3) Whenever a question arises as to whether or not the name of a company is in violation of the foregoing provisions of this section, decision of the Commission shall be final.

(4) A person may make an application, in such form and manner and accompanied by such fee as may be specified, to the registrar for reservation of a name set out in the application for a period not exceeding sixty days.

(5) Where it is found that a name was reserved under sub-section (4), by furnishing false or incorrect information, such reservation shall be cancelled and in case the company has been incorporated, it shall be directed to change its name. The person making application under sub-section (4) shall be liable to a penalty not exceeding level 1 on the standard scale.

(6) If the name applied for under sub-section (4) is refused by the registrar, the aggrieved person may within thirty days of the order of refusal prefer an appeal to the Commission.

(7) An order of the Commission under sub-section (6) shall be final and shall not be called in question before any Court or other authority.

  1. Rectification of name of a company. (1) A company which, through inadvertence or otherwise, is registered by a name in contravention of the provisions of Section 10 or the name was obtained by furnishing false or incorrect information–

(a)      may, with approval of the registrar, change its name; and

(b)      shall, if the registrar so directs, within thirty days of receipt of such direction, change its name with approval of the registrar:

                   Provided that the registrar shall, before issuing a direction for change of the name, afford the company an opportunity to make representation against the proposed direction.

(2) If the company fails to report compliance with the direction issued under sub-section (1) within the specified period, the registrar may enter on the register a new name for the company selected by him, being a name under which the company may be registered under this Act and issue a certificate of incorporation on change of name for the purpose of Section 13.

(3) If a company makes default in complying with the direction issued by the registrar under sub-section (1) or continue using previous name after the name has been changed by the registrar under sub-section (2), shall be liable to a penalty of level 1 on the standard scale.

  1. Change of name by a company. A company may, by special resolution and with approval of the registrar signified in writing, change its name:

Provided that no approval under this section shall be required where the change in the name of a company is only the addition thereto, or the omission therefrom, of the expression “(Private)” or “(SMC-Private)” or “(Guarantee) Limited” or “Limited” or “Unlimited”, as the case may be, consequent upon the conversion of the status of a company in accordance with the provisions of Sections 46 to 49.

  1. Registration of change of name and effect thereof. (1) Where a company changes its name the registrar shall enter the new name on the register in place of the former name, and shall issue a certificate of incorporation altered to meet the circumstances of the case and, on the issue of such a certificate, the change of name shall be complete.

(2) Where a company changes its name it shall, for a period of ninety days from the date of issue of a certificate by the registrar under sub-section (1), continue to mention its former name along with its new name on the outside of every office or place in which its business is carried on and in every document or notice referred to in Section 22.

(3) The change of name shall not affect any rights or obligations of the company, or render defective any legal proceedings by or against the company and any legal proceedings that might have been continued or commenced against the company by its former name may be continued by or commenced against the company by its new name.

  1. Mode of forming a company. (1) Any–

(a)      three or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and complying with the requirements of this Act in respect of registration, form a public company; or

(b)      two or more persons so associated may in the like manner form a private company; or

(c)      one person may form a single member company by complying with the requirements in respect of registration of a private company and such other requirement as may be specified. The subscriber to the memorandum shall nominate a person who in the event of death of the sole member shall be responsible to–

(i)       transfer the shares to the legal heirs of the deceased subject to succession to be determined under the Islamic law of inheritance and in case of a non-Muslim members, as per their respective law; and

(ii)      manage the affairs of the company as a trustee, till such time the title of shares are transferred:

                   Provided that where transfer by virtue of this sub-section is made to more than one legal heir, the company shall cease to be a single member company and comply with the provisions of Section 47.

(2) A company formed under this section may be a company with or without limited liability, that is to say–

(a)      a company limited by shares; or

(b)      a company limited by guarantee; or

(c)      an unlimited company.

  1. Liability for carrying on business with less than three or, in the case of a private company, two members. If at any time the number of members of a company is reduced, in the case of a private company other than a single member company, below two or in the case of any other company, below three and the company carries on business for more than one hundred and eighty days while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those one hundred and eighty days and is cognizant of the fact that it is carrying on business with fewer than two members or three members, as the case may be, shall be severally liable for payment of whole debts of the company contracted during that time and may be sued therefor without joinder in the suit of any other member.

GENERAL PROVISIONS WITH RESPECT TO REGISTRATION OF MEMORANDUM AND ARTICLES

  1. Registration of memorandum and articles. (1) There shall be filed with the registrar an application on the specified form containing the following information and documents for incorporation of a company, namely:–

(a)      a declaration on the specified form, by an authorized intermediary or by a person named in the articles as a director, of compliance with all or any of the requirements of this Act and the rules and regulations made thereunder in respect of registration and matters precedent or incidental thereto;

(b)      memorandum of association of the proposed company signed by all subscribers, duly witnessed and dated;

(c)      there may, in the case of a company limited by shares and there shall, in the case of a company limited by guarantee or an unlimited company, be the articles of association signed by the subscribers duly witnessed and dated; and

(d)      an address for correspondence till its registered office is established and notified.

(2) Where the registrar is of the opinion that any document or information filed with him in connection with the incorporation of the company contains any matter contrary to law or does not otherwise comply with the requirements of law or is not complete owing to any defect, error or omission or is not properly authenticated, the registrar may either require the company to file a revised document or remove the defects or deficiencies within the specified period.

(3) Where the applicant fails under sub-section (2) to remove the deficiencies conveyed within the specified period, the registrar may refuse registration of the company.

(4) If the registrar is satisfied that all the requirements of this Act and the rules or regulations made thereunder have been complied with, he shall register the memorandum and other documents delivered to him.

(5) On registration of the memorandum of a company, the registrar shall issue a certificate that the company is incorporated.

(6)      The certificate of incorporation shall state–

(a)      the name and registration number of the company;

(b)      the date of its incorporation;

(c)      whether it is a private or a public company;

(d)      whether it is a limited or unlimited company; and

(e)      if it is limited, whether it is limited by shares or limited by guarantee.

(7) The certificate under sub-section (5) shall be signed by the registrar or authenticated by the registrar’s official seal.

(8) The certificate under sub-section (5) shall be conclusive evidence that the requirements of this Act as to registration have been complied with and that the company is duly registered under this Act.

(9) If registration of the memorandum is refused, the subscribers of the memorandum or any one of them authorised by them in writing may, within thirty days of the order of refusal, prefer an appeal to the Commission.

(10) An order of the Commission under sub-section (9) shall be final and shall not be called in question before any Court or other authority.

  1. Effect of memorandum and articles. (1) The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member, his heirs and legal representatives, to observe and be bound by all the provisions of the memorandum and of the articles, subject to the provisions of this Act.

(2) All moneys payable by a subscriber in pursuance of his undertaking in the memorandum of association against the shares subscribed shall be a debt due from him and be payable in cash within thirty days from the date of incorporation of the company:

Provided that in case the share money is not deposited within the prescribed time, the shares shall be deemed to be cancelled and the name of that subscriber shall be removed from the register and the registrar shall give such direction to the company in each case as deemed appropriate for compliance with the provisions of the company law.

(3) The receipt of subscription money from the subscribers shall be reported by the company to the registrar on a specified form within forty-five days from the date of incorporation of the company, accompanied by a certificate by a practicing chartered accountant or a cost and management accountant verifying receipt of the money so subscribed.

(4)      Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Effect of registration. The registration of the company has the following effects, as from the date of incorporation–

(a)      the subscribers to the memorandum, together with such other persons as may from time to time become members of the company, are a body corporate by the name stated in the certificate of incorporation;

(b)      the body corporate is capable of exercising all the functions of an incorporated company, having perpetual succession and a common seal;

(c)      the status and registered office of the company are as stated in, or in connection with, the application for registration;

(d)      in case of a company having share capital, the subscribers to the memorandum become holders of the initial shares; and

(e)      the persons named in the articles of association as proposed directors, are deemed to have been appointed to that office.

COMMENCEMENT OF BUSINESS BY A PUBLIC COMPANY

  1. Commencement of business by a public company. (1) A public company shall not start its operations or exercise any borrowing powers unless–

(a)      shares held subject to payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription and the money has been received by the company;

(b)      every director of the company has paid to the company full amount on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash;

(c)      no money is or may become liable to be repaid to applicants for any shares which have been offered for public subscription;

(d)      there has been filed with the registrar a duly verified declaration by the chief executive or one of the directors and the secretary in the specified form that the aforesaid conditions have been complied with; and

(e)      in the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been filed with the registrar a statement in lieu of prospectus as per the Second Schedule annexed to this Act.

               Explanation. “minimum subscription” means the amount, if any, fixed by the memorandum or articles of association as minimum subscription upon which the directors may proceed to allotment or if no amount is so fixed and specified, the whole amount of the share capital other than that issued or agreed to be issued as paid up otherwise than in cash.

(2) The registrar shall, on filing of a duly verified declaration in accordance with the provisions of sub-section (l) and after making such enquiries as he may deem fit to satisfy himself that all the requirements of this Act have been complied with in respect of the commencement of business and matters precedent and incidental thereto, accept and register all the relevant documents.

(3) The acceptance and registration of documents under sub-section (2) shall be a conclusive evidence that the company is entitled to start its operations and exercise any borrowing powers.

(4)      Nothing in this section shall apply–

(a)      to a company converted from private to a public;

(b)      to a company limited by guarantee and not having a share capital.

  1. Consequences of non-compliance of Section 19.   (1) If any company starts its business operations or exercises borrowing powers in contravention of Section 19, every officer or other person who is responsible for contravention shall without prejudice to other liabilities be liable to a penalty not exceeding level 2 on the standard scale.

(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 and on that date it shall become binding.

REGISTERED OFFICE AND PUBLICATION OF NAME

  1. Registered office of company. (1) A company shall have a registered office to which all communications and notices shall be addressed and within a period of thirty days of its incorporation, notify to the registrar in the specified manner.

(2) Notice of any change in situation of the registered office shall be given to the registrar in a specified form within a period of fifteen days after the date of change:

Provided that the change of registered office of a company from–

(a)      one city in a Province to another; or

(b)      a city to another in any part of Pakistan not forming part of a Province;

shall require approval of general meeting through special resolution.

(3) If a company fails to comply with the requirements of sub-section (1) or (2), the company and its every officer who is responsible for such non- compliance shall be liable to a penalty not exceeding of level 1 on the standard scale.

  1. Publication of name by a company. Every company shall–

(a)      display in a conspicuous position, in letters easily legible in English or Urdu characters its name and incorporation number outside the registered office and every office or the place in which its business is carried on;

(b)      display a certified copy of certificate of incorporation at every place of business of the company;

(c)      get its name, address of its registered office, telephone number, fax number, e-mail and website addresses, if any, printed on letter-head and all its documents, notices and other official publications; and

(d)      have its name mentioned in legible English or Urdu characters, in all bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company and in all bills of parcels, invoices, receipts and letters of credit of the company.

  1. Company to have common seal. (1) Every company shall have a common seal.

(2) A company’s common seal must be a seal having the company’s name engraved on it in legible form.

(3) If any of the provision of this section is contravened or an officer of a company or a person on behalf of a company uses or authorises the use of another seal that purports to be the company’s common seal, shall be liable to a penalty not exceeding of level 1 on the standard scale.

  1. Penalties for non-publication of name. (1) If a company does not display its name in the manner provided for by this Act, it shall be liable to a penalty not exceeding level 1 on the standard scale and every officer of the company who authorises or permits the default shall be liable to the like penalty.

(2) If any officer of a limited company issues or authorises the issue of any bill-head, letter paper, document, notice or other official publication of the company, or signs or authorises to be signed on behalf of the company any bill of exchange, promissory note, endorsement, cheque or order for money or goods, or issues or authorises to be issued any bill of parcels, invoice, receipt or letter of credit of the company, wherein its name is not mentioned in the manner aforesaid, he shall be liable to a penalty not exceeding of level 1 on the standard scale and shall further be personally liable to the holder of any such bill of exchange, promissory note or order for money or goods, for the amount thereof unless the same is duly paid by the company.

  1. Publication of authorised as well as paid-up capital. (1) Where any notice, advertisement or other official publication of a company contains a statement of amount of authorised capital of the company, such notice, advertisement or other official publication shall also contain a statement in an equally prominent position and in equally conspicuous characters of amount of the paid up capital.

(2) Any company which makes default in complying with the requirements of sub-section (1) and every officer of the company who is party to the default shall be liable to a penalty not exceeding of level 1 on the standard scale.

  1. Business and objects of a company. (1) A company may carry on or undertake any lawful business or activity and do any act or enter into any transaction being incidental and ancillary thereto which is necessary in attaining its business activities:

Provided that–

(i)       the principal line of business of the company shall be mentioned in the memorandum of association of the company which shall always commensurate with name of the company; and

(ii)      any change in the principal line of business shall be reported to the registrar within thirty days from the date of change, on the form as may be specified and registrar may give direction of change of name if it is in violation of this section.

Explanation. “principal line of business” means the business in which substantial assets are held or likely to be held or substantial revenue is earned or likely to be earned by a company, whichever is higher.

(2)      A company shall not engage in a business which is–

(a)      prohibited by any law for the time being in force in Pakistan; or

(b)      restricted by any law, rules or regulations, unless necessary licence, registration, permission or approval has been obtained or compliance with any other condition has been made:

                   Provided nothing in sub-section (1) shall be applicable to the extent of such companies.

MEMORANDUM AND ARTICLES OF ASSOCIATION

  1. Memorandum of company limited by shares. In the case of a company limited by shares–

(A)     the memorandum shall state–

(i)       the name of the company with the word “Limited” as last word of the name in the case of a public limited company, the parenthesis and words “(Private) Limited” as last words of the name in the case of a private limited company, and the parenthesis and words “(SMC-Private) Limited” as last words of the name in the case of a single member company;

(ii)      the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the registered office of the company is to be situate;

(iii)     principal line of business:

Provided that–

(a)      the existing companies shall continue with their existing memorandum of association and the object stated at serial number 1 of the object clause shall be treated as the principal line of business;

(b)      if the object stated at serial number 1 of the object clause is not the principal line of business of the company, it shall be required to intimate to the registrar their principal line of business within such time from commencement of this Act and in the form as may be specified. A revised copy of the memorandum of association indicating therein its principal business at serial number 1 of the object clause shall also be furnished to the registrar; and

(c)      the existing companies or the 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 thereunder;

(iv)     an undertaking as may be specified;

(v)      that the liability of the members is limited; and

(vi)     the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount;

(B)     no subscriber of the memorandum shall take less than one share; and

(C)     each subscriber of the memorandum shall write opposite to his name the number of shares he agrees to take.

  1. Memorandum of company limited by guarantee. (1) In the case of a company limited by guarantee the memorandum shall state–

(a)      the name of the company with the parenthesis and words “(Guarantee) Limited” as last words of its name;

(b)      the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the registered office of the company is to be situate;

(c)      principal line of business:

Provided that–

(i)       the existing companies shall continue with their existing memorandum of association and the object stated at serial number 1 of the object clause shall be treated as the principal line of business;

(ii)      if the object stated at serial number 1 of the object clause is not the principal line of business of the company, it shall be required to intimate to the registrar their principal line of business within such time from the commencement of this Act and in the form as may be specified. A revised copy of the memorandum of association indicating therein its principal business at serial number 1 of the object clause shall also be furnished to the registrar; and

(iii)     the existing companies or the 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;

(d)      an undertaking as may be specified;

(e)      that the liability of the members is limited; and

(f)       such amount as may be required, not exceeding a specified amount that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year afterwards for payment of the debts and liabilities of the company contracted before he ceases to be a member and of the costs, charges and expenses of winding up and for adjustment of rights of the contributories among themselves.

(2) If the company has a share capital, the memorandum shall also state the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount and the number of shares taken by each subscriber.

  1. Memorandum of unlimited company. In the case of an unlimited company the memorandum shall state–

(a)      the name of the company with the word “Unlimited” as last words of its name;

(b)      the Province or the part of Pakistan not forming part of a Province, as the case may be, in which registered office of the company is to be situate;

(c)      principal line of business:

Provided that–

(i)       the existing companies shall continue with their existing memorandum of association and the object stated at serial number 1 of the object clause shall be treated as the principal line of business;

(ii)      if the object stated at serial number 1 of the object clause is not the principal line of business of the company, it shall be required to intimate to the registrar their principal line of business within such time from the commencement of this Act and in the form as may be specified. A revised copy of the memorandum of association indicating therein its principal business at serial number 1 of the object clause shall also be furnished to the registrar; and

(iii)     the existing companies or the 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

(d)      an undertaking as may be specified;

(e)      that the liability of the members is unlimited.

(2) If the company has a share capital, the memorandum shall also state the amount of share capital with which the company proposes to be registered and the number of shares taken by each subscriber.

  1. Borrowing powers to be part of memorandum. Notwithstanding anything contained in this Act or in any other law for the time being in force or the memorandum and articles, the memorandum and articles of a company shall be deemed to include and always to have included the power to enter into any arrangement for obtaining loans, advances, finances or credit, as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and to issue other securities not based on interest for raising resources from a scheduled bank, a financial institution or general public.
  2. Memorandum to be printed, signed and dated. The memorandum shall be–

(a)      printed in the manner generally acceptable;

(b)      divided into paragraphs numbered consecutively;

(c)      signed by each subscriber, who shall add his present name in full, his occupation and father’s name or, in the case of a married woman or widow, her husband’s or deceased husband’s name in full, his nationality and his usual residential address and such other particulars as may be specified, in the presence of a witness who shall attest the signature and shall likewise add his particulars; and

(d)      dated.

  1. Alteration of memorandum. (1) Subject to the provisions of this Act, a company may by special resolution alter the provisions of its memorandum so as to–

(a)      change the place of its registered office from.

(i)       one Province to another Province or Islamabad Capital Territory and vice versa; or

(ii)      one Province or Islamabad Capital Territory to a part of Pakistan not forming part of a Province and vice versa; or

(b)      change its principal line of business; or

(c)      adopt any business activity or any change therein which is subject to licence, registration, permission or approval under any law.

(2) The alteration shall not take effect until and except in so far as it is confirmed by the Commission on petition:

Provided that an alteration so as to change its principal line of business shall not require confirmation by the Commission.

(3) A copy of the order confirming the alteration duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) A copy of the memorandum of association as altered pursuant to the order under this section shall within thirty days from the date of the order be filed by the company with the registrar, who shall register the same and issue a certificate which shall be conclusive evidence that all the requirements of this Act with respect to the alteration and the confirmation thereof have been complied with and thenceforth the memorandum so filed shall be the memorandum of the company:

Provided that the Commission may by order, at any time on an application by the company, on sufficient cause shown extend the time for the filing of memorandum with the registrar under this section for such period as it thinks proper.

(5) Where the alteration involves a transfer of registered office from the jurisdiction of one company registration office to another, physical record of the company shall be transferred to the registrar concerned of the company registration office in whose jurisdiction the registered office of the company has been shifted.

(6) Where the alteration involves change in principal line of business, the company shall file the amended memorandum of association with the registrar within thirty days, which shall be recorded for the purposes of this Act.

  1. Powers of Commission when confirming alteration. The Commission may make an order confirming the alteration on such terms and conditions as it thinks fit and make such order as to costs as it thinks proper.
  2. Exercise of discretion by Commission. The Commission shall in exercising its discretion under Sections 32 and 33 have regard to the rights and interests of the members of the company or of any class of them, as well as to the rights and interests of the creditors and 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.
  3. Effect of alteration in memorandum or articles. Notwithstanding anything contained in the memorandum or articles of a company, no member of the company shall be bound by an alteration made in the memorandum or articles after the date on which he became a member if and so far as the alteration requires him to take or subscribe for more shares than the number held by him at the date on which the alteration is made or in any way increases his liability as at that date to contribute to the share capital of or otherwise to pay money to the company:

Provided that this section shall not apply in any case where the member agrees in writing either before or after the alteration is made to be bound thereby.

ARTICLES OF ASSOCIATION

  1. Registration of articles. (1) There may, in the case of company limited by shares and there shall, in the case of a company limited by guarantee or an unlimited company, be registered with the memorandum, articles of association signed by the subscribers to the memorandum and setting out regulations for the company.

(2) Articles of association of a company limited by shares may adopt all or any of the regulations contained in Table A in the First Schedule to this Act.

(3) In the case of an unlimited company or a company limited by guarantee, the articles, if the company has a share capital, shall state the amount of share capital with which the company proposes to be registered.

(4) In the case of an unlimited company or a company limited by guarantee, if the company has no share capital, the articles shall state the number of members with which the company proposes to be registered.

(5) In the case of a company limited by shares and registered after the commencement of this Act, if articles are not registered, or, if articles are registered, in so far as the articles do not exclude or modify the regulations in Table A in the First Schedule to this Act, those regulations shall, so far as applicable, be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles.

(6) The articles of every company shall be explicit and without ambiguity and, without prejudice to the generality of the foregoing, shall list and enumerate the voting and other rights attached to the different classes of shares and other securities, if any, issued or to be issued by it.

(7) If a company contravenes the provisions of its articles of association, the company and every officer of the company shall be liable to a penalty not exceeding of level 1 on the standard scale.

  1. Articles to be printed, signed and dated. The articles shall be–

(a)      printed in the manner generally acceptable;

(b)      divided into paragraphs numbered consecutively;

(c)      signed by each subscriber, who shall add his present name in full, his occupation and father’s name or, in the case of a married woman or widow, her husband’s or deceased husband’s name in full, his nationality and his usual residential address and such other particulars as may be specified, in the presence of a witness who shall attest the signature and shall likewise add his particulars; and

(d)      dated.

  1. Alteration of articles. (1) Subject to the provisions of this Act and to the conditions contained in its memorandum, a company may, by special resolution, alter its articles and any alteration so made shall be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution:

Provided that, where such alteration affects the substantive rights or liabilities of members or of a class of members, it shall be carried out only if a majority of at least three-fourths of the members or of the class of members affected by such alteration, as the case may be, exercise the option through vote personally or through proxy vote for such alteration.

(2) A copy of the articles of association as altered shall, within thirty days from the date of passing of the resolution, be filed by the company with the registrar and he shall register the same and thenceforth the articles so filed shall be the articles of the company.

  1. Copies of memorandum and articles to be given to members. (1) Each company shall send to every member, at his request and within fourteen days thereof, on payment of such sum, as the company may fix, a copy of the memorandum and the articles, if any.

(2) If a company makes default in complying with the requirements of sub-section (1), it shall be liable to a penalty not exceeding of level 1 on the standard scale.

  1. Alteration of memorandum or articles to be noted in every copy. (1) Where an alteration is made in the memorandum or articles of a company, every copy of the memorandum or articles issued after the date of the alteration shall conform to the memorandum or articles as so altered.

(2) If, where any such alteration has been made, the company at any time after the date of the alteration issues any copies of the memorandum or articles which do not conform to the memorandum or articles as so altered it shall be liable to a penalty not exceeding of level 1 on the standard scale for each copy so issued and every officer of the company who is in default shall be liable to the like penalty.

  1. Form of memorandum and articles. The form of–

(a)      memorandum of association of a company limited by shares;

(b)      memorandum and articles of association of a company limited by guarantee and not having a share capital;

(c)      memorandum and articles of association of a company limited by guarantee and having a share capital; and

(d)      memorandum and articles of association of an unlimited company having a share capital,

shall be respectively in accordance with the forms set out in Tables B, C, D and E in the First Schedule or as near thereto as circumstances admit.

  1. Licencing of associations with charitable and not for profit objects. (1) Where it is proved to the satisfaction of the Commission that an association is to be formed as a limited company–

(a)      for promoting commerce, art, science, religion, health, education, research, sports, protection of environment, social welfare, charity or any other useful object;

(b)      such company–

(i)       intends to apply the company’s profits and other income in promoting its objects; and

(ii)      prohibits the payment of dividends to the company’s members; and

(c)      such company’s objects and activities are not and shall not, at any time, be against the laws, public order, security, sovereignty and national interests of Pakistan, the Commission may, by licence for a period to be specified, permit the association to be registered as a public limited company, without addition of the word “Limited” or the expression “(Guarantee) Limited”, to its name.

(2) A licence under sub-section (1) may be granted on such conditions and subject to such regulations as the Commission thinks fit and those conditions shall be inserted in and deemed part of the memorandum and articles, or in one of those documents.

(3) Memorandum and articles of association of a company, licenced under this section, 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 Commission.

(4) The association on registration under this section shall enjoy all the privileges and be subject to all the obligations of a limited company.

(5) The Commission may at any time by order in writing, revoke a licence granted under sub-section (1), with such directions as it may deem fit, on being satisfied that–

(a)      the company or its management has failed to comply with any of the terms or conditions subject to which a licence is granted; or

(b)      any of the requirements specified in sub-section (1) or any regulations made under this section are not met or complied with; or

(c)      affairs of the company are conducted in a manner prejudicial to public interest; or

(d)      the company has made a default in filing with the registrar its financial statements or annual returns for immediately preceding two consecutive financial years; or

(e)      the company has acted against the interest, sovereignty and integrity of Pakistan, the security of the State and friendly relations with foreign States; or

(f)       the number of members is reduced, below three; or

(g)      the company is–

(i)       conceived or brought forth for, or is or has been carrying on, unlawful or fraudulent activities; or

(ii)      run and managed by persons who fail to maintain proper and true accounts or they commit fraud, misfeasance or malfeasance in relation to the company; or

(iii)     run and managed by persons who are involved in terrorist financing or money laundering; or

(iv)     managed by persons who refuse to act according to the requirements of the memorandum or articles or the provisions of this Act or failed to carry out the directions or decisions of the Commission or the registrar given in exercise of the powers conferred by this Act; or

(v)      not carrying on its business or is not in operation for one year; or

(h)      it is just and equitable that the licence should be revoked:

                   Provided that before a licence is so revoked, the Commission shall give to the company a notice, in writing of its intention to do so, and shall afford the company an opportunity to be heard.

(6) Notwithstanding anything contained in this Act or any other law, no association shall be registered as a company with the objects as mentioned in clause (a) and the conditions provided in clause (b) of sub-section (1) without a licence granted in pursuance of this section.

  1. Effect of revocation of licence. (1) On revocation of licence of a company under Section 42, by the Commission–

(a)      the company shall stop all its activities except the recovery of money owed to it, if any;

(b)      the company shall not solicit or receive donations from any source; and

(c)      all the assets of the company after satisfaction of all debts and liabilities shall, in the manner as may be specified, be transferred to another company licenced under Section 42, preferably having similar or identical objects to those of the company, within ninety days from the revocation of the licence or such extended period as may be allowed by the Commission:

                   Provided that a reasonable amount to meet the expenses of voluntary winding up or making an application to the registrar for striking the name of the company off the register in terms of sub-section (3), may be retained by the company.

(2) After compliance of the requirements mentioned in sub-section (1), the board of the company shall file within fifteen days from the date of such compliance, a report to the registrar containing such information and supported with such documents as may be specified.

(3) Within thirty days of acceptance of the report by the registrar, submitted by the company under sub-section (2), the board shall initiate necessary proceedings for winding up of the company voluntarily or where it has no assets and liabilities make an application to the registrar for striking the name of the company off the register.

(4) If the company fails to comply with any of the requirements of this section within the period specified or such extended period as may be allowed by the Commission, the Commission may, without prejudice to any other action under the law, appoint an administrator to manage affairs of the company subject to such terms and conditions as may be specified in the order and initiate necessary proceedings for winding up of the company.

(5) The provisions of Section 291, except those of sub-section (1) thereof, shall apply mutatis mutandis to the administrator appointed under this section.

(6) Where any assets of the company are transferred, in consequence of revocation of licence, to another company licenced under Section 42, the members and officers of the first mentioned company or any of their family members shall not be eligible to hold any office in the later company for a period of five years from the date of transfer of such assets.

(7) Where the licence of a company has been revoked before the commencement of this Act and such company is not in the process of winding up, this section shall apply as if the licence was revoked immediately after the commencement of this Act.

  1. Penalty. If a company licenced under Section 42 or any of its officers makes default in complying with any of the requirements of Sections 42 and 43 or the rules or regulations or the terms or conditions to which the licence is subject or any directions contained in a revocation order, it shall without prejudice to any other action be punishable by a penalty not exceeding of level 2 on the standard scale.
  2. Provision as to companies limited by guarantee. (1) A company limited by guarantee may have share capital.

(2) In the case of a company limited by guarantee and not having a share capital, every provision in the memorandum or articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member shall be void.

(3) For the purpose of the provisions of this Act relating to the memorandum of a company limited by guarantee and of sub-section (2), every provision in the memorandum or articles, or in any resolution, of a company limited by guarantee purporting to divide the undertaking of the company into shares or interests shall be treated as a provision for a share capital, notwithstanding that the nominal amount or number of the shares or interests is not mentioned thereby.

CONVERSION OF A COMPANY OF ANY CLASS INTO A COMPANY OF OTHER CLASS AND RELATED MATTERS

  1. Conversion of public company into private company and vice-versa. (1) A public company may be converted into a private company with the prior approval of the Commission in writing by passing a special resolution in this behalf by the public company amending its memorandum and articles of association in such a manner that they include the provisions relating to a private company in the articles and complying with all the requirements as may be specified:

Provided that in case of conversion of a listed company into a private company, the Commission shall give notice of every application made to it, to the securities exchange and shall take into consideration the representation if any, made to it by the securities exchange.

(2) On an application for change in status of a company under sub- section (1), if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.

(3) A copy of the order, confirming the conversion under sub-section (2), duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) A copy of the memorandum and articles of association as altered pursuant to the order under sub-section (2) shall, within fifteen days from the date of the order, be filed by the company with the registrar and he shall register the same and thenceforth the memorandum and articles so filed shall be the memorandum and articles of the newly converted company.

(5) If a company, being a private company, alters its articles in such a manner that they no longer include the provisions which, under sub-section (1) of Section 2, are required to be included in the articles of a company in order to constitute it a private company, the company shall–

(a)      as on the date of the alteration, cease to be a private company; and

(b)      file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.

(6) If default is made in complying with the provisions of any of the preceding sub-sections, the company and every officer of the company who is in default shall be liable to a penalty not exceeding of level 2 on the standard scale.

  1. Conversion of status of private company into a single-member company and vice-versa. (1) A private company may be converted into a single-member company with prior approval of the Commission in writing by passing a special resolution in this behalf by the private company amending its memorandum and articles of association, in such a manner that they include the provisions relating to a single-member company in the articles and complying with all the requirements as may be specified.

(2) On an application for change in status of a company under sub- section (1), if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.

(3) A copy of the order, confirming the conversion under sub-section (2), duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) A copy of the memorandum and articles of association as altered pursuant to the order under sub- section (2) shall, within fifteen days from the date of the order, be filed by the company with the registrar and he shall register the same and thenceforth the memorandum and articles so filed shall be the memorandum and articles of the newly converted company.

(5) If a company, being a single member company, alters its articles in such a manner that they no longer include the provisions which are required to be included in the articles of a company in order to constitute it a single member company, the company shall–

(a)      as on the date of the alteration, cease to be a single member company; and

(b)      file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.

(6) If default is made in complying with the provisions of any of the preceding sub-sections, the company, and every officer of the company who is in default, shall be liable to a penalty not exceeding of level 2 on the standard scale.

  1. Conversion of status of unlimited company as limited company and vice-versa. (1) An unlimited company may be converted into a limited company with prior approval of the Commission in writing by passing a special resolution in this behalf by the unlimited company amending its memorandum and articles of association in such a manner that they include the provisions relating to a company limited by shares in the articles and complying with all the requirements as may be specified.

(2) On an application for change in status of a company under sub- section (1), if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.

(3) A copy of the order, confirming the conversion under sub-section (2) duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) If a company, being a limited company, alters its memorandum and articles in such a manner that they include the provisions which constitute it as a company having unlimited liability of its members, the company shall–

(a)      as on the date of the alteration, cease to be a limited company; and

(b)      file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.

(5) If default is made in complying with the provisions of any of the preceding sub-sections, the company and every officer of the company who is in default shall be liable to a penalty not exceeding of level 2 on the standard scale.

  1. Conversion of a company limited by guarantee to a company limited by shares and vice-versa. (1) A company limited by guarantee may be converted into a company limited by shares with prior approval of the Commission in writing by passing a special resolution in this behalf by the company limited by guarantee amending its memorandum and articles of association in such a manner that they include the provisions relating to a company limited by shares in the articles and complying with all the requirements as may be specified.

(2) On an application for change in status of a company under sub- section (1), if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.

(3) A copy of the order, confirming the conversion under sub-section (2) duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.

(4) A copy of the memorandum and articles of association as altered pursuant to the order under sub-section (2) shall within fifteen days from the date of the order be filed by the company with the registrar and he shall register the same and thenceforth the memorandum and articles so filed shall be the memorandum and articles of the newly converted company.

(5) If a company, being limited by shares, alters its memorandum and articles in such a manner that they include the provisions which constitute it a company limited by guarantee, the company shall–

(a)      as on the date of the alteration, cease to be a company limited by shares; and

(b)      file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.

(6) If default is made in complying with the provisions of any of the preceding sub-sections, the company and every officer of the company who is in default shall be liable to a penalty not exceeding of level 2 on the standard scale.

  1. Issue of certificate and effects of conversion. (1) The registrar upon registration of the memorandum and articles of association as altered by the company upon conversion under Sections 46 to 49, shall issue a certificate to that effect.

(2) The conversion of status of a company under Sections 46 to 49 shall not affect–

(a)      any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done; and

(b)      any rights or obligations of the company or render defective any legal proceedings by or against the company and any legal proceedings that might have been continued or commenced against the company before conversion may be continued or commenced upon its conversion.

  1. Power of unlimited company to provide for reserve share capital on conversion of status to a limited company. An unlimited company having a share capital may, by its resolution for registration as a limited company in pursuance of this Act, increase the nominal amount of its share capital by increasing the nominal amount of each of its shares, subject to the condition that no part of the amount by which its capital is so increased shall be capable of being called up except in the event and for the purpose of the company being wound up.
  2. Consequence of default in complying with conditions constituting a company a private company. Where the articles of a company include the provisions which, under sub-section (1) of Section 2, are required to be included in the articles of a company in order to constitute it as a private company, but default is made in complying with any of those provisions, the company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act and this Act shall apply to the company as if it were not a private company:

Provided that the Commission, on being satisfied that the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause or that on other ground it is just and equitable to grant relief, may, on the application of the company or any other person interested and on such terms and conditions as seem to the Commission just and expedient, make order that the company be relieved from such consequences as aforesaid.

SERVICE AND AUTHENTICATION OF DOCUMENTS

  1. Service of documents on a company. A document or information may be served on the company or any of its officers at the registered office of the company against an acknowledgement or by post or courier service or through electronic means or in any other manner as may be specified.
  2. Service of documents on Commission or the registrar. A document or information may be served on the Commission or the registrar against an acknowledgement or by post or courier service or through electronic means or in any other manner as may be specified.
  3. Service of notice on a member. (1) A document or information may be served on a member at his registered address or, if he has no registered address in Pakistan, at the address supplied by him to the company for the giving of notices to him against an acknowledgement or by post or courier service or through electronic means or in any other manner as may be specified.

(2) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice and, unless the contrary is proved, to have been effected at the time at which the letter will be delivered in the ordinary course of post.

(3) A notice may be given by the company to the joint-holders of a share by giving the notice to the joint-holder named first in the register in respect of the share.

(4) A notice may, in the manner provided under sub-section (1), be given by the company to the person entitled to a share in consequence of death or insolvency of a member addressed to him by name or by the title or representatives of the deceased or assignees of the insolvent or by any like description, at the address supplied for the purpose by the person claiming to be so entitled.

  1. Authentication of documents and proceedings. Save as expressly provided in this Act, a document or proceeding requiring authentication by a company may be signed either by an officer or a representative authorized by the board.

PART V
PROSPECTUS, ALLOTMENT, ISSUE AND TRANSFER OF SHARES AND OTHER SECURITIES

  1. Prospectus. (1) 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.

(2) In case of any contravention of this section, the company and every person who is a party to the issue, publication or circulation of the prospectus shall be liable to a penalty not exceeding of level 2 on the standard scale.

  1. Classes and kinds of share capital. A company having share capital shall issue only fully paid shares which may be of different kinds and classes as provided by its memorandum and articles:

Provided that different rights and privileges in relation to the different kinds and classes of shares may only be conferred in such manner as may be specified.

  1. Variation of shareholders’ rights. (1) The variation of the right of shareholders of any class shall be effected only in the manner laid down in Section 38.

(2) Not less than ten percent of the class of shareholders who are aggrieved by the variation of their rights under sub-section (1) may, within thirty days of the date of the resolution varying their rights, apply to the Court for an order cancelling the resolution:

Provided that the Court shall not pass such an order unless it is shown to its satisfaction that some facts which would have had a bearing on the decision of the shareholders were withheld by the company in getting the aforesaid resolution passed or, having regard to all the circumstances of the case, that the variation would unfairly prejudice the shareholders of the class represented by the applicant.

(3) An application under sub-section (2) may be made on behalf of the shareholders entitled to make it by such one or more of their number as they may authorise in writing in this behalf.

(4) The company shall, within fifteen days of the service on the company of any order made on any such application, forward a copy of the order to the registrar and, if default is made in complying with this provision, the person making the default shall be guilty of an offence under this section and be liable to a penalty not exceeding of level 1 on the standard scale.

(5) The expression “variation” under this section includes abrogation, revocation or enhancement.

SHARE CAPITAL AND NATURE, NUMBERING AND
CERTIFICATE OF SHARES

  1. Numbering of shares. Every share in a company having a share capital shall be distinguished by its distinctive number:

Provided that nothing in this section shall apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a central depository system.

  1. Nature of shares or other securities. The shares or other securities of any member in a company shall be movable property transferable in the manner provided by the articles of the company.
  2. Shares certificate to be evidence. (1) A certificate, if issued in physical form under common seal of the company or under official seal, which must be facsimile of the company’s common seal, or issued in book-entry form, specifying the shares held by any person or shares held in central depository system shall be prima facie evidence of the title of the person to such shares.

(2) Notwithstanding anything contained in the articles of a company, the manner of issue of a certificate of shares, the form of such certificate and other matters shall be such as may be specified.

SPECIAL PROVISIONS AS TO DEBENTURES

  1. Issue of debentures. (1) A company may issue different kinds of debentures having different classes, rights and privileges as may be specified.

(2) The rights, privileges and the procedure, for securing the issue of debentures, the form of debenture trust deed, the procedure for the debenture holders to inspect the trust deed and to obtain a copy thereof shall be such as may be specified.

  1. Payment of certain debts out of assets subject to floating charge in priority to claims under the charge. (1) Where either a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken by or on behalf of these debenture holders of any property comprised in or subject to the charge, then, if the company is not at the time in course of being wound up, the debts which in every winding up are under the provisions of Part-X relating to preferential payments to be paid in priority to all other debts, shall be paid forthwith out of any assets coming to the hands of the receiver or other person taking possession as aforesaid in priority to any claim for principal or interest in respect of the debentures.

(2) The periods of time mentioned in the said provisions of Part-X shall be reckoned from the date of the appointment of the receiver or of possession being taken as aforesaid, as the case may be.

(3) Any payments made under sub-section (1) shall be recouped, as far as may be, out of the assets of the company available for payment of general creditors.

  1. Powers and liabilities of trustee. (1) The trustee nominated or appointed under the trust-deed for securing an issue of debentures shall, if so empowered by such deed, have the right to sue for all redemption monies and interest in the following cases, namely,–

(a)      where the issuer of the debentures as mortgagor binds himself to repay the debenture loan or pay the accrued interest thereon, or both to repay the loan and pay the interest thereon, in the manner provided on the due date;

(b)      where by any cause other than the wrongful act or default of the issuer the mortgaged property is wholly or partially destroyed or the security is rendered insufficient within the meaning of Section 66 of the Transfer of Property Act, 1882 (Act IV of 1882), and the trustee has given the issuer a reasonable opportunity of providing further security adequate to render the whole security sufficient and the issuer has failed to do so;

(c)      where the trustee is deprived of the whole or part of the security by or in consequence of any wrongful act or default on the part of the issuer; and

(d)      where the trustee is entitled to take possession of the mortgaged property and the issuer fails to deliver the same to him or to secure the possession thereof without disturbance by the issuer or any person claiming under a title superior to that of the issuer.

(2) Where a suit is brought under clause (a) or clause (b) of sub-section (1) the Court may at its discretion stay the suit and all proceedings therein notwithstanding any contract to the contrary, until the trustee has exhausted all his available remedies against the mortgaged property or what remains of it unless the trustee abandons his security and, if necessary, retransfers the mortgaged property.

(3) Notwithstanding anything contained in sub-sections (1) and (2) or any other law for the time being in force, the trustee or any person acting on his behalf shall, if so authorised by the trust-deed, sell or concur in selling, without intervention of the Court, the mortgaged property or any part thereof in default of payment according to re-payment schedule of any redemption amount or in the payment of any accrued interest on the due date by the issuer.

Explanation. “Issuer” for the purpose of this section, shall mean the company issuing debentures and securing the same by mortgage of its properties or assets, or both its properties and assets, and appointing a trustee under a trust- deed.

(4) Subject to the provisions of this section, any provision contained in a trust-deed for securing an issue of debentures, or in any contract with the holders of debentures secured by a trust-deed, shall be void in so far as it would have the effect of exempting a trustee thereof from, or indemnifying him against, liability for breach of trust, where he fails to show the degree of care and diligence required of him as trustee, having regard to the provisions of the trust- deed conferring on him any power, authority or discretion.

(5)      Sub-section (4) shall not invalidate–

(a)      any release otherwise validly given in respect of any act or omission by a trustee before the giving of the release; or

(b)      any provision enabling such a release to be given–

(i)       on the agreement thereto of a majority of not less than three- fourths in value of the debenture-holders present and voting in person or, where proxies are permitted, by proxy, at a meeting summoned for the purpose; and

(ii)      either with respect to specific acts or omissions or on the trustee dying or ceasing to act.

(6)      Sub-section (4) shall not operate–

(a)      to invalidate any provision in force immediately before the commencement of this Act, so long as any person then entitled to the benefit of that provision or afterwards given the benefit thereof under sub-section (7) remains as trustee of the deed in question; or

(b)      to deprive any person of any exemption or right to be indemnified in respect of any act or omission by him while any such provision was in force.

(7) While any trustee of a trust-deed remains entitled to the benefit or provision saved by sub-section (6), the benefits of that provision may be given either–

(a)      to all trustees of the deed, present and future; or

(b)      to any named trustees or proposed trustees thereof;

by a resolution passed by a majority of not less than three-fourths in value of the debenture-holders present in person or, where proxies are permitted, by proxy, at a meeting called for the purpose in accordance with the provisions of the deed or, if the deed makes no provisions for calling meetings, at a meeting called for the purpose in any manner approved by the Court.

  1. Issue of securities and redeemable capital not based on interest. (1) A company may by public offer or, upon terms and conditions contained in an agreement in writing, issue to one or more scheduled banks, financial institutions or such other persons as are notified for the purpose by the Commission either severally, jointly or through their syndicate, any instrument in the nature of redeemable capital in any or several forms in consideration of funds, moneys or accommodations received or to be received by the company, 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.

(2) In particular and without prejudice to the generality of the forgoing provisions, the agreement referred to in sub-section (1) for redeemable capital may provide for, adopt or include, in addition to others, all or any of the following matters, namely-

(a)      mode and basis of repayment by the company of the amount invested in redeemable capital within a certain period of time;

(b)      arrangement for sharing of profit and loss;

(c)      creation of a special reserve called the “participation reserves” by the company in the manner provided in the agreement for the issue of participatory redeemable capital in which all providers of such capital shall participate for interim and final adjustment on the maturity date in accordance with the terms and conditions of such agreements; and

(d)      in case of net loss on participatory redeemable capital on the date of maturity, the right of holders to convert the outstanding, balance of such capital or part thereof as provided in the agreement into ordinary shares of the company at the break-up price calculated in the specified manner.

(3) The terms and conditions for the issue of instruments or certificates of redeemable capital and the rights of their holders shall not be challenged or questioned by the company or any of its shareholders unless repugnant to any provision of this Act or any other law or the memorandum or articles or any resolution of the general meeting or directors of the company or any other document.

(4) The provision of this Act relating to the creation, issue, increase or decrease of the capital shall not apply to the redeemable capital.

ALLOTMENT

  1. Application for, and allotment of, shares and debentures. (1) No application for allotment of shares in and debentures of a company in pursuance of a prospectus shall be made for shares or debentures of less than such nominal amount as the Commission may, from time to time, specify, either generally or in a particular case.

(2) The Commission may specify the form of an application for subscription to shares in or debentures of a company which may, among other matters, contain such declarations or verifications as it may, in the public interest, deem necessary; and such form then shall form part of the prospectus.

(3) All certificates, statements and declarations made by the applicant shall be binding on him.

(4) An application for shares in or debentures of a company which is made in pursuance of a prospectus shall be irrevocable.

(5) Whoever contravenes the provisions of sub-section (1) or sub-section (2), or makes an incorrect statement, declaration or verification in the application for allotment of shares, shall be liable to a penalty of level 2 on the standard scale.

  1. Repayment of money received for shares not allotted. (1) Where a company issues any invitation to the public to subscribe for its shares or other securities, the company shall refund the money in the case of the unaccepted or unsuccessful applications within the time as may be specified.

(2) If the refund required by sub-section (1) is not made within the time specified, the directors of the company shall be jointly and severally liable to repay that money with surcharge at the rate of two percent for every month or part thereof from the expiration of the fifteenth day and, in addition, shall be liable to a penalty of level 3 on the standard scale.

  1. Allotment of shares and other securities to be dealt in on securities exchange. (1) Where a prospectus, whether issued generally or not, states that application has been or will be made for permission for the shares or other securities offered thereby to be dealt in on the securities exchange, any allotment made on an application in pursuance of the prospectus shall, whenever made, be void if the permission has not been applied for before the seventh day after the first issue of the prospectus or if the permission has not been granted before the expiration of twenty-one days from the date of the closing of the subscription lists or such longer period not exceeding forty-two days as may, within the said twenty-one days, be notified to the applicants for permission by the securities exchange.

(2) Where the permission has not been applied for or has not been granted as aforesaid, the company shall forthwith repay without surcharge all money received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the directors of the company shall be jointly and severally liable to repay that money from the expiration of the eighth day together with surcharge at the rate of two percent for every month or part thereof from the expiration of the eighth day and in addition, shall be liable to a penalty of level 3 on the standard scale.

(3) All moneys received as aforesaid shall be deposited and kept in a separate bank account in a scheduled bank so long as the company may become liable to repay it under sub-section (2); and, if default is made in complying with this sub-section, the company and every officer of the company who authorises or permits the default shall be liable to a penalty of level 2 on the standard scale.

(4) For the purposes of this section, permission shall not be deemed to be refused if it is intimated that the application for it, though not at present granted, will be given further consideration.

(5)      This section shall have effect–

(a)      in relation to any shares or securities agreed to be taken by a person underwriting an offer thereof by a prospectus as if he had applied therefor in pursuance of the prospectus; and

(b)      in relation to a prospectus offering shares for sale with the following modifications, that is to say–

(i)       reference to sale shall be substituted for reference to allotment;

(ii)      the person by whom the offer is made and not the company, shall be liable under sub-section (2) to repay the money received from applicant, and reference to the company’s liability under that sub-section shall be construed accordingly; and

(iii)     for the reference in sub-section (3) to the company and every officer of the company there shall be substituted a reference to any person by or through whom the offer is made and who authorises or permits the default.

  1. Return as to allotments. (1) Whenever a company having a share capital makes any allotment of its shares, the company shall, within forty- five days thereafter-

(a)      file with the registrar a return of the allotment, stating the number and nominal amount of the shares comprised in the allotment and such particulars as may be specified, of each allottee, and the amount paid on each share; and

(b)      in the case of shares allotted as paid up in cash, submit along with the return of allotment, 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:

                   Provided that in case, the appointment of auditor is not mandatory by a company, the report for the purpose shall be obtained from a practicing chartered accountant or a cost and management accountant;

(c)      in the case of shares allotted as paid up otherwise than in cash, submit along with the return of allotment, a copy of the document evidencing the transfer of non-cash asset to the company, or a copy of the contract for technical and other services, intellectual property or other consideration, along with copy of the valuation report (verified in the specified manner) for registration in respect of which that allotment was made;

(d)      file with the registrar–

(i)       in the case of bonus shares, a return stating the number and nominal amount of such shares comprised in the allotment and the particulars of allottees together with a copy of the resolution authorising the issue of such shares;

(ii)      in the case of issue of shares at a discount, a copy of the resolution passed by the company authorising such issue and where the maximum rate of discount exceeds ten per cent, a copy of the order of the Commission permitting the issue at the higher percentage.

Explanation. Shares shall not be deemed to have been paid for in cash except to the extent that the company shall actually have received cash therefor at the time of, or subsequent to, the agreement to issue the shares, and where shares are issued to a person who has sold or agreed to sell property or rendered or agreed to render services to the company, or to persons nominated by him, the amount of any payment made for the property or services shall be deducted from the amount of any cash payment made for the shares and only the balance, if any, shall be treated as having been paid in cash for such shares, notwithstanding any bill of exchange or cheques or other securities for money.

(2) If the registrar is satisfied that in the circumstances of any particular case the period of forty five days specified in sub-sections (1) for compliance with the requirements of this section is inadequate, he may extend that period as he thinks fit, and, if he does so, the provisions of sub-sections (1) shall have effect in that particular case as if for the said period of forty five days the extended period allowed by the registrar were substituted.

(3) No return of allotment shall be required to be filed for the shares taken by the subscribers to the memorandum on the formation of the company.

(4) Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

(5) This section shall apply mutatis mutandis to shares which are allotted or issued or deemed to have been issued to a scheduled bank or a financial institution in pursuance of any obligation of a company to issue shares to such scheduled bank or financial institution:

Provided that where default is made by a company in filing a return of allotment in respect of the shares referred to in this sub-section, the scheduled bank or the financial institution to whom shares have been allotted or issued or shares with the registrar together with such documents as may be specified by the Commission in this behalf, and such return of allotment shall be deemed to have been filed by the company itself and the scheduled bank the financial institution shall be entitled to recover from the company the amount of any fee properly paid by it to the registrar in respect of the return.

CERTIFICATE OF SHARES AND OTHER SECURITIES

  1. Limitation of time for issue of certificates. (1) Every company shall issue certificates of shares or other securities within thirty days after the allotment of any of its shares or other securities and ensure delivery of the certificates to the person entitled thereto at his registered address.

(2) Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Issuance of shares in book-entry form. (1) After the commencement of this Act from a date notified by the Commission, a company having share capital, shall have shares in book-entry form only.

(2) Every existing company shall be required to replace its physical shares with book-entry form in a manner as may be specified and from the date notified by the Commission, within a period not exceeding four years from the commencement of this Act:

Provided that the Commission may notify different dates for different classes of companies:

Provided further that the Commission may, if it deems appropriate, extend the period for another two years besides the period stated herein.

(3) Nothing contained in this section shall apply to the shares of such companies or class of companies as may be notified by the Commission.

  1. Issue of duplicate certificates. (1) A duplicate of a certificate of shares, or other securities, shall be issued by the company within thirty days from the date of application if the original-

(a)      is proved to have been lost or destroyed, or

(b)      having been defaced or mutilated or torn is surrendered to the company.

(2) The company, after making such inquiry as to the loss, destruction, defacement or mutilation of the original, as it may deem fit to make, shall, subject to such terms and conditions, if any, as it may consider necessary, issue the duplicate:

Provided that the company may charge fee and the actual expenses incurred on such inquiry.

(3) If the company for any reasonable cause is unable to issue duplicate certificate, it shall notify this fact, along with the reasons within twenty days from the date of the application, to the applicant.

(4) Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

(5) If a company with intent to defraud, issues a duplicate certificate thereof, the company shall be punishable with fine which may extend to one hundred thousand rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one hundred and eighty days, or with fine which may extend to fifty thousand rupees, or with both.

TRANSFER OF SHARES AND OTHER SECURITIES

  1. Transfer of shares and other securities. (1) An application for registration of transfer of shares and other transferable securities along with proper instrument of transfer duly stamped and executed by the transferor and the transferee may be made to the company either by the transferor or the transferee, and subject to the provisions of this section, the company shall within fifteen days after the application for the registration of the transfer of any such securities, complete the process and–

(a)      ensure delivery of the certificates to the transferee at his registered address; and

(b)      enter in its register of members the name of the transferee:

                   Provided that in case of conversion of physical shares and other transferable securities into book-entry form, the company shall, within ten days after an application is made for the registration of the transfer of any shares or other securities to a central depository, register such transfer in the name of the central depository:

                   Provided further that nothing in this section shall apply to any transfer of shares or other securities pursuant to a transaction executed on the securities exchange.

(2) Where a transfer deed is lost, destroyed or mutilated before its lodgment, the company may on an application made by the transferee and bearing the stamp required by an instrument of transfer, register the transfer of shares or other securities if the transferee proves to the satisfaction of the board that the transfer deed duly executed has been lost, destroyed or mutilated:

Provided that before registering the transfer of shares or other securities, the company may demand such indemnity as it may think fit.

(3) All references to the shares or other securities in this section, shall in case of a company not having share capital, be deemed to be references to interest of the members in the company.

(4) Every company shall maintain at its registered office a register of transfers of shares and other securities and such register shall be open to inspection by the members and supply of copy thereof in the manner stated in Section 124.

(5) Nothing in sub-section (1) shall prevent a company from registering as shareholder or other securities holder a person to whom the right to any share or security of the company has been transmitted by operation of law.

(6) Any violation of this section shall be an offence liable to a penalty of level 2 on the standard scale.

  1. Board not to refuse transfer of shares. The board shall not refuse to transfer any shares or securities unless the transfer deed is, for any reason, defective or invalid:

Provided that the company shall within fifteen days or, where the transferee is a central depository, within five days from the date on which the instrument of transfer was lodged with it notify the defect or invalidity to the transferee who shall, after the removal of such defect or invalidity, be entitled to re-lodge the transfer deed with the company:

Provided further that the provisions of this section shall, in relation to a private company, be subject to such limitations and restrictions as may have been imposed by the articles of such company.

  1. Restriction on transfer of shares by the members of a private company. (1) Notwithstanding anything contained in Section 75, a member of a private company desirous of selling any shares held by him, shall intimate to the board of his intention through a notice.

(2) On receipt of such notice, the board shall, within a period of ten days, offer those shares for sale to the members in proportion to their existing shareholding:

Provided that a private company may transfer or sell its shares in accordance with its articles of association and agreement among the shareholders, if any, entered into prior to the commencement of this Act:

Provided further that any such agreement will be valid only if it is filed with the registrar within ninety days of the commencement of this Act.

(3) The letter of offer for sale specifying the number of shares to which the member is entitled, price per share and specifying the time limit, within which the offer, if not accepted, be deemed as declined, shall be dispatched to the members through registered post or courier or through electronic mode.

(4) If the whole or any part of the shares offered is declined or is not taken, the board may offer such shares to the other members in proportion to their shareholding.

(5) If all the members decline to accept the offer or if any shares are left over, the shares may be sold to any other person as determined by the member, who initiated the offer.

(6) For the purpose of this section, the mechanism to determine the price of shares shall be such, as may be specified.

  1. Notice of refusal to transfer. (1) If a company refuses to register a transfer of any shares or other securities, the company shall, within fifteen days after the date on which the instrument of transfer was lodged with the company, send to the transferee notice of the refusal indicating reasons for such refusal:

Provided that failure of the company to give notice of refusal after the expiry of the period mentioned in this section or Section 75, shall be deemed refusal of transfer.

(2) Any violation of this section shall be an offence liable to a penalty of level 2 on the standard scale.

  1. Transfer to successor-in-interest. The shares or other securities of a deceased member shall be transferred on application duly supported by succession certificate or by lawful award, as the case may be, in favour of the successors to the extent of their interests and their names shall be entered in the register of members.
  2. Transfer to nominee of a deceased member. (1) Notwithstanding anything contained in any other law for the time being in force or in any disposition by a member of a company of his interest represented by the shares held by him as a member of the company, a person may on acquiring interest in a company as member, represented by shares, at any time after acquisition of such interest deposit with the company a nomination conferring on a person the right to protect the interest of the legal heirs in the shares of the deceased in the event of his death, as a trustee and to facilitate the transfer of shares to the legal heirs of the deceased subject to succession to be determined under the Islamic law of inheritance and in case of a non-Muslim members, as per their respective law.

(2) The person nominated under this section shall, after the death of the member, be deemed as a member of company till the shares are transferred to the legal heirs and if the deceased was a director of the company, not being a listed company, the nominee shall also act as director of the company to protect the interest of the legal heirs.

(3) The person to be nominated under this section shall not be a person other than the relatives of the member, namely, a spouse, father, mother, brother, sister and son or daughter.

(4) The nomination as aforesaid, shall in no way prejudice the right of the member making the nomination to transfer, dispose of or otherwise deal in the shares owned by him during his lifetime and, shall have effect in respect of the shares owned by the said member on the day of his death.

  1. Appeal against refusal for registration of transfer. (1) The transferor or transferee, or the person who gives intimation of the transmission by operation of law, as the case may be, aggrieved by the refusal of transfer under Section 75 to 79 may appeal to the Commission within a period of sixty days of the date of refusal.

(2) The Commission shall, provide opportunity of hearing to the parties concerned and may, by an order in writing, direct that the transfer or transmission should be registered by the company and the company shall give effect to the decision within fifteen days of the receipt of the order.

(3) The Commission may, in its aforesaid order, give such incidental and consequential directions as to the payment of costs or otherwise as it deems fit.

(4) If default is made in giving effect to the order of the Commission within the period specified in sub-section (2), every director and officer of the company shall be liable to a penalty of level 3 on the standard scale.

COMMISSION, DISCOUNT AND PREMIUM

  1. Application of premium received on issue of shares. (1) If a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or the value of the premiums on those shares must be transferred to an account, called “the share premium account”.

(2) Where, on issuing shares, a company has transferred a sum to the share premium account, it may use that sum to write off–

(a)      the preliminary expenses of the company;

(b)      the expenses of, or the commission paid or discount allowed on, any issue of shares of the company; and

(c)      in providing for the premium payable on the redemption of any redeemable preference shares of the company.

(3) The company may also use the share premium account to issue bonus shares to its members.

  1. Power to issue shares at a discount. (1) Subject to the provisions of this section, it shall be lawful for a company to issue shares in the company at a discount:

Provided that–

(a)      the issue of shares at a discount must be authorised by special resolution passed in the general meeting of the company;

(b)      the resolution must specify the number of shares to be issued, rate of discount, not exceeding the limits permissible under this section and price per share proposed to be issued;

(c)      in case of listed companies discount shall only be allowed if the market price is lower than the par value of the shares for a continuous period of past ninety trading days immediately preceding the date of announcement by the board; and

(d)      the issue of shares at discount must be sanctioned by the Commission:

                   Provided further that approval of the Commission shall not be required by a listed company for issuing shares at a discount if the discounted price is not less than ninety percent of the par value;

(e)      no such resolution for issuance of shares at discount shall be sanctioned by the Commission if the offer price per share, specified in the resolution, is less than–

(i)       in case of listed companies, ninety percent of volume weighted average daily closing price of shares for ninety days prior to the announcement of discount issue; or

(ii)      in case of other than listed companies, the breakup value per share based on assets (revalued not later than 3 years) or per share value based on discounted cash flow:

                   Provided that the calculation arrived at, for the purpose of sub- clause (i) or (ii) of clause (e) above, shall be certified by the statutory auditor;

(f)       directors and sponsors of listed companies shall be required to subscribe their portion of proposed issue at volume weighted average daily closing price of shares for ninety days prior to the announcement of discount issue;

(g)      not less than three years have elapsed since the date on which the company was entitled to commence business;

(h)      the share at a discount must be issued within sixty days after the date on which the issue is sanctioned by the Commission or within such extended time as the Commission may allow.

(2) Where a company has passed a special resolution authorising the issue of shares at a discount, it shall apply to the Commission where applicable, for an order sanctioning the issue. The Commission on such application may, if, having regard to all the circumstances of the case, thinks proper so to do, make an order sanctioning the issue of shares at discount subject to such terms and conditions as it deems fit.

(3)      Issue of shares at a discount shall not be deemed to be reduction of capital.

(4) Every prospectus relating to the issue of shares, and every statement of financial position issued by the company subsequent to the issue of shares, shall contain particulars of the discount allowed on the issue of the shares.

  1. Further issue of capital. (1) Where the directors decide to increase share capital of the company by issue of further share capital, such shares shall be offered:

(a)      to persons who, at the date of the offer, are members of the company in proportion to the existing shares held by sending a letter of offer subject to the following conditions, namely–

(i)       the shares so offered shall be strictly in proportion to the shares already held in respective kinds and classes;

(ii)      the letter of offer shall state the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(iii)     in the case of a listed company any member, not interested to subscribe, may exercise the right to renounce the shares offered to him in favour of any other person, before the date of expiry stated in the letter of offer; and

(iv)     if the whole or any part of the shares offered under this section is declined or is not subscribed, the directors may allot such shares in such manner as they may deem fit within a period of thirty days from the close of the offer as provided under sub-clause (ii) above or within such extended time not exceeding thirty day with the approval of the Commission:

                   Provided that a public company may reserve a certain percentage of further issue for its employees under “Employees Stock Option Scheme” to be approved by the Commission in accordance with the procedure and on such conditions as may be specified.

(b)      subject to approval of the Commission, to any person, in the case of public company on the basis of a special resolution either for cash or for a consideration other than cash:

                   Provided that the value of non-cash asset, service, intellectual property shall be determined by a valuer registered by the Commission.

(2) The letter of offer referred to in sub-clause (ii) of clause (a) of sub-section (1) duly signed by at least two directors shall be dispatched through registered post or courier or through electronic mode to all the existing members, ensuring that it reaches the members before the commencement of period for the acceptance of offer.

(3) A copy of the letter of offer, referred to in sub-section (2) shall, simultaneously with the dispatch to the members, be sent to the registrar.

(4) Notwithstanding anything contained in this section, where loan has been obtained from any Government by a public sector company, and if that Government considers it necessary in the public interest so to do, it may, by order, direct that such loan or any part thereof shall be converted into shares in that company, on such terms and conditions as appear to the Government to be just and reasonable in the circumstances of the case even if the terms of such loan does do not include the option for such conversion.

(5) In determining the terms and conditions of conversion under sub- section (4), the Government shall have due regard to the financial position of the public sector company, the terms of the rate of interest payable thereon and such other matters as it may consider necessary.

(6) Notwithstanding anything contained in this Act or any other law for the time being in force or the memorandum and articles, where the authorised capital of a company is fully subscribed, or the un-subscribed capital is insufficient, the same shall be deemed to have been increased to the extent necessary for issue of shares to the Government, a scheduled bank or financial institution in pursuance of any obligation of the company to issue shares to such scheduled bank or financial institution.

(7) In case shares are allotted in terms of sub-section (6), the company shall be required to file the notice of increase in share capital along with the fee prescribed for such increase with the registrar within the period prescribed under this Act:

Provided that where default is made by a company in complying with the requirement of filing a notice of increase in the authorised capital under this Act as well as the fee to be deposited on the authorised capital as deemed to have been increased, the Government, scheduled bank or the financial institution to whom shares have been issued may file notice of such increase with the registrar and such notice shall be deemed to have been filed by the company itself and the Government, scheduled bank or financial institution shall be entitled to recover from the company the amount of any fee paid by it to the registrar in respect of such increase.

INVITATION OF DEPOSITS

  1. Prohibition on acceptance of deposits from public. (1) On and after the commencement of this Act, no company shall invite, accept or renew deposits from the public:

Provided that nothing in this sub-section shall apply to a banking company and such other company or class of companies or such deposits as the Commission may, notify in this behalf.

Explanation. For the purposes of this section, “deposit” means any deposit of money with, and includes any amount borrowed by, a company, but shall not include a loan raised by issue of debentures or a loan obtained from a banking company or financial institution or an advance against sale of goods or provision of services in the ordinary course of business.

(2) Where a company accepts or invites, or allows or causes any other person to accept or invite on its behalf, any deposit, the company shall be punishable–

(a)      where such contravention relates to the acceptance of any deposit, with penalty which shall not be less than the amount of the deposit so accepted; and

(b)      where such contravention relates to the invitation for any deposit, shall be liable to a penalty of level 3 on the standard scale.

(3) In addition to the fine on the company under sub-section (2), every officer of the company which is in default shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine which may extend to five million rupees.

  1. Power of company to alter its share capital. (1) A company having share capital may, if so authorised by its articles, alter the conditions of its memorandum through a special resolution, so as to

(a)      increase its authorised capital by such amount as it thinks expedient;

(b)      consolidate and divide the whole or any part of its share capital into shares of larger amount than its existing shares;

(c)      sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum:

(d)      cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the share so cancelled:

                   Provided that, in the event of consolidation or sub-division of shares, the rights attaching to the new shares shall be strictly proportional to the rights attached to the previous shares so consolidated or sub-divided:

                   Provided further that, where any shares issued are of a class which is the same as that of shares previously issued, the rights attaching to the new shares shall be the same as those attached to the shares previously held.

(2) The new shares issued by a company shall rank pari passu with the existing shares of the class to which the new shares belong in all matters, including the right to such bonus or right issue and dividend as may be declared by the company subsequent to the date of issue of such new shares.

(3) A cancellation of shares in pursuance of sub-section (1) shall not be deemed to be a reduction of share capital within the meaning of this Act.

(4) The company shall file with the registrar notice of the exercise of any power referred to in sub-section (1) within fifteen days from the exercise thereof.

(5) Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Prohibition of purchase by company or giving of loans by it for purchase of its shares. (1) No company having a share capital, other than a listed company shall have power to buy its own shares.

(2) No public company or a private company being subsidiary of a public company shall give financial assistance whether directly or indirectly for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of any shares in the company or in its holding company.

(3)      Nothing in sub-section (2) shall apply to–

(a)      the lending of money by a banking company in the ordinary course of its business;

(b)      the provision by a company of money in accordance with any scheme approved by company through special resolution and in accordance with such requirements as may be specified, for the purchase of, or subscription for shares in the company or its holding company, if the purchase of, or the subscription for, the shares held by a trust for the benefit of the employees or such shares held by the employee of the company;

(c)      the provision or securing an advance to any of its employees, including a chief executive who, before his appointment as such, was not a director of the company, but excluding all directors of the company, for purchase of shares of the company or of its subsidiary or holding company.

(4)      Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Subsidiary company not to hold shares in its holding company. (1) No company shall, either by itself or through its nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void:

Provided that a subsidiary shall not be barred–

(a)      from acting as a trustee unless its holding company is beneficially interested under the trust; and

(b)      from dealing in shares of its holding company in the ordinary course of its business, on behalf of its clients only subject to non- provision of any financial assistance where such subsidiary carries on a bona fide business of brokerage:

                   Provided further that a subsidiary dealing in shares of its holding company in the ordinary course of its brokerage business, shall not exercise the voting rights attached to such shares:

                   Provided also that the provisions of this section shall not be applicable where such shares are held by a company by operation of law.

(2) Any violation of this section shall be an offence liable to a penalty of level 2 on the standard scale.

  1. Power of a company to purchase its own shares. (1) Notwithstanding anything contained in this Act or any other law, for the time being in force, or the memorandum and articles, a listed company may, subject to the provisions of this section and the regulations specified in this behalf, purchase its own shares.

(2) The shares purchased by the company may, in accordance with the provisions of this section and the regulations, either be cancelled or held as treasury shares.

(3) The shares held by the company as treasury shares shall, as long as they are so held, in addition to any other conditions as may be specified, be subject to the following conditions, namely–

(a)      the voting rights of these shares shall remain suspended; and

(b)      no cash dividend shall be paid and no other distribution, whether in cash or otherwise of the company’s assets, including any distribution of assets to members on a winding up shall be made to the company in respect of these shares:

                   Provided that nothing in this sub-section shall prevent–

(a)      an allotment of shares as fully paid bonus shares in respect of the treasury shares; and

(b)      the payment of any amount payable on the redemption of the treasury shares, if they are redeemable.

(4) The board shall recommend to the members purchase of the shares. The decision of the board shall clearly specify the number of shares proposed to be purchased, purpose of the purchase i.e. cancellation or holding the shares as treasury shares, the purchase price, period within which the purchase shall be made, source of funds, justification for the purchase and effect on the financial position of the company.

(5) The purchase of shares shall be made only under authority of a special resolution.

(6) The purchase of shares shall be made within a period as specified in the regulations.

(7) The proposal of the board to purchase shares shall, on conclusion of the board’s meeting, be communicated to the Commission and to the securities exchange on which shares of the company are listed.

(8) The purchase of shares shall always be made in cash and shall be out of the distributable profits or reserves specifically maintained for the purpose.

(9) The purchase of shares shall be made either through a tender offer or through the securities exchange as may be specified.

(10) The company may dispose of the treasury shares in a manner as may be specified.

(11) Where a purchase of shares has been made under this section, the company shall maintain a register of shares so purchased and enter therein the following particulars, namely–

(a)      number of shares purchased;

(b)      consideration paid for the shares purchased;

(c)      mode of the purchase;

(d)      the date of cancellation or re-issuance of such shares;

(e)      number of bonus shares issued in respect of treasury shares; and

(f)       number and amount of treasury shares redeemed, if redeemable.

(12) Any violation of this section shall be an offence liable to a penalty of level 3 on the standard scale and shall also be individually and severally liable for any or all losses or damages arising out of such contravention.

REDUCTION OF SHARE CAPITAL

  1. Reduction of share capital. Subject to confirmation by the Court a company limited by shares, if so authorised by its articles, may by special resolution reduce its share capital in any way, namely–

(a)      cancel any paid-up share capital which is lost or un-represented by available assets;

(b)      pay off any paid-up share capital which is in excess of the needs of the company.

  1. Objection by creditors and settlement of list of objecting creditors. (1) Where the proposed reduction of share capital involves r the payment to any shareholder of any paid-up share capital, and in any other case if the Court so directs, every creditor of the company who is entitled to any debt or claim, shall be entitled to object to the reduction.

(2) The Court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a period within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction.

  1. Power to dispense with consent of creditor on security being given for his debt. Where a creditor entered on the list of creditors whose debt or claim is not discharged or determined does not consent to the reduction, the Court may, if it thinks fit, dispense with the consent of that creditor, on the company securing payment of his debt or claim by appropriating as the Court may direct, the following amount, that is to say-

(a)      if the company admits the full amount of his debt or claim, or, though not admitting it, is willing to provide for it, then the full amount of the debt or claim; and

(b)      if the company does not admit or is not willing to provide for the full amount of the debt or claim, or if the amount is contingent or not ascertained, then an amount fixed by the Court after the like inquiry, and adjudication as if the company were being wound up by the Court.

  1. Order confirming reduction. If the Court is satisfied with respect to every creditor of the company who under this Act is entitled to object to the reduction that either his consent to the reduction has been obtained or his debt or claim has been discharged or has been determined or has been secured, the Court may make an order confirming the reduction on such terms and conditions as it thinks fit.
  2. Registration of order of reduction. (1) The registrar on the filing with him of a certified copy of order of the Court confirming the reduction of the share capital of the company, shall register the same.

(2) A resolution for reducing share capital as confirmed by an order of the Court registered under sub-section (1) shall take effect on such registration and not before.

(3) The registrar shall certify under his hand the registration of the order and his certificate shall be conclusive evidence that all the requirements of this Act with respect to reduction of share capital have been complied with, and that the share capital of the company is such as is stated in the order.

  1. Liability of members in respect of reduced shares. (1) A member of the company, past or present, shall not be liable in respect of any share to any call or contribution exceeding in amount the difference, if any, between the amount paid, or, as the case may be, the received amount, if any, which is to be deemed to have been paid, on the share and the amount of the share as fixed by the order:

Provided that, if any creditor, entitled in respect of any debt or claim to object to the reduction of share capital, is, by reason of his ignorance of the proceedings for reduction, or of their nature and effect with respect to his claim not entered on the list of creditors, and, after the reduction, the company is unable, within the meaning of the provisions of this Act with respect to winding up by the Court, to pay the amount of his debt or claim, then–

(a)      every person who was a member of the company at the date of the registration of the order for reduction shall be liable to contribute for the payment of that debt, or claim an amount not exceeding the amount which he would have been liable to contribute if the company had commenced to be wound up on the day before that registration; and

(b)      if the company is wound up, the Court on the application of any such creditor and proof of his ignorance as aforesaid, may, if it thinks fit, settle accordingly a list of persons so liable to contribute, and make and enforce calls and orders on the contributories settled on the list as if they were ordinary contributories in a winding up.

(2) Nothing in this section shall effect the rights of the contributories among themselves.

  1. Penalty on concealment of name of creditor. If any officer of the company conceals the name of any creditor entitled to object to the reduction, or willfully misrepresents the nature or amount of the debt or claim of any creditor, or if any officer of the company abets any such concealment or misrepresentation as aforesaid, every such officer shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five million rupees, or with both.
  2. Publication of reasons for reduction. In the case of reduction of share capital, the Court may require the company to publish in the manner specified by the Court the reasons for reduction, or such other information in regard thereto as the Court may think expedient with a view to giving proper information to the public, and, if the Court thinks fit, the causes which led to the reduction.
  3. Increase and reduction of share capital in case of a company limited by guarantee having a share capital. A company limited by guarantee may, if it has a share capital and is so authorised by its articles, increase or reduce its share capital in the same manner and on the same conditions subject to which a company limited by shares may increase or reduce its share capital under the provisions of this Act.

UNLIMITED LIABILITY OF DIRECTORS

  1. Limited company may have directors with unlimited liability. (1) In a limited company, the liability of the directors or of any director may, if so provided by the memorandum, be unlimited.

(2) In a limited company in which the liability of any director is unlimited, the directors of the company, if any, and the member who proposes a person for election or appointment to the office of director, shall add to that proposal a statement that the liability of the person holding that office will be unlimited and the promoters and officers of the company, or one of them shall, before that person accepts the office or acts therein, give him notice in writing that his liability will be unlimited.

(3) Any violation of this section shall be an offence liable to a penalty of level 1 on the standard scale and shall also be liable for any damage which the person so elected or appointed may sustain from the default, but the liability of the person elected or appointed shall not be affected by the default.

  1. Special resolution of limited company making liability of directors unlimited. A limited company, if so authorised by its articles, may, by special resolution, alter its memorandum so as to render unlimited the liability of its directors or of any director:

Provided that an alteration of the memorandum making the liability of any of the directors unlimited shall not apply, without his consent, to a director who was holding the office from before the date of the alteration, until the expiry of the term for which he was holding office on that date.

PART VI
REGISTRATION OF MORTGAGES, CHARGES, ETC.

  1. Requirement to register a mortgage or charge. (1) A company that creates a mortgage or charge to which this section applies must file the specified particulars of the mortgage or charge, together with a copy of the instrument, if any, verified in the specified manner, by which the mortgage or charge is created or evidenced, with the registrar for registration within a period of thirty days beginning with the day after the date of its creation:

Provided that–

(a)      in the case of a mortgage or charge created out of Pakistan comprising solely property situated outside Pakistan, thirty days after the date on which the instrument or copy could, in due course of post, and if dispatched with due diligence, have been received in Pakistan shall be substituted for thirty days after the date of the creation of the mortgage or charge as the time within which the particulars and instrument or copy are to be filed with the registrar; and

(b)      in case the mortgage or charge is created in Pakistan but comprises property outside Pakistan, a copy of the instrument creating or purporting to create the mortgage or charge verified in the specified manner may be filed for registration notwithstanding that further proceedings may be necessary to make the mortgage or charge valid or effectual according to the law of the country in which the property is situate:

                   Provided further that 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.

(2) This section applies to the following charges–

(a)      a mortgage or charge on any immovable property wherever situate, or any interest therein; or

(b)      a mortgage or charge for the purposes of securing any issue of debentures;

(c)      a mortgage or charge on book debts of the company;

(d)      a floating charge on the undertaking or property of the company, including stock-in-trade; or

(e)      a charge on a ship or aircraft, or any share in a ship or aircraft;

(f)       a charge on goodwill or on any intellectual property;

(g)      a mortgage or charge or pledge, on any movable property of the company;

(h)      a mortgage or charge or other interest, based on agreement for the issue of any instrument in the nature of redeemable capital; or

(i)       a mortgage or charge or other interest, based on conditional sale agreement, namely, lease financing, hire-purchase, sale and lease back, and retention of title, for acquisition of machinery, equipment or other goods:

                   Provided that where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit of the instrument for the purpose of securing an advance to the company shall not for the purpose of this sub-section be treated as a mortgage or charge on those book debts.

               Explanation. For the purposes of this Act “charge” includes mortgage or pledge.

(3) The registrar shall, on registration of a mortgage or charge under sub-section (1) issue a certificate of registration under his signatures or authenticated by his official seal in such form and in such manner as may be specified.

(4) The provisions of this section relating to registration shall apply to a company acquiring any property subject to a mortgage or charge.

(5) Notwithstanding anything contained in any other law for the time being in force, 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 under sub-section (1) and a certificate of registration of such charge is given by the registrar under sub-section (3).

(6) Nothing in sub-section (5) shall prejudice any contract or obligation for repayment of the money thereby secured.

(7) Where any mortgage or charge on any property or assets of a company or any of its undertakings is registered under this section, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the mortgage or charge from the date of such registration.

  1. Particulars in case of series of debentures entitling holders pari passu. Where a series of debentures containing, or giving by reference to any other instrument, any charge to the benefit of which the debenture-holders of that series are entitled pari passu is created by a company, it shall be sufficient for the purposes of Section 100 if there are filed with the registrar within thirty days after the execution of the deed containing the charge or, if there is no such deed, after the execution of any debentures of the series, the following particulars, namely–

(a)      the total amount secured by the whole series;

(b)      the dates of the resolutions authorising the issue of the series and the date of the covering deed, if any, by which the security is created or defined;

(c)      a general description of the property charged; and

(d)      the 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:

Provided that, where more than one issue is made of debentures in the series, there shall be filed with the registrar for entry in the register particulars of the date and amount of each issue, but an omission to do this shall not affect the validity of the debentures issued.

  1. Register of charges to be kept by registrar. (1) The registrar shall, in respect of every company, keep a register containing particulars of the charges registered under this Part in such form and in such manner as may be specified.

(2) A register kept in pursuance of this section shall be open to inspection by a person on payment of such fees as may be prescribed.

  1. Index to register of mortgages and charges. The registrar shall keep a chronological index, in the form, containing such particulars, as may be specified, of the mortgages or charges registered with him under the company law.
  2. Endorsement of certificate of registration on debenture or certificate of debenture stock. The company shall cause a copy of every certificate of registration given under Section 100 to be endorsed on every debenture or certificate of debenture stock which is issued by the company and the payment of which is secured by the mortgage or charge so registered:

Provided that in case the certificate of debenture or debenture stock is issued in the book-entry form, appropriate disclosure in pursuance of this section shall be made in the manner as may be specified:

Provided further that nothing in this section shall be construed as requiring a company to cause a certificate of registration of any mortgage or charge so given, to be endorsed on any debenture or certificate of debenture stock which has been issued by the company before the mortgage or charge was created.

  1. Duty of company and right of interested party as regards registration. (1) It shall be the duty of a company to file with the registrar for registration the specified particulars of every mortgage or charge created by the company and of the issue of debentures of a series, requiring registration under Section 100, but registration of any such mortgage or charge may be effected on the application of any person interested therein.

(2) Where the registration is affected on the application of some person other than the company, that person shall be entitled to recover from the company the amount of any fees properly paid by him to the registrar on the registration.

  1. Modification in the particulars of mortgage or charge. Whenever the terms or conditions or extent or operation of any mortgage or charge registered under this Part are modified, it shall be the duty of the company to send to the registrar the particulars of such modification together with a copy of the instrument evidencing such modification verified in the specified manner, and the provisions of this Part as to registration of mortgage or charge shall apply to such modification of the mortgage or charge as aforesaid.
  2. Copy of instrument creating mortgage or charge to be kept at registered office. Every company shall cause a copy of every instrument creating any mortgage or charge requiring registration under this Part and of every instrument evidencing modification of the terms or conditions thereof, to be kept at the registered office of the company.
  3. Rectification of register of mortgages. (1) The Commission on being satisfied that–

(a)      the omission to file with the registrar the particulars of any mortgage or charge or any modification therein within the time required by Section 100 or 101, as the case may be; or

(b)      the omission or mis-statement of any particular with respect to any such mortgage or charge;

was accidental or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested and, on such terms and conditions as seem to the Commission just and expedient, order that the time for filing the required particulars be extended, or, as the case may be, that the omission or mis-statement be rectified, and may make such order as to the costs of the application as it thinks fit.

(2) A copy of the order passed under this section duly certified by the Commission or its authorised officer shall be forwarded to the concerned registrar within seven days from the date of the order.

(3) Where the Commission extends the time for the registration of a mortgage or charge, the order shall not prejudice any rights acquired in respect of the property concerned prior to the time when the mortgage or charge is actually registered.

  1. Company to report satisfaction of charge. (1) A company shall give intimation to the registrar in the manner specified, of the payment or satisfaction, in full, of any mortgage or charge created by it and registered under this Part, within a period of thirty days from the date of such payment or satisfaction.

(2) The registrar shall, on receipt of intimation under sub-section (1), cause a notice to be sent to the holder of the mortgage or charge calling upon him to show cause within such time not exceeding fourteen days, as may be specified in such notice, as to why payment or satisfaction in full shall not be recorded as intimated to the registrar, and if no cause is shown, by such holder of the mortgage or charge, the registrar shall accept the memorandum of satisfaction and make an entry in the register of charges kept by him under Section 102:

Provided that the notice referred to in this sub-section shall not be required if a no objection certificate on behalf of the holder of the mortgage or charge is furnished, along-with the intimation to be submitted under sub-section (1).

(3) If any cause is shown, the registrar shall record a note to that effect in the register of charges and shall inform the company.

(4) Nothing in this section shall be deemed to affect the powers of the registrar to make an entry in the register of charges under Section 102 or otherwise than on receipt of an intimation from the company.

(5) If a company fails to file the particulars of satisfaction of mortgage or charge within the period specified under this section, the required particulars may be submitted with the additional fee, as may be specified and imposing the penalty as specified in this Part.

  1. Power of registrar to make entries of satisfaction and release in absence of intimation from company. The registrar may, on evidence being given to his satisfaction with respect to any registered charge–

(a)      that the debt for which the charge was given has been paid or satisfied in whole or in part; or

(b)      that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking;

enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, and inform the parties concerned, notwithstanding the fact that no intimation has been received by him from the company.

  1. Punishment for contravention. Any violation of this Part shall be an offence liable to a penalty of level 1 on the standard scale.
  2. Company’s register of mortgages and charges. (1) Every company shall maintain a register of mortgages and charges requiring registration under this Part, in such form and in such manner as may be specified and any violation under this section shall be an offence punishable under this Act.

(2) The register of charges maintained under this section and the copies of instrument creating any mortgage and charge or modification thereof, kept in pursuance of this part shall be open to inspection of-

(a)      any member or creditor of the company without fee; and

(b)      any other person on payment of such fee as may be fixed by the company for each inspection.

(3) The refusal of inspection of the said copies or the register shall be an offence under this section and any person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale, and every officer of the company who knowingly authorises or permits the refusal shall incur the like penalty, and in addition to the above penalty, the registrar may by order compel an immediate inspection of the copies or register.

(4) If any officer of the company authorises or permits the omission of any entry required to be made in pursuance of sub-section (1), shall be liable to a penalty of level 1 on the standard scale.

RECEIVERS AND MANAGERS

  1. Registration of appointment of receiver or manager. (1) Where in order to ensure enforcement of security of a company’s property, a person obtains an order for the appointment of a receiver or manager, or appoints such a receiver or manager under any powers contained in any instrument, he shall within seven days of the order or of the appointment under the powers contained in the instrument, file a notice of the fact with the registrar.

(2) Where a person appointed as a receiver or manager under this section ceases to act as such, the person who had obtained the order or appointed such a receiver or manager pursuant to the powers contained in any instrument shall on ceasing of the receiver or manager, give the registrar a notice to that effect within seven days.

(3) The registrar shall enter the fact of which he is given notice under this section in the register of mortgages and charges.

(4) Any violation of sub-sections (1) and (2) shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Filing of accounts of receiver or manager. (1) Every receiver of the property of a company who has been appointed under the powers contained in any instrument, and who has taken possession, shall within thirty days of expiry of every one hundred and eighty days while he remains in possession, and also within thirty days on ceasing to act as receiver, file with the registrar an abstract in the form specified of his receipts and payments during the period to which the abstract relates, and shall also, within fifteen days of ceasing to act as receiver, file with the registrar notice to that effect, and the registrar shall enter the notice in the register of mortgages and charges.

(2) Where a receiver of the property of a company has been appointed, every invoice, order for goods, or business letter issued by or on behalf of the company or the receiver of the company, being a document on or in which the name of the company appears, shall contain a statement that a receiver has been appointed.

(3) The provisions of sub-sections (1) and (2) shall apply to any person appointed to manage the property of a company under any powers contained in an instrument in the same manner as they apply to a receiver so appointed.

(4) Any contravention or default of this section by the receiver, or person appointed to manage the property of the company referred to sub-section (3), shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Disqualification for appointment as receiver or manager. The following shall not be appointed as a receiver or manager of the company’s property, namely-

(a)      a minor;

(b)      a person who is of unsound mind and stands so declared by a competent Court;

(c)      a body corporate;

(d)      a director of the company;

(e)      an un-discharged insolvent unless he is granted leave by the Court by which he has been adjudged an insolvent; or

(f)       a person disqualified by a Court from being concerned with or taking part in the management of the company in any other way, unless he is granted leave by the Court.

  1. Application to Court. (1) A receiver or manager of the company’s property appointed under the powers contained in any instrument may apply to the Court for directions in relation to any particular matter arising in connection with the performance of his functions, and on any such application the Court may give such direction, or may make such order declaring the rights of persons before the Court, or otherwise, as the Court thinks just.

(2) A receiver or manager of the company’s property appointed as aforesaid shall, to the same extent as if he had been appointed by order of a Court be personally liable on any contract entered into by him in the performance of his functions, except in so far as the contract otherwise provides, and entitled in respect of that liability to indemnity out of the assets; but nothing in this sub- section shall be deemed to limit any right to indemnity which he would have apart from this sub-section, or to limit his liability on contracts entered into without authority or to confer any right to indemnity in respect of that liability.

  1. Power of Court to fix remuneration of receiver or manager. (1) The Court may, on an application made to it by the receiver or manager of the property, by order fix the amount to be paid by way of remuneration to any person who, under the power contained in an instrument, has been appointed as receiver or manager of the company’s property:

Provided that the amount of remuneration shall not exceed such limits as may be specified.

(2) The power of the Court under sub-section (1) shall, where no previous order has been made with respect thereto–

(a)      extend to fixing the remuneration for any period before the making of the order or the application therefore;

(b)      be exercisable notwithstanding that the receiver or manager had died or ceased to act before the making of the order or the application therefore; and

(c)      where the receiver or manager has been paid or has retained for his remuneration for any period before the making of the order any amount in excess of that so fixed for that period, extend to requiring him or his representative to account for the excess or such part thereof as may be specified in the order: 

                   Provided that the power conferred by clause (c) shall not be exercised as respects any period before the making of the application or the order unless in the opinion of the Court there are special circumstances making it proper for the power to be so exercised.

(3) The Court may from time to time, on an application made either by the liquidator or by the receiver or manager, or by the registrar, vary or amend an order made under sub-section (1) and issue directions to the receiver respecting his duties and functions or any other matter as it may deem expedient:

Provided that an order made under sub-section (1) shall not be varied so as to increase the amount of remuneration payable to any person.

PART VII
MANAGEMENT AND ADMINISTRATION

  1. Members of a company. The subscribers to the memorandum of association are deemed to have agreed to become members of the company and become members on its registration and every other person-

(a)      to whom is allotted, or who becomes the holder of any class or kind of shares; or

(b)      in relation to a company not having a share capital, any person who has agreed to become a member of the company;

and whose names are entered; in the register of members, are members of the company.

REGISTER AND INDEX OF MEMBERS

  1. Register of members. (1) Every company shall keep a register of its members and any contravention or default in complying with requirement of this section shall be an offence punishable under this Act.

(2) There must be entered in the register such particulars of each member as may be specified.

(3) In the case of joint holders of shares or stock in a company, the company’s register of members shall state the names of each joint holder. In other respects joint holders shall be regarded for the purposes of this Part as a single member and the address of the person named first shall be entered in the register;

(4) A person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale.

  1. Index of members. (1) Every company having more than fifty members shall keep an index of the names of the members of the company, unless the register of members is in such a form as to constitute in itself an index.

(2) The company shall make any necessary alteration in the index within fourteen days after the date on which any alteration is made in the register of members.

(3) The index shall contain, in respect of each member, a sufficient indication to enable the account of that member in the register to be readily found.

(4) A person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale.

  1. Trust not to be entered on register. No notice of any trust, expressed, implied or constructive, shall be entered on the register of members of a company, or be receivable by the registrar.
  2. Register of debenture-holders. (1) Every company shall keep a register of its debenture-holders and any contravention or default in complying with requirement of this section shall be an offence punishable under this Act.

(2) There must be entered in the register such particulars of each debenture-holder as may be specified.

(3)      This section shall not apply with respect to debentures which, ex-facie, are payable to the bearer thereof.

(4) A person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale.

  1. Index of debenture-holders. (1) Every company having more than fifty debenture-holders shall keep an index of the names of the debenture- holders of the company, unless the register of debenture-holders is in such a form as to constitute in itself an index and any contravention or default in complying with requirement of this section shall be an offence punishable under this Act.

(2) The company shall make any necessary alteration in the index within fourteen days after the date on which any alteration is made in the register of debenture-holders.

(3) The index shall contain, in respect of each debenture-holder, a sufficient indication to enable the account of that debenture-holder in the register to be readily found.

(4) A person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale.

  1. Rights to inspect and require copies. (1) The registers and the index referred to in Sections 119, 120, 122 and 123 shall, be open to the inspection of members or debentures-holders during business hours, subject to such reasonable restrictions, as the company may impose, so that not less than two hours in each day be allowed.

(2) Inspection by any member or debenture-holder of the company shall be without charge, and in the case of any other person on payment of such fee as may be fixed by the company for each inspection.

(3) 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.

(4) The certified copies requested under this section shall be issued within a period of seven days, exclusive of the days on which the transfer book of the company is closed.

(5) A person seeking to exercise either of the rights conferred by this section must make a request to the company to that effect.

(6)      The request must contain the following information–

(a)      in the case of an individual, his name and address;

(b)      in the case of an organisation, its name and address and also of the authorised person; and

(c)      the purpose for which the information is to be used.

(7) Any refusal of inspection required under sub-section (1), or if any copy required under sub-section (3) is not issued within the specified period shall be an offence and any person guilty of an offence under this section shall be liable to a penalty of level 1 on the standard scale; and the registrar may by an order compel an immediate inspection of the register and index or direct that copies required shall be sent to the persons requiring them.

  1. Power to close register. (1) A company may, on giving not less than seven days’ previous notice close its register of members, or the part of it relating to members holding shares of any class, for any period or periods not exceeding in the whole thirty days in each year:

Provided that the Commission may, on the application of the company extend the period mentioned in sub-section (1), for a further period of fifteen days.

(2) In the case of listed company, notice for the purposes of sub-section (1), must be given by advertisement in English and Urdu languages at least in one issue each of a daily newspaper of respective language having wide circulation.

(3) The provision of this section shall also apply for the purpose of closure of register of debenture-holders of a company.

(4) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 2 on the standard scale.

  1. Power of Court to rectify register. (1) If–

(a)      the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members or register of debenture-holders of a company; or

(b)      default is made or unnecessary delay takes place in entering on the register of members or register of debenture-holders the fact of the person having become or ceased to be a member or debenture-holder;

the person aggrieved, or any member or debenture-holder of the company, or the company, may apply to the Court for rectification of the register.

(2) The Court may either refuse the application or may order rectification of the register on payment by the company of any damages sustained by any party aggrieved, and may make such order as to costs as it in its discretion thinks fit.

(3) On any application under sub-section (1) the Court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between members or debenture-holders or alleged members or debenture-holders, or between members or alleged members, or debenture-holders or alleged debenture- holders, on the one hand and the company on the other hand; and generally may decide any question which it is necessary or expedient to decide for rectification of the register.

(4) Where the Court has passed an order under sub-section (3) that prima facie entry in or omission from, the register of members or the register of debenture-holders the name or other particulars of any person, was made fraudulently or without sufficient cause, the Court may send a reference for adjudication of offence under Section 127 to the Court as provided under Section 482.

  1. Punishment for fraudulent entries in and omission from register. Anyone who fraudulently or without sufficient cause enters in, or omits from the register of members or the register of debenture-holders the name or other particulars of any person, shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to one million rupees, or with both.
  2. Notice to registrar of rectification of register. When it makes an order for rectification of the register of members in respect of a company which is required by this Act to file a list of its members with the registrar, the Court shall cause a copy of the order to be forwarded to the company and shall, by its order, direct the company to file notice of the rectification with the registrar within fifteen days from the receipt of the order.
  3. Register to be evidence. The registers referred to in Sections 119 and 122 shall be prima facie evidence of any matter which by this Act is directed or authorised to be inserted therein.
  4. Annual return. (1) Every company having a share capital shall, once in each year, prepare and file with the registrar an annual return containing the particulars in a specified form as on the date of the annual general meeting or, where no such meeting is held or if held is not concluded, on the last day of the calendar year.

(2) A company not having a share capital shall in each year prepare and file with the registrar a return containing the particulars in a specified form as on the date of the annual general meeting or, where no such meeting is held or if held is not concluded, on the last day of the calendar year.

(3) The return referred to in sub-section (1) or sub-section (2) shall be filed with the registrar within thirty days from the date of the annual general meeting held in the year or, when no such meeting is held or if held is not concluded, from the last day of the calendar year to which it relates:

Provided that, in the case of a listed company, the registrar may for special reasons extend the period of filing of such return by a period not exceeding fifteen days.

(4) All the particulars required to be submitted under sub-section (1) and sub-section (2) shall have been previously entered in one or more registers kept by the company for the purpose.

(5) Nothing in this section shall apply to a company, in case there is no change of particulars in the last annual return filed with the registrar:

Provided that a company, other than a single member company or a private company having paid up capital of not more than three million rupees, shall inform the registrar in a specified manner that there is no change of particulars in the last annual return filed with the registrar.

(6) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

MEETINGS AND PROCEEDINGS

  1. Statutory meeting of company. (1) Every public company having a share capital shall, within a period of one hundred and eighty days from the date at which the company is entitled to commence business or within nine months from the date of its incorporation whichever is earlier, hold a general meeting of the members of the company, to be called the “statutory meeting”:

Provided that in case first annual general meeting of a company is decided to be held earlier, no statutory meeting shall be required.

(2) The notice of a statutory meeting shall be sent to the members at least twenty-one days before the date fixed for the meeting along-with a copy of statutory report.

(3)      The statutory report shall state–

(a)      the total number of shares allotted, distinguishing shares allotted other than in cash, and stating the consideration for which they have been allotted;

(b)      the total amount of cash received by the company in respect of all the shares allotted;

(c)      an abstract of the receipts of the company and of the payments made there out up to a date within fifteen days of the date of the report, exhibiting under distinctive headings the receipts of the company from shares and debentures and other sources, the payments made there out, and particulars concerning the balance remaining in hand, and an account or estimate of the preliminary expenses of the company showing separately any commission or discount paid or to be paid on the issue or sale of shares or debentures;

(d)      the names, addresses and occupations of the directors, chief executive, secretary, auditors and legal advisers of the company and the changes, if any, which have occurred since the date of the incorporation;

(e)      the particulars of any contract the modification of which is to be submitted to the meeting for its approval, together with the particulars of the modification or proposed modification;

(f)       the extent to which underwriting contracts, if any, have been carried out and the extent to which such contracts have not been carried out, together with the reasons for their not having been carried out; and

(g)      the particulars of any commission or brokerage paid or to be paid in connection with the issue or sale of shares to any director, chief executive, secretary or officer or to a private company of which he is a director;

and certified by the chief executive and at least one director of the company, and in case of a listed company also by the chief financial officer.

(4) The statutory report shall also contain a brief account of the state of the company’s affairs since its incorporation and the business plan, including any change or proposed change affecting the interest of shareholders and business prospects of the company.

(5) The statutory report shall, so far as it relates to the shares allotted by the company, the cash received in respect of such shares and to the receipts and payments of the company, be accompanied by a report of the auditors of the company as to the correctness of such allotment, receipt of cash, receipts and payments.

(6) The directors shall cause a copy of the statutory report, along-with report of the auditors as aforesaid, to be delivered to the registrar for registration forthwith after sending the report to the members of the company.

(7) The directors shall cause a list showing the names, occupations, nationality and addresses of the members of the company, and the number of shares held by them respectively, to be produced at the commencement of the meeting and to remain open and accessible to any member of the company during the continuance of the meeting.

(8) The members of the company present at the meeting shall be at liberty to discuss any matter relating to the formation of the company or arising out of the statutory report, whether previous notice has been given or not, but no resolution of which notice has not been given in accordance with the articles may be passed.

(9) The meeting may adjourn from time to time, and at any adjourned meeting any resolution of which notice has been given in accordance with the articles, either before or after the original meeting, may be passed, and an adjourned meeting shall have the same powers as an original meeting.

(10) The provisions of this section shall not apply to a public company which converts itself from a private company after one year of incorporation.

(11) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

  1. Annual general meeting. (1) Every company, shall hold, an annual general meeting within sixteen months from the date of its incorporation and thereafter once in every calendar year within a period of one hundred and twenty days following the close of its financial year:

Provided that, in the case of a listed company, the Commission, and, in any other case, the registrar, may for any special reason extend the time within which any annual general meeting, shall be held by a period not exceeding thirty days.

(2) An annual general meeting shall, in the case of a listed company, be held in the town in which the registered office of the company is situate or in a nearest city:

Provided that at least seven days prior to the date of meeting, on the demand of members residing in a city who hold at least ten percent of the total paid up capital or such other percentage as may be specified, a listed company must provide the facility of video- link to such members enabling them to participate in its annual general meeting.

(3) The notice of an annual general meeting shall be sent to the members and every person who is entitled to receive notice of general meetings at least twenty-one days before the date fixed for the meeting:

Provided that in case of a listed company, such notice shall be sent to the Commission, in addition to its being dispatched in the normal course to members and the notice shall also be published in English and Urdu languages at least in one issue each of a daily newspaper of respective language having nationwide circulation.

(4)      Nothing in this section shall apply to a single member company.

(5) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

  1. Calling of extra-ordinary general meeting. (1) All general meetings of a company, other than the annual general meeting referred to in Section 132 and the statutory meeting mentioned in Section 131, shall be called extra-ordinary general meetings.

(2) The board may at any time call an extra-ordinary general meeting of the company to consider any matter which requires the approval of the company in a general meeting.

(3)      The board shall, at the requisition made by the members–

(a)      in case of a company having share capital, representing not less than one-tenth of the total voting power as on the date of deposit of requisition; and

(b)      in case of a company not having share capital, not less than one- tenth of the total members;

forthwith proceed to call an extra-ordinary general meeting.

(4) The requisition shall state the objects of the meeting, be signed by the requisitionists and deposited at the registered office of the company.

(5) If the board does not proceed within twenty-one days from the date of the requisition being so deposited to cause a meeting to be called, the requisitionists, may themselves call the meeting, but in either case any meeting so called shall be held within ninety days from the date of the deposit of the requisition.

(6) Any meeting called under sub-section (5) by the requisitionists shall be called in the same manner, as nearly as possible, as that in which meetings are to be called by board.

(7) Any reasonable expenses incurred by the requisitionists in calling a meeting under sub-section (5) shall be re-imbursed to the requisitionists by the company and the sums so paid shall be deducted from any fee or other remuneration payable to such of the directors who were in default in calling the meeting.

(8) Notice of an extra-ordinary general meeting shall be served to the members in the manner provided for in Section 55:

Provided that in case of a company other than listed, if all the members entitled to attend and vote at any extraordinary general meeting so agree, a meeting may be held at a shorter notice.

(9) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

  1. Provisions as to meetings and votes. (1) The following provisions shall apply to the general meetings of a company or meetings of a class of members of the company, namely:

(a)      notice of the meeting specifying the place and the day and hour of the meeting alongwith a statement of the business to be transacted at the meeting shall be given–

(i)       to every member or class of the members of the company as the case may be;

(ii)      to every director;

(iii)     to any person who is entitled to a share in consequence of the death or bankruptcy of a member, if the company has been notified of his entitlement;

(iv)     to the auditors of the company;

          in the manner in which notices are required to be served by Section 55, but the accidental omission to give notice to, or the non-receipt of notice by, any member shall not invalidate the proceedings at any meeting;

(b)      in case of a listed company, if certain members who hold ten percent of the total paid up capital or such other percentage as may be specified, reside in a city, it shall be mentioned in the notice that such members, may demand the company to provide them the facility of video-link for attending the meeting.

(2) For the purposes of sub-section (1), in the case of an annual general meeting, all the businesses to be transacted shall be deemed special, other than–

(a)      the consideration of financial statements and the reports of the board and auditors;

(b)      the declaration of any dividend;

(c)      the election and appointment of directors in place of those retiring; and

(d)      the appointment of the auditors and fixation of their remuneration.

(3) Where any special business is to be transacted at a general meeting, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning such business, including, in particular, the nature and extent of the interest, if any, therein of every director, whether directly or indirectly, and, where any item of business consists of the according of an approval to any document by the meeting, the time when and the place where the document may be inspected, shall be specified in the statement.

(4) Members of a company may participate in the meeting personally, through video-link or by proxy.

(5) The chairman of the board, if any, shall preside as chairman at every general meeting of the company, but if there is no such chairman, or if at any meeting he is not present within fifteen minutes after the time appointed for holding the meeting, or is unwilling to act as chairman, any one of the directors present may be elected to be chairman, and if none of the directors is present or is unwilling to act as chairman the members present shall choose one of their member to be the chairman.

(6) In the case of a company having a share capital, every member shall have votes proportionate to the paid-up value of the shares or other securities carrying voting rights held by him according to the entitlement of the class of such shares or securities, as the case may be:

Provided that, at the time of voting, fractional votes shall not be taken into account.

(7) No member holding shares or other securities carrying voting rights shall be debarred from casting his vote, nor shall anything contained in the articles have the effect of so debarring him.

(8) In the case of a company limited by guarantee and having no share capital, every member thereof shall have one vote.

(9) On a poll, votes may be given either personally or through video-link or by proxy or through postal ballot in a manner and subject to the conditions as may be specified.

(10) Notwithstanding anything contained in this Act, the Commission 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.

(11) All the requirements of this Act regarding calling of, holding and approval in general meeting, board meeting and election of directors in case of a single member company, shall be deemed complied with; if the decision is recorded in the relevant minutes book and signed by the sole member or sole director as the case may be.

(12) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 3 on the standard scale; and

(b)      in case of any other company, to a penalty of level 2 on the standard scale.

  1. Quorum of general meeting. (1) The quorum of a general meeting shall be–

(a)      in the case of a public listed company, unless the articles provide for a larger number, not less than ten members present personally, or through video-link who represent not less than twenty-five percent of the total voting power, either of their own account or as proxies;

(b)      in the case of any other company having share capital, unless the articles provide for a larger number, two members present personally, or through video-link who represent not less than twenty-five percent of the total voting power, either of their own account or as proxies;

(c)      in the case of a company not having share capital, as provided in the articles:

                   Provided that, if within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if called upon the requisition of members, shall be dissolved; in any other case, it shall stand adjourned to the same day in the next week at the same time and place, and, if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the members present personally or through video-link being not less than two shall be a quorum, unless the articles provide otherwise.

(2)      Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

  1. Power of the Court to declare the proceedings of a general meeting invalid. The Court may, on a petition, by members having not less than ten percent of the voting power in the company, that the proceedings of a general meeting be declared invalid by reason of a material defect or omission in the notice or irregularity in the proceedings of the meeting, which prevented members from using effectively their rights, declare such proceedings or part thereof invalid and direct holding of a fresh general meeting:

Provided that the petition shall be made within thirty days of the impugned meeting.

  1. Proxies. (1) A member of a company entitled to attend and vote at a meeting of the company may appoint another person as his proxy to exercise all or any of his rights to attend, speak and vote at a meeting:

Provided that–

(a)      unless the articles of a company otherwise provide, this sub-section shall not apply in the case of a company not having a share capital;

(b)      a member shall not be entitled to appoint more than one proxy to attend any one meeting;

(c)      if any member appoints more than one proxy for any one meeting and more than one instruments of proxy are deposited with the company, all such instruments of proxy shall be rendered invalid; and

(d)      a proxy must be a member unless the articles of the company permit appointment of a non-member as proxy.

(2) Subject to the provisions of sub-section (1), every notice of a meeting of a company shall prominently set out the member’s right to appoint a proxy and the right of such proxy to attend, speak and vote in the place of the member at the meeting and every such notice shall be accompanied by a proxy form.

(3)      The instrument appointing a proxy shall–

(a)      be in writing; and

(b)      be signed by the appointer or his attorney duly authorised in writing, or if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.

(4) An instrument appointing a proxy, if in the form set out in Regulation 43 of Table A in the First Schedule shall not be questioned on the ground that it fails to comply with any special requirements specified for such instruments by the articles.

(5) The proxies must be lodged with the company not later than forty-eight hours before the time for holding a meeting and any provision to the contrary in the company’s articles shall be void.

(6) In calculating the period mentioned in sub-section (5), no account shall be taken of any part of the day that is not a working day.

(7) The members or their proxies shall be entitled to do any or all the following things in a general meeting, namely–

(a)      subject to the provisions of Section 143, demand a poll on any question; and

(b)      on a question before the meeting in which poll is demanded, to abstain from voting or not to exercise their full voting rights;

and any provision to the contrary in the articles shall be void.

(8) Every member entitled to vote at a meeting of the company shall be entitled to inspect during the business hours of the company all proxies lodged with the company.

(9) The provisions of this section shall apply mutatis mutandis to the meeting of a particular class of members as they apply to a general meeting of all the members.

(10) Failure to issue notices in time or issuing notices with material defect or omission or any other contravention of this section which has the effect of preventing participation or use of full rights by a member or his proxy shall make the company and its every officer who is a party to the default or contravention liable to–

(a)      a penalty of level 2 on the standard scale if the default relates to a listed company; and

(b)      to a penalty of level 1 on the standard scale if the default relates to any other company.

  1. Representation of body corporate or corporation at meetings. (1) A body corporate or corporation (whether or not a company within the meaning of this Act) which is a member of another company may, by resolution of its board or other governing body authorise an individual to act as its representative at any meeting of that other company, and the individual so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents.

(2) A body corporate or corporation (whether or not a company within the meaning of this Act) which is a creditor of another company may, by resolution of its board or other governing body authorise an individual to act as its representative at any meeting of the creditors of that other company held in pursuance of this Act or any other meeting to which it is entitled to attend in pursuance of the provisions contained in any instrument and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents.

  1. Representation of Federal Government at meetings of companies. (1) The concerned Minister-in-Charge of the Federal Government, or as the case may be, a Provincial Government, as the case may be, if a member of a company, may appoint such individual as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company.

(2) An individual appointed to act as aforesaid shall, for the purpose of this Act, 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, as the concerned Minister-in-Charge of the Federal Government or as the case may be, the Provincial Government, as the case may be, may exercise as a member of the company.

  1. Notice of resolution. (1) The notice of a general meeting of a company shall state the general nature of each business proposed to be considered and dealt with at a meeting, and in case of special resolution, accompanied by the draft resolution.

(2) The members having not less than ten percent voting power in the company may give notice of a resolution and such resolution together with the supporting statement, if any, which they propose to be considered at the meeting, shall be forwarded so as to reach the company–

(a)      in the case of a meeting requisitioned by the members, together with the requisition for the meeting;

(b)      in any other case, at least ten days before the meeting; and the company shall forthwith circulate such resolution to all the members.

(3) Any contravention or default in complying with requirement of this section shall be an offence liable–

(a)      in case of a listed company, to a penalty of level 2 on the standard scale; and

(b)      in case of any other company, to a penalty of level 1 on the standard scale.

  1. Voting to be by show of hands in first instance. At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded, be decided on a show of hands.
  2. Declaration by chairman on a show of hands. (1) On a vote on a resolution at a meeting on a show of hands, a declaration by the chairman that the resolution–

(a)      has or has not been passed; or

(b)      passed unanimously or by a particular majority;

is conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.

(2) An entry in respect of such a declaration in minutes of the meeting recorded in accordance with Section 151 is also conclusive evidence of that fact without such proof.

  1. Demand for poll. (1) 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 the meeting of his own motion, and shall be ordered to be taken by him on a demand made in that behalf by the members present in person or through video-link or by proxy, where allowed, and having not less than one-tenth of the total voting power.

(2) The demand for a poll may be withdrawn at any time by the members who made the demand.

  1. Poll through secret ballot. Notwithstanding anything contained in this Act, when a poll is demanded on any resolution, it may be ordered to be taken by the chairman of the meeting by secret ballot of his own motion, and shall be ordered to be taken by him on a demand made in that behalf by the members present in person, through video-link or by proxy, where allowed, and having not less than one-tenth of the total voting power.
  2. Time of taking poll. (1) A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith and a poll demanded on any other question shall be taken at such time, not more than fourteen days from the day on which it is demanded, as the chairman of the meeting may direct.

(2) When a poll is taken, the chairman or his nominee and a representative of the members demanding the poll shall scrutinize the votes given on the poll and the result shall be announced by the chairman.

(3) Subject to the provisions of this Act, the chairman shall have power to regulate the manner in which a poll shall be taken.

(4) The result of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was taken.

  1. Resolutions passed at adjourned meeting. Where a resolution is passed at an adjourned meeting of–

(a)      a company;

(b)      the holders of any class of shares in a company;

(c)      the board; or

(d)      the creditors of a company;

the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact passed, and shall not be deemed to have been passed on any earlier date.

  1. Power of Commission to call meetings. (1) If default is made in holding the statutory meeting, annual general meeting or any extraordinary general meeting in accordance with Sections 131, 132 or 133, as the case may be, the Commission may, notwithstanding anything contained in this Act or in the articles of the company, either of its own motion or on the application of any director or member of the company, call, or direct the calling of, the said meeting of the company in such manner as the Commission may think fit, and give such ancillary or consequential directions as the Commission thinks expedient in relation to the calling, holding and conducting of the meeting and preparation of any document required with respect to the meeting.

Explanation. The directions that may be given under sub-section (1) may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

(2) Any meeting called, held and conducted in accordance with any such direction shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted, and all expenses incurred in connection thereto shall be paid by the company unless the Commission directs the same to be recovered from any officer of the company which he is hereby authorised to do.

  1. Punishment for default in complying with provisions of Section 147. If any person makes default in holding a meeting of the company in accordance with Section 147 or in complying with any directions of the Commission, shall be liable to a penalty of level 3 on the standard scale.
  2. Passing of resolution by the members through circulation. (1) Except for the businesses specified under sub-section (2) of Section 134 to be conducted in the annual general meeting, the members of a private company or a public unlisted company (having not more than fifty members), may pass a resolution (ordinary or special) by circulation signed by all the members for the time being entitled to receive notice of a meeting.

(2) Any resolution passed under sub-section (1), shall be as valid and effectual as if it had been passed at a general meeting of the company duly convened and held.

(3) A resolution shall not be deemed to have been duly passed, unless the resolution has been circulated, together with the necessary papers, if any, to all the members.

(4) A members’ agreement to a written resolution, passed by circulation, once signified, may not be revoked.

(5) A resolution under sub-section (1) shall be noted at subsequent meeting of the members and made part of the minutes of such meeting.

  1. Filing of resolution. (1) Every special resolution passed by a company shall, within fifteen days from the passing thereof, be filed with the registrar duly authenticated by a director or secretary of the company.

(2) Where articles have been registered, a copy of every special resolution for the time being in force shall be embodied in or annexed to every copy of the articles issued after the date of the resolution.

(3) A copy of every special resolution shall be forwarded to any member at his request on payment of such fee not exceeding the amount as the company may determine.

(4) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Records of resolutions and meetings. (1) Every company shall keep records of–

(a)      copies of all resolutions of members passed otherwise than at general meetings; and

(b)      minutes of all proceedings of general meetings along with the names of participants, to be entered in properly maintained books;

(2) Minutes recorded in accordance with sub-section (1), if purporting to be authenticated by the chairman of the meeting or by the chairman of the next meeting, shall be the evidence of the proceedings at the meeting.

(3) Until the contrary is proved, every general meeting of the company in respect of the proceedings whereof minutes have been so made shall be deemed to have been duly called, held and conducted.

(4) The records must be kept at the registered office of the company from the date of the resolution, meeting or decision simultaneously in physical and electronic form and it shall be preserved for at least twenty years in physical form and permanently in electronic form.

(5) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Inspection of records of resolutions and meetings. (1) The books containing the minutes of proceedings of the general meetings shall be open to inspection by members without charge during business hours, subject to such reasonable restrictions as the company may by its articles or in general meeting impose so that not less than two hours in each day be allowed for inspection.

(2) Any member shall at any time after seven days from the meeting be entitled to be furnished, within seven days after he has made a request in that behalf to the company, with a certified copy of the minutes of any general meeting at such charge not exceeding the amount as may be fixed by the company.

(3) If any inspection required under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the person guilty of an offence shall be liable to a penalty of level 1 on the standard scale, and the registrar may direct immediate inspection or supply of copy, as the case may be.

APPOINTMENT AND REMOVAL OF DIRECTORS

  1. Ineligibility of certain persons to become director. A person shall not be eligible for appointment as a director of a company, if he —

(a)      is a minor;

(b)      is of unsound mind;

(c)      has applied to be adjudicated as an insolvent and his application is pending;

(d)      is an undischarged insolvent;

(e)      has been convicted by a Court of law for an offence involving moral turpitude;

(f)       has been debarred from holding such office under any provision of this Act;

(g)      is lacking fiduciary behaviour and a declaration to this effect has been made by the Court under Section 212 at any time during the preceding five years;

(h)      does not hold National Tax Number as per the provisions of Income Tax Ordinance, 2001 (XLIX of 2001):

                   Provided that the Commission may grant exemption from the requirement of this clause as may be notified.

(i)       is not a member:

                   Provided that clause (i) shall not apply in the case of,–

(i)       a person representing a member which is not a natural person;

(ii)      a whole-time director who is an employee of the company;

(iii)     a chief executive; or

(iv)     a person representing a creditor or other special interests by virtue of contractual arrangements;

(j)       has been declared by a Court of competent jurisdiction as defaulter in repayment of loan to a financial institution;

(k)      is engaged in the business of brokerage, or is a spouse of such person or is a sponsor, director or officer of a corporate brokerage house:

                   Provided that clauses (j) and (k) shall be applicable only in case of listed companies.

  1. Minimum number of directors of a company. (1) Notwithstanding anything contained in any other law for the time being in force,–

(a)      a single member company shall have at least one director;

(b)      every other private company shall have not less than two directors;

(c)      a public company other than a listed company shall have not less than three directors; and

(d)      a listed company shall have not less than seven directors:

                   Provided that public interest companies shall be required to have female representation on their board as may be specified by the Commission.

(2)      Only a natural person shall be a director.

  1. Number of directorships. (1) No person shall, after the commencement of this Act, hold office as a director, including as an alternate director at the same time in more than such number of companies as may be specified:

Provided that this limit shall not include the directorships in a listed subsidiary.

(2) A person holding the position of director in more than seven companies on the commencement of this Act shall ensure the compliance of this section within one year of such commencement.

(3) Any casual vacancy on the board of a listed company shall be filled up by the directors at the earliest but not later than ninety days from the date, the vacancy occurred.

  1. Compliance with the Code of Corporate Governance. The Commission may provide for framework to ensure good corporate governance practices, compliance and matters incidental and axillary for companies or class of companies in a manner as may be specified.
  2. First directors and their term. (1) The number of directors and the names of the first directors shall be determined by the subscribers of the memorandum and their particulars specified under Section 197 shall be submitted along with the documents for the incorporation of the company.

(2) The number of first directors may be increased by appointing additional directors by the members in a general meeting. The first directors shall hold office until the election of directors in the first annual general meeting of the company.

  1. Retirement of first and subsequent directors. (1) All directors of the company–

(a)      on the date of first annual general meeting; or

(b)      in case of subsequent directors on expiry of term of office of directors mentioned in Section 161,

shall stand retired from office and the directors so retiring shall continue to perform their functions until their successors are elected.

(2) The directors so continuing to perform their functions shall take immediate steps to hold the election of directors and in case of any impediment report such circumstances to the registrar within forty-five days before the due date of the annual general meeting or extra ordinary general meeting, as the case may be, in which elections are to be held:

Provided that the holding of annual general meeting or extra ordinary general meeting, as the case may be, shall not be delayed for more than ninety days from the due date of the meeting or such extended time as may be allowed by the registrar, for reasons to be recorded, only in case of exceptional circumstances beyond the control of the directors, or in compliance of any order of the Court.

(3)      The registrar, may on expiry of period as provided in sub-section (2), either–

(a)      on its own motion; or

(b)      on the representation of the members holding not less than one tenth of the total voting powers in a company having share capital; or

(c)      on the representation of the members holding not less than one tenth of the total members of the company not having share capital of the company,

directs the company to hold annual general meeting or extra ordinary general meeting for the election of directors on such date and time as may be specified in the order.

(4) Any officer of the company or any other person who fails to comply with the direction given under sub-section (3) shall be guilty of an offence liable to a fine of level 2 on the standard scale.

  1. Procedure for election of directors. (1) Subject to the provision of Section 154, the existing directors of a company shall fix the number of directors to be elected in the general meeting, not later than thirty-five days before convening of such meeting and the number of directors so fixed shall not be changed except with the prior approval of the general meeting in which election is to be held.

(2) The notice of the meeting at which directors are proposed to be elected shall among other matters, expressly state–

(a)      the number of directors fixed under sub-section (1); and

(b)      the names of the retiring directors.

(3) Any member who seeks to contest an election to the office of director shall, whether he is a retiring director or otherwise, file with the company, not later than fourteen days before the date of the meeting at which elections are to be held, a notice of his intention to offer himself for election as a director:

Provided that any such person may, at any time before the holding of election, withdraw such notice.

(4) All notices received by the company in pursuance of sub-section (3) shall be transmitted to the members not later than seven days before the date of the meeting, in the same manner as provided under this Act for sending of a notice of general meeting. In the case of a listed company such notice shall be published in English and Urdu languages at least in one issue each of a daily newspaper of respective language having wide circulation.

(5) The directors of a company having a share capital shall, unless the number of persons who offer themselves to be elected is not more than the number of directors fixed under sub-section (1), be elected by the members of the company in general meeting in the following manner, namely–

(a)      a member shall have such number of votes as is equal to the product of the number of voting shares or securities held by him and the number of directors to be elected;

(b)      a member may give all his votes to a single candidate or divide them between more than one of the candidates in such manner as he may choose; and

(c)      the candidate who gets the highest number of votes shall be declared elected as director and then the candidate who gets the next highest number of votes shall be so declared and so on until the total number of directors to be elected has been so elected.

(6) The directors of a company limited by guarantee and not having share capital shall be elected by members of the company in general meeting in the manner as provided in articles of association of the company.

  1. Powers of the Court to declare election of directors invalid. The Court may, on the application of members holding ten percent of the voting power in the company, made within thirty days of the date of election, declare election of all directors or any one or more of them invalid if it is satisfied that there has been material irregularity in the holding of the elections and matters incidental or relating thereto.
  2. Term of office of directors. (1) A director elected under Sections 159 or 162 shall hold office for a period of three years unless he earlier resigns, vacates office due to fresh election required under Section 162 as the case may be, becomes disqualified from being a director or otherwise ceases to hold office:

Provided that the term of office of directors of a company limited by guarantee and not having share capital may be a period of less than three years as provided in the articles of association of a company.

(2) Any casual vacancy occurring among the directors may be filled up by the directors and the person so appointed shall hold office for the remainder of the term of the director in whose place he is appointed.

  1. Fresh election of directors. (1) Notwithstanding anything contained in this Act, a member having acquired, after the election of directors, the requisite shareholding to get him elected as a director on the board of a company, may require the company to hold fresh election of directors in accordance with the procedure laid down in Section 159:

Provided that the number of directors fixed in the preceding election shall not be decreased:

Provided further that a listed company for the purpose of fresh election of directors under this section shall follow such procedure as may be specified by the Commission.

(2) The board shall upon receipt of requisition under sub-section (1), as soon as practicable but not later than thirty days from the receipt of such requisition, proceed to hold fresh election of directors of the company.

  1. Removal of directors. A company may by resolution in general meeting remove a director appointed under Sections 157, 161 or Section 162 or elected in the manner provided for in Section 159:

Provided that a resolution for removing a director shall not be deemed to have been passed if the number of votes cast against it is equal to, or exceeds–

(a)      the total number of votes for the time being computed in the manner laid down in sub-section (5) of Section 159 divided by the number of directors for the time being, if the resolution relates to removal of a director appointed under Sections 157, 161 or Section 162 or where the directors were elected unopposed; or

(b)      the minimum number of votes that were cast for the election of a director at the immediately preceding election of directors, if the resolution relates to removal of a director elected in the manner provided in sub-section (5) of Section 159.

  1. Nominee directors. (1) In addition to the directors elected or deemed to have been elected by shareholders, a company may have directors nominated by the company’s creditors or other special interests by virtue of contractual arrangements.

(2) A body corporate or corporation owned or controlled by the Federal Government or as the case may be, a Provincial Government may also have directors nominated on the board to whom such corporation or company has extended credit facilities.

  1. Certain provisions not to apply to directors representing special interests. (1) Nothing in Sections 158, 159,161, 162 or 163 shall apply to–

(a)      directors nominated by a body corporate or company or any other entity owned or controlled, whether directly or indirectly, by the Federal Government or as the case may be, a Provincial Government on the board of the company in which such body corporate or company or entity has made investment;

(b)      directors nominated by virtue of investment made by the Federal Government or as the case may be, a Provincial Government or the Commission on the board; or

(c)      directors nominated by foreign equity holders on the board or any other body corporate set up under a regional co-operation or other co-operation arrangement approved by the Federal Government.

(2) For the purpose of nominating directors referred to in clause (a), (b) and (c), the number of votes computed in the manner laid down in sub-section (5) of Section 159 as are proportionate to the number of votes required to elect the director if they had offered themselves for election, shall stand excluded from the total number of votes available to the nominating body at an election of directors, which may be proportionate to their voting power required to elect directors at an election of directors of a company.

(3) A director nominated under sub-section (1) shall hold office during the pleasure of the nominating body.

  1. Manner of selection of independent directors and maintenance of databank of independent directors. (1) 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, maintained by any institute, body or association, as may be notified by the Commission, having expertise in creation and maintenance of such data bank and post on their website for the use by the company making the appointment of such directors:

Provided that responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company or the Government, as the case may be, making such appointment.

(2) For the purpose of this section, an independent director means a director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, subsidiaries, holding company or directors; and he can be reasonably perceived as being able to exercise independent business judgment without being subservient to any form of conflict of interest:

Provided that without prejudice to the generality of this sub-section no director shall be considered independent if one or more of the following circumstances exist–

(a)      he has been an employee of the company, any of its subsidiaries or holding company within the last three years;

(b)      he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking or holding company in the last three years;

(c)      he has, or has had within the last three years, a material business relationship with the company either directly, or indirectly as a partner, major shareholder or director of a body that has such a relationship with the company.

               Explanation: The major shareholder means a person who, individually or in concert with his family or as part of a group, holds 10% or more shares having voting rights in the paid-up capital of the company;

(d)      he has received remuneration in the three years preceding his/her appointment as a director or receives additional remuneration, excluding retirement benefits from the company apart from a director’s fee or has participated in the company’s stock option or a performance-related pay scheme;

(e)      he is a close relative of the company’s promoters, directors or major shareholders:

               Explanation: “close relative” means spouse(s), lineal ascendants and descendants and siblings;

(f)       he holds cross-directorships or has significant links with other directors through involvement in other companies or bodies not being the associations licenced under Section 42;

(g)      he has served on the board for more than three consecutive terms from the date of his first appointment, and for more than two consecutive terms in case of a public sector company, provided that one term;

(h)      a person nominated as a director under Sections 164 and 165:

                   Provided further that for determining the independence of directors for the purpose of sub-clauses (a), (b) and (c) in respect of public sector companies, the time period shall be taken as two years instead of three years. Further, an independent director in case of a public sector company shall not be in the service of Pakistan or of any statutory body or any body or institution owned or controlled by the Government.

(3) The independent director of a listed company shall be elected in the same manner as other directors are elected in terms of Section 159 and the statement of material facts annexed to the notice of the general meeting called for the purpose shall indicate the justification for choosing the appointee for appointment as independent director.

(4) No individual shall be selected for the data bank referred to in sub-section (1) without his consent in writing.

(5) The manner and procedure of selection of independent directors on the databank who fulfill the qualifications and other requirements shall be specified by the Commission.

(6)      The requirements of sub-section (1)–

(a)      shall be deemed relaxed till such time a notification is issued by the Commission; and

(b)      may be relaxed by the Commission on an application made by the company supported with the sufficient justification or the practical difficulty, as the case may be.

  1. Consent to act as director to be filed with company. (1) No person shall be appointed or nominated as a director or chief executive of a company or represent as holding such office, nor shall any person describe or name any other person as a director or proposed director or chief executive or proposed chief executive of any company, unless such person or such other individual has given his consent in writing to the company for such appointment or nomination.

(2) The consent given to the company under sub-section (1) shall be filed with the registrar within fifteen days thereof.

  1. Validity of acts of directors. The acts of a person acting as a director are valid notwithstanding that it is afterwards discovered that there was a defect in his appointment; or he was disqualified from holding office; or he had ceased to hold such office:

Provided that, as soon as any such defect has come to notice, the director shall not exercise the right of his office till the defect has been removed.

  1. Penalties. Whoever contravenes or fails to comply with any of the provisions of Sections 154 to 168 or is a party to the contravention of the said provisions shall be liable to a penalty of level 2 on the standard scale and may also be debarred by the authority which imposes the penalty from becoming or continuing a director of the company for a period not exceeding three years.
  2. Restriction on director’s remuneration. (1) The remuneration of a director for performing extra services, including the holding of the office of chairman, shall be determined by the board or the company in general meeting, as the case may be, in accordance with the provisions in the company’s articles.

(2) The remuneration to be paid to any director for attending the meetings of the board or a committee of directors shall not exceed the scale approved by the company or the board, as the case may be, in accordance with the provisions of the articles:

  1. Vacation of office by the directors. (1) A director shall ipso facto cease to hold office if–

(a)      he becomes ineligible to be appointed as a director on any one or more of the grounds enumerated in Section 153;

(b)      he absents himself from three consecutive meetings of the board without seeking leave of absence;

(c)      he or any firm of which he is a partner or any private company of which he is a director–

(i)       without the sanction of the company in general meeting accepts or holds any office of profit under the company other than that of chief executive or a legal or technical adviser; or

(ii)      accepts a loan or guarantee from the company in contravention of Section 182;

(2) Nothing contained in sub-section (1) shall be deemed to preclude a company from providing by its articles that the office of director shall be vacated on any grounds additional to those specified in that sub-section.

DISQUALIFICATION OF DIRECTORS BY THE COMMISSION

  1. Disqualification orders. (1) In any of the circumstances stated hereunder, the Commission may pass a disqualification order against a person to hold the office of a director of a company for a period up to five years beginning from the date of order–

(a)      conviction of an offence in connection with the promotion, formation, management or liquidation of a company, or with the receivership or management of a company’s property;

(b)      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 Commission or the registrar;

(c)      a person has been a director of a company which became insolvent at any time (while he was a director or subsequently):

                   Provided that order against any such person shall not be made after the end of the period of two years beginning with the day on which the company of which that person is or has been a director became insolvent;

(d)      the 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

(e)      the 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

(f)       the 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

(g)      the person has been convicted of allotment of shares of a company for inadequate consideration; or

(h)      the person is involved in illegal deposit taking; or

(i)       the person has been convicted of financial irregularities or malpractices in a company or

(j)       the 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

(k)      the 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 Commission given in the exercise of powers under this Act; or

(l)       the person is convicted of insider trading or market manipulation practices; or

(m)     the person has entered into a plea bargain arrangement with the National Accountability Bureau or any other regulatory body;

(n)      the person has been declared a defaulter by the securities exchange;

(o)      that it is expedient in the public interest so to do.

(2) Where a disqualification order is made against a person who is already subject to such an order, the periods specified in those orders shall run concurrently.

(3) An order under this section may be made by the Commission on its own motion or upon a complaint made in this regard.

(4) Before making an order the Commission shall afford the person concerned an opportunity of representation and of being heard.

(5) Any order made by the Commission under this section shall be without prejudice to the powers of the Commission to take such further action as it deems fit with regard to the person concerned.

  1. Personal liability for company’s debts where person acts while disqualified. (1) A person shall be personally responsible for all the relevant debts of a company if at any time–

(a)      in contravention of a disqualification order under Section 172, he is involved in the management of the company, or

(b)      as a person who is involved in the management of the company, he acts on instructions given without the leave of the Commission by a person whom he knows at that time to be the subject of a disqualification order:

                   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.

(2) 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.

(3)      For the purposes of this section, the relevant debts of a company are,–

(a)      in relation to a person who is personally responsible under paragraph (a) of sub-section (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company; and

(b)      in relation to a person who is personally responsible under paragraph (b) of that sub-section, such debts and other liabilities of the company as are incurred at a time when that person was acting on instructions given as mentioned in that paragraph.

(4) For the purposes of this section, company means a public interest company and a person shall be deemed involved in the management of the company, if he is a director or concerned, whether directly or indirectly or takes part in the management of such company.

  1. Prohibition on assignment of office by directors. (1) A director of any company shall not assign his office to any other person and any such appointment shall be void ab-initio.

(2) Notwithstanding anything contained in sub-section (1), the appointment by a director, with the approval of the board, of an alternate or substitute director to act for him during his absence from Pakistan of not less than ninety days, shall not be deemed to be an assignment of office.

(3) The alternate director appointed under sub-section (2) shall ipso facto vacate office if and when the director appointing him returns to Pakistan.

  1. Penalty for unqualified person acting as director. If a person who is not qualified to be a director or chief executive or who has otherwise vacated the office of director or chief executive describes or represents himself or acts as a director or chief executive, or allows or causes himself to be described as such, shall be liable to a penalty of level 1 on the standard scale.
  2. Proceedings of the board. (1) The quorum for a meeting of board of a listed company shall not be less than one-third of number of directors or four, whichever is greater and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section:

Provided that if at any time, there are not enough directors to form a quorum to fill a casual vacancy, all the remaining directors shall be deemed to constitute a quorum for this limited purpose.

(2) The quorum for a meeting of the board of other than listed company shall be as provided in the articles.

(3) The board of a public company shall meet at least once in each quarter of a year.

(4) If a meeting of the board is conducted in the absence of a quorum or a meeting of board is not held as required by sub-section (3), the chairman of the directors and the directors shall be liable–

(a)      if the default relates to a listed company, to a penalty of level 2 on the standard scale; and

(b)      if the default relates to any other company, to a penalty of level 1 on the standard scale.

  1. Ineligibility of bankrupt to act as director. If any person being an undischarged insolvent acts as chief executive or director of a company, he shall be liable to imprisonment for a term not exceeding two years or to a fine not exceeding one hundred thousand rupees, or to both.
  2. Records of resolutions and meetings of board. (1) Every company shall keep records comprising–

(a)      all resolutions of the board passed by circulation; and

(b)      minutes of all proceedings of board meetings or committee of directors along with the names of participants, to be entered in properly maintained books.

(2) Minutes recorded in accordance with sub-section (1), if purporting to be authenticated by the chairman of the meeting or by the chairman of the next meeting, shall be the evidence of the proceedings at the meeting.

(3) Until the contrary is proved, every meeting of board or committee of directors in respect of the proceedings whereof minutes have been so made shall be deemed to have been duly called, held and conducted.

(4) A copy of the draft minutes of meeting of board shall be furnished to every director within fourteen days of the date of meeting.

(5) The records must be kept at the registered office of the company from the date of the resolution, meeting or decision simultaneously in physical and electronic form and it shall be preserved for at least ten years in physical form and permanently in electronic form.

(6) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Passing of resolution by the directors through circulation. (1) A resolution in writing signed by all the directors or the committee of directors for the time being entitled to receive notice of a meeting of the directors or committee of directors shall be as valid and effectual as if it had been passed at a meeting of the directors or the committee of directors duly convened and held.

(2) A resolution shall not be deemed to have been duly passed, unless the resolution has been circulated, together with the necessary papers, if any, to all the directors.

(3) A resolution under sub-section (1) shall be noted at a subsequent meeting of the board or the committee thereof, as the case may be, and made part of the minutes of such meeting.

(4) A directors’ agreement to a written resolution, passed by circulation, once signified, may not be revoked.

  1. Liabilities of directors and officers. Any provision, whether contained in the articles of a company or in any contract with a company or otherwise, for exempting any officer or auditor of the company, from, or indemnifying him against, any liability which by virtue of any law 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 except as otherwise specified for:

(a)      provisions of insurance undertaken by a company on behalf of such officers of the company; or

(b)      qualifying third party indemnity provisions undertaken by a company on behalf of such officers of the company:

                   Provided that, notwithstanding anything contained in this section, a company may, in pursuance of any such provision as aforesaid, indemnify any such director, chief executive, officer against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted, or in connection with any application under Section 493 in which relief is granted to him.

  1. Protection to independent and non-executive directors. (1) Notwithstanding anything contained in this Act–

(a)      an independent director; and

(b)      a non-executive director;

shall be held liable, only in respect of such acts of omission or commission by a listed company or a public sector company which had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently.

(2)      For the purpose of this section a non-executive director means, a person on the board of the company who–

(a)      is not from among the executive management team and may or may not be independent;

(b)      is expected to lend an outside viewpoint to the board of a company;

(c)      does not undertake to devote his whole working time to the company and not involve in managing the affairs of the company;

(d)      is not a beneficial owner of the company or any of its associated companies or undertakings;

(e)      does not draw any remuneration from the company except the meeting fee.

  1. Loans to directors: requirement of members’ approval. (1) A company shall not–

(a)      make a loan to a director of the company or of its holding company;

(b)      give a guarantee or provide security in connection with a loan made by any person to such a director; or to any of his relatives;

unless the transaction has been approved by a resolution of the members of the company:

Provided that in case of a listed company, approval of the Commission shall also be required before sanctioning of any such loan.

Explanation. For the purpose of this section “relative‖‗ in relation to a director means his spouse and minor children.

(2) Nothing contained in sub-section (1) shall apply to a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan.

(3) Every person who is a party to any contravention of this section, including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable with fine which may extend to one million rupees or with simple imprisonment for a term which may extend to one year.

(4) All persons who are parties to any contravention of sub-section (1) shall be liable, jointly and severally, to the lending company for the repayment of the loan or for making good the sum with markup not less than the borrowing cost of the lending company which the lending company may have been called upon to pay by virtue of the guarantee given or the security provided by such company.

(5) Sub-section (1) shall apply to any transaction represented by a book-debt which was from its inception in the nature of a loan or an advance.

  1. Powers of board. (1) The business of a company shall be managed by the board, who may exercise all such powers of the company as are not by this Act, or by the articles, or by a special resolution, required to be exercised by the company in general meeting.

(2) The board shall exercise the following powers on behalf of the company, and shall do so by means of a resolution passed at their meeting, namely:–

(a)      to issue shares;

(b)      to issue debentures or any instrument in the nature of redeemable capital;

(c)      to borrow moneys otherwise than on debentures;

(d)      to invest the funds of the company;

(e)      to make loans;

(f)       to authorise a director or the 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 the company for making sale, purchase or supply of goods or rendering services with the company;

(g)      to approve financial statements;

(h)      to approve bonus to employees;

(i)       to incur capital expenditure on any single item or dispose of a fixed asset in accordance with the limits as may be specified:

                   Provided that the acceptance by a banking company in the ordinary course of its business of deposit of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, or placing of moneys on deposit by a banking company with another banking company such conditions as the board may prescribe, shall not be deemed to be a borrowing of money or, as the case may be, a making of loan by a banking company with the meaning of this section;

(j)       to undertake obligations under leasing contracts exceeding such amount as may be notified;

(k)      to declare interim dividend; and

(l)       having regard to such amount as may be determined to be material (as construed in Generally Accepted Accounting Principles) by the board–

(i)       to write off bad debts, advances and receivables;

(ii)      to write off inventories and other assets of the company; and

(iii)     to determine the terms of and the circumstances in which a law suit may be compromised and a claim or right in favour of a company may be released, extinguished or relinquished.

(m)     to take over a company or acquire a controlling or substantial stake in another company;

(n)      any other matter which may be specified.

(3) The board of a company shall not except with the consent of the general meeting either specifically or by way of an authorisation, do any of the following things, namely.

(a)      sell, lease or otherwise dispose of the undertakings or a sizeable part thereof unless the main business of the company comprises of such selling or leasing; and

        Explanation. For the purposes of this clause–

(i)       “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty percent of its net worth as per the audited financial statements of the preceding financial year or an undertaking which generates twenty percent of the total income of the company during the previous financial year;

(ii)      the expression “sizeable part” in any financial year shall mean twenty five percent or more of the value of the assets in that class as per the audited financial statements of the preceding financial year;

(b)      sell or otherwise dispose of the subsidiary of the company;

(c)      remit, give any relief or give extension of time for the repayment of any debt outstanding against any person specified in sub-section (1) of Section 182.

(4) Nothing contained in sub-section (3) shall entitle a listed company 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.

(5) Any resolution passed under sub-section (3) if not implemented within one year from the date of passing shall stand lapsed.

(6) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 2 on the standard scale and shall be individually and severally liable for losses or damages arising out of such action.

  1. Prohibition regarding making of political contributions. (1) Notwithstanding anything contained in this Act, a company shall not contribute any amount or allow utilization of its assets–

(a)      to any political party; or

(b)      for any political purpose to any individual or body.

(2)      If a company contravenes the provisions of sub-section (1), then–

(a)      the company shall be liable to a penalty of level 2 on the standard scale; and

(b)      every director and officer of the company who is in default shall be punishable with imprisonment of either description for a term which may extend to two years and shall also be liable to a fine of one million rupees.

  1. Prohibition regarding distribution of gifts. (1) Notwithstanding anything contained in this Act, a company shall not distribute gifts in any form to its members in its meeting.

(2) Any contravention or default in complying with requirement of this section shall be an offence liable to a penalty of level 1 on the standard scale.

CHIEF EXECUTIVE

  1. Appointment of first chief executive. (1) Every company shall have a chief executive appointed in the manner provided in this section and Section 187.

(2) The name of first chief executive shall be determined by the subscribers of the memorandum and his particulars specified under Section 197 shall be submitted along with the documents for the incorporation of the company.

(3) The first chief executive shall, unless he earlier resigns or otherwise ceases to hold office, hold office up to the first annual general meeting of the company or, if a shorter period is fixed by the subscribers at the time of his appointment, for such period.

(4) Notwithstanding anything contained in this section, the Government shall have the power to nominate chief executive of a public sector company in such manner as may be specified.

  1. Appointment of subsequent chief executive. (1) Within fourteen days from the date of election of directors under Section 159 or the office of the chief executive falling vacant, as the case may be, the board shall appoint any person, including an elected director, to be the chief executive, but such appointment shall not be for a period exceeding three years from the date of appointment:

Provided that the chief executive appointed against a casual vacancy shall hold office till the directors elected in the next election appoint a chief executive.

(2)      On the expiry of his term of office under Section 186 or sub-section (1) of this section, a chief executive shall be eligible for reappointment.

(3) The chief executive retiring under Section 186 or this section shall continue to perform his functions until his successor is appointed, unless non- appointment of his successor is due to any fault on his part or his office is expressly terminated.

(4) Notwithstanding anything contained in this section, the Government shall have the power to nominate chief executive of a company where majority of directors is nominated by the Government, in such manner as may be specified.

  1. Terms of appointment of chief executive. (1) Save as provided in sub-section (2), the terms and conditions of appointment of a chief executive shall be determined by the board or the company in general meeting in accordance with the provisions in the company’s articles.

(2) The terms and conditions of appointment of a chief executive nominated under Section 186 or 187 shall be determined by the Government, in such manner as may be specified.

(3) The chief executive shall if he is not already a director of the company, be deemed to be its director and be entitled to all the rights and privileges, and subject to all the liabilities, of that office.

  1. Restriction on appointment of chief executive. No person who is ineligible to become a director of a company under Section 153 or disqualified under Sections 171 or 172 shall be appointed or continue as the chief executive of any company.
  2. Removal of chief executive. (1) The board by resolution passed by not less than three-fourths of the total number of directors for the time being, or the company by a special resolution, may remove a chief executive before the expiration of his term of office notwithstanding anything contained in the articles or in any agreement between the company and such chief executive.

(2) Notwithstanding anything contained in this section, the Government or an authority or a person authorized by it shall have the power to remove chief executive of a company where more than seventy-five percent of the voting rights are held by the Government.

  1. Chief executive not to engage in business competing with company’s business. (1) A chief executive of a public company shall not directly or indirectly engage in any business which is of the same nature as and directly competes with the business carried on by the company of which he is the chief executive or by a subsidiary of such company.

Explanation. A business shall be deemed to be carried on indirectly by the chief executive if the same is carried on by his spouse or any of his minor children.

(2) Every person who is appointed as chief executive of a public company shall forthwith on such appointment disclose to the company in writing the nature of such business and his interest therein.

  1. Chairman in a listed company. (1) The board of a listed company shall within fourteen days from the date of election of directors, appoint a chairman from among the non-executive directors who shall hold office for a period of three years unless he earlier resigns, becomes ineligible or disqualified under any provision of this Act or removed by the directors.

(2) The board shall clearly define the respective roles and responsibilities of the chairman and chief executive:

Provided that the Commission may specify the classes of companies for which the chairman and chief executive shall not be the same individual.

(3) The chairman shall be responsible for leadership of the board and ensure that the board plays an effective role in fulfilling its responsibilities.

(4) Every financial statements circulated under Section 223 of this Act shall contain a review report by the chairman on the overall performance of the board and effectiveness of the role played by the board in achieving the company’s objectives.

  1. Penalty. Any contravention or default in complying with requirements of Sections 186 to 192 shall be an offence liable to a penalty of level 2 on the standard scale and may also be debarred by the authority which imposes the penalty from becoming a director or chief executive of a company for a period not exceeding five years.
  2. Public company required to have secretary. A public company must have a company secretary; possessing such qualification as may be specified.
  3. Listed company to have share registrar. Every listed company shall have an independent share registrar possessing such qualifications and performing such functions as may be specified.
  4. Bar on appointment of sole purchase, sales agents. (1) No company whether incorporated in Pakistan or outside Pakistan which is carrying on business in Pakistan shall, without the approval of the Commission, appoint any sole purchase, sale or distribution agent:

Provided that this sub-section shall not apply to a sole purchase, sale or distribution agent appointed by a company incorporated, outside Pakistan, unless the major portion of the business of such company is conducted in Pakistan.

(2) Whoever contravenes any of the provisions of this section shall be punished with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred thousand rupees, 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.

REGISTER OF DIRECTORS AND OTHER OFFICERS

  1. Register of directors, officers. (1) Every company shall keep at its registered office a register of its directors and officers, including the chief executive, company secretary, chief financial officer, auditors and legal adviser, containing with respect to each of them such particulars as may be specified.

(2) Every person referred to in sub-section (1) shall, within a period of ten days of his appointment or any change therein, as the case may be, furnish to the company the particulars specified under sub-section (1).

(3) Every company shall, within a period of fifteen days from the date of appointment of any person referred in sub-section (1) or any change among them, or in any of their particulars, file with the registrar a return in the specified form:

Provided that this sub-section shall not apply to the first appointment made at the time of incorporation of the company.

(4) Any contravention or default in complying with requirement of sub-section (1) or sub-section (3) shall be an offence liable to a penalty of level 1 on the standard scale.

(5) If the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of directors of a company the person aggrieved or the company, may apply to the Court for rectification of the register of directors.

(6) The Court may either refuse the application or may order rectification of the register on such terms and conditions as it may deem fit and may make order as to costs.

(7) Where the Court has passed and order under sub-section (6) that prima facie entry in or omission from, the register of directors the name or other particulars of any person, was made fraudulently or without sufficient cause, the Court may send a reference for adjudication of offence under sub-section (8) to the Court as provided in Section 482.

(8) Anyone who fraudulently or without sufficient cause enters in, or omits from the register of directors the name or other particulars of any person, shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to one million rupees, or with both.

(9) When it makes an order for rectification of the register of directors in respect of a company, the Court shall cause a copy of the order to be forwarded to the company and shall, by its order, direct the company to file notice of the rectification with the registrar within fifteen days from the receipt of the order.

  1. Rights to inspect. (1) The register kept under Section 197 shall, be open to the inspection of any member of the company and of any other person during business hours, subject to such reasonable restrictions, as the company may impose by its articles or in general meeting, so that not less than two hours in each day are allowed.

(2) Inspection by any member of the company shall be without charge, and in the case of any other person on payment of such fee as may be fixed by the company for each inspection.

(3) A person seeking to exercise the rights conferred by this section must make a request to the company to that effect.

(4)      The request must contain the following information–

(a)      in the case of an individual, his name and address;

(b)      in the case of an organisation, its name and address and also of the authorised person; and

(c)      the purpose for which the information is to be used.

(5) In the case any inspection is refused, the registrar on application made by the person to whom inspection has been refused and upon notice to the company, may by order direct an immediate inspection of the register.

(6) Any contravention or default in complying with requirements of this section shall be an offence shall be liable to a penalty of level 1 on the standard scale.

MISCELLANEOUS PROVISIONS REGARDING INVESTMENTS, CONTRACTS OFFICERS AND SHAREHOLDINGS, TRADING AND INTERESTS

  1. Investments in associated companies and undertaking. (1) A company shall not make any investment in any of its associated companies or associated undertakings except under the authority of a special resolution which shall indicate the nature, period, amount of investment and terms and conditions attached thereto.

Explanation: The term ‗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 the trade policy of the company.

(2) The company shall not invest in its associated company or associated undertaking by way of loans or advances except in accordance with an agreement in writing and such agreement shall inter-alia include the terms and conditions specifying the 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 in accordance with the approval of the members in the general meeting:

Provided that the return on such investment shall not be less than the borrowing cost of the investing company or the rate as may be specified by the Commission whichever is higher and shall be recovered on regular basis in accordance with the terms of the agreement, failing which the directors shall be personally liable to make the payment:

Provided further that the directors of the investing company shall certify that the investment is made after due diligence and financial health of the borrowing company is such that it has the ability to repay the loan as per the agreement.

(3)      The Commission may–

(a)      by notification in the official Gazette, specify the class of companies or undertakings to which the restriction provided in sub- section (1) shall not apply; and

(b)      through regulations, specify such disclosure requirements, conditions and restrictions on the nature, period, amount of investment and terms and conditions attached thereto, and other ancillary matters.

(4) An increase in the amount or any change in the nature of investment or the terms and conditions attached thereto shall be made only under the authority of a special resolution.

(5) Every company shall maintain and keep at its registered office a register of investments in associated companies and undertakings containing such particulars as may be specified.

(6) Any contravention or default in complying with requirements of this section shall be an offence liable to a penalty of level 3 on the standard scale and in addition, shall jointly and severally reimburse to the company any loss sustained by the company in consequence of an investment which was made without complying with the requirements of this section.

  1. Investments of company to be held in its own name. (1) All investments made by a company on its own behalf shall be made and held by it in its own name:

Provided that the company may hold any shares in its subsidiary company in the name of any nominee of the company, if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.

(2) Where the company has a right to appoint or get elected any person as a director of any other company and a nominee of the company in exercise of such right has been so appointed or elected, the shares in such other company of an amount not exceeding the nominal value of the qualification shares which are required to be held by a director thereof, may be registered or held by such company jointly in its own name and in the name of such person or nominee, or in the name of such person or nominee alone.

(3) Nothing in this section shall be deemed to prevent a company from depositing with, or transferring to, or holding, or registering in the name of a central depository any shares or securities.

(4) Where, in pursuance of proviso to sub-section (1) or provisions of sub-sections (2) or (3), any shares or securities in which investments have been made by a company are not held by it in its own name, the company shall forthwith enter in a register maintained by it for the purpose at its registered office the nature, value and such other particulars as may be necessary fully to identify such shares or securities.

(5) The register maintained under sub-section (4) shall, be open to the inspection of members without charge, and to any other person on payment of such fees as the company may specify in this behalf during business hours, subject to such reasonable restrictions, as the company may impose, so that not less than two hours in each day be allowed.

(6) Any member may require a certified copy of register or any part thereof, on payment of such fee as may be fixed by the company.

(7) The certified copies requested under this section shall be issued within a period of seven days.

(8) A member seeking to exercise either of the rights conferred by sub-sections (5) or (6) must make a request to the company to that effect.

(9) If a company contravenes the provisions of sub-section (1), the company shall be punishable with fine which may extend to five million rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to one million rupees, or with both.

(10) Any contravention or default in complying with requirements of sub-sections (4), (5) or (6), shall be an offence liable to a penalty of level 1 on the standard scale; and the registrar may by an order compel an immediate inspection of the register or direct that copies required shall be sent to the persons requiring them.

  1. Method of contracting. (1) A contract or other enforceable obligation may be entered into by a company as follows:

(a)      an obligation which, if entered into by a natural person, will, by law, be required to be by deed or otherwise in writing, may be entered into on behalf of the company in writing signed under the name of the company by a director, attorney or any other person duly authorised by the board and may affix common seal of the company;

(b)      an obligation which, if entered into by a natural person, is not, by law, required to be in writing, may be entered into on behalf of the company in writing or orally by a person acting under the company’s express or implied authority.

(2) All contracts made according to sub-section (1) 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.

  1. Execution of bills of exchange, promissory notes and deeds. (1) A bill of exchange or promissory note shall be deemed to have been made, drawn, accepted or endorsed on behalf of a company if made, drawn, accepted or endorsed in the name of, or on behalf of or on account of, the company by any person acting under its authority, express or implied.

(2) A company may, by writing, authorise any person, either generally or in respect of any specified matters, as its attorney to execute deeds on its behalf in any place either in or outside Pakistan.

(3) A deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it was made by the company itself.

  1. Company to have official seal for use abroad. (1) A company that has a common seal may have an official seal for use outside Pakistan.

(2) The official seal must be a facsimile of the company’s common seal, with the addition on its face of the name of every territory where it is to be used.

(3) The official seal when duly affixed to a document has the same effect as the company’s common seal.

(4) A company having such an official seal may, by writing under its common seal, authorise any person appointed for the purpose in any territory not situate in Pakistan to affix the same to any deed or other document to which the company is party in that territory.

(5) The authority of any such agent shall, as between the company and any person dealing with the agent, continue during the period, if any, mentioned in the instrument conferring the authority, or if no period is mentioned therein, then until notice of the revocation or determination of the agent’s authority has been given to the person dealing with him.

(6) The person affixing any such official seal shall, by writing under his hand, on the deed or other document to which the seal is affixed, certify the date and place of affixing the same.

(7) A deed or other document to which an official seal is duly affixed shall bind the company as if it had been sealed with the common seal of the company.

  1. Duties of directors. (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.

(2) A director of a company shall 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.

(3) A director of a company shall discharge his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

(4) A director of a company 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.

(5) A director of a 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.

(6) A director of a company shall not assign his office and any assignment so made shall be void.

(7) In addition to the preceding sub-sections, the Commission may provide for the extent of duties and the role of directors as may be specified.

(8) Any breach of duty, default or negligence by a director in contravention of the articles of the company or any of its policy or decision of the board may be ratified by the company through a special resolution and the Commission may impose any restriction as may be specified.

(9) Without prejudice to any other action that may be taken under this Act or any other law, any contravention or default in complying with requirements of this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Disclosure of interest by director. (1) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the company shall disclose the nature of his concern or interest at a meeting of the board:

Provided that a director shall be deemed also to be interested or concerned if any of his relatives, is so interested or concerned.

Explanation. For the purpose of this section “director’s relatives”, are,–

(a)      the director’s spouse;

(b)      the director’s children, including the step children;

(c)      the director’s parents;

(2)      The disclosure required to be made by a director under sub-section (1) shall be made–

(a)      in the case of a contract or arrangement to be entered into, at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration or, if the director was not, on the date of that meeting, concerned or interested in the contract or arrangement, at the first meeting of the board held after he becomes so concerned or interested; and

(b)      in the case of any other contract or arrangement, at the first meeting of the board held after the director becomes concerned or interested in the contract or arrangement.

(3) For the purposes of sub-sections (1) and (2), a general notice given to the board to the effect that a director is a director or a member of a specified body corporate or a partner of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made.

(4) Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further period of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire.

(5) No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the board, or the director concerned takes reasonable steps to ensure that it is brought up and read at the first meeting of the board after it is given.

(6) Any contravention or default in complying with requirements of sub-sections (1) or (2), shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Interest of officers. (1) Save as provided in Section 205 in respect of directors, no other officer of a company who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the company shall, unless he discloses the nature and extent of his interest in the transaction and obtains the prior approval of the board, enter into any such contract or arrangement.

(2) Any contravention or default in complying with requirement under this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Interested director not to participate or vote in proceedings of board. (1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement, nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void:

Provided that 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.

(2) If majority of the directors are interested in, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, the matter shall be laid before the general meeting for approval.

(3)      Sub-section (1) shall not apply to–

(a)      a private company which is neither a subsidiary nor a holding company of a public company;

(b)      any contract of indemnity or insurance coverage executed by the company in favour of interested director against any loss which he may suffer or incur by reason of becoming or being a surety for the company or while undertaking any transaction on behalf of the company:

                   Provided that for the purpose of clause (b), a company shall only insure the liability of interested director where such liability arises out of a transaction validly approved by the board or the members of the company as the case may be:

(4) Any contravention or default in complying with requirements under this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Related party transactions. (1) A company may enter into any contract or arrangement with a related party only in accordance with the policy approved by the board, subject to such conditions as may be specified, with respect to–

(a)      sale, purchase or supply of any goods or materials;

(b)      selling or otherwise disposing of, or buying, property of any kind;

(c)      leasing of property of any kind;

(d)      availing or rendering of any services;

(e)      appointment of any agent for purchase or sale of goods, materials, services or property; and

(f)       such related party’s appointment to any office or place of profit in the company, its subsidiary company or associated company:

                   Provided that where majority of the directors are interested in any of the above transactions, the matter shall be placed before the general meeting for approval as special resolution:

                   Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business on an arm’s length basis.

        Explanation. In this sub-section–

(a)      the expression “office of profit” means any office–

(i)       where such office is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(ii)      where such office is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(b)      the expression “arm’s length transaction” means a transaction which is subject to such terms and conditions as may be specified.

(c)      the expression “related party” includes–

(i)       a director or his relative:

(ii)      a key managerial personnel or his relative;

(iii)     a firm, in which a director, manager or his relative is a partner;

(iv)     a private company in which a director or manager is a member or director;

(v)      a public company in which a director or manager is a director or holds alongwith his relatives, any shares of its paid up share capital;

(vi)     any body corporate whose chief executive or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii)    any person on whose advice, directions or instructions a director or manager is accustomed to act:

                   Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii)   any company which is–

(A)     a holding, subsidiary or an associated company of such company; or

(B)     a subsidiary of a holding company to which it is also a subsidiary;

(ix)     such other person as may be specified;

               Explanation. For the purpose of this section “relative” means spouse, siblings and lineal ascendants and descendants of a person.

(2) Every contract or arrangement entered into under sub-section (1) shall be referred to in the board’s report to the shareholders along-with the justification for entering into such contract or arrangement.

(3) The Commission may specify the record to be maintained by the company with regards to transactions undertaken with the related party.

(4) Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the board or approval by a special resolution in the general meeting under sub-section (1) and if it is not ratified by the board or, as the case may be, by the shareholders at a meeting within ninety days from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the board and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

(5) Without prejudice to anything contained in sub-section (4), it shall be open to the company to proceed against a director or any employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.

(6) Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall be liable–

(a)      in case of listed company, be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than five million rupees, or with both; and

(b)      in case of any other company, to a penalty of level 2 on the standard scale.

  1. Register of contracts or arrangements in which directors are interested. (1) Every company shall keep one or more registers giving separately the particulars of all contracts or arrangements, in such manner and containing such particulars as may be specified by the Commission.

(2) Every director shall, within a period of thirty days of his appointment, or relinquishment of his office, as the case may be, disclose to the company the particulars relating to his concern or interest in the other associations which are required to be included in the register under sub-section (1) or such other information relating to himself as may be specified.

(3) The register referred to in sub-section (1) shall be kept at the registered office of the company and it shall be open for inspection at such office during business hours and extracts may be taken therefrom, and copies thereof as may be required by any member of the company shall be furnished by the company to such extent, in such manner, and on payment of such fees as may be specified.

(4) The register to be kept under this section shall also be produced at the commencement of every annual general meeting of the company and shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting.

(5) Nothing contained in sub-section (1) shall apply to any contract or arrangement–

(a)      for the sale, purchase or supply of any goods, materials or services if the value of such goods and materials or the cost of such services does not exceed five hundred thousand rupees in the aggregate in any year; or

(b)      by a banking company for the collection of bills in the ordinary course of its business.

(6) Any contravention or default in complying with requirements under this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Contract of employment with directors. (1) Every company shall keep at its registered office–

(a)      where a contract of service with a director is in writing, a copy of the contract; or

(b)      where such a contract is not in writing, a written memorandum setting out its terms.

(2) The copies of the contract or the memorandum kept under sub- section (1) shall be open to inspection by any member of the company without payment of fee.

(3) Any contravention or default in complying with requirement under this section shall be an offence liable to a penalty of level 1 on the standard scale.

(4)      The provisions of this section shall not apply to a private company.

  1. Restriction on non-cash transactions involving directors. (1) No company shall enter into an arrangement by which–

(a)      a director of the company or its holding, subsidiary or associated company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or

(b)      the 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 the company in general meeting and if the director or connected person is a director of its holding company, approval under this sub-section shall also be required to be obtained by passing a resolution in general meeting of the holding company.

(2) The notice for approval of the resolution by the company or holding company in general meeting under sub-section (1) shall include the particulars of the arrangement along-with the value of the assets involved in such arrangement duly calculated by a registered valuer.

(3) Any arrangement entered into by a company or its holding company in contravention of the provisions of this section shall be voidable at the instance of the company unless–

(a)      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

(b)      any rights are acquired bona fide for value and without notice of the contravention of the provisions of this section by any other person.

(4) The company shall ensure that all cash transactions with its directors are conducted only through banking channels.

  1. Declaring a director to be lacking fiduciary behaviour. The Court may declare a director to be lacking fiduciary behaviour if he contravenes the provisions of Section 205 or sub-section (1) of Section 206 or Sections 207 or 208:

Provided that before making a declaration the Court shall afford the director concerned an opportunity of showing cause against the proposed action.

  1. Disclosure to members of directors’ interest in contract appointing chief executive or secretary. (1) Every director of a company who is in any way, whether directly or indirectly, concerned or interested, in any appointment or contract for the appointment of a chief executive, whole-time director or secretary of the company shall disclose the nature of his interest or concern at a meeting of the board in which such appointment or contract is to be approved and the interested director shall not participate or vote in the proceedings of the board.

(2) All contracts entered into by a company for the appointment of a chief executive, whole-time director or secretary shall be kept at the registered office of the company.

(3) Every contract required to be kept under sub-section (2) must be open to inspection by any member of the company without charge.

(4) Any member of the company is entitled, on request and on payment of such fee as may be fixed by the company, to be provided with a copy of any such contract. The copy must be provided within seven days after the request is received by the company.

(5) Any contravention or default in complying with requirements under this section shall be an offence liable to a penalty of level 1 on the standard scale.

  1. Contracts by agents of company in which company is undisclosed principal. (1) Every officer or other agent of a company, other than a private company, not being the subsidiary company of a public company, who enters into a contract for or on behalf of the company in which contract the company is an undisclosed principal shall, at the time of entering into the contract, make a memorandum in writing of the terms of contract, and specify therein the person with whom it has been made.

(2) Every such officer or other agent shall forthwith deliver the memorandum aforesaid to the company and its directors which shall be laid before next meeting of the board.

(3) If any such officer or other agent makes default in complying with the requirements of this section–

(a)      the contract shall, at the option of the company, be void as against the company; and

(b)      such officer or other agent shall be liable to a penalty of level 1 on the standard scale.

  1. Liability for undesired activities of the shareholders. (1) A member of a company shall act in good faith while exercising its powers as a shareholder at the general meetings and shall not conduct themselves in a manner that is considered disruptive to proceedings of the meeting.

(2) Without prejudice to his rights under this Act, a member of the company shall not exert influence or approach the management directly for decisions which may lead to create hurdle in the smooth functioning of management.

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