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PROFESSIONAL

MODULE-V

Corporate Law &


Governance

ICPAP

The Institute of Certified Public Accountants


Pakistan

Corporate Law & Governance

ICPAP

Question:State, with reasons in brief, whether the following statements are correct or incorrect.
i.
ii.
iii.
iv.
v.

An individual who has subscribed his name in the memorandum of association of a


company is necessarily a promoter of that company.
Underwriting an issue of share/debenture is in fact an insurance for the issue
Annual general meeting of a company cannot be held on a public holiday. Therefore,
it cannot be held on Sunday.
Minutes of a Board meeting must be duly written and signed by the chairman of that
meeting within 14 days of conclusion of that meeting.
Minority shareholder(s) can also be oppressive on majority.

Answer
i.

ii.

iii.

iv.

v.

The statement is false. A person who takes initiative in floating a company and takes
active part in bringing the company to legal existence is as promoter. A subscriber to
memorandum may or may not be a promoter of the company concerned. As per
Companies ordinance 1984, the subscribers of the memorandum of company shall be
deemed to have agreed to become members of the company.
The statement is true. An underwriter of an issue of share/debenture enters into a
contract with the company making the issue to get the issue subscribed by public or
intended section of public either fully or partly. If an unsubscribed part remains out of
his contractual quota, he is bound to make good the same in proportion to but limited to
the obligation undertaken by him. Therefore, underwriting is a sort of insurance against
the possibility of inadequate subscription for which the issuing company gives a
commission to the underwriter.
The statement is true. Under Section 166 of the Act, AGM cannot be called to be held on
a public holiday. Sunday is a public holiday. Therefore, the given statement is true that
annual general meeting of a company cannot be held on Sunday.
The statement is false. Section 173 (1) of the ordinance, inter alia, requires minutes of the
Board meeting to be written in the consecutively numbered pages of the Minutes Book
kept for that purpose within 14 days of conclusion of the meeting concerned.
The statement is true. Section 290 of the Companies Ordinance, 1984 has not specified
that oppression as such can only be inflicted by majority shareholders. It has dealt with
oppression as a phenomenon without telling who would be oppressing and who would
be oppressed. While oppression by majority on the minority is a natural probability, but
the reverse is also possible and it has happened in a number of cases. While dealing with
such cases, the Courts took into account the act of oppression without regard to who has
oppressed whom.

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Question:Comment on the following:


i.

ii.

In matters of investigation into the affairs of a company, the SECP has only a
discretionary power to order the investigation restricted only to the concerned
company.
Rana Javed, a member of your company holding 3,000 equity shares, suspects
management fraud and serves a notice on your company demanding inspection of the
books of account of the company.

Answer:
i.

It is true that the powers of the SECP in matters of investigation into the affairs of a
company are only discretionary. While it is true that the powers to order an
investigation is discretionary so far as provisions of Section 263(1) and Section 265 (b)
are concerned, under Section 265 and ordinance, if a company by special resolution or
the Court by the order declares that the affairs of the company ought to be investigated
by an Inspector, then it is obligatory for the SECP to appoint one or more competent
persons as investigators to investigate the affairs of the company and to report thereon.
Furthermore, where an inspector or inspectors are appointed by the SECP, these
inspectors have wide powers under the Companies Ordinance. Thus, under Section 267
of the Act, an inspector may with prior approval of SECP in cases referred to in (b), (c),
(d) below, where approval will be given after giving such body corporate or persons a
reasonable opportunity to show cause why such approval should not be accorded, may
also investigate the affairs of the following body corporates or persons, if the inspector
thinks that such investigation is necessary for the purpose of his investigation:
a) Any other body corporate which is, or has at any relevant time, been the
companys subsidiary or holding company or a subsidiary of its holding
company or a holding company of its subsidiary;
b) Any other body corporate which is, or has at any relevant time been managed by
any person as the managing director or as manager, who is or was at the relevant
time, the managing director or manager of the company; or
c) Any other body corporate which is or has at any relevant time been managed by
the company or whose Board of Directors comprises of nominees of the company
or is accustomed to act in accordance with the directions or instructions of the
company or any of the directors of the company or any company, any of whose
directorship is held by the employees or nominees of those having control and
management of the first mentioned company; or
d) Any person who is as has at any relevant time been the companys managing
director or manager.

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Corporate Law & Governance

ii.

ICPAP

The Companies Ordinance 1984 does not provide for any right of inspection of books of
account to a shareholder. However, articles of a company may give such a right to the
shareholders. In terms of Regulation, the SECP shall from time to time determine
whether and to what extent and at what times and places and under what conditions or
regulations, the accounts and books of the company or any of them shall be open to
inspection of members not being directors. Further, no member (not being a director)
shall have any right of inspecting any accounts or books or documents of the company
except as conferred by law or authorized by the SECP or by the company in general
meeting. Thus, in the absence of any such specifically enabling provision, a shareholder
has no right to inspect the books of accounts of the company.
In order to prove allegations made in a petition under Section 290/291, the shareholders
are entitled to be allowed inspection of the books of accounts and other relevant papers
of the company if so ordered by SECP.

Question:a) Successive corporate failures are responsible for emergence of the concept of
corporate governance. Discus.
b) Who is a dissenting shareholder in a scheme or contract of amalgamation under
Section 289? Discuss the position of a dissenting shareholder in such scheme or
contract.
Answer:
a) The Corporate World, be it in the Western Countries or in our country, has historically
operated without much commitment to its social responsibilities and concern for
investors. Except few honorable exceptions, most of the corporates indulged in practices
which, we today consider as exploitive and harmful to the society at large. Apart from
monopolistic/oligopolistic pricing of their products, the quality of products and market
manipulation to create artificial scarcity condition being matters of concern, minority
investors in the corporates were at mercy of controlling management and corporate
collapse rendered thousands of such investors helpless spectators of their invested
money disappear in thin air. While lots of corporate failures have taken place from the
days of Solomon v. Solomon & Co. Ltd. in late nineteenth century, awareness about
corporate ethics and social responsibility started to emerge only from latter part of
twentieth century and received the much needed focus form Cadbury Committee.
Thereafter, in our country as also elsewhere, a number of Committees were set up on
formulation of corporate governance parameters. Apart from concepts of social
accounting and auditing, which made a feeble appearance in communicating to the
corporate would as to what should be its commitment to the society, audit committee
concept emerged as an independent concept centering round finance of the corporates
which in their virtual lifeline. In spite of all these, Euron, Worldcorn, Qest scams
happened to rob the investors totally and thoroughly. In our county, through on lesser

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scale, this situation emerged. Now, the question arises whether the concept of corporate
governance is the result of successive corporate failures. It is partly true but the real
thrust came from the society at large and various stakeholders to curb corporate
exploitation of the society in various ways. Now the alert society has to ensure that the
parameters or corporate governance are abided by in letters and spirit. Mechanical
compliance with rules is not the avowed goal of corporate governance.
b) Under Companies Ordinance 1984 Section 289, a dissenting shareholder includes a
shareholder who has not assented to the scheme/contract and any shareholder who has
failed or refused to transfer his shares to the transferee company in accordance with the
scheme/contract.
The position of dissenting shareholder is as follows:
i. Transferee Company has to give notice to dissenting shareholders that it desires
to acquire their shares, when shareholders holding at least 9/10th in value of the
concerned shares agreed to make the transfer. The transferee company has to
offer same consideration for shares of the dissenting shareholders as it has done
for consenting shareholders. However, if any dissenting shareholder approaches
the court on receipt of the notice, the court determined price will be the
consideration for share of dissenting shareholders.
ii. If the transferee company holds more then 1/10th in value of the shares of the
transferee company, the transferee company can only acquire the shares of the
dissenting shareholders if (a) the transferee company offers the same terms to all
shareholders of the same class and (b) the shareholders who had agreed to
transfer their shares should not only hold 9/10th in value of the shares other than
those already held by the transferee but their number should not be less than
3/4th of the total number of shareholders of the shares under consideration.
iii. In the situation where the transferee already holds 9/10th in value of shares
concerned, it has to give a notice to the remaining dissenting shareholders of
transferor company within one months, require the transferee to acquire the
shares on the same terms as that of the consenting shareholders or on such other
terms as may be agreed or as may be ordered by court if either party approaches
the court. In nutshell, it may be held that dissenting shareholders position is
secured and it can have the same terms and conditions as were given to the
consenting shareholders, if not a better one, if so ordered by the court.

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Question:What are the circumstances in which a company shall be deemed to be unable to pay its
debts? Will a simple dishonor of an accepted bill of exchange, without a demand or levy of
execution, tantamount to proof of inability to pay its debts?
Answer:
Section 306 of the Companies Ordinance, 1984 lays down the following circumstances in which
company shall be deemed to be unable to pay its debts:
i.

ii.
iii.

If a creditor, to whom company owes more than Rs.500, he served on the company, a
demand in writing for payment of debts and the company has for three weeks thereafter
neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of
the creditor;
If execution or other process in favor of creditor of the company is returned unsatisfied
in whole or in part; or
If it is proved to the satisfaction of Court that the company is unable to pay its debts and
in determining whether a company is unable to pay its debts, the Court shall take into
account the contingent and prospective liabilities of company.

In Asea Brown Boveri Ltd. v. Boving Gouress Ltd. [2003] CLC 1016 it has been held that
dishonor of a cheque for insufficiency of funds issued by a company to its supplier
circumstances must corroborate commercial insolvency. Thus a simple dishonor of an accepted
bill of exchange, without demand or levy of execution, would not tantamount to proof of
inability to pay its debts.
Question:a) State briefly the fundamental principles which should govern the conduct
(professional ethical standards) of a company secretary in practice.
b) Examine whether the request for transfer of shares can be entertained in the
following cases:
i.
Signature in a different language on the transfer deed vis--vis specimen
signature recorded with the company.
ii.
The transferee has lodged more than one share certificate accompanied with a
jumbo transfer deed and if one or more of such certificates not found in order.
Answer:
a) Code of conduct is a set of simple rules outlining the expected conduct for observance
by members of any professional body. And embodies the penal consequences for nonobservance by the member of the profession. The basic reason why the code of conduct
is strictly to be enforced in the case of professional is, that a professional is conditioned
by an elaborate preparatory education rigorous instruction and valuable practical

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training, and to distinguish, above all, righteous act/conduct from others. Code of
conduct also goes by the synonym Professional ethics.
The fundamental principles which should govern the conduct of a company secretary in
practice have been broadly identified as under:
(a) Integrity; (b) professional independence; (c) professional competence: (d) objectivity:
(e) Quality of service; (f) ethical behavior; (g) personal, corporate and social values; (h)
conforming to technical standards if any prescribed; and (i) confidentiality of
information acquired in the course of professional work.
b) Answer:
i.
The norms for objection under uniform guidelines by SECP prescribe that in such
a case, the company/STA can send to the transferee an objection memo along
with documents as per general guideline (original transfer deed, original
certificate, original objection memo with reasons) with the qualification that
signature for transferor as per the records; of the company/STA is in a language
different from that on the transfer deed. Alternatively, the language in which
the transferor signed as per their records may be specified. Transferee has to
contact the concerned broker for lodging objection through the relevant stock
exchange. Transferor has to rectify with a fresh transfer deed duly attested.
ii.
The norms for processing of transfers stipulate that in such a case, the
company/STA can return as company objection. However, only such
certificate/transfer deed as are not found to be in order should be returned and
the company shall proceed to transfer the other certificates with good title.
Question:a) Draft a special resolution for amendment of main objects as enunciated in the
memorandum of association of Power Enterprises Ltd. by deleting existing clause 1
and clause 4(a) and substituting with new clauses to give effect to the following
activities:
i.
To empower the company inter alia to plan, promote and organize an
integrated and efficient development of thermal/hydel power and power
through non-conventional renewal energy sources in Pakistan and abroad.
ii.
To make a foray into the business of nuclear power generation and to
undertake different activities in connection with nuclear power generation.
b) Draft a suitable explanatory statement pursuant to section 160 in respect of the
change in the main objects of the memorandum of association as detailed in
question (a) above.
Answer:
a) Draft Special Resolution for Amendment of objects:
To consider and if thought fit to pass the following Resolution as a Special Resolution:

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Resolved that pursuant to the provision of Section 36 and other applicable provisions,
if any, of the Companies Ordinance 1984 existing clause 1 and clause 4(a) of the
Memorandum of Association of the company be and is hereby substituted with the
following clause 1 and clause 4(a) respectively:
Clause 1 To plan, promote and organize facilities for an integrated and efficient
development of thermal, hydel, nuclear power and power through nonconventional/renewable energy sources in Pakistan and abroad including planning,
investigation, research, design and preparation of preliminary, feasibility and definite
project reports. To construct, generate, operate and maintain, renovate and modernize
the power stations and projects for transmission, distribution and sale of power
generated at stations in Pakistan and abroad in accordance with the national economic
policies and objectives laid by the Central Government from time to time.
Clause 4(a)- To carry on the business of generating, trading, or otherwise dealing in all
aspects of planning investigation, construction, generation, operation and maintenance
and renovation and modernization of power stations for generation of nuclear power.
b) Explanatory statement pursuant to Section 160() of the Companies Ordinance 1984
Section 17 of the Companies Act provides that a company can alter the objects of its
memorandum by a special resolution only to the extent required to enable it to do any
of the things specified in sub-clauses (a) to (g). According to Clause (a), (c) & (d) of Subsection (1), a company may alter the memorandum with respect to its object so far as
may be required to enable it to carry on its business more economically or more
efficiently, to enlarge or change the local area of its operations and to carry on some
business which under existing circumstances may conveniently or advantageously be
combined with the business of the company. Your company proposes this resolution
since; there is large gap between the demand and supply of power in the country.
Generation of electricity has been opened up to the private sector. Holding forward
looking approach and in view of the expecting a large scope in this area, it is proposed
to engage in the business of generation of electricity through conventional and nonconventional sources as detailed in the resolution. This activity will bring more
profitability which will in result benefits shareholders. The detailed plan for execution
of this object has been prepared. Complete budgeting of funds has already been done.
The said plan and budget statement will be table at the meeting. The company can
undertake these activities only if the objects clause is suitably amended. Hence the
resolution is proposed.
None of the directors of the company is interested or concerned in the said resolution
except as members of the company.

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Question:a) Distinguish between------i.


Compromise and arrangement ; and
ii.
Reconstruction and amalgamation.
b) Describe how risk management has assumed great importance in corporate
governance.
c) Draft a resolution for appointment of shareholder/investors grievance committee.
a) Answer:i.
Compromise and arrangement
Compromise means an amicable settlement of differences by mutual concessions
by the parties to dispute or difference. Arrangement has a far wider reach and
includes agreements which modify rights about which there is no dispute.
Sections 391 to 393 deal with the provisions governing compromise or
arrangement. The term arrangement in accordance with Section 390 includes a
re-organization of the share capital of the company by the consolidation of shares
of different classes or by the division of shares into shares of different classes or,
by both these methods.
ii.

Reconstruction and amalgamation


Reconstruction among other things indicates the process which involves the
transfer of undertaking of an existing company to another company, the carrying
on of substantially the same business by the same persons and the rights of
shareholders in the old company get allotment of shares in the new company as a
consideration. Arrangements and compromise may take place for the purpose of
reconstruction and amalgamation of companies. Reconstruction can also be an
internal reconstruction when there is no change in the corporate status. But
rights of shareholders, creditors etc. are varied.
Amalgamation is coming together of two or more undertaking/companies
merged into one undertaking/company with shareholders of each becoming
substantially the shareholders of the other company which remain after the
amalgamation.

b) The growth in economy brings dynamic events in its make with the regulatory
authorities on ever alert to monitor and tie in the loose to protect the people from
various risks including risk of inflation, business risk viz. appreciating Rupee and
international crude oil prices impacting difference sectors of economy.
In such a scenario the boards role in managing risks of the company acquires greater
importance in discharging corporate governance. Kumarmangalam Birla Committee and
Narayana Murthy Committee Reports have dealt with the issue of risk management.

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It is important for the corporate Boards to be fully aware of the risk facing the business
and the shareholders must know how the companies manage the business risks.
The procedure should be in place to inform Board about the risk assessment and
minimization to be periodically reviewed to ensure that the executive properly adhere to
guidelines issued for risk management. Quarterly reports should be placed before the
Board for approval. Audit Committee should also be aware of the risk
management/minimization procedures being followed by the company.
To sum up, the business is exposed to a wide variety of risks and it is the duty of an
effective Board to ensure that appropriate policies are formulated to be not only aware
of these risks but also minimize them. Obviously besides those inherent in the
environment some calculated risks have to be taken by the management, the objective of
risk management is to ensure that no unwarranted risks are taken and the executives do
not get carried away in pursuit of their goals to override the ultimate objective of the
organization to enhance shareholders wealth.
c) RESOLVED THAT pursuant to Article No______ of the Articles of Association of the
Company, a shareholders/Investors Grievance Committee be and is hereby constituted
with Mr Akram.Mr Akram. Mr Akram.. and Mr
Akram, Directors as the members and the following powers of the Board be
and are delegated to the Committee:
- To formulate guidelines for redressing the Investor/Shareholders grievances
pertaining to any or all of the share maintenance activities of the Company:
- To ensure that all the grievances/complaints of Investors/Shareholders are
promptly and duly redressed by the Company and/or Share Transfer and
Registration Agents;
- To receive, peruse and respond suitably to periodic reports form Mr Akram
Company Secretary and Compliance Officer showing the status of
communication/complaints received from the investors/shareholders and steps
taken to redress the same;
- To forward to the Board of Directors a periodic report/feedback on all matters
dealt with by the committee;
- To take all other consequential and incidental actions and measures.
THAT the Committee members do elect a Chairman from among themselves to
preside over the meetings of the Committee
That the quorum of for committee meetings shall be the presence of one third of the
members subject to at least two members
That decisions of the Committee shall be by a majority of the votes of the members and
in case of equality of votes, the Chairman shall have a second or casting voting.

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That Mr Akram Company Secretary & Compliance Officer shall act as Secretary to
the Committee and record minutes of the proceedings of the meetings and carry out all
such activities as the Committee may direct.
Question:a) An Auditor has to be cautious before accepting the relative information made
available under inter-firm comparison. Before initiating measures to fall in line or
better itself, the company cannot blindly accept the information but study in depth
how the computations were made and assumptions on which they are made. Discuss
the limitations of inter-firm comparison.
b) If a companys account show the sufficient profit to pay dividend which the Board of
directors have duly declared but the cash balance is insufficient to pay the dividend,
what would be your attitude as an Auditor? Suggest a method to overcome the
shortage of liquid resources to pay the dividend.
c) Draw an audit program for conducting operational audit of packaging process of
toilet soap manufacturing company.
Answer:
a) No doubt that inter-firm comparison has various advantages; it is not free from drew
backs. The following are the limitations of inter-firm comparison:
i.
If information or rations are not properly collected before they are used,
comparison will be rendered difficult and absurd results will emerge.
ii.
Most of the member firms do not disclose the relevant data as they consider it
confidential. Thus, the information supplied may not always be reliable for
comparison or decision making purposes.
iii.
The middle management may not be convinced with the utility of inter-firm
comparison and hence may not take interest.
iv.
Unless there is a uniform costing system among the members, the information
may not be reliable for the purposes of comparison as different members may
imply different things by the usage of same terms.
v.
In the normal course, a suitable base for comparison may not be available.
vi.
In any comparison, time factor is an important element, any inter-firm
comparison, which ignores this, will lead to misleading results which are not
comparable and as such the very purpose of this exercise will be frustrated.
vii.
The inconsistencies in financial reporting are totally ignored. No adjustments are
made for changes in the prices. No attention is given to the level of technology
and technological developments. Generally, there is a lack of common valuation
method in different units to be compared. All these aspects adversely affect the
reliability of the results obtained by inter-firm comparison.

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b) The auditor should enquire as to the cause of insufficient cash which prevented the
directors from paying dividend, which was declared, in spite of there being sufficient
profit. Insufficiency of cash under the circumstances may be due to the following causes:
1. Insufficiency of cash due to:
Inflation of stock in trade by over-valuation or including fixed assets in
stock.
Fictitious sales
Under-valuation or omission of liabilities
No provision or inadequate provision of depreciation
No provision or inadequate provision for bad and doubtful debts
Omission of purchases etc.
2. Expenditure might have been incurred on purchase of fixed assets for expanding
business.
The following methods may be adopted to overcome shortages:
To borrow money from bankers of the company.
To issue debenture
To issue more shares provided there is sufficient unissued capital
The method to be adopted will depend upon the circumstances of each case. The
question done not make it clear whether the shortage of the cash is a temporary phase or
money has been sunk in permanent expansion of business.

c) The operational auditor should incorporate the following strategy in general:


1. Make a preliminary survey of the activity to be examined for obtaining necessary
background.
2. Basic structure or charter of responsibility for that activity should be examined to
ascertain the authorized purposes and relevant restrictions/limitations.
3. Examine the pertinent parts of the management system; by studying the policies
established governing that activity to analyze the effectiveness of specific
operating and administrative procedures and exploring the areas of weaknesses.
4. Prepare reports on results of audit and submit to the persons responsible for
receiving or acting on the auditors findings and suggestions.
The scope of operational audit covers all operations of a business, whether financial or
otherwise i.e. whether it is main activity or a support or incidental activity. This could
include inter alia the following:
(i) Design (ii) Production (iii) Purchase (iv) Storage (v) Transportation (vi) Quality
Control (vii) Repairs and Maintenance (viii) Selling and Distribution (ix) Personnel (x)
Research and Development (xi) Financial Management (xiii) Computer Division (xiii)
Training and Development.

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All the operations of the business are carried on throughout the year. Hence the
operational audit should be a continuous process. At any given time

Question:
Comments on the following:
a) It is mandatory for all companies to make management discussion and analysis report
as a part of the Boards report to the shareholders.
b) A receiver is an agent of the company.
c) Liquidation, winding up and dissolution are equivalent terms.
Answer:
a) It is a mandatory for all listed companies to make Management Discussion and Analysis
report as a part of Boards report to the shareholders. As per Listing Agreement, as part
of directors report or as an addition there to a Management Discussion and Analysis
report should form part of the annual report to the shareholders. This Management
Discussion and Analysis should include discussion on certain matters within the limits
set by the companys competitive position. The matters to be discussed in the Report
include inter alia Industry Structure and developments, Opportunities and threats,
Segment wise of product-wise performance, Outlook, Internal Control systems and their
adequacy etc.
b) A receiver appointed by the Court is not the agent of the company, but is an officer of he
Court with the following legal implications:
i.
Property in the hands of Receiver cannot be attached without the leave of Court;
ii.
The Receiver cannot sue or be sued except with the leave of Court by which he
was appointed Receiver;
iii.
Any interference with the powers or Receiver will be contempt of Court.
iv.
The Court determines the receivers fees or remuneration.
Where a Receiver has been appointed by an order of the Court, the loss to the company
caused by an omission or act attributable to him can be recovered with leave of the
Court.
A Receiver who is appointed out of Court is usually, by the terms of trust deed or
debenture deed an agent of the company and the company is responsible for his acts and
defaults unless the trust deed or debentures otherwise provide.
In view of above, it is seen that a Receiver may or may not be an agent of the Company.

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c) Liquidation or winding up of a company is a process by which all its affairs are wound
up, its rights and liability ascertained and the claims of its creditors paid-off out of the
assets of the company including the contribution by its members to the extent to which
they may be necessary. Winging-up and Dissolution are sometimes erroneously used to
mean the same thing. But according to the Companies Ordinance, 1984, there are
fundamental differences between them. Winding up always precedes dissolution. In
winding up, the assets are realized and liabilities are paid but corporate status of
company continues. Dissolution brings an end to the companys existence as legal entity.
The liquidator appointed by the company or the Court carries out the winding up
proceedings but the order for dissolution can be passed by the Court only. Winding up
in all cases does not culminate in dissolution. Even after paying all the creditors there
may still be a surplus, company may earn profits during the course of beneficial
winding up; there may be a scheme of compromise with creditors while company is in
winding up and in all such event the company will in all probability come out of
winding and hand over back to shareholders. Dissolution is an act, which puts an end to
the life of the company.
Question:State, with reasons, whether the following statements are correct or incorrect:
a)
b)
c)
d)

Inspection under Section 231 and investigation under section 263/265 are the same.
Insider cannot deal in the shares of the company concerned.
Public limited company is the most appropriate form of organisation for business.
The trend of concentration of equity ownership in the hands of institutional investors
is harmful for corporate entities.

Answer:
a) The statement is not correct. Section 231 of the Act contains provision in respect of
inspection of books of account and other books and papers of every company by the
Registrar or officers of SECP. Such inspection is essentially carried out in order to
ascertain that all transactions have been validly entered into and recorded in
appropriate books. Inspection is not an investigation though it may lead to investigation
in case anything wrong or objectionable is found during inspection. The main object of
investigation under Section 263/265 of the Act is to collect evidence and to see if any
illegal acts or offences are disclosed. Investigation is wider in scope. It includes
investigation of all the business affairs, profit and loss, assets etc. Further no company or
member can ask for a copy of inspection report made under Section 231, while it is
obligatory for SECP to forward a copy of investigation report to the company concerned
and on request and on payment of prescribed bee to any member or creditor of such
company.

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b) The statement is correct. As per Regulation of the SECP, no insider shall either on his
own behalf or on behalf of any other person deal in securities of a company listed on any
stock exchange, when in possession of any unpublished price sensitive information or
communicate, counsel or procure, directly or indirectly, any unpublished price sensitive
information shall not deal in securities. However, these restrictions are not applicable to
any communication required in the ordinary course of business or profession or
employment or under any law. SECP regulation prohibits any company from dealing in
securities of another company or associate of that other company while in possession of
any unpublished price sensitive information.
c) The statement is not correct. None of the know forms of organization (Sole
Proprietorship, Partnership, Private Limited Company, Public Limited Company and
Co-operative society) have ideal features. Every form of organization is best in some
respects. Thus, also proprietorship is suitable for small business particularly because of
ease of formation and quickness of decision-making. If business is relatively larger,
partnership is the preferred form of organization as it allows larger capital inflow into
business. Where interest of a particular segment of society is to be looked after,
Cooperative Societies are suitable. Private Limited Company is ideal for medium sized
business and public company for large-scale business. Thus, it is unreasonable to say
that public company is the most appropriate form of organization for business.

Question:a) State the circumstances under which the Register of Companies can seize the books
and papers of a company.
b) Draft a resolution to be passed at a general meeting authorizing the Board of directors
to buy-back shares of your company. (You may assume circumstances, sources and
quantum.)
Answer:a) By virtue of the provisions of Section 262 of the Act, when based on information in his
possession or otherwise, the Registrar has reasonable grounds to believe that the books
and papers relating to or of any company or other body corporate or managing director
or manager of such company or other body corporate, may be mutilated, destroyed,
altered, falsified or secreted, the Registrar may make an application to the Magistrate of
First Class, or the Presidency Magistrate having jurisdiction for an order for the seizure
of such books and papers. After considering the application and hearing the Registrar, if
necessary, the Magistrate may, by order, authorize the Registrar.
i.
To enter with such assistance as may be required, the place or places where
such books and papers kept;
ii.
To search that place or those places in manner specified in order; and

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To seize such books and papers as he considers necessary.

b) Resolved that pursuant to Article _____of the Articles of Association of the company and
subject to the provisions of Section 95 A of the Companies Ordinance 1984 and such
other approvals, consents, permissions as may be necessary and subject to the conditions
and modifications as may be prescribed by statutory authorities, consent of the company
be and is hereby accorded to the Board to buy back up to _____ fully paid-up equity
shares of Rs. ____ each of the company constituting 20% of the paid-up equity share
capital and free reserves of the company out of companys free reserves.
RESOLVED FURTHER that the Board of Directors be and is hereby authorized to do all
such acts, deeds and tings as may be necessary to give effect to above resolution.
Explanatory Statement pursuant to Section 173(2) of the Companies Ordinance, 1984
Due to the companys
outstanding performance, the market value of shares of the
company has gone-up steeply and trading volume is on the increase. In order to reward
the existing shareholders, the company proposes to buy-back its shares. The total
amount of buy-back shall not exceed 20% of the total existing paid-up equity share
capital of the company. The shares so bought back will be extinguished within seven
days from the date of completion of buy-back. The scheme of buy-back of securities has
been framed in accordance with Section 77A and will be completed within a period of
one year.
The proposed resolution, being in the interest of the Company and shareholders, is
recommended for the approval of members.
None of the directors of the company is in any way concerned or interested in the
resolution, except to the extent of their shareholding in the company.
NOTE: in case of listed company, the aforesaid resolution shall be passed through
postal ballot.
Question: - Maintaining good investor relations is the need of the day. Comment
Answer:The comity of investors is generally made up of individuals made up of individuals and
institutions whose interests, goals, investment horizons and capabilities very largely.
Comprised as the general body of shareholders, they have the right and capacity to influence
companys fundamental issues including election of directors, amendments to companys
organic documents, approval of extra-ordinary transactions and internal company statutes. It
signifies the importance of the role of shareholders in the scheme of corporate governance.
Consequently the overriding objective of a corporation should be to optimize the returns to its
shareholders. To achieve this objective, the corporation should endeavor to ensure the longterm viability, and to manage effectively its relationship with shareholders and other

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stakeholders. It will require the framing of appropriate governance rules and make the board
accountable to the shareholders for its activities and performance.

Question:a) What are the importance clauses of a debenture trust deed?


b) Draft a memorandum constituting mortgage of immovable property by deposit of
title deeds.
c) Distinguish between deed of exchange and sale.
d) Write a brief note on sub-lease.
Answer:
a) Companies in the course of their normal business borrow funds by issuing of
debentures. An issue of debentures is usually secured by a trust deed, where under
movable and immovable properties of the company are mortgaged in favor of the
trustees for the benefits of the debenture holders. The important clauses of a debenture
trust deed may be enumerated as follows:
1. The trust deed usually gives a legal mortgage on block capital and a floating
security on the other assets of the company in favor of the trustee on behalf of the
debenture holders.
2. The trust deed gives in detail the conditions under which the loan is advanced.
3. The trust deed should specify in some detail the remuneration payable to the
trustee, their duties and responsibilities in relation to the trust property. Section
119 or the Companies Ordinance, 1984 specifically provides that any provision
contained in a trust deed for securing an issue of debentures, which has the effect
of exempting a trustee or indemnifying him against and liability for breach of
trust shall be void.
4. It also gives in detail rights of debenture holders to be exercised through the
trustees in case of default by the company in payment of interest and principal as
agreed upon.
b) Memorandum of Mortgage by Deposit of Title Deeds
I.(mortgagor) do hereby declare that I have this day of . deposit
with (mortgagee) the title-deeds as detailed in the schedule A hereunder written by
way of mortgage of the properties comprised in the said title deeds detailed in Schedule
B and owned and possessed by me for securing the repayment to the
said..(mortgagee) of sum of Rs. advanced by him to me with interest
for the same at the rate of Rs. percent per annum payable to him the
said..(mortgage), on the basis of a Promissory Note executed by me in his favor
on (date)

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The Schedule A above referred to Description of the Title Deeds deposited.


The Schedule B above referred to Description of the Property.
Signature of the Mortgagor

c) Section 4 of the Transfer of Property Act, 1882 defines sale as a transfer of ownership in
exchange for a price paid or promised or part-paid and part-promised. Therefore, the
essential elements of a contract for sale are (1) Transfer of Property (2) By the seller to
the buyer (3) For a price. In the absence of any of the essential elements a contract cannot
be termed as contract of sale.
Exchange is another mode of Transfer of Property different to sale. Section 118 of
Transfer of Property Act 1882 defines Exchange; as When two persons mutually
transfer the ownership of one thing for the ownership of another, neither thing or both
things being money only, the transaction is called an exchange. A transfer of property
in completion of an exchange can be made only in manner provided for the transfer of
such property by sale.
The basic difference in exchange and sale is that in the sale the price is paid in money
whereas in exchange the price paid in another property by way of barter (Kama v.
Krishna, A.I.R. 1954 on 105). In a transaction of exchange, money may be added to the
property or goods to equalize the consideration. Thus, where an owner of property
transfers it partly in exchange for another property and partly for cash, the transaction is
an exchange (Nathu Mal v. Har Dial, 97 PR 1900).
A deed of exchange is completed in the same manner as sale. The exchange can be
effected either by one document of by different documents. A deed of exchange is in fact
a deed of double transfer in which one transfer is stated to be the consideration of the
other; it should be executed in duplicate, one of the parties taking the original and the
other duplicate.
d) A sub-lease is demise by a lessee for lessor term than he himself has. Every le3ssee,
however short his term may be, make a sub-lease unless he is refrained by the contract
of the tenancy from subletting. If the demise is for the whole term or for a period beyond
the term, it amounts to assignment. If he lessee divests himself he becomes a stranger to
the demised property and he has no right to have possession delivered up to him. As
long as the lessee remains in possession he may permit another person to use the
demised premises without committing a breach of covenant, namely not to assign,
underlet or part with the possession of the demised premises.
A sub-lessee is entitled to relief against forfeiture under Section 114 of the Transfer of
Property Act, 1882, which is applicable only in the case of non-payment of rent. No relief
is open to the sub-lease in case of transfer of breach of covenant in restraint of transfer.

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Question:a) Comment on the following:


i.
Though having successfully qualified in a rigorous examination and gaining
experience on hand in the profession while dealing with relevant matters,
there is a need for the continuing education for a Company Secretary.
ii.
Multi-disciplinary partnership firms consisting of Company Secretaries,
Chartered Accountants and Cost Accountants are imperative to meet global.
b) The role of a Company Secretary goes much beyond the Companies Ordinance 1984.
c) A professional should command and not demand respect.
d) Code of conduct is an effective tool for sustainable professional growth and
credibility.
a) Answer
i.
There is never any end to the learning process; one cannot become stagnant and
quest for knowledge must never cease. Continuing education is a vital necessity
as a professional cannot survive and prosper in the competitive environment
without updated knowledge is not a one-time affair but has to be regularly
updated.
For this purpose a company secretary should inculcate the habit of reading the
Professional Journals of the ICSP and other sister professions; read various
journals of professional interest; read court judgments relevant to areas of his
profession; attend professional meetings, seminars and programmers related to
his profession; attend refresher courses and keep himself abreast of the latest
Government notifications, clarifications, orders etc.
ii.
The roles of all the three professionals viz. Chartered Accountants; Cost
Accountants and the Company Secretaries are well defined. All these
professionals are rendering services relevant to their specialization and there is
no question of ones services being superior to that of the other two and hence no
scope for conflict of any interests. In fact, all the three professions must work in
harmony realizing that their roles are complementary and supplementary to
each other. Multi-disciplinary partnerships amongst these professions can
stimulate synchronization of expertise of the respective professions to meet the
challenges of global competition. Their common goal should be to serve the
corporate sector in achieving faster economic growth and thereby benefit the
society.
b) In view of the complexities of modern business and the plethora of laws which the
business enterprises are required to comply with, it has become necessary for the
managements to rely on qualified company secretaries for ensuring compliance thereof.
By virtue of his professional knowledge and expertise a company secretary is well
equipped to render services in respect of economic and social legislation in addition to

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his core area of company law. Practicing Company Secretaries are already rendering
services in several matters like:
- Obtaining PAN/Challan; return forms; Issuing tax deduction and collection
certificate; Representing the case of assesse before the Income Tax Authorities
etc.; Acting as authorized representative before Central Excise Authorities;
Valuation and Classification of good; Assessment of duty and obtaining refunds
etc.; Advising on search, seizure.; Documentation etc. for CENVAT Procedures;
Acting as authorized representative before the Customs Authorities and the
Appellate Tribunals; Assisting in clearance of import/export classification of
goods; Valuation of goods and assessment of customs duty and obtaining
refunds etc.; Registration with service tax authorities; Advising on applicability,
rate and payments of tax; Filing of returns with authorities etc.; Valuation on
Stock, shares, debentures etc., under Wealth Tax Act; Financial Services-under
SCRA/SEBI (DIP) Guidelines, 2000; Certifying promoter contribution, acting as
Securities/Transfer Agents, Registrar to Issue, Share and Stock broker,
Preparation of project reports form banks and financial institutions etc.
c) The statement is absolutely correct. If the client is satisfied with the services rendered by
a company secretary in practice he will not only continue to retain his services but will
also recommend to others. Therefore, by his efficient services the professional can
command respect and need not demand it.
To be successful practicing professional some of the important attributes which should
be possessed, acquired and developed are:
a. Through knowledge and reliability based thereon;
b. Competence and expertise;
c. Honesty, integrity and ethics;
d. Good health and memory;
e. Efficient temperament and behavior;
f. Constructive attitude and approach;
g. Analytical skills;
h. Willingness and ability to cross impediments and bottlenecks;
i. Alert mind and persuasive character;
j. Inherent competence to handle and type of complicated work within a fixed
times schedule;
k. Good communication skills-verbal and written;
l. Willingness to update knowledge base, acquire new skills and expertise.
The above traits need to be acquired and developed to be a successful professional.
d) Code of conduct is essentially a set of simple rules outlining the expected conduct for
observance by the members of any professional body and embodies the penal
consequences for non-observance of members of the profession.

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The basic reason why code of conduct is strictly to be enforced in the case of professional
is that a professional is endowed with higher faculties conditioned by an elaborate
preparatory education, rigorous instruction and valuable practical training, as to
distinguish, above all, righteous act/conduct from those deviant and unedifying.
The services of a professional are personal to a client and the latters affairs come into
full knowledge of the professional when his services are engaged by a client. A client
would, therefore, expect the professional to be a person of character and integrity and is
given a firm assurance through the code of conduct evolved and effectively
administrated by the professional body concerned, of which the professional is a
member. Thus, code of conduct encompasses a professionals conduct towards his peers,
the clients, the employer and the public at large.
Question:Sate, with reason in belief, whether the following statements are true or false:
i.
The expression body corporate appearing the Companies Ordinance 1984, does
not include a company registered under the Ordinance.
ii.
A Company is obliged to send to every member of the company upon his
becoming a member a copy each of its memorandum of association and articles
of assertion.
iii.
The rights attached to the shares of any class may be varied with the consent in
writing of the holders of the issued shares of that class having not less then:
a)
1/3 of the shareholding
b)
of the shareholding
c)
of the shareholding
d)
2/3 of the shareholding
iv.
In winding up by the court, the statement affairs has to be submitted within:
a) 15 days from the date of winding up order
b) 21 days from the date of winding up order
c) 30 days from the date of winding up order
d) 90 days from the date of winding up order
v.

The audit committee of a listed company shall meet at least:


a) 3 times in a year
b) 4 times in a year
c) 5times in a year
d) 4 times in a year

Answer:i.

The Statement is false. As per Section 2(4) of the Companies Ordinance, the terms
body corporate has been defined inclusively and making specific exclusions
which do not include a company registered under the Ordinance. It means that

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the expression body corporate includes a company registered under the


Ordinance.
ii.

The statement is false. Under Section 35 of the Companies Ordinance 1984, a


company has to provide the memorandum of association and articles of
association only when so required by the member within seven days of the
receipt of demand on payment of rupee one.

iii.

of the shareholding

iv.

21 days from its submission to the SECP in draft from

v.

4 times in a year.

Question:List out the principal points to be kept in mind while drafting petitions, applications, etc., to
be submitted to the court
Answer:
The following basic requirements of the Companies (Court) Rules, 1997 must be kept in mind
while drafting petitions, application etc.,
1.

Every petition, application, affidavit and other proceedings presented to the


court shall be written, typewritten, cyclostyled or printed neatly and legibly on
substantial proper of foolscap size and separate sheets shall be
stitched/fastened/tied together. The numbers and dates shall be expressed in
figures and where dates given are not according to the English Calendar the
corresponding English dates shall also be given (Rule 5).

2.

Every proceeding shall be dated and shall be instituted in the matter of the
Companies Ordinance, 1984 and in the matter of the company to which it relates.
The contents shall be divided into separate paragraphs which shall be numbered
serially. The general heading in al proceedings before the Court and in all
advertisements and notices shall be in form No.1 (Rule 5).

3.

Every petition, application, affidavit or other proceedings shall be in the


language of the High Court and except in so for as the court may otherwise
order, no document in a language other than the language of High Court shall be
accepted for use in any proceeding unless translated into the language of the
High Court in accordance with the rules and practice of the court (Rule 6).

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Unless otherwise provided by the rules or permitted by the Judge all


applications made under the Ordinance shall be made by a petition or judges
summons as hereinafter provided (Rule 7).
4.

Every petition or application shall bear its distinctive serial number and an
interlocutory application shall bear, besides its own serial number, the serial
number of the main proceedings to which it relates. Every order made, process
issued or document filed, shall bear the serial number of the proceedings to
which it relates (Rule 11)

5.

The forms set forth in Appendix I to the Rules, where application shall be used
with such variations as circumstances, may require (Rule 14).

6.

Every affidavit shall be drawn up in the first person and shall state the full name,
age, occupation and the place of the abode of the deponent. It shall be signed by
the deponent and sworn to in the manner prescribed by the Code or by the rules
and practice of the Court. Every exhibit annexed to an affidavit shall be marked
with the number of the proceedings to which it relates and shall be initialed and
dated by the authority before which it is sworn. Except with the leave of Judge,
no affidavit having interlineations, alteration or erasure shall be filed in Court
unless such interlineations or alteration is initialed by the authority before whom
it is sworn, or in the case of an erasure the words and figures written on the
erasure the rewritten in the margin and initialed by such authority (Rule 15).

7.

Every petition shall be verified by an affidavit made by the petitioner or by one


of the petitioner, where there are more than one and in case petition is presented
by body corporate, by a director secretary or other principal officer thereof, such
affidavit shall be filed along with the petition and it shall be in form No.3.
However, the Judge or Registrar may, for sufficient reasons, grant leave to any
other person duly authorized by the petitioner to make and file the affidavit
(Rule 16)

8.

Where any petition is required to be advertised, it shall unless the Judge


otherwise orders or these rules otherwise provide, be advertised not less than
fourteen days before the date fixed for haring, in one issue of the Official Gazette
of the State or Union Territory concerned and in one issue each of a daily
newspaper in English language and a daily newspaper in the regional language
circulating in the State or Union Territory concerned as may be fixed by the
Judge. The Judge, if he thinks fit, may dispense with any advertisement required
by the Rules, except in case of petition to wind up a company (Rule 19)

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Question:
The relationship of holding and subsidiary companies under the Companies Ordinance, 1984
is determined by either the test of . Or the test of .
Answer:Control, Shareholding
Question:Just and equitable is one of the grounds under section 305 for compulsory winding-up of a
company in the Companies Ordinance 1984. The ground is resorted to when no specific
ground for winding up. Elucidate this statement and cite (i) circumstances that may be
acceptable to the court; and (ii) circumstances that may not be acceptable to the court, in
passing an order for winding up on just and equitable ground. Support you answer with
relevant case law.
Answer:
A company under section 305 of the Companies Ordinance, 1984 my be wound up by the Court
if (a) the company has passed a special resolution of its being wound up b the court; or (b)
default is made in delivering the statutory report to the Registrar or in holding the statutory
meeting; or (c) it does not commence business within a year from its incorporation or suspends
business for a whole year; or (d) the number of its members in the case of a public company is
reduced below seven and in the case of a private company, below two; or (e) it is unable to pay
its debts; or (f) the court is of the opinion that it is just an equitable that it should be wound up.
Just and Equitable as ground for compulsory winding up
If the court is of opinion that it is just and equitable that the company should be wound up, it
may be ordered to be wound up. In this case, the Court has wide powers and has a complete
discretion to decide when it is just and equitable that the company should be wound up. In a
petition for winding up under his clause the petitioner must convince the court not only that
there are just and equitable grounds for winding up of the company but also that there is no
alternative remedy open to him. Atul Drug House Ltd., In Re, (1971) 41 Com Cases (Guj).
The word just and equitable is not confined to matters ejusdem generis as the preceding
clauses of the section, nor to provide case of mala fides. They are general words which must not
be reduced to the sum of particular instances, nor confined to circumstances affecting the
petitioner in his capacity as shareholder. They enable the Court to subject the exercise of legal
rights to equitable considerations though the words themselves, and not because the companys
structure is in any way analogous to a partnership.
Lord Wilberforce observed in Ebrahimi v. B. Westbourne Galleries Ltd.: the tendency to create
categories or headings is wrong: the general words of the sub-section should remain general

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and not be reduced to the sum of particular instances. The discretion of the Court under this
clause is very wide and the courts have exercised this discretion on a variety of grounds. Some
of the cases by way of illustration are given herein which, the court ordered winding up of the
company under just and equitable clause to indicate the general categories:
i.

Where the whole object of the company was fraudulent.

ii.

Where the substratum of the company is gone. The substratum of a company is


deemed to have gone where (a) the subject matter of the company is gone, or (b)
the object for which it was formed has substantially failed, or (c) it is impossible
to carry on the business of the company except at a loss, or (d) the existing and
possible assets are insufficient to meet the existing liabilities of the company

iii.

Where the main object of the company for which it was incorporated has been
completely achieved.

iv.

Where there is a complete deadlock in the management of the company e.g.,


where two shareholders, who were also directors of the private company, were
not on speaking term fractions among shareholders is, however, not a sufficient
ground.

v.

Where the company is a bubble and has no business to carry on e.g. where the
main business of the company has been taken over by the Government and there
is no prospect of the company doing any other business mentioned in the objects
clause of the Memorandum of Association.

vi.

Where the company is insolvent and its business is being carried on for the
benefit of the debenture holders.

vii.

Where there has been mismanagement and misapplication of the funds by the
director of private company.

viii.

Where the petitioner was excluded from all participation in the business of a
private company.

ix.

If the company has committed default in making payment to various investors,


allegations that directors have cheated several thousand investors, banks and Fls,
company has not filed balance sheet for two years and no reply from company to
advertisement under Rule 24, the company is liable to be wound up.

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The following are some of the cases in which wounding up was not ordered under just and
equitable clauses:
i.

Where the company was under a loss but there was a chance of its making
profit and the majority of shareholders were against winding up.

ii.

Where the directors in the exercise of their powers to do so, refused to


register the executors of the deceased shareholder even when this caused
hardship to the shareholders.

iii.

Where there is honest difference between the petitioner, a director and the
other directors and he has been outvoted.

iv.

Where the business of the company was temporarily suspended owing to


trade depression and was intended to be continued when conditions
improved.

v.

Where there was a deadlock in management of a public company.

vi.

If the just and equitable ground does not exist at the time of hearing the
petition though it might have existed at the time of presenting the petition.

Question:What are the various documents prescribed under the SECP that are required to be
accompanied with petition for alteration of memorandum of association so as to change the
place of the registered office from one sate to another?
Answer:By virtue of Section 21 of the Ordinance, a company may be special resolution after the
provisions of its memorandum so as to change the place of its registered office from one state to
another state. However, the alteration shall not take effect unless it is confirmed by the
Company Law Board on petition.
The petition shall be prepared in Form No.1 of the Company Law Board Regulations, 1991 and
presented to the Bench in whose jurisdiction the registered office of the company is situated.
The petition should be accompanied by the following documents prescribed in Annexure III to
the Company Law Board Regulations, 1991:

i.

Copy of the Memorandum and Articles of Association.

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ii.

Copy of the notice calling for the meeting with Explanatory Statement.

iii.

Copy of the special resolution sanctioning the alteration by the members of


the company.

iv.

Copy of the minutes of the meeting at which the special resolution was
passed.

v.

Affidavit verifying the petition.

vi.

Bank draft evidencing payment of the application fee.

vii.

Memorandum of appearance with copy of the Board Resolution or the


executed Vakalatnama, as the case may be.

viii.

Copy of the latest audited balcony sheet with the profit and loss account of
the company with auditors report and director report.

ix.

Affidavit proving dispatch and service of notice together with newspaper


cuttings.

x.

A list of creditors and debenture holders and affidavit verifying list of


creditors as per rules.

xi.

Acknowledgement receipts from the Registrar of Companies.

One copy of the petition shall be served on the concerned Registrar of Companies.
Question:What are the important factors that you will bear in mind wile drafting an appeal?
Answer:An appeal may be divided into three part (1) formal part, known as the memorandum of
appeal, (2) material part, grounds of appeal, and (3) relief sought for.

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The memorandum of appeal should being with the name of the Court in which it is filed. After
the name of the court, number of the appeal and the year in which it is filed are given. The
follow the names and addresses of the parties to the appeal. The name of the appellant is given
first and then that of the respondent. It should be indicted against the names of the parties as tot
what character each party had in the lower court, i.e. whether he was a plaintiff or a defendant,
or an applicant or an opposite party as:
A.B., Son of etc.

(Plaintiff) Appellant

Versus
C.D., Son of etc.

(Defendant) Respondent
Or

A.B., Son of etc.

(Decree Holder) Appellant

Versus
C.D., Son of etc.

(Judgment-debtor) Respondent

After the name of the parties, an introductory statement giving the particulars of the decree or
order appealed from (viz., the number and date, the court which passed it, and the name of the
presiding officer), should be written.
The above-named appellant appeals to the Court of . From the decree of Civil
Judge at.. in Suit No passed on the .and sets forth the following grounds of
objections to the decree appealed from, namely;.
This may also be written in the form of a heading as:
Appeal from the decree of Civil Judge of . at in Suit No.. Passed on the
..
Thereafter, the grounds of appeal be given under the heading Grounds of Appeal.
The grounds of appeal are the grounds on which the decree or the order appeals, the following
points may be raised:
a) any mistake committed by the lower court in weighing the evidence;
b) any mistake in the view of law entertained by the lower court;
c) any misapplication of law to the facts of the case;

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d) any material irregularity committed in the trial of the case;


e) any substantial error or defect or procedure; and
f) The defect, error or irregularity of any inter-locator order passed in the case, whether the
same was appealable or not.
A ground taken but not passed in the first Appeal Court cannot be revived in second appeal.
Grounds of objection should be clear, specific and concise. They should not be narrative or in
argumentative form. Each ground should be numbered.
Relief sought in the appeal should be shown clearly. An appeal need not be signed by the
appellant himself. It may be signed by him or by his counsel.
Question:What are the principal tests to determine whether a charge is a fixed charge or a floating
charge?
Answer:The principal tests as to whether a charge is a floating charge or not is:
i.
ii.
iii.

Is it a charge upon all or certain classes of assets, present or future?


Would the assets charged in the ordinary course of business be change from time to
time?
Has the company got power until such step is taken by the charge to carry on the
business of the company in the ordinary way?

Question:Discuss the nature of contributorys liability in the winding up of a company.


Answer:
Section 300 of the Companies Ordinance, 1984 defines the terms contributory as every person
liable to contribute to the assets if the company in the event of its being wound up and includes
holder of any shares which are fully paid up and for the purposes of all proceedings for
determining and all proceedings prior to the final determination of all person who are deemed
to be contributories, includes any person alleged to be contributory. The liability of a
contributory is liability created by law. Section 301 specifies the nature of the liability of

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contributory and state that the liability of contributory shall create a debt accruing due from
him t the time when his liability commenced, but payable at the time specified in the calls made
on him for enforcing the liability (by the liquidator). This means that the liability of a member
arises as soon as he makes a contract with the company under which he becomes a member and
during winding up it is only contingent until a call is made by the liquidator.
With regard to liability, before winding up, the liability of a member is contractual obligation
arising out of membership. However, winding up creates a new liability and the liquidator can
call upon him to pay unpaid calls even if they had become time barred before liquidation. It has
been held in numerous cases that after winding up, the liability of a contributory is ex lege
(legal) and not ex contract (contractual) and is the direct result of his being a member of the
company with his name appearing on the register of members.
Question:Appointment of receiver for a company automatically terminates employment contracts
entered into by it.
Answer:
Appointment for receiver for a company does not necessarily terminate employment contracts
except that such contracts will be terminated when.
i.
ii.
iii.

Appointment of receiver is accompanied by sale of business.


Immediately after his appointment, the receiver negotiates a new contract with the
employee which is inconsistent with the terms of the previous contract; and
The duty of the receiver is inconsistent with the continued employment of an individual.

Question:The winding up of a company is the same things the insolvency of the company.
Answer:
Although winding up of a company has in some cases characteristics similar to insolvency, the
two are not always representative of the same thing. The general rule in winding up is that if
the members of a company desire that the company should be dissolved or if it becomes
insolvent or if it is unable to pay its debts or if for any reason it seems desirable that it should
cease to exist, it is wound up. Thus, a company can be wound up even when it is perfectly
solved. Thus, one may put the proposition that in so for as inability to pay its debts is
concerned, a bankruptcy of an individual under the insolvency law is the same thing as a
winding up of a company under the company law but a company can also be wound up for
reasons other than mere inability to pay debts.

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Question:Your company wants to declare dividend for the year 2003-04 ending on 30th June, 2004. As on
date, the companys balance sheet showed____
i.
ii.

Carried forward loss (after charging depreciation) Rs 3, 50,000.


Depreciation charged and included in arriving at the carried forward loss--- Rs. 3,
75,000.

The company was incorporated in January, 1980 and it has earned a net profit of Rs. 4, 50, 000
for the year 2003-04 before charging depreciation which amounted to Rs. 1, 10, 000. The
company did not declare and dividend during the past several years because of incurring
losses. It declare dividend of Rs.2, 50,000 for the year 2003-04. The company does not have
any distributable free reserves. Advice.
Answer:In the given case, the company cannot declare any dividend for the year 2003-04 for the
following reasons:
1. Under Section 205 (1), a company can declare dividend out of the profits of the company
for that year arrived after providing for depreciation for the year. As per proviso to
Section 205 (1), it has to provide for depreciation not charged in the accounts earlier. In
given case, the company had charged depreciation in the previous years and, inter alia
as a result thereof the accumulated loss of the company has become to Rs. 3, 50,000.
2. The proviso to Section 205 (1) further requires that he loss or depreciation content of the
loss whichever is lower carried forward has to be set-off before declaring any dividend
for any year. In the given case the post depreciation carried loss of Rs. 3, 50,000 being
less, it is to be first set off against current profit of Rs. 4, 50,000 leaving a balance of Rs. 1
lakh. When depreciation for the year 2003-04 of Rs. 1, 10,000 is further charged, the net
result is a loss of Rs. 10,000. As the company does not have any reserves for distribution
as dividend, the company cannot declare any dividend for the year 2003-04.
Question:a) Distinguish between contract and conveyance
b) Draft a reconstitution deed of Partnership while introducing a new partner in the
firm.
Answer:a) The distinction between conveyance and contract is quite clear. Following are
differences between contract and conveyance:
1. Contract remains to be performed and its specific performance may be sought but
conveyance passes on the title of property to another person.

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2. Conveyance does not create any right of any action but at the same time it alters the
ownership of existing right.
3. Contracts are governed by provisions of the Indian Contract Act, 1872 whereas the cases
of transfer of immovable property are governed by the Transfer of Property Act, 1882.
4. A contract to mortgage or sale would not amount to actual transfer of interest in the
property but the deed of mortgage or sale would operate as conveyance of such interest.
In other words, once the document transferring immovable property has been
completed and registered as required by law, the transaction becomes conveyance. Any
such transaction would be governed under the provisions of the Transfer of Property
Act, 1882.
b) AGREEMENT INTRODUCING
PARTNERSHIP

NEW

PARTNER

IN

THE

EXISTING

Patties
THIS AGREEMENT made at . This. Day. of.. between A. Son
ofresident of and B. S/o.. Resident of . (hereinafter
collectively called the existing partners in the firm M/s.. of the one part and C.
Son of .. Resident of . (herein after called the new partner) of the other
part.
Recitals
Whereas the partners are carrying on the business of . Under name and style of
M/s. at in terms of deed of partnership date
And whereas on the request of the new partner, the partner have agreed to admit him as
new partner in the partnership and in consideration of new partner contributing the
sum of Rs.. towards the capital of the partnership of the partners. It is mutually
agreed as follows.
Agreement supplemental to deed of partnership
1.

This agreement is supplement to the deed of partnership dated . Made


between the said existing partners
Introduction of new partner

2.

as from the date hereof, the said new partner shall be a partner with the existing
partners of the unexpired residue of the term create by and subject to the terms

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and conditions of the said partnership deed except in so for as the same are
varied by this agreement.
Capital
3.

The capital of the partnership shall hereafter be changed to the sum of Rs..
Contributed by the parties hereto in equal shares and the partners shall be
entitled to share the profits and bear the losses of the reconstituted partnership
firm in proportion to their respective shares in the partnership.
Liability of partners for debts, etc. of old partners

4.

T old patters shall be liable for the debts, liabilities and obligations of the old
partnership and they shall indemnify and keep indemnified the new partner and
also all the assets and rights of the reconstituted partnership firm against such
debts, liabilities and obligations and against all proceeds, costs, claims and
expenses in respect thereof.
Deed of partnership to remain in force

5.

Except as modified by this agreement, the said partnership deed of date.. Shall
hereafter be read and construed as if the same had been executed by and
between the partners and new partners hereto.
Testimonium
In witness whereof, the parties hereto have set and subscribed their hands, the
day and year first hereinabove written
WITNESS

A_______________

B_______________

Question:Drafting of document is a skilled mans job. Explain this statement with some important
dos and donts in drafting.
Answer:
The essence of the process of drafting is synthesis of law and fact in a language. A proper
understanding of drafting cannot be realized unless the nexus between the law, the facts, and
the language is fully understood and accepted. Drafting of legal documents requires, as a pre-

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requisite, the skills of a draftsman, the knowledge of facts and law so as to put facts in a
systematized sequence to give a correct presentation of legal status, privileges, right and duties
of the parties, their obligation, terms and conditions, breaches and remedies etc. in a selfcontained and self-explanatory from without any patent or latent ambiguity or doubtful
connotation. This requires serious thanking followed by prompt action to reduce the available
information into writing with a legal meaning.
Some Dos
1.

Reduce the group of words to single word;

2.

Use simple verb for a group of words;

3.

Avoid round-about construction;

4.

Avoid unnecessary repetition;

5.

Write shorter sentences;

6.

Express the ideas in fewer words;

7.

Prefer the active to the passive voice sentences;

8.

Choose the right word;

9.

Know exactly the meaning of the words and sentences you are writing; and

10.

Put yourself in the place of reader, read the document and satisfy yourself about
the content, interpretation and the sense it carries.

Some Donts
The following things should be avoided while drafting the documents:
a).

Avoid the use of words of same sound. For example, the words employer and
employee

b).

When the clause in the document is numbered it is convenient to refer to any one
clause by suing single number for it. For example, in clause 2 above and so on.

c).

negative in successive phrases would very carefully employed.

d)

Draftsman should avoid the use of words less than or more than, instead, he
must use not exceeding.

e)

If the draftsman has provided for each of the two positions to happen without
each other and also happen without, either will not be sufficient; he should
write either or both or express the meaning of the two in other clauses.

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In writing and typing the following mistakes always occur which should be avoided:
1.

And and or

2.

Any and my

3.

Know and now

4.

Appointed and applied

5.

Present and Past tense.

Question:Draw a deed of gift for love and affection. Assume facts.


Answer:
Gift as defined under Section 122 of the transfer of Property Act, 1882 is the transfer of certain
existing movable or immovable property made voluntarily and without consideration, by one
person, called the donor, to another, called the donee, and accepted by or on behalf of the
donee. Such acceptance must be made during the lifetime of the donor and while he is still
capable of giving. If the donee dies before acceptance, the gift is void.
If may be pointed out here that the words natural love and affection is generally expressed in
all cases of gift to relations and consideration of esteem and regards is expressed when the gift
is in favor of a person for whom donor has regard
DEED OF GIFT LOVE AND AFFECTION
This GIFT is made on the .. day of Between AB, etc. (Called the donor) and CD, etc (Called
the donee)
Whereas the donor is absolute owner of the property described in the schedule and out of his
paternal affection for his daughter, the donee is desirous of making a gift of the said property to
the donee at the time of her marriage.
NOW THIS DEED WITNESSES AS FOLLOWS
1. In consideration of the natural love and affection of the donor for the donee, the donor
out of his own free will and pleasure and in full possession of his senses, both hereby
give, convey, grant, confirm and transfer to the donee free from encumbrance ALL the
property described in the schedule TO HAVE AND HOLD the same to the donee
absolutely forever.
2. The donee accepts the transfers.
3. For the purposes of stamp duty, it is further declared that the value of gifted property is
Rs..

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IN WITNESS WHEREOF, the parties aforementioned have hereunto set and subscribed their
names on the date first above written.
The schedule above referred to
Signed, sealed and delivered
AB

CD

Question:Draft five important clauses of a debenture trust deed.


Answer:
FIVE IMPORTANT CLAUSES OF A DRAFT DEBENTURE TRUST DEED
THIS TRUST DEED is made this day of 2010 between.. incorporated
under the Companies Ordinance, 1984 with its registered office at (hereinafter called
the company) of the one part, and Mr. . And Mr.. (hereinafter called the
trustees) of the other part.
WHEREAS by sub-clause.. of the Clause. of its Memorandum of
Association, the company is authorized to borrow or raise and secure the payment of money by
the issue of debentures charged upon any of the companys property.
AND WHEREAS the directors of the company being duly empowered in that behalf by Article
No.. of the Article of Association of the company have decided by a resolution passed
in pursuance of the Company Ordinance, 1984 by the Board of directors in the meeting of the
Board held on.. to raise a sum of Rs.. each, bearing interest at percent
per annum framed in accordance with the forms set for in the First schedule hereto and to
secure the same by mortgaging with the trustees the properties described in the Second
Schedule hereto.
AND WHEREAS the trustees above mentioned have consented to act as trustees for the
debenture holders.
1.

The debenture entitled to the benefit of these presents shall consist of a series of
number of debentures of Rs each, aggregating to Rs. In all to rank
pari passu without any preference or priority by reason of the date of issue or
otherwise and secured by the mortgage hereby created on the mortgaged
premises.

2.

The company hereby covenants with the trustees that the company will on the
.. day of or such earlier day as the principal moneys shall
become payable under clause 7 hereof pay the debenture holders the amount

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secured by their debentures respectively, and in the meantime will pay interest
to the debenture holders on the day of.. 2010.. in each year, the first
payment of interest to be made on the day of .2010.
3.

In consideration of the debentures hereby authorized aggregating to Rs.


The company, as the beneficial owners, hereby mortgages unto the trustees all
the fixed plant and machinery and fixture at present existing at the companys
factory and described in para A of the Second Schedule hereto and which may be
acquired by the company hereafter or fixed or erected hereafter at its factory for
the benefit of the debentures holders and the property described in part B of the
Second Schedule as security for the due payment of principal moneys amounting
to Rs.. in aggregate with interest and all other charges,. Expenses and
other dues, the payment of which has been secured by a charge on the mortgage
premises under these presents. The charge hereby created on the property
mentioned in Part A of the Second Schedule shall be the specified charge, while
that on the property included in Part B of the Second Schedule shall rank as
floating charges.
The trustees may, at any time, by notice in writing to the company, convert the
said floating charge into a specific charge as regards any assets included in the
Second Schedule and specified in the notice in case it is, in the opinion of the
trustees in danger of being seized or sold under any sort of distress or execution
levied or threatened or in any other case.

4.

The company shall hold and enjoy all the mortgaged premises and carry on
therein and therewith the business or any of the business mentioned in the
Memorandum of Association of the company until the security hereby
constituted shall become enforceable under the terms of these present, in which
case the trustees may, in their discretion, without any such request as next
hereafter mentioned and shall upon the request in writing of the holder or
holders of . At least of the debentures, enter upon or take
possession of the mortgaged premises, or any of them and may in the like
discretion and shall upon the like request sell, call in, collect and convert into
money the same or any part hereof with full power to sell any of the same
premises either together or in parcels, and either by public auction or private
contract, and either for a lampsum or for a sum payable by installments or for a
sum on account and a mortgage or charge for the balance and with full power
upon every such shale to make any special or other stipulations as to title or
evidence, or commencement of the title or otherwise which the trustees shall
deem proper and with full power to modify or rescind or very any contract for
sale of the said premises or any part thereof and to re-sell the same without being
responsible for any loss which may be occasioned thereby and with full power to

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compromise and effect compositions and for the purposes aforesaid or any f
them to execute and do all such assurance sand things as they shall think fit.
5.

As soon as the principal money shall become payable and the security
enforceable (and unless the time of payment and the security to be enforced has
been expressly extended by the debenture holders), the trustees shall enter upon
and take possession of the mortgaged premises and shall forthwith take steps to
consult the debenture holders for the purpose of determining whether the
business of the company may be allowed to be carried on or whether the
mortgage premises shall be realized by sale or otherwise.
IN WITNESS WHEREOF THE COMPANY has caused its Common Seal to be
affixed to these presents and the trustees have hereto set their hands the day and
year above written.
Common Seal of the
Witness
1._________________________
Director

2._______________________
Trustees

Question:Managing director of Xavier Ltd. is of the opinion that the relevant forms in respect of
charges should be filed with the Registrar of Companies within the stipulated time. Clarify
the position to the managing director of Xavier Ltd. Regarding the relevant time limits for
filing prescribed forms and the consequences in case of default.
Answer:The following clarifications are to be given by the Company Secretary to the MD of Xavier Ltd.
i.

Define time limits have been laid down for filing forms in respect of charges as detailed
below:

Event
Creation of charge or
modification
of
charge or acquisition
of property which is
subject to charge.
Satisfaction
charge.

of

Time limit
Within thirty days
from the date of
creation/modification
or acquisition.

the Within thirty days


from the date of
satisfaction.

Effect
The date when the
event takes place is to
be excluded while
calculating
thirty
days.

Relevant Provisions
Section 121, 122 and
131 of the Companies
ordinance 1984.

-do-

Section 132 of the


companies ordinance
1984.

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The last day when as As above


above the Form is to
be
delivered
for
registration with the
Registrar.

On the last day when Section 10 of the


the event takes place General Clauses Act,
the Form has to be 1897.
filed. If on that day
ROCs office is closed
it can be filed on the
next working day.
Where the relevant forms in respect of charges are not filed with the Registrar of Companies,
within the stipulated time, the company has to file an application before the Company Law
Board for condonation of delay in filing such forms not in time.
Where, there is a default in compliance of the provisions of registration of such forms, pursuant
to Section 142 of the Act every officer of the company shall be punishable with fine.
Where any such form is not filed in time and not condoned by CLB, such form is not register
able. In that event the security created by the mortgage or charges becomes void as against the
liquidator and other creditors. Also verify from the relevant books, of entries and details of such
payments.

Question:a) An order pursuant to the Section 305 of the Companies Ordinance 1984, has been
made by the court for winding up a company and one of the directors and the
Company Secretary are directed to inter-alia submit the necessary documents to the
liquidator. Subsequently, the proceedings to convict the Company Secretary for an
alleged default in complying with the requirements of the section were admitted
although he pleaded that there were valid reasons for such non-compliance. Will he
get the relief?
b) Can non-receipt of dividend warrant by a shareholder duly posted by a company
within the time stipulated by law and not returned undelivered to the company, be
considered an offence under the Companies Ordinance 1984 for prosecution of its
directors?
Answer:a) The facts of given case are similar to that of India Satya Raju v. Sramika Agro Farm (P)
Ltd. 2002 CLC 1568 in which it was held that a person cannot be prosecuted and
convicted merely for the reason that he committed the default alleged against him. In
addition to establishing the default, the prosecution should establish that, without
reasonable excuse, had committed such default. Thus in the given case Company
Secretary will not be held responsible unless the prosecution establish that he, without
reasonable excuse, had committed such default.

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b) Section 205A makes the failure to post the dividend warrant within the prescribed
period and not the non-receipt of the warrant by the shareholders and offence. In Krebs
Biochemicals Ltd. & Others v. Registrar of Companies (2003) 57 CLA 75 (AP) it was held
that payment in cash and the posting of a cheque or a warrant are equivalent and the
obligation to pay the dividend is discharged when either of them is done.
It is impossible for the company to know whether the dividend warrant has been
encased or not unless it is returned. Also the company is no responsible for nonencashment of the dividend warrant. Knowledge cannot be attributable regarding the
warrants which are not encased. It is only when the Bank informs the company about
non-encashment of any dividend warrants that knowledge of it can be attributed to the
company and it can be penalized for not transferring the account towards such uncased
dividend to separate account. Till such time the company cannot be penalized as no
offence is said to have been committed by the company.
Question:Assuming you is a director of an unlimited company which has proceeds for winding-up.
State the extent of your liability as a director.
Answer:Section 427 provides that in the winding up of a limited company, any director, whether past or
present, whose liability is unlimited under the provisions of the Act shall be liable to contribute
to an unlimited extent over and above his ordinary liability to contribute as an ordinary
member. There are 3 exceptions to this rule as below.
1. Past directors shall not be liable to make such further contribution if he has ceased to
hold office for a year or more before the commencement of winding up.
2. Past directors shall not be liable to make such further contribution in respect of any debt
or liability of the company contracted after he has ceased to hold office.
3. Unless the Court deems it necessary that such contribution is required to satisfy the
debts or liabilities of the company and the costs, charges and expenses of winding up.
Question:a) Detail the steps involved in securing the sanction of the court SECP a proposal for
reduction in share capital.
b) What is directors responsibility statement? State its contents.
Answer:a) The steps involved in securing sanction of the Court to the reduction of share capital are
as follows:

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1. An application should be made to the Court by way of a petition for


confirmation of reduction of share capital in Form No. 18 of the Companies
(Court) Rules, 1959.
2. The petition must be accompanied by an application by summons to the judge in
chambers for directions as to the advertisement of the petition, the notice to be
served and the proceedings to be taken.
3. The petition must be verified by an affidavit in Form No.3 of the Companies
(Court) Rules.
4. The petition should be accompanied by the following documents.
a. A certified true copy of the memorandum and article of association of
the company.
b. A certified true copy of the notice of the general meeting together with
the explanatory statement annexed to the notice, at which the special
resolution had been passed.
c. A certified true copy of the special resolution authorizing the reduction
of capital.
d. A certified true copy of the latest audited balance sheet and profit and
loss account of the company together with all the schedules and other
papers attached/annexed thereto.
e. A certified true copy of the minutes of proceedings at the general
meeting at which the special resolution was passed.
5. The petition should be advertised in Form No.5, not less than fourteen days
before the date fixed by the court for hearing in one issue of the Official Gazette
of the State or the Union Territory concerned and in one issue each of a daily
newspaper in English language and a daily newspaper in the regional language
circulating in the concerned State or Union Territory if the Judge so directs on
receiving the petition.
6. Directions given by the judge with regard to setting the list of creditors entitled
to object, fixing the date with reference to which the list of such creditors is to be
made not, the publication of notice, etc. must be adhered to.
7. A list of creditors in Form No.21 of the Companies (Court) Rules, 1959, made out
by an officer of the company.
8. The list of creditors should be verified by an affidavit made by an officer of the
company competent to make the same. The affidavit should be in Form No. 22
with such variations as circumstances f the case may require [Rule 50 of the
Companies (Court) Rules, 1959].
9. Within seven days after the filing of the list of creditors or such further time as
the Judge may allow, the company should send to each creditor of the said list a
notice of presentation of the petition. The notice should contain the particulars as
are enumerated in Rule 52 of the Companies (Court) Rules, 1959.

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10. According to Rule 53, notice of the presentation of the petition and of the list of
creditors in Rule 49 should within 7 days after the filing of the said list or such
further time as Judge may allow, be advertised by the company in the manner
prescribed by the Judge. The notice should be in Form No. 24 of the Rules.
11. The company should also, as soon as may be, file an affidavit proving the
dispatch and the publication of the notices referred to in Rules 52 and 53, in Form
No. 25 of the Rules.
12. Within the time fixed by the Judge, the company should also, according to Rule
55, file a statement signed and verified by the advocate of the company stating
the result of the notices mentioned in the Rules 52 and 53.
13. The advocate of the company has to prepare the result of settlement of the list of
creditors in the form of certificate which is to be signed by the Judge. Such
certificate should contain the parts as enumerated in Rule 58.
14. After the expiry of not less than 14 days from the filling of the certificate
mentioned above, petition will be set down for hearing. Notice of the hearing of
the petition has to be advertised in Form No. 29 of the Rules, in such time and in
such newspapers as the Judge may direct.
15. At the hearing of the petition, the Judge may give such directions as he may
deem proper with reference to securing in the manner mentioned in Section
101(2)(c) of the Act, the debts or claims of any creditors who do not consent to
the proposed reduction, and the further hearing of the petition may, be
adjourned to enable the company to comply with such directions.
16. Before confirming reduction of capital the Court will satisfy itself that the interest
of the creditors and different classes of shareholders, if any, are not affected
adversely by the said reduction of capital.
If the Judge makes an order directing the company to publish the reasons for the
reduction or such other information in regard thereto, the company should
comply with the same as per Rule 64.
17. The order of the Court confirming the reduction of capital and approving the
minutes shall be in Form No. 30 of the Rules with such authorization as may be
necessary.
18. File with the Registrar of Companies, notice in eForm 21 as prescribed in the
Companies (Central Governments) General Rules and Forms, 1956.
19. Deliver to the Registrar, a certified copy of the order of the court confirming the
reduction of the share capital of the company and of the minute approved by the
Court and produce before him the original copy of the order on which the
Registrar will register the copy of the order and the minute and will certify the
same under his hand.
On the registration of the order and the minute, the resolution for reducing share capital
as confirmed by the order, shall take effect. The minute when registered shall be deemed

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to be substituted for the corresponding part of the memorandum of the company, and
shall be valid and alterable as if it had been originally contained therein.
b) Sub-section (2AA) in Section 217 of the Companies ordinance 1984 provides that the
Boards report shall also include a Directors Responsibility Statement, indicating
therein,i.
That in the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures.
ii.
That the Directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the Company
at the end of the financial year and of the profit or loss of the Company for that
period.
iii.
That the Directors have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of this Act for
safeguarding the assets of the Company and for preventing and detecting fraud
and other irregularities.
iv.
That the Directors have prepared the annual accounts on a going concern basis.

Question:What is memorandum of Associations of a Company? What does it contain? (Section -16)


Answer:Memorandum of Association is the constitution of the company and considered main document
without which no company exists.
Clauses: Memorandum of Association contains the following clauses:1.
2.
3.
4.
5.

Name clauses:Registered Office clause.


Objects clause.
Liability clause.
Authorized capital clause.

Objects Clause: Object clause is normally dividend into several sub-clauses.


Main Object: Usually object in clause no. 1 is considered as main object until and unless
any other object is stated and known as main object.
Single Object: Memorandum of Association may have single object meant for one
business. Mostly the companies with special business or seeking tax incentive in certain
activity come with single object.

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Multiple Objects: Mostly the Memorandum of Association provides more than one
object and company may be authorized to do all such objects.
Incidental Objects: Memorandum of Association provides various objects conducive and
incidental to attain main object.
Memorandum of Association is (1) printed, (2) signed by all the subscribers (3) witnessed and
(4) dated.
One copy of Memorandum of Association is affixed with adhesive stamps of prescribed value
and such copy is considered as original copy.
The specimen of the Memorandum of Association of a company limited by shares has been
provided in Table B of the First Schedule of the Companies Ordinance, 1984.
It is desirable to provide for the following clauses specifically:
1. To acquire any other business similar to its own.
2. To enter into any agreement for sharing profits, joint adventure or other arrangement of
a like nature with other persons or companies carrying on any similar business.
3. To take shares in other companies having similar objects.
4. To amalgamate with any other company.
5. To promote other companies for any purpose calculated to benefit the company.
6. To sell and dispose of the undertaking of the company.
7. Any person who is competent to contract can be a subscriber. A company being a legal
person can subscribe. A partnership not being a legal person cannot do so; an individual
partner (sole proprietor) can subscribe.
8. A minor cannot be a signatory to the memorandum and Articles of Association of a
company to be incorporated since he is not competent to contract. The guardian of a
minor who subscribes to a memorandum on behalf of the minor will be deemed to have
subscribed in his personal capacity.
9. To sell, improve, manage, develop, exchange, lease, mortgage, and dispose of, turn to
account or otherwise deal with, all or any part of the property and rights of the
company.
Question:What is the procedure for alteration in the Memorandum of Association of a Company?
Answer:The alteration in the Memorandum of Association is discussed firstly in the meeting of Board of
Directors and approved by it as a resolution.
Step 1:- Alteration in Memorandum of Association is discussed firstly in the meeting of Board of
Directors and approved by it as a resolution.

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Step 2:- 21 days notice accompanied with copy of proposed special resolution and statement
setting out material fact is given to the members for convening the general meeting. In case of
listed company, such notice is also required to be published in at least two newspapers.
Step 3:- Resolution is passed by the members in general meeting as a special resolution
(resolution supported by 3/4th majority).
Step 4:- Copy of special resolution on Form26 is filed with the registrar concerned within 15
days. Original bank Challan being filing fee is enclosed with Form 26.
Step 5:- NOCs are obtained from the creditors of amount exceeding.
Step 6:- Application is furnished to the Commission (now with the registrar who is in charge of
the CRO as this power has been delegated to the CROs) in accordance with Rule 3 of
Companies (General Provisions and Forms) Rules, 1985 in duplicate.
Step 7:- Approval is accorded by the registrar concerned.
Step 8:- Certified copy of the approval order in obtained from the CRO in charge.
Step 9:- Certified copy of the Order along with special resolution on Form 26 and amended copy
of Memorandum and Articles of Association is filed with the registrar concerned.
Step 10:- Registrar concerned issues filing certificate.
Step 11:- Certified copy of the Memorandum and Articles of Association may be obtained from
the registrar concerned on payment of filing fee and affixing court fee stamps of Memorandum
of Association.
Step 12:- alteration is made in each copy of Memorandum of Association issued after date of
issuance of filing certificate.
Question:How the alteration in the Memorandum of Association is confirmed by SECP. Under Section
21
Answer:Application for confirmation of alteration of memorandum under section- 21
1. An application for confirmation of the alteration of any of the provisions of the
memorandum of the company under sub-section (2) of section 21 shall be submitted to
the Commission by a responsible officer not later than sixty days from the date on which
the special resolution seeking such alteration was passed.

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2. The application shall contain the following information correct as on the day
immediately preceding the day of the passing of the special resolution and signed by a
responsible officer, namely:
i.
Name and address of the company;
ii.
Number and date of incorporation;
iii.
Subscribed and paid-up capital;
iv.
Redeemable capital;
v.
Business actually being carried on and the clause in the memorandum justifying;
and
vi.
Reasons for the proposed alteration.
3. The following documents correct as on the day immediately preceding the day of the
passing of the special resolution and certified by a responsible officer shall be submitted
along with the application, namely:i.
A copy of the memorandum and the articles;
ii.
A copy of the special resolution;
iii.
Minutes of the meeting at which the special resolution was adopted;
iv.
Particulars of dissenting shareholders or creditors together with their objections;
v.
A copy of the latest audited balance sheet;
vi.
Statement in comparative form showing the exiting provisions of the
memorandum as are proposed to e altered and the provisions as would appear
after the proposed to be altered and the provisions as would appear after the
proposed alterations have been made, indicating the clause of sub-section (1) of
section 21 under which each alteration is considered permissible by the company
along with brief reasons explaining how it considers it permissible;
vii.
Pattern of holding of its shares in Form 34;
viii.
Names and addresses of each of its creditors to whom an amount exceeding fifty
thousand rupees is due with the amount mentioned against each along with their
consent to the alteration; and
ix.
Names and addresses of the persons likely to be affected along with their consent
to the alteration.
The application should accompany with the documents as mentioned in sub-Rule (3)
above in addition to bank Challan.
The application should be filed in duplicate. Forwarding letter; A copy of the application
with complete set of enclosures in required to by the applicant be sent to the registrar
concerned.

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Forwarding Letter:
ABC Limited
Xyz
The.. Registrar Company
Registration Office
Subject: Application U/S 21 for Alteration in Memorandum of Association of M/S ABC Ltd.
Dear Sir,
Subject application is made for seeking confirmation of the Commission (now this power
is delegated to the registrar concerned who is in charge of the CRO) of alteration of
Memorandum of Association of the company. Requisite information/documents are provided
as under:1) Name and address of the company:
2) Number and date of incorporation:
3) Subscribed and paid up capital:
4) Redeemable capital:
5) Business actually being carried on and the clause in the memorandum justifying it:
6) Reasons for the proposed alteration:
7) Special Resolution: As per Annexure A.
8) Statement in a comparative form: As per Annexure B.
9) Existing Memorandum and Articles of Association: As per Annexure C.
10) Amended Memorandum and Articles of Association: As per Annexure D.
11) Pattern of holding of its shares in form 34: As per Annexure E.
12) Name and address of each of its creditors: NOCs of creditors as per As per Annexure F
& G.
13) Interests affected: Nil (If any, annex details)
14) Minutes of the meeting: As per Annexure H
15) Particulars of dissenting shareholders or creditors together with their objections. :Nil (If
any, annex details)
16) Copy of latest audited accounts: As per annexure J.
17) Bank Challan application fee,
18) Affidavit by C/E or Secretary.
19) Power of Attorney (if Consultant)
It is requested that alteration in object clause of Memorandum of Association may please be
confirmed and order may be issued at the earliest.
Yours truly,
(A B C)
Chief Executive

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Question:What procedure is required for alteration in the Articles of Association of a Company?


Answer:The following procedure is required for alteration in Articles of Association of a company:Step 1:- The board of directors is required to approve the resolution for alteration in Articles of
Association at first stage.
Step 2:- 21 days notice for calling the general meeting of the shareholders accompanied with
copy of the proposed special resolution and statement is given. In case of listed company, the
notice is published in at least two newspapers circulating in the province in which stock
exchange exists on which the company is listed.
Step 3:- The resolution for alteration in Articles of Association is carried by the members as
special resolution (i.e. supported by 3/4th majority). In case the alteration varies or changes
rights of a class of shareholders, the resolution must also be supported by 3/4th, majority or that
class.
Step 4:- Copy of the special resolution on Form 26 along with copy of Memorandum and
Articles of Association duly amended is filed with the registrar concerned within 15 days of
passing of special resolution. In case of substantial amendments, the Memorandum and Articles
of Association may be incorporated.
Issuance of Filing Certificate: Registrar concerned issues filing certificate of requisite
special resolution (Form 26).
Refusal by Registrar: The registrar may refuse to accept and record the special resolution
if the altered articles contravene the provisions of Companies Ordinance, 1984 or conflict
with the provisions of Memorandum of Association.
The company may obtain certified copy of the Memorandum and Articles of
Association.
Alteration in Articles of Association of Companies formed under a license:
Confirmation of the licensing authority is required for alteration in Articles of
Association by the companies registered on the license pursuant to the conditions laid
down under the license.
Alteration in Articles of Association of Section 42 Companies: Confirmation of the
Commission is required for alteration in Articles of Association by the companies
registered on the license issued under Section 42 of the Ordinance.
Where the license is issued by Ministry of Commerce for the Association registered
under Section 42 of the Ordinance as well as Trade Organization Ordinance, 1962, the
approval of Ministry of Commerce is also required.

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Question:
What is the procedure for incorporation of a company under Companies Ordinance, 1984?
Answer:
Procedure for incorporation of company is mentioned as under:Stage 1:- Firstly availability of name is ascertained from concerned registrar as required under
section 37 of Companies Ordinance, 1984. (The procedure for obtaining the availability of name
letter is provided under Section 37). Name search facility is available at SECs website i.e.
ww.secp.gov.pk.
Stage 2:- Preparation and filing of documents:Step 1:- Documents especially Memorandum and Articles of Association are prepared. (The
Memorandum of Association as and Articles of Association in First Schedule)
Steps 2:- Following documents are filed
1) Memorandum of Articles of Association duly signed by the subscribers and witnessed.
One copy of Memorandum and Articles of Association is affixed with adhesive
stamps which are called original one. (The adhesive stamps are affixed by the
district treasury officer as per the prescribed stamp duty by the concerned
provincial government).
Three extra copies are also provided.
2) Form 1 regarding declaration of compliance with the requirements of the Companies
Ordinance, 1984. (Section 30).
3) Form 21 regarding Situation of Registered Office. (May be filed within 28 days see
section 142).
4) Form 29 regarding Particulars of directors in duplicate. (Filing period 14 days section
205),
5) Form 27 containing list of directors consenting to act as directors for public company.
(Section 184)
6) Form 28 containing consents of directors for public company. (Section 184)
7) Form S1 regarding nomination of director in case of single member company only.
8) Letters of intent/no objection certificates/license etc. if applicable. (See special
requirements provided hereinafter).
9) Power of Attorney/letter of authority on non-judicial stamped paper signed by the
subscribers authorizing a representative to make amendments and/or alteration in the
Memorandum and Articles of Association and other documents. The power of attorney
is also attested by notary public.
10) Copy of availability of name issued by the registrar.
11) Copies of National Identity Cards/Passports etc. of the subscribers.

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12) Bank Challan regarding Registration and Filing Fee.


Special Requirements: Special companies are required to furnish the letters of intents
(LOI), permission letter or no objection certificate (NOC) etc. mentioned as follow: Commercial Bank Ministry of Finance/State Bank.
Non-Banking Finance Company (NBFC) Securities and Exchange
Commission of Pakistan (SECP).
Security Companies: - File seven sets of each of above documents, NICs and bio-data of
subscribers. The Interior Division gives the clearance of such type of companies.
Form 1 regarding declaration under sub-section (2) is re-produced hereinafter.
This Form can be signed by an Advocate entitled to appear before a High
Court/Supreme Court/a Chartered Accountant/a Cost and Management Accountant
practicing in Pakistan or director or any officer of the proposed company and must be
witnessed.
Question:Please state what the types of conversion of status of companies are and what is the
procedure for the conversion of status of companies?
Answer:Types of conversion of status of companies
Generally, the following are types of conversion of companies:
a)
b)
c)
d)

Private Company into Public Company;


Public Company into Private Company;
Private (Multi-members) Company into Single Member Company; and
Single Member Company into Private (Multi-members) Company.

Conversion from private company into public company


Section 45 of the Ordinance provides that a private company may convert its status into a public
company by altering its articles of association in such a manner that they no longer include the
provisions which, under clause (28) of sub-section (1) of section 2 of the Ordinance, are required
to be included in the articles of association of a company to constitute it a private company, the
company shall:
a) On the date of the alteration, cease to be a private company; and
b) Within a period of fourteen days after the said date, file with the registrar either a
prospectus or a statement in lieu prospectus.

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No approval of any authority for the conversion of status from a private company into public
company is required, however the company has to adopt below mentioned stepwise procedure
for such conversion.
Procedure for the conversion of status of company from private company into public company
Following procedure is required for conversion of private company into public company;Step 1:- The proposal for conversion of status of private company into public company is firstly
discussed by the Board of Directors.
Step 2:- 21 days notice accompanied with the proposed special resolution is issued for
convening the general meeting of shareholders of the company.
Step 3:- Resolution for conversion of the status from Private Company into Public Company
and alteration in Articles of Association is placed before the members as a special resolution.
Such special resolution is to be passed by a majority of not less than three-fourth, of such
members entitled to vote as are present in person or by proxy at a general meeting.

It may be noted that significant difference in the Articles of both the companies exist
and therefore are required to be amended on change of the status.
The resolution not only meant for removal of word (Private) from the name of the
company, but would also resolve deletion of restriction clauses imposed on private
company and substitute of new articles meant for a public company.

Step 4:- The Company has to increase its directors and shareholders to minimum number i.e. 3
required for Public Company.
Step 5:- The company shall file the under-mentioned documents with the registrar concerned:a) Form 26 within 15 days of passing of special resolution.
b) Amended copy of Memorandum and Articles of Association.
c) Prospectus or statement in lieu of prospectus. Prospectus is field by the company which
invites the subscription from the general public otherwise Statement in Lieu of
Prospectus is filed. Prospectus is prescribed in Part I (Prospectus also required prior
approval by the Commission) and Statement in Lieu of Prospectus is prescribed as Part
III of the Second Schedule of the Ordinance.
d) Form 3 (allotment of shares to new members/directors in case the new directors are not
members of company).
e) Form 27 i.e. list of persons consenting to act as directors.
f) Form 28 (Consent to act as directors)
g) Form 29 (in case of additional directors of the company does not already have three
directors required for a public company.
h) Bank Challan being filing fee for each return.

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Step 6:- The registrar concerned issues filing certificate. He will issue a certificate regarding
conversion of private company into public company.
Step 7:- The Company may obtain a certified copy of Memorandum and Articles of Association
on payment of copying and providing requisite court fee stamps.
Step 8:- Change of status is recorded in all letterheads, bills, invoices, seal etc. Copies of
Memorandum and Articles of Association are also recorded with the alteration.
Conversion from public company into private company
A public company can be converted into a private company with the prior approval in writing,
and subject to such conditions (being regress nature case) as may be imposed by the Securities
and Exchange Commission of Pakistan (Commission) in terms of section 44 read with section 28
of the Ordinance in compliance with rules 7, 28, 30, 32, and 34 of the Rules.
Under rule 7 of the Rules, where the articles of association of a public company have been
amended having the effect of converting its status from public company into a private
company, the company is required to file an application, not later than sixty days from the date
on which the special resolution seeking such alteration was passed, on Form 2 to the
Commission for its approval under section 44 of the Ordinance.
Procedure for the conversion of status of company from public company into private
company
Following procedure is required for conversion of public company into private company:Step 1: Approval by the Board of Directors for change of status of the company from public to
private is sought.
Step 2: 21 days notice accompanied with the proposed special resolution is issued for
convening the general meeting of the shareholders of the company. In case of a listed company,
the notice is also published in at least two newspapers having circulation in the provinces in
which the stock exchanges on which the company is listed, exists. (It would be unusual if a
public listed company goes for conversion to a private company. A listed company shall firstly
convert into unlisted public company and then go for conversion to private company.)
Step 3: Resolution for conversion of the status from Public Company into Private Company and
alteration in Articles of Association is placed before the members, as special resolution. It may
be noted that significant difference in the Articles of both the companies exists; therefore, the
same may be amended to change the status through imposition of the restrictions meant for
private companies.
Step 4: Copy of Special Resolution on Form 26 along with bank Challan regarding filing fee is
filed with the registrar concerned within 15 days of passing of the special resolution. (A special

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resolution is to be passed by the majority of not less than three-fourth, of such members
entitled so vote as are present in person or by proxy at a general meeting.)
Step 5:- Application is sent to the Commission within 60 days of the date of passing of the
special resolution. Such application is accompanied with the following documents:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

Form 2. (prescribed under the Rules)


Copy of Form 26 (Special Resolution).
Copy of the Memorandum and Articles of Association duly amended.
Certified copy of the existing Memorandum and Articles of Association.
Copy of latest audited Balance Sheet arid Profit and Loss Account.
Copy of minutes of the General Meeting.
Bank Challan being application fee and filing fee for filing of For 26 with the
Registration concerned.
Affidavit that the contents of the application are true.
Consent of the creditors.
Application must be in duplicate and a copy is also required to be sent o the registrar
concerned under Rule 32 of the Rules.

Step 6:- The Commission gives approval for conversion of public company into private
company through an Order.
Step 7:- Certified copy of the order of the Commission is obtained by depositing along with
requisite court fee stamps.
Step 8:- Certified copy of the order along with copy of special resolution on Form 26 and
amended copy of memorandum and articles of association are filed with the registrar concerned
along with bank Challan.
Step 9:- The registrar issues file certificate of special resolution and order of the commission.
The company may obtain a certified copy of memorandum and articles of association on
payment of copying fee and providing requisite court bee stamps.
Conversion from private company into single member company
A private (Multi-members) can be converted into a single member company in terms of Rule 9
of SMC Rules and for the purpose, the company has to pass a special resolution for change of it
status and make necessary alteration in its articles and obtain approval of the Commission.
In terms of rule 10 of the SMC Rules XYZ (SMC-Private) Limited shall be the pattern and
style of the name of a single member company and the parenthesis letters hyphen and words
(SMC-Private) Limited, shall form part of the name of every single member company.

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Procedure for the conversion of status of a private company (Multi-Members) into a single
member company
Following procedure is required for conversion of private company (Multi-members) into single
member company:Step 1:- Approval by the Board of Directors for change of status of private company into single
member company is sought.
Step 2:- 21 days notice accompanied with the proposed special resolution is issued for
convening the general meeting of the shareholders of the company.
Step 3:- Resolution for conversion of the status from Private Company into Single Member
Company and alteration in Articles of Association is placed before the members, as special
resolution. It may be noted that significant difference in the Articles of both the companies
exists; therefore the same may be amended to change the status through imposition of the
restrictions meant for single member companies.
Step 4:- Copy of Special Resolution on Form 26 along, with bank Challan regarding filing fee is
filed with the registrar concerned within 15 days of passing of the special resolution. A special
resolution is to passed by the majority of not less than three-fourth, of such member entitled to
vote as are present in person or by proxy at a general meeting.
Step 5:- Application is sent to the commission within 30 days of the date of passing of the
special resolution. Such application is accompanied with the following documents:i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

Form S-4 prescribed under the SMC Rules.


Copy of Form 26 (Special Resolution) (see section. 172).
Copy of the Memorandum and Articles of Association duly amended.
Certified copy of the existing Memorandum and Articles of Association.
Minutes of the General Meeting.
Bank Challan filing fee Form S-4 with the Registrar concern.
Affidavit that the contents of the application are true.
Application must be in duplicate and a copy is also required to be sent to the registrar
concerned under Rule 32 of the Rules.

Step 6:- The Commission gives approval for conversion of private company into single member
company through an Order.
Step 7:- Certified copy of the order along with copies of special resolution on Form S-1, Form S5, Form 26 and amended copy of Memorandum and Articles of Association are filed with the
registrar concerned with bank Challan.
Step 8:- The registrar issues filing certificate of Special Resolution and Order of the Commission.

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Step 9:- The Company shall transfer the shares to Single Member within 15 days of the order of
conversion by the Commission.
Step 10:- The Company shall also intimate the particulars of Director on Form-29 within 14 days
of the change to the Registrar concerned.
Step 11:- In terms of section 204 A of the Ordinance and rule 6 of SMC Rules, a single member
company is required to appoint a company secretary within fifteen days of incorporation or
becoming a single member company.
Step 12:- In terms of rule 7 of SMC Rules, the single member shall nominate two individuals,
one of whom shall become nominee director in case of death of single member and the other
shall become alternate nominee director to work as nominee director in case of non-availability
of the nominee director. The nominee director is required to:
It may be noted that significant difference in the Articles of both the companies exists
and, therefore may be amended on change of the status.
The resolution not only meant for removal of word (SMC) from the name of the
company, but would also to substitute of new articles meant for a private company.
Step 4: The Company has to increase its directors and shareholders to minimum number i.e. 2
required for private company within 15 days of the passing of special resolution under section
174 (i) (b) of the Ordinance.
a) Manage the affairs of the company in case of death of single member till the transfer of
shares to legal heirs of the single member;
b) Inform the registrar concerned of death of the single member, providing particulars of
the legal heirs arid in case of any impediment report the circumstances seeking the
direction in the form as set out in Form S3 within seven days of the death of the single
member;
c) Transfer the shares to legal heirs of the single member; and
d) Call the general meeting of the members to elect directors.
It shall be the duty of the company secretary to inform the registrar concerned of the death of
the single member.
Conversion from single member company into private company
A single member company originally incorporated as Single Member Company or converted
from private company as such may convert into private company in accordance with rule 4 of
the SMC rules. The persons becoming members due to transfer or transmission or further
allotment of shares, as the case may be, shall pass a special resolution to make alteration in
articles and appoint one or more additional directors. Where a single member company
converts into a private company pursuant to sub-rule (1), it shall file a notice of the fact in

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writing in the form as set out in Form S-2 with the registrar within 30 days from the date of
passing of special resolution.
A single member company be converted into a private company on increase of the number of
its members to more than one due to transfer of shares or further allotment of shares or death of
the single member or operation of law as provided in rule 4 of SMC Rules.
No approval of any authority for the conversion of status from a Single Member Company into
Private Company is required, however, the company has to adopt below mentioned procedure
for conversion.
Procedure for the conversion of status of company from single company into private
company
Step 1:- The proposal for conversion of status of single member company into private company
is firstly discussed and approved by the Board of Directors.
Step 2:- 21 days notice accompanied by with the proposed special resolution is issued for
convening the general meeting of shareholders of the company.
Step 3:- Resolution for conversion of the status from Single Member Company into Private
Company and alteration in Articles of Association as placed before the members which is
carried as special resolution.
Step 5:- The company has to file the under-mentioned documents with the registrar concerned
within 30 days of the passing of special resolution:a)
b)
c)
d)

Form 26 within 15 days of passing of special resolution.


Amended copy of Memorandum and Articles of Association.
Form 3 (in case if shares are issued to new members).
Form-29 (appointment of additional director within 14 days of the date of
appointment).
e) Bank Challan being filing fee for each return.
Step 6: The registrar concerned issues filing certificate. He will issue a certificate regarding
conversion of single member company into private company.
Step 7: The Company may obtain a certified copy of Memorandum and Articles of Association
on payment of copying fee and providing requisite court fee stamps.
Step 8: Change of stats is recorded in all letterheads, bills, invoices, seal etc. Copies of
Memorandum and Articles of Association are also recorded with the alteration.

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Question:Which court has the Jurisdiction in respect of company matters, particularly the matters
regarding rectification of shareholders register prevention of oppression and
mismanagement and winding up of the companies.
Answer:
Under Section 7 of the Companies Ordinance, 1984 the high court has to jurisdiction to
adjudicate upon the matter of a company where its registered office is situate.
Question:An equitable mortgage was created on the factory building of Asif Textile Mills Limited, a listed
company, to secure a long term loan obtained from Mrs. Wasif, who is the spouse of a director
of the company. All the eight directors of the company were informally aware about Mr.
Wasifs interest in the transaction. The board of directors approved the transaction in their
meeting which was attended by five directors.
Upon inspection of the register of contracts in which directors are interested, a member of the
company filed an appeal with the SECP, claiming that the mortgage is invalid because Mr.
Wasif, who is an interested director, had also voted on the matter and therefore the contract is
void.
In the light of the provisions of Companies Ordinance, 1984 you are required to:
a) Evaluate the above situation and comment thereon in the light of the provisions of the
Companies Ordinance, 1984.
b) Explain the manner in which a general notice, regarding disclosure of interest in a
contract, may be given by directors of a company.
Answer:a) Mr. Wasif should have disclosed the nature of his interest in the contract in the meeting
of the board of directors at which the question of entering into the contract was first
taken up for consideration.
Mr. Wasif should not have participated in the discussions of approving the contract and
his presence would not have been considered for the purpose of forming a quorum or
vote and if he had voted, his vote should have been void.
However, the contract may not become void merely on the ground of non-disclosure of
interest by Mr. Wasif unless with the absence of his vote, there would be no quorum.
b) A director shall give a general notice to the effect that he is a director or a member of a
specified body corporate or a member of a specified firm and is to be regarded as

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concerned or interested in any contract which may after the date of the notice be entered
into with body corporate or firm.
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
No such general notice and no renewal thereof shall be of effect unless either it is given
at a meeting of the directors or the directors concerned take reasonable steps to ensure
that it is brought up and read at the first meeting of the directors after it is given.
Question:A foreign investor had acquired majority shares in Marine Steel Services Limited (MSSL) in the
year 2006. Due to global recession, MSSL has incurred heavy losses and a major portion of its
equity has been wiped out. Consequently, the investor intends to wind up the operations of the
company voluntarily.
a) In the light of the Companies Ordinance, 1984, advise the management as regards the
following:
i.
When would the voluntary winding up process be deemed to commence and
what would be its effect on the operations of MSSL.
ii.
How could the directors ensure that the requirements of making a declaration
of solvency have been complied with?
b) In order to minimize the winding up expenses, the Board wants to appoint one of the
directors as the liquidator, on a monthly remuneration of Rs. 50,000. Advise the Board as
regards the requirements of Companies Ordinance, 1984 with respect to the
appointment and remuneration of liquidator, in the above situation.
Answer:a) (i) The voluntary winding up is deemed to commence at the time of the passing of the
special resolution in this regard by the company.
As soon as the special resolution is passed, Marine Steels Services Limited(MSSL) will
cease to carry on its business, except so far as may be required for the beneficial winding
up thereof.
However, the corporate state and powers of the company shall continue until it is
dissolved, notwithstanding anything to the contrary in its articles of association.
(ii) The directors of MSSL must ensure that the declaration of solvency made by them is:

Made in their meeting which is attended by a majority of the directors of the company
including the chief executive.
Verified by an affidavit to the effect that they have made a full inquiry into the affairs of
the company.
Based on their opinion that the company has no debts; or

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The company will be able to pay its debts in full with in such period not exceeding
twelve months from the commencement of the winding up.
Made within five weeks preceding the date of the passing of the special resolution for
winding up of the company.
Delivered to the registrar for registration.
Accompanied by a copy of the auditors report on the profit & loss account for the
period commencing from the date up to which the last such account was made and
ending on a date immediately before the making of the declaration and Balance Sheet of
the company as on the last mentioned date
Accompanied a statement of the company's assets and liabilities.

b) The liquidator cannot be appointed by the directors as he/she is required to be


appointed by the company in its general meeting.
The liquidators remuneration shall also be fixed in the general meeting by way of
percentage of the amount realized by him by disposal of assets or otherwise having
regard to the amount and nature of the work to be done and subject to prescribed limits.
The remuneration of liquidator when fixed shall not be enhanced subsequently but may
be reduced by the court at any time.
In addition to the remuneration, a liquidator may be paid a monthly allowance for
meeting the expenses of the winding up a period not exceeding twelve months from the
date of the commencement of winding up.
If the liquidator resigns, is removed from office or otherwise ceases to hold office before
conclusion of winding up, he shall not be entitled to any remuneration and
remuneration already received by him, if any, shall be refunded by him to the company.
No remuneration shall be payable to a liquidator who fails to complete the winding up
proceedings within the prescribed period
Question:List the circumstances, as referred to in the Listing Regulations of the Karachi Stock Exchange
(Guarantee) Limited, under which a listed company may be placed in:
a) Defaulters segment.
b) Non-Compliant segment.
Answer:a) A listed company may be placed on the Defaulters Segment, for any of the following
reasons:i.
If its securities are quoted below 50 per cent of face value for a continuous period
of three years. Provided that if the shares of the company quoted at 50 percent or
above of their face value then such a rate is maintained for a continuous period
of thirty working days.

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ii.

If from three years of the date of formal listing, it has not started commercial
production in the case of a manufacturing company or has not commenced
business in the case of any other company.
iii.
If it has failed to hold its annual general meeting for a continuous period of three
years.
iv.
If it has gone into liquidation either voluntarily or under court order.
v.
If it has failed to pay the annual listing fees as prescribed in listing regulations for
a period of 2 years.
vi.
If it has failed to comply with the requirements of any of the listing regulations.
vii.
If for any reasons whatsoever it refuses to join the Central Depository System
(CDS) after its securities has been declared eligible securities by the Central
Depository Company (CDC).
b) A listed company may be placed in the non-complaint segment if it has failed to declare
dividend or bonus:
i.
for five years from the date of declaration of last dividend or bonus; or
ii.
in the case of manufacturing companies, for five years from the date of
commencement of production; and
iii.
For five years from the date of commencement of business in all other cases.
Question:An Extraordinary General Meeting of Mastermind Technologies Limited (MTL), a listed
company, was scheduled to be held on October 31, 2009. The directors adjourned the meeting
for the next week as the quorum was not present within fifteen minutes of the scheduled time.
Based on the provisions of the Companies Ordinance, 1984, you are required to comment on the
following:
a) The decision of the directors to adjourn the meeting, assuming:
i.
The meeting was called upon the requisition of the members.
ii.
The meeting was called by the directors.
b) The impact of the adjournment on the validity and rights of proxies which were
deposited with the company before adjournment.
c) The validity of the resolution passed at the adjourned meeting.
Answer:a) The directors of the company should have waited for half an hour. The directors of the
company may adjourn the general meeting of the company if within half an hour from
the time appointed for the meeting the quorum is not present and shall
i.
Direct to dissolve the meeting, if the meeting is called upon the requisition of
the member.

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ii.

Adjourn the meeting to the same day in the next week at the same time and
place, if meeting is called by the directors.
b) The proxies deposited before adjournment of the meeting shall stand valid for the
adjourned meeting A proxy shall be entitled to attend and vote instead of member
appointing him and have such rights in respect of speaking and voting at the adjourned
meeting as are available to a member
c) A resolution passed at an adjourned meeting shall for all purpose, 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.
Question:Karachi Telecommunication (Private) Limited (KTL) was incorporated on 1st March, 2009 under
the Companies Ordinance, 1984. Its directors have decided to hold the first Annual General
Meeting (AGM) of the company on August 10, 2010, for placing the first audited financial
statements for the period ended March 31, 2010, for approval.
Comment on the decision of the directors, in the light of provisions contained in the Companies
Ordinance, 1984.
Answer:The decision of the directors of KTL contravenes various provisions of the Companies
Ordinance, 1984 as discussed below:
(a) The accounts are being prepared for a 13 month period. For preparation of accounts for a
period exceeding twelve months, prior permission of the Registrar shall be required.
(b) The accounts are made up to a date earlier than the date of the meeting by more than four
months (or hold its first AGM on or before July 31, 2010). As per the Companies Ordinance 1984
the accounts shall be made up to a date not earlier than the date of the meeting by more than
four months.
Question:(a) The Board of Directors of Pioneer Leasing Limited is in the process of appointing a new
Head of Investment. List down the criteria specified in the Non-Banking Finance Companies
and Notified Entities Regulations, 2008 for assessing the person being appointed with respect
to:
i.
ii.

Integrity and track record


Financial soundness

(b) Explain the term Independent Director and narrate the provisions related to appointment
of such directors, as specified under NBFC (Establishment and Regulation) Rules, 2003.

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Answer:a) (i) In assessing the Integrity of the person, it should be considered whether or not
he/she:
has been convicted of an offence involving moral turpitude;
has been involved in the mismanagement of investments, financial or business
misconduct, fraud, etc.;
has been the subject to adverse findings, in an inquiry conducted by the Commission or
any other regulatory or professional body or government agency;
has been actively involved in the management of a company or firm whose registration
or license has been revoked or cancelled or which has gone into liquidation or other
similar proceedings due to mismanagement of affairs, financial misconduct or
malpractices;
is ineligible, under the Companies Ordinance, 1984 or any other legislation or
regulation, from acting as a director or serving in a managerial capacity of an NBFC or a
company;
has entered into a plea bargain arrangement with the National Accountability Bureau;
(ii) Financial Soundness
In assessing the financial soundness of the person, it should be considered whether or not:

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

b) The expression "Independent director" means a director who is not connected with the
company or its promoters or directors on the basis of family relationship and who does
not have any other relationship, whether pecuniary or otherwise, with the company, its
associated companies, directors, executives or related parties.
The test of independence principally emanates from the fact whether such person can be
reasonably perceived as being able to exercise independent business judgment without
being subservient to any apparent form of interference.
At least one third of an NBFCs directors shall be independent directors.

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At least two of its directors, excluding the chief executive officer, shall have relevant
experience of at least five years at a senior management level in the financial sector.
The Commission shall be the final authority to determine the status of a director as
independent or otherwise.
Question:Explain the provisions of the Code of Corporate Governance in respect of the following:
a) Appointment of the chairman of the company.
b) Meeting of the board of directors and minutes thereof.
Answer:a) The chairman of a listed company shall preferably be elected from among the nonexecutive directors. The board of directors shall clearly define the respective roles and
responsibilities of the chairman, and also decide whether the Chairman and Chief
Executive shall be separate individuals or the same individual.
b) The board of directors of a listed company shall meet at least once in every quarter.
Written notices (including agenda) of meetings shall be circulating not less than seven
days before the meetings except in the case of emergency meetings, where the notice
period may be reduced or waived.
The chairman of a listed company shall ensure that minutes of meetings of the board of
directors are appropriately recorded. The minutes of meetings shall be circulated to
directors and officers entitled to attend board meetings within 14 or 30 days of the date
of the meeting.
If the director of a listed company is of the view that his dissenting note has not been
satisfactorily recorded in the minutes, he may refer the matter to the company secretary.
The director may require the note to be appended to the minutes, failing which he may
file an objection with the Securities and Exchange Commission of Pakistan in the form of
a statement to that effect.
Question:The company secretary of Nayar Textiles Limited, a listed company, has resigned. The directors
are in the process of appointing a new secretary and few candidates with varied backgrounds
have been short listed for the position.
Advise the directors as regards their responsibility while appointing the Company Secretary, in
the light of the provisions of the Companies (General Provisions and Forms) Rules 1985.

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Answer:The directors of Nayar Textiles Limited shall take reasonable steps to ensure that the company
secretary is a person who appears to them to have the requisite knowledge and experience to
discharge his functions as company secretary and who is a) A member of a recognized body of professional accountants; or
a recognized body of corporate or chartered secretaries; or
b) A person holding a master degree in business administration or commerce or being a
law graduate from a university recognized by the Higher Education Commission and
having at least two years relevant experience.
Question:FM Textiles Limited is a company listed on the Karachi Stock Exchange. Its directors have
decided that the company would buy back 20% of its shares.
List down the steps to be taken for the buy-back of shares as specified in the Companies (Buyback of shares) Rules, 1999
Answer:a) The number of shares to be purchased and price thereof shall be approved in the Board
Meeting.
b) The above decision shall then be confirmed by passing special resolution.
c) The decision of the directors for the purchase shall be communicated to the SECP and
the respective stock exchange on the day of the decision.
d) the tender notice for the purchase shall contain:
(i) The maximum number of shares to be purchased by the company;
(ii) The manner in which the offer shall be communicated;
(iii) The last day by which the offer to sell the shares shall be made; and
(iv) The name and the address of the designated branches of the authorized bank.
e) A shareholder, interested to sell his shares to the company shall make the offer in
writing through the designated branches of an authorized bank, providing the following
information, namely:
(i) Name of the shareholder;
(ii) His fathers name and in the case of a married woman or a widow, her
husbands name;
(iii) National Identity Card No.;
(iv) Address of the shareholder registered with the company;
(v) Number of shares offered for repurchase by the company;
(vi) Distinctive numbers of share certificates (if not in the Central Depository);
(vii)
Folio No. (if not in the Central Depository); and

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f)
g)
h)
i)

j)

k)
l)

ICPAP

(viii)
Sub-account number with the Central Depository, if any.
The company shall take a decision on the offers received within ten days of the closing
date of the receipt of offers. CORPORATE LAWS
In case, offers received in response to tender notice exceed the requisite purchase, the
acceptance thereof shall be on pro-rata basis in lots of five hundreds shares.
The acceptance of the offer shall be communicated within seven days of the decision.
The shareholder, whose offer has been accepted, shall submit the share certificates along
with the transfer deed duly signed verified and witnessed to the company through
designated branches of the bank within seven days for the receipt of acceptance of the
offer
Where the shares are on the Central Depository System a confirmation from the Central
Depository, about the availability of the shares along with authorization to transfer shall
be sent to the designated branches of the bank within seven days of the receipt of
acceptance of the offer
.In case of non-compliance with sub-rules (i) and (j), the acceptance of the offer shall be
deemed to have been revoked.
The company shall pay the price of the purchased shares through bank draft/pay
order immediately on receipt of the share certificates and transfer deed or the authority
to transfer the shares from the Central Depository as the case may be, but not later than
seven days.

Question:ABC Limited is a major supplier of furnace oil to SUB Power Limited which is facing financial
crunch and has been unable to make timely payments to ABC Limited.
The directors of ABC Limited intend to request the SECP for appointment of an Administrator
to manage the affairs of SUB Power Limited.
In the light of provisions of the Companies Ordinance, 1984 describe the conditions under
which ABC Limited may request the SECP to appoint the Administrator
Answer:The directors of ABC Limited, if the amount of their debt is equal to 60% of the paid up capital
of the SUB Power Limited either individually or in combination with other creditors may
request the SECP to appoint an Administrator to manage the affairs of the company, on the
following grounds:
a) the affairs or business of the company are or is being or have or has been conducted or
managed:
(i) In a manner likely to be prejudicial to the interest of the company, its members or
creditors, or any director of the company or person concerned with the

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management of the company is or has been guilty of breach of trust, misfeasance


or other misconduct towards any of its members or creditors or directors.
(ii) with intent to defraud its members or creditors or any other person or for a
fraudulent or unlawful purpose or
(iii) in a manner oppressive of any of such persons or for purposes as aforesaid or
(iv) as to deprive the members thereof of a reasonable return or
b) any industrial project or unit to be set up or belonging to the company has not been
completed or has not commenced operations or has not been operating smoothly or its
production or performance has so deteriorated that:
(i) the market value of its shares as quoted on the stock exchange or the net worth of
its shares has fallen by more than seventy-five per cent of its par value or
(ii) debt equity ratio has deteriorated beyond 9:1 or
(iii) current ratio has deteriorated beyond 0.5:1 or
c) Any industrial unit owned by the company is not in operation for over a period of two
years or has been in operation intermittently or partially during the preceding two
years. Or
d) The accumulated losses of the company exceed sixty percent of its paid-up capital.
Question:Mr. Yaqoob is a nominee of Foundation Bank Limited on the Board of Saad Textile Mills
Limited (STML). In a meeting of the board of directors of STML, the company secretary was
not able to offer satisfactory clarifications in respect of the following matters:
a) STML had received a loan of Rs. 1.5 billion from Trust Bank Limited which was secured
by a first mortgage on the companys fixed assets. The company had repaid the loan to
the extent of Rs. 250 million but did not send any intimation to the registrar as regards
the partial re-payment of the loan.
b) A foreign currency loan of US $ 75 million was obtained from Apex Bank Limited
which was secured by a first mortgage on companys fixed assets ranking pari passu
with the charge created in favour of Trust Bank Limited. The foreign currency loan has
been paid in full but the company has not approached the registrar for vacating the
charge because confirmation of repayment has not been received from Apex Bank
Limited.
On behalf of Mr. Yaqoob advise the company in the context of Companies Ordinance
1984.
Answer:a) Saad Textile Mills Limited (STML) should have intimated, about the partial re-payment
of Rs. 250 million, to the registrar, who would enter, in the register of mortgages and
charges, a memorandum of satisfaction that a part of the fixed assets of the company has
been released from the charge.

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b) Despite the fact that confirmation has not been received from Apex Bank Limited, Saad
Textile Mills Limited (STML) should have intimated to the registrar within 21 days of
the date of the re-payment of the loan. The Registrar shall issue a notice to Apex Bank
Limited to show cause within a time limit not exceeding 14 days to be fixed in such
notice why the re-payment or satisfaction of the charge or mortgage should not be
recorded. If no cause is shown by Apex Bank Ltd, the Registrar shall order that a
Memorandum of Satisfaction be entered in the register.
Question:The prospectus of FC Textiles Limited included a statement which was misleading in its form
and content. On the faith of the prospectus and believing it to be true, Asif subscribed for shares
and sustained losses. Can Asif file a suit for compensation of the loss incurred by him? If so,
who may be sued for such a loss?
Answer:Civil liability for miss-statements in prospectus
Yes, Asif can sue for compensation of loss. Section 59 of the Companies Ordinance provides that
an allotted is entitled to claim compensation for damages sustained by reason of any untrue
statement contained in this prospectus from the following persons:
i.
ii.

iii.
iv.
v.

Every person who is a director of the Company at the time of issue of prospectus.
Every person who has authorized himself to be named and is named in the prospectus
either as a director, or as having agreed to become a director, either immediately or after
an interval of time;
Every person who is a promoter of the Company; and
Every person who is an expert and has given his written consent to include a statement
issued by him.
Auditor, legal advisor, attorney, solicitor, banker or broker, being the member of a stock
exchange of the company and the prospectus is accompanied by their written consent to
act in that capacity.

Question:There are allegations in the press and serious charges have been leveled against STR Petroleum
Limited about misuse of public funds by the management. Zafar, a director of the company
wants to inspect the books of account, in order to ascertain whether the allegations are true. As
Zafar does not have adequate knowledge of accounting, he intends to examine the books of
account in the presence of his friend Arif, who is a chartered accountant.
You are required to advise the company in respect of the above matter under the provisions of
the Companies Ordinance, 1984.

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Answer:Books of Accounts
As a director, Zafar is entitled to inspect the books of account during office hours.
However, there is no law that would allow Mr. Zafar to allow his friend to inspect the books of
accounts of the company.
Question:a) After incurring continuous losses Shaheen Private Limited had decided to go into
members voluntary winding up. Mr. Sajjad was appointed as a liquidator on a
remuneration of Rs. 200,000 of which 25% was paid at the time of his appointment.
However, in June 2009, Mr. Sajjad tendered his resignation as a liquidator.
In the light of the provisions contained in the Companies Ordinance, 1984 explain the
rights and liabilities of Mr. Sajjad, in the above situation.
b) Identify the persons who are eligible to file a petition for winding up of a limited
company in the Court.
Answer:a) Remuneration of Official Liquidator
If Mr. Sajjad resigns before conclusion of the winding up of the company, he shall not be
entitled to any remuneration and the remuneration already received by him, shall be
refunded to the company.
Resignation of Official Liquidator
He cannot resign or quit his office as liquidator before conclusion of the winding up
proceedings except for reasons of personal disability to the satisfaction of the Court. In
any case, Mr. Sajjad cannot quit his responsibilities before his replacement is appointed
by the court.
b) Petition for Winding up
An application/petition for winding up of a company can be presented in the Court by
the following:
(i)
The company itself.
(ii)
Any creditor(s) (including any contingent or prospective creditor).
(iii)
Contributory (ies).
(iv)
Registrar of Companies.
(v)
The Commission or by a person authorized by the Commission.
Question:Mr. Waleed has acquired 3 million ordinary a share of Acquired Limited whos paid up share
capital consists of 22 million ordinary shares of Rs. 10 each. The election of the directors of the
company has recently been concluded. Mr. Waleed, being confident of holding a sufficient

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number of shares to be elected as a director, has requested the management to arrange a fresh
election.
Based on the provisions contained in the Companies Ordinance, 1984 explain whether and
under what conditions a fresh election of the directors may be held.
Answer:Fresh election of directors
Mr. Waleed has acquired more than 12.5% (Rs. 3/Rs. 22 = 13.64%) shares in the company.
Assuming that the company is listed, he may apply to the Commission for requiring the
company to hold fresh election of directors in the forthcoming annual general meeting of the
company.
The Commission may, if it deems appropriate in the interest of the company, its minority
shareholders or the capital markets generally, direct the company to hold the election of
directors in the manner provided under section 178, and the company shall comply with such
directions.
If fresh elections are held on the directions of the Commission, Mr. Waleed shall not sell or
dispose of his shares for at least one year from the date of election of directors.
However, if the company is not listed, then no such option would be available to Mr. Waleed.
Question:ABZ Limited, a company incorporated in a foreign country, has established an office in Pakistan
by the name of Search International. You are required to explain the requirements of the
Companies Ordinance, 1984 as regards filing of the annual balance sheet and profit and loss
account of ABZ Limited and Search International.
Answer:Accounts of foreign companies
ABZ Limited, being a foreign company and having a place of business in Pakistan, is required
to comply with the following requirements as regards filing of balance sheet and profit and loss
account.
i.

Not less than three copies of balance sheet and profit and loss account as may be
prescribed, in respect of its operations in Pakistan (i.e. of Search International) prepared
as near as possible in the same manner as it would have done, if it were a public
company incorporated under the Companies Ordinance, 1984 shall be filed with the
registrar.

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ii.

iii.

iv.

ICPAP

In case ABZ Limited is required to file its Balance Sheet and Profit and Loss Account in
the country of its incorporation, not less than three copies of such Balance Sheet and
Profit and Loss Account, shall also be filed with the registrar.
In case ABZ Limited is not required to file the Balance Sheet and Profit and Loss
Account to authorities in the country of its incorporation, it would have to file its
Balance Sheet and Profit and Loss Account along with auditors report and the Balance
Sheet and Profit and Loss Account, not less than three copies, shall be in the same form
as it would have been required to be under the Companies Ordinance, 1984 as if it were
a public company.
The period during which the above are required to be filed shall be as under:
within 45 days of submission of the accounts in the country of incorporation; or
Within six months of the date up to which the accounts are made up.
Whichever is earlier?

Question:The annual general meeting (AGM) of Nizam Industries Limited was held on November 16,
2009. Some of the shareholders are not satisfied with the decisions taken at the meeting and are
of the opinion that the directors have manipulated the situation in order to obtain certain
approvals in the annual general meeting.
You are required to explain how and under what conditions the proceedings of the AGM can be
declared as invalid.
Answer:Circumstances in which proceedings of a general meeting may be declared 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 any
material defect or omission in the notice or irregularity in the proceedings of the meeting which
prevented the 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
Question:Explain the provisions contained in the Code of Corporate Governance as regards the
appointment of external auditors.
Answer:Appointment of external auditor - Code of Corporate Governance
i.
The Board of Directors of a listed company shall recommend appointment of external
auditors for a year, as suggested by the Audit Committee. The recommendations of the

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ii.

iii.

iv.

ICPAP

Audit Committee for appointment of retiring auditors or otherwise shall be included in


the directors Report.
No listed company shall appoint as external auditors a firm of auditors which has not
been given a satisfactory rating under the Quality Control Review program of the
Institute of Chartered Accountants of Pakistan.
No listed company shall appoint as external auditors a firm of auditors which firm or a
partner of which firm is non-compliant with the International Federation of
Accountants (IFAC) Guidelines on Code of Ethics, as adopted by the Institute of
Chartered Accountants of Pakistan.
All listed companies in the financial sector are required to change their external auditors
every five years. All listed companies other than those in the financial sector shall, at a
minimum, rotate the engagement partner after every five years.

Question:MP Pakistan is a branch of MPGH (a company registered in Germany) and is engaged in the
software export business. It requires working capital finance to support its operations and
intends to borrow funds from its head office i.e. MPGH on a repatriable basis.
You are required to briefly explain the conditions which MP Pakistan would have to comply
with under the Foreign Exchange Regulations of the State Bank of Pakistan.
Answer:Repatriable Foreign Currency Loans by Foreign Controlled Companies
Foreign controlled companies are permitted to contract foreign currency loans from their Head
Offices for meeting their working capital requirements on the following conditions:
The repayment period should not exceed twelve months
The rate of interest should not exceed 1% over LIBOR. Such loans can however be rolled
over for further periods not exceeding twelve months each.
They may approach their bankers (Authorized Dealers), who will satisfy themselves that
the applicant is a foreign controlled company. Once such a confirmation is obtained, the
concerned company may contract the loan and repatriate the amount for credit to their
Rupee account with the Authorized Dealer.
The concerned Authorized Dealer will issue a proceeds realization certificate, and record
the particulars of the loan. On maturity, the Authorized Dealer having received the
inward remittance will allow payment of interest minus taxes and repayment of
principal. While reporting remittance of interest, a certificate confirming the applicable
LIBOR and a certificate confirming payment of income tax will be attached with the
Form M. If tax is not payable, a copy of the exemption certificate issued by the Revenue
authorities will be submitted. While reporting repayment of the principal, a copy of the
proceeds realization certificate will be attached with the Form M.
Branches in Pakistan of foreign companies are not allowed to pay interest on such loans.

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Question:
a) The following statements may contain certain discrepancies with respect to issuance of
right shares by a listed company. You are required to identify the discrepancies, if any,
and specify the correct position.
i.
A listed company cannot issue right shares within two years of its
incorporation.
ii.
Where a company wishes to charge premium on a right issue in excess of 50%
of the face value of shares, it shall require an approval from the Commission
and the stock exchange on which the company is listed.
iii.
A company which incurred a loss during its last financial year or a company
whose market price is below its par value cannot issue right shares.
iv.
If a company announces a right issue as well as a bonus issue at the same time,
the right shares shall also be entitled to the bonus.
b) The board of directors of Munawwar Industries Limited, a listed entity, is considering
the issuance of bonus shares. You are required to explain (i) the term Free Reserves;
and (ii) the conditions related to maintenance of free reserves for issuance of bonus
shares; as contained in the Companies (Issue of Capital) Rules, 1996.
Answer:a) Issue of Right Shares by a listed company
i.
The listed company shall not make a right issue within one year of the first
issue of capital to the public or within one year of any further issue of capital
through right issue.
ii.
The approval from the commission and the stock exchange is not required for
the issuance of right shares at premium. However, the decision of the
company to issue right shares shall be communicated to the Commission and
the respective stock exchange on the day of the decision.
The maximum amount of premium that a company can charge shall be
limited to the extent of the free reserves.
If the company wishes to charge premium above the free reserves at least
40% of all the shareholders should undertake to subscribe their portion of
right issue and the remaining right issue shall be fully underwritten. The
underwriters, not being associated companies, shall include at least two
financial institutions. In addition, the underwriters shall also give full
justification of the amount of premium in their independent due diligence
report.
iii.
A loss making company or a company whose market share price during the
preceding six months has remained below par can issue right shares
provided the issue is fully and firmly underwritten.

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iv.

If the announcement of bonus and right issue is made simultaneously,


resolution of the board of directors shall specify whether the bonus shares
covered by the announcement qualify for right entitlement.
b) Free reserves includes any amount which, having been set aside out of revenue or other
surpluses after adjustment of all intangible or fictitious assets, is free in that it is not
retained to meet any diminution in value of assets, specific liability, contingency or
commitment known to exist at the date of the balance sheet, but does not include:
i.
reserves created as a result of re-evaluation of fixed assets;
ii.
goodwill reserve;
iii.
depreciation reserve to the extent of ordinary depreciation including
allowance for extra shifts admissible under the Income Tax Ordinance, 1979;
iv.
Development allowance reserve created under the provisions of the Income
Tax Law.
v.
workers welfare fund;
vi.
Provisions for taxation to the extent of the deferred or current liability of the
company; and
vii.
Capital redemption reserve.
The free reserves of the company, shall be sufficient to issue the bonus shares
after retaining reserves of twenty-five percent of the capital as increased by the
proposed bonus shares;
A certificate from the auditors shall be obtained to the effect that the free
reserves and surpluses retained after the issue of the bonus shares will not be
less than twenty-five percent of the increased capital.
Question:a) Explain the terms asset management services and investment finance services as
included in the NBFC Rules, 2003.
b) Briefly explain the restrictions that have been placed on the NBFCs under the NBFC
Rules, 2003 in respect of the following:
i.
appointment of directors from the same family;
ii.
transfer of ownership of controlling shares; and
iii.
Employing a person as a broker.
Answer:a) Asset management services means the services provided for management of collective
investment schemes.
Investment finance services include money market activities, capital market activities,
project finance activities, corporate finance services and general services as specified by
the Commission by notification in the official Gazette.
b) Answer:i.
No restriction

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ii.

iii.

ICPAP

A NBFC shall not sell or transfer ownership of shares in subsidiary or associated


company, merge with, acquire or takeover any other company unless it has
obtained prior approval of the Commission in writing to such sale or transfer or
scheme of merger, acquisition or takeover.
A NBFC shall not enter into transactions with any broker which exceed ten
percent of the total brokerage expense of the NBFC in any one accounting year.

Provided that the NBFC shall not have a common director or officer or employee
with the broker
Question:In the annual general meeting of Sabzazar Limited held on September 29, 2009 some of the
shareholders have raised the following objections:
a) Notice of the annual general meeting was not received by them although they are
resident in Pakistan and their registered addresses have also been provided to the
company.
b) The company has issued shares to a scheduled bank against a part of the outstanding
balance of a loan without offering them to the shareholders by way of a right issue.
c) Shareholders were not allowed to make extracts from the register of members on the day
on which the election of directors was held.
d) 10,000 shares of a subsidiary, which are the property of the company, are held in the
name of a director of the company.
e) The surplus on revaluation of fixed assets was credited to the reserves of the company
and later used to pay dividend.
f) One of the directors is not a member of the company.
You are required to satisfy the shareholders by explaining the relevant provisions, if any, as
contained in the Companies Ordinance, 1984.
Answer:a) Service of notice on members
The notices of the Annual General Meeting were sent to all the shareholders by post at
their registered addresses.
According to law when 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
would be delivered in the ordinary course of post.

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b) Issue of shares in lieu of outstanding balance of any loans, etc.


The company issued shares without making a right issue because Companies
Ordinance, 1984 allows the issuance of such shares to the extent of 20% of the
outstanding balance of a loan from a schedule bank if the rate of return, in any two of
the preceding three years after expiry of two years from the date of commencement of
commercial production, has fallen below the minimum rate of return laid down by the
State Bank of Pakistan.
c) Inspection of registers
The company is required to keep open the register, except when closed under the
provisions of the Companies Ordinance, 1984, subject to reasonable restriction as
imposed by the company in its general meeting so that not less than 2 hours in each day
will be allowed for inspection.
d) Investments of company to be held in its own name
The shares of subsidiary are rightly held in the name of the director because they are the
qualification shares which are required to be held to become the director of that
company.
e) Treatment of surplus arising out of revaluation of fixed assets
The amount in the surplus revaluation account can be transferred to the reserve account
provided the amount is the actual amount that has been realized on disposal of the asset
which was in accordance with the law and hence the proceeds can be utilized for
payment of dividend.
f) A non-member is allowed to become the director of the company in the following
situations:
i.
Persons representing the Government or an institution or Commission which is a
member;
ii.
Whole-time director who is an employee of the company;
iii.
Chief executive;
iv.
Person representing a creditor.
Question:Marhaba Engineering (Pvt.) Limited (MEPL), holds 15% voting shares in Pasban Engineering
Limited (PEL), a company listed on Karachi Stock Exchange. MEPL intends to increase its
holding to 29.5% by acquiring additional voting shares in PEL through public offer and has
made a public announcement of its intentions. However, the financial due diligence of PEL
revealed that the company is facing financial difficulties and it is anticipated that the directors
may sell a sizeable business segment of the company.

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In the light of the provisions of the Listed Companies (Substantial Acquisition of Voting Shares
and Takeovers) Regulations, 2008 you are required to advise the board of directors of MEPL as
regards the following:
a) The circumstances under which a public announcement of intention can be withdrawn
and the procedure to be followed in this regard.
b) The restrictions which will apply on PEL after making the public announcement of its
intentions.
Answer:a) Withdrawal of public announcement of intention
A public announcement of intention to acquire additional voting shares may be
withdrawn:
i.
Where the sole acquirer is a natural person and has died or has been declared
bankrupt or of unsound mind;
ii.
If negotiations to acquire voting shares of the target company have failed;
iii.
Where the due diligence conducted for the acquisition of shares of the target
company by the acquirer is unfavorable;
iv.
Where the acquirer is a company, has gone into liquidation;
its board of directors passes a resolution not to acquire the voting shares of
the target company; or
v.
The time period for making the public announcement of offer and extension
thereof, if granted, has lapsed.
Procedure
In the event of withdrawal of the public announcement of intention under any of the
circumstances specified above, MEPL or the manager to the offer, shall immediately, i.

make a public announcement of withdrawal in all the newspapers in which the


public announcement of intention was made and disclose reasons for
withdrawal; and
ii.
Along with reasons, inform the Commission, the stock exchange on which the
voting shares of the target company are listed and the target company at its
registered office simultaneously, with the issue of such public announcement of
withdrawal.
b) Restrictions on the target company (i.e. PEL) after the public announcement of
intentions is made
After the public announcement of intention is made by MEPL, the Board of Directors of
PEL shall not till MEPL withdraws the public announcement of intention or the
commencement of the offer period, -

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i.

ii.
iii.
iv.
v.

ICPAP

sell, transfer, or otherwise dispose of or enter into an agreement for sale, transfer,
or for disposal of the undertaking or a sizeable part thereof, not being sale or
disposal of assets in the ordinary course of business of PEL or its subsidiaries;
encumber any asset of the company or its subsidiary unless otherwise in the
ordinary course of business;
issue any right or bonus voting shares;
enter into any material contract; and
Appoint an additional director or fill in any casual vacancy on its board of
directors occurring during the period.

Question:Cannon Industries Limited, a listed company, wishes to change its name to Reliance Foods
Limited because the management feels that the change in name would help in rebranding and
rebuilding the image of the company and in attracting more customers.
You are required to explain the requirements of the Companies Ordinance, 1984 which the
company is required to comply with, in this regard. Also describe the effect of such change on
the rights and obligations of the company.
Answer:If Cannon Industries Limited wishes to change its name, it shall have to comply with the
following requirements:
a) Ascertain from the SECP/registrar, the availability of the name Reliance Foods
Limited.
b) Obtain members approval in the general meeting, by way of a Special Resolution.
c) A copy of the resolution shall be filed with the Registrar within 15 days of passing
thereof.
d) An application for approval of change of name is filed with the Registrar.
e) After approval, the registrar shall issue a certificate for change of name of the company
and thereafter, the change of name must be noted in the Memorandum and Articles of
Association and in all documents, invoices, letter-heads, bills, sign boards seal etc.
f) For a period of one year from the date of issue of the certificate by the registrar, the
company shall continue to mention its former name along with its new name, outside
every office or place in which its business is carried on and in every document and
notice issued by the company.
Rights and obligations
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

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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.
Question:Tasty Foods (Pvt.) Limited (TFPL) has been incorporated with the objective of taking over entire
business assets and liabilities of Tasty Biscuits, a partnership firm, at an agreed cutoff date i.e.
December 31, 2008. The partners in the firm are also the directors in the newly incorporated
company. Pursuant to an agreement executed between the company and the partnership firm
all the assets and liabilities were transferred to the company on the agreed date. 7.8 million
Shares of the company were allotted to the partners in consideration of the transfer of firms
property. This allotment however, was made by the directors without considering the
requirements of the Companies (Issue of Capital) Rules, 1996 on the contention that these Rules
are applicable to the listed companies only.
Comment on the decision of the directors and state the conditions specified (if any), under the
Companies Ordinance, 1984 and Companies (Issue of Capital) Rules, 1996, related to the
issuance of shares as mentioned in the above situation.
Answer:Comments on the decision of the directors
The directors of Tasty Foods (Pvt.) Limited (FFPL) are not justified in their contention, as the
Companies (Issue of Capital) Rules, 1996 clearly states that these Rules are applicable to all
companies proposing to issue shares for consideration otherwise than in cash.
Issue of shares for consideration otherwise than in cash
Following conditions needs to be complied with while issuing shares for consideration
otherwise than in cash:
Under the Companies (Issue of Capital) Rules, 1996
i.
ii.
iii.
iv.
v.
i.

a consulting engineer registered with Pakistan Engineering Council and borne on the
panel of at least two financial institutions as a velour must determine the value of assets;
the value of assets taken over shall be reduced by depreciation charged on consistent
basis;
the goodwill and other intangible assets shall be excluded from the consideration; and
A practicing Chartered Accountant shall give a certificate confirming that all the above
conditions have been complied with by the company.
Under the Companies Ordinance, 1984
Produce for the inspection and examination of the registrar a contract in writing
constituting the title of the allottee to the allotment together with any contract of sale in
respect of which that allotment was made.

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ii.

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A copy of such contract duly stamped and verified in the prescribed manner along with
the return of the allotment stating the number and nominal amount of shares so allotted,
the amount to be treated as paid-up, and the consideration for which these shares have
been allotted should be filed with the registrar within thirty days of the allotment.

Question:a) The Securities and Exchange Commission of Pakistan (SECP), on its own motion, is
contemplating appointment of an Inspector to investigate the affairs of Crown
Properties Limited and has issued a notice for the same narrating the reasons thereof.
The directors of the company are contending that the said action is without any justified
cause. You are required to narrate the circumstances specified in the Companies
Ordinance, 1984 wherein the SECP may appoint an Inspector.
b) Assuming that after necessary opportunity afforded by the SECP, Crown Properties
Limited is subjected to the Investigation, describe the powers that the Inspector can
exercise under the Companies Ordinance 1984, while investigating affairs of the
company.
Answer:a) Circumstances under which SECP may appoint inspector:
SECP may appoint an Inspector if in its opinion there are circumstances suggesting:
i.
Fraudulent Business:
The business of the company is being or has been conducted with intent to
defraud its creditors, members or any other person or for 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.
ii.
Breach of Trust:
The sponsors or management have been guilty of fraud, misfeasance, breach of
trust or other misconduct towards the company or its members or have been
carrying on unauthorized business.
iii.
Shareholders Deprived of a Reasonable Return:
The affairs of the company have been conducted so as to deprive the
shareholders of a reasonable return.
iv.
Improper Provision of Information to Shareholders:
The shareholders have not been given all the information with respect to its
affairs which they might reasonably expect.
v.
vi.

Allotment of shares for Inadequate Consideration:


Any shares of the company have been allotted for inadequate consideration.
Mismanagement:
The affairs of the company have not been managed in accordance with sound
business principles or prudent commercial practices.

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vii.

ICPAP

Threats to solvency:
The financial position of the company is such as to endanger its solvency.

Provided that before making such an order, the SECP shall give the company an
opportunity to show cause against the action proposed to be taken
b) The Inspector Appointed by the SECP, shall have the same powers as are vested in a
court under Code of Civil Procedure, 1908, while trying a suit, in respect of the
following matters, namely:
i.
Enforcing the attendance of persons and examining them on oath and
affirmation.
ii.
Compelling the discovery and production of books and papers and any material
object
iii.
Issuing commission for examinations of witnesses
In addition, the inspector shall have power to investigate and report on the affairs of the
other body corporate, chief executive, managing agent or their associates so far as he
thinks that the results of such investigation are relevant to the investigation of Crown
Properties Limited
Question:In order to protect general public, depositors and other stakeholders, Khyber Steel Mills
Limited has been declared as a sick unit by the Federal Government which has appointed Mr.
Sohail Hamdani to prepare a rehabilitation plan for the re-organization of the company.
You are required to discuss the following:
a) The measures which Mr. Sohail is empowered to propose as part of the rehabilitation
plan.
b) If the rehabilitation plan is approved by the Federal Government, what impact would it
have on the rights and liabilities of various stake-holders?
Answer:a) Mr. Sohail Hamdani is empowered to propose all or any of the following measures in
the rehabilitation plan:
i.
reduction of capital so as to provide the following:
Extinguish or reduce the liability on any of its shares in respect of shares
capital not paid up; or
Either with or without extinguishing or reducing liability on any of its
shares, cancel any paid-up shares capital which is lost or unrepresented
by available assets; or

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Either with or without extinguishing or reducing liability on any of its


shares, pay off any paid-up share capital which is in excess of the needs
of the company; or
Reconstruction, compromise, amalgamation and other arrangements.
ii.
alteration of share capital and variation in the rights and obligations of
shareholders or any class of shareholders;
iii.
alteration of loan structure, debt rescheduling or conversion into shares carrying
special rights or other relief and modification in the terms and conditions in
respect of outstanding debts and liabilities of the company or any part of such
loan, debts or liabilities or variation in the rights of the creditor or any class of
them including any security pertaining thereto;
iv.
acquisition or transfer of shares of persons who are or have been sponsors or
otherwise managing the affairs of the company on the specified terms and
conditions;
v.
Issue of further capital including shares carrying special rights and obligations.
vi.
removal and appointment of directors (including the chief executive) or other
officers of the company;
vii.
amendment, modification or cancellation of any existing contract; or
viii.
Alteration of the memorandum or articles or changes in the accounting policy
and procedure.
b) If the rehabilitation plan is approved by the Federal Government, it shall become final
and shall be binding on all stakeholders. Therefore, all rights and obligation of
stakeholders will be determined in accordance with the rehabilitation plan irrespective
of anything contained in the Ordinance or agreements or memorandum and articles of
association.

Moreover, none of the stake-holders would be entitled to any compensation or damages


for any matter or arrangement provided for in, or action taken in pursuance of the
rehabilitation plan.
Question:Pills Limited is an unlisted public company. It intends to appoint MM Associates, a registered
firm of lawyers with two partners, as its legal advisers. MM Associates are already the legal
advisors of the following 6 companies:
i.
ii.
iii.
iv.

ABC Limited and XYZ Limited having share capital of less than Rs. 500,000.
Rose Limited and Bee Limited having share capital of more than Rs. 500,000 but less
than Rs. 1 million.
Crown (Pvt.) Limited with share capital of Rs 1.2 million; and,
Dice (Guarantee) Limited with a share capital of Rs. 1.5 million.

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Based on the requirements of the Companies (Appointment of Legal Advisers) Act, 1974,
explain whether MM Associates can be appointed as the legal advisors of Pills Limited.
Answer:The number of companies, of which a registered firm can be appointed as the legal advisor, is
the product of three and the total number of partners of the firm.
Accordingly, MM Associates can be appointed as legal advisors of 6 companies (i.e. 2x3)
However, the definition of a company given under the Companies (Appointment of Legal
Advisers) Act, 1974 specifically excludes a company which has a share capital of less than Rs.
500,000 or a company limited by guarantee.
In view of the above definition of companies, MM Associates are currently the legal advisors of
three companies as two companies having share capital of less than Rs. 500,000 and one
company which is limited by guarantee would be excluded from the list of eligible companies.
Hence, MM Associates can be appointed as the legal advisors of Pills Limited.
Question:The balance sheet of Montana Textile Mills Limited for the year ended June 30, 2008 shows the
non-current liabilities as under:
Non-current liabilities
Long term finance from Sponsors / Director
Long term finance from related part
Long term finance from Bank

Rupee
61,000,00
150,000,00
572,000,00
783,000,00

To improve the debt equity ratio, the company wants to convert all non-current liabilities into
equity by the issuance of ordinary shares.
Required:
a) Discuss the provisions contained in the Companies Ordinance, 1984 under which the
company may proceed to issue shares against the above non-current liabilities.
b) With reference to the above provisions, advise the extent to which the above liabilities
may be converted into equity.
Answer:a) The company may proceed to convert the above liabilities into equity without issuance
of right shares provided it obtains permission from the Federal Government.
In order to apply to the Federal Government, the company shall have to:
i.
Pass special resolution at a general meeting; and

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ii.
Make an application to Securities and Exchange Commission.
b) The company can issue shares against the full amount of long term finance due from
Sponsors / Directors and the related party i.e. shares of Rs. 61 million and Rs. 150
million.
As far as long term loan from the Banks is concerned, the company can convert up to
twenty percent of the outstanding balance of such loan into ordinary shares, i.e. up to
Rs. 114,400,000 if the term of finance is not less than three years and return has fallen
below the minimum rate laid down by SBP in any two of the preceding three years after
expiry of two years from the date of commercial production.
Question:The association of leading fertilizer manufacturing companies in their 21st annual general
meeting reached an understanding to control the prices of fertilizers and their respective market
shares by territories, in order to save the local industry from growing dominance of foreign
suppliers. This understanding however, is not intended to be enforced by legal proceedings and
has not been put into writing.
You are required to state whether such verbal understanding can be regarded as an agreement
under the relevant provisions of the Competition Ordinance, 2007 and whether such an
agreement is in violation of the provisions of the Ordinance. Also list down some of the
agreements which are prohibited under the said Ordinance
Answer:Yes, such verbal understanding can be regarded as an agreement as the term agreement as
referred in the Competition Ordinance, 2007 includes any arrangement, understanding or
practice, whether or not it is in writing or intended to be legally enforceable.
Compliance
An undertaking or an association of undertakings shall not enter into any agreement in respect
of the production, supply, distribution, acquisition or control of goods or the provision of
services which have the object of preventing, restricting or reducing competition within the
relevant market except when granted exemption under this Ordinance. Therefore, the
understanding between the leading fertilizer manufacturers is in violation of the provisions of
the Competition Ordinance.
Prohibited agreements
Such agreements include, but are not limited toa) fixing the purchase or selling price or imposing any other restrictive trading conditions
for the sale or distribution of any goods or the provision of any service;

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b) dividing or sharing of markets for goods or services, whether by territories, by volume


of sales or purchases, by type of goods or services sold or by any other means;
c) fixing or setting the quantity of production, distribution or sale with regard to any goods
or the manner or means of providing any services;
d) limiting technical development or investment with regard to the production,
distribution or sale of any goods or the provision of any service; or
e) collusive tendering or bidding for sale, purchase or procurement of any goods or
service;
f) applying dissimilar conditions to equivalent transactions with other trading parties,
thereby placing them at a disadvantage; and
g) make the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage,
have no connection with the subject of such contracts
Question:PQR holds more than ten percent of the shares of Rahat Technologies Limited (RTL), a company
listed on Lahore Stock Exchange. The company intends to dilute its investment in RTL by
offering such shares for sale to the public. In the light of the provisions of the Companies (Issue
of Capital) Rules, 1996, describe the conditions which must be fulfilled by PQR before such a
sale may be made.
Answer:Offer for sale of shares by certain persons
PQR, who holds more than ten per cent of the shares of RTL, may offer such shares for sale to
the public subject to the following conditions, namely:
i.
ii.
iii.

iv.
v.

the size of the capital to be offered to public through offer for sale shall not be less than
one hundred million rupees or twenty-five per cent of the capital, whichever is less;
no premium shall be charged unless the company has profitable operational record for
at least one year;
in case a premium is to be charged on the sale of shares, the offer shall be fully
underwritten and the underwriters, not being the associated companies, shall include at
least two financial institutions including commercial banks and investment banks and
the underwriters shall give full justification of the amount of premium in their
independent due diligence reports;
due diligence reports of the underwriters shall form part of the material contracts; and
full justification for the premium shall be disclosed in the offer for sale

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Question:National Travels Limited (NTA), is a listed company, and operates throughout Pakistan. In
order to finalize a running finance arrangement with a bank, it requires a copy of the board
resolution approving the terms of financing. Since five out of eight directors are currently out of
the city, it is not possible for the secretary to convene the meeting of the board of directors.
In light of the provisions of Companies Ordinance, 1984 you are required to state, whether the
above resolution can be passed by circulation and the steps required to be taken to pass such a
resolution.
Answer:Circular resolution
A resolution in writing signed by all the directors for the time being entitled to receive notice of
a meeting of the directors shall be as valid and effectual as if it had been passed at a meeting of
the directors duly convened and held.
Therefore, where it is not feasible to hold the board meeting, it is possible that the required
resolution can be passed by way of a circular resolution, subject to the provisions of the articles
of association of the company.
Steps:
The proposed resolution has to be circulated in draft along with the other necessary documents,
if any, to all the directors.
The resolution will become valid if the same is approved by all the directors entitled to vote on
the resolution or such number of directors as may be specified in the Articles of Association.
There after the resolution as passed by way of circulation will be entered in the minutes book of
the Board of Directors
Question:a) Under the Companies Ordinance, 1984 describe the circumstances in which proceedings
of a general meeting may be declared invalid by the court. Who is eligible to make
petition in this regard.
b) Explain the provisions of the Companies Ordinance, 1984 with regard to the quorum of
a general meeting of a company listed on stock exchange.
Answer:a) Declaration of general meeting as 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

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reason of any 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.
b) Quorum of a general meeting
In the case of a public listed company, the quorum of a general meeting shall be, unless
the articles provide for a larger number not less than ten members present personally
who represent not less than twenty five per cent of the total voting power, either of their
own account or as proxies.
Question:a) MZE Limited, an NBFC engaged in leasing business, is currently facing serious financial
crisis. SECP is not satisfied with the financial management of the company and has
ordered a special audit of the company. In the light of the relevant provisions of the
Companies Ordinance, 1984 relating to NBFCs you are required to explain whether the
Commission is empowered to make such an order. Also describe the rights of the
Commission in this regard?
b) Describe the conditions applicable to a NBFC relating to the appointment of internal
auditor, under the NBFCs (Establishment and Regulation) Rules, 2003.
Answer:a) Special Audit
The commission is required to monitor the general financial condition of a NBFC and at
its discretion may order an special audit and appoint an auditor to carry out detailed
scrutiny of the affairs of NBFC, provided that the Commission may, during the
pendency of the scrutiny, pass such interim orders and directions as may be deemed
appropriate by the Commission.
On receipt of the special audit report, the Commission may direct a NBFC to do or to
abstain from doing certain acts and issue directives for immediate compliance which
shall forthwith be compiled with, or take such other action as it deems fit.
b) Conditions applicable to a NBFC- Appointment of an Internal Auditor
A NBFC shall, appoint;
i.
a person having minimum three years experience as internal auditor who isa. a chartered accountant; or
b. a cost and management accountant; or a certified internal auditor; or
c. a certified information system auditor; or
d. a member of a recognized foreign accountancy organization; or
e. an individual having masters degree in commerce or business
administration with specialization in finance; or
ii.
A chartered accountancy firm having satisfactory Quality Control Review (QCR)
and not being the statutory auditors to whom this function is outsourced.

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Question:Friends Textiles Limited has suffered heavy losses and has almost ceased its operations due to
global recession. The directors foresee no improvement in the companys financial health and
are of the opinion that the company should be liquidated now, as otherwise, in view of the
deepening economic crises, it would be difficult for the company to fetch a good value for its
assets.
Required:
a. Narrate the circumstances in which a company may be wound up voluntarily?
b. Advise the directors of the company about the steps that need to be taken to wind up the
company voluntarily.
c. State the requirements and the procedure to be followed for making a Declaration of
Solvency under members voluntary winding up
Answer:a) Circumstances in which a company may be wound up voluntarily
A company may be wound up voluntarily, under the following circumstances:
i.
On expiration of the period fixed for its duration or on occurrence of the event on
the occurrence of which the company is to be dissolved under the articles of
association and the company has passed a resolution in the general meeting for it
to be wound up voluntarily;
ii.
If a special resolution is passed that the company be wound up voluntarily;
b) The management is required to take the following steps for Members voluntary
winding up under the Provisions of the Companies Ordinance, 1984.
i.
Directors may make a declaration of solvency duly supported by an auditors
report to be filed with the registrar within five weeks immediately preceding the
date of passing of winding up resolution. They, then, call a general meeting of
the members.
ii.
The company, on the recommendations of directors, passes a Special Resolution
for winding up in the general meeting of the members.
iii.
Notice of resolution shall be given by the company in the Official Gazette within
10 days and also published in the newspapers, with a copy of it is to be filed with
Registrar.
iv.
The company shall appoint a liquidator in the general meeting of the company.
On appointment of the liquidator, all the powers (with certain exceptions) of the
Directors, chief executive and other officers shall ceases to exist.
v.
Consent of the Liquidator and notice of his appointment is filed with the
Registrar.

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vi.

Liquidator shall realize the assets of the company and pay the claims of the
creditors. After adjustment of all claims and rights, surplus shall be distributed to
the contributories on pro rata basis.
vii.
Liquidator prepares the accounts and final report, gets the accounts audited, and
presents the same in the general meeting of the contributories (members).
viii.
A notice of such meeting of contributories shall be published in the Gazette and
newspapers at least10 days before the date of meeting.
ix.
Liquidator shall file the accounts, final report and a return of holding the
meeting along with minutes thereof, with the registrar, within one week after the
meeting.
x.
On the expiration of three months from registration of the above, the company
shall be deemed to be dissolved.
c) Requirements and the procedure to be followed for making a Declaration of Solvency
under members voluntary winding
In case of Members voluntary winding-up:
a. All directors, including the chief executive and if the number of directors is more
than three, majority of these directors are required to make a declaration of
solvency.
b. A declaration of solvency is a declaration by the directors that in their opinion
the company shall be able to pay all its debts in full within the period specified in
the declaration but not exceeding twelve months from the commencement of the
winding-up.
c. The declaration of solvency is required to be filed with the registrar within 5
weeks immediately preceding the date of passing winding up resolution.
d. Following are enclosed with the declaration of solvency:
i.
A copy of the report of the auditors.
ii.
The profit and loss account of the company, prepared for the period
commencing from the date of last such accounts to the date as close as
possible to the date of making such declaration.
iii.
The balance-sheet of the company as on the above date.
iv.
A statement of the companys assets and liabilities as at that date.
Question:The Board of Directors of ABC Limited, a company listed on Karachi and Lahore Stock
Exchanges, has resolved to transmit its quarterly financial statements to the members of the
company through its corporate website. You are required to discuss the requirements of
Companies Ordinance, 1984 regarding placement of the quarterly accounts on the web.
Answer:A listed company may place its quarterly accounts on its website, subject to fulfillment of the
following conditions:

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i.
ii.
iii.
iv.
v.

vi.
vii.

viii.
ix.
x.
xi.

ICPAP

Seek the consent of its shareholders in a General Meeting.


Consult the respective stock exchanges.
Seek prior permission of the Commission.
The application for this purpose shall indicate its website address.
The company, after obtaining the requisite permission, shall inform its shareholders
through an advertisement in the Press that the subsequent quarterly accounts would be
transmitted to them through the company website.
The respective Stock Exchanges and the Commission shall be informed in writing, by
post.
The requirement of filing the prescribed number of copies of periodical accounts with
the Commission and the Stock Exchange(s) by post shall be fulfilled, in addition to the
transmission of the same through the website of the Commission and the Stock
Exchange(s).
The company will also provide a copy of quarterly accounts, free of cost, to any
shareholder, on demand.
Transmit periodical accounts electronically to the concerned stock exchange(s) so as to
place the same on their website.
A group of companies under the same management may maintain a single website
instead of having an independent website for each company.
The listed companies shall also be required to intimate to the Commission through email that quarterly accounts have been placed on their websites, on the due date.

Question:(a) List the types of businesses that NBFCs are permitted to carry out under the relevant
provisions of Companies Ordinance 1984.
(b) In order to reap benefits of large scale operations, the Board of Directors of Moonlight
Leasing Limited and Dream Leasing Limited intend to amalgamate the operations of the
two companies.
State the procedure which should be followed for the merger of the two companies and
the approvals required to be obtained for this purpose, under the provisions relating to
establishment and regulation of NBFCs.
Answer:(a) Following are the businesses which may be carried out by NBFCs:
i.
Investment Finance Services;
ii.
Leasing;
iii.
Housing Finance Services;
iv.
Venture Capital Investment;
v.
Discounting Services;
vi.
Investment Advisory Services;
vii.
Asset Management Services; and

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viii.

Any other form of business which the Federal Government may specify, by
notification in the Official Gazette, from time to time.

i.
ii.

A scheme shall be prepared in draft containing the terms of the amalgamation.


Notice of meetings to sanction the scheme shall be given to the shareholders of
both companies.
These notices shall also be published at least once a week for three consecutive
weeks in at least two newspapers which circulate in the locality where the
registered offices of both the NBFCs are situated.
One such newspaper should be in the language commonly understood in the
locality (ies).
In these meetings, the shareholders, either present in person or by proxy, of
both the companies shall give approval to the scheme by a resolution passed by
two-third majority.
Upon approval by the requisite majority of shareholders, the scheme shall be
submitted to the Commission for its sanction.
The Commissions written approval of the scheme shall be binding on both the
NBFCs and also on all its shareholders.
Upon its sanction by the Commission any dissenting shareholder(s) shall be
entitled to claim, from Moonlight Leasing Limited and Dream Leasing Limited,
the value of their share as determined by the Commission while sanctioning the
scheme.
The determination of the value of shares by SECP shall be final for all purposes.

(b)

iii.

iv.
v.

vi.
vii.
viii.

ix.
Question:-

Mr. Khan, chief executive of Prosperous Engineering Limited, is assessing the possibility of
setting up a new project in Gwadar in collaboration with a prospective foreign investor. He is
confident that the proposed project will reap significant benefits to the company. Since he does
not wish to dilute his holding and voting rights, he is planning to issue class B shares to the
investor along with 16% TFCs with a floating charge on the book debts of the company and a
fixed charge on its machinery in the manufacturing department. He wants to have your advice
on the issue.
Required:
(a) Explain to Mr. Khan various rights and privileges which shareholders may have in case
of more than one class of share capital, under the Companys Share Capital (Variation in
Rights and Privileges) Rules, 2000.
(b) Explain the important characteristics of a fixed charge and floating charge and their
registration requirements.

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Answer:(a) If allowed by its Memorandum and Articles a company may have more than one class of
shares. Each class of shares may have different rights and privileges, which shall also be
as provided in the articles.
The rights and privileges of the shareholders may differ in respect of the following:
i.

different voting rights; voting rights disproportionate to the paid up value of


shares held; voting rights for specific purposes only; or no voting rights at all;
ii.
different rights for entitlement of dividend, right shares or bonus shares or
entitlement to receive the notices and to attend the general meetings; and
iii.
Rights and privileges for indefinite period, for a limited specified period or for
such periods as may from time to time be determined by the members through
special resolution.
(b) A fixed or specific charge attaches to the specific, clearly identifiable and defined asset of
the company as soon as it is created. From then on the company cannot transfer or
dispose of such property.
A floating charge does not attach to any specific property of the company until the
company commits some act or default (i.e. charge crystallizes). It is free to dispose of the
property unencumbered.
A fixed charge takes priority over a floating charge.
All charges, both fixed and floating have to be registered with the Registrar within 21
days of their creation.
If such registration is not affected, the charge created by the company becomes void
against any liquidator or other creditor
Question:GP Pharma Limited, a family owned company with zero debt, has witnessed rapid growth
during the past 5 years. In order to carry on the successful growth pattern and fulfill the ever
increasing customers demand, the board of directors of the company is planning to establish
another manufacturing facility at a cost of Rs. 200 million. To meet the cost of the project, the
company needs to raise capital and therefore has decided to go public.
Required:
Advise the Board about the conditions to be complied with for the issuance of capital under the
Companies (Issue of Capital) Rules, 1996.
Answer:A company which owns an equity-based project and proposes to raise capital through public
offer for the first time shall comply with the following conditions, namely:

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i.
ii.
iii.

iv.

v.

ICPAP

The fixed capital expenditure shall be entirely financed by equity.


The project shall be appraised by a financial institution or a commercial bank or an
investment bank.
The appraisal report shall be accompanied by Auditors certificate confirming that:a. The capital allocated to sponsors, foreign and local investors, if any, has been
fully paid; and
b. The land for the project has been acquired, letters of credit have been established
and shipment schedule of plant and machinery has been finalized by the
suppliers.
The issue shall be fully underwritten and the underwriters, not being the associated
companies, shall include at least two financial institutions, including commercial banks
and investments banks and the underwriters shall evaluate the project in their
independent due diligence report.
The sponsors shall retain at least twenty-five per cent of the capital of the company for a
period of five years from the date of public subscription.

Question:Fiber Leasing Limited has recently lost one of its Directors and the Chief Executive in a tragic
car accident. The company wants to appoint Mr. Big and Mr. Smart in place of its late director
and chief executive respectively. With reference to NBFC and Notified Entities Regulations,
2007, state the considerations which SECP would take into account while assessing their
competence and capability as Director and Chief Executive.
Answer:Competence and Capability
Director:
While assessing the competence and capability of the proposed Directors on the Board of an
NBFC, the Commission shall take into account all the relevant considerations including, but not
limited to:
(i) should be individuals having management/business experience of at least five years at a
senior level in an active capacity;
(ii) should be professionally qualified and have demonstrated knowledge in the field of
banking, mutual funds, accounting, internal audit, law and Information Technology, etc;
(iii) should not be minors or of unsound mind; and
(iv) Should have their names borne on the register of national tax payers except where such
person is a nonresident.
Chief Executive
The CE must demonstrate his competence and ability to understand the technical requirements
of the business, inherent risks and management processes required to conduct its operations
effectively, with due regard to the interests of all stakeholders.

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In determining competence, and capability of the CE, the Commission shall take into account all
relevant considerations, including but not limited to:
(i) should have a minimum experience of seven to ten years in a senior management
position, preferably in the regulated financial services sector;
(ii) should have demonstrated, through his qualifications and experience, the capacity to
successfully undertake the cognate responsibilities of the position;
(iii) should have never been diagnosed as being mentally ill or unstable;
(iv) Should have a sound knowledge of the business and responsibilities he/she will be
called upon to shoulder.
Question:Mega Projects Limited is presently facing financial crunch. In order to overcome this crisis and
to improve profitability, the Board of Directors is considering raising funds through capital
injection. The existing shareholders and the potential investors may not be willing to invest at
par value which is Rs.10 per share. However, it is estimated that the company could get just
about Rs. 7 per share. The directors have therefore decided to issue shares at discount.
Being a Company Secretary, you are required to advise the directors about the procedure to be
followed in this regard, under the Companies Ordinance, 1984
Answer:i.
ii.

iii.
iv.
v.
vi.
vii.
viii.
ix.

Mega Projects Limited can issue shares at discount after one year of commencement of
business.
The directors should pass a resolution to issue shares at discount, specifically
mentioning the discount rate and price, reason for the discount and possible effects of
the discount on the company and its existing shareholders.
Notice should be issued to members with statement of material facts along with copy of
the proposed resolution at least 21 days before the date of the general meeting.
The shareholders should pass a special resolution to that effect with atleast 3/4th
majority.
A copy of the special resolution should be filed with the Registrar concerned within 15
days of the date of the resolution.
An application should be furnished to the SECP for sanctioning the issue with a copy to
the Registrar.
The shares should be issued within 60 days of the approval from Commission.
Return of allotment of shares should be filed with the Registrar within 30 days of the
date of allotment.
Every prospectus and Balance Sheet issued thereafter should contain particulars of
discount allowed and amount not amortized, if any, at the balance sheet date

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Question:a) In view of large decline in the value of shares in Asian markets, a group of US investors
believe that now is the opportune time to invest in such markets as they have almost
reached their lowest limits. One such investor, Mr. NR is interested in buying securities
listed on Karachi Stock Exchange.
With reference to relevant provisions of Foreign Exchange Manual, you are required to
advise Mr. NR on the following:
i.
The procedure to be followed in order to trade in listed shares in Pakistan.
ii.
Whether Mr. NR would be entitled to receive dividends on such securities and
are there any restrictions on repatriation of funds outside Pakistan?
b) Explain the meaning of a person resident outside Pakistan as referred to in the Foreign
Exchange Regulations.
Answer:(a) (i)
Mr. NR will be required to open a Special Convertible Rupee Account with any
authorized dealer.
Such account can be fed by:
remittances from abroad
Transfer from a foreign currency account maintained in Pakistan by Mr. NR.

Mr. NR shall be allowed to trade freely in any shares quoted on any Stock Exchange in
Pakistan from this account.
Payment from such purchases may be debited to the account on production of stock
brokers memo.
Disinvestment proceeds may be credited to the account on provision of stock brokers
memo.
Transfers from one such account to another may also be made in case of transfer of
shares between the two account holders.

(ii) Yes, Mr. NR is entitled to receive dividends which shall also be credited into special
convertible rupee account.
There are no restrictions on repatriation of funds outside Pakistan and the funds
available in such special accounts can be transferred outside Pakistan or credited to a
Foreign Currency Account maintained in Pakistan at any time without prior approval of
the State Bank of Pakistan.
(b) A person resident outside Pakistan covers a foreign national including a foreign
national of Indo Pakistan origin as also a Pakistani holding dual nationality for the time

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being resident in Pakistan and a company registered in Pakistan which is controlled


directly or indirectly by a person resident outside Pakistan.
Question:Sigma Industries Limited is a company listed on Karachi Stock Exchange. Its financial year ends
on December 31. The final dividend for the year 2007 was approved in the AGM held on March
31, 2008. To maintain its good payout ratio, the company declared two interim dividends of
10% and 12% in January and February 2008 respectively. The books were closed for a period of
12 days and 18 days respectively. The directors of Sigma Industries
Limited have now proposed a final dividend of 20% which is to be approved in the forthcoming
AGM of the company. The directors intend to close the share transfer register from March 25,
2009 for determining shareholders entitlement for the purpose of dividend, meeting, etc.
In the light of Companies Ordinance, 1984 you are required to advise the directors as regards
the following:
a) The maximum period for which the books of Sigma Industries Limited can be closed
and the procedure that should be followed in this regard.
b) The last date up to which Sigma Industries Limited can hold it AGM.
c) The procedure relating to sending of notices, annual report and audited accounts to the
members and concerned authorities.
Answer:a) Sigma Industries can close its books for a maximum of 15 days i.e. from March 25, 2009
to April 8, 2009. This is also in line with the listing regulations of onetime closure of 7-15
days.
Following procedure is to be followed for closing the register of members and the share
transfer register.
i.
The company shall give 21 days notice of book closure to Karachi Stock
Exchange.
ii.
At least seven days before the book closure a notice of book closure shall also be
published in a newspaper having circulation in the province(s) in which the
stock exchange on which the company is listed is situated and also in the
province in which the registered office of the company exists.
iii.
The total period of book closure should not to exceed 45 days in a year and the
period of one time closure shall not exceed 30 days.
b) The law requires that all subsequent Annual General Meetings (AGMs) should be held
once in each calendar year; within 4 months of the close of the financial year but not
exceeding 15 months from the conclusion of last AGM. So, Sigma Industries Limited
can hold the AGM up to April 30th, 2009.

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(c)
i.

ii.

iii.

iv.
v.

The notice of AGM along with the copy of annual report and audited accounts would
be send to all the members at their registered address at least 21 days before the
meeting.
Simultaneously with the dispatch of notice, five copies each of the annual report and
audited accounts, one duly signed by the auditors and CEO/Director would be sending
to the Commission, Stock Exchange and the Registrar.
The notice of meeting shall be published at least 21 days before the meeting in two daily
newspapers one English and one Urdu circulating in the province in which the stock
Exchange(s) on which the company is listed exist.
The copy of the notice of AGM shall be faxed to the Commission on the day of its
publication.
A copy of the newspaper shall also be sent to the Commission on the day of its
publication.

Question:During the past 12 months Mr. Sohails holding in shares of ABC Ltd (a listed company) has
increased to 13%. Recently, he has written a letter to the company seeking appointment on its
Board of Directors. The company secretary had advised that since the election of directors was
held in the preceding annual general meeting, he cannot be admitted on the board till the next
elections become due. Mr. Sohail is not satisfied with the response and has sought your advice
on the matter. You are required to briefly discuss what course of action is available to him.
Answer:Under the Companies Ordinance, 1984 the tenure of the BOD is 3 years.
Before expiry of the term a person can only be admitted to fill in the casual vacancy.
However, according to the Companies Ordinance, 1984 if a person acquires 12.5% or more
voting shares in a listed company in his own name; he may apply to the Commission to direct
the company to hold fresh election of directors in the forthcoming annual general meeting of the
company.
The Commission may, if it deems appropriate in the interest of the company, its minority
shareholders or the capital markets generally, direct the company to hold the election of
directors as above and the company shall comply with such direction.
However, in case the election is held as above, Mr. Sohail shall be restricted from selling or
disposing of the shares for at least one year from the date of election of Directors of the
company.

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Question:What are legal provisions in respect of statutory meeting of a company? Section (157)
Answer:Statutory Report

Report: The statutory report is prepared on Form 25 (reproduced hereinafter).


Approval of Directors: Board of directors considers and approves the Statutory Report
in its meeting.
Signature: The report is certified as correct by not less as two directors and chief
executive.
Auditors Authentication: The auditor certifies the report to be correct so far as it relates
to the shares allotted, cash received in respect of such shares and the receipts and
payments of the company. The cash receipts and payments are reported upto a date
within 7 days prior to the date of statutory report.
Members: Statutory Report is sent to the members atleast 21 days before the Statutory
Meeting.
Filling: Five copies of the Statutory Report (Form 25) are filed with the registrar
concerned simultaneously at the time of sending to the members. Bank Challan is
annexed with the report.

Statutory Meeting

Application: A public company is required to hold a statutory meeting once in its life.
Time of holding by new company: The statutory meeting is held within period of no
less than 3 months and not more than 6 months from the date of commencement of
business by the public company.
Time of holding by Converted Company: A public company which is converted from
private company within one year of its incorporation in required to hold statutory
meeting within period of not less than 3 months and not more than 6 months from the
date of conversion. A private company which is converted into public company after
one year of its incorporation is exempted from holding statutory meeting as it would
have hold its AGM.
Convening Authority: The Statutory Meeting is convened by management only and
cannot be requisitioned. In case of non-holding of a Statutory Meeting, the Commission
may give direction under section 170 of the Ordinance to hold over-due Statutory
Meeting.
Board Meeting: The Board of Directors considers and approves Statutory Report and
decides to convene the Statutory Meeting.
Agenda: the statutory meeting has one point agenda i.e. to discuss and approve the
Statutory Report.

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Purpose: The main purpose of the statutory meeting is the approval of allotment of
shares, receipt and payment of moneys, expenditures especially the capital
expenditures and contracts particularly about underwriting agreements and
commission paid. The company also apprises the shareholders about the future plan of
the company.
Discussion: The chairman moves a motion to discuss the Statutory Report and allows
the members to discuss ay matter relating to the formation of the company arising out
of Statutory Report.
Voting: On conclusion of discussion, the chairman moves the motion to vote for
approval of the Statutory Report and declares result.
Other Business: Other business can be discussed in the Statutory Meeting. However,
such matters are required to be specified in the notice of statement of material facts in
terms of section 160 (1) (b) is required to be stated.
Adjournment: The Chairman may, with the consent of the members, adjourn the
Statutory Meeting to such time and place as may be decided in that meeting.
Minutes: The minutes of the Statutory Meeting are recorded in the Minute Book of the
general meeting and signed.
Consequence of Non-holding of Statutory Meeting: consequences of non-holding of
Statutory Meeting are:i.
Penal action under section 157 (11).
ii.
Direction of registrar for holding over-due AGM under section 170.
iii.
In case of non-holding of Statutory Meeting of non-delivery of Statutory Report,
proceedings of winding up can be initiated under section 305 (b)

Question:Draft notice of Annual General Meeting.


Answer:
ABC Limited
Notice of Annual General Meeting
Notice is hereby given that the ______the Annual General Meeting of ABC Limited shall be held
on ____ day, ______ 2003 at ______ A.M. at Mills Office, _______ to transact the following
business:1. To confirm the minutes of the last annual general meeting held on ________.
2. To receive and adopt the audited annual accounts of the Company for the year ended
__________ together with the reports of directors and auditors thereon.
3. To appoint auditors of the Company for the year ending _______ and to fix their
remuneration.

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4. To elect ______ directors as fixed by the Board under section 178 (1) of the Companies
Ordinance, 1984 for a period of three years commencing from ______. The names of
retiring directors are as under:a. _______________
b. _______________
c. _______________
d. _______________
e. _______________
5. To transact any other business this may be brought forward with the permission of the
chair.
By the order of the Board
XYZ
Secretary
Place: _____
Date: _____

NOTES:
a) The share transfer books of the company shall remain closed from _____ to ______ (both
days inclusive).
b) A member entitled to attend and vote at the annual general meeting may appoint
another member as his/her proxy to attend and vote on his/her behalf. Proxies to be
effective must be received by the company not less than 48 hours before the meeting.
c) Any person who seeks to contest the election to the Office of Directors, shall file at the
Registered Office of the Company, not later than 14 days before the day of meeting, a
notice of his/her intention to offer himself/herself for election as Director in terms of
Section 178 (3) of the Companies Ordinance, 1984.
d) Members are requested to notify immediately changes in their address, if any.
Question:State comprehensively the necessary provisions regarding holding of Annual meeting (AGM) of
a company.
Answer:

Requirement: Every company is required to hold one annual general meeting in each
calendar year.
First Annual General Meeting: First annual general meeting is held:1) Within 18 months from the date of incorporation; and
2) Within 4 months of close of the financial year;

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3) Financial year should not exceed 12 months except with prior approval of the
Registrar in accordance with Section 233(2) of the Companies Ordinance, 1984.
Under these three conditions, a company, which is incorporated in first half of a
year, may hold the annual general meeting within first half and a company,
which is incorporated in second half of the year, may hold the annual general
meeting within second half of the year.
According to the Finance Act, 1995 companies, except having special financial
year, are required to close their accounts on 30th June every year. Therefore,
under the situation, the annual general meeting is required to be held in 2 nd half
up to 31st October.
No extension is granted in period for holding 1st AGM.
Subsequent Annual General Meeting: Subsequent annual general meeting is held:1) Once in each calendar year;
2) Within 15 months from the conclusion of the last annual general meeting; and
3) Within 4 months of close of the financial year;
4) Accounting year cannot exceed 12 months except with prior approval of the
Registrar in accordance with provision of Section 233(2) of the Companies
Ordinance, 1984.
Under the above mentioned four conditions, a company which held the prevision
annual general meeting in first half of the year may hold the subsequent annual general
meeting in first half and a company which held the previous annual general meeting in
second half of the year may hold the subsequent annual general meeting within second
half of the year.
According to the Finance Act, 1995, the companies, except having special financial year,
are required to close their accounts on 30th June every year. Therefore, under the
situation, the annual general meeting is required to be held in 2nd half up to 31st
October.
Board Meeting: The board of directors considers and approves the annual accounts and
auditors report. The board also gives approval for issue of directors report. The board
considers each and every item on agenda of the annual general meeting and approval is
given for each item. Schedule of election of directors is approved, appointment and
remuneration of auditors are proposed and declaration of dividends is recommended.
The draft notice is approved and place, date and time of holding of AGM are decided.
The secretary is given authorization to issue notice.
Statement setting out material facts: Where any special business, other than those
mentioned above, is to be transacted at a general meeting, a statement setting out all
material facts is annexed with the notice in terms of section 160(1)(b) of the Companies
Ordinance, 1984.
Notice: A 21 days notice along with a copy of the annual accounts, name of retiring
directors and contesting candidates, proposal of appointment of auditors and their
remuneration, recommendation for declaration of dividends and copy of proposed

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special resolution with statements setting out material facts are furnished to be
members, directors and auditors of the company.
In case of listed companies, notice is published in English and an Urdu
newspaper having circulation in the province where the relevant stock
exchange exists.
Five copies of the annual accounts with notice are also delivered to the
Commission simultaneously.
Closure of Books: Notice is given for closure of books (i.e. register of members and
transfer books) in terms of section 151. In case of listed company, such notice is
published mostly in shape of note to the notice of AGM. (See section 151).
Stock Exchange: In case of listed company, intimation of holding of Board of Directors
meeting and annual general with notice containing agenda is given to the Stock
Exchange in accordance with listing regulation.
Holding of AGM on Holiday: An AGM can be held on a public holiday.
Time: An AGM is held within working hours until and unless it is otherwise stated in
the notice.
Convening of AGM: Only the Board of Directors can convene an AGM.
Place of Meeting: Annual General Meeting, in case of listed company, is held in the
town where the registered office of the company is situated. However, the Commission
may, under special circumstances, allow a company to hold the annual general meeting
at some other place.
AGM is held within municipal limit of a town or city where the registered office of the
company is situated.
[A] Where the company was a private company, there was no bar of holding such
meeting at any other place than in town of the registered office, though in respect of the
listed company (public limited company), the Annual General Meeting had to be held in
the town of registered office in terms of S. 158 (2) of the Companies Ordinance, 1984___
Arrangement for Meeting: Arrangement for general meeting are checked and ensured
that chairs, mike, lighting, tea, recording of proceedings, attendance slips, poll papers
etc. are ready.
Inspection: Register of members, proxies, annual accounts etc. are made ready for
inspection by the members at the time of general meeting.

Question:What is quorum? State necessary requirements of quorum


Answer:Quorum:

Quorum is the presence of minimum number of members for a valid meeting.


No business can be transacted without effective quorum present in that general meeting.

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The quorum of a general meeting given as under:


a. Public Listed Company. 10 members present personally representing not less
than twenty-five per cent. Of the total voting power either of their own account
or as proxies or higher number provided in Articles of Association.
b. Single Member Company. Single member present in person or by proxy.
Company secretary shall also be present to constitute a meeting. Company
Secretary cannot be appointed proxy of single member.
c. Other Company (Non-listed public/private Company). 2 members present
personally representing not less than twenty-five per cent. Of the total voting
power either of their own account or as proxies or higher number provided in
Articles of Association.
General meeting is required to be transacted in presence of quorum only. If quorum is
not present within half-an-hour from the time appointed for the meeting, the meeting, if
called upon the meeting, the meeting, if called upon the requisition of members, is
dissolved sine die and if called by directors, stands adjourned to the same day in the
next week at the same time and place.
If again quorum is not present at the adjourned meeting within half-an-hour from the
time appointed for the meeting, the members present, being not less than two, shall be a
quorum, unless the articles provide otherwise.
If cannot be presumed that quorum of single member company shall not be present. He
shall be either present or absent. His presence can be made through proxy.
It may be noted that quorum is mostly pointed out by the members and if the quorum is
not pointed, the business conducted is valid.
Presumption of Quorum: A quorum will always be presumed, unless it is questioned at
the meeting or the records show that a quorum was not, in fact, present.
Presence of Representative of Corporate Bodies, Government etc. as Quorum: A
presence of representative of corporate bodies, trusts, federal or provincial governments
etc. is treated presence in person for the purpose of quorum.
Requirements as to quorum: - If no quorum is present, then there is no meeting and the
proceedings are invalid.
Presence of quorum at the time of decision: - It must be a quorum of effective
members, i.e., members qualified to take part in and to decide upon questions brought
before the meeting and such a quorum must be present when such questions are being
decided; merely being present at the beginning of a meeting is not sufficient.
Third Parties not affected for want of quorum.- If there be any irregularity as to
quorum, third parties without notice will not be affected.
Quorum and single member meeting.- The meeting literally means a coming together
of two or more persons and generally more than one person sill be necessary to
constitute a meeting. A single member even though he may hold many proxies does not
constitute a meeting, except when otherwise provided in the Act. They do not enable the

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minority be absenting themselves from the meetings permanently to frustrate the wishes
of the majority.
Quorum of members entitled to vote. Preference shareholders cannot, therefore, be
counted as members for determining quorum except in respect of items of business, if
any, where they have right to vote under the Ordinance.
Adjourned for want of quorum: - The provision applies only to meeting which are
adjourned for want of quorum and not to meetings adjourned by the Chairman with the
consent of members.

Question:Under the Companies Ordinance, 1984 and the Code of Corporate Governance:
a) state the qualifications for appointment as a company secretary of a listed
company; and
b) describe the duties and powers of a company secretary.
Answer:a) Section 2(33) Companies Ordinance, 1984 (Ordinance) states that a company
secretary is an individual appointed to perform secretarial, administrative, or
other duties aimed to ensure that the affairs of the company are conducted in
accordance with the Ordinance. Section 204-A makes it mandatory for listed
companies and single member companies to appoint whole time company
secretaries possessing such qualification as may be prescribed.
Pursuant to s.204-A, the following qualifications have been prescribed in Rule 14B of the Companies (General Provisions and Forms) Rules, 1985, in September
2005:
1. The directors of a public listed company shall take reasonable steps to
ensure that the company secretary is a person who appears to them to
have the requisite knowledge and experience to discharge his functions as
company secretary, and who is:
A. a member of
i.
a recognised body of professional accountants; or
ii.
a recognised body of corporate or chartered secretaries; or
B. a person holding a masters degree in business administration or
commerce or being a law graduate from a University recognised by the
Higher Education Commission and having at least two years relevant
experience; or
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C. a retired government servant in BS-19 or equivalent or above with at least


15 years service:
Provided that a person already engaged by a public listed company as a
company secretary before 26 October 2002 may continue in that capacity if he has
an experience of not less than five years in that position.
Clause (xvii) of Code of Corporate Governance, 2002 (Code) provided that no
person shall be appointed as the Company Secretary of a listed company unless
he is:
A. a member of a recognised body of professional accountants; or
B. a member of a recognised body of corporate/chartered secretaries; or
C. a person holding a masters degree in business administration or
commerce or being a law graduate from a University recognised by the
Higher Education Commission (HEC) and having at least five years
relevant experience.
Provided that a person already engaged by a company as secretary before 26
October 2002 may continue in that capacity if he has an experience of not less
than five years in that position.
[The slight differences in the prescribed qualifications under the 1985 Rules and
the Code have yet to be resolved by the Securities and Exchange Commission of
Pakistan].
b) A company secretary is recognised as one of the principal officers of the
company. The company secretary is the person who is required to ensure
compliance with the applicable corporate laws. He is also responsible for
managing the various statutory meetings of the company.
A company secretary acts on behalf of the board of directors. The superior courts
have held that a company secretary being an officer of the company has
extensive duties, including those of making representations on behalf of the
company and entering into contracts which come within the day-to-day running
of the companys business.
Generally, a company secretary has duties towards (i) directors; (ii) shareholders;
(iii) management and administration; (iv) the company; and (v) law. Duties
towards shareholders imply arranging for shareholders meetings; keeping
minutes of such meetings; receiving applications for allotment of shares;
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transferring of shares; and recording dividends paid. Duties towards directors


imply arranging board meetings; keeping records and minutes of such meetings
and implementing decisions taken in the meetings.
If the company is a listed company, the Code becomes applicable. Clause (xviii)
of the Code provides that the company secretary of a listed company shall attend
meetings of the board of directors. Provided that unless elected as a director, the
company secretary shall not be deemed to be a director or entitled to cast a vote
at meetings of the board of directors for the purpose of the said clause. It further
provides that the company secretary shall not attend such part of a meeting of
the board of directors which involves consideration of an agenda item relating to,
among other things, the company secretary.
Question:Under the Companies Ordinance, 1984 and the relevant rules and regulations:
a) explain the meaning of a Non-Banking Finance Company (NBFC);
b) identify the money-laundering prevention requirements for NBFCs.
Answer:a) The Companies Ordinance, 1984 (Ordinance) does not provide a specific
definition of NBFC. The expression was introduced through insertion of Part
VIIIA (comprising s.282A to M) into the Ordinance in 2002. Section 282A states
that the NBFCs include companies licensed by the Securities and Exchange
Commission of Pakistan (SECP) to carry out any one or more of the following
forms of business, namely:
i.
Investment Finance Services;
ii.
Leasing;
iii.
Housing Finance Services;
iv.
Venture Capital Investment;
v. Discounting Services;
vi.
Investment Advisory Services;
vii. Asset Management Services; and
viii.
any other form of business which the Federal Government may, by
notification in the official Gazette, specify from time to time.
The prefix non-banking is to distinguish these companies from banking
companies, which are licensed and regulated by the State Bank of Pakistan.
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Unlike banking companies, NBFCs cannot take deposits which are payable on
demand.
An NBFC cannot be incorporated without the prior approval of the SECP
(s.282C) and cannot carry on its business unless it holds a valid license issued by
the SECP (s.282C).
The Non-Banking Finance Companies Rules, 2003 (NBFC Rules) and the NonBanking Finance Companies and Notified Entities Regulations, 2008 (NBFC
Regulations) have been prescribed under s.282B and provide detailed
requirements for the registration/licensing and working of NBFCs.
b) Rule 7(g) of the NBFC Rules, 2003 stipulates that an NBFC shall follow the
directions issued to protect NBFCs against their involvement in, among other
things, money laundering activities. Regulation 9(1) of NBFC Regulations
provides that all NBFCs shall ensure prevention of money laundering and other
illegal trades and abide by such directives and circulars as may be issued by the
Commission to safeguard the NBFCs against involvement in money laundering
activities and other illegal trades.
Regulation 9(2) provides that notwithstanding the generality of Regulation 9(1),
an NBFC shall comply with the following conditions:
i.

ii.

iii.

iv.

v.

it shall accept deposits from an investor only after ensuring that an


account has been opened in the name of the investor using the account
opening form developed by the respective industry associations in
consultation with the Commission;
it shall determine the true identity of the prospective customer before
extending its services and care shall be taken to identify ownership of all
accounts and those using safe custody;
it shall establish effective procedures for obtaining identification from new
customers and devise a policy to ensure that business transactions are not
conducted with persons who fail to provide evidence of their identity;
it shall conduct its business in conformity with the Rules and these
Regulations and shall not offer services or provide any assistance in
transactions which, in the opinion of the NBFC, are associated with money
derived from illegal activities;
it shall establish effective procedures for the monitoring of Borrower
accounts on a regular basis, checking identities and bonafide of remitters
and beneficiaries of transactions and retain records of transactions; and
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it shall not make payment or receive amounts in cash exceeding Rs.


50,000/-.

Regulation 9(3) provides that all transactions into or from the account
maintained with the NBFC, which are not usual transactions shall be thoroughly
scrutinised and properly investigated by the NBFC.
The Prudential Regulations for NBFCs issued by the SECP in 2004 and updated
from time to time, specify generally similar requirements (see generally,
Prudential Regulation No. 4).
Question:In April 2011, Ilyas was appointed as the chief executive of Noor Sugar Mills Limited
(NSML), a public unlisted company, by the board of directors of NSML (Board).
Clause 3 of his contract with NSML (Contract) provides as follows: The appointment
shall be for a fixed term of three years starting from April 2011 and shall not be
terminated before expiry of the aforementioned three years. In October 2011, some
members of the Board discovered evidence that Ilyas had been withdrawing large sums
of money from NSMLs bank account and using it for financing his sons new business.
They want to seek Ilyass removal as the chief executive. The Board comprises twelve
members, six of whom are currently out of Pakistan. The six directors present in
Pakistan want to meet immediately to remove Ilyas. Some Board members are of the
view that due to Clause 3 of the Contract, Ilyas cannot be removed before the expiry of
his term.
Required:
Under the Companies Ordinance 1984, advise the Board on the possibility of, the
procedure for, and the consequences of, Ilyass removal as the chief executive of
NSML.
Answer:Section 202 Companies Ordinance, 1984 (Ordinance) provides that the directors of a
company 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.
On the given facts, Ilyass term of office has not yet expired. Clause 3 of the Contract
would not, of itself, prevent the possible removal of Ilyas because the express wording
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of s.202 overrides anything to the contrary contained in any agreement between the
company and the chief executive.
Under s.202 two possible routes are valuable for Ilyass removal: removal by the Board
or removal by the company in general meeting. Removal by the Board would require a
resolution passed by not less than three-fourths of the total number of directors for the
time being of NSML, i.e., 3/4th of twelve nine directors. Since six directors are out of
Pakistan, the requisite nine directors are not available to pass the resolution under s.202
to successfully remove Ilyas through this method. If the remaining six directors try to
pass a resolution for his removal, even if such resolution is unanimous, it will fall foul
of s.202 (Khawar M. Butt v Abdullah H. Habib 1985 MLD 1193).
The second method, namely, removal through a special resolution passed by the
company may be employed. For this purpose, a general meeting of the members of
NSML would have to be convened, provided that due notice of the meeting (of at least
21 days) is given in accordance with ss.158 or 159 of the Ordinance, as the case may be,
and the proper quorum is present, a resolution passed by not less than three-fourths of
the members entitled to vote as are present in person or through proxy at the general
meeting would suffice to remove Ilyas as the chief executive.
The Board may note, however, that although s.202 will enable the Board or the NSML in
general meeting, as the case may be, to remove Ilyas, he may still bring a claim for
damages for breach of contract citing violation of Clause 3. This risk may be aggravated
if the allegations against Ilyas are not substantiated.
Further, by virtue of s.198 read with s.199(1) Ordinance, within 14 days of Ilyass
removal, the Board will have to appoint a new chief executive. Failure to do so may
entail penal consequences under s.204 Ordinance.
Question:Zubair is a partner of the firm Elite Traders, which has been supplying cotton to textile
manufacturers for the past decade. Last month, a casual vacancy occurred on the board
of directors (Board) of Friends Textile Mills (FTM) a public unlisted company. Zubair,
who has been well-known to the other members of the Board, was appointed to fill the
vacancy. Last week, during a meeting of the Board (Board Meeting), the matter of
purchasing cotton from Elite Traders was discussed. The Board resolved to purchase
cotton from Elite Traders. Zubair voted in favour of the resolution. Now, a shareholder
of FTM has objected that Zubair has unlawfully influenced the matter to benefit his own
firm and that he should not have been present at the Board Meeting.
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Required:
Under the Companies Ordinance, 1984, advise Zubair on the validity of the
shareholders objections, and the consequences for Zubair of the proceedings at the
Board Meeting.
Answer:Sections 214 and 216 Companies Ordinance, 1984 (Ordinance) enact aspects of the
fiduciary obligations which directors owe to their companies. Breaches of these
fiduciary obligations have serious consequences including Friends and removal from
office.
Section 214(1) provides that 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 directors. Such disclosure is required to be made,
in the case of a contract or arrangement to be entered into, at the meeting of the
directors 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 directors held after
he becomes so concerned or interested; and, in the case of any other contract or
arrangement, at the first meeting of the directors held after the director becomes
concerned or interested in the contract or arrangement [s.214(2)]. For the purposes of
subsections (1) and (2), a general notice given to the directors to the effect that a director
is a director or a member of a specified body corporate or a member 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 [s.214(3)]. Any such general notice expires at the end of the
financial year in which it is given, but may be renewed for a 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 [s.214(4)]. No such general notice, and no renewal
thereof, is of effect unless either it is given at a meeting of the directors, or the director
concerned takes reasonable steps to ensure that it is brought up and read at the first
meeting of the directors after it is given [s.214(5)]. Section 214(6) provides that a director
who fails to comply with subsection (1) or subsection (2) shall be liable to a Friends
which may extend to five thousand rupees.

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Section 216 (1) provides that 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. Section 216(2), provides that subsection (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 against any loss which the
directors, or any one or more of them, may suffer by reason of becoming or being
sureties or a surety for the company; or, (c) any contract or arrangement entered into or
to be entered into with a public company, in which the interest of the director aforesaid
consists solely in his being a director of such company and the holder of not more than
such shares therein as are requisite to qualify him for appointment as a director thereof,
he having been nominated as such director by the company referred to in subsection
(1). Every director who knowingly contravenes any of the provisions of subsection (1),
or subsection (2) shall be liable to a Friends which may extend to five thousand rupees
[s.216(3)].
On the given facts, Zubair is a partner of Elite Traders and he is a director of FTM. In
the proposed contract for the purchase of cotton from Elite Traders, Zubair is directly
interested and hence he is under an obligation to disclose his interest under s.214. It is
not clear from the facts whether he has disclosed his interest at the Board Meeting or
whether he has given any general notice under s.214(3). If he has failed to disclose his
interest through either of these means, the shareholders objection is correct and Zubair
would be liable to the penalty under s.214(6). However, the facts indicate that Zubair
has been well-known to the members of the Board. This is likely to be attributable to the
fact that Elite Traders has been supplying cotton to the textile sector for the past decade.
It is, therefore, likely that the directors at the Board Meeting are already aware of
Zubairs status as a partner of Elite Traders and hence his interest in the proposed
contract. If such knowledge on the part of the directors at the Board Meeting can be
established, then in spite of lack of formal disclosure by Zubair, he may be able to argue
that he was not in breach of the disclosure obligation [Lee Panavision Ltd v Lee
Lighting Ltd (1992) BCLC 22 (CA)].
As regards s.216, Zubairs case does not fall into any of the exclusions under s.216(2).
Zubair appears to have participated and voted on the proposed contract and appears to
be in breach of s.216 and may accordingly be liable to a Friends under s.216(3).

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It may also be noted that s.217 Ordinance provides that the court may declare a director
to be lacking fiduciary behaviour if he contravenes the provisions of s.214 or subsection
(1) of s.215 or s.216. However, before making a declaration the court shall afford the
director concerned an opportunity of showing cause against the proposed action. In the
present case, if appropriate proceedings are instituted, Zubair may, in addition to the
Friendss under ss.214 and 216, be declared by the court as lacking fiduciary behaviour.
If such declaration is given, Zubair would be rendered ineligible for appointment as
director [s.187(g)]; and, shall, ipso facto, cease to hold office [s.188(1)(a)]

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Question:On 29 April 2012, a memorandum of association of Abbas Limited was filed for
registration in the office of Registrar. However, on 25 May 2012, a letter from the
registrar office was received by the subscribers to the memorandum in which the
registration was refused on the ground that the objects stated in the memorandum were
inappropriate.
Describe what course of action is available to Abbas Limited in the above situation,
according to the Companies Ordinance, 1984.
Answer:The subscribers of the memorandum of association of Abbas Limited or any one of
them, authorized by them in writing, may either supply the deficiency and remove the
defect pointed out, or within thirty days of the order of refusal prefer an appeal
(i)
where the order of refusal has been passed by an additional registrar, a joint
registrar, a deputy registrar or an assistant registrar, to the registrar; and
(ii)
where the order of refusal has been passed, or up-held in appeal, by the
registrar, to the Commission.
An order of the Commission shall be final and shall not be called in question before any
Court or other authority.
Question:The Company Secretary of Aqeel Limited realized on 29 May 2012 that particulars of
charge created on the Companys properties in favour of AK Bank Limited on 2 May
2012 have not been filed for registration with the Registrar of Companies.
Explain the procedure that would be required to be followed by Aqeel Limited in the
above situation, for registration of charge with the Registrar of Companies.
Answer:The time limit of 21 days has expired therefore Aqeel Limited will have to apply to the
Commission for extension of time for the registration of the charge in accordance with
the provisions of the Companies Ordinance, 1984.
The company must satisfy the Commission that:
(i)
The omission was accidental or due to inadvertence or due to some other
sufficient cause.
(ii)
It would not be of a nature to prejudice the position of creditors or
shareholders of the company.
(iii) On any other grounds it is just and equitable to grant relief.
On satisfaction the Commission may extend the time for registration of charge on such
terms and conditions as seem to the Commission just and expedient, and order that the
time for registration be extended, or, as the case may be, that the omission or misstatement be rectified, and may make such order as to the costs of the application as it
thinks fit.
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A certified copy of the order of the Commission, passed on the basis of the application,
shall be filed with the registrar within twenty-one days of the date of such order by the
company.
Question:List the conditions specified under the Companies Ordinance, 1984 which a listed
company is required to comply with before placement of its quarterly accounts on its
website.
Answer:A listed company may place its quarterly accounts on its website, subject to fulfillment
of the following conditions:
(i)
Seek the consent of its shareholders in a General Meeting.
(ii)
Consult the respective stock exchanges.
(iii) Seek prior permission of the Commission.
(iv) The application for this purpose shall indicate the companys website
address.
(v)
The Enforcement department would grant permission after visiting the
website and finding it in order.
(vi) The website address shall not be changed except with the approval of the
Commission.
(vii) The company, after obtaining the requisite permission, shall inform its
shareholders through an advertisement in the Press that the subsequent
quarterly accounts would be transmitted to them through the company
website.
(viii) The respective Stock Exchanges and the Commission shall be informed in
writing, by post.
(ix)
Transmit periodical accounts electronically to the concerned stock
exchange(s) so as to place the same on their website.
Question:The Board of Directors of Kaleem Limited have decided to buy-back one million of its
ordinary shares.
You are required to describe the procedure to be followed by Kaleem Limited to buyback its shares in view of the provisions of the Companies Ordinance, 1984 and the
Companies (Buy-back of Shares) Rules, 1999.
Answer:The purchase procedure to be followed by Kaleem Limited is as follows:
(i)
The number of shares to be purchased and price thereof shall be approved in
the Board Meeting.
(ii)
The purchase shall also be authorised by a special resolution which shall
indicate the maximum number of shares to be purchased; the maximum price
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at which the shares may be purchased; and the period within which the
purchase is to be made.
(iii) The notice of the meeting in which the special resolution authorizing the
purchase of shares is proposed to be moved shall be accompanied by an
explanatory statement containing all material facts including the following: Justification for the purchase;
Source of funding;
Effect on the financial position of the company; and
Nature and extent of the interest, if any, of every director, whether
directly or indirectly
(iv) The purchase shall always be in cash and shall be out of the distributable
profits.
(v)
The purchase shall be made through a tender system and the mode of tender
shall be decided by the company in general meeting through a special
resolution.
(vi) The tender notice for the purchase shall contain
The maximum number of shares to be purchased by the company.
The manner in which the offer shall be communicated.
The last day by which the offer to sell the shares shall be made; and
The name and the address of the designated branches of the authorized
bank.
(vii) The decision of the directors for the purchase shall be communicated to the
SECP and the respective stock exchange on the day of the decision.
(viii) The company shall take a decision on the offers received, within ten days of
the closing date of the receipt of offers.
(ix)
In case the offers received in response to the tender notice exceed the
requisite purchase the acceptance thereof shall be on pro-rata basis in lots of
five hundreds shares.
(x)
The acceptance of the offer shall be communicated within seven days of the
decision.
(xi)
The shareholder, whose offer has been accepted, shall submit the share
certificate along with the transfer deed duly signed, verified and witnessed,
to the company through designated branches of the bank within seven days
of the receipt of acceptance of the offer.
(xii) Where the shares are on the Central Depository System a confirmation from
the Central Depository, about the availability of the shares along with
authorization to transfer, shall be sent to the designated branches of the bank
within seven days of the receipt of acceptance of the offer.
Question:The Directors of Bilal Limited intend to wind up the companys business voluntarily. In
the context of the Companies Ordinance, 1984 you are required to explain the following:
(a) The requirement to file a declaration of solvency.
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(b) The contents of declaration of solvency.


Answer:(a) Since it is proposed by the directors of Bilal Limited to wind up the company
voluntarily all its directors and in case the company has more than three
directors, the majority of the directors, including the chief executive, may, at a
meeting of the board of directors make a declaration verified by an affidavit
A declaration made as aforesaid shall have no effect for the purposes of this
Ordinance, unless(i)
It is made within the five weeks immediately preceding the date of the
passing of the resolution for winding up and is delivered to the registrar for
registration before that date; and
(ii)
It is accompanied by a copy of the report of the auditors of the company,
prepared, so far as the circumstances admit, in accordance with the
provisions of this Ordinance, on the profit and loss account of the company
for the period commencing from the date up to which the last such account
was prepared and ending with the latest practicable date immediately before
the making of the declaration and the balance sheet of the company made out
as on the last mentioned date and also embodies a statement of the
companys assets and liabilities as at that date.
(b) In a declaration of solvency the directors declare that they have made a full
inquiry into the affairs of the company, and that having done so, they have
formed the opinion that the company has no debts, or that it will be able to pay
all its debts in full within such period not exceeding twelve months from the
commencement of the winding up, as may be specified in the declaration.
Question:Based on the Listing Regulations of the Karachi Stock Exchange, state the following:
(a) Whether an audit firm may be appointed as the auditor of a listed company, if
one of its partners is found guilty of professional misconduct? (04 marks)
(b) Regulations relating to transfer of shares and closure of share transfer books.
Answer:(a) The firm shall only be eligible for appointment as an auditor provided a written
confirmation is given by the firm to all the stock exchanges of the country and
the Commission with a copy to ICAP to the effect that such a partner shall not be
engaged in the audit of any listed company for the specified period.
(b) (i) The company shall complete shares transfer and have ready for delivery the
share certificates lodged for registration of transfer within 45 days of the
application for such transfer and its registration.
(ii)
The companies quoted on the Future Counter shall intimate to the Exchange
the dates of book closure and corporate actions, if any, on or before 20th day
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20 th

of the month with a notice period of at least 21 days after the said
day for
commencement of book closure.
(iii) The company shall give a minimum of 14 days notice to the Exchange prior to
closure of share transfer books for any purpose.
(iv) The company shall treat the date of posting as the date of lodgments of shares
for the purpose for which shares transfer register is closed, provided that the
posted documents are received by the company before relevant action has
been taken by the company.
(v)
The company shall issue transfer receipts immediately on receiving the shares
for transfer.
(vi) The company shall not charge any transfer fee for transfer of shares.
(vii) The company shall provide a minimum period of 7 days but not exceeding 15
days at a time for closure of share transfer register, for any purpose, not
exceeding 45 days in a year in the whole.
(viii) No listed company shall exercise any lien whatsoever on fully paid shares
and nor shall there be any restriction on transfer of fully paid shares.
Question:Jason Bourne is a UK national but is residing in Australia. He intends to invest in
securities listed at Karachi Stock Exchange. In the context of the provisions of Foreign
Exchange Regulations, advise him in respect of the procedure to be followed for
purchase and sale of shares of companies listed in Pakistan.
Answer:Trading of Quoted Shares by Non-Residents.
(ii)
Mr. Jason Bourne would be required to open Special Convertible Rupee
Account with any Authorised Dealer in Pakistan.
(iii) He may remit funds from abroad into the special account or by transfer from
a foreign currency account maintained by him in Pakistan.
(iv) Payment for such purchase of shares may be debited to the account on
production of stock brokers memo showing sale of shares to the account
holder.
(v)
Disinvestment proceeds may be credited provided evidence of the sale price
in the shape of stock brokers memo is produced.
(vi) The fund available in such special account can be transferred outside Pakistan
or credited to a foreign currency account maintained in Pakistan at any time
without prior approval of the State Bank.
(vii) Dividend income can also be credited to the above accounts.
Question:According to the Competition Ordinance, 2010:
(a) No undertaking shall enter into deceptive marketing practices.

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List the practices which are deemed to fall under the purview of deceptive
marketing practices.
(b) No undertaking or association of undertakings shall enter into any agreement
which have the object or effect of preventing, restricting or reducing competition
within the relevant market.
Explain how and under what circumstances an undertaking may claim
exemption from the application of the above provision.
Answer:(a) The deceptive marketing practices shall be deemed to have been resorted to or
continued if an Undertaking resort to(i)
The distribution of false or misleading information that is capable of harming
the business interests of another undertaking;
(ii)
The distribution of false or misleading information to consumers, including
the distribution of information lacking a reasonable basis, related to the price,
character, method or place of production, properties, suitability for use, or
quality of goods;
(iii) False or misleading comparison of goods in the process of advertising; or
(iv) Fraudulent use of anothers trademark, firm name, or product labeling or
packaging.
(b) (i) The Commission may grant an exemption from the application of the
provisions of Competition Act, 2010 with respect to a particular practice or
agreement from being considered as preventing, restricting or reducing
competition, if a request for individual or block exemption has been made to it
by a party to the agreement or practice and the agreement is one which
substantially contributes to the following:
Improving production or distribution;
Promoting technical or economic progress, while allowing consumers a
fair share of the resulting benefit; or
The benefits thereof clearly outweigh the adverse effects of absence or
lessening of competition.
(ii)
The exemption may be granted subject to such conditions as the Commission
considers appropriate to impose and is effective for such period as the
Commission considers appropriate.
(iii) That period must be specified in the grant of the exemption.
(iv) An individual exemption may be granted so as to have effect from a date
earlier than that on which it is granted.
Question:Apprehensions are widespread in the stock market that the affairs of JK Limited are
being conducted in a manner which is prejudicial to the interest of the stakeholders. In
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the context of the provisions of the Companies Ordinance, 1984 you are required to
explain the following :
(a) Identify the persons who may file a suit in the Court with a request to intervene
in the business of the company.
(b) Decisions that the court may take in the above circumstances.
Answer:(a) The court may intervene in the affairs of JK Limited on the complaint by:
(i)
a member or members holding not less than twenty percent of the issued
share capital of a company, or
(ii)
a creditor or creditors having interest equivalent in amount to not less
than twenty percent of the paid up capital of the company,
(iii) the registrar, if he is of the opinion, that the affairs of the company are
being conducted or are likely to be conducted, in an unlawful or
fraudulent manner, or in a manner not provided for in the companys
memorandum, or in a manner oppressive to the member or any of the
members or the creditors or any of the creditors or are being conducted in
a manner prejudicial to the public interest, such member or members or,
the creditor or creditors, as the case may be, the registrar may make an
application to the Court by petition.
(b) If, on any such petition, the Court is of the opinion(i)
That the companys affairs are being conducted, or are likely to be
conducted, as mentioned in the application and
(ii)
That to wind-up the company would unfairly prejudice the members or
creditors;
The Court may, with a view to bringing to an end the matters complained of,
make such order as it thinks fit, whether for regulating the conduct of the
companys affairs in future, or for the purchase of the shares of any members of
the company by the other members of the company or by the company and, in
the case of purchase by the company, for the reduction accordingly of the
companys capital, or otherwise.
Question:(a) An open-end fund is being managed by LM Limited which is an NBFC.
List the persons who would be termed as connected person in relation to the
above open-end fund.
(b) Describe the provisions contained in the NBFC Rules, 2003 in respect of the
following:
(i)
Credit rating.
(ii)
Appointment of internal auditor.
(iii) Sale or purchase transaction between an NBFC and any of its directors.

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Answer:(a) connected person" in relation to an NBFC or a collective investment scheme,


means,(i)
any person or trust beneficially owning, directly or indirectly, ten percent
or more of capital of the NBFC or the collective investment scheme;
(ii)
any person able to exercise, directly or indirectly, ten percent or more of
the total voting power in that NBFC or the collective investment scheme;
(iii) a collective investment scheme being managed by an NBFC;
(iv) the NBFC managing a collective investment scheme;
(v)
a trustee or custodian of the collective investment scheme;
(vi) any person or trust controlled by a person who or which meets the
descriptions given in sub-clause (i) to (v);
(vii) any member of the group of which that person, or trust forms part; and
(viii) any director or officer of that NBFC or the investment company being
managed by that NBFC or of any of their connected persons as specified
above
(b) (i) Credit rating
An NBFC shall obtain credit rating wherever applicable as and when it becomes
eligible for rating as per the rating criteria of a rating agency registered with the
Commission, and such rating shall be updated at least once every financial year:
Provided that the NBFC shall within one year of the decrease in its rating from
the grade specified by the Commission by notification in the official Gazette,
obtain a fresh rating and during the period that its rating is below the grade so
specified, the NBFC may be allowed by the Commission continue its operation
on such conditions as are deemed to appropriate by the Commission;
(i)

(ii) Appointment of internal auditor.

An NBFC may appoint the following, as its internal auditor:


a) A person having minimum three years experience as internal auditor who is (i)
A chartered accountant; or
(ii)
A cost and management accountant; or a certified internal auditor; or
(iii) A certified information system auditor; or
(iv) A member of a recognized foreign accountancy organization; or
(v)
An individual having masters degree in commerce or business
administration with specialization in finance; or
b) A chartered accountant firm having satisfactory Quality Control Review (QCR)
and not being the statutory auditors to whom this function is outsourced;
(iii)

Sale or purchase transaction between an NBFC and any of its director.

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An NBFC shall not purchase anything from or sell anything to any director of
the NBFC.
This restriction is not applicable to such NBFCs that have a policy to this
effect duly approved by their board of directors.
In case of any sale and purchase to the directors, prior approval in writing of
the board, excluding the participation of the beneficiary directors is required.

Question:The Board of Directors of YZ Limited, a listed company, intends to issue 50% right
shares.
Advice the directors about the conditions required to be complied with, for the issuance
of right shares under the Companies (Issue of Capital) Rules, 1996.
Answer:YZ Limited may issue rights shares subject to following conditions, namely:(iii) The company shall not make a right issue within one year of the first issue of
capital to the public or further issue of capital through right issue.
(iv) The company, while announcing right issue, shall clearly state the purpose of
the right issue, benefits to the company, use of funds and financial projections
for three years. The financial plan and projections shall be signed by all the
directors who were present in the meeting in which the right issue was
approved.
(v)
The decision of the company to issue right shares shall be communicated to
the Authority and the respective stock exchange on the day of the decision.
(iv) The company may charge premium on right shares up to the free reserves per
share as certified by the companys auditors and the certificate of the auditors
shall be furnished to the Authority and the respective stock exchange
alongwith intimation of the proposed right issue.
(v)
Right issue of a loss making company or a company whose market share
price during the preceding six months has remained below par value shall be
fully and firmly underwritten;
(vi) Book closure shall be made within forty-five days of the announcement of the
right issue and the payment and renunciation date once announced for the
letter of right shall not be extended except with the permission of the
respective stock exchange under special circumstances; and
(vii) If the announcement of bonus and right issue is made simultaneously,
resolution of the board of directors shall specify whether the bonus shares
covered by the announcement quality for right entitlement.

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Question:The general meeting of VX Limited, a listed company, was convened on 30 May 2012.
However, only four shareholders turned up to attend the meeting.
Explain how VX Limited should deal with the above situation in the light of Companies
Ordinance, 1984.
Answer:Since VX Limited is a listed company, unless the articles provide for a larger number
the quorum of a general meeting shall not be less than ten members present personally,
who represent not less than twenty-five percent of the total voting power, either of their
own account or as proxies.
In VX limited only four shareholders turned up to attend the meeting and therefore the
quorum were not formed.
If the quorum is not present within half an hour from the time appointed for the
meeting, the Chairman shall adjourn the meeting and the meeting shall stand adjourned
to the same day in the next week at the same time and place.
At the adjourned meeting if a quorum is not present within half an hour from the time
appointed for the meeting, the members present, being not less than two, shall be a
quorum, unless the articles provide otherwise.
Question:The Secretary of XYZ Limited is in the process of preparing the prospectus for public
issue. The company has obtained loans from two financial institutions and has granted
option to these institutions to convert up to 20% of the outstanding balance of the loans
into ordinary shares.
State the information required to be disclosed in the prospectus under the Companies
Ordinance, 1984 regarding the option given to the financial institutions.
Answer:XYZ Limited shall disclose the substance of the contract or arrangement whereby
option has been given to the financial institutions to convert up to 20% of the
outstanding balance of loan into ordinary shares, giving the number, description and
amount of such shares including the following particulars of the option:
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a)
b)
c)
d)

The period during which the option is exercisable;


The price to be paid for shares subscribed for under the option;
The consideration, if any given or to be given for the option;
The names, address, descriptions and occupations of the persons (in this case the
financial institutions) to whom the option has been given.
e) Any other material fact or circumstances relevant to the grant of the option.
Question:a) In the first meeting of Board of Directors of Hashir Textile Mills Limited (HTML),
a listed company, the name of Mr. Imran was proposed for appointment as chief
executive of the Company. Mr. Jamal opposed the proposal on the following
grounds:
i.
Mrs. Imran is the Chief Executive Officer of Farooq Textile Mills (Private)
Limited.
ii.
Mr. Imran is involved in the business of stock brokerage.
iii.
Mr. Imran is not a member of HTML.
Comment of the objections raised by Mr. Jamal in the light of the provisions
of the Companies Ordinance, 1984.
b) XY Limited (XYL) has recently commenced business. The company has
appointed various distributors for the supply of its products. The distributors
have placed amounts ranging between Rs. 2 5 million with XYL as security
deposits.
Briefly describe the relevant provisions of the Companies Ordinance 1984, which
XYL would have to comply with.
Answer:a) .
i.

ii.

As per the Ordinance, 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. Since Mr. Imrans wife is the Chief
Executive of FTMPL, he cannot be appointed as CEO of HTML.
Moreover, no person shall be appointed as director of a listed company if
engaged in the business of stock brokerage and any person who cannot be
a director cannot become chief executive. Therefore, Mr. Imran is not
eligible for becoming the CEO of HTML.
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iii.

A person can be appointed as chief executive even if he is not the member


of the company.
b) XY Limited shall receive security deposits from distributors in accordance with a
contract in writing and all moneys so received shall be kept or deposited by the
company in a special account with a schedule bank.
Question:Mr. Naeem is the chief executive of Power Shipping Limited (PSL), a listed company.
He has agreed to provide a personal loan of Rs. 5 million to his cousin for purchase of
PSLs shares. The loan will be repaid after two years and would carry a mark-up of 5%
per annum.
Suggest the actions which Mr. Naeem should take to ensure that the provisions of the
Companies Ordinance, 1984 and the Code of Corporate Governance, 2012 are complied
with.
Answer:Purchase of shares by Mr. Naeems cousin may be construed as an indirect purchase of
shares by Mr. Naeem, because part of the funds was provided by Mr. Naeem on fairly
soft terms.
He shall take the following steps to comply with the relevant provisions of Companies
Ordinance, 1984 and the Code of Corporate Governance:
i.
ii.
iii.

iv.

Submit to the registrar and SECP a return in the prescribed form containing
prescribed particulars within 15 days of his cousin buying the shares.
Immediately notify in writing to the company secretary about the intended
purchase as soon as his cousin decides to purchase the shares.
Notify and deliver to the Secretary a written record of the price, number of
shares, form of share certificates and nature of transactions within four days of
affecting the transaction.
days of affecting the transaction.

Question:The members of Tanveer Private Limited (TPL) have decided to go into voluntary
winding-up.
Advise TPL about the provisions of the Companies Ordinance, 1984 pertaining to:
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a) Fixation of the remuneration to be paid to the liquidator.


b) Filling of vacancy in the event of resignation of the liquidator.
Answer:a) .
i.

ii.

iii.
iv.

The liquidator shall be entitled to such remuneration by way of


percentage of the amount realized by him or by disposal of assets or
otherwise, as TPL in general meeting may fix having regard to the amount
and nature of the work to be done and subject to the prescribed limits.
However, different percentage rates may be fixed for different types of
assets and items.
In addition to the remuneration, the TPL is general meeting may authorize
payment of a monthly allowance to the liquidator for meeting the
expenses of the winding up for a period not exceeding twelve months
from the date of the commencement of winding up.
The remuneration fixed as aforesaid shall not be enhanced subsequently
but may be reduced by the Court at any time.
If the liquidator resigns, or is removed from office or otherwise ceases to
hold office before conclusion of winding up, he shall not be entitled to any
remuneration and remuneration received by him, if any, shall be refunded
by him to the company.

b) .
i.

ii.

iii.

If a vacancy occurs, by reason of resignation, in the office of liquidator


appointed by the company, the company in general meeting may, subject
to any arrangement with its creditors, fill the vacancy by appointing a
person who has given his written consent to act as liquidator.
For that purpose a general meeting shall be convened by the outgoing
liquidator before he ceases to act as liquidator, failing that may be
convened by any contributory or by the Court on the application of the
registrar or any person interested in the winding up of the company.
The meeting shall be held in the manner provided by the Companies
Ordinance, 1984 or by the articles or in such manner as may, on
application by any contributory or by the continuing liquidators, be
determined by the Court.

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Question:a) Nishat Limited (NL) is a listed company. Narrate the conditions which a director
of NL would be required to comply with under the Companies Ordinance, 1984
in case he/she makes a gain on the sale of companys shares.
b) Identify the persons other than the directors, to whom the above provisions are
also applicable.
Answer:a) Since Nishat Limited is a listed company, if its director makes any gain by the
purchase and sale, or the sale and purchase, of its shares within a period of less
than six months, such director shall make a report and tender the amount of
such gain to the company and simultaneously send a intimation to this effect to
the registrar and the Commission.
b) Following person other than the directors are required to comply with the
above provisions
i.
Chief executive
ii.
Managing agent
iii.
Chief accountant/CFO/Director Finance
iv.
Secretary
v. Auditor
vi.
Any other person, who is directly or indirectly, the beneficial owner of
more than 10% securities.
Question:Noshi Cosmetics Limited (NCL) is a listed company. The company is in the process of
finalization of a financing facility with a bank. The bank requires a copy of the board
resolution for approval of the terms of the financing. Since five out of seven directors of
the company are currently out of the country, it is not possible for the secretary to
convene the meeting of the board of director.
a) In the light of the provisions of the Companies Ordinance, 1984 explain what
alternative course of action is available to the company.
b) List the steps that NCL would be required to take, if noting in this regard is
stated in the Articles of Association of the Company.
Answer:-

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a) A resolution in writing signed by all the directors for the time being entitled to
receive notice of a meeting of the directors shall be as valid and effectual as if it
had been passed at a meeting of the directors duly convened and held. It shall
not be necessary to give notice of a meeting of directors to any director for the
time being absent from Pakistan.
Therefore, since the matter is of urgent nature (or even otherwise) the required
resolution may be passed by way of a circular resolution, subject to the
provisions of the articles of association of the company.
b) Since nothing is given in the Articles of Association, the matters described in
Table A shall become applicable. The steps required for passing the circulation
would be as follows:
i.
The proposed resolution shall be circulated in draft along with all the
other necessary documents, if any, to all the directors entitled to receive
the notice of the meeting.
ii.
The resolution will become valid if the same is approved by all the
directors entitled to vote on the resolution or such numbers of directors as
may be specified in the Articles of Association.
Question:The Annual General Meeting of Trade Limited was held at 9:15 a.m on 31 October 2012.
Certain shareholders of the company have lodged following complaints with the
companys secretary.
i.
ii.
iii.

iv.

v.

Since the meeting could not commence at the scheduled time i.e. 9:00 a.m; it
became invalid and should be called again.
A resolution passed in the meeting was approved by a show of hands. However,
a poll should have been carried out.
Mr. A who voted for a resolution was represented though a proxy which was
deposited at 5:01 p.m. i.e. after office hours on 29 October 2012. Further, since 30
October 2012 was a public holiday, the condition of depositing the proxy at least
48 hours before the commencement of the meeting, was not met.
Mr. G who hold 50,000 shares was represented by two proxies i.e. Mr. C (30,000
shares) & Mr. D (20,000 shares). Only proxy with 30,000 shares was counted for
the purpose of voting.
JKM Limited holding 20,000 shares of the company was represented by Mr
Waheed, who is neither a director nor an employee of JKM Limited.
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a) Comment on the validity of each of the above complaints in the light of


Companies Ordinance, 1984.
b) Describe the circumstances under which a court may declare the resolution
passed in the above meeting or the entire proceedings of the meeting as invalid
under the Companies Ordinance, 1984.
Answer:a) .
i.

ii.

iii.
iv.

v.

As per the Ordinance, if within half an hour from the time appointed for
the meeting, a quorum is not present, the meeting may either be
dissolved or adjourned. Since the quorum was present within 30 minutes,
the meeting is valid.
As per the ordinance, at any general meeting, a resolution put to the vote
of the meeting shall be decided on show of hands, unless a poll is
demanded. The concerned shareholders should have demanded a poll on
or before the declaration of the result of the voting by show of hands and
not after the meeting is concluded. Therefore the shareholders protest is
not valid.
Sine 48 hours has not been completed, therefore proxy is not valid.
A member shall not be entitled to appoint more than one proxy to attend
any one meeting. In this case, Mr. G has appointed more than one prosy
for the meeting and more than one instrument of prosy was deposited
with the company, all such instruments of proxy would therefore be
rendered invalid.
As per the Ordinance, a company which is a member of another company
may, be resolution of the directors, authorize any of its officials or any
other person to act as its representative at any meeting of that other
company.
Therefore, Mr. Waheeds vote is valid.

b) The court may, on a petition by members having not less than ten per cent of the
voting power in the company, that the proceedings of a general meeting be
declared invalid by reason of any 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 fresh general meeting:
However, the petition shall be made within thirty days of the impugned
meeting.
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Question:a) Describe the requirements to be fulfilled by a company under the Companies


(Appointment of Legal Advisers) Act, 1984 as regards the appointment of legal
advisers.
b) On 01 December 2012, Dawood Cotton Mills Limited (DCML) appointed
Mehtab & Co. as legal adviser of the company in place of Dilawer & Co. Explain
the legal formalities which DCML would be required to comply with under the
Companies (Appointment of Legal Advisers) Rules, 1975.
Answer:a) The condition required to be fulfilled under Companies (Appointment of Legal
Advisers) Act, 1974 as regards the appointment of legal advisers.
i.
Every company shall appoint at least one legal adviser on retainer ship.
ii.
No person other than an advocate or a registered firm shall be appointed
as the legal adviser.
iii.
The number of companies of which such advocate or firm is a Legal
Adviser (including the current appointment) shall not exceed:
In the case of an advocate, three; or
In the case of a firm, the product of three and the total number of
partners of the firm.
b) Dawood Cotton Mills Limited should comply with the following requirements of
the Legal Adviser Rules:
i.
Enter the particulars of the new legal adviser in the register or legal
adviser maintained at its registered office, in the form set out in Schedule
I.
ii.
Obtain a certificate in the form set out in Schedule II from its newly
appointed legal adviser.
Submit full particulars of the previous and newly appointed legal adviser with the
Registrar on the prescribed form including their name (name of the partners in case of a
firm), address and remuneration, within 15 days of the appointment of new legal
adviser.
Question:Ghafoor Industries Limited (GIL) is a listed company which has a paid-up share capital
consisting of 100 million shares of Rs. 10 each.

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GIL is planning to purchase heavy equipment costing Rs. 250 million from Wajid
Machineries Limited (WML) for its new project. In a meeting of GILs Board of
Directors, it was proposed to finance the cost of the equipment by issuing 20 million
shares to WML at a premium of Rs. 2.50 per share. However, since a number of
directors were of the opinion that the issuance of shares would enable WML to exercise
significant influence of GILs policies, the Board of advised the CEO to look into the
possibility of issuing non-voting ordinary shares.
Required:
In your capacity as Corporate Consultant of the company, advise the Board of Directors
of GIL as regards the requirements of the Companies Share Capital (Variation in Rights
and Privileges) Rules, 2000 and Companies (Issue of Capital) Rules, 1996 which GIL
needs to comply with, in relation to the issuance of non-voting ordinary shares to WML.
Answer:Since GIL is a company which is limited by shares, it can issue shares which don not
contain any voting rights. However, it has to company with following other conditions:
i.
ii.
iii.
iv.

Such provision should be specified in the memorandum and articles of


association.
Approval of the shareholders should be obtained by way of a Special
Resolution.
Obtain approval of the SECP on the basis of the Special Resolution.
The fact that shares are issued with no voting rights should be specified in the
offering documents.

GIL can issue shares for consideration otherwise than cash, subject to the following
conditions:
i.

ii.

iii.
iv.

Since the shares are not being offered to the existing shareholders, GIL should
obtain approval of the Federal Government to raise further share capital without
issue of right shares.
The value of the assets shall be determined by a consulting engineer registered
with Pakistan Engineering Council and borne on the panel of at least two
financial institutions as a valuers.
The value of assets taken over shall be excluded from the consideration.
The goodwill and other intangible assets shall be excluded from the
consideration.
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ICPAP

Certificate from practicing Chartered Accountant shall be obtained to the effect


that the above mentioned conditions have been complied with.

Question:Nishat group comprises of the following companies:


i.
ii.
iii.

Nishat Leasing Company Limited


Nishat Investment Finance Services Limited
Nishat Housing Finance Services Limited

The majority shareholders/directors of the group have decided to merge all the above
companies and bring them under the umbrella of a single corporate entity. It is
envisaged that the decision to merge the individual companies into a single entity
would help to achieve synergies, cost efficiencies and better utilization of the resources.
You are required to list the steps that would be required to merge all the companies into
a single entity.
Answer:All companies mentioned in the question are non-banking finance companies [NBFCs].
The steps involved in the merger of these companies are as follows:
(i)

(ii)
(iii)

(iv)
(v)

(vi)

A scheme of amalgamation shall be approved by a majority number


representing two thirds in value of the shareholders of each NBFC, by way of
resolution, present either in person or by proxy, at a meeting called for the
purpose.
Notice of every such meeting shall be given to all shareholders of each NBFC
indicating the time, place and object of the meeting.
The notice shall be published at least once a week for three consecutive weeks
in not less than two newspapers which circulate in the localities where the
registered offices of the NBFCs are situated, one of such newspapers being in
a language commonly understood in the locality.
If the scheme is approved by the shareholders, it shall be submitted to the
Securities and Exchange Commission of Pakistan for sanction.
When the scheme of amalgamation is sanctioned by the Commission, the
merged entity shall transmit a copy of such order to the registrar and
registrar shall strike off the names of amalgamated NBFCs.
The property and liabilities of the amalgamated NBFCs shall, by virtue of
sanction order, be transferred to the merged NBFC.
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The Commission while sanctioning the scheme shall determine the value to
be paid to shareholders dissenting from the scheme.

Question:Under the provisions of the Central Depository Act, 1997 no director or officer of a
central depository shall disclose any information or document relating to the affairs of
any of the accountholders to any other person.
List the exceptions to the above provision of the Central Depository Act, 1997.
Answer:The exception to the provision are as follows:
a) where an account-holder has authorised the disclosures in writing to disclose;
b) where an account-holder is declared bankrupt;
c) where the account-holder is a body corporate and has been wound-up within or
outside Pakistan;
d) In the case of any litigation or other legal proceedings;
e) Any person duly authorized by a competent court, the Authority or the State
Bank of Pakistan to investigate into any offence under any law for the time being
in force;
f) The purpose of enabling or assisting the Authority to exercise any power
conferred on it by this Act or by any other law for the time being in force;
g) The purpose of enabling or assisting the State Bank of Pakistan to exercise any
power conferred on it by any other law for the time being in force;
h) The purpose of enabling or assisting a stock exchange or clearing house of a
stock exchange to discharge its functions;
i) The purpose of enabling or assisting auditors of a central depository or
participant to discharge their functions; or
j) The Authority if the disclosure is required in the interest of investors or in the
public interest.
Question:The meeting of the Board of Directors of AM Zahid Limited would be held on 25
January 2013 to consider declaration of final cash dividend. The Annual General
Meeting in which the cash dividend is to be approved would be held on 04 March 2013.

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List the information which AM Zahid would be required to provide to the concerned
stock exchange(s) in Pakistan as regards the above meetings, and the timings thereof,
according to the Listing Regulations.
Answer:Following are the provisions of the Listing Regulations with regard to convening the
meeting of the Board of Directors and Annual General Meeting for approval of Final
Cash Dividend:
a) AM Zahid shall notify to the Exchange at least one week in advance the date,
time and place of its board meeting.
b) AM Zahid would advise to the Exchange, decision of the Board relating to the
cash dividend and approval of the audited accounts immediately after the
meeting. The information is required to be communicated to the Exchange prior
to its release to any other person or print/ electronic media.
c) Intimation of dividend shall be sent to the Exchange not later than 14 days prior
to the commencement of the book closure.
d) AM Zahid shall send to the Exchange such number of copies of its annual report
and audited accounts as may be prescribed by the Exchange not later than 21
days before a meeting of shareholders is held to consider the same.
e) AM Zahid shall obtain prior approval of the exchange in respect of the date and
time of holding of its annual general meeting.
AM Zahid shall furnish certified true copies of minutes of its annual general meeting
within 60 days of such meeting.
Question:Discuss the provisions of the Code of Corporate Governance, 2012 in respect of:
Frequency of meetings of the audit committee
Attendance in the above meetings
Answer:(i)
(ii)

The Audit Committee shall meet at least once in each quarter.


A meeting must be held prior to the approval of interim results of the listed
company by its Board of Directors and before and after completion of
external audit.
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A meeting of the Audit Committee shall also be held, if requested by the


external auditors or the head of internal audit.
CFO, the head of internal audit and the external auditors represented by the
engagement partner shall attend meetings of the Audit Committee at which
issues relating to accounts and audit are discussed.
At least once a year, the Audit Committee shall meet the external auditors
without the CFO and the head of internal audit being present.
At least once a year, the Audit Committee shall meet the head of internal
audit and other members of the internal audit function without the CFO and
the external auditors being present.

(iv)

(v)
(vi)

Question:a) XYZ Limited has recently been converted into a listed company. Mr. Ishaq,
representing minority shareholders, has submitted his papers to contest the
election of the directors to be held after 30 days.
Based on the regulations of the Code of Corporate Governance, 2012 you are
required to advise the company in respect of;
i.
Composition of the Board.
ii.
Steps that the company should take with regard to the request submitted
by Mr. Ishaq.
b) State the circumstances specified under the Code of Corporate Governance, 2012
in which a director is not considered as an independent director.
Answer:a) .
i.

Under the Code of Corporate Governance, 2012, the board of directors is


encouraged to have a balance of executive and non-executive directors,
including independent directors and those representing minority interests
with the requisite skills, competence, knowledge and experience so that
the board as a group includes core competencies and diversity, including
gender, considered relevant in the context of the companys operations.
Being a listed company XYZ Limited should have:
At least one and preferably one third of the total members of the
board as independent directors.

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Executive directors, i.e., paid executives of the company from


among senior management, which shall not be more than one third
of the elected directors, including the Chief Executive.
Representation of minority shareholders is encouraged.
ii.
The minority shareholders as a class are required to be facilitated to
contest the election of directors by proxy solicitation. Therefore, with
regard to the request submitted by Mr. Ishaq representing minority
shareholders, XYZ Limited shall:
Annex with the notice issued in respect of election of directors, a
statement by Mr. Ishaq including his profile.
Provide information regarding members and shareholding
structure to Mr. Ishaq; and
On a request by Mr. Ishaq annex to the notice issued in respect of
election of directors, an additional copy of proxy from duly filled
by Mr. Ishaq, at the companys cost.
b) A director shall not be considered as independent, if one or more of the
following circumstances exist:
i.
He/she has been an employee of the company, any of its subsidiaries or
holding company within the last three years;
ii.
He/she is or has been the CEO of subsidiaries, associated company,
associated undertaking or holding company in the last three years;
iii.
He/she 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. The major shareholder means a person who, individually or
in connection 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.
iv.
He/she 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 directors fee or has
participated in the companys share option or a performance-related pay
scheme;
v. He/she is a close relative of the companys promoters, directors or major
shareholders:
Close relative means spouse(s) , lineal ascendants and descendants and
siblings;

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vi.
vii.

viii.
ix.
x.

ICPAP

He/she holds cross-directorships or has significant links with other


directors through involvement in other companies or bodies;
He/she has served on the board for more than three consecutive terms
from the date of his first appointment provided that such person shall be
deemed independent director after a lapse of one term.
He/she is nominated as director by the companys creditors or other
special interest by virtue of contractual agreements.
He/she is nominated as a director by the corporation/company who has
made investment or otherwise extended facilities.
He/she is nominated as a director by Federal Government, Provincial
Government, Commission, foreign equity holders on the board of PICIC
or any other company set up under a regional co-operation.

Question:Waseem Investment Limited (WIL) is a non-banking financial company (NBFC) listed


on all the stock exchanges in Pakistan. WIL has been incurring substantial losses and its
shareholders, not being satisfied with the performance of the Chief Executive, have
referred the matter to the Commission for removal of the Chief Executive. Moreover,
the shareholders have also expressed the apprehension that the time required to comply
with the necessary procedures would delay the matter which would be detrimental to
their interests.
In the light of Companies Ordinance, 1984 you are required to state:
a) The grounds on which the Commission may order removal of the Chief
Executive.
b) The course of action available to the Commission if it wants to address the
shareholders apprehension regarding procedural delays.
Answer:a) The Commission may remove the chief executive of WIL on any one of the
following grounds:
i.
continued association of the chief executive is or is likely to be detrimental
to the interests of NBFC or its shareholders or persons whose interest is
likely to be affected; or
ii.
the public interest so demands; or

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iii.

iv.

ICPAP

to prevent the affairs of NBFC being conducted in a manner detrimental to


the interest of its shareholders or in a manner prejudicial to the interests of
NBFC;
or
If it is necessary to secure a proper management of the NBFC.

b) If in the opinion of the Commission, any delay in the removal of CEO would be
detrimental to the public interest or the interest of its shareholders, the
Commission may, at the time of giving the opportunity aforesaid or as any time
thereafter and pending the consideration of the representation aforesaid , if any,
by order direct that:
i.
the chief executive shall not, with effect from the date of the order:
act as chief executive of the NBFC; or
in any way, whether directly, or indirectly, be concerned with, or
take part in the management of the NBFC;
ii.
any person authorized by the Commission in this behalf shall act as such
chief executive of the NBFC till another person is elected in a general
meeting or a board meeting, as may be directed by the Commission, to fill
in the vacancy.
Any person appointed as chief executive shall
i.

ii.

hold office during the pleasure of the Commission subject to such


conditions as may be specified in the order of his appointment and,
subject thereto, for such period, not exceeding three years as the
Commission may specify; and
not incur any obligation or liability for anything which is done or
intended to be done in his capacity as chief executive.

Question:a) Explain the terms Book building process and Free float as defined in the
Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited.
b) Explain the following under the Listing Regulations of the Karachi Stock
Exchange:
i.
Issue of bonus shares
ii.
Sale or purchase of the companys shares by its chief executive.

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Answer:a) "Book Building Process", means a mechanism of price determination through


which indication of interest for investment in the shares offered by an
issuer/offeror is collected from Institutional Investors and High Net Worth
Individual Investor (HNWI) and a book is built which gives a picture of demand
for the shares at different price levels. The strike price is determined based on the
price at which demand for the share at the end of book building period is
sufficient to raise the minimum capital required;
Free-float means the proportion of total shares issued by a company that are
readily available for trading at the Stock Exchange. It generally excludes the
shares held by controlling directors / sponsors / promoters, government and
other locked-in shares not available for trading in the normal course.
b) .
i.

A listed company shall immediately advice the stock exchanges regarding


the issuance of bonus shares.
A listed company shall issue bonus shares certificates within a period of
30 days from the date of re-opening of the share transfer register closed
for the purpose.
The bonus shares shall be credited into the respective CDS Accounts of
shareholders maintained with the CDC or dispatched to the shareholders
concerned by registered post unless those entitled to receive the bonus
share certificates require otherwise in writing;
The exchange shall be immediately intimated as soon as the bonus shares
are credited / dispatched to the shareholders;
A company which makes a default in complying with the requirements of
this Regulation shall be liable to pay penalty @Rs.5000 per day until the
default continues and the Exchange may also take action of suspension of
trading or delisting of the company;
Provided that in case of eligible securities deposited into the CDS,
in addition to the above, procedure as prescribed by the CDC shall also be
complied with.

ii.

Where any chief executive officer sells, buys or takes any beneficial
position, whether directly or indirectly, in shares of the listed company of
which he is the chief executive officer, he
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shall immediately notify in writing to the company secretary;


shall also deliver a written record of the price, number of shares,
form of share certificate, (i.e., whether physical or electronic within
the Central Depository System) and nature of transaction to the
company secretary within four days of effecting the transaction;
The company secretary shall immediately forward the same to the
exchange for its dissemination to all concerned.

Question:On 11 April 2013, Aamir had made a public announcement of his offer to acquire 10%
voting shares of Seldom Industries Limited, a listed company, from Mughees. Arslan is
also desirous of making a competitive bid for purchase of shares to Mughees.
In the light of the provisions of the Listed Companies (Substantial Acquisition of Voting
Shares and Takeovers) Ordinance, 2002:
a) State the conditions which Arslan would need to comply with while making a
competitive bid.
b) What would be the status of the offer made earlier by Aamir and the rights
available to Aamir, if Arslan makes a valid competitive bid?
Answer:a) Mr. Arslan has to comply with the following conditions while making a
competitive bid:
i.
He shall make a public announcement of his offer (competitive bid) for
acquisition of the same voting shares of SIL within twenty-one days of the
public announcement of the offer made by Mr. Aamir.
ii.
He must offer a higher purchase price in order to make a valid
competitive bid.
iii.
A competitive bid shall not be for less than the number of voting shares
for which the earlier public offer has been made.
iv.
All other provisions of the Ordinance related to a public announcement
apply to the competitive bid.
b) The status of the offer earlier made by Mr. Aamir and the rights available to him
are as follows:
i.
Upon the public announcement of a competitive bid, Mr. Aamir would
have the option to make another announcement:
Revising his earlier public offer; or
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Withdrawing the public offer with the prior approval of the


Commission:

Provided that if no such announcement is made within ten days of the


public announcement of the competitive bid, the earlier offer on the
original terms shall continue to be valid and binding on Mr. Aamir
except as regards the date of closing of such public offer.
ii.

Having made a public announcement and provided he has not withdrawn


his public offer as above, Mr. Aamir shall have the option to make an
upward revision of his offer in respect of the price and the number of
voting shares to be acquired at any time within seven working days prior
to the date of closure of the last subsisting public offer without changing
any other terms and conditions of the said public offer.

Question:Briefly explain the restrictions imposed under NBFC Rules, 2003 as regards:
a)
b)
c)
d)

Purchase or sale transaction with a director.


Sale or transfer of ownership of shares in subsidiary or associated company.
Investment in subsidiary.
Transactions with a broker.

Answer:a) Purchase or sale transaction with a director.


A NBFC shall not purchase anything from, or sell anything to any director of the
NBFC.
This restriction shall not apply to such NBFCs that have a policy to this effect
duly approved by their board of directors:
In case of any sale and purchase to the directors the prior approval in writing of
the board, excluding the participation of the beneficiary directors, is required;
b) Sell or transfer of ownership of shares in subsidiary or associated company.
A NBFC shall not sell or transfer ownership of shares in subsidiary or associated
company, unless it has obtained prior approval of the Commission in writing to
such sale or takeover.

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c) Investment in subsidiary
A NBFC shall not make investment in its subsidiary except out of its surplus
equity (i.e. over and above the specified minimum equity requirement for the
licences held by such NBFC;)
d) Transaction with a broker
A NBFC shall not enter into transactions with any broker which exceed ten
percent of the total brokerage expense of the NBFC in any one accounting year.
NBFC shall not have a common director or officer or employee with the broker.
Question:People International (PI), a listed company, has planned to buy-back 10% of PIs
outstanding shares from its minority shareholders. The board of directors has approved
the buy-back of shares at a premium of 10 per cent above the current market price of Rs.
40 per share.
The summarized statement of financial position as on 31 March 2013 is as follows:

Share capital (Rs. 10 each)


Accumulated profit

2013
2012
Rs. in million
11,500 11,500
10,960 4,899

Long term liabilities


Current liabilities

22,460
20,428
33,297

16,399
19,292
26,919

76,185

62,610

Non-current assets
Current assets

2013
2012
Rs. in million
35,195 34,486
40,990 28,124

76,185

62,610

Required:
In the context of Companies (Buy-back of shares) Rules, 1999 and Companies
Ordinance, 1984:
a) Evaluate and explain whether People International is eligible to buy-back the
shares held by the minority shareholders.
b) State the requirements with regard to auditors certification in the above
situation.
Answer:a) People International is eligible to buy back its shares as it complies with the
relevant conditions as discussed below:
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i.
ii.

PI is a listed company.
The company shall have sufficient cash available with it for the purchase.
PI has excess liquidity and it is confirmed from its current ratio which has
improved from 1.04:1 in 2012 to 1.23:1 in 2013.
iii.
The buy-back of shares shall be out of distributable profits.
PI is planning to buy-back 10% of its shares i.e. 115 million shares which
would require an expected outflow of Rs. 5,060 million. PIs distributable
profit is sufficient to meet this outflow.
iv.
The company which is buying back its shares, shall have debt equity ratio
of 75:25 and current ratio of 1:1 or better.
PI meets this requirement as its debt equity ratio is 48:52 and current ratio
is 1.23:1.
b) PI shall require auditors certificate relating to the following matter on a date
not earlier than thirty days immediately preceding the date of passing the special
resolution for the buy-back:
debt equity ratio is (within the limit) of 75:25.
The current ratio is 1:1 (or better)
The company has sufficient cash for buying back of its shares.
Question:For the last three months, ANF Limited (ANFL) has been experiencing liquidity crisis
and is unable to meet its financial obligations within the due date.
In the light of Companies Ordinance, 1984 narrate the circumstances under which
ANFL would be deemed to be unable to pay its debts.
Answer:Under the following circumstances, ANF Limited would be deemed unable to pay its
debts:
i.

if a creditor, by assignment or otherwise, to whom the company is to pay


a sum exceeding one per cent of its paid-up capital or fifty thousand
rupees, whichever is less, has served a demand under his hand, delivered
by registered post or otherwise, at ANFLs registered office, requiring
ANFL to pay the sum and the company has for thirty days thereafter
neglected to pay the sum, or to secure or compound for it to the
reasonable satisfaction of the creditor.

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ii.

iii.

ICPAP

if a decree or order of any court or any other competent authority in


favour of a creditor of the company is returned unsatisfied in whole or in
part.
if it is proved to the satisfaction of the Court that the company is unable to
pay its debts, and while determining this fact, the Court shall take into
account the contingent and prospective liabilities of the company.

Question:a) SECP has the powers to appoint one or more persons as inspector(s) to
investigate the affairs of a company. Such investigation may be initiated on
receiving a request from any concerned person(s) or by the SECP on its own
motion.
In the light of Companies Ordinance, 1984 you are required to:
i.
List the parties on whose request SECP may appoint a person as inspector
to investigate the affairs.
ii.
Narrate the circumstances in which SECP may appoint an inspector on its
own motion.
b) Mr. Jameel was appointed as an inspector to carry out the investigation into the
affairs of AM Limited. After preliminary investigations, Mr. Jameel is of the view
that in order to verify certain related matters, it is necessary to extend the scope
of investigation into the affairs of certain other related entities/persons.
In the light of Companies Ordinance, 1984 identify the entities or the individuals
whom the inspector may include in his investigations and what measures would
be required to be taken prior to issuance of notices in this regard.
Answer:a) .
i.

SECP may appoint one or more competent person as inspectors to


investigate the affairs of a company, in the following cases:
In the case of company having a share capital, on the application of
members holding not less than one-tenth of the total voting powers
therein;
In the case of any company not having a share capital, on the
application of not less than one-tenth in number of the persons
entered on the companys register of members;
In the case of any company, on receipt of a report from:
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An inspector who has carried out an inspection of the books


of account of the company on the instruction from SECP.
A Registrar as regards that any information, explanation or
document required by the registrar has not been furnished
within the specified time.
Where a resolution is passed in the general meeting of the
company., or
By order of the Court.

ii.

SECP may appoint an Inspector if in its opinion there are circumstances


suggesting that:
he business of the company is being or has been conducted with an
intent to defraud its creditors, members or any other person 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.
The sponsors or management have been guilty of fraud,
misfeasance, breach of trust or other misconduct towards the
company or its members or have been carrying on unauthorized
business.
The affairs of the company have been conducted so as to deprive
the shareholders of a reasonable return.
The shareholders have not been given all the information with
respect to its affairs which they might reasonably expect.
Any shares of the company have been allotted for inadequate
consideration.
The affairs of the company have not been managed in accordance
with sound business principles or prudent commercial practices.
The financial position of the company is such as to endanger its
solvency.
b) Mr. Jameel can bring the following entities or the persons into his investigation:
Any other body corporate which is, or has at any relevant time
been, the companys associated company or its subsidiary or
holding company, or a subsidiary of its holding company, or a
holding company of its subsidiary;

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Any other body corporate which is, or has at any relevant time
been, managed as chief executive by any person who is or was at
the relevant time the chief executive of the company;
Any person who is or has at any relevant time been the company
s chief executive or managing agent or an associate of such chief
executive or managing agent;

In order to widen his investigation to the above companies, Mr. Jameel would be
required to obtain permission from the Commission through a duly verified
application containing the facts in detail and the grounds for seeking such
approval.
Question:On declaration of the result of voting in the Annual General Meeting (AGM) by the
chairman of AS Limited, a public company, few shareholders demanded a poll. The
chairman refused to hold the poll and declared the result of voting on show of hands.
In the light of Companies Ordinance, 1984,
a) How would you assess whether or not the Chairmans decision of not holding
a poll was valid?
b) Explain whether the Chairman can delay the holding of poll to a date subsequent
to the date of AGM.
Answer:a) The chairman is required to hold a poll in case the same is demanded by
i.
at least five members having the right to vote on the resolution and
present in person or by proxy; or
ii.
any member or members present in persons or by proxy and having not
less than one-tenth of the total voting power in respect of the resolution;
or
iii.
any member or members present in person or by proxy and holding
shares in the company conferring a right to vote on the resolution, being
shares on which an aggregate sum has been paid up which is not less than
one-tenth of the total sum paid up on all the shares conferring that right.
If the shareholder who demanded the poll meets any one of the condition as
mentioned above, the decision of the Chairman of not holding the poll would be
invalid.
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b) The Chairman can delay the poll up to fourteen days from the day on which it is
demanded for all matters except the following:
i.
On the election of a chairman, the poll shall be taken forthwith.
ii.
On a question of adjournment, the poll shall be taken forthwith.
Question:The election of directors of Nissan Motors Limited (NML), a listed company, was held
at the Extraordinary General Meeting where seven out of nine candidates were to be
elected as directors. After the meeting was over, an email was received at NML that Mr.
Nissan had expired in a hospital in England. However, the time of Mr. Nissans death
was not mentioned. The result of the meeting shows that Mr. Nissan had received the
sixth highest number of votes in the election.
In the light of Companies Ordinance, 1984 state how the directors should deal with the
above situation.
Answer:Since the e-mail was received after the meeting and Mr. Nissan had obtained sixth
highest number of votes in the election, the status of Mr. Nissan would depend on
whether the results of the election had been declared before his expiry or not.
If Mr. Nissan had expired prior to the declaration of the result of election of directors,
the candidate who had secured the highest votes at the 8th position in order will be
declared as elected, being the 7th Director.
If Mr. Nissan had expired after the declaration of the election results, Mr. Nissan would
have become a part of the board of directors. In this situation, a casual vacancy would
have arisen, on the death of Mr. Nissan. The directors of NML would be required to fill
up this casual vacancy at the earliest but not later than 90 days from the date of the
occurrence of the vacancy. The person so appointed shall hold office for the remainder
of the term of Mr. Nissan.
Question:State the criteria which the Key Executives of Non-Banking Finance Companies are
required to fulfill under the Notified Entities Regulations, 2008 with regard to:
a) Competence and capability.
b) Conflict of interest.
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Answer:a) Competence and Capability


In determining a persons competence and capability the following shall be
considered:
i.
the directors should be individuals having management or business
experience of at least five years at a senior level;
ii.
the directors shall have experience and knowledge in any profession such
as banking, Collective Investment Schemes, accounting, law, internal
audit or information technology etc;
iii.
the chief executive should have a minimum experience of seven to ten
years in a senior management position, preferably in the regulated
financial services sector;
iv.
the chief executive should have demonstrated, through his qualification
and experience, the capacity to successfully undertake the cognate
responsibilities of the position; and
v. the key executives must be qualified professionals possessing relevant
experience and certification relating to the job or assignment.
b) Conflict of interest
The directors or chief executive of NBFC shall not
i.
be a director in any other NBFC engaged in a similar business in Pakistan.
Provided that the condition shall not apply to nominees of the Federal or
Provincial Governments on the board of any NBFC;
ii.
be a director, chief executive, chief financial officer, chief internal auditor,
research analyst or a trader (by whatever name or designation called) in a
stock brokerage house or in any company or entity owned and controlled
by a member of a stock exchange; and
iii.
be a member of a stock exchange engaged in the business of brokerage or
a spouse of such member or in control of more than 20% shareholding,
directly or indirectly through his close relatives. In case of Key Executives,
the NBFCs must ensure that no Key Executives shall head more than one
functional area that gives rise to conflict of interest within the
organization.
iv.
hold directorship in his or her personal capacity:
in a business concern which is also a client of the NBFC, and
in any other financial institution.

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Question:Details of loans obtained by Zor Engineering Limited (ZEL) from commercial banks are
as follows:
Name of bank
Alpha Bank
Limited

Date of
Borrowing
1 July 2010

Amount
Borrowed
Rs. 80 million

Security

Hypothecation charge on
stock in trade and
receivables
Beta Bank Limited 15 May 2012 Rs. 45 million Hypothecation charge on
stock in trade and
receivables
In August 2013, ZEL defaulted on its loan repayment obligations towards both banks.
It has now been discovered by Alpha Bank Limited that the Banks legal adviser who
had been assigned to register the charge had failed to deposit the required documents,
which were duly signed by both the parties, with the Registrar of Companies.
The charge in favour of Beta Bank Limited was duly registered.
Under the provisions of the Companies Ordinance, 1984:
a) Advise Alpha Bank Limited about the effect of non-submission of the charge
documents with the registrar and how would it affect its position vis-a-vis Beta
Bank Limited.
b) Explain whether Alpha Bank Limited can now register the charge with the
Registrar of Companies.
Answer:a) According to the Companies Ordinance, 1984 every mortgage, charge or other
interest created by a company shall be void against any creditors of the company,
unless the prescribed particulars of the mortgage or charge, together with a copy
of the instrument, if any, are filed with the registrar for registration in the
required manner within 21 days after the date of its creation, but without
prejudice to any contract or obligation for repayment of the money thereby
secured. And, when a mortgage or charge becomes void the money secured
thereby shall immediately become payable.
Based on the above, although the charge creating documents were signed by ZEL
and submitted to legal advisor of Alpha Bank Limited, however, the charge in
favour of ABL is void.. The bank can not avail the security purported to be
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created through this hypothecation charge and is in the position of an unsecured


creditor.
In view of the above provision of law, the amount borrowed by ZEL has become
payable immediately to ABL although ABL would stand in the position of an
unsecured creditor.
On the other hand, charge of Beta Bank Limited is duly registered and hence it
enjoys the position of a secured creditor.
b) The Commission may on the application of ABL and on being satisfied that the
omission to register a mortgage or charge within the stipulated time as required
by Companies Ordinance,1984 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
that on other grounds it is just and equitable to grant relief, and, on such terms
and conditions as seem to the Commission just and expedient, order that the
time for registration be extended and the charge be registered.
However, even if the charge is registered, Beta Bank Limited would have the first
charge on the assets.
Question:Faisal Supermarket (Private) Limited (FSPL) is a successful family owned company and
has seven members. Due to personal reasons, one of its members, Hashir, who holds
20% shares, wants to move abroad and sell all his shareholdings in FSPL. He has
received an attractive offer from a member of the company. However, Hashir believes
that he would obtain a higher price if he sells the shares to the general public.
State the conditions which Hashir would need to comply with under the provision of
the Companies (Issue of Capital) Rules, 1996 if he decides to sell his shareholdings to
the general public.
Answer:Hashir is not satisfied with the offer made by the existing member of the company and
wants to obtain a higher price which, we assume, the existing members have refused to
pay. Therefore, in view of the articles of association of the company, Hashir after taking
prior approval of the board of directors may sell/transfer his shares in the company to
any other person.
Moreover, since Hashir who holds more than ten percent of the shares of FSPL, may
offer such shares for sale to the public subject to the following conditions, namely:
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i.

ii.
iii.

iv.
v.

ICPAP

The size of the capital to be offered to public through offer for sale shall not be
less than one hundred million rupees or twenty-five per cent of the capital,
whichever is less;
no premium shall be charged unless the company has profitable operational
record for at least one year;
in case a premium is to be charged on the sale of shares, the offer shall be fully
underwritten and the underwriters, not being the associated companies, shall
include at least two financial institutions including commercial banks and
investment banks and the underwriters shall give full justification of the amount
of premium in their independent due diligence reports;
due diligence reports of the underwriters shall form part of the material
contracts;
full justification for the premium shall be disclosed in the offer for sale.

Question:ABX Limited is a listed company. In its annual general meeting, ABX Limited
announced the distribution of shares of its unlisted subsidiary company in the form of
specie dividend and applied for registration of shares of the subsidiary at the Karachi
Stock Exchange (KSE). However, the application was refused by KSE.
Describe the responsibility of ABX Limited in the above situation, in view of Listing
Regulations of the Karachi Stock Exchange and the consequences of non-compliance
thereof.
Answer:If the application for listing of shares of subsidiary is refused, ABXL would be required
to encash the shares of the subsidiary company at the option of the recipients at a price
not less than the current break-up value, or face value, whichever is higher, within 30
days after the expiry of 120 days from the date of the application for listing or from the
date of refusal of listing whichever is earlier. In the event of default, the trading in the
shares of ABXL may be suspended by the KSE or the company may be de-listed.
Question:Halen holds 3% shares in BYZ Limited whose shares are listed on the Lahore Stock
Exchange. He has a plan to acquire substantial shareholding of BYZ Limited as follows:
S.#

Tentative date

% of shareholding
to be acquired
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1
15 January 2014
5
2
15 February 2014
5
3
31 January 2015
10
4
15 March 2015
10
Advise Halen about the conditions to be complied with in respect of each of the above
acquisitions, under the Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Ordinance, 2002.
Answer:15th January 2014
Halen would not be required to meet any condition at the time of purchase of 5 %
shares on 15 January 2014 , as his total voting shares on this date would not exceed 10%.
15th February 2014
On the purchases of 5% more shares, Halens total shareholding would be 13% i.e. in
excess of 10 % and he would be required to disclose the aggregate of his shareholding to
BYZ Limited and to the Lahore Stock Exchange within two working days of the
acquisition of voting shares.
31st January 2015
On the purchase of 10% more shares, his total shareholding would be 23% and he
would not be required to make any disclosure as the Listed Companies (Substantial
Acquisition of Voting Shares and Takeover) Ordinance, 2002does not require any
further disclosure/communication on acquisition of additional voting shares in a
period of twelve months after crossing the FIRST threshold of 10%unless his total
shareholding in aggregate exceeds twenty five per cent.
15th March 2015
On purchases of 10% more shares, his total shareholding would be 33% that crosses the
SECOND threshold of 25% and before acquiring such shares Halen should:
i.
ii.

Make a public announcement of offer to acquire these voting shares.


Before making the public announcement, Halen would also be required to make
disclosure as made by him on 15 February 2014.

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Question:The Board of Directors of Star Limited (SL) has decided to appoint SKF Associates as
legal advisers of all its group companies.
SKF Associates has two partners and are currently the legal adviser of the following
entities:
i.

ii.
iii.
iv.
v.

Wise (Guarantee) Limited (WGL) whose members have undertaken to contribute


Rs. 0.6 million each, in the event of companys winding up. However, WGL does
not have a share capital.
Nasir & Yasir, a partnership firm registered under the Partnership Act, 1932. The
total capital of the firm is Rs. 5 million.
Faraz Art Museum which is registered under the Societies Act, 1860.
Nice (Pvt.) Limited having a share capital of Rs. 1.2 million.
Listed companies, A Limited, B Limited, C Limited and D Limited having share
capital of Rs. 800,000, Rs. 600,000, Rs.400,000 and Rs. 200,000 respectively.

SLs group companies include two subsidiaries each having a share capital of Rs. 2
million and an associated company with a share capital of Rs. 600,000. The share capital
of SL is Rs. 10 million.
Based on the requirements of the Companies (Appointment of Legal Advisers) Act,
1974, explain whether SKF Associates can be appointed as the legal adviser of SL and its
group companies.
Answer:The number of companies, of which a registered firm can be appointed as the legal
advisor, is the product of three and the total number of partners of the firm.
Accordingly, SKF Associates can be appointed as legal advisors of 6 companies (i.e. 2x3)
However, the definition of a company given under the Companies (Appointment of
Legal Advisers) Act, 1974 specifically excludes:
(i) a company which has a share capital of less than Rs. 500,000
(ii) a company limited by guarantee
Similarly a society and a Partnership also do not form part of the definition of
Companies.

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In view of the above, SKF Associates are currently the legal advisors of i.e. Nice (Pvt.)
Limited, A Limited and B Limited.
Hence, SKF Associates can be appointed as the legal advisors of three out of four
companies belonging to SL group.
Question:Explain the terms Asset Management Services, Collective Investment Schemes and
Connected Persons as referred to in the NBFC (Establishment and Regulations) Rules,
2003.
Answer:Asset Management services means the services provided for management of collective
investment scheme;
Collective Investment Schemes means a close-end fund and an open-end fund.
Connected Persons in relation to an NBFC or a collective investment scheme, means:a) any person or trust beneficially owning, directly or indirectly, ten percent or
more of capital of the NBFC or the collective investment scheme;
b) any person able to exercise, directly or indirectly, ten percent or more of the total
voting power in that NBFC or the collective investment scheme;
c) a collective investment scheme being managed by the NBFC;
d) the NBFC managing a collective investment scheme;
e) a trustee or custodian of the collective investment scheme;
f) any person or trust controlled by a person who or which meets the descriptions
given in subclause (a) to (e);
g) any member of the group of which that person, or trust forms part; and
h) any director or officer of that NBFC or the investment company being managed
by that NBFC or of any of their connected persons as specified in sub-clauses (a)
to (g);]
Question:Michel Investment Finance Limited (MIFL) is in the process of making provisions
against non-performing loans. The loans provided by MIFL are secured against the
following categories of assets:
Category A

Assets secured by registered mortgage


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Category B
Category C
Category D
Category E

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Assets secured by equitable mortgage


Stock pledged with MIFL
Assets having pari-passu charge
Assets which carries a floating charge over the stock-in-trade

MIFL has issued NOCs to some of its borrowers for creating further charge(s) on assets
falling under Category B.
Discuss the matters that should be considered in determining the realizable value of the
above assets, while making a provision against non-performing loans under the NonBanking Finance Companies and Notified Entities Regulations, 2008.
Answer:Michel Investment Finance Limited (MIFL) shall observe the following criteria for
determining the realizable value of mortgaged, pledged, leased or collaterally held
assets:
i.

ii.
iii.
iv.

v.

vi.

vii.

Only assets having registered mortgage, equitable mortgage (where NOC for
creating further charge has not been issued by NBFC) and pledged or collaterally
held assets shall be considered;
Assets having pari-passu charge shall be considered on proportionate basis;
Hypothecated assets and assets with second charge or floating charge shall not
be considered;
Valuations shall be carried out by an independent professional valuer listed on
the panel of valuer maintained by the Pakistan Banks Association or the Leasing
Association of Pakistan;
The valuer while assigning any values to the mortgaged, pledged, leased or
collaterally held assets, shall take into account all relevant factors affecting the
salability of such assets including any difficulty in obtaining their possession,
their location; their condition; and the prevailing economic conditions in the
relevant sector, business or industry.
In determining the realizable value of mortgaged, pledged, leased or collaterally
held assets, the valuers must take into account the amount that can be realized
from the asset if sold in a forced or distressed sale condition;
The valuers shall in their report explain the assumptions, calculations, formula
and method adopted in determination of the realizable values;

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Question:Kaleem is the director of Amazing Paper Limited (APL) and Super Glue Limited (SGL).
In a meeting, the board of directors of APL approved a contract for the purchase of Glue
from SGL. Kaleem voted in favour of the resolution. A shareholder of APL has objected
that Kaleem has unlawfully influenced the transaction to benefit SGL.
Advise Kaleem on the validity of the shareholders objections, and the consequences
which Kaleem may face under the Companies Ordinance, 1984.
Answer:Every director of a company who is in any way interested in any contract or
arrangement entered into, on behalf of the company shall disclose the nature of his
interest at a meeting of the directors or through a general notice.
Furthermore, 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, by or on behalf of
the company, if he is in any way interested in the contract or arrangement and if he
does vote, his vote shall be void.
In view of the above provisions of the C.O.1984, Kaleem may have to face the following
consequences:
i.

ii.

iii.

iv.

Since Kaleem is directly interested in the contract for purchase of glue, his failure
to disclose his interest to the directors shall constitute a violation and he shall be
liable to a penalty of Rs. 5,000.
Karmans participation and voting on the proposed contract is also a breach of
the above provisions of the Companies Ordinance, 1984, and accordingly he shall
be liable to a further fine of Rs. 5,000.
Moreover, the court may, on a petition by members/shareholders having not less
than ten percent of the voting power in the APL, declare such proceedings or
part thereof invalid on account of irregularity in the proceeding of the meeting.
The Court may also declare Kaleem as ineligible on account of lacking fiduciary
behavior after giving him an opportunity of showing cause against the proposed
action. If such declaration is given, Kaleem would be rendered ineligible for
appointment as director; and, shall, ipso facto, cease to hold office.

Question:Beta Foods Limited, a listed company, has a paid up share capital of Rs. 20 million
divided into two different classes of shares A and B. Class B shares do not have
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voting rights. In a recent general meeting of the company, a special resolution has been
duly passed, to alter some of the rights associated with class B shares, which has
aggrieved some of the class B shareholders.
Under the Companies Ordinance, 1984 explain to the holders of class B shares, as regard
the following:
a) Remedy available to them.
b) The conditions under which the decision of the company may be reversed.
Answer:a) Persons holding not less than ten per cent of the Class B shares may, within
thirty days of the date of the resolution varying their rights, apply to the Court in
the form of a petition for an order cancelling the resolution.
b) The Court shall cancel the decision of the company if it is shown to its
satisfaction that:
i.
Some important facts were withheld by the company in getting the
resolution passed or,
ii.
Variation would unfairly prejudice such class of shareholders.
Question:Pell Limited (PL) is incorporated in United Kingdom and is listed on London Stock
Exchange. In order to penetrate into Pakistan market, the company has recently
established a branch office in Karachi. The company has duly complied with all the
statutory requirements necessary for local registration.
Under the provisions of Companies Ordinance, 1984, briefly describe the obligations
which PL is required to fulfil after establishing its business in Pakistan with respect to
the following:
a) Maintenance of Register of Pakistani members, directors and officers
b) Disclosure of name of the company and the country in which the company is
incorporated, on companies documents and at its places of business in Pakistan.
c) Preparation of balance sheet and profit and loss account with regard to its
operations in Pakistan.
Answer:The obligation which Pell Limited, being a foreign company and having a place of
business in Pakistan, would be required to fulfill are as follows:
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a) PL shall maintain at its principal place of business in Pakistan, or, if it has only
one place of business in Pakistan, in that place of business, a register of Pakistani
members, directors and officers, which shall be open to inspection and copies
thereof supplied as in the case of similar registers maintained by a company
under the Companies Ordinance, 1984;
b) PL shall:
conspicuously exhibit on the outside of every place where it carries on
business in Pakistan the name of the company and the country in which
the company is incorporated in letter easily legible in English or Urdu
characters and also, if any place where it carries on business is beyond the
local limits of the ordinary original civil jurisdiction of a High Court, in
the characters of one of the vernacular language used in that place;
cause the name of the company and of the country in which the company
is incorporated mentioned in legible English or Urdu characters in all billheads and letter papers, and in all notices, advertisements, documents and
other official publications of the company;
c) PL shall prepare a balance sheet and profit and loss account , audited by such
person, containing such particulars and including or having annexed or attached
thereto such documents ( including , in particular, documents relating to every
subsidiary of the company) as nearly as may be under the provisions of the
Companies Ordinance, 1984 as if it were a public company formed and
registered under the Companies Ordinance, 1984 in respect of the companys
operations in Pakistan as if such operations conducted by a separate public
company formed and registered under this Ordinance.
Question:Sikandar Industries Limited (SIL) is a listed company and is engaged in the
manufacturing of SIL cement. SILs market share is around 23%. SILs plans for the next
year include the following:
a) Entering into negotiations for the merger of the company with Hard Industries
Limited.
b) Launching a vigorous advertisement campaign which would involve television
advertisements highlighting some of the unique features of SIL cement and how
it is superior to the cement manufactured by other competitors.

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Describe the steps that SIL should take and the matters that should be considered, in
respect of the above, in order to ensure compliance with the provisions of Competition
Act, 2010.
Answer:a) Merger of SIL and HIL
After merger of two companies, the merged company shall be presumed to be in
a dominant position within the meaning of the Competition Commission Act,
2010.
Therefore, SIL shall follow the following steps before the merger:
First phase
i.
SIL and HIL shall submit a pre-merger application to the Commission as
soon as they agree in principle or sign a non-binding letter of intent to
proceed with the merger.
ii.
The above application shall be in the prescribed form and accompanied by
a prescribed processing fee.
iii.
After receiving of clearance from the Commission that the merger meets
the threshold and the presumption of dominance, SIL and HIL shall
proceed with the intended merger. If the Commission fails to make a
determination within the prescribed time of 30 days for the first review
phase, it shall be deemed to mean that the Commission has no objection to
the intended merger.
Second phase
iv.

v.

SIL and HIL shall be required to provide such information to the


Commission as the Commission may consider necessary to enable it to
make the necessary determination.
After assessing whether the merger substantially lessens competition, the
Commission shall give its decision on the proposed transaction within 90
days of the receipt of the above information (refer point no. iv). If
Commission fails to render a decision within 90 days, it shall be deemed
to mean that the Commission has no objection to the intended merger.

b) Launching advertisement campaign


Before launching the advertisement campaign, SIL shall ensure that its marketing
campaign shall not resort to:
i.
the distribution of false or misleading information that is capable of
harming the business interests of another undertaking;
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ii.

iii.

ICPAP

the distribution of false or misleading information to consumers,


including information lacking a reasonable basis, related to the price,
character, method, or place of production, properties, suitability for use,
or quality of goods;
false or misleading comparison of goods in the process of advertisement.

Question:Recently, the company secretary of Al-Falah Sugar Mill Limited (ASML) has received a
letter from Ghalib, a shareholder whose holdings in the companys shares has increased
to 14% during the year 2013, to seek appointment on ASMLs board of directors. The
company secretary has informed him that he cannot be admitted on the board till the
next elections become due.
Not being satisfied with the response, Ghalib has asked you to advise on the above
matter and explain the course of action available to him under the Companies
Ordinance, 1984.
Answer:Under the Companies Ordinance, 1984 the tenure of the BOD is 3 years.
Before expiry of the term a person can only be admitted to fill in the casual vacancy.
However, according to the Companies Ordinance, 1984 if a person acquires 12.5% or
more voting shares in a listed company in his own name, he may apply to the
Commission to direct the company to hold fresh election of directors in the forthcoming
annual general meeting of the company.
The Commission may, if it deems appropriate in the interest of the company, its
minority shareholders or the capital markets generally, direct the company to hold the
election of directors as above and the company shall comply with such direction.
However, in case the election is held as above, Ghalib shall be restricted from selling or
disposing of his shares for at least one year from the date of election of Directors of the
company.
Question:a) State the situations under which a company may be wound-up voluntarily.
b) After incurring continuous losses, Hashim Cotton Mills Limited had decided to
go into members voluntary winding-up. Accordingly, a general meeting of the
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company was held on 1 December 2012 and Ahmed was appointed as the
Liquidator on a remuneration of Rs. 500,000 of which 50% was paid at the time of
his appointment. On 20 November 2013, while the process of winding-up was
still in process, Ahmed received a lucrative offer of employment and is
considering to resign as the liquidator of the company.
In the context of the provisions contained in the Companies Ordinance, 1984, you
are required to explain the following:
i.
The steps that Ahmed should take at the end of first year from the
commencement of the winding-up.
ii.
The responsibilities of Ahmed, if he decides to resign.
Answer:a) A company may be wound up voluntarily when:
i.
the period (if any) fixed for the duration of the company by the articles
expires, or the event (if any) occurs, on the occurrence of which the articles
provide that the company is to be dissolved and the company in general
meeting passes a resolution requiring the company to be wound up
voluntarily.
ii.
When the company resolves by special resolution that the company be
wound up voluntarily.
b) (i) If the affairs of the HCML are not wound up in one year, Mr. Ahmed shall be
responsible to take the following steps:
Apply to the court for extension of period by six months.
Summon a general meeting of the company at the end of the first year
from the date of commencement of the winding up and if extension is
granted by court, within thirty days of such extended period;
Present in the meeting an audited account of receipts and payments
and acts and dealings and of the conduct of the winding up during the
preceding year together with a statement in the prescribed form
containing the prescribed particulars with respect to the proceedings
in and position of the liquidation, including:
- Reasons for the delay in finalization of the winding up
proceedings.
- steps taken to expedite the winding up proceedings.
- further time required for the purpose.
Forward by post to every contributory, a copy of the account and
statement together with the auditor's report and notice of the meeting
at least ten days before the meeting.
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File with the registrar, a return of convening of each general meeting,


together with a copy of the notice, account, statement and minutes of
the meeting, within ten days of the date of the meeting.

Appointment of Liquidators.
ii.

He cannot resign or quit his office as liquidator before conclusion of the


winding up proceedings except for reasons of personal disability to the
satisfaction of the Court. In any case, Mr. Sajjad cannot quit his
responsibilities before his replacement is appointed by the court.
If Mr. Ahmed resigns before conclusion of the winding up of the
company, he shall not be entitled to any remuneration and 50% of the
remuneration already received by him, shall be refunded to the company.

Question:Under the Companies Ordinance, 1984:


a) explain the meaning of winding up of a company;
b) explain and distinguish between compulsory winding up and voluntary winding
up;
c) state FOUR grounds for compulsory winding up of a company.
Answer:a) Winding up (also referred to as liquidation) of a company is the process whereby
its business is wound up and its assets are realised and distributed amongst its
creditors and/or contributories.
b) Section 297(1) Companies Ordinance, 1984 (Ordinance) provides that the
winding up of a company may be either: (i) by the court; or (ii) voluntary; or (iii)
subject to the supervision of the court. Winding up by the court is also referred to
as compulsory winding up. It can be initiated by shareholders, creditors and/or
the Registrar of Companies.
In compulsory winding up the liquidator is appointed by the court. On the other
hand, voluntary winding up is not ordered or initiated by the court. It is initiated
by the members/shareholders and conducted without involvement of the court
(unless it becomes subject to the supervision of the court or the courts orders are
required for a specific purpose, for instance, extension of the one-year statutory
period of winding up). In voluntary winding up the liquidator is appointed by
the shareholders.
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In voluntary winding up the directors are required to make under oath a


declaration of solvency of the company. In compulsory winding up no such
declaration is required.
c) Section 305 Ordinance sets out the grounds/circumstances in which a company
may be compulsorily wound up by the court.
These are:
a. if the company has, by special resolution, resolved that the company be
wound up by the court;
b. if default is made in delivering the statutory report to the Registrar or in
holding the statutory meeting or any two consecutive annual general
meetings;
c. if the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year;
d. if the number of members is reduced, in the case of a private company,
below two or, in the case of any other company, below seven;
e. if the company is unable to pay its debts;
f. if the company is:
i.
conceived or brought forth for, or is or has been carrying on,
unlawful or fraudulent activities;
ii.
carrying on business not authorised by the memorandum;
iii.
conducting its business in a manner oppressive to any of its
members or persons concerned with the formation or promotion of
the company or the minority shareholders;
iv.
run and managed by persons who fail to maintain proper and true
accounts, or commit fraud, misfeasance or malfeasance in relation
to the company; or
v. managed by persons who refuse to act according to the
requirements of the memorandum or articles or the provisions of
this Ordinance or fail to carry out the directions or decisions of the
court or the Registrar or the Commission given in the exercise of
powers under this Ordinance;
g. if, being a listed company, it ceases to be such company; or
h. if the court is of opinion that it is just and equitable that the company
should be wound up; or
i. if a company ceases to have a member.

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Question:Under the Code of Corporate Governance, 2012 (Code):


a. explain the purpose and salient features of the Code;
b. state THREE significant issues required to be placed before the board of directors
for decision.
Answer:a. Initially, the business and management of corporate entities were governed in
accordance only with the basic principles of agency and trust, which included the
requirement for utmost good faith, transparency and accountability. However,
with the growth in size of corporate entities, increasing complexities of business
environment and the absence of a formal regulatory framework, basic agency
and trust principles were found to be inadequate to fully safeguard and promote
the interests of stakeholders. Concerns with the effectiveness and potential
abuses of corporate governance are taking global dimensions. Well-publicised
corporate collapses and frauds are making investors and other stakeholders
aware that ineffective corporate governance can have dire financial and social
consequences. Codes for best corporate governance have been drawn up by
many countries and global institutions with the objective of safeguarding the
interests of stakeholders and promoting market confidence and to enhance the
performance and ensure conformance of companies.
In line with global trends, in March 2002, the Securities and Exchange
Commission of Pakistan (SECP) issued the Code of Corporate Governance
(Code) to establish a framework for good governance of companies listed on
Pakistans stock exchanges. In exercise of its powers under s.34(4) Securities and
Exchange Ordinance, 1969, the SECP issued directions to the Karachi, Lahore and
Islamabad stock exchanges to incorporate the provisions of the Code in their
respective listing regulations. Through this measure, the Code was incorporated
into the respective listing regulations of the stock exchanges and is now
applicable to all listed companies. The Code of 2002 has now been replaced and
superseded by the 2012 version.
Compliance with the provisions of the Code is mandatory except for two which
are voluntary in nature. The mandatory provisions deal with such matters as
directors qualifications and eligibility to act as such, their tenure of office,
responsibilities, powers and functions, disclosure of interest, training, meetings
of the board of directors and the business to be conducted by it, the
qualifications, appointment and responsibilities of the chief financial officer
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(CFO) and company secretary, the appointment and responsibilities of the audit
committee, the appointment and responsibilities of internal and external
auditors, and compliance by listed companies with the Code. The two voluntary
provisions pertain to the appointment of independent non-executive directors
and those representing minority interests on the board of directors and the
restriction for brokers to be appointed as directors of listed companies.
The present Code of Corporate Governance 2012 while expanding the
requirements under the 2002 version has changed the requirements of
independent directors (including the test); steps with respect to encouraging
representation of minority shareholders as a class at the time of election of
directors have been made mandatory; the maximum number of executive
directors on the board of directors has been reduced and the concept of diversity
has been emphasised. Changes have also been introduced in the audit committee
composition, qualification requirements of the CFO, company secretary and head
of internal audit and the requirements of corporate and financial reporting,
among other things.
Any company failing to comply with any provision of the listing regulations,
including those pertaining to corporate governance, may be sanctioned,
suspended or de-listed. Moreover, the SECP, being the apex regulator of the
corporate and securities laws, also takes cognisance of departures from the Code.
b. The Code of Corporate Governance 2012 provides that in order to strengthen and
formalise the corporate decision-making process, significant issues shall be
placed for the information, consideration and decision of the board of directors
of listed companies and/or its committees.
Significant issues may include:
- the CEO shall immediately bring before the board, as soon as it is foreseen
that the company will not be in a position of meeting its obligations on
any loans (including penalties on late payments and other dues to a
creditor, bank or financial institution or default in payment of public
deposit), term finance certificates (TFCs), Sukuks or any other debt
instrument. Full details of the companys failure to meet obligations shall
be provided in the companys quarterly and annual financial statements.
- annual business plan, cash flow projections, forecasts and strategic plan;
- budgets including capital, manpower and overhead budgets, along with
variance analyses;
- matters recommended and/or reported by the committees of the board;
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quarterly operating results of the listed company as a whole and in terms


of its operating divisions or business segments;
internal audit reports, including cases of fraud, bribery, corruption, or
irregularities of a material nature;
management letter issued by the external auditors;
details of joint venture or collaboration agreements or agreements with
distributors, agents, etc;
promulgation or amendment to a law, rule or regulation, enforcement of
an accounting standard and such other matters as may affect the listed
company;
status and implications of any law suit or proceedings of a material
nature, filed by or against the listed company;
any show cause, demand or prosecution notice received from revenue or
regulatory authorities;
failure to recover material amounts of loans, advances, and deposits made
by the listed company, including trade debts and inter-corporate finances;
any significant accidents, dangerous occurrences and instances of
pollution and environmental problems involving the listed company;
significant public or product liability claims made or likely to be made
against the listed company, including any adverse judgement or order
made on the conduct of the listed company or of another company which
may bear negatively on the listed company;
report on governance, risk management and compliance issues. Risks
considered shall include reputational risk and shall address risk analysis,
risk management and risk communication;
disputes with labour and their proposed solutions, any agreement with
the labour union or collective bargaining agent and any charter of
demands on the listed company;
whistleblower protection mechanism;
report on corporate social responsibility (CSR) activities; and
payment for goodwill, brand equity or intellectual property.

Question:Ali is a shareholder of Allied Cement Limited (ACL), a public listed company. ACL
has made a significant profit in the last financial year. The shareholders, including Ali,
were expecting a declaration of a substantial dividend of not less than Rs. 10 per share.
However, the board of directors of ACL proposed a dividend of only Rs. 5 per share.
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Ali rallied the shareholders and in ACLs annual general meeting (held two months
ago), the shareholders approved a dividend of Rs. 10 per share.
A few months ago, Ali had written a letter to the company secretary of ACL asking
ACL to send his due dividends to his son, Qadir, in Islamabad. The company secretary
is of the view that, since Qadir is not a shareholder, no dividends can be paid to him.
Due to these issues, the dividend amounts have not been paid and have been lying in
ACLs bank account for the last two months.
Required:
Under the Companies Ordinance, 1984 advise Ali on the legal consequences of these
actions.
Answer:This question raises several important issues regarding the declaration and payment of
dividends.
Section 249 Companies Ordinance, 1984 (Ordinance) provides that no dividend shall
be paid by a company otherwise than out of profits of the company. In the present case,
we are informed that ACL has made significant profits. Section 248(1) provides that the
company in a general meeting may declare dividends; but no dividend shall exceed the
amount recommended by the directors. In the present case, the board of directors had
recommended a dividend of Rs. 5 per share. However, at Alis prompting, the
shareholders have declared a dividend of Rs. 10 per share. In view of s.248(1), such a
declaration is not in accordance with the law and would not be permissible. Section 248
does not specify the consequences of breach of ss.1. In this situation, there could be two
possibilities: (i) that the declaration by the general meeting is upheld as valid, albeit
subject to the cap of Rs. 5 per share recommended by the directors; or (ii) the
declaration of the dividend in the general meeting is regarded as an invalid declaration
and a fresh declaration in a duly convened meeting is needed for approval of
dividends.
As regards Alis request for payment of his due dividends to his son, Qadir, s.250
provides that no dividend shall be paid by a company in respect of any share therein
except to the registered holder of such share or to his order or to his bankers or to a
financial institution nominated by him for the purpose. Accordingly, while Qadir is not
a registered shareholder and hence not entitled to received any dividends in his own
right (as opined by the company secretary), Alis request would appear to fall within
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the scope of or to his order, i.e. the dividend is due to a registered shareholder (Ali)
but is paid to his order to his son, Qadir. Therefore, it appears that while the company
secretary is partly correct, his overall view on this matter is contrary to the law.
Section 251(1) provides that when a dividend has been declared, it shall not be lawful
for the directors of the company to withhold or defer its payment and the chief
executive of the company shall be responsible to make the payment in the manner
provided in s.250 within 45 days of the declaration in the case of a listed company. The
explanation to s.251(1) provides that a dividend shall be deemed to have been declared
on the date of the general meeting in case of a dividend declared or approved in the
general meeting. Section 251(2) provides that where a dividend has been declared by a
company but is not paid within the period specified in s.251(1), the chief executive of
the company shall be punishable with imprisonment for a term which may extend to
two years and with fine which may extend to Rs. 1 million. Provided that no offence
shall be deemed to have been committed within the meaning of the foregoing
provisions in the following cases, namely:
a. where the dividend could not be paid by reason of the operation of any law;
b. where a shareholder has given directions to the company regarding the payment
of the dividend and those directions cannot be complied with;
c. where there is a dispute regarding the right to receive the dividend;
d. where the dividend has been lawfully adjusted by the company against any sum
due to it from the shareholder; or
e. where, for any other reason, the failure to pay the dividend or to post the
warrant within the period aforesaid was not due to any default on the part of the
company; and
the Commission has, on an application of the company on the prescribed form made
within 45 days from the date of declaration of the dividend, and after providing an
opportunity to the shareholder or person who may seem to be entitled to receive the
dividend of making representation against the proposed action, permitted the company
to withhold or defer payment as may be ordered by the Commission.
In the given facts the dividend declared two months ago has not been paid so far;
therefore, prima facie, there is a violation of the payment deadline under s.251.
However, it is entirely possible that ACL (particularly, its chief executive) will argue
that the matter falls within the Proviso to ss.(2), because the actions at the annual
general meeting (i.e. approval of a dividend by shareholders in violation of s.248) may
have raised bona fide concerns about the legality and validity of the declaration itself. If
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the SECP is convinced by this explanation (which would most likely fall within items a
and e of the Proviso to ss.(2), if at all), the chief executive of ACL may escape the penal
consequences of s.252. However, in view of the discussion about Alis order regarding
payment to Qadir, the company secretarys explanation would most likely not fall
within the Proviso to ss.(2).
Question:ABC Limited and its subsidiary are unlisted companies. ABC Limited holds 60% shares
in the subsidiary. The subsidiary is involved in the research and development of a new
product for which it needs funded and non-funded financing facilities. The directors of
ABC Limited are considering to facilitate the subsidiary in this regard through one of
the following options:
Option I Making an equity investment amounting to Rs. 20 million; or
Option II Facilitating the subsidiary in the following manner:

Granting loan of Rs. 15 million which would be repayable in ten equal


instalments over a period of six years. The mark-up shall be chargeable at KIBOR
plus 1 % per annum payable on quarterly basis. A grace period of one year
would be allowed during which only 50% mark-up would be charged.
Furnishing a guarantee of Rs 5 million to the subsidiarys bankers against LC
facility.

ABC Limited is availing financing facilities from conventional banks.


In the light of provisions of Companies (Investment in Associated Companies or
Associated Undertakings) Regulations, 2012 advise the directors of ABC Limited
regarding the conditions to be complied with under each of the above options.
Answer:ABC Limited will have to comply with the following conditions while making any
investments in the subsidiary.
General conditions to be complied with under each options
i.
ii.
iii.

Pass a special resolution in the general meeting of the company.


The investment shall be made within a period of twelve months from the date of
passing of special resolution.
The investment in the subsidiary(associated company) cannot be made if:
any previous investment to the subsidiary has been written off; or
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The subsidiary is already indebted to ABC Limited and has failed to repay
the loan or advance including mark up thereon or has failed to comply
with any of the terms and conditions of the agreement in this regard,
unless such loan has been rescheduled under approval of special
resolution of the members of ABC Limited.

Conditions to be complied with in the case of option I (equity investment)


i.

ii.

iii.

Since subsidiary is an unlisted company, the fair value of its shares shall be
determined based on generally accepted valuation techniques and latest audited
financial statements of the subsidiary by;
A chartered accountant firm, having a satisfactory rating under the
Quality Control Review Program of Institute of Chartered Accountants of
Pakistan; or
A Non-banking finance company licensed by the Commission to carry out
the business of investment finance services which has been assigned a
minimum rating of A+ or equivalent by a credit rating company
registered with the Commission, and has been in operation for at least five
years.
In case the price to be paid is different from the fair value as determined above,
an explanation along with justification, reasons and basis of determination of
price shall be disclosed to the members.
Share deposit money shall be transferred for equity investment only after
announcement of the offer for issue of shares by its associated company and in
case shares are not issued within ninety days of the transfer of share deposit
money such share deposit money shall be treated as loan and interest/mark up
thereon shall be charged from the date of transfer of funds.

Conditions to be complied with in the case of Option II (funded and non-funded


facilities)
i.

ii.

iii.

The company shall not invest in its associated company by way of loans or
advances except in accordance with an agreement in writing and in accordance
with the approval of the members in the general meeting;
ABC Limited shall charge and recover interest in line with the standard terms
applied by the commercial banks on similar facilities. Mark-up for the grace
period is being charged at 50% less than the normal which seems not in
accordance with the standard terms normally applied. It should be re-considered
by ABC Limited.
ABC Limited shall not extend to its subsidiary any loan for a period beyond one
year provided that members may approve renewal of such loan.
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In case of unfunded facilities (i.e. for a guarantee), rate of return shall be


determined based on the rate of commission charged by commercial banks on
similar unfunded facilities.

Question:A group of shareholders of XYZ Limited holding 13% of the voting power are of the
view that the company is being mismanaged by the directors. Consequently, the
company is incurring losses and that the company had never declared any dividend
even when the profits were available in the past years. Majority of the directors have
been nominated by its parent company which holds 82% of the voting power.
Being a Corporate Consultant of the group of shareholders, you are required to advise
on the following in light of the provisions of the Companies Ordinance, 1984:
a) The authority with whom the shareholders may lodge their complaint and the
action which that authority may take in respect thereof.
b) The possible consequences for the management of XYZ Limited in the above
situation.
Answer:a) The group of shareholders of XYZ Limited can file an appeal with the Securities
and Exchange Commission of Pakistan (SECP) as they hold more than 10%
voting power in the company.
Subsequently, the SECP may appoint an inspector to investigate the affairs of the
company.
On the report of the investigator, if SECP finds it appropriate, it may refer the
matter to the Court.
b) When the case would be referred to the court, the court may:
i.
remove from office any director including the chief executive or other
officer of the company; or
ii.
direct that the directors of the company should carry out such changes in
the management or in the accounting policies of the company as may be
specified in the order; or
iii.
direct the company to call a meeting of its members to consider such
matters as may be specified in the order and to take appropriate remedial
actions; or
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direct that any existing contract which is to the detriment of the company
or its members or is intended to or does benefit any officer or director
shall be annulled or modified to the extent specified in the order:

Question:A shareholder who holds 500 shares of a listed company intends to propose XY &
Company, Chartered Accountants as the new auditors in place of present auditors of
the company.
In light of the provisions of the Companies Ordinance, 1984 explain:
a) Whether the shareholder can propose a change of the auditors of the company
and the procedure that is required to be followed in this regard.
b) The responsibility of the company if a change of auditors is proposed.
Answer:a) Any shareholder may recommend a change in the auditors, irrespective of his
shareholding in the company. He should give a notice to the company for a
resolution at its annual general meeting appointing XY & Company, Chartered
Accountant as new auditor of the company other than a retiring auditor. The
notice should be served to the company not less than fourteen days before the
date of the annual general meeting.
b) On receipt of notice, the company shall forthwith send a copy of such notice to
the retiring auditor and shall also give notice thereof to its members not less than
seven days before the date fixed for the annual general meeting.
The company shall also publish the notice at least in one issue each of a daily
newspaper in English language and a daily newspaper in Urdu language having
circulation in the Province in which the stock exchange on which the company is
listed is situate.
The company shall, on the receipt of a representation in writing made by the
retiring auditor and on his requests for its communication to the members of the
company unless the representation is received by it too late for it to do so, state the fact of the representation having been made , in any notice of the
resolution given to members of the company; and
send a copy of the representation to every member of the company to
whom notice of the meeting is sent whether before or after receipt of the
representation by the company;
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If a copy of the representation is not sent as aforesaid because it was received too
late or because of the company default, the retiring auditor may, without
prejudice to his right to be heard in person, require that the representation shall
be read out at the meeting:
Question:Name the authorities who can file a petition for winding up of a company. Narrate the
conditions required to be complied with in this regard.
Answer:Following authorities can file a petition for the winding up of a company subject to the
following conditions:
i.

ii.
iii.

iv.

v.

A contributory may file a petition for the winding up when:


the number of members is reduced, in the case of a private company,
below two, or, in the case of any other company, below seven; or
the shares in respect of which he is a contributory or some of them either
were originally allotted to him or have been held by him, and registered in
his name, for at least six months during the eighteen months before the
commencement of the winding up, or have or devolved on him through
the death of a former shareholder.
The registrar may file a petition for the winding up with a prior permission of
the Commission.
The Commission may file a winding up petition when an investigation into the
affairs of the company has revealed that:
it was formed for any fraudulent or unlawful purpose, or
it is carrying on a business not authorised by its memorandum, or
its business is being conducted in a manner oppressive to any of its
members or persons concerned in the formation of the company, or
its management has been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members.
A Creditor including contingent or prospective creditor may file a petition for
winding up:
when security for costs has been given as the Court thinks reasonable.
when prima facie case for winding up has been established to the
satisfaction of the Court.
A company may file a petition for winding up.

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Question:Sohail is the Senior Manager Marketing of Premier Textile Limited (PTL), a listed
company. He purchased 100,000 shares of PTL 30 days prior to the close of financial
year and sold them 15 days after the declaration of annual results at a profit of Rs. 1.2
million.
An increase of 15% in the share price of PTL has been noted within 7 days of the
announcement of the annual results.
In light of the provisions of the Securities and Exchange Ordinance, 1969:
a) Explain how you would evaluate whether the above transaction falls in the ambit
of insider trading.
b) State the possible consequences if Sohail is found involved in insider trading.
Answer:a) According to the Securities and Exchange Ordinance, 1969:
Insider includes any person obtaining inside information as part of his
employment or when discharging his usual duties in an official capacity or in
any other way relating to work performed under contract of employment or
otherwise. And
Inside information means information which has not been made public
relating, directly or indirectly, to listed securities and which if it were made
public, would be likely to have an effect on the prices of listed securities.
From the above definition, it is established that Sohail is an insider person as he
is in employment of the PTL and possess inside information as he is a senior
manager marketing and full knowledge of sales of PTL.
Whether the transaction falls in the ambit of insider trading or not, it depends
upon:
Whether the sudden increase in prices of shares was on account of any
information that had not been disclosed to the public prior to the
declaration of results.
Whether Mr. Sohail possessed the above information when he purchased
the shares.

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b) If Mr.Sohail is found in contravention of the provisions of the law then he is


liable to pay a fine which may extend to Rs. 10 million or three times the amount
of gain made or loss avoided whichever amount is higher.
In addition to the fine imposed as above, the Commission may:
i.
direct Sohail to surrender to the Commission, an amount equivalent to
the gain made by them.
ii.
direct Sohail to pay any other person who has suffered a loss, an
amount equivalent to the loss so suffered by such person.
iii.
Direct PTL to remove Sohail from his office/services.
Question:In light of the provisions of the Companies Ordinance, 1984 advise the directors of KM
Limited on the following matters:
a) Faisal, one of the directors, wishes to assign his office to Saeed as Faisal is going
abroad for personal work.
b) The CEO has refused the personal loan application of Y, who is also employed as
a technical director, on the premise that grant of any loan to directors is
prohibited under the law.
Answer:a) Faisal can assign his office to Saeed if:
i.
there is a provision in the articles of KM Limited allowing such
assignment or there is an agreement between any person and the
company for empowering a director of KML to assign his office as such to
another person.
ii.
The assignment of office is approved by a special resolution of the
company.
The directors have also an option to appoint alternate or substitute director if Mr.
Faisal is going abroad for a period not less than three months. However, Saeed
shall vacate the office when Faisal returns to Pakistan.
b) KML may with the prior permission of the Commission make a loan to the
technical director who is in full time employment: for
i.
the purpose of acquisition or construction of a dwelling house or land
therefore;
ii.
defraying the cost of any conveyance for personal use or household
effects;
iii.
defraying any expense on his medical treatment;
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the medical treatment of any relative as are ordinarily made or provided


by the company to its employees.

Question:The alteration in the memorandum of association shall not take effect until and except
in so far as it is confirmed by the Commission on petition. The petition shall be
submitted and signed by a responsible officer not later than sixty days from the date on
which the special resolution was passed.
In light of the provisions of the Companies (General provisions and forms) Rules, 1985
identify:
a) The persons who are covered under the definition of responsible officer.
b) Documents to be attached with the petition.
Answer:a) "Responsible officer" in relation to a company, means
i.
the chief executive of the company;
ii.
a director of the company;
iii.
the secretary of the company;
iv.
any other officer of the company who is declared by the Commission in
writing as a responsible officer of the company for the purposes of these
rules;
v. an administrator who has been appointed under the provisions of the
Companies Ordinance,1984, the administrator of such company; or
vi.
the liquidator of company which is in process of liquidation
b) The following documents immediately preceding the day of the passing of the
special resolution and certified by a responsible officer shall be submitted along
with the application:
i.
a copy of the memorandum and the articles;
ii.
a copy of the special resolution;
iii.
minutes of the meeting at which the special resolution was adopted;
iv.
particulars of dissenting shareholders or creditors together with their
objections.'
v. statement in comparative form showing the existing provisions of the
memorandum as are proposed to be altered and the provisions as would
appear after the proposed alterations have been made, indicating the
object clause under which each alteration is considered permissible by the

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vii.

viii.

ICPAP

company along with brief reasons explaining how it considers it


permissible;
pattern of holding of its shares;
names and addresses of each of its creditors to whom an amount
exceeding Rs. 50,000 is due with the amount mentioned against each along
with their consent to the alteration; and
names and addresses of the persons likely to be affected along with their
consent to the alteration.

Question:Narrate the provisions contained in the Companies Ordinance, 1984 and the Listing
Regulations in respect of each of the following:
a) Announcement of dividend.
b) Payment of dividend including issuance of dividend warrants.
Answer:Announcement of dividend
a) .
i.

ii.
iii.

iv.

v.

The dividend shall be deemed to have been declared on the date of


general meeting in case of a dividend declared or approved in the general
meeting and on the date of the commencement of closing of share transfer,
for the purpose of entitlement of dividend in the case of interim dividend
and where register of members is not closed for such purpose, on the date
on which such dividend is approved by the directors.
No dividend shall exceed the amount recommended by the directors.
Every listed company shall advise and keep advised to the Exchange all
decisions of its Board of directors relating to dividend in the manner
notified by the Exchange from time to time.
The above said information is required to be communicated to the
Exchange prior to its release to any other person or print/electronic
media.
Intimation of dividend shall be sent to the Exchange not later than 14 days
prior to the commencement of the book closure.

b) .
i.

When a dividend has been declared, it shall not be lawful for the directors
or the company to with-hold or defer its payment.

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ii.

iii.
iv.

v.
vi.

vii.

ICPAP

The chief executive of the company shall be responsible to make the


payment in the manner provided in the Companies Ordinance, 1984
within such time as the Commission may, from time to time, by
notification in the official Gazette, specify.
where a dividend has been declared but is not paid within the period
specified as above, the chief executive of the company shall be punishable.
dispatch dividend warrants to the shareholders concerned within 30 days
In case of interim dividend, from the date of commencement of
closing of share transfer register for purpose of determination of
entitlement of dividend.
In case of final dividend, from the date of General Meeting in
which the dividend has been approved;
intimate the Exchange immediately as soon as all the dividend warrants
are posted to the shareholders;
dispatch interim and final dividend warrants to the shareholders by
registered post unless those entitled to receive the dividend require
otherwise in writing.
All dividend warrants, in addition to the place of the Registered Office of
the issuing companies, shall be encashable at Karachi, Hyderabad,
Sukkur, Quetta, Multan, Lahore, Faisalabad, Islamabad, Rawalpindi and
Peshawar* for a period of three months from the date of issue.

Question:a) Farid is a shareholder of a listed company. He intends to contest the upcoming


election of the directors. Before filing his application with the company he has
requested for inspection of the register of directors shareholdings.
In light of the provisions of the Companies Ordinance, 1984 explain his right to
inspect the register.
b) State the provisions contained in the Companies Ordinance, 1984 under which a
member may give notice of a resolution and what steps would the member be
required to take in this regard.
Answer:a) Subject to restrictions imposed by companys articles or in the general meeting,
Farid has a right to inspect the register of directors shareholding during the:
period beginning fourteen days before the date of the annual general
meeting of the company and ending three day after the date of its
conclusion. The register shall remain open for not less than 2 business
hours during each day.
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annual general meeting of the company.

b) 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 companyi.
In the case of a meeting requisitioned by the members, together with the
requisition for the meeting;
ii.
In any other case, at least fifteen days before the meeting;
The company shall forthwith circulate such resolution to all the members.
Question:A company is planning to register as a non-banking finance company. It has provided
you the following information:
i.

ii.
iii.
iv.
v.
vi.

vii.

It wants to carry out the following businesses:


investment advisory business
investment finance services
asset management services
housing finance services.
Its paid up capital is Rs.80 million out of which Rs. 16 million is held by
promoters of the company.
The promoters have pledged their shares with a scheduled bank to obtain a loan
for its associated company.
A change in the memorandum of association is due to be made within the next
six months.
The company is a member of AL-Shaban Group of Companies.
Mr. X is to be appointed as chief executive who was employed as a CFO in
another NBFC owned by the group in 2008 and is presently a director in that
NBFC.
It is expected that the company would start its business from the next financial
year.

In light of the provisions of the NBFC Rules, 2003 evaluate whether the company may
apply to the Commission for granting of licence to carry on the NBFC business.

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Answer:a) In the light of the provisions of the NBFC Rules, 2003, the company has to
consider the following factors before applying to the Commission for grant of
licence of a business:
i.
The company may carry on stated businesses in the following manner:
Any of the business given in the question.
Investment advisory services and asset management services
together; or
Investment finance services and housing finance services together.
ii.
company should be equal to or in excess of the
minimum equity as may be specified by the Commission.
At least twenty five percent of the paid up share capital should be
held by the promoters whereas at present only 20% is held by the
promoters of the company.
iii.
bank and shall have to deposit their shares with Central Depository
Company of Pakistan Limited in an account marked as Blocked and
such shares shall not be sold or transferred without prior approval of the
Commission.
The directors and majority shareholders of the company shall
undertake that they would not enter into any agreement for sale or
transfer of their shares in any manner without prior approval of the
Commission.
iv.
The company should get changes in the memorandum before applying for
the license as in order to get a licence, the company has to give an
undertaking that no change in the Memorandum of Association, other
than increase in the authorized capital, would be made without prior
approval of the Commission.
v. Any company in the Al-Shaban group of companies shall not already hold
a licence for the same form of business.
vi.
The company can appoint X as chief executive of the company with the
prior permission of the Commission, however, he has to fulfill the
following conditions.
Gain one more year experience as the minimum experience
requirement is seven to ten years whereas he has an experience of
six years.
Resign from the directorship of another NBFC where he is a
director

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vii.

ICPAP

The company has a plan to commence business from the start of the next
financial year but it must be noted that the licence would be valid for a
period of one year from the date of its issuance and if it fails, the licence
shall be deemed to be cancelled or otherwise as specified by the
commission by notification in the official gazette.

Question:A listed company is considering the issue of 100% right shares at a premium of 20%.
Advise the directors of the company about the conditions required to be complied with,
for the issuance of right shares under the Companies (Issue of Capital) Rules, 1996.
Answer:A listed company may issue rights shares subject to following conditions,
i.
ii.

iii.

iv.

The company shall not make a right issue within one year of the first issue
of capital to the public or further issue of capital through right issue.
the company, while announcing right issue, shall clearly state the purpose
of the right issue, benefits to the company, use of funds and financial
projections for three years. The financial plan and projections shall be
signed by all the directors who were present in the meeting in which the
right issue was approved.
the decision of the company to issue right shares shall be communicated
to the Authority and the respective stock exchange on the day of the
decision.
the company may charge premium on right shares up to the free reserves
per share as certified by the companys auditors and the certificate of the
auditors shall be furnished to the Authority and the respective stock
exchange along with intimation of the proposed right issue.

Provided that where a company proposes to charge premium on right issue


above the free reserves per share it shall be required to fulfill the following
requirements, namely:

At least forty percent of all the shareholders undertake to subscribe their


portion of right issue; and
The remaining right issue shall be fully underwritten and the
underwriters, not being associated companies, shall include at least two
financial institutions including commercial banks and investment banks
and the underwriters shall give full justification of the amount of
premium in their independent due diligence reports.
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v.

vi.

vii.

ICPAP

right issue of a loss making company or a company whose market share


price during the preceding six months has remained below par value shall
be fully and firmly underwritten;
book closure shall be made within forty-five days of the announcement of
the right issue and the payment and renunciation date once announced for
the letter of right shall not be extended except with the permission of the
respective stock exchange under special circumstances; and
if the announcement of bonus and right issue is made simultaneously,
resolution of the board of directors shall specify whether the bonus shares
covered by the announcement quality for right entitlement.

Question:a) .
i.
ii.

What is a prospectus?
When a statement included in a prospectus is deemed to be untrue in
terms of the Companies Ordinance, 1984?
iii.
The Companies Ordinance, 1984 requires a sufficient number of copies of
the prospectus shall be made available at certain places. Specify such
places.
b) As per section 146 of the Companies Ordinance, 1984 a public company is
restricted to commence business unless it fulfills certain requirements. Describe
those requirements.
c) M/s. Big Boss Limited, a public limited company has created a charge in favour
of Dell Bank. Suppose you are a Corporate Consultant of the company and the
Company Secretary is seeking your advice in respect of the following matters:
Required:
i.
ii.

The authority with which the mortgage/ charge is to be filed and time period for
filing the mortgage/ charge document.
The documents to be filed for registration of mortgage/ charge.

Answer:a) .
i.

ii.

Prospectus:
Prospectus is a document containing the advertisement for invitation of
subscription from the public.
Untrue Statement Included in Prospectus:
A statement included in a prospectus shall be deemed to be untrue,
if the statement is misleading in the form and context in which it is
included.
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Where the omission from a prospectus of any matter is calculated


to mislead, the prospectus shall be deemed, in respect of such
omission, to be a prospectus in which any untrue statement is
included.
iii.
Availability of Prospectus:
Copies of prospectus are to be made available at:
Registered office of the company;
With the stock exchange at which the company is listed or is
proposed to be listed; and
With the bankers to the issue.
b) Requirements for Obtaining Certificate for Commencement of Business:
The public company can commence business if it has fulfilled the following
requirements:
1. Minimum subscription has been paid.
2. Directors have subscribed to the shares undertaken by them.
3. Amount liable to be repaid to unsuccessful applicant for shares, has been
refunded.
4. Declaration on Form 22 or 23 has been filed by companies about
fulfillment of above conditions. The companies who issue prospectus and
invite subscription from public are required to file declaration on Form 22
and those who does not issue prospectus and file a statement in lieu
thereof are required to file declaration on Form 23.
5. The statement in lieu of prospectus has been filed, in case of companies
which do not issue prospectus for inviting subscription from public.
c) .
i.
Registration of Mortgage/Charge:
The mortgage/charge is required to be filed with the registrar within 21
days of creation of charge.
ii.
Filing of Documents for Registration of Mortgage/Charge:
The following mortgage/charge documents are filed for registration of the
mortgage/charge etc.
a) Form 10 containing the particulars of the mortgage/charge etc.
b) Certified copies of the instruments creating the charge.
c) Affidavit regarding copies of the instruments being true.
d) Bank Challan (deposited in relevant branch of the bank) of requisite
amount as per Sixth Schedule being filing fee.
Question:a) M/s. Solar Petroleum Limited (SPL) is a public listed company. The company is
engaged in the business of exploration and extraction of petroleum. Mr. Saad has
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been appointed as a Chief Executive Officer (CEO) of the Company on January


15, 2014. Since he is not updated with regard to corporate law requirements,
therefore consults Company Secretary on various occasions in respect of the
corporate matters. Mr. Saad overheard a discussion between the Chief Financial
Officer (CFO) and Director Marketing whereby CFO was saying that he had
purchased shares of SPL and therefore needs to fulfill the requirements of
beneficial ownership. Mr. Saad called the Company Secretary and discussed that
he also buys and sales shares of SPL. He provided the following details about
his trading in SPLs shares to the Company Secretary for advice:
Sr. #
Date
Addition/ (Deletion)
Remarks
No. of Shares
1
31.12.2013
45,000
Purchased from the market
2
30.01.2014
150,000
Purchased from the market
3
05.02.2014
*(5,000)
Sold in the market at a profit
*These shares were acquired on September 15, 2013
Required:
Mr. Saad request the Company Secretary to guide him in respect of the following
matters as per the provisions of the Companies Ordinance, 1984:
i.
Mr. Saad asked the Company Secretary to find out whether he is required
to comply with the provisions of beneficial ownership by virtue of trading
in the shares of SPL?
ii.
Identify the persons other than Chief Executive Officer (CEO) who is
required to comply with the provisions of beneficial owner.
iii.
Mr. Saad also asked Company Secretary to identify the legal requirements
on each of the purchase and sale transactions carried out by him as per
details given above. He wants separate comments on each individual
transaction.
b) Enumerate the conditions as per the Companies (Issue of Capital) Rules, 1996 for
issuance of bonus shares by a listed company.
Answer:a) Provisions related to Beneficial Owners:
i.
Since SPL is a listed company and Mr. Saad has joined as Chief Executive
Officer therefore trading in the shares of SPL directly or indirectly by Mr.
Saad would make him beneficial owner.
ii.
Following persons other the Chief Executive are required to comply with
the provisions of beneficial owner:
(i) Directors
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(ii) Managing agent


(iii)
Chief Accountant/CFO/Director Finance
(iv)
Secretary
(v) Auditor
(vi)
Any other person, who is directly or indirectly, beneficial
owner of more than 10% securities.
iii.
Legal Requirements for Purchase and Sale Transactions Carried Out by
Mr. Saad:
December 31, 2013:
Mr. Saad has to file a return containing particulars of his
shareholding in (SPL) with the registrar and the Commission,
within 30 days from the date when he occupies the position of CEO
in the company.
January 30, 2014:
Mr. Saad has to file a return containing particulars of his
shareholding in (SPL) with the registrar and the Commission,
within 30 days from the date of the transaction.
February 5, 2014:
Since Mr. Saad made a gain by purchase and sale within a period of
less than six months, he is required to tender the amount of such
gain to the company and make out a report of the gain to
Commission and registrar. Moreover, he will send intimation to
this effect to the Registrar and the Commission.
b) Issue of Bonus Shares by Listed Companies:
A listed company may issue bonus shares subject to the following conditions,
namely:i.
The decision of the directors to issue bonus shares shall be communicated
to the Commission and the respective stock exchange on the day of the
decision and the intimation letter shall be accompanied by the auditors
certificate as specified in clause (iii) mentioned below;
ii.
The free reserves of the company calculated in the manner as specified in
rule 5 of the Companies (Issue of Capital) Rules, 1996 shall be sufficient to
issue bonus shares after retaining in the reserves twenty-five per cent of
the capital as it will be increased by the proposed bonus shares.
iii.
A certificate from the auditors shall be obtained to the effect that the free
reserves and surpluses retained after the issue of the bonus shares will not
be less then twenty-five per cent of the increased capital; and
iv.
All contingent liabilities disclosed in the audited accounts and any such
liability which may have been created subsequent to the audited accounts
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shall be deducted while calculating minimum residual reserves of twentyfive per cent.
Question:a) The Board meeting of M/s. Global Polymer Limited was scheduled on March 15,
2014. The senior most Director of the company Mr. Kashif, expired two days
before the date of the meeting. The meeting took place on the scheduled date.
One of the directors Mr. Akbar suggested that another gentleman representing
minority interest may be appointed in place of Mr. Kashif and he proposed three
names in this regard.
Required:
i.

ii.

The Secretary was asked to comment on the proposal of Mr. Akbar in the
light of Code of Corporate Governance and provisions contained in the
Companies Ordinance, 1984 regarding filling of casual vacancy of
director.
If a person, representing minority shareholders wants to contest elections
of directors in a listed company, what facilitation the listed company may
offer for proxy solicitation to this person under the Code of Corporate
Governance, 2012.

b) In the light of section 95 of the Companies Ordinance, 1984 pertaining to buyback of shares, answer the following:
i.
Which type of company can buy its own shares?
ii.
The notice of the meeting in which the special resolution authorizing the
purchase of share is proposed to be moved, shall be accompanied by an
explanatory statement containing material facts. Specify such material
facts.
iii.
List down the particulars to be recorded in the register of shares
purchased by a company through buy-back.
Answer:a) Provisions regarding the Minority Interest as per the Code of Corporate
Governance, 2014:
i.
The proposal of Mr. Akbar is valid since as per the Code of Corporate
Governance, 2014 the Board of Directors are encouraged to have a balance
of executive and non-executive directors including independent and those
representing minorities interests.
On the death of Mr. Kashif, the casual vacancy has occurred and the
directos of M/s. Global Polmer Limited are required to fill the casual
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ii.

ICPAP

vacancy. However, person so appointed shall hold office for the


remainder of the term of Mr. Kashif.
Minority shareholders as a class are facilitated to contest election of
directors by proxy solicitation, for which purpose the listed companies
shall:
Annex with the notice issued under Section 178 (4) of the
Companies Ordinance, 1984 a statement by a candidate from
amount the minority shareholders who seeks to contest election to
the board of directors, such statement shall include a profile of
candidate(s);
Provide information regarding members and shareholding
structure to the candidate(s) representing minority shareholders;
and
On a request by the candidate(s) representing minority
shareholders and at the cost of company, annex to the notice issued
under Section 178 (4) of the Companies Ordinance, 1984 an
additional copy of proxy form duly filled in by such candidate(s).

b) .
i.
ii.

iii.

Company Can Buy its Own Shares:


A listed company can buy its own shares.
Areas of Disclosure Containing Material Facts:
The areas of disclosure containing material facts as follows:
a. Justification for the purchases;
b. Source of funding;
c. Effect on the financial position of the company;
d. Nature and extent of the interest, if any, of every director, whether
directly or indirectly.
Particulars in Register of Shares Purchased:
Where a company has purchased its own shares it shall maintain a
register of shares so purchased and enter therein the following particulars,
namely:
1. Number of shares purchased;
2. Consideration paid for the shares purchased;
3. Mode of purchase;
4. The date of cancellation of such shares.

Question:a) Where a modaraba is floated for a fixed period or for a specific purpose, all the
directors of the modaraba company have to file a declaration with the registrar
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on expiry of the period fixed or accomplishment of the purpose of the modaraba,


as the case may be. Briefly discuss what is stated in this declaration.
b) What other document required to be accompanied with the declaration at (a)
above, and how much time is available for filing these documents with the
registrar?
Answer:Declaration with respect to the Winding-up of Modaraba:
a) The declaration of directors is verified by an affidavit and states that:
i.
They have made full enquiry about the affairs of the modaraba and
having done so have formed the opinion that,
ii.
Modaraba will be able to discharge its liabilities,
iii.
Pay the amount subscribed by the holders of modaraba certificates, and
their other dues in full within a period of 12 months from the date of
expiry of the period fixed for the modaraba or the accomplishment of the
purpose of the modaraba, as the case may be.
The declaration shall be supported by a report of the auditors of the modaraba on the
affairs of the modaraba. It is filed with and approved by Registrar within 90 days of the
date of expiry of the period fixed for the modaraba or the accomplishment of the
purpose of the modaraba, as the case may be.

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