LECTURE NOTES

COMPANY LAW
By
M. Danyal Khan

LLM CORPORATE LAW FACULTY OF SHARIAH & LAW

INTERNATIONAL ISLAMIC UNIVERSITY

CONTENTS
Page No. Course Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -Existing Regulatory & Adjucatory yste! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " #ntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -$or!ation and #ncor%oration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . & E''ect o' #ncor%oration and Conce%t o' e%arate Legal Entity . . . . . . . . . . . . . . . . . .-(inds o' Co!%anies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . )" Con*ersion o' Pri*ate Co!%any to Pu+lic Co!%any . . . . . . . . . . . . . . . . . . . . . . . . . ,Pros%ectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ," Ca%ital. Classes o' /ares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,0 Legal Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ") 1orro2ing and Registration o' C/arges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .", 3irectors and C/ie' Executi*e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, Meetings and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5" Li'ting t/e 6eil o' #ncor%oration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Re!edies o' /are/olders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Winding u% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80

EXISTING REGULATORY AND ADJUCATORY SYSTEMS UNDER THE COMPANIES ORDINANCE, 1984
---1e'ore discussing t/e regulatory syste! under t/e Co!%anies Ordinance. )0&4. it 2ould +e a%%ro%riate. i' so!e +ac9ground in'or!ation a+out suc/ syste! under t/e %re*ious Co!%any La2 i.e. Co!%anies Act. )0)" is outlined. T/e Co!%anies Act. )0)" 2/ic/ re!ained t/e Co!%any La2 in Pa9istan u%to &t/ Octo+er. )0&4. 2as re%ealed and re%laced +y t/e existing la2 i.e. Co!%anies Ordinance. )0&4. :nder t/e said %re*ious re%ealed Act. )0)". t/e jurisdiction in co!%anies !atters 2as 2it/ t/e res%ecti*e ;ig/ Courts. T/e %enalties under t/e Co!%any La2 2ere in t/e 'or! o' 'ine and also in t/e nature o' i!%rison!ent. #rres%ecti*e o' t/e nature o' %enalties. t/e cogni<ance o' all o''ences 2ere 2it/in t/e jurisdiction o' a Court not in'erior to t/at o' a Magistrate $irst Class. T/ere 2ere no suc/ %o2ers 2it/ t/e go*ern!ent 'unctionaries. A %ro*ision. /o2e*er. existed under t/e re%ealed Co!%anies Act. )0)" to t/e e''ect t/at t/e directors and !anagers o' a co!%any a%%re/ending any clai! against t/e! 'or negligence or de'ault !ay a%%roac/ t/e ;ig/ Court 'or see9ing relie'. T/e de'aulter directors used to a*ail t/is re!edy in order to a*oid any legal %roceedings against t/e! in t/e Court o' Magistrate $irst Class and suc/ a%%lications co!ing +e'ore t/e ;ig/ Courts 2ere dis%osed o' a'ter a notice to t/e Registrar and +y a2arding reasona+le cost 9ee%ing in *ie2 t/e nature and %eriod o' de'aults. T/is re!ained a nor!al %ractice 'or years. T/e syste!. +esides +eing out-dated. 'ailed to ser*e t/e %ur%ose and resultantly t/ere 2ere no cogni<ance o' o''ences. T/e reasons included= >i? t/ere 2ere extraordinary delay o' cases in t/e ;ig/ Courts= >ii? T/e $irst Class Magistrates +eing not con*ersant 2it/ t/e s%irit o' t/e Co!%any La2 did not ta9e a%%ro%riate action eit/er deli+erately or due to rus/ o' 2or9. Registrar +eing t/e %rosecutor 2as 'acing a lot o' incon*enience +y a%%earing +e'ore t/e. Courts in e*ery case. s%ending
"

a lot o' ti!e and all 2it/out %ositi*e results.

EXISTING ADJUDICATORY SYSTEM

:nder t/e Co!%anies Ordinance. )0&4. t/e 2ord @CourtA /as +een de'ined under clause )) o' su+-section >)? o' section , as underB )) @t/e CourtA !eans t/e court /a*ing jurisdiction under t/is Ordinance. ection 8 o' t/e said Ordinance %ertains to justi'ication o' t/e courts and it states C T/e Court /a*ing jurisdiction under t/is Ordinance s/all +e t/e ;ig/ Court /a*ing jurisdiction in t/e %lace at 2/ic/ t/e registered o''ice o' t/e co!%any is situate. ;o2e*er. t/e $ederal Do*ern!ent is e!%o2ered to noti'y in t/e O''icial Da<ette. a ci*il court to exercise %o2ers o' t/e ;ig/ Court under t/e Co!%anies Ordinance. As regards jurisdiction o' t/e courts. t/e co!%anies /a*ing t/eir registered o''ice 2it/in t/e territorial jurisdiction o' t/at courts 2ill 'all 2it/in suc/ jurisdiction. T/e a%%eal against t/e orders o' t/e ;ig/ Court is. as usual. 2it/ t/e u%re!e Court. #n t/e case 2/ere i!%rison!ent in addition to 'ine is %ro*ided 'or any contra*ention o' la2. it is to +e adjudicated +y a Court not in'erior to t/at o' Court o' ession. T/e %ro*isions regarding %o2ers o' t/e Court o' ession to adjudicate suc/ o''ences do not +ar t/e ;ig/ Court 'ro! exercising its %o2ers to adjudicate o''ences. T/e a%%eal against t/e orders o' Court o' ession is 2it/ t/e ;ig/ Court. Any o''ence 2/ere t/e %enalties are in t/e 'or! o' 'ine only. t/e %o2ers /as +een assigned to t/e regulatory aut/ority under ection 487 o' t/e Ordinance. uc/ aut/orities are >i? O''icers 2/o are inc/arge o' t/e Co!%any Registration O''ices in 2/ic/ t/e co!%any is registered. >ii? Registrar o' Co!%anies 2/o is /ead o' t/e Organi<ation 'or registration o' co!%anies and >iii? t/e ecurities and Exc/ange Co!!ission o' Pa9istan >t/e
4

Co!!ission? or an o''icer to 2/o! t/e Co!!ission /as delegated its %o2ers and 'unctions in t/is +e/al'. T/e distri+ution o' adjudicatory %o2ers is according to t/e si<e o' %rescri+ed 'ines as %ro*ided in t/e rele*ant sections read 2it/ ection 487.T/e 'ine as a'oresaid can only +e i!%osed a'ter gi*ing t/e %erson concerned an o%%ortunity to s/o2case and i' /e reEuests. a'ter %ro*iding /i! an o%%ortunity o' %ersonal /earing T/e a%%eal and re*ision against t/e orders %assed under ection 487 are !ade under ection 488 according to 2/ic/ a%%eals against t/e orders o' t/e o''icer inc/arge o' CROs are 2it/ t/e Registrar o' Co!%anies and against t/e orders o' t/e Registrar 2it/ t/e Co!!ission and against t/e orders o' t/e Co!!ission 2it/ t/e ;ig/ Court. #n !atters 2/ere %rosecution is to +e initiated in t/e Courts. t/e co!%laints are to +e 'iled t/roug/ t/e Co!!ission or t/e Registrar o' Co!%anies or !e!+ers and creditors o' t/e co!%anies /a*ing interest not less t/an 5F o' t/e issued s/are ca%ital. under ection 484. #n t/e case o' an order %assed +y t/e Registrar or an o''icer su+ordinate to t/e Co!!ission ot/er t/an an order under ection 487. t/e aggrie*ed %erson can eit/er go 'or re*ision or re*ie2 2it/ t/e Co!!ission or alternati*ely can go 'or an a%%eal +e'ore t/e ;ig/ Court against t/e original orders o' any aut/ority under ection 4&5 o' t/e Ordinance. According to sc/e!e o' Co!%anies Ordinance. )0&4. *arious %enalties are %rescri+ed 'or t/e de'aults under di''erent sections and 2/ere no %enalty is %ro*ided in any rele*ant section. t/e 'ine /as +een %rescri+ed under ection 40&. As indicated a+o*e. t/e adjudicating %o2ers /a*e +een *ested in t/e 'unctionaries. i' %enalty is in t/e 'or! o' 'ine only. 1ut i' t/ere is i!%rison!ent. t/e %o2er is 2it/ t/e Court o' accused. T/e existing adjudicatory syste! is not 'ree 'ro! de'ects and un'ortunately it /as 'ailed to ac/ie*e its o+jecti*es. $or exa!%le=
5

ession and t/e concerned Registrar +eco!es t/e

%rosecutor and t/e case is %re%aredG'iled a'ter gi*ing a s/o2 cause notice to t/e

>i?

ections & and 0 %ro*ide t/at t/ere s/all +e Co!%any 1enc/es in eac/ ;ig/ Court and Court 2ill dis%ose o' t/e !atters co!ing +e'ore it under t/e Co!%anies Ordinance. as ex%editiously as %ossi+le +ut not later t/an 0- days +ut un'ortunately t/e statutory %ro*isions are not +eing o+ser*ed. ind/ ;ig/ Court in a judg!ent /as declared t/ese %ro*isions as directory and not !andatory.

>ii?

T/e a!ounts o' 'ines are not 'ixed and t/e adjudicatory aut/ority !ay i!%ose a 'ine u%to a !axi!u! li!it %rescri+ed. 1esides. in !ost o' t/e de'aults. t/e 'ine is on daily +asis. T/is gi*es discretionary %o2ers to t/e 'unctionaries.

>iii?

T/e o''icers o' t/e Co!!ission are not Euali'ied and ex%erienced enoug/ in ta9ing cogni<ance o' t/e o''ences and it /as +een 'ound t/at t/e orders !ade +y t/e! are de'icient.

>i*?

T/e %roceedings initiated +y t/e Co!!ission are so!e ti!e 'rustrated as %arties succeed in getting t/e stay orders +y going to t/e Court in t/e 'or! o' 2rit %etitions.

SOME SUGGESTIONS >)? Pro*isions a+out constitution o' Co!%any 1enc/es and dis%osal o' cases 2it/in t/e %rescri+ed %eriod s/ould +e !ade !andatory. >,? Po2ers assigned to t/e ession Courts to adjudicate t/e cri!inal o''ences. s/ould +e 2it/ t/e ;ig/ Courts as t/e Courts o' session are not con*ersant 2it/ t/e %ro*isions o' Co!%any La2 and t/ey delay t/e cases. >"? Rates o' 'ines s/ould +e at 'lat rates so t/at t/e o''icers ta9ing cogni<ance !ay not exercise discretionary %o2ers.
7

>4?

T/e a!ounts o' 'ine s/ould +e 'ixed at /ig/er rates 9ee%ing in *ie2 rate o' in'lation and ensuring e''ect o' t/e %enalties.

SECURITIES AND EXCHANGE ORDINANCE, 1969

T/e %enalties %ro*ided under t/e ecurities and Exc/ange Ordinance are also in 'or! o' line and i!%rison!ent. As regards cogni<ance o' t/e o''ences. $ederal Do*ern!ent is e!%o2ered to i!%ose %enalty !axi!u! u%to t/irty t/ousand ru%ees 'or eac/ de'ault and in t/e case o' continuing de'ault. 'ine is at t/e rate o' one t/ousand ru%ees 'or e*ery day a'ter t/e issue o' suc/ order. $or contra*ening t/e %ro*isions o' section )5A >#nsider Trading? and section )8 >Pro/i+ition o' 'raudulent acts?. i!%rison!ent 'or a ter! o' t/ree years in addition to 'ine /as +een %ro*ided and suc/ o''ences are to +e tried in t/e Court o' ession on a re%ort in 2riting +y t/e $ederal Do*ern!ent. Any order %assed +y an o''icer or aut/ority su+ordinate to t/e $ederal Do*ern!ent exercising its %o2ers is su+ject to re*ision or re*ie2 +y t/e $ederal Do*ern!ent. All %o2ers and 'unctions o' t/e $ederal Do*ern!ent exce%t /ose rele*ant to a%%ealsGre*ision and 'ra!ing o' rules. etc. stand delegated to t/e Co!!issioner and C/air!an. ecurities and Exc/ange Co!!ission o' Pa9istan. :n'ortunately no

%rosecution %roceedings /a*e e*er +een initiated in t/e Court o' ession and only 'e2 cases o' 'ine can +e Euoted. As stated a+o*e. any order %assed +y an o''icer su+ordinate to t/e $ederal Do*ern!ent is su+ject to a re*ision +y t/e $ederal Do*ern!ent +ut in suc/ cases re*ision %etitions are not dis%osed o' in ti!e +y t/e $inance ecretary due to

%re-occu%ation in !atters o' national i!%ortance and ot/er li!iting 'actors. T/e syste! is not 2or9ing %ro%erly and needs i!%ro*e!ent in uni'or!ity 2it/ t/at 2/ic/ !ay +e reco!!ended in t/e case o' Co!%anies Ordinance.

&

FORMATION AND INCORPOORATION

Incorporation of a Private Company Limited by Share Capital

WHO CAN FORM ection )5 %ro*ides t/at any one or !ore %ersons. associated 'or any la2'ul %ur%ose. !ay 'or! a %ri*ate co!%any +y su+scri+ing t/eir na!es to t/e Me!orandu! o' Association and +y co!%lying 2it/ t/e reEuire!ents o' t/e Ordinance.

TYPE OF COMPANY A co!%any incor%orated !ay +e eit/erB >i? a co!%any /a*ing s/are ca%ital 2it/ t/e lia+ility o' its !e!+ers li!ited +y t/e !e!orandu! to t/e extent o' a!ount re!aining un%aid on t/e s/ares /eld +y t/e!= or >ii? a co!%any li!ited +y guarantee /a*ing t/e lia+ility o' its !e!+ers li!ited +y t/e Me!orandu! to suc/ a!ount as t/e !e!+ers !ay underta9e.

INCORPORATION ection ", %ro*ides t/at on registration o' t/e Me!orandu! o' a co!%any. t/e Registrar s/all certi'y under /is /and t/at t/e co!%any incor%orated and. in t/e case o' a li!ited co!%any. t/at t/e co!%any is li!ited +y s/ares or guarantee. as t/e case !ay +e.

$or registration o' a co!%any. docu!ents re'erred to in section "- o' t/e Co!%anies Ordinance. )0&4 are reEuired to +e %resented +e'ore t/e Registrar o' Co!%anies /a*ing jurisdiction 'or t/e %ur%ose. NAME T/e %ro!oters are reEuired to !a9e an a%%lication to t/e Registrar 'or con'ir!ing a*aila+ility o' na!e. T/e na!e s/all not +e undesira+le as %er t/e guidelines issued +y t/e Co!!ission in t/is regard.

INSTANCES OF NAME BEING UNDESIRABLE

). ,.

T/e %ro%osed na!e too closely rese!+les t/e na!e o' any existing co!%any. T/e %ro%osed na!e too closely rese!+les t/e na!e o' a co!%any under 2inding u% or 2/ic/ /as recently gone into liEuidation.

".

T/e %ro%osed na!e includes na!e o' any 2ell esta+lis/ed organi<ation not connected 2it/ t/e co!%any.

4.

T/e co!%any includes t/e na!e o' any 2ell esta+lis/ed grou% o' co!%anies 2it/out t/eir consent.

5.

T/e %ro%osed na!e di''ers 'ro! t/e existing registered co!%any only +y addition or o!ission o' t/e 2ords li9e HNe2I or HPa9I or HModernI etc.

7.

T/e %ro%osed na!e closely rese!+les esta+lis/ed +rand na!e o' %roduct o' any co!%any or closely rese!+les or identical to t/e nic9 na!e o' t/e co!%any +y 2/ic/ it is 2ell 9no2n in t/e !ar9et. )-

8.

T/e %ro%osed na!e contains na!e or surna!e o' any %erson unconnected 2it/ t/e 'or!ation o' t/e co!%any 2it/out /is consent.

&.

T/e %ro%osed na!e contains 2ords registered as trade !ar9 2it/out a%%ro*al o' t/e trade-!ar9 o2ner.

0.

T/e %ro%osed na!e indicates %atronage or association 2it/ any national /ero 2it/out any reasona+le connection.

)-. )). ),. )".

T/e %ro%osed na!e does not indicate %ro%osed acti*ities o' t/e co!%any. T/e na!e o' t/e co!%any is !isleading as to its acti*ities. T/e %ro%osed na!e 'alsely indicates association o' go*ern!ent. T/e %ro%osed na!e contains t/e 2ord Hco-o%erati*eI in Englis/ or si!ilar 2ord in any ot/er language.

)4.

T/e %ro%osed na!e contains na!e o' any 'oreign country or 'oreign co!%any 2it/out any colla+oration.

T/e a%%lication is reEuired to +e su+!itted in $or! No.) o' t/e Co!%anies Deneral >Pro*isions & $or!s? Rules. )0&7 along 2it/ t/e c/allan e*idencing de%osit o' 'ee 'or registration calculated in lig/t o' t/e rates %rescri+ed in c/edule ixt/ to t/e Co!%anies Ordinance. )0&4. T/e a%%lication s/all contain na!es o' all t/e %ro!oters and t/e sa!e %ersons s/all +e t/e signatories to t/e Me!orandu! o' Association su+!itted at t/e ti!e o' registration. ))

BUSINESS T/e co!%any !ay +e registered 'or any la2'ul %ur%ose only and i' a co!%any is registered 2it/ unla2'ul %ur%ose it s/all not +e construed as legali<ation o' unla2'ul o+jecti*es +y t/e Registrar. T/e certi'icate o' incor%oration issued +y t/e Registrar a'ter registration o' t/e co!%any is not a %roo' o' t/e 'act t/at t/e o+ject o' t/e co!%any is legal +ut it is a conclusi*e e*idence o' t/e 'act t/at all t/e statutory reEuire!ents %recedent or incidental to t/e registration o' t/e co!%any /a*e +een duly co!%lied 2it/. MEMORANDUM OF ASSOCIATION ection )7 %ro*ides t/at t/e Me!orandu! o' t/e co!%any s/all contain 'ollo2ing clauses(a) Name clause.- Na!e o' t/e co!%any. as a%%ro*ed +y t/e Registrar. ending 2it/ t/e 2ord @>Pri*ate? Li!itedA or @Li!itedA only. unless a license /as +een o+tained under section 4, o' t/e Ordinance. (b) Registered Office Clause.- T/e Pro*ince ar t/e %art o' Pa9istan not 'or!ing %art o' a %ro*ince as t/e case !ay +e. in 2/ic/ registered o''ice o' t/e co!%any is %ro%osed to +e situated. (c) Objects Clause.- O+ject clause di*ided into 'ollo2ing su+-clauses>i? Main Objects.- T/e !ain o+jects !eans t/e %ur%ose 'or 2/ic/ t/e co!%any is 'or!ed or t/e +usiness o' t/e co!%any 2/ic/ it %ro%oses to carry on i!!ediately on incor%oration. ),

>ii?

Incidental Objects.- T/is clause is an ena+ling clause 2/ic/ eEui%s t/e co!%any 2it/ %o2ers to do certain t/ings 2/ic/ are /el%'ul andGor necessary in attaining t/e !ain o+jects o' t/e co!%any.

>iii?

Other Objects.- T/ere is no !ajor di''erence +et2een t/e !ain o+jects and ot/er o+jects exce%t t/e 'act t/at t/e co!%any %ro%oses to +e engaged in t/e acti*ities contained in t/e !ain o+jects clause i!!ediately on incor%oration 2/ile it !ay ta9e u% any o' t/e acti*ity? contained in t/e ot/er o+jects clauses at any ti!e in 'uture.

ARTICLES OF ASSOCIATION ection ,7 %ro*ides t/at a co!%any s/all +e registered 2it/ its o2n articles. u+ section >,? o' section ,7 %ro*ides t/at i' articles o' a co!%any do not co*er all t/e !atters co*ered in Ta+le A. contents o' Ta+le A 2ould +e o%erati*e to t/e extent t/ey /a*e not +een excluded or !odi'ied. T/e articles s/all also +e %rinted. di*ided into %aragra%/s nu!+ered consecuti*ely and signed +y eac/ su+scri+er to t/e !e!orandu! in t/e sa!e !anner as in t/e case o' !e!orandu!. T/e !e!orandu! and articles o' a co!%any li!ited +y guarantee and not /a*ing s/are ca%ital s/all +e in t/e 'or! contained in Ta+le C o' c/edule ) to t/e Ordinance or in any ot/er 'or! near t/ereto 2/ile t/e !e!orandu! and articles o' a co!%any li!ited +y guarantee and /a*ing s/are ca%ital s/all +e in t/e 'or! o' Ta+le 3 o' c/edule ) to t/e Ordinance.

)"

Any %ro*ision re%ugnant to t/e %ro*isions o' t/e Ordinance contained in t/e !e!orandu! and articles o' association s/all +e *oid. > ection 7?

)4

KINDS OF COMPANIES

1.

COMPANIES LIMITED BY SHARES AND BY GUARANTEE

Registered co!%anies !ay +e di*ided into t2o categories. t/ose li!ited +y s/ares and t/ose li!ited +y guarantee. A co!%any li!ited +y s/ares /as t/e lia+ility o' its !e!+ers li!ited +y t/e co!%anyIs !e!orandu! >t/e !ain docu!ent in its constitution? to t/e a!ount. i' any. un%aid on t/e s/ares /eld +y t/ose !e!+ers. T/us 2/ere a !e!+er /olds s/ares 2/ic/ /e /as co!%letely %aid 'or. /e /as no 'ear t/at u%on a liEuidation /e 2ould +e /eld %ersonally lia+le 'or t/e de+ts o' t/e co!%any. A co!%any li!ited +y guarantee /as t/e lia+ility o' its !e!+ers li!ited +y its !e!orandu! to suc/ a!ount as t/e !e!+ers !ay /a*e agreed to contri+ute to t/e assets o' t/e co!%any in t/e e*ents o' its +eing 2ound u%. T/e sort o' co!%any 2/ic/ is usually li!ited +y guarantee is one 2/ere ca%ital is %ro*ided +y 'ees %aid in ad*ance suc/ as sc/ool run +y c/arita+le $oundations and 2/ere +ecause 'unds are %ro*ided in ad*ance t/ere is no need 'or !e!+ers to %ro*ide t/e 2or9ing ca%ital. 2. LIMITED AND UNLIMITED COMPANIES

Anot/er di*ision o' co!%anies is into li!ited and unli!ited co!%anies. As /as just +een seen. li!ited co!%anies are co!%anies 2/ose !e!+ersI lia+ility is li!ited eit/er +y s/ares or +y guarantee. #n ot/er 2ords. t/e !e!+ers o' suc/ co!%anies 9no2 'ro! t/e outset o' t/eir association 2it/ t/e co!%any 2/at t/e to% line o' t/eir lia+ility is. :nli!ited co!%anies. as t/e na!e i!%lies. are co!%anies 2/ere t/ere is no li!it on t/e lia+ility o' t/eir !e!+ers. #n t/e e*en o' an unli!ited co!%any +eing 2ound u% in circu!stances 2/ere its lia+ility exceed its assets. in ot/er 2ords 2/ere it is insol*ent. t/e liEuidator 2ill go to t/e !e!+ers as9ing 'or a contri+ution pro rata to !a9e good t/e de'icit. T/is lia+ility )5

only arises 2/en t/e co!%any is 2ound u%. and t/e creditors o' t/e co!%any /a*e no rig/t to sue t/e !e!+ers direct. T/e reason 2/y +usiness!en c/oose to /a*e unli!ited co!%anies is usually +ecause suc/ co!%anies enjoy t/e %ri*ilege o' not /a*ing to deli*er annual accounts to t/e Registrar o' Co!%anies or 'or certain tax +ene'its. T/is allo2s t/e! to !aintain a le*el o' secrecy 2/ic/ is not a*aila+le to %u+lic li!ited co!%anies 2/ic/ are under an o+ligation to 'ile annual accounts. 3.
GROUPS OF COMPANIES: HOLDING AND SUBSIDIARY

COMPANIES

o!eti!es co!%anies o%erate in grou%s. 2it/ one co!%any. 9no2n as t/e /olding co!%any. /olding s/ares in ot/er co!%anies. 9no2n as su+sidiary co!%anies. o!eti!es students 'ind t/is di''icult to understand= t/e 9ey is to a%%reciate t/at !e!+ers/i% o' a co!%any is not li!ited to /u!an +eings= co!%anies can also +e !e!+ers o' co!%anies. T/ere are a *ariety o' reasons 'or t/is. t/e !ain one +eing t/at 2/ere a +usiness enter%rise 2ants to carry on a *ariety o' di*erse acti*ities it is so!eti!es ad!inistrati*ely con*enient to do so t/roug/ se%arate su+sidiary co!%anies eac/ o' 2/ic/ su+stantially !anages its o2n a''airs. A co!%any is said +asically to +e a su+sidiary o' anot/er co!%any i'B ). t/at ot/er co!%any eit/er= >a? >+? 4. is a !e!+er o' it and controls t/e co!%osition o' its +oard o' directors. or /olds or controls !ore t/an /al' o' t/e *oting ca%ital o' t/at co!%any.

HOLDING COMPANY

A co!%any or +ody cor%orate is said to +e t/e /olding co!%any o' anot/er co!%any i' it directly or indirectly controls. +ene'icially o2ns or /olds !ore t/an 'i'ty %er cent o' *oting

)7

securities or ot/er2ise /as %o2er to elect and a%%oint !ore t/an 'i'ty %er cent o' directors o' so!e ot/er co!%any.

)8

5.

PRIVATE COMPANY

T/e articles o' association o' a %ri*ate co!%any !ust contain %ro*isions in res%ect o' t/e 'ollo2ing restriction. li!itation and %ro/i+itionB >a? >+? Restriction on !e!+ersI rig/t o' 'ree trans'era+ility o' s/ares= Li!itation on nu!+er o' !e!+ers u% to 'i'ty excluding t/ose 2/o /old s/ares o' t/e co!%any since t/ey 2ere in t/e e!%loy!ent o' t/e co!%any and continue to /old t/e s/ares= >c? Pro/i+ition o' in*itation to %u+lic 'or in*iting su+scri%tion o' s/ares in or de+entures o' t/e co!%any.

6.

PUBLIC COMPANY

A co!%any t/e articles o' 2/ic/ do not contain any o' t/e restriction. li!itation and %ro/i+ition as a%%lica+le in t/e case o' a %ri*ate co!%any is a %u+lic co!%any. ection ,>)?>"-? de'ines t/e %u+lic co!%any as underBH%u+lic co!%anyI !eans a co!%any 2/ic/ is not a %ri*ate co!%any. >i? #t cannot co!!ence +usiness 2it/out o+taining certi'icate 'or co!!ence!ent o' +usiness 'ro! t/e Registrar o' Co!%anies. >ii? #t cannot exercise +orro2ing %o2ers 2it/ t/e certi'icate 'or co!!ence!ent o' +usiness.

)&

7.

DOMESTIC OCMPANY

A co!%any incor%orated in Pa9istan is do!estic co!%any.

8.

FOREIGN COMPANY

A co!%any 2/ic/ /as +een incor%orated as %er la2 o' any country ot/er t/an Pa9istan and /a*ing a %lace o' +usiness in Pa9istan is 9no2n as a 'oreign co!%any.

9.

SUBSIDIARY COMPANY

A co!%any is said to +e su+sidiary o' anot/er co!%any i' anot/er co!%any or +ody cor%orate directly or indirectly controls. +ene'icially o2ns or /olds !ore t/an 'i'ty %er cent o' its *oting securities or ot/er2ise /as %o2er to elect and a%%oint !ore t/an 'i'ty %er cent o' its directors.

ADVANTAGES OF A COMPANY OVER A FIRM T/e %rinci%al %oints o' distinction +et2een a co!%any and a 'ir! or %artners/i% are as 'ollo2sB 1. A co!%any is incor%orated under t/e Co!%anies Ordinance. )0&4. #t co!es into existence +y o%eration o' la2 2/ile t/e %artners/i% is t/e result o' !utual agree!ent +et2een t/e %artners and it is go*erned +y t/e %ro*isions o' Partners/i% Act )0",.

)0

2.

A co!%any is incor%orated +y registration 2it/ t/e Registrar o' Co!%anies 2/ile a 'ir! !ay +e registered 2it/ t/e Registrar o' $ir!s +ut it is not co!%ulsory. A 'ir! can co!e into existence 2it/out 'or!al registration.

3.

A co!%any is a distinct %erson 'ro! its !e!+ers 2/ile a %artners/i% 'ir! is not distinct 'ro! t/e se*eral %ersons 2/o co!%ose it.

4.

#n %artners/i% t/e %ro%erty o' t/e 'ir! is t/e %ro%erty o' t/e indi*iduals co!%rising it 2/ile in co!%any it +elongs to t/e co!%any and to t/e co!%anyIs !e!+ers.

5.

Creditors o' t/e 'ir! are t/e creditors o' t/e indi*idual %artners and a decree against t/e 'ir! can +e executed against t/e %artners jointly and se*erally 2/ile t/e creditors o' t/e co!%any can %roceed against t/e co!%any only and not against its !e!+ers.

Partners o' t/e 'ir! are its agents 2/ile t/e !e!+ers o' t/e co!%any are not its agents.

!.

A %artner cannot contract 2it/ t/e 'ir! 2/ile a !e!+er can contract 2it/ t/e co!%any.

".

PartnerIs s/are in t/e 'ir! is not trans'era+le 2/ile t/e s/are in t/e co!%any is a trans'era+le asset.

#.

Lia+ility o' a s/are/older is li!ited to t/e no!inal *alue o' t/e s/ares /eld. W/ereas in a 'ir! e*ery %artner is jointly and se*erally lia+le 'or all de+ts incurred +y t/e 'ir!. ,-

1$.

A s/are/older /as no %o2er to +ind t/e co!%any or to +ind t/e ot/er s/are/olders. A %artner can +ind t/e 'ir! and /is co-%artners so long as /e acts 2it/in t/e ordinary sco%e o' +usiness.

11.

A s/are/older /as no rig/t to ta9e %art in t/e !anage!ent o' a co!%any. All %artners can ta9e %art in t/e !anage!ent o' t/e +usiness.

12.

A s/are/older /as no rig/t to ins%ect t/e +oo9s exce%t to t/e extent allo2ed +y t/e articles. or under t/e Co!%anies Ordinance. )0&4. All %artners /a*e access to its +oo9s.

13.

A co!%any !ust 9ee% %ro%er +oo9s o' accounts under t/e Co!%anies Ordinance. )0&4. T/ere is no statutory %ro*ision reEuiring a %artners/i% 'ir! to do so.

14.

A co!%any !ust get its accounts audited. T/ere is no statutory %ro*ision in t/e Partners/i% Act. )0",.

15. i? ii? iii? 1 .

A co!%anyIs existence can +e +roug/t to an end only +y +eingB 3issol*ed +y order o' t/e Court 2inding u% in a legal !anner its na!e +eing struc9 o'' +y t/e Registrar A co!%any +eing legal existence goes on irres%ecti*e o' t/e deat/ or retire!entG cessation o' a !e!+er. 3eat/ or retire!ent o' a %artner dissol*es t/e 'ir! in t/e a+sence o' a contract to t/e co!%any. ,)

1!.

T/e li'e s%an o' t/e co!%any does not de%end on li'e s%an o' its !e!+ers 2/ile t/e constitution o' t/e 'ir! c/anges 2it/ t/e c/ange in %artners 'or any reason.

1".

T/e nu!+er o' %artners in a 'ir! cannot exceed +eyond ,- in any +usiness 2/ile t/ere is no restriction on t/e nu!+er o' !e!+ers in t/e %u+lic co!%any. T/e nu!+er o' !e!+ers in a %ri*ate co!%any >excluding %ast and %resent e!%loyee !e!+ers? s/all not exceed 5-.

1#. seal. 2$. %artners.

A co!%any /as its co!!on seal 2/ile t/e 'ir! does not /a*e any suc/

A co!%any can sue and +e sued +y ot/ers 2/ile a 'ir! can act t/roug/ its

,,

CONVERSION OF PRIVATE COMPANY TO PUBLIC COMPANY

#' a co!%any. +eing a %ri*ate co!%any. alters its articles in suc/ a !anner t/at t/ey no longer include t/e %ro*isions 2/ic/. under clause >,&? o' su+section >)? o' section ,. are reEuired to +e included in t/e articles o' a co!%any in order to constitute it a %ri*ate co!%any. Ta9e a decision in t/e !eeting o' t/e 1oard o' 3irectors o' t/e co!%any 'or con*ersion o' t/e %ri*ate co!%any into %u+lic co!%any T/e nu!+er o' !e!+ers and directors /a*e to +e increased to !ini!u! "

T/e 1oard s/all ta9e a decision a+outB Con*ersion o' co!%any into %u+lic co!%any Alteration o' articles o' association o' t/e co!%any to !a9e t/e! suita+le 'or a %u+lic co!%any Con*ening o' general !eeting

Con*ene t/e general !eeting and to get t/e 'ollo2ing !atters a%%ro*ed +y 2ay o' @ %ecial ResolutionA. %ecial resolution /as +een de'ined under

section ,>)?>"7? o' t/e Co!%anies Ordinance. )0&4B @s%ecial resolutionA !eans a resolution 2/ic/ /as +een %assed +y a !ajority o' not less t/an t/ree-'ourt/s o' suc/ !e!+ers entitled to *ote as are %resent in %erson or +y %roxy at a general !eeting o' 2/ic/ not less t/an t2enty-one days notice s%eci'ying t/e intention to %ro%ose t/e resolution as a s%ecial resolution /as +een duly gi*en.

,"

Pro*ided t/at. i' all t/e !e!+ers entitled to attend and *ote at any suc/ !eeting so agree. a resolution !ay +e %ro%osed and %assed as a s%ecial resolution at a !eeting o' 2/ic/ less t/an t2enty-one days notice /as +een gi*en. Con*ersion o' t/e co!%any into %u+lic co!%any Alterations o' articles o' association C/ange o' na!e conseEuent to t/e deletion o' t/e 2ord @Pri*ateA A'ter t/e general !eeting 'ile t/e 'ollo2ing resolution 2it/ t/e Registrar %ecial resolution on t/e %rescri+ed $or! ,7 under section )8, o' t/e Co!%anies Ordinance. )0&4. C/ange o' na!e conseEuent to t/e deletion o' 2ord @Pri*ateA Along2it/ t/e a+o*e resolution also arrange 'or 'iling a state!ent o' lieu o' %ros%ectus in %ursuance o' section 45 o' t/e Co!%anies Ordinance. )0&4. PUBLIC COMPANY TO PRIVATE COMPANY A %u+lic co!%any cannot +e con*erted into %ri*ate co!%any 2it/out o+taining consent o' t/e Registrar in t/is regard. Circu!stances in 2/ic/ a %u+lic co!%any is nor!ally con*erted into a %ri*ate co!%anyB Reduction o' nu!+er o' !e!+ers +elo2 t/ree ,4

T/e co!%anyIs +usiness is not ex%ected to cross Rs.)-.-crores turno*er.

PROSPECTUS

#' a co!%any see9s to raise ca%ital +y a direct o''er o' securities to t/e %u+lic. t/e docu!ent or ad*ertise!ent 2/ic/ sets out t/e o''er and !a9es t/e in*itation to su+scri+e is called a prospectus. > ee t/e de'inition in ection ,>)?>,0?.

A %ros%ectus !ust +e registered 2it/ t/e Registrar o' Co!%anies +e'ore it is issued to t/e %u+lic.

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PROSPECTUS
#' a co!%any see9s to raise ca%ital +y a direct o''er o' securities to t/e %u+lic. t/e docu!ent or ad*ertise!ent 2/ic/ sets out t/e o''er and !a9es t/e in*itation to su+scri+e is called a %ros%ectus. E*ery %ros%ectus issuedB a? +? +y or on +e/al' o' a co!%any= or +y or on +e/al' o' any %erson 2/o /as +een engaged or interested in t/e 'or!ation o' a co!%any s/all state t/e !atters s%eci'ied in sections ). , & " o' Part # o' t/e econd c/edule to t/e Co!%anies Ordinance. )0&4 T/e 2ord Pros%ectus /as +een de'ined under clause >,0? o' su+-section >)? o' section , o' t/e Co!%anies Ordinance as underB>,0? @%ros%ectusA !eans any docu!ent descri+ed or issued as %ros%ectus. and includes any notice. circular. ad*ertise!ent. or ot/er co!!unication. in*iting o''ers 'ro! t/e %u+lic 'or t/e su+scri%tion or %urc/ase o' any s/ares in. or de+entures o'. a +ody cor%orate. or in*iting de%osits 'ro! t/e %u+lic. ot/er t/an de%osits in*ited +y a +an9ing co!%any or a 'inancial institution a%%ro*ed +y t/e $ederal Do*ern!ent. 2/et/er descri+ed as %ros%ectus or ot/er2ise=

A su''icient nu!+er o' co%ies o' t/e %ros%ectus issued under su+-rule >)? o' section 5" o' t/e Ordinance !ust +e !ade a*aila+le at t/e registered o''ice o' t/e co!%any. 2it/ t/e toc9 Exc/ange at 2/ic/ co!%any is listed and 2it/ t/e +an9ers to issue.

T/e %ros%ectus is also reEuired to +e %u+lis/ed atleast in one urdu and one Englis/ daily ne2s%a%er

A %ros%ectus !ust co!%ly 2it/ t/e reEuire!ents o' sections 5, C 58 o' t/e Co!%anies Ordinance. )0&4.

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A %ros%ectus !ust +e registered 2it/ t/e Registrar o' Co!%anies under su+-section >"? o' section 58 o' t/e Co!%anies Ordinance. )0&4

A %ros%ectus co!%lying 2it/ t/e reEuire!ents o' sections 5, C 58 o' t/e Co!%anies Ordinance !ust acco!%any a 'or! o' a%%lication duly s%eci'ied +y t/e Co!!ission 'or su+scri%tion to s/ares or de+entures o' a co!%any.

T/e di*ision o' co!%anies onto %u+lic and %ri*ate en*isages t/at t/e 'or!er are li9ely to try to raise ca%ital 'ro! t/e %u+lic. Denerally t/is ta9es t/e 'or! o' an issue o' s/ares or de+entures to t/e %u+lic. No %ri*ate co!%any !ay issue or cause to +e issued any ad*ertise!ent o''ering securities to t/e %u+lic. A %ri*ate co!%any !ay not a%%ly 'or listing o' its securities on t/e toc9 Exc/ange.

TYPE OF FLOATATION /ares or de+entures !ay +e o''ered to t/e %u+lic in t/ree 2ays C ). ,. ". +y a direct in*itation +y an o''er 'or sale. or +y a %ri*ate %lace!ent

%&'(c) &*+&)a)&,* T/is occurs 2/ere t/e co!%any itsel' ad*ertises its s/ares 'or su+scri%tion and !e!+ers o' t/e general %u+lic 2/o 2is/ to acEuire t/e! a%%ly direct to t/e co!%any.

O--(' -,' .a/( T/is is 2/ere t/e co!%any initially issues s/ares to t/e existing s/are/olders or to certain institutions and t/en o''load suc/ s/ares directly to t/e %u+lic. ection 7, o' t/e Co!%anies Ordinance %ro*ides t/at C No %erson 2/o /olds !ore t/an ten %ercent o' t/e s/ares or de+entures o' a co!%any s/all o''er 'or sale to t/e %u+lic any s/are or de+enture /eld +y /i! exce%t 2it/ t/e a%%ro*al o' t/e Co!!ission= and

,8

Any docu!ent +y 2/ic/ an o''er 'or sale to t/e %u+lic is !ade +y any suc/ %erson s/all. 'or all %ur%oses. +e dee!ed to +e %ros%ectus issued +y t/e co!%any. and all rules o' la2 as to t/e contents. 'iling and registration o' a %ros%ectus s/all a%%ly. 0'&+a)( 1/ac(2(*) T/is usually occurs 2/en a co!%any decides to issue a s!all %art o' its ca%ital to certain s%eci'ic co!%any or institutions or so!e 'oreign in*estor. #n de*elo%ed countries suc/ s/ares are allotted to an issuing /ouse and t/en it in*ites its clients to %urc/ase s/ares 'ro! it at a /ig/er %rice. #n ot/er 2ords. t/ey %lace s/ares rat/er t/an in*iting a%%lications 'ro! t/e general %u+lic. T/is %rocedure tends to +e used 'or s!all 'loatation. #t is o+*iously !uc/ Euic9er and c/ea%er t/an an o''er 'or sale. 0'&2a'3 O--(' A %ri!ary o''er is an ad*ertise!ent issued in*iting %ersons to su+scri+e 'or s/ares or any ot/er security issued +y a co!%any. S(c,*4a'3 O--(' econdary o''er is an ad*ertise!ent directly or indirectly in*iting t/e acEuisition o' securities in*ol*ed. t/oug/ not directly 'ro! t/e issuer. A11',+a/5 &..6( a*4 '(7&.)'a)&,* ,- 0',.1(c)6. (S. 5!) No listed co!%any. and no co!%any 2/ic/ %ro%oses to !a9e an a%%lication to stoc9 exc/ange o' listing o' its securities and no ot/er %erson s/all issue. circulate or %u+lis/ any %ros%ectus or ot/er docu!ent o''ering 'or su+scri%tion. unless a%%ro*al o' t/e Co!!ission /as +een o+tained 2it/in a %eriod sixty days %receding t/e date o' its issue. T/e Co!!ission !ay. 2/ile according a%%ro*al. i!%ose suc/ conditions as it !ay dee! necessary. No %ros%ectus s/all +e issued +y or on +e/al' o' a co!%any unless. on or +e'ore t/e date o' its %u+lication. t/ere /as +een deli*ered to t/e registrar a co%y t/ereo' signed +y all t/e directors.

,&

C&+&/ /&ab&/&)3 -,' 2&.8.)a)(2(*) &* 1',.1(c)6. (S.5#) T/ere are statutory re!edies a*aila+le in res%ect o' !isre%resentation or any o!ission in 2/ere a %ros%ectus in*ites %ersons to su+scri+e 'or s/ares or de+entures o' a co!%any. t/e 'ollo2ing %ersons s/all +e lia+le to %ay co!%ensation to e*ery %erson 2/o su+scri+es 'or any s/ares on t/e 'ait/ o' t/e %ros%ectus 'or any loss or da!ages /e !ay /a*e sustained +y reasons o' any untrue state!ent. >a? >+? >c? >d? t/e issuer o' t/e securities e*ery %erson 2/o is a director o' t/e co!%any e*ery %erson 2/o is a %ro!oter o' t/e co!%any e*ery %erson 2/o /as gi*en consent to t/e issue o' t/e %ros%ectus. uc/ %ersons include auditor. legal ad*iser. attorney. solicitor. +an9er or +ro9er. +eing a !e!+er o' a stoc9 exc/ange.

C'&2&*a/ /&ab&/&)3 -,' 2&.8.)a)(2(*) &* 1',.1(c)6. (S. $) W/ere a %ros%ectus includes any untrue state!ent. e*ery %erson 2/o signed or aut/ori<ed t/e issue o' %ros%ectus s/all +e %unis/a+le 2it/ i!%rison!ent 'or a ter! o' t2o years or 2it/ a 'ine 2/ic/ !ay extend to ten t/ousand ru%ees or 2it/ +ot/. #t is a cri!inal o''ence to !a9e state!ent. %ro!ise or 'orecast 2/ic/ is 9no2n to +e !isleading. 'alse or dece%ti*e or 2/ic/ dis/onesty conceals a !aterial 'act. #t is also an o''ence to !a9e suc/ state!ent rec9lessly. A//,)2(*) 3irectors o' a co!%any are e!%o2ered to issue s/ares and to !a9e allot!ent o' categories o' s/ares. T/e aut/ority !ust +e exercised +y !eans o' a resolution %assed at t/eir !eeting. @T/e allot!ent o' s/ares to an a%%lication is an acce%tance +y t/e co!%any o' its o''er to ta9e s/ares= it co!%letes a +inding and en'orcea+le contract +et2een t/e!. +ut an a%%licant does not +eco!e !e!+er o' a co!%any until /is na!e is entered on t/e s/are register.A

,0

0'(8(21)&,* '&79). A %re-e!%tion rig/t is a rig/t gi*en to t/e s/are/olders o' a co!%any to su+scri+e 'or any ne2 s/ares t/at t/e co!%any issues in %ro%ortion to t/eir existing s/are/oldings. #t is !ost o'ten 'ound in relation to eEuity s/ares and nor!ally a%%lies only to ne2 issues o' s/ares o' t/e sa!e class. #n t/is 2ay. t/e +alance o' control +et2een t/e res%ecti*e s/are/olders can +e 9e%t constant. A %re-e!%tion rig/t !ay also %re*ent t/e H2ateringI or dilution in *alue o' existing s/ares i' t/e ne2 s/ares are issued at a %rice 2/ic/ is +elo2 t/eir true *alue. C(')&-&ca)(.: A s/are certi'icate is %ri!a 'acie e*idence o' t/e !e!+ers/i% o' t/e s/ares +y t/e %erson na!ed t/erein as a s/are/older. E*ery co!%any s/all. 2it/in 0- days a'ter t/e allot!ent o' any o' its s/ares. and 2it/in 45 days a'ter t/e a%%lication 'or t/e registration o' t/e trans'er o' any suc/ s/ares. co!%lete and /a*e ready 'or deli*ery t/e certi'icates o' all s/ares allotted or trans'erred. and unless sent +y %ost or deli*ered to t/e %erson entitled t/ereto. 2it/in t/at %eriod. s/all gi*e notice o' t/is 'act to t/e s/are/olders. Pro*ided t/at. t/e co!%any s/all. 2it/in 5 days a'ter an a%%lication is !ade 'or t/e registration o' t/e trans'er o' any s/ares. to a central de%ository. register suc/ trans'er in t/e na!e o' t/e central de%ository. I..6( ,- %61/&ca)( C(')&-&ca)(. A du%licate o' certi'icate o' s/ares issued under section 84 s/all +e issued +y t/e co!%any 2it/in 45 days 'ro! t/e date o' a%%lication +y a s/are/older. (S(c)&,* !5) (S(c)&,* !4)

"-

T'a*.-(' ,- .9a'(. a*4 4(b(*)6'( An a%%lication 'or registration o' t/e trans'er o' s/ares and de+entures in a co!%any !ay +e !ade eit/er +y t/e trans'errer or t/e trans'eree. and su+ject to t/e %ro*isions o' section 87. t/e co!%any s/all enter in its register o' !e!+ers. t/e na!e o' trans'eree in t/e sa!e !anner and su+ject to t/e sa!e conditions as i' t/e a%%lication 2as !ade +y t/e trans'eree.

")

CAPITAL, CLASSES OF SHARES

Dentle!en today 2e s/all +e loo9ing at t/e !eaning o' ca%ital. Put at its si!%lest. t/is is t/e !oney 2it/ 2/ic/ t/e co!%any o%erates. #t can ta9e t2o 'or!s. s/are ca%ital and loan ca%ital. /are ca%ital is t/e !oney %ro*ided +y t/e !e!+ers 'or t/e o%eration o' t/e

co!%any. Loan ca%ital is !oney +orro2ed 'or t/e %ur%ose o' o%erating t/e +usiness. 2/et/er it +e +orro2ed 'ro! a +an9 or ot/er lending institutions or 'ro! indi*idual certi'icate /olders. T9( 2(a*&*7 ,- ca1&)a/: T/e di''iculty arises 2/en 2e loo9 at t/e co!%anyIs +alance s/eet and 'ind t/at ca%ital is s/o2n as a lia+ility. T/is /ig/lig/ts t/e essential di''erence +et2een t/e t/in9ing o' t/e la2yer and t/e t/in9ing o' t/e accountant. T/e la2yer loo9s u%on ca%ital as an asset in t/e sense t/at it is so!et/ing 2/ic/ t/e co!%any uses to !a9e 'urt/er !oney. T/e accountant loo9s u%on it as t/e lia+ility in t/e sense t/at it is so!e using 2/ic/. in t/e e*ent o' t/e liEuidation. t/e liEuidator !ust re%ay to t/e s/are/olders. N,2&*a/ ,' a6)9,'&;(4 ca1&)a/: T/is is t/e a!ount o' s/are ca%ital 2/ic/ t/e co!%any is aut/ori<ed to issue. #t is set out in t/e !e!orandu! o' association. T/e a!ount o' t/e co!%anyIs no!inal ca%ital de%ends u%on t/e +usiness reEuire!ents o' t/e co!%any. T9( &..6( ,' a//,))(4 ca1&)a/: T/is is t/at %art o' t/e co!%anyIs no!inal ca%ital 2/ic/ /as actually +een issued to t/e !e!+ers. A co!%any is under no o+ligation to issue all o' its no!inal ca%ital and 'reEuently t/ere is a di''erence +et2een t/e le*el o' no!inal ca%ital and t/e le*el o' issued ca%ital. ",

1.

0a&4861 ca1&)a/: As t/e ex%ression i!%lies. t/is is t/at %art o' t/e issued ca%ital o' a co!%any 2/ic/ /as +een %aid-u% +y t/e !e!+ers. $or exa!%le. a co!%any !ay issue ).--- s/ares o' Rs.)-G- eac/. T/e no!inal *alue o' 2/ic/ /as +een %aid. T/us %aid-u% ca%ital o' t/e co!%any 2ill +e Rs.)-.---G-.

2.

0',c(46'( ,* )9( &..6( ,- .9a'(. b3 a c,21a*3: W/en issuing s/ares. t/e directors !ust ensure. not only t/at t/e co!%any /as su''icient unissued s/ares aut/ori<ed +y t/e ca%ital clause o' t/e !e!orandu!. +ut also t/at t/e directors are aut/ori<ed to issues s/ares. T/e s/ares !ay not +e issued unless t/e directors are aut/ori<ed to do so. T/us t/e directors !ust 'irst c/ec9 t/e !e!orandu! to ensure t/at t/ere are s/ares 2/ic/ t/ey can issue. #' t/ere are not. t/ey !ust /a*e t/e !e!+ers %ass an ordinary resolution under t/e Co!%anies Ordinance. )0&4 to increase t/e s/are ca%ital. T/e aut/ority re'erred to !ay +e contained in t/e co!%anyIs articles. ection ection ection ection 84 88 8& li!itation o' ti!e 'or issue o' certi'icates 3irectors not to re'use trans'er o' s/ares Notice o' re'usal to trans'er s/ares

8&-A Rig/t o' a%%eal against re'usal 'or registration o' s/ares

3.

I..6( ,- .9a'(. a) a 1'(2&62 (S(c)&,* "3): o!eti!es a co!%any 2ill issue s/ares 'or a su! greater t/an t/eir no!inal *alue. T/is is 9no2n as issuing s/ares at a %re!iu!. ection &4 Po2er to issue s/ares at a discount.

""

LEGAL MORTGAGE
An instru!ent 2/ic/ %ur%ort or o%erate to create. declare. assign. li!it or extinguis/. 2/et/er in %resent or in 'uture. any rig/t. title or interest. 2/et/er *ested or contingent. o' t/e *alue o' one /undred ru%ees and u%2ards. to or in i!!o*a+le %ro%erty is registra+le under clause >+? o' section )8 o' t/e Registration Act. )0-&. #' it is o' t/e *alue o' Rs.)-- or u%2ards.

A !ortgage docu!ent 'or less t/an Rs.)-- is co!%ulsory registra+le under t/e Registration Act.

E<6&)ab/( M,')7a7( b3 %(1,.&) ,- T&)/( %((4.

A !ortgage !ay +e !ade +y !ere de%osit o' title deeds 2it/out any docu!ent.

!e!orandu! usually acco!%anies t/e de%osit o' title deeds +y 2ay o' securities and t/e !ortgagee 2ill ordinarily +e entitled to clai! to /a*e suc/ a !e!orandu! executed.

"4

BORROWING AND REGISTRATION OF CHARGES

=,'',>&*7: Li9e any ot/er legal %erson. a co!%any !ay +orro2 !oney. su+ject to any restrictions in its !e!orandu! and articles o' association. T/ere are. /o2e*er. so!e s%ecial 'eatures o' cor%orate +orro2ingB W/ere a co!%any charges %ro%erty to secure a +orro2ing o+ligation. t/e Co!%anies Ordinance. )0&4 reEuires t/at %articulars o' t/e c/arge +e registered under t/e %ro*isions o' ection ),) o' t/e Co!%anies Ordinance. )0&4. 'ailing 2/ic/ t/e security 2ill +e 'or !ost %ur%oses *oid. A co!%any /as t/e a+ility. not enjoyed +y an indi*idual. to create a H'loating c/argeI o*er assets suc/ as stoc9-in-trade and +oo9 de+ts. 2/ic/ !ay 'luctuate 'ro! ti!e to ti!e. on ter!s t/at t/e co!%any re!ains 'ree to deal 2it/ t/e! in t/e ordinary course o' +usiness. W/en a co!%any !a9es de'ault in any o' its o+ligations under t/e docu!ent creating a c/arge. or 2/en t/e security it /as created is in jeo%ardy. t/e o+ligation is nor!ally en'orced +y a%%oint!ent o' a receiver ), /,,? a-)(' )9( c'(4&),'. &*)('(.).. E@('c&.( ,- b,'',>&*7 1,>('. b3 a c,21a*3: A %ri*ate co!%any can co!!ence its +usiness and exercise its +orro2ing %o2ers i!!ediately a'ter incor%oration. W/ereas a %u+lic co!%any neit/er can co!!ence its +usiness nor can exercise its +orro2ing %o2ers 2it/out o+taining a certi'icate 'or co!!ence!ent o' +usiness 'ro! t/e Registrar o' Co!%anies. T/ere is a restriction under section )47 o' t/e Co!%anies Ordinance. )0&4. ince t/e Co!%anies Ordinance does not gi*e s%eci'ic %o2er to any co!%any to +orro2 it +eco!es necessary t/at it is aut/ori<ed +y its !e!orandu! and articles o' association in t/is regard.

"5

T31(. ,- b,'',>&*7: T/e !onies +orro2ed +y t/e co!%any !ay or !ay not +e secured. T/e !onies +orro2ed +y t/e co!%any !ay +e secured +y creating c/arge on t/e assets. T/us. on t/e +asis o' security. +orro2ing !ay +e di*ided into secured and unsecured +orro2ing. 1orro2ings can also +e di*ided into long ter! and s/ort ter! on t/e +asis o' re%ay!ent duration o' t/e loans. $urt/er. t/e +orro2ings !ay also +e 2it/ o%tion o' con*ersion into eEuity. U/)'a +&'(. b,'',>&*7: Exercise o' +orro2ing %o2ers +y a co!%any 2it/out t/ere +eing %ro%er aut/ori<ation in t/e !e!orandu! and articles o' association 'or t/e %ur%ose o' +orro2ing +eyond t/e li!its 'ixed +y s/are/olders in t/e general !eeting is re'erred as ultra vires b,'',>&*7. T9&. ca* b( -6')9(' 4&+&4(4 &*), )>, ca)(7,'&(.8 >a? >+? Ultra vires the company: =,'',>&*7. >&)9,6) )9( *(c(..a'3 1,>(' ,' &* (@c(.. ,- a6)9,'&;a)&,* Ultra vires the directors: 1orro2ing +y directors on +e/al' o' t/e co!%any 2it/out t/eir +eing %ro%erly aut/ori<ed. 1orro2ings 2/ic/ are ultra vires t/e directors +ut are intra vires )9( c,21a*3 2a3 b( 'a)&-&(4 b3 )9( c,21a*3 .6b.(<6(*)/3.

W9a) &. c9a'7(: W/en any !oney +orro2ed +y t/e co!%any is %ro%osed to +e secured +y %ro*iding guarantee o' assets o' t/e co!%any. t/e co!%any is said to +e /a*ing a c/arge on its assets. C/arge !eans trans'er o' interest in t/e assets o' co!%any in 'a*our o' 'inancial institutionGlender to secure re%ay!ent o' t/e 'inancial assistance extended +y it. T31(. ,- c9a'7(: 3e%ending on t/e ter!s and conditions o' creation o' c/arge and on t/e assets o''ered as security t/ere are t2o 9inds o' c/arge-

"7

). Floating charge: $loating c/arge is a c/arge on current and !o*a+le assets o' t/e co!%any 'or 2/ic/ co!%any is 'ree to deal in t/e ordinary course o' +usiness. T/e assets on 2/ic/ c/arge is created is not s%eci'ic. English Definition: T/e 'loating c/arge allo2s a co!%any to gi*e security o*er its 'luctuating assets. including %ro%erty acEuired a'ter t/e creation o' t/e c/arge. and to do so on ter!s t/at t/e assets !ay +e dealt 2it/ +y t/e co!%any in t/e ordinary course o' its +usiness. 'ree 'ro! t/e clai!s o' t/e c/arge-/older. ,. Fixed charge: $ixed c/arge is a c/arge on s%eci'ic identi'ia+le 'ixed asset o' t/e co!%any and t/e co!%any is not 'ree to deal 2it/ t/ose assets in its ordinary course o' +usiness. T/e 'ixed assets su+ject to c/arge cannot +e dis%osed o' +y t/e co!%any 2it/out a%%ro*al o' c/arge /olders. H,> a*4 >9(* c9a'7( ca* b( c'(a)(4: C/arge is !uc/ 2ide in co*erage t/an !ortgage and includes !ortgage also +ut. still. so!e o' t/e di''erences +et2een t/e t2o are gi*en /ere. T/e c/arge can +e created on 'ixed as 2ell as all !o*ing assets 2/ile !ortgage can +e created only on 'ixed assets. C/arge can +e 'loating or 'ixed +ut !ortgage is al2ays 'ixed. #n !ortgage %ossession o' t/e assets !ay or !ay not +e /anded o*er to !ortgage /older +ut in c/arge t/e %ossession o' assets is ne*er /anded o*er to t/e c/arge /older. R(7&.)'a)&,* ,- 2,')7a7(. a*4 c9a'7(.: #n accordance 2it/ t/e %ro*isions o' ection ),) o' t/e Co!%anies Ordinance. )0&4.

%articulars o' c/arge created +y a co!%any are reEuired to +e 'iled 2it/ t/e Registrar o' Co!%anies 2it/in t2enty-one days a'ter t/e date o' its creation. ;o2e*er. on an a%%lication !ade +y t/e co!%any. t/e Co!!ission !ay extend t/e ti!e. T/e said section ),) o' t/e Co!%anies Ordinance. )0&4 %ro*ides t/at c/arge created on any o' t/e 'ollo2ing assets are reEuired to +e registeredB

"8

>a?

a !ortgage or c/arge 'or t/e %ur%ose o' securing any issue o' de+entures= or (A debenture is an instrument issued by a company as evidence of a debt or other obligation. It includes debenture stock bonds and any other security of a company !hether or not it forms a charge on the assets of the company."

>+?

a !ortgage or c/arge on uncalled s/are ca%ital o' t/e co!%any= or (Uncalled share capital is the balance o!ing for shares that are issued partly paid. #resently $ompanies Ordinance does not envisage such issuance of partly paid shares but certain companies may have such shares before its promulgation."

>c? >d?

a !ortgage or c/arge on any i!!o*a+le %ro%erty 2/ere*er situate. or any interest t/erein= or a !ortgage or c/arge on any +oo9 de+ts o' t/e co!%any= or (%ook debts are debts that in the ordinary course of a company&s business are commonly entered in its books."

>e? >'?

a !ortgage or c/arge. not +eing a %ledge. on any !o*a+le %ro%erty o' t/e co!%any= or a 'loating c/arge on t/e underta9ing or %ro%erty o' t/e co!%any. including stoc9-intrade= or (A floating charge is a charge that does not affect the assets charged until some event crystallises the charge fi'ing it to a certain point in time.?

>g? >/? >i? >j? >9?

a !ortgage or c/arge on a s/i% or any s/are in a s/i%= or a !ortgage or c/arge on good2ill. on a %atent or licence under %atent on. a trade !ar9. or on a co%yrig/t or a licence under a co%yrig/t= or a !ortgage or c/arge or ot/er interest +ased on agree!ent 'or t/e issue o' any instru!ent in t/e nature o' redee!a+le ca%ital= or a !ortgage or c/arge or ot/er interest +ased on a !us/ri9a agree!ent= or a !ortgage or c/arge or ot/er interest +ased on /ire-%urc/ase or leasing agree!ent 'or acEuisition o' 'ixed assets.

"&

%,c62(*). '(<6&'(4 ), b( -&/(4 -,' '(7&.)'a)&,* ,- 2,')7a7( ,' c9a'7(A a. +. c. d. F&/&*7 -((: T/ere is a 'ee o' R..55$$$ 'or registering eac/ $or! )-. )). )" and )4 'iled 2it/ t/e registrar concerned. a!e 'ee is a%%lica+le on 'iling o' !odi'ication o' %articulars o' !ortgage or c/arge on $or! )7 or !e!orandu! o' satis'action o' a !ortgage or c/arge on $or! )8. T/ese 'or!s are a*aila+le on ECIs 2e+ siteB 222.sec%.go*.%9. R(/(+a*) -,'2.: T/e 'or! nu!+ers in t/is ta+le corres%ond to t/e rele*ant sections o' t/e Co!%anies Ordinance. )0&4 and rules contained in t/e Co!%anies >Deneral Pro*isions and $or!s? Rules. )0&5BF,'2 N,. ))) )" )4 %(.c'&1)&,* Particulars o' !ortgages. c/arges. etc. S(c)&,* $or! )- containing %articulars o' !ortgages. c/arges etc. Certi'ied co%ies o' instru!ents creating t/e !ortgage c/arge. A''ida*it t/at co%ies o' t/e instru!ents are true co%ies. 1an9 c/allan o' Rs.5.---G- +eing 'iling 'ee.

),). ),0 and 47" Particulars o' !ortgage or c/arge su+ject to 2/ic/ %ro%erty ),, and 47" /as +een acEuired. Registration o' entire series o' de+entures G redee!a+le ),". ),4 and ca%ital 47" Particulars o' an issue o' redee!a+le ca%ital G de+entures in a Pro*iso to series 2/en !ore t/an one issue in t/e series is !ade section )," and section 47" Particulars o' !odi'ication o' !ortgage. c/arge. etc. ),0>"? and 47" Me!orandu! o' co!%lete satis'action o' !ortgage. c/arge. )", and 47" etc.

)7 )8

"0

C,''(c) 4,c62(*)a)&,*: elect t/e correct 'or! to send to t/e correct registration o''ice. and 'ollo2 any notes on t/e 'or! itsel'. Act as Euic9ly as %ossi+leB you /a*e only ,) days 'ro! t/e date o' creation o' t/e c/arge to register t/e correct details. end t/e instru!ent creating or e*idencing t/e c/arge 2it/ t/e 'or!. i' t/ere is an instru!ent. as t/ere usually 2ill +e. Co%y o' t/e instru!ent !ust +e attested +y a notary %u+lic. Ma9e sure t/e details on t/e 'or! are correct and !atc/ t/e instru!ent. #' registrar 'inds errors. t/e %resenter !ust aut/orise t/eir correction and. i' necessary. deli*er ne2 'or!s 2it/in t/e ,)-day ti!e li!it. #' necessary. registrar 2ill return instru!ents and docu!ents to t/e %resenter na!ed on t/e c/arge 'or! itsel'. Please ensure t/is in'or!ation is co!%lete and accurate. Ma9e sure t/e co!%any na!e and nu!+er are correct. Ma9e sure t/e creation date and descri%tion o' t/e c/arge agree 2it/ t/e instru!ent. Ma9e sure t/e a!ount secured accurately re'lects 2/at is stated in t/e instru!ent. Ma9e sure t/e na!e o' t/e c/argee !atc/es t/e instru!ent. >JC/argeeJ !eans t/e %erson to 2/o! %ro%erty is c/arged.? Ma9e sure t/e s/ort details o' t/e %ro%erty c/arged accurately re'lect 2/at is stated in t/e instru!ent. $or !ortgaged land it is desira+le t/at you gi*e t/e title nu!+er o' t/e %ro%erty. Ensure t/at c/arging clauses are al2ays inserted. including re'erence to 'ixed and 'loating c/arges. ign and date t/e 'or!. 4-

 Co!%lete t/e 'or!s legi+ly using +lac9 in9 or. %re'era+ly. ty%e t/e 'or!. $or!s are scanned and re%roduced electronically so t/at t/e %u+lic can ins%ect t/e!. T/e Registrar !ay re'use docu!ents t/at are not suita+le 'or scanning and re%roduction. %(/a3 &* -&/&*7 ,- 4,c62(*).: #' a registera+le c/arge is not registered in ti!e. t/en t/e security is *oid against t/e liEuidator and any creditor o' t/e co!%any. T/is !eans t/at t/e de+t 'or 2/ic/ t/e c/arge 2as gi*en 2ill re!ain %aya+le. +ut it 2ill +e unsecured. #' a co!%any 'ails to deli*er a registra+le c/arge. and no interested %arty /as registered it. t/en t/e co!%any and e*ery o''icer o' t/e co!%any 2/o is in de'ault are lia+le to a 'ine u%to Rs.5.---G-. #' t/e de'ault continues. t/ey are lia+le to a daily 'ine o' Rs.)--G-. E@)(*.&,*: Only t/e Co!!ission can grant an extension o' ti!e 'or registration o' a c/arge t/at 2as not recei*ed in ti!e and correct. T/e nor!al ti!e li!it is ,) days 'ro! t/e date o' creation o' t/e c/arge. R(7&.)'a)&,* ,- c9a'7( ,* ac<6&'(4 1',1(')3 .6bB(c) ), c9a'7(: #' t/e c/arge is o' a ty%e 2/ic/ t/e co!%any 2ould /a*e /ad to register i' it /ad created t/e c/arge itsel'. t/en it !ust noti'y t/e 'act t/at it /as acEuired t/is %ro%erty. To do t/is t/e co!%any !ust co!%lete and send $or! )) 2it/ t/e registrar concerned. 2it/ a certi'ied co%y o' any instru!ent t/at created or e*idenced t/e c/arge. T/is !ust +e done 2it/in ,) days a'ter t/e co!%any co!%leted t/e acEuisition o' t/e %ro%erty. #' t/e c/arged %ro%erty is outside Pa9istan and t/e c/arge 2as created outside Pa9istan. t/e ,) days runs 'ro! t/e date 2/en t/e co%y instru!ent could /a*e +een recei*ed in Pa9istan in t/e nor!al course o' %ost. assu!ing t/at it /ad +een dis%atc/ed 2it/ due diligence. 4)

Late deli*ery o' t/e %articulars o' !ortgage or c/arge is an o''ence. T/e co!%any and e*ery o''icer o' it 2/o is in de'ault are lia+le to a 'ine. #' t/e de'ault continues. t/ey are lia+le to a daily de'ault 'ine. R&79). ,- 2,')7a7(.: #' t/e co!%any does not send us a c/arge 'or registration. t/en t/e c/argee >t/e %erson to 2/o! %ro%erty is c/arged? - or so!e ot/er interested %erson - can register t/e reEuired docu!ents. #n certain circu!stances a c/argee can a%%oint a recei*er or !anager. or as9 t/e court to a%%oint a recei*er or !anager. o*er t/e %ro%erty c/arged - 'or exa!%le. i' t/e co!%any de'aults in %ay!ent o' t/e de+t secured +y t/e c/arge. T/e c/argee !ust noti'y t/e a%%oint!ent 2it/ t/e registrar concerned 2it/in )5 days using 'or! )&. Registrar 2ill t/en enter t/is in t/e register o' c/arges. On ceasing to act. a recei*er or !anager !ust noti'y t/e registrar concerned 2it/in "- days using $or! )0. Registrar 2ill t/en enter t/e 'act in t/e register o' c/arges.

M,4&-&ca)&,* ,- 2,')7a7(. ,' c9a'7(.. Modi'ication is c/ange in !ortgage or c/arges t/at is c/ange inBa. +. A!ount o' !ortgage G c/arge >en/ance!ent or reduction in a!ount?. C/ange in %articulars o' %ro%erty >excluding or including certain %ro%erty or asset?. c. d. e. 6ariation in t/e rate o' !ar9u% or interest. Extension o' ti!e 'or re%ay!ent on %eriod o' !aturity >resc/eduling?. C/ange in ot/er ter!s and conditions.

4,

%,c62(*). '(<6&'(4 ), b( -&/(4 -,' 2,4&-&ca)&,* &* a 2,')7a7( ,' c9a'7(A a. +. c. d. $or! )7 containing !odi'ication in !ortgages. c/arges etc. Certi'ied co%ies o' instru!ents creating t/e !ortgage c/arge. A''ida*it t/at co%ies o' t/e instru!ents are true co%ies. 1an9 c/allan o' Rs.5.---G- +eing 'iling 'ee.

0a')&a/ .a)&.-ac)&,*: Partial %ay!ent is !odi'ication o' a !ortgage or c/arge and cannot +e treated as satis'action. T/e %articulars o' t/e !odi'ication are 'iled on $or! )7. R(c)&-&ca)&,* ,- 2,')7a7( ,' c9a'7(. T/e 'ollo2ing are grounds o' recti'ication o' register o' !ortgages or c/argesBa. +. c. d. O!ission to 'ile c/arge 2it/in t/e %rescri+ed %eriod. $ailure to tile !odi'ication o' c/arge. O!ission to inti!ate %ay!ent or satis'action. O!ission or !is-state!ent o' %articulars.

T/e Co!!ission is e!%o2ered to order 'or recti'ication o' register o' !ortgages or c/arges. %,c62(*). ), b( (*c/,.(4 >&)9 )9( 1()&)&,* -,' '(c)&-&ca)&,*:8 a. +. c. d. e. '. Co%y o' $or! )-. )). )". )7 or )8. as t/e case !ay +e. Co%ies o' instru!ents relating to creation. !odi'ication. satis'action etc. Co%y o' t/e resolution. i' any. O+ser*ation !e!orandu!. i' issued. o' t/e registrar concerned. A''ida*it *eri'ying t/e contents o' %etition to +e true. 1an9 c/allan on account o' a%%lication 'ee o' Rs.5--.

4"

%,c62(*). ), b( -&/(4 >&)9 )9( '(7&.)'a' c,*c('*(4 a-)(' 2a?&*7 ,- ,'4(' b3 )9( C,22&..&,*: a. +. c. d. e. Co%y o' $or! )-. )). )". )7 or )8. as t/e case !ay +e. Co%ies o' instru!ents relating to creation. !odi'ication. satis'action etc. Co%y o' order o' t/e Co!!ission. A''ida*it t/at co%ies o' t/e instru!ents are true co%ies. 1an9 c/allan o' Rs.5.---G- +eing 'iling 'ee.

Sa)&.-ac)&,* ,- 2,')7a7(. a*4 c9a'7(. T/e co!%any needs to in'or! registrar concerned t/at a c/arge /as +een 'ully satis'ied. ;o2e*er. it is o+*iously in t/e co!%anyJs o2n interests t/at in*estors and lenders 9no2 t/at all o' t/e de+t /as +een %aid o''. T/ere'ore. it 2ould +e in t/e interest o' t/e co!%any i' an NOC is o+tained 'or !ortgagee regarding %ay!ent o'' >or satis'action o'? t/e !ortgage or c/arge. As 2it/ 'ully %aid-o'' c/arges. t/e co!%any needs to in'or! registrar concerned t/at its %ro%erty /as +een released 'ro! a c/arge or t/at t/e %ro%erty no longer +elongs to t/e co!%any. #t is o+*iously in t/e co!%anyJs interests t/at %otential in*estors and lenders s/ould 9no2. T/e co!%any s/all 'ile a !e!orandu! o' satis'action o' !ortgage or c/arge on $or! )8 2it/ or 2it/out NOC o+tained 'ro! t/e !ortgagee. R(7&.)(' ,- 2,')7a7(.Cc9a'7(.: E*ery co!%any is reEuired to !aintain a register o' !ortgages and c/arges 2/ic/ is %rescri+ed as $or! ),. T/is register is 9e%t o%en 'or ins%ection +y t/e !e!+ers o' t/e co!%any and e*en t/ey /a*e t/e rig/t to o+tain co%y or a+stract o' t/e register. #nstru!ents. in original or certi'ied co%ies t/ereo'. relating to !ortgages or c/arges are also 9e%t at t/e registered o''ice o' t/e co!%any and re!ain o%en 'or ins%ection +y t/e !e!+ers o' t/e co!%any su+ject to %ay!ent o' 'ee. %rescri+ed +y t/e co!%any. t/e %ur%ose under t/e Co!%anies Ordinance. )0&4. #t !ust +e noted t/at co!%any cannot %rescri+e 'ees >co%ying or ins%ection 'ees? exceeding t/ose %rescri+ed 'or

44

DIRECTORS AND CHIEF EXECUTIVE

%IRCTORS %(-&*&)&,*: T/e 3irectors o' a co!%any are t/e %ersons in-c/arge o' !anaging t/e a''airs o' t/e co!%any. T/ey are t/e agents o' t/e co!%any and are collecti*ely re'erred as 1oard. ection ,>)?>)"? o' t/e Co!%anies Ordinance. )0&4 contains an inclusi*e de'inition o' t/e ter! 3irector as @includes any %erson occu%ying t/e %osition o' 3irector. +y 2/ate*er na!e called.A O*/3 *a)6'a/ 1('.,*. ), b( 4&'(c),'.: (S.1!5)

#n accordance 2it/ t/e %ro*isions o' ection )85 o' t/e Co!%anies Ordinance. )0&4 only a natural %erson s/all +e a director and no director s/all +e t/e *aria+le re%resentati*e o' a +ody cor%orate. F&'.) 4&'(c),'. a*4 )9(&' )('2: (S.1! )

T/e nu!+er o' directors and t/e na!es o' t/e 'irst directors s/all +e deter!ined in 2riting +y a !ajority o' t/e su+scri+ers o' t/e !e!orandu!. and until so deter!ined. all t/e su+scri+ers o' t/e !e!orandu! 2/o are natural %ersons s/all +e dee!ed to +e t/e directors o' t/e co!%any.

T/e 'irst directors s/all /old o''ice until t/e election o' directors in t/e 'irst annual general !eeting.

According to ection )84>)? o' t/e Co!%anies Ordinance. )0&4B >a? >+? >c? e*ery single !e!+er co!%any s/all /a*e at least one director= e*ery ot/er %ri*ate co!%any s/all /a*e not less t/an t2o directors= and e*ery %u+lic co!%any ot/er t/an a listed co!%any s/all /a*e not less t/an t/ree directors. >d? e*ery listed co!%any s/all /a*e not less t/an se*en directors 45

R()&'(2(*) ,- 4&'(c),'.:

(S.1!!)

On t/e date o' t/e 'irst annual general !eeting o' a co!%any all directors o' t/e co!%any 'or t/e ti!e +eing 2/o are su+ject to election s/all stand retired 'ro! o''ice and t/erea'ter all suc/ directors s/all retire on t/e ex%iry o' t/e ter! laid do2n in ection )&-B Pro*ided t/at t/e directors so retiring s/all continue to %er'or! t/eir 'unctions until t/eir successors are electedB Pro*ided 'urt/er t/at t/e directors so continuing to %er'or! t/eir 'unctions s/all ta9e i!!ediate ste%s to /old t/e election o' directors and in case o' any i!%edi!ent re%ort t/e circu!stances o' t/e case to t/e registrar 2it/in 'i'teen days o' t/e ex%iry o' t/e ter! laid do2n in section )&-. 0',c(46'( -,' (/(c)&,* ,- 4&'(c),'.: (S.1!")

T/e directors o' a co!%any s/all. su+ject to section )84 'ix t/e nu!+er o' elected directors o' t/e co!%any not later t/an t/irty 'i*e days +e'ore t/e con*ening o' t/e general !eeting at 2/ic/ directors are to +e elected. and t/e nu!+er so 'ixed s/all not +e c/anged exce%t 2it/ t/e %rior a%%ro*al o' a general !eeting o' t/e co!%any.

T/e notice o' t/e !eeting at 2/ic/ directors are %ro%osed to +e elected s/all a!ong ot/er !atters. ex%ressly state>a? >+? t/e nu!+er o' elected directors 'ixed under su+-section >)?= and t/e na!es o' t/e retiring directors.

Any %erson 2/o see9s to contest an election to t/e o''ice o' director s/all. 2/et/er /e is a retiring director or ot/er2ise. 'ile 2it/ t/e co!%any. not later t/an 'ourteen days +e'ore t/e date o' t/e !eeting at 2/ic/ elections are to +e /eld. a notice o' /is intention to o''er /i!sel' 'or election as a directorB Pro*ided t/at any suc/ %erson !ay. at any ti!e +e'ore t/e /olding o' election. 2it/dra2 suc/ notice.

47

All notices recei*ed +y t/e co!%any in %ursuance o' su+-section >"? s/all +e trans!itted to t/e !e!+ers not later t/an se*en days +e'ore t/e date o' t/e !eeting. in t/e !anner %ro*ided 'or sending o' a notice o' general !eeting in t/e nor!al !anner or in t/e case o' a listed co!%any +y %u+lication at least in one issue eac/ o' a daily ne2s%a%er in Englis/ language and a daily ne2s%a%er in :rdu language /a*ing circulation in t/e Pro*ince in 2/ic/ t/e stoc9 exc/ange on 2/ic/ its securities are listed is situate.

T/e directors o' a co!%any /a*ing a s/are ca%ital s/all. unless t/e nu!+er o' %ersons 2/o o''er t/e!sel*es to +e elected is not !ore t/an t/e nu!+er o' directors 'ixed under su+-section >)?. +e elected +y t/e !e!+ers o' t/e co!%any in general !eeting in t/e 'ollo2ing !anner. na!elyB>a? a !e!+er s/all /a*e suc/ nu!+er o' *otes as is eEual to t/e %roduct o' t/e nu!+er o' *oting s/ares or securities /eld +y /i! and t/e nu!+er o' directors to +e elected= >+? a !e!+er !ay gi*e all /is *otes to s single candidate or di*ide t/e! +et2een !ore t/an one o' t/e candidates in suc/ !anner as /e !ay c/oose= and >c? t/e candidate 2/o gets t/e /ig/est nu!+er o' *otes s/all +e declared elected as director and t/en t/e candidate 2/o gets t/e next /ig/est nu!+er o' *otes s/all +e so declared and so on until t/e total nu!+er o' directors to +e elected /as +een so elected.

T/e directors o' a co!%any not /a*ing s/are ca%ital s/all +e elected +y !e!+ers o' t/e co!%any in general !eeting in t/e !anner as %ro*ided in articles o' association o' t/e co!%any.

48

C&'c62.)a*c(. &* >9&c9 (/(c)&,* ,- 4&'(c),'. 2a3 b( 4(c/a'(4 &*+a/&4:

(S.1!#)

T/e Court !ay. on t/e a%%lication o' !e!+ers /olding not less t/an t2enty %er cent o' t/e *oting %o2er in t/e co!%any. !ade 2it/in t/irty days o' t/e date o' election. declare election o' all directors or any one or !ore o' t/e! in*alid i' it is satis'ied t/at t/ere /as +een !aterial irregularity in t/e /olding o' t/e elections and !atters incidental or relating t/ereto. T('2 ,- ,--&c( ,- 4&'(c),': (S.1"$)

A director elected under section )8& s/all /old o''ice 'or a %eriod o' t/ree years unless /e earlier resigns. +eco!es disEuali'ied 'ro! +eing a director or ot/er2ise ceases to /old o''ice.

Any casual *acancy occurring a!ong t/e directors !ay +e 'illed u% +y t/e directors and t/e %erson so a%%ointed s/all /old o''ice 'or t/e re!ainder o' t/e ter! o' t/e director in 2/ose %lace /e is a%%ointed.

R(2,+a/ ,- 4&'(c),':

(S.1"1)

A co!%any !ay +y resolution in general !eeting re!o*e a director a%%ointed under section )87 or section )&- or elected in t/e !anner %ro*ided 'or in section )8&B Pro*ided t/at a resolution 'or re!o*ing a director s/all not +e dee!ed to /a*e +een %assed i' t/e nu!+er o' *otes cast >against it is eEual to. or exceeds?>i? t/e !ini!u! nu!+er o' *otes t/at 2ere cast 'or t/e election o' director at t/e i!!ediately %receding election o' directors. i' t/e resolution relates to re!o*al o' a director elected in t/e !anner %ro*ided in su+-section >5? o' section )8&= or >ii? t/e total nu!+er o' *otes 'or t/e ti!e +eing co!%uted in t/e !anner laid do2n in su+-section >5? o' section )8& di*ided +y t/e nu!+er o' directors 'or t/e ti!e +eing. i' t/e resolution relates to re!o*al o' a director a%%ointed under section )87 or section )&-. 4&

Va/&4&)3 ,- ac). ,- 4&'(c),'.:

(S.1"5)

No act o' a director. or o' a !eeting o' directors attended +y /i!. s/all +e in*alid !erely on t/e ground o' any de'ect su+seEuently disco*ered in /is a%%oint!ent to suc/ o''ice. Pro*ided t/at. as soon as any suc/ de'ect /as co!e to notice. t/e director s/all not exercise t/e rig/t o' /is o''ice till t/e de'ect /as +een recti'ied. I*(/&7&b&/&)3 ,- c(')a&* 1('.,*. ), b(c,2( 4&'(c),': (S.1"!)

No %erson s/all +e a%%ointed as a director o' a co!%any i' /eB >a? >+? >c? >d? >e? is a !inor= is o' unsound !ind= /as a%%lied to +e adjudicated as an insol*ent and /is a%%lication is %ending= is an undisc/arge insol*ent= /as +een con*icted +y a court o' la2 'or an o''ence in*ol*ing !oral tur%itude= >'? /as +een de+arred 'ro! /olding suc/ o''ice under any %ro*ision o' t/is Ordinance= >g? /as +etrayed lac9 o' 'iduciary +e/a*ior and a declaration to t/is e''ect /as +een !ade +y t/e Court under section ,)8 at any ti!e during t/e %receding 'i*e years= >/? is not a !e!+er=

40

Pro*ided t/at clause >/? s/all not a%%ly in t/e case o'B )? a %erson re%resenting t/e Do*ern!ent or an institution or aut/ority 2/ic/ is a !e!+er= ,? "? 4? >i? a 2/ole-ti!e director 2/o is an e!%loyee o' t/e co!%any= a c/ie' executi*e= or a %erson re%resenting a creditor

/as +een declared +y a Court o' co!%etent jurisdiction as de'aulter in re%ay!ent o' loan to a 'inancial institution. exceeding suc/ a!ount as !ay +e noti'ied +y t/e Co!!ission 'ro! ti!e to ti!e=

>j?

is !e!+er o' a toc9 Exc/ange engaged in t/e +usiness o' +ro9erage. or is a s%ouse o' suc/ !e!+erB Pro*ided t/at clause >i? and >j? s/all +e a%%lica+le only in case o' a listed co!%any.

Vaca)&,* ,- ,--&c( b3 )9( 4&'(c),'.: >)?

(S.1"")

A director s/all ipso facto cease to /old o''ice i'B >a? /e +eco!es ineligi+le to +e a%%ointed a director on any one or !ore o' t/e grounds enu!erated in clauses >a? to >/? o' section )&8= >+? /e a+sents /i!sel' 'ro! t/ree consecuti*e !eetings o' t/e directors or 'ro! all t/e !eetings o' t/e directors 'or a continuous %eriod o' t/ree !ont/s. 2/ic/e*er is t/e longer. 2it/out lea*e o' a+sence 'ro! t/e directors= >c? /e or any 'ir! o' 2/ic/ /e is a %artner or any %ri*ate co!%any o' 2/ic/ /e is a directorB

5-

>i?

2it/out t/e sanction o' t/e co!%any in general !eeting acce%ts or /olds any o''ice o' %ro'it under t/e co!%any ot/er t/an t/at o' c/ie' executi*e or a legal or tec/nical ad*iser or a +an9er= or

>ii?

acce%ts a loan or guarantee 'ro! t/e co!%any in contra*ention o' section )05.

>,?

Not/ing contained in su+-section >)? s/all +e dee!ed to %reclude a co!%any 'ro! %ro*iding +y its articles t/at t/e o''ice o' director s/all +e *acated on any grounds additional to t/ose s%eci'ied in t/at su+-section.

0,>('. ,- 4&'(c),'.: >)?

(S.1# )

T/e +usiness o' a co!%any s/all +e !anaged +y t/e directors. 2/o !ay %ay all ex%enses incurred in %ro!oting and registering t/e co!%any. and !ay exercise all suc/ %o2ers o' t/e co!%any as are not +y t/is Ordinance. or +y t/e articles. or +y a s%ecial resolution. reEuired to +e exercised +y t/e co!%any in general !eeting.

>,?

T/e directors o' a co!%any s/all exercise t/e 'ollo2ing %o2ers on +e/al' o' t/e co!%any. and s/all do so +y !eans o' a resolution %assed at t/eir !eeting. na!elyB>a? to !a9e calls on s/are/olders in res%ect o' !oneys un%aid on t/eir s/ares= >+? >c? to issue s/ares= to issue de+entures or >any instru!ent in t/e nature o' redee!a+le ca%ital?= >d? >e? >'? to +orro2 !oneys ot/er2ise t/an on de+entures= to in*est t/e 'unds o' t/e co!%any= to !a9e loans=

5)

>g?

to aut/ori<e a director or t/e 'ir! o' 2/ic/ /e is a %artner or any %artner o' suc/ 'ir! or a %ri*ate co!%any o' 2/ic/ /e is a !e!+er or director to enter into any contract. 2it/ t/e co!%any 'or !a9ing sale. %urc/ase or su%%ly o' goods or rendering ser*ices 2it/ t/e co!%any=

>/?

to a%%ro*e annual or /al' yearly or ot/er %eriodical accounts as are reEuired to +e circulated to t/e !e!+ers=

>i? >j?

to a%%ro*e +onus to e!%loyees= to incur ca%ital ex%enditure on any single ite! or dis%ose o' a 'ixed asset in accordance 2it/ t/e li!its as %rescri+ed +y t/e Co!!ission 'ro! ti!e to ti!e. Pro*ided t/at t/e acce%tance +y a +an9ing co!%any in t/e ordinary course o' its +usiness o' de%osits o' !oney 'ro! t/e %u+lic re%aya+le on de!and or ot/er2ise and 2it/dra2a+le +y c/eEue. dra't. order or ot/er2ise. or t/e %lacing o' !oneys on de%osit +y a +an9ing co!%any 2it/ anot/er +an9ing co!%any on suc/ conditions as t/e directors !ay %rescri+e. s/all not +e dee!ed to +e a +orro2ing o' !oney or. as t/e case !ay +e. a !a9ing o' loans +y a +an9ing co!%any 2it/in t/e !eaning o' t/is section.

>9?

to underta9e o+ligations under leasing contracts exceeding one !illion ru%ees=

>l? >!?

to declare interi! di*idend= and /a*ing regard to suc/ a!ount as !ay +e deter!ined to +e !aterial >as construed in t/e Denerally Acce%ted Accounting Princi%les? +y t/e 1oard.>i? >ii? and 5, to 2rite o'' +ad de+ts. ad*ances and recei*a+les= to 2rite o'' in*entories and ot/er assets o' t/e co!%any=

>iii?

to deter!ine t/e ter!s o' and t/e circu!stances in 2/ic/ a la2 suit !ay +e co!%ro!ised and a clai! or rig/t in 'a*our o' a co!%any !ay +e released. extinguis/ed or relinEuis/ed.

>"?

T/e directors o' a %u+lic co!%any or o' a su+sidiary o' a %u+lic co!%any s/all not exce%t 2it/ t/e consent o' t/e general !eeting eit/er s%eci'ically or +y 2ay o' an aut/ori<ation. do any o' t/e 'ollo2ing t/ings. na!elyB>a? sell. lease or ot/er2ise dis%ose o' t/e underta9ings or a si<ea+le %art t/ereo'. unless t/e !ain +usiness o' t/e co!%any co!%rises o' suc/ selling or leasing= and >+? re!it. gi*e any relie' or gi*e extension o' ti!e 'or t/e re%ay!ent o' any de+t outstanding against any %erson s%eci'ied in su+-section >)? o' section )05.

>4?

W/osoe*er contra*enes any %ro*ision o' t/is section s/all +e %unis/a+le 2it/ a 'ine 2/ic/ !ay extend to >one /undred t/ousand ru%ees and s/all +e indi*idually and se*erally lia+le 'or losses or da!ages arising out o' suc/ action.

5"

CHIEF EDECUTIVE A11,&*)2(*) ,- -&'.) c9&(- (@(c6)&+(: >)? (S.1#")

E*ery co!%any s/all /a*e a c/ie' executi*e a%%ointed in t/e !anner %ro*ided in t/is section and section )00.

>,?

T/e directors o' e*ery co!%any s/all as 'ro! t/e date 'ro! 2/ic/ it co!!ences +usiness or as 'ro! a date not later t/an t/e 'i'teent/ day a'ter t/e date o' its incor%oration. 2/ic/e*er is earlier. a%%oint any indi*idual to +e t/e c/ie' executi*e o' t/e co!%any.

>"?

T/e c/ie' executi*e a%%ointed as a'oresaid s/all. unless /e earlier resigns or ot/er2ise ceases to /old o''ice. /old o''ice u% to t/e 'irst annual general !eeting o' t/e co!%any or. i' a s/orter %eriod is 'ixed +y t/e directors at t/e ti!e o' /is a%%oint!ent. o' suc/ %eriod.

A11,&*)2(*) ,- .6b.(<6(*) c9&(- (@(c6)&+(: >)?

(S.1##)

Wit/in 'ourteen days 'ro! t/e date o' election o' directors under section )8& or t/e o''ice o' t/e c/ie' executi*e 'alling *acant. as t/e case !ay +e. t/e directors o' a co!%any s/all a%%oint any %erson. including an elected director. to +e t/e c/ie' executi*e. +ut suc/ a%%oint!ent s/all not +e 'or a %eriod exceeding t/ree years 'ro! t/e date o' a%%oint!ent.

>,?

On t/e ex%iry o' /is ter! o' o''ice under section )0& or su+-section >)?. a c/ie' executi*e s/all +e eligi+le 'or rea%%oint!ent.

>"?

T/e c/ie' executi*e retiring under section )0& or t/is section s/all continue to %er'or! /is 'unctions until /is successor is a%%ointed unless non-a%%oint!ent o' /is successor is due to any 'ault on /is %art or /is o''ice is ex%ressly ter!inated.

54

T('2. ,- a11,&*)2(*) ,- c9&(- (@(c6)&+( a*4 -&//&*7 61 ,- ca.6a/ +aca*c3: >)?

(S.2$$)

T/e ter!s and conditions o' a%%oint!ent o' a c/ie' executi*e s/all +e deter!ined +y t/e directors or t/e co!%any in general !eeting in accordance 2it/ t/e %ro*isions in t/e co!%anyIs articles.

>,?

T/e c/ie' executi*e s/all. i' /e is not already a director o' t/e co!%any. +e dee!ed to +e its director and +e entitled to all t/e rig/ts and %ri*ileges. and su+ject to all t/e lia+ilities. o' t/at o''ice.

R(.)'&c)&,* ,* a11,&*)2(*) ,- c9&(- (@(c6)&+(:

(S.2$1)

No %erson 2/o is ineligi+le to +eco!e a director o' a co!%any under section )&8 s/all +e a%%ointed or continue as t/e c/ie' executi*e o' any co!%any. R(2,+a/ ,- c9&(- (@(c6)&+(: (S.2$2)

T/e directors o' a co!%any +y resolution %assed +y not less t/an t/ree-'ourt/s o' t/e total nu!+er o' directors 'or t/e ti!e +eing. or t/e co!%any +y a s%ecial resolution. !ay re!o*e a c/ie' executi*e +e'ore t/e ex%iration o' /is ter! o' o''ice not2it/standing anyt/ing contained in t/e articles or in any agree!ent +et2een t/e co!%any and suc/ c/ie' executi*e. C9&(- (@(c6)&+( *,) ), (*7a7( &* b6.&*(.. c,21()&*7 >&)9 c,21a*3. b6.&*(..: (S.2$3) >)? A c/ie' Executi*e o' a %u+lic co!%any s/all not directly or indirectly engage in any +usiness 2/ic/ is o' t/e sa!e nature as and directly co!%etes 2it/ t/e +usiness carried on +y t/e co!%any o' 2/ic/ /e is t/e c/ie' executi*e or +y su+sidiary o' suc/ co!%any. Explanation.- A +usiness s/all +e dee!ed to +e carried on indirectly +y t/e c/ie' executi*e i' t/e sa!e is carried on +y /is s%ouse or any o' /is !inor c/ildren. >,? E*ery %erson 2/o is a%%ointed as c/ie' executi*e o' a %u+lic co!%any s/all 'ort/2it/ on suc/ a%%oint!ent disclose to t/e co!%any in 2riting t/e nature o' suc/ +usiness and /is interest t/erein. 55

MEETINGS AND PROCEEDINGS

Wit/in a co!%any t/ere are t2o !ains centers o' %o2er. t/e +oard o' directors and t/e !e!+ers in general !eeting. T/e decisions o' +ot/ t/ese organs are ta9en in !eetings and it is i!%ortant to consider t/e signi'icance o' !eetings in t/e li'e o' a co!%any. T/e directors are o+*iously in close contact 2it/ eac/ ot/er and so t/eir !eetings reEuire 'ar less 'or!ality t/an t/ose o' t/e !e!+ers.

M(()&*7. E(*('a//3B
T/e directors o' a co!%any !ay regulate t/eir %roceedings as t/ey t/in9 'it. and t/at a director !ay. and t/e secretary on t/e reEuisition o' a director !ust. at any ti!e su!!on a +oard !eeting. O+*iously +oard !eetings need to +e called *ery s%eedily on !any occasions and so in %ro!ne v (a )rinidad (*++," 'i*e !inutesI notice 2as /eld to +e reasona+le in a situation 2/ere a director 2as %resent at t/e %ro%osed *enue o' t/e !eeting and /ad no ot/er engage!ents in /is diary. T/e only ot/er %oint 2/ic/ needs noting a+out directorsI !eetings. at t/is stage. is t/at eac/ director /as a *ote and decisions at t/e !eeting are decided +y a !ajority o' *otes cast. #n t/e case o' an eEuality o' *otes. t/e c/air!an s/all /a*e a second or casting *ote.

57

=,a'4 ,- %&'(c),'. 2(()&*7

SYNO0SIS 1. 1oard Meeting 2. W/ere and 2/en 3. Notice 4. Kuoru! 5. Adjourn!ent . Minutes !. Matters to +e a%%ro*ed only in 1oard !eetings ". Resolution +y circulation 1. =,a'4 M(()&*7 ection )07 o' t/e Co!%anies Ordinance. )0&4 >t/e Ordinance? %ro*ides t/at t/e +usiness o' a co!%any s/all +e !anaged +y t/e directors. 2/o !ay %ay all ex%enses incurred in %ro!oting and registering t/e co!%any. and !ay exercise all suc/ %o2ers o' t/e co!%any as are not +y t/e Co!%anies Ordinance. or +y t/e articles. or +y s%ecial resolution. reEuired to +e exercised +y t/e co!%any in general !eeting. T/e Ordinance does not aut/ori<e any director in /is indi*idual ca%acity to do anyt/ing 2/at t/e 1oard is entitled to do. ;o2e*er. /e is entitled to exercise suc/ %o2ers and do suc/ acts 2/ic/ are delegated to /i! +y t/e 1oard or +y t/e co!%any in t/e general !eeting. T/e 1oard exercises its 'unctions +y con*ening !eetings. 2. W9('( a*4 >9(* #n accordance 2it/ t/e %ro*isions o' section )0" o' t/e Ordinance. t/e director o' e*ery %u+lic co!%any !ust !eet toget/er 'or t/e des%atc/ o' +usiness. at least once in eac/ Euarter o' a year.

58

T/e Ordinance does not s%eci'y t/e %lace o' /olding !eetings o' t/e 1oard and. t/ere'ore. can +e /eld at any %lace. i!ilarly. t/e ti!e o' /olding t/e !eeting is also not %rescri+ed and. t/us. t/e !eetings can +e /eld at any ti!e as %er t/e con*enience o' all t/e !e!+ers o' t/e 1oard. $urt/er. !eetings can +e /eld on any day o' t/e 2ee9. 3. N,)&c( Notice 'or !eetings o' t/e 1oard !ust +e gi*en in 2riting to e*ery director at /is usual address. :nder t/e Ordinance. no notice %eriod /as +een %rescri+ed. ;o2e*er under t/e Code o' Cor%orate Do*ernance. 2ritten notice >including agenda? o' t/e !eeting !ust +e circulated not less t/an se*en days +e'ore t/e !eeting. exce%t in t/e case o' e!ergency. 2/ere t/e notice %eriod !ay +e reduced. 4. F6,'62 Kuoru! is t/e !ini!u! nu!+er o' !e!+ers 2/o are aut/ori<ed to act as 1oard on +e/al' o' t/e Co!%any. ection )0" o' t/e Ordinance %ro*ides t/at t/e Euoru! 'or t/e !eeting o' t/e 1oard o' 3irectors o' a listed co!%any s/all +e one t/ird >any 'raction contained in t/at one-t/ird +eing rounded o'' as one? o' t/eir nu!+er or 'our. 2/ic/e*er is greater. T/e Euoru! o' ot/er co!%anies is al2ays 'ixed in t/eir articles o' association.

5.

A4B,6'*2(*) Adjourn!ent o' t/e !eeting !eans +rea9 o'' t/e !eeting 2it/ t/e intention o' resu!ing later. A !eeting o' t/e 1oard can +e adjourned as %er t/e %ro*isions contained in t/e articles o' association o' a co!%any. #' t/e Euoru! 'or t/e !eeting is not %resent 2it/in t/e ti!e sti%ulated in t/e articles o' t/e co!%any. t/e !eeting s/all auto!atically stand adjourned till t/e sa!e day in t/e next 2ee9 at sa!e ti!e and %lace. #' t/e Euoru! is not %resent at t/e adjourned !eeting. 'res/ notice s/all +e issued 'or !eeting.

M&*6)(. 5&

Minutes o' !eetings o' 1oard s/all +e !aintained in accordance 2it/ t/e %ro*isions o' section )8" o' t/e HOrdinanceI !. Ma))('. ), b( a11',+(4 ,*/3 &* =,a'4. 2(()&*7. Certain !atters 2/ic/ are o' i!%ortance to t/e co!%any s/all al2ays +e considered in t/e !eetings o' t/e 1oard and s/all +e accorded a%%ro*al +y %assing a resolution. T/ese are listed +elo2B>a? >+? >c? >d? >e? >'? >g? to !a9e calls on s/are/olders in res%ect o' !oneys un%aid on t/eir s/ares= to issue s/ares= to issue de+entures or >%artici%ation ter! certi'icate. any instru!ent in t/e nature o' redee!a+le ca%ital?= to +orro2 !oneys ot/er2ise t/an on de+entures= to in*est t/e 'unds o' t/e co!%any= to !a9e loans= to aut/ori<e a director or t/e 'ir! o' 2/ic/ /e is %artner or any %artner o' suc/ 'ir! or a %ri*ate co!%any o' 2/ic/ /e is a !e!+er or director to enter into any contract 2it/ t/e co!%any 'or !a9ing sale. %urc/ase or su%%ly o' goods or rendering ser*ices 2it/ t/e co!%any= >/? >i? >j? to a%%ro*e annual or /al'-yearly or ot/er %eriodical accounts as are reEuired to +e circulated to t/e !e!+ers= to a%%ro*e +onus to e!%loyees= to incur ca%ital ex%enditure on any single ite! or dis%ose o' a 'ixed asset in accordance 2it/ t/e li!its as %rescri+ed +y t/e Co!!ission 'ro! ti!e to ti!e= >9? >l? to underta9e o+ligations under leasing contracts exceeding one !illion ru%ees= and to declare interi! di*idend.
Rs.) !illion Rs.).--.---

50

".

R(.,/6)&,* b3 c&'c6/a)&,* #nstead o' /olding a !eeting o' t/e 1oard. t/e directors !ay ado%t a resolution +y circulation. $or %assing a resolution +y circulation. a dra't o' t/e %ro%osed resolution s/all +e circulated along 2it/ t/e necessary %a%ers. to all t/e directors. T/e resolution is considered to /a*e +een %assed 2/en a%%ro*ed +y all t/e directors. All resolution %assed +y circulation s/all +e included in t/e !inutes o' next !eeting o' 1oard o' directors 'or t/e %ur%ose o' aut/enticity.

=.

EENERAL MEETINES Meetings o' t/e co!%any are o' t2o ty%es. t/ose 2/ic/ !ust +e /eld and t/ose 2/ic/ !ay +e /eld. Deneral !eetings o' t/e co!%any are t/e !eetings o' t/e !e!+ers o' t/e co!%any and ordinary and s%ecial +usiness are transacted t/erein. T/e 'ollo2ing !eetings are /eld +y a co!%any. 1. S)a)6),'3 M(()&*7 E*ery co!%any 2/ic/ is incor%orated as a %u+lic co!%any is reEuired to /old a !eeting o' !e!+ers o' t/e co!%any not less t/an t/ree !ont/s and not !ore t/an six !ont/s since t/e day it +eco!es entitled to co!!ence +usiness. to +e called as tatutory Meeting 'or discussing *arious !atters relating to 'or!ation o' co!%any or arising out o' t/e statutory re%ort. 2. A**6a/ E(*('a/ M(()&*7.: >i? #n accordance 2it/ ection )5& o' t/e Ordinance e*ery co!%any !ust /old a general !eeting o' its !e!+ers 2/ic/ s/all +e called an Annual Deneral !eeting in t/e notice calling it. Calling o' annual general !eeting e*ery year is !andatory. T/e co!%anies are 'ree to con*ene any nu!+er o' !eetings o' its !e!+ers 'or any !atter during t/e year. 7-

>ii?

All general !eetings o' !e!+ers ot/er t/an statutory !eeting or annual general !eeting are called and 9no2n as extraordinary general !eetings.

>iii?

#n case o' listed co!%anies t/e Co!!ission and in ot/er. Registrar !ay grant extension u%to sixty days.

1.

F&'.) A**6a/ E(*('a/ M(()&*7 T/e 'irst annual general !eeting o' t/e co!%any !ust +e /eld 2it/in a %eriod o' eig/teen !ont/s 'ro! t/e date o' its incor%oration. T/e accounts %laced +e'ore t/e 'irst annual general !eeting s/all +e 'or t/e %eriod +eginning 'ro! t/e date o' incor%oration u% to t/e last day o' t/e 'inancial year ado%ted +y t/e co!%any. T/e accounts 'or t/e 'inancial year !ust +e laid +e'ore t/e 'irst annual general !eeting 2it/in a %eriod o' t/ree !ont/s 'ro! t/e end o' 'irst 'inancial year. ReEuire!ent o' %lacing t/e accounts +e'ore t/e co!%any in t/e annual general !eeting s/all +e strictly co!%lied 2it/ since t/e Registrar is not e!%o2ered to grant any extension o' ti!e 'or t/e sa!e.

2.

S(c,*4 a*4 .6b.(<6(*) 7(*('a/ 2(()&*7. T/e second annual general !eeting o' t/e co!%any s/all +e /eld in t/e next year o' t/e year in 2/ic/ t/e 'irst annual general !eeting 2as /eld in accordance 2it/ t/e %ro*isions o' section )5& o' t/e Ordinance. exceed )5 !ont/s. ection )5& %ro*ides t/at t/e ti!e lag +et2een t/e t2o annual general !eetings s/all not

3.

F&*a*c&a/ 3(a' $inancial year /as +een de'ined under clause >)7? o' su+-section >)? o' section , o' t/e Ordinance and it re'ers to t/e %eriod 'or 2/ic/ accounts are %laced +e'ore t/e annual general !eeting. #t !ay +e !ore or less t/an ), !ont/s exce%t 2/ere s%ecial %er!ission /as +een granted +y t/e registrar.

7)

4.

%a35 )&2( a*4 1/ac( ,- 2(()&*7 T/e annual general !eeting o' all t/e co!%anies s/all +e /eld at t/e registered o''ice o' t/e co!%any or at any ot/er %lace 2it/in t/e sa!e to2n or *illage in 2/ic/ t/e registered o''ice o' t/e co!%any is situated. Co!!ission !ay. /o2e*er. allo2 /olding annual general !eeting at so!e ot/er %lace.

5.

N,)&c( $or a !eeting to +e *alidly con*ened t/e a%%ro%riate lengt/ o' notice !ust +e gi*en. T/e lengt/ o' notice 'or all t/e general !eeting is t2enty one days. A !eeting !ay +e con*ened +y gi*ing a s/orter notice also. %ro*ided all t/e !e!+ers entitled to attend and *ote at a !eeting consent to it. T/e %ersons entitled to recei*e t/e notice areB Me!+ers C 2/ose na!e a%%ears in t/e register o' !e!+ers o' t/e co!%any. tatutory Auditors o' t/e co!%any 3irectors get a rig/t to recei*e t/e notice o' general !eeting o' t/e co!%any only i' t/ey also /a%%en to +e !e!+ers o' t/e co!%any.

=6.&*(.. At annual general !eeting t2o ty%es o' +usiness are transactedB (1) O'4&*a'3 b6.&*(.. $or t/e %ur%ose o' annual general !eeting. 'ollo2ing !atters are considered as ordinary +usiness >i? >ii? >iii? Consideration and ado%tion o' accounts. +alance s/eet and t/e re%orts o' t/e directors and auditors 3eclaration o' di*idend A%%oint!ent o' auditors and 'ixation o' t/eir re!uneration.

7,

(2)

S1(c&a/ b6.&*(.. #n t/e annual general !eeting. e*ery !atter ot/er t/an t/ose !entioned as ordinary +usiness. is 9no2n as s%ecial +usiness and needs to +e a%%ro*ed +y t/e !e!+ers as an ordinary or s%ecial resolution as !ay +e %ro%osed +y t/e notice. #rres%ecti*e o' t/e ty%e o' resolution %ro%osed. e*ery ite! o' s%ecial +usiness +e acco!%anied +y an ex%lanatory state!ent as %er reEuire!ent o' ection )7->)?>+? o' t/e HOrdinanceI.

!.

F6,'62 T/e articles o' a co!%any !ay contain %ro*isions regarding Euoru! o' t/e general !eeting. #n a+sence o' any s%eci'ic %ro*ision in t/e articles. ection )7- %ro*ides t/atB >a? in t/e case o' a %u+lic listed co!%any. unless t/e articles %ro*ide 'or a larger nu!+er. not less t/an ten !e!+ers %resent %ersonally 2/o re%resent not less t/an t2enty 'i*e %er cent o' t/e total *oting %o2er. eit/er o' t/eir o2n account or as %roxies. >+? #n t/e case o' any ot/er co!%any. unless t/e articles %ro*ide 'or a larger nu!+er. t2o !e!+ers %resent %ersonally 2/o re%resent not less t/an t2enty-'i*e %er cent o' t/e total *oting %o2er. eit/er o' t/eir o2n account or as %roxies. >c? #n t/e case o' a single !e!+er co!%any. single !e!+er %resent in %erson or +y %roxy.

".

C9a&'2a* $or %ro%er conduct o' !eetings. t/e articles generally contain %ro*isions regarding a%%oint!ent. rig/ts and %o2ers o' C/air!an o' t/e general !eeting. #n a+sence o' any suc/ %ro*ision. t/e C/air!an o' t/e 1oard s/all %reside o*er all general !eetings o' t/e co!%any and i' /e is not %resent 2it/in )5 !inutes 'or t/e a%%ointed ti!e. t/e 3irectors %resent s/all elect on o' t/e!sel*es to +e t/e C/air!an and i' none o' t/e directors are 2illing to 2or9 as c/air!an. t/e !e!+ers %resent s/all elect one o' t/e!sel*es to +e t/e c/air!an o' t/e !eeting. 7"

#.

M&*6)(. Minutes o' general !eetings o' t/e co!%any s/all +e !aintained in accordance 2it/ t/e %ro*isions o' ection )8" o' t/e Ordinance. E*ery co!%any !ust 9ee% !inutes o' all %roceedings o' general !eetings. #t !ust also 9ee% in a se%arate +oo9 !inutes o' !eetings o' its directors. Once a !inute /as +een signed eit/er +y t/e c/air!an o' t/e !eeting at 2/ic/ t/e %roceedings 2ere /eld. or +y t/e c/air!an o' t/e next succeeding !eeting. it is prima facie e*idence o' t/e %roceedings at t/e !eeting. T/e !inute +oo9s !ust +e 9e%t at t/e registered o''ice o' t/e co!%any. and t/e !inute +oo9 o' t/e general !eetings >t/oug/ not o' t/e directors? !ust +e a*aila+le 'or ins%ection +y any !e!+er during nor!al +usiness /ours 2it/out c/arge. Also. any !e!+er is entitled to +e %ro*ided 2it/ a co%y o' any suc/ !inutes 2it/in se*en days o' /is reEuesting t/e!. $or t/is ser*ice t/e co!%any !ay !a9e a no!inal c/arge.

1$.

E@)'a,'4&*a'3 E(*('a/ M(()&*7 All !eetings o' t/e co!%any ot/er t/an statutory !eeting and annual general !eeting are called as Extraordinary general !eetings >EDM?. An EDM can +e con*ened any nu!+er o' ti!es as co!%any 'eels necessary. A%%lica+ility o' %ro*isions in res%ect o' notice. resolution. c/air!an. resolutions. etc. are sa!e as a%%lica+le to annual general !eeting.

11.

0,>(' ,- )9( C,22&..&,* ), ca// M(()&*7. 6*4(' S(c)&,* 1!$ #' 'or any reason it is i!%ractica+le to call a statutory !eeting. annual general !eeting or any extraordinary general !eeting o' t/e co!%any. t/e Co!!ission !ay. eit/er o' its o2n !otion or on t/e a%%lication o' any director o' t/e co!%any or o' any !e!+er 2/o 2ould +e entitled to *ote at t/e !eeting. order a !eeting to +e called. /eld and conducted in suc/ a 2ay as t/e Co!!ission !ay t/in9 'it.

74

12.

C,*+(*&*7 ,- 7(*('a/ 2(()&*7 ,* 2(2b('. '(<6&.&)&,* ection )50 %ro*ides t/at t/e 1oard o' directors s/all %roceed to con*ene a !eeting o' t/e !e!+ers o' t/e co!%any 2it/in ,) days 'ro! recei%t o' a reEuisition 'ro! !e!+ers /olding not less t/an one-tent/ o' t/e %aid u% ca%ital carrying *oting rig/ts. T/e reEuire!ents as to t/e !e!+ers !a9ing reEuisition 'or /olding t/e !eeting /as to +e co!%lied 2it/ se%arately in res%ect o' e*ery !atters %ro%osed to +e ta9en u% in t/e general !eeting. T/e 1oard s/all /old t/e !eeting 2it/in ,) days 'ro! t/e date o' recei%t o' *alid reEuisition 'ailing 2/ic/ t/e !e!+ers !a9ing reEuisition !ay t/e!sel*es %roceed to con*ene t/e !eeting in t/e sa!e !anner. as nearly as %ossi+le. as t/at in 2/ic/ !eetings are called +y t/e 1oard and it s/all +e /eld at a date not later t/an t/ree !ont/s 'ro! t/e date o' de%osit o' reEuisition 2it/ t/e co!%any. All reasona+le ex%enses incurred +y t/e reEuisitionists s/all +e re%aid to t/e! +y t/e co!%any and in turn t/e co!%any !ay clai! suc/ su! as %aid to t/e reEuisitionists 'ro! t/e directors 2/o 2ere in de'ault.

13.

0',@&(.: Con'usion o'ten arises in res%ect o' t/is to%ic +ecause t/e 2ord %roxy /as t2o !eanings 2/ic/. t/oug/ closely related. are di''erent. $irstly. it can !ean a %erson 2/o attends a !eeting in %lace o' and as t/e re%resentati*e o' anot/er %erson entitled to attend a !eeting. econdly. it can !ean a 2ritten instru!ent indicating /o2 a %erson 2is/es /is *ote to +e used at a !eeting. Any !e!+er o' a co!%any entitled to attend and *ote at a !eeting is entitled to a%%oint anot/er %erson. as /is %roxy to attend and *ote 'or /i!.

75

14.

V,)&*7: #nitially. *oting is +y 2ay o' s/o2 o' /ands. On suc/ a *ote eac/ !e!+er /as one *ote. O+*iously in t/e e*ent o' a unani!ous *ote t/ere is no need 'or any ot/er !et/od o' *oting to +e considered. ;o2e*er. eEually o+*iously. t/is !et/od o' *oting is un'air to a %erson /a*ing a signi'icant s/are/olding in t/e co!%any. Accordingly. t/ere are rules 2/ic/ %er!it *oting to +e done on a %oll. in t/is regard. t/at on suc/ a *ote e*ery !e!+er s/all /a*e one *ote 'or e*ery s/are o' 2/ic/ /e is t/e /older.

15.

A4B,6'*2(*): A co!%anyIs articles usually !a9e so!e %ro*ision 'or adjourn!ent in certain circu!stances. $or exa!%le. i' a Euoru! is not %resent 2it/in /al' an /our 'ro! t/e ti!e a%%ointed 'or t/e start o' a !eeting. or i' during a !eeting a Euoru! ceases to +e %resent. t/en t/e !eeting 2ill stand adjourned to t/e sa!e day in t/e next 2ee9 at t/e sa!e ti!e or %lace or at suc/ ot/er ti!e or %lace as t/e directors !ay deter!ine. C/air!an !ay. 2it/ t/e consent o' a !eeting at 2/ic/ a Euoru! is %resent. adjourn t/e !eeting 'ro! ti!e to ti!e and 'ro! %lace to %lace. +ut t/at no +usiness s/all +e transacted at an adjourned !eeting ot/er t/an +usiness 2/ic/ !ig/t %ro%erly /a*e +een transacted at t/e !eeting /ad t/e adjourn!ent not ta9en %lace.

77

LIFTING THE VEIL OF INCORPORATION

T/e %rinci%le esta+lis/ed in -alomon v A -alomon . $o. (imited t/at a co!%any u%on incor%oration +eco!es a se%arate legal %erson. co!%letely distinct 'ro! its !e!+ers. is 'unda!ental to co!%any la2. Ne*ert/eless it is not so sacrosanct t/at it is not su+ject to so!e exce%tions. T/ere is no co/erent %attern created +y t/ose instances 2/ere t/e court /as +een %re%ared to go +e/ind t/e cor%orate *eil. W/ile all instances can +e descri+ed as +eing 'ounded u%on %olicy considerations. it is %ro+a+ly +est to consider t/e! under a series o' /eadingsB )? $raud ,? Agency "? Drou% o' Co!%anies 4? Ene!y-o2ners/i% or unla2'ul %ur%ose 5? Trust cases 7? Taxation 8? Co!%any Legislation Denerally

T/ese 2ill no2 +e considered in so!e detail. 1) F'a64 T/e court 2ill li't t/e *eil o' incor%oration 2/ere t/e co!%any is a s/a! 'or!ed 'or so!e 'raudulent %ur%ose or so t/at t/e %ro%rietors o' t/e co!%any can ex%loit rules o' la2 in an i!%ro%er !anner. A good exa!%le occurred in /e %ugle #ress (imited.

78

Re ugle !ress "imited #$%&$' :nder 2/at is no2 Co!%anies Act. )0&5. ection 4,& 2/ere in a ta9eo*er. t/e +idder acEuires 0-F o' t/e s/ares in t/e co!%any +eing ta9en o*er. /e can insist t/at t/e !inority s/are/older 2it/ )-F or less t/an )-F o' t/e co!%anyIs s/are ca%ital !ust sell t/ose s/ares to /i! at t/e contract rate. #n t/is case. Lac9son. /a2 and Tre+y 2ere s/are/olders in 1ugle Press Li!ited. Lac9son and /a2 eac/ /eld 4.5-- & ) s/ares and Tre+y /eld ).--- s/ares. t/us !a9ing a total s/are ca%ital o' M)-.---. Lac9son and /a2 2anted to +uy Tre+y out. +ut /e 2as un2illing to sell. Accordingly Lac9son and /a2 'or!ed a co!%any /a*ing a s/are ca%ital o' M)--. Lac9son and /a2 >;oldings? Li!ited. in 2/ic/ t/ey eac/ /eld /al' t/e s/ares. T/ey t/en caused Lac9son and /a2 >;oldings? Li!ited to !a9e an o''er to %urc/ase all t/e s/ares in 1ugle Press Li!ited at M)- %er s/are. Lac9son and /a2 acce%ted t/e o''er >2/ic/ 2as /ardly sur%rising? +ut Tre+y rejected it on t/e ground t/at t/e %rice 2as too lo2. T/ereu%on Lac9son and /a2 >;oldings? Li!ited soug/t to in*o9e 2/at is no2 Co!%anies Act.)0&5. ection 4,& to 'orce Tre+y to sell out at M)- %er s/are. #t 2as /eld +y t/e Court o' A%%eal t/at Tre+y 2ould not +e 'orced to sell. T/e ne2 co!%any 2as clearly a s/a! 'or!ed to get Tre+y out o' t/e +usiness. #n t/e 2ords o' ;ar!an L. Tre+y. t/e !inority s/are/older. /ad only to s/out and t/e 2alls o' Leric/o 'ell 'lat.

A si!ilar decision 2as reac/ed in (ones ) "ipman +elo2.

(ones ) "ipman #$%&*' Li%!an entered into a contract to sell land to Lones. ;e t/en c/anged /is !ind and 'or!ed a co!%any to 2/ic/ /e su+seEuently con*eyed t/e land. T/e strategy +e/ind

7&

t/is 2as to %re*ent Lones 'ro! o+taining an order 'or s%eci'ic %er'or!ance 'orcing Li%!an to con*ey t/e land to /i!. #n t/e circu!stances. /ad t/e co!%any /a*e +een bona fide and o2ned +y t/ird %arties suc/ a con*eyance could not /a*e +een set aside. ;o2e*er Russell L /eld t/at t/e co!%any 2as a s/a! 'or!ed 'or t/e sole %ur%ose o' de'eating LonesIs clai! to t/e land and. as suc/. t/e *eil o' incor%oration s/ould +e li'ted. %eci'ic %er'or!ance 2as accordingly ordered against Li%!an and /is co!%any. T/e contract 2it/ Lones /ad to +e /onoured.

+ilford ,otor Co. ) -orne #$%..' E 1 ;orne /ad +een e!%loyed +y Dil'ord Motor Co. as its !anaging director. 1y /is contract to ser*ice /e /ad co*enanted not to solicit custo!ers o' t/e co!%any a'ter lea*ing its e!%loy!ent. W/en t/is e!%loy!ent ca!e to an end. /e started +usiness on /is o2n account. o as to get around t/e restricti*e co*enant /e traded t/roug/ a co!%any L M ;orne & Co. Li!ited in 2/ic/ /is 2i'e and an e!%loyee 2ere t/e directors and s/are/olders. ;orne /i!sel' /ad no tangi+le interest in t/e co!%any. T/e Court o' a%%eal /eld t/at t/e *eil o' incor%oration s/ould +e li'ted to disclose t/at t/e co!%any 2as a !ere s/a!. Accordingly an injunction s/ould +e granted against +ot/ ;orne and /is co!%any to %re*ent t/eir +reac/ing t/e restricti*e co*enant 2it/ ;orneIs 'or!er e!%loyer.

2)

A7(*c3 Alt/oug/ a co!%any is a se%arate legal entity. in a%%ro%riate circu!stances t/e la2 2ill treat t/e co!%any as an agent o' its s/are/olders or controllers.
/mith0 /tone and 1night "imited ) irmingham Corporation #$%.%'

70

A co!%any too9 o*er a +usiness and su+seEuently o%erated it t/roug/ a su+sidiary co!%any 2/ic/ it treated as t/oug/ it 2ere a de%art!ent rat/er t/an as a sel'contained cor%orate entity. 1ir!ing/a! Cor%oration co!%ulsory acEuired land +elonging to t/e su+sidiary co!%any. T/e la2 as it stood 2as suc/ t/at t/e Cor%oration 2ould only /a*e to %ay co!%ensation 'or acEuiring t/e land i' t/e /olding co!%any rat/er t/an t/e su+sidiary could +e s/o2n to +e t/e occu%ier o' t/e land. T/e reason 'or t/is 2as t/at under t/e Land Clauses Consolidation Act. )&45 >under 2/ic/ t/e co!%ulsory acEuisition 2as e''ected? %urc/asers could e*ict occu%iers 2it/ s/ort tenancies !erely +y gi*ing t/e! notice. T/us t/e Euestion o' 2/et/er co!%ensation 2as %aya+le turned u%on 2/et/er t/e su+sidiary co!%any 2as carrying on its o2n +usiness or its %arent co!%anyIs +usiness. At9inson L. #n a judge!ent in 2/ic/ /e re*ie2ed t/e aut/orities on t/is %oint. concluded t/at. in t/e circu!stances o' t/is %resent case. t/e su+sidiary co!%any 2as si!%ly t/e agent o' t/e /olding co!%any and t/us co!%ensation 2as %aya+le in deciding 2/et/er t/e su+sidiary 2as carrying out t/e %arent co!%anyIs +usiness. six 'actors 2ere to +e considered. 1. 2. 3. 4. 5. . Were t/e %ro'its !ade +y t/e su+sidiary co!%any in 'act %ro'its o' t/e %arent co!%anyN Were t/e %ersons conducting t/e +usiness o' t/e su+sidiary a%%ointed +y t/e %arent co!%anyN Was t/e %arent co!%any t/e H/ead and +rainsI o' t/e trading *entureN 3id t/e %arent co!%any go*ern t/e +usinessN Were t/e %ro'its o' t/e su+sidiary co!%any !ade as a result o' t/e s9ill and direction o' t/e %arent co!%anyN Was t/e su+sidiary co!%any under t/e e''ecti*e and constant control o' t/e %arent co!%anyN

8-

>#t is di''icult i' not i!%ossi+le. to reconcile t/e agency %rinci%le laid do2n /ere 2it/ t/e rigidity o' -alomon0s case. #s it cynical to say /ere t/at t/e court 2as !erely trying to ensure t/at t/e Cor%oration %aid co!%ensation 'or t/e land it acEuiredN?

3)

E',61. ,- c,21a*&(. #ncreasingly t/e courts /a*e loo9ed at a grou% o' co!%anies as single econo!ic unit. #n a sense t/is is ine*ita+le /a*ing regard to t/e 2ay in 2/ic/ legislation regarding t/e co!%any accounts /as !o*ed to2ards accounting 'or grou%s as a single entity. #n !any 2ays t/is is *ery si!ilar to t/e agency exce%tion discussed a+o*e. and so!e 2riters treat t/e! as identical. An exa!%le o' li'ting t/e *eil o' incor%oration in t/e case o' grou%s o' co!%anies is to +e 'ound in t/e 'ollo2ing case.
D-N Food Distributors "imited ) "ondon orough of 2o3er -amlets #$%4&' 3;N ran a 2/olesale grocery +usiness 'ro! %re!ises 2/ic/ 2ere o2ned +y a 2/olly-o2ned su+sidiary co!%any. 1ron<e. 1ron<e and 3;N /ad exactly t/e sa!e directors. 1ron<e 2as not a trading co!%any and its only asset 2ere t/e %re!ises 'ro! 2/ic/ 3;N traded. 3;N /ad to cease trading. 3;N occu%ied t/e %re!ises as a licensee. T/e local aut/ority. To2er ;a!lets. co!%ulsorily acEuired t/e %re!ises. 1ecause o' t/is. 3;N /ad to cease trading. #' 3;N 2ere a !ere licensee. t/e local aut/ority 2ould +e o+liged only to %ay co!%ensation +ased u%on t/e site *alue. On t/e ot/er /and. i' 3;N could +e s/o2n to /a*e an interest in t/e land o*er and a+o*e t/at o' a !ere licensee. su+stantial co!%ensation 'or distur+ance 2ould +e %aya+le. #t 2as /eld +y t/e Court o' A%%eal t/at t/e grou% o' co!%anies s/ould in t/e circu!stances o' t/is case +e treated as a single trading unit. Accordingly su+stantial co!%ensation s/ould +e %aid. /a2 L L said t/at too legalistic a *ie2 s/ould not +e

8)

ado%ted. T/e exact 'acts o' t/e case s/ould +e considered. HT/e res%ecti*e roles 2/ic/ t/e co!%anies 'illedI /ad to +e +orne in !ind. HNo a+use is %recluded +y disregarding t/e +onds 2/ic/ +undled 3;N and 1ron<e toget/er in a close and. as 'ar as 1ron<e 2as concerned. indissolu+le relations/i%.I

>Again. t/is decision is /ard to reconcile 2it/ t/at in -alomon0s case?.

4)

E*(238,>*('.9&1 ,' 6*/a>-6/ 16'1,.( T/e courts are %re%ared to li't t/e *eil o' incor%oration so as to re*eal t/at t/e co!%any is ene!y-o2ned in 2arti!e as illustrated +elo2.
Daimler Co. "imited ) Continental 25re and Rubber Co. #+reat #$%$&' ritain' "td

All +ut one o' t/e s/ares in t/e Continental Tyre Co. 2ere o2ned +y %ersons resident in Der!any. All its directors 2ere resident in Der!any. T/e Euestion arose 2/et/er suc/ a co!%any /ad su''icient standing. at a ti!e 2/en England and Der!any 2ere at 2ar. to +ring %roceedings in t/e Englis/ courts 'or reco*ery o' a de+t. #t 2as /eld +y t/e ;ouse o' Lords t/at t/e *eil o' incor%oration s/ould +e li'ted to re*eal t/e true nature o' t/e co!%any and ex%ose t/e 'act t/at it 2as Der!an o2ned and controlled not2it/standing t/at it 2as incor%orated in England. Accordingly t/e co!%any could not +ring %roceedings in t/e Englis/ courts. Lord Par9er o' Waddington t/oug/t t/at an Englis/ co!%any could in t/e circu!stances o' t/is case assu!e an ene!y c/aracter. HT/is 2ill +e t/e case i' its agents or t/e %ersons in de facto control o' its a''airs. 2/et/er aut/ori<ed or not. are resident in an ene!y country. or. 2/ere*er resident. are ad/ering to t/e ene!y or ta9ing instructions 'ro! or acting under t/e control o' ene!ies.I ;e 2ent on to say t/at Ha co!%any

8,

registered in t/e :nited (ingdo!. +ut carrying on +usiness in a neutral country t/roug/ agents %ro%erly aut/ori<ed and resident /ere or in t/e neutral country. is prima facie to +e regarded as a 'riend. +ut !ay. t/roug/ its agents or %ersons in de facto control o' its a''airs acEuire an ene!y c/aracter.I

T/e courts 2ill li9e2ise li't t/e *eil o' incor%oration to re*eal an unla2'ul %ur%ose. Recently. in an unre%orted case. t/e court li'ted t/e *eil to s/o2 t/at a co!%any /ad +een 'or!ed 'or t/e %ur%ose o' %rostitution. #n %roceedings +roug/t +y t/e AttorneyDeneral. t/e court ordered t/at t/e co!%any +e struc9 o'' t/e register.

5)

T'6.) ca.(. On occasions t/e courts 2ill li't t/e *eil o' incor%oration so as to re*eal t/e c/aracteristics o' a co!%anyIs s/are/olders.
2rebanog 6or7ing ,en8s Club ) ,acDonald #$%9:' T/e Tre+anog Wor9ing MenIs Clu+ 2as incor%orated under t/e #ndustrial and Pro*ident ocieties Act )&0"-)0)". #t 2ould +uy alco/olic drin9 in its o2n na!e. %ay 'or it +y c/eEues dra2n on a +an9 account 2/ic/ it !aintained in its o2n na!e. and t/en sell it to its !e!+ers. #t 2as c/arged in t/e cri!inal courts 2it/ selling alco/olic liEuor 2it/out a licence. ;a*ing +een con*icted +e'ore !agistrates. it t/en a%%ealed to t/e 3i*isional Court. T/e a%%eal 2as success'ul. T/e clu+ 2as acEuitted. T/e !e!+ers o' t/e clu+ 2ere really t/e o2ners o' t/e drin9. Alt/oug/ t/e legal o2ners/i% o' t/e drin9 2as *ested in t/e clu+ since t/e drin9 /ad +een +oug/t in t/e clu+Is na!e. t/e clu+ 2as ne*ert/eless seen +y t/e court as /olding t/e drin9 as trustee 'or its !e!+ers. Accordingly. +ene'icial o2ners/i% o' t/e drin9 2as *ested in t/e !e!+ers. and so

8"

2/en t/e !e!+ers +oug/t drin9s at t/e clu+ t/ere 2as no sale since t/ey already o2ned t/e drin9. ;bbe50 ,al<ern 6ells "td < ,inistr5 of "ocal +o<ernment and !lanning #$%=$' A sc/ool 2as carried on t/roug/ t/e !ediu! o' a co!%any in 2/ic/ t/e s/ares 2ere /eld +y trustees on educational c/arita+le trusts. #t 2as /eld +y 3an92erts L t/at t/e *eil o' incor%oration s/ould +e li'ted so as to i!%ress u%on t/e co!%anyIs assets t/e ter!s o' t/e trusts.

Ta@a)&,* #n !any instances tax legislation 2ill go +e/ind t/e se%arate cor%orate %ersonality o' t/e co!%any e.g. in t/e case o' close co!%anies and grou%s o' co!%anies.

!)

C,21a*3 L(7&./a)&,* E(*('a//3 T/ere are a nu!+er o' instances 2/ere t/e Co!%anies Acts li't t/e *eil o' incor%oration. o!e o' t/e !ore i!%ortant o' t/ese are !entioned +elo2B a) C,21a*&(. Ac) 1#"55 S(c)&,* 24 G 2(2b('.9&1 b(/,> )>, #' a co!%any carries on +usiness 2it/out /a*ing at least t2o !e!+ers and does so 'or !ore t/an six !ont/s. a %erson 2/o. 'or t/e 2/ole %art or any %art o' t/e %eriod t/at it so carries on +usiness a'ter t/ose six !ont/s. is a !e!+er o' t/e co!%any and 9no2s t/at it is carrying on +usiness 2it/ only one !e!+er. +eco!es lia+le >jointly and se*erally 2it/ t/e co!%any? 'or t/e %ay!ent o' t/e de+ts o' t/e co!%any contracted during t/e %eriod or. as t/e case !ay +e. t/at %art o' it?. b) C,21a*&(. Ac) 1#"55 S(c)&,* 22# G 7',61 acc,6*). 84

#' at t/e end o' its 'inancial year a co!%any /as su+sidiaries. t/e directors !ust. as 2ell as %re%aring indi*idual accounts 'or t/at year. also %re%are grou% accounts. +eing accounts or state!ents 2/ic/ deal 2it/ t/e state o' a''airs and %ro'it or loss o' t/e co!%any and t/e su+sidiaries. c) C,21a*&(. Ac) 1#"55 S(c)&,* 34# G 1('.,*a/ /&ab&/&)3 >9('( c,21a*3 *a2( *,) 6.(4 #' an o''icer o' a co!%any or a %erson on its +e/al' signs or aut/ori<es to +e signed on +e/al' o' t/e co!%any any +ill o' exc/ange. %ro!issory note. endorse!ent. c/eEue or order 'or !oney or goods in 2/ic/ t/e co!%anyIs na!e is not !entioned in 'ull /e co!!its a cri!inal o''ence and also /e +eco!es %ersonally lia+le to t/e /older o' t/e +ill etc. 'or t/e a!ount o' it. unless it is 'ully %aid +y t/e co!%any. As 'or exa!%le. inB
-endon ) ;delman #$%4.' T/e directors o' L & R Agencies Li!ited signed a c/Eue on +e/al' o' t/e co!%any HL R Agencies Li!itedI. T/e a!%ersand 2as !issing 'ro! t/e co!%anyIs na!e. T/e co!%anyIs +an9 'ailed to /onour t/e c/eEue. #t 2as /eld t/at t/e directors 2ere %ersonally lia+le.

4)

I*.,/+(*c3 Ac) 1#" 5 S(c)&,* 213 G -'a646/(*) )'a4&*7 #' in t/e course o' t/e 2inding-u% o' a co!%any it a%%ears t/at any +usiness o' t/e co!%any /as +een carried on 2it/ intent to de'raud creditors o' t/e co!%any or creditors o' any ot/er %erson. or 'or any ot/er 'raudulent %ur%ose. t/e liEuidator !ay a%%ly to t/e court 'or a declaration t/at any %ersons 2/o 2ere 9no2ingly %arties to t/e carrying on o' t/e +usiness in 85

suc/ !anner s/ould +e lia+le to contri+ute as t/e court t/in9s %ro%er to t/e assets o' t/e co!%any.

()

I*.,/+(*c3 Ac) 1#" 5 S(c)&,* 214 G >',*7-6/ )'a4&*7 #' in t/e course o' a 2inding-u% o' a co!%any it a%%ears t/at t/e co!%any /as gone into insol*ent liEuidation and at so!e ti!e +e'ore t/e co!!ence!ent o' t/e 2inding-u% a director 9ne2 or oug/t to /a*e concluded t/at t/ere 2as no reasona+le %ros%ect t/at t/e co!%any 2ould a*oid going into insol*ent liEuidation. t/e liEuidator !ay a%%ly to t/e court 'or a declaration t/at suc/ director s/ould +e lia+le to contri+ute as t/e court t/in9s %ro%er to t/e assets o' t/e co!%any. T/e director /as a de'ence in suc/ %roceedings i' /e can s/o2 t/at /e too9 e*ery ste% 2it/ a *ie2 to !ini!i<ing t/e %otential loss to t/e co!%anyIs creditors as /e oug/t to /a*e ta9en assu!ing /i! to /a*e 9no2n t/at t/ere 2as no reasona+le %ros%ect t/at t/e co!%any 2ould a*oid going into insol*ent liEuidation.

87

SUMMARY #n t/is c/a%ter. 2e /a*e seen t/at co!%anies !ay +e categori<ed as unli!ited or li!ited +y s/ares or +y guarantee= as %u+lic or %ri*ate= or as !e!+ers o' a grou%. T/e de'initi*e category is t/at o' %u+lic co!%anies. Once a co!%any /as co!e into existence it acEuires a %ersonality se%arate 'ro! t/at o' its !e!+ers. At t/at stage. it can do !ost t/ings t/at a /u!an can do. $urt/er!ore. its !e!+ers. +eing se%arate 'ro! t/e co!%any. !ay /a*e t/e ad*antage o' li!ited lia+ility. T/at is. t/eir lia+ility 'or t/e co!%anyIs de+ts is li!ited to t/e a!ount. i' any. un%aid on t/eir s/ares. T/e *eil o' incor%oration +et2een a co!%any and its !e!+ers. /o2e*er. !ay cause di''iculties or !ay +e sued as a *e/icle 'or 'raud. T/e courts. t/ere'ore. are %re%ared to go +e/ind t/e *eil in certain circu!stances and to loo9 at t/e reality o' t/e co!%anyIs o2ners/i%. T/is is 9no2n as Hli'ting t/e *eilI. As 2e /a*e seen. t/ere is no general %rinci%le 2/ic/ can +e a%%lied to cases 2/ere t/e courts are %re%ared to do t/is. T/ey are %olicy decisions. alt/oug/ !any o' t/e! are +ased on t/e courtIs reluctance to allo2 t/e *eil o' incor%oration to +e used to cause /ar! to %eo%le outside t/e co!%any or to co!%any !e!+ers or e*en to t/e co!%any itsel'.

88

REMEDIES OF SHAREHOLDERS

Today 2e are going to exa!ine t/e 2ays in 2/ic/ s/are/olders 2/o are dissastis'ied 2it/ t/e 2ay in 2/ic/ t/eir co!%any is +eing run can o+tain a re!edy. T/e redress o' s/are/olderIs grie*ances can +e ac/ie*ed in t2o %rinci%al 2ays. eit/er +y 2ay o' an action %er!itted +y t/e courts or +y %roceedings ta9en under t/e Co!%anies Ordinance. )0&4. $irst. /o2e*er. it is necessary to loo9 at t/e instances 2/ere an indi*idual s/are/older can o+tain re!edy in context.

T9( R6/( &* Foss ) -arbottle (1#43) #t 2ill +e recalled t/at under t/e doctrine o' incor%oration once a co!%any /as +een 'or!ed it is a se%arate legal %erson in its o2n rig/t. T/is 2as t/e reasoning +e/ind t/e judg!ent in /alomon < /alomon > Co. "td. As a se%arate legal entity in its o2n rig/t. a co!%any can !a9e contracts. o2n %ro%erty and %artici%ate in legal %roceedings. Wit/in co!%anies t/ere is a general %rinci%le o' !ajority rule. #n ot/er 2ords i' t/e !ajority s/are/olders decide to 'ollo2 a %articular course o' action t/ere is not/ing t/at !inority s/are/olders can do to c/allenge t/is. T/is is %articularly i!%ortant 2/ere t/ere is a co!%any in 2/ic/ t/e directors o2n t/e !ajority o' t/e s/ares +ut 2/ere t/ere are !inority s/are/olders.

T9( -ac). ,- Foss < -arbottle T2o !inority s/are/olders in a co!%any +roug/t an action against t/e co!%anyIs directors alleging t/at certain assets o' t/e co!%any /ad +een !isa%%lied +y t/e directors and t/at t/e directors /ad i!%ro%erly created !ortgages o*er so!e o' t/e co!%anyIs %ro%erty. #t 2as /eld t/at t/e s/are/olders 2ere not co!%etent to act as %lainti''s in t/ese %roceedings. W/en a 2rong is done to a co!%any. t/e %ro%er %lainti''s in any action to re!edy t/at 2rong is t/e co!%any itsel'.

8&

R(a.,*. -,' )9( '6/( T/e 'ollo2ing reasons are usually gi*en 'or t/e rule in 1oss v 2arbottleB

).

#t asserts t/e se%arate legal %ersonality o' t/e co!%any. W/en a 2rong is done to t/e co!%any. t/e %ro%er %erson to sue to re!edy t/e situation is t/e co!%any itsel'. $or exa!%le. since directorsI duties are o2ed to t/e co!%any. t/e %ro%er %lainti'' in any action to en'orce t/ose duties is t/e co!%any itsel'.

,.

#t %re*ents 'utile litigation.

E@c(1)&,*. ), )9( '6/( &* Foss < -arbottle T/e rule 2/ic/ %ro*ides t/at t/e co!%any is t/e %ro%er co!%lainants in any action concerning a 2rong done to itsel' is essentially a %rocedural rule. As suc/ it 2ill not +e allo2ed to result in injustice and so t/ere are a nu!+er o' exce%tions to it. T/ese exce%tions are as 'ollo2sB >)? W/ere t/e act co!%lained o' is illegal or ultra vires. An exa!%le o' t/is arose in t/e case o' #arke v 3aily 4e!s 2/ere. it 2ill +e recalled. a s/are/older o+tained a declaration 'ro! t/e court t/at e' gratia redundancy %ay!ents +eing !ade +y t/e co!%any 2ere ultra vires and so t/e directors s/ould +e restrained 'ro! %aying t/e!. >,? W/ere t/e act co!%lained o' constitutes a 'raud +y t/e !ajority o' t/e !e!+ers on !inority s/are/olders. An exa!%le o' 'raud is 2/ere directors o' a co!%any di*ert %ro'ita+le contracts 'ro! t/e co!%any and ta9e t/e +ene'it o' t/e! t/e!sel*es. $or exa!%le. in $ook v 3eeks 3irectors 2/o 2ere controlling s/are/olders o' t/e co!%any negotiated a contract in t/e na!e o' t/e co!%any. T/ey t/en too9 t/e contract in t/eir o2n na!es. A !inority s/are/older 2as %er!itted to sue t/e

80

directors on +e/al' o' t/e co!%any to co!%el t/e! to account to t/e co!%any 'or t/eir %ro'its.

#t is i!%ortant to distinguis/ +et2een t/e situation 2/ere t/e directors are 'raudulent 'ro! t/at 2/ere t/ey are !erely negligent. As a general rule a !inority s/are/oldersI action cannot +e +roug/t i' t/e directors are si!%ly negligent.

;o2e*er. t/is is not so 2/ere t/e negligence o' t/e directors results in a +ene'it to t/e directors. W/ere negligence results in a +ene'it to t/e directors t/en suc/ conduct !ay a!ount to a 'raud on t/e !inority.

T9( *a)6'( ,- a* ac)&,* b',679) b3 a .9a'(9,/4(' An action +roug/t +y a a s/are/older !ay ta9e one o' t2o 'or!s. #t !ay +e a deri*ati*e action or it !ay +e a re%resentati*e action. T/e 'or!er is a %rocedural de*ice allo2ing t/e aggrie*ed s/are/older to sue in t/e na!e o' t/e co!%any. #n ot/er 2ords. /is rig/t to sue deri*es 'ro! t/e co!%any. 1e'ore t/e court 2ill allo2 suc/ an action to +e +roug/t. it !ust +e satis'ied t/at t/e %lainti'' is a %ro%er %erson to +ring t/e action. #'. 'or exa!%le. a s/are/olderIs conduct is in so!e 2ay tainted. t/en /e !ay not +ring an action.

T9( a/)('*a)&+( '(2(43 #nitially t/e %rinci%al re!edy a*aila+le to a s/are/older 2/o 2as dissatis'ied 2it/ t/e 2ay in 2/ic/ t/e co!%any 2as +eing run 2as eit/er to sell /is s/ares >i' t/ere 2as an a*aila+le !ar9et? or to %etition 'or t/e co!%any to +e 2ound u%. #t 2as t/oug/t t/at t/ere s/ould +e so!e ot/er re!edy a*aila+le 2/ic/ 2ould /a*e t/e e''ect o' allo2ing t/e court to !a9e 2/ate*er order it t/oug/t 'it in order to grant relie' in res%ect o' t/e !atters co!%lained o'.

&-

T/is re!edy is no2 to +e 'ound in section ,0- o' t/e Co!%anies Ordinance. )0&4. #t is 'reEuently re'erred to as Ht/e alternati*e re!edyI. and in t/is context t/e 2ord Halternati*eI !eans t/at t/e re!edy in section ,0- is an alternati*e to a 'or!al 2inding u% o' t/e co!%any.

E',6*4 -,' )9( ac)&,* 6*4(' .(c)&,* 2#$ Any !e!+er or !e!+ers /olding not less t/an ,-F o' issued s/are ca%ital or t/e Registrar is o' t/e o%inion t/at t/e a''airs o' t/e co!%any are +eing conducted in an unla2'ul or 'raudulent !anner or in a !anner o%%ressi*e to t/e !e!+ers or are +eing conducted in a !anner %rejudicial to t/e %u+lic interest !ay a%%ly to t/e ;ig/ Court under section ,0- o' t/e Co!%anies Ordinance. )0&4.

T9( 0'&*c&1/( ,- MaB,'&)3 R6/( T/e ti!e-/onoured and de!ocratic %rinci%le o' !ajority rule. +ac9ed +y t/ese ot/er 'actors. necessarily !eans t/at Euite su+stantial %o2er is %laced in t/e /ands o' t/ose 2/o control !ore t/an /al' o' t/e *otes on t/e +oard or at a s/are/oldersI !eeting C and. indeed. 2/ere s/ares are 2idely dis%ersed a!ong a large nu!+er o' !e!+ers. co!%ara+le %o2er can +e 2ielded 2it/ co!!and o' a good deal less t/an 5)F o' t/e *otes. Minority !e!+ers !ust. in %rinci%le. acce%t t/e decisions o' t/e !ajority and !ust also ac9no2ledge t/at t/e %o2er la2'ully enjoyed +y t/eir !ore nu!erous +ret/ren is a 'act o' +usiness li'e. #n t/eory it is. o' course. o%en to t/e! to see9 to +ring a+out c/ange +y t/e nor!al de!ocratic %rocesses o' %ersuasion. lo++ying. %u+licity and so on= and it !ay so!eti!es +e a%%ro%riate to argue t/at a s/are/older 2/o does not agree 2it/ t/e %olicy o' t/ose in control. s/ould sell /is s/ares and in*est /is !oney else2/ere. S(c)&,* 41$ G 415

&)

WINDING UP OF COMPANIES AND PRESENT PROCEDURE

#n t/e 2inding u% >or liEuidation C t/e ter!s are synony!ous? o' a co!%any it gi*es u% its +usiness. sells o'' its assets. %ays its de+ts >or. i' it is insol*ent. does so to t/e extent t/at its 'unds allo2? and distri+utes 2/ate*er sur%lus re!ains a!ongst its s/are/olders or ot/er2ise as its !e!orandu! and articles o' association !ay %ro*ide. T/e conduct o' t/e 2inding u% is %laced +y la2 in t/e /ands o' a li5uidator6 and on /is a%%oint!ent t/e directorsI %o2er to !anage t/e +usiness o' t/e co!%any la%ses. T/e co!%any continues in +eing t/roug/out t/e %rocess o' 2inding u%B t/ere is still a cor%orate %ersonality= and all cor%orate acts in t/e course o' t/e liEuidation. suc/ as t/e trans'er o' %ro%erty and t/e institution o' legal %roceedings. are done in its na!e rat/er t/an +y t/e liEuidator in /is o2n na!e. T/e co!%any ceases to exist only +y t/e 'or!al act o' dissolution a'ter t/e 2/ole o' t/e 2inding u% %rocedure /as +een co!%leted. A co!%any !ay +e 2ound u% co!%ulsorily. i.e. +y court order. or *oluntarily. as a conseEuence o' a s%ecial resolution %assed +y t/e s/are/olders. #n a co!%ulsory 2inding u%. t/e liEuidator is a%%ointed +y t/e court and is in la2 regarded as an o''icer o' t/e court acting under its direction and control. #n a *oluntary 2inding u%. t/e liEuidator is a%%ointed +y t/e s/are/olders i' t/e directors are a+le to declare t/at t/e co!%any is sol*ent= i' not. t/e co!%anyIs creditors /a*e t/e %o2er o' a%%oint!ent and exercise general control o*er t/e conduct o' t/e liEuidation.

&,

I*)',46c)&,* We /a*e no2 co!e to exa!ine t/e 2inding u% o' a co!%any. o!eti!es t/is is re'erred to as liEuidation and t/e t2o 2ords are interc/angea+le. A 2inding u% goes t/roug/ t/ree distinct stages >a? >+? >c? t/e co!!ence!ent and a%%oint!ent o' t/e liEuidator. t/e calling in o' t/e assets= and t/e distri+ution o' t/e assets.

T/e 2inding u% o' a co!%any /as to +e distinguis/ed 'ro! t/e dissolution o' a co!%any. 3issolution is t/e actual stri9ing o'' o' t/e co!%any 'ro! t/e records o' t/e Registrar o' Co!%anies. Winding u% is t/e %rocess 2/ic/ %recedes t/is. T/e cor%orate status o' t/e co!%any continues t/roug/out t/e %rocess o' 2inding u%. o in a sense 2e are loo9ing at a situation 2/ic/ is analogous to a /u!an +eing +eing told t/at /e is ter!inally ill. T/e diagnosis o' t/e illness. li9e t/e co!!ence!ent o' t/e 2inding u% is not t/e end o' li'e. T/is continues until t/e !o!ent o' deat/. T31(. ,- >&*4&*7 61: T/ere are *arious ty%es o' 2inding u%. T/ey are illustrated as underB !e!+ersI 6oluntary creditorsI Winding-u% Co!%ulsory

T/e +road di*ision is +et2een co!%ulsory and *oluntary. T/e co!%ulsory 2inding u% co!!ences +y 2ay o' a court order 'ollo2ing a %etition 'or suc/ an order +eing %resented +y so!eone. usually a creditor or a !e!+er o' t/e co!%any. A *oluntary 2inding u% is &"

co!!enced +y a resolution o' t/e !e!+ers. T/e court /as no in*ol*e!ent in t/e co!!ence!ent o' suc/ a 2inding u%. T/e di*ision o' *oluntary 2inding u% into !e!+ersI *oluntary and creditorsI *oluntary re'lects t/e control o' t/e 2inding u%. #n a !e!+ersI *oluntary 2inding u%. t/e liEuidator is a%%ointed +y t/e !e!+ers. #n a creditorsI *oluntary 2inding u%. /e is usually a%%ointed +y t/e creditors. O+*iously. 2/oe*er !a9es t/e a%%oint!ent /as so!e degree o' control o*er t/e liEuidator.

VOLUNTARY WINDING UP: T/ere are t2o circu!stances in 2/ic/ a co!%any !ay +e 2ound u% *oluntarilyB >)? W/en t/e co!%any /as +een 'or!ed 'or a 'ixed ti!e or 'or a s%eci'ic %ur%ose. it !ay +e 2ound u% 'ollo2ing an ordinary resolution %assed +y t/e !e!+ers in general !eeting 2/en t/at ti!e /as ex%ired or t/e %ur%ose /as +een ac/ie*ed. >,? W/en t/e co!%any resol*es +y s%ecial resolution t/at it s/ould +e 2ound u% *oluntarily. Dround >1? is *ery seldo! encountered in %ractice. Co!%anies are *ery seldo! 'or!ed 'or a set %eriod o' ti!e or 'or a single %ur%ose. 1ecause o' t/e initial cost o' setting u% a co!%any. t/ey are al!ost al2ays loo9ed u%on as continuing entities. C,*.(<6(*c(. ,- a >&*4&*7 61 '(.,/6)&,*: T/e %assing o' a resolution to 2ind u% t/e co!%any /as t/e 'ollo2ing e''ectsB >)? T/e co!%any !ust cease to carry on its +usiness exce%t inso'ar as !ay +e reEuired 'or its +ene'icial 2inding u%. >,? ;o2e*er. t/e cor%orate state and cor%orate %o2ers o' t/e co!%any continue until t/e co!%any is dissol*ed. >"? Any trans'er o' s/ares !ade ot/er t/an 2it/ t/e sanction o' t/e liEuidator is *oid. &4
- "5&

- "7-

>4? >5?

:%on t/e a%%oint!ent o' a liEuidator. all t/e %o2ers o' t/e directors cease. Wit/in ten days o' t/e %assing o' t/e resolution. t/e co!%any !ust gi*e notice o' it in t/e O''icial Da<ette.

%(c/a'a)&,* ,- .,/+(*c3: T/e signi'icant di''erence +et2een a !e!+ersI and a creditorsI *oluntary 2inding u% is t/at in a !e!+ersI *oluntary 2inding u% t/e co!%any is sol*ent and in a creditorsI *oluntary 2inding u% it is insol*ent. #n a !e!+ersI *oluntary 2inding u%. t/e liEuidator is a%%ointed +y t/e !e!+ers. T/us. t/is !ode o' 2inding u% is 'a*oured +y t/e directors since t/eir conduct is li9ely to +e less *igorously in*estigated +y t/e liEuidator t/an i' /e 2ere t/e creditorsI no!inee. T/e declaration !ust state t/at t/e directors /a*e !ade a 'ull enEuiry into t/e co!%anyIs a''airs and t/at. /a*ing done so. t/ey /a*e 'or!ed t/e o%inion t/at t/e co!%any /as no de+ts or it 2ill +e a+le to %ay all its de+ts in 'ull 2it/in a %eriod not exceeding ), !ont/s 'ro! t/e %assing o' t/e resolution. T/e resolution !ust +e !ade 2it/in t/e 'i*e 2ee9s i!!ediately %rior to t/e %assing o' t/e resolution and !ust contain a state!ent o' t/e co!%anyIs assets and lia+ilities as at t/e latest %ractica+le date %rior to t/e !a9ing o' t/e declaration. A director !a9ing suc/ a declaration 2it/out /a*ing reasona+le grounds 'or t/e o%inion t/at t/e co!%any 2ill +e a+le to %ay its de+ts in 'ull as stated co!!its a cri!inal o''ence as /e s/all +e %unis/a+le 2it/ i!%rison!ent 'or a ter! o' six !ont/s. A 2inding u% 'ollo2ing t/e !a9ing o' a directorIs declaration o' sol*ency is 9no2n as a !e!+ersI *oluntary 2inding u% and a 2inding u% 2/ere no suc/ declaration /as +een !ade is 9no2n as a creditorsI *oluntary 2inding u%. A11,&*)2(*) ,- )9( /&<6&4a),' &* a 2(2b('. +,/6*)a'3 >&*4&*7 61: #n a !e!+ersI *oluntary 2inding u% t/e liEuidator is a%%ointed +y t/e !e!+ers in general !eeting. T/us. t/e %rocedure 'or a !e!+ersI *oluntary 2inding u% is as 'ollo2sB >)? directors enEuire into t/e a''airs o' t/e co!%any.

&5

>,? >"?

directors !a9e a declaration o' sol*ency. a general !eeting o' t/e co!%any is con*ened 'or %assing a s%ecial resolution %utting t/e co!%any into liEuidation and a%%ointing a liEuidator.

>4?

T/e %o2ers o' t/e directors cease and t/e liEuidator %roceeds 2it/ t/e 2inding u% o' t/e co!%any.

#n t/e e*ent o' a *acancy occurring in t/e o''ice o' liEuidator. 2/et/er +y deat/. resignation or ot/er2ise. t/e co!%any in general !eeting !ay a%%oint a %erson 2/o /as gi*en /is 2ritten consent to act as liEuidator. A11,&*)2(*) ,- a /&<6&4a),' &* a c'(4&),'. +,/6*)a'3 >&*4&*7 61: T/e %rocedure 2/ere t/ere is no declaration o' sol*ency. T/e co!%any s/all call a !eeting o' its creditors 'or t/e day. or t/e day next 'ollo2ing day on 2/ic/ t/e resolution 'or a *oluntary 2inding u% is to +e %assed. T/e co!%any s/all cause notice o' t/e !eeting o' creditors to +e ad*ertised in t/e !anner s%eci'ied in ection "7). T/e directors and c/ie' executi*e !ust dra2 u% a state!ent o' t/e a''airs o' t/e co!%any 2/ic/ t/ey !ust lay +e'ore t/e creditorsI !eeting. 0,>('. ,- )9( /&<6&4a),' &* a +,/6*)a'3 >&*4&*7 61: T/e liEuidator in a *oluntary 2inding can exercise t/e 'ollo2ing %o2ers 2it/out sanction >eit/er o' t/e court or t/e creditors?B >)? 1ring or de'end any action or any ot/er legal %roceedings on +e/al' o' t/e co!%any. >,? >"? Carry on t/e +usiness o' t/e co!%any so 'ar as is necessary 'or its +ene'icial 2inding u%. ell any o' t/e co!%anyIs %ro%erty +y %u+lic auction or %ri*ate contract.

&7

>4?

Carry out all acts and execute in t/e na!e and on +e/al' o' t/e co!%any all deeds. recei%ts and ot/er docu!ents and to use. 2/ere necessary. t/e co!%anyIs seal.

C,216/.,'3 /&<6&4a)&,* a-)(' c,22(*c(2(*) ,- +,/6*)a'3 /&<6&4a)&,*: A *oluntary liEuidation does not %re*ent any creditor or contri+utory a%%lying to /a*e it 2ound u% +y t/e court. 1e'ore t/e court 2ill !a9e an order in t/ese circu!stances it !ust +e satis'ied t/at t/ere are sound reasons as to 2/y a *oluntary 2inding u% is ina%%ro%riate in t/e circu!stances. T/is !ig/t. 'or exa!%le. +e t/e case 2/ere t/ere is no liEuidator acting or /e is 'ound to /a*e so!e %ersonal interest in t/e co!%any ot/er t/an +y reason si!%ly o' /is a%%oint!ent. W/en a co!%ulsory 2inding u% 'ollo2s a *oluntary 2inding u%. all %roceedings ta9en in t/e *oluntary 2inding u% are treated as /a*ing +een *alidly ta9en unless t/e court. on %roo' o' 'raud or !ista9e. directs ot/er2ise. COMPULSORY WINDING UP I*)',46c)&,*: #n t/is !et/od o' 2inding u%. a liEuidator is a%%ointed. T/is is. o' course. a 'ar !ore ex%ensi*e 2ay o' starting a 2inding u% t/an t/e *oluntary 2inding u%. T/e res%ondent in any case 'or a co!%ulsory 2inding u% order is al2ays t/e co!%any and. t/ere'ore. since t/e co!%any +ears t/e costs t/ere 2ill +e less !oney at t/e end o' t/e day 'or creditors /a*ing a clai! against it. #n s%ite o' t/is. a co!%ulsory 2inding u% enjoys ad*antages o*er a *oluntary one in certain circu!stances. $or exa!%le. a co!%ulsory 2inding u% is dee!ed to co!!ence at t/e %resentation o' t/e %etition. On t/e ot/er /and. a *oluntary 2inding u% is dee!ed to co!!ence. at t/e ti!e o' t/e %assing o' t/e resolution. #t is so!eti!es %re'era+le 'or t/e 2inding u% to +e co!%ulsory rat/er t/an *oluntary +ecause o' t/e earlier co!!ence!ent. Anot/er ad*antage o' t/e co!%ulsory 2inding u%. in certain circu!stances. is t/at t/ere are 2ider in*estigati*e %o2ers a*aila+le in t/e 'or!er 2/ic/ !ay +e use'ul in t/e e*ent o' t/e directors /a*ing acted 2rong'ully. &8

E',6*4. -,' a c,216/.,'3 >&*4&*7 61: T/e grounds on 2/ic/ a %etition !ay +e %resented are as 'ollo2sB>)? i' t/e co!%any /as. +y s%ecial resolution. resol*ed t/at t/e co!%any +e 2ound u% +y t/e Court= >,? i' de'ault is !ade in deli*ering t/e statutory re%ort to t/e registrar or in /olding t/e statutory !eeting or any t2o consecuti*e annual general !eetings= >"? i' t/e co!%any does not co!!ence its +usiness 2it/in a year 'ro! its incor%oration. or sus%ends its +usiness 'or a 2/ole year= >4? i' t/e nu!+er o' !e!+ers is reduced. in t/e case o' %ri*ate co!%any. +elo2 t2o or. in t/e case o' any ot/er co!%any +elo2 se*en= >5? >7? >i? i' t/e co!%any is una+le to %ay its de+ts= i' t/e co!%any isBcon*inced or +roug/t 'ort/ 'or. or is or /as +een carrying on. unla2'ul or 'raudulent acti*ities= >ii? >iii? carrying on +usiness not aut/ori<ed +y t/e !e!orandu!= conducting its +usiness in a !anner o%%ressi*e to any o' its !e!+ers or %ersons concerned 2it/ t/e 'or!ation or %ro!otion o' t/e co!%any or t/e !inority s/are/olders= >i*? run and !anaged +y %ersons 2/o 'ail to !aintain %ro%er and true accounts. or co!!it 'raud. !is'easance or !al'easance in relation to t/e co!%any= or >*? !anaged +y %ersons 2/o re'use to act according to t/e reEuire!ents o' t/e !e!orandu! or articles or t/e %ro*isions o' t/is Ordinance or 'ail to carry out t/e directions or decisions o' t/e Court or t/e registrar or t/e Co!!ission gi*en in t/e exercise o' %o2ers under t/is Ordinance= &&

>8? >&?

i'. +eing a listed co!%any. it ceases to +e suc/ co!%any= i' t/e Court is o' o%inion t/at it is just and eEuita+le t/at t/e co!%any s/ould +e 2ound u%= or

>0?

i' t/e co!%any ceases to /a*e a !e!+er.

Explanation: T/e %ro!otion or t/e carrying on o' any sc/e!e or +usiness. exce%t t/e +usiness carried on under t/e %ro*isions o' t/e #nsurance Act. )0"&. /o2soe*er descri+ed. 2/ere+y. in return 'or a de%osit or contri+ution. 2/et/er %eriodically or ot/er2ise. o' a su! o' !oney in cas/ or +y !eans o' cou%ons. certi'icates tic9ets or ot/er docu!ents. rig/t or +ene'it. directly or indirectly. and 2/et/er 2it/ or 2it/out any ot/er rig/t or +ene'it. deter!ined +y c/ance or lottery or any ot/er li9e !anner. is assured or %ro!ised s/all +e dee!ed to +e an unla2'ul acti*ity. I*ab&/&)3 ), 1a3 4(b).: >)? HS(c)&,* 3$ (1)I

T/e !ost co!!on ground 'or a co!%ulsory 2inding u% order in %ractice is t/at a co!%any cannot %ay its de+ts. #t occursB >a? i' a creditor. +y assign!ent or ot/er2ise. to 2/o! t/e co!%any is inde+ted in a su! exceeding one %er cent o' its %aid-u% ca%ital or 'i'ty t/ousand ru%ees. 2/ic/e*er is less. t/an due. /as ser*ed on t/e co!%any. +y causing t/e sa!e to +e deli*ered +y registered %ost or ot/er2ise. at its registered o''ice. a de!and under /is /and reEuiring t/e co!%any to %ay t/e su! so due and t/e co!%any /as 'or t/irty days t/erea'ter neglected to %ay t/e su!. or to secure or co!%ound 'or it to t/e reasona+le satis'action o' t/e creditor= or >+? i' execution or ot/er %rocess issued on a decree or order o' any court or any ot/er co!%etent aut/ority in 'a*our o' a creditor o' t/e co!%any is returned unsatis'ied in 2/ole or in %art= or >c? i' it is %ro*ed to t/e satis'action o' t/e court t/at t/e co!%any is una+le to %ay its de+ts. and. in deter!ining 2/et/er a co!%any is una+le to %ay its de+ts. t/e

&0

Court s/all ta9e into account t/e contingent and %ros%ecti*e lia+ilities o' t/e co!%any. >,? T/e de!and re'erred to in clause >a? o' su+-section >)? s/all +e dee!ed to /a*e +een duly gi*en under t/e /and o' t/e creditor i' it is signed +y an agent or legal ad*iser duly aut/ori<ed on /is +e/al'. or in t/e case o' a 'ir! i' it is signed +y suc/ agent or legal ad*iser or +y any !e!+er o' t/e 'ir! on +e/al' o' t/e 'ir!. 0',+&.&,*. a. ), a11/&ca)&,*. -,' >&*4&*7 61: (S(c)&,* 3$#)

An a%%lication to t/e Court 'or t/e 2inding u% o' a co!%any s/all +e +y %etition %resented. su+ject to t/e %ro*isions o' t/is section. eit/er +y t/e co!%any. or +y any creditor or creditors >including any contingent or %ros%ecti*e creditor or creditors?. or +y any contri+utory or contri+utories. or +y all or any o' t/e a'oresaid %arties. toget/er or se%arately. or +y t/e registrar. or +y t/e Co!!ission or +y a %erson aut/ori<ed +y t/e Co!!ission in t/at +e/al'B Pro*ided t/atB>)? a contri+utory s/all not +e entitled to %resent a %etition 'or 2inding u% a co!%any unlessB>i? eit/er t/e nu!+er o' !e!+ers is reduced. in t/e case o' a %ri*ate co!%any. +elo2 t2o. or. in t/e case o' any ot/er co!%any. +elo2 se*en= or >ii? t/e s/ares in res%ect o' 2/ic/ /e is a contri+utory or so!e o' t/e! eit/er 2ere originally allotted to /i! or /a*e +een /eld +y /i!. and registered in /is na!e. 'or at least six !ont/s during t/e eig/teen !ont/s +e'ore t/e co!!ence!ent o' t/e 2inding u%. or /a*e de*ol*ed on /i! t/roug/ t/e deat/ o' a 'or!er /older= >,? t/e registrar s/all not +e entitled to %resent a %etition 'or t/e 2inding u% o' a co!%any unless t/e %re*ious sanction o' t/e Co!!ission /as +een o+tained to t/e %resentation o' t/e %etitionB

0-

Pro*ided t/at no suc/ sanction s/all +e gi*en unless t/e co!%any /as 'irst +een a''orded an o%%ortunity o' !a9ing a re%resentation and o' +eing /eard= >"? t/e Co!!ission or a %erson aut/ori<ed +y t/e Co!!ission in t/at +e/al' s/all not +e entitled to %resent a %etition 'or t/e 2inding u% o' a co!%any unless an in*estigation into t/e a''airs o' t/e co!%any /as re*ealed t/at it 2as 'or!ed 'or any 'raudulent or unla2'ul %ur%ose or t/at it is carrying on a +usiness no aut/ori<ed +y its !e!orandu! or t/at its +usiness is +eing conducted in a !anner o%%ressi*e to any o' its !e!+ers or %ersons concerned in t/e 'or!ation o' t/e co!%any or t/at its !anage!ent /as +een guilty or 'raud. !is'easance or ot/er !isconduct to2ards t/e co!%any or to2ards any o' its !e!+ers= and suc/ %etition s/all not +e %resented or aut/ori<ed to +e %resented +y t/e Co!!ission unless t/e co!%any /as +een a''orded an o%%ortunity o' !a9ing a re%resentation and o' +eing /eard= >4? t/e Court s/all not gi*e a /earing to a %etition 'or 2inding u% a co!%any +y a contingent or %ros%ecti*e creditor until suc/ reasona+le and until a prima facie case 'or 2inding u% /as +een esta+lis/ed to t/e satis'action o' t/e Court= >5? t/e Court s/all not gi*e a /earing to a %etition 'or 2inding u% a co!%any +y t/e co!%any until t/e co!%any /as 'urnis/ed 2it/ its %etition. in t/e %rescri+ed !anner. t/e %articulars o' its assets and lia+ilities and +usiness o%erations and t/e suits or %roceedings %ending against it. S6&). .)a3(4 ,* >&*4&*7 61 ,'4(': >)? (S(c)&,* 31 )

W/en a 2inding u% order /as +een !ade or %ro*isional !anager /as +een a%%ointed. no suit or ot/er legal %roceeding s/all +e %roceeded 2it/ or co!!enced against t/e co!%any exce%t +y lea*e o' t/e Court. and su+ject to suc/ ter!s as t/e Court !ay i!%ose.

>,?

T/e Court 2/ic/ is 2inding u% t/e co!%any s/all. not2it/standing anyt/ing contained in any ot/er la2 'or t/e ti!e +eing in 'orce. /a*e jurisdiction to entertain. or dis%ose o'. any suit or %roceeding +y or against t/e co!%any. 0)

>"?

Any suit or %roceeding +y or against t/e co!%any 2/ic/ is %ending in any court ot/er t/an t/at in 2/ic/ t/e 2inding u% o' t/e co!%any is %roceeding !ay. not2it/standing anyt/ing contained in any ot/er la2 'or t/e ti!e +eing in 'orce. +e trans'erred to and dis%osed o' +y t/e Court.

R(26*('a)&,* ,- ,--&c&a/ /&<6&4a),': >)?

(S(c)&,* 323)

An o''icial liEuidator. not +eing a salaried o''icer o' Do*ern!ent or o' t/e Court. s/all +e entitled to suc/ re!uneration +y 2ay o' %ercentage o' t/e a!ount reali<ed +y /i! +y dis%osal o' assets or ot/er2ise as !ay +e 'ixed +y t/e Court /a*ing regard to t/e a!ount and nature o' t/e 2or9 actually done and su+ject to suc/ li!its as !ay +e %rescri+edB Pro*ided t/at di''erent %ercentage rates !ay +e 'ixed 'or di''erent ty%es o' assets and ite!s.

>,?

#n addition to t/e re!uneration %aya+le under su+-section >)?. t/e Court !ay %er!it %ay!ent o' a !ont/ly allo2ance to t/e o''icial liEuidator 'or !eeting t/e ex%enses o' t/e 2inding u% 'or a %eriod not exceeding t2el*e !ont/s 'ro! t/e date o' t/e 2inding u% order.

>"?

T/e re!uneration 'ixed as a'oresaid s/all not +e en/anced su+seEuently +ut !ay +e reduced +y t/e Court at any ti!e.

>4?

#' t/e o''icial liEuidator resigns. is re!o*ed 'ro! o''ice or ot/er2ise ceases to /old o''ice +e'ore conclusion o' t/e 2inding u% %roceedings. /e s/all not +e entitled to any re!uneration and t/e re!uneration already recei*ed +y /i!. i' any. s/all +e re'unded +y /i! to t/e co!%any.

>5?

No re!uneration s/all +e %aya+le to an o''icial liEuidator 2/o 'ails to co!%lete t/e 2inding u% %roceedings 2it/in t/e %rescri+ed %eriod.

0,

S)a)(2(*) ,- a--a&'. ), b( 2a4( ), ,--&c&a/ /&<6&4a),': >)? W/ere t/e Court /as !ade a 2inding u% order or a%%ointed an o''icial liEuidator or %ro*isional !anager. t/ere s/all +e !ade out and su+!itted to t/e o''icial liEuidator or %ro*isional !anager a state!ent as to t/e a''airs o' t/e co!%any in t/e %rescri+ed 'or!. *eri'ied +y an a''ida*it. and containing t/e 'ollo2ing %articulars. na!elyB>i? t/e assets o' t/e co!%any. stating se%arately t/e cas/ +alance in /and and at t/e +an9. i' any. and t/e negotia+le securities. i' any. /eld +y t/e co!%any= >ii? >iii? t/e de+ts and lia+ilities o' t/e co!%any= t/e na!es. residences and occu%ations o' t/e creditors o' t/e co!%any. stating se%arately t/e a!ount o' secured de+ts and unsecured de+ts. and. in t/e case o' secured de+ts. %articulars o' t/e securities gi*en. t/eir *alue and t/e dates 2/en t/ey 2ere gi*en= >i*? t/e de+ts due to t/e co!%any and t/e na!es. residences and occu%ations o' t/e %ersons 'ro! 2/o! t/ey are due and t/e a!ount li9ely to +e reali<ed t/ere'ro!= >*? 2/ere any %ro%erty o' t/e co!%any is not in its custody or %ossession. t/e %lace 2/ere and t/e %erson in 2/ose custody or %ossession suc/ %ro%erty is= >*i? 'ull address o' t/e %laces 2/ere t/e +usiness o' t/e co!%any 2as conducted during t/e six !ont/s %receding t/e rele*ant date and t/e na!es and %articulars o' t/e %ersons inc/arge o' t/e sa!e= >*ii? details o' any %ending suits or %roceedings in 2/ic/ t/e co!%any is a %arty= and >*iii? suc/ ot/er %articulars as !ay +e %rescri+ed or as t/e Court !ay order or t/e o''icial liEuidator or %ro*isional !anager !ay reEuire in 2riting. 0"

including any in'or!ation relating to secret reser*es and %ersonal assets o' directors. >,? T/e state!ent s/all +e su+!itted and *eri'ied +y %ersons 2/o are at t/e rele*ant date t/e directors and +y t/e %ersons 2/o are at t/at date t/e c/ie' executi*e and secretary o' t/e co!%any. or +y suc/ o' t/e %ersons /erea'ter in t/is su+-section !entioned as t/e o''icial liEuidator or %ro*isional !anager. su+ject to t/e direction o' t/e Court. !ay reEuire to su+!it and *eri'y t/e state!ent. t/at is to say. %ersonsB>i? 2/o are or /a*e +een directors. c/ie' executi*es or o''icers o' t/e co!%any 2it/in one year 'ro! t/e rele*ant date= >ii? 2/o /a*e ta9en %art in t/e 'or!ation o' t/e co!%any at anyti!e 2it/in one year +e'ore t/e rele*ant date= >iii? 2/o are in t/e e!%loy!ent o' t/e co!%any. or /a*e +een in t/e e!%loy!ent o' t/e co!%any 2it/in t/e said year. and are in t/e o%inion o' t/e o''icial liEuidator or %ro*isional !anager ca%a+le o' gi*ing t/e in'or!ation reEuired= >i*? 2/o are or /a*e +een 2it/in t/e said year o''icers o'. or in t/e e!%loy!ent o'. a co!%any 2/ic/ is. or 2it/in t/e said year 2as. an o''icer o' t/e co!%any to 2/ic/ t/e state!ent relates. >"? T/e state!ent s/all +e su+!itted 2it/in t2enty-one days 'ro! t/e rele*ant date. or 2it/in suc/ extended ti!e not exceeding 'orty-'i*e days 'ro! t/at date as t/e o''icial liEuidator or %ro*isional !anager o' t/e Court !ay. 'or s%ecial reasons. a%%oint. >4? Any %erson !a9ing. or concurring t/e !a9ing. t/e state!ent and a''ida*it reEuired +y t/is section s/all +e allo2ed. and s/all +e %aid +y t/e o''icial liEuidator or %ro*isional !anager. as t/e case !ay +e. out o' t/e assets o' t/e co!%any. suc/ costs and ex%enses incurred in and a+out t/e %re%aration and !a9ing o' t/e state!ent and a''ida*it as t/e o''icial liEuidator or %ro*isional !anager !ay consider reasona+le. su+ject to an a%%eal to t/e Court. 04

>5?

#' any %erson. 2it/out reasona+le excuse. !a9es de'ault in co!%lying 2it/ t/e reEuire!ents o' t/is section. /e s/all +e lia+le to a 'ine not exceeding 'i*e /undred ru%ees 'or e*ery day during 2/ic/ t/e de'ault continues.

>7?

Wit/out %rejudice to t/e o%eration o' any %ro*isions i!%osing %enalties in res%ect o' any suc/ de'ault as a'oresaid. t/e Court 2/ic/ !a9es t/e 2inding u% order or a%%oints a %ro*isional !anager !ay ta9e cogni<ance o' an o''ence under su+section >5? and try t/e o''ence itsel' in accordance 2it/ t/e %rocedure laid do2n in t/e Code o' Cri!inal Procedure. )&0&. 'or t/e trial o' cases +y Magistrates and 'urt/er direct t/e %ersons concerned to co!%ly 2it/ t/e %ro*isions o' t/is section 2it/in suc/ ti!e as !ay +e s%eci'ied +y it.

>8?

Any %erson stating /i!sel' in 2riting to +e a creditor or contri+utory o' t/e co!%any s/all +e entitled. +y /i!sel' or +y /is agent. at all reasona+le ti!es. on %ay!ent o' t/e %rescri+ed 'ee. to ins%ect t/e state!ent su+!itted in %ursuance o' t/is section. and to a co%y t/ereo' or extract t/ere'ro!.

>&?

Any %erson untrut/'ully so stating /i!sel' to +e a creditor or contri+utory s/all +y guilty o' an o''ence under section )&, o' t/e Pa9istan Penal Code. )&7-. and s/all. on t/e a%%lication o' t/e o''icial liEuidator or %ro*isional !anager. +e %unis/a+le a%%lication o' t/e o''icial liEuidator or %ro*isional !anager. +e %unis/a+le accordingly.

>0?

#n t/is section. t/e ex%ression @t/e rele*ant dateA !eans. in a case 2/ere a %ro*isional !anager is a%%ointed. t/e date o' /is a%%oint!ent. and. in a case 2/ere no suc/ a%%oint!ent is !ade. t/e date o' t/e 2inding u% order.

%&..,/6)&,* ,- c,21a*3: >)?

(S(c)&,* 35$)

W/en t/e a''airs o' a co!%any /a*e +een co!%letely 2ound u%. or 2/en t/e Court is o' t/e o%inion t/at t/e o''icial liEuidator cannot %roceed 2it/ t/e 2inding u% o' t/e co!%any and reasona+le in t/e circu!stances o' t/e case t/at an order o' dissolution o' t/e co!%any +e !ade. t/e Court s/all !a9e an order t/at t/e co!%any 05

+e dissol*ed 'ro! t/e date o' t/e order. and t/e co!%any s/all +e dissol*ed accordinglyB Pro*ided t/at suc/ dissolution o' t/e co!%any s/all not extinguis/ any rig/t o'. or de+t due to. t/e co!%any against or 'ro! any %erson. >,? A co%y o' t/e order s/all. 2it/in 'i'teen days o' t/e !a9ing t/ereo'. +e 'or2arded +y t/e o''icial liEuidator to t/e registrar. 2/o s/all !a9e in /is +oo9s. a !inute o' t/e dissolution o' t/e co!%any. >"? #' t/e o''icial liEuidator !a9es de'ault in co!%ly 2it/ t/e reEuire!ents o' t/is section. /e s/all +e lia+le to a 'ine not exceeding one /undred ru%ees 'or e*ery day during 2/ic/ /e is in de'ault. R(/(+a*) 0',+&.&,*.: ection ",7 ection "&8

07