Companies Ordinance (Summarized)

7/30/2019 Companies Ordinance (Summarized)

1/76

Companies Ordinance

Shahrukh Malik

Summarized

By


2/76

Preface

The following is a summary of the Companies Ordinance 1984 that I made during the

September 2010 attempt of my Company Law (Module D) paper.

It is not complete and limited to only 262 sections. However, the content is made much moreeasy to understand than the bare law.

Thank you for reading my notes.

Shahrukh Malik

File version: 10.11.28

An updated version may be available at: http://www.shahrukhmalik.com

If anyone finds any problem or has a suggestion, please inform me at:

[email protected]


3/76

Table of Contents

Preface................................................................................................................................................2TableofContents.............................................................................................................................3PartI:Preliminary..........................................................................................................................81:Shorttitle,extentandcommencement:................... .................. .................. .................. ................82:Definitions:........ .................. .................. .................. ................... .................. .................. .................. .......83:Meaningofsubsidiaryandholdingcompany:........................ .................. .................. ..........94:Ordinancenottoapplytocertaincorporations:.............. .................. .................. .................. ....95:ApplicationofOrdinancetonon-tradingcompanieswithpurelyprovincialobjects:...96:Ordinanceoverridememorandum,articles,etc.:................... .................. .................. ................9PartII:JurisdictionofCourts....................................................................................................107:Jurisdictionofcourts:........................................................................................................................10 8:Constitutionofcompanybenches:................................................................................................10 9:Procedureofcourt:............................................................................................................................10 10:Appealsagainstcourtorders:......................................................................................................10 PartIII:CorporateLawAuthority...........................................................................................1111:Repealed................. .................. .................. .................. ................... .................. .................. ................1112:PowersandfunctionsoftheCommission:...............................................................................11 13:ReferencebytheFederalGovernmentorCommissiontothecourt:.............................11PartIV:IncorporationofCompaniesandMattersIncidentalthereto.......................1214:Obligationtoregisterascompany:............................................................................................12 15:Modeofformingacompany:........................................................................................................12 16,17,18,19:Memorandumofassociation:.................................................................................13 20,21,22,23,24,25:Alterationofmemorandum:.....................................................................13 26,27:Articlesofassociation:............................................................................................................14 28:Alterationofarticles.......................................................................................................................15 29:Formofmemorandumandarticles:..........................................................................................15 30,31,32,33:Registrationofmemorandumandarticles:.......................................................15 34:Effectofalterationinmemorandumandarticles:................................................................16 35:Copiesofmemorandumandarticlesgiventomembers:...................................................16 36:Alterationofmemorandumandarticlestobenotedineachcopy:................................16 37:Prohibitionofcertainnames:......................................................................................................16 38,39,40,41:Changeofnamebycompany,Ordinanceoronchangeofstatus:...............17 42:PowertodispensewithLimitedinnameofcharitiesandothercompanies:..........17 43:Provisionastocompanieslimitedbyguarantee:.................................................................18 44:Conversionofpubliccompanyintoprivatecompany:........................................................18 45:Prospectusorstatementinlieuofprospectustobefiledwhenconvertingfrom

privatetopubliclimitedcompany:...................................................................................................18 46:Ondefaultofconditionsconstitutingaprivatecompany:.................................................18 47:Liabilityforcarryingonbusinesswithlessthanlegalminimummembers:...............18 48:Serviceofdocumentsoncompany:............................................................................................19 49:Serviceofdocumentsonregistrar:............................................................................................19 50:Serviceofnoticeonmembers,etc.:............................................................................................19 51:Authenticationofdocumentsandproceedings:....................................................................19 PartV:Prospectus,Allotment,IssueandTransferofShares&Debentures&

Deposits...........................................................................................................................................2052:Prospectustobedated:..................................................................................................................20


4/76

53:Matterstobestatedandreportstobesetoutinprospectus:..........................................20 54,55,56:Expertsreportandconsenttoissueprospectus:...................................................21 57:Approval,issueandregistrationofprospectus:................... .................. .................. .............2158:Termsofcontractmentionedinprospectus/SILOPnottobevaried:...........................21 59:Civilliabilityformisstatementinprospectus:.......................................................................21 60:Criminalliabilityformisstatementsinprospectus:............................................................22 61:Documentcontainingofferofsharesordebenturesforsaletobedeemedas

prospectus:................................................................................................................................................23 62:Offerofshares/debenturesforsalebycertainpersons:....................................................23 62-A:IssueofsecuritiesoutsidePakistan:.....................................................................................23 63:Interpretationofprovisionsrelatingtoprospectus:...........................................................23 64:Newspaperadvertisementofprospectus:...............................................................................24 65:Referencesofofferingshares/debenturestopublic,etc.:.................................................24 66:Penaltyforfraudulentlyinducingpersonstoinvestmoney:............................................24 67:Applicationandallotmentofshares/debentures:.................. .................. .................. ..........2468:Restrictionastoallotment:..........................................................................................................24 69:Statementinlieuofprospectus:.................................................................................................25 70:Effectofirregularallotment:........................................................................................................26 71:Repaymentofmoneyreceivedforsharenotallotted:........................................................26 72:Allotmentofshares/debenturestobedealtinstockexchange:................ .................. ....2673:Returnastoallotment:................. .................. ................... .................. .................. .................. .......2774:Limitationoftimeforissueofcertificates:.............................................................................27 75:Issueofduplicatecertificates:.....................................................................................................28 76:Transferofsharesanddebentures:................. ................... .................. .................. .................. .2877,78:Directorsnottorefusetransferofsharesandnoticeofrefusal:..............................28 78-A:Appealagainstrefusaloftransfer:.........................................................................................29 79:Transfertosuccessor-in-interest:..............................................................................................29 80:Transfertonomineeofadeceasedmember:.........................................................................29 81:Transferbynomineeorlegalrepresentative:.......................................................................29 82:Powertopayandprohibitionofcertaincommissionsanddiscounts:................ ..........3083:Applicationofpremiumreceivedonissueofshares:..........................................................30 84:Powertoissuesharesatadiscount:..........................................................................................31 85:Redemptionofpreferenceshares:.............................................................................................31 86:Furtherissueofcapital:.................................................................................................................31 87:Issueofsharesinlieuofoutstandingbalanceofanyloans,etc.:.....................................32 88:Depositsnottobeinvitedwithoutissuinganadvertisement:.........................................32 Part-VI:ShareCapitalandDebentures...............................................................................3389:Natureofsharesandcertificateofshares:..............................................................................33 90:Classesandkindsofshares:.........................................................................................................33 91:Onlyfullypaidsharestobeissued:.................. ................... .................. .................. .................. .3392,93,94:Powerofcompanylimitedbysharestoalteritssharecapital:.........................33 95:Prohibitionofpurchaseorgrantoffinancialservicesforpurchaseofownorholding

companysshares:...................................................................................................................................34 95-A:Powerofcompanytopurchaseitsownshares:................................................................34 96,97,98,99,100,101,102,103:Reductionofsharecapital:................................................35 104:Liabilityofmembersinrespectofreducedshares:................ .................. .................. .......36105:Penaltyonconcealmentofcreditor:.......................................................................................36 106:Publicationofreasonofreduction:.........................................................................................36 107:Forcompanieslimitedbyguaranteehavingsharecapital:............................................36 108:Variationofshareholdersrights:............................................................................................36 109:Registrationofunlimitedcompaniesaslimited:................................................................37 110:Powerofunlimitedcompanytoprovidereservesharecapitalinre-registration:37111:Limitedcompanymayhavedirectorswithunlimitedliability:....................................37


5/76

112:Specialresolutionoflimitedcompanymakingliabilityofdirectorsunlimited:.....37 113:Rightofdebentureholderandshareholdertohavecopiesoftrustdeed:................38 114:Debenturesnottocarryvotingrights:...................................................................................38 115:Perpetualdebentures:.................................................................................................................38 116:Powertore-issueredeemeddebentures:.............................................................................38 117:Specificperformanceofcontracttosubscribefordebentures:....................................39 118:Paymentofdebtsoutofassetssubjecttofloatingchargeinprioritytotheclaims:

.......................................................................................................................................................................39 119:Powerandliabilitiesoftrustee:...............................................................................................39 120:Issueofsecuritiesandredeemablecapitalnotbasedoninterest:...............................40Part-VII:RegistrationofMortgages,etc................................................................................41121:Certainmortgagesandchargestobevoidifnotregistered:..........................................41 122:Registrationofchargesonpropertiesacquiredsubjecttocharge:.............................41 123,124:Particularsincaseofseriesofdebentureswithequalrightsandcommission,

etc.:...............................................................................................................................................................42 125,126:Registerandindexofmortgageandcharges:............................................................42 127,128:Certificateofregistrationofmortgage/chargeanditsendorsement:...............42129:Dutyofcompanyandrighttointerestpartyasregardsregistration:........................42 130:Copyofinstrumentcreatingmortgage/chargetobekeptatregisteredoffice:.......43 131:Rectificationofregisterofmortgages:...................................................................................43 132:Registrationofpaymentorsatisfactionofmortgagesandcharges:............................43 133:Powerofregistrartomakeentriesinregisterofmortgages/charges:......................43 134:Penalties:..........................................................................................................................................43 135:Companysregisterofmortgages:.................. ................... .................. .................. .................. .43136:Righttoinspectinstrumentsandregisterofmortgage/charge:...................................44 137:Registrationofappointmentofreceiverormanager:......................................................44 138:Filingofaccountsofreceiverormanager:.................. .................. .................. .................. ....44139:Disqualificationforappointmentasreceiverormanager:.............................................44 140:ApplicationtoCourt:....................................................................................................................44 141:PowerofCourttofixremuneration,etc.ofreceiverormanager:................................45 Part-VIII:ManagementandAdministration.......................................................................46142:Registeredofficeofthecompany:............................................................................................46 143,144:Publicationofnamebylimitedcompany:...................................................................46 145:Publicationofauthorizedandpaid-upcapital:...................................................................46 146:Restrictionsoncommencementofbusiness:.......................................................................46 147:Registerofmembersandindex:...............................................................................................47 148:Trustnottobeenteredonregister:........................................................................................47 149:Registerandindexofdebenture-holders:............................................................................47 150:Inspectionofregisters:................................................................................................................47 151:Powertocloseregister:...............................................................................................................48 152:PowerofCourttorectifyregister:...........................................................................................48 153:Punishmentforfraudulententriesandomissionfromregister:.................. ................48154:Noticeofregistrarofrectificationofregister:.....................................................................48 155:Registertobeevidence:..............................................................................................................48 156:Annuallistofmembers,etc.:................ .................. ................... .................. .................. .............49157:Statutorymeeting:.........................................................................................................................49 158:Annualgeneralmeeting:.............................................................................................................50 159:Extraordinarygeneralmeeting:...............................................................................................50 160:Provisionsastomeetingsandvotes:......................................................................................51 160-A:Circumstancesinwhichproceedingsofgeneralmeetingmaybedeclaredinvalid:

.......................................................................................................................................................................52 161:Proxies:.............................................................................................................................................52 162,163:Representationofcorporationsandcreditorsandgovernmentatmeetings:53


6/76

164:Noticeofresolution:.....................................................................................................................53 165,166:Votingbyshowofhands:...................................................................................................53 167:Demandforpoll:............................................................................................................................53 168:Timeoftakingpoll:.......................................................................................................................54 169:Resolutionpassedatadjournedmeeting:.............................................................................54 170,171:PowerofCommissiontocallmeetings:........................................................................54 172:Filingofresolution,etc.:..............................................................................................................54 173:Minutesofproceedingofgeneralmeetingsanddirectorsmeetings:................ ..........54174:Minimumnumberofdirectors:................................................................................................55 175:Onlynaturalpersonstobedirectors:.....................................................................................55 176:Firstdirectors:................................................................................................................................55 177:Retirementofdirectors:..............................................................................................................55 178:Procedureforelectionofdirectors:........................................................................................55 178-A:Freshelectionsonrequestofsubstantialacquirer:......................................................56 179:Circumstanceswhenelectionsmaybedeclaredinvalid:...............................................56180:Termofofficeofdirector:...........................................................................................................56 181,182,183:Removalofdirectorandnominationofdirectors:.........................................56 184:Consenttoactasdirectortobefiledwithregistrar:.........................................................57 185:Validityofactsofdirectors:.......................................................................................................57 186:Penalties:..........................................................................................................................................57 187:Ineligibilityofcertainpersonstobecomedirector(andchiefexecutiveS201):.....57 188:Vacationofofficebydirectors:.................................................................................................58 189:Penaltyforunqualifiedpersonactingasdirector:............................................................58 190:Ineligibilityofbankrupttobedirector:.................................................................................58 191:Restrictionondirectorsremuneration:...............................................................................58 192:Restrictiononassignmentofofficebydirectors:...............................................................58 193:Meetingofdirectors:....................................................................................................................58 194:Restrictiononexemptionfromliabilities:............................................................................58 195:Loanstodirectors:.........................................................................................................................59 196:Powerofdirectors:................ .................. ................... .................. .................. .................. .............59197:Prohibitionofpoliticalcontributions:...................................................................................60 197-A:Prohibitionofdistributinggifts:..........................................................................................60 198:Appointmentoffirstchiefexecutive:................... .................. .................. .................. .............60199,200:Appointmentofsubsequentchiefexecutive:.............................................................61 201:Restrictiononappointmentofchiefexecutive:..................................................................61 202:Removalofchiefexecutive:........................................................................................................61 203:Chiefexecutive(ofpubliccompany)nottoengageinbusinesscompetingwith

companysbusiness:...............................................................................................................................61 204:Penalty:.............................................................................................................................................61 204-A:Certaincompaniestohavesecretariesandshareregistrars:................. .................. .61205:Registersofdirectorsandofficers:................ ................... .................. .................. .................. .62206:Banonappointmentofmanagingagent,solepurchaseandsalesagent,etc.:.........62207:Termsandconditionsofappointmentofmanagingagent:............................................63 208:Investmentinassociatedcompaniesandundertakings:.................................................63 209:Investmentsofacompanytobeheldonitsownname:...................................................63 210:Formofcontract:...........................................................................................................................64 211:Billsofexchangeandpromissorynotes:...............................................................................64 212:Executionofdeeds:.......................................................................................................................64 213:Powerofcompanytohaveofficialsealforuseabroad:...................................................64 214,215,216,217:Disclosureofinterestbydirectorandotherofficers:..........................64 218:Disclosureofdirectorsinteresttomembersincontractsappointingchief

executive,managingagent,whole-timedirectororsecretary:...............................................65 219:Registerofcontractsandappointmentsofdirectors,etc.:.................. .................. ..........65220:Registerofofficersshareholdings,etc.:................................................................................66


7/76

221:Dutyofofficerstomakedisclosureofshareholdings,etc.:.............................................66 222:Submissionofstatementsofbeneficialownersoflistedsecurities:.................. ..........66223:Prohibitionofshort-selling:................. .................. ................... .................. .................. .............67224:Tradingbyofficersandprincipalshareholders:................................................................67 225:Contractsbyagentsofcompanyinwhichcompanyisundisclosedprincipal:.........67 226:Securitiesanddeposits,etc.:......................................................................................................67 227,228,229:Employeesprovidentfundsandsecurities:.....................................................67 230:Booksofaccounttobekeptbycompany:.............................................................................68 231,232:Inspectionofbooksofaccountbyregistrar,etc.:.....................................................68 233:Annualaccountsandbalancesheet:.......................................................................................69 234:Contentsoffinancialstatements:.............................................................................................69 234-A:Specialaudit:...............................................................................................................................70 235:Treatmentofsurplusarisingoutofrevaluationoffixedassets:...................................70 236:Directorsreport:...........................................................................................................................70 237:Consolidatedfinancialstatements:........................................................................................70 238:Financialyearofholdingcompanyandsubsidiary:..........................................................71 239:Rightsofholdingcompanysrepresentativesandmembers:........................................71 240:Balancesheetofmodarabacompanytoincludemodarabaaccounts,etc.:...............71241:Authenticationoffinancialstatements:.................................................................................71 242:Copyoffinancialstatementstobeforwardedtoregistrar:............................................71 243:Rightofmemberstocopiesoffinancialstatementsandauditorsreport:................ .72244:Penaltyforimproperpublicationoffinancialstatements:.............................................72 245:Quarterlyaccountsoflistedcompanies:...............................................................................72 246:PowerofCommissiontorequiresubmissionofadditionaldocuments:....................72 247:Rightsofdebenture-holderstoreceiptandinspectionoffinancialstatements:....72248:Certainrestrictionsondeclarationofdividends:................. .................. .................. ..........72249:Dividendstobepaidonlyoutofprofits:................... .................. .................. .................. .......73250:Dividendnotbepaidexcepttoregisteredshareholdersortheirorderorbankers:

.......................................................................................................................................................................73 251:Periodofpaymentofdividend:................................................................................................73 252,253:Appointment,removalandremuneration:.................................................................74 254:Qualificationanddisqualification:..........................................................................................74 255:Powersanddutiesofauditors:.................................................................................................75 256:Readingandinspectionofauditorsreport:.................. .................. .................. .................. .75257:Signatureonauditreport:..........................................................................................................75 258:Auditofcostaccounts:.................................................................................................................76 259:Penaltyfornon-compliancebycompanies:................... .................. .................. .................. .76260:Penaltyfornon-compliancebyauditors:..............................................................................76 261:Powerofregistrartocallforinformation:...........................................................................76 262:Seizureofdocumentsbyregistrar:.........................................................................................76


8/76

Part I: Preliminary

1: Short title, extent and commencement:

Title: The Companies Ordinance 1984

Extent: whole of Pakistan

Commencement: immediately

2: Definitions:

Articles:

means the articles of association as originally framed or as altered in accordance with the

ordinance.

Associated companies/undertakings:

Two companies/undertakings are associated if: a person is the owner/partner or, directly or indirectly, holds or controls 20% of the voting

power in those two companies

they are under common management or control one is a subsidiary of the other the undertaking is a modaraba managed by another company

Associated persons:

A person who is the owner/partner or holds or controls 10% of the voting power in a company

is associated with all other such persons.

Shares are treated as held by a person even if held by a spouse or minor child.

A person who is nominated as director by Federal or Provincial government or a financialinstitution under its control and shares owned by National Investment Trust, Investment

Corporation of Pakistan, Central Depository, Federal or Provincial government are not taken

into account for determining associated persons.

Body corporate/corporation:

includes a company incorporated outside Pakistan but does not include:

a corporation sole a registered co-operative society any other body corporate not being a company as defined in the ordinance, which the

Federal government may notify in the official gazette.

Chief executive:

a person entrusted with the management of the affairs of the company, subject to the control

and directions of the directors.

May be a director or any other person by whatever name appointed.

Company:

means a company formed or registered under this ordinance or an existing company.

Company limited by shares:

means a company having the liability of its members limited by its memorandum to the amountof unpaid shares held by them.


9/76

Company limited by guarantee:

means a company having the liability of its members limited by its memorandum to the amount

undertaken by them to contribute in case of winding up of the company.

It may or may not have share capital.

Debenture:

includes debenture stock, term finance certificates and any other securities other than shares.

They may or may not have a charge on companys assets.

Private company:

means a company which, by its articles:

restricts the right to transfer its shares limits the number of members to 50, excluding employees prohibits invitation of shares and debentures to public

3: Meaning of subsidiary and holding company:

A company is a subsidiary of the other if:

the other company or body corporate directly or indirectly controls, holds or beneficiallyowns 50% or more of its voting securities or otherwise has the power to elect and appoint

more than 50% of its directors

it is the subsidiary of another subsidiary of the other companyThe other company is then its holding company.

Shares held by CDC will only make it a holding company if they are held beneficially.

4: Ordinance not to apply to certain corporations:

This ordinance is not applicable to:

a trading corporation carrying out business within a province and owned or controlled bythe Provincial government

a co-operative society a university

5: Application of Ordinance to non-trading companies with purely provincial

objects:

Provincial government has all the powers that the Federal government or Commission has over

non-trading companies operating within that province only.

6: Ordinance override memorandum, articles, etc.:

The ordinance shall be effective regardless of the clauses of memorandum, articles,

agreements or any resolution passed. Any provisions that are against the ordinance will be

void to that extent.


10/76

Part II: Jurisdiction of Courts

7: Jurisdiction of courts:

The high court in the place of the registered office will be the court having jurisdiction.

The Federal government can empower a civil court to deal with the companies within its

territorial jurisdiction.

For cases of winding up, the place of registered office is that where it has been situated for the

most time in the last 6 months.

A case taken to a court not having jurisdiction will not invalidate it.

8: Constitution of company benches:

Each high court having power under S7 shall have one or more benches named Company

Bench to deal with the cases relating to this ordinance.

9: Procedure of court:

Cases will be heard from day to day (except on reasonable cause) and judgment made within

90 days. Hearing may not be adjourned for more than 14 days at once and 30 days in total.

10: Appeals against court orders:

For cases of winding up of a company having paid-up capital of not less than 1 million rupees,

an appeal can be made in the Supreme Court. For other cases of winding up, appeal can be

made only if the Supreme Court grants leave to appeal.

An appeal shall be disposed off within 90 days.


11/76

Part III: Corporate Law Authority

11: Repealed

12: Powers and functions of the Commission:

The Commission shall exercise and perform such powers and functions as are conferred upon

it by the ordinance or any other law.

The Federal government may empower the Commission with its powers under any restrictions

or conditions.

13: Reference by the Federal Government or Commission to the court:

The Federal government or Commission may refer to the Court for any specific matter that

requires special consideration or a court order.

The Court will make just and equitable orders.


12/76

Part IV: Incorporation of Companies and Matters

Incidental thereto

14: Obligation to register as company:

An association, partnership or company consisting of more than 20 persons operating for profit

must get registered as a company under this ordinance.

On contravention, every member pays Rs. 5,000 plus will be personally liable to all liabilities

incurred in such business.

This section does not apply to:

a society, body or association, other than partnership, formed or incorporated under anyother Pakistan law

a joint family carrying on joint family business a partnership between two or more joint families where total members of such members

does not exceed 20

a partnership formed to carry out practice as lawyers, accountants or other professionswhere a limited liability company is not permitted

Memorandum of Association

15: Mode of forming a company:

Any 3 or more persons can form a public company by subscribing to its memorandum and

complying with the requirements of the Ordinance with respect to registration.

(3 or more for unlisted company, 7 or more for listed company)

Any 1 or more persons can form a private company in a similar manner.(1 for single-member company, 2-50 for private company)

The company formed maybe limited by shares and/or guarantee or unlimited.


13/76

16, 17, 18, 19: Memorandum of association:

The memorandum shall be:

printed dated

divided into paragraphs numbered consecutively signed by each subscriber with their particulars in presence of witness who shall sign with

their particulars

Contents:

Company Limited byShares Company Limited byGuarantee Unlimited Company

Name Clause

name of the company with

Limited or (Private)

Limited as its last word

name of the company with

(Guarantee) Limited as the

last word

name of the company

Registered Office

Clause

the province or part of Pakistan not forming a province where the registered office

of the company is to be situated

Object Clausethe objects of the company and, except for trading companies, the territories to

which they extend

Limited Liability

Clausethat the liabilities of the members are limited -

Share Capital

Clause

the amount of share capital the company proposes to be registered and its division

thereof

Guarantee Clause -

that each member

undertakes for payment in

debts an liabilities in case the

company winds up while he

is a member or within 1 year

afterwards up to a specified

amount

-

No subscriber shall take less than one share.

Each subscriber shall write the number of shares taken up by him opposite of his name.

Notwithstanding anything in any law or memorandum or articles, every company has an

implied power to obtain loan or credits and to issue securities not based on interest.

20, 21, 22, 23, 24, 25: Alteration of memorandum:

A company can alter its memorandum with a special resolution after confirmation by

Commission only in respect of the following:

Registered Office Clause

from one province to another from part of Pakistan not forming a province to a province or vice versa from one city/town in a province to another (does not require approval) from Islamabad Capital Territory to Punjab (does not require approval)


14/76

Object Clause

to carry business more economically and effectively to attain its main purpose by new and improved means to enlarge or change the local area of its operations to carry on some hew business not specified in the memorandum to restrict or abandon any objects mentioned in the memorandum to sell or dispose of the whole or any part of the undertaking of the company to amalgamate with any other company or body of personsBefore confirming the alteration, the Commission must be satisfied that:

sufficient notice has been given to debenture holders and any persons whose interestmight be affected by the alteration

all objections by creditors that are entitled to object have been satisfied through hisconsent, disposal of debt or security against debt

The Commission may dispense for the requirement of giving notice for persons it specifies.

The Commission may confirm alteration in full or part under any terms and conditions that it

specifies. In doing so, it shall keep regard of the rights and interests of all classes of membersand creditors. It may adjourn its proceedings until such interests have been purchased by the

company under its orders and directions.

(Capital of the company may not be expended in this purchase)

Once the Commission confirms the alteration, a copy of the order along with the altered

memorandum shall be filed with the registrar with 90 days of the order. Commission may

extend this time to a period it thinks fit.

The registrar will register the alteration and issue a certificate that will be conclusive evidence

that all requirements of the Ordinance have been met.

If the alteration and order by Commission is not registered with 90 days or the extended time

allowed, they would be made void. However, they may be revived on sufficient cause throughapplication to Commission within further 90 days.

Articles of Association

26, 27: Articles of association:

Companies limited by guarantee and unlimited companies shall register its articles signed by

the subscribers along with its memorandum. This is optional for companies limited by share

(then they shall use Table A of First Schedule).

The articles may adopt all or part of the regulations in Table A of First Schedule.

Table A of First Schedule is applicable on all companies limited by shares up to the extent not

altered or excluded by its own registered articles.

The articles of companies limited by guarantee and unlimited companies shall state:

if it has share capital: the amount of share capital the company proposes to be registered with

otherwise: the number of members with the company proposes to be registered with

The articles shall set out the regulations of the company. They shall be explicit and

unambiguous. They shall state the voting and other rights attached to different classes of

shares and securities issued or to be issued. The articles shall be:

printed dated divided into paragraphs numbered consecutively


15/76

signed by each subscriber with their particulars in presence of witness who shall sign withtheir particulars

28: Alteration of articles

A company can add to or alter its articles through special resolution, subject to the provisionsof the Ordinance.

If such alteration affects substantive rights or liabilities of members, 3/4th majority of the

affected class of members is required through voting.

Forms of Memorandum and Articles

29: Form of memorandum and articles:

Company type Articles Memorandum

Limited by Shares Table A Table B

Limited by Guarantee

not having share capitalTable C

Limited by Guarantee

having share capitalTable D

Unlimited Company

having share capitalTable E

Tables A-E refer to tables in First Schedule.

Registration of Memorandum and Articles

30, 31, 32, 33: Registration of memorandum and articles:

The memorandum and articles shall be filed with the registrar along with a declaration, by a

director or other officer, of compliance with the requirements of the Ordinance.

If the registrar is satisfied that the company is made for a lawful purpose, none of its objects

stated in memorandum are inappropriate or deceptive or insufficiently expressive and that all

requirements of the Ordinance have been met (the declaration is sufficient evidence to this), he

shall register the memorandum and articles.

If registration is refused, the subscribers or any one of them authorized in writing may:

supply the deficiency and remove the defect, or prefer an appeal within 30 days of order of refusal:

to the registrar: if order of refusal was passed by an additional registrar, a joint registrar, a

deputy registrar or an assistant registrar

to the Commission: if the order of refusal was passed by the registrar

An order against the appeal shall be final and not questioned in any Court or under any other

authority.

Upon registration, the registrar shall issue a certificate of incorporation that will be conclusiveevidence that all requirements of the Ordinance with respect to the incorporation of the


16/76

company have been met and the association is incorporated. It shall also certify the limited

liability status of the company.

The memorandum and articles, when registered, are binding upon the company and its

members as if signed by each of them and contained a covenant on part of the member, his

heirs and legal representatives to be bound by all the provisions.

From the date of incorporation mentioned in the certificate, all subscribers of the memorandum

shall be a body corporate under the registered name and be capable of exercising all the

functions of an incorporated company. They shall have perpetual succession and a common

seal. Their liability in case of winding up of the company will be that mentioned in the

Ordinance (which says to follow memorandum).

All money payable by any member under the memorandum or articles shall be a debt due to

him to the company. (He will be treated as a debtor).

34: Effect of alteration in memorandum and articles:

If any alteration requires a member to take or subscribe for more shares or in any wayincreases his liability to contribute to share capital or otherwise to pay money, that part of the

alteration will be void unless the member has agreed in writing, before or after the alteration.

35: Copies of memorandum and articles given to members:

A member can request a copy of memorandum and articles from the company upon payment

of a prescribed sum. This request must be fulfilled in 14 days.

On default, company will pay fine of up to Rs. 100.

36: Alteration of memorandum and articles to be noted in each copy:

When an alteration is made, every copy of the memorandum and articles issued after the date

of alteration shall conform to the memorandum and articles as altered.

On default, the company and every knowing officers will pay fine up to Rs. 1,000.

Provisions with respect to Names of Companies

37: Prohibition of certain names:

A company shall not register a name that is:

inappropriate deceptive designed to exploit or offend religious susceptibilities of the people identical with a company already in existence resembling to a company already in existence as to be calculated to deceive except where

that company is being dissolved and gives consent

A company must get prior approval of the Commission if the name it wants to be registered

with contains any words suggesting or calculated to suggest:

the patronage of any, past or present, Pakistani or foreign, Head of State; any connection with the Federal Government or a Provincial Government or any

department or authority of any such Government

any connection with any corporation set up by or under any Federal or Provincial law the patronage of or any connection with any foreign Government or any international

organization


17/76

If a question of violation arises, the decision of the Commission shall be final.

38, 39, 40, 41: Change of name by company, Ordinance or on change of status:

If a company is registered under a name not allowed by the Ordinance, it can get its name

changed with the approval of the registrar. In addition, the registrar can order the company tochange it and the company must do so within 30 days. However, the registrar cannot give any

such order if the company has been registered with that name for 3 years.

A company can change its name by passing a special resolution and with approval of the

registrar. The registrar shall write the new name in place of the former name in the register and

issue a new certificate of incorporation.

Upon change of name, the company shall mention both its new and former name outside of its

registered office and all documents for one following year.

Addition/deletion of (Private) from the name in consequence of conversion does not require

approval or mentioning of former name along with the new one. The registrar shall update the

name with the addition/deletion of (Private) and issue a new certificate of incorporation.

After commencement of this Ordinance, every company shall have:

Limited as its last word unless compensated by the Ordinance (Private) before Limited in case of a private limited company (Guarantee) before Limited in case of a guarantee limited companyand the memorandum, articles and all documents shall be deemed to reflect the change.

The change of name will have no effects on the rights and obligations of the company nor

render any legal proceedings by or against it; they will continue under the companys new

name.

On default, company and every knowing officer shall pay fine of up to Rs. 10,000 plus Rs. 200per day

Associations not for Profit

42: Power to dispense with Limited in name of charities and other

companies:

A company may be allowed to dispense with the words Limited, (Private) and (Guarantee)

by the Commission if the company:

is formed for the promotion of commerce, art, science, charity, sports, religion, socialservices or any other useful object

applies or intends to apply its profits and income for the promotion of its object only prohibits payment of dividends to its membersThe Commission will grant the company a license, under which it will operate as a limited

company with all its powers, privileges and obligations. Certain conditions may be put on the

license; it might be required that these be mentioned in the memorandum and/or articles of the

company.

The Commission may revoke the license after giving notice to the company of its intention and

allowing a representation against the revocation. When the license is revoked, the words

Limited, (Private) and/or (Guarantee) will be added by the registrar after the name of the

company.


18/76

Companies Limited by Guarantee

43: Provision as to companies limited by guarantee:

A company limited by guarantee not having share capital cannot give any part of its divisible

profits to anyone who is not a member, even if the memorandum, articles or any resolutionallows so.

A provision in the memorandum or articles or any resolution to divide the undertaking into

shares or interests shall be treated as provision of share capital.

Conversion between Public and Private Companies

44: Conversion of public company into private company:

A public company can convert to a private company by changing its memorandum and articles

with written approval from the Commission, under any conditions put by the Commission.

45: Prospectus or statement in lieu of prospectus to be filed when converting

from private to public limited company:

A private company can convert to a public company by altering its memorandum. The

company must then file a prospectus (listed companies) or statement in lieu of prospectus

(unlisted companies) to the registrar within 14 days of the alteration.

Prospectus is made according to Section 1, 2 and 3 of Part I of Second Schedule. Statement

in lieu of prospectus is made according to Section 1, 2 and 3 of Part III of Second Schedule. If

any adjustments are made, either an explanation is to be given in the prospectus/statement in

lieu of prospectus or in a statement attached with it, signed by the persons making thosereports.

On default, company and knowing officers pay fine of up to Rs. 5,000 plus Rs. 100 per day.

On misstatement, persons who authorized shall be imprisoned for up to 2 years plus pay fine

of up to Rs. 10,000; unless, he proves that the misstatement is immaterial or he had

reasonable grounds to believe at that time that the statement was true.

Misstatement means:

info is falsely stated to mislead in form or context info is omitted to mislead

46: On default of conditions constituting a private company:

If the memorandum or articles of a private company do not contain the conditions that are

required to make the company a private company, it shall be treated as a public company;

unless, the Commission is satisfied that the failure was accidental or due inadvertence or any

other sufficient cause.

Carrying on Business with less than Legal Minimum Members

47: Liability for carrying on business with less than legal minimum members:

If a company operates like this for more than 6 months, all members during this time will be

severally liable to pay for the debts of the company and may be sued separately from all othermembers.


19/76

Service and Authentication of Documents

48: Service of documents on company:

A document may be served on a company by sending it to the company or any officer at the

registered office by post under certificate of posting, by registered post or by leaving it at theregistered office of the company.

49: Service of documents on registrar:

A document may be served on the registrar by sending it to him at his office by registered post

or by delivering it to him or leaving it for him at his office under acknowledgement of receipt.

50: Service of notice on members, etc.:

A notice may be given to a member by delivering it personally or sending it by post to his

registered address. If there is no registered address in Pakistan, then to any other address themember has given for serving of notices.

A notice is considered served this way if it was properly addressed, prepaid and posted at the

date when it would have been received under ordinary course of post.

If no address is given by the member, an advertisement given in a newspaper circulating in the

province or part of Pakistan not forming a province in which the registered office is situated is

treated as a notice duly given to him on the day of the publishing of the ad; it must be

addressed to him or to the members in general.

In case of listed company, the ad must be published in at least one Urdu and one English

newspaper having circulation in the province in which the stock exchange where it is listed is

situated.

A notice to the joint-holders is treated as served to all of them if given to the person whosename is mentioned first in the register of members.

In consequence of death or insolvency of a member, a notice to the person entitled to the

share shall be given a notice by sending them a letter addressed to them by their name or by

the title of the former member, representatives of a deceased member, assignees of an

insolvent member at the address in Pakistan supplied for this purpose by the person claiming

entitlement. Until such an address is found, it may be served as it would have been if death or

insolvency had not occurred.

A notice of general meeting shall be given to:

every member except who does not have a registered address in Pakistan or an address inPakistan specified to the company for the purpose

every person who would be entitled to receive the notice had a member been dead orinsolvent

the auditors of the company

51: Authentication of documents and proceedings:

A document needing authentication of a company may be signed by the chief executive, a

director, company secretary or any other authorized officer. It need not be under the common

seal.


20/76

Part V: Prospectus, Allotment, Issue and Transfer of

Shares & Debentures & Deposits...

Prospectus

52: Prospectus to be dated:

A prospectus must be dated. This date will be taken as the date of its publication, unless the

contrary is proved.

53: Matters to be stated and reports to be set out in prospectus:

A prospectus issued must be by on behalf of:

a company a person engaged or interested in the formation of the companyand shall be made in accordance with Section 1, 2 and 3 of Part I of Second Schedule.

Sufficient copies of the prospectus shall be made available at:

the registered office of the company the stock exchange where the company is or proposes to be listed the bankers to the issueand printed in its full text or abridged form in at least one Urdu and one English newspaper.

Prospectus must be published between 7 to 30 days before the opening of the subscription

list.

(That is at least 7 days and at maximum 30 days before). The Commission may allow

publishing before 30 days for special reasons.

(Get approval within 60 days preceding issue)

On default, knowing and responsible person shall pay fine of up to Rs. 10,000 plus Rs. 200 for

everyday until a correct prospectus is issued.

A condition in the prospectus requiring or binding the applicant to:

waive compliance with this section, or to affect him with a contract, document or notice not referred to in the prospectusshall be void.

A form of application for shares/debentures must be accompanied with a prospectus fulfilling

the above conditions except if:

the invitation is for entering into an underwriting agreement the shares/debentures are not offered to the public the invitation is to existing members/debenture holders the invitation is for shares/debentures which are similar in kind to shares/debentures

previously issued and being dealt in or quoted on a stock exchangeOn default, person shall pay fine of up to Rs. 2,000.

A director or any other responsible person shall not incur any liability if:

he proves that he had no knowledge of a matter not disclosed he proves that the non-compliance/contravention arose from an honest mistake of fact the non-compliance/contravention was immaterial or otherwise reasonably excusable in

the opinion of the registrarThis does not relieve liability under general law or other sections of the Ordinance.


21/76

54, 55, 56: Experts report and consent to issue prospectus:

An expert, who is not and has net been engaged or interested in the formation or promotion of

the company, shall issue a report to be attached in the prospectus. The prospectus should

also include a statement of experts consent, that he has given consent to issue the

prospectus with his report and has not withdrawn it.

On default, knowing persons to issue prospectus shall pay a fine of up to Rs. 5,000.

57: Approval, issue and registration of prospectus:

An existing or proposed listed company shall get approval of the Commission within 60 days

preceding issue of prospectus. The Commission may impose any conditions as it thinks fit.

A copy of the prospectus signed by all existing or proposed directors or their agents in writing

shall be filed with the registrar on or before the date of issue of prospectus. It shall have

attached:

experts consent copy of contracts or particulars of contracts not yet reduced to writing that are referred inthe prospectus a statement with reasons of adjustment made in the prospectus signed by each person

making those adjustments. (i.e. when Section 2 of Part I of Second Schedule is not

followed in whole)

The registrar will register the prospectus only if:

all requirements of the above and this section have been met a consent of the persons mentioned in the prospectus as the auditor, legal advisor,

attorney, solicitor, banker and broker (member of stock exchange) have been obtained to

act in that capacity

A prospectus issued under this section shall on its face:

state that a copy of it has been submitted to the registrar specify the documents that were attached with the copy submitted to the registrar

(may also specify these in a separate statement attached with the prospectus)

if the company proposes to be listed, that an application has been made or is proposedOn default, company and knowing persons will pay a fine of up to Rs. 10,000 plus Rs. 200 for

everyday until a correct prospectus has been delivered to the registrar.

58: Terms of contract mentioned in prospectus/SILOP not to be varied:

A company shall not vary the terms of contract mentioned in a prospectus unless by authority

of a general meeting.

59: Civil liability for misstatement in prospectus:

The following persons shall be liable to pay compensation to a person who subscribes or

purchases shares/debentures on faith of prospectus for any loss or damage by reason of an

untrue statement:

the directors of the company at the time of the issue every person who has authorized to name him as director in the prospectus or as having

agreed to become a director immediately or after a time period

every promoter of the company every expert, auditor, legal advisor, attorney, solicitor, banker and broker who has given

consent to issue prospectus (only with regard to any untrue statement made by him)


22/76

A person, other than an expert, shall not be liable if he proves that:

having consented to become a director, he has withdrawn his consent and the prospectuswas issued without his authority or consent

the prospectus was issued without his knowledge or consent and he gave a reasonablepublic notice about it

after issue of prospectus but before allotment, on becoming aware of an untrue statement,he withdrew his consent and gave a reasonable public notice of withdrawal with reasons

with regard to an untrue statement not made by an expert, he believed up to the time ofallotment that it was true

with regard to an untrue statement made by an expert, the statement was in a correct copyor fair extract of experts report and he believed up to the issue that the expert was

competent and had given his consent and not withdrawn it up to allotment

with regard to an untrue statement made by a public official person, the statement was in acorrect copy or fair extract of the public official document

A person, who is an expert, shall not be liable if he proves that:

he withdrew his consent before delivery of a copy of prospectus for registration after registration and before allotment, he became aware of an untrue statement and

withdrew his consent in writing and gave reasonable public notice of withdrawal withreasons

he was competent to make a statement and had reasonable grounds to believe and did upto allotment believe that the statement was true

Where the prospectus specifies:

the name of a person as a director or having agreed to become a director, whereas he hasnot consented to be a director or has withdrawn his consent before the issue of

prospectus

the consent of an expert whereas he had not given consent or has withdrawn it before theissue,

the directors, excluding those without whose knowledge or consent the prospectus was

issued, and every other person who authorized the issue shall be liable to indemnify those

persons against all damages, costs and expenses that he may be made liable by reason of

their name being inserted in the prospectus or in defending themselves in any suit or legal

proceeding.

A person shall not be deemed as having authorized the issue of prospectus by reason only of

his having giving consent as an expert.

A person made liable under this section may recover the contribution of other person who

would have been liable.

60: Criminal liability for misstatements in prospectus:

Where a prospectus includes an untrue statement, every person who signed it or authorized its

issue shall be imprisoned for up to 2 years and/or pay fine of up to Rs. 10,000; unless, he

proves that the statement was immaterial or that he had reasonable grounds to believe that the

statement was true.

A person shall not deemed to have been authorized the issue by reason only of having given

his consent as an expert, auditor, legal advisor, attorney, solicitor, banker or broker (member of

stock exchange).


23/76

61: Document containing offer of shares or debentures for sale to be deemed

as prospectus:

If a company allots or agrees to allot shares/debentures to a person with a view that all or

some of them be offered to public, any document through which offer to the public is made is

treated as a prospectus. All rules and regulations are applicable on that document. The person

receiving shares is treated as subscriber of those shares/debentures. If the person is acompany/firm, signature by 2 directors or half of the partners (or agents authorized in writing) is

sufficient.

An allotment or agreement to allot shall be treated, unless contrary is proved, as having been

done with view to offer shares/debentures in public if:

an offer to public for sale of share/debenture was made within 1 year of allotment oragreement to allot

at the date of the offer, whole of the consideration against the shares was not received bythe company

the offer was made in pursuance of an understanding in which the company was directlyor indirectly a party, or under a condition imposed by any authority in relation to the

position, business or privileges of the company

The prospectus shall, in addition to other requirements, state:

the net amount of consideration received or to be received by the company in respect ofthe shares/debentures to which the offer relates

the place and time where the said shares/debentures to be allotted may be inspected

62: Offer of shares/debentures for sale by certain persons:

A person having more than 10% share or debenture holding in a company must get approval

from Commission before selling them off. The document used by him for offer of sale shall be

treated as prospectus with all requirements and regulations. His duties shall be the same as

that of a director of the company with regards to the prospectus. If the person is acompany/firm, signature by 2 directors or half of the partners (or agents authorized in writing) is

sufficient.

A document soliciting bids, offer, proposals or tenders in the following cases is not treated as

sale to public or require prospectus:

for sale of shares/securities acquired in the normal course of business for negotiating sale or expressing intention to disinvest shares/securities issued by a

scheduled bank or financial institution

62-A: Issue of securities outside Pakistan:

No company shall issue securities outside Pakistan without the approval of the Commission.

63: Interpretation of provisions relating to prospectus:

For the previous sections, where:

a statement included in the prospectus is misleading in form or context in which itsincluded

omission of any matter is calculated to misleadthe prospectus shall be treated as including an untrue statement.

A statement included in prospectus means a statement:

included in the prospectus itself contained in any report or memorandum appearing on its face or referred in the

prospectus


24/76

64: Newspaper advertisement of prospectus:

Newspaper advertisements of prospectus may omit mentioning the contents of the

memorandum, its signatories and the number of shares subscribed by them.

65: References of offering shares/debentures to public, etc.:Offer of shares/debentures to public means to the whole of the public or to a section (including

existing members).

An offer is not treated as offer to public if:

it allows subscription or purchase only by those persons receiving the offer it is a domestic concern of persons receiving and making the offer

A provision in the articles of a company, prohibiting offer of shares/debentures to the public,

does not prohibit offering to existing members in the manner stated above.

Same provisions apply for private companies as well.

66: Penalty for fraudulently inducing persons to invest money:

If a person fraudulently induces persons to invest money, he may be imprisoned for up to 3

years and/or pay a fine of up to Rs. 20,000.

Here, fraudulently inducing means inducing or attempting to induce a person by making a

statement, promise or forecast which is false, deceptive or misleading, whether knowingly or

recklessly.

Here, investing money means to enter into or offer to enter into:

an agreement for acquiring, disposing, subscribing or underwriting shares/debentures an agreement to secure a profit from purchase & sale of shares/debentures or from

fluctuation of values of shares/debentures

Allotment

67: Application and allotment of shares/debentures:

The Commission sets the minimum amount for which an application for allotment can be

made. It may also specify the form of application containing declarations and verifications as it

sees fit in the public interest. This form shall be part of the prospectus.

All certificates, statements and declarations made by applicants shall be binding upon them.

An application for shares/debentures in pursuance of a prospectus shall be irrevocable.

On default, person shall pay a fine of up to Rs. 10,000.

68: Restriction as to allotment:

Allotment of shares can be made only if the minimum subscription has been subscribed, paid

in full and received by the company in cash.

First allotment:

The minimum subscription is the amount mentioned in the memorandum or articles as

minimum subscription or the whole of the share capital, except the part agreed upon to bepaid in other than cash.


25/76

Subsequent allotment:

The minimum subscription is the minimum amount that, in the opinion of the directors, must be

raised to fund the objectives for which a share issue was, arrange. It is to be stated in the

prospectus and be exclusive of any amount payable otherwise than in cash.

All moneys received from the applicants will be kept in a separate bank account in a schedule

bank until returned due to minimum subscription not being subscribed to or until certificate of

commencement has been received (under Section 146) or until it may become liable to return

them.

The amount payable on application is the full nominal amount of the share.

If the above conditions are not met within 40 days of the first issue of the prospectus, all

moneys received from applicants shall be refunded. If any such money is not refunded within

50 days, the directors of the company shall jointly and severally be liable to pay a surcharge of

1.5% per month or part thereof; except those who prove that the default in repayment was not

due to their misconduct or negligence.

Any condition requiring the applicant to waive compliance with this section will be void.

On default, knowing directors, promoters and other persons shall pay a fine of up to Rs.

20,000 plus up to Rs. 200 per day.

69: Statement in lieu of prospectus:

A company that does not issue prospectus due to its nature (unlisted public company and not

a private company) or a company who did not proceed to allot shares/debenture offered to

public shall file a statement in lieu of prospectus at least 3 days before allotment of such

shares/debentures. It shall be signed by every person named therein as director or proposed

director containing certain particulars in certain cases according to sections 1, 2 and 33 of PartII of the Second Schedule.

If any adjustments are made to the prospectus according to clause 5 of Part II of Second

Schedule, the prospectus shall have endorsed thereon or attached thereto a written statement

signed by the persons making the adjustments along with reasons.

On default, company and knowing officer shall pay fine of up to Rs. 5,000 plus Rs. 100 per

day.

If the SILOP includes an untrue statement, knowing persons may be imprisoned for up to 2

years and/or pay a fine of up to Rs. 10,000; unless, he proves that he had reasonable grounds

to believe and did up to the time of registering the SILOP believe that the statement was true.

Included means included in the SILOP or contained in any report or memorandum appearing

on its face or incorporated by reference or issued with it.

Untrue statement means:

a statement is misleading in form or context omission of a statement is calculated to be misleading


26/76

70: Effect of irregular allotment:

An allotment in contravention of Section 68 and 69 will be voidable by the applicant within 30days:

after the statutory meeting where no such meeting is to be held or allotment is done after the meeting, after allotmenteven if the company is being wound up.

On default, knowing officers shall compensate the company and allottee for any loss, damages

or costs. Such proceeding shall not be commenced 2 years after the date of allotment.

71: Repayment of money received for share not allotted:

Where shares/securities were issued to the public, the company shall take a decision within 10

days of the closing of the subscription listed about which applicants to accept. Unsuccessfulapplicants will be refunded within 10 days of such decision.

If the refund is not made with 15 days of the decision, the directors shall jointly and severally

be liable to pay the applicant a surcharge of 1.5% per month (or part thereof) and a fine of up

to Rs. 5,000 plus Rs. 100 daily; unless, he proves that the default was not due to his

misconduct/negligence.

Any condition requiring or binding the applicant to waive off this section shall be void.

72: Allotment of shares/debentures to be dealt in stock exchange:

Where the prospectus states that an application has been made or will be made for the offeredshares to be listed in the stock exchange, any allotment shall be void if:

no application is made within 7 days of the first issue of the prospectus the stock exchange does not grant permission within 21 days of the closing of the

subscription lists or such longer period not exceeding 42 days as may be notified to the

applicant by or on behalf of the stock exchange within these 21 days

If permission is not granted, all money received in pursuance of that prospectus shall be

refunded within 8 days since the company becomes liable to pay it. On default, the directors

shall jointly and severally be liable to pay the applicant a surcharge of 1.5% per month (or part

thereof) and a fine of up to Rs. 5,000 plus Rs. 100 daily; unless, he proves that the default was

not due to his misconduct/negligence.

Permission by the stock exchange is not treated to be refused if it is intimated that it will be

given further consideration.

All money received shall be deposited in a separate bank account in a scheduled bank for as

long as the company may become liable to return them. On default, the company and every

knowing director shall pay a fine of up to Rs. 5,000.

Any condition requiring or binding the applicant to waive off this section shall be void.

For this section, an underwriter is treated as an applicant.

For the offer of sale of shares/debentures (instead of allotment), this section applies as it is

except that allotment will be replaced by sale; companys and directors liability will bereplaced by the liability of the person offering shares for sale.


27/76

73: Return as to allotment:

Whenever a company having share capital allots shares, it shall within 30 days, or any

extended period as the registrar may allow thereafter, file with the registrar a return of the

allotment stating number, nominal amount and paid amount of shares allotted and particularsof each allottee.

Where shares were allotted for other than cash, the following should also be submitted:

contract constituting the title of the allottee to the allotment contract of sale, services or other consideration against which allotment is made a return of allotment stating the number and nominal amount of shares and the amount to

be treated as paid-up and the consideration for which the shares have been allotted

If such contract is not in writing, the particulars of the same will be written down on a stamp

paper with the same stamp duty as it would have been paid for the contract.

In case of bonus shares, the return shall also include a copy of the resolution authorizing such

issue.

In case of shares on discount, the return shall also include a copy of the resolution authorizing

such issue and a copy of the order of the Commission sanctioning the issue. If the discount

rate is more than 10%, a copy of the order of the Commission permitting such higher discount

shall also be submitted.

On default, the company and knowing officers shall pay a fine of up to Rs. 500 per day.

This section also applies to shares allotted/issued to a scheduled bank or financial institution in

pursuance of an obligation of the company to do so. In such a case, the bank may file the

return with the registrar and recover any fees paid from the company.

Shares shall not be treated to have been paid in cash unless cash has actually been received.

Where payment is made/to be made for any property or service from a person, it shall be

deducted from the amount of any cash payment made for the shares and only the balance

remaining shall be treated as having been paid in cash. Any other securities equivalent to cash

are not considered.

Certificate of Shares and Debentures

74: Limitation of time for issue of certificates:

A company must complete and keep ready for delivery the share/debenture certificates:

90 days after allotment 45 days after receiving an application for transferThe certificate may be posted or delivered to the entitled person or a notice given to him within

this period that the certificate is ready for delivery.

On default, company and knowing officers shall pay a fine of up to Rs. 100 per day.

The company must transfer its shares to (i.e. register with) the CDC within 5 days after such an

application is made. (This does not mean any transfer that the company is entitled to refuse)


28/76

75: Issue of duplicate certificates:

A company shall issue a duplicate certificate within 45 days from an application of the same if

the original:

is proved to be lost or destroyed having been deface, mutilated or torn is surrendered to the company

After making any inquiries it deems fit, the company shall issue a duplicate and shall not

charge a fee exceeding the prescribed sum and the actual expense incurred on such inquiry.

If the company is unable to issue a duplicate for a reasonable cause, it shall notify the

applicant within 30 days of the application.

On default, company and knowing officers shall pay a fine of up to Rs. 500.

If duplicates are issued with intent to defraud, the company shall pay a fine of up to Rs. 20,000

and every knowing person may be imprisoned for up to 6 months and/or pay a dine of up to

Rs. 10,000.

Transfer of Shares and Debentures

76: Transfer of shares and debentures:

The company shall transfer a share/debenture

on an application from the transferor or transferee on receiving a proper instrument oftransfer duly stamped and executed by both parties along with the scrip

under an operation of the lawIf the transferee claims that such transfer deed has been lost, mutilated or destroyed, thecompany shall register the transfer if the transferee proves this up to the satisfaction of the

directors and gives an application bearing the stamp required for the instrument of transfer. In

addition, the company may demand such indemnity from the transferee as it thinks fit.

The company shall maintain a register of all such transfers that shall be open for inspection by

members and supply of copy thereof (as per Section 150).

On default, company and knowing officers shall pay a fine of up to Rs. 5,000.

For public companies, a financial institution may be appointed as the transfer agent.

For companies not having share capital, transfer of shares/debentures means the interests of

members in the company.

77, 78: Directors not to refuse transfer of shares and notice of refusal:

The directors may not refuse transfer of shares except because of the defect or invalidity of the

transfer deed. They shall notify the applicant of any defects and reason of refusal of transfer

within 30 days, 5 days in case of CDC. The transferee shall, after removal of such defect, be

entitled to re-lodge the transfer deed.

For a private company, the conditions imposed in the articles shall be applicable.

On default, company and knowing officer shall pay a fine of up to Rs. 20,000 plus Rs. 1,000

per day.


29/76

78-A: Appeal against refusal of transfer:

The transferor, transferee or the person intimating the transmission by operation of law may

appeal to the Court against refusal of transfer, transmission or notice of the same. He must do

so within 2 months from the date of receiving of notice of refusal or expiry of time giving to

company for giving such notice.

The Commission shall take representations from all parties, including the previous owner, and

ask the company for reason of refusal of transfer/transmission. The Commission may direct

either that the company need not register the transfer/transmission or that it must do so within

15 days of receiving such order along with other incidental and consequential directions

including payment of costs.

On default, knowing officers shall pay a fine of up to Rs. 500 per day.

79: Transfer to successor-in-interest:

Shares/debentures of a deceased member/holder shall be transferred to his lawful successor-

in-interest on an application made by him with all supporting documents evidencing hisnomination or lawful award. The company may demand any indemnity and write his name in

the register of members.

80: Transfer to nominee of a deceased member:

A member may appoint one or several nominees by submitting a document of nomination

stating the right of each nominee (such that shares are divided in whole numbers).

Upon death of the member, the nominees are individually entitled to their part of the shares.

They shall file an application upon which the shares shall be transmitted to their name unless

such nomination:

is varied by another nomination deposited before death of member is expressly cancelled by notice in writing by member becomes invalid by reason of some contingency mentioned in the nominationIf the nominee dies before the member, that part of nomination would become void. If a

second person was mentioned in the deed, rights of that nominee shall transfer to this second

one.

A nomination deed does not limit the owners right of transfer, disposal or otherwise dealing in

the shares. It is effective only from the day of his death.

Only the following relatives of the member may be nominated:

spouse

father or mother brother or sister son or daughter (including step or adopted child)

81: Transfer by nominee or legal representative:

A transfer of share/debenture by a nominee or legal representative of a deceased member

shall be as valid as if he was the member of the company even if his name was not yet written

in the register of members.


30/76

Commission, Discount, Premium and Redeemable Preference

Shares

82: Power to pay and prohibition of certain commissions and discounts:A company can pay commission to a person for subscribing, agreeing to subscribe, procuring

subscription or agreeing to procure subscription for any shares/debentures of the company if:

payment of such commission is allowed by the articles the rate of commission does not exceed that fixed by Commission (on default, fine of Rs.

2,000)

the amount or rate of commission paid or agreed to be paid is mentioned in the documentinviting subscription (prospectus - public offer, SILOP or other document - not public offer)

(on default, fine of Rs. 1,000)

number of shares/debenture for which persons have agreed to subscribe absolutely for acommission is disclosed on the document inviting subscription (on default, fine of Rs.

1,000)

Companies may not give any other commission, discount or allowance for subscribing,

agreeing to subscribe, procuring subscription or agreeing to procure subscription to any

person. Provided that:

The company can pay any broker but the amount paid shall not be more than 1% of the price

of shares/debentures actually sold through the broker or any higher rate that the Commission

may specify.

The company can pay any commission to a vendor or promoter or other person if payment is

made to them in shares/debentures and giving commission to them would have been legal if

paid directly.

On default, company and officer shall pay a fine of up to Rs. 500.

83: Application of premium received on issue of shares:

Any premium received on sale of shares, whether in cash or otherwise, will be transferred to

the Share Premium Account.

For matters of reduction of capital, it will be treated as paid-up capital of the company.

The share premium can be applied in:

writing off preliminary expenses of the company writing off expenses of issue of shares/debentures, including commission/discount allowed providing for the premium paid on redemption of redeemable preference shares or

debentures

issuing bonus shares to existing membersFor shares issued before the commencement of this ordinance, share premium must be

separated the same way as if they had been issued after commencement.

The amount of premium that has been applied and does not form a part of the reserves of the

company shall be disregarded.


31/76

84: Power to issue shares at a discount:

A company can issue shares at a discount if:

it is authorized by a resolution stating the maximum rate of discount it is sanctioned by the Commission at the date of such issue, one