Transparency International Pakistan Shows Reservations on Amendments in Companies Act

The corruption watchdog Transparency International Pakistan has expressed some serious concerns over amendments made to the Companies Act.

Transparency International Pakistan has expressed its concerns in a letter to the Prime Minister’s Principal Secretary Azam Khan, the National Accountability Bureau (NAB), and the Supreme Court.

The letter stated that it has received a complaint raising some serious objections on the Companies (Amendment) Ordinance, 2020 dated 30th April, deleting various provisions in the said ordinance against which deletion causes prejudice to the public at large and is against the norms of business in commercial/corporate activities in Pakistan giving undue benefit to the wrongdoers.

It further stated that the complainant has raised serious objections ten sections out of over  127 sections, purportedly amended by Companies (Amendment) Ordinance 2020. The complainant has serious reservations as the following ten amendments are against the norms of honest business activities and violate the rights of the genuine shareholders, giving GoP funds to companies, and supporting Benami foreign assets/account holders.

Transparency International Pakistan has the following comments on these ten amendments in the Companies Act 2017.

S. No.Companies Act, 2017Companies (Amendment) Ordinance, 2020Complainants complain and suggestions
1Sec 172 Disqualification of directors by the commission sec 172 (1) states various circumstances under which, the commission may pass disqualification order against a person to hold the office of a director of a company for a period of five years beginning from order.Section 172 following circumstances have been deleted from the list.

f. The affairs of the company which he is a director have been conducted in a manner which has deprived the shareholders of a reasonable return;

m. The person has entered into a plea bargain arrangement with NAB or any other regulatory body

This will allow persons who have admitted committing corruption, and convicted under NAO 1999, to be appointed as Director, which amounts to perpetuating the wrongdoings and nowhere in the world such practice is allowed. The directors in companies which deprived its shareholders reasonable return to become a director in a new company
2Sec 182 prohibits loans to the director of a company, of its holding company, or to any of his relativesSec 182A new proviso has been added which states that this prohibition shall not apply to the loan provided to the Chief Executive or the whole time director subject to the condition that the loan is granted under a scheme approved by the members of the companyTaking a personal loan from the company is conflict of interest. The sec 182A shall be deleted. It appears that Chief Executive and directors have been facelifted for their wrongdoings.
3Sec 186 & 187 appointment of Chief Executive
Sec 186 & 187 (4)
Notwithstanding anything contained in this sec, the govt shall have the power to nominate chief executive of a public sector company in such manner as may be specified
Subsection 4 of sec 186 & 187 have been deleted.
and the power of the Federal Govt to appoint Chief Executive of public sector company appears to have been Withdrawn. 
It is a universal prinicple, that the majority shareholder has a right to appoint Managing Director. This is an illegal section and shall be deleted as it violates the fundamental rights of the shareholder/BOD.
4Sec 244 titled “Unclaimed shares, Modarba certificates and dividend to vest with the Federal GovtThis is substituted by new section titled “Unpaid Dividend Account” which now require companies to deposit unpaid or unclaimed amount to a separate profit bearing account, and profit over which shall be used for CSR initiatives and specified purposed by the CommissionPublic unclaimed funds always belong to the Govt sec 131 of Banking Ordinance 1962, unclaimed funds are to be given to SBP, who is responsible to return it to the claimant whenever claimed. Over Rs. 40 billion are such unclaimed funds. This substitution needs to be deleted
5Sec 245 Establishment of Investor Education and Awareness FundSec 245 is deleted This against companies obligations towards society. It needs to be restored
6Sec 282 Powers of Commission to facilitate reconstruction or amalgamation of companiesPower of Commission given to court, section is rewritten as Provisions for facilitating reconstruction and amalgamation of companiesGiven powers of SECP to Court, is against common sense. Prior to Court Case, Regulator shall have provision to resolve facilitating reconstruction and amalgamation. Sec 282 shall be restored.
7452. Companies Global Register of Beneficial Ownership (1)Every substantial shareholder or officer of a company incorporated under the Company law, who is a citizen of Pakistan within the meaning of the Citizenship Act, 1951 (II of 1951) including dual citizenship whether residing in Pakistan or not having a shareholding in a foreign company or body corporate shall report to the company his shareholding or any other interest (or any change thereof) 203 as may be notified by the Commission, on a specified form within thirty days of holding such position or interest.Amended that less than 10% foreign shareholding by citizen is not to be declared to SECP

    1. Every substantial shareholder or officer of a company incorporated under the Company law, who is a citizen of Pakistan within the meaning of the Citizenship Act, 1951 (II of 1951) including dual citizenship holder whether residing in Pakistan or not having a shareholding in a foreign company (of 10% or more) or body corporate shall report to the company his shareholding or interest
Section 452 shall be restored. Not declaring less than 10% shareholding in a foreign company will allow benami account holders to run company in Pakistan and may cause money laundering 
8Sec 456 Acceptance of advances by real estate companies engaged in real estate projectsApplication of Sec 456 was held in abeyance since the promulgation of Companies Act, 2017. This whole section has now been deletedIn 2003, vide notification No SRO 954(1) 2003 date October 1, 2003 this section was added.

In 2008, after new govt took over, this section was  deleted on demand of megs builders.
In 2007, this section was added in the Companies Act. But SECP did not implement by not asking for issue of notification for 3 years.
This must be restored

9459 Quota for the persons with disabilities in the public interest companies- Every public interest company employing one hundred or more employees shall ensure special quota for employment of persons with disabilities of two percent or such higher percentage as may be specified or required under the applicable Federal and Provincial lawSection 459 deleted, thereby denying a mandatory job to disabled persons.This is against government policy and a serious dent on Human rights in Pakistan in addition to a violation of the Fundamental Rights of a disabled person. To protect the rights of disabled persons section 459 shall be restored.
10Section 461. Security clearance of shareholder and director
The Commission may require the security clearance of any shareholder or director or other office-bearer of a company or class of companies notified by the concerned Minister in charge of the Federal Government (omitted)
Section 461 is deletedSection 461 should be restored.
How can Indian or Israeli citizens be allowed by SECP to run a company in Pakistan? This is against the interest of Pakistan and maybe a serious security concern.

 

All these ten sections by the complainant prima facia are not in the Nationa interest, shall be amended to their original sections of the Companies Act, 2017 immediately, noted the letter.

Transparency International Pakistani said that its striving for across the boar application of Rule of Law, which is the only way to stop corruption and achieve against Zero Tolerance against Corruption.



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