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ROLE of

Directors

MIES -3

ROLE of

Directors

Members’ Information & Education Series

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ROLE OF DIRECTORS

UNDER THE COMPANIES ORDINANCE, 1984AND THE CODE OF CORPORATE GOVERNANCE

Members’ Information & Education Series MIES-3

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ABOUT THE AUTHOR

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Foreword 05

Introduction 07

Eligibility to become a Director 09

Elections of Directors 11

Powers of Directors (Watch Outs) 13

Powers of Directors (SECP Statute) 16

Duties and Responsibilities of Directors (Watch Outs) 20

Duties and Responsibilities of Directors (SECP Statute) 29

Retirement of Directors 40

Penalties and Disqualifications 42

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Contents

C on t en t s

UNDE R T HE

C OMP A NI E S

O R DI NA N

C E ,1

9 8 4

A ND

C ODE

OF

C O R P

O R A T E G

OV E R NA N

C E

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Foreword

F or e w or d

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Introduction

The primary responsibility for the administration and performance of a company lieswith the directors. It is the directors who have control of the Company’s assets andbusiness and determine the future of the Organization.

In this document we have summarized and grouped under different topics, the relevantenactments of the statute and guidance impacting directors. The text has been collected

from the following sources;

Statutes1. The Companies Ordinance, 19842. Code of Corporate Governance – issued by the Securities and Exchange Commission

of Pakistan (SECP).3. Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited.

Guidance4. Manual of Corporate Governance issued by the Securities and Exchange Commission

of Pakistan.5. Frequently Asked Questions (FAQs) on Code of Corporate Governance.

Powers, duties and responsibilities of the Directors are presented in two sections. The

first one is “WATCH OUTS” covering laws and regulations which require utmost attentionof the Directors while the other contains enactments relating to normal course of business, mainly of secretarial and corporate nature.

All the relevant section/clause references are given along with description and remarks.Under the description column mostly wordings of the law have been summarized. Inaddition to the penalties for non-compliance covered in the last topic, we have alsomentioned in the ‘Remarks’ column of relevant section, the applicable penalties for their non-compliance.

The purpose of this document is to summarize the relevant enactments applicable tothe Directors from their election, powers, duties and responsibilities upto the retirement.However for detailed understanding, we suggest that relevant sections/clauses should

be referred from the sources as mentioned above.

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I n t r o d u c t i on

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E l i g i b i l i t y

t o

B e c om e aDi r e c t or

Eligibility to Become a Director(Under the Companies Ordinance, 1984)

RemarksSection/Clause Description

187 The following persons are ineligible to becomedirectors:

• minor;• a person of unsound mind;• a person whose application is pending to be

adjudicated as an insolvent;• undischarged insolvent;• convict of offence involving moral turpitude;• a person debarred from holding office

(section 186);• a person declared as lacking fiduciary

behaviour under section 217 within the last five years;

• not a member except in the case of:- a person representing government or

institution or authority which is a member;- an employee director; or- CEO; or- nominee of creditors.

• defaulter in the payment of loan of morethan Rs. 1 million to any financial institution;and

• member of a stock exchange engaged in thebrokerage business or his spouse.

The age of majority is 18 years under the Majority Act 1875.

Under section 189 theperson who is not qualifiedto be a director but acts insuch capacity shall beliable in respect of eachday during which he sodescribes or represents or act as such to a fineextending to Rs. 200.

Penalty under section 190,on a person who is notqualified to act as director,being an undischargedinsolvent, is more severeand may comprise of two

years imprisonment and/or fine up to Rs. 10,000 or both.

200(2) The Chief Executive, if he is not already adirector, is deemed to be a director, and willaccordingly carry all the rights and liabilitiesrelated to such office.

The Companies Ordinanceholds directors responsible

for appointment of Chief E x e c u t i v e a n ddetermination of terms of appointment. Whoever contravenes or fails tocomply with any of thesuch provisions or is aparty to the contraventionof the said provisions shallbe liable to be punishableunder section 204 with:

• fine which may extendto Rs. 10,000; and

• may also be debarred for a per iod notexceeding three years.

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E l i g i b i l i t y t o

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iii. iv. & v Under the Code, a listed company cannotappoint as director a person:

• who is serving as director of 10 other listedcompanies; or

• whose name is not borne on the register of National Tax Payers (not applicable to non-residents); or

• who is a defaulter of a banking company,DFI or NBFC.

• who is a member in default of a stockexchange.

• If he or his spouse is engaged in the businessof stock brokerage.

U n l e s s s p e c i f i c a l l yexempted by the Securitiesand Exchange Commissionof Pakistan.

Eligibility to Become a Director(Under the Code of Corporate Governance)

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E l e c t i on

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Election of Directors(Under the Companies Ordinance, 1984)


The procedure for election of directors has beenlaid down in section 178 which states that thenumber of directors shall be fixed not later than35 days before the date of AGM. Notice of themeeting in which directors are to be elected shall,among other things, state the number of directorsto be elected and the names of retiring directors.Thecontesting directors are required to file notice of intention with the company not later than 14 daysbefore the date of the meeting. All notices are tobe circulated to members seven days before themeeting. A cumulative voting system exists and

every member of a company (having share capital)has the right to vote equal to the product of number of shares held by him and the number of directorsto be elected. A member may give all votes to asingle candidate or to different candidates. Thecandidate getting the highest votes is to be declaredas elected and so on until the specific numbers of directors have been elected.

174 The minimum number of directors have been fixed by the law as follows:

• Single member company(SMC), should haveat least one director;

• Private company other than SMC, shouldhave at least two directors;

• Public company(other than listed company),should have at least three directors; and

• Listed companies should have at least sevendirectors.

In section 186 heavypenalties exist for noncompliance, comprising

fine up to Rs. 10,000 anddebarment from beingappointed as director for up to three years.

176(1) In default of and subject to the articles of acompany and section 174, the number of directors and the names of first directors shallbe determined in writing by a majority of thesubscribers of the memorandum and until it isso determined, all the subscribers of thememorandum who are natural persons shallbe deemed to be the directors of the company.

Under section 185 the actsof directors are not invalidd u e t o d e f e c t i v eappointment, althoughsuch a director is not toexercise powers till suchdefect in appointment hasbeen rectified.

However, in section 186heavy penalties exist,comprising fine up toRs. 10,000 and debarment

from being appointed as

director for up to three years.178 Penalty under section 186

applies.

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182 Creditors or other special interest holders maynominate directors on the Board of a companyin addition to the elected directors on the basisof contractual arrangement.

Penalty under section 186applies.

i (a) Listed companies are required to encourageeffective representation of independent non-executive directors, including those representingminority interests, on the Board.

Application of the clauseis voluntarily.

i (b) Listed companies are encouraged to have atleastone independent director representing institutionalequity interest of a banking company,Development Financial Institution, Non-BankingFinancial Institution, Mutual Fund or Insurancecompany. The director shall be selected by suchinvestor company through a resolution of itsBoard of Directors.

i (c) There shall be not more than 75% executivedirectors on the Board.

Executive directors are theworking, whole-timedirectors of a company.Non-executive directors,on the other hand, arelarge ly independentpersons who are expectedto lend an outs ideviewpoint to the Board of Directors of a companyand do not undertake todevote the i r wholeworking time to thecompany. The guiding

factor in distinguishingbetween executive andnon-executive directors of a company is the extent

of their involvement inmanaging the affairs of thecompany.

Election of Directors(Under the Code of Corporate Governance)


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P o w er of Di r e c t or

( W a t ch O u t s )


Powers of Directors (Watch Outs)(Under the Companies Ordinance, 1984)

Specific Functions to be Performedthrough Board Resolution

The directors of a company shall exercise the following powers on behalf of the company,and shall do so by means of a resolution passedat their meeting, namely:

(a) to make calls on shareholders in respectof moneys unpaid on their shares;

(b) to issue shares;(c) to issue debentures or participation term

certificate, any instrument in the natureof redeemable capital;

(d) to borrow moneys otherwise than ondebentures;

(e) to invest the funds of the company;(f ) to make loans;(g) to authorise a director or the firm of which

he is a partner or any partner of such firmor a private company of which he is amember or director to enter into anycontract with the company for makingsale, purchase or supply of goods or

rendering of services with the company;(h) to approve annual, half-yearly and other periodical accounts as are required to becirculated to the members;

(i) to approve bonus to employees;(j) to incur capital expenditure on any single

item or dispose of a fixed asset inaccordance with the limits as prescribedby the Commission from time to time;

(k) to undertake obligations under leasingcontracts exceeding one million rupees;

(l) to declare interim dividend; and(m) having regard to such amount as may be

determined to be material by the Board-(i) to write off bad debts, advances andreceivables;

(ii) to write off inventories and other assetsof the company; and

(iii) to determine the terms of and thecircumstances in which a law suit may

These are the specific functions that are requiredto be performed by theBoard through their resolution.

Any director whocontravenes with anyprovision of section 196,shall be punishable with a

fine which may extend toone hundred thousandrupees and shall beindividually and severallyliable for losses or damagesarising out of such action.

The cu r r en t l im i t s ,specified under the Rule14A of the Companies(General Provisions andForms) Rules, 1985, areone million rupees for thea m o u n t o f c a p i t a l

expenditure to be incurredon any single item andRs.100,000 for the amountof book value for thedisposal of fixed assets.

As per IAS 8(revised):O m i s s i o n s o r misstatements of items arematerial if they could,individually or collectively,influence the economic

decision of users taken on

the basis of the financialstatements.

a) What relationship doesthis remark bear to (m).

196 (2)

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be compromised and a claim or rightin favour of a company may bereleased, extinguished or relinquished.

Determining Remuneration

of the Cost Auditors

Where an audit of cost accounts of a companyhas been directed by the Federal Government(as mentioned in this section), the directorsshall appoint and fix remuneration of the costauditors to be appointed for this purpose.

258 Requirement of appointingCost Auditors is currentlya p p l i c a b l e t o o n l y

Vanaspati Oils and GheeIndustry.

252 (3)

252 (4)

Appointment of Auditors and Related Matters

The directors shall appoint the first auditors of a company within 60 days of the date of incorporation of the company; and such auditorsshall hold office until the conclusion of the firstannual general meeting.

The directors may fill in any causal vacancy inthe office of auditors. However, the continuingor surviving auditors may continue to act untilsuch vacancy is filled.

Under section 259, everyofficer of the companyshall be punishable with

fine extending Rs. 50,000and to a further fineextending to Rs. 2,000 for

every day after the firstduring which the defaultcontinuous.

--- do ---

The directors shall fix the remuneration of theauditors, in the above -mentioned cases, wherethe auditors have been appointed by them.

252 (8)--- do ---

Recommending Dividend

The company in general meeting may declaredividends; but no dividend shall exceed theamount recommended by the directors.

248 (1)

Removal of Chief Executive

The directors of a company by resolution passedby not less than three-fourths of the totalnumber of directors, or the company by aspecial resolution, may remove a chief executivebefore the expiration of his term of office.

Penalty of non complianceis covered under section204, which may extend toRs. 10,000; and director may also be debarred for a period not exceedingthree years.

202

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Powers of Directors (Watch Outs)(Under the Code of Corporate Governance)

The following powers are exercised by the Boardof Directors on behalf of the company anddecisions on material transactions or significantmatters are documented by a resolution passedat a meeting of the Board:

• investment and disinvestment of funds wherethe maturity period of such investments issix months or more, except in the case of banking companies, Non-Banking FinanceCompanies, Mutual Fund, trusts and insurancecompanies;

• determination of the nature of loans andadvances made by the company and fixinga monetary limit thereof;

• write-off of bad debts, advances andreceivables and determination of a reasonableprovision for doubtful debts;

• write-off of inventories and other assets; and• determination of the terms of and the

circumstances in which a law suit may becompromised and a claim/ right in favour of the company may be waived, released,extinguished or relinquished.

Appointing CEO and other Executives

Appointment, remuneration and terms andconditions of employment of the Chief ExecutiveOfficer (CEO) and other executive directors of the listed company are determined andapproved by the Board of Directors.

viii. (e)

xxxix.

Recommending Appointment of ExternalAuditors

The Board of Directors of a listed company shall

recommend appointment of external auditors for a year, as suggested by the Audit Committee.

viii. (d)

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o f D i r e c t o r s ( S E C P S t a t u t e )

Powers of Directors (SECP Statute)Under the Companies Ordinance, 1984


76 (2)

Transfer of Shares and Debentures

With respect to transfer deed of shares or debentures that has been lost, destroyed or mutilated, the directors of the company needto be satisfied that such a deed has been lost,destroyed or mutilated before the companyproceeds to register the transfer of shares or debentures.

If any officer makes defaultsin complying with any of the provisions of section76(2) he shall be liable toa fine of an amount notexceed ing Rs .5000 .

86

Further Issue of Capital

The decision to increase the capital of thecompany by the issue of further shares lies withthe directors of such company.

With respect to further issue of shares, if existingmembers decline or do not subscribe to theoffer of new shares, the directors have thepower to allot and issue such shares in suchmanner as they deem fit.

Directors (or an officer authorized by the directors)are to sign the circular which is to accompanyany offer of new shares under this section.

159 (2)

Calling of Extra Ordinary General Meeting

An extra ordinary general meeting may becalled at any time by the directors for consideration of any matter requiring approvalof the company in a general meeting.

Under section 159(8),every officer of thecompany shall be liable:

• If default relates to listedcompany to a fine notless than Rs. 10,000 andnot exceeding Rs.20,000 and to a further

fine extending Rs. 2000 for everyday.

• If the default relates toother than l i s tedcompany to a fine whichmay extend to Rs. 2000and further fine of Rs.200 per day.

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In Relation to Promotion Expenses

The business of a company shall be managedby the directors, who may pay all expensesincurred in promoting and registering thecompany and may exercise all such powers of the company as are not by the Ordinance,articles or special resolution, required to beexercised by the company in the generalmeeting.

196 (1) A n y d i r e c t o r w h ocontravenes with anyprovision of section 196,shall be punishable with a

fine which may extend toone hundred thousandrupees and shall beindividually and severallyliable for losses or damagesarising out of such action.

Maintaining Books of Accounts

The directors can decide to maintain books of accounts at a place other than the registeredoffice of the company.

The directors, during business hours, have theright to inspect the books of accounts and other books and papers of the company.

The directors shall from time to time determinewhether and to what extent and at what timeand places and under what conditions or regulations the accounts and books or papersof the company or any of them shall be opento the inspection of members.

230 (1)

230 (4)

230 (5)


for compliance with thestatutory requirementsregarding preparation andmaintenance of proper books of account andcirculation of financialstatements that give a trueand fair view. If a listedcompany fails to complywi th t he s t a tu to ryrequirements in this regard,every director including theCEO and CFO of thecompany, who hasknowingly been the causeof the default, is liable tobe punishable with:

• imprisonment for aterm which may extendto one year; and

185

Validity of Acts of Directors

All acts of directors pertaining to a period beforeany defect in the appointment of their officehas been discovered are valid. However after the defect has been discovered, the directorsshall not exercise the right to their office till itis rectified.

Heavy penalties exist for violation of section 185,comprising fine up to Rs.10,000 and debarment

from being appointed asdirector for up to three

years.


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• fine which shall not beless than Rs. 20,000 nor more than Rs. 50,000;and

• a further fine which mayextend to Rs. 5,000 for every day after the firstduring which thedefault continues.

251 (2) Period for Payment of Dividend

When a dividend has been declared, it shall notbe lawful for the directors of the company to

withhold or defer its payment and the chief executive of the company shall be responsibleto make the payment in the manner providedin section 250 within forty-five days of thedeclaration in the case of a listed company andwithin thirty days in the case of other than listedcompany.

Dividend shall be deemedto have been declared on

the date of the generalmeeting in case of adividend declared or approved in the generalmeeting and on the dateof commencement of closing of share transfer

f o r p u r p o s e s o f d e t e r m i n a t i o n o f entitlement of dividend inthe case of an interimdividend and whereregister of members is not

closed for such purpose,on the date on which suchdividend is approved bythe directors.

vii.

Powers of Directors (SECP Statute)(Under the Code of Corporate Governance)

General

The directors of listed companies shall exercisetheir powers and carry out their fiduciary dutieswith a sense of objective judgment and

independence in the best interests of the listedcompany.

Directors are responsible for the proper running andmanagement of the

c o m p a n y . T h i sresponsibility is fiduciaryin nature.The fiduciary duties of d i r e c t o r s c a n b esummarized as follows:

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• The duty of honesty;• The duty of care, skill

and diligence in thedischarge of their duties;

• Duty to act bona fide inthe interest of thecompany;

• Duty to use powers for proper purpose.


Powers of Directors (SECP Statute)(Under the Listing Regulations of the Karachi Stock Exchange)

38 (2) The Board of Directors of a listed company

should approve the transfer pricing policy for a related party transaction before suchtransaction is entered into.

Applicability of regulation

number 38 is deferred tillFebruary 28, 2006 by theSECP.

38 (7) The Board of Directors at each Board meetingwill formally approve the records of all relatedparty transactions.

38 (8) The related party transactions which are notexecuted at arm’s length price will also beplaced separately at each Board meeting alongwith necessary justification for considerationand approval of the Board and before the AuditCommittee of the company.

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)

160 (3)

Duties and Responsibilities of Directors (Watch Outs)(Under the Companies Ordinance, 1984)

Presiding General Meeting

The chairman of the board of directors shouldpreside as chairman at every general meetingof the company. But if there is no such chairman,or if at any meeting he is not present within

fifteen minutes after the time appointed for holding the meeting, or is unwilling to act aschairman, any one of the directors present maybe elected to be chairman, and if none of thedirectors is present or is unwilling to act aschairman the members present shall chooseone of their member to be the chairman.

Under section 160(8),every officer shall be liable:• If defaults relates to

listed company to a finenot less than Rs. 10,000and not exceeding Rs.20,000 and to a further

fine not exceeding Rs.2,000 for every day.

• If the defaults relates toother than l i s tedcompany to a fineextending Rs. 2,000and to a further fineextending Rs. 200 for every day.


191

Remuneration of the Directors

In accordance with the provisions of the articles,the directors or the company in general meetingshall determine the remuneration of a director

for performing extra services, including theholding of the office of chairman.

It appears from section188 (c)(i) that without thesanction of the companyin general meeting,holding of any office of

profit other than CEO,legal or technical advisor or a banker would bevacation of office by thedirector, therefore optiongiven by this sectionpractically does not apply.

195

Loans to Directors

No company, shall, directly or indirectly, makeany loan to, or give any guarantee or provide anysecurity in connection with a loan made by anyother person to, or to any other person by:-

• any director of the lending company or of acompany which is its holding company or any partner or relative of any such director;

• any firm in which any such director or relativeis a partner;

• any private company of which any suchdirector is a director or member;

Under section 195(5),every person shall bepunishable with a fineextending Rs. 5,000 or

with imprisonment of sixmonths in case of non-compliance.

Under section 195 (6), Allpersons shall be liablejointly and severely, to the

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• any body corporate at a general meeting of which not less than twenty five per cent of the total voting power may be exercised or controlled by any such director or his relative,or by two or more such directors together or by their relatives; or

• any body corporate, the directors or chief executive whereof are or is accustomed toact in accordance with the directions or instructions of the chief executive, or of anydirector or directors, of the lending company:

Exceptions:Provided that a company may, with the approvalof the Commission, make a loan or give anyguarantee or provide any security in connectionwith a loan made by any other person to adirector who is in the whole-time employmentof the company for the purpose of :

1. acquisition or construction of a dwellinghouse or land therefore or for defrayingthe cost of any conveyance for personaluse or household effects; or

2. for defraying any expense on his medicaltreatment; or

3. the medical treatment of any relative asare ordinarily made or provided by thecompany to its employees.

lending company for therepayment of the loan or

for making good the sum(with mark-up not less thanthe borrowing cost of lending company) whichthe lending company mayhave been called upon topay by virtue of theguarantee given or thesecurity provided by suchcompany.

Further to the abovepenalties, under section188 the director shall becease to hold office if heor any firm of which he isa partner or any privatecompany of which he is adirector accepts a loan or guarantee from thecompany in contraventionof section 195.

Under section 196 (4), oncontravention of thissubsection, he shall beliable to 100,000 rupeesand shall be individuallyand severally liable for losses or damages arisingout of such action.

Prohibition of Certain Acts

The directors of a public company or of asubsidiary of a public company shall not exceptwith the consent of the general meeting either specifically or by way of an authorization, doany of the following things, namely:-

(a) sell, lease or otherwise dispose of theundertakings or a sizeable part thereof unlessthe main business of the company comprisesof such selling or leasing; and

(b) remit, give any relief or give extension of time for the repayment of any debtoutstanding against any director.

196 (3)

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198 (2)

Appointing CEO and determining Terms of Appointment

The directors of every company shall appointan individual to be the Chief Executive of thecompany.


for appoint ment of Chief Executive anddetermination of terms of appointment. Whoever contravenes or fails tocomply with any of thesuch provisions or is aparty to the contraventionof the said provisions shall

be liable to be punishablewith:• fine which may extend

to Rs.10,000; and• may also be debarred

for a per iod notexceeding three years

200 (1)


208If the directors fail toc o m p l y w i t h t h erequirements of section208, regarding investmentin associates then everydirector of a company whois knowingly and willfullyin default shall be liable to

fine which may extend toone million rupees and inaddition, shall jointly andseverally reimburse to thec o m p a n y a n y l o s ssustained by the companyin consequence of aninvestment which wasmade without complyingwith the requirements of the said section.

Investments in Associated Companies andUndertakings

A company shall not make any investment inany of its associated companies andundertakings except through a special resolutionwhich indicates nature, period and amount of investment and the return on such investmentin form of loan shall not be less than theborrowing cost of investing company.

However this section is not applicable to:

• banking company• financial institution approved by the

commission• private company, which is not a subsidiary

of a public company, and• a company whose principal business is the

acquisition of shares, stocks, debentures or other securities.

The directors shall determine the terms andconditions of appointment of a Chief Executive,if required by the company’s articles.

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Disclosure of Interest

Every director of a company who is in any way,whether directly or indirectly, concerned or interested in any contract or arrangemententered into, or to be entered into, by or onbehalf of the company shall disclose the natureof his concern or interest at a meeting of thedirectors.

The director so interestedshall also abstain fromdiscussion and voting onthe contract and hispresence shall not counttowards forming a quorum

for such discussion or voting. Even if he doesvote, his vote shall be void.

214 (1)

216

Restriction on Voting by Interested Directors

A director interested in any contract or agreement entered into or to be entered intoby the company shall not participate or votein proceedings of directors where such contractor agreement is to be discussed.

Every director so interestedshall be liable to a finewhich may extend to Rs.5,000 on contravention.

221

Disclosure of Shareholding

Every director shall give notice to the companyof such matters relating to himself as may benecessary for the purpose of enabling thecompany to comply with the provisions of section 220, Register of directors’ shareholdings.

Any director who fails tocomply with the provisionof section 221 shall be liableto be punishable with:• imprisonment for a

term which may extendto two years; and

• fine which may extendto Rs. 5,000.

224

Trading of Securities

Where any director of a listed company makesany gain by the purchase and sale, or the saleand purchase, of any security, within a periodof less than six months, such director shall makea report and tender the amount of such gain

to the company and simultaneously send anintimation to this effect to the registrar and theCommission.

Any director who fails tocomply with the provisionof this section shall beliable to be punishablewith:

• fine which may extendto Rs. 30,000; and• a further fine which may

extend to Rs. 1,000 for every day after the firstduring which the defaultcontinues.

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O u t s

)


236 (1) &236 (3)

236 (5)

Directors Report

The directors shall make out and attach to everybalance sheet a report with respect to the stateof the company’s affairs and other informationand such report shall be signed by the chairmanof the directors or the chief executive of thecompany on behalf of the directors if authorisedin that behalf.

In case consolidated financial statements areto be presented, the directors of the holdingshall also make out and attach a report withrespect to the state of affairs of the group.

If a company fails tocomply with any of therequirements of section236, every director,inc luding the chief executive, of the companywho has knowingly by thisact or omission been thecause of any default by thecompany in complyingwith the requirements of this section shall-

(a) in respect of a listedcompany, be punishablewith imprisonment for aterm which may extendto one year and with finewhich shall not be lessthan Rs.20,000 nor morethan Rs.50,000, andwith a further fine whichmay extend to Rs.5000

for every day after the first during which the

default continues; and

(b) in respect of any other company, be punishablewith imprisonment for aterm which may extendto six months and with

fine which may extendto Rs. 10,000.

The directors of a holding company shall ensurethat, except where in their opinion there aregood reasons against it, the financial year of each of its subsidiaries coincides with thecompany’s own financial year.

238 (1)

241

Authentication of Balance Sheet

The directors shall approve, and the Chief Executive and at least one director shall sign,the balance sheet and profit and loss account

Every director or Chief Executive in default shallbe liable for a fine not

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or income and expenditure account of thecompany.

Where the Chief Executive is not in Pakistan, theabove mentioned financial statements may besigned by two directors provided that a statementsigned by the directors explaining the reasons

for non compliance is attached to the financialstatements.

exceeding Rs. 5,000.

Duties and Responsibilities (Watch Outs)(Under the Code of Corporate Governance)

Declaration at the time of Filing Consent toact as Director

The directors of listed companies shall, at the timeof filing their consent to act as such, give adeclaration in such consent that they are awareof their duties and powers under the relevantlaw(s) and the listed companies’ Memorandumand Articles of Association and the listingregulations of stock exchanges in Pakistan.

ii.

vi.

Casual Vacancy on Board of Directors

Any casual vacancy in the Board of Directors of a listed company shall be filled up by thedirectors within 30 days thereof.

iii.

General

Every listed company shall ensure that:

a. a “Statement of Ethics and Business Practices”is prepared and circulated annually by its Boardof Directors to establish a standard of conduct

for directors and employees, which Statementshall be signed by each director and employeein acknowledgement of his understanding andacceptance of the standard of conduct;

b. the Board of Directors adopt a vision/ missionstatement and overall corporate strategy for the company and also formulate significantpolicies, having regard to the level of materiality,as may be determined it.

FAQs states that the'Statement of Ethics andBusiness Practices' shouldbe signed by all directorsand employees of listedcompanies.

Significant policies for thispurpose may include:

• r i sk managemen t ;• h u m a n r e s o u r c e

management includingprepa ra t ion o f asuccession plan;



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• procurement of goodsand services;

• marketing;• determination of terms

of credit and discountto customers;

• write-off of bad/doubtfuldebts, advances andreceivables;

• acquisition / disposal of fixed assets;

• investment;• borrowing of moneys

and the amount ine x c e s s o f w h i c hborrowings shall besanctioned/ ratified bya general meeting of shareholders;

• donations, charities,contributions and other payments of a similar nature;

• determination anddelegation of financialpowers;

• transactions or contracts

w i t h a s s o c i a t e dcompanies and relatedparties; and

• health, safety andenvironment.

A complete record of particulars of the abovementioned policies alongwith the dates on whichthey were approved or amended by the Boardof Directors shall be

maintained.

viii (c)

Establishing Sound System of Internal Control

The Board of Directors shall establish a systemof sound internal control, which is effectivelyimplemented at all levels within the company.

The Code of CorporateGovernance, however does not mention any

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bench mark framework for the sound system of internal control .

ix.

xi.

xxvi.

Defining Roles and Responsibilities of theChairman & CEO

The Board of Directors shall clearly define therespective roles and responsibilities of theChairman and Chief Executive, whether or notthese offices are held by separate individuals or the same individual.

Meetings of Board of Directors

The Board of Directors of a listed company shallmeet at least once in every quarter of the

financial year. Written notices (including agenda)of meetings shall be circulated not less thanseven days before the meetings.

Trading by Directors and their Spouses

Where any director, CEO or executives of alisted company or their spouses sell, buy or takeany position, whether directly or indirectly, inshares of the listed company of which he is adirector, he shall immediately notify in writingthe Company Secretary of his intentions.

A committee of Board of Direc tors can only‘recommend’ the terms andconditions of employmentof the CEO and executivedirectors to the board. Theappointment, remunerationand terms of employmentmust be approved by theBoard of Directors in ameeting.

xxvi.

Determining Closed Period

Each listed company shall determine a closedperiod prior to the announcement of interim/

final results and any business decision, which

may materially affect the market price of itsshares. No director, CEO or executives shall,directly or indirectly, deal in the shares of thelisted company in any manner during the closedperiod.

The closed period, referredto in the Code, restricts thedirectors of every listed

company from dealing inits shares, whether directlyor indirectly. The closedperiod should start from theday when any document /statement, which forms thebasis of price sensitive

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xxx.

xxxiii.

Establishing Audit Committee

The Board of Directors of every listed companyshall establish an Audit Committee.

The Board of Directors of every listed companyshall determine the terms of reference of the AuditCommittee.

information, is sent to theBoard of Directors andterminate after theinformation is made public.

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Duties and Responsibilities of Directors (SECP Statute)(Under the Companies Ordinance, 1984)


59

Civil Liability for Misstatement in the Prospectus

With respect to issue of a prospectus containingmisstatements, the directors of the company,excluding those without whose knowledge or consent the prospectus was issued, shall alongwith other persons authorizing the issue be liableto indemnify such persons who are not liableagainst all damages, costs and expenses to whichthey may be made liable by reason of their namebeing inserted in such prospectus or statementattached thereto.

68

Restriction on Allotment

Allotment cannot be made of any share capitaloffered to public for subscription, unless;

• Minimum subscription has been subscribedand the full amount has been paid to andreceived in cash.

• The amount stated above shall be exclusive of any amount payable otherwise than in cash.

• All money received from the applicants shallbe deposited in a separate bank account, until

returned or certificate to commence businessis obtained.

• The amount payable on application shall be full nominal amount of the share.

For non compliance thedirectors of the company,apart from those who provethat the default inrepayment of the moneywas not due to anymisconduct or negligenceon their part, shall be jointlyand severally liable to repaythat money with surcharge

at the rate of one and-a-half per cent for every month or part thereof from theexpiration of the fiftieth day.

72

Allotment of Shares and Debentures to be Dealtin Stock Exchange

Where prospectus states that application has beenmade or will be made for the permission of theshare to be dealt in any stock exchange, anyallotment made on such application be void:

• if the permission has not been applied for beforethe seventh day after the first issue of theprospectus, or

• if the permission has not been guaranteed beforethe expiration of twenty one days from the dateof closing of subscription or such longer periodnot exceeding forty-two days.

In case of non compliance,the directors shall be jointlyand severally liable, unless heproves that the default wasnot due to any misconduct

or negligence on his part, torepay the money received

for applications plussurcharge @ 1.5% per month

from the expiration of theeighth day in addition, to a

fine not exceeding Rs. 5000

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and in the case of acontinuing offence to a

further fine not exceedingRs. 100 for every day after the said eighth day on whichthe default continues.

Not to Refuse Transfer of Shares

The directors of a company shall not refuse totransfer any shares or debentures that are fully paidunless the transfer deed is for any reason defectiveor invalid.

Under section 78(2), everyofficer of the company shallbe liable to a fine notexceeding Rs. 20,000 andto a further fine notexceeding Rs. 1,000 for

every day.

77

95A (8)

Purchase of Company’s Own Shares

With respect to buy back of shares by the listedcompany, the majority of the directors includingthe Chief Executive shall in a meeting, make adeclaration of insolvency that:

• full inquiry into the affairs of the company hasbeen made;

• after such inquiry, they are of an opinion that:

1. the company shall continue to operate asa going concern; and

2. it is capable of meeting its liabilities on timeduring the period upto the end of theimmediately succeeding financial year.

Under section 95A(14),every officer of the companyshall be punishable withimprisonment for a termwhich may extend to 6months or with a fine whichmay extend to Rs. 1,000,000or with both.

At Commencing Business

With respect to the procedure for commencementof business, the Chief Executive or one of thedirectors and the secretary are to file with theregistrar a declaration that the conditions for commencement of business as are mentioned inthis section have been complied with.

146 (1d) Under section 146(5), everyofficer who is responsible to

file with the registrar adeclaration that thec o n d i t i o n s f o r commencement of businessas are mentioned in thissection , shall be liable to a

fine not exceeding Rs. 1,000 for every day.

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157

Statutory Meeting of the Company

With respect to the statutory meeting of companythe directors have the following duties:

• At least three directors, one of whom is to bethe Chief Executive shall certify the statutoryreport.

• The statutory report is to be forwarded to everymember of the company at least twenty onedays before the meeting

• At least five certified copies of the statutoryreport are also to be delivered to the registrar

for registration.

• At the commencement of the meeting andthroughout its duration, a list caused to beprepared by the directors showing the names,occupations, nationality and address of themembers, and the number of shares held bythem respectively is to be produced.

Under section 157(11), everyofficer shall be liable:

• If defaults relates to listedcompany to a fine notless than Rs. 10,000 andnot exceeding Rs. 20,000and to a further fine notexceeding Rs. 2,000 for every day.

• If the defaults relates toany other company to a

fine not exceeding Rs.5,000 and to a further fine not exceeding Rs.200 for every day.


197

Prohibition Regarding Making of PoliticalContributions

A company is prohibited to contribute any amountto any political party or for any political purposeto any individual or body.

In case of non complianceof the said section everyd i r e c t o r w h o i s

knowinglyand willfully indefault shall be punishablewith imprisonment of either description for a term whichmay extend to two years andshall also be liable to fine.

205 (2)

Register of Directors

The directors shall, within a period of ten days of his appointment or any change therein, as thecase maybe, furnish to the company the particularsso as to enable the company to comply with the

requirements of section 205 regarding Register of Directors.

Under section 205(5), if thedirectors fail to furnish theparticulars to enable thecompany to comply with the

provisions of section 205,may be punished with a finewhich may extend to Rs. 500and a further fine which mayextend to Rs. 50 for everyday after the first duringwhich the default continues.

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230

Maintaining Books of Accounts

The Companies Ordinance, 1984 holds directorsresponsible for compliance with the statutoryrequirements regarding preparation andmaintenance of proper books of account andcirculation of financial statements that give a trueand fair view.

If a listed company fails tocomply with the statutoryrequirements in this regard,every director including theCEO and CFO of thecompany, who hasknowingly been the cause of the default, is liable to bepunishable with:

• imprisonment for a termwhich may extend to one

year;• fine which shall not beless than Rs. 20,000 nor more than Rs. 50,000;and

• a further fine which mayextend to Rs. 5,000 for every day after the firstduring which the defaultcontinues.


231

Facilitating Inspection of Books of Accounts

As sanctioned by this section, with respect toinspection of books of accounts and books andpapers of a company by the registrar or by anyofficer authorized in this behalf by SECP, everydirector, along with the officers and other employeesof the company are bound to:

• produce all such books of accounts and booksand papers as are in his custody or under hiscontrol.

• furnish information, statements and explanationsrelating to the affairs of the company requiredby the abovementioned persons; and

• provide reasonable assistance for such inspection.

Under section 232(2),director or any officer shalldeem to have vacated hisoffice and shall bedisqualified for holding suchoffice for period of 5 years.

231

Annual Accounts and Balance Sheet

Subject to the conditions mentioned below, thedirectors of every company shall lay before thecompany in annual general meeting:

Under section 230(7), if alisted company fails tocomply with the statutoryrequirements in this regard,

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• audited balance sheet and profit and loss accountin the case of a company trading for profit; or

• audited balance sheet and income andexpenditure account in the case of a companynot trading for profit.

every director including theCEO and CFO of thecompany, who hasknowingly been the causeof the default, is liable to bepunishable with:

• imprisonment for a termwhich may extend to one

year;• fine which shall not be

less than Rs. 20,000 nor more than Rs. 50,000;and

• a further fine which mayextend to Rs. 5,000 for every day after the firstduring which the defaultcontinues.


In respect of any other company be punishablewith imprisonment for aterm which may extend tosix months and with finewhich may extend toRs.10,000.

Conditions:• The first accounts shall be laid not later than

eighteen months after the incorporation andshall be made for the period since suchincorporation.

• All subsequent accounts shall be laid at leastonce in every calendar year and shall be made

for the period since preceding accounts• In both the above-mentioned cases, the accounts

will be made up to a date not earlier than thedate of the meeting by more than four monthsnor shall they cover a period exceeding twelvemonths unless permission from the registrar hasbeen obtained.

Furnishing Information, Documents etc. to theRegistrar

With respect to any document, notice,advertisement or other communication submittedto the registrar, every past and present director,along with the officers and auditors, is bound to

furnish, to the best of their power, such information,explanation or document as may be required bythe registrar.

261 (1) Under section 261(4) everydirector in default shall bepunishable with fineextending Rs.20,000 and

further fine extending Rs.5,000 in case of continuingdefault for every day andevery officer who willfullyauthorize or permits or isparty to default shall beliable to imprisonment of

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either description extendingto 1 year and fine.


271

To Carry Out Orders of the Court

The directors on any order of the Court, whichhas been initiated by the SECP, shall carry outsuch changes in the management or in theaccounting policies of the company as arespecified in such order.

272

Effect of Court's Order

On the issue of the Court's order under thesection 271 removing from office any director,including chief executive, managing agent, or other officer, such persons shall be deemed tohave vacated his office and-

(i) if the Court's order has removed a director,the casual vacancy in the office of director shall be filled in accordance with the relevantprovisions contained in the articles of association of the company;

(ii) if the Court's order has removed from officea chief executive, the remaining directors

shall elect another person to be the chief executive; and

(iii) if the Court's order has removed from officeall the directors including the chief executive,a general meeting of the company shall becalled forthwith for electing new directors.

328 (1)& (2)

Statement of Affairs

Where the Court has made a winding up order or appointed an official liquidator or provisionalmanager, there shall be made out and submitted

to the official liquidator or provisional manager a statement as to the affairs of the company inthe prescribed form, verified by an affidavit.The statement shall be submitted and verifiedby persons who are at the relevant date thedirectors, chief executive and secretary of thecompany.

Every person making defaultshall be punishable for a finenot exceeding Rs. 500

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330 (1)

Custody of Company's Property

All persons who are or have been directors, chief executives, or other officer of the company andwho may be having in their knowledge, custody,control or charge, directly or under them anybooks or papers, property, effects and actionableclaims, shall forthwith report and hand over or cause to be handed over possession to the liquidator of all such items and furnish to the liquidator suchinformation and explanations as he may require.

Any default or failure on their part shall be punishable withimprisonment of either description which mayextend to one year and with

fine which may extend toRs. 10,000 and the Courtmay direct the books,papers, property and effectsto be delivered to theliquidator in case of defaultor failure, and in the event

of non-compliance with thedirective, to order the personin default to pay further amount by way of compensation equal to thevalue of the property as theCourt may determine.

362

Declaration of Solvency in case of VoluntaryWinding up

In case of voluntary winding up:• its directors; or • majority of directors including the chief executive

(incase where there are more than three directors)may make a declaration (verified by an affidavit)that after a full inquiry into the affairs of thecompany, they are of the opinion that:

1. the company has no debts2. it will be able to pay all its debts in full within

such period not exceeding twelve months from the commencement of winding up.

Every Director making suchdeclaration without anyreasonable grounds shall bep u n i s h a b l e w i t himprisonment for 6 monthsand with fine extending Rs.10,000 or both.

373 (3)

Meeting of Creditors in Creditors Voluntary

Winding up

In case of creditors’ voluntary winding up, thedirectors and the Chief Executive shall have the

following responsibilities with respect to the meetingof creditors:

The Director or any Chief Executive in default shall bepunishable with fineextending Rs. 5,000 and

further fine of Rs.100 for

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• to lay before the meeting

- a full statement of the position of thecompany’s affairs and assets and liabilities.

- list of the creditors of the company.

- the estimated amount of the creditors’ claims.

• to appoint one of the directors to preside over the said meeting.


494 (1)

Allotment of Shares for InadequateConsideration

Any director may apply to the Court for a declarationthat any shares have been allotted for inadequateconsideration.

Every director who is partyto such allotment shall beliable jointly and severally tocompensate the company,the amount by which theconsideration received islesser than the amount thatought to be received inrespect of the allotment of shares, if it is proved that he:

• had knowledge that

consideration so receivedwas inadequate, or • failed to take reasonable

steps to ascertain whether such consideration wasin fact adequate.

every day in case of continuing default.

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Duties and Responsibilities (SECP Statute)(Under the Code of Corporate Governance)

xii.

Meetings of Board of Directors

The Chairman of a listed company shall ensurethat minutes of meetings of the Board of Directorsare appropriately recorded and circulated todirectors and officers entitled to attend Boardmeetings not later than 30 days thereof, unless ashorter period is provided in the listed company’s

Articles of Association.

In the event that a director of a listed company isof the view that his dissenting note has not beensatisfactorily recorded in the minutes of a meetingof the Board of Directors, he may refer the matter to the Company Secretary. The director may requirethe note to be appended to the minutes, failingwhich he may file an objection with the Securitiesand Exchange Commission of Pakistan in the formof a statement to that effect.


xiii. In order to strengthen and formalize corporatedecision-making process, significant issues shall beplaced for the information, consideration and decisionof the Boards of Directors of listed companies.

xix.

Directors Report

The directors of listed companies shall includestatements to the following effect in the Directors’Report, prepared under section 236 of theCompanies Ordinance, 1984:

a. The financial statements, prepared by themanagement of the listed company, present

fairly its state of affairs, the result of its operations,cash flows and changes in equity.

b. Proper books of account of the listed companyhave been maintained.

c. Appropriate accounting policies have beenconsistently applied in preparation of financialstatements and accounting estimates are basedon reasonable and prudent judgment.

d. International Accounting Standards, as applicablein Pakistan, have been followed in preparation

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of financial statements and any departure there from has been adequately disclosed.

e. The system of internal control is sound in designand has been effectively implemented andmonitored.

f. There are no significant doubts upon the listedcompany’s ability to continue as a going concern.

g. There has been no material departure from thebest practices of corporate governance, asdetailed in the listing regulations.

The Directors’ Reports of listed companies shallalso include the following, where necessary:

a. If the listed company is not considered to be agoing concern, the fact along with reasons shallbe disclosed.

b. Significant deviations from last year in operatingresults of the listed company shall be highlightedand reasons thereof shall be explained.

c. Key operating and financial data of last six yearsshall be summarized.

d. If the listed company has not declared dividendor issued bonus shares for any year, the reasonsthereof shall be given.

e. Where any statutory payment on account of taxes, duties, levies and charges is outstanding,

the amount together with a brief descriptionand reasons for the same shall be disclosed. f. Significant plans and decisions, such as corporate

restructuring, business expansion anddiscontinuance of operations, shall be outlinedalong with future prospects, risks anduncertainties surrounding the listed company.

g. A statement as to the value of investments of provident, gratuity and pension funds, basedon their respective audited accounts, shall beincluded.

h. The number of Board meetings held during the year and attendance by each director shall bedisclosed.

i. The pattern of shareholding shall be reportedto disclose the aggregate number of shares(along with name wise details where statedbelow) held by:

• associated companies, undertakings and

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related parties (name wise details);

• NIT and ICP (name wise details); • directors, CEO and their spouse and minor

children (name wise details); • executives; • public sector companies and corporations; • banks, Development Finance Institutions,

Non-Banking Financial Institutions, insurancecompanies, modaraba’s and mutual funds;and

• shareholders holding ten percent or morevoting interest in the listed company (name

wise details). Explanation:For the purpose of this clause, clause (b) of direction (i) and direction (xxiii), the expression“executive” means an employee of a listedcompany other than the CEO and directorswhose basic salary exceeds five hundredthousand rupees in a financial year.

j. All trades in the shares of the listed company,carried out by its directors, CEO, CFO, CompanySecretary and their spouses and minor children

shall also be disclosed.

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Retirement of Directors(Under the Companies Ordinance, 1984)


176 First directors of a company shall retire on theelection of directors in the first annual generalmeeting.

Under section 185 of theOrdinance, the acts of directors are not invalid dueto defective appointment,although such a director isnot to exercise powers tillsuch defect in appointmenthas been rectified. Heavypenalties exist for violationof section 185, comprisinga fine of up to Rs. 10,000and debarment from being

appointed as director for up to three years.

177 On the date of the first annual general meetingof a company all directors of the company for the time being who are subject to election shallstand retired from office but the directors soretiring shall continue to perform their functionsuntil their successors are elected. Further thedirectors continuing to perform their functionsshall take immediate step to hold the electionof directors and in case of any impediment reportthe circumstances of the case to the registrar

within fifteen days of the expiry of the term laiddown in section 180.

--- do ---

The directors elected shall hold office for a periodof three years.

180 --- do ---

A director shall cease to hold office in the following circumstances:

• becomes ineligible under clause (a) to (h) of section 187 of the Companies Ordinance1984;

• absent in three consecutive meetings or all

meetings of the Board for a continuous periodof three months, whichever is longer, withoutleave of absence; or

• he, his firm or private company, in which hehas interest, accepts an office of profit exceptas CEO, legal/technical advisor and banker without sanction of the company or accepts

188 A person not qualified toact as director but whorepresents himself as suchmay be punished with a

fine of Rs. 200 per day for each day of contravention.

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R e t i r em en t of Di r e c t or s

a loan or guarantee in contravention of section195 of the Companies Ordinance, 1984.


295 (3) If an administrator is appointed by thecommission under section 295 then on and fromthe date of appointment of the Administrator,the management of the affairs of the companyshall vest in him, and he shall exercise all thepowers of the directors or other persons in whomthe management vested and all such directorsand persons shall stand divested of thatmanagement and powers and shall cease to

function or hold office.

Every director so interested shall be liable to a fine which may extend to 5,000 Rupees.

216

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Penalties and Disqualifications(Under The Companies Ordinance, 1984)

68(5) With respect to allotment of shares, if theconditions mentioned in this section have notbeen complied with, the directors of thecompany, apart from those who prove that thedefault in repayment of the money was not dueto any misconduct or negligence on their part,shall be jointly and severally liable to repay thatmoney with surcharge at the rate of one and-a-half per cent for every month or part thereof

from the expiration of the fiftieth day.

71(2) With respect to unsuccessful or unaccepted

applications for allotment of shares if moneyreceived for applications is not repaid within tendays of closure of subscription lists, the directorsshall be jointly and severally liable, unless heproves that the default was not due to anymisconduct or negligence on his part, to repaythe money with surcharge at the rate of oneand a half percent for every month or part thereof

from the expiration of fifteenth day and, inaddition, to a fine not exceeding five thousandrupees and in the case of a continuing offenceto a further fine not exceeding one hundredrupees for every day after the said fifteenth dayon which the default continues.

72(3) Where permission for listing of securities has notbeen applied for before the seventh day after the first issue of the prospectus or if the permissionhas not been granted, the directors shall bejointly and severally liable, unless he proves thatthe default was not due to any misconduct or negligence on his part, to repay the moneyreceived for applications from the expiration of the eighth day together with a surcharge at therate of 1.5% per month or part and in addition,to a fine not exceeding five thousand rupees

and in the case of a continuing offence to a further fine not exceeding one hundred rupees for every day after the said fifteenth day onwhich the default continues.

If any officer makes defaults in complying withany of the provisions of subsections 76(1) to (4)

76(7)


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95A(14) In case of non-compliance with provisions of section 95A, every officer of the company shallbe punishable with imprisonment for a termwhich may extend to 6 months or with a finewhich may extend to one million rupees or with both.

160(8) In case of non-compliance with provisions of section 160, every officer shall be liable:

146(5) Under section 146(5), every officer who isresponsible for contravention to file with theregistrar a declaration that the conditions for commencement of business as are mentionedin this section have been complied with, shallbe liable to a fine not exceeding 1,000 rupees

for every day.

157(11) In case of non-compliance with provisions of section 157, every officer shall be liable:

• If defaults relates to listed company to a finenot less than 10,000 rupees and not exceeding

20,000 rupees and to a further fine nor exceeding 2,000 rupees for every day.• If the defaults relates to any other company

to a fine not exceeding 5,000 rupees andto a further fine not exceeding 200 rupees

for every day.

In case of non-compliance with provisions of section 159, every officer of the company shallbe liable.

• If default relates to listed company to a finenot less than 10,000 rupees and notexceeding 20,000 rupees and to a further

fine extending 2000 rupees for everyday.• If the default relates to any other company

to a fine which may extend to 2,000 rupeesand further fine of 200 rupees per day.

159(8)

If a director refuse to transfer shares under section 77, every director of the company shallbe liable to a fine not exceeding 20,000 rupeesand to a further fine not exceeding 1,000 rupees

for every day.

78(2)

regarding transfer of share and debentures thenhe shall be liable to fine up to Rs.5000.

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• If defaults relates to listed company to a finenot less than 5,000 rupees and to a further

fine not exceeding 2,000 rupees for everyday.

• If the defaults relates to any other companyto a fine not exceeding 10,000 rupeesand to a further fine extending 200 rupees

for every day.

186 Under section 185 of the Ordinance, the acts of directors are not invalid due to defectiveappointment, although such a director is not toexercise powers till such defect in appointmenthas been rectified. Heavy penalties exist for violation of section 185, comprising a fine of upto Rs. 10,000 and debarment from beingappointed as director for up to three years.

187 A person is debarred from being appointmentas a director for a period of five years if the Courtdeclares a director to be lacking fiduciary behavior if he makes default in disclosing interest in anycontract or arrangement to be entered into.

189 A person not qualified to act as director butwho represents himself as such may bepunished with a fine of Rs. 200 per day for each day of contravention.

190 Penalty on a person who is not qualified to actas director, being an undischarged insolvent, ismore severe and may comprise of two yearsimprisonment and/or Rs. 10,000 fine.

Under section 195(5), every person shall bepunishable with a fine extending 5,000 rupeesor with imprisonment of six months for non-compliance with section 195.

195(5)

Under section 195(6), All persons, who areknowingly parties to contravention of sub-section(1)&(3)of section 195, shall be liable

jointly and severely, to the lending company for the repayment of the loan or for making goodthe sum ( with mark-up not less than theborrowing cost of lending company ) which thelending company may have been called uponto pay by virtue of the guarantee given or thesecurity provided by such company .

195(6)


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196(4) Any director who contravenes with any provisionof section 196, shall be punishable with a finewhich may extend to one hundred thousandrupees.

204 The Companies Ordinance, 1984 holds directorsresponsible for appointment of Chief Executiveand determination of terms of appointment.

Whoever contravenes or fails to comply with anyof the such provisions or is a party to thecontravention of the said provisions shall be liableto be punishable with: fine which may extend toten thousand rupees; and may also be debarred

for a period not exceeding three years.

205(5) If the directors fail to furnish the particulars toenable the company to comply with theprovisions of section 205, may be punished witha fine which may extend to Rs. 500 and a further

fine which may extend to Rs. 50 for every dayafter the first during which the default continues.

208(3) If the directors fail to comply with therequirements of section 208, regardinginvestment in associates then every director of a company who is knowingly and willfully indefault shall be liable to fine which may extendto one million rupees and in addition, shall jointly

and severally reimburse to the company any losssustained by the company in consequence of an investment which was made withoutcomplying with the requirements of the saidsection.

Any director who fails to comply with theprovision of section 221 shall be liable to bepunishable with imprisonment for a term whichmay extend to two years; and fine which mayextend to Rs. 5,000.

221(3)

224 (4) Any director who fails to comply with theprovision of section 224 shall be liable to bepunishable with: fine which may extend toRs. 30,000; and a further fine which may extendto Rs. 1,000 for every day after the first duringwhich the default continues.

230(7) The Companies Ordinance, 1984 holds directorsresponsible for compliance with the statutory

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requirements regarding preparation andmaintenance of proper books of account andcirculation of financial statements that give a trueand fair view. If a listed company fails to complywith the statutory requirements in this regard,every director including the CEO and CFO of thecompany, who has knowingly been the cause of the default, is liable to be punishable with:

• imprisonment for a term which may extendto one year;

• fine which shall not be less than Rs. 20,000nor more than Rs. 50,000; and

• a further fine which may extend to Rs. 5,000 for every day after the first during which thedefault continues.

236(4) If a company fails to comply with any of therequirements of section 236, every director,including the chief executive, of the companywho has knowingly by this act or omission beenthe cause of any default by the company incomplying with the requirements of this sectionshall:

(a) in respect of a listed company, be punishablewith imprisonment for a term which mayextend to one year and with fine which shallnot be less than twenty thousand rupeesnor more than fifty thousand rupees, andwith a further fine which may extend to fivethousand rupees for every day after the firstduring which the default continues; and

(b) in respect of any other company, bepunishable with imprisonment withimprisonment for a term which may extendto six months and with fine which mayextend to ten thousand rupees.

232(2) Director or any officer shall deem to have vacatedhis office and shall be disqualified for holdingsuch office for period of 5 years, if default is madein complying with the provisions of section 231.

Every director or Chief Executive in default shallbe liable for a fine not exceeding 5,000 rupees

for contravention of section 241.

241(3)

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330 Any default or failure on their part, in handingover books, papers or property of the companyin their control, charge, control knowledge or custody, shall be punishable with imprisonmentof either description which may extend to one

year and with fine which may extend to tenthousand rupees and the Court may direct thebooks, papers,, property and effects to bedelivered to the liquidator in case of default or

failure, and in the event of non-compliance withthe directive, to order the person in default topay further amount by way of compensationequal to the value of the property as the Courtmay determine.

362 Every director making such declaration of solvency without any reasonable grounds shallbe punishable with imprisonment for 6 monthsand with fine extending 10,000 rupees or both.

373(6) The Director or any Chief Executive in defaultshall be punishable with fine extending 5,000rupees and further fine of 100 rupees for everyday in case of continuing default.

494 Every director who is party to such allotmentshall be liable jointly and severally to compensatethe company, the amount by which theconsideration received is lesser than the amountthat ought to be received in respect of theallotment of shares, if it is proved that he hadknowledge of the fact that consideration soreceived was inadequate, or he failed to takereasonable steps to ascertain whether suchconsideration was infact adequate.

In case non-compliance with section 261, everydirector in default shall be punishable with fineextending 20,000 rupees and further fineextending 5,000 rupees in case of continuingdefault for every day and every officer whowillfully authorize or permits or is party to defaultshall be liable to imprisonment of either description extending to 1 year and fine.

261(4)

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Head Office: Chartered Accountants Avenue, Clifton, Karachi.

Lahore Office: 155-156, West Wood Colony, Thokar Niaz Baig, Raiwand Road, Lahore.

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