CAF 07: Company Law

Suggested Solution – Term Test # 1

Answer # 1

Sr. # Correct Option

(i) (e) All of these
(ii) (d) in relation to shares or debentures which are to be offered to the public
(iii) (b) every person who is named therein as a director or proposed director
(iv) (b) they hold 10% or more shares of class B and apply to the Court
(v) (b) the whole amount of the share capital other than that issued or agreed to be issued as paid
up otherwise than in cash, if no amount of minimum subscription is so fixed
(vi) (a) only through electronic mode directly into the bank account designated by the entitled
shareholders
(vii) (c) No, the contract must be laid before the general meeting for approval
(viii) (b) by the directors not later than ninety days from the date of such vacancy
(ix) (a) 450,000
(x) (c) Selling all the shares of subsidiary company to the highest bidder
(xi) (a) 40,000 voting shares and submit application by 4 April
(xii) (a) three consecutive board meetings without leave of absence

Answer # 2

(a) Registration of the Charge

Requirement:
• EL is required to register the charge on its immovable properties.
Authority:
• The charge must be registered with the Registrar.
Timeframe:
• The charge must be registered within 30 days after the date on which the instrument or its copy
could have been received in Pakistan in due course.

(b) Consequences of Failure to Register the Charge

If EL fails to register the charge within the prescribed time:
1. Validity of Charge:
o The charge will be void and will not be taken into account by the liquidator or any other
creditor.
2. Liability:
o EL will still be contractually liable to pay the debt, but it will be considered an unsecured
debt.

(c) Extension of Repayment Period

In the case of an extension of the loan repayment period by OIB:
1. Modification Filing:
o EL needs to file a modification of the charge with the Registrar.
2. Submission of Details:
o EL must send the particulars of the modification to the Registrar, along with a verified
copy of the instrument as evidence of the modification.
3. Follow Procedure:
o EL must follow the same procedure as for the initial registration of the mortgage, charge,
or pledge for the modification.

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 CAF 07: Company Law
Suggested Solution – Term Test # 1

Answer # 3

Possible Course of Action for Class A Shareholders

Filing an Appeal:
• Class A shareholders can file an appeal against the special resolution.

Eligibility:
• At least 10% of Class A shareholders must agree to apply to the Court for the cancellation of the
resolution.
• The application must be made within 30 days of the resolution's passing, i.e., by 19th September
2023.
• The application can be submitted by one or more members authorized in writing on behalf of
others.

Grounds for Cancellation:

The Court will cancel the resolution if it is proven that:
▪ The company withheld some material facts to get the resolution passed. If the shareholders had
known these facts, they would not have passed the resolution.
▪ The variation in rights would unfairly prejudice the shareholders of Class A.

Finality of Court Decision:

• The decision of the Court on this matter shall be final.
• An appeal cannot be filed against the Court's decision.

CL’s Duties if a Decision is Made Against It

Forwarding Court Order:
• CL must forward a copy of the Court's order to the Registrar.

Timeframe:
• This must be done within 15 days of receiving the Court's order.

Answer # 4

(i) Viewpoint Expressed by Directors

Legal Requirement:
• The Companies Act requires that the Chief Executive of a public company shall not engage in a
competing business.

Current Situation:
• Fareed Shah, the Chief Executive of ACL (a public company in the cement industry), is
indirectly involved in a competing business because his spouse, Seema Shah, is a director in
another cement company, Brut Cement (Pvt) Limited.

Analysis:
• While this situation constitutes a violation of the Companies Act, Fareed Shah does not
automatically (ipso facto) cease to hold office because of this indirect engagement in a competing

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 CAF 07: Company Law
Suggested Solution – Term Test # 1

business.

Conclusion:
• The viewpoint expressed by the directors regarding the automatic cessation of Fareed Shah's
office is incorrect.

(ii) How to Cancel the Contract of the Chief Executive

Legal Provisions for Removal:
• Despite any provisions in the articles of association or any agreement, the Companies Act allows
for the removal of a Chief Executive before the expiry of their term.

Methods for Removal:

1. By the Board of Directors:
Fareed Shah can be removed by the directors with a three-fourth majority of the total number of
directors.

2. By the Company:
Fareed Shah can also be removed by the company through a special resolution passed in a
general meeting.

Answer # 5

(i) Special Resolution

A special resolution is defined as a resolution that meets the following criteria:
• Majority Requirement:
o Passed by at least a three-fourths (3/4) majority of the members entitled to vote.
o Voting can be done in person, by proxy, or through a postal ballot.
• Notice Period:
o A general meeting must be called with a notice period of 21 days or more, specifying the
proposed resolution.
o Exception: If all members entitled to attend and vote agree, a special resolution can be
proposed and passed at a meeting for which notice is given for less than 21 days.

(ii) Chief Executive

The Chief Executive in relation to a company is defined as follows:
• Role and Powers:
o An individual who is entrusted with the whole or substantial powers of management of
the company’s affairs.
o This role is subject to the control and directions of the board of directors.
• Inclusion:
o The term includes any individual, whether a director or another person, by whatever
name called (e.g., managing director, president).

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 CAF 07: Company Law
Suggested Solution – Term Test # 1

Answer # 6

(a) Implications on the Board of Respective Companies:

(i) Wasim Yasin in GLL:
• Wasim Yasin is disqualified due to being of unsound mind, creating a casual vacancy.
• Since GLL is an unlisted company, it is not required to fill the casual vacancy if the requirement
for the minimum number of directors is met.
(ii) Aziz Bahadur in BSL:
• Aziz Bahadur ceases to hold office if absent from three consecutive board meetings without
seeking leave of absence.
• As BSL is a listed company, its directors are required to fill this vacancy within 90 days of its
occurrence.
(iii) Faraz Ghani in VBL:
• VBL, being a listed company, requires member and Commission approval to grant a loan to a
director.
• Since the loan was granted against the requirements of the Companies Act, Faraz Ghani ceases
to hold office.
• The board must fill this vacancy within 90 days of its occurrence.

(b) Suitability for Independent Directorship:

Haseeb Ijaz for VBL:
• Haseeb Ijaz is unsuitable for appointment as an independent director because he served as the
chief executive of an associated company (BSL) within the last three years.

Bahram Hasan for VBL:

• Bahram Hasan is unsuitable for appointment as an independent director because he served on
the board for three consecutive terms (9 years from 2013 to 2022).
• He can be appointed as an independent director after a lapse of one term.

Daniyal Ehtisham for BSL:

• A director nominated by creditors cannot be appointed as an independent director.
• However, since Daniyal Ehtisham ceased to be a nominee director in February 2024, he is
eligible for appointment as an independent director in May 2024.

Answer # 7

Increase in Paid-up Capital:

• A company can increase its paid-up capital without requiring a resolution from members,
provided the paid-up capital does not exceed the authorized share capital.
• In this case, PL’s authorized capital is 20 million shares, so an increase in paid-up capital is
permissible without further member resolutions, as long as it stays within this limit.

Alteration of Minimum Shareholding Requirement in Articles:

Provision under Companies Act, 2017:
▪ An alteration in the articles of association to require a member to take more shares is only valid if
the member agrees in writing, either before or after the alteration is made.

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 CAF 07: Company Law
Suggested Solution – Term Test # 1

Anas and Arqam:

• Anas must acquire an additional 1 million shares and Arqam must acquire an additional 1.5
million shares to meet the new minimum shareholding requirement.
• Condition: They cannot be compelled to buy the additional shares unless they agrees in writing.

Answer # 8

Conditions to be Fulfilled by Entity to Get Exemption:

1. Purpose:
The entity must be formed as a limited company for useful social objects, such as promoting
science, arts, commerce, education, religion, sports, health, social welfare, charity, or any other
beneficial objective.

2. Dividend Prohibition:
The entity must prohibit the payment of dividends to its members.

3. Profit Application:
The entity must apply its profit and other income solely towards the promotion of its stated
objects.

4. Compliance with Laws:

The entity’s objects and activities must not be against the laws or the national interests of
Pakistan.

5. Memorandum and Articles:

The entity's Memorandum and Articles of Association must be in accordance with the specified
form and approved by the Commission.

6. Additional Conditions:
The Commission may impose additional conditions, which must be included in the
Memorandum and/or Articles of the company.

Authority:
• The Securities and Exchange Commission of Pakistan (SECP) is the authority that may grant
an exemption from using the word "Limited" in the entity's name.
• The SECP may grant a license to a company to operate as an “Association Not for Profit” for a
specified period.

(THE END)

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