Lecture – 4 - A

[Section 62-68 & 70-73]

Issue of securities outside Pakistan (Section 62-A)

2
[62A. Issue of securities outside Pakistan.-

No company shall, except with the prior approval of the Commission, issue any security outside
Pakistan.]

63. Interpretation of provisions relating to prospectus.-

(1) For the purposes of the foregoing provisions relating to a prospectus,-

(a) a statement included in a prospectus shall be deemed to be untrue, if the
statement is misleading in the form and context in which it is included; and
(b) where the omission from a prospectus of any matter is calculated to mislead, the
prospectus shall be deemed, in respect of such omission, to be a prospectus in
which an untrue statement is included. (2) « For the purposes of sections. 59
and 60 and clause (a) of sub-section (1) of this section, the expression "included",
when used in reference to a prospectus, means included in the prospectus itself or
contained in any report or memorandum appearing on the face thereof or by
reference incorporated therein or issued herewith.

64. Newspaper advertisement of prospectus.-

Where any prospectus is published as a newspaper advertisement, it shall not be

necessary in the advertisement to comply with the requirements of sub-clause (1) of
clause 1 of section 1 of Part I of the Second Schedule in so far as the said provisions
require the contents of the memorandum or the signatories thereto, or the number of
shares subscribed for by them, to be specified.

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65. Construction of references to offering shares or debentures to the public, etc.-

(1) Any reference in this Ordinance or in the articles of a company to offering of shares or
debentures to the public, or to invitation to the public to subscribe for shares or
debentures, shall, unless otherwise expressly provided in this Ordinance, include a
reference to offering of shares or debentures to any section of the public or to invitation
to any section of public to subscribe for shares or debentures, as the case may be.

Explanation: The term "section of the public" includes existing members or debenture-
holders of the company or clients of the persons issuing the prospectus.

(2) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) if
the offer or invitation can properly be regarded, in all the circumstances-

(a) as not being calculated to result, directly or indirectly, in the shares or debentures
becoming available for subscription or purchase by persons other than those
receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons making and receiving the
offer or invitation.

(3) Without prejudice to the generality of sub-section (2), a provision in a company's articles
prohibiting invitations to the public to subscribe for shares or debentures shall not be
taken as prohibiting the making, to members or debenture-holders of an invitation which
can properly be regarded in the manner set forth in that sub-section.

(4) The provisions of this Ordinance relating to private companies shall be construed in
accordance with the provisions contained in sub-sections (1) to (3).

66. Penalty for fraudulently inducing persons to invest money.-

Any person who, either by knowingly or recklessly making any statement, promise or
forecast which is false, deceptive or misleading, or by any dishonest concealment of
material facts, induces or attempts to induce another person to enter into or to offer to
enter into,-

(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or
underwriting shares or debentures; or
(b) any agreement the purpose or pretended purpose of which is to secure a ' profit
to any of the parties from the yield of shares or debentures, or by reference to
fluctuations in the value of shares or debentures;

shall be punishable with imprisonment of either description for a term which may
extend to three years, or with fine which may extend to twenty thousand rupees,
or with both.

ALLOTMENT

67. Application for, and allotment of, shares and debentures.-

(1) No application for allotment of shares in and debentures of a company in pursuance of a

prospectus shall be made for shares or debentures of less than such nominal amount as
the Commission may, form time to time, specify, either generally or in a particular case.

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(2) The Commission may specify the form of an application for subscription to shares in or
debentures of a company which may, among other matters, contain such declarations or
verifications as it may, in the public interest, deem necessary; and such form then shall
form part of the prospectus.

(3) All certificates, statements and declarations made by the applicant shall be binding on
him.

(4) An application for shares in or debentures of a company which is made in pursuance of a

prospectus shall be irrevocable.

(5) Whoever contravenes the provisions of sub-section (1) or sub-section (2), or makes an
incorrect statement, declaration or verification in the application for allotment of shares,
shall be liable to a fine which may extend to ten thousand rupees.

68. Restriction as to allotment.-

(1) No allotment shall be made of any share capital of a company offered to the public for
subscription unless the amount stated in the prospectus as the minimum amount which in
the opinion of the directors must be raised by the issue of share capital in order to provide
for the matters specified in clause 5 of section 1 of Part I of the Second Schedule has
been subscribed, and the full amount thereof has been paid to and received in cash by the
company.

(2) The amount referred to in sub-section (1) as the amount stated in the prospectus shall be
reckoned exclusively of any amount payable otherwise than in cash and is in this
Ordinance referred to as the minimum subscription.

(3) All moneys received from applicants for shares shall be deposited and kept in a separate
bank account in a scheduled bank until returned in accordance with the provisions of sub-
section (5) or until the certificate to commence business is obtained under section 146.

(4) The amount payable on application on each share shall be the full nominal amount of the
share.

(5) If the conditions aforesaid have not been complied with on the expiration of forty days
after the first issue of the prospectus, all money received from applicants for shares shall
be forthwith repaid to them without surcharge, and, if any such money is not so repaid
within fifty days after the issue of the prospectus, the directors of the company shall be
jointly and severally liable to repay that money 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:

Provided that a director shall not be liable if he proves that the default in repayment of
the money was not due to any misconduct or negligence on his part.

(6) Any condition purporting to require or bind any applicant for shares to waive compliance
with any requirement of this section shall be void.

(7) This section, except sub-section (4) thereof, shall not apply to any allotment of shares
subsequent to the first allotment of shares offered to the public for subscription.

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(8) In the case of the first allotment of shares capital payable in cash of a company which
does not issue any invitation to the public to subscribe for its shares, no allotment shall be
made unless the minimum subscription, that is to say,-

(a) the amount, if any, fixed by the memorandum or articles and specified in the
statement in lieu of prospectus as the minimum subscription referred to in sub-
section (1) upon which the directors may proceed to allotment; or

(b) if no amount is so fixed and specified, the whole amount of the share capital
other than that issued or agreed to be issued as paid up otherwise than in cash;

has been subscribed and the full nominal amount of each share payable in cash
has been paid to and received by the company.
(9) Sub-section (8) shall not apply to a private company.

(10) In the event of any contravention of any provisions of this section, every promoter,
director or other person knowingly responsible for such contravention shall be liable to a
fine not exceeding ten thousand rupees and in the case of a continuing contravention to a
further fine not exceeding two hundred rupees for every day after the first during which
the contravention continues.

(11) For the purpose of this section, the expression "promoter" has the same meaning as in
section 59.

Effect of irregular allotment (Section 70)

70. Effect of irregular allotment.-

(1) An allotment made by a company to an applicant in contravention of the provisions of

section 68 or 69 shall be voidable at the instance of the applicant within thirty days after
the holding of the statutory meeting of the company and not later, or in any casse where
the company is not required to hold a statutory meeting or where the allotment is made
after the holding of the statutory meeting, within thirty days after the date of the
allotment, and not later, and shall be so voidable notwithstanding that the company is in
course of being wound up.

(2) If any officer of a company knowingly contravenes or permits or authorises the

contravention of any of the provisions of section 68 or 69 with respect to allotment, he
shall, without prejudice to any other liability, be liable to compensate the company and
the allottee respectively for any loss, damages or costs which the company or the allottee
may have sustained or incurred thereby:

Provided that proceedings to recover any such loss, damages or costs shall not be
commenced after the expiration of two years from the date of the allotment..

71. Repayment of money received for shares not allotted.-

(1) Where a company issues any invitation to the public to subscribe for its shares or other
securities,' the company shall take a decision within ten days of the closure of the

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subscription lists as to what applications have been accepted or are successful and refund
the money in the case of the unaccepted or unsuccessful applications within ten days of
the date of such decision.

(2) If the refund required by sub-section (1) is not made within the time specified therein, the
directors of the company shall be jointly and severally liable to one and a half per cent
repay that money with surcharge at the rate of one and a half per cent for every month or
part thereof from the expiration of the fifteenth day 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 on which the
default continues:

Provided that a director shall not be liable if he proves that the default in making the
refund was not due to any misconduct or negligence on his part.

(3) Any condition purporting to require or bind any applicant for shares or other securities to
waive any requirement of this section shall be void.

72. Allotment of shares and debentures to be dealt in on stock exchange.-

(1) Where a prospectus, whether issued generally or not, states that application has been or
will be made for permission for the shares or debentures offered thereby to be dealt in on
any stock exchange, any allotment made on an application in pursuance of the prospectus
shall, whenever made, be void if the permission has not been applied for before the
seventh day after the first issue of the prospectus or if the permission has not been
granted before the expiration of twenty-one days from the date of the closing of the
subscription lists or such longer period not exceeding forty-two days as may, within the
said twenty-one days, be notified to the applicant for permission by or on behalf of the
stock exchange.

(2) Where the permission has not been applied for as aforesaid, or has not been granted as
aforesaid, the company shall forthwith repay without surcharge all money received from
applicants in pursuance of the prospectus, and, if any such money is not repaid within
eight days after the company becomes liable to repay it, the directors of the company
shall be jointly and severally liable to repay that money from the expiration of the eight
day together with surcharge at the rate of one and a half per cent for every month or part
thereof from the expiration of the eighth day and, in addition, to a fine not exceeding five
thousand rupees and in the case of a continuing offence to a further fine of one hundred
rupees for every day after the said eighth day on which the default continues:

Provided that a director shall not be liable if he proves that the default in the repayment
of the money was not due to any misconduct or negligence on his part.

(3) All moneys received as aforesaid shall be deposited and kept in a separate bank account
in a scheduled bank so long as the company may become liable to repay it under sub-
section (2); and, if default is made in complying with this subsection, the company and
every officer of the company who knowingly and willfully authorises or permits the
default shall be liable to a fine not exceeding five thousand rupees.

(4) Any condition purporting to require or bind any applicant for shares or debentures to
waive compliance with any requirement of this section shall be void.

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(5) For the purposes of this section, permission shall not be deemed to be refused if it is
intimated that the application for it, though not at present granted, will be given further
consideration.

(6) This section shall have effect-

(a) in relation to any shares or debentures agreed to be taken by a person
underwriting an offer thereof by a prospectus as if he had applied therefor in
pursuance of the prospectus; and

(b) in relation to a prospectus offering shares for sale with the following
modifications, that is to say,-
(i) reference to sale shall be substituted for reference to allotment;
(ii) the person by whom the offer is made and not the company, shall be
liable under sub-section (2) to repay the money received from applicant
and reference to the company's liability under that sub-section shall be
construed accordingly; and
(iii) for the reference in sub-section (3) to the company and every officer of
the company there shall be substituted a reference to any person by or
through whom the offer is made and who knowingly and willfully
authorises or permits the default.

 Application for Listing of Shares on Stock Exchange: The application for listing of shares
is required to be made within 7 days.
 Grant of Permission by Stock Exchange: The stock exchanges are required^ to give
permission for trading of stocks within 21-42 days. If no permission is given within stipulated
period, it is required to be notified to the applicants by the company.
 Refund of Moneys in case permission not granted: If the application is not made or the
permission is not granted by the stock exchanges, moneys become payable within 8 days.
 Payment of Surcharge: If such money is not repaid within, eight days, the directors of the
company are jointly and severally liable to repay that money from the expiration of the eight
day together with surcharge at the rate of 1-1/2% per month.
 Separate Bank Account: All moneys received as aforesaid is deposited and kept in a
separate bank account in a scheduled bank so long as the company may become liable to
repay it.
 Conditions to waive compliance void: Any condition purporting to require or bind any
applicant for shares or debentures to waive compliance with any requirement of this section
shall be void.

73. Return as to allotments.-

(1) Whenever a company having a share capital makes any allotment of its shares, the
company shall, within thirty days thereafter,-

(a) file with the registrar a return of the allotment, stating the number and nominal
amount of the shares comprised in the allotment 1[and such particulars as may be
prescribed] of each allottee, and the amount paid on each share; and
(b) in the case of shares allotted as paid up otherwise than in cash, produce for the
inspection and examination of the registrar a contract in writing constituting the
title of the allottee to the allotment together with any contract of sale, or for

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services or other consideration in respect of which that allotment was made, such
contracts being duly stamped, and file with the registrar copies verified in the
prescribed manner of all such contracts and a return stating the number and
nominal amount of shares so allotted, the amount to be treated as paid-up, and the
consideration for which they have been allotted; and
(c) file with the registrar-
(i) in the case of bonus shares, a return stating the number and nominal
amount of such shares comprised in the allotment and 2[such particulars
as may be prescribed] of each allottee together , with a copy of the
resolution authorising the issue of such shares;
(ii) in the case of issue of shares at a discount, a copy of the resolution
passed by the company authorising such issue together with a copy of the
order of the Commission sanctioning the issue, and where the maximum
rate of discount exceeds ten per cent, a copy of the order of the
Commission permitting the issue at the higher percentage.

Explanation:- Shares shall not be deemed to have been paid for in cash except to
the extent that the company shall actually have received cash therefore at the
time of, or subsequent to, the agreement to issue the shares, and where shares are
issued to a person who has sold or agreed to sell property or rendered or agreed
to render services to the company, or to persons nominated by him, the amount of
any payment made for the property or services shall be deducted from the
amount of any cash payment made for the shares and only the balance, if any,
shall be treated as having been paid in cash for such shares, notwithstanding any
bill of exchange or cheques or other securities for money.

(2) Where such a contract as is mentioned in clause (b) of sub-section (1) is not reduced to
writing, the company shall, within thirty days after the allotment, file with the registrar
the prescribed particulars of the contract stamped with the same stamp duty as would
have been payable if the contract had been reduced to writing, and these particulars shall
be deemed to be an instrument within the meaning of the Stamp Act, 1899 (II of 1899),
and the registrar may, as a condition of filing the particulars, require that the duty payable
thereon be adjudicated under section 31 of that Act.

(3) If the registrar is satisfied that in the circumstances of any particular case the period of
thirty days specified in sub-sections (1) and (2) for compliance with the requirements of
this section is inadequate, he may extend that period as he thinks fit, and, if he does so,
the provisions of sub-sections (1) and (2) shall have effect in that particular case as if for
the said period of thirty days the extended period allowed by the registrar were
substituted.

(4) If default is made in complying with any requirement of this section, the company and
every officer of the company who is knowingly a party to the default shall be liable to a
fine not exceeding five hundred rupees for every day during which the default continues.
1
[(5) This section shall apply mutatis mutandis, to shares which are allotted or issued or
deemed to have been issued to a scheduled bank or a financial institution in pursuance of
any obligation of a company to issue shares to such scheduled bank or financial
institution:

Provided that where default is made by a company in filing a return of allotment in

respect of the shares referred to in this sub-section, the scheduled bank or the financial

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institution to whom shares have been allotted or issued or deemed to have been issued
may file a return of allotment in respect of such shares with the registrar together with
such documents as may be specified by the Commission in this behalf, and such return of
allotment shall be deemed to have been filed by the company itself and the scheduled
bank or the financial institution shall be entitled to recover from the company the amount
of any fee properly paid by it to the registrar in respect of the return.]

•Prescribed particulars of allotees are: Name, father's or husband's name, NIC or passport
number, address, nationality and occupation and in case of legal person, name of company and
address of the registered office and foregoing particulars of the chief executive.
Relevant rules contained in the Companies (Issue of Capital) Rules, 1996 are appended as
under: -

Rule 6. Issue of bonus shares by listed companies. –

A listed company may issue bonus shares subject to the following conditions namely:—

i. The decision of the directors to issue bonus shares shall be communicated to the
Commission and the respective stock exchange on the day of the intimation letter shall be
accompanied by the auditor's certificate as specified in clause (iii);
ii. The free reserves of the company calculated in the manner as specified in rule 5 shall be
sufficient to issue the bonus shares after retaining in the reserves 25% of the capital as it
will be increased by the proposed bonus shares;
iii. a certificate from the auditors shall be obtained to the effect that the free reserves d after
the issue of the bonus shares will not be less than 25% of the increased capital; and
iv. all contingent liabilities disclosed in the audited account which may have been created
subsequent to the audited accounts shall be deducted while calculated minimum residual
reserve of 25%.

Rule 8. Issue of shares for consideration otherwise than in cash:-

A company may issue shares for consideration otherwise than in cash subject to the following
conditions. Namely:-

(i) The value of assets shall be determined by a consulting engineer registered with Pakistan
Engineering Council and borne on the panel of at least two financial institutions as a
value;
(ii) the value of assets taken over shall be reduced by depreciation charged on consistent
basis;
(iii) the goodwill and other intangible assets shall be excluded from the consideration; and
(iv) certificate from a practicing Chartered Accountant shall be obtained to the effect that the
above mentioned conditions have been complied with.

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