Corporate aristocracy in Pakistan takes minority shareholders for a free ride more easily than elsewhere. For instance, 28 listed companies have recently petitioned the High Court for their winding up. As Mr Sultan Ahmed in his article “Burying the corporate dead” published in “Dawn” has rightly observed, elsewhere the directors of these companies should have been arrested. These companies had not filed financial statements with the stock exchange under the exchange rules and the Company Registrar of the Securities and Exchange Commission of Pakistan (SECP) as required by the Companies Ordinance, 1984 for over 20 long years.
But neither the Exchange nor the SECP initiated any proceedings against them. The acting Chairman of the SECP responding to the situation simply quipped, “Why were these companies not delisted by the stock exchange? He didn’t elaborate what action as regulator of the stock exchange or about the failure of his own commission did he take? Thus, while the owners and their friends retrieved their investment well in time, minority shareholders’investment and other stakeholders’ money went down the drain.
Their plight here is more miserable because no relief is in sight. Despite sea change in the environments, we were stuck up for 35 long years to 1984 with that outdated, prehistoric Companies Act, 1913 and are now again stuck up with the Companies Ordinance, 1984 for about 20 years.
The Indian government has taken effective measures to improve the lot of minority shareholders and established an investor education and protection fund with very negligible burden on its exchequer. Section 205C of the Indian Companies’ Act is reproduced below:
S. 205C, Indian Companies’ Act: Establishment of Investor Education and Protection Fund. - (1) The central government shall establish a fund to be called the ‘investor education and protection fund’ (hereafter in this section referred to as the “Fund”).
(2) There shall be credited to the fund the following amounts, namely:
(a) amounts in the unpaid dividend accounts of companies;
(b) the application moneys received by companies for allotment of any securities and due for refund; (c) matured deposits with companies;
(d) matured debentures with companies;
(e) the interest accrued on the amounts referred to in clauses (a) to (d);
(f) grants and donations given to the Fund by the central government, state governments, companies or any other institutions for the purposes of the fund; and
(g) the interest or other income received out of the investments made from the fund;
Provided that no such amounts referred to in clauses (a) to (d) shall form part of the fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.
Explanation: The fund shall be utilized for promotion of investor awareness and protection of the interests of investors in accordance with such rules as may be prescribed.
There is a strong need for creating such a fund here as also of establishing a NGO for promotion of investor awareness and protection of investors’ interests.
There is a pressing need to open window for fresh air of international thought and research to breeze in. The Institute of Chartered Accountants of Pakistan should monitor international developments in corporate related regulations, how other institutes were responding to the emerging scenario and what academic research was taking place elsewhere.
