ISLAMABAD, Oct 17: The Securities and Exchange Commission of Pakistan has prohibited the real estate and automobile companies from inviting, without its prior permission, deposits from the public in advance of actual delivery of relevant property/product under the Companies Ordinance, according to an announcement here on Friday.

In this connection, the capital market regulator has amended the Companies (Invitation and Acceptance of Deposit) Rules, 1987 (Deposit Rules), further elaborating the definition of the terms “deposit” and “scheme” to cover the property/product for which advance deposits are invited from the general public.

These companies, SECP commissioner Abdul Rehman Qureshi told Dawn, had not been covered under the original Deposit Rules. As a result of the amendments, these rules would be applicable to the real estate and automobile companies as well.

Taking serious notice of the persistent complaints that these companies had been employing various methods to avoid indefinitely the delivery of contracted products/property, the SECP pointed out that deposit-taking was the “normal and exclusive business of banking companies and not to be undertaken by other companies unless the Deposit Rules framed under Section 88 of the Companies Ordinance are duly observed”.

According to the amendments in Deposit Rules, any amount collected through a “scheme” advertised in the media or otherwise by companies, particularly, the real estate companies and automobile companies as an advance against the promise to supply the property or commodity at some future date, will be treated as “deposit”.

The term “scheme” has also been explained in the amendments. Thus any marketing campaign launched by a company, directly or indirectly, for inviting the general public to apply for the purchase of a property or commodity or any other product against payment in advance will be treated as “scheme” under these amendments.

Any amount collected as aforesaid will fall within the ambit of regulatory control of SEC if: (a) the property or commodity is not in possession of the company at the time when the notice, circular, advertisement or communication is issued; or (b) it offers for sale a product for which the company does not have adequate production facility; or (c) it contains a promise for a gift or reward of some unusual incentive so as to prompt an early booking.

Some exemption has, however, been allowed for launching a “scheme” as above to such a company as is notified by the SECP to be exempt, in consultation with the relevant trade organization duly licensed and registered under the relevant law.

In reply to a question, Mr Qureshi pointed out that deposit taking in violation of the Companies Ordinance and the Deposit Rules was punishable, and every officer of the company which was in default was liable to be punished with imprisonment for a term which might extend to two years also liable to fine.

Section 88 of the Companies Ordinance and the Deposit Rules made thereunder makes it clear that the jurisdiction of the SECP encompasses the companies registered under the Ordinance and does not extend to individuals, cooperative societies or enterprises other than the companies.

The amendments, he said, had been made keeping in view, particularly, the real estate and automobile companies which promise to supply a property at some future date but the supply thereof is not assured.