ISLAMABAD, Sept 7: The federal government has granted judicial powers to registrars of companies for taking action against the defaulting companies and has raised the minimum limit of paid-up capital to Rs5 million as requirement for appointment of legal advisers.
A decision to this effect was taken by the federal cabinet last week by approving amendments in the Companies (Appointment of Legal Advisers) Act, 1974. The cabinet meeting was presided over by Prime Minister Shaukat Aziz. The amendments would become effective once approved by the Parliament.
A senior finance ministry official told Dawn that the said act required that companies registered under Companies Ordinance, 1984 with minimum paid-up capital of Rs0.5 million shall appoint one legal adviser, on retainership fee basis.
The retainership fee was raised from Rs500 to Rs1,200 per mensem in 1994 but the limit of paid-up capital remained unchanged.
As a result, a large number of small companies have become defaulters and are liable for punishment with fine and imprisonment. Default under this law was cognizable by a court of a magistrate of class one and was cumbersome, time consuming and expensive process.
Keeping this in view, the cabinet on the request of finance ministry, approved amendments in the Companies (Appointment of Legal Advisers) Act 1974 to increase the limit of minimum paid-up capital to Rs5 million.
It also assigned the powers of taking cognizance of defaulter companies to the registrar of companies. The draft amendment bill also allowed to providing relief in genuine cases, a right of appeal and change in maximum punishment from imprisonment to a fine of Rs25,000 besides some simplifications in a lengthy and expensive procedure.
The Companies (Appointment of Legal Advisers) Act, 1974 was promulgated in 1974 with the objective that the limited companies formed and registered under the Companies Act, 1913 (now the Companies Ordinance, 1984) with the minimum paid-up capital of Rs0.5 million shall appoint at least one legal adviser on a retainership fee of not less than Rs500 per mensem for tendering advice in relation to the performance and discharge of their duties in accordance with law.
The minimum retainership of Rs500 was increased to Rs1,200 per mensem in 1994, but the limit of the paid-up capital remained unchanged due towhich small companies having a paid-up capital of Rs0.5 million were facing difficulties in complying with the law.
The mandatory provision put most of the companies on the list of defaulted companies on this count, which approached the SECP for change in the Companies Act, the sources said.
According to the existing Companies Act, the default for non-appointment of a legal adviser was punishable with simple imprisonment for a term, which may extend to three months or with a fine or with both and was cognizable by a court not inferior to that of a first class magistrate.