Mies 3

ROLE of
Directors
Members’ Information & Education Series MIES -3

ROLE OF DIRECTORS
UNDER THE COMPANIES ORDINANCE, 1984
AND THE CODE OF CORPORATE GOVERNANCE
Members’ Information & Education Series MIES-3

ABOUT THE AUTHOR
ROLE OF DIRECTORS
AND CODE OF CORPORATE GOVERNANCE
UNDER THE COMPANIES ORDINANCE, 1984
Contents
Foreword 05
Introduction 07
Eligibility to become a Director 09
Elections of Directors 11
Powers of Directors (Watch Outs) 13
Powers of Directors (SECP Statute) 16
Duties and Responsibilities of Directors (Watch Outs) 20
Duties and Responsibilities of Directors (SECP Statute) 29

Contents
Retirement of Directors 40
Penalties and Disqualifications 42
03
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05
Foreword
Foreword
Introduction
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The primary responsibility for the administration and performance of a company lies
with the directors. It is the directors who have control of the Company’s assets and
business and determine the future of the Organization.
In this document we have summarized and grouped under different topics, the relevant
enactments of the statute and guidance impacting directors. The text has been collected
from the following sources;
Statutes
1. The Companies Ordinance, 1984
2. Code of Corporate Governance – issued by the Securities and Exchange Commission
of Pakistan (SECP).
3. Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited.
Guidance
4. Manual of Corporate Governance issued by the Securities and Exchange Commission
of Pakistan.
5. Frequently Asked Questions (FAQs) on Code of Corporate Governance.
Powers, duties and responsibilities of the Directors are presented in two sections. The
first one is “WATCH OUTS” covering laws and regulations which require utmost attention
of the Directors while the other contains enactments relating to normal course of
business, mainly of secretarial and corporate nature.
Introduction
All the relevant section/clause references are given along with description and remarks.
Under the description column mostly wordings of the law have been summarized. In
addition to the penalties for non-compliance covered in the last topic, we have also
mentioned in the ‘Remarks’ column of relevant section, the applicable penalties for
their non-compliance.
The purpose of this document is to summarize the relevant enactments applicable to

the Directors from their election, powers, duties and responsibilities upto the retirement.
However for detailed understanding, we suggest that relevant sections/clauses should
be referred from the sources as mentioned above.
07
Eligibility to Become a Director
(Under the Companies Ordinance, 1984)
Section/ Description Remarks

Clause
187 The following persons are ineligible to become The age of majority is 18
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directors: years under the Majority
Act 1875.
• minor;
• a person of unsound mind; Under section 189 the
• a person whose application is pending to be person who is not qualified
adjudicated as an insolvent; to be a director but acts in
• undischarged insolvent; such capacity shall be
• convict of offence involving moral turpitude; liable in respect of each
• a person debarred from holding office day during which he so
(section 186); describes or represents or
• a person declared as lacking fiduciary act as such to a fine
behaviour under section 217 within the last extending to Rs. 200.
five years;
• not a member except in the case of: Penalty under section 190,
- a person representing government or on a person who is not
institution or authority which is a member; qualified to act as director,
- an employee director; or being an undischarged
- CEO; or insolvent, is more severe
- nominee of creditors. and may comprise of two
• defaulter in the payment of loan of more years imprisonment and/or
than Rs. 1 million to any financial institution; fine up to Rs. 10,000 or
and both.
• member of a stock exchange engaged in the
brokerage business or his spouse.
200(2) The Chief Executive, if he is not already a The Companies Ordinance
Become a Director
director, is deemed to be a director, and will holds directors responsible
accordingly carry all the rights and liabilities for appointment of Chief
Eligibility to
related to such office. Executive and
determination of terms of
appointment. Whoever
contravenes or fails to
comply with any of the
such provisions or is a
party to the contravention
of the said provisions shall
be liable to be punishable
under section 204 with:
• fine which may extend

to Rs. 10,000; and
• may also be debarred
for a period not
exceeding three years. 09
Eligibility to Become a Director
(Under the Code of Corporate Governance)
Clause
iii. iv. & v Under the Code, a listed company cannot U n l e s s s p e c i f i c a l l y
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appoint as director a person: exempted by the Securities

and Exchange Commission
• who is serving as director of 10 other listed of Pakistan.
companies; or
• whose name is not borne on the register of
National Tax Payers (not applicable to non-
residents); or
• who is a defaulter of a banking company,
DFI or NBFC.
• who is a member in default of a stock
exchange.
• If he or his spouse is engaged in the business
of stock brokerage.
Become a Director
Eligibility to
10
Election of Directors

Clause
174 The minimum number of directors have been In section 186 heavy
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fixed by the law as follows: penalties exist for non
compliance, comprising
• Single member company(SMC), should have fine up to Rs. 10,000 and
at least one director; debarment from being
• Private company other than SMC, should appointed as director for
have at least two directors; up to three years.
• Public company(other than listed company),
should have at least three directors; and
• Listed companies should have at least seven
directors.
176(1) In default of and subject to the articles of a Under section 185 the acts
company and section 174, the number of of directors are not invalid
directors and the names of first directors shall due to defective
be determined in writing by a majority of the appointment, although
subscribers of the memorandum and until it is such a director is not to
so determined, all the subscribers of the exercise powers till such
memorandum who are natural persons shall defect in appointment has
be deemed to be the directors of the company. been rectified.
However, in section 186

heavy penalties exist,
comprising fine up to
Rs. 10,000 and debarment
from being appointed as
director for up to three years.
178 The procedure for election of directors has been Penalty under section 186
laid down in section 178 which states that the applies.
number of directors shall be fixed not later than
35 days before the date of AGM. Notice of the
meeting in which directors are to be elected shall,
among other things, state the number of directors
to be elected and the names of retiring directors.The
contesting directors are required to file notice of
intention with the company not later than 14 days
before the date of the meeting. All notices are to
be circulated to members seven days before the
meeting. A cumulative voting system exists and
every member of a company (having share capital)
has the right to vote equal to the product of number
of shares held by him and the number of directors
to be elected. A member may give all votes to a
single candidate or to different candidates. The
candidate getting the highest votes is to be declared
as elected and so on until the specific numbers of 11
directors have been elected.
Clause
182 Creditors or other special interest holders may Penalty under section 186
nominate directors on the Board of a company applies.
in addition to the elected directors on the basis
of contractual arrangement.
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Clause
i (a) Listed companies are required to encourage Application of the clause
effective representation of independent non- is voluntarily.
executive directors, including those representing
minority interests, on the Board.
i (b) Listed companies are encouraged to have atleast
one independent director representing institutional
equity interest of a banking company,
Development Financial Institution, Non-Banking
Financial Institution, Mutual Fund or Insurance
company. The director shall be selected by such
investor company through a resolution of its
Board of Directors.
i (c) There shall be not more than 75% executive Executive directors are the
directors on the Board. working, whole-time
directors of a company.
Non-executive directors,
on the other hand, are
largely independent
persons who are expected

to lend an outside
viewpoint to the Board of
Directors of a company
and do not undertake to
devote their whole
working time to the
company. The guiding
factor in distinguishing
between executive and
non-executive directors of
a company is the extent
of their involvement in
managing the affairs of the
company.
12
Powers of Directors (Watch Outs)

Clause
196 (2) Specific Functions to be Performed These are the specific
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through Board Resolution functions that are required
to be performed by the
The directors of a company shall exercise the Board through their
following powers on behalf of the company, resolution.
and shall do so by means of a resolution passed
at their meeting, namely: Any director who
contravenes with any
(a) to make calls on shareholders in respect provision of section 196,
of moneys unpaid on their shares; shall be punishable with a
(b) to issue shares; fine which may extend to
(c) to issue debentures or participation term one hundred thousand
certificate, any instrument in the nature rupees and shall be
of redeemable capital; individually and severally
(d) to borrow moneys otherwise than on liable for losses or damages
debentures; arising out of such action.
(e) to invest the funds of the company;
(f ) to make loans; The current limits,
(g) to authorise a director or the firm of which specified under the Rule
he is a partner or any partner of such firm 14A of the Companies
or a private company of which he is a (General Provisions and
member or director to enter into any Forms) Rules, 1985, are
contract with the company for making one million rupees for the
Power of Director (Watch Outs)

sale, purchase or supply of goods or a m o u n t o f c a p i t a l
rendering of services with the company; expenditure to be incurred
(h) to approve annual, half-yearly and other on any single item and
periodical accounts as are required to be Rs.100,000 for the amount
circulated to the members; of book value for the
(i) to approve bonus to employees; disposal of fixed assets.
(j) to incur capital expenditure on any single
item or dispose of a fixed asset in As per IAS 8(revised):
accordance with the limits as prescribed O m i s s i o n s or
by the Commission from time to time; misstatements of items are
(k) to undertake obligations under leasing material if they could,
contracts exceeding one million rupees; individually or collectively,
(l) to declare interim dividend; and influence the economic
(m) having regard to such amount as may be decision of users taken on
determined to be material by the Board- the basis of the financial
(i) to write off bad debts, advances and statements.
receivables;
(ii) to write off inventories and other assets a) What relationship does
of the company; and this remark bear to (m).
(iii) to determine the terms of and the
circumstances in which a law suit may 13
Clause
be compromised and a claim or right
in favour of a company may be
released, extinguished or relinquished.
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Removal of Chief Executive
202 The directors of a company by resolution passed Penalty of non compliance

by not less than three-fourths of the total is covered under section
number of directors, or the company by a 204, which may extend to
special resolution, may remove a chief executive Rs. 10,000; and director
before the expiration of his term of office. may also be debarred for
a period not exceeding
three years.
Recommending Dividend
248 (1) The company in general meeting may declare

dividends; but no dividend shall exceed the
amount recommended by the directors.
Appointment of Auditors and Related Matters
252 (3) The directors shall appoint the first auditors of Under section 259, every
a company within 60 days of the date of officer of the company
incorporation of the company; and such auditors shall be punishable with
shall hold office until the conclusion of the first fine extending Rs. 50,000
annual general meeting. and to a further fine

extending to Rs. 2,000 for
every day after the first
during which the default
continuous.
252 (4) The directors may fill in any causal vacancy in
the office of auditors. However, the continuing
or surviving auditors may continue to act until --- do ---
such vacancy is filled.
252 (8) The directors shall fix the remuneration of the

auditors, in the above -mentioned cases, where --- do ---
the auditors have been appointed by them.
Determining Remuneration
of the Cost Auditors
258 Where an audit of cost accounts of a company Requirement of appointing

has been directed by the Federal Government Cost Auditors is currently
(as mentioned in this section), the directors applicable to only
shall appoint and fix remuneration of the cost Vanaspati Oils and Ghee
14 auditors to be appointed for this purpose. Industry.
Powers of Directors (Watch Outs)

Clause
viii. (d) The following powers are exercised by the Board
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of Directors on behalf of the company and
decisions on material transactions or significant
matters are documented by a resolution passed
at a meeting of the Board:
• investment and disinvestment of funds where

the maturity period of such investments is
six months or more, except in the case of
banking companies, Non-Banking Finance
Companies, Mutual Fund, trusts and insurance
companies;
• determination of the nature of loans and
advances made by the company and fixing
a monetary limit thereof;
• write-off of bad debts, advances and
receivables and determination of a reasonable
provision for doubtful debts;
• write-off of inventories and other assets; and
• determination of the terms of and the
circumstances in which a law suit may be
compromised and a claim/ right in favour of
the company may be waived, released,

extinguished or relinquished.
Appointing CEO and other Executives
viii. (e) Appointment, remuneration and terms and

conditions of employment of the Chief Executive
Officer (CEO) and other executive directors of
the listed company are determined and
approved by the Board of Directors.
Recommending Appointment of External

Auditors
xxxix. The Board of Directors of a listed company shall

recommend appointment of external auditors
for a year, as suggested by the Audit Committee.
15
Powers of Directors (SECP Statute)
Under the Companies Ordinance, 1984

Clause
Transfer of Shares and Debentures
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76 (2) With respect to transfer deed of shares or If any officer makes defaults
debentures that has been lost, destroyed or in complying with any of
mutilated, the directors of the company need the provisions of section
to be satisfied that such a deed has been lost, 76(2) he shall be liable to
destroyed or mutilated before the company a fine of an amount not
proceeds to register the transfer of shares or exceeding Rs.5000.
debentures.
Further Issue of Capital
86 The decision to increase the capital of the

company by the issue of further shares lies with
the directors of such company.
With respect to further issue of shares, if existing

members decline or do not subscribe to the
offer of new shares, the directors have the
power to allot and issue such shares in such
manner as they deem fit.
Directors (or an officer authorized by the directors)

are to sign the circular which is to accompany

any offer of new shares under this section.
Calling of Extra Ordinary General Meeting
159 (2) An extra ordinary general meeting may be Under section 159(8),
called at any time by the directors for every officer of the
consideration of any matter requiring approval company shall be liable:
of the company in a general meeting.
• If default relates to listed
company to a fine not
less than Rs. 10,000 and
not exceeding Rs.
20,000 and to a further
fine extending Rs. 2000
for everyday.
• If the default relates to

other than listed
company to a fine which
may extend to Rs. 2000
16 and further fine of Rs.
200 per day.
Clause
Validity of Acts of Directors
185 All acts of directors pertaining to a period before Heavy penalties exist for
any defect in the appointment of their office violation of section 185,
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has been discovered are valid. However after comprising fine up to Rs.
the defect has been discovered, the directors 10,000 and debarment
shall not exercise the right to their office till it from being appointed as
is rectified. director for up to three
years.
In Relation to Promotion Expenses
196 (1) The business of a company shall be managed Any director who
by the directors, who may pay all expenses contravenes with any
incurred in promoting and registering the provision of section 196,
company and may exercise all such powers of shall be punishable with a
the company as are not by the Ordinance, fine which may extend to
articles or special resolution, required to be one hundred thousand
exercised by the company in the general rupees and shall be
meeting. individually and severally
liable for losses or damages
arising out of such action.
Maintaining Books of Accounts

230 (1) The directors can decide to maintain books of The Companies Ordinance
accounts at a place other than the registered holds directors responsible
office of the company. for compliance with the
statutory requirements
230 (4) The directors, during business hours, have the regarding preparation and
right to inspect the books of accounts and other maintenance of proper
books and papers of the company. books of account and
circulation of financial
230 (5) The directors shall from time to time determine statements that give a true
whether and to what extent and at what time and fair view. If a listed
and places and under what conditions or company fails to comply
regulations the accounts and books or papers w i t h t h e s t a t u t o r y
of the company or any of them shall be open requirements in this regard,
to the inspection of members. every director including the
CEO and CFO of the
company, who has
knowingly been the cause
of the default, is liable to
be punishable with:
• imprisonment for a
term which may extend
to one year; and
17
Clause
• fine which shall not be
less than Rs. 20,000 nor
more than Rs. 50,000;
and
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• a further fine which may

extend to Rs. 5,000 for
during which the
default continues.
251 (2) Period for Payment of Dividend
When a dividend has been declared, it shall not Dividend shall be deemed
be lawful for the directors of the company to to have been declared on
withhold or defer its payment and the chief the date of the general
executive of the company shall be responsible meeting in case of a
to make the payment in the manner provided dividend declared or
in section 250 within forty-five days of the approved in the general
declaration in the case of a listed company and meeting and on the date
within thirty days in the case of other than listed of commencement of
company. closing of share transfer
for purposes of
determination of
entitlement of dividend in
the case of an interim
dividend and where

register of members is not
closed for such purpose,
on the date on which such
dividend is approved by
the directors.

General
vii. The directors of listed companies shall exercise Directors are responsible
their powers and carry out their fiduciary duties for the proper running and
with a sense of objective judgment and management of the
independence in the best interests of the listed company. This
company. responsibility is fiduciary
in nature.
The fiduciary duties of
directors can be
summarized as follows:
18
Clause
• The duty of honesty;
• The duty of care, skill
and diligence in the
discharge of their duties;
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• Duty to act bona fide in
the interest of the
company;
• Duty to use powers for
proper purpose.

(Under the Listing Regulations of the Karachi Stock Exchange)
38 (2) The Board of Directors of a listed company Applicability of regulation
should approve the transfer pricing policy for number 38 is deferred till
a related party transaction before such February 28, 2006 by the
transaction is entered into. SECP.
38 (7) The Board of Directors at each Board meeting

will formally approve the records of all related
party transactions.
38 (8) The related party transactions which are not

executed at arm’s length price will also be

placed separately at each Board meeting along
with necessary justification for consideration
and approval of the Board and before the Audit
Committee of the company.
19
Duties and Responsibilities of Directors (Watch Outs)
Clause
160 (3) Presiding General Meeting
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The chairman of the board of directors should Under section 160(8),

preside as chairman at every general meeting every officer shall be liable:
of the company. But if there is no such chairman, • If defaults relates to
or if at any meeting he is not present within listed company to a fine
fifteen minutes after the time appointed for not less than Rs. 10,000
holding the meeting, or is unwilling to act as and not exceeding Rs.
chairman, any one of the directors present may 20,000 and to a further
be elected to be chairman, and if none of the fine not exceeding Rs.
directors is present or is unwilling to act as 2,000 for every day.
chairman the members present shall choose • If the defaults relates to
one of their member to be the chairman. other than listed
company to a fine
extending Rs. 2,000
and to a further fine
extending Rs. 200 for
every day.
Remuneration of the Directors
191 In accordance with the provisions of the articles, It appears from section
the directors or the company in general meeting 188 (c)(i) that without the
shall determine the remuneration of a director sanction of the company
for performing extra services, including the in general meeting,
holding of the office of chairman. holding of any office of
Duties and Responsibilities
profit other than CEO,

of Directors (Watch Outs)
legal or technical advisor

or a banker would be
vacation of office by the
director, therefore option
given by this section
practically does not apply.
Loans to Directors
195 No company, shall, directly or indirectly, make Under section 195(5),

any loan to, or give any guarantee or provide any every person shall be
security in connection with a loan made by any punishable with a fine
other person to, or to any other person by:- extending Rs. 5,000 or
with imprisonment of six
• any director of the lending company or of a months in case of non-
company which is its holding company or compliance.
any partner or relative of any such director;
• any firm in which any such director or relative Under section 195 (6), All
is a partner; persons shall be liable
20 • any private company of which any such jointly and severely, to the
director is a director or member;
Clause
• any body corporate at a general meeting of lending company for the
which not less than twenty five per cent of repayment of the loan or
the total voting power may be exercised or for making good the sum
controlled by any such director or his relative, (with mark-up not less than
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or by two or more such directors together the borrowing cost of
or by their relatives; or lending company) which
• any body corporate, the directors or chief the lending company may
executive whereof are or is accustomed to have been called upon to
act in accordance with the directions or pay by virtue of the
instructions of the chief executive, or of any guarantee given or the
director or directors, of the lending company: security provided by such
company.
Exceptions:
Provided that a company may, with the approval Further to the above
of the Commission, make a loan or give any penalties, under section
guarantee or provide any security in connection188 the director shall be
with a loan made by any other person to a cease to hold office if he
director who is in the whole-time employment or any firm of which he is
of the company for the purpose of : a partner or any private
company of which he is a
1. acquisition or construction of a dwelling director accepts a loan or
house or land therefore or for defraying g u a r a n t e e f r o m t h e
the cost of any conveyance for personal company in contravention
use or household effects; or of section 195.
2. for defraying any expense on his medical
treatment; or
3. the medical treatment of any relative as
are ordinarily made or provided by the

company to its employees.
Prohibition of Certain Acts
196 (3) The directors of a public company or of a Under section 196 (4), on
subsidiary of a public company shall not except contravention of this
with the consent of the general meeting either subsection, he shall be
specifically or by way of an authorization, do liable to 100,000 rupees
any of the following things, namely:- and shall be individually
and severally liable for
(a) sell, lease or otherwise dispose of the losses or damages arising
undertakings or a sizeable part thereof unless out of such action.
the main business of the company comprises
of such selling or leasing; and
(b) remit, give any relief or give extension of
time for the repayment of any debt
outstanding against any director.
21
Clause
Appointing CEO and determining Terms of
Appointment
198 (2) The directors of every company shall appoint The Companies Ordinance
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an individual to be the Chief Executive of the holds directors responsible

company. for appointment of
Chief Executive and
determination of terms of
appointment. Whoever
contravenes or fails to
comply with any of the
such provisions or is a
party to the contravention
of the said provisions shall
be liable to be punishable
with:
to Rs.10,000; and
• may also be debarred
for a period not
exceeding three years
200 (1) The directors shall determine the terms and
conditions of appointment of a Chief Executive,
if required by the company’s articles.
Investments in Associated Companies and

Undertakings
If the directors fail to

208 A company shall not make any investment in comply with the
any of its associated companies and requirements of section
undertakings except through a special resolution 208, regarding investment
which indicates nature, period and amount of in associates then every
investment and the return on such investment director of a company who
in form of loan shall not be less than the is knowingly and willfully
borrowing cost of investing company. in default shall be liable to
fine which may extend to
However this section is not applicable to: one million rupees and in
addition, shall jointly and
• banking company severally reimburse to the
• financial institution approved by the company any loss
commission sustained by the company
• private company, which is not a subsidiary in consequence of an
of a public company, and investment which was
• a company whose principal business is the made without complying
acquisition of shares, stocks, debentures or with the requirements of
22 other securities. the said section.
Clause
Disclosure of Interest
214 (1) Every director of a company who is in any way, The director so interested
whether directly or indirectly, concerned or shall also abstain from
ROLE OF DIRECTORS
interested in any contract or arrangement discussion and voting on
entered into, or to be entered into, by or on the contract and his
behalf of the company shall disclose the nature presence shall not count
of his concern or interest at a meeting of the towards forming a quorum
directors. for such discussion or
voting. Even if he does
vote, his vote shall be void.
Restriction on Voting by Interested Directors
A director interested in any contract or Every director so interested

216 agreement entered into or to be entered into shall be liable to a fine
by the company shall not participate or vote which may extend to Rs.
in proceedings of directors where such contract 5,000 on contravention.
or agreement is to be discussed.
Disclosure of Shareholding
221 Every director shall give notice to the company Any director who fails to
of such matters relating to himself as may be comply with the provision
necessary for the purpose of enabling the of section 221 shall be liable
company to comply with the provisions of to be punishable with:
section 220, Register of directors’ shareholdings. • imprisonment for a

to two years; and
to Rs. 5,000.
Trading of Securities
224 Where any director of a listed company makes Any director who fails to
any gain by the purchase and sale, or the sale comply with the provision
and purchase, of any security, within a period of this section shall be
of less than six months, such director shall make liable to be punishable
a report and tender the amount of such gain with:
to the company and simultaneously send an • fine which may extend
intimation to this effect to the registrar and the to Rs. 30,000; and
Commission. • a further fine which may
continues. 23
Clause
Directors Report
236 (1) & The directors shall make out and attach to every If a company fails to
236 (3) balance sheet a report with respect to the state comply with any of the
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of the company’s affairs and other information requirements of section

and such report shall be signed by the chairman 236, ever y director,
of the directors or the chief executive of the including the chief
company on behalf of the directors if authorised executive, of the company
in that behalf. who has knowingly by this
act or omission been the
236 (5) In case consolidated financial statements are cause of any default by the
to be presented, the directors of the holding company in complying
shall also make out and attach a report with with the requirements of
respect to the state of affairs of the group. this section shall-
(a) in respect of a listed

company, be punishable
with imprisonment for a
to one year and with fine
which shall not be less
than Rs.20,000 nor more
than Rs.50,000, and
with a further fine which
may extend to Rs.5000
for every day after the
first during which the
default continues; and
(b) in respect of any other

company, be punishable
with imprisonment for a
to six months and with
fine which may extend
to Rs. 10,000.
238 (1) The directors of a holding company shall ensure
that, except where in their opinion there are
good reasons against it, the financial year of
each of its subsidiaries coincides with the
company’s own financial year.
Authentication of Balance Sheet
241 The directors shall approve, and the Chief Every director or Chief
Executive and at least one director shall sign, Executive in default shall
24 the balance sheet and profit and loss account be liable for a fine not
Clause
or income and expenditure account of the exceeding Rs. 5,000.
company.
Where the Chief Executive is not in Pakistan, the
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above mentioned financial statements may be
signed by two directors provided that a statement
signed by the directors explaining the reasons
for non compliance is attached to the financial
statements.
Duties and Responsibilities (Watch Outs)

Clause
Declaration at the time of Filing Consent to
act as Director
ii. The directors of listed companies shall, at the time

of filing their consent to act as such, give a
declaration in such consent that they are aware
of their duties and powers under the relevant
law(s) and the listed companies’ Memorandum
and Articles of Association and the listing
regulations of stock exchanges in Pakistan.
Casual Vacancy on Board of Directors

vi. Any casual vacancy in the Board of Directors of
a listed company shall be filled up by the
directors within 30 days thereof.
General
iii. Every listed company shall ensure that: FAQs states that the
'Statement of Ethics and
a. a “Statement of Ethics and Business Practices” Business Practices' should
is prepared and circulated annually by its Board be signed by all directors
of Directors to establish a standard of conduct and employees of listed
for directors and employees, which Statement companies.
shall be signed by each director and employee
in acknowledgement of his understanding and Significant policies for this
acceptance of the standard of conduct; purpose may include:
b. the Board of Directors adopt a vision/ mission • r i s k m a n a g e m e n t ;

statement and overall corporate strategy for • h u m a n r e s o u r c e
the company and also formulate significant management including
policies, having regard to the level of materiality, preparation of a
as may be determined it. succession plan; 25
Clause
• procurement of goods
and services;
• marketing;
• determination of terms
ROLE OF DIRECTORS
of credit and discount

to customers;
• write-off of bad/doubtful
debts, advances and
receivables;
• acquisition / disposal of
fixed assets;
• investment;
• borrowing of moneys
and the amount in
excess of which
borrowings shall be
sanctioned/ ratified by
a general meeting of
shareholders;
• donations, charities,
contributions and other
payments of a similar
nature;
• determination and
delegation of financial
powers;
• transactions or contracts
with associated
companies and related
parties; and
• health, safety and
environment.
A complete record of
particulars of the above
mentioned policies along
with the dates on which
they were approved or
amended by the Board
of Directors shall be
maintained.
Establishing Sound System of Internal Control
viii (c) The Board of Directors shall establish a system The Code of Corporate
of sound internal control, which is effectively Governance, however
26 implemented at all levels within the company. does not mention any
Clause
bench mark framework for
the sound system of
internal control .
ROLE OF DIRECTORS
Defining Roles and Responsibilities of the
Chairman & CEO
ix. The Board of Directors shall clearly define the A committee of Board of
respective roles and responsibilities of the Directors can only
Chairman and Chief Executive, whether or not ‘recommend’ the terms and
these offices are held by separate individuals or conditions of employment
the same individual. of the CEO and executive
directors to the board. The
appointment, remuneration
and terms of employment
must be approved by the
Board of Directors in a
meeting.
Meetings of Board of Directors
xi. The Board of Directors of a listed company shall

meet at least once in every quarter of the
financial year. Written notices (including agenda)
of meetings shall be circulated not less than
seven days before the meetings.
Trading by Directors and their Spouses

xxvi. Where any director, CEO or executives of a
listed company or their spouses sell, buy or take
any position, whether directly or indirectly, in
shares of the listed company of which he is a
director, he shall immediately notify in writing
the Company Secretary of his intentions.
Determining Closed Period
xxvi. Each listed company shall determine a closed The closed period, referred
period prior to the announcement of interim/ to in the Code, restricts the
final results and any business decision, which directors of every listed
may materially affect the market price of its company from dealing in
shares. No director, CEO or executives shall, its shares, whether directly
directly or indirectly, deal in the shares of the or indirectly. The closed
listed company in any manner during the closed period should start from the
period. day when any document /
statement, which forms the
basis of price sensitive 27
Clause
information, is sent to the
Board of Directors and
terminate after the
information is made public.
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Establishing Audit Committee
xxx. The Board of Directors of every listed company

shall establish an Audit Committee.
xxxiii. The Board of Directors of every listed company

shall determine the terms of reference of the Audit
Committee.
28
Duties and Responsibilities of Directors (SECP Statute)
Clause
Civil Liability for Misstatement in the Prospectus
ROLE OF DIRECTORS
59 With respect to issue of a prospectus containing
misstatements, the directors of the company,
excluding those without whose knowledge or
consent the prospectus was issued, shall along
with other persons authorizing the issue be liable
to indemnify such persons who are not liable
against all damages, costs and expenses to which
they may be made liable by reason of their name
being inserted in such prospectus or statement
attached thereto.
Restriction on Allotment
68 Allotment cannot be made of any share capital For non compliance the
offered to public for subscription, unless; directors of the company,
apart from those who prove
• Minimum subscription has been subscribed that the default in
and the full amount has been paid to and repayment of the money
received in cash. was not due to any
• The amount stated above shall be exclusive of misconduct or negligence
any amount payable otherwise than in cash. on their part, shall be jointly
• All money received from the applicants shall and severally liable to repay
be deposited in a separate bank account, until that money with surcharge
of Directors (SECP Statute)

returned or certificate to commence business at the rate of one and-a-half
is obtained. per cent for every month or
• The amount payable on application shall be part thereof from the
full nominal amount of the share. expiration of the fiftieth day.
Allotment of Shares and Debentures to be Dealt
in Stock Exchange
72 Where prospectus states that application has been In case of non compliance,
made or will be made for the permission of the the directors shall be jointly
share to be dealt in any stock exchange, any and severally liable, unless he
allotment made on such application be void: proves that the default was
not due to any misconduct
• if the permission has not been applied for before or negligence on his part, to
the seventh day after the first issue of the repay the money received
prospectus, or for applications plus
• if the permission has not been guaranteed before surcharge @ 1.5% per month
the expiration of twenty one days from the date from the expiration of the
of closing of subscription or such longer period eighth day in addition, to a
not exceeding forty-two days. fine not exceeding Rs. 5000 29
Clause
and in the case of a
continuing offence to a
further fine not exceeding
Rs. 100 for every day after
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the said eighth day on which

the default continues.
Not to Refuse Transfer of Shares
77 The directors of a company shall not refuse to Under section 78(2), every
transfer any shares or debentures that are fully paid officer of the company shall
unless the transfer deed is for any reason defective be liable to a fine not
or invalid. exceeding Rs. 20,000 and
to a further fine not
exceeding Rs. 1,000 for
every day.
Purchase of Company’s Own Shares
95A (8) With respect to buy back of shares by the listed Under section 95A(14),
company, the majority of the directors including every officer of the company
the Chief Executive shall in a meeting, make a shall be punishable with
declaration of insolvency that: imprisonment for a term
which may extend to 6
• full inquiry into the affairs of the company has months or with a fine which
been made; may extend to Rs. 1,000,000
• after such inquiry, they are of an opinion that: or with both.
1. the company shall continue to operate as

a going concern; and
2. it is capable of meeting its liabilities on time
during the period upto the end of the
immediately succeeding financial year.
At Commencing Business
146 (1d) With respect to the procedure for commencement Under section 146(5), every
of business, the Chief Executive or one of the officer who is responsible to
directors and the secretary are to file with the file with the registrar a
registrar a declaration that the conditions for declaration that the
commencement of business as are mentioned in conditions for
this section have been complied with. commencement of business
as are mentioned in this
section , shall be liable to a
fine not exceeding Rs. 1,000
for every day.
30
Clause
Statutory Meeting of the Company
157 With respect to the statutory meeting of company Under section 157(11), every
the directors have the following duties: officer shall be liable:
ROLE OF DIRECTORS
• At least three directors, one of whom is to be • If defaults relates to listed
the Chief Executive shall certify the statutory company to a fine not
report. less than Rs. 10,000 and
• The statutory report is to be forwarded to every not exceeding Rs. 20,000
member of the company at least twenty one and to a further fine not
days before the meeting exceeding Rs. 2,000 for
• At least five certified copies of the statutory every day.
report are also to be delivered to the registrar • If the defaults relates to
for registration. any other company to a
• At the commencement of the meeting and fine not exceeding Rs.
throughout its duration, a list caused to be 5,000 and to a further
prepared by the directors showing the names, fine not exceeding Rs.200
occupations, nationality and address of the for every day.
members, and the number of shares held by
them respectively is to be produced.
Prohibition Regarding Making of Political

Contributions
197 A company is prohibited to contribute any amount In case of non compliance

to any political party or for any political purpose of the said section every
to any individual or body. director who is

knowinglyand willfully in
default shall be punishable
with imprisonment of either
description for a term which
may extend to two years and
shall also be liable to fine.
Register of Directors
205 (2) The directors shall, within a period of ten days of Under section 205(5), if the
his appointment or any change therein, as the directors fail to furnish the
case maybe, furnish to the company the particulars particulars to enable the
so as to enable the company to comply with the company to comply with the
requirements of section 205 regarding Register of provisions of section 205,
Directors. may be punished with a fine
which may extend to Rs. 500
and a further fine which may
extend to Rs. 50 for every
day after the first during
which the default continues. 31
Clause
Maintaining Books of Accounts
230 The Companies Ordinance, 1984 holds directors If a listed company fails to
responsible for compliance with the statutory comply with the statutory
ROLE OF DIRECTORS
requirements regarding preparation and requirements in this regard,

maintenance of proper books of account and every director including the
circulation of financial statements that give a true CEO and CFO of the
and fair view. company, w h o h a s
knowingly been the cause of
the default, is liable to be
punishable with:
• imprisonment for a term

which may extend to one
year;
and
continues.
Facilitating Inspection of Books of Accounts
231 As sanctioned by this section, with respect to Under section 232(2),

inspection of books of accounts and books and director or any officer shall
papers of a company by the registrar or by any deem to have vacated his
officer authorized in this behalf by SECP, every office and shall be
director, along with the officers and other employees disqualified for holding such
of the company are bound to: office for period of 5 years.
• produce all such books of accounts and books

and papers as are in his custody or under his
control.
• furnish information, statements and explanations
relating to the affairs of the company required
by the abovementioned persons; and
• provide reasonable assistance for such inspection.
Annual Accounts and Balance Sheet
231 Subject to the conditions mentioned below, the Under section 230(7), if a
directors of every company shall lay before the listed company fails to
company in annual general meeting: comply with the statutory
32 requirements in this regard,
Clause
• audited balance sheet and profit and loss account every director including the
in the case of a company trading for profit; or CEO and CFO of the
• audited balance sheet and income and company, who has
expenditure account in the case of a company knowingly been the cause
ROLE OF DIRECTORS
not trading for profit. of the default, is liable to be
punishable with:
• imprisonment for a term

which may extend to one
year;
and
Conditions: continues.
• The first accounts shall be laid not later than In respect of any other
eighteen months after the incorporation and company be punishable
shall be made for the period since such with imprisonment for a
incorporation. term which may extend to
• All subsequent accounts shall be laid at least six months and with fine
once in every calendar year and shall be made which may extend to
for the period since preceding accounts Rs.10,000.

• In both the above-mentioned cases, the accounts
will be made up to a date not earlier than the
date of the meeting by more than four months
nor shall they cover a period exceeding twelve
months unless permission from the registrar has
been obtained.
Furnishing Information, Documents etc. to the
Registrar
261 (1) With respect to any document, notice, Under section 261(4) every
advertisement or other communication submitted director in default shall be
to the registrar, every past and present director, punishable with fine
along with the officers and auditors, is bound to extending Rs.20,000 and
furnish, to the best of their power, such information, further fine extending Rs.
explanation or document as may be required by 5,000 in case of continuing
the registrar. default for every day and
every officer who willfully
authorize or permits or is
party to default shall be
liable to imprisonment of
33
Clause
either description extending
to 1 year and fine.
To Carry Out Orders of the Court

ROLE OF DIRECTORS
271 The directors on any order of the Court, which

has been initiated by the SECP, shall carry out
such changes in the management or in the
accounting policies of the company as are
specified in such order.
Effect of Court's Order
272 On the issue of the Court's order under the

section 271 removing from office any director,
including chief executive, managing agent, or
other officer, such persons shall be deemed to
have vacated his office and-
(i) if the Court's order has removed a director,

the casual vacancy in the office of director
shall be filled in accordance with the relevant
provisions contained in the articles of
association of the company;
(ii) if the Court's order has removed from office

a chief executive, the remaining directors
shall elect another person to be the chief

executive; and
(iii) if the Court's order has removed from office

all the directors including the chief executive,
a general meeting of the company shall be
called forthwith for electing new directors.
Statement of Affairs
328 (1) Where the Court has made a winding up order Every person making default
& (2) or appointed an official liquidator or provisional shall be punishable for a fine
manager, there shall be made out and submitted not exceeding Rs. 500
to the official liquidator or provisional manager
a statement as to the affairs of the company in
the prescribed form, verified by an affidavit.
The statement shall be submitted and verified
by persons who are at the relevant date the
directors, chief executive and secretary of the
34 company.
Clause
Custody of Company's Property
330 (1) All persons who are or have been directors, chief Any default or failure on their
executives, or other officer of the company and part shall be punishable with
ROLE OF DIRECTORS
who may be having in their knowledge, custody, imprisonment of either
control or charge, directly or under them any description which may
books or papers, property, effects and actionable extend to one year and with
claims, shall forthwith report and hand over or fine which may extend to
cause to be handed over possession to the liquidator Rs. 10,000 and the Court
of all such items and furnish to the liquidator such may direct the books,
information and explanations as he may require. papers, property and effects
to be delivered to the
liquidator in case of default
or failure, and in the event
of non-compliance with the
directive, to order the person
in default to pay further
amount by way of
compensation equal to the
value of the property as the
Court may determine.
Declaration of Solvency in case of Voluntary

Winding up
362 In case of voluntary winding up: Every Director making such

• its directors; or declaration without any

• majority of directors including the chief executive reasonable grounds shall be
(incase where there are more than three directors) punishable with
may make a declaration (verified by an affidavit) imprisonment for 6 months
that after a full inquiry into the affairs of the and with fine extending Rs.
company, they are of the opinion that: 10,000 or both.
1. the company has no debts

2. it will be able to pay all its debts in full within
such period not exceeding twelve months
from the commencement of winding up.
Meeting of Creditors in Creditors Voluntary

Winding up
373 (3) In case of creditors’ voluntary winding up, the The Director or any Chief
directors and the Chief Executive shall have the Executive in default shall be
following responsibilities with respect to the meeting punishable with fine
of creditors: extending Rs. 5,000 and
further fine of Rs.100 for 35
Clause
• to lay before the meeting every day in case of
continuing default.
- a full statement of the position of the
company’s affairs and assets and liabilities.
ROLE OF DIRECTORS
- list of the creditors of the company.
- the estimated amount of the creditors’ claims.
• to appoint one of the directors to preside over

the said meeting.
Allotment of Shares for Inadequate

Consideration
494 (1) Any director may apply to the Court for a declaration Every director who is party
that any shares have been allotted for inadequate to such allotment shall be
consideration. liable jointly and severally to
compensate the company,
the amount by which the
consideration received is
lesser than the amount that
ought to be received in
respect of the allotment of
shares, if it is proved that he:
• had knowledge that

consideration so received
was inadequate, or
• failed to take reasonable
steps to ascertain whether
such consideration was
in fact adequate.
36
Duties and Responsibilities (SECP Statute)
Clause
Meetings of Board of Directors
ROLE OF DIRECTORS
xii. The Chairman of a listed company shall ensure
that minutes of meetings of the Board of Directors
are appropriately recorded and circulated to
directors and officers entitled to attend Board
meetings not later than 30 days thereof, unless a
shorter period is provided in the listed company’s
Articles of Association.
In the event that a director of a listed company is

of the view that his dissenting note has not been
satisfactorily recorded in the minutes of a meeting
of the Board of Directors, he may refer the matter
to the Company Secretary. The director may require
the note to be appended to the minutes, failing
which he may file an objection with the Securities
and Exchange Commission of Pakistan in the form
of a statement to that effect.
xiii. In order to strengthen and formalize corporate
decision-making process, significant issues shall be
placed for the information, consideration and decision
of the Boards of Directors of listed companies.

Directors Report
xix. The directors of listed companies shall include

statements to the following effect in the Directors’
Report, prepared under section 236 of the
Companies Ordinance, 1984:
a. The financial statements, prepared by the

management of the listed company, present
fairly its state of affairs, the result of its operations,
cash flows and changes in equity.
b. Proper books of account of the listed company
have been maintained.
c. Appropriate accounting policies have been
consistently applied in preparation of financial
statements and accounting estimates are based
on reasonable and prudent judgment.
d. International Accounting Standards, as applicable
in Pakistan, have been followed in preparation
37
Clause
of financial statements and any departure there
from has been adequately disclosed.
e. The system of internal control is sound in design
and has been effectively implemented and
ROLE OF DIRECTORS
monitored.
f. There are no significant doubts upon the listed
company’s ability to continue as a going concern.
g. There has been no material departure from the
best practices of corporate governance, as
detailed in the listing regulations.
The Directors’ Reports of listed companies shall

also include the following, where necessary:
a. If the listed company is not considered to be a

going concern, the fact along with reasons shall
be disclosed.
b. Significant deviations from last year in operating
results of the listed company shall be highlighted
and reasons thereof shall be explained.
c. Key operating and financial data of last six years
shall be summarized.
d. If the listed company has not declared dividend
or issued bonus shares for any year, the reasons
thereof shall be given.
e. Where any statutory payment on account of
taxes, duties, levies and charges is outstanding,
the amount together with a brief description

and reasons for the same shall be disclosed.
f. Significant plans and decisions, such as corporate
restructuring, business expansion and
discontinuance of operations, shall be outlined
along with future prospects, risks and
uncertainties surrounding the listed company.
g. A statement as to the value of investments of
provident, gratuity and pension funds, based
on their respective audited accounts, shall be
included.
h. The number of Board meetings held during the
year and attendance by each director shall be
disclosed.
i. The pattern of shareholding shall be reported
to disclose the aggregate number of shares
(along with name wise details where stated
below) held by:
38 • associated companies, undertakings and
Clause
related parties (name wise details);
• NIT and ICP (name wise details);

• directors, CEO and their spouse and minor
ROLE OF DIRECTORS
children (name wise details);
• executives;
• public sector companies and corporations;
• banks, Development Finance Institutions,
Non-Banking Financial Institutions, insurance
companies, modaraba’s and mutual funds;
and
• shareholders holding ten percent or more
voting interest in the listed company (name
wise details).
Explanation:
For the purpose of this clause, clause (b) of
direction (i) and direction (xxiii), the expression
“executive” means an employee of a listed
company other than the CEO and directors
whose basic salary exceeds five hundred
thousand rupees in a financial year.
j. All trades in the shares of the listed company,

carried out by its directors, CEO, CFO, Company
Secretary and their spouses and minor children

shall also be disclosed.
39
Retirement of Directors
Clause
176 First directors of a company shall retire on the Under section 185 of the
election of directors in the first annual general Ordinance, the acts of
ROLE OF DIRECTORS
meeting. directors are not invalid due

to defective appointment,
although such a director is
not to exercise powers till
such defect in appointment
has been rectified. Heavy
penalties exist for violation
of section 185, comprising
a fine of up to Rs. 10,000
and debarment from being
appointed as director for
up to three years.
177 On the date of the first annual general meeting
of a company all directors of the company for
the time being who are subject to election shall
stand retired from office but the directors so
retiring shall continue to perform their functions --- do ---
until their successors are elected. Further the
directors continuing to perform their functions
shall take immediate step to hold the election
of directors and in case of any impediment report
the circumstances of the case to the registrar
within fifteen days of the expiry of the term laid
down in section 180.
180 The directors elected shall hold office for a period

--- do ---
of three years.
188 A director shall cease to hold office in the A person not qualified to
following circumstances: act as director but who
represents himself as such
• becomes ineligible under clause (a) to (h) of may be punished with a
section 187 of the Companies Ordinance fine of Rs. 200 per day for
1984; each day of contravention.
• absent in three consecutive meetings or all
meetings of the Board for a continuous period
of three months, whichever is longer, without
leave of absence; or
• he, his firm or private company, in which he
has interest, accepts an office of profit except
as CEO, legal/technical advisor and banker
40 without sanction of the company or accepts
Clause
a loan or guarantee in contravention of section
195 of the Companies Ordinance, 1984.
216 Every director so interested shall be liable to a
ROLE OF DIRECTORS
fine which may extend to 5,000 Rupees.
295 (3) If an administrator is appointed by the
commission under section 295 then on and from
the date of appointment of the Administrator,
the management of the affairs of the company
shall vest in him, and he shall exercise all the
powers of the directors or other persons in whom
the management vested and all such directors
and persons shall stand divested of that
management and powers and shall cease to
function or hold office.
41
Penalties and Disqualifications
(Under The Companies Ordinance, 1984)

Clause
68(5) With respect to allotment of shares, if the
ROLE OF DIRECTORS
conditions mentioned in this section have not

been complied with, the directors of the
company, apart from those who prove that the
default in repayment of the money was not due
to any misconduct or negligence on their part,
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.
71(2) With respect to unsuccessful or unaccepted

applications for allotment of shares if money
received for applications is not repaid within ten
days of closure of subscription lists, the directors
shall be jointly and severally liable, unless he
proves that the default was not due to any
misconduct or negligence on his part, to repay
the money with surcharge at the rate of one
and a half percent for every month or part thereof
from the expiration of 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.
72(3) Where permission for listing of securities has not
Disqualifications
been applied for before the seventh day after

Penalties and
the first issue of the prospectus or if the permission

has not been granted, the directors shall be
jointly and severally liable, unless he proves that
the default was not due to any misconduct or
negligence on his part, to repay the money
received for applications from the expiration of
the eighth day together with a surcharge at the
rate of 1.5% per month or part 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.
76(7) If any officer makes defaults in complying with

42 any of the provisions of subsections 76(1) to (4)
Clause
regarding transfer of share and debentures then
he shall be liable to fine up to Rs.5000.
78(2) If a director refuse to transfer shares under
ROLE OF DIRECTORS
section 77, every director of the company shall
be liable to a fine not exceeding 20,000 rupees
and to a further fine not exceeding 1,000 rupees
for every day.
95A(14) In case of non-compliance with provisions of
section 95A, every officer of the company shall
be punishable with imprisonment for a term
which may extend to 6 months or with a fine
which may extend to one million rupees or
with both.
146(5) Under section 146(5), every officer who is
responsible for contravention to file with the
registrar a declaration that the conditions for
commencement of business as are mentioned
in this section have been complied with, shall
be liable to a fine not exceeding 1,000 rupees
for every day.
157(11) In case of non-compliance with provisions of
section 157, every officer shall be liable:
• If defaults relates to listed company to a fine

not less than 10,000 rupees and not exceeding
20,000 rupees and to a further fine nor
exceeding 2,000 rupees for every day.
• If the defaults relates to any other company
Disqualifications
to a fine not exceeding 5,000 rupees and
Penalties and
to a further fine not exceeding 200 rupees
for every day.
section 159, every officer of the company shall
be liable.
• If default relates to listed company to a fine

not less than 10,000 rupees and not
exceeding 20,000 rupees and to a further
fine extending 2000 rupees for everyday.
• If the default relates to any other company
to a fine which may extend to 2,000 rupees
and further fine of 200 rupees per day.
section 160, every officer shall be liable: 43
Clause
• If defaults relates to listed company to a fine
not less than 5,000 rupees and to a further
fine not exceeding 2,000 rupees for every
day.
ROLE OF DIRECTORS
• If the defaults relates to any other company

to a fine not exceeding 10,000 rupees
and to a further fine extending 200 rupees
for every day.
186 Under section 185 of the Ordinance, the acts of
directors are not invalid due to defective
appointment, although such a director is not to
exercise powers till such defect in appointment
has been rectified. Heavy penalties exist for
violation of section 185, comprising a fine of up
to Rs. 10,000 and debarment from being
appointed as director for up to three years.
187 A person is debarred from being appointment

as a director for a period of five years if the Court
declares a director to be lacking fiduciary behavior
if he makes default in disclosing interest in any
contract or arrangement to be entered into.
189 A person not qualified to act as director but
who represents himself as such may be
punished with a fine of Rs. 200 per day for
each day of contravention.
190 Penalty on a person who is not qualified to act
as director, being an undischarged insolvent, is
more severe and may comprise of two years
Disqualifications
Penalties and
imprisonment and/or Rs. 10,000 fine.
195(5) Under section 195(5), every person shall be

punishable with a fine extending 5,000 rupees
or with imprisonment of six months for non-
compliance with section 195.
195(6) Under section 195(6), All persons, who are

knowingly parties to contravention of sub-
section(1)&(3)of section 195, shall be liable
jointly and severely, to the lending company for
the repayment of the loan or for making good
the sum ( with mark-up not less than the
borrowing cost of lending company ) which the
lending company may have been called upon
to pay by virtue of the guarantee given or the
44 security provided by such company .
Clause
196(4) Any director who contravenes with any provision
of section 196, shall be punishable with a fine
which may extend to one hundred thousand
rupees.
ROLE OF DIRECTORS
204 The Companies Ordinance, 1984 holds directors
responsible for appointment of Chief Executive
and determination of terms of appointment.
Whoever contravenes or fails to comply with any
of the such provisions or is a party to the
contravention of the said provisions shall be liable
to be punishable with: fine which may extend to
ten thousand rupees; and may also be debarred
for a period not exceeding three years.
205(5) If the directors fail to furnish the particulars to

enable the company to comply with the
provisions of section 205, may be punished with
a fine which may extend to Rs. 500 and a further
fine which may extend to Rs. 50 for every day
after the first during which the default continues.
208(3) If the directors fail to comply with the

requirements of section 208, regarding
investment in associates then every director of
a company who is knowingly and willfully in
default shall be liable to fine which may extend
to one million rupees and in addition, shall jointly
and severally reimburse to the company any loss
sustained by the company in consequence of
an investment which was made without
Disqualifications
complying with the requirements of the said
Penalties and
section.
221(3) Any director who fails to comply with the
provision of section 221 shall be liable to be
punishable with imprisonment for a term which
may extend to two years; and fine which may
extend to Rs. 5,000.
224 (4) Any director who fails to comply with the

provision of section 224 shall be liable to be
punishable with: fine which may extend to
Rs. 30,000; and a further fine which may extend
to Rs. 1,000 for every day after the first during
which the default continues.
230(7) The Companies Ordinance, 1984 holds directors
responsible for compliance with the statutory 45
Clause
requirements regarding preparation and
maintenance of proper books of account and
circulation of financial statements that give a true
and fair view. If a listed company fails to comply
ROLE OF DIRECTORS
with the statutory requirements in this regard,

every director including the CEO and CFO of the
company, who has knowingly been the cause of
the default, is liable to be punishable with:
• imprisonment for a term which may extend

to one year;
• fine which shall not be less than Rs. 20,000
nor more than Rs. 50,000; and
• a further fine which may extend to Rs. 5,000
for every day after the first during which the
default continues.
232(2) Director or any officer shall deem to have vacated

his office and shall be disqualified for holding
such office for period of 5 years, if default is made
in complying with the provisions of section 231.
236(4) If a company fails to comply with any of the

requirements of section 236, every director,
including the chief executive, of the company
who has knowingly by this act or omission been
the cause of any default by the company in
complying with the requirements of this section
shall:
(a) in respect of a listed company, be punishable

Disqualifications
Penalties and
with imprisonment for a term which may

extend to one year and with fine which shall
not be less than twenty thousand rupees
nor more than fifty thousand rupees, and
with a further fine which may extend to five
thousand rupees for every day after the first
during which the default continues; and
(b) in respect of any other company, be

punishable with imprisonment with
imprisonment for a term which may extend
to six months and with fine which may
extend to ten thousand rupees.
241(3) Every director or Chief Executive in default shall

be liable for a fine not exceeding 5,000 rupees
46 for contravention of section 241.
Clause
261(4) In case non-compliance with section 261, every
director in default shall be punishable with fine
extending 20,000 rupees and further fine
extending 5,000 rupees in case of continuing
ROLE OF DIRECTORS
default for every day and every officer who
willfully authorize or permits or is party to default
shall be liable to imprisonment of either
description extending to 1 year and fine.
330 Any default or failure on their part, in handing

over books, papers or property of the company
in their control, charge, control knowledge or
custody, shall be punishable with imprisonment
of either description which may extend to one
year and with fine which may extend to ten
thousand rupees and the Court may direct the
books, papers,, property and effects to be
delivered to the liquidator in case of default or
failure, and in the event of non-compliance with
the directive, to order the person in default to
pay further amount by way of compensation
equal to the value of the property as the Court
may determine.
362 Every director making such declaration of

solvency without any reasonable grounds shall
be punishable with imprisonment for 6 months
and with fine extending 10,000 rupees or both.
373(6) The Director or any Chief Executive in default
Disqualifications
shall be punishable with fine extending 5,000
Penalties and
rupees and further fine of 100 rupees for every
day in case of continuing default.
494 Every director who is party to such allotment

shall be liable jointly and severally to compensate
the company, the amount by which the
consideration received is lesser than the amount
that ought to be received in respect of the
allotment of shares, if it is proved that he had
knowledge of the fact that consideration so
received was inadequate, or he failed to take
reasonable steps to ascertain whether such
consideration was infact adequate.
47
Head Office: Chartered Accountants Avenue, Clifton, Karachi.
Lahore Office: 155-156, West Wood Colony, Thokar Niaz Baig, Raiwand Road, Lahore.
Islamabad Office: Sector G-10/4, Mauve Area, Islamabad.
For further details please visit our web site www.icap.org.pk or contact at UAN: 111-000-422

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ROLE of

Members’ Information & Education Series MIES -3

Members’ Information & Education Series MIES-3

Eligibility to become a Director 09

Powers of Directors (Watch Outs) 13

Powers of Directors (SECP Statute) 16

Duties and Responsibilities of Directors (Watch Outs) 20

Duties and Responsibilities of Directors (SECP Statute) 29

Penalties and Disqualifications 42

The purpose of this document is to summarize the relevant enactments applicable to

Section/ Description Remarks

200(2) The Chief Executive, if he is not already a The Companies Ordinance

• fine which may extend

appoint as director a person: exempted by the Securities

Section/ Description Remarks

However, in section 186

persons who are expected

Section/ Description Remarks

Power of Director (Watch Outs)

Removal of Chief Executive

202 The directors of a company by resolution passed Penalty of non compliance

248 (1) The company in general meeting may declare

Appointment of Auditors and Related Matters

annual general meeting. and to a further fine

252 (8) The directors shall fix the remuneration of the

258 Where an audit of cost accounts of a company Requirement of appointing

Section/ Description Remarks

• investment and disinvestment of funds where

Power of Director (Watch Outs)

Appointing CEO and other Executives

viii. (e) Appointment, remuneration and terms and

Recommending Appointment of External

xxxix. The Board of Directors of a listed company shall

Section/ Description Remarks

86 The decision to increase the capital of the

With respect to further issue of shares, if existing

Directors (or an officer authorized by the directors)

are to sign the circular which is to accompany

Calling of Extra Ordinary General Meeting

• If the default relates to

Powers of Directors (SECP Statute)

• a further fine which may

251 (2) Period for Payment of Dividend

dividend and where

Powers of Directors (SECP Statute)

Powers of Directors (SECP Statute)

38 (7) The Board of Directors at each Board meeting

38 (8) The related party transactions which are not

Powers of Directors (SECP Statute)

The chairman of the board of directors should Under section 160(8),

profit other than CEO,

legal or technical advisor

195 No company, shall, directly or indirectly, make Under section 195(5),

Duties and Responsibilities

Prohibition of Certain Acts

an individual to be the Chief Executive of the holds directors responsible

Investments in Associated Companies and

If the directors fail to

Restriction on Voting by Interested Directors

A director interested in any contract or Every director so interested

Duties and Responsibilities

of the company’s affairs and other information requirements of section