Lesson 8 Banking Companies Ordinance, 1962 -Banking and Finance-Handout, Exercises of Banking and Finance

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LESSON 8 BANKING COMPANIES ORDINANCE, 1962 Statutory definitions These definitions as contained in section 5 of the ordinance are given below: (a) “approved securities” means the securities in which a trustee may invest money under clause (a), clause (b), clause (bb), clause (c) or clause (d) of section 20 of the Trust Act, 1882 (II of 1882), and for the purpose of— (i) sub-section (2) of section 13, includes such other securities as the Federal Government may, by notification in the official Gazette, declare to be approved securities for the purpose of that subsection; and (ii) sub-section (1) of section 29, includes such types of Pakistan rupee obligations of the Federal Government or a Provincial Government or of a Corporation wholly owned or controlled, directly or indirectly, by the Federal Government or a Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the official Gazette, declare, to the extent determined from time to time, to be approved securities for the purpose of that sub-section;1 (b) “banking” means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise; (c) “banking company” means any company which transacts the business of banking in Pakistan and includes their branches and subsidiaries functioning outside Pakistan of banking companies incorporated in Pakistan2; Explanation.— Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause; (d) “branch” or “branch office”, in relation to a banking company, means any branch or branch office, whether called a pay office or sub-pay office or by any other name, at which deposits are received, cheques cashed or moneys lent, and for the purposes of section 40 includes any place of business where any other form of business referred to in sub-section (1) of section 7 is transacted; (dd)“creditor” includes persons from whom deposits have been received on the basis of participation in profit and loss and a banking company or financial institution from which financial accommodation or facility has been received on the basis of participation in profit and loss, mark-up in price, hire-purchase, lease, or otherwise; General Concept of Creditor From this definition, it is transpired that a banker can be a debtor as well as a creditor depending upon the nature of transaction. When the banker accepts deposits from his customers the bank becomes debtor and the customer is treated as creditor. However when a customer avails a loan or finance from the bank, the banker becomes creditor and customer shall be debtor. This relationship shall be explained in detailed while discussing banker’s customer’s relationship. However same is briefly discussed for understanding the said definition. A bank performs a number of functions for the customer. After the account in the bank is opened and the relationship of a banker and customer is established, the bank not only undertakes to collect the cheques which are deposited in the account but also makes the payment on behalf of the customer, whenever there is a mandate from the customer. The cheques which are realized by the bank are deposited in this account of the customer and on many occasions, the bank performs certain other functions on behalf of the customer such as keeping the valuables, etc., deposited by the customer with the bank as a trustee. On many occasions, when the customer gives bills for collection to his bank and the said bank passes the bills for collection to another bank and the amount of the bills is reduced as a result of debiting the customer's account with collection charges as a result of an agreement between two banks, the bank is always acting on docsity.com behalf of the customer. There are thus too many occasions relating to so many matters which arise during the mutual dealings between the banker and the customer and at each time, a question arises as to what is the relationship between a banker and a customer When a bank grants loan or other credit facilities to the customer, relationship is reversed, that is now Customer is Debtor & Banker is Creditor In such cases it is not the money of the customer in the hands of the banker but it is the money of the bank in the hands of the customer but in all such cases when a customer’s account is over drawn, the customer does not cease to be a customer. (e) “company” means any company which may be wound up under the Companies Ordinance, 1984 (XLVII of 1984) and includes a branch of a foreign banking company doing banking business in Pakistan under a license issued by the State Bank in this behalf; (ee) “Debtor” includes a person to whom, or a banking company or financial institution to which, finance as defined in the Banking Tribunals Ordinance 1984, has been provided; (f) “Demand liabilities” means liabilities which must be met on demand, and “time liabilities” means liabilities which are not demand liabilities; (ff) “Family members” in relation to a person means his spouse, dependent lineal ascendants and descendants and dependent brothers and sisters; (ffa) “foreign banking company” means a banking company, not incorporated in Pakistan, which has a branch or branches doing banking business in Pakistan under a license issued by State Bank in this behalf; (g) “Gold” includes gold in the form of coin, whether legal tender or not, or in the form of bullion or ingot, whether refined or not; (gg)“ loans, advances, and credit” includes “finance” as defined in the Banking Tribunals Ordinance, 1984; The above definition is a referral definition. Definition of finance as contained in Banking Tribunal Ordinance, 1984 is reproduced here under: ‘Finance’ includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire-purchase, lease, rent sharing, licensing, charge or fee of any kin, purchase and sale of any property, including commodities, patents, designs, trade marks and copy rights, bills of exchange, promissory notes or other instruments with or without by-back arrangement by a seller, participation term certificate, musharika certificate, modaraba certificate, term finance certificate or any other mode other than an accommodation or facility based on interest and also includes guarantees, indemnities and any other obligation, facility the real beneficiary whereof is a person other than the person to whom or in whose name it was provided (h) “managing director”, in relation to a banking company, means a director who, by virtue of an agreement with the banking company or of a resolution passed by the banking company in general meeting or by its Board of Directors or, by virtue of its memorandum or articles of association, is entrusted with the management of the whole, or substantially the whole of the affairs of the company, and includes a director occupying the position of a managing director, by whatever name called; (i) “Prescribed” means prescribed by rules made under this Ordinance; (j) “Private company” has the same meaning as in the Companies Ordinance, 1984 (XLVII of 1984); (k) “Registrar” has the same meaning as in, the Companies Ordinance, 1984 (XLVII of 1984); (l) “Scheduled bank” has the same meaning as in the State Bank of Pakistan Act, 1956 (XXXIII of 1956); This is a referral definition; the same as contained in State Bank of Pakistan Act 1956 is given here under: docsity.com i. the name of the company; ii. the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the registered office of the company is to be situate; and iii. the objects of the company, and, except in the case of a trading corporation, the territories to which they extend; and b. if the company has a share capital,- i. No subscriber of the memorandum shall take less than one share; and ii. Each subscriber shall write opposite to his name the number of shares he takes Requirements of memorandum Following requirements must be fulfilled before submission of the memorandum of association to the Registrar.  Required to be printed  Should be divided into paragraphs  Paragraphs to be consecutively numbered  To be signed by the subscribers  Signatures duly witnessed by at least one witness  Signature of each subscriber to be attested by the witness  Complete address/ occupation of the subscriber to be mentioned.  Address, occupation of the witness to be mentioned  Memorandum to be duly stamped under stamp Act. Articles of Associations Article of association is another important legal document which is subordinate to memorandum of association. It is concerned with the internal conduct and control of the company. Articles of association as provided in section 2 (1) (i) --"articles" means the articles of association of a company as originally framed or as altered in accordance with the provisions of any previous Companies Act, or of this Ordinance, including, so far as they apply to the company, the regulations contained in Table A in the First Schedule; Contents of Articles of association is comprised of provisions, rules of Articles of Association:  Regulations concerning the internal management of the company which is outlined here under:  Definition of important terms  Issue of shares and allotment of shares  Share capital, rights of share holders.  Transfer of shares  Alteration of share capital  Dividend  Directors—appointment, election, removal, powers, duties  Meetings, voting, powers  Borrowing powers  Accounts and Audit  Winding up docsity.com Registration of articles is contained in section 26 which is given below: 1. There may, in the case of a company limited by shares, and there shall, in the case of a company limited by guarantee or an unlimited company, be registered with the memorandum, articles of association signed by the subscribers to the memorandum and setting out regulations for the company. 2. Articles of association may adopt all or any of the regulations contained in Table A in the First Schedule. 3. In the case of an unlimited company or a company limited by guarantee, the articles, if the company has a share capital, shall state the amount of share capital with which the company proposes to be registered. 4. In case of an unlimited company or a company limited by guarantee, if the company has not a share capital, the articles shall state the number of members with which the company proposes to be registered 5. In the case of a company limited by shares and registered after the commencement of this Ordinance, if articles are not registered, or, if articles are registered, in so far as the articles do not exclude or modify the regulations in Table A in the First Schedule, those regulations shall, so far as applicable, be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles. 6. The articles of every company shall be explicit and without ambiguity and, without prejudice to the generality of foregoing, shall list and enumerate the voting and other rights attached to the different classes of shares and other securities, if any, issued or to be issued by it. Alteration of articles: sec 28 Subject to the provisions of this Ordinance and to the conditions contained in its memorandum, a company may by special resolution alter or add to its articles, and any alteration or addition so made shall be as valid as if originally contained in the articles, and be subject in like manner to alteration by special resolution: Provided that, where such alteration affects the substantive rights or liabilities of members or of a class of members, it shall be carried out only if a majority of at least three-fourth of the members or of the class of members affected by such alteration, as the case may be, personally or through proxy vote for such alteration. Form of memorandum and articles: sec 29 a. The form of memorandum of articles shall be in accordance with the forms set out in tables, B,C,D and E of the first schedule the memorandum of association of a company limited by shares; b. The memorandum and articles of association of a company limited by guarantee and not having a share capital; c. the memorandum and articles of association of a company limited by guarantee and having a share capital; d. The memorandum and articles of association of an unlimited company having a share capital; Registration of memorandum and articles, etc: sec 30 1. The memorandum and the articles, if any, shall be filed with the registrar in the Province or the part of Pakistan not forming part of a Province, as the case may be, in which the registered office of the company is stated by the memorandum to be situated. 2. A declaration by such person as may be prescribed in this behalf, or by a person named in the articles as a director, or other officer of company, of compliance with all or any of the requirements of this Ordinance and the rules made there under shall be filed with the registrar; and the registrar may accept such a declaration as sufficient evidence of such compliance. 3. If the registrar is satisfied that the company is being formed for lawful purposes, that none of its objects stated in the memorandum is inappropriate or deceptive or insufficiently expressive and that all the requirements of this Ordinance and the rules made there under have been complied with in respect of registration and matters precedent and incidental thereto, he shall retain and register the memorandum and articles. if any. docsity.com 4. If registration of the memorandum is refused, the subscribers of the memorandum or any one of them authorized by them in writing may either supply the deficiency and remove the defect pointed out, or within thirty days of the order of refusal prefer an appeal-- (a) where the order of refusal has been passed by an additional registrar, a joint registrar, a deputy registrar or an assistant registrar, to the registrar; and (b) where the order of refusal has been passed, or upheld in appeal, by the registrar, to the Authority. 5. An order of the Authority under subsection (4) shall be final and shall not be called in question before any Court or other authority. docsity.com