Business Law Book by Sir Asif Rise PDF
Business Law Book by Sir Asif Rise PDF
Business Law Book by Sir Asif Rise PDF
CHAPTER ONE
THE LEGAL SYSTEM
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
PART A – INTRODUCTION TO THE LEGAL SYSTEM
LO 1
✯✯
BRANCHES OF LAW 1.1.7
LO 2
SOURCES OF LAW 1.1.5
✯✯
PART B – MAKING OF LAW
LO 3
✯✯✯
THE PARLIAMENT / MAJLIS-E-SHOORA 1.2.5
LO 4
✯
DELEGATED LEGISLATION 1.2.6
LO 5
✯✯✯
BINDING PRECEDENT 1.1.6
PART C – IMPLEMENTATION/INTERPRETATION OF LAW
LO 6
JUDICIAL SYSTEM IN PAKSTAN
✯✯
1.3.1 – 1.3.5
LO 7
APPOINTMENT OF JUDGES
✯
LO 8
✯
ALTERNATIVE DISPUTE RESOLUTION 1.3.6
*Explanation of Symbol:
Symbol ✯ indicates importance of the concept from exam point of view.
If a concept is tagged with three stars i.e. ✯✯✯, it is very very important concept.
If a concept is tagged with two stars i.e. ✯✯, it is very important concept.
If a concept is tagged with single star i.e. ✯, it is important concept.
(Note that none of the concept is unimportant, therefore none should be skipped)
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
LO 1: BRANCHES OF LAW: ✯✯
There are two major branches of law i.e. Civil Law and Criminal Law.
LO 2: SOURCES OF LAW: ✯✯
Basis of Legal System of Pakistan:
The legal system of Pakistan is based on the Constitution of Pakistan 1973 as well as Islamic law
(Sharia).
Precedent:
Precedent is a judgment or decision of a court of law cited as an authority in deciding identical
cases, and is binding on the subordinate courts.
Customs:
In Pakistan, customary law has been replaced by Shariat Law. Key sources of Shariat law are Quran,
Sunnah, and Ijtihad.
Agreement:
Agreement is a kind of special law (in addition to general law) which is applied to parties who have
agreed to stipulated terms for themselves.
There are different sources of law. You are required to briefly describe the following sources of law:
(i) Legislation (02 marks)
(ii) Precedent (02 marks)
(ICMA Pakistan – Fall 2015)
President:
President is the head of the state, and is considered a symbol of unity. He approves the statute
passed by the National Assembly and Senate. President must be a Muslim.
National Assembly:
Seats of National Assembly are determined on the basis of population of provinces. It is
composed of 342 seats in total consisting of:
o 272 General seats
o 60 women members (reserved)
o 10 minority members (reserved)
Members are selected by registered voters for a period of 5 years.
Among themselves, members select a Speaker, Deputy Speaker and Prime Minister.
Most important function of National Assembly is law making and formulation of policies.
Senate:
All provinces are represented in Senate equally. It is composed of 104 sets in total
consisting of:
o 14 general seats for each provincial assembly, 8 general seats for FATA and 2 for
Federal Capital.
o 4 women sets (reserved) for each provincial assembly, and 1 for Federal Capital.
o 4 technocrats (reserved) for each provincial assembly, and 1 for Federal Capital.
o 1 minority(reserved) for each provincial assembly.
o
Members are elected (by members of respective provincial assembly and President) for a
period of 6 years. Senate is a permanent institution. Half of members retire after 3 years and
are replaced by equal number of newly elected senators.
Among themselves, member select a Chairman and a Deputy Chairman.
All statutes passed by National Assembly are also approved by Senate, with the exception of
money bills.
Process of Legislation:
Process of Legislation when National Assembly is in session:
All bills proposed by the government are formally approved by the cabinet before going forwarded
to national assembly.
A bill is passed by both houses i.e. The National Assembly and the Senate (except a money bill).
Thereafter, it is presented to the President of Pakistan for assent and becomes an Act of Parliament
upon receiving such assent.
If president does not want to assent a bill, he can send it back to the parliament for reconsideration.
If bill is passed again after reconsideration, President cannot refuse to assent the bill now.
Exam Tips
1. In case of a Money Bill, approval of Senate is not required. However, rest of the process is same.
2. Validity of an act of Parliament cannot be questioned.
With respect to enactment of any Act in Pakistan, what is the procedure to be followed by the National Assembly and the
President of Pakistan? (06 marks)
(CAF 03 Level – Autumn 2007)
What are the powers available to the President of Pakistan under the constitution to promulgate a law? What is the legal
status of such law? (04 marks)
(CAF 03 Level – Spring 2006)
The power to make law, in any country, is derived from the Constitution of that country. In Pakistan, this power is
contained in the Constitution of the Islamic Republic of Pakistan, 1973. The parliament of Pakistan is called Majlis-e-
Shoora and consists of the President and two houses i.e. National Assembly and the Senate.
Required:
In the light of the above, briefly explain the composition of the two houses. (06 marks)
(ICMA Pakistan, Spring 2016)
(i) In our country the legislative bodies are President and two houses i.e., National Assembly and the Senate. Can any bill
be passed without involvement of both the houses? Develop your argument briefly in the light of legal system in Pakistan.
(02 marks)
(ii) If President returns a bill passed by both the houses for reconsideration, how such bill can become Act/Law? Discuss
briefly. (03 marks)
(ICMA Pakistan, Summer 2010)
LO 4: DELEGATED LEGISLATION: ✯
What is meant by Delegated Legislation:
In delegated legislation, power is given to a subordinate executive authority to make bye-laws for
specified purposes only.
Flexibility:
It is simpler to amend delegated legislation than to amend act of Parliament.
Speed:
Process of Parliament takes lot of time. Delegated legislation allows rapid action to be taken in
times of emergency.
Bulk:
Delegated legislation may result in large number of law making, which makes it difficult to manage
and keep up-to-date.
Parliamentary Control:
Parliament can control delegated legislation by restriction and defining the power to make rules.
Any new legislation created must be laid in front of Parliament for approval.
Judicial Control:
Delegated legislation can be challenged in Court if it is ultra-vires (i.e. beyond powers delegated to
them). Court may declare such legislation void if objection is valid.
Exceptions:
A judge is not bound to follow the precedent under the following Circumstances:
1. Ratio Decidendi is obscure:
Particularly, if different judges given many ratios.
2. Making a distinction between cases:
If the facts in current case are sufficiently different from a previous case, the judge in the
current case does not have to follow the precedent of the previous case.
3. Overruling a precedent:
A precedent established by a lower court can be overruled by a higher court.
The doctrine of binding precedent suggests that ‘a judge, subject to the fulfilment of certain conditions, is bound to apply
decisions from earlier cases to the facts of the case before him’.
Identify the situation(s) in which a judge is not bound to follow the precedent. (02 marks)
(CAF 03 Level – Autumn 2015)
Jurisdiction:
1. Original Jurisdiction:
The Supreme Court has exclusive jurisdiction over disputes between and among
Provincial/Federal governments. It may also exercise Suo-Moto power on human rights
matters.
2. Appellate Jurisdiction:
Supreme Court has jurisdiction to hear appeals from decisions by High Court and Federal
Shariat Court.
3. Advisory Jurisdiction:
If President considers it necessary to obtain opinion of Supreme Court on any question of
public importance, Supreme Court reports its opinion to the President.
High Courts:
There are five High Courts in Pakistan (one in each province and one in Islamabad). A High Court is
the principal court of its province.
Mandamus Order (requires the court or other body to carry out a public duty
Prohibition Order (prevents a court or tribunal from exceeding its jurisdiction)
Certiorari Order (an order by a higher court directing a lower court to send the record in a
given case for judicial review where inferior court has reached a decision contrary to the
principle of natural justice or has exceeded its jurisdiction).
Company bench:
Company bench(s) is/are one or more benches constituted in each High Court by the chief justice of
the High Court to exercise the jurisdiction vested in the High Court.
Lower Courts:
Lower courts exist at district level. These include:
1. Session Courts (to hear criminal cases)
2. District Courts (to hear civil cases)
Structure of the lower courts include Session/District Judge, Additional Session/District Judge, and
Assistant Session/District Judge.
The judges hold office for a period of three years. However, the President may extend such period.
Jurisdiction:
Original Jurisdiction:
Federal Shariat Court examines and decides whether any law or any of its provision is repugnant to
Islamic values "as laid down in the Quran and the Sunnah". Consideration of such an issue may be
taken up by Shariat Court on its own, or may be referred by any citizen or Federal or Provincial
Government. If a law is found to be 'repugnant', the Court notifies the relevant government,
specifying the reasons for its decision.
Appellate Jurisdiction:
The Court also has jurisdiction to hear appeals from the decision of criminal courts under any law
relating to enforcement of Hudood Law
Briefly describe the terms ‘Company court’ and ‘Company bench’. (03 marks)
(CAF 03 Level – Autumn 2015)
What is the composition and tenure of Federal Shariat Court? (03 marks)
(CAF 03 Level – Autumn 2009)
Briefly describe the kind of cases handled by the Federal Shariat Court and the procedures followed in the discharge of
these cases. (07 marks)
(CAF 03 Level – Spring 2008)
LO 7: APPOINTMENT OF JUDGES: ✯
Criteria to be Judge of Supreme Court:
Following persons are eligible for appointment as Judge of the Supreme Court:
A person with five years’ experience as a Judge of a High Court or
Fifteen years standing as an advocate of a High Court
The Chief Justice of Pakistan is appointed by the President. Other Judges are also appointed by the
President after consultation with the Chief Justice.
Types:
Alternative dispute resolution (ADR) is generally classified into at least four types:
• Negotiation:
Participation is voluntary and there is no third party who facilitates the resolution process
or imposes a resolution.
• Mediation:
There is a third party, a mediator, who facilitates the resolution process (and may even
suggest a resolution, typically known as a "mediator's proposal"), but does not impose a
resolution on the parties.
• Conciliation:
The parties to a dispute use a conciliator, who meets with the parties both separately and
together in an attempt to resolve their differences. Often the parties are in need of restoring
or repairing a relationship, either personal or business.
• Arbitration:
Arbitration is the settlement of a dispute by an independent person usually chosen by the
parties themselves. Independent person, as a private judge, imposes a resolution.
Advantages of ADR:
Saves Time:
A dispute often can be settled or decided much sooner with ADR; often in a matter of months, even
weeks, while bringing a lawsuit to trial can take a year or more.
Saves Money:
When cases are resolved earlier through ADR, the parties may save some of the money they would
have spent on attorney fees, court costs, experts' fees, and other litigation expenses.
Preserves Relationships:
ADR can be a less adversarial and hostile way to resolve a dispute.
Increases Satisfaction:
In a trial, there is typically a winner and a loser. ADR can help the parties find win-win solutions.
Privacy:
Public and press cannot attend ADR process.
Disadvantages of ADR:
Not popular with lawyers because it is not in their financial interests.
Disadvantages the less powerful side in a dispute,
ADR is not suitable where there has been intentional wrongdoing, or involves public law, or
crime.
ADR also cannot issue order of injunction where it is necessary. Usually, it only deals with
cases involving money.
Increases cost and delay if unsuccessful.
Ordinance
It is a law which is passed by President when National assembly is not in session and
President deems necessary to take immediate action.
Such Ordinance promulgated thus, shall have the same force and effect as an Act of the
parliament.
However, the Ordinance shall stand repealed after 120 days if it is not presented or passed
by the National assembly.
Ratio decidendi
Ratio decidendi is a Latin phrase meaning "the reason" or "the rationale for the decision". The ratio
decidendi is "the point in a case that determines the judgment" or "the principle that the case
establishes".
Injunction:
an order of the court directing a person not to carry out a certain act.
Decision reversed:
where the appellate court overturns the decision of lower court in an appeal.
Decision overruled:
where a higher court has decided that decision of a lower court (in an unrelated proceedings) is
wrong and gives an opposite decision on the same question of law.
CHAPTER TEN
QUASI CONTRACTS
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
LO 2: QUANTUM MERUIT:
Meaning:
The term 'quantum meruit' means 'as much as earned'. In other words, it means payment in
proportion to the amount of work done.
CHAPTER ELEVEN
PERFORMANCE OF A CONTRACT
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
PART A – PERFORMANCE OF A CONTRACT
LO 1 WHAT IS THE MEANING OF PERFORMANCE 11.1.1
WHAT ARE THE TYPES OF PERFORMANCE OF THE
LO 2 11.1.2, 11.1.3, 11.1.5
CONTRACT
LO 3 WHAT ARE THE ESSENTIALS OF A VALID TENDER 11.1.4
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Actual Performance:
Where a promisor has made an offer of performance to the promisee and the offer has been
accepted by the promisee, it is called an actual performance.
Types of Tender:
There can be two types of tender as follows:
Types of
Meaning Effects
tender
Where the promisor offers to (a) Goods or services need not be offered again.
Tender of
deliver the goods or services but (b) Promisor may sue the promisee for non-performance.
goods
the promisee refuses to accept the (c) Promisor is discharged from his liability.
or services
delivery.
Where the promisor offers to pay (a) Promisor is not discharged
Tender of the amount but the promisee from his liability to pay the amount.
money refuses to accept the same. (b) Promisor will not be liable for interest from the date of a valid
tender.
3. At Proper Place:
It must be at proper place, i.e. at the stipulated place (if there is an agreement as to place) or
at promisee's business place (if there is business) or at promisee's residence (if there is no
business place).
4. To Proper Person
It must be made to the promisee or his duly authorised agent. In case of several joint
promisees, a tender made to one of them has the same legal consequences as tender to all of
them.
5. Reasonable Opportunity to Promisee:
It must give a reasonable opportunity to the promisee of ascertaining that the goods offered
are the same as the promisor is bound to deliver.
6. For Whole Obligation:
It must be for the whole obligation and not for a part of the whole obligation. However, a
minor deviation from the terms of the contract may not render the tender invalid.
7. Of Exact Amount and in Legal Tender:
In case of tender of money, it must be of exact amount and in legal tender.
Legal Representative
In case of death of the promisee, his legal representative can demand performance unless a
contrary intention appears from the contract or the contract is of a personal nature.
Third Party
A third party can also demand the performance of the contract in some exceptional cases like
beneficiary in case of trust, the person for whose benefit the provision is made in family
arrangements.
Joint Promisees
In case of several promisees, unless a contrary intention appears, the performance can be
demanded by the following persons:
Case Who can demand the performance of promise
In case all the promisees are alive All the promisees jointly.
In case of death of any of joint promisees Representatives of deceased promisee jointly with
the surviving promisee (s).
In case of death of all joint promisees Representatives of all of them jointly.
Promisor's Agent:
If it was not the intention of the parties that promise must be performed by the promisor himself,
such promise may also be performed by the promisor’s agent.
Legal Representatives:
In case of death of promisor, his legal representative can perform the contract unless a contrary
intention appears or the contract is of personal nature.
Third Party:
A contract can be performed by a third party if the promisee accepts the arrangement. When a
promisee accepts performance of the promise from a third person, he cannot afterwards enforce it
against the promisor.
Joint Promisors:
In case of several promisors, unless a contrary intention appears, the following persons must
perform the promise:
Case Who must perform the promise
In case all the promisors are alive All the promisors jointly.
In case of death of any of joint promisors Representatives of the deceased promisor
jointly with the surviving promisor(s).
In case of death of all joint promisors Representatives of all of them jointly.
Where promisor has not undertaken to perform his promise without application by the
promisee:
If a certain day is It is the duty of the promisee to apply for performance at a proper
specified for place and within the usual hours of business.
performance The question "what is a proper time and place" is a question of fact in
each particular case.
Exam Tip: Time fixed for the delivery of goods is considered to be the essence of a contract. However,
time fixed for the payment of the price is not considered to be the essence of a contract.
CHAPTER TWELVE
DISCHARGE OF A CONTRACT
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
LO 2: DISCHARGE BY PERFORMANCE:
A contract can be discharged by performance in any of the following ways:
By Actual Performance:
when the parties to the contract perform their promises in accordance with the terms of the
contract.
Novation:
Novation means the substitution of a new contract for the original contract. Such a new contract
may be either between the same parties or between different parties. The term of contracts may or
may not be changed. The consideration for the new contract is the discharge of the original
contract.
Rescission:
Rescission means cancellation of the contract by any party or all the parties to a contract.
Alteration:
Alteration means a change in the terms of a contract with mutual consent of the parties. Alteration
discharges the original contract and creates a new contract. However, parties to the new contract
must not change.
Remission:
Remission means acceptance by the promisee of a lesser fulfillment of the promise made. No
consideration is necessary for remission.
Waiver:
Waiver means intentional relinquishment of a right under the contract. Thus, it amounts to
releasing a person of certain legal obligation under a contract.
By Insolvency:
When a person is declared insolvent, he is discharged from his liability up to the date of his
insolvency.
Initial Impossibility:
Initial impossibility means the impossibility existing at the time of making the contract.
Supervening Impossibility:
Supervening impossibility means impossibility which does not exist at the time of making the
contract but which arises subsequently after the formation of the contract and which makes the
performance of the contract impossible or illegal.
Declaration of War:
The pending contracts between alien enemies at the time of declaration of war are either
suspended or declared as void.
Change of Law:
The contract is discharged if the performance of the contract becomes impossible or unlawful due
to change in law after the formation of the contract.
Cases when the contract is not discharged on the ground of supervening impossibility:
A contract is not discharged by the supervening impossibility in the following cases:
Difficulty of Performance:
A contract is not discharged simply on the ground that its performance has become more difficult,
more expensive or less profitable than that agreed at the time of its formation
Commercial Impossibility:
A contract is not discharged simply on the ground of commercial impossibility, i.e. when the
contract becomes commercially unviable or unprofitable.
Partial Impossibility:
A contract is not discharged simply on the ground of impossibility of some of the objects of the
contract.
Option I. He can rescind the contract and claim damages for breach of contract without waiting
until the due date for performance, or
Option II. He may treat the contract as operative and wait till the due date for performance and
claim damages if the promise still remains unperformed.
CHAPTER THIRTEEN
REMEDIES FOR BREACH OF CONTRACT
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Nominal damages are awarded where there is only a technical violation of a legal right but the
aggrieved party has not in fact suffered any loss because of breach of contract.
Ordinary Damages:
Ordinary damages are those which naturally arise in the usual course of things from such breach.
In a contract for the sale of goods, the measure of ordinary damages is the difference between the
contract price and the market price of such goods on the date of breach.
Special Damages:
Special damages are those which may reasonably be supposed to have been in the contemplation of
both parties as the probable result of the breach of a contract.
These damages can be recovered if the special circumstances which would result in a special loss in
case of breach of a contract are communicated to the promisor, e.g. loss of profits on account of
default by the other party to the contract can be claimed only when an advance notice of such
damages has been given before
CHAPTER FOURTEEN
INDEMNITY AND GUARANTEE
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Kinds of Guarantee:
There are two types of guarantee:
1. Specific Guarantee
A guarantee which is limited to a single transaction is called a "specific guarantee”.
2. Continuing guarantee
A guarantee which extends to a series of transactions is called a "continuing guarantee”.
Liability of Surety:
1. The liability of the surety is co-extensive (i.e. equal) with that of the principal debtor, unless
it is otherwise provided by the contract.
2. Liability of surety can be made less than that of principal debtor by express contract.
3. Liability of surety arises immediately on the default of principal debtor. Creditor can sue
surety without suing the principal debtor.
4. If a condition is precedent to surety’s guarantee, the guarantee is not valid if the condition is
not fulfilled (e.g. condition of joining another person as co-surety).
Rights of Surety:
Rights against Principal Debtor:
1. Right of Subrogation:
When surety has paid the guaranteed debt on default of principal debtor, he is entitled to all
the rights which creditor had against the principal debtor.
2. Right to be indemnified:
In every contract of guarantee there is an implied promise by the principal debtor to
indemnify the surety; and the surety is entitled to recover from the principal debtor
whatever sum he has rightfully paid under the guarantee.
LO 3: DISCHARGE OF SURETY:
Discharge by Revocation:
By Notice of Revocation:
A specific guarantee can be revoked by notice if the liability has not arisen. A continuing guarantee
may be revoked anytime by giving a notice to creditor, however surety remains liable for
transactions prior to notice.
By Surety's death:
In specific guarantee, surety is discharged from liability on his death if liability has not already
occurred. In continuing guarantee, surety is discharged from transactions after his death. However
surety remains liable for transactions prior to death.
By Novation:
If the parties to a contract agree to substitute a new contract for it, the original contract need not be
performed.
By Arrangement:
Surety is discharged from liability if creditor makes a composition with the principal debtor, or
creditor promises to give time or not to sue the principal debtor, unless surety gives his consent.
CHAPTER FIFTEEN
BAILMENT AND PLEDGE
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
PART A – BAILMENT
LO 1 BASICS OF BAILMENT 15.1.1 – 15.1.3
PART B – PLEDGE
LO 5 BASICS OF PLEDGE 15.5.1
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
PART A – BAILMENT
LO 1: BASICS OF BAILMENT:
Definition and Essentials of “Bailment”:
Definition:
A "bailment" is the delivery of goods by one person to another for some purpose, upon a condition
that they shall be returned or otherwise disposed of according to the directions of the person
delivering them, when the purpose is accomplished.
Kinds of Bailment:
Kinds from “reward” point of view:
1. Gratuitous bailment:
It is one in which neither the bailor nor the bailee is entitled to any remuneration e.g.
handing over a calculator to a friend for personal use.
2. Non-gratuitous bailment:
It is one in which either the bailor or the bailee is entitled to a remuneration e.g. handing
over goods for hire, or for repair.
In case of gratuitous bailment, if bailor does not disclose the defect in goods to bailee, bailor is
responsible for all damages only if he was aware of the defect.
Rights of Bailor:
Right for enforcement of bailor’s duties:
Right to claim damages for loss caused to the goods if bailee does not take reasonable care.
Right to claim compensation for any damage from unauthorized use of goods bailed.
Right to claim compensation for any expenses or loss caused by the unauthorized mixing of
goods bailed with his own goods.
Right to claim increase or profit from goods bailed
Right to demand return of goods as soon as the time of bailment expires or purpose is
accomplished. In case of gratuitous bailment, bailor can claim return of goods even before
expiry of its term.
Duties of Bailee:
Duty to take reasonable care of goods delivered to him:
Bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence
would, under similar circumstances, take of his own goods. However, bailee is not liable if goods are
lost or destroyed despite reasonable care.
If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods,
there is a breach of contract with following effects:
1. If goods can be separated or divided, property in the goods remains in the parties
respectively; but the bailee is bound to bear the expense of separation or division, and any
damage arising from the mixture.
2. If goods cannot be separated or divided, the bailor is entitled to be compensated by the
bailee for the loss of the goods.
If bailee fails to return the goods at proper time, he is liable for any loss, or destruction of goods
even if he is not guilty of negligence.
Rights of Bailee:
Right for Enforcement of Bailor’s duties:
Bailee has a right to claim damages for loss arising from the undisclosed faults in the goods
bailed.
Right to claim reimbursement for extraordinary expenses incurred in relation to goods
bailed.
Right to indemnity for any loss which the bailee may sustain by reason that the bailor was
not entitled to make the bailment.
right to claim compensation for the safe custardy of the goods if the bailer has wrongfully
refused to take delivery of goods after the term of bailment.
LO 3: TERMINATION OF BAILMENT:
A bailment of goods terminates:
1. If period expires for which goods were bailed.
2. If purpose is accomplished for which goods were bailed.
3. If the bailee does any act inconsistent with the conditions of the bailment (contract becomes
voidable at the option of the bailor).
4. If the subject matter is destroyed.
LO 4: FINDER OF GOODS:
A finder of the lost goods become responsible for the goods like a bailee in a gratuitous bailment.
Other Duties:
Duty not to use for personal purpose.
Duty not to mix with its own goods.
Right of lien:
Finder has a right to retain the goods against the true owner until he receives reasonable
compensation for trouble and expenses incurred by him to find the true owner and for safe custody
of goods. But he cannot file suit to recover expenses because these expenses were voluntarily
without any contract.
Right of Sale:
If the true owner cannot be found with reasonable efforts, or true owner refuses to pay the lawful
charges of the finder, finder may sell the goods in following cases:
1. When things may perish or may lose substantial value, or
2. When lawful charges of finder on goods amounts two-third of value of goods.
PART B – PLEDGE
LO 5: BASICS OF PLEDGE:
Definition of “Pledge” or “Pawn”:
The bailment of goods as security for payment of a debt or performance of a promise is called
"pledge".
Rights of Pawnor:
Right to get back goods:
Pawnor is entitled to get back goods pledged on the performance of promise or repayment of loan,
interest and necessary expenses.
Right to see:
Pawnor has a right to see that the pawnee preserves the goods pledged and properly maintains
them.
Study Tip: Duties of Pawnor and Pawnee are same as duties of Bailor and Bailee.
LO 7: PLEDGE BY NON-OWNERS:
General rule is that only an owner can create valid pledge. However, in following cases, a non-
owner can also create a valid pledge.
Mercantile Agent:
A mercantile agent, who is in possession of the goods or the documents of title to goods (e.g. bill of
lading, railway receipts), can make a pledge with the consent of owner.
Such a pledge will be valid even if the agent has no actual authority provided:
Pawnee acts in good faith and
Pawnee is not aware that agent has no authority to pledge.
Basis of
Pledge Bailment
Distinction
Name of Parties Pawnor (pledgor) and Pawnee (pledge) Bailor and Bailee
Pledge is the bailment of goods for specific purpose of Bailment is for any purpose other than as
Purpose
providing security to a debt or performance of a promise. security e.g. it may be repair, safe custody.
Bailee has no right of sale. Bailee can either
Right of Sale Pledgee has a right of sale on default after giving notice.
retain the goods or file the suit.
Bailee can use goods if terms of contract
Right of using Pledgee has no right of using the goods.
provide so.
CHAPTER SIXTEEN
AGENCY
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Principal:
The person for whom such act is done, or who is so represented, is called the "principal".
Types of Agent:
Commercial agent or mercantile agent:
An agent who regularly buys or sells goods on behalf of a principal.
Broker :
A broker is an intermediary who arranges trades or transactions on behalf of clients (principals).
An example is a stock broker.
Auctioneer:
An auctioneer is an agent who is authorised to sell property of a principal at auction.
Del-credere agent:
A del credere agent is one who in consideration of an extra commission, guarantees his principal
that the persons with whom he enters into contract on behalf of the principal shall perform their
obligation.
Other Types:
Company directors and managers
Partners in a business partnership
LO 2: CREATION OF AGENCY:
An agency may be created in any of following ways:
Agency by Ratification:
Ratification means the subsequent adoption and acceptance of an act originally done without
authority.
Where acts are done by one person on behalf of another, but without his knowledge or authority, he
may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they
had been performed by his authority.
Agency by Estoppel:
When an agent has, without authority, done acts or incurred obligations to third persons on behalf
of his principal, the principal is bound by such acts or obligations if he has by his words or conduct
induced such third persons to believe that such acts and obligations were within the scope of the
agent's authority.
Agency by Necessity:
Agency by necessity occurs in circumstances where there is no agreement between the parties, but
an emergency requires that one party (the agent) has to take action to protect the interests of the
other party (the principal).
LO 3: AUTHORITY OF AN AGENT:
Types of agent’s authority:
Authority of an agent is of following types:
Actual/Real Authority:
Actual or real authority means authority which is given by principal expressly or impliedly.
Authority of an agent is express when it is given by words written or spoken.
Authority of an agent is implied when it is inferred from the circumstances.
Authority in emergency:
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case.
However, followings are exceptions to this general rule where an agent can appoint a sub-agent:
1. If principal has expressly or impliedly permitted delegation of such power.
2. If by ordinary custom of trade, a sub-agent may be employed.
3. If nature of agency makes it necessary to appoint a sub-agent.
4. If acts to be done are purely immaterial.
5. If unforeseen emergencies arise rendering appointment of sub-agent necessary.
If a sub-agent is appointed in any of the above circumstances, he is called “properly appointed sub-
agent”.
Basis of
Co-agent/Substituted agent Sub-agent
Distinction
Co-agent is appointed alonwith agent on authority A sub-agent is employed by the original
Definition
from principal to act for principal. agent to act under his control.
Control Co-agent works under the control of principal. Sub-agent works under the control of agent.
Agent is not responsible to the principal for the acts of Agent is responsible to the principal for the
Responsibility
the substituted agent. acts of the sub-agent.
There is no contract between sub-agent and
Contract There is a contract between co-agent and principal.
principal.
If authority of agent is revoked, co-agent is not If authority of agent is revoked, sub-agent is
Termination
affected. automatically terminated.
Remuneration Remuneration of co-agent is paid by principal. Remuneration of sub-agent is paid by agent.
Duty to carry out the work with reasonable skill and diligence:
An agent must conduct business with reasonable skill and diligence. If any loss occurs as direct
consequence of his negligence, he must compensate it.
Duty to communicate:
If any difficulty or emergency arises, it is duty of agent to use all reasonable steps to communicate
to principal to obtain instructions.
Rights of Agent:
Right to receive remuneration:
Agent is entitled to receive his agreed remuneration, or a reasonable remuneration if nothing is
agreed; unless he agrees to act gratuitously.
Rights of retainer:
An agent has right to retain, out of sums received on account of principal, all moneys due to himself
in respect of his remuneration, advances made or expenses incurred in conducting business of
agency.
Right of lien:
Subject to contract to the contrary, an agent has right to retain goods of the principal until the
amount due to him for commission, disbursement and services has been paid.
Right to compensation:
Agent has a right to be compensated for inuries sustained by him due to principal’s neglect or lack
of skill.
Duties of Principal:
Principal has following duties (already explained as rights of agent)
1. Duty to indemnify agent for lawful acts
2. Duty to indemnify agent for acts done in good faith
3. Duty to compensate for his neglect or lack of skill.
4. Duty to pay
Rights of Principal:
Right to revoke:
Principal can revoke the authority given to his agent except in case of irrevocable agency or where
authority has been exercised.
Right to accounts:
It is the right of principal to obtain proper accounts from agent on demand.
LO 5: IRREVOCABLE AGENCY:
When the authority given to an agent cannot be revoked, it is said to be an irrevocable agency. An
agency becomes irrevocable in following cases:
LO 6: TERMINATION OF AGENCY:
An agency may be terminated in following ways:
By act of Parties:
By Mutual Agreement:
An agency can be terminated at any time by mutual agreement between principal and agent.
By Operation of Law:
Completion of the business of agency:
An agency automatically comes to an end when the business of agency is completed.
Expiry of time:
If the agent is appointed for a fixed term, agency automatically comes to an end when the time
period expires even if business is not yet completed.
Insolvency of principal:
An agency is terminated if principal becomes insolvent.
Dissolution of a company:
If principal or agent is a company, agency is terminated if company is dissolved.
LO 7: UNDISCLOSED AGENCY:
Undisclosed agency means an agency in which agent has concealed not only the name of principal
but also the fact that there is a principal.
Position of Agent:
Agent is personally liable to third parties.
Agent may sue and may be sued by third parties.
Position of Principal:
Principal may intervene and sue the third party for non-performance of the contract.
If principal discloses himself before the contract is completed, the third party may refuse to
fulfill the contract, if it can show that if he had known about principal at time of contract, it
would not have entered into contract.
CHAPTER SEVENTEEN
PARTNERSHIP ACT
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
PART A – BASIC CONCEPTS OF PARTNERSHIP
LO 1
DEFINITION AND ESSENTIALS OF PARTNERSHIP 17.1.1, 17.1.2, 17.1.3
✯✯
LO 2 COMPARISON OF PARTNERSHIP WITH OTHER
17.1.6, 17.1.7
✯ BUSINESS ACTIVITIES
LO 3
TYPES OF PARTNERSHIP 17.1.4
✯
LO 4
TYPES OF PARTNERS 17.1.5
✯
LO 5
PROPERTY OF THE PARTNERSHIP 17.2.5
✯✯
PART B – APPLICATION OF PARTNERSHIP TO THIRD PARTIES
LO 6
PRINCIPLE OF ESTOPPEL OR HOLDING OUT 17.3.4
✯✯
LO 7
TRANSFEREE OF A PARTNER’S INTEREST 17.3.5
✯✯
LO 8
MINOR IN A PARTNERSHIP 17.3.6
✯✯
PART C – RIGHTS, DUTIES AND LIABILITIES OF PARTNERS
LO 9
AUTHORITY OF A PARTNER 17.3.1, 17.3.2
✯✯
LO 1 0
✯✯✯
MUTUAL RIGHTS AND DUTIES OF PARTNERS 17.2.1 – 17.2.4
LO 1 1
LIABILITY OF PARTNERS TO THIRD PARTIES 17.3.3
✯✯✯
LO 12 RIGHTS OF PARTNERS ON RECONSTITUTION OF
17.2.3
✯✯ FIRM
*Explanation of Symbol:
Symbol ✯ indicates importance of the concept from exam point of view.
If a concept is tagged with three stars i.e. ✯✯✯, it is very very important concept.
If a concept is tagged with two stars i.e. ✯✯, it is very important concept.
If a concept is tagged with single star i.e. ✯, it is important concept.
(Note that none of the concept is unimportant, therefore none should be skipped)
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Persons who have entered into partnership with one another are called individually "partners" and
collectively "a firm" and the name under which their business is carried on is called "firm name".
An "act of a firm" means any act or omission by all the partners or by any partner or agent of the
firm which gives rise to a right enforceable by or against the firm.
"Third party" means any person who is not a partner in the firm.
Essentials of a Partnership:
There must be a contract:
Partnership is a result of contract. It does not arise from status or inheritance. It may be oral or in
writing. Further, it may be expressed or implied. A written agreement is called “Partnership Deed”.
Sharing of profits is a strong test of partnership, but not conclusive evidence. Following are
situations in which the parties are sharing profit but they are not partners i.e. the receipt of such
share of payment:
1. by a lender of money to persons engaged or about to engage in any business.
2. by a servant or agent as remuneration.
3. by the widow or child of a deceased partner as annuity.
4. by a previous owner or part owner of the business, as consideration for the sale of the
goodwill or share.
5. a minor who is admitted to the benefits of an existing partnership.
6. a transferee of a partners’ interest.
Sharing net profits usually creates a very strong inference that the parties have formed a partnership. But in certain
situations, the fact that the profits are shared or the parties have agreed to share the profits will not by itself create a
presumption that a partnership was intended. List such situations as given in the Partnership Act, 1932. (05 marks)
(CA Inter – Autumn 2014)
Partnership Co-ownership
Co-ownership is not necessarily a result
Formation It is created by an agreement alone.
of an agreement.
In partnership carry on business in an
Co-ownership does not necessarily
Business essential. If there will be end of business it will
involve the carrying on of a business.
ultimately result in end of partnership firm.
Minimum two competent to contract persons No limit on maximum number of co-
Number of
are required and a maximum of 20 persons can owners.
persons
carry partnership other than banking business.
Sharing of Sharing of profit is one of the essential
It does not involve sharing of profit.
profit elements.
A partner is an agent of the firm for the
Agency Co-owners are not agents to one another.
purpose of business of the firm.
Co-owner can transfer his interest
Transfer of A partner cannot transfer his interest without
without getting consent from other co-
interest getting consent from other partners.
owner(s).
LO 3: TYPES OF PARTNERSHIP: ✯
There are two types of partnerships i.e. Particular Partnership, and Partnership at Will.
Particular Partnership:
Where a partnership is created for any particular adventures or undertakings, or for a specific time
period. Such partnership is dissolved on completion of venture or on expiry of the period.
Partnership at will:
Where contract between partners contains no provision for duration of their partnership or for
termination of their partnership. Such partnership is dissolved when any of partners give a notice
in writing to firm that he intends to dissolve the firm.
LO 4: TYPES OF PARTNERS: ✯
Actual or Ostensible Partner:
This is a partner who is actively engaged in the conduct of the business, and is known to third
parties as a partner. Public notice is required if they retire from firm.
Silent Partner:
This is a partner who, by agreement, has no voice in the management of the partnership.
Nominal Partner:
This is a partner who is NOT actively engaged in the conduct of the business. It does not contribute
any capital but lends his name to firm. However, his liability towards third parties is still unlimited.
Sub-Partner:
If a partner agrees to share his share of profits with an outsider, such an outsider is called a sub-
partner. A sub-partner has no direct relation with partnership and has no right or liability for
partnership.
Any property purchased with partnership money with or without other partners consent will be
deemed to be partnership property, unless any contrary intention appears.
Under the provisions of the Partnership Act, 1932 advise Rufi as what is considered to be included in the partnership
property and how it is to be applied. (04 marks)
(CA Inter – Spring 2016)
Exceptions:
1. Where a partner in a firm is adjudicated an insolvent he ceases to be a partner. An insolvent
is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done
after the date of insolvency.
2. If a person dies, the estate of a deceased partner is not liable for any act of the firm done
after his death.
With reference to Partnership Act, 1932 discuss the consequences of not giving a public notice in the following cases:
• When a minor partner attains the age of majority.
• When a partner retires from the firm.
(CA Inter – Autumn 2005)
Patel, Bari and Sultan were partners in a firm of interior design. On 1 February 2014 Patel was adjudicated an insolvent
by the Court. Under the provisions of Partnership Act, 1932 briefly describe whether or not Patel may be treated as a
partner in the firm after adjudication. Also state the effects of such adjudication on Patel. (05 marks)
(CA Inter – Spring 2014)
Rights of Transferee:
1. To receive the share of profits of the transferring partner
2. If firm is dissolved, transferee is entitled:
(a) to receive the share of the assets of the firm to which the transferring partner is
entitled, and,
(b) for the purpose of ascertaining that share, to an account as from the date of the
dissolution.
Restrictions on Transferee:
1. He does not have status of a partner.
2. He cannot interfere in the conduct of the business.
3. He cannot require accounts.
4. He cannot inspect the books of the firm.
5. He cannot challenge the account of profits agreed by the partners.
LO 8: MINOR IN A PARTNERSHIP: ✯✯
Minor is not capable of entering into a contract, therefore he cannot become a partner. However, he
can be admitted to benefits of an existing partnership, with the consent of all the partners.
He has status of a minor upto the date of notice (unless he acts as a partner). If he fails to give such
notice, he shall become a partner in the firm, on the expiry of the said six months.
Rights and Liabilities if he has elected NOT to become a partner in the firm:
1. his share shall not be liable for any acts of the firm done after the date of the notice.
2. he shall be entitled to his share of profits and property and he can sue the partners for it.
LO 9: AUTHORITY OF A PARTNER: ✯✯
Implied Authority:
What is Implied Authority:
The authority of a partner to bind the firm with his acts is referred to as the implied authority of a
partner.
The authority of a partner to bind the firm is called “Implied Authority.” List the acts which cannot be exercised by a
partner as his implied authority. (04 marks)
(CA Inter – Autumn 2009)
2. Right to be consulted:
Every partner has a right to be consulted before any matter is decided. Any difference is decided by
majority of partners. However, no change may be made in the nature of the business or constitution
of partnership without the consent of all the partners.
6. Right to be indemnified:
Every partner has a right to be indemnified by firm for payments made and liabilities incurred by
him:
1. in the ordinary and proper conduct of the business, and
2. in doing such act, in an emergency, for the purpose of protecting the firm from loss, as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances.
If he does so, he is bound to account for and pay to the firm all profits made by him in such business.
“An agreement in restraint of trade is void”. State the exceptions to this rule as given in the Partnership Act, 1932.
(CA Inter – Spring 2013)
Rafiq, Bari and Furqan have decided to establish a partnership business for trading in medical equipments. In the absence
of any express contract, advise them of their mutual rights and liabilities under the provisions of the Partnership Act,
1932. (09 marks)
(CA Inter – Spring 2010)
Under the provisions of the Partnership Act, 1932 list the general duties of partners which cannot be modified by an
agreement amongst them. (03 marks)
(CA Inter – Autumn 2016)
If a partner commits fraud, firm is liable to third party. However, as between partners, the full loss is
borne by partner committing fraud and not by others.
CHAPTER EIGHTEEN
NEGOTIABLE INSTRUMENTS ACT
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
PART A – GENERAL PROVISIONS RELATING TO NEGOTIABLE INSTRUMENTS
LO 1
NEGOTIABLE INSTRUMENTS AND THEIR CHARACTERISTICS 18.1.1, 18.1.2
✯
LO 2
PARTIES TO NEGOTIABLE INSTRUMENTS 18.2.2, 18.3.2, 18.4.2
✯
LO 3
CLASSIFICATION OF NEGOTIABLE INSTRUMENTS 18.1.4
✯
LO 4 “HOLDER”, “HOLDER IN DUE COURSE” AND “PAYMENT IN 18.1.3 (Holder, Holder
✯✯ DUE COURSE” in due course)
LO 5 18.1.4 (Inchoate
INCHOATE INSTRUMENT
✯ Instrument)
LO 6
MATERIAL ALTERATION AND ITS CONSEQUENCES 18.1.8
✯✯
LO 7
NEGOTIATION AND ENDORSEMENT 18.1.6, 18.1.7
✯✯✯
LO 8
DISCHARGE OF NEGOTIABLE INSTRUMENT AND PARTIES 18.5.1 – 18.5.2
✯✯✯
LO 9 18.1.5, 18.1.4
MISCELLANEOUS CONCEPTS (Ambiguous Instrument,
✯ Maturity)
PART B – SPECIFIC PROVISIONS RELATING TO NEGOTIABLE INSTRUMENTS
LO 1 0
PROMISSORY NOTE & ITS ESSENTIAL ELEMENTS 18.2.1, 18.2.3, 18.2.4
✯✯
LO 1 1
BILL OF EXCHANGE & ITS ESSENTIAL ELEMENTS 18.3.1, 18.3.3
✯✯
LO 1 2
CHEQUE AND ITS ESSENTIAL ELEMENTS 18.4.1, 18.4.3, 18.4.4
✯
LO 1 3
CROSSING OF CHEQUE 18.4.5 – 18.4.9
✯✯✯
LO 1 4
REASONS FOR DISHONOUR OF A CHEQUE 18.4.10, 18.4.11
✯✯
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Presumptions:
Unless the contrary is proved, the following presumptions shall be assumed in respect of all
negotiable instruments:
1. As to Consideration:
All negotiable instruments are presumed to have been made, drawn, accepted, endorsed,
transferred for consideration.
2. As to Date:
Every negotiable instrument bearing a date is presumed to have been drawn on such date.
3. As to Acceptance:
Every bill of exchange is presumed to be accepted within reasonable time and before its
maturity.
4. As to Time of Transfer:
Every transfer of a negotiable instrument is presumed to have been made before its maturity.
5. As to Order of endorsement:
Endorsements appearing on a negotiable instrument are presumed to have been made in the
order in which they appear thereon.
6. As to Stamp:
It is assumed that a lost negotiable instrument was duly stamped.
7. As to Holder:
Every holder of a negotiable instrument is presumed to be a holder in due course.
Payee:
The person named in the instrument, to whom or to whose order the money is to be paid is called
payee.
Drawer:
The maker of a bill of exchange or cheque is called “Drawer”.
Drawee:
The person on whom bill of exchange or cheque is drawn and who is directed to pay, is called
“Drawee”. In case of a cheque, Drawee is always a bank.
Acceptor:
A bill of exchange must be presented to the drawee for acceptance first, and then presented for
payment on due date. Drawee becomes acceptor when he accepts the bill i.e.
he signs his assent on the bill and
delivers it or give notice of signing to holder or some person on his behalf.
Study Tips
1) A cheque does not require acceptance.
2) A bill which is unaccepted or unpaid, should be handed to Notary Public for noting and protesting
which bill be legal proof that drawee refused to accept or pay. Further, holder of dishonoured
instrument must give notice of dishonor to all parties whom holder seeks to make liable.
Demand Instrument:
A negotiable instrument is payable on demand where:
It is expressed to be payable on demand, or payable at sight or payable on presentment, or
No time for payment is expressed on it, or
It is accepted or endorsed after it is overdue, as regards person accepting or endorsing it.
Exam Tip
A cheque is always a Demand Instrument.
In a bearer instrument, holder is the one who is the bearer. In an order instrument, holder is the
one who is either payee or endorsee.
3. Payment must be made to a person who is in possession of the negotiable instrument, and
there are no circumstances to believe that he is not entitled to receive payment of the
amount.
LO 5: INCHOATE INSTRUMENT: ✯
Inchoate Instrument:
An incomplete or blank negotiable instrument properly stamped and signed, is termed as inchoate
instrument.
Extent of liability:
The person so signing shall be liable to any holder in due course for the amount specified in the
instrument or filled upon therein.
5. Alteration made to carry out the common intention of the original parties.
6. Alteration made with the consent of the parties liable on the instrument.
7. Alteration made for the purpose of correcting a mistake or a clerical error.
8. Conversion of bearer cheque into an order cheque.
Methods of Negotiation:
There are two methods of Negotiation i.e. negotiation by delivery and negotiation by endorsement.
Endorsement:
Endorsement means when the maker or holder of a negotiable instrument signs it on the back or
face of it or on an annexed slip of paper, otherwise than as a maker, for the purpose of negotiation.
Or he so signs for the same purpose a stamped paper intended to be completed as a negotiable
instrument.
Types of Endorsements:
There are two types of Endorsements i.e. Blank Endorsement, and Full Endorsement.
Liability of Endorser:
In the absence of a contract to contrary, if a bill is dishonoured, every endorser is liable to
compensate holder or subsequent endorser for any loss or damage caused to him by such
dishonour.
3. By express waiver
A negotiable instrument is discharged when the holder of an instrument absolutely and
unconditionally renounces it in writing, at or after maturity.
4. By cancellation
A negotiable instrument is discharged when instrument is intentionally cancelled by holder or
his agent, and cancellation is apparent thereon. Cancellation may take place either by crossing
out signatures on the instrument, or by physical destruction of the instrument with intention of
putting it to end.
2. By cancellation
When holder of a negotiable instrument or his agent cancels the name of a party on the
instrument to discharge him, such party and all subsequent parties having right of action against
such party are discharged from liability.
5. By non-presentment of cheque:
If a cheque is not presented by the holder for payment within a reasonable time of its issue and
drawer suffers damage through the delay (e.g. because of insolvency of bank), drawer is
discharged from the liability to the extent of such damage.
7. By Qualified Acceptance:
If holder of a bill of exchange agrees to a qualified acceptance (e.g. with respect to time of
payment, place of payment or partial payment), all prior parties whose consent is not obtained
to such an acceptance are discharged from liability.
8. By operation of law:
This includes:
By an order of insolvency court, discharging the insolvent.
By merger.
By lapse of time i.e. when remedy becomes time-barred.
9. By material alteration:
A material alteration of a negotiable instrument renders it void and discharges liability of anyone
who is a party at time of alteration and does not consent to it. However, persons who become
parties to the instrument after the alteration are liable under the instrument as altered.
LO 9: MISCELLANEOUS CONCEPTS: ✯
Amount on negotiable instruments stated differently in figures and words:
If the amount to be paid is stated differently in figures and in words on a negotiable instrument, the
amount stated in words shall be the amount to be paid. Provided that if the words, are ambiguous
or uncertain, the amount may be ascertained by reference to the figures.
Ambiguous Instrument:
An instrument which may be interpreted as either promissory note or bill of exchange is called an
ambiguous instrument. Its holder must elect once for all whether he wants to treat it as a
promissory note or bill of exchange
Examples:
1. A bill of exchange where the drawer and drawee are the same person.
2. Where the drawee is a fictitious person
3. Bills drawn by an agent on his principal
Maturity:
“Maturity means the date on which the payment of an instrument falls due.”
Certain Parties:
Promissory Note must clearly mention as to who is the maker and who is the payee. If maker or
payee cannot be identified with certainty, instrument is not a promissory note.
Unconditional Order:
A bill of exchange is an order to pay (not a promise). Words “Pay” or “Please pay” are sufficient to
constitute an order.
Further, it must be unconditional.
Certain Parties:
Bill of Exchange must clearly include name of all parties so that drawer, drawee and payee can be
identified with certainty. A party may be natural person (e.g. individuals) or legal person (e.g.
company).
Crossed Cheque:
Definition:
A crossed cheque is one which two parallel lines are drawn (with or without words “& Co”).
Crossing gives security and protection to the owner of the cheque and minimized risk of fraud
by easily tracing receiving party.
Types of Crossing:
There are three types of crossings i.e. General Crossing, Special Crossing, and Restrictive Crossing.
General Crossing Special Crossing Restrictive Crossing
When two parallel lines are drawn When name of a banker is added on When in general crossing,
on the face of a cheque (with or the face of a cheque (with or without words “A/C Payee” are
Definition
without words “& Co”), it is called parallel lines), it is called special added, it is called Restrictive
general crossing. crossing. crossing.
A generally crossed cheque can be A specially crossed cheque can be A restrictively crossed
collected by any bank (not to be collected only by that bank whose cheque must be credited only
Effect
paid in cash over counter). name appears on face of cheque (or by to the account of payee.
his agent for collection).
Further:
4. If a cheque is uncrossed or generally crossed, a banker may cross it specially to himself.
5. The holder may add the words “not negotiable” on a cheque crossed generally or specially.
CHAPTER TWO
INTRODUCTION TO THE LAW OF
CONTRACT
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
*Explanation of Symbol:
Symbol ✯ indicates importance of the concept from exam point of view.
If a concept is tagged with three stars i.e. ✯✯✯, it is very very important concept.
If a concept is tagged with two stars i.e. ✯✯, it is very important concept.
If a concept is tagged with single star i.e. ✯, it is important concept.
(Note that none of the concept is unimportant, therefore none should be skipped)
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Agreement:
Agreement is every promise and every set of promises, forming consideration for each other.
Symbolically,
Agreement = Offer (also called Proposal) + Acceptance
Promise:
When the person to whom proposal is made signifies his assent, the proposal is said to be accepted.
A proposal when accepted becomes a promise.
Capacity/Competence of parties:
Parties to the contract must be competent to contract. A person is competent to contract if he is:
Of age of majority.
Person of sound mind.
Not disqualified from contracting by any law.
Free Consent:
There must be free consent of parties on terms of agreement.
Consent means parties must agree upon the same thing in the same sense.
Free means consent should not be obtained by:
Coercion
Undue influence
Fraud
Misrepresentation
Mistake
Consideration:
An agreement without consideration is void (with a few exceptions). Consideration means benefits
moving from one party to another, or simply “something in return”.
Consideration may be in cash, or in kind, or a promise to do or not to do anything.
Consideration may be past, present or future.
Possibility of performance:
Agreement to do an impossible act is void whether the impossibility of the event is known or not to
the parties to the agreement at the time when it is made.
Void Contract:
It means an agreement not enforceable by law.
Voidable Contract:
An agreement which is enforceable by law at the option of one party, but not at the option of the
other.
Unenforceable Contract:
An unenforceable contract is one which is valid in itself, but is not capable of being enforced in a
court of law because of some technical defect e.g. absence of writing, registration or required stamp.
Implied Contract:
It is a contract in which both offer and acceptance are inferred from the acts or conduct of the
parties (and not by words).
Quasi Contract:
A quasi contract is not created by any express or implied agreement between parties, it is created
by law. It is based on the principle that “no one should get benefit at the expense of other”.
An executory contract is one in which both the parties have yet to perform their obligation.
A bilateral contract is one in which both parties have to fulfill their obligations at time of formation
of contract.
CHAPTER THREE
OFFER AND ACCEPTANCE
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
LO 1
OFFER AND ITS ESSENTIALS 3.1.1, 3.1.2
✯✯
LO 2
TYPES OF OFFER 3.1.3
✯
LO 3
LAPSE/REVOCATION OF AN OFFER/PROPOSAL 3.3.3
✯✯✯
LO 4
ACCEPTANCE AND ITS ESSENTIALS 3.2.1, 3.2.2
✯✯
LO 5
TIMING AND COMMUNICATION OF REVOCATION 3.3.1, 3.3.2
✯
*Explanation of Symbol:
Symbol ✯ indicates importance of the concept from exam point of view.
If a concept is tagged with three stars i.e. ✯✯✯, it is very very important concept.
If a concept is tagged with two stars i.e. ✯✯, it is very important concept.
If a concept is tagged with single star i.e. ✯, it is important concept.
(Note that none of the concept is unimportant, therefore none should be skipped)
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Essentials of an Offer/Proposal:
Two persons:
For a valid offer there must be two persons i.e. person making the proposal (called offeror), and the
person to whom offer is made (called offeree).
Contractual intention:
An offer must be made with an intention to create a contract. If the offer does not intend to give rise
to legal consequences, it is not a valid offer in the eye of law.
Communication:
An offer is valid only when it is communicated to offeree. Until offer is known to offeree, there can
be no acceptance and no contract. Communication of Offer is complete when it comes to the
knowledge of the person to whom it is made (e.g. if sent through post, communication will complete
when the letter reaches the offeree).
Negative confirmation:
An offer should not contain a term the non-compliance of which would be presumed acceptance e.g.
stating that if acceptance/rejection is not communicated upto a certain date, it would be assumed
that offeree has accepted the offer. If the offeree does not reply, there is no contract.
Conditional:
An offer may be subject to some conditions. Offeree will have to accept all the terms of the offer. If a
condition is not accepted, such conditional offer lapses.
LO 2: TYPES OF OFFER: ✯
Specific Offer:
An offer is specific when it is made to a definite person or persons. Such an offer can be accepted
only the person or persons to whom it is made.
General Offer:
An offer is general when it is made to the world at large or public in general. Such an offer can be
accepted by any person who fulfils the requisite conditions.
Cross offers:
If two parties make identical offers to each other, in ignorance of each other’s offer, the offers are
called “cross offers”. Cross offers are not acceptance, and do not make a contract.
Standing/Open/Continuing offer:
If an offer is of on-going nature, it is said to be a standing offer. A contract is entered every time
when a person signifies his acceptance.
Rejection by offeree:
An offer lapses if offeree expressly rejects the offer. Rejection becomes effective when it comes to
the knowledge of the offeror.
Death or Insanity:
An offer lapses by the death or insanity of the offeror or the offeree before acceptance. Legal heirs
of offeree cannot accept the offer.
However, acceptance after death or insanity of offerror will be effective if offeree does not have
knowledge of death or insanity.
Counter-offer:
An offer comes to an end if counter offer is made.
Non-fulfilment of condition:
An offer stands revoked if the offeree fails to fulfil a condition precedent to acceptance.
Essentials of an Acceptance:
Acceptance must be absolute and unqualified:
An acceptance must be absolute and unconditional in respect of all terms of the offer whether
major or minor. If parties are not ad-idem on all terms, there will be no contract.
Reasonable Time:
Acceptance must be given within the time specified, or within reasonable time (if no time is
specified). Further, acceptance must be given before offer is revoked or lapses.
Reasonable Mode:
Acceptance should be made in the manner specified, or in a usual manner (if no manner is
specified).
Revocation of Acceptance:
An acceptance may be revoked at any time before communication of acceptance is complete as
against the acceptor, but not afterwards.
Communication of Revocation:
Communication of Revocation is complete:
As against the person who makes it, when it is put in a course of transmission to revokee, so
as to be out of power of revoker.
As against the person to whom it is made, when it comes to his knowledge.
CHAPTER FOUR
CAPACITY OF PARTIES
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
LO 1
AGREEMENT WITH MINOR 4.1.2
✯✯
LO 2
AGREEMENT WITH PERSON OF UNSOUND MIND 4.1.3
✯
LO 3 AGREEMENT WITH PERSONS DISQUALIFIED BY
4.1.4
✯ LAW
*Explanation of Symbol:
Symbol ✯ indicates importance of the concept from exam point of view.
If a concept is tagged with three stars i.e. ✯✯✯, it is very very important concept.
If a concept is tagged with two stars i.e. ✯✯, it is very important concept.
If a concept is tagged with single star i.e. ✯, it is important concept.
(Note that none of the concept is unimportant, therefore none should be skipped)
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Parties to the contract must be competent to contract. A person is competent to contract if he is:
Of age of majority.
Person of sound mind.
Not disqualified from contracting by any law. (4.1.1)
Minor in a partnership:
A minor cannot be a partner in a partnership firm. However, he can be admitted to the benefits of
partnership with the consent of all the partners.
Minor as agent:
A minor can be an agent but cannot be a principal. As an agent, he can bind his principal by his acts
but minor cannot be personally liable for negligence or breach of duty.
CHAPTER FIVE
CONSIDERATION
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Completed Gift:
If any gift is actually made between donor and donee, it shall be valid even without consideration.
Contribution to charity:
A promise to contribute to charity would be enforceable if, on the faith of the promised
subscription, promisee takes step and undertakes a liability.
Contract of agency:
No consideration is necessary to create an agency.
Contract of bailment:
No consideration is necessary for a contract of bailment.
Assignment of a contract:
The assignee of rights and benefits under a contract can enforce the benefits of a contract e.g.
assignee of insurance policy or official assignee of insolvent person.
Family settlements:
When an arrangement is made in connection with marriage, partition, or other family
arrangements and a provision is made for the benefit of a person, he may sue although he is not a
party to the agreement.
A Trust or Charge:
A person (called beneficiary) in whose favor a trust or other interest in some specific immovable
property has been created, can enforce it even though he is not a party to the contract.
CHAPTER SIX
FREE CONSENT
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Free Consent:
Definition:
Consent is said to be free when it is not caused by (a) coercion, or (b) undue influence, or (c) fraud,
or (d) misrepresentation, or (e) mistake".
LO 2: COERCION:
Definition:
"Coercion" is the committing, or threatening to commit, any act forbidden by the Penal Code or the
unlawful detaining or threatening to detain any property to the prejudice of any person whatever,
with the intention of causing any person to enter into an agreement.
Coercion may be exercised by any person (even stranger of the contract), and may be directed at
any person (even stranger of the contract).
Effect of Coercion:
1. The contract is voidable at the option of the party whose consent was obtained by coercion.
2. The party rescinding a voidable contract shall restore the benefit received by him under the
contract.
3. A person to whom money has been paid or anything delivered under coercion, must repay
or return it.
LO 3: UNDUE INFLUENCE:
Definition of undue influence:
A contract is said to be induced by "undue influence" where:
the relations subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and
dominant party uses that position to obtain an unfair advantage over the other.
Study Tip
Undue influence is NOT presumed to exist in following relationships:
Husband and Wife (not being a Pardanasheen Lady)
Creditor and Debtor
Landlord and Tenant
Master and Servant
LO 4: MISREPRESENTATION:
Definition:
There is a misrepresentation when:
1. A person makes a positive statement that a fact is true when his information does not
warrant it to be so, although he believes it to be true.
2. There is a breach of duty by a person which, without an intent to deceivewhich brings an
advantage to the person committing it by misleading another to his prejudice.
3. A party innocently causes other party to make a mistake as to the nature or quality of
subject of agreement.
Essentials of Misrepresentation:
By a party to a contract or his agent:
Representation must be made by a party to the contract or by his connivance or by his agent.
Misrepresentation by strangers does not affect validity of contract.
Representation as to fact:
The representation must relate to a fact. In other words, a mere opinion, a statement of expression
or intention does not amount to misrepresentation.
Object:
Object of representation should be to induce the other party to enter into contract without
intention of deceiving the other party.
Actually Acted:
Other party must have acted on the faith of the representation.
Effect of Misrepresentation:
Right to Rescind the Contract
The party whose consent was caused by misrepresentation can rescind (cancel) the contract but he
cannot do so in the following cases:
(i) where the party whose consent was caused by misrepresentation had the means of
discovering the truth with ordinary diligence;
(ii) where the party gave the consent in ignorance of misrepresentation;
(iii) where the party after becoming aware of the misrepresentation, takes a benefit under the
contract;
(iv) where an innocent third party, before the contract is rescinded, acquires for consideration
some interest in the property passing under the contract;
(v) where the parties cannot be restored to their original position.
Right to Insist upon Performance The party whose consent was caused by misrepresentation
may if he thinks fit, insist that the contract shall be performed.
LO 5: FRAUD:
Definition of Fraud:
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his
connivance, or by his agent with intent to deceive another party, or his agent or to induce him to
enter into the contract:-
(1) the suggestion that a fact is true when it is not true and the person making the suggestion
does not believe it to be true.
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Essentials of Fraud:
By a party to a contract or his agent:
Fraudulent representation must be made by a party to the contract or by his connivance or by his
agent. Fraudulent representation by strangers does not affect validity of contract.
False representation:
There must be a false representation and it must be made with the knowledge of its falsehood.
Representation as to fact:
The representation must relate to a fact. In other words, a mere opinion, a statement of expression
or intention does not amount to fraud.
Actually Acted:
Other party must have acted on the faith of the fraudulent representation, and must have been
actually deceived. A mere attempt for deceit is not a fraud.
Suffered loss:
Other party must have suffered loss. There is a common rule of law that “there is no fraud without
damage”.
Effect of Fraud:
Right to Rescind the Contract:
The party whose consent was caused by fraud can rescind (cancel) the contract but he cannot do so
in the following cases:
(i) where silence amounts to fraud, the aggrieved party cannot rescind the contract if he had
the means of discovering the truth with ordinary diligence;
(ii) where the party gave the consent in ignorance of fraud;
(iii) where the party after becoming aware of the fraud takes a benefit under the contract;
(iv) where an innocent third party before the contract is rescinded acquires for consideration
some interest in the property passing under the contract,
(v) where the parties cannot be restored to their original position.
Exceptions:
1. Where parties stand in fiduciary relationship like parent-child, trustee-beneficiary.
2. Where the silence itself is equivalent to speech.
LO 6: MISTAKE:
CHAPTER SEVEN
LEGALITY OF OBJECT AND
CONSIDERATION
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
If it is forbidden by law:
Ac ant is forbidden by law if it is punishable by the criminal law of Pakistan or when it is prohibited
by special legislation or regulation make by competent authority.
If it is of such a nature that, if permitted, it would defeat the provisions of any law:
This clause refers to the cases where object or consideration of an agreement is not directly
forbidden by law, however it would indirectly violate a provision of law.
If it is fraudulent:
If object of the agreement is to defraud others, it is unlawful.
Stifling prosecution:
If a person has committed a crime, he must be punished. Hence, any agreement which seeks to
prevent the prosecution of guilty party is void.
LO 3: ILLEGAL AGREEMENTS:
Meaning of Illegal Agreements:
Illegal agreements are those agreements which are—
(a) void ab-initio, i.e. void from the very beginning, and
(b) punishable by the criminal law of the country or by any special legislation/regulation.
CHAPTER EIGHT
VOID AGREEMENTS
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
Partners' Agreements:
The Partnership Act, 1932, recognises the following agreements in restraint of trade as valid:
1. A partner shall not carry on any business other than that of the firm while he is a partner.
2. An outgoing partner may agree with his partners that he will not carry on any business
similar to that of the firm within a specified period or within specified local limits.
3. Partners may make an agreement that, at time of dissolution, some or all of them will not
carry on a business similar to that of the firm within a specified period or within specified
local limits.
4. A partner may upon the sale of the goodwill of a firm, make an agreement that such partner
will not carry on any business similar to that of the firm within a specified period or within
specified local limits.
Trade Combinations:
Trade combinations which have been formed to regulate the business or to fix prices are valid.
However, trade combinations to create monopoly and which are against public interest are void.
Service Agreements:
Following agreements are enforceable:
1. A clause to serve the employer for a stipulated period.
2. A clause to prevent the employee from accepting any other engagement during his
employment.
3. A clause to prevent the employee from accepting a similar engagement after the
termination of his services if restraint is intended only to protect an employer (However, if
a restraint is intended to serve any other purpose, it will not be enforceable).
LO 3: WAGERING AGREEMENTS:
Meaning of wagering agreement
An agreement between two persons under which money or money's worth is payable, by one
person to another on the happening or non-happening of a future uncertain event is called a
wagering event.
Uncertain agreements:
An agreement the meaning of which is not certain or capable of being made certain are void.
CHAPTER NINE
CONTINGENT CONTRACTS
ICAP'S STUDY TEXT
LO #* LEARNING OBJCTIVE
REFERENCE**
** Explanation of Reference:
First digit in reference represents chapter number, second and third digits represents section and sub-section number of
ICAP’s Study Text (2016 edition).
CHAPTER NINTEEN
INTRODUCTION TO COMPANIES
19.1.1 – 19.1.4
LO 1 FEATURES OF A COMPANY
19.2.1
LO 2 TYPES OF COMPANIES 19.2.2 – 19.2.5
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
1|Page
Company Law – Study Notes Chapter 19: Introduction to Companies
Company Sole-proprietor/Partnership
Separate Legal A company has a separate legal status. A Sole-proprietorship/Partnership does not have
Status a separate legal status.
Liability Members of a company have limited liability. Sole-proprietor/Partners have unlimited liability.
Constitutional Memorandum of Association & Articles of Partnership Deed (for partnership)
Documents Association
Shareholders of a company can be natural as Sole-proprietor/Partners are natural persons
Owners
well as legal. only.
Transferability of ownership:
Shareholders can transfer (through sale, gift and inheritance) their shares to other persons (natural
or artificial). However, transfer of shares does not affect legal status or legal existence of company.
2|Page
Company Law – Study Notes Chapter 19: Introduction to Companies
A company duly registered under the Companies Ordinance, 1984 is a separate legal entity and a distinct person from the
shareholders. Do you agree? Elaborate. (04 marks)
(ICAP, CAF 03 Level – Spring 2005)
LO 2: TYPES OF COMPANIES:
Definition of a Company:
Companies Act 2017 defines a company as a company formed and registered under this Act or
under company law.
Types of Companies:
Following are different types of companies discussed in Companies Act 2017:
Types on the basis of Status Types on the basis of Liability Other Types of Companies
1. Private Company (SMC or other) 1. Company Limited by Share 1. Holding Company and Subsidiary
2. Public Company (Listed or 2. Company Limited by Guarantee Company
Unlisted) 3. Unlimited Company 2. Associations not for profit
Private Company:
Private Company means a company which, by its articles,:
(i) limits the number of its members to 50 (members jointly holding shares shall be counted as
one member),
(ii) restricts the right to transfer its shares, and
(iii) prohibits invitation to public to subscribe for shares or debentures or redeemable capital of
the company.
A private company has to add word "(Private) Limited" at the end of its name.
3|Page
Company Law – Study Notes Chapter 19: Introduction to Companies
Public Company:
Public Company means a company which is not a private company.
Subsidiary Company:
A subsidiary company means a company in which another company (called holding company):
a) holds or controls (directly or indirectly) more than fifty per cent of its voting securities, or
b) controls the composition of board of this company (i.e. can appoint or remove majority of
directors).
Holding Company:
It means a company which:
holds or controls (directly or indirectly) more than fifty per cent voting shares of any other
company.
controls the composition of board of any other company.
Unlimited Company:
A company having the liability of its members unlimited by the memorandum.
A company limited by guarantee has to include word “Unlimited” in its name.
Such companies are rare, but sometimes partnership-style business use them.
Differentiate as to how company limited by guarantee differs from company limited by shares capital. (02 marks)
(ICAP, CAF 03 Level – Autumn 2005)
4|Page
Company Law – Study Notes Chapter 19: Introduction to Companies
What categories of companies can be formed under the Companies Ordinance? (02 marks)
(ICAP, CAF 03 Level – Spring 2009)
State briefly the restrictive conditions under which a private company is incorporated.
(ICAP, CAF 03 Level – Autumn 2013)
Can a shareholder of a company limited by shares be held responsible to pay off the debt of the company and if so, to what
extent? (04 marks)
(ICAP, CAF 03 Level – Autumn 2000)
Commission may grant license on such further conditions or regulations as it thinks fit, and those
conditions shall be inserted in and shall be deemed part of memorandum and articles (or in one of
these documents).
Revocation of license:
1. Such a license may be revoked anytime by Commission. However, Commission:
a. shall give to the company, a notice in writing of its intention to do so, and
b. shall provide an opportunity to be heard to the association before such revocation.
2. On revocation,
a. Registrar shall add words “"Limited", or "(Guarantee) Limited" at the end of the
name of company, and
b. the association shall cease to enjoy the exemptions and privileges granted by that
license
5|Page
Company Law – Study Notes Chapter 19: Introduction to Companies
In view of the provisions of the Companies Ordinance, 1984 you are required to explain the conditions:
(a) that need to be satisfied before the Commission may issue it a licence and allow it to dispense with the word “Limited”
from its name. (07marks)
(b) under which the licence may be revoked and its consequences. (04 marks)
(ICAP, CAF 03 Level – Spring 2011)
Organization:
Head office of SECP is in Islamabad and it has 8 regional offices (called Company Registration
Offices) i.e. 1 in Islamabad, 4 in each provincial capitals, and 1 each in Multan, Faisalabad and
Sukkur.
Functions:
Functions of Commission is to regulate Companies including Insurance Companies, Banking
Companies, Non-Banking Financial Companies, Modaraba and other companies.
Various powers have been given to Commission under SECP Act 1997, Companies Act 2017 and
other laws.
Registrar:
Definition:
“Registrar means a registrar, an additional registrar, an additional joint registrar, a joint registrar, a
deputy registrar, an assistant registrar or such other officer as may be designated by SECP,
performing duties and functions under this Act”
6|Page
Company Law – Study Notes Chapter 20: Incorporation of Company
CHAPTER TWENTY
INCORPORATION OF COMPANY
ICAP'S STUDY TEXT
LO # LEARNING OBJCTIVE REFERENCE*
PART 1 – REGISTRATION OF A COMPANY
LO 1 PROCESS OF REGISTRATION/INCORPORATION 20.1.1, 20.3.4
PART 2 – MEMORANDUM OF ASSOCIATION
LO 2 MEMORANDUM OF ASSOCIATION AND ITS CLAUSES 20.3.1, 20.3.2
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
1
Company Law – Study Notes Chapter 20: Incorporation of Company
LO 1: PROCESS OF REGISTRATION/INCORPORATION:
Process of Registration:
Registration of a company is actually the registration of its Memorandum (a constitutive document
of company). Promoters perform following procedures to incorporate a company:
1. Application is filed with registrar alongwith following documents:
Memorandum of Association (and Articles of Association) duly singed by subscribers.
Declaration of compliance with requirements of Companies Act 2017 regarding
incorporation.
2. Registrar shall register the memorandum of association if he is satisfied that:
the company is being formed for lawful purposes,
all the requirements of Companies Act 2017 regarding incorporation, have been complied
with.
If Registrar refuses registration of Memorandum, the subscribers of the memorandum may file an
appeal to Commission with 30 days of refusal. Order of Commission shall be final on such appeal.
Study Tips
1. Promoters are the persons who take necessary steps to register a company.
2. A company cannot be held liable for pre-incorporation contracts, because company did not have legal
existence at time of contract. However, it may pay pre-incorporation expenses if articles permit.
2
Company Law – Study Notes Chapter 20: Incorporation of Company
Paband Limited is in the process of incorporation and has filed an application with the registrar’s office for registration of
its memorandum of association. However, the registrar has refused to register the memorandum.
Under the provisions of the Companies Ordinance, 1984 state the possible reasons for such refusal. Also advise the
options available to Paband Limited in the above circumstances. (06 marks)
(ICAP, CAF 03 Level – Autumn 2015)
What is the effect of registration of memorandum and articles of a company? (03 marks)
(ICAP, CAF 03 Level – Spring 2003)
Clause Explanation
This clause contains the name of the company. In following cases, additional
words are also added at the end of name:
In case of Public company, word “Limited”.
Name Clause In case of Private company, word “(Private) Limited”.
In case of Guarantee Limited Company, word “(Guarantee) Limited”.
In case of Unlimited company, word “Unlimited”.
In case of Single Member Company, “(SMC-Private) Limited”.
This clause shall state Province or part of Pakistan not forming part of a
Registered Office Clause
province in which registered office of the company is to be situated.
Every company shall mention principal line of business of company in its
memorandum, which shall always commensurate with name of the company.
In case of existing companies, the object stated at serial # 1 of their
Principal Line of Business
objective clause shall be treated as principal line of business.
Clause
If principal line of business is changed, it shall be reported to the
registrar within thirty days, and registrar may give direction of
change of name if it is in violation of this section.
This clause shall state liabilities of members.
In case of company limited by shares, it shall state that liability of the
members is limited.
In case of a company limited by guarantee, it shall state that liability
Liability Clause
of the members is limited and shall also state such amount as each
member undertakes to contribute to the assets of the company in the
event of its being wound up while he is a member or within one year
afterwards for payment of the debts and liabilities of the company
3
Company Law – Study Notes Chapter 20: Incorporation of Company
Notes:
1. Memorandum and articles of a company shall be deemed to include the power of company to
enter into any arrangement for obtaining advances, credit and loans from financial institutions.
2. In the case of a company limited by guarantee and not having a share capital, every provision in
the memorandum or articles or in any resolution of the company to give right to any person
other than members to participate in the divisible profits of the company shall be void.
3. In case of a company limited by guarantee, every provision in memorandum, articles or
resolution of company to divided the undertaking of the company into shares or interest shall be
treated as a provision of share capital (even if number or amount of shares is not mentioned at
all).
A company wishes to borrow a loan for the purposes of its business. Can it do so even if no express provision is contained
in its Memorandum of Association? (04 marks)
(ICAP, CAF 03 Level – Spring 2004)
State whether the following statement is true or false.
“Every limited company has to write (Private) with its name.”
(ICAP, CAF 03 Level – Spring 1996)
4
Company Law – Study Notes Chapter 20: Incorporation of Company
5
Company Law – Study Notes Chapter 20: Incorporation of Company
4. For 90 days from the date of issue of certificate of incorporation, company shall continue to
mention its former name alongwith new name:
a. outside of every office or place of business
b. on every document or notice of the company.
5. The change of name shall not affect:
a. any rights or obligations of the company, or
b. any legal proceedings by or against the company.
Publication of Name:
1. Name of company and certificate of incorporation shall be displayed outside every place of
business or office of company.
2. Name of company shall also be engraved on seal of the company, in English or Urdu.
3. Name, address of registered office, telephone, fax number, email and website address shall
be mentioned on all official documents of the company.
Penalty of Level – 1 will be imposed if any of above requirement is violated.
Under the provisions of the Companies Ordinance, 1984 a company, without prior approval of the Commission, cannot be
registered by a name which contains certain words or phrases suggesting certain attributes/affiliations. List those
attributes/affiliations. (04 marks)
(ICAP, CAF 03 Level – Autumn 2014)
On January 1, 2010 Star International Limited (SIL), a company incorporated in Italy, acquired majority shareholding in
Beta Industries Limited, a company listed on the Karachi Stock Exchange. SIL wants to change the name of Beta Industries
Limited to Star Industries Pakistan Limited, as it believes that on account of international reputation of Star International,
the local sales will improve substantially.
Describe the procedure that would have to be followed to change the name of the company. (04 marks)
(ICAP, CAF 03 Level – Spring 2010)
A change in the name of company requires a special resolution and approval of Registrar in writing. Explain exception to
it. (03 marks)
(ICAP, CAF 03 Level – Spring 2002)
Does the change of name affect any rights or obligations of the company?
(ICAP, CAF 03 Level – Autumn 2005)
6
Company Law – Study Notes Chapter 20: Incorporation of Company
Yawar Limited (YL) is engaged in the business of manufacture and supply of watches in urban areas of Sindh. However,
due to rapidly changing consumer demand, YL has decided to diversify its business and start assembly of smart phones at
their factory in Karachi. In order to alter the object clause of its memorandum for the purpose, YL has passed a special
resolution and has applied to the Commission for approval.
7
Company Law – Study Notes Chapter 20: Incorporation of Company
Specify the competent authoritie(s) who shall be required to grant their approval in the following situation:
“Alteration of memorandum of association.” (01 mark)
(ICAP, CAF 03 Level – Autumn 2008)
For alteration in the memorandum regarding change of registered office confirmation from Securities and Exchange
Commission is required. Please explain exception to it. (04 marks)
(ICAP, CAF 03 Level – Autumn 2000)
LO 5: ARTICLES OF ASSOCIATION:
What is Articles of Association:
Articles are bye-laws of the company. They contain rules and regulations on day to day issues and
internal affairs of the company e.g. regulations regarding minimum number of directors, or rights
and liabilities of various classes of shareholders
Articles are subordinate to Memorandum and Companies Act 2017.
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Company Law – Study Notes Chapter 20: Incorporation of Company
Every copy issued after alteration in memorandum or articles shall include such alteration. In case
of violation, officers of company shall be liable to fine.
A Malaysian company is interested in incorporating a limited liability company in Pakistan. Discuss provisions of the
Companies Ordinance, 1984, relating to the following:
(a) contents, printing and signature of the Articles of Association (05 marks)
(b) registration of the Articles of Association (02 marks)
(c) alteration of the Articles of Association after its registration (04 marks)
(ICAP, CAF 03 Level – Spring 2009)
LO 6: COMMENCEMENT OF BUSINESS:
Requirements for public company to commence business:
1. A public company cannot exercise any borrowing powers or commence any business unless
it has obtained “certificate of commencement of business” from Registrar.
2. Before obtaining certificate of commencement of business by a public company:
a. all agreements to exercise borrowing powers shall be void, and
b. all agreements to commence business (e.g. agreements of sale and purchase) shall
be provisional only (i.e. will become binding only if certificate is obtained).
Registrar shall issue certificate after receiving and verifying such declaration.
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Company Law – Study Notes Chapter 20: Incorporation of Company
What is the status of contracts entered by the company before acquiring certificate of commencement of business?
(03 marks)
(ICAP, CAF 03 Level – Spring 2005)
10
Company Law – Study Notes Chapter21: Share Capital – Types & Variations
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
1
Company Law – Study Notes Chapter21: Share Capital – Types & Variations
LO 1: SHARE CAPITAL:
What is Share Capital:
In a company limited by shares, share capital means capital introduced by owners of the company
(called shareholders or members).
Share capital is divided into shares of fixed amounts (called nominal value). When people pay for
the shares, this is called ‘subscription’ of shares. When company issues shares to people, this is
called “allotment/issuance” of shares.
There are different variants of share capital i.e. authorized share capital, issued share capital and
paid up share capital.
Exam Tip
Authorized share capital can be increased by altering memorandum with approval of shareholders.
However, approval of shareholders is not required to further issue share capital.
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Company Law – Study Notes Chapter21: Share Capital – Types & Variations
Share Certificate:
1. Main evidence of the title of a share shall be the certificate issued to shareholder in physical
form under common seal of the company, or issued in electronic (book-entry form).
2. The manner of issue of a certificate of shares, form of such certificate and other matters may
be specified.
Study Tip
There is a difference between “Member”, and “Shareholder”.
Member:
1. The subscribers to the memorandum of association are deemed to have agreed to become
members of the company and become members on its registration, and
2. every other person-
a. to whom is allotted, or who becomes the holder of any class or kind of shares; or
b. in relation to a company not having a share capital, any person who has agreed to
become a member of the company;
and whose names are entered; in the register of members, are members of the company.
Shareholder:
Shareholder means a person who is the holder of shares (ordinary or preference) in the company.
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Company Law – Study Notes Chapter21: Share Capital – Types & Variations
List 2 ways how a person can become a member of a company. (02 Marks)
(ICAP, CFAP 02 Level – Summer 1998)
Note: Rights attached to each class of shares are mentioned in Articles of Association.
4
Company Law – Study Notes Chapter21: Share Capital – Types & Variations
Order of Court:
Court shall pass an order to cancel resolution only if it is proved to court that:
1. Some material facts were concealed by the company to get the resolution passed, or
2. having regard to all the circumstances of the case, variation will ‘unfairly prejudice’
shareholders of the class represented by the applicant.
Decision of court on this matter shall be final and an appeal cannot be filed against such decision.
Company shall file the copy of order to Registrar within 14 days of receipt of order.
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Company Law – Study Notes Chapter21: Share Capital – Types & Variations
Paradise Limited, upon passing a special resolution on August 20, 2010 made amendments in its Articles of Association
affecting substantial rights associated with class “B” shares of the company. Few aggrieved shareholders having objection
on the special resolution intend to file an application in the Court, for the cancellation of the above resolution.
Discuss the relevant provisions of the Companies Act, 2017 specifying the following:
(a) The conditions which the aggrieved shareholders will have to comply with, to be eligible for filing an application in the
court for the cancellation of the above resolution. (02 marks)
(b) The matters which the Court would consider while making a decision on the above application. (02 marks)
(ICAP, CAF 03 Level – Autumn 2010)
Restriction Exceptions
Purchase of own shares A listed company may buy back its own shares.
A subsidiary company can purchase shares of its holding company,
provided:
a. Subsidiary is dealing in ordinary course of brokerage business,
and
b. Subsidiary does not exercise voting rights on shares held by it.
Purchase of shares of holding
company
Further, A subsidiary company can act as trustee of shares of holding
company if holding company is not beneficially interested in the trust.
6
Company Law – Study Notes Chapter 22: Share Capital – Prospectus
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
1
Company Law – Study Notes Chapter 22: Share Capital – Prospectus
Purpose of Prospectus:
When a listed company wants to issue securities to general public, it issues Prospectus to invite
offers from general public for subscription or purchase of securities of company.
Prospectus provides general public with all information about company which is required before
making any decision of investment in the company.
Exam Tip
If a listed company issues securities through private arrangements (e.g. to friends or relatives of promoters or
directors), it does not issue Prospectus. It files “Statement in lieu of Prospectus” with Registrar in such case.
Supplement to prospectus is issued to general public to invite offers from general public for
subscription or purchase of securities earlier offered thorough Shelf-prospectus. Supplement to
prospects provides disclosures which have been updated. It also provides such information as
prescribed by the Commission.
Timing of Prospectus:
Prospectus can be issued by company anytime after its incorporation (i.e. even before
commencement of business).
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Company Law – Study Notes Chapter 22: Share Capital – Prospectus
LO 2: APPROVAL OF PROSPECTUS:
Requirement for Approval:
No company shall issue prospectus unless the Commission has approved prospectus (including a
shelf-prospectus or supplement to the prospectus). Approval may be subject to such conditions or
restrictions as the Commission considers necessary.
In case of shelf registration, approval of a period longer than 60 days may be given by Commission.
However, the Commission may, for special reasons, allow the company to publish the prospectus
more than thirty days before the subscription list is due to open.
Exam Tip
Commencement of subscription is also called opening of subscription list.
Availability of Prospectus:
From date of publication in newspaper till date of closing of subscription, prospectus of a company
shall be made available (free of cost), at following places:
1. At registered office of company.
2. At all securities exchanges of the Pakistan.
3. With all bankers to the issue.
4. With concerned share registrar.
5. With concerned ballotter.
6. With concerned credit rating agency (if any).
7. On website of the issuer.
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Company Law – Study Notes Chapter 22: Share Capital – Prospectus
(b) Identify the places where DL is required to make available the copies of its prospectus. (02)
(ICAP, CAF 03 Level – Spring 2009)
LO 4: CONTENTS OF PROSPECTUS:
Prospectus must contain the information and reports as may be prescribed, to enable a person to
reach a decision about investment in company (e.g. particulars of directors, earning of previous
years).
Authorities also require companies to include risk factors in prospectus, and readers are
specifically advised to read them before making decision.
Prospectus requires:
Approval from Commission (before its publication)
Filing a copy with Registrar (on or before its publication)
Clearance from Securities Exchange
Expert:
"Expert" includes banker, securities advisor, engineer, valuer, accountant, lawyer and any other
person whose profession gives him authority to a statement made by him (in prospectus).
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Company Law – Study Notes Chapter 22: Share Capital – Prospectus
LO 7: REGISTRATION OF PROSPECTUS:
No Prospectus is registered by Registrar unless it:
1. Sets out specified matters and reports specified in Second Schedule.
2. If an Expert’s statement is included:
a. Expert is independent of company, and
b. Expert has given his written consent.
3. Prospectus is dated.
4. Prospectus is signed by every person who is named as director.
5. All requirements regarding approval, issue and registration have been complied with.
6. The prospectus is accompanied by the written consent of the auditor, legal adviser,
attorney, solicitor, banker and the broker who have agreed to act in that capacity.
Exam Tip
This concept is not discussed in Study Text. However, Question Bank contains 2 questions based on this concept.
5
Company Law – Study Notes Chapter 23: Mortgages & Charges
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
1
Company Law – Study Notes Chapter 23: Mortgages & Charges
If directors borrow in excess of prescribed limit without prior approval of members, borrowing
shall be considered ultra-vires.
A company wishes to borrow a loan for the purposes of its business. Can it do so even if no express provision is contained
in its Memorandum of Association? (04 marks)
(ICAP, CAF 03 Level – Spring 2004)
LO 2: FORMS OF BORROWINGS:
Forms of Borrowings:
A company can borrow money by:
1. Issuance of debentures.
2. Loan from financial institutions (banks and other non-banking financial institutions e.g.
modaraba, investment banks)
3. Borrowings from other sources (e.g. from controlling shareholders, directors, sponsors)
These borrowings may be secured or unsecured. Secured debts means debt against which company has
provided any asset as collateral.
Debentures:
Securities issued to borrow money are called debentures. Debenture includes:
debenture stock, bonds, term finance certificate or any other instrument of a company
evidencing a debt,
whether constituting a mortage or charge on the assets of the company or not.
Characteristics of Debentures:
1. Debentures often carry fixed interest. However, a company can issue debentures not based
on interest which participate in the profits of company.
2. Debentures do not carry voting rights in general meeting.
3. Debentures may be redeemable or irredeemable.
4. Debentures may be secured or unsecured.
2
Company Law – Study Notes Chapter 23: Mortgages & Charges
LO 3: TYPES OF SECURITY:
A company can offer following types of securities to secure its debts:
1. Pledge
2. Mortgage
3. Charges
Pledge:
“Pledge is a bailment of goods as security for the repayment of a debt.”
In Pledge, a loan contract in writing is signed by both parties and goods (e.g. inventory, jewellery)
are physically transferred to lender until debt is repaid.
Mortgage:
Mortgage means an interest or lien created on the property/assets of a company or any of its
undertaking or both as security.
Charge:
“A charge is security for the payment of a debt or other obligation that does not pass title of the
property or any right to its possession to the person to whom the charge is given.”
In Charge, there is only a loan contract to transfer the title and physical possession of the asset in
the event of company’s failure to comply with terms of the loan contract.
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Company Law – Study Notes Chapter 23: Mortgages & Charges
If a property is situated out of Pakistan and mortgage or charge is created out of Pakistan, rest of
the procedure for registration shall be same except that period of 30 days shall start from the
day when documents should reach Pakistan if sent with due care from that other country.
4
Company Law – Study Notes Chapter 23: Mortgages & Charges
Consequences of non-registration:
If a pledge/mortgage/charge is not registered with Registrar, it would become void and shall not be
accepted by liquidator or any creditor. However, this shall not affect any contract or obligation for
repayment of the money secured.
A company has created a pari passu charge on August 27, 2007 over a series of debentures to the benefits of which the
debenture-holders are entitled. What action would the company need to take for the registration of the above charge?
(07 marks)
(ICAP, CAF 03 Level – Autumn 2007)
Explain the circumstances under which the registrar has the power to make entries of satisfaction and release of charge,
in the register of mortgages and charges, without intimation from the company. (04 marks)
(ICAP, CAF 03 Level – Autumn 2011)
Explain the procedure described by the Companies Ordinance, 1984 for registration of payment or satisfaction of
mortgage. (05 marks)
(ICAP, CAF 03 Level – Autumn 2009)
5
Company Law – Study Notes Chapter 23: Mortgages & Charges
6
Company Law – Study Notes Chapter 24: Meetings
LO 10 PROXY 24.2.4
LO 11 REPRESENTATION 24.2.6
1
Company Law – Study Notes Chapter 24: Meetings
LO 1: TYPES OF MEETINGS:
Types of Meetings:
There are two types of meetings under Companies Act, 2017 i.e.
1. Board Meetings:
These are meetings of Directors of a company.
2. General Meetings
General meetings are meetings of shareholders/members of the company who are entitled
by articles of company to attend and vote at such meetings. Directors cannot vote at general
meeting unless they are also members.
In this chapter, we will discuss General Meetings in detail. There are three types of meetings of
members i.e.
1. Statutory Meeting
2. Annual General Meeting
3. Extraordinary General Meeting
Statutory Meeting:
This is the first general meeting of a company, in which members discuss matters in respect of
formation of company, and approve Statutory Report.
The notice of a statutory meeting shall be sent to the members at least 21 days before the date of
meeting alongwith a copy of statutory report.
2
Company Law – Study Notes Chapter 24: Meetings
Define statutory meeting. How it is convened and what are the objective of this meeting. (04 marks)
(ICAP, CAF 03 Level – Autumn 1998)
How would you differentiate between a general meeting and an extra ordinary general meeting? (04 marks)
(ICAP, CAF 03 Level – Autumn 2001)
What information is required to be stated in the Statutory Report of the company? (08 marks)
(ICAP, CAF 03 Level – Autumn 2003)
Ordinary Business:
The following businesses transacted at a general meeting are considered as ordinary businesses:
1. Consideration and adoption of audited financial statements.
2. Consideration of Directors’ Report
3. Consideration of Auditor’s Report
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Company Law – Study Notes Chapter 24: Meetings
Special Business:
Any business other than those specified above is termed as special business e.g.
1. Alteration of memorandum of association.
2. Alteration of articles of association.
3. Investment in associated company
Special business is conducted by Special resolution, except alteration in authorized share capital
clause of memorandum.
There are two types of resolutions i.e. Ordinary Resolution and Special Resolution.
Ordinary Resolution:
Ordinary resolution means a resolution which has been passed by a simple majority of such
members which are entitled to vote, and are present in person or by proxy or vote through postal
ballot at a general meeting.
Special Resolution
Special resolution means a resolution:
1. which has been passed by atleast three-fourth majority of such members which are
entitled to vote, and are present in person or by proxy or vote through postal ballot at a
general meeting, and
2. notice of general meeting has been duly given atleast 21 days before meeting specifying
the intention to propose the resolution as a special resolution
Filing requirements:
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Company Law – Study Notes Chapter 24: Meetings
A copy of every Special Resolution shall be filed with Registrar within 15 days of passing the same
(authenticated by a director or secretary of the company). If special resolution alters Articles, then
a copy of altered Articles should also be filed alongwith special resolution.
Company shall keep all special resolutions intact with its articles and whenever a copy of articles is
requested by a person, copy of such special resolution shall also be provided.
Rules:
1. Resolution shall be circulated to all members alongwith necessary papers.
2. A members‘ agreement to a written resolution, passed by circulation, once signified, can not
be revoked.
3. Such resolution shall be noted at subsequent meeting of the members and made part of the
minutes of such meeting.
Statutory meeting is not required if first AGM is held before the due date of statutory meeting.
Exam Tip
Statutory meeting is required to be conducted only by following companies:
1. Every public company having share capital, and
2. A private company which converts into public company within one year of incorporation.
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Company Law – Study Notes Chapter 24: Meetings
EOGM is conducted whenever “directors” or “members” want to discuss and approve any special
business.
Explain whether or not the following statements are in accordance with the provisions of the Companies Act, 2017 and
support your answer with reasons:
“All limited companies are required to hold statutory meeting within 6 months of incorporation. (03 marks)
(ICAP, CAF 03 Level – Spring 2010)
Alpha Technologies Limited (ATL) is in the process of being incorporated as a public limited company.
Required:
Advising promoters about the period within which ATL is required to hold:
(i) Statutory Meeting.
(ii) First Annual General Meeting. (04 marks)
(ICAP, CAF 03 Level – Autumn 2009)
List down the type of companies who are not required to hold the statutory meeting. (02 marks)
(ICAP, CAF 03 Level – Spring 2007)
Members of a listed company, not residing in city where AGM is taking place, may require company
to provide the facility of video-link, provided:
Members hold atleast 10% of share capital,
Written request is submitted to company atleaast 07 days before meeting.
6
Company Law – Study Notes Chapter 24: Meetings
Can the Securities and Exchange Commission call the meeting of a company where default is made in holding the
meeting? (03 marks)
(ICAP, CAF 03 Level – Autumn 2005)
If directors of a company have refused to proceed for calling extra-ordinary general meeting within twenty one days of
receipt of requisition, what course of action is available to the members? (05 marks)
(ICAP, CAF 03 Level – Autumn 2002)
In case of listed company, notice shall also be published in one Urdu and one English newspaper
having nationwide circulation, and also the notice shall be sent to Commission.
7
Company Law – Study Notes Chapter 24: Meetings
Study Tip
Accidental omission to give notice to a member, or the non-receipt of notice by a member shall not
invalidate the proceedings at any meeting.
Briefly explain the exceptions to the following provisions as specified under the Companies Act, 2017.
“Notice of an extraordinary general meeting shall be sent to the members at least twenty-one days before the date of the
meeting, and in the case of a listed company shall also be published in the prescribed manner.” (02 marks)
(ICAP, CAF 03 Level – Autumn 2011)
State the requirements that a company needs to satisfy, as regards notice of the meeting, in case a special business is to be
transacted at a general meeting of the company. (03 marks)
(ICAP, CAF 03 Level – Autumn 2011)
Who is entitled to receive the notice of the meetings of a company? Does the non- receipt of notice by any member
invalidates the proceedings of any meeting? (05 marks)
(ICAP, CAF 03 Level – Autumn 2003)
Study Tip
Quorum means a certain minimum number of members of a company as is fixed to transact business in a
general meeting in the absence of the other members. A meeting without quorum shall be void.
8
Company Law – Study Notes Chapter 24: Meetings
Quorum of a Company:
Quorum for Listed Company:
10 present members who represent 25% of total voting power present personally or through
video-link (either of their own account or as proxies).
Exam Tip
Articles may require a larger number to be quorum.
If meeting was called by directors, it shall be adjourned to the same day in the next week at the
same time and place. If at adjourned meeting, quorum again is not present, 2 present members
(either personally or through video-link) shall be Quorum unless articles provide otherwise.
What are provisions provided in the Companies Act, 2017 if the quorum is not present within stipulated period of time?
(05 marks)
(ICAP, CAF 03 Level – Spring 1997)
9
Company Law – Study Notes Chapter 24: Meetings
Exam Tip
In a company not having share capital, every member shall have one vote.
What is the legal status of a resolution passed at any adjourned meeting of the creditors of a company? (02 marks)
(ICAP, CAF 03 Level – Spring 2009)
LO 10: PROXY:
Proxy:
Proxy is a person appointed by a member to attend, speak and vote in a general meeting on his
behalf. It is statutory right of each member to appoint Proxy.
Study Tip
If member is a natural person, he can appoint another person as his Proxy. If member is an artificial person
(e.g. company or government), it can appoint a natural person as its Representative.
10
Company Law – Study Notes Chapter 24: Meetings
Rights of Proxy:
Proxy has following rights:
1. Right to attend a meeting.
2. Right to speak at meeting.
3. Right to vote at meeting (in certain cases).
4. Right to be counted for quorum of meeting.
5. Right to demand a Poll.
6. Right to abstain from voting, on a question on which poll is demanded.
Green Leaf Limited, a listed company, has sent a notice of the forth coming Annual General Meeting, to the Company
Secretary of Red Rose Limited which is also a listed company. Red Rose Limited has recently acquired 100,000 shares in
Green Leaf Limited and you are required to advise its directors about the following, in the light of Companies Act, 2017:
(a) Who can represent Red Rose Limited in the annual general meeting of Green Leaf Limited? (03 marks)
(b) What are the essential characteristics of an instrument of proxy to be submitted to Green Leaf Limited and what is the
deadline for its submission? (04 marks)
(ICAP, CAF 03 Level – Autumn 2008)
LO 11: REPRESENTATION:
Representation of certain corporations at meetings of companies:
If a company is a member (or creditor) of another company, it may authorize any of its official or
any other person (through Board Resolution) to act as his representative at a general meeting (or
creditors’ meeting).
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Company Law – Study Notes Chapter 24: Meetings
The person so authorised shall be entitled to exercise the same powers as are available to the
company to which he represents.
The person so authorised shall be entitled to exercise the same powers, including the right to
appoint Proxy, as are available to the Federal/Provincial Govt. which he represents.
12
Company Law – Study Notes Chapter 25: Management
50
Company Law – Study Notes Chapter 7: Management
PART A –DIRECTORS
Word “director” in job title does not mean that a person is legally a director e.g. a “finance director”,
“human resource director”, or “IT director” is not a director under the law.
Role as Agent:
An agent is an individual employed by principal to provide a particular service. Directors (agents)
are appointed by members (principal) to act in best interest of members in accordance with
instructions of members.
Powers of Directors:
Directors can exercise following powers by passing a resolution by majority in board meeting.
1. To issue shares,
2. To issue debentures or other redeemable capital
3. To borrow money.
4. To make loans
5. To approve annual and periodical accounts and
6. To approve bonus for employees
7. To incur capital expenditure (or undertake lease obligations) exceeding rupees “Ten Lac”.
8. To sell/dispose assets having book value exceeding rupees “One Lac”.
9. To declare interim dividend and propose final dividend.
10. To take over a company or acquire a controlling interest in another
11. To authorize any of the following for entering into transactions with the company
Director of the company
Partnership firm in which director of the company is a partner.
Private Company in which director of the company is a member or director.
12. To write-off material debtors, inventories, advances and other assets.
13. To settle material litigations
Directors shall not do any of following acts without consent of general meeting (either for specific
transaction or by way of a general authorization):
1. sell or otherwise dispose of the subsidiary of the company
2. sell, lease or otherwise dispose of the undertakings or a sizeable part (i.e. 25% or more of
value of assets in that class), unless it is company’s business
3. Remit, give relief or extension of time for loans or advances provided under the provisions
of the Act
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Company Law – Study Notes Chapter 7: Management
Exam Tip
A listed company cannot sell/dispose of undertaking which results in closure of business unless there is a
viable alternate business plan duly authenticated by the board.
Duties of Directors:
A director of a company shall:
1. act in accordance with the articles of the company.
2. discharge his duties with reasonable care, skill and diligence.
3. act in the best interests of the company, its employees, the shareholders the community and
for the protection of environment.
Any negligence, default or breach of duty by a director may be ratified by company through special resolution.
In the context of the above provision of the Companies Act, 2017, list any twelve powers which can be exercised by the
directors of a company. (09 marks)
(ICAP, CAF 03 Level – Spring 2014)
What are the powers which directors may exercise on behalf of the company without the consent of general meeting?
(09 marks)
(ICAP, CAF 03 Level – Spring 2000)
Discuss the following, in the light of provisions of the Companies Act, 2017:
“Haris is director of ABC Limited. He intends to assign his office to his friend, Gibran, to act for him during his absence
from Pakistan.” (03 marks)
(ICAP, CAF 03 Level – Autumn 2012)
Director and Alternate Director are one and the same. Comment. (04 marks)
(ICAP, CAF 03 Level – Autumn 2002)
3
Company Law – Study Notes Chapter 7: Management
Ineligibility Criteria:
Act has specified that following persons cannot become directors of a company:
1. a person who is not a member (in some exceptional cases, a non-member can be appointed as director)
2. a body-corporate (a company can be a subscriber/member but cannot be a director of another company)
3. a minor.
4. a person with unsound mind
5. a person who does not hold national tax number
6. a person who is undischarged insolvent or has applied to Court to be declared as insolvent
and his application is pending.
7. a person who has been convicted by a Court for an offence involving immorality.
8. a person who lacks fiduciary behavior as declared by a Court during last 5 years.
9. a person who is debarred from holding office under any provisions of the Act.
Exam Tip
Following persons can be appointed as director of a company even if they are not members:
a person representing a member who is not a natural person.
a whole-time director (also called executive director) who is an employee of the company.
a chief executive
a person representing a creditor or other special interests through contractual arrangements.
Number of directorship:
No person shall hold office as a director (including as an alternate director) at the same time in
more than such number of companies as may be specified.
However, this limit shall not include the directorships in a listed subsidiary.
Explain the exceptions to the following provisions of the Companies Act, 2017:
“No person shall be appointed as a director of a company if he is not a member of that company.” (03 marks)
(ICAP, CAF 03 Level – Spring 2013)
Can a company act as a director of another company? Give reasons for your answer. (03 marks)
(ICAP, CAF 03 Level – Autumn 2001)
4
Company Law – Study Notes Chapter 7: Management
LO 3: APPOINTMENT OF DIRECTORS:
Number of Directors:
Minimum number of directors under the Act:
Every single member company shall have at least one director.
Every other private company shall have at least two directors.
Every unlisted public company shall have at least three directors.
Every listed company shall have at least seven directors.
However, Articles may specify larger number.
Exam Tip
Directors may not fill casual vacancy if remaining directors are equal or more than minimum number of
directors required by Act.
5
Company Law – Study Notes Chapter 7: Management
LO 4: ELECTION OF DIRECTORS:
Procedure for election of directors:
Procedure for Election of Directors for a company having share capital:
1. Directors of the company shall fix the number of directors to be elected atleast thirty-five days
before the general meeting at which directors are to be elected.
Exception: Once the number is fixed in the Board meeting, it shall not be changed except with the
prior approval of a general meeting of the company.
2. Notice of the relevant general meeting shall expressely state:
Number of directors to be elected.
Names of the retiring directors
3. A person (whether retiring director or otherwise) seeking to contest election shall file a notice of
his intention with company atleast 14 days before relevant general meeting. Such person may
withdraw notice anytime before holding of election.
4. All notices received by company shall be transmitted to members atleast 7 days before general
meeting in the same manner as provided under this Act for sending of a notice of general meeting. In
the case of a listed company such notice shall also be published in English and Urdu daily newspapers
having wide circulation.
5. If number of candidates is equal or less than number fixed by directors, all directors shall stand
elected unopposed without Poll.
6. If number of candidates exceed number fixed by directors, Poll for election of directors shall be
conducted as follows:
Number of votes of a member = Number of voting shares or securities held x
Number of directors to be elected.
A member can give distribute his votes between different candidates in any way he
thinks appropriate. (even all votes can be given to one person)
Candidate getting highest votes shall be declared elected as director, and then next
candidate, and so on until number of directors fixed have been elected.
Procedure for Election of Directors for a company NOT having share capital:
The directors of a company not having share capital shall be elected by members of the company in
general meeting in the manner as provided in articles of association of the company
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Company Law – Study Notes Chapter 7: Management
XYZ Limited, a listed company, has decided to hold an extraordinary general meeting (EOGM) on April 30, 2010 for
election of directors. The company has not yet determined the number of directors to be elected. Explain the relevant
rules for fixing the number of directors to be elected, under the Companies Act, 2017. (05 marks)
(ICAP, CAF 03 Level – Spring 2010)
Explain the circumstances under which election of the directors may be declared invalid. (03 marks)
(ICAP, CAF 03 Level – Spring 2006)
Explain the situation whereby a shareholder may call for fresh election of directors prior to the end of the term of the
present board. (05 marks)
(ICAP, CAF 03 Level – Autumn 2013)
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Company Law – Study Notes Chapter 7: Management
Removal of Directors:
Who has authority to remove directors:
A company may remove directors by passing resolution in general meeting. No director has power
to remove other directors.
Under the provisions of the Companies Act, 2017 the director is seeking your advice on the matters due to which he may
ipso facto cease to hold office of the director of TPL. (06 marks)
(ICAP, CAF 03 Level – Spring 2016)
How a director may be removed before the expiry of his term of office? (04 marks)
(ICAP, CAF 03 Level – Spring 2009)
Similarly, the Federal Government or Provincial Government and any company can also nominate
any person as director in the company in which investment has been made.
Independent Directors:
Who is an Independent Director:
A director:
who has no relationship with the company, its associated companies (including
subsidiaries, holding company) or directors; and
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Company Law – Study Notes Chapter 7: Management
LO 7: LIMITATIONS OF DIRECTORS:
Loan to directors:
A company shall not give loan, and shall not provide security or guarantee in connection with a loan
to its director (or his spouse or minor child), unless:
the transaction has been approved by a resolution of the members of the company, and
approval of the Commission shall also be required before sanctioning of any such loan (in
case of listed company)
However, this restriction shall not apply to a company which in the ordinary course of its business
provides loans or gives guarantees or securities.
Remuneration of directors for performing extra services (including holding office of chairman) shall
be determined by company in general meeting or directors (in accordance with articles).
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Company Law – Study Notes Chapter 7: Management
Azad Limited (AL) is a listed company engaged in the business of manufacturing and supply of electrical appliances. Mr.
Majnou, a director of AL, has applied for an interest free loan from the company to be repayable in five years.
In view of the provisions of the Companies Act, 2017 describe the circumstances under which AL may grant loan to Mr.
Majnou. (04 marks)
(ICAP, CAF 03 Level – Autumn 2015)
For what purpose a company can given loan to whole time director? (04 marks)
(ICAP, CAF 03 Level – Spring 2003)
Whether a company can contribute any amount for political purposes? (02 marks)
(ICAP, CAF 03 Level – Autumn 2001)
LO 8: MEETING OF DIRECTORS:
Quorum of Board Meeting:
Quorum of Board meeting for listed company:
1/3rd of total number or four whichever is greater.
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Company Law – Study Notes Chapter 7: Management
LO 9: INTEREST OF DIRECTORS:
Disclosure of interest by director:
If a director (or his spouse, children or parents) has an interest in a proposed contract or
arrangement with the company, he shall disclose this interest in directors’ meeting.
Timing of disclosure:
Interested director shall disclose his interest at very next board meeting after he became interested
i.e.
1. If director became interested before first time consideration of contract or arrangements, at
meeting in which contract or arrangement is first time considered.
2. If director became interested after first time consideration of contract or arrangements, at
very next meeting after he became interested.
In case of listed company, interested director shall not be present at the board meeting in which the
relevant contract or arrangement is being considered.
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Company Law – Study Notes Chapter 7: Management
Chief Executive:
Chief Executive means an individual who, subject to the control and directions of the directors, is
entrusted with the whole, or substantially the whole, of the powers of management of the affairs of
the company; and includes a director or any other person occupying the position of a chief
executive, by whatever name called, and whether under a contract of service or otherwise.
Ineligibility:
A person who is ineligible for appointment as director, is also ineligible for appointment as chief
executive.
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Company Law – Study Notes Chapter 7: Management
Powers of Federal Government to appoint, remove and determine terms and conditions of
Chief Executive:
Federal Government has power to:
nominate and appoint chief executive of a company if majority of directors are nominated
by Federal Government.
determine terms and conditions of chief executive nominated and appointed by it.
remove chief executive if more than 75% of the voting rights are held by it.
Mr. Zameer is the first chief executive of Ryan Industries Limited, a public company. The directors of the company are not
satisfied with his performance. In view of the provisions of the Companies Act, 2017 specify the term of office of Mr.
Zameer and explain how he can be removed before expiry of the above term. (05 marks)
(ICAP, CAF 03 Level – Spring 2012)
Can a Chief Executive of a company engage himself in a business competing with the company’s business? (03 marks)
(ICAP, CAF 03 Level – Autumn 2002)
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Company Law – Study Notes Chapter 7: Management
Exception: Companies incorporated outside Pakistan are not required to obtain approval of
Commission for such appointment, unless the major portion of the business of such company is
conducted in Pakistan.
Company Secretary:
Public companies shall have a qualified company secretary. He shall be an employee of the company
and he shall ensure that company complies with all relevant corporate requirements.
Share Registrar:
Listed companies shall appoint independent share-registrar to handle the transfer of shares and all
other obligations of the company as an issuer towards shareholders. Applications of transfer of
shares are sent to share registrar, instead of company. Name of share registrar is also mentioned in
notice of general meeting.
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Company Law – Study Notes Chapter 26: Investments and Dividends
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
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Company Law – Study Notes Chapter 26: Investments and Dividends
PART A –INVESTMENTS
Associated Company/Undertaking:
Any two or more companies or undertakings are associated if they are interconnected with each
other in following manner:
1) If a person who is the owner, partner, director or holder of 20% or more voting-power in a
company/undertaking is also the owner, partner, director or holder of 20% or more
voting- power in another company/undertaking.
2) If companies or undertakings are under common management or control, or one is the
subsidiary of another.
3) If the undertaking is a modaraba managed by the company
Provided that shares shall be deemed to be owned, held or controlled by a person if they are owned,
held or controlled by that person or by the spouse or minor children of the person.
Exceptions:
Following shall not be considered to determine status of Associate:
a director nominated by federal or provincial government or by financial institution owned
or controlled by such governments.
a director appointed as “Independent Director”
shares owned by National Investment Trust.
shares registered in the name of a central depository.
Exam Tip
If you are asked in exam to define “associated company/undertaking”, also include exceptions in definition.
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Company Law – Study Notes Chapter 26: Investments and Dividends
3. return on investment in the form of loan shall not be less than the borrowing cost of
investing company or the rate as may be specified by the Commission whichever is higher, and
shall be recovered on regular basis in accordance with the terms of the agreement.
Further:
4. A change in the terms and conditions of investment shall be made only by a special
resolution.
5. SECP has powers:
a. To specify companies on which above requirements shall not apply (e.g. private
companies).
b. To make further regulations on making investments in associated companies.
Exam Tip
If you are asked in exam to describe “conditions for investment in associated company/undertaking”, also
include further conditions (4) and (5) above.
How the terms and conditions of an existing advance to an associated undertaking can be changed.
(ICAP, CAF 03 Level – Spring 2002)
Exceptions:
1. A company may hold its shares in a subsidiary company in the name of a nominee person to
ensure that number of members of subsidiary company is not reduced below minimum
number.
2. If a company gets right to appoint any person as a director, company may register its share
in such other company in the name of a nominee director, upto the nominal value of
qualification shares.
3. A company may hold or register shares or securities in the name of central depository.
Inspection of Register:
This register shall be open for inspection by any member of company free of cost for atleast two
business hours in a day. Other persons may inspect the register on payment of fee prescribed by
company. The company may impose certain restrictions on the inspection.
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Company Law – Study Notes Chapter 26: Investments and Dividends
Any member can request copy of register which shall be issued to him within 7 days, on paying fee
fixed by company.
PART B– DIVIDENDS
Types of Dividend:
There are two types of dividend:
1. Interim Dividend:
2. Final Dividend
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Company Law – Study Notes Chapter 26: Investments and Dividends
A company has earned huge profits from sale of fixed assets. Whether company can declare dividend out of above profits?
(03 marks)
(ICAP, CAF 03 Level – Spring 2002)
LO 5: PAYMENT OF DIVIDEND:
Manner of Payment:
Any dividend may be paid by a company either in cash or in kind.
in cash
Dividend payable in cash may be paid by cheque or warrant or in any electronic mode.
However, in case of a listed company, dividend payable in cash shall be paid through
electronic mode into the bank account specified by shareholder.
in kind
The payment of dividend in kind shall only be in the form of shares of listed company held
by the distributing company.
To Whom to Pay:
Any dividend declared by a company must be paid to its registered shareholders or to their order.
Withholding of Dividends:
In following cases, the company may withhold dividend after obtaining prior approval of
Commission within 45 days of its declaration:
1. When there is a dispute regarding right to receive dividend.
2. When the dividend is lawfully set-off by the company against sum recoevable from
shareholders.
3. When a shareholder has given instructions to company regarding payment of dividend and
those instructions cannot be complied with.
4. When dividend cannot be paid because of operation of law.
5. If non-payment of dividend or non-posting of warrant was not due to any default on part of
the company.
A company may also withhold the payment of dividend of a member if member has not provided
the complete information or documents as specified by the Commission.
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Company Law – Study Notes Chapter 26: Investments and Dividends
Can dividend be paid to any one else except the registered share holders?
(ICAP, CAF 03 Level – Spring 2002)
Briefly explain the legal provisions as per the Companies Act, 2017 specifying period for payment of dividend and the
consequences for noncompliance in this regard. (04 marks)
(ICMA Pakistan, F5 & G4 Level – August 2013)
On 20 February 2013, the directors of FDA Limited, a listed company, had declared an interim dividend for the year ended
30 June 2013. Subsequently, the company has been awarded a major business contract for which the company needs
funds immediately. Consequently, the management wishes to defer payment of the interim dividend.
In view of the provisions of the Companies Act, 2017 you are required to explain:
(a) Whether FDA can defer the payment of interim dividend. (02 marks)
(b) The consequences of failure to pay the dividend on time. (05 marks)
(c) The situations under which delay in payment of dividend shall not be considered as unlawful. (05 marks)
(ICAP, CAF 03 Level – Spring 2013)
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Company Law – Study Notes Chapter 26: Investments and Dividends
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Company Law – Study Notes Chapter 27: Accounts and Audit
*Explanation of Reference:
First digit in Study Text’s Reference represents chapter number, second and third digits represents
section and sub-section number. Contents in brackets (if any) represent part of the sub-section
which is covered by the learning objective.
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Company Law – Study Notes Chapter 27: Accounts and Audit
LO 1: BOOKS OF ACCOUNTS:
Books of Accounts:
Every company shall prepare (in hard or electronic form) proper books of account i.e. such set of
books of accounts which fairly present the state of the affairs of the company and a fair record of all
its transactions. Liquidator of company is also required to maintain books of accounts during
winding up of company.
Period of Retention:
Books of accounts must be preserved in good order for a period of at least ten years.
If a company has branch offices (whether in or outside Pakistan), books of accounts with respect to
branch may be maintained at branch provided summarized returns are periodically sent by branch
office to company at registered office (or any other place for this purpose).
‘Every company is required to keep, at its registered office, proper books of account.’ Under the provisions of the
Companies Act, 2017 briefly explain the following:
(i) When such books are NOT deemed to be proper. (02 marks)
(ii) When a company is deemed to have kept proper books of account in case of a branch office. (03 marks)
(ICAP, CAF 03 Level – Autumn 2014)
The management of Umer Limited, a newly incorporated company having two branches outside Pakistan, has requested
you to advise on the following matters:
(i) Where are the company’s books of account required to be kept, especially in view of the fact that the company has two
overseas branches?
(ii) The minimum period for which the books of account are required to be retained. (03 marks)
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Company Law – Study Notes Chapter 27: Accounts and Audit
Explain in detail the law relating to inspection of books of accounts. (06 marks)
(ICAP, CAF 03 Level – Autumn 1999)
LO 2: FINANCIAL STATEMENTS:
Financial Statements:
Financial statements of a company includes:
(a) a statement of financial position as at the end of the period;
(b) a statement of profit or loss and other comprehensive income or in the case of a company
carrying on any activity not for profit, an income and expenditure statement for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and other explanatory
information;
Exception: For any special reasons, Commission (for listed company) or Registrar (for other
companies) may extend time for preparation of accounts upto 30 days.
Exception: However, this requirement shall not apply to a private company having the paid up capital
not exceeding one million rupees or such higher amount of paid up capital as may be notified by the
Commission.
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Company Law – Study Notes Chapter 27: Accounts and Audit
Notes:
If chief executive is for the time being not available in Pakistan, then the financial
statements shall be signed by at least two directors.
In case of private company having paid-up capital not exceeding one million rupees, the
financial statements shall also be accompanied by an affidavit that the financial statements
have been approved by the board. This affidavit shall be executed by Chief Executive (if he
signed the accounts) or any of directors (if two directors signed accounts).
The chief executive of Raza Enterprises Limited (REL), a listed company, is out of the country at the time of finalization of
annual accounts. Explain the provisions related to signing and authentication of the annual accounts as contained in the
Companies Act, 2017 which REL would have to comply with, in the above situation. (03 marks)
(ICAP, CAF 03 Level – Spring 2010)
To Registrar:
A copy of audited and adopted financial statements shall be filed (alongwith reports) to Registrar:
within 30 days from the date of AGM, in case of listed company.
within 15 days from the date of AGM, in case of any other company.
However, this filing requirement shall not apply to a private company having the paid up capital not
exceeding ten million rupees or such higher amount of paid up capital as may be notified by the
Commission.
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Company Law – Study Notes Chapter 27: Accounts and Audit
If general meeting does not consider accounts, or does not adopt accounts or is adjourned, this fact
shall be annexed to accounts giving reasons thereof.
State the provisions of law regarding filing of accounts with the Registrar as to:
(a) How many copies are to be filed? (02 marks)
(b) What types of companies should file? (02 marks)
(ICAP, CAF 03 Level – Autumn 2000)
LO 5: DIRECTORS’ REPORT:
Which companies are required to prepare Directors’ Report:
The board shall prepare a directors‘ report (and a statement of compliance, if applicable) for each
financial year of the company.
Exception: However, this requirement shall not apply to a private company (which is not subsidiary of
a public company) having the paid up capital not exceeding three million rupees.
Additional contents for in case of public company or private company which is subsidiary of
public company:
Names of the persons who were directors of the company at any time during the financial
year.
Material changes in nature of business of company or its subsidiaries or companies in
which company has made investment.
Material changes and commitments affecting financial position, occurring between year-end
and date of report (e.g. entering into a joint venture with foreign company, or imposition of
certain additional tax by government).
Explanation regarding any reservations, observations qualification etc. or any adverse
remarks pointed out by the auditors.
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Company Law – Study Notes Chapter 27: Accounts and Audit
pattern of shareholding
Name and country of incorporation of holding company (if holding company is
incorporated outside Pakistan)
Earnings per share, Reasons for incurring loss and a reasonable indication of future
prospects of profit.
Information about defaults in payment of debts, if any
A description of the principal risks and uncertainties facing the company
Comments in respect of adequacy internal financial controls
Under the provisions of the Companies Act, 2017 advise the directors about the particulars to be set out in their report for
submission to the members of the company. (07 marks)
(ICAP, CAF 03 Level – Autumn 2016)
State the provisions of the Companies Act, 2017 relating to authentication of Directors’ Report.
(ICAP, CAF 03 Level – Autumn 2007)
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Company Law – Study Notes Chapter 27: Accounts and Audit
Appointment by SECP/Commission:
Commission may appoint auditors if:
1. the company fails to appoint the first auditors within ninety days of incorporation, or
2. the company fails to appoint subsequent auditors at an annual general meeting; or
3. the company fails to fill casual vacancy within thirty days of occurrence of the vacancy; or
4. the appointed auditors are unwilling to act as auditors of the company;
Company is required to give a notice to Commission regarding its powers becoming exercisable.
Tenure/Term of Auditor:
Tenure of auditor appointed in each case is from date of appointment till the conclusion of next
AGM.
Remuneration of Auditor:
The remuneration of the auditor shall be fixed:
(a) by the company in the general meeting; or
(b) by the board or by the Commission, if the auditors are appointed by the board or the
Commission, as the case may be.
The Directors of Sunshine Limited, a listed company, intend to appoint the first auditors of the company. In view of the
provisions of the Companies Ordinance 1984, advise the directors in respect of the following:
(i) The time frame within which the first auditors should be appointed.
(ii) The person(s) who may or may not be eligible for appointment as auditor(s). (10 marks)
(ICAP, CAF 03 Level – Autumn 2014)
Narrate the circumstances in which SECP becomes empowered to appoint auditors under the Companies Act, 2017.
(06 marks)
(ICAP, CAF 03 Level – Spring 2008)
What are the provisions of the Companies Act, 2017, regarding remuneration of auditors of a company. (03 marks)
(ICAP, CAF 03 Level – Autumn 2001)
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Company Law – Study Notes Chapter 27: Accounts and Audit
Under the provisions of the Companies Act, 2017 explain the duty of Mr. Khushkismat and the company in respect of the
proposed appointment. Also explain the rights of the retiring auditor under the above circumstances. (10 marks)
(ICAP, CAF 03 Level – Spring 2015)
Explain the formalities to be completed by a company with the registrar of companies for the appointment, retirement,
removal and otherwise ceasing to hold office as an auditor. (04 marks)
(ICAP, CAF 03 Level – Autumn 1998)
Exam Tips
A firm can be appointed as auditor if majority of its partners are qualified for appointment. However, only a
qualified person can act as auditor or can sign on behalf of firm.
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Company Law – Study Notes Chapter 27: Accounts and Audit
Disqualification Criteria:
Following persons shall not be appointed as auditor in a company:
1. If a person or his spouse or minor child holds any shares in the audit client or any of its
associated company. However, if such a person holds shares at time of appointment, he can
be appointed if he discloses the fact at time of appointment and disinvest shares within 90
days of appointment.
2. If a person is indebted to the company, other than in ordinary course of business of such
company.
However following are not considered debt in this regard:
a. sum payable to a credit card issuer upto Rs. 1,000,000.
b. sum payable to a utility company unpaid upto 90 days.
3. If a person is or was an employee (or officer or director) of the company in last 3 years.
4. If a person is a partner or employee of an employee (or officer or director) of the company.
5. If a person is Spouse of a director.
6. If a person is a Body corporate.
7. If a person has given guarantee or security to the company in connection with the
indebtedness of third person.
8. If a person or firm has business relationship with the company (directly or indirectly), other
than in ordinary course of business of such entities.
9. If a person has been convicted by a Court of an offence involving fraud in last 10 years.
10. If a person is not eligible for appointment as auditor under Code of Ethics adopted by ICAP
and ICMAP.
If a person is disqualified for a company, he is also disqualified for its subsidiaries, its holding, and
holding’s other subsidiaries. Therefore, always be sure about status if question involves two companies.
Exam Tips
1. All conditions of disqualification apply at time of appointment as well as during term of appointment.
2. Carefully note which relatives are covered in which case of disqualification.
3. Word “Limited” in the name of an organization shows that it is a Company. Similarly, word “Private” in
the name confirms that it is a private company.
4. Make sure you know definitions of “Associated Company”, “Holding” and “Subsidiary”.
5. Auditor means only sole-proprietor/partners of audit firm, not other employees.
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Company Law – Study Notes Chapter 27: Accounts and Audit
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Company Law – Study Notes Chapter 27: Accounts and Audit
c. Statement of cash flows give a true and fair view of generation and
utilization of cash and cash equivalents of the company for its financial yr.
5. whether or not in their opinion
a. investments made, expenditure incurred and guarantees extended, during
the year, were for the purpose of company’s business.
b. zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was
deducted by the company and deposited in the Central Zakat Fund
established under that Ordinance.
Notes:
1. If any of the above matters is answered in “negative” or in “qualification”; auditor shall state
its reason with factual position in auditor’s report.
2. If auditor makes reference to some other report or statement, such report shall be annexed
to auditor’s report and shall be considered as part of the audit report.
Explain the provisions of the Companies Act, 2017 in respect of the following:
(a) Reading and inspection of auditors’ report. (02 marks)
(b) Signature on the audit report. (03 marks)
(ICAP, CAF 03 Level – Autumn 2010)
In case the auditors are removed in AGM, what are the rights of the retiring auditors? (04 marks)
(ICAP, CAF 03 Level – Spring 2005)
11