Section 42G: Powers of State Bank to prepare scheme of reconstruction or amalgamation

42G. Powers of State Bank to prepare scheme of reconstruction or amalgamation.__ (1) Where an order is made under sub-section (1) of section 42D, the State Bank may prepare a scheme (i) for the reconstruction of the banking company, restoring the capital of the banking company to a level compliant with this Ordinance and sufficient to sustain confidence in the banking company; or (ii) for the amalgamation of the banking company fully or in part with any other banking institution (in this section referred to as "the transferee bank"). (2) The scheme aforesaid may contain provisions for all or any of the following matters, namely:__ (a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, the liabilities, duties and obligations, of the banking company on its reconstruction or, as the case may be, of the transferee bank; (b) in the case of amalgamation of the banking company, the transfer to the transferee bank of the business, properties, assets and liabilities of the banking company on such terms and conditions as may be specified in the scheme; (c) any change in the Board of Directors, or the appointment of a new Board of Directors, of the banking company on its reconstruction or, as the case may be, [of the transferee bank] and the authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new Board of Directors or of any director, the period for which such appointment shall be made; (d) the development of new or alteration of the existing memorandum and articles of association of the banking company on its reconstruction or, as the case may be, of the transferee bank, for the purpose of altering the capital thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation; (e) subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the date of the order of moratorium or as the case may be from the effective date of coming into force of the scheme; (f) the cancellation or reduction, in part or whole, of the interest or rights which the members, depositors and other creditors have in or against the banking company before its reconstruction or amalgamation to such extent as the State Bank considers necessary to recognize the accumulated losses of the banking company: Provided that the State Bank may close out and terminate a derivative contract to determine the value of interests and rights before a reduction under this clause.; (g) the payment to depositors and other creditors in full satisfaction of their claims in cash or otherwise, by converting the claims into shares or debt that meets the conditions to qualify as regulatory capital, as specified by State Bank__ (i) in respect of their interest or rights in or against the banking company before its reconstruction or amalgamation; or (ii) where their interest or rights aforesaid in or against the banking company has or have been reduced under clause (f), in respect of such interest or rights as so reduced; (h) the allotment to the members of the banking company for shares held by them therein before its reconstruction or amalgamation, whether their interest in such shares has been reduced under clause (f) or not, of shares in the banking company on its reconstruction or, as the case may be, in the transferee bank and where any members claim payment in cash and not allotment of shares, or where it is not possible to allot shares to any members, including if a member fails to meet the fit and proper test of the State Bank. the payment in cash to those members in full satisfaction of their claim__ (i) in respect of their interest in shares in the banking company before its reconstruction or amalgamation; or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (i) transfer rights and interests of members in shares to such persons on such terms and conditions and at such consideration as may be specified in the scheme in full satisfaction of their claims__ (i) in respect of their interest in shares in the banking company before its reconstruction or amalgamation; or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (j) cause the banking company concerned to issue new shares without offering such shares to the members of the banking company or issue debt instruments that would meet the conditions to qualify as regulatory capital as specified by the State Bank, or amend or alter the maturity of or the amount of interest payable under such debt instruments issued by the banking company before an order made under section 42D on reconstruction of the banking company; (k) the continuation of the services of all the employees of the banking company, excepting such of them who, not being workmen within the meaning of the Industrial Relations Ordinance, 1969 (XXII of 1969), are specifically mentioned in the scheme, in the banking company itself on its reconstruction or, as the case may be, in the transferee bank at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were being governed immediately before an order made under sub-section (1) of section 42D: Provided that the scheme shall contain a provision that__ (i) the banking company shall pay or grant not later than the expiry of the period of three years from the date on which the scheme is approved by the State Bank or sanctioned by Federal Government, as the case may be, to the said employees the same remuneration and the same terms and conditions of service as are applicable to employees of corresponding rank or status of a comparable banking company to be determined for this purpose by the State Bank whose determination in this respect shall be final; (ii) the transferee bank shall pay or grant not later than the expiry of the aforesaid period of three years, to the said employees the same remuneration and the same terms and conditions of service as are applicable to the other employees of corresponding rank or status of the transferee bank subject to the qualifications and experience of the said employees being the same as or equivalent to those of such other employees of the transferee bank: Provided further that if in any case under clause (ii) of the first proviso any doubt or difference arises as to whether the qualification and experience of any of the said employees are the same as or equivalent to the qualifications and experience of the other employees of corresponding rank or status of the transferee bank, the doubt or difference shall be referred to the State Bank whose decision thereon shall be final; (1) notwithstanding anything contained in clause (k) where any of the employees of the banking company, not being workman within the meaning of the Industrial Relations Ordinance, 1969, are specifically mentioned in the scheme under clause (k), or where any employees of the banking company have by notice in writing given to the banking company or, as the case may be, the transferee bank, at any time before the expiry of one month next following the date on which the scheme is approved by the State Bank or sanctioned by the Federal Government, as the case may be, intimated their intention of not becoming employees of the banking company on its reconstruction or, as the case may be, of the transferee bank, the payment to such employees of compensation, if any, to which they are entitled under the Industrial Disputes Ordinance, 1959, and such pension, gratuity, provident fund and other retirement benefits ordinarily admissible to them under the rules or authorizations of the banking company immediately before the date of the order of moratorium; (m) any other terms and conditions for the reconstruction of amalgamation of the banking company; (n) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction of amalgamation shall be fully and effectively carried out. (3) Notwithstanding anything contained in clauses (f) and (g) of sub-section (2), the scheme shall not provide for the reduction and conversion of the following: (i) protected deposits under the Deposit Protection Corporation Act, 2016 (XXXVII of 2016); (ii) any liabilities owed to tax or social security authorities; (iii) liabilities in relation to contributions due to the Deposit Protection Corporation in accordance with the Deposit Protection Corporation Act, 2016 (XXXVII of 2016); (iv) any liability and obligation to client that arises by virtue of holding or managing the client's assets as an agent; (v) liabilities duly secured by financial, immovable or movable assets; (vi) liabilities owed to the employees of the banking company except for the incentive-based remuneration of the managers of the banking company; (vii) liabilities with a remaining maturity of up to seven (7) days owed to payment, settlement and clearing systems; (viii) labilities to banking companies, excluding banking companies that are part of the same group, with an original maturity of less than seven days; (ix) liabilities to a commercial or trade creditor arising from the provision to the banking company of goods or services that are critical to the daily functioning of its operations, including information technology services, utilities and rental, servicing and maintenance of premises; and (x) any other claims that the State Bank has determined that their exclusion, in whole or in part, is needed pursuant to sub-section (7) of section 42E. (4) A copy of the scheme prepared by the State Bank shall be sent in draft to the transferee bank and any other banking company concerned in the amalgamation, for suggestions and objections, if any, within such period as the State Bank may specify for this purpose. (5) The State Bank may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the transferee bank, and any other banking company concerned in the amalgamation. (6) Subject to sub-section (5), the scheme as approved by the State Bank shall come into force on such date as the State Bank may specify in this behalf: Provided that the scheme, if it involves use of public funds, shall be placed before the Federal Government for its sanction and the Federal Government may sanction the scheme without any modifications or with such modifications as it, in consultation with the State Bank and having regard to the resolution objectives stated in section 42B and such safeguards regarding the use of public funds as specified in section 42I, may consider necessary; and the scheme as sanctioned by the Federal Government shall come into force on such date as the Minister-in-charge may specify in this behalf: Provided further that different dates may be specified for different provisions of the scheme. (7) Upon the coming into operation of the scheme or any provision thereof, the scheme or such provision shall be binding on the banking company or, as the case may be, on the transferee bank and any other banking company concerned in the amalgamation and also on all the members, depositors and other creditors and employees of cach of those companies and of the transferee bank, and on any other person having any right or liability in relation to any of those companies or the transferee bank. (8) On such date as may be specified by the State Bank or, as the case may be, the Minister-in-charge in this behalf, the properties and assets of the banking company shall, by virtue of and to the extent provided in the scherne, stand transferred to, and vest in, and the liabilities of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and become the liabilities of, the transferee bank. Rights and interest in the shares of a banking company, by virtue of and to the estent provided in the scheme, shall stand transferred to, and vest in, such persons as specified in the scheme: Provided that the members, depositors and creditors whose interest and rights remain in the banking company under Resolution shall have no rights or claims in respect of the assets and liabilities transferred to the transferee bank. (9) Where the scheme provided for the reduction of the rights and interests under clause (f) of sub-section (2), any such interest in shares shall extinguish and any liability of the banking company to such depositors and creditors shall be treated as discharged for all purposes to the extent of such reduction, and these shall not be provable in any subsequent proceedings in relation to the banking company under Resolution or any transferee bank or in any subsequent winding up. (10) If any difficulty arises in giving effect to the provisions of the scheme, the State Bank or, as the case may be, the Federal Government may by order do anything not inconsistent with such provisions which appear necessary or expedient for the purpose of removing the difficulty. (11) Copies of the scheme sanctioned by the Federal Government under proviso of sub- section (6) or of any order made by the Federal Government under sub-section (10) shall be laid on the table of the Legislature, as soon as may be, after the scheme has been sanctioned by the Federal Government, or as the case may be, the order has been made (12) Where the scheme is a scheme for amalgamation of the banking company, any business acquired by the transferee bank under the scheme or under any provision thereof shall, after the coming into operation of the scheme or such provision, be carried on by the transferee bank in accordance with the law governing the transferee bank, subject to such modifications in that law or such exemptions of the transferee bank from the operation of any provisions thereof as the Federal Government, on the recommendation of the State Bank, may, by notification in the official Gazette, make for the purpose of giving full effect to the scheme: Provided that no such modification or exemption shall be made so as to have effect for a period of more than seven years from the date of the acquisition of such business. (13) Nothing in this section shall be deemed to prevent the amalgamation with one or more banking institutions by a single scheme of several banking companies. (14) The provisions of this section and of any scheme made under it shall have effect notwithstanding anything to the contrary contained in any other provisions of this Ordinance or in any other law or any agreement, award or other instrument for the time being in force. (15) In this section, "banking institution" and "banking company" mean any banking company and includes National Bank of Pakistan, investment finance companies. venture capital companies, housing finance companies, leasing companies and any other financial institution covered under section 3A.

Effective date: 1962-06-07

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