Section 42: Intervention triggers and powers of the State Bank

1[42. Intervention triggers and powers of the State Bank.__ (1) The State Bank may exercise any one or more of the powers under sub-section (2) of this section, if it is satisfied that any of the circumstances exist under which__ (a) a banking company__ (i) has engaged any director, chief executive, by whatever name called, or an officer of a banking company who is or is likely to be detrimental to the interest of the banking company or its depositors or otherwise undesirable; (ii) is carrying on its business in a manner detrimental to the interests of its depositors, creditors or other stakeholders; (iii) has contravened any provisions or any restrictions or conditions imposed on its license; (iv) has contravened or circumvented any provision of section 41 or any other provision of this Ordinance, or defaulted in complying with any requirement of this Ordinance or of any order, rule, direction or notification made or condition imposed thereunder; (v) in any return, balance-sheet or other document or in any information required or furnished by or under or for the purposes of any provision of this Ordinance, makes a statement which is false in any material particular, or omits to make a material statement; (vi) has failed or is likely to fail to meet capital adequacy or Minimum capital requirements specified by the State Bank; (vii) has failed or is likely to fail to meet the liquidity requirements as specified by the State Bank; (viii) has suffered deterioration in its financial condition; or (ix) has engaged or is engaging in any unsafe, unsound, imprudent or reckless business practices; or (b) any person, being the chairman, director, chief executive, by whatever name called, or an officer of a banking company: (i) has breached fiduciary duties or engaged in reckless business practices; (ii) mismanages the affairs of the banking company or misuses his position for gaining direct or indirect benefit for himself or any of his family members; (iii) contravenes, or attempts to contravene, or abets the contravention of the provisions of this Ordinance; or (iv) has failed to comply with the supervisory instructions by the State Bank. (2) Subject to sub-section (1), the State Bank may, keeping in view the gravity of the situation and compliance behavior of the banking company, from time to time, exercise any one or more of the following powers, namely__ (a) caution or prohibit the banking company against entering into any particular transaction or class of transactions; (b) require the banking company to refrain from taking such actions as it may specify in relation to any matter relating to the business of such banking company or to take such action in relation thereto as the State Bank thinks fit; (c) require the banking company to submit a plan of action for meeting the capital, or liquidity requirements and to address any other major supervisory concerns; (d) require the banking company to meet such capital and liquidity requirements as may be specified by the State Bank for such banking company; (e) require the banking company to call a meeting of its directors for the purpose of considering any matter relating to or arising out of the affairs of the banking company, or require an officer of the banking company to discuss any such matter with an officer of the State Bank; (f) require the banking company or Board of Directors of the banking company to furnish documents of commitment for compliance with the measures specified by the State Bank and to secure the interests of its depositors; (g) depute one or more of its officers to watch the proceedings at any meeting of the Board of Directors of the banking company or of any committee or of any other body constituted by it, require the banking company to give an opportunity to the officers so deputed to be heard at such meetings and also require such officers to send a report of such proceedings to the State Bank; (h) require the Board of Directors of the banking company or any committee or any other body constituted by it to give in writing to any officer specified by the State Bank in this behalf at his usual address all notices of, and other communications relating to, any meeting of the Board, committee or other body constituted by it; (i) appoint one or more of its officers to observe the manner in which the affairs of the banking company or of its offices or branches are being conducted and make a report thereon; (j) require the banking company to make such changes in the management within such time as the State Bank may consider necessary in consequence of the state of affairs disclosed during or by the inspection; (k) require such changes in the Board of Directors of the banking company, as the State Bank may consider necessary; (l) suspend from office, the Chairman or director or chief executive officer, by whatever name called, or other officer of the banking company, with effect from such date and for such period as may be specified by the State Bank; (m) require the banking company to convene the general meeting of the members for purposes of the adoption of measures deemed necessary by the State Bank; (n) require banking company to limit any discretionary remuneration to any director, chief executive officer or other officer of the banking company concerned; (o) require the banking company to implement its recovery plan and report its progress to the State Bank at such intervals as may be specified by the State Bank; (p) require the divestment of specified loss-making or risky assets or business lines; or (q) require the banking company to carry out any capital reduction and cancel any portion of shares of the banking company which is depleted or unrepresented by available assets; or dilute the participation of the existing shareholders by issuing new shares or reduce full or part of the preference shares, subordinated debt or sub-ordinated Sukuk, by whatever name called, as issued by the banking company or convert these instruments into ordinary shares, as permitted by the terms of such instruments. Any action under this clause shall have effect notwithstanding the provisions contained in sections 89 to 97 of the Companies Act, 2017 (XIX of 2017), sub-section (2) of section 87 the Securities Act, 2015 (III of 2015) or any other law for the time being in force. (3) Where the voting shares of a banking company are to be acquired for the purposes of a recapitalization as an early intervention measure under this section, the Securities and Exchange Commission of Pakistan, upon a request by the prospective acquirer and in consultation with the State Bank, may exempt any such acquisition from section 111 of the Securities Act, 2015, where applicable.]

Effective date: 1962-06-07

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