Section 14: Regulation of paid-up capital, subscribed capital and authorized capital and voting rights of share-holders

14. Regulation of paid-up capital, subscribed capital and authorized capital and voting rights of share-holders.-- (1) No banking company incorporated in Pakistan shall carry on business in Pakistan unless it satisfies the following conditions, namely: (i) that the subscribed capital of the company is not less than one half of the authorized capital and the paid-up capital is not less than one half of the subscribed capital and that if the capital is increased it complies with the conditions prescribed in this clause within such period not exceeding two years as the State Bank may allow; (ii) that the capital of the company consists of ordinary shares 1[and perpetual non-cumulative preference shares] only 2[which may be of different kinds and classes as provided by its memorandum and articles]; (iii) 2[* * * * * * *] (iv) that the voting rights of any one shareholder, except those of the 3[Federal Government] or a Provincial Government 2[or such shareholder who has been permitted by the State Bank] do not exceed five per cent of the total voting rights of all the shareholders. (2) Notwithstanding anything contained in any law for the time being in force or in any contract or instrument no suit or other proceeding shall be maintained against any person registered as the holder of a share in a banking company on the ground that the title to the said share vests in a person other than the registered holder: Provided that nothing contained in this sub-section shall bar a suit or other proceeding-- (a) by a transferee of the share on the ground that he has obtained from the registered holder a transfer of the share in accordance with any law relating to such transfer; or (b) on behalf of a minor or a lunatic on the ground that the registered holder holds the share on behalf of the minor or lunatic. (3) Every chairman, managing director or chief executive officer by whatever name called of a banking company shall furnish to the State Bank through that banking company returns containing full particulars of the extent and value of his holding of shares, whether directly or indirectly, in the banking company and of any change in the extent of such holding or any variation in the rights attaching thereto and such other information relating to those shares as the State Bank may, by order, require and in such form and at such time as may be specified in the order. 1[2[(4) The State Bank, if satisfied, may require any banking company by an order in writing stating reasons to increase its paid up capital or enhance the level of regulatory capital, as deemed appropriate, by such extent and within such period as may be specified in the order and the State Bank shall exercise the power reasonably, fairly and justly.] 2[(4A) Any person holding sponsor shares in a banking company shall deposit all such shares in an account opened in a central depository in the manner specified by the State Bank and shall not sell, transfer or encumber the shares in any manner whatsoever without prior written approval of the State Bank.] (5) Notwithstanding any provision contained in any other law for the time being in force,-- (a) if the State Bank has determined that a person is holding or is a beneficial owner of five percent or more shares of a banking company without prior approval of the State Bank or a person that acquired shareholding with prior approval of the State Bank subsequently fails to meet the fit and proper test as the State Bank may, by an order in writing stating reasons, require such person to reduce, divest or transfer to a fit and proper person, his shareholding in the banking company within such reasonable period and in such manner as may be specified in the order; (b) where a person holding five percent or more shares of a banking company is or is likely to be detrimental to the interest of the banking company or its depositors, the State Bank may, by an order in writing stating reasons, require such person to divest his shareholding to a fit and proper person. The State Bank shall exercise the power reasonably, fairly and justly; and (c) no order under clause (a) or clause (b) shall be made unless the person concerned has been given reasonable opportunity of making a representation to the State Bank against the proposed order; If the State Bank is of opinion that any delay would be detrimental to the public interest or the interest of the banking company or its depositors, the State Bank may, at the time of giving the opportunity aforesaid or at any time thereafter and pending the consideration of the representation aforesaid, if any, may make an appropriate interim order, and conduct the proceedings in a reasonably expeditious manner. The interim order may include prohibition of (i) transfer of, or the carrying out of the agreement or arrangement to transfer such shares; (ii) the exercise of voting rights in respect of such shares; (iii) the payment of cash or stock dividends in respect of such shares; and (iv) the issue of further shares to the concerned shareholder; (d) where direction given under clause (a) or clause (b) is not complied with, the State Bank may dispose of such shares either through stock exchange or public auction. The sale proceeds of such shares, after deduction of any expenses incurred by the State Bank, shall be paid to the respective shareholders within a period of three months. If necessary, the State Bank may require (i) issuance of duplicate shares in place of the original shares; and (ii) the 1[relevant central depository] Company to make appropriate changes in their records; and (e) any person aggrieved by the decision of the State Bank under clauses (a), (b) and (d), may prefer appeal to the 1[*] Central Board of Directors of the State Bank but pending decision of the proceedings, the shareholder shall not derive any benefit including dividends, right shares, voting rights, etc. from his shareholding without express permission of the 1[*] Board 1[of Directors of the State Bank]. 1[Explanation.__ The expression "beneficial ownership" shall include the definition of "beneficial ownership of shareholders or officer of a company" given in clause (7) of sub-section (1) of section 2 of the Companies Act, 2017 (XIX of 2017).]]

Effective date: 1962-06-07

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