4.

Directors and Other Officers (Questions) Page 623

Ch # 4: Directors and Other Officers

Practice Questions for Assessment - Open Book Perspective

Q# Question

Q1* Ahmed is a director on the boards of Nazeer Industries Limited (NIL) and King Limited
(KL), which is the subsidiary of NIL. KL is in process of disposing off its land in
Industrial Zone 1 since it wants to shift the production plant to Industrial Zone 2.
Owing to the growing demand of Zone 2, the management of KL has been finding it
difficult to obtain the plot in desired zone. Considering the difficulties of KL, Ahmed
has offered to sell his plot in Zone 2 in consideration of KL’s land in Zone 1. According
to Ahmed, the fair values of both properties are approximately the same.

Required:
Under the Companies Act, 2017 state the conditions which must be met before such
transaction is executed under the arrangement proposed by Ahmed. (04)

Q2* The board of directors of Propel Limited (PL), a listed company, has taken the
following decisions in its recent meeting:

(i) Sell-off entire investment in Adam Limited (AL), one of PL’s most profitable
associated companies, at a premium of 30% above market value. For the last five
years, AL has consistently been contributing 80% of PL’s total income.
(ii) Purchase 70% stake in Mina Limited (ML), listed on Pakistan Stock Exchange
Limited, which is a direct competitor of AL.

The board is confident that PL is capable of successfully rebranding ML’s product line
and surpassing AL’s market position in no time. During the board meeting, one of the
directors showed his concern that if PL is not able to successfully rebrand the ML’s
product line, it would drastically reduce PL’s own operations. However, the board
remained quite optimistic of ML’s success in view of profit forecasts and
management’s competence.

Required:
(a) In the light of Companies Act, 2017 comment whether the directors are
exclusively entitled to take the above strategic decisions. Also, briefly describe
further approvals or requirements, if any, attached to these decisions. (05)

Q3* Rapid Constructions Limited (RCL) is a listed company. Advise the Board of Directors
of RCL on the following matters, in the light of the provisions of the Companies Act
2017:
4. Directors and Other Officers (Questions) Page 624

(a) A request has been made by an independent director for increase in

remuneration of directors from Rs. 25,000 to Rs. 40,000 for attending the Board
and sub-committee meetings and performing extra services. (02)
(b) Mr. Dawood, who is a director, wants to appoint his brother in his place as he is
going abroad on vacations. (02)
(d) Mr. Asad is a director but is not a member of the company. (03)

Q4* Kamran is the director of Amazing Paper Limited (APL) and Super Glue Limited (SGL).
In a meeting, the board of directors of APL approved a contract for the purchase of
Glue from SGL. Kamran voted in favour of the resolution. A shareholder of APL has
objected that Kamran has unlawfully influenced the transaction to benefit SGL.

Advise Kamran on the validity of the shareholder’s objections, and the consequences
which Kamran may face under the Companies Act 2017. (07)

Q5* The election of directors of Nihal Motors Limited (NML), a listed company, was held at
the Extraordinary General Meeting where seven out of nine candidates were to be
elected as directors. After the meeting was over, an email was received at NML that Mr.
Nihal had expired in a hospital in England.

However, the time of Mr. Nihal’s death was not mentioned. The result of the meeting
shows that Mr. Nihal had received the sixth highest number of votes in the election. In
the light of Companies Act 2017 state how the directors should deal with the above
situation (06)

Q6* An equitable mortgage was created on the factory building of Asif Textile Mills Limited,
a listed company, to secure a long term loan obtained from Mrs. Wasif, who is the
spouse of a director of the company. All the eight directors of the company were
informally aware about Mr. Wasif’s interest in the transaction. The board of directors
approved the transaction in their meeting which was attended by five directors.

Upon inspection of the register of contracts in which directors are interested, a

member of the company filed an appeal with the SECP, claiming that the mortgage is
invalid because Mr. Wasif, who is an interested director, had also voted on the matter
and therefore the contract is void.

In the light of the provisions of Companies Act 2017 you are required to:

(a) Evaluate the above situation and comment thereon in the light of the provisions of
the Companies Act 2017. (07)
(b) Explain the manner in which a general notice, regarding disclosure of interest in a
contract, may be given by directors of a company. (05)
4. Directors and Other Officers (Questions) Page 625

Q7 Under the provisions of the Companies Act, 2017 comment on each of the following
independent situations:
(i) Opticians Limited (OL), a listed company, plans to appoint Yameen as an
independent director of OL. Yameen was Head of Operations of Glasses Limited till
December 2016. Glasses Limited is a subsidiary of Opticians Limited. (02)
(ii) Zafar was recently appointed as a Director of HP Limited, a listed company. In
March 2018 the board of directors came to know that Zafar had been declared a
defaulter by the High Court. (02)
(iii) Kalim is a director of Behaal Limited. On 1 October 2017 Kalim went abroad on a
personal trip and returned back on 15 February 2018. He was unable to attend
five board meetings which were held during this period. (02)

Q8 Disneyland Limited is considering purchase of a new production house which is

currently owned by Marvels (Private) Limited. The Board of Directors of Disneyland
Limited is considering to give responsibility of negotiation and finalization of the deal
to two of its Directors, Moiz and Kareem. However, Naghma the wife of Moiz and their
15 year old son Riaz jointly hold 15% shares of Marvels (Private) Limited.
In the light of Companies Act, 2017 discuss the duties and responsibilities of Moiz
under the above circumstances. (04)

Q9 Sunshine Limited, an unlisted company, had three directors A, B and C. After two and
half years of their appointment, A died in a car crash. B and C are of the opinion that
since the election of directors are due in six months time, there is no need to fill the
casual vacancy. Discuss the above situation in the light of the Companies Act, 2017.
(02)

Q10 Golden Limited (GL), registered with a paid-up capital of Rs. 20,000,000 consisting of
ordinary shares of Rs. 50 each, has decided to remove one of its elected directors
Saleem due to poor performance. Saleem was elected on the board by securing
1,800,000 votes in a general meeting held on 1 January 2015. The least number of
votes casted for electing a director in the meeting was 1,200,000. GL has seven
directors on the board.

Under the provisions of the Companies Act 2017 enumerate:

(i) the number of votes required by Saleem to retain his directorship in GL.
(ii) what would be your answer in (i) above, if Saleem was elected to fill a casual
vacancy on the board. (03)

Q11 An unlisted public company has six members all of whom are directors of the company
and were elected on 1 January 2012. One of the directors wishes to sell all his shares.
In the light of above explain whether or not the following are correct:
(i) The director selling the shares will no longer remain the director of the company.
(ii) It will be necessary to appoint another person as director in his place for next
three years.
4. Directors and Other Officers (Questions) Page 626

Q12 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)

Q13 Explain whether or not the following statements are in accordance with the provisions
of the Companies Act 2017. A director shall, ipso facto, cease to hold office if he absents
himself from any meeting of the directors. (03 marks)

Q14 Explain whether or not the following statements are in accordance with the provisions
of the Companies Act 2017. A direc tor of a listed company cannot assign his office to
another person under any circumstances. (03 marks)

Q15 Explain the exception to the following provisions as specified under the Companies Act
2017. In a meeting of the board of directors, no director shall take any part in the
discussion of, or vote on, any contract or arrangement entered into, or to be entered
into, by or on behalf of the company, if he is in any way, whether directly or indirectly,
concerned or interested in the contract or arrangement, nor shall his presence count
for the purpose of forming a quorum at the time of any such discussion or vote; and if
he does vote, his vote shall be void. (04 marks)

Q16 As per the requirements of Companies Act 2017, comment on the appropriateness or
otherwise of the following statements
a) A director has recently disposed of his shares and due to this disposal his
directorship status is also no more. (03)
b) A director is planning to assign his directorship to his brother, who wants to join
that seat for some months. But the Companies Act 2017 have expressly prohibited
any sort of such assignment (03)
c) A director wants to enter into a contract with company for supply some of his own
merchandise to the company on market rates. But he has only taken approval of
directors and not the members (03)
d) Company has offered to position of Chairman to their existing Chief Executive
which is a violation of law (02)
e) An independent director of a listed company have claimed that he shall not be held
liable for such acts of company which had occurred without his knowledge and
connivance. (02)
f) Spouse of a director in Habib Bank Limited have taken loan from the company
without approval of members and SECP and hence is a contravention of the
Companies Act 2017 (03)
g) A member have claimed that company is not preserving the minutes book, of
meetings of the board, for 20 years and hence is violating the law (02)
h) Directors have fixed the number of directors to be elected as 14 exactly 39 days
before AGM. After 10 days some members met and are much worried as they only
wanted to fix 10 seats for elected director. As the time remaining in hand is less
than 35 days, now this is impossible to change the numbers so fixed (02)
4. Directors and Other Officers (Questions) Page 627

i) A director of a private company had an interest in a contract of company and

haven’t disclosed his interest to other directors and also have participated in
voting on that business claiming that company law haven’t mandated it to disclose
interest or refrain from voting for a director of a private company (03)

Q17 Blue Black Limited, a listed company has a paid up capital of Rs 100 million consisting
of shares having face value of Rs 10 each. Last election of its Board of Directors was
held on April 15, 2008 in which eight directors were elected. Total votes casted in the
election were 2,400,000. Four of the directors belonged to the same family. The
remaining directors were Mr. White, Mr. Dark purple, Mr. Green and Mr. Yellow. They
secured 600,000, 350,000, 480,000 and 220,000 votes respectively. The remaining
votes were equally distributed among the four directors of the family. Mr. White died
on May 30, 2008 and Mr. Light Gray was appointed as a director on June 15, 2008 to
fill in the casual vacancy.
Explain the following in the light of the provisions of the Companies Act, 2017:
a) Who is responsible to fill the casual vacancy in the Board, what is the deadline for
the same and when would Mr. Light Gray’s term of office be completed? (03)
b) The conditions required to be fulfilled if a person desires to remove the following
directors :
(i) Mr. Light Gray (03)
(ii) Mr. Dark purple (05)
Q18 Election of directors of Jadeed Technologies Limited (JTL), a listed company, is
scheduled to be held on 15 October 2020. The board of directors has requested
Mohsin, one of the leading engineers, to contest the upcoming election as non-
executive director for adding value to the board.

Before responding to the offer of JTL’s board, Mohsin has sought your advice on the
following concerns:
(i) Since he has no relationship with JTL either pecuniary or otherwise, can he contest
the election as non-executive director?
(ii) Would he be subjected to unforeseen liability that may arise due to adverse action
of other directors?
Under the provisions of the Companies Act, 2017, advise Mohsin with regard to the
above concerns. (05)

Q19* Bravo (Pvt.) Limited (BPL) has two shareholders. All the directors of the company are
nominees of these two shareholders. The details are as follows:
Name of shareholders No. of shares Nominee directors
Tiara Limited (TL) - listed company 6,030,000 5
Junaid 2,970,000 *3
9,000,000 8
* including chief executive
4. Directors and Other Officers (Questions) Page 628

TL wants to change the chief executive officer and appoint one of its directors as the
chief executive of BPL before the expiry of the term of the office of existing CEO.
In the light of the provisions of Companies Act, 2017 advise TL in above situation. (03)

Q20* In the first meeting of Board of Directors of Alif Cement Ltd a public listed company,
Mr. Raoof proposed the name of Mr. Haseeb for appointment as chief executive of the
Company. Mr. Zahid opposed the proposal on the following grounds:
(i) Mr. Haseeb is also the Chief Executive of Bay Cement (Pvt) Limited which holds
15% shares in Alif Limited.
(ii) he is involved in the business of stock brokerage.

Comment on statement of MrZahid in the light of the provisions of Companies

Act 2017. (04)

Q21 Xiam Limited (XL) is due to conduct its first annual general meeting in March 2019. XL
wants to propose Rehan Hameed & Co., Chartered Accountants, as the auditors of the
company for the next term, in place of the existing auditors, Jamil Behram & Co.,
Chartered Accountants. Under the Companies Act, 2017:
(a) Identify who has the right to propose auditors and state the conditions which are
required to be fulfilled before presenting any such proposal in the AGM. (05)
(b) What will be the term of the auditors appointed in the first annual general
meeting? Briefly state the situations under which the auditors may cease to hold
office before expiry of the above term. (03)
(c) What are the rights of Jamil Behram & Co., Chartered Accountants, where Rehan
Hameed & Co., Chartered Accountants, are proposed to be appointed as the
auditors in the annual general meeting? (03)

Q22 Under the provisions of the Companies Act, 2017 analyse and comment on each of the
following independent situations:
(a) On 1 January 2017 Rahat and Company, Chartered Accountants (RC) appointed
Rao Bashir as a Director in assurance department, with a commitment to promote
him as a partner in due course. RC is the auditor of Clove Limited (CL). Prior to
joining RC, Rao Bashir was a director in CL. He left his job in 2016 but still holds
500,000 shares in CL. (03)
(b) Tarkwa (Pvt) Limited (TPL) has a paid-up capital of Rs. 2,800,000. It was a 90%
owned subsidiary of Niger Limited (NL). However, NL recently disposed of 70% of
its holding in TPL to a partnership firm, Abad Associates (AA). All the partners in
AA are also the directors in NL. TPL is now planning to appoint Mugabe, who is a
member of the Institute of Cost and Management Accountants of Pakistan, as its
auditor. Mugabe’s brother is also a partner in AA. (04)
(c) Dushanbe Limited (DL) intends to appoint Sonu and Company, Chartered
Accountants, as its auditor. DL has a paid up capital of Rs. 850 million which
includes ordinary share capital of Rs. 180 million.
4. Directors and Other Officers (Questions) Page 629

Anjum, the wife of a partner in Sonu and Company, is a director in Jabal Limited
(JL). JL holds 30 million non-voting preference shares and 3 million ordinary
shares in DL. The par value of both the preference and ordinary shares is Rs. 10
each. (03)

Q23 In the light of Companies Act, 2017 comment on each of the following independent
scenarios:
(a) Partners of Ubaid & Co., Chartered Accountants have authorised Zehra, who is a
chartered accountant, to sign the audit report of Tufail Limited. Zehra is a
manager in the firm and has been managing the audit of Tufail Limited for a
number of years. (02)
(b) Tariq Limited a listed company, is due to hold its annual general meeting on 15
September 2017. Discuss the rights and duties of the auditors of Tariq Limited in
relation to the meeting. (04)
(c) Fareed, a director of Tameer Limited, got married to Hira, a chartered accountant.
Hira is a senior employee of Salman & Co., Chartered Accountants who are also the
auditors of Tameer Limited. (02)
(d) Brass Limited wants to appoint Jafer & Co., Chartered Accountants as their
statutory auditor. One of the partners in Jafer & Co. had served on the Board of
Brass Limited for many years as a government nominee. (02)

Q24 Under the provisions of the Companies Act 2017 briefly describe whether Murad is
eligible to be appointed as an auditor of the company in each of the following
independent situations:
(i) Murad, a partner in Delta and Company, Chartered Accountants, is also a director
in Gama Limited (GL). His firm has received an offer for appointment as auditors
of Star Limited (SL). Both GL and SL are subsidiaries of Pluto Limited (PL). (03)
(ii) Murad is a sole proprietor in Murad and Company, Chartered Accountants. He has
received an offer for appointment as auditor of Super Energy Limited (SEL), a
power generation company in Multan. Murad has not paid his electricity bills to
SEL for the last two months. (02)
(iii) Murad is a partner in Beta & Company, Chartered Accountants (BCC). His firm has
accepted an offer for appointment as auditors of Panama Limited (PL). Rita, who is
Murad’s sister, is working as an internal auditor in PL. She also owns 20% shares
in PL. Rita disposed the shares to Murad’s wife, within 30 days of appointment of
BCC but continues to remain employed in PL. (05)
Q25 Daud and Company, Chartered Accountants (DC), has received an offer for
appointment as auditor of Jamal Limited (JL). Wife of Daud is a Shareholder and
Director in Royal Limited (RL).

Required: In accordance with the requirements of the Companies Act, 2017, state
whether and under what circumstances DC could accept the audit, under each of the
following situations:
4. Directors and Other Officers (Questions) Page 630

(a) JL holds 51% shareholding in RL. (03)

(b) JL is an associated company of RL. (05)
(c) One of the directors in JL also holds 10% shareholding in RL. (02)
Q26 Comment on each of the following independent situations in respect of appointment of
auditors, with reference to the applicable rules and regulations:
a) Guava and Company, Chartered Accountants, have received a request for
appointment as auditor of Orange Bank Limited (OBL). Most of the partners of
Guava and Company maintain their accounts with OBL and are enjoying credit
card facilities from them. The maximum outstanding balance on the credit card
facility, due from any partner is Rs. 399,000.
b) Apricot and Company, Chartered Accountants, have received an offer for
appointment as auditor of Banana Limited. Mr. Pumpkin who is a nominee
director of the Government on the Board of Directors of Banana Limited holds
25% shares in Water Melon Limited. Spouse of a partner also holds shares in
Water Melon Limited.
c) Mr. Zaheer, a legal practitioner, has received an offer for appointment as external
auditor of Lychee (Private) Limited (LPL). The paid up capital of LPL is Rs.
1,500,000 of which 40% is owned by Blue Black Limited, a listed company.
d) Walnut and Company, Chartered Accountants, have received an offer for
appointment as external auditors of Wasim (Private) Limited (WPL), in place of
the previous auditors, who were removed before the completion of their term. You
may assume that WPL has completed all the legal formalities before removing the
previous auditors.
e) Mr. Sadiq has recently joined your firm as a partner. He has served on the Board of
Directors of Strawberry Limited (SL) until 30 June 2009, as a Government
nominee. In the Annual General Meeting of SL held on 31 August 2011, a
shareholder has proposed the name of your firm for appointment as the external
auditors for the year ending 30 June 2012. (11 marks)
Q27* Due to a dispute among the directors of Sun Limited, a listed company, all the directors
want to remove Mr. Hameed from the directorship of the company prior to the
completion of his term. State the procedure and the conditions to be complied with if
the company wants to remove Mr. Hameed from the directorship of the company,
under each of the following assumptions:
(i) He was elected as a director of the company.
(ii) He became the director of the company by subscribing to the memorandum of
association of the company.
Q28* RK Limited (RKL), a listed company, holds 6.3 million ordinary shares of TK (Private)
Limited (TKPL) whose paid-up capital consists of 10 million ordinary shares of Rs. 10
each. The remaining shares are held by Mr. Adnan and his family. The Board of TKPL
consists of eight directors of which five directors represent RKL while the remaining
three directors, including the chief executive, are representatives of Mr. Adnan and his
family.
4. Directors and Other Officers (Questions) Page 631

RKL is presently considering to appoint BL & Co., Chartered Accountants, as auditors

of TKPL in the forthcoming annual general meeting. The spouse of one of the partners
of BL & Co holds one hundred thousand shares in TKPL.

Comment on the above proposal in the light of provisions contained in the Companies
Act 2017.

Q29* The following persons are desirous of including his/her name on the databank of
independent directors maintained by an Institute notified by the Commission:

Relevant DTP
Name Education Other details
experience Completion
1. Azam Post- 20 years Yes Entered into a plea
graduate (one year bargain arrangement
ago) with NAB more than
5 years ago
2. Babar Member 8 years Yes None
ICAP (two years
ago)
3. Chandni Graduate 9 years No None
4. Dawood Matriculation 18 years No 16 years’ experience
as director of a listed
company
5. Eman A Levels None Yes Owns significant
(six month shareholdings in
ago) various companies

All of the above persons are willing to act as independent director of listed companies
and can confirm that on appointment would devote reasonable time to the affairs of
the company.

Required:
(a) Discuss with reasons, whether the above persons are eligible to be included in the
databank of independent directors, in particular discuss the requirement of
completion of Directors’ Training Program.
(b) Discuss the timeframe for selection of a person as an independent directors once
his/her is included in the databank of independent directors.

Q30* Radium Industries Limited (RIL) is a listed company and it selected Sarfraz and Shoaib
as independent directors from the databank of independent directors maintained by
the Institute notified by SECP.

Sarfraz and Shoaib were elected following the due election process in the AGM of RIL.
4. Directors and Other Officers (Questions) Page 632

Three months later, the following issues have come to light:

 Sarfraz was not eligible to be independent director of RIL.
 Shoaib’s information in the databank of independent directors was not complete
and updated.
 The board of directors of RIL approved transactions which were in contravention
of law. Sarfraz and Shoaib both voted in favour of approval of the transactions.
 RIL also carried out transactions which did not require board’s approval. Sarfraz
and Shoaib had no knowledge about these transactions.

Required:
Discuss the liability and responsibility of RIL, Sarfraz, Shoaib and the Institute
maintaining the databank in respect of above issues.

Q31* Majeed is a director in Multan Electronics Limited (MEL), a listed company. His
brother Naveed bought 24 air conditioners from main showroom of MEL at discount of
7% of retail price to be installed at his business premises.

MEL has widely known policy of allowing same discount to any customer buying
minimum quantity of 20 air conditioners of any model.

Required:
Discuss the implications if Majeed did not disclose the interest in the above transaction
and above transaction has not been laid before the board of directors to be approved
as related party transaction.

Q32* Magnesium Foods Limited (MFL) is a recently incorporated listed company. It has
established its branch offices in all major cities of Pakistan and is planning to expand
its operations overseas. The directors are concerned about difficulty of reporting and
legal compliance in respect of related party transactions particularly due to dispersed
operations of MFL.

Required:
Advise the board of directors and committee of directors regarding their responsibility
to ensure compliance with the law relating to related party transactions, in the light of
relevant regulations.
(Ignore the requirements of Companies Act, 2017)

Q33 Deodar Limited (DL) is a listed company engaged in the business of manufacturing and
marketing of chemicals. DL holds investments in following unlisted companies for last
many years:
4. Directors and Other Officers (Questions) Page 633

Name Paid-up capital % of DL’s

shareholdings
Oak Limited (OL) Rs. 750 million 100%
Cedar (Private) Limited (CPL) Rs. 250 million 45%
Mahogany Limited (ML) Rs. 550 million 40%
OL also holds 30% shares in CPL and 60% shares in ML.

During the month of May 2022, following decisions were taken in DL’s board meeting:
 Approved the terms of contract under which CPL will supply raw materials to DL
at a special discount of 40% on the prevailing price and an exceptionally favorable
credit period of 180 days. The contract shall be for the period of three years
effective from the signing date.
 Principally approved to amalgamate OL and ML with and into DL to achieve
economies of scale and an efficient operational structure.

Required:
Under the applicable corporate laws:
(a) discuss the statutory compliances to be made by DL in respect of the contract with
CPL and subsequent transactions made thereunder. Assume that the contract with
CPL is signed on 8 June 2022. (04)