4.

Directors and Other Officers (Solutions) Page 749

Ch # 4: Directors and Other Officers

Q# Solution

Q1* Section 211 of Companies Act, 2017.

(i) KL cannot enter into such arrangement unless prior approval for the non- cash
transaction is obtained through a resolution in general meeting;
(ii) Since Ahmed is also the director of KL’s holding company, approval from
shareholders of NIL is also required to be obtained by passing a resolution in
general meeting of the holding company;
(iii) The notice for approval of the resolution by KL and NIL shall include the
particulars of the arrangement along with value of the assets involved in such
arrangement duly calculated by a registered valuer.

Q2* Regulation 14 of Listed Companies (Code of Corporate Governance) Regulations,

2019.
Section 183 of Companies Act, 2017.
Acquisition of substantial stake in ML falls within the powers of the board and does not
require any further approval under the Companies Act, 2017.
However, for selling investment in AL, consent of members in the general meeting is
needed either specifically or by way of an authorisation, since:
 AL is an undertaking which generates more than 20% of PL’s total income
during the previous financial year.
 PL’s main business does not comprise of selling such undertakings.
Secondly, any resolution passed in this regard, if not implemented within one year
from the date of passing, shall stand lapsed.
Thirdly, since PL is a listed company and disposing of AL may lead to drastic decline in
PL’s business operations, risking PL’s own existence, there needs to be a viable
alternate business plan duly authenticated by the board.

Q3* Section 170, 174, 152 and 153 of Companies Act, 2017.
(a) The remuneration of a director for performing extra services, may be determined
by the directors or the company in general meeting, in accordance with the
provisions in the company's articles.
Further, the remuneration for attending the Board of directors’ meetings or
Committee Meetings cannot exceed the scale approved by the company or the
directors, as the case may be, in accordance with the provisions of the articles of
the company.
(b) Following conditions must be complied with if Dawood’s brother is to be
appointed as an alternate director
(i) The absence of Dawood should be for a period of at least 90 days.
(ii) The directors of the company approve the grant of leave to Mr. Dawood and
the appointment of alternate director.
(iii) Dawood’s brother must be a member of RCL and should not be ineligible to be
appointed as a director of RCL in any other manner.
4. Directors and Other Officers (Solutions) Page 750

(c) According to the provision of the Companies Act 2017 any member shall at any
time after seven days from the meeting, be entitled to be furnished with a certified
copy of the minutes of the general meeting when demanded by him subject to
some fee imposed by the company. Therefore, Farid cannot request for inspection
or a copy of the minutes of the meeting before 9 December 2016 as the meeting
was held on 2 December 2016.
Further, RCL is required to furnish copy of the minutes of the meeting within seven
days from the date of the request. Since Farid has made the request on 5 December
2016, RCL may furnish a copy by 16 December 2016.

(d) The condition for a director to be a member of the company does not apply to Asad
if he is:
(i) representing the Government or an institution or authority which is a
member;
(ii) an employee of the company;(whole-time director)
(iii) a Chief executive;
(iv) representing a creditor or other special interests by virtue of contractual
arrangements.

Q4* Section 205, 207 and 212 of Companies Act, 2017.

Every director of a company who is in any way interested in any contract or
arrangement entered into, on behalf of the company shall disclose the nature of his
interest at a meeting of the directors or through a general notice.
Furthermore, no director of a company shall, as a director, take any part in the
discussion of, or vote on, any contract or arrangement entered into, by or on behalf of
the company, if he is in any way interested in the contract or arrangement and if he
does vote, his vote shall be void.

In view of the above provisions of the Companies Act 2017, Kamran may have to face
the following consequences:
(i) Since Kamran is directly interested in the contract for purchase of glue, his
failure to disclose his interest to the directors shall constitute a violation and he
shall be liable to a penalty of level 1.
(ii) Karman’s participation and voting on the proposed contract is also a breach of
the above provisions of the Companies Act 2017, and it shall attract a same
penalty of level 1
(iii) Moreover, the court may, on a petition by members/shareholders having not
less than ten percent of the voting power in the APL, declare such proceedings
or part thereof invalid on account of irregularity in the proceeding of the
meeting.
(iv) The Court may also declare Kamran as ineligible on account of lacking fiduciary
behavior after giving him an opportunity of showing cause against the proposed
action. If such declaration is given, Kamran would be rendered ineligible for
appointment as director; and, shall, ipso facto, cease to hold office.
4. Directors and Other Officers (Solutions) Page 751

Q5* Section 159 and 155 of Companies Act, 2017.

Since the e-mail was received after the meeting and [Link] had obtained sixth
highest number of votes in the election, the status of [Link] would depend on
whether the results of the election had been declared before his expiry or not.

If [Link] had expired prior to the declaration of the result of election of directors, the
candidate who had secured the highest votes at the 8th position in order will be
declared as elected, being the 7th Director.

If [Link] had expired after the declaration of the election results, [Link] would
have become a part of the board of directors. In this situation, a casual vacancy would
have arisen, on the death of [Link]. The directors of NML would be required to fill up
this casual vacancy at the earliest but not later than 90 days from the date of the
occurrence of the vacancy. The person so appointed shall hold office for the remainder
of the term of [Link].

Q6* Section 205 and 207 of Companies Act, 2017.

(a) [Link] should have disclosed the nature of his interest in the contract in the
meeting of the board of directors at which the question of entering into the
contract was first taken up for consideration

[Link] should not have participated in the discussions of approving the contract
and his presence would not have been considered for the purpose of forming a
quorum or vote and if he had voted, his vote should have been void
However, the contract may not become void merely on the ground of non-
disclosure of interest by [Link] unless with the absence of his vote, there would
be no quorum.

(b) A director shall give a general notice to the effect that he is a director or a member
of a specified body corporate or a member of a specified firm and is to be regarded
as concerned or interested in any contract which may after the date of the notice
be entered into with body corporate or firm.

Any such general notice shall expire at the end of the financial year in which it is
given but may be renewed for further period of one financial year at a time by a
fresh notice given in the last month of the financial year in which it would
otherwise expire.
No such general notice and no renewal thereof shall be of effect unless either it is
given at a meeting of the directors or the directors concerned take reasonable
steps to ensure that it is brought up and read at the first meeting of the directors
after it is given.

Q7 Section 166 of Companies Act, 2017.

(i) As per the requirements of the Companies Act 2017
“No director shall be considered independent if he has been employee of the company,
its subsidiaries or holding company within last 3 years”
4. Directors and Other Officers (Solutions) Page 752

Therefore in the given scenario, Mr Yameen cannot be appointed as an independent

director being the ex-employee of subsidiary of Opticians Limited and 3 years has not
been passed yet.

Section 153 of Companies Act, 2017.

(ii) As per the requirements of the Companies Act 2017:

A person is ineligible to become a director of any listed company if he has been

declared by Court of competent jurisdiction as defaulter in repayment of loan to a
financial institution

In the given situation if the default relates to repayment of loan to financial institutions
then Mr Zafar cannot continue the position of director in HP Limited

Section 174 of Companies Act, 2017.

(iii) As per the requirements of the Companies Act 2017:
An Alternate director may be appointed by director under following situation
 With the approval of board
 During his absence from Pakistan of not less than 90 days
 He shall vacate office when appointing director returns Pak.

Moreover if a director makes himself absent in consecutive 3 meetings of the board

without leave of absence, he must vacate the office.

So If Mr Kamil had appointed any alternate director who had attended the meetings,
then Mr Kalim would not vacate office. Or alternately he should have submitted his
leave of absence to other directors.

Q8 Section 205 and 207 of Companies Act, 2017.

As per the requirements of the Companies Act 2017:
Whenever a director is interested in any of the business of the company he should
disclose the same to other directors at first meeting of directors in which discussion is
started director. Moreover he cannot take part in discussion, or vote over the approval
of matter where he is interested, nor to be counted in the quorum

So if Mr Moiz follow the above mentioned steps there would not be any non-
compliance of law.

Q9 Section 154 and 161 of Companies Act, 2017.

As per the requirements of the Companies Act 2017 filing of the casual vacancy for
company other than listed is not mandatory (unless number of directors falls below
minimum).

In the above situation as the number of directors fall below 3, therefore they need to
appoint the casual vacancy.
4. Directors and Other Officers (Solutions) Page 753

Q10 Section 163 of Companies Act, 2017.

(i) As per the requirements of the Companies Act 2017, the resolution for removal of
director shall not be considered as passed, if the number of votes casted against
resolution (i.e. in favor of director) is equal to or exceeds minimum No of votes casted
at immediately preceding election of directors (in case of an elected director)

Therefore Saleem would require 1,200,000 votes to retain his status as a director

(ii) As per the requirements of the Companies Act 2017, in case of an director
appointed on a casual vacancy, the resolution for removal of director shall not be
considered as passed, if the number of votes casted against resolution (i.e. in favor of
director) is equal to or exceeds the average votes as per following formula:
Total votes available [i.e. No of directors x No of shares] divided by the No of directors
for the time being

If Saleem gets at least above number of votes, he would be able to retain his status as a
director

Q11 Section 153 of Companies Act, 2017.

(i) As per the requirements of the Companies Act 2017 an ineligibility of a director is
that he is not a member except
 Person representing a member who is not a natural person
 Whole-time director who is an employee of the company;
 Chief Executive
 Person representing a creditor or other special interests through contractual
arrangement

So apart from above exceptions, director would cease to be a director if he is no more a

member.

(ii) As per the requirements of the Companies Act 2017 filing of the casual vacancy for
company other than listed is not mandatory (unless number of directors falls below
minimum).

As the company would have still more than 3 directors, therefore there in no need to
fill vacancy

Q12 Section 162 of Companies Act, 2017.

As per the requirements of the Companies Act 2017:
 If a person acquires requisite shareholding to get him elected as a director, he may
require the company to hold fresh election.
 Number of directors fixed in last election shall not be decreased
 Board shall as soon as practicable within 30 days, proceed to hold such fresh
election.
 A listed company shall follow such procedure as may be specified by SECP for such
fresh election
4. Directors and Other Officers (Solutions) Page 754

Q13 Section 171 of Companies Act, 2017.

The statement is not fully correct as the Companies Act 2017 states that a director
shall ipso facto, cease to hold office if he absents himself (without leave of absence
from the directors) for 3 consecutive meetings of BOD

Q14 Section 174 of Companies Act, 2017.

As per the requirements of the Companies Act 2017:
 Any director shall not assign his office to any other person
 Such appointment shall be void ab-initio.
 Alternate director may be appointed under following situation
- With the approval of board
- During his absence from Pakistan of not less than 90 days
- He shall vacate office when appointing director returns Pak.

Q15 Section 207 of Companies Act, 2017.

 Private Company (neither subsidiary nor holding of Public)
 If director has acted as surety of company and the resolution relates to
indemnification or insurance coverage of that director against any loss incurred by
him for becoming surety of company (company shall only insure liability arises out
of a transaction validly approved by board or the members of company)

Q16 a) As per the requirements of the Companies Act 2017 [Sec 153(i)]; A person
shall not be eligible for appointment as a director of a company, if he is not a
member except following persons
(i) a person representing a member which is not a natural person;
(ii) a whole-time director who is an employee of the company;
(iii) a chief executive; or
(iv) a person representing a creditor or other special interests by virtue of
contractual arrangements;

By disposing of the shares, the director has ceased to be a member.

Accordingly the given statement would be valid and he is also ineligible to act
as director unless he is in any of the above mentioned categories

b) As per the requirements of the Companies Act 2017 (Sec 174); A director
of any company shall not assign his office to any other person and any such
appointment shall be void from day first. However as an exception, the
appointment with the approval of board, of an alternate or substitute director
to act for him during his absence from Pakistan of not less than 90 days is
allowed

If the director in the scenario wants to appoint brother for some months, he
may use the option with approval of other directors if he is planning a foreign
visit of at least 90 days. It is also important to note that the brother must also
be eligible to act as director.
4. Directors and Other Officers (Solutions) Page 755

c) As per the requirements of the Companies Act 2017 (Sec 183(2)(f)); The
directors have the power to authorise a director or the firm of which he is a
partner or any partner of such firm or a private company of which he is a
member or director to enter into any contract with the company for making
sale, purchase or supply of goods or rendering services with the company;
Moreover the transactions with related party that are on arm’s length basis are
outside the scope of section 208

The given statement is not valid because directors need not to take approval
from members.

d) As per the requirements of the Companies Act 2017 (Sec 192); The
Commission may specify the classes of companies for which the chairman and
chief executive shall not be the same individual.

If the scenario relates to the company specifically prohibited to do same, both

positions must not be allocated to same personnel. Other than those
companies, both position are allowed to be allocated to the same person

e) As per the requirements of the Companies Act 2017 (Sec 181); An

independent director shall be held liable, only in respect of such acts of
omission or commission by a listed company or a public sector company which
had occurred with his knowledge, attributable through board processes, and
with his consent or connivance or where he had not acted diligently.

Therefore the given statement is appropriate.

f) As per the requirements of the Companies Act 2017 (Sec 182); A company
shall not make a loan to a director unless the transaction has been approved by
a resolution of the members of the company. Moreover for listed company,
approval of the Commission shall also be required before sanctioning of any
such loan.

However as an exception this section shall not apply to a company which in the
ordinary course of its business provides loans or gives guarantees or securities
for the due repayment of any loan.
In the given scenario as the ordinary course of business of HBL is provision of
such loan therefore the approval of members and SECP is not mandatory.

g) As per the requirements of the Companies Act 2017 (Sec 151); the minutes
book, of meetings of the members is required to be kept for 20 years, however
as per Sec 178 the minutes book, of meetings of the board is required to be
kept for 10 years only.

The given statement is therefore not valid as it is discussing the director’s

meetings.
4. Directors and Other Officers (Solutions) Page 756

h) As per the requirements of the Companies Act 2017 (Sec 159); Existing
directors shall fix the number of directors to be elected in the general meeting,
not later than 35 days before convening of such meeting and the number of
directors so fixed shall not be changed except with the prior approval of the
general meeting in which election is to be held

Therefore the given statement is not valid because members can change the
numbering at the general meeting at which election is to be conducted

i) Section 205 regarding disclosure of interest by director have not given any
exemption to director of any company for disclosing his interest at a meeting of
directors, however section 207 have given an exemption to directors of private
company not being a subsidiary or holding of a public company from the
prohibition of voting at that meeting of director

Therefore the given statement is valid to the extent of exemption from

restriction of voting but the same is not valid regarding the exemption to
disclose the interest.

Q17 As per the requirements of the Companies Act 2017 (Sec 155);
Responsibility of casual vacancy & its tenure

Directors are responsible for filling the casual vacancy in the office of directors within
90 days of casual vacancy

Casual vacancy shall be appointed for the remaining term of office of Mr White. (i.e.
April 2011)

Removal of Directors

Directors can be removed by passing a resolution for removal of directors.

(i) Mr. Light Gray (Causal Vacancy)

As per the requirements of the Companies Act 2017, a casual vacancy director cannot
be removed if votes casted in his favor exceeds the number of votes arrived at by
dividing the total number of votes that were available during preceding election by
total number of the directors for the time being

Hence Mr Light Gray would not be removed if votes casted in his favor are 300,000
(2,400,000/8)

(ii) Mr. Dark purple (Elected Director)

As per the requirements of the Companies Act 2017, an elected director cannot be
removed if votes cast in his favor exceeds the minimum number of votes cast at
immediately preceding election
4. Directors and Other Officers (Solutions) Page 757

Hence Mr Light Gray would not be removed if votes casted in his favor are 187,500
(Working 1)

Working 1:

Total Votes casted = 2,400,000

Votes casted to
Mr. White, 600,000
Mr. Dark purple, 350,000
Mr. Green 480,000
Mr. Yellow. 220,000

Remaining Votes 750,000

Vote casted for family directors (Each director) = 750,000/4 = 187,500

So minimum number of votes casted to any director are 187,500

Q18 (i) As per the requirements of section 181 of Companies Act 2017; It is pertinent
to note that pecuniary or other relationship with company are not the only criteria
to establish eligibility of a person to be a non-executive director. Rather, in order
to be a non-executive director of JTL, Mohsin shall have to ensure that he:
 is not from among the executive management team and may or may not be
independent;
 is expected to lend an outside viewpoint to JTL’s board;
 does not undertake to devote his whole working time to JTL and will not
involve in managing the affairs of the JTL;
 is not a beneficial owner of JTL or any of its associated companies or
undertakings;
 does not draw any remuneration from JTL except the meeting fee.

(ii) As far as the unforeseen liability due to adverse action of JTL’s other directors are
concerned Mohsin if elected as non-executive director, shall be held liable, only in
respect of such acts of omission or commission by JTL which had occurred with his
knowledge, attributable through board processes, and with his consent or
connivance or where he had not acted diligently.

Q19* Sec 190 of Companies Act 2017

(b) The directors of a company by a resolution passed by not less than three-fourths of
the total number of directors for the time being, or the company by a special
resolution, may remove a chief executive before the expiration of his term of office.
Therefore, the chief executive of BPL can be removed only if the proposal is
supported by:
 at least 6 directors of the BPL, or
 by 3/4th majority of the members in the general meeting either present in
person or by way of proxy.
4. Directors and Other Officers (Solutions) Page 758

Since TL has only 5 nominee directors on the board of BPL and has 67%
shareholdings, it cannot remove the existing chief executive without the support of
Junaid or his nominee directors.

Q20* Sec 191 of Companies Act 2017

(b) (i) As per the Act, a chief executive of a public company shall not directly or
indirectly engage in any business which is of the same nature as and directly
competes with, the business carried on by the company of which he is the chief
executive.
(ii) Moreover, no person shall be appointed as chief executive of a company if he is a
member of a stock exchange engaged in the business of brokerage.
Therefore [Link]'s contention is correct.

Q21 Sec 246 of Companies Act 2017

(a) Following have the right to propose auditors:
(i) The board of directors
Auditors shall be appointed by the company in the annual general meeting on
the recommendation of the board after obtaining consent of the proposed
auditors. A notice shall be given to the members about proposed change in
auditors with notice of general meeting.

(ii) Member(s) having at least ten percent shareholdings

A member / member(s) having not less than ten percent shareholdings of the
company shall also be entitled to propose any auditor or auditors for
appointment whose consent has been obtained by him/them and a notice in
this regard has been given to the company not less than seven days before the
date of the annual general meeting. The company shall forthwith send a copy
of such notice to the retiring auditors and shall also post it on its website.

(b) The auditors appointed in the first annual general meeting shall retire on the
conclusion of the next annual general meeting. Unless, the auditors appointed in an
annual general meeting becomes disqualified, vacates office due to resignation or
death, or is removed through a members' special resolution.
(c) Jamil Bahram & Co., Chartered Accountants being the retiring auditors shall have a
right to make a representation in writing to the company at least two days before
the date of general meeting. Such representation shall be read out at the meeting
before taking up the agenda for appointment of the auditors.

Q22 Sec 247 of Companies Act 2017

(a) Since Rao Bashir presently is not a partner in RC, the firm can be the auditor of CL.
However, RC at the time of admitting Rao Bashir as a partner, would need to
ensure that:
 the period of three years has lapsed from the date when Rao Bashir resigned
from the directorship of CL.
 The shareholding of Rao Bashir in CL is disposed of.
4. Directors and Other Officers (Solutions) Page 759

(b) TPL is a private company, and is not a subsidiary of any public company and its
paid-up capital is less than Rs.3 million. Therefore, Mugabe can be appointed as
TPL's auditor provided he holds a certificate of practice from ICMAP.
Further, holding of interest by Mugabe's brother or his brother being a director of
NL, does not make Mugabe ineligible for becoming the auditor of TPL.
(c) DL is not an associated company of Jabal Limited (JL) as JL only holds 16.7%
voting shares in DL.
Holding of non-voting shares is not relevant in determining the status of the
company.
Hence, Sonu and Company, Chartered Accountants are eligible to be appointed as
the auditors of Dushanbe Limited (DL).

Q23 Sec 247,249,251 of Companies Act 2017

(a) Signing of Auditors’ Report:
Zehra cannot sign the audit report of Tufail Limited only a partner of Ubaid & Co.
practicing in Pakistan can sign the auditors’ report.

(b) Rights and duties of auditors’:

Duty of the auditors
Since Tariq Limited is a listed Company, auditors’ or a person authorized by them
in writing must be present in the general meeting in which the financial
statements and the auditors’ report are to be considered.
Rights of the auditors
The auditor has a right to receive all notices of and any communications relating to
AGM which any member of Tariq Limited is entitled to receive and to be heard at
the AGM which he attends on any part of the business which concerns him
as auditor.

(c) The spouse of the director of a company cannot be appointed as auditors if

the spouse (Hira) is a partner in the firm. Since Hira is an employee of the auditors’
of the company so it will not affect the appointment of Salman & Co.

(d) Jafer & Co. is not qualified for appointment as auditor of BL if any of its partners
has been a director of BL during the past three years.
Jafer & Co. should not accept the appointment except if the partner resigns from
the firm.

Q24 Sec 247 of Companies Act 2017

Qualification and disqualification of auditors
(i) As per the Companies Act 2017 a person shall not be appointed as auditor of a
company, if he is disqualified for appointment of any other company, which is that
company’s subsidiary or a holding company or a subsidiary of that holding
company. Therefore, Delta & Co. cannot be appointed as an auditor of SL as Murad
is a director in GL which together with SL is a subsidiary of PL.
For appointment as the auditor of the company, Murad is required to resign from
GL’s directorship.
4. Directors and Other Officers (Solutions) Page 760

(ii) As per the Companies Act 2017 a person shall not be appointed as auditor of a
company, if he is indebted to the company. However, in case of a utility provider,
an auditor is not considered to be indebted if his bills for up to ninety days are
pending.
In this case since Murad has not paid only two months electricity bills to SEL,
therefore, he can be appointed as auditor of SEL.

(iii) In accordance with the provisions of the Companies Act 2017 BCC’s appointment
as auditors of PL was valid as Rita’s holding of 20% shares in PL and her
association with PL as internal auditor was not in contravention of any of the
provisions of law.

However, her subsequent disposal of shares in PL to Murad’s wife within 30 days of

BCC’s appointment as auditors rendered BCC’s appointment invalid. According to the
provisions of the Companies Act 2017 a person or his spouse or minor children, or in
case of a firm, all partners of such firm who holds any shares of an audit client or any
of its associated company is ineligible to be appointed as auditors of that company.

Moreover, if after his appointment, an auditor becomes subject to any of the

disqualifications, he should be deemed to have vacated his office as auditor with effect
from the date on which he becomes so disqualified.
Therefore, BCC shall be deemed to have vacated the office of the auditor with effect
from the date on which Murad’s wife acquired shares in PL.

Q25 Sec 247 of Companies Act 2017

(a) JL holds 51% shareholding in RL:
As Daud & Co. (DC) is not qualified for appointment as the auditor of RL due to
directorship and shareholding of partner’s wife in RL, DC cannot be appointed as the
auditor of any of its holding company i.e. JL.

(b) JL is an associated company of RL:

DL is ineligible to act as the auditor of JL, as the spouse of the partner holds shares in
the associated company. However, since Daud’s wife holds shares prior to the
appointment,
DC can be appointed as auditor of JL subject to comply with the following
requirements:
 Disclose this fact to JL at the time of appointment as auditor.
 Divest her investment in RL within 90 days of appointment.
The directorship of Daud’s wife in RL is not relevant for the appointment of DC as the
auditor of JL.

(c) One of the directors in JL also holds 10% shareholding in RL:

Daud and Company can be appointed as the auditor of JL as there is no disqualification
with respect to common shareholding in another company, which is neither a
subsidiary nor an associated company of the prospective audit client.
4. Directors and Other Officers (Solutions) Page 761

Q26 Sec 247 of Companies Act 2017

(a)
(i) The appointment of Guava and Company, Chartered Accountants, will be in order.
(ii) The firm would not be deemed indebted to the company as the amount of debt is
not exceeding Rs. 1,000,000.
(b)
(i) The Appointment of Apricot and Company, Chartered Accountants will be in order.
(ii) Banana Limited and Water Melon Limited are not associated companies as the
common director is a Government nominee.
(c)
(i) Mr. Zaheer cannot be appointed as the Auditor of Lychee (Private) Limited
(ii) There specific qualification requirement for auditors of companies having paid-up
capital of less than Rs. 3 million; The auditor shall be a CA or CMA having
certificate of practice from respective institute or Firm of CAs/CMAs having such
criteria as may be prescribed
(iii) The fact that 40% of the shareholding is owned by Blue Black Limited does not
disqualify Mr. Zaheer as the auditor of LPL but the fact that he is not a CA or a CMA
disqualifies him.
(d) Before accepting the offer Wallnut and Company, Chartered Accountants, apart
from obtaining professional clearance from the existing auditor is also required to
inform the ICAP (Institute) and obtain prior clearance from the Institute.
(e) (i) Since the three year period has not been lapsed,
(ii) Our firm cannot be appointed as the auditor of Strawberry Limited,
The fact that Mr. Sadiq was serving on the board as a Government nominee does
not make any difference, in this case.

Q27* Section 163 of Companies Act, 2017.

In either case, the company may remove Mr. Hameed from the directorship by passing
a resolution in general meeting.
(i) If Mr. Hameed was appointed by the election of directors of the company.
Mr. Hameed shall be removed if votes cast against the resolution for removal are
less than the minimum number of votes that were cast for the election of director
at the immediately preceding election of directors.

However, if Mr. Hameed was elected unopposed then he shall be removed if votes
cast against the resolution for removal are less than the total number of votes for
the time being computed as a product of number of shares held by voter and
number of director elected at the time of his appointment divided by the number
of directors for the time being.
(ii) If Mr. Hameed was appointed by the subscribers to the memorandum of
association of the company.
Mr. Hameed shall be removed if votes cast against the resolution for removal are
less than the total number of votes for the time being computed as a product of
number of shares held by voter and number of director elected at the time of his
appointment divided by the number of directors for the time being.
4. Directors and Other Officers (Solutions) Page 762

Q28* Section 247 of Companies Act, 2017.

BL & Co., Chartered Accountants, cannot be appointed as auditors of TKPL because the
spouse of one of the partners of BL & Co. holds shares in TKPL.
However, the appointment of BL & Co. may be valid if the concerned partner discloses
the fact on his appointment as auditor and gives an undertaking that these shares
would be disinvested, within 90 days of his appointment.

Q29* Regulation 4 and 5(4) of Companies (Manner and Selection of Independent

Directors) Regulations, 2018 and Regulation 19 of Listed Companies (Code of
Corporate Governance) Regulations, 2019.
Part (a) Eligibility
1. Although Azam meets the educational and experience requirements and has also
completed Directors’ Training, his name cannot be included on the databank of
independent directors due to plea bargain arrangement with NAB. It does not
make any difference that the plea bargain arrangement was entered into years
ago.
2. Babar being member of professional body has 8 (more than 5) years’ relevant
experience. Apparently there is no reason to not include his name in the databank
of independent directors. He has already completed DTP, there is no other
requirements.
3. Chandni meets educational requirements if her graduate degree is from a
university recognised and approved by HEC and she has 9 (more than 5) years’
relevant experience as well. Apparently there is no reason to not include her
name in the databank of independent directors. She will be required to complete
DTP within 12 months of her appointment or election as independent director.
4. Although Dawood does not meet educational requirement he has relevant
experience of 18 (more than 15) years making him eligible to be included as
independent director. Apparently there is no reason to not include his name in
the databank of independent directors. He will be required to complete DTP
within 12 months of his appointment or election as independent director. If
Dawood had a minimum of 14 years of education, he would not have been
required to complete DTP due to his more than 15 years of experience as director
of a listed company.
5 Eman does not meet educational and experience requirements to be included in
the databank of independent director. Completion of DTP and her shareholdings
do not entitle her to be included.

Part (b) Selection

Inclusion of the name in databank of independent director does not guarantee
selection as an independent director. Every company selects individual(s) after
exercising its own due diligence.

Q30* Regulation 4(6)(7)(8) of Companies (Manner and Selection of Independent

Directors) Regulations, 2018 and Section 166 and 181 of Companies Act, 2017.
The responsibility of exercising due diligence before selecting a person from the
databank as an independent director shall lie with RIL.
4. Directors and Other Officers (Solutions) Page 763

In particular, RIL must have required Sarfraz and Shoaib to submit an undertaking on
a non-judicial stamp paper that they meet the eligibility requirements alongwith
relevant supporting information.

Sarfraz and Shoaib are in non-compliance of the regulations since they are/were
responsible for the accuracy, adequacy and completeness of the information and
particulars provided by them to the Institute and in case of any subsequent changes
therein.

The Institute, in accordance with the regulations, gives disclaimer that it neither
guarantees nor make any representation regarding the accuracy and or reliability of
the information about any person whose name has been included in the databank.

Further, the Institute shall not be responsible for any contravention of law committed
by any company or tis directors by the reason of the fact that the person appointed by
the company as an independent director was selected from the databank nor it will be
defence in any court of law.

In accordance with the Companies Act, 2017, Sarfraz or Shoaib shall be held liable,
only in respect of such acts of omission or commission by RIL which had occurred with
his knowledge, attributable through board processes, and with his consent or
connivance or where he had not acted diligently.

Q31* Regulation 4 of Companies (Related Party Transactions and Maintenance of

Related Records) Regulations, 2018 and Section 205 and 208 of Companies Act,
2017.
Majeed as a director shall be deemed to be interested or concerned if any of his
relatives, is so interested or concerned. For this purpose “director’s relatives”, are the
director‘s spouse; the director‘s children, including the step children; and the
director‘s parents. Siblings are not included and hence, Majeed was not required to
disclose interest in this transaction.

The expression “related party” includes a director or his relative. For this purpose
“relative” means spouse, siblings and lineal ascendants and descendants of a person.
Naveed being sibling of Majeed is relative of director of MEL. Therefore, Naveed shall
be considered related party of MEL.

A company may enter into any contract or arrangement with a related party only in
accordance with the policy approved by the board, subject to such conditions as may
be specified. However, this requirement does not apply to any transactions entered
into by the company in its ordinary course of business on an arm‘s length basis.

According to the regulations, a transaction between related parties shall be

characterized as an “arm’s length transaction”, only if it is carried out in a way, as if:
(i) the parties to the transaction were unrelated in any way;
(ii) the parties were free from any undue influence, control or pressure;
4. Directors and Other Officers (Solutions) Page 764

(iii) through its relevant decision-makers, each party was sufficiently knowledgeable
about the circumstances of the transaction, sufficiently experienced in business
and sufficiently well advised to be able to form a sound business judgement as to
what was in its interests; and
(iv) each party was concerned only to achieve the best available commercial result for
itself in all the circumstances.

The transaction between Naveed and MEL seems to be an “arm’s length transaction”
according to above criteria carried in MEL’s ordinary course of business. Hence, no
approval of board is required.

Q32* Regulation 6 of Companies (Related Party Transactions and Maintenance of

Related Records) Regulations, 2018 and Regulation 15 and 27 of Listed
Companies (Code of Corporate Governance) Regulations, 2019.
The board is responsible for making a policy approved by the board for related party
transactions subject to minimum conditions as specified.
The board shall ensure:
(a) to educate and train management and relevant employees so that they can
identify and report the related party transactions to the board or other
authorized persons;
(b) to provide direction as to whom a director or employee can consult, in case where
they are uncertain if a transaction is a related party transaction or not;
(c) to set general criteria to approve transactions or arrangement with related
parties at various levels;
(d) to identify and determine whether a related party transaction requires members’
approval;
(e) that any related party transactions that require members’ approval are put before
members;
(f) to fix the responsibility for identification and disclosure of related party
transactions; and
(g) that the company meets its legal and regulatory obligations in relation to related
party transactions.

The details of all related party transactions shall be placed periodically before the
audit committee of the company and upon recommendations of the audit committee,
the same shall be placed before the Board for review and approval. Provided where
majority of the directors are interested in such transactions, the matter shall be placed
before the general meeting for approval.

It is mandatory that the Board shall provide adequate resources and authority to
enable the audit committee to carry out its responsibilities effectively and the terms of
reference of the audit committee shall be explicitly documented which shall also
include review of annual and interim financial statements of the company, prior to
their approval by the Board, focusing on, inter-alia, all related party transactions.
4. Directors and Other Officers (Solutions) Page 765

Q33 CPL is a subsidiary of DL (45% shares held directly by DL and 30% shares held
through OL); hence, both are related parties. Since transactions to be undertaken
under the contract are on non-arms’ length basis, the statutory compliances to be
made by DL in respect of the contract with CPL and subsequent transactions made
thereunder are as follows:
(i) DL shall refer the contract with CPL in its directors’ report to the shareholders
along with the justification for entering into such contract.
(ii) DL shall disseminate prescribed information to PSX about related party
transaction(s), if such transaction(s) individually or taken together with previous
transactions with CPL during a financial year, is of a value equal to or more than
10% of total assets or annual total turnover as per last year’s audited financial
statements of DL, immediately upon entering into such transaction.
(iii) Maintain such record as may be specified by the Commission with regards to said
transactions.
(iv) Details of all related party transactions shall be placed periodically before the audit
committee of DL and upon recommendations of the audit committee, the same
shall be placed before the DL’s board for review and approval.