Law:

Section:

Companies Ordinance (XLVII of 1984)------- --------S. 208-------Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2012 (SRO No.27(I)/2012, dated 16-1-2012)-------Investment in associated companies and undertakings-------Company had made investment in its associated company having common directorship in both the companies-------Company passed various resolutions for making investments in associated company-------Enhancement of limit was made in general meeting of shareholders, but no approval was sought for getting the issuance of letter of credit for the associated company which was in the nature of investment in associated company-------Director Enforcement of the Commission sought clarification from the company on compliance of S.208 of the Companies Ordinance, 1984-------Company submitted that all required approvals regarding the investment were placed before the shareholders-------Show-cause notice was issued to all the seven Directors of the company-------Commission being dissatisfied with the response of Directors, held that standby letters of credit issued on behalf of associated company fell under the ambit of investments in terms of S.208 of the Companies Ordinance, 1984-------Issuance of standby letters of credit aggregating Rs.1,000 million, without obtaining sanction of members was a violation of S.208 of Companies Ordinance, 1984-------Taking lenient view, a penalty of Rs.50,000 was imposed on each of the Directors-------Company tried to escape the liability by taking refuge behind Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2012, but as per legal and interpretational norms, secondary legislation could not go behind the ambit of primary legislation-------Section 208 of the Companies Ordinance, 1984 was a primary provision, whereas Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2012 was a piece of secondary legislature-------Company having violated S.208 of the Companies Ordinance, 1984-------Penalty imposed through the impugned order, was not based on any loss caused; rather it was invoked for violation of the requirements…

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