Law: Securities and Exchange Commission of Pakistan Act, (XLII of 1997)

Section: 33

Law: Companies Act, 2017

Section: 240,240(2),241,502

Securities and Exchange Commission of Pakistan Act (XLII of 1997)--- ----S. 33---Companies Act (XIX of 2017), Ss. 240 & 241---Restrictions on declaration of dividend---Dividend to be paid out of profits only---Scope---Appellant a cellular company disposed of its operating fixed assets and declared the substantial part of gains as interim dividend---Commission issued show cause notice for violation of Ss. 240(2) & 241, Companies Act, 2017; imposed fine of Rs. 5,00,000 on the appellant company; directed the company to stop the payment of the questioned dividend; recover and deposit the amount of dividend paid earlier---Contentions of appellant, inter alia, were that it had entered into Business Transfer Agreement with a company (buyer) whereby, passive infrastructure assets (tower assets) and ancillary contracts were transferred to the buyer; that the Master Services Agreement was executed for provision of tower related services which also created value in the buyer thus, the total consideration agreed between the buyer and appellant included an element by way of premium for the said long-term contract; that the respondent had misinterpreted S. 240(2), Companies Act, 2017 and that the gain on sale of capital assets was set off against all the opening accumulated losses---Validity---Towers and attached devices were fundamental to the running of telecom operations of appellant Company therefore, towers, attached devices and associated services were assets of capital nature---Sale consideration received by appellant was the actual cost paid by the buyer to acquire towers---Sale consideration under the Business Transfer Agreement had not categorized the sale transaction into tangible or intangible/intrinsic---Exception contained in S. 240(2) of Companies Act, 2017 was related to the category of companies whose business was buying and selling of immovable property or assets of capital nature---Treatment of profits from the sale of immovable property or assets of a capital nature of such companies was subject to conditions imposed by the exception---Appellant's business did not consist of buying or selling of towers, therefore, it did not fall under the first…

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