Banking companies ordinance, 1962

Introduction

Law relating to Banking Companies is governed by Banking Companies Ordinance, 1962.

As we have seen that there are other laws which are related to the banking transactions and are of interest to different stake holders as such we shall take into account these ancillary statutes/ laws besides this ordinance.

Application of other laws shall not be barred under section2

This ordinance shall have limited application to certain financial institutions

1.       The provisions of sections 6,25A, 25AA, 29,31,32,33,40, 41,41A, 41B, 41C, 41D, 42, 83, 84, and

94 of this Ordinance shall, with such modifications as the State Bank may determined from time to time in relation to activities which have implications for the monetary or credit policies of the State Bank, apply to the Investment Corporation of Pakistan, the National Investment Unit Trust, the Pakistan Industrial Credit and Investment Corporation, the House Building Finance Corporation, the National Development Finance Corporation, the Bankers Equity Limited, the Pak-Libya Holding Company Limited, the Pakistan Kuwait Investment Company Limited, the Saudi-Pak Industrial and Agricultural Investment Company Limited, the Small Business Finance Corporation, the Regional Development Finance Corporation, Investment Finance Companies, Venture Capital Companies, Housing Finance Companies Corporations or Institutions which carry on one or more of the businesses enumerated in section 7 of this Ordinance, save and except for leasing companies and modaraba companies, as the Federal Government may from time to time, by notification in the Official Gazette, specify in this behalf.

2.       All notifications issued by the Federal Government which are inconsistent with the provisions of sub-section (1) including such notifications in respect of the National Development Leasing Corporations, Leasing Companies and Modaraba Companies shall stand rescinded with immediate effect.

The Federal Government shall have powers to suspend the operations of Ordinance under section 4. The Federal Government, if on a representation made by the State Bank in this behalf is satisfied that it is expedient so to do, may by notification in the Official Gazette suspend for such period, not exceeding sixty days, as may be specified in the notification, the operation of all or any of the provisions of this Ordinance, either generally or in relation to any specified banking company. The Federal Government may, by notification in the official Gazette, extend from time to time, the period of any suspension under sub-section (1) for such period or periods, not exceeding sixty days at any one time, as it thinks fit so however that the total period does not exceed one year.

A copy of any notification issued under this section shall be laid on the table of the Federal Legislature

  if it is in session, within three days of the issue of the notification; and

If it is not in session, as soon as it meets after the issue of the notification.

The banking companies Ordinance 1962 has been divided in five parts, comprising of 94 sections. We shall also cover the banking companies rules, 1963. We shall discuss this ordinance in greater detail but to have a glimpse of the scope of the ordinance, the main topics to be covered are given below for ready reference.

PART 1 – Preliminary

Following topics are covered under this Part 

•           Title, extent and commencement
•           Application of other laws not barred
•           Limited application of Ordinance to certain financial institutions
•           Power to suspend operation of Ordinance

Definitions:

“Approved securities”
“banking”
“banking company”
“branch” or “branch office”
“creditor”
“company”
“debtor”
“demand liabilities”

“family members”
“gold”
“loans, advances and credit”
“managing director”
“prescribed”
“private company”
“registrar”
“scheduled bank”
“secured loans or advance”
“securities”
“State Bank”
“substantial interest”

•           Ordinance to override memorandum, articles, etc

PART II

  Business of Banking Companies
Following topics are covered under this Part 

·         Forms of business in which banking companies may engage.

·         Use of the word ”Bank” or any of its derivatives.

·          Prohibition of trading.

·          Disposal of non-banking assets.

·          Prohibition of employment of managing agents and restrictions on certain forms of employment.

·         Restrictions on removal of records and documents.

·          Requirement as to minimum paid-up capital and reserve.

·          Regulation of paid-up capital subscribed capital and authorized capital and voting rights of shareholders.

·         Election of new directors.

·          Appointment of director by State Bank.

·          Restriction on term of office of directors.

·          Vacation of Office.

·          Restriction on commission, brokerage discount, etc., on sale of shares.

·         Prohibition of charge on un-paid capital.

·          Prohibition of floating charge on assets.

·          Restrictions as to payment of dividend.

·          Prohibition of common directors.

·          Reserve Fund.

·          Cash Reserve.

·          Restriction on the nature of subsidiary companies.

·          Restrictions on loans and advances.

·          Power of State Bank to control advances by banking companies.

·          Power of State Bank to collect and furnish credit information.

·          Preparation of special reports.

·         Recovery of certain dues of banking companies as arrears of land revenue.

·          Power of Federal Government prohibit acceptance of deposits by banking companies incorporated outside Pakistan.

·          Deposits.

·          Licensing of banking companies.

·          Prohibition of advertising for deposits and collection.

·          Disruptive union activities.

·          Restrictions on opening of new, and transfer of existing place of business.

·          Maintenance of liquid assets.

·         Assets in Pakistan.

·          Unclaimed deposits and articles of value.

·          Half-yearly returns and power to call for other returns and information.

·         Power to publish information.

·          Fidelity and secrecy.

·          Guidelines by the State Bank.

·          Accounts and balance-sheet.

·          Audit.

·          Submission of returns.

·          Copies of Balance Sheets, and Accounts to be sent to Registrar.

·          Display of audited balance sheet by banking companies

·         Incorporated outside Pakistan.

·          Accounting provisions of this Ordinance not retrospective.

·          Inspection.

·          Responsibility of State Bank.

·          Power of the State Bank to give directions.

·         Power of the State Bank to remove directors or other managerial persons from office.

·         Power of the State Bank to supersede Board of Directors of a banking company.

·          Limitations.

·          Prosecution of directors, Chief Executives or other Officers.

·         Further powers and functions of the State Bank.

·          Certain provisions of the Ordinance not to apply to certain banking companies.

Part –IIA

Transaction of Banking Business Illegally By Companies, etc.
Following topics are covered under this part 

• o   Power to call for certain information, etc.
• o   Special provisions.
• o   Power to make declaration.
• o   Consequences of a declaration under section 43B.
• o   Deposit of cash and preservation of assets, etc.
• o   Statement of assets and liabilities to be submitted to State Bank.
• o   Consequential provisions for winding up, etc. 54

Part –III
Suspension of Business and winding up of Banking Companies 

following topics are covered under this part  

•  High Court defined.
• Restriction on stay order.
• Restriction on compromise or arrangement between banking companies and creditors.
• Power of State Bank to apply to Federal Government for suspension of business by a banking company and to prepare scheme of reconstruction or amalgamation.
• Procedure for amalgamation of banking companies.
• Winding up by High Court.
•  Court Liquidator.
•  State Bank to be Official Liquidator.
• Application of Companies Act to Liquidators.
•  Stay of Proceedings.
• Preliminary report by official liquidator.
•  Notice to preferential claimants and secured and unsecured creditors.
• Power to dispense with meetings of creditors, etc.
• Booked depositors’ credits to be deemed proved.
•  Preferential payments to depositors.
• Restriction on voluntary winding up. 71

Part –IV
Special Provisions for Speedy Disposal of Winding up Proceedings
  following topics are covered under this part

      o   Power of High Court to decide all claims in respect of banking companies.

o   Transfer of pending proceedings.
o   Settlement of list of debtors.
o   Special provisions to make calls on contributories.
o   Documents of banking company to be evidence.
o   Public examination of directors and auditors.
o   Special provisions for assessing damages against delinquentdirectors, etc.
o   Duty of directors and officers of banking company to assist in the realisation of property.
o   Special provisions for punishing offences in relation to banking companies being wound up.
o   Public examination of directors and auditors, etc., in respect of a banking company under scheme of arrangement.
o   Special provisions for banking companies working under scheme of arrangement at the commencement of the Ordinance.
o   Appeals.
o   Special period of limitations.
o   State Bank to tender advice in winding up proceedings.
o   Power to inspect.
o   Power to call for returns and information.
o   District Magistrate to assist. official liquidator in taking charge of property of banking company being wound up.
o   Enforcement of orders and decisions of High Court. 84
o   Power of High Court to make rules. 84
o   References to directors, etc., shall be construed as including references to past directors, etc.
o   Part II not to apply to banking companies being wound up.
o   Validation of certain proceedings.

Part--IVA
Banking Mohtasib
 following topics are covered under this part 

o         Appointment of Mohtasib.

o        Terms and conditions of the Banking Mohtasib.

o        . Reference to Banking Mohtasib by Court.

o         Procedure for making complaints.

o         Recommendations for implementation

o         Power to call for information.

o         Report of Banking Mohtasib.

Part –V
Miscellaneous
following topics are covered under Part V

o   Penalties.

o   Dishonest removal of pledged goods.

o   Cognizance of offences, etc.

o   Application of fines.

o   Special provisions for private banking companies.

o   Restriction on acceptance of deposits withdraws able by cheques. 95

o   Change of name by a banking company.

o   Alteration of memorandum of a banking company.

o   Certain claims for compensation barred.

o   Application of certain provisions to banking company incorporated by special enactments of the Federal Legislature.

o   Application of other laws barred.

o   Removal of difficulties.

o   Power of Federal Government to make rules.

o   Power to exempt in certain cases.

o   Exemption of Officers, etc., from liability

o   Exemption from requirement of license.

o   Exchange of information.

o   Continuance of charge and priority.

o   Protection of action taken in good faith. 98

 Statutory definitions:

We shall discuss the statutory definitions as contained in section 5 of the ordinance, definitions of banking and banking company have already been briefly discussed and we shall focus on explanation of important aspects in coming Lessons.