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HOW CORPORATE LAW AUTHORITY(CLA) HELPS THEM?

One of the best piece of legislation emerging out of the 90 days of caretaker PrimeMinister Moeen Qureshi was Companies (Amendment) Ordinance 1993, limiting theaggregate investment in associated companies, to not exceeding 30 percent of theequity of the lending company, with prior approval of at least 60% of the totalshareholder.The law was importent because it sought to put an end to a corporate practices that hadbeen instrumental in the concentration of wealth in few hands. In fact inter-corporateinvestment was the route taken by the, " Lahore Mafia" to acquire several of theprofitable units privatized by first Sharif govt.The Monopoly Control Authority (MCA) annual report for 1991-92 found 308 cases ofinter-corporate financing during the year and another report about textile found that 105of 164 textile units examined by it, invested Rs 6,585 million and Rs 4,285 millionrepectively in 1991-92 and 1192-93 in their associated undertakings.There was also a reverse flow from the associated companies to the parent companiesand 92 textile units received Rs 2,524 million and Rs 2,222 million from their associatedcompanies during the two years. Thus total inter-corporate financing in the textile sectorduring 1990-92 came to a staggering Rs 9 billion.Even before the promulgation of Companies Amendment Ordinance 1993, company-

law 1984 and related laws were impregnated with provisions aimed at checking theconcentration of wealth and creation of cartels and monopolies. For example thecompany law required a listed company seeking to extend loan to an associatedundertaking to give a notice, in at least two newspapers, stating what will be thesecurity, terms of payment, profit or rate of interest etc.The Monopolies and Restrictive Trade Practice, Control and Prevention Ordinance 1970had clearly envisaged that the provisions prohibiting undue concentration of wealth willbe attracted if an individual holds or controls more than 50% shares of a company. Italso stated that a situation of undue concentration of wealth would arise if there aredealings between " associated undertakings" resulting in unfair benefits to the

shareholders of one undertaking, to the prejudice of the other.

The law also established a presumption of unreasonable monopoly power whencompeting undertakings with 20% or more of a market are interlocked through commonmanagement or control or through common partners. It prohibited anti-competitivemergers and acquisitions and financial institutions from making loans to firm associatedwith them, on terms and in amount more favorable than those afforded to an unrelatedfirm. Many of the above mentioned situations emerged in respect of acquisition of five

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cement plants by Mian Mohammad Mansha and his relatives and business associatesand yet Corporate Law Authority failed to take cognizance of the situation. When theunprecedented price hike of cement in the wake of privatization forced the governmentto launch an inquiry into the phenomenon, MCA concluded that " the MCA is unable toregulate prices of any goods manufactured by a dominating or single monopolistic firm"In an interview with Pakistan and Gulf Economists in March 10, 1990 issue, Chairmanof Corporate Law Authority Irtaza Hussain had said, " in my view, the consolidation ofgroup accounts should be introduced shortly" and that Corporate Law Authority willsoon seek public comments on proposed Companies Court Rules with regard to windigup of companies.The Chief Justice of Pakistan asked us to write down the rules (about winding up thecompanies) and they are voluminous at the Companies Ordinance. Comments ofHonorable Judges of High Court have already been received and I am glad to say thatthese have been approved recently. Within two months, the draft rules are expected to

be public for public comments" he had said emphatically.

Ironically, Irtaza Hussain has been member of every commission, committee or workinggroup set up by successive governments during last eight years but the need to requirethe big business to publish consolidated group accounts and promulgate rules aboutliquidation of sick companies has apparently withered away and therefore, has not beenmentioned by any working group or committee seeking to reform the corporate sector.The company law, 1984 required all the private limited companies to go public if theirpaid up capital exceeded Rs 50 million. However, there are score of private limitedcompanies with annual turnover ranging between several hundred million to 2 billion

rupees but they have not gone public. These include Mohammad Amin MohammadBashir (pvt) Ltd, the parent company of Crescent Group, Alnoor Fertilizer Industries,Jaffer Bros, Dawood Corporation, Tabani Corporation, Arfeen International owningPakistan's biggest oil tanker, Ghani and Tayyab (pvt) Ltd of Haji Tayyab, IttefaqFoundary, Shahnawaz Ltd and Mercury Corporation.How CLA has facilitated people to make quick money can also be illusterated by thefollowing example.

Allied Bank Ltd (ABL) President Khalid Latif was arrested by Federal InvestigationAgency (FIA) on January 11, 1995 for financial bungling relating to Allied BankModaraba. According to complaint, a section officer of Ministry of Finance, Khalid Latifhad drawn Rs 30 million from a branch of his own bank, in the name of Pak TradingCompany, set up, on the security of fake export bills. The amount was used by him topurchase shares of Allied Bank Modaraba, in the name of eight different persons.Similarly Yunus Habib Chief Executive Officer (CEO) of Mehran Bank, now servingprison was accused to have incorporated 27 fake companies in whose name he wasdrawing money from his own bank. Schon group is reported to have set up string of fake

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companies to withdraw Rs 662 million from National Fibre after its privatization. How afake company can be floated and shares can be bought in the name of eight differentpersons prove that something is very wrong with the Corporate Law Authority whichregisters the companies and oversees the floating of shares.Previously we have already elaborated How Pakistan Services Limited (PSL) was usedby Hashwani to make a chain of subsidiaries in Pakistan, UK and USA.