S.R.O 83/(I)81, dated 26th January, 1981 (Gaz., Pak., Extra, Pt. II, 26-1-81).- In exercise of the powers conferred by section 41 of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), the Federal Government is pleased to make the following rules, namely :-

1. Short title and commencement.- (1) These rules may be called the Modaraba Companies and Modaraba Rules, 1981.

(2) They shall come into force at once.

2. Definitions.- (1) In these rules, unless there is anything repugnant in the subject or context,-
(a) "Advocate" means a person entered in any role under the provisions of the Legal Practitioners and Bar Councils Act, 1973 (XXXV of 1973) ·
(b) "Certificate holders" means-holders of Modaraba Certificates;
(c) "Chairman" means the Chairman of the Religious Board;
(d) "Form" means a form set out in the First Schedule ·
(e) "Member" means a member of the Religious Board and includes The Chairman;
(f) "Ordinance" means the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980);
(g) "Religious Board" means the Board constituted under section 9;
(h) "section" means a section of the Ordinance
(i) All other terms and expressions used but not defined in these rules shall have the same meanings as are assigned to them in the Ordinance.

3. Registrar.- (1) The headquarters of the Registrar shall be at Islamabad.

(2) Without prejudice to the powers, duties and functions conferred or imposed on him by the Ordinance, the following shall be the duties and functions of the Registrar, namely :-
(a) to receive applications for registration as modaraba companies
(b) to issue to a modaraba company a Certificate of Registration which indicates the serial number of registration, year of registration and office of issue and has the official seal of the Registrar affixed thereto
(c) to provide secretarial services to the Religious Board
(d) to refer the applications of floatation of modaraba which shall be in Form I, to the Religious Board and obtain their certificate in writing in Form II that the modaraba is not a business opposed to the Injunctions of Islam;
(e) to receive applications for and grant Certificate of Authorization in Form III for floatation of modarabas on such conditions as he may deem fit in keeping with the provisions of section II.
(f) to lay-down, receive and examine all reports, accounts and other documents referred to in section 14 and to pass orders for and receive such additional documents or reports or information as may be considered necessary;
(g) to issue a certificate in Form IV on receipt of a declaration in Form V that Modaraba Certificates have been allotted in an amount not less than the minimum amount stated in the prospectus to be raised in order to provide for the business operations and expenses;
(h) to allow issue of certificates of a modaraba at a premium or at a discount.

(3) The Registrar shall examine or cause to be examined any documents received and return for rectification on any document filed with or delivered to him for registration, filing or recording if it is found to be defective incomplete or mutilated and shall not register, file or record such document until the requirements indicated by him have been complied with and a revised or corrected document furnished;

Provided that the Registrar may for special reasons, instead of returning the document demand a fresh document or ask the modaraba company to depute a representative to rectify or complete the document as may be necessary.

(4) The Registrar shall not registrar, file or record any document in respect of which a fee is payable until such fee has been deposited in the correct head of account and receipt furnished to him and shall, pending the payment of such fee, act in the same way as if no such document had been tendered for registration, filing or record.

(5) When a document is accepted for being registered, filed or recorded, the Registrar shall issue an acknowledgment in Form VI of the First Schedule.

(6) All documents of each modaraba company and each modaraba shall be kept together, distinct and separate from those of other modaraba companies and modarabas.

(7) The Registrar shall make endorsement of the following particulars on every document registered, filed or recorded in his office, namely serial number (a separate serial number shall be given to each document); name of the modaraba company and of the modaraba; brief description of the document including its enclosures; and the date on which the document is registered, filed or recorded, and shall sign, and affix his official seal, to every such endorsement.

(8) In the office of the Registrar, there shall be maintained a register of modaraba companies and a register of modaraba in Forms VII and VIII in which particulars of the companies and the modaraba shall be entered in the order in which they are registered or authorised, as the case may be.

(9) In the pages allotted to each modaraba company in the registrar, a note shall be made of every document or fact relating to the modaraba company or modaraba which is registered, recorded or filed with the Registrar.

(10) The Registrar shall also cause an alphabetical index to be maintained of modaraba companies and modarabas in the register.

(11) The Registrar shall permit members of the public to inspect such registers and records of documents maintained under this rule and such other rules as he may deem fit, provided that, before such permission is granted, prescribed inspection fee has been paid.

(12) The inspection of documents shall be allowed during the office hours and in the presence of the Registrar or a person authorised by him in his behalf.

(13) The Registrar shall, on the application of a person, grant copies of entries in the registers and documents as are open to inspection duly signed, sealed and dated by him on payment of the prescribed fees.

(14) The Registrar shall take cognizance of omission to file or register documents on due date or any other omission, lapse, irregularity or infraction of the law by or in relation to a modaraba company or modaraba.

(15) The Registrar shall institute such enquiries or proceedings in respect of any matter as may, in his opinion, be necessary to obtain information or evidence respecting defaults or any lapse, irregularity or infraction of the law by any modaraba company or in relation to a modaraba or any promoter, officer, employee, liquidator or receiver.

(16) The Registrar shall cause to be prepared and keep a seal for authentication of documents and certificates required for or connected with the registration of modaraba companies and modarabas and related matters.

(17) The Registrar may assign any of the duties prescribed under the Ordinance or these rules and generally regulate performance of duties and issue directions to any officer or officials subordinate to him in such manner as he may think fit.

(18) There shall be paid in respect of the several matters mentioned in the Second Schedule the several fees therein specified.

(19) All fees charges and other sums paid or realised under the Ordinance or under any order of the Registrar, Tribunal of the Federal Government in pursuance of the Ordinance and the rules shall be accounted for to the Federal Government in the State Bank of Pakistan of any other bank acting as agent of that Bank or the Government Treasury under head "1213 ECONOMIC REGULATION-RECEIPTS UNDER MODARABA ORDINANCE" and the receipt thereof shall be furnished to the Registrar, the Tribunal or the Federal Government alongwith the documents, application or otherwise as the case may be.

4. Registration of Modaraba Company. (1) An application for registration of a modaraba company shall be made to the Registrar in Form IX.

(2) The application shall be accompanied by-
(a) five copies of the Memorandum and Articles of Association;
(b) five copies of Certificate of incorporation
(c) receipted Treasury Challan in respect of the fees paid for the application;
(d) five copies of the latest audited accounts, if the company has already been in business; and
(e) a precise description of the business being done if it is already engaged in business other than floatation of modaraba or if it proposes to undertake such business in addition to floatation and management of modarabas.

(3) The company shall make such changes in its Memorandum and Articles of Association or in their Board of Directors as may be required by the Registrar.

(4) The Registrar on being satisfied that the company is eligible to be registered shall issue a Certificate of Registration in Form X on such conditions as may be specified.

5. Tribunal.- (1) A person appointed to constitute a Tribunal shall hold office for a term of three years unless he resigns or otherwise ceases to hold office earlier.

(2) A Tribunal shall, in consultation with the Federal Government appoint such officers and staff as are considered necessary for carrying out the functions of the Tribunal.

(3) The hearing of and proceedings before a Tribunal shall be public unless the Tribunal for reasons recorded in writing-
(a) decides to hold the proceedings or any part thereof in private; or
(b) gives directions as to the persons who may be present thereat; or
(c) prohibits or restricts the publication of any part of evidence given before it or contained in any document filed before it.

(4) There shall be an official seal of a Tribunal which shall be in the custody of the Chairman or of an officer designated by him in this behalf.

6. Religious Board. (1) The Religious Board shall consist of three members appointed by the Federal Government by notification in official Gazette, one of whom shall be the Chairman.

(2) Two of the members shall be religious scholars and the Chairman shall be a person who is or has been, or is qualified to be a Judge of a High Court.

(3) Meetings of the Religious Board shall be held to consider applications for floatation of modaraba as and when called by the Chairman, but at least once in every two months unless there is no business to transact.

(4) The Board may wherever so required obtain clarification or additional information from the modaraba company or offer a personal hearing to the modaraba company before arriving at a decision.

(5) The proceedings of each meeting of the Religious Board shall be recorded in such manner as may be specified by it and the same shall be signed by the Chairman or, in his absence, by the member presiding over the meeting.

(6) All orders and decisions of the Religious Board shall be authenticated by the Chairman or a member or officer especially empowered in this behalf by the Board.

(7) The Religious Board shall gives its decision within thirty days from the date of closure of its last hearing in a communication bearing official seal of the Board.

(8) A member of the Religious Board shall hold office for a term of three years unless he resigns, ceases to hold office or is removed earlier.

(9) Any causal vacancy shall be filled in by appointment by the Federal Government of a person qualified to a member, for the unexpired term of the outgoing member.

(10) The members of the Board, other than a Chairman who is Judge of a High Court, shall be entitled to;
(a) a fixed fee of Rs. 500/= per day;
(b) travelling and daily allowances as admissible to Grade 20 officers of Federal Government.

(11) The sittings of the Religious Board shall normally be held at Islamabad but the Board may sit in such places in Pakistan as it may from time to time decide.

(12) On being called upon to appear before the Religious Board appearance may be in person or through an authorised representative.

(13) All sittings of the Religious Board shall be presided over by the Chairman and in his absence by a member as may be nominated by him.

(14) There shall be an official seal of the Religious Board which shall remain in the custody of the Chairman or an officer authorised by him in writing.

7. Capital of company also engaged in other business.- Unless it is a body corporate formed under any law and owned or controlled by the Federal or a Provincial Government, whether directly or through a company or corporation set up by such Government, a company which is also engaged in business other than floatation and management of modaraba shall be eligible for registration as a modaraba company only if it has a paid-up capital of at least seven and a half million rupees of which an amount of not less than two and a half million rupees shall be set aside for the modaraba free from any encumbrances.

8. Accounts and audit. (1) Every modaraba company shall cause to be kept proper books of account for each modaraba with respect to-
(a) all sums of money received and expended by the modaraba and the matters in respect of which the receipt and expenditure takes place;
(b) all sales and purchases of goods by the modaraba; and
(c) the assets and liabilities of the modaraba.

Explanation.- For the purpose of this sub-rule proper books of account shall not be deemed to have been kept with respect to the matters aforesaid if there are not kept such books as are necessary to give a true and fair view of the state of the modaraba's affairs and to explain its transactions.

(2) The books of account shall be kept at the registered office of the modarabas company or at such other place as may be authorised by the Registrar.

(3) Where a modaraba has a branch office, the modaraba company shall be deemed to have complied with the provisions of sub-rule (1) and sub-rule (2) if proper books of account relating to the transactions effected at the branch office are kept at the branch office and proper summarised returns made up to dates at intervals of not more than one month are sent by the branch office to the registered office of the modaraba company or other place referred to in sub-rule (2).

(4) Every balance sheet of a modaraba shall give a true and fair view of the state of affairs of the modaraba as at the end of its financial year and every profit and loss account and every statement of changes in the financial position of a modaraba shall respectively give a true and fair view of the result of operations and of the changes in its financial position for the year then ended.

9. Submission of annual report by modaraba company. (1) The annual report required by section 14 to be furnished by the modaraba company shall include a balance-sheet and a profit and loss account and a statement of changes in financial position in respect of each modaraba and fullest information and explanations in regard to any reservation, observation qualification or adverse remarks contained in the auditor's report.

(2) The balance-sheet and profit and loss account included in the annual report prepared by the modaraba company shall comply with the requirements of the Third Schedule as nearly as possible.

(3) The balance-sheet and profit and loss account and statement of financial changes shall be audited by the auditor of the modaraba and the report of the auditor shall be as prescribed in Form XI.

10. Submission of periodical reports. Every modaraba company shall within two months of the close of the first half of the financial year of each modaraba prepare in the manner as nearly as possible and giving such information as required by the postal certificate to its Certificate holders a profit and loss account and a statement of financial changes for and a balance-sheet as at the end of, half year, whether audited or otherwise.

11. Annual balance-sheet. (1) The directors of every modaraba company shall at some date not later than eighteen months after the floatation of such modaraba and subsequently once at least in every calendar year prepare an annual balance-sheet and profit and loss account and a statement of changes in financial position in respect of each modaraba for the period in the case of the first account since the floatation of the modaraba and in any other case since the preceding account.

(2) The accounting year adopted under the preceding sub-rule shall not be changed without the prior approval of the Registrar.

12. Authentication of balance-sheet.- (1) Save as provided by sub- rule (2), the balance-sheet and profit and loss account and statement of changes in financial position shall be signed by the Chief Executive and two directors of the modaraba company.

(2) When the total number of directors of the modaraba company for the time being in Pakistan is less than the number of directors whose signatures are required by sub-rule (1), then the balance-sheet and profit and loss account and statement of change in financial position shall be signed by all the directors for the time being in Pakistan or, if there is only one director for the time being in Pakistan, by such director, but in such a case there shall be sub-joined to the balance-sheet and profit and loss account and statement of change in financial position, a statement signed by such directors or director explaining the reason for non-compliance with the provisions of sub-rule.

13. Access to minutes of proceedings of general meetings of modaraba company and of its directors.- The auditor of a modaraba shall have full access to the minute books of the modaraba company and in case the modaraba company is also engaged in other business he shall be provided with authenticated copies of the minutes and decisions concerning the affairs of the modaraba.

14. Information about the pattern of holding of certificates by subscribes.- A modaraba company shall also circulate alongwith the annual accounts information about the pattern of holding of the certificates by the certificate holders in Form XII or as near thereto as possible.

15. Liability where proper accounts not kept. (1) If at any time it is shown that proper books of account were not kept in relation to the modaraba, every director and officer of the modaraba company who is in default shall, unless he shows that he acted honestly and diligently and that in the circumstances in which the business of the modaraba company was carried on the default was excusable, be criminally liable.

(2) For the purposes of this rule, proper books of account shall be deemed not to have been kept in the case of any modaraba if there have not been kept such books or accounts as are necessary to exhibit and explain the transactions and financial position of the trade or business of the modaraba, including books containing material entries from day to day in sufficient detail of all cash received and cash paid, and, where the trade or business has involved dealings in goods, statements of the annual stock-takings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified.

16. Expenses to be reimbursed to modaraba company, etc. (1) The modaraba company shall be entitled to be reimbursed annually reasonable expenses other than any remuneration in respect of directors, officers and employees of the modaraba company.

(2) Such expenses shall be audited by the auditors of the modaraba company and classified under appropriate headings as used in Profit and Loss Account, and will form part of the annual accounts of the modaraba.

(3) For the purposes of the calculation of the remuneration payable to the modaraba company under section 18 the profit shown in the audited profit and loss account of the modaraba shall form the basis.

17. Capitalisation of profits. (1) The Board of Directors of a modaraba company may resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of modaraba's reserve accounts or to the credit of the profit and loss account or otherwise available for distribution and accordingly decide that such sum be set free for distribution amongst the Certificate holders who would have been entitled thereto if distributed by way of profit and in the same proportions on conditions that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any certificates held by such members respectively or paying up in full unissued certificates of the modaraba to be allotted and distributed credit as fully paid-up bonus certificates to and amongst such Certificate holders in the proportion aforesaid, or partly in one way and partly in the other, and the modaraba company shall give effect to such resolution.

(2) Whenever such a resolution as aforesaid shall have been passed the directors shall make all appropriation and application of the undivided profits resolved to be capitalised thereby and all allotments and issues of fully paid certificates, if any and generally shall do all acts and thing required to give effect thereto, with full powers to the director to make such provision to the issue of fractional certificates or by payment in cash otherwise as they think fit for the case of certificates becoming distributable in, fractions, and also to authorise any person to enter on behalf of all the Certificate holders entitled thereto into an agreement with the modaraba providing for the allotment to them respectively, credited as fully paid-up, of any further certificates to which they may be entitled upon such capitalisation, or (as the case may require) for the application thereto of their respective proportion of the profits resolved to be capitalised of the amounts or any part of the amounts remaining unpaid on their existing certificates and any agreement made under such authority shall be effective and binding on all such Certificates holders.

18. Distribution of profit and reserves. (1) The distribution of profit shall include distribution in cash or issue of bonus certificates out of the capitalised profit or any other security.

(2) The Board of a modaraba company may from time to time distribute to the Certificate-holders such interim profits as appear to the Board to be justified by the profits of the modaraba.

(3) No distribution shall be made otherwise than out of profits of the year or any other undistributed profits or realised capital gains.

(4) The Board of a modaraba company may, before making any distribution of profits, set aside out of the profits of the modaraba such sums as it thinks proper as a reserve or reserves which shall, at the discretion of the Board, be applicable for meeting contingencies or for equalising distribution of profit, or for any other purpose to which the profits of the modaraba may be properly applied, and pending such application may, either be employed in. the business of the modaraba to be invested in such investments (other than certificates of the modaraba) as the Board may from time to time think fit.

(5) If several persons are registered as joint-holders of any certificate any one them may give effectual receipts for any profit payable on the certificates.

(6) Notice of any profit distribution that may have been declared shall be given by post to the Certificate holder at his registered address or, if he has no registered address in Pakistan, to the address, if any, within Pakistan supplied by him to the modaraba company for giving notice to him.

(7) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice and unless the contrary is proved, to. have been effected ,at the time at which the letter would be delivered in the ordinary course of post.

(8) If a Certificate-holder has no registered address in Pakistan, and has not supplied to the company an address within Pakistan for the giving of notice to him, a notice addressed to him or to the Certificate-holders generally and advertised in a newspaper circulating in the neighbourhood of the registered office of the company, shall be deemed to be duly given to him on the day on which the advertisement appears.

(9) The final distribution of the profit in respect of any accounting period shall be made within six weeks after re-opening of the register of Certificate-holders.

19. Appointment and removal of auditor.- (1) Every modaraba company shall, state in the prospectus the name and the address of the auditor of the modaraba duly approved by the Registrar, who shall not be the auditor of the modaraba company.

(2) The terms of the appointment of auditor shall be renewed every year with the approval of the Registrar.

(3) If the modaraba company wishes to appoint an auditor other than the existing auditor for the next account period, it shall inform the existing auditor in writing giving reasons for such change, with a copy to the Registrar.

(4) The Registrar may, if he so desires, seek such information as he may consider necessary either from the modaraba company or from the auditor or from both and on being so desired the parties concerned shall provide the Registrar with the required information.

(5) The auditor on his own accord shall be entitled to make such submissions in connection with the proposed change to the Registrar as he may like.

(6) The Registrar's decision on the proposed change of auditor shall be final.

(7) An auditor may resign from his appointment with the approval of the Registrar obtained in writing.

20. Prospectus.- (1) Every prospectus issued by a modaraba company in respect of any modaraba shall be dated, and that date shall, unless the contrary be proved, be taken as the date of publication of the prospectus.

(2) A copy of every such prospectus, signed by every person who is named therein as a director or proposed director of the modaraba company, or by his agent authorised in writing, shall be filed for registration with the Registrar on or before the date of its publication, and no such prospectus shall be issued until a copy thereof has been so filed for registration.

(3) The Registrar shall not registrar any prospectus unless it is dated and the copy thereof signed, in the manner required by this rule.

(4) Every prospectus shall state on the face of it that a copy has been filed for registration as required by this rule.

(5) If a prospectus issued without a copy thereof being so filed, the modaraba company, and every person who is knowingly a partly to the issue of the prospectus, shall be liable to a fine as laid down in section 32.

(6) Every prospectus of a modaraba must state the matters specified in Part I of the Fourth Schedule and set out the reports specified in Part II of that Schedule and the said Parts and II shall have effect subject to the provisions contained in Part I of that Schedule.

20-A. Power to increase modaraba Fund.- (1) A modaraba company may, under the authority of resolution passed at a meeting of its directors and with the approval of the Registrar, alter the prospectus of a modaraba floated by it so as to increase the Modaraba Fund by issue of new modaraba certificates subject to such conditions as may be imposed by the Register:

Provided that, before according' his approval, the Registrar shall, at the expense of the modaraba, issue a notice of the proposed increase and conditions attaching thereto for eliciting opinion of the modaraba certificate holders and others concerned within a period of not less than fourteen days from the date of publication in at least one issue each of a daily newspaper in English language and a daily newspaper in Urdu language having circulation in the Province in which the stock exchange on which the modaraba is listed is situate or, if the modaraba is not listed, in the Province in which the registered office of the modaraba company is situate.

(2) Except to the extent otherwise specified by the Registrar for reasons to be recorded, the new modaraba certificates shall rank pari passu bonus or right issue and dividend as may be declared subsequent to the date of issue of such new certificates.

(3) The modaraba company shall file with the registrar notice of exercise of any power referred to in sub-rule (1) and pay fees as specified for authorisation to float Modaraba on the additional amount of modaraba fund increased in the manner laid down in sub- rule (1), within fifteen days from the exercise therefore indicating the conditions attaching thereto and shall also issue a notice thereof in newspapers in the manner laid down in Proviso to sub-rule (1)".

20-B. Further issue of Modaraba Certificates.- (1) Where the modaraba company decides to increase the modaraba fund of a modaraba by the issue of new modaraba certificates, such certificates shall, subject to the conditions imposed by the Registrar, be offered to the existing certificate holders in proportion to the existing certificates held by them, and such offer shall be made by notice specifying the number of certificates to which the certificate holder is entitled, and limiting a time with which the offer, if not accepted, will be deemed to be declined.

(2) The offer of new modaraba certificates shall be accompanied by a circular daily signed by the directors of the modaraba company or an prescribed by the Registrar containing material information about the affairs and accounts of the modaraba and setting forth the necessity for raising of further funds with business prospects.

(3) A copy of the circular referred to in sub-rule (2) signed in the manner specified therein shall be filed with the Registrar before it is sent to the modaraba certificate holders.

(4) If, in any case, the whole or any part of the issue of certificates so offered is declined or is not subscribed, the modaraba company may offer the unsubscribed part in such manner as may be approved by the Registrar.

(5) Where the new modaraba certificates forming part of the Modaraba Fund are to be issued to the public, a prospectus shall be issued which shall comply, in all respect, with the requirements applicable to a prospectus and be subject to the liabilities specified in the Ordinance and the rules therefor".

21. Invalidity of certain conditions as to waiver of notice.- (1) Any condition requiring or binding any applicant for certificates to waive compliance with any requirements of the Fourth Schedule or purporting to affect him with notice of any contract, document of matter not specifically referred to in the prospectus, shall be void.

(2) It shall not be lawful to issue any form of application for the certificates of modaraba different in text from the one forming part of the Fourth Schedule:

Provided that this sub-rule shall not apply if it is shown that the form of application was issued either-
(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the certificates; or
(b) in relation to certificates which were not offered to the public.