ISLAMABAD, May 31: The Securities and Exchange Commission of Pakistan has proposed new Modaraba law, which shall replace the 37-year-old Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980.
The SECP has initiated consultation with the stakeholders and the public on the draft Modaraba Bill, which is available at SECP Website. The public has been invited to send the comments/feedback by email by June 14, 2017. The existing ordinance lacks a proper and logical structure and suffers from numerous inconsistencies and gaps. There is a need to replace it with a comprehensive modern and all-encompassing piece of legislation.
The proposed law contains many significant changes and new concepts. An exhaustive provision has been added to curb the misuse of word “modaraba” prohibiting any entity or person from using it as part of its name or inviting or collecting deposit or raise funds from the public by use of the word “modaraba or musharakah”.
Its contravention shall be a criminal offence, punishable with imprisonment, which may extend up to 7 years and fine up to Rs100 million and additional fine for the substantial loss caused to any person, up to Rs100 million or twice the amount of loss whichever is higher. The NAB or FIA or any other agency notified by federal government as an investigation and prosecution agency shall take its cognizance. The SECP shall also have power to refer the matter to the notified agency.
The new law proposes significant reforms for the growth of the regulated modaraba sector, including the establishment of unlisted modaraba, performance-based remuneration (share of profit) of modaraba management company (MMC), enabling provision for resource mobilization, Shariah governance mechanism, empowerment to the certificate holders, concept of AGM of the modaraba certificate holders, reduction of time from six to four months for the circulation of accounts, appointment of auditor by the certificate holders, certificate holders’ right to apply for the change of MMC, change of CEO/director and for the appointment of administrator.
Further, it also contains enabling provisions for fit and proper criteria for CEO, directors and key executives, bar on shareholders of MMC on obtaining facility/loan from the modaraba or use its assets as security, exhaustive enforcement action by the SECP, including powers to monitor the business activities, powers to remove the chief executive, director or key executives of MMC, additional grounds to initiate winding up of a modaraba by court, including losses of a modaraba for three consecutive years and mechanism for resolution of disputes through mediation. The proposed law shall have five new schedules with the power to the SECP to alter the schedules.