The Securities and Exchange Commission of Pakistan (SECP) has barred NGOs from participating in any political campaign for elective public office or other political activities akin to those of a political party or contribute any funds or resources to any political party or any individual or body for any political purpose.
According to the circular 45 of 2015 issued by the SECP here Thursday, the SECP has further modified the conditions for grant of licence to NGOs registered under Section 42 of the 1984 Companies Ordinance and has issued Circular 45 of 2015 in this regard to plug in possible loopholes in the existing regime.
The SECP has noted that certain associations with promoters having political agenda or affiliation might be used as a forum for political activities which otherwise are the activities of a political party registered under relevant law. In such a case, funds of the association can be applied for political purposes in violation of Section 197 of the 1984 Ordinance which prohibits making of political contributions to any political party or for any political purpose to any individual or body.
The SECP has felt that existing conditions were prone to misuse in certain circumstances. For example, subscriber members of associations may try to circumvent the requirements of restriction on payment of remuneration to members by quitting from membership of association with the sole purpose to receive remuneration or hold a salaried office in the association. Similarly, the requirement could be circumvented by remunerating a member of his/her family like son, daughter, brother, spouse, etc. Likewise, the restriction on remuneration to members was still open to misuse by indirectly receiving remuneration in a subsidiary entity of the association.
Similarly, when the promoters quit, sometimes the incumbent directors in lieu of the quitting member director do not possess sufficient skills and expertise. This was contrary to the whole exercise of ensuring fit and proper criteria observed at the time of grant of licence. With such a change of directors after grant of licence, the association might be left with directors with no hands on experience, skills, etc for attainment of objects for which the licence was granted.
To plug these loopholes, the new Circular requires that member as well as his family members shall not be allowed remuneration whereas the restriction shall extend as well to remuneration from subsidiary entities of the association. Further, the members shall not be allowed to quit with the sole reason to assume job of the association on remuneration whereas it further prohibits the quitting member or his/her family members to receive remuneration from the association or its subsidiary entities for at least five years after quitting of the member. Similarly, the fit and proper requirements shall also be applied to new member director proposed by the association in lieu of the quitting subscriber or director. Lastly, another new condition has been imposed in line with Section 197 of the Ordinance which prohibits political contributions and participation in any political campaign for elective public office or other political activities akin to those of a political party.
The requirements of the Circular shall apply to all associations whether applying for fresh licence or the existing ones already licenced by the Commission, SECP said. The circular said that the provisions of Section 42 of the Companies Ordinance, 1984 (the 'Ordinance') and Rule 6 of the Companies (General Provisions and Forms) Rules, 1985 (the 'Rules') provide the legal framework for licencing of Not-For-Profit Associations according to which the Commission may grant licence on such conditions and subject to such regulations as it thinks fit and those conditions and regulations are binding on the association and are inserted in the licence and Memorandum and Articles of Association respectively.
Within the above framework of law, the Commission granted licence or renewal thereof under Section 42 of the Ordinance on certain conditions including inter alia the following:
(a) Payment of remuneration for services or otherwise to its members, whether holding an office in the company or not, shall be prohibited.
(b) The subscribers to the Memorandum and Articles of Association of the company shall continue to be the members of the company unless allowed by the Commission on application to quit as members.
It said that the above conditions have been revised along with incidental requirements and a further condition imposed in line with Section 197 of the Ordinance, for grant or renewal of licence under Section 42 of the Ordinance which shall also apply to all companies already licenced under the said Section 42, in the following manner:-
(i) For the existing condition mentioned at Para 2 (a) above, the following shall be read:
Payment of remuneration by the company or its subsidiary entity for services or otherwise to members of the company or to their family members whether holding an office in the company or its subsidiary or not, shall be prohibited provided that the prohibition shall continue to apply for a period of five years after a member quits from his membership of the company.
(ii) For the existing condition mentioned at Para 2 (b) above, the following shall be read:
The subscribers to the Memorandum and Articles of Association of the Company shall continue to be the members of the Company unless allowed by the Commission on application to quit as members provided that a proposed new director in lieu thereof shall not be appointed or opted unless allowed by the Commission on application to appoint or opt him/her as director, it said.
(iii) While allowing the existing subscriber members to quit from the company, the propriety of the incumbent member/director shall meet the requirements already prescribed by various Circulars for evaluating promoters of new associations for grant of licence and directors/chief executive of the existing associations at the time of renewal of licence. For the purpose, application shall be made in terms of Rule 30 of the Rules accompanied inter alia with the following documents relating to the incumbent director:
(a) Copy of CNIC or Passport (if a foreign national);
(b) Resume along with affidavit by the incumbent member/ director affirming that he/she has sufficient skills, expertise and resources for attainment of objects of the Company; has not been associated with money laundering or terrorist financing activities; and is not defaulter of loans, etc; and
(d) Minutes of meeting in which the proposal to appoint/opt the new director was approved.
The following further condition has been imposed by the Commission:
The company shall not, directly or indirectly, participate in any political campaign for elective public office or other political activities akin to those of a political party or contribute any funds or resources to any political party or any individual or body for any political purpose.
Accordingly, all the associations set up in pursuance of licence granted under Section 42 of the Ordinance and registered with the Commission, are hereby directed to comply with the above conditions and requirements in letter and spirit, the circular added.
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