THE COMPANY LAW — HISTORICAL BACKGROUND
By ABDUL AZIZ ARAIN
M.A. , M.COM:, A.M.B.I.M
May 17 - 23, 2004
Historical Background of Company Law: The Companies Ordinance, 1984 (XLVII of 1984) is based on the lines of Legislation in England. The formation of Joint Stock Companies for trading and other purposes with particular reference to the sub-continent dates back to several centuries.
The East India Company was formed in 1600 during the period of Queen Elizabeth I. Up to 1844, Companies were incorporated either by Royal Charter or by Special Acts of Parliament. In 1844, the provision of incorporation and registration of Companies, without a Royal Charter or Special Act of Parliament was enacted. The privilege of limited liability was not granted till 1855. In 1856, a codifying law was passed, followed by an amending Act in 1857. The law was again codified in 1862. This was a comprehensive Act and a large number of important decisions in English Courts were passed under this Act.
In 1908, all amendments made during the period 1862 to 1908 were consolidated by Companies (Consolidation) Act, 1908. A Consolidating English Act was again passed in 1929 and came into operation on 1st November 1929.
HISTORY OF COMPANY LAW IN INDO-PAK SUB-CONTINENT
Indo-Pakistan Sub-continent followed the English Companies Act, 1844. In 1850, it was enacted that every un-incorporated company of partners associated under a deed containing a provision that the shares in the stock or business of the said company were transferable without the consent of all the partners, were entitled for registration under this Act. This Act of 1850 may be said to be the nucleus around which subsequent Companies Acts further developed, according to needs of the time.
COMPANY LAWS BETWEEN 1857 TO 1913
In 1857, an Act for incorporation and regulation of Joint Stock Companies and other Associations (either with or without limited liability) of the members was passed. Under this Act, the privilege of limited liability was not extended to any company formed for the purpose of banking or insurance. In 1860, this Act was amended on the lines of the English Act, 1857. Following the English Act of 1862, a comprehensive Act was passed in 1866 for consolidating and amending the laws relating to the incorporation, regulation and winding up of Trading Companies and other Associations. This Act was re-casted in 1882 employing the amendments that were made in the Company Law in England up to that time.
THE EAST INDIA COMPANY
East India Companies were established in England, Holland, France, Denmark, Scotland, Spain, Austria and Sweden, as one of the Chartered Companies formed for trade with the Indian and New World, which had more wide-reaching influence in the history of Indo-Pak Sub-continent. The most important of these companies was The East India Company, which survived until it handed over its functions to the British Government in 1858.
In order to compete with the Dutch Merchants, Queen Elizabeth I, by Royal Charter dated 31st December 1600, under the title of "The Governor and Company of Merchants of London, trading into the East Indies". The charter conferred the sole right of trading with the East Indies, unauthorized interlopers were liable to forfeiture of ships and cargo. The early voyages of the Company, during 1601 to 1612, reached as far as Japan and the subscribers bore the cost of each voyage and reaped the whole profits, which seldom fell below 100%. After 1612, voyages were conducted on the Joint Stock System for the benefit of the Company as a whole.
The East India Company's main business was trading; it was left to manage its own affairs. The original charter placed its control in the hands of a Governor and a Committee. After Clive's victory at Plassey (1757) had made the Company a ruling power in India. In order to have more control over the territories thus acquired, the East India Company ceased to be a trading concern and exercised only administrative functions and after the Indian Mutiny, the entire transference of Indian administration to the British Government on 2nd August 1858.
A GREAT PARTNERSHIP WITH TRANSFERABLE SHARES
The grant of charter in the case of Chartered Companies was one of the exclusive privileges of the Crown. The Chartered Companies had several disadvantages. A new form of commercial association was needed, free from defects. The common law company was not an incorporated association, but a great partnership with transferable shares. Companies of this kind multiplied rapidly towards the close of 17th and beginning of the 18th centuries.
The Companies Act, 1844 required the existing Joint Stock Companies to register certain particulars. By the Limited Liability Act, 1855, the joint stock company was enabled to obtain a certificate of complete registration with limited liabilities on complying with the requirements of the Act. In 1856, the codifying Act was passed followed by an amending Act of 1857. The law was again codified in 1862. In 1908 several amendments were consolidated by Companies (Consolidation) Act, 1908 and in 1929 another Act was passed, which consolidated all the amending Acts passed between 1908 to 1928.
COMPANIES ACT, 1913.
Following the English Companies (Consolidated) Act, 1908, the Companies Act, 1913 was passed in the sub-continent, which was almost the reproduction of the English Act. However, some amendments were made in this Act in 1914, 1915, 1920, 1926, 1930 and 1932. At the end of World War II, the need for revision was felt and many changes had taken place in the organizational structures and the management of the joint stock companies and over a wide sector that was dominated by new demands in trade and industry.
Companies (Amendment) Act, 1936 came into operation on 15th January 1937. Pakistan adopted the Companies Law by an order in 1947, by making amendments in various sections of the Act and finally Ordinance Order, 1949 came into force on 26th March 1949.
In January 1972, the President's Order No. 2 of 1972 was issued, which abolished the system of managing agents in company administration and introduced a sort of corporate democracy, directing the election of directors by cumulative system of voting.
On 26th September 1973, the Companies (Amendment) Act, 1973 was passed to conform to the new constitutional pattern and also made some amendments in Section 248 and 277.
On 1st March 1974, the Companies (Appointment of Legal Advisors) Act, 1974 was passed, which made it compulsory for every company to appoint one legal advisor on retainership basis.
The Companies Act, 1913 was further amended by the Companies (Amendment) Ordinance LXII of 1979.
PAKISTAN LAW COMMISSION
Pakistan Federal Government appointed a Company Law Commission in 1959, with late Mr. I. I. Chundrigar as its Chairman. Mr. Chundrigar died in 1960. The Commission was re-constituted in February 1961, with Mr. Sharifuddin Pirzada as its Chairman. Unfortunately, the recommendations of the commission were not implemented and the Companies Act, 1913 continued up to the enforcement of Companies Ordinance, 1984.
COMPANIES ORDINANCE, 1984
A draft Ordinance was prepared and published on 20th December 1980 for eliciting views of the public. Finally, the last, but not the least, the Company Law entitled "The Companies Ordinance, 1984 (XLVII of 1984) was issued on 8th October 1984. This piece of legislature comprises of the largest number of sections of any Act in the Statute Book of Pakistan.
The Companies Ordinance, 1984 came into force on different dates, notified by the Federal Government. Sub-section (3) of Section 1 empowers the Federal Government to fix different dates for bringing into force different provisions of the Ordinance.
The existing Companies Ordinance is an amalgamation of:
(a) The Companies Act, 1913
(b) The Companies (Foreign Interest) Act, 1918
(c) The undesirable Companies Act, 1958
(d) The Securities & Exchange Ordinance, 1969
(e) The Companies (Managing Agency & Election of Directors) Order, 1972
(f) The Companies (Shifting of Registered Office) Ordinance, 1972
The Companies Ordinance, 1984, besides the consolidation and amendment of law relating to Companies, enlist the following objectives:
(a) Healthy growth of corporate enterprise.
(b) Protection of investors and creditors.
(c) Promotion of investment and development of economy.