According to a recent notice issued on Wednesday, the Securities and Exchange Commission of Pakistan (SECP) has put forward a new Modaraba Law. This newly proposed law is to take the place of Modaraba (Floatation and Control) Ordinance, 1980 and the 37-year old, Modaraba Companies.
The SECP is currently working on the Modraba Bill. Owing to this, the SECP has called in various stakeholders and public for discourse. The draft of the Modaraba Bill can be accessed through the following link:
https://www.secp.gov.pk/document/draft-modaraba-bill-2017/?wpdmdl=28465
The public is free to leave their comments on the subject by 14th June 2017. Anyone who wishes to share their opinion can do so by leaving an email at commission.secretariat@secp.gov.pk
According to SECP, the new Modaraba Law encompasses a modern approach to the current affairs. This was necessary, since the current legislation was unreliable and insufficient to provide a logical structure. The Modaraba Law has provided a new concept that restricts any person from using the word “modaraba” in place of their name. The law further prevents anyone who tries to puts the words “modaraba or musharakah” to wrong use by collecting funds from the public.
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In a statement, the SECP shed some light on the matter saying:
“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”
Provisions of the Modaraba Law
The newly proposed Modaraba Law acts to improve the current state of the modaraba sector. Following amendments tailor the growth of the sector:
- Establishment of unlisted modaraba
- Resource mobilization for Modaraba Management Company (MMC)
- Certificate holders’ right for the appointment of auditor, administrator
- Certificate holders’ right to change the CEO and apply to change the MMC
- MMC will receive their profit share based on performance
- Concept of Annual General Meeting (AGM) for the modaraba certificate holders
- Accounts to be circulated within four months as opposed to the prior 6 months period
- Concept of Shariah Governance mechanism
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In addition to the aforementioned provisions, the new Modaraba Law also provides a comprehensive benchmark for the appointment of CEO and directors. It obstructs the shareholders of MMC to approach the modaraba for loans. Moreover, it also secures its assets to be used in the name of security. The law further empowers the SECP to disapprove the key executives of MMC including the CEO and directors. In addition, it also allows SECP to keep a check on the business activities and wind up a modaraba through court. The SECP can now also act on a mechanism to resolve disputes through arbitration.
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