Tuesday July 05, 2022

Baby and the bathwater

December 08, 2016

Atrocious: the first word that comes to the mind of any legal practitioner who looks at the newly imposed Companies Ordinance 2016. Let us ignore for the present, the Panama-leaks related controversies and other immediate and not-so immediate motivations around the law, which may well be political and none too kosher.

The law quite simply as a piece of legislation appears to be the creation of a mind not versed in simple constitutional principles, the requirements of basic legal process or the problems of company law litigation. The changes made in the law will make matters not better but worse.

The simple question one faces immediately while approaching the new Companies Ordinance 2016 is: why? Why has this substantial (427 pages long, 516 sections) law been put in place to replace the Companies Law regime contained in the Companies Ordinance 1984. The 1984 ordinance had finally after years, for all its faults, started to take root. An entire jurisprudence had developed around the 1984 ordinance. Why suddenly replace it all? If at all any changes were needed, they should have been made by way of amending the Companies Ordinance 1984. Here, basically, the baby has been thrown out with the bathwater.

Numerous nonsensical changes have been made to matters which are fundamental to company law, especially on the judicial side:

Firstly, under the 1984 ordinance, court matters were supposed to be decided in a summary manner and yet they were stuck for years on end in courts. The changes made by the new ordinance will make the entire process longer and even more contentious.

The new ordinance effectively turns companies’ jurisdiction into a trial before the court and the registrar, which will turn each case into an endless trial which will clog up all courts further. It is pointed out that the previous ordinance required all cases to be decided in 90 days and yet they went on endlessly for years. Now the new ordinance by its own admission has introduced a longer process as it states that all cases shall now be decided in 120 days. The intention of the 1984 ordinance had been to ensure decisions in the shortest time possible, and that had failed. Rather than fix the delays, the new system proposed will practically, in my estimate, take three to five times longer.

At the same time as having lengthened the process and the nature of litigation, the new ordinance makes the law of evidence contained in the Qanoon-e-Shahadat and the Civil Procedure Code inapplicable to the proceedings. The procedure to follow has been left entirely to each judge’s discretion, which is certainly not good judicial policy and certainly is likely to lead to appeals with claims of arbitrary and whimsical procedures having been undertaken by the company judge.

Secondly, another fundamental and most shocking change has been to do away with the right to appeal against orders of company judges almost entirely. Intra-court appeals, which allowed litigants to challenge the orders of the company judge before two judges of the same court, will no longer be available in company matters.

The trend of the jurisprudence laid down by the Supreme Court recently under the previous law had been to promote such appeals in the same high courts. In all but the rare instances of a company being wound up by the order of the court, was one allowed to go to the Supreme Court. Now, the new ordinance sends all appeals – more accurately Petitions for Leave to Appeal – to the Supreme Court. There is no other remedy available against a company judge’s order.

Consider this: from now on, all orders of all company judges from all provinces will end up before the Supreme Court, a Supreme Court which has only 17 judges and is already overworked. Each of the high courts has more judges than the Supreme Court and yet appeals before them have been bypassed. Additionally, now there is no right of appeal as of right available. The remedy before the Supreme Court now is not an appeal by right, but a Petition to Leave to Appeal, a two-stage process which is expensive and otherwise formidable.

Contradictions (section 476 and 482 say polar opposite thing), instances of bad drafting (section 6(14), sixty days from when?), controversies (apparent attempt to bypass the recent Supreme Court decision regarding collective cabinet decision-making by replacing the federal government with minister in charge), abound, but due to paucity of space these will need to be addressed in another piece. Each has been substantial enough to make the new ordinance a laughingstock with the practitioners in the field.

The new ordinance has correctly been widely criticised qua the manner of its imposition, which has been shocking: no real discussion took place in parliament or outside, despite the claims to the contrary by the relevant quarters. We at the Lahore High Court Bar Association even had a seminar on an earlier proposed draft. We struggled to precisely note what the changes were.

As mentioned earlier, the main text of the Ordinance is 427 pages long, 516 sections with no real indication as to reasoning behind each change or even identification of each change. There has been no section by section analysis, no detailed document regarding the objects and reasons. A simple few lines is all that seems to have sufficed. If subterfuge was the intention, it has been achieved. If confusion was the intention, that too has been achieved. Even well-advanced practitioners are at a loss to talk about the law.

What is, however, clear is that the Companies Ordinance 2016 is an utterly callous, unthinking tampering with a settled law and system of company law. This scribe suggests an immediate withdrawal of the ordinance. Even if it is allowed to lapse, as some are indicating now that it will be, it will have devastated the entire corporate fabric for at least eight months, a staggering amount of time in a country’s corporate life. One can only hope that the powers that be see sense.


The writer is an advocate of the Supreme Court of Pakistan and the managing
partner of Qayyum & Associates at Lahore.