LSE Opinion

Dear Sir,
In continuation of our earlier discussion, kindly note that we have reviewed the
relevant documents as well as Non-Banking Finance Companies (Establishment and
Regulation) Rules, 2003 (“NBFC Rules”), Companies Ordinance, 1984
(“Ordinance”) and Companies Act, 2017 (“Act”), in light of your query regarding
transfer of shares of a Non-Banking Finance Company (“NBFC”). Please note our
response as follows;
1. As per the documents provided to us, specifically, the excerpt of the Security
Exchange Commission of Pakistan (“SECP”) (Integration) Order dated 01,
2016 and the template letter for the transfer of shares issued by SECP
(“Template Letter”), it is assumed that;
i) The regulatory framework applicable to NBFCs mentioned therein,

refers to the NBFC Rules and the Non-Banking Finance Companies and
Notified Entities Regulations, 2008 (“NBFC Regulations”).
ii) The Template Letter is still being followed as the fitting procedure for
the transfer of shares of an NBFC.
2. The NBFC Rules, specifically Rule 5, envisages the conditions/requirements

for the grant of license for an NBFC to carry out the form of operation it was
established for. Moreover, Sub-Rule (6)(e) of Rule 5 requires the company’s
promoters or majority shareholders and directors to deposit their shares with
the Central Depositary Company of Pakistan (“CDC”) in an account marked as
blocked. Furthermore, Sub-Rule (6)(f) of Rule 5 also puts a restriction on the
same from transferring or selling their shares without prior approval of the
Commission. It is pertinent to note here that directors holding qualifying shares
are exempted from both the above-mentioned requirement and restriction
(together shall hereinafter collectively referred to as “Conditions”). Sub-Rule
6(e) and (6)(f) of Rule 5 of NBFC Rules are reproduced below for your
reference.
“5. Conditions for grant of license.

…
(6)…
(e) the company’s promoters or majority shareholders and directors have
deposited their shares with Central Depository Company of Pakistan Limited
in an account marked as blocked and such shares shall not be sold or
transferred without prior approval of the Commission and shall be kept
unencumbered:
Provided that directors holding qualifying shares, maximum up to 2 per cent of
the total share capital shall be exempt from this requirement;
(f) the company’s promoters or majority shareholders and directors have given
an undertaking that they shall not enter into any agreement for sale or transfer
of their shares in any manner without prior approval of the Commission;
Provided that directors holding qualifying shares, up to maximum up to 2 per
cent of the total share capital shall be exempt from this requirement;”
3. It appears that the Conditions noted in sub-rule (6)(e) and 6(f) of Rule 5 of
NBFC Rules only applies the company’s promoters or majority shareholders
and directors.
Who is a Promoter?
i. As per sub-rule (xxxixa) of Rule 2 of NBFC Rules (reproduced below) a

promoter or sponsor of a company is;
a. Any person who applies under Rule 4 of the NBFC Rules for
permission of forming an NBFC, and has subscribed or contributed
to the initial capital of the proposed NBFC.
b. Any person who replaces the person in Para 3(i)(b).

“2. Definitions.
(xxxixa) “promoter or sponsor” means a person who has made an application

to the Commission to form an NBFC under rule 4 and has contributed initial
capital in the proposed company or a person who replaces him;”
ii. Keeping in mind the definition of promoter provided under the NBFC
Rules, it is pertinent to note here that any person replacing the original
promoter or sponsor of the company shall also be considered a promoter
of that company.
Who is a Majority Shareholder?
iii. Sub-rule (xxxii) of Rule 2 provides that any person or his family,
holding ten percent (10%) or more shares having voting rights of the
paid-up capital of the company will be considered a majority
shareholder. The aforementioned provision is reproduced below for your
reference.
“(xxxii) “major shareholder” means a person who, individually or in

concert with his family or as part of a group, holds ten percent or more
shares having voting rights of the paid-up capital of the company;”
Who is a Director?
iv. The Act describes, under Section 2(25), a director as “any person
occupying the position of a director, by whatever name called”.
4. It is reiterated here that the requirement of depositing shares to CDC in a

blocked account, and the condition of taking prior approval for selling or
transferring those shares from SECP, do not apply to directors holding
qualifying shares up to 2% of the total share capital.
In light of the foregoing, it is concluded that any person falling under the definition of
promoter or majority shareholder and director mentioned here-above shall be required
to comply with the Conditions provided under sub-rule (6)(e) and (6)(f) of Rule 5 of
the NBFC Rules. Subsequently, upon compliance, their shares shall be deposited with
CDC under a blocked account and prior approval from SECP shall be required for
either sale or transfer of such shares.
We hope that you find the above to be useful.
Please do not hesitate to contact us in case you have any further queries.

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Dear Sir,

i) The regulatory framework applicable to NBFCs mentioned therein,

2. The NBFC Rules, specifically Rule 5, envisages the conditions/requirements

“5. Conditions for grant of license.

i. As per sub-rule (xxxixa) of Rule 2 of NBFC Rules (reproduced below) a

b. Any person who replaces the person in Para 3(i)(b).

(xxxixa) “promoter or sponsor” means a person who has made an application

Who is a Majority Shareholder?

“(xxxii) “major shareholder” means a person who, individually or in

4. It is reiterated here that the requirement of depositing shares to CDC in a

We hope that you find the above to be useful.

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