ECONOMIC REFORMS ORDER, 1972

PRESIDENT’S ORDER 1 OF 1972

Gazette of Pakistan. Extraordinary, 3rd January, 1972

Whereas the benefits of economic development and industrialization have remained confined to the privileged few to the detriment of the common man ;

And whereas Islam enjoins equitable distribution of wealth and economic power and abhors their concentration in a few hands ;

And whereas it is the duty of Government to ensure that the wealth and economic resources of the country are exploited to the maximum advantage of the common man ;

And whereas those who control the means of production are accountable to the people through their chosen representatives ; And whereas it is necessary to safeguard the interest of the small investor;

And whereas it is necessary for that purpose to provide for redeeming the promises made to the people in that behalf from time to time since the creation of Pakistan ;

Now, therefore, in pursuance of the Proclamation of the 25th day of March, 1969, read with the Proclamation of the 20th day of December, 1971, and the Provisional Constitution Order, and in exercise of all powers enabling him in that behalf, the President and Chief Martial Law Administrator is pleased to make the following Order :

1. Short title, extent and commencement.- (1) This order may be called the Economic Reforms Order, 1972.

(2) It extends to the whole of Pakistan.

(3) It shall come into force at once.

2. Definitions.- In this Order, unless there is anything repugnant to the subject or context,’

(a) ‘establishment’ means any ‘[company, firm, concern, institution or enterprise the whole or any part of the undertaking of which pertains] to any of the categories set out in the [First Schedule] ; and includes any related office, shop, factory, godown, yard stocks and stores wherever they may be ;

(aa) [managed establishment’ means an establishment in respect of which a Managing Director has been appointed].

(b) ‘Managing Director’ in relation to an establishment means a Managing Director, appointed under Article 4 in respect of such establishment; and

(bb) [‘Share-holder’ means a share-holder in the share capital of an establishment, and includes a stock-holder ;

(bbb) ‘person’ includes an individual, a Hindu undivided family, a partnership firm, an association of persons or a body of individuals, the Government of a Province and a local authority].

(c) words and expressions used but not defined in this Order shall have the same meaning as in the Companies Act, 1913 (VII of 1913).

3. Order to override other tows.-This Order shall have effect notwithstanding anything contained in the Provisional Constitution Order or any other law for the time being in force or in any agreement, contract, memorandum or articles.

[(2) It is hereby declared that development under Federal control of the industries pertaining to any of the categories set out in the First Schedule is expedient in the public interest].

4. Power to appoint Managing Director.-(1) The [Federal Government] may, if it considers necessary in the public interest so to do. by order appoint a Managing Director in respect of an establishment ,

(2) On the appointment of a Managing Director in respect of an establishment, the administration of the affairs of the establishment shall vest in him and any person or authority exercising or having the right to exercise immediately before such appointment, any power or function in relation to the establishment shall cease to exercise or to have the right to exercise such power or function, [and, on and from such date as the Federal Government may by notification in the official Gazette, specify, the establishment shall be known by such new name as may be so specified].

(3) The Managing Director shall hold office during the pleasure of the [Federal Government], and shall, in the discharge of his functions, be subject to such orders and directions as the [Federal Government] may from time to time give in writing.

(4> Where a Managing Director is appointed in respect of an establishment, the [Federal Government] may, by order, remove from office the Board of Directors, the Managing Agent, any Director or any other [person] howsoever designated performing or having the right to perform any function in relation to that establishment:
Provided that the Managing Director may require any Director or other officer in respect of whom an order is made under this clause, to perform any function in relation to the establishment as the Managing Director may direct on such terms and conditions as may appear reasonable.

(5) The Managing Director appointed under clause (1) in respect of an establishment shall exercise–

(a) if such establishment is owned or controlled by a company, all the powers and functions of the Board of Directors ;

(b) if such establishment is owned or controlled by an individual or a firm, all the powers and functions of that individual or a firm ; and

(c) if such establishment had a Managing Agent to manage its affairs, all the powers and functions of the Board of Directors.

5. No compensation for termination of office.–No compensation shall be payable for the termination of any office or of an agreement under or by virtue of the operation of the provisions of this Order :

Provided that this Article shall not be construed as preventing the [Federal Government] from authorizing any payment to reimburse a person for any expenses bona fide incurred by him in connection with the management of the establishment before the appointment of a Managing Director.

Court Decisions
appellant not claiming to hold public office nor enjoying any constitutional protection qua terms and conditions of his service with Taken Over Indus y—Service of appellant regulated by para. 6—Post of appellant, abo)shed and his services terminated—Case of appellant being neither of appointment nor promotion hence not governed by Directive of Government of Pakistan regarding continuance in service of employees—Directive co-exists with para. 6 but is of subordinate character—Termination of service according to contract of employment, not interfered with. P L J 1980 Lahore 663

6. Employees to continue in service.- Unless in any particular case the Managing Director otherwise directs, all persons employed in, by or for the purpose of the business of the establishment by whomsoever appointed or engaged, shall continue in their respective employments on the same remuneration and other conditions of service as were applicable to them immediately before the appointment of the Managing Director of that establishment.

7. Prohibition to obstruct.–No person shall, except under the authority of the [Federal Government], give any instructions to the Managing Director, nor shall any person in any manner obstruct him in the discharge of his functions.

7-A. Power to prohibit dealings in shares, etc.-(1) The Federal Government may, by notification in the official Gazette, direct that–

(a) no dealings or business relating to the shares of the managed establishment specified in the notification shall be transacted on any stock exchange ; and

(b) no transfer of the shares of the managed establishment specified in the notification shall be registered in the share register of the establishment except to the extent and in the manner so specified.

(2) A notification issued under paragraph (a) of clause (i) shall remain in force for a period of ninety days unless it is earlier rescinded or modified.

7-B. Power to acquire share or business of an establishment.-(1) The Federal Government may, if it considers necessary in the public interest so to do, by an order,’

(a) In the case of an establishment which is a company or on establishment owned by a company ;

(i) acquire the entire shares held in the company by the sponsors and directors of the previous management thereof, the family members of such sponsors and directors and the associated undertakings and managing agents which were the associated undertakings and managing agents of the company ‘at the time at which a Managing Director was appointed in respect thereof and the whole or a portion of the shares from all or any of the share-holders of such company and, as from the date of such order, the shares so acquired shall vest in the Federal Government; or
(ii) acquire the whole or a portion of the proprietary interests of such company in such establishment and, as from the date of such order, the’ interests so acquired shall vest in the Federal Government; and

(b) in the case. of an establishment owned by a person acquire the whole or a portion of the proprietary interests of such person and, as from the date of such order, the interests so acquired shall vest in the Federal Government:
Provided that no order shall be made under this Article for the acquisition for the shares held in an establishment by a foreign investor or an institution owned, managed or controlled by the Federal Government:

Provided further that in the case of an establishment which is a company or an establishment owned by a company, the Federal Government may, by notification in the official Gazette, exempt from acquisition shareholdings of any share-holder up to such maximum amount as may be specified in the notification.

Explanation.-In this clause,

(a) ‘associated undertakings’ has the same meaning as in the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (V of 1970) ;
(b) ‘family members’ in relation to a sponsor or director, means the spouse, lineal ascendants and descendants and brothers and sisters of the sponsor or director ; and
(c) ‘previous management’, in relation to a company, means a person, body or managing agency in whom the management of the company vested immediately before the appointment of a Managing Director in respect of such company or of the establishment owned by it.

(2) Where the Federal Government makes an order under clause (1) in respect of the shares of any company, no dealings or business relating to such shares shall be transacted on any stock exchange for a period of ninety days from the date of such order.

7-C. Acquisition of shares.- Where, under Article 7-B, the Federal Government acquires the whole or a portion of the shares of the shareholders of any company or of the proprietary interest of a company or other person in an establishment, the Federal Government shall [ **** ] pay such compensation as may be determined by it on the basis of the principles set’ out in the Second Schedule.

7-D. Re-organization of establishment.-(1) Where, in respect of any managed establishment which is a company or an establishment owned by a company, the Federal Government holds or has acquired the whole or a majority portion of the shares in the company carrying the controlling voting rights, or where the Federal Government has acquired the whole or a controlling portion of the proprietary interests it may at any time re-organize such establishment with a view to increasing its efficiency and rationalizing its operation.

(2) The re-organization may include provision for amalgamation of a managed establishment with other such establishments or within undertakings owned or managed by the Federal Government or by a corporation set up under the authority of the Government and, in the case of establishments which are companies or establishments owned by companies, may provide for the reconstruction of any such company or companies, or amalgamation of any such two or more companies and for all or any of the matters contained in section 153 or section 153-B of the Companies Act, 1913 (VII of 1913), or for alteration of share capital or loan structure and alternation of existing, or adoption of fresh, articles of association of such companies.

(3) The re-organization shall be implemented and take effect in such manner and at such time as the Federal Government may, by notification in the official Gazette, specify.

Explanation.-‘For the purposes of this Article [Article 7-E and Article F] the Federal Government shall be deemed to have a majority portion of the shares in a company carrying controlling voting rights or the controlling proprietary interests in an establishment if the aggregate face value of the shares or proprietary interests in such establishment owned by the Federal Government and by an institution owned or controlled by the Federal Government exceeds 50% of the total voting rights in the issued and paid-up share capital of the company or 50% of the proprietary interests of that establishment.

7-E. Vesting of management etc., acquired by Federal Government in a corporation.—

(1) Where the Federal Government acquires the whole or a majority portion of the shares or proprietary interests of a company or other person under Article 7-B. the Federal Government may transfer the management of. and such shares or proprietary interests in such establishment to any corporation wholly owned or controlled by the Federal Government or a corporation to be set up for the purpose.

(2) A corporation to which the management of, or shares or proprietary interest in, an establishment is or are transferred under clause (1) shall in the exercise of its powers and performance of its functions, be subject to the general supervision and control of such ‘Board or other authority the Federal Government may set up for the purpose.

7-F. Constitution of Board of Directors, etc.-(1) Where the Federal Government has acquired under Article 7-B the whole or a majority portion of the shares of a managed establishment which is a company and is of the opinion that. in the interest of the share-holders of the managed establishment, it is necessary to do so, the Federal Government may, by order in writing direct that a board of directors consisting of a Managing Director and such number of other directors as may be specified in the order be constituted in such managed establishment.

(2) Where the Federal Government has made an order under clause (1) in respect of a managed establishment, the board of directors of such establishment shall be constituted within a period of sixty days from the date of the order.

(3) Where the Federal Government has’ made an order under clause (1) in respect of a managed establishment,–

(a) The Federal Government may nominate such number of directors including the Managing Director, on the board of directors of the managed establishment as bears to the total number of directors, as nearly as may be, the same proportion as the aggregate face value of the shares owned by the Federal Government and by an institution owned or controlled by Federal Government and by an institution owned or controlled by Federal Government, including the Corporation to which the management of the managed establishment stands transferred under clause (1) of Article 7-E, hereafter in this Article referred to as the Corporation, bears to the total issued share capital of the managed establishment; and
(b) the other directors shall from time to time be elected by the members of the managed establishment, other than the Federal Government an institution referred to in paragraph (a) and the corporation, in general meeting in accordance with the Companies (Managing Agency and Election of Directors) Order, 1972 (P.O. No. 2 of 1972).

(4) The Managing Director nominated under clause (3) shall be the chief executive of the managed establishment.

(5) The board of directors of a managed establishment constituted under this Article shall enter upon office on such date as the Federal Government may by order in writing, appoint in this behalf and, upon their entering upon office as aforesaid,–

(a) the Managing Director appointed under clause (1) of Article 4 in respect of the establishment shall cease to hold office ;
(b) the management of the establishment shall cease to vest in the Corporation and the management and administration of the affairs of the establishment shall, subject to this Article, stand transferred to the board of directors ; and
(c) the Managing Director nominated under clause (3) shall have such powers and functions as the board of directors may, from time to time, confer upon or entrust to him.

Court Decisions
Despite being a private company, Federal Chemicals and Ceramics Corporation Ltd., of which Ittehad Chemicals was a component group, owes its subjugation to provisions of Article 7-F of Economic Reforms Order, 1972–Under said Article, a Board of Directors was constituted and management and establishment of FCCCL stood transferred to Board of Directors and only Board was competent to take decision in respect of services of petitioner–Even if FCCCL is treated as a private limited company, order regarding services of petitioner could not be passed by respondent No. 2 as management vested in its Board of Directors–Respondents have themselves made it clear that impugned order was not passed under orders of Board, rather they did not hesitate in saying that his services were terminated simply with approval of Minister Incharge who does not figure anywhere in Economic Reforms Order, 1972–Held: Impugned order having been passed without application of independent mind and on intervention of foreign authority (of Miniter), is not maintainable. PLJ 1994 Lahore 349

8. Bar of jurisdiction.- (1) No Court, including the Supreme Court and a High Court shall call in question, or permit to be called in question, any provision of this Order or of any rule or order made or anything done or any action taken or purporting to be made, done or taken thereunder.

(2) No Court, including the Supreme Court and a High Court, shall grant any injunction or make any order, nor any such Court shall entertain any proceedings in relation to anything done or intended or purporting to be done .under this Order.

9. Indemnity.-No suit, prosecution or other legal proceeding shall lie against the [Federal Government] or the Managing Director or any other person for anything in good faith done under this Order or any rule or order made thereunder [or for any inadvertent failure to comply with any of the provisions of the Companies Act, 1913 (VII of 1913).

10. Delegation of powers.- [Federal Government] may, by notification in the official Gazette, direct that any of its powers under this Order shall, subject to such conditions, if any, as may be specified in the notification, be exercisable also by a Provincial Government.

11. Savings.- Nothing contained in this Order shall affect any agreement entered into between the [Federal Government] and a foreign investor or creditor or any agreement between a foreign investor or creditor and any citizen of Pakistan which has been expressly approved by the [Federal Government].

12. Power to make rules.- (1) The ‘[Federal Government] may, by notification in the official Gazette, make such rules as appear to it to be necessary or expedient for carrying out the purposes of this Order.

(2) In particular and without prejudice to the generality of the foregoing power such rules may provide for, or may empower any authority to make orders providing for, all or any of the. following matters, namely :–

(a) ensuring the safety of the properties of an establishment;
(b) ensuring the due performance of their duties by the persons connected with an establishment;
(c) Prohibiting anything likely to interfere with the proper functioning of an establishment;
(d) the administration, management and disposal by way of transfer or otherwise of any property belonging to or held or managed by or on behalf of an establishment.
(e) prohibiting the departure from any area of any person connected with the administration, control or functioning of an establishment;
(f) the taking over or control of any business, trade, industry, firm or company which is in the opinion of the 26 [Federal Government] a subsidiary of an establishment;
(g) the requisitioning of any property, movable or immovable, belonging to an establishment;
(h) the requisitioning of any property, movable or immovable, the requisition of which is, in the opinion of the ‘[Federal Government] required for the proper functioning of the Government.
(i) preventing the entry of any person into any place, yard, factory and mill, shop or office used for the purpose of an establishment or of any of its subsidiaries ;
(j) the taking of any steps for collecting, controlling and disposing of the assets, movable and immovable of any establishment [; and]
(k) the procedure and manner of acquiring shares and proprietary interests in establishments and payment of compensation therefor and reorganization of managed establishments ; and
(l) in the case of an establishment which is a company, the calling of meetings of the share-holders of the company and the conduct of its affairs].

(3) The rules made under this Article may provide that the contravention of any of the provisions or the Order of the rules shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to ten Lakhs of rupees, or with both.

13. Removal of difficulties.-If any difficulty arises in giving effect to any provision of this Order, the [Federal Government] may make such order, not inconsistent with the provisions of this Order, as may appear to it to be necessary for the purpose of removing the difficulty :

Provided that no such power shall be exercised after the expiry of one year from the commencement of this Order.

THE
FIRST SCHEDULE

1. Iron and Steel Industries.

2. Basic Metal Industries.

3. Heavy Engineering Industries.

4. Heavy Electrical Industries.

5. Assembly and Manufacture of Motor Vehicles.

6. Tractor Plants, Assembly and Manufacture.

7. Heavy and Basic Chemicals.

8. Petro-chemical Industries.

9. Cement Industry.

10. Public utilities, that is to say–

(a) Electricity, Generation, Transmission and Distribution ;

(b) Gas ; and

(c) Oil Refineries.

THE
SECOND SCHEDULE

Principles and the manner for payment of compensation in respect of the shares or proprietary interests of an establishment acquired by the Federal Government.

1. Where the whole or a portion of the shares of such an establishment is acquired by the Federal Government, the value of the compensation for the shares so acquired shall be assessed–

(a) in the case of shares not quoted on any of the stock exchanges, as the Break Up Value ; and

(b) in the case of shares quoted on any of the stock exchanges, as the Break Up Value or the Market Value, whichever is less.

2. Where the whole or a portion of the proprietary interests in such an establishment is acquired by the Federal Government, the value of the compensation for the interests so acquired shall be assessed–

(a) in the case of an establishment which has been in commercial production for less than 5 years, at the Net Worth Value of the proprietary interests of such establishment; and

(b) in the case of an establishment which has been in commercial production for more that 5 years, at the Net Worth Value or the Time Value of the proprietary interests, whichever is less, of such an establishment.

3. The compensation payable in accordance with the principles indicated above shall be paid by the Federal Government in cash or in the form of Government Industrial Bonds redeemable at any time at the option of the Federal Government carrying a rate of interest one per cent. above the bank rate as notified by the State Bank of Pakistan from time to time. The bonds shall not be transferable or be eligible for hypothecation except in accordance with such rules as may be made by the Federal Government in this behalf.

(a) ‘Break UP Value shall mean- the value of the shares of a company as determined by the auditors of such company on the basis of its latest audited Annual Balance Sheet, in accordance with clause (e) of Rule 8 of the Wealth Tax Rules;

(b) ‘Market Value’ shall mean the average value of the shares of a company as quoted on the stock exchange nearest to the Head Office of that company on closing on the six working days prior to the date of acquisition of such shares under the Order or, if, on the date of such order, dealings or business relating to such shares is prohibited under the Order, the six days prior to the date on which the dealings or business is so prohibited ;

(c) ‘Net Worth Value’ shall mean the value of the proprietary interest of a company or other person in an establishment, which is acquired under the Order, as determined by the auditors appointed by the Federal Government on the basis of the latest annual audited Balance Sheet or, where no audited Balance Sheet is available on the basis of the latest annual Balance Sheet of such establishment to he verified by the auditors appointed by Federal Government for the purpose. The Net Worth Value shall be determined by valuing the Fixed Tangible Assets appearing in the Balance Sheet at their written down values, and valuing the Current Assets, e.g. stocks, inventory, work in progress advances and pre-payments, cash and bank balances, at their cost or market value, whichever is lower. From the sum total of the fixed and the current assets so valued as aforesaid, all the outstanding liabilities appearing in the Balance Sheet shall be deducted, thereby arriving at the Net Worth Value of the proprietary interests in such establishment;

(d) ‘Time Value’ shall mean the value of the proprietary interests of a company or other person in an establishment, where such establishment has been in commercial production for a period of not less than 5 years and shall be determined by multiplying the average net profits of the last 3 completed years on account of such an establishment by the figure 7 ; and

(e) ‘Net Profits’ shall mean the net profits as defined in sub-section (3) of section 87-C of the Companies Act, 1913 (VII of 1913).