The law was importent because it sought to put an end to a corporate practices that had been instrumental in the concentration of wealth in few hands. In fact inter-corporate investment was the route taken by the, " Lahore Mafia" to acquire several of the profitable units privatized by first Sharif govt.
The Monopoly Control Authority (MCA) annual report for 1991-92 found 308 cases of inter-corporate financing during the year and another report about textile found that 105 of 164 textile units examined by it, invested Rs 6,585 million and Rs 4,285 million repectively in 1991-92 and 1192-93 in their associated undertakings.
There was also a reverse flow from the associated companies to the parent companies and 92 textile units received Rs 2,524 million and Rs 2,222 million from their associated companies during the two years. Thus total inter-corporate financing in the textile sector during 1990-92 came to a staggering Rs 9 billion.
Even before the promulgation of Companies Amendment Ordinance 1993, company-law 1984 and related laws were impregnated with provisions aimed at checking the concentration of wealth and creation of cartels and monopolies. For example the company law required a listed company seeking to extend loan to an associated undertaking to give a notice, in at least two newspapers, stating what will be the security, terms of payment, profit or rate of interest etc.
The Monopolies and Restrictive Trade Practice, Control and Prevention Ordinance 1970 had clearly envisaged that the provisions prohibiting undue concentration of wealth will be attracted if an individual holds or controls more than 50% shares of a company. It also stated that a situation of undue concentration of wealth would arise if there are dealings between " associated undertakings" resulting in unfair benefits to the shareholders of one undertaking, to the prejudice of the other.
The law also established a presumption of unreasonable monopoly power when competing undertakings with 20% or more of a market are interlocked through common management or control or through common partners. It prohibited anti-competitive mergers and acquisitions and financial institutions from making loans to firm associated with them, on terms and in amount more favorable than those afforded to an unrelated firm. Many of the above mentioned situations emerged in respect of acquisition of five cement plants by Mian Mohammad Mansha and his relatives and business associates and yet Corporate Law Authority failed to take cognizance of the situation. When the unprecedented price hike of cement in the wake of privatization forced the government to launch an inquiry into the phenomenon, MCA concluded that " the MCA is unable to regulate prices of any goods manufactured by a dominating or single monopolistic firm"
In an interview with Pakistan and Gulf Economists in March 10, 1990 issue, Chairman of Corporate Law Authority Irtaza Hussain had said, " in my view, the consolidation of group accounts should be introduced shortly" and that Corporate Law Authority will soon seek public comments on proposed Companies Court Rules with regard to windig up of companies.
The Chief Justice of Pakistan asked us to write down the rules (about winding up the companies) and they are voluminous at the Companies Ordinance. Comments of Honorable Judges of High Court have already been received and I am glad to say that these have been approved recently. Within two months, the draft rules are expected to be public for public comments" he had said emphatically.
Ironically, Irtaza Hussain has been member of every commission, committee or working group set up by successive governments during last eight years but the need to require the big business to publish consolidated group accounts and promulgate rules about liquidation of sick companies has apparently withered away and therefore, has not been mentioned by any working group or committee seeking to reform the corporate sector.
The company law, 1984 required all the private limited companies to go public if their paid up capital exceeded Rs 50 million. However, there are score of private limited companies with annual turnover ranging between several hundred million to 2 billion rupees but they have not gone public. These include Mohammad Amin Mohammad Bashir (pvt) Ltd, the parent company of Crescent Group, Alnoor Fertilizer Industries, Jaffer Bros, Dawood Corporation, Tabani Corporation, Arfeen International owning Pakistan's biggest oil tanker, Ghani and Tayyab (pvt) Ltd of Haji Tayyab, Ittefaq Foundary, Shahnawaz Ltd and Mercury Corporation.
How CLA has facilitated people to make quick money can also be illusterated by the following example.
Allied Bank Ltd (ABL) President Khalid Latif was arrested by Federal Investigation Agency (FIA) on January 11, 1995 for financial bungling relating to Allied Bank Modaraba. According to complaint, a section officer of Ministry of Finance, Khalid Latif had drawn Rs 30 million from a branch of his own bank, in the name of Pak Trading Company, set up, on the security of fake export bills. The amount was used by him to purchase shares of Allied Bank Modaraba, in the name of eight different persons.Previously we have already elaborated How Pakistan Services Limited (PSL) was used by Hashwani to make a chain of subsidiaries in Pakistan, UK and USA.Similarly Yunus Habib Chief Executive Officer (CEO) of Mehran Bank, now serving prison was accused to have incorporated 27 fake companies in whose name he was drawing money from his own bank. Schon group is reported to have set up string of fake companies to withdraw Rs 662 million from National Fibre after its privatization. How a fake company can be floated and shares can be bought in the name of eight different persons prove that something is very wrong with the Corporate Law Authority which registers the companies and oversees the floating of shares.