Page 84 - CMA Journal (Mar-Apr 2025)

Articles Section

Reading section 164 and section 165 together, it can be (h) “director" means—
construed that the investors, whether government or • in the case of a company, a director appointed under
private, can nominate directors on the board of the the Companies Act, 2017 (XIX of 2017); and
company to safeguard their interest over and above the
directors elected under section 159. However, when o in the case of a statutory state-owned enterprise, a
subsection 2 of section 165 is read, it talks of votes member of the governing body designated under
computed in the manner laid down in subsection (5) of the applicable law.
section 159. This subsection can only make sense if we But the term “ex officio director” is used several times in
read investment as equity or shares in subsections (a), (b) the SOE Act and Policy, but no definition has been
and (c) of section 165; otherwise, subsection (2) does not
provided as to who the ex-officio director is. As a matter
make any sense. of general practice, the dictionary meaning given earlier
In addition, subsection (3) of this section adds more will be taken as applicable. Banking on that definition
confusion, which reads, “A director nominated under and the definition of “director” as given above, an
sub-section (1) shall hold office during the pleasure of inference can be drawn that an ex-officio director as
the nominating body.” In many circles, subsection (3) is mentioned in the SOE ACT and Policy cannot become a
interpreted as the nominated directors elected by virtue director in a company unless he is also a nominee
of shares held in a company in the election of directors director as referred to before.
can continue till their nomination is cancelled by the Since the SOE ACT and policy are also applicable to
nominating body under sub-sections (a), (b) and (c) of statutory bodies like WAPDA, NHA and Railways, the
section 165; others interpret this clause to construe that
intent of the legislature seems to be that these bodies
they can hold office during the pleasure of the can have ex-officio directors if provided in their statute.
nominating agency but limited to the term of three years This also gains strength from the definition of “director”
as given in section 161(1) and in case of casual vacancy, given in section 2, subsection (g), as quoted before.
which is to be filled up by the directors as given in
subsection (2) of section 161. Conclusion
My opinion on this is that the pleasure of the nominating To juxtapose the preceding discussion, it is concluded
body is limited to a term of a maximum of three years as that there is no provision in the ACT for an ex-officio
given in section 161, and the pleasure can not extend the director. Any provision which exists in the Articles of
term of three years. A clarification from SECP is awaited Association of any company incorporated under the ACT
on this section from the last three months. is not in accordance with the ACT and needs to be
Before parting with the discussion and forming any revisited.
opinion, it is in the fitness of things to discuss the Further nominee director means a natural person
provision related to the election of directors in: nominated by the artificial or legal person by name to act
1) Listed Companies (Code of Corporate Governance) on its behalf as director and does not mean any person
Regulations, 2019 (Regulations); holding a certain specific position. Such a specific person
holding a specific position will not be a deemed nominee
2) Public Sector Companies (Corporate Governance) director. The entity extending a loan or credit facility can
Rules, 2013 (Rules); and
nominate directors on the board of the company, and the
3) State-Owned Enterprises (Governance and nominated director will be on top of the elected
Operations) Act, 2023 (the SOE ACT) read with the directors.
State-Owned Enterprise Ownership and
It is also worth mentioning that by virtue of Section 4 of
Management Policy (the Policy)
the ACT, which is a non-obstante section, the ACT will
There is no mention of the “Ex-Officio” and “Nominee have an overriding effect on other acts, so any provisions
Director” in the Regulations and Rules; however, the SOE in the SOE ACT will have to pass the legitimacy test under
ACT promulgated on January 31, 2023, and the Policy as the ACT.
required under the SOE ACT which was circulated on
27th November 2023, clearly defines the nominee About the Author: Syed Ahmad Ashraf is a Fellow Member of
ICMA and an Associate Member of ICSP. He holds a law degree, a
directors and directors in section 2, subsections (g) and postgraduate diploma in taxation, and a master’s in business with a
(h), as given below: focus on fiscal management. With over 35 years of experience in
finance and corporate affairs in both public and private sectors, he
(g) "nominee director" means—
is currently associated with SR Law as a corporate and tax
1. a director who represents the federal or provincial consultant. He handles complex matters including mergers and
government; and acquisitions, and represents clients before SECP, the Competition
Commission, FBR, and provincial tax authorities. He has also
(ii) a director who represents another state-owned authored several articles on tax and corporate issues published in
enterprise professional journals and newspapers.
82 ICMA’s Chartered Management Accountant, Mar-Apr 2025