Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980

This 1980 ordinance regulates 'modarabas' -- Shariah-compliant investment vehicles where one party puts up money and another contributes effort or skill to run a business, similar in structure to Unit Trusts and Mutual Funds (Section 2). It sets rules for both the modaraba companies that create and manage these vehicles and for the modarabas themselves, under the supervision of a Registrar appointed by the Federal Government (Section 3).

Section 4 bars any modaraba company from operating without registration, and Section 5 sets out eligibility requirements: the company must be properly registered (or be a government-owned/controlled body), have a minimum paid-up capital (raised to two and a half million rupees by a 1985 amendment) if solely engaged in modaraba business, and its directors and officers must have clean records -- no convictions for fraud or breach of trust, and no history of insolvency. Once registered, a company applies under Section 6 for permission to float a specific modaraba, backed by a prospectus.

A distinctive feature of this law is its religious compliance mechanism. Section 9 requires the Federal Government to set up a Religious Board, and Section 10 bars any modaraba from doing business that is contrary to the Injunctions of Islam -- the Registrar cannot authorise a modaraba's floatation (Section 11) until the Religious Board certifies in writing that it complies. Section 7 lets a modaraba be either 'Multipurpose' (more than one business purpose) or 'Specific purpose' (a single purpose), and either fixed-term or open-ended. Section 12 makes clear a modaraba is its own legal person -- it sues and is sued through its managing modaraba company, and its assets and liabilities are kept legally separate from the modaraba company's own.

Where things go wrong, the ordinance provides for winding up a modaraba either voluntarily (Section 22) or by order of a special Tribunal (Sections 23-29), with a right of appeal (Section 30). Contravention of regulations made by the Securities and Exchange Commission of Pakistan under Section 41A (inserted in 2012) can be punished with a fine of up to one hundred thousand rupees, plus a further fine of up to one thousand rupees for each day the violation continues.

This is an old ordinance from 1980 with amendments through 1985, 1999 and 2012 -- notably, oversight shifted over time from company-law-era mechanisms to the Securities and Exchange Commission of Pakistan, and the ordinance still cross-references the old Companies Act, 1913. Given the age and layered amendments, figures like the minimum capital requirement and any monetary penalties should be checked against the current text and applicable SECP regulations before being relied on.