Govt amends act to remove legal glitch in removal of independent directors from XWDiscos boards

Federal govt promulgates Ordinance aimed at paving way for dissolution of Board of Directors of state-owned XWDiscos

ISLAMABAD   -   To remove legal glitch in the removal of the independent directors from the boards of the Ex-Wapda Distribution Companies (XWDiscos), the federal government has amended the State Owned Enterprises (SOEs) Act 2023.

The federal government has promulgated Ordinance, State-Owned Enterprises (Governance and Operations) (Amendment) Ordinance, 2024, aimed at paving the way for the dissolution of the board of directors of the state-owned XWDiscos.

The amendment will empower the federal government to remove a director or directors from the BoDs on the recommendation of the Board Nominations Committee.

It is worth noting that in May 2024 the federal government had decided to remove independent directors on the Board of Directors of nine XWDiscos owing to their poor performance and had recommended the names of 26 candidates for the BoDs. However, it was facing the legal and technical glitches in the removal of the independent directors. As per the SOE act 2023, the removal of the independent directors was complicated matter and could lead to litigation.

The original SOE Act 2023 states“ A director, once appointed shall hold office for the period specified under the applicable law, unless he resigns in writing or is removed earlier in accordance with the provisions of this Act,”. It further said that “An independent director once appointed by the federal government shall not be removed unless it is established through an inquiry conducted in the prescribed manner that- the director is found to be in non-compliance with the provisions of this Act, or the Companies Act 2017, (XIX of 2017), or any other applicable law; the director fails to fulfil his duties and responsibilities under this Act; the director is found to act in a manner detrimental to the successful management and operation of the state-owned enterprise; or (d) the director is found guilty of misconduct.

Therefore the government has introduced amendments to the SOE Act through Ordinance, which says, “And whereas the Senate and the National Assembly are not in session and the President is satisfied that circumstances exist which render it necessary to take immediate action, now, therefore, in exercise of powers conferred by clause (1) of Article 89 of the Constitution of the Islamic Republic of Pakistan, the President is pleased to make and promulgate the following Ordinance.

“This Ordinance may be called the State-Owned Enterprises (Governance and Operations) (Amendment) Ordinance, 2024…It shall come into force at once,”.

Amendment of section 4, Act No. VII of 2023 — In the State Owned Enterprises (Governance and Operations) Act, 2023 (Act No. VII of 2023), clause (k) in sub-section (2) of section 4 shall be omitted.

As per the amendment of section 10, Act No. VII of 2023, following new clauses shall be added, namely:

“(c) evaluating the performance of ex-officio and independent directors; and (d) recommending the removal of a director or directors to the federal government on the basis or evaluating the performance of such director or directors.”,

(ii) in sub-section (3), after the words “performing its functions” the words “under clauses (a) and (b) of sub-section (2)” shall be inserted, and (iii) after sub-section (3), amended as aforesaid, the following new sub-section shall be added, namely:

“(3A) In carrying out its functions under clauses (c) and (d) of subsection (2) of section 10, the Board Nomination Committee shall evaluate the performance of a director or directors of a state-owned enterprise based on the objectives and principles laid down in Chapters 2, 3 and 4 of this Act, to the extent applicable to a Board of a state-owned enterprise.”

Amendment of section 13, Act No. VII of 2023 —(1) In section 13, (i) in sub-section (1), the following proviso shall be inserted, namely:“Provided that for reasons to be recorded, the Federal Government may remove a director or directors on the recommendation of the Board Nominations Committee under clause (d) of sub-section (2) of section 10” in sub-section (2), (ii) in sub-section(2), (a) for the word “An” appearing in the beginning, the expression “Save for as provided in the proviso to sub-section (1) of section 13, an” shall be substituted, and clause(b) shall be omitted.

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