Companies Profits (Workers Participation) Act 1968

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COMPANIES PROFITS (WORKERS' PARTICIPATION) ACT, 1968

[XII OF 1968]

( Published in Gazette of Pakistan, Extraordinary, 5th July, 1968.)]

[14th July, 1968]

( Date of assent by President.)

[8th July, 1968]

( Date of publication in the official Gazette)

An Act to provide for participation of workers in the profits of companies

10. Act to override other laws.‑‑------( Sections 8, 9 and 10 added by Ord. XII of 1970, w.e.f. Ist July, 1970.) The provisions of this Act shall have effect notwithstanding anything contained in any other law for the time being in force, or in any contract or the memorandum or articles of associations of a company].

COMPANIES PROFITS (WORKERS' PARTICIPATION)

ACT, 1968

[XII OF 1968( Published in Gazette of Pakistan, Extraordinary, 5th July, 1968.)]

[14th July, 1968] ( Date of assent by President.)

[8th July, 1968] ( Date of publication in the official Gazette)

THE SCHEDULE

SCHEME

[See section 2(e)]

1. Scope of the Scheme.‑‑ The scheme applies to all companies (The word "primarily" omitted by Ord., XII of 1970, w.e.f. 1st July, 1970.)* * engaged in industrial undertakings which satisfy any one of the following conditions, and to such other companies as the (Subs. by P.O. 4 of 1975.)[Federal Government] may, by notification in the official Gazette, specify in this behalf, namely:‑‑

(i) The number of workers employed by the company (The words "in any shift" omitted by Act, XX of 1973.) * * * at any time during a year is (Subs. for the figure "100" ibid.)[50] or more.

(ii) The paid‑up capital of the company as on the last day of its accounting year is Rs.20 lakhs or more.

(iii) the value of the fixed assets of the company (at cost) is on the last day of the accounting year Rs.40 lakhs or more.

[Explanations.‑‑In this scheme:‑‑(Explanation added by Ord. XII of 1970, w.e.f. 1st July, 1970.)

(a) "industrial undertaking" means an institution, organisation, enterprise or establishment which involves the use of electrical mechanical, thermal, nuclear or any other form of energy transmitted mechanically and not generated by human or animal agency and which is engaged in any one or more of the following operations, namely:‑‑

(i) the subjection of goods or materials to any manufacturing, assembly, finishing or other artificial or natural process, which changes their original condition or adds to their value;

(ii) ship‑building;

(iii) the transformation, generation, conversion transmission or distribution of electrical energy, including hydraulic power; and

(iv) the working of a mine, oil well or any other source of mineral deposit, including blending, refining and purification of oils and gases; and includes companies engaged in the marketing and distribution of gas or in the carriage of men or goods by sea or air, and any other institutions, organisation, enterprise or establishment which the (Subs, by P.O. 4 of 1975.)[Federal Government] may, by notification in the official Gazette, declare to be an industrial undertaking for the purposes of this scheme; and

(b) references to the paid‑up capital and the valve of the fixed assets of the company shall, in the case of a company incorporated outside Pakistan but having a branch in Pakistan, be construed as references respectively to the capital invested in such. branch and the value of the fixed assets of the branch).

2. Investment of Fund.‑ ---( Paragraph 2 subs. for the original by Ord. XII of 1970, w.e.f. 1st July. 1970.)(1) The amount allocated or accruing to the Fund shall be available to the company for its business operations. The company may, however, request the Board to utilize the amount in the Fund for investment under sub‑paragraph (7) and the Board may decide to so invest the amount.

(2) The company shall pay to the Fund in respect of the amount in the Fund available to it for its business operations as aforesaid interest at the rate of 2‑1/2 per cent above the bank rate or 75 per cent of the rate at which dividend is declared on its ordinary shares, whichever is higher. In case there is more than one class of ordinary shares on which different rates of dividend have been declared, than the weighted average of the different rates of dividend shall be taken for the purpose of determining the rate of interest. The interest to the Fund shall accrue on and from the first day of the year next succeeding the year in which the scheme becomes applicable to the company. Even when the company does not wish to utilize the amount available to it under sub paragraph (1); interest at the rate aforesaid shall by payable by the company for the period between the date of allocation of any amount to the Fund and the date of its investment under sub paragraph (7).

(3) If, at any time after the establishment of the Fund, the company raises any additional capital, otherwise than through the issue of bonus or bonus shares, the Fund shall have the first option to convert any amount available to the company under sub‑paragraph (1) or any of the assets of the Fund into ordinary equity capital upto a ceiling of 20 per cent of the paid‑up capital of the company prior to such conversion of 50 per cent of the additional capital, whichever is less.

**Explanation.‑‑**In this sub‑paragraph, "additional capital" does not include any capital offered or to be offered to foreign participants of the company.

(4) For the exercise of the right of conversion under sub‑paragraph (3) the Board shall be given sufficient time to sell assets of the Fund to realise the amount needed for subscription to the additional issue of capital by the company.

(5) The shares acquired in the manner set out in sub‑paragraph (3) shall participate in future bonus and right issues in the same manner as other shares.

(6) The shares acquired in the manner set in sub‑paragraph (3) shall carry voting rights in the same manner as other shares and such voting rights shall be exercised by the Board on behalf of the Fund.

(7) The amount in the Fund which, under sub‑paragraph (1), the company has requested to be utilized for investment under this paragraph may be invested by the Board for the purchase of any of the following, namely:‑

(a) I.C.P. Mutual Fund Certificates;

(b) National Investment Trust (Unit) Certificates;

(c) Government securities including Defence and Postal Savings Certificates; and

(d) any other securities approved for the purpose by the (Subs. by P.O. 4 of 1975.)[Federal Government],

***[3. Eligibility to benefits of scheme.**All workers shall be eligible to the benefits of the scheme and to participate in the fund. However, a worker not completing six months of employment with the company during a year of account shall not participate in the Fund in respect of the year].

*4. Distribution of benefits to workers.‑ ‑The share of a worker in the annual allocation to the Fund shall be expressed in units or fractions of units (worked out to two places of decimal) of the face value of Rs.10 determined in the following manner, namely‑‑]*

*[Paragraphs 3 & 4 subs. by Ord. XII of 1970. w.e.f. Ist July. 1970.]

**[(a) The number of available units shall be divided into three parts for the workers of the following three categories of workers mentioned below so that a worker in the fast of these categories gets four units for each two units that a worker in the second of the those categories gets or for each one unit that a worker in the last of these categories gets :-]

**[Clause (a) subs. for the original by Ord. IX of 1972 w.e.f. 13th April, 1972.]:‑

Categories

(1) Workers drawing average monthly wages not exceeding *Rs. 1,800

*[Subs. by Federal Ord. IV of 1985. S.3. Further subs. by Act (XI of 1994), dated 28-6-1994.].

(2) Workers drawing average monthly wages exceeding *Rs. 1,800 but not exceeding **Rs.2,200

**[Subs. by Federal Ord. N of 1985, S. 3. Further Subs. for the figures "1,100" by Act, (XI of 1994 dated 28-6-1994.].

(3) Workers drawing aver, exceeding *Rs. 2,200 but not exceeding **Rs. 3,000.

*[Subs. By Federal Ord. IV of 1985, S. 3. Further subs. For the figures "1,100" by Act (XI of 1994), dated 29-6-94.]

**[ Subs. by Federal Ord. IV of 1985. S.3. Further subs. for the figures "3,000" by ibid.]

(b) The average monthly wages shall be rounded up to the nearest Rs. 10.

(c) The number of units available to each category of worker shall be divided equally among all the workers in that category to determine the share of each worker of that category.

*[(d) Notwithstanding anything contained in this scheme, no worker shall, in any one year, be entitled out of the annual allocation to units exceeding rupees **[three thousand] in value in so far as such allocation is relatable to * * * clause (b) of subsection (1) of section 3. Any amount left out of the annual allocation after the units have been so allocated shall be transferred to the Fund constituted under section 3 of the Workers' Welfare Fund Ordinance, 1971 (XXXVI of 1971). No part of such amount established under this Act and no individual worker shall have any lien on this amount by virtue of holding any units.]

* Clause (d) subs. for the original by Ord. IV of 1972. w.e. f. 13th April. 1972.

** Added by Federal Ord. IV of 1985, S.3. Further subs. for the words "one thousand and five hundred" by act (XI of 1994), dated 29‑6‑94.

***[The words "sub‑clause (i) of"' omitted by Act XX of 1973.]

Explanations.‑ ‑In this paragraph, average monthly wages" means total wages during the year of accounts divided by 12, or by the number of months a worker actually during a year in respect of which he is entitled to the benefit under the scheme, as the case may be and "wages" has the same meanings as in clause (vi) of section 2 of the Act, 1936 (II of 1936); but does not include any overtime allowance *[or bonus].

* [Added by Federal Ord. IV of 1985, S. 3.]

**5. Disbursement of benefits.‑‑**The disbursement of the benefits from the Fund shall be as under:

(a) 100 per cent of the annual income of the Fund, including capital gains realized, shall be distributed each year to workers in proportion to their units of entitlement.

(b) A worker who voluntarily leaves the employment of the company or whose services are terminated shall be entitled to receive 100 per cent of the net asset value of the units standing in his name.]( Subs, by Act. XX of 1973.)

[* * * * * *]( Clauses (c). (d) and (e) omitted by Act XX of 1973.)

[(f) A worker who continues in the service of the company shall be entitled to receive 190 per cent of the net asset value of the units in his name each year or he may choose to leave his share in the Fund(Subs. ibid.)

Provided that worker while in employment may choose to encash all the units standing in his name at any time at his discretion:]

(g) A worker, in the event of his retirement or, his nominated beneficiary, in. the event of the worker's death (from whatsoever cause) while in the employment of the company, shall receive 100 per cent of the net asset value of the units standing in the worker's name. [* * *].( The words "irrespective of the period of employment" omitted by Act XX of 1973.)

**6. Definition of the net asset value of the unit.‑**To determine the net asset value of a unit, the total net assets of the Fund, namely, market value of the securities, cash and other assets resulting front the investment and re‑investment, capital accretion thereto and all incomes of any kind arising there from shall be divided by the number of units in the Fund. Net asset value of the entire Fund shall be computed once every year and each worker's unit entitlement determined at the same time. Additional units will be given to the workers according to the amount they voluntarily contribute to the Fund.

7. Employee's own contribution. ( Paragraph 7 subs. by Ord., XII of 1970, w.e.f. 1st July, 1970.) A worker may voluntarily choose to contribute a part of his wages, cash bonus, dividend or interest to the Fund. For each unit of contribution, he shall receive credit for 1‑1/4 units. Contribution received during the course of a year of account shall, however, be deemed to be contribution received on the last day of that year. If at any time a worker chooses to leave the employment of the company or (Subs by Act, 20 of 1973, S.3.)[his services are terminated or on the event of his retirement or death or on the expiry of three years from the date he voluntarily chooses to contribute a part of his wages, cash bonus, dividend or interest to the Fund, at his option, or, in the event of his death, his nominated beneficiary may receive the net asset value of the units representing his contribution. The contribution by a worker in any one year of account shall not exceed 10 per cent of his annual wages during such year.

**8. Fiscal concession to the Companies.‑‑**All companies to whom the scheme applies shall be allowed the allocation made in the scheme as a deduction to arrive at the taxable income.

**9. Tax treatment of the income of the Fund.‑‑**The income of the Fund including capital gains shall be exempt from income‑tax.

**10. Tax treatment of the income to the workers.‑‑**All sums paid out by the Fund shall be exempt from income‑tax in the hands of the workers.

11. Working and location of the Board of Trustees.‑‑ --( Paragraph 11 subs. by Ord., XII of 1970, w.e.f. 1st July, 1970.)The office of the Board of Trustees shall be located at the factory premises or, if there is more than one factory run by the company, at the registered head office of the company. All expenses of the Board including the cost of maintaining accounts, shall be borne by the company.]

12. Audit of the fund accounts.‑----The Fund accounts shall be audited annually at the company's expense in the same manner as the accounts of the company are audited:

Provided that the (Subs. by P.O. 4 of 1975.)[Federal Government] may, at its own cost, appoint independent accountants for a special audit of the accounts of the Fund.

**13. Scheme's benefits to be in addition to other benefits‑‑**The benefits to a worker under this scheme shall be in addition to, and not in derogation or substitution of, any other benefits to which the worker may be entitled under any other law, contract, terms and conditions of employment or otherwise. .

14. Special provision for industries working seasonally.( Paragraph 14, added by Ord. XII of 1970, w.e.f. Ist July, 1970.)‑ Notwithstanding anything contained in this Act or this scheme, the [Federal Government]( Subs. by P.O., 4 of 1975.) may, by notification in the official Gazette, make special provisions for the participation of workers in the profits of companies engaged in industrial undertakings which operate only for a part of the year.

NOTIFICATION

**Industrial undertakings operating for part of year.‑‑**The Federal Government has made a special provision for participation of workers in profits of, industrial undertakings operating for part of year namely:‑

(1) For the purposes of clause (f) of section 2 of the aforesaid Act and paragraphs 3 of the Schedule thereto, a worker of an industrial undertaking engaged in the manufacturing of sugar, ginning of cotton or processing of tobacco to which paragraph 1 of the said Schedule applied shall be deemed to have completed six months of continuous employment with the company, and be eligible to the benefits of the Scheme, if he is in continuous employment of the industrial undertaking for not less than half of the period for which the undertaking has operated in a year of account.

(2) For the purpose of disbursement of benefits to workers in accordance with paragraph 5 of the said Schedule, a worker of an industrial undertaking which is not in continuous operations for the whole of a year shall be credited:‑

(a) with a year of continuous employment if he has been in continuous employment with that undertaking for the entire period for which it has operated in the year of account; and

(b) with such period of continuous employment as that period bears to the period he continuously worked with the undertaking the same proportion as a whole year bears to the total period for which the undertaking operated during a year of account. (Notification No. S.RO. 320 (I)/81, dated 20‑8‑1971.)

15. Companies engaged in more than one industrial undertakings ( Paragraphs 15 and 16 added by Ord. XII of 1970, w.e.f. 1st July, 1970.) Notwithstanding anything contained in this Act or this scheme, the (Subs. by P.O. 4 of 1975.)[Federal Government] may, at the request of a company which is engaged in more than one industrial undertaking located at different permit the splitting up of the Fund amongst the various undertakings or groups of undertakings and constitution of the Board of Trustees each such undertaking or group of undertakings; and thereupon the provisions of this Act and this scheme shall have effect such undertakings or groups as if each such undertaking or group were a company.

16. Entrustment of management of Fund to Investment Corporation of Pakistan etc.--- The Board of Trustees may, with the prior approval of the (Subs. by P.O. 4 of 1975.)[Federal Government], enter into a Investment Corporation of Pakistan, the National Investment Trust or the National Bank of Pakistan, entrusting the management of the Fund to that Corporation; Trust or Bank on such fee, which shall be payable by the company, and on such terms and conditions a: may be mutually agreed upon].

COMPANIES PROFITS (WORKERS PARTICIPATION) ACT, 1968

ACT XII OF 1968

An Act to provide for participation of workers in the profits of companies

[Gazette of Pakistan, Extraordinary, 5th July 1968]

The following Act of the National Assembly received the assent of the President on the 4th July 1968, and is hereby published for general information :‑--

Whereas it is expedient to provide for participation of workers in the Profits of companies and for matters ancillary thereto ;

And whereas the national interest of Pakistan in relation to the achievement of uniformity within the meaning of clause (2) of the Article 131 of the Constitution requires Central legislation in the matter;

It is hereby enacted as follows :‑

1. Short title, extent and commencement.‑(1) This Act may be called the Companies Profits (Workers Participation) Act, 1968.

(2) It extends to the whole of Pakistan.

(3) It shall come into force at once.

[Gazette of Pakistan , Extraordinary, 5th July 1968 ]

2. Definitions.‑In this Act, unless there is anything repugnant in the subject or context,‑

(a) "Board " in relation to a Fund means a Board of Trustees constituted under section 4 for the management and administration of the Fund ;

(b) "company" means a company within the meaning of Companies Act, 1913 *(VII of 1913), and includes‑

*See new Companies Ordinance (XLVII of 1984)

(i) a body corporate established by or under any law for the time being in force ;

(ii) any institution, organization or association whether incorporated or not declared by the Central Government in the official Gazette to be a company for the purpose of this Act ;

(c) " Fund " means a Workers Participation Fund established under section 3 ;

(d) "profits" in relation to a company means such of the " net profits " as defined in section 87C of the Companies Act, 1913 (VII of 1913), as are attributable to its business, trade, undertakings or other operations in Pakistan ;

(e) " scheme " means the scheme set out in the Schedule;

(f) "workers" in relation to a company means an employee of the company whose average monthly emoluments computed in the manner set forth in the scheme do not exceed one thousand rupees per month and who has been in the employment of the company for a period of not less than six months.

The following Act of the National Assembly received the assent of the President on the 4th July 1968 , and is hereby published for general information :‑--

**5[3.****Establishment of Fund.‑**Every company to which the scheme applies shall‑

5 [Sections 3 & 4 subs. For the original by Ord. XII of 1970 s.2]

(a) establish a Workers Participation Fund in accordance with the scheme as soon as the accounts for the year in which the scheme becomes applicable to it are finalized but not later than nine months after the close of that year ; 1[***]

1 The word and omitted by Act XVII of 1977 s.2 & 1^st^ Sch.

2(b) subject to adjustment, if any pay every year to the Fund not later than nine months after the close of that year five percent of its profits during such year which shall where the accounts have been audited by an auditor appointed under Section 23B of the Industrial Relation Ordinance 1969 (XXIII of 1969), be assessed on the basis of such audit ; and

2 Clauses (b) & (c) subs, for the original cl. (b) ibid.

(c) furnish to the Federal Government and the Board not later than nine months after the close of every year of account, its audited accounts for that year duly signed by its auditors]

(2) The amount paid to the Fund under clause (b) of sub section (1) in relation to a year shall be deemed to have been allocated to the Fund on the first day of the year next succeeding that year.

**4. Management of the Fund. (1)**As soon as may be 3[but not later than two months.] after the establishment by a company of a Fund under section 3, there shall be constituted a Board of Trustees consisting of the following trustees, namely:--

3[Words added, ibid]

(a) two persons ejected by the workers of the company from amongst themselves ; and

(b) two persons nominated by the management of the company of whom at least one shall be a person from the accounts branch of the company.

**(2)**The persons holding office as trustees shall elect for one year a person to be the Chairman of the Board alternatively from amongst the trustees elected under clause (a) of sub-section (1) and those nominated under clause (b) of that sub-section, the first Chairmen being from amongst the later.

(3) A trustee shall, unless he sooner ceases to represent the interest be was elected or nominated to represent, hold office for such term and on such conditions as may be prescribed by rules.

(4) All decisions of the Board shall be expressed in terms of the opinion of the majority of the trustees and in the event of the trustees being equally divided in their opinion the Chairman shall have and exercise a second or casting vote,

(5) The Board shall manage and administer the Fund in accordance with the provisions of this Act, the scheme and any rules made in this behalf.

(6) The Board shall, in the exercise of its powers and performance of its functions under this Act, be subject to such directions as the 1[Federal Government] may from time to time give.

1[Subs for Central Government by P.O. 4 of 1975, s.2(3)]

(7) The 1[Federal Government], if it is of opinion that a trustee or a Board has been persistently failing in the performance of his or its functions or has generally been acting in a manner inconsistent with the objects and interests of the Fund, may, after giving such trustee or, as the case may be, the Board, an opportunity of a showing cause against it, by order,--

(a) remove such trustee from his office or direct that the Board shall stand superseded for such period as may be specified in the order; and

(b) direct that, pending the election or nomination of a person in place of the trustee removed from office or, as the case may be, the re-constitution of the Board, the powers and functions of the trustee so removed or the Board shall be exercised and performed by a person specified in the order.

(8) A casual vacancy in the office of a trustee shall be filled as soon as may be by the election or, as the case may be, nomination of another person and the person elected or nominated to fill such vacancy shall hold office for the unexpired term of his predecessor.

(9) Upon the supersession of a Board under sub-section (7) the trustees in that Board shall cease to hold office and references to the Board in this Act, the scheme and the rules shall be construed as references to the officer specified in the order under that sub-section.

(10) Before the expiry of the period of supersession, the Board shall be re-constituted in accordance with the provisions of this Act so as to enable it to take over its functions upon the expiry of such period.

(11) No act or proceeding of the Board shall be invalid or questioned merely on the ground of the existence of a vacancy in, or defect in the constituted of the Board].

5. Penalty.----‑2 (1) Where a company to which the scheme applies fails to comply with any of the provisions of this act or the scheme every director manager or other officer responsible for the management of the affairs of the company shall if the Federal Government by order to directs pay by way of penalty a sum which may extend to 5000 rupees and in case of a continuing failure a further sum which may extend to one thousand rupees for every day after the first during which the failure continues.]

2 Sub sec (1) subs for the original sub sections (1) & (2) by Act XVII of 1977 s,2 & 1^st^ Sch.

(2) If the company in relation to which an order under subsection (1) has been made, fails to comply therewith within the time specified therein, every director, manager or other officer responsible for the management of the affairs of the company shall, if the Central Govern ment, by order, to directs, pay by way of penalty a sum which may extend to ten thousand rupees and in the case of a continuing failure, a further sum which may extend to one thousand rupees for every day after the first during which the failure continues.

(3) A penalty imposed by an order under subsection 1 (2) shall, if it is not paid within the time specified in the order, be recoverable as an arrear of land revenue.

(4) The 2[Federal Government] may upon an application made in this behalf by any person aggrieved by an order made under sub section (1) 3[***] within a period of six months from the date of the order review the order and may upon such review pass such order as it may think fit.

2 Subs. For Central Government by P.O. 4 of 1975 s.2 (3).

3 The words or sub section (2) Omitted by Act XVII of 1977 s.2 & 1^st^ Sch.

4[6.****Power to call for information.‑The 2[Federal Government] may at any time call upon a company or a Board to furnish it with such information and documents including the records of the proceedings of the company or the Board as may be relevant or useful for the purposes of or necessary for ensuring proper compliance with the provisions of this Act the rules and the scheme.

4 Sections 6,7,8,9, & 10 subs for the original sections 6 and 7 by Ord XII of 1970

7. Settlement of disputes, etc. (1) Any difference arising between the Board and the company relating to the administration of the scheme shall be reported to the 2[Federal Government] Whose decision thereon shall be final.

(2) All claims of a worker relating to the benefits of the scheme whether against the Board or the company shall be settled in the same manner as is provided for in the Payment of Wages Act, 1936 (IV of 1936) for the settlement of claims arising out of deductions from wages.

2 Subs for Central Government by P.O 4 of 1975 s.2(3).

[8. Delegation of powers. ( Sections 8, 9 and 10 added by Ord. XII of 1970, w.e.f. 1st July, 1970.) The (Sections 6, 7 subs. add section 8, 9 and 10 added by Ord. XII of 1970, w.e.f. 1^st^ July, 1970.)[Federal Government] may, by notification in the official Gazette, direct that all or any of its powers or functions under this Ordinance may, subject to such limitations, restrictions or conditions, if any, as may be specified in the notification, be exercised or performed also by any officer subordinate to it or by any authority so specified].

9. Power to make rules. ( Section 8, 9 and 10 added by Ord. XII of 1970, w.e.f. 1st July, 1970.) The (Subs. by P.O. 4 of 1975.)[Federal Government] may make rules to carry out the purposes of this Act].

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