The Supreme Court of Pakistan has ruled that Zarai Taraqiati Bank Limited (ZTBL) cannot be regarded as a company whose entire shareholding is directly or indirectly owned by the federal government, highlighting the significance of even small provincial government stakes in determining its ownership classification. A three-member bench, in a judgment authored by Justice Munib Akhtar, observed that although provincial governments hold a very small portion of the bank’s shares, their participation is sufficient to prevent ZTBL from being classified as wholly owned by the federal government. The judgment examined the bank’s shareholding structure and clarified that government ownership must be assessed by considering the legal ownership of all shares rather than treating the federal government’s substantial control as equivalent to complete ownership. The ruling arose from appeals connected to the Income Tax Ordinance, 2001, and the maintainability of proceedings under its Alternative Dispute Resolution provisions.
According to the judgment, ZTBL has a total of 5,267,843,241 shares, of which 1,251,189,067 are directly held by the federal government, representing 23.76% of the total share capital. Another 4,015,599,174 shares, equivalent to 76.22%, are held by the State Bank of Pakistan (SBP). The court acknowledged that the SBP-held shares could indirectly be considered federal government ownership because the central bank’s capital is legally held exclusively by the federal government under the State Bank of Pakistan Act, 1956. On this basis, the federal government owns approximately 99.98% of ZTBL’s shares, directly or indirectly. However, the remaining shares belong to provincial governments, making it legally incorrect to describe the bank as entirely owned by the federal government. The bench emphasised that the provincial governments’ small shareholding remained decisive in determining the bank’s legal ownership status.
The dispute is connected to the State-Owned Enterprises (Governance and Operations) Act, 2023, under which ZTBL is recognised as a state-owned enterprise. The bank’s position before the court was that it did not meet the requirement of being wholly owned, directly or indirectly, by the federal government and that its appeals were therefore maintainable under the relevant provisions of Section 134A of the Income Tax Ordinance, 2001. The respondents, however, argued that the federal government’s direct and indirect shareholding effectively constituted complete ownership, meaning that subsection (12) of Section 134A should apply and the appeals could not proceed. The Supreme Court’s examination focused on the distinction between overwhelming federal ownership and legally complete ownership, particularly where shares are held by provincial governments as separate shareholders.
The judgment also examined the legal status of the SBP’s shareholding, referring to Section 3(3) of the State Bank of Pakistan Act, 1956, which provides that the central bank’s capital must be fully paid up and held exclusively by the federal government and cannot be transferred to another person or entity. This statutory requirement supported the argument that shares held by the SBP in ZTBL could be treated as indirectly owned by the federal government. Nevertheless, the court distinguished this indirect ownership from the separate shareholding held by provincial governments. The judgment observed that the respondents were correct in asserting that 99.98% of ZTBL’s shares were held directly or indirectly by the federal government, but this did not establish complete federal ownership because the remaining shares were held by provincial authorities.
The ruling highlights an important legal distinction for Pakistan’s state-owned enterprises, particularly in matters involving corporate ownership, taxation and the application of government-controlled company classifications. While ZTBL remains overwhelmingly owned by the federal government through its direct shareholding and the SBP, the presence of provincial government shareholders prevents it from meeting the requirement of complete federal ownership. The case also demonstrates how statutory definitions and precise shareholding structures can influence the application of legal provisions governing state-owned entities and tax-related proceedings. The Supreme Court’s interpretation provides clarity on the ownership question raised in the appeals, although the broader implications for the bank’s pending legal and tax matters will depend on the application of the relevant provisions of the Income Tax Ordinance, 2001.
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