The Legal Disability Of Foreign Companies In Pakistan’s Courts

Post-COVID, the modern workforce has witnessed a dramatic change in the workplace landscape as modern employment is no longer confined within the borders of a single country. Digital connectivity has allowed companies across the world to hire employees without establishing a physical presence in the jurisdiction where those employees reside, and Pakistan is emerging as a significant hub in this transformation. With its large English-speaking population, competitive labour costs and skilled professionals in law, finance, engineering, IT and design, Pakistan has become an attractive destination for foreign companies, especially for companies that are seeking to establish back offices and outsourced teams. Yet while the employment trends are becoming more globalised, Pakistan’s legal framework remains tied to older principles.

Foreign companies that engage employees in Pakistan without creating registered offices face major challenges when legal disputes arise; most notably, they find themselves struggling to file or defend legal proceedings in Pakistan. This mismatch between global employment practices and local laws creates uncertainty, deterring foreign investment, and resulting in disadvantages for both employers and employees.

Under the Pakistan Companies Act 2017, Section 2(35) defines a ‘Foreign Company’ as any company incorporated outside Pakistan and, Subsection (a), has a place of business in Pakistan, whether by itself or through an agent or, Subsection (b), conducts any business activity. Section 441 of the same Act states that a foreign company must fulfil the documentary registration requirements under Sections 435 and 436 before bringing any legal proceedings or raising a pleading alleged claim, based on any contract or transaction; otherwise, the company will suffer under an inherent legal disability. This legal technicality means that a foreign company may find it difficult to directly initiate proceedings in the Pakistan courts. While the law does not expressly prohibit foreign companies from enforcing contractual rights, procedural requirements and technicalities are often used by miscreants to defraud foreign companies, leaving little in terms of remedy.

Yet these technical requirements are not limited to the requirements of the Companies Act. A foreign company struggles to circumvent the procedural landscape of Pakistan’s legal requirements as it demands fulfilment of both the requirements of being ‘foreign’ and being a ‘company’, balancing the requirements of Civil Code Order 29 Rule 1 and Qanoon-e-Shahadat Ordinance Article 95 alongside it. On top of this, Pakistani courts have often preferred that the plaint be verified and signed by a properly authorised individual who is preferred to be the director or principal officer of the company, a requirement that adds unnecessary further complication to a complicated situation as seen in 2004 MLD 1778 wherein the court had held that, “Any pleading in a suit filed by or against a corporation can be verified on behalf of the corporation by the secretary or by any director or any other principal officer of the corporation who was able to depose the facts of the case.”

For Pakistan to truly benefit from the global employment wave, it must reform its law and judicial practices to accommodate petitions by foreign companies, simplify technical procedures and enable the use of modern evidence

A requirement both time-consuming and difficult for a foreign company to fulfil. Repeatedly sending such an officer to Pakistan for these acts is not only time-consuming but impractical. Furthermore, evidence SOP requires a witness in a foreign land to visit their respective consulate and record their evidence at that time. This arrangement becomes especially time-consuming and expensive when faced with the reality that often witness statements face delay and obstruction by the opposition counsel. These procedural and technical difficulties make contractual and legal enforcement challenging for foreign companies.

In addition to these procedural difficulties, foreign companies also struggle with proper representation and case pursuit. Often, legal counsels ignore requests for information, share strategies or provide a proper roadmap. Lack of personal presence forces foreign companies to rely on digital communication, often leading to improper representation. Widespread indications and growing legal trends indicate that foreign companies employing Pakistani offshore face common struggles, such as fraudulent employees who misuse confidential data, misrepresent payroll, often breaching their contracts, or employees misusing intellectual property, such as code or client data or designs. In many such cases, foreign companies quietly write off losses rather than pursue legal remedies.

Yet despite these barriers, foreign companies continue to rely on Pakistan’s talent pool with remote IT development teams, customer support centres, technical construction and back-office management. Thus, non-present remote employment is rapidly growing in the Pakistan job market. This shows that despite the legal disabilities, the economic pull for the Pakistani employee weighs tremendously, and as such, to continue this economic pull, Pakistan must make itself desirable legally by offering procedural reforms.

The courts in Pakistan can take the lead until effective legislation is passed and, through interpretation, offer foreign companies greater legal coverage. The courts can effectively interpret ease in attestation and filing for foreign companies, through application of the established principle that ‘technicalities should not thwart justice’ and allow for immediate filing of legal disputes with leniency for procedural technicalities. The courts can further take a central position by easing the requirements for authorised individuals, by entertaining disputes and fulfilling technical and procedural requirements during the legal process.

This can further be expanded to allow pleading verifications from authorised individuals, who can be lawyers themselves, mitigating and removing the requirements for principal officers to be present or conducting cases themselves, especially when the company has no presence in the country. Additionally, the courts can allow for leniency and ease in taking online evidence, which can not only help non-present foreign companies but also make them more confident in the legal system of Pakistan. The courts can also treat these disputes in a summary manner, allowing for an effective resolution in a short amount of time. Through this mere change of mindset, the Pakistani courts can pave the way for change in employment disputes in Pakistan.

The Government of Pakistan has been a vocal supporter of foreign investment and offering procedural amendments and exceptions to allow non-present foreign companies legal remedies, but also establish special courts that deal with disputes relating to foreign companies, which would allow for a fast-track mechanism for offshore employment disputes and ensure quicker resolution. Pakistan’s legal framework must also adapt to ensure that foreign companies continue to see it as a viable outsourcing hub.

The ‘world of work’ has changed dramatically. Companies no longer need to establish local offices to employ talent across borders. Pakistan, with its talent pool, is naturally becoming a major hub for offshore employment, yet the law has not kept pace. For Pakistan to truly benefit from the global employment wave, it must reform its law and judicial practices to accommodate petitions by foreign companies, simplify technical procedures and enable the use of modern evidence. By doing so, Pakistan will become part of an evolving world and globalisation, riding the modern wave of digital employment rather than clinging to age-old ideas. A forward-looking legal framework and outlook will ensure that Pakistan remains a competitive and trusted destination in the global economy, protecting not only non-present foreign investors but also securing long-term employment opportunities for its youthful workforce.

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