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Suit 493-98 (UBL v[1]. Gravure Packaging & ots.)
IN
THE HIGH COURT OF SINDH, KARACHI
Suit
No.493/1998.
J
U D G M E N T
Date
of hearing: 16.05.2001.
Plaintiff: United Bank Ltd.
through Mr. Azizur Rehman, Advocate.
Defendants: M/s. Gravure Packaging,
Jehangir, Mrs. Noor Jehan,
Abdul Kalim Baazka and Rafya
through M/s. Saalim Salam Ansari
and Abid Sherazi, Advocates.
ANWAR MANSOOR KHAN, J.- The
present suit has been filed by the plaintiff against the defendants
for recovery of Rs.33.081 millions as due on
2.
The said account was transferred from the I.I. Chundrigar Road Branch
to the Corporate Branch of the Plaintiff Company where fresh agreements
were entered into which have been filed with the plaint as Annexure-R
and S (Ex---P/18 and Ex---P/19). Under the said agreement the
same amount namely Rs.7.20 million was mentioned as re-purchase price
with a prompt payment bonus of Rs.0.258 million. In the second
agreement, however, it seems that the said Bills of Exchange were
purchased by the bank for Rs.1.5 million and sold to the defendant
No.1 for Rs.2 million repayable on or before
3.
The written statement has been filed by the defendants in which preliminary
objections as to the maintainability of the suit were taken on the
ground that in fact the suit is for rendition of account and not a
suit for recovery and that the claim of liquidated damages is unlawful.
It was further stated that the agreements are not witnessed and are
violative of Article 17(2) of the Qanoon-e-Shahadat Order, 1984
and that the person filing the plaint had no authority to verify the
same. The suit has been filed as a mortgage suit. The
objection has been taken that the mortgage per the Islamic financing
and the law prevalent could only be that by possession and, therefore,
the memorandum of deposit of title deed and mortgage are invalid and
cannot be looked into. The objection is also taken that the
amount includes exaggerated amount of mark-up and the same cannot
be allowed. The execution of the guarantees has also been disputed
by the defendants No.2 to 5 as, according to the said defendants,
the same are not actual signatures of the defendants. The same
is not decided and cannot be accepted in view of Article 17(2) of
the Qanoon-e-Shahadat Order, 1984. In addition to the denial
of guarantee, the defendants have also denied the payments claimed
by the plaintiff on account of L/Cs and according to the defendants,
the same had been paid off. However, the plaintiffs have admitted
the factum of the payment to the extent of Rs.6,848,855.00 as, according
to them, the same has been admitted in Ex---D/11. The defendants
have filed a statement of account which according to them is under
the formula given by the State Bank of
“(A) N.I.C.F. ACCOUNT
OUTSTANDING
MARK-UP
MARK-UP
TOTAL
LESS
BALANCE
OF
OF CUSHION
OUTSTAND-
ADJUST-
AMOUNT/O.D
365 DAY
PERIOD OF
ING BEFORE
MENT
ON
UPTO
Rs.
Rs.
Rs.
Rs.
Rs.
4006142/-
878161/-
505243/-
5389546/
4083524/-
NET BALANCE AFTER ADJUSTMENT(S)
Rs.1306022/-
(B) N.I.D.F. ACCOUNT
1234325/-
139726/-
80390/-
1454441/-
135000/-
NET BALANCE/OUTSTANDING AFTER
ADJUSTMENTS/REPAYMENTS
Rs.1319441/-
(C)
U.S. AID L/c Account’s OUTSTANDING
Rs.5768798/-
(D)
O.S. P.A.D. L/c Account’s OUTSTANDING Rs. 580000/-
GRAND OUTSTANDING/BALANCE
Rs.8974261/-“
4.
The defendants have vehemently contested the addition of mark up on
mark up and subsequent agreements, stating that the same is unlawful
and cannot be allowed. Infact what has been claimed is that the subsequent
agreements are void, not having been acted upon. The plaintiffs
have also claimed damages on account of breach of agreement.
5.
The following issues were framed:
1.
Whether the plaintiff bank has charged mark up on mark up ?
If so, what is its effect?
2.
Whether the suit is bad for non joinder of necessary party?
3.
Whether defendants No.2 to 5 are liable as guarantors and if so to
what extent?
4.
Whether the defendants are liable to pay the suit amount?
5.
What should the decree be?
6.
Before all the issues could be argued, I had asked Mr. Aziz as to
how Markup on markup could be charged in view of the clear circular
of the State Bank of
7.
Mr. Aziz stated that notwithstanding the said decisions, he would
wish to reiterate his contentions that he had made in the case of
Qayyum Spinning and in the unreported case, being Habib Bank Ltd.
V Hafiz Textile Mills Ltd. Suit No. B-153 of 2000.
8.
Mr. Aziz stated that, with regard to SBP Circular Nos.13 and 32 dated
20·June 1984 and 26·11·1 984 respectively. He stated that the two
Circulars are among many which SBP has been issuing from time to time
and the two Circulars in actual fact have to be examined. The first
Circular No. 13 according to him will not be attracted where renewal
of loan is made subsequently, since "renewal" amounts are
merely extension and continuation of the earlier agreement between
the parties. Circular No.32 merely pertains to different items of
Bank charges and therefore cannot be made basis for striking down
the contract between the parties. In other words Circular No.32 does
not have the effect that it over rides Circular No.13. In the case
of UBL Vs. Central Cotton Mills Ltd. reported as 2001 MLD 78 (S.B.)
deals with the said two Circulars. The learned Single Judge of the
High Court of Sindh Karachi came to the conclusion that Circular No.13
is not overridden by Circular No.32. He said that in SBP Circular
No. BID(Gen)2470/601 ·Q4·90 of 17·06·1990 which was addressed to all
Banks with regard to the treatment to be given to rescheduled loans
and capitalisation of mark up/interest and the guidelines were given.
In Clause 2.1 of the said Circular, the "restructured" loan
has been defined as one whose terms and conditions have been modified
principally because of deterioration in the borrowers financial condition,
in order to provide reduction in interest rate or principal or a capitalisation
of interest accrued. Clause 2.2 refers to a "rescheduled"
loan and defines it as one in which effective interest rate terms
remain unchanged from original terms but principal repayment terms
have been extended because of project delays and such loan has been
defined as not a restructured loan. According to him, clause 7.1 provided
for capitalised mark up/interest on loans and defined the words as
‘uncollected interest’ which is added to ‘unpaid principal’ in accordance
with contractual loan agreement.
9.
It is his case that in the said Circular and the guidelines attached
to the same, the word “interest” has really been utilized to mean
interest and/or markup as is evident from line 5 of the Circular itself.
He said that on the date of Circular i.e. 17·06·1990 five years had
elapsed from the date on which the system of markup had been introduced.
Guidelines, according to him were issued by HBL to its various officers
in order to deal with rescheduling, restructuring and writing off
which was contained in the aforesaid Circular of SBP dated 17·06·1990.
He said that the guidelines issued by SBP were attached. Circular
No.4 of 17·02·2000 was also issued by SBP under the heading "Rescheduling/restructuring
of non·performing loans". The Banks as per
10.
Mr. Aziz argued the position of Novation of Contract and stated that
in the unreported judgment of the Division Bench of the High Court
of Sindh dated 08·01·1999, the decision which was reached was in line
with a number of cases which had mentioned, being 1994 CLC 2272 (Karachi)
D.B. and 2000 CLC 1602(Karachi) S.B. He said that it was held
by the Division Bench of the High Court of Sindh Karachi that, where
a fresh agreement was entered into and the Defendant acknowledged
that a certain sum was due from him which formed consideration under
the new agreement, the liability of the Defendant under the original
contract was completely extinguished and there was a fresh contract
substituting the old contract and which was in the nature of novation
of a contract within the meaning of Section 52 of the Contract Act,
1872. The Division Bench has placed reliance for purposes of interpretation
of Section 62 of the Contract Act on PLD 1964 S.C. 337. Likewise he
said that in the second reported the conclusion of the learned single
Judge was that Section 62 of the Contract Act clearly provides that
if parties to a Contract agree to substitute a new contract for the
old one or to rescind or alter it, the original contract between the
parties need not be performed and that, there is nothing in the Contract
Act or in any other law which prohibits the parties from altering
terms of the original contract or executing a new contract to substitute
the old one. It was further held that the subsequent agreement amounted
to novation of the old contract, the consideration of which was the
agreement of the Bank to extend time for payment of the outstanding
liabilities of Defendant No.1.
11.
On of the point of actual disbursement it was argued by Mr. Aziz stating
that there need not be any actual disbursements when a Bank allows
rescheduling or restructuring of an existing debt. Therefore in rescheduling,
the liability to pay to the Bank is amended or recast giving further
time for repayment to the Bank. He said that, in this connection the
definition of the word "debt" would also be relevant and
for the meaning of the word, he has relied on PLD 1983 Karachi 176
(D.B.) where it was held that a debt in the hand of a debtor does
not belong to him but it belongs to the person to whom it is payable.
A debt is something that is owed by one person to another. It is an
obligation and liability to pay or return something. He states that
similarly in the above referred case reported in 2000 CLC 1502 (Karachi)
S.B., the learned Single Judge utilized the words “outstanding liabilities
of Defendant No.1” which was treated as consideration for the new
contract. Thus the outstanding liabilities constituted the debt payable
to the Bank. Since the acknowledgement of liability contained in the
fresh agreement is available, fresh disbursements obviously was not
required, as otherwise there would be duplication, and the Bank will
be out of pocket by actually disbursing the outstanding amount again
to its borrower/customer.
12.
Mr Aziz said that the judgment reported in PLD 2000 S.C. 225 is actually
the one passed by Shariat Appellate Bench of the Supreme Court consisting
of 5 Judges. The Supreme Court has given directions and in any case
until 30·06·2001 the present laws will continue to be valid. Therefore
the contents of the judgment have not come into force so far. A large
number of steps have to be taken by the Federal Government and other
agencies including Banks for different phases of transformation which
is still to be effected. He had also referred during the arguments
to the various Articles of the Constitution of Pakistan, inter alia
Article 203·H(1) which provides that all pending proceedings
in any Court or Tribunal shall continue and the points in issue therein
shall be decided in accordance with the law for the time being in
force. He referred to a judgment of a learned Single Judge of the
High Court of Sindh, Karachi, in Suit 1700/99 where it was held that
the said judgment of the Shariat Appellate Bench of the Supreme Court
and injunctions of Islam cannot be pressed into service to avoid payment
of outstanding liabilities since verse 2:280 does not create a right
in favour of a debtor for payment of what is acknowledged as due.
13.
Mr. Aziz said that Industrialists and Traders make lot of money by
borrowing from Banks, etc. and the money really comes from even small
depositors who put their money into the hands of the Banks. The interest
or mark up paid by these Industrialists and Traders is included in
their accounts and they get benefit of increased prices for their
produced/manufactured items and they are allowed to reap benefits
by showing interest/mark up as costs of production which interest/mark
up is allowable expenditure in income tax returns.
14.
Mr. Aziz said that therefore rescheduling, restructuring and entering
into fresh agreement to renew the facility by adding markup is valid.
It shall only be effective after the judgment of the Shariat Appellate
Bench of the Supreme Court becomes applicable. Mr. Aziz adopted the
arguments made by Mr Ejaz advocate in the Qayuum Spinning case and
argued that notwithstanding the fact that the said judgment is not
applicable, it is necessary to dilate upon the history as to how and
what was the actual perspective that the bankers had understood in
respect of the said system. He has referred to the judgment in the
case of Dr. M. Aslam Khaki (supra). He stated that the said judgment
also notices the manner in which the system was to work and referred
to a note that has been mentioned in the judgment of Mr. Junejo.
He has stated that the State Bank of Pakistan considered that the
entire transaction of purchase and repurchase as a notional transaction,
and that, because it was considered as a notional transaction where,
the mark up was not serviced, rescheduling was allowed by addition
of markup on the un-serviced markup. Such rescheduling / restructuring
was the only way that the banks could save their money, and earn thereon.
He stated therefore, renewal by way of entering into a fresh agreement
was considered appropriate. He stated that the circulars namely BCD
Circular No.13 and BCD Circular No.32 did not give any idea how the
transaction were to take place and it was therefore a belief that
such transactions could be entered into or done. He said that it was
common knowledge that notional sale and such like transactions were
valid transaction. He stated that disbursement for purchase in such
notional transaction was not necessary and that the amount of debt
on a particular date could be deemed to be proper and appropriate
disbursement. Mr. Aziz stated that if a view is taken by this court
that subsequent agreements are invalid agreements it will cause an
irreparable injury and harm to the banks whereby, the banks may in
fact collapse. In the judgment of Dr. M. Aslam Khaki (supra) a discussion
on the concept of Negotiable Instrument Act, 1881 has been referred
to. Sections 79 and 80 of the said Act have also been cited. Reference
has been made to a booklet on markup system by Mr. Justice Moulana
Muhammad Taqi Usmani in which a detailed discussion has been held
as to the mark up system as is in vogue and has been in practice in
the banks. It has been pointed out that the practice adopted under
the garb of mark up is authoritative of the conditionalities attaching
to Bai Moajjal as the permissibility of such a transaction is dependent
on fulfillment of the various conditions as enshrined in the Quaranic
injunctions in the order of the court. It has been stated by
Mr. Aziz that in BCD Circulars Nos.13 and 32, the concept of Bai Moajjal
or Murabaha, has not been stated and what was categorically said in
the notifications of the State Bank of Pakistan, was that mark up
could be charged on a transaction, but mark up on mark up could not
be charged, in that there was nothing to stop the banks from entering
into such fresh agreements for renewal, restructuring or rescheduling.
His emphasis lay on the fact that, upon mark up having been charged
under the agreement the same became a debt and such debt became due
and payable within the stipulated period. He said that in the books
of accounts such was a credit payable by the debtor, therefore, the
debtor was in fact using the money of the creditor, namely the bank.
According to him, subsequent agreements were nothing but agreements
for sale and purchase where, the commodity being sold was notional
and that in fact, the debt payable under the first agreement became
the notional sale of notional goods at a purchase price of such goods,
and markup was added to arrive at a notional repurchase price and
so forth. He said that it has now been explained as to how the bank
should finance and what is the meaning of ‘Riba’ or mark up on mark
up. He stated that no doubt, now under the new definition that has
been given by the case of Dr. M. Aslam Khaki, subsequent agreements
would be deemed to be invalid agreements on the account of the fact
that the Supreme Court has held that purchase if any, has to be actual
purchase and not a notional transaction. Mr. Aziz Advocate further
submitted that the question of increase on money was also not understood
by the banks, in fact State Bank of Pakistan had also not understood
the concept of money which has now been stated in the said judgment
of the Supreme Court. He stated that it could not have been even thought
of or understood that money could not earn money by way of additional
mark up on a debt. According to him, it is this judgment which
has cleared the concept of money and that in doing so it is stated
that the money is not a ‘commodity’ and therefore cannot be traded
like a trade of a commodity. He stated that it has been held, therefore,
that only commodities could be traded which were in accordance with
the principle that “Allah has allowed trade and prohibited Riba”.
According to him, therefore, in view of the above the Honourable Shariat
Appellate Bench of the Supreme Court had given a regulatory timetable
whereby, a date of implementation has been given. He stated that under
the measures to be taken for the purposes of creating an infrastructure
and a legal framework a summary has been given in the order passed
by the court. It was stated that the solution to the economic revival
has to be taken into account and that the Federal government shall
cause a board to be created for arranging exchange of information
of financial institutions about feasibility of project etc. and all
technical assistance with regard to the anomalies emerging in the
practical operation of financial institutions or difficulty arising
out of the operation of financial practice etc. and that all this
was to be done by the 30th June, 2001, whereafter the laws and
provisions of laws to the extent that those declared to be repugnant
of injunctions of Islam shall cease to have effect from 30th June,
2001.
The question is whether the
amount of purchase price (which has been stated
to be the debt of the customer) can be increased? And if so in what
circumstances?
The answer to this question
depends on the meaning ascribed to the word “increase” and accordingly
the increases in the amount of purchase price are classified as follows:
(a)
Increase which are not permissible
(A)
Mark-up on any overdue installment, where the finance facility is
payable in installments and the amounts and due dates of installments
are specified in the Agreement.
(B)
Mark-up on overdue amounts in cases of lump sum payment agreements.
(b)
Increases which are permissible
(A)
Where the amount of mark-up is to be booked by the Banks on accrual
basis in each quarter on the basis of outstanding balance and such
outstanding balance also includes the mark-up for the previous quarters.
In these cases, the banks can
be allowed to charge mark-up on the outstanding balance (inclusive
of previous mark-up debits) as the bank under its general lien and
right to set-off is allowed to apply the credit balance of the Customer
to offset the liabilities of the Customer. Accordingly any mark-up
recovered by the Bank by debiting the account of the Customer should
be recognized as a withdrawal by the Customer.
(B)
At the time of fresh sanction [renewal] of the working capital facilities,
some times the amount of the facility is enhanced. The amount of the
fresh finance facility is used to adjust the outstanding liabilities
of the Customer in respect of he previous facility. Naturally the
outstanding amount of the facility also includes mark-up. It is sometimes
argued that the amount of the second facility amounts to mark-up on
mark-up or capitalization of mark-up or roll-over.
Fresh finance facility is granted
to the Customer by the Bank. The amount of the facility can be utilized
by the Customer for any purpose and the mere fact that the Customer
used such amount to pay back its liabilities which included some amount
of mark-up would not make the amount of the fresh facility mark-up
on mark-up.
The proposition would be further
clarified with the converse argument i.e. the Customer could have
paid the outstanding liabilities from its own resources or by obtaining
a finance facilities of equal amount from a separate institution.
In such a case the argument of the later facility being mark-up on
mark-up, capitalization of mark-up or roll-over cannot be sustained.
In such cases the enhanced
amount of the facility or the such amount of the facility as has been
used to settle earlier liabilities on account of mark-up cannot be
termed as increase in the purchase price and is therefore permissible.
(C)
It also needs to be clarified that the grant of a fresh finance facility
of a similar nature particularly in cases of working capital facilities
is not restructuring or rescheduling of the liabilities. Accordingly,
any increase in amount of the later facility is not increase the marked-up
price of the earlier facility.
(D)
A number of times, the overdue facilities (mostly long term) are restructured
or rescheduled. Again restructuring and rescheduling of the over due
facilities is structured in the following manner:
·
by way of grant of fresh facilities
·
by way of a new schedule of payment
15.
Mr. Aziz ur Rehman advocate further argued that under the Banking
Companies Ordinance, 1962 the word loans, advances and credit have
been defined to include finances as defined in the Banking Tribunals
Ordinance, 1984. The Ordinance in section 2(e) defines a finance
to mean:-
“(e) ‘finance’ includes an
accommodation or facility under a system which is not based on interest
but provided on the basis of participation in profit and loss, mark-up
or mark-down in price, hire-purchase, lease, rent-sharing, licensing,
charge of fee of any kind, purchase and sale of any property, including,
commodities, patents, designs, trade marks and copyrights, bills of
exchange, promissory notes or other instruments with or without buy-back
arrangement by a seller, participation term certificate, musharika
certificate, modarba certificate, term finance certificate or any
other mode other than an accommodation or facility based on interest
and also includes guarantees, indemnities and any other obligation,
whether fund based or non-fund based, and any accommodation or facility
the real beneficiary whereof is a person other than the person to
whom or in whose name it was provided; and” (Underlining is mine.)
Mr. Azizur Rehman states that
finance includes ”accommodation or facility”. According to him
an accommodation in terms of the Webster’s dictionary means:-
“accommodation ...1. Act of
accommodating, or state of being accommodated; specif.: a Act of fitting
or adapting, or state of being fitted or adapted; adaptation; adjustment;
-- often followed by to. “The organization of the body with accommodation
to its functions.” Sir M. Hale. b Adaptation of conduct in order
to comply or conform; obligingness. c Provision of what is needful
or desirable for convenience; specif., the giving of pecuniary aid.”
According to him, the mark-up
or interest that is accrued on a loan or finance is capitalised and
once it is capitalised it becomes a part of the loan and cannot be
separated or distinguished. Mr. Azizur Rehman refers to the
meaning of the word capitalise as contained in Webster’s New International
Dictionary of the English Language, Second Edition, 1937 which
is as under:-
“Capitalise ...1. To convert
into capital, or to use as capital; hence, to make use of for the
sake of profit; to turn to one’s immediate advantage.”
Mr. Azizur Rehman has also
referred to the case of HASHWANI HOTELS LIMITED. v. FEDERATION OF
PAKISTAN and others (PLD 1997 S.C. 315) in which it has been held:-
“...One view can be that each
amount of disbursement will constitute an accommodation or loan agreement,
the other view can be that he disbursements of the various amounts
made by the banks were in performance of the above three loan agreements
already executed. If we were to prefer the above first view,
it will affect the vested right of the banks to recover interest at
the rate of 14% under the loans agreement and, therefore, the construction
which does not affect the vested right of a party is to be preferred.”
It has further been held:-
“A perusal of the above quoted
definition indicates that it includes loan of money and, therefore,
it can be held that the word “accommodation” used in the above Circular
of 15.02.1981 refers to loan agreement...”
Thus, according to Mr. Azizur
Rehman, the agreement entered into between the plaintiff and the defendant
is one of accommodation where the loans have been restructured and
upon restructuring of loan the banks have accommodated the defendant
and, therefore, it is obligatory upon the defendant to pay back the
entire amount agreed upon. According to Mr. Azizur Rehman the
word obligation has been defined in the Oxford dictionary to mean:-
“Obligation ...1. The act of
obligating, or binding , oneself to a course of action; a putting
under a promise, vow, or oath, as in initiation into an organization
(see OBLIGATE, v.,5)
2. The agreement, promise,
contract, oath, or the like, by which one is obligated or bound.
3. That which a person is bound
to do or forbear; any duty imposed by law, promise, or contract, by
the relations of society, or by courtesy, kindness, etc.
4. That which obligates or
constrains; the binding power of a promise, contract, oath or vow,
or of law; as, the obligation of conscience, of affection, or of ideals.
5. State of being bound ‘legally
or morally’. “Bound in filial obligation.
6. State of being indebted
for an act of favor or kindness; also the act itself; as, to place
others under obligations.
7. Obs. a Binding tie. b Liability.
c Civility.
8. Law. A bond with a condition
annexed, and a penalty or non-fulfilment. In a larger sense,
it is a formal and binding agreement or acknowledgement of a liability
to pay a certain sum or do a certain thing.”
He states that as there was
an accommodation it was the obligation of the defendant to have abided
by the contract and promise made as, the obligation is in fact a state
of being indebted for an act done by the plaintiff for him.
16.
Mr. Azizur Rehman further states that under section 25 of the Banking
Companies Ordinance, 1962, the State Bank has exceeded its authority
to issue such directions. According to him under section 25
of the said Ordinance, the State Bank of Pakistan could have issued
such a direction as legislation in respect of Islamic modes of financing
could only be done by legislation. He refers to section 21 of
the Enforcement of Shariat Act, 1991 and states that under the said
provision all laws are to be enacted exclusively by Majlis-e-Shoora
(Parliament) and the Provincial Assembly as the case may be and no
law shall be deemed to have been made unless it is made in the manner
laid down in the Constitution. Mr. Azizur Rehman states that
this is a deeming provision and in view of the definition given of
the word “deem” in the case of SIRAJUDDIN v. SARDAR KHAN (1993 SCMR
745) a fiction of law has been created and that any law that is promulgated
or devised through a mode other than by an Act of the Parliament or
the Provincial Assembly shall be void and not liable to be acted upon.
According to him, therefore, the State Bank Circulars are invalid
and void thus incapable of being acted upon.
17.
Mr. Aziz thus concluded the arguments saying that in holding that
the banks have unlawfully rescheduled/restructured/renewed by entering
into fresh agreement adding markup, the banks shall collapse.
18.
The Defendants have argued and have filed their Written Arguments
in which, they have reiterated the contents of the Written Statement.
It is stated that the plaintiff has claimed that (1) NICF (2) NIDF
(3) PAD Finance Facilities were allowed / granted to defendant Company.
The Defendants have summarized the claim as follows :-
In Million
1). NICF
a). Principal 9.857
} This liability
is claimed
b). Mark-up1.874
} on the basis of
Finance
c). Misc:Charges 0.088 }
Agreement i.e. 09th May
Total: 11.819 }
1993.Annexure:Z-5 and
Z-34 of the Suit i.e. A/C
No:01-670-2164-6
2). NIDF I
a). Principal Amount
13.837 }
Claimed on the basis of
} Agreement
dated 13-05-1993
b). Mark-up 3.691
} Annexure Z-8
& Bank
c). Misc.Charges
} Statement
A/C No:
and Exp.0.141 }
741-0256-8 Annexure:
} Z-35.
Total: 17.668
3). NIDF. II
Principal
0.116 }
Annexure: Z-35
} Account No:
741-0237-2
4). PAD
a)Amount Disbursed 0.581} Annexure:
Z-36
b).Mark-up 0.158
} Account No:
775-0035-9
Total 0.739 }
Annexure:
19.
The Defendants claim that, the plaintiff claimed these outstanding
liability on the basis of above documents and prayed for the recovery
of the finance by Sale of mortgaged property, by defendant No:1,
with Mark up, relying upon the Judgment of Honourable Lahore High
Court reported as 2001 CLC 158 (Lahore) Muhammad Ramzan Versus
Citibank N.A.
20.
It is stated that, the claim could only have been granted in light
of Finance Agreements, Annexure: ‘V’ to the plaint, dated 01-01-1991
(NICF Accounts) where the purchase price is shown at Rs. 9.893 (M)
and Buy-back at Rs. 12.453(M) and the (Agreement dated 09-05-1993
Annexure: Z-5 where purchase price is Rs.12.453 & buy back price
Rs. 16.074 (m). It is submitted that the amount was never disbursed
to defendant No:1 under the said agreement. It is further stated,
that the plaint also does not disclose this fact.
21.
It was further stated that, in the NIDF A/c i.e. Agreement dated 13.05.1993
Annexure:Z-8, no disbursement is shown, but only execution of agreement
is mentioned. The Plaintiff witness has not said at any place in his
evidence that there was any actual disbursement. In fact, he
has admitted that “—Nothing was disbursed in cash to the Defendant
No. 1 excepting the amount of Rs.7.500 million. No explanation has
been advanced for the other agreements and the claim.
22.
The assertion of the Defendants is that they had in their Written
Statement, denied the quantum of amount as claimed by Bank. The defendant’s
witness in his evidence Exb: No:6, has submitted the explanation regarding
the Loan facility. It is stated by Mr. Abid, that, in the cross examination,
the plaintiff admitted that “the date of execution of Ex: “C” is earlier
than the date of purchase of stamp on which letter has been written”.
It is also argued that the defendant has received the copy of debit
note from the Plaintiff bank which is for Rs.59,83,045, in excess
and never deleted after.
23.
It was argued that the plaintiff was entitled to recover Rs. 1.2 million,
being the difference of selling and buy back price but Defendant has
charged the mark-up amounting to Rs.1,930,451/- on NICF & Rs.354,638/-
on U.S. Aid L.C totaling to Rs.2,285,089/- on the following dates
Annexure: Z-34 (Ex 6/24).
DATE
AMOUNT
01-04-1989
….
Rs. 5,97,840/- }
03-05-1989
….
Rs. 2,15,297/- }
A. 31-07-1989
….
Rs. 0,74,215/- }NICF
15-08-1989
….
Rs. 4,62,653/- }
30-12-1989
….
Rs. 5,80,446/- }
Amount debited by the bank to this NICF A/c. on the following dates.
07-03-1989
: Rs.
45,895/-}
29-05-1989
: Rs.
46,362/-} Ex: 6/24
26-06-1989
: Rs.
82,969/-} R/w Annex:
B.
07-09-1989
: Rs.
45,985/-} Z-34
29-11-1989
: Rs.
48,362/-}
26-12-1989
: Rs.
82,696/-}
_____________
Total of A+B Rs.
22,85,089/-
24.
It is stated that since the buy back agreements contained the amount
of prompt payment bonus, and that the bonus was nothing but penalty,
the same could not be claimed. The plaintiff bank, therefore ought
to have given the relief for Rs. 0.258 being the payment Bonus
as per Clause-3 of Annex: R to the Suit, but instead of allowing the
relief, (I) excess mark up amounting to Rs.7,30,451/- plus Rs.
2,58,000/- (being payment, Bonus) , making total of Rs.9,88,451/-
has been charged from defendant, by debiting it to Account for the
period 01-01-1989 to 31-12-1989. It was due to the excessive
charge and compounding mark up, that the Plaintiff claimed that there
was a default in the huge amount that is being claimed. The entire
amount is thus liable to be deleted.
25.
It was further argued that the second Agreement i.e. Annexure” R,
no fresh agreement was executed for the year 1990 i.e. 01-01-1990
to 31-12-1990 and A/c remained in operation upto 28-11-1990 when last
cheque bearing No:00297915 was withdrawn for Rs. 2,50,000/- and thereafter
A/c was never allowed to operate, the cheques issued by Defendant
were also dishonored no loan facility or withdrawals allowed after
that date.
26.
It was argued that during the period 01-01-1990 to 31-12-1990,
the plaintiff bank charged a mark up, amounting to Rs. 16,63,308/-
on the following dates:
01-04-1990
: Rs.
86,979/-
09-06-1990
: Rs.
46,971/-
30-06-1990
: Rs.
6,55,841/-
01-11-1990
: Rs.
85,561/-
30-12-1990
: Rs.
7,87,956/-
Total Rs. 16,63,308/-
27.
It was alleged that, on the contrary the amount deposited by the defendant
during this period i.e. 01-01-1989 to 31-12-1990 is Rs. 1,90,09,483/-
against the withdrawal of Rs.1,81,79,791, net positive deposits balance
was Rs.8,29,692/-. This, was stated to be the period, when the
plaintiff bank started to debit the amount unauthorisedly without
issuing any debit voucher to defendant.
28.
As to the NICF agreement dated 01-01-1991, it was shown that no transaction
was ever allowed by the plaintiff bank to be made and no disbursement
were been made nor shown. Annexure:Z-34 which is the Bank Statement
filed by the plaintiff in Opening Balance is shown
at Rs. 98,93,834/- and thereafter, for the entire period debits were
created by the bank, however no physical or actual disbursements have
been shown. It was further argued that even during the period from
01-01-1989 to 31-12-1990 the plaintiff bank continued to charge excessive
mark up which was also compounded. This was done despite the fact
that the marked up price was agreed to in the agreement. For
the period 01-01-1991 to 30-06-1991 the Plaintiffs charged Mark
up unauthorisedly in the Account. The details of such are contained
in Ex.6/24 to 6/26 showing the unauthorized entries in NICF A/c. These
unauthorised amount were again charged by Bank in its NIDF & PAD
accounts thereby raising the liability from 65,66,401/- to the suit
amount in three years compounding the mark up and also debited account
with no explanation no debit voucher is issued by bank to defendant
company. The defendant approached the plaintiff bank vide Ex: 6/29
to 6/42 and asked the plaintiff bank to explain/ reconcile the amount
debited by them in the Account but the plaintiff bank failed
to reconcile the same. Vide Ex 6/29 the defendant demanded the bifurcation
of mark up and Principal amount but there was no response as to such
request. Vide Ex: 6/30 the defendant complained to the plaintiff that
they were charging excessive mark, but again there was no reply. Vide
Ex: 6/31, the defendant pointed out the discrepancy in the account
and submitted the calculation to the Bank by calculating the mark
up, but again of no avail. Vide letter dated 24th November,
1993 Ex: 6/32 the defendant informed, that the re-scheduling
intended to be made is incorrect, and denied to accept the liability.
Vide letter 08th February,1994 Ex: 6/33 the defendant requested the
plaintiff regarding the reconciliation of the amount vide letters
dated 16th February,1994 , 28th July,1994 the defendant again
requested and shown their view regarding the quantum of excessive
liability continuously shown by the bank.
29.
It is argued that, finally on 4th July,1994, the defendant again submitted
the complete working of NIDF and NICF A/c
to the plaintiff bank. In this Statement the defendant worked out
the calculation of mark up on Daily Product Basis . But the plaintiff
bank once again failed to delete or reconcile the entries unauthorizedly
/ illegally debited to the account. Thereafter the defendant vide
their letters Ex: 6/38 to 6/43 reminded the plaintiff bank for the
settlement of the Account but to no avail. The plaintiff’s claim
execution of the agreements only. On the contrary no disbursements
were made as per the agreements discussed above, hence the Agreements
were without consideration and void. Reliance has been placed
on the case of UBL V/s. Chaudhary Ghulam Hussain reported as
1999 PTCLR 162 (Lahore) wherein it was held that: “Agreement without
consideration would be treated as Void:
“9.
The appellant bank, has also placed reliance on two financing agreements:
(i)
agreement dated 2.7.1986 (page 461) executed by the parties whereunder
respondents Nos.1 and 2 were to be allowed financial facility of Rs.80,80,434/-
for a period ending on 30.6.1987 and in terms thereof respondents
Nos.1 and 2 were required to pay back Rs.9,697 Millions.
(ii)
Agreement dated 22.9.1987 (page 465) according to which respondents
Nos.1 and 2 were to avail of facility of Rs.98,35,660/-. This
facility was to come to an end on 21.9.1998 and in terms thereof
respondents Nos.1 and 2 were required to pay the buy back price of
Rs.11,803 Millions on or before 21.9.1988.
It is claimed that though respondents Nos.1 and 2 had availed of the
above-noted two financial facilities as well, but they have defaulted
to clear their dues, arising thereunder.
10.
From the perusal of the record, it transpires that there is no sanction
advice available for creation of these financial facilities.
Significantly, the statement of account filed by the appellant does
not show any disbursement, whatsoever, under these two agreements
which have to be treated as void, being without consideration.
The supporting material of these agreements i.e. D.P.C. Notes etc.
(pages 483, 485, 487 and 489) also suffer from the same fatal defect
and cannot be looked into for holding that respondents Nos.1 and 2
had incurred any financial liability thereunder. We hold accordingly.”(Emphasis
is mine).
30.
As for the Agreement dated 09-05-1993 Annexure: Z-5, it has been argued
that the Selling Price was Rs.12.223 (M) and its buy back price was
Rs.16.074 (M). The expiry whereof was 31-05-1994. There was no disbursement
against this agreement and also remained unimplemented. The defendant
in his evidence has clearly stated at Page No:4 of his Examination-in-chief
“ the defendant has not owed any further amount after 28-11-1990”.
Even in cross-examination, it is clearly stated on oath, that no Loan
was sanctioned or disbursed to the defendant. The plaintiff has nowhere
given details of the disbursement of amount. The entire emphasize
has been placed on the fact that the agreements had been signed, as
such are liable to be acted upon.
31.
My attention has been drawn to Exhibit 3/18, wherein at Page No:2
it is stated that, “at our request the bank has rescheduled
the limit by way of “Renewal and Enhancement” and we, in consideration
where of have further agreed to increase the hypothecation charges
over Goods and Stocks described in the Schedule.” Similarly
as per Annex: Z-19 and Z-20 of the Suit, while signing agreement for
creating floating charges and supplementary Memorandum Deposit of
Title, it was specifically mentioned that “the rescheduling of the
limit by way of renewal and conversion and enhancement of facilities
is made valid to the agreement signed between the plaintiff and defendant.”
Since the agreement dated 09th of May,1993 and 13of May,1993 were
executed for the enhancement of the facilities which have not been
allowed by the plaintiff and remained unimplemented. The plaintiff
bank has miserably failed to produce any sanction advice to this effect,
which shows that the amount thus agreed to be enhanced was neither
sanctioned by the bank nor ever disbursed.
32.
It was thus argued that, under the circumstances the NICF liabilities
the defendant is liable to make the payment is only upto 31-12-1990
only where the amount was admitted in the following manners :-
NICF.
1). Amount disbursed into
Account No: 2164-6
from I.I.Chundrigar Road Branch to
Corporate Branch on 21-01-1989 Ex: 6/19
… Rs.59,83,054/-
2). Deposits made by the
defendant during the
… Rs.1,90,09,483/
period 24-01-1989 to 28-11-1990
3). Withdrawal during the
period 21-01-1989 to …
Rs.1,81,79,791/-
31-11-1990
4). Excess deposit over
withdrawal
… Rs. 8,29,692/-
Mark up @ 43 Paisas per 1000 per day from
01-01-1989 to 31-12-1990 when the operation
of the account was frozen as per working given
by defendant to plaintiff.
… Rs. 15,72,896/-
5). Balance of outstanding
NICF A/c. as on
31-12-190 after appropriating the mark up
and adjustment of excess amount shown
by the defendant the total comes to
… Rs. 67,26,258/-
33.
It has been argued by Mr. Abid that, in the NIDF account The amount
has been claimed by the plaintiff on the strength of Annexure: Z-8
i.e. agreement dated 13.05.1993.
34.
It is stated that since this agreement was never implemented and nothing
was disbursed to the defendant, and no transaction was ever made,
therefore the plaintiff Bank is not entitled to claim any of the amount
under this agreement. For this Account the plaintiff has produced
the Statement bearing Current Account No:7410256-8 wherein the
Opening Entries has been shown at Rs.77,88,123/- but no cheque numbers
have been mentioned to show how the figure has been arrived at by
the plaintiff. Nothing has been explained by the plaintiff
bank, nor any evidence has been led.
35.
It is further stated that the plaintiff bank has also shown certain
other debit entries which have also not explained as to how they have
been included and no evidence has been led to prove their case. When
in the agreement no disbursement has been made, there would be no
question of the Principal amount, Mark up and Central Excise Duty
at all. In fact it has been submitted that there was only one
NIDF A/c which was transferred from I.I.Chundrigar Road Branch to
Corporate Branch i.e. Account No: 741-237-2 wherein the amount transferred
is shown at Rs.10,99,325/- as per Ex: 6/20 and after including mark
up this comes to Rs.13,14,622/-. Except this amount the plaintiff
has not disbursed any amount to the defendant. The defendant admitted
the liabilities of NIDF as follows :-
1).
Sanctioned amount
Rs. 1.5 Million
(Exb: P/18 (Annexure:S)
2).
Amount disbursed/availed
as per Ex: 6/20
Rs. 10,99,325/-
3).
Mark up
Rs. 2,15,297/-
4).
Total Liabilities
Rs. 13,14,622/-
Per agreement for NIDF i.e.
Annexure: ‘S’ to the Suit dated 25th January, 1989 the total sanctioned
amount was Rs.1.500 million and its buy back price was Rs.2 million
and the expiry whereof was 31-12-1990. The plaintiff is entitled to
recover the amount of Rs.15,55,220.36 on the basis of the sanctioned
advice which provides a mark up @ 0.31/1000 /day which comes to Rs.2,40,598/-
upto 31-12-1990.
PAD/OUTSTANDING L.Cs INCLUSIVE
US AID L.C.
1.
L.C.Amount(Annexuure “F” of the Suit)
Rs.35,40,000/-
a).
10% Cash Margin Paid
Rs.03,55,000/-
Vide Cheque No. 070706 dated
16-05-1988 drawn at BCCI
b). 03-04-1990
Rs.9,19,705/-} Debited in NICF A/c. Annexure:Z-34.
c). 09-06-1990
Rs.9,67,248/-}
d).
Subsequent payments Rs.9,84,334/- (which is shown in Annexure: Z-34,
when all the facilities were frozen.
2. Total
Rs.32,26,287/-
Principal Balance outstanding for PAD comes to
Rs.03,13,713/-
MARK UP ON P.A.D.
1). 1ST Shipment @ 11% for
18 months i.e. 08-09-1988
to 07-03-1990
Rs. 92,915.29
2). 2nd shipment @ 11% for
18 months i.e. 18-11-1989
to 17-05-1990
Rs.1,59,152.42
3). 3rd shipment @ 11% for
18 months i.e. 30-11-1988
to 29-05-1990
Rs.2,73,039.51
4). Subsequent interest
@ 16.425 % from
30-05-1990 to 31-12-1990
Rs. 1,87,862.41
5). Total Mark up
Rs. 7,12,993.00
6). Total of the principal
and mark up
Rs.10,26,646.63
36.
The total liability for which the defendant is liable to pay comes
to Rs. 6,56,640/- being the principal amount due upto 31-12-90 with
mark up for the period, to arrive at the Repurchase Price is detailed
below.
PRINCIPAL MARK UP
TOTAL
NICF A/C
51,53,363.24 15,72,896.20
67,26,259.44
NIDF A/C
10,99,325.45 4,55,895.36
15,55,220.81
P.A.D.
3,13,713.00 7,12,933.63
10,26,646.63
TOTAL
65,66,401.69 27,41,725.19
93,08,125.88
37.
It had been stated, that, as regard to the execution of Promissory
Note the plaintiff bank got blank documents signed as a pre-requisite
for the purposes of sanction of the loan amount. It was therefore
argued, that when the amount was not disbursed, the negotiable instruments
under section 9 can not be held valid and such documents are also
liable to be avoided.
38.
Mr. Abid Hussain Shirazi Advocate for the Defendants summed up as
follows:
1)
Annexure: A, B, C & D of the suit are forged documents filled
in, unauthorisedly, as on the dates shown in these documents the present
Management who are defendant No:2 to 5 were neither the Directors
or Shareholders of defendant No:1. This according to him is further
proved from the evidence of plaintiff, wherein he has admitted as
regard to Annexure:” C”, that the date shown is earlier
then the date of Purchase of Stamps.
2)
As regards to Annexure: “E” of the Suit, itself will show, which is
evident from the original document in court, that original entries
have been removed by Blanco and refilled in by Bank without any signature
on the mutilated figures.
3)
Annexure: F & G Z-9 to Z-17 certain amount
of these U.S. Aid L.C. has been debited by plaintiff in NICF
A/c in the year 1989 & 1990 as mentioned at Page No:4 & 5
above (Last Para) of their Written Argument. For the balance the explanation
is given at Page No:11 under the Head PAD/outstanding L.C.
4)
Annexure: H to T of the suit is admitted. This is the period
where the plaintiff bank has charged excessive mark up on various
dates as submitted at Pages No: 4 & 5 herein above and also charged
the compound mark up.
5).
Annexure: U to Z-1 of the Suit: No loan was disbursed under
these documents. The account was stuck up /closed on 28-11-1990 when
the last cheque was allowed by plaintiff bank to be withdrawn.
6).
Stock Report : as per Annexure Z-2 and Z-3 were submitted .
7).
Annexure Z-4 to Z-8 i.e. the Finance Agreement pro-notes are without
consideration. Z-6 is a proposal made by defendant for fresh loan.
8).
Annexure Z-18 to Z-23 : These documents were signed by defendant for
the purposes of renewal & ENHANCEMENT, but No enhancement/renewal
was made. No amount was disbursed to defendant company.
Therefore the same can not
constitute Finance Agreement in the light of Judgment reported
as NLR-1988 TD 403 .
9).
Z-24 TO Z-29: There are the letters written by the defendant for enhancement
of Loan Facility and nowhere acknowledged the claim of Bank.
10).
Z-29 to Z-36: There are the documents prepared by the plaintiff bank
at their own. For the Bank Statements filed by the plaintiff after
28.11.1990 when no amount was allowed to utilize, therefore all the
amount after 31.12.1991 is the compound mark up charged by the bank
beyond the transaction period.
11).
Liquidated damages cannot be claimed in the light of
Judgment reported as PLD 1998 Kar.191.
39.
The Defendants have relied on the Judgment of this Court reported
as PLD-1998 Karachi 199 UBL V/s. M/S. Novelty
Enterprises 1993 MLD 1571 Habib Bank versus Farooq
Compost Fertilizer Corporation Limited
40.
It is thus argued that the plaintiff is not entitled for relief as
claimed.
41.
The Defendants have, in addition to the order in Qayoom Spinning (supra)
relied on various judgments and have submitted that, on the facts
and circumstances it is a Suit for accounts to be determined, as the
plaintiff has admitted in his cross examination disbursement of amount
Rs.7.500 million which is the figure of two sanction advices, which
are agreements dated 25-01-1998 Anneuxre: R & S of the suit
i.e.
1).
NIFC
SELLING PRICE BY BANK
6.00 Million
7.200 Million
2). N.I.D.F.
1.5 00 Million
2.00 Million
TOTAL
7.500 Million as on 31-12-1989
42.
I have perused the pleadings, the evidence and have heard the arguments.
I have no hesitation in agreeing with the arguments of the Defendants
for the reasons hereafter given.
43.
The arguments that were advanced by Mr Aziz ur Rehman have been
dealt with in all details in the said case of Qayuum Textiles (supra).
It was held:
“With utmost respect to the
learned counsel I disagree with the proposition in the first instance
that the said judgment of Dr. Aslam Khaki shall be operative from
the date mentioned in it as regards the banking transition.
The laws by which the Banking Business was to be conducted was set
moving from 1962, and a concrete law was enforced from 1.1.1985. BCD
Circular No.13 categorically states that a transitional period is
given to the banks for the purposes of transition from the old system
of the banking into the Islamic system of banking. There are two things
that are enshrined in the judgement of Dr. M. Aslam Khaki. First being
the economy of the country and the other being the financing system
of the banks. The Shariat Board was to arrange for exchange
of information for the evaluation of the practice and for providing
guidance of successfully managing the Islamic economy. Islamic
economy is, in its totality the economy of the country and laws in
respect of, not only the banking, but other aspects which includes
interest being charged by other institutions, payment to various banks
and other such like transformation. The period of transformation has
been given in the said order which reads as under:-
“Keeping all these aspects
in view, we have decided to appoint different dates for different
phases of the transformation. We, therefore, direct that:--
(1)
The Federal Government shall, within one moth from the announcement
of this judgment, constitute in the State Bank of Pakistan a high
level Commission fully empowered to carry out, control and supervise
the process of transformation of the existing financial system to
the one conforming to Shariah. It shall comprise Shariah scholars,
committed economics, bankers and chartered accountants.
(2)
Within two months from the date of its constitution, the Commission
shall chalk out the strategy to evaluate, scrutinize and implement
the reports of the Commission for Islamization of the Economy as well
as the report of Raja Zafarul Haq Commission after circulating it
among the leading banks, religious scholars, economists and the State
Bank and Finance Division, inviting their comments and further suggestions.
The strategic plan so finalized shall be sent to the Ministries of
law, Finance and Commerce, all the banks and financial institutions
to take steps to implement it.
(3)
Within one month from the announcement of this judgment, the Ministry
of Law and Parliamentary Affairs shall form a task-force, comprising
its officials and two Shariah scholars from the Council of Islamic
Ideology or from the Commission of the Islamization of Economy, to:
(a)
Draft a new law for the prohibition of Riba and other laws as proposed
in the guidelines above.
(b)
To review the existing financial and other laws to bring them into
conformity with the requirements of the new financial system.
(c)
To draft new laws to give legal cover to the new financial instruments.
The recommendations of the
task force shall be vetted and finalized by the “Commission for Transformation”
proposed to be set up in the SBP, after which the Federal Government
shall promulgate the recommended laws.”
18.
The said direction has to be read carefully. The requirement is that
of the Federal government to constitute in the State Bank of Pakistan
a commission for transforming the existing “financial system” to one
conforming to the Shariah and thereafter a strategy was to be chalked
out to evaluate, scrutinize and implement the report of the commission
for Islamising the economy. In addition, it was the banks who were
to take steps to implement it. Laws on Riba were required to be introduced
and reviewed and existing financial laws and other laws were to be
made out for the purposes of bringing into conformity the requirements
of the new financial system. It was, therefore, be seen that there
was a distinction between the financial system and system of the government
financial institutions. No doubt the financial system includes
within it the system of banking which is why a separate period has
been given in the said order in respect of preparation of model agreement
etc. which reads as under:
“(4) Within six months from the announcement
of this judgment, all the banks and financial institutions shall prepare
their model agreements and documents for all their major operations
and shall present them to the Commission for transformation in the
SBP for its approval after examining them.
(underlining is mine)
(5) All the joint stock
companies, mutual funds and the firms asking in aggregate finance
above Rs.5 million a year shall be required by law to subject themselves
to independent rating by neutral rating agencies.
(6) All the Banks and financial
institutions shall, therefore, arrange for training programmes and
seminars to educate the staff and the clients about the new arrangements
of financing, their necessary requirements and their effects.
(7) The Ministry of Finance
shall, within one month from the announcement of this judgment, form
a task force of its experts to find out means to convert the domestic
borrowings into project related financing and to establish a mutual
fund that may finance the Government on that basis. The units of the
mutual fund may be purchased by the public and they will be tradable
in the secondary market on the basis of net asset value. The certificates
of the existing bonds of the existing Government savings schemes based
on interest shall be converted into the units of the proposed mutual
fund.”
19.
The financial system also includes intra-government borrowing as well
as borrowing from the State Bank of Pakistan by the Federal government
and foreign debt. Such has been separately dealt with in paras 8 &
9 which reads as under:-
“(8)
The domestic inter-Government borrowings as well as the borrowings
of the Federal Government from State Bank of Pakistan shall be designed
on interest-free basis.
(9)
Serious efforts shall be started by the Federal Government to relieve
the nation from the burden of foreign debts as soon as possible, and
to renegotiate the existing loans. Serious efforts shall also be made
to structure the future borrowings, if necessary, on the basis of
Islamic modes of financing.”
20.
From the above, it will be seen that various aspects of law for transformation
has been given and it is for this, that the Honourable Supreme Court
has given a specific time. Certain laws in the judgment have been
declared to be repugnant to the injunctions of Islam and ceased to
have effect from 31st March, 2000, however, other laws or provisions
of laws to the extent that those have been declared to be repugnant
to the injunction of Islam would cease to have effect from 30th June,
2001. It will be noted that BCD Circulars Nos.13 and 32 have not been
declared to be un-Islamic, the said circulars do not cease to have
effect from 30th June, 2001. They were in force since 1.1.1985 and
are valid legislation and continue to remain in force. The concept
of BCD Circular No.13 is that it was for the purposes of Islamisation
of banks which was a part of the global change in Pakistan for Islamising
the economy in generality. Banks were first to be placed in line for
their transformation. It is in line of this, that BCD Circular No.13
came into existence.
21.
For the purposes of looking into the concept as given by BCD Circular
No.13 we may have to look into the history as to why and how such
laws were required to be enforced or made. It will not be out of place
to mention that Pakistan itself was created to be a religious Islamic
state. Quaid-e-Azam had expressed the desire to institute an Islamic
Financial System in his speech (July, 1948) at the inaugural ceremony
of the State Bank of Pakistan. From the Constitution of 1956
to the Constitution of 1973 an express desire has been shown to get
rid of Riba. In the Article 38(f) of the Constitution of 1973 it has
been categorically stated that the State shall eliminate Riba as early
as possible. Article 2 of the Constitution categorically states that
“Islam shall be the state religion of Pakistan”. Article 2-A
was inserted to become a substantive part of the Constitution by Presidential
Order No.XIV of 1985 with effect from 2nd March, 1985. All these put
together categorically showed and it was in the knowledge of all,
that primarily Islam was the guiding factor. The Islamic Advisory
Council created in 1962 in its various opinions till 1969 has time
and over again stated that the Riba must be finished in its every
form and a system that would work under the Islamic principles to
be enforced. It seems that initially such was not enforced. The Council
of Islamic Ideology was therefore created with the assignment to formulate
an interest free system for banking. The Council in cooperation with
its various financial and banking experts initially presented its
interim report in November, 1978 and completed their report in June,
1980. It is in the light of this report that the government took the
first practical step to purge three financial institutions of interest
system on 1st of July, 1979. From 1980 onward other reforms were introduced
till 1984 but such could not be properly handled.
22.
The Constitution of Islamic Republic of Pakistan in Article 227 clearly
provides that all existing laws are to be brought in conformity with
the injunctions of Islam as laid down in the Quaran and the Sunnah.
The important aspect therefore is that there are only two modes in
which the laws have to be brought in conformity with, namely, the
Holy Quaran and Sunnah. Under Article 228 it had become mandatory
upon the Government to constitute a Council of Islamic Ideology which
was constituted in 1974, thus it was a clear intention of the legislature
and the maker of the Constitution that all laws that are made shall
be in the line of and exactly what the Quaran and Sunnah states. In
fact, in the case of Commissioner Income Tax Peshawar Zone v. Simen
AG reported in PLD 1991 SC 368 it has been held that so long as the
existing statutes were not brought in conformity with the injunctions
of Islam, their interpretation, application and enforcement where
discretionary judicial elements are involved, only that course would
be adopted which was in accord with the Islamic philosophy, its common
law and jurisprudence. In another case of Kaneez Fatima v. Wali Muhammad
reported in PLD 1993 SC 901, it was held that the principles of law
and injunctions of Islam have to be kept in view while interpreting
the statute and more so in the case where administrative decisions
affecting individual’s rights and liberties have been challenged.
In the case of Maple Leaf Cement Factory Ltd. v. Collector of Excise
and Sales Tax reported in 1993 MLD 1645 it was held that the provisions
of Articles 2-A and 227 of the Constitution postulate that the existing
laws must be interpreted, as far as possible keeping in view the Islamic
principles of interpretation, especially in fiscal statutes Courts
are bound to apply Islamic rules of interpretation unless excluded
otherwise in preference to the contrary accepted rules of interpretation
under other jurisprudential concept and fiscal laws are not exception
in that behalf. The functions of Council of Islamic Ideology
have also been detailed in Article 230 of the Constitution. One of
which is “to make recommendations as to measures for bringing existing
laws into conformity with the injunctions of Islam and the stages
by which such measures should be brought into effect”. The introduction,
therefore of the aforesaid BCD Circulars Nos.13 and 32 were in fact
upon recommendations of the Council of Islamic Ideology. In the case
of Pakistan v. Public At Large reported in PLD 1986 SC 240, there
is a detailed discussion on the meaning of term ‘injunctions of Islam’.
It has been held that the scope of expression ‘injunctions of Islam’
has not been left to the discretion of the courts and notions of the
individuals but it has been clearly spelt out that, as only those
injunctions which have been laid down by the holy Quaran and the Sunnah
of the Prophet (PBUH). In this celebrated judgment of the Shariat
Appellate Bench of the Supreme Court it was held that:
“We do feel that while expounding the Injunctions of Islam a possibility
of some marginal so called divergences might be visualised.
It is a very difficult and perilous exercise. I can lead to
proper and improper consequences. Be that as it may, no such
expounding of the Injunctions of Islam will be permissible which does
not pay attention to the statement of the text of the Holy Qur’an
and Sunnah and to its interpretation together with its Khamir and
Zamir. Within this framework while “expounding” the Injunctions
the Court will remain under a duty in case of need during a new approach
or to meet a new situation to keep in view the following essentials,
of course, amongst others:-
(i)
Whether instead of attempting a relaxation of an Islamic rule, the
relaxation may not be made in the required need for which the relaxation
is intended to be made. A very simple exercise preliminary though,
will be of great advantage-to ask oneself: Cannot the society exist
or progress without the relaxation and where the answer is negative
to ask the further question: cannot it be done with a temporary and
mildest one?
(ii)
It is often said that modernism (even when used in good sense of:
achievement, progress and high attainment for the Ummah), Ijtihad
is essential. There can be no cavil with the proposition, but
before doing the same within accepted spheres and under well-recognised
rules it should also be asked: whether the same objects cannot be
achieved without doing it; and, whether purpose would not be served
by doing the similar Ijtihad or making a deviation in the demands
of modernism; in other words, cannot the society change to word Islam?
(iii)
Whether a relaxation is approvable on the accepted rules and principles
of Ijtihad and Ijmah, old or new; Zaroorat or Zarar; Tawil or Takhsis;
Urf and other recognised methods like Qiyas, Ihsan, Istehsan, Masalah-Mursalah
etc.?
(iv)
Whether in a case a new principle like the foregoing, is visualised
there is support for the same in the Holy Qur’an and the Sunnah?
(v)
Whether there has been a need similar to the one in issue earlier-if
so, whether attempts were made by those who were qualified to do the
exercise and with what result; the same would apply to attempts made
in all other lands?
(vi)
Whether there are precedents for guidance in the well-known authentic
works—if so, what are the reasons for not following them. It
is pertinent to note here that the Pakistan Courts when interpreting
and applying laws do follow the precedents if they are by law, binding.
And even when not so binding, help is always sought from good precedents.
Not only this but also it is well-known, the judgments and opinions
of foreign judges and jurists are accepted as legitimate guide or
support for resolution of controversies. If that is treated
as permissible, (rather indispensible by some at least for the time
being) there should be no hesitation in examining the judgments and
precedents from our own masters including Sahaba, Aimma and
Ulema, old and new
.
(vii)
When examining, views and opinions of the old, special place is to
be given to the Khulafa-e-Rashideen and Companions and Tabaeens in
accordance with the Holy Qur’an and Sunnah. It is high time,
we reduce the dangers of sectarianism and make masterly combination
of both (old and new) with gradual elimination of uncalled for criticism
and Taboos against the so-called Taqleed and so-called Tajdid, when
looking for and following the precedents.
(viii)
It would also be necessary when rendering an answer for a new situation
to see whether the interests of Islam and Muslim Ummah are advanced
in Islamic way. The collective conscience of the Islamic Ummah,
past and present, is also to be kept in view in making the answer.
(ix)
Whether after doing the necessary exercise and after going through
the above stages and others which might be spelt out later, the question
when asked from the spiritual and mental faculties of oneself through
Nafs Baseera, Nafs Lawwamah and Nafs Mutmainnah and not the Nafs Ammarah
(14) 75—( ) (53) 12 ( ) (27) 89 (
)
(2)75 ( ) the answer comes in
the clear affirmative for the intended attempt or step. (See
Foot-notes Nos. 5810 and 5819 of Text Translation and Commentary on
the Holy Qur’an by Abdullah Yusuf Ali (Vols. II,III). If not,
it must be given upon. If it is in doubt even then it must be
given up. In other words, it must be beyond all doubts of reason,
intellect and spirit.
(x)
In unoccupied field, the precedent of Hzr. Moaz Bin Jabbal (r.) should
be applied with full consciousness of its limitations which can in
the present day context, be spelt out from the foregoing points.”
It will therefore be seen that
no such act of violating the injunctions of Islam will be permissible
which does not pay attention to the text of the Holy Quran and Sunnah
and its interpretation together with its ‘khamir’ and ‘zamir’.
23.
In the present case the Council of Islamic Ideology has given the
report which enumerates in details as to which financing has to be
entered into under the Islamic system which had to be acted upon by
the banks on the instructions of State Bank of Pakistan given under
its authority under the Banking Companies Ordinance, 1961. The said
report is based on the Quaran and Sunnah and for the purposes of interpreting
the said existing laws its ‘Khamir’ and ‘Zamir’ has to be looked into
and cannot be deviated from. The Honourable Supreme Court of Pakistan
in the case of Pakistan v. Public At Large (supra) has held that while
expounding the injunctions of Islam the court will remain under the
duty in case of need, during a new approach or to meet a new situation
to keep in view a number of essentials, which essentials have been
narrated above. It is clear that this court will also have to look
into whether, when there was a proper Ijtehad for the purposes of
arriving at a certain principle of law under the Islamic system, could
this court take a view different with the Ijtehad that has already
been taken place. The Ijtehad was by way of consultation, finalized
and published as a report of the Council of Islamic Ideology and thereafter
when the judgment was announced by the Federal Shariat Court being
PLD 1992 FSC 1. There can be no cavil with the proposition that the
position that has been detailed and accepted by the Council of Islamic
Ideology acted upon by the Federal Government and State Bank of Pakistan
giving direction to the banks to finance under the modes prescribed
and thereafter confirmed by the Federal Shariat Court and eventually
by the Shariat Appellate Bench of the Supreme Court in the case of
Dr. M.Aslam Khaki.
24.
It is in pursuance to the long standing act in attempting to change
the old banking system into a system of banking, to operate and run
on the lines as provided by Quaran and the Sunnah. The banks, State
Bank of Pakistan and all other were duly connected and were party
in the transformation of the banks by the introduction of the Islamic
Financing to be governed by BCD Circular No.13. The ‘Modes of Transaction’
were categorically mentioned wherefore the whole system commenced.
25.
It will therefore be seen that a lot of work had been put in for the
purposes of the system to be transformed from the usual interest bearing
system and un-Islamic modes, into financial system based on the Injunctions
of Islam, the Islamic Banking System. As I have already stated, the
government felt it proper that the entire system could not be transformed
in one go, but chose to break it up into different sectors and the
banking being the first of them.
26.
Various Islamic councils that have been formed including the Council
of Islamic Ideology, were always of the unanimous on the opinion that
Riba in its every form was forbidden and the increase or decrease
of the rate of the interest did not effect it being otherwise. It
is well known that the committee of bankers that worked under the
chairmanship of the Governor State Bank of Pakistan in their report
in 1980 also took the similar stand. Scholars of the country, economic
expert and bankers were agreed with the same. This was all taken into
account in the case of Dr. Mehmoodur Rehman Faisal and others v. The
Secretary, Ministry of Law, Justice and Parliamentary Affairs, Govt.
of Pakistan and others reported as (PLD 1992 FS 1).
When the concept of Islamic
banking with its ethical values was propagated, financial circles
the world over treated it as a utopian dream. Having lived for centuries
under the valueless capitalist economic system, they asked what ethics
had to do with finance?
27.
Attitudes are changing gradually and in the last few years value neutral
conventional banking has begun to trouble the conscious of an increasing
number of people. There is a reluctance to hand over the funds to
banks and financial institutions that invest in companies engaged
in unethical and socially harmful activities. The emerging Islamic
banking scene has succeeded in achieving general acceptance. Today,
Islamic banking is estimated to be managing funds to the tune of US$100
billion. Its clientele are not confined to Muslim countries but are
spread over Europe, United State and the Far East. Islamic banking
continues to grow at a rapid pace because of its value-orientated
ethos that enables it to draw finances from both Muslims and non-Muslims
alike. Islamic bankers, keeping pace with sophisticated techniques
and latest developments have evolved investment instruments that are
not only profitable but are also ethically motivated. Today, more
than one hundred and fifty Islamic financial institutions are operating
world-wide.
The basic principle of Islamic
banking is the prohibition of Riba- (Usury - or interest):
"While a basic tenant
of Islamic banking - the outlawing of riba, a term that encompasses
not only the concept of usury, but also that of interest - has seldom
been recognised as applicable beyond the Islamic world, many of its
guiding principles have. The majority of these principles are based
on simple morality and common sense, which form the basis of many
religions, including Islam.
The universal nature of these
principles is immediately apparent even at a cursory glance of non-Muslim
literature. Usury was prohibited in both the Old and New Testaments
of the Bible, while Shakespeare and many other writers, particularly
those writing in the 19th century, have attacked the barbarity of
the practice. Much of the morality championed by Victorian writers
such as Dickens - ranging from the equitable distribution of wealth
through to man's fundamental right to work - is clearly present in
modern Islamic society.
Although the western media
frequently suggest that Islamic banking in its present form is a recent
phenomenon, in fact, the basic practices and principles date back
to the early part of the seventh century." (Islamic Finance:
A Euromoney Publication, 1997).”
28.
It is evident that Islamic finance was practiced predominantly in
the Muslim world throughout the Middle Ages, fostering trade and business
activities. In Spain and the Mediterranean and Baltic States, Islamic
merchants became indispensable middlemen for trading activities. It
is claimed that many concepts, techniques, and instruments of Islamic
finance were later adopted by European financiers and businessmen.
The revival of Islamic banking
coincided with the world-wide celebration of the advent of the 15th
Century of Islamic calendar (Hijra) in 1976. At the same time financial
resources of Muslims particularly those of the oil producing countries,
received a boost due to rationalization of the oil prices, which had
hitherto been under the control of foreign oil Corporations. These
events led Muslims' to strive to model their lives in accordance with
the ethics and philosophy of Islam.
Disenchantment with the value
neutral capitalist and socialist financial systems led not only Muslims
but also others to look for ethical values in their financial dealings
and in the West some financial organisations have opted for ethical
operations.
Islam not only prohibits dealing
in interest but also in liquor, pork, gambling, pornography and anything
else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic
banking is an instrument for the development of an Islamic economic
order. Some of the salient features of this order may be summed up
as:
1.
While permitting the individual the right to seek his economic well-being,
Islam makes a clear distinction between what is Halal (lawful) and
what is haram (forbidden) in pursuit of such economic activity. In
broad terms, Islam forbids all forms of economic activity, which are
morally or socially injurious.
2.
While acknowledging the individual's right to ownership of wealth
legitimately acquired, Islam makes it obligatory on the individual
to spend his wealth judiciously and not to hoard it, keep it idle
or to squander it.
3.
While allowing an individual to retain any surplus wealth, Islam seeks
to reduce the margin of the surplus for the well-being of the community
as a whole, in particular the destitute and deprived sections of society
by participation in the process of Zakat.
4.
While making allowance for the ways of human nature and yet not yielding
to the consequences of its worst propensities, Islam seeks to prevent
the accumulation of wealth in a few hands to the detriment of society
as a whole, by its laws of inheritance.
5.
Viewed as a whole, the economic system envisaged by Islam aims at
social justice without inhibiting individual enterprise beyond the
point where it becomes not only collectively injurious but also individually
self-destructive.
29.
The Islamic financial system employs the concept of participation
in the enterprise, utilizing the funds at risk on a profit-and- loss-sharing
basis. This by no means implies that investments with financial institutions
are necessarily speculative. This can be excluded by careful investment
policy, diversification of risk and prudent management by Islamic
financial institutions. It is possible, that investment in Islamic
financial institutions can provide potential profit in proportion
to the risk assumed to satisfy the differing demands of participants
in the contemporary environment and within the guidelines of the Shariah.
The concept of profit-and-loss sharing, as a basis of financial transactions
is a progressive one as it distinguishes good performance from the
bad and the mediocre. This concept therefore encourages better resource
management. Islamic banks are structured to retain a clearly differentiated
status between shareholders' capital and clients' deposits in order
to ensure correct profit-sharing according to Islamic Law.
30.
Ar-Riba consists of several types of transactions which have been
forbidden by Allah. Dealing in riba is one of the greatest sins
a Muslim can commit - The greatest sin according to Imam Malik.
All forms of riba fall into
two basic categories
A.
Riba An-Nasee'a.
This is the most pervasive
and well-known. It includes several kinds of transactions.
The "classic" one
which was described by the Companions of the Prophet (sas) was where
someone owes another money for whatever reason (purchase, loan, etc.)
which is due at a certain time. When the time comes, the
creditor would say to the debtor: "a taqdhee am turbee?"
(Will you pay up, or accept an increase?). It seems that there
was no fixed rate set at the beginning of the transaction, rather
it was set by "custom" and expectations and what the creditor
felt he could demand from the creditor who was unable to pay.
In this way, the original debt could easily expand to many times its
original size. Allah said:
{Ya ayyuhaa alladhina aamanoo
la ta'kuloo ar-riba adh'aafan mudhaa'afatan wa ittaqoo Allaha la'allakum
tuflihoon.}
{O you who believe do not consume
interest doubling and multiplying and beware of Allah that perhaps
you may succeed.} Aal-'Imraan: 130
The question of Exchange of
currency for currency or food for food with one side being delayed
is explained by the following hadith which explains this and several
other issues:
"Gold for gold either
ore or pure, silver for silver either ore or pure, wheat for wheat
measure for measure, barley for barley mearsure for measure, dates
for dates measure for measure, salt for salt measure for measure whoever
increases or seeks an increase has committed riba. There is
nothing wrong with selling gold for silver and the silver is more
as long as it is hand to hand as for deferred payment, no. And
there is nothing wrong with selling wheat for barley and the barley
is more as long as it is hand to hand, as for deferred payment, no."
In another version, he (sas) said: " When the items are different
in these categories, then sell however you wish as long as it is hand
to hand." Abu Daud and both narrations are sahih.
Two sales in a sale.
The Prophet (sas) forbid a transaction which was "two sales in
a sale". This means that at the time of the sale, the two
parties agree to different prices corresponding to different times
of payment. For example: 90 days like cash but after
that, the price goes up by 1% for every month of delay. This
transaction is illegal and if a Muslim has engaged in such a transaction
before knowing, they only have a right to the least of the prices.
"Whoever transacted two
sales in a sale has a right only to the lesser of the two or he commits
riba."
A loan which benefits the lender.
As we saw in the first point, money cannot be exchanged for money
with a delay no matter what the values. There is no "business"
transaction where money is given and returned later. A "loan"
is NOT a business transaction, but is a form of "sadaqa"
or charitable transaction and the money returned must be the same
as the money given.
"The Prophet (sas) forbid
"kulla qardhin yajurru manfa'atan" - any loan which returns
a benefit (i.e., to the lender).
B.
Riba Al-Fadhl.
It is forbidden in Islam to
exchange currency for currency unless it is done real time - i.e.,
no currency "futures" market. It is also forbidden
to exchange food items for the same kind of food unless is both real
time and in equal measure. It is forbidden to exchange food
items for other food items unless it is real time. Obviously
measures do not have to be the same. Exchange of items in different
categories, e.g., food for money, money for goods, etc. can be done
in any quantities per the rule of supply and demand and with or without
delay of one of the two sides of the transaction. This category
of riba is explained in the sahih hadith from Abi Daud above.
We should note that Islam forbid
ihtikaar (monopoly) in foodstuffs and all necessities. In this
case, the ruler has the right to interfere with the normal functioning
of the "market" (supply and demand) in order to protect
the peoples' necessities of life. A monopoly in other necessities
say for example diamonds is of no consequence and the ruler is not
allowed to interfere with the market.
No dealing in these interest
transactions of any kind is allowed. The Prophet (sas) has
invoked Allah's "la'na" upon five individuals for a single
transaction: the payer of interest, the receiver of interest,
the scribe (probably computer programmer in our day) who records it
and the two witnesses. The word "la'na", usually translated
as "curse" is much more than that. It means distance,
i.e., that Allah will put you at great distance from Him on Qiyama.
Similarly, Allah said about those who consume people's property with
falsehood that He will neither look at them, speak to them nor cleanse
them on that day. This is the most severe punishment from Allah
and those subjected to it will wish they could be punished by Allah
in His fire rather than to be ignored and put away from Him.
Also, as Allah said in Sura Taha:
{And whoever turns away from
my reminder will surely have a miserable life and we will resurrect
him blind. He will say: Lord! Why have you resurrected
me blind though I used to see? He said: Likewise my signs
came to me and you neglected them and in the same way you, on this
day, are neglected.}
Riba may appear to be in increase
and a benefit, but it will never bring any benefit and will only bring
those who deal in it the wrath of Allah, a declaration of war from
Him and His punishment in the hereafter. Allah said:
{And whatever interest transactions
you have made that they may grow in other people's wealth will not
grow with Allah. And whatever zakat you have given desiring
only Allah's countenance, these surely are the ones whose returns
are multiplied.} Ar-Rum:39
Riba is one of the seven mubiqaat
(sources of ruination) which the Prophet (sas) told us about in the
hadith:
"Stay far away from the
seven destroyers." They said: O Allah's Messenger,
what are they? He said: "Associating partners with
Allah, sorcery, killing the one protected by Allah except by right,
consuming riba, consuming the wealth of orphans, fleeing from battle
and slandering chaste and innocent believing women." Muslim
& Bukhari and others.
And never forget the "la'na"
of Allah invoked by the Prophet (sas) on the five parties involved
in any riba transaction.
"The Prophet (sas) invoked
la'na on the receiver of interest, the payer of interest, the scribe
and the two witnesses. And he said: "They are the
same." Muslim
Some people are under the misconception
that only high rates of interest are prohibited, and that low rates
are permissible. This delusion comes from misunderstanding the verse
of the Qur'an, (translated), "O you who believe! Do not consume
riba, increased manifold." [Qur'an, 3:130] This verse, however,
does not mean that if the increase is small it is permissible; it
is merely describing the common or usual state of affairs. Interest,
as a rule, will be increased and compounded several times, as the
debtor repeatedly fails to pay up. This is similar to the statements,
"Do not sell My signs for a small price," meaning at any
price, for any price is too small to sell the signs of Allah for;
and "Do not kill your children out of fear of poverty,"
which clearly cannot be taken to mean that it is permissible to kill
them for any reason besides fear of poverty. Further confirmation
that all interest is prohibited is in another verse of the Qur'an.
"But, if you repent [from riba] then for you is your principal."
[Qur'an, 2:279] So, those who repent may keep only their principal
(i.e. the initial amount loaned), and not even one penny or 1% more.
Aside from all of this, "little" and "much" are
subjective. What one person regards as "a little" interest
may be considered "a lot" by someone else. So, the truth
of the matter is that a small amount of interest is prohibited just
as is a large amount.
Similarly, the hadith literature
confirms this understanding: "If a man extends a loan to someone,
he should not accept a gift." [Bukhari] Abu Burdah ibn Abi Musa
said, "I came to Medina and met `Abdullah ibn Salam, who said,
'You now live in a country where riba is rampant. Hence, if anyone
owes you something and presents you with a load of hay, or a load
of barley, or a rope of straw, do not accept it, for it is riba.'"
[Bukhari]
The unbelievers made a very
similar claim. They said, "Trade is just like riba." However,
this is an absurd analogy. It is like saying that there is nothing
wrong with prostitution, because it is the use of the body to earn
money, just like any other kind of work. Moreover, the claim that
it is beneficial is invalid. In reality, it brings only a limited,
temporal, material benefit to only a certain category of people. On
the larger scale, it harms the debtor, especially in the case of his
business running into loss. It restricts the wealth among the wealthy,
and impedes its free circulation. It can lead to inflation, and other
economic woes. It is selfish and unfair.
The Prophet said in the Farewell
Pilgrimage, ``Every riba of Jahiliyyah is abolished under these feet
of mine, and the first riba I abolish is that of `Abbas.’’ It was
around this time that Allah revealed the verse, (translated) ``This
day have I perfected for you your religion, completed My favor upon
you and chosen Islam for you as your religion.’’ [al-Ma’idah] The
religion was completed, and all the regulations (including riba) had
been legislated by that time.
But, this was not the last
revelation. A few days after that, approximately nine days before
the Prophet left this world, some further verses were sent down. ``O
you who believe! Fear Allah, and GIVE UP WHATEVER REMAINS OF RIBA,
IF INDEED YOU ARE BELIEVERS. {my emphasis} And, if you do not do [so],
then receive news of a war from Allah and His Messenger. [On the Day
of Judgment, the consumer of riba will be given weapons and asked
to prepare for war with Allah, and whoever has Allah as an adversary
shall surely be overcome.] But, if you repent, then for you is your
principal; do not wrong [by taking interest], and you will not be
wronged [by deprivation of the principal]. And, if [the debtor] is
in dire circumstances, then [give him] reprieve until ease. And, it
would be better for you that you [remit the debt as] charity, if only
you knew. And, fear a day in which you will be returned to Allah.
Then, every soul shall be paid for what it has earned, and they will
not be wronged.’’ [Qur’an, 2:278-281] (my emphasis.)
This is something for us to
ponder over. The last revelation of the Qur’an - at almost the last
possible time for revelation- is on riba. This must be to reiterate
its severity, and to issue a dire warning to us against it. Not even
the dhimmis (non-Muslim citizens) are allowed to deal in riba in the
Islamic state. The Prophet wrote to the Christians of Najran,’ The
person amongst you who deals in interest is not under our protection.’
[Kanz al-`Ummal]
‘’On the night I was transported
(i.e. the night of Isra and Mi`raj), I was brought to a people whose
stomachs were [large] like houses, with snakes inside them which were
visible from outside their bellies. I said, ‘Who are these, O Gabriel?’
He said, ‘Consumers of riba.’ ‘’[Ibn Abi Hatim, Ahmad]
(part of a long hadith of a
dream: ) ‘’ . . . . then we came to a river, ‘’ I (the narrator) think
he said : red like blood, ``and there in the river was a swimming
man, and on the bank of the river was a man who had collected a lot
of stones by him. The swimmer would try to emerge [from the river],
whereupon the one who had gathered the stones would throw a stone
into his mouth [forcing him back in]. ‘’ The Prophet conveyed that
the swimmer was the consumer of riba. [Bukhari]
``Allah has cursed the consumer
of riba, the one who gives it for consumption, the two witnesses [to
the contract] of [riba], and the scribe thereof. ‘’[Ahmad, Abu Ya`la,
Ibn Khuzaymah, Ibn Hibban; Muslim, Nasa’i, Abu Dawud, Tirmidhi, Ibn
Majah; Bukhari]
``On account of the wrongdoing/oppression
of the Jews, We made prohibited for them good/wholesome things which
had been lawful for them, and [this was also] for their abundant hindering
from the path of Allah, their taking riba although they had been prohibited
from it, and their wrongfully consuming the property of people.’’
[Surah al-Nisa’]
``The nation amongst whom adultery
and interest become common definitely bring the punishment of Allah
upon themselves.’’ [Abu Ya`la] According to a narration with Ahmad,
interest brings upon drought.
``By He in Whose control is
my life! Some people of my ummah will spend the night in the state
of pride, haughtiness, play and amusement, and in the morning, they
will be disfigured as apes and swine, because they made the unlawful
lawful, kept (employed) singing girls, drank liquor, consumed interest
and wore silk clothes.’’ [`Abdullah ibn Ahmad] (emphasis is mine).
``When you trade in al-`eenah
[a round-about transaction intended to circumvent riba, but ending
in the same result. A man would buy an article from a needy person
at a low price, stipulating that he should buy it back at a future
date for a higher price], take hold of the ears of cows, become contented
with agriculture, and abandon jihad, Allah will impose upon you a
humiliation which He will not remove until you return to your religion.’’
[Ahmad]
It should be quite clear by
now that the interest obtained nowadays from banks and the like is
Haram without any doubt. The three councils of jurists that meet regularly
to discuss contemporary issues, have all declared, with a unanimity
of all of their members, that this interest is prohibited by the texts
of the Qur’an and Sunnah (i.e. it is not merely a matter of ijtihad),
and that it is the very riba which Allah and His Messenger have prohibited.
One of the former shaykhs of al-Azhar (raHimah Allah) observed, `This
has become a matter which is necessarily known to be part of the religion,
and so it towers above any disagreement.’
``So, whoever receives an admonition
from his Lord, then for him is what has passed, and his matter is
with Allah. But, [as for] whoever returns [to dealing in interest,
even after learning of its prohibition, and after hearing the serious
and dire warnings against it] - they are the inmates of the Fire;
they shall abide therein.’’ ``Say : O My servants who have committed
excesses against their own selves! Do not despair of the mercy of
Allah! Indeed, Allah forgives all sins. Indeed, He is the Most Forgiving,
the Most Merciful.’’
If you have been guilty of
consuming riba, then you should repent to Allah sincerely. You should
feel regret over your sin, cease it immediately, and resolve never
to return to it again. The interest which you have from the past must
be disposed of. You cannot keep it, for it is Haram money. [Qur’an,
2:279]. You may not destroy it, because the Messenger of Allah (may
Allah bless him and grant him peace) forbade the destruction of money
[Muwatta’]. Nor should you give it back to the bank, for that would
only strengthen it and further the institution of riba. Hence, you
should give it away for general projects of good, but with the intention
of getting rid of Haram money, not with the intention of charity.
Having discussed the concept
of ‘Riba’ existent from the earlier days of Islam distorted by the
western banking system, I shall proceed to discuss the various aspects
that have been stated and detailed in the said judgment of Dr. Mehmood-ur-Rehman
Faisal (supra). It is important to narrate some facts which will show
that not only the bankers but the entire country as also the international
banks remained involved in the transformation and to say, that today,
they have been taken by surprise by the judgment of Dr. M. Aslam Khaki
is incorrect. Such a stand is taken for the purposes only that having
done an act knowingly that the accrued markup became the banks profit
and the same was reflected in the balance sheet. The markup thus charged
continually by elapse of time was reflected as income. This deemed
income showed the huge profits of banks, which was due to the rescheduling
and rollovers, where the markup on markup was charged.
32.
The discussion on charge of interest / mark up that is, in the nature
of Riba has been in light all over the world in the various Islamic
Fiaqah Conference. In the assembly of the Islami Fiqah of India in
its seminar of the top scholars were of the opinion that “Interest
whether received on the loans for personal expenditure or on commercial
and business loans, is in the eyes of Islamic Shariah, forbidden.”
Additionally, Islamic Fiqah Academy established at the official level
by the organization of the Foreign Minister also considered this matter
in December, 1985 and arrived at the same conclusion. In the official
document of the IMF the position of the Muslim Ummah described it
as follows:-
“It seems appropriate that the beginning of the study of Islamic Banking
system should be made from the definition of its basic terminology.
Riba is an Islamic legal term which is tantamount to an accepted addition
before the use of money. Controversy is found in the past whether
Riba means interest or usury but now there is a consensus of opinion
among the Muslim scholars that this technical term is applicable to
every form of Interest and its corroboration is not merely excessive
interest. Therefore in the forthcoming discussions riba and
Interest will be used as synonyms and the Islamic Banking System will
mean the system in which the payment or receipt of Interest will be
prohibited, whereas an interest giving or conventional bank will mean
an institution in which interest is received or given on the use of
monetary fund-(International Monetary Fund Staff Papers, Vol xxxiii
No. 1 March 1986. Islamic Interest-free Banking, a Theoretical
Analysis by Mohsin S. Khan p-4-5)
The dispassionate analysis
of the academic discussions of half a century absolutely lays bare
the fact that the questions and doubts raised about Interest (Riba)
are unreal and the Quran and Sunnah have prohibited Riba in its every
form, be it the ancient banking form or the modern banking, be it
related to the consumption loans of the needy or commercial and production
loans, may they fall within the sphere of private limits or government,
semi-government limits, and whether provided at a lesser or exorbitant
rate. The second great success achieved in the last thirty years
covers the principles and rules, way of working, financial Instruments
of interest-free banking and the proposal and drafting of the strategy
of investment. In this connection investigations have been made with
great endeavours and a chart of alternative system has been prepared
with deep foresight. At least two dozen research books have been published
in which the features of the new system have been explained. Among
them some of their authors have received the Islamic Development Bank
and the King Faisal Awards.
In Pakistan the report of the
Council of Islamic Ideology (1980), which is based on the report of
the economic and banking experts, occupies the position of a mile-stone.
In this report, a very realistic blue print has been presented to
purge Pakistan’s domestic economy of interest. A Committee of the
Central Bank also worked on this subject in 1981 under the Chairmanship
of the governor of State Bank and the blue print provided by it is
also very close to the blue print of the Council of Islamic Ideology.
The report of the Council of Islamic Ideology was discussed in an
International Seminar and its recommendations were, on the whole ratified.
Moreover some additional recommendations were made, which were published
under the title of “Money and Banking in Islam,” by the International
Institute of Islamic Economics (Islamabad) and Institute of Policy
Studies (Islamabad). In 1989 the International Institute of Islamic
Economics held a workshop on the subject as to how interest can be
eliminated from government dealings. The report of this workshop (Elimination
of Interest on Govt. Transactions) has also been published. After
that in June 1992 the commission for Islamization of Economy submitted
its interim report, which has, however, not been published so far.
It was even not presented in the Senate and National Assembly as required
under the law. The Institute of Policy Studies held a Seminar in 1993
which was attended by about one hundred experts. Two editions of its
proceedings have been published in 1994 and 1995 entitled “Elimination
of Riba from the Economy.” The whole of this work presents a vivid
outline of an alternative system in the light of conditions prevailing
in Pakistan. Regarding the foreign loans, clear guidance exists in
the above mentioned reports of the Institute of Policy Studies and
the Self-Reliance Committee. Even an outline exists in the Self-Reliance
Report (1991) which tells how to execute this job, and on the other
hand with the help of a proper economic model a complete program has
been given to eliminate Riba from the economy in three years. The
difficulty is that those demanding an alternative system neither study
these reports nor intend to act upon them. It seems that because
the recommendations made in this whole assignment, are not in accordance
with their taste or desire, they therefore refute the existence of
these documents and are continuously harping upon, “where is the alternative?”
The matter is not limited only to academic exercise and drawing a
sketch of the alternative system. No doubt much work has yet to be
done and many stages have to be covered, but whatever has been attained
by way of implementation is sufficient to bow before the prowess of
Islamic banking system.
The work of accumulating the
savings and provision of resources has always been carried out at
the lowest and public levels C individual and institutional. After
the first World War, Dr. Muhammad Hamidullah had carried out research
work and had shown how investment to the extent of billions of rupees
was being carried out through equity-based venture system. During
the last forty years the experiments include the Mit Ghamr Bank of
Egypt, which had been working from 1963 to 1967 and after that it
adopted a new form in the shape of Nasir Social Bank (1971). These
institutions continued to work very successfully for ten to twelve
years on which studies were carried out which declared them to be
successful preliminary experiments (vide: The Research Report of T.
Wholus Scharf: Arab Islamic Banks: New Business Partners for Developing
Countries, Paris, OECD, 1993).”
33.
In pursuance to the international discussion of the Muslims all over
the world in 1975, Dubai Islamic Bank was formed to perform the work
under the Islamic system. Two major Financial Groups namely Darul
Mal Islamia (DMI) and Al-Barka Groups were also formed for the purposes
of interest free banking. The Islamic Development Bank formed in Jeddah
in 1975. All these banks are continuing to work under the system of
Islamic Banking.
34.
For the purpose of understanding the law in force for the time being,
and for the purpose of understanding the two important judgments,
i.e. the cases of Dr. Mehmood-ur-Rehman Faisal (supra) and Dr. M.
Aslam Khaki (supra), it will be important to reproduces the two most
important circulars that have been continued to be relied upon in
this respect. The first being BCD Circular No.13 dated 20th June,
1984 which reads as under:-
“STATE BANK OF PAKISTAN
Banking Control Department
Central Directorate
Karachi.
BCD Circular No.13
20th June, 1984.
All Banks,
Dear Sirs,
Elimination of ‘RIBA’ from
the
Banking System.
As has been announced by the Finance Minister, it is the intention
of Government that the Banking System should shift over to Islamic
modes of financing during the course of the next financial year. These
modes of financing have been described in annexure I. This shift will
take place according to the following programme.
(i)
As from the 1st July, 1984, all banking companies will be free to
make finance available in any of the modes of financing listed in
annexure I. However, as a transitional arrangement, they will also
be free to lend on the basis of interest, provided that no accommodation
for working capital will be provided or renewed on interest
basis for a period of more than six months.
(ii)
As from the 1st January, 1985, all finances provided by a banking
company to the Federal Government, Provincial Governments, public
sector corporations and public or private joint stock companies
hall be only in any one of the modes indicated in annexure I.
(iii)
As from the 1st April, 1985, all finances provided by a banking company
to all entities, including individuals, shall be on the same basis
as mentioned in (ii) above.
(iv)
The appropriate mode of financing to be adopted in any particular
case will be settled by agreement between the banking company and
the client. Some possible modes of financing for various transactions
have been shown in annexure II.
(v)
As from the 1st July, 1985, no banking company shall accept any interest-bearing
deposits. As from that date, all deposits accepted by a banking company
shall be on the basis of participation in profit and loss of the banking
company, except deposits received in Current Account on which
no interest or profit shall be given by the banking company.
2.
The instructions contained in items (i), (ii) and (iii) above shall,
however, not apply to on-lending of foreign loans which will continue
to be governed by the terms of the loans. Likewise, the instructions
contained in item (v) above shall not apply to foreign currency deposits.
3.
The above instructions are being issued under the Banking Companies
Ordinance, 1962. Further instructions, where necessary, will follow.
Please acknowledge receipt.
Yours faithfully,
(SIBGHATULLAH)
Director”
annexure – i
Permissible modes of Financing
(A) Financing by lending :-
(i)
Loans not carrying any interest on which the banks may recover a service
charge not exceeding the proportionate cost of the operation, excluding
the cost of funds and provision for bad and doubtful debts. The maximum
service charge permissible to each bank will be determined by the
State Bank from time to time.
(ii)
Qard-e-Hasana loans given on compassionate ground free of any interest
or service charge and repayable if and when the borrower is able to
pay.
(B) Trade-related modes of
financing including the following :-
(i)
Purchase of goods by banks and their sale to clients at appropriate
mark-up in price on deferred payment basis. In case of default, there
should be no mark-up on mark-up.
(ii)
Purchase of trade bills.
(iii)
Purchase of moveable or immoveable property by the banks from their
clients with Buy-Back Agreement or otherwise.
(iv)
Leasing.
(v)
Hire-purchase.
(vi)
Financing for development of property on the basis of a development
charge.
The maximum and the minimum
rates of return to be derived by the banks from these modes of financing
will be as may be determined by the State Bank from time to time.
(C) Trade-related modes of
financing including the following :-
(i)
Musharika or profit and loss sharing.
(ii)
Equity participation and purchase of shares.
(iii)
Purchase of participation term certificates and Modaraba Certificates.
(iv)
Rent-sharing.
The maximum and minimum rates
of profit to be derived by the banks from such transactions will be
as may be prescribed by the State Bank from time to time. However,
should any losses occur, they will have to be proportionately shared
among all the financiers.
ANNEXURE – II
Permissible modes of Financing
for
Various Transactions
Nature
of Business
Basis of Financing
I. Trade and Commerce
Fixed investment
(a) Commodity operations of
the Federal and Provincial Governments and their agencies.
Mark-up in price.
(b) Export Bills purchased/negotiated
under Letters of Credit (Other than those under reserve)
(i) Exchange Rate differential
in the
case
of foreign currency bills.
(ii) Commission or mark-down
in
the case of Rupee bills.
(c) Documentary Inland Bills
drawn against Letters of Credit purchased/discounted.
Mark-down in price.
(d) Import Bills drawn under
Letters of Credit.
Mark-up in price.
(e) Financing of exports under
the State Bank’s Export Finance Scheme and The Scheme for Financing
Locally Manufactured Machinery.
Service charge / Concessional
Service charge.
(f) Other items of trade &
commerce.
Fixed investment
Equity participation, P.T.Cs.,
Leasing or hire-purchase.
Working Capital
Profit and loss sharing or
mark-up.
II. Industry
Fixed investment
Equity participation, P.T.Cs.,
Modaraba Certificates, leasing,
Hire-purchase or mark-up.
Working Capital
Profit & loss sharing or
mark-up.
III. Agriculture and Fisheries
(a) Short-term Finance.
Mark-up. In the case of small
farmers and small fishermen who are at present eligible for interest
free loans finances for the specified inputs etc, upto the prescribed
amount may be on mark-up basis. The mark-up amount may however be
waived in the case of those who repay the finance within the stipulated
period and payment of the mark-up made by the State Bank to banks
by debit to Federal Government Account.
(b) Medium and long-term Finance.
(i)
Tube wells & other wells.
(ii) Tractors,
Trailers and other farm machinery and transport (including fishing
boats, solar energy plants etc.)
(iii) Plough-cattle,
Milch Cattle & other live stock.
(iv) Fairy
& Poultry.
(v) Storage and other
farm construction (viz. Sheds for animals, fencing etc.).
(vi) Land
Development.
(vii) Orchards,
including
nurseries.
(viii) Forestry.
(ix) Water
Course
improvement.
Leasing or hire-purchase. In
addition to ownership of machinery, banks may create charge on the
land in their favour as in the case of other loan to the farmers under
the Passbook System.
Hire-purchase or leasing.
Mark-up
PLS/mark-up/hire-purchase/leasing.
Leasing or rent sharing basis
with flexible weightage to the bank’s funds.
Development charge.
Mark-up, development charge
or PLS basis.
Mark-up, development charge
or PLS.
Development charge.
And the other being BCD Circular
No.32 dated 26.11.1984 which reads as under:-
“STATE BANK OF PAKISTAN
Banking Control Department
Central Directorate
Karachi.
BCD Circular No.32
26th November, 1984.
All Banks and development finance
institutions.
Dear Sirs,
Elimination of ‘RIBA’ from
the Banking
System-Bank Charges.
Please refer to BCD Circular No.13 dated the 20th June, 1984.
2.
Vide BCD Circular No.7 dated the 28th March, 1984 bank charges except
charges for home remittances, have been deregulated. The schedules
of bank charges received from t he banks show that the following items
of bank charges are based on interest:
(i)
Mark up in the case of import bills under import letters of credit.
(ii)
Mark-down in the case of documentary bills drawn against inland letters
of credit.
3.
The schedules also provide for levy of overdue/penal interest in case
of non-retirement/non-payment of inland cheques, bills etc., purchased.
4.
In exercise of the powers vested in it under the Banking Companies
Ordinance, 1962, the State Bank of Pakistan is pleased to direct that
as from the 1st January, 1985, interest, wherever charged by a banking
company/development finance institution in any of the items of bank
charges, shall be replaced by a non-interest mode considered appropriate
by it. Moreover, overdue/penal interest or mark-up on mark-up shall
not be charged by a banking company/DFI as from that date. Instead,
it may take legal steps for recovery of the overdue finance.
5.
Please acknowledge receipt.
Yours faithfully,
(SIBGHATULLAH)
Director”
35.
An analysis of the said BCD Circular No.13 is required to be done
in the light of the afore-stated discussions that a complete conscience
effort was put in by the government which included the bankers to
bring about the transformation in the existing system in the banks
for shifting to the Islamic modes of financing. The first paragraph
of said BCD Circular No.13 states that, it was the government which
acted through its Finance Minister, showing the intention of the Federal
Government, to transform the banking system into the Islamic mode
whereby, the financing done would be in the manner as provided in
the Annexures to the said circular. It was not an abrupt transformation.
The transformation had actually commenced from 1962 and various committees
had been formed. Discussion at the highest level had taken place and
naturally upon discussion after numerous position a settled formula
came in by way of this circular. No doubt, this circular does not
mention the name of the transaction i.e. whether it is Morabaha transaction,
a transaction by bai or by Ijarah, Modaraba or any other such means
but the annexure to the said notification categorically spelt out,
what was to be done and that, these in fact reflected the various
transactions that are and continued to be in vogue in other Islamic
banks. Though no names were given but it will be seen that these permissible
modes were nothing but specified transaction allowed by the Islamic
Scholars. BCD Circular No.13 also speaks of “transitional management”
and, after the first of January, 1985 as provided in clause 2(i) of
the said circular of finances provided by a banking company, Federal
government, provincial government, public sector corporation and public
or private joint sectors companies could only be done in the modes
indicated in the annexure-1 to the said circular.
36.
It cannot by any stretch of imagination be presumed that the meaning
of the words ‘interest’, ‘mark up’ or ‘Riba’ were not understood.
When this notification was issued all the transactional aspects had
been discussed at the top level by the government which is why the
Finance Minister announced the public of transformation. This announcement
was also in the line with the Constitutions of the Islamic Republic
of Pakistan.
37.
In annexure-I to the said circular namely BCD Circular No.13 there
were three basic forms of transaction that were allowed viz. The first
being, ‘Financing by Lending’. From the title, it is clear that though,
otherwise in the usual parlance ‘financing’ and ‘lending’ would have
in fact meant the same, but when ‘financing’ is used with ‘lending’
saying, that there is lending, it would mean that there is a ‘loan’
given to finance some person. The word ‘finance’ will have to be given
a separate meaning and is to be treated to be ‘lending’ simplicitor.
‘Lendings’ are loans i.e. the delivery of the money to another person.
The money therefore being a ‘debt’ created by way of lending. In such
a situation the question that will arise is that, whether such debt
created by lending could attract a levy of further sums on elapse
of time for repayment, as wound be done under the normal banking system
on any money lent which would carry interest. Under this circular
there is a categorical stipulation, that, where there is a ‘lending’
the ‘debt’ so created by giving ‘money’ to another person or financing
to other person by way of lending, such would not carry any interest
or markup. It is, therefore, provided in sub-clause (i) of Clause
A to Annexure-I that such ‘loans’ shall not carry interest or markup.
The banks were only allowed to recover ‘Service Charges’ which were
not to exceed the proportionate costs of operation. The important
aspect that needs to be noted in the first permissible mode, is the
use of the words ‘excluding cost of funds and provision of bad
and doubtful debts’. This phrase needs to be explained. The Shariat
Appellate Bench of the Supreme Court in the case of Dr. M. Aslam Khaki
has held, that money is not the commodity and in fact, is only a medium
of exchange’. It has also been held, that, in view of it being the
medium of exchange and cannot be treated as a commodity wherefore
it cannot be traded. It can only used for the purposes it is for,
namely the exchange for commodity. The value of the money cannot change,
that is, if a currency note is for Rs.100/- it can only be exchanged
with a hundred rupees or for various notes of the value of the Rs.100/-,
but no addition can be made thereto. Such medium of exchange can get
the commodity of the value of Rs.100/- but, the money cannot be traded.
It will be important to note that that in the modern world, money
is obtained from various sources, which involves cost. If such cost
is taken into account, and if that money which is lent, the usual
course would have been that the bankers would have charged interest,
which would carry his own spread along with the cost of funding and
provision of bad and doubtful debt, to arrive at a rate of interest
that, till such time the money is repaid, the debtor shall continue
to pay an additional sum for utilizing the money. Such has been categorically
restricted by the said BCD Circular No.13 in Annexure-I. The said
judgment of Dr. M. Aslam Khaki only reaffirms the same and categorically
states that nothing can be added for the purposes of utilization of
‘money’. Notwithstanding what has been stated by the Honourable Supreme
Court, even if BCD Circular No.13 is therefore seen, it is clear that
by inclusion of this particular phrase, the banks are prohibited to
charge except for the service charges, any other amount on a debt,
to the extent that the cost of obtaining funds by the lending agency,
and provision by such lender of his bad debt and charging interest
has categorically been done away with. The service charges are only
the cost of the actual banks operation, and the maximum of which was
to be determined by the State Bank of Pakistan from time to time.
This shows the importance that has been attached to the fact that
no ‘increase’ or ‘addition’ by elapse of time could be made on a ‘debt’
or ‘loan’, i.e. ‘on money lent’.
38.
The other manner of loans allowed is the ‘finance by the lending’
as ‘Qard-I-Hasana’ which is a loan given on compassionate ground,
free from ‘interest’, ‘markup’ or ‘service charges’ and repayable,
‘if’ and ‘when’ the borrower is able to pay, I am not aware whether
this has even been acted upon.
39.
The next mode of financing that has been dealt with in Circular No.13
is the ‘Trade Related Modes of Financing’, which type is in fact,
the basic earner for banks. Various modes have been provided, one
of which is, purchase of goods by banks and their sale to the clients
at an appropriate markup in price for deferred payment and which is
the most utilized manner of ‘financing’. We need to analysis this
aspect also. It is important to first note that the term ‘loan’ or
‘lending’ is missing and it is ‘financing’ that is being used. The
absence of the term ‘lending’ has to be given a meaning. As discussed
above, there was ‘Financing by Lending’, is a ‘loan’ of money, which
may be repayable at a certain time. ‘Financing’ is not ‘lending’.
It is a form of a business activity, which has been termed in the
title as ‘Trading’. Thus the finance is earned by trading, and cannot
be termed as a ‘Loan’ of money. The permissible mode allows
the purchase of ‘goods’ or various commodities by banks. The purchase
of goods has to be given a proper meaning. Purchase will never mean
purchase of ‘money’. As discussed, this would amount to ‘lending money’,
which is not allowed by the said BCD Circular and even if allowed,
no addition can be made to it. It is the ‘goods’ or ‘commodity’ that
have to be purchased. ‘Money’ is neither ‘goods’ nor ‘commodity’.
It is, therefore a categorical stipulation in sub-clause (i) of Clause
B of Annexure-I. The banks are allowed to sell goods that are required
by their clients. It is the ‘sale price’ of these ‘goods’ that shall
be the financing. I have already discussed that there is ‘financing
by lending’ and this mode is the other mode i.e. financing by sale
or ‘Bai’. Therefore, money or the ‘sale price’ fixed and
agreed between the ‘Seller’ and the ‘Buyer’ is what is payable for
the goods purchased. There could be various types of purchase, however
the most common being, that the client of the bank sells ‘goods’ to
the bank for a value or the ‘purchase price’, which is the amount
that is actually paid by the bank to the customer. The customer simultaneously
agrees to repurchase the same goods for a ‘marked up price’, which
is the agreed ‘sale price’ or the ‘repurchase price’. Thus the purchase
and sale is by the same person (though some writers say that this
would also amount to ‘Riba’, but the law for the time being in force,
permits such sale and purchase), the money i.e. ‘the sale price’ or
the ‘repurchase price’ is payable on deferred payment basis. It is
categorically provided in the said Circular, that in case of default
there shall be no markup on markup. Thus delay in payment will under
no circumstances cause any addition of any sums. This is because of
the categorical fact that the ‘repurchase price’ becomes a ‘loan’
or ‘debt’ and nothing could be added thereon. We now also analysis
this clause keeping in view Judgment in Dr. M. Aslam Khaki’s case.
In the order of the court it is observed that ‘the Holy Quaran says:
‘and if he (the debtor) is poor he must be given respite till he is
well of’. (2:280). It is further held in the Order, that if the purchase
delays the payment despite his ability to pay, he may be subjected
to different punishment, but it cannot be taken to be a source of
further return to the seller on per cent, per annum basis as contemplated
in Section 79 of Negotiable Instrument Act. The permissible mode of
financing by sale and purchase therefore could not carry any mark
up on mark up and that, such was also not allowed in the event of
default. Thus the comparison of the Circular and the judgment of the
Supreme Court has the same end result.
40.
The sale price of the goods purchased by the client from the bank
will therefore be a determined price namely, a price on which certain
profits by way of addition of mark up would also be included. Such
price could be arrived at, as also observed by the Supreme Court in
the aforestated case, on any sums that may be agreed between the parties,
but after the ‘purchase price’ has been agreed to between the ‘bank’
and the ‘customer’ such amount will only become a ‘debt’ and would
therefore be nothing but ‘lending’. The transaction of sale and purchase
is complete, and the bank becomes an ‘unpaid seller’, i.e. is only
liable to be paid the repurchase price or the amount of ‘debt’ created
by the sale by the bank to the customer. The payment to be made is
at a date in the future. Such will only be a ‘loan’ or ‘debt’ repayable
at a future date. If payment is not made on that future date, it is
the money due that is recoverable only, and per the said Circular,
no markup on markup or addition thereto can be made. After it becomes
‘loan’, such amount will be dealt with in the manner as provided in
Clause-A of Annexure-I and would therefore only become loan payable
by the purchaser to the bank. Such loan will not carry any interest
or markup. Only services charges therefore could be recovered. The
usual method being applied by the bank for the purposes of recovery
of this interest, is the indirect mode and method. What is being done
is, that another ‘agreement’ is entered into under Clause B(i) and
the said ‘loan’ or ‘debt’ recoverable is translated into the said
agreement as the ‘purchase price’ of the goods and commodity. On this
purchase price is added a markup in the agreement which will therefore
become the ‘sale price’ or ‘repurchase price’ i.e. sale by the
customer to the bank and an addition of further mark up is made to
the said existing sale price to arrive at a further marked up price.
In the subsequent agreement there is no transaction of sale or purchase
of goods but a fictitious act is done, whereby notional goods are
transacted and not detailed in the agreement and a sale and purchase
price is agreed upon. This is nothing but a fraud on the Constitution,
the law and the people of this country. It is a mockery of Islam,
and the Islamic Modes of Transaction approved by law. In the case
of Mian Muhammad Nawaz Sharif v The President of Pakistan (PLD
1993 SC 473), it has been held that, ‘what cannot be done directly
cannot be done indirectly’. This is also a very well settled law,
that no one can be allowed to circumvent the law, no one can be allowed
to act otherwise than what is provided. It is also settled law, that
if a thing has to be in a specific manner, it has to be done in that
manner alone and none else. No one can be allowed in the name
of their own profitability to cause the existing law to be bypassed,
avoided or interpreted, or usage or customs to be developed which
are contrary to an existing unequivocal and exact law. BCD Circular
No.13 is very categorical. It clearly states that no mark up on mark
up shall be charged. There is not ambiguity surrounding this issue.
In the garb of the other agreement such will not be allowed to be
taken. Mr. Azizur Rehman has referred to the following cases:
i)
Unreported judgment being Spl. HCA No.187/98, M/s Hardware Manufacturing
Corporation (Pvt) Ltd. and 5 others
Versus U.B.L.
ii)
Banque Indosuez Versus Banking Tribunal for Sindh and Baluchistan
and others (1994 CLC 2272)
in which according to him,
the two division benches of this court have held that ‘roll over’
being a ‘custom’ and ‘old practice’ can be allowed. According to him,
and that has been discussed above, that this court shall be bound
by the judgment pronounced by the division bench. No doubt, all judgments
that are not distinguishable do bind on any other court which may
be subordinate to it. I, sitting in the original side as a single
judge will be bound by the judgment of divisional bench. I have, therefore,
perused the said judgment in some detail. The principle expounded
by my brothers is not incorrect. The facts of the said case are however
distinguishable from the present case and I say this with all respect
and humility at my command. It is apparent that all the facts, details
and law were also not discussed by the Honourable judges of the division
bench. The case of Mehmoodur Rehman Faisal (supra) was also not considered
which was a judgment of Federal Shariat Bench and binding on the court.
The Honourable judges of the Federal Shariat Appellate Bench in the
aforestated judgment which was the judgment of the full bench held
that: ‘in view of the above discussion, the rule of Maslaah cannot
be invoked in aid to permissibility of ‘bank interest’. It was also
held that :
“153.For consideration of the other point, whether an increase to
offset the depreciation in the value of currency can be justified
and considered as an alternate and substitute for interest, in the
eye of Shari’ah, we may quote first from the well known works of Economics
as to the theory of inflation and indexation, purely from economic
point of view, and then we would examine the same on the anvil of
the Qur’an and Sunnah.
154. ‘Inflation is a persistent tendency for the prices of most of
the goods and services of rise over time. Inflation has been a world-wide
problem throughout, much of the 20th century. Nonetheless, inflation
has proved to be extremely difficult for economists to define or to
distinguish from related problems.”
The learned judges after having
discussed the various possible reasons for rise in the price, including
inflation and keeping in view the indexation have come to the conclusion
that all increase in any manner whatsoever is Riba. It was held that:
“169. Guided by the hadith the fuqaha have opined that
in case dirhams or dinars are lent out by counting, they will be paid
back by counting not by weight. Similarly in case these are lent out
by weight they will be returned by weight not by counting. In respect
of the loan of a commodity it is further provided by the fuqaha that
it should be returned in the same kind and quantity irrespective of
any change in its price at the time of return of the loan.”
41.
Once it is held that loan of a commodity has to be returned in the
same kind and quantity irrespective of any changes in its price, the
concept of ‘roll over’ will also have changed. I am therefore of the
view that the concept of ‘roll over’ though, dominant and an easy
method of earning money, had actually been done away with, by the
introduction of BCD Circular No.13 providing that no mark up on mark
shall be charged. The argument that mark up on mark up would
actually mean that no mark up could be charged on the mark up levied
on the principal amount in the first instance has been made, it has
been argued that the words ‘mark up on mark up’ will only be read
as if there shall not be charged any further sum on the mark up that
was added to the first agreement for the purposes of arriving at a
repurchase price, but it could be charged on the actual purchase price
namely, the purchase of the goods from customers. I am afraid, I shall
also not subscribe with this view. The position is very clear that
the mark up is charged for the purposes of arriving at a repurchase
price and as discussed above, the said mark up is merged and becomes
a part of the debt. Such amount cannot dealt with separately as, the
entire amount will form a debt and it is this debt that shall be payable
by the borrower. The practice of keeping mark up in a separate amount
and principal on the separate account and charging mark up on the
principal and not the mark up is not contemplated by the said notification
namely BCD Circular No.13. Once the principal debt is determined as
discussed above, the debt becomes a finance by lending and no mark
up, by whatever name called, can be charged. If one were to presume
that such mark up on the mark up could not be charged, but could be
charged on the principal money lent, the outcome would in fact be
the same. All payments made would be, (in fact are) adjusted towards
markup, and then markup would be charged on the principal. This will
be purposively avoiding the law. Interest has been defined as an increase
on money by elapse of time i.e. that a sum that is continued to be
paid till such time the debt remains in place at a certain rate and
for utilization of the monies that may have been given to another
person. In the instant case also the arguments therefore that mark
up on the principal can be charged also held no ground. The charge
of mark up on mark up will mean an addition in the existing marked
up price. Mark up is charged only for the purposes of arriving at
a price sale of a commodity, and the addition to arrive at a price
is the profit in trade, and which is the only amount a bank can gain.
There would be no commodity to sell after the agreement of sale has
been acted upon. The bank, as aforestated shall only be an unpaid
seller. In the subsequent agreement it will only be the money (the
debt) that is being resold and which cannot be done. In fact, if the
said subsequent agreements are read, it will be clear that the said
agreements are in fact sale and purchase of ‘goods’ and not of ‘money’,
but there are no ‘goods’, and is a garb to overcome and avoid an existing
law.
42.
Great emphasis has been placed on the fact that, in the event an order
is passed, that all monies that have been charged under the various
financing given by the banks to the customers are stated to be unlawfully
done, the banks shall collapse. This may be true but, the question
of charging mark up on mark up is not one which is new. I have discussed
above, that this was being in light and was / had been taken up and
discussed at some length from 1962. Presuming that the bankers did
not know of such also and presuming that they had acted bonafide in
entering into subsequent agreements and presuming that they were under
a bonafide belief that mark up on mark up was only the charge on the
mark up and could be added to the principal by subsequent agreement.
They will however have to consider that the matter had been taken
immediately thereafter and the first judgment of this court that was
in place was the case of Bank of Oman Ltd. v. East Trading Company
(PLD 1987 Karachi 404). In this case, it was held that the courts
in Pakistan are bound by the Constitution and any law repugnant to
the Constitution is void. It was further held that the principle and
the provisions of the Objective Resolution by virtue of Article 2-A
are now a part of the Constitution and justiceable subject however
to limitation imposed by Article 203-A, B (c ), 203-D, 203-G and 203-GG
of the Constitution whereby special and specific jurisdiction has
been conferred on the Federal Shariat Court to declare the law as
defined by Article 203-B(C ) read with Article 203-G or any provision
thereof as repugnant to the injunctions of Islam laid down in the
holy Quaran and Sunnah of the holy prophet (PBUH) and that the said
law and any provision thereof so declared by it. In another case of
Habib Bank Ltd. v. Muhammad Hussain reported as PLD 1987 Karachi 612
whilst dealing with the provision of the Banking Companies (Recovery
of Loans) Ordinance, 1979 i.e. before the issuance of BDC Circulars
Nos.13 and 32, it was held that, such interest cannot be awarded but,
because of binding view in the case reported as Muhammad Bachal Memon
v. Government of Sindh (PLD 1987 Karachi, 296) interest was allowed.
43.
In the case of Aijaz Haroon v. Inam Durrani (PLD 1989 Karachi 304)
the entire position was again discussed agreeing with the position
of Dr. Justice Tanzil-ur-Rehman, J. in the above referred cases:
“I am of the view that all
laws whether they be constitutional or sub-constitutional must yield
to the Sovereignty of Allah as reflected in the Holy Quran and Sunnah
and if there be a clear commanding that behalf it is that command
alone which has to be given effect to and all other legislation applicable
in this Islamic Republic of Pakistan must be construed as subordinated
thereto. Sovereignty over the entire universe vesting, as it does,
in Almighty Allah, is the cornerstone of the Constitutional
edifice of this Republic and the Injunctions of Islam, meaning thereby
Injunctions of Quran and Sunnah, as interpreted by a particular sect
in Islam in relation to the personal law of that sect and subject
to the status and personal laws of non-Muslims, are enforceable, as
such.”
In this case it was also held
that:
“The law of Allah does not
brook injustice of any kind and, therefore, whenever a case for payment,
for refund or return of money, comes before a Court of law in Pakistan
it has to be the endeavour of that Court to order the payment, refund
or return, as the case may be, of so much of current legal tender
to the person entitled as is equal, in terms of buying power or other
intrinsic value, to the amount initially, loaned out contracted to
be paid or deposited.”
However, Mr. Wajihuddin Ahmed,
J. held that as the legal tender had lost value, the amount to be
paid would be calculated based on the depreciation of the value of
the Rupee as compared with a basket of foreign currencies.
It was further observed:
“63.
This brings me to the crucial question as to how equity is to be done
between the parties. For obvious reasons no rule of thumb is
available to determine the extent of erosion, which the principal
sum due, and earlier decreed in this case, has suffered till the date
of payment, if any, or the decree. Such matter, as a rule involves
application of detailed accounting procedures, based on official data
on the subject. Simple decree on the basis of the afore quoted
statistics may not do. The case, therefore, in principle, calls
for a Preliminary Decree, if one can be passed under law. This,
however, does not imply that where smaller amounts or periods are
involved a given case cannot be disposed of on approximations.
64.
The relevant provision regarding Final and Preliminary Decrees is
contained in section 2(2) of the Code of Civil Procedure, 1908, which
provision defines such decrees. It is true that there are specific
provisions for Preliminary Decrees in Order XX, Rules 12 to 16 and
18 and in Order XXXIV, Rules 2 to 5 and 7 to 8 C.P.C., but the same,
in my view contain only examples in which Preliminary Decrees may
be passed and such Decrees can be passed, wherever the requirements
of a case so dictate, under section 2(2), C.P.C., which is the basic
provision in the Code in that behalf. I am fortified in this
view by the decisions in Dattatraya Purshotam Parnekar and others
v. Radhabai Balkrishna AIR 1921 Bom. 220, (Raja) Peary Mohan Mookerjee
v. Manohar Mookerjee AIR 1924 Cal. 160 and a Travancore Full Bench
decision reported in AIR 1953 T.C. 220.
65.
I would, therefore, grant in this case to the plaintiff a decree of
a Preliminary nature for assessment as to what was the equivalent
real worth of the money which was initially borrowed that is to say
of the sum of Rs.5,00,000 as payable on 20-5-1984, the amount and
date reflected, as they are, in the Promissory Note in suit.
For this purpose and in order to make accurate assessment I would
appoint a Commissioner to do the needful and for that purpose the
Commissioner would be entitled to seek assistance from the relevant
functionaries of the State Bank of Pakistan. Mr. A.K.M. Idris,
Advocate, of this Court is appointed such Commissioner and his fees,
tentatively, shall be Rs.5,000/-, which would be included in the Bill
of Costs. The Commission shall be returnable within three months
from the date this Preliminary Decree is transmitted to the learned
Commissioner.”
44.
Subsequently, however, a Division Bench of this Court, one of the
member of which was Mr. Wajihuddin Ahmed, J. in the case of Habib
Bank Ltd. v. M/s Farooq Comport Fertilizer Corporation Ltd. and 4
others (1993 MLD 1571) held that:
“Word ‘finance’, within the
meanings of section 2(e) of the Banking Tribunals Ordinance 1984 does
not involve any equivalent of interest and by its own force does not
carry returns beyond the stipulated period unless emanating in due
course of law or expressly covenanted, again within the framework
of law. In the relevant agreement, envisaging sale and purchase of
goods, no such term (finance) nor perhaps a term to that effect could
be improvised, the reason being that such an improvisation may have
exposed itself as a degenerative, relegating the transaction to one,
carrying interest. Patently, a provision for sale/ and repurchase
of the goods within period specified (Bai Muajjal), culminating on
repurchase, was calculated to advance the concept of trade and to
forestall the extension of interest. Such agreements were to be construed
in the light of Islamic Fiqh. The enforcement of Shariah Act, 1991,
lends support to such observations because that legislation declares
the Qur’an and Sunnah as the Supreme Law of the land and, if more
than one interpretations be possible, enjoins upon all Courts to interpret
statute-law in a manner consistent with Islamic principles and jurisprudence.
Relevant to the present case trade and commerce is to be encouraged
and Riba, correspondingly, eliminated. Banking Tribunal thus, acted
in accordance with law and within the parameters of the agreed stipulations,
when it disallowed any mark up beyond the period of the contract,
extending it only for the cushion period of specified days, which
covered the period between demand and default as well as period likely
to be consumed in the institution and conclusion of proceedings for
recovery.”
45.
The next question that has been raised is that BCD Circular No.32
does not strike down BCD Circular No.13. This was never the case of
any other person. However, Mr. Azizur Rehman tried to distinguish
the two whereby, he states that Circular 32 relates to charges by
the bank. He states that the said circular speaks of charges and that
therefore there is no nexus between BCD Circular No.13 and BCD Circular
32. He states, that it is stated therein that interest shall not be
charged on bank charges. I do not agree with the proposition of Mr.
Azizur Rehman. A careful perusal of the said circular shows that it
is in addition and furtherance to BCD Circular No.13 dated 20th June,
1984. There is a clear stipulation in the preamble to BCD Circular
No.32, that “Please refer to BCD Circular No.13 dated the 20th June,
1984.” The only thing that it changes is in Clause 3 of Circular 13
which gives the date of 1st April, 1985 to be a cut off date for financing
to individual whereas such date had been modified to 1st of January,
1985 in para 4 clause-4 of the Circular No.32. The power has been
exercised by the State Bank of Pakistan under the Banking Companies
Ordinance, 1962 stating that, from the 1st of January, 1985 interest
wherever is charged by a banking company / Development Financial Institutions
in any of the item of the bank charges would be replaced by non-interest
mode considering to be proper. It is this, ‘bank charges’ that
Mr. Azizur Rehman contends is to be ‘other charges’. The entire clause
has to be read for the purposes of understanding the provision. The
bank charges has been used in conjunction with replacement of an interest
free mode, here the bank charges would imply, all amounts charged
to the account which also included interest. It is thus, that the
subsequent portion of the said notification says, that overdue or
penal interest or mark up on mark up shall not be charged by a banking
company as from that date instead the bank shall take legal steps
to recovery the finance. There are two implications of this notification,
first being that of mark up on mark up and interest in any form
charged by a banking company shall cease from the 1st January 1985,
the cut off date. Secondly, that no future mark up on mark up would
be charged. The effect of this is that, where a default has been made,
the bank was required to take legal steps. A co-relation has been
developed between not charging mark up and proceeding to recover money
instead. Therefore, there was no question of renewal of a debt by
addition of mark up. It is important, therefore, to note that the
State Bank of Pakistan has taken a categorical view in this regard
and which is in fact a correct issue, that the banks in financing,
and where debt is created, cannot take any additional amount on such
debt. In taking additional amount it shall be deemed to be Riba which
is prohibited. It is thus, that the State Bank of Pakistan instructed
to the banks to institute proceeding for recovery. If the banks choose
to give additional time then, it will do so without charging any amounts.
The law when promulgated was very clear. Mr. Azizur Rehman says if
this court were to take a view that all mark up on mark up charged
from the first day has been unlawfully done, it shall be detrimental
to the banks. No doubt, such difficulty may arise, but then once the
banks are required to act in accordance with law, specially when the
change of law is so great that the entire system has been modified
and that, numerous discussions had been taken place which included
banks to arrive at the notification issued it will not lie in their
mouth to say that they were unaware of the correct prospect of the
law. Even if they were not aware from 1987 onwards the court had otherwise
held that such transactions to be unlawful. The banks should have
been taken cognizance of the judgments. Mr. Azizur Rehman has referred
to the SBP Circular No.BID(Gen) 2470/601-04-90 and said that BID Circular
No.3 dated 20.2.1989 regarding Prudential Regulations for loan classification
etc. was taken into account and that in connection with treatment
that was to be given to rescheduled loans and capitalization of mark
up, the State Bank had given guidelines. Instead in the guidelines
the mark up on mark up, according to him were required to be capitalized
and such is provided according to him in Section 6.2.4 of the rescheduling
and restructuring debts. Mr. Azizur Rehman has however chosen not
to read the first paragraph of the said guidelines. The entire regulation
has to be read to understand the import of the regulation. It reads
as under:
“6.1
Introduction
The bank’s borrowers may, at
times, face financial distress due to a number of reasons. This, in
turn, may lead to a situation where they are unable to service their
debt obligations as they fall due. In instances of this manner, the
Bank may, at its sole discretion, decide to offer financial reprieve
to such customers, with the sole aim of safeguarding its (the Bank’s)
own best interests.
After evaluation of available
options, it may be decided to grant reprieve in the form of rescheduling
or restructuring of the financial obligations of customers. One of
the prime considerations should be that:
‘The discounted expected monetary
value (EMV is the amount of cash flow times its estimated probability)
of inflows accruing to the Bank, in the event that financial reprieve
is granted, significantly exceeds the net (i.e. net of legal and other
expenses) present value of cash flow arising from liquidation of available
securities.’
The reprieve (or accommodation)
referred to, herein above, may involve modification of the terms of
the loan by:
Extending/amending the repayment
schedule
Reducing the rate of mark-up
Reduction the amount of accrued
mark up and/or principal
Extending further credit
And/or settlement of part of
debt outstanding by foreclosing on or transferring certain assets
to the Bank.
Normally such accommodation/reprieve
would be considered (by the Bank), if the borrower and/or sponsors
offer additional security, thereby strengthening the Bank’s position.”
46.
It will be seen from these guidelines that the banks were allowed
to reschedule or restructure of financial obligations and the method
was given i.e. extending or amending the repayment schedule, reducing
the rate of mark up reducing the amount of agreed mark up and/or principal
and extending the correct facility. Nowhere in the said circular has
it been stated that an additional mark up could be charged on a debt
for extending the time for payment. It is the mark up that has already
been charged for the purposes of arriving at a marked up price which
was allowed to be capitalized. Capitalization only brings it in the
line of the accounting system. Such was advised to the banks only
for their accounting purposes and nothing else. This circular has
been issued by the Central Directorate and relates only for the purposes
of classification of account else, if it is not allowed to be capitalized
a provision will be required to be made by the bank, that may cause
further loss to the banks. In the same guidelines, the restructured
loan has been defined as under:
“2.1 A “restructured”
loan is one whose terms and conditions of loan have been modified,
principally because of a deterioration in the borrower’s financial
condition, to provide for a reduction in interest rate or principal,
or a capitalization of interest accrued.
2.2
A ‘rescheduled” loan in which effective interest rate terms remain
unchanged from original terms, but principal repayment terms have
been extended because of project delays, is not considered a “restructured’
loan, as loan as interest continues to be serviced on time.”
47.
A careful analysis of this will also show that it provides a reduction
in rate or capitalization in the interest accrued. Accrual of interest
is in relation to the agreement entered into and nothing can be read
beyond such position. A perusal of clause 2.3 will show that a troubled
debt restructure has also been defined and various situations have
been catered for. In this also, there is no increase in the sums.
Reliance therefore by Mr. Azizur Rehman on this aspect will be a farce.
Had the State Bank not intended and the Government not wanting to
proceed under the Islamic System of Banking, the choice was open.
If they had opted to proceed, they cannot be allowed to beat about
the bush. Reliance therefore on the said regulation of the State Bank
is not only incorrect but seeking an interpretation which otherwise
is not available. Mr. Azizur Rehman also refers to BPRD Circular
No.9 dated 27th April, 2000 namely the Prudential Regulations. He
has referred to clause 3 of the same stating that the rescheduling
/ restructuring of non-performing loans shall not change the status
of classification of a loan/advance etc. unless the terms and conditions
of rescheduling / restructuring are fully met for a period of at least
one year (excluding grace period, if any) from the date of such rescheduling
or restructuring. This is only in respect of placing a defaulter on
the list of CIB and is nothing to do with the increase or decrease
modes. Mr. Azizur Rehman has placed reliance on the case of Hardware
Manufacturing Corporation (Pvt) Ltd. v. United Bank Ltd. in the Special
High Court Appeal No.187/1998 in which it has been held that :
“By execution of the finance
agreement dated 30.6.1994 original appellant’s liability on the basis
of original contract/agreement was extinguished and the same was substituted
by another finance agreement / contract through the valid documents
wherein the appellants acknowledged the stated sum therefore under
the new finance agreement the appellants would be liable under the
law of contract. Reference may be made to Abdul Qayoom v. Ziaul Haq
and another (PLD 1962 (W.P.) Karachi 334) and Gouri Dutt Ganesh Lall
Firm v. Madho Prassd and others (AIR 1943 P.O. 147).”
48.
This position has been discussed by me above, in which I had said
that this judgment is distinguishable from the present case. The facts
of the case no doubt relate to a ‘roll over’ of the facility but there
is no discussion as to whether the said agreements were in respect
of sale and purchase of commodity and if it were whether such subsequent
agreements carried a clause of such extension. Mr. Azizur Rehman referred
to the discussion in the said judgment stating that where the arguments
were that roll over was in practice on interest base banking and prohibited
by BCD Circular 13 dated 20.6.1984 issued by the State Bank of Pakistan,
the court had held that the parties having agreed or entered into
an agreement, the terms of the subsequent agreement will be applicable
notwithstanding the fact that it was a roll over and roll over in
fact, is an accepted custom.
49.
In another unreported case which has been cited by him is in the Special
High Court Appeals Nos.186 and 187/1998, Mr. Azizur Rehman stated
that the same position was taken up and the Division Bench of this
Court and had decided the matter that the old method of roll over
was in practice and therefore allowed. I am otherwise bound by the
judgment of the Federal Shariat Court as also the Appellate Bench
of the Supreme Court notwithstanding the distinction that I have drawn,
and therefore hold otherwise. In this I may refer to a judgment
of a division bench of the Lahore High Court being United Bank Ltd.
v. Ch. Ghulam Hussain (1998 CLC 816) where it has been held that:
“Significantly, the statement
of account filed by the appellant does not show any disbursement,
whatsoever, under these two agreements which have to be treated a
void, being without consideration. The supporting material of these
agreements i.e., D.P.C. Notes etc. (pages 483, 485, 487 and 489) also
suffer from the same fatal defect and cannot be looked into for holding
that respondents Nos.1 and 2 had incurred any financial liability
there under. We hold accordingly.”
50.
Mr. Azizur Rehman has referred to a judgment in the case of United
Bank Ltd. v. Central Cotton Mills Ltd. (2001 MLD 78) where according
to him, the said judgment allowed the interest. Mr. Azizur Rehman
probably has not understood the import of the said judgment. The import
of the said judgment is that all transactions that were entered into
prior to the first day of January, 1985 were required to be converted
into Islamic mode of financing as such, the same was allowed. Mr.
Azizur Rehman has referred to the discussion on the subject where
Mr. Mushtaq Ahmed Memon, J. (as he then was) had stated that the renewal
of loans subsequently also cannot attract the applicability of the
above referred circular issued by the State Bank of Pakistan since
renewal merely amounts to extension and the continuation in force
of the earlier agreement. No doubt such could be correct. This does
not say ‘increase in the quantum of loan’, but is an extension in
the time for payment of the initial agreement. He also places reliance
on this judgment to say that BCD Circular No.32 does not strike done
BCD Circular No.13. Mr. Azizur Rehman should have read the last portion
of that notification where Mr. Mushtaq Ahmed Memon, J. (as he then
was) has held that “in the circumstances, the contention to the effect
that the fixed loan was granted on mark up basis does not inspire
confidence.” Likewise the assertion that the interest based facility
could not be continued or renewed after BCD Circular No.13, is equally
without force. True, that the interest based facility could be renewed
and such is provided in Circular 13 but this judgment does not say
that an amount could be added to the said debt that is, due and payable.
The contention therefore also does not have any force. In fact the
same learned Judge in an Order passed in Suit No.1659 of 1999 observed:
“Having considered the submissions
of the learned counsel, I cannot resist expressing doubt about the
validity of the fresh agreement between the parties as is asserted
by the learned counsel for defendant on the basis of correspondence.
Even if the parties had settled fresh terms in novation of agreement
dated 23.5.1996, the same appear, tentatively speaking, to be violative
of the Quaranic Injunctions restraining a creditor from taking advantage
of a debtor to make repayment within the agreed time.”
51.
Mr. Azizur Rehman has referred to the novation of the contract. The
contract stand novated according to him after a new contract has been
entered into. There is no cavil to this proposition, but in the present
case this is not what is being sought. What actually has been sought
is that whether such an agreement could at all be entered into and
if so, whether any amount could be added. In my view it is only the
extension by addition of mark up by the bank to arrive at a restructured
documents. Mr. Azizur Rehman has relied on the judgment of Bank Indosuez
v. Banking Tribunal for Sindh and Baluchistan and other reported in
1994 CLC 2272 and states that when there is a novated contract, that
contract has to be looked into as a fresh contract to determined whether
the same was in conformity with the definition as given under Section
2(c) of the Banking Tribunal Ordinance, 1984. He refers to the following
passage of the said judgment:
“…… A fresh agreement was entered into by a document whereby the defendant
acknowledged that a sum of Rs.10,000 was due from him to the said
firm which formed the consideration of the agreement entered into
between him and the plaintiff. It was held by a Division Bench of
this Court that under the new agreement the liability of the defendant
under the original contract was completely extinguished and there
was a fresh contract substituting the old contract by introducing
new busi8ness and it was in the nature of novation of a contract within
the meaning of Section 62 of the Contract Act. In S. Sibtain Fazli
v. Star Film Distributors (PLD 1964 SC 337) the above principle was
re-affirmed by Hamoodur Rehman, J. In the following words:-
“It is an essential element of novation, when new contracting parties
are substituted, that the rights and obligations of original contractors
shall be extinguished and the right and the liabilities of new contracting
parties accepted in its place.”
He states that the old contract
by introducing the new agreement was in the nature of novation of
contract within the meaning of Section 62 of the Contract Act. There
is no cavil to this well established principle but the question that
has to be looked into, is whether any act has been done by the bank
whereby, an existing law has been avoided. Where the rights of parties
have altered, and a valid contract alters rights of a previous agreement,
the arguments would have been valid. This is not the case here. Subsequent
agreements do not change the previous agreements. There is no mention
or reference of the previous agreements. The only document shown is
a Sanction Advice, which is an internal document of the bank. The
document could be seen only to what was approved by the bank. The
agreement overrides all arrangements. The sanction advice, in the
presence of the agreement, viz-a-viz the customer cannot be construed
to be adverse disadvantage to the customer. The agreement is the document
signed by both, the contents of which have to be seen. The question
whether where a law categorically disallows mark up on mark up, can
an agreement cause it to be charged, or could any act be done by the
parties to the agreement by which mark up is added, or mark up on
mark up is included to a marked up price. If not, could this agreement
be a valid contract. Mr. Azizur Rehman has referred to the Prudential
Regulation in Regulation No.XVI prohibits window dressing which reads
as under:
“REGULATION-XVI
WINDOW DRESSING
1.
All banks are directed to refrain from adopting any measures or practices
whereby they would either artificially or temporarily show an ostensibly
improved position of banks accounts as given in their Balance Sheets
and Profit and Loss Accounts specially in relation to its deposits
and profit. Particular care shall be taken in showing inter-branch
and inter bank accounts accurately and strictly according to their
true nature.”
52.
A careful perusal will show that the banks have been restrained from
adopting any measures or practice whereby they, either artificially
or temporarily show an ostensibly improved position of the bank account.
The addition of mark up is added towards the assets of the bank which
gives an ostensible improved position of the bank accounts which cannot
be allowed. Otherwise also, it is established principle of law that
what cannot be done directly cannot be done indirectly. It is also
a very established principle of law that any contract which is of
such a nature that, if permitted it would defeat the provisions of
any law, or which is contrary to public policy is a void agreement.
53.
It will thus have to be seen as to what provisions of law would be
defeated if such an agreement is entered into. The law in the notification
by way of circulars, being BCD Circulars Nos.13 and 32 issued in 1984.
The Circulars have been discussed above. Suffice to mention that the
agreement which seeks to add and cause an additional amount to be
paid in respect of some previous agreement is nothing but a manner
to avoid the restrictions imposed by BCD Circulars Nos.13 and 32.
It is clear that no markup on the marked price could be charged on
the said agreement entered into initially. If it could be, the banks
could have utilized the provisions of Section 79 of the Negotiable
Instruments Act. The same has since 1985 never been invoked. The new
documents approved and utilized by the bank, utilize the D.P. Note
where no rate of markup is mentioned. It is only the repurchase price
that is stated. The new subsequent agreement is nothing but to avoid
the restriction imposed by law. The other question which needs to
be elaborated is the validity of subsequent contracts that have been
entered into where the actual sale has not been made. I shall discuss
this subsequently herein.
54.
The other question is as to what is the ‘public policy’, and such
will have to be looked into. The Constitution of the Islamic Republic
of Pakistan is the basic document on the touched stone of which all
laws have to be looked into. The preamble of the Constitution WHEREUNDER
“the principles of democracy, freedom, equality, tolerance and social
justice as enunciated by Islam shall be fully observed.” Article 2
states that Islam shall be State religion of the Pakistan. Article
2-A incorporates Objective Resolution as reproduced in the annex to
the Constitution. Article 38 also clearly stipulates that the State
shall eliminate Riba a early as possible and Article 227 clearly state
that the existing laws have to bring in conformity with the injunction
of Islam as laid down in the Quaran and the Sunnah. In view of the
provisions of the Constitution in fact, even prior to this, right
from the days when this country achieved independence that it was
clear that all laws were liable to be promulgated which were and ought
to have been in accordance with the Holy Quran and the Sunnah. I have
already dilated at length on this issue and shown the quantum
of work that has been carried out for such purposes. The policy has
always been that, all laws, practices and procedures would be in accordance
with what is provided in the Quran and Sunnah. In fact, BCD Circular
No.13, the preamble also states that the banking system was to shift
over to the Islamic modes of financing, such is the public policy.
After the law has been brought in conformity with the Holy Quaran
and Sunnah, way and methods are being employed by the bank to continue
the previous usurious Banking Practice, despite the fact that the
law has been Islamised in accordance with the Constitution of the
Islamic Republic of Pakistan. Such a practice that is sought to be
developed by the banks is a fraud on the Islamic provisions. No one
can be allowed to play a fraud on the existing law by trying to avert
the existence of such law that prescribes that mark up on mark up
cannot be charged. The act of entering into a future transaction admittedly
is in respect of renewal of financing and does not contain any aspect
of actual disbursement or payment. Such contracts are contracts that
are against the public policy.
55.
When one is talking of novation of contract it will be seen as to
what is the aim for novating the same. The position will have to be
seen in its true, proper and correct perspective. The agreement for
financing as is termed by the banks is nothing but an agreement of
sale and purchase of tangible properties, goods or commodities. Once
the goods are purchased by the bank, the bank makes a payment for
the purchase of the goods which according to the agreement is termed
as the ‘sale price’. The goods are thereafter sold to the customer
and such sale is the resale / repurchase on a marked-up price. There
are, therefore, two distinct transactions under the said single agreement.
The first being the purchase by the bank for consideration. It is
at this juncture that the ‘sale price’ is disbursed to the seller
namely, the customer. This is the amount that the bank say is the
‘finance’ or the amount to be paid to the customer. The second is
in respect of resale by the bank to the customer but such is the actual
Murabaha transaction/Bai Muajjal. Thus before entering into this transaction,
the bank has to be the owner of the goods/property being sold to the
customer. It is thus the first transaction that is entered into. After
sale to the Bank, and the bank paying the sale price, being the ‘consideration’
of purchase by them of a defined good/property/commodity, they can
by the ‘Bai Muajjal’ transfer that title to the customer, that they
have acquired by purchase of the said property. It is a well established
principle of law that no one can transfer a title, better that what
he has. Thus the sale is concluded between the bank and the customer
upon such purchase price as may be agreed, the repurchase price. It
is this price, which is liable to be paid by the customer on deferred
payment. After the second transaction, i.e. the sale by the bank to
the customer is concluded, the contract of sale and purchase is finalized,
the bank becomes an unpaid seller whereby the purchaser is liable
to pay the repurchase price. This the purchaser (customer) is indebted
to the bank for the repurchase price payable within the period prescribed.
Thus repurchase price becomes the debt. Thus the only thing required
under the said agreement is recovery of debt, the goods having been
sold and consumed by the customer. Such is the loan or debt. Therefore,
a clear distinction between the agreement entered into and the debt
paid or payable therefor is to be looked into. Once the debt has been
determined the contractual obligation under the agreement is concluded
and it is the debt now that becomes payable. The amount will be the
liability of the customer and such cannot be increased by addition
of any mark up. A perusal of Section 23 of the Contract Act categorically
states that consideration or object of an agreement is lawful unless
it is of such a nature that if permitted, would defeat to provision
of any law. A subsequent agreement whereby, there is a settlement
of previous debt or is renewal thereof shall in fact amount to defeating
the provision of the specific law available. Such will not be novation
but an independent agreement contemplating an actual sale and purchase.
Such an agreement entered into only for renewing the previous debt
shall be a void agreement. The position in law is absolutely
clear. I had also referred to the clear instructions of the State
Bank in Regulation XVI above. Such renewal will only be Window Dressing
and that all profits shown will be nothing but added mark up. Mark
up cannot be allowed to be added on an ‘existing debt’, as there can
be no agreement between the parties in respect of that ‘specific debt’
except that there could be enlargement of time, and that too without
increase in the debt payable.
56.
The subsequent agreement technically would have no nexus with the
previous agreement in which a debt had been created. It is a fresh
agreement. An agreement by which fresh commodities, goods or articles
are to be sold or purchased, therefore, when goods are sold under
the fresh contract there shall be consideration by actual and physical
payment in the statement of account and not merely adjustment stating
that an amount is due and therefore, the bankers can exercise lien.
A lien can only be exercised on a credit in the account of the bank
to set off a liability and not by additional credit to set off to
the previous debt. A debit will not be a credit of the customer and
where it is not a credit of the customer, Section 171 of the Contract
Act shall not apply. Section 171 clearly stipulates that a banker
in the absence of a contract shall have right to retain a security
for such balance goods (bailed to them). A loan or finance or debt
given to a customer shall not be an amount or goods bailed to the
banking company as such, no right can be claimed.
57.
The subsequent agreement does not have any stipulation that there
could be a set off by a subsequent finance. Even if it were there,
the question would be that such an amount could be where a mark up
has been added thereon for the purposes of adjustment of marked-up
price. I am of the considered view that such cannot be done. The argument
therefore that the subsequent agreement is a novation and that once
a contract is novated the previous contract cannot be looked into
is not correct in the present scenario.
58.
If it is presumed for the sake of argument that the last agreement
that had been entered into is the agreement on the basis of which
the amount due is payable by the defendants/customers then we will
have to look into the contract itself. Admittedly, the contract is
one of sale and purchase of commodities. In the circumstances it shall
be governed by the Sales of Goods Act, 1930. Sale is defined in Section
4 which reads as under:
“4. Sale and agreement to sell.---
(1) A contract of sale of goods is a contract whereby the seller transfers
or agrees to transfer the property in goods to the buyer for a price.
There may be a contract of sale between one part-owner and another.
(2) A contract of sale may
be absolute or conditional.
(3) Where under a contract
of sale the property in the goods is transferred from the seller to
the buyer, the contract is called a sale, but where the transfer of
the property in the goods is to take place at a future time or subject
to some condition thereafter to be fulfilled, the contract is called
an agreement to sell.
(4) An agreement to sell becomes
a sale when the time elapses or the conditions are fulfilled subject
to which the property in the goods is to be transferred.”
It will be seen that a distinction
is created in ‘Sale’ and ‘Agreement of Sale’. A contract of
sale is, where the seller transfers or agrees to transfer the property
in the goods for a price and such could be absolute or conditional.
Sub-Section (4) of Section 4 of the Sales of Goods Act above states,
that the ‘Agreement of Sale’ becomes a ‘Sale’ when the time elapses
or conditions are fulfilled subject to which the property in the goods
has to be transferred. It clearly implies that there has to be conclusion
as to the transfer of property in the goods which is the principal
element of sale. This Act also came under scrutiny by the Shariat
Appellate Bench of the Supreme Court in the case of Islamic Republic
of Pakistan v. Public At Large (supra) and in the judgment in
the case of Federation of Pakistan v. Awamunnas (1988 SCMR 2041) that,
a contract of ‘Sale’ or ‘Ijarah’ of a commodity shall only be valid
where the ‘commodity’ is in existence and that there has to be a transfer
of such property. Whilst dealing with the concept of ‘agreement
of sale’ it was stated that where the goods did not exist, the Islamic
Injunctions do not recognize such agreement. Sale cannot take place,
but an Agreement of Sale can be entered into and this agreement is
not a complete ‘Sale’ of ‘Goods’. The sale will only accrue when the
commodity is transferred to the purchaser or consideration thereof
has been paid. From the principle laid down we see that the agreement
which is a subsequent one does not have the ingredients of a sale
and at best be treated an ‘Agreement to Sell’. such agreement can
possibly be specifically enforced whereby, the purchaser may seek
direction against the seller upon payment of actual consideration
to sell his property, but if such is not done the purchase price /
repurchase price mentioned in the said agreement will not, be taken
to be a debt payable by the purchaser. If money has actually been
transferred or handed over to him there are only two possibilities,
one is the transfer of the property for which money had been given,
or the return of the money that had been given to him. The customer
will therefore only be liable to the extent that was actually paid
to him. If there was damage caused due to the refusal to sell the
commodity if there was one, then such shall be required to be proved.
The judgment of the Supreme Court was delivered in 1988 has also been
reaffirmed in the judgment of Dr. M. Aslam Khaki. I am also of the
same view and either where the resultant would be that it is the principal
amount that was actually paid would become due but where there is
a sale, the sale price has been transmitted and resale is made, the
resale price will be payable by the defendants to the plaintiff.
It is well settled principle of law that parties cannot contract out
of the provisions of the Act. See in the case of Waman Shriniwas Kini,
v. Ratilal Bhagwandas and Co. (AIR 1959 SC 689) it has been held that
an agreement to waive an illegality is void on the ground of public
police. Similar views have been taken in the case of Anayat Ali Shah
v. Anwar Hussain (1995 MLD 1714).
59.
We now come to another question, i.e. whether an agreement without
consideration is a valid agreement. Section 25 of Contract Act reads
as under:-
“25. An agreement made
without consideration is void unless—
(1)
it is expressed in writing and registered under the law for the time
being in force for the registration of documents and is made on account
of natural love and affection between parties standing in a near relation
to each other, or unless
(2)
it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do, or unless
(3)
it is a promise made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that
behalf, to pay wholly or in part a debt of which the creditor might
have enforced payment but for the law for the limitation of suits.
In any of these cases such
an agreement is a contract.”
The subsequent agreements of
finance are not covered by the exception to the general principle,
that an agreement without consideration is void. Section 24 of the
Contract Act reads as under:
“24. If any part of a
single consideration for one or more objects, or any one or any part
of any one of several considerations for a single object, is unlawful,
the agreement is void.”
It will be seen that if any
part of a single consideration is unlawful the agreement is void.
60.
I have discussed the unlawful act. Thus the agreements made subsequently
with an aim to avoid and defeat the provisions of the law of not charging
markup on markup is void.
61.
The question of disbursement has also been dealt with above. It was
argued that there is no need of actual disbursement and that debt
could be deemed to be disbursement. Reliance is placed on the Judgment
of Moudood Ahmed Farooqui v. Ameen Fabrics (PLD 1983 Karachi 176),
in which it has been held that ‘debt’ means an obligation and liability
to pay or return something owed by one person to another. There is
no cavil to this very settled principle that a debt is liability of
the person and the reliance on this judgment is not incorrect. The
position is what has been stated is that such is liable to be paid
to the creditor as such a fresh loan which is given will be that of
the customer and from which he clears a previous debt. One is amazed
at this argument. This is nothing but a fraud on the statute. Once
it is a debt in respect of one agreement it will be a debt in respect
of the other agreement also and a liability, therefore, saying that
from a finance obtained, it being a debt, a previous debt can be set
off has no place. In the said judgment the question was in respect
of the dividend declared and not paid to the shareholder, dividend
declared becomes the property of the debtor. Debt does not become
the property of the shareholder. In the circumstances the case is
distinguishable from the present case.
62.
The last point that was argued by Mr. Azizur Rehman was that
the judgment in the case of Dr. M. Aslam Khaki v. Mohammad Hashim
reported in PLD 2000 SC 25 is operative from 30.6.2001 and the present
laws will continue to be valid till that date. There can be no cavil
to the proposition that all laws that are in conflict with the Islamic
provisions shall remain valid only upto 30.6.2001. BCD Circulars Nos.13
& 32 have not been declared to be in conflict with the Islamic
provisions. What has been said by the said judgment of the Honourable
Shariat Appellate Bench of the Supreme Court of Pakistan is that all
laws or part thereof that have been declared to be against the injunctions
of Islam shall be changed and modified by 30.6.2001 whereafter they
shall become invalid and not be acted upon.
63.
Further to the question that has now been raised is that the judgment
of Dr. M. Aslam Khaki shall apply prospectively and not retrospectively.
High Court is bound by the decision of the superior courts under Article
189 of the Constitution of the Islamic Republic of Pakistan which
reads as under:
“189. Decision of Supreme Court binding on other Courts. Any
decision of the Supreme Court shall, to the extent that it decides
a question of law or is based upon or enunciates a principle of law,
be binding on all other Courts in Pakistan.”
Thus, it is clear that the
decision of the superior courts namely the Supreme Court is binding
on the High Court. In fact, the order of the Shariat Court is also,
under Article 203-GG subject to Article 203-D and 203-F binding. The
judgment by the Federal Shariat Court was announced in 1992, however,
such remained stayed during the period of appeal which was finally
decided in 2000. The argument is that as the appeal had remained stayed
therefore, it is the judgment by the Supreme Court from which date,
it shall be acted upon. What the learned counsel have not looked into
is that there are two specific points in the said judgment, be it
before the Federal Shariat Court or the Honourable Supreme Court.
One is that reliance to the specific laws that were being discussed
and admittedly, the laws of banks except Section 79 of the Negotiable
Instruments Act, Section 25 of the Banking Companies Ordinance, Rule
9(2) & (3) of the banking Companies Rules, Section 22(1) of the
State Bank Act, 1956 and Section 8(2)(a) & (b) of the Banking
Companies (Recovery of Loans) Ordinance, 1979 were before the Court.
None of these except Banking Companies (Recovery of Loans) Ordinance,
1979 related to the charge of mark up and mark up on mark up. In that
law namely, the Ordinance, 1979 there was only the charge of ‘interest’
and was prior in date when the BCD Circulars Nos.13 and 32 came into
existence. In fact, BCD Circulars Nos.13 and 32 changed the entire
law, its perspective and modes and methods of banking converted them
into trade related modes. Loans were only treated to be given without
any mark up and increase except for service charges. BCD Circular
No.13 categorically states that no mark up on mark up shall be charged
and it is well settled principle that nothing can be done indirectly
what cannot be done directly. In this regard, Mr. Azizur Rehman had
cited two latest judgments that this indirect process namely, entering
into future mark up in the case of Mst. Aisan v. Manager, Agricultural
Development Bank of Pakistan, Chunian (2001 CLC 57) and Muhammad Ramzan
v. Citibank N.A. (2001 CLC 158). The first one being the judgment
of the learned Single Judge of the Lahore High Court and the other
being a judgment of a Division Bench one of which Judge was the same
as who delivered the first judgment. Both the aforesaid judgments
are in fact distinguishable in that, they are dealing with Section
15 of the Banking Companies (Recovery of Loans, Advances, Credits
and Finances) Act, 1997 which provides for mark up on decree from
the date of the institution of the debt till payment. What their lordships
had observed is that the judgment of the Supreme Court in the case
of Dr. M. Aslam Khaki will for that purpose act retrospectively. In
fact a history of the introduction of the provisions of mark up during
the period it remained in the court it seems would be, that such was
in court and the delay could not be ascribed to the creditor who could
not be penalized because of delay of the court. Such had not been
considered by the Council of Islamic Ideology as such, it was not
provided in BCD Circulars Nos.13 & 32 these provisions not being
there, their lordships were absolutely correct in holding that the
provisions of Section 15 in the Act, 1997 will only be applicable
from the date of the judgment and not retrospectively. The difference
and distinct feature in the application of the judgment of the Supreme
Court to the present case is that, the said two Circulars having not
been declared to be void or ultra vires they, therefore, having been
held to be intra vires, will remain in force from the date they were
promulgated. According to the doctrine of stare descisis the
precedent in the case of Dr.M. Aslam Khaki gives the authority of
established law. The cases earlier decided by the High Court and upon
application of the same doctrine would result into the effect that
it would be presumed that the courts gave decisions with all possible
care and consideration and had not acted per incuriam. What is binding
on the other courts under the present Article 189 is the ratio of
the decision of the Supreme Court and not any finding or conflict
of opinion of the court or any question which was not required to
be decided in a particular case. In the present case also a similar
situation has occurred whereby the decision of the court is in respect
of certain laws that have been specified and will not effect the laws
that are in existence but the ratio of the decisions which is based
on the Quaran and Sunnah and its application will remain binding.
For the purposes of looking into as to what is the scope of the jurisdiction
of the Federal Shariat Court we need to read sub-Article (a) of Article
203-D which reads as under:-
“203-D. The court may, either of its own motion or on the petition
of a citizen of Pakistan or the Federal Government or Provincial Government,
examine and decide the question whether or not any law or provisions
of law is repugnant to the Injunctions of Islam as laid down by the
holy Quaran and Sunnah of the holy Prophet (PBUH) (hereinafter referred
to as the ‘Injunctions of Islam’).”
(underlining is mine)
Thus, the Federal Shariat
Court will examine only such question of law or provisions of law
that are repugnant to the injunctions of Islam. Reasoning or ratio
for arriving at the same will however, remain applicable. The banking
system had been converted into Islamic form in 1985. It was not held
to be against the injunctions of Islam. This court has to only see
that whether the manner in which an agreement had been entered into
or otherwise is within four corners of laws laid down by the BCD Circulars
Nos.13 & 32. This court for the purposes of looking into the law
which is valid and existing shall remain bound by the ratio given
in the case of Dr. M. Aslam Khaki. It shall not be that such case
is being acted upon retrospectively. In the case of Sakhi Muhammad
v. Capital Development Authority (PLD 1991 SC 777) it was held that
“decision would not have the effect of altering the law from the date
of its announcement / commencement so as to render void all decisions
made by the subordinate courts or authorities made in the light of
the earlier interpretation.” The position is that application
of interpretation continues to be on the basis of earlier judgments
which were announced as early as 1987. Dr. M. Aslam Khaki’s
case (supra) confirms the earlier view.
64.
The position is that BCD Circulars Nos.13 & 32 are the consequences
of the reports of the Council of Islamic Ideology provided for the
furtherance of Islamic financing where mark up on mark up has been
stated to be un-Islamic and usurious. Riba was disallowed and that
because of such disallowance it was in the line with the arguments
put forward for the purposes of Islamic financing. In fact, the judgment
of the FSC as also the Honourable Shariat Appellate Bench of the Supreme
Court of Pakistan have not in any manner held that the law as was
enacted is against the injunction of Islam. What has been said is
that the bankers have not acted in accordance with law in force. It
has also been said that the manner in which Murabaha / Bai Muajjal
transaction though lawful transaction have been misapplied by the
banks. Misapplication of the law was by the banks. Even if it is held
that the said judgment shall be applicable from the date provided
therein, the ratio of the case for the purposes of determined and
deciding cases shall be applicable on a valid and operative law from
the date of the enactment. The definition shall remain applicable
from the date when the law came into force. It is not a case where
any law has been declared to be ultra vires. I am aware of the well
settled principle that where a law has been declared to be ultra vires,
the declaration shall act prospectively and not retrospectively. This
is a case where the law has been held to be valid, proper and intra
vires. In such a situation where a law has been declared to be intra
vires, it is only the interpretation of the specified law that has
to be taken into account. It cannot be said therefore that this judgment
will act prospectively. This judgment only acts to clarify an existing
valid law. Even otherwise, this appeal is from the judgment in the
case of Mehmoodur Rehman Faisal (supra). This case decided along with
many other cases the point in issue. However, in the Supreme Court
the leading case came to be the case of Dr. M. Aslam Khaki as such
there the case is known by that name. The banks should have anticipated
actions and should have protected themselves after the earlier judgment.
Appeals may been filed, but any decision could have been forthcoming.
The banks were aware of the factum from 1987 onwards when markup on
markup was declared against the injunction of Islam by the High Court.
Taking refuge therefore, behind the judgment that it shall be applicable
from June, 2001 is not correct. No one can be allowed to make a mockery
of a legal process, the Islamisation and the provisions of the Islamic
modes of transactions/financing. It seems that the law introduced
in 1985 was taken by the banks as only a change in the name and as
such, continued as if they were charging interest. The banks had thus
made a mockery of the law by avoiding and creating legal fictions.
The concept never changed. Even today during the course of arguments
the question of lending on mark up basis is being spoken. From this
it is clear that even today the law is being utilized only as a garb
or screen to protect themselves. Laws having been Islamised one needs
to understand that they have to be interpreted and acted upon in the
manner as they are. They have to be acted upon in the manner they
are required to be acted upon and cannot be extended or transformed.
In fact it has been observed that “ the Superior Courts of Pakistan
have in large number of cases applied the Islamic teachings and philosophy,
when the statute law is silent about a situation, the field is unoccupied,
so to say, a statutory void is to be filled, or the court has discretion
to follow one of the several courses, one of which is more in accord
with muslim jurisprudence. Such was held by the Hon’ble Supreme Court
has held in the case of Muhammad Bashir versus The State (PLD
1982 SC 139), that such a void has to be filled up by Islamic
Common Practice and provisions. The banks chose otherwise. In the
case of Fazal Ghafoor v. Chairman Tribunal Land Disputes (1993 SCMR
1073), it has been held “when there is a vacuum on question of law
left by statutory silence, the prevailing mode having full constitutional
support, would be that of Islamic Common Law”.
65.
Mr. Ejaz Ahmed has also argued in detail, most of which have been
dealt with and covered by the discussion above. However, the important
aspect that needs to be seen is with regard to the argument that has
been advanced by Mr. Ejaz Ahmed about the concept of mark up on mark
and the renewal. Mr. Ejaz states that the marked up price is an agreed
consideration and that if such price is not paid the remedy available
to the bank to seek recovery. This is a correct proposition. He further
says that mark up on marked up amounts to recovering the opportunity
cost of money which is not permissible under the Islamic mode of financing.
This is also correct. On the basis of this, subsequently, Mr. Ejaz
Ahmed dealt with the question of renewal and distinguished the renewal
by way of adjustment and continuing facility on a revolving basis.
As far as the adjustment is concerned, he states that the amount of
sale price is credited to the customer’s account and is set off against
the existing liability of the customers on account of the facility
originally granted and therefore accounts operates on a revolving
basis. As far as continuing facility, he states that the adjustment
as stated above, does not take place and the account continues to
operate on a revolving basis and in fact, he states that this is an
established practice in the banking industry and the customer are
aware of this mechanism. He states that such a mechanism is beneficial
for customers and it allows to customers to withdraw the amount within
the amount of facility at any time and repay the sale as and when
the excess money is available to him during the currency of the facility.
He states therefore customer benefits from the fact that the mark
up is charged only on the outstanding. He states that if the mark
up facility is strictly construed to mean that the bank is only obliged
to disburse once, then according to him the finance becomes more expensive
for the customers as, once the full amount of finance facility is
availed the customer will be charged mark up on the full amount. The
excess liquidity of the customer will remain lying in the current
account with no profit. I do not agree with this proposition. This
proposition presupposes dealing in money and mark up on the money.
The concept that has been evolved is that the purchase is made by
the bank and it is the sale price which is actually disbursed, the
repayment is the repurchase price and it is the price that is fixed.
There is no concept of addition of further sums by elapse of time.
The consideration for the actual sale has to be made by the bank to
the customers and has to be done so in its entirety. The customers
will be in his right to withdraw the entire amount or to leave any
sum in his account. He will be in his right to transfer this amount
to saving account or otherwise. Money being the consideration for
sale would therefore be required to be transferred to the customer.
The second portion of the agreement as discussed above, is the actual
finance agreement which in fact is a Bai Muajjal. ‘Bai’ meaning sale
and ‘Muajjal’ meaning upon deferred payment. This Bai Muajjal or Murabaha
transaction is that, the bank having purchased as resold this commodity
at a higher price to the customer. At this point, the customer is
not required to pay the sale consideration but what is required is
to do so within the specified period at an agreed repurchase price.
The consideration for the sale of the commodity by the bank to the
seller cannot be adjusted against this repurchase price as, it is
Bai Muajjal the payment is deferred. The consideration for the resale
by the bank to the customer is a contract between the two and such
becomes a debt. This debt is therefore only liable to be paid by the
customer. There is therefore no question of a revolving facility.
It is the amount that is available with the customer being the sale
consideration of the sale made to the bank. This amount can be utilized
at the wish and whims of the customer. I am therefore not convinced
that the transactions as stated by Mr. Ejaz are in true spirit the
financing as provided under BCD Circulars Nos.13 and 32.
66.
The next question therefore is whether the purchase price can be increased
and which has been answered by Mr. Ejaz saying that it depends on
the meaning ascribed to the word ‘increase’ and accordingly the increase
in the purchase price has been classified as (a) where the increase
is not permissible; (b) where increase has been permissible. In the
first classification he states that mark up on overdue instalment
where the finance facility is payable in instalment and due dates
of instalments are specified in the agreement and where mark up on
overdue amounts in the cases of lump sum payment agreements no increase
can be allowed. He states that however increase would be permissible
in specific transactions namely the mark up is to be booked by the
banks on accrual basis or where there is a fresh sanction or the renewal
of the working capital or where there is a restructuring or rescheduling
of liability. I will also not subscribe to this view. What cannot
be done directly cannot be done indirectly. It is also a well settled
principle that if a certain thing has to be done in a certain manner
it has to be done in that manner and no other. I have already discussed
above, that markup in itself is only restricted for the purposes of
arriving at the repurchase price and once such is arrived at the amount
of repurchase price becomes the debt, therefore, there could be no
question of separation of mark up. The mark up has to be capitalized
which is also provided in the Prudential Regulation. Unless such mark
is capitalized the repurchase price cannot be determined. Thus, if
the mark is capitalized and added to the principal amount (principal
meaning the sale price) and having arrived at the repurchase price
any increase by way of renewal, capitalization, booking on accrual
basis or by any means will be nothing but addition of mark up on mark-up.
67.
In a Hadis narrated by Abdullah ibn Abu Qatadah reported in Book 9,
Number 3795 of Sahi Muslim the following was said:
“Abu Qatadah demanded (the
payment of his debt) from his debtor but he disappeared; later on
he found him and he said: I am hard up financially, whereupon he said:
(Do you state it) by God? By God. Upon this he (Qatadah) said: I heard
Allah’s Messenger (PBUH) said: He who loves that Allah saves him from
the torments of the Day of Resurrection should give respite to the
insolvent or remit (his debt).”
The concept of increase n money
rational to time cannot be allowed. In another Hadis narrated
by Uthman ibn Affan reported in Book 8, Number 3849 of Sahih Muslim
the following was said:
“Allah’s Messenger (PBUH) said:
Do not sell a dinar for two dinars and one dirham for two dirhams.”
In another Hadis narrated by
Abu Sa’id al-Khudi in Book 9, Number 3854 of Sahih Muslim the following
was said:
“Allah’s Messenger (PBUH) said:
Gold is to be paid for by gold, silver by silver, wheat by wheat,
barley by barley, dates by dates, salt by salt, like by like, payment
being made hand to hand. He who made an addition to it, or asked for
an addition, in fact dealt in usury. The receiver and the giver are
equally guilty.”
In another Hadis on this subject
narrated by Abu Hurayrah in Book 9, Number 3856 is as follows:
“Allah’s Messenger (PBUH) said:
Dates are to be paid for by dates, wheat by wheat, barley by barley,
salt by salt, like for like, payment being made on the spot. He who
made an addition or demanded an addition, in fact, dealt in usury
except in case where their classes differ. This hadith has been narrated
on the authority of Fudayl ibn Ghazwan with the same chain of transmitters,
but he made no mention of (payment being) made on the spot.”
68.
From the above, it will be clear that any increase or difference in
the value thereof will be usurious and will come within the definition
of ‘Riba’. I am not inclined to grant such increase.
69.
In view of the above, I am of the considered opinion that once the
agreement has been entered into and the repurchase price determined
there can be no renewals by increasing the debt. If there is a renewal
or restructuring nothing can be added to arrive at extended figure.
The question that needs therefore to be answered is what will be the
amount payable by the defendant/customer of the banks. If they have
entered into a subsequent agreement or addition of mark up thereon,
I have already held that subsequent agreements are void. The bank
can only seek recovery of the amounts of the marked up price under
the first agreement. However, if the bank is able to establish the
fact that the amount has been actually disbursed under the subsequent
agreement and it is not for the purpose of adjustment of the previous
debts and that there has been a defacto sale and purchase in commodity
in that situation all agreements that may have been entered into for
such purposes and independent of the previous agreements can be looked
into and money shall be recoverable there-against. Every agreement
will therefore have to be proved. For this evidence needs to be led.
If the bank has chosen to extend the time for repayment of the amounts
given it cannot increase the sum. Naturally if extension is given
there is a consideration that he is unable to pay at that point of
time. If there is delay in the repayment of the debt, the banks shall
be free to proceed to recover the amount of loss caused to them by
such delay. This however shall be required to be proved. In the case
of Dr. M. Aslam Khaki the Honourable Shariat Appellate Bench of the
Supreme Court of Pakistan has observed that:
“… If the purchaser could not
pay at the due date because of his poverty, the Qur’anic command is
very clear that he should be given more time till he is able to pay.
The Holy Qur’an says:
And if he (the debtor) is poor,
he must be given respite till he is well-off. (2:280).
However, if the purchaser has
delayed the payment despite his ability to pay, he may be subjected
to different punishments, but it cannot be taken to be a source of
further ‘return’ to the seller on per cent per annum basis as contemplated
in Section 79.”.
70.
What has been stated is that agreements that have been entered into
on a subsequent date will be the only agreement that can be looked
into and all agreements that have concluded by elapse of time shall
be deemed to be past and closed transactions. I do not agree with
this view. Admittedly, the bankers have chosen to reform or rename
the transactions though, it continues to emanate from one single account.
If the account is the same it will be seen that the certain amount
was due and payable on a certain date and remained unpaid. It is this
debt that continues in the subsequent agreements. The sanction letters
clearly show that they are renewal of facility and such renewal of
facility by way of subsequent agreement is only a garb to get out
of the legal restrictions imposed on them by BCD Circulars Nos.13
& 32. Such cannot be allowed. A valid law being acted upon shall
have to be acted in the manner as it prescribes. When its says mark
up on mark up cannot charged, the same cannot be charged in any form
or manner whatsoever. When it says that in the event of a default
being committed, recovery has to be made and no mark up on mark up
or penalty can be charged, it specifically implies and assumes without
ambiguity that no mark up even if restructured can be allowed. It
is my considered view that the first agreement continues to be effective
for the recovery of the debt by the unpaid seller, the Bank, despite
the fact that new agreement may have been entered into. The said agreements
are nothing but a continuance of the first agreement and only for
the purposes of enhancement and charge of mark up by elapse of time.
I am, therefore, of the view that such will not be deemed to be a
past and closed transaction and shall continue till such time the
payment of the debt caused by the first agreement is made over or
the agreement is extinguished by being fully acted upon or that by
a concluded case decided by any court of law. All pending proceedings
in respect of any finance on the basis of the ‘Murabaha’ or ‘Bai Muajjal’
shall continue to be current.”
44.
On this question of ‘finance’, ‘accommodation’ and ‘obligation’, I
do not agree with the arguments of Mr. Azizur Rehman. The definition
of ‘finance’ as contained in the Banking Tribunals Ordinance, 1984
categorically states that “Finance includes an accommodation or facility
under a system which is not based on interest but provided on the
basis of participation in profit and loss, mark-up or mark-down in
price...” The word accommodation or facility has to be read in conjunction
with the words “not based on interest” and in reading the fact that
it is not based on interest, reference will have to be made to the
provisions of BCD Circular No.13 issued by the State Bank of Pakistan
in respect of the finances to be granted in terms of the Islamic system
of banking.
45.
It will be of importance to note that the Banking Tribunals Ordinance,
1984 was a law promulgated by the Parliament and the word ‘finance’
was defined to mean an accommodation or facility under a system not
based on interest. By Ordinance LVII of 1984 the Banking Companies
Ordinance, 1962 was amended and the definition of “loans advances
and credits” included finance and the definition as contained in the
Banking Tribunals Ordinance, 1984. Thus by incorporation the
‘finance’ was brought within the purview and scope of sections 24
and 25 of the Banking Companies Ordinance, 1962. In addition
to the above, by the promulgation of the Ordinance LVII of 1984 being
the “Banking and Financial Services (Amendment of Laws) Ordinance,
1984 many other amendments were brought about, so that the State Bank
of Pakistan could enforce the Islamic System of Banking in Pakistan.
In Section 7 of the Ordinance of 1962, the words, "participation
term certificates, term finance certificates, and such other instruments
as may be approved by the State Bank” were inserted. In section
7 a new clause (aa) was inserted,
“(aa) the providing of finance
as defined in the Banking Tribunals Ordinance, 1984;”
It is thus clear from the insertion,
that the Act was amended to bring in the Islamic provisions of law.
The State Bank of Pakistan in terms of section 25 of the Banking Companies
Ordinance, 1962 issued directions giving details as what is, ‘finance
in the system not based on interest’. In view of the above,
under section 3A of the Banking companies Ordinance, 1962 and in view
of Hashwani’s case afore referred the provisions contained in section
25 allows the State Bank of Pakistan to give directions to the Banking
companies and the non banking financial institutions (NBFIs) also
to act in accordance with such directions. Such directions are
binding on all the banks NBFIs. In view of the above, it is
clear that the directions are as a consequence of promulgation of
the Statute or an Act of the Parliament. Otherwise also under
Section 25 the State Bank can give directions to the bank whenever
it is satisfied that it is necessary or expedient in public interest.
It has done so therefore. Infact the agreements entered into
subsequently by banks are the sale and purchase of commodities.
The concept is one which is contemplated by BCD Circular No.13 of
1984. The banks can therefore not take a place otherwise.
The State Bank have acted within their authority in issuing the said
circulars. I do not, therefore, agree with the proposition of
Mr. Azizur Rehman in this respect also.
46.
It has been argued with some vehemence that as the levy of interest
has continued and that, if such levy that has already been made is
not allowed such shall amount to in fact serious loss and prejudice
to the bank. I have already said that no doubt there may be
a loss, but then, the law that had been settled in fact has been that
the banks were required to proceed in the manner that, they would
not charge any interest and will act in accordance with law, i.e.,
banking in the Islamic system of financing.
47.
In the case ZAHEERUDDIN and other v. THE STATE and others (1993 SCMR
1718) which appeal was dismissed by a majority view. In the
majority judgment it has been observed:-
“The contention, however, has not impressed us at all. The term
‘positive law’, according to Black’s Law Dictionary, is the law actually
enacted or adopted by proper authority for the Government of an organized
jural society. So that term comprises not only enacted law but
also adopted law. It is to be noted that all the above-noted
cases were decided prior to the induction of Article 2A in the Constitution,
which reads as under:-
“2A. Objectives Resolution to form part of substantive provisions.—
The principles and provisions set out in the Objectives Resolution
reproduced in the Annex are hereby made substantive part of the Constitution
and shall have effect accordingly.”
It was for the first time in the Constitutional history of Pakistan,
that the Objectives Resolution, which henceforth formed part of every
Constitution as a preamble, was adopted and incorporated in the Constitution,
in 1985, and made its effective part. This was an act of the
adoption of a body of law by reference, which is not unknown to the
lawyers. It is generally done whenever a new legal order is
enforced. Here in this country, it had been done after every
martial law was imposed or the Constitutional order restored after
the lifting of martial law. The legislature in the British days
had also adopted the Muslim and other religious and customary laws,
in the same manner, and they were considered as the positive laws.
This was the stage, when the chosen representatives of people, for
the first time accepted the sovereignty of Allah, as the operative
part of the Constitution, to be binding on them and vowed that they
will exercise only the delegated powers, within the limits fixed by
Allah. The power of judicial review of the superior Courts also
got enhanced.
The abovementioned Constitutional change has been acknowledged and
accepted as effective by the Supreme Court. Mr. Justice Nasim
Hasan Shah, considering the changed authority of the representatives
of the people, in the case, Pakistan v. Public at Large, (PLD 1987
SC 304 at p. 356), stated as follows:-
“Accordingly unless it can be shown definitely that the body of Muslims
sitting in the legislature have enacted something which is forbidden
by Almighty Allah in the Holy Qur’an or by the Sunnah of the Holy
Prophet or of some principle emanating to be unIslamic.”
Mr. Justice Shafiur Rahman,
in his judgment in the same case, also relied on the Article 2A (Objectives
Resolution), in forming his view at pages 361 and 362, of the above
judgment, as follows:-
“The concept of delegated authority held in trust enshrined in verse
58 has invariably and consistently been given an extended meaning.
Additionally all authority being delegated authority and being trust,
and a sacred one for that matter, must have well-defined limits on
its enjoyment or exercise. In the Holy Qur’an moreso, but also
both in the Western and Eastern jurisprudence delegated authority
held in trust has the following attributes:--
(i)
The authority so delegated to, and held in trust by, various functionaries
of the State including its Head must be exercised so as to protect,
preserve, effectuate and advance the object and purpose of the trust,
(ii)
All authority so enjoyed must be accountable at every stage, and at
all times, like that of trustee, both in hierarchical order going
back to the ultimate delegator, and at the other end to the beneficiary
of the trust.,
(iii)
In discharging the trust and in exercising this delegated authority,
there should not only be substantive compliance but also procedural
fairness.”
This aspect was made absolutely clear by the Supreme Court in Federation
of Pakistan v. N.W.F.P. Government (PLD 1990 SC 1172 at page 1175)
in the following words:--
“It is held and ordered that even if the required law is not enacted
and/or enforced by 12th of Rabi-ul-Awwal 1411 A.H. the said provision
would nevertheless cease to have effect on 12th Rabi-ul-Awwal.
In such state of vacuum, vis-à-vis, the statute law on the subject,
the common Islamic law/the Injunctions of Islam as contained in Qur’an
and Sunnah relating to offences of Qatl and Jurh (hurt) shall be deemed
to be the law on the subject. The Pakistan Penal Code and the
Criminal Procedure Code shall then be applied mutatis mutandis, only
as aforesaid.”
It is thus clear that the Constitution
has adopted the Injunctions of Islam as contained in Qur’an and Sunnah
of the Holy Prophet as the real and the effective law. In that
view of the matter, the Injunctions of Islam as contained in Qur’an
and Sunnah of the Holy Prophet are new the positive law. The
Article 2A, made effective and operative the sovereignty of Almighty
Allah and it is because of that Article that the legal provisions
and principles of law, as embodied in the Objectives Resolution, have
become effective and operative. Therefore, every man-made law
must now conform to the Injunctions of Islam as contained in Quran
and Sunnah of the Holy Prophet (p.b.u.h.). Therefore, even the
Fundamental Rights as given in the Constitution must not violate the
norms of Islam.”
48.
I am also of the same view. The BRD Circulars (supra) are also
on the same term and cannot be deviated from. Interest is unIslamic
and cannot be allowed. Rollover, as discussed is also unIslamic
and cannot be allowed. The discussion in the case of Qayum spinning
(supra) is the reply the arguments of Mr. Aziz. I have given an anxious
thought and reconsidered my earlier view in light of the argument
of Mr. Aziz, but have been unable to convince myself otherwise. I
therefore hold that all agreements that have been entered into and
not be acted upon, as no disbursements have been made, are void. No
claim can be made by the banks on the basis of the said agreements.
All documents, whether negotiable instruments or otherwise are as
a consequence are also void. I also hold that no roll over can be
allowed, and that the amount payable shall be the amount on the basis
of the agreement against which disbursement has been made. The
statement/Break-up of liability filed by the plaintiff is from 9.5.1993
and not from the date of the actual disbursement. I, do not
find force in the argument of the Plaintiff. I find force in
the arguments of the defendants.
49.
Having gone through the pleadings I agree with the accounts filed
by the counsel for the defendant No.1 as under:-
A. NICF
1.
Amount transferred into A/c 2164 from
I.I. Chundrigar Road to Corporate
Branch on 24.01.1989 EXB. 6/19
Rs.59,83,054.00
2.
Deposit made by defendants during the
Period 24.01.1989 to 28.11.1990
i.e.
Last Date of Operation of A/Cs.
Thereafter
plaintiff bank did not allow
any operation.
Rs.1,90,09,483.00
3.
Withdrawals during the period
24./01.1989 to 31.11.1990.
Rs.1,81,79,791.74
4.
Mark-up @ 0.43/1000/Day from 01.01.1989
to 31.12.1990 upto the date
when operation
of Account was frozen.
Rs.15,72,896.18
5.
Balance of outstanding NIFC A/C as on
31.12.1990 (After appropriating
Mark-up)
Rs.67,26,258.00
A.
NIDF
1.
Sanctioned amount as per transferred date
25.01.1989 Annexures: “S” (Exb
P/19)
Expiry on 31.12.1990
Rs.1.5 Million
2.
Actual amount disbursed/availed
Rs.10,99,325.00
Evident from Exhibit 6/20 P-131
Rs.02,15,297.00
(Inclusive M-Up Amount)
Rs.13,14,622.00
2.
Mark-up from 25.01.1989 to 31.12.1990
@ 0.31/1000/Day (Sanction Rate)
Rs.02,40,598.36
C.
PAD/Outstanding L.Cs. Inclusive US Aid L.C.
(i)
L.C. Amount (Annexure F of Suit)
(ii)
Less: 10% Cash Margin Paid
Rs.35,40,000/-
Vide Cheque No.070706 dated
Drawn at BCCI
Rs.03,55,000/-
Less: Payments
(i)
03.04.1990
Rs.09,19,705/-
(ii)
09.06.1990
Rs.09,67,248/-
(iii)
Subsequent payments
Rs.09,84,334/-
TOTAL
Rs.32,26,287/-
Principal Balance Outstanding
Rs.03,13,713/-
Mark-up for the purposes of
Repurchase Price:
1)
1st shipment @ 11% for 18 months
i.e. 08.09.1988 to 07.03.1990
Rs.092,915.29
2)
2nd shipment @ 11% for 18 months
i.e. 18.11.1988 to 17.05.1990
Rs.159,152.42
3)
3rd shipment @ 11% for 18 months
i.e. 30.11.1988 to 29.05.1990
Rs.273,039.51
4)
Subsequent interest @ 16.425%
From 30.05.1990 to 31.12.1990.
Rs.187,862.41
5)
TOTAL MARK-UP
Rs.712,993.00
Total Liability of A+B+C is
summarized as follows:
PRINCIPAL MARK-UP TOTAL
NICF
51,53,363.24 15,72,896.20
67,26,259.44
NIDF
10,99,325.45 4,55,895.36
15,55,220.81
PAD
3,13,713.00 7,12,933.63
10,26,646.63
TOTAL
65,66,401.69 27,41,725.19
93,08,125.88
50.
Having agreed with the contention of the defendant No.1, the amount
admitted by them being a sum of Rs.9,308,125.88 is liable to be paid
by the defendant No.1 to the plaintiff.
51.
I now come to the question whether the defendants No.2 to 5 are liable
as guarantors. It is the case of the plaintiff that the defendants
No.2 to 5 are guarantors. Whereas in the written statement the
same has been denied that, the defendants No.2 to 5 never executed
any guarantee as annexed with the plaint and that, the property shown
to be mortgaged with the bank belongs to the defendant No.1 and not
defendants No.2 to 5. It is stated that the signatures on the
guarantee are not the signatures of defendants and that no document
was executed by the defendants No.2 to 5 by themselves or on their
behalf. It is also stated that on the dates mentioned on the
guarantee the defendants No.2 to 5 were not directors of the company
in 1987. There being a categorical denial, the onus lay on the
Plaintiffs to prove that the guarantees were signed by the Defendants
2 to 5. No evidence has been led by the plaintiff to prove that the
signatures contained on the guarantee is, in fact the signatures of
the said defendants No.2 to 5. In view of the above, I hold
that the defendants No.2 to 5 are not liable. The suit is dismissed
as against the said Defendants.
52.
The suit is, therefore, decree against the defendant No.1 in the sum
of Rs.9,308,125.88 with costs. Suit is also decreed for sale
of the mortgaged properties. The suit is decreed with mark-up
on the decretal amount at the rate of 11% chargeable once and shall
not be compounded in any manner whatsoever.
Karachi,
Dated:-06.08.2001.
J U D G E
Aziz