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Petitioner: NASIR ALI SHAH BUKHARI and 12 others VS Respondent: FEDERATION OF PAKISTAN and 7 JUDGMENT
Court Name: Islamabad High Court Judge(s): Aamer Farooq Title:NASIR ALI SHAH BUKHARI and 12 others vs FEDERATION OF PAKISTAN and 7
JUDGMENT
Reported As: PLJ 2015 Islamabad 423 Result: Petition dismissed Judgment JUDGMENT ' Petitioners No, 1 & 3 are share holders to the extent of 40% and 2% respectively in Petitioner No, 2 which company holds significant shareholding in Respondent No, 3 i,e, KASB Bank Limited. Respondent No, 3 was licensed in the year 1995 by Respondent No, 2 and by the year 2013 it had 105 Branches across Pakistan in 45 cities, customer base of approximately 1,50,000 and Rs, 62 Billion in deposits. On 14.11.2014 Respondent No, 2 wrote to Respondent No, 1 seeking a moratorium order under Section 47 of Banking Companies Ordinance, 1962 (the Ordinance), which was granted by the Federal Government and therefore, a formal moratorium order was passed on the same date i,e, 14.11.2014. Respondent No, 2 subsequently entered into an agreement with Respondent No, 5, in which Respondent No, 3 was also a party, whereby Respondent No, 5 was assigned the task to prepare a report with respect to assets and liabilities of Respondent No, 3 for the purposes of passing any reconstruction or amalgamation order, as provided in Section 47(5) of the Ordinance. 2. In the instant Constitutional petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973, the petitioners seek relief which inter alia includes the declaration that the agreement between Respondents No, 2, 3 & 5 is ultra wires and null and void, restraining Respondents No, 1 & 2 from rushing into selling petitioners' shares in KASB Bank Limited, declaration that purported sale of the petitioners' shares in Respondent No, 3 is illegal and without lawful authority, declaration that the proposed reconstruction/ amalgamation scheme is in violation of provisions of the Ordinance, declaration that refusal on part of Respondent No, 2 to consider the proposal by Respondent No, 7 to invest money in Respondent No, 3 be declared as without legal effect and direction to State Bank of Pakistan to consider the same. The petitioners earlier had filed
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a Constitutional petition in this Court (Writ Petition No, 398/2015) claiming almost the same relief, however, the same was withdrawn unconditionally on 22.04.2015. 3. Learned counsel for the petitioners inter alia submitted that though the moratorium order dated 14.11.2014 has not been challenged in the instant petition however, the same has been passed in an arbitrary and mechanical manner without application of mind. Learned counsel read out provisions of Section 47 of the Ordinance and submitted that they provide vast powers to Respondent No, 2 which tantamount to sell the property i,e, the shares of the petitioners which is a judicial function and can be exercised by the Courts alone. In support of his contentions learned counsel placed reliance on the case titled Sheikh Riaz-ul-Haq and another v. Federation of Pakistan through Ministry of Law and others (PLD 2013 SC 501). Learned counsel further submitted that under Section 47(1) of the Ordinance no guidelines have been provided that on what basis the moratorium order can be passed by Respondent No, 2 and by providing that when there exist good reasons for doing so the moratorium order can be passed by the referred Respondent No, 2 after seeking approval from Respondent No, 1 wide discretion has been granted to State Bank of Pakistan by the legislature. Similarly learned counsel submitted that provisions of sub-sections (3), (5), (11), (13), (15) and (16) of Section 47 of the Ordinance ibid are classic example of excessive delegation which is not permissible. In support of his contention learned counsel placed reliance on the case in the matter of Reference No, 2 of 2005 by the President of Pakistan (PLD 2005 SC 873). Reliance was also placed on the cases titled Jibendra Kishore Achharyya Chowdhury and 58 others v. The Province of East Pakistan and Secretary, Finance and Revenue (Revenue) Department, Government of East Pakistan (PLD 1957 SC 9), Pakistan Tobacco Company Limited and others v. Government of N.W.F.P. Through Secretary of Law and others (PLD 2002 SC 460), Director Food N.-W.F.P and another v. Messrs Madina Flour and General Mills (Pvt.) Limited and 18 others (PLD 2001 SC 1) and Brig. (Retd.) F.B. Ali and another v. The State (PLD 1975 SC 506), Vasanthial v. State of Bombay (MR 1961 SC 4), East and West Steamship v. Pakistan (PLD 1958 SC 41), Province of West Pakistan v. Siraj-ul- Haq (PLD 1966 SC 854) and Benazir Bhutto v. FOB (PLD 1988 SC 416). Learned counsel again emphasized that where power is provided by the legislature to transfer property lights of a person through an order, the same amounts to judicial power which cannot be exercised by the legislature and is the sole prerogative of judiciary exercising the judicial power. In this regard learned counsel again placed reliance on the case cited as PLD 2013 SC 501 supra to substantiate the argument that the judicial function amounts to determination of rights relating to life and liberty etc. It was further contended that the provisions of Section 47 ibid are in conflict with the concept of fair trial and the powers of the Courts cannot be exercised by Respondent No, 1 i,e, Government of Pakistan through Finance Ministry. It was also argued by the learned counsel that under Section 48 of the Ordinance, it is mandatory that the draft scheme of amalgamation be placed before the shareholders of Respondent No, 3 and as Respondent No, 2 proposes, to merge Respondent No, 3 in Respondent No, 6. It is contended next that the agreement executed by Respondents No, 2, 3 & 5 provides that the report to be prepared by Respondent No, 5 shall be kept confidential which excludes the petitioners from examining the same whereas the referred report has to form basis for sale of shares of the petitioners in Respondent No, 3 or any further action to be taken by Respondents No, 1 & 2. Learned counsel also pointed out that the petitioners have introduced a buyer/investor namely Respondent No, 7 to Respondent No, 2 for injection of capital and also to salvage respondent bank, however, the proposal by the referred investor who is credible and has international recognition has been rejected by Respondent No, 2. In this regard learned counsel pointed out various letters written by the referred investor to Respondent No, 2 to which no positive reply was given by the referred respondent. 4. Learned counsel for Respondent No, 2 inter alia submitted that it is an established principle of law that no relief can be granted on ground of speculation. Learned counsel submitted that the
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entire case of the petitioners is based on speculation that their rights shall be prejudiced whereas there is nothing to that effect on record. In support of his contention learned counsel placed reliance on the cases titled OMV (Pakistan) Exploration GMBH, Islamabad v. Federation of Pakistan through Secretary, Revenue Division Islamabad and 2 others (2012 PTD 396), (2010 PLC (CS) 478), (2000 SCMR 1017), (2002 SCMR 970), (2006 MLD 978), (1981 PLC 286, PLD 1983 SC 358). Learned counsel further submitted that Section 47 of the Ordinance has a parallel provision across the border by way of Section 45, Banking Regulation Act, 1949 and both the provisions are pari materia. Learned counsel pointed out that the management of Respondent No, 3 is in place and so is the Board of Directors, meaning thereby that the petitioners still have the control over Respondent No, 3. Learned counsel further emphasized that the confidentiality under the agreement in question is required to be maintained for protection of the investors/share holders as well as the petitioners and Respondent No, 3 inasmuch as if report is made public then the share value of respondent bank may further slide down. The learned counsel acknowledged that in light of the report prepared by Respondent No, 5 the draft scheme for amalgamation has been prepared, which has been shared with Respondent No, 3 and on the same objections have been filed by the referred respondent. It was further contended that equity is in negative therefore, Respondent No, 3 is being merged in Respondent No, 6 for Rs, 1000/-. Learned counsel also read subsections (6) & (5h) of Section 47 of the Ordinance to show that protection is awarded to the share holders as well as management of any banking company against which a moratorium has been passed and further action is to be taken. In this regard learned counsel highlighted that under Section 47(6) the proposed scheme on reconstruction/amalgamation has been shared with the management of the banking company and objections have been raised to the draft scheme prepared by Respondent No, 2. Moreover, it was argued that under sub-section 5(h) of Section 47 the petitioners again have security. Learned counsel further pointed out various letters written to Respondent No, 3 prior to 14.11.2014 emphasizing raising capital of Respondent No, 3 and improving its state of affairs failing which action under Section 47 would be taken. The learned counsel also contended that Section 48 of the Ordinance is not applicable to cases where the amalgamation takes place under Section 47 inasmuch as Section 47 ibid starts with a non-obstante clause which excludes all other provisions of law as well as provisions contained in the same Part of the Ordinance, Sections 47 & 48 are in Part 3 of the Ordinance; the issues agitated in the earlier writ petition (Writ Petition No, 398/2015) cannot be re-agitated because the referred petition was dismissed as withdrawn unconditionally by this Court vide order dated 22.04.2015. 5. The counsel for the petitioners in rebuttal submitted that the instant petition is not pre-mature and is competent inasmuch as Respondent No, 2 has unlawfully and illegally passed the moratorium order without hearing the petitioners; office of the petitioners has been occupied and forcibly taken over; the petitioners cannot exercise any right as the management committee has been constituted by Respondent No, 2. It was further contended that the petitioners have a fundamental, vested and legal right to be associated with the process of valuation of shares/assets of the bank. The petitioners are being deprived of their property viz: shares compulsorily at a throw away price in violation of their fundamental rights guaranteed under the Constitution. It was pointed out that the Hon'ble Supreme Court of Pakistan in Pakistan Steel Mills case, Haris Steel case have struck down such bargains as being in violation of fundamental rights. Learned counsel has placed reliance on the case titled Dr.Akhtar Hussain v. Federation of Pakistan etc. (2012 SCMR 455), and Federation of Pakistan and others v. Shaukat Ali Mian and others (PLD 1999 SC 1026). It was also contended that it is fallacious to assert that since the objections to the draft scheme have been filed, therefore, there is no right to file the present petition. Learned counsel also submitted that the Court may grant any relief as circumstances may require.
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6. In our country State Bank of Pakistan namely Respondent No, 2 is the regulator and the licensing authority of all the banks operating in. Pakistan. In this behalf under Section 27 of the Ordinance no company/association/individual can carry on banking business in Pakistan unless it holds a license issued by Respondent No, 2. The license issued is subject to terms and conditions as is deemed appropriate by State Bank of Pakistan. However, under sub-section (3) to Section 27 mandatory provisions are laid down which any banking company has to fulfill in order to obtain a license from the State Bank and the same are as follows:-- (a) that the company is or will be in a position to pay its present or future depositors in full as their claims accrue; (b) that the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interests of its present or future depositors; ' Being a regulator the State Bank of Pakistan has extensive powers to monitor the business of any banking company and the referred powers are provided to it by and under the Ordinance. Some of the powers which the State Bank of Pakistan has and can exercise regarding the conduct and business of the banking company are as follows:-- (i) Power to cancel the license (Section 27(4)) (ii) Power to laid down guidelines (Section 33(b)) (iii) Power to inspect the affairs of banking company (Section 40) (iv) Power to remove Directors of other managerial persons from office (Section 41 (a)) (v) Power to supersede Board of Directors of a banking company (Section 41(b)) (vi) Power to call for information (Section 43(a)) (vii) General powers under Section (42) (viii) Make an application for winding up of a banking company (Section 43(f) (ix) Power to apply Federal Government for suspension of business and to prepare a scheme of reconstruction or amalgamation (Section 47). ' As mentioned above the aforementioned provisions provide some of the regulatory and supervisory powers to the State Bank of Pakistan and in addition to the same there are many other provisions whereby the State Bank of Pakistan can regulate and monitor the business of banking company and issue guidelines/directions from time to time. In the present case Respondent No, 2 exercised the power under Section 47 of the Ordinance as it believed that there are good reasons for obtaining an order of moratorium in respect of KASB Bank Limited. The petitioners have not assailed order of moratorium and almost all the issues raised in the instant petition were raised in the earlier writ petition (Writ Petition No, 398/2015) which was withdrawn unconditionally, as mentioned above. Insofar as raising the same issues in the present petition is concerned, it is barred under Order XXIII of Code of Civil Procedure (C.P.C.). Since C.P.C. Is applicable in the Constitutional petitions as held in the case titled Hussain Bakhsh v. Settlement Commissioner, Rawalpindi and others (PLD 1970 SC 1), therefore, Order XXIII C.P.C. Is attracted. 7. In the instant petition, the entire controversy between the parties revolves around Sections 47 and 48 of the Ordinance. It is therefore, essential that the referred Sections be reproduced for the sake of brevity. Section 47 reads as follows: "47. Powers of State Bank to apply to Federal Government for suspension of business by a banking company and to prepare scheme of reconstruction or amalgamation.--(1) Notwithstanding anything contained in the provisions of this Part or in any other law or any agreement or other instrument, for the time being in force, where it appears to the State Bank that there is good reason so to do, the State Bank may apply to the Federal Government for an order of moratorium in respect of a banking company. (2) The Federal Government, after considering the application made by the State Bank under sub- section (1), may make an order of moratorium staying the commencement or continuance of all
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action and proceedings against the company for a fixed period of time on such terms and conditions as it thinks fit and proper and may from time to time extend the period so however that the total period of moratorium shall not exceed six months. (3) Except as otherwise provided by any directions given by the Federal Government in the order made by it under sub-section (2) or at any time thereafter, the banking company shall not during the period of moratorium make any payment to any depositors or discharge any liabilities or obligations to any other creditors. (4) During the period of moratorium, if the State Bank is satisfied that- (a) in the public interest; or (b) in the interests of the depositors; or (c) in order to secure the proper management of the banking company; or (d) in the interests of the banking system of the country as a wholeit is necessary so to do, the State Bank may, prepare a scheme -- (i) for the reconstruction of the banking company, or (ii) for the amalgamations of the banking company with any other banking institution (in this section referred to as "the transferee bank"). (5) The scheme aforesaid may contain provisions for all or any of the following matters, namely:-- (a) the Constitution, name and registered office, the capital assets, powers, rights,' interests, authorities and privileges, the liabilities, duties and obligations, of the banking company on its reconstruction or, as the case may be, of the transferee bank; (b) in the case of amalgamation of the banking company, the transfer to the transferee bank of the business, properties, assets and liabilities of the banking company on such terms and conditions as may be specified in the scheme; (c) any change in the Board of Directors, or the appointment of a new Board of Directors, of the banking company on its reconstruction or, as the case may be, of the transferee bank and the authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new Board of Directors or of any director, the period for which such appointment shall be made; (d) the alteration of the memorandum and articles of association of the banking company on its reconstruction or, as the case may be, of the transferee bank for the purpose of altering the capital thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation; (e) subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the date of the order of moratorium; (f) the reduction of the interest or rights which the members, depositors and other creditors have in or against the banking company before its reconstruction or amalgamation to such extent as the State Bank considers necessary in the public interest or in the interests of the members, depositors and the creditors or for the maintenance of the business of the banking company; g) the payment in cash or otherwise to depositors and other creditors in full satisfaction of their claim-- (i) ' in respect of their interest or rights in or against the banking company before its reconstruction or amalgamation; or (ii) (g) where their interest or rights aforesaid in or against the banking company has or have been reduced under clause (f) in respect of such interest or rights as so reduced; (h) the allotment to the members of the banking company for shares held by them therein before its reconstruction or amalgamation, weather their interest in such shares has been reduced under clause (f) or not, of shares in the banking company on its reconstruction or, as the case may be, in
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the transferee bank and where any members claim payment in cash and not allotment of shares, or where it is not possible to allot shares to any members, the payment in cash to those members in full satisfaction of their claim-- (i) ' in respect of their interest in shares in the banking company before its reconstruction or amalgamation; or (ii) ' where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (i) the continuance of the services of all the employees of the banking company, excepting such of them who, not being workmen within the meaning of the Industrial Disputes Ordinance, 1959, are specifically mentioned in the scheme, in the banking company itself on its reconstruction or, as the case may be, in the transferee bank at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were being governed immediately before the date of the order of moratorium: ' Provided that the scheme shall contain a provision that-- (i) ' the banking company shall pay or grant not later than the expiry of the period of three years from the date on which the scheme is sanctioned by the Federal Government, to the said employees the same remuneration and the same terms and conditions of service as are applicable to employees of corresponding rank or status of a comparable banking company to be determined for this purpose by the State Bank whose determination in this respect shall be final; (ii) ' the transferee bank shall pay or grant not later than the expiry of the aforesaid period of three years, to the said employees the same remuneration and the same terms and conditions of service as are applicable to the other employees of corresponding rank or status of the transferee bank subject to the qualifications and experience of the said employees being the same as or equivalent to those of such other employees of the transferee bank: ' Provided further that if in any case under clause (ii) of the first proviso any doubt or difference arises as to whether the qualification and experience of any of the said employees are the same as or equivalent to the qualifications and experience of, the other employees of corresponding rank or status of the transferee bank, the doubt or difference shall be referred to the State Bank whose decision thereon shall be final; (j) notwithstanding anything contained in clause (1) where any of the employees of the banking company, not being workman within the meaning of the Industrial Relations Ordinance, 1969 (XXIII of 1969) are specifically mentioned in the scheme under clause (1), or where any employees of the banking company have by notice in writing given to the banking company or, as the case may be, the transferee bank at any time before the expiry of one month next following the date on which the scheme is sanctioned by the Federal Government, intimated their intention of not becoming employees of the banking company on its reconstruction or, as the case may be, of the transferee bank, the payment to such employees of compensation, if any, to which they are entitled under the Industrial Relations Ordinance, 1969 (XXIII of 1969), and such pension, gratuity, provident fund and other retirement benefits ordinarily admissible to them under the rules or authorizations of the banking company immediately before the date of the order of moratorium; (k) ' any other terms and conditions for the reconstruction or amalgamation of the banking company; (1) ' such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out. (6) A copy of the scheme prepared by the State Bank shall be sent in draft to the banking company and also to the transferee bank and any other banking company concerned in the amalgamation, for suggestions and objections, if any, within such period as the State Bank may specify for this purpose.
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(7) The State Bank may make such modifications, if any, in the a scheme as it may consider necessary in the light of the suggestions and objections received from the banking company and also from the transferee bank, and any other banking company concerned in the amalgamation and from any members, depositors or other creditors of each of those companies and the transferee bank. (8) The scheme shall thereafter be placed before the Federal Government for its sanction and the Federal Government may sanction the scheme without any modifications or with such modifications as it may consider necessary; and the scheme as sanctioned by the Federal. Government shall come into force on such date as the Federal Government may specify in this behalf: ' Provided that different dates may be specified for different provisions of the scheme. (9) Upon the coming into operation of the scheme or any provision thereof, the scheme or such provision shall be binding on the banking of [x x x x] company or, as the case may be, on the transferee bank and any other banking company concerned in the amalgamation and also on all the members, depositors and other creditors and employees of each of those companies and of the transferee bank, and on any other person having any right or liability in relation to any of those companies or the transferee bank. (10) On such date as may be specified by the Federal Government in this behalf the properties and assets of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and vest in, and the liabilities of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and become the liabilities of the transferee bank. (11) If any difficulty arises in giving effect to the provisions of the scheme, the Federal Government may by order do anything not inconsistent with such provisions…
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