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Petitioner: Binyameen Khalil VS Respondent: FOP etc
Court Name: Lahore High Court Judge(s): Ch. Muhammad Iqbal Title: Binyameen Khalil vs FOP etc Case No.: ICA No.475 of 2016. Date of Judgment:2017-06-29 Reported As: 2017 LHC 2595 Result: Petition allowed
Judgment CH. MUHAMMAD IQBAL, J:- Through this Intra Court Appeal, the appellant challenged the judgment dated 14.01.2016 passed by the learned Single Judge in Chambers through which the writ petition filed by the appellant challenging anticipated average appreciation in the value of the house charged by respondent No.2 was dismissed. 2. Brief facts of the case are that the appellant obtained loan of Rs.2 million from the respondent House Building Finance Corporation and in this respect an agreement dated 30.07.2004 was executed between the parties. The appellant asserts that he has paid Rs.2.8 Million as principal amount alongwith rent and requested the respondent to release the ownership documents of property along with clearance certificate, but the respondents claimed an amount of Rs.31,10,871/-under the head of "anticipated average appreciation in the value of the house, which is over and above the original amount of loan. The appellant challenged the aforementioned charges through filing W.P.No.32077 of 2014. Respondents filed reply to the writ petition raising preliminary objection of maintainability of the petition, non-availing of the alternate remedy provided under the statute and also contested the petition on factual controversy as well. The learned Single Judge in Chambers after hearing both the parties dismissed the petition vide judgment dated 14.01.2016, hence the present ICA. 3. The learned counsel for the appellant submits that the demand of anticipated appreciation in the value of the house as mentioned in clause 16 and 18 and 37 of the contract/agreement is illega l and not in consonance with the House Building Finance Corporation Act, 1952 (hereinafter referred to as "HBFC Act, 1952") as well as House Building Finance Corporation Investmen t Regulations, 1979. He further submits that any agreement/contract against the statute is not permissible under the law, which aspect of the matter has escaped from the consideration/appreciation of the learned Single Judge in Chambers who has illegally and unlawfully dismissed the writ petition of the petitioner , which (order) is not sustainable in the eye of law . 4. The learned counsel for the respondent submits that the appellant willfully executed the contract and is bound by the contractual obligations settled in the said contract/agreement, as such no illegality has been committed by the
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learned Single Judge in Chambers. That an amount of Rs.31,10,871 uptil 10.06.2015 in respect of appreciation in the value of the house is due against the appellant and he has committed a willful default in payment of the same. He further submits that the appellant has not come to this Court with clean hands , therefore, he is not entitled to any discretionary relief and the Intra Court Appeal may kindly be dismissed. 5. Heard. Record perused. 6. The House Building Finance Corporation was established in 1952 for providing financial facilities for construction/re-construction/repair and purchase of house on the basis of interest. However, in 1978 the Council of Islamic Ideology recommended to abolish the term interest from some financial institutions including the Corporations. The Council suggested that instead of advance loans on the basis of interest, the Corporation should enter into investment of a joint ownership on the partnership basis with their clients and the client shall pay rent to the Corporation for utilization of share of the corporation. At the same time the partner will keep on purchasing different units/ share of the Corporation through purchase/installments and thus the principal amount invested by the Corporation will be gradually restored back to the Corporation in the form of purchase price installment against the unit of investment made in the purchase of the house until the Corporation's share is fully purchased by the partner and the above proposed procedure / mechanism in the Islamic banking terminology is named as "diminishing partnership". Under the guidelines/ instructions of the Ideology Council HBFC Ordinance, 1979 was promulgated and the Corporation started financing under the provisions of the said Ordinance. 7. Admittedly , the appellant obtained loan of Rs.2.0 million from the House Building Finance Corporation and executed an agreement dated 30.07.2004 and made re-payment in shape of installment amounting to Rs.26,54,514/- upto 10.06.2015. In this case the pivotal issue before this Court is to consider whether the clauses 16, 18 and 37 regarding the charging of anticipated average appreciation in the value of the house mentioned in the agreement dated 30.07.2004 are in accordance with HBFC Act, 1952 or with House Building Finance Corporation Regulations, 1979 or otherwise. Clause 16, 18(i) to (iii) and 37 of the agreement are reproduced as under:- "16. The anticipated average appreciation in the value of the house/flat and the investment units thereof, shall be Rs.12.5 per year for each hundred rupee and shall be binding on the Corporation and the Partner . 18. (i) the share of Corporation in the rental income on monthly basis during the moratorium period. The amount of monthly share of the Corporation in the rental income for the initial period shall be Rs.8333/- (Rupees Eight Thousand Three Hundred Thirty Three). (ii). 23 UNITS OF Rs.86957/- (Rupees Eighty Six Thousands Nine Hundred Fifty Seven only) each with appreciation of Rs.12.5 for each hundred rupee per year or part unit in the value of unit on yearly basis after completion of moratorium period of 24 months. Monthly payment or part payment towards purchase of unit shall be treated on account till the total purchase price (including the agreed appreciation in the value of the house/flat) has been received. (iii) monthly installment for the initial period of one years commencing from the expiry of agreed and moratorium period shall be as under:- (a) Rent: Rs.8333 (b) Purchase price of investment Rs.9963 unit (on-account):" (c) Monthly Group Life Insurance Rs.1000 Premium: Total Rs.19296." 37. The appreciation in the value of the house/investment units shall be finally assessed for adjustment of profit and loss at the time of full and final settle ment of account of expiry of the period allowed for purchase of units or otherwise. However , the Corporation shall have the sole discretion to forego, at the time of final valuation, its share of profit in excess of agreed appreciation in the value of investment units."
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8. The main controversy between the litigating parties in this case is with regard to unilateral imposition/charging of anticipated average appreciation in the value of the house. It is appropriate to apply microscopic scanning of the plain provisions of the enactment on the subject relating to the issue of investment made by the Corporation. Section 24 of the HBFC Act, 1952 provides the salient features of the investment and permit the corporation to invest its funds in such securities or in such other manner as may be prescribed and may sell or mortgage such securities. Further Section 24(3) of the HBFC Act, 1952 imposed restrictions on transfer , sale or charging the property without the prior written consent of the Corporation or subject to payment of corporation investment and other dues including shares in the capital gains. Section 24(5),(6) envisage the precaution and restriction over the corporation unless the amount invested is duly safeguarded or secured and no investment shall be made unless the partner agrees that the share of the Corporation in capital gains, in case the property is being sold or transferred during the currency of deed of assignment and partnership. For reference Section 24 of the HBFC Act, 1952 is reproduced below:- 24. Conditions for investments.___ (1) No investment shall be made unless it is fully secured by assignment of the land and the house constructed or to be constructed thereon or by such guarantee as may be prescribed: Provided that where the land on which it is proposed to construct the house is held by the partner not as owner but as mortgages, lessee, sublicensee, or in any other capacity , then, notwithstanding anything contained in any other law for the time being in force, investment may be made against assignment of such land and the house to be constructed thereon. (2) No property shall be accepted for assignment under subsection (1) unless it is free from all encumbrances and charges : Provided that the Corporation may , subject to the maximum limit provided in section 25,___ ( (a) make additional investment on the security of any property already assigned or mortgaged to the Corporation; (b) make investment on the security of any property already assigned or mortgaged to the Federal Government, a Provincial Government, or a bank, a banking company or any other financial institution established by or under any law and controlled, directly or indirectly , by the Federal Government or Provincial Government or by a Corporation set up a controlled by any of them. (3) No land or house in respect of which investment is made shall be transferred, sold or charged without the prior consent of the Corporation in writing and payment of the Corporation' s dues, including share in the capital appreciation ; and any such transfer , sale or charge made without such consent shall be void, and in the case of a sale, the Corporation shall have the option to buy out the partner 's share in the property at the price settled between the partner and the intending buyer . No investment shall be made unless the Corporation is satisfied that the partner has clear title to the property and is in possession of the land, the area in which the house is to be situated has been adequately planned, and the permission of the lessor , lessee, licensor , licensee or other competent authority for participation of the Corporation as partner in the construction or purchase of the house has been obtained. (5) No investment shall be made unless the partner agrees that ___ (a) the assessment of cost of land and cost of construction thereon; (b) the assessment of gross and net rental income of the property; (c) the share of the Corporation in the said income in consideration of its investment; (d) the share of the Corporation in capital gains, if property is sold or transferred during the currency of the deed of assignment and partnership; (e) demand charges in case of default in scheduled repayment; and (f) date of completion of the house; as fixed by the Corporation shall prevail and be binding upon him. (6) No investment shall be made unless the Corporation is satisfied that___ (a) where the investment is for the construction of a house, the partner will be able to provide necessary funds which, added to the investment made by the Corporation, will cover the entire cost of construction of the house;
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(b) the partner or his surety or both, as the case may be, and where the partner is more than one person, any one or more of such persons or their sureties will have sufficient means to repay the amount invested by the Corporation during the prescribed period in the prescribed manner; and (c) the plan and the design of the house is approved by the competent authority and the specifications provide for a sound and durable construction. (7) Before accepting any movable or immovable property as security , due allowance shall be made for depreciation and probable fall in value; and whenever such property is found to fall in value below the margin allowed, additional security shall be obtain. (8) No investment shall be made with a partner for construction or purchase of more than one house on income sharing basis. (9) The investment shall be adjusted through transfer of investment units in such manner and on such terms as provided in the deed of assignment and partnership. (10) The total estimated cost of a house constructed or to be constructed and the investment to be made shall be determined by the Corporation. (11) The net rental income shall be assessed by the Corporation for an initial period as provided in deed of assignment and partnership and thereafter shall be revised periodically notwithst anding anything to the contrary contained in any other law for the time being in force till the entire investment units of the Corporation are transferred to the partner . (12) The share of the Corporation in the net rental income shall be fixed as the ratio between the investment of the Corporation and the total estimated cost of the house at the time of the execution of deed of assignment and partnership and shall be revised 1 [on each adjustment of the investment through transfer of investment units as provided in sub section (9) and shall be payable on such periodical basis as provided in the deed of assignment and partnership. (13) The share in the capital gains when the property is sold or transferred shall be determined in the prescribed manner . (14) The income on the investment shall start accruing on completion of the agreed period. (15) The Corporation shall share the losses which may be caused by natural calamities, war or civil commotion only. (16) No investment shall be made for a period exceeding twentyfive years. (17) Investment shall be made in suitable installments concomitant with the construction of the house. (18) No information given by any person applying for financial assistance and communicated to any of the Directors or employees of the Corporation shall be disclosed or used by such Directors or employees except for lawful purposes of the Corporation without the written consent of such person. (19) Investment may be made in collaboration with Cooperative Societies and such other authorities and housing corporations as may be prescribed. (20) Loans made before the first day of July, 1979, shall become due and payable along with accruals as on the last day of June, 2000, and all borrowers shall within three months from the commencement of the House Building Finance Corporation (Amendment) Ordinance, 2001, pay their entire obligations and the investment made after the 30 of June, 1979, shall, unless the Federal Government otherwise directs, continue to be governed by the terms and conditions on which they were made: Provided that (a) the repayment of the principal amount shall be deemed to be the purchase of investment units as provided in subsection (9); (b) the share of the Corporation in the net rental income shall be revised on payment of the full value of each investment unit as provided in the deed of assignment and partnership or, as the case may be, on each repayment of the principal; (c) service charges based on the amount of investment made by the Corporation shall not accrue nor shall be charged after the 30th of June, 2000; andth
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(d) demand charges accrued and recover ed by the Corporation from the first day of July, 2000, shall be credited to a separate account to be spent on meeting actual out of pocket expenses on recovery of overdue investments and the balance shall be used only for chari table purposes and shall not be credited to the income account of the Corporation. (21) The Corporation may, in compliance with any instruction issued by the Federal Government in that behalf, relax or modify any of the conditions provided under this Act for any class of investment. 9. The main controversial issue in this case is regarding the unilateral assessment of anticipated appreciation in the value of the house as envisages in clause 16 of partnership agreement which is fixed at the rate of 12.5% per year on the assessed amount of the appreciation of value whereas no such provision of fixing the ratio of increase in the value have been mentioned in the HBFC Act, 1952. Section 24 (13) provides that share in the capital gain shall be determined when the property is being sold or transferred according to the prescribed manner . From the plain reading of sub-section it clearly envisages that this provision is only applicable in the eventuality when the partner intends to sell or trans fer the said property , whereas no such regulations or clear procedure meant for determining the capital gains are available. Further as the term anticipated appreciation in the value is alien to statute and no such provision in this regard is available in the regulations of corporation as such unilateral fixing of 12.5% as appreciated value does not have any support of law . Moreover Section 24(13) of the Act which deals with capital gain is made applicable in the eventuality when the property is being sold or transferred then the share of the partners in the capital gain is be determined and proportionately charged whereas in the instant case no such situation has yet been arisen to make assessment of capital gains as the appellant is not interested or intending to alienate the property in any manner whatsoever, as such the demand raised by the respondent Corporation regarding the assessed outstanding amount of Rs.31,10,871/- against the appellant including the amount of anticipated appreciation of value assessed at the rate of 12.5% per year, is unilateral, exorbitant, arbitrary and having no backing of any law, rather it amounts to the financial exploitation which is not warranted by any law and is also against the Article 3 of the Constitution of Islamic Republic of Pakistan which provides safeguard against exploitation of the citizens. 10. For the functioning of transparent and smooth business, HBFC Investment Regulations were framed, approved and promulgated in 1979. Regulation No.14 only deals with anticipated gross annual rental income of a house and with the anticipated average appreciation in the value of the house/flat which has no nexus with the capital gain. Regulation 14 of the HBFC Investment Regulations, 1979 is reproduced as under:- "14. (1) The anticipated gross annual rental income of a house in which investment is made shall be the average of the rental income of similar house in the locality obtained through a sample survey conducted during the three months preceding the financial year in which the proposal for availing the investment is made. Provided that the results of sample survey shall be reviewed by the Corporation before formal adoption in order to bring them in to conformity with other supporting indices or to remove discrepancies, if any (2) The anticipated gross annual rental income in localities where a sample survey has not been conducted shall be determined by the Corporation in such manner as it may deem proper . (3) The anticipated net annual rental income shall be determined after deduction of the following from the anticipated gross rent:- (i) maintenance allowance at 1/12 of the gross rent; and (ii) property tax payable to the Provincial Government of a local authority , as determined by the Corporation. Provided that the net rental income of the house may be revised any time if so necessitated due to a revision in the property tax structure. (4) The annual rental income shall be reviewed after every three financial years commencing from the financial year in which the proposal has been accepted till the entire investment. (5) The anticipated net annual income calculated under this regulation shall be final and binding on the Corporation and the partner. 11. Further sections 24(3) & (5)(d) of the HBFC Act, 1952 creates an embargo upon the petitioner to further transfer, sale of the house/and also prohibits to create any kind of charge on the property till the final realization of dues of theth
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Corporation and if during the currency of the deed of assignment and subsistence of relationship of partnership, a partner wants to transfer, sale or charge the property, he has to obtain written consent of the Corporation after making payment of the Corporation's dues including share in the capital gain. But in the aforesaid Act and Regulation, there is no such provision available regarding monthly or yearly assessment of anticipated appreciation in the value of the property and it has accumulative effect toward the increase in the capital investment so made by the Corporation. The respondent has imposed anticipated average appreciation in the value of the house/flat at Rs.12.5 for each hundred rupee per year, which has no support of very statute and the regulation made thereunder. The amount assessed and claimed under the anticipated appreciation in the value of the property is levied in addition to the amount being charged under the head of rental Value of the House, which is much harsh/exploiting than the imposition or charging of compound interest whereas in the case in hand the Corporation is receiving the rental income, installment toward the invested amount and also adding 12.5% in shape of anticipated appreciation in the value of the property against the amount of its investments. This question of claiming rent as well as anticipated appreciation in value of house came under consideration of the Federal Shariat Court which has declared the unilateral assessment etc. against the injunctions of Islam in case reported as Muhammad Iqbal Chaudhary , Advocate High Court, Lahore and another Vs. Federation of Pakistan throug h Secretary M/O. Justice and Parliamentary Affairs, Government of Pakistan Islamabad and others (PLD 1992 Federal Shariat Court 501) wherein it is held as under:- "As stated above the Corporation, after the enactment of House Building Finance Corporation (Amendment) Ordinance, 1979, functions on partnership basis. The system of loaning by the Corporation which was previously based on interest has now been substituted by a system of joint ownership (Musharaka) and consequently the rental income is duly shared by the investors i.e. owner borrower and Corporation. The system devised by the Corporation for the assessment of the share of the Corporation in the gross and net rental income of the property and its capital gains (if property is sold or transferred during the currency of the deed of assignments and partnership) as given in paras 14(1), (2) and 15(1) and (2) of House Building Finance Corporation Investment Regulations, 1979 reads as under:- 12. The Federal Shariat Court declared the said provisions of HBFC Act, 1952 are against the injunctions of Islam in respect of recovery of interest and directed the respondent to bring the same in conformity with injunctions of Islam, which decision has been endorsed by the Hon'ble Supreme Court as Shariat Appellate Bench in the case of House Building Finance Corporation through its Executive Director Vs. Rana Muha mmad Sharif and 4 others (PLD 2000 SC 760) and has directed that necessary deletions and amendments be made in sections 4(2), 21(2) and 24(11), (12) and (20) by 30 June, 2000. Relevant para whereof is reproduced below:- "The objection of the Federal Shariat Court is that the process laid down for asses sment of the rental income and fixation of the share of Corporation therein is arbitrary , and against the spirit of partnership. The need of the partner is, thus, exploited, while he is equally entitled to have a say in this matter . A proviso is, therefore, held to be necessary to the effect that the partner will have a right to place the matter before a higher authority nominated by the Corporation, so that the issue may be resolved on an equitable basis. The proposal of the Federal Shariat Court seems apparently justified. However, it may also be kept in mind that it should not open the door for frivolous disputes and prolonged proceedings. The process provided by the Investment Regulations, 1979' is reasonable process, and the partner should enter into the agreement with open eyes. If the Corporation, or any one of its officers, has violated the procedure laid down for the fixation of rent, normal legal remedies will remain available for anyone who can prove the violation. To establish a separate forum for such disputes may bring a flood of complaints and may in turn defeat the system together. However , there are certain points that were not attended to by the learned Federal Shariat Court while examining section 24 and its subsidiary Regulations. These are summarized below: "(a) Subsections (6) (b), (9) and (12) of Section 24 as well as Regulations 15(2) frequently refer to the 'repayment of the investment by installments'. This terminology is not suitable for the concept of ' diminishing partnership' on which Ordinance 1979 was conceptually based. The original concept, as mentioned at the outset of this discussion; was that the partner will gradually keep on purchasing different units of the share of theth
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Corporation. These installments are meant…
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