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Petitioner: Amtex Limited VS Respondent: Bankislami Pakistan Ltd. & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title: Amtex Limited vs Bankislami Pakistan Ltd. & others Case No.: COS No.25 of 2011 Date of Judgment:2016-04-25 Reported As: 2016 LHC 1155 Result: N/A
Judgment Shahid Karim, J:- This is a suit for declaration, cancellation of documents, permanent injunction and damages filed under the special jurisdiction conferred upon this Court under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (Ordinance, 2001). 2. The plaint has the following prayer: In view of the above, it is most respectfully prayed that this Honourable Court may pass a decree in favour the Plaintiff and against the Defendants in the following terms: a) Declare that the Undertaking dated October 09, 2007, all provisions relating to purchase of Sukuk units at a pre-determined price of the Sukuk Units and the Guarantee are void, unlawful and illegal documents being opposed to law, public policy, principles of Shariah and Islam and the Letter dated February 07, 2011 issued by the Defendant No.1 in pursuance of the same is illegal and unlawful. b) The Defendants No.1 to 8 may permanently be restrained from enforcing the Undertaking, any provision relating to purchase of Sukuk units at a pre-determined price and Guarantee against the Plaintiff and raising any demand thereunder. c) Declare that in view of the nature of the transaction and amounts admittedly paid by the Plaintiff, the obligations of the Plaintiff towards the Defendant No.1 to 8 stands satisfied and
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discharged and the said defendants be permanently restrained from raising any demand thereunder and the transaction documents may kindly be cancelled. d) Damages to the tune of Rs.562 million may kindly be awarded in favour of the Plaintiff and against the Defendant Nos.1 to 8, jointly and severally from the date of such damage, pendente lite and till realization." 3. On 24.11.2015, an application for leave to defend was accepted and leave was granted to the defendants as substantial questions of law and fact were held to arise in the suit. Vide order dated 21.12.2015, the following issues were framed: "Issues 1) Whether the plaint discloses any cause of action?OPD 2) Whether the suit is maintainable in terms of Section 9 of the FIO, 2001 and the plaint is liable to be rejected?OPD 3) Whether the plaintiff is entitled to a declaration that the undertaking dated October 09, 2007, all provisions relating to purchase of Sukuk units at a pre-determined price of the Sukuk Units, the Bank Guarantee issued by the defendant No.9 securing the purchase of the Sukuk Units and the letter dated February 07, 2011 issued by defendant No.1 are void, unlawful and illegal documents being opposed to public policy, principles of Shariah and Islam?OPP 4) Whether the plaintiff is entitled to a decree for permanent injunction restraining the defendants No.1 to 8 to enforce the undertaking dated October 09, 2007 any provision relating to purchase of Sukuk units at a pre-determined price and the Guarantee against the plaintiff and raise any demand thereunder?OPP 5) Whether the plaintiff is entitled to a decree for declaration that in view of the nature of the transaction and amounts admittedly paid by the plaintiff, the obligations of the plaintiff towards the defendant No.1 to 8 stands satisfied and discharged and as a consequence the transaction documents stand cancelled?OPP 6) Whether the plaintiff is entitled to a decree for recovery of damages as prayed for in the plaint? OPP 7) Relief." 4. The learned counsel for the defendants urges that issues No.1 and 2 be determined ahead of the other issues as in his estimation any determination on these issues would have the effect on the determination of the entire suit. According to Mr. Salman Akram Raja, Advocate, learned counsel for the defendants No.1 to 8, the instant suit could be decided on issues of law only and thus requests that issues No.1 and 2 be treated as issues of law and this Court tries those issues first. The parties were, therefore, called upon to advance their arguments on issues No.1 and 2 as this Court is of the opinion that the suit may be disposed of on the issues of law only and a regular trial on the issues of fact may not be necessary. This course is permissible under Order XIV, Rule 2 read with Order XV, Rule 3 of the Code of Civil Procedure (CPC).
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5. The learned counsel for the plaintiff has taken this Court through different paragraphs of the plaint in order to establish that the plaint discloses cause of action. Further, with regard to issue No.2, the learned counsel has referred to various provisions of the Ordinance, 2001 in order to bring home that the ingredients and the jurisdictional facts for maintaining the instant suit do exist in the plaint and the suit is not only competent but should be taken to regular trial and the parties be required to adduce their evidence, pro and contra, on the issues of fact which have been settled by this Court. 6. The suit was filed on 17.2.2011 and envisages a transaction to the tune of Rs.650 million. According to the plaint to which the learned counsel for the plaintiff has extensively referred, the defendant No.1 is the trustee and agent, acts on behalf of the defendants No.2 to 8 being Sukuk holders in terms of the underlying transaction amongst the parties. Paragraph 4 gives an insight into the background of the transaction and as to why the plaintiff was compelled to resort to the transaction in question. It was the desire of the plaintiff to transfer its financing business from commercial banking to Islamic mode of financing and in the year 2007, the defendant No.2 approached the plaintiff by representing itself as an Islamic Financial Institution, providing banking services strictly in accordance with Islamic mode of financing. Negotiations ensued between the plaintiff and the defendant No.2 on the representation that the mode of financing will be Shariah compliant. The defendant No.2 offered the plaintiff a facility which envisaged a Shariah compliant diminishing Musharka on the principle of partnership in assets and sharing of proportionate profits and losses therein between the parties. In short, the plaintiff agreed to the availment of the facilities by issuance of privately placed Sukuk units based on diminishing character (Musharka Facility). These units were to be issued to a consortium of financial institution including the defendant No.2 which was to act as the Financial Advisor/ Lead Arranger as well as the major contributing financial institution. Paragraph 5 and 6 refer to the various facets of Islamic financing, the basis of which is that a financial institution and the customer invest their capital in a joint commercial venture on the basis of profit and loss sharing. It is mentioned therein that diminishing Musharka is also a recognized mode of Islamic financing and is a form of co-ownership in which two or more persons share the ownership of a tangible asset and by which one of co-owners undertakes to buy periodically the proportionate share of the other co-owner until the title to such tangible asset is completely transferred to the purchasing co-owner. This, it may be stated, is a common ground between the parties and the parties do not dispute the underlying theme which has been referred to and which underlies the transaction in question. Paragraph 6 refers to the policy of Government of Pakistan to shift banking business in Pakistan to the Islamic mode of financing and in pursuance of which the State Bank of Pakistan (SBP) which is regulator for monetary and credit system of Pakistan has from time to time issued various Circulars in order to lay down the contours and parameters of the Islamic mode of financing. In this regard, a reference has been made to BCD Circular No.13 of 1984 as also BPD Circular No.1 dated 01.01.2003 which are foundational Circulars which lay down policies for the promotion of Islamic Banking. The plaint alleges that SBP has adopted Sharia standards framed by Accounting and Auditing Organization for Financial Institutions (AAOIFI) which is an Islamic International autonomous not-for-profit corporate body that prepares accounting, auditing, governance, ethics and Shariah standards for Islamic financial institutions and the industry worldwide. 7. AAOIFI was established in 1991 and has the support of industrial members of 40 countries and the majority of world leading Shariah scholars are members of the AAOIFI Shariah Board. The entire basis of the cause of action contained in the plaint is heavily reliant upon the AAOIFI standards
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which, according to the learned counsel for the plaintiff, have to be complied with and are enforceable by the courts in Pakistan. 8. In a nub, the case set up in the plaint is that the transaction, entered into between the plaintiff and the Sukuk holders (defendants), on the one hand is beyond the Circulars of SBP and the transaction documents executed in respect of the facility guarantees an arrangement of fixed repayment of amount which cuts across the spirit and essence of the Islamic mode of financing. 9. The learned counsel for the plaintiff has made a reference to the documents which were executed between the parties towards the availment of the finance facility and which documents taken cumulatively formed the basis of the transaction between the parties. The first document in the series of documents is the facility offer letter written to the plaintiff and containing the indicative terms and conditions for privately placed issue of Sukuk/Diminishing Musharka basis. The customer is the plaintiff and the facility is the privately placed issue of Sukuk (Shariah joint and based on diminishing Musharka). It was made clear in the facility offer letter that the facility was to be availed on the terms and subject to the conditions of the facility documents and all other related financing and security documents (transaction documents) each in form and substance acceptable to the financiers . The purpose of the facility was to pay back conventional banking facilities as also that the company wished to convert all of its financing to Shariah mode. The tenure was five years and it was agreed that the client was to purchase units at the end of the facility tenure. The next in the transaction documents is the agreement to Musharka dated 9.10.2007 between the plaintiff and the defendant No.2 which acted as the Investment Agent. It is pertinent to mention that the defendant No.2 was appointed as the Investment Agent by all the investors (defendants No.3 to 8) through the Investment Agency Agreement of even date. The recital to the agreement to Musharka gave an inkling into the nature of the transaction. It says: "AND WHEREAS, the Investment Agent (acting for itself and for and on behalf of the Investors) has purchased an undivided beneficial share in the Musharaka Assets from the issuer pursuant to the Asset Purchase Agreement dated 09, October 2007 ( the "Asset Purchase Agreement") entered into between the issuer and the Investment Agent. Such purchase of the undivided share in the Musharaka Assets has resulted in the creation of Shirkat-ul-Milk ("Musharaka") in the Musharaka Assets between the Issuer and the Investment Agent (as co-owners of the Musharaka Assets). 10. This agreement also defined Musharka to mean that: "The Shirkat-ul-Milk (partnership in Musharaka Assets) resulting from the purchase by the Investment Agent (on behalf of the Investors) of the undivided beneficial share in the Musharaka Assets pursuant to Asset Purchase Agreement and comprising of the Co-owners? joint ownership of the Musharaka Assets." 11. It will at once be noticed by the terms of the Musharka agreement, reproduced above, that the investment agent purchased the undivided beneficial share in the Musharka assets which resulted in the creation of Shirkat ul Milk. The term Musharka? has also been defined and will be alluded to in the latter part of this judgment. The third document in the series is the Service Agency Agreement. A Trust Deed was also executed on 9.10.2007 between the plaintiff and the defendant No.2 acting as the Investment Agent. The Investment Agency Agreement is also annexed with the plaint which is also dated 9.10.2007. This agreement has been executed between the defendant No.2 and the defendants No.3 to 8 by which the defendant No.2 was appointed as the Investment
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Agent. An Asset Purchase Agreement was also signed on 9.10.2007. The relevant clause pertinent for the determination of the dispute in question is reproduced as under: "Subject to the terms and conditions of this Purchase Agreement, the Seller, hereby, agrees to sell, transfer, convey and assign to the Investment Agent for the benefit of the Investors and the Investment Agent, for and on behalf of the Investors (which includes Investment Agent), hereby agrees to purchase from the Seller the Investors? Musharaka Share, subject to existing charges in favor of existing creditors as detailed in Schedule [F] hereto ("Existing Creditors?), for an aggregate purchase price of Rs.650,00,000/- (Pak Rupees Six Hundred Fifty Million Only) (hereinafter referred to as the "Purchase Price" or "Total Consideration") inclusive of all or any taxes. (In this Agreement, the term "Investors" shall mean and include BankIslami Pakistan Limited, Dawood Money Market Fund, Dawood Islamic Bank Limited, Trust Investment Bank Limited, First Dawood Investment Bank Limited and Saudi Pak Industrial & Agricultural Investment Co. (Pvt.) Limited being investors in respect of the Musharaka Assets and shall include any transferee and successor." 12. It may be noted that the plaint is related to the Asset Purchase Agreement which was executed between the parties and whose cancellation has been sought in the relief clause of the plaint. No other agreement in the transaction documents has been called in question nor has the cancellation been sought in respect of any other agreement between the parties except the Asset Purchase Agreement. This aspect is significant and will be reverted to at the relevant time. According to the learned counsel for the plaintiff, all documents which support the plaint have been annexed with the plaint and thus the requirements of section 9 of the Ordinance, 2001 stands completed. 13. Paragraph 7 of the plaint gives the list of the transaction documents executed between the parties. These are cumulatively referred to as Musharka Transaction Documents. Paragraphs 8 and 9 give an overview of the underlying transaction envisaged by the Musharka Transaction Documents. Suffice to say at this stage that the aggregate purchase price was Rs.650 million and it was constituted during the issuance of Sukuk units with each Sukuk unit constituting the equivalent of 0.00072% of the Musharka Assets. For the purposes of Musharka transaction, an Undertaking to purchase Sukuk units was also obtained from the plaintiff which was also dated 9.10.2007. Precisely, by the terms of the Undertaking, the plaintiff was required to purchase the Sukuk units, representing the percentage of ownership of the defendant No.2 and others in the Musharka Assets, at a pre- agreed price as stated in the Undertaking. A bank guarantee was also issued by the defendant No.9 securing the purchase of the Sukuk units by the plaintiff. It is the last two documents i.e the Undertaking to purchase (Undertaking) and the bank guarantee (Guarantee), which are the subject matter of this suit and in respect of which declaration has been sought. As adumbrated, the nub of the plaintiff?s case is that the Musharka asset was entered on the express representation and assurance by the defendant No.2 that it was a facility on the principles of joint participation and complying the Islamic mode of financing in its essence and spirit. In paragraph 2 has been mentioned the statement issued on February 8, by AAOIFI with regard to its Shariah standards and this is the document which forms the foundation for the relief sought in the instant suit. By referring to the paragraphs and cumulative reading of the plaint, the learned counsel for the plaintiff submits that the cause of action has clearly been mapped in the plaint to which a presumption of correction is attached. The bundle of facts which have clearly been laid down in the plaint can only be determined by evidence. 14. The learned counsel for the plaintiff on the basis of a reference to the plaint and by reading its
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contents has sought to invite this Court to hold that the issue No.1 is prima facie in favour of the plaintiff and the case must go to a regular trial. With regard to the issue No.2, the learned counsel makes a reference to section 9 of the Ordinance, 2001. It is conceded that the plaintiff is a customer and the defendants are financial institutions within the contemplation of the provisions of the Ordinance, 2001. According to the learned counsel, the defendants as financial institutions have committed a default in obligations cast upon the defendants by the transaction documents as also the Circular of SBP and therefore the suit is covered by the Ordinance, 2001. The definition of the term obligation? in section 2 (e) of the Ordinance, 2001 has been relied upon. 15. Mr. Salman Akram Raja, Advocate appearing on behalf of the defendants has dilated upon the contours of Order XIV, Rule 2 of the Code of Civil Procedure to submit that it was not necessary to confine the scrutiny to the contents of the plaint merely and this Court can look on all the materials in its evidence while determining the issue of law on which the suit can be disposed of. He further submits that the agreements have been admitted by the plaintiff and the only challenge is that the Undertaking and the Guarantee are barred by Shariah. In taking this ground, the plaintiff has lost sight of the fact that the transaction documents of which the Undertaking and the Guarantee are a part were executed on 9.10.2007 simultaneously and as one transaction and cannot be read in isolation. According to him, the entire basis of the plaint is the AAOIFI standard which has no relevance in the laws of Pakistan until incorporated by the SBP in its Circulars. No challenge has been laid to the rental agreement. He states that the transaction is a variant of hire purchase and has been labeled as Sukuk. Mr. Salman Akram Raja has taken pains to elaborate upon the true nature of the transaction between the parties in order to submit that the transaction is not for the profit in the enterprise or the fixed return of capital or profits and is in the nature of Shirkat ul Milk by which it is meant that for a limited period the defendants became equivalent the co-ownership in the Musharka Assets and not in the enterprise or the profit and losses of that enterprise. The transaction in simple terms is a purchase of ownership rights by defendants and by agreement the plaintiff re-purchased the share of ownership in that property from the defendants and for the use of that property during the period of Musharka agreement pays rent in respect thereof which is under a separate agreement. The tenure of the agreement was from 9.10.2007 to 8.10.2012. However, the agreement was terminated on 7.2.2011 on account of the default of the plaintiff. The plaintiff has not paid any amount towards the rent since 24.11.2010. Learned counsel for the defendants refers to the Undertaking and in particular to clause 4(i) to assert that the same price in respect of the repurchase of the Sukuk units and the ownership rights in the Musharka Assets have to be paid and there is no escalation in the said price. The only income derived by the defendants comes from the rent which the plaintiff is obliged to pay under the rent agreement which is a separate agreement which is not under challenge here. 16. Mr. Salman Akram Raja submits that no notification of the SBP has been urged to be violated in the plaint. According to him, the AAOIFI is merely an accounting standard which is at best in the nature of an information and is not binding on this Court. He has emphasized once again that the underlying transaction is Shirkat ul Milk which in any case is covered by the Circulars of the SBP as also the Circular issued by AAOIFI. In any case, according to the learned counsel, the AAOIFI standard relied upon is counter balanced by the guidance issued by Islamic financial services board on compilation and dissemination of prudential and structural Islamic finance indicators for banking and Islamic Financial services. This according to the learned counsel is a premier organization that promotes and enhances the stability of the Islamic financial services by issuing global prudential standards and guiding principles for the industry. The learned counsel entirely relies upon Circular 13 issued by the SBP which is based on certainty of return even under the said
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Circular. The transaction according to him is squarely covered by the Circular and thus the transaction is SBP compliant. In this regard, Shariah approvals have also been attached with the application for leave to defend (now the written statement). Lastly, the learned counsel has attached a series of Sukuk units issued by the Govt. of Pakistan and managed by SBP which are of the same nature and no cavil has been taken to these Sukuk units issued by the SBP. 17. Mr. Munawar ul Islam, Advocate appearing on behalf of the plaintiff in rebuttal stated that the plaintiff was entitled to cross examination of the certificate issued by Shariah Advisor as clearly the transaction does not conform to the Islamic mode of financing and thus the representation given out to the plaintiff was incorrect and unlawful which has given rise to the cause of action of the present suit. 18. The matter has been heard on the issues No.1 and 2 which in the estimation of the learned counsel for the defendants are issues of law and are sufficient to dispose of the suit. The issue No.2 related baseline questions of the amounts for determination. One whether the necessary jurisdictional facts exist for this Court to take cognizance of the matter in its special jurisdiction conferred by the Ordinance, 2001 and two if the jurisdictional facts do exist then whether the plaint at all discloses a cause of action or not. I shall deal with the first issue and in case it is held that the jurisdictional facts which exist for this Court to exercise jurisdiction, then the second question will be adverted to and determined. In Reg v. Commissioners for Special Purposes of the Income Tax, (1888) 21 Q.B.D 313 Lord Esher M.R. made it cler that it was for the Courts to construe the statute which gave jurisdiction to the Court. He said: "This view of the section involves the result that the question, whether the party claiming has so satisfied the terms of the section, must be subject of inquiry with reference to the particular circumstances in each case...They have to determine the question and they must determine it....according to the rule I have laid down. When an inferior Court or tribunal or body, which has to exercise the power of deciding facts, is first established by Act of Parliament, the legislature has to consider what powers it will give that tribunal or body. It may in effect say that, if a certain state of facts exists and is shown to such tribunal or body before it proceeds to do certain things, it shall have jurisdiction to do such things, but not otherwise. There it is not for them conclusively to decide whether that state of facts exists, and, if they exercise the jurisdiction without its existence, what they do may be questioned, and it will be held that they have acted without jurisdiction. But there is another state of things which may exist. The legislature may entrust the tribunal or body with a jurisdiction, which includes the jurisdiction to determine whether the preliminary state of facts exists as well as the jurisdiction, on finding that it does exist, to proceed further or do something m ore. " 19. For the purposes of determining whether the jurisdictional facts exist or not, section 9 of the Ordinance, 2001 is the starting point for any such discussion. Section 9 reads as under: "9. Procedure of Banking Courts.- (1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other office of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise.
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(2) The plaint shall be supported by a statement of account which in the case…
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