Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: SHAMS TEXTILE MILLS LTD., LAHORE VS Respondent: FEDERATION OF PAKISTAN AND Other
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid, Ajmal Mian Title: SHAMS TEXTILE MILLS LTD., LAHORE vs FEDERATION OF PAKISTAN AND Other Case No.: Constitutional Petitions Nos. 938 and 957 of 1980 Date of Judgment:1981-10-06 Reported As: PLD 1982 Karachi 513 Result: Petition dismissed
JUDGMENT
JUDGMENT AJMAL MIAN, J.-(a) Since in the above two writ petitions the petitioners have challenged the Vires of Ordinance XIX of 1979 and have prayed for identical reliefs, we intend to dispose of the same by this common judgment. (b) The brief facts leading to be filing of the above two petitionsare that the petitioner in Petition No. 937/80 under an agreement dated 29-.12-1969 obtained a loan in foreign currencies from respondent No. 3 equivalent to Rs. 1.40 lacs, which was to be utilised by the petitioner for the execution of its investment project fully described in Schedule 11 to the said agreement. Because of the rise in prices respondent No. 3 agreed to increase the amount of the aforesaid sanctioned loan to Rs. 1,51,80,000. Consequently, the original agreement was amended on 10-3-1973 and 7-6-1978. It seems that certain disputes arose between the parties. The petitioner on 21-4-1980 filed Suit No. 389180 in this Court, for account with consequential relief to the effect that the respondent No. 3 be directed to refund to the petitioner such amount of money as may be found due. The above suit is still pending. It further seems that respondent No. 3 filed a suit under Ordinance XIX of 1979 for the recovery of the balance amount of the above loan and the interest thereon, before respondent No. 2, i. e. the Special Court constituted under Ordinance XIX of 1979. The petitioner in order to assail the filing of the above suit filed by respondent No. 3 has filed the present petition for challenging the vires of the aforesaid Ordinance XIX of 1979. (c) The petitioner in Petition No. 938/80 also obtained foreign currency loan from respondent No. 3 under an agreement dated 29-1-1969 supplemented by a supplementary agreement dated 31-12- 1971. It may be observed that neither the petitioner nor the respondents have brought anything on record to indicate the amount of the loan, which was the subject-matter of the above two
---
## Page 2
agreements. Be that as it may, it further seems that in the above case also differences arose between the petitioner and respondent No. 3 resulting in filing of the Suit No. 390/80 on 21-4-1980 in this Court for account and for consequential relief in the form of refund of the amount if any found due and payable by respondent No. 3 to the petitioner. It also seems that respondent No. 3 also filed a suit for recovery of the balance amount of loan with interest thereon in the respondent No. 2 Court. The petitioner being aggrieved by the above act on the part of respondent No. 3 to file the aforesaid suit in respondent No. 2 Court has also filed the present petition challenging the vises of the Ordinance XIX of 1979. 2. (a) It may be observed that the Supreme Court while dismissing the petition for leave by an order dated 2-12-1980 (which was filed against the interlocutory order, dated 10-9-1980 passed by a Division Bench of this Court) directed this Court to decide the two petitions before the commence--ment of the winter vacation of 1980. However, from the diary of the petitions, it appears that the learned counsel for the parties on one ground or the other obtained adjournments. On 1-9-1981 when the above petitions came up for regular hearing, Mr. Aziz Munshi, learned Deputy Attorney--General, appearing for respondents Nos. I and 2 raised a preliminary objec--tion, namely, that in view of Article 15(1) of the P. C. O.; this Court cannot examine the question of validity of the aforesaid Ordinance. It may be observed that none of the respondents has filed any counter-affidavit. Since on 1-9-1981 the above preliminary objection was raised for the first time, learned counsel for the petitioners requested for time to prepare the cases on the above point, we accordingly adjourned the cases to 22-9-1981. On the above date and on 23rd and 24th the arguments were heard on the above preliminary objection as well as on merits, and the cases were reserved for judgment. (b) It may be proper to refer to the above preliminary objection raised by the learned Deputy Attorney-General, Mr. Aziz Munshi, before dealing with the contentions advanced on merits of the case. It has been urged by Mr. Munshi that under clause (1) of Article 15 of the P. C. O. All President's orders, orders of the Chief Martial Law Administrator, including orders of amending the Constitution made by the President or the Chief Martial Law Administrator, Martial Law Regulations and all other Laws made on or after the 5th day of July, 1977, have been declared notwithstanding any judgment of any Court, to have been validly made by a competent authority and that it has been provided that the same shall not be called in question in any Court on any ground whatsoever and shall continue in force until altered, repealed, reconstituted or amended by the competent authority and, therefore, it is not open to this Court to examine the vires of the above Ordinance XIX of 1979, hereinafter referred to the Ordinance. On the other hand, Mr. Mumtaz Hussain, learned counsel for the petitioners has urged that under Article 2 of the P. C. O. Inter alia Article 142 of the Constitution (which demarcates the Federal, Provincial, concurrent legislative competence) has been incorporated as a part of the P. C. O. And, therefore, this Court is competent to examine the vires of the impugned Ordinance. It has been further urged by him that money lending being a provincial subject, the President was not competent to legislate and to provide a forum for the recovery of loans advanced by a financial institution acting/functioning as a money-lender Mr. Mumtaz has referred to the case of United Provinces v. Mst. Atiqa Begum and others AIR1941FC16the case of Piare Dusadh and others v. Emperor AIR1944FCI and the case of Province of East Pakistan and others v. Muhammad Mehdi Ali Khan and others PLD 1959 SC (Pak.) 387,, in order to contend that if a law is not made by a competent Legislature, it remains unauthorised on the statute took and it cannot be validated, but it is to be re-enacted by a competent Legislature. He has also referred to a book, namely, Judicial Review of Legislative Acts by Dr. Jha, 1974 Edition, p. 266 on the above point. Mr. Mumtaz Hussain has also invited our attention to the difference in the language employed in clauses (1) and (5) of Article 15 of the P. C. O. In furtherance of his contention that this Court is entitled to examine the
---
## Page 3
vires of an Act. It has been pointed out by him that in clause (5), it has been provided that any Court including the Supreme Court and the High Court shall not make an order relating to the validity of an order or Martial Law Regulation or other acts mentioned therein, whereas in clause (1) of Article 15 the High Court and the Supreme Court have been deliberately omitted and only the words "any Court" have been mentioned. According to him this deliberate variation in the language used in the above two clauses of Article 15 of the P. C. O. Clearly indicates that the High Court and the Supreme Court are not divested of their powers to examine the vires of an act which is necessary and inherent for the purpose of giving proper effect to Article 142 of the Constitution we may observe that very learned arguments were advanced by the learned counsel for the petitioners on the above question, but since we are inclined to hold that the Ordinance has been validly made even without referring to clause (1) of Article 15 of the P. C. O., in our view it is not necessary to examine the above question, namely, whether clause (1) of Article 15 could have validated the Ordinance if it would not have been validly made by a competent authority, We, therefore, propose to examine the validity of the Ordinance without any reference to Article 55 of the P. C. O. 3. (a) Mr. Mumtaz Hussain's main contention was that entry 28 of the Fourth Schedule to the Constitution of Pakistan, (1973) does not empower the Federal Legislature to enact an Ordinance of the nature in question for provid--ing for the recovery of loans advanced by a financial institution whose business is money-lending, as money lending is a provincial subject. On the other hand, it was urged by - Messrs Khalid Anwar and Aziz Munshi that the word `Banking' used in Entry 26 is of wide connotation susceptible to a meaning which will include a financial institution like respondent No. 3 i. e. PICIC. It was further urged by them that in any event from Entries Nos. 10, 31 and 55 of the Federal List of Part I of the Fourth Schedule and Entries Nos. 2 and 3 of the concurrent Legislative List of Fourth Schedule to the Constitution, the requisite power to legislate the Ordinance can be spelt out. However, it was urged by Mr. Mumtaz Hussain that the above entries have no bearing. (b) In order to examine the contentions advanced by the :earned counsel for the parties, it may be advantageous to reproduce herein below Entry 28 of Part I of the Fourth Schedule to the Constitution, which reads as follows :- Entry 28.-"State Bank of Pakistan : banking that is to say, the conduct of banking business by corporations other than corporations owned or controlled by a Province and carrying on business only within that Province." It may be noticed that under the above entry the Federal Legislature is empowered to legislate in respect of State Bank of Pakistan banking that is to say, the conduct of the banking business by corporations other than corporations owned or controlled by a province and carrying on business only within that province. On the basis of the language employed in the above entry, it was contended by Mr. Mumtaz Hussain that the banking business has a definite connotation, which does not cover financial institutions doing money-lending business. In support of his above contention he has referred to the definition of the term `banking' and `banking-company' given in section 5(b) & (c) of the Banking Companies Ordinance, 1962 and also the definition of the word `bank' given in section 3(1) of the Banks (Nationalization) Act, 1974 (Act XIX of 1974) and also to the definition of the term `banking company' given in section 2(a) of the Banking Companies (Recovery of Loans) Ordi-- nance, 1979. (1. e. In the Ordinance). He has also invited our attention to the case of The Bank of Chettinad Ltd., Kolombo v. The Commissioner of Income-lax, Colombo PLD 1948 P C 107the case of N. M. N. Duraiswami Chettiar v. Dindigul Urban Co-operative Bank Ltd. And another AIR 1957 Mad. 745and Halsbury's Laws of England, 4th Edn., Vol. III, para. 38. On the other hand Mr. Khalid Anwer, Learned counsel for respondent No. 3, has referred to the Law of Banking by Lord Chorley, 5th Edn., p. 2, and also the case of Chargola Tea Co. Ltd. v. The Assam
---
## Page 4
Financial Corp., Shillong and others AIR 1973 Gohatti 136and section 2(l)(m) of the West Pakistan Money Lenders Ordinance, 1960. (c) It may be advantageous to reproduce hereinbelow the definitions of the aforesaid terms/words given in the aforesaid Ordinances, which read as follows :- (b) Section S(b) and (c) of Banking Companies Ordinance, 1962 (Ordinance L VII of 1962).- "Banking" means the accepting for the purpose of lend--ing or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise ; (c) `banking-Company' means any company which transacts the business of banking in Pakistan ; Explanation.-Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or tender shall not be deemed to transact the business of banking within the meaning of this clause. Section 3(1) of the Banks (Nationalisation) Act, 1974 (XIX of 1974):- "(1) `bank' means - (al A company registered under the Companies Act, 1913 (VII of 1913), and transacting, in or outside Pakistan, the business of banking as defined in clause (b) of section 5 of the Banking Companies Ordinance, 1962 (LVII of 1962), in respect of which no proceedings under Part III or Part IV of the said Ordinance have been taken or are pending immediately before the commencing day ; and (b) a banking company incorporated by or under any law within the legislative competence of parliament, including the State Bank, the National Bank of Pakistan, the Industrial Development Bank of Pakistan and the Agricultural Development Bank of Pakistan, but does not include. (i) a bank which is an enemy firm within the meaning of the Defence of Pakistan Rules, or (ii) a banking company incorporated outside Pakistan and transacting banking business in Pakistan, or (iii) a cooperative bank. Registered under the Co-operative Societies Act, 1925 (VII of 19251, or any other law for the time being in force relating to cooperative societies, not being a Co-operative Bank which is a scheduled bank, or (iv) a Government Saving Bank to which the Government Saving Bank Act, 1873 (V of 1873) applies, or (v) a corporation or company owned or controlled by a Province and carrying on banking business only within that Province". "(a) Section 2(a) of the Banking Companies (Recovery of Loans) Ordinance. 1979. "Banking company" means a bank as defined in the Banks (Nationalization) Act, 1974 (XIX of 1974), and includes, a banking company incorporated outside Pakistan and transacting banking business in Pakistan and a financial institution which the Federal Government may, by notification in the official 'Gazette declare to be a banking company for the purposes of this Ordinance but does not include the State Bank of Pakistan." (d) It may be noticed that the term `banking' has been defined in the Banking Companies Ordinance, 1962, means the acceptance, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, whereas banking company has been defined in the aforesaid Ordinance as any -company which transacts the business of banking in Pakistan. It may also be noticed that the explanation given after clause (c) of section 5 of the aforesaid Ordinance clarifies that any company which is engaged in manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of the aforesaid clause.
---
## Page 5
Whereas in the Banks (Nationalisation) Act, 1974 the word "bank" has been defined as meaning a company registered under the Companies Act, 1913 (VII of 1913) and transacting in or outside Pakistan, the business of banking as defined in clause (b) of section 5 of Banking Companies Ordinance, 1962 in respect of which no proceedings under Part III or Part IV of the said Ordinance have been taken or are pending immediately before the commencing day. The above definition also includes a banking company incorporated by or under any law, within the legislative competence of Parliament including the State Bank, the National Bank of Pakistan, Industrial Development Bank of Pakistan and the Agricultural Development Bank of Pakistan, but does not include a bank which is an enemy firm within the definition the Defence of Pakistan Rules or a banking company incorporated outside Pakistan and transacting business in Pakistan or a Co- operative Bank registered under the Co-operative Societies Act, 1925, or under any other law for the time being in force. Whereas the definition of a banking company given in the Ordinance, includes a bank as defined in the Banks (Nationalisation) Act, 1974 and includes a banking company incorporated outside Pakistan and transacting banking business , in Pakistan and a financial institution which the Federal Government may by notification in the official Gazette declare to be a banking company for the purpose of Ordinance, but does not include the State Bank of Pakistan. It may be noticed that the definition of the banking company given in the Ordinance is wide in its scope as compared to the definition given in the Banks (Nationalisation) Act, 1974, or in the Banking Companies. Ordinance, 1962, inasmuch as that a banking company incorporated outside Pakistan is also included. Furthermore, a financial institution can be declared as a banking company for the purposes of the Ordinance by a Notification in the official Gazette by the Federal Government. 4. (a) (i) With reference to the case reported in PLD 1948 P C 107, it may be observed that the question before the Privy Council was, as to whether the appellant-Company was liable to be assessed for income--tax under the Income-tax Ordinance of Ceylon in respect of the income and profit of its Ceylon branch, which had an office in Colombo and further question was, whether in computing the amount of said income and profit a deduction should be allowed in respect of a sum of Rs. 53,226 debited to the Ceylon branch by way of interest on the balance due to the Head Office during the year ending 31-3-1940. While considering the above question Lord Morton of Henryton observed that the word "banking and banker" may bear different shades of meaning at different periods of history, and their meaning may not be uniform today in countries of different habits of life and of different degrees of civilization". It was further observed that for the purpose of deciding, as to whether appellant's Ceylon branch carried on business of banking at the material time, what is to be seen is whether the branch at that time could be described as "a company which carries on as its principal business the accepting of deposits of money on current account or others, subject to withdrawal of by cheque, draft or order." (ii) With reference to the case, reported in AIR 1957 Mad. 745 it may be observed that a learned Single Judge of the Madras High Court while considering the relationship of a banker and its customer observed that any person or body corporate or otherwise- can be a banker who (1) takes deposit of accounts, (2) takes current accounts, (3) issues and pay cheques (4) collects cheques crossed and uncrossed for its customers. (iii) With reference to Halsbury's Laws of England, it will suffice to quote para. 38, which reads as follows;-- "38. Banker.-The Bills of Exchange Act, 1882 deals exclusively with a "banker", and the word `bank' does not appear in that Act or in the Cheques Act, 1957. A `banker' is an individual, partnership or corporation, whose sole or predominating business is banking, that is the receipt of money on current of deposit account and the payment of cheques drawn by and the collection of cheques paid in by a customer.
---
## Page 6
The characteristics usually found in bankers are (1) that they accept money from, and collect cheques for, their customers and place them to their credit ; (2) that they honour cheques or orders drawn on them by their customers when presented for payment and debit their customers accordingly ; and (3) that they keep current accounts in their books in which the credits and debits are entered. Any person carrying on in good faith the business of banking or any business of banking having for its primary object the lending of money, in the course of which and for the purposes of which he lends money, is excluded from the expression "money lender" in the Money Lenders Act, 1900. The judicial recognition of the banker's lies implies the .Inclusion in banking business of the making of advances or the granting of over--drafts to customers. Clearing bankers are such as are entitled to the privileges of the London Bankers' Clearing House. The Post Office is deemed to be a Bank and a banker and to be carrying on the business of banking and a banking undertaking." (iv) Reverting to the Law of Banking by Lord Chorley, it may be advantageous to reproduce hereinbelow the description of the commercial banks given in the above book, which reads as follows;- "Commercial Banks.-Commercial banks may be divided into banks of deposit and merchant banks. The object of a bank of deposit, of which the well known joint-stock banks called the `Big Five' are examples, is to collect large aggregations or deposits of money by borrowing from the mercantile and general community, and to lend it out again at interest for short periods to those requiring money for finance of their business, whether in commerce, industry, or agriculture. -The merchant banker, on the other hand, uses his own and borrowed money for the purposes of financing business of a type with which he makes himself especially familiar, such as overseas commerce, loans to foreign municipalities the issue of industrial securities, etc. The business of the merchant banker merges into that of the issue houses, and indeed it is hardly possible to give an exclusive description of it. It overlaps to some extent with that of the deposit banks, but they may be distinguished in that the merchant banks do not open account for any member of the public who choose to apply, and do not ordinarily issue cheque books to their customers. It is with the legal aspects of the business of the deposit banks that this volume is concerned, though something of what we have to say wile apply also to the merchant banks in so far as they are concerned with the same type of business. Formerly deposit banks were contrasted with hanks of issue, i.e. Banks which issued bank notes, that is, promissory Dotes payable to bearer on demand." It may, be noticed that a distinction has been made between a Commercial Banker and a Merchant Banker. The function of a merchant banker described in the above para. Is to use his own or borrowed money for the purpose of financing business of a type, with which he makes himself especially familiar, such as overseas commerce, loan to foreign municipalities, the issue of industrial securities etc. It has also been pointed out that to some extent the function of a merchant banker overlaps with a deposit bank and that the distinction between the two is that the merchant banks do not open account of any member of public and do not ordinarily issue cheque books to their customers. (v) With reference to the case reported in AIR 1973 Gohatti 136, it may be stated that the facts of the above case were that the respondent a Finance Corporation filed proceeding before the District Judge for the enforcement of a registered mortgage under section 31 of the State Finance Corporation Act, 1951. The above prayer was allowed. The appellant being aggrieved by the above judgment filed first appeal in the High Court of Gohatti. It was urged before the High Court by the learned counsel for the appellant that the Assam Money Lenders Act was applicable to the respondent-Corporation and, therefore, the loan transaction was illegal as is contemplated
---
## Page 7
payment of compound interest. Whereas it was urged by the respondent-Corporation that under section 2(3) (c) of the said Finance Corporation Act, 1951, a loan advanced by the Life Insurance Corporation of India, the Finance Corporation of India, or any other corporated body was exempted from the provisions of the Money Lenders Act. In that context, it was urged by the learned counsel for the appellant that money lending being the subject within the provincial legislative competence, the above provision of the said Finance Corporation Act was ultra vires. The High Court while repelling the above contention held that the Parliament was competent to enact the Corporation Act as it could be traced out not only to entry 43 but also to Entry 45 of list 1, namely, `banking'. In the above case though the Financing Corporation was not strictly performing the function of a banking company as it was not receiving deposits or opening current accounts etc. But it was treated as a banking corporation. (vi) Section 2(1) of the West Pakistan Money Lenders Ordinance, 1960 defines a loan, whereas clause (ml defines a money lender as a person carrying on business of advancing loans. (b) From the above cited provisions of law and the case law, it is evident that banking business normally means accepting deposits of money from the public for the purpose of lending or investment, repayable on demand, or otherwise and withdrawable by cheque, draft, order or otherwise. However, at the same time, as pointed out by the Privy Council in the aforesaid case reported in PLD 1948 P C 107 that the word 'banking' and 'banker' may bear different meanings in different periods of history and…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.