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Petitioner: M.D. TAHIR, ADVOCATE VS Respondent: DIRECTOR, STATE BANK OF PAKISTAN, LAHORE and 3 JUDGMENT
Court Name: Lahore High Court Judge(s): Muhammad Ghani Title:M.D. TAHIR, ADVOCATE vs DIRECTOR, STATE BANK OF PAKISTAN, LAHORE and 3
JUDGMENT
Reported As: 2004 CLD 1680 Result: Petition accepted Judgment JUDGMENT ' Mr. M. D. Tahir, an Advocate practising at the Bar of this Court, has filed this Constitutional petition calling in question the validity, legality and vires of Circular No,22, dated the 30th of June, 2003, issued by the Banking Policy Division of the State Bank of Pakistan. For facility of reference the impugned Circular is extracted below:-- "State Bank of Pakistan BPD Circular No.22June 30, 2003 The Presidents/Chief Executives, All Banks/DFIs. PROVISION OF INFORMATION REGARDING PROFIT/RETURN TO C.B.R. ' It has been decided that banks/DFIs are required to report the profit/ return paid to their clients to CBR SBP, therefore, in exercise of powers conferred to it under Banking Companies Ordinance, 1962, directs all banks/DFIs to provide information to CBR on biannual basis, with immediate effect, in respect of those accounts where bank/ DFI pays any profit/return in excess of Rs.10,000 per annum in an account or on deposit maintained with the bank/DFI. The information will be provided under the following parameters:-- (i) The information in respect of non-remunerative accounts will not be provided. (ii) Only the following information will be supplied to CBR: (a) Name of Account. (b) Address of Account. (c) NIC/NTN Number.
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(d) Amount of profit/return paid. (iii) The banks/DFIs will provide information on the basis of actual payments made to an account holder or depositor. (iv) Banks/DFIs will provide information in respect of profit/return to be declared and paid for the period ending 30th June, 2003 by 30th September, 2003 and thereafter within 60 days after the end of reporting half year. (v) In case of joint accounts, banks/DFIs will provide details, as mentioned at (ii) above, only for the lead name in the account/depositors' account. (vi) Head offices of the banks/ DFIs will provide the hard copies of the above data in consolidated form directly to CBR at Islamabad. (vii) The information provided by the banks/DFIs under the above arrangement shall be absolute and final. Officials of CBR will not ask for any further information from banks/ DFIs, directly or indirectly. ' Please acknowledge receipt. (Sd.) ' Yours faithfully, (Muhammad Kamran Shehzad) ' Director" 2. When the petition came up for hearing on the 16th of January, 2004, Khawaja Aamir Farooq, learned counsel for the respondent-State Bank of Pakistan (SBP), sought adjournment to enable him to file a reply/written statement. The case was adjourned to the 27th of January, 2004. On the date last mentioned, learned counsel for the respondent submitted that he had no intention to file any written statement, and would prefer to make his submission on the present record. The case was then posted for arguments on the 18th of February, 2004, when I heard the arguments of the petitioner-Advocate, and of learned counsel for the State Bank of Pakistan. 3. Before embarking upon examination of the extent of power of SBP, it will be helpful to look at the structure and the legal character of SBP itself. This Bank was constituted by the State Bank of Pakistan Act (No,XXXII) of 1956 (the "Act"). According to the preamble of the Act, it was created "to regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilization of the country's productive resources". Thus, it is clear that not only this institution is the national policy maker of monetary policies of the State, it was created as an independent agency to do this national job. In particular, this institution has no connection with either law enforcement or for doing the revenue collection for the Administration for which by statutes other agencies exist. In section 3 of the Act, it was provided as follows:-- "3. Establishment and incorporation of the Bank.--- (1) As soon as may be after the commencement of this Act, steps shall be taken to establish, in accordance with the provisions of this Act, a bank to be called the State Bank of Pakistan or Bank- eDaulate-e-Pakistan, for the purposes or taking over, as from the first day of July, 1948, the management of the currency from the Reserve Bank of India, carrying on the business of Central Banking. (2) The Bank shall be a body corporate by the name of the State Bank of Pakistan or Bank-e- Daulate-ePakistan having perpetual succession and a common seal, and shall, by the said name sue and be sued." ' A plain reading of the afore-quoted provision makes it indubitably clear that SBP was created on the pattern of the Reserve Bank of India. The independent nature of any Federal Reserve Bank is the sine qua non for its existence as only then it can ensure the Government's adherence to an expert
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body's neutral evaluation of how it is best to regulate such national fiscal and monetary policies in the country. 4. Having thus set the things in motion, I now proceed to examine the vires of the impugned Circular which, according to Khawaja Aamir Farooq, has been issued "to widen the tax net" and "to prevent tax evasion". According to him, State Bank of Pakistan has issued the impugned Circular in exercise of its power under section 41(1) of the Banking Companies Ordinance (No,LVII) of 1962 (the "Ordinance") which, for facility of reference, is reproduced below:-- "41. Power of the State Bank to give direction.---(1) Where the State Bank is satisfied that-- (a) in the public interest; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or (c) to secure the proper management of any banking company generally; It is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case mad be, shall be bound to comply with such directions." ' A bare perusal of the impugned Circular shows that it conspicuously omits the precise provision of the "Banking Companies Ordinance, 1962" under which the same has purportedly been issued. It is clear that this "direction" emphasizes, in the first instance, that SBP can direct for ordinary people's general financial information otherwise considered privileged by normal banking practices in respect of private accounts of ordinary depositors. It is important to note that this seeking of information is in the nature of what is called "fishing expeditions" about anyone without any specific suspicion of any wrong doing of any specific person. As mentioned above, even normal enforcement agencies, which otherwise are invested with legal powers of investigation, cannot question everyone as a general practice if they have no actual suspicion based on some material to do so. Secondly, this direction is being given by the SBP "under Banking Companies Ordinance, 1962" and not under the State Bank of Pakistan Act, 1956, the parent statute creating this institution and containing the overall ambit of its powers and jurisdiction. It is a jurisprudential significant point since normally the powers and jurisdiction to perform any particular act must emanate from the powers of jurisdiction conferred upon or vested in a given institution by its creating statute. Thirdly, the impugned Circular asks for information in cases of profits in excess of Rs.10,000 of account holders to be supplied to the Central Board of Revenue (CBR). There is a direct implication here that SBP is working in some manner as an instrument of the CBR, an institution of the Federal Government that controls the revenue collection policies of the Administration. Whether these different kinds of directions can be given at all is the primary legal question that must be addressed. The answer to first of these issues relates to an examination of the jurisdictional powers and position of SBP itself to see if such a direction can be issued. Admittedly, it is being purportedly issued under the assumed powers of the State Bank under the 1962 enactment. No specific section or provision of this law is cited. It is manifest that such vague basis of presumed powers of an extraordinary kind cannot be lightly allowed by the Court and it will be presumptively concluded that were any specific power available to SBP for doing so, it would have been simply stated. The nonexistence of any such provision in the impugned Circular itself is strong evidence that such a power was never entrusted to SBP. An omnibus reference to a statute, that generally deals with the laws relating to banking companies and not exclusively with the powers of the State Bank directly, raises prima facie doubts whether such a power does in fact allow the Central Reserve Bank of the Federation to issue directions regarding individual account holders which directly have nothing to do with general banking practices of the banks and of the financial institutions. It will be seen that the 1962 Ordinance is aimed at providing general details and guidelines of how banking
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companies have to operate their business. This is clear by a look at Part-II of this Ordinance and its assertions in the preamble that manifestly state that its aim and purview is to consolidate the laws relating to banking corporations. Hence, unless it is shown that such a kind of power that aims to collect random data and information regarding individual citizen's accounts with such banking companies is clearly present in the relevant law, the alleged power to issue such a direction in the nature of and as contained in the impugned Circular will have to be held to be non-existent. As the impugned Circular clearly has other objectives manifestly relating to revenue collection and collecting information from private banks about ordinary citizen's private financial affairs without even specific suspicion of any wrong doing, it is not surprising that no such specific power is present in either the statute of 1956 or indeed in the Ordinance of 1962 from which such a power to do so is alleged. The conclusion seems to be clear that no such jurisdiction exists in SBP to issue any such direction under the 1956 or the 1962 enactments. 5. Moreover, the first condition laid down by section 41 under which SBP had purportedly issued the impugned Circular is that it should have been "satisfied" that it was "in the public interest" to have given the directions to the Banks/F.D.Is. At the outset, it may be mentioned that "satisfied" is a well- known term used in legal parlance. In Abdul Ghafoor v. Crown (PLD 1952 Lahore 624) while interpreting the term "Government, if satisfied " used in subsection (1) of section 3 of the Punjab Public Safety Act (No,II) of 1947, it was observed that "the 'satisfaction' must be real and not sham; bona fide and not actuated by malice; a fact and not a pretext and this can properly be determined from all the facts and circumstances of the case. Where the factum of 'satisfaction' is not established, it is not only the right but the duty of the Court to protect the citizen against the excesses of the executive and restore his liberty". In Maulvi Farid Ahmad v. Government of West Pakistan (PLD 1965 (W.P.) Lahore 135), a Full Bench of five learned Judges of this Court held at page 141 of the Report as follows:-- "The word satisfaction is undoubtedly a condition precedent to the exercise of powers under section. It is, therefore, open to the Court to look into the grounds supplied to the detenue in order to determine whether the detention is proper or improper. It can examine the grounds to ascertain whether they are definite and precise. Although the Court cannot question the sufficiency or otherwise of the cause which is the basis of the satisfaction of the competent authority, yet the Court is well within the exercise of its judicial authority to satisfy itself that on the grounds which are the basis of the detention, the detaining authority could be satisfied as to the correctness of the order passed by it. If the grounds are not relevant to the object which the legislation has in view, namely, maintenance of the public order etc., there could be no basis for the satisfaction of the competent authority and the Court in that case can hold that the condition precedent for the passing of the order is nonexistent." ' In Syed Saeed Hassan v. Pyar Ali (PLD 1976 Supreme Court 6) it was authoritatively laid down that "satisfaction means the existence of a state of mental pursuation much higher than mere opinion. To be satisfied is to be honestly convinced". In Khawaja Muhammad Sharif v. Federation of Pakistan (PLD 1988 Lahore 725) another Full Bench of five learned Judges of this Court held at page 760 of the Report as under:- "The established law is that even if one ground is wide, vague, general non-specific or non-existent, the whole order has to fall. There is no need to cite any authority for this proposition. It is so axiomatic that it requires no explanation. If a person takes into account, say three factors for coming to a decision and one faulty or non-existent there is no way of knowing that how much part the faulty or non-existent fact had played in the formation of the judgment or opinion. Therefore, the whole order has to go. A perusal of the grounds mentioned above would make it quite clear that these can be urged any time for dissolving the National Assembly. Such a Draconian discretion is not envisaged by the Constitution which provides fo.- free people."
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' The impugned Circular does not mention even remotely that before undertaking the adventure, SBP had "satisfied" itself that it was "in the public interest" to do so. Since learned counsel for SBP elected not to file a written statement, it can safely be presumed that there was no material at all with SBP to form an objective opinion. 6. Likewise, the impugned Circular even does not claim that it was being issued "in the public interest". In Messrs Universal Leasing Corporation Ltd. v. State Bank of Pakistan (2002 CLD 102) the facts were that on the 4th of July, 2001, SBP issued direction "under section 41 of the Banking Companies Ordinance, 1962" to the Chief Executives of all "Commercial Banks" inter alia saying that "with immediate effect no withdrawal whatsoever in accounts" of the Companies named therein "and in accounts" of their associate companies in which they have interest shall be made without obtaining specific written permission from State Bank of Pakistan. The Directive was challenged before the High Court of Sindh at Karachi, through a Constitutional petition. A Division Bench of that Court struck down the Directive by inter alia observing as follows:-- "The only other ground on which a direction can be issued is 'public interest'. The impugned order does not mention as to how the direction is in the public interest." ' The Circular impugned herein is thus liable to be struck down M on this short ground. 7. Section 41(1) of the Ordinance which, as argued on behalf of SBP, is the sole basis for the purported exercise of power for issuance of the impugned Circular, and lays in unmistakable terms that the "direction" should in no manner be "detrimental to the interest of the depositors". Nothing has been brought on record to show how the impugned direction is not detrimental to the interest of the depositors. In the case of Messrs Universal Leasing Corporation Ltd. (supra), it was held as follows:-- "The same section provides that a direction can be issued to safeguard the interest of the depositors. It cannot, therefore, be issued to the detriment to the interest of depositors and the impugned order does exactly the same. The direction contained in the impugned order is directly against the interest of the depositors. The impugned order, and the direction therein, is, thus, in violation of the law itself, viz. Section 41 of the Banking Companies Ordinance, 1962, under which the order has been issued. It is, therefore, declared that the impugned order/direction has been issued without lawful authority and is of no legal effect." ' Ex facie, the natural consequence and effect of the impugned Circular is that SBP has made the CBR the proverbial "whipping boy". Let us not be unmindful of the ancient insight that excess even of virtue is to be avoided. 8. It is then to be seen that section 33 of the Ordinance authorizes SBP to publish any information it may collect in "public interest". This is clear enough but the basic and sharper legal question is: Has it the power to collect any such information? As it has been outlined above, there does not appear to be any such power to collect the information in question. Thus, "public interest" itself without determining how and what criteria are utilized to ascertain such a concept is not a solid and valid legal justification for allowing the validity of this Circular. Similarly, section 41-A also authorizes the SBP to take certain enumerated actions in "public interest". However, again this power to issue any such Circular and to obtain the kind of information that it seeks to collect is not to be found within the purview of this provision as well. Hence these sections of the Ordinance do not provide any such powers to SBP to have issued the impugned direction to the Banks/D.F.Is. 9. In the context, few added legal concerns might also be noted. The "direction" if valid operates as a law though it does not possess the status of an Act. It has the status of subordinate legislation and would be normally tested on both grounds of jurisdictional ultra vires qua the parent statute and recognized jurisprudential grounds of validity. For instance bye-laws of a municipality can be intra vires or ultra vires qua the civic statute setting up a municipality or they can be hit and struck down on grounds, inter alia of reasonableness. The matter of statutory vires has been analyzed
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above and found that the power to issue such a direction does not find itself within the jurisdictional or the constituent powers of the SBP. Turning now to the matter of testing this direction on other recognized grounds of validity, it is apparent that it would be hit by being considered prima facie "unreasonable". The direction seeks specifically and without any sustainable juridical criteria all personal information (re: Name, address, NTN Number and NIC Numbers as well amount of money) presumably to widen the data regarding individuals who have obtained rupees ten thousand as interest. This quest, whatever its importance to a tax collection strategy, is destructive of the well-recognized principles relating to secrecy considerations of the public which can lawfully expect that when they make deposits in banks on a fiduciary understanding that their personal details given voluntarily to the banks will be kept away from all probing scrutiny in absence of specific wrong doing by them. This measure manifestly destroys the very basis of such public confidence and normal banking practices recognized the world over in civilized countries. So far as we are concerned, by the Banking Companies (Amendment) Act (No,XIV) of 1997, section 33-A was added to the 1962 Ordinance with effect from 31st of May, 1997. It reads as follows:-- "33-A. Fidelity and Secrecy.---(1) Subject to subsection (4), every bank and financial institution shall, except as otherwise required by law, observe the practices and usage customary among bankers and, in particular, shall not divulge any information relating to the affairs of its customers except in circumstances in which it is, in accordance with law, practice and usage customary among bankers, necessary or appropriate for a bank to divulge such information. (2) Every president, chairman, member of the Board, administrator, auditor, adviser, officer or other employee of any bank and financial institution shall, before entering upon his office, make a declaration of fidelity and secrecy in such form as may be prescribed. (3) Notwithstanding anything contained in subsections (1) and (2), every balance-sheet and profit and loss account statement prepared by a bank and financial institution shall include statements prepared in such form and manner as the State Bank may specify in respect of written off loans or any other financial relief of five hundred thousand rupees or above allowed to a person as well as the provision, if any, made for bad or doubtful debts. (4) The State Bank of Pakistan may, if satisfied that it is necessary so to do at the time of holding general elections under any law relating thereto, publish a list of persons to whom any loans advances or credits were extended by a bank or financial institution, either in their own names or in the names of their spouses or dependents or of their business concerns (if mainly owned and managed by them) which were due and payable and had not been paid back for more than one year from the due date, or whose loans were unjustifiably written off in violation of banking practices, rules or regulations on or after such date as may be determined by the Government: ' Provided that before publishing the name of any person in any such list he shall be given prior notice and, if he so requests, an opportunity of hearing." ' We have borrowed this provision from common law. Reference may be made to the case reported as Tournier v. National Provincial and Union Bank of England [(1924) 1 KB 461]. The facts of that case were that the plaintiff was a customer of the defendant-Bank. A cheque was drawn by another customer of the defendant in favour of the plaintiff, who instead of paying it into his own account endorsed it to a third person who had an account at another Bank. On the return of the cheque to the defendant its Manager enquired of the last named Bank who the person was to whom it had been paid, and was told it was a bookmaker. That information the defendants disclosed to third persons. The plaintiff brought action for slander, and for breach of an implied contract that the defendant would not disclose to third persons the state of the plaintiff's account or any transaction relating thereto. In the context of the question involved herein, Banks L.J., of the Court of Appeal of King's Bench Division inter alia held as follows:---
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"At the present day I think it may be asserted with confidence that the duty is a legal one arising out of contract, and that the duty is not absolute but qualified. It is not possible to frame any exhaustive definition of the duty. The most that can be done is to classify the qualification, and to indicate its limits." "On principle I think that the qualifications can be classified under four heads: (a) where disclosure is under compulsion by law; (b) where there is a duty to the public to disclose; (c) where the interests of the bank require disclosure; (d) where the disclosure is made by the express or implied consent of the customer. An instance of the first class is the duty to obey an order under the Bankers' Books Evidence Act. Many instances of the second class might be given. They may be summed up in the language of Lord Finlay in Weld-Blundell v. Stephens (1), where he speaks of cases where a higher duty than the private duty is involved, as where "danger to the State or public duty may supersede the duty of the agent to his principal." A simple instance of the third class is where a bank issues a writ claiming payment of an overdraft stating on the face of the writ the amount of the overdraft. The familiar instance of the last class is where the customer authorizes a reference to his banker. It is more difficult to state what the limits of the duty are, either as to time or as to the nature of the disclosure. I certainly think that the duty does not cease the moment a customer closes his account. Information gained during the currency of the account remains confidential unless released under circumstances bringing the case within one of the classes of qualification I have already referred to. Again the confidence is not confined to the actual state of the customer's account. It extends to information derived from the account itself." "In the present case I think that the 'information obtained by Mr. Fennell as the result of his inquiry of the London City and Midland Bank was covered by the privilege of the customer, and that the bank are liable for any disclosure of that information which may have caused damage to the plaintiff unless the bank can bring the disclosure of the information so derived under one of the classified qualifications I have already referred…
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