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Petitioner: SHAUKAT ALI MIAN And Another VS Respondent: THE FEDERATION OF PAKISTAN
Court Name: Lahore High Court Judge(s): Mian Allah Nawaz, Karamat Nazir Bhandari, Amir Alam Khan Title: SHAUKAT ALI MIAN And Another vs THE FEDERATION OF PAKISTAN Case No.: Intra-Court Appeal No. 679 of 1998 Date of Judgment:1999-01-27 Reported As: 1999 CLC 607 Result: Appeal allowed
JUDGMENT
JUDGMENT MIAN ALLAH NAWAZ, J.--- On 11th May, 1998 hostile neighbourly Country/India carried three nuclear tests. Still un-contented, it exploded two more nuclear devices on 13th May, 1998. These nuclear blasts posed a serious threats to the security of Pakistan. Confronted with aggressive designs of neighbour, Government of Pakistan conducted five nuclear tests on 28th May, 1998,. With the proclamation of emergency under Article 233 of the Constitution of Pakistan (1973). On the same date, Foreign Exchange (Temporary Restrictions) Ordinance VII of 1'998 was promulgated with immediate effect. State Bank of Pakistan issued Circular No. 12 on 29th May, 1998. Soon thereafter, the said Ordinance was passed as Foreign Exchange (Temporary Restrictions) Act IV of 1998 on 25- 9-1998 by Majlis-e-Shoora as Money-Bill and was made effective from 28th May, 1998. These legislative/executive measures suspended the rights of holders of foreign currency account to hold, sell, withdraw, transfer, pay or take out foreign exchange held by them as on 28th May, 1998. This was however, made subject to prior permission of State Bank of Pakistan. Pursuant to this Act, State Bank of Pakistan, issued on 2nd July, 1998 impugned Circular No.23 which is as follows:------ "Please refer to section A(III) of B.C.D. Circular No.5, dated the 5th July, 1987 read with section 2 of B.C.D. Circular Letter No.7/121-00--92, dated the 4th June, 1992 and Rule 10(i.e) of Rules of Business for N.B.F.Is. Regarding margin requirement prescribed for advances against bank deposits and deposit certificates, it has been decided that encumbrance of lien of any kind upon any foreign currency deposit/foreign currency certificate as a cover against any direct or indirect liability of the depositors must be removed by July 31, 1998 through set of or direct liquidation of the liabilities so covered by the borrowers.
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No new encumbrance of lien should thereafter be created against foreign currency deposit/certificates held on May 28, 1998. All banks/N.B.F.Is. Are further directed to give a compliance report to the State Bank within 3 days of the expiry of the deadline. " 2. Feeling aggrieved, account-holders preferred 76 Constitution petitions which were fixed for hearing before our brother Faqir Muhammad Khokhar, J. Still more such petitions came which were listed before one of us (Karamat Nazir Bhandhari, J.). On 30th July, 1998, aforesaid petitions were dismissed by Single Judge (Khokhar, J.), upholding the vires of Circular No.23. Feeling aggrieved, 65 Intra-Court Appeals were preferred by aggrieved Foreign Currency Account-holders. Intra-Court Appeal No.679 of 1998 was admitted to regular hearing by Division Bench of this Court comprising one of us (Karamat Nazir Bhandari, J.), and Rao Iqbal Ahmad Khan, J. On 6-8-1998. On the same date, Intra-Court Appeal No.689 of 1998 was also admitted to regular hearing. Since these cases raised question of legal importance, Honourable Chief Justice of this Court was pleased to constitute a larger Bench to hear Intra-Court Appeal No.689 of 1998 and all connected Intra-Court Appeals and Writ Petitions. This occurred on 11-8-1998. In compliance with that order, all these causes were listed before the Full Bench comprising Mr. Justice Ehsanul Haq Chaudhry, Mr. Justice Amir Alam Khan and Mr. Justice Karamat Nazir Bhandari. On 26-11-1998, his Lordship Mr. Justice Ehsanul Haq Chaudhry made a request to Honourable Chief Justice that he may be excluded from the Fall Bench on the ground of his multifarious engagements. Wish of his Lordship was acceded to and on 27-11-1998 and a Full Bench was reconstituted by including one of us (Mian Allah Nawaz, J.), in it. This is, how, 67 Intra-Court Appeals and fifty Constitution Petitions were laid before the so- constituted Bench. 3. Sixty-seven (67) Intra-Court Appeals intended to be disposed of by this order bear Intra-Court Appeals Nos.679 of 1998, 689 of 1998, 741 of 1998, 744 of 1998, 710 of 1998, 708 of 1998, 694 of 1998, 766 of 1998, 767 of 1998, 746 of 1998, 755 of 1998, 663 of 1998, 828 of 1998, 827 of 1998, 826 of 1998, 722 of 1998, 825 of 1998, 824 of 1998, 823 of 1998, 822 of 1998, 749 of 1998, 747 of 1998, 711 of 1998, 714 of 1998, 754 of 1998, 705 of 1998, 751 of 1998, 750 of 1998, 691 of 1998, 725 of 1998, 796 of 1998, 797 of 1998, 795 of 1998, 777 of 1998, 716 of 1998, 732 of 1998, 733 of 1998, 734 of 1998, 735 of 1998, 736 of 1998, 798 of 1998, 799 of 1998, 800 of 1998, 801 of 1998, 925 of 1998, 1309 of 1998, 1310 of 1998, 770 of 1998, 709 of 1998, 748 of 1998, 743 of 1998, 742 of 1998, 745 of 1998, 737 of 1998, 724 of 1998, 723 of 1998, 720 of 1998, 719 of 1998, 695 of 1998, 693 of 1998, 692 of 1998, 776 of 1998, 772 of 1998, 757 of 1998, 758 of 1998, 690 of 1998, and 739 of 1998. Writ Petitions being dealt with this order, are Petitions Nos.17482 of 1998, 14635 of 1998, 14498 of 1998, 14719 of 1998, 14720 of 1998, 14918 of 1998, 14919 of 1998, 14760 of 1998, 14954 of 1998, 15027 of 1998, 15054 of 1998, 15065 of 1998, 15225 of 1998, 15393 of 1998, 15394 of 1998, 15464 of 1998, 15468 of 1998, 15469 of 1998, 15470 of 1998, 15471 of 1998, 15472 of 1998, 15603 of 1998, 15627 of 1998, 15642 of 1998, 15643 of 1998, 15941 of 1998, 15942 of 1998, 15943 of 1998, 15944 of 1998, 16451 of 1998, 17454 of 1998, 17393 of 1998, 17595 of 1998, 17564 of 1998, 17577 of 1998, 17578 of 1998, 14937 of 1998, 14938 of 1998, 23986 of 1998, 24577 of 1998, 25478 of 1998, 24596 of 1998, 24088 of 1998, 16624 of 1998, 15547 of 1998, 16878 of 1998, 18798 of. 1998, 19765 of 1998, 15406 of 1998, 18780 of 1998, 17103 of 1998, 16017 of 1998 25901 of 1999 and 17459 of 1998. 4. Facts, leading to instant litigation, need not be stated in detail. Suffice it to note that the appellants/petitioners are holders of Foreign Currency Accounts in various banks/authorised dealers. The aggrieved parties are divisible into three categories. Firstly, the F.C.A., holders who opened foreign currency accounts with various scheduled/foreign banks and availed of finance facility in rupees against the collateral of their accounts. Secondly, those who purchased foreign currencies/Dollars/Sterling and opened their accounts, in various scheduled/foreign banks under Protection of Economic Reforms Act, 1992 (XII of 1992). Thirdly, those who remitted their foreign exchange from outside the country and opened accounts in banks located in Pakistan. The
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commonality of all these petitions is that they seek to call in question the validity of Circular No.23, dated 2nd July, 1998/issued by the State Bank of Pakistan and validity of section 2 of Foreign Exchange (Temporary Restrictions) Act IV of 1998. 5. Messrs Salman Akram Raja, Shahzad Jahangir, Mansoor Ali Shah, Javed Shaukat, Imtiaz Rashid Siddiqui, Arad Ullah Siddiqui and Mr. Mahmood A. Sheikh, Advocates appeared on behalf of aggrieved persons. State Bank of Pakistan/respondent was represented by Mr. Abid Hassan Minto, Advocate, Mr. Sher Zaman, Deputy Attorney-General argued on behalf of the Federation. The learned counsel for all the sides agreed that vires of Act No.IV of 1998 and Circular No.23, dated 2- 7-1998 were main issue in this litigation; that factual background of it, was not in dispute and need not be recapitulated. Mr. Salaman Akram Raja, Advocate opened argument on behalf of affected F.C.A. Holders. His contentions are, briefly, as follows:-- Firstly ; that neither section 25 nor 41 of Banking Companies Ordinance, 1962 (Ordinance No.LVII) authorised the State Bank of Pakistan to acquire/purchase the foreign currency deposits of the appellants/petitioners without payment of the fair compensation. According to him, the single Judge erred in law in relying upon aforesaid provision to say that these provisions were source of authority of the- State Bank to purchase foreign exchange deposits of the appellants/petitioners. Secondly; that appellants/petitioners had deposited their foreign currency/foreign exchange in foreign currency accounts with various banks under section 4 of Protection of Economic Reforms Act (Act XII of 1992), that the appellants/petitioners were owners of these deposits and their titles in these deposits could not be extinguished, interfered with, acquired by the State Bank of Pakistan without payment of fair compensation. On the strength of the above rule it was suggested that Circular No.23 was confiscatory in nature and was in defiance of the fundamental right of property as guaranteed in Article No.23/24 of the Constitution. Reliance has been placed on Swadesh Ranjan Sinha v: Haradeb Banerjee (1991) 4 SCC 572 at pages 576/577, Untied States Trust Company of New York etc. v. State of New Jersey, et al. 52 LEd. 2d 92, and Bureau of Economic Analysis, United States Department of Commerce v. Susan B. Long and Philip H. Long 67 L.Ed. 322 Headnote 3, p.326. Thirdly; that the impugned circular was issued by the State Bank of Pakistan in malicious exercise of its authority, that neither it had any link with the explosion of nuclear device nor with the proclamation of emergency; that it was a pure and simple strategy devised by Federal Government to appropriate the forex of appellants/petitioners. Substantiating his contention, the learned counsel referred to the statement of Mr. Sartaj Aziz (the then Finance Minister), dated 8th August, 1998 wherein he had stated that the successive Government have utilized deposits in foreign currency accounts amounting to $ 11 billion Dollars in debt servicing/financing of import bill of oil and so on and so forth. This statement clearly proved that the State Bank of Pakistan had issued circular in deference to wishes of Federal Government to deprive the appellants/petitioners of their foreign currency deposits. In support of his contention the learned counsel referred to Rai Mazhar Iqbal and another v. The University of the Punjab, Lahore through Vice-Chancellor and 2 others 1992 CLC 1158, Messrs Maniar Industries (Pvt.) Ltd. v. Sindh Industrial Trading Estate Ltd. And another 1992 CLC 2329, Islamia University, Bahawalpur through Vice-Chancellor v. Dr. Muhammad Khan Malik PLD 1993 Lah. 141 at p.154 (paras.15 and 6), Ch. Manzoor Elahi v. Federation of Pakistan etc. PLD 1975 SC 66 at pages 125-126, Government of West Pakistan and another v. Begum Agha Abdul Karim Shorish Kashmiri PLD 1969 SC 14 at p.16, Olga Tellis and others v. Bombay Municipal Corporation and others AIR 1986 SC 180 (paras. 39, 42, 44), Zaheeruddin and others v. The State and others 1993 SCMR 1718, Human Rights Cases in the matter of Human Rights 1993 SCMR 2001 Mohtarma Benazir Bhutto and another v. President of Pakistan and others PLD 1998 SC 388. Fourthly; that the object of the impugned circular was not to curb manipulation of money market by the foreign currency accounts-holders or to save the economy from dollarisation. Continuing, he stated that the protection/immunities to foreign currency accounts under sections 4, 5 of Act of
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1992 were kept in field and were extended to new foreign currency accounts to be opened after 28th May, 1998 and was extended also to new dollar scheme. Even according to learned counsel, the new dollar bonds were allowed to be used as collateral. In the context of the above scenario, it was urged that Circular No.23 was naked confiscatory measure and was totally discriminatory. The strength was sought from Attorney-General for Alberta and Attorney---General for Canada and others (1939) AC 117 at 130. Mian Manzoor Ahmad Wattoo v. Federation of Pakistan and 3 others PLD 1997 Lah. 38, Mohtarma Benazir Bhutto and another v. President of Pakistan and others PLD 1998 SC 388; Islamic Republic of Pakistan through Secretary, Ministry of Interior and Kashmir Affairs, Islamabad v. Abdul Wali Khan, M.N.A. Former President of Defunct National Awami Party, PLD 1976 SC 57. Fifthly; that impugned circular was executive fiat and so could not operate retrospectively. On this rule, it was suggested that this circular was not applicable to foreign currency accounts of the appellants/petitioners. The reference was made to Hashwani Botels Limited v. Federation of Pakistan and others PLD 1997 SC 315, Messrs M.Y. Electronics Industries (Pvt.) Ltd. Through Manager and others v. Government of Pakistan through Secretary Finance, Islamabad and others 1998 SCMR 1404, Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others 1993 SCMR 1905, Shiva Rao and another v. Cecilia Pereira and others AIR 1987 SC 248, Bennett Coleman & Co. Ltd. And others v. Union of India and others AIR 1973 SC 106. Sixthly; that appellants/petitioners had opened foreign currency accounts with different scheduled/foreign Banks; had obtained finance facilities in lieu of these accounts as collaterals; that there was a relationship of Borrower and Lender between lending institutions and borrowers; that Circular No.23 could not interfere with aforesaid relationship. On this line of approach, it was suggested that neither Act of 1998 nor the Circular No.23 could snap relationship of lender and borrower. The reference was made to Construction of Statute by G.P. Singh on page 524. Seventhly; that section 9 of Foreign Currency Regulation Act, 1998 empowered the Federal Government to purchase the foreign exchange from its owners at the market rate of the foreign exchange; that neither the Federal Government nor the State Bank of Pakistan can acquire the foreign exchange from its owners/holders at an arbitrary rate fixed by it. Banking upon section 9, learned counsel contended that Circular No.23 had fixed an arbitrary rate that all these foreign currency accounts had to be liquidated at the rate of Rs.46. This, according to learned counsel, was clearly in violation of the mandatory rule as embodied in section 9 of Act No.VII of 1947. Eighthly; that right to property was basic right which was guarantee by Articles 23 and 24 of the Constitution and could not be interfered with by subordinate legislation. The learned counsel cited Qazalbash Waqf and others v. Chief Land Commissioner, Punjab, Lahore and others PLD 1990 SC 99, Jibendra Kishore Achharyya Chowdhury and 58 others v. The Province of East Pakistan and Secretary, Finance and Revenue (Revenue) Department, Government of East Pakistan PLD 1957 SC (Pak.) 9. Learned counsel also referred Messrs Wal Orient Power and Light Limited Gulberg-III Lahore v. Government of Pakistan Ministry of Water and Power through its Secretary, Islamabad and 2 others 1998 CLC 1178. Messrs Shahzad Jahangir, Mansoor Ali Shah, Javed Shaukat, Imtiaz Rashid Siddiqui, Asad Ullah Siddiqui and Mahmood A. Sheikh, Advocates adopted the line of above arguments. Mr. Mansoor Ali Shah referred to number of precedents to support above submission, Writ Petition No.14720 of 1998, Writ Petition No. 14760 of 1998, Writ Petition No. 15225 of 1998, Writ Petition No. 15470 of 1998, Writ petition No. 15471 of 1998, Writ Petition No. 16472 of 1998, Writ Petition No. 15603 of 1998 and Intra- Court Appeal No.766 of 1998. He also cited to submit that Circular No.23 had no nexus with the emergency law, Shyam Behari Tewari and others v. Union of India and another AIR 1963 Assam 94, Jaichand Lal Sethia v. The State of West Bengal and others AIR 1967 SC 483, Sadruddin Suleman Jhaveri v. J.H. Patwardhan and others AIR 1965 Bom. 224 and Bennett Coleman & Co. Ltd. v. Union of
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India and others AIR 1973 SC 106. The measure taken in pursuance of emergency declared under Article 233(1) of the Constitution. He also cited Messrs Motilal Padampat Sugar Mills C. Ltd. v. The State of Uttar Pradesh and others AIR 1979 SC 621 and Pakistan through Secretary, Ministry of Commerce and 2 others v. Salahuddin and 3 others PLD 1991 SC 546 to urge that the Government was bound by Principle Promissory estoppel and could not/cannot recall its assurances/commitments given in Act XII of 1992. He also stated that Circular No.23 was neither in public interest nor was reasonable. Reference was made to Lt.-Col. Farzand Ali and others v. Province of West Pakistan through the Secretary, Department of Agriculture, Government of West Pakistan, Lahore PLD 1970 SC 98, Haji Hashmatullah and others v. Karachi Municipal Corporation and others 1975 SCMR 359, Oliga Tellis and others v. Bombay Municipal Corporation and others AIR 1986 SC 180, Qazalbash Waqf and others v. Chief Land Commissioner, Punjab, Lahore and others PLD 1990 SC 99. He also cited Pakistan v. Salah-ud-Din PLD 1991 SC 546. 7. Mr. Javed Shaukat, Advocate, fiercely submitted that the protection and immunities granted under Act XII of 1992 could be taken away by Act of 1998 which was temporary in nature. He further submitted that the Federal Government had issued dollar-bonds and offered huge profits; that these bonds were/are an additional burden on our State which was already under a heavy debt- trap. In the context of the above situation, the learned counsel suggested that foreign currency accounts be treated as a fixed accounts for a specific period and thereafter be allowed to be operated within the framework of section 4 of the Act XII of 1992; that the foreign currency accounts-holders were prepared to assure the Federal Government that they will not withdraw from their deposits so as to help the State in the time of distress. He further submitted that section 3 of the Act, 1998 permitted State Bank of Pakistan to allow any one of account--holder to operate his account without providing any guideline. In the context of above, it was submitted that Act, 1998 was arbitrary law and suffered from any lack of statutory guideline. So it was a bad law. He relied upon Ahmad Hassan and 2 others v. Punjab University, Lahore, through its Vice-Chancellor 1997MLD 91, Central Board of Revenue and 3 others v. Seven-Up Bottling Co. (Pvt.) Ltd.1996 SCMR 700(d), Zohra and 5 others v. Government of Sindh PLD 1996 Kar. 1(b), I.A. Sherwani v. Government of Pakistan 1991 SCMR 1041, Dr. M. Shaukat Iqbal v. Muhammad Luqman Arshad 1991 MLD 1919, Rasbehari Panda v. State of Orissa AIR 1969 SC 1081, Saghir Ahmad v. State of U.P. AIR 1954 SC-728. Mr. Asad Ullah, Siddiqui, Advocate submitted the Majlis-i-Shoora, under Constitution, was not as sovereign as their counter-parts in secular countries. He relied on section 2-A to contend that the Federal Government/State Bank of Pakistan had no power whatsoever to resile from assurances given in section 4 of Act XII of 1992. Continuing, he furthersubmitted that Act No. IV of 1998 was a money bill which was not put before the Senate and was approved by the Majlis-e-Shoora. This being the position, the law had not been validly enacted by the first House of Parliament. 8. Mr. Abid Hassan Minto, Advocate, while defending Circular No.23, raised following points:------ Firstly; that on 28th May, 1998, the State Bank of Pakistan had no adequate foreign exchange to make repayments to account-holders; that foreign currency deposits had been utilized in the payment of debit-servicing, purchase of defence equipments and other necessary expenditures of the State. In the context of the above circumstances, it was suggested that issuance of a writ will be an exercise in futility. Secondly; that with the dawn of independence, Pakistan pursued rule of mixed economy; that Foreign Exchange Regulation Act, 1947 was adopted by the State which provided restriction on dealings in foreign exchange and on its payment; that section 4 of Act expressly stated that no person other than an authorised dealer and no person resident in Pakistan other than an authorised dealer shall buy or borrow or sell or lend or exchange with any person not being an authorised dealer of any foreign exchange. Section 5 laid down restrictions on the payment of foreign exchange. These restrictions continued till 1992 when Act XII of 1992 was passed by the
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Parliament and was made effective from 28 July, 1992. This Act introduced the mechanics of a free market. This Act, however, did not repeal the Act of 1947 but the same time restrictions were lifted upon bringing, holding, selling or taking out foreign currency. The object of this legislation was to bring foreign exchange from outside and to boost economy. However, the petitioners/other foreign currency account-holders started to open foreign currency accounts, obtained loans, again purchased dollars with the loan so obtained then deposit it in the Banks. This mechanism actually started the dollarisation of our economy; that the needs/demands of the dollars was increased and demand for rupees in the market decreased. This led to unprecedented depreciation of our currency. According to the learned counsel, the protection and immunities granted to foreign currency account-holders were totally discriminatory and operated against holders of accounts in rupees; that these foreign currency accounts were free from income-tax, wealth tax, Zakat, which were payable by the holders of rupees accounts. This totally divided the holders of accounts in Banks in two classes foreign currency account-holders and rupee account- holders; that foreign currency accounts-holders had visible edge over money/accounts---holder. On the strength of the above circumstances, it was submitted that State Bank of Pakistan became conscious of the above situation and gave its opinion to the Federation Government in time. Thirdly; that Circular No.23 was not issued in consequences of proclamation of emergency; that S.B.P. Was created by Statute; that it was bound by the Act of 1998; that Circular No.23 was not issued in pursuance of proclamation of emergency. The learned counsel strenuously asserted that Circular No.23 was issued by the S.B.P. In exercise of its authority under section 23 of State Bank of Pakistan Act, 1956 read with section 25 of the Banking Companies Ordinance (BCO), 1962; that the circular shall continue even after the cessation of emergency. Fourthly; that neither the appellants nor the petitioners had locus standi to come to this Court; that Circular No.23 was directed to Banks/Lending institutions; that under section 2 of Act of 1998 the F.C.A. Holders had no right to hold, sell, withdraw, transfer, pay, or take out F.C.As. Held by them on 28th May, 1998 and so the collaterals given by F.C.A. Holders had become inefficacious; that under these circumstances S.B.P. Was fully competent to direct lending institution to call for fresh secularities --- in case they do no liquidate their collaterals on a rate fixed by Government of Pakistan. On the strength of the above submissions, it was submitted that Circular No.23 was a valid directive issued by S.B.P. Fifthly; that the F.C.A. Holders have been given the facility/right to purchase Special U.S. Dollars Bonds issued under Special U.S. Dollar Bonds Rules, 1998; that such bonds shall serve as a collateral for their loans. On the line of this argument, it was suggested that the F.C.A. Holders/petitioners/appellants have no legal grievance to continue this litigation. Sixthly; that the learned counsel relied upon section 91-A of B.C.O., 1962 to contend that the agreement between lender and loanee had come 'to an end by virtue of Circular No.23 and that the effectees had no authority to insist upon continuing with the collaterals of F.C.A. Any longer. Seventhly; that the conversion rate, of 46 rupees equivalent to dollar, was fixed by State Bank of Pakistan in consultation with the Federal Government; that the S.B.P. Had special expertise and fixed the conversion rate after due deliberation. This Court had no jurisdiction to substitute the rate fixed by the Government. Eighthly; that the Federal Legislature has power to make law which may interfere with the existing contracts. Lastly; Mr. Sher Zaman, Deputy Attorney-General argued the cause of Federation. He stated that the learned Attorney-General was not able to enter appearance on account of his engagement before apex Court. At the very outset he submitted that he did not share the perception of State Bank of Pakistan. According to him, Act of .1998 was made by the Parliament during the period of emergency as proclaimed by the President of Pakistan; that the executive Circular No.23 wasth
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issued by State Bank of Pakistan in pursuance of the emergency; that both the Act as well as Circular No.23 will automatically come to an end at the time of termination of emergency. On the above line, learned Deputy Attorney-General strenuously contended that both the Act as well as Circular No.23 were not amenable to jurisdiction of this Court in view of Article 232…
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