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Petitioner: MUHAMMAD UMER RATHORE VS Respondent: FEDERATION OF PAKISTAN
Court Name: Lahore High Court Judge(s): Sayed Zahid Hussain, Syed Asghar Haider, Syed Hamid Ali Shah Title: MUHAMMAD UMER RATHORE vs FEDERATION OF PAKISTAN Case No.: Writ Petition No,18196 of 2002 Date of Judgment:2008-12-23 Reported As: PLD 2009 Lahore 268 Result: Order accordingly
JUDGMENT
JUDGMENT SYED HAMID ALI SHAH, J.---These constitutional petitions covering common questions of law, filed by the borrowers/customers of various banks, assail the constitutionality, vires, validity and legality of the provisions of Section 15 of the Financial Institutions (Recovery of Finances) Ordinance, 2001(the Ordinance). The questions raised, involve interpretation of the Constitution and other laws, therefore, on reference, a Full Bench of this Court was constituted to hear these petitions. A notice to the Attorney General was issued, as required under Order XXVII A of Code of Civil Procedure, 1908. 2. The following questions/propositions were raised, for our consideration and determination:-- (i) Whether Section 15 of the Ordinance is ultra vires the Constitution being discriminatory, oppressive, unjust, providing parallel system of justice and violative of -fundamental rights especially denying the access to justice to the citizens and violative of rule of law and due process of law? (ii) Whether the scheme and mechanism of recovery provided by the provisions of Section 15 of the Financial Institutions (Recovery of Finances) Ordinance, 2001, empowers Financial Institution to usurp judicial powers and amounts to a parallel legislative judgment? (iii) Whether provisions of section 15 of the Ordinance are in conflict with sections 3 and 9 of the Ordinance? Whether principles of "Reading Down" of statutory provisions would be applicable in the instant case? (iv) Whether the provisions of section 15 abridge the fundamental rights of the customers and the laws? 3. Mr. Shahid Ikram Siddiqui, Advocate representing various petitioners, has taken us through Section 15 to submit that subsection (2) of Section 15, provides for issuance of notice in the event of
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default to mortgagor for the payment of outstanding mortgage money. He submitted that mortgagee/ Financial Institution can proceed against a mortgagor, under the impugned provision, without recourse to the Court and without determining the factum of default or a valid mortgage. The sale under section 15 of the Ordinance, 2001 is finalized without ascertaining the liability of principal borrower. Reference to section 9 was made, where, in case of default, in fulfilment of an obligation, the lender (Financial Institution), has to institute a suit for recovery of outstanding loan, against it's customer. It is contended that two provisions, referred above, are in conflict with each other. While one provides for recovery, of bank loan, by filing of suit through due process of law, the other empowers the bank to sell the mortgage property and recover the mortgage money, by issuing three notices. Learned counsel went on to argue that by virtue of subsection (5), the lender banks can sell the mortgage property and can also purchase the mortgage property. Additionally, the Financial Institutions, under this subsection can execute a sale deed, on behalf of mortgagor and can present it for registration. According to learned counsel, under subsections (5) and (7), the Financial Institution assumes the powers of buyer as well as a seller and becomes a Judge of it's own cause. The mortgaged property is put to sale by the Financial Institution without discharging the primary responsibility of proving that the mortgage relates to the existing loan or it was executed for some other loan. Learned counsel emphasized that mortgage deed merely reflects the purchase price. Thus if the borrower approaches the Banking Court and proves that the sanctioned amount was not disbursed, or partially disbursed, the Financial Institution is not entitled to recover the mortgage money. Learned counsel urged that if mortgagor proves his claim before the Court, yet he is deprived of his mortgage property as in the meanwhile the property stands transferred to the auction purchaser and it cannot be returned to the mortgagor. Learned counsel referred to the case of Sh. Abdul Sattar Lasi v. Federation of Pakistan through Secretary, Ministry of Law, Justice and Parliamentary Affairs, Islamabad and 6 others 2006 CLD 18. He submitted that Honourable Baluchistan High Court found provisions of section 15 in pari materia to section 69 of the Transfer of Property Act, 1882. He added that both the provisions are void as they are in conflict with Article 4 of the Constitution of Islamic Republic of Pakistan and thus are derogatory and violative of fundamental rights of the subject. Case of A. Batcha Saheb V. Nariman K. Irani and others AIR 1955 Madras 491 was referred, wherein the amendment in section 69 of the Transfer of Property Act, 1882 was suggested. Learned counsel submitted that conflict between two provisions of law namely Sections 9 and 15, requires its resolution through interpretation on the basis of "Reading Down". When principle of "Reading Down" is applied to the instant proposition, the provisions of Section 15 ought to be struck down being ultra vires of the supreme law. Cases of Mst.Ameer Khatun v. Faiz Ahmed and others PLD 1991 SC 787, Messrs Elahi Cotton Mills Ltd and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582, Sunil Batra v. Dehli Administration and others AIR 1978 SC 1675, Wajahat Ikram and others v. The State 1999 SCMR 1255 and Rauf Bukhsh Qadri v. The State and others 2003 MLD 777, were referred to support this contention. It was then submitted that impugned provision offends Articles 4 and 9 of the Constitution and the petitioners are deprived of their right of access to justice and being treated in accordance with due process of law. The essential requirements of due process of law namely; notice of proceeding; reasonable opportunity to defend and adjudication of dispute through process of Court of competent jurisdiction with reasonable assurance of honesty and impartiality, are lacking in the impugned provision of law. Further reliance in this regard was placed on the cases of Aftab Shahban Mirani v. President of Pakistan and others 1998 SCMR 1863, Al-Jehad Trust v. Federation of Pakistan PLD 1996 SC 324, Sharaf Faridi and 3 others v. The Federation of Islamic Republic of Pakistan and others PLD 1989 Karachi 404 and Government of Balochistan through Additional Chief Secretary v. Azizullah Memon and others 1993 PLD SC 341. Learned counsel contended that it is the duty of the Legislature to legislate laws, which are just,
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non-oppressive and balanced. The law if enacted, contrary to these parameters, can be struck down by the Courts in exercise of power of judicial review. The petitioner, in support of this contention found help from the law laid down in the cases of Province of Punjab and others v. National Industrial Cooperative Credit Corporation and others 2000 SCMR 567, National Industrial Cooperative Credit Corporation Ltd. v. Province of Punjab/Government of Punjab through Secretary PLD 1992 Lah. 462 and Pakistan through Secretary v. Muhammad Umar Khan and others 1992 SCMR 2450. On the question of equality among the citizens and equal protection of law, learned counsel referred to the following precedents Government of Balochistan through Additional Chief Secretary v. Azizullah Memon and others 1993 PLD SC 341, Province of Punjab and others v. National Industrial Cooperative Credit Corporation and others 2000 SCMR 567, Naseem Mehmood v. Principal King Edward Medical College Lahore and others 1965 PLD (W.P.) Lah. 272; Mehram Ali and others v. Federation of Pakistan and others PLD 1998 SC 1445 and Gul Khan v. Government of Balochistan through Secretary PLD 1989 Quetta) 8. Learned counsel supported his other contentions by making reference to the cases of Abdul Raheem and 2 others v. Messrs United Bank Limited of Pakistan PLD 1997 Karachi 62, Messrs Chanab Cement Product (Pvt.) Ltd. v. Tribunal Lahore and others PLD 1996 Lah. 672, Khan Asfand Yar Wali v. Federation of Pakistan through Cabinet Division PLD 2001 SC 607, Mehram Ali and others v. Federation of Pakistan and others PLD 1998 SC 1445, Asif Ali Zardari and others v. The State PLD 2001 SC 568, Nek Muhammad v. Roda PLD 1986 SC (AJ & K) 23, Messrs Faridsons Ltd v. Government of Pakistan through its Secretary PLD 1961 SC 537, Abdus Saboor Khan v. Karachi University and others PLD 1996 SC 536, Ghulam Mustafa Jatoi v. Additional District and Sessions Judge/Returning Officer 1994 SCMR 1299, A.D.B.P. And others v. Abid Akhtar 2003 SCMR 1547, The Province of West Pakistan v. Muhammad Ayub Khuhro PLD 1967 Karachi 673, A.D.B.P. v. Sanaullah Khan 1988 PLD SC 67, Egmore Benefit Society, 3rd Branch Ltd. Through Damodara Mudaliar v. K. Aburupammal AIR (30) 1943 Madras 301, Muhammad Hassan v. Messrs Muslim Commercial Bank Ltd. And another 2003 CLD 1693, Messrs Nizamuddin & Company and 4 others v. The Bank of Khyber 2003 CLD 914, Muhammad Rafiq v. United Bank Ltd and another 2005 CLD 1162; Hudabiya Textile Mills Ltd. And others v. Allied Bank of Pakistan Ltd. And other PLD 1987 SC 512, Mrs. Aziz Fatima and three others v. Rehana Chughtai and three others 2000 CLC 863, Brig. (R.) Mazhar- ul-Haq and another v. Muslim Commercial Bank PLD 1993 Lah 706, Messrs A. M. Rice Corporation and others v. Bank of Punjab and others 2003 CLD 1783 and Khan Asfand Yar Wali and others v. Federation of Pakistan through Cabinet Division PLD 2001 SC 607. 4. Barrister Zafarullah Khan, Advocate, representing petitioners in Writ Petition No,5076 of 2007 contended that transparency is lacking in the sale under the provisions of section 15 of the Ordinance. He then contended that subsection (12), provides that Court cannot issue an injunction, against the sale through auction, which restricts the powers of the High Court. Learned counsel adverted to subsections (4) to (8) and submitted that these provisions make the Bank a Judge of its own cause and the mortgagor is punished without being able to defend his cause. Learned counsel has placed reliance on the case of "Waris Meah v. State Bank of Pakistan PLD 1957 SC 157, whereby State Bank of Pakistan was invested with three pronged powers to deal with violators of Foreign Exchange laws to proceed against offender under ordinary law; complaint before Tribunal or bringing the matter before Foreign Exchange Tribunal. Learned counsel added that leaving unfettered and unguided choice in the hands of the State Bank was held to be violative of the fundamental rights of a citizen. He also placed reliance on the cases of Miss Benazir Bhatto v. Federation of Pakistan and another PLD 1988 SC 416; Khan Asfandyar Wali v. Federation of Pakistan PLD 2001 SC 607 and Sh. Abdul Sattar Lasi v. Federation of Pakistan through Secretary, Ministry of Law, Justice and Parliamentary Affairs, Islamabad and 6 others 2006 CLD 18 and submitted that impugned provision is unconstitutional and invalid.
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5. Mr. Gohar Aslam, Advocate, narrated the history and background of Article 4, as has been stated in the case of "Aftab Shahban Mirani v. President of Pakistan and others" 1998 SCMR 1863 and submitted that notice of recovery, without determination of amount due and without adopting the process of law, is illegal and unlawful. Learned counsel, in support of his contention, made reference to the case of "Abdul Latif v. Government of West Pakistan" PLD 1962 SC 384 to contend that determination of liability must be conducted in accordance with requirement of 'substantial justice'. He further submitted that the constitutional jurisdiction of this Court can be invoked to challenge the validity of laws, which offend fundamental rights of the citizens, by citing cases of "Syed Ali Shah v. Abdul Saghir Khan Shervani" PLD 1990 SC 504; "Mehram Ali and others v. Federation of Pakistan and others" PLD 1998 SC 1445 and "Al-Jehad Trust" (supra). Mr. Iftikhar Ullah Malik, Advocate submitted that a loan secured by pledge is the one, where the mortgagor/pawnor and the principal borrower are distinct persons. The bank can proceed against the mortgagor under Section 15 and can ignore the principal security i,e, pledge. He added that section 19 speaks of making offer and permission to sell a portion instead of the whole of the mortgaged property, thus loan amount can be satisfied through sale of that portion of the mortgage property. These remedies are not available to a customer, after impugned provisions are invoked. 6. Mr. Salman Aslam Butt, Advocate, assisted by Mr. Ali Qureshi, Advocate contended that section 15 of the Ordinance, 2001, offends Articles 2-A, 3, 4, 9, 18, 23, 24 and 25 of the Constitution of Islamic Republic of Pakistan. He referred to the provisions of subsections (4), (5), (11), (12) and (13) and submitted that scheme of the section is sale of mortgage property without determination .Of the liability of the customer in the first instance. He also referred to similar provisions in the other laws i,e, sections 5(r), 25, 25-A and 31-D of National Accountability Ordinance, 1999, preamble and section 10 of Corporate and Industrial Restructuring Corporation Ordinance of 2000, sections 9 and 10 of the Non-Performing Assets and Rehabilitation of Industrial Undertaking (Legal Proceedings) Ordinance, 2000, the preamble of Banking Tribunal Ordinance, 1984, sections 3, 6, 9 and 54 of the Transfer of Property Act, 1882, section 2(6) of the Registration Act, 1908, section 3(25) of the General Clauses Act, 1897 and section 9 of the Code of Civil Procedure, 1908 and compared these provisions with impugned provision of the Ordinance. Learned counsel then submitted that all these provisions contemplate the issuance of notice to the effectee for fair decision or recommendation on the basis of "satisfaction" of the authority or committee. It is contended that "satisfaction" is a term of art which means "legal satisfaction with an unprejudiced mind". When an "opinion" is formed, it must be based on some material if the Authority's satisfaction thereof is material for a decision, it has to give reasons, while reaching such conclusion. Case of "Benazir Bhutto v. President of Pakistan" PLD 1998 SC 388 was referred in support of this contention. He went on to argue that National Accountability Ordinance, 1999 provides for Conciliation Committee comprising two representatives of NAB, two Chartered Accountants to be appointed by NAB and one Chartered Accountant by ICMA. He further submitted that the Honourable Supreme Court in the case of "Asfandyar Wali" (supra) recommended that guilt or innocence of defaulter, shall be to the satisfaction of Governor of the State Bank and same shall be subject to final decision of the Accountability Court. It was explained that laws relating to non-performing loans and the provisions of CIRC Ordinance make the report of Governor State Bank of Pakistan as well as the recommendations of Committee, subject to the scrutiny of the High Court. 7. Learned counsel referred to the case of "Sh. Abdul Sattar Lasi" (supra) wherein the Honourable Balochistan High Court, examined the provisions of section 15 and declined to hold the same as ultra vires the Constitution. He explained that learned Court based its findings on the grounds that presumption of truth is attached to the statement of account and identical provision (section 69 of Transfer of Property Act) has been validly enforced for over a century. The Honourable Court also relied on the case from Indian jurisdiction "Muthialpet Benefit Fund Limited v. Devarajulu Chetty and
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others" AIR 1955 Madras 455. He contended that provisions of section 69 of Transfer of Property Act (Indian) are not in pari materia to the Act (ibid) and the judgment from Indian jurisdiction on the subject is not relevant. He then drew our attention to Article 48 of Qanun-e-Shahadat Order, 1984 and the illustrations thereunder to contend that entries in the statement of account are relevant but in the absence of any corroboration, do not prove the debt. Learned counsel submitted that a mortgage within the meaning of section 69(1)(b) of Transfer of Property Act, 1882, where mortgagee is Federal or Provincial Government or a banking company, is subject to the conditions as may be prescribed by a notification in the official gazette, as per the proviso to section 69 (ibid), thus in the absence of rules and regulations, section 69 of Transfer of Property Act is incomplete. 8. It was contended that banking in modern days has become complicated and the provisions of laws relating to banking transaction, can only be interpreted as they exist today and not when the Transfer of Property Act was promulgated. These aspects were not before the Court when the judgment in "Lasi's case" (supra) was rendered. Learned counsel went on to argue that independence of the judiciary is the most sacred pillar of three organs of State. No one can transgress or make inroads into it. Any legislation impinging on the judicial powers of the judiciary, is ultra vires the Constitution of Islamic Republic of Pakistan. Cases of "Haji Ghulam Zamin and another v. A. B. Khondkar and others" PLD 1965 Dacca 165 and "Province of Punjab and another v. National Industrial Cooperative Credit Corporation and another" 2000 SCMR 597 were cited to support this contention. Referring to the case of "Agricultural Development Bank of Pakistan v. Sanaullah Khan and others " PLD 1988 SC 67, it was contended that existence of mortgage is not the presumption of debt. It has been emphasized that determination of debt is the first step towards its recovery. Further reference was made to the cases of "Messrs Grain System (Pvt.) Ltd. Karachi v. Agricultural Development Bank of Pakistan Islamabad" 1993 MLD 1031 and "Asim Textile Mills Ltd. And others v. NAB and others" PLD 2004 Karachi 638. Option in the hands of Financial Institutions, to resort to recovery of the debt, under sections 9 or 15, without reasonable classification, is violative of Article 25 of the Constitution. Learned counsel has referred to the cases of "Waris Meah v. State Bank of Pakistan" PLD 1957 SC 157, "I. A. Sherwani v. Government of Pakistan through Secretary Finance Division Islamabad and others" 1991 SCMR 1041, "Umer Ahmad Ghuman v. Government of Pakistan and others PLD 2002 Lah. 521, "Miss Shehla Zia and others v. WAPDA" PLD 1994 SC 693, "New Jubilee Insurance Company Ltd Karachi v. National Bank of Pakistan Karachi" PLD 1999 SC 1126 and "Yousaf Textile Mills v. Trust Leasing Corporation" 2006 CLD 1191 to contend that the fundamental rights of a citizen as guaranteed in the Constitution are sacred and any infringement thereof justifies judicial review by the superior Courts. He argued that the impugned provision offends the provisions of Order VIII and Order XXI Rule 29 of CPC, Insolvency Act and sections 133 and 135 of the Contract Act, 1872. An application was also moved for impleadment of Directors of Highnoon Textile Limited to justify the challenge to the constitutionality of law by the shareholders/directors. 9. Messrs Mian Muhammad Kashif and Uzair Karamat Bhandari, Advocates, who represent National Bank of Pakistan, a respondent in various petitions, including Writ petition No,5076 of 2007, have defended the impugned provisions of law. It is contended that presumption of constitutionality is attached to every legislation and made reference to the case of "Pakistan Muslim League (Q) and others v. Chief Executive of Islamic Republic of Pakistan and others" PLD 2002 SC 994. Much stress was laid on the submission that the matters involving legislation relating to fiscal or economic issues, are to be adjudged from the angle of its constitutional viability, although such legislation may suffer from infirmities or inequities. Reliance in this regard was placed on the case of "Messrs Elahi Cotton Mills Ltd and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others" PLD 1997 SC 582, "R. K. Garg v. Union of India and others" AIR 1981 SC 2138, "Messrs Master Foam (Pvt.) Ltd. And 7 others v. Government of Pakistan through Secretary, Ministry of Finance and others" PLD 2005 SC 373 and "Marida Chemicals Ltd. And others v. Union of India and
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others" (2004) 120 CC 373. Learned counsel submitted that reasonable restrictions on fundamental rights are permissible. The reasonableness depends upon circumstances and nature of the right involved. It is the objective which is the yardstick and not the provision of law. To achieve the objective in public interest, legislature may enact such laws in prevailing circumstances and if it imposes restriction, it will be reasonable. To support his viewpoint, he referred to the dictum of judgments in the cases of "Saiyyid Abul A'la Maudoodi etc. v. The Government of West Pakistan and another" PLD 1964 SC 673, "Universal Tobacco Company, Par Hoti, Mardan through Manager and 9 others v. Pakistan Tobacco Board and 3 others" 1998 CLC 1666 and "Chitta Ranjan Sutar v. The Secretary, Judicial Department, Government of East Pakistan and 2 others" PLD 1967 Dacca 445. It was then contended that provisions of Section 15 are normal, reasonable and not arbitrary. Learned counsel added that there are various provisions of law where the creditor can proceed against the debtor or against the surety, without intervention of the Court and the wires of such laws have been declared valid by the Courts. Reliance in this regard was placed on the cases of "Narasimhachariar v. Egmore Benefit Society, 3rd Branch Ltd. " AIR 1955 Madras 135, "Alka Ceramics, Piplodi, Himatnagar v. Gujarat State Financial Corporation, Ahmedabad and others" AIR 1990 Gujarat 105, "Mardia Chemicals Ltd. And others v. Union of India and others" (2004) 120 C.C. 373, "Danaharta Urus Sdn Bhd v. Kekatong Sdn Bhd (Bar Council Malaysia, intervener)" (2004) 2 MLJ 257 and "Sh. Abdul Sattar Lasi v. Federation of Pakistan through Secretary, Ministry of Law, Justice and Parliamentary Affairs, Islamabad and 6 others" 2006 CLD 18. Learned counsel went on to argue that the principles on which the mortgagor is empowered to proceed against the mortgaged property, have been in existence for more than a century and total departure from such established practice, is not justified. The provisions of section 15 were enacted to enforce the mortgage according to the agreed terms of the mortgage agreement. The enactment is essential to cure massive loan defaults. It was vehemently argued that the provisions of section 15 are similar to the provisions of section 69 of the Transfer of Property Act, 1882, section 176 of the Contract Act, 1872, section 40 of Industrial Development Bank of Pakistan Ordinance, 1961, section 25 of Agricultural Development Bank of Pakistan Ordinance, 1961 and section 54 of Sale of Goods Act, 1930. These provisions remained valid throughout. Similar principle prevails, in the matters of secured creditor and the bank guarantee or letter of credit. Reference was made to the case of "Ocean Industries Limited and another v. Industrial Development Bank" PLD 1966 SC 738, whereby section 40 of IDBP Ordinance was held valid. Learned counsel further submitted that provisions of section 69 of the Transfer of Property Act were held according to the injunctions of Islam, in the case of "Messrs Bank of Oman Ltd. v. Messrs East Trading Co. Ltd. And others" PLD 1987 Karachi 404. In the Indian jurisdiction, the provision was held as constitutional, on the touchstone of Article 19 (1)(f) of the Indian Constitution, in the case of "Narasimhachariar v. Egmore Benefit Society, 3rd Branch Ltd." AIR 1955 Maddras 135. Further reliance was placed on the cases, from Indian jurisdiction i,e, "Alka Ceramics, Piplodi, Himatnagar v. Gujarat State Financial Corporation, Ahmedabad and others" AIR 1990 Gujarat 105, Messrs R. K. Industries Plot No, SPL 35, Industrial Estate, Kallur B.A.P. State Financial Corporation and others" AIR 1991 A. P. 174, "Haryana Financial Corporation and another v. Jagdamba Oil Mills and another" (2002) 3 SCC 496, "The Director of Industries, U. P. And others v. Deep Chand Agarwal" AIR 1980 S.C. 801 wherein section 29 of State Financial Corporation Act, 1951 (Indian), section 3 of U.P. Punjab Moneys (Recovery of Dues) Act, 1965 and provision of Scrutinization and Restructuring of Financial Assets and Security Interest Act, 2002 (Indian) were held to be valid. 10. Learned Deputy Attorney General submitted that Section 15 of the Ordinance, 2001, is a valid piece of legislation, enacted by the Legislature. The impugned provision of law is neither discriminatory nor arbitrary and the same does not offend any of the fundamental rights of the petitioners. It…
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