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Petitioner: NATIONAL INDUSTRIAL COOPERATIVE CREDIT CORPORATION LTD. AndAnother VS Respondent: PROVINCE OF JUDGMENT
Court Name: Lahore High Court Judge(s): Raja Afrasiab Khan, Sh. Riaz Ahmad, Malik Muhammad Qayyum, Munir A. Sheikh Title:NATIONAL INDUSTRIAL COOPERATIVE CREDIT CORPORATION LTD. AndAnother vs PROVINCE OF
JUDGMENT
Reported As: PLD 1992 Lahore 462 Result: Petition allowed Judgment JUDGMENT SH. RIAZ AHMAD, J.---The uproar with respect to the financial debacle of the finance companies in the country and in particular about Taj Company had not yet subsided when the glamour about the financial scandal in the Cooperative Societies came to earth. Obviously, such news of scandals harassed the small depositors, and there was a run of the small depositors upon the Cooperative Societies to withdraw their money. The situation was so worsened that the Government had to intervene, and particularly, the factum of seeking loans by the industrialists tycoons of this country led the Federal Government to constitute a Commission headed by a Judge of the Supreme Court and two Judges of the High Court to examine the management, and working ete. Of the Cooperative Societies in Punjab. The Commission was constituted under the Pakistan Commissions of Enquiry Act, 1956 (VI of 1956) and precisely following was the charter of the Commission:--- "(a) to identify and determine the extent of assets and liabilities of each cooperative finance society or corporation; (b)to ascertain and determine the extent of outstanding liabilities of the defaulters together with their full names and particulars as well as properties and assets of such defaulters. (c)to examine and determine the illegalities in the establishment of each defaulting society or corporation; (d)to ascertain and identify the irregularities, illegalities, if any, committed in respect of receipt, disbursement, return of funds by any such society or corporation or its officials including Directors, Managers or employees and to fix responsibility; (e)to enquire into, identify and fix the responsibility of the regulating agencies, authorities, or bodies required or authorised by law to supervise and control the working of such societies and corporations and recommend measures to be taken against their officials or employees who neglected or avoided to perform their duties and functions diligently and honestly-, to identify the ultimate beneficiaries 0. Persons, where funds and the assets of the society or corporations have been diverted and trace out particulars of any properties and assets acquired with such funds; (g)to suggest measures to be taken for repayment of the amounts or dues of the depositors or compensation, as the case may be, or to the members of such societies or corporations and for these purposes--- (i) ascertain the properties and assets of such societies and corporations including their Directors, members and identify the assets to which the same have been illegally converted; (ii) ascertain and register all claims outstanding against the societies and corporations; (iii) ascertain the mode and manner of repayment and satisfaction of the outstanding claims and also to recommend appropriate measures to be taken for recovering loans from the defaulters and for winding up the societies, and corporations wherever need be; (iv)recommend measures to meet shortfall, if any, through recovery from the properties of the Directors, sponsors and other officials of such societies and corporations and to propose legislative measures if necessary, and (v)recommend and take such other measures as may be necessary to fix responsibility on all relevant quarters and repay all genuine claims." The Commission after making a thorough probe -and after recording the statements of certain individuals made recommendations but while doing so being cognizant of their limits, the following observations were made by the Commission---
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"The matter of ascertainment of the properties and assets of the Corporations as well as of their Directors, Officers and members cannot possibly be resolved by the Commission and it had neither the means, nor sufficient time, nor even perhaps the authority to give a binding determination after admitting evidence of the parties for and against the respective versions The proceedings being inquisitorial ratherthen adversary and life span of the Commission being of a few weeks, any attempt to find the answer in the circumstances and the legal position obtaining in the matter, would have been impossible." It is further pertinent to mention that the Commission examined the affairs of 20 big societies and hearing was afforded to at least 127 societies. The commission also went in depth to examine the nature of the business carried out by the Cooperative Societies/Corporations and observed illegalities in the establishment of the societies and also irregularities and illegalities in the receipt, disbursement and return of funds and also in the purchase and sale of real estates by the Corporations/Societies and also commented upon the role of the regulatory bodies such as Federal Cooperative bank, state Bank of Pakistan, Federal and Provincial Governments and the Cooperative department. Eventually, on page209 to 212 of the report, the. Commission also examined as to whether it was necessary to wind up these companies and 'thus proposed legislation in this behalf. It is not necessary at this stage to go into the de , tails of the report, but suffice it would be to mention that the Commission made the observations with regard to the winding up of the Corporations/Societies. The relevant recommendation of the Commission are reproduced hereunder:--- "Features of new Legislation: The winding up as such is necessary and new law providing for winding up of these corporations will have to be made by the Parliament, which inter alia may provide for-- (i)the winding up of the Cooperative finance corporations registered under the Cooperative Societies Act, 1925 and were conducting banking business; determination of the liabilities; prosecution of the office-bearers of the societies and other persons accused of misappropriation, embezzlement of its funds and assets, violation of law of banking and other laws. The accused should be tried by a Special Court presided over by a Judge, in service, not below the rank of Sessions Judge. An officer of the State Bank well versed in book keeping, should assist the prosecutor and be also associated with the investigating agency. In consequence of trial if the accused or any person on his behalf is found to be in possession of assets disproportionate to his known sources and which he fails to account for (burden to prove that the property is lawfully owned by him should be placed on the accused) upon conviction be forfeited in favour of the society for the benefit of the depositors/members. Provisions may also be made in the law that while determining as to whether or not the assets in possession of the accused persons are disproportionate to his known sources, the Court shall take into consideration his income-tax assessment record including his wealth statement filed under the Income Tax laws. The Court should have the power to summon income-tax record notwithstanding anything to the contrary contained in the Income-tax Ordinance, 1979. The societies will be called "defaulting societies" which would mean a society registered under any of theCooperative laws and has accepted or is accepting for the purpose of lending or investment, deposits of money from the public payable oh demand or otherwise and withdraw able by cheque, draft, order or otherwise. 2. The law should provide that every defaulting society existing immediately before the commencement of the proposed enactment on its commencement, shall cease to function notwithstanding anything to the contrary in the Banking Companies Ordinance, 1962, the Cooperative Societies Act, 1925 or any other law for the time being in force and shall be wound up in the manner provided in the proposed enactment. List of defaulting societies should be added as a schedule to the Act. 3. Vesting in preservation of assets and deposits of cash etc-, with the Board and also surrender of assets to it. For reference see section 5 of Act X of 1958. 4. Conferment of power to proceed against any concealed property or the property which has been obtained or procured by using or diverting the funds of the defaulting society. 5. A provision regarding informer and payment of compensation to him in cash up to 15% of the value of the hidden assets, if information is proved to be correct, be incorporated in the new Act. 6. A provision for settlement of objections against the rejection or non--verification of the claim. The verified claims be made assignable. 7. The law should also provide for the settlement of objections of the third parties relating to the property/assets claimed by the society/Admn. Board. 8. The law should further confer necessary powers on the Board to retrieve the loans due and make payments of the verified claims. 9. Appropriate provision barring the taking of plea of limitation in the in matter of recovery of assets and loans should also be provided. Any person -or office-bearer of the society nominated on the Board who on being required to give any information or produce any document or render assistance fails to do so without reasonable cause, after giving him an opportunity of hearing may be detained in the civil prison by the Judge (Companies)/Cooperative Societies on the representation of the Board or on his own motion for such period as may be specified under the new dispensation. Constitution of Board of Liquidators of the Big Societies:-- For the purposes of achieving the objects of law, tackling the problems likely to arise in the winding up process and to deal with allied matters, a Board of Management/Liquidation for each corporation having liability of 15 crores or above and similar
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Boards for a group of societies as considered appropriate may be constituted by the Government. The Boards should consist of the following:--- (1) An officer in service not below Grade 19. (2) Registrar Cooperative Societies or his nominee Member (3) A Chartered Accountant in service in DFIS/Bank. Member (4) An Advocate having more than 10 years standing (to be nominated by the Company Judge). Member (5) A representative of the depositors to be elected in the manner provided hereinafter. Member (working in honorary capacity) (6) An office-bearer of the society who is not accused of commission of an offence relating to its business. To be nominated by the Government.Associate Member. The officers nominated to the Board shall be on deputation and paid by their respective departments, while the Advocate shall receive such Monthly remuneration as fixed by the Company Judge. The Managing Director/Chairman/President/Director/Office-bearer of the society including the office-bearer nominated to the Board shall be bound in law to attend to the work of the Board, provide necessary information and also to render such assistance as is necessary for realising and safeguarding the assets and interest of the- society. Selection of the Members from Depositor:-- A list of depositors of each district shall be prepared on the basis of the verified claims. These depositors will elect among themselves a committee comprising three depositors for the purposes of rendering assistance to the Board for collecting necessary evidence, material, unearthing the concealed property of the society, identifying and locating its assets, which might have been purchased Benami or through diversion of funds and any other illegalities or irregularities committed by its management and the staff. The election of three members of the Committees will be conducted under the supervision of the District Magistrate. The members of the District Committee of each corporation will elect one of them to represent them on the Board arid for such election a meeting will be called by the Chairman of the Board. Functions of the Board- (i)The Board of liquidation shall determine the assets and liabilities of the corporation and that of its office-bearers. Shall verify the claims, if need be, dispose of objections against the acceptance or rejection of claim filed by the depositor and may also entertain the claim, in case reasonable cause is shown for not filing the same earlier and also if directed by the Company Judge. (iii)Determine any complaint as to unauthorised adjustment of the deposit, SMR or any such deposit certificates or instrument. (iv)Determination of assets and liabilities would include the power to unearth, hidden or concealed properties/property which actually and really belongs to the corporation due to use of its funds but appearing in the name of some other person." A careful consideration of the report of the Commission reveals .That all the Cooperative Societies/Corporations were indulging into illegal banking business and that is why, the Commission lamented upon the conduct of the regulatory bodies referred to above. On the receipt of this report, the Governor of the Punjab then promulgated Ordinance No. XX of 1992 called as the Punjab Undesirable Cooperative Societies (Dissolution) Ordinance, 1992. The aim of the Ordinance was to prohibit the carrying on the business as financial institutions by Cooperative Societies and to provide for matters ancillary thereto. The salient features of this Ordinance were that an "undesirable Cooperative Society" as defined in section 20) to be a Cooperative Society registered under the Act and by whatever name called to which section 4 applied or which was specified in the schedule. Section 4 of the Ordinance provided as under:--- Registration of certain Cooperative Societies prohibited:-- (1)No cooperative society formed with the object of accepting deposits from its members or public for the purposes of lending, investment or allowing withdrawals in any manner shall after the commencement of this Ordinance be registered under the Act. (2)Any registration made in contravention of subsection (1) shall be void. Adverting to 'the schedule, it contained list of 102 Cooperative Societies which by operation of law were termed as undesirable. Under section 12 of the Ordinance, the existing undesirable Cooperative Societies by operation of law were ceased to function. Precisely section 12 reads as under:-- "An undesirable cooperative society specified in the schedule on the commencement of this Ordinance and in case of subsequent inclusion of the Schedule of an undesirable Cooperative Society on the date of such inclusion, shall cease to function and all its properties, assets, securities, deposits and bank accounts shall vest in the Registrar and shall remain so vested till such time they stand vested in the Liquidator. Under section 13 of the Ordinance, the winding up of an undesirable cooperative society has been provided and it is laid down that; as soon as may be after the commencement of this Ordinance, the Registrar shall make a petition to the Cooperatives Judge for winding up of at! Undesirable cooperative society who shall thereupon make an order for its winding up and appointment of a Cooperatives Board as Liquidator. Before proceeding further it is necessary to mention that the Ordinance also established a Cooperatives Board and the Government was empowered to establish as many Cooperatives Boards as it deemed necessary The Board was to be a body corporate having perpetual succession and a common seal with powers subject to the provisions of this Ordinance to enter into contracts and to acquire, hold and dispose of property both movable and immovable and shall by its name sue and be
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sued. The Board was to consist of a Chairman and at least two members to be appointed by the Government and their terms and conditions of service were to be prescribed by the Government. It is also necessary to mention that the Ordinance also provided for the appointment of Cooperative Judge and under section 2(d) of the Ordinance, a Cooperative Judge means a Judge of the Supreme Court of Pakistan nominated by the Chief Justice of Pakistan or a Judge of the Lahore High Court qualified for appointment as Judge of the Supreme Court of Pakistan nominated by the Chief Justice of Pakistan after consultation with the Chief Justice of the High Court. The powers of the Cooperative Judge were specified in section 7 of the Ordinance. Under section 11, any person aggrieved by an act or decision of a Cooperative Board can apply to the Cooperative Judge who was empowered to confirm, reverse, or modify the act or decision complained against and to make such an order as was just in the circumstances of the case. Under section 22, an appeal was maintainable against the final order of the Cooperative Judge before the Supreme Court of Pakistan within 30 days of the passing of the order by. The Cooperative Judge. Under section 25, the Government was empowered to remove any difficulty for giving effect to the provisions of this Ordinance and under section 26 of the Ordinance, the Government can by notification amend the schedule so as to add any entry thereto or modify or Omit any entry therein. Since the Ordinance came into force at once, and by its operation, the Cooperative Societies mentioned in the schedule became undesirable and ceased to function on the promulgation of this Ordinance, therefore, the following Cooperative Societies or their office-bearers invoked the Constitutional jurisdiction of this Court- (1)W.P. 4699-92. Sh, Manzoor Elahi Paracha etc. v. Province of Punjab etc. (2)W.P. 4607/92. National Industrial Credit Corporation etc. v. Province of Punjab etc. (3)W.P. 4653-92. Hamad Ra7a etc. v. Province of Punjab etc. (4)W.P. 4759-92. Zu1fiqar Ahmad Awan v. Province of Punjab etc, (5)W.P. 4933-92. Muhammad Abdullah v. Province of Punjab etc (6)W.P. 5419-92. Pashan Cooperative etc. v. Province of Punjab etc. (7)W.P. 5542-92. Premier Industrial Development Corporation etc. v. Province of Punjab. (8)W.P. 4858-92 Muhammad Ranizan v. Registrar, Cooperative Societies etc. (9)W.P. 5272-92. Tariq Mahmood v. Province of Punjab etc. (10) W.P. 5361-92. Syed Iqbal Hussain Rizvi v. Registrar, Cooperative Societies etc. (11) W.P. 5353-92. Faisal Dilawar Khan v. Government of Punjab etc. (12) W.P. 4608-92. National Industrial Finance Corporation etc. v. Province of Punjab. In these petitions, the validity, and the constitutionality and legality of the Ordinance was challenged. Since the determination of the questions raised involved the interpretation of the Constitution and other relevant laws, therefore, on the reference made by the Division Bench of this Court, a Full Bench of this Court was constituted for hearing these petitions. On the first day of hearing by the Full Bench, Mr. Sharifuddin Pirzada appearing for the petitioners in Writ Petitions Nos. 4607 and 4699 of 1992 sought permission to amend the petitions so as to pray that a-writ in the nature of quo warranto be issued against the Cooperative Judge. Considering the challenge thrown to the Ordinance and its various provisions, we allowed the incorporation of the aforesaid amendment. Mr. Sharifuddin Pirzada while arguing the petitions contended that by virtue of the or operation of the ordinance, the properties of the petitioners have been acquired, their funds have been frozen and then function as corporation/societies was brought to an end. It was argued that provisions of the Ordinance were violative of the principles of natural justice, in as much as, no notice was given to the petitioners as well as to 102 companies in the, schedule to show cause as to why the action detrimental in the nature preferred to above be not taken against them. Precisely, it was argued that before declaring 102 societies as undesirable, it was incumbent to have resorted to the proceedings in the nature of judicial review so as to declare them as undesirable. Since no such enquiry was conducted, therefore, the legislature by transgressing its limits set out by the Constitution has assumed not only legislative function but also the function of the judicial review upon itself It was next contended that the acquisition without compensation was violative of the fundamental rights as enshrined in the Constitution. It was further contended that the provisions of the Ordinance offended Articles 2, 2A, 4, 14, 18, 24, 25 and 17 of the Constitution of Islamic Republic of Pakistan. It was also contended that the acquisition of the property without compensation to be determined in accordance with the market value was illegal and was against the dictum and the judgment delivered in Federation of Pakistan v. General Public PLD 1988 SC 6.45. The next limb of the argument was that the legislation through Ordinance by the Governor of Punjab was against the recommendations of the Commission, inasmuch as, the Commission had, recommended the legislation by the Parliament because these cooperative societies/corporations were indulging into the illegal businessof banking and, therefore, it was a subject covered by Item 31 of the Fourth Schedule of the Constitution of the Islamic Republic of Pakistan. It was also contended that declaration of the petitioner and 102 companies as undesirable in the schedule amounted to legislative judgment which was not permissible under the Constitution and law. The provision as to the appointment of a Judge of the Supreme Court of Pakistan as Cooperative Judge was bitterly criticized and it was argued that the Provincial Governor who had the same limits to regislate as a Provincial assembly, had transgressed his powers to legislate on a federal subject. It was argued that Article 175 of the Constitution provided the establishment of the Supreme Court of Pakistan having original- jurisdiction under Article 184 to ,consider questions of public important with reference to the enforcement 'of any of the fundamental rights and its appellate jurisdiction has been defined under Article 185 and its advisory jurisdiction under Article 186 ' of the Constitution of Islamic Republic of Pakistan. It was thus
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contended that reading Articles 175, 184, 185, 186 with Item 55 of the Fourth Schedule would clearly show that it was only the Federal Government, which could legislate about the jurisdiction of the Supreme Court and also about the enlargement of the jurisdiction of the Supreme Court and the conferring thereon all supplemental powers. It was then contended that the provision in the Ordinance enabling the appointment of a Judge of the Supreme Court as Cooperative Judge to be nominated by the Chief Justice of Pakistan by a Province was unconstitutional because if such course of action was allowed then Provinces would be free to legislate about the jurisdiction to be exercised by a Judge of the Supreme Court which was against the scheme of the Constitution. The argument was further elaborated by placing reliance upon Articles 212 and 212-B of the Constitution. It was argued that under Article 212, the appropriate Legislature can by Act provided for the establishment of one or more Administrative Courts or Tribunals to exercise exclusive jurisdiction in respect of the matters relating to the terms and conditions of persons who are or have been in the service of Pakistan, including disciplinary matters and with regard to the matters relating to the claims arising from to riotous acts of Government, or any person in the service of Pakistan or of any local or other authority empowered by law to levy any tax and also in relation to the acquisition, administration and disposal of any property which is deemed to been any property under any law. The attention of this Court was also drawn to the provision of Article 212(2) & (3) under which, the appeal from the judgment, decree or order or sentence of an Administrative Court or Tribunal was only competent before the Supreme Court. It was thus contended that the Provincial Legislature established Service Tribunal for their provinces and the order of such Tribunal is appealable to the Supreme Court not by virtue of the Provincial Legislation but by virtue of the Constitution itself. Similarly, it was argued that under Article 212~13, the Special Courts for trial of heinous offences were established by the Federal Government which was the only authority to constitute as many Special Courts as it considered necessary and the appeal against the order of the Special Court was competent before a Supreme Appellate Court which is chaired by .a Judge of the Supreme Court of Pakistan and two Judges of the High Court. It was, thus, contended that in view of the scheme of the Constitution and particularly Items 31 and 55 of the Fourth Schedule to the Constitution read with the provisions referred to above, it leaves no room to doubt that 'through an Ordinance to be promulgated by a Provincial Governor, no…
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