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Petitioner: HABIB BANK LTD. VS Respondent: WRSM TRADING COMPANY, LLC and others
Court Name: Supreme Court of Pakistan Judge(s): Ijaz-ul-Ahsan, Mian Saqib Nisar, Umar Ata Bandial Title: HABIB BANK LTD. vs WRSM TRADING COMPANY, LLC and others Case No.: Civil Appeal No, 552 of 2015 Date of Judgment:2018-07-02 Reported As: PLJ 2019 SC 45, 2018 CLD 1282 Result: Appeal allowed
JUDGMENT
JUDGMENT MIAN SAQIB NISAR, C.J.---This appeal challenges the order dated 10.03.2015 passed by the Lahore High Court whereby R.F.A. No,395/2005 filed by the appellant was dismissed. The facts as stated by the appellant are that respondent No, 1, on 22.1.2001, availed finance from the appellant bank's branch in Dubai, UAE. On 22.11.2002 the appellant filed Suit No, 105/2002 before Banking Court No, 1, Lahore for recovery of UAE Dirhams 2,042,059.22 (PKR 33, 285, 565 . 28). Respondents Nos,2 to 5 were impleaded on account of being the directors of the respondent No,1 company and in their capacity as guarantors for the finance availed by the said respondent. Vide order-in-original dated 15.07.2005 the Banking Court returned the plaint for presentation in the Court of proper jurisdiction. The appellant challenged the Banking Court's order through R.F.A. No,395/2005 which was dismissed vide impugned order dated 10.03.2015 passed by the Lahore High Court. The points raised in the impugned order being one of first impression, leave was granted vide our order dated 04.06.2015. 2. The impugned order holds that the appellant is not a financial institution within the meaning of section 2(a) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (F.I.O., 2001) as it did not undertake the transaction in Pakistan and that the appellant would have been entitled to file a recovery suit under section 9 of the F.I.O., 2001 only if it had transacted business within Pakistan. Further, it holds that no interest based transaction could take place in Pakistan after 01.01.1985 in violation of State Bank of Pakistan (SBP) Banking Control Department (BCD) Circulars No, 13 dated 20.06.1984 and No,32 dated 26.11.1984, as pursuant to sections 3-A, 25 and 41 of the Banking Companies Ordinance, 1961 the said circulars have the force of law and the interest-based agreements entered into by the appellant providing finance(s) to the respondents in Dubai were
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void in terms of section 23 of the Contract Act, 1872 (Contract Act) as they were based on interest. It further hold that section 20 of the Civil Procedure Code, 1908 (C.P.C.) is procedural in nature and the same is not applicable to the F.I.O., 2001. 3. Ms. Ayesha Hamid, ASC appearing for the appellant bank contended that the Banking Courts are creatures of statute and they derive their power/jurisdiction from section 7(4) read with sections 9(1), 2(a), 2(c), 2(d), 2(e) and 4 of the F.I.O., 2001. She stated that the provisions of Section 20 of the C.P.C. vest jurisdiction in all courts of civil nature (including the Banking Court) over persons residing within their territorial limits. The Banking Court, being a court of a civil nature, can therefore exercise jurisdiction over the respondents, who at the time of filing of the suit, resided within the territorial jurisdiction of the Banking Court, and continue to do so now. She relied on Hussain Bakhsh v. Settlement Commissioner, Rawalpindi and others (PLD 1970 SC 1). She stated that section 9 of F.I.O., 2001 entitles a financial institution to file a recovery suit against a defaulting customer before a Banking Court once the threshold of jurisdictional events is crossed, i,e, nature of parties, relating to finance and occurrence of a default. She relied upon Mian Mehmood Ahmad v. Hong Kong and Shanghai Banking Corporation Ltd. through Manager and 6 others (2010 CLD Lahore 293). She stated that the principle of forum non-conveniens supports adjudication of a lis in the country with which it has the most real and substantive connection. Furthermore, the BCD Circulars Nos, 13 and 32 issued by SBP did not have the force of law and therefore the agreements for finance could not be held to come within the mischief of section 23 of the Contract Act. She submitted that the Banking Court could not frame a preliminary issue with respect to territorial jurisdiction and decide the matter forthwith without recording of evidence in the light of section 10(10) of the F.I.O., 2001 and also because territorial jurisdiction is a mixed question of law and fact. In this regard she relied upon Bank of Credits and Commerce and others v. Asrar Hassan and others (2007 SCM R 852). 4. Mr. Waqar Sheikh, ASC appeared on behalf of the legal heirs of respondent No,4. He supported the impugned order and the order in original and made submissions to the effect that the appellant bank is not a financial institution as defined in the F.I.O., 2001 and that no interest based transaction was enforceable in Pakistan. Upon the Court's query he did not deny that finance was availed from the appellant and that a default had occurred and that the respondents were present in Pakistan and not in Dubai, UAE. 5. Mr. Shahzad Shaukat, ASC appeared on behalf of respondent No,2 had candidly stated that he would not defend the impugned order and instead threw himself on the discretion of the court and requested that the matter may be sent to the Banking Court to decide. 6. The questions involved in the instant opinion are:- i. Whether section 20 of the C.P.C. is applicable to banking courts when exercising their jurisdiction? ii. Whether branches abroad of financial institutions incorporated in Pakistan fall within definition of financial institutions [Section 2(a) of the F.I.O., 2001]? iii. Whether loans extended by such branches in Pakistan fall within the definition of finance [Section 2(d) of F.I.O., 2001]? iv. Whether section 9 of the F.I.O., 2001 entitles a financial institution to file a recovery suit against a defaulting customer before a banking court once the threshold of jurisdictional events is crossed, i,e, (i) the nature of the parties (ii) if relating to finances (iii) and occurrence of a default? v. Whether the principle that creditors follow debtors is applicable to the assumption of jurisdiction by banking courts in the case of financial institutions incorporated in Pakistan, with branches abroad? vi. Whether the principle of forum non-conveniens supports adjudication of /is in a country with which it has the most real and substantive connection? vii. Whether the SBP BCD Circulars No, 13 (20.06.1984) and No,32 (26.11.1984) have the force of law?
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(with reference to Sections 3A, 25, 41 of Banking Courts Ordinance, 1962)? viii.Whether interest based agreements made outside Pakistan are void in terms of section 23 of Contract Act? 7. The Preamble to the C.P.C. does not mention/define specific Courts, but instead makes reference to the all-encompassing Civil Judicature:- "Whereas it is expedient to consolidate and amend the laws relating to the procedure of the Courts of Civil Judicature; it is hereby enacted as follows:-" [Emphasis supplied] Since the C.P.C. does not specify/refer to any court therefore we have to turn to section 9 of the C.P.C.:- "9. Courts to try all Civil Suits unless barred. - The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred or for which a general or special law is in force.. Explanation. - A suit in which the right to property or to an office is contested is a suit of a civil nature, notwithstanding that such right may depend entirely on the decision of questions as to religious rites or ceremonies." [Emphasis supplied] The question then arises, what are suits of a 'civil nature' which the Civil Courts are to try? It is the nature of the dispute being adjudicated by the court which is relevant. We need look no further than the case of Hussain Bakhsh (supra) in which it was held:- "The Civil Procedure Code regulates civil proceedings. The nature of the proceeding does not necessarily depend on the nature of the jurisdiction of the Court invoked. In order to determine whether a proceeding is a civil proceeding or not, it is necessary to see what are the questions raised and decided in the proceeding. If the proceeding involves the assertion or enforcement of a civil right, it is a civil proceeding." [Emphasis supplied] Where special statutes regulating the civil rights of citizens are silent on some matter the C.P.C. will apply and will fill the lacunae/vacuum. In this regard the C.P.C. will apply to all Courts whether of plenary or restricted jurisdiction. The right of the appellant bank to sue for recovery of money lent by it is a civil right which could be enforced in the civil courts notwithstanding the fact that the money may have been lent outside Pakistan. Does the right cease to be a civil right simply because some portion of the plenary jurisdiction of the civil courts has been carved away by a special law, i,e, the F.I.O., 2001? Plenary jurisdiction of the civil courts means that it is full, entire, complete, absolute, perfect and unqualified. A special statute simply slices away some of this jurisdiction in respect of certain persons or certain matters. Therefore to our mind the answer to the question ibid is a resounding no. We are fortified in our view by Mst. Yasmeen Nighat and others v. National Bank of Pakistan and others (PLD 1988 SC 391) which held that the amendments to the banking laws in 1979 and 1983 show that "the legislature by enacting section 6(4) of Ordinance XIX of 1979 intended to oust the jurisdiction of all other Courts in the matter of banking loans and to confer exclusive jurisdiction on Special Courts in respect of the matters which were made triable by the said Courts..." 8. The forum where a suit is filed is a matter of procedure. Section 7(2) of the F.I.O., 2001 categorically provides that where the F.I.O., 2001 does not prescribe a particular procedure with respect to a matter, the proceedings under the F.I.O., 2001 are to be governed by the C.P.C. Section 7 of the F.I.O., 2001 provides that a Banking Court shall:- "7. Powers of Banking Courts. (1) Subject to the provisions of this Ordinance, a Banking Court shall- (a) in the exercise of its civil jurisdiction have all the powers vested in a civil Court under the Code of Civil Procedure, 1908 (Act V of 1908); 7(2) A Banking Court shall in all matters with respect to which the procedure has not been
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provided for in this Ordinance, follow the procedure laid down in the Code of Civil Procedure, 1908 (Act V of 1908), and the Code of Criminal Procedure, 1898 (Act V of 1898). " [Emphasis supplied] In the case reported as Adnan Afzal v. Capt. Sher Afzal (PLD 1969 SC 187) Hamood ur Rahman, J set out what manner of things are to be considered matters of procedure:- "The next question, therefore, that arises for consideration is as to what are matters of procedure. It is obvious that matters relating to the remedy, the mode of trial, the manner of taking evidence and forms of action are all matters relating to procedure... This is what is meant by saying that a change of forum by a law is retrospective being a matter of procedure only." 9, The Banking Courts are creatures of statute and they derive their power/jurisdiction from section 7(4) read with sections 9(1), 2(a), 2(c), 2(d), 2(e) and 4 of the F.I.O., 2001. Section 7(4) of the F.I.O., 2001 reads as under:- "7(4) Subject to subsection (5), no court other than a Banking Court shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Banking Court extends under this Ordinance, including a decision as to the existence or otherwise of a finance and the execution of a decree passed by a Banking Court." Section 9(1) of the F.I.O., 2001 reads as under:- "9. Procedure of Banking Courts. (1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by a power of attorney or otherwise." Section 2(a) of the F.I.O., 2001 defines a financial institution. Section 2(c) of the F.I.O., 2001 defines a customer. Section 2(d) of the F.1.0., 2001 defines finance and section 2(e) thereof defines obligation. Section 4 of the F.I.O., 2001 reads as under:- "4. Ordinance to override other laws. The provisions of this Ordinance shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force." 10. It is pertinent to note that the law has over time gradually expanded to include within the definition of a "banking company"! "financial institution," banks transacting business outside Pakistan. Reference is made to the following amendments in the banking laws, and the eventual articulation of the definition of a "financial institution" in the F.I.O., 2001:- Banking Tribunals Ordinance, 1984 "S. 2(a) "banking company" means- (ii) a company incorporated outside Pakistan and transacting the business of banking in Pakistan; " Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 "S.2(a) "banking company" means (i) any company whether incorporated within or beyond Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan and includes a government savings bank; " F.L O., 2001 S. 2(a) "financial institution" means and includes- (i) any company whether incorporated within or outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan..." [Emphasis supplied]
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The law must provide a purposive interpretation to section 2(a) of the F.1.0., 2001, in light of the amendments made to the law in the Banking Tribunals Ordinance, 1984 (the Ordinance, 1984) and the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (the Act, 1997), to include financial institutions incorporated in Pakistan, which transact business both inside and outside Pakistan. The appellant is clearly a company incorporated in Pakistan, which transacts the business of banking in Pakistan. It would be illogical to conclude that where the particular transaction has been transacted outside of Pakistan, the appellant, for the definitional purposes of section 2(a) of the F.1.0., 2001 ceases to be a company incorporated within Pakistan transacting the business of banking. 11. A perusal of the earlier provisions of law, which defined a borrower/customer, indicates that these did not restrict jurisdiction of the Banking Courts to include only those persons to whom loans/finance were advanced in Pakistan:- Banking Companies (Recovery of Loans) Ordinance, 1978 S.2(b) "borrower" means a person who has obtained a loan from a Banking company and includes a surety or an indemnifier, but does not include the Federal Government or a Provincial Government; Banking Companies (Recovery of Loans) Ordinance, 1979 S.2(b) "borrower" means a person who has obtained a loan from a banking company and includes a surety or an indemnifier; Ordinance, 1984 S.2(c) "customer" means a person who has obtained finance from a banking company or is the real beneficiary of such finance, and includes surety and an indemnifier; The Act, 1997 altered the definition of a borrower:- S.2(c) "borrower" means a person who has obtained a loan under a system based on interest from a banking company and includes a surety or an indemnifier; (d) "customer" means a person who has obtained finance under a system which is not based on interest from a banking company or is the real beneficiary of such finance, and includes a surety or an indemnifier [Emphasis supplied] The F.I.O., 2001 (prior to the 2016 Amendment) defined a customer as:- "S.2(c) "customer" means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier." [Emphasis supplied] The amendments made to section 2(c) of the F.I.O., 2001 in 2016, which added the phrase "within or outside Pakistan" in the definition of a customer, further strengthens the conclusion that the jurisdiction of the Banking Courts extends to finance availed within or outside Pakistan:- "S.2(c) "customer" means a person to whom finance has been extended by a financial institution within or outside Pakistan and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier..." [Emphasis supplied] 12. It is appropriate to also look at the manner in which the definition of finance has been expanded from 1979 to date. The recent amendments to the definitions of "finance" in the F.I.O., 2001 further supplement the argument that the jurisdiction of the Banking Courts extends to finance availed within or outside Pakistan. The Ordinance, 1984, promulgated on 31.12.1984, provided in Section 2(e):- "2(e) "finance" includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark-up or markdown in price..." [Emphasis supplied]
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The Act, 1997 introduced the definition of a loan:- "S.2(f) "loan" means a loan, advance and credit under a system based on interest and includes- (i) an advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a banking company to a borrower; " [Emphasis supplied] The FIO, 2001 sets out the following definition of finance:-"S. 2(d) "finance" includes- (viii) any amount of loan or facility availed by a person from a financial institution outside Pakistan who is for the time being resident in Pakistan." [Emphasis supplied] It is pertinent to mention that the aforementioned part (viii) of section 2(d) of the F.I.O., 2001 was introduced through the Financial Institutions (Recovery of Finances) Amendment, Act 2016 (promulgated on 15.08.2016) which enlarged the definition of finance to include finance availed outside Pakistan. 13. The appellant is undoubtedly a financial institution which is stated to have extended finance to respondent No, 1, its customer, therefore, the suit filed by the appellant before the Banking Court No,1 in Lahore crosses the threshold of events which must take place before the jurisdiction of the Banking Court is invoked. The fact that the Courts at Dubai may also have jurisdiction over the parties is not a valid reason to deny the jurisdiction of the Banking Courts at Lahore. While the Act 1997 had a more restricted definition of a banking company/financial institution, this was amended in the F.I.O., 2001 to include the words "through its branches within or outside Pakistan". Therefore it is self-evident that the law makers have now included finance extended to customers outside Pakistan. This amendment is deliberate. To ignore it would render the said amendment futile and the Courts must make every -effort to interpret the law in such a manner as to render amendments effective rather than nugatory. Reliance in this regard may be placed on the case cited as Dr. Raja Aamer Zaman v. Omar Ayub Khan and others (2015 SCM R 1303) in which this Court held that "The Courts in Pakistan have always preferred a purposive rather than a literal interpretation of Statutory Instruments." We would not like to thwart the clear intent of the legislature on account of a narrow construction of the statute. The same question viz. which court is to assume jurisdiction when the above mentioned jurisdictional facts have occurred has been considered in the Hong Kong and Shanghai Banking Corporation case (supra) in the following terms:- "However for the exercise of Such jurisdiction, it is fundamental, imperative, essential and sine qua non that two conditions must be met, co-exist and fulfilled, firstly, the special Court should have jurisdiction over the subject-matter, which means that the cause of action propounded in the plaint must be for redressal of the grievance qua the enforcement of the right or the complaint about the breach of obligation on part of the, defendant, but relatable to the "finance", this can be termed to the subject-matter jurisdiction... The second facet of the jurisdiction is over the parties to the lis, which may be termed as jurisdiction over the parties, and connotes that the banking Court shall only have the jurisdiction in the cases, where the relationship of the "financial institution" and that of the "customer" exists between the parties; considering both these aspects of jurisdiction, the broad question of jurisdiction shall be that the dispute should be between the "customer" and the "financial institution" as defined in law, in respect of the failure of the defendant to fulfil its/his obligations in relation to the "finance", which is so specifically, lucidly and clearly mentioned in section 9 of the Ordinance, 2001, which is the key provision of the special law and can be termed as the jurisdictional clause of the enactment;..." We hold that the reasoning and the ratio of the above cited case is the correct law. The factors to be considered by a special court before the assumption of jurisdiction are firstly whether it has jurisdiction over the subject matter of the lis and secondly whether the parties to the /is are subject
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to its jurisdiction. In this case the subject matter is finance and the parties before the Banking Court are a financial institution and its customer. There is no quibbling with the fact that a default has occurred: the learned counsel for the respondents admit the same, though there appears to be considerable dispute betwixt the respondents as to who is responsible for the same. We would not like to comment on this aspect of the matter lest any prejudice be caused to the respondents. Our interest is strictly limited to the fact that once a default occurs the final piece of the puzzle falls into place and' the jurisdictional facts which the banking court is to consider stand complete. The Banking Court is then duty bound to assume jurisdiction. 14. We need not belabour the point that it is a settled principle that creditors follow debtors. Whether indeed those debtors are in Pakistan may be determined by recourse to some of the factors cited in Miss Amtul Naseer Sami v. Secretary, Health, Government of Balochistan and others (1975 SCM R 265):- "...residence must answer a qualitative as well as a quantitative test, and that the Courts have regarded naturalization, purchase of house or burial ground, exercise of political rights, financial expectations, establishment of children in business, the place where a man's wife and family reside as indecia (sic) of his intentions in regard to residence." If the debtors no longer maintain a presence in Dubai and as stated by the appellant they reside in Pakistan, what useful purpose would be served by forcing the appellant to file recovery proceedings in Dubai? There can be no cavil with the fact that the Civil Courts at Lahore would have jurisdiction in this matter on the basis of the fact that the respondents are presently in Pakistan, despite the fact that the loan was availed outside Pakistan or the cause of action took place outside Pakistan. From this accepted and undisputed position we have simply to consider whether that plenary jurisdiction of the civil courts has been carved away by a special statute, i,e, the F.I.O., 2001, and wrested some of the jurisdiction away to the Banking Courts created under the same. The answer as stated above is in the affirmative. 15. It is a settled principle of private international law that the forum, which has the most real and substantial connection with the lis must exercise jurisdiction over it. When the appellant bank and the respondents are present in Pakistan then it is the courts in Pakistan which must assume jurisdiction. In the English case reported as Spiliada Maritime Corporation v. Cansulex Ltd ([1986] 3 WLR 972) Lord Goff stated that:- "...a stay will only be granted on the ground I forum non convenient where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i,e, in which the case may be tried more suitably for the interests of all the parties and the ends of justice." [Emphasis supplied] The primary consideration before the Court must be where…
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