P L d 2000 s c 225 (Riba prohibition stayed)

 

 

 

Before parting with our discussion on the Act of 1881, we would like to observe that the definition of a “negotiable instrument” as given in section 13 does not, in itself, provide that it will be traded in, or that it will be transferred or indorsed at a discount. But the practice prevalent in the financial market is that it is discounted on the basis of interest. This practice is against the Injunctions of Islam and involves Riba. A promissory note or a bill of’ exchange represents a debt payable by the debtor to the holder. This debt cannot be transferred to anybody except at its face value. Discounting of a bill or a note or a cheque, therefore, involves interest In an Islamic financial market, the papers representing money or debt cannot be traded. However, the papers representing holder’s ownership in tangible assets, like shares, lease certificates, Musharakah certificates etc. cant be traded in, and a viable secondary market can be developed on that basis.

 

 

IV. The Land Acquisition Act, 1894

 

 

 

Sections 28, 32, 33 and 34 of the Land Acquisition Act, 1894 to the extent these contain the provisions relating to “interest” have been held, as per discussion contained in paragraphs 279 to 296 of the impugned judgment, to be repugnant to the Injunctions of Islam as laid down in the Holy Qur’an and Sunnah of the Holy Prophet (p.b.u.h.). Section 28 of the Land Acquisition Act reads as under:--

 

 

 

“28. Collector may be directed to nay interest on excess compensation----If the sum which; in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of six per centum per annum from the date on which he took possession of the land to the date of payment of such excess into Court.”

 

 

 

A bare perusal of section 28 manifests the intention of the provision i.e. to compensate the landowner who was deprived of the land without payment of the true price payable. The deprivation so made is sought to be calculated through the prescribed mechanism i.e. compensation is being assessed at the rate of 6 per cent. per annum difference of the amount payable for the period that the landowner was deprived of the usufruct of the land. The principle sought to be given effect is that an owner cannot be deprived of his property except by paying adequate and proper price/compensation thereof and that the rights’ in the property are not to be treated as transferred unless proper compensation is not paid. Section 28 as amended/substituted for Balochistan by Baluchistan Act 13 of 1985 reads as under:--

 

 

 

“In addition to the compensation fixed on the basis of market value as prevailing on the date of notification under section 4, an additional amount of fifteen per cent per annum of the compensation so fixed shall be paid from the date of the notification under section 4 to the date of payment of compensation. “

 

 

 

Similar provision for additional compensation was made in Sindh by adding/inserting section 28-A after section 28 in the Land Acquisition Act by Sindh Ordinance No.23 of 1984.

 

 

 

Section 32 of the Land Acquisition Act reads as under:-----

 

 

 

“32. Investment of money deposited in respect of land belonging to persons .incompetent to alienate--(I) If any money shall be deposited in Court under subsection (2) of the last preceding section and it appears that the land in respect whereof the same was awarded belonged to any person who had no power to alienate the same, the Court shall---

 

 

 

(a) order the money to be invested in the purchase of other lands to be held under the like title and conditions of ownership as the land in respect of which such money shall have been deposited was held, or

 

 

 

(b) if such purchase cannot be effected forthwith, then in such Government or other approved securities as the Court shall think fit;

 

 

 

and shall direct the payment of the interest or other proceeds arising from such investment to the person or persons who would for the time being have been entitled to the possession of the said land, and such moneys shall remain so deposited and invested until the same be applied-

 

 

 

(i) in the purchase of such other lands as aforesaid; or

 

 

 

(ii) in payment to any person or persons becoming absolutely entitled thereto.

 

 

 

(2) In all the cases of moneys deposited to which this section applied the Court shall order the costs of the following matters, including therein all reasonable charges-and expenses incidental thereto, to b.: paid by the Collector, namely:--

 

 

 

(a) the costs of such investments as aforesaid;

 

 

 

(b) the costs of orders for the payment of’ interest or other proceeds, of the securities upon which such moneys are for the time being invested, and for the payment out of Court of the principal of such moneys, and of all proceedings relating thereto, except such as may be occasioned by litigation between adverse claimants.”

 

 

 

This section regulates the amount of compensation which for the reasons given in the previous section i.e. section 31 of the Land Acquisition Act could not be paid to the rightful owner. Such amount lying with the Court is to be invested in the purchase of other land to be held under the like title and conditions of ownership as the land in respect of which such money has been deposited was held, or if such purchase cannot be effected forthwith, then in such Government or other approved securities. This section further provides that the interest or other proceeds arising from such investment shall be paid under the direction of the Court to the person/persons who are found entitled to the possession of the land acquired.

 

 

 

Then comes section 33, which reads as under:---

 

 

 

“33. Investment of money deposited in other cases.---When any money shall have been deposited in Court under this Act for any cause other than that mentioned in the last preceding section, the Court may, on the application of any party interested or claiming an interest in such money, order the same to be invested in such Government or other approved securities as it may think proper, and may direct the interest or other proceeds of any such investment to be accumulated and paid in such manner as it may consider will give the parties interested therein the same benefit therefrom as they might have had from the land in respect whereof such money shall have been deposited or as near thereto as may be.”

 

 

 

This section provides for regulation of the money deposited in the Court for any cause other than the one mentioned in section 32 of the Land Acquisition Act and provides that such money deposited with the Court is to be invested in Government or other approved securities and the interest or the proceeds of any such investment are to be paid to the person/persons found entitled on the basis of their interest in the land and their entitlement to receive benefit from the land in respect of which the money had been deposited.

 

 

 

Section 34 may now be taken up. This section, as originally enacted was as under:-----

 

 

 

“34.Payment of interest. ---When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of six per centum per annum from the time of so taking possession until it shall have been so paid or deposited.”

 

 

 

This section as amended by West Pakistan Act III of 1969 substituting the words “interest thereon at the rate of six per centum” with the words “Compound interest at the rate of eight per centum” and adding a proviso thereto was reproduced in the impugned judgment, in the following words:----

 

 

 

“34. Payment of interest. ---When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with compound interest thereon at the rate of eight per centum per annum from the time of so taking possession until it shall have been so paid or deposited:

 

 

 

Provided that any waiver of the above right by the landowner shall be void and he shall be entitled to the said interest notwithstanding any agreement to the contrary.”

 

 

 

Section 34 was omitted altogether from the Land Acquisition Act as regards its application in Province of Balochistan vide Balochistan Act XIII of 1985 (section 11). It is further to be noted that both these amendments in section 34 were. made not applicable to the Province of Sindh vide Land Acquisition (West Pakistan Amendment) (Repeal) Ordinance, 1971 (Ordinance VI of 1971). As for N.-W.F.P., vide N.-W.F.P. Ordinance (V of 1983) in the Land Acquisition Act, 1894, for section 34, the following section was substituted:--

 

 

 

“When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with simple interest thereon at the rate of’ six per centum per annum from the time of so taking possession until it shall have been so paid or deposited.”

 

 

 

It appears that learned Judges of the Federal Shariat Court were not assisted properly by presenting before them the provisions of section 34 as amended and in force in the four Provinces. This section as amended came under consideration before the Peshawar High Court and the Lahore High Court. In the case of Government of N.-W.F.P. through Collector, Land Acquisition, Nowshera v. Muhammad Sharif Khan (PLD 1975 Peshawar 161), learned Judges of the Peshawar High Court observed that the amount of compensation includes the amount payable in consideration for compulsory acquisition by way of interest. In Islamia University, Bahawalpur through its Vice-Chancellor v. Khadim Hussain and 5 others (1990 MLD 2158 - Lahore), learned Judges of the Lahore High Court observed, “that the right to receive the interest under sections 28 and 34 is a right to receive the compensation on account of deprivation of one’s land under compulsory acquisition proceedings under the Act. The award of interest is neither a repayment of additional amount on loan nor it is an accretion on compensation in favour of landowner on account of loss of land under coercive statutory proceedings. It is in fact giving an equivalent or a substitute of equal value. It is in fact “that compensation” by which an injured party is restored to its formal position”. This second case was noticed in the impugned judgment.

 

 

 

This Act, as noted in the impugned judgment, came up for consideration before the Council of Islamic Ideology for the first time in its meeting held on 19-10-1976 and the Council observed as under:--

 

 

 

It again came up for consideration before the Council of Islamic Ideology on 14-3-1982 under the Chairmanship of Dr. Tanzil-ur-Rahman, J., as he then was, wherein the following opinion as regards these sections was expressed:--

 

 

 

“The acquisition of land is against awarding compensation to the landowner or persons holding interest therein. The various steps taken in this direction, being procedural, do not seem to offend any provision of Islamic Law. The provisions regarding `interest’ as contained in sections 28, 32 and 34 are in conflict with Shari’ah.”

 

 

 

It is further noted in the impugned judgment that the Council of Islamic Ideology agreeing with the above opinion resolved that the Land Acquisition Act should be amended accordingly.

 

 

 

This Act (Land Acquisition Act) was also considered by the Federal Shariat Court in S.S.M. No. 14/P of 1983 and judgment was delivered by it on 27-3-1984. The said judgment was set aside by the Shariat Appellate Bench of the Supreme Court in Shariat Appeal No.22 of 1984 and the matter was remanded to the Federal Shariat Court vide judgment of this Court dated 13-I-1988 for fresh decision. The remand matter came up before the Full Bench of the Federal Shariat Court on different dates and the same was adjourned from day to day and was still pending when the impugned judgment was delivered by the three learned Judges of the Federal Shariat Court.

 

 

 

It is pertinent to note that the contention of the learned counsel for the Federation was that the amount of compensation awardable under sections 28 and 34 of the Land Acquisition Act represents the compensation on account of deprivation of the land under compulsory acquisition proceedings and so does not qualify to be treated as ‘Riba’ as laid down by the Holy Qur’an and Sunnah of the Holy Prophet (p.b.u.h.) and in support of this contention reliance was placed on the judgment of the Lahore High Court (1990 MLD 2158) wherein notice was also taken of the three judgments of the High Courts of Allahabad, Patna and Madras rendered before partition. Learned Judges of the Federal Shariat Court surveyed these judgments and commenting on Behari Lal’s case observed that the considerations which weighed with the Courts to determine whether interest or damages could be classified as taxable income within the purview of Income Tax Act were different from the criteria to be employed for ascertaining whether interest payable under sections 28 and 34 is Riba. Therefore, it would appear inappropriate to apply the tests of finding out a sum to be income under the income Tax Act for judging it -to be Riba or otherwise. The true tests for adjudicating the real nature of an amount in the domain of Riba can come from the Holy Qur’an. Sunnah of the Holy Prophet (p.b.u.h.) and time tested opinions of the jurists and scholars well versed in Islamic Law and Shari’ah. Consequently, the process of reasoning employed in the judgments for dubbing the interest payable under sections 28 and 34 to be something else than Riba is difficult to justify in Shari’ah. The increase or addition in the form of interest under sections 28 and 34 over the debt payable in the form of compensation by acquiring authority to the land-owners obviously falls in the category of Riba”.

 

 

 

As regards section 32 of the Land Acquisition Act which provides for investment of the amount of compensation deposited with the Collector either in purchase of the land or other approved securities, it was observed that the said securities should be those which are non-interest bearing. To this view obviously no objection can be raised as the financial institutions have schemes and securities which are non-interest bearing and the Courts while making directions should regulate the investments in Shariah Compliant Modes of Finance.

 

 

 

Learned Judges of the Federal Shariat Court also noticed the judgment of this Court in Qazilbash Waqf and others v. Chief Land Commissioner, Punjab, Lahore and others (PLD 1990 SC 99) to the effect that the third condition of compulsory acquisition/purchase is that compensation is to be paid either before taking over the possession or within such period that cannot be considered to be delayed payment but under section 13 this payment has been ordered to be made bearing bonds. The principle, thus, deducible from this observation is that the payment of the price of the land has not only to be adequate and properly counter-valued but also to be made before or simultaneously with taking over of the possession of the land purchased or otherwise if the payment is not so made, the same is required to be made within reasonable time which cannot be termed as delayed payment.

 

 

 

The question requiring determination is whether sections 28 and 34 of the Land Acquisition Act are based on such a concept. The judgments of Peshawar High-Court and the Lahore High Court noted above have taken the view that the compensation which the Court has been empowered to award under these two sections is compensation on account of deprivation of the use of the land and does not fall within the definition of ‘Riba’ as contemplated by Holy Qur’an and Sunnah of the Holy Prophet. The three Indian cases noticed in the impugned judgment under the Income-tax Law also held the amount received on account of interest as compensation and damages for loss of right to retain possession of the property. It was further observed in Allahabad High Court’s case [Behari Lal Bhargava v. Commissioner of Income-tax, C.P. and U.P. (AIR 1941 Allahabad 135)[ that section 28 of the Land Acquisition Act was designed as convenient method of measuring such damages in terms of interest. In the Patna High Court’s case [Commissioner of Income-tax, Bihar and Orissa v. Rani Prayag Kumari Debi (AIR 1939 Patna 662)[ it was held that the amount received by the assessee by way of damages is not income amenable to assessment under the Income-tax Act, 1922. Though it came to the conclusion, in the peculiar circumstances of the case, that the amount was not income but merely an amount received on account of damages for the detention of the properties was also not accepted. In the Madras High Court’s case [Revenue Divisional Officer, Trichinopoly v. Venkatarama Ayyar and another (AIR 1936 Madras 199, wrongly noted as AIR 1932 Madras 199, in the judgment of the Federal Shariat Court)] it was observed that right to receive interest under section 34 of the Land Acquisition Act took the place of the right to retain possession and that the foundation of the Land Acquisition At was that when compensation was payable and had not been paid, interest for non-payment must be given from the date of taking possession.

 

 

 

Learned Judges of the Federal Shariat Court in the impugned judgment have not accepted the aforesaid pleas for the reason that it is inappropriate to apply test of finding out a sum to be income under the Income-tax Act for judging it to be Riba or otherwise as the real test is one which is provided by Holy Qur’an and Sunnah of the Holy Prophet (p.b.u.h.). It was held in the impugned judgment that increase or addition in the form of interest under sections 28 and 34 over the debt payable in the form of compensation by acquiring authority to the landowners falls in the category of Riba.

 

 

 

The nature and purpose of the payment of additional amount under both the sections merits in our view further consideration. The reasoning given in the Allahabad case (AIR 1941 Allahabad 135) which is also the basis of the judgment delivered in Madras case (AIR 1936 Madras 199) came to be considered by the Indian Supreme Court in the case of Dr.Sham Lai Narula v. The Commissioner of Income-tax, Punjab Jammu and Kashmir, Himachal Pradesh and Patiala (AIR 1964 SC 1878) and was specifically overruled. The reasoning recorded by the Supreme Court of India is as follows:----

 

 

 

“S.34. Land Acquisition Act itself makes a distinction between the amount awarded as compensation and the interest payable on the amount so awarded. The interest has to be paid on the amount awarded from the time the Collector takes possession until the amount is paid or deposited. A perusal of the provisions of section . 23 shows that interest is not an item included in the compensation for any of the matters mentioned therein; nor it is mentioned as a consideration for the acquisition of the land. Under clause (2) of section 23, the Legislature in express terms states that in addition to the market value of the land the Court shall in every case award a sum of 15 per cent. of such market value in consideration of the compulsory nature of the acquisition. If interest on the amount of compensation determined under section 23 is considered to be a part of the compensation or given in consideration of the compulsory nature of the acquisition, the Legislature would have provided for it in section 23 itself. But instead, payment of interest is provided for separately under section 34 in Part V of the Act under the heading `Payment’. It is so done, because interest pertains to the domain of payment after the compensation has been ascertained. It is a consideration paid either for the use of the money or for forbearance from demanding it after. It has fallen due. Therefore, the Act itself makes a clear distinction between the compensation payable for the land acquired and the interest payable on the compensation awarded. “

 

 

 

This judgment was followed by the Supreme Court of India in AIR 1970 SC 1702 and AIR 1972 SC 260.

 

 

 

Learned Judges of the Federal Shariat Court were right in observing that the test of finding out whether a sum is income under the Income-tax Act cannot be applied for determining the nature of the said amount to be Riba or otherwise. This question, as pointed out in the impugned judgment itself is to be answered according to the touchstone of the principles deduced by the jurists and scholars in Islamic Law and Shariah. The first principle applicable is that in case of compulsory: acquisition the compensation or the value of the land and the property acquired is to be paid either before taking over of the possession of property or simultaneously with the taking over of the possession or within such period of time after taking over of possession that the time involved may not be considered as real (mentionable) delay in making payment. If there is any delay, then it will be considered and treated that interest in the ownership of the land to that extent has not been passed. This is so treated so as to impress upon the necessity of making of the payment of the due price/counter-value and it is for this reason that section 28 of the Land Acquisition Act provides for awarding an amount with reference to the amount of compensation which was less paid or assessed or fixed by the Collector.

 

 

 

From the viewpoint of Shariah, the acquisition is a compulsory purchase of a property from the owner and the compensation awarded to him is the price of such purchase. One of the necessary conditions of a permissible acquisition, as laid down by this Court in the case of Qazalbash Waqf v. Chief Land Commissioner (PLD 1990 SC 283) is that the owner is given a fair market price of the property before or at the time of taking possession. If the Collector has paid less than the fair market price, it means that he has compelled the owner, not only to surrender his property without a fair price, but also to face the hardships of litigation. The function of the Court in this case is to fix a fair price of the property. While discharging this function the Court can take into consideration the injustice done to and the hardships suffered by the owner of the property and may, thus, increase the price so as to make it more than the normal market price. Instead of adopting this simple mode, section 28 of the Act, 1894 has first fixed the price by specifying the `excess”, then it has allowed an additional amount in the name of interest at the rate of 6% per annum. That is why the Federal Shariat Court has declared it repugnant to the Islamic Injunctions; because once the price is fixed and it became a debt, any increase over it calculated at per cent. per annum basis makes it interest, hence prohibited. On the contrary, if the price itself is increased for the considerations mentioned above, it will not entail interest, because the price of a property may be fixed on the basis of many considerations, including the hardship suffered by the seller at the hands of the purchaser in the same transaction.