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

 

 

 

As regards the revenues and loans credited to Federal Consolidated Fund and to Public Account, expenditures are incurred without regard to the sources of funds. It appears that no accounting is done for identifying the liabilities created by certain expenditures as revenues are mixed up with proceeds of loans and both are treated at par. This situation prevails as regards the borrowings both from foreign lenders as well as domestic lenders, as no distinction is made whether the borrowing in rupee or in foreign exchange or from local and foreign markets. It is only the Government in power which is to decide freely the mix between the foreign and local borrowings or in rupee or in foreign exchange. Under the Federal Legislative List, Entries No. 9 and 10, make the subjects of foreign loans and foreign aid Federal subjects.

 

 

 

At this stage the views of Dr. Waqar Masood Khan, Vice-President, International Islamic. University with regard to the implications emerging from the legal provisions on the subject may be dealt with. He contended that:----

 

 

 

“(1) The Federal Government enjoys borrowing powers which are Constitutionally sanctioned and no limits have been placed by any Act of the Parliament on these powers.

 

 

 

(2) The borrowing transactions, are protected by their inclusion within the list of expenditure charged to the Federal Consolidated Fund; according to the interpretation of Dr. Waqar Masood Khan, these transactions include both the principal money as well as the interest.

 

 

 

(3) Charged expenditure enjoys the protection of complete insulation from Parliamentary control or scrutiny. Although such expenditure can be debated but cannot be put to vote, and hence no cut motions can be moved in respect of such expenditure. More importantly, since these are charged expenditure, they take precedence over all other expenditures. Apparently, such obligations will have to be discharged prior to incurring any other expenditure.

 

 

 

(4) Together with the absence of any Act to regulate the custody of the FCF and PA, the Federal Government has complete freedom to manage the finances of the Federation.” .

 

 

 

The other important aspects to be noticed, considering overall effect of the judgments rendered by the Federal Shariat Court, it was contended, are:--

 

 

 

(a) That the Federal Shariat Court has examined only the laws enlisted above and not the other laws having bearing on the common finances or containing provisions pertaining to levy or charging of interest. An illustrative list of these laws provided by Dr.Waqar Masood details the enactments as follows:--

 

 

 

(1) Contract Act, 1872 (Act IX of 1872), section 73, illustration (n).

 

 

 

(2) Trusts Act, 1882 (Act II of 1882), sections 20 and 20A.

 

 

 

(3)  Transfer of Property Act, 1882 (Act IV of 1882), sections 58 to 104.

 

 

 

(4) The Land Improvement Loans Act, 1883 (Act XIX of 1883), sections 6, 7 and 10.

 

 

 

(5) The Agricultural Loan Act, 1884 (Act XII of 1884), section 5.

 

 

 

(6) The Local Authorities Loan Act, 1914 (Act IX of 1914), sections 3 and 4.

 

 

 

(7) The Usurious Loans Act, 1918 (Act X of 1918), sections 2 and 3.

 

 

 

(8) The Securities Act, 1920 (Act X of 1920), section 13(2) [many other parts implying that securities bear interest].

 

 

 

(9) The Provident Funds Act, 1925 (Act XIX of 1925), section 2 [many other parts implying that interest is payable].

 

 

 

(10) The Public Debt Act, 1944 (Act XVIII of 1944), section 18 [many other parts implying that interest is payable].

 

 

 

(11) The Foreign Exchange Regulation Act, 1947 (Act VII of 1947), section 13 [many other parts implying that interest is payable].

 

 

 

(12) The National Bank of Pakistan Ordinance, 1949 (Ordinance XIX of 1949), section 25 [many other parts which imply interest-based business]. ,

 

 

 

(13) The House Building Finance Corporation Act, 1952 (Act XVIII of 1952), sections 21 and 24 [many other parts implying dealings in interest].

 

 

 

(14) The. Industrial Development Bank of Pakistan Ordinance, 1961 (Ordinance XXXI of 1961), sections 5 and 27 [many other parts implying dealings in interest].

 

 

 

(15) The Investment Corporation of Pakistan Act, 1966 (Ordinance IV of 1966), section 23 [many other parts implying dealings in interest].

 

 

 

(16) The People’s Finance Corporation Act, 1972 (Act XXIX of 1972), section 20 [and many other parts implying dealings in interest].

 

 

 

(17) The National Development Finance Corporation Act, 1973 (Act VIII of 1973), section 18 [and many other  parts implying dealings in interest].

 

 

 

(18) The Establishment of the Federal Bank for Cooperatives and Regulation of Cooperative Banking Act, 1977 (Act IX of 1977), section 17 [many other parts implying dealings in interest].

 

 

 

(19) The Income Tax Ordinance, 1979 (Ordinance XXXI of 1979), section 17 and numerous other provisions dealing with interest income.

 

 

 

(20) The Companies Ordinance, 1984 (Ordinance XLVII of 1984). Numerous provisions dealing with debentures and other fixed income securities.

 

 

 

(b) That the treasury rules and other rules regulating Government finances have also not been examined by the Federal Shariat Court. Thus at present Government finances may not be directly and fully hit by the decision of the Federal Shariat Court. These finances may be hit only partially.

 

 

 

(c) That the borrowing powers of the Government emanate directly from the Constitution and the provisions of the Constitution are beyond the scrutiny or examination of the Federal Shariat Court and hence it is to be seen and decided whether the laws authorizing the Government to borrow can be struck down disabling the Government from borrowing on the basis of interest.

 

 

 

It was for these reasons that it was contended that, in view of the above Constitutional provisions, the Government finances seem to be outside the purview of the Federal Shariat Court because it is not competent to examine the provisions of the Constitution, and since borrowing powers are protected under the Constitution together with the transactions carried out in pursuance of such powers the process of prohibition apparently cannot be extended to the Government finances under the existing scheme of judicial review of laws with regard to their consistency with the Injunctions of Islam. Following the above noted line of argument, Dr.Waqar Masood expressed the view that within the existing Constitutional framework the prohibition can effectively be applied to private transactions and not to the Government finances unless of course the Constitution is amended.

 

 

 

We have given serious considerations to the abovenoted aspects and are of the view that as regards the laws which have not yet been scrutinized by the Federal Shariat Court, it will be appropriate to have the said laws/enactments/provisions scrutinized by moving appropriate petitions by the Government itself or by taking suo motu notice by the Federal Shariat Court. As regards implications emerging from the legal provisions on the subject, the Federal Government enjoys borrowing powers under Article 78 of the Constitution. The mandate of Article 79 of the Constitution, however, is that an Act of the Parliament has to regulate--

 

 

 

(a) the custody of the Federal Consolidated Fund;

 

 

 

(b) the payment of moneys into that Fund;

 

 

 

(c) the withdrawal of moneys therefrom;

 

 

 

(d) the custody of other moneys received by or on behalf of the Federal Government;

 

 

 

(e) their payment into, and withdrawal from, the Public Account of the Federation; and

 

 

 

(f) all matters connected with or ancillary to the matters aforesaid.

 

 

 

This mandate has not yet been obeyed and complied with as no enactment has been till date framed and enacted by the Parliament. All the above matters are being dealt with under the Rules made by the President which Rules, as commented in one of the paragraphs above are deficient in many respects and, in any case, cannot be a valid substitute of law framed by the Parliament itself. The Rules existing on the subject were probably made pursuant to section 151 of the Government of India Act, 1935, which section provided that the Rules may be made by the Governor-General and by the Governor of Province for the purpose of securing all moneys received on account of revenues of the Federation or of the Province and also with regard to the moneys to be paid into the Public Account of the Federation or the Province. After the establishment of Pakistan, the Constitutions of 1956 in Article 62, the Constitution of 1962 in Article 38 and the Constitution of 1973 in Article 79 mandated for the enactment of an Act by the Parliament to regulate the custody of the Federal Consolidated Fund, the payment of and withdrawal of moneys into or therefrom as well as custody of other moneys received by or on behalf of the Federal Government, their payment or withdrawal from the Public Account of the Federation and all matters connected with or ancillary thereto. Reference may also be made to Article 81 of the Constitution of which clause (c) provides that the expenditure charged upon the Federal Consolidated Fund includes all debt charges for which the Federal Government is liable, including interest sinking fund charges, the repayment or amortisation of capital, and other expenditure in connection with the raising of loans, and the service and redemption of debt on the security of the Federal Consolidated Fund. Reference may also be made to Article 166 of the Constitution which provides that the executive authority of the Federation extends to borrowing upon the security of the Federal Consolidated Fund within such limits, if any, as may from time to time be fixed by Act of Majlis-e-Shoora (Parliament), and to the giving of guarantees within such limits, if any, as may be so fixed. Similar provisions were contained in the Constitutions of 1962 and 1956 in Articles 139 and 115 respectively. The economists appearing before us showed ignorance as to the existence of any such law as contemplated by these Articles on the statute book. In the absence of any such enactment providing guidelines and fixing the limits up to which the borrowing power can be exercised by the Federation, Dr.Waqar Masood, argued that the charged expenditure enjoys the protection of complete insulation from parliamentary oversight as, on the one hand, no guidelines exist and, on the other, such expenditure can be debated but is not to be put to vote. Moreover, the Federal Government has complete freedom to manage the finances of the Federation and this unrestricted power has plunged the Nation into huge indebtedness and has ruined the economy. It would be seen that for almost fifty years we have not been able to obey the mandate of the Constitution by not enacting appropriate law defining the borrowing powers, the purposes, the use and limit of the exercise of such power. The contracts of billions of dollars burdening the nation through execution of sovereign guarantees are being entered into without information of even the members of the cabinet what to say of obtaining approval of the National Assembly by a member of bureaucracy or advisor appointed by Prime Minister in his sole discretion injudiciously. The contract executed with IPPs provide sufficient basis for providing prudential laws and making approval of such contracts by the National Assembly mandatory. Such a law should be enacted without further loss of time so that prudential measures could be adopted so as to regulate management of Federal Consolidated Fund as well as Provincial Consolidated Funds and Public Accounts and the borrowing powers of the Federation particularly.

 

 

 

The contention that the process of prohibition cannot be extended to Government Finances under the existing scheme of Judicial Review of laws with regard to their consistency with the Injunctions of Islam on account of the fact that the Constitutional provisions cannot be scrutinized on the touchstone of Injunctions of Islam under Article 203-D of the Constitution merits some consideration. It is on account of exclusion of the Constitution from the definition of the term “law” given in clause (c) of Article 203-B that this view has been expressed. No doubt, the question of repugnancy or otherwise of the Constitutional provisions on the touchstone of Injunctions of Islam cannot be examined by the Federal Shariat Court and also by the Shariat Appellate Bench of the Supreme Court but the enactment which as and when framed regulating the Federal Consolidated Fund or the Public Accounts as well as defining, prescribing and limiting the borrowing powers are enacted, the said statute, enactment or even the rules shall have to conform to the Injunctions of Islam as contained in the Holy Qur’an and G Sunnah of the Holy Prophet not in view of the provisions contained in Article 203-B(c) but also of the provision of Article 2-A and Article 227 of the Constitution. This Constitutional position is well established and in support reference may be made to Hakim Khan and 3 others v. Government of Pakistan through Secretary Interior and others PLD 1992 SC 595) wherein five learned Judges of this Court, inter alia, held that the Court has no power to apply the test of repugnancy by invoking Article 2-A of the Constitution for striking down Article 45 of the Constitution of the Islamic Republic of Pakistan for the reason that if any Article of the Constitution is in conflict with Article 2A, the appropriate procedure is to have it amended in accordance with the prescribed provision for the purpose. However, it does not absolve the Courts of their duty to give effect to the provisions of Article 2A as it has been made substantive part of the Constitution. A Constitution is an organic whole. All its Articles have to be interpreted in a manner that its soul or spirit is given effect to by harmonising various provisions. Again in The State v. Syed Qaim Ali Shah (1992 SCMR 2192) it was observed that the Courts while construing the provisions of statute should make efforts that the interpretation of the relevant provision of the statute should be in consonance with Article 2A of the Constitution and the grund norms of human rights.

 

 

 

This Court in the case of Zaheeruddin and others v. The State and others (1993 SCMR 1718) declared that effect of adoption of Objectives Resolution as Article 2A in the Constitution by the chosen representatives of the people as the operative part of the Constitution, is the acceptance of sovereignty of Allah to be binding on them who vowed. that they will exercise only the delegated powers within the limits fixed by Allah. Such adoption also enhanced the power of judicial review of the superior Courts. It was further observed that “the Constitution has adopted the Injunctions of Islam as contained in Qur’an and Sunnah of the Holy Prophet (p.b.u.h.) as the real and the effective law. In that view of the matter, the Injunctions of Islam as contained in Qur’an and Sunnah of the Holy Prophet (p.b.u.h.) are now the positive law. Article 2A, made effective and operative the sovereignty of Almighty Allah and it is because of that Article that the legal provisions and principles of law, as embodied in the Objectives Resolution: have become effective and operative. Therefore, every man-made law must now conform to the Injunctions of Islam as contained in Qur’an and Sunnah of the Holy Prophet (p.b.u.h.). Therefore, even the Fundamental Rights as given in the Constitution must not violate the norms of Islam”. Again this Court in the case of Mushtaq Ahmad Mohal and others v. The Honourable Lahore High Court, Lahore and others (1997 SCMR 1043) held the appointments to various posts by the Federal Government, Provincial Governments, statutory bodies and other Authorities, either initial, ad hoc or regular, without inviting applications from the public through the press to be violative of Article 18 read with Article 2A of the Constitution of Pakistan. Not only the actions but also the laws to be framed as such are to conform to the grund norm established by the incorporation of the I Objectives Resolution as substantive part of the Constitution with the addition of Article 2A in the Constitution of the Islamic Republic of Pakistan, 1973.

 

 

 

Reference may be made to the case of Dr.Mahmood-ur-Rahman Faisal v. Government of Pakistan through Secretary, Ministry of Justice, Law and Parliamentary Affairs, Islamabad .(PLD 1994 SC 607) wherein Shariat Appellate Bench of the Supreme Court observed that the provisions of the Constitution conferring jurisdiction on the Federal Shariat Court to examine whether or not any law or provision of the law is opposed to the Injunctions of Islam, are to be interpreted in a manner which would give full effect to the process of Islamization of laws and such interpretation will be more harmonious with the spirit and letter of the Constitution.

 

 

 

The net result of the above discussion is that every law to be framed by the Parliament has to conform to the Injunctions of Islam as contained in Holy Qur’an and Sunnah of the Holy Prophet (peace be upon him) and if any such law is found to be repugnant to the Injunctions of Islam, the Federal Shariat Court as well as the Shariat Appellate Bench of the Supreme Court has the power to scrutinize the said law on the touchstone of Islamic injunctions and make the necessary declaration as is contemplated in Article 203-D of the Constitution and the Federal Government or the Provincial Governments, as the case may be, shall have to amend the law suitably as required in the judgment.

 

 

 

The definition of ‘Riba’ as finally determined by this Court will provide touchstone for evaluating as to whether a provision of law conforms to the Injunctions of Islam or not and any such provision of law as finally declared to be not conforming to the injunctions of Islam shall have to be amended suitably. The position of the past and closed transactions and the liabilities already incurred under the existing provisions of law is, however, different and shall be dealt with at appropriate stage while dealing with the said question in this judgment.

 

 

 

The stage is now set to examine the question of definition of Riba, the concept of Riba, as found in Qur’an and expounded by the Prophet of Islam, practised by the Righteous Caliphs and understood and explained by the Fuqaha. The criticism of the opponents of Islam, the pleas urged and the apprehension expressed by certain quarters will also be examined hereunder.

 

 

 

The question of redefining Riba in the context of modern international economic and monetary system has been raised time and again, during the past few decades. It was raised before the learned Federal Shariat Court and has also been raised before us not only in the appeal submitted on behalf of the Federation but also on behalf of some other appellants. It has been asserted that since the present monetary system has become much more advanced, complex and developed as compared to what is termed by some as the rudimentary system prevalent during the early centuries of Islam, a fresh definition of Riba is needed and the earlier, or traditional definition, if any, developed by the early doctors of Islamic Fiqh suited only their time when the economy was based mostly on barter rather than complex paper currency system. According to this opinion, Riba has to be redefined afresh in every age keeping in view the existing economic realities, monetary system and financial institutions of the time. The new definition, it is contended, should be liberal, accommodative and contributive to economic progress and well-being of the people; it should be free from the limited approach of the medieval jurists who, according to this view, were not exposed to such complex and difficult problems as are faced by the modern jurists and the contemporary economists. The upholders of this view differentiate between interest and usury and take pains to show that Riba is synonymous with usury and is basically different from the present day interest. Basing their argument on the Qur’anic verse (4: 160-161) which refers to the prohibition of Riba in the Jewish law, they argue that the Jews were known for charging interest at exorbitant rates employing all sorts of harsh, coercive and treacherous methods. In their society, Riba was extracted from the poor along with a pound of flesh. However, those who propound this view do not themselves come out with any definite, clear and viable definition of Riba which should exclude bank interest and cover only usury charged at exorbitant rates. Any worthwhile logically phrased and technically defensible definition is bound to be such that either it would exclude everything, even what is conceded to be usury at exorbitant rates or it would include everything traditionally considered Riba by Muslim jurists including the bank interest regardless of its rate.

 

 

 

Despite this difficulty, some scholars have tried to develop a theory of Riba in such terms as may be helpful to exclude bank interest from the ambit of Riba. We wish to thoroughly examine their views and weigh the arguments marshalled in support of this interpretation of Riba. But we have noted that either the upholders of this view do not give any definition of Riba, or, if they do, it is either all-inclusive or all-exclusive. Therefore, one is left with no other option but to accept the definition of Riba agreed upon by almost all the commentators of the Qur’an, the Hadith, the jurists the classical and traditional writers on Riba. This definition has been phrased differently by different scholars but, in fact and in effect, there is no material or substantial difference among them. However, we shall come back to the definition of Riba later. Before discussing the definition of Riba as agreed upon by the overwhelming majority of the Ummah, it is advisable that the minority view of those who do not consider bank interest as Riba is discussed in detail. Among those who advocate this view, the names of Sayyid Rashid Rida, Maulana Jaafar Shah Phulwarwi, Syed Yaqub Shah, Dr. Fazlur Rahman, Mr. Justice Qadeeruddin Ahmed and Shaikh Muhammad Sayyid Tantawi are prominent and deserve mention. The views of earlier four scholars were summarized and condensed in a scholarly article by late Mr. Justice Qadeeruddin Ahmed. Out of these, the views of Sayyid Rashid Rida, Shaikh Muhammad Sayyid Tantawi,. Dr. Fazlur Rahman and late Justice Qadeeruddin Ahmed deserve deeper examination because their views and findings were placed before us by the counsel of some of the parties as well as by Mr. Khalid M. Ishaque and Mr. H. U. Beg a former Secretary Finance to the Government of Pakistan who appeared before us on his own initiative. Although the views of other scholars, namely Maulana Jafar Shah Phulwarwi and Syed Yaqub Shah were not formally quoted before us, yet we have taken notice of their views because of the prominent stature these scholars possess. These views have a tendency to influence such people who may not have profound or systematic knowledge of Islam-and may be carried away by the apparent force of their arguments. This is evident by some letters written to us by some people as well  as some newspaper articles.