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

 

(c) To draft new laws to give legal cover to the new, financial instruments.

 

The recommendations of the task-force shall be vetted and finalized by the “Commission for Transformation” proposed to be set up in the SBP after which the Federal Government shall promulgate the recommended laws.

 

(4) Within six months from the announcement of this judgment, all the banks and financial institutions shall prepare their model agreements and documents for all their major operations and shall present them to the Commission for Transformation in the SBP for its approval after examining them.

 

(5) All the joint stock companies, mutual funds and the firms asking in aggregate finance above Rs.5 million a year shall be required by lam to subject themselves to independent rating by neutral rating agencies.

 

(6) All the banks and financial institutions shall, thereafter, arrange for training programmes and seminars to educate the staff and the clients about the new arrangements of financing, their necessary requirements and their effects.

 

(7) The Ministry of Finance shall, within gone month from the announcement of this judgment, form a task-force of its experts to find out means to convert the domestic borrowings into project-related financing and to establish a mutual fund that may finance the Government on that basis. The units of the mutual fund may be purchased by the public and they will he tradable in the secondary market on the basis of net asset value. The certificates of the existing bonds of the existing Government savings schemes based on interest shall be converted, into the units of the proposed mutual fund.

 

(8) The domestic inter-Government borrowings as well as the borrowings of the Federal Government from State Bank of Pakistan shall be designed on interest-free basis.

 

(9) Serious efforts shall be started by the Federal Government to relieve the nation from the burden of foreign debts as soon as possible, and to renegotiate the existing loans. Serious efforts shall also be made to structure the future borrowings, if necessary, on the basis of Islamic modes of financing.

 

(10) The following laws being repugnant to the Injunctions of Islam shall cease to have effect from 31st March, 2000:--

 

(1) The Interest Act, 1839.

 

(2) The West Pakistan Money-Lenders’ Ordinance, 1960.

 

(3) The West Pakistan Money-Lenders’ Rules, 1965

 

(4) The Punjab Money Lenders’ Ordinance. 1960.

 

(5) The Sindh Money Lenders’ Ordinance, 1960.

 

(6) The N.-W.F.P. Money Lenders’ Ordinance. 1960-

 

(7) The Balochistan Money Lenders’ Ordinance, 1960.

 

(8) Section 9 of Banking Companies Ordinance, 1962.

 

(11) The other laws or the provisions of the laws to the extent that those have been declared repugnant to the Injunctions of Islam shall cease to have effect from 30th June, 2001.

 

Per Justice Khalil-ur-Rehman Khan, Chairman---

 

(u) Constitution of Pakistan (1973)---

 

Arts.203-F, 203-E & 203-DD---Jurisdiction of Shariat Appellate Bench of Supreme Court and Federal Shariat Court---Scope---Provisions of the Constitution, Muslim Personal Law and any law relating to the procedure of any Court or Tribunal is outside the purview or jurisdiction of the Federal Shariat Court and the Shariat Appellate Bench of the Supreme Court Jurisdiction of said Courts is, thus, limited to the examination of the r1m,stion whether any la”, or provision of law is or is not repugnant to the Injunctions of Islam as laid down in the Holy Qur’an and Sunnah.

 

(v) Constitution of Pakistan (1973)---

 

----Art.203-B(c)---Term “law” defined in Art.203-13(c) also includes any custom or usage having the force of law or any law relating to banking or insurance practice and procedure---Principles.

 

The term “law” also includes any custom or usage having the force of law or any law relating to banking or insurance practice and procedure. The Legislature consciously included within the definition of term “law” for the purposes of Chapter 3-A of the Constitution of Pakistan “any custom or usage having the force of law”. The term “lam,” as used in Article 4 of the Constitution has also been used in Article 8 of the Constitution, in contradistinction with any “custom or usage having the force of law” and must, therefore, be given the same limited connotation in Article 4 as well.

 

Article 203-B(c), Constitution of Pakistan, 1973 provides an inclusive definition of law. On the force of that definition itself any usage having the force of law shall qualify as law. Such a usage may relate to the nation or group as a whole or may relate to practice and procedure of the Court. The former has been included in the definition of law but the latter has been expressly excluded by providing that law includes any custom or usage having the force of law but does not include “any law relating to the procedure of any Court or tribunal”. Law- here does not mean only the enacted law but includes usage having the force of law. Such usage or law may relate to procedure of Court or to matters not expressly excluded from the jurisdiction of the Court.

 

Federation of Pakistan through the Secretary, Ministry of Finance, Government of Pakistan; Islamabad and others v. United Sugar Mills Limited, Karachi PLD 1977 SC 397 and Wasi Ahmed Rizvi v. Federation of Pakistan PLD 1982 SC 20 ref.

 

(w) Constitution of Pakistan (1973)---

 

----Art.2A---Mandate of the Constitution as enshrined in Art.2A of the Constitution .

 

The mandate of the Constitution as is apparent from the Objectives Resolution under Article 2A is that the Muslims shall be enabled to order their lives in the individual and collective spheres in accordance with the teachings and requirements of Islam as set out in the Holy Qur’an and Sunnah; and that adequate provision shall be made for the minorities to profess and practise their religions and develop their cultures; and also that fundamental rights including equality of status, of opportunity and before law, social economic and political justice, and freedom of thought, expression, belief, faith, worship and association, subject to law and public morality,. shall be guaranteed.

 

(x) Constitution of Pakistan (1973)---

 

----Arts.203-D & 227---Provisions relating to the Holy Qur’an and Sunnah---Powers, jurisdiction and function of Federal Shariat Court--Scope---If any enacted law is considered by anyone to be repugnant to the Injunctions of Islam, the course to be adopted, as provided by the Constitution, is to challenge the said law before the Federal Shariat Court under Art.203-D of the Constitution, which power can also be exercised suo motu by the Federal Shariat Court.

 

(y) Constitution of Pakistan (1973)---

 

----Arts,73, 74, 78, 79, 80, 81, 82, 166 & Federal Legislative List, Entries 9 & 1()---Rules of Business [Federal Government], Sched. II, R,3(3), Entries, No.13(6)(7) & 16---Custody of Federal Consolidated Fund and Public Account---Act of Parliament to regulate the custody of Federal Consolidated Fund as mandated by Art.79 of the Constitution---Said mandate of the Constitution having’ not been complied with, Shariat Appellate Bench of Supreme Court directed that 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 Fund and Public Account and the borrowing power of the Federation particularly---Reasons.

 

The Federal Government has the power to frame the. financial, economic and fiscal policies of the State and also to provide necessary legal framework to execute such policies. It is the Federal Government which has the authority under the Constitution to operate and issue guarantees on the security of the Federal Consolidated Fund under such limits as may be fixed by an Act of the Parliament. However, no such law framed by the Parliament was referred. In the absence of such a law, the Government exercises unrestricted powers to borrow against the security of the Federal Consolidated Fund as no law has yet been framed to regulate the custody of Federal Consolidated Fund or the Public Account of the Federation. Though variety of rules such as Treasury Rules exist but in the absence of specific laws and rules pertaining to borrowing, it is, practically and ultimately the Rules of Business which are resorted to regulate the business of the Federal Government. Rules of Business [Schedule II, specified in Rule 3(3)] indicate at Entry No.13 `Finance Division’ and the functions assigned to the said Division. In sub-Entries 6 and 7 thereof, following items have been mentioned:

 

Public debt of the Federation both internal and external; borrowing money on the security of the Federal Consolidated Fund;

 

Loans and advances by the Federal Government.

 

It follows from these provisions of the Rules of Business that the lending and borrowing operations of the Federation are performed by the Ministry of Finance within the framework provided in the Rules of Business. No specific guidelines appear to have been provided to regulate and streamline such functions. It may, therefore, be inferred that the Secretary Finance or at best the Minister for Finance are free to make decisions on these subjects, though they may consult the Prime Minister if the matter is considered, in the discretion of the Secretary Finance or the Minister for Finance, to be an important policy matter. Rule 16 which specifies the cases required to be brought before the Cabinet does not contain borrowing proposals and as such even the Cabinet is not required to be taken into confidence. It will, therefore, be seen that neither the borrowings are restricted for specific uses nor the expediency of the situation necessitating borrowings has been spelled out. This situation of wide flexibility confers on the Finance Division unique and unlimited powers to borrow without at all being bothered about the productivity of the uses to which borrowed resources are applied or even without there being any limitation to the extent to which the nation is to be burdened with, borrowings.

 

As regards the revenues and loans credited to Federal Consolidated Fund and to Public Account, expenditures are incurred without regard to the sources of finds. 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 is in rupee or to 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 Nos. 9 and 10, make the subjects of foreign loans and foreign aid, Federal subjects.

 

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. 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, it was 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 I.P.Ps. provides 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 Account and the borrowing powers of the Federation particularly.

 

(z) Constitution of Pakistan (1973)---

 

----Arts.2A, 227, 203-D, 203-F, 203-B & 79---Powers, jurisdiction and functions of the Federal Shariat Curt and Shariat Appellate Bench of Supreme Court---Scope---Enactment regulating the Federal Consolidated Fund or the Public Account ---Repugnancy to Injunctions of Islam---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---Enactment which as and when framed regulating the Federal Consolidated Fund or the Public Account, 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 Sunnah of the Holy Prophet (p.b.u.h.) not in view of the provisions of Art.203-B of the Constitution but also of the provisions of Art.2A and Art.227 of the Constitution--Every law to be framed by the Parliament has to conform to the Injunctions of !slam 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 Art.203-D of the Constitution and the Federal Government or the Provincial Government, as the case may be, shall have to amend the law suitably as required in the judgment---Principles.

 

It was contended 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. 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 Shari at 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 Sunnah of the Holy Prophet not in view of the provisions contained in Article 203-B (c) but also of the provision of Article 2A and Article 227 of the Constitution.

 

The Court has no power to apply the test of repugnancy by invoking Article 2A of the Constitution for striking down any Article 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. 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.

 

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. 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.

 

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 Objectives Resolution as substantive part of the Constitution with the addition of Article 2A in the Constitution Of the Islamic Republic of Pakistan, 1973.

 

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.

 

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 203-0 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.

 

Hakim Khan and 3 others v. Government of Pakistan through Secretary Interior and others PLD 1992 SC 595; The State v. Syed Qaim Ali Shah 1992 SCMR 2192; Zaheeruddin and others v. The State and others 1993 SCMR 1718; Mushtaq Ahmad Mohal and others v. The Honourable Lahore .High Court, Lahore and others 1997 SCMR 1043 and Dr. Mahmood-ur-Rehman Faisal v. Government of Pakistan through Secretary, Ministry of Justice, Law and Parliamentary Affairs, Islamabad PLD 1994 SC 607 ref.

 

(aa) Interpretation of Constitution

 

Constitution being an organic whole, all its Articles have to be interpreted in a manner that its soul or spirit is given effect to by harmonizing various provisions:

 

(bb) Constitution of Pakistan (1973)---

 

----Arts.203-F & 203-D--Repugnancy to Injunctions of Islam ---Riba--Definition of Riba as finally determined by Shariat Appellate Bench of Supreme 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 finally declared to be not conforming. to the Injunctions of Islam; shall have to be amended suitably---Position of the past and closed transactions and the liabilities already incurred under the existing provisions of law is, however, different.

 

(cc) Islamic Jurisprudence---

 

---- Riba---Concept---Nature, classifications of Riba and impact of its prohibition on trade and business---Literal meaning of word Riba classifies that it means the increased amount paid or claimed in excess of the principal by the borrower or the lender and it has been called Riba which is exactly what interest means ---Qur’an declares each and every increase over the principal sum as Riba irrespective of the object or purpose for which the principal sum was borrowed ---Riba, .therefore, means increase, addition, expansion or growth, technically refers to the “premium” that must be paid by the borrower to the lender alongwith the principal amount as condition for the loan or for an extension in its maturity ---Riba is that excess amount which a creditor settles to - receive/or recover from his debtor in consideration of giving time to the debtor for payment of his loan---Purpose of loan is totally irrelevant in the context of the definition of Riba as the prohibition of the Qur’an extends to both the categories of Riba namely interest charged on commercial loans and the interest charged on personal or consumption loans ---Qur’anic prohibition, therefore, includes every kind of increase or interest charged on loans advanced for commercial or consumption loans---Milder interest is at par with harder interest ---Riba includes both usuary and interest as known in English terminology, therefore, Bank interest is also Riba---Riba, thus, is essentially in conflict with the clear and unequivocal Islamic emphasis on socio-economic justice.