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

 

Hence, awarding of compensation and the mechanism adopted in original section 28 as well as provided in Provinces of Punjab, Sindh and N.-W.F.P. is objectionable from Shariah point of view. This section as is enacted in Balochistan vide section 9-A, Balochistan Act XIII of 1985 also does not provide permissible mechanism to allow proper and adequate compensation. These sections shall be substituted by a provision to the following effect:--

 

“In addition to the compensation fixed on the basis of market value as prevailing on the date of notification under section 4, an additional sum at the rate of fifteen per centum per annum (or the rate fixed from time to time) of the compensation so fixed shall be added to the compensation due and payable from the date of notification under section 4 till the date of payment of compensation finally.”

 

As regards section 34, the amount awarded is not compensation paid to the owner for depriving him of his right to possess the land acquired but is given to him for deprivation of the use of money representing the compensation for the land acquired and as such is “interest” paid for the delayed payment of the compensation amount.

 

While correctly analyzing the nature of additional amount specified under section 28 one should not overlook the fact that the landowner has been deprived of the possession of his rightfully owned property without any compensation. Acquisition from the point of view of Shariah is a compulsory purchase by the Government. One of the basic conditions for the validity of such a compulsory purchase is that the fair market price is given to the landowner before or at the time of taking, possession or immediately after it. It means that a valid sale, in the case of acquisition, takes place only when the price is actually paid by the Government to the’ landowner. Taking possession without the -payment of the price, in the case of acquisition, does not in itself amount to effecting a valid sale. The landowner, therefore, is entitled to claim a rent for the period commencing from the date of possession to the date of the payment of the price (the awarded amount) whereby the actual valid sale shall have taken place. This rent should not be less than the fair market rent in the relevant period.

 

What is wrong in section 34 is, firstly, the use of the word `interest’ and secondly, determining the rate of eight per cent. per annum, with no regard to the rental value of the acquisitioned property. However, it may be provided that the landowner shall be paid the fair rental value or an amount equal to 8% per annum of the awarded amount, whichever is higher, from the time of taking possession to the time when the amount of compensation is actually paid to him.

 

Government of N.-W.F.P. through Collector, Land Acquisition, Nowshera v. Muhammad Sharif Khan PLD 1975 Pesh. 161; Islamia University Bahawalpur through its Vice-Chancellor v. Khadim Hussain and 5 others 1990 MLD 2158: Qazilhash Waqf and others v. Chief Land Commissioner. Punjab, Lahore add others PLD 1990 SC 99: Behari Lal Bhargava v. Commissioner of Income-tax. C P and U.P. AIR 1941 All. 135: Commissioner of Income-tax, Biltar and Orissa v. Rani Prayag Kumari Debi AIR 1939 Pat. 662; Revenue Divisional Officer, Trichinopoly v. Venkatararna Avvar and another AIR 1936 Mad.199; Dr. Sham Lai Narula . The Commissioner of Income-tax, Punjab Jammu and Kashmir, Himachal Pradesh and Patiala AIR 1964 SC 1878; .SIR 1970 SC 1702 and AIR 1972 SC 260 ref.

 

(i) Civil Procedure Code (V of 1908)--

 

----Ss.34, 34-A & 34-B(b)(c)---Constitution of Pakistan (1973), Art.203-F--Repugnancy to Injunctions of Islam---Provisions of Ss.34, 34-A & 34-B, C.P.C. having been declared to be repugnant to Injunctions of Islam, Shariat Appellate Bench of Supreme Court directed that said provisions be suitably amended keeping in view the observations recorded in the judgment by the Court---Shariat Appellate Bench declared that the provisions will cease to have effect from .30th June, 2001.

 

Section 34, C.P.C. provides that where a decree is for the payment of money, the Court may, in the decree, order “interest” at such rate as the Court deems reasonable to be paid on the principal amount adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further “interest” at such rate as the Court deems reasonable on the aggregate amount so adjudged, front the date of the decree to the date of payment, or to such earlier date as the Court thinks fit.

 

Section 34-A, C.P.C. has been dealing with interest on public dues It provides that where the Court is of opinion that a suit was instituted with intent to avoid the payment of any public dues payable by the plaintiff or on his behalf, the Court may, while dismissing such suit, make an order for payment of ‘interest’ on such public dues at the rate of two per cent., above the bank rate.

 

Subsection (2) of section 34-A, C.P.C. deals with a different situation. It provides that if the Court is of opinion that the recovery of any public dues from the plaintiff was unjustified, the Court may, while disposing of the suit, make an order for payment of interest on the amount recovered at the rate of two per cent., above the bank rate.

 

Section 34-B, C.P.C. deals with interest on dues of a banking company. It provides that where .a decree is for payment of money due to a banking company in repayment of a loan advanced by it, the Court shall, in the decree, provide for interest or return, as the case may be, on the judgment debt from the date of decree till payment. It further provides that in case of interest-bearing loans, the Court shall award a decree for interest at the contracted rate or at the rate of two per cent. above the bank rate, whichever is the higher.

 

Clause (b) of section 34-B provides that in the case of loans given on the basis of mark-up in price, lease, hire-purchase or service charges for the contracted rate of mark-up, rental, hire or service charges, as the case may be, the Government shall provide for interest or return at the contracted rate or at the latest rate of the banking company for similar loans, whichever is higher.

 

Clause (c) of section 34-B, C.P.C. provides that in the case of loans given on the basis of participation in profit and loss, for return at such rate, not being less than the annual rate of profit for the preceding six months paid by the banking company on term deposits of six months accepted by it on the basis of participation in profit and loss, the Court shall, in the decree, provide for such return and at such rate, not less than the annual rate of profit for the preceding six months as stated above, which the Court may consider just and reasonable in the circumstances of the case.

 

Section 34-B (b) and (c) relates to the recovery of money owed to a banking company by a client who entered into a transaction of mark-up, leasing, hire-purchase, service charge or profit and loss sharing.

 

These provisions of the Code are meant in more express terms for the recovery of the previous obligations.

 

Consequently, subsections (b) and (c) of section 34-B of the C.P.C. are repugnant to the Injunctions of Islam.

 

The provisions of sections 34 and 34-A, C.P.C. conferred a power on the Court to grant additional sum over and above the decreed amount and the sums to be allowed have been named as interest. Any amount over and above the principal amount of debt is Riba, hence prohibited. Therefore, any additional amount contemplated in these provisions does fall within the definition of ‘Riba’.

 

In legal system of Pakistan the difficulties of the decree-holders compound when the decree is sought to be executed. The obtaining of decree itself is not an easy task as all sorts of frivolous objections and delaying tactics are adopted/used for delaying completion of the trial. In addition to the delaying tactics adopted by the litigants the heavy work load of the Courts also contributes in delaying early and timely decision of cases. The number of cases daily fixed for hearing is so numerous that Presiding Officers cannot afford to give more than a few minutes to each case. The cases keep on lingering for years together due to all these factors.

 

The provisions of the Code of Civil Procedure are, therefore, to be viewed in the aforenoted perspective in addition to the legal question whether the power conferred by these provisions on a Court to grant additional amount over and above the amount decreed, though the said additional amount is called interest, falls within the definition of Riba.

 

The power conferred on the Court by law to grant additional sum is not premised on any act of the party to the transaction yet this grant of additional sum is without a counter-value and is a payment receipt of which law permits over and above the principal amount. Thus, indirectly Riba al-Nasiah has been allowed to be practised as it is Riba that is paid and received in a loan transaction and this is the Riba that has been prohibited by the Holy Qur’an. If the said provision is taken to be conferring a power on the Court to allow compensation to the lender/decree-holder for the loss caused to him by not returning the amount of liability through vexatious pleas and dilatory tactics after the filing of the suit or even after passing of the decree then granting of such power to allow compensation cannot be objected to but the compensation at a fixed rate to be awarded in each and every case based on opportunity cost of money is not permissible as in each case such a power will have to be exercised in consideration of the circumstances prevailing in that particular case. The Legislature can also confer a power on the Court to impose penalty on a party who makes a default in meeting out his liability or who is found guilty of putting up vexatious pleas and adopting dilatory tactics with a view to cause delay in decision of the case and in discharge of liabilities and from the amount of such penalty a smaller or bigger part depending upon the circumstances can he awarded as solarium to the party who is put to loss and inconvenience by such tactics. The amount of penalty can be received by the State and used for charitable purposes and in the projects of public interest including the projects intended to ameliorate economic conditions of the sections of the society possessing little or nothing i.e. needy people/peoples without means. The provisions of the Code of Civil Procedure, quoted above, are therefore, repugnant to the Injunctions of Islam as laid down in the Holy Qur’an and Sunnah of the Holy Prophet for the reasons given above and these sections may, therefore, be suitably amended keeping in view the observations given above.

 

(j) Civil Procedure Code (V of 1908)---

 

----Ss. 2(12), 35(3), 144(1), O.XXI, R.11(2)(g), O.XXI, R.38, O.XXI, R.79(3), O.XXI, R.80(3), O.XXI, R.93, O.XXXIV, Rr.2(1)(a)(i) & (iii), (c)(i) & (ii), 2(2), 4, 7(1)(a)(i) & (iii), (c)(i) & (ii), 7(2), 11, 13(1), O.XXXVII, R.2 & O:XXXIX, R.9---Constitution of Pakistan (1973), An.203-F---Repugnancy to Injunctions of Islam---Word “interest” wherever appearing in Ss.2(12), 35(3), 144(1), O.XXI, R.11(2)(g), O.XXI, R.38, O.XXI, R.79(3), O.XXI, R.80(3), O.XXI, R.93, O.XXXIV, Rr.2(1)(a)(i) & (iii), (c)(i) & (ii), 2(2), 4, 7(I)(a)(i) & (iii), (c)(i) & (ii), 7(2), 11, 13(1), O.XXXVII, R.2 & O.XXXIX, R.9, C.P.C. being repugnant to Injunctions of Islam, was directed by Shariat Appellate Bench of Supreme Court to be appropriately substituted ---Shariat Appellate Bench declared that said provisions will cease to have effect from 30th June, 2001.

 

The word “interest” wherever appearing in section 2(12), section 35(3) section 144(1), Order XXI, Rule 11 (2)(g), Order XXI, Rule 38, Order XXI, Rule 79(3), Order XXI, Rule 80(3), Order XXI, Rule 9.5, Order XXXIV, Rule 2(1) (a)(i), (iii), (c) (i), and (ii), Order XXXIV, Rule 2(2), Order XXXIV, Rule 4, Order XXXIV, Rule 7(1)(a)(i) & (iii) and (c)(i) & (ii), Order XXXIV, Rule 7(2), Order XXXIV, Rule 11, Order XXXIV, Rule 13(1), Order XXXVII, Rule 2 and Order XXXIX, Rule 9 of C.P.C: shall be deleted and substituted appropriately.

 

Order XXXVII, Rule 2 (2)(a) and (b), C.P.C. are similar to the provisions of sections 79 and 80 of the Negotiable Instruments Act, 1881.

 

Both these provisions (i.e. sub-rules (a) and (b) of Rule 2, Order XXXVII) of the Code are repugnant to the injunctions of Islam.

 

Rule 79 (3) of Order XXI of C.P.C. provides that if, in pursuance of a decree of recovery, a debt receivable by the defendant is sold, the Court shall prohibit the original creditor of that debt from receiving the debt or any interest thereon, and the debtor from making payment thereof to any person except the purchaser.

 

Similarly, Rule 80(3) of the Order XXI of the Code contemplates the transfer of a negotiable instrument, required for the purpose of recovery, and provides as under:

 

“Until the transfer of such negotiable instrument or share, the Court may, by order, appoint some persons to receive any interest or dividend due thereupon and to sign a receipt for the same...”

 

Appointed person having been allowed to receive interest, the provisions were objectionable.

 

(k) Cooperative Societies Act (VII of 1925)---

 

----Ss. 59(2)(e) & 71(2)---Cooperative Societies Rules, 1927, Rr. 14(1)(h), R.22, R.41 & Appendices I to IV---National Industrial Cooperative Finance Corporation Limited Bye-Laws, Bye-Law 3(6)---Constitution of Pakistan (1973), Art.203-F---Repugnancy to Injunctions of Islam---Provisions of Ss.59(2)(e) & 71(2), Cooperative Societies Act, 1925; Rr.14(1)(h), R.22, R.41 and Appendices I to IV of Cooperative Societies Rules, 1927 and ByeLaw 3(6) of National Industrial Cooperative Finance Corporation Limited Bye-Laws to the extent same provide for “interest”, are repugnant to Injunctions of Islam---Appellate Shariat Bench of Supreme Court directed that the word “interest” appearing in these provisions be deleted as the charging, levying and recovery of interest was not permissible under the Injunctions of Islam and provisions will cease to have effect from 30th June, 2001.

 

The word “interest” appearing in section 59 (2) (e) of the Cooperative Societies Act, 1925 and Rule 14(1)(h), Rule 22 and Rule 41 alongwith Appendices I to IV of the Cooperative Societies Rules, 1927 be deleted on the ground that charging, levying and recovery of interest is not permissible under the Injunctions of Shariah.

 

PLD 1992 FSC 1; PLD 1992 FSC 537 and PLD 1992 FSC 535 mentioned.

 

(l) Insurance Act (IV of 1938)---

 

----Ss. 3-BB(1)(b), 27(3), 29(8)(b)(c)(iii), 47-B(1)(2) & 81(2)(d)---Constitution of Pakistan (1973), Art.203-F---Repugnancy to Injunctions of Islam---Provisions of Ss.29(8)(b)(c)(iii), 47-B(1)(2) & 81(2)(d) to the extent same provide .for range of rate of interest, guarantees as to the interest amount, payment of interest on instalments and other conditions as to interest, are repugnant to Injunctions of Islam---Word “interest” appearing in Ss.29(8)(b)(c)(iii), 47-B(1)(2) & 81(2)(d) may be deleted but to the extent of 5.27(3), Insurance Act, 1938 the words “rate of interest” has to be deleted in consonance with objectives of prohibition of interest under Shariah--Word “interest” in S.27(3) need not be omitted as same pertains to securities of, and guarantees as to principal and interest, by the Government of the country in whose currency such policies are expressed---Word “interest” in S.27(3), therefore, be substituted with suitable amendments, keeping in view the purposes and the policy of the law On the lines indicated by the Court--Purpose behind the substitution of word “interest” should be to effectively implement the objectives of eliminating Riba from the economy of society without hampering the economic activities and also ensuring at the same time the growth and progress of the economy together with fairness to meet the obligations and liabilities---Question whether insurance business as in vogue in the country was in accord with Injunctions of Islam being a different question, was not taken into consideration by the Shariat Appellate Bench of Supreme Court ---Shariat Appellate Bench declared that the provision will cease to have effect from 30th June, 2001.

 

In section 27(3), Insurance Act, 1938 the words “rates of interest” may be deleted in consonance with the objectives of prohibition of interest under Shariah. The word “interest” appearing in subsection (3) of section 27 need not be omitted as this pertains to securities of, and guarantees as to principal and interest, by the Government of the country in whose currency such policies are expressed. This as such pertains to the assured of foreign origin and securities of foreign Government This amount, however, is to be taken notice in computing the investment required to be invested by an insured. The word “interest” appearing in the other provisions may, however, be deleted but it should be substituted with suitable amendments keeping in view the purposes and the policy of the law on the lines indicated in this judgment. The purpose should be to effectively implement the objectives of eliminating Riba from the economy of the society without hampering the economic activities and also ensuring at the same time the growth and progress of the economy together with fairness to meet the obligations and liabilities. However, the question whether Insurance business as in vogue is in accord with Injunctions of Islam is a different question, which is not under consideration.

 

(m) State Bank of Pakistan Act (XXXII of 1956)---

 

----S. 22(1)---Constitution of Pakistan (1973), Art.203-F---Repugnancy to Injunctions of Islam---Provision of S.22(1), State Bank of Pakistan Act, 1956 to the extent of purchase of Bills and other commercial instruments like Debentures, Bonds etc. on the basis of interest is repugnant to the Injunctions of Islam---Mode of transacting such financial products/instruments has to be changed to a mode compatible with the Islamic modes of finance; Shariat Appellate Bench of Supreme Court, however, left said matter to the economists and bankers to adapt the new situation, keeping in view the Qura’nic prohibition of Riba---Shariat Appellate Bench declared that the provision will cease to have effect from 30th June, 2001.

 

(n) West Pakistan Money-Lenders’ Ordinance (XXIV of 1960)---

 

----Preamble---West Pakistan Money-Lenders’ Rules, 1965---Punjab Money Lenders’ Ordinance (XXIV of 1960), Preamble ---Sindh Money Lenders’ Ordinance (XXIV of 1960), Preamble ---Balochistan Money Lenders’ Ordinance (XXIV of 1960), Preamble---Constitution of Pakistan (1973), Art.203-F---Repugnancy to Injunctions of Islam---West Pakistan Mone3 Lenders’ Ordinance. 1960; West Pakistan Money. Lenders’ Rules, 1965; Punjab Money Lenders’ Ordinance, 1960; Sindh Money Lenders’ Ordinance, 1960; Balochistan Money Lenders’ Ordinance, 1960; being the laws pertaining to money-lending and money-lenders and alien to Islamic Injunctions and the concept of Islamic Social Justice, could have no place on the statute book of the land and these laws and the Rules framed thereunder were repugnant to Injunctions of Islam ---Shariat Appellate Bench of Supreme Court directed that the above laws shall cease to have effect from 31-3-2000.

 

(o) Agricultural Development Bank Rules, 1961---

 

----R. 17(1)(2)(3)---Constitution of Pakistan (1973), Art.203-F--Repugnancy to Injunctions of Islam---Rule 17(1)(2)(3) of the Agricultural Development Bank Rules, 1961 on the question of interest is repugnant to Injunctions of Islam---Levy, charging and recovery of interest being not permissible, Shariat Appellate Bench of Supreme Court directed that Rule in question be suitably amended on the lines indicated in the Judgment---Shariat Appellate Bench of Supreme Court directed that the law shall cease to have effect from 30-6-2001.

 

(p) Banking Companies Ordinance (LVII of 1962)---

 

----Ss 25(2) & 9---Constitution of Pakistan (1973), Art.203-F---Repugnancy to Injunctions of Islam---Mark-up---Prohibition---Extent---Concept of a real tale, based on mark-up, is not impermissible in its origin, subject to certain conditions, major condition being that it should not be charged on lending or advancing money and it must be based on the genuine sale of a commodity with all its substantive consequences---When the word “mark-up” used in S 25 of Banking Companies Ordinance, 1962 is read in juxtaposition with S.9 of the said Ordinance, it is certainly repugnant to Injunctions of Islam, because a valid mark-tip transaction cannot be imagined without a genuine gale effected by the Bank, provision of mark-up and provision of S.9 of the Ordinance, thus, cannot stand together and either of the two must be struck down---Striking down of S:9, Banking Companies Ordinance, 1962 is necessary because provisions of S.9 are an obstacle in the way of a true Islamic Banking and the correct, just and practicable decision about the concept of mark-up as provided in S.25 of the said Ordinance is not possible unless the bar imposed by S.9 is relaxed, word “mark-up” in S.25 of the Banking Companies Ordinance, 1962 may therefore be retained---Section 9 of the said Ordinance being repugnant to the Injunctions of Islam, in so far as the same prohibits Banks from purchase and sale of goods and other trading activities necessary for adopting the Islamic modes of financing like Bai Mu’ajjal and Murabaha based on mark-up, leasing, hire-purchase and Musharaka in their true and genuine forms ---Shariat Appellate Bench of Supreme Court directed that S.9, Banking Companies Ordinance, 1962 be substituted to accommodate all the Islamic Modes of Financing with their necessary requirements and the provision of S.9 shall cease to have effect from 31st March, 2000.

 

Section 25(2), Banking Companies Ordinance, 1962 empowers the State Bank of Pakistan to give certain directions to banking companies, including a direction about the rates of interest, charges or mark-up to be applied on advances, or prohibiting the giving of loans to any borrower on the basis of interest.

 

So far as the provision of interest in section 25 is concerned, it is against the Injunctions of Islam in the light of the Injunctions about Riba. The way ‘mark-up’ is applied at present is nothing but Riba, hence prohibited. But at the same time the concept of a real sale, based on mark up, is not impermissible in its origin, subject to certain conditions. The major condition for the permissibility of a mark-up transaction is that it should not be charged on lending ‘or advancing money. It must be based on the genuine sale of a commodity with all its substantive consequences. But section 9 of the Banking Ordinance prohibits a bank from trading. It is provided in section 9 that:

 

“Except as authorized under section 7, no banking company shall directly or indirectly deal in the buying or, selling or bartering of goods or engage in any trade or buy, sell or barter goods for others, otherwise than in connection with bills of exchange received for collection or negotiation.”

 

When the word ‘mark-up’ used in section 25 is read in juxtaposition with section 9, it is certainly repugnant to the Injunctions of Islam, because a valid mark-up transaction cannot be imagined without a genuine sale effected by the bank. Therefore, the provision of mark-up and the provision of section 9 cannot stand together. Either of the two must be struck down.