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

 

 

 

So, best form to accomplish this conversion is to form a grand mutual fund of all Government equities in its economic projects, and after proper valuation the certificates of such a fund may be given in lieu of the obligations. The two questions which are fundamental to the success of this scheme i.e. (i) Does the Government has adequate assets to be transferred to such a mutual fund so that it may meet the obligations? And (ii) How the fund would be managed?, were answered in paragraphs 131 and 132 of the written submissions as under:---

 

 

 

“131. Regarding the adequacy of Government resources, no published data is available to satisfactorily determine this question. However, it is possible to identify the nature of these assets and reflect on their commercial nature. At present, by and large, all infrastructure projects are owned by the Government Projects belonging to Power, Water, Highways, Telecommunications, ports and shipping, aviation, dams, oil and gas sectors are in the ownership of the Government. In terms of specific commercial entities, Pakistan Telephone Corporation, WAPDA, KESC, OGDC, KPT, PNSC, PIA etc. are owned by the Government. Besides infrastructure, a number of banks and financial institutions are still operating in the public sector. In mid-’97, according to a news item, while briefing the Prime Minister on the potential of privatization, a figure of $30 billion was indicated as the value of assets that would be up for privatization. However, it is the Government alone that can undertake a reliable exercise on this account and determine the adequacy of this scheme. Many of these corporations may not be profitable bodies at present, but their potential be become as such is doubtless. It would therefore be fair to assume that the overall fund would indeed generate a reasonable return to the certificate holders.

 

 

 

132. Regarding the management of the proposed fund, it has to be professional and independent of Government influences. Indeed, this would be required to ensure that the benefits typically associated with privatization will be coming by transfer of ownership to the Mutual Fund. This would only be possible if the fund is managed by those who could also monitor the performance of management of the underlying units. For an interim period, the managers of the Fund may be made answerable to a Parliamentary Committee, which will judge the performance of the managers.”

 

 

 

Foreign Transactions

 

 

 

Dr.Waqar Masood has noted that the long term debt is largely product related and hence in principle specific assets were created against them and even some assets were created in case of short term debts though ready identification of such assets may not be possible. He adds that wherever assets are available, a conversion of foreign liability into a Shariah compliant form would be possible, except perhaps the response of the foreigners may pose some difficulty. Where assets cannot be identified, the methods discussed in the context of settlement of Government obligations would have to be resorted to by offering mutual fund certificates or alternatively a portion of the fund may also be offered in the foreign markets, and the proceeds may be used to retire such obligations. He further commented that there is no reason to believe that response of the foreigners would be adverse, so long as they are made to understand that their investments are protected and future transactions would continue to be allowed based on commercially viable principles of financing that are consistent with the requirements of Shariah, and that it is a matter of education of the foreigners that by eliminating interest the country is not restricting the scope of business transactions rather it is only eliminating a method of such transactions. Throughout the world, Islamic banks and financial institutions are operating on profitable basis, a large number of well known financial institutions have opened special counters and departments that deal exclusively on the basis of Islamic principles of finance so the country would not be embarking on a venture which is unknown or untested, and that so long as the foreigners believe that the move is not motivated by a desire to evade obligations to them, there is no reason to suspect that their reaction would be hostile. However, it will still be prudent to allow a longer period, to say a period of two years, for acquiring the foreign transactions to be brought in conformity with new system.

 

 

 

Dr. Shahid Hasan Sid4iqui, Chairman, Research Institute of Islamic Banking and Finance in his verbal submissions as well as in his written submissions has also dealt with the subject of borrowing and debts. The Magnitude of the Problem was manifested by Dr.Shahid Hasan Siddiqui by putting across the comparative position of 1988 i.e. after 41 years of independence and ten years later in 1998 by citing the following table:---

 

 

 

 

S. No  

Item    

1988   

1998   

Rise in ten years

 

(i)        

Public debt     

520     

2518   

1998

 

(ii)       

Stuck-up Advances   

39       

250     

211

 

(iii)      

Qarz-utaro Mulk Sanwaro Scheme 

-          

17       

17

 

(iv)      

FCAs utilized ($10 b converted at prevailing rate) 

-          

460     

460

 

(v)       

Privatization proceeds          

-          

58       

58

 

           

Total   

559     

3303   

2744

 

 

 

 

 

 

These public debts are required to be repaid and losses in respect of stuck-up advances recouped from the taxes of the common man and by paying lower fates of returns to the depositors of Banks/DFIs respectively. According to him the causes of this evil are large scale corruption, persistence with interest-based economy, Government’s exorbitant/wasteful expenditures, poor revenue collections and foreign exchange outflow exceeding its inflow. The resultant budget deficit and adverse balance of payment position have been forcing successive Governments to impose heavy taxes and resort to more and more domestic and external borrowing and stage has reached that the public debts, instead of meeting the budget deficits, have become biggest source of creation of these deficits. Due to this, the negative effect of the IMF conditionalities are also making the task of movement towards Islamic system of banking more difficult. He cited CBR’s reports to show that the revenue declined from 12.4 per cent of GDP in 1995-96 to 11.7 per cent. in 1996-97 and further to 10.6 per cent. in 1997-98, though in 1998-99 the position has improved. According to him the solution of the problem of budget deficit can be solved as under:---

 

 

 

“Rupees in billion

 

S. No               Particulars                                                                    Position on

 

                                                                                                            30-6-99

 

________________________________________________________________________

 

(i)         Desired tax revenues-18% of GDP                                           520

 

 

 

(ii)        Budget projections Rs. 354 b, subsequently                              310

 

            reduced to Rs. 318 h, which may not be achieved

 

 

 

(iii)       Room for additional recovery                                                    210

 

 

 

(iv)       Projected deficit in the budget                                       134

 

 

 

(v)        Possible Surplus budget                                                            76

 

 

 

In the humble opinion of this writer it was also within the Government’s reach to obtain additional resources/savings as under, even in the financial year ending June 30, 1999:---

 

 

 

Rupees in billion

 

S.No Item                                                                                            Amount

 

____________________________________________________________________________________________

 

 

 

(i)         Surplus budget as aforesaid                                                       76

 

(il)        Savings ‘ due to prudent utilization of Development                    55

 

            Expenditure (according to official sources about 60%

 

            of expenditure is misappropriate/wasted

 

(iii)       Restoring the profitability of public sector enterprises     90

 

            at 1995-96 level (Profitability declined from Rs.42.2

 

            b, in 1995-96 to Rs. 1.7 b, in 1997-98)

 

Total Savings/additional resources                                             261

 

____________________________________________________________________________________________

 

 

 

It will be kindly seen that the projected budget deficit of Rs.134 billion for the financial year ending June 30, 1999 could have been converted into a surplus budget and additional resources of Rs.261 billion generated. In any case, there would also be substantial reduction in debt servicing liability due to re-scheduling of Pakistan’s external debts, the full impact of which would be fully known after a decision is made by the London Club.

 

 

 

There is now an urgent need of allocating, from the surplus resources so created at least Rs.20 billion per year for providing basic health care, primary education, safe drinking water and sanitation facilities. In addition, Rs.40 billion per year should also be diverted for providing subsidy on items like Atta, rice, ghee, and petrol etc. These steps are essentials for achieving the “Maqasid-e-Shariah”.

 

 

 

It may, however, be submitted that all this will necessarily requires a total change in attitudes and difficult and tough decisions will have to be taken.”

 

 

 

It is unfortunate that we are not in a position to comment on this proposed solution as neither the representatives of the State Bank of Pakistan nor of the Finance Division or the Law Division thought it fit to attend the hearings even to note these contentions or to submit written submissions in respect thereof. The only written submissions made by Mr.Muhammad Ashraf Janjua contained the State Bank’s own point of view which have been duly noticed in the paras. above These comments do not take notice of the submissions of any of the economist, scholar or Islamic Development Bank.

 

 

 

Domestic Debt

 

 

 

Dr.Shahid Hasan Siddiqui adds that in view of the submissions made by him as noted above there should be no need to take any domestic loan except for securing finances for essential projects for which second line techniques should be resorted to in addition to Musharaka financing. The so-called prestige projects with questionable economic justification must be abandoned forthwith or “Qard-e-Hasna” as a source of security funds should be used in case of need by the State but there seems to be little scope of this source as after the launching of Prime Minister’s Debt Retirement Programme, the Government shattered the confidence of the nation by securing such loons as were never taken in the history of Pakistan.

 

 

 

External Debt:

 

 

 

He (Mr.Shahid Hassan Siddiqui) argued that the following statistics, facts and suggestions provide a ground for action packed approach:--

 

 

 

(i)         A former US Consul-General to Pakistan, in 1997 twice said that a sum of $100 billion has been looted from Pakistan and transferred abroad. He expressed the view that if this wealth could be retrieved, Pakistan could re-pay the entire external debt and there would be no need for securing loans and credits in future.

 

 

 

(ii)        Mr.Malik Mairaj Khalid as Caretaker Prime Minister said that he has been informed by international financing agencies that a significant portion of the external loans accrued by Pakistan have found their way in the Western banking system outside Pakistan.

 

 

 

(iii)       There are reliable reports to suggest that in total violation of State Bank regulations, resident Pakistanis are maintaining deposits of about $40 billion in banks abroad. These resident Pakistanis include politicians, policy makers, powerful feudals, big industrialists and, traders, defaulters of Banks/DFIs retired and serving bureaucrats and the like.

 

 

 

The actions he proposes are:--- .

 

 

 

(i)         An Ordinance should be promulgated making it obligatory for all resident Pakistanis to transfer their accounts from abroad to Pakistan within 45 days. If a person gives information in proof of an account of a resident Pakistani still being maintained abroad after expiry of this period of 45 days, he should be offered a percentage of deposits as a reward.

 

 

 

(ii)        All members of Parliament are required to submit declarations to the Chairman Senate or the respective Speakers after 45 days declaring that they and their dependent family members whether living in or outside Pakistan are not maintaining accounts abroad. Similar declarations should be required to be submitted by all State functionaries including, economic managers to the competent authority.

 

 

 

(iii)       All borrowers (existing and prospective) having advances of Rs.0.5 million and above should also be required to submit such declarations to the Banks/DFIs.

 

 

 

According to Dr.Shahid Hassan Siddiqui, if only 25% of the deposits held by resident Pakistanis in violation of .the existing laws are brought back to the country, Pakistan could get rid of the international debts and also can adopt the policy of not taking external loans and credit except project related financing. Non-resident Pakistanis are reported to be having deposits over $35 billion outside Pakistan. The restoring of the credibility of the Government and improvement in the investment climate of the country is a must for the transfer of a substantial portion of these funds to Pakistan. He referred to the conversation of the two billionaires held in the, presence of Mr.Khalid M. Ishaque, Advocate who had during his submissions before the Court disclosed the said conversation. He stated that two Pakistanis are saying to each other that both of them, if put together their resources, can meet the external debts of Pakistan. Dr. Shahid Hassan Siddiqui stated that Mr.Khalid M. Ishaque should be asked to divulge in confidence particulars of these two Pakistanis and the Government should make a real effort to persuade them to provide necessary funds so that the nation could discharge its debt burden and could have the letters of indebtedness broken for securing their economic independence and the entire nation should not only pay homage to these persons for their nation saving act, and giving them and to their generations a prestigious place, and also to undertake to return to them and to their coming generations the necessary amount in instalments. He suggested that a Constitutional ban should be imposed on the Government restraining it from securing external loans for balance of payment support or fixing parameters and limits of borrowing and that too with the permission of the National Assembly/Parliament. He was of the view that all valid contracts are to be honoured minus interest which in many cases will, however, have to be paid except in the cases of embezzlement of funds and unauthorized loans, and that we may have to continue to pay interest unless. of course, alternate modes of financing are mutually agreed to in respect of the existing debts. Same was the view of Dr.Muhammad Umar Chapra as he has also pleaded honouring commitments with the foreign lenders.            

 

 

 

We have summarized above the position taken by the representative of the State Bank, the apprehensions expressed, the difficulties counted, the explanations offered and the proposals mooted by the scholars, economists and bankers. Formulating of fiscal and monetary policies and the procedure to be adopted to implement those policies so as to effectively achieve the objectives and goals is the task of the State Bank of Pakistan and the Government. This Court is neither possessed of the necessary expertise nor is required under the Constitution to frame such policies or to provide guidelines. We, however, cannot refrain from observing that wasteful expenditure ostentatious living, spend thrift policies must be shunned by all and sundry, from top to bottom. It is common knowledge that the nation has to stand on its own feet and has to depend on its own resources. The wasteful expenditures must be stopped. Everyone of us from top to bottom must live according to standard that we can afford on the basis of our own national resources. All expenditure in the name of protocol duties must come to an end. Everyone, be he Constitutional or public office holder, or a civil servant or a corporate executive must be made to adopt a standard of living which the nation can afford on the basis of its own resources and income. The leaders on the top and the high-ups have to create examples and we have no doubt in our mind that every member of the society will follow suit without any rancour or hesitation. It is the only method by which we can stop borrowing for even meeting our day-to-day expenses.

 

 

 

If these measures are adopted then those sons of the soil who have kept their wealth in the foreign banks will also feel motivated to join the nation in offering their wealth to sustain the country by having their debt burden released by making available their wealth in liquidation of the debt burden, and will thus relieve the nation of the economic slavery of international agencies such as IMF and World Bank and would thereby secure and preserve economic independence of the country. We have to recall that our ancestors when called by the Holy Prophet (peace be upon him) laid their entire wealth at the feet of the Holy Prophet (peace be upon him) saying that for them the Allah Almighty and His Prophet are sufficient sustainers and reckoners. The sons of soil and the believers will still be prepared to offer the entire belongings provided they are assured that their sacrifice will not go waste and will not be scalded away by others through extravagance or digression. The formation of these policies as indicated in other part of this judgment is to be secured by the Parliament by framing necessary laws securing proper monitoring of the public accounts and the Consolidated Funds by enacting an Act in compliance with the mandate of the Constitution. This law should also ensure the transparency in addition to securing national fiscal and monetary interest in line with the objectives of Shariah by following principle of Ijtehad. The Parliament in the present days circumstances, as opined by Allama Muhammad Iqbal, the thinker and the great philosopher of the nation, is the appropriate forum for conducting Ijtehad in all such matters. Allama Muhammad lqbal in his book “The Reconstruction of Religious Thought in Islam” observed as under:--

 

 

 

“The growth of republican spirit and the gradual formation of legislative assemblies in Muslim lands constitute a great step in advance. The transfer of the power of Ijtehad from individual representatives of schools to a Muslim legislative assembly which, in view of the growth of opposing sects, is the only possible form Ijma can take in modern times, will secure contributions to legal discussion from laymen who happen to possess a keen insight into affairs. In this way alone, can we stir into activity the dormant spirit of life in our legal system, and give it an evolutionary outlook. “

 

 

 

We have in this Judgment endeavoured to understand the rationale behind Allah’s stern commandment about the prohibition of Riba and made an earnest effort to lay dawn foundation of the Islamic Economic System by eleminating Riba from a facets of our life. If this logic does not satisfy anyone, it should be borne in mind that “Allah alone has the convincing argument” (al-Qur’an, 6:14) and He alone knows the total rationale.

 

 

 

Before parting with the judgment we deem it our duty to acknowledge the guidance provided and the contribution made by our brother Dr.Mahmmod Ahmed Ghazi till the period that he remained associated as member of the Bench.

 

 

 

We would like to gratefully acknowledge the valuable assistance rendered by the economists, bankers and religious scholars who pursuant to our request appeared before us and shared with us their knowledge and experience. We have immensely benefited from their assistance as is apparent from reading of this judgment. We are also indebted to the hundreds of Pakistanis who by addressing us letters containing their views and by sending their own written works and books and material written by others made valuable contribution in understanding the different questions involved in the case.

 

 

 

(Sd.)

 

Justice Khalil-ur-Rehman Khan, Chairman.

 

(Sd.)

 

            Justice Munir A. Sheikh, Member.

 

 

 

JUSTICE WAJIHUDDIN AHMED (MEMBER). ---I have had the previlege of going through the scholarly and voluminous judgment, proposed to be delivered by Mr. Justice Khalil-ur-Rehman Khan, Chairman of the Shariat Appellate Bench as also the erudite, largely, concurring judgment of my learned brother, Mr. Justice Muhammad Taqi Usmani. If for no other purpose except to provide a commentary on the Herculean efforts, which have gone into the rendering of these judgments, I would, in all humbleness, venture to add a few lines. This may also be taken to be the reason why some aspects have come to be dealt with abruptly and without a prelude. taking it for granted that the subject is neither novel nor new, having already been treated in the said judgments. At the same time only crucial aspects have been ventured to be touched. The rest, by and large, I respectfully endorse. In the rare instances where, with all respect, I have come to entertain any reservations or constraints, such would be discernible either by necessary implication or by express articulation

 

 

 

2.         Biaj , Neshec, Sood, interest, usury, or Riba, whatever name be ascribed to an `increase’, `addition’, `excess’ or “gain”, accruing on the principal amount loaned, the notion is practically as old as civilization itself. The essence of the transaction has been and remains a fixed or A predetermined, and, thus, predictable, return for the use, of money lent or advanced in a purely time related arrangement. While evidence of such transactions is found reflected, and perhaps not approved except with reservations, in the code of Hammurabi (1792-1750 BC) of the Babylonian era, the practice was either controlled or consistently disapproved in the religious precepts and teachings of Hinduism (code of Manu), Judaism and Christianity, on the one hand and the philosophic dissertations of the likes of Plato and Aristotle, on the other. Aristotle even regarded money as “barren”. The recurrent criticism of the concept was largely rooted in the purported exploitation and consequent misery of one man at the hands of another by merely passing on the use of money in a time related framework with firm or settled and even guaranteed returns thereon without the lender himself doing anything, generating Zulm (exploitation or injustice), in a background where other economic agents (including capital differently deployed) were to exert efforts/expose themselves to risks for seeking gains. Man is weak. To justify the ever multiplying returns on money lent or for forbearance of a debt the otherwise prohibitive dogmas of Judaism and Christianity, pertaining to interest related transactions, over centuries of political, social and economic interaction, came to be softened. Meanwhile, however, Islam, appearing on the scene, had demonstrably re-modeled the `concept in such a way terming it as Riba (that not merely fixed or predetermined time-oriented returns on principal sums of money lent were endorsed in their prohibition but the rule was perfected and reiterated according to some) also to include other items, at the minimum, carrying monetary or utilitarian implications. To be specific, the preclusion was extended, as well, to settled or predetermined time-related returns on the bulk of exchanges. History testifies the prohibition to have been so welldelineated and clearly understood that trade or commercial transactions amongst Muslims, for the best part of the ensuing fourteen hundred years of the Islamic era, have essentially remained free of all taints of interest or Riba. Wherever deviations took place, and those occurred largely at the level of Muslim Rulers, the transgressors had to pay heavily not only in economic but also political terms. In point is the example of the Ottoman Caliphate, which, in a large measure. owes its disintegration to international debts. No small tribute, however, to the perfection of a Riba or interest-free economy, continued and generated by Islam, is furnished when the thousands upon thousands of papers, lately compiled and coming to be known as the Janaza documents, dating back to medieval Islamic times, do not contain any mentionable Riba or interest-bearing transaction.