' SARMAD JALAL OSMANY, J.---This Appeal impugns the Judgment of the learned Sindh High Court in H.C.A. No,109 of 2004 filed by the respondent No,1 which was allowed.
2. Briefly stated the facts of the matter are that the respondent No,1 Messrs IDBP (hereinafter referred to as "Bank") had filed J.M. No,64 of 1990 before the learned Sindh High Court under section 39 of the I.D.B.P. Ordinance, 1961. Ultimately the claim of the said respondent was decreed against the other respondents and appellant; however as only simple interest was allowed instead of compound interest as per the agreement between the parties, I.D.B.P. Went in Appeal before the learned High Court which as stated above was allowed and compound interest was awarded to the respondent No,1 and hence this Appeal. Consequently the only point in issue before this Court is whether in terms of the agreements between the parties compound interest is to be granted.
3. Mr. Akhtar Hussain, learned Advocate Supreme Court appearing for the appellant has firstly submitted that in terms of BCD Circular No,13 issued by the State Bank of Pakistan dated 20-6-1984 it is very clearly stipulated in para-3 thereof that from the 1st of January, 1985 interest wherever charged by a banking company/development finance institution in any of the items of banking charges, shall be replaced by a non-interest mode considered appropriate by it. Moreover overdue/penal interest or markup on mark-up shall not be charged by a banking company/DFI as from that date. Instead, it may take legal steps for recovery of the overdue finance. Thus according to learned Advocate Supreme Court after r-1-1985 the Bank could not charge compound interest etc. On the loans given by it to the respondent .No,2. According to learned Advocate Supreme Court as the BCD Circulars issued by the State Bank of Pakistan from time to time have the force of law in terms of section 25 of the Banking Companies Ordinance, therefore, the same are inviolable for which proposition he has relied upon Hashwani Hotels Limited v. Federation of Pakistan and others (PLD 1997 SC 315). Hence on the cut of date the bank had to convert all the loans given to respondent No,2 on a non interest bearing mode of financing.
4. Learned ASC's next submission is that the Bank had malafidely and unlawfully amalgamated three loans given to the respondent No,2 Company into one on 31-3-1984 and started charging compound interest thereof which is against public policy for which he has relied upon Qamaruzaaman Khan v. Industrial Development Bank of Pakistan and others (2009 CLD 460) and Mushtaq Ahmed Vohra v. Crescent Investment Bank Limited (2005 CLD 444). He also submitted that the Bank had filed a statement before the learned High Court whereby the total liability of the respondent No, 2 had been worked out at Rs,59,424,311.74 which had been paid and hence nothing is now due at all. So also per learned Advocate Supreme Court, account statements filed by the Bank before the learned Single Judge are not correct and hence the decree is liable to be set aside on this ground alone.
5. Mr. A.I. Chundrigar, learned Advocate Supreme Court appearing for the respondent Bank on the other hand has submitted that firstly as the decree was never challenged by the appellant, which was based on simple interest, hence this issue cannot be reopened regarding the principal amount decreed. His next submission is that interest in all forms was done away in Pakistan with effect from 1-1-1985 per BCD Circular No,13 issued by the State Bank of Pakistan but there is no directive that loans given prior to the cut off date are to be converted to a non-interest bearing mode of finance. Further that Circular No, 32 only provided for banking charges and stipulates that from 1st of January, 1985 interest wherever charged by a Banking Company Development Finance Institution in any of the items of bank charges, shall be replaced by a non-interest mode considered appropriate by it. So also overdue/penal interest or mark-up on mark-up shall not be charged by a banking company from that date. Hence said Circular has nothing to do with the loans provided by a banking company on any mode of financing which have been taken care of vide BCD Circular No, 13 as adverted to above. In this regard learned Advocate Supreme Court has submitted that insofar as the recovery of loans are concerned these are controlled by the Acts of Parliament passed from time to time i.e, Banking Companies (Recovery of Loans) Ordinance, 1979 which provides for recovery of interest bearing loans and then when this was done away by BCD Circular No,13 the Banking Tribunals Ordinance 1984 came into effect which exclusively dealt with mark-up cases whereas those cases which involved interest bearing loans were still being adjudicated by the Banking Court under the 1979 Ordinance. Then the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 came into effect whereby both the 1985 and the 1979 Ordinances were done away with, however, per section 15 thereof, interest/markup could both be recovered under respective agreements between the patties. Now finally per the 2001 Ordinance the same position continued per section 29 thereof. Hence per learned Advocate Supreme Court whereas BCD Circulars control the financial and banking sector in Pakistan the recovery of loans is Regulated by various legislative instruments and consequently the former cannot displace the latter as both operate within their own respective spheres. In support of his submissions learned Advocate Supreme Court has relied upon Messrs Dadabhoy "Cement Industries Ltd. And 6 others v. National Development Finance Corporation, Karachi (PLD 2002 SC 500).
6. We have heard both the learned ASCs for the parties and perused the record along with their assistance.
7. Upon careful examination of BCD Circular No, 13 dated 20-6-1984 it is quite apparent that from 1st January, 1985 all finances provided by a banking company shall only be in any one of the approved modes indicated in Annexure-I to the said Circular i.e, which are not interest bearing i.e, mark-up and mark down in the price, hire purchase, services charges, leasing, musharika, modaraba etc. This was followed by BCD Circular No, 32 dated 26th November, 1984 whereby interest was also done away from the cut off date in banking charges and similarly overdue/penal interest or mark-up on mark-up was prohibited. Upon a review of the BCD.Circulars it is quite apparent that the State Bank of Pakistan in its capacity as the premier regulatory authority of the Government of Pakistan in the financial sector acts as a watchdog over the same in order to secure monetary stability and soundness of the financial system as is readily apparent from section 9-A of the State Bank of Pakistan Act, 1956. In such capacity the State Bank from time to time issues guidelines and advices in the shape of BCD circulars and consequently it would be safe to conclude that the main function of the State Bank is to ensure and secure stability of the financial system in the country. Such powers and functions given to the State Bank are entirely divorced from the laws enacted from time to time for recovery of outstanding loans by the banks and the other development financial institutions. Hence it cannot be said that after 1st of January, 1985 no loans previously given by any company/DFI on the old interest bearing system could not be recovered as such. This is readily apparent from a perusal of section 15 of the 1997 Act which does provide that both interest and mark up could be recovered and the same is reflected in section 29 of the 2001 Act. There is no gainsaying the fact that BCD Circulars/instructions issued by the State Bank of Pakistan from time to time are binding upon all concerned in terms of section 25 of the Banking Companies Ordinance, 1962. However as stated above the functions of the State Bank of Pakistan are to regulate the finance and banking sector in the country which is entirely different from the mode and method of recovery of loans which is provided for in the various Acts/instruments of Parliament. Hence we cannot agree with Mr. Akhtar Hussain that after 1st of January 1985 in terms of any of the circulars issued by the State Bank of Pakistan including BCD Circular No,13, the banks were obliged to convert interest bearing loans into non-interest bearing modes of finance. As observed above recovery of interest bearing loans continued to be provided for under the various laws pertaining to recovery of loans which are still extant. In any event, BCD Circulars issued by the State Bank which can be termed as delegated legislation/directives/orders cannot displace legislative instruments such as the 1997 or 2001 Act.
8. As regards amalgamation of the three loans by the Bank, it would be seen that under said device the parties had done this voluntarily on 31-3-1984 and provided for 12% interest which was compounded and consequently no exception can be taken to the same. The cases cited at the bar by Mr. Akhtar Hussain, learned Advocate Supreme Court viz. Gamaruzaaman Khan and Mushtaq Ahmed Vohra (Supra) are not relevant at all as in Mushtaq Ahmed Vohra (Supra) it was held that where the three sponsor directors of a Company had been disbursed loans by the Bank in their respective names upon signing and execution of separate agreements thereto as well as security documents, the same could not be amalgamated into one and payment made into one account could not be transferred for the settlement of another account. So also in Qamaruzaaman Khan (Supra) it was held that the subsequent amalgamated agreement in absence of a reference to the previous agreement could not change the latter. In our opinion when indeed the bank as well as respondent No, 2 company had consciously, entered into an agreement whereby the previous liabilities in three separate agreements were amalagamated into one providing for compound interest etc. The same is unexceptionable. Regarding Mr. Akhtar's submission that a statement had been filed by the company before the learned High Court certifying the total liability of respondent No,2 Company at Rs,59,424,311.74 and the same had been paid in full and final settlement, suffice it to say that such amount was based on only simple interest and has nothing to do with the respondent company's liabilities towards the Bank based upon compound interest as agreed between the parties. Finally Mr. Hussain has stated that somehow the account statement submitted before the learned Single Judge of the Sindh High Court were defective, in our opinion this matter cannot be reopened as the decree had never been challenged before any, forum.
9. In view of the foregoing discussion, we find no force in this appeal which is accordingly dismissed.