' MUHAMMAD KHALID MEHMOOD KHAN, J.---Through this constitutional petition, the petitioners have prayed as under:-- "It is therefore prayed on behalf of the petitioners and in the light of what is stated hereinabove, that this Hon'ble Court may be pleased to:
(a) Declare that the SBP BPRD Circular 4 of 2008 is contrary to .Law and of no legal effect, is illegal, unlawful and void ab initio, and a nullity in the eye of law, and the SBP is not entitled to, directly or indirectly, enforce the same or take any action against anyone on the basis thereof or of further connected/ ancillary consequential demands.
(b) Declare that the letters of SBP dated 16-9-2009, 20-10-2009 and 13-11-2009 and all other letters/ circulars containing the illegal demands referred to in the instant petition are contrary to law and of no legal effect, are illegal, unlawful and void ab initio, and a nullity in the eye of law, and the SBP is not entitled to, directly or indirectly, enforce the same or take any action against anyone on the basis thereof or of further connected/ancillary consequential demands.
(c) To further declare that the SBP has no authority to artificially define the concept of sponsor shares to include shares acquired by non-sponsors and, in the open market or otherwise whether by way of bonus or right shares, or any other method whatsoever, and also that the concept of sponsor directors cannot similarly be artificially and illegally extended to shareholders who have acquired shares in the open market or by consent but is limited to the original remaining sponsor directors as per the Privatization Agreement and that the status of sponsor shares and sponsor directors remains unaltered.
(d) To declare that the SBP circulars/directives/letters have no retrospective effect and hence are not enforceable.
(e) To declare that the constitutional rights of the petitioners and the shareholders of the petitioners, including individuals as well as the corporate entities, are protected and cannot be impaired/restricted by SBP circulars, either directly or indirectly.
(f) A permanent injunction restraining the SBP from enforcing BPRD Circular 4 of 2008, whether directly or indirectly, and from issuing any directive or orders or letters thereunder or in connection thereto to anyone and from refusing to decide cases relating to petitioner No,1 on the merits on the pretext of noncompliance of the above and from taking any adverse action against the petitioners and/or its directors or shareholders.
2. The petitioner No,1 is a banking company, doing banking business all over the Pakistan and abroad. The petitioner No,1 was operating under the name and style of Muslim Commercial Bank Ltd., since its incorporation. After 8-12-2005 is operating under the name and style of MCB Bank Limited (hereinafter referred to as "MCB"). The MCB asserts that its performance is excellent, its, ordinary share of Rs,10 is trading in the Stock Exchange of Karachi @ of Rs,190, the overall performance of MCB is up to mark in every respect and is contributing major role in the financial and banking sector of Pakistan.
3. On 2-4-1991 President of Islamic Republic of Pakistan entered in to an agreement of sale of 26% shares of MCB with a group of investors known as "National Group", the purpose for the sale of 26% ordinary fully paid shares was to privatize the MCB from Public to private Sector. Under the agreement in addition to the others terms and conditions, following condition was specifically agreed:-- "1.4 The purchasers expressly agree and confirm that it shall be a condition of the sale of the shares under this agreement that none of the shares mentioned under clause 1.3 above shall, for a period of three years from the date of this agreement be sold, gifted, transferred or in any manner dealt with by their respective owners, except as stated in clause 1.3 above, without obtaining prior consent in writing of the State Bank of Pakistan. "
4. That after taking over the management of MCB, the National Group appointed its 12 directors. In 1994, the Government of Pakistan granted permission to set up 12 new commercial banks in private sector. On 26-8-1997 the State Bank of Pakistan (hereinafter referred to as the SBP) issued circular No,44 addressing the Chief Executive, of 12 newly established Commercial Banks whereby condition was imposed against the sale of sponsor shares of these banks. On 21-4-2000 again State Bank of Pakistan issued Circular No, 11 on the same subject which too was addressed to 12 newly established banks but in violation of the agreement dated 2-4-1991, the SBP tried to impose Circular No,11 upon the shareholders/purchasers of the shares of MCB.
5. The MCB vide letter dated 20-6-2000 informed the SBP that two circulars referred to above are not applicable against its shareholders. The SBP again on 17-1-2003 addressed Circular No,2 to MCB along with other Banks seeking the details of "Pledge of Sponsor Directors shares, the MCB on 23-1- 2003 in good faith provided the required information to SBP however the SBP on 11-11-2003 illegally directed the MCB that "all sponsor shares be deposited with the Chief Manager, SBP Services Corporation (Banks) Karachi immediately."
6. The MCB asserts that its share holders decided to change the name of Muslim Commercial Bank Limited to MCB Limited, the Security Exchange Commission of Pakistan accepted the petitioner's request, the petitioners then requested respondent No,1 to implement the change of its name in their record and issue certificate thereof, the respondent No,1 instead of changing the name of Bank, cancelled its banking license illegally and issued a new license by inserting unilateral conditions against the terms of sale and purchae agreement, the petitioner further asserted that respondent No,1 is discriminating the petitioner Bank, the respondent No,1 has caused loss to petitioner by sabotaging the proposed purchase of two foreign banks and illegally permitted one influential business group to purchase the private Banks and appointed a person of its Chief Executive against whom criminal case is pending before a Court of Law. In this background, the petitioner challenged the cancellation of banking license and the legality of SBP/BPRD Circular No,4 of 2008 dated 22-5-2008 and all other acts of SBP taken in pursuance of the circular dated 22-5- 2008.
7. The respondent No,1 controverted the petitioner's assertions and submits that respondent has not violated any law, the respondent No,1 being the regulatory authority under Banking Companies Ordinance 1962, enjoy the powers to regulate the affairs of all Banks operating in Pakistan being the custodian of the rights of depositors.
8. Learned counsel for petitioners submits that BPRD Circular No,4 dated 22-5-2008 is a bad law, has been issued with mala fide intent to cause loss to MCB, the impugned circular is in excess of jurisdiction conferred upon the respondent No,1 by Law. The respondent No,1 has no powers to issue any instructions or circular in violation of Banking Companies Ordinance 1962 and State Bank of Pakistan Act of 1956, the successive circulars issued by respondent No,1 directing MCB to deposit sponsor shares with State Bank in blocked account are without jurisdiction and lawful authority and are in violation of agreement dated 2-4-1991. The share holders enjoy rights independently and no clog can be put against the rights of share holders, the impugned circular is against the fundamental rights of share holders. The rights and liabilities of share holders are governed under the Companies Ordinance 1984 and Company Memorandum and Articles of Association, the respondent No,1 has no powers to issue any instructions against the statutory and guaranteed rights of share holders of MCB. The impugned Circular No,4 issued in supersession of Circulars Nos.11 and 44 and letters dated 24-10-2001 and 28-9-2004 are not applicable to petitioner's bank, the respondent No,1 has issued the impugned circular without Proper application of mind. Learned counsel contends that it is settled principle of law that when the statute directs something to be done in particular manner, it can only be done in that manner and not otherwise. The impugned circular is in violation of section 14 of the Banking Companies Ordinance 1962. Learned counsel vehemently argued that only Parliament has the powers to legislate with retrospective effect and the regulatory authority has no powers to issue any direction or instructions with retrospective effect. The change of name is only a formality and has nothing to do with the banking license and as such the act of respondent No,1 to issue new license is against law. The insertion of word 'major shareholder vide impugned circular amounts to enlargement of sponsor shareholders definition illegally. The impugned circular is in violation of the guaranteed rights of individual and Companies who have invested the money for the purchase of MCB shares from open market and as such the impugned circular is against the right of free trade of an individual and companies. The respondent No,1 has wrongly interpreted the word "dependent", an independent, major person cannot be termed as the dependent. Learned counsel adds that share holders and company are two independent juristic entities and the company cannot force the individual share holder to deposit his shares in bank account. Learned counsel has relied on Mian Muhammad Nawaz Sharif v. President of Pakistan and others (PLD 1993 SC 473), Safeer Travels (Pvt.) Ltd. Through Chief Executive Safeerul Islam v. Muhammad Khalid Shafi through Legal Heirs (PLD 2004 SC 690), Messrs Armu Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others (1992 SCMR 1652), Collector of Customs (Appraisement) v. Messrs Saleem Adana, Karachi (PLD 1999 Karachi 76) and Federation of Pakistan and others v. Shaukat Ali Mian and others (PLD 1999 SC 1026).
9. Learned counsel adds that section 503(1)(6) of the Companies Ordinance 1984 provides that provisions of Ordinance 1984 will apply to the Banking Companies, section 2 of the Banking.
Companies Ordinance 1962 provides that its provisions are in addition to and not in derogation of the law relating to companies save and except to the extent expressly provided therein, thus the impugned circular qua the share holders of a banking company is against law.
10. Learned counsel for respondent No,1 has raised the preliminary Objection about the maintainability of constitutional petition on the ground that impugned circular was issued on 22-5- 2008 and the petitioner has filed the petition after the lapse of two years. The so called dispute is already sub judice before a competent court of law in Suit No,77 of 2001 pending before Sindh High Court, the impugned circular has been issued in accordance with the provisions of Banking Companies Ordinance 1962. The impugned circular has been issued to. Protect the interest of depositor of banks. It is the legal duty of respondent No,1 to ensure that public money is controlled and managed by responsible and competent persons. The restriction to sell the share has been imposed in the larger interest of depositors, notwithstanding the Circular applicable in the year 1997, the sponsors of banking companies were selling the sponsor's shares to incompetent persons, that is the reason, the business of Indus Bank, Bolan Bank and number of other financial institutions were flopped. Learned counsel contends that impugned circular is only a check for safe guarding the rights of depositor, the agreement to sell and purchase has to be read as a whole and not in isolation. Learned counsel adds that in fact it is the share holders who elect the management of the Banking Company and as such the State Bank is enjoying the powers to issue instructions to the management for not to do illegal acts.
11. Heard, record perused.
12. The agreement dated 2-4-1991 (hereinafter referred to as AGREEMENT) is an admitted document between the parties, before entering into agreement, the entire share holding of Muslim Commercial Bank (MCB) was with the Federal Government, In April 1991, the Federal Government offered 26% share holding of MCB for sale to public at large, the National Group bid was finally accepted and the purchasers took over the management of MCB.
13. The MCB was incorporated in the year 1966 under the then Company Act 1913 as banking company in private sector, it was Nationalized under the Banks (Nationalization) Act 1974, under section 5 of the Act of 1974, the entire share holding, ownership, management and control of the MCB stood vested in Government of Pakistan. The Act of 1974 was amended by the Banks (Nationalization) Amendment Ordinance 1991. In the year 1991, the Government of Pakistan offered 26% share holding of MCB for sale to public at large. The twelve interested individuals formed a group under the name and style of National Group for participating in the bid.
14. The main argument of learned counsel for petitioner is that shares of MCB are not the sponsor shares, the directors who are the owners of required shares are not the sponsor directors and as such the impugned circular and other directives/instructions are not applicable on MCB, for ascertaining the above said fact it has to be seen what is the status of the shares of MCB.
15. The Government of Pakistan issued pre bid instruction on 2-1-1991 for the bidders as under:-- "BIDS FOR MCB ' Please refer to your Bid for acquiring 26 percent shares of Muslim Commercial Bank.
(1) .
(2) In order to enable the Committee constituted by the Government to evaluate the Bids, you are requested to please furnish information as in the enclosed proforma by 4-00 p.m. On Friday the 4th January, 1991 to the undersigned in this office.
(3) In this connection, we would also like to inform you of the broad terms and conditions' from the side of the Government for the purpose of proposed sale of shares:
(III) Bidder shall undertake to manage the floataton, underwriting and subscription of the 25% of the shares capital at the bid price in such manner as to ensure that disinvestment of the 51% of the share capital is completed before 30th June, 1991.
(IV) Till such time the transfer of 25% of the shares as at (iii) above is complete the GOP/ SBP will not use its voting rights to disturb the management control of the bidders.
(V) Till such time the balance 49% of the share capital is not disinvested to the general public, the State Bank of Pakistan will exercise its voting rights through proportionate representation on the Board of Directors of the Bank subject to (iv) above.
(vi) The balance of 49% shares shall be offered to the general public in two tranches at appropriate time but not earlier than 30th June, 1992. In case the buyer has less than 50% shares up to this time, he would have the option to buy the balance out of the third tranche at the bid price.
(VII) ..
(viii) The bank shall follow/comply the instructions issued under the Banking Ordinance, 1962 in respect of various matters including write-offs, opening, transfer of branches, restrictions on loans and their concerns, etc. Directives / Companies operational closure or to directors Yours faithfully, Sd/- (R.A. Chughtai) Director."
16. The Government of Pakistan finally accepted the bid of National Group and on 2-4-1991 an agreement for the sale of 26% share holding of MCB was executed between the President of Pakistan and National Group. In addition to the other terms and conditions, it was specifically agreed as under:-- "1.3 The Government has agreed to sell and the purchasers have agreed to purchase in the name of each of the member of the Group and/or their nominees the number of shares as shown against each:
1. Mian Muhammad Mansha1,248,224 shares
2. Muhammad Abdullah 1,248,216 shares
3. S.M. Muneer 1,248,216 Shares
4. S.M. Saleem 1,248,216 Shares
5. Hajee Bashir Ahmed 1, 248,216 shares
6. Tariq Rafi 1,248,216 Shares
7. Muhammad Naseem 1,248,216 shares
8. Muhammad Arshad 1,248,216 Shares
9. Sheikh Mukhtar Ahmed 1,248,216 Shares
10. Saqib Ellahi 1,248, 216 Shares Muhammad Bashir Jan Muhammad1,248,216 Shares
12. Khawaja Muhammad Jawed1,248,216 shares ' The purchasers shall be at liberty to transfer their respective share holding to their family member and/or group companies in which the purchaser(s) hold a controlling interest provided, however, that the purchaser or purchasers, as the case may be, shall always hold complete control and right of disposition of the said shares by legal instrument and shall personally exercise voting rights in respect thereof.
1.4 The purchasers expressly agree and confirm that it shall be a condition of the sale of the shares under this agreement that none of the shares mentioned under clause 1.3 above shall, for a period of three years from the date of this agreement be sold, gifted, transferred or in any manner dealt with by their respective owners, except as stated in clause 1.3 above, without obtaining prior consent in writing of the State Bank of Pakistan."
17. After the finalization of transaction of sale, the management of MCB was transferred to National Group, all the 12 members of group then were appointed directors of MCB.
18. In 1997 the Government of Pakistan granted permission for establishing twelve (12) commercial banks in private .Sector, accordingly twelve (12) banking licenses were issued to persons/groups found eligible to establish the bank. The license issuing authority issued Banking License with conditions including the following condition:-- "(vi) Sponsor-Directors shall not dispose of their shares in any manner whatsoever for an initial period of three years and thereafter only with the specific written approval of the State Bank. "
19. On 26-8-1997 the State Bank of Pakistan issued Circular Nos.44 to 12 private banks directing as under:- "In exercise of the powers conferred on SBP under section 41 of the Banking Companies Ordinance, 1962, Chief Executive of each of the private sector banks and all sponsor directors of such banks are hereby directed to ensure as under:-
(a) To mark prominently all the Sponsors Shares with the words "Not transferable without specific approval of the State Bank of Pakistan".
(b) Write to all Stock Exchanges in Pakistan with copies to the. State Bank of Pakistan advising them of the particulars of the Sponsors Shares and further advising them not to allow dealing in the Sponsors Shares since such dealing is in contravention of the permission granted by the Government of Pakistan for establishment of the bank and also in contravention of the conditions stipulated in the Licence issued by the State Bank of Pakistan under section 27 of the Banking Companies Ordinance, 1962.
(c) Directions contained above must be complied with within a week's time and the State Bank of Pakistan be simultaneously advised of such compliance."
20. On 21-4-2000 the State Bank of Pakistan issued Circular letter Nos.11 to 12 private established Commercial Banks as under:-- "PURPORTED SALE BY SPONSOR DIRECTORS ' Please refer to our BPRD Circular letter No,44 dated the 26th August, 1997 on the captioned subject.
(2) In light of the fact that shares of the banks are now handled under Central Depository System ("CDS'), it is considered appropriate to issue following further directives for compliance by Chief Executives of each of the private sector banks and Sponsor Directors of such banks:
(a) To confirm to the State Bank within five days from the date hereof that Sponsors Shares have not been deposited in CDS.
(b) If sponsors shares have been deposited in CDS, then: (i) they should be withdrawn forthwith: and (ii) provide explanation to the State Bank within ten days from the date hereof as to why Sponsors' shares were deposited in CDS notwithstanding the restrictions to their transferability.
(c) In order to ensure that Sponsors' Shares are not wrongfully placed in the market, it has now been decided that the same should be deposited in safe custody with the Chief Manager of SBP Karachi Office within ten days from the date thereof.
(3) Above directives are issued in exercise of powers conferred on the State Bank under section 41 of the Banking Companies Ordinance, 1962. Chief executives of each of the private sector banks and all Sponsor Directors of such banks are required to meticulously comply with the same."
21. All the above mentioned Circulars were remained operational and on 22-5-2008 the State Bank of Pakistan issued BPRD Circular No,4 of 2008 dated 22-5-2008 (Impugned Circular) by superseding all previous Circulars and letters as under:-- "DEPOSIT OF ' SPONSOR SHARES IN BLOCKED ACCOUNT WITH CENTRAL DEPOSITORY COMPANY OF PAKISTAN (CDC)
' Please refer to the State Bank's letter No,BPD(PU-33)682-22(ii)/ 2004/ 12355 dated the 28th September, 2004 and other instructions issued from time on the above subject.
(2) In order to ensure continued take/ ownership of sponsors/major shareholders in the banks, they were require to deposit their shares in a blocked account with central Depository Company of Pakistan (SBP) that sponsor shareholders of certain banks have either not fully deposited their sponsor shares or have not deposited their subsequent bonus/right shares in the CDC or have.
Availed financing form financial institutions against the pledge of their sponsor shares. This has been viewed seriously by the SBP.
(3) With a view to facilitate the banks and their sponsor shareholders and to ensure compliance of the SBP instructions, it has been decided to issue the following consolidated and revised instructions on the subject:..
(i) All sponsor shares and subsequent right and bonus shares, including those deposited with SBP Banking Services Corporation (BSC), shall be deposited in a blocked account with CDC. The procedure for deposit of sponsor shares in the CDC blocked account is provided in enclosed Annexure-A.
(ii) No withdrawal of the sponsor shares from the blocked account would be allowed without prior written permission of SBP.
(iii) Blocked account should be opened by the sponsor shareholders of banks exclusively for deposit of the sponsor shares and subsequent right and bonus shares issued thereon.
(iv) Charges for opening and operating of the blocked account with CDC will be borne by the sponsor shareholders.
(4) For the purpose of these instructions, the "sponsor shares" and sponsor shareholders" shall have the following meanings:
(i) Sponsor shares mean 5% or more paid-up shares of a bank, acquired by a person(s) individually or in concert with his family members (including his spouse, lineal ascendants and descendants and dependent brothers and sisters), group companies, subsidiaries, and affiliates / associates. Such acquisition of shareholding will include. All the shares acquired by aforesaid person(s) including, inter alia, through (c) market based acquisition deal; (d) reconstruction/ restructuring of a banking companies; or (g) any other mode of acquisition. All shares acquired by common shareholders, who are also sponsor shareholders, of amalgamating banking companies in amalgamation transaction shall be considered Sponsor Shares.
(ii) Shareholders mean all those shareholders of a bank holding sponsor shares. The members of the Board directors of a bank holding sponsor shares will be considered Sponsor Directors.
(5) These instructions shall not be applicable to the shareholding of Federal and provincial governments in banks.
(6) The above instructions have been issued in exercise of the powers conferred on SBP under the Banking Companies Ordinance, 1962. All the banks are advised to ensure meticulous compliance of these instructions.
' Banks which are already in compliance of these instructions shall confirm the same in writing to SBP through their Company Secretary.
(7) The above instructions shall supersede BPRD Circular Letters No, 44 dated 26th August, 1997, No,1 dated 3rd January, 1998 and No,11 dated 21st April, 2000 and letters No,BPRD (RU-28)/682-22(W 15315/2001 dated 24th October, 2000 and BPD (PU-33)682-22(11)/2004/12355 dated 28th September, 2004."
22. The State Bank of Pakistan under the Impugned Circular directed MCB to comply with the directions of Impugned Circular. The petitioner's argument is that the shares of MCB sold vide agreement date 2-4-1991 are not the sponsor shares, hence the impugned Circular No,4 of 2008 dated 22-5-2008 is against their fundamental right to trade and business of the share holders of MCB and further is in violation of the agreement of 'sale and purchase between the National Group and the Federal Govt.
23. For appreciating the argument of Lamed Counsel for the petitioner it has to be seen what is the status of shares of MCB, Whether the National Group purchased the sponsor shares of MCB in open bid or the .Fully paid ordinary shares, whether the directors of the MCB fall within the definition of Sponsor directors, whether the SBP has the powers to impose instructions against the right of sale of the share holders subsequent to the concluded and fully performed agreement, if so whether the impugned circular applicable retrospectively, whether the SBP has the powc-s to cancel the banking license of MCB in the absence of violation detailed in section 27(4) of the Banking Companies Ordinance 1962.
24. The National group, a group of Investors comprising of 12 members purchased 26% fully paid ordinary shares of MCB in open bid. The agreement dated 2-4-1991 shows that it is no where mentioned that Federal Govt. Is selling Sponsor shares of MCB, the agreement shows that it is a simple transaction of sale and purchase against consideration between the National Group and the Federal Government.
25. It is an admitted fact that MCB was incorporated in the year 1966 in private sector and the State Bank of Pakistan on 8-12-1966 granted banking license to MCB bearing No, BCD (1)17-66 in the following terms:-- "License No, BCD(1) 17-66 8th December 1966.
' In exercise of the powers conferred on the State Bank of Pakistan under section 27(1) of the Banking Companies Ordinance, 1962, the State Bank of Pakistan is pleased to authorize the Muslim Commercial Bank Ltd, to carry on banking business. Sd/- Chief Officer.
26. The perusal of the MCB banking license shows that no condition was attached to the license.
The MCB continued to do banking business till 1974 in private sector on the basis of said license, the Federal Government under section 5 of the Banks (Nationalized) Act of 1974, acquired the entire share holding of MCB and the ownership, management and control of the Bank stand vested in Government of Pakistan, the Federal Govt. Also continued to run and manage the MCB under the same license. The Act of 1974 was amended by the Banks (Nationalization) Amendment Ordinance 1991, the Government of Pakistan under the amended Ordinance offered 26% share holding of MCB for sale to public at large, the Federal Government issued pre bid instructions informing the prospective buyers the terms of purchase, the pre bid instructions in addition to other terms and conditions specifically defined the authority and jurisdiction of the State Bank of Pakistan in the Following term;-- "(viii) The bank shall follow/comply the directives/ instructions issued under the Banking Companies Ordinance, 1962 in respect of various operational matters including write-offs, opening, closure or transfer of branches, restrictions on loans to directors and their concerns, etc."
27. The pre bid instructions will show that it was not the condition of the sale that purchaser will obtain the new banking license. In the light of instructions to bidders, an agreement of sale and purchase was entered in to between the parties and again no condition was agreed between the parties that SBP will issue new banking license to the purchaser for doing banking business under the new management nor it was agreed between the parties that the sold shares will be deemed to be the Sponsor shares, the only condition regarding the sold shares are detailed in clauses of 1.3 and 1.4. Clause 1.3 shows that twelve (12) individual purchasers were permitted to transfer his/their shares to the person or persons detailed therein except the right of disposition and vote, under clause 1.4 the sale, gift, transfer alienation of the shares sold was agreed to be restricted for three years commencing from the date of execution of the agreement, however if the purchaser intends to sell, gift, transfer or alienate his/their share before the expiry of three years, he/they has/have to obtain prior permission in writing of State Bank of Pakistan.
28. After acquiring the entire share holding of MCB by the Federal Government under the statue in 1974, the status of sponsor shares of the MCB came to an end as all issued and fully paid up share capital of MCB become the ownership of single owner, the corporate and cooperative status of the banking company stand changed from group of individuals who floated and incorporated the Banking Company in to a single owner. The Federal Government continued to run and manage the affairs of the Banking Company as sole owner till 1991. The Federal Government out of its 100% share holding sold 26% share holding to twelve (12) individuals with the condition that the purchasers will arrange the floatation of 25% shares on the same price on which they have purchased the 26% shares or will arrange its underwriting. The agreement will show that 26% sold shares were not defined nor were called the "sponsor shares", rightly so because after the acquisition of 100% share holding of the Banking Company by the Federal Government all sponsor share holder of the company ceased to exist, that is the reason the Federal Govt. While offering the shares of MCB has not termed these shares as the Sponsor shares.
29. The Federal Government while selling the shares only imposed one condition against the rights of purchaser that purchasers will not sell, transfer, gift or alienate his/their shares for three years and if he/they intend to sell these shares he/they have to obtain permission of State Bank in writing. It is no where mentioned or agreed between the seller and purchaser that restriction against the alienation of shares will be re-imposed or it will automatically be deemed to be extended for any further period. Admittedly after the expiry of three years the condition against the sale of shares came to an end. The perusal of Impugned Circular will show that State Bank of Pakistan tried to amend the concluded and fully performed agreement. The State Bank vide impugned circular declared the shares owned by the management of the MCB as Sponsor shares and the directors of the MCB were declared the Sponsor directors. In these circumstances it has to be seen whether the State Bank of Pakistan is having jurisdiction to amend or alter the terms of a concluded and performed agreement through executive order and if so whether the amendments and alterations will be applicable prospectively or retrospectively.
30. It is a settled principle of law that a concluded and performed agreement could not be amended or altered without the consent of the party concerned unless there is allegation of fraud and misrepresentation against the affected party, admittedly there is no allegation of fraud against the purchasers. It is an admitted fact that the purchasers purchased the shares in open bid on the highest price, the owner/seller before offering the shares for sale issued pre bid conditions and then entered in to agreement, hence it is an established fact that purchasers thus acquired vested right in the shares and the shares becomes their absolute property. It is settled law that retrospective operation cannot be given to an executive order for usurping the contractual rights and obligation already accrued.
31. The Hon'ble Supreme Court of Pakistan in Al-Samrez Enterprise v. Federation of Pakistan (1986 SCMR 1917) held as under:-- "It is a settled rule that an executive authority cannot in exercise of the rule making power or the power to amend, vary or rescind an earlier order, take away the rights vested in the citizens by law."
32. The conclusion of the Court in respect of this legal question was expressed in the following words:- "The respondent had acquired a vested right of exemption from the levy of excise duty on all the goods produced or manufactured by it for a period of four years under the Notifications of the Central Government referred to above. That vested right could not, therefore, be taken away by an executive action. The Notification, dated the 28th February, 1964, being completely destructive of the right vested in the respondent company was in this view without lawful authority and of no legal effect."
33. The subsequent notification impugned in this case was issued in exercise of statutory power and has the force of a statutory instrument. Accordingly the Rules of a statutory construction are attracted to the interpretation and determination of its legal effect. It is well-settled that an enactment which prejudicially affected vested rights or the legality of past transactions, or impairs contracts cannot be given retrospective operation. Thus, Maxwell's Interpretation of Statutes, 1962 Edition at page 206 it is observed:- "Every statute, it has been said, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability iri respect of transactions or considerations already past, must be presumed, out of respect to the legislature, to be intended not to have a retrospective operation."
34. The said rule was again come up before Hon'ble Supreme Court of Pakistan in Hashwani Hotels Limited v. Federation of Pakistan (PLD 1997 SC 315) and the Hon'ble Supreme Court held as under:-- "16. Before dilating upon the above submission, it may be pointed out that besides the above legal position that a notification or an executive order can only operate prospectively, from the contents of the relevant notifications, it is evident that they were intended to be enforced prospectively. In this regard, it may be pointed out that the above first BCD Circular No,22 dated 5-9-1977 quoted hereinabove in para.3 states that "in order to encourage industrial investments it has been decided that the rate of interest which may be charged by the banks on loans and advances provided to finance fixed investments should not exceed 12 per cent per annum". The above expression clearly indicates that by reducing the rate of interest, the new industrial investment was to be encouraged and not the investments which were already made. Similarly, para. 2p of BCD Circular No, 15 dated 13-7-1978 clearly provides that "the reduced rate of interest shall apply to loans/advances given for the above purpose on or after 1-7-1978". The same is the position in respect of BCD Circular No,6 dated 15-2-1981 applicable to the hoteliers in which in para. 2, it has been stated that "it has been decided that fixed investments in hotel industry should with immediate effect be treated as fixed industrial investments."
35. It was held in Fazal Din and Sons (Pvt.) Limited v. Federal Board of Revenue Islamabad (2009 SCMR 973) as under:-- "6. So far as the question that whether a vested right has accrued in favour of petitioner and if so can be taken away through subsequent circular by applying the same retrospectively. It was held by this Court in the case of Army Welfare Sugar Mills (1992 SCMR 1652) that if an exemption from payment of excise duty or any other tax has been granted for a specified period on certain conditions and a person who fulfills those conditions, acquires a vested right. So it can be said that vested right had accrued in favour of the petitioner the moment he had filed declaration in pursuance to Circular No,3 of 2008. It was held by this Court in case of Al-Samrez Enterprises (1986 SCMR 1917) that an enactment which prejudicially affected vested rights or the legality of past transactions or impaired contract cannot be given retrospective operation. It was also held that it will be inequitable and unjust to deprive a person who acts' upon such assurance of the right to exemption and expose him to unforeseen loss in the business transaction by suddenly withdrawing the exemption after he had made legal commitments. In this perspective, we are inclined to hold that a right was created in favour of petitioner and a subsequent amendment in the original scheme cannot be given retrospective effect by a subsequent act of the department to destroy the said right. So the vested rights cannot be taken away by express words and necessary intendment. No doubt that the Legislature is also competent to amend, vary or repeal the same but the right conferred through statute can only be taken away by legislative enactment and not by an executive authority through notification in exercise of the rule making power or the power to amend, vary or rescind an earlier order/notification in the proponed exercise of power conferred under section 21 of the General Clauses Act, 1897."
36. In Lt. Muquddus Haider v. Federal Public Service Commission (2008 SCMR 773) the following rule was enunciated as under:-- "It is also settled law that notification/ letter of policy cannot take effect retrospectively. The amended policy which has been said to have been approved in the month of January 2004 cannot be made to operate retrospectively for the vacancies of the year 2001 against which the petitioner was, recommended for his appointment as such vested rights were created in his favour which could not be taken away by any such notification or any such amended policy decision that allocation would be made on all Pakistan merit basis."
37. The case of the other private banks established in the year 1994 is different. The act of respondent State Bank of Pakistan to incorporate the conditions in the banking license is against the MCB and its shareholders vested rights.
38. It seems that State Bank was conscious of the terms of agreement that is the reason the State Bank of Pakistan cancelled the MCB Banking License in violation of law and while issuing the new license incorporated the following terms only to bring the MCB with in the purview of the earlier notification/circular.-- "(i) ..
"(ii) ..
"(iii)
"(iv)
"(v) ..
"(vi)
(vii) The bank shall deposit immediately with SBP the sponsors' shares .(subscribed or allotted/ issued as right or bonus shares etc.) in jumbo lot duly stamped as "Not to be sold, transferred, pledged, mortgaged or encumbered in any manner whatsoever without prior approval of SBP" or place them in Central Depository Company (CDC) after obtaining permission from SBP as per instructions issued vide letter No, BPD(PU-33)682- 22(ii)/ 2004/ 12355 dated 28th September, 2004.
Any subsequent allotment/ subscription either in the form of right or bonus, shares or in any other manner whatsoever to the existing shareholding of sponsors' shall also be deposited with SBP or CDC in a similar fashion. Further no borrowing/financial assistance of whatsoever nature shall be raised through lien, pledge, hypothecation etc., on these sponsors' shares.
(viii) Sponsor directors shall not dispose off their shares (subscribed or allotted/issued as right or bonus shares etc.) in any manner whatsoever for an initial period of 3 (three) years and thereafter only with the specific written approval of the SBP.
"(ix) ..
"(x) ..
"(xi)
(xii)
"(xiii)..
39. The question is whether the State Bank of Pakistan is enjoying powers to cancel the license of a Banking Company and if so in what circumstances.
40. Under section 27 of the Banking Companies Ordinance 1962 the State Bank of Pakistan is enjoying the powers to grant and cancel the license of a Banking Company.
41. Section 27 of BCO 1962 is read as under; "Licensing of banking companies. (1) No individual or association or body of individuals, not being a company, shall carry on banking business in Pakistan and, save as hereinafter provided, no company shall carry on banking business in Pakistan unless it holds a licence issued in that behalf by the State Bank; and any such licence may be issued subject to such conditions as the State Bank may think fit to impose.
(2)
(3) ..
(4) The State Bank may cancel a licence granted to a banking company under this section,-
(i) if the company ceases to carry on banking business in Pakistan; or
(ii) if the company at any time fails to comply with any of the conditions imposed upon it under subsection (1); or
(iii) if at any time, any of the conditions, referred to in subsection (3) ceases to be fulfilled: ' Provided that before cancelling a licence under clause (ii) or clause (iii) of this subsection on the ground that the banking company has failed to comply with or had failed or ceased to fulfill any of the conditions referred to therein, the State Bank, unless it is of opinion that the delay will be prejudicial to the interest of the company's depositors or the public, shall grant to the company on such terms as it may specify, an opportunity of taking the necessary steps for complying with or fulfilling such conditions.
(5) Any banking company aggrieved by the decision of the, State Bank cancelling a licence under this section may, within thirty days from the date of which such decision is communicated to it apply for review to the Central Board of the State Bank
(6) The decision of the State Bank subject to the result of review under subsection (5), if any, shall be final."
42. The perusal of section 27(4)(i)(ii)(iii) shows that. State Bank of Pakistan is enjoying the powers to cancel the banking license of any Banking Company if the banking company's case falls in the mischief of above provision of law, but admittedly no such situation was prevailing in the MCB case as provided in section 27(4) (i)(ii)(iii), the MCB only applied for the change of name that too after proper permission under the law so the action of respondent No,1 to cancel the license of MCB is patently without any jurisdiction and is void ab initio.
43. The argument of Learned Counsel for the respondent No,1 that the impugned circular is in conformity of the terms of banking license of the MCB is devoid of any merit.
44. There is another aspect of the case, the Federal Government while entering in to an agreement to sell dated 2-4-1991 has only restrained the purchaser to sell, transfer, gift or alienate the sold shares for a period of three years and if the purchaser intends to sell his shares before expiry of three years that sale will be subject to the permission in writing by the SBP. The sold shares were also not defined the sponsor shares. The intention of the parties to the agreement is clear that after the expiry of three years the purchaser will be entitled to sell their shares without any restriction on the part of SBP. No doubt the SBP when in the year 1997, granted permission for establishing twelve
(12) commercial Banks in private sector imposed different conditions including the following condition; "(vi) Sponsor Directors shall not dispose of their shares in any manner whatsoever for a initial period of three years and thereafter only with the specific written approval of the State Bank."
' Whereas the above said conditions were not the part of the Banking License of MCB and under agreement dated 2.-4-1991 the condition attached with the sold shares was as under; "1.4 The purchasers expressly agree and confirm that it shall be a condition of the sale of the shares under this agreement that none of the shares mentioned under clause 1.3 above shall, for a period of three years from the date of this agreement be sold, gifted, transferred or in any manner dealt with by their respective owners, except as stated in clause 1.3 above, without obtaining prior consent in writing of the State Bank of Pakistan."
45. The State Bank of Pakistan was aware of this fact that is the reason the earlier circulars dated 27-8-1997, 3-1-1998, 21-4-2000, 28-9-2004 were not made applicable against the MCB. It seems that SBP was wanting to bring the MCB under the purview of circulars issued from time to time regarding the sale of sponsor shares of the banking company, the SBP decided to cancel the banking license of MCB and issued the New License by incorporating the terms and conditions which were never agreed between the seller and purchaser of the shares of MCB and tried to convert the ordinary shares of MCB into Sponsor shares and imposed the restriction against the sale of shares for ever. If we compare the clause 1.4 of the agreement with the clause (viii) of the license dated 841-2005, it will show that word thereafter (underline is mine) has been used, this mean that even after the expiry of initial three years the owners right to sell is subject to the permission of the SBP, further in the initial period of three years, the sale of shares is completely restricted whereas the right to sell of the purchasers of the MCB shares under the agreement for the first three years was subject to permission by the State Bank meaning thereby the sale of shares was permitted but after the expiry of three years a vested right accrued in favour of MCB shareholders and they become entitled to sell their shares accordingly. While defining the word SPONSOR SHARES in clause (viii) of the impugned circular the words (d) "any other mode of acquisition" (underline is mine) has,been added only to rope in the shares of MCB, this act of respondent No,1 amounts to amend and alter the agreement dated 2-4-1991 which is not within the jurisdiction of respondent No,1, thus the act of SBP is proven mala fide and is without jurisdiction.
46. The argument of learned counsel for MCB is that, the impugned circular does not find mention under what provision of Banking Companies Ordinance 1962 it has been issued, the said omission on the part of State Bank is intentional as under section 41 of the Act of 1962, the respondent No,2 has no the powers to issue the impugned circular.
47. The preamble of Banking Companies Ordinance of 1962 shows that it has been legislated to consolidate and amend the law relating to Banking Companies, it means that this legislation is Banking Companies specific. Under section 5(b) and (c) the word Banking and Banking Company are defined, which are read as under:-- "5(b) "Banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise; 5(c) "Banking company" means any company which transacts the business of banking in Pakistan; (and includes their branches and subsidiaries functioning outside Pakistan of banking companies incorporated in Pakistan].
' Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;"
48. The petitioner No,1 fulfilled the requirements of above said two provisions; hence the Ordinance of 1962 is applicable on the MCB.
49. Section 41 of the Ordinance of 1962 ibid empowers the State Bank of Pakistan to issue directions; for better appreciation of the meaning of section, 41 of the Ordinance 1962 ibid it is reproduced as under; "41. Power of the State Bank to give direction.-- (1) Where the State Bank is satisfied that--
(a) in the public interest;
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interest of the banking company; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The State Bank may, from time to time, issue directions, guidelines and instructions with respect to activities and operations of banks and the institutions mentioned in section 3A as may be deemed necessary' by it for carrying out purposes of this Ordinance and matters ancillary thereto.] [(3)] The State Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under subsection (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect."
50. The perusal of above said provision of law shows that where the State Bank is satisfied in the public interest, that the banking company is conducting business detrimental to the interest of depositor or in a manner prejudicial to the interest of the banking company, to secure the proper management of the banking company, the State Bank has the powers to issue directions to banking companies generally or in any company particularly, but the State Bank of Pakistan through the impugned circular has introduced new terms in the concluded and fully performed agreement with the purchasers of the MCB shares who are admittedly E not the Sponsor of the MCB, hence the impugned circular is beyond the powers conferred upon SBP under section 41 ibid as the MCB is an independent juristic entity and its share holders are enjoying separate juristic status.
51. The last argument of learned counsel for respondent No,1 is that the petition is hit by principle of laches. It is admitted fact that petitioner bank is complaining against the illegal actions of State Bank of Pakistan. It is settled law that if the order or act of any authority is void, unjust and F improper the principle of laches could not pressed into service. Reference may be made Masooda Beaum v. Government of Punjab (PLD 2003 SC 90), Pakistan Post Office v. Settlement Commissioner (1987 SCMR 1119), further the issue of laches was considered by the Privy Council in Chief Kwame Asante v. Chief Kwame (PLD 1949 Privy Council 45) and held as under; "If its appears to appellate court that an order against which an appeal is brought has been made without jurisdiction, it can never be too late to admit and give effect to the plea that the order is nullity."
52. The upshot of the above discussion is that SBP's order dated 15-9-2005 for cancellation of Banking License of MCB and issuance of banking license dated 8-12-2005 is illegal and without lawful authority, consequently the original license dated 9-12-1966 will be deemed effective as it is, hence the impugned Circular BPRD No,4/2008 dated 22-5-2008 is not applicable against the share holders of MCB and all circulars, orders of SBP detailed in the impugned circular directing the SBP to comply with impugned circular are declared without lawful authority and of no legal effect.
53. The petition is allowed in the above said terms.