' MUHAMMAD JUNAID GHAFFAR, J.---Through instant petition the petitioner has sought directions from this Court against the respondent No, 2 (State Bank of Pakistan) to delete the name of the petitioner from the Credit Information Bureau ("CIB") list as such placement of the name of the petitioner was unlawful, illegal and without jurisdiction.
2. Briefly, the facts of the case are that the petitioner is a business concern and a Letter of Credit (L/C) No, V734251 was established in its favour by one of its buyer for the purchase of 5,250 metric tons of rice under the United Nations Oil for Food Program. The L/C was non-negotiable, non- transferable and non-discountable. It is stated that at the relevant time the pre-shipment finance facility could only be given to the primary exporter, hence the petitioner entered into an agreement with Meskay and Femtee (Private) Limited ("M&F") whereby it was agreed that M&F would arrange all finances including the necessary pre-shipment financing facility at their risk as to liability and carryout all types of transactions in exchange for a fixed return to be paid by the petitioner. It is stated that since the L/C was in the name of the petitioner and the same being non-negotiable, nontransferable and non-discountable, it was further agreed that the petitioner would provide all such letters, documents, signatures necessary for attaining finance, however, all liabilities in relation to securing of this finance would be on account of M&F. It is further stated that thereafter R.
No, 3, had verbally confirmed that pre-shipment finance facility had been approved, and M&F had requested for providing of forward cover for EURO 1393612.50 @ Rs, 67.27 per Euro for 60 days forward cover with 30 days option. For this purpose, some letters were provided by the petitioners at the request of M&F, as the petitioner at the relevant time was not operating any account with R.
No,3. Subsequently, M&F refused to honor the contract and had also intimated the R.No,3, regarding the same. However, the R.No,3, lodged its claim against the petitioner for an amount of Rs, 7427954.63 as compensation for the difference in open market foreign exchange rates as opposed to the booked forward cover rates. Thereafter the respondent No, 3 has filed a Banking Suit being Suit No, 17 of 2004 before the learned Banking Court-III, Karachi, which is pending and the present petitioner has been granted an unconditional leave to defend. The precise grievance of the petitioner is that after filing of the Suit the respondent No, 3 has requested the respondent No,2 to put the name of the petitioner on the CIB list and therefore the petitioner has challenged the same through the instant petition.
3. Mr. Haider Waheed learned Counsel appearing on behalf of the petitioner contended that since an unconditional leave to defend has been granted to the petitioner by the learned Banking Court therefore, the act of the respondent No,3 by asking the respondent No, 2 to place the name of the petitioner on CIB list is mala fide and without any lawful authority. Learned counsel further contended that the respondent No, 2 has acted without applying its mind by placing the name of the petitioner on CIB list and further the name was placed without any proper and prior notice or hearing opportunity to the petitioner. It was next contended that the respondent No, 2 was at least required to ascertain the genuineness of the claim of respondent No, 3 and after such ascertainment, pass an order for placing the name of the petitioner on the CIB list or otherwise.
Learned counsel further contended that petitioner has been condemned unheard and has been deprived from carrying on its business any more, as after placing of its name on CIB list, no other Bank is entertaining the petitioner's request for grant of any finance facility and hence such action of the respondent No, 2 is violative of the fundamental rights as guaranteed under the Constitution of the Islamic Republic of Pakistan, 1973. Learned counsel referred to its reply dated 23-8-2004 addressed to the respondent No, 2 in response to its letter dated 27-7-2004 and contended that instead of passing an independent order with proper application of mind the respondent No, 2 has taken the stance that they have taken up the matter with respondent No, 3 and since the matter is pending before the learned Banking Court, therefore, they are unable to intervene in a subjudice case. Learned counsel contended that such reply is not tenable under the law as the petitioner had made a complaint regarding the conduct of the respondent No, 3 and in return the respondent No, 2 has taken advice/opinion from the said respondent and therefore such conduct of the respondent No, 2 is illegal and cannot be sustained under the law. Learned counsel further contended that at least there should have been some determination or ascertainment by the respondent No, 2 that as to whether the name of the petitioner could be placed on CIB list only on the ground that a Suit for the alleged recovery is pending before the learned Banking Court, in which even the leave to defend had been granted to the petitioner unconditionally. Learned counsel finally contended that it is the responsibility of the respondent No,2 to manage the CIB list and not to act as a post office by placing the name of the petitioner on such list only on the advice/request of the respondent No, 3 without appreciating the relevant facts and ground realities. Learned counsel relied upon the case of Messrs Yousaf Sugar Mills v. Trust Leasing Corporation and others reported in 2006 CLD 1191.
4. Conversely Mr. Naveedul Haq Advocate appearing on behalf of the respondent No, 3 contended that the petitioner is a defaulter of the Bank and for such reason a Suit has already been filed before the learned Banking Court, and till such time an appropriate decision has been arrived at by the said Court the prayer of the petitioner cannot be granted. The learned counsel contended that the purpose of creating the CIB list is to apprise other Banks regarding defaults by borrowers, who intend to lend money or finance facility, as they must know that the said borrower has defaulted after taking finance facility from another Bank. Learned Counsel next contended that such an action is only initiated by the Bank after issuance of a proper notice to the defaulter and a period of 90 days is granted to the defaulter for such repayment. Learned counsel relied upon the case of Abdul Karim u. Additional Commissioner Mu/tan reported in 1986 CLC 2403.
5. Mr. Hassan Akbar Advocate appearing on behalf of R.No,2 (State Bank) contended that the respondent No, 2 has acted under section 25-A of the Banking Companies Ordinance 1962 ("Ordinance 1962") read with section 93(c) of the said Ordinance. Learned counsel contended that the respondent No, 2 has issued various Circulars in this regard namely Circular No, 6 of 1990 followed by Circular No, 4 of 2003 and Circular No, 8 of 2013. Learned counsel contended that the respondent No, 2 cannot interfere in such matters as the respondent No, 3 has already filed a recovery Suit against the petitioner and since now the matter is sub judice, it would not be appropriate for the respondent No, 2 to act any further in such matters. Learned counsel contended that CIB list is for the assistance of all other Banks and is not for the general public. Per learned counsel the Bank can even grant a finance facility to a person whose name is already on the CIB list and there is no restriction or direction by respondent No, 2 to the Banks in this regard.
Learned Counsel further submitted that the petitioner was granted an opportunity to reply, and after considering such reply, the respondent No, 2 has given its opinion as the respondent No, 2 cannot, and is not in a position to decide about the claims of the Bank and the petitioner and if it acts any further in the matter, this may prejudice the case of either party before the learned Banking Court. Learned counsel next contended that the respondent No, 2 only maintains the CIB list with names and details of such persons and is not authorized to adjudicate the matters in this regard. Learned counsel relied upon the cases of Aslam Textile Mills Limited, through General Manager u. State Bank of Pakistan reported in 2006 CLD 73 and the case of Messer Abdul Aziz Nawab Khan and Company u. Federation of Pakistan, Ministry of Finance reported in 2006 CLD 55.
6. We have heard all the learned counsel and have perused the record and the case-law relied upon by the parties. Since a short controversy is involved, by consent of all, the matter is disposed at Katcha peshi stage.
7. It appears that the facts of the case are more or less admitted; that a finance facility was approved by the respondent No 3 in the matter; that allegedly a forward cover risk was booked by the R.No,3; that thereafter the finance facility was not availed; that the R.No,3, thereafter lodged a claim due to fluctuation and or difference in open market rate as opposed to the booked forward cover rate; that a Suit for recovery of such amount under the Banking jurisdiction is pending between the parties; that an unconditional leave to defend has been granted to the petitioner; and pending such Suit, the respondent No 3 has asked the respondent No,2 to put the name of the petitioner on the CIB list. This placement of the name of the petitioner on the CIB list has given rise to the controversy before us, that as to whether the name of the petitioner can be placed on the CIB list by respondent No, 2 or any other agency managing such list, under the authority and directives of the respondent No, 2, merely on the request of respondent No 3 or any other Bank which claims a certain amount of money from a person who has allegedly defaulted in payment of such claim and for which a claim for recovery is pending before a competent Court, but has not been adjudicated as yet. In the instant matter, the respondent No, 3 has filed a recovery Suit under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("Ordinance 2001") before the Banking Court which is pending since 2004. However it has not been denied before us that the petitioner has been granted an unconditional leave by the learned Banking Court which prima facie establishes that the petitioner is in a position to contest the claim of the respondent No, 3 and such determination of the claim will only be finalized after leading of evidence by the parties in the matter. It may also be pertinent to observe that the claim of the R.No,3 against the petitioner is not of default in payment of a finance facility granted to it; rather it is in respect of booking of forward cover risk and incurring of loss due to difference in exchange rates in the market. As of today, it is merely a claim of the respondent No, 2 and has not been adjudicated upon as yet. The respondent No, 3, as a Bank may have its own claim, but such claim cannot be termed to be final, until and unless the same has been adjudicated upon at least by one independent judicial forum which in the instant case is lacking. Prima facie, it appears that the petitioner has been condemned unheard and prematurely and has been put on the CIB list merely on the basis of a recommendation by respondent No,3 under the prudential regulations being notified by the respondent No, 2 from time to time under which the CIB mechanism is working. The respondent No, 2 is the regulatory authority of the affairs of the Banking Companies under the Ordinance of 1962, and therefore there is at least some responsibility on the respondent No, 2 to oversee the workings of the Banks, vis-a-vis the customer and or the borrower. We do not appreciate the contention raised on behalf of R.No,2 that they are not required to ascertain, in any manner, the request of a Bank to put a defaulter's name on the CIB list as according to them it would prejudice the case of the parties in cases pending before the Courts. The R.No,2 cannot absolve itself from the statutory duty in such a manner, as it must apply its independent and impartial mind before the name of an alleged defaulter is allowed to be put on a CIB list. However, we are not inclined to agree with the contention of the learned counsel for petitioner that in each and every case the respondent No, 2 is required to give a personal hearing and then adjudicate upon any such request of a Bank for placing the name of a defaulting person on CIB list or otherwise. As discussed above, a mere application of an independent mind, without being influenced by the recommendation of Banking Company, would fulfil the obligation vested in R.No,2 under the law.
8. In so far as the reliance placed upon various circulars issued by the respondent No, 2 is concerned, we have noticed that all of these are procedural in nature and have not dealt with the issue raised by the petitioner in the instant matter. All the circulars are in relation to the maintainability of the secrecy of the CIB list as being of internal use and not for consumption of any private or third party. In one of the circulars namely 16 of 2004 it has been stated that the Banks are required to report such amounts as under dispute and not as defaults to a private Credit Bureau. It further regulates that the Banks are required to provide an opportunity to the defaulter before its name is recommended for placing under CIB list. However, despite such instructions of R.No,2 the Banks are still showing such amounts as "defaults" rather than "under litigation". Further, we are surprised to take note from a bare reading of this circular that the R.No,2 has even allowed the Banking Companies to maintain credit information through private credit information bureaus, which to our understanding is not permissible in terms of section 25A ibid, as the credit information is to be furnished to, prepared and monitored by the R.No,2 and not others, such as private bureaus. Since this question is not directly in issue in the instant matter, we have therefore refrained ourselves from giving any definite finding on this. In our candid view, all these circulars have not taken care of the question, that as to whether at what stage the name of an alleged defaulting person could be placed on the CIB list i,e, merely when the Bank itself assumes and determines that some default has been made and reports it to the respondent No 2, or when such default has been affirmed by the Banking Court through proper adjudication and passing of judgment and decree under the Ordinance 2001. It would be advantageous at this stage to examine the provisions of section 25A of the Ordinance 1962, under which the respondent No, 2, regulates the CIB list, which is in the following manner; 25-A. Power of the State Bank to collect and furnish credit information.---(1) Every banking company shall furnish to the State Bank credit information in such manner as the State Bank may specify, and the State Bank may, either of its own motion or at the request of any banking company, made such information available to any banking company on payment of such fee as the State Bank may fix from time to time: ' Provided that, while making such information available to a banking company, the State Bank shall not disclose the names of the banking companies which supplied such information to the State Bank: ' Provided further that, a banking company which proposes to enter into any financial arrangement which is in excess of the limit laid down in this behalf by the State Bank from time to time shall, before entering into such financial arrangement, obtain credit information on the borrower from the State Bank.
(2) Any credit information furnished by the State Bank to a banking company under subsection (1) shall be treated as confidential and shall not, except for the purposes of this section or with the prior permission of the State Bank, be published or otherwise disclosed.
(3) No Court, Tribunal or other authority, including an officer of Government, shall require the State Bank or any banking company to disclose any information furnished to, or supplied by, the State Bank under this section.
' Explanation. For the purpose of this section,-
(a) "borrower" means any person to whom any credit limit has been sanctioned by any banking company, whether availed of or not, and include-
(i) in the case of a company or corporation. Its subsidiaries;
(ii) in the case of a Hindu undivided family, any member thereof or any firm in which such member is a partner,
(iii) in the case of a firm, any partner thereof or any other firm in which such partner is a partner; and
(iv) in the case of an individual, any firm in which such individual is a partner; and
(b) "Credit information" means any information relating to---
(i) the amounts and the nature of loans or advances or other credit facilities, including bills purchased or discounted, letters of credit and guarantees, indemnities and other engagements extended by a banking company to any borrower or class of borrowers;
(ii) the nature of security taken from any borrower for credit facilities granted to him;
(iii) the guarantees, indemnities or other engagement furnished to a banking company by any of its customers; and
(iv) Operations of accounts in respect of loans and advances and other credit facilities referred to in this clause.
' We have perused the above provisions and on a very careful examination of the same, it transpires that the respondent No 2 can ask for credit information in such manner as it deems fit, from a Banking Company and such information on its own motion or at the request of any Banking Company can be made available on payment of such fee as may be prescribed, while making such information available to a Banking Company, the respondent No 2 shall not disclose the name(s) of the Banking Company which has supplied such information. It further provides that when Banking Company proposes to enter into any financial arrangement which is in excess of the limits laid down, it must obtain the credit information of that borrower from the respondent No 2.
Subsection (2) stipulates that such credit information shall be treated as confidential and shall not be published or otherwise disclosed without prior permission of the respondent No 2. In the instant matter, subsection (3) and explanation (a) is not relevant. However explanation (b) is relevant and important wherein "credit information", has been defined and it means any information relating to the amounts and the nature of loans or advances or other credit facilities, including bills purchased or discounted, letter of credit and guarantees, indemnities and other engagements extended to a borrower; the nature of security taken from any borrower for credit facilities granted and the guarantees, indemnities or other engagement furnished by any of its customers; and the operations of accounts in respect of loans and advances and other credit facilities referred to in this clause. When we examine the meanings assigned to "Credit Information" above, it seems to us that it only requires the Banking Company to provide to the respondent No 2 the details of advances and loans of all sorts and the security taken for grant of such advances and loans and the details of accounts. It has nowhere been provided that the Banking Company has been authorized or asked to mention or include the name of a customer or a borrower as "defaulter" on its own regarding the re-payments of such loans and advances. The Banking Company has not been vested with any such powers to issue a notice to the alleged defaulter and ask it to clear the dues within 90 days of the issuance of such notice; otherwise its name would be put or recommended to be put on the CIB list. If such exercise is being carried out by the banking companies under the directions of the respondent No, 2 on the basis of any circulars or instructions, we are afraid, such circulars or instructions are beyond the mandate of this provision and cannot be sustained under a well settled proposition that rules and circulars cannot go beyond the scope of the parent statute, hence crnnot be reconciled. The words "in such manner as the State Bank may specify" in subsection (1) would not mean either, nor authorize the State Bank to collect information from Banking Companies A regarding "credit Information" beyond the meaning assigned in explanation (b) in section 25A of the Ordinance 1962. In fact the respondent No, 2 ought to have taken more responsibility in managing the CIB list on its own, rather than resting its management on the Banking Companies, who have been authorized to put names of any customer or borrower on the CIB list before any proper adjudication of the case from a competent Court of law as provided under the Ordinance 2001. This in fact has allowed the Banking Companies to be judges of its own cause which has been deprecated by the Hon'ble Supreme Court in a number of cases. If any reference is needed one may refer to the case of New Jubliee Insurance Company Ltd., Karachi v. National Bank of Pakistan Karachi (PLD 1999 SC 1126), and Agricultural Development Bank of Pakistan and another v. Abid Akhtar and others (2003 SCM R 1547).
9. The petitioner, as well as all the citizens of this country have been granted various fundamental rights under the Constitution of the Islamic Republic of Pakistan 1973, namely under Articles 4, 10A, 18 and 25 and so on, and if any such fundamental right is violated the respondent No, 2 is obligated to see that the conduct of the Banking Companies working under the Ordinance, 1962 does not interfere or violates any such fundamental rights. Similarly it cannot be overlooked that every citizen has a right to a fair trial, be it civil or criminal. In this context reference to Article 10A of the Constitution of the Islamic Republic of Pakistan would be relevant which provides as follows:-- "Right to fair trial:-For the determination of his civil rights and obligations or in any criminal charge against him a person shall be entitled to a fair trial and due process."
' It appears that the placement of the name of an alleged defaulter on the CIB list before any adjudication in the matter by the Court of first instance i,e, the Banking Court, would violate the fundamental right as guaranteed under Article 10A of the Constitution as now this is a salutary principle of law, that nobody should be condemned unheard and without any proper hearing and adjudication of the case. This consequently results into refusal of finance facilities from other lending institutions and the petitioner is not in a position to convince such lending institutions to lend money as the name of the petitioner is on the CIB list without any proper adjudication of the case, even though the respondent No,2 has not put any such restrictions, but the practice of the Banking Companies is to the contrary. We are of the view that in such a situation where in a case is pending before the Banking Court and in which leave to defend has been granted unconditionally, the respondent No,2 is obligated under the law to at least not to put the name of such persons on the CIB list by showing such person as a defaulter, till such time the Banking Court has adjudicated the matter, as being the Court of first instance, as otherwise it would amount to violation of Article 10A of the Constitution. Very recently the Hon'ble Supreme Court in an unreported judgment in the case of National Bank of Pakistan v. SAF Textile Mills Limited, in Civil Appeal No,146 of 2009 since reported as PLD 2014 SC 283 and various other connected appeals bearing Nos. 204 to 254, 289 to 303, 505 to 534, 1147 and 1148/2009, 690/2010 and 39.1-L to 408-L/2009 while examining and dealing with the cases in which the vires of section 15 of the Ordinance 2001 had been challenged, has also dealt with the implication and of violation of such rights guaranteed under Article 10A vis-a-vis section 15 of the Ordinance 2001. The relevant observation is in the following manner:--
(32) In order to ascertain the real import and effect of section 15 of the Ordinance of 2001, it is necessary to contextualize the said provision. A functional banking sector is an integral and essential component of any modern economy. In the normal course of business, loans and finances are advanced by the banks and utilized by their customers. However, some of such customers will be unable or unwilling to meet their obligations. Defaults, by customers whether wilful or commercial are a fact of life.. The banks too may occasionally act unfairly by raising inflated and exaggerated claims and engineer defaults as they may covet the assets of their customers. Banks also default necessitating huge bailouts with tax payer's money. A utopian world where all customers fulfill their obligations and all bankers are saints does not exist. A large number of private banks and financial institutions now populate the financial sector and therefore more often than not the provisions of law under scrutiny would be pressed into service with regard to a dispute between private parties in respect of commercial transactions. No doubt the Banking Sector is vital to any country and may need some protection and preservation yet bestowing of an unfair advantage at the cost of customers may not be necessary or permissible.
(33) The matters pertaining to the financial claims secured by mortgagors as in the instant case, generally involves a two stage process, firstly the determination of the liability through due process and after a fair trial inclusive of a right of hearing and opportunity of show cause. Such determination under the general law, is evidenced by a decree of a Court of competent jurisdiction. And secondly, the recovery of the determined amount by way of the satisfaction or execution of such decree including through the sale of mortgaged property. Even if a liability has been determined by a decree of the Court, the mortgagor/debtor is not deluded of all his civil rights including with regards to the modes and methods of such recovery through the sale of the mortgaged property. (Emphasis supplied)
10. In so far as the case of Abdul Aziz Nawab Khan (supra) relied upon by the learned counsel for respondent No, 2 is concerned, though the same pertains to the period when the provision of Article 10A, was not available in the Constitution nor the Hon'ble Supreme Court had the occasion to interpret it in a manner as above, even then, we are in respectful agreement with the dicta laid down in the said case, but would like to observe that the facts of the said case are entirely different and distinguishable from the instant petition, inasmuch as in that case the name of the defaulting person had been placed on the CIB list on the basis of BCD Circular No, 6 of 1990, only after a judgment and decree was passed in favour of the Bank in a Banking Suit. Here, in the instant matter, the Suit is admittedly pending since 2004, and has not been decided, and so also an unconditional leave to defend has been granted to the petitioner, therefore owing to variance in facts, the said decision is of no help to the case of the R.No,2. On the contrary, we are in respectful agreement with the observations of a learned Single Judge of the Lahore High Court in the case of Yousaf Sugar Mills (Supra) which has considered the controversy, somewhat similar in nature in the following manner:- "(10) The act of a blacklisting or preventing a company from the privilege and advantages of entering into a lawful relationship with the bank for the purpose of gain is violative of Article 18 of the Constitution. The consequences of blacklisting a person are of great magnitude and warrant that before taking such action there 'should be a fair and proper trial, through an impartial Court or Tribunal by providing such person reasonable opportunity to defend the allegations made against him. The effect of placement of person's name on the list that facility of finance is extended to such person, only after recording the reason, according to para.2(a)(ii) of the Prudential Regulations. It has the effect of negating the facility to a borrower in the ordinary course. If the name of a person is brought on the list without any verification, it will adversely effect the reputation as well as the business of such borrower. The honourable Supreme Court of Pakistan in the case of "New Jubilee Insurance Corporation v. National Bank of Pakistan Karachi" PLD 1999 SC 1126, held that when an act or order inflicts civil consequences on a person in respect of his reputation or property which is harmful to his interest, he is entitled to be heard before such an action or order is taken or passed.
It will be appropriate to produce relevant part of the judgment:- "It may be pointed out thus the fall out of the blacklisting of the appellant is to prevent it from the privilege and advantage of entering into lawful relationship with the respondent for the purpose of gains which is violative of Article 18 of the Constitution, which lays down that subject to such qualifications, if any, as may be prescribed by law, every citizen shall have the right to enter upon any lawful profession or occupation, and to conduct any lawful trade or business. The blacklisting of a company /firm/person, also tarnishes the reputation of it/has, as to its/his credibility to honour its/his commitments which may dissuade other parties from entering into contracts with the former. Thus the consequences of blacklisting of a company/firm/ person are of great magnitude, which warrant that before taking such an action, there should be material on record prima facie to indicate that the delinquent Insurance Company's refusal to pay claim was not warranted in the circumstances of the case.
(11) The placement of a person on CIB List of defaulters places a restraint on his business to enter freely into a contract concerned individual is entitled to a notice. State Bank of Pakistan which regulates the affairs of banks etc. Has the responsibility at least to see the genuineness and truthfulness of claim of a Banking Company or NBFI qua the default of a borrower. The stance taken by the State Bank of Pakistan in the reply that it places the name of a defaulter on the list without any verification or notice to such person is not in accord with the law laid down by the honourable Supreme Court of Pakistan in the case of New Jubilee Insurance Corporation (supra). The petitioners as per award dated (sic) have paid off their liabilities while respondent No,1 has conveyed its acceptance of the award which is further affirmed by encashment of the cheques presented by the petitioners to the arbitrator. Respondent No,3 is under an obligation as per award to release the security documents. Prima fade there is justification for placement of the petitioners on CIB List. The action of respondent No,3 regarding placement of the petitioners on the CIB List without notice and without ascertaining the genuineness of the information is, therefore, violative of Articles 4, 18 and 25 of the Constitution of Islamic Republic of Pakistan. Impugned placement of the petitioners, on CIB List, is declared without lawful authority and with no legal effect. The impugned order is thus set aside."
11. In view of hereinabove, and in the given facts and circumstances of the case we are inclined to allow the instant petition to the extent that the respondent No 3 had no authority in law to put the name of the petitioner in the CIB list or to recommend it to be put on the CIB list and the respondent No 2 was obligated under the law to monitor the CIB list specially in cases where in the case is pending before the competent court of jurisdiction (Banking Court in the instant matter) and the alleged defaulter has been granted leave to defend unconditionally. Consequently we direct the respondent No,2 to delete the name of the petitioner from the CIB list and thereafter intimate the same to all the Banking Companies so that the petitioner may avail the loan or finance facility in accordance. With law and the procedure in vogue.
12. The instant petition is allowed in the above terms.