' SH. AZMAT SAEED, J.---Through this judgment, it is proposed to dispose of above-mentioned Civil Appeals, involving common questions of law i.e, the constitutionality or otherwise of Section 15 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (hereinafter referred to as "the Ordinance of 2001").
2. A Constitutional Petition was filed before the learned High Court of Balochistan to call into question the wires and the constitutionality of Section 15 of the Ordinance of 2001, inter alia, on the ground that it offended against the Articles 4 and 175 of the Constitution of the Islamic Repubiic of Pakistan, 1973. The Constitutional Petition was dismissed vide judgment dated 16.06.2005 announced on 27.07.2005, reported as Sh. Abdul Sattar Lasi v. Federation of Pakistan through Secretary, Ministry of Law, Justice and Parliamentary Affairs, Islamabad and 6 others (2006 CLD 18), whereby Section 15 of the. Ordinance of 2001 was held to be intra vires to the Constitution.
3. Various Constitutional Petitions were also filed before the learned Lahore High Court to call into question the vires of Section 15 of the Ordinance of 2001. The said Writ Petitions were heard by the learned Full Bench of the said Court and vide judgment dated 23.12.2008, Section 15 of the Ordinance of 2001 was held to be unconstitutional, being violative of Articles 2-A, 3, 4, 9, 23, 24, 25 and 175 of the Constitution and found suffering from a variety of legal infirmities detailed in the said judgment.
4. The aforesaid two judgments were variously challenged, before this Court through Civil Petitions for Leave t6 Appeal which were allowed and leave was granted. The Civil Appeal No, 99 of 2009 was directed against the judgment of the learned High Court of Balochistan dated 16.06.2005 announced on 27.07.2005. While the remaining Civil Appeals filed by the different Financial Institutions are directed against the judgment of the learned Lahore High Court, dated 23.12.2008.
The Civil Appeal No, 99 of 2009 was withdrawn on 23.04.2013, as the parties had entered, into a settlement outside the. Court.
5. Mr. Muhammad Akram Sheikh, learned Sr. ASC appearing on behalf of the Financial Institutions in Civil Appeals Nos.
146. 204 to 254, 289 to 302 and 1147 of 2009, contended that a clear procedure is set out in Section 15(4) of the Ordinance of 2001. It gives the mode of advertising a sale, and the contents of the notice of sale. He added that Section .15(11) of the Ordinance of 2001 provides for resolution of all disputes relating to the sale. Any person aggrieved regarding the procedure or manner in which the public auction is conducted may approach the Banking Court, which will examine and decide the objection of the customer/mortgagor on the touchstone of the procedure given in the Code of Civil Procedure, 1908 as provided in Section 7(2) of the Ordinance of 2001.
6. It was further contended that there is no established principle of law that for sale of the property through auction there must be a reserve price, as a fundamental legal requirement. Even under the Order XXI, Rule 66, Code of Civil Procedure, 1908, there is no requirement that there must always be a reserve price.
7. It .Was also submitted that the Financial Institution has to follow the whole process of public auction transparently by issuing three statutory notices and therefore giving the mortgagor right to redeem the mortgage and upon failure to publish public auction notices in the newspapers, then conduct a public auction and receive bids etc. Only after this, the Financial Institution will become entitled, if it so desires, to match the highest bid received in open auction. It is also not correct to say that while executing the Sale-Deed, a Financial Institution becomes the 'registering authority'.
The registering authority would always remain the Registrar of the Documents under the Registration Act, 1908. Even otherwise, the power of sale is not unbridled. The sale has to be conducted in a transparent manner as given in Section 15 of the Ordinance of 2001 and proper accounts have to be submitted to the Court under Section 15(1) of the Ordinance of 2001. If the Financial Institution seeks to conduct a sham auction without making best efforts to obtain the highest price of the property being sold, the mortgagor has always the right to object to it in the Banking Court under Section 15(11) of the Ordinance of 2001.
8. It was also contended that after creation of mortgage, all that remains in the hand of the mortgagor ,As only the 'equity of redemption' and, the right to receive whatever remains surplus to the claim of the mortgagee after sale of the property. Under Section 15, the mortgagee is , entitled to sell the property only after giving the mortgagor ample notices and opportunities to get the property redeemed.
9. It was added that the completion of formalities by a Financial Institution to sell the mortgaged properties in case of default is not a judicial or quasi-judicial process of adjudication of claims. It is merely a power that the legislature in its wisdom found fit to give to the Financial Institutions to enable them to convert the security into cash by strictly following a stringent set of formalities for selling the said property through public auction. Exercise or non-exercise of. Section 15 of the Ordinance of 2001 powers by the Financial Institution does not in any way affect or impair either the Financial Institution or the customer's right to claim through Banking Court any Money from the other party that they may be entitled to. The said Section 15 applies only to the sale of the mortgaged properties by the mortgagees for recovery of outstanding mortgage money. The Financial Institutions would have to account for the proceeds of the sale. In .Case the Financial Institution still needs to file a recovery suit, the amount already recovered under Section 15 would go towards reducing its claim. Section 15(13) of the Ordinance of 2001 itself clarifies this position as follows:-- "The rights and remedies under' this section are in addition to, and not in lieu of, any other rights or remedies a financial institution may have under this Ordinance."
' The question of inequality does not arise as the concept of providing any right exclusively, to a certain class of persons through a statutory provision is not new to legislative enactments and, have also been held to be valid by the superior Courts in Pakistan and abroad. The very name of the Ordinance of 2001 [i.e, Financial Institutions (Recovery of Finances) Ordinance, 2001] makes the intention of the legislature in promulgation of this Ordinance abundantly clear. Even a mortgagee (i.e, a Financial Institution) cannot recover any money/amount under Section 15 over and above the Mortgage Money and for recovery of the same, it shall have to file a separate suit under.
Section 9 of the said Ordinance.
' Further, under sub-section (12) of Section 15 of the Ordinance of 2001, the mortgagor can approach the Banking Court and obtain an injunction, 'restraining the sale or proposed sale of mortgaged property on the ground that 'all moneys secured by mortgage have been paid'.
10. The learned Sr. ASC further added that the law of limitation only provides for a timeframe for seeking access to the Courts after a person acquires a cause of action. It is an established principle of law that limitation does not destroy the right but only bars a remedy that requires intervention of the Court. Even otherwise, there has hardly been a case in which Section 15 of the Ordinance of 2001 has been invoked, after the period of limitation for enforcement of a mortgage had expired. The limitation period for enforcement of a debt is only 3 years, while for enforcement of a mortgage it is 12 years from accrual of the cause of action.
11. It was also urged that it is incorrect that a bank can recover any money that would not constitute the "Mortgage Money". If any attempt is made to bring. The property to sale for recovery of any amount not secured by the mortgage or which cannot, otherwise, be claimed, the mortgagor can challenge the same under sub-section (12) of Section 15 of the Ordinance of 2001. A Financial Institution would also be accountable for any unjustified recovery since under subsection (10) it must, render proper accounts and under subsection (9) only rightful dues under the mortgage are available for between the mortgagees, and the surplus amount has to be paid to the mortgagor.
The mortgagor could also file a suit under Section 9 for recovery of an amount that it may be entailed to claim.
12: It seems that the legislature was extraordinarily careful in safeguarding the interest Of the innocent mortgagors from, any mala fide actions of the 'mortgagees which have elaboratively been provided in Section 15 of the Ordinance of 2001 from" advertisement of an auction to the sale and scrutiny thereof.
13. It was also contended that the impugned judgment shows that this Court overlooked the background in which Section 15 of the Ordinance of 2001 was promulgated, an omission that is contrary to this Court's approach as clearly Stated in the cases of Syed Zafar Ali Shah and others v.
General Fervez Musharraf Chief Executive of Pakistan and others (PLD 2000 SC 869) and Khan Asfandyar Wali and others v. Federation of Pakistan 'through Cabinet Division, Islamabad and others (PLD 2001 SC 607). In, the latter case, this Court upheld Section 5(r) of the National Accountability Ordinance, 1999, which aimed at converting default of a purely commercial contract into an offence, and that too with retrospective effect, thus, upholding the legislature's attempt of making a person liable to face prosecution and imprisonment for a mere default of loan despite the fact that such contract and such default might have occurred at a time when such default was not an offence, all this Only to protect Financial Institutions- from defaulters and to enable them to recover their money. Furthermore, the learned Judges declined to give any weight to judicial reasoning contained in certain Indian judgments that had upheld Section 69 of the Transfer of Property Act, 1882 [(hereinafter referred to as "the Act of 1882") (that authorizes private sale of mortgaged property)] on the basis that there was some difference between Section 69 as it stands in the Indian statute books and its shape in the Pakistani legislation. The Pakistani version, specifically empowers private sales by scheduled banks [Section 69(1)(b)] while there is no such power in the Indian statute. Also in the Pakistani law, it only visualizes that in case the Federation/ Government choose to notify any conditions for exercise of the powers the same would also be applicable.
' The judgment, as it was urged, does not describe as to how the Federal Legislature exceeded its law in making powers by giving Financial Institutions, through Section 15 of the Ordinance of 2001, another mode of liquidating and converting into cash, the asset (in this case, immovable property) that the customer may have given as security for his/its payment obligations towards the Financial Institution.
14. The learned Judges, it is contended, in the impugned judgment, have purported to exercise the judicial power of "Reading Down" of a statutory provision. It is submitted that the principle of "Readng Down" a provision of law could not be used to totally strike down a statutory provision in which the legislative intent was set out with absolute clarity, That under the settled principles of 'Judicial. Review', while considering the vires of any statute or provision of law within the touchstone of the Constitution, it is incumbent on the Constitutional Court to objectively consider all the prevailing circumstances/background that necessitated such statute or provision of law, while declaring Section 15 of the Ordinance of 2001 to be an invalid piece of legislation. The learned Judges failed to, appreciate that there is a presumption in favour of the validity of a statute and Courts of law have to presume that the particular law is intra vires and not ultra vires.
15. Mr. Salman Akram Raja, learned ASC appearing on behalf of the Appellants/13ank in Civil Appeals Nos. 505 to 534, and 392-L to 408-L of 2009, contended that Section 15 of the Ordinance of 2001 is an enabling provision that allows a Financial Institution to exercise rights given to it voluntarily by a borrower through the creation of a mortgage as security for financial facility.
Provisions similar to Section 15 of the Ordinance of 2001 exist in many jurisdictions of the world and have helped balance the relationship between Financial Institutions and the borrowers, which otherwise on account of inherent delays In litigtion in these jurisdictions, had titled disprop9rtionately in favour of the borrower. Section 15 of the Ordinance of 2001 does not involve denial of the borrower's rights in terms of Article 10A Of the Constitution.' It is only recognizes the lender's right to recover in terms of a voluntarily created mortgage. It does not interfere with the determination of liability which is a judicial function for which the borrower may approach the Banking Court. An exercise of entitlement by the lender in terms of Section 15 simply shifts the onus to seek a judicial determination on the borrower, provided the borrower wishes to dispute the lending Financial Institution's claim that default has occurred. The word 'default" used in Section 15(2) does not envisage a judicially determined default. The use of the word 'default' in Section 15 is similar to the use of the word 'default' in Section 9, which enables a party whether a lender or a borrower to approach a Banking Court in the event upon coming to the conclusion that default has occurred. In the event of the Banking. Court being approached for the determination of the rights and liabilities of the parties, all rights flowing out of Article 10A of the Constitution would be available to the parties, including the borrower.
16. He added that the terms of Section 15 of the Ordinance of 2001 are to be read into the relationship of mortgagor and mortgagee, just as the terms of Sections 124 to 147 of the Contract Act.. 1872 (hereinafter referred to as "the Act of 1872") are to be read into contract of indemnity between a guarantor/surety, beneficiary and the -principal debtor. These voluntarily given rights include the right to sell mortgaged property through a highly 'transpafent process that involves multiple notices to the borrower and all others with, an interest in the property being sold through a public auction. After the public auction is complete account of the sale . Proceeds is to be filed .By the Financial Institution bethre the Banking Court. At all times, before and after the auction sale, the borrower has the unrestricted right to approach the Banking Court for redressal of any grievance [Sections 15(11) and 15(-12)]. The borrower can also demonstrate either that no mortgage was created or that the debt has been discharged. A sale not made strictly in accordance with the provisions of Section 15 may be set aside by the Court. ,Such grievance can include objections about the price or-the manner of the sale. This power is inherent in the power made available by.
Section 15(11) of the Ordinance of 2001 to .Determine all disputes relating to the sale of mortgaged property.
17. It was further contended that Section 15 of the Ordinance of 2001 has essentially re-affirmed and built upon the existing Section 69 of the Act of 1882. Similarly, the right to sell pledged goods without judicial determination is recognized by Section 176 of the Act of 1872 and by the lex, mercatoria as well as the codified law all over the world. In the modern world, the sale of pledged company shares can result in the deprivation of control and effective ownership of valuable immovable property that may include the industrial as well as. The commercial and residential assets of the company concerned. It was submitted that as a matter of Constitutional principle, no distinction can be-made between Section 176 of the Act of 1.872, Section 69 of the Act of 1882 and Section 15 of the Ordinance of 2001.
18. The learned counsel further contended that the judgment of --this Court in the case of Messrs Elahi Cotton Mills Ltd. And others v.' Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 others (PLD 1997 SC 582), while upholding the constitutionality of recovery of income tax prior to assessm ent on presumptive basis, has already held that the question of the constitutionality has to be examined keeping in view the particular realities and mischief sought to be addressed by a given provision of law. The Section 15 of the Ordinance of 2001 has to be examined in the context of -the wide spread menace of loan default and long protracted recovery proceedings prevalent in Pakistan.
19: It was further urged that the statutory provisions permitting foreclosure and sale of mortgaged property without the intervention of any Court (non-judicial foreclosure) existed in the Commercial Codes of several States of the United States of America. Some of those Commercial Codes, such as those of the State of New York, ale considered and upheld against Constitutional challenge based on the due process clause of the American Constitution (Fourteenth Amendment) in the following judgments:-
(i) Flagg' vs. Brooks (1978 Supreme Court, 436 US 149).
(ii) Apao vs. Bank of New York (1997 97 ARM, US Court of Appeal, Ninth Circuit).
(iii) Coffey Enterprises Reality & Development Company, Inc. Vs. Holmes et all (Supreme Court of Georgia, 233 Ga, 937; 213 S.E. 2d 882).
' The UK Law of Property Act, 1925 entitles the mortgagee to sell mortgaged property or to appoint a receiver over the mortgaged property without the intervention of a Court.
' Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 of India empowers a secured creditor to enforce any security interest on account of default in repayment without the intervention of a Court or Tribunal. Furthermore, Section 17 of the said Act only provides for an ex post appeal against actions taken under Section 13. The vires of the aforesaid provisions were examined by the Supreme Court of India in the case of Mardia Chemicals Ltd. And others vs. Union of India and others [(2004) 4 Supreme Court Cases 311].
' The State Financial Corporations Act, 1951 (hereinafter referred to as "the Act of 1951") enacted in India had, through Section 29 thereof, vested in Financial Corporations set up in terms of the Act of 1951, the power to take over the management and possession of industrial concerned as well as to sell property pledged, mortgaged, hypothecated or assigned to the 'financial corporations without the intervention of a Court. The aforesaid Section 29 of the Act of 1951 has been examined and upheld by the Indian Courts in several well-considered judgments. Reference may in this regard was made to the following judgments.
(i) S.K. Karinzuddin and others v. Union of India and others (AIR 1933 Orissa 238)
(ii) Alka Ceramics, Piplodi, Himatnagar v. Gujrat State Finance Corporation Ahmedabad and others (AIR 1990 105)
(iii) Messrs Surprise Hotel (Pvt.) Ltd. v.. U.P. Financial Corporation and others (AIR 1998 Allahabad 24)
(iv) Messrs R.K. Industries Plot No, SPL 35, Indtatrial State/ Kallur v. A.P. State Finance Corporation and others (AIR 1991 Andra Pardesh 174)
(v) Messrs Kharavela Industries (Pvt.) Ltd. v. Orissa Finance Corporation and others (AIR 1985 Orissa 153)
20. The Recovery of Loans by the Banks (Special Provisions) Act No, 4 of 1990, enacted in Sri Lanka, empowers banks to sell through auction property mortgaged to the bank without intervention of a Court. Reference may in this regard be made to Section 4 of the said. Act.
' It was submitted that it is common for a State to provide a term that is to be read as part and parcel, of a particular category of regulated contracts, regardless of whether or not the contracting parties had actually included the said term in any given contract regulated by the statute. Section 15 of the Ordinance of 2001, in fact, states that the power of sale of mortgaged property without the intervention of a Court is to be read into all instruments creating or evidencing a mortgage over immovable property. Every borrower is free not to avail or maintain borrowing against the security of mortgaged, property. Those who maintain borrowing against the security of mortgaged property do so voluntarily and with knowledge of the existence of Section 15 of the Ordinance of 2001.
22. It was next contended that Section 15 of the Ordinance of 2001 simply places the onus to show that no amount at all is payable on the borrower who has mortgaged immovable property in favour of a lending Financial Institution. This is consistent with the presumption of correctness placed by the Bankers' Books Evidence Act, 1891 on the statements of account maintained by the Financial Institutions. While the, correctness of such statements of account is rebuttable, the to rebut the presumption created by law is placed the borrower.
23. The learned counsel next contended that Section 15 of the Ordinance of 2001 is not discriminatory nor in violation of Article 25 of the Constitution.. Sections 9 and 15 of the Ordinance of 2001 are based on a reasonable classification and do not violate Article 25 of the Constitution.
24. It was also submitted that the exercise of power to sell in terms of Section 15 of the Ordinance of 2001 does not involve the exercise of judicial powers neither is there any denial of access to justice as regards the borrower. The borrower. Is provided ample opportunity through the issuance of three notices to pay and a fourth notice of sale, to approach a Court of law in of Sections 15(11) and 15(12) of the Ordinance of 2001. Consequently, Section 15 cannot be said to be inconsistent with the requirements of Articles 4. And 175 of the Constitution. That Section 25(1) of the, Agricultural Development Bank Ordinance, 1961 (hereinafter referred to as "the ADBP Ordinance") and Section 40 of the Industrial Development Bank .Of Pakistan Ordinance, 1961 (hereinafter referred to as the ".IDBP Ordinance") are para-materia to Section 15 of the Ordinance of 2001. Both the afore-noted Sections have with stood the test of time and have been given effect by the superior Courts of Pakistan. The impugned judgment of the learned Lahore high Court has, in Paragraph 20 thereof, wrongly placed reliance on the judgments of this Court, reported as Agricultural Development Bank of Pakistan v. Sanaullah Khan and others (PLD 1988 SC 67) and Agricultural Development. Bank of Pakistan and another- v. Abid Akhtar and others (2003 SCM R 1547) in order to draw a distinction between Section 25(1) of the ADBP Ordinance and Section 15 of the Ordinance of 2001. It has already been held by a five member Bench of this Court in the case of Ocean Industries Limited and Raza Kazim v. Industrial Development Bank (PLD 1966 SC 738) that the power to sell mortgaged property without the intervention of a Court is a method of recovery distinct from recovery of the amount due as arrears of land revenue,
25. 'Both the learned counsels, in support of their respective contentions, laid great emphasis on the judgment of the learned High Court of Balochistan in Sh. Abdul Sattar Lasi's case (supra), the reasoning adopted and judgments relied therein.
26. The other counsels appearing on behalf of the' Appellants/Financial Institutions adopted the arguments of Mr. Muhammad Akram Sheikh, learned Sr. ASC and Mr: Salman Akram Raja, learned ASC.'
27. The learned counsel appearing on behalf of the private Respondents controverted the contentions raised, on behalf of the Appellants and defended the impugned judgment of the learned Lahore High Court, dated 23.12.2008 by contending that Section 15 of the Ordinance of 2001 offends against the Constitution. It was their case that the said provision confers judicial power upon a Financial Institution in derogation of the provisions of Article. 175 of the Constitution. And the said provision is not only discriminatory perse but is also capable of being used in a discriminatory manner, as it envisages a parallel system for the Recovery of Claims of the Financial Institutions against their customers inasmuch as the powers conferred by the said provision can be pressed into, service as an alternative to the riling of the regular suit before the Banking Court at the sole and unfettered discretions of the, Bank Manager, therefore, it offends against Article 25 of the Constitution. It is further added that the questioned provision permits the extinguishment of a valuable right of a citizen i.e, the right of redemption without due process and adjudication by a Court or Tribunal established by the State, hence, violates Article 10A of the Constitution as well as the right to hold property enshrined in Article 9 of the Constitution. The ledrned counsels contended that Section 15 of the Ordinance Of 2001 gives an unfair advantage to one of the parties to a commercial agreement and is therefore exploitative in its application, thus, is in derogation of Article 3 of the Constitution. The learned counsels equated the offending, provision to granting modem day moneylenders the power to extract a, pound of flesh; and prayed for the dismissal of the Appeals, filed by the Financial Institutions against the impugned judgment of the learned Lahore High Court, dated 23.12.2008.
28. Hearn and the available 'record perused.
29. Since the Impugned Judgment was rendered a significant legislation rather Constitutional change has occurred by the incorporation of Article 10A in the Constitution of the Islamic Republic of Pakistan, 1973. Thus, in addition to the various Articles of the 'Constitution referred to in the\ Impugned Judgment to declare Section 1'5 of the Ordinance of 2001, as ultra vines to the Constitution, the said provision of law must also pass the test of the newly added Article 10A, as any law which offends thereagainst would be invalid in view of Article 8 of the Constitution. The aforesaid is self-evident, however, reference in this behalf may also be made to the observations of this Court in the case reported as Sud Motu Case No, 4 of 2010 [Contempt proceedings against Syed Yousaf Raza Gillani, the Prime Minister of Pakistan regarding . Non-compliance of this Court's order dated 16.12.2009] (PLD 2012 .SC 553), which are reproduced hereunder:- "27. We agree with the Aearned counsel for the respondent that the inclusion of the principle of right to a 'fair 'trial' is now a Constitutionally guaranteed fundamental right and has been raised to a higher pedestal; consequently a law, or custom or usage having the force of law, which is inconsistent with the right to a 'fair trial' would be void by virtue of Article 8 of the Constitution
30. The learned counsel for the appellants were fully conscious of this aspect of the matter an addressed detailed arguments in this behalf, which have been referred to hcreinabove. The said Article is reproduced herein under for ready reference: -- " 10A. 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."
31. For sake of convenience. Section Ordinance of 2001 is reproduced hereunder:-- "15. Sale of mortgaged property. ---(1) In this section, unless there is anything repugnant in the subject or context:- "mortgage" means the transfer of an interest specific immovable property for the purpose of securing the payment of the mortgage money or the performance of an obligation which may give rise to a pecuniary liability; "mortgage money" means any finance or other amounts relating to a finance, penalties, damages, charges or pecuniary liabilities, payment of which is secured for the time being by the document by which the mortgage is effected or evidenced, including any mortgage deed or memorandum of deposit of title deeds; and
(c) "mortgaged property" means immovable property, mortgaged to a financial institution.
(2) In case of default in payment by a customer, the financial institution may send a notice on the mortgagor demanding payment of the mortgage. Money outstanding within fourteen days from service of the notice, and failing payment of the amount within due date, it shall send a second notice of demand for payment of the amount within fourteen days. In case the customer on the due date given in the second notice sent, continues to default in payment; financial institution shall serve a final notice on the mortgager demanding the payment of the mortgage money outstanding within thirty days from service of the final notice on the customer.
(3) When a financial institution serves a notice of demand, all the powers of the mortgagor in regard to recovery of rents and profits from the final mortgaged property shall stand transferred to the financial institution until such notice is withdrawn and it shall be the duty of the mortgagor to pay all rents and profits from the mortgaged property to the financial institution: ' Provided that Where the mortgaged property is in the possession of any, tenant or occupier other than the mortgagor it shall be the-duty of such tenant or occupier on notice in this behalf from the financial-institution to pay the rent or lease money or other consideration agreed with the mortgagor to the financial institution.
(4) Where a mortgagor fails to pay the amount as demanded within the period prescribed under subsection (2), and after the due date given in the final notice has expired, the financial institution may, without the intervention of any Court; sell the mortgaged property or any part thereof by public auction and appropriate the proceeds thereof towards total or partial satisfaction of the outstanding mortgage money: ' Provided that before exercise of its powers under this sub-section, the financial institution shall cause to be published a notice in one reputable English daily newspaper with wide circulation and one Urdu daily newspaper in the Province in which the mortgaged .Property is situated, specifying particulars of the mortgaged property, including name and address of the mortgagor, details of the mortgaged 'property, amount of outstanding mortgage money, and indicating the intention of the financial institution to sell the mortgaged property. The financial institution shall also send such notices to all persons who, to the knowledge of the financial institution, have an interest in the mortgaged property as mortgagees.
(5) The financial institution shall be entitled, in its discretion, to participate in the public auction, and to purchase the mortgaged property at the highest bid obtained in the public auction.
(6)' Where the mortgagor or his agent or servant or any person put in possession by the mortgagor or on account of the mortgagor does not voluntarily give possession of the mortgaged property sought to be sold or sought to be purchased or purchased by the financial institution, a Banking Court on application of the financial institution or purchaser shall put the, financial institution or purchaser, as the case may be, in possession of the mortgaged property in any manner deemed fit by it: ' Provided that the Banking Court may not order eviction of a person who is in occupation of the mortgaged property or any part thereof under a bona fide, lease, except on expiry of the period of the lease, or on payment of such compensation as may be agreed between- the 'parties or as may be determined to be reasonable by the Banking Court.
' Explanation: (1) Where the lease is created after the date of the mortgage and it appears to the Banking Court that the lease was created so as to adversely affect the value of the mortgaged property or to prejudice the rights and remedies of the financial institution, it shall be presumed that the lease is not bona fide,unless proved otherwise.
(7) For purposes of execution and registration of the sale-deed in respect of the mortgaged property, the financial institution shall be deemed to be the duly authorized attorney of the mortgagor and a sale-deed executed and presented for registration by duly authorized attorneys of the financial institution shall be accepted for such purposes by the Registrar and Sub-Registrar under the Registration Act, 1908 (XVI of 1908).
(8) Upon execution and registration of the sale deed of the mortgaged property in favour of the purchaser all rights in such mortgaged property shall vest in the purchaser free from all encumbrances and the mortgagor shall be divested of any right, title and interest in the mortgaged property:
(9) Net sale proceeds of the mortgaged property, after deducting all expenses of sale or expenses incurred in any attempted sale, shall be distributed ratably amongst all mortgagees in accordance with their respective rights and priorities in the mortgaged property. 'Any surplus left, after paying in full all the dues of mortgagees, shall be paid to the mortgagor
(10) A financial institution which has sold mortgaged property in exercise of powers conferred herein shall file proper accounts of the sale proceeds in a Banking Court within thirty days of the sale.
(11) All disputes relating to th1e sale of the mortgaged property, under this section including disputes amongst mortgagees in respect of distribution of the sale proceeds, shall be decided by the Banking Court.
(12) Neither the Banking Court nor the High Court shall grant an injunction restraining the sale or proposed sale of mortgaged property unless:--
(a) it is satisfied that no mortgage in respect of the immovable property has been created; or
(b) all moneys secured by mortgage of the mortgaged property have been paid; or
(c) the mortgagor or objector deposits in the Banking Court in cash the outstanding mortgage money..
(13) The rights and remedies provided under this section are in addition to, and not in lieu of, any other rights or remedies a financial institution may have under this Ordinance.
(14) The provisions contained in this section shall have effect notwithstanding anything contained in this Ordinance."
32. In order to ascertain the real import and effect of Section 15 of this Ordinance of 2001, it is necessary to contextualise 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 utitlised 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 that 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 involve 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.
The right of such debtor to ensure that the mortgaged property is sold in a free, fair and transparent manner so 'as to fetch the best possible price is now a well-recognized principle of law, which finds its manifestation both in various statutory provisions more particularly Code - of Civil.
Procedure (including Order XXI of CPC) as well as the law,, as laid down by this Court, including the case reported as Mir Wali Khan v. Agricultural Development Bank of Pakistan, Muzafrgarh and another (PLD 2003 500), wherein it has been held as follows:- "Crux of what has been discussed above is way for, disposal of a property' execution has to be' guarded against and so with all the care and' circumspection so that it may go for a sum it deserves."
34. A detailed procedure is laid down including by providing opportunities to such mortgagors/debtors and. Others to enforce their rights through appropriate remedies. The opportunities are usually available both prior to the sale avid after the fall of the hammer. Built-in safeguards have been incorporated in the terms and conditions of the sale, which are settled after affording an opportunity of hearing to the inortgagor/debtor usually after notice under Order XXI, Rule 66 of the Civil Procedure Code, 1908 and objections and suggestions of such debtor are taken into account. Once the sale has taken place, the mortgagor/debtor is granted, an opportunity to object including to the mode and method in which the sale was actually conducted. This right to object in I this behalf is of vital importance so as to ensure that a free, fair and transparent sale actually takes place and no sham proceedings are undertaken Or a fictitious report in this behalf is filed:
35. Such objections can be filed under Order XXI, Rule 90, CPC and even with respect to the sales of mortgaged property., which are effected under the provisions of the Ordinance of 2001 by the Court in execution in addition to the above, objections application under Section 19(7) of the Ordinance of 2001, can be It may be noted with interest that the sale does not attain finality, until such objections are decided. Even otherwise, in the absence of any such. Objection, under the law, the Court is vested with the inherent jurisdiction to examine the record and so as to ensure that the sale has been lawfully conducted. It is only then all rights in the mortgaged property are finally extinguished.
36. The real import and effect of Section 15 of the Ordinance of 2001 is revealed when examined in the above backdrop and the most significant aspect of the said provision is not what is provided thereunder but what is conspicuous by its absence. The Financial Institutions have been authorized to "sell a particular mortgaged property without intervention of the Court by virtue of sub-section
(4) of Section 15 of the Ordinance of 2001. After the sale takes _ place (real or fictitious), a sale- deed, in respect of the property is to be executed by a Financial Institution, which is authorized in4his behalf by virtue of sub-section (7) of Section 15 of the Ordinance of 2001. Upon the registration of the sale-deed, all rights title- in' interest of the mortgagor/debtor in the mortgaged property stand extinguished and such 'property' vests in the Purchaser free from all encumbrances, as is provided by subsection (8) of Section 15 of the Ordinance. Whereafter, the Financial Institution, which has sold the mortgaged property is required to submit a proper account to the Banking Court in terms of sub-section (10) of Section 15 of the Ordinance of 2001. There is no provision, which permits a mortgagor/ debtor to. Object to the conduct of the ,sale after the fall of the hammer. He is in fact deprived of the right even to agitate that the alleged proceedings fpr . Sale sham and fictitious or carried out mala fide behind closed doors.
37 ..No, doubt sub-section (11) of Section 15 of the Ordinance of 2001 does refer to the resolution of disputes relating to -the sale of the mortgaged property by the Banking Courter Even. If an Objection raised ,under sub-section (11) of Section 15 of the Ordinance of 2001, it is of no practical l:gal significance, as the property sold already , vests in the purser free from all encumbrances by virtue of sub-section (8) of Section 15 of the Ordinance of 2001. Thus, it is clear and obvious that the real intent and purpose of the aforementioned provisions of Section '15 of the Ordinance of .2001 is to deprive the mortgagor/debtor of his right to object to the mode, the conduct of the mode and method of the conduct of the .Ale by barring all remedies their against. In the` instant case, such extinguishment of right occurs without any process let alone after due process and fair trial, as envisaged by Article 10A of the Constitution. The right in property in terms of Article 24 of the Constitution also stands bruised and offended against.
38. Should the mortgagor/debtor be aggrieved of the , terms and conditions settled by the Financial Institution fob such sale, he may invoke the jurisdiction of the Banking court directly, if possible or through collateral proceedings Court. i.e, the Banking Court or the High Court is debarred from granting any injunction, restraining the sale of the "mortgaged property by virtue of sub-section (12) of Section 15 of the Ordinance of 2001 except upon the due fulfilment of the condition mentioned in sub-clauses (a), (b) and (c) thereof. Yet again, it has been noticed that fair and well-recognized terms and conditions and the mode and methodology of sale of mortgaged property recognized by law or by jurisprudence have been excluded from the purview of the grounds to obtain an injunction against the sale before it takes place are conspicuous by their absence. Thus, in practical legal terms, an objection perhaps may be raised but the sale will go through whereafter the same shall achieve finality by virtue of sub-sections (7) and (8) of Section 15 of the Ordinance of 2001 referred to above and such objections would automatically fructify as no power to set aside the sale has been conferred upon the Banking Court or for that matter to the High Court. Yet again, the mortgagor, debtor is deprived of his right to object that the auction in question was not conducted in accordance with the well-recognized terms and conditions to ensure a fair and transparent sale so as to fetch the highest possible price and in 'case of violation thereof, he is left remediless.
' The depravation of the rights of the mortgagor/debtor qua the terms and conditions of sale is yet against without any fair trial or due process, as envisaged by Article 10A of the Constitution.
39. In the above context, it may be, appropriate to observe that it is an elemental principle of law that the denial of a Remedy is in fact the destruction of the Right.
40. As a supplement to the aforesaid, it may be noted that no doubt, some rudimentary procedure for conducting such sales is provided in sub-section (4) of Section 15 of the Ordinance of 2001 but yet again the time honoured and well-entrenched principle of fixation or a "reserve price" is conspicuous by its absence. It is now well-settled law that even where the sale is conducted by the Court a "reserve price" is' essential and the absence thereof may be fatal. In this behalf, it may be advantageous to refer to the majority judgment in the case reported as Messrs Lanvin Traders, Karachi v. Presiding Officer, Banking Court No, 2, Karachi and others (2013 - SCMR 1419) the relevant observations thereof are reproduced hereunder,- "Agreed that the expression "reserve price" does not find mention in the relevant rule but the words used in the rule pointedly hint thereto. A sale, in its absence, is apt to give walkover to, manoeuvrers to fix any price of their choice. A sale thus effected is no sale in the eye of law especially when the number of bidders is meager, which, indeed is close to nill. A superstructure of sale built on such a shaky infrastructure cannot sustain itself. Neither the buttress of limitation nor the ministerial nature of the rule can prevent it from a fall."
41. The conscious exclusion of remedies and deliberate omissions provide for. a due process of conduct of sale including the absence of the necessity to fix a reserve price becomes even more significant, as the Financial Institution has been clothed with the right to purchase the property put by it to public auction at the highest bid. No permission, in this behalf, is required from any Court, as is in the normal course in terms of CPC. Thus, in fact, it is a Fina.Ncial Institution, which is the seller, buyer, the auctioneer and the beneficiary; hence enabled to take full advantage of the misfortune of the mortgagor/debtor thereby facilitating predatory and exploitative behaviour which perhaps would not sit well with Article 3 of the Constitution.
42. In view of the above, we find ourselves unable to agree with the learned counsel qua their view of the true effect of Section 15 of the Ordinance of 2001 as canvassed- by them at bar. However, it may be appropriate to refer to the contentions of the learned counsel that the findings by way of the impugned judgment that a sale of mortgaged property without intervention of the Court is per se unconstitutional is not sustainable. It is their case that an alternative non-juridical remedies are recognized and well-entrenched in the jurisprudence of Pakistan and in other countries, where such non-judicial remedies have withstood the test of constitutionality. In this behalf reference was made to the provisions of the Transfer of Property Act, 1882 pertaining to the mortgages and previsions of Contract Act, 1872 relating to the rights of the pledger as well as to the various provisions of law of India, United Kingdom and United States of America. Reference was also made to some judgments from foreign jurisdiction in this behalf.
43. The aforesaid contentions need to be examined in the context that the Ordinance of 2001 perceives two parallel methods of recovery of claims from mortgagors either by filing a suit for recovery under Section 9 of the Ordinance of 2001 followed by a decree to be executed in terms of Section 19 thereof or by simply exercising powers conferred upon the Financial Institution by Section 15 of the Ordinance of 2001. The first course of action i.e, the filing of a suit and execution of the decree envisages remedies for the mortgagor/debtor/ who is entitled to raise objections and the right to have his grievance heard and redressed by way of adjudication through judicial powers of the State, while, all such rights and remedies are lost wnen Section 15 of the Ordinance of 2001 is pressed into service. Two parallel systems are contemplated one much harsher than the other, leaving unfettered and unstructured discretion with the Financial Institution without any prederermined criterion.
44. Be that as it may; it is not necessary to adjudicate upon this aspect of the matter, as we have already held that the above-mentioned material provisions of Section 15 of the, Ordinance of 2001 are ultra vires to the Constitution. The rump of the Section that remains is incapable of being severed and its presence in the statute would at best be ineffective and at worse cause for further mischief, therefore; the entire Section 15/of the Ordinance of 2001 is held to be ultra vires to the Constitution. Such a course of action would beg in accordance with the law, as laid down by this Court in the case of Baz Muhammad Kakar and others v. Federation of Pakistan through Ministry of Law and Justice, Islamabad and others (PLD 2012 SC 870).
45. In the light of aforesaid discussion and in terms thereof, the provisions of Section 15 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 are held to be ultra vires to the Constitution of the Islamic Republic of Pakistan, 1973.
46. Consequently, the instant appeals must fail and are, therefore, dismissed with no order as to costs. High court Upheld/.