1. FIDA MUHAMMAD KHAN, J.---Through these twelve Shariat Petitions a number of provisions of House Building Finance Corporation Act, 1952 were challenged as repugnant to the Injunctions of Islam. Since some of these provisions have been amended by Ordinance of 1979 we will confine ourselves to the existing provisions of law which are sections 4(2), 21(2), 24 (11, 12, 18, 20), 26, 30(1)(c) and 42(2)(g) of HBFC Act, 1952 as amended by the Ordinance, 1979 (hereinafter called the Ordinance) on the ground that they are repugnant to the Injunctions of Islam.
2. Before discussing the impugned sections in detail it is pertinent to mention that the issue of housing loans provided to the general public by House Building Finance Corporation (hereinafter called the Corporation) and commercial banks was considered by the Council of Islamic Ideology in 1978 and it was recommended that the interest hearing loaning system be substituted by a system based on joint ownership with rent sharing arrangements. A detailed procedure was also outlined by a panel of Council of Islamic Ideology for that purpose. (See Consolidated Recommendation on the Islamic Economic System December, 1983 pages 124-127).
3. Consequently the Act was amended and an Ordinance was promulgated in 1979 which specified the object and procedure to be followed by the Corporation.. The object stated is to provide financial facilities for the construction, re-construction, repair and purchase of houses. The procedure adopted for this purpose is to advance money to a borrower on his application for construction or purchase of a house etc. Before the Corporation accepts in principle the request, the borrower is required to give undertaking and make an agreement with the Corporation in such a manner and form as is warranted by the circumstances of the case and appears necessary or expedient to the corporation to secure its interest. Cost of land, cost of construction thereon, gross and net rental income of the properly is assessed, share of the corporation in the net rental income in consideration of its investment, share of the corporation in capital gain (if the property is sold or transferred during the currency of deed of assignment and partnership), demand charges in case of default in scheduled repayment and date of completion of house are decided and duly provided for in the deed of assignment and partnership by the corporation. The investment thus made is repayable in the monthly instalments sufficient to cover the principal and share in the rental income. The total estimate of the cost of the house constructed or to be constructed and investment to be made is determined by the corporation and is revisable every three years thereafter till the entire investment is repaid. The share of the corporation in the rental income is fixed and is revisable after repayment of every thirty-six instalments of the principal. The corporation shares responsibilities in losses which are caused by natural calamities, war or civil commotion.
4. As is evident from above, the respective investment of both the parties entering into partnership is specified, their share in the ownership as well as in rental income is fixed at a due ratio, the period is duly mentioned in the schedule of payment of the principal amount and an agreement is made with the consent of the parties. All the conditions are thus specified and agreed to and as such prima facie the scheme as a whole seems commendable. However, the impugned sections need to be examined in the light of Islamic Injunctions as envisaged in the Holy Qur'an and Sunnah.
5. Sections of the Ordinance challenged by these petitions and necessary discussion thereon is as under:- SECTION 4(2): "4: SHARE CAPITAL AND SHARE-HOLDERS:
(2) The Corporation shall pay to the Federal Government such return on the capital subscribed by the Federal Government under subsection (1) at such rate as the Federal Government may, by notification in the official Gazette, specify:'
2. Dr. Mahmood-ur-Rahman Faisal, a petitioner has objected that the word `interest' in the old Act of 1952 has been substituted by the word `return' in the Ordinance and as such it is repugnant to the Injunctions of Islam. This contention of the learned petitioner carries weight. This subsection relates to the share of the Federal Government. It is provided in Section 4(1) that the Federal Government by Notification in the Official Gazette may increase the authorised capital of the corporation from 125 million rupees to such extent and in such manner as may be specified in the notification and then the corporation shall pay to the Federal Government such return on the capital subscribed by the Government on such rate as the Federal Government may by notification in the Official Gazette specify. Apparently it shows that herein the amount of return on the capital subscribed by the Federal Government is its share in the profit, as mentioned in the heading of the section. However, keeping in view the fact that there is nothing in the Ordinance to show that the word `return' mentioned herein has any co-relation with the share in profit in the new scheme of partnership, as contemplated therein, the word has dual implications and is ambiguous in the present context.
3. Therefore, we hold that in its present context it must be further clarified and substituted by the words "due share" so that the ambiguity therein is totally removed.
4. SECTION 21(2): "21 BORROWING POWERS:
(2) The repayment of the principal after adjustment of profits and losses in case of working capital raised under clause (a) of subsection (1) and repayment of principal and payment of interest due in case of funds raised under clause (b) of that subsection shall be guaranteed by the Federal Government."
5. Obviously the repayment of principal and payment of interest due in case of funds raised under clause (b) of that subsection are objectionable. This subsection in fact relates to the borrowing power under subsection 21(1) for purpose of raising of its capital and taking loans from working capital relating to the loans etc. It is not linked with investment as defined in subsection (ee) of Section 2 of the Act as amended nor with the agreement of partnership as defined in subsection
(eee) of Section 2 of the Act and as such it is not in accordance with the Islamic Injunctions. Any transaction of interest amongst the individuals inter se or with the Government can in no way be considered Islamic in any sense of the word as it is banned in Islamic Injunctions in all forms. The borrowing power mentioned in this section must be based on interest-free transaction. In its present form this section is, therefore, repugnant to the Injunctions of Islam and is to be amended accordingly. (For details, see our main judgment on interest).
6. SECTION 24 (11, 12, 18): "24. CONDITIONS FOR INVESTMENT
(11) The net rental income shall be assessed by the Corporation for a period of three financial years commencing from the financial year in which the proposal has been made and shall be revised every three years thereafter till the entire investment is repaid.
(12) The share of the Corporation in the net rental income shall be fixed at the ratio between the investment of the Corporation and the total estimated cost of the house at the time of the execution of deed of assignment and partnership and shall be revised after repayment of every thirty-six instalments of the principal.
(18) No information given by any person applying for financial assistance and communicated to any of the Directors or employees of the Corporation shall be disclosed or used by such Directors or employees except for lawful purposes of the Corporation without the written consent of such person."
7. Partnership is one of the permissible forms of lawful transactions in Islam. The Holy Qur'an says: O ye who believe!
8. Eat not up your property Among yourselves in vanities: But let there be amongst you Traffic and trade By mutual good-will." (4.29), As stated above the Corporation, after the enactment of House Building Finance Corporation (Amendment) Ordinance, 1979, functions on partnership basis. The system of loaning by the Corporation which was previously based on interest has now been substituted by a system of joint ownership (Musharaka) and consequently the rental income is duly shared by the investors i.e. The owner borrower and Corporation. The system devised by the Corporation for the assessment of the share of the Corporation in the gross and net rental income of the property and its capital gains (if property is sold or transferred during the currency of the deed of assignments and partnership) as given in paras 14(1), (2) and 15 (1) and (2) of House Building Finance Corporation "Investment Regulations" 1979 reads as under:- "14(1): The anticipated gross annual rental income of a house in which investment is made shall be the average of the rental income of similar houses in the locality obtained through a sample survey conducted during the three months preceding the financial year in which the ` proposal for availing the investment is made: Provided that the results of sample survey shall be reviewed by the Corporation before formal adoption in order to bring them into conformity with other supporting indices or to remove discrepancies, if any.
9. 14(2): The anticipated gross annual rental income in localities where a sample survey has not been conducted shall be determined by the Corporation in such manner as it may deemed proper.
10. 15(1): The share of the Corporation in the net rental income shall initially be determined as the ratio between the investment of the Corporation and the total estimated cost of the house at the time of execution of the deed of assignment and partnership.
11. 15(2): The share of the Corporation in the net rental income shall be revised after repayment of every thirty-six instalments of principal amount of the investment and shall remain fixed on the balance of the investment so reduced until such further revision, till the entire investment be repaid."
12. The business and functions of the Corporation being by way of partnership (Musharaka) seem in consonance with the above verse and as such not contrary to the Injunctions of Islam. However, the process laid down for assessm ent of the rental income and fixation of the share of Corporation therein appears to be one sided. There is no doubt that the agreement in this respect is duly made with the proposer (borrower/partner), the regulations thereof seem arbitrary and against the spirit of partnership in the real sense of the word. Apparently, as submitted by a petitioner, the need of the borrower/partner is exploited and he seems to be subjected to sign the agreement under a kind of pressure whereas as a partner he is equally entitled to have a say in the matter. Therefore, we feel that a proviso must be added after first proviso to para 14(1) to the effect that the borrower/partner if not satisfied with the assessment of anticipated gross annual rental income or the net rental income of the said house or for that matter about the share of the Corporation therein he should be made entitled to place the matter before a higher authority nominated by the Corporation so that the issue is duly resolved in a proper perspective.
13. Regarding the subsection (18), the learned petitioner was not in a position to point out any repugnancy to the injunctions of Islam.
14. SECTION 24(20)
15. "20: Loans made before the first day of July, 1979 shall, unless the Federal Government otherwise directs, continue to be governed by the terms and conditions on which they had been advanced:"
16. This section refers to the past contracts finalised between the parties before 1st July, 1979. It provides that loans granted before that date shall be governed by the terms and conditions of the House Building Finance Corporation Act, 1952 wherein such loans were interest-bearing.
17. It is pertinent to mention that the learned standing counsel for the Federation stated (on the instructions of the Federation) at the bar that the Federal Government does not support this subsection. In view of this admitted position, this subsection is declared repugnant to the Injunctions of Islam.
18. SECTION 26: "The Corporation shall make such agreements with partners as it may deem necessary or expedient to safeguard its interests."
19. The word `interests' mentioned in the above section does not refer to `Riba' and as such the objection seems misconceived.
20. SECTION 30(1)(C): "(c) for an ad interim attachment the properties referred to in clause (a) above and such other properties of the borrower or the partner or the surety of either of them as in the opinion of the District Judge were sufficient to cover the claim of the Corporation against the borrower or the partner, including cost, interest, share in rental income, share in capital gains and demand charges as the case may be."
21. This subsection relates to an ad interim attachment of the properties of the borrower or partner or the surety of either of them in case of breach of any agreement by the borrower or the partner as the case may be, by the District Judge to cover the claim of the Corporation in respect of immediate payment of the amount due by him to the Corporation. Such claim includes interest along with the cost and share in rental income, share in capital gains and demand charges. It was explained before us that the interest mentioned herein belongs to the loan granted before 1979 but as discussed above under section 24(20) even the previous un-Islamic provisions are to be struck off. Therefore, the portion related to the recovery of interest mentioned herein also is repugnant to the Injunctions of Islam as contained in the Holy Qur'an and Sunnah.
22. SECTION 42(2)(G)
23. "42: POWER OF THE BOARD TO MAKE REGULATION: (2): In particular and without prejudice to the generality of the foregoing power, such regulation may provide for:- (g): The terms and conditions on or subject to which the Corporation may grant loans or make investment in collaboration with partners:"
24. The learned counsel was unable to point out any repugnancy herein and hence the objection was dropped by him.
25. Consequently we allow these petitions to the extent as stated above and direct that necessary deletions and amendments be made in sections 4(2), 21(2), 24 (11, 12), 24 (20) and 30(1)(c) by 30th June, 1992 so as to bring them in conformity with the Injunctions of Islam as laid down in the Holy Qur'an and Sunnah.