1. ' The present suit has been filed by the plaintiff for recovery of two finances paid by plaintiff to the defendant and has remained unpaid. The present suit is for recovery of the said amount against the defendants in a sum of Rs,42,742,642.89. I had already refused to grant leave to the defendants by order dated 29-1-2001 on the ground that the only controversy is as to the amount that is payable and which can be determined from the documents already on record. Mr. Aziz has filed a break up of the accounts also.
2. ' The first loan is, what has been named as an IBRD Loan, which according to Mr. Aziz-ur-Rehman is, "on lending foreign loan" Mr. Aziz states that the plaintiffs have further lent the various sums which, had been obtained by the Bank from the Government of Pakistan, under agreement between the Islamic Republic of Pakistan and the Bank whereby, the Government of Pakistan had borrowed a loan agreement from the International Bank of Reconstruction and Development. According to him the said loan was given by the Government to them under an Agreement dated 3-3-1985, for the purposes of sub loans to small scale industries for carrying on projects where, the purpose was of financing projects through loans and to invest in industrial enterprises in the Islamic Republic of Pakistan that would contribute to the economic and social development of the country.
3. Accordingly Mr. Aziz, therefore, states that this will be a "Foreign Loan" and would be governed by para.2 B.C.D. Circular No,13 dated 28-6-1984 which reads as under:--
(2) The instructions contained in items (i), (ii) and (iii) above shall, however, not apply to on- lending of foreign loans which will continue to be governed by the terms of the loans. Likewise, the instructions contained in item (v) above shall not apply to foreign currency deposits...."
4. ' A similar question arose in an unreported case of N.D.F.C. v. Taha Spinning Mills Limited in Suit No,B-187 of 2000 in which a similar loan was given by the Asian Development Bank of Manila, Government of Pakistan which was lent onwards to the Customer. Such was reviewed and I held:-- "Reading of the agreement shows that the Asian Development Bank Manila had granted loan to the Government of Pakistan from the banks specially funds at ordinary capital resources Loan being loan No,ADB-996-PAK (DFT-4) in various currency equivalent to U.S. Dollars 250 Million. According to Mrs. Qash that the defendants had requested the plaintiff for a grant of financial accommodation in foreign currency/currencies equivalent US Dollars 1,913,000 repayment being under clause 2.04 of the said agreement being the value of foreign currency or currencies specified by the Bank for repayment of each portion of credit withdrawn was to be converted in Pakistan rupees at the financial selling rate. It is argued by Mr. Qasit that B.C.D. Circular No,13 in clause 2 provides that on foreign currency loans clause 1 of the said circular shall not be applicable and that thereafter interest shall be payable on such loans in accordance to the agreement. This agreement was entered into in 1991 whereas the B.C.D. Circular No,13 was issued in 1984 which provided that from the first day of January all finances provided by a Banking Company to the Federal Government, Provincial Government, public sector corporations, public and private joint stock companies shall only be in any one modes indicated in Annexure I. According to Mr. Qasit sub-clause (2) over rides this provision and analysis of clause 2 of B.C.D. Circular No,13 relates to 'on lending of foreign loans'.
5. The concept of Islamic financing is absolutely clear that in an Islamic State no person under any circumstances can be allowed to charge 'Riba' in any manner whatsoever. The 'on lending foreign loans' mentioned in the said circular only, therefore, relates to a contractual obligation of a bank or person in Pakistan with a bank or person outside Pakistan. This is also, clear from the words 'Foreign Currency Loan' that has not been used, instead the words 'Foreign Loan' has been mentioned. B.C.D.
6. Circular No,32 subsequently, issued on 26-11-1984 provided that 'from the 1st of January, 1985 interest wherever charged by a Banking Company/Development Financing Institution and in any item of banking charge shall be replaced by non-interest mode consider appropriate by it.
7. Moreover, overdue ordinary interest or mark-up on mark up shall not be charged by a banking company/DFI as from that date. Instead it may take legal steps for recovery of the overdue finance.
8. In view of the subsequent notification also the words 'wherever charged' would encompass all financing irrespective of whether they are foreign currency or otherwise within the territorial limits of Pakistan as, notification of the State Bank of Pakistan shall not be applicable to foreigners. The contractual obligation of Bank in Pakistan a foreign Bank or a Bank in Pakistan with the government who in return make a foreign arrangement with a foreign Bank cannot be pressed on to a customer in Pakistan. I am clear that a contractual obligation, therefore, in respect of an obligation by the Bank to pay any foreign currency cannot be relatable inasmuch as the repayments are also to be made in Pakistan rupees "
9. ' In view of the above, I have considered the position in detail and specially where, the subsequent Notification B.C.D. Circular No,32 dated 26-11-1984 categorically states that "interest" wherever charged by a Bank Company/Development Finance Institution in an item of bank charges shall be replaced by non-interest mode considered appropriate by it." The position is absolutely clear that the intention was that "interest wherever charged" will convert to a mode of Islamic Finance Para. 2 of the said B.C.D. Circular No,13 are instructions that the other provisions of the said Circular shall not apply. However, in B.C.D. Circular No,32 the word used an "interest wherever charged". This word mean, all interest, whether it he foreign loan or otherwise. Notwithstanding the above, para. 2 states that "...Which will be governed by the terms of the loans". It is on the basis of this that Mr. Aziz has argued, as he had argued earlier and reflected in order dated 24-1-2001 that: ............. Mr. Azizur Rehman, Advocate has argued this case. The question as had been raised in the present case was whether the loan/finance given to the borrower from the funds that emanates from a foreign lending agency would be dealt with in the same terms as a regular finance is dealt with whereby no interest can be charged. Mr. Azizur Rehman, has read paragraph 2 of B.C.D.
10. Circular No,13 in which he states that the Islamisation of the banking system shall not apply to the lenders of foreign loans. He says that the word 'on lending' is a continuity of lending of loans to the Government of Pakistan and thereafter its lending to the banks and subsequently to the customers.
11. It was pointed out to Mr. Azizur Rehman that by Notification B.C.D. Circular No,32 the said B.C.D.
12. Circular No,13 had been modified so that para.2 would be read, no interest shall be payable on foreign loans also. It was also pointed out that in the sanction advice Annekure 'A' to the plaint had mentioned the words finance rather than loan and therefore, it shall be treated as finance not loan, Mr. Azizur Rahman states that in the sanction advice the nature of loan has been mentioned I.B.R.D.
(Loan) (1-B) and has been referred to the agreement of the Islamic Republic of Pakistan with the Bank and a subsequent subsidiary loan agreement between the World Bank and Habib Bank Limited and the Islamic Republic of Pakistan and states that the said money that was passed on in the form of a loan to the defendants in the sum of Rs,15,960 million was nothing but an onward transmission of loan as agreed to between the Islamic Republic of Pakistan and H.B.L. As also World Bank. He states that in fact the interest that has been charged is nothing but the amount payable eventually to the foreign lending institution. He states that the Bank only retains a small profit from the transaction. He has referred section 18 of the Enforcement of Shari'ah Act, 1991 which provides: 'S.18. International Financial obligations, etc. ---Notw ithstanding anything, contained in this Act or any decision of any Court, till an alternative economic system is introduced, financial obligations incurred and contracts made between a National Institution and a Foreign Agency shall continue to remain and be valid, binding and operative.'
13. ' Explanation.---In this section, the expression 'National Institution' shall include the Federal Government or a Provincial Government, a statutory corporation, company, institution, body, enterprise or any person in Pakistan and the expression 'Foreign Agency' shall include a foreign government, a foreign financial institution, foreign capital market, including a bank and any foreign lending agency, including an individual and a supplier of goods and services.'
14. ' He states that it is clear from the reading of section 18 that the Islamic system introduced, till an alternative economic system is introduced shall not be applicable to the financial obligations incurred and contracts made between a National Institution and a Foreign Agency and such shall remain valid binding and operative. In the explanation he states that the foreign agency includes financial institutions also. He, therefore, states that the World Bank being a financial institution comes within the scope of section 18 and, therefore, agreements entered into between the World Bank or other foreign lending institutions and the Government of Pakistan/H.B.L. Or other Banking Companies shall remain valid and enforceable notwithstanding B.C.D. Circulars Nos.13 and 32 of the State Bank of Pakistan. He states that the interest payable under the agreement to the foreign lending institutions are therefore, recoverable ' I had tentatively agreed with him and put it to Mr. Shafi Muhammadi to study the same.
15. ' Mr. Aziz, therefore, states that the agreement between the parties is contained in the letter-dated 16-4-1994 in which the I.B.R.D. Loan of Rs,15.960 (M) carried an interest of 18% per annum with quarterly rests. He states that the defendants had accepted all the terms and conditions contained in the said letter of dated 16-4-1994 as such, automatically become liable to the payment of interest. Mr. Aziz has also shown me a Promissory Note dated 7-5-1994 executed by the defendant in which, the rate of interest has been shown as 7% per annum above bank rate with a minimum 18% per annum when quarterly rests. It is, therefore, the case of Mr. Aziz that interest is payable on such loan. I, despite the tentative agreement with Mr. Aziz reflected in the order dated 24-1-2001, do not agree with such proposition specially, in view of the fact as mentioned by me in the order passed in Suit No,B-187 of 2000 referred and reproduced to above. This is a 'loan' as defined B.C.D.
16. Circular No,13 in mode (A) of Annexure-1 thereto. I have also discussed the above as to the effect of the modes of transaction. The fact of granting and disbursing loans when covered by item (A) of the permissible mode of financing in Annexure I to B.C.D. Circular No,13 clearly shows that 'loans' would not carry any interest and the banks can only recover 'Service Charges' which were not to exceed the proportionate costs of operation. The banks were not allowed to charge the costs of funds and provision of bad and, doubtful debt. If such was finance no amount could be charged beyond the expiry period, as after the sale is complete the seller namely, the Bank only becomes an unpaid seller. The payment which is unpaid by the Purchaser namely, the Customer, therefore, becomes a debt or a loan and shall, therefore, be governed by item (A) of the permissible modes of financing in Annexure I. Only service charge could, therefore, be granted and allowed. I now come to the argument of Mr. Aziz that section 18 of Enforcement of Shari'ah Act, 1991 is valid law and that such is an exception in respect of 'International Financial Obligation. I agree, but such obligations have to be directed obligations. The obligation of the Bank is with the Government of Pakistan and not with the Foreign Lending Institution. In fact under B.C.D. Circular No,13 no deposits could be taken which are interest bearing. If the Bank chooses to pay interest to the Government of Pakistan, it can do so, but cannot pass on the interest to the customer. All agreement, contemplating such acts are void ab initio. The agreement in respect of this loan has not been filed by the plaintiff. However, they have alongwith the counter-affidavit tiled a letter dated 16-4-1994, being the I.B.R.D. Loan of Rs,15.960 Million, which contents, terms and conditions have been accepted by the defendants. The said letter does not at any point say that the interest is payable to the Government of Pakistan, or this is a loan which is exempt from B.C.D. Circular No,13. What is only said is that it is an 'I.B.R.D., Loan'. The agreement with the Government is not a public document, and is otherwise not binding on any one, unless it is categorically stated. The letter does not speak of any agreement, either with the Government of the foreign lending institution. The payment is in Pak Rupees and returnable in Pak Rupees. The exception contained in para.2 of B.C.D.
17. Circular No,13 is thus, not available to the Bank. The cost of funds cannot be allowed under item "A" of Annexure-I of. B.C.D. Circular No,13. I am, therefore, of the view that this is a loan, interest can be allowed thereon in term of item of Annexure-I of B.C.D. Circular No,13.. I shall, however, allow service charges on the said loan. I shall allow Service Charges at the rate of 6% chargeable on the entire amount due and not to be compounded. The loan was Rs,15.960 million. The amount that was disbursed according to Mr. Aziz is Rs,15,910,000 in 1994. The service charges for a year would be calculated at the amount due will be Rs,5,724,000. Such amount has been arrived at by multiplying it by the number of years i.e, six. This amount is to added to the amount disbursed, i.e, Rs,15,919,000 where for 'a sum of Rs,21,637,600 is liable to be paid by the defendants under the I.B.R.D. Loan. Excise Duty of Rs,462,140 and other incidental charges of Rs,38,975 is also claimed making the total to Rs,22,38,715.
18. ' The next financing is the financing on account of packing credit, which, per the reement dated 4- 11-1996, a sum of Rs,4 million has been shown as consideration for he purpose of purchase of raw material/finishing goods/machinery from the customer. However, Mr. Aziz says that such purchase was only to the extent of Rs,2 million. Repurchase price shown was calculated on the basis of the anticipated purchase of Rs,4 million but as the purchase by them was only to the extent of Rs,2 million, the resale of the said commodity, therefore, would be lesser. According to Mr. Aziz such is Rs,2,315,000 where a markup calculated is for the period from 1-11-1996 to 31-7-1997 at the agreed rate of Rs,0.60 per thousand per day in terms of the said agreement. According to him the Prompt Bonus Payment, therefore, has not been charged in the arriving at to figure of Rs,2,315,000.
19. According to the break up a sum of. Rs,200,148,000 has been paid as Excise Duty. According to him such has been paid earlier and prior to the date when this Court had announced the judgment, that the Excise Duty is liable to be paid by the Bank and the Bank in turn charges the same to the Customer. That judgment shall, therefore, operate prospectively. In the circumstances, I allow the Central Excise Duty. According to him there have been no payments in the account, therefore, the total sum payable_ under the finance against packing credit will be Rs,2,375,148. The total amount, therefore, shall be Rs,22,138,715. I.B.R.D. Loan and the loan under the F.P.C. Of Rs,2,355,148 shall be added to arrive at the actual law of the debt which shall be Rs,24,513,863. The suit is, therefore, is decreed jointly and/or severally against all the defendants for the aforesaid amount of Rs,24,513,863 with costs. The said is also decreed for the sale of mortgaged properties as mentioned in prayer clause 22(i). The suit is also decreed with mark-up there on at the rate of Rs,18%, but such shall only be charged on the amount due, once and shall not be compounded in any manner.
20. ' Suit stands disposed of.