Petitioner is a public limited company engaged in leasing business. It has deposited amounts in the company's accounts in Bank of Ceylon and Metropolitan Bank Limited. On 4th July, 2001, the respondent, State Bank of Pakistan, issued direction to all commercial banks that no withdrawal from accounts of present petitioner and some other organizations and persons mentioned in the order, shall be allowed without obtaining specific written permission from the State Bank. The direction, according to the order, has been issued in exercise of powers under section 41 of the Banking Companies Ordinance, 1962. Legality of this direction/order has been challenged in this petition.
Mr. Kamal Azfar, learned counsel for the petitioner, contended that the petitioner is a depositor and not a Banking Company, subject of the Banking Companies Ordinance, 1962. He referred to section 3-A of the Banking Companies Ordinance, 1962 to support his contention. According to him, Securities and Exchange Commission is the regulatory authority of such companies under Securities and Exchange Commission of Pakistan Act, 1997 and not the State Bank of Pakistan.
Mr. Ijaz Ahmed, learned counsel for the respondent, submitted that the direction has been issued to the Banking Companies viz. Commercial Banks under section 41 of the Banking Companies Ordinance, 1962 and the petitioner is a depositor. He contended that the accounts have not been freezed but it is only monitoring through a condition for a permission before withdrawal. He submitted that the respondent has not exercised any regulatory authority on the petitioner.
In the written reply filed by the respondent, it is stated that the respondent and National Accountability Bureau are investigating the affairs of Prudential Commercial Bank Limited and it was disclosed that an ex-employee of that Bank, Tahir Siddiqi, had embezzled large amounts and acquired assets including shares and control of various companies, which he is operating through -his nominees, employees, family members and network of companies. According to the respondent, Tahir Siddiqi has substantial interest and connection with the petitioner.
Following is the order of the respondent impugned in this petition: "The Chief Executive, All Commercial Banks, Dear Sirs, DIRECTIVES UNDER SECTION 41 OF BANKING COMPANIES ORDINANCE, 1962 By virtue of powers conferred on State Bank of Pakistan under section 41 of the Banking Companies Ordinance, 1962, you are hereby directed that with immediate effect no withdrawal whatsoever in accounts of the following companies, persons and their associate companies in which they have interest shall be made without obtaining specific written permission from State Bank of Pakistan:-- - Sr.
No.Name
1. Messrs Inter World Securities (Pvt.) Ltd., Member Islamabad Stock Exchange.
2. Messrs Republic Securities Ltd., Member, Karachi Stock Exchange.
3. Messrs Total Securities Ltd., Member, Karachi Stock Exchange.
4. Mr. Universal Forex (Pvt.) Ltd.
5. Messrs Universal Leasing Corporation Ltd.
6. Mr. Tahir Siddiqui s/o Muhammad Idrees Siddiqui, NIC No.515- 89-158084
7. Mr. Tariq Siddiqui s/o Muhammad Idrees Siddiqui, NIC No.515- 89-018024
2. Please note that every Executive, Manager or other officer of the bank or any other person who is associated with or taking part in the management of bank directly or indirectly is mandated under the law to comply with the directives given hereinabove. Any default in compliance with the above directives or any circumvention thereof shall render all concerned liable to action under the provisions of Banking Companies Ordinance, 1962.
3. All credit in the aforesaid account shall, however, be permitted by the banks.
4. All requests for withdrawal, if any, received may be referred to Director, Banking Supervision Department, SBP, CD, Karachi.
Yours faithfully, (Sd.)
(Kazi Abdul Muqtadir), Director."
This order mentions that it has been issued in exercise of powers under section 41 of the 'Banking Companies Ordinance, 1962. Directions under this section can be issued in case:--
(i) The State Bank is satisfied that it is in the public interest to issue such directions; or
(ii) it is necessary to prevent the affairs of a Banking Company being conducted in a manner detrimental to the interest of depositors, or in a manner prejudicial to the interest of the Banking Companies; or
(iii) it is necessary to secure the proper management of a Banking Company generally.
The impugned order does not expressly mention for what purpose or object, the direction has been issued. It can, however, be gathered from the contents of the order that the direction has not been issued "to prevent the affairs of any Banking Company from being conducted in a manner detrimental to the interest of the depositors, or in a manner prejudicial to the interest of the Banking Company" which include all the Commercial Banks in this case. The direction has also not been issued "to secure the proper management of any Banking Company generally."
The only other ground on which a direction can be issued is "the public interest". The impugned order does not mention as to how the direction is in the public interest. The same section provides that a direction can be issued to safeguard the interest of the depositors. It cannot, therefore, be issued to the detriment to the interest of depositors and the impugned order does exactly the same. The direction contained in the impugned order is directly against the interest of the depositors. The impugned order, and the direction therein, is, thus, in violation of the law itself, viz. Section 41 of the Banking Companies Ordinance, 1962, under which the order has been issued. It is, therefore, declared that the impugned order/direction has been issued without lawful authority and is of no legal effect. The petition is allowed accordingly.