JUDGMENT SYED JAMSHED ALI, J. -- This judgment will dispose of W.P. Nos. 20746/1998 and 22700/1998 also. Through W.P. No. 17482/1998 letter dated 28.7.1998 addressed by the State Bank of Pakistan to M/s. ABN Amro respondent No. 2 and Gulf Commercial Bank, respondent No. 3, declining permission to the petitioner for withdrawal from his foreign currency accounts maintained with the two Banks has been assailed. A direction is also sought to respondents Nos. 2 and 3 to reimburse to the petitioner the foreign currency which they have illegally liquidated, to adjust Pak currency financial facility obtained by the petitioner respectively, at the rate of Rs. 46 and Rs. 52.875 for a dollar. A further relief claimed is that petitioner be permitted to withdraw his foreign currency deposits with respondents Nos. 2 and 3 in accordance with the provisions of Circular 17, dated 6.6.1998 Of the State Bank of Pakistan.
2. It may be noted that the W.P. No. 17482/98 and a number of other writ petitions and I.C.As, were allowed by this Court vide judgment dated 27.1.1999 recorded in I.C.A. No.-679. However, on Appeal No. 879/1999 of the Federal Government, this case was remanded by the Honorables Supreme Court with the consent of the parties vide order dated'10.6.1999.
3. In W.P. No.^20746/1998 letter dated 1.10.1998 addressed by ABN Amro Ltd. Requiring the petitioner to settle the outstanding liability has been assailed while in W.P. No. 22700/1998 letter dated 21.10.1997 of the Chief Commercial Bank asking the petitioner to clear the outstanding liability has been assailed.
4. These writ petitions arise out of the following circumstances. The petitioner claims to be a U.S. Citizen and a representative of M/s. Columbia Textile, a company based in U.S:A., which is engaged in the business of textile and gets its products manufactured in various countries of the world and imports them into the U.S.A. He was maintaining foreign currency accounts with respondents Nos. 2 and 3 against which he availed financial facility in Pak 'rupee, In case Ofallon. Amro it was Rs.
358,54,400/- and in case of Gulf Commercial Bank it was Rs. 59 million.
5. The, nuclear explosions of 28th May, 1998 necessitated a state of financial emergency. On 28th May, 1998 Foreign Exchange (Temporary Restrictions) Ordinance No. VII of 1998, later legislated as Act No. IV of 1998, was promulgated and was followed by the State Bank Circular No. 12, dated 29th May, 1998. As a result of these legislative and executive measures, the foreign currency account holders were debarred from withdrawing, transferring or taking out foreign exchange in any manner. This was, however, subject to the permission of the State Bank of Pakistan. On 2.7.1998 Circular No. 23 was issued by the State Bank of Pakistan which, inter alia, provided that any encumbrance or lien of any kind upon any foreign currency deposit/foreign currency certificate as a cover against any direct or indirect liability of the depositors must be removed by 31.7.1998 through set of or direct liquidation of the liabilities: The aforesaid Act and the Circular No. 23 'were challenged before this Court in a number of petitions which were dismissed on 30.7.1998 against which a number of Intra Court Appeals were filed. Meanwhile a number of other writ petitions including the present writ petition were filed. All these writ petitions and the Intra Court Appeals were heard and allowed by a full bench of this Court vide judgment dated 27.1.1999 in the case titled Shaukat Ali Mian and another Vs. The Federation of Pakistan (1999 CLC 6Q7). Section 2 of the Foreign- Exchange (Temporary Restrictions) Act IV of 1998 and Circular No. 23 of the State Bank of Pakistan were declared as ultra vires of Articles 4 and 2-A of the Constitution.
6. Against the said judgment,, the Federation of Pakistan approach the Honorables Supreme Court of Pakistan in number of appeals and petitions for leave to appeal which were decided on 23.6.1999, Federation of Pakistan and others Vs. Shaukat Ali Mian and others (PLD 1999 S.C. 1026).
The short order of Honorables Supreme Court is reproduced hereunder for facility of reference:--
(i) We are perturbed to note that despite the assurance given by the Legislature in sub-section (4) of Section 5 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992) to the effect that "The State Bank of Pakistan or others banks shall not impose any restrictions on deposits in and withdrawals from the foreign currency accounts and restrictions, if any, shall stand withdrawn forthwith", the successive Governments improperly utilised the foreign exchange deposits of the Foreign Currency Account holders in breach of the above solemn commitment and the State Bank of Pakistan also failed to perform its statutory duty to protect the interest of the Foreign Currency Account-holders, thereby creating a situation where at present it has become practically impossible to honour the above solemn undertaking given by the Legislature.
(ii) Section 2 of the Foreign Exchange (Temporary Restrictions) Act, 1998 (Act IV of 1998)
(hereinafter referred to as the Act) is intra vires of the Constitution, subject to the declaration that the same does not confer any power on the Federation or on the State Bank of Pakistan to compel Foreign Currency Account-holders to convert their foreign exchange holdings into Pak Rupees at the officially Notified rate of exchange, or to compel the said account-holders to liquidate their above accounts into Pak Rupees which foreign exchange holdings had been accepted by the respective banks as security against any loans or other facilities extended to them.
(i.e) That B.P.R.D. Circular No. 23, dated 2.7.1998 read , with B.P.R.D. Circular No. 29, dated 17.11.1998 to the extent of providing that "It has been decided that encumbrance or lone of any kind upon any foreign currency deposit/foreign currency certificate as a cover against any direct or indirect liability of the depositors must be removed by July 31, 1998 through set of or direct liquidation of the liabilities so covered by the borrowers", is illegal and of. No legal consequence, besides the above Circular has been withdrawn by the State Bank of Pakistan as stated by the learned Attorney- General in the Court before us on 9.6.1999 and, therefore, it does not hold the field
(iv) That the Foreign Currency Account-holders are entitled to receive interest/profits in foreign exchange on their deposits at rates already agreed as per original arrangements between them and the respective banks.,
(v) That the non-resident Pakistanis and foreigners maintaining Foreign Currency Accounts as on 28.5.1998 will be entitled to utilise the interest/profits, payable to them under the above arrangements between them and the banks concerned, in any manner including the right to remit the same abroad.
(vi) That in order to restore the confidence of the existing/prospective Foreign Currency Account- holders, the Federation/State Bank of Pakistan shall evolve a scheme within a reasonable period Raza W. Mian V. State Bank of Pak. Tax & Corp. 9 (Syed Jamshed AH, J.) " keeping in view the foreign exchange position of the country for gradual removal of restrictions on operation of Foreign Currency Accounts imposed by Section 2 of the Act, and that, in any case, in every annual budget a reasonable provision in this regard shall be made."
7. We have noted the aforesaid developments because the present case is to be examined within the scope of the, judgment of the Honorables Supreme Court. Towards the close of the hearing of these cases, Dr. A. Basit, Advocate, made written applications to withdraw W.P. Nos. 20746/1998 and 22700/1998 and confined his submissions to W.P>No. 17482/1998.
8. On 5.1,1999 M/s. A.B.N. Amro adjusted the outstanding liability of the petitioner from his foreign currency account at the rate of the Rs. 46 per dollar; the rate prescribed by Circular No. 23. In case of Gulf Commercial Bank it was adjusted on 21.5.1999 at the rate of Rs.. 52.1875, per dollar, the inter bank rate. These developments took place after filing of this writ petition. However, the Honorables Supreme Court, while remanding this case allowed the petitioner to amend the writ petition to incorporate further reliefs on the basis of the subsequent developments*
9. The learned counsel for the petitioner has made the following submissions:--
(i) That the petitioner was maintaining foreign currency accounts as well as local currency accounts with respondents Nos. 2 and 3. Both the said accounts were separate entities and in view of the provisions of the Protection of Economic Reforms Act (No. XII of 1992) those were immune from being liquidated.
(ii) According to the agreement for finance dated 7.1.1998 with ABN Amro, the schedule for repayment was to expire on 6.1.1999 -and therefore, the impugned adjustment could not be made by the said bank on 5.1.1999. At best the said Bank could adjust the amount of the defaulted instalments.
(i.e) There was no provision in the agreement with the aforesaid Bank authorizing it to automatically adjust, the outstanding dues from any other account of the petitioner.
(iv) According to the clause (4) of the agreement, the said Bank could only demand immediate payment of the entire outstanding balance. The said provision did not authorize the said bank to make the impugned adjustment.
(v) According to the said clause the consequence of not responding to the demand made thereunder was that a sum equivalent to 20% in respect of the outstanding instalment could be claimed by the Bank as additional amount.
(vi) Clause (8) of the said agreement contemplates the consequence of failure to pay the instalments but again the Bank could only raise a demand and the provision in the said clause that the Bank was authorized to take all actions did not dispense with the requirement of the recovery of the outstanding amount from the petitioner through a suit.
(vii) Circular No. 23 of the State Bank, which authorized the Banks to adjust the liability by liquidating the foreign currency account, was not only withdrawn by the State Bank of Pakistan but it has also been declared as ultra vires by this Court as well as by the Honorables Supreme Court.
He submits that W.P. No. 17482/1998 was allowed by this Court on 27.1.1999, while adjustment was made by A.B.N. Amro on 5.1.1999, and by the Gulf Commercial Bank on 21.5.1999. However, during pendency of the writ petitions and pendency of-the matter before the Honorables Supreme Court there has been a restraint order staying operation of Circular No. 23. He strenuously relied on clause (i.e) of the short order of the Honorables Supreme Court reproduced in para 6 above.
(viii) In accordance with the provisions of Circular No. 17, dated 6.6.1998, the petitioner,- as a representative of foreign company, was entitled to withdraw money from his foreign currency accounts.
(ix) He did not dispute that although the petitioner was a defaulter in clearing the outstandings of the Banks and adjustment could be made but only at the market rate, which according to him, was Rs. 65 per dollar, when the two Banks made the impugned adjustments.'
(x) The practice upto 28th May, 1998 between the parties was that for clearing the instalments or the mark-up, the petitioner would go to the concerned Bank with a foreign currency dealer, withdraw foreign currency from his accounts, get it encashed in the Banks simultaneously and make payment to the Banks.
(xi) The two Banks were otherwise inclined to permit the petitioner to adjust the liability in the said manner and therefore, references were made to the State Bank of Pakistan which were declined vide letter dated 28.7.1998 impugned in this writ petition, It was further contended that after the State Bank of Pakistan had declined permission for withdrawal of the foreign currency, the petitioner had made a representation to the State Bank of Pakistan and the matter had not finally been decided.
(xii) Since the adjustment had already been made, he will be satisfied if the two Banks are directed to make the adjustment at the market rate as prevailing on the said dates and reimburse the excess amount so adjusted, into his foreign currency accounts.
10. Mr. Sher Zaman Khan, Deputy Attorney General and Mr. Mahmood Mirza, Advocate appeared for the State Bank of Pakistan while Mr. Raza Faruq, Advocate appeared for A.B.N. Amro and Mr. Khalid Mahmood Khan, Advocate appeared for Gulf Commercial Bank They have, raised the following contentions:-
(i) Letter dated 28.7.1998, through which the State Bank declined permission to the petitioners to withdraw foreign currency from his accounts, has not caused any prejudice whatsoever to the petitioner because under the agreement with the two Banks and the security documents the foreign currency accounts were already collateralized and these security documents authorized the Banks to make necessary adjustment from the foreign currency accounts.
(ii) Directions are sought against respondents Nos. 2 and 3 who are not 'persons' within the contemplation of Sub-Article (5) of Article 199 of the Constitution of Islamic Republic of Pakistan and thus the writ petitions are not maintainable.
(i.e) The foreign currency accounts were opened by the petitioner in his personal name as a Pakistani without even disclosing that he was a foreign national. This is borne out from, his account opening form and therefore, the concession provided under Circular No. 17 was not available to the petitioner, In any case in view of the agreements and the security documents, the petitioner, could not withdraw any amount from his foreign currency accounts without settling the liabilities of the Banks.
(iv) That in terms of the agreements, notices were duly issue which were received by the petitioner but he failed to clear the outstanding liabilities. Any default in the payment of one instalment or.
Even mark-up authorized the two Banks to make adjustments from foreign currency accounts of the petitioner.
(v) According to the observations of the Honorables Supreme Court, Circular No. 23 aforesaid did not operate so as to abrogate the contracts made by the parties.
(vi) That the Banks could only make adjustment at the rate notified by the State Bank and could not make the adjustment at the market rate.
(vii) References by the Banks to the State Bank for permission to the petitioner to withdraw foreign currency fr6m his accounts; were made as a courtesy and concession to the petitioner without any obligations attached thereto or arising therefrom, but these were declined by the State Bank of Pakistan.
(viii) The dispute between the parties arises out of a contract and therefore, the Constitutional petition is not maintainable. If at all the petitioner feels aggrieved of the action of the two Banks, his remedy lies elsewhere.
(ix) The learned counsel , for Gulf Commercial Bank invited attention of the Court to the order- dated 27.11.1998 passed on C.M. 1621/1998 in W.P. No. 22700/1998 whereby the Gulf Commercial Bank had sought to encash the foreign currency deposit of the petitioner for adjustment of petitioners outstanding liabilities, It was observed by this Court that since there was no injunctive order the Bank may proceed in the matter as per law, rules and agreement.
(x) The action to make adjustments of the outstanding liability was taken under the provisions of the agreements and the security documents and not under Circular No. 23. Various clauses of the said documents were referred to.
11. We have considered the submissions made by the learned counsel for the parties and have perused the record. The main thrust of the arguments of the learned counsel for the petitioner is that the foreign currency accounts held by him in the two Banks were protected, Circular No. 23 has already been struck down as ultra vires of the various provisions of the Constitution, under Circular No. 17 he was entitled to withdraw foreign currency from his accounts and at best adjustments could be made at the market rate.
12. On the other hand the case of the Banks is that adjustment was not made under Circular No. 23 but it was made under the provisions of the agreements and the , security documents. However, the objection raised on behalf of the Banks is that the Banks had lawfully acted in the matter and no writ .Could be issued to the Banks as they are not 'persons' within the contemplation of Sub- Article (5) of Article 199 of the Constitution of Islamic Republic of Pakistan. Respondents Nos. 2 and 3 are Banking Companies in private sector and cannot be said to be 'persons' performing functions in connection with the affairs of the Federation or a Province. Therefore, as far as the second prayer of the writ petition that the action of the two Banks to liquidate the liability by adjusting the foreign currency accounts is concerned, no direction can be issued to the aforesaid Banks.
13. As far as the letter dated 28.7.1998 of the State Bank of Pakistan is concerned, it declined permission to the petitioner to withdraw foreign currency on the basis of Section 2 of Foreign Exchange (Temporary Restriction) Act IV of 1998) which has been uphe it by the Honorables Supreme Court. We may and that not only Section 2 of Act No. IV of 1998 placed restriction on withdrawal of the foreign currency but also under the agreements and security documents with the two Banks, the petitioner was not entitled to withdraw the Raza W Mian V. State Bank of Pak. Tax & Corp. 15 (Syed Jamshed AH, J.) foreign currency from his accounts as the same had been collateralized as security for the finance obtained by the petitioner.
14. We have however, examined the agreements and the security documents being relied upon by the Banks with reference to the contentions of the learned counsel for the petitioner that within the terms of the agreements the Banks could only raise a demand for settlement of the outstanding liability and could n6t proceed to liquidate the foreign currency accounts of the petitioner.
15. According to the agreement dated 7.1.1998 with the A.B.N. Amro, the petitioner obtained a financial facility in the sum of Rs. 3,98,54,400/- against which he had to pay a sum of Rs.
5,25,85,666/67 in five instalments to be paid on 31.3.1998, 30.6.1998, 30.9.1998, 31.12.1998 and 6.1.1999.
Clause (4) of the agreement provided that if the petitioner failed to pay an instalment on the due date, he will become liable to pay liquidated damages equivalent to 20% of the defaulted instalment. This clause further provided that in case of failure of the petitioner to make payment of any instalment, the Banty shall be entitled to demand immediate payment of the entire balance which the petitioner shall pay within one working day and in case of his failure, the Bank shall be entitled to recover from the petitioner agreed compensation. However, according to the clause (8) of the agreement, in case of failure of the petitioner to pay any instalment on the due date, the Bank was entitled to immediate payment of the entire outstanding balance and to take all actions , for the recovery as the Bank may, in its absolute discretion, deem appropriate. Clause (9) thereof authorized the Bank to cancel or reduce the liability under the said agreement. Clause (11) thereof under which the Bank has taken the impugned action is reproduced hereunder:-- "The Bank may, at its absolute discretion, transfer any amount from any account of the Customer with the Bank or combine and consolidate all or any accounts of the Customer with the Bank, to adjust or reduce any amount payable by the Customer to the Bank under this Agreement or on any other account." .
16. It may also be noted that according to clause (10) of the agreement the petitioner, inter alia, furnished to the Bank a letter of set of and first charge according to which 'he agreed' that the Bank shall have a charge on the monies deposited and lying to petitioner's credit in any and all his accounts and the Bank shall have right to withdraw any amount from any account and to adjust the proceeds thereof towards the liability of the petitioner on any account whatsoever, It was further agreed by the petitioner that the amounts in his accounts shall be regarded as security for any monies that are due or may become due and the Bank was authorized to apply the proceeds of the accounts in satisfaction of whole or part of the monies due from the petitioner.
17. A perusal of the agreement and the letter of set of makes it absolutely clear that the Bank had the necessary authority to make the adjustment within the terms of the agreement and the security documents.;
18. According to the agreement dated 15.10.1997 with the Schon Bank Ltd. (predecessor of the Gulf Commercial Bank) an amount of Rs.59 million was advanced to the petitioner against which he had to pay a sum of Rs.72.238 million to the Bank upto 30.6.1998. This agreement had similar provisions as in the case of A.B.N. Amro clause 'h' thereof which is relevant is reproduced hereunder:-- "It is hereby agreed between the parties hereto that where the Purchase Price is payable in instalments, failure on the part of the Customer to pay any instalment on its due date will entitle the Bank to demand immediate payment of the entire balance of Purchase Price remaining due notwithstanding anything to the contrary contained in this agreement, and for recovery thereof to take possession of the goods and sell the same By the letter of lien and set of executed by the petitioner in favour of Schon Bank Ltd. It was covenanted as follows:-- "The Depositor(s) hereby further agree than in addition to any general lien which the bank may be entitled to under the law, it may forthwith at any time and without notice to the Deposit(s) combine all or any of the Account(s) of the Depositor(s) and/or the Customer and set-of or transfer such sums standing to the credit of any one or more oft such Account(s) in or towards satisfaction of any of the Customer and/or the Depositor(s) liabilities to the Bank. Where the Account(s) or any one or more of them or term or time deposit Account(s), the Bank may exercise the right conferred upon it by law or by virtue of this instrument, without regard to the maturity date of such deposit account(s) and the Bank shall not be liable to the Depositor(s) for any loss or damage resulting from the exercise of such rights."
19. It is not disputed that the petitioner was in default in the payment of the amount due to the two Banks. The learned counsel tried to canvass before us that this was because the petitioner was not allowed to operate the foreign currency accounts. As noted above, it was not only because of Section 2 of Act IV of 1998, but as observed above, he could not withdraw the foreign currency unless the liabilities of the Bank were satisfied.
20. The Honorables Supreme Court in the case of Federation of Pakistan, supra made the following observations:-- "The perusal of the above-quoted section indicates that the above section empowers the State Bank of Pakistan to control advances by banking companies by laying down the policy in respect of matters referred to in its sub-section (2) i.e. As to the credit ceiling, credit targets, the purposes for which advances may or may not be made, the margins to be maintained in respect of advances, the rates of interest, charges or mark-up to be applied on advances and the maximum or minimum profit sharing rations, and prohibiting the giving of loans, advances and credit to any borrower or group of borrowers on the basis of interest, either for a specific purpose or for any purpose whatsoever, but had no power to alter the terms and conditions of an agreement of loan already entered into and acted upon between a bank and its customers through a circular."
(underlining is ours).
It was further observed:- "Even otherwise, the impugned portion of the above Circular No. 23 cannot be sustained for the reason that it is confiscatory in nature and interferes with contractual rights and obligations under the concluded contracts, inasmuch as it prohibits the use of the foreign currency deposits within Pakistan as a security which was already accepted by the banks against the loans prior to the issuance of the above Circular without acquiring the above foreign currency deposits under appropriate provision of law against the payment of compensation." (Emphasis supplied)
21. The import of the aforesaid observations of the Honorables Supreme Court clearly is that the contract executed between the parties is to prevail in all circumstances,
22. As to the question whether the advancing Bank should have allowed the petitioner to withdraw foreign currency to obtain encashment from the market at a rate obviously higher than the official rate declared by the State Bank of Pakistan, suffice to observe that these foreign currency accounts were charged and encumbered accounts. The Banks were, therefore, justified in not allowing the petitioner to withdraw foreign currency from these accounts under the security arrangements between the parties. Further, the State Bank* of Pakistan being, the Central Controlling Bank was legally empowered to prescribe an official rate for encashment of a given foreign currency thereby obliging the Banks and the foreign currency dealers to encash the said currency only at the rate so prescribed. Under Circular No. 8 issued by State Bank of Pakistan on 19.5.1999. Multiple exchange rate system was abolished and floating inter Bank rate/unitary rate system was made applicable to all foreign exchange receipts both in public and private sectors, It was upon introduction of this Circular No. 8 that encashment of U.S. Dollars at the tied official rate of Rs. 46 = U.S: Dollar was done away with and inter bank rate was adopted for all documented transactions. A.B'.N. Amro, thus, had no option but to adjust petitioner's outstanding liabilities from collateralized foreign .Currency account deposits at the prescribed rate of Rs. 46 per U.S. Dollar prior to introduction of Circular No. 8 on 19.5.1999. Gulf Commercial Bank, however, made adjustment after this circular at the then prevalent inter-bank rate of Rs. 52.1875 to a U.S dollar of which no exception case be taken.
23. There is no evidence on record that the petitioner was allowed by respective lending Banks to withdraw foreign currency from his accounts in presence of a foreign currency dealer for the purpose of encashing the same from the open market and then liquidating the amounts then outstanding. Even if a such a facility was allowed by a Bank to the petitioner, such private accommodation cannot be termed as a legal arrangement or a contract between the parties to vest the petitioner with a right to seek enforcement thereof. Such a right shall obviously be in conflict with the basic concept of pledge, special lien, charge, encumbrance or security collateralization.
24. From the above factual and legal position, the conclusions reached by us are that the two Banks, while adjusting the liabilities of the petitioner acted under the agreements and the security documents and not under Circular No. 23 of the State Bank of Pakistan. The protection available to the foreign currency accounts under Act No. XII of 1992 is not abrogative of the agreements in question between the parties. The contention of the learned counsel for the petitioner that within the terms of the agreement the banks could only demand the defaulted amount and could not make adjustment of his liabilities from the foreign currency accounts, is not borne out from the relevant provisions of the agreements and the security documents executed by the petitioner.
Circular No. 17 was not applicable and even if it was applicable, the petitioner could not withdraw foreign currency from his accounts without settling the liabilities of the two Banks. If at all the Banks had proceeded in breach of the terms of the agreements or security documents, no writ could be issued to the two Banks because they are not performing any function in connection with the affairs of the Federation or a Province.
25. For what has been stated above, we find no merit in this writ petition which is, accordingly, dismissed while Writ Petitions Nos. 22700/1998 and 20746/1998 are dismissed as withdrawn.