2001 PLP 1351 (MLD)

Islamic Interest-free Banking, a Theoretical Analysis by Mohsin S. Khan pp.4-5). The dispassionate analysis of the academic discussions of half a century absolutely lays bare the fact that the questions and doubt raised about Interest (Ribs) are unreal and the Qur' an and Sunnah have prohibited Riba in its every form, be it the ancient banking form or the modern banking, be it related to the consumption loans of the needy or commercial and production loans, may they fall within the sphere of private limits or Government, semi Government limits and whether provided at a lesser or exorbitant rate. The second great success achieved in the last thirty years covers the principles and rules, way of working, financial Instruments of interest-free banking and the proposal and drafting of the strategy of investment. In this connection investigations have been made with great endeavours and a chart of alternative system has been prepared with deep foresight. At least two dozen Research books have been published in which the features of the new system have been explained. Among them some of their authors have received the Islamic Development Bank and the King Faisal Awards. In Pakistan the report of the Council of Islamic Ideology (1980), which is based on the report of the economic and banking experts, occupies the position of a mile-stone. In this report, a very realistic blue-print has been presented to purge Pakistan's domestic economy of interest. A Committee of the Central Bank also worked on this subject in 1981 under the Chairmanship of the Governor of State Bank and the blue-print provided by it is also very close to the blue print of the Council of Islamic Ideology. The Report of the Council of Islamic Ideology was discussed in an International Seminar and its. recommendations were, on the whole ratified. Moreover, some additional recommendations were made, which were published under the title of 'Money and Banking in Islam,' by the International Institute of Islamic Economics (Islamabad) and Institute of Policy Studies (Islamabad). In 1989 the International Institute of Islamic Economics held a Workshop on the subject as to how interest can be eliminated from Government dealings. The Report of this Workshop (Elimination of Interest on Government Transactions) has also been published. After that in June 1992 the Commission for Islamisation of Economy submitted its interim Report, which has, however, not been published so far. It was even not presented in the Senate and National Assembly as required under the law. The Institute of Policy Studies held a Seminar in 1993 which was attended by about one hundred experts. Two editions of its proceedings have been published in 1994 and 1995 entitled 'Elimination of Riba from the Economy.' The whole of this work presents a vivid outline of an alternative system in the light of conditions prevailing in Pakistan. Regarding the foreign loans, clear guidance exists in the abovementioned reports of the Institute of Policy Studies and the Self-Reliance Committee. Even an outline exists in the Self-Reliance Report (1991) which tells how to execute this job and on the other hand with the help of a proper economic model a complete programme has been given to eliminate Riba from the economy in three years. The difficulty in that those demanding an alternative system neither study these reports nor intend to act upon them. It seems that because the recommendations made in this whole assignment, are not in accordance with their taste or desire, they, therefore, refute the existence of these documents and are continuously harping upon, 'where is the alternative?' The matter is not limited only to academic exercise and drawing a sketch of the alternative system. No doubt much work has yet to be done and many stages have to be covered, but whatever has been attained by way of implementation is sufficient to bow before the prowess of Islamic Banking System. The work of accumulating the savings and provision of resources " has always been carried out at the lowest and public levels C individual and institutional. After the first World War, Dr. Muhammad Hamidullah had carried out research work and had shown how investment to the extent of billions of rupees was being carried out through equity-based venture system. During the last forty years the experiments include the Mit Ghamr Bank of Egypt, which had been working from 1963 to 1967 and after that it adopted a new form in the shape of Nasir Social Bank (1971). These institutions continued to work very successfully for ten to twelve years on which studies were carried out which declared them to be successful preliminary experiments (vide: The Research Report of T. Wholus Scharf: Arab Islamic Banks: New Business Partners for Developing Countries, Paris, OECD, 1993)."

33. In pursuance to the international discussion of the Muslims all over the world in 1975, Dubai Islamic Bank was formed to perform the work under the Islamic System. Two major Financial Groups namely Darul Mal Islamia (DMI) and Al-Barks Groups were also formed for the purposes of interest free banking. The Islamic Development Bank formed in Jeddah in 1975. All these banks are continuing to work under the system of Islamic Banking.

34. For the purpose of understanding the law in force for the time being and for the purpose of understanding the two important judgments, i.e. the cases of Dr. Mehmood-ur-Rehman Faisal (supra) and Dr. M. Aslam Khaki (supra), it will be important to reproduces the two most important circulars that have been continued to be relied upon in this respect. The first being BCD Circular No. 13, dated 20th June, 1984 which reads as under:-- "STATE BANK OF PAKISTAN." Banking Control Department Central Directorate Karachi. BCD Circular No.13 20th June, 1984. All Banks, Dear Sirs, Elimination of 'RIBA' from the Banking System. As has been announced by the Finance Minister,it is the intention of Government that the Banking System should shift over to Islamic modes of financing during the course of the next financial year. These modes of financing have been described in Annexure

1. This shift will take place according to the following programme. (i) As from the lst July, 1984, all banking companies will be free to make finance available in any of the modes of financing listed in Annexure

1. However, as a transitional arrangement, they will also be free to lend on the basis of interest, provided that no accommodation for working capital will be provided or renewed on interest basis for a period of more than six months. (ii) As from the 1st January, 1985, all finances provided by a banking company to the Federal Government, Provincial Governments, public sector corporations. and public or private joint stock companies shall be only in any one of the modes indicated in Annexure 1. (iii) As from the 1st April, 1985, all finances provided by a banking company to all entities, including individuals, shall be on the same basis as mentioned in (ii) above. (iv) The appropriate mode of financing to be adopted in any particular case will be settled by agreement between the banking company and the client. Some possible modes of financing for various transactions have been shown in Annexure II. (v) As from the 1st July, 1985, no banking company shall accept any interest-bearing deposits. As from that date, all deposits accepted by a banking company shall be on the basis of participation in profit and loss of the banking company, except deposits received in Current Account on which no interest or profit shall be given by the banking company.

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.

3. The above instructions are being issued under the Banking Companies Ordinance, 1962. Further instructions, where necessary, will follow. Please acknowledge receipt. Yours faithfully, (SIBGHATULLAH) Director" ANNEXURE -- I Permissible Modes of Financing (A) Financing by lending:-- (i) Loans not carrying any interest on which the banks may recover a service charge not exceeding the proportionate cost of the operation, excluding the cost of funds and provision for bad and doubtful debts. The maximum service charge permissible to each bank will be determined by the State Bank from time to time. (ii) Qard-e-Hasana loans given on compassionate ground free of any interest or service charge and repayable if and when the borrower is able to pay. 4(B) Trade-related modes of financing including the following.- (i) Purchase of goods by banks and their sale to clients at appropriate mark-up in price on deferred payment basis. In case of default, there should be no mark-up on mark-up. (ii) Purchase of trade bills (iii) Purchase of movable or immoveable property by the banks from their clients with Buy-Back Agreement or otherwise. (iv) Leasing. (v) Hire-purchase. (vi) Financing for development of property on the basis of a development charge. The maximum and the minimum rates of return to be derived by the Banks from these modes of financing will be as may be determined by the State Bank from time to time. (C) Trade-related modes of financing including; the following;:-- (i) Musharika or profit and loss sharing. (ii) Equity participation and purchase of shares. (iii) Purchase of participation term certificates and Modaraba Certificates. (iv) Rent-sharing. The maximum and minimum rates of profit to be derived by the banks from such transactions will be as may be prescribed by the State Bank from time to time. However, should any losses occur, they will have to be proportionately shared among all the financiers. ANNEXURE -- II Permissible modes of financing: for Various Transactions Nature of Business Basis of Financing: I. Trade and Commerce Fixed investment (a) Commodity operations of the Mark-up in price. Federal and Provincial Governments and their agencies (b) Export Bills purchased/negotiated (i) Exchange Rate differential in the under Letters of Credit (other than case of foreign currency bills. those under reserve). (ii) Commission or mark-down in the case of Rupee bills. (c) Documentary Inland Bills drawn Mark-down in price. against Letters of Credit purchased/discounted. (d) Import Bills drawn under Letters Mark-up in price. of Credit- (e) Financing of exports under the Service charge/Concessional Service State Bank's Export Finance charge. Scheme and The Scheme for Financing Locally Manufactured Machinery. (f) Other items of trade and Fixed investment. commerce. Equity participation, P.T.Cs., Leasing or hire-purchase. Working Capital Profit and loss sharing or mark-up. II. Industry Fixed investment Equity participation, P.T.Cs., Modaraba Certificates, leasing, Hire purchase or mark-up. Working Capital Profit and loss sharing or mark-up. III. Agriculture and Fisheries (a) Short-term Finance. Mark-up. In the case of small farmers and small fishermen who are at present eligible for interest free loans finances for the specified inputs etc., upto the prescribed amount may be on mark-up basis. The mark-up amount may however, be waived in the case of those who re-pay the finance within the stipulated period and payment of the mark-up made by the State Bank to banks by debit to Federal Government Account. (b) Medium and long-term Finance. Leasing or hire-purchase. In addition (i) Tubewells and other to ownership of machinery, banks wells may create charge on the land in their favour as in the case of other loan to the farmers under the Passbook System. (ii) Tractors, trailors and other farm Hire-purchase or leasing. machinery and transport (including fishing boats, solar energy plants etc.) (iii) Plough-cattle, Milch Cattle and Mark-up. other livestock. (iv) Fairy and Poultry. PLS/mark-up/hire-purchase/leasing. (v) Storage and other farm Leasing or rent sharing basis with construction (viz. Sheds for flexible weightage to the bank's funds. (vi) Land Development. Development charge. (vii) Orchards, including nurseries. Mark-up, development charge or PLS basis. (viii)Forestry. Mark-up, development charge or PLS. (ix) Watercourse improvement. Development charge. IV. Housing Rent sharing with flexible weightage to bank's funds or buy-back cum mark-up. V. Personal Advances (other than those for business purposes and housing (a) Consumer durables (cars, motor- Hire-purchase. cycles, scooters and household goods). (b) For consumption purposes. Against tangible security with buy back arrangement. And the other being BCD Circular No.32 dated 26-11-1984 which reads as under:-- "STATE BANK OF PAKISTAN" Banking Control Department Central Directorate Karachi. BCD Circular No.32 26th November, 1984. All Banks and Development Finance Institutions. Dear Sirs, Elimination of 'RIBA' from the Banking System Bank Charges. Please refer to BCD Circular No. 13, dated the 20th June, 1984.

2. Vide BCD Circular No.7, dated the 28th March, 1984 bank charges except charges for home remittances, have been deregulated. The schedules of bank charges received from the banks show that the following items of bank charges are based on interest:-- (i) Mark-up in the case of import bills under import letters of credit. (ii) Mark-down in the case of documentary bills drawn against inland letters of credit.

3. The schedules also provide for levy of overdue/penal interest in case of non-retirement/non-payment .of inland cheques, bills etc., purchased.

4. In exercise of the powers vested in it under the Banking Companies Ordinance, 1962, the State Bank of Pakistan is pleased to direct that as from the 1st January, 1985, interest, wherever charged by a banking company/development finance institution in any of the, items of bank charges, shall be replaced by a non-interest mode considered appropriate by it. Moreover, overdue/penal 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.

5. Please acknowledge receipt. Yours faithfully, (SIBGHATULLAH) Director"

35. An analysis of the said BCD Circular No. 13 is required to be done in the light of the aforestated discussions that a complete conscious effort was put in by the Government which included the bankers to bring about the transformation in the existing system in the banks for shifting to the Islamic modes of financing. The first paragraph of said BCD Circular No. 13 states' that, it was the Government which acted through its Finance Minister, showing the intention of the Federal Government, to transform the banking system into the Islamic mode whereby, the financing done would be in the manner as provided in the Annexures to the said Circular. It was not an abrupt transformation. The transformation had actually commenced from 1962 and various committees had been formed. Discussion at the highest level had taken place and naturally upon discussion after numerous position a settled formula came in by way of this Circular. No doubt, this circular does not mention the name of the transaction i.e. whether it is Morabaha transaction, a transaction by bai or by Ijarah, Modaraba or any other such means but the Annexure to the said notification categorically spelt out, what was to- be done and that, these in fact reflected the various transactions that are and continued to be in vogue in other Islamic banks. Though no names were given but it will be seen that these permissible modes were nothing but specified transaction allowed by the Islamic Scholars. BCD Circular No.13 also speaks of "transitional management" and, after the first of January, 1985 as provided in clause 2(i) of the said circular of finances provided by a banking company, Federal Government, Provincial Government, public sector corporation and public or private joint sectors companies could only be done in the modes indicated in the Annexure-I to the said circular.

36. It cannot by any stretch of imagination be presumed that the meaning of the words 'interest', 'mark-up' or 'Ribs' were not understood. When this notification was issued all the transactional aspects had been discussed at the top level by the Government which is why the Finance Minister announced the public of transformation. This announcement was also in the line with the Constitutions of the Islamic Republic of Pakistan.

37. In Annexure-I to the said circular namely BCD Circular No.13 there were three basic forms of transaction that were allowed viz. the first being, 'Financing by Lending'. From the title, it is clear that though, otherwise in the usual parlance 'financing' and 'lending' would have in fact meant the same, but when 'financing' is used with 'lending' saying; that there is lending, it would mean that there is a 'loan' given to finance some person. The word 'finance' will have to be given a separate meaning and is to be treated to be 'lending' simplicitor. 'Lendings' are loans i.e. the delivery of the money to another person. The money, therefore, being a 'debt' created by way of lending. In such a situation the question that will arise is that, whether such debt created by lending could attract a levy of further sums on elapse of time for repayment, as would be done under the normal banking system on any money lent which would carry interest. Under this circular there is a categorical stipulation, that, where there is a 'lending' the 'debt' so created by giving 'money' to another person or financing to other person by way of lending, such would not carry any interest or mark-up. It is, therefore, provided in sub-clause (i) of clause (A) to Annexure-I that such 'loans' shall not carry interest or mark-up. The banks were only allowed to recover 'Service Charges' which were not to exceed the proportionate costs of operation. The important aspect that needs to be noted in the first permissible mode, is the use of the words 'excluding cost of funds and provision of bad and doubtful debts. This phrase needs to be explained. The Shariat Appellate Bench of the Supreme Court in the case of Dr. M. Aslam Khaki has held, that money is not the commodity and in fact, is only a medium of exchange'. It has also been held, that in view of it being the medium of exchange and cannot be treated as a commodity wherefore it cannot be traded. It can only be used for the purposes, it is for, namely the exchange for commodity. The value of the money cannot change, that is, if a currency note is for Rs.100 it can only be exchanged with a hundred rupees or for various notes of the value of the Rs.100, but no addition can be made thereto. Such medium of exchange can get the commodity of the value of Rs.100 but, the money cannot be traded. It will be important to note that in the modern world, money is obtained from various sources, which involve cost. If such cost is taken into account, and if that money which is lent, the usual course would have been that the bankers would have charged interest, which would carry his own spread alongwith the cost of funding and provision of bad and doubtful debt, to arrive at a rate of interest that, till such time the money is repaid, the debtor shall continue to pay an additional sum for utilising the money. Such has been categorically restricted by the said BCD Circular No. 13 in Annexure-I. The said judgment of Dr. M. Aslam Khaki only reaffirms the same and categorically states that nothing can be added for the purposes of utilisation of 'money'. Notwithstanding what has been stated- by the Hon'ble Supreme Court, even if BCD Circular No.13 is, therefore, seen, it is clear that by inclusion of this particular phrase, the banks are prohibited to charge except for the service charges, any other amount on a debt, to the extent that the cost of obtaining funds by the lending agency and provision by such lender of his bad debt and charging interest has categorically been done away with. The service charges are only the cost of the actual banks operation and the maximum of which was to be determined by the State Bank of Pakistan from time to time. This shows the importance that has been attached to the fact that no 'increase' or 'addition' by elapse of time could be made on a 'debt' or 'loan', 'i.e. 'on money lent'.

38. The other manner of loans allowed is the 'finance by the lending' as 'Qard-i-Hasana' which is a loan given on compassionate ground, free from 'interest', 'mark-up' or 'service charges' and repayable, 'if' and 'when' the borrower is able to pay, I am not aware whether this has even been acted upon.

39. The next mode of financing that has been dealt with in Circular No. 13 is the 'Trade Related Modes of Financing', which type is in fact, the basic earner for banks. Various modes have been provided, one of which is, purchase of goods by banks and their sale to the clients at an appropriate mark-up in price for deferred payment and which is the most utilised manner of 'financing'. We need to analyse this aspect also. It is important to first note that the term 'loan' or 'lending' is missing and it is 'financing' that is being used. The absence of the term 'lending' has to be given a meaning. As discussed above, there was 'Financing by Lending', is a 'loan' of money, which may be repayable at a certain time. 'Financing' is not 'lending'. It is a form of a business activity, which has been termed in the title as 'Trading'. Thus, the finance is earned by trading, and cannot be termed as a 'Loan' of money. The permissible mode allows the purchase of 'goods' or various commodities by banks. The purchase of goods has to be given a proper meaning. Purchase will never mean purchase of 'money'. As discussed, this would amount to 'lending money', which is not allowed by the said BCD Circular and even if allowed, no addition can be made to it. It is the 'goods' or 'commodity' that have to be purchased. 'Money' is neither 'goods' nor 'commodity'. It is, therefore, a categorical stipulation in sub-clause (i) of Clause (B) of Annexure-I. The banks are allowed to, sell goods that are required by their clients. It is the 'sale price' of these 'goods' that shall be the financing. I have already discussed that there is 'financing by lending' and this mode is the other mode i.e. financing by sale or 'Bai'. Therefore, money or the 'sale price' fixed and agreed between the 'Seller' and the 'Buyer' is what is payable for the goods purchased. There could be various types of purchase, however, the most common being, that the client of the bank sells 'goods' to the bank for a value or the 'purchase price', which is the amount that is actually ,paid by the bank to the customer. The customer simultaneously agrees to repurchase the same goods for a 'marked-up price', which is the agreed 'sale price' or the 'repurchase price'. Thus, the purchase and sale is by the same person (though some writers say that this would also amount to 'Riba', but the law for the time being in force, permits such sale and purchase), the money i.e. 'the sale price' or the 'repurchase price' is payable on deferred payment basis. It is categorically provided in the said Circular, that in case of default there shall be no mark-up on mark-up. Thus, delay in payment will under no circumstances cause any addition of any sums. This is because of -the categorical fact that the 'repurchase price' becomes a 'loan' or 'debt' and nothing could be added thereon. We now also analyse this clause keeping in view judgment in Dr. M. Aslam Khaki's case, In the order of the Court it is observed that 'the Holy Quran says: 'and if he (the debtor) is poor he must be given respite till he is well-of (2:2801. It is further held in the order, that if the purchase delays the payment despite his ability to pay, he may be subjected to different punishment, but it cannot be taken to be a source of further return to the seller on per cent, per annum basis as contemplated in section 79 of Negotiable Instrument Act. The permissible mode of financing by sale and purchase, therefore, could not carry any mark-up on mark-up and that, such was also not allowed in the event of default. Thus, the comparison of the Circular and the judgment of the Supreme Court has the same end result.

40. The sale price of the goods purchased by the client from the bank will, therefore, be a determined price namely, a price on which certain profits by way of addition of mark-up would also be included. Such price could be arrived at, as also observed by the Supreme Court in the aforestated case on any sums that may be agreed between the parties, but after the purchase price has been agreed to between the bank and the customer such amount will only become a 'debt' and would, therefore, be nothing but 'lending'. The transaction of sale and purchase is complete, and the bank becomes an 'unpaid seller', i.e. is only liable to be paid the repurchase price or the amount of 'debt' created by the sale by the bank to the customer. The payment to be made is at a date in the future. Such will only be a 'loan' of 'debt' repayable at a future date. If payment is not made on that future date, it is the money due that is recoverable only and per the said Circular, no mark-up on mark-up or addition thereto can be made. After it becomes 'loan', such amount will be dealt with in the manner as provided in Clause A of Annexure-I and would, therefore, only become loan payable by the purchaser to the bank. Such loan will not carry any interest or mark-up. Only services charges, therefore, could be recovered. The usual method being applied by the bank for the purposes of recovery of this interest, is the indirect mode and method. What is being done is, that another 'agreement' is entered into under Clause (B)(i) and the said 'loan' or 'debt' recoverable is translated into the said agreement as the 'purchase price' of the goods and commodity. On this purchase price is added a mark-up in the agreement which will, therefore, become the 'sale price' or 'repurchase price' i.e. sale by the customer to the bank and an addition of further mark-up is made to the said existing sale price to arrive at a further marked up price. In the subsequent agreement there is no transaction of sale or purchase of goods but a fictitious act is done where b notional nods are transacted and not detailed in the agreement and a sale and purchase price is agreed upon. This is nothing but a fraud on the Constitution, the law and the people of this country. It is a mockery of Islam and the Islamic Modes of Transaction approved by law. In the case of Mian Muhammad Nawaz Sharif v. The President of Pakistan PLD 1993 SC 473, it has been held that, 'what cannot be done directly cannot be done indirectly'. This is also a very well-settled law, that no one can be allowed to circumvent the law, no one can be allowed to act otherwise than what is provided. It is also settled law, that if a U thing has to be -done in a specific manner, it has to be done in that manner alone and none else. No one can be allowed in the name of their own profitability to cause the existing law to be bypassed, avoided or interpretted, or usage or customs to be developed which are contrary to an existing unequivocal and exact law. BCD Circular No.13 is very categorical. It clearly states that no mark-up on mark-up shall be charged. There is not ambiguity surrounding this issue. In the garb of the other agreement such will not be allowed to be taken. Mr. Azizur Rehman has referred to the following cases:-- (i) Unreported judgment being Spl. H.C.A. No.187 of 1998, M/s. Hardware Manufacturing Corporation (Pvt.) Limited and 5 others v. United Bank Limited, (ii) Banque Indosuez v. Banking Tribunal for Sindh and Balochistan and others 1994 CLC 2272. In which according to him, the two Division Benches of this Court have held that 'roll over' being a 'custom' and 'old practice' can be allowed. According to him and that has been discussed above, this Court shall be bound by the judgment pronounced by the Division Bench: No doubt, all judgments that are not distinguishable do bind on any other Court which may be subordinate to it. I, sitting in the original side as a single Judge will be bound by the judgment of Divisional Bench. I have, therefore, perused the said judgment in some detail. The principle expounded by my brothers is not incorrect. The facts of the said case are, however, distinguishable from the present case and I say this with all respect and humility at my command. Iris apparent that all the facts, details and law were also not discussed by the Hon'ble Judges of the Division Bench. The case of Mehmoodur Rehman Faisal (supra) was also not considered which was a judgment of Federal Shariat Bench and binding on the Court. The Hon'ble Judges of the Federal Shariat Appellate Bench in the aforestated judgment which was the judgment of the Full Bench held that: 'in view of the above discussion, the rule of Maslaah cannot be invoked in aid to permissibility of 'bank interest'. It was also held that: "

153. For consideration of the other point, whether an increase to offset the depreciation in the value of currency can be justified. and considered as an alternate and substitute for interest, in the eye of Shari'ah, we may quote first from the well-known works of Economics as to the theory of inflation and indexation, purely from economic point of view and then we would examine the same on the anvil of the Quran and Sunnah. 154. 'Inflation is a persistent tendency for the prices of most of the goods and services of rise over time. Inflation has been a world wide problem throughout, much of the 20th century. Nonetheless, inflation has proved to be extremely difficult for economists to define or to distinguish from related problems." The learned Judges after having discussed the various possible reasons for rise in the price, including inflation and keeping in view the indexation have come to the conclusion that all increase in any manner whatsoever is Riba. It was held that:-- "

169. Guided by the Hadith the Fiqaha have opined that in case dirhams or dinars are lent out by counting, they will be paid back by counting not, by weight. Similarly in case these are lent out by weight they will be returned by weight not by counting. In respect of the loan of a commodity it is further provided by the Fuqaha that it should be returned in the same kind and quantity irrespective of any change in its price at the time of return of the loan."

41. Once it is held that loan of a commodity has to be returned in the same kind and quantity irrespective of any changes in its price, the concept of 'roll over' will also have changed. I am, therefore, of the view that the concept of 'roll over' though, dominant and an easy method of earning money, had actually been done away with, by the introduction of BCD Circular No.13 providing that no mark-up on mark could be charged. The argument that mark-up on mark-up would actually mean that no mark-up could be charged on the mark-up levied on the principal amount in the first instance has been made, it has been argued that the words 'mark-up on mark-up' will only be read as if there shall not be charged any further sum on the mark-up that was added to the first agreement for the purposes of arriving at a repurchase price, but it could be charged on the actual purchase price namely, the purchase of the goods from customers. I am afraid, I shall also not subscribe with this view. The position is very clear that the mark-up is charged for the purposes of arriving at a repurchase price arid as discussed above, the said mark-up is merged and becomes a part of the debt. Such amount cannot be dealt with separately as, the entire amount will form a debt and it is this debt that shall be payable by the borrower. The practice of keeping mark-up in a separate account and principal on the separate account and charging mark-up on the principal and not the mark-up is not contemplated by the said notification namely BCD Circular No.

13. Once the principal debt is determined as discussed above, the debt becomes a finance V by lending and no mark-up, by whatever name called, can be charged. If one were to presume that such mark-up on the mark-up could not be charged, but could be charged on the principal money lent, the outcome would in fact be the same. All payments made would be, (in fact are) adjusted towards mark up and then mark-up would be charged on the principal. This will be purposively avoiding the law. Interest has been defined as an increase on money by elapse of time i.e. that a sum that is continued to be paid till such W time the debt remains in place at a certain rate and for utilisation of the monies that may have been given to another person. In the instant case also the arguments, therefore, that mark-up on the principal can be charged also held no ground. The charge of mark-up on mark-up will mean an addition in the existing marked-up price, Mark-up is charged only for the purposes of arriving at a price sale of a commodity, and the addition to arrive at a price is the profit in trade and which is the only amount a bank can gain. There would be no commodity to sell after the agreement of sale has been acted upon. The bank, as aforestated shall only be an unpaid seller. In the subsequent agreement it will only be the money (the debt) that is being resold and which cannot be done. In fact, if the said subsequent agreements are read, it will be clear that the said agreements are in fact sale and purchase of goods' and not of 'money', but there are no goods', and is a garb to overcome and avoid an existing law.

42. Great emphasis has been placed on the fact that, in the event an order is passed, that all monies that have been charged under the various financing given by the banks to the customers are stated to be unlawfully done, the banks shall collapse. This may be true but, the question of charging mark-up on mark-up is not one which is new. I have discussed above, that this was being in light and was/had been taken up and discussed at some length from 1962. Presuming that the bankers did not know of such also and presuming that they had acted bona fide in entering into subsequent agreements and presuming that they were under a bona fide belief that mark -up on mark-up was only the charge on the mark-up and could be added to the principal by subsequent agreement. They will, however, have to consider that the matter had been taken immediately thereafter and the first judgment of this Court that was in place was the case of Bank of Oman Limited v. East Trading Company PLD 1987 Karachi

404. In this case, it was held that the Courts in Pakistan are bound by the Constitution and any law repugnant to the Constitution is void. It was further held that the principle and the provisions of the Objective Resolution by virtue of Article 2A are now a part of the Constitution and justiceable subject, however, to limitation imposed by Articles 203-A, B(c), 203-D, 203-G and 203-GG of the Constitution whereby special and specific jurisdiction has been conferred on the Federal Shariat Court to declare the law as defined by Article 203-B(c) read with Article 203-G or any provision thereof as repugnant to the injunctions of Islam laid down in the Holy Quran and Sunnah of the Holy .Prophet (p.b.u.h.) and that the said law and any provision thereof so declared by it. In another case of Habib Bank Limited v. Muhammad Hussain reported as PLD 1987 Karachi 612 whilst dealing with the provision of the Banking Companies (Recovery of Loans) Ordinance, 1979 i.e. before the issuance of BCD Circulars Nos. 13 and 32, it was held that, such interest cannot be awarded but, because of binding view in the case reported as Muhammad Bachal Memon v. Government of Sindh PLD 1987 Karachi 296 interest was allowed.

43. In the case of Aijaz Haroon v. Inam Durrani PLD 1989 Karachi 304 the entire position was again discussed agreeing with the position of Dr. Justice Tanzil-ur-Rehman, J. in the above referred cases:-- I am of the view that all laws whether they be Constitutional or sub-Constitutional must yield to the Sovereignty of Allah as reflected in the Holy Quran and Sunnah and if there be a clear commanding that behalf it is that command alone which has to be given effect to and all other legislation applicable in this Islamic Republic of Pakistan must be construed as subordinated thereto. Sovereignty over the entire universe vesting, as it does, in Almighty Allah, is the cornerstone of the Constitutional edifice of this Republic and the Injunctions of Islam, meaning thereby Injunctions of Quran and Sunnah, as interpreted by a particular sect in Islam in relation to the personal law of that sect and subject to the status and personal laws of non-Muslims, are enforceable, as such." In this case it was also held that: "The Law of Allah does not brook injustice of any kind and, therefore, whenever a case for payment, for refund or return of money, comes before a Court of law in Pakistan it has to be the endeavour of that Court to order the payment, refund or return, as the case may be, of so much of current legal tender to the person entitled as is equal, in terms of buying power or other intrinsic value, to the amount initially, loaned out contracted to be paid or deposited. " However, Mr. Wajihuddin Ahmed, J. held that as the legal tender had lost value, the amount to be paid would be calculated based on the depreciation of the value of the Rupee as compared with a basket of foreign currencies. It was further observed: "

63. This brings me to the crucial question as to how equity is to be done between the parties. For obvious reasons no rule of thumb is available to determine the extent of erosion, which the principal sum due, and earlier decreed in this case, has suffered till the date of payment, if any, or the decree. Such matter, as a rule involves application of detailed accounting procedures, based on official data on the subject. Simple decree on the basis of the afore-quoted statistics may not do. The case, therefore, in principle, calls for a Preliminary Decree, if one can be passed under law. This, however, does not imply that where smaller amounts or periods are involved a given case cannot be disposed of on approximations.

64. The relevant provision regarding Final and Preliminary Decrees is contained in section 2(2) of the Code of Civil Procedure, 1908, which provision defines such decrees. It is true that there are specific provisions for Preliminary Decrees to Order XX, Rules 12 to 16 and 18 and in Order. XXXIV, Rules 2 to 5 and 7 to 8, C. P.C., but the same, in my view contain only examples in which Preliminary Decrees may be passed and such Decrees can be passed, wherever the requirements of a case so dictate, under section. 2(2), C.P.C., which is the basic provision in the Code in that behalf. I am fortified in this view by the decisions in Dattatraya Purshotam Parnekar and others v. Radhabai Balkrishna AIR 1921 Bom. 220, (Raja) Peary Mohan Mookerjee v. Manohar Mookerjee AIR 1924 Cal. 160 and a Travancore Full Bench decision reported in AIR 1953 T.C. 220.

65. I would, therefore, grant in this case to the plaintiff a decree of a preliminary nature for assessment as to what was the equivalent real worth of the money which was initially borrowed that is to say of the sum of Rs.5,00,000 as payable on 20-5-1984, the amount and date reflected, as they are in the Promissory Note in suit. For this purpose and in order to make accurate assessment I would appoint a Commissioner to do the needful and for that purpose the Commissioner would be entitled to seek assistance from the relevant functionaries of the State Bank of Pakistan. Mr. A.K.M. Idris, Advocate, of this Court is appointed such Commissioner and his fees, tentatively, shall be Rs.5,000, which would be included in the Bill of Cots. The Commission shall be returnable within three months from the date this Preliminary Decree is transmitted to the learned Commissioner."

44. Subsequently, however, a Division Bench of this Court, one of the member of which was Mr. Wajihuddin Ahmad, J. in the case of Habib Bank Limited v. M/s Farooq Comport Fertilizer Corporation Limited and 4 others 1993 MLD-1571 held that:-- "Word 'finance', within the meanings of section 2(e) of the Banking Tribunals Ordinance, 1984 does not invovle any equivalent of interest and by its own force does not carry returns beyond the stipulated period unless emanating in due course of law or expressly covenanted, again within the framework of law. In the relevant agreement, envisaging sale and purchase of goods, no such term (finance) nor perhaps a term to that effect could be improvised, the reason being that such an improvisation may have exposed itself as a degenerative, relegating the transaction to one, carrying interest, Patently, a provision for sale/ and repurchase of the goods within period specified (Bai Muajjal), culminating on repurchase, was calculated to advance the concept of trade and to forestall the extension of interest. Such agreements were to be construed in the light of Islamic Fiqh. The enforcement of Shariah Act, 1991, lends support to such observations because that legislation declares the Quran and Sunnah as the Supreme Law of the land and, if more than one interpretations be possible, enjoins upon all Courts to interpret statute-law in a manner consistent with Islamic principles and jurisprudence. Relevant to the present case trade and commerce is to be encouraged and Riba, correspondingly, eliminated. Banking Tribunal, thus, acted in accordance with law and within the parameters of the agreed stipulations, when it disallowed any mark- up beyond the period of the contract, extending it only for the cushion period of specified days, which covered the period between demand and default as well as period likely to be consumed in the institution and conclusion of proceedings for recovery. "

45. The next question that has been raised is that BCD Circular No.32 does not strike down BCD Circular No.13. This was never the case of any other person. However, Mr. Azizur Rehman tried to distinguish the two whereby, he states that Circular 32 relates to charges by the bank. He states that the said circular speaks of charges and that, therefore, there is no nexus between BCD Circular No.13 and BCD Circular

32. He states, that it is stated therein that interest shall not be charged on bank charges. I do not agree with the proposition of Mr. Azizur Rehman. A careful perusal of the said circular shows that it is in addition and furtherance to BCD Circular No. 13, dated 20th June, 1984. There is a clear stipulation in the preamble to BCD Circular No.32, that "Please refer to BCD Circular No. 13, dated the 20th June, 1984." The only thing that it changes is in clause (3) of Circular 13 which gives the date of 1st April, 1985 to be a cut-off date for financing to individual whereas such date had been modified to 1st of January, 1985 in para. 4 clause (4) of the Circular No.32. The power has been exercised by the State Bank of Pakistan under the Banking Companies Ordinance, 1962 stating that, from the 1st of January, 1985 interest wherever is charged by a banking company/Development Financial Institutions in any of the item of the bank charges would be replaced by non-interest mode considering to be proper. It is this, 'bank charges' that Mr. Azizur Rehman contends is to be 'other charges'. The entire clause has to be read for the purposes of understanding the provision. The bank charges has been used in conjunction with replacement of an interest free mode, here the bank charges would imply, all amounts charged to the account which also included interest. It is, thus, that the subsequent portion of the said notification says, that overdue or penal interest or mark-up on mark-up shall not be charged by a banking company as from that date instead the bank shall take legal steps to recovery the finance. There are two implications of this notification, first being that of mark-up on mark-up and interest in any form charged by a banking company shall cease from the 1st January, 1985, the cut-off date. Secondly, that no future mark-up on mark-up would be charged. The effect of this is that, where a default has been made, the bank was required to take legal steps. A co-relation has been developed between not charging mark-up and proceeding to recover money instead. Therefore, there was no question of renewal of a debt by addition of mark-up. It is important, therefore, to note that the State Bank of Pakistan has taken a categorical view in this regard and which is in fact a correct issue, that the banks in financing and where debt is created, cannot take any additional amount on such debt. In taking additional amount it shall be deemed to be Riba which is prohibited. It is, thus, that the State Bank of Pakistan instructed to the banks to institute proceeding for recovery. If the banks choose to give additional time then, it will do so without charging any amounts. The law when promulgated was very clear. Mr. Azizur Rehman says if this Court were to take a view that all mark-up on mark-up charged from the first day has been unlawfully done, it shall be detrimental to the banks. No doubt, such difficulty may arise, but then once the banks are required to act in accordance with law, specially when the change of law is so great that the entire system has been modified and that, numerous discussions had been taken place which included banks to arrive at the notification issued it will not lie in their mouth to say that they were unaware of the correct prospect of the law. Even if they were not aware from 1987 onwards the Court had otherwise held that such transactions to be unlawful. The banks should have been taken cognizance of the judgments. Mr. Azizur Rehman has referred to the SBP Circular No. BID(Gen)2470/ 601-04-90 and said that BID Circular No.3, dated 20-2-1989 regarding Prudential Regulations for loan classification etc. was taken into account and that in connection with .treatment that was to be given to rescheduled loans and capitalization of mark-up, the State Bank had given guidelines. Instead in the guidelines the mark-up on mark-up, according to him were required to be capitalized and such is provided according to him in section 6.2.4 of the rescheduling and restructuring debts. Mr. Azizur Rehman has, however, chosen not to read the first paragraph of the said guidelines. The entire regulation has to be read to understand the import of the regulation. It reads as under:-- "6.1 The, bank's borrowers may, at times, face financial distress due to a number of reasons. This, in turn, may lead to a situation where they are unable to service their debt obligations as they fall due. In instances of this manner, the Bank may, at its sole discretion, decide to offer financial reprieve to such customers, with the sole aim of safeguarding its (the Bank's) own best interests. After evaluation of available options, it may be decided to grant reprieve in the form of rescheduling or restructuring of the financial obligations of customers. One of the prime considerations should be that:-- 'The discounted expected monetary value (EMV is the amount of cash flow times its estimated probability) of inflows accruing to the Bank, in the event that financial reprieve is granted, significantly exceeds the net (i.e. net of legal and other expenses) present value of cash flow arising from liquidation of available securities. The reprieve (or accommodation) referred to, hereinabove, may involve modification of the terms of the loan by: Extending/amending the repayment schedule Reducing the rate of mark-up Reduction the amount of accrued mark-up and/or principal Extending further credit And/or settlement of part of debt outstanding by foreclosing on or transferring certain assets to the Bank. Normally such accommodation/deprieve would be considered (by the Bank), if the borrower and/or sponsors offer additional security, thereby strengthening the Bank's position."

46. It will be seen from these guidelines that the banks were allowed to reschedule or restructure of financial obligations and the method was given i.e. extending or amending the repayment schedule reducing the rate of mark-up reducing the amount of agreed mark-up and/or principal and extending the correct facility. Nowhere in the said circular has it been stated that an additional mark-up could be charged on a debt for extending the time for payment. It is the mark-up that has already been charged for the purposes of arriving at a marked-up price which was allowed to be capitalized. Capitalization only brings it in the line of the accounting system. Such was advised to the banks only for their accounting purposes and nothing else. This circular has been issued by the Central Directorate and relates only for the purposes of classification of account else, if it is not allowed to be capitalized a provision will be required to be made by the bank, that tray cause further loss to the banks. In the same guidelines, the restructured loan has been defined as under:-- "2.1 A 'restructured' loan is one whose terms and conditions of loan have been modified, principally because of a deterioration in the borrower's financial condition, to provide for a reduction in interest rate or principal or a capitalization of interest accrued. 2.2 A 'rescheduled' loan in which effective interest rate terms remain unchanged from original terms, but principal repayment terms have been extended because of project delays, is not considered a 'restructured' loan, as loan as interest continues to be serviced on time." '

47. A careful analysis of this will also show that it provides a reduction in rate or capitalization in the interest accrued. Accrual of interest is in relation to the agreement entered into and nothing can be read beyond such position. A perusal of clause (2.3) will show that a troubled debt restructure has also been defined and various situations have beer: catered for. In this also, there is no increase in the sums. Reliance therefore by Mr. Azizur Rehman on this aspect will be a farce. Had the State Bank not intended and the Government not wanting to proceed under the Islamic System of Banking, the choice was open. If they had opted to proceed, they cannot be allowed to beat about the bush. Reliance, therefore, on the said regulation of the State Bank is not only incorrect but seeking an interpretation which otherwise is not available. Mr. Azizur Rehman also refers to BPRD Circular No.9, dated 27th April, 2000 namely the Prudential Regulations. He has referred to clause (3) of the same stating that the rescheduling/restructuring of non-performing loans shall not change the status of classification of a loan/advance etc. unless the terms and conditions of rescheduling/restructuring are fully met for a period of at least one year (excluding grace period, if any) from the date of such rescheduling or restructuring. This is only in respect of placing a defaulter on the list of CIB and is nothing to do with the increase or decrease modes. Mr. Azizur Rehman has placed reliance on the case of Hardware Manufacturing Corporation (Pvt.) Limited v. United Bank Limited in the Special High Court Appeal No. 187 of 1998 in which it has been held that:-- "By execution of the finance agreement dated 30-6-1994 original appellant's liability on the basis of original contract/agreement was extinguished and the same was substituted by another finance agreement/contract through the valid documents wherein the appellants acknowledged the stated sum therefore under the new finance agreement the appellants would be liable under the law of contract. Reference may be made to Abdul Qayoom v. Ziaul Haq and another PLD 1962 (W.P.) Karachi 334 and Gauri Dutt Ganesh Lall Firm v. Madho Prassd and others AIR 1943 P.O. 147),"

48. This position has been discussed by me above, in which I had said that this judgment is distinguishable from the present case. The facts of the case no doubt relate to a 'roll over' of the facility but there is no discussion as to whether the said agreements were in respect of sale and purchase of commodity and if it were whether such subsequent agreements carried a clause of such extension. Mr. Azizur Rehman referred to the discussion in the said judgment stating that where the arguments were that roll over was in practice on interest base banking and prohibited by BCD Circular 13, dated 20-6-1984 issued by the State Bank of Pakistan, the Court had held that the parties having agreed or entered into an agreement, the terms of the subsequent agreement will be applicable notwithstanding the fact that it was a roll over and roll over in fact, is an accepted custom.

49. In another unreported case which has been cited by him is in the Special High Court Appeals Nos. 186 and 187 of 1998, Mr. Azizur Rehman stated that the same position was taken up and the Division Bench of this Court and had decided the matter that the old method of roll over was in practice and, therefore, allowed. I am otherwise bound by the judgment of the Federal Shariat Court as also the Appellate Bench of the Supreme Court notwithstanding the distinction that I have drawn, and, therefore, hold otherwise. In this I may refer to a judgment of a division Bench of the Lahore High Court being United Bank Limited v. Ch. Ghulam Hussain 1998 CLC 816 where it has been held that:-- "Significantly, the statement of account filed by the appellant does not show any disbursement, whatsoever, under these two agreements which have to be treated a void, being without consideration. The supporting material of these agreements i.e., D.P.C. Notes etc. (pages 483, 485, 487 and 489) also suffer from the same fatal defect and cannot be looked into for holding that respondents Nos. 1 and 2 had incurred any financial liability thereunder. We hold accordingly."

50. Mr. Azizur Rehman has referred to a judgment in the case of United Bank Limited v. Central Cotton Mills Limited 2001 MLD 78 where according to him, the said judgment allowed the interest. Mr. Azizur Rehman probably has not understood the import of the said judgment. The import of the said judgment is that all transactions that were entered into prior to the first day of January, 1985 were required to be converted into Islamic mode of financing as such, the same was allowed. Mr. Azizur Rehman has referred to the discussion on the subject where Mr. Mushtaq Ahmed Memon, J. (as he then was) had stated that the renewal of loans subsequently also cannot attract the applicability of the above referred circular issued by the State Bank of Pakistan since renewal merely amounts to extension and the continuation in force of the earlier agreement. No doubt such could be correct. This does not say 'increase in the quantum of loan', but is an extension in the time for payment of the initial agreement. He also places reliance on this judgment to say that BCD Circular No.32 does not strike done BCD Circular No.13. Mr. Azizur Rehman should have read the last portion of that notification where Mr. Mushtaq Ahmed Memon, J. (as he then was) has held that "in the circumstances, the contention to the effect that the fixed loan was granted on mark-up basis does not inspire confidence." Likewise the assertion that the interest based facility could not be continued or renewed after BCD Circular No.13, is equally without force. True, that the interest based facility could be renewed and such is provided in Circular 13 but this judgment does not say that an amount could be added, to the said debt that is, due and payable. The contention, therefore, also does not have any force. In fact the same learned Judge in an Order passed in Suit No. 1659 of 1999 observed:-- "Having considered the submissions of the learned counsel, I cannot resist expressing doubt about the validity of the fresh agreement between the parties as is asserted by the learned counsel for defendant on the basis of correspondence- Even if the parties had settled fresh terms in novation of agreement dated 23-5-1996, the same appear, tentatively speaking, to be violative of the Quranic Injunctions restraining a creditor from taking advantage of a debtor to make repayment within the agreed time.

51. Mr. Azizur Rehman has referred to the novation of the contract. The contract stands novated according to him after a new contract has been entered into. There is no cavil to this proposition, but to the present case this is not what is being sought. What actually has been sought is that whether such an agreement-could at all be entered into and if so, whether any amount could be added. In my view it is only the extension by addition of mark-up by the bank to arrive at a restructured documents. Mr. Azizur Rehman has relied on the judgment of Bank Indosuez v. Banking Tribunal for Sindh and Balochistan and others reported in 1994 CLC 2272 and states that when there is a novated contract, that contract has to be looked into as a fresh contract to determine whether the same was in conformity with the definition as given under section 2(c) of the Banking Tribunal Ordinance, 1984. He refers to the following passage of the said judgment:-- "...A fresh agreement was entered into by a document whereby the defendant acknowledged that a sum of Rs.10,000 was due from him to the said firm which formed the consideration of the agreement entered into between him and the plaintiff. It was held by a Division Bench of this Court that under the new agreement the liability of the defendant under the original contract was completely extinguished and there was a fresh contract substituting the old contract by introducing new business and it was in the nature of novtion of a contract within the meaning of section 62 of the Contract Act. In S. Sibtain Fazli v. Star Film Distributors PLD 1964 SC 337 the above principle was re-affirmed by Hamoodur Rehman, J. In the following words:-- 'It is an essential element of novation, when new contracting parties are substituted, that the rights and obligations of original contractors shall be extinguished and the right and the liabilities of new contracting parties accepted in its place'." He states that the old contract by introducing the new agreement was in the nature of novation of contract within the meaning of section 62 of the Contract Act. There is no cavil to this well-established principle but the question that has to be looked into, is whether any act has been done by the bank whereby, an existing law has been avoided. Where the rights of parties have altered, and a valid contract alters rights of a previous agreement, the arguments would have been valid. This is not the case here. Subsequent agreements do not change the previous agreements. There is no mentions or reference o" previous agreements. The only document shown is a Sanction Advice, which is an internal document of the bank. The document could be seen only to what was approved by the bank. The agreement overrides all arrangements. The sanction advice, in the presence of the agreement, viz-a-viz the customer cannot be construed to be adverse disadvantage to the customer. The agreement is the document signed by both, the contents of which have to be seen. The question whether where a law categorically disallows mark-up on mark-up, can an agreement cause it to be charged, or could any act be done by the parties to the agreement by which mark-up is added, or mark-up on mark-up is included to a marked-up price. If not, could this agreement be a valid contract. Mr. Azizur Rehman has referred to the Prudential Regulation in Regulation No. XVI prohibits window dressing which reads as under:- "Regulation-XVI Window Dressing

1. All banks are directed to refrain from adopting any measures or practices whereby they would either artificially or temporarily show an ostensibly improved position of banks accounts as given in their Balance Sheets and Profit and Loss Accounts specially in relation to its deposits and profit. Particular care shall be taken in showing inter-branch and inter-bank counts accurate and strictly according to their true nature."

52. A careful perusal will show that the banks have been restrained from adopting any measures or practice whereby they, either artificially or temporarily show an ostensibly improved position of the bank account. The addition of mark-up is added towards the assets of the bank which gives an ostensibly improved position of the bank accounts which cannot be allowed. Otherwise also, it is established principle of law that what cannot be done directly cannot be done indirectly. It is also a very established principle of law that any contract which is of such a nature that, if permitted it would defeat the provisions of any law, or which is contrary to public policy is a void agreement.

53. It will thus, have to be seen as to what provisions of law would be defeated if such an agreement is entered into. The law in the notification by way of circulars, being, BCD Circulars Nos.13 and 32 issued in 1984. The Circulars have been discussed above. Suffice to mention that the agreement which seeks to add and cause an additional amount to be paid in respect of some previous agreement is nothing but a manner to avoid the restrictions imposed by BCD Circulars Nos. 13 and

32. It is clear that no mark-up on the marked price could be charged on the said agreement entered into initially. If it could be, the banks could have utilised the provisions of section 79 of the Negotiable Instruments Act. The same has since 1985 never been invoked. The new documents approved and utilized by the bank, utilize the D.P. Note where no rate of mark-up is mentioned. It is only the repurchase price that is stated. The new subsequent agreement is nothing but to avoid the restriction imposed by law. The other question which needs to be elaborated is the validity of subsequent contracts that have been entered into where the actual sale has not been made. I shall discuss this subsequently herein.

54. The other question is as to what is the 'public policy', and such will have to be looked into. The Constitution of the Islamic Republic of Pakistan is the basic document on the touched stone of which all laws have to be looked into. The Preamble of the Constitution where under "the principles of democracy, freedom, equality, tolerance and social justice as enunciated by Islam shall be fully observed." Article 2 states that Islam shall be State Religion of the Pakistan. Article 2A incorporates Objectives Resolution as reproduced in the annex to the Constitution. Article. 38 also clearly stipulates that the State shall eliminate Riba as early as possible and Article 227 clearly states that the existing laws have to bring in conformity with the Injunction of Islam as laid down in the Quran and the Sunnah. In view of the provisions of the Constitution in fact, even prior to this, right from the days when this country achieved independence that it was clear that all laws were liable to be promulgated which were and ought to have been in accordance with the Holy Quran and the Sunnah. I have already dilated at length on this issue and shown the quantum of work that has been carried out for such purposes. The policy has always been that, all laws, practices and procedures would be in accordance with what is provided in the Quran and Sunnah. In fact, BCD Circular No. 13, the preamble also states that the banking system was to shift over to the Islamic modes of financing, such is the public policy. After the law has been brought in conformity with the Holy Quran and Sunnah, way and methods are being employed by the Bank to continue the previous usurious Banking Practice, despite the fact that the law has been Islamised in accordance with the Constitution of the Islamic Republic of Pakistan. Such a practice that is sought to be developed by the banks is a fraud on the Islamic provisions. No one can be allowed to play a fraud on the existing law by trying to avert the existence of such law that prescribes that mark-up on mark-up cannot be charged. The act of entering into a future transaction admittedly is in respect of renewal of financing and does not contain any aspect of actual disbursement or payment. Such contracts are contracts that are against the public policy.

55. When one is talking of novation of contract it will be seen as to what is the aim for novating the same. The position will have to be seen in its true, proper and correct perspective. The agreement for financing ac is termed by the banks is nothing but an agreement of sale and purchase of tangible properties, goods or commodities. Once the goods are purchased by the bank, the bank makes a payment for the purchase of the goods which according to the agreement is termed as the 'sale price'. The goods are thereafter sold to the customer and such sale is the resale/repurchase on a marked-up price. There are, therefore, two distinct transactions under the said single agreement. The first being the purchase by the bank for consideration. It is at this juncture that the 'sale price' is disbursed to the seller namely, the customer. This is the amount that the bank say is the 'finance' or the amount to be paid to the customer. The second is in respect of resale by the Bank to the customer but such is the actual Murabaha transaction/Bai Muajjal. Thus, before entering into this transaction, the bank has to be the owner of the goods/property being sold to the customer. It is thus, the first transaction that is entered into. After sale to the Bank, and the bank paying the sale price being the 'consideration' of purchase by them of a defined good/property/commodity, they can by the 'Bai Muajjal' transfer that title to the customer, that they have acquired by purchase of the said property. It is a well-established principle of law that no one can transfer a title, better that what he has. Thus, the sale is concluded between the bank and the customer upon such purchase price as may be agreed, the repurchase price. It is this price, which is liable to be paid by the customer on deferred payment. After the second transaction, i.e. the sale by the bank to the customer is concluded, the contract of sale and purchase is finalised, the bank becomes an unpaid seller whereby the purchaser is liable to pay the repurchase price This the purchaser (customer) is indebted to the bank for the repurchase price payable within the period prescribed. Thus, repurchase price becomes the debt. Thus, the only thing required under the said agreement is recovery of debt, the goods having been sold and consumed by the customer. Such is the loan or debt. Therefore, a clear distinction between the agreement entered into and the debt paid or payable therefore, is to be looked into. Once the debt has been determined the contractual obligation under the agreement is concluded and it is the debt now that becomes payable. The amount will be the liability of the customer and such cannot be increased by addition of any mark-up A perusal of section 23 of the Contract Act categorically states that consideration or object of an agreement is lawful unless it is of such a nature that if permitted, would defeat to provision of-any law. A subsequent agreement whereby, there is a settlement of previous debt or is renewal thereof shall in fact amount to defeating the provision of the specific law available. Such will riot be novation but an independent agreement contemplating an actual sale and purchase. Such an agreement entered into only for renewing the previous debt shall be a void agreement. The position in law is absolutely clear. I had also referred to the clear instructions of the State Bank in 'Regulation XVI above. Such renewal. will only be Window Dressing and that all profits shown will be nothing but,' added mark-up. Mark-up cannot be allowed to be added on an 'existing debt', as there can be no agreement between the parties in respect of that 'specific debt' except that there could be enlargement of time, and that too without increase in the debt payable.

56. The subsequent agreement technically would have no nexus with the previous agreement in which a debt had been created. It is a fresh agreement. An agreement by which fresh commodities, goods or articles are to be sold or purchased, therefore, when goods are sold under the fresh contract there shall be consideration by actual and physical payment in the statement of account and not merely adjustment stating that an amount is due and therefore, the bankers can exercise lien. A lien can only be exercised on a credit in the account of the bank to set off a liability and not by additional credit to set off to the previous debt. A debit will not be a credit of the customer and where it is not a credit of the customer, section 171 of the Contract Act shall not apply. Section 171 clearly stipulates that a banker in the absence of a contract shall have right to retain a security for such balance goods (bailed to them). A loan or finance or debt given to a customer shall not be an amount or goods bailed to the banking company as such, no right can be claimed.

57. The subsequent agreement does not have any stipulation that there could be a set off by a subsequent finance. Even if it were there, the question would be that such an amount could be where a mark up has been added thereon for the purposes of adjustment of marked-up price. I am of the considered view that such cannot be done. The argument, therefore, that the subsequent agreement is a novation and that once a contract is novated the previous contract cannot be' looked into is not correct in the present scenario.

58. If it is presumed for the sake of argument that the last agreement that had been entered into is the agreement on the basis of which the amount due is payable by the defendants/customers then we will have to look into the contract itself. Admittedly, the contract is one of sale and purchase of commodities. In the circumstances it shall be governed by the Sales of Good Act, 1930. Sale is defined in section 4 which reads as under:-- "

4. Sale and agreement to sell.

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the-contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. " It will be seen that a distinction is created in 'Sale' and 'Agreement of Sale'. A contract of sale is, where the seller transfers or agrees to transfer the property in the goods for a price and such could be absolute or conditional, Subsection (4) of section 4 of the Sales of Goods Act above states that the 'Agreement of Sale' becomes a 'Sale' when the time elapses or conditions are fulfilled subject to which the property in the goods has to be transferred. It clearly implies that there has to be conclusion as to the transfer of property in the goods which is the principal element of sale. This Act also came under scrutiny by the Shariat Appellate Bench of the Supreme Court in the case of Islamic Republic of Pakistan v. Public at Large (supra) and in the judgment in the case of Federation of Pakistan v. Awamunnas 1988 SCMR 2041 that, a contract of 'Sale' or 'Ijarah' of a commodity shall only be valid where the 'commodity' is in existence and that there has to be a transfer of such property. Whilst dealing with the concept of 'agreement of sale' it was stated that where the goods did not exist, the Islamic Injunctions do nor recognise such agreement. Sale cannot take place, but an Agreement of Sale can be entered into and this agreement is not a complete 'Sale' of 'Goods'. The sale will only accrue when the commodity is transferred to the purchaser or consideration thereof has been paid. From the principle laid down we see that the agreement which is a subsequent one does not have the ingredients of a sale and at best be treated an 'Agreement to Sell'. Such agreement can possibly be specifically enforced whereby the purchaser may seek direction against the seller upon payment of actual consideration to sell his property, but if such is not done the purchase price/repurchase price mentioned in the said agreement will not be taken to be a debt payable by the purchaser. If money has actually been transferred or handed over to him there are only two possibilities, one is the transfer of the property for which money had been given, or the return of the money that had been given to him. The customer will, therefore, only be liable to the extent that was actually paid to him. If there was damage caused due to the refusal to sell the commodity if there was one then such shall be required to be proved. The judgment of the Supreme Court was delivered m 1988 has also been reaffirmed in the judgment of Dr. M. Adam Khaki. I am also of the same view and either where the resultant would be that it is the principal amount that was actually paid would become due but where there is a sale, the sale price has been transmitted and are sale is made, the resale price will be payable by the defendants to the plaintiff. It is well-settled principle of law that parties cannot contract out of the provisions of the Act. See in the case of Woman Shriniwas Kini v. Ratilal Bhagwandas & Co. AIR 1959 SC 689 it has been held that an agreement to waive an illegality is void on the ground of public policy. Similar views have been taken in the case of Anayat Ali Shah v. Anwar Hussain 1995 MLD 1714.

59. We now come to another question, i.e. whether an agreement without consideration is a valid agreement. Section 25 of Contract Act reads as under:-- "

25. An agreement made without consideration is void unless:-- (1) it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other, or unless (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do, or unless (3) it is a promise made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases such an agreement is a contract. " The subsequent agreements of finance are not covered by the exception to the general principle, that an agreement without consideration is void. Section 24 of the Contract Act reads as under:-- "

24. If any part of a single consideration for one or more, objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void." It will be seen that if any part of a single consideration is unlawful the agreement is void.

60. I have discussed the unlawful act. Thus, the agreements made subsequently with an aim to avoid and defeat the provisions of the law of not charging mark-up on mark-up are void.

61. The question of disbursement has also been dealt with above. It was argued that there is no need of actual disbursement and that debt could be deemed to be disbursement. Reliance is placed on the Judgment of Moudood Ahmed Farooqui v. Ameen Fabrics PLD 1983 Karachi 176, in which it has been held that 'debt' means an obligation and liability to pay or return something owed by one person to another. There is no cavil to this very settled principle that a debt is liability of the person and the reliance on this judgment is not incorrect. The position is what has been stated is that such is liable to be paid to tide creditor as such a fresh loan which is given will be that of the customer and from which he clears a previous debt. One is amazed at this argument. This is nothing but a fraud on the statute. Once it is a debt in respect of one agreement it will be a debt in respect of the other agreement also and a liability, therefore, saying that from a finance obtained, it being a debt, a previous debt can be set off has no place. In the said judgment the question was in respect of the dividend declared and not paid to the shareholder, dividend declared becomes the property of the debtor. Debt does not become the property of the shareholder. In the circumstances the case is distinguishable from the present case.

62. The last point that was argued by Mr. Azizur Rehman was that the judgment in the case of Dr. M. Aslam Khaki v. Muhammad Hashim reported in PLD 2000 SC 225 is operative from 30-6-2001 and the present laws will continue to be valid till that date. There can be no cavil to the proposition that all laws that are in conflict with the Islamic provisions shall remain valid only upto 30-6-2001. BCD Circulars Nos. 13 and 32 have not been declared to be in conflict with the Islamic provisions. What has been said by the said judgment of the Hon'ble Shariat Appellate Bench of the Supreme Court of Pakistan is that all laws or part thereof that have been declared to be against the Injunctions of Islam shall be changed and modified by 30-6-2001 where after they shall become invalid and not be acted upon.

63. Further to the question that has now been raised is that the judgment of Dr. M. Aslam Khaki shall apply prospectively and not retrospectively. High Court is bound by the decision of the superior Courts under Article 189 of the Constitution of the Islamic Republic of Pakistan which reads as under:-- "189.' Decision of Supreme Court binding on other Courts. Any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other Courts in Pakistan." Thus, it is clear that the decision of the superior Courts namely the Supreme Court is binding on the High Court. In fact, the order of the Shariat Court is also, under Article 203-GG subject to Articles 203-D and 203-F binding. The judgment by the Federal Shariat Court was announced in 1992, however, such remained stayed during the period of appeal which was finally decided in 2000. The argument 'is that as the appeal had remained stayed, therefore, it is the judgment by the Supreme Court from which date, it shall be acted upon. What the learned counsel have not looked into is that there are two specific points in the said judgment, be it before the Federal Shariat Court or the Hon'ble Supreme Court. One is that reliance to the specific laws that were being discussed and admittedly, the laws of banks except section 79 of the Negotiable Instruments Act, section 25 of the Banking Companies Ordinance, Rule 9(2) and (3) of the Banking Companies Rules, section 22(1) of the State Bank Act, 1956 and section 8(2)(a) and (b) of the Banking Companies (Recovery of Loans) Ordinance, 1979 were before the Court. None of these except Banking Companies (Recovery of Loans) Ordinance, 1979 related to the charge of mark-up and mark-up on mark-up. In that law namely, the Ordinance, 1979 there was only the charge of 'interest' and was prior in date when the BCD Circulars Nos. 13 and 32 came into existence. In fact, BCD Circulars Nos. 13 and 32 changed the entire law, its perspective and modes and methods of banking converted them into trade related modes. Loans were only treated to be given without any mark-up and increase except for service charges. BCD Circular No. 13 categorically states that no mark-up on mark-up shall be charged and it is well-settled principle that nothing can be done indirectly what cannot be done directly. In this regard, Mr. Azizur Rehman had cited two latest judgments that this indirect process namely, entering into future mark-up in the case of Mst. Aisan v. Manager, Agricultural Development Bank of Pakistan, Chunian 2001 CLC 57 and Muhammad Ramzan v. Citibank N.A. 2001 CLC

158. The first one being the judgment of the learned Single Judge of the Lahore High Court and the other being a judgment of a Division Bench one of which Judge was the same as who delivered the first judgment. Both the aforesaid judgments are in fact distinguishable in that, they are dealing with section 15 of the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 which provides for mark-up on decree from the date of the institution of the debt till payment. What their lordships had observed is that the judgment of the Supreme Court in the case of Dr. M. Aslam Khaki will for that purpose act retrospectively. In fact a history of the introduction of the provisions of mark-up during the period it remained in the Court it seems would be, that such was in Court and the delay could not be ascribed to the creditor who could not be penalised because of delay of the Court. Such had not been considered by the Council of Islamic Ideology as such, it was not provided in BCD Circulars Nos.13 and 32 these provisions not being there, their lordships were absolutely, correct in holding that the provisions of section 15 in the Act, 1997 will only be applicable from the date of the judgment and not retrospectively. The difference and distinct feature in the application of the judgment of the Supreme Court to the present case is that, the said two Circulars having not been declared to be void or ultra vires they, therefore, having been held to be intra vires, will remain in force from the date they were promulgated. According to the doctrine of stare despises the precedent in the case of Dr. M. Aslam Khaki gives the authority of established law. The cases earlier decided by the High Court and upon application of the same doctrine would result into the effect that it would be presumed that the Courts gave decisions with all possible care and consideration and had not acted per incuriam. What is binding on the other Courts under the present Article 189 is the ratio of the decision of the Supreme Court and not any finding or conflict of opinion of the Court or any question which was not required to be decided in a particular case. In the present case also a similar situation has occurred whereby the decision of the Court is in respect of certain laws that have been specified and will not effect the laws that are in existence but the ratio of the decisions which is based on- the Quran and Sunnah and its application will remain binding. For the purposes of looking into as to what is the scope of the jurisdiction of the Federal Shariat Court, we need to read sub-Article (a) of Article 203-D which reads as under:-- "203-D. The Court may, either of its own motion or on the petition of a citizen of Pakistan or the Federal Government or Provincial Government, examine and decide the ~ question whether or not any law or provisions of law is repugnant to the Injunctions of Islam as laid down by the Holy Quran and Sunnah of the Holy Prophet (p.b.u.h.) (hereinafter referred to as the 'Injunctions of Islam'). Thus, the Federal Sharait Court will examine only such question of law or provisions of law that are repugnant to the injunctions of Islam. Reasoning or ratio for arriving at the same will, however, remain applicable. The banking system had been converted into Islamic form in 1985. It was not held to be against the injunctions of Islam. This Court has to only see that whether the manner in which an agreement had been entered into or otherwise is within four corners of laws laid down by the BCD Circulars Nos. 13 and

32. This Court for the purposes of looking into the law which is valid and existing shall remain bound by the ratio given in the case of Dr. M. Aslam Khaki. It shall not be that such case is being acted upon retrospectively. In the case of Sakhi Muhammad v. Capital Development Authority PLD 1991 SC 777 it was held that "decision would not have the effect of altering the law from the date of its announcement/commencement so as to render void all decisions made by the subordinate Courts or authorities made in the light of the earlier interpretation. "The position is that application of interpretation continues to be on the basis of earlier judgments which were announced as early as 1987. Dr. M. Aslam Khaki's case (supra) confirms the earlier view.

64. The position is that BCD Circulars Nos.13 and 32 are the consequences of the reports of the Council of Islamic Ideology provided for the furtherance of Islamic financing where mark-up on mark-up has been stated to be un-Islamic and usurious. Riba was disallowed and that because of such disallowance it was in the line with the arguments put forward for the purposes of Islamic financing. In fact, the judgment of the FSC as also the Hon'ble Shariat Appellate Bench of the Supreme Court of Pakistan have not in any manner held that the law as was enacted is against the injunction of Islam. What has been said is that the bankers have not acted in accordance with law in force. It has also been said that the manner in which Murabaha/Bai Muajjal transaction though lawful transaction have been misapplied by the banks. Misapplication of the law was by the banks. Even if it is held that the said judgment shall be applicable from the date provided therein, the ratio of the case for the purposes of determined and deciding cases shall be applicable on a valid and operative law from the date of the enactment. The definition shall remain applicable from the date when the law came into force. It is not a case where any law has been declared to be ultra vires. I am aware of the well-settled principle that where a law has been declared to be ultra vires, the declaration shall act prospectively and not retrospectively. This is a case where the law has been held to be valid, proper and intra vires. In such a situation where a law has been declared to be intra vires, it is only the interpretation of the specified law that has to be taken into account. It cannot be said, therefore, that this judgment will act prospectively. This judgment only acts to clarify an existing valid law. Even otherwise, this appeal is from the judgment in the case of Mehmoodur Rehman Faisal (supra). This case decided alongwith many other cases the point in issue. However, in the Supreme Court the leading case came to be the case of Dr. M. Aslam Khaki as such there the case is known by that name. The banks should have anticipated actions and should have protected themselves after the earlier judgment. Appeals may been filed, but any decision could have been forthcoming. The banks were aware of the factum from 1987 onwards when mark-up on mark-up was declared against the injunction of Islam by the High Court. Taking refuge, therefore, behind the judgment that it shall be applicable from June, 2001 is not correct. No one can be allowed to make a mockery of a legal process, the Islamisation and the provisions of the Islamic modes of transactions/financing. It seems that the law introduced in 1985 was taken by the banks as only a change in the name and as such, continued as if they were charging interest. The banks had thus made a mockery of the law by avoiding and creating legal fictions. The concept never changed. Even today during the course of arguments the question of lending on mark-up basis is being spoken. From this it is clear that even today the law is being utilised only as a garb or screen to protect themselves. Laws having been Islamised one needs to understand that they have to be interpreted and acted upon in the manner as they are. They have to be acted upon in the manner they are required to be acted upon and cannot be extended or transformed. In fact it has been observed that "the Superior Courts of Pakistan have in large number of cases applied the Islamic teachings and philosophy, when the statute law is silent about a situation, the field is unoccupied, so to say, a statutory void is to be filled, or the Court 'has discretion to follow one of the several courses, one of which is more in accord with Muslim jurisprudence. Such was held by the Hon'ble Supreme Court has held in the case of Muhammad Bashir v. The State PLD 1982 SC 139, that such a void has to be filled up by Islamic Common Practice and provisions. The banks chose otherwise. In the case of Fazal Ghafoor v. Chairman Tribunal Land Disputes 1993 SCMR 1073, it has been held "when there is a vacuum on question of law left by statutory silence, the prevailing mode having full Constitutional support, would be that of Islamic Common Law".

65. Mr. Ejaz Ahmed has also argued in detail, most of which have been dealt with and covered by the discussion above. However, the important aspect that needs to be seen is with regard to the argument that has been advanced by Mr. Ejaz Ahmed about the concept of mark-up on mark and the renewal. Mr. Ejaz states that the marked-up price is an agreed consideration and that if such price is not paid the remedy available to the bank to seek recovery. This is a correct proposition. He further says that mark-up on marked-up amounts to recovering the opportunity cost of money which is not permissible under the Islamic mode of financing. This is also correct. On the basis of this, subsequently, Mr. Ejaz Ahmed dealt with the question of renewal and distinguished the renewal by way of adjustment and continuing facility on a revolving basis. As far as the adjustment is concerned, he states that the amount of sale price is credited to the customer's account and is set off against the existing liability of the customers on account of the facility originally granted and, therefore, accounts operates on a revolving basis. As far as continuing facility, he states that the adjustment as stated above, does not take place and the account continues to operate on a revolving basis and in fact, he states that this is an established practice in the banking industry and the customer are aware of this mechanism. He states that such a mechanism is beneficial for customers and it allows to customers to withdraw the amount within the amount of facility at any time and repay the sale as and when the excess money is available to him during the currency of the facility. He states, therefore, customer benefits from the fact that the mark -up is charged only on the outstanding. He states that if the mark-up facility is strictly construed to mean that the bank is only obliged to disburse once, then according to him the finance becomes more expensive for the customers as, once the full amount of finance facility is availed the customer will be charged mark-up on the full amount. The excess liquidity of the customer will remain lying in the current account with no profit. I do not agree with this proposition. This proposition presupposes dealing in money and mark-up on the money. The concept that has been evolved is that the purchase is made by the bank and it is the sale price which is actually disbursed, the repayment is the repurchase price and it is the price that is fixed' There is no concept of addition of further sums by elapse of time. The consideration for the actual sale has to be made by the bank to the customers and has to be done so in its entirety. The customers will be in his right to withdraw the entire amount or to leave any sum in his account. He will be in his right to transfer this amount to saving account or otherwise. Money being the consideration for sale would, therefore be required to be transferred to the customer. The second portion of the agreement as discussed above, is the actual finance agreement which in fact is a Bai Muajjal. 'Bai' meaning sale and 'Muajjal meaning upon deferred payment. This Bai Muajjal or Murabaha transaction is that, the bank having purchased as resold this commodity at a higher price to the customer. At this point, the customer is not required to pay the sale consideration but what is required is to do so within the specified period at an agreed repurchase price. The consideration for the sale of the commodity by the bank to the seller cannot 'tie adjusted against this repurchase price as it is Bai Muajjal the payment is deferred. The consideration for the resale by the bank to the customer is a contract between the two and such becomes a debt. This debt is, therefore, only liable to be paid by the customer. There is therefore, no question of a revolving facility the amount that is available with the customer being the sale consideration of the sale made to the bank. This amount can be utilised at the wish and whims of the customer. I am, therefore, not convinced that the transactions as stated by Mr. Ejaz are in true spirit the financing as provided under BCD Circulars Nos. 13 and 32.

66. The next question, therefore, is whether the purchase price can be increased and which has been answered by Mr. Ejaz saying that it depends on the meaning ascribed to the word 'increase' and accordingly the increase in the purchase price has been classified as (a) where the increase is not permissible; (b) where increase has been permissible. In. the first classification he states that mark-up on overdue. installment where the finance facility is payable in installment and due dates of installments are specified in the agreement and where mark-up on overdue amounts in the cases of lump sum payment agreements no increase can be allowed. He states that, however, increase would be permissible in specific transactions namely the mark-up is to be booked by the banks on accrual basis or where there is a fresh sanction or the renewal of the working capital or where there is a restructuring or rescheduling of liability. I will also not subscribe to this view. What cannot be done directly cannot be done indirectly. It is also a well-settled principle that if a certain thing has to be done in a certain manner it has to be done in that manner and no other. I have already discussed above, that mark-up in itself is only restricted for the purposes of arriving at the repurchase price and once such is arrived at the amount of repurchase price becomes the debt, therefore, there could be no question of separation of mark-up. The mark-up has to be capitalized which is also provided in the Prudential Regulation. Unless such mark is capitalised the repurchase price cannot be determined. Thus, if the mark is capitalized and added to the principal amount (principal meaning the sale price) and having arrived at the repurchase price any increase by way of renewal, capitalisation, booking on accrual basis or by any means will be nothing but addition of mark-up on mark-up. 67 In a Hadis narrated by Abdullah Ibn Abu Qatadah reported in Book 9, Number 3795 of Sahih Muslim the following was said; "Abu Qatadah demanded (the payment of his debt) from his debtor but he disappeared; later on he found him and he said: I am hard up financially, whereupon he said: (Do you state it) by God? By God. Upon this he (Qatadah) said: I heard Allah's Messenger (p.b.u.h.) said: He who loves that Allah saves him from the torments of the Day of Resurrection should give respite to the insolvent or remit (his debt)." The concept of increase money rational to time cannot be allowed. In another Hadis narrated by Uthman ibn Affan reported in Book 8, Number 3849 of Sahih Muslim the following was said: "Allah's Messenger (p.b.u.h.) said: Do not sell a dinar for two dinars and one dirham for two dirhams." In another Hadis narrated by Abu Sa' id al-Khudi in Book 9, Number 3854 of Sahih Muslim the following was said: "Allah's Messenger (p.b.u.h.) said: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand to hand. He who made an addition to it, or asked for an addition, in fact dealt in usury. The receiver and the given are equally guilty." In another Hadis on this subject narrated by Abu Hurayrah in Book 9, Number 3856 is as follows: "Allah's Messenger (p.b.u.h.) said: Dates are to be paid for by dates, wheat by wheat, barley by barley, salt by salt, like by like, payment being made on the spot. He who made an addition or demanded an addition, in fact, dealt in usury except in case where their classes differ. This Hadith has been narrated on the authority of Fudayl ibn Ghazwan with the same chain of transmitters, but he made no mention of (payment being) made on the spot."

68. From the above, it will be clear that any increase or difference in the value thereof will be usurious and will come within the definition of 'Riba'. I am not inclined to grant such increase.

69. In view of the above, I am of the considered opinion that once the agreement has been entered into and the repurchase price determined there can be no renewals by increasing the debt. If there is- a renewal or restructuring nothing can be added to arrive at extended figure. The question that needs, therefore, to be answered is what will be the amount payable by the defendant/customer of the banks. If they have entered into a subsequent agreement or addition of mark-up thereon, I have already held that subsequent agreements are void. The bank can only seek recovery of the amounts of the marked-up price under the first agreement. However, if the bank is able to establish the fact that the amount has been actually disbursed under the subsequent agreement and it is not for the purpose of adjustment of the previous debts and that there has been a de facto sale and purchase in commodity in that situation all agreements that may have been entered into for such purposes and independent of the previous agreements can be looked into and money shall be recoverable there against. Every agreement will therefore have to be proved. For this evidence needs to be led. If the bank has chosen to extend the time for repayment of the amounts given it cannot increase the sum. Naturally if extension is given there is a consideration that he is unable to pay at that point of time. If there is delay in the repayment of the debt, the banks shall be free to proceed to recover the amount of loss caused to them by such delay. This, however, shall be required to be proved. In the case of Dr. M. Aslam Khaki the Hon'ble Shariat Appellate Bench of the Supreme Court of Pakistan has observed that:-- "...If the purchaser could not pay at the due date because of his poverty, the Quranic command is very clear that he should be given more time till he is able to pay. The Holy Quran says: And if he (the debtor) is poor, he must be given respite till he is well-off. (2:280). "However, if the purchaser has delayed the payment despite his ability to pay, he may be subjected to different punishments, but it cannot be taken to be a source of further 'return' to the seller on per cent per annum basis as contemplated in section 79. "

70. What has been stated is that agreements that have been entered into on a subsequent date will be the only agreements that can be looked into and all agreements that have concluded by elapse of time shall be deemed to be past and closed transactions. I do not agree with this view. Admittedly, the bankers have chosen to reform or rename the transactions though, it continues to emanate from one single account. If the account is the same it will be seen that the certain amount was due and payable on a certain date and remained unpaid. It is this debt that continues in the subsequent agreements. The sanction letters clearly show that they are renewal of facility and such renewal of facility by way of subsequent agreement is only a garb to get out of the legal restrictions imposed on them by BCD Circulars Nos. 13 and

32. Such cannot be allowed. A valid law being acted upon shall have to be acted in the manner as it prescribes. When it says mark-up on mark-up cannot be charged, the same cannot be charged in any form or manner whatsoever. When it says that in the event of a default being committed, recovery has to be made and no mark-up on mark-up or penalty can be charged, it specifically implies and assumes without ambiguity that no mark-up even if restructured can be allowed. It is my considered view that agreement continues to be effective for the recovery of the debt by the unpaid seller, the Bank, despite the fact that new agreement may have been entered into. The said agreements are nothing but a continuance of the first agreement and only for the purposes of enhancement and charge of mark-up by elapse of time. I am, therefore, of the view that such will not be deemed to be a past and closed transaction and shall continue till such time the payment of the debt caused by the first agreement is made over or the agreement is extinguished by being fully acted upon or that by a concluded case decided by any Court of law. All pending proceedings in respect of any finance on the basis of the 'Murabaha' or 'Bai Muajjal' shall continue to be current.

71. In view of the above, where it is clear that such is genuine and bona fide dispute, I grant leave to defend the present suit to the defendants. The defendants shall file the written statement within a period of 21 days where after evidence shall be led for the purposes of determination as above. C.M.As. 1356 and 1357 of 2000 stand disposed of accordingly. '

72. Before parting I must place my appreciation for the efforts of Mr. Muneer A. Malik, Advocate, Mr. Azizur Rehman and Mr. Ejaz Ahmed, Advocates, who appeared and placed a lot of material and presented the law due to which it had become possible for me to- decide this matter. Q.M.H./M.A.K./H-30/K Leave to defend granted.