2001 PLP 1549 (YLR)

55. Islamic Financial System employs the concept of participation in the enterprise, utilising the funds at risk on a profit and loss sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic Financial Institutions. It is possible, that investment in Islamic financial institutions can provide potential profit in proportion to the risk assumed to satisfy the differing demands of participants in the contemporary environment and within the guidelines of the Shariah. The concept of profit and loss sharing, as a basis of financial transactions is a progressive one as it distinguishes good performance from the bad and the mediocre. This concept, therefore, encourages better resource management. Islamic Banks are structured to retain a clearly differentiated status between share-holder's capital and client's deposits' in order to ensure correct profit sharing according to Islamic Law.

56. Ar-Riba consists of several types of transactions which have been forbidden by Allah. Dealing in Riba is one of the greatest sins a Muslim can commit. The greatest sin according to Imam Malik. All forms of Riba fall into two basic categories. A. Riba An-Nasee'a. This is the most pervasive and well-?known. It includes several kinds of transactions. The "classic" one which was described by the Companions of the Prophet (s.a.s.) was where someone owes another money for whatever reason (purchase, loan, etc.) which is due at a certain time. When the time comes, the creditor would say to the debtor: "a taqdhee am turbee?" (Will you Day up or accent an increase?). It seems that there was no fixed rate set at the beginning of the transaction, rather it was set by "custom" and expectations and what the creditor felt he could demand from the creditor who was unable to pay. In this way, the original debt could easily expand to many times its original size. Allah said: {Ya ayyuhaa alladhina aamanoo la ta'kuloo ar-riba adh'aafan mudhaa'afatan wa ittaqoo Allaha la'allakum tuflihoon.} {O you who believe do not consume interest doubling and multiplying and beware of Allah that perhaps you may succeed.} Aal-'Imraan: 130 The question of Exchange of currency for currency or food for food with one side being delayed is explained by the following hadith which explains this and several other issues: "Gold for gold either ore or pure, silver for silver either ore or pure, wheat for wheat measure for measure, barley for barley measure for measure, dates for dates measure for measure, salt for salt measure for measure whoever increases or seeks an increase has committed Riba. There is nothing wrong with selling gold for silver and the silver is more as long as it is hand to hand as for deferred payment, no. And there is nothing wrong with selling wheat for barley and the barley is more as long as it is hand to hand, as for deferred payment, no. 'In another version, he (s.a.s.) said:' When the items are different in those categories, then sell, however, you wish as long as it is hand to hand. Abu Daud and both narrations are Sahih. Two sales in a sale. The Prophet (s.a.s) forbade a transaction which was 'two sales in a sale'. This means that at the time of the sale, the two parties agree to different prices corresponding to different times of payment. For example: 90 days like cash but after that, the price goes up by 1% for every month of delay. This transaction is illegal and if a Muslim has engaged in such a transaction before knowing, they only have a right to the least of the prices. 'Whoever transacted two sales in a sale has a right only to the lesser of the two or he commits Riba'." A loan which benefits the lender. As we saw in the first point, money cannot be exchanged for money with a delay no matter what the values. There is no "business" transaction where money is given and returned later. A "loan" is NOT a business transaction, but is a form of "Sadapa" or charitable transaction and the money returned must be the same as the money given. "The Prophet (s.a.s.) forbid "kulla qardhin yajurru manfa'atan" --any loan which returns a benefit (i.e. to the lender). B.???????? Riba Al-Fadhl. It is forbidden in Islam to exchange currency for currency unless it is done real time -- i.e., no currency "futures" market. It is also forbidden to exchange food items for the same kind of food unless is both real time and in equal measure. It is forbidden to exchange food items for other food items unless it is real time. Obviously measures do not have to be the same. Exchange of items in different categories, e.g., food for money, money for goods, etc. can be done in any quantities per the rule of supply and demand and with or without delay of one of the two sides of the transaction. This category of Riba is explained in the Sahih Hadith from Abi Daud above. We should note that Islam forbids Ihtikaar (monopoly) in foodstuffs and all necessities. In this case, the ruler has the right to interfere with the normal functioning of the "market" (supply and demand) in order to protect the peoples' necessities of life. A monopoly in other necessities say for example diamonds is of no consequence and the ruler is not allowed to interfere with the market. No dealing in these interest transactions of any kind is allowed. The Prophet (s.a.s.) has invoked Allah's "la'na" upon five individuals for a single transaction: the payer of interest, the receiver of interest, the scribe (probably computer programmer in our day) who records it and the two witnesses. The word "la'na", usually translated as "curse" is much more than that. It means distance, i.e. that Allah will put you at great distance from Him on Qiyama. Similarly, Allah said about those who consume people's property with falsehood that He will neither look at them, speak to them nor cleanse them on that day. This is the most severe punishment from Allah and those subjected to it will wish they could be punished by Allah in his fire rather than to be ignored and put away from Him. Also, as Allah said in Sura Taha: (And whoever turns away from my reminder will surely have a miserable life and we will resurrect him blind. He will say: Lord! Why have you resurrected me blind though I used to see? He said: Likewise my signs came to me and you neglected them and in the same way you, on this day, are neglected). Riba may appear to be in increase and a benefit, but it will never bring any benefit and will only bring those who deal in it the wrath of Allah, a declaration of war from Him and His punishment in the Hereafter. Allah said:-- (And whatever interest transactions you have made that they may grow in other people's wealth will not grow with Allah. And whatever zakat you have given desiring only Allah's countenance, these surely are the ones whose returns are multiplied). Ar-Rum:39 Riba is one of the seven mubiqaat (sources of ruination) which the Prophet (s.a.s.) told us about in the Hadith: "Stay far away from the seven destroyers." They said: O Allah's Messenger, what are they? He said: "Associating partners with Allah, sorcery, killing the one protected by Allah except by right, consuming riba, consuming the wealth of orphans, fleeing from battle and slandering chaste and innocent believing women." Muslim Bukhari and others. And never forget the "la'na" of Allah invoked by the Prophet (s.a.s.) on the five parties involved in any riba transaction. "The Prophet (s.a.s.) invoked la'na on the receiver of interest, the payer of interest, the scribe and the two witnesses. And he said: "They are the same." Muslim Some people are under the misconception that only high rates of interest are prohibited and that low rates are permissible. This delusion comes from misunderstanding the verse of the Qur'an, (translated), "O you who believe! Do not consume riba, increased manifold." [Qur'an, 3:130] This verse, however, does not mean that if the increase is small it is permissible; it is merely describing the common or usual state of affairs. Interest, as a rule, will be increased and compounded several times, as the debtor repeatedly fails to pay up. This is similar to the statements, "Do not sell My signs for a small price," meaning' at any price, for any price is too small to sell the signs of Allah for; and "Do not kill your children out of fear of poverty," which clearly cannot be taken to mean that it is permissible to kill them for any reason besides fear of poverty. Further confirmation that all interest is prohibited is in another verse of the Qur'an. "But, if you repent [from ribal then for you is your princi2al." [Qur'an, 2:279] So, those who repent may keep only their principal (i.e. the initial amount loaned), and not even one penny or 1% more. Aside from all of this, "little" and "much" are subjective. What one person regards as "a little" interest may be considered "a. lot" by someone else. So, the truth of the matter is that a small amount of interest is prohibited just as is a large amount. Similarly, the hadith literature confirms this understanding: "If a man extends a loan to someone, he should not accept a gift." [Bukhari] Abu Burdah ibn Abi Musa said, "I came to Medina and met 'Abdullah Ibn Salam, who said, 'You now live in a country where riba is rampant. Hence, if anyone owes you something and presents you with a loan of hay, or a load of barley, or a rope of straw; do not accept ii, for it is riba. " [Bukhari] The unbelievers made a very similar claim. They said, "Trade is just like riba." However, this is an absurd analogy. It is like saying that there is nothing wrong with prostitution, because it is the use of the body to earn money, just like any other kind of work. Moreover, the claim that it is beneficial is invalid. In reality, it brings only a limited, temporal, material benefit to only a certain category of people. On the larger scale, it harms the debtor, especially in the case of his business running into loss. It restricts the wealth among the wealthy and impedes its free circulation. It can lead to inflation and other economic woes. It is selfish and unfair. The Prophet (p.b.u.h.) said in the Farewell Pilgrimage, "Every riba of Jahilivvah is abolished under these feet of mine, and the first riba I abolish is that of 'Abbas." It was around this time that Allah revealed the verse, (translated) "This day have I perfected for you your religion, completed My favour upon you and chosen Islam for you as your religion." [al-Ma'idah] The religion was completed and all the regulations (including riba) had been legislated by that time. But, this was not the last revelation. A few 'days after that, approximately nine days before the Prophet (p.b.u.h.) left this world, some further verses were sent down. "O you who believe! Fear Allah, and give up whatever remains of Riba. If Indeed You Are Believers. {my emphasis} And, if you do not do [so], then receive news of a war from Allah and His Messenger. [On the Day of Judgement, the consumer of riba will be given weapons and asked to prepare for war with Allah and whoever has Allah as an adversary shall surely be overcome]. But, if you repent, then for you is your principal; do not wrong [by taking interest], and you will not be wronged [by deprivation of the principal]. And, if [the debtor] is in dire circumstances, then [give him] reprieve until ease. And, it would be better for you that you [remit the debt as] charity, if only you knew. And, fear a day in which you will be returned to Allah. Then, every soul shall be paid for what it has earned, and they will not be wronged." [Qur'an, 2:278-281] (my emphasis). This is something for us to ponder over. The last revelation of the Qur'an -- at almost the last possible time for revelation is on riba. This must be to reiterate its severity and to issue a dire warning to us against it. Not even the dhimmis (non Muslim citizens) are allowed to deal in riba in the Islamic State. The Prophet (p.b.u.h.) wrote to the Christians of Najran,' The person amongst you who deals in interest is not under our protection.' [Kanz al-Ummal]. "On the night I was transported (i.e. the night of Isra and Mi'raj), I was brought to a people whose stomachs were [large] like houses, with snakes inside them which were visible from outside their bellies. I said, 'Who are these, O Gabriel?' He said, 'Consumers of riba,' "[Ibn Abi Hatim, Ahmad] (part of a long Hadith of a dream) ...then we came to a river," I (the narrator) think he said: red like blood, "and there in the river was a swimming man, and on the bank of the river was a man who had collected a lot of stones by him. The swimmer would try to emerge [from the river], whereupon the one who had gathered the stones would throw a stone into his mouth [forcing him back in]. "The Prophet (p.b.u.h.) conveyed that the swimmer was the consumer of riba. [Bukhari] "Allah has cursed the consumer of riba, the one who gives it for consumption, the two witnesses [to the contract] of [riba], and the scribe thereof. "[Ahmad, Abu Ya'la, Ibn Khuzaymah, Ibn Hibban; Muslim, Nasa'i, Abu Dawud, Tirmidhi, Ibn Majah; Bukhari]. "On account of the wrong doing/oppression of the Jews, We made prohibited for them good/wholesome things which had been lawful for them and [this was also] for their abundant hindering from the path of Allah, their taking riba although they had been prohibited from it, and their wrongfully consuming the property of people." [Surah al-Nisa'] "The nation amongst whom adultery and interest become common definitely bring the punishment of Allah upon themselves." [Abu Ya'la] According to a narration with Ahmad, interest brings upon drought. "By He in Whose control is my life! Some people of thy Ummah will spend the night in the state of pride, haughtiness, play and amusement and in the morning, they will be disfigured as apes and swine, because they made the unlawful law?ful, kept (employed) singing girls, drank liquor, consumed interest and wore silk clothes." ['Abdullah Ibn Ahmad] (emphasis is mine). "When you trade in al-'eenah [a round-about transaction intended to circumvent riba, but ending in the same result. A man would buy an article from a needy person at a low price, stipulating that he should buy it back at a future date for a higher price], take hold of the ears of cows, become contented with agriculture and abandon Jihad, Allah will impose upon you a humiliation which he will not remove until you return to your religion." [Ahmad] It should be quite clear by now that the interest obtained nowadays from banks and the like is Haram without any doubt. The three councils of jurists that meet regularly to discuss contemporary issues, have all declared, with a unanimity of all of their members, that this interest is prohibited by the texts of the Qur'an and Sunnah (i.e. it is not merely a matter of Ijtihad), and that it is the very riba which Allah and His Messenger have prohibited. One of the former Shaykhs of al-Azhar (ra Himah Allah) observed, 'This has become a matter which is necessarily known to be part of the religion, and so it drowers above any disagreement.' "So, whoever receives an admonition from his Lord, then for him is what has passed and his matter is with Allah. But, (as for) whoever returns (to dealing in interest, even after learning of its prohibition and after" hearing the serious and dire warnings against it) -- they are the inmates of the Fire; they shall abide therein.' 'Say: O My servants who have committed excesses against their own-selves! Do not despair of the mercy of Allah! Indeed, Allah forgives all sins. Indeed, He is the Most Forgiving, the Most Merciful'." If you have been guilty of consuming riba, then you should repent to Allah sincerely. You should feel regret over your sin, cease it immediately, and resolve never to return to it again. The interest which you have from the past must be disposed of. You cannot keep it, for it is Haram money. [Qur'an, 2:279]. You may not destroy it, because the Messenger of Allah (may Allah bless him and grant him peace) forbade the destruction of money [Muwatta']. Nor should you give it back to the Bank, for that would only strengthen it and further the institution of riba. Hence, you should give it away for general projects of good, but with the intention of getting rid of Haram money, not with the intention of charity.

57. Having discussed the concept of 'Riba' existent from the earlier days of Islam distorted by the western banking system, I shall proceed to discuss the various aspects that have been stated and detailed in the said judgment of Dr. Mehmood-ur-Rehman Faisal (supra). It is important to narrate some facts which will show that not only the bankers but the entire country as also the international banks remained involved in the. transformation and to say, that today, they have been taken by surprise by the judgment of Dr. M. Aslam Khaki is incorrect. Such a stand is taken for the purposes only that having done an act knowingly that the accrued mark-up became the banks profit and the same was reflected in the balance-sheet. The mark-up, thus, charged continually by elapse of time was reflected as income. This deemed income showed the huge profits of banks, which was due to the re-scheduling and roll over, where the mark-up on mark-up was charged.

58. The discussion on charge of interest/mark-up that is, in the nature of Riba has been in light all over the world in the various Islamic Fiqah Conference. In the assembly of the Islamic Fiqah of India in its seminar of the top scholars were -of the opinion that "Interest whether received on the loans for personal expenditure or on commercial and business loans, is in the eyes of Islamic Shariah, forbidden." Additionally, Islamic Fiqah Academy established at the official level by the Organisation of the Foreign Minister also considered this matter in December, 1985 and arrived at the same conclusion. In the official document of the " IMF the position of the Muslim Ummah described it as follows:-- "It seems appropriate that the beginning of the study of Islamic Banking System should be made from the definition of its basic terminology. Riba is an Islamic legal term which is tantamount to an accepted addition before the use of money. Controversy is found in the past whether Riba means interest or usury but now there is a consensus of opinion among the Muslim scholars that this technical term is applicable to every form of Interest and its corroboration is not merely excessive interest. Therefore, in the forthcoming discussions riba and interest will be used as synonyms and the Islamic Banking System will mean the system in which the payment or receipt of Interest will be prohibited, whereas an interest giving or conventional bank will mean an institution in which interest is received or given on the use of monetary fund-(International Monetary Fund Staff papers, Vol. XXXIII No. 1 March, 1986. 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 doubts 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 is 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)."

59. 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-Barka 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.

60. 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 re?produce 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:-- ???? 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 I. This shift will take place according to the following programme. (i) As from the 1st July, 1984, all banking companies will be free to make finance available in any of the modes of financing listed in Annexure I. 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 I. (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, (SIBGHATULLAII) Director" 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 re-payable if and when the borrower is able to pay. (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 opera-?????????????????????????????????????????? Mark-up in price. ??????????? tions of the Federal ??????????? and?????? Provincial ??????????? Governments??? and ??????????? their agencies. (b)??????? Export Bills pur-?????????????????????????????????????????????? (i) Exchange Rate chased/negotiated???????????????????????????????????????????? differential in the under Letters of??????????????????????????????????????????????? case of foreign ??????????? Credit (other than???????????????????????????????????????????? currency bills. Those under???????????????????????????????????????????????????? (ii) Commission or reserve).?????????????????????????????????????????????????????????? mark-down in the case of Rupee bills. ??????????????????????? (c)??????? Documentary??????????????????????????????????????????????????? Mark-down in ??????????? Inland Bills drawn???????????????????????????????????????????? price ??????????? against Letters of ??????????? Credit purchased/ ??????????? discounted. (d)??????? Import? Bills drawn?????????????????????????????????????????? Mark-up in price. ??????????? under Letters of ??????????? Credit. (e)??????? Financing of????????????????????????????????????????????????????? Service charge/ ??????????? exports under the????????????????????????????????????????????? Concessional ??????????? State Bank's Export????????????????????????????????????????? Service charge. ??????????? Finance Scheme ??????????? And The Scheme ??????????? For Financing ??????????? Locally Manufac? ??????????? tured Machinery. (f)???????? Other items of trade????????????????????????????????????????? Fixed investment. ??????????? and commerce.???????????????????????????????????? Equity?? partici? ??????????????????????? pation, P.T.Cs., ??????????????????????? Leasing or hire? ??????????????????????? purchase. ??????????????????????? Working Capital ??????????????????????? Profit and loss ??????????????????????? sharing or mark? ??????????????????????? up. Equity partici?pation, ?P.T.Cs., Modaraba Certi?ficates, leasing, Hire-purchase or mark-up. ??????????? Profit and loss sharing or mark- up. (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. (i)???????? Tubewells and???????????????????????????????????? Leasing or hire? other wells.?????????????????? ??????????????????????????????????? purchase. In ??????????????????????????????????? addition to ??????????????????????????????????? ownership of ??????????????????????????????????? machinery, banks ??????????????????????? may create ??????????????????????????????????? charge on the ??????????????????????????????????? land in? their ??????????????????????????????????? favour as in the ??????????????????????????????????? case of other loan ??????????????????????????????????? to the farmers ??????????????????????????????????? under the Pass? ??????????????????????????????????? book System. (ii) ?????? Tractors, traitors?????????????????????????????????????????????? Hire-purchase or and other farm????????????????????????????????????????????????? leasing. Machinery and transport (including fishing boats, solar energy plants etc.) (iii)?????? Plough-cattle,????????????????????????????????????????????????? Mark-up. Mitch Cattle and other livestock. (iv) ????? Fairy and Poultry.???????????????????????????????????????????? PLS/mark-up/ ??????????? hire-purchase/ ??????????? leasing. (v)??????? Storage and other???????????????????????????????????????????? Leasing or rent ??????????? farm construction????????????????????????????????????????????? sharing basis with ??????????? (viz. Sheds for????????????????????????????????????????????????? flexible weight? ??????????? animals, fencing???????????????????????????????????? age to the bank's ??????????? etc.)???????????????????????????????????????????????????????????????? funds. (vi)?????? Land Development.????????????????????????????????????????? Development ??????????????????????? charge. (vii)????? Orchards, including????????????????????????????????????????? Mark-up, de? ??????????? nurseries.????????????????????????????????????????????????????????? velopment charge ??????????????????????????????????????????????????????????????????????? or PLS basis. (viii) Forestry.?????????????????????????????????????????????????????????????? Mark-up, de? ??????????????????????? velopment charge??????????? ??????????? or PLS. (ix) Watercourse.????????????????????????????????????????????????????????? Development ??????????? charge And the other being BCD Circular No.32 dated 26-11-1984 which reads as under:-- 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 insti?tution 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"

61. 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.

62. It cannot by any stretch of imagination be presumed that the meaning of the words 'interest', 'mark-up' or ' Riba' 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.

63. 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 re-payment, 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 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-1. 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'.

64. 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 re?payable, 'if' and 'when' the borrower is able to pay, I am not aware whether this has even been acted upon.

65. 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 re-payable 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 re?purchase the same goods for a 'marked-up price', which is the agreed 'sale price' or the 're-purchase 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 're-purchase 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 're-purchase 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 Qur'an says: 'and if he (the debtor) is poor he must be given respite till he is well-off' (2:280). 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 Instruments Acts. 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.

66. 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 re-purchase 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' or 'debt' re-payable 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 're?purchase 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, whereby notional Foods 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 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 interpreted, 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 Corpora?tion (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. It is 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 Qur'an 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."

67. 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 shall 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 re?purchase 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 re?purchase price and 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 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 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 re-sold 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.

68. 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 Qur'an 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.

69. 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 Qur'an 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 Qur'an 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 aforequoted 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 in 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) Peaty Mohan Mookerjee v. Manohar Mookedee 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 Costs. The Commission shall be returnable within three months from the date this Preliminary Decree is transmitted to the learned Commissioner. "

70. Subsequently, however, a Division Bench of this Court, one of the members of which was Mr. Wajihuddin Ahmad, J. in the case of Habib Bank Limited v. Messrs 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 involve 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 re-purchase of the goods within period specified (Bai Muajjal), culminating on re?-purchase, 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 Qur'an 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."

71. 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 No. 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 S.B.P. 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 re-scheduled 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 re-scheduling and re-structuring 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 re-scheduling or re?structuring 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 re-payment 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."

72. It will be seen from these guidelines that the banks were allowed to re-schedule or restructure of financial obligations and the method was given i.e. extending or amending the re-payment 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 may cause further loss to the banks. In the same guidelines, the re-structured loan has been defined as under:-- "2.1 A 're-structured' 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 're-scheduled' loan in which effective interest rate terms remain unchanged from original terms, but principal re-payment terms have been extended because of project delays, is not considered a 're?structured' loan, as loan as interest continues to be serviced on time."

73. 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 re-structure has also been defined and various situations have been 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 re-scheduling/re-structuring of non?performing loans shall not change the status of classification of a loan/advance etc. unless the terms and conditions of re-scheduling/re?structuring are fully met for a period of at least one year (excluding grace period, if any) from the date of such re-scheduling or re?structuring. 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)."

74. 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.

75. 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 tire 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."

76. 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 were Mr. Mushtaque 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. Mushtaque 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 innovation of agreement dated 23-5-1996, the same appear, tentatively speaking, to be violative of the Qur'anic Injunctions restraining a creditor from taking advantage of a debtor to make re?payment within the agreed time."

77. 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 in 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 re?structured document. 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 mention or reference of the 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, vis?a-vis 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 accounts accurately and strictly according to their true nature."

78. 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.

79. 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 re-purchase 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.

80. 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 touchstone of which all laws have to be looked into. The Preamble of the Constitution' whereunder "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 Annexure 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 Qur'an 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 Qur'an 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 Qur'an 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 Qur'an 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.

81. 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 up as 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 re-sale/re-purchase 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 re-purchase 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 re-purchase price. This the purchaser (customer) is indebted to the bank for the re?purchase price payable within the period prescribed. Thus, re-purchase 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 not 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.

82. 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.

83. 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 hot correct in the present scenario.

84. 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 Goods 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 die 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 not 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/re-purchase 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 in 1988 has also been reaffirmed in the judgment of Dr. M. Aslam 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 re-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.

85. 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.

86. 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.

87. 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 the 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.

88. 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 25 is operative from 30-6-2001 and1the 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 whereafter they shall become invalid and not be acted upon.

89. 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 263-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 Barking 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 descisis 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 Qur'an 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 Our'an 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.

90. 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 be 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 1.073, 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".

91. 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 re-pay 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 re-payment is the re?purchase 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 re-purchase price. The consideration for the sale of the commodity by the bank to the seller cannot be adjusted against this re-purchase 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. It is 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.

92. 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 instalment 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 re-structuring or re-scheduling 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 re-purchase price and once such is arrived at the amount of re-purchase 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 re-purchase 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 re-purchase 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.

93. In a Hadis narrated by Abdullah Ibn Abu Qatadah reported in Book 9, Number 3295 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 giver are equally guilty." In another Hadis on this subject narrated by Abu Hurrah 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. "

94. 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.

95. In view of the above, I am of the considered opinion that once the agreement has been entered into and the re-purchase price determined there can be no renewals by increasing the debt. If there is a renewal or re-structuring 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 I 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 re?payment 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 re-payment 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 Qur'anic command is very clear that he should be given more time till he is able to pay. The Holy Qur'an 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. "

96. 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 re-name 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 facilit 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 the first 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.

97. On this question of 'finance', 'accommodation' and 'obligation', I do not agree with the arguments of Mr. Azizur Rehman. The definition of 'finance' as contained in the Banking Tribunals Ordinance; 1984 categorically states that "Finance includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark-up or mark-down in price. "The word accommodation or facility has to be read in conjunction with the words "not based on interest" and in reading the fact that it is not based on interest, reference will have to be made to the provisions of BCD Circular, No. 13 issued by the State Bank of Pakistan in respect of the finances to be granted in terms of the Islamic System of Banking.

98. It will be of importance to note that the Banking Tribunals Ordinance, 19$4 was a law promulgated by the 'Parliament and the word 'finance' was defined to mean an accommodation or facility under a system not based on interest. By Ordinance LVII of 1984 the Banking Companies Ordinance, 1962 was amended and the definition of "loans advances and credits included finance and the definition as contained in the Banking Tribunals Ordinance, 1984. Thus, by incorporation the 'finance' was brought within the purview and scope of sections 24 and 25 of the Banking Companies Ordinance, 1962. In addition to the above, by the promulgation of the Ordinance LVII of 1984 being the "Banking and Financial Services (Amendment of Laws) Ordinance, 1984 many other amendments were brought about, so that the State Bank of Pakistan could enforce the Islamic System of Banking in Pakistan. In section 7 of the Ordinance of 1962, the words, "participation term certificates, term finance certificates, and such other instruments-as may be approved by the State Bank' were inserted. In section 7 a new clause (aa) was inserted, "(aa) the providing of finance as defined in the Banking Tribunals Ordinance, 1984;" It is, thus, clear from the insertion., that the Act was amended to bring in the Islamic provisions of law. The State Bank of Pakistan in terms of section 25 of the Banking Companies Ordinance, 1962 issued directions giving details as what is, 'finance in the system not based on interest'. In view of the above, under section 3-A of the Banking Companies Ordinance, 1962 and in view of Hashwani's case afore referred the provisions contained in section 25 allows the State Bank V of Pakistan to give directions to the Banking IV Companies and the non-Banking Financial Institutions (NBFIs) also to act in accordance with such directions. Such directions are binding on all the banks NBFIs. In view of the above, it is clear that the directions are as a consequence of promulgation of the Statute or an. Act of the Parliament. Otherwise also under section 25 the State Bank can give directions to the bank whenever it is satisfied that it is necessary or expedient in public interest. It has done so therefore. In fact the agreements entered into subsequently by banks are the sale and purchase of commodities. The concept is one which is contemplated by BCD Circular No.13 of 1984. The Banks can, therefore, not take a place otherwise. The State Bank have acted within their authority in issuing the said Circulars. I do not, therefore, agree with the proposition of Mr. Azizur Rehman in this respect also.

99. It has been argued with some vehemence that as the levy of interest has continued and that, if such levy that has already been made is not allowed such shall amount to in fact serious loss and prejudice to the bank. I have already said that no doubt there may be a loss, but then, the law that had been settled in fact has been that the banks were required to proceed in the manner that, V they would not charge any interest and will act in accordance with law, i.e., banking in the Islamic System of Financing.

100. In the case Zaheeruddin and others v. The State and others (1993 SCMR 1718) which appeal was dismissed by a majority view. In the majority judgment it has been observed:

"The contention, however, has not impressed as at all. The term 'positive law', according to Black's Law Dictionary, is the law actually enacted or adopted by proper authority for the Government of an organized jural society. So, that term comprises not only enacted law but also adopted law. It is to be noted that all the above-noted cases were decided prior to the induction of Article 2A in the Constitution, which reads as under:

"2-A. Objectives Resolution to form part of substantive provisions.

The principles and provisions set out in the Objectives Resolution reproduced in the Annexure are hereby made substantive part of the Constitution and shall have effect accordingly." It was for the first time in the Constitutional history of Pakistan, that the Objectives Resolution, which henceforth formed part of every Constitution as a preamble, was adopted and incorporated in the Constitution, in 1985, and made its effective part. This was an act of the adoption of a body of law by reference, which is not unknown to the lawyers. It is generally done whenever a new legal order is enforced. Here in this country, it had been done after every martial law was imposed or the Constitutional order restored after the lifting of martial law. The legislature in the British days had also adopted the Muslim and other religious and customary laws, in the same manner, and they were considered as the positive taws. This was the stage, when the chosen representatives of people, for the first time accepted the Sovereignty of Allah, as the operative part of the Constitution, to be binding on them and vowed that they will exercise only the delegated powers, within the limits fixed by Allah. The power of judicial review of the superior Courts also got enhanced. The abovementioned Constitutional change has been acknowledged and accepted as effective by the Supreme Court. Mr. Justice Nasim Hasan Shah, considering the changed authority of the representatives of the people, in the case. Pakistan v. Public of Large, (PLD 1987 SC 304 at p.356), stated as follows:-- "Accordingly unless it can be shown definitely that the body of Muslims sitting in the legislature have enacted something which is forbidden by Almighty Allah in the Holy Qur'an or by the Sunnah of the Holy Prophet (p.b.u.h.) or of some principle emanating to be un?-Islamic. " Mr. Justice Shafiur Rahman, in his judgment in the same case, also relied on the Article 2A (Objectives Resolution), in forming his view at pages 361 and 362 of the above judgment, as follows:

"The concept of delegated authority held in trust enshrined in verse 58 has invariably and consistently been given an extended meaning. Additionally all authority being delegated authority and being trust, and a sacred one for that matter, must have well-defined limits on its enjoyment or exercise. In the Holy Qur'an moreso, but also both in the Western and Eastern jurisprudence delegated authority held in trust has the following attributes:

?(i) The authority so delegated to, and held in trust by, various functionaries of the State including its Head must be exercised so as to protect, preserve, effectuate and advance the object and purpose of the trust. (ii) All authority so enjoyed must be accountable at every stage, and at all times, like that of trustee, both in hierarchical order going back to the ultimate delegator, and at the other end to the beneficiary of the trust. (iii) In discharging the trust and in exercising this delegated authority, there should not only be substantive compliance bur also procedural fairness." This aspect was made absolutely clear by the Supreme Court in Federation of Pakistan v. N.W.F.P. Government (PLD 1990 SC 1172 at page 4175) in the following words:-- "It is held and ordered that even if the required law is not enacted and/or enforced by 12th of Rabi-ul-?Awwal 1411 A.H. the said provision would nevertheless cease to have effect on 12th Rabi-ul-Awwal. In such state of vacuum, vis-a-vis, the statute law on the subject, the common Islamic law the Injunctions of Islam as contained in Qur'an and Sunnah relating to offences of Qatl and Jurh (hurt) shall be deemed to be the law on the subject. The Pakistan Penal Code and the Criminal Procedure Code shall then be applied mutatis mutandis, only as aforesaid." "It is thus clear that the Constitution has adopted the Injunctions of Islam, as contained in Qur'an and Sunnah of the Holy Prophet (p.b.u.h.) as the real and the effective law. In that view of the matter, the Injunctions of Islam as contained in Qur'an and Sunnah of the Holy Prophet (p.b.u.h.) are now the positive law. The Article 2A, made effective and operative the Sovereignty of Almighty Allah and it is because of that Article that the legal provisions and principles of law, as embodied in the Objectives Resolution, have become effective and operative. Therefore, every man-made law must now conform to the Injunctions of Islam as contained in Qur'an and Sunnah of the Holy Prophet (p.b.u.h.). Therefore, even the Fundamental Rights as given in the Constitution must not violate the norms of Islam" .

101. I am also of the same view. The BRD Circulars (supra) are also on the same term and cannot be deviated from. Interest is un-Islamic and cannot be allowed. Roll over, as discussed is also un-Islamic and cannot be allowed. The discussion in the case of Qayum Spinning (supra) is the reply the arguments of Mr. Aziz. I have given an anxious thought and re-considered my earlier view in light of the argument of Mr. Aziz, but have been unable to convince myself otherwise. I, therefore, hold that all agreements that have been entered into and not be acted upon, as he disbursements have been made, are void. No claim can be made by the banks on the basis of the said agreement. All documents, whether negotiable instruments or otherwise are as a consequence are also void. I also hold that no rollover can be allowed, and that the amount payable shall be the amount on the basis of the agreement against which disbursement has been made. The statement/Break-up of liability filed by the plaintiff is from 9-5-1993 and not from the date of the actual disbursement. I, do not find force, in the argument of the plaintiff. I find force in the arguments of the defendants.

102. Having gone through the pleadings I agree with the accounts filed by the counsel for the defendant No. I as under:-- 1.???????????????????? Amount transferred?????????????????????????????? Rs.59.83.054.00 into A/c 2164 from ??????????? I.I. Chundrigar Road To Corporate Branch ??????????? On 24-1-1989 Exh. ??????????? 6/19 2.???????????????????? Deposit made by????????????????????????????????? Rs.1,90,09,483.00 ??????????? defendants during the ??????????? Period? 24-1-1989 to ??????????? 28-11-1990 i.e. Last ??????????? Date of Operation of ??????????? A/Cs.?? Thereafter ??????????? plaintiff-Bank did not ??????????? allow any operation. 3.???????????????????? Withdrawals during?????????????????????????????? Rs.1,81,79,791.74 ??????????? the period 24-1-1989 ??????????? to 31-11-1990. 4.???????????????????? Mark-up @????????????????????????????????????????? Rs.15,72,896.18 ??????????? 0.43/1000/ Day from ??????????? 1-1-1989 to ??????????? 31-12-1990 upto the ??????????? date when operation ??????????? of Account was ??????????? frozen. 5.???????????????????? Balance of outstand-???????????????????????????? Rs.67,26,258.00 ??????????? ing N.I.F.C. A/C as ??????????? on 31-12-1990 (After ??????????? appropriating Mark? ??????????? up) 1.???????????????????? Sanctioned amount as?????????????????????????? Rs.1.5 Million ??????????? per transferred date ??????????? 25-1-1989 ??????????????????????? Annexures: "S: ??????????? (Exh.P/19) Expiry on ??????????? 31-12-1990 2.???????????????????? Actual? amount ??????????? disbursed/availed????????????????????????????????? Rs.10,99,325.00 ??????????? Evident from Exh.???????????????????????????????? Rs.2,15,297.00 ??????????? 6/20 P-131 (Inclusive?????????????????????????? Rs.13,14,622.00 ??????????? M-Up Amount) 3.???????????????????? Mark-up from 25-1-??????????????????????????? Rs.2,40,598.36 ??????????? 1989 to 31-12-1990 ??????????????????????? 0/31/1000/ Day ??????????????????????? (Sanction Rate) C. PAD/Outstanding L.Cs. ?Inclusive US Aid L.C. (i)???????????????????? L.C. Amount (Annexure F of Suit) (ii)??????????????????? Less: 10% Cash ??????????? Margin Paid Vide ??????????????????????? Cheque No.070706,??????????????????????????? Rs.35,40,000 ??????????? dated Drawn at BCCI ??????????????????????? Rs.3,55,000 (i)???????????????????? 3-4-1990 ?????????????????????????????????????????? Rs.9,19,705 (ii)??????????????????? 9-6-1990 ?????????????????????????????????????????? Rs.9,67,248 (iii)?????????????????? Subsequent payments????????????????????????? Rs.9,84,334 ??????????? Total??????????????????????????????????????????????????? Rs.32,26,287 Principal Balance Outstanding?? Rs.3,13,713 Mark-up for the purposes of Re-purchase Price: (1)??????????????????? 1st shipment@ 11% ??????????? for 18 months ??????????? i.e 8-9-1988 to 7-3-1990???????????????????? Rs.92,915.29 (2)??????????????????? 2nd shipment @ 11 %? ??????????? for 18 months i.e. ??????????? 18-11-1988 to 17-5-1990?????????????????? Rs.159,152.42 (3)??????????????????? 3rd shipment @ 11 % ??????????????????????? for 18, months ??????????? i.e. 30-11-1988 ??????????????????????? to 29-5-1990?????????????????????????????????????? Rs.273,039.51 (4)??????????????????? Subsequent interest ??????????????????????? 16:425 % from ??????????? 30-5-1990 to 31-12-1990?????????????????? Rs.187,862.41 (5) Total Mark-up ?????????????????????????????????????????????????????? Rs.712,993.00 Total Liability of A.B.C. is summarized as follows: Principal Mark-up Total NICF 51.53,363.24 15,72,896.20 67,26,259.44 NIDF 10-99-325.45 ?4,55,895.36 ?15,55,220.81 PAD 3,13,713.00 7,12,933.63 10,26,646.63 Total 65,66.401.69 ?27,41,725.19 ?93,08,125.88

103. Having agreed with the contention of the defendant No. 1, the amount admitted by them being a sum of Rs.9,308,125.88 is liable to be paid by the defendant No. 1 to the plaintiff.

104. I now come to the question whether the defendants Nos.2 to 5 are liable as guarantors. It is the case of the plaintiff that the defendants Nos.2 to 5 are guarantors. Whereas in the written statement the same has been denied that, the defendants Nos.2 to 5 never executed any guarantee as annexed with the plaint and that, the property shown to be mortgaged with the Bank belongs to the defendant No. 1 and not defendants Nos. 2 to

5. It is stated that the signatures on the guarantee are not the signatures of defendants and that no document was executed by the defendants Nos.2 to 5 by themselves or on their behalf. It is also stated that on the dates mentioned on the guarantee the defendants Nos.2 to 5 were not directors of company in 1987. There being a categorical denial, the onus lay on the plaintiffs to prove that the guarantees were signed by the defendants Nos.2 to

5. No evidence has been led by the plaintiff to prove that the signatures contained on the guarantee is, in fact, the signatures of the said defendants Nos.2 to

5. In view of the above, I hold that the defendants Nos.2 to 5 are not liable. The suit is dismissed as against the said defendants.

105. The suit is, therefore, decree against the defendant No. 1 in the sum of Rs.9,308,125.88 with costs. Suit is also decreed for sale of the mortgaged properties. The: suit is decreed with mark-up on the decretal amount at the rate of 11 % chargeable once and shall not be compounded in any manner whatsoever. Q.M.H./M.A.K./U-15/K ??????????????????????????????????????????????????????????????????? Order accordingly.