2003 PLP 1026 (CLD)

(a) A suit under the Ordinance is maintainable against a financial institution only if it is filed by a customer to whom finance has been extended by such financial institution. (b) The defendants have not extended any finance to the plaintiff and, as such, the plaintiff is not a customer of the defendant. (c) The plaintiff is the owner of NIT Units. In such capacity, the position of the plaintiff is somewhat similar to that of an owner of a shareholder in a company. The plaintiff has no obligations to either of the defendants. As such, the suit suffers from a jurisdictional defect. The facts connected and relevant for the disposal of the above objections are that plaintiff had purchased from the defendants 25.298.610 units between the year 1989 to 1991. On 26-4-1997, the Trustees of the plaintiff resolved, inter alia, to encash the aforesaid units and reinvest the same in other Government. Securities offering a higher rate of return. Such decision was communicated to the defendant on 30-6-1997 with a request to issue pay orders of encashment of the said units. The defendant failed to encash in spite of repeated reminders on account of failure to encash, the suit for recovery was filed on 20-10-2001 a1ongwith the plaint, an application under section 24(2) of the Ordinance was also filed for condonation of delay and extension of time for the reasons stated in the application wherein such objection has been raised, which I intend to dispose of first. I have heard the learned counsel for the parties. It would be seen that the jurisdiction of Banking Court established under the Ordinance is given in subsection (4) of section 7, which reads as follows:-- (4) Subject to subsection. (5), no Court other than a Banking Court shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Banking Court extends under this Ordinance, including a decision as to the existence or otherwise of a finance and the execution of a decree passed by a Banking Court. The aforesaid provision is not comprehensive and a recourse would have to be made to the other provisions of the Ordinance in order to discover as to what is the precise jurisdiction of a Banking Court. In this respect the title of the ordinance suggests that it has been promulgated for the purpose of recovery of finance. A further indication of the jurisdiction of a Banking Court is to be found in section 9(1) of the Ordinance which provides: Procedure of Banking Courts.

(1) Where a customer or a financial institution commits a default in fulfilment of any obligation with regard to any finance, the financial institution or, as the case may be the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in, this behalf by power of attorney or otherwise. A bare reading of the above section would indicate that the jurisdiction of a Banking Court is only attracted where a customer or a banker commits a default in fulfilling, any obligation with regard, to any finance. Only then suit could be instituted in the Banking Court by presenting a plaint. So also it would be seen that the definition of the term "customer." as defined in clause 2(c) means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or any indemnifier. The definition of expression "finance" includes:-- (clause (d) of section 2) (i) an accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark down in price, hire-purchases, equity support, lease, rent-sharing licensing charge or fee of any kind, purchase and sale of any property including commodities, patents, designs, trade marks and copyrights; bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, Musharika, Morabaha, Musawama, Istisnah or Modaraba certificate, term finance certificate. Mr. Kazim Hasan, learned counsel for the defendants contended that the plaintiffs are the holder of unit certificates and maintained that no doubt the defendant is the financial institution but the certificate cannot be termed as "finance" as defined in the Ordinance. His contention was that neither unit certificate can be termed to be "finance" within the meaning of Ordinance nor the plaintiff could be termed as "customer" which are mandatory conditions to give jurisdiction to the Banking Court under section 9 of the Ordinance. His further submission was that the position of unit holder is analogous to shareholder of a company and also referred clause 26 of the Trust Deed pertaining to the meeting of shareholders to be held in accordance with the provisions contained in the First Schedule with powers exercisable by Extraordinary Resolution namely: (a) Power to sanction any modification, abrogation or compromise of the rights of the Unit Certificate Holders against the Management Company or the Trustee or into or against the deposited property or any part thereof. (b) Power to assent to any modification of the provisions contained in this deed which shall be proposed by the Management Company, and assented to by the Trustee. (c) Power (with the approval of the Management Company and the Trustee) to extend the Trust. (d) Power to determine the Trust. He 'further contended that Article 17 of the First Schedule contained an instrument or proxy, which is in the same form as are used by the Members/ Shareholders of the Company. He also referred the definition of "mutual fund" as contained in the. Black's Law Dictionary "mutual fund.

1. An instrument company that invests its shareholders money in a usu. Diversified selection of securities". Often shortened to fund.

2. Loosely, a share in such a company. He also referred Black's Law Dictionary defining the "Unit Investment Trust"

1. A trust in which funds are pooled and invested in income-producing securities. Units of the trust are sold to investors, who maintain an interest in the trust in -proportion to their investment.

2. An investment company that gives a shareholder an undivided interest in a fixed pool of securities held by the trustees. This type of' company can be organized in several ways (as by trust indenture. contract of custodianship or agency, or similar instrument), but is most commonly organized with a trust indenture. Such a company does not have a board of directors and issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities. On the basis of above definition, it has 'been contended that the plaintiff being holder of units certificate is a shareholder of undivided interest in a fixed pool of securities held 'by the Trustees, therefore, the said certificates cannot be equated with the finance to give the jurisdiction to the Banking Court. Conversely, Mr. Zahid F. Ebrahim, learned counsel for the plaintiff has taken me. through the Trust Deed, more particularly, the certificate as defined in sub -clause (g) of clause 1 means the participation certificates whether registered in the name of the Holder or Bearer to be issued by the Trustee pursuant to the provisions of this deed. In term of para. 2(b) a certificate may represent such number of Units as may be decided by the Management Company from time to time and shall bear a distinctive number. Clause 7(a) pertains to the issuance of Units by the Management Company determined by the Management Company with right to repurchase of Units in terms of clause

8. On the basis of above clauses, it has beet, contended that the certificate with right to fix the price as well as with right to repurchase would be deemed to be "finance" as defined in the Ordinance, particularly under the expression instrument with buy-back agreement, therefore, the suit under the Ordinance is maintainable. He also referred the term "finance" as defined in clause (c) of section 2 of the repealed Act, which was interpreted it, Qatar Airways PLC v. ANZ Grindlays Bank (2000 CLC 1455), that the term "finance" as defined in section 2(e) of the Act, 1997 includes all possible transactions being conducted by the commercial banks. It also includes credit cards, charge cards, guarantees, indemnities and other obligations, whether fund based or non-fund based. It also includes the phrase "any accommodation or facility extended to any person who is real beneficiary of such accommodation or facility whether it stands in the name of such person or not. It was further observed that the definition of finance is so exhaustive that it includes bank guarantees no matter in which form they are issued including performance bonds and mobilization advance bond. Mr. Zahid F. Ebrahim also referred Gharibwal Cement Ltd. v. English Leasiling Ltd. (PLD 2001 Lahore 411), wherein the term "finance" as defined in clause 2(e) of repeal Act was interpreted and it was held that finance can be provided by a Banking Court even without a disbursement of funds. Facilities for establishing Letters of Credit and all non-fund based facilities including guarantee facilities are, by definition, types of finance which come into existence without an actual disbursement of funds by a Banking Company. He also referred the terra "finance" interpreted by my learned brother Samrad Jalal Osmany in Awari, Hotels Limited and others v. Investment Corporation of Pakistan and 6 others (2000 YLR 2407), wherein the finance and loan as defined in the repeal Act was taken very wide and include not only an outright loan of money but involve numerous financial instruments as well including bills of exchange, promissory notes etc. purpose of which is to cover all possible forms of banking and financial transactions. He also referred the definition of "finance" as given in Encyclopaedia of Banking and Finance, 10th Edition by Charles, J. Woelfel, Finance, has three meanings:

1. To raise money necessary to organize, reorganize, or extend an enterprise, whether by the sale stocks, bonds, or notes or otherwise.

2. The theory and practice of monetary credit; banking and promotion operations in the most comprehensive sense. It includes money credit, banking, securities, investment, speculation, foreign exchange, promotion, reorganization, underwriting, brokerage, trusts etc. Mr. Zahid F. Ibrahim also argued that the unit certificate cannot be equated with share of company on the account of units being quoted in business page wherein the share of listed companies are being quoted for the reasons that share cannot be purchased by the company in view of bar under the provisions of section 95(1) of Companies Ordinance. Whereas the Managing Company can purchase the certificate from the holder. Secondly the price of share is being fixed by market force, whereas, the price of units is fixed by the Managing Company. On the basis of above, it has been contended by him that the "N.I.T. Certificates" falls within the category of instrument as defined in the finance, therefore, the suit is maintainable in terms of section 9 of the Ordinance. No doubt the term 'finance' has wide connotation it includes the bill of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, Musharika, Morabaha, Musawama, Istisnah or Modaraba certificate, term finance certificate. To attract the jurisdiction of the Banking Court under section 9(4) of the Ordinance there may be a default in fulfilment of any obligation with regard to any finance between a customer and financial institution. In the instant case, the defendant is a financial institution. The plaintiff cannot be a customer, as defined in clause (e) of section 2 of the Ordinance. The plaintiff being holder of units certificate becomes sharer in the trust in which funds are pooled and interest in income producing securities. The position of the plaintiff thus is of an investor. The fixation of price and right to purchase the unit certificates will not bring the unit certificates as finance as defined in the Ordinance. It will remain an investment, analogous to the 'share'. For foregoing reasons the suit is not a suit in terms of section 9 of the Ordinance as neither exists any relationship of "customer" and "banker" between the parties and nor there exist any default with regard to any finance obtained by the plaintiff as a consequence of such relationship. I am therefore of the view that suit shall proceed on the original side of this Court. The office, to treat the suit as ordinary suit and be dealt with accordingly. S.A.K./K-71/K Order accordingly.