2002 PLP 495 (CLD)

(ix) He did not dispute that although the petitioner was a defaulter in clearing the outstanding of the Banks and adjustment could be made but only at the market rate, which according to him, was Rs.65 per dollar, when the two Banks made the impugned adjustments. (x) The practice up to 28th May, 1998 between the parties was that for clearing the instalments or the mark‑up, the petitioner would go to the concerned Bank with a foreign currency dealer, withdraw foreign currency from his accounts, get it encashed in the Banks simultaneously and make payment to the Banks. (xi) The two Banks were otherwise inclined to permit the petitioner to adjust the liability in the said manner and therefore, references were made to the State Bank of Pakistan which were declined vide letter dated 28‑7‑1998 impugned in this writ petition. It was further contended that after the Sate Bank of Pakistan had declined permission for withdrawal of the foreign currency, the petitioner had made a representation to the State Bank of Pakistan and the matter had not finally been decided. (xii) Since the adjustment had already been made, he will be satisfied if the two Banks are directed to make the adjustment at the market rate as prevailing on the said dates and reimburse the excess amount so adjusted, into his Foreign Currency Accounts.

10. Mr. Sher Zaman Khan, Deputy Attorney‑General and Mr. Mahmood Mirza, Advocate appeared for the State Bank of Pakistan while Mr. Raza Farooq, Advocate appeared for A.B.N. Amro and Mr. Khalid Mahmood Khan, Advocate appeared for Gulf Commercial Bank. They have raised the following contentions:‑‑ (i) Letter, dated 28‑7‑1998, through which the State Bank declined permission to the petitioners to withdraw foreign currency from his accounts, has not caused any prejudice whatsoever to the petitioner because under the agreement with the two Banks and the security documents the Foreign Currency Accounts were already collateralised and these security documents authorised the Banks to make necessary adjustment from the Foreign Currency Accounts. (ii) Directions are sought against respondents No.2 and 3 who are not persons within the contemplation of sub- Article (5) of Article 199 of the Constitution of Islamic Republic of Pakistan and thus the writ petitions are not maintainable. (iii) The Foreign Currency Accounts were opened by the petitioner in his personal name as a Pakistani without even disclosing that he was a foreign national. This is borne out from his account opening form and therefore, the concession provided under Circular No. 17 was not available to the petitioner. In any case in view of the agreements and the security documents, the petitioner, could not withdraw any amount from his Foreign Currency Accounts without setting the liabilities of the Banks. (iv) That in terms of the agreements, notices were duly issued which were received by the petitioner but he failed to clear the outstanding liabilities. Any default in the payment of one instalment or even mark‑up authorised the two Banks to make adjustments from Foreign Currency Accounts of the petitioner. (v) According to the observations of the Hon'ble Supreme Court, Circular No. 23 aforesaid did not operate so as to abrogate the contracts made by the parties. (vi) That the Banks could only make adjustment at the rate notified by the State Bank and could not make the adjustment at the market rate. (vii) References by the Banks to the State Bank for permission to the petitioner to withdraw foreign currency from his accounts, were made as a courtesy and concession to the petitioner without any obligations attached thereto or arising therefrom, but these were declined by the State Bank of Pakistan. (viii) The dispute between the parties arises out of a contract and therefore, the Constitutional petition is not maintainable. If at all the petitioner feels aggrieved of the action of the two Banks, his remedy lies elsewhere. (ix) The learned counsel for Gulf Commercial Bank invited attention of the Court to the order, dated 27‑11‑1998 passed on C.M. 1621 of 1998 in Writ Petition No. 22700 of 1998 whereby the Gulf Commercial Bank had sought to encash the foreign currency deposit of the petitioner for adjustment of petitioners outstanding liabilities. It was observed by this Court that since there was no injunctive order the Bank may proceed in the matter as per law, rules and agreement. (x) The action to make adjustments of the outstanding liability was taken under the provisions of the agreements and the security documents and not under Circular No.23. Various clauses of the said documents were referred to.

11. We have considered the submissions made by the learned counsel for the parties and have perused the record. The main thrust of the arguments of the learned counsel for the petitioner is that the Foreign Currency Accounts held by him in the two Banks were protected, Circular No. 23 has already been struck down as ultra vires of the various provisions of the Constitution, under Circular No. 17 he was entitled to withdraw foreign currency from his accounts and at best adjustments could be made at the market rate.

12. On the other hand the case of the Banks is that adjustment was not made under Circular No. 23 but it was made under the provisions of the agreements and the security documents. However, the objection raised on behalf of the Banks is that the Banks had lawfully acted in the matter and no writ could be issued to the Banks as they are not persons within the contemplation of sub‑Article (5) of Article 199 of the Constitution of Islamic Republic of Pakistan. Respondents Nos.2 and 3 are Banking Companies in private sector and cannot be said to be "persons" performing functions in connection with the affairs of the Federation or a Province. Therefore, as far as the second prayer of the writ petition that the action of the two Banks to liquidate the liability by adjusting the Foreign Currency Accounts is concerned, no direction can be issued to the aforesaid Banks.

13. As far as the letter, dated 28‑7‑1998 'of the State' Bank of Pakistan is concerned, it declined permission to the petitioner to withdraw foreign currency on the basis of section 2 of Foreign Exchange (Temporary Restrictions) Act IV of 1998), which has been upheld by the Hon'ble Supreme Court. We may add that not only section 2 of Act No. IV of 1998 placed restriction on withdrawal of the foreign currency but also under the agreements and security documents with the two Banks, the petitioner was not entitled to withdraw the foreign currency from his accounts as the same had been collateralised as security for the finance obtained by the petitioner.

14. We have however, examined the agreements and the security documents being relied upon by the Banks with references to the contentions of the learned counsel for the petitioner that within the terms of the agreements the Banks could only raise a demand for settlement of the outstanding liability and could not proceed to liquidate the Foreign Currency Accounts of the petitioner.

15. According to the agreement, dated 7‑1‑1998 with the A.B.N. Amro, the petitioner obtained a financial facility in the sum of Rs. 3,98,54,400 against which he had to pay a sum of Rs. 5,25,85,666/67 in five instalments to be paid on 31‑3‑1998, 30‑6‑1998, 30‑9‑1998, 31‑12‑1998 and 6‑1‑1999. Clause (4) of the agreement provided that if the petitioner failed to pay an instalment on the due date, he will become liable to pay liquidated damages equivalent to 20% of the defaulted instalment. This clause further provided that in case of failure of the petitioner to make payment of any instalment, the Bank shall be entitled to demand immediate payment of the entire balance which the petitioner shall pay within one working day and in case of his failure, the Bank shall be entitled to recover from the petitioner agreed compensation. However, according to the clause (8) of the agreement, in case of failure of the petitioner to pay any instalment on the due date, the Bank was entitled to immediate payment of the entire outstanding balance and to take all actions for the recovery as the Bank may, in its absolute discretion, deem appropriate. Clause (9) thereof authorised the Bank to cancel or reduce the liability under the said agreement. Clause (11) thereof under which the Bank has taken the impugned action is reproduced hereunder:‑ 'The Bank may, at its absolute discretion, transfer any amount from any account of the customer with the Bank or combine and consolidate all or any accounts of the Customer with the Bank to adjust or reduce any amount payable by the Customer to the Bank under this Agreement or on any other account."

16. It may also be noted that according to clause (10) of the agreement the petitioner, inter alia, furnished to the Bank a letter of set‑off and first charge according to which 'he agreed' that the Bank shall have a charge on the monies deposited and lying to petitioner's credit in any and all his accounts and the Bank shall have right to withdraw any amount from any account and to adjust the proceeds thereof towards the liability of the petitioner on any account whatsoever. It was further agreed by the petitioner that the amounts in his accounts shall be regarded as security for any monies that are due or may become due and the Bank was authorized to apply the proceeds of the accounts in satisfaction of whole or part of the monies due from the petitioner.

17. A perusal of the agreement and the letter of set‑off makes it absolutely clear that the Bank had the necessary authority to make the adjustment within the terms of the agreement and the security documents.

18. According to the agreement, dated 15‑10‑1997 with the Schon Bank Ltd. (predecessor of the Gulf Commercial Bank) an amount of Rs.59 million was advanced to the petitioner against which he had to pay a sum of Rs.72,238 million to the Bank up to 30‑6‑1998. This agreement had similar provisions as in the case of A.B.N. Amro clause 'h' thereof which is relevant is reproduced hereunder;‑‑‑ "It is hereby agreed between the parties hereto that where the purchase price is payable in instalments failure on the part of the Customer to pay any instalment on its due date will entitle the Bank to demand immediate payment of the entire balance of purchase price remaining due notwithstanding anything to the contrary contained in this agreement, and for recovery thereof to take possession of the goods and sell the same." By the letter of lien and, set‑off executed by the petitioner in favour of Schon Bank Ltd. it was covenanted as follows:‑‑‑ "The Depositor(s) hereby further agree that in addition to any general lien which the Bank may be entitled to under the law, it 'may forthwith at any time and without notice to the Depositor(s) combine all or any of the Account(s) of the Depositor(s) and/or the Customer and set‑off or transfer such sums standing to the credit of anyone or more of such Account(s) in or towards satisfaction of any of the Customer and/or the Depositor(s). liabilities to the Bank. Where the Account(s) or anyone or more of them or term or time deposit Account(s), the Bank may exercise the right conferred upon it by law or by virtue of this instrument, without regard to the maturity date of such deposit account(s) the Bank shall not be liable to the Depositor(s) for any loss or damage resulting from the exercise of such rights."

19. It is not disputed that the petitioner was in default in the payment of the amount due tc the two Banks. The learned counsel tried to canvass before us that this was because the petitioner was not allowed to operate the Foreign Currency Accounts. As noted above, it was not only because of section 2 of Act IV of 1998, but as observed above, he could not withdraw the foreign currency unless the liabilities of the Bank were satisfied.

20. The Hon'ble Supreme Court in the case of Federation of Pakistan, supra made the following observations:‑‑‑ "The perusal of the above‑quoted section indicates that the above section empowers the State Bank of Pakistan to control advances by banking companies by laying down the policy in respect of matters referred to in its subsection (2) i.e. as to the credit ceiling, credit targets, the purposes for which advances may or may not be made, the margins to be maintained in respect of advances, the rates of interest, charges of mark‑up to be applied on advances and the maximum or minimum profit sharing ratios, and prohibiting the giving of loans, advances and credit to any borrower or group of borrowers on the basis of interest, either for a specific purpose or for any purpose whatsoever, but had no power to alter the terms and conditions of an agreement of loan already entered into and acted upon between a Bank and its customers through a circular." (Underlining is ours). It was further observed:‑‑‑ "Even otherwise, the impugned portion of the above Circular No. 23 cannot be sustained for the reason that it is confiscatory in nature and interferes with contractual rights and obligations under the concluded contracts, inasmuch as it prohibits the use of the foreign currency deposits within Pakistan as a security which was already accepted by the Banks against the loan prior to the issuance of the above Circular without acquiring the above foreign currency deposits under appropriate provision of law against the payment of compensation." (Emphasis supplied).

21. The import of the aforesaid observations of the Hon ble Supreme Court clearly is that the contract executed between the parties is to prevail in all circumstances.

22. As to the question whether the advancing Bank should have allowed the petitioner to withdraw foreign currency to obtain encashment from the market at a rate obviously higher than the official rate declared by the State Bank of Pakistan, suffice to observe that these Foreign Currency Accounts were charged and encumbered accounts. The Banks were, therefore, justified in not allowing the petitioner to withdraw foreign currency from these accounts under the security arrangements between the parties. Further; the State Bank of Pakistan being the Central Controlling Bank was legally 'empowered to prescribe an official rate for encashment of a given foreign currency thereby obliging the Banks and the foreign currency dealers to encash the said currency only at the rate so prescribed. Under Circular No.8 issued by State Bank off, Pakistan on 19‑5‑1999; multiple exchange rate system was abolished and floating inter Bank rate/unitary rate system was made applicable to all foreign exchange receipts both in public and private sectors. It was upon introduction of this Circular No.8 that encashment of U.S. Dollars at the tied official rate of Rs.46 = U.S. Dollar was done away with and inter bank rate was adopted for all documented transactions. A.B.N. Amro, thus, had no option but to adjust petitioner's outstanding liabilities from collateralised Foreign Currency Account deposits at the prescribed rate of Rs. 46 per U.S. Dollar prior to introduction of Circular No.8 on 19‑5‑1999. Gulf Commercial Bank however, made adjustment after this circular at the then prevalent inter bank rate of Rs.52,1875 to a U.S. dollar of which no exception case be taken.

23. There is no evidence on record that the petitioner was allowed by respective lending Banks to withdraw foreign currency from his accounts in presence of a foreign currency dealer for the purpose of encashing the same from the open market and then liquidating the amounts then outstanding. Even if a such a facility was allowed by a Bank to the petitioner, F such private accommodation cannot be termed as a legal arrangement of a contract between the parties to vest the petitioner with a right to seek enforcement thereof. Such a right shall obviously be in conflict with the basic concept of pledge, special lien, charge, encumbrance or security collateralisation.

24. From the above factual and legal position, the conclusions reached by us are that the two Banks, while adjusting the liabilities of the petitioner acted under the agreements and the security documents and not under Circular No.23 of the State Bank of Pakistan. The protection available to the Foreign Currency Accounts under Act No. XII of 1992 is not abrogative of the agreements in question between the parties. The contention of the learned counsel for the petitioner that within the terms of the agreement the "Banks could only demand the defaulted amount and could not make adjustment of his liabilities from the Foreign Currency Accounts, is not borne out from the relevant provisions of the agreements and the security documents executed by the petitioner. Circular No. 17 was not applicable and even if it was applicable the petitioner could not withdraw foreign currency from his accounts without settling the liabilities of the two Banks. If at all the Banks had proceeded in breach of the terms of the agreement or security documents, no writ could be issued to the two Banks because they are not performing any function in connection with the affairs of the Federation or a Province.

25. For what has been stated above we find no merit in this writ petition which is, accordingly, dismissed while Writ Petitions No.22700 of 1998 and 20746 of 1998 are dismissed as withdrawn. S.A. K. /W‑41 / L Petitions dismissed.