Following measures were suggested in the judgment under
review for transformation of the existing banking and economic
system to the Islamic one: -
“(1) Strict austerity measures to drastically curtail the Government expenditure should be adopted and implemented and deficit financing should be controlled as therein lies the solution to economic revival.
(2) An Act to regulate the Federal Consolidated Fund and Public Account, Provincial Consolidated Fund
and Public Account requires to be enacted by the Parliament and the Provincial Assemblies respectively. This
law will have to take care of borrowing powers, purpose and the scope of
monitoring process including all ancillary matters.
(3) Laws providing for necessary prudential measures ensuring transparency be enacted. These laws may include laws like Freedom of Information Act, the Privacy Act and
Ethics Regulations of United States,Financial Services Act of Britain. C.SH.R.P.1/2000 & C.SH.R.P. 1/20014.
(4) Establishment of Institution like Serious Fraud Office to control white
color and economic crimes.
(5) Establishment of credit rating agencies in the public sector.
(6) Establishment of evaluators for scrutiny of feasibility reports.
(7) Establishment of special departments within the State Bank –
(a) Shari’ah Board for scrutiny and evaluation of Board’s procedures and products and for providing guidance for successfully managing the Islamic economics.
(b) A Board for arranging exchange of information, financial institutions about feasibility of projects, evaluation thereof and credit rating of institutions, corporations and other entities.
(c) A Board for providing technical assistance to the financial institutions/banks with regard
to the anomalies emerging in the practical operation of the financial institutions or difficulties arising during
operation of financial products, transactions or arrangements between the financial institutions and the
consumers/clients. This may also take the shape of Islamic Financial Service Institution. Such institutions will also work in the field of shares and investment certificates,underwriting promotion and market making to help in activation of primary and secondary markets. The rise of such institutions, whose
functions include the promotion of financial instruments and to work as their catalysts in the financial market, would be of great help and support to Islamic Banking. Among the C.SH.R.P.1/2000 &C.SH.R.P. 1/2001 5
factors which would help the creation and spreading of such institutions is the extension of tax incentives to their operation as well as to Islamic banks to benefit from their services.The establishment of aforenoted Infrastructure is considered necessary by the economists for operation of the Islamic banking system with
success.” Since the transformation of the existing system could not take place instantly, the Shariat Appellate Bench directed as under: -
“Keeping all these aspects in view, we have
decided to appoint different dates for different
phases of the transformation. We, therefore, direct that:-
(1) The Federal Government shall, within one
month from the announcement of this
judgment, constitute in the State Bank of
Pakistan a high level Commission fully
empowered to carry out, control and
supervise the process of transformation of
the existing financial system to the one
conforming to Shari’ah. It shall comprise
Shari’ah scholars, committed economists,
bankers and chartered accountants.
(2) Within two months from the date of its
constitution, the Commission shall chalk
out the strategy to evaluate, scrutinize and
implement the reports of the Commission
for Islamization of the Economy as well as
the report of Raja Zafarul Haq Commission
after circulating it among the leading
banks, religious scholars, economists and
the State Bank and Finance Division,
inviting their comments and further
suggestions. The strategic plan so finalized
shall be sent to the Ministries of Law,
Finance and Commerce, all the banks and
financial institutions to take steps to
implement it.
(3) Within one month from the announcement
of this judgment, the Ministry of Law and
Parliamentary Affairs shall form a task-
force, comprising its officials and two C.SH.R.P.1/2000 &C.SH.R.P. 1/2001 6 Shari’ah scholars from the Council of Islamic Ideology or from the Commission of the Islamization of Economy, to:
(a) Draft a new law for the prohibition
of riba and other laws as proposed
in the guidelines above;
(b) To review the existing financial and
other laws to bring them into
conformity with the requirements of
the new financial system;
(c) To draft new laws to give legal cover
to the new financial instruments.
The recommendations of the task force
shall be vetted and finalized by the
“Commission for Transformation”
proposed to be set up in the SBP after
which the Federal Government shall
promulgate the recommended laws.
(4) Within six months from the announcement
of this judgment, all the banks and
financial institutions shall prepare their
model agreements and documents for all
their major operations and shall present
them to the Commission for transformation
in the SBP for its approval after examining
them.
(5) All the joint stock companies, mutual funds
and the firms asking in aggregate finance
above Rs.5 million a year shall be required
by law to subject themselves to
independent rating by neutral rating
agencies.
(6) All the Banks and financial institutions
shall, thereafter, arrange for training
programmes and seminars to educate the
staff and the clients about the new
arrangements of financing, their necessary
requirements and their effects.
(7) The Ministry of Finance shall, within one
month from the announcement of this
judgment, form a task force of its experts to
find out means to convert the domestic
borrowings into project related financing
and to establish a mutual fund that may
finance the government on that basis. The
units of the mutual fund may be purchased
by the public and they will be tradable in
the secondary market on the basis of net C.SH.R.P.1/2000 & C.SH.R.P. 1/20017
asset value. The certificates of the existing bonds of the existing government savings schemes based on interest shall be converted into the units of the proposed mutual fund.
(8) The domestic inter-government borrowings as well as the borrowings of the Federal Government from State Bank of Pakistan shall be designed on interest free basis.
(9) Serious efforts shall be started by the Federal Government to relieve the nation from the burden of foreign debts as soon as possible, and to renegotiate the existing
loans. Serious efforts shall also be made to
structure the future borrowings, if
necessary, on the basis of Islamic modes of
financing.”
2. In the year 2001 two miscellaneous applications (No.
1480 & 1485 of 2001) were filed in the above review petition
with a composite prayer for suspension of the operation of the
judgment and extension of time for its implementation. After
hearing the Federal Government and the parties concerned this
Court extended the period for implementation of the judgment till 30thJune, 2002.
3. Civil Shariat Review Petition No. 1 of 2001 has been
filed by Muhammad Iqbal Zahid and others seeking review of
the order dated 14th
June, 2001 with the prayer that the said
order may be reviewed and recalled and the Federal
Government may be directed to promulgate the Ordinance on
Riba, which is stated to have been framed to bring all laws in
conformity with the Islamic Injunctions.
4. At the commencement of hearing of these review
petitions, objection to the constitutionality of the appointment C.SH.R.P.1/2000 & C.SH.R.P. 1/20018
of two of us (Dr. Allama Khalid Mahmood and Dr. Rashid
Ahmed Jullundhri, ad hoc members of the Shariat Appellate
Bench) was raised. It was urged that their inclusion in the
Shariat Appellate Bench was unconstitutional and illegal.
Without further going into this question, we may observe that
the question of appointment of ad hoc members of the Bench
cannot be raised collaterally. Furthermore, both the learned ad
hoc members being recognized scholars, are on the panel of
Ulema and their appointment meets the requirements of Article
203F(3)(b) of the Constitution. The objection is repelled.
5. In course of hearing of these review petitions, we
have had the advantage of hearing M/S Raja Muhammad
Akram, Sr. ASC, learned counsel for the United Bank Ltd., Mr.
Makhdoom Ali Khan, learned Attorney General for Pakistan,
M/S Raza Kazim and Dr. Syed Riazul Hasan Gilani on behalf of
the Federation, M/S Muhammad Ismail Qureshi, Sr. ASC and
Sh. Khizar Hayat, ASC on behalf of the petitioner in Civil
Shariat Review Petition No. 1 of 2001, Mr. M.A. Farani on behalf
of respondent No. 17, Engineer Muhammad Saleemullah and
Mr. Hashmat Ali Habib, ASC on behalf of Jamiat Ulema-ePakistan.
6. Raja Muhammad Akram, Sr. ASC, learned counsel
for the petitioner (UBL) placed reliance on verses 2:262 – 282,
3:130, 12:108, 18:49 – 50, 25:73 – 75, 30:39, 34:46 and 73:20
of the Holy Quran and relevant extracts from the books
Tarjaman-ul-Quran by Maulana Abul Kalam Azad, Tafseer-ul-C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 9
Quran by Sir Syed Ahmed Khan and Ma’arif-ul-Quran by Mufti
Muhammad Shafi to contend that verses 2:262 – 282 mainly
refer to ‘Sadqaat’, i.e. spending in the cause and for pleasing of
Almighty Allah. Riba was finally prohibited in verse 3:130
which reads as under:-
“130. O ye who believe !
Devour not Usury,
Doubled and multiplied;
But fear Allah; that
Ye may (really) prosper.”
He submitted that this verse does not prohibit what is
reasonable and fair and all that it prohibits is ‘doubled’ and
‘multiplied’. In verses 12:108, 25: 73 -–75 and 34:46 emphasis
has been laid on the use of reason. The word “ ﺑﻴﻊ ” used in
verse 2:275 includes sale, business, trade, investment,
bargaining, etc., therefore, the present day banking business is
covered by the term “ﺑﻴﻊ ”. He submitted that the Shariat
Appellate Bench has not properly distinguished the terms
‘usury’, ‘Riba’ and ‘interest’. The term ‘Riba’ has not been
defined in the Holy Quran and all that has been held in the
judgment under review is based on Qiyas (analogy). The word
‘usury’ is a kind of ‘Riba’ whereas the term ‘interest’ refers to
‘profit’. From verses 2:278 – 280 the following principles are
deducible, viz. (1) the believers should give up the remainder of
Riba and if they do not, it would be war against Allah and the
Holy Prophet (PBUH), (2) if the debtor is in financial difficulty,
he should be given time, and if it is remitted by way of charity,
that is best for the believers. In verse 2:273, it is ordained that C.SH.R.P.1/2000 & C.SH.R.P. 1/200110
Sadqaat (almsgiving) are for the poor and the needy who have
been immobilized but they will not beg from all and sundry.
Obviously, these principles are not applicable to an industrialist
who has taken a loan of millions of rupees but to the poor and
the needy. To the similar effect are verses 73:20, 18:49-50 and
2:270. There is a contrast/comparison between ‘Sadqaat’ and
‘Riba’ in the Holy Quran and emphasis has been laid on giving
concessions/relaxations to the poor people. The banks cannot
make ‘Sadqaat’ in favour of industrialists.
7. Mr. Raza Kazim, ASC, learned counsel for the
Federation argued that in view of the bar contained in Article
203B(c) of the Constitution, the Federal Shariat Court had no
jurisdiction to embark upon declaring Riba as Haram i.e.
illegal or impermissible inasmuch as by virtue of Article 38(f)
of the Constitution a duty had been cast upon the Federal
Government and not the Federal Shariat Court to eliminate
Riba as early as possible and therefore the Federal Shariat
Court as well as the Shariat Appellate Bench of this Court
had no jurisdiction to step into the shoes of the Federal
Government to eliminate Riba by fixing a time frame. He
submitted that in pursuance of the judgment of the Shariat
Appellate Bench the Federal Government formed one
Commission and two task forces. The Task Force on
Government Borrowing was formed in the Ministry of Finance
to direct and facilitate the transformation of interest-based
government borrowing into Islamic modes of financing. The C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 11
other Task Force and the Commission were concerned with
effecting a transition to compliance with Shari’ah in the
financial sector and establishing a legal and regulatory
framework to document an Islamic economy. The learned
counsel pressed into service two affidavits filed on behalf of
the Ministry of Finance and the State Bank of Pakistan. Para
33 of the affidavit filed by the Secretary, Ministry of Finance,
at page 14 of the paper book reads as follows: -
“That Government of Pakistan has made best
possible efforts under Article 190 and Article
203D(3)(a) of the Constitution of the Islamic
Republic of Pakistan, 1973 to find ways and
means to implement the directives contained in
paragraphs (7), (8) and (9) of the Order dated
23.12.1999 of Hon’ble Supreme Court of Pakistan
(Shariat Appellate Bench) but has found that
implementation of the said directives is not
practical or feasible and if attempted will pose
high degree of risk to the economic stability and
security of Pakistan.”
Para 25 of the affidavit filed by the Deputy Governor, State
Bank of Pakistan at page 89 of the paper book reads as follows:-
“That having taken a series of steps to promote
Islamic banking described in para 21 above, and
considering all other practical problems associated
with the complete transformation of the financial
system discussed herein, it is State Bank of
Pakistan’s considered judgment that a parallel
approach will be in the best interest of the
country. This means that Islamic banking is
introduced as a parallel system of which a
beginning has already been made, it is provided a
level playing field vis-à-vis the existing
conventional banks, and its further growth and
development is supported by Government and
State Bank of Pakistan through appropriate
actions. This approach will eliminate the risk of
any major costs/damage to the economy, give a
fair chance to Islamic banks to develop alongside
the conventional banks, and will provide a choice
to the people of Pakistan, and the foreigners doing C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 12
businesses in/with Pakistan, to use either of the
two systems.”
8. Dr. Syed Riazul Hasan Gilani, Sr.ASC, learned
counsel for the Federation at the outset formulated his
contentions as under: -
(1) The impugned judgment has amalgamated legal
and moral aspects of Riba. Failure to
distinguish between legal and moral aspects of
Riba has resulted in violation of the Injunctions
of Islam as laid down in the Holy Quran and the
Sunnah of the Holy Prophet (PBUH) as well as
the juristic opinions of Imam Abu Hanifa and
other great jurists;
(2) The enforcement of Makrooh Riba through
State apparatus is against the Sunnah of the
Holy Prophet (PUBH);
(3) The consolidated definition which covers legal
as well as moral aspects of Riba has taken the
impugned judgment outside the jurisdiction of
this Court;
(4) While trying to define Riba the fundamental
rule of Tafseer (interpretation) has been violated
in the judgment inasmuch as while defining a
negative injunction like Riba the prevalent
practice and respective terminology used by the
pre-Islamic Arabs is relevant. For that, only the
reports narrated by the Sahaba (RA) and
Tabi’een are admissible. Juristic inferences in
this regard are neither relevant nor admissible;
(5) Failure to define ‘Qarz’ has rendered the entire
complexion of the impugned judgment against
the Shariat. The English word ‘loan’ is not the
exact counterpart of the word ‘Qarz’; C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 13
(6) The alternate modes of finance employed in the
so-called Islamic banking have been held to be
Riba by the most eminent jurists including
Abdullah bin Abbas and Abdullah bin Umer.
Moreover while suggesting measures for
Islamization of the banking system, the views of
Syed Muhammad Baqir-as-Sadar who
represents Jafri school of thought have been
ignored;
(7) In the judgment the views on Riba and banking
practice expressed by Shaikh Muhammad
Abduhu’, Shaikh Rashid Rida, Abdul Razzak
Sanhuri, the former Shaikhul Azhar Mahmood
Shaltut, Cairo, the present Shaikhul Azhar Dr.
Muhammad Sayyid Tantawi, Abdul Wahab
Khallaf and Dr. Maroof Daoualibi have been misread;
(8) The law of Riba has wrongly been applied to the
non-Muslims. In doing that not only the Holy
Quran and the Sunnah of the Holy Prophet
(PBUH) but also Fiqah Jafria has been violated;
(9) The judgment under review holds indexation
repugnant to the Injunctions of Islam without
quoting any material from the Holy Quran and
the Sunnah. While doing that, the juristic
opinions of A`la Hazrat Maulana Ahmed Raza
Khan Barelvi, Syed Muhammad Baqir-as-Sadar
and present Sheikhul Azhar Dr. Muhammad
Sayyid Tantawi have been ignored;
(10) ‘Zulm’ i.e. exploitation/oppression is the ‘Illat’
i.e. cause or essential ingredient of Riba. It
has wrongly been held in the judgment that
‘zulm’ is not ‘Illat’ but ‘hikmat’ of Riba. Thus,
the express verse of the Holy Quran and juristic C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 14
opinions of Imam Ibn-e-Rushd and Maulana
Ashraf Ali Thanvi have been opposed;
(11) Pre-determination of fixed profit is not the only
criterion which makes a transaction Riba. It
has been stated in the Hedaya and also opined
by Maulana Ashraf Ali Thanvi that predetermined fixed profit in a business
transaction is the characteristic of Mudaraba;
(12) The judgment under review has not taken note
of the transformation of individualistic profit
motive and risk factor to the society as a whole
by virtue of the corporate business.
9. Mr. Gilani contended that the judgment of the
Federal Shariat Court and that of the Shariat Appellate Bench
suffered from infirmities, in that, the most important and
delicate questions having material bearing on the issues
involved in these cases have not been dealt with. He contended
that he had raised at least 33 propositions in course of the
hearing, which were not attended to by the Shariat Appellate
Bench. He argued that the judgment of the Federal Shariat
Court is biased inasmuch as Mr. Justice Dr. Tanzilur Rahman,
C.J. (as he then was) had delivered the judgment with a
predetermined mind because while delivering the judgment he
had placed reliance on a report of the Council of Islamic
Ideology of which he happened to be the Chairman at the
relevant time which is apparent from a perusal of the judgment
of the Federal Shariat Court in particular with reference to
paragraphs 58, 59, 60, 62, etc. of the judgment. The Shariat
Appellate Bench also proceeded to rely upon the said report and C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 15
the writings of Dr. Tanzil-ur-Rahman. The Shariat Appellate
Bench did not consider this aspect at all and proceeded to rely
upon the work of Dr. Tanzil-ur-Rahman and therefore the
judgment under review as well as that of the Federal Shariat
Court lacked objectivity. The learned Judges of the Federal
Shariat Court confined themselves to the opinions of a
particular group of scholars having a particular viewpoint from
whom the author of the judgment (Dr. Tanzilur Rahman, C.J.,
as he then was) had derived inspiration for producing his works
in the Council of Islamic Ideology as well as writing other books
on the subject and kept out of consideration the opinions of
other eminent jurists such as Shaikh Muhammad Abduhu’,
Shaikh Rashid Rida, Abdul Razzak Sanhuri, the former
Shaikhul Azhar Mahmood Shaltut, Cairo, the present Shaikhul
Azhar Dr. Muhammad Sayyid Tantawi.
10. Mr. Gilani vehemently urged that the alternate
banking and financial system proposed in the judgment under
review was not at all workable and the government has found it
incapable of being implemented. He argued that the Federal
Shariat Court did not advert to the question of Riba-al-Fadl and
its enforcement-related implications and this glaring omission
escaped the notice of the Shariat Appellate Bench. In this
context reference may be made to the following observations of
the Federal Shariat Court at page 63 of the judgment which
reads as under: -
“Riba, in law, signifies an excess (increase) in a
(loan) contract in which such excess is, stipulated C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 16
as an obligatory condition on one of the parties,
without any return i.e. without any property (Mal),
in exchange. (See Book XIV on Sale Chapter VIII
on Riba or usury. Hedaya, English Translation by
Hamilton, Lahore, page 289), Imam Fakhrud-Din
Al-Razi (d. 606 A.H.) in his well known Tafsir al
Kabir writes that the meaning of the word Riba is
increase but it does not mean that to recover every
kind of increase is Riba and is unlawful(ﺣﻣﺎر ).
The forbiddance of Riba relates to special kind of
contract which was known amongst the Arabs as
Riba al Nasiyah (رﺑﺎاﻟﻨﺴﻴﻪ) i.e. increase on
debt. (The other kind of Riba called “Riba al Fadl”
( رﺑﺎاﻟﻔﻀﻞ ) is outside the scope of the present
discussion.”
The exclusion of Riba-al-Fadl from consideration was reiterated
at page 96 of the judgment in the following words: -
“Presently in these petitions we are concerned with
Riba-al-Nasi’ah …….. The difference of opinion
whatever is found is regarding Riba-al-Fadl and
that is out of discussion in the context of Bank
interest which is under our consideration.”
It is manifest from the perusal of the above findings of the
Federal Shariat Court that the question of Riba-al-Fadl and its
legal implications qua enforcement through legislation was kept
out of consideration for the reason that the same was never
treated subject-matter of the proceedings before it or a
controversy to be set at rest. On the other hand, the Shariat
Appellate Bench discussed Riba-al-Fadl in its judgment and
after dividing it into three categories held that Riba-al-Qur’an
and transactions of money covered by the first category of Ribaal-Fadl are more relevant to the modern business. Evidently, the Shariat Appellate Bench could not proceed to determine this
issue in the appeals unless there was a finding recorded by the
Federal Shariat Court. There is an error apparent on the record C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 17
inasmuch as the Shariat Appellate Bench considered that the
issue to be resolved by them did not relate to Riba-al-Nasi’ah
alone but also to Riba-al-Fadl, therefore, they should have
refrained from recording any finding on these concepts and
ought to have remanded the case to the Federal Shariat Court
for determination of the questions which were germane to the
issue of Riba-al-Fadl.
11. Mr. Gilani argued that all the Islamic banking
system suggested in the judgment under review is a misnomer
and except Musharika all other modes of finance are nothing
but Heela ( ﺣﻴﻠﻪ ), i.e. devices to avoid what is otherwise Riba
which are in fact more harsh and oppressive having the element
of ‘zulm’ and are worst in consequences as compared to the
various forms of interest prevalent in the present day banking
system which have wrongly been termed as Riba al-Nasi’ah in
the judgment under review. This aspect also requires thorough
and elaborate research on all its pros and cons and implications
by an independent and unbiased mind. The judgment under
review omitted to take into consideration the fact that the
alternate system is not a consensus oriented system and had
been bitterly opposed by many eminent jurists including
Abdullah bin Omer and Abdullah bin Abbas.
12. Mr. Makhdoom Ali Khan, learned Attorney General
for Pakistan vehemently contended that the Federal Shariat
Court as well as the Shariat Appellate Bench did not at all deal
with the questions of jurisdiction as well as maintainability of C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 18
the petitions before the Federal Shariat Court with reference to
the provisions of Articles 29, 30(2), 38(f), 81(c) and 121(c) of the
Constitution and have only referred to the constitutional
provisions relating to jurisdiction of the Federal Shariat Court to
examine fiscal laws. We have also noticed that the payment of
interest finds mention in Article 161 as well as the definition of
the expression ‘pension’ in Article 260 of the Constitution.
Regarding the provisions of the Constitution as contained in the
Principles of Policy in relation to elimination of Riba it was
observed by the Federal Shariat Court that the government did
not make any effort to achieve the objective set out therein and
the judicial aspect of the case was not taken into consideration.
In this behalf, reference may be made to the observations made
by Dr. Tanzil-ur-Rahman, C.J. at page 51 of the judgment,
which read as under: -
“55. As to interest, Pakistan’s Constitution, 1956
provides that the State shall endeavour to
eliminate Riba as early as possible (Art.28-F), but
no effort was made to realize that objective. In
1962 Constitution, it was, again, provided in the
principles of policy (No.18) that Riba (usury)
should be eliminated. Similar provision was again
made in the Constitution of 1973, (Art.38-F).”
It is also pertinent to mention that even the Shariat Appellate
Bench did not examine all the jurisdictional aspects of the case
in the light of the above provisions of the Constitution as a
whole and confined itself to striking down certain rules relating
to operation of the Consolidated Fund.
13. We have noticed that the Federal Shariat Court did
not at all deal with question of applicability or otherwise of the C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
19
prohibition of Riba to non-Muslims and surprisingly the Shariat
Appellate Bench proceeded to hold that the prohibition applied
to the non-Muslims which was not the issue before it. On this
score also, the Shariat Appellate Bench ought to have remanded
the case to the Federal Shariat Court to determine this
question.
14. It was urged before us that the term ‘Qarz’ is
confined to that type of transaction which is made in the name
of Allah in the form of ‘Sadaqa’, ‘Khairaat’, i.e. almsgiving, etc.
It was argued that the present system of bank accounts and
investments in various schemes of the government do not
involve any transaction of loan, debt or Riba and are investment
simpliciter. While entering into such transactions, the investor
has no compulsion and he acts voluntarily in investing his
money for purposes of security as well as earning of profit and,
therefore, the receipt of profit by such a person in the
circumstances particularly when there is no element of
exploitation (‘zulm’) which is a sine qua non in a transaction of
Riba, cannot be termed as Riba. In this behalf, the cases of
pensioners, widows, etc. were brought to our notice and it was
urged that the continuance of the present day banking system
and the government sponsored savings schemes as well as the
transactions which lack ingredient of ‘Qarz’ involving ‘zulm’
(exploitation, oppression, etc.) as envisaged by the Holy Quran
and Sunnah, was in the larger interest and welfare of the
people. It was also urged that in case the judgment is C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
20
implemented, it would lead to chaos and anarchy in the country
and a duty is cast on an Islamic State to take all steps which
are necessary in the public interest and the welfare of the
people and avoid chaos and anarchy.
15. The Shariat Appellate Bench while proceeding to
examine the fiscal questions relating to inflation, indexation,
etc. made the following observation at page 734 of the
judgment: -
“186. In order to solve this problem, many
suggestions have been proposed by different
quarters, some of which are the following:-
(a) That the loans should be indexed,
meaning thereby, that the debtor must
pay an additional amount equal to the
increase in the rate of inflation during the
period of borrowing.
(b) That the loans should be tied up with
gold, and it should be presumed that the
one who has loaned Rs.1,000/- has
actually loaned as much gold as could be
purchased on that date for Rs.1,000/-
and must repay as much rupees as are
sufficient to purchase that much of gold.
(c) That the loans should be tied up by a
hard currency like dollar.
(d) That the loss of the value of money should
be shared by both creditors and lender in
equal proportion. If the value of money
has declined at a ratio of 5%, 2.5% should
be paid by the debtor and the rest should
be borne by the creditor, because the
inflation is a phenomenon beyond the
control of either of them. Being a common
suffering, both should share it.
187. But we feel that this question needs a more
thorough research which before its, final decision
in this Court should first be initiated by different
study circles of the country, especially, by the
Council of Islamic Ideology and the Commission C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
21
for the Islamization of Economy. Many
international seminars have been held to
deliberate on this issue. The papers and
resolutions of these seminars should be analyzed
in depth.
188. On the other hand, having held that this
question does neither justify interest nor provides
a substitute for it in the banking transactions, we
do not have to resolve this issue in this case, nor
does the decision about the laws under challenge
depend on it. We, therefore, leave the question
open for further study and research.”
In the face of the above observations and the finding of the
Federal Shariat Court on the question of indexation that it was
not permissible the Shariat Appellate Bench, before striking
down any law, ought to have remanded the case to the Federal
Shariat Court to decide the issues of inflation and indexation
afresh which according to the Bench itself required elaborate
discussion, research, further study and in-depth analysis of the
papers and resolutions of international seminars. In this
context Mr. Gilani argued that the definition of ‘Ra’sul Maal’, i.e.
the principal amount which is liable to be returned in a
transaction of ‘Qarz’ must be re-defined keeping in view the
scope of its intrinsic value in relation to inflation so that there
should be no exploitation as regards the equities of the parties.
16. We may observe here that before the Federal Shariat
Court Mr. Khalid M. Ishaque, learned Sr.ASC had raised the
following three contentions: -
“38. Mr.Khalid Ishaque, Advocate, who appeared
on 10.6.1991 on behalf of National Bank of
Pakistan and State Life Insurance Corporation,
filed interim written reply on behalf of his clients
and raised the following pleas:- C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
22
(i) The Banks in Pakistan are working within
the framework of Banking instruments
prescribed by the State Bank, with the
approval of Council of Islamic Ideology, as
valid Islamic Instruments.
(ii) There is a considerable juristic opinion
available to the fact that an increase to offset
the inflation would have legal justification
and would not be counted as riba; and
(iii) There is juristic opinion available to the fact
that Bank interest does not fall in the
category of prohibited riba (interest).
According to his opinion, Banks participate
in the procedure processes of the
Society/Community, make productive labour
possible, increase social wealth, and take
only a fraction of the profit that accrues to
them which is not riba.”
These contentions were not resolved on the ground that the
learned counsel who had raised the same did not send the texts
in support thereof. In this behalf, Dr. Tanzil-ur-Rahman, C.J.
(as he then was) made the following observations: -
“44. We have gone through the aforesaid Note
wherein the opinions of Ibnal-Qayyim,
Muhammad Abduhu, Rashid Raza, Sanhuri,
Daoualibi, Shaikh Draz, Maulana Abul Kalam
Azad, Maulana Abdul Aala Maudoodi, Maulana
Mufti Muhamamd Shafi and Dr.Wahba Al-Zuhaili
are alleged to be in favour of the plea about Bank
interest, as raised by the counsel………… No text
was sent…….. Therefore, unless and until the
exact writings of the great Imams or jurists are
laid before us by the counsel we are unable to
place any reliance on the secondary source of the
said Nabil.”
In this view of the matter, it was all the more necessary for the
Shariat Appellate Bench to have remanded the cases to the
Federal Shariat Court for giving a clear verdict after considering
all the relevant material. C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
23
17. A case for review of the impugned judgment is made
out as there are errors floating on the surface of record as
highlighted in the preceding paragraphs. In this view of the
matter we find no force in the contention that the submissions
made in support of the review petition amount to a plea for
rehearing of the case.
18. In the light of the foregoing discussion, we are of the
considered view that the issues involved in these cases require
to be re-determined after thorough and elaborate research and
comparative study of the financial systems which are prevalent
in the contemporary Muslim countries of the world. Since the
Federal Shariat Court did not give a definite finding on all the
issues involved the determination whereof was essential to the
resolution of the controversy involved in these cases, it would be
in the fitness of things if the matter is remanded to the Federal
Shariat Court which under the Constitution is enjoined upon to
give a definite finding on all the issues falling within its
jurisdiction.
19. Resultantly, Civil Shariat Review Petition No. 1 of
2000 filed by the United Bank Ltd is allowed, the
judgment dated 23rd
December, 1999 passed by the
Shariat Appellate Bench of this Court in Shariat Appeals
No. 11 to 19 of 1992 and the judgment dated 14th
November, 1991 of the Federal Shariat Court passed in Shariat
Petitions No. 42-I + 45-I of 1991 etc. are set aside and the cases
are remitted to the Federal Shariat Court for determination C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
24
afresh in the light of the contentions of the parties noted above
and the observations made which are germane to the
controversy. Besides the points raised before this Court, the
parties would be at liberty to raise any other issue relevant to
these cases and the Federal Shariat Court may also, on its own
motion, take into consideration any other aspect which may
arise or may be found relevant for determination of the issues
involved herein.
20. Before parting with the Order we would like to record
our deep appreciation for the valuable assistance rendered by
the learned counsel for the parties and the learned Attorney
General for Pakistan and their associates.
CHIEF JUSTICE
JUDGE
JUDGE
MEMBER
MEMBER
Announced today, the 24th June, 2002
at Islamabad.
APPROVED FOR REPORTING
review for transformation of the existing banking and economic
system to the Islamic one: -
“(1) Strict austerity measures to drastically curtail the Government expenditure should be adopted and implemented and deficit financing should be controlled as therein lies the solution to economic revival.
(2) An Act to regulate the Federal Consolidated Fund and Public Account, Provincial Consolidated Fund
and Public Account requires to be enacted by the Parliament and the Provincial Assemblies respectively. This
law will have to take care of borrowing powers, purpose and the scope of
monitoring process including all ancillary matters.
(3) Laws providing for necessary prudential measures ensuring transparency be enacted. These laws may include laws like Freedom of Information Act, the Privacy Act and
Ethics Regulations of United States,Financial Services Act of Britain. C.SH.R.P.1/2000 & C.SH.R.P. 1/20014.
(4) Establishment of Institution like Serious Fraud Office to control white
color and economic crimes.
(5) Establishment of credit rating agencies in the public sector.
(6) Establishment of evaluators for scrutiny of feasibility reports.
(7) Establishment of special departments within the State Bank –
(a) Shari’ah Board for scrutiny and evaluation of Board’s procedures and products and for providing guidance for successfully managing the Islamic economics.
(b) A Board for arranging exchange of information, financial institutions about feasibility of projects, evaluation thereof and credit rating of institutions, corporations and other entities.
(c) A Board for providing technical assistance to the financial institutions/banks with regard
to the anomalies emerging in the practical operation of the financial institutions or difficulties arising during
operation of financial products, transactions or arrangements between the financial institutions and the
consumers/clients. This may also take the shape of Islamic Financial Service Institution. Such institutions will also work in the field of shares and investment certificates,underwriting promotion and market making to help in activation of primary and secondary markets. The rise of such institutions, whose
functions include the promotion of financial instruments and to work as their catalysts in the financial market, would be of great help and support to Islamic Banking. Among the C.SH.R.P.1/2000 &C.SH.R.P. 1/2001 5
factors which would help the creation and spreading of such institutions is the extension of tax incentives to their operation as well as to Islamic banks to benefit from their services.The establishment of aforenoted Infrastructure is considered necessary by the economists for operation of the Islamic banking system with
success.” Since the transformation of the existing system could not take place instantly, the Shariat Appellate Bench directed as under: -
“Keeping all these aspects in view, we have
decided to appoint different dates for different
phases of the transformation. We, therefore, direct that:-
(1) The Federal Government shall, within one
month from the announcement of this
judgment, constitute in the State Bank of
Pakistan a high level Commission fully
empowered to carry out, control and
supervise the process of transformation of
the existing financial system to the one
conforming to Shari’ah. It shall comprise
Shari’ah scholars, committed economists,
bankers and chartered accountants.
(2) Within two months from the date of its
constitution, the Commission shall chalk
out the strategy to evaluate, scrutinize and
implement the reports of the Commission
for Islamization of the Economy as well as
the report of Raja Zafarul Haq Commission
after circulating it among the leading
banks, religious scholars, economists and
the State Bank and Finance Division,
inviting their comments and further
suggestions. The strategic plan so finalized
shall be sent to the Ministries of Law,
Finance and Commerce, all the banks and
financial institutions to take steps to
implement it.
(3) Within one month from the announcement
of this judgment, the Ministry of Law and
Parliamentary Affairs shall form a task-
force, comprising its officials and two C.SH.R.P.1/2000 &C.SH.R.P. 1/2001 6 Shari’ah scholars from the Council of Islamic Ideology or from the Commission of the Islamization of Economy, to:
(a) Draft a new law for the prohibition
of riba and other laws as proposed
in the guidelines above;
(b) To review the existing financial and
other laws to bring them into
conformity with the requirements of
the new financial system;
(c) To draft new laws to give legal cover
to the new financial instruments.
The recommendations of the task force
shall be vetted and finalized by the
“Commission for Transformation”
proposed to be set up in the SBP after
which the Federal Government shall
promulgate the recommended laws.
(4) Within six months from the announcement
of this judgment, all the banks and
financial institutions shall prepare their
model agreements and documents for all
their major operations and shall present
them to the Commission for transformation
in the SBP for its approval after examining
them.
(5) All the joint stock companies, mutual funds
and the firms asking in aggregate finance
above Rs.5 million a year shall be required
by law to subject themselves to
independent rating by neutral rating
agencies.
(6) All the Banks and financial institutions
shall, thereafter, arrange for training
programmes and seminars to educate the
staff and the clients about the new
arrangements of financing, their necessary
requirements and their effects.
(7) The Ministry of Finance shall, within one
month from the announcement of this
judgment, form a task force of its experts to
find out means to convert the domestic
borrowings into project related financing
and to establish a mutual fund that may
finance the government on that basis. The
units of the mutual fund may be purchased
by the public and they will be tradable in
the secondary market on the basis of net C.SH.R.P.1/2000 & C.SH.R.P. 1/20017
asset value. The certificates of the existing bonds of the existing government savings schemes based on interest shall be converted into the units of the proposed mutual fund.
(8) The domestic inter-government borrowings as well as the borrowings of the Federal Government from State Bank of Pakistan shall be designed on interest free basis.
(9) Serious efforts shall be started by the Federal Government to relieve the nation from the burden of foreign debts as soon as possible, and to renegotiate the existing
loans. Serious efforts shall also be made to
structure the future borrowings, if
necessary, on the basis of Islamic modes of
financing.”
2. In the year 2001 two miscellaneous applications (No.
1480 & 1485 of 2001) were filed in the above review petition
with a composite prayer for suspension of the operation of the
judgment and extension of time for its implementation. After
hearing the Federal Government and the parties concerned this
Court extended the period for implementation of the judgment till 30thJune, 2002.
3. Civil Shariat Review Petition No. 1 of 2001 has been
filed by Muhammad Iqbal Zahid and others seeking review of
the order dated 14th
June, 2001 with the prayer that the said
order may be reviewed and recalled and the Federal
Government may be directed to promulgate the Ordinance on
Riba, which is stated to have been framed to bring all laws in
conformity with the Islamic Injunctions.
4. At the commencement of hearing of these review
petitions, objection to the constitutionality of the appointment C.SH.R.P.1/2000 & C.SH.R.P. 1/20018
of two of us (Dr. Allama Khalid Mahmood and Dr. Rashid
Ahmed Jullundhri, ad hoc members of the Shariat Appellate
Bench) was raised. It was urged that their inclusion in the
Shariat Appellate Bench was unconstitutional and illegal.
Without further going into this question, we may observe that
the question of appointment of ad hoc members of the Bench
cannot be raised collaterally. Furthermore, both the learned ad
hoc members being recognized scholars, are on the panel of
Ulema and their appointment meets the requirements of Article
203F(3)(b) of the Constitution. The objection is repelled.
5. In course of hearing of these review petitions, we
have had the advantage of hearing M/S Raja Muhammad
Akram, Sr. ASC, learned counsel for the United Bank Ltd., Mr.
Makhdoom Ali Khan, learned Attorney General for Pakistan,
M/S Raza Kazim and Dr. Syed Riazul Hasan Gilani on behalf of
the Federation, M/S Muhammad Ismail Qureshi, Sr. ASC and
Sh. Khizar Hayat, ASC on behalf of the petitioner in Civil
Shariat Review Petition No. 1 of 2001, Mr. M.A. Farani on behalf
of respondent No. 17, Engineer Muhammad Saleemullah and
Mr. Hashmat Ali Habib, ASC on behalf of Jamiat Ulema-ePakistan.
6. Raja Muhammad Akram, Sr. ASC, learned counsel
for the petitioner (UBL) placed reliance on verses 2:262 – 282,
3:130, 12:108, 18:49 – 50, 25:73 – 75, 30:39, 34:46 and 73:20
of the Holy Quran and relevant extracts from the books
Tarjaman-ul-Quran by Maulana Abul Kalam Azad, Tafseer-ul-C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 9
Quran by Sir Syed Ahmed Khan and Ma’arif-ul-Quran by Mufti
Muhammad Shafi to contend that verses 2:262 – 282 mainly
refer to ‘Sadqaat’, i.e. spending in the cause and for pleasing of
Almighty Allah. Riba was finally prohibited in verse 3:130
which reads as under:-
“130. O ye who believe !
Devour not Usury,
Doubled and multiplied;
But fear Allah; that
Ye may (really) prosper.”
He submitted that this verse does not prohibit what is
reasonable and fair and all that it prohibits is ‘doubled’ and
‘multiplied’. In verses 12:108, 25: 73 -–75 and 34:46 emphasis
has been laid on the use of reason. The word “ ﺑﻴﻊ ” used in
verse 2:275 includes sale, business, trade, investment,
bargaining, etc., therefore, the present day banking business is
covered by the term “ﺑﻴﻊ ”. He submitted that the Shariat
Appellate Bench has not properly distinguished the terms
‘usury’, ‘Riba’ and ‘interest’. The term ‘Riba’ has not been
defined in the Holy Quran and all that has been held in the
judgment under review is based on Qiyas (analogy). The word
‘usury’ is a kind of ‘Riba’ whereas the term ‘interest’ refers to
‘profit’. From verses 2:278 – 280 the following principles are
deducible, viz. (1) the believers should give up the remainder of
Riba and if they do not, it would be war against Allah and the
Holy Prophet (PBUH), (2) if the debtor is in financial difficulty,
he should be given time, and if it is remitted by way of charity,
that is best for the believers. In verse 2:273, it is ordained that C.SH.R.P.1/2000 & C.SH.R.P. 1/200110
Sadqaat (almsgiving) are for the poor and the needy who have
been immobilized but they will not beg from all and sundry.
Obviously, these principles are not applicable to an industrialist
who has taken a loan of millions of rupees but to the poor and
the needy. To the similar effect are verses 73:20, 18:49-50 and
2:270. There is a contrast/comparison between ‘Sadqaat’ and
‘Riba’ in the Holy Quran and emphasis has been laid on giving
concessions/relaxations to the poor people. The banks cannot
make ‘Sadqaat’ in favour of industrialists.
7. Mr. Raza Kazim, ASC, learned counsel for the
Federation argued that in view of the bar contained in Article
203B(c) of the Constitution, the Federal Shariat Court had no
jurisdiction to embark upon declaring Riba as Haram i.e.
illegal or impermissible inasmuch as by virtue of Article 38(f)
of the Constitution a duty had been cast upon the Federal
Government and not the Federal Shariat Court to eliminate
Riba as early as possible and therefore the Federal Shariat
Court as well as the Shariat Appellate Bench of this Court
had no jurisdiction to step into the shoes of the Federal
Government to eliminate Riba by fixing a time frame. He
submitted that in pursuance of the judgment of the Shariat
Appellate Bench the Federal Government formed one
Commission and two task forces. The Task Force on
Government Borrowing was formed in the Ministry of Finance
to direct and facilitate the transformation of interest-based
government borrowing into Islamic modes of financing. The C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 11
other Task Force and the Commission were concerned with
effecting a transition to compliance with Shari’ah in the
financial sector and establishing a legal and regulatory
framework to document an Islamic economy. The learned
counsel pressed into service two affidavits filed on behalf of
the Ministry of Finance and the State Bank of Pakistan. Para
33 of the affidavit filed by the Secretary, Ministry of Finance,
at page 14 of the paper book reads as follows: -
“That Government of Pakistan has made best
possible efforts under Article 190 and Article
203D(3)(a) of the Constitution of the Islamic
Republic of Pakistan, 1973 to find ways and
means to implement the directives contained in
paragraphs (7), (8) and (9) of the Order dated
23.12.1999 of Hon’ble Supreme Court of Pakistan
(Shariat Appellate Bench) but has found that
implementation of the said directives is not
practical or feasible and if attempted will pose
high degree of risk to the economic stability and
security of Pakistan.”
Para 25 of the affidavit filed by the Deputy Governor, State
Bank of Pakistan at page 89 of the paper book reads as follows:-
“That having taken a series of steps to promote
Islamic banking described in para 21 above, and
considering all other practical problems associated
with the complete transformation of the financial
system discussed herein, it is State Bank of
Pakistan’s considered judgment that a parallel
approach will be in the best interest of the
country. This means that Islamic banking is
introduced as a parallel system of which a
beginning has already been made, it is provided a
level playing field vis-à-vis the existing
conventional banks, and its further growth and
development is supported by Government and
State Bank of Pakistan through appropriate
actions. This approach will eliminate the risk of
any major costs/damage to the economy, give a
fair chance to Islamic banks to develop alongside
the conventional banks, and will provide a choice
to the people of Pakistan, and the foreigners doing C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 12
businesses in/with Pakistan, to use either of the
two systems.”
8. Dr. Syed Riazul Hasan Gilani, Sr.ASC, learned
counsel for the Federation at the outset formulated his
contentions as under: -
(1) The impugned judgment has amalgamated legal
and moral aspects of Riba. Failure to
distinguish between legal and moral aspects of
Riba has resulted in violation of the Injunctions
of Islam as laid down in the Holy Quran and the
Sunnah of the Holy Prophet (PBUH) as well as
the juristic opinions of Imam Abu Hanifa and
other great jurists;
(2) The enforcement of Makrooh Riba through
State apparatus is against the Sunnah of the
Holy Prophet (PUBH);
(3) The consolidated definition which covers legal
as well as moral aspects of Riba has taken the
impugned judgment outside the jurisdiction of
this Court;
(4) While trying to define Riba the fundamental
rule of Tafseer (interpretation) has been violated
in the judgment inasmuch as while defining a
negative injunction like Riba the prevalent
practice and respective terminology used by the
pre-Islamic Arabs is relevant. For that, only the
reports narrated by the Sahaba (RA) and
Tabi’een are admissible. Juristic inferences in
this regard are neither relevant nor admissible;
(5) Failure to define ‘Qarz’ has rendered the entire
complexion of the impugned judgment against
the Shariat. The English word ‘loan’ is not the
exact counterpart of the word ‘Qarz’; C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 13
(6) The alternate modes of finance employed in the
so-called Islamic banking have been held to be
Riba by the most eminent jurists including
Abdullah bin Abbas and Abdullah bin Umer.
Moreover while suggesting measures for
Islamization of the banking system, the views of
Syed Muhammad Baqir-as-Sadar who
represents Jafri school of thought have been
ignored;
(7) In the judgment the views on Riba and banking
practice expressed by Shaikh Muhammad
Abduhu’, Shaikh Rashid Rida, Abdul Razzak
Sanhuri, the former Shaikhul Azhar Mahmood
Shaltut, Cairo, the present Shaikhul Azhar Dr.
Muhammad Sayyid Tantawi, Abdul Wahab
Khallaf and Dr. Maroof Daoualibi have been misread;
(8) The law of Riba has wrongly been applied to the
non-Muslims. In doing that not only the Holy
Quran and the Sunnah of the Holy Prophet
(PBUH) but also Fiqah Jafria has been violated;
(9) The judgment under review holds indexation
repugnant to the Injunctions of Islam without
quoting any material from the Holy Quran and
the Sunnah. While doing that, the juristic
opinions of A`la Hazrat Maulana Ahmed Raza
Khan Barelvi, Syed Muhammad Baqir-as-Sadar
and present Sheikhul Azhar Dr. Muhammad
Sayyid Tantawi have been ignored;
(10) ‘Zulm’ i.e. exploitation/oppression is the ‘Illat’
i.e. cause or essential ingredient of Riba. It
has wrongly been held in the judgment that
‘zulm’ is not ‘Illat’ but ‘hikmat’ of Riba. Thus,
the express verse of the Holy Quran and juristic C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 14
opinions of Imam Ibn-e-Rushd and Maulana
Ashraf Ali Thanvi have been opposed;
(11) Pre-determination of fixed profit is not the only
criterion which makes a transaction Riba. It
has been stated in the Hedaya and also opined
by Maulana Ashraf Ali Thanvi that predetermined fixed profit in a business
transaction is the characteristic of Mudaraba;
(12) The judgment under review has not taken note
of the transformation of individualistic profit
motive and risk factor to the society as a whole
by virtue of the corporate business.
9. Mr. Gilani contended that the judgment of the
Federal Shariat Court and that of the Shariat Appellate Bench
suffered from infirmities, in that, the most important and
delicate questions having material bearing on the issues
involved in these cases have not been dealt with. He contended
that he had raised at least 33 propositions in course of the
hearing, which were not attended to by the Shariat Appellate
Bench. He argued that the judgment of the Federal Shariat
Court is biased inasmuch as Mr. Justice Dr. Tanzilur Rahman,
C.J. (as he then was) had delivered the judgment with a
predetermined mind because while delivering the judgment he
had placed reliance on a report of the Council of Islamic
Ideology of which he happened to be the Chairman at the
relevant time which is apparent from a perusal of the judgment
of the Federal Shariat Court in particular with reference to
paragraphs 58, 59, 60, 62, etc. of the judgment. The Shariat
Appellate Bench also proceeded to rely upon the said report and C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 15
the writings of Dr. Tanzil-ur-Rahman. The Shariat Appellate
Bench did not consider this aspect at all and proceeded to rely
upon the work of Dr. Tanzil-ur-Rahman and therefore the
judgment under review as well as that of the Federal Shariat
Court lacked objectivity. The learned Judges of the Federal
Shariat Court confined themselves to the opinions of a
particular group of scholars having a particular viewpoint from
whom the author of the judgment (Dr. Tanzilur Rahman, C.J.,
as he then was) had derived inspiration for producing his works
in the Council of Islamic Ideology as well as writing other books
on the subject and kept out of consideration the opinions of
other eminent jurists such as Shaikh Muhammad Abduhu’,
Shaikh Rashid Rida, Abdul Razzak Sanhuri, the former
Shaikhul Azhar Mahmood Shaltut, Cairo, the present Shaikhul
Azhar Dr. Muhammad Sayyid Tantawi.
10. Mr. Gilani vehemently urged that the alternate
banking and financial system proposed in the judgment under
review was not at all workable and the government has found it
incapable of being implemented. He argued that the Federal
Shariat Court did not advert to the question of Riba-al-Fadl and
its enforcement-related implications and this glaring omission
escaped the notice of the Shariat Appellate Bench. In this
context reference may be made to the following observations of
the Federal Shariat Court at page 63 of the judgment which
reads as under: -
“Riba, in law, signifies an excess (increase) in a
(loan) contract in which such excess is, stipulated C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 16
as an obligatory condition on one of the parties,
without any return i.e. without any property (Mal),
in exchange. (See Book XIV on Sale Chapter VIII
on Riba or usury. Hedaya, English Translation by
Hamilton, Lahore, page 289), Imam Fakhrud-Din
Al-Razi (d. 606 A.H.) in his well known Tafsir al
Kabir writes that the meaning of the word Riba is
increase but it does not mean that to recover every
kind of increase is Riba and is unlawful(ﺣﻣﺎر ).
The forbiddance of Riba relates to special kind of
contract which was known amongst the Arabs as
Riba al Nasiyah (رﺑﺎاﻟﻨﺴﻴﻪ) i.e. increase on
debt. (The other kind of Riba called “Riba al Fadl”
( رﺑﺎاﻟﻔﻀﻞ ) is outside the scope of the present
discussion.”
The exclusion of Riba-al-Fadl from consideration was reiterated
at page 96 of the judgment in the following words: -
“Presently in these petitions we are concerned with
Riba-al-Nasi’ah …….. The difference of opinion
whatever is found is regarding Riba-al-Fadl and
that is out of discussion in the context of Bank
interest which is under our consideration.”
It is manifest from the perusal of the above findings of the
Federal Shariat Court that the question of Riba-al-Fadl and its
legal implications qua enforcement through legislation was kept
out of consideration for the reason that the same was never
treated subject-matter of the proceedings before it or a
controversy to be set at rest. On the other hand, the Shariat
Appellate Bench discussed Riba-al-Fadl in its judgment and
after dividing it into three categories held that Riba-al-Qur’an
and transactions of money covered by the first category of Ribaal-Fadl are more relevant to the modern business. Evidently, the Shariat Appellate Bench could not proceed to determine this
issue in the appeals unless there was a finding recorded by the
Federal Shariat Court. There is an error apparent on the record C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 17
inasmuch as the Shariat Appellate Bench considered that the
issue to be resolved by them did not relate to Riba-al-Nasi’ah
alone but also to Riba-al-Fadl, therefore, they should have
refrained from recording any finding on these concepts and
ought to have remanded the case to the Federal Shariat Court
for determination of the questions which were germane to the
issue of Riba-al-Fadl.
11. Mr. Gilani argued that all the Islamic banking
system suggested in the judgment under review is a misnomer
and except Musharika all other modes of finance are nothing
but Heela ( ﺣﻴﻠﻪ ), i.e. devices to avoid what is otherwise Riba
which are in fact more harsh and oppressive having the element
of ‘zulm’ and are worst in consequences as compared to the
various forms of interest prevalent in the present day banking
system which have wrongly been termed as Riba al-Nasi’ah in
the judgment under review. This aspect also requires thorough
and elaborate research on all its pros and cons and implications
by an independent and unbiased mind. The judgment under
review omitted to take into consideration the fact that the
alternate system is not a consensus oriented system and had
been bitterly opposed by many eminent jurists including
Abdullah bin Omer and Abdullah bin Abbas.
12. Mr. Makhdoom Ali Khan, learned Attorney General
for Pakistan vehemently contended that the Federal Shariat
Court as well as the Shariat Appellate Bench did not at all deal
with the questions of jurisdiction as well as maintainability of C.SH.R.P.1/2000 & C.SH.R.P. 1/2001 18
the petitions before the Federal Shariat Court with reference to
the provisions of Articles 29, 30(2), 38(f), 81(c) and 121(c) of the
Constitution and have only referred to the constitutional
provisions relating to jurisdiction of the Federal Shariat Court to
examine fiscal laws. We have also noticed that the payment of
interest finds mention in Article 161 as well as the definition of
the expression ‘pension’ in Article 260 of the Constitution.
Regarding the provisions of the Constitution as contained in the
Principles of Policy in relation to elimination of Riba it was
observed by the Federal Shariat Court that the government did
not make any effort to achieve the objective set out therein and
the judicial aspect of the case was not taken into consideration.
In this behalf, reference may be made to the observations made
by Dr. Tanzil-ur-Rahman, C.J. at page 51 of the judgment,
which read as under: -
“55. As to interest, Pakistan’s Constitution, 1956
provides that the State shall endeavour to
eliminate Riba as early as possible (Art.28-F), but
no effort was made to realize that objective. In
1962 Constitution, it was, again, provided in the
principles of policy (No.18) that Riba (usury)
should be eliminated. Similar provision was again
made in the Constitution of 1973, (Art.38-F).”
It is also pertinent to mention that even the Shariat Appellate
Bench did not examine all the jurisdictional aspects of the case
in the light of the above provisions of the Constitution as a
whole and confined itself to striking down certain rules relating
to operation of the Consolidated Fund.
13. We have noticed that the Federal Shariat Court did
not at all deal with question of applicability or otherwise of the C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
19
prohibition of Riba to non-Muslims and surprisingly the Shariat
Appellate Bench proceeded to hold that the prohibition applied
to the non-Muslims which was not the issue before it. On this
score also, the Shariat Appellate Bench ought to have remanded
the case to the Federal Shariat Court to determine this
question.
14. It was urged before us that the term ‘Qarz’ is
confined to that type of transaction which is made in the name
of Allah in the form of ‘Sadaqa’, ‘Khairaat’, i.e. almsgiving, etc.
It was argued that the present system of bank accounts and
investments in various schemes of the government do not
involve any transaction of loan, debt or Riba and are investment
simpliciter. While entering into such transactions, the investor
has no compulsion and he acts voluntarily in investing his
money for purposes of security as well as earning of profit and,
therefore, the receipt of profit by such a person in the
circumstances particularly when there is no element of
exploitation (‘zulm’) which is a sine qua non in a transaction of
Riba, cannot be termed as Riba. In this behalf, the cases of
pensioners, widows, etc. were brought to our notice and it was
urged that the continuance of the present day banking system
and the government sponsored savings schemes as well as the
transactions which lack ingredient of ‘Qarz’ involving ‘zulm’
(exploitation, oppression, etc.) as envisaged by the Holy Quran
and Sunnah, was in the larger interest and welfare of the
people. It was also urged that in case the judgment is C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
20
implemented, it would lead to chaos and anarchy in the country
and a duty is cast on an Islamic State to take all steps which
are necessary in the public interest and the welfare of the
people and avoid chaos and anarchy.
15. The Shariat Appellate Bench while proceeding to
examine the fiscal questions relating to inflation, indexation,
etc. made the following observation at page 734 of the
judgment: -
“186. In order to solve this problem, many
suggestions have been proposed by different
quarters, some of which are the following:-
(a) That the loans should be indexed,
meaning thereby, that the debtor must
pay an additional amount equal to the
increase in the rate of inflation during the
period of borrowing.
(b) That the loans should be tied up with
gold, and it should be presumed that the
one who has loaned Rs.1,000/- has
actually loaned as much gold as could be
purchased on that date for Rs.1,000/-
and must repay as much rupees as are
sufficient to purchase that much of gold.
(c) That the loans should be tied up by a
hard currency like dollar.
(d) That the loss of the value of money should
be shared by both creditors and lender in
equal proportion. If the value of money
has declined at a ratio of 5%, 2.5% should
be paid by the debtor and the rest should
be borne by the creditor, because the
inflation is a phenomenon beyond the
control of either of them. Being a common
suffering, both should share it.
187. But we feel that this question needs a more
thorough research which before its, final decision
in this Court should first be initiated by different
study circles of the country, especially, by the
Council of Islamic Ideology and the Commission C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
21
for the Islamization of Economy. Many
international seminars have been held to
deliberate on this issue. The papers and
resolutions of these seminars should be analyzed
in depth.
188. On the other hand, having held that this
question does neither justify interest nor provides
a substitute for it in the banking transactions, we
do not have to resolve this issue in this case, nor
does the decision about the laws under challenge
depend on it. We, therefore, leave the question
open for further study and research.”
In the face of the above observations and the finding of the
Federal Shariat Court on the question of indexation that it was
not permissible the Shariat Appellate Bench, before striking
down any law, ought to have remanded the case to the Federal
Shariat Court to decide the issues of inflation and indexation
afresh which according to the Bench itself required elaborate
discussion, research, further study and in-depth analysis of the
papers and resolutions of international seminars. In this
context Mr. Gilani argued that the definition of ‘Ra’sul Maal’, i.e.
the principal amount which is liable to be returned in a
transaction of ‘Qarz’ must be re-defined keeping in view the
scope of its intrinsic value in relation to inflation so that there
should be no exploitation as regards the equities of the parties.
16. We may observe here that before the Federal Shariat
Court Mr. Khalid M. Ishaque, learned Sr.ASC had raised the
following three contentions: -
“38. Mr.Khalid Ishaque, Advocate, who appeared
on 10.6.1991 on behalf of National Bank of
Pakistan and State Life Insurance Corporation,
filed interim written reply on behalf of his clients
and raised the following pleas:- C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
22
(i) The Banks in Pakistan are working within
the framework of Banking instruments
prescribed by the State Bank, with the
approval of Council of Islamic Ideology, as
valid Islamic Instruments.
(ii) There is a considerable juristic opinion
available to the fact that an increase to offset
the inflation would have legal justification
and would not be counted as riba; and
(iii) There is juristic opinion available to the fact
that Bank interest does not fall in the
category of prohibited riba (interest).
According to his opinion, Banks participate
in the procedure processes of the
Society/Community, make productive labour
possible, increase social wealth, and take
only a fraction of the profit that accrues to
them which is not riba.”
These contentions were not resolved on the ground that the
learned counsel who had raised the same did not send the texts
in support thereof. In this behalf, Dr. Tanzil-ur-Rahman, C.J.
(as he then was) made the following observations: -
“44. We have gone through the aforesaid Note
wherein the opinions of Ibnal-Qayyim,
Muhammad Abduhu, Rashid Raza, Sanhuri,
Daoualibi, Shaikh Draz, Maulana Abul Kalam
Azad, Maulana Abdul Aala Maudoodi, Maulana
Mufti Muhamamd Shafi and Dr.Wahba Al-Zuhaili
are alleged to be in favour of the plea about Bank
interest, as raised by the counsel………… No text
was sent…….. Therefore, unless and until the
exact writings of the great Imams or jurists are
laid before us by the counsel we are unable to
place any reliance on the secondary source of the
said Nabil.”
In this view of the matter, it was all the more necessary for the
Shariat Appellate Bench to have remanded the cases to the
Federal Shariat Court for giving a clear verdict after considering
all the relevant material. C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
23
17. A case for review of the impugned judgment is made
out as there are errors floating on the surface of record as
highlighted in the preceding paragraphs. In this view of the
matter we find no force in the contention that the submissions
made in support of the review petition amount to a plea for
rehearing of the case.
18. In the light of the foregoing discussion, we are of the
considered view that the issues involved in these cases require
to be re-determined after thorough and elaborate research and
comparative study of the financial systems which are prevalent
in the contemporary Muslim countries of the world. Since the
Federal Shariat Court did not give a definite finding on all the
issues involved the determination whereof was essential to the
resolution of the controversy involved in these cases, it would be
in the fitness of things if the matter is remanded to the Federal
Shariat Court which under the Constitution is enjoined upon to
give a definite finding on all the issues falling within its
jurisdiction.
19. Resultantly, Civil Shariat Review Petition No. 1 of
2000 filed by the United Bank Ltd is allowed, the
judgment dated 23rd
December, 1999 passed by the
Shariat Appellate Bench of this Court in Shariat Appeals
No. 11 to 19 of 1992 and the judgment dated 14th
November, 1991 of the Federal Shariat Court passed in Shariat
Petitions No. 42-I + 45-I of 1991 etc. are set aside and the cases
are remitted to the Federal Shariat Court for determination C.SH.R.P.1/2000 &
C.SH.R.P. 1/2001
24
afresh in the light of the contentions of the parties noted above
and the observations made which are germane to the
controversy. Besides the points raised before this Court, the
parties would be at liberty to raise any other issue relevant to
these cases and the Federal Shariat Court may also, on its own
motion, take into consideration any other aspect which may
arise or may be found relevant for determination of the issues
involved herein.
20. Before parting with the Order we would like to record
our deep appreciation for the valuable assistance rendered by
the learned counsel for the parties and the learned Attorney
General for Pakistan and their associates.
CHIEF JUSTICE
JUDGE
JUDGE
MEMBER
MEMBER
Announced today, the 24th June, 2002
at Islamabad.
APPROVED FOR REPORTING
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