MUHAMMAD JAVAID ANJUM Versus INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN

Industrial Development Bank of Pakistan (I. D. B. P.) is a Government owned and controlled financial institution. I.D.B.P. admittedly floated a scheme known as "Mahana Munafa Certificate" (MMC) inviting deposits for a fixed period against the promise of a fixed rate of profit/return every month to the depositors/ customers. The Scheme containing the terms/ representations was advertised to invite deposits from the general public. The petitioner Muhammad Javaid Anjum on absolute faith in the representations of I.D.B.P. made deposits respectively of Rs.4,00,000, Rs.5,00,000 and 6,00,000 total A Rs.15,00,000 for a fixed period of 84 months at the given profit rate of 14% per annum. Upon receipt of the above deposits, I.D.B.P. issued three M.M.Cs. respectively dated 2-11-2001 and 16-11-2001 against the entries bearing Nos. DR 075939, DR 075938 and DR 132012.

2. Mahana Munafa Certificates (MMCs) so issued by I.D.B.P. contained acknowledgement of the deposited amounts and the agreed terms of the fixed deposits. I.D.B.P. admits that MMCs correctly represent the terms of the deposit, the rate of profit and the mode of payment as under:--

Terms of deposit

Rate of profit

Mode of payment

84 months

14% per annum

Monthly payment as per the Scheme and the heading

(MMC).

3. It is the consensus case of the parties that the duration of the petitioner's deposit certificates was uptill November, 2008 and I.D.B.P. continued making monthly payments of the profits upon agreed rate of return to the petitioner up till February, 2003.

4. On 7th February, 2003, I.D.B.P. through a Circular informed the petitioner that owing to reduction in the lending rates, I.D.B.P. was reducing the "profit rates" on the deposits from 14% to 12% with effect from 1st March, 2003.

5. Aggrieved therefrom, the petitioner filed the present Constitutional petition on 5-4-2003. Subsequently, the learned counsel for the petitioner brought on record attested copies of the Account Opening Form dated 19-11-2001 for MMCs Nos.075939, 75938 and 132012 and I.D.B.P.'s letters dated 8-4-2003 and 10-5-2003 for further reduction of profit rates to 10% and then to 7% with effect from 1st May, 2003 or otherwise offering the petitioner to make alternate arrangements without any penalty.

6. Report and parawise comments were filed by I.D.B.P. The learned counsel for I.D.B.P. brought to the notice of the Court that certificate forms used by I.D.B.P. for MMCs were printed prior to change of interest based transaction into profit or mark-up based transaction, wherefor, he stated that the word 'interest' printed therein was of no significance and same be read as "profit" in terms of the Scheme.

7. The learned counsel for the petitioner in above explained facts, reiterated the contents of MMCs to advance the case of the petitioner that I.D.B.P. being under C a contract, could not unilaterally reduce the rate of profit on MMCs.

Contrarily, the learned counsel for the respondent referred to the terms of Account Opening Form to contend that apart from the terms in the MMCs as to the period, rate of profit and the mode of payment, additional terms were contained in the Account Opening Form under the head "SPECIAL NOTICE TIME DEPOSIT" on profit and loss basis, wherein discretion vested in I.D.B.P. to reduce rates of profit at the preceding half yearly or yearly closing. It was further contended that upon reduction of profit rates by the State Bank of Pakistan, I.D.B.P. was competent to reduce the rates.

8. Upon consideration of submissions of the learned counsel for the parties and the record placed before this Court by them, a number of facts emerge as the admitted facts which are that:---

(i) MMCs scheme was introduced and advertised by I. D. B. P. containing definite terms and representations regarding monthly payment of profits to the depositors upon a fixed rate of profit per annum on the deposits made for a fixed term; -

(ii) General public was invited to make deposits on the represented and offered terms;

(iii) Upon receipt of deposits under Mahana Munafa Certificates Scheme, certificates titled as MMCs were issued to the depositors by I.D.B.P.;

(iv) The petitioner accepting the offer deposited a total sum of Rs.15,00,000 with I.D.B.P. in the said Scheme;

(v) I.D.B.P. issued three MMCs bearing Nos.DR 075939 and DR 075938 respectively for Rs.4,00,000 and Rs.5,00,000 on 2-11-2001 and No.DR 132012 for a sum of Rs.6,00,000 on 16-11-2001;

(vi) As per the terms of the above MMC, the deposit was for the fixed of 84 months and the fixed rate of profit was 14% per annum payable on monthly basis by I.D.B.P. to the petitioner for the agreed period. The certificates did not contain any other term;

(vii) I.D.B.P. also obtained application on an account opening form for above referred MMCs from the petitioner who signed the account opening form;

(viii) I. D. B. P. continued payment of monthly profit to the petitioner at the agreed rates up till February, 2003 or March, 2003; and

(ix) Through Circular dated 7-2-2003, I.D.B.P. reduced the profit rates from 14% to 12% with effect from March, 2003 and through subsequent Circulars dated 8-4-2003 and 10-5-2003, the rates of profit were further reduced with effect from 1-4-2003 and then from 1-5-2003.

9. The learned counsel for the petitioner obviously canvassed the case of the petitioner against unilateral and drastic reduction of profit rates from 14% per annum to 7% per annum or less while the learned counsel for the respondent Bank argued that the reduction of lending .rates by the State Bank of Pakistan forced I.D.B.P. to reduce the rates of profit on its already existing schemes.

No law or precedents from any jurisdiction were produced by the parties on the important subject of the ,Constitutional petition.

10. I. D. B. P. did not place on record the Notifications or Circulars issued by the State Bank of Pakistan on the change in the lending/ borrowing rates to enable this Court to examine as to whether change in rates was applicable prospectively or retrospectively and as to whether the Notifications and Circulars of the State Bank of Pakistan could be applied to the already existing Deposit Schemes in I.D.B.P. The respondent-Bank also failed to produce any law or precedent to show that the alleged circulars and notifications issued by the State Bank of Pakistan could be legitimately set up as a ground for the alteration in the terms and conditions of the contracted deposit schemes to the disadvantage of the depositors. In absence of any material or law produced by I.D.B.P., this Court cannot accept the vague arid general argument that upon change of the rates by the State Bank of Pakistan, I.D.B.P. was competent to unilaterally reduce the' rates of profit in the existing schemes and could thus with impunity cause a material loss to its customers. Had the terms of such-like schemes been altered or performance of I.D.B.P. excused through the promulgation of a law or by an amendment in the existing laws, the position would have been different. In appropriate cases, though the applicability and import of such laws would have been judicially reviewed by the Courts.

11. In absence of the legal authority in I. D. B. P. to alter the terms of the Scheme, it can only fall back upon the terms and conditions of the contract between the parties. The learned counsel for I.D.B.P. claims that MMCs and Account Opening Form read together constitute the full contract between the parties. And that the following four terms given in the Account Opening Form under the head "Special Notice Time Deposit" also apply to the case of the petitioner:--

SPECIAL NOTICE TIME DEPOSIT.

(1) Profit/ return is paid on daily product basis.

(2) Profit PLS SNTD is payable at the rate declared on preceding half yearly/yearly closing.

(3) No profit/return .will be paid after expiry of notice period if the deposit is not withdrawn.

(4) No profit/return is paid for pre-mature encashment before seven days or thirty days notice, as the case may be, from the date of notice or date of issue.

12. Attending to the above submissions, I find it strange that MMCs were respectively issued by I.D.B.P. on 2-11-2001 and 16-11-2001 but the Account Opening Form was obtained on 19-11-2001. In absence of a dispute, no further comment is needed thereupon.

13. Column 1 of the Account Opening Form lists 12 types of accounts. Reading horizontally, this column mentions MMC/BBMC at Box No.6. In the petitioner's Account Opening Form, BBMC was struck out. MMC was retained as the applicable account. Third and fourth page of the Account Opening Form lists the rules and regulations under the following Heads:--

- Current Account

- Foreign Currency Account

- Profit and Loss Sharing System

- Special Notice Time Deposit

- General Rules

14. The learned counsel for the respondent states that only Regulations; above reproduced, under the head of Special Notice Time Deposit were additionally applicable to MMCs. The first two terms of Special Notice Time Deposit were read out repeatedly to emphasis that:--

(1) "Profit/return is paid on daily product basis.

(2) Profit PLS SNTD is payable at the rate declared on preceding half yearly/yearly closing."

I.D.B.P.'s learned counsel claimed that on the preceding half yearly/yearly closing, I.D.B.P. had the discretion to declare the rates payable on PLS SNTD (Profit and Loss System Special Notice Time Deposit) and such rates were on daily product basis. And that in exercise of the powers under above agreed terms, I.D.B.P. reduced the rates of profit through the impugned Circulars.

15. I am afraid, this argument is self-defeating. Terms under "Special Notice Time Deposit" are admittedly applicable to the Profit and Loss Sharing System (PLS) per I term 2. In my opinion, the conditions applicable to the Profit and Loss Sharing System or the PLS Accounts cannot be applied 'to the Mahana Munafa Certificates System (MMCs), for which other than those on the face of the Certificates, no special conditions have been specified in the Account Opening Form.

16. Fixed deposit for a fixed period on a fixed rate of profit on fixed mode of payment cannot be stretched to fall within the Profit and Loss Sharing System. The founding principles, the conceptual basis and the applicable rules in the two systems are different.

(i) The basic term on which MMC is founded is the undertaking or promise to pay a fixed return per annum i.e. 14% in the present case. In the Profit and Loss Sharing System /Accounts, rate of return is calculated on the accrued profit and loss;

(ii) Rates of return in a PLS Account cannot be fixed in advance. At maximum future projections can be made on the provisional or expected rates. The amount and the rate of Bank's profit or loss cannot be definitively anticipated and agreed upon in advance. The actual rate of return is declarable only at the end of each closing. In MMCs, a definite and prefixed rate of return has been agreed upon f between the parties to ensure a given monthly income to the customer;

(iii) In PLS System of Account sharing the loss by the account holder with the Bank is a pre-condition. Under the schemes like MMC; customers are not made liable to share the loss and they only receive profits on the agreed rates

(iv) Term 1 of Special-Notice Time Deposit otherwise provides for the profit/return on Daily Product Basis. MMC provides-for a fixed profit rate per annum and is not dependent upon the daily product calculations.

17. Mahana Munafa Certificate (MMC) is a specie of contract apart and different from the other contracts or Accounts. MMC contains a complete contract in itself. It is also a concluded contract. The respective rights and duties of the parties flow from the Certificates in absence of any other agreements. The terms of the MMC thus bind the F parties. I.D.B.P. cannot unilaterally alter the promised and the contracted terms. Any alteration by one party without agreement of the other will be a material breach and a rescission of the contract. I.D.B.P. has to be held to its commercial and financial contracts. Moreso because of the Governmental ownership, control and participation in I. D. B. P.

18. Frustration of the contract absolving Bank of its contractual duties or novation and discharge of the contract were not the defence or cannot be the defence of G I.D.B.P. under the prevailing conditions, wherefor applicability of these doctrines need not to be discussed in this judgment.

19. It is recorded with respect that judgment dated 30-5-2001 passed in the case of NDFC (Writ Petition No.9316 of 2001) by an Honourable Single Bench of this Court is not applicable to the present case. The deposit in the said case was received by NDFC on profit and loss sharing basis in terms of the issued certificates and NDFC suffered losses as per its balance-sheets Obliging it to reduce the rates of profit. None of these conditions apply to the present case.

20. Owing to the changes in the lending or borrowing rates by the State Bank of Pakistan at given times, I.D.B.P. can formulate deposit schemes for the future but cannot claim power to unilaterally amend, alter or change the terms and conditions of the existing Certificates or Accounts in which the deposits were made by the citizens upon the faith of express representations and promises of I.D.B.P.

21. Mahana Munafa Certificates Scheme also did not contain any conditional or contingent agreements. It was not designed or developed to allow unilateral power to I.D.B.P. to reduce or increase the rates of agreed profits or, returns upon the happening or non-happening of any event(s). It was not tied to the market forces or the floating I rates. In absence of a clear and express agreement reserving and stipulating the power in the scheme or the MMC to alter the agreed rates of return, I.D.B.P. cannot assume such a power to unilaterally alter the material terms of its offered schemes and the concluded contracts. Assumption and arrogation of such power by I.D.B.P. is unlawful and arbitrary.

22. Given such power, I.D.B.P. could reduce the rates of return from 14% to "nil" even. Correspondingly, I.D.B.P. should also cede to the principle of increase in the rates of the return from 14% to 28% or above on changes in the economic graph. Such a gambit will be fatal to the contractual certainty and the financial credence of the deposit schemes offered by the Banks. On slight variations in the presumed assumptions, the Banks and their customers will chaotically rush on each other with unending financial claims and the consequent litigations. The obvious result will be the social and economic unrest in the State.

23. In view of what has been held above, this petition is 6Lccepted with costs. Actions, circulars and letters of I.D.B.P. reducing the rates of return/profit are declared to be without lawful authority and of no legal effect. I.D.B.P. shall continue paying the profits on the agreed terms as per the MMCs to the petitioner till expiry of the agreed tenure of 84 months. The arrears of unpaid amounts of the agreed monthly instalments, if outstanding, shall be paid by I.D.B.P. within a period of thirty days to the petitioner.

M.B.A./M-68/L Petition accepted.