OVERSEAS PAK CREDIT AND INVESTMENT CORPORATION (PVT.) LTD. Versus GOVERNOR STATE BANK OF PAKISTAN

ORDER

1. SALEEM AKHTAR, J.‑ ‑This petition has been filed challenging the declaration made by the respondent No.l under section 43‑B of the Banking Companies Ordinance (hereinafter called the Ordinance) as without lawful authority and of no legal effect. The plaintiff is a company incorporated under the Companies Act 1913. It had applied for registration under the Modarbas Companies Ordinance, 1980 but this application was rejected which has been challenged in Suit No.545/86 and is still pending. The petitioner claims to have established, own and control commercial undertakings namely: (1) Messrs Alviren Chemical Inventions, (2) Durrani and Mirza Farming, (3) S.A.S. Farming, and (4) Messrs Shape Advertising. The respondent No.2 by notice dated 5‑4‑1987 informed the petitioner that it is transacting banking business in contravention of section 27 (1) of the Ordinance and invoking section 43‑A called upon it to furnish all records and information in respect of the illegal banking business and also to allow their authorised officer to enter upon the premises to inspect, search and seize the record and also to examine the officials or representative of the petitioner. The petitioner replied that it is a private Modarba company and that it has paid regular profits to its investors and guarded their interest by making solid investments in creation of cosmetics company agricultural farming, advertising agency and poultry farming. It was also stated that the petitioner does not fall within the purview of any part or the whole to the Ordinance. Thereafter, the authorised representatives of the respondent No.2 inspected the documents and scrutinised the records of the petitioner and it is alleged that orally they expressed their satisfaction that the provisions of section 27 (1) of the Ordinance have not been contravened. This has been denied by the respondents. The confidential inspection report produced before us does not support the petitioner's contention. The respondent No.l then issued a show‑cause notice dated 10‑6‑1987 under section 43‑B (1) of the Ordinance which reads as follows:

2. "In continuation of the directive served on. you vide State Bank of Pakistan's Letter No.BID. Insp. FC. 549/87/604‑A, dated the 15th April, 1987 and after perusing the evidence produced given or collected (as per list enclosed) the State Bank are prima facie of the opinion that you are 'doing the business of banking in contravention of subsection (1) of section 27 of the Banking Companies Ordinance, 1962. The State Bank of Pakistan, therefore, propose to make a declaration to that effect under subsection (1) of section 43‑B of the Banking Companies Ordinance, 1962 as amended by Ordinance No.LVI of 1979. Before doing so the State Bank of Pakistan hereby give you an opportunity of showing cause in terms of section 43‑B (1) ibid against the proposed declaration within 7 days from the date of receipt of this letter, failing which an ex parte decision will be made."

3. A list of schedule of evidence was also enclosed.

4. The petitioner by letter dated 18‑6‑1987 replied this notice and stated that on the basis of the evidence relied upon and referred by respondent No.l mentioned in the show‑cause notice the petitioner "is only accepting the financing merely for the purposes of financing its subsidiary holdings" viz. the aforestated four firms. It was denied that petition is hit by section 27 and termed the proposed action unlawful and void ab initio. Immediately thereafter the petitioner filed Suit No.1207/87 in the Court of Second Senior Civil Judge, Karachi for declaration that the show‑cause notice is illegal.

5. By notice dated 15‑2‑1988 published on 18‑2‑1988 in the Daily Dawn, Karachi, the respondent No.l made a declaration as follows:‑

"STATE BANK OF PAKISTAN DECLARATION

6. UNDER SECTION 43‑B OF THE BANKING COMPANIES

7. ORDINANCE, 1962

8. After having made necessary enquiries and given an opportunity of showing cause to the Overseas Pak Credit and Investment Corporation (Pvt) Limited having its registered office at 3/8‑9, Rimpa Plaza, M.A. Jinnah Road, Karachi, the State Bank of Pakistan is of the opinion and hereby makes the declaration in terms of section 43‑B of the Banking Companies Ordinance, 1962 that the said company has contravened the provision of subsection (1) of section 27 of the said Ordinance.

9. Karachi. GOVERNOR

10. Dated: the 15th February, 1988

11. The petitioner has challenged this declaration in this petition.

12. We have issued pre‑admission notice to the respondents as well as to the Dy. Attorney‑General. The respondents have filed counter‑affidavit and we have heard Mr. Khalid M. Ishaq, Mr. Mohammad Shibli and Mr. Imam Ali Kazi the learned Dy. Attorney General. Mr. Khalid M. Ishaq the learned counsel for the. petitioner has contended that the petitioner is not a banking company and is not carrying on any banking business. The words "banking" and "banking company" have been defined by section 5(b) and (c) as follows:‑

13. "(b) 'Banking' means the accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise;

(c) 'Banking company' means any company which transacts the business of banking in Pakistan;

14. Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;"

15. The word 'Banking' as defined in section 5(b) contemplates a business where money or deposits are accepted from public for investment or lending them and further that such amount received from public is; repayable on demand or by any other mode and can be withdrawn by cheque, draft or in any other manner. Any company which transacts banking business in Pakistan is called a banking company. In the explanation to section 5(c) it has been clarified that a company which is engaged in the manufacture of goods or any trade and accepts. deposits of money from public solely and exclusively for the purpose of financing its own business will not be treated a 'banking company.' Therefore, where any company obtains money from public for investment and utilises it only in the manufacturing or trading business), owned and carried on by it, it will not be covered by the definition! of 'banking company.'

16. The learned counsel for the petitioner has contended that the aforestated four concerns are subsidiaries of the petitioner company and owned by it as the entire investment has been made by the petitioner. All these subsidiary firms according to the petitioner's own showing are partnership concerns in which Imam Durrani, Najma Durrani, Miss Alvia Bano, Miss Rehana Masood, Humayoon Hamza Mirza, Asif Parvez and Parvez Durrani are partners of Alviran Chemical Invention; Humayoon Mirza is also a partner of Durrani and Mirza Poultry Farm alongwith Parvez Durrani, while S.A.S. Firm is constituted of Owais Ahmad Shah and Parvez Durrani. All these persons are alleged to be the directors/ shareholders of the petitioner as well. According to the petitioner these partners have signed a statement stating that all these firms are subsidiaries and wholly and solely owned by the petitioner and the documents are benami in the capacity of nominees or attorneys of the corporation. The respondent has produced a circular which was issued and advertised by the petitioner inviting investment of money from public. It recites that the petitioner is a company which invests money in industrial and trading projects and if anyone wants to participate then on the basis of sharing the profits he can do so, and invest such amount as he likes. It also prescribes the rate of profits which varies according to the period of investment. It is further stated that the investor will be entitled to withdraw the money after serving one month's notice.

17. From the above statement of facts and law it is clear that the petitioner having collected money from public has invested the same in the four concerns which according to it are its subsidiary or owned by it. The petitioner is a limited liability company and the four concerns are partnership firms constituted by persons who are alleged to be directors and or shareholders of the petitioner company. This common factor does not make these four firms as subsidiary companies of the petitioner, nor the petitioner becomes owner of those firms by virtue of such investment. A limited liability company is a distinct and separate legal entity from its directors/shareholders and firms constituted by such shareholders, or directors. The records obtained from the petitioners include agreements between the petitioners and the partnership firms under which the petitioner has advanced loans which are repayable with profits in terms stated therein. The manner and the arrangement under which money is collected from public and invested by the petitioner falls within the ambit of "banking" and is hit by section 27 of the Ordinance.

18. Mr. Khalid M. Ishaq the learned counsel for the petitioner has contended that before the declaration was made by the Governor no opportunity of being heard was given to the petitioner. Mr. Shibli has contended that the petitioners were allowed full opportunity as the authorised representative had been sent to collect and investigate into the matter within the premises of the petitioner, and if the petitioner wanted any hearing it should have asked for it when snow‑cause notice was served but as it did not do so, the declaration was made. During investigation the petitioner had full opportunity to present its case and all its records and documents were examined before issuing show‑cause notice, and declaration has been made relying on petitioner's own record. Furthermore, before the impugned declaration was made a show‑cause notice was served. The petitioner replied and it was open to it to ask for a personal hearing. But n such demand was made. The petitioner after replying immediately filed a suit for declaration and does not seem to be interested in asking for and personal hearing. In these circumstances the petitioner's contention has no force.

19. The learned counsel for the petitioner expressed his apprehention that if the declaration made by the respondent No.l remains operative the petitioner company including the partnership firms will be wound up. Mr. Shibli and a Director of the State Bank of Pakistan who was present in Court and the Dy. Attorney‑General have made a statement that the operation of the declaration will be in respect of the business of the petitioner only and as four firms mentioned above are separate and distinct from the petitioner their business will not be wound up or interfered with. The petition is therefore dismissed in limine.

20. A . A . /‑p‑7/ K Petition dismissed.