FEDERATION OF PAKISTAN and others vs SHAUKAT ALI MIAN and others
This matter involves appeals and constitutional petitions concerning the freezing of foreign currency accounts and restrictions placed on them by successive governments and the State Bank of Pakistan. The core legal questions relate to the constitutionality of statutory restrictions on foreign currency accounts and the legality of circulars compelling liquidation or removal of liens on such accounts. The Supreme Court held that Section 2 of the Foreign Exchange (Temporary Restrictions) Act, 1998 is intra vires the Constitution, subject to the declaration that it does not empower authorities to compel account-holders to convert their foreign exchange holdings into Pak Rupees or compulsorily liquidate accounts used as security against loans. Furthermore, certain circulars issued by the State Bank of Pakistan mandating the removal of liens or encumbrances were declared illegal and without legal consequence. The key principles laid down include the protection of agreed interest rates in foreign exchange, the entitlement of non-residents and foreigners to remit profits abroad, and the directive for the Federation and State Bank of Pakistan to evolve a scheme for the gradual removal of restrictions to restore account-holder confidence.
- Whether Section 2 of the Foreign Exchange (Temporary Restrictions) Act, 1998 is ultra vires the Constitution?
- Can the Federation or the State Bank of Pakistan compel Foreign Currency Account-holders to convert their foreign exchange holdings into Pak Rupees?
- Are Foreign Currency Account-holders entitled to receive interest or profits in foreign exchange at originally agreed rates?
- Whether the State Bank of Pakistan circulars mandating the removal of encumbrances or liens on foreign currency deposits are legal?
- Section 5(4), Protection of Economic Reforms Act 1992
- Section 2, Foreign Exchange (Temporary Restrictions) Act 1998
ORDER
' For the reasons to be recorded later,` the above appeal, petitions for leave to appeal and Constitution petitions are disposed of, as under:
(i) We are perturbed to note that despite the assurance given by the Legislature in subsection (4) of section 5 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992) to the effect that "The State Bank of Pakistan or other banks shall not impose any restrictions on deposits in and withdrawals from the foreign currency accounts and restrictions, if any, shall stand withdrawn forthwith", the successive Governments improperly utilised the foreign exchange deposits of the Foreign Currency Account holders in breach of the above solemn commitment and the State Bank of Pakistan also failed to perform its statutory duty to protect the interest of the Foreign Currency Account-holders, thereby creating a situation where at present it has become practically impossible to honour the above solemn undertaking given by the Legislature.
(ii) Section 2 of the Foreign Exchange (Temporary Restrictions) Act, 1998 (Act IV of 1998)
(hereinafter referred to as the Act) is intra vires of the Constitution, subject to the declaration that the same does not confer any power on the Federation or on the State Bank of Pakistan to compel Foreign Currency Account-holders to convert their foreign exchange holdings into Pak Rupees at the officially notified rate of exchange, or to compel the said account-holders to liquidate their above accounts into Pak Rupees which foreign exchange holdings had been accepted by the respective banks as security against any loans or other facilities extended to them.
(iii) That B.P.R.D. Circular No,23, dated 2-7-1998 read with B.P.R.D. Circular No,29, dated 17-11-1998 to the extent of providing that "It has been decided that encumbrance or lien of any kind upon any foreign currency deposit/foreign currency certificate as a cover against any I direct or indirect liability of the depositors must be removed by July 31, 1998 through set off or direct liquidation of the liabilities so covered by the borrowers", is illegal and of no legal consequence, besides the above Circular has been withdrawn by the State Bank of Pakistan as stated by the learned Attorney-General in the Court before us on 9-6-1999 and, therefore, it does not hold the field.
(iv) That the Foreign Currency Account-holders are entitled to receive interest/profits in foreign exchange on their deposits at rates already agreed as per original arrangements between them and the respective banks.
(v) That the non-resident Pakistanis and foreigners maintaining Foreign Currency Accounts as on 28-5-1998 will be entitled to utilise the interest/profits, payable to them under the above arrangements between them and the banks concerned, in any manner including the right to remit the same abroad.
(vi) That in order to restore the confidence of the existing/prospective Foreign Currency Account- holders, the Federation/State Bank of Pakistan shall evolve a scheme within a reasonable period keeping in view the foreign exchange position of the country for gradual removal of restrictions on operation of Foreign Currency Accounts imposed by section 2 of the Act, and that, in any case, in every annual budget a reasonable provision in this regard shall be made.
2. That pursuant to the direction of the Court, the learned Attorney-General has furnished on 17-6- 1999 particulars of the Foreign Currency Account ' Folders who had withdrawn foreign currency from their respective accounts during the period from 11-5-1998 to 28-5-1998. The same will be examined for initiating suitable action in accordance with law, if so warranted.