Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Misc. Application No. 1092 of 1974 in High Court Appeal No 83 of 1973, decided on 7th October 1974.
Ss. 5, 16 & 21‑Banks in country though nationalised nevertheless continue to exist as legal persons‑Contracts, entered into by Banks, need not be executed by a Secretary of the Central Government in terms of Art. 173 of Constitution of Pakistan (1973)‑Constitution of Pakistan (1973), Art. 173.
The language of subsection (1) of section 5 of the Banks (Nationalization) Act, 1974 is plain and unambiguous and supports to the hilt the submission that banks have been nationalized. But this does not mean that the Legislature could not have made some other arrangements for running the banks so as to take them out of the ambit of Article 173 of the Constitution of Pakistan, (1973). After all, thousands of contracts have to be made every day in the banking business, and if every such contract has to be executed in the manner prescribed in Article 173, the results would be fantastic. But absurdity is not to be attributed to the Legislature, and subsection (5) of section 5 is at least clear enough to indicate that the Legislature did not intend to create the absurd situation of the Federal Government itself running the banks.
Section 16 of the Act makes it plain beyond any doubt that the banks continue to exist after nationlization as legal entities independent of the Federal Government. That they might be subject to the directions of the Federal Government directly or indirectly through the Banking Council is another matter, for long before nationalization banks had been subject to considerable control by the State Bank.
Mansoorul Arfin for Appellant.
Z. C. Valliani Attorney General (on Court's Notice) for Respondent.
Date of hearing : 19th September 1974.
The Commerce Bank, when it was merely a Company incorporated under the Companies Act, 1913, obtained a decree against the appellant in a suit on the original side of this Court. The appellant, therefore, filed an appeal and together with it he filed the usual stay application. This application was allowed by consent by a Division Bench of this Court on 30th November 1973, on the usual terms as a condition of the stay, the appellant was to deposit the decretal amount in Court which was to be drawn out by the respondent on furnishing security. In pursuance of this order, one Mr. Kapadia, a senior officer of the respondent, offered to execute a guarantee on its behalf and it is admitted before us that the said Mr. Kapadia had been authorised to execute guarantees on behalf of the respondent under a power of attorney executed by the: Commerce Bank's Board of Directors before 31‑12‑1973. However, before this guarantee could be accepted, the Banks (Nationalization) Ordinance, 1974 (hereinafter called the said Ordinance) was promulgated on 1‑1‑1974, and, according to the appellant, the result of the said Ordinance was that all banks had been nationalized, therefore, they were no longer competent either to execute guarantees or to appoint attorneys to execute guarantees on their behalf. As this objection related to the construction of the said Ordinance, notice was given to the Attorney‑General, but in view of the delay in deciding this objection, the respondent filed an application that the decretal amount be invested with it in Fixed Deposits, so that in the event of the appellant being successful, he would receive back the decretal amount with interest. As Mr, Arfin rejected this very fair offer and insisted that the money should be de posited with banks which were permitted to give slightly higher interests, the respondent withdrew its application and in pursuance of our order of 18‑9‑1974, we heard the Attorney‑General, Mr. Valliani, and Mr. Arfin on the appellant's objection.
2. According to Article 173 of the Constitution, all contracts "in the exercise of the executive authority of the Federation" have to be executed by a Secretary of the Central Government." This was not disputed by the learned Attoney‑General, therefore, Mr. Arfin's submission was that as the Commerce Bank had vested under the said Ordinance in the Central Govern ment, all contracts by that bank, including the guarantee which was to be furnished in this appeal for the protection of the appellant, had to be executed by the Secretary, Ministry of Finance Central Government. Now Article 173 has to be read as a whole, and the first clause reads as follows:‑
"The executive authority of the Federation and of a province shall extend, subject to any Act of the appropriate Legislature, to the grant, sale, disposition or mortgage of any property vested in, and to the purchase or acquisition of property, on behalf of, the Federal Government or, as the case may be, the Provincial Government, and to the making of contracts."
On the footing that the Commerce Bank's assets are vested in the Central Government, it is true that the executive authority of the Federation would extend to any contract with regard to those assets, but on the plain language of the clause, this is "subject to any Act of the appropriate Legislature". The result is that it is not enough for the appellant to show that banks have been nationalized by the Central Government, and it is also necessary to examine the provisions of the nationalizing statute or statutes. I say statutes, because the said Ordinance was repealed in March 1974 by the Banks (Nationalization) Act, 1974 (hereinafter called the said Act). Accordingly I would now examine the submissions of the learned counsel on these statutes.
3. All the learned counsel relied on section 5 of the statutes and I will, in this discussion, refer only to the said Act except where otherwise necessary. According to Mr. Arfin, the effect of section 5 of the said Act was not merely that banks had been nationalized, but that the properties and liabilities of the nationalized banks had vested in the Central Government, so as to attract the provision of Article 173 of the Constitution. But according to the Attorney General, and Mr. Valliani, who appeared on behalf of the respondent, the effect of this section was to nationalize only share‑holding in these banks but not the banks themselves. It is, therefore, necessary to examine this section, but before I do so, I have to observe that a mixed economy is a condition of modern democratic life. But although nationalization of indus tries is a common feature of modern democracies, the nationalised industries are seldom run by the Government themselves. The more usual practice is to set up corporations to run such industries, and with this observation I will examine subsection (5).
4. I may first point out that subsection (5) of this section is contained only in the said Act and was not to be found in the said Ordinance. The section, as it now stands, reads as follows:‑
"5. Transfer and vesting of ownership, etc., of banks.‑(1) The. Owner ship, management and control of all banks shall stand transferred to, and vest in the Federal Government on the commencing day.
(2) All shares in the capital of a bank held by persons other than the Federal Government, a Provincial Government, a corporation owned or controlled by the Federal Government or the State Bank shall stand transferred to, and vest in the Federal Government on the commencing day, free of all trusts, liabilities and encumbrances.
(3) The vesting of any shares in the Federal Government under subsection (2) shall not affect the right inter se of a shareholder and any other person who may have an interest in such shares and such other person shall be entitled to enforce his interest against the compensation awarded to the shareholder under section 6.
(4) The safety of all deposits in banks shall stand guaranteed by the Federal Government.
(5) The provisions of this Act, and the vesting of the shares of the banks in the Federal Government thereunder shall not in any way affect the status of the banks as bodies corporate under the Companies Act, 1913.
Mr. Arfin relied on subsection (1) of the section, and I can only observe that its language is plain and unambiguous and supports to the hilt Mr. Arfin's submission that banks have been nationalized. But this does not mean that the Legislature could not have made some other arrangements for running the banks so as to take them out of the ambit of Article 173. After all, thousands of contracts have to be made every day in the banking business, and if every such contract has to be executed in the manner prescribed in Article 173, the results would be fantastic. But absurdity is not to be attributed to the Legislature, and subsection (5) of section 5 is at least clear enough to indicate that the Legislature did not intend to create the absurd situation of the Federal Government itself running the banks. As Mr. Arfin also relied on some other provisions of the said Act, I will examine them presently, but I may observe here that far from supporting his submission, they go against it.
5. I would now examine the submission of the learned Attorney‑General and of Mr. Valliani that the ownership of the banks had not been acquired by the Central Government, but that what had been acquired were only the shares owned by persons other than those mentioned in subsection (2) of the said section, in other words the private shareholding in the banks; and, according to the learned Attorney‑General, the position in this respect had been clarified by the insertion of subsection (5) in section 5 of the said Act. Obviously the intention of the Legislature is reflected in this subsection but the question is what is that intention, and if the intention had only been to nationalize the management and control of banks and to nationalize the private sharehold ings in them, why did the Legislature enact in subsection (1) that "ownership, management and control of all banks shall stand transferred to and vest in the Federal Government" Additionally, if I am wrong, when the said Ordinance was repealed and subsection (5) was inserted into the section, the Legislature would have deleted the word ownership' in subsection (1). As it deliberately refrained from so doing, the submission appears to be contrary to the intention of the Legislature, which has been expressed in the plainest possible language.
6. It would be convenient to examine the Attorney‑General's submission by reference to similar statutes, and on the footing that the said Act has nationalized only the private shareholding in banks, it is in pari materia with the Pakistan Maritime Shipping (Regulation and Control) Act, 1974 and the Marketing of Petroleum Products (Federal Control) Act, 1974. Now the provisions for nationalization in both these statutes are also in pari material and are contained in section 5 of these Acts, and I would quote‑section 5 off' the latter Act, as it received the President's assent two days, before the said. Act. Section 5 of this Act in so far as it is relevant reads :‑‑
"5. Power to take over management or acquire shares or business of marketing company.‑(1) The Federal Government may, if it considers necessary in the public interest so to do, by an order‑
(a) take over the management of any marketing Company and, as, from the date of such order, the previous management shall stand divested of such management;
(b) acquire the whole or a portion of the shares from all or any of the shareholders of such marketing company and, as from the date of such order, the shares so acquired shall vest in the Federal Government:
Provided that no order shall be made under this section for the acquisi tion of the shares held in a marketing Company by an institution owned, or controlled by the Federal Government, including the National Invest ment Trust and the Investment Corporation of Pakistan or the shares, held by a foreign investor."
Thus the Legislature was aware of the distinction between nationalizing shares in a Company, albeit all the shares in a company, and nationalizing the Company itself, and if the intention of the said Act had been only to nationalize some unknown part of the shares in the banks, it would have enacted accordingly. Instead, as it again enacted that the "ownership, manage ment and control of all banks shall stand transferred to and vest in the Federal Government". ' I do not see how we can accept the learned Attorney -General's submission.
7. The learned Attorney‑General however stressed that we had to give effect to subsection (5) of section 5 of the said Act. That is correct, but, as 1 observed, the question is of the meaning of this subsection. As it refers to "the vesting of the shares of the banks" I have considered whether these words would justify us in striking down as redundant or absurd the express enact ment in the opening words of the section that the ownership of the banks had vested in the Federal Government. Startling as this proposition sounds, it is. what the learned Attorney‑General's submission amounts to. And having given anxious thought to the question, in my opinion, the answer must be ill the negative, because the words "the vesting of the shares of the Banks" are preceded by the words "the provisions of this Act", and as according to sub section (1) of the section, the ownership of the banks themselves has been transferred to the Federal Government, in my humble opinion, subsection (5) is not sufficient to warrant the rejection of a crucial word in what is the real enacting part of the said Act. And I would repeat that if the intention of the Legislature had been not to nationalize the banks themselves, as submitted by the learned Attorney‑General and by Mr. Valliani, it would have carried out its intention by the simple and obvious method of deleting the word "ownership" from subsection (1) of section 5 when it re‑enacted that section. As we cannot attribute absurdity to the Legislature, the very fact that it did not delete this word ownership' and instead inserted another subsection would suggest that the intention of the Legislature in so doing was some thing other than that attributed to it by the learned Attorney General. But I must confess here that it is difficult to ascertain that intention, because, despite its amendment, the section is obscurely worded. However, having ,examined the other provisions of the said Act, it seems to me that the intentions of the Legislature in enacting both the said Ordinance and the said Act was to nationalize all banks and then treat them as legal persons at least pending the reorganization of the banks by the Banking Council under section 15. But obviously the consequences of nationalization were far‑reaching, and as the Legislature wanted them to carry on business as before, it inserted subsec tion (5) in the said Act so as to clarify that, despite the sweeping legal changes, the banks had remained legal persons as before. Hence the direction in sub section (5) that the nationalization would not affect the "status as bodies corporate under the Companies Act, 1913".
8. Mr. Arfin's reply then was that the banks after nationalization could not really be bodies corporate as envisaged in the Companies Act, or alterna tively that their position under this Act would be very anomalous. The argu ment is misconceived, because even a Company under the Companies Act is a legal person only through a legal fiction created by the Legislature, and the legislature, which created this fiction, can modify or alter it, or, if it so wishes, increase the number of legal fictions in order to meet the problems of a welfare democracy. And if I may be permitted to adapt a famous dictum, the categories of legal persons can never be closed.
9. But, according to the learned Attorney‑General, our construction of section 5 would be contrary to the principle of Provincial Autonomy which was enshrined in the Constitution. As the Attorney‑General did not contend that the said Act was ultra vires of the powers of the Federal Legislature, he further explained that the nationalization of banks would prejudicially affect the rights and feeling of the Provincial Government. But a company is an independent legal entity which is distinct from its members and as the vires of said Act is not being challenged, how can the nationalization of banks be inconsistent with the rights of the Provincial Governments as shareholders of banks The submission then advanced was that the Federal Legislature was scrupulous about respecting even the feeling of the Provincial Government, therefore, it would not trample upon those feelings by nationalizing banks. I am not impressed by the submission for more reasons than one. In the first place, I do not see how we can modify the plain language of subsection (1) of section 5 by this vague appeal to respect the feeling of the Provincial Governments. Secondly, assuming for the sake of argument that the Legislature intended to respect the rights of the Provincial Government as shareholders, what are those rights It is not necessary to list those rights, but one of the most important rights of a shareholder is the right to elect Directors, therefore if the submission advanced be correct, the said Act would have saved the rights of the Provincial Government in this respect. Yet section 8 removed all Directors appointed by all shareholders except those nominated by the Federal Government or the State Bank of Pakistan. In these circumstances I am not impressed by the submission, and I would now examine the other provisions of the said Act to which the learned counsel referred us in support of their respective submissions.
10. Section 6 provides for the payment of compensation to shareholders whose shares stood acquired under section 5, whilst the next section prescribes that the compensation paid "shall be the amount equal to the break‑up value of the share as determined by an auditor appointed by the Federal Govern ment..." Neither of these sections lend any support to Mr. Arfin's submission, but the learned Attorney‑General submitted that they supported his conten tion that banks had not been nationalized. I am not able to understand how a direction for the payment of compensation to the former shareholders of the banks can lead to the conclusion that the banks themselves had not been nationalized. The submission appears to assume that compensation would have been paid directly to the banks if they had been nationalized, but we were not referred to any other statutes or even a precedent which could have thrown light on the question. Secondly, it has to be borne in mind that bank shares are proverbially treated as gilt‑edged investments, and as the nation alization was of the entire banking business of the nation, the Legislature must have been aware that the said Act would affect many thousands of persons, including widows and orphans, in these circumstances it would have been astonishing if the Legislature had not included in the said Act provisions for the payment of compensation to persons whose share had been acquired under the said Act. Additionally, in view of section 5(2) the private shareholders of the banks ceased to be shareholders on the promulgation of the said Ordinance, therefore, if compensation had been paid to the banks, it would have been difficult for them to distribute it amongst the persons who had ceased to be their shareholders. No doubt appropriate Legislation could have been framed to enable them to distribute the compensation received but it would also have required changes in their Articles of Association. Not only would this method have been cumbersome, but it might have led to unnecessary litigation. Now, all this have been avoided by the enactment of sections 6 and 7, and I do not see, in the circumstances, how these provisions can, by themselves, lend any support to the contention that banks have not been nationalized.
11. I have already shown that section 8 of the said Act goes against Attorney‑General's submission. Section 9 provides for the setting‑up of a Banking Council which is to control and give directions to the banks, whilst section 10 provides funds of this Council, and section 11 contains the general provisions "pertaining to the management of banks". None of these sections advance in any way the Attorney‑General's submission, nor did he rely on them. Mr. Arfin however, attempted to rely on them. But merely because the Banking Council has been given very wide power, it does not mean that the banks are still vested in the Federal Government for the purpose of Article 173 of the Constitution the more. so as Banking Control in one form or another has been in existence for a very long time. I must however refer here to Mr. Arfin's submission on the construction of section 11. If, as submitted by him, every contract by a bank has to be signed by a Secretary of the Federal Government, it is obvious that banking operations in the country would break down. The learned counsel was aware of this, therefore, he advanced a most astonishing submission. This was that the power of the banks had been reduced, under section 11, to the power of collecting deposits from the public, and when I expressly asked him whether in view of this a bank could lend any money to borrowers, his reply, which I recorded, was "I am doubtful as it is the money of the Government because banks are owned by the Government". The necessary implication of this astonishing claim by the learned counsel would be financial chaos. But stupidity is not to be attributed to the Legislature, nor does the section lend the remotest support to Mr. Arfin's far‑fetched submission. As subsection (2) prescribes that the Boards of Directors of Banks, which are now described as Executive Boards, "may exercise all such powers and do all such acts, deeds and things as the bank was competent, immediately before the commencing day, to exercise or do in a meeting of the Board of Directors". As this provision clarifies that the business of banking in the country is to go on as before, the section does not lend any support to the strained construction sought to be placed upon section 5 by Mr. Arfin, and it is also in no way inconsistent with the view that banks have been nationalized.
12. Sections 12, 13 and 14 are not relevant and were not relied upon by any of the learned counsel. Section 15 empowers the Banking Council to prepare schemes for the re‑organisation of the nationalized banks. This section is not unimportant, because, as suggested earlier, banks may have been preserved as legal entities, because of the imminence of the re‑grouping of banks by the Banking Council. However there can be other reasons, such as maintaining competition, for preserving Banks as legal entities. The only other provisions which are relevant and to which we were referred are sections 16, 17 and 21. Section 16 is, in my opinion, fatal to the appellant's objections, but before examining it, I would briefly examine section 17. It deals with the disposal of profits by banks after nationalization and it prescribes "that a bank shall not declare any dividend on its share capital" unless it has complied with the requirements laid down in the section. Not only does this mean that the banks continue as legal entities. but the section is also inconsistent with Mr. Arfin's submission that all banks, with their assets and liabilities, vested in the Federal Government, like any other property owned by the Federal Government so as to attract the provisions of Article 173 of the Constitution.
13. I now turn to section 16. It reads:
"16. Removal of doubts. ‑For the removal of doubts, it is hereby declared that‑
(a) all assets, rights, powers, authorities and privileges and all property movable or immovable, cash balance reserves, funds, investments and all other rights and interests arising out of such property as were immediately before the commencing day in the ownership, possession, power or control of a bank whether within or outside Pakistan, shall unless other provisions are made for their re‑disposition in accordance with a scheme prepared under subsection (1) of section 15, continue to vest in that bank, and all borrowings, liabilities, including contingent liabilities, and obligations of a bank of whatever kind subsisting im mediately before the commencing day shall unless other provisions as aforesaid are made for their discharge or performance, continue to be the borrowings, liabilities and obligations of that bank;
(b) all contracts, deeds, agreements, powers of attorney, other than those in favour of a person vacating his office under this Act, grant of legal representation and other instruments of whatever kind subsisting or having effect immediately before the commencing day to which a bank is a party or which are in favour of a bank shall be of as full force and effect against or in favour of a bank as they were immediately before the commencing day; and
(c) if, on the commencing day, any suit, appeal or other legal proceeding of whatever nature which is by or against the bank or to which the bank is a party is pending in any Court or before a tribunal or other authority, the same shall not abate, be discontinued or be, in any way, prejudicially affected by any provision of this Act."
This section makes it plain beyond any doubt that the banks continue to exist after nationalization as legal entities independent of the Federal Government. That they might be subject to the directions of the Federal Government directly or indirectly through the Banking Council is another matter, but long before nationalization banks had been subject to considerable control by the Stat Bank, therefore, I am satisfied that this section is fatal to the appellant's plea.
Additionally, this section has to be read with section 21, which reads as under:‑
"21. Adaptation of Laws.‑Any Court, tribunal or authority required or empowered to enforce the Companies Act, 1913 (VII of 1913), or the memorandum or articles of association of a bank registered thereunder, or any other law for the time being in force shall construe the said Act, memorandum or articles of association or such other law with such adaptations as are necessary to bring the same into accord with the provisions of this Act."
As the memoranda and Articles of Association of the banks have thus been expressly saved, this section makes it even more clear that even after nationali zation the banks continue to exist as legal persons, as otherwise the question of enforcing the memoranda and Articles, whether with or without adaptation, would not arise. The appellant's objections are without merit, and the only point which remains for consideration is whether these three sections lend any support to the learned Attorney‑General's submission.
14. The learned Attorney‑General relied only on the later part of sub section (2) of section 16, and because it clarifies that the liability of a bank before nationalization shall continue to be its liability after its nationalization, the submission was that the necessary implication of this provision was that banks have not been nationalized. But as this provision is equally necessary on the footing that banks have been nationalized, by itself, it does not throw any light on the question whether or not banks have been nationalized, On the other hand, if, as submitted by the Attorney‑General, banks have not been nationalized, they would continue to function as Companies under the Companies Act, and further as all their shareholders would now be the Federal or Provincial Governments, or persons controlled by these Governments, the necessity of making statutory provision for their memoranda and Articles of Associations would hardly arise. But as section 21 makes express provision in this respect, this is a circumstance which strongly suggests that banks have been nationalized, otherwise there would have been no necessity for enacting this section. Accordingly having given anxious thought to the matter I hold that banks have been nationalized but that they continue to exist as legal persons. 15. In the result, the respondent is allowed to withdraw its application, but the appellant's objections are rejected. The respondent is, therefore, allowed to draw out the decretal amount in pursuance of the consent order of 30‑11‑1973 and for the guidance of the office, I would clarify that the respon dent's power of attorney in favour of Mr. Kapadia, to whom I have referred in paragraph I, has been expressly saved by subsection (2) of section 16, and similarly the respondent as a legal person is fully competent to appoint other Attorneys.
K. B. A. Order accordingly.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer