IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
PRESENT: MR. JUSTICE MIAN SAQIB NISAR, HCJ 
 
 
MR. JUSTICE UMAR ATA BANDIAL 
 
 
MR. JUSTICE IJAZ UL AHSAN 
 
CIVIL APPEAL NO.552 OF 2015 
(Against the judgment dated 10.3.2015 of 
the Lahore High Court, Lahore passed in 
RFA No.395/2005) 
 
Habib Bank Ltd. 
 
…Appellant(s) 
VERSUS 
 
WRSM Trading Company, LLC and others 
 
…Respondent(s) 
 
For the appellant(s): 
Ms. Ayesha Hamid, ASC 
 
 
For respondents No.1 & 3: 
Ex-parte 
 
 
For respondent No.2: 
Mr. M. Shahzad Shaukat, ASC 
 
 
For respondent No.4: 
Syed Waqar Hussain Naqvi, ASC 
 
 
For respondent No.5: 
Mr. Abdul Hameed Chohan, ASC 
Mr. M. S. Khattak, AOR 
 
 
Date of hearing: 
2.7.2018 
 
JUDGMENT 
 
 
MIAN SAQIB NISAR, CJ.- This appeal challenges the order 
dated 10.03.2015 passed by the Lahore High Court whereby R.F.A. 
No.395/2005 filed by the appellant was dismissed. The facts as stated by 
the appellant are that respondent no.1, on 22.1.2001, availed finance from 
the appellant bank’s branch in Dubai, UAE. On 22.11.2002 the appellant 
filed Suit No.105/2002 before Banking Court No. 1, Lahore for recovery of 
UAE Dirhams 2,042,059.22 (PKR 33,285,565.28). Respondents No.2 to 5 were 
impleaded on account of being the directors of the respondent no.1 
company and in their capacity as guarantors for the finance availed by the 
said respondent. Vide order-in-original dated 15.07.2005 the Banking 
Court returned the plaint for presentation in the Court of proper 
jurisdiction. The appellant challenged the Banking Court’s order through 
R.F.A. No.395/2005 which was dismissed vide impugned order dated 
CIVIL APPEAL NO.552 OF 2015 
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10.03.2015 passed by the Lahore High Court. The points raised in the 
impugned order being one of first impression, leave was granted vide our 
order dated 04.06.2015. 
2. 
 
The impugned order holds that the appellant is not a financial 
institution within the meaning of Section 2(a) of the Financial Institutions 
(Recovery of Finances) Ordinance 2001 (FIO, 2001) as it did not undertake 
the transaction in Pakistan and that the appellant would have been entitled 
to file a recovery suit under Section 9 of the FIO, 2001 only if it had 
transacted business within Pakistan. Further, it holds that no interest 
based transaction could take place in Pakistan after 01.01.1985 in violation 
of State Bank of Pakistan (SBP) Banking Control Department (BCD) Circulars 
No.13 dated 20.06.1984 and No.32 dated 26.11.1984, as pursuant to 
Sections 3-A, 25 and 41 of the Banking Companies Order, 1961 the said 
circulars have the force of law and the interest-based agreements entered 
into by the appellant providing finance(s) to the respondents in Dubai were 
void in terms of Section 23 of the Contract Act, 1872 (Contract Act) as they 
were based on interest. It further holds that Section 20 of the Civil 
Procedure Code, 1908 (CPC) is procedural in nature and the same is not 
applicable to the FIO, 2001. 
3. 
 
Ms. Ayesha Hamid, ASC appearing for the appellant bank 
contended that the Banking Courts are creatures of statute and they derive 
their power/jurisdiction from Section 7(4) read with Sections 9(1), 2(a), 2(c), 
2(d), 2(e) and 4 of the FIO, 2001. She stated that the provisions of Section 
20 of the CPC vest jurisdiction in all courts of civil nature (including the 
Banking Court) over persons residing within their territorial limits. The 
Banking Court, being a court of a civil nature, can therefore exercise 
jurisdiction over the respondents, who at the time of filing of the suit, 
resided within the territorial jurisdiction of the Banking Court, and 
continue to do so now. She relied on Hussain Bakhsh Vs. Settlement 
Commissioner, Rawalpindi and others (PLD 1970 SC 1). She stated that 
CIVIL APPEAL NO.552 OF 2015 
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Section 9 of FIO, 2001 entitles a financial institution to file a recovery suit 
against a defaulting customer before a Banking Court once the threshold of 
jurisdictional events is crossed, i.e. nature of parties, relating to finance 
and occurrence of a default. She relied upon Mian Mehmood Ahmad Vs. 
Hong Kong and Shanghai Banking Corporation Ltd. through Manager 
and 6 others (2010 CLD Lah 293). She stated that the principle of forum 
non-conveniens supports adjudication of a lis in the country with which it 
has the most real and substantive connection. Furthermore, the BCD 
Circulars No.13 and 32 issued by SBP did not have the force of law and 
therefore the agreements for finance could not be held to come within the 
mischief of Section 23 of the Contract Act. She submitted that the Banking 
Court could not frame a preliminary issue with respect to territorial 
jurisdiction and decide the matter forthwith without recording of evidence 
in the light of Section 10(10) of the FIO, 2001 and also because territorial 
jurisdiction is a mixed question of law and fact. In this regard she relied 
upon Bank of Credits and Commerce and others Vs. Asrar Hassan and 
others (2007 SCMR 852). 
4. 
 
Mr. Waqar Sheikh, ASC appeared on behalf of the legal heirs of 
respondent No.4. He supported the impugned order and the order in 
original and made submissions to the effect that the appellant bank is not a 
financial institution as defined in the FIO, 2001 and that no interest based 
transaction was enforceable in Pakistan. Upon the Court’s query he did not 
deny that finance was availed from the appellant and that a default had 
occurred and that the respondents were present in Pakistan and not in 
Dubai, UAE. 
5. 
 
Mr. Shahzad Shaukat, ASC appeared on behalf of respondent 
No.2 and candidly stated that he would not defend the impugned order and 
instead threw himself on the discretion of the court and requested that the 
matter may be sent to the Banking Court to decide. 
6. 
 
The questions involved in the instant opinion are:- 
CIVIL APPEAL NO.552 OF 2015 
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i. 
Whether Section 20 of the CPC is applicable to banking courts 
when exercising their jurisdiction? 
ii. 
Whether branches abroad of financial institutions incorporated 
in Pakistan fall within definition of financial institutions [Section 
2(a) of the FIO, 2001]? 
iii. 
Whether loans extended by such branches in Pakistan fall 
within the definition of finance [Section 2(d) of FIO, 2001]? 
iv. 
Whether Section 9 of the FIO, 2001 entitles a financial 
institution to file a recovery suit against a defaulting customer 
before a banking court once the threshold of jurisdictional 
events is crossed, i.e. (i) the nature of the parties (ii) if relating 
to finances (iii) and occurrence of a default? 
v. 
Whether the principle that creditors follow debtors is applicable 
to the assumption of jurisdiction by banking courts in the case 
of financial institutions incorporated in Pakistan, with 
branches abroad? 
vi. 
Whether the principle of forum non-conveniens supports 
adjudication of lis in a country with which it has the most real 
and substantive connection? 
vii. 
Whether the SBP BCD Circulars No.13 (20.06.1984) and No.32 
(26.11.1984) have the force of law? (with reference to Sections 3A, 25, 41 of 
Banking Courts Ordinance, 1962)? 
viii. 
Whether interest based agreements made outside Pakistan are 
void in terms of Section 23 of Contract Act? 
 
7. 
 
The Preamble to the CPC does not mention/define specific 
Courts, but instead makes reference to the all-encompassing Civil 
Judicature:- 
 
“Whereas it is expedient to consolidate and amend the laws 
relating to the procedure of the Courts of Civil Judicature; it 
is hereby enacted as follows:-” 
[Emphasis supplied] 
 
Since the CPC does not specify/refer to any court therefore we have to turn 
to Section 9 of the CPC:- 
CIVIL APPEAL NO.552 OF 2015 
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“9. Courts to try all Civil Suits unless barred.– The Courts 
shall (subject to the provisions herein contained) have 
jurisdiction to try all suits of a civil nature excepting suits of 
which their cognizance is either expressly or impliedly barred 
or for which a general or special law is in force.. 
 
Explanation.– A suit in which the right to property or to an 
office is contested is a suit of a civil nature, notwithstanding 
that such right may depend entirely on the decision of 
questions as to religious rites or ceremonies.” 
[Emphasis supplied] 
 
The question then arises, what are suits of a ‘civil nature’ which the Civil 
Courts are to try? It is the nature of the dispute being adjudicated by the 
court which is relevant. We need look no further than the case of Hussain 
Bakhsh (supra) in which it was held:-  
 
“The Civil Procedure Code regulates civil proceedings. The 
nature of the proceeding does not necessarily depend on the 
nature of the jurisdiction of the Court invoked. In order to 
determine whether a proceeding is a civil proceeding or not, 
it is necessary to see what are the questions raised and 
decided in the proceeding. If the proceeding involves the 
assertion or enforcement of a civil right, it is a civil 
proceeding.” 
[Emphasis supplied] 
 
Where special statutes regulating the civil rights of citizens are silent on 
some matter the CPC will apply and will fill the lacunae/vacuum. In this 
regard the CPC will apply to all Courts whether of plenary or restricted 
jurisdiction. The right of the appellant bank to sue for recovery of money 
lent by it is a civil right which could be enforced in the civil courts 
notwithstanding the fact that the money may have been lent outside 
Pakistan. Does the right cease to be a civil right simply because some 
CIVIL APPEAL NO.552 OF 2015 
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portion of the plenary jurisdiction of the civil courts has been carved away 
by a special law, i.e. the FIO, 2001? Plenary jurisdiction of the civil courts 
means that it is full, entire, complete, absolute, perfect and unqualified. A 
special statute simply slices away some of this jurisdiction in respect of 
certain persons or certain matters. Therefore to our mind the answer to the 
question ibid is a resounding no. 
We are fortified in our view by Mst. Yasmeen Nighat and others Vs. 
National Bank of Pakistan and others (PLD 1988 SC 391) which held 
that the amendments to the banking laws in 1979 and 1983 show that “the 
legislature by enacting section 6(4) of Ordinance XIX of 1979 intended to oust the 
jurisdiction of all other Courts in the matter of banking loans and to confer exclusive 
jurisdiction on Special Courts in respect of the matters which were made triable by the said 
Courts…” 
8. 
 
The forum where a suit is filed is a matter of procedure. Section 
7(2) of the FIO, 2001 categorically provides that where the FIO, 2001 does 
not prescribe a particular procedure with respect to a matter, the 
proceedings under the FIO, 2001 are to be governed by the CPC. Section 7 
of the FIO, 2001 provides that a Banking Court shall:- 
 
“7. Powers of Banking Courts. (1) 
Subject to the provisions 
of this Ordinance, a Banking Court shall– 
 
(a) 
in the exercise of its civil jurisdiction have all the 
powers vested in a civil Court under the Code of Civil 
Procedure, 1908 (Act V of 1908); 
 
7(2) 
A Banking Court shall in all matters with respect to 
which the procedure has not been provided for in this 
Ordinance, follow the procedure laid down in the Code of 
Civil Procedure, 1908 (Act V of 1908), and the Code of 
Criminal Procedure, 1898 (Act V of 1898).” 
[Emphasis supplied] 
 
CIVIL APPEAL NO.552 OF 2015 
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In the case reported as Adnan Afzal Vs. Capt. Sher Afzal (PLD 1969 SC 
187) Hamood ur Rahman, J set out what manner of things are to be 
considered matters of procedure:- 
 
“The next question, therefore, that arises for consideration is 
as to what are matters of procedure. It is obvious that matters 
relating to the remedy, the mode of trial, the manner of taking 
evidence and forms of action are all matters relating to 
procedure…This is what is meant by saying that a change of 
forum by a law is retrospective being a matter of procedure 
only.” 
 
9. 
 
The Banking Courts are creatures of statute and they derive 
their power/jurisdiction from Section 7(4) read with Section 9(1), 2(a), 2(c), 
2(d), 2(e) and 4 of the FIO, 2001. Section 7(4) of the FIO, 2001 reads as 
under:- 
 
“7(4) Subject to sub-section (5), no court other than a 
Banking Court shall have or exercise any jurisdiction with 
respect to any matter to which the jurisdiction of a Banking 
Court extends under this Ordinance, including a decision as to 
the existence or otherwise of a finance and the execution of a 
decree passed by a Banking Court.” 
 
Section 9(1) of the FIO 2001 reads as under:- 
 
“9. Procedure of Banking Courts. (1) Where a customer or a 
financial institution commits a default in fulfillment of any 
obligation with regard to any finance, the financial institution 
or, as the case may be, the customer, may institute a suit in the 
Banking Court by presenting a plaint which shall be verified 
on oath, in the case of a financial institution by the Branch 
Manager or such other officer of the financial institution as 
may be duly authorized in this behalf by a power of attorney 
or otherwise.” 
 
CIVIL APPEAL NO.552 OF 2015 
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Section 2(a) of the FIO, 2001 defines a financial institution. Section 2(c) of 
the FIO, 2001 defines a customer. Section 2(d) of the FIO, 2001 defines 
finance and Section 2(e) thereof defines obligation. Section 4 of the FIO, 
2001 reads as under:- 
 
“4. Ordinance to override other laws. The provisions of this 
Ordinance shall have effect notwithstanding anything 
inconsistent therewith contained in any other law for the time 
being in force.” 
 
10. 
 
It is pertinent to note that the law has over time gradually 
expanded to include within the definition of a “banking company”/ 
“financial institution,” banks transacting business outside Pakistan. 
Reference is made to the following amendments in the banking laws, and 
the eventual articulation of the definition of a “financial institution” in the 
FIO, 2001:- 
  
Banking Tribunals Ordinance, 1984 
“S. 2(a) “banking company” means– 
(ii) a company incorporated outside Pakistan and transacting 
the business of banking in Pakistan;” 
 
Banking Companies (Recovery of Loans, Advances, Credits 
and Finances) Act, 1997 
“S.2(a) “banking company” means 
(i) 
any company whether incorporated within or beyond 
Pakistan which transacts the business of banking or any 
associated or ancillary business in Pakistan and includes a 
government savings bank;” 
 
FIO, 2001 
S.2(a) “financial institution” means and includes– 
(i) 
any company whether incorporated within or outside 
Pakistan which transacts the business of banking or any 
CIVIL APPEAL NO.552 OF 2015 
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associated or ancillary business in Pakistan through its 
branches within or outside Pakistan…” 
[Emphasis supplied] 
 
The law must provide a purposive interpretation to Section 2(a) of the FIO, 
2001, in light of the amendments made to the law in the Banking Tribunals 
Ordinance, 1984 (the Ordinance, 1984) and the Banking Companies (Recovery of 
Loans, Advances, Credits and Finances) Act, 1997 (the Act, 1997), to include 
financial institutions incorporated in Pakistan, which transact business 
both inside and outside Pakistan. The appellant is clearly a company 
incorporated in Pakistan, which transacts the business of banking in 
Pakistan. It would be illogical to conclude that where the particular 
transaction has been transacted outside of Pakistan, the appellant, for the 
definitional purposes of Section 2(a) of the FIO, 2001 ceases to be a 
company incorporated within Pakistan transacting the business of banking. 
11. 
 
A perusal of the earlier provisions of law, which defined a 
borrower/customer, indicates that these did not restrict jurisdiction of the 
Banking Courts to include only those persons to whom loans/finance were 
advanced in Pakistan:- 
  
Banking Companies (Recovery of Loans) Ordinance, 1978 
S.2(b) “borrower” means a person who has obtained a loan 
from a Banking company and includes a surety or an 
indemnifier, but does not include the Federal Government or a 
Provincial Government; 
 
Banking Companies (Recovery of Loans) Ordinance, 1979 
S.2(b) "borrower" means a person who has obtained a loan 
from a banking company and includes a surety or an 
indemnifier; 
 
Ordinance, 1984 
S.2(c) “customer” means a person who has obtained finance 
from a banking company or is the real beneficiary of such 
finance, and includes surety and an indemnifier; 
CIVIL APPEAL NO.552 OF 2015 
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The Act, 1997 altered the definition of a borrower:-  
 
S.2(c) “borrower” means a person who has obtained a loan 
under a system based on interest from a banking company and 
includes a surety or an indemnifier; 
 
(d) “customer” means a person who has obtained finance 
under a system which is not based on interest from a banking 
company or is the real beneficiary of such finance, and 
includes a surety or an indemnifier 
[Emphasis supplied] 
 
The FIO, 2001 (prior to the 2016 Amendment) defined a customer as:- 
 
“S.2(c) “customer” means a person to whom finance has 
been extended by a financial institution and includes a 
person on whose behalf a guarantee or letter of credit has 
been issued by a financial institution as well as a surety or an 
indemnifier.” 
[Emphasis supplied] 
 
The amendments made to Section 2(c) of the FIO, 2001 in 2016, which 
added the phrase “within or outside Pakistan” in the definition of a 
customer, further strengthens the conclusion that the jurisdiction of the 
Banking Courts extends to finance availed within or outside Pakistan:- 
 
 “S.2(c) “customer” means a person to whom finance has 
been extended by a financial institution within or outside 
Pakistan and includes a person on whose behalf a guarantee 
or letter of credit has been issued by a financial institution as 
well as a surety or an indemnifier…” 
[Emphasis supplied] 
 
12. 
 
It is appropriate to also look at the manner in which the 
definition of finance has been expanded from 1979 to date. The recent 
amendments to the definitions of “finance” in the FIO, 2001 further 
supplement the argument that the jurisdiction of the Banking Courts 
CIVIL APPEAL NO.552 OF 2015 
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extends to finance availed within or outside Pakistan. The Ordinance, 1984, 
promulgated on 31.12.1984, provided in Section 2(e):- 
 
“2(e) “finance” includes an accommodation or facility 
under a system which is not based on interest but provided on 
the basis of participation in profit and loss, mark-up or mark-
down in price…” 
[Emphasis supplied] 
 
The Act, 1997 introduced the definition of a loan:- 
 
“S.2(f) “loan” means a loan, advance and credit under a 
system based on interest and includes– 
(i) 
an advance, cash credit, overdraft, packing credit, a 
bill discounted and purchased or any other financial 
accommodation provided by a banking company to a 
borrower;”  
[Emphasis supplied] 
 
The FIO, 2001 sets out the following definition of finance:- 
 
“S.2(d) “finance” includes– 
(viii) 
any amount of loan or facility availed by a person 
from a financial institution outside Pakistan who is for the 
time being resident in Pakistan.” 
[Emphasis supplied] 
 
It is pertinent to mention that the aforementioned part (viii) of Section 2(d) 
of the FIO, 2001 was introduced through the Financial Institutions 
(Recovery of Finances) Amendment, Act 2016 (promulgated on 15.08.2016) which 
enlarged the definition of finance to include finance availed outside 
Pakistan.  
13. 
 
The appellant is undoubtedly a financial institution which is 
stated to have extended finance to respondent no.1, its customer, therefore, 
the suit filed by the appellant before the Banking Court No.1 in Lahore 
crosses the threshold of events which must take place before the 
CIVIL APPEAL NO.552 OF 2015 
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jurisdiction of the Banking Court is invoked. The fact that the Courts at 
Dubai may also have jurisdiction over the parties is not a valid reason to 
deny the jurisdiction of the Banking Courts at Lahore. While the Act, 1997 
had a more restricted definition of a banking company/financial institution, 
this was amended in the FIO, 2001 to include the words “through its 
branches within or outside Pakistan”. Therefore it is self-evident that the 
law makers have now included finance extended to customers outside 
Pakistan. This amendment is deliberate. To ignore it would render the said 
amendment futile and the Courts must make every effort to interpret the 
law in such a manner as to render amendments effective rather than 
nugatory. Reliance in this regard may be placed on the case cited as Dr. 
Raja Aamer Zaman Vs. Omar Ayub Khan and others (2015 SCMR 1303) 
in which this Court held that “The Courts in Pakistan have always preferred a 
purposive rather than a literal interpretation of Statutory Instruments.” We would not 
like to thwart the clear intent of the legislature on account of a narrow 
construction of the statute. The same question viz. which court is to 
assume jurisdiction when the above mentioned jurisdictional facts have 
occurred has been considered in the Hong Kong and Shanghai Banking 
Corporation case (supra) in the following terms:- 
 
“However for the exercise of such jurisdiction, it is 
fundamental, imperative, essential and sine qua non that two 
conditions must be met, co-exist and fulfilled, firstly, the 
special Court should have jurisdiction over the subject-matter, 
which means that the cause of action propounded in the plaint 
must be for redressal of the grievance qua the enforcement of 
the right or the complaint about the breach of obligation on 
part of the defendant, but relatable to the “finance”, this can 
be termed to the subject-matter jurisdiction…The second facet 
of the jurisdiction is over the parties to the lis, which may be 
termed as jurisdiction over the parties, and connotes that the 
banking Court shall only have the jurisdiction in the cases, 
where the relationship of the “financial institution” and that 
CIVIL APPEAL NO.552 OF 2015 
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of the “customer” exists between the parties; considering both 
these aspects of jurisdiction, the broad question of jurisdiction 
shall be that the dispute should be between the “customer” 
and the “financial institution” as defined in law, in respect of 
the failure of the defendant to fulfil its/his obligations in 
relation to the “finance”, which is so specifically, lucidly and 
clearly mentioned in section 9 of the Ordinance, 2001, which 
is the key provision of the special law and can be termed as 
the jurisdictional clause of the enactment;…” 
 
We hold that the reasoning and the ratio of the above cited case is the 
correct law. The factors to be considered by a special court before the 
assumption of jurisdiction are firstly whether it has jurisdiction over the 
subject matter of the lis and secondly whether the parties to the lis are 
subject to its jurisdiction. In this case the subject matter is finance and the 
parties before the Banking Court are a financial institution and its 
customer. There is no quibbling with the fact that a default has occurred: 
the learned counsels for the respondents admit the same, though there 
appears to be considerable dispute betwixt the respondents as to who is 
responsible for the same. We would not like to comment on this aspect of 
the matter lest any prejudice be caused to the respondents. Our interest is 
strictly limited to the fact that once a default occurs the final piece of the 
puzzle falls into place and the jurisdictional facts which the banking court 
is to consider stand complete. The Banking Court is then duty bound to 
assume jurisdiction. 
14. 
 
We need not belabour the point that it is a settled principle 
that creditors follow debtors. Whether indeed those debtors are in Pakistan 
may be determined by recourse to some of the factors cited in Miss Amtul 
Naseer Sami Vs. Secretary, Health, Government of Baluchistan and 
others (1975 SCMR 265):- 
 
 “…residence must answer a qualitative as well as a 
quantitative test, and that the Courts have regarded 
CIVIL APPEAL NO.552 OF 2015 
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naturalization, purchase of house or burial ground, exercise 
of political rights, financial expectations, establishment of 
children in business, the place where a man’s wife and family 
reside as indecia (sic) of his intentions in regard to 
residence.” 
 
If the debtors no longer maintain a presence in Dubai and as stated by the 
appellant they reside in Pakistan, what useful purpose would be served by 
forcing the appellant to file recovery proceedings in Dubai? There can be no 
cavil with the fact that the Civil Courts at Lahore would have jurisdiction in 
this matter on the basis of the fact that the respondents are presently in 
Pakistan, despite the fact that the loan was availed outside Pakistan or the 
cause of action took place outside Pakistan. From this accepted and 
undisputed position we have simply to consider whether that plenary 
jurisdiction of the civil courts has been carved away by a special statute, 
i.e. the FIO, 2001, and wrested some of the jurisdiction away to the 
Banking Courts created under the same. The answer as stated above is in 
the affirmative. 
15. 
 
It is a settled principle of private international law that the 
forum, which has the most real and substantial connection with the lis 
must exercise jurisdiction over it. When the appellant bank and the 
respondents are present in Pakistan then it is the courts in Pakistan which 
must assume jurisdiction. In the English case reported as Spiliada 
Maritime Corporation Vs. Cansulex Ltd {[1986] 3 WLR 972} Lord Goff 
stated that:- 
 
“…a stay will only be granted on the ground of forum non 
conveniens where the court is satisfied that there is some 
other available forum, having competent jurisdiction, which 
is the appropriate forum for the trial of the action, i.e. in 
which the case may be tried more suitably for the interests of 
all the parties and the ends of justice.”  
[Emphasis supplied] 
 
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The primary consideration before the Court must be where the ends of 
justice in this case will be best served. The factors to consider in this regard 
are the convenience or expense (including the availability of witnesses) and others, 
such as which law governs the relevant transactions, or the respective 
places of residence or business of the parties and finally where a decree 
would be most effective. Were the appellant to obtain a decree against the 
respondents in the UAE would this be of any avail to them? Would they be 
forced to pursue the assets of the respondents in Pakistan for purposes of 
actually executing the decree? If so, then it does not behove the courts in 
Pakistan to shirk their duty to adjudicate the lis. We may take this 
opportunity to observe that no situation should or ought to be created 
where citizens of Pakistan avail finance(s) outside Pakistan and retreat to 
Pakistan safe in the knowledge that there is no effective redress against 
them. Comity amongst nations requires that we in Pakistan do our best to 
ensure that there is effective redressal and recovery of finances and loans 
from the defaulting customers of financial institutions. The economic 
health of our great nation and confidence in the banking sector is 
dependent upon an effective machinery for the recovery of monies from 
defaulting customers because in the absence of the same there is 
reluctance on the part of the public to place their trust in the banking 
system. 
16. 
 
At this point we would like to clarify that in the normal course 
of events the question of territorial jurisdiction would require the recording 
of evidence. In the case of Bank of Credits and Commerce (supra) this 
Court held:- 
 
“…the High Court has rightly refrained from dilating on the 
question 
relating 
to 
the 
territorial 
jurisdiction 
and 
maintainability of the suit against the petitioners in Pakistan. 
This may be noted that the question of fact or a mixed question 
of law and fact, cannot be effectively decided without recording 
CIVIL APPEAL NO.552 OF 2015 
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the evidence and learned counsel for the petitioners has not 
been able to satisfy us that in the facts of the present case, the 
question relating to the jurisdiction of Courts in Pakistan to 
entertain the suit and adjudicate the claim of respondent 
against the petitioners is patently a question of law.”  
 
Certain jurisdictional facts may require to be established through evidence. 
But this is not a rule set in stone because at times, as in the instant case 
there are admitted facts which on the basis of interpretation of law lend 
themselves to a clear cut answer as to the question of which court is to 
assume jurisdiction in the matter. Whilst courts ought not to adopt 
arbitrary procedures and ignoring established practices is to be deprecated 
but at the same time we must not lose sight of the fact that courts must not 
become slaves to technicalities and create a fetish of procedures to the 
obvious detriment of litigants. 
17. 
 
The impugned judgement proceeds on the understanding that 
the transaction being based on interest, does not qualify as “finance” for the 
purposes of the FIO, 2001. In terms of the history of the banking laws, till 
1984, there was no reference in the legal definition of a finance/loan 
provided under the law to a non-interest based system. Thereafter SBP 
issued the two aforementioned BCD Circulars No.13 dated 20.06.1984 and 
No.32 dated 26.11.1984. It is to be noted that the transaction in question 
between the appellant and the respondents was entered into in March 
2001, prior to the enactment of the FIO, 2001 in October 2001. The 
transaction in question was therefore governed by the terms of the Act, 
1997, which clearly included within its ambit “loans” under a system based 
on interest. Section 2(f) of the Act, 1997 provided:- 
 
“S.2(f) “loan” means a loan, advance and credit under a 
system based on interest and includes… 
[Emphasis supplied] 
 
CIVIL APPEAL NO.552 OF 2015 
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The fact the transaction in question was based on interest does not 
therefore detract from its status as a “loan” with regard to which the 
Banking Court could exercise jurisdiction. Since the governing law at the 
time unequivocally recognised the transaction(s) in question, i.e. interest 
based loans as being legally binding and treated the same as recoverable 
under the law, the assertion that the transaction(s) in question were void 
under Section 23 of the Contract Act for not having a lawful purpose, is 
entirely flawed and illogical. Reliance in this regard is placed on Azam 
Wazir Khan Vs. Messrs Industrial Development Bank of Pakistan and 
others (2013 SCMR 678) per Sarmad Osmany, J.:- 
 
“…In such capacity the State Bank from time to time issues 
guidelines and advices in the shape of BCD circulars and 
consequently it would be safe to conclude that the main 
function of the State Bank is to ensure  and secure stability of 
the financial system in the country. Such powers and functions 
given to the State Bank are entirely divorced from the laws 
enacted from time to time for recovery of outstanding loans by 
the banks and the other development financial institutions. 
Hence it cannot be said that after 1st of January, 1985 no 
loans previously given by any company/DFI on the old 
interest bearing system could not be recovered as such. This 
is readily apparent from a perusal of section 15 of the 1997 
Act which does provide that both interest and mark up could 
be recovered and the same is reflected in section 29 of the 
2001 Act. There is no gainsaying the fact that BCD 
Circulars/instructions issued by the State Bank of Pakistan 
from time to time are binding upon all concerned in terms of 
section 25 of the Banking Companies Ordinance, 1962. 
However as stated above the functions of the State Bank of 
Pakistan are to regulate the finance and banking sector in the 
country which is entirely different from the mode and method 
of recovery of loans which is provided for in the various 
Acts/instruments of Parliament… ” 
[Emphasis supplied] 
 
CIVIL APPEAL NO.552 OF 2015 
-: 18 :-
For the sake of convenience Sections 3A, 25, and 41 of the Banking 
Companies Ordinance, 1962 (Ordinance, 1962) are reproduced as under:- 
 
“3A. Limited application of Ordinance to certain financial 
institutions. (1) The provisions of sections 6, 13, 25, 25A, 
25AA, 29, 31, 32, 33, 40, 41, 41A, 41B, 41C, 41D, 42, 47, 48, 
49, 51, 58, 83, 84 and 94 shall, with such modification as the 
State Bank may determine from time to time in relation to 
activities which have implications for the monetary or credit 
policies of the State Bank, apply to the Pakistan Industrial 
Credit and Investment Corporation, the Bankers Equity 
Limited, the Pak-Libya Holding Company Limited, the Saudi-
Pak Industrial and Agricultural Investment Company Limited, 
the Pak-Oman Investment Company (Pvt.) Limited, the 
Pakistan Kuwait Investment Company Limited and such other 
companies, corporations or institutions or class of companies, 
corporations or institutions, as the Federal Government may, 
from time to time, by notification in the official Gazette, 
specify in this behalf.”  
 
(2) 
 All notifications issued by the Federal Government 
which are inconsistent with the provisions of sub-section (1) 
including such notifications in respect of the National 
Development Leasing Corporations, Leasing Companies and 
Modaraba Companies shall stand rescinded with immediate 
effect. 
 
25. Power of State Bank to control advances by banking 
companies.— (1) Whenever the State Bank is satisfied that it 
is necessary or expedient in the public interest so to do, it may 
determine the policy in relation to advances to be followed by 
banking companies generally or by any banking company in 
particular, and, when the policy has been so determined, all 
banking companies or the banking company concerned, as the 
case may be, shall be bound to follow the policy as so 
determined.  
 
(2)  
Without prejudice to the generality of the power 
conferred by sub-section (1), the State Bank may give 
CIVIL APPEAL NO.552 OF 2015 
-: 19 :-
directions to banking companies either generally or to any 
banking company or group of banking companies in 
particular.— 
(a)  
as to the credit ceilings to be maintained, credit targets 
to be achieved for different purposes, sectors and regions, the 
purposes for which advances may or may not be made, the 
margins to be maintained in respect of advances, the rates of 
interest, charges or mark-up to be applied on advances and 
the maximum or minimum profit sharing ratios; and  
(b) 
prohibiting the giving of loans, advances and credit to 
any borrower or group of borrowers on the basis of interest, 
either for a specific purpose or for any purpose whatsoever; 
and each banking company shall be bound to comply with any 
direction so given. 
 
(3)  
If any default is made by a banking company in 
complying with the policy determined under sub-section (1) or 
direction given under sub-section (2), every director and other 
officer of the banking company and any other person who is 
knowingly a party to such default shall, by order of the State 
Bank, be liable to a penalty of an amount which may extend to 
twenty thousand rupees and, where the default is a continuing 
one, of a further amount which may extend to one thousand 
five hundred rupees for every day after the first during which 
the default continues.  
 
(4)  
Without prejudice to the provisions of sub-section (3), 
the State Bank may, for the purposes of securing 
implementation of any special credit schemes or monetary 
policy or observance of credit ceiling by a banking company, 
by order in writing require banking companies generally, or 
any banking company in particular, to make special deposits 
with it for such amount and on such terms and conditions as 
may be laid down by the State Bank in this behalf.  
 
(5)  
The amount deposited with the State Bank under sub-
section (4) or any part thereof may, at the discretion of the 
State Bank, be released by it to the banking company which 
deposited it as and when the State Bank deems fit either 
unconditionally or on such terms and subject to such 
CIVIL APPEAL NO.552 OF 2015 
-: 20 :-
conditions as the State Bank may, by order in writing, 
determine from time to time.  
 
(6)  
Any penalty imposed under sub-section (3) shall be 
payable on demand made by the State Bank and, in the event 
of refusal or failure by the director, officer or other person 
concerned to pay on such demand, shall be recoverable as 
arrear of land revenue. 
 
41.  
Power of the State Bank to give direction.— (1) 
Where the State Bank is satisfied that—  
(a) 
in the public interest; or  
(b)  
to prevent the affairs of any banking company being 
conducted in a manner detrimental to the interests of the 
depositors or in a manner prejudicial to the interests of the 
banking company; or  
(c)  
to secure the proper management of any banking 
company generally;  
it is necessary to issue directions to banking companies 
generally or to any banking company in particular, it may, 
from time to time, issue such directions as it deems fit, and the 
banking companies or the banking company, as the case may 
be, shall be bound to comply with such directions.  
 
(2) 
 The State Bank may, from time to time, issue direction, 
guidelines and instructions with respect to activities and 
operations of banks and the institutions mentioned in section 
3A as may be deemed necessary by it for carrying out 
purposes of this Ordinance and matters ancillary thereto.  
 
(3)  
The State Bank may, on representation made to it or on 
its own motion, modify or cancel any direction issued under 
sub-section (1), and in so modifying or cancelling any 
direction may impose such conditions as it thinks fit, subject to 
which the modification or cancellation shall have effect.” 
 
18. 
 
The BCD Circulars are in the nature of instructions issued by 
the SBP to regulate the business of banking companies. Sections 3A, 25, 
and 41 of the Ordinance, 1962 do not give instructions issued by the SBP 
CIVIL APPEAL NO.552 OF 2015 
-: 21 :-
the force of law. Nothing in the Ordinance, 1962 leads to the conclusion 
that violation of these instructions would void an agreement. Therefore we 
do not find any merit in the finding of the learned High Court that the 
transaction was violative of Section 23 of the Contract Act on account of the 
Circulars ibid. 
19. 
 
In the light of the above, the impugned order of the learned 
High Court is set aside and the instant appeal is allowed. Let the matter be 
fixed before the Banking Court in the first week after the summer vacations 
for decision afresh on the basis of the plaint and the leave applications 
already filed by the respondents within a period of one month positively, 
with intimation to the Registrar of this Court of due compliance. The 
aforementioned are the reasons for our short order of even date which 
reads as under:- 
 
“For the reasons to be recorded later, this appeal is allowed 
and the matter is remanded to the Banking Court with a 
direction to decide the matter within a period of three months 
without fail. Barring the question of jurisdiction which has 
been settled and shall be elaborated in the detailed judgment, 
the respondents shall have the right to raise any legal and/or 
factual objections before the Court.” 
 
 
 
 
 
CHIEF JUSTICE 
 
 
 
 
JUDGE 
 
 
 
 
JUDGE 
Islamabad, the 
2nd of July, 2018 
Not Approved For Reporting 
Waqas Naseer/* 
