Pakistan Supreme Court Response to Challenges

An effort to understand the Supreme Court’s recent judgement against riba and its implications, plus adopting a well-founded strategy for implementing this verdict in letter and spirit, are the two areas that need urgent attention. In that respect, it is necessary to assess what is required to be done and identify the gaps that are to be filled. This however, needs a brief discussion about the background of the present judgement.

Background of the Judgement

The Council of Islamic Ideology (CII) report of 1980 was the first landmark in Pakistan’s efforts to at least conceptually comprehend the question of riba-elimination and to develop a strategy to achieve that. This report was largely based upon the homework done by two committees of experts on the panel of Bankers and Economists, under the leadership of Dr. Ehsan Rashid, then vice chancellor, Karachi University, and Dr. Ziauddin Ahmad, then deputy governor, State Bank of Pakistan, and another report prepared by the State Bank of Pakistan by a group of bankers under the chairmanship of AGN Qazi, the then governor State Bank of Pakistan. The CII Report has been acknowledged the world over as a contribution to literature on Islamic economics and has won the IDB prize on Islamic banking.

The report tells what is riba without going into big controversy. The issue was clarified in clear terms and then it was suggested that riba should be eliminated not merely from the banking and finance but from the economy as such, which covers the public sector, government policy, as well as the financial and business sectors of economy. The idea was that while Islamization of banking institutions at the micro level is neither ruled out nor disregarded, the strategy focused upon starting with the government sector and leading to elimination of riba from the whole economy. The first priority that the report gave was to government and inter-government sectors; the financial system in the country, the economy taken together and then down to micro level of institutions, of instruments, of products, of individual arrangements.

Somehow, when the government tried to implement this report, they reversed the order. Instead of following the strategy the report had laid down, the government chose to reform three financial institutions - NIT, ICP and HBFC - followed by introduction of an interest free counter, PLS Counter, within the banking system. This was followed by an ‘alleged’ switch over in 1985. The proposed PLS system did not conform to the CII Report. It was a caricature, in fact a departure that ultimately sabotaged and destroyed the whole process. The CII, individual scholars and economists took serious note of that reverse movement and suggested that mere change in nomenclature can not usher in a new system. It represented a change in name and not a change in the substance. And that is how the beginning and the end of the so-called Islamization of financial sector in the 80s took place. It was in this background that a number of appeals were made to the Federal Shariat Court, once the 10 year embargo on consideration of fiscal and monetary matters had ended.

In December 1991, the Federal Shariat Court came out with a judgement on this issue. In that judgement, it was made clear that interest in all its forms is riba and as such clearly against Islam: the nation must not be confused by differentiating between interest or usury or bank interest and non bank interest, simple or compound, individual or institutional, public or private. Riba covers all these dimensions of interest. The Shariat Court also disapproved of indexation, but more importantly it came out strongly on the mark-up system; and how it has metamorphosed the whole effort towards a genuine Islamization of the financial sector; and how because of that the whole process has aborted! 

The Federal Shariat Court came up with a clear position on the issues involved. It found some 28 laws or parts of them repugnant to the Qur’an and Sunnah and declared them to be void, giving the government and the Parliament seven months to bring in the alternate legislation. Instead of legislating, the then government and some of the banks went to the Supreme Court with an appeal against the decision. This took another 8 years for the Appellate Bench to come out with its judgement. Meanwhile, under public pressure, the government tried to go for a Shariat Enforcement Act (1993) and an Islamization Commission which did present its interim report within the first year, but that report was never presented to the parliament, never discussed nor any effort was made towards its implementation.

The Commission was reconstituted in 1997 with Raja Zafarul Haq as its Chairman. He came out with a good report that drew largely upon the Report of the Self-Reliance Committee. Both these reports, though good and serious efforts to show the way towards elimination of riba, were never officially presented, accepted or implemented.

The Judgement

The 600-page judgement against these appeals announced on Dec. 23, 1999 by the Supreme Court Shariat Appellate Bench consists of four parts. First part is the joint operational judgement which defines the nature and concept of riba, endorses its total prohibition and after examining some 28 specific laws come to the conclusion that all of them do have interest which is repugnant to Qur’an and Sunnah and as such these laws have to be replaced within the next one and a half year. Then the court lays down guidelines as to how the country can move towards a riba-free system, which is a very valuable part and contribution of the court. The Federal Shariat Court had decided against riba but had not delineated the path for change. On government’s insistence the Supreme Court Appellate Bench has done that. It was apprehended by some quarters that the country might face a crisis if a path to transition is not spelled out. The Appellate Bench has given very concrete and realistic suggestions for legal, institutional and policy changes, and has also suggested a time frame in which different steps may be taken serving as building blocks towards freeing the economy of riba within a time span of 18 months.

Constitutionally, the court was only obliged to say that in its view these laws should become void within a specified time horizon. And that time horizon should suffice the legislature to legislate on those issues so that a new set of laws replaces the old laws and also should suffice the government to take necessary executive and policy steps to move towards the new system. Their constitutional obligation was only to give a period for those laws to cease to exist; nothing more and nothing less. This, the court have done by suggesting that 8 of the laws should cease to exist after March 31, 2000 and the remaining 20 laws by June 30, 2001.

This part of the judgement, according to the constitution, is mandatory i.e. whether anything is done or not if we continue to operate according to this constitution and the court does not review its decision, then there is no other appellate authority and these laws would cease to exist at the time limits given by the court. As such, it is no longer a game of pick and choose as the successive governments have been engaged during the last 52 years. This has now attained importance and something has to be done as far as these laws are concerned. However, the rest of the timetable is declaratory and not mandatory and to that extent there is some flexibility within the judgement and the way statutes are interpreted.

The verdict consists of three detailed judgements; one by Justice Khalilur Rehman, the other by Justice Wajihuddin and the third by Justice Mohammad Taqi Usmani. All three are well written, worth reading documents. They have a scholarly flavor and they have recorded all major viewpoints that had been presented before them. The honorable judges have also discussed some of these viewpoints and then have in the light of all the discussion come to their own conclusions. Academic debates had been there in the past and would continue in the future; there is no bar on that and I am one of those who feel that freedom of discussion and freedom of re-thinking should always remain. Yet, as far as the definition of riba and its place in the financial system of the country is concerned, this judgement is definitive. There  is no question of keeping the debate open. And now it would be unfair and unnecessary to spend time and energies on efforts to defining what is riba and what is not. Rather the effort should now concentrate on implementing the verdict. This is not a legal imperative, it is also a moral obligation. It is unfortunate that a certain lobby has tried to reopen some of the settled issues. This is waste of time and creating confusion by dragging the nation into a futile war of words.

Implications of Review Petition

Before proceeding further, a word about the review petition filed by United Bank Limited. This shabbily drafted petition that has been lodged with the Supreme Court would not effect the present status. It should be kept in view that review petition and appeal are not the same things. Review is discretion of the Bench and as a matter of fact, the petition has not been admitted by the bench since the bench does not exist. While in the case of an appeal, the judgement becomes immediately suspended till the appeal is disposed of; in the case of review no such development takes place. So, instead of relaxing and loosing belts, we should further tighten them and realize that the judgement is very much there.

Review can take its own course, it can not and must not halt the process. Moreover, if review is based on some sound academic or empirical grounds, it should not be discouraged. Rather, one should hope this may further help in improving the earlier and the present efforts. Nevertheless, the way the review petition has come has nothing new, nothing rational. In contrast, the position has been reversed; the appellants say that the Supreme Court has gone beyond its jurisdiction by suggesting a strategy and steps to make the required transition and that it was not their job. Then they have come up with old and oft-repeated arguments; that savings would shrink and what would happen to government borrowings, and other nonsensical objections. None of these objections merits review of judgement. Interestingly, the petition itself confesses it has been drafted under a hurry. Thus the petition is based on a wrong premise; if the drafting of review petition was done in haste, how could the petitioners have sufficient time for full examination of the judgement while running for a review?

Source: Towards Islamic Banking: Experience and Challenges, Institute of Policy Studies. Republished with permission.