Dr. Ikramul Haq
The Finance Minister of Pakistan, while addressing a gathering of State Bank of Pakistan on April 1, 2019, stressed the need that banks should share data with the Federal Board of Revenue (FBR) for effective implementation of Benami Transactions (Prohibition) Act, 2017. The Government of Pakistan Tehreek-i-Insaf (PTI) recently promulgated long-awaited Benami Transactions (Prohibition) Rules, 2019 to start legal proceedings against those who are involved in benami transactions. The Finance Minister, it appears, has not briefed about existing conflict of laws that can defeat section 16 & 17 of Benami Transactions (Prohibition) Act, 2017 as they did in the case of section 165A of the Income Tax Ordinance, 2001. The writs filed by banks challenging these provisions are still pending in Lahore High Court.
Pakistan presents a unique country where even after specific provisions, inserted by the Legislature, banks have been resisting sharing information of their clients.It is strange that on the one hand, Pakistan has signed the OECD (Organization for Economic Cooperation and Development ) Convention for Automatic Exchange of Information (AEOI) and on the other the successive governments have taken no steps to abolish sections 5 and 9 of Protection of Economic Reforms Act, 1992 and section 111(4) of Income Tax Ordinance, 2001 that create barriers to meaningful action against persons engaged in benami transactions and tax evasion.
Section 165A of the Income Tax Ordinance, 2001 overrides Banking Companies Ordinance, 1962 (LVII of 1962), Protection of Economic Reforms Act, 1992, Foreign Exchange Regulation Act, 1947 and State Bank of Pakistan Act, 1956. It requires every banking company to make arrangements to provide to FBR online access to its central database containing details of its account holders and all transactions made in their accounts etc as well as furnish a copy of each currency transactions report and suspicious transactions report generated and submitted by it to the Financial Monitoring Unit under the Anti-Money, Laundering Act, 2010 (VII of 2010).
The banks contested the above provision on the ground that section 165A of Income Tax Ordinance, 2001 being part of general law cannot override special law i.e. section 3 read with section 9 of Protection of Economic Reform Act, 1992, sections 46A/46B/54A of the State Bank Act, 1956, section 33A of the Banking Companies Ordinance, 1962, State Bank of Pakistan’s regulations and section 5 & 6 of the Bankers’ Books Evidence. Their claim as per dictum laid down by the Supreme Court of Pakistan in Amjad Qadoos v Chairman Accountability Bureau (NAB)Islamabad & Others 2014 SCMR 1567 is that “even the non-obstante provisions of sections 165A cannot override section 9 read with section 3 of Protection of Economic Reform Act, 1992 and section 54A of State Bank of Pakistan Act, 1956”.
The banks are required to keep fidelity and secrecy of information relating to their customers. They are legally bound not to disclose record of its clients due to restrictions/bars imposed by section 9 of Protection of Economic Reforms Act 1992 read with section 5 of Foreign Currency (Protection) Ordinance, 2001, sections 46A/46B of the State Bank Act, 1956, section 33A of the Banking Companies Ordinance, 1962, State Bank of Pakistan’s regulations and sections 5 & 6 of the Bankers’ Books Evidence. The banks insist that on the basis of judgement of Supreme Court in Amjad Qadoos v Chairman Accountability Bureau (NAB)Islamabad & Others 2014 SCMR 1567 “unless these laws are amended by both the Houses and not through a Money Bill, any provision of the Income Tax Ordinance, 2001 or Benami Transactions (Prohibition) Act, 2017 cannot prevail, as even a non obstante provision in any special law will always prevail vis-à-vis any overriding provision inserted in general law even at a later point of time”.
They further argue that section 46A of the State Bank Act, 1956 clearly states that no court tribunal or other authority shall be entitled to compel the bank or any person in the service of the bank to produce or, as the case may be, give any evidence derived from, any unpublished record of the bank except with the prior permission in writing of the Governor who may give or withhold such permission as he thinks fit. The Sindh High Court in Pakistan Agricultural Research Council, Government of Pakistan v The State Bank of Pakistan PLD 1988 Karachi 28 held: “A plain reading of the above section indicates that no Court, Tribunal or other authority is entitled to compel the Bank or any person in the service of the Bank to produce, or as the case may be, give any unpublished record of the Bank, nor any Court, tribunal or other authority shall permit anyone to produce or give evidence derived from, any ‘unpublished record of the Bank, except with the prior permission in writing of the Governor who may give or withhold such permission as he thinks fit”.
The Lahore High Court also in M.D. Tahir Advocate v Director of State Bank 2004 CLD 1680 [intra court appeal was also rejected against this order—PLD 1998 Lahore 90] while dealing with the issue of disclosure of details of bank customers held: “From the foregoing legal articulations, it is clear that the people in Pakistan have a right not to have their private financial matters given in good faith under fiduciary relationship to Banks placed before the preying eyes of tax collection agencies without even an allegation of any wrong doing……”.
The above cited case provides that neither the State Bank of Pakistan nor the FBR has power to compel the banks to divulge in ordinary circumstances particulars relating to bona fide banking transactions, including names and particulars of their clients. However, the bank would be obliged under the law to provide particulars whenever a tax fraud/evasion comes to the knowledge of tax department and particulars are communicated to them of the particular person or party along with permission of High Court as elaborated by the Supreme Court in the case reported as Irshad Ahmad Sheikh v The State 2000 SCMR 814.
The stance of the banks in pending litigation before Lahore High Court is that compliance by them of sections 165A of the Income Tax Ordinance, 2001 is not possible unless special laws are first amended by both the Houses (National Assembly and Senate) that protect information of their clients. Notwithstanding how the Lahore High Court decides the matter, the simple solution is to amend the special laws to remove the conflict of laws, and then banks will be left with no excuse to withhold information. At this point of time, the PTI Government lacking simple majority in Senate cannot do it unless Opposition parties cooperate—they will never amend the laws as their own leaders are facing the charges of using fake and benami accounts for money laundering and plundering of national wealth.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)