All Scheduled Banks, Investment
Banks and NBFIs Authorised to
deal in Foreign Exchange.

Dear Sirs,

FOREIGN CURRENCY ACCOUNTS

We forward herewith a copy of the Order announced by the honourable Supreme Court of Pakistan on 18^th day of June, 1999 in connection with the Appeal relating to the cases of Foreign Currency Accounts. It would be observed therefrom that paragraph (iv) is required to be implemented by the respective banks/institutions holding foreign currency deposits (including COis). Interest/profit is required to be paid to the foreign currency Account holders at rates already agreed as per original arrangements between them and the respective banks. Our interpretation is that such interest/profits are required to be paid in those cases where the foreign currency accounts continue to exist, and that the amounts of interest/profits are to be credited in foreign exchange to the accounts of the respective Account holders. You are advised to implement he Order accordingly.

2. As regards remittance abroad of interest/profit by non-resident Pakistanis and foreigners (including non-resident firms, companies and other institutions) covered by para (v) of the Order, as and when any of the eligible Account holders wishes to remit interest/profits abroad, an application may be sent to the undersigned on Form ‘M’ alongwith a covering letter which should indicate the name, nationality and residential status of the Account holder, the balance in the account on the date of application as well as on 28-05-1998, and the period during which such interest/profits were earned. The State Bank will give approval within a week, if the documents are in order.

FE-45 deposits will continue to be governed by the agreement reached between the State Bank and commercial banks/NBFIs.

    

IN THE SUPREME COURT OF PAKISTAN
(Appellate Jurisdiction)

CA319/99 etc.

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any restriction on deposits in and withdrawals from the foreign currency accounts and restrictions, if any, shall stand withdrawn forthwith’, the successive Governments improperly utilised the foreign exchange deposits of the Foreign Currency Accounts holders in breach of the above solemn commitment and the State Bank of Pakistan also failed to perform its statutory duty to protect the interests 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) The BPRD Circular No.23 dated 2-7-1998 read with BPRD 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 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 Accounts 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 holders 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.

Announced at Islamabad
This 18^th day of June, 1999