Supreme Court judgment casts doubt on validity of legislative amendments through Finance Acts

17 January 2011

In a judgment handed down by the Supreme Court on 14 January 2011 (click here to download the judgment), the Court has ruled that an amendment made by the Finance Act, 2007 to the Banks (Nationalization) Act, 1974 (1974 Act) was void because it did not fall within the ambit of a Money Bill as defined in Article 73(2) of the Constitution.

The judgment shows that the petitioners had challenged the re-appointment of the President of the National Bank of Pakistan (NBP) through extensions granted to him under section 11(3)(d) of the 1974 Act. As originally enacted, section 11(3)(d) permitted the Federal Government to re-appoint, amongst others, the President of a nationalized bank for a second term of three years in consultation with the State Bank of Pakistan. Through an amendment to this section made by the Finance Act, 2007, the restriction on the number of terms was removed and the Federal Government was authorised to re-appoint, amongst others, the President of a nationalized bank for such further term or terms as may be determined, in consultation with the State Bank. Pursuant to this amendment the incumbent President of NBP was re-appointed for a fifth term of one year with effect from 1 July 2010.

The Supreme Court held that the matter of re-appointment of the Chairman, President and other members of the Board of NBP does not fall within the scope of a Money Bill as set out in sub-clauses (a) to (g) of clause (2) of Article 73 of the Constitution. As such, the Court further held that the amendment to section 11(3)(d) of the 1974 Act could not have been made through the Finance Act, 2007. Based on this reasoning, the Court declared that the re-appointment of the incumbent President of NBP in pursuance of the amendment made by the Finance Act, 2007 was unconstitutional and he shall cease to hold office with immediate effect.

This judgment has far-reaching implications beyond its immediate impact in the case before the Supreme Court. It is the first occasion on which the Supreme Court has clearly held that legislative amendments on matters which are outside the purview of a Money Bill will have no legal effect if such amendments are made by way of a Finance Act. It has been observed that the mechanism of the Finance Act has been used often by the Federal Government over the last several years to make amendments to various laws. In addition to amendments made to the 1974 Act, Finance Acts have been used to make amendments to diverse laws such as:

  • Banking Companies Ordinance, 1962
  • Securities and Exchange Ordinance, 1969
  • Companies Ordinance, 1984
  • Securities and Exchange Commission of Pakistan Act, 1997
  • Insurance Ordinance, 2000
  • Microfinance Institutions Ordinance, 2001
  • Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance, 2002,

to name but a few laws which have been amended through Finance Acts. An unusual use of the Finance Act mechanism was observed when the Payment Systems and Electronic Fund Transfers Act, 2007 was enacted by being appended as a schedule to the Finance Act, 2007.

In light of the latest judgment of the Supreme Court, a question must now arise about the validity of any legislative amendment made through a Finance Act if the amendment does not relate to the matter of taxation or any of the other matters which may be dealt with in a Money Bill under the Constitution.

For more information, please contact Rabel Akhund (P: +92-21-3583 2057).

 

Who does this affect?

Anyone who deals with any legislation or subordinate legislation which has been amended by a Finance Act.

What do you need to do?

Consider the potential implications of the judgment and how it will affect your business.

© 2009 Akhund Forbes