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Citation Name : 2015 CLD 1439 LAHORE-HIGH-COURT-LAHORE

Side Appellant : MUHAMMAD FAROOQ AZAM


Side Opponent : BANK AL-FALAH LIMITED
Ss. 9, 10 & 22---Contract Act (IX of 1872), Ss. 73 & 74---Banking Companies Ordinance
(LVII of 1962), Ss. 3A, 25 & 41---State Bank of Pakistan BCD Circular No.13 of 1984 dated
June 20, 1984---State Bank of Pakistan BCD Circular No.32 of 1984 dated November 26,
1984--- Mark-up beyond original contractual period/additional sum/penalty for delay in
payment by customer--- Principles---Car/auto mobile finance facility--- Plaintiff filed suit
seeking redemption/clearance of vehicle from defendant Bank, on the ground that finance
facility availed by plaintiff for the said vehicle was re-paid completely but defendant Bank
refused to issue the NOC---Suit was dismissed by Banking Court on the ground that plaintiff
was under contractual obligation to pay late payment charges---Held, that with introduction of
State Bank of Pakistan BCD Circular Nos.13 of 1984 dated June 20, 1984 and BCD Circular
No.32 of 1984 dated November 26, 1984, all Financial Institutions in Pakistan had been
prohibited from charging any additional sum on account of delay caused by the customer in re-
payment of its obligation created under an agreement based on mark-up and such obligation
under a mark-up based agreement, once fixed could not be enhanced, so as to entitle a
Financial Institutions charge any sum over and above original contractual amount---Mark-up
beyond the original contractual period or any late payment charged, claimed by the Financial
Institution was in violation of the restrictions contained in the said State Bank of Pakistan
Circulars and any clause incorporated in a finance agreement for charging any additional
mark-up or penalty would violate the said Circulars and was therefore, void ab initio---Penalty
or damages at fixed rate was opposed to the provisions contained in Ss.73 & 74 of the
Contract Act, 1872 and general principles for granting compensation when beneficiary alleged
breach of contract were regulated by Ss.73 & 74 of the Contract Act, 1872 and without
proving the actual loan , even a fixed amount, if stipulated for liquidated damages, did not
become auto matically payable---If a clause existed in the agreement for finance regarding
late payment charges and penalties, the same could be disregarded by the courts being against
the Islamic system of finance, and for being unconscionable and against the law---Order and
decree of Banking Court was set aside and suit of plaintiff was decreed and defendant Bank
was directed not to withhold issuance of clearance certificate in favour of plaintiff---Appeal
was allowed, accordingly.