International Construction Law Review
CORRESPONDENT’S REPORT: PAKISTAN
MAHOMED J.JAFFER
Orr, Dignam & Co., Karachi
SUPREME COURT DECLARES INTEREST UN-ISLAMIC
The government of Pakistan, in an effort to place emphasis on attracting foreign investment, has liberalised and largely freed the economy of Pakistan from over-regulation. In response to this and other incentives, foreign investors have made sizeable investments in Pakistan, which in turn, have helped Pakistan’s construction industry. Construction contracts usually provide for the payment of interest where contractual payments have not been made on time. The recent decision of the Supreme Court of Pakistan regarding the validity of a provision for payment of interest has caused foreign investors and the international community a great deal of concern and therefore merits detailed consideration.
On 23 December 1999, the Shariat Appellate Bench of the Supreme Court of Pakistan delivered a judgment holding all laws which deal with the payment of interest as repugnant to the Injunctions of Islam and directed that all such laws shall cease to have effect by 30 June, 2001. It held that any amount, big or small, over the principal, in a contract of loan or in a debt is “riba”
prohibited by the Holy Qur’an. However, since time has been provided by the judgment for its implementation there should be no immediate adverse consequences arising from this decision and the position regarding payment of interest in Pakistan remains unchanged for the time being.
Present position of interest
At present, Pakistani law, as determined by the courts, provides for the grant of interest. The right to interest prior to the date of suit, is a matter of substantive law. The Interest Act 1839 empowers the court, at its discretion, to grant interest prior to the date of suit on a debt or sum certain, payable by virtue of a written instrument or when there is an agreement, express or implied between the parties, mercantile usage, statutory provision, or equitable grounds in proper cases. The Negotiable Instruments Act 1881
Pt. 3]
Correspondent’s Report
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