Modaraba is a mode of non-interest financing system based on investment and talent according to which one party participates with skill and the other party participates with finance, the party who participated with skill is called Manager or Aamil while the other person who invests through finance is called the Sponsor or Rab-ul-Maal. In Modaraba one person participates with skill and the other participates with finance.
In fact it is to be called marriage of "brain" and "finance". According to this financing system one person who cannot participate by investing the money and has no finance and only can use skill through finance of "Rab-ul-Maal".
The main point which is involved in the "Modaraba" mode of financing is that both the parties will share profit but in the case of fiscal loss, the Manager or Aamil will not suffer financial losses, but the financier or Rab-ul-Maal is under obligation to suffer financial loses as he loses money, which he used in the Modaraba arrangement.
The concept of Modaraba was available in the pre-Islamic era and it was not prohibited after the dawn of Islam. This mode is entirely based on a non-interest system of finance and in Modaraba's fiscal arrangement in which ideal Modaraba is the instrument and/or product in interest-free economic system in which there is no exploitation of skill and talent due to non-availability of funds and finances. The Modaraba is a fiction of law and economics, which is to be called a marriage of brain and finance.
In Pakistan in the year 1980 when the Modaraba Ordinance was promulgated, about 70 to 100 Modarabas were floated through stock exchanges but in fact they worked on interest-based system.
The Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980, which allowed to float the Modaraba through stock exchange and public subscription had collected the money in the name of Modarabas certificates. Unfortunately most of those Modarabas had failed due to one reason or the other.
In fact it is not a failure of the Modaraba system but our present system based on corruption which in any case is interest-based and is not the failure of the "Modaraba Financing System".
A division bench of the Sindh High Court comprising Justice Mamoon Kazi and Justice Abdul Latif U. Qureshi has defined the Modaraba in a reported judgement (1996 MLD 1273, Karachi) in the case of Murtaza Flour Mills (Pvt) Ltd v. Federation of Pakistan that the term Modaraba as defined in Section 4 of Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 can be included in the term "company" --- even if Modaraba could not qualify as company as defined in the Banking Companies Ordinance, 1962, yet no restriction has been imposed in regard to its inclusion in the Schedule of Banking Tribunals Ordinance, 1984.
The mere fact that Modaraba can sue or be sued through Modaraba Company, would not lead to the inference that claim relating thereto could have been filed before Tribunal to be constituted under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 and not before the tribunal constituted under Banking Tribunals Ordinance, 1984.
The banking tribunal, thus, has jurisdiction to try suits pending against customers filed by Modaraba Companies, therefore, a particular word or expression has not been defined in a statute, resort may be had to its ordinary meaning.
In the instant judgement Section 2 of the said Ordinance defines "Modaraba" as "a business in which a person participates with his money and another with his efforts or skill or both his efforts and skill and shall include Unit Trusts and Mutual Funds by whatever name called".
"Modaraba Company", according to section 2(c) "a company engaged in the business of floating and managing Modaraba." Clause (d) of section 2 also defines "Modaraba Fund" as "a fund raised through floatation of Modaraba." Section 5 of the said Ordinance provides that a company shall be eligible for registration as a Modaraba Company in case it fulfils the conditions laid down in Clauses (a) to (f) of the said conditions.
Reference to the said conditions is not necessary, not being germane to the questions requiring determination in this case.
Section 7 of the Ordinance of 1980 lays down that Modaraba may be of two descriptions, viz., Multipurpose Modaraba, that is to say, a Modaraba having more than one specific purpose or objective, and specific purpose of Modaraba, that is to say, a Modaraba having one specific purpose of objective. According to sub-section (2) of Section 7, a Modaraba may be either for a fixed period or for an indefinite period.
Section 8 requires a Modaraba Company to apply to the Registrar for permission to float Modaraba. Section 12 of the Ordinance of 1980 provides that:
"12- (1) a Modaraba shall sue and be sued in its own name through the Modaraba Company.
(2) The assets and liabilities of each Modaraba shall be separate and distinct from those of another Modaraba as also from those of the Modaraba Company."
Section 24 of the said Ordinance (the Modaraba Ordinance), provides for Constitution of Tribunals for the purpose of the said Ordinance. Section 25 of the said Ordinance refers to the powers of a Tribunal which may be established under the said Ordinance and provides as follows:
"25.---(1) A TRIBUNAL SHALL
(a) in the exercise of its civil jurisdiction, have in respect of a claim filed by a holder of Modaraba certificates against the Modaraba company or by Modaraba company against any other party with whom it has entered into business transactions relating to Modaraba fund, or in respect of an application by the Registrar for the winding up of a Modaraba company, all the powers vested in a Civil Court under the Code of Civil Procedure, 1908.
(b) in the exercise of its criminal jurisdiction, try the offences punishable under this Ordinance and shall, for that purpose, have the same powers as are vested in the Court of a Sessions Judge under the Code of Criminal Procedure, 1898.
(c) exercise and perform such other powers and functions as are, or may be conferred upon or assigned to it by or under this Ordinance.
(2) -----------------------------------.
(3) No court other than the tribunal shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of the tribunal extends under this Ordinance.
Reference may also be made to Section 26 of the said Ordinance (The Modaraba Ordinance), which provides for procedure to be followed by such tribunal established under the said Ordinance. The said section is as follows:-
"26.(1) --- Matters before the tribunal shall come up for regular hearing as expeditiously as possible and, except in extraordinary circumstances and on grounds to be recorded, the tribunal shall hear the cases from day to day.
(2) In the exercise of its civil jurisdiction, the tribunal shall, in all suits before it, including suits for recovery of money, follow the summary procedure provided for in Order XXXVII of the First Schedule to the Code of Civil Procedure, 1908."
"42. The provisions of this Ordinance shall have effect notwithstanding anything contained in the Companies Act, 1913 or any other law for the time being in force."
The Division Bench of Sindh High Court had further elaborated that "no doubt, the definition of "Modaraba" in Section 2(a) of the Ordinance, 1980 (the said clause is now (ab) after amendment) indicates that Modaraba only means a business or scheme in which one person participates with his money and the other with his efforts or skill or both his efforts and skill and the same does not fall within the definition of the word "company" as defined either in the Banking Companies Ordinance, 1962 or the Companies Ordinance, 1984 but as is indicated by the dictionary meanings of the term "company" an establishment to qualify as a company may not conform to the definition of the said term as given in the said Ordinances."
"The expression "Modaraba Fund" has also been defined in the said Ordinance to mean as "a fund raised through floatation of Modaraba." Section 12 of the Ordinance of 1980, reference to which was also made earlier in this judgement, further indicates that a Modaraba shall sue and be sued in its own name through the Modaraba company. Sub-section (2) of the said section further provides that the assets and liabilities of each Modaraba shall be separate and distinct from those of another Modaraba as also from those of the Modaraba Company.
The aforesaid provisions, therefore, indicate that "Modaraba" is a business in the nature of partnership and "Modaraba Company" is a company which may be engaged in the business of floating and managing Modaraba. A fund which may be raised through floatation of Modarba has been defined in "Modaraba Fund" by the said Ordinance.
Although there appear to be no restrictions on any company floating or managing more than one Modaraba but as is indicated by Section 12, each Modaraba would be a separate legal entity which may sue or be sued in its own name although, through the Modaraba company.
Section 25 of the said Ordinance indicates that a Tribunal constituted under the said Ordinance has been vested with jurisdiction to determine a claim filed by a holder of Modaraba certificates against the Modaraba Company or by a Modaraba Company against any other party with whom it has entered into business transactions relating to Modaraba fund or in respect of matters relating to winding up of a Modaraba company but the provisions of Section 25 nowhere indicate that further power has been conferred on a tribunal to try any claim that may be instituted by a Modaraba against any other party, maybe the transaction relates to Modaraba fund.
No doubt, sub-section (3) of Section 25 further indicates that the Tribunal so established shall exercise exclusive jurisdiction in the matters as indicated by subsection (1), thereof by placing restriction upon the exercise of such power by any other Court or Tribunal and subsection (2) of Section 26 further indicates that the tribunal has been vested with jurisdiction to try suits, including suits for recovery of money but since, as has been pointed out earlier, the exclusive jurisdiction vested in the tribunal only relates to matters specified in sub-section (1) of Section 25.
Although the said subsection indicates that the tribunal has been vested with power to try claims instituted by a Modaraba company in relation to Modaraba fund, but such claims cannot include claim filed by Modaraba as in the present case, since a Modaraba is a separate legal entity as indicated by Section 12 of the Ordinance of 1980, as it can sue and be sued in its own name. The mere fact that a Modaraba can sue or be sued through the Modaraba company does not lead to an inference that the claims instituted in the present case against petitioners could have been filed before a Tribunal to be constituted under the Ordinance of 1980. If such was the legislative intent, the same would have been clearly expressed in the said Ordinance. On the other hand, the legislators in its own wisdom by enlarging the definition of "banking company" in Section 2(a) of the Banking Tribunal Ordinance of 1984 and vesting the Federal government with power under Section 13 of the said Ordinance clearly intended to confer powers on the Tribunal constituted under such special enactment to try all cases relating to finance between the establishments included in the said Schedule and a customer, we are consequently, of the view that the Banking Tribunal has jurisdiction to try the suits pending against the petitioners. We, therefore, find no force in this petition."
(To be concluded)