LHC rules SBP circular No. 2 of 2003 as beyond legal authority

The Lahore High Court (LHC) has declared Circular No. 2 of 2003 issued by the State Bank of Pakistan (SBP) as ultra vires and beyond its lawful authority.

The ruling strikes down restrictions imposed through paragraph 33A in Chapter 12 of the Foreign Exchange (FE) Manual, which affected the adjudication process related to foreign exchange regulations.

The court held that SBP had assumed powers vested in adjudicating officers by issuing the circular and interfering with the recovery of sums due to the government. It ruled that SBP lacked the authority to impose stricter conditions than those prescribed by the 1988 Rules under Section 20(3) of the Foreign Exchange Regulations Act.

The LHC allowed petitions filed by Mumtaz Ghai Textile and others, striking down show-cause notices issued under the impugned circular. It directed SBP to refer matters to adjudicating officers for due process and determination.

The circular had restricted exporters from accessing a percentage of their export proceeds until adjudication was completed.

Petitioners argued that SBP’s circular infringed upon their right to use their funds and imposed unauthorized restrictions on authorized dealers and exporters. The court observed that the circular violated constitutional rights, including Article 18 on trade freedom and Article 10A on fair trial and due process.

The court ruled that SBP could have issued a notification for compliance with Section 23B but could not impose conditions usurping adjudicating officers' powers. The decision restores exporters' control over their funds while ensuring regulatory actions align with legal provisions.