SBP decision to cancel exchange company’s license nullified

PESHAWAR: The Peshawar High Court (PHC) on Thursday annulled the State Bank of Pakistan’s decision to cancel the license of a private exchange company and directed the bank to begin processing the company’s application for a No Objection Certificate (NOC) within a month.

A two-member bench comprising Justice Syed Arshad Ali and Justice Qazi Jawad Ehsanullah issued the ruling in a case where the Ministry of Finance, the State Bank and the Director of the Exchange Policy Department were also made parties.

Orient Exchange Company’s counsels Barrister Qasim Wadood and Babar Khan Yousafzai argued that their client’s company was the only Category B exchange company operating in the province and engaged in the money exchange business.

The company, they said, had applied for a Category A license but the SBP cancelled their existing license without providing any justification. The lawyers contended that this action violated the principles of natural justice as the company was not given a chance to be heard prior to the cancellation.

They pleaded that the company had fulfilled all the eligibility criteria outlined in the Exchange Companies Manual, yet the SBP took an illegal and harsh step not supported by law. They further argued that letters issued on December 27, 2023, and on other occasions effectively shut down the company’s operations and requested that these actions be declared void.

The petitioner also sought directions for the issuance of an NOC to allow the company to operate as a full-fledged exchange company.

In response, the SBP and other respondents submitted comments and said that the company had failed to meet the necessary requirements for upgradation from Category B to Category A and was not integrated into the new exchange company system that justified the license cancellation.

After hearing arguments, the court issued a detailed 11-page judgment authored by Justice Qazi Jawad Ehsanullah. The judgment noted that while the SBP was authorised to regulate foreign exchange activities and enforce rules on exchange companies, it could not provide sufficient justification for such a severe punitive action against the petitioner.

The court held that simply failing to meet the “fit and proper” test criteria does not justify such an extreme decision, especially when the company was not given the constitutionally mandated right to a fair hearing under Article 10A.

Citing relevant Supreme Court precedents, the bench ruled that the respondents violated the mandate of Section 24A and thus declared the SBP’s action null and void.