BANKING RECOVERY LAWS IN PAKISTAN

Economic well-being is closely related to the speedy remedy of any grievances which may be caused during the business. Cash flow and smooth running of business is a sign of prosperity. Hence, special laws have been promulgated to deal with commercial as well as banking recovery matters. In Pakistan the law which deals with outstanding loan or finances is the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “Act”).

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Before advancing the detailed analysis of the Act, it is important to borne in mind that the Act is not only the sole law dealing with the affairs of the bank. Whistleblower Protection and Vigilance Commission Ordinance, 2019, Credit Bureaus Amendment Act, 2016, Bank Nationalization Act, 1974 and some other laws are also in force which deals with various affairs and formations of the banks. Hence, this article solely deals with the relevant provisions of the Act.

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Banking Courts defined under Section 2(b) means in respect of a case in which the claim does not exceed [hundred] million rupees or for the trial of offences under this Ordinance, the Court established under section 5 and in any other case a High Court. Generally, a litigation is considered to be a lengthy process since after representation of a plaint before the court explaining facts and legal cause of action, a written statement is filed by the defendants, thereafter, issues are framed and examination and cross-examination of the parties are conducted in order to determine the strength of stance taken by the parties to the lis. Subsequently, a judgement is passed either decreeing or dismissing the suit. Conversely, the banking recovery matters under the Act are held primarily in a summary manner. Under section 9 of the Act the suit for recovery is instituted which shall necessarily attach all the important documents with the plaint especially statement of accounts and other finance documents. The plaint shall ascertain the amount of finance availed, amounts paid and the amount outstanding. It is also important to observe here that in order to invoke the banking jurisdiction the parties to lis shall be the financial institution and the customer and the dispute between the parties shall be relating to finance which are discussed under Section 2 of the Act. In any other case, no case before the Banking Courts could be filed and shall be coram non judice. All modes of the notices unlike civil matters of general jurisdictions are served simultaneously in order to save the precious time of the Courts and parties. The Defendants / Customers after serving of notices shall file within 30 days of receiving first notice, a permission for leave to appear (PLA) and defend the suit under section 10 of the Act. The PLA shall also specify the amount of finance availed, amount paid and the amount outstanding. Another important aspect of PLA is that unlike written statement the contentions in the PLA are not per say presumed to be true unless some substantial question of law and facts are raised in PLA. In PLA the Defendants / Customers seek permission to defend themselves and in written statement the Defendants defend themselves straightaway. Under Section 10(8) of the Act, the financial institution will be granted an opportunity to file a reply to PLA or also known as replication. If there are some substantial questions of law and facts then the PLA shall be treated as written statement and evidence will be recorded according to the relevant provisions of Code of Civil Procedure, 1908. However, under Section 13 of the Act the trial shall be completed withing 90 days of the order when PLA was allowed by the banking court. However, if the PLA is dismissed by the court, a judgement / decree should be passed in favour of the Plaintiff / Financial Institution forthwith. The types of finances and their nature and the statement of accounts and their reading shall be dealt with in a separate article.

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After passing of decree within 30 days the suit shall be automatically converted into execution under Section 19 of the Act. The execution of the decree though is generally dealt under Order 21 of Code of Civil Procedure, 1908. However, the Banking Court has the power to adopt any other method of satisfying the decretal amount. Another method to process the recovery of the outstanding liabilities is dealt with under Section 15 of the Act where a financial institution can initiate proceedings without the intervention of the Court. In this regard, the government of Pakistan has promulgated Financial Institutions (Recovery of Finances) Rules, 2018 (the “Rules”). Under section 3 (i) (a) of the Rules the liability of the Customer / Mortgagor is determined by the Chartered Accountant Firm which has not been engaged by the Financial Institution for the last 3 years.?The notices shall also be served to the Mortgagor / Customer to submit their claims with the Chartered Account. In case of failure to submit their claim to the Chartered Accountant they shall proceed with the determination of liability with the available documents. The Financial Institution shall serve notices to the Customer / Mortgagor of the amount determined by the Chartered Accountant. If the Customer / Mortgagor fails to pay the outstanding liability the Financial Institution shall proceed with the sale of mortgaged property. The evaluation of the Mortgaged property/ies shall be conducted under Section 3 (b) of the Rules. And the Bidding process shall be conducted under Section 3 (c) of the Rules.

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The parties aggrieved by the final decision of the Banking Court can file an appeal under Section 22 of the Act before High Court. The appeal shall be heard by the division bench of the High Court. The Banking Court lacks power to review their judgement / decree or any other interlocutory order unless there is clerical or typographical mistake as envisage under Section 27 of the Act. The Banking Court also has the jurisdiction to entertain a criminal complaint as discussed under Section 20 of the Act. The law makers as well as judges or superior courts have adopted the most efficient procedure to satisfy the outstanding liabilities of the Financial Institutions by adopting special procedures under the special law.?