“Without Justice, life would not be possible and even if it were it would not be worth living Giorgio Del Vecchio (Justice). On becoming Lord Chancellor of England in March of 1617, Francis Bacon remarked that: “Fresh justice is the sweetest“. In the plain and simple words of Mr. Justice John Owen Wilson (1898-1986) of Canada:

“[A] month’s delay is normal. Two months delay is long. And three months is too long.”

Financial sector comprising of banks/financial institutions is of paramount importance to bring economic robust in country. Almost 90% of the financial sector comprises of financial institution rendering a variety of services including catering the financial needs of the private and public sector in Pakistan.

The banking business has not only spread its wings to meeting the government budgetary deficits and the losses of the public enterprises but to cater the fiscal needs of corporate entities and the individual customers. The customer base for loans has been expanded manifold during the last decade which can safely be termed a record financing comparing to other fiscal terms spreading over the similar tenure. Many sectors like agriculture neglected before has started to receive significant allocations from the commercial banks.

Equally important to have the loans returned per terms of financing and injecting it back where needed in order to continue the economic cycle functioning effectively.

Brief History of Banking Recovery Laws:

Prior to the promulgation of the Banking Courts (Recovery of Loans) Ordinance, 1979 all the cases pertaining to recovery of bank loans were tried and heard by the ordinary civil courts. Under the said law Banking Courts were established in different parts of the country. The procedure adopted under the law was akin to summary procedure provided in Order 37 of the Civil Procedure Code 1908.

Pursuant to SBP’s Circular No.BPD 13, the Banks and/or the Financial institutions started lending/financing on the basis of “mark up” instead of “interest” because Islamic mode of financing was being encouraged. To regulate the Islamic mode of financing and their recovery in case of default a new law was promulgated called the Banking Tribunal’s Ordinance, 1984.

In 1997, Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 replaced the earlier two laws.

Financial Institutions (Recovery of Finances) Ordinance, 2001

The government in order to make the banks recovery law more effective enacted “Financial Institutions (Recovery of Finances) Ordinance, 2001 by incorporating certain provisions therein to ensure speedier recovery of the finances advanced by the financial institutions.

Since introduction of banks recovery laws in the year 1979, dispensation of justice in banks’ recovery cases carries question marks in terms of quality of judgments pronounced and the time spent thereon.

Of course, one of the worst situations faced by the Financial Institutions is when the loans get stuck-up. In order to collect/recover the stuck-up loans, the banks resort to number of measures, including recourse to filing the lawsuits in the Courts under the banking laws.

Presently, the Financial Institutions (Recovery of Finances) Ordinance, 2001 (hereinafter the “FIO, 2 001”) holds the field and comes into play while trying the suits in relation to recovery of bank loans.

The rationale behind enactment of bank recovery laws is to expedite the process of stuck-up loans from the unscrupulous customers/debtors of the banks. Successive legislations on this premise signify the intention of the legislature and their concern to reinforce this sector of pivotal importance by legal back-up.

Apparently, the enactment of the FIO, 2001 was envisaged to help remove the lacunas existed in the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 and expedite the recovery of finances from the customers defaulted, however, in practical terms the FIO, 2001 could not fetch positive results in this regard. Since, generally the Banking Courts deals with the cases like ordinary civil suits. The special and mandatory provisions are overlooked by the Banking as well as the High Courts which is obviously against the spirit of law.

Salient Features

Some of the provisions imperative to make this law special in terms of speedier disposal of the cases are:

  1. Overriding effect on other laws (section 4)
  2. Restricted right of defence of the defaulter (section 10)
  • Adjournment of hearing for less than seven days and that too after recording reasons for the same, disposal of suit within 90 days (section 13)
  1. Disposal of objection against decree within 30 days (section 19);
  2. Sale of mortgaged property with and without intervention of the Court (section 15 & 19);
  3. Grant of stay order by the High Court after obtaining security equal to the amount of decree (section 22),
  • Disposal of appeal by the High Court within 90 days (section 22);
  • Ouster of jurisdiction of other courts (section 7);
  1. Lack of remedy against decree except by way of appeal, no revision, review or writ would lie (section 27)

If the strict adherence to the provisions summarized above is given by the judicial forums would definitely fetch far-reaching results thereby restoring the confidence of the lending banks in the judicial system. No doubt judicial system performing effectively is the backbone of a State infusing life in the dead arteries of a nation and helps instill a system of good governance from top to bottom.

Despite having specific provision as to disposal of cases within the time frame i.e. 90 days provided in section 13 of the FIO, 2001, the banking courts take couple of months even years to decide the lis lying before. Section 13 (1) reads as follows:

“A suit in which leave to defend has been granted to the defendant shall be disposed of within 90 days from the day on which leave was granted, and in case proceedings continue beyond the said period the defendant may be required to furnish security in such amount as the Banking Court deems fit, and on the failure of the defendant to furnish such security, the Banking Court shall pass an interim or final decree in such amount as it may deem appropriate.”[1]

Under section 19 (1) of the FIO, 2001 after passing the decree, the suit is converted into execution proceedings and there is no need to file the execution proceedings separately and serving the notice on the judgment debtor unlike the provisions  as to the execution proceedings contained in the CPC. Section 19(1) reads as follows:

“Upon pronouncement of judgment and decree by a Banking Court, the suit shall automatically stand converted into execution proceedings without the need to file a separate application and no fresh notice need be issued to the judgment debtor in this regard.” [2]

The August Supreme Court has observed in its judgment reported as 2012 CLD 337 while enunciating different provisions of the Financial Institutions Ordinance, 2001:

“… Scope of the suit thus becomes well defined. The controversies are confined to the claimed and/or the disputed numbers, facts and reasons thereof. Unnecessary controversial details, the evidence thereto and the time of the trial, are curtailed. The trial would remain within the laid out parametrical scope of the claimed and the disputed accounts.”[3]

It was further held in the said judgment:

“… The Financial Institutions (Recovery of Finances) Ordinance, 2001 i.e. is a special law. It provides a special procedure for the banking suits. The provisions of the Ordinance, 2001 under section 4 thereof override all other laws. The provisions contained in the said Sections require strict compliance.”

Hon’ble Lahore High Court held in its recent judgment reported as PLJ 2013 Lahore 530:

“…Object in enacting Banking Laws was to provide speedy remedy at one forum to Banks for recovery of their finances and for customers of Banks to approach same Court in case of grievance against Banks.”[4]

National Judicial Policy 2009

Another milestone in the judicial history of Pakistan was introduction of National Judicial Policy (“NJP”) in the year 2009 which is being revised every year keeping in view respective needs to meet the very objective of the said policy. In the NJP there has been provided specific provision as to speedy/expeditious disposal of cases relating to fiscal/banking matters.

“16. Priority should be given to be given to the disposal of trade, investment and commercial cases. Such cases should be managed on fast track through establishment of designated courts and by constituting special bench by High Courts and Supreme Court.”[5]

Although the provisions cited above makes it incumbent upon the court to decide the lis in pursuance thereof, however, practically after grant of the PLA it has become a rare phenomenon to dispose of the suit within stipulated time frame and it takes months if not the years to decide the matter and as witnessed execution of decrees takes years altogether to come to an end. That’s why, the ratio of recovery of defaulted amounts/loans from the delinquents is recorded very low despite passing of decrees in favour of the banks.

Not only the delayed disposal/ backlog pertaining to the banking cases but other cases of different nature have often come under consideration in the superior courts. In this regard, findings and observations of the hon’ble superior courts to some extent have paved the way to address this longstanding issue, however, desirable results cannot be obtained so far. Since the courts seems to be least concern to follow the direction of the superior courts in this regard owing to lack of proper monitoring and evaluation system in place. In order to streamline the disposal of the cases there are numbers of measures that should be taken by the superior as well as subordinate judiciary of the country on SOS basis.

Delay in disposal of the recovery cases by the banking and the appellate courts have the effect potentiality of creating a corrosion in the economic spine of the country. It exposits a factual expose’ which is not only perplexing but usher in a sense of puzzlement which in the ultimate eventuate compels one to ask: “How long can the financial institutions would suffer such procrastination? How far the public interest be put to hazard because of small, and sometimes contrived individual interest?

To what extent the defaulters are given protection in the garb of discretionary powers vested on the judicial forums and the statutory safegurards prescribed in favour of loanees? Even assuming there are legal lapses and abuses, how long the judicial forums take to put the controversy to rest being oblivious of the fact that the concept of flexibility is insegragably associated with valuation of any asset?

Protracted disposal of banks’ recovery cases having far-reaching effect on the economy of the country which obviously cannot be ignored, purely restricting it to individual transactions, more particularly when financing is through banks and financial institutions utilizing the money for the people in general, namely, the depositors in the banks and public money at the disposal of the financial institutions.

Therefore, wherever public interest to such a large extent is involved and it may become necessary to achieve an object which serves the public purposes, individual rights may have to give way. Public interest has always been considered to be above the private interest. Interest of an individual may, to some extent, be affected but it cannot have the potential of taking over the public interest having an impact on the socio-economic drive of the country. The two aspects are intertwined which are difficult to be separated.

The borrowers should have got a reasonably fair deal and opportunity to get the matter adjudicated upon before the banking courts, however, the fairness should not be stretched to undermine the very objective of the finance recovery laws. The effect of some of the provisions of the FIO, 2001 may be taken a bit harsh for some of the borrowers as remained challenged in the High Courts but on that ground the impugned provisions of the Ordinance cannot be said to be unconstitutional in view of the fact that the object of the Ordinance is to achieve speedier recovery of the dues and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would subserve the public interest.

Stats – Banks Recovery Cases

According to Annual Report[6] published by the Law & Justice Commission Pakistan, 45021 cases were pending disposal in the Banking Court at Pakistan on 01.01.2012, 23952 cases were filed during the year 2012, 23694 cases were disposed of in the year 2012 and 45279 cases were pending adjudication on 31.12.2012 in the Banking Courts.

Stats given depict the trend prevalent in disposal of cases in the banking court which obviously putting adverse impact on lending by the financial institutions. It has not been made clear in the report whether the cases disposed of during the year 2012 have come to an end or execution or appeal in relation thereto were still pending at the appellate forums

Recommendations & Guidelines

  1. In order to achieve the objective of enactment of financial institutions recovery law strict compliance with provisions as to disposal of cases etc. contained therein is required aptly.
  2. National Judicial Policy in regard to disposal of cases lying before the special courts should be implemented in its letter and spirit.
  3. An effective case management system backed with modern IT devices should be put in place being handled by the well trained court staff.
  4. Guidelines given in the Judicial Policy as to expeditious disposal of cases, in particular, cases relating to fiscal matters should be implemented with a sound monitoring and evaluation system.
  5. Number of courts, judges and the staff should be increased.
  6. On-Job-Trainings (OJT) for the judges and the court staff should be conducted on periodic basis.
  7. Performance based rewards in terms of money and departmental promotions etc. should be introduced
  8. Workshops, seminars and conferences should be held where active participation of the members of the bar and the bench as well as other stakeholders should be ensured.
  9. Appointment of judges in special courts should be made keeping in view their respective qualifications and specializations in the particular field.

[1] S. 13 Financial Institutions (Recovery of Finances) Ordinance, 2001

[2] S. 19 Financial Institutions (Recovery of Finances) Ordinance, 2001

[3] 2012 CLD 337 (Supreme Court)

[4] PLJ 2013 Lah 530 (Lahore High Court)

[5]  Revised National Judicial Policy, 2012

[6] Administrative Tribunals and Special Courts Annual Report 2012, Law & Justice Commission Pakistan