The Lahore High Court has barred the Federal Investigation Agency (FIA) from initiating criminal proceedings against bank customers over alleged wilful defaults unless a banking court has first established the offence through civil proceedings.
The ruling prevents financial institutions from using criminal investigations as a recovery mechanism before the underlying default has been judicially determined.
The decision came in petitions filed by Qaiser Shabbir and others, who challenged FIA notices issued following complaints by financial institutions under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. A division bench comprising Justice Jawad Hassan and Justice Abid Hussain Chattha allowed the petitions.
Cases Already Before The Courts
In each case, the financial institutions had already sued the petitioners for recovery. The suits were decreed, many by consent, or were pending in appeal or execution when the institutions complained to the FIA.
Lawyers for the petitioners argued that the ordinance’s civil and criminal remedies are interwoven and that willful default must first be established before the banking court. They said a customer cannot be termed a defaulter or a willful defaulter within the scope and ambit of the ordinance unless the allegations of breach of obligations have been conclusively determined by the banking court and the appellate court.
FIA Defended Its Jurisdiction
Lawyers for the respondents argued that each limb of the offense is independent and that the FIA enjoys exclusive jurisdiction under Rule 5 of the Rules 2018.
They said the notices merely sought information and that direct complaints before the FIA had rightly been filed after the financial institutions issued notices for payment of defaulted amounts, as required by the ordinance. They said the impugned notices directing an investigation into the alleged offense of willful default had been issued appropriately.
The Judgment And Its Reasoning
The judgment, authored by Justice Chattha, first rejected the objection to the petitions’ maintainability. The judge observed that notices issued under Section 160 of the Code of Criminal Procedure are normally not challengeable, but judicial review is open where they are issued without jurisdiction, with mala fide intent, or against the parent statute.
On the merits, the judge held that willful default is a distinct species of default with both civil and criminal dimensions.
“A recovery suit only fixes the amount payable and does not establish willful default,” the judgment maintained. It noted that the law requires a 30 day payment demand before a complaint and that the punishment is tied to the amount of default.
The bench disagreed with a 2019 ruling of a three member LHC bench, in the case of Mian Ayaz Anwar and others versus State Bank of Pakistan, to the extent it held that Sections 2(g)(ii) and (iii) of the ordinance need no prior civil determination. It also rejected the approach of letting criminal proceedings start and then staying them.
The bench observed that such an approach would give institutions an unfettered, unilateral, discriminatory, and coercive tool to recover undetermined sums through first information reports and arrests. It held that the FIA’s powers flow from the ordinance and the 2018 Rules, not the FIA Act.
The post Can’t Repay Loan? FIA Can’t Arrest You Till Court Declares You Defaulter appeared first on ProPakistani.
