Financial Institutions (Recovery of Finances)
XLVI OF 2001
An Ordinance to repeal, and, with certain
modifications, re-enact, the Banking Companies
(Recovery of Loans, Advances, Credits and Finances) Act, 1997.
WHEREAS it is expedient to repeal and with certain modifications, re-enact the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, for the purposes hereinafter appearing;
AND WHEREAS the President is satisfied that circumstances exist which render it necessary to take immediate action;
NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of October, 1999 and Provisional Constitution Order No. 1 of 1999, read with the Provisional Constitution (Amendment) Order No. 9 of 1999, and in exercise of all powers enabling him in that behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the following Ordinance:-
1 Short title, extent and commencement. : — (1) This Ordinance may be called the Financial Institutions (Recovery of Finances) Ordinance, 2001.
(2) It extends to the whole of Pakistan.
(3) It shall come into force at once.
2. Definitions. : — In this Ordinance, unless there is anything repugnant in the subject or context¾
a) "financial institution" means and includes ¾
(i) any company whether incorporated within or outside Pakistan which transacts the business of banking or any associated or ancillary business in Pakistan through its branches within or outside Pakistan and includes a government savings bank, but excludes the State Bank of Pakistan;
(ii) a modaraba or modaraba management company, leasing company, investment bank, venture capital company, financing company, unit trust or mutual fund of any kind and credit or investment institution, corporation or company; and
(iii) any company authorised by law to carry on any similar business, as the Federal Government may by notification in the official Gazette, specify;
b) "Banking Court" means ¾
(i) in respect of a case in which the claim does not exceed fifty million rupees or for the trial of offences under this Ordinance, the Court established under section 5; and
(ii) in respect of any other case, the High Court.
(c) "customer" means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier;
(d) "finance" includes ¾
(i) an accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire-purchase, equity support, lease, rent-sharing, licensing charge or fee of any kind, purchase and sale of any property including commodities, patents, designs, trade marks and copy-rights, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika, morabaha, musawama, istisnah or modaraba certificate, term finance certificate;
(ii) facility of credit or charge cards;
(iii) facility of guarantees, indemnities, letters of credit or any other financial engagement which a financial institution may give, issue or undertake on behalf of a customer, with a corresponding obligation by the customer to the financial institution;
(iv) a loan, advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a financial institution to a customer;
(v) a benami loan or facility that is, a loan or facility the real beneficiary or recipient whereof is a person other than the person in whose name the loan or facility is advanced or granted;
(vi) any amount due from a customer to a financial institution under a decree passed by a Civil Court or an award given by an arbitrator;
(vii) any amount due from a customer to a financial institution which is the subject matter of any pending suit, appeal or revision before any Court;
(viii) any other facility availed by a customer from a financial institution.
(e) “obligation” includes ¾
(i) any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance or liquidated damages; and
(ii) any and all representations, warranties and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of, or other charge on, assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfillment of a promise; and
(iii) all duties imposed on the customer under this Ordinance; and
(f) "rules" means rules made under this Ordinance.
3. Duty of a customer. : — (1) It shall be the duty of a customer to fulfil his obligations to the financial institution.
(2) Where the customer defaults in the discharge of his obligation, he shall be liable to pay, for the period from the date of his default till realization of the cost of funds of the financial institution as certified by the State Bank of Pakistan from time to time, apart from such other civil and criminal liabilities that he may incur under the contract or rules or any other law for the time being in force.
(3) For purposes of this section a judgment against a customer under this Ordinance shall mean that he is in default of his duty under sub-section (1), and the ensuing decree shall provide for payment of the cost of funds as determined under sub-section (2).
4. Ordinance to override other laws. : — The provisions of this Ordinance shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
5. Establishment of Banking Court. : — (1) The Federal Government may, by notification in the Official Gazette, establish as many Banking Courts as it considers necessary to exercise jurisdiction under this Ordinance and appoint a Judge for each of such Courts and where it establishes more Banking Courts than one, it shall specify in the notification the territorial limits within which each of the Banking Courts shall exercise its jurisdiction.
(2) Where more Banking Courts than one have been established to exercise jurisdiction in the same territorial limits, the Federal Government shall define the territorial limits of each such Court.
(3) Where more Banking Courts than one have been established in the same or different territorial limits, the High Court may, if it considers it expedient to do so in the interest of justice or for the convenience of the parties or of the witnesses, transfer any case from one Banking Court to another.
(4) A Judge of a Banking Court shall be appointed by the Federal Government after consultation with the Chief Justice of the High Court of the Province in which the Banking Court is established and no person shall be appointed a Judge of a Banking Court unless he has been a Judge of a High Court or is or has been a District Judge.
(5) A Banking Court shall hold its sitting at such places within its territorial jurisdiction as may be determined by the Federal Government.
(6) A Judge of a Banking Court, not being a District Judge, shall be appointed for a term of three years from the date on which he enters upon his office.
(7) The salary, allowances and other terms and conditions of service of a person appointed as a Judge of a Banking Court shall be such as the Federal Government may determinej
(8) The Banking Court may, if it so requires, be assisted in technical aspects of banking transactions involved in any case by an amicus curiae who has at least ten years experience of banking at a senior management level in a financial institution of repute or the State Bank of Pakistan and has the following qualifications, namely:-
(i) a degree in Commerce and Account or in Economics; or
(ii) a degree in Business Administration; or
(iii) has completed a course in banking from the Institute of Bankers, Pakistan.
(9) Remuneration of the amicus curiae, and the party or parties by whom it will be payable, will be determined by the Banking Court, keeping in view the circumstances of each case.
6. Resignation and removal of Judges. : — (1) A person, not being a District Judge, appointed as a Judge of a Banking Court under section 5 may, by notice in writing under his hand addressed to the Federal Government, resign from his office.
(2) A person appointed as a Judge of a Banking Court under section 5 may be removed from office in consultation with the Chief Justice of the High Court.
7. Powers of Banking Courts. : — (1) Subject to the provisions of this Ordinance, a Banking Court shall¾
(a) in the exercise of its civil jurisdiction have all the powers vested in a civil Court under the Code of Civil Procedure, 1908 (Act V of 1908);
(b) in the exercise of its criminal jurisdiction, try offences punishable under this Ordinance and shall, for this purpose have the same powers as are vested in a Court of Sessions under the Code of Criminal Procedure, 1898 (Act V of 1898):
Provided that a Banking Court shall not take cognizance of any offence punishable under this Ordinance except upon a complaint in writing made by a person authorized in this behalf by the financial institution in respect of which the offence was committed.
(2) A Banking Court shall in all matters with respect to which the procedure has not been provided for in this Ordinance, follow the procedure laid down in the Code of Civil Procedure, 1908 (Act V of 1908), and the Code of Criminal Procedure, 1898 (Act V of 1898).
(3) All proceedings before a Banking Court shall be deemed to be judicial proceedings within the meaning or sections 193 and 228 of the Pakistan Penal Code (Act XLV of 1860), and a Banking Court shall be deemed to be a Court for purposes of the Code of Criminal Procedure, 1898 (Act V of 1898).
(4) Subject to sub-section (5), no Court other than a Banking Court shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Banking Court extends under this Ordinance, including a decision as to the existence or otherwise of a finance and the execution of a decree passed by a Banking Court.
(5) Nothing in sub-section (4) shall be deemed to affect ¾
(a) the right of a financial institution to seek any remedy before any Court or otherwise that may be available to it under the law by which the financial institution may have been established; or
(b) the powers of the financial institution, or jurisdiction of any Court such as is referred to in clause (a); or
require the transfer to a Banking Court of any proceedings pending before any financial institution or such Court immediately before the coming into force of this Ordinance.
(6) All proceedings pending in any Banking Court constituted under the Banking Companies (Recovery of Loans, Advances, Credits or Finances) Act, 1997 (XV of 1997), including suits for recovery of “loans” as defined under that Act shall stand transferred to, or be deemed to be transferred to, and heard and disposed of by, the Banking Court having jurisdiction under this Ordinance. On transfer of proceedings under this sub-section, the parties shall appear before the Banking Court concerned on the date previously fixed.
(7) In respect of proceedings transferred to a Banking Court under subsection (6), the Banking Court shall proceed from the stage which the proceedings had reached immediately prior to the transfer and shall not be bound to recall and re-hear any witness and may act on the evidence already recorded or produced before the Court from which the proceedings were transferred.
8. Suit for recovery of written off finances, etc. : — (1) Subject to sub-section (2), and notwithstanding anything contained in the Limitation Act, 1908 (IX of 1908) or any other law, a financial institution may, within three years from the date of coming into force of this Ordinance, file a suit for the recovery of any amount written off, released or adjusted under any agreement, contract, or consent, including a compromise or withdrawal of any suit or legal proceedings or adjustment of a decree between a financial institution and a customer on any day on or after the first day of January, 1990 and before the coming into force of this Ordinance, if it can establish that the amount was written off, released or adjusted for political reasons or considerations other than bona fide business considerations.
(2) No suit under sub section (1) shall be filed unless its filing has been approved by¾
(a) the Board of Directors, in the case of a financial institution incorporated within Pakistan,
(b) or the chief executive (by whatever name called or designated) of the financial institution in Pakistan, in the case of a financial institution incorporated outside Pakistan.
9. Procedure of Banking Courts. : — (1) Where a customer or a financial institution commits a default in fulfillment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power of attorney or otherwise.
(2) The plaint shall be supported by a statement of account which in the case of a financial institution shall be duly certified under the Bankers Books Evidence Act, 1891 (XVII of 1891), and all other relevant documents relating to the grant of finance. Copies of the plaint, statement of account and other relevant documents shall be filed with the Banking Court in sufficient numbers so that there is one set of copies for each defendant and one extra copy.
(3) The plaint, in the case of a suit for recovery instituted by a financial institution, shall specifically state ¾
(a) the amount of finance availed by the defendant from the financial institution;
(b) the amounts paid by the defendant to the financial institution and the dates of payment; and
(c) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit.
(4) The provisions of section 10 of the Code of Civil Procedure, 1908 (Act V of 1908), shall have no application for and in relation to suits filed hereunder.
(5) On a plaint being presented to the Banking Court, a summons in Form No. 4 in Appendix 'B' to the Code of Civil Procedure, 1908 (Act V of 1908) or in such other form as may, from time to time, be prescribed by rules, shall be served on the defendant through the bailiff or process-server of the Banking Court, by registered post acknowledgement due, by courier and by publication in one English language and one Urdu language daily newspaper, and service duly effected in any one of the aforesaid modes shall be deemed to be valid service for purposes of this Ordinance. In the case of service of the summons through the bailiff or process-server, a copy of the plaint shall be attached therewith and in all other cases the defendant shall be entitled to obtain a copy of the plaint from the office of the Banking Court without making a written application but against due acknowledgement. The Banking Court shall ensure that the publication of summons takes place in newspapers with a wide circulation within its territorial limits.
10. Leave to defend. : — (1) In any case in which the summons has been served on the defendant as provided for in sub-section (5) of section 9, the defendant shall not be entitled to defend the suit unless he obtains leave from the Banking Court as hereinafter provided to defend the same; and, in default of his doing so, the allegations of fact in the plaint shall be deemed to be admitted and the Banking Court may pass a decree in favour of the plaintiff on the basis thereof or such other material as the Banking Court may require in the interests of justice.
(2) The defendant shall file the application for leave to defend within thirty days of the date of first service by any one of the modes laid down in sub-section (5) of section 9:-
Provided that where service has been validly effected only through publication in the newspapers, the Banking Court may extend the time for filing an application for leave to defend if satisfied that the defendant did not have knowledge thereof.
(3) The application for leave to defend shall be in the form of a written statement, and shall contain a summary of the substantial questions of law as well as fact in respect of which, in the opinion of the defendant, evidence needs to be recorded.
(4) In the case of a suit for recovery instituted by a financial institution the application for leave to defend shall also specifically state the following ¾
(a) the amount of finance availed by the defendant from the financial institution; the amounts paid by the defendant to the financial institution and the dates of payments;
(b) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution upto the date of institution of the suit;
(c) the amount if any which the defendant disputes as payable to the financial institution and facts in support thereof:
Explanation. : — For the purposes of clause (b) any payment made to a financial institution by a customer in respect of a finance shall be appropriated first against other amounts relating to the finance and the balance, if any, against the principal amount of the finance.
(5) The application for leave to defend shall be accompanied by all the documents which, in the opinion of the defendant, support the substantial questions of law or fact raised by him.
(6) An application for leave to defend which does not comply with the requirements of sub-sections (3), (4) where applicable and (5) shall be rejected, unless the defendant discloses therein sufficient cause for his inability to comply with any such requirement.
(7) The plaintiff shall be given an opportunity of filing a reply to the application for leave to defend, in the form of a replication.
(8) Subject to section 11, the Banking Court shall grant the defendant leave to defend the suit if on consideration of the contents of the plaint, the application for leave to defend and the reply thereto it is of the view that substantial questions of law or fact have been raised in respect of which evidence needs to be recorded.
(9) In granting leave under sub-section (8), the Banking Court may impose such conditions as it may deem appropriate in the circumstances of the case, including conditions as to deposit of cash or furnishing of security.
(10) Where the application for leave to defend is accepted, the Banking Court shall treat the application as a written statement, and in its order granting leave shall frame issues relating to the substantial questions of law or fact, and, subject to fulfillment of any conditions attached to grant of leave, fix a date for recording of evidence thereon and disposal of the suit.
(11) Where the application for leave to defend is rejected or where a defendant fails to fulfill the conditions attached to the grant of leave to defend, the Banking Court shall forthwith proceed to pass judgment and decree in favour of the plaintiff against the defendant.
(12) Where an application for leave to defend has been filed before the coming into force of this Ordinance, the defendant shall be allowed a period of twenty-one days from the date of coming into force of this Ordinance, or from the date of first hearing thereafter, whichever is later, for filing an amended application for leave to defend in accordance with the provisions of this Ordinance.
11. Interim Decree. : — (1) If the Banking Court on a consideration of the contents of the plaint, the application for leave to defend of the defendant and the reply thereto, is of the opinion that the dispute between the parties does not extend to the whole of the claim, or that part of the claim is either undisputed, or is clearly due, or that the dispute is mainly limited to a part of the principal amount of the finance or to any other amounts relating to the finance, it shall, while granting leave and framing issues with respect to the disputed amounts, pass an interim decree in respect of that part of the claim which relates to the principal amount and which appears to be payable by the defendant to the plaintiff.
(2) The interim decree passed under sub-section (1) shall, for all purposes including appeal and execution, be deemed to be a decree passed under this Ordinance, and any amount covered thereby or recovered in execution thereof shall be adjusted at the time of the final decree:
Provided that it shall be open to the Banking Court notwithstanding the pendency of any appeal, to modify, in part or in whole, or reverse, the terms of the interim decree at the time of the final disposal of the suit and pass such order as it may deem just and proper: