LAHORE: The Lahore High Court (LHC) has ruled that the Federal Investigation Agency (FIA) cannot prosecute a bank customer for ‘wilful default’ until a banking court first determines the allegation in civil proceedings.
A division bench comprising Justice Jawad Hassan and Justice Abid Hussain Chatthaissued the ruling allowing petitions filed by Qaiser Shabbir and others.
The petitioners challenged the notices issued by the FIA in response to complaints by financial institutions under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance 2001.
In each case, the 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.
The petitioners’ lawyers argued that the ordinance’s civil and criminal remedies are interwoven and that wilful default must first be established before the banking court.
They said a customer cannotbe termed a defaulter or a wilful defaulter within the scope and ambit of the ordinance unless the allegations in this respect, in terms of breach of obligations, have been conclusively determined by the banking court and the appellate court.
On the other hand, the respondents’ lawyers argued that each limb of the offence is independent. They said the FIA enjoys exclusive jurisdiction under Rule 5 of the Rules 2018, and that the notices merely sought information.
They argued that direct complaints before the FIA had rightly been filed after the financial institutions issued notices for payment of defaulted amounts, as ordained by the ordinance.
They said the impugnednotices to the petitioners, directing an investigation into the alleged offence of ‘wilful default’,had beenissued appropriately.
The judgement, authored by Justice Chattha, first rejected the objection to the petitions’ maintainability.
The judge observed that noticesissuedunderSection160 of CrPC 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 wilful 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 wilful default,’ the judgment maintained.It noted that the law requires a 30-day payment demand before a complaint and the punishment is tied to the amount of default.
The bench disagreed with a 2019 ruling of a three-member LHC bench (Mian Ayaz Anwar and others versus State Bank of Pakistan etc.) 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 this would give institutions an unfettered, unilateral, discriminatory, and coercive tool to recover undetermined sums through FIRs and arrests.
The bench held that the FIA’s powers come from the ordinance and the 2018 Rules, not the FIA Act.