Banking and Finance Law Needs Implementation Rather Than Amendments

Banking and Finance Law Needs Implementation Rather Than Amendments

It is a matter of fact that quite a few laws in our country are over a century old. This puts the law-makers under an obligation to make necessary amendments so that the same laws remain in conformity with the changing needs of the present day world. However, being a practising lawyer myself, I have consistently felt that more than the need for amendments, we need implementation of the law in its true spirit.

There are many special laws in Pakistan that require attention by the courts. The Financial Institutions (Recovery of Finances) Ordinance 2001 (FIO) came into force in 2001, through which all matters pertaining to banking recoveries have been entrusted to specially constituted Banking Courts. With the passage of time, the number of Banking Courts has also been increased with the purpose to expedite the recovery of loans extended by financial institutions. It is pertinent to mention here that a smooth recovery process will result in the growth of a healthy credit culture in the country, reduce risks of default and writing off of loans, create additional funds for lending to new segments of borrowers and augment the cash flow in the market.

Suits filed in Banking Courts are divided into two stages:

  1. The first stage involves determination of the rights of parties.
  2. The second stage involves the execution of the decree.

In the first stage, the court may grant leave to defend in a case if it thinks that substantial questions of law and facts have been raised, requiring the recording of evidence for judicious adjudication. However, due to various reasons, the first stage tends to take a long time to conclude as the defendant’s side will want to prolong the matter, making it difficult for the Banking Courts to understand the complex statement of accounts of banks appended with the plaint.

These impediments can be easily minimized if the courts start implementing the relevant laws provided in the FIO. Superior courts have laid a lot of emphasis on the filing of a true, complete and certified statement of account so that actual liability can be ascertained. It is a matter of reality that the statement of account involves complex credit and debit entries which normally only bankers can easily understand. It is the need of the hour that the Banking Courts use relevant provisions of the law available in the FIO. It is also relevant to mention here that the Section 5(8) of the Financial Institutions Ordinance enables the judges of Banking Courts to appoint amicus curiae if they need assistance with any case. The Banking Court may, if it so requires, be assisted in technical aspects of banking transactions involved in any case, by an amicus curiae (friend of the court) who has an experience of at least ten years of banking at a senior management level in a financial institution of repute, or the State Bank of Pakistan, and has the following qualifications:

  1. a degree in Commerce and Accounting, or in Economics; or
  2. a degree in Business Administration; or
  3. has completed a course in Banking from the Institute of Bankers, Pakistan.

If courts start taking assistance from amicus curiae, it would help them in making accurate and quick decisions. However, in regular practice, the effective use of this provision has not been made by Banking Courts. Even in Tax Tribunals, chartered accountants are part of the tribunals which basically validates the fact that professionals belonging to banking sector should also be made part of the proceedings of the court in order to ensure quick recoveries. Even in the Wages Court, officials of the Labour Department decide cases related to the wages of employees working in different sectors. Assistance from experts working in the banking sector would similarly be beneficial in deciding matters relating to complex financial facilities.

Banking Courts have also been given the powers of civil and criminal courts under Section 7 of the FIO. Section 7 states that a Banking Court shall:

(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)

(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).

Normally, civil law gets applied by the Banking Courts at the stage of execution. The stage of execution is governed under Order XXI of the Civil Procedure Code (CPC). However, the stage of execution is more difficult than the first stage as it gets prolonged sometimes due to various reasons. In cases of agricultural loans, the mortgaged lands are located in rural areas and it becomes difficult for the court auctioneers to point out the exact location at the time of auction. However, civil law empowers the court under Order XXVI, Rule 9 to appoint local commissions. In routine banking practice, the execution stage gets prolonged due to non-issuance of directions to respective patwaris and tehsildars for the demarcation of properties. If the demarcation issues can get resolved, an expeditious execution of the decree can be ensured.

Demarcation issues are even present in urban areas and there are many cases which are currently facing delays due to them. Courts need to use the powers provided to them under civil laws. It is a matter of fact that special law overrides general law. The problem, however, rests in the implementation and effective use of the provisions of law.

A few months ago, several amendments were made to the Financial Institutions Ordinance. The pecuniary limit of lower Banking Courts was also increased up to PKR 100 million in order to reduce the burden of cases on superior courts. The aim of the amendments was to facilitate the recovery process of banks so that loan defaults and incidences of writing off loans could be minimized.

Being a practising lawyer in the field of banking, I would recommend that if the present law is implemented in its true essence, no further amendments in the near future will be required.


The views expressed in this article are those of the author and do not necessarily represent the views of or any organization with which he might be associated.

Zain Ali

Author: Zain Ali

The writer is a Partner at Zain & Hassan Law Associates. He holds a BBA (Hons) degree from IBA Punjab University and LLB from Pakistan College of Law. He is currently practising at lower Banking Courts and the High Court.