In legal discourse, few terms appear as deceptively simple yet are as conceptually complex as the word customer in banking law. In ordinary commercial understanding, a customer is any person who opens a bank account, deposits funds, places money in a term deposit or any other investment, or otherwise avails banking services. Every interaction between a bank and such an individual is premised on the existence of a banker-customer relationship. Account opening forms identify the individual as a customer, deposit slips are issued as “Customer Copies,” and banks’ terms and conditions consistently employ the same terminology. Yet, when a dispute reaches the courtroom, this seemingly settled understanding undergoes a remarkable transformation.
Under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (“FIO 2001”), the term customer assumes a meaning considerably narrower than its ordinary commercial usage. The statutory definition, therefore, is very much dependent on the extension of finance and on the transactions that the ordinance had in mind. Consequently, a person who is unquestionably regarded as a customer in everyday banking practice may nevertheless fall outside the statutory definition of a “customer” for the purpose of invoking the jurisdiction of a Banking Court. This conflict between the banking practice and statutory interpretation creates a jurisdictional paradox, which only attracts avoidable procedural issues.
The ordinance has been passed for enabling a special setup to quickly recover payments made by banks and financial institutions. It is clear from sections 2(c), 2(d) and 9 that it is primarily geared toward the recovery or enforcement of financial accommodation rather than to adjudicate every item of dispute between a banking institution and a customer. As a consequence, the scope of the jurisdiction given to the Banking Courts is limited and special in nature and needs to be defined by the text of the Ordinance.
This approach has been constantly recognized by the superior courts as a statutory role. The Lahore High Court in the case of Shahida Parveen v. House Building Finance Corporation, 2021 CLD 586 pointed out that the three terms namely “customer”, “finance”, as well as the corresponding “obligation” under the Financial Institutions (Recovery of Finances) Ordinance, 2001 are inseparable and should be interpreted together. The Court stated that the jurisdiction of a banking court has not been invoked by the participation of a financial institution as one of the participants in the given legal proceedings, but it has been invoked only if the legal proceeding meets the requirements as set forth in the ordinance.
The concept was followed in Muhammad Shoaib v. Peshawar HC. First Dawood Investment Bank Ltd. (2024 CLD 925, Peshawar High Court). The appellant invested the money by way of term deposit certificates and sought relief before the Banking Court. As per the Ordinance, the Court observed that the financial institution had not extended any finance to the appellant, and thus the accused was not a “customer” within the meaning of the said Ordinance. As such, the dispute went beyond the purview of the Banking Court. This landmark judgment illustrates that while a depositor or holder of a term deposit product may undoubtedly be regarded as a customer in ordinary banking practice, that status alone is insufficient to attract the special jurisdiction created under the Ordinance.
This gives rise to an equally important question. Why is it that, even if the holder of the deposits and/or the term deposit receipt/certificate is not currently considered to be a “customer” for the purpose of the Ordinance, they are still referred to as a customer throughout the banking system? The unevenness does not just manifest itself in the commercial practice of banks. A common practice among banks is to solicit account holders and depositors to sign “customer” information and account opening forms and, in their advertising and terms and conditions, to refer to the account holders and depositors as “customers.” More significantly, the State Bank of Pakistan in its AML/CFT Regulations has a wider interpretation of the term “customer” in its regulations explicitly covering a person holding a deposit, a deposit certificate or any instrument representing a deposit and placing money with a bank or development finance institution, or availing any other financial service. The Term Deposit Receipt Holder will therefore for regulatory purposes be a ‘customer’, but may not for Financial Institutions (Recovery of Finances) Ordinance purposes be a ‘customer’.
This does not imply that either direction is a wrong way to go: They have different statutes. However, at the moment there are two different definitions materially said to be present, giving unnecessary confusion. The depositor who has always been treated by his bank and the banking regulator as a customer can hardly be expected to take the view that he will no longer be a “customer” when deciding which forum/court is competent to hear and to settle any issues he may have.
The practical implications of this restrictive interpretation become particularly evident when the question of jurisdiction is determined only after substantial progress has been made in the proceedings. One recent example is case reported as Muhammad Anis v. Pak Gulf Leasing Company Ltd., (2025 CLD 1504 Sindh High Court). In that case, the plaintiff had initially instituted a civil suit, but the plaint was returned on the ground that the dispute fell within the jurisdiction of the Banking Court. Acting upon that order, he instituted proceedings before the Banking Court, where pleadings were completed, issues were settled, evidence was recorded and the matter had reached the stage of final arguments. It was only at that advanced stage that the Banking Court concluded that the plaintiff did not qualify as a “customer” within the meaning of Section 2(c) of the Ordinance and returned the plaint for presentation before the competent Civil Court. On appeal, the Sindh High Court agreed that the Banking Court lacked jurisdiction. However, recognizing that the plaintiff had pursued his remedy in accordance with judicial directions and should not suffer because of procedural orders passed by the courts, the High Court invoked the equitable maxims ubi jus ibi remedium and actus curiae neminem gravabit, together with its powers under Section 151 and Order XLI Rule 33 of the Code of Civil Procedure. Instead of requiring the parties to recommence the litigation, the Court directed that the suit be transferred to the competent Civil Court to proceed from the stage of final arguments on the evidence already recorded. While the decision did not enlarge the jurisdiction of the Banking Court, it ensured that years of bona fide litigation were not rendered futile by a belated determination of jurisdiction.
The superior courts have been faithful to the Financial Institutions (Recovery of Finances) Ordinance 2001 as framed by Parliament, the decisions reported do not leave much room for criticism against the approach of the courts. The question now is whether it is still the same with the definition of customer as used by legislators, as banks and even the State Bank of Pakistan consider their depositors and holders of banking deposit products as their customers for regulatory and operational purposes.
The superior courts have faithfully interpreted the Financial Institutions (Recovery of Finances) Ordinance, 2001 as enacted by Parliament, and the reported decisions leave little room for criticism of the judicial approach. The more pressing question is whether the statutory definition of “customer” continues to reflect contemporary banking relationships, particularly when banks themselves and even the State Bank of Pakistan recognize depositors and holders of deposit-based products as customers for regulatory and operational purposes. At a time when legislative amendments have become an increasingly frequent feature of Pakistan’s legal landscape, Parliament may also consider revisiting the definition of “customer” under the Ordinance.
A modest clarificatory amendment could harmonies the statutory framework with modern banking practice, promote legal certainty, minimize avoidable jurisdictional disputes and reduce the needless return of plaints after years of litigation. Until such legislative intervention is undertaken, courts should, where the statutory language reasonably permits, continue to adopt a purposive interpretation that advances access to justice while remaining faithful to the legislative text. Ultimately, the law should ensure that disputes are resolved on their substantive merits rather than prolonged by avoidable uncertainty over the proper forum.
