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"Foreclosure law(s) for recovery of stuck up loans and scrutiny of Banking Companies (Recovery) Act xv of 1997
  1. THE LOAN DEFAULT DRIVE
  2. Defaulted Loan Recovery
  3. Foreclosure law(s) for recovery of stuck up loans


By SAALIM SALAM ANSARI, ADVOCATE
Nov 22 - 28, 1999

The demand to enforce new "Foreclosure laws" for auction of mortgaged/pledged/hypothecated, movable or immovable properties of defaulters and "laws for detention and arrest of defaulters" is due to lack of knowledge of "Banking Laws" which are prevailing at the present, the prevailing law provides the "foreclosure of properties" with or without intervention of Court and detention/arrest of the borrower/defaulter/judgement debtor is also provided under section(s) 80, 81, 82 of the Land Revenue Act, 1967 and/or under order 21 rule(s) 37 and 38 C.P.C. applicable alongwith section 18 of the Banking Companies (Recovery of Loans, Advances, Credits & Finances) Act no.XV of 1997.

Section 25-B of the Banking Companies Ordinance, 1962 says that the "decrees pertains to the Banking Loans can be recovered as arrears of Land Revenue under the Land Revenue Act, 1967". The borrower/defaulter Judgement debtor can be arrested/detained under section 82 of the Land Revenue Act, 1967 or under order 21 rules 37 & 38 of the Code of Civil Procedure, 1908.

That on 2nd July, 1997, new law of recovery under the name of Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act No.XV of 1997 has been promulgated and in accordance to the Preamble of the New Act the new Act is with certain modifications, consolidate and react the Banking Companies (Recovery of Loans) Ordinance, 1979 and the Banking Tribunal Ordinance, 1984 according to the Section 2, the definition of the "Banking Companies", "borrower", "customer", "finance loan" and "banking court" have been explained and in pursuance of that all the "banking companies" including the "Government Saving Banks", "Modaraba", "Modaraba Management" and/or "Leasing Companies", "Investment Banks", "Financing Companies", "Mutual fund", "Mutual Trust" or "Investment Institution Corporation" and/or "Companies" have been declared banking companies.

That according to the Section 2(c) the "borrower" means a person who has obtained a loan under a system based on interest from a banking company and includes a surety or an indemnifier.

That according to the Section 2(d) "customer" means a person who has obtained finance under a system which is not based on interest from a banking company or is the real beneficiary of such finance, and includes a surety or an indemnifier.

That under section 2(f) the "loan" means a loan, advance and credit under a system based on interest. And defined the facility advance of credits which has been rendered under system of the basis of interest.

That about thirty four (34) Banking courts have been established in all over Pakistan for the recovery proceedings or trial of banks under the instant Recovery Act.

That the cases which valued over Rupees 30 millions will be proceeded in the relevant High Court for which special banking judges will be appointed by the Chief Justice of concerned High Court(s).

That under section 4 the Federal Government may, by notification in the official Gazette, established as many banking Courts as it considers necessary to exercise jurisdiction in respect of the cases covered by Section 2(b)(i) 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 Court shall exercise jurisdiction under this Act.

That under section 7 (a) the Banking Courts in exercise of its Civil jurisdiction have all the power vasted in a Civil Court under the C.P.C. 1908 and under section 7(b) Banking Court has the same power as vasted in a Court of sessions and the criminal proceeding. Under section 7 sub-section (2) banking courts will follow the proceeding laid down in the CPC and the criminal proceeding courts if special proceeding in this act is necessary and under section 7 sub-section (4) 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 Act, including a decision as to the existence or otherwise of a loan or finance and the execution of a decree passed by a Banking Court.

Under Section 8 the Banking Companies can file suit for Recovery within three (3) years of this Act of any amount written off, released or adjusted under any agreement, contract, consent, including compromise of withdrawal of any suit on or after the first date of January 1990 and before the enforcement of this act subject to approval of Board of Directors under section 9 sub-section (1) it is provided as under:

Procedures of Banking Courts. (1) Where a borrower or a customer or a banking company commits a default in fulfilling any obligation with regard to any loan or finance the banking company or as the case may be, the borrower or customer, may institute a suit in the Banking Court by presenting a plaint duly supported by a statement of accounts, which shall be verified on oath in the case of a banking company by the Branch Manager or such other officer as the Board of Directors of a banking company may authorize in this behalf. Copies of the plaint shall also be filed along therewith in sufficient numbers so that there is one copy of each defendant and one extra copy.

Under Section 9 sub-section (2) the application of the section 10 CPC has been excluded in the section 9 sub-section (3), the procedure of the service and summons has been provided the section 9 sub-section (3) runs as under:

(3) On a plaint being presented to the Banking Court a summons in Gore No. in Appendix 'B' to the Code of Civil procedure (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 Act. In the case of service of the summons through the bailiff or process-server copy of he 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. The Court shall ensure that the publication of sommons shall take place in the newspapers with a wide circulation within its territorial limits.

Under section 10 it is provided that the defendant will file the application for leave to defend the suit within 21 days from the date of service if "serious" and "bonafide" dispute(s) is raised by the defendant. Section 11 it is provided that an interim decree can be passed if the defendant admits any claim of the Plaintiff or if any part of the claim is undisputed or is clearly due or that the dispute is mainly limited to the rate of period of interest or mark-up. The Banking Court can pass an interim decree for the undisputed or admitted amount although the interim decree is appealable under section 12 of the Banking Court Act XV of 1997. The Banking Court can set-aside the decree, if the decree is exparte or summons were not duly served or due to sufficient reasons of plaintiff's application for leave to defend was not filed .

Under section 13 sub-section (1) it is provided that the suit shall be disposed off within 90 days from the day on which leave to defend was granted and in case proceedings continued beyond the said period the defendant may be required to furnish security in such amount as the Banking Court deems fit and on the failure of the defendant to furnish such security, the Banking court shall pass an interim or final decree in such amount as it may deem appropriate. Order of furnishing the security is subject to the opinion of the court that the delay is not attributable to the conduct of the defendant as per section 13 sub-section (2) of this act and under section 13 sub-section (3) Banking courts shall not allow adjournments for seven (7) days.

Under Section 14 in the case of the mortgaged suit, the preliminary decree as provided under order 34 CPC is not required and excluded by virtue of this section and now Banking Court can directly pass a final decree for foreclosure or final decree for sale shall be passed straight away.

That under section 15 of the Act, the decree is provided for interest or mark-up against judgement debtor(s) from the date of institution of suit till realization. More so under section 15 sub-section (2) sub-clause (b) the amount of decree can be repaid in the shape of instalments not in excess of two years be allowed without the written consent of the banking company. Subject to conditions as provided in the instant section. Section 16 sub-section (1) sub-clause (b) provided the attachment the property which is pledged, mortgaged, hypothecated, assigned or otherwise charged as security for the loan or finance and under section 16 sub-section (1) sub-clause (b) 1 & 2 or more than receiver of such property can be appointed by the banking court.

That under section 16 sub-section (2) the banking companies are authorised to get recovery of take-over property without filing the suit. It is option if the borrower and customer have obtained the property of finance through finance lease or as executed auction/charge or pledge. That under section 16 sub-section sub-clause (a) the bank has directed same as property has moveable or under section 16 sub-clause (a) the banking companies can file the suit and the court can pass at any time after the passing interim decree either the authorising the banking company to recovery the company directly without the assistance of the court.

That under section 17 sub-clause (1) The practice of obtaining the blank documents has been abolished and now the banking documents should be contained blanks in respect of important particulars including the date of amount or period of time and question at the time of exclusion of the documents and under section 17 sub-clause (2) all banking agreement executed with borrower and bank shall be duly attested in the manner laid down in Article 17 of the Qanoon-e-Shahdat Order, 1984 which is reflection of Ayait 282 Sourrayah Al-Baqrah, Al-Quran.

That under section 17 sub-section (3) the documents executed the prior to the implementation of the instant act which are blank or not in accordance with Section 17 sub-clause (1) & (2) Qanoon-e-Shahadat Order, 1984 has been protected and these documents which were executed before the enforcement date of this Act will be not to invalidated.

That under section 17 sub-clause (4) has protected the documents which create the charge, pledge, mortgage or hypothecation merely on ground of improperly stamped or execution..

That under section 18 the execution procedure of the decree has been provided Section 18 sub-section (2) provided the pledge or mortgage property can be sold with or without the intervention of the banking court either by public auction or by inviting sealed tender and appropriate the proceeds against satisfaction of the decree. Section 18 sub-section (3) provided that if possession reflection mortgage property sought to be sold by the banking company, the banking court on the application of the banking company or the purchaser in possession of the mortgaged property in any manner deemed fit by the banking court. Section 18 sub-section (4) provides that after the sale of the mortgaged property the banking company shall file the proper account of the proceeds before the banking court within 30 days from the date of the appropriation of the proceeds. Section 18 sub-section (5) that the sealed tender invites by the Banking companies shall be invited through advertisement in one Urdu and one English Newspaper(s) which are circulated widely in the city in which the sale is to take place giving not less than thirty (30) days time for submitting offers. The sealed tenders shall be opened in the presence of the bidders or their representatives or such of them as attend. An opportunity to purchase the property at a matching price to be paid within a period of thirty days to the judgement debtor.

Section 18 sub-section (6) provided the investigation of claims of attachment or sale of any property which is in fact the reflection of the Order 21 Rule 58 C.P.C. and it is also provided whether no specific provision of the execution was provided the procedure in Civil Procedure Code will be followed for the purpose of the execution.

That under section l9 the provision relating to the offenses in respect of banking matter are provided under section 19 sub-section (1) sub-clause (a) which says that if the borrower dishonestly commits a breach of the terms of a letter of hypothecation or trust receipt or such other instrument of document executed by him in respect of property offered as security for the loan or finance in which the banking companies and section 19 sub-section (1) sub-clause (b) provided that subsequent creation of a mortgage in favour of a banking company dishonestly parts with the possession of the mortgaged property whether by creation of a lease or otherwise contrary to the terms there of without the written permission of the Banking Company. By virtue of Section 19 of this act by the Banking Court, the offences falls under section 19 are punishable with imprisonment of not more than one year and shall also liable to fine.

Under section 19 sub-section (2) also provided the criminal proceeding against person who makes wrong and false statement in material in an application for loan or finance and person who furnish false statement of stock shall be guilty and punishable under this act. Section 19 sub-section (3) provided criminal proceeding against the person who resists through the use of force, the execution of a decree shall be punishable with this act . Under section 19 sub-section (4) provided the criminal proceeding(s) against the person who issues a dishonoured cheque(s) unless he can establish that he had made arrangements with his bank to ensure that the cheque will be honoured and the fault is upon the bank, it is first time in Pakistan that the act of dishonouring the cheque(s) has made a criminal offence(s) and after enforcement of this criminal clause the civil suit under order 37 C.P.C. for recovery of amount as provided having civil remedy is also available, now criminal and civil both remedies are available. Under Section 19 sub-section (5) provides that if any company or other body corporate is guilty of an offence, the chief executive by whatever name he will be called and any other director or officer involved shall be liable to be proceeded. Section 19 sub-section (6) provided all offences shall be bailable, non cognizable and compoundable.

Section 21 of the Act XV of 1997 provides appeal against a decree or an order refusing to set aside a decree or an order permitting or preventing the sale of property or a sentence passed by a Banking Court within (30) thirty days of passing of such type of order/decree or sentence. Such appeal is to be heard by a bench of relevant High Court comprising of two judges. The stay in appeal is provided subject to furnishing security.

That under Section 22 of the Banking Act No. XV of 1997, the Limitation Act-1908 is applicable, more so the date of enforcement of Act provides a fresh cause(s) of action(s) in respect of past transactions.

Section 23 empowered the Federal Government to make rule(s) by notification in the offical Gazette.

Section 26 provides the immunity to the acts done or intended to be done under this Act.

Section 27 of Banking (Recovery) Act 1997 says that orders/decrees/sentences of Banking Court are final and no court or authority except the appellate court can review or revise or recall or permit to be called in question of any order/decree/sentence passed by the Banking Court as these orders/judgments/orders attain finality by virtue of Section 27.

That as per Section 28 of the instant Act the provisions of existing enactment(s) on the date of enforcement of this act like Ordinance XIX of 1979, Ordinance LVIII of 1984 and Ordinance XXV of 1997 have been repealed.

In view of the above facts there is no need of enforcement of any new foreclosure law or provisions, the laws existing are sufficient to enforce the decree and/or to recover the finance(s)/loan(s) provided by the Banking Companies, if the Banks are seriously willing to recover the Stuck-up loans as present laws provide all relief(s)/remedie(s) to the Banks, but in 50% cases no recovery proceeding(s) has filed by the Banks and the "wilful" and "Political defaulters" are not put to any pressure to pay back the finance and/or settle the loans. If the recovery of banking loans are sought to be recovered through "auction/sale/foreclosure of properties" and/or through "arrest and/or detention" of the borrowers/defaulters, the existing law(s) provide the same, if there is any will to enforce the machinery of Law(s) exists.

The author Mr. Saalim Salam Ansari Advocate is a prominent Economist, expert banking lawyer and author of so many books on the subject of Banking and Economics).