The Lahore High Court has ruled that the Federal Investigation Agency (FIA) is prohibited from initiating criminal proceedings against bank customers for alleged willful default until a banking court has first established the offense through civil proceedings. A division bench, consisting of Justice Jawad Hassan and Justice Abid Hussain Chattha, issued the ruling after allowing petitions filed by Qaiser Shabbir and others.
The petitioners challenged notices issued by the FIA following complaints from financial institutions under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. In the cases presented, the financial institutions had already initiated recovery suits against the petitioners. Many of these suits had been decreed, often by consent, or were currently pending in appeal or execution at the time the institutions complained to the FIA.
Lawyers representing the petitioners argued that the ordinance's civil and criminal remedies are interwoven. They contended that a customer cannot be labeled a defaulter or a willful defaulter under the ordinance unless a banking court and the appellate court have conclusively determined the allegations of breach of obligations.
In defense, lawyers for the respondents argued that each limb of the offense is independent and that the FIA holds exclusive jurisdiction under Rule 5 of the Rules 2018. They maintained that the notices were merely seeking information and that direct complaints were rightly filed after financial institutions issued notices for payment of defaulted amounts, as required by the ordinance. They further asserted that the notices directing investigations into the alleged offense of willful default were issued appropriately.
In the judgment authored by Justice Chattha, the court rejected objections regarding the petitions' maintainability. While noting that notices issued under Section 160 of the Code of Criminal Procedure are normally not challengeable, the judge observed that judicial review is available if such notices are issued without jurisdiction, with mala fide intent, or against the parent statute.
On the merits, Justice Chattha held that willful default is a "distinct species" of default possessing both civil and criminal dimensions. The judgment stated, "A recovery suit only fixes the amount payable and does not establish wilful default." The court noted that the law requires a 30-day payment demand before a complaint can be filed and that the punishment is tied to the amount of default.
The bench disagreed with a 2019 ruling from a three-member Lahore High Court bench in the case of Mian Ayaz Anwar and others versus State Bank of Pakistan, specifically where it held that Sections 2(g)(ii) and (iii) of the ordinance do not require prior civil determination. The bench also rejected the practice of allowing criminal proceedings to begin and then staying them. The court observed that such an approach would give institutions an unfettered, unilateral, discriminatory, and coercive tool to recover undetermined sums through first information reports and arrests. Finally, the bench held that the FIA’s powers are derived from the ordinance and the 2018 Rules, rather than the FIA Act.
