Financial Institutions (Recovery Of Finances) Ordinance, 2001,A Critical Study

FINANCIAL INSTITUTIONS (RECOVERY OF FINANCES) ORDINANCE, 2001, FINANCIAL INSTITUTIONS (RECOVERY OF FINANCES) ORDINANCE, 2001, A CRITICAL STUDY By Saalim Salam Ansari, Advocate, Karachi Newly promulgated Financial Institutions (Recovery of Finances) Ordinance No. XLVI of 2001 is full of serious contradictions, mistakes and requires redrafting as well as re promulgation with modifications. The purpose of the enforcement of the instant Ordinance is shown that it is for the recovery of stuck‑up loans but on the other hand same has closed the doors of recovery of defaulted debts and revival of 4000 sick industries although revival of economy has been declared as one of four (4) vital points agenda by the President of Pakistan in his recent speech. Through the Ordinance the author of statute has tried to nullify and to scrap the historical Riba's judgment known as Dr. Aslam Khaki's case (PLD 2000 SC 225) and recent judgments of a Single Bench of Sindh High Court declaring the restructuring as void, if it is based on the capitalization of mark‑up. It is needless to add that to implement the Riba's judgment the Government of Pakistan has been granted an extension till 30th June, 2002 upon a UBL, revision petition. To treat the Riba's judgment as unworkable is the wish and will of so many so‑called liberal scholars and corporate intellectuals which is reflected in the instant Ordinance, but the Ordinance has badly failed to achieve the same for the number of reasons. It is a one‑sided law in favour of banks as the facility of 24 monthly instalments for the payment of decretal amount has been withdrawn in the New Recovery Ordinance. The mark‑up upon the decretal amount will now be calculated from the date of default and not from the date of institution of suit or decree. In the Ordinance, there is subsection (1) in section 8, in which subsection (2) is being discussed, but in the Statute there is no subsection (2). The sub‑clauses (b) and (c) of subsection (4) of section 10 are the same and subsection (c) is repetition of subsection (b), which shows how much the draftsman is serious, who even did not bother to peruse the draft before promulgation and/or finalization. There are other typographical and clerical mistakes in the Ordinance published in the Federal Gazette, which can be ignored but a Presidential Ordinance to whom President of Pakistan is signatory should not be so badly drafted. The grant of leave to defend is now may be conditional under section 10, subsection (9) and subject to furnishing of security although bank is secure by way of sufficient securities, mortgages, pledges, hypothecations etc. and when the grant of leave is subject to that "if substantial question of Law or fact has been raised in respect of which evidence needs to be recorded", the conditional leave is amazing as provided in section 10, subsection (9) of Ordinance XLVI of 2001. That under section 15 of the Ordinance the Financial Institutions can sell the mortgage property without filing the suit and under section 16 and other provisions of the Ordinance, the bank can file the suit for the foreclosure of the mortgage property but the discretionary powers conferred to the Financial Institutions have not been defined. Now it is not a secret that how and which manner the discretion will be exercised by the bankers, as the whole Ordinance is silent that when there is any dispute of accounts between the parties, how the mortgage property will be auctioned by the bank without determination of liability by the judicial authority and who will judge the actual liability without filing of a suit. In section 2, sub‑clause (e) the restructuring/liquidated damages/duties have been defined as "obligation", but the word "obligation" is not included in the definition of "Finance" as provided under section 2(d) but section 9, subsection (1) provides the filing of the suit in case of "default in fulfilment of any obligation with regard to any finance" and not "in case of default in fulfilment of any obligation" only, furthermore the Ordinance itself provides that it is for "recovery of finance(s)" and not for "recovery of obligation" and no provision(s) of Ordinance provides the decree for recovery of obligation, it means that rescheduled amount (if based on capitalization), liquidated damages (which in any case are subject to evidence) and duties (which are subject to proof) cannot be included in the decree. The section 3 of Ordinance provides that if customer defaults in discharge of his "obligation" (Rescheduled amount + liquidated damages + duties etc.) the decree for payment of the "cost of funds" will prevail. In any case the decree of amount of obligation is not included, furthermore the "cost of funds" in any case is interest as defined by superior Courts and to enforce "costs of funds" is an attempt to scrap the Riba's judgment or to some extent the said judgment to be "held in abeyance", as suggested by the well‑wishers of interest‑based Western Banking System. The interesting point is that "cost of funds" will be certified/announced by the State Bank of Pakistan. If Banking Courts will pass the decrees which includes rescheduled amount (without disbursement) + liquidated damages (without evidence) and duties, etc., then the Banking Courts will be converted into the "decree mills" producing the paper decrees of huge amounts which will not be recoverable and the persons who would like to adjust or settle the actual liabilities will be failed to satisfy the decrees of unwarranted huge amount, and in the circumstances the principal amount cannot be recovered as even in the previous statute there is ratio of about 80% ex parte decrees and there are only 20% contesting suits which show that 80% customers are least interested to participate in "legal gala" or if decrees will be passed there will be nothing recoverable. That under section 9, subsection (2) of New Recovery Ordinance the plaint shall be supported by a "statement of account" in both cases even if the suit is being filed by the customer, which shows how much the author/draftsman of the Ordinance is serious or competent. Section 10, subsection (12) provides a fresh and amended leave application to be filed but not a single word(s) speaks in respect of filing of the fresh and modified or amended plaint in pursuant to section 9, subsection (3) of Ordinance, 2001, how an amended leave petition can be filed under section 10, subsections (3) and (12), without prior filing of amended plaint as required under section 9, subsection (3)? I am anxious to see and salute the "great" author/ draftsman who drafted such a nice Ordinance and closed the doors of settlement for circumstantial defaulters/genuine borrowers as well as recovery of stuck‑up loans and revival of 4000 sick industries which has now become a gone dream after the enforcement of New Recovery Ordinance.