The Lahore High Court (LHC) has barred the Federal Investigation Agency (FIA) from initiating criminal proceedings against bank customers over alleged wilful loan defaults unless a banking court first establishes the offence through civil proceedings.
The ruling prevents financial institutions from using criminal investigations and arrests as a debt recovery tool before the alleged default has been judicially determined. A division bench comprising Justice Jawad Hassan and Justice Abid Hussain Chattha issued the decision while hearing petitions filed by Qaiser Shabbir and others against FIA notices issued under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001.
The petitioners argued that wilful default must first be established by a banking court and cannot be presumed merely because a borrower has failed to repay a loan. The financial institutions had already initiated recovery suits, with some cases resulting in decrees while others remained pending in appeals or execution proceedings.
In its judgment, authored by Justice Abid Hussain Chattha, the court clarified that a recovery suit determines the amount payable but does not independently establish wilful default. It also noted that the law requires a 30-day payment demand before a complaint can be filed.
The bench rejected the approach of allowing criminal proceedings to begin before the underlying default is established, observing that it could give financial institutions an unfair tool to pressure borrowers through criminal cases and arrests. The court also clarified that the FIA’s investigative powers in such matters must remain within the limits prescribed by the relevant ordinance and the 2018 Rules.
