In a significant development for the banking sector, a five-member bench of the Lahore High Court has dismissed a set of petitions challenging the constitutionality of section 15 of the Financial Institutions (Recovery of Finance) Ordinance 2001. Banks are now entitled to sell mortgaged property without the intervention of the court and recover their debt(s) without having to obtain a decree to that effect from the banking court.
Section 15 of FIO 2001 was initially struck down by the Supreme Court in National Bank of Pakistan vs. Saif Textile Mills (PLD 2014 SC 283) on the grounds that it violated constitutional norms of due process. The section was subsequently amended in 2016 based on the Supreme Court’s judgment but was immediately challenged before the Lahore High Court. Those petitions have finally been decided after 4 years.
Significantly, while the Lahore High Court has upheld the vires of section 15 of FIO 2001 it does appear to have struck down rule (3)(c)(iv) of the Financial Institutions (Recovery of Finances) Rules, 2018 which allows a financial institution to sell mortgaged property to a single bidder. This is a minor change only and does not affect the process given in section 15 as such.
The petitioners are now expected to challenge the decision before the Supreme Court. Nonetheless banks should withhold filing any suit for recovery under section 9 of FIO 2001 and should consider invoking the provisions of section 15 for selling mortgaged property without the intervention of the court while ensuring all legal formalities are adhered to. With respect to pending suits the banks have the option to withdraw a suit and exercise the said right where the suit is in its initial stages. ABS & Co may be contacted to discuss the way forward and provide legal assistance for the sale of mortgaged property.
