LAHORE, Nov 10: A directive of the Central Directorate of National Savings, barring further commercial bank loans against government securities, has landed a business concern in financial trouble. The Lahore High Court, seizing the matter upon a writ petition, has ordered the directorate to reconsider the withdrawal of its promise for the bank loan.

The court has also directed the petitioner firm to make a representation with the directorate, which is understood to be already making a review of its directive.

The issue came up with the Lahore High Court when a commercial firm submitted in a writ petition that it purchased defence and special savings certificates under a “scheme” which promised that these could be pledged as securities against loans from banks. The firm submitted the certificates with two banks for loan for the business.

The National Savings Directorate, through a circular issued on June 16 this year, substantially modified terms and the promise, saying “no further financing can be extended against government securities with effect from June 15, 2003.”

Subsequently, the lending banks demanded from the firm that it should make complete adjustment of liabilities on the date of maturity of the term finance. The banks also expressed their inability to renew the facility of loans against defence savings certificates as instrument of guarantee.

Advocate Syed Ali Sibtain Fazli, the counsel for the petitioner firm, pleaded before Justice Muhammad Sair Ali that defence and special certificates as pledged against the loan were valid for 10 years as spelled out in the directorate’s “scheme” and its terms of being the federal government’s guarantee could not be altered because these were purchased before June 15.

The terms could also not be changed to the disadvantage of investors and the government could not wriggle out of its legal commitment, as the state was bound by such legal and financial instruments to ensure security of lawful business, he argued.

The LHC issued on Sept 22 the directive to the National Savings Directorate to review its circular within 15 days. The directorate, through a memo on Oct 21, requested the court to extend the period by one month, and the request was granted. But when the banks started pressing the petitioner for adjustment of liabilities, it filed another petition seeking the restraining of the banks from pressing their demand. Justice Muhammad Sair Ali, in his judgment on Oct 31, has also restrained banks from seeking adjustment till the decision between the petitioner and the directorate was reached.