THE newly promulgated Financial Institutions (Recovery of Finances) Ordinance is full of serious contradictions, mistakes and requires redrafting as well as re-promulgation with modifications.
The purpose of the enforcement of the ordinance is to effect the recovery of stuck-up loans but it has, in fact, closed the doors of recovery of defaulted loans and the revival of 4000 sick industries, although the revival of economy has been declared as one of the four vital points of the agenda by the President of Pakistan in his recent speech.
Through the Ordinance, the author of the statute has tried to nullify and to scrap the historical Riba judgment and recent judgments of a single bench of the 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 judgment the government of Pakistan has been granted an extension till 30th June, 2002 upon a UBL revision petition. To treat the Riba judgment as unworkable is the wish and will of so-many so-called liberal scholars and corporate intellectuals which is reflected in the Ordinance, but it has badly failed to achieve the same for so many 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one-sided law in favour of banks as the facility of 24 monthly instalments for the payment of decretal amount has been withdrawn in the new recovery Ordinance.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 sub-section (1) in Section 8, in which sub-section (2) is being discussed, but in the statute there is no sub-section (2).
The sub-clauses (b) and (c) of sub-section (4) of section 10 are the same and sub-section (c) is repetition of sub-section (b), which shows how much serious the draftsman has been. He did not even bother to peruse the draft before promulgation. There are other typographical and clerical mistakes in the Ordinance published in the Federal Gazette, which can be ignored but a Presidential Ordinance to which the President of Pakistan is signatory should not be so badly drafted and typed.
The grant of leave to defend is now conditional under section 10 sub-section (9) and subject to furnishing of security although the bank is secure by way of sufficient securities, mortgages, pledge, hypothecations, etc. and when the grant of leave is subject to that “if substantial questions of law or fact have been raised in respect of which evidence needs to be recorded”, the conditional leave is amazing as provided in section 10 sub-section (9) of Ordinance XLVI of 2001.
That under section 15 of the Ordinance the financial institutions can sell the mortgaged property without filing a suit and under section 16 and other provisions of the Ordinance, the bank can file the suit for the foreclosure of the mortgaged property but the discretionary powers conferred on the financial institutions has not been defined. Now it is not a secret that how and by which manner the discretion will be exercised by bankers. The whole Ordinance is silent about a situation that when there is a dispute of accounts between the parties, how the mortgaged 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 words “obligation” is not included in the definition of “finance” as provided under section 2(d) but section 9 sub-section (1) provides for the filing of a 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; further more the ordinance itself provides that it is for “recovery of finance(s)” and not for “recovery of obligation” and no provision(s) of the 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) can not be included in the decree. The section 3 of the 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, further more the “cost of funds” in any case is interest as defined by superior courts and to enforce “cost of funds” is an attempt to scrap the Riba judgment or to some extent the said judgment to be “held in abeyance”.
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., than the banking courts will be converted into the “decree’s 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 fail to satisfy the decrees of un-warranted huge amount, and in the circumstances the principal amount can not be recovered as even in the previous statues there were ratios of about 80 per cent ex parte decrees and here are only 20 per cent contesting suits which shows that 80 per cent customers are least interested to participate in “legal gala” or if decrees will be passed there will be nothing recoverable.
That under-section 9 sub-section (2) of the 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 draftsman of the Ordinance is serious or competent.
Section 10 sub-section (12) provides a fresh and amended leave application to be filed but not a single word in respect of filing of the fresh and modified or amended plaint in pursuant of section 9, sub-section (3) of Ordinance, 2001 as to how an amended leave petition can be filed under section 10 sub-sections (3) and (12), without prior filing of amended plaint as required under section 9 sub-section (3).