2022 C L D 128
[Balochistan]
Before Jamal Khan Mandohail and Muhammad Kamran Khan Mulakhail, JJ
Messrs S.Q. CORPORATION through Proprietor and others ---Petitioners
Versus
FEDERATION OF PAKISTAN through Secretary Internal Affairs, Government of
Pakistan, Islamabad and others ---Respondents
C. P. No. 1494 of 2020, decided on 30th June, 2021.
Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001) ---
----Ss. 8, 9 & 20--- Financial Institutions (Recovery of Finances) Rules, 2018, R. 5- --
Quashing of criminal proceedings ---Wilful default, investigation of ---Determination of
liability ---Petitioners availed finance facility but due to their failure to repay within time,
respondent Bank filed complaint with Federal Investigation Agency to investigation offence of wilful default ---Plea raised by petitioners was that before determination of liability under
civil law, criminal proceedings of wilful default could not be initiated ---Validity ---Federal
Investigation Agency was empowered under Financial Institutions (Recovery of Finances) Rules, 2018, to investigate complaints filed by financial institutions in the matters of wilful
default in adjustment of any financial liability ---Offence of wilful default under S. 20(8) &
(9) of Financial Institut ions (Recovery of Finances) Ordinance, 2001, was a cognizable and
non- bailable in nature and could be tried by Banking Court constituted under Financial
Institutions (Recovery of Finances) Ordinance, 2001---Jurisdiction of Federal Investigation Agency was not precluded from conducting inquiry on complaint filed by respondent Bank---Complaint filed by respondent Bank was pre -mature as the same was filed prior to fixation of
civil default ---High Court quashed the complaint as suit for recovery of finance was pending
before High Court ---Respondent Bank could file fresh complaint after the suit was decided
and liability of default was fixed against petitioners and only then Federal Investigation Agency was empowered under R. 5 of Financial Institutions (Recovery of Finances) Rules,
2018 to conduct inquiry on the complaint ---Constitutional petition was allowed, in
circumstances.
Asfandyar Wali v. The Federation of Pakistan and others PLD 2001 SC 607; The
State through Chairman NAB and other v. Muhammad Asif Saigo l and others PLD 2016 SC
620; Syed Muhammad Shah and others v. Federal Investment Agency and others 2017 SCMR 1218 and Mian Ayaz Anwar and others v. State Bank of Pakistan 2019 CLD 375 rel.
Zayyad Khan Abbasi for Petitioners.
Ghulam Mustafa Buzdar, D.A.G . for Respondent No. 1.
Respondent No. 4 in person along with Hameedullah, Assistant Director FIA,
Balochistan, Quetta.
Abid Hussain for Respondent No. 5.
Date of hearing: 30th March, 2021.
JUDGMENT
MUHAMMAD KAMRAN KHAN MULAKHAIL, J .---Through this pet ition,
following relief has been sought:
"It is, therefore, respectfully prayed that this Hon'ble Court may graciously be pleased
to pass Judgment as under:
i) Declare that inquiry regarding illeged wilful default on complaint of Bank against the Petitioners by the Respondent/FIA is in violation of the applicable laws FIO, 2001 as well as Judgment of honourable Supreme Court reported in 2017 SCMR 1218; thus, is illegal, void ab initio.
ii) Declare that offence of wilful default under section 20(7) read with section 2(g)(i) of
FIO-2001 can only be investigated once the civil liability of default is established the
offence of wilfulness by the FIA or any other nominated Federal Government Agency.
iii) Declare that complaint of Bank on account of wilf ul default under section 20(7) read
with section 2(g)(ii) and (iii), FIO -2001 can only be filed after securing a thirty days
(30) mandatory notice upon the borrower.
iv) Declare that the impugned Corrigendum/Notices AD/FIA/ CBC/QTA/ENQ -
38/2020/3533 dated 7.12.2020 and AD/FIA/ CBC/QTA/ENQ -38/2020/3543 dated
9.12.2020, all notices, if any concerning Enquiry No.38/2020 are illegal, without any legal authority, void ab initio are of no legal effect.
v) Direct the Respondents to provide details/record of Enquiry No.38/2020 and/or any
other Enquiry/complaint/ investigation pending in respect of Petitioners.
vi) Suspend the impugned Corrigendum/Notices # AD/FIA/ CBC/QTA/ENQ -
38/2020/3533 dated 7.12.2020 AD/FIA/ CBC/QTA/ENQ -38/2020/3543 dated
9.12.2020, all notices, as well as further proceeding of Enquiry No.38/2020 till final
disposal of instant Petition.
vii) Restrain the Respondents, their men, assignees, agents or anyone acting or posing on their behalf from taking/initiating any adverse or coercive action agains t the
Petitioners, their men, attorneys, partners, employees, workers, etc., in any manner by any means, on the strength of the impugned Corrigendum/Notices AD/FIA/ CBC/QTA/ENQ- 38/2020/3533 dated 7.12.2020 and AD/FIA/CBC/QTA/ENQ -
38/2020/3543 dated 9.12.2020, all notices, in any manner by any means.
viii) Cost of the proceedings.
ix) Any other relief(s) deem fit under the circumstances the case.
2. The Petitioners having business of import of vessels for scraping in Pakistan, are
customers of respondent No.5 and have owed some finance from the Respondent No.5's
Bank in different times, but meanwhile the petitioners due to some financial problem in
adjustment of the "Term Finance Facility" (TFF), approached the respondent No.5 for adjustment of the TFF through grant of "Finance Against Trust Receipt" facility, and
consequently on 12th April 2018, the respondent No.5 while accepting the petitioners' request, granted FATR facility to petitioners, in lieu of certain mortgaged properties and guarantees executed by the petitioners; that an amount of Rs.811,808,349.14/ - was
outstanding against the petitioners, thus a recovery suit was filed by the respondent No.5 against the petitioners, meanwhile, the FIA Balochistan Quetta started an enquiry bearing No.12/2019, agai nst the petitioners, which was challenged by the petitioners before this
court, however, during course of hearing, the enquiry was closed by FIA, therefore, the petition was disposed of by this court vide order dated 06th August 2020; that the respondent No.4 despite the verdict of the Hon'ble Supreme Court and the decision of this court, once
again issued notices under section 160, Cr.P.C. in relation to the same enquiry No.12 of 2019 asking the petitioners to appear before the Enquiry Office on 30th Novem ber 2020, which
notices were thereafter repeated for 09th December 2020; that the petitioners being aggrieved of issuance notices by the respondent No.4, again approached this court by filing a Constitutional Petition No.1368/2020, but meanwhile a corrigendum was issued by the respondent No.4 rectifying the enquiry No.12/2019 as 38/2020, which corrigendum was only to frustrate the order of this Court; that the respondent No.4 has issued a letter to the petitioners' counsel stating therein that the enquiry N o.12/2019 was closed on 10th March
2020, but subsequently, the respondent No.5 filed another complaint which was registered as enquiry No.38/2020, thus notices were issued in the subsequent enquiry; that the question of
wilful default could only be raised/ investigated, once the civil liability of the default is
fixed/established, but since in respect of the recovery, a lis is already pending before the Hon'ble Sindh High Court, therefore, no enquiry could be conducted, the petitioners finally prayed for acceptance of the petition in the terms as prayed for.
3. On the other hand the respondents Nos. 1 to 4, by contesting the petition filed their
joint reply on legal as well as on factual grounds, with assertion that the enquiry No.38/2020 has been initiated o n the complaint filed by the respondent No.5 and in compliance of order
of this court as well as under the guidelines laid down by the Hon'ble Supreme Court; that under the Ordinance 2001, the FIA is competent enough to investigate into the matter upon a complaint filed by the financial institution in respect of wilful default of a customer, thus, the
petitioners only to misguide this court and to linger on the matter of liquidating the outstanding dues has filed the instant petition, which merits dismissal .
The respondent No.5 also filed reply to the petition and stated that the petitioners
have wilfully avoided to liquidate the financial liabilities, thus a complaint was filed under the Ordinance 2001, and the FIA authorities as per the provisions of the Ordinance and the Rules framed thereunder are competent enough to enquire into the matter, but the petitioner only to disturb the enquiry proceedings has approached this court by means of instant Constitutional petition, which is not maintainable and liabl e to be dismissed.
4. We have heard learned counsel for the parties at reasonable length and perused the
record of the case minutely with their able assistance.
5. The petitioner is aggrieved from the act of respondent No.4, who has initiated the
enquiry proceedings against the petitioner on the complaint filed by the respondent No.5, for
alleged wilful default in liquidating the financial liability owed from respondent No.5. The complaint by a financial institution was filed by the respondent No.5 under subsection (7) of section 20 of the Ordinance 2001, which stipulates as under:
20. Provisions relating to certain offences: -
(1) . . .
(2) . . .
(3) . . .
(4) . . .
(5) . . .
(6) . . .
[(7) Notwithstanding anything to the contrary provided in any other law for the time being in force, action in respect of an offence of wilful default shall be taken by an
investigating agency, to be nominated in this behalf by the Federal Government, on a
complaint in writing filed by an authorized o fficer of a financial institution after it has
served a thirty days notice upon the borrower demanding payment of the loan, advance or financial assistance.
(8) . . .
(9) . . .
And the Rule 5 of the Financial Institutions (Recovery of Finances) Rules, 2018, (The
Rules 2018) empowers the Federal Investigation Agency to investigate the complaints filed by the financial institutions regarding wilful default, which stipulates as under:
5. Investigating agency.- The Federal Investigation Agency shall be the agency to
investigate all complaints filed by the financial institutions regarding wilful default cases in terms of subsection (7) of section 20 of the Ordinance.
The perusal of the case file reveals that prior to the instant complaint filed by the
respondent No.5, the respondent No.4 had started enquiry numbered as 12 of 2019, which
was assailed by the petitioner before this court, but meanwhile, the said enquiry was closed by the respondent No.5. But subsequently, another complaint was moved by the res pondent
No.4 before the respondent No.3, whereby, the inquiry No.38/2020 was initiated and notices were issued to the petitioners for appearance before the enquiry officer, but the petitioners being aggrieved of the subsequent enquiry has assailed the enquiry proceedings and the notices issued thereon, on the strength that firstly the FIA authorities have no jurisdiction in the matter and secondly, the same enquiry having numbered as 12 of 2020 has been closed,
thus cannot be reopened. The Rule 5 of the Rul es 2018 empowers the FIA authorities to
investigate the complaints filed by the financial institutions in the matters of willful default
in adjustment of any financial liability. Whereas, the subsections (8) and (9) of section 20 of the Ordinance 2001, cle arly state that the offence of the wilful default is a cognizable offence
and non- bailable in nature, which could be tried by Banking Court constituted under the
Ordinance 2001. The subsections (8) and (9) of section 20 of the Ordinance stipulate as
under :
"(8) An offence of wilful default shall be cognizable non- bailable and non-
compoundable and punishable with imprisonment which may extend to seven years or
fine not exceeding the amount of default or with both.
(9) Any person convicted of the offence of wilful default by a Banking Court shall not be eligible to receive any loan, advance or finance from any financial institution for a period of ten years and shall not be permitted to contest any election as a member of the Majlis -e-Shoora (Parliament), a ny Provincial Assembly or a local body for a
period of five years, after serving out a sentence after conviction."
The jurisdiction of the FIA to investigate/enquire into the matter of wilful default are
not ousted and it can investigate the matter upon r eceipt of any complaint from the financial
institution.
6. The complaint filed by the respondent No.5 was with regard to wilful default in
liquidating the outstanding amount against the petitioners, whereas the counter affidavit filed by the respondent No. 5 shows that the respondent No.5 has filed a recovery suit No. 29/2019
against the petitioners before the Hon'ble Sindh High Court, which lis is still pending
adjudication. It is to be seen here that prior to fixing the liability of default, whether, the enquiry in respect of wilful default could be conducted. The word 'Wilful Default' has been
defined in 2(g) of the FIO, which states:
2(g) wilful default
(i) deliberate or international failure to repay any finance, loan, advance or any financial assistanc e received by any person from financial institution after such payment has
become due under the terms of any law or an agreement, rules or regulations issued by the State Bank of Pakistan;
(ii) Utilization of finance, loan advance or financial assistance o r a substantial part
thereof, obtained by any person from a financial institution for a purpose other than that for which such finance, loan, advance or financial assistance had been obtained and payment in part or full not made to the financial institution; or
(iii) Removal, transfer, misappropriation or sale of any assets collateralized to secure a finance, loan advance or financial assistance obtained from a financial institution without permission of such institution."
The afore- quoted provisions of FIO spell out that the wilful default is to be
established on the basis of deliberate and intentional failure to repay the finance loan, but prior to ascertaining the intention of any customer, the institution has to prove th e civil
liability, whereafter, the intention of failure is to be seen/adjudged. The august Supreme
Court of Pakistan held that to constitute the offence of wilful default the prosecution, in addition to establishing default, has to prove that the default w as willful, being is an
intentional and conscious act. Consequently mere inability to pay will not constitute the offence of wilful default meaning thereby that the element of willfulness must be present
where there is a default, on whether a default simpl iciter would be a culpable act.
7. Before dilating upon the proposition involved in the instant case it would be apt to
mention here that wilful default as an offence was first time added in the National
Accountability Ordinance, 1999 (`NAO 1999') when cla use (`r') was added by Ordinance IV
of 2000 on 3.02.2000, thereafter two further provisoes were also added through Ordinance No. XXXV of 2001 on 10.8.2001. The vires of NAO 2001 was assailed before the Hon'ble Supreme Court of Pakistan in case of Asfandyar Wali v. The Federation of Pakistan and
others (PLD 2001 SC 607) when certain directions were issued by the Hon'ble Apex Court including the requirement of obtaining a report from the Governor, State Bank of Pakistan with regard to whether or not the matte r was one of wilful default. Consequent to the said
directions, the NAB Ordinance was amended on 5th July 2000 by the National Accountability Bureau (Second Amendment) Ordinance, 2000 ("Ordinance XXIV of 2000")
and section 31- D, was incorporated into the N AB Ordinance, which provided that a report
from the Governor of the State Bank of Pakistan had to be obtained before any inquiry or
proceeding could be initiated or conducted by the NAB or any other action proposed to be taken under the NAB Ordinance. Thus , if criminal action is intended to be initiated with
regard to wilful default, it had become conditional and therefore, section 31- D was inserted
in NAO, 1999, whereby without reference from the Governor, State Bank of Pakistan, no criminal action was rem ained permissible with regard to wilful default of financial liability
of any nature as defined in NAO, 1999. In view of afore referred provision added in NAO, 1999 the Hon'ble Supreme Court of Pakistan in a case of 'The State through Chairman NAB and othe rs v. Muhammad Asif Saigol and others' (PLD 2016 SC 620), decided on 04.5.2016
declared that for establishing an offence as defined in section 5(r) and punishable under section 9(a)(viii) in addition to establishing a default the factum of willfulness shal l also
established and without fulfilling the mandate of law a default simpliciter, shall not be punishable under the provision of NAO, 1999. Since an offence of wilful default was firstly declared an offence under the NAO, 1999 which on direction made by Hon'ble apex Court in
Asfandyar Wali's case was made conditional subject to reference from the Governor State Bank of Pakistan and, thus, no wilful default was permissible to be prosecuted against anyone without obtaining a permission, report or a referenc e by or from the Governor, State
Bank of Pakistan.
8. The judgment in the case titled as 'The State through Chairman NAB and others v.
Muhammad Asif Saigol and others' was announced on 04.05.2016, but, we are unable to reconcile that why again a provision of wilful default was added and defined under section 2(g) of FIO, 2001, which was made punishable by inserting subsections (6), (7), (8) and (9) in section 20 of the FIO, 2001. The aforesaid provisions were added and defined in FIO, 2001 vide Act No.XXXVI II of 2016. Thus, it appears that in order to bypass the condition of
reference from Governor, State Bank of Pakistan again almost homologous provision of wilful default was added in FIO, 2001.
Needless to observe here that since phrasal expressions a wil ful default are absolutely
homologous in both the Statues i.e. NAO, 1999 and FIO, 2001 except with difference of
reference from the Governor, State Bank of Pakistan in NAO, 1999. The petitioner has also relied upon a reported judgment of Hon'ble Supreme Co urt of Pakistan passed in case of
`Syed Muhammad Shah and others v. Federal Investment Agency and others' (2017 SCMR
1218), whereby, the FIO 2001 was declared as a special law and, therefore, all offences of
wilful default with regard to any financial obli gation relating to the Financial Institutions
(Recovery of Finances) Ordinance, 2001, were declared to be triable by the Banking Court
constituted under the FIO, 2001. With utmost respect to the judgment of the Hon'ble Supreme Court of Pakistan, we are of considered opinion that the case law referred by the petitioner was not applicable in this case, whereby the referred to judgment only relates to jurisdiction of the Banking Court constituted under FIO, 2001 and all offences under the FIO 2001 were declared as triable by the court constituted under the said ordinance instead of by the Special Court constituted under Offences in respect of Banks (Special Court Ordinance, 1984).
9. As per section 2(g) of the Ordinance 2001, wilful default is with reference to three
separate situations. It is an intentional or deliberate failure to repay any finance, loan,
advance or financial assistance received by a person, which is due under the terms of an
agreement or under a law. It also includes the wrongful use of finance that is not as per the purpose for which it was given and the misappropriation or sale of collateral or security given to a financial institution. Hence it prescribes three different cause of actions for wilful default. Wilful default is also an offence under section 20(7)(8) and (9) of the Ordinance
2001. In terms of the Section, the offence of wilful default is with reference to the three situations stipulated in the definition under section 2(g). Hence for the purposes of section 20, three separate of fences are defined in section 2(g) which are triable under sections
20(7)(8) and (9) of the Ordinance. In terms of section 20, an offence is to be investigated by an investigating agency nominated by the Federal Government. After the investigation agency completes its investigation, it shall tender its findings before the Banking Court and thereafter the offence of wilful default is triable by the Banking Court. Therefore the Banking Court may take cognizance of a deliberate failure to re -pay any finance, l oan,
advance or financial assistance received by a person, who is due under the terms of an agreement or under a law or the wrongful use of finance being an offence where finance is not used for the purpose it was given. And finally the offence of removing, transferring or misappropriating or selling any of the security provided to the financial institution to secure the loan. These offences can be looked at separately and are to be tried as individual offences for the purposes of section 20(7), (8) and (9) of the Ordinance 2001. Essentially this means
that a customer can be tried for the offence stipulated in section 2(g)(i) or 2(g)(ii) or 2(g)(iii) of the Ordinance 2001, but in the case in hand the respondent No.5 has initiated the proceedings under section 20(7) prior to fixing the liability of default. Hence in the context of the definition given in section 2(g)(i) of the FIO, wilful default is an intentional failure to pay that which is due to the financial institution. In all such cases, the element of "default"
leads the criminality of the offence of willfulness, meaning thereby that the question of default must be established first as per the prescribed procedure under the Ordinance 2001, before it can be alleged that the default was deliberate or intentional. In the case in hand, admittedly a suit for recovery of the outstanding amount has been filed, which lis is still
pending before the Hon'ble Sindh High Court and till decision of the suit, the liability of
default cannot be fixed and after decision on the suit for recovery and deciding the liability
of default, the complaint of respondent No.4 could be investigated by conducting enquiry by the respondent No.3. Reference is also made to the judgment rendered in "Mian Ayaz Anwar and others v. State Ba nk of Pakistan" (2019 CLD 375 Lahore).
In view of what has been discussed herein above, the jurisdiction of the FIA is not
precluded from conducting enquiry on the complaint filed by the respondent No.5, however, since the complaint of the respondent is premature and filed prior to fixation of the civil default, and till decision of the suit pending before the Sindh High Court, the complaint of the respondent No.5 being premature is quashed, however, once the suit is decided and the liability of default is fixed against the petitioners, then, the respondent No.5 can file a
complaint under section 20(7) of the Ordinance 2001 and thereafter, the FIA authorities being empowered under Rule 5 of the Rules 2018, to conduct enquiry on the complaint of respondent N o.5.
The petition is partly accepted in the above terms.
MH/171/Bal. Order accordingly.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
let us know.