Recovery of written-off loans: SBP for formation of retired judge-led commission

The State Bank of Pakistan (SBP) on Monday floated a proposal to the Supreme Court, seeking formation of a commission under a retired judge to recover written-off loans. A two-member bench headed by Chief Justice Iftikhar Muhammad Chaudhry with Justice Ghulam Rabbani, was hearing a suo motu case regarding Rs 256 billion written-off loans by different banks from 1971 to 2009.
The central bank lawyer informed the court that the SBP is looking for formation of a commission headed by former Justice Saleem Akhtar comprising Rashid A Chughtai former director-general SBP and Yousaf Adil, a chartered accountant, who would submit its interim report in 90 days to the apex court. The court directed the banks to publish the terms of reference in print media, both Urdu and English prepared by the State Bank of Pakistan and the details about the commission within four days. If borrowers or the customers have any objection regarding the commission or its terms of reference they could appear before the court on next hearing.
Dr Pervez Hassan prayed the court to fully empower the proposed commission under Pakistan Commission of Inquiries Act, 1956, so that it would be able to examine and confirm validity and justification of the amount written-off by banks from 1997 in the sum exceeding Rs 100 million, which are 1300. He also suggested that to empower the commission to examine and determine the cases in which loans were granted and later written-off on political reasons or on the consideration of other bona fide business. The commission will submit its interim report within 90 days and final report within 360 days, he suggested.
Regarding the power of proposed commission, he said that it should have the authority to summon and enforce attendance of a person and to examine them on oath. The lawyer prayed that the apex court may direct the government to make necessary amendments to the applicable laws and/or enact new laws similar to Section 8 of the Financial Institution (Recovery of Finance) Ordinance, 2001 for the removal of latches, impediment and legal objections to enable the banks to recover the written-off loans.
The SBP governor be empowered to increase the number of banking courts or constitute new courts for the disposal of the cases instituted by the concerned banks for the recovery of written-off loans. The parliament, he proposed, should introduce a bill seeking suitable amendments to the offences in respect of banks (special courts) Ordinance, 1984 so as to make wilful default a penal offence. The counsel asked the court that the chief justices of all high courts be directed to assign only recovery cases to one or more designated judges till such time as the backlog of pending recovery cases in the high courts is significantly reduced.
The apex court may consider at an early date of the appeals filed by various banks which are pending before Supreme Court against the decision of Lahore High Court. Additional advocate-general KK Agha stated that the banks, which have provided short or long terms loans against the inadequate security, are also responsible for plundering of national wealth. He said that adequate measures need to be taken in future as in most of the cases, the loans were written-off arbitrarily or on political grounds.
He said in the terms of reference, it is necessary to also take into account the person involved in writing-off money in violation of Circular BDP-29 of SBP or in exercise of his power unlawfully. The bench in its order observed that while hearing the said case for the last many months, no other borrower except Indus Sugar Mills, Redco Textile Mills, Ms Sadaruddin Ganji and Asif Sehgal Company has turned up before the apex court and contested their cases.
Meanwhile, the counsel for Redco Textile Mills, Salman Butt said that his client paid full amount under Circular 29 and not the 75 percent. He said the mills was facing loss for the last three years and there was absolutely no write-off or waiver of principal amount.
Mansoorul Arifeen, lawyer for Habib Bank Limited (HBL), National Bank of Pakistan (NBP), Standard Chartered Bank and NIB apprised the court that circular 29 under which loans were waived off, had been issued faithfully but it was misused. To a query, he said that not a single case had been filed under section 8 of 1997 Ordinance. Dr Parvez Shaukat, counsel for Allied Bank of Pakistan said that circular 29 of SBP was a valid piece of legislation under section 33 of Banking Companies Ordinance and came to rescue the banking sector and revived the country's ailing economy. The hearing was adjourned till April 11, 2011.