Loss against bank loan: Borrower may seek damages, say experts

LAHORE: Borrowers can seek damages if they suffer from financial loss while taking certain steps in line with the approval letter against bank loan, said banking sector experts.

They said no civil court can refuse to entertain any such application on the point of jurisdiction, especially when the bank has violated prescribed rules, practices, and banking laws as well as of State Bank of Pakistan.

According to them, the highest appellate forums waste no time in setting aside any such orders on the part of civil courts and return plaints with a direction to adjudicate upon them properly.

They have further pointed out that the Financial Institutions (Recovery of Finances) Ordinance, 2001 has defined that the term of customer could only be established if any finance is extended by a bank to a borrower.

Where a financial facility request does not culminate into a contractual relationship through the execution of agreement of financing, followed by disbursement of any amount of loan, no one can stop a citizen to approach civil courts for damages in case of a loss due to the negligence of a bank, they added.

They said the relationship of customer with a bank with reference to finance is established only when the agreement of financing is duly executed between the parties, said sources in the banking law practitioners.

They further added that another salient ingredient of this relationship is the disbursement of financing facility from the bank to the borrower.

Generally, they said, the courts deny entertaining suits for damages on the point that the matter does not fall within their domain and the applicant should approach the banking courts. However, they said, the courts fail to understand that the banking courts could not be involved unless a financing facility is extended by the bank, they stressed, adding that only then a contractual relationship of customer could be established when a finance agreement is duly executed between the parties, followed by extension of a financing facility.

Copyright Business Recorder, 2023