Bank faces penalty for carrying out premature recovery proceedings against defaulter

LAHORE: A local bank has faced penalty for carrying out premature recovery proceedings against loan defaulter.

Sources said the default was matured during the pendency of recovery proceedings, therefore, the relevant forum decided to penalize it for bringing a premature claim. They said a fine to the tune of Rs.500,000 was imposed upon the bank in favour of defaulters to adjust equities between the parties.

According to the sources, the relevant law is a special law which creates specialized courts and prescribes a summary procedure for settlement of claims between a ‘customer’ and a ‘financial institution’. The relevant provisions of the Ordinance unequivocally provides that where a ‘customer’ or ‘financial institution’ commits a ‘default’ in fulfillment of any ‘obligation’ with regard to any ‘finance’, the ‘financial institution’ or, as the case may be, the ‘customer’, may initiate proceedings.

They said there is no cavil to the proposition that a suit by a ‘financial institution’ or a ‘customer’ can thus be instituted by one against the other only in case of a ‘default’ in fulfillment of any ‘obligation’ with respect to any ‘finance’. However, the substance of the Ordinance is to determine the entitlement of a ‘financial institution’ or a ‘customer’ with respect to a right emanating with respect to ‘default’ in fulfillment of any ‘obligation’ with regard to any ‘finance’.

The alleged ‘default’ agitated by the bank was tentative based upon its own opinion which obviously required to be determined and adjudicated by the competent forum under the Ordinance. If the relevant forum discovers that the alleged default has in fact taken place, it may decide in favour the bank or conversely, if it finds that the alleged default has not occurred, it will dismiss the suit. Hence’ the right of a ‘customer’ or a ‘financial institution’ to institute a suit is based on its assessment that a default has taken place but the same is liable to be determined by the relevant forum after adjudication as to whether it actually took place or otherwise. Thus, in case the competent forum concludes that the ‘default’ alleged was non-existent at the time of claim but it matured due to afflux of time during the pendency of the application, the relevant forum in exercise of discretion, can grant relief.

Copyright Business Recorder, 2024