Can’t Repay Loan? FIA Can’t Arrest You Till Court Declares You Defaulter

In a recent ruling, the Lahore High Court has prevented the Federal Investigation Agency (FIA) from launching criminal investigations against bank customers accused of willful defaults, unless a banking court first confirms the offense through civil proceedings. This decision stops financial institutions from using criminal actions as a way to collect debts before a judicial determination of the default is made.

The decision was made after petitions were filed by Qaiser Shabbir and others, who opposed FIA notices sent based on complaints from financial institutions under Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance 2001. The court's decision affects cases that were already in court, where financial institutions had sued the petitioners for recovery.

Lawyers for the petitioners argued that the ordinance's criminal and civil remedies depend on each other, and a customer cannot be called a defaulter or a willful defaulter until the allegations of breach of obligations are proven by the banking court and the appellate court. The FIA defended its authority, stating that each part of the offense is independent and that it has exclusive jurisdiction under Rule 5 of the Rules 2018.

They argued that the notices were only meant to gather information and that complaints were filed appropriately after financial institutions sent payment demands for defaulted amounts. The court agreed with the petitioners, stating that willful default is a unique form of default that involves both civil and criminal aspects. The court also rejected a 2019 ruling from a three-member Lahore High Court bench, which had allowed criminal proceedings to start before determining if the default was willful.

The court emphasized that giving financial institutions this power would let them use first information reports and arrests to recover undefined amounts without any prior civil confirmation.