Ali Murad Siddiqui vs Summit Bank Ltd etc.

Stereo. HCJDA 38

JUDGMENT SHEET

LAHORE HIGH COURT

MULTAN BENCH, MULTAN

JUDICIAL DEPARTMENT

Writ Petition No. 15816/2023

Ali Murad Siddiqui Vs.

Summit Bank Limited and others

JUDGMENT

Date of hearing 15.10.2024 Mr. Muhammad Waseem Shahab, Advocate, assisted by Mr. Ali Sarfraz For the Petitioner:

Bhatti, Advocate.

Mr. Naveed Sharif Chaudhry, For Respondents No.1 & 2:

Advocate.

Ch. Muhammad Shahzad Aslam, For Respondents No.3 to 5:

Deputy Attorney General.

Tariq Saleem Sheikh, J. – The Petitioner is engaged in the construction business. He obtained a running finance facility of Rs. 60 million from the Respondent Bank but failed to repay it in accordance with the agreed terms. Consequently, on 29.08.2019, the Respondent Bank filed a suit for the recovery of Rs. 71.31 million against the Petitioner and his surety (Respondent No.6 – Proforma Respondent) under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “FIO”), in the Banking Court, Multan. During its pendency, the Petitioner and Respondent No.6 negotiated a settlement with the Respondent Bank, which resulted in a Settlement Agreement dated 24.08.2021 (the “Settlement Agreement”). Subsequently, on 14.12.2021, both parties jointly submitted an application under Order XXIII Rule 3 CPC, based on which the Banking Court issued a consent decree on 14.12.2021 for Rs. 70 million. The Petitioner and Respondent No.6 were obligated to pay that amount as per the schedule stipulated in the Settlement Agreement.

2.The Petitioner failed to abide by the terms of the Settlement Agreement and defaulted again after paying a couple of installments. The Respondent Bank claims that Rs.34.86 million as principal amount and Rs.23.40 million mark-up (as on 30.12.2022) are outstanding against the Petitioner and Respondent No.6. It alleges that they have committed the offence of “willful default” under Section 2(g)(i) of the FIO and filed a complaint under sub-sections (7) and (8) of Section 20 of the FIO with the Federal Investigation Agency (FIA) for their criminal prosecution.

3.The FIA registered Enquiry No. 770/2023 in pursuance of the aforementioned complaint, which was assigned to Respondent No.5. He issued a notice dated 3.10.2023 under Section 160 Cr.P.C., directing the Petitioner and Respondent No.6 to join the inquiry proceedings and present their version. Through this petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973 (the “Constitution”), the Petitioner has challenged the FIA’s jurisdiction to issue the notice dated 3.10.2023 (the “Impugned Notice”). The Petitioner primarily relies on the judgment reported as Trading Corporation of Pakistan v. Devan Sugar Mills Limited and others (PLD 2018 SC 828) to contest the validity of the Impugned Notice.

4.The Petitioner’s counsel, Mr. Muhammad Waseem Shahab, Advocate, contends that the FIA has initiated proceedings against the Petitioner and Respondent No.6 without lawful authority. He argues that to establish the offence of “willful default”, the prosecution must go beyond proving the mere occurrence of a default and demonstrate that the default was intentional and deliberate. He submits that, in the present case, the Respondent Bank has neither alleged nor provided any evidence in its complaint to substantiate the element of willfulness.

5.Mr. Naveed Sharif Chaudhry, Advocate, has objected to the maintainability of this petition, contending that a notice under Section 160 Cr.P.C. does not constitute an adverse order that could be challenged before this Court in constitutional jurisdiction. He asserts that the petition is premature, as the FIA’s inquiry is still at a preliminary stage. The Petitioner should have awaited the issuance of a final order before seeking relief. On merits, Mr. Chaudhry argues that the documents on record unequivocally show that the Petitioner has

committed willful default. Consequently, he is liable to be prosecuted and punished under sub-sections (7) and (8) of Section 20 of the FIO, read with Section 2(g)(i).

6.The Deputy Attorney General states that the FIA was established under the Federal Investigation Agency Act 1974. The Federal Government, vide Notification No. F.3(2)Bkg-II/2018-189 dated 6.7.2018, designated the FIA as the investigating agency for cases of willful default under Section 20(7) of the FIO. The Deputy Attorney General submits that the FIA possesses all the powers of the police as stipulated under the Code of Criminal Procedure, 1898. Consequently, Respondent No.5 is fully competent to issue a notice under Section 160 Cr.P.C. to the Petitioner and Respondent No.6.

7.The Deputy Attorney General emphasizes that the police have a statutory right to investigate alleged crimes and that courts should not interfere in matters falling within their domain. He argues that the functions of the judiciary and the police are complementary, not overlapping, and that the balance between individual liberty and the enforcement of law and order can only be achieved by allowing each institution to perform its respective functions. In the present case, the relief sought by the Petitioner directly contradicts these established legal principles.

8.The Deputy Attorney General also questions the maintainability of this petition, contending that a notice issued under Section 160 Cr.P.C. does not amount to an adverse order that would justify invoking the Court’s jurisdiction under Article 199 of the Constitution. He prays for the dismissal of this petition.

Opinion of the Court

9.Before delving into the merits of this case, I must address the objection regarding the maintainability of this petition.

10.Judicial review is the “legal audit” of the decisions of public bodies. It is the “power of the courts of a country to examine the actions of the legislative, executive and administrative arms of the government and to determine whether such actions are consistent with the Constitution. Actions judged inconsistent are declared unconstitutional

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and, therefore, null and void.”1 Several doctrines have developed over time that preclude a person from seeking relief. The ripeness doctrine is one of them. It postulates that the “lawsuit must be well developed, specific, and appropriate for judicial resolution. Courts may not decide cases that involve uncertain and contingent future events that may not occur as anticipated, or indeed may not occur at all.”2

11.The principles of ripeness and exhaustion of administrative remedies are both concerned with the timing of judicial review of an administrative action, yet they are distinct in scope and purpose. According to Kenneth Culp Davis, ripeness concerns the nature of the judicial process – the kinds of matters courts should address and when. In contrast, exhaustion focuses on the narrower issue of whether a party must utilize all available administrative remedies before seeking relief through the courts.3

12.In the United States, the ripeness doctrine is said to have roots in prudential and constitutional considerations, the latter centering on the Case or Controversy Clause of Article III.4 In Abbott Laboratories v. Gardner, 387 U.S. 136 (1967), the Supreme Court explained the rationale behind the doctrine and established a two-prong test for determining ripeness: first, whether the issues are sufficiently developed and fit for judicial decision, and second, whether delaying judicial review would impose undue hardship on the challenging parties. The Court emphasized that the doctrine aims to prevent premature adjudication that could lead to abstract disputes over administrative policies while protecting agencies from judicial interference until a formal administrative decision has concrete effects on the parties involved. In Toilet Goods Association v. Gardner, 387 U.S. 158 (1967), the Supreme Court further clarified that the ripeness test considers both the adequacy of the legal issue for judicial resolution and the immediate impact of the regulation on those seeking relief. Where the petitioners’ primary conduct was not directly affected, the Court held that they were http://www.Britannica/topic/judicial-review

Valeria G. v. Wilson, 12 F.Supp 2d 1007

Davis, Kenneth Culp. “Ripeness of Governmental Action for Judicial Review”. Harvard Law Review 68, No.7 (1955): 1122-153. doi: 10.2307/1337691.

Nebraska Public Power Dist. v. MidAmerican Energy Co., 286 F.3d 1032

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required to exhaust administrative remedies before judicial review could address the issue of statutory authority.

13.In Pakistan, there is a cornucopia of cases in which the courts refused to entertain constitutional petitions, assailing show-cause notices issued by the administrative authorities.5 However, the ripeness doctrine was formally employed in Mughal-e-Azam Banquet Complex v. Federation of Pakistan and others (2011 PTD 2260). It was observed that, just as a case can be brought too late, it can also be brought too early, when it is not yet ripe for adjudication. Until a controversy becomes concrete and focused, it is difficult for the court to assess the practical merits of each party’s position. “ ‘Ripeness’ requires that an issue be sufficiently formed and felt to be a justifiable controversy ... As courts insist on a concrete context, that context enables them to better see the problems that they are supposed to redress.”

14.In Muhammad Hammad-ur-Rehman Zafar v. Director, Federal Investigation Agency and others (PLD 2022 Lahore 177), this Court held that a notice under Section 160 Cr.P.C. cannot be challenged. Such a notice merely requires the petitioner’s presence to allow the FIA to assess whether he has information or a connection to the alleged offence. This is a statutory duty that cannot be obstructed. The Court further observed that issuing such a notice does not constitute an adverse action affecting the petitioner’s rights. Therefore, judicial interference is premature unless further developments render the notice or related proceedings ripe for adjudication.

15.While a constitutional petition against a notice under Section 160 Cr.P.C. is generally not maintainable, exceptions exist where: (a) the court is satisfied that the notice is non est, i.e., issued without jurisdiction by the authority, or (b) it has been issued mala fide, See for example: Muhammad Shafi and another v. Ch. Ilam-ud-Din and others (1968 SCMR 317); Virasat Ullah v. Bashir Ahmad, Settlement Commissioner (Industries) and another (1969 SCMR 154); Muhammad Mahmood Ali v. Pakistan through Secretary, Ministry of Finance (1984 CLC 142); Mir Nabi Bakhsh Khan Khoso v. Branch Manager, National Bank of Pakistan, Jhatpat (Dera Allah Yar) Branch and 3 others (2000 SCMR 1017); Muhammad Asaf v. Small Business Finance Corporation through Branch Manager, Lahore Cantt. And 7 others (2001 YLR 1891); Muhammad Akhtar Sherani and 35 others v. The Punjab Textbook Board, Lahore and 4 others [2001 PLC (CS) 939]; Zulfiqar Ali v. Secretary Education (PLJ 2002 Lahore 1475); Khalid Mahmood Ch. And others v. Government of the Punjab through Secretary, Livestock and Dairy Development (2002 SCMR 805); Muhammad Naveed v. Deputy District Officer (Revenue) and 4 others [2005 PLC (CS) 129]; and Abdul Raheen Khan, Executive Manager (Operation) MEPCO 1 ST Division, D.G. Khan v. Managing Director PEPCO, WAPDA House, Lahore and 2 others (PLJ 2012 Lahore 93).

i.e., solely to harass the subject. Reliance is placed on Adamjee Insurance Company Ltd. v. Assistant Director, Economic Enquiry Wing (1989 PCr.LJ 1921) and Pakistan Engineering Company Ltd. and others v. Director General FIA and others (2011 YLR 337).

16.In the present case, the Petitioner has challenged the notice dated 3.10.2023 on the ground that he has not committed any offence under sub-sections (7) and (8) of Section 20 of the FIO and that the complaint lacks specific allegations necessary to establish the offence of “willful default” under Section 2(g)(i). Thus, the FIA has no jurisdiction to entertain the Respondent Bank’s complaint. While the ripeness doctrine generally precludes interference at this stage, in light of the principles discussed above, this Court is competent to review whether the FIA acted within its statutory authority under the FIO. Therefore, I hold that this petition is maintainable. The objection is overruled.

17.Let’s now turn to the merits of the case. The FIO is a special law that regulates the relationship between financial institutions and customers.6 Section 9 outlines the procedure for suits by a customer or a financial institution before the Banking Court for default in fulfillment of an obligation with regard to any finance.7 Section 20 criminalizes various acts and omissions and provides punishments therefor. Section 20(7) mandates that, notwithstanding any provisions to the contrary in existing laws, action regarding an offence of willful default shall be taken by an investigating agency nominated by the Federal Government. Such action must be initiated on a written complaint filed by an authorized officer of a financial institution, following the service of a thirty-day notice upon the borrower demanding repayment of the loan, advance, or financial assistance. Section 20(8) of the FIO stipulates that the offence of willful default shall be cognizable, non-compoundable, and punishable with imprisonment, which may extend to seven years, or a fine not exceeding the amount of default or with both.

18.Section 2(g) of the FIO defines “willful default”, which is reproduced below for ready reference:

Sheikh Murshid Ali and others v. United Bank Limited (2016 CLD 1471).

Section 2 of the FIO defines the terms “financial institution”, “customer”, “finance” and “obligation”.

(g)“willful default” means:

(i)deliberate or intentional failure to repay any finance, loan, advance, or any financial assistance received by any person from a 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 or 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.

19.Under Section 2(g) of the FIO, “willful default” occurs in three situations: (i) intentional failure to repay any finance, loan, advance, or financial assistance due under an agreement or law;

(ii)misuse of funds for purposes other than those agreed; and (iii) misappropriation or sale of collateral or security provided to a financial institution. In Mian Ayaz Anwar and others v. State Bank of Pakistan and others (2019 CLD 375), a Full Bench of this Court ruled that these three instances constitute distinct offences. Being a special law, the FIO supersedes other laws, granting the Banking Court exclusive jurisdiction to adjudicate matters within its scope, including cases of default and willful default, and try offences of willful default under Section 20. Allowing multiple forums to simultaneously adjudicate or investigate allegations of willful default risks conflicting judgments and findings, potentially prejudicing the rights of a customer accused of willful default, especially when the question of default remains unresolved. The Court ruled that “in the context of the definition given in Section 2(g)(i) of the FIO, ‘willful default’ is an intentional failure to pay that which is due to the financial institution. In all such cases, the element of ‘default’ precedes 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 FIO, before it can be alleged that the default was deliberate or intentional.”

20.In Mian Ayaz Anwar’s case, the Full Bench also examined the overlap between the National Accountability Bureau Ordinance, 1997 (NAO), and the FIO regarding “willful default”. It observed that

the NAO, as a special law, addresses corruption and corrupt practices, and holds the persons involved in such activities accountable. Section 5(r) of the NAO, introduced through Ordinance No. IV of 2000 on 3.2.2000, defines the offence of “willful default” as limited to the non- payment of amounts claimed by a financial institution. This provision grants the Accountability Court jurisdiction over cases of willful default and authorizes the National Accountability Bureau (NAB) to investigate complaints lodged by financial institutions through the Governor, State Bank of Pakistan, under Section 19 or Section 31D of the NAO (inserted on 5.7.2000 through Ordinance No. XXIV). At that time, the FIO did not include a definition of “willful default”, nor was it criminalized under Section 20. Thus, NAB held jurisdiction in such cases. However, the Court ruled that the FIO now takes precedence over the NAO with respect to the offence of “willful default”. Consequently, NAB cannot invoke Section 5(r) or Section 31D of the NAO, nor initiate related proceedings concurrently with or before the determination of default under the FIO. The Court emphasized that allowing financial institutions to invoke the NAO for willful default enables them to exert undue pressure on customers to pay disputed claims or amounts for which they are not in default, bypassing the adjudication mechanism prescribed under the FIO. This practice deprives customers of their rights under the FIO and undermines the proper legal process. The Court reiterated that the offence of “willfulness” arises after the civil liability of default – an obligation to pay – has been established. Section 20(7) of the FIO can be invoked only after this determination.

21.The Full Bench in Ayaz Anwar’s case clarified that offences under Sections 2(g)(ii) and (iii) of the FIO are independent and can be tried under Section 20 without the need to establish default under Section 9 because they stem directly from the customer’s actions, such as misusing funds or misappropriating collateral, and constitute criminal acts. These offences are not dependent on the civil liability of default under Section 9 of the FIO and are actionable under Section 20 regardless of any obligation to pay. The Court further ruled that the mechanism provided under Section 20(7) for investigating such offences ensures due process and is consistent with constitutional principles.

22.In Misbah-ud-Din Zaigham and others v. Federal Investigation Agency and another (2021 CLD 906), a learned Single Judge reiterated that the determination of default as a civil liability must precede any notice alleging the offence of willful default under Section 2(g)(i) of the FIO. The learned Judge observed that this principle is deeply embedded in established jurisprudence, where superior courts have consistently interpreted the term “sum due” to require, as a preliminary step, a determination by a competent court affirming that the claimed amount constitutes a liability under civil law. His Lordship further stated that this determination should be made by the court of first instance and at least one appellate court. He added that the view requiring the appellate procedure to be part of the determination of civil liability is based on two key jurisprudential principles: first, an appeal is considered a continuation of the original suit, allowing for a comprehensive review of factual and legal issues, and second, constitutional criminal law underscores the critical importance of protecting and preserving a person’s right to due process in all criminal prosecutions.

23.Black’s Law Dictionary8 defines ‘willful’ as “voluntary and intentional, but not necessarily malicious.” It cites the following excerpt from Rollin M. Perkins & Ronald N. Boyce,9 “The word ‘willful’ or ‘willfully’ when used in the definition of a crime, it has been said time and again, means only intentionally or purposely as distinguished from accidentally or negligently and does not require any actual impropriety; while on the other hand it has been stated with equal repetition and insistence that the requirement added by such a word is not satisfied unless there is a bad purpose or evil intent.”

24.Section 2(g)(i) of the FIO, while defining the term “willful default”, uses the phrase “deliberate or intentional failure”, giving it the same meaning as the Black’s Law Dictionary. The terms “deliberate” and “intentional failure” indicate that mens rea is required to constitute the offence of willful default. Michael Allen states:

Black’s Law Dictionary, Ninth Edn., p. 1737

Rollin M. Perkins & Ronald N. Boyce, Criminal Law, 875-76 (3d Ed. 1982).

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“If mens rea is required this could be expressly stated by using one of the long list of words (e.g. intentionally, knowingly, willfully, permitting, etc.) which impose this requirement. Alternatively, if the offence is intended to be one of strict liability, this could be expressly stated as was the case with the Contempt of Court Act 1981.”10

25.Even when the statutory provision is silent, the court would start with the presumption that Parliament did not intend the offence was one of strict liability. The Privy Council in Gammon (Hong Kong) Ltd. v. A-G of Hong Kong [1985] AC 1, reaffirmed the presumption of mens rea. Lord Scarman indicated in his speech the matters a court should consider to determine whether a particular statutory provision rebutted that presumption. He stated (at p.14):

“In their Lordships’ opinion, the law ... may be stated in the following propositions: (1) there is a presumption of law that mens rea is required before a person can be held guilty of a criminal offence;

(2)the presumption is particularly strong where the offence is ‘truly criminal’ in character; (3) the presumption applies to statutory offences, and can be displaced only if it is clearly or by necessary implication the effect of the statute; (4) the only situation in which the presumption can be displaced is where the statute is concerned with an issue of social concern; public safety is such an issue; (5) even where a statute is concerned with such an issue, the presumption of mens rea stands unless it can also be shown that the creation of strict liability will be effective to promote the objects of the statute by encouraging greater vigilance to prevent the commission of the prohibited act.”

26.Given the above, the offence of willful default under the FIO cannot be treated as a strict liability offence. It requires the presence of mens rea, as explicitly reflected in the phrase “deliberate or intentional failure” in Section 2(g)(i). Parliament intended to impose criminal liability only when the default arises from intentional conduct or purposeful negligence, as opposed to accidental or unavoidable circumstances. This requirement is essential to distinguish between genuine financial difficulties and deliberate attempts to evade repayment.

27.In The State through Chairman NAB and others v. Muhammad Asif Saigol and others (PLD 2016 SC 620), the Supreme Court of Pakistan held that willful default requires a deliberate and calculated refusal to pay, characterized by a conscious and intentional act. Mere inability to pay does not constitute the offence of willful default.

Michael Allen, Textbook on Criminal Law, 7th Edn., p. 102

28.The default must be confirmed through objective evidence before initiating criminal proceedings under sub-sections (7) and (8) of Section 20 of the FIO. When filing a complaint, the financial institution must specifically allege that the default was willful by giving detailed facts demonstrating bad faith or intent to defraud. A complaint that merely asserts default without substantiating intent or mens rea does not meet the statutory threshold for initiating criminal proceedings.

29.In the present case, the Petitioner and Respondent No.6 entered into a Settlement Agreement with the Respondent Bank, acknowledging their liability. Based on this agreement, the Banking Court passed a consent decree on 14.12.2021 in the then-pending suit. Although the Petitioner paid some installments, he defaulted on the remaining obligations. This default establishes a financial liability but does not automatically satisfy the statutory requirements to constitute “willful default” under Section 2(g)(i) of the FIO. Specific facts demonstrating bad faith or intent to defraud must be asserted and supported by evidence to invoke criminal liability.

30.A review of the Respondent Bank’s complaint under Section 20 of the FIO reveals that, while it alleges default by the Petitioner and Respondent No.6, it fails to provide specific facts and circumstances demonstrating that the default was willful. This omission renders the complaint procedurally and substantively deficient for initiating criminal proceedings.

31.The FIA issued the Impugned Notice without scrutinizing the complaint and ascertaining whether it met the statutory requirement for establishing mens rea. While the FIA has the authority to investigate complaints under Section 20(7) of the FIO, its jurisdiction is contingent on the financial institution’s compliance with substantive and procedural prerequisites, including a 30-day notice and detailed allegations substantiating mens rea. In the absence of a prima facie case of “willful default”, the issuance of the Impugned Notice was premature and beyond the FIA’s jurisdiction.

32.The Petitioner’s counsel vehemently argued that the Respondent Bank could not file a complaint under Section 20 of the FIO because it had elected to file a recovery suit under Section 9. In other

words, the Petitioner has invoked the doctrine of election of remedies elucidated by the Supreme Court of Pakistan in Trading Corporation of Pakistan v. Devan Sugar Mills Limited and others (PLD 2018 SC 828) to challenge the maintainability of the complaint and the issuance of the Impugned Notice. The said doctrine does not apply to the instant case. The complaint and the recovery suit are distinct proceedings. Nevertheless, as discussed, the question of whether the customer defaulted must first be determined in accordance with the procedure prescribed under the FIO before criminal prosecution for willful default can be pursued.

33.This petition is accepted, and the Impugned Notice is set aside. However, this decision does not preclude the Respondent Bank from filing a fresh complaint against the Petitioner and Respondent No.6, provided it complies with the statutory requirements discussed above.

(Tariq Saleem Sheikh) Judge Naeem

Announced in open court on __________________

Judge

Approved for reporting

Judge