Ahsan Javed vs The State etc.

Stereo. HCJDA 38

JUDGMENT SHEET

LAHORE HIGH COURT

Bahawalpur Bench, Bahawalpur

JUDICIAL DEPARTMENT

Writ Petition No. 6126-Q/2023

Ahsan Javed Vs.

The State and others

JUDGMENT

Date of hearing: 26.02.2025

For the Petitioner: Mr. Mahmood Ahmad Bhatti, Advocate. Ms. Riffat Yasmeen, Assistant Attorney For Respondents No. 1 & 2:

General with Shoaib Mumtaz/SI/FIA.

Mr. Mughees Aslam Malik, Advocate, For Respondent No.3: assisted by Mahar Ahmad Nawaz, Advocate.

Tariq Saleem Sheikh, J. – Rasool Model Industries (Private) Limited (the “Company”) is engaged in the business of cotton ginning, oil, and allied products. The Petitioner is one of its directors, while Respondent No.4 is its Chief Executive. In 2005, the Company obtained various finance facilities from Bank Alfalah Limited (BAL), which were renewed, revised, and restructured from time to time. In addition to the other securities for the credit package, the Petitioner and Respondent No.4 posted personal guarantees for the due performance of the Company’s obligations and timely repayment of its liabilities.

2.During 2019-2021, the Company obtained several Current Finance (Pledge) lines, which were inter alia secured against the pledge of stocks. In pursuance of this arrangement, the Company pledged 46,250 maunds of oil cake at Unit No. 1, situated on Mehrab-wala Road, Ahmadpur East, for which Harvester Services (Private) Limited was appointed as the Mucaddum. The Company

pledged 23,160 maunds of rape seed and 69,100 maunds of oil cake at Unit No. 2, situated 10 km on the Uch Sharif Road near the PSO petrol pump, Ahmadpur East, for which K.G. Traders (Private) Limited was appointed as the Mucaddum. BAL alleges that between 10.10.2021 and 12.10.2021, the Petitioner and other directors of the Company alongwith some unknown persons illegally detained the staff of both Mucaddum companies at their respective godowns and removed pledged stocks of 77,789 maunds of oil cake valuing Rs. 143.910 million and 20,089 maunds of rape seed valuing Rs.85.378 million without delivery order from the bank’s authorized officer. BAL claimed that the Petitioner and Respondent No.4 had committed a cognizable offence by illegally removing the pledged stocks and misappropriating them and depriving it of its prime security. BAL demanded that the Company either return the pledged stocks or settle the outstanding liability equivalent to their value, but it failed. Based on these allegations, BAL lodged a complaint with the Federal Investigation Agency (FIA), upon which Enquiry No.126/22/CBC/FIA/BWP was registered. After the completion of the enquiry, with the approval of the Competent Authority, case FIR No.28/2023 dated 03.01.2023 was registered at Police Station FIA/BWP, Bahawalpur Circle, against the Petitioner and Respondent No.4 under section 2(g)(iii) read with section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance 2001 (FIO) and sections 406, 420 of the Pakistan Penal Code 1860 (PPC).

3.On 29.03.2022, BAL filed a suit (C.O.S. No.01/2022) for recovery of Rs.396,920,747/44 along with markup, costs of the suit, and cost of funds against the Company, the Petitioner and Respondent No.4, before this Court under its Banking Jurisdiction. During the pendency of that suit, the parties reached a partial settlement in terms of the Settlement Agreement dated 11.10.2022. Consequent thereupon, the Court partially decreed the suit on 25.10.2022. In pursuance of that settlement, the Company transferred its Unit No.2 in BAL’s favour through a sale deed which was duly registered with the Sub-Registrar concerned.

4.After the Settlement Agreement dated 11.10.2022, BAL showed a lack of interest in pursuing FIR No.28/2023, but when the Company delayed further payments, it revived the proceedings. The Petitioner filed this petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973, seeking the quashing of the said FIR. He contends that the allegations of theft and misappropriation of pledged stocks are mala fide, false, and vexatious, and that BAL has invoked the machinery of criminal law to compel payment of what is essentially a civil liability.

5.Arguments heard. Record perused.

6.The FIO is a special law that regulates the relationship between financial institutions and customers.1 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.2 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 with a fine not exceeding the amount of default, or with both.

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

(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;

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”.

(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.

8.In Mian Ayaz Anwar and others v. State Bank of Pakistan and others (2019 CLD 375), a Full Bench of this Court ruled that Section 2(g) of the FIO contemplates three separate and distinct offences. Being a special law, the FIO supersedes other laws, conferring exclusive jurisdiction on the Banking Court to adjudicate matters within its scope, including cases of default, and try offences of willful default under Section 20. Allowing parallel adjudication or investigation of allegations of willful default by multiple forums carries the risk of conflicting findings. It may prejudice the rights of a customer, particularly where the foundational question of default has not yet been adjudicated in accordance with the procedure prescribed under the FIO.

9.The Full Bench in Mian Ayaz Anwar also examined the interface between the National Accountability Ordinance, 1999 (NAO), and the FIO in relation to the offence of “willful default”. It observed that the NAO, as a special law, addresses corruption and corrupt practices, holding individuals 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 stated to be due to a financial institution. This provision grants the Accountability Court jurisdiction over cases of willful default. It 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 amounts or amounts 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.

10.The Full Bench 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.” The Court 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.

11.As already noted, BAL filed C.O.S. No.01/2022 against the Company, the Petitioner, and Respondent No.4 for recovery of its outstanding finance. Independently, based on BAL’s complaint, Enquiry No.126/22/CBC/FIA/BWP was initiated and, upon its completion and with the approval of the Competent Authority, case FIR No.28/2023 was registered under section 2(g)(iii) read with section 20(7) of the FIO and sections 406 and 420 PPC. In view of the law enunciated in Mian Ayaz Anwar, the existence of parallel civil

proceedings did not preclude recourse to criminal law for the alleged unauthorized removal and misappropriation of pledged assets.

12.C.O.S. No.01/2022 was partially decreed in terms of Settlement Agreement dated 11.10.2022 whereunder the Company, the Petitioner, and Respondent No.4 acknowledged their outstanding liability of Rs.389.213 million, along with mark-up, costs of the suit, cost of funds and other charges (described in Recital G of the Agreement), toward BAL. Out of this, they agreed to pay Rs.175.00 million through transfer/sale to the BAL the property described in Recital E of the Agreement with the BAL. As per Clause 2.6 of the Agreement, the said sum of Rs.175.00 million was adjusted in the following manner:

(i)The principal liability under CF (Hypo) shall partly be settled by an amount of PKR 96.881 million.

(ii)The balance settlement amount of PKR 78.119 million shall be appropriated towards partial adjustment of the principal liability under CF (Pledge) facility.

13.As regards the remaining liability of PKR 214.213 million and other charges, the Company requested for restructuring and settlement of the same. In this regard, the Company was required to submit a workable repayment plan within three months for BAL’s consideration and approval if and when the parties reach an agreement regarding these remaining liabilities. A separate agreement will be executed.

14.In view of the aforementioned arrangement, BAL addressed a letter dated 24.01.2023 to the Investigating Officer, requesting that further proceedings in FIR No.28/2023 be held in abeyance pending the finalization of negotiations regarding the outstanding liabilities. The letter stated that if the parties failed to reach an agreement, BAL reserved the right to pursue the criminal case. The FIA did not formally accede to this request, but no further progress was made in the matter. Eventually, the parties failed to reach a settlement regarding the residual amount of PKR 214.213 million, whereupon BAL reactivated the FIR.

15.FIR No.28/2023 was registered before the filing of C.O.S. No.01/2022. The Settlement Agreement dated 11.10.2022

contains no stipulation regarding FIR No.28/2023. Its silence in this regard affirms that the settlement did not extend to the pending criminal proceedings. Even if the parties had attempted to address or resolve FIR No.28/2023 through the said agreement, any such stipulation would have had no legal effect. Under Section 20(6) of the FIO, all offences under the Ordinance, except the offence of willful default, are compoundable. However, willful default under Section 2(g)(iii) read with Section 20 is non-compoundable and cognizable. Therefore, the appropriation of PKR 78.119 million under Clause 2.6 of the Agreement towards partial adjustment of the liability under the CF (Pledge) facility does not constitute lawful compounding of the offence or provide a ground for terminating the prosecution.

16.During the pendency of this petition, the parties executed a second Settlement Agreement dated 10.07.2024. Based on that agreement, C.O.S. No.01/2022/BWP was finally decreed by this Court on 04.09.2024. Today, when this petition came up for hearing, the Petitioner’s counsel apprised the Court of this development and placed on record the relevant documents. Clause 10.3 of the Settlement Agreement dated 10.07.2024 provides as follows:

“Subject to the successful attachment of assets as per sub-clause No. 6.3 above, the pending case under the FIA’s FIR No.28/2023 shall conditionally be withdrawn by the Bank. However, in case of subsequent default by the customers in terms of the settlement agreement, the Bank shall reserve the right to re-initiate/revive the criminal proceedings against the customers in FIA.”

17.Following the second Settlement Agreement dated 10.07.2024, the Company furnished additional properties as security, which were attached by this Court under Clause 6.3 of the agreement and incorporated into the consent decree dated 04.09.2024. Based on this development, BAL submitted a fresh application to the FIA, requesting that proceedings in FIR No.28/2023 be suspended until complete satisfaction of the decree. Relying on Clause 10.3 of the new agreement, it asked the FIA to treat the FIR as conditionally withdrawn during the interim period, while expressly reserving the right to revive criminal proceedings in case of future default. The FIA did not formally accede to this request either, and the FIR continued to subsist without any official order of suspension or withdrawal.

18.BAL’s aforementioned communication, which relied entirely on Clause 10.3 of the Settlement Agreement dated 10.07.2024, was legally ineffective due to the statutory bar on compounding of offences under Section 2(g)(iii) read with Section 20 of the FIO. It is, therefore, invalid to the extent that it sought to conditionally withdraw or revive FIR No.28/2023. Even otherwise, BAL’s request to “treat” the FIR as withdrawn was not acted upon by the FIA. Accordingly, the FIR continues to subsist and remains subject to investigation and trial in accordance with law, unaffected by the private settlement.

19.Having examined the statutory framework under the FIO and the legal effect of the parties’ settlement agreements, the next question is whether the registration of FIR No.28/2023 constitutes a misuse of process or suffers from any legal infirmity that would justify its quashing.

20.The Supreme Court has consistently held that the High Court should not interrupt or divert the ordinary course of criminal procedure as prescribed by the procedural statute. The grounds ordinarily considered for quashing an FIR are: (a) a jurisdictional defect evident on record, (b) a patent violation of some provision of law, or (c) the allegations contained in the FIR do not constitute an offence. In Bashir Ahmad v. Zafar-ul-Islam and others (PLD 2004 SC 298), the Supreme Court observed that when a High Court undertakes to determine the fate of a criminal case at a preliminary stage, the parties are deprived of their rights to adduce evidence, cross-examine opposing witnesses, and challenge the material presented. This disrupts the ordinary course of law and usurps the trial court’s lawful jurisdiction. Resort to such powers constitutes a serious deviation from the prescribed legal process, and any departure from the ordinary path is fraught with the risk of miscarriage of justice. The Court emphasized that such intervention is not ordinarily permissible and must be reserved for exceptional circumstances. A mere assertion of innocence is insufficient to warrant such a course, for if allowed, every accused would seek to stifle prosecution and bypass trial, reducing criminal proceedings to a

meaningless formality and rendering trial courts redundant. Similarly, in Col. Shah Sadiq v. Muhammad Ashiq and others (2006 SCMR 276) and Dr. Ghulam Mustafa v. The State and others (2008 SCMR 76), the Supreme Court held that the High Court should not short-circuit the trial process using constitutional or inherent powers except in extraordinary situations. It warned that premature intervention undermines the balance between judicial and investigative functions, potentially disrupting the due process of law.

21.In Ajmeel Khan v. Abdur Rahim and others (PLD 2009 SC 102), the Supreme Court highlighted that quashing an FIR during the investigation stage disrupts statutory police duties under sections 154 and 156 Cr.P.C. The Court reiterated that while the High Court may quash an FIR in cases of clear abuse of the legal process, it should avoid interfering with ongoing investigations or substituting its judgment for the investigative authorities. Such interference risks derailing the procedural integrity of the criminal justice system and undermining the principle of a fair and impartial trial.

22.In The State v. Chaudhry Muhammad Khan (Civil Petition Nos. 671-L & 672-L of 2017, decided on 27.9.2024), the Supreme Court held that an FIR can be quashed under Article 199 only in cases where the facts on record unequivocally demonstrate that no offence can be established against the accused, or where the registration of the FIR reflects a misuse of legal authority or lacks sound legal justification. Allowing the prosecution to continue in such circumstances would constitute an abuse of the legal process, warranting the quashing of the FIR. Cases registered without proper authority or in clear violation of established laws must also be quashed to uphold the integrity of the judicial system. However, the Court emphasized that this jurisdiction should not be invoked if the allegations in the FIR establish a prima facie case against the accused.

23.It may be noted that earlier authorities, including those referenced above, recognized that a High Court could quash an FIR or investigation by invoking Article 199 of the Constitution or its inherent jurisdiction under Section 561-A Cr.P.C. However, in

FIA, through Director General FIA, and others v. Syed Hamid Ali Shah and others (PLD 2023 SC 265), the Supreme Court drew a doctrinal distinction between judicial and executive proceedings and held that Section 561-A Cr.P.C. is confined to judicial proceedings pending before subordinate courts. The registration of an FIR or the conduct of an investigation, being executive acts, fall outside its purview. The Court clarified that such executive action may be judicially reviewed only under Article 199(1)(a)(ii) of the Constitution. Although this position marks a departure from earlier practice and has not yet been expressly affirmed by a larger bench or uniformly followed in subsequent judgments, it constitutes the latest authoritative pronouncement on the point. The present petition has been filed under Article 199(1)(a)(ii) of the Constitution and is examined accordingly rather than under Section 561-A Cr.P.C.

24.FIR No.28/2023. alleges that the Petitioner and others, in collusion with unidentified persons, unlawfully entered godowns where pledged stocks were stored under the supervision of the Mucaddums, detained the staff, and removed large quantities of oil cake and rape seed worth over Rs.229.00 million without authorization or delivery orders from the BAL. These acts, if proven, would amount to unauthorized removal and misappropriation of collateral, which falls squarely within the scope of Section 2(g)(iii) of the FIO and is punishable under Section 20 thereof. The allegations may also constitute the offences of criminal breach of trust and cheating under Sections 406 and 420 PPC. The factual assertions in the FIR are sufficiently specific and detailed to constitute a prima facie cognizable offence.

25.The Petitioner’s contention that FIR No.28/2023 is mala fide is not substantiated by any tangible evidence. His further claim that BAL has invoked the machinery of criminal law to coerce payment of a civil liability is also untenable. C.O.S. No.01/2022 is no longer sub judice and stands finally decreed on the basis of a settlement. In any case, the registration of an FIR under Section 2(g)(iii) of the FIO does not require a prior adjudication of default. Where the allegations disclose acts of unauthorized removal or

misappropriation of pledged assets, they constitute a distinct cognizable offence under Section 20 of the FIO, independent of any civil proceedings between the parties.

26.The registration of FIR No.28/2023, therefore, does not suffer from any legal infirmity or abuse of process. The petition is without merit and is accordingly dismissed.

(Tariq Saleem Sheikh) Judge Naeem Approved for reporting

Judge