Qaiser Shabbir etc. vs Fia etc.

Stereo. H C J D A 38

JUDGMENT SHEET

LAHORE HIGH COURT, LAHORE

MULTAN BENCH, MULTAN

JUDICIAL DEPARTMENT

W. P. No. 17565 / 2020

Qaiser Shabbir and 02 others

Versus

Federation of Pakistan and 02 others

JUDGMENT

Date of hearing: 30.09.2026 Petitioner(s) in the titled Mr. Muhammad Imran Malik, ASC with and connected W.P. Nos. M/s Sajid Ikram Siddiqui, Akif Majeed Butt, 17462 / 2023, 14331 / Hassan Ismail, Bilal Mehmood Khokhar and 2024, 4789, 7192 & 7839 Zohaib Hassan, Advocates. of 2025 By:

Respondent(s) By: Rana Muhammad Javeed Iqbal, Assistant Attorney General along with Naeem Iqbal

S.I / FIA

Mr. Naveed Sharif Chaudhary, ASC for Respondent No. 2 Mr. Mughees Aslam Malik, ASC for Respondent No. 2 (in W. P. No. 17462 /

M/s Asif Rafique Rajwana and Muhammad Husnain Rajwana, Advocates for Respondents No. 4 to 6 (in W. P. Nos.

4789 & 7192 of 2025) M/s M. Sohail Iqbal Bhatti, Rauf Farooq Bhatti and Barrister Faiz Rasool Malik, Advocates for Respondents No. 4 & 5 (in W.

P. No. 7839 / 2025)

ABID HUSSAIN CHATTHA, J: This Judgment shall decide the titled and connected Writ Petition Nos. 17462 / 2023, 14331 / 2024, 4789 / 2025, 7192 / 2025 and 7839 / 2025 which are based on similar set of facts and involve identical questions of law.

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2.The Petitioners in W. P. No. 17565 / 2020 have challenged the notices dated 17.12.2020 issued under Section 160 of the Code of Criminal Procedure, 1898 (the “Cr.P.C.”) by Federal Investigation Agency (the “FIA”) acting upon the complaint of the financial institution regarding ‘willful default’ under Section 2(g)(i), (ii) & (iii) read with Section 20(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the “Ordinance”). Earlier, the financial institution instituted suit for recovery COS No. 27 / 2020 under Section 9 of the Ordinance which was decreed on 03.06.2020 against which R.F.A. No. 266 / 2026 and Execution Application No. 12 / 2026 are sub judice. Separately, FIR No. 599/2020 was also registered under Section 406 of the Pakistan Penal Code, 1860 (the “P.P.C.”) at Police Station Shah Shams, Multan against the Petitioners concerning alleged misappropriation of pledged stocks. The said FIR along with seven similar FIRs were quashed vide consolidated Judgment dated 17.02.2022 passed in W. P. No. 8852 / 2020, inter alia, on the ground that jurisdiction in this respect vests with the Banking Court under Section 20 of the Ordinance. Thereafter, the financial institution issued notices dated 07.11.2020 under Section 20(7) read with Section 2(g)(iii) of the Ordinance alleging misappropriation of pledged stock which was challenged through W. P. No. 16551 / 2020. Subsequently, the said notices were withdrawn upon issuance of the impugned notices dated 17.12.2020.

3.In W. P. No. 17462 / 2023, the Petitioners have challenged the notices dated 19.10.2023 issued under Section 160 Cr.P.C. by the FIA pursuant to complaint under Section 20(7) read with Section 2(g)(i)(ii) & (iii) of the Ordinance. Recovery suit bearing COS No. 12 / 2020 was filed by financial institution under Section 9 of the Ordinance which was decreed on 14.01.2022 pursuant to a settlement agreement dated 21.12.2021. Subsequently, Execution Application No. 5 / 2023 was filed in which the Petitioners filed Objection Petition which are pending adjudication. FIR No. 592/2020 dated 12.07.2020 was registered under Section 406 P.P.C. at Police Station Shah Shams, Multan regarding alleged misappropriation of pledged stocks. The said FIR and seven other similar FIRs were quashed

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vide consolidated Judgment dated 17.02.2022 passed in W. P. No. 8852 /

4.In W. P. No. 14331 / 2024, the Petitioners have challenged the notices dated 08.10.2024 issued by the FIA under Section 160 Cr.P.C. read with Section 2(g)(i) of the Ordinance. Earlier, recovery suit under Section 9 of the Ordinance bearing COS No. 08 / 2021 instituted by the financial institution was decreed on 29.06.2022 in terms of the settlement agreement dated 17.06.2022. Subsequently, the financial institution filed Execution Application No. 1 / 2023 on 25.09.2023 in which the Petitioners filed Objection Petition seeking dismissal of the same which are pending adjudication.

5.In W. P. No. 4789 / 2025, the Petitioners have challenged the notices dated 07.03.2025 issued by the FIA under Section 160 Cr.P.C. acting on the complaint of the financial institution dated 21.02.2025 under Section 2(g)(i) read with Section 20(7) of the Ordinance. The complaint is based on recovery suit under Section 9 of the Ordinance bearing COS No. 22 / 2020 which was decreed on 22.05.2023 in terms of the settlement agreement dated 21.03.2023. The financial institution subsequently sought revival of the same through C. M. No. 2174 / 2024 which is pending adjudication. Thereafter, the impugned notices were issued pursuant to the complaint dated 21.02.2025.

6.In W. P. No. 7192 / 2025, the Petitioners have challenged the notices dated 21.04.2025 issued by the FIA under Section 160 Cr.P.C. pursuant to a complaint lodged by the financial institution on 21.02.2025 under Section 2(g)(i) read with Section 20(7) of the Ordinance. The complaint arises from COS No. 23 / 2020 which was decreed on 22.05.2023 in terms of the settlement agreement dated 21.03.2023, while execution proceedings were adjourned sine die. The financial institution has not yet filed any application seeking execution of the decree.

7.The Petitioners in W. P. No. 7839 / 2025 have challenged the notices dated 29.05.2025 issued by the FIA under Section 160 Cr.P.C. in connection with the complaint of the financial institution dated 16.03.2022

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under Section 2(g)(iii) read with Section 20(7) of the Ordinance. The matter arises from recovery suit under Section 9 of the Ordinance bearing COS No. 39248 / 2019 instituted by the financial institution which was decreed on 21.12.2022. The Appeals filed by the Petitioners bearing RFA Nos. 9151 & 9522 of 2023 as well as that of the financial institution bearing RFA No. 11594 / 2023 are pending adjudication along with Execution Application No. 3728 / 2023. Earlier, notices dated 03.10.2022 were challenged through W. P. No. 66343 / 2022 and during the pendency of the same, the impugned notices dated 29.05.2025 were issued giving rise to this Petition.

8.Admitted, undisputed and common facts that emerge from the above are that the Petitioners are customers of various financial institutions within the ambit and scope of Section 2(c) of the Ordinance. The financial institutions instituted recovery suits under Section 9 of the Ordinance for alleged defaulted amounts. Suits were pending adjudication or were decreed either by consent or otherwise but proceedings at execution and / or Appellate stage were pending when financial institutions despite having availed civil remedy for recovery of alleged defaulted amounts without reference to any alleged facts constituting ‘willful default’, filed direct complaints before the FIA for offence of ‘willful default’ as defined in Section 2(g) of the Ordinance under Section 20(7) of the Ordinance which were entertained and proceeded by the FIA by issuing notices under Section 160 of the Cr.P.C. The said notices are challenged in the titled and connected Petitions on the grounds that the same are without jurisdiction, tainted with malafide intent and are in violation of the express provisions of the Ordinance. The remedy of prosecution for the offence of ‘wilful default’ has been unlawfully invoked in an endeavour to effect recovery of alleged defaulted amounts by resorting to indirect coercive means compromising due process afforded to the customers under the Ordinance. Accordingly, it is prayed that the impugned notices be set aside by declaring the same as unlawful and of no legal effect.

9.Learned counsels for the Petitioners submitted that the Ordinance is a special law which provides civil and criminal remedies which

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are interwoven and are liable to be availed with reference to the scheme of law read as a whole. The allegations of ‘default’ or ‘willful default’, as the case may be, with reference to availed finance by a customer are distinct in nature and essentially require prior determination by the Banking Court before a person can be prosecuted for an alleged offence of ‘willful default’. A customer cannot be termed as a ‘defaulter’ or ‘willful defaulter’ within the scope and ambit of the Ordinance unless the allegations in this respect in terms of breach of ‘obligations’ have been conclusively determined by the Banking Court and the Appellate Court. Therefore, in the absence of such determination by the Banking Court as well as the Appellate Court, no proceedings can be initiated pursuant to Section 20(7) of the Ordinance. Further, the power vested with the FIA under Section 20(7) of the Ordinance is to investigate the offence of ‘willful default’ once conclusive determination to this effect has been made by the Banking Court. Direct resort to FIA would lead to inquiry, investigation, registration of FIR and arrest of persons in derogation to the exclusive jurisdiction vested with the Banking Court to determine civil liability and try offences under the Ordinance, particularly, when the primary purpose of the Ordinance is to recover alleged defaulted amount through sale of securities after determination of due amount by the Banking Court. Filing of direct complaint with the FIA would amount to undue harassment and adopting of coercive measures circumventing due process, thereby, exposing the customers to undue rigors of criminal liability including arrests and jeopardizing their rights guaranteed under the Ordinance read with constitutional protections especially when the offence of ‘willful default’ is cognizable, non-bailable and non-compoundable. Hence, a criminal complaint is either required to be filed before the Banking Court or cannot proceed unless the Banking Court has determined the factum of ‘willful default’. Reliance was placed on cases titled, “Syed Mushahid Shah and others v. Federal Investigation Agency and others” (2017 SCMR 1218); “Mian Ayaz Anwar and others v. State Bank of Pakistan and others” (2019 CLD 375); and “Misbah ud Din Zaigham and 3 others v. Federal

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Investigation Agency through Assistant Director (FIA/CBC/LHR) and another” (2021 CLD 906).

10.Learned counsels for the Respondents argued that each segment of ‘willful default’ as defined in Section 2(g) of the Ordinance constitutes an independent offence for which a specific mechanism has been provided in Section 20(7) of the Ordinance which can be invoked without reference to determination of civil liability under the Ordinance. This is particularly so, when the offence of ‘willful default’ as distinct from ‘default’ has its own peculiar scope which requires prior investigation by an investigation agency which has been designated as FIA under the Ordinance read with Rule 5 of the Financial Institutions (Recovery of Finances) Rules, 2018 (the “Rules, 2018”) and as such, the financial institutions are well within their right to resort to criminal remedy provided for in the event of ‘willful default’. The determination of amount due in terms of default and the offence of ‘willful default’ by a customer are two independent civil and criminal remedies which can proceed simultaneously in accordance with the special procedure provided under the Ordinance and the role of the Banking Court is confined only to try the offence of ‘willful default’ once it has been completely investigated and challan to this effect has been submitted before the Banking Court for trial. Therefore, direct complaints before the FIA have rightly been filed after issuance of notices for payment of defaulted amounts by the financial institutions as ordained by the Ordinance. As such, the FIA has aptly issued the impugned notices to the Petitioners to investigate the alleged offence of ‘willful default’ and has proceeded in accordance with law. The call up notices merely require the Petitioners to defend the complaints and provide the required documentation and details for the purposes of investigation. The impugned notices do not cause any prejudice to the Petitioners and therefore, the Petitions laying challenge thereto in the constitutional jurisdiction of this Court are premature in the absence of jurisdictional defect qua the same when Section 20(7) of the Ordinance read with Rule 5 of the Rules, 2018 expressly confer exclusive jurisdiction upon the FIA to receive and investigate all complaints filed by the financial

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institutions regarding ‘willful default’. It was emphasised that after passing of decrees based on consent or otherwise on merits, quantum of default has already been established, therefore, the financial institutions were well within their right to invoke the jurisdiction of FIA as non-payment pursuant to such decrees ipso facto establishes that the offence of ‘willful default’ has been prima facie committed by the Petitioners. This is particularly so, when Mian Ayaz Anwar case (supra) has held that a decree passed by the Banking Court under Section 9 of the Ordinance is sufficient to initiate prosecution under Section 20(7) of the Ordinance with reference to offence of ‘willful default’ under Section 2(g)(i) of the Ordinance, whereas, determination of prior civil liability is not at all required for prosecution under Section 20(7) of the Ordinance with respect to offence of ‘willful default’ covered under Section 2(g)(ii) or 2(g)(iii) of the Ordinance. It was stressed that Judgments relied upon by learned counsel for the Petitioners are being misinterpreted and are not applicable to the facts and circumstances of the case. Reliance was placed on Judgment dated 23.06.2026 passed by this Court in case titled “Atif Mansoor and 4 others v. Federation of Pakistan, etc.” in W. P. No.

11.At the very outset, it is imperative to address the objection qua maintainability of the titled and connected Petitions in the constitutional jurisdiction of this Court. There is no cavil to the proposition that as a normal rule, a notice under Section 160 of the Cr.P.C. cannot be challenged since it merely requires the recipient to appear before the investigation officer to assess if he has any information or connection with respect to alleged offence. Mere issuance of such a notice does not constitute an adverse action against the recipient, rather, the same is issued in furtherance of statutory duty which demands judicial restraint at a premature stage in order to allow an investigation agency to proceed in accordance with law. Nevertheless, it is well entrenched in our jurisprudence that as an exception to the normal rule, if such a notice is assailed on the grounds that it has been issued without jurisdiction or is tainted with malafide intention or is against the express provisions of the parent statute, the power of judicial review can

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be validly exercised. The present cases involve interpretation of the precise dimensions, nature and scope of ‘willful default’ with reference to the scheme of law embodied in the provisions of the Ordinance as a special law which is the prerogative of the constitutional Court in order to ensure that the persons are not unduly coerced, harassed, victimized or treated unlawfully in violation of or in derogation to their fundamental rights guaranteed under the Constitution of the Islamic Republic of Pakistan, 1973 (the “Constitution”) and the Ordinance. The points raised by the Petitioners in the present cases also require examination of earlier pronouncements of the Superior Courts going to the very root of the jurisdiction of the Banking Court and the FIA, particularly, when earlier pronouncements of the Superior Courts also emanate from the writ jurisdiction of this Court. The objective is to cure a defect or set the law in its right direction from its very inception so that the proceedings if without jurisdiction are terminated at the earliest or otherwise may proceed in accordance with the mandate of law. Therefore, objection qua maintainability of these Petitions is unfounded and is turned down, accordingly.

12.The following questions requiring opinion emerge before us from the rival contentions of the parties:-

(i)Whether the incident of ‘willful default’ as defined in Section 2(g) of the Ordinance is a distinct or separate specie of general ‘default’ in terms of breach of ‘obligations’ which requires prior determination of civil liability by the Banking Court and the Appellate Court under the provisions of the Ordinance before initiation of criminal prosecution for the offence of ‘willful default’ under Section 20(7) of the Ordinance?

(ii)Whether an offence of ‘willful default’ as defined in Section 2(g) read with Section 20(7) of the Ordinance is distinct in terms of its scope, purpose and procedure vis-à-vis other offences under Section 20(1) to 20(4) of the Ordinance? and

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(iii)What is the scope and ambit of jurisdiction vested in the FIA to investigate the offence of ‘willful default’ and the mode and procedure for exercise of such jurisdiction?

13.Before analysing the propositions before us, it is expedient to cite the relevant provisions of the Ordinance. The expression ‘obligation' is of importance which is defined in Section 2(e) of the Ordinance as follows: “obligation” includes--

(i)any agreement for the repayment or extension of time in repayment of a finance or for its restructuring or renewal or for payment or extension of time in payment of any other amounts relating to a finance or liquidated damages; and (ii) any and all representations, warranties and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of, or other charge on assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfillment of a promise; and

(iii)all duties imposed on the customer under this Ordinance.”

(underlining is ours for emphasis)

14.By virtue of an amendment introduced in 2016 through the Financial Institutions (Recovery of Finances) (Amendment) Act, 2016 (the “Act, 2016”) ‘willful default’ was defined and Section 2(g) of the Ordinance was added in this respect which reads as under:- “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

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(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.”

(underlining is ours for emphasis)

15.Section 4 of the Ordinance provides overriding effect to the Ordinance in the following words:- “4. Ordinance, to Override other Laws.-- The provisions of this Ordinance, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

16.The powers and jurisdiction of the Banking Court are stipulated in Section 7(1) to (5) of the Ordinance. The provisions are central to the scheme of law. The same are reproduced as under:- “7. Powers of Banking Courts.-- (1) Subject to the provisions of this Ordinance, a Banking Court shall--

(a)in the exercise of its civil jurisdiction have all the powers vested in a Civil Court under the Code of Civil Procedure, 1908 (Act V of 1908);

(b)in the exercise of its criminal jurisdiction, try offences punishable under this Ordinance, and shall, for this purpose have the same powers as are vested in a Court of Sessions under the Code of Criminal Procedure, 1898 (Act V of 1898): Provided that a Banking Court shall not take cognizance of any offence punishable under this Ordinance, except upon a complaint in writing made by a person authorized in this behalf by the financial institution in respect of which the offence was committed.

(2)A Banking Court shall in all matters with respect to which the procedure has not been provided for in this Ordinance, follow the procedure laid down in the Code of Civil Procedure, 1908 (Act V of 1908), and the Code of Criminal Procedure, 1898 (Act V of 1898).

(3)All proceedings before a Banking Court shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of the Pakistan Penal Code (Act XLV of 1860), and a Banking Court shall be deemed to be a Court for purposes of the Code of Criminal Procedure, 1898 (Act V of 1898).

(4)Subject to sub-section (5), no Court other than a Banking Court shall have or exercise any jurisdiction with respect to any

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matter to which the jurisdiction of a Banking Court extends under this Ordinance, including a decision as to the existence or otherwise of a finance and the execution of a decree passed by a Banking Court.

(5)Nothing in sub-section (4) shall be deemed to affect--

(a)the right of a financial institution to seek any remedy before any Court or otherwise that may be available to it under the law by which the financial institution may have been established; or (b) the powers of the financial institution, or jurisdiction of any Court such as is referred to in clause (a); or require the transfer to a Banking Court of any proceedings pending before any financial institution or such Court immediately before the coming into force of this Ordinance”.

(underlining is ours for emphasis)

17.Section 9(1) of the Ordinance provides the principal civil remedy in the nature of suits to a financial institution or a customer and is couched in the following words:- “9. Procedure of Banking Courts.-- (1) Where a customer or a 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 institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power-of-attorney or otherwise.”

(underlining is ours for emphasis)

18.Section 20 of the Ordinance is the only provision of law relating to certain offences. Sections 20(6) to 20(9) were either substituted or added through the Act, 2016 alongwith Section 2(g) of the Ordinance regarding the definition of ‘willful default’. Section 20 of the Ordinance states as under:

“20. Provisions Relating to Certain Offences. -- (1) Whoever--

(a)dishonestly commits a breach of the terms of a letter of hypothecation, trust receipt or any other instrument or document executed by him whereby possession of the assets or properties offered as security for the re-payment of finance or fulfillment of any obligation are not with the Financial Institutions but are retained by or entrusted to him for the purposes of dealing with the same in the ordinary course of business subject to the terms of the letter of hypothecation or

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trust receipt or other instrument or document or for the purpose of effecting their sale and depositing the sale proceeds with the Financial Institutions; or

(b)makes fraudulent misrepresentation or commits a breach of an obligation or representation made to a Financial Institutions on the basis of which the Financial Institutions has granted a finance; or

(c)subsequent to the creation of a mortgage in favour of a Financial Institutions, dishonestly alienates or parts with the possession of the mortgaged property whether by creation of a lease or otherwise contrary to the terms thereof, without the written permission of the Financial Institutions; or (d) subsequent to the passing of a decree under Section 10 or 11, sells, transfers or otherwise alienates, or parts with possession of his assets or properties acquired after the grant of finance by the Financial Institutions, including assets or properties acquired benami in the name of an ostensible owner shall, without prejudice to any other action which may be taken against him under this Ordinance or any other law for the time being in force, be punishable with imprisonment of either description for a term which may extend to three years and shall also be liable to a fine which may extend to the value of the property or security as decreed or the market value whichever is higher and shall be ordered by the Banking Court trying the offence to deliver up or refund to the Financial Institutions, within a time to be fixed by the Banking Court, the property or the value of the property or security. Explanation.-- Dishonesty may be presumed where a customer has not deposited the sale proceeds of the property with the Financial Institutions in violation of the terms of the agreement between the Financial Institutions and the customer.

(2)Whoever knowingly makes a statement which is false in material respects in an application for finance and obtains a finance on the basis thereof, or applies the amount of the finance towards a purpose other than that for which the finance was obtained by him, or furnishes a false statement of stocks in violation of the terms of the agreement with the Financial Institutions or falsely denies his signatures on any banking document before the Banking Court, shall be guilty of an offence punishable with imprisonment of either description for a term which may extend to three years, or with fine, or with both.

(3)Whoever resists or obstructs, either by himself or on behalf of the judgment-debtor, through the use of force, the execution of a decree, shall be punishable with imprisonment which may extend to one year, or with fine, or with both.

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(4)Whoever dishonestly issues a cheque towards re-payment of a finance or fulfillment of an obligation which is dishonoured on presentation, shall be punishable with imprisonment which may extend to one year, or with fine or with both, unless he can establish, for which the burden of proof shall rest on him, that he had made arrangements with his bank to ensure that the cheque would be honoured and that the bank was at fault in not honouring the cheque.

(5)Where the person guilty of an offence under this Ordinance is a company or other body corporate, the chief executive by whatever name called, and any director or officer involved shall be deemed to be guilty of the offence and shall be liable to be prosecuted against and punished accordingly.

(6)All offences under this Ordinance shall be triable by a Banking Court in accordance with section 7. All offenses, except for the offence of willful default, shall be bailable, non-cognizable and compoundable.

(7)Notwithstanding anything to the contrary provided in any other law for the time being in force, action in respect of an offence of willful default shall be taken by an investigating agency, to be nominated in this behalf by the Federal Government, on a complaint in writing filed by an authorized officer of a financial institution after it has served a thirty days notice upon the borrower demanding payment of the loan, advance or financial assistance.

(8)An offence of willful default shall be cognizable, non-bailable and non-compoundable and punishable with imprisonment which may extend to seven years or fine not exceeding the amount of default or with both.

(9)Any person convicted of the offence of willful default by a Banking Court shall not be eligible to receive any loan, advance or finance from any financial institution for a period of ten years and shall not be permitted to contest any election as a member of the Majlis-e-Shoora (Parliament), any Provincial Assembly or a local body for a period of five years, after serving out a sentence after conviction.”

(underlining is ours for emphasis)

19.Section 22 (1) of the Ordinance grants the right of appeal and reads as follows:- “22. Appeal.-- (1) Subject to sub-section (2), any person aggrieved by any judgment, decree, sentence, or final order passed by a Banking Court may, within thirty days of such judgment,

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decree, sentence or final order prefer an appeal to the High Court”

20.Section 25 of the Ordinance deals with the power of the Federal Government to make rules as under:- “25. Power to Make Rules.-- The Federal Government may, by notification in the official Gazette, make rules for carrying out the purposes of this Ordinance.”

21.At this juncture, it is pertinent to take stock of case law on the subject. Syed Mushahid Shah case (supra) is the leading case regarding interpretation of the provisions of the Ordinance as a special law with reference to the jurisdiction of the Banking Court. The Supreme Court of Pakistan after detailing the history of banking laws in the context of peculiar features of a banking transaction dilated upon the pivotal question as to whether the Banking Courts constituted under the Ordinance have exclusive jurisdiction to try the offences mentioned therein to the exclusion of the Special Courts constituted under the Offences in Respect of Banks (Special Courts) Ordinance, 1984 (the “ORBO”), Courts of ordinary criminal jurisdiction under the Cr.P.C. read with the P.P.C. and from inquiry and investigation by the FIA under Federal Investigation Agency Act, 1974 (the “FIA Act”). After exhaustive analysis based on the settled and universally acknowledged principles of interpretation of statutes as followed and applied in the Indian and Pakistani jurisdiction, the Supreme Court of Pakistan concluded as follows:- “In conclusion, we find that the provisions of the Ordinance, 2001 are to have an overriding effect on anything inconsistent contained in any other law for the time being in force, including the ORBO, the Code (read with the P.P.C.) and the Act, 1974 (read with the Ordinance, 1962). In essence, whenever an offence is committed by a customer of a financial institution within the contemplation of the Ordinance, 2001, it could only be tried by the Banking Courts constituted thereunder and no other forum. The Special Courts under the ORBO, the ordinary criminal Courts under the Code and the Agency under the Act, 1974 read with the Ordinance, 1962 would have no jurisdiction in the matter.”

22.Conspicuously, although the offence of ‘willful default’ had been made part of the Ordinance at the time of rendering of Judgment in Syed Mushahid Shah case (supra) decided on 01.03.2017 yet there is no

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comparative discussion regarding the offences created under Sections 20(1) to (4) of the Ordinance and that of ‘willful default’ in terms of Section 20(7) of the Ordinance. More so, the Rules, 2018 designating FIA as the investigation agency to the extent of offence of ‘willful default’ were notified after the said Judgment. Hence, the distinctive scope of other offences vis-à-vis the peculiar offence of ‘willful default’ was not discussed in the said Judgment, as such, the nature and scope of the offence of ‘willful default’ as opposed to other offences contained in Section 20 of the Ordinance as well as the corresponding role of the FIA in view of Rule 5 of the Rules, 2018 with respect to the offence of ‘willful default’ was not the subject matter of the said case and thus, requires consideration.

23.In Mian Ayaz Anwar case (supra), Full Court comprising of three learned Members Bench of this Court deliberated upon the jurisdiction of National Accountability Bureau constituted under the National Accountability Ordinance, 1999 to investigate the offence of ‘willful default’ vis-à-vis the jurisdiction of the FIA and the Banking Court under the Ordinance and opined that the Ordinance being subsequent enactment having overriding effect vests exclusive jurisdiction to FIA to investigate the offence of ‘willful default’ and the Banking Court to try the said offence between a customer and a financial institution. It was further held that each segment of ‘willful default’ as defined in Sections 2(g)(i)(ii) & (iii) of the Ordinance constitutes an independent and separate offence. ‘Willful default’ in terms of Section 2(g)(i) of the Ordinance relates to an intentional failure to pay which is due to the financial institution, therefore, in all such cases, element of default precedes the criminality of offence of wilfulness, thus requiring that question of default must be established first as per the prescribed procedure under the Ordinance before it can be alleged that default was deliberate or intentional. However, ‘willful default’ in terms of Sections 2(g)(ii) & (iii) of the Ordinance as independent offences can be proceeded under Section 20(7) thereof without determination of ‘default’ with respect to an ‘obligation’ to pay since they are not dependent upon

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determination of prior civil liability of ‘default’ under Section 9 of the Ordinance.

24.In Misbah ud Din Zaigham case (supra), learned Single Bench of this Court further elaborated Mian Ayaz Anwar case (supra) with reference to offence of ‘willful default’ falling within the ambit of Section 2(g)(i) of the Ordinance. It was held that since appeal is a continuation of the suit and upon its filing, the entire case is reopened for examination of errors and facts, therefore, civil liability is not conclusively determined unless the right of appeal is exhausted by the aggrieved party under the Ordinance. Hence, it was concluded that Section 20(7) of the Ordinance with reference to cases falling under Section 2(g)(i) can only be invoked, once the right of appeal has been availed under the Ordinance.

25.Learned Division Bench of the High Court of Sindh in Constitutional Petition No. D-5167 of 2024 in case titled, “Farhan Hanif & others v. Federation of Pakistan and others” decided on 19.05.2026 examined the challenge to inquiries initiated by the FIA regarding offence of ‘willful default’ under Section 2(g)(i) read with Section 20(7) of the Ordinance. It opined that since the alleged offence of ‘willful default’ under Section 2(g)(i) of the Ordinance included the allegations of commission of offence under Section 2(g)(iii) of the Ordinance, therefore, prior determination of default under Section 9 of the Ordinance in the pending suit for recovery was not necessary, particularly in the wake of evasive denial by the customer regarding alleged default in response to legal notice calling upon the customer to pay defaulted amount. As such, the FIA had initiated inquiries in accordance with law.

26.Nevertheless, learned Division Bench of Balochistan High Court in case titled, “Messrs S.Q. Corporation through Proprietor and others v. Federation of Pakistan, Islamabad through Secretary Internal Affairs, Government of Pakistan, Islamabad and others” (2022 CLD 128) took a divergent view and held that prior determination of ‘willful default’ with reference to Section 2(g) of the Ordinance is necessary by the Banking Court before the FIA can assume jurisdiction to conduct inquiry on the complaint

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of the financial institution under Section 20(7) of the Ordinance. Hence, the complaint of the financial institution was termed as premature and quashed with the stipulation that once the civil liability is fixed by the Banking Court, the financial institution may file a complaint with the FIA, accordingly.

27.It is pertinent to note that the Federal Constitutional Court of Pakistan while deciding FCPLA No. 1374 of 2026 vide Judgment dated 09.07.2026 emanating from Farhan Hanif case (supra) examined the views expressed in Mian Ayaz Anwar and Messrs S.Q. Corporation cases (supra). Although, an authoritative pronouncement with respect to civil and criminal liability arising out of ‘willful default’ was withheld due to lack of supporting material placed before the Court yet the view expressed in Messrs S.Q. Corporation case (supra) was endorsed. The Federal Constitutional Court held that the definition of ‘willful default’ in terms of civil and criminal liability is required to be determined on the basis of evidence but has close nexus and deep link with the element of default in payment of outstanding amount, the recovery of which, is the ultimate and intended purpose of criminal proceedings. Hence, it is imperative that criminal proceedings are postponed until the decision of civil liability of the customer is determined by the Banking Court.

28.In another case titled, “Ali Murad Siddiqui v. Summit Bank Limited and others” (W. P. No. 15816 / 2023) decided vide Judgment dated 15.10.2024, learned Single Bench of this Court in exercise of power of judicial review examined similar notices under Section 160 Cr.P.C. with reference to offence of ‘willful default’ under Section 2(g)(i) of the Ordinance pursuant to complaint filed under Section 20(7) thereof with the FIA after passing of consent decree and alleging subsequent default in payment under the said decree. It was held that ‘default’ must be confirmed through objective evidence before initiating criminal proceedings under Section 20(7) of the Ordinance and a financial institution is obliged to 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

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statutory threshold for initiating criminal proceedings. Mere ‘default’ in payment of some of the instalments under the consent decree does not automatically satisfy the statutory requirements to constitute ‘willful default’ under Section 2(g)(i) of the Ordinance. Accordingly, complaint of the financial institution was found deficient on this score amongst others and consequently, the impugned notices were set aside.

29.In Atif Mansoor case (supra), jurisdiction of the FIA regarding notices issued under Section 160 of the Cr.P.C. with reference to the offence of ‘willful default’ under Sections 2(g)(i)(ii) & (iii) read with Section 20(7) of the Ordinance was examined. It was held that in view of Mian Ayaz Anwar case (supra), the FIA is empowered to investigate the offence of ‘willful default’ as an investigation agency, therefore, when it shall complete its investigation, it shall tender the challan before the Banking Court as the offence of ‘willful default’ is triable by the Banking Court. Accordingly, notices under Section 160 of the Cr.P.C. were held to be issued within the lawful jurisdiction of the FIA.

30.In cases titled, “Sheikh Muhammad Anwar and 4 others v. Judge Banking Court and another” (2024 CLD 724) and “Muhammad Farooq v. Askari Bank Limited and another” (PLD 2026 Sindh 376), learned Single Bench of this Court and learned Division Bench of the High Court of Sindh while examining the proposition if civil and criminal proceedings under the Ordinance can proceed simultaneously, concluded by relying upon the case titled “Salman Ashraf v. Additional District Judge, Lahore and others” (2023 SCMR 1292) that civil and criminal remedies under Sections 9 & 20 of the Ordinance are distinct and separate remedies which may proceed simultaneously. However, if the determination of criminal liability depends upon the ultimate outcome of the civil proceedings and it is difficult to distinguish between a bonafide civil claim and a criminal act, the criminal proceedings may appropriately be postponed until the conclusion of the civil matter. Conversely, where the subject matter of the civil and criminal proceedings is distinct or is not intimately connected, criminal proceedings ought not to be stayed for the reason that object of civil

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remedy is to enforce civil rights and obligations while that of a criminal proceeding is to punish the offender for the commission of an offence.

31.This brings us to opine on the propositions before us. The Ordinance is a special law promulgated to establish the Banking Courts to resolve inter se disputes between a ‘financial institution’ and a ‘customer’ with respect to ‘finance’ for breach of ‘obligations’ which expressions are precisely defined in Section 2 of the Ordinance. Banking transactions regarding a ‘finance’ are typically fashioned and executed through a set of documents constituting binding agreements between a customer as borrower and a financial institution as lender detailing mutual rights and duties including covenants regarding repayment. The contractual financial relationship is backed by a host of security arrangements to secure a finance. The definition of ‘obligations’ in Section 2(e) of the Ordinance is wide enough to cover any and all types of agreements, representations, warranties, and duties. The precise scope of mutual rights and duties depends upon the peculiar terms of finance and security documents executed between a customer and a financial institution with respect to a particular finance facility and thus, in the wake of a dispute, are required to be determined by the Banking Court under Section 9(1) of the Ordinance which unequivocally acknowledges that ‘default’ in fulfilment of any ‘obligation’ may occasion on the part of a customer or a financial institution. Accordingly, it equally confers the right to institute the suit to a customer or a financial institution, as the case may be, for ‘default’ in fulfilment or breach of any ‘obligation’. It is pertinent to mention that ‘default’ must be alleged within the contemplation of finance and security documents and importantly, ‘default’ is not restricted to mere non-payment of alleged amount due but extends to non-fulfilment of any ‘obligation’ with respect to executed finance and security documents.

32.The term ‘default’ has not been defined in the Ordinance. The expression ‘default’ is employed by the Ordinance as a general, broader and wider term used in ordinary dictionary meaning denoting a failure to meet a legal, financial, or contractual obligation. In contrast, the expression ‘willful

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default’ has been assigned specific statutory definition in Section 2(g) of the Ordinance. Though it consists of three limbs yet conjunctive reading thereof is imperative in order to discover its true intent, purpose and context. The absence of the word ‘or’ after the end of Section 2(g)(i) and presence of the word ‘or’ at the end of Section 2(g)(ii) and before Section 2(g)(iii) of the Ordinance leaves no ambiguity that the provision is to be read harmoniously and conjunctively as a whole to decipher its meaning. Although the phrase, ‘deliberate or intentional failure to repay finance’ is only mentioned in the opening part of Section 2(g)(i) of the Ordinance yet as the name or heading suggests, the phrase, ‘deliberate or intentional failure to repay finance’ is inherently inbuilt in each segment or the following provisions contained in Section 2(g)(ii) & (iii) of the Ordinance which may singly or in concert with one or more segments constitute ‘willful default’. Further, if the finance has been fully paid, there cannot be any ‘failure to repay’ constituting default and correspondingly, no question of ‘deliberate or intentional failure to repay’ arises. Hence, ‘intentional or deliberate failure to repay’ is to be necessarily attributed to each situation listed in Section 2(g)(i),(ii) & (iii) of the Ordinance. Section 2(g)(i) thereof envisions a situation where there is deliberate or intentional failure to repay any finance after it has become due under the terms of any agreement or law. Thus, it signifies there must be a prior determination that finance has become due, it has not been paid and the failure to pay is deliberate or intentional. Section 2(g)(ii) of the Ordinance visualizes a situation in terms of deliberate or intentional ‘default’ of an ‘obligation’ to the effect that availed finance or substantial part thereof has been diverted to a purpose other than that for which, it was obtained and payment in part or full has not been made to the financial institution. Again, the breach of obligation qua diversion of finance beyond its stated or agreed purpose; if such diversion is regarding the entire finance or substantial as opposed to trivial; and if part or full payment has not been made to the financial institution needs to be ascertained as part of civil liability. Section 2(g)(iii) of the Ordinance depicts an event where secured assets constituting collateral of a finance are removed, transferred, misappropriated or sold

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without permission of the financial institution as a deliberate or intentional act, thereby, eroding or diminishing the value of the securities so as to render the securities insufficient to discharge the debt in case of default. Such an event may occur during the pendency of a finance, irrespective of default in payment of due instalments. It may also occur when default in repayment has been occasioned. Both situations clearly show that liability to pay back the finance is yet to be discharged since the alleged act of tampering with securities becomes meaningless when the entire amount of finance has been paid. Therefore, prior determination of deliberate or intentional breach of ‘obligation’ pursuant to finance and security documents regarding alleged removal, transfer, misappropriation or sale of securities without the permission of the financial institution is required to be established before the Banking Court. Hence, it is manifestly evident that ‘willful default’ in terms of Section 2(g) of the Ordinance has both civil and criminal dimensions. Infact, ‘willful default’ in terms of its definition though consists of three separate incidents in terms of Sections 2(g)(i)(ii) & (iii) of the Ordinance yet the conjunctive reading thereof leads to an inescapable conclusion that each incident singly or jointly creates a civil wrong which must be specifically alleged, pleaded and established before the Banking Court depending upon the facts and circumstances of a particular case.

33.In other words, absence of any distinction in terms of ‘default’ and ‘willful default’ in Section 9(1) of the Ordinance makes it abundantly clear that ‘willful default’ is treated by the Ordinance as a distinct specie of ‘default’ and occurs in terms of one or more of events specified in Section 2(g) of the Ordinance. However, civil remedy is required to be availed under Section 9(1) of the Ordinance by including ‘willful default’ as part of ‘default’ with respect to nonfulfillment of an ‘obligation’ in terms of one or more of its constituting components. Since simple ‘default’ is not an offence under the Ordinance, therefore, it means that a suit for recovery simplicitor determining ‘default’ in terms of amount due pursuant to a finance does not establish ‘willful default’. Rather, it merely determines the amount payable by the customer which is recoverable by sale of securities through execution

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of decree or by availing any other civil remedy in accordance with the provisions of the Ordinance. In contrast, in order for a ‘default’ to qualify as ‘willful default’ it must be specifically alleged and established that ‘default’ is a deliberate and intentional act falling in one or more of the categories specified in Section 2(g) of the Ordinance. The precise contours of civil liability regarding ‘willful default’ depend upon the facts and circumstances of a particular case. However, it is evident that ‘willful default’ is required to be established as a civil wrong as a distinct class as opposed to ‘default simpliciter’ before the Banking Court. The determination of ‘willful default’ in civil proceedings is not alien to our jurisdiction. In case titled, “Dr. Hassan Fatima v. Pakistan Red Crescent Society and others” (2026 SCMR 1303), the Supreme Court of Pakistan observed as follows:- “Time and again, the Courts have drawn a fine distinction at the heart of wilful and technical default. A default is considered wilful when it is deliberate, inexorable, unrelenting or contumacious disregard while technical default can be identified such as a negligible delay due to a banking error or where rent was paid or deposited elsewhere with bona fide belief or due to some misunderstanding which, in subjective evaluation, is always based on the conduct of the tenant. The tenant may not be penalized with eviction if the default is not found to be wilful but due to some technical error without any ulterior motive. Anyway, the well-timed tender of rent is a legal obligation which cannot be escaped on account of flimsy pleas. Though it is the duty of the Rent Controller to ensure fair trial and due process as enshrined under Article 10A of the Constitution of the Islamic Republic of Pakistan, 1973 and in sync the evidence recorded by the Rent Controller also plays a pivotal role to determine the allegation of default, but in the summary nature proceedings, neither any microscopic examination of evidence to exasperate the objective of quick justice is obligated, nor intricacies or hyper technicalities of the Qanun-e-Shahadat Order 1984 strictly apply to the rent cases to promote dilatory tactics, or prevent the landlord from being deprived of property ad infinitum, but general principles of evidence and cross-examination are applicable to make sure that no party is victimized or prejudiced by uncorroborated contentions.”

34.The centrality of the Banking Court as exclusive forum for dispute resolution is evident from the scheme of law encapsulated in the Ordinance. Section 4 of the Ordinance provides that provisions of the Ordinance shall have effect, notwithstanding anything inconsistent

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therewith, contained in any other law for the time being in force. Thus, the Ordinance prevails in all respects and for all purposes with respect to all matters that have been brought within its domain. The Banking Court has been vested with exclusive jurisdiction regarding civil and criminal remedies. Section 7(1) of the Ordinance opens with the phrase ‘subject to the provisions of this Ordinance’ and unequivocally proclaims that a Banking Court has exclusive civil and criminal jurisdiction as a Civil or Sessions Court, respectively with the caveat that it shall not take cognizance of any offence punishable under this Ordinance except upon a complaint in writing made by a person authorized in this behalf by the financial institution in respect of which the offence was committed. It is clarified in Section 7(2) of the Ordinance that a Banking Court shall in all matters with respect to which the procedure has not been provided for in the Ordinance, follow the procedure laid down in the Code of Civil Procedure, 1908 and the Cr.P.C. in exercise of civil and criminal jurisdictions, respectively. Section 7(4) of the Ordinance vests exclusive jurisdiction in the Banking Court regarding all matters under the Ordinance, including a decision as to the existence or otherwise of a ‘finance’ subject to Section 7(5) of the Ordinance which merely protects the right of a financial institution to seek any remedy before any Court or otherwise that may be available to it under the law beyond the purview of the Ordinance. Since the financial institutions are claiming entitlement to invoke the offence of ‘willful default’ pursuant to Section 2(g) read with Section 20(7) of the Ordinance, therefore, Section 7(5) of the Ordinance is not applicable and exclusive jurisdiction of the Banking Court subject to the provisions of the Ordinance with reference to the offence of ‘willful default’ is unquestionable, particularly, when the exclusive jurisdiction of the Banking Court extends to all matters including a decision as to the existence or otherwise of a finance.

35.Whether the exclusivity of the Banking Court qua cognizance of offences upon direct complaints filed before it by the financial institutions is dislodged by Section 20(7) of the Ordinance regarding the offence of ‘willful default’? The FIA Act was promulgated on 17.01.1975 to provide

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for the constitution of FIA. Section 3 thereof provides that notwithstanding anything contained in any other law for the time being in force, the Federal Government may constitute an Agency to be called FIA for inquiry into, and investigation of the offences specified in the Schedule, including an attempt or conspiracy to commit and abetment of any such offence. Section 6 of the FIA Act empowers the Federal Government to amend the Schedule so as to add any entry thereto or modify or omit any entry therein by notification in the official Gazette. Importantly, the Schedule of the FIA Act does not contain the offence of ‘willful default’ under the Ordinance. Rather, the power to investigate the offence of ‘willful default’ has been vested with the FIA pursuant to Section 20(7) of the Ordinance read with Rule 5 of the Rules, 2018 issued by the Federal Government under Section 25 of the Ordinance. This dispensation makes it evidently clear that the FIA has no general jurisdiction under its constituent law i.e. the FIA Act to investigate offences under the Ordinance including that of ‘willful default’. Rather, it has been designated as an investigating agency under the Ordinance read with Rule 5 of the Rules, 2018, therefore, the FIA is required to investigate the offence of ‘willful default’ within the scope and ambit of the Ordinance.

36.Apart from civil remedies, certain acts on the part of customers or persons have been recognized as offences under Section 20 of the Ordinance. The scope of this provision of law extends beyond ‘customer’ in view of Section 20(5) of the Ordinance which states that in case of a company or other body corporate, the chief executive by whatever name called and any director or officer involved shall be deemed to be guilty of the offence, thus bringing within its ambit all such persons who may not be customers in terms of Section 2(c) of the Ordinance but have been made liable for prosecution of offences stipulated in Section 20 thereof. There may be incidents where other persons having connection with the offence may be involved. Nevertheless, the primary purpose to designate certain acts as offences is to protect the availed finance and corresponding securities of the financial institution so that the securities are kept intact until the satisfaction of finance to ensure that in case of default, the same can be recovered

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through sale of securities. As such, the Ordinance is substantially a civil statute and offences prescribed therein merely complement the civil rights to ensure their due protection. Some of the offences prescribed in Section 20 of the Ordinance overlap and at times, there is a thin line of difference between them. A particular act may fall into more than one of such offences which is to be ascertained in a particular case depending upon the nature and extent of the alleged act. The mere fact that a different mode of action is prescribed for the offence of ‘wilful default’ in comparison to all other offences calls for a comparative inter se analyses to explore the nature, extent and character of the offence of ‘wilful default’.

37.Section 20(6) of the Ordinance ordains that all offences under the Ordinance are exclusively triable by the Banking Court in accordance with Section 7 thereof. As far as offences stipulated in Sections 20(1) to (4) of the Ordinance are concerned, there is no ambiguity in terms of Section 7(1) thereof that only a Banking Court can take cognizance of these offences upon a complaint in writing made by a person authorized by a financial institution in respect of which the offence was committed. As such, all complaints falling within the ambit of Sections 20(1) to (4) of the Ordinance are initiated by filing a complaint directly before the Banking Court. A closer look at Sections 20(2) to (4) of the Ordinance reveals that prescribed punishment for commission of such offences is in terms of imprisonment for a specified term or with fine or with both, whereas, in case of offences falling in Section 20(1) of the Ordinance, the prescribed punishment is that of imprisonment of either description for a specified term and fine which may extend to the value of the property or security as decreed or the market value whichever is higher. As such, barring Section 20(1) of the Ordinance, the prescribed punishments in terms of fine are not linked with amount of default to be determined by the Banking Court. Further, such offences relate to different stages of pendency of a finance before or after passing of decree or at the stage of execution. All offences listed in Section 20(1) to (4) of the Ordinance are non-cognizable, bailable and compoundable. Therefore, in view of the exclusive jurisdiction vested with the Banking Court to take

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cognizance of such offences upon a direct complaint filed before it, the Banking Court can validly examine and interpret the prima facie existence of an offence in terms of its ingredients. The Banking Court, therefore, acts as a safety valve against unlawful victimization or coercion of any person and in the event the Banking Court finds that commission of an offence is dependent upon prior determination of civil liability in terms of default of any ‘obligation’ on the part of the customer before any person can be criminally prosecuted for an alleged offence, it can stay criminal proceedings till the conclusion of the civil proceedings. Hence, the Banking Court and the Superior Courts with respect to offences listed in Section 20(1) to (4) of the Ordinance have invariably adhered to jurisprudence that civil and criminal proceedings under Section 9 and 20 of the Ordinance being distinct and separate can proceed simultaneously with the caveat that if upon consideration of facts and circumstances of the case, an alleged offence is found dependent upon prior determination of default, the proceedings on the criminal side are postponed or stayed or quashed till conclusion of proceedings on the civil side. The approach was followed in Sheikh Muhammad Anwar, Muhammad Farooq and Messrs S.Q. Corporation cases (supra)

38.Can the above stated jurisprudence be employed regarding the offence of ‘wilful default’ when importantly, Section 20(2) of the Ordinance criminalizes an act qua diversion of finance for a purpose other than that for which it was obtained which is strikingly similar to Section 2(g)(ii) of the Ordinance and unlawful removal or transfer or sale of securities which constitutes the substance of Section 2(g)(iii) of the Ordinance is broadly covered under Sections 20(1)(a) to (d) thereof.

39.This makes us ponder as to what is the true intent, purpose or object of the legislature to specifically add definition of ‘willful default’ in Section 2(g), substitute Section 20(6) and insert Sections 20(7) to (9) of the Ordinance through the Act, 2016. The conjunctive overview of the said provisions in terms of the scheme of the Ordinance explicitly points out striking and conspicuously distinct features of the offence of ‘willful default’. The offence is cognizable, non-bailable and non-compoundable.

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Complaints regarding ‘wilful default’ in terms of proviso to Section 7(1)(b) of the Ordinance are not filed directly before the Banking Court but before the FIA under Section 20(7) of the Ordinance read with Rule 5 of the Rules, 2018 subject to the condition that a thirty days’ notice has been served upon the borrower demanding payment of finance. The reason is obvious. Section 7(1) of the Ordinance opens with the phrase ‘subject to the provisions of the Ordinance’ and Section 20(7) thereof begins with non-obstante clause, ‘notwithstanding anything to the contrary provided in any other law for the time being in force’, which makes it undoubtedly clear that Section 20(7) of the Ordinance shall prevail. Thus, a financial institution is allowed to bring a direct complaint before the FIA apparently bypassing the forum of the Banking Court in terms of proviso to Section 7(1)(b) of the Ordinance until a challan is submitted to the Banking Court for trial for the offence of ‘willful default’, thus enabling the FIA to take cognizance of the offence of ‘willful default’. However, escaping the forum of the Banking Court is merely illusionary as we cannot lose sight of the prerequisite described in Section 20(7) of the Ordinance requiring the financial institution to serve thirty days’ notice upon the borrower demanding payment of finance. Naturally, the demand of payment of finance is not based on ‘default simpliciter’ but due to ‘wilful default’ which postulates that prior determination of default and that the same is deliberate or intentional essentially requires determination by the Banking Court without which demand for such payment would remain contested, unilateral and inadmissible inviting premature criminal prosecution.

40.Another important aspect of the matter is that punishment for the offence of ‘willful default’ in terms of Sections 2(g)(i)(ii) & (iii) of the Ordinance is prescribed in Section 20(8) of the Ordinance which proclaims that offence of ‘willful default’ is punishable with imprisonment which may extend to seven years or fine not exceeding the amount of default or with both. Certainly, when the amount of default remains inconclusive, no punishment can be inflicted by the Banking Court and as such, initiation of prosecution before finally adjudicating the quantum of default remains

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illusionary. In case titled “Directorate of Intelligence and Investigation-FBR, through Director and others v. Taj International (Pvt.) Ltd. and others” (PLD 2025 Supreme Court 633), the scheme of law encapsulated in another special law i.e. the Sales Tax Act, 1990 (the “Sales Tax Act”) was analysed and deliberated upon in detail by the Supreme Court of Pakistan with reference to the tax liability created thereunder vis-à-vis the power to arrest and prosecute any person who has committed tax fraud or any offence warranting prosecution pursuant to Section 37A of the Sales Tax Act. The Supreme Court held as follows:- ..........13. Perusal of the provisions of Section 33 of the Act reveal that criminal penalties are linked with the “tax loss” or “amount of tax involved and tax due”. Therefore, instead of providing for imprisonment or fine (ordinarily a certain sum of money) or both as punishment, the “fine under the Act requires the taxpayer to pay the “tax loss" or "amount of tax involved and tax due," thereby indirectly criminalizing, the recovery of "tax due." Careful review of the penalties as provided hereinabove, clearly shows that the measure of sentence is linked with the "amount or loss of tax involved and tax due", and prima facie, cannot be imposed unless there is some determination or duly assessed tax liability of sales tax due through the processes of assessment for adjudication as per law. In fact, the above linkage, uses the tool of imposition of penalty as a mode of recovery of tax. Hence, criminalization under the Act goes beyond the pale of retribution and deterrence and appears to be principally focused on recovery of tax. The said linkage between "fine" and the "amount of tax due" is missing. If we may examine the criminal provisions under the other tax laws i.e. Income Tax Ordinance, 2001, in Part XI of Chapter X of the said Ordinance, it provides for criminal prosecution under Sections 191 to 200, which simply provide for imposition of "fine" but does not link it with the "tax loss or amount of tax" (except for compounding the offence under Section 202). In the case of Federal Excise Act, 2005, such a linkage is visible, however, it has been pointed out that no criminal proceedings can be initiated under the said law without prior assessment of tax. It reflects upon the clear intent of the legislature that primarily tax liability is a civil liability to be determined through process of Assessment or adjudication as per law, whereas, in case of willful default, miscalculation, concealment or fraud, penal provisions can be invoked to ensure tax compliance, recovery of tax and payment of additional amount of tax and/or penalty. It, therefore, appears that criminalization under the Act while invoking the provisions of Section 37A, without recourse to the assessment proceedings, is being treated differently as compared with other tax laws, which is not only against the scope and application of taxing provisions of the Act but also,

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violates the settled principles of fairness and fair trial as guaranteed under Article 10-A of the Constitution of Islamic Republic of Pakistan, 1973. Imposition of additional tax, default surcharge, penalty or fine etc. depends upon peculiar facts of each case whereas, such penal provisions are only attracted once the Revenue Authorities can establish that the default in payment of tax was willful and there was element of mens-rea on the part of tax payer, while not making payment of such amount of tax due........

......... 18. Perusal of Section 37A shows that if such provisions are allowed to be invoked independently without any reference to the other relevant provisions of the Sales Tax Act, 1990, including Section 2(37) “tax fraud”, Section 11 “Assessment of tax” and Section 33 “Offences and Penalties”, the same would be in violation of the substantive provisions relating to charge of sales tax and assessment of sales tax, as it would give unbridled powers to officials of sales tax to initiate criminal prosecution against a registered person or any person within the supply chain, including registration of FIR and arrest, even without creating a lawful demand under the law. If such an interpretation is made in respect of the provisions of Section 37A, the same would make the aforesaid provisions of the Act as redundant, whereas redundancy cannot be attributed to legislation......

.......22. In view of hereinabove facts and circumstances of the aforesaid cases, we have no hesitation to conclude that without investigative audit or issuance of show cause notice or providing opportunity to explain the matters, registration of FIR, initiation of criminal proceeding and arrest of registered person is without jurisdiction and lawful authority. We further hold that criminal prosecution follows adjudication and assessment of tax under Section 11 of the Act, therefore, pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayer is determined in accordance with law.”

41.It is pertinent to mention that Section 20(9) of the Ordinance in addition to the punishment of ‘wilful default’ under Section 20(8) of the Ordinance provides that a person convicted for an offence of ‘willful default’ by a Banking Court shall not be eligible to receive any finance for a period of ten years and shall not be permitted to contest any election as a member of the Parliament or Provincial Assembly or a local body for a period of five years after serving out sentence after conviction. The stipulation of this additional embargo or penalty clearly demonstrates that ‘willful default’ in terms of its constituting elements in contrast to simple default is a stringent and special offence and distinguishable to all other

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offences under Section 20 of the Ordinance. It relates to deliberate or intentional non-payment of the defaulted amount and its purpose extends beyond protection of availed finance and securities. It is recognized as an offence against the society with the object to protect public funds as well as that of the financial institutions by restricting access of a willful defaulter to further financing for a specific period of time and holding such a person disqualified to hold public office. Hence, the act of ‘willful default’ in terms of Section 2(g) of the Ordinance requires stringent prior scrutiny by the Banking Court before a person can be prosecuted for the said offence.

42.There is no cavil to the proposition that special laws are required to be interpreted in terms of the scheme of law encapsulated therein with respect to their purpose, intent and objective. Syed Mushahid Shah case (supra) thoroughly deliberated the contours and facets of the provisions of the Ordinance with reference to peculiar nature of banking transactions which is the subject matter of the Ordinance. The principles enunciated therein holding exclusivity of the Banking Court in determining mutual rights and obligations between a customer and a financial institution in civil proceedings under the Ordinance as well as exclusive jurisdiction to try all offences by the Banking Court remain valid and need not be reiterated. It is also well entrenched in our jurisprudence that special laws which essentially deal with civil matters but also tend to create offences for certain acts that are dependent upon prior determination of civil rights and liabilities require that prosecution for such offences is not initiated until civil rights are conclusively determined as reiterated in Taj International case (supra). Hence, with utmost respect, we disagree with Mian Ayaz Anwar case (supra) to the extent that Sections 2(g)(ii) & (iii) of the Ordinance do not require prior determination of amount due for the reason that due to lack of assistance rendered to the learned Bench, civil dimensions of ‘willful default’ in terms of Section 9(1) of the Ordinance, distinguishing features of offences under Sections 20(1) to (4) of the Ordinance vis-à-vis the peculiar offence of ‘willful default’ under Section 20(7) of the Ordinance and its punishment being dependent upon determination of quantum of default

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could not be considered and deliberated in the light of pronouncements of the Superior Courts including Syed Mushahid Shah case (supra) and Taj International case (supra) which upheld the Judgment of this Court rendered on 19.09.2013. For reasons stated in this Judgment, we also do not agree with the divergent approach adopted in other case law cited in the earlier part of this Judgment to the effect that criminal prosecution may commence but can be stayed till conclusion of civil proceedings in case the prior determination of the latter is necessary to proceed with criminal prosecution. Such an interpretation would render substantial provisions of the Ordinance as redundant regarding determination of contractual civil rights and duties between a customer and a financial institution and recovery of defaulted amounts through enforcement or sale of securities through multiple civil remedies available under the Ordinance including execution while redundancy cannot be attributed to the provisions of the statute or to the legislature. This would expose the accused persons who may not even be customers in terms of the Ordinance to the rigours of criminal prosecution without determination of the factum of ‘willful default’ on the part of customer in the light of executed finance and security documents. It will cloth the financial institutions with an unfettered, unilateral, discriminatory and coercive tool to effect recovery of undetermined defaulted amounts through criminal prosecution leading to registration of FIR and arrest of accused persons, thereby, converting a predominant civil statute into a criminal law statute by effectively ousting the jurisdiction of the Banking Court until a challan is submitted before it for trial. Needless to emphasize that rights of a customer or a person granted by the Ordinance are constitutionally protected and acknowledged under Articles 4, 9, 10, 10-A, 14, 23, 24 and 25 of the Constitution which ineluctably provide for protection and due application of law in order to preserve life, liberty, reputation or property of a person. The Constitution provides safeguards against unlawful arrest and prosecution, accords right of fair trial, recognizes dignity of a person, ordains protection of property rights and guarantees due process to every citizen. Therefore, permitting criminal prosecution for the

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offence of ‘willful default’ by FIA without prior determination by the Banking Court offends the express mandate, scope and purpose of the Ordinance and violates the constitutional command of due process.

43.To conclude, we hold that ‘willful default’ as defined in Section 2(g)(i)(ii) & (iii) of the Ordinance as a whole including all of its constituent components, is a distinct specie of default simpliciter in terms of breach of ‘obligations’ and thus, requires prior determination by the Banking Court under Section 9(1) of the Ordinance before criminal prosecution of ‘willful default’ as an offence can be initiated before the FIA under Section 20(7) of the Ordinance read with Rule 5 of the Rules, 2018.

44.The facts of the titled and connected Petitions listed earlier establish that the financial institutions filed direct complaints before the FIA without prior determination of civil liability of ‘willful default’ by the Banking Court. Hence, the financial institutions unlawfully initiated criminal prosecution under Section 2(g) read with Section 20(7) of the Ordinance and Rule 5 of the Rules, 2018. As such, the assumption of jurisdiction and issuance of notices under Section 160 of the Cr.P.C. by the FIA are without jurisdiction, unlawful and of no legal effect.

45.In view of the above, the titled and connected Petitions are allowed and the impugned notices are set aside.

(Jawad Hassan) (Abid Hussain Chattha) Judge Judge

Approved for Reporting.

Judge Judge

Announced in Open Court on 28.10.2026

Judge Judge *Abu Bakker*