Direct sale of mortgaged property: courts barred to grant stay against banks'' right

The Sindh High Court has imposed restrictions on courts'' powers to grant any stay against financial institutions'' right to directly sell mortgaged property of their customers upon default. While the legislature, under Section 15 of the Recoveries Ordinance 2001, gave lenders the right to directly sell mortgaged properties of their customers upon default.
And to do so, without intervention of court and to apply the sale proceeds to settle the liabilities of their customers, in practice the customers had a tendency to block any sale by banks by obtaining stays from banking courts.
Announcing the judgement, Justice Khilji Arif Hussain on Wednesday observed that the courts should pay heed to the legislative intention, which in this case was quite clear in allowing banks to sell mortgaged property of their customers.
Section 15(12) of the Ordinance provides that no court shall grant stay against any proposed sale by banks except when the customer either satisfies the court that the bank is not holding any mortgage over his properties or that he has settled all liabilities of the bank.
The Honourable Court stated that this provision is ''mandatory'' and stated that no stay may be granted unless the customer satisfies the strict conditions as laid down in Section 15(12).
The judgement is quite important for all financial institutions, as from now onwards, whenever a customer defaults, the financial institution need not to wait for filing of recovery suit but can simply sell the mortgaged property and apply the sale proceeds to settle the customers'' liability. The Honourable Court also observed that in using these powers, the banks must act in good faith and not use this power unnecessarily.
The judgement is a breakthrough for banks which, because of frequent stays being granted by courts, no longer thought of their powers of direct sale as a practical option. The judgement now binds all the courts in the province of Sindh, including the Honourable Sindh High Court itself. Advocate Nadeem Ahmed of Ahmed and Qazi Associates argued the case on behalf of KASB Bank.