Sale of mortgaged properties: Banks not required to obtain decrees, rules LHC

The Lahore High Court Tuesday ruled that banks and financial institutions are not required to obtain a decree to sell mortgaged properties to recover defaulted loans.

The court announced a majority judgment on a set of petitions regarding recovery of loans under Finance Institutions (Recovery of Finances) Ordinance 2001, and sustained Section 15 of the Ordinance which allows financial institutions to sell mortgaged property for recovery of a defaulted loan after fulfilling certain rules.

Chief Justice Mamoon Rashid Sheikh headed the larger bench with Justice Shahid Waheed, Justice Abid Aziz Sheikh, Justice Jawad Hassan and Justice Asim Hafeez. Justice Abid Aziz Sheikh dissented from the major view.

A single bench in 2016 had suspended Section 15 of the Ordinance as it was argued on behalf of the petitioners that the section had been reintroduced through Financial Institutions (Recovery of Finances) Amendment Act 2016 and was not sustainable in light of Supreme Court's judgments.

Prime Minister Imran Khan during July 2019 at a ceremony of "Naya Pakistan Housing Scheme" had referred to the matter and requested the then chief justice for early disposal of the petitions.

During a previous hearing, a law officer had urged the court to recall the stay order as the government had been facing huge loss in terms of no recovery of defaulted loans worth billions of rupees. He said it happened nowhere in the world that people refused to return loans.

He argued that the financial institutions should be allowed to auction the mortgaged properties to recover the defaulted loans. The lawyers from the petitioners' side had argued that the mortgaged properties could not be put to auction without evaluation of the property and calculation of payable amount. They said the section 15 of the ordinance was contrary to various provisions of the Constitution.