The apex court on Tuesday focused on the legality and constitutionality of SBP Circular 29 and 31, which were issued to empower banks to write-off loans from 2002 to 2003, but the Circulars are still in vogue. A three-member bench comprising Chief Justice Iftikhar Muhammad Chaudhry, Justice Muhammad Sair Ali and Justice Ghulam Rabbani resumed the hearing of a suo moto case pertaining to Rs 256 billion written-off loans by commercial banks from 1971 to 2009.
Allied Bank counsel, Dr Pervaiz Hassan contended that Circular 29 has in-built safeguards for transparency, accountability and recoverability adding that the circular was neither discriminatory nor issued for specific borrowers. He maintained that circular was designed in accordance with global regional and national practice under the notion that the written-off loans could be useful in the economic development of the country.
In the course of hearing the bench questioned from where the authority was drawn to write-off the loans adding that was there any constitutional backing to the circular 29.
The bench also observed that political consideration also played role to write off loans. Dr Hassan told the bench the concept behind introducing circular 29 was not flawed though there might be some problems in its implementation. He maintained the power to write off loans was an inherent power of all banks under Section 196 of the Banking and Companies Act 1984.
He further contended that circular 29 only sought to regulate unfettered powers under Section 196. Dr Hassan pleaded that loans in question may be examined by the commission proposed to identify written off loans particular on political basis. The hearing was adjourned till today (Wednesday).